Weekend Open Thread | 87 comments (87 topical, editorial, 0 hidden)

2 really important articles I don't think I have time to diary:

Economists: Things We Are Ignorant About | The Big Picture

To quote Edward Hadas, "Policymakers and pundits still make confident pronouncements, but the conclusions are radically different. The expert disagreements give away the truth: ignorance reigns."
Hadas identifies six questions which professionals should stop pretending they can answer:
1) What creates retail inflation?
2) How do financial asset prices affect the real economy?
3) Do big fiscal deficits damage the economy?
4) What does quantitative easing actually do?
5) How much leverage is too much?
6) How to deleverage without damaging the economy?
If economists cannot explain the basic workings of the economy, perhaps we should be relying on them much less for policy advice . . .

A Capitalist's Dilemma, Whoever Wins the Election - NYTimes.com

It's a paradox, and at its nexus is what I'll call the Doctrine of New Finance, which is taught with increasingly religious zeal by economists, and at times even by business professors like me who have failed to challenge it. This doctrine embraces measures of profitability that guide capitalists away from investments that can create real economic growth.
...
The Doctrine of New Finance helped create this situation. The Republican intellectual George F. Gilder taught us that we should husband resources that are scarce and costly, but can waste resources that are abundant and cheap. When the doctrine emerged in stages between the 1930s and the `50s, capital was relatively scarce in our economy. So we taught our students how to magnify every dollar put into a company, to get the most revenue and profit per dollar of capital deployed. To measure the efficiency of doing this, we redefined profit not as dollars, yen or renminbi, but as ratios like RONA (return on net assets), ROCE (return on capital employed) and I.R.R. (internal rate of return).
Before these new measures, executives and investors used crude concepts like "tons of cash" to describe profitability. The new measures are fractions and give executives more options: They can innovate to add to the numerator of the RONA ratio, but they can also drive down the denominator by driving assets off the balance sheet -- through outsourcing. Both routes drive up RONA and ROCE.
Similarly, I.R.R. gives investors more options. It goes up when the time horizon is short. So instead of investing in empowering innovations that pay off in five to eight years, investors can find higher internal rates of return by investing exclusively in quick wins in sustaining and efficiency innovations.

by Metatone (metatone [a|t] gmail (dot) com) on Sun Nov 4th, 2012 at 02:24:58 PM EST

Re: Weekend Open Thread (4.00 / 4)

Short answer: Edward Hadas should look beyond monetarism and neoclassical economics.

Long answer: maybe I should write a diary.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Carrie (migeru at eurotrib dot com) on Sun Nov 4th, 2012 at 02:40:29 PM EST
[ Parent ]

Re: Weekend Open Thread (4.00 / 2)

Robert Vienneau: The Historical Failure of Neoclassical Economics (NOVEMBER 03, 2012)

Economists have developed a logically consistent and empirically applicable theory of classical `natural prices' (also known as Marxian `prices of production)'. As I and others have repetitively demonstrated, such prices are inconsistent with supply and demand-based reasoning. Since the endowment of means of production is not taken as given in such theories, these theories are not about the allocation of given resources among alternative ends.
Over, the last century economists have extensively explored the logic of models in which given resources are allocated among alternative ends. Although such models might be of use to a central planner, they seem to be unable to describe prices in actually existing capitalist economies.
The development of these claims have been available in the scholarly literature for about a third of a century. They have not been refuted. Most mainstream economists just ignore this collapse of neoclassical economics, in their teaching, in their applied work, in policy advice, and in their research.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Carrie (migeru at eurotrib dot com) on Sun Nov 4th, 2012 at 03:00:09 PM EST
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Re: Weekend Open Thread (none / 1)

The Economist: Inflation, QE and forcing the banks to lend (November 1st, 2012)

Mr Goodhart has lots of other interesting things to say about monetary policy. He thinks quantitative easing is "largely a spent force" and says it has failed to boost bank lending. By way of illustration, in Britain, the monetary base is 334% higher than it was six years ago, reserves at the central bank are 909% higher but broad money is only up 47% and bank lending to the private sector has risen just 31%, In other words, the money multiplier has collapsed.

The money multiplier is an ex-post-facto quantity, not a parameter of an actually operating process of money creation, so...

Then there is the idea of making the interest rate negative on excess reserves held at the central bank. Mr Goodhart seems to think this is a sensible idea although it might simply lead commercial banks to hold government bonds instead, rather than boost bank lending.

If that were done in the Eurozone, it would put an end to the government debt crisis, as banks wanting to hold government bonds would lower yields.

If the developed world economy continues to be sluggish, central bank minds may turn in these directions (cancelling government debt is another option). We have moved a long way from just shifting interest rates up and down by a quarter of a point.

Yeah, you may need real economists and bankers at central banks, not the kind of base rate tweakers we've had so far.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Carrie (migeru at eurotrib dot com) on Sun Nov 4th, 2012 at 03:14:45 PM EST
[ Parent ]

The Real Problem? (none / 0)

IMO the profit margins in the FIRE sector are unrealistic and unsustainable over the long term.

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

by ATinNM on Sun Nov 4th, 2012 at 03:25:34 PM EST
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Re: Weekend Open Thread (4.00 / 4)