Later On

A blog written for those whose interests more or less match mine.

Posts Tagged ‘economics

Labor shortage? or wage shortage?

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It’s as simple as black and white — and reflects the law of supply and demand (basic economics): as demand increases and supply remains the same, the price increases. If the demand for labor increases beyond the supply, the price goes up. Businesses certainly understand that if the demand for their widgets increases, they can change more. That principle also applies to the labor required to make the widgets. Don’t businesses understand this basic principle?

Written by Leisureguy

23 May 2021 at 8:25 am

Posted in Business, Daily life, Math

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Terrific categorization of EconoTrolls

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Via Paul Krugman, a wonderful post.

Written by Leisureguy

30 September 2012 at 4:58 am

Posted in Science

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When flaws are exposed

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Paul Krugman comments on the fury of the Chicago school of economists when it’s pointed out how very wrong they are:

So Justin Fox reports that Chicago really, really didn’t like my article. Surprise.

What I think you have to understand here is that for a long time — in fact, for three decades — the Chicago position has been that Keynesian economics was nonsense that has been utterly refuted. Now, you might have thought they’d at least slightly reconsider that position with the rise of New Keynesian economics — an approach that involved plenty of math and lots of hard thinking, and generated a large literature in major journals.

I have my problems with New Keynesian analysis, but surely it demonstrated that Keynesian insights had something to them. When it comes to the current debate, the key thing is surely that New Keynesian models do, in fact, show that fiscal policy can raise output and create jobs.

That’s why the debate over fiscal policy has been such a revelation. It’s perfectly OK to question the desirability of a fiscal stimulus, or challenge the specifics of the Obama plan. But no macroeconomist who has been paying attention for the past 20+ years would assert that fiscal policy is useless as a matter of principle.

Yet that, of course, is exactly what the freshwater types asserted en masse — along with claims that nobody, or anyway nobody at a quality economics department, believes that fiscal policy can do any good. Sneers take the place of actually engaging the argument.

Brad DeLong does a yeoman job of collecting the fallacies. As he says, they show famous economists making sophomore-level errors, again and again. They also show that the Chicago School has spent the past generation looking entirely inward — paying no attention to ideas and research elsewhere. Basically, their worldview has been frozen in amber since around 1978.

And that, in turn, explains the sheer rage over my article. It was actually written in a fairly cool tone — but it did say that the emperor had no clothes, that people who have been posing as the sole guardians of sophisticated macroeconomics have, in fact, been revealed as being remarkably ignorant. Fury was the inevitable reaction.

Again, read those quotations Brad has collected. These are the reactions of people who just can’t accept that they might have missed something — having been caught out in elementary errors, their reaction is to try even more sneers and putdowns, in an attempt to retain their sense of superiority.

What a sad spectacle.

Written by Leisureguy

23 September 2009 at 9:13 am

Posted in Daily life, Education, Science

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Wall Street’s Toxic Message

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An article by Joseph Stiglitz, Nobel-prize-winning economist. The blurb for the article:

When the current crisis is over, the reputation of American-style capitalism will have taken a beating—not least because of the gap between what Washington practices and what it preaches. Disillusioned developing nations may well turn their backs on the free market, warns Nobel laureate Joseph E. Stiglitz, posing new threats to global stability and U.S. security.

The article itself begins:

Every crisis comes to an end—and, bleak as things seem now, the current economic crisis too shall pass. But no crisis, especially one of this severity, recedes without leaving a legacy. And among this one’s legacies will be a worldwide battle over ideas—over what kind of economic system is likely to deliver the greatest benefit to the most people. Nowhere is that battle raging more hotly than in the Third World, among the 80 percent of the world’s population that lives in Asia, Latin America, and Africa, 1.4 billion of whom subsist on less than $1.25 a day. In America, calling someone a socialist may be nothing more than a cheap shot. In much of the world, however, the battle between capitalism and socialism—or at least something that many Americans would label as socialism—still rages. While there may be no winners in the current economic crisis, there are losers, and among the big losers is support for American-style capitalism. This has consequences we’ll be living with for a long time to come.

The fall of the Berlin Wall, in 1989, marked the end of Communism as a viable idea. Yes, the problems with Communism had been manifest for decades. But after 1989 it was hard for anyone to say a word in its defense. For a while, it seemed that the defeat of Communism meant the sure victory of capitalism, particularly in its American form. Francis Fukuyama went as far as to proclaim “the end of history,” defining democratic market capitalism as the final stage of social development, and declaring that all humanity was now heading in this direction. In truth, historians will mark the 20 years since 1989 as the short period of American triumphalism. With the collapse of great banks and financial houses, and the ensuing economic turmoil and chaotic attempts at rescue, that period is over. So, too, is the debate over “market fundamentalism,” the notion that unfettered markets, all by themselves, can ensure economic prosperity and growth. Today only the deluded would argue that markets are self-correcting or that we can rely on the self-interested behavior of market participants to guarantee that everything works honestly and properly.

The economic debate takes on particular potency in the developing world. Although we in the West tend to forget, 190 years ago one-third of the world’s gross domestic product was in China. But then, rather suddenly, colonial exploitation and unfair trade agreements, combined with a technological revolution in Europe and America, left the developing countries far behind, to the point where, by 1950, China’s economy constituted less than 5 percent of the world’s G.D.P. In the mid–19th century the United Kingdom and France actually waged a war to open China to global trade. This was the Second Opium War, so named because the West had little of value to sell to China other than drugs, which it had been dumping into Chinese markets, with the collateral effect of causing widespread addiction. It was an early attempt by the West to correct a balance-of-payments problem.

Colonialism left a mixed legacy in the developing world—but one clear result was the view among people there that …

Continue reading. More Stiglitz articles on the economic crisis:

Capitalist Fools, January 2009

Reversal of Fortune, November 2008

The $3 Trillion War, April 2008 (with Linda J. Bilmes)

The Economic Consequences of Mr. Bush, December 2007

Written by Leisureguy

17 June 2009 at 12:11 pm

Hydraulic computer

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Using the fluid-flow analogy for electricity, a number of circuits and even computers have been created with fluid movement used in place of electron flow. One I recall reading about years ago used air as the fluid, but the most famous is probably the MONIAC (Monetary National Income Analogue Computer) created by Bill Phillips. The NY Times has a brief article on it today, and Wikipedia has more. I would love to see it in action.

Written by Leisureguy

3 June 2009 at 9:30 am

Posted in Daily life, Technology

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Who should run the economy?

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april-payroll

Click graph to enlarge—click again to enlarge more.

The graph is from a very interesting post by Stirling Newberry, which begins:

To read the British press is to realize how fundamental the failure the theory of libertarian economic thinking has been. In this theory, the wealthy possess a special insight into the allocation of capital, and governments should abandon their role in allocating effort to a small extremely wealthy elite. It was a theory adopted by Iceland, which was lauded for its open laws and “flat tax.” It was adopted by Lithuania, and to a lesser extent, by Spain. One country that embraced this idea more than any other, was Ireland, which took neo-liberal policies as virtually a doctrine. It attracted 40% of all American direct foreign investment in Europe, which liked it’s educated English speaking population, proximity to the UK, and low prices. For its part, the government of Ireland threw the doors open. As the Guardian reports by piecing together individual stories the plunge has been swift and dramatic. A new Irish diaspora has begun, as the weight of debt and the utter absence of an internally driven capital system, leaves behind the husk of an economy.

What created this collapse was the pure corruption at the top.  A corruption seen in the expenses scandal now unfolding in Great Britain is destined to topple the ruling New Labor party — as was seen in the borrowing binge of the very wealthy in Ireland. These two pieces are not unconnected: the culture of flowing money lubricated politicians, who naturally saw that its continuation was essential for their own secure life style. This is not an issue of left or right in the context of the age. There was no left, merely a right that wanted slightly more of the money to flow to socially useful causes.

The aftermath? Spanish unemployment hits 17.4%, that is not a mistake. It is a number that is associated with the Great Depression, or the devastation of the post-war era. An economic bomb has hit what was a go go periphery. Ireland’s economy is projected to contract by a total of 9% this year, with the decline extending into next year.

These however, are the branches. The trunk was …

Continue reading.

Written by Leisureguy

10 May 2009 at 3:06 pm

Posted in Business, Daily life, Government

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Bad economics in the current crisis

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Dean Baker in the Guardian:

It is often said that the there are few forces as destructive as the power of bad economics. Rarely has this been more clearly demonstrated than in the current crisis.

While the bankers’ greed fed the housing bubble, the incompetence and corruption of the economics profession allowed the world’s largest financial bubble to grow unchecked, until its inevitable collapse wrecked the economy. Remarkably, the economists who got everything wrong as the bubble was expanding, are still being given the opportunity to get everything wrong as we try to dig out from the wreckage.

Even though most of the "best" economists in the world did not see it, the story of the bubble and its collapse was in fact extremely simple. The recovery from the stock market crash in 2001 was driven by the growth of the housing bubble.

In the United States, the unprecedented run-up in house prices fueled the economy by causing a construction boom, and even more importantly, a consumption boom, as the saving rate fell to zero. While many prominent economists lectured the country on the need to save and to end spendthrift ways, those who knew economics pointed to the well-known housing wealth effect.

Households spend in part based on their housing wealth. The predictable result of the creation of $8tn in housing bubble wealth ($110,000 per homeowner) was a massive consumption boom on the order of $400bn to $600bn a year. The problem was not people’s spendthrift ways; the problem was that economic policymakers allowed a huge bubble to develop. People treated this bubble wealth as real wealth, and responded exactly as economic theory would predict: they spent like crazy.

With house prices falling rapidly back to earth, the housing construction boom is now a bust and saving rates are returning to normal…

Continue reading.

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21 April 2009 at 12:52 pm

Posted in Business, Daily life

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Ending border violence by legalizing drugs

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Interesting post in the NY Times by Catherine Rampell:

Drug wars appear to be escalating in Mexico, with violence spilling across the border into the United States. As Mark Landler reported today, Secretary of State Hillary Clinton for the first time acknowledged that Americans’ demand for drugs feeds the Mexican drug trade and all its ills.

So what’s her solution? Secretary Clinton reportedly wants to beef up Mexico’s anti-drug law enforcement. But that’s not necessarily what traditional economics would prescribe.

Civil liberties and morality debates aside, many economists say drug legalization, rather than heightened prohibition, is the answer.

Plenty of economists, legal scholars, journalists and even drug law enforcement leaders have written about legalizing drugs, often pitching the idea as something like a “least bad” option. They argue that the black market is what makes the drug trade so profitable; enables drug cartels’ current business models; and pushes “business” disputes out of the courtroom and into the streets.

As Jeffrey A. Miron, a senior lecturer in economics at Harvard, wrote Tuesday on CNN.com:

Read the rest of this entry »

Written by Leisureguy

26 March 2009 at 9:42 am

Posted in Daily life, Drug laws, Government, Science

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Animal spirits and the economy

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I generally don’t much care for Michael Scherer, but this column is quite interesting.

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13 March 2009 at 3:15 pm

Macroegonomics

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Virginia Postrel has a good brief article on economists and their current notions:

Christina Romer, the head of President Obama’s Council of Economic Advisors, is a liberal economist. The LBJ Presidential Library in Austin is a Democratic shrine. But on a September evening in 2007, Romer used that venue to deliver a bluntly negative assessment of the economic policies that began in the Kennedy and Johnson years. What macroeconomists had believed and done in the heady liberal hour of the 1960s, she declared, was simply wrong—a “mistaken revolution” that hurt the country. “Far from being the high point of economic policymaking in the postwar era, the 1960s represented the beginning of a long dark period for macroeconomic policy,” she said.

Her story went something like this: macroeconomists got cocky in the 1960s, thinking that policy makers could set unemployment at whatever rate they wanted by accepting a related level of inflation. But unemployment can in fact go only so low—to a “natural rate” that depends on real economic factors beyond the influence of monetary or fiscal policy. Trying to push unemployment below 4 percent led to persistent inflation and, ultimately, stagflation, the previously unthinkable combination of high unemployment and high inflation. It took the terrible recession of 1981–82 to kill off inflation. Economists learned their lesson, went back to the more reasonable assumptions of the 1950s but with more-sophisticated models, and we got the “Great Moderation” of the past two decades.

“We have seen the triumph of sensible ideas and have reaped the rewards in terms of macroeconomic performance,” Romer concluded. “The costly wrong turn in ideas and macropolicy of the 1960s and 1970s has been righted and the future of stabilization looks bright.”

She was, as we now know, wrong about the happy ending. In retrospect, what is striking about Romer’s lecture is …

Continue reading.

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12 March 2009 at 7:08 pm

Posted in Business, Daily life, Government, Science

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Curing a recession

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Very interesting and informative book review by Jon Chait, which begins:

The Forgotten Man: A New History of the Great Depression
By Amity Shlaes
(HarperCollins, 464 pp., $26.95)

Herbert Hoover
By William E. Leuchtenburg
(Times Books, 208 pp., $22)

Nothing to Fear: FDR’s Inner Circle and the Hundred Days that Created Modern America
By Adam Cohen
(Penguin Press, 372 pp., $29.95)

A generation ago, the total dismissal of the New Deal remained a marginal sentiment in American politics. Ronald Reagan boasted of having voted for Franklin Roosevelt. Neoconservatives long maintained that American liberalism had gone wrong only in the 1960s. Now, decades after Democrats grew tired of accusing Republicans of emulating Herbert Hoover, Republicans have begun sounding … well, exactly like Herbert Hoover. When President Obama recently met with House Republicans, the eighty-two-year-old Roscoe G. Bartlett told him that "I was there" during the New Deal, and, according to one account, "assert[ed] that government intervention did not work then, either." George F. Will, speaking on the Sunday talk show "This Week," declared not long ago, "Before we go into a new New Deal, can we just acknowledge that the first New Deal didn’t work?"

When Republicans announce that the New Deal failed–as they now do, over and over again, without any reproach from their own side–they usually say that the case has been proven by the conservative columnist Amity Shlaes in her book The Forgotten Man. Though Shlaes’s revisionist history of the New Deal came out a year and a half ago, to wild acclaim on the right, its popularity seems to be peaking now. Fred Barnes of The Weekly Standard recently called Shlaes one of the Republican party’s major assets. "Amity Shlaes’s book on the failure of the New Deal to revive the economy, The Forgotten Man, was widely read by Republicans in Washington," he reported. "So were her compelling articles on that subject in mainstream newspapers."

This is no exaggeration. The Forgotten Man has been publicly touted by such Republican luminaries as Newt Gingrich, Rudolph Giuliani, Mark Sanford, Jon Kyl, and Mike Pence. Senator John Barrasso was so eager to tout The Forgotten Man that last month he waved around a copy and announced, "in these economic times, a number of members of the Senate are reading a book called The Forgotten Man, about the history of the Great Depression, as we compare and look for solutions, as we look at a stimulus package." Barrasso offered this unsolicited testimonial, apropos of nothing whatsoever, during the confirmation hearing for Energy Secretary Steven Chu. Chu politely ignored the rave, thus giving no sign as to whether he had heard the Good News. Whether or not The Forgotten Man actually persuaded conservatives that the New Deal failed, in the time of their political exile, which is also a time of grave economic crisis, it has become the scripture to which they have flocked.

When they say that the New Deal "didn’t work," conservatives almost always mean New Deal fiscal stimulus. (Other policies, such as Social Security or clearing the way for unions, clearly succeeded on their own terms, whatever their ideological merits.) And then, in turn, they confuse New Deal fiscal stimulus with Keynesian economics, which is also not exactly the same thing. So let me step back and briefly explain for the uninitiated what Keynesian economics means. We may not all be Keynesians now, but we would all benefit from knowing what a Keynesian actually is.

Prior to Keynes, the economy was held to be self-correcting. The only cure for a recession was to let wages and prices fall to their natural level. The prevailing attitude, as Paul Krugman writes in his recently re-issued book The Return of Depression Economics, was "a sort of moralistic fatalism." Keynes upended the orthodoxy in a way that was every bit as dramatic as Galileo challenging geocentrism. He insisted that recessions are not a natural process, or the invisible hand’s righteous judgment against our sins, but a simple failure of consumer demand.

When people worry about losing their jobs, they sensibly cut back on their spending. But that decision, in turn, reduces demand for goods and services, which results in reduced income or lost jobs for other workers. Keynes called this phenomenon "the paradox of thrift": what makes sense for individuals turns into a disaster for society as a whole. The recession was therefore a failure of collective action that required government action. Government needed to encourage spending by reducing interest rates or, failing that, to inject spending into the economy directly by deliberately running temporary budget deficits.

At the time, orthodox economists deemed this diagnosis heretical and dangerous, but, in the decades that followed, …

Continue reading.

Written by Leisureguy

12 March 2009 at 10:12 am

Posted in Books, Business, Daily life, Government, Science

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The press: economic, mathematical, scientific illiterates reporting

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One should always be careful about press accounts of technical information. Dean Baker comments on the reporting on the stimulus package. Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC, and received his PhD in economics from the University of Michigan.

Okay folks, this is 2-year stimulus, not a 1-year package. (Actually, as the Republicans were fond of pointing out, much of the spending will not take place until 2011, year 3 of the package.) That means that there is a word to describe the Post’s claim that the package is more than 5 percent of GDP: “wrong.”

Of course, if the Post was interested in accurate reporting it might also have noticed that the package saved the government $140 billion by reversing a change in the tax code put in place by Treasury Secretary Henry Paulson that allowed banks to write off the bad debts of banks that they acquire. That would substantially reduce the long-term cost of the stimulus.

If might also have been helpful to put some of the items highlighted by Republicans in context so that their importance would be clearer to readers. The $198 million for Filipino World War II veterans comes to 0.024 percent of the stimulus package. The $50 million for the National Endowment of the Arts is 0.006 percent and the $25 million for the Smithsonian is equal to 0.003 percent of the stimulus.

Another post by Dean Baker:

Has the Post Ever Had a Headline About the “Whoppingly” Inefficient Health Care System?

Probably not, since it has no interest in health care reform that could jeopardize the incomes of the insurance industry, the health care industry and highly paid medical professionals. Therefore, the Post would never use a word like “whopping” or its derivatives in a headline about the health care system.

On the other hand, since it the editors have no qualms about using the news section to push its crusade for balanced budgets, it has no qualms about using “whopping” in a headline for an article about the budget deficit.

In addition to the unusual adjectival choice for a news headline, it’s also worth noting that the other half of the headline is wrong. The stimulus did not grow, it shrank. President Obama originally proposed a bill that was over $800 billion. He got a bill that was less than $800 billion, including a $70 billion fix to the Alternative Minimum Tax that everyone had anticipated whether or not there was a stimulus.

When it comes to providing information, the first paragraph does no better than the headline. What does it mean to tell readers: “But one thing is certain: It will blast another big hole in an already tattered federal budget.”

What is “big?” What is a “hole in the budget?” The only information readers get from this paragraph is that the Post is unhappy with the size of the deficit. That’s fine for the opinion page, but it doesn’t belong in the news section.

To round out its analysis, the Post tells us, among things, that among the issues that President Obama wants to tackle is “assuring that Social Security will survive for future generations.” It would be interesting to learn whether President Obama used this phrase or whether it originated with the Post, because it makes as much sense as saying that he will ensure that Ohio survives for future generations. It’s theoretically possible that both Social Security and the state of Ohio will cease to exist, but on what basis would any reasonable person expect either event.

The article concludes by presenting analysis from two budget hawks to balance out the piece.

Dean Baker is obviously a commenter worth following.

Written by Leisureguy

16 February 2009 at 2:20 pm

Posted in Business, Media

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Excellent idea: personal economic trainers for Senators and Representatives

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Hiring personal economic trainers would be a great idea. Far too many Senators and Representatives have shown all too clearly that they know nothing about economics. Steven Pearlstein in the Washington Post:

As long as we’re about to spend gazillions to stimulate the economy, I’d like to suggest we throw in another $53.5 million for a cause dear to all business journalists: economic literacy. And what better place to start than right here in Washington.

My modest proposal is that lawmakers be authorized to hire personal economic trainers over the coming year to sit by their sides as they fashion the government’s response to the economic crisis and prevent them from uttering the kind of nonsense that has characterized the debate over the stimulus bill during the last two weeks.

At a minimum, we’d be creating jobs for 535 unemployed PhDs. And if we improved government economic policy by a mere 1 percent of the trillions of dollars we’re dealing with, it would pay for itself many times over.

Let’s review some of the more silly arguments about the stimulus bill, starting with the notion that "only" 75 percent of the money can be spent in the next two years, and the rest is therefore "wasted."

Read the rest of this entry »

Written by Leisureguy

8 February 2009 at 10:16 am

Posted in Congress, Daily life, Education

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Blind orthodoxy leads to dead ends

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Paul Krugman:

There seems to be an amazing amount of misunderstanding of the basics of fiscal policy, even among people who should know better. Leave on one side the remarkable parade of economists who think that the savings-investment identity proves that government action can’t increase spending; PGL points us to a higher-level fallacy: the widespread belief that Ricardian equivalence doesn’t just say that tax cuts have no effect — which it does — it also says that private consumption automatically offsets any rise in government spending, which is just wrong.

Justin Wolfers suggests that this is because economists just haven’t been thinking and writing about fiscal policy. Maybe. But in my own neck of the woods, that isn’t true. In the New Open Economy Macroeconomics, which dates back to classic work by Obstfeld and Rogoff in the early 90s, both fiscal and monetary policy are usually analyzed.

And by the way: these are extremely buttoned-down models, with lots of intertemporal maximization, careful attention to budget constraints, and at most some assumption of temporary price rigidity. Nobody who was at all familiar with this literature could make the logic mistakes that are coming fast and furious from the fresh-water economists.

What this reveals, I think, is just how insular part of the macroeconomics profession has become. They just don’t read anything that doesn’t come from their cult circle; they just weren’t aware of major bodies of work that didn’t happen to be in their preferred style.

This insularity is asymmetric. Ask a PhD student at Princeton what a real business cycle theorist would say about something, and he or she can do that; ask a student at one of the freshwater schools what a new Keynesian would say, and I doubt that he or she could answer. They’ve been taught that there is one true faith, and have been carefully protected from heresy.

It’s a sad story.

Written by Leisureguy

28 January 2009 at 1:33 pm

Posted in Government, Science

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Latest GOP talking point: FDR lengthened the Great Depression

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The idea that FDR lengthened, instead of curtailed, the Great Depression is false, but that just makes it a better talking point for the GOP: they love to get behind a lie and talk it into the public consciousness.

The GOP has been working the FDR lie for a while—see this post for a good example, and note this graph.

In fact, as Paul Krugman patiently points out to George Will, FDR’s New Deal made immediate improvements.

But George Will and other conservatives are not ones to be dissuaded merely because the facts are against them. Patient repetition throughout the conservative media (Fox news, AM radio, many newspaper columnists, the talk shows) will, they hope, make people believe the lie.

I would think that the graph at the above link shows the foolishness of the GOP line—but then I would think the GOP’s performance when they controlled both the White House and Congress would show the foolishness of the GOP line. At any rate, David Sirota has a good article on the topic::

…I was momentarily tongue-tied last week after running face-first into conservatives’ newest (and most ridiculous) talking point: the one designed to stop Congress from passing an economic stimulus package.

During a Christmas Eve appearance on Fox News, I pointed out that most mainstream economists believe the government must boost the economy with deficit spending. That’s when conservative pundit Monica Crowley said we should instead limit such spending because President Franklin Roosevelt’s “massive government intervention actually prolonged the Great Depression.” Fox News anchor Gregg Jarrett eagerly concurred, saying “historians pretty much agree on that.”

Of course, I had recently heard snippets of this silly argument; right-wing pundits are repeating it everywhere these days. But I had never heard it articulated in such preposterous terms, so my initial reaction was paralysis, the mouth-agape, deer-in-the-headlights kind. Only after collecting myself did I say that such assertions about the New Deal were absurd. But then I was laughed at, as if it was hilarious to say that the New Deal did anything but exacerbate the Depression.

Afterward, suffering pangs of self-doubt, I wondered whether I and most of the country were the crazy ones. Sure, the vast majority of Americans think the New Deal worked well. But are conservatives right? Did the New Deal’s “massive government intervention prolong the Great Depression?”

Ummm … no.

On deeper examination, I discovered…

Continue reading.

Written by Leisureguy

2 January 2009 at 10:54 am

Posted in Business, Congress, GOP, Government

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More on Milton Friedman

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And on his pernicious influence. Barry Ritholtz writes:

Some time ago, I asked if “Milton Friedman was the next economist whose once lauded reputation may soon slide ?”

Turns out it happened much quicker than expected. A long Bloomberg piece, Friedman Would Be Roiled as Chicago Disciples Rue Repudiation, discusses the tarnishment of the Chicago school of thought.

Its long overdue. From the efficient-market theories, to the concept of man as rational profit maximizers, much of the edifice that is was the Chicago school of economics is based on a foundation that is false, disproven or otherwise questionable.

I first encountered the Chicago theory in law school. The Chicagoists somehow read into law a market efficiency component that was never there. I recoiled against it — not because of the libertarianism, which I embraced. Rather, it seemed a backdoor way to circumvent democracy, and force into the legal system rules that were never debated, voted on, or agreed to by a representative government. I found the extremist legal theories of Judges like Richard Posner and Frank Easterbrook intellectually repulsive. They were undemocratic, anti-representative government. When I told a professor that the law and economics movement was an attempt at a political coup, he laughed and said, try to stop it.

I disliked the neoclassical price theory. It was authoritarian, a worship of a form of mob rule outside of the usual legal channels. The view that regulation and other government intervention is always inefficient compared to a free market has now been made laughable.  Its always the extremists that seem to control a discipline or school of thought. If I have any dogma, its extremism in all forms is undesirable (I know, radical, huh)

If there is one silver lining in the entire collapse, its that this group of intellectual charlatans have been revealed as utterly wanting. Oh, there will be some pushback by the Chicagoans. (Watch the comments for the cute little protests from law students who never practiced a day in their lives, and the biz school kiddies who never executed a single trade)…

Continue reading.

Written by Leisureguy

28 December 2008 at 6:34 am

Posted in Business, Daily life, Government

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U of Chicago Dept of Economics: big fail

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Interesting article in Bloomberg by John Lippert. It begins:

John Cochrane was steaming as word of U.S. Treasury Secretary Henry Paulson’s plan to buy $700 billion in troubled mortgage assets rippled across the University of Chicago in September.

Cochrane had been teaching at the bastion of free-market economics for 14 years and this struck at everything that he — and the school — stood for.

“We all wandered the hallway thinking, How could this possibly make sense?” says Cochrane, 51, recalling his incredulity at Paulson’s attempt to prop up the mortgage industry and the banks that had precipitated the housing market’s boom and bust.

During a lunch held on a balcony with a view of Rockefeller Memorial Chapel, Cochrane, son-in-law of Chicago efficient-market theorist Eugene Fama, and some colleagues made their stand.

They wrote a petition attacking Paulson’s proposal, sent it to economists nationwide and collected 230 signatures. Republican Senator Richard Shelby of Alabama waved the document as he scorned the rescue. When Congress rejected it on Sept. 29, Cochrane fired off congratulatory e-mails.

The victory was short-lived. Lawmakers approved the plan four days later, swayed by what Cochrane calls a pinata of pork-barrel amendments.

“We should have a recession,” Cochrane said in November, speaking to students and investors in a conference room that looks out on Lake Michigan. “People who spend their lives pounding nails in Nevada need something else to do.”

Read the rest of this entry »

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28 December 2008 at 6:31 am

Posted in Daily life, Education, Government

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Discussion of depression economics

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There’s a very good discussion going on over at TPMCafé Book Club concerning Paul Krugman’s new book The Return of Depression Economics and the Crisis of 2008. Various economists post short posts about the book or in reply to other posts. A couple of examples from the thread:

Dean Baker writes:

Now that economists have finally discovered that asset bubbles can be harmful (next week, they learn about the shape of the earth), we are getting a debate about how to deal with them. I’m sure that this debate can provide full-time work to hundreds of economists, but at the risk of sending some of my colleagues to the unemployment lines, let me suggest a simple solution: talk.

Economists seem to hold a bizarre view, that it is both very important that people like Fed chairs and Treasury secretaries be careful about what they say, but also that what they say does not really matter. While such contradictions are standard for the economics profession, I will argue that what these folks say can really matter.

Read more »

The discussion begins with Paul Krugman’s post at the bottom of this page, with the subsequent posts above (a push-down stack). That is, the next sequential post is Brad DeLong’s post immediately above the Krugman post, where Brad has a couple of questions. Worth reading.

Lila Shapiro’s introduction:

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Written by Leisureguy

19 December 2008 at 8:54 am

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Economists’ view of human psychology

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Tom Hollenbach has an intriguing post, criticizing some assumptions on which economists have traditionally relied. The post begins:

Economics fascinates me.  It’s the closest thing we have to a truly explanatory social science, and many of the theories that have been developed are truly useful and have helped many societies to prosper.  I have to say, however, that it is probably the oddest science I have ever seen.

Economics is odd because it started out as an exercise in deduction, kind of like the Euclidean geometry you took in high school.  Economists, like contemporary philosophers in their day, started out by making assumptions and deducing the consequences that followed from them.  While this served economists well at the time, I think that the continued attachment to this obsolete way of interpreting reality is causing serious problems.

Most economists, and especially those of the rational expectations school, like to start out by assuming that human beings operate by rationally calculating their self-interest and then acting according to these rational calculations.  As a psychologist, my reaction to that assumption is: Are you kidding? Have you ever MET a human being? Did you grow up on Mars? As a psychologist, I see people acting irrationally, making miscalculations, and operating against their self-interest so often, that the fundamental assumption of economic theory strikes me as obviously and patently absurd.

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Written by Leisureguy

10 December 2008 at 9:09 am

Posted in Daily life

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Krugman talks

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Written by Leisureguy

6 December 2008 at 10:12 am

Posted in Business, Daily life, Government

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