Ad astra per aspera
Last year the former head of the Federal Reserve, Alan Greenspan, made a quite astonishing admission. Asked if his beliefs that free markets were an "unrivalled way to organise economies" had clouded his judgement and ability to prevent the financial crisis that tipped the global economy into recession, Greenspan responded that it might have, but it was now obvious that there was a "flaw in the model that I perceived is the critical functioning structure that defines how the world works". Finding this flaw had made him "distressed".Greenspan's confession was seen by many for precisely what it was: a crisis of faith, the faith that unrestricted free markets would always act benevolently. It revealed what a few had been arguing for some time, that the character of neoliberal economics is essentially religious. This is counter-intuitive. Surely the policy of Greenspan and others is based on an understanding of the science of economics, particularly in the mainstream neoclassical form that is most often taught in universities around the world? It is certainly the case that neoclassical economics appears scientific. This is because it deploys huge quantities of complex mathematics, giving it the veneer of being what it has long hoped to be, a kind of social physics.
Last year the former head of the Federal Reserve, Alan Greenspan, made a quite astonishing admission. Asked if his beliefs that free markets were an "unrivalled way to organise economies" had clouded his judgement and ability to prevent the financial crisis that tipped the global economy into recession, Greenspan responded that it might have, but it was now obvious that there was a "flaw in the model that I perceived is the critical functioning structure that defines how the world works". Finding this flaw had made him "distressed".
Greenspan's confession was seen by many for precisely what it was: a crisis of faith, the faith that unrestricted free markets would always act benevolently. It revealed what a few had been arguing for some time, that the character of neoliberal economics is essentially religious. This is counter-intuitive. Surely the policy of Greenspan and others is based on an understanding of the science of economics, particularly in the mainstream neoclassical form that is most often taught in universities around the world? It is certainly the case that neoclassical economics appears scientific. This is because it deploys huge quantities of complex mathematics, giving it the veneer of being what it has long hoped to be, a kind of social physics.
This combination of long-term reforms and an immediate crisis reminds me of the last global financial meltdown I watched Summers, then deputy secretary of the Treasury, help navigate. It was 1998, the year of Asian contagion and Russia's default and devaluation. Emerging market veterans of that crash have taken a certain bitter pleasure in pointing out that this time their former rescuer and scold - the United States - is at the centre of the world's crisis, and in observing that Americans seem markedly less keen on their own unpalatable medicine now that they are the patient."I don't think I would quite accept the characterisation that we're in the position that the Russians were in in 1998," Summers says when I draw the comparison. "The crises that we addressed during the 1990s internationally, in almost every case, took the form of a foreign lack of confidence in a country that led to a mass withdrawal of funds and made reassuring foreigners the central priority. That's why interest rates often had to be increased. The American problem this time has more in common, at least qualitatively, with the Japanese post-bubble problem, where the issue was not reassuring foreigners but maintaining sufficient domestic demand to push the economy forward."He does, however, concede that fire-fighting feels different when it is your own home that is alight: "There have been moments, certainly, when I understood better some of the reactions of officials in crisis countries now than one was able to from the outside at the time. It is easier to be for more radical solutions when one lives thousands of miles away than when it is one's own country." (...) This new American economy, Summers hopes, will be "more export-oriented" and "less consumption-oriented"; "more environmentally oriented" and "less energy-production-oriented"; "more bio- and software- and civil-engineering-oriented and less financial-engineering-oriented"; and, finally, "more middle-class-oriented" and "less oriented to income growth that is disproportionate towards a very small share of the population". Unlike many other economists, Summers does not believe that lower growth is the inevitable price of this economic paradigm shift.
This combination of long-term reforms and an immediate crisis reminds me of the last global financial meltdown I watched Summers, then deputy secretary of the Treasury, help navigate. It was 1998, the year of Asian contagion and Russia's default and devaluation. Emerging market veterans of that crash have taken a certain bitter pleasure in pointing out that this time their former rescuer and scold - the United States - is at the centre of the world's crisis, and in observing that Americans seem markedly less keen on their own unpalatable medicine now that they are the patient.
"I don't think I would quite accept the characterisation that we're in the position that the Russians were in in 1998," Summers says when I draw the comparison. "The crises that we addressed during the 1990s internationally, in almost every case, took the form of a foreign lack of confidence in a country that led to a mass withdrawal of funds and made reassuring foreigners the central priority. That's why interest rates often had to be increased. The American problem this time has more in common, at least qualitatively, with the Japanese post-bubble problem, where the issue was not reassuring foreigners but maintaining sufficient domestic demand to push the economy forward."
He does, however, concede that fire-fighting feels different when it is your own home that is alight: "There have been moments, certainly, when I understood better some of the reactions of officials in crisis countries now than one was able to from the outside at the time. It is easier to be for more radical solutions when one lives thousands of miles away than when it is one's own country." (...) This new American economy, Summers hopes, will be "more export-oriented" and "less consumption-oriented"; "more environmentally oriented" and "less energy-production-oriented"; "more bio- and software- and civil-engineering-oriented and less financial-engineering-oriented"; and, finally, "more middle-class-oriented" and "less oriented to income growth that is disproportionate towards a very small share of the population". Unlike many other economists, Summers does not believe that lower growth is the inevitable price of this economic paradigm shift.
This new American economy, Summers hopes, will be "more export-oriented" and "less consumption-oriented"; "more environmentally oriented" and "less energy-production-oriented"; "more bio- and software- and civil-engineering-oriented and less financial-engineering-oriented"; and, finally, "more middle-class-oriented" and "less oriented to income growth that is disproportionate towards a very small share of the population". Unlike many other economists, Summers does not believe that lower growth is the inevitable price of this economic paradigm shift.
how does that last sentence fit with the rest of that paragraph ? keep to the Fen Causeway
The amendment passed Thursday seeks to nullify Obama's signing statement by withholding funds from any agreement involving the Treasury Department that doesn't follow the conditions set out in the supplemental bill...."Sometimes, the only way the votes can be found to provide the funds the admin wants is to provide certain limitations on the money," [David] Obey said Thursday in a floor speech criticizing Obama's signing statement.
backstory, 26 June 2009 Diversity is the key to economic and political evolution.
I mean, shouldn't it be a great idea to buy them from ordinary people, given that ordinary Americans often take out so called "pay-day" loans at far higher interests? Peak oil is not an energy crisis. It is a liquid fuel crisis.
LOL, maybe there's already credit default swaps for these IOU's? Peak oil is not an energy crisis. It is a liquid fuel crisis.
It's just that credit (gah stop inventing new names like "fixed income" all the time!) markets have started fascinating me (especially corporate bonds are interesting in a time of infinitesmal government coupons).
I blame you and Jerome.
And yes, the current crisis is partly due to people who don't really knew what they were doing started looking for higher yielding bonds, there's no need mentioning it. ;) Peak oil is not an energy crisis. It is a liquid fuel crisis.
That's not what markets are about. CDS price default risk, they don't predict it. The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
California's taxpayers and legislators are doing the right thing digging in their heels and drawing the line at further austerity measures. California is being watched not only by the nation but by the world. We the people did not precipitate this credit crisis; the banks did. We should not have to pay for the damage with increased taxes or decreased services or our public parks and parking meters. Like the American colonists, we can replace the old model with something better. If California legislators act quickly, they can have a State-owned bank up and running before their 45-day IOUs run out. With today's new online banking possibilities, the State would not even need to invest in a "brick and mortar" building. The whole business could be done by computer. Weary legislators trying to agree on a budget could all shake hands and go home, without budging an inch from their respective platforms. They could have it all, and so could we the people.
Austerity is needed, this just seems such an extremely bad time for it (Hoover here we come). Peak oil is not an energy crisis. It is a liquid fuel crisis.
Yeah, let's make the oscillations of the economic cycle deeper by being "sensible". The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
Thus we are so sensible, have schooled ourselves to so close a semblant of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as inevitable results of applying to the conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time.
We have learned nothing. Worse, we have forgotten what we once learned.
Californians have been spending more than they've been earning.
Ms. Tippett: Before Bernard Madoff, Jeffrey Skilling and Kenneth Lay were icons of a gross violation of the trust of employees, shareholders, government, and customers. But in a book he edited, Moral Markets, Paul Zak also told the lesser-known story of Cliff Baxter. Baxter was a vice chairman of Enron who protested corruption as he saw it grow internally. He resigned his position in 2001, just a few months before Enron's collapse began. In early 2002, as the human cost of Enron's excesses unfolded, he apparently committed suicide. By many accounts, Cliff Baxter had a strong moral code. His story is a contrast to generalizations fueled by high-profile coverage of out-of-control corrupt executives. But Paul Zak sees it as an exemplar of the moral inclination for which human physiology equips us, given the right circumstances. Mr. Zak: So let's bring some science to bear in this. So I just made a bunch of perhaps interesting or outlandish claims about people having sort of a moral sense. But in the last five years, we've begun to find the chemical basis for this. And we've discovered this molecule called oxytocin that lives in the human brain, and in particular human beings, it's particularly potent at making us care about the outcomes of others. So we initially found that when someone trusts you with their money intentionally -- "I'm going to give you $20 and let you control it" -- that the more money someone entrusts to you, the more your brain releases this molecule and the more you tend to reciprocate. When the person says, "Would you like to give some of that back to me," even though you don't have to, you do. We've now found this substantiates generosity. If I have more, you have less and visa versa. When we give people, human beings, synthetic oxytocin we can induce them to be more generous towards strangers, more generous towards charities. And we very recently found that when we watch and we show experimental subjects an emotionally compelling video, a video of a man whose four-year-old son has terminal brain cancer, that there's a big spike in the release of oxytocin, and people are subsequently much more generous towards a stranger. They're more generous towards charities. So somehow this molecule in our brain has allowed us to live in large groups of people where we have something in our heads that says, "This person safe, this person not. This person, I want to be around, this person I don't want to be around." So it's kind of a trust detector. And in a very real sense, it connects us to other people. It allows me to sort of emotionally mirror what other people are doing. And classically, oxytocin is associated with childbirth, reproduction in mammals.
Ms. Tippett: Before Bernard Madoff, Jeffrey Skilling and Kenneth Lay were icons of a gross violation of the trust of employees, shareholders, government, and customers. But in a book he edited, Moral Markets, Paul Zak also told the lesser-known story of Cliff Baxter. Baxter was a vice chairman of Enron who protested corruption as he saw it grow internally. He resigned his position in 2001, just a few months before Enron's collapse began. In early 2002, as the human cost of Enron's excesses unfolded, he apparently committed suicide. By many accounts, Cliff Baxter had a strong moral code. His story is a contrast to generalizations fueled by high-profile coverage of out-of-control corrupt executives. But Paul Zak sees it as an exemplar of the moral inclination for which human physiology equips us, given the right circumstances.
Mr. Zak: So let's bring some science to bear in this. So I just made a bunch of perhaps interesting or outlandish claims about people having sort of a moral sense. But in the last five years, we've begun to find the chemical basis for this. And we've discovered this molecule called oxytocin that lives in the human brain, and in particular human beings, it's particularly potent at making us care about the outcomes of others. So we initially found that when someone trusts you with their money intentionally -- "I'm going to give you $20 and let you control it" -- that the more money someone entrusts to you, the more your brain releases this molecule and the more you tend to reciprocate. When the person says, "Would you like to give some of that back to me," even though you don't have to, you do. We've now found this substantiates generosity. If I have more, you have less and visa versa. When we give people, human beings, synthetic oxytocin we can induce them to be more generous towards strangers, more generous towards charities.
And we very recently found that when we watch and we show experimental subjects an emotionally compelling video, a video of a man whose four-year-old son has terminal brain cancer, that there's a big spike in the release of oxytocin, and people are subsequently much more generous towards a stranger. They're more generous towards charities. So somehow this molecule in our brain has allowed us to live in large groups of people where we have something in our heads that says, "This person safe, this person not. This person, I want to be around, this person I don't want to be around." So it's kind of a trust detector. And in a very real sense, it connects us to other people. It allows me to sort of emotionally mirror what other people are doing. And classically, oxytocin is associated with childbirth, reproduction in mammals.
excellent podcast, this is from the transcript.
imagine being able to deal with the sociopathic 2% through nontoxic brain chemistry! ~Government budget deficits are not nearly as dangerous as the deficits we have created in vital and complex natural systems.~ Naomi Klein.
