Peter Radford — The state of economics: Krugman is wrong

Where I disagree with Krugman in his blog today is his references to the economics profession.

In his discussion this morning he is critical of a defense of the hedge fund managers made by Jesse Eisinger. That defense rests on the notion that economists have no clue about the economy as demonstrated by their inability to predict the bubble and subsequent collapse. There were, of course, many economists who did predict the bubble, but they were not influential enough to have an impact. They remain mostly without influence due to their being outside the profession’s orthodox traditions. Krugman, however, defends the profession against Eisinger’s criticism, and this is where he goes wrong.

It does not matter that some economists were correct. The central orthodoxy of the profession, the source of most advice to policy makers and business people, and the basis of most commonly taught textbooks, totally missed both the possibility and then the existence of the bubble. Economics was horribly wrong. It hasn’t recovered since. Instead it is stuck in an unproductive self-examination that has yet to have much impact. Those who were wrong still pronounce and influence policy. They continue unabashedly to teach and perpetuate their errors. The profession, such as it is, is splintered into ideological warring camps making no progress towards a newer or more complete understanding of actual economies where things like asset price bubbles can, and evidently do, exist.

In short economics is a mess and is completely deserving of the skepticism Eisinger attributes to the hedge fund managers.

Real-World Economics Review Blog
The state of economics: Krugman is wrong
Peter Radford

Randy Wray — Deriving the Kalecki Profits Equation

Economonitor — Great Leap Forward
Ratings Agencies Still Clueless, Threaten To Downgrade Uncle Sam
November 8, 2012

L. Randall Wray |Professor of Economics, UMKC

(h/t y in the comments)

Here's the derivation.

Good to remind ourselves of this periodically.

4 Minute News from Suspicious Observers

Interesting daily news channel from Suspicious Observers that I've been trying to get in the habit of checking  out several times a week.

Good review of daily major tectonic, atmospheric, and solar system events condensed into a short video format.





"Economics" or "house law" should be tuned into the operation of these types of natural systems, THAT WE HAVE NO CONTROL OVER, and be engaged in the science of how we can design and calibrate our REAL responses to the environmental variation and often environmental destruction that occurs due to the phenomenon that the folks here at Suspicious Observers chronicle daily.

Instead, we see the economics academe trying to "model" our human economic systems that WE HAVE ABSOLUTE CONTROL OVER like they are trying to "predict the weather" or similar absurd activities like the world class disgraced morons that they are.

Barry Eichengreen — Open-Access Economics

Lessons to be gleaned from the Rogoff & Reinhart debacle if economic analysis is to continue to be taken seriously.

Project Syndicate
Open-Access Economics
Barry Eichengreen | Professor of Economics and Political Science at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund

priceman — To Those Celebrating Their Proud Ignorance of the President's Austerity

MMT proponent priceman calls out ignorance and anti-intellectualism on the left.

Daily Kos — Money and Public Purpose
To Those Celebrating Their Proud Ignorance of the President's Austerity
priceman for The Amateur Left

Marshall Auerback on Japan and China

But the trickle could soon turn into a flood. The speculators of the world have been told by the new head of the BOJ, Haruhiko Kuroda, that they can now speculate with borrowed yen which has not only no cost but no currency risk. The borrowings, then, could be infinite. The foreigners increased their holdings of Japanese Government Bonds from four percent to nine percent in the two years before the break. No doubt much of that was sold on the break.

And the BOJ may well lose control of the pace of the descent in both the yen and JGB market. The Japanese domestics with a lag might start to sell big time. The faster and farther the yen falls the more likely that will happen. The situation is now very unstable. A deeper fall in the yen is going to force all of emerging Asia into a devaluation and that is gong to cause big problems down the road in places like Europe, particularly Germany.

Pinetree Capital — Macrobits
Are Japanese Investors Starting To Yen For Foreign Currencies?
Marshall Auerback

Marshall speculates on China being forced into an RMB devaluation due to the falling yen.

Watch Out For A Possible RMB Devaluation

Rob Urie — In the Time Between Crises

Critique of contemporary capitalism. Well said.

Counterpunch
In the Time Between Crises
Rob Urie

(h/t Kevin Fathi via email)

WB and Peterson Institute Advise Jettisoning the Weak, Old and Infirm - and Swapping Them for Immigrant Labor

Commentary by Roger Erickson

Notice the authors promoting this idea.

Aaditya Mattoo is research manager for trade and international integration at the World Bank. Arvind Subramanian is a senior fellow, Peterson Institute for International Economics and Center for Global Development.

No one could have possibly predicted that! Or the fascist nature of their advice either. Do you suppose they get paid by the word? Or just by the number of screeds that throw in the right propaganda terms?

Send Us Your Skilled Workers, We'll Send You Our Old People

Give Them Our Huddled Masses
Why America should swap its retirees, patients, and students for skilled immigrant labor.

Notice the royal "we" in their definition of America?  If these idiots got their way, they'd make the USA one big gated community for the 1%, expel the 99%, and allow servants in only with daily passes. Grandchildren would swap multi-generational interaction for video drugs, real drugs and electronic apps.

Here's an alternative. Let's regulate the public impact of all banksters, while still welcoming motivated immigrants AND keeping our grandparents in contact with grandchildren?

Mitigate impact of our limited intellects. Why all countries should regulate their sociopaths, and focus on letting the 99% reduce our worldwide Output Gap.

Start by simply politely ignoring Peter G. Peterson, and getting him the therapeutic care he obviously needs. I'm sure his grandchildren still love him, despite his growing sociopathy.

Lynn Stuart Parramore — Cornel West Warns of Rising Authoritarianism

West cited the need for a “democratic counterweight” against what he described as three dominant tendencies on the globe: “financializing, privatizing, and, militarizing.” He warned that as long as we’re stuck with an “empty” and “shallow” public sphere that has been “colonized” by the “oligarchs at the top”, we’re most certainly headed towards fascism.

AlterNet
Cornel West Warns of Rising Authoritarianism
Lynn Stuart Parramore

Annalyn Kurtz — Getting into the military is getting tougher

The myth that the military is the employer of last resort debunked. There are now two dogs for only one bone.

In a typical week, about 10 applicants will walk into a recruiting center in Bay Ridge, Brooklyn, hoping to enlist in the United States Army. Sergeant First Class Israel Herrera doesn't like to turn them away, but he often finds that six out of 10 simply don't measure up to military standards.

Just like private-sector employers, the military is seeking higher-skilled recruits these days....

Thanks to high youth unemployment and the drawdown from both Iraq and Afghanistan, Uncle Sam can afford to be a bit pickier....

It wasn't always this way. Just six years ago, during the Iraq war surge, the military had lower standards. Only about 86% of new recruits had high-school diplomas, and just 67% of recruits scored in the top 50th percentile on the Armed Forces Qualification Test. Waivers excusing health issues and prior misconduct -- even felonies -- were not uncommon.
Those waivers were needed to hit enrollment targets. The Army fell short of its recruiting goal by about 7,000 people in 2005, but like the other military branches, it has had a surplus of recruits every year since then....

There are roughly two applicants for every slot the military is trying to fill.

CNN Money
Getting into the military is getting tougher
Annalyn Kurtz

David F. Ruccio — Connecting the dots—or not (Stiglitz or Krugman)

Paul Krugman continues to have a hard time connecting the dots—for example, between inequality and macroeconomics. For him, there’s the macroeconomic dot and then there’s the inequality dot, and the two are separate: the former is “economics,” while the latter is “politics.” That’s what you get in the IS-LM world of which Krugman is so enamored.

Joseph Stiglitz, on the contrary, is in fact busy connecting the dots. He understands quite well that the existing macroeconomic models are fundamentally flawed, at least in part because they exclude the problems created by growing inequality.

Real-World Economics Review Blog
Connecting the dots—or not (Stiglitz or Krugman)
David F. Ruccio | Professor of Economics, University of Notre Dame

Lars P. Syll — Further suggestions for Krugman’s IS-LM reading list

Paul Krugman needs to re-read Hyman Minsky and John Hicks (1980) on John Hicks (1937) and dump his dodgy ISLM modeling.

Lars P. Syll
Further suggestions for Krugman’s IS-LM reading list
Lars P. Syll | Professor of Social Studies and Associate Professor of Economics, Malmo University

Speaking of models, see also Flawed macroeconomic models

Bill Mitchell – Buffer stocks and price stability – Part 3

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

 ▪ Buffer stocks and price stability – Part 1

▪ Buffer stocks and price stability – Part 2

Chapter 13 – Buffer Stocks and Price Stability

Bill Mitchell – billy blog
Buffer stocks and price stability – Part 3
Bill Mitchell

Despite all the cries of "money printing," the dollar has gone up, not down!

John Oates — Peter Thiel & Founders Fund lead $2m funding round in BitPay

Peter Thiel’s Founders Fund is leading a group of investors into funding the merchant services firm BitPay.

BitPay, which offers corporate Bitcoin services, said it had not been looking for funding but the opportunity was too good to turn down.

BitPay founder and CEO Tony Gallippi said: “We raised seed funding in January and February and still had some left so we weren’t looking for money. They approached us, which was a nice surprise because we’d heard that they’d got as far as due diligence with another company in this space. We were really impressed with their experience and energy.”

Gallippi said BitPay would spend the money on hiring more staff and continuing to build the platform. He said any process involving lawyers takes time but it “was not as painful as we feared.”

Asked about yesterday’s action against Dwolla Gallippi said much of the coverage was wrong and once you looked at the actual warrant it was clear it was a very specific problem of non-compliance – “the shell company was not licensed to do what it was doing.”

CoinDesk
Peter Thiel & Founders Fund lead $2m funding round in BitPay
John Oates

Lord Keynes — The Essence of Post Keynesian Theory of Unemployment

Here it is in one paragraph:

“It is hardly necessary to say that Post Keynesians reject the ‘old classical’, ‘Bastard Keynesian’ and ‘New Keynesian’ argument that unemployment is due to the existence of a real wage above the equilibrium or ‘market clearing’ level owing to the trade union or government interference in the operation of the free market for labour. They also dismiss the ‘New Classical’ notion that unemployment is the (voluntary) result of intertemporal income-leisure choices by individual workers. As was demonstrated above, neither claim is supported by micro foundations; and neither has any macro foundation whatsoever. A Post Keynesian theory of unemployment would instead start from the proposition that in aggregate the level of employment depends on the level of output, which is itself determined by aggregate demand and therefore heavily influenced by macroeconomic policy.

Unemployment is simply the difference between the level of employment and the aggregate supply of labour, which may – as explained earlier – safely be regarded as invariant in the short run with respect to the real wage, but variable with respect to the number of job opportunities.” (King 2002: 84).

In short, it is, above all, aggregate demand that drives output and the level of employment.

Social Democracy For The 21St Century: A Post Keynesian Perspective
The Essence of Post Keynesian Theory of Unemployment
Lord Keynes

Matias Vernengo — The Second Industrial Divide and the Third Industrial Revolution

Note that this suggests that the U.S. economy, which is ahead in the desktop manufacturing technology (e.g. 3-D printers, used recently to create ... yes, a gun!; 3-D scanners, laser cutters, computer numerical control routers, etc.) is actually still at the forefront of the industrial revolution, in spite of the talk about deindustrialization.

Naked Keyesianism
The Second Industrial Divide and the Third Industrial Revolution
Matias Vernengo | Associate Professor of Economics, University of Utah

Carey L. Biron — Developing World to Dominate Global Investment by 2030

According to the World Bank and numerous other analysts, wealth in developing countries is today largely locked up among the elite....

Of potentially considerable concern in the bank’s projections is where this new wealth will end up being concentrated.

“It’s one thing for the pie to be increasing, but how equitably is it being distributed?” Kar asks.

“Equity is a huge problem, as the rich seem to be getting richer and the poor getting poorer. Further, it seems the nouveau riche in the developing countries are a bit more callous than the established rich in developed countries.” 

Inter Press Service
Developing World to Dominate Global Investment by 2030
Carey L. Biron

Neoliberalism at work.

circuit — Impact of the US Payroll tax cut...and tax hike

This is a very informative (and short) piece by economists at the NY Fed on the effect of the 2011 US payroll tax cut and its recent expiration.

Fictional Reserve Barking
Impact of the US Payroll tax cut...and tax hike
circuit

As one would expect.

Andrew Lainton — The Equity Residue in Bank Deposits

A short note in reply to @Frances_Coppola. She disagreed with a paper from Jan Kregal at Levy.

Kregal argues that there are two types of deposit, deposits of currency and coin, and deposits created when loans are made. If a bank makes bad loan

“it is the failure of the holder of the second type of deposit [loan-created deposits] to redeem its liability that is the major cause of bank failure”

so the first type of depositor (of currency and coin) should not bear the brunt of these bad decisions.

Coppola disagrees with this on a theoretical point via twitter.

Decisions, Decisions, Decisions
The Equity Residue in Bank Deposits
Andrew Lainton

Nathaniel Cline and Nathan Cedric Tankus — Fiscal Systems, Organizational Capacity, and Crisis: A Political Balance of Payments Approach

In the preface to the forthcoming Festschrift to Alain Parguez, Mosler argues that in the mid 1990s he thought, “the theory of the monetary circuit was correct to the point of being entirely beyond dispute”. However, he also argues that the theory “could be further enhanced by starting from the beginning”. This beginning for Mosler was of course why the workers accepted the units of a currency as payment for their labor services. His answer (which is quite well known among heterodox economists by now) was that imposed debts denominated in that unit of account, give it's units value; in other words taxes.

This is an important part of the story, but we would argue it is in fact not the beginning. The true beginning to the circuit is the question of where people and organizations gain the ability to tax.

INET
Fiscal Systems, Organizational Capacity, and Crisis: A Political Balance of Payments Approach
Nathaniel Cline and Nathan Cedric Tankus

Fusing Evolution of Nations and Cultures With the Crudity Called "Economics"

Commentary by Roger Erickson

Quantifying sustainability: Implications for [capitalism]

If we can't fuse the management of crude, static-asset markets back into a small subset of all the dynamic values that have driven 3.5 billion years of evolution on planet earth .... we deserve to die out.

Economists as naval-gazing dinousaurs? Only one of THOUSANDS of NAICS feedback channels? There's nothing essentially wrong with orthodox economists existing. There are complete fools & irrelevant Luddites in EVERY profession.

The problem is the weighting of the feedback!

Why on earth do electorates elect policy-staff fools who listen PRIMARILY to theoretical-economist Luddites? Why not just maximize our REAL operations, as we've always done? And in the process, improve the quality of our own, distributed decision-making?

There's little theory needed for catching mice. Just assign many people to catch mice, and review what actually works best. Note to electorate: It's ALWAYS a complete surprise. So please quit trying to make our policy operations into a durned religion! There's a reason to separate Church & State. Religion applies to the things we DON'T understand, NOT to the little stuff we can discover through trial and error. We have ZERO predictive power! Luckily, however, we seem to have near infinite ADAPTIVE power - but only if we actually use it. It's called accelerated trial and error, and it's quite easy.

So just explore our options, see what works, and go with the distributed sum of all the things that make our whole greater than the sum of our parts? That makes everything easy. It's called auto-catalysis. Catalyzing national, not just personal, success yields the highest return by far. If you don't think so, move to Russia, or China, or Zimbabwe, were it's every person for themselves.

We have to work hard to fail at operations. That only occurs when religion runs amok into micromanagement of the operations were supposed to render unto Caesar - or our own initiative. We have constant reminders NOT to do that, but we don't weight that advice highly enough to follow it?


Please, weight your vote where your mouth is.

AP — Pope Francis Slams Global Financial System As 'Cult Of Money'

Pope Francis has denounced the global financial system, blasting the "cult of money" that he says is tyrannizing the poor and turning humans into expendable consumer goods.

The Huffington Post
Pope Francis Slams Global Financial System As 'Cult Of Money'
Associated Press

Political Operations. Congresspeople Rely on Paid Lobbyists to Get Isolated Bills Passed. Not How Most People Think it Works.

Commentary by Roger Erickson

The revolving door in the nation’s capital makes for a messy bed

Face it. Few even know the constrained operations by which Congress accepts and sends outside communications. Worse, almost none know how internal horse-trading ... er .... decision making ... actually proceeds.

If you don't know Political Operations, you don't know 'nuttin about how to save your country. In that case, you're a naive Child Crusader, about to disappear (or worse) somewhere between here and your imagined Holy Outcome.

Even worse, those few that actually get somewhere, with an uncoordinated idea, only trigger a determined backlash that makes things even worse before things can get better.

A Crusade without a long range Outcome vision, and a campaign plan, and adaptive methods for evolving the campaign in real-time, is either toast, or more trouble than it's worth, just like our entire financial industry AND it's isolated lobby too.

Bill Mitchell — "We came up with the 3% [deficit] figure in less than an hour."

The Le Parisien article (September 28, 2012) – L’incroyable histoire de la naissance des 3% de déficit (The incredible story of the birth of the 3% deficit) – spilled the beans.

An English language report – The secret of 3% finally revealed – says that a “former senior Budget Ministry official” in the Mitterrand government was asked to come up with the fiscal rules that would become the Stability and Growth Pact (SGP).

He was quoted as being the “the inventor of the concept, endlessly repeated by all governments whether of the right or the left, that the public deficit should not exceed 3% of the national wealth”.

Note that this reporting, itself, is misleading because wealth is a stock and GDP is a flowand the SGP budget deficit rule is specified in terms of 3 per cent of GDP (the size of the flow of national output and income in any given period). But we can overlook that reporting slip.

Anyway, the French official had this to say when asked about the origins of the 3 per cent rule:

We came up with the 3% figure in less than an hour. It was a back of an envelope calculation, without any theoretical reflection. Mitterrand needed an easy rule that he could deploy in his discussions with ministers who kept coming into his office to demand money … We needed something simple. 3%? It was a good number that had stood the test of time, somewhat reminiscent of the Trinity.

Somewhat religious (Trinity) no less.

So what appear to be “credible” rules are just arbitrary numbers – all part of an elaborate smokescreen or charade – to limit the capacity of government.

Bill Mitchell – billy blog
Incroyable! – France – cap-in-hand and grateful – and sinking fast
Bill Mitchell

Remember that "back of the envelope" — actually "on the napkin" sketch — that became the Laffer curve as the foundation of Reaganomics?

My recommendation is that the EU elites hire a bus for a month and go to Spain and Greece and some of the French towns where huge housing estates are located and check out what their policies are breeding.

They would find, although I am sure they wouldn’t admit it, a seething, deprived and angry cohort which is growing and will become a force for lawlessness and societal instability.

Randy Wray — Hyman Minsky and the Employer of Last Resort

Collection of Minksy's articles on the JG, and a link to Randy's presentation on it.

Economonitor — Great Leap Forward
Hyman Minsky and the Employer of Last Resort
L. Randall Wray | Professor of Economics, UMKC

IRS Political Over-reach is Nothing New to Many Individuals

Commentary by Roger Erickson

For example, another long-suppressed story has been simmering at the FDIC for years.

Who says Control Fraud ended with the S&L Crisis? It just moved to Goldman Sachs, and then on to the White House & Congress (and by default, to all federal agencies).

Will This Help? "Fed's Rosengren blasts US government spending cuts"

Commentary by Roger Erickson

He's still talking like a Deficit Dove, but even that helps for the moment.

Increased spending cuts and tax increases in the United States have weakened the country’s outlook for near-term economic growth, and heightened the risk that inflation expectations could fall and real interest rates could rise, according to Boston Federal Reserve chief executive Eric Rosengren.

“A long-term sustainable solution for fiscal balance is absolutely in the country’s interest. But timing is an issue, ...”

When will financial people catch on that "fiscal balance" - i.e., balanced fiat - is a meaningless phrase in real fiscal operations?  The whole purpose of fiscal operations is to balance conditions risking national growth with those risking national contraction.

Elizabeth Warren — Student Loan Policy Should only Reap $15 Billion Profit for Government

Apparently thinking that the current "profits" reaped by the government for student loans is juuuuussst a tad too high, progressive champion Senator Elizabeth Warren is proposing to trim the interest rates that some students pay the government a bit, to the same rate as the Fed charges some banks under a banking system regulatory regime.

McCardle is not sure this is a good idea, as the banks are certainly a better credit risk than recent college graduates...

Tarpley is on board, as this libertarian thinks the independent Fed should make loans directly available to the public, blind as a bat to the US Congress' authority to directly support higher education through fiscal policy...

HuffPo is reporting on a related poll that has identified over 250,000 MoveOn.org people who support this government 'profit' reduction...

Daily Kos also makes the case that these government 'profits' are just a bit too high and would like to see these 'profits' reduced somewhat...

Moron, moron, moron, moron and.... moron... (I think I got them all ... oh, save the 250k MoveOn people...)

We're still in BIG trouble folks and have our work cut out for us.

Lord Keynes — Kaldor on the Irrelevance of Equilibrium Economics

Walrasian general equilibrium theory is the greatest obstacle to the development of economics as a science.

That is the bold contention of Nicholas Kaldor in his article “The Irrelevance of Equilibrium Economics” (Economic Journal 82 [1972]: 1237–1252), and it is undoubtedly true.

One can summarise Kaldor’s argument as follows:

Social Democracy For The 21st Century: A Post Keynesian Perspective
Kaldor on the Irrelevance of Equilibrium Economics
Lord Keynes