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Shorting Economists: The ‘Experts’ Keep Getting it Wrong

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Posted on Aug 19, 2010
AP / Mark Lennihan

By Steven Hill

That modern-day guild known as “economists” has been on a self-righteous rampage lately. This latest rash of finger-wagging was kicked off by the Greek debt crisis. Looking at tiny Greece, these economic Cassandras foresee a menacing future for the entire global economy if President Barack Obama and Europe don’t rein in their budget deficits.

Of course, dramatic tales of impending collapse are good for the economics business. Gloom and doom sell magazines and get you on talk shows. But it is not obvious to me why anyone should take seriously most of the people calling themselves economists. After all, the vast majority of these same “experts,” despite spending millions on research and analysis, completely missed an $8 trillion housing bubble in the United States, as well as housing bubbles in the U.K., Spain and Ireland.

But that was not the only time the economics profession has been so wrong. Remember in the early 1990s, when in the wake of a recession economists predicted that Japan’s surging, export-driven economy would eat America’s lunch and the U.S. was looking at huge government deficits for years to come? Indeed, “deficit obsession” gave Ross Perot his political rise in the 1992 presidential election. Yet by the end of the decade the U.S. budget showed a sizable surplus.

Reflecting the economics profession’s schizophrenia, by the end of the 1990s the experts, led by Nobel Prize winner Paul Krugman, did an about-face and concluded that instead Japan was an economic basket case. They pontificated about Japan’s “lost decade” and even gave a name to its malaise—“Japan syndrome”—sounding like a disease to warn policymakers, as in “you don’t want to end up like Japan.” Yet Japan had an unemployment rate of a mere 3 percent (less than half the U.S. unemployment), health care for all its people, one of the lowest rates of inequality, high life expectancy, and low rates of crime and incarceration. Americans should be so lucky as to experience a Japanese-style lost decade. But the experts chose to emphasize the wrong measuring sticks, seeing the glass as half-empty rather than half-full.


The experts also warned in the early 1990s that the German economy was “slumped at the razor’s edge,” spouting dire predictions of unemployment, taxes and crime rising to “a level not seen since the Weimar Republic,” reported the International Herald Tribune. Yet by the end of the decade a prospering Germany was the world’s leading exporter.

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Not content with being wrong throughout the 1990s, during the 2000s more voodoo economists likened Europe’s economy to that of a “sick, sclerotic old man,” until—surprise, surprise—it was discovered that Europe actually had surpassed the U.S., creating more jobs, higher per capita growth and higher productivity (which lasted until the 2008 collapse).


And how about the experts who still can’t tell us how the Dow plunged a thousand points within minutes on May 7, 2010, in a frenzy of computer trading gone wild. Or the experts who never suspected that the rating agencies, like Moody’s and Standard and Poor’s, were selling their AAA ratings to Goldman Sachs and others for investment derivative bombs that they knew were designed to detonate. Now those same rating agencies have been downgrading Greece, Portugal and Spain, sending them into speculative play. Why does anyone listen to these ratings agencies anymore?


Lately the economic experts also tell us that bubble-plagued, smog-choked, poverty-ridden and authoritarian China is the next economic superpower that will overtake both the United States and Europe. So much for crystal-ball gazing.


Why have economists been so wrong so often? Certainly theirs is a tough job, since the global economy is a complex creature. Yet it turns out that their measuring sticks are woefully inadequate. Indeed, they aren’t even sure what to measure. BusinessWeek’s Michael Mandel, a humbled economist, admitted recently that methodological defects lead us to incorrectly measure certain parts of the economy, including exports/imports and labor productivity. Columnist Martin Wolf from the Financial Times told me that our understanding of how the financial system works is at least 10 years behind reality. Lenny Mendonca, an executive of the business consultancy the McKinsey Global Institute, says that “anyone who tells you we understand what’s going on with the economy, or that we know how to measure it, is lying. Uncertainty is the new norm.”


But if we don’t know how or what to measure, then how come so many economists sound so damn sure of themselves? Lacking any shred of humility, most economists are obsessed with a narrow selection of overused indicators and ideologically preferred measuring sticks, like “economic growth” and “gross domestic product” (GDP). Yet GDP is a perverse abacus that can only add, never subtract. Massive oil spill in the Gulf of Mexico? No problem, the cleanup will add BILLIONS to GDP! And “growth” has become a fundamentalist orthodoxy; that’s why its proponents love China so much and sneer at Japan and Europe. To many awestruck pundits, China is the new frontier where financial prospectors and get-rich-quick investors go panning for gold.


But if you point out that Japan and Europe actually do a far better job than China of providing for their people, they will revert to their talking points: “Have you seen China’s growth rates? There’s gold in those China hills!” The echo chamber drowns out most voices of common sense. To counter this stultifying narrative, Nobel Prize economists Joseph Stiglitz and Amartya Sen are working with French President Nicolas Sarkozy to propose alternative measurements for assessing the health of an economy.


Based on such a miserable track record, I’m shorting economists and financial experts of all stripes. Most of them are wrong more than they are right. But that doesn’t prevent them from pontificating like an order of self-righteous priests. Considering how much damage they have caused, how many economic experts have lost their jobs or been otherwise defrocked? Indeed, many of the same people who caused the disaster—Fed chief Ben Bernanke, Lawrence Summers and Robert Rubin, the latter two being Clinton treasury secretaries who got deregulation done, then split for Harvard and Citigroup, respectively—are still calling the shots. Summers, of course, is President Obama’s top economic adviser. Their economic priesthood protects its own, no matter how offending they have been, relocating them to another university or think tank, another government job or talking-head show.


So when the authorities say “a recovery is under way” or “stimulus rather than deficit reduction” or “deficit reduction instead of stimulus,” remember: These are the same experts who are unsure of how to measure, who too often substitute ideology and partisanship for broken theory, and usually have been flat wrong in their assessments. It is critically important that we find better measuring sticks and employ saner values for assessing what a successful economy looks like. Until then, we are flying in uncharted territory, without compass or radar, surrounded by fog. Heaven help us.

Steven Hill is author of the recently published “Europe’s Promise: Why the European Way Is the Best Hope in an Insecure Age.”


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By Inherit The Wind, August 24, 2010 at 8:30 am Link to this comment

The Reichsmark, which replaced the Rentenmark, and was legal tender, was pegged to gold.
********************

OK, I missed that one—it’s not clearly written.


So…What IS the American School? Do you know? What categorizes it? How is it different than the Austrian School?

Glad you see fit to defend Pinochet.  And Mussolini made the trains run on time.

You’ve managed to dodge EVERY point I made, leading me to believe you are a self-taught “economist” and don’t really understand the underlying theory.

You’ve missed repeatedly where I’ve stated that “Keynesian” is a mis-nomer used to imply “Tax-and-Spend” Dems (and Socialists) and totally misunderstands the “General Theory”.

I know full well what the Libertarian party started as, and what it’s become.  Originally it was based on Rand’s work, sort of “Objectivism for Dummies”.  It has since devolved solely into an anti-Government wing of the Right-wing movement toward a fascist state, with Libertarians providing cover. Ron Paul is the FIRST to actively defend Constitutional liberties beyond “Freedom to Profit, No Matter Who and What It Harms”.  And Paul only did that recently, while his son, Rand, is drumming up typical tea-bagger fears and racism.

Rand herself had a basic misunderstanding of the value of gold.

For all your efforts to show how much you understand economics, it’s clear that even a macro-inept like me has no problem tripping you up.

BTW, Hayek’s major work came before and during the Great Depression, showing he was tone-deaf to what was going on around him.

BTW, I’m NOT a Socialist, nor have any sympathy for Socialism.  I believe that Capitalism MUST be controlled to prevent harm to people.
I work in the clinical research industry.  Even WITH drug-testing people get hurt, and fast-tracking made that worse.

I see a market where every major pharma wants a Viagra-clone (the legendary aphrodisiac) but none want to develop new anti-biotics to combat the new and deadly resistant strains.  Not enough money in it.  How is this good for America and the world.  I see firms that won’t provide HIV/AIDS drugs to the 3rd World or license them, willing to let millions die if they can’t pay for them whatever the Pharmas want.  I see medical marijuana fought BITTERLY by the big pharmas because it’s far, far cheaper than THEIR insanely expensive anti-nausea meds.

I see companies that dump waste in public rivers even when they are forced to stop. By what right does a company upstream get to poison MY drinking water?

Yet the Libertarians would defend all that and tell me it’s MY fault I’m stuck with poisoned drinking water.

So, for all the theories of de-reg, they do no good when some bozo wants to dump PCB-poisoned dirt by the roadside, creating wastelands for the rest of us.

If capitalism can function like all freedom, without impinging on me, as an ordinary person, I’m all for it. But when it can’t it needs controls on it. 

Crooks come in all flavors, and many of them run businesses, legally, but not ethically.

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By Fat Freddy, August 24, 2010 at 6:41 am Link to this comment

The Rentenmark was NOT pegged to gold but backed by the value of the land. It also WAS a legal currency that replaced the Reichsmark

Wrong, wrong, wrong:

http://en.wikipedia.org/wiki/German_Rentenmark

Dude, you’re losing it. I never said the Rentenmark was pegged to gold. I said it was not legal tender. But hey, Wiki could be wrong, right?

The Rentenmark replaced the Papiermark, not the Reichsmark, as you claim.

Good night, Gracie.

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By Fat Freddy, August 24, 2010 at 6:22 am Link to this comment

Ahhh, here we go. The Mises Institute is in Alabama, so it must be a cover for racist, Christian Fundamentalists, and all that other bullshit that goes along with the “South”, according to intellectuals. The Mises Institute is at Auburn University, not Oral Roberts U. If you don’t like the Mises Institute because it is in Auburn, Alabama, perhaps you should look at the Foundation for Economic Education, in Irvington, New York, that was established in 1946.

But hey, we’re all Keynesians, since 1971, right? Hmmm. The Libertarian Party was founded in 1971. Coincidence? What happened in 1971? It seems Nixon closed the gold window and shortly thereafter enacted price controls which led to…..shortages. Why the price controls? Because OPEC didn’t like money not backed by gold, and refused to sell in dollars. Nixon shock, oil shock, call it want you want, but that nation LBJ talked about was more important. So was the War.

Yes, I know, you, like many liberals believe that Libertarians simply want to protect the rich. So who actually benefits the most from our current system? Who has benefited the most since 1971? Sure, blame it on Libertarians. We are such a strong political force in the US. We control everything. Perhaps you need to take a long look at FDR and LBJ, before condemning Libertarians. those two did more to hurt the economy than any other people in our history. Except maybe John Rockefeller and JP Morgan. But wait. Wasn’t it those two who designed the blueprint for the Federal Reserve System? I’m sure they did it to help the poor, so did Nixon.

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By Fat Freddy, August 24, 2010 at 5:44 am Link to this comment

ITW,

Funny you should mention Pinochet. I was just reading a great article on the retirement plan he implemented, which is still in use today. Go figure.

http://www.zerohedge.com/article/guest-post-social-security-and-how-dictator-pinochet-would-have-fixed-american-system

Of course, the Chilean system relies heavily on real regulation, with real enforcement. We have neither in this country.


But anything that was enacted by a ruthless dictator has got to be evil, right? Try again.

Remember, form follows function. The function of government comes first. The form of that government is secondary.

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By Fat Freddy, August 24, 2010 at 5:33 am Link to this comment

Of course they got the opposite.  Sounds familiar, doesn’t it?

No, I think “we” got exactly what “we” wanted. A war monger. Besides, it’s cyclical. Nixon created most of the problems. We went to Carter, who didn’t immediately solve the problems, so we went to Reagan. Which is why, the next President will be either Palin, or Romney.

People don’t realize that the President is more or less a figure head. The real decisions are not made by the President, but the people behind the scenes that control the money supply - the Federal Reserve and the banking cartel. Even if someone like Ron Paul or Ralph Nader were elected, they wouldn’t be able to change a damned thing. That’s why I’m almost wishing for the dollar to crash. I think instead of “Tea Parties”, we should have “Dollar Burning Parties”. If the Fed continues to recklessly inflate the money supply, it is our duty to deflate it.

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By Inherit The Wind, August 24, 2010 at 5:27 am Link to this comment

While you are busy tossing out names like Ludwig Van Mises and Friedrich Hayek, plus the Austrian School of Economics, I wonder if you actually know what these are all about.

For example, can you tell me the difference between the Austrian and American Schools of Economics?  (You can’t waffle on this—the difference is vast)  Were Milton Friedman, Paul Samuelson or Keynes “American” or “Austrian”?

BTW, did you know that Hayek endorsed Pinochet’s brutal regime in Chile, preferring it to the ELECTED Socialist government of Allende?  He predicted that it would transition to an open society, but perhaps not the way he thought.

Most importantly, are you aware that Mises and Hayek mainly differed from Keynes in their choices of preferred tools, and that Friedman (whom you claim NOT to follow) attributed most of “Free to Choose” to Hayek’s work?

From what little I can tell it looks like the “Mises Institute”, in Alabama, is just another reactionary think tank sheathing itself in the label “Libertarian”. It is critical of democracy, and ALL government actions as “destructive”.

Of course, the question is: Destructive to who? And it looks like the same billionaires that Karl Rove is courting who funded Swift Boats et al.

That they can disparage the work of Walras is staggering.  The whole mathematical model of Microeconomics (Micro, not Macro) is Walras’, refined into elegance by Pareto. I’ve never seen ANYTHING outside of the American School that can challenge it.  Only Becker’s use of econometrics to drop the assumption of rationality comes close.

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By Inherit The Wind, August 24, 2010 at 5:06 am Link to this comment

The Rentenmark was NOT pegged to gold but backed by the value of the land. It also WAS a legal currency that replaced the Reichsmark

I’m not going to discuss with you if you insist on using false facts.

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By Fat Freddy, August 24, 2010 at 4:51 am Link to this comment

ITW

The Rentenmark was only an intermediate currency and was not legal tender.

DNA. Fiat currencies are legal tender.

The Reichsmark, which replaced the Rentenmark, and was legal tender, was pegged to gold.

Try again.

Most of the history of the US has seen the dollar pegged to gold. Lincoln took us off the gold standard to fund the Civil War. FDR took us off gold, and confiscated all of the gold in the country, to fight WWII. Nixon took us off gold to fund the Vietnam War. The first two times, the dollar was reestablished to a gold standard shortly after the end of the wars.

At this point, I’d be willing to accept either a return to a gold standard, or an end to fractional reserve banking. We can not have both for any sustained period of time. Otherwise, you get this:

http://en.wikipedia.org/wiki/File:Components_of_the_United_States_money_supply2.svg

“Not worth a Continental”, ring any bells?

By the end of 1778, Continentals retained from 1/5 to 1/7 of their face value. By 1780, the bills were worth 1/40th of face value. Congress attempted to reform the currency by removing the old bills from circulation and issuing new ones, without success. By May 1781, Continentals had become so worthless that they ceased to circulate as money. Franklin noted that the depreciation of the currency had, in effect, acted as a tax to pay for the war.[16]  In the 1790s, after the ratification of the United States Constitution, Continentals could be exchanged for treasury bonds at 1% of face value.

What replaced the Continental? Gold.

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By Fat Freddy, August 24, 2010 at 4:21 am Link to this comment

Inherit The Wind

What makes you think I support Friedman’s monetarist policies? I’ve been quoting Hayek, and linking to Mises. You do know the difference between Friedman and Hayek/Mises (ABCT)?

http://en.wikipedia.org/wiki/Austrian_business_cycle_theory

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By jimch, August 23, 2010 at 7:33 pm Link to this comment

It makes no difference which economist attempts to predict or forecast how the systems of the future ought to operate, they are issuing an exercise an futility. There are not now, never were, never will be a reliable chrystal ball. Nostradamus did about as well with his prophecies.

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By Inherit The Wind, August 23, 2010 at 12:19 pm Link to this comment

No need to wait: The Rentenmark.

Why do you spit when you quote Keynes?  John Maynard Keynes laid out the modern concepts of macro-economics in the General Theory and has been mis-interpreted ever since.  Milton Friedman built his monetarist principles and ideas on Keynes’ work.

Keynes fully recognize monetary tools as well as fiscal tools.  But idiotic labeling has tagged his work as nothing more than tax-and-spend, and it’s nothing of the sort.

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By Didi, August 23, 2010 at 10:09 am Link to this comment
(Unregistered commenter)

This is one of the finest, thought-provoking articles I have read in a long time. Bravo Steven Hill!

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By SteveL, August 23, 2010 at 10:09 am Link to this comment

Both parties use economists that practice politics more than economics, which
makes for a nasty result.  Things will never straighten out as long as this goes on.

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By Anarcissie, August 23, 2010 at 9:29 am Link to this comment

I mean they got Reagan, politically, and by Reagan I don’t mean the person or the administration but the movement, the myth.  For the folk, Reagan-the-movement was a voters’ rejection of everything the ruling class had built up and patched out since Teddy Roosevelt.  They voted for hope and change—‘A new morning in America’ was the slogan.  Dangerous stuff.  Of course they got the opposite.  Sounds familiar, doesn’t it?

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By Fat Freddy, August 23, 2010 at 4:19 am Link to this comment

Anarcissie,

Last time they allowed heavy-duty inflation to rip they got Reagan Paul Volker.

Thanks to Jimmy Carter. Carter also started the process to break up AT&T, and end the ICC.

Carter was a “deregulator” and an inflation hawk?

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By Fat Freddy, August 23, 2010 at 4:09 am Link to this comment

ITW,

“Fiat money” is not a “buzzword”.

“Fiat Money is Representative (or token) Money (i.e something the intrinsic value of the material substance of which is divorced from its monetary face value) - now generally made of paper except in the case of small denominations - which is created and issued by the State, but is not convertible by law into anything other than itself, and has no fixed value in terms of an objective standard.”

- John Maynard Keynes

Did I just quote Keynes? See what you made me do.
Bah!

OK. Now that the bad taste is out of mouth… for the third time, I understand that gold is not perfect.

So, answer my question. Why not remove legal tender laws, and let the market decide what is and what isn’t “money”?

You want history? Show me any fiat money, in history, that hasn’t “crashed”. I’ll wait.

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By Anarcissie, August 22, 2010 at 6:23 pm Link to this comment

Fans of inflation, such as Krugman, like inflation because it gives the government more power.  They’re scared of it, though.  Last time they allowed heavy-duty inflation to rip they got Reagan.  Everyone likes Reagan now that he’s dead, but back in the day he was considered scary.  And next time it could be a lot worse.  We already have allegedly respectable politicians going around trying to stir up racial and religious trouble.

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By Inherit The Wind, August 22, 2010 at 6:07 pm Link to this comment

Are you arguing that what we have now, money backed by absolutely nothing, is better than a money pegged to a commodity? How about a “basket” of commodities? Attacking the position of gold as a monetary unit alone, does not support the position of fiat money. If you wish to defend fiat money, please do.
********************

I am NOT defending “fiat money”.  That’s a buzz word for gold advocates and means NOTHING.  As for the “market basket”, well, a study of history (Why do I keep saying “study history”?) shows that the German hyper-inflation of 1923 was stopped by the creation of a new currency, based on the value of land, the Rentenmark.  It didn’t actually MEAN anything, but the German people thought it did and it gave them confidence in their money again—and confidence is far more substantial to the value of money than anything else.

Money is a way of compacting work or goods into a common universally recognized method of valuation—a melting pot to compare apple production’s costs and values to that of psychiatrists, to that of jazz musicians, to that of carpenters, short order cooks and lawyers.  When it’s paper money, it’s a contract.

You object to the makers of the money loading the dice to achieve policy ends.  Fair enough. Me too, mostly.

But don’t be fooled into thinking that gold (or any other numeraire) can’t be tampered with. It has, for centuries.  Rulers have mixed the gold with lead and then claimed: A crown is a crown.  They’ve made their crowns small, and lighter, but insisted they were STILL “a Crown”. It’s called debased the money and it can EASILY be done today.

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By Fat Freddy, August 22, 2010 at 5:37 pm Link to this comment

I am not saying gold is perfect. I am saying it would be much better than what we have now. Are you arguing that what we have now, money backed by absolutely nothing, is better than a money pegged to a commodity? How about a “basket” of commodities? Attacking the position of gold as a monetary unit alone, does not support the position of fiat money. If you wish to defend fiat money, please do. Perhaps we should just eliminate legal tender laws and allow the market to decide. Or we could just go back to a barter system. The markets are not perfect, but they do tend to work themselves out over time. The government is far from perfect, and does not work itself out over time. It only gets bigger, more controlling, more coercive, and less responsive to the needs of individuals.

The fact of the matter is, gold has held its value, and purchasing power, far better than the dollar over the past 39 years. For 39 years, the dollar has not been pegged to gold. Are we better off? Andrew Jackson said that gold was the money of “the people”. He was right. It can not be manipulated by the government or the banks. Although, there is evidence that JP Morgan has been manipulating the silver market, and the “paper” gold market is leveraged at about 100:1. Imagine that. Fractional reserve gold. What will they think of next?

The government should not be able to control the price of money, anymore than they should be allowed to control the price of wheat. But agricultural subsidies is another topic.

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By Inherit The Wind, August 22, 2010 at 4:12 pm Link to this comment

FF:

I’m not sure WHY bullion coins command different premiums.  All are uncirculated, and only the “condition rarity” really goes beyond that.  And THAT is only interesting when you hit “super grades”—anything from MS-66 to MS-70 (or PF-66 to PF-70)

As for the chair, I can only guess, because coin traders are the same way.  Around 1980 or so, a modern violin maker who was also a scientist, discovered the secret of the Strad sound and began producing strings of phenomenal quality…equal to Strads and Amatis.  But could they command a Strad’s price? Of course not!

The 200 year old chair had a 200 year old finish on it, laid down by a guy who had probably seen the Constitution enacted…It had HIS hands on it, and that is irreplaceable. He’ll never make another chair. Good as you are, I KNOW there are lots of people who can currently do what you do, not that it isn’t a real craft or really hard—I know it is.

Gold is no more a real value than wheat or anything else.  A gold standard is a will-o-wisp—you chase ti thinking it will give economic security but if you catch it, you’ll find it won’t. Gold is merely a numeraire, and has no fixed value of its own.  In fact, if it’s TOO scarce, it’s like not printing enough money.

A study of the 1800’s and the movement to back the money with silver would be very instructive.

ITW.

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By REDHORSE, August 22, 2010 at 1:00 pm Link to this comment

FAT FRED-ITW-ANARCISS-MR. BURRIS-OTHERS: Sincere THANKS!! for the comments and the links. It was a welcome alternate to Sunday news.

    I feel obligated to say, that discussion of economic hijinx and a fair economy (and I know you’re aware), should not overlook the real personal, social and economic devastation experienced by Americans, as a result of the criminal collusion, of our supposed political leadership and financial thugs. It is not so much the economic system that has failed us, as the moral deficit in our leaders.

    It seems our European counterparts, have been able to build a firewall, between themselves, “at will” direct destruction of their lives, and looting of their national economy, by in-your-face fascists like the Cheney/Bush regime and the “gold sacks” boys. In fact, Rethuglican villification and Dumbocrat obfuscation, of any effort, which would allow Americans financial control of their own destiny, and to take their rightfull place in the modern world, is denied. Even Social Security for the elderly is under attack.

    Whatever the best economic intent was, our Democracy has been replaced, by a corrupt Imperialist Capitalist Corporatism, which has created an artificial, manipulative, economic serfdom that enslaves, preys upon, and criminalizes its citizens. This has been done at the expense of natural agrarian economies and the natural enviornment itself, in America, and World Wide. I repeat the question ask’d by AIM leader Russell Means at a lecture I once attended: “Can you access food, water and shelter, independently of the Federal Government?”

    I suggest, that gold and $$$$$ can’t be eaten, and the real economic currency treasured, hoarded and honored by all Americans is “freedom”, “life, liberty and the pursuit of happiness”. Got life? Got liberty? Are you happy? Free?

    “You can use a friend—where a dollar won’t spend. Amen.”
                  Lightnin’ Hopkins

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By Fat Freddy, August 22, 2010 at 9:43 am Link to this comment

Anarcissie,

Nothing is ever simple. People smarter than us have been arguing over what money is since the dawn of civilization.

Printing too much money will almost always lead to inflation. In fact, that is the definition of inflation. Too many dollars, chasing too few goods and services. What is too much money? The Fed and Treasury, in conjunction with the banks, basically print money at will. There’s no transparency, no accountability, and no predictability. I can almost guarantee, that under these circumstances, too much money will be printed. The first owners of all of this new money, the wealthy, will almost surely see the most benefit, while the rest of us are stuck with inflation. You said it yourself, the rich can borrow more money than the poor. Well, when there’s more money printed, there’s more for the rich to borrow. By the time their investments reach fruition to the benefit of the poor, the poor are dealing with the inflation. The rich don’t feel the effects of inflation as much, because they can just borrow more money. It’s a vicious circle that inevitably benefits the wealthy, at the expense of the poor and Middle Class. That’s why the rich get richer, and the poor get poorer, and the Middle Class gets squeezed, eventually, to oblivion. What the rich don’t want us to know, is that real wages, never keep pace with real inflation.

But. People on the left tell us, that if we don’t inflate the currency, we won’t be able to take care of the people starving in the street. The people on the right tell us, that if we don’t inflate the currency, our businesses won’t be able to expand and provide us with the goods and services we need and want, or defend the nation.

They are both wrong, and they are both are right. The question isn’t who the governemnt should or should not be giving money too, it’s whether the government should be giving it to anybody. When the government prints money, and loans it out below normal market values, they are basically giving it to the rich. The poor get bullshit, suck-ass payday loans.

The best way to limit all of this unaccountable money printing, is to return to a gold standard and honest banking. What we need in this country is opportunity. Opportunity for the poor to become rich, and the rich to become poor. We have neither. What we have is, reckless perpetual monetary inflation. The most evil thing ever created by Man. It reaches into the pockets of the poor, and gives it to the rich.


You want a prediction? Here’s a prediction. The US Dollar will lose its reserve currency status in the World. Can you even begin to imagine what things will be like for us when that happens? First, oil will jump to $150/barrel, and that’s just a start. The longer that we recklessly inflate our currency, the sooner this will happen. China has already begun to challenge the dollar. Trust me. China is perfectly capable of consuming their own goods and services. They do not need our worthless paper. If there were 5 people stranded on an Island. America, China, Hong Kong, India and Brazil. How long do you think they would work to feed the fat American that only sits around and writes out pieces of paper? The Nixon Shock, will seem like a day at the beach.

See: Triffin’s dilemma.

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By Fat Freddy, August 22, 2010 at 8:06 am Link to this comment

Inherit The Wind

So, you are saying that there is a certain “sentimental value” with regards to American Eagles? Then there’s always the “condition”, as well. A non-circulated coin is worth far more than one that has been circulated, no? That’s what has always fucked me up with collectibles. Let me give you an example.

Furniture. I worked for a custom cabinet maker a while back. I can put a flawless, factory finish on any piece of wood. I can take an antique piece of furniture to the stripper and have it dipped to completely remove all of the old finish, and then refinish better than it was when it was made. But to a collector, that new finish will actually lower the value of that piece of furniture. Even though the old finish is chipping, and cracked, and in very poor condition, it is worth more. In some cases, you can’t even see the beauty of the wood that’s beneath the old finish. They don’t cut wood like that anymore (quartersawn). Most wood is flat sawn, nowadays. As far as I’m concerned, it’s the beauty of the wood that gives the piece it’s value, not the finish. Can you explain that to me?

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By Anarcissie, August 22, 2010 at 8:05 am Link to this comment

Actually the relation between supply and demand is not always simple.  Certainly one must introduce the notion of elasticity.  For example, under some conditions rising demand causes an increase of supply with economies of scale that cause the price of whatever to fall.  For complementary reasons, something with very low demand may fetch a very high price—go try to purchase a dead aardvark.

The case of money is made especially difficult by the existence of credit as a form of money.  Much of this credit is apparently invisible or taken for granted.  We are a long way from the days of merely putting copper in the gold coins or printing a lot of bank notes.  In any case increasing the supply of money (real or imagined) does not necessarily lead to inflation; it depends what people have and are willing to exchange for it.  When times are good or appear to be good because there is a lot of money around, people may work harder and also discover or market goods which previous labor had produced but which were being held off the market.  Since the currency is still matching up with labor or goods, no inflation takes place.

Then there is the peculiar situation (yet one which we observe around us all the time) of some goods, seemingly in adequate supply, rising in price much faster than others.  Of course part of this has to do with political manipulation (like medical care and education), but part seems to be due to the selectivity of credit: the poor can’t borrow as much as the rich, so the things the poor buy and sell (mostly labor and consumer goods) don’t inflate as fast as the things the rich buy and sell (real estate, equities, collectibles).

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By Fat Freddy, August 22, 2010 at 7:39 am Link to this comment

jimch

Each is citing an analogy, a circumstance, a condition, quoting one of the so-called experts, in efforts to convey to the rest of us posters that you have insight into our conundrum. To what end?

Here’s a quote for ya.

The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.?

-F.A. Hayek
The Road to Serfdom

Indeed, the entire economy, not just on a domestic scale, but also on the entire World stage, is far too complex for any person, or group of people, to entirely get their head(s) around. So, why make any attempts at all? Economists can not accurately predict the effects of their tinkering, so why should they tinker? The markets are not perfect, but they will eventually self-correct. Politicians are elected to “fix” things. So, they tinker, often times creating more harm than good, mainly for the instant gratification of the masses.

An interesting article regarding Lebanese banks.

One of the countries that fared relatively well during the recent financial crash is Lebanon. Not only did it manage to completely escape the housing bubble, but has also shown overall immunity to the international downturn. Lebanese banks have even posted record profits in recent years, thanks to a massive growth in deposits, amounting to 67% between the end of 2007 and 2009.[1] Capital has been pouring in from abroad, as Lebanon is increasingly seen as a safe banking haven in the region…

Raising reserve requirements even further to 100% would certainly help overcome the problem of credit expansion and overinvestments. However, even then central banks would still face the question of what the “correct” money supply and interest rate is at any given time, which is impossible for central planners to determine with regard to an entire economy.

Conversely, in the complete absence of a lender of last resort — i.e., a central bank — private banks would automatically lose their ability to create bubbles through credit expansion. They would have no other option but to keep a tight rein on lending and maintain not just high but full reserve rates with regard to demand deposits: failure to do so would instantly jeopardize their solvency and survival.

This would also render all banking regulation completely unnecessary. Banks would automatically be prevented from expanding credit beyond stable levels or get themselves involved in “toxic” and risky lending. Consequently, the financial regulations of Lebanon and other countries are not actually regulations of the market but of the behaviors that the central banks themselves have enabled by their very existence. It’s like feeding a lion with one hand while fighting it with the other.

(My emphasis)

http://mises.org/daily/4606

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By Inherit The Wind, August 22, 2010 at 7:19 am Link to this comment

FF:
Well, we have TWO strong points of agreement.

GM spent 40 years sinking the company, cooking books, boosting sales #s by offering incredible deals to Hertz and Avis for massive rental fleets and to the military and federal, state and local governments for the same.  When the gas crisis hit in the early 70’s, the Big 3 mostly ignored it, other than introducing lines of cheap, crappy, dangerous cars that used a little less gas—like the Vega and Pinto.  They spent fortunes on styling changes but not on fixing persistent problems, nor on ergonomics.

It was a badly run company still living on Alfred P. Sloan’s “planned obsolescence” from the 50’s.

Had GM collapsed at least a million jobs would have been lost, never to return.  But GM spent 40 years getting there.

The second thing we agree on is that it’s not over yet.  Obama has been President for just over a year and a half. Impossible to undo all the damage that Bush & Co did in 8 years.  I felt like we were living in a Third World nation where the governments TOTALLY exist for the purpose of graft and the leader is “President-For-Life” (Cheney actually proposed postponing the 2004 election, the prick.  At least Dubya EVENTUALLY had the sense to cut Cheney out, too late).  It’s going to take a long time fix those 8 years, and, more importantly, the last 30 years when we shed must of our heavy industry and haven’t replaced it with any real products yet, other than software.

Your analysis of collectibles is flat-out wrong.  Their markets, while separate from other commodity markets in their movement, reflect EXACTLY and more simply how those other markets work.  They also clearly illustrate that value is SOLELY in the eye of the purchaser. 

For example:

When we were selling a house in 1997 (and the housing market was, like now, very flat) we received a low-ball offer.  The selling broker said “Oh, your house is worth FAR more than that”.  My very wise wife replied: “No, it’s not worth one cent more than someone is willing to pay for it, and right now that’s this low-ball offer. All I know for sure is it’s worth $xxxxxx.”

Furthermore, Gold falls in between collectibles and commodities.  Gold is currently at $1228.  Go try buying a one-ounce bullion gold coin for $1228.  You can’t.  You’ll have to pay a premium for it, and that premium will vary for absurd reasons.

American Eagles command the highest premium.  They aren’t one ounce but CONTAIN one ounce of gold.

Krugerrands are exactly the same as Eagles but don’t command the same premium.

Canadian Maple Leafs are .9999 fine gold but STILL don’t command the premium of Eagles.

Chinese Pandas have gone up and down.

Older Mexican Onzas have a fairly low premium.

The same rules apply to silver bullion coins as well, and the premium (as a % of price) is INSANELY high.

Printing paper money doesn’t have a time-frame for how fast it feeds inflation.  It is far more dependent on fast the printing presses roll, and how much is introduced.  If it’s not fast enough, it can actually create recessionary effects.  If it’s too fast, well the 1923 German hyper-inflation can be the result.

“Money” is more than the paper, or gold in circulation.  You know that. M1 used to be the cash in circulation plus the amount in “demand” accounts—the checking accounts we all have.

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By LinCO, August 22, 2010 at 7:13 am Link to this comment

Almost sounds like someone has read this essay:

http://www.ratical.org/ratville/future/economics.html

Read especially the end of the essay.

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By Fat Freddy, August 22, 2010 at 6:26 am Link to this comment

ITW

The rules of economics apply to money as well: Supply and demand dictates price.

Absolutely. That’s my point. The more there is of something, the less it is worth. But we shouldn’t confuse collectibles, with money. Something that is collectible, is not necessarily a universal means for exchange of goods and services. However, precious metal coins will always retain, at least, their value as a PM.

As the government prints more money, the money already in circulation decreases in value. This decrease in value is not instantaneous. It can take several years for the inflationary effects to catch up. We didn’t feel the inflationary effects of the 60s “Guns and Butter” until well into the 70s. That helps create market “uncertainties”, and false signals. Large investment firms hire people specifically to predict what the Federal Reserve is going to do with regards to interest rates (the “cost” of money), and the amount of money.

GM and the American auto makers have a long history of government involvement. Tariffs and trade restrictions have been propping up the auto industry for decades. When foreign auto makers started opening up plants in the US they avoided tariffs and trade restrictions. GM ignored that. They continued to operate on the antiquated business model of the 70s. Sure, GM looks good right now, or at least better. But are they really better than if they had gone through a partial bankruptcy and liquidated some of their assets? I don’t know. A good argument could be made. How many other American jobs did the GM bailout hurt in the foreign owned, American plants like Toyota and Hyundai? And what about the consumer? The entire auto industry was hurt. Years ago, people used to finance new cars on a 4-year loan, usually with 10-20% down. At the end of the 4 years, or maybe 5, they would trade in their old car, and buy a new one. But because of the artificially generated low interest rates, people were able to finance cars on a longer term like 6, 7, and even 8 years with no money down. Initially, people bought more cars. but those people were trapped in a longer term, which meant they couldn’t buy a new car in the traditional 4 or 5 year term. That created false market signals, and resulted in mal-investments for the consumer, the auto plants and the banks. If the interest rates were at a more market value, those long term car loans would not have been affordable, and the auto industry would have continued on a more steady path. The auto industry went through a mini boom/bust cycle created almost entirely on manipulated interest rates.

Note: When the Federal Reserve loans money below the normal market value, it is the same as printing new money.

TARP? I could spend an entire day on TARP alone. But it was much more than just TARP that bailed out the banks. If you add up everything, it comes out to about $14 trillion, that we know about. Plus, there are still toxic assets on the balance sheets of many banks that are “marked-to-myth”. They will eventually mature, and show their real 20 cents on the dollar value. We will see TARP II, and Maiden Lane IV, V and VI. All that the Treasury and Federal Reserve, along with the Financial Accounting Standards Board (FASB), have done is “extend, and pretend”. It ain’t over yet. Not even close.

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By John Andersen, August 22, 2010 at 6:00 am Link to this comment
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As a non-economist, I see the fatal flaw of mainstream economics is its failure to account for the obvious fact that there can’t be infinite growth on a finite planet.

By definition, non-renewable resources get depleted.

Frankly, the only economics that make sense to me are the economics of the indigenous people of North America and many other areas as well.

But of course, “no one” believes indigenous people have anything to teach us, right?

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By david.burress, August 21, 2010 at 8:56 pm Link to this comment

Arnicissie-

You are raising more issues than I have time now to handle. As to math, in principle anything goes that a mathematician would recognize as math, but in practice I’ve written papers I couldn’t get published because it wasn’t the branch of math the reviewers were used to. As to Wittgenstein he totally reversed field in Philosophical Investigations, and it is actually relevant to this conversation, but some other time. As to complexity, I suppose I meant any model where you can’t immediately guess the results from the assumptions without actually solving the detailed calculations. As to models, there is no unified or “essentialist” definition but there is a semantic net of meanings like that which Wittgenstein described in PI.

David Burress

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By James Hultman, August 21, 2010 at 5:58 pm Link to this comment
(Unregistered commenter)

david.burress,

I’m offering this web address for you to view the segment of Washington Journal today so you can learn what Dr. Seidman espouses. It’s only 41 minutes, and it might enhance your pursuit.

http://www.c-span.org/search.aspx?For=washington journal

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By Anarcissie, August 21, 2010 at 5:45 pm Link to this comment

david.burress, August 21 at 1:34 pm:

‘Anarcissie said:
” But what I don’t see how to analyze mathematically with any accuracy is the time when these events were going to occur,”
The point I was trying to make about math modeling had to do with clarity, not accuracy. Agreed that models are often highly inaccurate. Agreed that even the best models we know about are poor predictive tools in some cases, and in other cases aren’t worth the cost and bother of building them. Agreed that in some cases we don’t have the baseline information needed to make ANY model useful for predicting. However what I do claim is:
1. there is no possible way to clarify a complex economic argument without a mathematical model.
2. Any causal economic argument that can be stated verbally can be restated mathematically, with a gain in clarity. ...’

You’re reminding of Wittgenstein’s wisecrack, ‘Whatever can be truly said, can be said clearly.’  This from the author of the the Tractatus.

Anyway, I was discussing an entirely different subject (cognition) with a mathematician the other day, and I mentioned models, and he said, ‘We don’t know what a model is.’  ‘We don’t?’ I protested.  ‘All right,’ he answered, ‘what’s a model?’  I thought about this for awhile and I conceded that the idea of a model is pretty ill-defined.  We could precisely define a model that was a 1-to-1 representation of its subject, like Borges’s map that was identical with the terrain it mapped, but otherwise a model per se is the result of an unspecified procedure (modeling) that we carry out in pursuit of some other object, for which it may or may not serve the purpose.  Anyway, I’ll pass the question along to you: what’s a model, generically speaking?

Also, I don’t know exactly what you mean by ‘mathematical’.  You can go pretty far afield in mathematics these days.  You mentioned game theory.  We could also be talking about topology, logic, including fuzzy logic, set theory, geometry, uncertainty, computability, or even stuff I haven’t heard of yet.  It is certainly helpful to be able to arrange phenomena into models (heh) upon which certain kinds of analysis we know about can be performed, but we can’t always do that, and yet we may be able to say some important things about the phenomena (as in the example of the causal connection between the Russian government’s policies and plans and the price of palladium).  This is not only because of the abstract form of the subject matter of economics but because economics is heavily politicized so that we have many cases of the Hobbesian triangle whose vertices contain as many degrees as men of power wish—or else.

While I have you on the line, I’d also like to know what you mean by ‘complex’—that is, I’d like to know when you think some phenomenon or model is complex and when not.  This isn’t immediately obvious to me.

Subsequently I’ll like to get back into the mathematics of monetary policy and the subprime mortgage collapse, but one, I mean, three things at a time!

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By Peetawonkus, August 21, 2010 at 9:55 am Link to this comment

david.burress
Uh huh.
“Nevertheless, even the worst of the market idolitizers are able on occasion to make subtle economic arguments that need to be rebutted if one wants to get at the best available truths of the matter.”

Which part shall we deal with first? The “on occasion” part or the “subtle” part? No “overgeneralizing” there.

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By david.burress, August 21, 2010 at 9:44 am Link to this comment

Peetawonkus overgeneralizes. Granted that lots of conservative economists treat the marketplace with an essentially religious reverence. The majority of economists are trained to look for market failures (as well as government failures) and propose ways to tame them. Granted also that many of them aren’t as critical as they ought to be, either of markets or of their own theories. Nevertheless, even the worst of the market idolitizers are able on occasion to make subtle economic arguments that need to be rebutted if one wants to get at the best available truths of the matter.

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By Anarcissie, August 21, 2010 at 9:34 am Link to this comment

It’s true that economics is strongly colored by political, religious and other cultural considerations and influences not strictly on its turf, but people do make some interesting ‘economic’ observations, such as that it’s more rational for a poor young woman to have children sooner rather than later (‘babies having babies’, remember that little circus?)  Maybe we’ll turn something interesting up here.

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By david.burress, August 21, 2010 at 9:34 am Link to this comment

Anarcissie said:
” But what I don’t see how to analyze mathematically with any accuracy is the time when these events were going to occur,”
The point I was trying to make about math modeling had to do with clarity, not accuracy. Agreed that models are often highly inaccurate. Agreed that even the best models we know about are poor predictive tools in some cases, and in other cases aren’t worth the cost and bother of building them. Agreed that in some cases we don’t have the baseline information needed to make ANY model useful for predicting. However what I do claim is:
1. there is no possible way to clarify a complex economic argument without a mathematical model.
2. Any causal economic argument that can be stated verbally can be restated mathematically, with a gain in clarity.

Like most scientists, I believe that clarity in models does improve model accuracy, at least on average. For one thing, a model that isn’t clear can’t be tested, and it is through testing and retesting that modeling accuracy is improved over time.  For another, if the model is unclear, then usually the prediction is unclear as well, which is to say it is innately inaccurate.

Jimch attacked the views an economist I don’t know presented on a show I didn’t see, and he doesn’t report the actual views under attack, so I can’t possibly comment. Then Jimch made this pointless and ad hominem remark:
” I suspect, ultimately, you will be doing the same.” There is of course no way I can deny that Jimch has suspicions about me and other economists. So do I, but why would anyone be interested?

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By Peetawonkus, August 21, 2010 at 9:09 am Link to this comment

Economists aren’t there to analyze the “system” and find ways to tweak it. They are a priestly cult, like Marketing. They offer human sacrifice and magical thinking in the service of the State Religion: an unfettered Free Market. The job of economists is to find ever fresh and exciting ways of telling the ruling class what it wants to hear. Occasionally they also hand the toiling classes a small yet shiny package with nice ribbon on it. Yes, the package is empty but it’s the thought that counts.

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By Anarcissie, August 21, 2010 at 7:28 am Link to this comment

david.burress, August 21 at 1:20 am:

‘Anarcissie-
not a very good counterexample.
1. in particular, you didn’t actually discuss the interface causally so I can’t translate your ideas into mathematics. Also I don’t personally know much about it so can’t give you a de novo model.
2. in general, there are a huge number of models of “the interface between political facts and economic facts.” When economists do it, it’s called political economy. Political scientists do it as well, often using rational choice models borrowed from economists.’

The Wikipedia article on palladium mentions the Russian manipulation of the price.  I didn’t expect you to come up with a bunch of formulas; I was just wondering how you would go about dealing with the problem of predicting the price of palladium.  Ford Motor Co., which I assume can hire pretty clever commodities traders, lost something like a billion dollars because they bought a lot of palladium or palladium futures near the top of the market—palladium being something car manufacturers need for catalytic converters.  So they couldn’t do it.

We might be able to use game theory on the behavior of the Russian leadership, but we would need a lot more information about them than we are likely to have, even if the CIA has the men’s room at the Kremlin thoroughly bugged.

I’ll propose another problem closer to home in more than one way: the great subprime mortgage crisis.  As I recall this was triggered by Bernanke raising interest rates after the Chinese had started grumbling about inflation of the dollar, for obvious reasons.  As rates went up, a significant number of marginal mortgagors couldn’t or wouldn’t pay.  When this number reached a certain point, they either sold out or walked away, and enough real estate was soon coming on the market to halt and reverse the inflation of real estate.  Now it was no longer possible to be sure of selling a foreclosed house at more than the amount owing on it.  So now all the financial instruments and businesses which depended on an eternal inflation of real estate prices began to fold up.  Now, this sequence of events was almost certain to occur at some point and many people predicted it in detail long before it occurred; you could say that’s simple arithmetic.  But what I don’t see how to analyze mathematically with any accuracy is the time when these events were going to occur, given the amount of information available generally before they occurred.  This is obviously an important matter, its components seem to be causally linked, but I don’t see how to calculate that important element in the situation.  If I had been able to, I could have bet heavily against the housing market at just the right moment and multiplied my riches several times over.

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By jimch, August 21, 2010 at 7:20 am Link to this comment

david.burress,
I’m watching c-span and it has Dr. Laurence Seidman, economics professor at the University of Delaware as the guest. Now I know from whence economic grads get their flawed economics training. This guy knows less about real economics than the average housewife. He, too, is cherry-picking things out of the past when nothing resembled the prevailing conditions, and is trying to convince us he has the solution to our problems. He is able to talk a good game, but contributes nothing of any worth that has not been said by others. I suspect, ultimately, you will be doing the same.

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By jimch, August 20, 2010 at 11:07 pm Link to this comment

david.burress, August 20 at 11:43 pm:

‘... I do not agree that there is anything in the world that can be verbally discussed in causal terms that can’t be modeled mathematically. Do you have a proposed counterexample?

Would you consider the 9/11 response?

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By david.burress, August 20, 2010 at 9:20 pm Link to this comment

Anarcissie-
not a very good counterexample.
1. in particular, you didn’t actually discuss the interface causally so I can’t translate your ideas into mathematics. Also I don’t personally know much about it so can’t give you a de novo model.
2. in general, there are a huge number of models of “the interface between political facts and economic facts.” When economists do it, it’s called political economy. Political scientists do it as well, often using rational choice models borrowed from economists.

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By Anarcissie, August 20, 2010 at 8:40 pm Link to this comment

david.burress, August 20 at 11:43 pm:

‘... I do not agree that there is anything in the world that can be verbally discussed in causal terms that can’t be modeled mathematically. Do you have a proposed counterexample? ...’

Well, how about the interface(s) between economic facts and political facts?

That’s kind of vast, but even a small subset—say, the practice of the Russian government of manipulating the supply and price of palladium—seem both important and yet difficult or impossible to analyze mathematically, at the political end, anyway.

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By david.burress, August 20, 2010 at 7:43 pm Link to this comment

Agreed that intuition has value and can be communicated verbally. That’s especially true of a micro sector like housing, less true of recessions and stagflation.
Agreed that there are too many factors in the world to put them all into a model. You have to aggregate judiciously. That’s one of the reasons why we call it a “model.”
I do not agree that there is anything in the world that can be verbally discussed in causal terms that can’t be modeled mathematically. Do you have a proposed counterexample?
I do not agree that verbal explanations can do a good idea of explaining, all at the same time, for a complex simultaneous mechanism:
—what are most important variables you need to look at?
—what directions are the feedback effects between variables?
—given that setup, what unexpected things can happen, and why?

Macroeconomics is different from micro. Once you understand the math, often you can talk about micro verbally to good effect. Macro is too complicated and indirect for that to work very well.

I’m not saying you can’t talk about macro. I’m saying you can’t expect to persuade a knowledgeable person without using math. And to pile on verbal arguments in such a situation is sheer bombast.

David Burress
http://www.adstrainstitute.org

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By Anarcissie, August 20, 2010 at 7:04 pm Link to this comment

david.burress, August 20 at 9:15 pm:

‘I find extended verbal arguments for monetarism (or against it for that matter) to be just so much ideological blather. It is one thing to point verbally to the general ideas you agree or disagree with; it is quite another to think you can prove anything or convince anyone verbally. At this point in the discussion, if you can’t write out a mathematical model of what you are claiming, then you don’t know what you are talking about. ...’

Not everything is susceptible to being cast into a mathematical model, yet we may be able to know or guess about things we can’t calculate.  For instance, I knew the housing market was going to crash several years before it did, as did many other people, but I had little idea of the actual quantities involved or when exactly the tipping point would be reached.

It often seems to me that economics is overmathematized, possibly as a way of obfuscating it.  After all, we’re basically talking about the vagaries of the human psyche rather than hard, countable objects or functions in physics.  It is somewhat odd to see pounds of partial differentials thrown at stuff that is mysteriously going on in people’s heads.  There is also of course the very important relation between economic facts (in the sense of flows of value) and political power, to say nothing of other non-economic consequences and causes of economic facts, which someone concerned about the supply, disposition and quality of money might notice.

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By jimch, August 20, 2010 at 6:44 pm Link to this comment

All of you posters:
Look at yourselves and see what you and everyone else are posting here. Each is citing an analogy, a circumstance, a condition, quoting one of the so-called experts, in efforts to convey to the rest of us posters that you have insight into our conundrum. To what end?
Better if you will sit back and make a detailed list of everything you can think of that will affect our economic condition,e.g.,credit,immigration, population, automation, natural disasters and aid, infrastructure construction and maintenance, foreign aid, international conflict, welfare - a very long list. Now, trying to create a mathematical model of all the necessary parameters will make the Drake equation look like junior high school math.

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By Inherit The Wind, August 20, 2010 at 6:16 pm Link to this comment

ah FF:

You prove my point for me:  Cows are only a temporary arbitrary value.  Government interference can mess it up, but so can WalMart buying sub-standard Chinese cows by the million and substandard wheat by the metric ton…and flooding markets. 

Bad money always drives out good.

Value always, ALWAYS presumes the question “to Whom?”

A few years back uncirculated Morgan Dollars rocketed up in price to about $100 a pop. Why? They weren’t especially rare, they could be had anywhere yet people bought them. Meanwhile TRUE rarities like silver $.20 pieces languished.  Why?

The answer is simple collectors didn’t want them as much.  Then more and more stopped buying the Morgan BUs and the price crashed back to $30.

The rules of economics apply to money as well: Supply and demand dictates price.

We ARE seeing some success with the bail-out.  GM is turned around and many of the banks are paying back the TARP money—many have paid it back.

But it’s VERY hard to create jobs when ALL the benefits went to people with no incentive to invest in America and real business.

One of the things that destroyed Britain as a power was moving from REAL industry to the financial “industry”.  Yeah, we need banks and mortgages and revolving credit.  But do we really need synthetic derivatives SOLELY so investors can bet on the performance of a derivative, and not even buy the derivative itself? Clearly, no.

The dereg of the banking, investment and lending industries because it “can’t happen again” was the stupidest and most criminal action Washington ever took, costing tens of millions of people their homes, their jobs and their life savings.

I know a lot of people who lost their jobs in the last 18 months—since I lost my job of many years.  I actually was lucky—I eventually landed on my feet.

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By david.burress, August 20, 2010 at 5:15 pm Link to this comment

I find extended verbal arguments for monetarism (or against it for that matter) to be just so much ideological blather. It is one thing to point verbally to the general ideas you agree or disagree with; it is quite another to think you can prove anything or convince anyone verbally. At this point in the discussion, if you can’t write out a mathematical model of what you are claiming, then you don’t know what you are talking about. I am not saying that math models are right; but I am saying that no one can even tell for sure what you mean without one. Also I am not saying that you need to write it in math every time you talk, but I am saying you need to tell me precisely what math you are referring to if you want to convince me or any other knowledgeable person that you are right. Also, I am not saying that verbal explanation isn’t needed, just that we need the math as well.

By way of analogy, you really can’t claim that string theory is either sense or nonsense if you can’t write out the mathematical model you have in mind. People think they can analyze the economy verbally using common sense,  but then they used to think that about physics as well. (And I am qualified to make this analogy; I passed all the course work and exams for a PhD in physics before I shifted to economics.)

Lawrence KS

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By Fat Freddy, August 20, 2010 at 2:10 pm Link to this comment

Blackspeare,

What “tools” does the Fed have to temper inflation? Theoretically, the Fed can manipulate interest rates higher, and raise reserve requirements (cut the supply of money). What happens if interest rates go up, and the Fed stops buying Treasuries? Hmm. 30 years ago, most of our debt was financed with long term Treasuries. The past 10 years, has seen a shift to financing the debt short term. If interest rates rise, the short term debt will need to be refinanced at higher interest rates. What then? BOOM, or should I say, CRASH.

Inflation is never a good thing. It robs people of their hard earned savings. And what is a little inflation?

Professor Paul A. Samuelson1 of Massachusetts Institute of Technology, author of a widely used college textbook, in an early edition announced ex cathedra that 5 per cent is the desirable rate of annual depreciation of the dollar’s purchasing power. He was down to 2 per cent per year in the 1958 edition, with no explanation for the change of heart. At this rate of progress of his own theory’s depreciation, he may land-on the
gold standard.

The trouble with planned inflation, slow or
otherwise, is that inflation cannot be planned.
Planners (technocrats) think of running a social
organism as a mechanical contraption. This is a
naive concept of the body economic-of human
nature. By controlling the flow of fuel, one controls
the speed of the motor. By regulating the
flow of spendable funds, the planners propose
to control the flow of demand for consumer and
capital goods, and this without serious interruptions.
However, the motor does not discount the
future intake of fuel; men do anticipate the forthcoming
action of the monetary authorities if they
know or think they know it in advance with reasonable
certainty. This is exactly what slow inflation
brings about, once the pattern is definitely
established in people’s minds.

http://mises.org/books/inflation_primer_palyi.pdf

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By Fat Freddy, August 20, 2010 at 1:46 pm Link to this comment

Inherit The Wind

An approximation of value is much better than what we have now. The banks, government and Fed can literally print money at will. Cows can only reproduce at a fairly specific rate. The same is true with the amount of gold that comes out of the mines. A commodity based currency would not be 100% stable. Nothing can be. But, it will severely limit the ability for banks, and the government to artificially manipulate its value at will, the way they currently can.

Ultimately, markets will decide what is money, and what is not. Milton Friedman predicted the price of gold would collapse after it was removed as the backing for the US Dollar, in 1971. Did it? No. Why? In actuality, gold has held much better than the dollar in terms of real purchasing power.


Yes, lending increases the velocity of money.  In a recession, why is this a bad thing?

Inflation is, in part, too many dollars, chasing too few goods and services. It was too many dollars, and cheap, easy money that created all of the mal-investments in the real estate market. More of the same can not possibly solve the problem. You can not borrow your way to prosperity, while you are holding large amounts of debt.

Your example describes capital investment and the free market. Austrians believe that real wealth can only be created by savings, and investment in production. What happens in your example if the government starts pumping a bunch of cheap cows on the market? The value of your cows goes down. What if there is not enough wheat to buy with your cows? You have too many cows, chasing too few bushels of wheat. The price of wheat goes up, the value of cows goes down, and this was all accomplished by government interference in the free market. So, the people with the excess cows look for somewhere else to spend, or invest their cows. The excess cows will eventually seek out more risky capital investments. Like investments in paper (stocks and real estate). The new cows get shifted around from one place to the other, seeking more places to invest, and nothing real gets produced. Eventually, the risky investments that were made with the excess cows, show their true nature, and lose money. That’s a recession. Putting even more cheap cows into the economy is not going to solve anything. It was too many cows that created the problems in the first place.

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By Inherit The Wind, August 20, 2010 at 1:22 pm Link to this comment

There is a big difference between one economist shooting off his mouth and the whole tribe gone wrong. There is at least one economist gone wrong on every issue, and that is not news. This kind of complaint is only helpful when you document where economists as a group stand. Granted that isn’t easy—there aren’t nearly enough efforts to survey them.

**********************************

“If you laid all the economists in the world end to end they STILL wouldn’t reach a conclusion!”

“I want one-armed economists so they can’t say ‘On the other hand’”—attributed to Harry Truman

I find it amazing that the Right has redefined “Keynesian” to mean SOLELY “Tax and Spend”.  Keynes argued that both monetary and fiscal policy were necessary tools that a government had to affect the economy.  Even the father of modern monetarism, Milton Friedman, understood this.

The Right argues that for EVERY problem the answer is to lower taxes, especially for the wealthiest Americans.  Doesn’t matter if it works to help the economy or not (it was a major CONTRIBUTOR to the collapse of the credit markets from 2006 to 2008)—they still want to believe in it, like doctors up till the early 19th century believed blood-letting was the cure for EVERYTHING (including anemia….)

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By Blackspeare, August 20, 2010 at 12:53 pm Link to this comment

At this point in the US economy, the signs are pointing to the Hindenburg syndrome that enveloped Germany in the 1920’s-1930’s that eventually led to the rise of national socialist party.  Next stop on the US’s path towards economic ruin is serious inflation.  I avoid saying hyper-inflation because the Feds have enough tools to temper a inflationary spiral.  A little inflation is actually good for the economy as long as it doesn’t get out of hand.

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By david.burress, August 20, 2010 at 11:48 am Link to this comment

In the specific case of the debt crisis, the big push is coming from politicians, not economists. The macroeconomists are split, but my impression is that majority of them may think that the recession is a bigger problem than the deficit in the short run, and that fighting the deficit now would be counterproductive.

I am a microeconomist, not a macroeconomist, so I don’t make the kinds of predictions listed. I am also quite critical of macroeconomists as a tribe. And I agree that they tend to be pompous and unselfcritical in stating their opinions. Nevertheless I don’t like this article, because it is such a farrago. There is a big difference between one economist shooting off his mouth and the whole tribe gone wrong. There is at least one economist gone wrong on every issue, and that is not news. This kind of complaint is only helpful when you document where economists as a group stand. Granted that isn’t easy—there aren’t nearly enough efforts to survey them. Still, you could at least list a bunch of actual examples of a given prediction before you start complaining—unless you don’t like doing the grubby work of real journalism. Otherwise you are being just as bad as the economists you are complaining about.

David Burress
http://www.adastrainstitute.org

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By JLawrence, August 20, 2010 at 10:33 am Link to this comment

Dear Zack—-both Keynesian economics and Paul Krugman are looking pretty good to me right now…and pretty damn accurate. A letter to Krugman today ranted that only businesses in WW II finally got us out of the Great Depression—-totally wrong. Huge government spending (to those businesses) finally got us out. That’s Keynesian. Best to keep in mind that we are already a hugely socialist nation; but its mostly socialism for the very wealthy (see Bank bailouts, etc.) I’d go along with Joseph Stiglitz:“We need socialism to save capitalism from itself.”

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By Steven Teasdale, August 20, 2010 at 9:54 am Link to this comment

FF writes:

“Economics is a soft science, masquerading as a hard
science.”

No, economics is not a science at all. It belongs to
the humanities. .... recall it was only a few decades
ago when most universities referred to their
economics departments as departments of political
economy.

“All macroeconomics is crap”

As is all microeconomics… perhaps more so.

http://www.scientificamerican.com/article.cfm?id=the-
economist-has-no-clothes

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By Inherit The Wind, August 20, 2010 at 8:35 am Link to this comment

FF:
You probably know more about what money is than most but you still forget the key: All monetary value is relative because all value is relative.

Say you have 10 cows (Good example because to many African tribes for many centuries cattle have been the ONLY measure of wealth).  Now, is each cow equal? Of course not! Some are younger, some are older, some are better for breeding beef cattle, some are better for producing milk for dairy.  So immediately, we see that “10 Cows” as a value is at best arbitrary and at worst totally impossible to compare.

Yet convention goes for the arbitrary valuation of “10 Cows” as having meaning.

Next comes the question: Of value to WHO?  To a Hindu, the cows are sacred and value is based on that and maybe milk, but not as beef on the hoof.

So, at best, with a commodity-based value system you get nothing more than an approximation of value, but no more.

Then, what do you buy the cows with?...Wheat, corn, yams? Say, wheat.  Now we have to go through the same question as the cows.

Now, supposing I lend you enough wheat to buy 5 more cows, and you buy them, breed them, grow new ones, and pay ME back by using the milk to buy more wheat—plus paying me interest.

EVERYONE has profited—it’s not a zero-sum system. You have more cows. I have my original wheat, and the guy you bought the wheat from to pay me back has made a profit by the amount of dairy I need to buy his wheat was WORTH IT to him to sell.

More cows have been created.  More MONEY (ie cows) have been created.

Yes, lending increases the velocity of money.  In a recession, why is this a bad thing?

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By yrscrewed, August 20, 2010 at 7:32 am Link to this comment

Economics is waste of time it is a BS, imaginary, discipline that no different my local psychic. I do know that 1+1=2 but an Economist 1+1= (AB %of 100-A squared divided by a relative nature of pie to the nth degree if the nature of that is at the boiling point next to high tide, etc. It is totally BS. LOL sorry about that.

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By Fat Freddy, August 20, 2010 at 6:24 am Link to this comment

John Ellis

For money is just a means of trade…

Really, John? I suppose next, you are going to tell me that money is a store of value. I know what money is supposed to be. What I tried to explain is what the bankers have turned it into, for their own advantage. The first thing you need to do, is understand how central banking works, in particular, The Federal Reserve System. They create money out of thin air. That money enters the system through loans. Thus, money is debt, in our current system. Do you defend our current system? I do not. I believe we need sound, commodity based currency, whose value can not be manipulated by the banks, and honest banking. That means no lending on demand deposits. You also need to understand that there is a difference between business, and finance. There’s a difference between production, and rent seeking.

My small construction company—> producer

Goldman Sachs—> rent seeker

Small, family owned farms—> producers

Asset management companies, like BlackRock—> rent seekers.

See the difference? Are you a producer, or a rent seeker? I could make more money, and have a pension and full benefits if I worked for the government. I choose to be a producer, and serve my community by offering a quality product/service, at a reasonable price. So, I’m a greedy bastard, right? Get a fucking clue.

Either you support our current system, which has caused the biggest redistribution of wealth from the poor and middle class to the wealthy, in the history of Man, or you do not. I do not.

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By jimch, August 20, 2010 at 5:23 am Link to this comment

The problem with economists is they’re all myopes with a severe case of narrow-gauged thinking and tunnel vision. I think they’re taught that in their college classes and MBA programs by instructors with the same problem. I haven’t determined whether the “economists” are catering to people who pay their salaries or are solipsistic or what. But when I see and hear them spewing defunct analyses, i.e., Keynesian economics, or Reaganomics, orsupply-side economics, I just sit back and snort they don’t jack-sh*t about de facto economics. Never, never has any of them gotten to the root causes of our problems. They pick a single point and elaborate endlessly how it is affecting our economic picture, when they ought to recognize the complexity of it, and determine the mechanics of dealing with it.
  Like now….“We are not going to see a double-dip recession because we are in an “L” shaped recession.” Isn’t that some crap? Hell yes, we’re going to see a double-dip, and worse. The nation as a whole is going to be forced into an austerity mode the likes of which few of us have seen in our life-times. Mark my word!

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By Fat Freddy, August 20, 2010 at 5:18 am Link to this comment

And just remember, all of you Keynesians out there, that take Paulie Krugnuts word as gold, Keynesian theory is based on debt as money.

More velocity, bitchez.

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By Fat Freddy, August 20, 2010 at 4:28 am Link to this comment

The $64,000 question is, “what is money”?

In our current fiat currency, and fractional reserve lending scheme, money is debt.

If there were no debts in our money system, there wouldn’t be any money.

- Marriner Eccles, Governor of the Federal Reserve System in 1941.


Does this sound absurd? It is. And the sad fact is, it’s true. If everybody, including the government, paid off all of their debts, there would be no money in circulation. None.

So, who benefits the most from debt? Need I say? Some debt is good. Short term debt to finance projects and businesses is certainly a good thing. But, when the entire economy, including the money supply, is based entirely on debt, it is unsustainable in the long run.

http://mises.org/daily/4631

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By rollzone, August 20, 2010 at 12:05 am Link to this comment

hello. does anybody care that Intel bought McAfee,
and Norton is the best option, or that Hulu is going
public valued at $2billion, or the China cotton
market was flooded into oblivion this year? only the
Wall Street manipulators. Proctor and Gamble is at
war? it’s only one company. a trend reflects
cumulative results from incalculable factors, but
compiles a real direction of indicators. we are so
far down the drain economically we need a snaking,
but there is an artificial cover hiding the facts;
which fools confidence into buying into investment.
the package is the everyday trap of debt. the
artificial cover can contain the gurgling economy,
but not support heavy growth; until a boiling economy
is replenished below. our problem has been the
spending is dropping the bottom out of reach of the
snake, and will not let the bottom fill to take
place. eventual unsupportable growth will result in a
tremendous collapse, which has been bought off for
too long, and we will start again from a gaping pit
of emptiness called individual opportunity. the
controllers do not want that to happen. they want to
maintain the sputtering phony fabrications of hidden
data and misinformation that are making them
$millions, carbon credits and your gullibility for
profit. sanctions, embargoes, tax shelters, and over
regulated trade keep free market competition extinct,
and allow price fixing monopolies to flourish. it’s
for your own good. pass me that glass of dispersant.

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By Morpheus, August 19, 2010 at 8:04 pm Link to this comment

Wake up People! Join the Revolution!
- We don’t have to live like this anymore.
 
Read “Common Sense 3.1” at ( http://revolution2.osixs.org )

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By knobcreekfarmer, August 19, 2010 at 2:30 pm Link to this comment

ITW,

Me? I’m gonna ferment the berry juice!  Then who cares if it’s a cave?

me too! got two batches of blackberry “juice” in the carboy’s now!

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By Justin Weleski, August 19, 2010 at 2:12 pm Link to this comment

First of all, great article!  It is critical without
a hint of self-righteousness.  As for my two cents;

Economics is the pseudo-science of prediction.  But
humans are inherently unpredictable.  We are also
highly irrational, irresponsible, emotional, and
ignorant of what transpires around us.  In other
words, we are not the neoclassical economist’s
conception of “economic man.”  In fact, we are the
exact opposite!

This inherent human uncertainty simply cannot be
quantified.  Ever.  Neither can future inventions, or
the lack thereof.  Neither can future wars, or the
lack thereof.  Neither can future irrational crazes,
or the lack thereof.

But economists refuse to accept this uncertainty. 
They yearn for mathematical certainty, and they are
convinced that an elegant equation or series of
equations will - generally speaking - be able to
predict the future or correctly analyze the present.

But it/they can’t!

Life is uncertain.  Period.  Human behavior is
uncertain.  Period.  Consumption is uncertain. 
Period.  The actions of countries are uncertain. 
Period.

Behavioral economics, on the other hand, appears to
be a promising discipline.  Instead of assembling a
variety of complex variables and equations and
calling it “reality,” behavioral economists tend to
[GASP] observe human behavior and draw tentative
conclusions based on their subsequent analyses of
this behavior.  Uncertainty is not only accepted, it
is expected!

But you hit the nail on the head.  Modern economic
and financial theory are intellectually bankrupt. 
Unfortunately, neither discipline appears to be
fading into the sunset.

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By JDmysticDJ, August 19, 2010 at 2:06 pm Link to this comment

From the “Book of Economics for Idiots,” ( jargon free translation):
Paragraph one, Page one, first sentence:

“The first requirement of a strong, healthy, economy is that a lot of people need to be working, producing goods for the people who are working to buy, and services for people who are working to buy.”

Second sentence:

Working people pay taxes.

Third Sentence:

“When planning economic policy, its better to rely on lessons learned from the past, than to rely on ideological, self interested, theoretical voodoo, doo doo.

Last sentence (It’s a short book):

Don’t give money to a guy named Madoff; if you do, you’ll be bad off.

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By bogi666, August 19, 2010 at 1:49 pm Link to this comment
(Unregistered commenter)

Inherit the Wind, thanks for you analysis, when in 2006 several economists, including Krugman, predicted a collapse of the economy and the Repubicans came up with their usual psycho-socio-pathological optimism that they were wrong, the economy was fine, ask McCain a man for the 21st century who can’t even turn on a computer.

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By JLawrence, August 19, 2010 at 1:06 pm Link to this comment

I think the problem is that most economics is skewed to favor only growth of large corporations, nothing else matters. The meaning of inflation for ‘wealth’ is entirely different from that meaning for us working slubs—-who suffer under unrelenting inflation.
I’m no economist, but I know that if we took a trillion or two and directly hired several million workers to build rockets, etc. to get to Mars in ten years, Wall Street would soar. I also know that the mineral wealth on Mars would solve our long term deficit. But, I’m not part of the club! Just an ignorant slub.

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By Fat Freddy, August 19, 2010 at 12:50 pm Link to this comment

felicity

Economics is a soft science, masquerading as a hard science.

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By Fat Freddy, August 19, 2010 at 12:48 pm Link to this comment

All macroeconomics is crap, and you can quote me on that. The numbers can not be properly defined, and even if they could be, any “changes” take too long to take effect. By the time they begin to work, the numbers could change 20 times.

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

F A Hayek
The Fatal Conceit

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.


There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.


Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.


 
- Frédéric Bastiat

Everything you need to know about macroeconomics can be taught in one, very simple lesson:

http://www.fee.org/pdf/books/Economics_in_one_lesson.pdf

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By ClassAct, August 19, 2010 at 12:19 pm Link to this comment
(Unregistered commenter)

The basic premise of Adam Smith is that value on the market is a function of labor. His Wealth of Nations was published in 1776. Karl Marx accepted this formulation througout his life. Science tells us that the proper expression of labor is through the discipline of thermodynamics, which is governed by two laws:
1. Energy is neither created nor destroyed.
2. All energy transactions occur at a loss.
Clearly the underlying assumption of the science of economics, that transactions are undertaken for profits, contradicts the second law of thermodynamics, where only losses can result. These two propositions can only be resolved by the recognition that some participants in transactions are inadequately, or even completely unrewarded for their contributions. This results in economics being nothing more than an ideological alchemy to morally justify the distribution of victims.
For a primer on the subject of thermodynamic interpretation of economics, I recommend to all “economists” Joint Production and Responsibility in Ecological Economics by Stefan Baumgartner, Malte Faber, and Johannes Schiller, which can be sampled through these links:
http://www.eco.uni-heidelberg.de/ng-oeoe/research/papers/Faber et al AEE 1998.pdf
http://www.eco.uni-heidelberg.de/ng-oeoe/research/papers/JPEE_Introduction.pdf
http://www.ecoeco.org/pdf/jointprod.pdf

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By MeHere, August 19, 2010 at 11:44 am Link to this comment

Are economists any different than other academics? Are they expected to be
fortune tellers? Epidemiologists know a great deal about disease in populations
but they often cannot predict with any certainty the course and severity of an
epidemic. And the same is with many other disciplines. The media is full of
popular items with statements from all kinds of academics on every subject
under the sun.

It becomes a different issue when economists are employed by the government
to manage the economy or act as consultants.  At that point, economics meet
politics. We all know by now what that has meant in this country. If other
countries have done better it may be because they have better leadership—or
are they just lucky?

Well ahead of the economic downfall, there were statements made by some
experts in economics and finance which raised concerns about the way many
things were going.  I don’t recall names, but I do remember they were not the
popular ones with the media. Nader, although not an economist, has
always written on serious issues related to government and economics.

Here are two links to commentary by a blogger who is interested in economics:

http://akingsmind.wordpress.com/2009/01/23/have-economists-failed/

http://akingsmind.wordpress.com/2009/01/26/like-physicists-around-a-god/

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By felicity, August 19, 2010 at 11:41 am Link to this comment

I’m repeating myself BUT an economist is a guy who
can’t tell you tomorrow why what he predicted
yesterday would happen today, didn’t happen today. 
In spite of this blatant reality, they keep
pretending they can.

The root of the trouble is that economists
desperately want to be thought of as scientists, want
to believe that it’s possible to make economics a
science thus making their discipline a science,
testable, predictable, pure and untainted by the
flawed behavior of the human being.  Of course, the
human being and his unpredictable behavior are always
in the driver’s seat of any economics as practiced.

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By Inherit The Wind, August 19, 2010 at 11:14 am Link to this comment

so left i am right, August 19 at 2:14 pm Link to this comment

ITW,

If I said the air we breath is toxic and is killing us, agree or disagree, you and I
both still have to breath it, right?

I don’t think that TD, other NFP’s and even some for profit’s are all bad. But we
all [most all] are living in a way that is completely unsustainable on a finite
planet. Sure, we live in a capitalist system that requires endless and ever
increasing growth. I get it. I live here too. That makes it no less an
unsustainable system, hence the pyramid scheme reference.

Like so many of the liberal elites and conservative cornballs out here you all
love to fall back on the living in a cave scenario when ever a Limits to Growth or
Overshoot and Collapse player enters the game. Hey, you know what? I have no
desire to live in a cave writing on a wall with berry juice. What a waste that
would be. I’d be drinking that juice!

**************************************

Now you are talking a lot more sense.  Derivatives and synthetic derivatives ARE the Ponzi scheme you decry..I’d agree with that.

Me? I’m gonna ferment the berry juice!  Then who cares if it’s a cave?

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By empirePie, August 19, 2010 at 10:33 am Link to this comment

The Good Life Bull     empirePie   August 18th, 2010


Welcome to the scourge of we
the dynasties from Homo erectus
surely we wrecked us, we wrecked us

We say we come to please;
pavement power and a life of ease
We are a disease

Wrecked and used
The use in Us
The Us in ‘USE’
The US in empire is the noose
for the umbrella is in ‘USE’
the first strike option
the butter for our bread
the good life spread
like infected blankets
to savage our desires
to spread our floods and fires
to profit from our dread
with puts and calls from the Street
Build another wall
Crank up the heat

We tamed fire
We’re still hooked on desire

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By Anarcissie, August 19, 2010 at 10:32 am Link to this comment

ITW—I’m aware that some people predicted a serious crisis many years ago.  I myself, no genius of economics, wrote an article predicting the housing crash and the resultant paralysis of credit back in 2003; I was not alone in my opinion.  Of course, the really smart trick would have been to predict exactly when it was going to happen—apparently some people were able to do that, and profited greatly thereby.  They are not economists, though, just people who know how large-scale finance works, which is quite a different matter.

What I think is ominous in the present situation is that everyone seems to assume that we’ve had our crash, our correction, and now we’re going to slowly recover.  But the same policies of funny money and ballooning credit are still being followed, in fact Mr. O more or less doubled down on what Bush did.  So I anticipate a bigger and more serious crisis in the not-too-distant future.

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By jkehoe, August 19, 2010 at 10:15 am Link to this comment
(Unregistered commenter)

So uncertainty is the new norm. Seems to me liberal-social democrat JKG once wrote a book titled, The Age of Uncertainty. Again the left got it right.

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By knobcreekfarmer, August 19, 2010 at 10:14 am Link to this comment

ITW,

If I said the air we breath is toxic and is killing us, agree or disagree, you and I
both still have to breath it, right? 

I don’t think that TD, other NFP’s and even some for profit’s are all bad. But we
all [most all] are living in a way that is completely unsustainable on a finite
planet. Sure, we live in a capitalist system that requires endless and ever
increasing growth. I get it. I live here too. That makes it no less an
unsustainable system, hence the pyramid scheme reference.

Like so many of the liberal elites and conservative cornballs out here you all
love to fall back on the living in a cave scenario when ever a Limits to Growth or
Overshoot and Collapse player enters the game. Hey, you know what? I have no
desire to live in a cave writing on a wall with berry juice. What a waste that
would be. I’d be drinking that juice!

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By Inherit The Wind, August 19, 2010 at 9:46 am Link to this comment

Anarcissie,
I don’t dispute your point (for once) but the article’s assertion that NOBODY could see and that the “dismal science” got it all wrong is debatable.

I don’t claim foresight or genius, just common sense and I saw it coming. I even saw my job loss coming but couldn’t get out of the way of that runaway truck in time!

SLIR makes the utterly silly assertion that all economic development is a Ponzi scheme.  All SLIR has to do is analyze ALL the components that go into his/her ability to post that statement on a blog on the Internet.  From the PC, the electric powering it, the software running on it, the communication methodologies and technologies that connect the PC to the world, the s/w for TruthDig, etc, etc, etc.  Do away with all that Ponzi scheme stuff and SLIR is writing on a cave wall with berry juice and charcoal.

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By Anarcissie, August 19, 2010 at 9:27 am Link to this comment

ITW—I think there is an additional problem on top of the tax cuts, and that is that the meaning or value of money has become uncertain.  The present American financial system creates and destroys astronomical quantities of funny money in the twinkling of an eye.  It is not like old-time money-printing, however, because the poor can’t get it.  The lower-level labor economy putters along, not too well, but a dollar will still get you something not totally unlike what it got you a few years ago—a cup of deli coffee, maybe.  Five of them will get you an hour of Mexican labor.  But stocks and real estate are blown up with easy and perhaps mythical credit which, as I say, can disappear instantly.  The system is becoming more and more unstable and unpredictable because it is more and more centralized and more secretive.

Maybe the gold bugs were right.

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By knobcreekfarmer, August 19, 2010 at 6:22 am Link to this comment

Economics, well they “run the numbers” through their algorithms
and philosophies about endless growth never once a pause to
review the inventories. “Inventories are economically controlled.
Supply and demand.” they say.

But growth is not a given - unless you’re a tree (and even then
these days…) Economic Growth is nothing less than a ponzi
scheme. A pyramid scheme. Always benefitting the ones at the top
at the expense of the ones below. As long as there are more and
more willing lemmings lining up to buy in the top gets pushed
higher and higher.

This has worked throughout mans history. We are masters at it.
That is, until now.

Limits to Growth, once criticized by the very economists that can’t
ever get it right, has now been proven right on point.

You can’t just print up more energy. Without energy there is no
economics. No capitalism. No socialism. Only a grim future of the
hardships of learning to live with less - and I mean really with less.

Within our lifetime we will all dream of a time with we could drive
to Starbucks and surf online job centers. When the lights actually
came on when you flipped the switch. But mostly that we could
consume calories at will without doing more than tearing open a
plastic wrapper.

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By balkas, August 19, 2010 at 6:12 am Link to this comment

An asocialistic thinker seldom passes an opportunity to denigrate china. Hill omits any evidence for his condemnation of chinese authoritarian leadership!

And isn’t leadership of almost all lands and empires authoritarian in some degree? And don’t all politicians in US lie?

And just about everywhere. Politicians in the west even wage wars without permission from voters who selected them!

And how about waging ignorance and poverty against some of their people!

So, china, in order to escape the wrath of fascist west, indusrializes much more than is good for the planet!

So, what the fascists do? But, of course: increease tensions, threats, warfare, dictatorship over own people, etc. tnx

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By zack, August 19, 2010 at 4:38 am Link to this comment
(Unregistered commenter)

Most mainstream economists like Paul Krugman are brainwashed into Keyensianism and have become tools of the political establishment that want to justify their spendthrift ways. The Austrian school on the other hand predicted the various financial crises, and has practical cogent explanations for how the economy grows and why it crashes. Google “Peter Schiff was right” and you can see an Austrian economist being interviewed and debating mainstream economists like Art Laffer on CNBC.

We help Americans move to Asia for jobs and prosperity. Learn more at http://www.pathtoasia.com/services/.

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By bogi666, August 19, 2010 at 4:05 am Link to this comment
(Unregistered commenter)

A “depression” in Japan is better than so called full employment is in the USA. As for GDP what a crock and without war the GDP of the USG would be negative.

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By Inherit The Wind, August 19, 2010 at 3:57 am Link to this comment

While I’m not an economist, I did graduate studies in economics.  I predicted disaster in the summer of 2001, before 9/11 even happened.

It was obvious. The US was in a mild down-turn as a result of the dot-com bubble bursting, but was slowly recovering.  The Federal budget had a very nice surplus, so its contribution to the economy and GDP was very stable.  In came George W. Bush and demanded (and got) a HUGE tax cut that went mostly to the rich, and completely ate up that surplus and took us back into a deficit.

Republicans applauded and told us that “freed-up” money would be invested in then economy and totally counter-act the mild recession.  They lied.

The money was instantly bled out of the system, re-investment was a trickle, and now the US Government had a HUGE deficit (nothing compared to now) for which it had to go into the stable, low interest credit market.

Well, if somebody goes and buys up all snow-blowers in your neighborhood, you expect the price of snow-blowers to rise.  Likewise, if somebody goes to all the banks and borrows most of the money, you expect the price of borrowing money, the interest rate, to rise, too.

But it didn’t, not immediately, and most people were fooled by this.  But I kept waiting for it to happen.  We re-fi’ed our home and resisted ENORMOUS pressure to take an interest-only or “creative” ARM, instead opting for a staid, boring 30 year fixed. But we were more knowledgeable that most people, and resisted the intense pressure.  Because we KNEW that the multiple years of borrowing by the Bush Regime would explode sooner or later in upward pressure on interest rates.

9/11 and the Iraq war should have TOLD the Bushies that you can’t have guns and butter, but they pushed through yet ANOTHER tax reduction in 2003…and the die was cast.

The first real warning was 3 years later (and hundreds of billions more had been drained out of the credit market by Bush’s deficits) in 2006 when the sub-prime market collapsed.  THEN, the wise economists (Krugman included) warned that this was the tip of the iceberg, the canary in the coal mine.  But the GOPers and Wall Street pooh-poohed it.

And, ominously, the unemployment rate kept going up and the promised jobs creation never happened (in all 8 years of the Bush Regime the BEST quarter of job growth never exceeded the WORST quarter of job growth under the 8 years of Clinton—hmmmm….)

The foundation was crumbling, the ship was sinking, but Bush, the irrational Republicans and spineless Democrats argued about the positions of the deck chairs.

And everybody was shocked by the collapse in September 2008…as if it wasn’t telegraphed for 7 years since the irresponsible tax cut in the summer of 2001.

If economists failed it’s because they looked at current numbers and not the history behind it. If you don’t know where you are coming from, how can you know where you are going?

People and economists couldn’t see the forest for the trees.  GOPers blamed Fannie Mae, Freddie Mac and Barney Frank.  Dems blamed Goldman, Sachs and AIG. But NOBODY blamed Bush, the GOP and the spineless Dems for undermining the foundation of the economy by draining hundreds of billions and even trillions out of the credit market to fund the US Government’s deficits created to give tax cuts to the richest Americans.

And, once the collapse happened, THEN there was nothing to be done but fight fire with fire and, FDR-like, run ENORMOUS deficits to jump-start the economy, which is only slowly now happening.

I was caught by it on the other end—in April of 2009 (less than 3 months into the Obama admin) I lost my job, like tens of millions of other Americans.

I trace it all back to Bush’s imbecilic, criminal tax cut in the summer of 2001.

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By kamran Mofid, August 19, 2010 at 2:27 am Link to this comment

Thank you very much for this great article. I am an economist and I fully support the views presnted here. Moreover, in support of the arguments presented, I wish to offer the following:
Economics and Economists Engulfed By Crises: What Do We Tell the Students?
http://www.gcgi.info/index.php?option=com_content&view=article&id=91:economics-and-economists-engulfed-by-crises-what-do-we-tell-the-students&catid=1:latest-news&Itemid=50
Kamran Mofid
http://www.gcgi.info

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By C.Curtis.Dillon, August 19, 2010 at 2:13 am Link to this comment

They don’t call it the dismal science for nothing!

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By Kamran Mofid, August 19, 2010 at 2:06 am Link to this comment
(Unregistered commenter)

Thank you for this great article. I am an economist and I fully support what you have written. In support of the views presented I wish to offer the following:
Economics and Economists Engulfed By Crises: What Do We Tell the Students?
http://www.gcgi.info/index.php?option=com_content&view=article&id=91:economics-and-economists-engulfed-by-crises-what-do-we-tell-the-students&catid=1:latest-news&Itemid=50
Thank you.

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