Becoming a Banana Republic | 80 comments (80 topical, editorial, 0 hidden)

Re: A lot of the damage at the moment is ... (4.00 / 3)

Popping the asset bubble, the oil price spike, and the financial melt-down.

But a recession is a dynamic process, not a mechanical one ... in the current stage, its in free fall because its in free fall, and magically and instantly providing a functional, prudent banking system would not be enough of a boost to create a bottom.

Letting it find a bottom on its own gives the strongest likelihood of a low employment macroeconomic equilibrium.

Enough of the output gap has to be covered to create a bottom, and at that bottom, after the recognition lag, there have to be prospects for new income-creating activity.

Here in the US, that means we have over six months before we will really need to have have a fully functioning banking system again, able to create long term credit to finance long-term, self-funding real investment. And given the amount of Stimulus I wasted on tax cuts, that could easily require a Stimulus II.

Geithner and Treasury are, of course, frittering away the time we have in one last effort to prove that the Paulson Plan Mark III or Mark IV can at least work, so the open questions are how fast it will take the plan to fail, and whether a workable plan can be rammed through in the aftermath.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 03:17:14 PM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 1)

But a recession is a dynamic process, not a mechanical one ... in the current stage, its in free fall because its in free fall, and magically and instantly providing a functional, prudent banking system would not be enough of a boost to create a bottom.
Letting it find a bottom on its own gives the strongest likelihood of a low employment macroeconomic equilibrium.

Right, once the landslide is started, it matters not one iota why it did.

But I still claim that as long as the banking system is not stabilised the crisis will not touch bottom. Not because their credit is needed but because it freaks out the business class to see the banks in bad health and it leads them to withdraw their capital from the "real economy".

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Tue Mar 31st, 2009 at 03:41:49 PM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 1)

And a good way to turn a recession into a depression is for the government to be unable or unwilling to privide sufficient stimulus or to undertake necessary reforms to the financial system. Hopefully, some of the saner heads among our elite, perhaps Warren Buffet among them, will come out strongly in favor of such reform, even though it will come at a high cost to the oligarchy. Hope springs eternal...

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 04:05:12 PM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (4.00 / 2)

Ditto with banks ... the real economy is not going to get financial capital to survive based on the fact that they need it ... the fact that they need it to survive is why it won't be available. And real capital in the productive sector cannot actually be withdrawn, its just that lack of replacement over time leads it to depreciate.

So its the same as the banking system ... making a bottom is required for the financial capital to show up in any event.

Ergo the government has to be the driving force in finding a bottom.

We've known this about monetary production economies for over half a century, its just that the understanding of a monetary production economy is inconvenient for a range of private interests during financial bull markets, so quite a lot of money has been invested over more than half a century in creating willful ignorance regarding monetary production economies.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 05:29:16 PM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 0)

quite a lot of money has been invested over more than half a century in creating willful ignorance regarding monetary production economies.

Indeed, according to Mason Gaffney the systematic mis-education of generations of US citizens has been the primary goal of Neo-Classical Economics since its inception as a polemical recasting of Classical Economics into a form useful to undercut the appeal of Henry George. As a practitioner in the field of economics who has managed to work both in the academic environment largely defined by NCE and yet to have a robust understanding of its deficiencies, what proportion of academics in economics and business even understand what the NCE projects have done to our collective ability to understand the world, including the original formulation, the "synthesis" by Samuelson and the more recent elaboration by Freidman et al with such doctrines as the Effecient Market Theory? If you feel the need to assume a more obscure persona in order to answer, I will certainly understand.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 31st, 2009 at 07:42:00 PM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (4.00 / 2)

To adopt a more obscure persona, I expect I would have to change my username to ".".

Between heterodox economists and orthodox economists who understand that there are stretches of the economy that the standard toolkit does not work for ... maybe 20%?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Mar 31st, 2009 at 08:28:25 PM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (4.00 / 3)

BruceMcF:

Between heterodox economists and orthodox economists who understand that there are stretches of the economy that the standard toolkit does not work for ... maybe 20%?

The younger Galbraith puts it at 0.1% ...

NYTimes.com: Questions for James K. Galbraith (October 31, 2008)

Do you find it odd that so few economists foresaw the current credit disaster? Some did. The person with the most serious claim for seeing it coming is Dean Baker, the Washington economist. I saw it coming in general terms.
But there are at least 15,000 professional economists in this country, and you're saying only two or three of them foresaw the mortgage crisis? Ten or 12 would be closer than two or three.
What does that say about the field of economics, which claims to be a science? It's an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Wed Apr 1st, 2009 at 04:04:17 AM EST
[ Parent ]

Eep! (none / 1)

Never got round previously to read the article from which you took your sig-line. A lof his views are attuned with ET thinking (and rants).

by Nomad (Bjinse) on Wed Apr 1st, 2009 at 07:21:45 AM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (4.00 / 2)

(1) First, not seeing the mortgage crisis coming for a regional economist, or a development economist, or an economic historian studying the fight between President Jackson and the Second Bank of the United States ... that's not a universal metric of whether they are wearing marginalist mainstream blinkers.

There are very few macroeconomists or financial economists remaining in the profession, having mostly been replaced by marginalist microeconomists pretending to do macroeconomics or financial economics ... and even an economist who is aware that the marginalist mainstream is radically incomplete would not have known the magnitude of the problem without the information.

I was online saying there was an unsustainable housing bubble in 2006, but I am a completely obscure regional development economist, and there's no reason that comments I make online would ever come to the attention of Jamie Galbraith. And I certainly did not expect the total meltdown, since I was not aware of how much financial fragility there was in the system. But if you had polled the individual subscribers to the Journal of Post Keynesian Economics and the Journal of Economic Issues, there would have been more than 10 or 12 who would have called a major financial system meltdown as a realistic possibility.

(2) At the 2006 ASSA meetings, there would have been more than 10 or 12 economists in the same room who would have argued that the housing bubble was unsustainable ... but it would have been the AFEE reception, and Jamie Galbraith would not have been there. Jamie Galbraith is a mainstream economist who understands some of the limitations of the approach, but that does not mean he is in close touch with large number of heterodox economists. And heterodox economists tend to be scattered across academe, in smaller institutions or lying low in state universities.

Indeed, the scattered nature of heterodox economics is on reason for the formation of ICAPE, the International Confederation of Associations for Pluralism in Economics, with 13 association members, and between 30 members between associations, institutes, journals and individual academic departments.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 09:43:09 AM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 1)

BruceMcF:

We've known this about monetary production economies for over half a century, its just that the understanding of a monetary production economy is inconvenient for a range of private interests during financial bull markets, so quite a lot of money has been invested over more than half a century in creating willful ignorance regarding monetary production economies.

It is a sad reflection on the state of Economics that the private interests that benefit during a financial bull market can bribe academics and policy makers into willful ignorance of monetary production economies.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Wed Apr 1st, 2009 at 04:12:07 AM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 0)

bribe? Try cow or intimidate! My suggestion to Bruce about responding from deeper cover was only partly facetious. Perhaps he teaches at an institution where anthropologists or sociologists have moved into the higher ranks of administration. To them NCE is like the proverbal "dead skunk in the middle of the road."

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 11:30:34 AM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 1)

BruceMcF:

And real capital in the productive sector cannot actually be withdrawn, its just that lack of replacement over time leads it to depreciate.

It can actually be made to lie idle, as is happening in the car industry.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Wed Apr 1st, 2009 at 05:39:42 AM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (4.00 / 3)

Land for development can lie idle for decades.

One of the arguments in favour of a tax on land rental values is that it gives an incentive for land to be put to productive use.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Apr 1st, 2009 at 05:49:57 AM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 1)

There is a large opportunity cost in developing land.

But a tax on developed land rental values ensures that already developed land is put to use.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Wed Apr 1st, 2009 at 05:54:22 AM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 1)

then there is also overworked land, which sometimes CAP pays farmers to leave fallow.

that equal and opposite side to the argument should be present also, n'est-ce pas?

Preservation of 'wild zones' every so often, and not taxing too heavily for those who are cash poor, yet land rich. if they are not exploiting their land, it could be saving resources for future generations, why tax present owners for that. do you want them all to have to sell because they can't pay land taxes?

</devil's avocado>

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Apr 1st, 2009 at 09:42:51 AM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (4.00 / 2)

Environmental easements and the old "Soil Bank" from the Eisenhower Administration, along with zoning regulations have all served to preserve fallow land. The current US agriculture policies are a disaster in this regard. Fortunately, the dependence on fossil fuels required by those policies will eventually prove self limiting. We can only hope we will be able to move in that direction before it becomes a greater food crisis.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 01:17:32 PM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (4.00 / 2)

But it is not made to lie idle as a bargaining tactic from "the capitalist class" ... it lies idle because of lack of demand for its products.

Corporations are sociopaths, and that includes sacrificing strong immediate interests of the corporation itself for the greater good of "corporations as a whole". To get corporations on board, they have to be persuaded that it is in their interest. Now, this can and normally does include a substantial amount of self-deception, where the immediate interest of the corporation in the conventional wisdom of corporate managers and board members is not, in reality, the actual immediate interest of the corporation.

That is why one of the main tools for making real equipment lie idle is an aggressively anti-full-employment monetary policy ... in the specific US case, the FOMC is made up of government appointees and Presidents of not for profit corporations (Federal Reserve Banks) where the effect on the corporate bottom line nets out, as any surplus revenue over operating costs and a fixed nominal dividend is handed over to the Treasury, and where the short term interests of the commercial banks is often served by shying away from full employment conditions.

Creating the macroeconomic conditions in which it is in the perceived self-interest of corporations to idle equipment is far easier than convincing corporations with clear profit opportunities from the use of equipment to let that equipment lie idle. Without an immediate countervailing interest, such as the interest to gain the best bargain possible in negotiations with its own workers, its very hard to get a corporation to refrain from producing to meet a demand.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 09:52:31 AM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 1)

P/N Time on ET

Corporations are sociopaths

It is the owners and managers of the corporations who are the sociopaths. They act out their anti-social tendencies through corporations as their instruments.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Wed Apr 1st, 2009 at 12:15:27 PM EST
[ Parent ]

I'm an instituitionalist, not a libertarian ... (4.00 / 3)

... I argue that specific sets of institutional rules and folkviews bias outcomes in specific ways.

And, no, it is not necessary for any individual in the corporate chain of command to be a sociopath for the corporation as a whole to behave as a sociopath ... it is only necessary for boards of directors to follow their fiduciary responsibilities under the law.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 12:41:30 PM EST
[ Parent ]

Re: I'm an instituitionalist, not a libertarian .. (none / 1)

Can you recommend any books on Institutionalism?

by Colman (colman at eurotrib.com) on Wed Apr 1st, 2009 at 12:52:18 PM EST
[ Parent ]

Re: I'm an instituitionalist, not a libertarian .. (4.00 / 3)

The problem is that it was at its most coherent when it was the dominant US approach, before and after WWI. John R. Commons Legal Foundations of Capitalism and Institutional Economics, Thorstein Veblen Theory of Business Enterprise and Imperial Germany and the Industrial Revolution.

The most prominent post-WWII Institutionalist was Galbraith, The New Industrial State, or A Short History of Financial Euphoria. And some who style themselves as Socio-Economists are not far from Institutional Economics ...
(indeed, while Institutionalists founded the American Economics Association, we did not found our own organization until rather late in the process of marginalist capture of the AEA, so if Institutionalist want their ASSA meetings money to not go to supporting a marginalist mainstream association, we register under the Association for Social Economics, who were a founding member of the group that holds the annual economics meetings)
... and quite relevant to the current financial melt-down is Barry Bluestone, The Great U-Turn.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 03:34:20 PM EST
[ Parent ]

Instituitionalist is, but of course, faux French . (none / 0)

... for Institutionalist, oui? Pronounced "In Sti Twee Shun a leest", voila.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 08:39:38 PM EST
[ Parent ]

Re: I'm an instituitionalist, not a libertarian .. (4.00 / 2)

Institutional economics, or schools of thought influenced by it, are alive and well and (today, after years of neglect) thriving at the New School for Social Research in NYC, the university founded by Veblen and Dewey in response to WWI and which became known as the University in Exile during WWII because of the many European intellectuals who ended up there due to the war -- Hannah Arendt is one famous example. The New School has always been the left's answer to Chicago, and it tends to thrive when capitalism is in crisis.

by santiago on Wed Apr 1st, 2009 at 10:55:18 PM EST
[ Parent ]

Re: I'm an instituitionalist, (4.00 / 2)

I saw this dynamic on full display in Los Angeles Unified School District, where all of the players were trying to do good, as they saw it, but due to the structure and dynamics of the institution, almost all were frustrated. I called the phenomenon INSTITUTIONAL INCOMPETENCE.

This was especially evident in the handling of the then Architecture and Engineering Division, who had real expertise in building, maintaining and upgrading school facilities, by the rest of the organization. The stress became more acute as more bond resources came available. By now even the vestiges of that once fine organization are in ruins, while the district is paying an army of "consultants" far more than the old A&E Division cost and they accomplish little more than the depletion of the bond funds in endless design reviews and staff shuffles.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Apr 1st, 2009 at 12:59:52 PM EST
[ Parent ]

Re: A lot of the damage at the moment is ... (none / 1)

Invested capital in the manufacturing sector is tied into machinery, factory buildings ... physical 'stuff' ... that deteriorates under idleness.

Land improves under idleness as ecological succession starts to work, either naturally or man-planted 'kick start.'

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Wed Apr 1st, 2009 at 12:11:02 PM EST
[ Parent ]

Yes, why I specified real capital as depreciating (none / 1)

... when left idle, rather than actually being "withdrawn" to another purpose.

Treating natural resources as a form of real capital is an absurdity ... and it has been argued in ET recently, that an important impetus behind the development of neoclassical economics was precisely to promulgate that absurdity ... so it may well be that the absurdities of "putty capital" assumptions, so completely destroyed by Sraffa's argument, are side-effects of the original absurdity that could be said to be a design feature (from the perspective of vested interests threatened by Georgist Economics), rather than a design flaw.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Apr 1st, 2009 at 12:45:48 PM EST
[ Parent ]

Becoming a Banana Republic | 80 comments (80 topical, 0 editorial, 0 hidden)

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