you have outlined the wage scaling of a manager here
entrepreneurial income per se
is reward for innovation
the market value of a brilliantly novel
business plan
is like that of a useful patent ...somewhat

marx called these "products" of universal labor
and in this age of "intellectual property " ie intelectual legal monopoly
the rewards to the producers of this "universal labor"
as opposed to
the rewards to the labors of commodity producers
become center stage items

as to return on capital per se
the actually heart of surplus value theory
you haven't even touched it here

that it's cabled togather with entrepreneurial innovation and get up and go
is a sad commentary on the successful muddling of these complex interthreaded "motifs"

if that weren't enough the threads themselves are braids of threads
and so forth

better to conclude with the interpenetration of opposites doctrine
and resign yourself to further action
as the contradiction expresses itself and you produce it's expression

.

"it (labor) produces all exchange value
and is the only active producer
of use values (as use values iethe procut or outcome of acts with intent
ie intent to be to be useful to servce certain pre "seen" ends
actions only a self concious being can make
--ie not a bee making that geometric perefection a hive cell --

Rawls on Marx; December 1973, by Daniel Little: John Rawls taught a course on the history of political philosophy throughout much of his career at Harvard University. The course contained his description and analysis of the most important figures in modern political philosophy, including Mill, Locke, Rousseau, Kant, and Marx. The course evolved over time; the final version from 1994 is edited in Samuel Freeman's Lectures on the History of Political Philosophy. I served as graduate assistant in Rawls's lectures on this subject in fall 1973, and recently reread my notes of the course. Here are my notes of a particularly important lecture towards the end of the course: Rawls's treatment of Marx's ideas about economic justice. This lecture demonstrates Rawls's understanding of the fundamentals of Marx's economic theories and the labor theory of value. (I am inclined to think that Joseph Schumpeter's History of Economic Analysis (1954) was an important source for Rawls on the history of economic thought, including Marx's economics, though I can't at this moment confirm this.) This lecture is particularly significant in that it is roughly simultaneous with the emergence of "analytical Marxism" announced by the publication of an important article by Allen Wood, "The Marxian Critique of Justice" in Philosophy and Public Affairs in 1972 (link).

MARX'S ATTITUDE TOWARDS THE THEORY OF JUSTICE

John Rawls, History of Political Philosophy, Phil 171, fall 1973
Notes from lecture, December 11, 1973
[notes taken by Daniel Little; intended to capture Rawls's formulations of the main points presented in the lecture]

[Quoting Rawls:]

Capital seems to be a description of an unjust society. The owners of the means of production live in relative abundance and idleness at the expense of the ever-growing class of wretched laborers. But Marx doesn't make any attempt to present an argument that capitalism is unjust, nor any concept of justice which would back up such an argument. Moreover, we have vitriolic criticisms of utopian socialists who did condemn capitalism on the grounds of justice. Marx asserts on the contrary, that capitalism is perfectly fair, perfectly just. Why so?

(a) It is not enough to say Marx is averse to preaching or moralizing. He is so averse; but judgments of justice can be reasoned and hence not properly described as "preaching".

(b) It is not enough to say that he didn't want the critique of capitalism to rest on some social ideal. He does reject the utopian socialists' program; but that would not prevent him from stating his own opinion. And he doesn't do that either. He reproaches the utopians for not realizing that some major social change must precede an adjustment along moral lines.

Here is my conjecture as to why Marx didn't judge capitalism unjust. He thinks of justice as a political and juridical conception which is associated with a particular conception of the state and society; so it belongs to the prehistory of mankind. Given his picture of human society, these political and juridical institutions belong to the superstructure, and reflect the workings of the mode of production. For each mode of production there is a conception of justice appropriate to it, at least in prehistory. A further qualification: It is worthwhile to distinguish between the high time of a form and its low period -- where the form is a progressive force and where it stands in contradiction to the mode of production.

Here is a brief discussion of justice in Capital III:
To speak here of natural justice, as Gilbart does, is nonsense. The justice of the transactions between agents of production rests on the fact that these arise as natural consequences out of the production relationships. The juristic forms in which these economic transactions appear as wilful acts of the parties concerned, as expressions of their common will and as contracts that may be enforced by law against some individual party, cannot, being mere forms, determine this content. They merely express it. This content is just whenever it corresponds, is appropriate to the mode of production. It is unjust whenever it contradics that mode. Slavery on the basis of capitalist production is unjust; likewise fraud in the quality of commodities. (Capital III, 339-40)
Here Marx conceives of justice in terms of adequacy to the mode of production. (1) The justice of legal forms cannot be discovered on the basis of those forms alone. Rather it depends upon their adequacy to the mode of production. The juridical institution is formal; to give it content we must look to the way of life and its requirements. A consequence: There is no universal theory of justice which allows us to evaluate generally the social institutions of any society. There is no general principle like "slavery is always unjust." There are thus no general rules of natural rights, no universal justice. (2) This adjustment of justice to the mode of production doesn't mean there are no injustices. Slavery is unjust under capitalism; wage labor is just under capitalism, provided that the worker is paid the value of his labor power.

This view seems to suggest a sort of relativism; but this would be a faulty conclusion. We have a theory matching theories of justice with modes of production, and we might at some time find a function systematically linking them.

Let's now try out this suggestion on the conception of surplus value. The utopians argued that workers ought to be paid the value of their contribution to the firm. Since they are not, capitalism is unjust. Marx rejects this view. It makes the appropriation of surplus value appear accidental -- as if the capitalists could act differently. Marx required a theory of value which made the appropriation of surplus value a necessary part of the capitalist system. On the theory of value every commodity is exchanged for a strict equivalent.

Marx distinguishes between the product of labor and labor power. The worker is given the value of his labor power, not his product. It is on this ground that he is fairly treated. Thus he is undercutting the Ricardian socialist position by rejecting and replacing the principle of contribution. It is the system itself which brings about surplus value, not the behavior of individuals who violate moral principles. Surplus value is an intrinsic part of the working of the social institutions of capitalism.

Consider the description of the production of surplus value in Capital.
Every condition of the problem is satisfied, while the laws that regulate the exchange of commodities, have been in no way violated. Equivalent has been exchanged for equivalent. For the capitalist as buyer paid for each commodity, for the cotton, the spindle and the labour-power, its full value. He then did what is done by every purchaser of commodities; he consumed their use-value. ... This metamorphosis, this conversion of money into capital, takes place both within the sphere of circulation and also outside it; within the circulation because it is conditioned by the purchase of the labour-power in the market; outside the circulation, because what is done within it is only a stepping-stone to the production of surplus value. (Capital I, p. 194)
The fact that surplus value arises is a piece of good fortune for the buyer, but no injustice to the seller.

Marx thus rejects the Ricardian principle of contribution. He finds it a bourgeois notion, basing property rights on one's labor.

Summing up. (1) Marx views the notion of justice as a virtue of legal forms and institutions, and thus perhaps it is a notion which belongs to prehistory. The state depends upon the mode of production. (2) Marx doesn't deny that the various conceptions of justice have formal features in common -- exchange of equivalents for equivalents -- but the notion of what is equivalent is determined in different ways. Marx would be prepared to admit that capitalism in its high period is just. One reason he rejects the utopian's argument is that it is misleading. It rests on a misapprehension of where the essential problem lies: not in the superstructure, but in the mode of production. He felt that the key enterprise is to give a scientific theory of the mode of production.

A second point: justice is a distributive notion. The appeal to justice suggests that we can separate the mode of distribution from the mode of production. This is for Marx incorrect. Appeals to justice are thus supposed to be superficial. Moreover, appeal to justice suggests that important social change can be achieved by legislation.

[Other relevant materials from the course:]

From the syllabus:

(a) Marx's criticism of the liberal state; (b) His attitude towards theories of justice; (c) The theory of alienation and exploitation; (d) The conception of rational human society

Final exam questions on Marx:

4. Present and discuss Marx's theory of alienation (as developed in the Economic and Philosophic Manuscripts)
5. Present and discuss Marx's theory of historical materialism (as developed in the German Ideology)
6. Present and discuss Marx's analysis of historical change in the Communist Manifesto.
7. Outline Marx's analysis of the basic characteristics of capitalism: the social relations which define it and the nature of the form of economic production.

Posted by Mark Thoma on Wednesday, March 10, 2010 at 02:14 AM in Economics, History of Thought Save to del.icio.us Tweet This Permalink Comments (101)

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paine said...
the task
is to discover the laws of motion intrinsic to the mode of production

rawls see only the super structure in stasis
as must justice seekers at all times

the necessary material premise
of any justice system
is always in the process of "undermining itself "
and therefore undermining its system of justice

Reply Mar 10, 2010 at 04:49 AM

bakho said...
The human concept of justice and shared wealth has a genetic component that is hardwired into our innate behaviors. Gross inequality is necessarily maintained by force and defeated by force. If institutions cannot address issues of wealth inequality, societal disruptions will.

Reply Mar 10, 2010 at 04:58 AM

paine said in reply to bakho...
bakho

you are a nature boy eh ???

Reply Mar 10, 2010 at 05:03 AM

cm said in reply to bakho...
What you point out is consistent with Marx. As I see it, Marx essentially saw the driver in your societal disruptions in growing discrepancies between the modes of production and distribution (mediated in good part by the superstructure). "Superstructure" is largely a more fancy term for "system of exercising power" (and channeling/organizing social (power) relationships).

Reply Mar 10, 2010 at 10:20 PM

paine said...
exam question 4
shows a tilt
towards the fuzzy marx of the humanist types

the others
share a certain stale scholasticism

using the expression pre history
again comes from the young romantic left-feurbachian marx

i strongly suggest it not be used in common discourse

the phrase below here paraphrased
announces the arrival of the full "outline"
gestured at in question 6

all history up until now
(of state centered societies )
is the history of class struggle

the portions by marx in german ideology
are written with fly scratch teutonic complexity
and read like the untransformed
late hegelian rhapsodies they both mock
and struggle to escape from

Reply Mar 10, 2010 at 05:02 AM

anarcho said...
"Marx distinguishes between the product of labor and labor power. The worker is given the value of his labor power, not his product."

Actually, Proudhon was the first to argue this "Marxist" position in 1840's classic "What is Property?" -- as he put it, workers produced more value than they received in wages:

“Whoever labours becomes a proprietor . . . And when I say proprietor, I do not mean simply (as do our hypocritical economists) proprietor of his allowance, his salary, his wages, – I mean proprietor of the value his creates, and by which the master alone profits . . . The labourer retains, even after he has received his wages, a natural right in the thing he has produced.”

Property meant “another shall perform the labour while [the proprietor] receives the product.” So the “free worker produces ten; for me, thinks the proprietor, he will produce twelve” and so to “satisfy property, the labourer must first produce beyond his needs.” This is why “property is theft!”

From: Introduction: General Idea of the Revolution in the 21st Century
http://anarchism.pageabode.com/pjproudhon/introduction.html#on-exploitation

This is the introduction to a new anthology of Proudhon's writings called "Property is theft!" (due out later this year) -- some material is on-line already:

http://www.property-is-theft.org

Proudhon: “Property is the right to enjoy and dispose of another’s goods, – the fruit of another’s labour”

Reply Mar 10, 2010 at 05:06 AM

OhNoNotAgain said in reply to anarcho...
"Marx distinguishes between the product of labor and labor power. The worker is given the value of his labor power, not his product."

Yes, but was Marx advocating otherwise ? I read the above to indicate that Marx thought that it was perfectly just for labor to be compensated simply on the basis of their input.

I know very little about Marx other than the cursory knowledge that most people possess, so the above is indeed an actual question. :-)

Reply Mar 10, 2010 at 05:28 AM

paine said in reply to OhNoNotAgain...
"I read the above to indicate that Marx thought that it was perfectly just for labor to be compensated simply on the basis of their input."

yes that is precisely his view
because justice in this case is the bourgois justice of commodity exchange of equal values

the peculiar commodity labor power
unlike other imputs that are themselves all the product of use producing human labor --at the margin--
needs to be followed
into the places of capitalist production
to watch "it" "produce use values "
that are higher in exchange value
then the exchange value contained
"in their own production"
and sale by the hour as commodity services

btw way a barber cutting your hair does get the full value of his service
if he runs his own shop and "owns it"
free and clear

capitalists find ways to employ barbering power at this full hourly value and yet say by using a cutting machine owned by the capitalist
doubling their output of haircuts per hour
and pocketing the difference

fair v??
of course it is the barber couldn't net more per hour own his own eh ??

by a cutting machine pal...
but then we get division of barbery into unskilled parts and the plt thuckens
or we get many barbers organixed into one "advertised spot by a capitalist
or or or

Reply Mar 10, 2010 at 06:30 AM

OhNoNotAgain said in reply to paine...
"by a cutting machine pal...
but then we get division of barbery into unskilled parts and the plt thuckens
or we get many barbers organixed into one "advertised spot by a capitalist"

Indeed, it thickens. What would one say about an employee-owned business ? Are the workers exploiting themselves ? :-)

For me, the issue is more one of access to capital. Yes, one can always say that a stylist working for Supercuts, or something similar, can go out and start their own shop at any time. But, does said stylist make enough money to be able to save for such an occasion, and in reality, do our community banks do a good enough job of making micro-loans available to people that need a little extra startup capital ?

Reply Mar 10, 2010 at 05:33 PM

paine said in reply to OhNoNotAgain...
"What would one say about an employee-owned business ? "
no exploitation

" the issue is more one of access to capital"
be careful

access to credit
in this case for marx capital is the name for funds used
for exploitation
ie to create a surplus value
there is no exploitation so just call it credit

and yes access to credit has crimped many a
workers/producers co op

the co op gets rejected
by the surrounding capitalist system
like a thiefs body would reject
an angel's heart

Reply Mar 11, 2010 at 12:33 PM

paine said in reply to anarcho...
you fail to see
the exchange value of the commodity labor power
and the use value its "labor time " produces

is not the same as labor time as exchange value the common post ricardian left conflation

marx held that labor per say does not have value
exchangge value or use value
it produces all value
it is a social construct as difficult to define
as the meaning of the english word " is "

the point is to distinguish the value of the commodity purchased labor power
and the value produced by its consumption
ie its use in production of useful products
the exploitation is purely a dynamic outcome
ie the production of use values with highjer exvchange value then the commodity
that produces it ie labor power

Reply Mar 10, 2010 at 06:15 AM

julio said in reply to paine...
You are focusing on two things where I see three

the labor "power" which is a misuse of the word when applied to the commodity, the thing that gets me a seat at the exchange table

the use value created from that which is the pot we'll split

the rules of the negotiation which is where "power" comes in

If I'm sitting at the table selling my labor "power" I'm wearing two hats, commodity and salesman. The former does not have any "power" (which is why slavery or $1/day jobs are the same and equally moral or immoral within the capitalist system why is $0 such a different number than $1)

Reply Mar 10, 2010 at 11:36 AM

paine said in reply to julio...
julio

i love you man
but this is julioism not marxism

"the use value ... is the pot we'll split"
first off its the exchange value not the use value
that's on the table here
if looked at properly
ie at the level of the capitalist enterprise

but still
no we'll split nothing
not even the exchange value

i've already bought your laboring services
i own the exchange value your product

and the use value to me of your laboring services is not the use value of your product --which is relevent to my customer not me--
no your use value to me julio
is the exchange value difference between your times "market value" as a commodity
and that time's product's market value as a commodity

the rest is merely the julio use of vthe word power
a perfectly useful use indeed
since power is a perfectly good word
in the abstract sense of bargaining leverage
ie bargaining power
as covered nicely in marx's popular pamphlet
wages price and profit
where he indeed certifies the use value of union action in the wage bargain
with his vown particular wrinkle

limit total working hours boys and girls

something my hero sandwitch man never fails to champion

as well as knocking the wages fund theory in a cocked hat
a theory that made nairu theory un necessary ...
by wonderland style assumptions

Reply Mar 10, 2010 at 11:57 AM

julio said in reply to paine...
and I love you back but not this:
"and the use value to me of your laboring services is not the use value of your product --which is relevent to my customer not me--
no your use value to me julio
is the exchange value difference between your times "market value" as a commodity
and that time's product's market value as a commodity"

Isn't this last number just the difference between what you pay me (exchange value of my labor) and what you charge for the portion of my services built into the thing you sell?

You "already bought the exchange value of your product" -- no, that is the transaction I'm focusing on, at which price did you purchase it and how was that price determined

The exchange value you define here is not some quantity determined mathematically by some "market forces" which determine some "market value"

It is just a number bounded from below by starvation and above by the "market value" of the commodities the capitalist sells to the customers ("market value" assuming said customers have some choice)

the number changes e.g. when capitalists buy senators.

Re "julioism vs marxism", yes, I know, I need to RTFM.

Reply Mar 10, 2010 at 12:58 PM

paine said in reply to julio...
julio

you operate at the factory door
where the worker for wages meets the capitalist
and settles on a wage rate

then he enters the factory
his time bought he is now an instrument of the capitalist
but a unique instrument because all exchange value is embodied labor time
it gets complex indeed along the route
but this fact remains thru
the transformations of the system as a whole

you aren''t wrong
you are just super imposing the market relations
where the production relations belong
and are described by marx

production is jointly of use values and exchange values
the product the commodity contains both

now read hegel to discover how complexly
these two
can interact
enough to spawn
the money commodity gold
the natural commdity land
and the human commodity labor power
all of which pale in comparison to the credit system

Reply Mar 10, 2010 at 01:48 PM

paine said in reply to paine...
"labour is the sole source of exchange-value and the active source of use-value, "
k marx

Reply Mar 10, 2010 at 05:44 PM

julio said in reply to paine...
"now read hegel to discover how complexly
these two
can interact "

I knew I was going to have to RTFM.

Reply Mar 10, 2010 at 06:27 PM

paine said in reply to julio...
"why slavery or $1/day jobs are the same and equally moral or immoral within the capitalist system why is $0 such a different number than $1"
read marx on our civil war

in essence the wage labor form of production collides with the chatel labor form of production
and defeats it
ultimately
because it is a more productive system
in myriad ways i won't "belabor"
thus values follow productivity if you want to be mephisto ish about it

i simplify terribly
alas i'm lazy

Reply Mar 10, 2010 at 12:01 PM

john c. halasz said in reply to julio...
"Arbeitsvermoegen"- "labor-capacity". Marx was fluent in English, so he chose the translation, but "power" is meant in the sense of an exercise of a capacity, not domination or control over the will of others, ("Macht" or "Herrschaft"). (If one wanted to be perverse, one could try "labor-virtue", in the archaic Elizabethan sense whereby a thing, such as a medicine, could possess a virtue). Also, since word-roots are always exposed in German, "moeglich" means "possible" or "potential".

The point is that the worker doesn't realize himself through his labor or in its products by reproducing the conditions of his existence. Rather he is already alienated from the get-go and converted/objectified into a commodity, labor-power, as a condition for the reproduction of his existence. But it is not the worker who realizes "value" through his "voluntary" labor. Rather value is measured as abstract, average, socially necessary labor-time, which is abstracted/extracted by the system of social relations of exchange and production, (which constantly transforms value in the course of its unfolding/"development"). Which is why Marx constantly emphasizes that commodities are always exchanged at equivalent value. But capital goods and labor-power are distinct from other commodities in that their only use-value lies in the production of exchange-values, which is a crucial point in understanding the source of surplus-value and its distributions, i.e. in understanding the dynamics that drive the system as a "whole". (Capital goods, though they progressively enhance the productivity of labor, for instance, nonetheless can't be measured in terms of a sheer physical surplus, and since they are exchange at equivalent value, they are accounted at replacement rather than historical cost, which becomes a crucial component in the dynamic by which capital effectively depreciates itself under competitive conditions and increasing "masses" of physical capital stocks come under concentrated ownership at lessened "value"). Hence Marx is not opposed to the extraction of surpluses per se, since it builds up the future productive potential of the unfolding system, and exploitation is more a functional than a normative concept. Marx' appeal to the revolutionary praxis of a self-emancipating working class is at once situated with in and aimed at the unfolding dynamics of the system, not at ensuring the workers act in their own "interests" and maximize their fair share of their output under current conditions; rather the aim is to transform the systemic relations and conditions by which surpluses are abstracted, distributed and directed. The "ultimate" prospect he espies is that the "forces of production", i.e. both the work force and the accumulation of its technical means and endowments, will come into increasingly exacerbated "contradition" with the dominant "relations of production"; in other words, the private profit driven development of the potential of the productive system will become an increasingly obstructive constraint on the full development of technical means and laboring capacities.

paine might not like it, but Marx' thought is thoroughly indebted to Hegel's, entangled with it, and only half-way and with partial success makes a break with his illustrious predecessor. (And Hegel, though thorny, is by no means nonsensical or incomprehensible, though one has to understand his relation to and criticism of Kant to gain a purchase on where he's coming from). To understand Marx, one must realize, contrary to empiricist traditions, that he views the world as a human objectification, and thus remains bound up in a humanist/"anthropological" perspective, no matter how radically historicized and critically refined. That perspective on the world as a human objectification is by no means nuts, nor is it fully conceptually adequate. But it doesn't make an absolutely crucial difference whether the source and agency of that objectification is taken to he consciousness/mind/spirit or the organization of social labor activity. But once one grasps the "objectification" perspective, then the normative elements in Marx' thinking, which Rawls can't detect with his Analytic qua-Kantian means, begin to come into view. For one thing, Marx follows Hegel in holding that social/ethical norms have no meaning or reality, as mere Kantian ideal "oughts", except as anchored in the recognitions of actual social relations ("Sittlichkeit"). Where Marx breaks with Hegel is in refusing any merely idealist and political notion of reconcilation of social and political conflicts and "contradictions", insisting that social relations and their recognitions are rooted in a socio-economic base. And in refusing Hegel's idealist reconciliation of prevailing social relations in thought, in favor of their real and material organization, though the world is still a human objectification for Marx, it is and remains an alienated one. Hence Marx' distinctive conception of ideology and its critique, as part of his overall project. Ideology is not mere illusion, but a distorted, misrepresented account of prevailing social norms, which invertedly mis-recognizes and misunderstands the actual context and dynamic of prevailing social relations. But, though disguising prevailing power relations and misrepresenting the actual basis of social relations, ideology contains, willy-nilly and against itself, genuine, if distorted and incompletely recognized, normative contents, which Marx seeks to uncover and turn against their rationalization of prevailing conditions. It makes no more sense to Marx to moralistically denounce the alienated condition of the social world than to idealistically imagine its reconciliation. Traditional morality was sheerly oppressive, but to moralize current conditions as already "emancipated" amounts to immorally rationalizing alienated conditions as the height and scope of "morality", over against the overwhelming weight of material reality, "the preponderance of the object". Hence Marx' amoral stance. The point is to work to transform the objectification process to the point where it becomes no longer alienated, but consciously and collectively assumed. Then the material and social conditions for the application of the occluded and distorted norms of ideology would become actually possible. But then such norms, when really applied, would look utterly unlike what we currently take "morality" to be. Not the sort of "justice" based on mutual antagonism, immiseration and renunciation. (Oscar Wilde remarked in "The Soul of Man under Socialism" that he was in favor of it, because it would do away with "altruism", i.e. the constrained falseness and hypocrisy, the scarcely disguised egotism, of "concern" for (lesser) others).

Lastly, there is an Aristotelian element to Marxian normativity, an emphasis on the development of capacities rather than the elaboration of rights and duties, in Kantian fashion, (with its motivational aporias). Not just for reasons of political economy and technological development and material plenty does Marx emphasize production. Also, because, (along with Aristotle and the "Bildung" beloved by Schiller and the German Idealists), he conceives of productive or fruitful and self-formative activity as the mark of the good life, as the realization of human worldly fulfillment.

Reply Mar 10, 2010 at 06:11 PM

cm said in reply to john c. halasz...
Let me offer the shorter explanation "labor power as in horse power".

Reply Mar 10, 2010 at 10:27 PM

john c. halasz said in reply to cm...
Ya. Too much Stalinist indoctrination.

Houyhnhnm power!

Reply Mar 10, 2010 at 10:51 PM

julio said in reply to john c. halasz...
Yeah, got it about "power".

Really appreciated the rest, still scratching my head about it.

Maybe I need to look it up in Yahoo.

Reply Mar 11, 2010 at 11:38 AM

paine said in reply to julio...
not that your use wasn't possible

but the struggle over
the wage the conditions and the day
is kindergarten class struggle
unions being those kinder gartens

imagine what that makes
the university campus ???

alas however its with unions we start
and after a series of nasty set backs
where ...like now ...we start again

Reply Mar 11, 2010 at 01:26 PM

paine said in reply to john c. halasz...
i can't read all this

is it correct i gotta trust you johnny
filling in my blanks
i got down to

"Marx constantly emphasizes that commodities are always exchanged at equivalent value"
it is an assumption to isolate the
deep structure source of surplus value
much of this he removes in vol three when he does his transformation
but not quite all and the rest of the loosening needs to be done to get the real interaction between use value dynamics ie
the impact of new products and processes
the wild heterogeneity of firm innards and outcomes
--he drastically over uses averaging
too bad he studied calc to late to join the marginalist "reformation"--

"capital goods and labor-power are distinct from other commodities in that their only use-value lies in the production of exchange-values, which is a crucial point in understanding the source of surplus-value and its distributions,"
this may be off base if i understand it correctly

capital goods are definitely all about use value

nice marx axiom paraphrased slightly perhaps:

"all exchange value comes from human labor and all active use value comes from the same animal power... human labor"

use value is crucial here to the dynamics of the price system and the working thru of surplus value to the surface of the system
ie exchange and from there back down under again

too much marx exposition emphasizes
the very abstract micronomics of vol one
and then leaps to the decling rate of profit
which their model can't explain
and is crucial to the whole faustian dynamic of "capital" as a system with progressive agency in clios big show
--err engels as editor and redactor
does a pretty poor job of this himself in vol three --
vol one up front iognores the intricate play of use values
again to isolate the nexus in production
of exploitation
oddly the point that seems to get dropped by marxian revisers
despite karlos sacrificing concretion to expose it

and so is the laborers productive efforts

Reply Mar 11, 2010 at 12:53 PM

john c. halasz said in reply to paine...
"it is an assumption to isolate the
deep structure source of surplus value
much of this he removes in vol three when he does his transformation"

Ya, I was attempting the "Cliff's Notes" version, as much else is above my pay-grade. I wasn't trying to explain inter-sectoral differences in the "organic composition of capital" and how that might be resolved in terms of LTV. The point was that such an assumption of the exchange of equivalent values serves to bring out the underlying explanation of surplus value, to julio et alia. One can't eat idled machinery: it goes to the scrap heap. And one can't eat idled labor-power: unemployment = starvation. Man ist, was er isst.

BTW what is your take on the TSS claim that the "transformation problem" doesn't exist, is the result of a neo-classical misreading? Because, (the double counting issue aside), the point is, unsurprisingly, an exact inversion of Marx' actual point: labor-values don't need to be converted into prices/costs-of-production, because costs/prices-of-production can't be determined without first determining the distributions of surplus-value.

Reply Mar 11, 2010 at 09:31 PM

paine said in reply to john c. halasz...
"the private profit driven development of the potential of the productive system will become an increasingly obstructive constraint on the full development of technical means and laboring capacities"
exactly

and we see these irrational fetters
right now ...every where
as capacity remains idled
while the system resets itself

Reply Mar 11, 2010 at 12:54 PM

paine said in reply to john c. halasz...
"paine might not like it, but Marx' thought is thoroughly indebted to Hegel's, entangled with it, and only half-way and with partial success makes a break with his illustrious predecessor"

i couldn't agree with you more

mighty hegel stands at carl's shoulder
as he does lenin's

i caution however hegel has been used by friends of catl
to modify his "findings "
the early marx may well still contain
phenotypic expressions of his great progenitor's
meme code
but by say 1860 or so marx and his writings
have become
totally the expressor and expression
of his own evolved -- "lysenko style" heh heh --
memotype

Reply Mar 11, 2010 at 01:00 PM

paine said in reply to john c. halasz...
"remains bound up in a humanist/"anthropological" perspective, no matter how radically historicized and critically refined"
no this might be true up till the german ideology
but ..and of course here we get into controversial waters
i find tedious ...
but by capital writing time this vestigial late hegelianism has been shucked

alas here we totally disagree:

"it doesn't make an absolutely crucial difference whether the source and agency of that objectification is taken to he consciousness/mind/spirit or the organization of social labor activity."
that sublation of the hegel mind model
is crucially different
now praxis begins in the world not the head
between folks and between themselves and nature

not some spooky higher mind diachronics

expressing the self unfolding world historical ..spirit

these forms are however twins
like castor and pollux
only one however
also like c and p
is mortal and real

Reply Mar 11, 2010 at 01:08 PM

paine said in reply to john c. halasz...
"Marx follows Hegel in holding that social/ethical norms have no meaning or reality, as mere Kantian ideal "oughts", except as anchored in the recognitions of actual social relations ("Sittlichkeit"). "
exactly and in carrying this insight forward
he out hegel's hegel

Reply Mar 11, 2010 at 01:09 PM

paine said in reply to john c. halasz...
"Ideology is not mere illusion, but a distorted, misrepresented account of prevailing social norms, which invertedly mis-recognizes and misunderstands the actual context and dynamic of prevailing social relations. But, though disguising prevailing power relations and misrepresenting the actual basis of social relations, ideology contains, willy-nilly and against itself, genuine, if distorted and incompletely recognized, normative contents, which Marx seeks to uncover and turn against their rationalization of prevailing conditions."
you are on stronger ground here johnny

this is your home turf
and where hegel the phenomenologist
is most helpful to us britmeme
based poli econ con trained dolts
trying to recover from our bald empirio- positivism cum euclidian platonism

Reply Mar 11, 2010 at 01:13 PM

paine said in reply to john c. halasz...
"The point is to work to transform the objectification process to the point where it becomes no longer alienated, but consciously and collectively assumed."
ecessively hegelized and precarious
a pilgrim's progress take on the class struggle
the diff

world historical classes
--to wax hegelian here--
can keep plugging away till they break thru
to the next stage

no one head needs to hold it all or even any sine qua non hunk of it all
since its fragmentation is continuous and
a braid of interpenetrating essences

yikes what a can of worms you've openned here comrade

Reply Mar 11, 2010 at 01:18 PM

john c. halasz said in reply to paine...
Ah! At the very least, you're forgetting the "Dionysian revels" line from the intro to the PhG.

Reply Mar 11, 2010 at 09:57 PM

paine said in reply to john c. halasz...
(Oscar Wilde remarked in "The Soul of Man under Socialism" that he was in favor of it, because it would do away with "altruism", i.e. the constrained falseness and hypocrisy, the scarcely disguised egotism, of "concern" for (lesser) others).

lovely

the capitalist as dorian gray
and "joe "from little women
all rolled into one

Reply Mar 11, 2010 at 01:21 PM

paine said in reply to john c. halasz...
" he conceives of productive or fruitful and self-formative activity as the mark of the good life, as the realization of human worldly fulfillment. "
ya he's no bishop butler
the real men don't dance with time and place
they wrestle it to the ground

Reply Mar 11, 2010 at 01:23 PM

Sandwichman said...
The author of the anonymous 1821 pamphlet, "The Source and Remedy of the National Difficulties" (believed to be Charles Wentworth Dilke) was the first to distinguish between the value of labor power, expressed in abstract units of labor time, and the value of the product of labor. The pamphlet's influence on Marx's view of surplus value is made clear only in the manuscripts and in a comment by Engels about how Marx "rescued" the pamphlet from obscurity (some rescue).

In his critique of "traditional Marxisms", Moishe Postone argued that the varieties of Marxism abandoned Marx's example and focused instead (and mistakenly in Postone's view) on issues of distribution and justice.

Reply Mar 10, 2010 at 07:12 AM

paine said in reply to Sandwichman...
sandy
its been a few years
and i haven't the text b4 me
but my sum up on dilke's grasp of this was

in the end snarled in half steps misteps and backward slips

among the posse of left ricardians
his relative originality
is unclear to me

as you know second only to refuting marx's surplus value theory
is claiming it was fully and clearly anticipated

i submit neither is true but both aide the class enemy

though i'll not waste a moment more on it
let alone hacking up the analytic marxian "school"
whicch ended up neither a school nor marxian

not even marxiod

dilke's grasp might generously be compared
to smith's grasp of classical school's ltv
compared to ricardo's it lacks final somplicity and clarity
one needs to emphasize marx had a theory of surplus value

ricardo despite sraffa has none

hell only marxist have one

but don't say so to john eatwell

---
sandman
i know your noble identification
with utterly over looked
under a toadstool geniuses like dilke here

but isn't dilke better portrayed as a brilliant pre figuation
not even a john the baptist

your narrative strikes the naive reader as
a claim of plagiarism against the moor
a charge he hurled with mighty indignation
at others like burke and malthus
and js mill

Reply Mar 10, 2010 at 10:49 AM

Sandwichman said in reply to paine...
"your narrative strikes the naive reader as
a claim of plagiarism against the moor"

In that case the reader needs to stop being so naive. Marx's use of Dilke was not "plagiarism." Nor was his analysis of surplus value 100% original. Nor did Marx give as much acknowledgment of Dilke's influence in his published work as might be indicated in his unpublished manuscripts.

My position is that the differences between Marx's and Dilke's analysis give a fuller picture than either by itself.

Reply Mar 10, 2010 at 01:10 PM

paine said in reply to Sandwichman...
i stand chastiesd and corrected

marx was nat plagiarizing
then
he was giving too little "acknowledgement"

a fine point perhaps but a real one

marx often gives us vast displays of erudition
and he's not quite to claim originality
but the distinction between labor and labor power
as semi mystical as it may seem given the word choice in the lebeing
he did indeed claim for himself
much as engels made claims for his solution of the values into prices transformation
with no end of sterile reformulation
and gabble collecting around that question
every since
though done the right way
i think it addresses lots of kleen issues about marx and dynamics and exploitation
and the formation of a general profit rate
and of surplus valu so aquired and its
marvelous agency
in technical innovation
a systemic incubus but quite distinct
in its elastic dynamism
compared to say
a sales tax

but maybe here the anon source
that sandy suggests had a handle on this distinction
was not renowned enough to display
beyond a few perfunctory nods in the page notes
toward the left ricardians in general

given their lower order origins
not the best of shows by carlos ...eh ??

Reply Mar 10, 2010 at 03:35 PM

paine said in reply to paine...
marx on dilke's advance:

"This scarcely known pamphlet (about 40 pages) [which appeared] at a time when McCulloch, “this incredible cobbler”, began to make a stir, contains an important advance on Ricardo. It bluntly describes surplus-value—or “profit”, as Ricardo calls it (often also “surplus produce”), or “interest”, as the author of the pamphlet terms it—as “surplus labour”, the labour which the worker performs gratis, the labour he performs over and above the quantity of labour by which the value of his labour-power is replaced, i.e., by which he produces an equivalent for his wages. Important as it was to reduce value to labour, it was equally important [to present] surplus-value, which manifests itself in surplus product, as surplus labour. This was in fact already stated by Adam Smith and constitutes one of the main elements in Ricardo’s argumentation. But nowhere did he clearly express it and record it in an absolute form."

Reply Mar 10, 2010 at 03:45 PM

Sandwichman said in reply to paine...
And it would have been better all around had Marx included the above acknowledgment, or something like it, in Capital instead of retaining it in his unpublished manuscript. It took an unrelated charge of "plagiarism" -- in this case regarding the prior claim of Robertus -- to draw out of Engels the prior attribution of "surplus produce" to the anonymous pamphlet.

I hold no grudge against Marx, though, for such a trivial breech of scholarly etiquette. He more than made up for it by the monumental contribution he made to the analysis of the concept of surplus vale.

Reply Mar 10, 2010 at 07:04 PM

beezer said...
The concept that labor is given the value of its "labor power," I like. But who "gives?"

One isn't "given." One "gets," and what one gets is based upon one's "power."

If you're Madonna, the power is in the talent and its scalability. If you are labor, the power is in the labor union--which provides scalability.

No union. No power. Race to the bottom for labor. Race to the top for executives and their owners.

Reply Mar 10, 2010 at 07:19 AM

paine said in reply to beezer...
beezer
you are mistaking use value for exchange value
and allow them to play each others parts
this way confusion reigns
you also dangerously venture into
non commodity type
commercial products
like madonna recordings
for commodity products
the differentiation is accidental
and without substance
--note this sense of commodity we retain today
to distinguish it from industrial products
that are complex and heterogenious
a commodity to marx is a product of human labor that is producted specifically for the market

it has a certain range of variation that becomes inconsequenntial
unlike madoona song

if say one of her's is requested and you play one by cyndy lauper ...
the outcome will be unsatisfactory

the commodity type -or form -
is defined by marx carefully arduously repeatedly and with multitudinous paraphrasicality

from it he "derives the commodity form of money
and the commodity form of labor power
and only after the latter form emerges
can he move beyond ricardo
and reveal coherently
the secret of surplus value under capitalism

sandy above sights a labor theorist who uses that accurate explanation of value in exchange
to "justify"
full value to the producer

as if capitalist exploitation
is a mere swindle
like
some forger paying his debts
with counterfeit dollar bills

Reply Mar 10, 2010 at 11:04 AM

cm said in reply to beezer...
Let me repeat what I said above, it's "labor power" as in "horse power". Not quite, but almost.

Reply Mar 10, 2010 at 10:31 PM

beezer said...
From Carl Sandburg's "The People, Yes."

Son of large ranchowner is surveying Dad's land. Two days out from the ranch he runs across a squatter, with wife, two kids, some animals and a modest farm house made of mud.

Son tells squatter he must leave his Dad's ranchland. Squatter asks "Where did your father get his ranch?" Son replies "From my Grandfather." Squatter: "Where did your grandfather get the land?" Son: "He fought the Indians for it."

Squatter. "Get down off your horse. I'll fight you for this land."

Not much has changed.

Reply Mar 10, 2010 at 07:37 AM

Peter K. said...
In response, the son of the rich landowner calls the local law enforcement who arrests the squatter.

Notes on Rawls:
"A consequence: There is no universal theory of justice which allows us to evaluate generally the social institutions of any society. There is no general principle like "slavery is always unjust." There are thus no general rules of natural rights, no universal justice. (2) This adjustment of justice to the mode of production doesn't mean there are no injustices."

I like Marx's unsentimental attitude about morality. He judges by the norms of the time and place. Compare views on gender, race (blacks/Jews/etc.) and sexuality from 50 years ago and today. Someone might be fairly moral back then but still reflect the prejudices of the time. Utopian socialists just like the sound of their voices.

Reply Mar 10, 2010 at 08:08 AM

paine said in reply to Peter K....
right on peter

though
the utopian socialists
as well as trying to save souls
and bring hope
often
the finest utopian socialists
have visions
with metaphoric power

and hell
in the end all social reform
is best considered utopian
till proven otherwise eh ??

take labor time money
it has a certain metaphoric glory to it
and showing just why it "can't work"
is a nice exercise in scientific exposition

similar attempts to finesse exploitation
by say co operative production
though much closer to realizable
can with much more effort and detail
be shown to be if not unsustainable
unable to defeat the explotational alternative
and maybe not preferable to the working clas majority anyway
but that is another story

Reply Mar 10, 2010 at 11:13 AM

anne said...
(a) It is not enough to say Marx is averse to preaching or moralizing. He is so averse; but judgments of justice can be reasoned and hence not properly described as "preaching".

(b) It is not enough to say that he didn't want the critique of capitalism to rest on some social ideal. He does reject the utopian socialists' program; but that would not prevent him from stating his own opinion. And he doesn't do that either. He reproaches the utopians for not realizing that some major social change must precede an adjustment along moral lines.

-- Daniel Little from John Rawls

I do not understand either summary comment, and possibly there might be a further explanation.

Reply Mar 10, 2010 at 08:30 AM

paine said in reply to anne...
anne i'll take a crake at the second one
because i think its correct
marx ultimately rejected the utopian vision and its spewing forth of programs
what he called recipes for the cook shops of the future

because it was idle time fun only
poetry

"major social change"
will intervene between here and now and the social forms of the future
and these social changes will not be product of the collective wiils of a batch of pre formed liberated souls
but toiling souls mired in their own circumstances and struggling thru them zig by zag by zig
one stage one mistep at a time
driven on as much by blind necessity
as "preference"

if it all were a matter of choice alone
and we could discover that optimal social configuration
despite circumstance by some power of revelation
that reaches beyond the confines set by present social rrealities...

if on the other hand
the present population can not produce from among all it's heads
one head or a few that if followed
can immediately transform society
but can only muddle on
thru the vicisitudes of process
where the partial clarity to see the next step
is itself only a product of that social process
ie the minds that cann lead us are themeselves an "intermediate" product of ever changing society in motion

class agency isn't like tinker belle time

Reply Mar 10, 2010 at 11:31 AM

beezer said...
To Peter.

Not my point, of course, about the rich kid calling in the law.

You assume that, in the real world, the rich kid would have that choice. Most of the time, certainly. But not always.

Unions, for example, came about as a result of violent reaction to exploitation. Sometimes calling in the law didn't work. And not that long ago either.

That's my point.

Reply Mar 10, 2010 at 09:53 AM

kthomas said...
Karl Marx, for whom I am named after, is the most misunderstood, the most ingnorantly maligned philosopher of all time.

The more I read about him, the more intrigued and impressed I am with the man. Genious.

My favorite Marx quotes:

"I am not a Marxist."

"From each according to his abilities, to each according to his needs."

"Sell a man a fish, he eats for a day, teach a man how to fish, you ruin a wonderful business opportunity."

Reply Mar 10, 2010 at 10:14 AM

paine said in reply to kthomas...
"From each according to his abilities, to each according to his needs."

his line is not that common place of communal utopian sects

its this intermediate aim:

"from each acoording to his abilities to each according to his work"
see his critique of the gotha program

the context of the line i am not a marxist
--or words to that effective--
was one that greatly reduces
the implied scope of the line
which was often used in kold war sunday supplement essays
by those out to poison
the workers water supply as some of us
over eager maoites used to say
back in the day

marx was indeed a marxist
but only in the most
revolutionary realistic threatening way possible

Reply Mar 10, 2010 at 11:44 AM

realpc said...
That's interesting, and it's different from what wikipedia says about Marxism, and anything else I ever heard about it. If Marx thought capitalism is not unfair, that suggests to me that his thinking process was more sophisticated than we normally assume.

About property owners and means of production: The main reason it irks some people that workers are not the owners is that ownership can be inherited. The owner's son might be a lazy bum, but he still is rich.

If there were no inheritance, then I think the fairness of capitalism would be more obvious to everyone. The owner (if he did not inherit anything) came up with a good idea, developed it, marketed his idea, invested time and resources, worked hard for years, and finally became successful.

This successful owner hires workers because he can't do all the work himself. The workers are willingly involved, and they would rather work for the owner and get paid than start a business themselves.

What is unfair about that? Do you expect this owner to grant equal ownership to all his workers? Even the guy he hired yesterday to sweep the floor? Forcing the owner to do that would be extremely unfair, and would discourage anyone from starting their own business. What's the point, if you are forced to give most of it away?

So I think we can agree that capitalism is fair, at least when the business is not inherited. But when it is inherited, things become less clear. Should inheritance be allowed? Well if you try to get rid of it, the opposition would be intense. People naturally want to give their children advantages.

It would be impossible to convince wealthy parents that their children should start out life just the same as poor children, with nothing.

So capitalism is essentially a fair system. Every intervention that involves collecting from the rich and redistributing to the poor is unfair, in a sense. Yes redistribution is often necessary, but it is not, objectively, fair.

An economic system is fair when people take out approximately what they put in. "To each according to his needs and from each according to his ability" is not fair. Not only is it unfair, it's impossible to calculate, so it could not be practiced.

Reply Mar 10, 2010 at 10:56 AM

Bruce Wilder said in reply to realpc...
". . . . his thinking process was more sophisticated than we normally assume . . . "

Yes.

Marx worked as an American journalist -- writing in English as a correspondent for the largest American newspaper of the day, the New York Tribune. Those articles, with no trace of the constructive obscurity of his German theoretical work, which would become fodder for movement cattle, are accessible, and remarkable for their analytical clarity.

http://www.marxsite.com/Marx%20as%20a%20Journalist.html
http://www.marxists.org/archive/marx/works/subject/newspapers/new-york-tribune.htm

Reply Mar 10, 2010 at 11:15 AM

paine said in reply to Bruce Wilder...
bravo

also hus 18th brumaire
ain't to bad either
though a bit denser
you know that continental readership...

Reply Mar 10, 2010 at 12:06 PM

Bruce Wilder said in reply to realpc...
Marx, as icon, is badly abused, in fourth-rate historical narratives that make him responsible, as a kind of magically dominant philosopher-king-from-the-grave for vast social movements, in various countries and cultures, of the 20th century. Socialism/Communism was a disparate set of social and economic mass movements arising in the 19th century, which were shaped in, and by, exclusion from power. Their radical and rigidly, passionately ideological character was a product, I think, more of the intransigence of the reactionary, feudal oligarchy that dominated politics in many countries, than of the inspiration of any philosopher.

If you want to see a bad historian abuse Marx shamelessly, you might enjoy Brad DeLong's essays.

The exchange with Robert Waldmann was pretty good.

http://delong.typepad.com/sdj/2009/07/robert-waldmann-has-an-interpretation-of-karl-marx-that-is-new-to-me.html

Reply Mar 10, 2010 at 11:30 AM

paine said in reply to realpc...
"his thinking process was more sophisticated than we normally assume."
the portal to discovery is now open to u
don't let u or anyone else close it

there will be a multitude trying

Reply Mar 10, 2010 at 12:05 PM

paine said in reply to realpc...
realpc
you leap about some

and the andrew carnegie warrem buffet line has great merit
so tax wealth not income

marx agrees with you
what is fair what he calls bourgeois right
is equal pay for equal work

once we are all workers there will still be differences
but the motto will be
from each according to her ability
to each according to his work

Reply Mar 10, 2010 at 01:38 PM

OhNoNotAgain said in reply to realpc...
"So I think we can agree that capitalism is fair, at least when the business is not inherited. But when it is inherited, things become less clear. Should inheritance be allowed? Well if you try to get rid of it, the opposition would be intense. People naturally want to give their children advantages."

Absolutely, and I agree with your post entirely.

However, the founding fathers realized quite astutely that excessive inherited wealth always leads to worse democratic (and economic) outcomes over time. The estate tax is one way of keeping things in check. Another is to simply tax all income at the same rate, regardless of whether it is actively or passively earned. I'd be in favor of getting rid of the estate tax if any wealth that was given to the children was taxed at the same rate as if they had earned it themselves.

Reply Mar 10, 2010 at 05:07 PM

Bruce Wilder said...
It really is amazing, sometimes, what produces a good comment thread on this site.

Reply Mar 10, 2010 at 11:31 AM

paine said...
i feel like i'm playing simultaneous chess with every one else here

sorry

i don't mind losing really

but karl as my mentor vof mentors
obviously deserves at least some effort on my part

Reply Mar 10, 2010 at 12:03 PM

Bruce Wilder said in reply to paine...
I think of you more like a radio dj, chattin' and spinnin' in response to call-ins.

Do you do requests?

"using the expression pre history
again comes from the young romantic left-feurbachian marx"

"i strongly suggest it not be used in common discourse"

I can't promise not to use it, but when I do use it, I'd kinda of like to know what it means.

Reply Mar 10, 2010 at 12:09 PM

paine said in reply to Bruce Wilder...
the young marx in the mid 40's was searching for the scret key to human society
the key to open the doors of conciousness
he used pre history here as a figure like the dark ages for a time before "real ie concious history making where humans know what they are doing and why they are doing it

the metaphor of dream awakening where the dream as a product of social reality
only needs to be decoded to reveal the way to
the proletarian eschaton
the end time which would be as much
the beginning of a new kind of history
as the end
of the old kind of history
quite romantic no ???
and prone to banal delongian parallels to primitive christian communism
eschatons and all

marx as he ripened grew denser and more realist
in the artistic sense
ie the beauty and sublime horror of the actual
filled him with no longing for final sublation
but only for the next round

--this early marx
btw was a stage only slightly post the
thourough left hegelian marx that wrote the letter to ruge that sandy cites aptly in the delong blog puddle --

i tend to recommend people read marx backwards starting with his last writing and journeying back
all the way to his first

but use the work of say his last 12 productive years as the basis for brand marx pronouncements

3 up 5 up 2 up are not mass marketable
only 7 up

i like hois very prickly notes on wagner
its great to get a sense of the cmplexity of his law of value

which sets the foundation to launch into his discoveries about the origins of surplius value
a la mode capitaliste

Reply Mar 10, 2010 at 01:13 PM

anne said...
It is not enough to say that he didn't want the critique of capitalism to rest on some social ideal. He does reject the utopian socialists' program; but that would not prevent him from stating his own opinion. And he doesn't do that either. He reproaches the utopians for not realizing that some major social change must precede an adjustment along moral lines.

-- Daniel Little from John Rawls

Marx ultimately rejected the Utopian vision and its spewing forth of programs
what he called recipes for the cook shops of the future

because it was idle time fun only
poetry

"major social change"
will intervene between here and now and the social forms of the future
and these social changes will not be product of the collective wills of a batch of pre formed liberated souls
but toiling souls mired in their own circumstances and struggling thru them zig by zag by zig
one stage one misstep at a time
driven on as much by blind necessity
as "preference"

if it all were a matter of choice alone
and we could discover that optimal social configuration
despite circumstance by some power of revelation
that reaches beyond the confines set by present social realities...

if on the other hand
the present population can not produce from among all it's heads
one head or a few that if followed
can immediately transform society
but can only muddle on
thru the vicissitudes of process
where the partial clarity to see the next step
is itself only a product of that social process
ie the minds that can lead us are themselves an "intermediate" product of ever changing society in motion

class agency isn't like tinker belle time

-- Paine

Reply Mar 10, 2010 at 12:31 PM

anne said...
It is not enough to say Marx is averse to preaching or moralizing. He is so averse; but judgments of justice can be reasoned and hence not properly described as "preaching".

-- Daniel Little from John Rawls

So, Marx did not wish to preach but rather set down a reasoned theory of justice. What the innovative significance of this is I do not know, since modern philosophers routinely were setting down reasoned theories of justice by the time Marx wrote as opposed to the preaching forms of Plato or Aristotle. What else were the utilitarians doing, let alone Kant, than setting down reasoned theories of justice? Marx followed the modern philosophers.

Reply Mar 10, 2010 at 12:37 PM

paine said in reply to anne...
anne

marx like any materialist finds values flowering out of the mundane soil of social metabolism
this is indeed hardly unique

the key is his use of the mode of production itself as the "producer " of human innovation
in the process of revolutionizing production humans
revolutionize themselves including their social values

utilitarians simply say social values are what they are because they're useful
this is true but even if it can tell us "why "social values are what they are
and even if bold enough
where they come from in the great down to earth
hugger mugger
but usefulness and functionality
can't tell us how values change or why they change
for that one must have a science of human systems of production and their laws of motion

marx felt he'd discovered the secret of social motion not in the clas struggle itself
but in its product the transformation of the mode of production

Reply Mar 10, 2010 at 12:51 PM

Bruce Wilder said in reply to anne...
"So, Marx did not wish to preach but rather set down a reasoned theory of justice."

That's not how I read Little's notes on what Rawls says.

Rawls is pointing out that Marx rejects "preaching", but the rejection of "preaching" does not explain why Marx does not present a reasoned theory of justice as a foundation for his critique of capitalism. The claim, by Rawls, is that Marx has not presented a reasoned theory of justice or made such a reasoned theory a foundation of his critique of capitalism, and this omission deserves some explanation. Rawls, himself famously ambitious to present a reasoned theory of justice, then presents a conjecture about Marx.

Reply Mar 10, 2010 at 01:45 PM

anne said...
Paine:

utilitarians simply say social values are what they are because they're useful
this is true but even if it can tell us "why "social values are what they are
and even if bold enough
where they come from in the great down to earth
hugger mugger
but usefulness and functionality
can't tell us how values change or why they change
for that one must have a science of human systems of production and their laws of motion

[The question is whether Marx had a theory of justice that differed in an significant way from that of the utilitarians, the problem with the utilitarian theory of justice always being the rights of minorities?]

Reply Mar 10, 2010 at 12:59 PM

paine said in reply to anne...
anne i think the utees can surmount
the restictions
of whole people freedoms
to act thru their state
we have in that lovely 18th century diadem
the bill of rights

the 20th century ordinal utees pretty much stymied the social welfare function totalitarianism
of cardinal utee think

ahh it gets long and winding

to be brief
i suspect you prefer kant's notion of humans as ends in themselves not instrumentalities
not even of the mission of history
no sense of class agency here

hegel i'm sure shadows your mind like
a

Rawls on Marx; December 1973, by Daniel Little: John Rawls taught a course on the history of political philosophy throughout much of his career at Harvard University. The course contained his description and analysis of the most important figures in modern political philosophy, including Mill, Locke, Rousseau, Kant, and Marx. The course evolved over time; the final version from 1994 is edited in Samuel Freeman's Lectures on the History of Political Philosophy. I served as graduate assistant in Rawls's lectures on this subject in fall 1973, and recently reread my notes of the course. Here are my notes of a particularly important lecture towards the end of the course: Rawls's treatment of Marx's ideas about economic justice. This lecture demonstrates Rawls's understanding of the fundamentals of Marx's economic theories and the labor theory of value. (I am inclined to think that Joseph Schumpeter's History of Economic Analysis (1954) was an important source for Rawls on the history of economic thought, including Marx's economics, though I can't at this moment confirm this.) This lecture is particularly significant in that it is roughly simultaneous with the emergence of "analytical Marxism" announced by the publication of an important article by Allen Wood, "The Marxian Critique of Justice" in Philosophy and Public Affairs in 1972 (link).

MARX'S ATTITUDE TOWARDS THE THEORY OF JUSTICE

John Rawls, History of Political Philosophy, Phil 171, fall 1973
Notes from lecture, December 11, 1973
[notes taken by Daniel Little; intended to capture Rawls's formulations of the main points presented in the lecture]

[Quoting Rawls:]

Capital seems to be a description of an unjust society. The owners of the means of production live in relative abundance and idleness at the expense of the ever-growing class of wretched laborers. But Marx doesn't make any attempt to present an argument that capitalism is unjust, nor any concept of justice which would back up such an argument. Moreover, we have vitriolic criticisms of utopian socialists who did condemn capitalism on the grounds of justice. Marx asserts on the contrary, that capitalism is perfectly fair, perfectly just. Why so?

(a) It is not enough to say Marx is averse to preaching or moralizing. He is so averse; but judgments of justice can be reasoned and hence not properly described as "preaching".

(b) It is not enough to say that he didn't want the critique of capitalism to rest on some social ideal. He does reject the utopian socialists' program; but that would not prevent him from stating his own opinion. And he doesn't do that either. He reproaches the utopians for not realizing that some major social change must precede an adjustment along moral lines.

Here is my conjecture as to why Marx didn't judge capitalism unjust. He thinks of justice as a political and juridical conception which is associated with a particular conception of the state and society; so it belongs to the prehistory of mankind. Given his picture of human society, these political and juridical institutions belong to the superstructure, and reflect the workings of the mode of production. For each mode of production there is a conception of justice appropriate to it, at least in prehistory. A further qualification: It is worthwhile to distinguish between the high time of a form and its low period -- where the form is a progressive force and where it stands in contradiction to the mode of production.

Here is a brief discussion of justice in Capital III:
To speak here of natural justice, as Gilbart does, is nonsense. The justice of the transactions between agents of production rests on the fact that these arise as natural consequences out of the production relationships. The juristic forms in which these economic transactions appear as wilful acts of the parties concerned, as expressions of their common will and as contracts that may be enforced by law against some individual party, cannot, being mere forms, determine this content. They merely express it. This content is just whenever it corresponds, is appropriate to the mode of production. It is unjust whenever it contradics that mode. Slavery on the basis of capitalist production is unjust; likewise fraud in the quality of commodities. (Capital III, 339-40)
Here Marx conceives of justice in terms of adequacy to the mode of production. (1) The justice of legal forms cannot be discovered on the basis of those forms alone. Rather it depends upon their adequacy to the mode of production. The juridical institution is formal; to give it content we must look to the way of life and its requirements. A consequence: There is no universal theory of justice which allows us to evaluate generally the social institutions of any society. There is no general principle like "slavery is always unjust." There are thus no general rules of natural rights, no universal justice. (2) This adjustment of justice to the mode of production doesn't mean there are no injustices. Slavery is unjust under capitalism; wage labor is just under capitalism, provided that the worker is paid the value of his labor power.

This view seems to suggest a sort of relativism; but this would be a faulty conclusion. We have a theory matching theories of justice with modes of production, and we might at some time find a function systematically linking them.

Let's now try out this suggestion on the conception of surplus value. The utopians argued that workers ought to be paid the value of their contribution to the firm. Since they are not, capitalism is unjust. Marx rejects this view. It makes the appropriation of surplus value appear accidental -- as if the capitalists could act differently. Marx required a theory of value which made the appropriation of surplus value a necessary part of the capitalist system. On the theory of value every commodity is exchanged for a strict equivalent.

Marx distinguishes between the product of labor and labor power. The worker is given the value of his labor power, not his product. It is on this ground that he is fairly treated. Thus he is undercutting the Ricardian socialist position by rejecting and replacing the principle of contribution. It is the system itself which brings about surplus value, not the behavior of individuals who violate moral principles. Surplus value is an intrinsic part of the working of the social institutions of capitalism.

Consider the description of the production of surplus value in Capital.
Every condition of the problem is satisfied, while the laws that regulate the exchange of commodities, have been in no way violated. Equivalent has been exchanged for equivalent. For the capitalist as buyer paid for each commodity, for the cotton, the spindle and the labour-power, its full value. He then did what is done by every purchaser of commodities; he consumed their use-value. ... This metamorphosis, this conversion of money into capital, takes place both within the sphere of circulation and also outside it; within the circulation because it is conditioned by the purchase of the labour-power in the market; outside the circulation, because what is done within it is only a stepping-stone to the production of surplus value. (Capital I, p. 194)
The fact that surplus value arises is a piece of good fortune for the buyer, but no injustice to the seller.

Marx thus rejects the Ricardian principle of contribution. He finds it a bourgeois notion, basing property rights on one's labor.

Summing up. (1) Marx views the notion of justice as a virtue of legal forms and institutions, and thus perhaps it is a notion which belongs to prehistory. The state depends upon the mode of production. (2) Marx doesn't deny that the various conceptions of justice have formal features in common -- exchange of equivalents for equivalents -- but the notion of what is equivalent is determined in different ways. Marx would be prepared to admit that capitalism in its high period is just. One reason he rejects the utopian's argument is that it is misleading. It rests on a misapprehension of where the essential problem lies: not in the superstructure, but in the mode of production. He felt that the key enterprise is to give a scientific theory of the mode of production.

A second point: justice is a distributive notion. The appeal to justice suggests that we can separate the mode of distribution from the mode of production. This is for Marx incorrect. Appeals to justice are thus supposed to be superficial. Moreover, appeal to justice suggests that important social change can be achieved by legislation.

[Other relevant materials from the course:]

From the syllabus:

(a) Marx's criticism of the liberal state; (b) His attitude towards theories of justice; (c) The theory of alienation and exploitation; (d) The conception of rational human society

Final exam questions on Marx:

4. Present and discuss Marx's theory of alienation (as developed in the Economic and Philosophic Manuscripts)
5. Present and discuss Marx's theory of historical materialism (as developed in the German Ideology)
6. Present and discuss Marx's analysis of historical change in the Communist Manifesto.
7. Outline Marx's analysis of the basic characteristics of capitalism: the social relations which define it and the nature of the form of economic production.

Posted by Mark Thoma on Wednesday, March 10, 2010 at 02:14 AM in Economics, History of Thought Save to del.icio.us Tweet This Permalink Comments (49)

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paine said...
the task
is to discover the laws of motion intrinsic to the mode of production

rawls see only the super structure in stasis
as must justice seekers at all times

the necessary material premise
of any justice system
is always in the process of "undermining itself "
and therefore undermining its system of justice

Reply Mar 10, 2010 at 04:49 AM

bakho said...
The human concept of justice and shared wealth has a genetic component that is hardwired into our innate behaviors. Gross inequality is necessarily maintained by force and defeated by force. If institutions cannot address issues of wealth inequality, societal disruptions will.

Reply Mar 10, 2010 at 04:58 AM

paine said in reply to bakho...
bakho

you are a nature boy eh ???

Reply Mar 10, 2010 at 05:03 AM

paine said...
exam question 4
shows a tilt
towards the fuzzy marx of the humanist types

the others
share a certain stale scholasticism

using the expression pre history
again comes from the young romantic left-feurbachian marx

i strongly suggest it not be used in common discourse

the phrase below here paraphrased
announces the arrival of the full "outline"
gestured at in question 6

all history up until now
(of state centered societies )
is the history of class struggle

the portions by marx in german ideology
are written with fly scratch teutonic complexity
and read like the untransformed
late hegelian rhapsodies they both mock
and struggle to escape from

Reply Mar 10, 2010 at 05:02 AM

anarcho said...
"Marx distinguishes between the product of labor and labor power. The worker is given the value of his labor power, not his product."

Actually, Proudhon was the first to argue this "Marxist" position in 1840's classic "What is Property?" -- as he put it, workers produced more value than they received in wages:

“Whoever labours becomes a proprietor . . . And when I say proprietor, I do not mean simply (as do our hypocritical economists) proprietor of his allowance, his salary, his wages, – I mean proprietor of the value his creates, and by which the master alone profits . . . The labourer retains, even after he has received his wages, a natural right in the thing he has produced.”

Property meant “another shall perform the labour while [the proprietor] receives the product.” So the “free worker produces ten; for me, thinks the proprietor, he will produce twelve” and so to “satisfy property, the labourer must first produce beyond his needs.” This is why “property is theft!”

From: Introduction: General Idea of the Revolution in the 21st Century
http://anarchism.pageabode.com/pjproudhon/introduction.html#on-exploitation

This is the introduction to a new anthology of Proudhon's writings called "Property is theft!" (due out later this year) -- some material is on-line already:

http://www.property-is-theft.org

Proudhon: “Property is the right to enjoy and dispose of another’s goods, – the fruit of another’s labour”

Reply Mar 10, 2010 at 05:06 AM

OhNoNotAgain said in reply to anarcho...
"Marx distinguishes between the product of labor and labor power. The worker is given the value of his labor power, not his product."

Yes, but was Marx advocating otherwise ? I read the above to indicate that Marx thought that it was perfectly just for labor to be compensated simply on the basis of their input.

I know very little about Marx other than the cursory knowledge that most people possess, so the above is indeed an actual question. :-)

Reply Mar 10, 2010 at 05:28 AM

paine said in reply to OhNoNotAgain...
"I read the above to indicate that Marx thought that it was perfectly just for labor to be compensated simply on the basis of their input."

yes that is precisely his view
because justice in this case is the bourgois justice of commodity exchange of equal values

the peculiar commodity labor power
unlike other imputs that are themselves all the product of use producing human labor --at the margin--
needs to be followed
into the places of capitalist production
to watch "it" "produce use values "
that are higher in exchange value
then the exchange value contained
"in their own production"
and sale by the hour as commodity services

btw way a barber cutting your hair does get the full value of his service
if he runs his own shop and "owns it"
free and clear

capitalists find ways to employ barbering power at this full hourly value and yet say by using a cutting machine owned by the capitalist
doubling their output of haircuts per hour
and pocketing the difference

fair v??
of course it is the barber couldn't net more per hour own his own eh ??

by a cutting machine pal...
but then we get division of barbery into unskilled parts and the plt thuckens
or we get many barbers organixed into one "advertised spot by a capitalist
or or or

Reply Mar 10, 2010 at 06:30 AM

paine said in reply to anarcho...
you fail to see
the exchange value of the commodity labor power
and the use value its "labor time " produces

is not the same as labor time as exchange value the common post ricardian left conflation

marx held that labor per say does not have value
exchangge value or use value
it produces all value
it is a social construct as difficult to define
as the meaning of the english word " is "

the point is to distinguish the value of the commodity purchased labor power
and the value produced by its consumption
ie its use in production of useful products
the exploitation is purely a dynamic outcome
ie the production of use values with highjer exvchange value then the commodity
that produces it ie labor power

Reply Mar 10, 2010 at 06:15 AM

julio said in reply to paine...
You are focusing on two things where I see three

the labor "power" which is a misuse of the word when applied to the commodity, the thing that gets me a seat at the exchange table

the use value created from that which is the pot we'll split

the rules of the negotiation which is where "power" comes in

If I'm sitting at the table selling my labor "power" I'm wearing two hats, commodity and salesman. The former does not have any "power" (which is why slavery or $1/day jobs are the same and equally moral or immoral within the capitalist system why is $0 such a different number than $1)

Reply Mar 10, 2010 at 11:36 AM

paine said in reply to julio...
julio

i love you man
but this is julioism not marxism

"the use value ... is the pot we'll split"
first off its the exchange value not the use value
that's on the table here
if looked at properly
ie at the level of the capitalist enterprise

but still
no we'll split nothing
not even the exchange value

i've already bought your laboring services
i own the exchange value your product

and the use value to me of your laboring services is not the use value of your product --which is relevent to my customer not me--
no your use value to me julio
is the exchange value difference between your times "market value" as a commodity
and that time's product's market value as a commodity

the rest is merely the julio use of vthe word power
a perfectly useful use indeed
since power is a perfectly good word
in the abstract sense of bargaining leverage
ie bargaining power
as covered nicely in marx's popular pamphlet
wages price and profit
where he indeed certifies the use value of union action in the wage bargain
with his vown particular wrinkle

limit total working hours boys and girls

something my hero sandwitch man never fails to champion

as well as knocking the wages fund theory in a cocked hat
a theory that made nairu theory un necessary ...
by wonderland style assumptions

Reply Mar 10, 2010 at 11:57 AM

julio said in reply to paine...
and I love you back but not this:
"and the use value to me of your laboring services is not the use value of your product --which is relevent to my customer not me--
no your use value to me julio
is the exchange value difference between your times "market value" as a commodity
and that time's product's market value as a commodity"

Isn't this last number just the difference between what you pay me (exchange value of my labor) and what you charge for the portion of my services built into the thing you sell?

You "already bought the exchange value of your product" -- no, that is the transaction I'm focusing on, at which price did you purchase it and how was that price determined

The exchange value you define here is not some quantity determined mathematically by some "market forces" which determine some "market value"

It is just a number bounded from below by starvation and above by the "market value" of the commodities the capitalist sells to the customers ("market value" assuming said customers have some choice)

the number changes e.g. when capitalists buy senators.

Re "julioism vs marxism", yes, I know, I need to RTFM.

Reply Mar 10, 2010 at 12:58 PM

paine said in reply to julio...
julio

you operate at the factory door
where the worker for wages meets the capitalist
and settles on a wage rate

then he enters the factory
his time bought he is now an instrument of the capitalist
but a unique instrument because all exchange value is embodied labor time
it gets complex indeed along the route
but this fact remains thru
the transformations of the system as a whole

you aren''t wrong
you are just super imposing the market relations
where the production relations belong
and are described by marx

production is jointly of use values and exchange values
the product the commodity contains both

now read hegel to discover how complexly
these two
can interact
enough to spawn
the money commodity gold
the natural commdity land
and the human commodity labor power
all of which pale in comparison to the credit system

Reply Mar 10, 2010 at 01:48 PM

paine said in reply to julio...
"why slavery or $1/day jobs are the same and equally moral or immoral within the capitalist system why is $0 such a different number than $1"
read marx on our civil war

in essence the wage labor form of production collides with the chatel labor form of production
and defeats it
ultimately
because it is a more productive system
in myriad ways i won't "belabor"
thus values follow productivity if you want to be mephisto ish about it

i simplify terribly
alas i'm lazy

Reply Mar 10, 2010 at 12:01 PM

Sandwichman said...
The author of the anonymous 1821 pamphlet, "The Source and Remedy of the National Difficulties" (believed to be Charles Wentworth Dilke) was the first to distinguish between the value of labor power, expressed in abstract units of labor time, and the value of the product of labor. The pamphlet's influence on Marx's view of surplus value is made clear only in the manuscripts and in a comment by Engels about how Marx "rescued" the pamphlet from obscurity (some rescue).

In his critique of "traditional Marxisms", Moishe Postone argued that the varieties of Marxism abandoned Marx's example and focused instead (and mistakenly in Postone's view) on issues of distribution and justice.

Reply Mar 10, 2010 at 07:12 AM

paine said in reply to Sandwichman...
sandy
its been a few years
and i haven't the text b4 me
but my sum up on dilke's grasp of this was

in the end snarled in half steps misteps and backward slips

among the posse of left ricardians
his relative originality
is unclear to me

as you know second only to refuting marx's surplus value theory
is claiming it was fully and clearly anticipated

i submit neither is true but both aide the class enemy

though i'll not waste a moment more on it
let alone hacking up the analytic marxian "school"
whicch ended up neither a school nor marxian

not even marxiod

dilke's grasp might generously be compared
to smith's grasp of classical school's ltv
compared to ricardo's it lacks final somplicity and clarity
one needs to emphasize marx had a theory of surplus value

ricardo despite sraffa has none

hell only marxist have one

but don't say so to john eatwell

---
sandman
i know your noble identification
with utterly over looked
under a toadstool geniuses like dilke here

but isn't dilke better portrayed as a brilliant pre figuation
not even a john the baptist

your narrative strikes the naive reader as
a claim of plagiarism against the moor
a charge he hurled with mighty indignation
at others like burke and malthus
and js mill

Reply Mar 10, 2010 at 10:49 AM

Sandwichman said in reply to paine...
"your narrative strikes the naive reader as
a claim of plagiarism against the moor"

In that case the reader needs to stop being so naive. Marx's use of Dilke was not "plagiarism." Nor was his analysis of surplus value 100% original. Nor did Marx give as much acknowledgment of Dilke's influence in his published work as might be indicated in his unpublished manuscripts.

My position is that the differences between Marx's and Dilke's analysis give a fuller picture than either by itself.

Reply Mar 10, 2010 at 01:10 PM

paine said in reply to Sandwichman...
i stand chastiesd and corrected

marx was nat plagiarizing
then
he was giving too little "acknowledgement"

a fine point perhaps but a real one

marx often gives us vast displays of erudition
and he's not quite to claim originality
but the distinction between labor and labor power
as semi mystical as it may seem given the word choice in the lebeing
he did indeed claim for himself
much as engels made claims for his solution of the values into prices transformation
with no end of sterile reformulation
and gabble collecting around that question
every since
though done the right way
i think it addresses lots of kleen issues about marx and dynamics and exploitation
and the formation of a general profit rate
and of surplus valu so aquired and its
marvelous agency
in technical innovation
a systemic incubus but quite distinct
in its elastic dynamism
compared to say
a sales tax

but maybe here the anon source
that sandy suggests had a handle on this distinction
was not renowned enough to display
beyond a few perfunctory nods in the page notes
toward the left ricardians in general

given their lower order origins
not the best of shows by carlos ...eh ??

Reply Mar 10, 2010 at 03:35 PM

paine said in reply to paine...
marx on dilke's advance:

"This scarcely known pamphlet (about 40 pages) [which appeared] at a time when McCulloch, “this incredible cobbler”, began to make a stir, contains an important advance on Ricardo. It bluntly describes surplus-value—or “profit”, as Ricardo calls it (often also “surplus produce”), or “interest”, as the author of the pamphlet terms it—as “surplus labour”, the labour which the worker performs gratis, the labour he performs over and above the quantity of labour by which the value of his labour-power is replaced, i.e., by which he produces an equivalent for his wages. Important as it was to reduce value to labour, it was equally important [to present] surplus-value, which manifests itself in surplus product, as surplus labour. This was in fact already stated by Adam Smith and constitutes one of the main elements in Ricardo’s argumentation. But nowhere did he clearly express it and record it in an absolute form."

Reply Mar 10, 2010 at 03:45 PM

beezer said...
The concept that labor is given the value of its "labor power," I like. But who "gives?"

One isn't "given." One "gets," and what one gets is based upon one's "power."

If you're Madonna, the power is in the talent and its scalability. If you are labor, the power is in the labor union--which provides scalability.

No union. No power. Race to the bottom for labor. Race to the top for executives and their owners.

Reply Mar 10, 2010 at 07:19 AM

paine said in reply to beezer...
beezer
you are mistaking use value for exchange value
and allow them to play each others parts
this way confusion reigns
you also dangerously venture into
non commodity type
commercial products
like madonna recordings
for commodity products
the differentiation is accidental
and without substance
--note this sense of commodity we retain today
to distinguish it from industrial products
that are complex and heterogenious
a commodity to marx is a product of human labor that is producted specifically for the market

it has a certain range of variation that becomes inconsequenntial
unlike madoona song

if say one of her's is requested and you play one by cyndy lauper ...
the outcome will be unsatisfactory

the commodity type -or form -
is defined by marx carefully arduously repeatedly and with multitudinous paraphrasicality

from it he "derives the commodity form of money
and the commodity form of labor power
and only after the latter form emerges
can he move beyond ricardo
and reveal coherently
the secret of surplus value under capitalism

sandy above sights a labor theorist who uses that accurate explanation of value in exchange
to "justify"
full value to the producer

as if capitalist exploitation
is a mere swindle
like
some forger paying his debts
with counterfeit dollar bills

Reply Mar 10, 2010 at 11:04 AM

beezer said...
From Carl Sandburg's "The People, Yes."

Son of large ranchowner is surveying Dad's land. Two days out from the ranch he runs across a squatter, with wife, two kids, some animals and a modest farm house made of mud.

Son tells squatter he must leave his Dad's ranchland. Squatter asks "Where did your father get his ranch?" Son replies "From my Grandfather." Squatter: "Where did your grandfather get the land?" Son: "He fought the Indians for it."

Squatter. "Get down off your horse. I'll fight you for this land."

Not much has changed.

Reply Mar 10, 2010 at 07:37 AM

Peter K. said...
In response, the son of the rich landowner calls the local law enforcement who arrests the squatter.

Notes on Rawls:
"A consequence: There is no universal theory of justice which allows us to evaluate generally the social institutions of any society. There is no general principle like "slavery is always unjust." There are thus no general rules of natural rights, no universal justice. (2) This adjustment of justice to the mode of production doesn't mean there are no injustices."

I like Marx's unsentimental attitude about morality. He judges by the norms of the time and place. Compare views on gender, race (blacks/Jews/etc.) and sexuality from 50 years ago and today. Someone might be fairly moral back then but still reflect the prejudices of the time. Utopian socialists just like the sound of their voices.

Reply Mar 10, 2010 at 08:08 AM

paine said in reply to Peter K....
right on peter

though
the utopian socialists
as well as trying to save souls
and bring hope
often
the finest utopian socialists
have visions
with metaphoric power

and hell
in the end all social reform
is best considered utopian
till proven otherwise eh ??

take labor time money
it has a certain metaphoric glory to it
and showing just why it "can't work"
is a nice exercise in scientific exposition

similar attempts to finesse exploitation
by say co operative production
though much closer to realizable
can with much more effort and detail
be shown to be if not unsustainable
unable to defeat the explotational alternative
and maybe not preferable to the working clas majority anyway
but that is another story

Reply Mar 10, 2010 at 11:13 AM

anne said...
(a) It is not enough to say Marx is averse to preaching or moralizing. He is so averse; but judgments of justice can be reasoned and hence not properly described as "preaching".

(b) It is not enough to say that he didn't want the critique of capitalism to rest on some social ideal. He does reject the utopian socialists' program; but that would not prevent him from stating his own opinion. And he doesn't do that either. He reproaches the utopians for not realizing that some major social change must precede an adjustment along moral lines.

-- Daniel Little from John Rawls

I do not understand either summary comment, and possibly there might be a further explanation.

Reply Mar 10, 2010 at 08:30 AM

paine said in reply to anne...
anne i'll take a crake at the second one
because i think its correct
marx ultimately rejected the utopian vision and its spewing forth of programs
what he called recipes for the cook shops of the future

because it was idle time fun only
poetry

"major social change"
will intervene between here and now and the social forms of the future
and these social changes will not be product of the collective wiils of a batch of pre formed liberated souls
but toiling souls mired in their own circumstances and struggling thru them zig by zag by zig
one stage one mistep at a time
driven on as much by blind necessity
as "preference"

if it all were a matter of choice alone
and we could discover that optimal social configuration
despite circumstance by some power of revelation
that reaches beyond the confines set by present social rrealities...

if on the other hand
the present population can not produce from among all it's heads
one head or a few that if followed
can immediately transform society
but can only muddle on
thru the vicisitudes of process
where the partial clarity to see the next step
is itself only a product of that social process
ie the minds that cann lead us are themeselves an "intermediate" product of ever changing society in motion

class agency isn't like tinker belle time

Reply Mar 10, 2010 at 11:31 AM

beezer said...
To Peter.

Not my point, of course, about the rich kid calling in the law.

You assume that, in the real world, the rich kid would have that choice. Most of the time, certainly. But not always.

Unions, for example, came about as a result of violent reaction to exploitation. Sometimes calling in the law didn't work. And not that long ago either.

That's my point.

Reply Mar 10, 2010 at 09:53 AM

kthomas said...
Karl Marx, for whom I am named after, is the most misunderstood, the most ingnorantly maligned philosopher of all time.

The more I read about him, the more intrigued and impressed I am with the man. Genious.

My favorite Marx quotes:

"I am not a Marxist."

"From each according to his abilities, to each according to his needs."

"Sell a man a fish, he eats for a day, teach a man how to fish, you ruin a wonderful business opportunity."

Reply Mar 10, 2010 at 10:14 AM

paine said in reply to kthomas...
"From each according to his abilities, to each according to his needs."

his line is not that common place of communal utopian sects

its this intermediate aim:

"from each acoording to his abilities to each according to his work"
see his critique of the gotha program

the context of the line i am not a marxist
--or words to that effective--
was one that greatly reduces
the implied scope of the line
which was often used in kold war sunday supplement essays
by those out to poison
the workers water supply as some of us
over eager maoites used to say
back in the day

marx was indeed a marxist
but only in the most
revolutionary realistic threatening way possible

Reply Mar 10, 2010 at 11:44 AM

realpc said...
That's interesting, and it's different from what wikipedia says about Marxism, and anything else I ever heard about it. If Marx thought capitalism is not unfair, that suggests to me that his thinking process was more sophisticated than we normally assume.

About property owners and means of production: The main reason it irks some people that workers are not the owners is that ownership can be inherited. The owner's son might be a lazy bum, but he still is rich.

If there were no inheritance, then I think the fairness of capitalism would be more obvious to everyone. The owner (if he did not inherit anything) came up with a good idea, developed it, marketed his idea, invested time and resources, worked hard for years, and finally became successful.

This successful owner hires workers because he can't do all the work himself. The workers are willingly involved, and they would rather work for the owner and get paid than start a business themselves.

What is unfair about that? Do you expect this owner to grant equal ownership to all his workers? Even the guy he hired yesterday to sweep the floor? Forcing the owner to do that would be extremely unfair, and would discourage anyone from starting their own business. What's the point, if you are forced to give most of it away?

So I think we can agree that capitalism is fair, at least when the business is not inherited. But when it is inherited, things become less clear. Should inheritance be allowed? Well if you try to get rid of it, the opposition would be intense. People naturally want to give their children advantages.

It would be impossible to convince wealthy parents that their children should start out life just the same as poor children, with nothing.

So capitalism is essentially a fair system. Every intervention that involves collecting from the rich and redistributing to the poor is unfair, in a sense. Yes redistribution is often necessary, but it is not, objectively, fair.

An economic system is fair when people take out approximately what they put in. "To each according to his needs and from each according to his ability" is not fair. Not only is it unfair, it's impossible to calculate, so it could not be practiced.

Reply Mar 10, 2010 at 10:56 AM

Bruce Wilder said in reply to realpc...
". . . . his thinking process was more sophisticated than we normally assume . . . "

Yes.

Marx worked as an American journalist -- writing in English as a correspondent for the largest American newspaper of the day, the New York Tribune. Those articles, with no trace of the constructive obscurity of his German theoretical work, which would become fodder for movement cattle, are accessible, and remarkable for their analytical clarity.

http://www.marxsite.com/Marx%20as%20a%20Journalist.html
http://www.marxists.org/archive/marx/works/subject/newspapers/new-york-tribune.htm

Reply Mar 10, 2010 at 11:15 AM

paine said in reply to Bruce Wilder...
bravo

also hus 18th brumaire
ain't to bad either
though a bit denser
you know that continental readership...

Reply Mar 10, 2010 at 12:06 PM

Bruce Wilder said in reply to realpc...
Marx, as icon, is badly abused, in fourth-rate historical narratives that make him responsible, as a kind of magically dominant philosopher-king-from-the-grave for vast social movements, in various countries and cultures, of the 20th century. Socialism/Communism was a disparate set of social and economic mass movements arising in the 19th century, which were shaped in, and by, exclusion from power. Their radical and rigidly, passionately ideological character was a product, I think, more of the intransigence of the reactionary, feudal oligarchy that dominated politics in many countries, than of the inspiration of any philosopher.

If you want to see a bad historian abuse Marx shamelessly, you might enjoy Brad DeLong's essays.

The exchange with Robert Waldmann was pretty good.

http://delong.typepad.com/sdj/2009/07/robert-waldmann-has-an-interpretation-of-karl-marx-that-is-new-to-me.html

Reply Mar 10, 2010 at 11:30 AM

paine said in reply to realpc...
"his thinking process was more sophisticated than we normally assume."
the portal to discovery is now open to u
don't let u or anyone else close it

there will be a multitude trying

Reply Mar 10, 2010 at 12:05 PM

paine said in reply to realpc...
realpc
you leap about some

and the andrew carnegie warrem buffet line has great merit
so tax wealth not income

marx agrees with you
what is fair what he calls bourgeois right
is equal pay for equal work

once we are all workers there will still be differences
but the motto will be
from each according to her ability
to each according to his work

Reply Mar 10, 2010 at 01:38 PM

OhNoNotAgain said in reply to realpc...
"So I think we can agree that capitalism is fair, at least when the business is not inherited. But when it is inherited, things become less clear. Should inheritance be allowed? Well if you try to get rid of it, the opposition would be intense. People naturally want to give their children advantages."

Absolutely, and I agree with your post entirely.

However, the founding fathers realized quite astutely that excessive inherited wealth always leads to worse democratic (and economic) outcomes over time. The estate tax is one way of keeping things in check. Another is to simply tax all income at the same rate, regardless of whether it is actively or passively earned. I'd be in favor of getting rid of the estate tax if any wealth that was given to the children was taxed at the same rate as if they had earned it themselves.

Reply Mar 10, 2010 at 05:07 PM

Bruce Wilder said...
It really is amazing, sometimes, what produces a good comment thread on this site.

Reply Mar 10, 2010 at 11:31 AM

paine said...
i feel like i'm playing simultaneous chess with every one else here

sorry

i don't mind losing really

but karl as my mentor vof mentors
obviously deserves at least some effort on my part

Reply Mar 10, 2010 at 12:03 PM

Bruce Wilder said in reply to paine...
I think of you more like a radio dj, chattin' and spinnin' in response to call-ins.

Do you do requests?

"using the expression pre history
again comes from the young romantic left-feurbachian marx"

"i strongly suggest it not be used in common discourse"

I can't promise not to use it, but when I do use it, I'd kinda of like to know what it means.

Reply Mar 10, 2010 at 12:09 PM

paine said in reply to Bruce Wilder...
the young marx in the mid 40's was searching for the scret key to human society
the key to open the doors of conciousness
he used pre history here as a figure like the dark ages for a time before "real ie concious history making where humans know what they are doing and why they are doing it

the metaphor of dream awakening where the dream as a product of social reality
only needs to be decoded to reveal the way to
the proletarian eschaton
the end time which would be as much
the beginning of a new kind of history
as the end
of the old kind of history
quite romantic no ???
and prone to banal delongian parallels to primitive christian communism
eschatons and all

marx as he ripened grew denser and more realist
in the artistic sense
ie the beauty and sublime horror of the actual
filled him with no longing for final sublation
but only for the next round

--this early marx
btw was a stage only slightly post the
thourough left hegelian marx that wrote the letter to ruge that sandy cites aptly in the delong blog puddle --

i tend to recommend people read marx backwards starting with his last writing and journeying back
all the way to his first

but use the work of say his last 12 productive years as the basis for brand marx pronouncements

3 up 5 up 2 up are not mass marketable
only 7 up

i like hois very prickly notes on wagner
its great to get a sense of the cmplexity of his law of value

which sets the foundation to launch into his discoveries about the origins of surplius value
a la mode capitaliste

Reply Mar 10, 2010 at 01:13 PM

anne said...
It is not enough to say that he didn't want the critique of capitalism to rest on some social ideal. He does reject the utopian socialists' program; but that would not prevent him from stating his own opinion. And he doesn't do that either. He reproaches the utopians for not realizing that some major social change must precede an adjustment along moral lines.

-- Daniel Little from John Rawls

Marx ultimately rejected the Utopian vision and its spewing forth of programs
what he called recipes for the cook shops of the future

because it was idle time fun only
poetry

"major social change"
will intervene between here and now and the social forms of the future
and these social changes will not be product of the collective wills of a batch of pre formed liberated souls
but toiling souls mired in their own circumstances and struggling thru them zig by zag by zig
one stage one misstep at a time
driven on as much by blind necessity
as "preference"

if it all were a matter of choice alone
and we could discover that optimal social configuration
despite circumstance by some power of revelation
that reaches beyond the confines set by present social realities...

if on the other hand
the present population can not produce from among all it's heads
one head or a few that if followed
can immediately transform society
but can only muddle on
thru the vicissitudes of process
where the partial clarity to see the next step
is itself only a product of that social process
ie the minds that can lead us are themselves an "intermediate" product of ever changing society in motion

class agency isn't like tinker belle time

-- Paine

Reply Mar 10, 2010 at 12:31 PM

anne said...
It is not enough to say Marx is averse to preaching or moralizing. He is so averse; but judgments of justice can be reasoned and hence not properly described as "preaching".

-- Daniel Little from John Rawls

So, Marx did not wish to preach but rather set down a reasoned theory of justice. What the innovative significance of this is I do not know, since modern philosophers routinely were setting down reasoned theories of justice by the time Marx wrote as opposed to the preaching forms of Plato or Aristotle. What else were the utilitarians doing, let alone Kant, than setting down reasoned theories of justice? Marx followed the modern philosophers.

Reply Mar 10, 2010 at 12:37 PM

paine said in reply to anne...
anne

marx like any materialist finds values flowering out of the mundane soil of social metabolism
this is indeed hardly unique

the key is his use of the mode of production itself as the "producer " of human innovation
in the process of revolutionizing production humans
revolutionize themselves including their social values

utilitarians simply say social values are what they are because they're useful
this is true but even if it can tell us "why "social values are what they are
and even if bold enough
where they come from in the great down to earth
hugger mugger
but usefulness and functionality
can't tell us how values change or why they change
for that one must have a science of human systems of production and their laws of motion

marx felt he'd discovered the secret of social motion not in the clas struggle itself
but in its product the transformation of the mode of production

Reply Mar 10, 2010 at 12:51 PM

Bruce Wilder said in reply to anne...
"So, Marx did not wish to preach but rather set down a reasoned theory of justice."

That's not how I read Little's notes on what Rawls says.

Rawls is pointing out that Marx rejects "preaching", but the rejection of "preaching" does not explain why Marx does not present a reasoned theory of justice as a foundation for his critique of capitalism. The claim, by Rawls, is that Marx has not presented a reasoned theory of justice or made such a reasoned theory a foundation of his critique of capitalism, and this omission deserves some explanation. Rawls, himself famously ambitious to present a reasoned theory of justice, then presents a conjecture about Marx.

Reply Mar 10, 2010 at 01:45 PM

anne said...
Paine:

utilitarians simply say social values are what they are because they're useful
this is true but even if it can tell us "why "social values are what they are
and even if bold enough
where they come from in the great down to earth
hugger mugger
but usefulness and functionality
can't tell us how values change or why they change
for that one must have a science of human systems of production and their laws of motion

[The question is whether Marx had a theory of justice that differed in an significant way from that of the utilitarians, the problem with the utilitarian theory of justice always being the rights of minorities?]

Reply Mar 10, 2010 at 12:59 PM

paine said in reply to anne...
anne i think the utees can surmount
the restictions
of whole people freedoms
to act thru their state
we have in that lovely 18th century diadem
the bill of rights

the 20th century ordinal utees pretty much stymied the social welfare function totalitarianism
of cardinal utee think

ahh it gets long and winding

to be brief
i suspect you prefer kant's notion of humans as ends in themselves not instrumentalities
not even of the mission of history
no sense of class agency here

hegel i'm sure shadows your mind like
a great satan
unfortunately you can't get to the meat of marx without a trip thru the science of logic

its like differential equations
and complex functions

hey if u want to be for an electrical engineer

similarly
if you want to be a marxian social engineer

dialects baby cakes dialects

i fear more folks stumble and fall here
in the pages of old hegels master piece
then in diffy q class

you'd find keynes very congenial i think

he combined a burkean scepticism
about best laid plans
with a sense of hedonic liberation
from the calvinist coils
of self sacrifice

Reply Mar 10, 2010 at 01:24 PM

paine said in reply to paine...
no marx couldn't have a system of justice that wasn't the justice we find in reality

he has not one bright new idea about designing such a system

again recipes for the cook shops of the future and all that

u want to know how to live your life and
how the laws of our society ought to be formed

marx is no help here at all
besides this bit about you can live life like a bull or an ox ...you pick

Reply Mar 10, 2010 at 01:28 PM

anne said...
Paine:

i suspect you prefer Kant's notion of humans as ends in themselves not instrumentalities
not even of the mission of history
no sense of class agency here

[Clever, but Rawls may have added what passes for class agency to Kant making for an increasingly realistic Kant.]

Reply Mar 10, 2010 at 01:41 PM

anne said...
Paine:

i suspect you prefer Kant's notion of humans as ends in themselves not instrumentalities
not even of the mission of history
no sense of class agency here

[I am thinking this through carefully, but Hegel at best has the teleological or ends frame of justice that Aristotle had and Marx seems to have combined that with a utilitarian frame that is still lacking. Marx needed to have addressed Kant to be complete, from a modern philosophical perspective.

As Michael Sandel would teach, a teleological frame of justice means that a fine flute is deserved by a flute player who can play well rather than a person who simply has more money to buy a flute. The flute is justly destined for the fine flutist. There is a crudely appealing aspect to such a justice system and even a sort of utilitarian aspect but no comprehensive frame for justice.]

Reply Mar 10, 2010 at 03:18 PM

Anonymous said...
Marx sounds like an Austrian, a Recalculationist.

Reply Mar 10, 2010 at 03:36 PM

paine said in reply to Anonymous...
ya

proletarian revolution
as class based social structure recalculationism

"It is self-evident that if labour-time is reduced to a normal length and, furthermore, labour is no longer performed for someone else, but for myself, and, at the same time, the social contradictions between master and men, etc., being abolished, it acquires a quite different, a free character, it becomes real social labour, and finally the basis of disposable time—the labour of a man who has also disposable time, must be of a much higher quality than that of the beast of burden"
k marx

Posted by Mark Thoma on Sunday, March 7, 2010 at 02:52 PM in Economics, Financial System Save to del.icio.us Tweet This Permalink Comments (37)

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Anonymous said...
Greece is perfectly able to bet against its own default.

Reply Mar 07, 2010 at 03:15 PM

Bruce Wilder said in reply to Anonymous...
Maybe, they should secretly bet on their own default, and then make it so, like a prize fighter throwing a fight.

There was definitely an element of that, when Goldman Sachs "insured" securities of its own creation with AIG.

Reply Mar 07, 2010 at 03:26 PM

Goldilocksisableachblond said in reply to Bruce Wilder...
"Maybe, they should secretly bet on their own default, and then make it so, like a prize fighter throwing a fight."

I'd love to see that happen , but somehow I think the people of Greece would get screwed anyway.

Better might be use even more gov't debt to bet - BIG - on their own default , then default on payment of both the debt AND the bet. ( aka The Goldman Sting )

Reply Mar 07, 2010 at 03:56 PM

Leigh Caldwell said...
Even if it were desirable to ban naked CDSs, would it even be possible? Without eliminating the whole CDS market that is:

http://www.knowingandmaking.com/2010/03/indecent-exposure-putting-clothes-on.html

Reply Mar 07, 2010 at 03:33 PM

paine said in reply to Leigh Caldwell...
leigh anne my friend read bruce w below

he outlines just why you might not want to allow nakedness

"Goldman Sachs synthesizing securities that they knew carried a lot of risk, and then buying CDS from AIG, comes to mind"
get it ???

produce stealth shit
sell the stealth shit
buy insurance
not a hedge but a hammer

to be sober here
your post at hoime site toys with cvs
well cvs can be modularized too eh ??

and don't be so easily trumped by liquidity fears
or the improvement in price signals thhat increased liquidity might yield

its all largely taboo gaming by insiders

bruce is correct to suggest amateur sleuths
approach these markets with caution

i don't pretend to get the game here
but it really isn't insurance
if it were it would be a steady tax on risk
somewhat proportional to that risk
not a bonus play
free to drive leads to congestion eh ??

Reply Mar 07, 2010 at 05:12 PM

Uncle Billy Cunctator said...
Oh how the mobsters love insurance scams.

Reply Mar 07, 2010 at 03:44 PM

save_the_rustbelt said...
Try to buy insurance on a car you don't own, the agents will look at you like you are seriously crazy.

Reply Mar 07, 2010 at 03:54 PM

paine said in reply to save_the_rustbelt...
rusty
the whole life market can be arbitraged precisely by assuming life policies the holder drops
for the tdrastically undervalued
cash on surrender
right ??
forcing down premia to payout ratios

myopic moral hazard strictures
limits the keen possiblities of default insurance
i like to imagine a system where compulsory life insurance is part of the credit system
term life here not whole life of course
once a debt is paid off the insurance expires
we need such a system i think
where no one pays anything back if they don't want to
but they have to pay the insurance like they have to pay a tax
and it needs to be whole people pooled of course
though rated as now person by person

Reply Mar 07, 2010 at 05:47 PM

RW said...
Insurance? Therein lies the rub: The creators of CDS's apparently spent millions on packs of lawyers who successfully argued that CDS's were not insurance and, eo ipso, not subject to the relevant controls, local laws, etc. AFAIK this remains the case.

Reply Mar 07, 2010 at 04:05 PM

paine said in reply to RW...
well it's not insurance its a bet
but then insurance is a bet too eh
risk based systems are all bet systems in the small but zero sum systems in the large
which means winners earn less then the whole take

but we need to have the casino empowered
to print money to make this really rocket speed stuff no ??

ie uncle sam as ultimo compulsory re insurer

the unitary credit dome chapter two

difference its still a bet
if it's a rigged race
it's just not insurance its crime

Reply Mar 07, 2010 at 05:52 PM

Bruce Wilder said...
Exchanging pieties about "good" hedging and "bad" speculation is not particularly helpful as economic analysis. Proving your bona fides, by ritualistically condemning "naked" CDS bets, does not prove that you have the slightest idea what you are talking about, let alone does it constitute a useful economic analysis of the system effects.

There are some fundamental issues, here. I can see three peeking through the fog of esoteric financial jargon.

Mark Twain explained portfolio theory this way: either you should not put all your eggs in one basket, OR you should put all your eggs in one basket and then watch that basket.

Some actors in the economy are controlling processes, reducing error. You really do not want someone charged with actively guarding a basket of financial eggs to be able to insure against their loss -- you can call that moral hazard or whatever you like, but the bottom line is that insurance is not always a net gain in efficiency. Spreading the loss widely is not all to the good; sometimes, focusing the loss on folks, who have the power to reduce the loss, is a gain to society.

I would think that would be the point behind not allowing "naked" CDS, but it seems to me that the "naked" thing does cover all the cases, where, maybe, CDS is a bad, bad idea.

Leverage, in an ordinary business, is a way of achieving a balance between "insurance" to reduce the costs and expense of volatility in business expenses and outcomes, and focusing incentives on management, put in a position to control the production processes in a way to that minimizes the losses due to waste and error and so on. The contractual obligations that establish priority are what focuses the incentives of risk. We don't want to be undoing those contractual obligations, with esoteric financial engineering.

Goldman Sachs synthesizing securities that they knew carried a lot of risk, and then buying CDS from AIG, comes to mind. For economists, putting the story this way tempts them to shout "asymmetric information", and I suppose that is an important part of the story. Adverse selection and moral hazard, at a certain level of abstraction, are exactly the same thing.

But, I would not want to let responsibility for control leak out of the story. I know I hammer this point all the time, but it is important: there are important economies from technical control of production processes, even in banking. Economics, focused on incentives and allocative efficiency exclusively, tends to give this aspect of the situation short shrift, but it is often critically important. Underwriting mortgages and underwriting mortgage-backed securities were both processes that deteriorated markedly in the run-up to the recent crisis. Someone is supposed to manage those processes -- manage them in a technical sense, to prevent bad debt from being created, by due diligence, winnowing out the fraudsters and so on. The incentive for doing that job can not be "insured" away, without doing damage. And, it seems as if it was "insured" away, and tremendous damage was done.

But, if we are going to shout, "asymmetric information", then let's tie CDS to financial reporting, because that's what CDS is so often about. If you see CDS as extreme leverage, congratulations. Gold star on your forehead. Now, how are the contingent liabilities to be reported, if they are reported at all? What are the words that will be used in the financial statement, next to the nice round numbers, which will allow either managers, or stockholders, or government regulators or bondholders, to know what is going on.

How is a Graham & Dodd investor supposed to make heads or tails of what a CDS is doing for a bank or an insurance company or an ordinary industrial company, if there be such, in our brave new world. I don't mean this to be just a luddite rant against financial innovation, but I do question whether some of these esoteric instruments are not just opportunities for perpetuating sophisticated frauds.

Finally, I want to mention the Minsky effect. Economists love their stasis, and the idealization of competitive markets, arriving at balanced perfection. But, Minsky saw financial markets, correctly I think, as having a socially predatory tendency toward cycles of boom and bust. Acceleration thru leverage from good hedge finance to bad speculative finance was his central story. CDS looks like financial acceleration on steroids. YMMV, but what social benefit would we lose, if we banned CDS entirely? Really.

Reply Mar 07, 2010 at 04:17 PM

paine said in reply to Bruce Wilder...
"sometimes, focusing the loss on folks, who have the power to reduce the loss, is a gain to society"
indeed they ought to be subject to kill shots
even if their "firms "are not
however insurance for the firms outside stake holders is another matter

to intensify the personal stakes
the players ie agents need to be incentivized correctly

i suspect insurers are the ones in this case to look into this before rating the issue

and of course their insiders need to be correctly incentivized also

infinite regress here ??
lets hope so that feed back screech ought to be audible miles away from the office tower where these groups conspire
but alas...
so we need to make the conspirators screech that loud when their caught

the stock holders of insurers need investigative guys
like george peppard
only in this case with 00 status

Reply Mar 07, 2010 at 05:19 PM

paine said in reply to Bruce Wilder...
" it seems as if it was "insured" away, and tremendous damage was done."
no the aids like nature of the scam here
the antibodies were subborned first
ie aig investigators moody raters etc
this was a daisy chain bruce eh ???

a scam from alpha to omega

Reply Mar 07, 2010 at 05:27 PM

paine said in reply to Bruce Wilder...
"what social benefit would we lose, if we banned CDS entirely? Really."
none
because partially socialized risk is inefficiently socialized risk
that profound reality the bigger the pool the better for risk
only fails as all pooling fails
if the risk is really a scam in sheeps clothing

Reply Mar 07, 2010 at 05:30 PM

Gump_does_Irony said...
it is basically a tweedledum and tweedledee debate ...!

What exactly does "... the use of CDS contracts for hedging ... has beneficial effects ..." mean? The only person that would need to hedge is somebody who has credit exposure to the issuer, i.e., one that owns a bond. If the credit exposure becomes undesirable, the straightforward solution is to sell the bond; what exactly would the point be in buying CDS protection instead? Usually, the answer is that there is less liquidity in the cash bond market to sell the bond whereas it may be easier to find someone (a hedge fund) willing to take the credit exposure by selling a CDS contract on the bond. However, the reason why that hedge fund is not willing to purchase the cash bond outright but is willing to sell the CDS (both are effectively the same credit risk and return) has to do with the need to come up with the cash (and the capital) in the case the cash bond purchase. A CDS contract allows the hedge fund to own the credit without putting up the capital to do so; if said hedge fund were to be forced to own the cash bond, they have to either have the capital (or explicitly borrow against their capital, i.e., leverage) to do it. On the other hand, a CDS contract opens the door to the hedge fund to obtain implicit and opaque leverage that is magnified severalfold because all the hedge fund needs to do to own a CDS contract is the ability to fund margins, i.e., daily changes in the value of the CDS contract, which are typically a small fraction of the price of the cash bond.

If opaque and excessive leverage in the hands of hedge funds is how the extra liquidity becomes available to the original cash bond owner, how that benefits said bond owner (and in turn the issuer of the cash bond) is the unanswered question. It is fairly easy to see how this extra liquidity is a contrived situation and is inherently unstable.

Now, looking at this from the CDS buyer's side, especially if it is a naked CDS purchase, it changes the incentive structure quite dramatically. A natural owner of credit is typically willing to work through a stress situation and restructure the obligation in such a way as to optimize the payoff to both parties. On the other hand, a holder of a CDS insurance contract is not only uninterested in an orderly restructuring, but actually is incented to see the borrower fail so that the insurance policy (in reality a naked bet) can be collected on in full! The more such insurance policies he owns, the greater the incentive to force a failure. CDS contracts make it easy to purchase multiple insurance policies with relatively little capital (and thus for several players in the market to collude on the bet in huge size); the next step in this easy money strategy is to orchestrate a trash-the-credit campaign through gullible and/or compromised financial journalists and bloggers ...

I wonder what the reaction of Felix would be were he to discover that someone other than his mortgage lender is loading up on multiple insurance policies on his home! it should not be too difficult to discern that the incentive structure begins to favor the arsonist pretty soon!!

Reply Mar 07, 2010 at 04:24 PM

Bruce Wilder said...
The Sam Jones story of the "benefits" of a naked CDS in speculation on sovereign Euro debts is exactly the kind of idealistic stasis story economists like, and, also, exactly, the kind of thing Minsky was talking about. Sam Jones makes it sound like smoothing, static goodness: short-sellers giving themselves an incentive to keep a market in decline, liquid. A lovely fairy tale, obscuring an instance of accelerating the cycle, by creating yet another means of fleecing the rubes through boom and bust.

Reply Mar 07, 2010 at 04:43 PM

paine said in reply to Bruce Wilder...
exactly

if you don't see the limits of arbitrage
and all the rest of the dynamic noise and dirt
one can exploit with "perfected" foresight
as evil clark winner
plutonian familiar
peculator
and greek letter mephisto
andy shleifer proved
--irony eh ??--

Reply Mar 07, 2010 at 05:24 PM

paine said in reply to Bruce Wilder...
the risk pool needs to be loke the nordic ocean serpent too big to be lifted out of its water depths
since it surrounds terra firma this avoids
the horror of noah wins only outcomes

Reply Mar 07, 2010 at 05:33 PM

paine said in reply to paine...
loke ??... is look

not some brother of the trickster god

Reply Mar 07, 2010 at 06:06 PM

Goldilocksisableachblond said...
When someone pops up claiming they're the Second Coming , people rightly label them as crackpots , generally speaking. Yet Blankfein and others who defend the usage of such things as naked derivatives , claiming they're doing God's Work , are for some reason taken seriously by many.

Here's another example , on the issue of high frequency trading :

Why policymakers need to take note of high-frequency finance
Richard Olsen
6 March 2010

http://www.voxeu.org/index.php?q=node/4725

His summary :

"High-frequency finance holds out the hope of turning aspects economics and finance into a hard science by the sheer volume of data and its ability to set events into their appropriate context by mapping rare events into a short-term time scale with a near infinity of events, albeit at a shorter-term time scale. Second, the tracking of events on a tick-by-tick basis opens the door to identify underlying flows and develop economic weather maps. Surely that’s not a bad thing?"

...

His goal ?

"In the end, he says, his goal is to make the financial system work better and more safely."

http://alansforexblog.com/2008/02/03/a-day-in-the-life-of-dr-richard-olsen-founder-of-oanda

So , he must be an academic or philanthropist , right? , out to make the financial world safer for us mere mortals. No other motives , right ? Well , let's see :

"Currently, most of my time is dedicated to Olsen Ltd and Olsen Investment Corporation. Olsen Ltd develops quantitative statistical trading models for trading currencies. Olsen Investment Corporation offers managed currency accounts, markets a hedge fund called High Frequency Data Fund and other currency related investment products."

....

He might be right about HFT , for all I know. But if we're going to cast a wary eye on Al Gore because he stands to gain financially on his green tech investments if climate change policies are enacted , shouldn't we take a close look at those who advance financial reform agendas , and how they would stand to gain from adoption of those agendas ?

We need a variety of opinions on these debates , but we also need to know who's really behind those opinions and how they make their money , and then weight those opinions accordingly.

Reply Mar 07, 2010 at 05:03 PM

paine said in reply to Goldilocksisableachblond...
lovely

this high frequency shit
is liquidity fetish a go go

Reply Mar 07, 2010 at 05:34 PM

RueTheDay said...
I have a bigger issue with the very concept of credit insurance.

In any fixed income security, the interest rate is supposed to reflect (among other things) credit risk. In theory, the cost of a credit insurance vehicle (e.g., CDS) should be exactly equal to the risk premium attached to the interest rate in its absence. The fact that credit insurance exists means it’s cheaper than the interest rate risk premium. Unless there is some sort of information asymmetry or economy of scale that a monoline or a CDS protection writer has over THE ENTIRE BOND MARKET, there is no reason for this to be the case. The existence of credit insurance is predicated on the underpricing of risk, furthermore it ENCOURAGES the underpricing of risk.

Reply Mar 07, 2010 at 05:35 PM

paine said in reply to RueTheDay...
no
not that basic a problem
you throw out a baby here not some mutant beast

Reply Mar 07, 2010 at 07:45 PM

paine said...
"High-frequency finance holds out the hope of turning aspects economics and finance into a hard science by the sheer volume of data and its ability to set events into their appropriate context by mapping rare events into a short-term time scale with a near infinity of events, albeit at a shorter-term time scale. Second, the tracking of events on a tick-by-tick basis opens the door to identify underlying flows and develop economic weather maps. Surely that’s not a bad thing?"

this is what my uncle called

bronx sophistry
ie plain old double talk

Reply Mar 07, 2010 at 05:37 PM

paine said...
we need to clear up the diffrence between shorting a security and buying naked insurance on it
i'm too lazy to think this through right now

like the old prussian censorship
i take the restrictive frame
its prohibited if its not permited
in this case under lemma 13
its a no
lemma 13 ??
if its not fully understood
its out

so no nakedness till proven innocent

like patent on a device that the patent office
isn't certain performs as touted
zap
till we are sure

Reply Mar 07, 2010 at 06:02 PM

paine said in reply to paine...
okay a short wins if prices drop
a cds wins only if the security is forced into default

but i want a model to make certain i got the whole wiring diagram here

Reply Mar 07, 2010 at 06:04 PM

paine said in reply to paine...
can you sell your naked cds on a secondary market ??

Reply Mar 07, 2010 at 06:05 PM

Gump_does_Irony said in reply to paine...
Yes; back when the CDS instrument originated, the CDS buyer was required to actually deliver the reference security (the cash bond) to the CDS seller upon the occurrence of a 'credit event' (typically an event signifying a default on the part of the issuer of the security). In exchange, the CDS seller has the obligation to pay par value for the reference security.

Somewhere along the way, the whole thing transmogrified into an arrangement where the requirement to deliver the reference security was abandoned in favor of a net settlement against a privately auctioned value for the reference security. This meant that a CDS buyer no longer had to own (or buy) the cash bond in order to deliver against the CDS contract settlement, but ISDA (a trade body comprised largely of the big banks) would simply hold a private clearing auction of all outstanding CDS contracts ex post after the default happens, thus opening the flood gates for side betting on the reference security.

Reply Mar 07, 2010 at 06:40 PM

Gump_does_Irony said in reply to paine...
A CDS sale is roughly the same as purchasing a cash bond, i.e. seller takes credit exposure and gets paid the credit spread, excepting he doesn't have to put up the principal. It is technically a swap where you simultaneously borrow in the LIBOR market to fund the purchase of a cash bond, and put up the purchased cash bond as collateral on the LIBOR borrowing. So what you are left with is a risk/return profile where you are long a cash bond funded with a LIBOR liability, but with both items off your balance sheet. Of-course, your LIBOR lender will want you to post additional cash (margin) when the value of your cash bond collateral falls in relation to the LIBOR borrowing. Since this margin is the only ongoing obligation of the CDS seller, the CDS instrument allows you to effectively own the equivalent of a lot more cash bonds for a unit of risk capital in contrast to a funded on-balance sheet cash bond holding situation.

Reply Mar 07, 2010 at 06:24 PM

Gump_does_Irony said in reply to paine...
For clarity, a short of a cash bond is on the opposite side of a CDS seller. A CDS seller is taking a long position on the underlying cash security.

Hope this helps.

Reply Mar 07, 2010 at 06:52 PM

paine said in reply to Gump_does_Irony...
gump
i like your clarity

but i need a model that allows me to link to analogues better understood

rajiv uses the bank run model

i don't know if that is adequate or not

Reply Mar 07, 2010 at 07:29 PM

Anonymous said...
Keep interest rates a little higher such that insurance premiums are expensive relative to savings accounts.

Reply Mar 07, 2010 at 06:24 PM

paine said in reply to Anonymous...
the voice of rentiers past speaks from the crypt

Reply Mar 07, 2010 at 07:30 PM

mrrunangun said...
The German, Swiss, and French central banks could sell CDSs against Greek default to Mr. Soros and his friends to support Greece and reduce the interest rates it will have to pay on its bonds. As the Germans and the French are in a position to guarantee the Greeks against a default, they might economically suppress the speculative attack on Greece and the Euro without buying the Greek bonds themselves. This would have to be contingent on Greece putting itself under the authority of the EU for enforcement of the finance reforms of the Greek government.

Reply Mar 07, 2010 at 06:52 PM

paine said in reply to mrrunangun...
to overtly insure the bonds sounds like the solution
and to get premia along the way for it
also sounds bright
in fact only the guys with nthe euro mint behind em
ie the central bank oughta issue these policies
and only to bond holders

Reply Mar 07, 2010 at 07:33 PM

paine said...
i want to add
rajiv
is really aces

for a second tier barnyard piker
he sure out performs
all these giant blow fish
like stiglitz and delong and shiller
we watch swim down river past us
in endless self important succession
here at thoma town

i read rajiv's blog like few others

Reply Mar 07, 2010 at 07:39 PM

Robert Waldmann said...
Sethi's argument can be summarized as follows -- over insurance leads to arson.

Shift the focus a few miles North from Wall Street. You will find burned out buildings. In the 70s there were a huge number of fires in New York. Then the City made sure that there weren't buildings insured for more than their market price. The rate of arson declined sharply.

In general it is not legal for anyone to profit from an event by buying insurance against some event. As far as I know, in all other insurance markets, the equivilant of a naked CDS is forbidden. This general rule was avoided by naming credit default insurance a credit default swap. Naked CDS can make the financial equivalent of arson profitable. Sethi is not the first person to point this out .

http://www.angrybearblog.com/2008/09/financial-arsonists.html
(note the date stamp -- September 2008 -- some time ago).

It is easy to prevent this. There are different kinds of CDS : cash settlement CDS and physical settlement CDS. If you own a physical settlement CDS and the asset in default, then you get the face value of the asset in default. It is legal, but unwise to buy a naked physical settlement CDS. If the nominal value of physical settlement CDSs is greater than the value of the insured instrument outstanding, then, in case of default the physical settlement CDSs are worthless and the underlying asset is worth just as much as it was without default. This has happened. It is not theory it is a known fact.

Cash settlement CDS were invented because existing instruments did not make it possible to gain huge profits when an entity defaulted. If this is considered an undesirable situation, it is trivially easy to avoid it by banning cash settlement CDS. This again is trivially easy just by saying that a cash settlement CDS contract won't be enforced so I can buy something which says someone will pay me a huge amount of money in case of some default, but if that default occurs I can't make him pay me anything. The regulatory problem is trivially easy -- declare *new* cash settlement CDS to be non-contracts of no legal significance.

Now what is the disadvantage of banning cash settlement CDS ?

Reply Mar 08, 2010 at 01:47 AM

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Posted by Mark Thoma on Sunday, March 7, 2010 at 04:17 AM in Economics, Financial System, Housing Save to del.icio.us Tweet This Permalink Comments (54)

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bakho said...
Housing has gone down the same primrose path as cars. Developers make money by building bigger houses that they sell for more money. There is less profit in a starter home. Corners are cut to maximize the profit to developers by externalizing costs. Developers externalize transportation costs, costs to the school systems of growth, costs to urban areas that lack money for redevelopment, etc. People with starter homes are subsidizing big time, the interest payments of those with much larger homes.

What Shiller says makes sense but it would also devalue many of the current homes that were purchased under subsidies. Houses purchased with subsidy and sold without subsidy will be worth less.

Reply Mar 07, 2010 at 06:01 AM

david said...
Core values aren't a given, nor uncontested, not even stable of course. Shiller gives away way too much to conservative claptrap and post-war advertising.

But I'm more concerned about the inane opposition of human psychology to financial wisdom in paragraph 5 - that stuff is the worst of behavioral economics. Which makes me happy to see the last paragraph, which holds out hope that there's something more to measure ("richness of human experience"), and he's not stuck in the oh if only these dummies understood we wouldn't have to nudge them Cass Sunstein style crap.

Reply Mar 07, 2010 at 06:02 AM

Mark G. said...
This time, the best answer isn’t found in traditional economics but rather in American culture: a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity. Historically, homeownership has been associated with freedom, while renting — often in tenements or mill villages — has been linked to the oppression of a landlord.
=============================

What drivel this is. Is Shiller talking his own ETF book? Is he channeling George Bush as he speaks to "freedom" and "liberties" and "ownership society". American culture? What is American culture? Youths wearing pants halfway down their ass, monster truck races, cage fighting or obese people laying on the couch, zipped into a fleece snuggie as they feed their face watching American Idol?

Is the American culture/identity zero net jobs created and flat wages over the last decade, the looting of the tax base to make those financial institutions that created this mess whole and then see those same financial institutions pay out record bonuses? Is the American culture defined by the fact there has been zero financial regulation enacted as both political parties seek not to disrupt the flow of campaign donations from the FIRE sector?

Is the American culture better defined by a nation that by being the worlds mightiest super power allowed itself to be so easily misled into a war via simple jingoism, to torture, to detain in black sites, to eaves drop on Americans?

What is America's identity, the definition of American culture? The freedom and liberty of home ownership vs. renting from oppresive landlords? 25% of mortgages are underwater, estimates are for that percent to hit fifty. Is that not more oppresive than renting?

As Shiller makes his bizzare argument for further subsidizing of home purchases, he touches upon an interesting subject. What is American culture/identity?

Reply Mar 07, 2010 at 06:03 AM

save_the_rustbelt said in reply to Mark G....
Gee, if this is how you see the country, i really feel sorry for you.

So you prefer to live in a tenement owned by some rich white guy, like my great grandparents? Good luck with that.

Reply Mar 07, 2010 at 06:44 AM

Mark G. said in reply to save_the_rustbelt...
Having the courage, the insight to see past the clutter doesn't need sympathy. Your alias and your tenement comment makes me feel sorry for you.

Reply Mar 07, 2010 at 07:16 AM

save_the_rustbelt said in reply to Mark G....
Some of my great-grandparents lived in tenements - fact.

They worked hard and kept their families together - fact.

Some of them moved to rural areas or out west where they could OWN HOMES - fact.

They made better lives for their children, and kept families together during the depression because they owned homes.

I hope someday you can see past your bitterness and see the good in our people and our communities - despite our problems.

Reply Mar 07, 2010 at 08:00 AM

Mark G. said in reply to save_the_rustbelt...
What does,"see past your bitterness and see the good in our people and our communities - despite our problems", have to be with taxpayers subsidizing home purchases? Does my statement that post WW II, 21st century America has a culture/identity problem, anger or frighten you? If so, why?

Reply Mar 07, 2010 at 08:25 AM

Σπάρτακος said in reply to save_the_rustbelt...

"They made better lives for their children, and kept families together during the depression because they owned homes."

this is a lie. owning a loan in the midst of the deflation of the great depression caused many families to fall into abject poverty.

"Some of them moved to rural areas or out west where they could OWN HOMES - fact."

more exceptionalist "american dream" hokum from rusty. the myth of the bright-eyed family buying their cookie-cutter white-picket fence in a community where the children are all above average (and white). unfortunately this rockwellian fantasy is actually orwellian propaganda used to justify oppression and cruelty.

the whole game of subsidizing home ownership is merely a sop to the middling american class who are too stupid to realize that the reason they get to deduct their mortgage interest is because rich f***s are making a killing speculating on their vapid lifestyles. the real victims in the USA are not the "as long as i get mine" middling classes but the slaves -- the bottom quintiles.

Reply Mar 07, 2010 at 11:13 AM

paine said in reply to save_the_rustbelt...
i agree with your sarcasm rusty
these goo goos have tried to keep us crowded up next to each other
if not exactly stacked up
since the puritan fathers of the 17th century
yes they parallel the 19th century
factory owner in that way

intentionalizing and incentivizing
greater "community "
by bunching household up
has as many sinister motives as benign

the ultimo genteel compulsion is aesthetic of course
but let us each ...household by household
choose our prefered space
err so long as its full social cost
is paid by the citizen so choosing

an end to mortgage payment deductions
and set up a housing tax credit system instead
applicable to lease payments as well as morgage payments
plus a raft of pigou taxes
might change a few preferences
but those who cry
" ticky tacky
and philistine hog squander "
are just
ivy minded presumptuous asses
throwing up
hair balls too me

Reply Mar 07, 2010 at 07:40 AM

paine said in reply to Mark G....
" 25% of mortgages are underwater, estimates are for that percent to hit fifty. Is that not more oppresive than renting?"

i agree

in fact i advocate walking away
let us rent each others forclosure

but far be it from me
to do more then advocate
i'll not judge others
that stay and "fight"
to the bitter end
struggling in a certain noble futility
to make
near impossible payments

each household must place this matter
on their own set of scales
and use their own set of weights

any agenda about reclustering the hoi hogs
in stacking pens
to leave
much more of mother earth
availible to spontaneous regeneration
is pure "value" tyranny

Reply Mar 07, 2010 at 07:51 AM

save_the_rustbelt said in reply to paine...
Paine:

Beg to disagree.

Technically the current market value of both my places could be zero, homes are not selling. So I guess technically I am underwater.

In terms of current utility and future value there will be considerable equity when the market heals.

Now, those who are really seriously underwater with no hope of recovery have to consider the utility of the home and the payments versus rental opportunities. For some, especially in areas with concentrated misery, walking away may be the only option.

Reply Mar 07, 2010 at 08:03 AM

paine said in reply to save_the_rustbelt...
rusty you need to be coherent here

first off the house is "worth " its replacement cost
all houses are
even if replacement cost is not easily evaluated because equivalence will be itself subject to modifications
at any rate that problem set aside...

its the local value that implodes the package value

the lot has a negative value now
ie you'd have to pay some one to move there
as much as the house is worth or more

get it ???

location is not zero valued but negative

test imagine you built ever kooler
houses on your lot and say four surrounding lots

at some point one of these houses would be so kool some one would pay something to move to its horrible location

Reply Mar 07, 2010 at 09:23 AM

Σπάρτακος said in reply to save_the_rustbelt...
real estate in japan has been in a death spiral for almost two decades. the rich elite are counting on suckers like you to keep paying.

Reply Mar 07, 2010 at 11:20 AM

watt d fark said in reply to Σπάρτακος...
It's not just that we're suckers...March 7 Detroit Free Press had several articles about underwater mortgages, and the point was made more than once that the bank can sue the mortgage holder for the difference between what is owed and what the house is sold for. And that banks will likely sue for the deficiencies more frequently in a couple of years once the system isn't clogged with foreclosures and other issues.

AND...in Michigan they have until 6 years after the last mortgage payment is due to do so (if you take out a 30 yr mortgage today, they have until sometime in 2046 to sue you if you walk)

http://freep.com/article/20100307/BUSINESS06/3070532/Mortgage-tax-bills-ultimately-come-back-to-haunt-walkaways

As usual, you can't win. If you're a business, you can walk away from a bad investment, but as an individual you are screwed.

Reply Mar 08, 2010 at 09:44 AM

Pingry said...
How strange that renting is linked to the "oppression of a landlord," and yet subsidized homeownership is not linked to oppression of taxpayers.

If one has the gall to claim that landlords "oppress" renters, the one should also wise up and realize that the taxpayers are "oppressed" by the government into paying taxes to subsidize other people to buy homes.

Maybe there's another reason for this obsession with homeownership. Clearly it's a backdoor attempt to curry favor with certain groups. Nothing more than a sly attempt at income redistribution.

Whenever government can concentrate benefits while spreading costs as broadly as possible, look out!

--Pingry

Reply Mar 07, 2010 at 06:55 AM

paine said in reply to Pingry...
this seems to miss it's target p

the goal of each family its own bit of turf
seems to be in the tradition of federal policy
from the founding

the family farm is now just the sterile family house plot
but the yeoman ideal remains in spirit eh ??

misbegotten ??

who are we genteel trust fund rentiers
poverty row rebel bohos
tenured academics
and abstemious commercial world rejectionists
to sing in motley chorus

"down with the little pink ranchos !!"

Reply Mar 07, 2010 at 08:01 AM

save_the_rustbelt said in reply to Pingry...
There are a lot of really great landlords (I used to be one of them) and there are a lot of nasty SOBs, so the issue is to be able to find the great ones.

Very tough sometimes. I've been on both sides of that equation.

Reply Mar 07, 2010 at 08:05 AM

paine said in reply to save_the_rustbelt...
rusty

are systems best judged by counting their white hats and black hats ???

slum lording is still the easiest way to make fast money in real estate
unless you have a political inside track
to get the pick or green light
to develop or redevelop existing lots

Reply Mar 07, 2010 at 09:34 AM

bakho said...
One problem with renting is that tenants rights really suck in most states. The landlord has all the leverage, especially in college towns.

Reply Mar 07, 2010 at 07:05 AM

cm said in reply to bakho...
I wanted to comment similarly but I usually read all the other comments first ...

From my vantage point, in Germany and probably elsewhere in "first world" "Europe", there seems to be much stronger legislation and enforcement of renters' rights and rental standards, as well as a sizable portion of rentals owned and managed by public entities and co-ops. There are many private landlords, and of course they complain about the regulations, but I haven't seen them starve.

Also at least here in "Silicon Valley", a good deal of the rental stock looks much shabbier than what I know from "Europe". Probably due to absence of European over-regulation.

Reply Mar 07, 2010 at 02:12 PM

paine said...
a series of gestures that adds up to nothing

" We need to invent financial institutions that take into account the kinds of communities we want to build"

give us a for instance mr S !!!!
if its not a system tilted toward
mass small fry investing
(cum subsidized leverage)
in a house lot
and house
then what ????
densification of settlement ???

leased apartments vs condos ???
what's the diff

the spec is in the turf purchases
not buying the actual housing unit instead of leasing it
think cars
is own or lease a deep value choice ???

living sprawled vs stacked may well be
a major value expression
however
and having a chunk of the planet's surface
that's "all yours"
might be also

again think
mass transit vs car commutes

of course
lot value taxes and emminent domain certainly make this free holding circumscribed
and colors ones sense of willful latitude
with a dose of circumspection

Reply Mar 07, 2010 at 07:07 AM

jamzo said...
"we should be more like switzerland ?!!!"

Reply Mar 07, 2010 at 07:19 AM

paine said in reply to jamzo...
personally i think leasing is aces
and towering apartment buildings with good sight lines kool livin'
but it's not my place to impose this prefereence or judge others
er
if they cover their full "costs"

Reply Mar 07, 2010 at 07:43 AM

roger said in reply to paine...
Mr. Paine, How could it not be your place? Sewage, water, transportation, all are of course public services that every county in America, I think, actually has boards set up to regulate, raise bond issues, etc. One's preferences - or somebody's preferences - are always being imposed in such a way that my choice of a house in a neighborhood can easily turn bad without it being my choice at all, as the neighborhood changes due to community 'preferences' - such as putting a road in nearby, or easing restrictions on apartment building, or tightening them up, ore dealing with a water crisis, etc.

On the other hand, you are certainly right that this is not a white hat/black hat issue. After all, rusty's americans who pioneered in moving out and building houses also pioneered in retiring to florida and buying condos, which are now being covered by a state subvented homeowners insurance, since homeowner insurance companies, for some reason, got tired of insuring Gulf Coast property.

To divide this into separate units of preference is, I think, to miss the reality here.

Reply Mar 07, 2010 at 01:05 PM

Steve Bannister said...
Shiller makes an interesting argument. Can the "free" market deliver in that direction? mmmmmmm...off to Intrade on that one.

Arrayed against that argument is one I haven't seen argued at all...that housing has been encouraged by the elites as the part of the social safety net that makes retirement feasible for the masses, thus preventing the pressure for better tax funded retirements that should build in the wake of the crisis now that the fantasy bubble has popped, and also allowing finance to profit.

This is not the case, e.g., in developed Europe. Here, its Qu'ils mangent de la brioche.

Reply Mar 07, 2010 at 07:55 AM

paine said in reply to Steve Bannister...
sb
" housing has been encouraged by the elites as the part of the social safety net that makes retirement feasible for the masses, thus preventing the pressure for better tax funded retirements "
"part of the social safety net"
or as you imply
an alternative to the social safety net

its problematic
that private "savings " in the form of an unencumbered house lot is really safe

where --as recent de3velopments suggest--
a house lot investment may have
a very uncertain and unstable secular real value appreciation path

solidly the house itself is an inflation proof
store of value
but lots are specs that little fry oughta avoid

as to elite preference
of course if insecurity of the jobbled masses leads to a higher elite share of wealth and income ...

then of course little guy fueled
house lot booms and busts
are "elite prefered "
to intergenerational
tax and entitlement based transfer systems

Reply Mar 07, 2010 at 08:10 AM

paine said in reply to paine...
its immodest of u to claim
"Arrayed against that argument is one I haven't seen argued at all"
its also untrue
the private house lot ownership "tax subsidy"
like is no different in kind or intent
then the ira account
equally subject to "flux" and "flop"

Reply Mar 07, 2010 at 08:14 AM

Steve Bannister said in reply to paine...
Probably guilty, paine, but I haven't seen this point argued, and it has huge consequences. As you point out, it is a shift of retirement funding risk to the individual. I agree with all your other points.

And it won't be the last attempt.

Reply Mar 07, 2010 at 08:26 AM

paine said in reply to Steve Bannister...
the class struggle pov
that lies behind these "shifts" and "misdirections"
are tough on us jobblers

since the system is largely of "their" making anyway you cut up the "risks "
the odds are in their favor goes they can load the dice

Reply Mar 07, 2010 at 09:37 AM

DR said...
Tax subsidy? Either the landlord gets it or the homeowner.

Housing is subsidize by the US government so as to provide a safe,ready stream of dollar instruments(MBS). Up until recently there wasn't enough US treasuries to go around.

Reply Mar 07, 2010 at 08:25 AM

Eleanor said...
How about the environmental cost of houses vs. apartments -- especially suburban houses with good-sized lawns? I'm for row housing, duplexes, apartment buildings, enough density so walking and mass transit become practical.

Reply Mar 07, 2010 at 08:36 AM

paine said in reply to Eleanor...
to make this point stick
you need pigou tax authority
and if despite internalizing the full social cost the hoi hogs want to keep sprawlin'....

okay
democracy can vote in the apocolypse

in fact that's exactly what the prophets
expect to happen

but i agree with bill faulkner
i think the prophets got it wrong

Reply Mar 07, 2010 at 12:54 PM

jrossi said...
I've rented most of my life, and renting sucks. Landlords call you, come to your home, raise your rent whenever they want. For the last 15 years I've owned. Definitely not perfect, what with the extra expenses and all, but much better from a lifestyle standpoint, especially with kids.
Don't underestimate the quality of life standpoint. If you rent, you associate with....renters. Less buy-in, less responsibility in the aggregate. Of course a few years ago when any fool could buy a house with no money down, that changed the equation for a time.
But don't be stupid about it. Don't buy houses in bubble areas (like London, UK, still). Don't buy if your job is not secure. Don't overleverage--20% down minimum. If you can't afford that, rent. If you can never afford that, rent for life and put your savings into financial assets (mind the bubbles)which have a better long-term return anyway.
At bottom, buying a home to live in should be a lifestyle choice, not an investment.

Reply Mar 07, 2010 at 08:37 AM

Σπάρτακος said in reply to jrossi...
I've rented most of my life, and renting is great. I call my landlord and bitch at him constantly over the most inconsequential things. I recently forced him to install a new washer and dryer. I've not had my rent increase for the past 9 years. For the past 20 years I have rented. I make far more in *interest* on the money I have saved by not leveraging up to buy a loan (erm...home) than I pay in rent. And to be clear I save because I live comfortably and *happily* on a pittance. The fact that I loathe fancy clothes, suvs, big teevees, fast-food, and cosemetic surgery also helps

"Of course a few years ago when any fool could buy a house with no money down, that changed the equation for a time. "

The cognitive dissonance of loan-owners knows no bounds. FHA 0-3.5% dp loans with $8000 cash moneyu bribes from uncle sam is the rock that american real estate is based.

"Don't overleverage--20% down minimum."

5x leverage is a safe bet!?! BRB! I'm going to phone my broker now!

"At bottom, buying a home to live in should be a lifestyle choice, not an investment."

This is true. Only those with money to blow should buy a home.

Reply Mar 07, 2010 at 11:39 AM

jrossi said in reply to Σπάρτακος...
Well, I hoped not to get called on it, but I guess I did. 5x leverage is somewhat nuts, but you must admit that it is not as nuts as infinite leverage.
Sounds like you've got a good landlord. Keep him.

Reply Mar 07, 2010 at 07:59 PM

CathyG said in reply to Σπάρτακος...
We rented while saving for our first home but got tired of having investment properties that we were happy to rent sold out from underneath us when the landlord decided to rebalance his investments. We also got tired of some of the neighbors we were only a wall away from.

So we saved and built our dream home in 1990 and are now just 13 payments away from owning it outright. It's the only home our boys have known and it's the last home we plan to own.

Sure, there are risks. It's not easy to avoid death, disease and unemployment for 20 years. It's hard to hold everything together for that long and never miss a payment. Buying a home isn't, and never was, the right solution for everyone.

But it gave us a type of security, peace and, ultimately, financial well-being that we would have never enjoyed if we had continued to rent.

Reply Mar 08, 2010 at 07:49 AM

Noni Mausa said...
I've wondered for some time if a system of buying house bonds might be helpful. That is, the buyer acquires, not a given house, but a housing tranche. Ten tranches gets you the housing equivalent of a bachelor apartment, each additional ten adds some element (1 BR, 2 BR, half bath, garage, etc.) These tranches would be portable, to permit people to invest in abstract "housing" and would be heritable. They could also be sold, perhaps they could be traded in on a specific house when someone saw something they liked.

As you can all see, I have no idea how specifically this would work. Maybe the tranches could apply to registered housing stock or stock built just for the purpose. Industries might want to invest in such a scheme. I would hope it would allow people to build equity while still being free to move around the country. Whether it would actually work that way -- who knows?

=========

"...Historically, homeownership has been associated with freedom, while renting ... has been linked to the oppression of a landlord...."

I don't know about "oppression", but in my city, and many others I imagine, the quality of the neighborhood is inversely related to the proportion of renters. Home purchase is tied to comparative steadiness of income and ability to save -- renters may have these qualities, but buyers MUST have them.

Landlords and tenants can also share a mutually destructive relationship to the property. At the low end of the cost slope, the renter either can't afford upkeep, or won't do it because the investment of time and money is lost to them when they leave. The landlords have much the same problem -- why invest lots of time and money in a home which will just suffer damage from inept or violent tenants?

I enjoyed watching the French rental environment in the movie "Amelie", with longstanding rental arrangements and the neighbors knowing each other well -- investing in their neighborhood. You more cosmopolitan Bears can tell me whether this is a true or idealized portrait, but it's not a lot like the apartment environments I have experienced.

Reply Mar 07, 2010 at 08:47 AM

Bruce Wilder said...
The tax-subsidy for home ownership was, historically, a subsidy for saving in the form of home ownership. It was NOT a subsidy for owned single-family homes as opposed to rental apartments. Investment in real estate structures of all kinds, including residential rental properties, is heavily tax-subsidized as well.

What went wrong in American housing wasn't on the tax subsidy side. What went wrong was in the structure of finance and banking: "financial innovation".

You remember "financial innnovation"? A housing bubble driven by deteriorating underwriting standards and adjustable rates and home equity lines of credit? Sound familiar?

The American middle class is being squeezed into pulp, like grapes in a wine press.

Shiller is just part of the process of propagandizing in favor of one of the next steps in reducing the middle class aspirations of the 90%. Others are getting ready to steal Social Security; Shiller is weaning the former American middle class from the financial security of home ownership.

Look, people, there's no fighting the new economy. Work for no benefits as an "independent contractor". Cash your checks for 3% at Wal-Mart. Rent a place to live. And, when the time comes, die waiting in the emergency room. It's the new American Dream.

Reply Mar 07, 2010 at 09:00 AM

paine said in reply to Bruce Wilder...
"Shiller is weaning the former American middle class from the financial security of home ownership"

bruce
is he really a black hat by conscious intent here??

btw there one needs to add
there is no equivalent final outcome path
between a system where the landlord
gets the subsidy and the tenant gets it
in imperfect markets like reality has

the analogy between landlord mortgage deductions and householder mortgage deduction is
largely false
the tenant should get the subsidy
as the job holder not the employer

Reply Mar 07, 2010 at 09:45 AM

Bruce Wilder said in reply to paine...
Shiller: "is he really a black hat by conscious intent here??"

As other commenters have put it, he's "talkin' his book". Shiller is a shill. He's a salesman, with a customer base to please and a product to sell.

Conservative economists have developed so-called tax "incidence" into a fine art of propaganda, where the goal is always to suggest, never to prove. It is argument as hypnosis, not analysis.

Just so, here. The mortgage interest deduction has nothing to do with the housing bubble, or the housing bubble's usefulness in transferring, literally, many trillions of dollars from the middle class to the top 1%. How would a long-standing tax subside provoke a bubble?

I brought up the heavy tax subsidy to commercial ownership of property to suggest that there might be an issue of balance, here. It's my way of saying, "wake up!" If Shiller were doing an honest analysis, there would be some acknowledgement of the full range of taxes and tax subsidy, including local and State PROPERTY TAXES (hello!!!), and their effect ON BALANCE AND ON NET on behavior and choice. That's the way real economic analysis works.

Shiller's essay is not an economist's honest attempt at an informative and insightful critical analysis. It is a propagandist's venture in hypnotic suggestion and distraction, useful to the extent that it focuses political discussion on further reforms to government policy protective of the middle class, to benefit the kleptocracy, rather than reforms to banking or finance, that might limit the predation.

So, yes, I think he's very much a black hat.

Reply Mar 07, 2010 at 02:30 PM

Bruce Wilder said in reply to paine...
I loathe the subsidization of the lower classes. It is what a kleptocracy does, to keep the peace. Bread and circuses.

Many conservative economists disparage the minimum wage, while touting the EITC. Their concern for the poor is touching.

Who gets the subsidy cash is politically important in a society of ignoramuses, but is not an indicator of the economic effect or benefit, in shaping the society.

What I liked about the New Deal, as a package, was that it promoted the freedom of a middle class, to build and have something of their own, by subsidizing the accumulation of "insurance". The key to economic domination in a plutocracy is the "insurance effect" of wealth: the wealthy want to rent out their wealth as insurance to the poor, then use politics to administer shocks to the system, in order to draw off as much income as possible. Laissez-faire doctrine is all about preventing the masses from using government to protect themselves, with police actions, regulation or mutual schemes to provide cheap "insurance".

What Save-the-Rustbelt said above about the role of home ownership in the epic achievements of families seems exactly right to me. I'm not a fan of McMansions or urban sprawl, but I am a fan of enabling people to live satisfactory lives, in families and communities, where the individual has power and choice. Not the fake power touted by libertarians, exemplified by, say, a credit card "contract" that the bank can change without notice, but the actual power of being able to hold a stable job, live in a house, and end up owning the house.

Reply Mar 07, 2010 at 03:00 PM

Σπάρτακος said in reply to Bruce Wilder...
"The American middle class is being squeezed into pulp, like grapes in a wine press.."

the fact that the middling class keeps on voting for the squeezers shows that this is a lie. the middling class supports "tax cuts" not social equity. they are "as long as i get mine" and "not in my back yard" enablers to the oligarchs. in my view, the fact that there are fewer, and fewer of the middling class is a *good* thing. once there numbers dwindle below a certain threshold we might see "real" change.

Reply Mar 07, 2010 at 11:50 AM

Bruce Wilder said in reply to Σπάρτακος...
If there was a non-squeezer on the ballot in the last election, I failed to notice.

At this point, Americans vote for the squeezers, because only squeezers can run.

Reply Mar 07, 2010 at 02:36 PM

CathyG said in reply to Bruce Wilder...
Yes, and when we thought we were voting for a non-squeezer, look what he turned out to be.

Reply Mar 08, 2010 at 08:07 AM

Fred C. Dobbs said in reply to Bruce Wilder...
'Investment in real estate structures of all kinds, including residential rental properties, is heavily tax-subsidized as well.'

It's not as if this is much (any?) benefit to the renters, though it would be to the landlord. Which is obviously why the incentive for ownership is so popular. And perhaps why folks like Barney Frank would set out to 'liberalize' the availability of mortgages.

Reply Mar 07, 2010 at 11:55 AM

RueTheDay said...
All this talk about home ownership being associated with freedom, individualism, and cultural values only makes sense for those who actually own the property free and clear or have a substantial equity interest in it.

If someone bought a house during the boom with no money down and financed it with some goofy interest only, negative amortization, or pick a payment type loan, they are no more a "homeowner" than the renter down the street.

Reply Mar 07, 2010 at 09:32 AM

paine said in reply to RueTheDay...
they are also worse off
the renter is likely paying less per month

Reply Mar 07, 2010 at 09:47 AM

RinoRevolt said...
The quality of most Apartments is terrible. Noisy. Landlords that are slow to fix problems, but fast to raise rent based upon "market conditions", not on the quality of the apartment.

Most apartments rent expensive but are built cheaply.

Reply Mar 07, 2010 at 10:23 AM

Dirk van Dijk said...
I agree that the mtg interest deduction does not make a lot of sense if you were drawing up the code from scratch. However, how do you get from point A to point B. It would cause the value of the existing homes to plunge further, putting many more people deeply underwater.

Still, on average, people who own have higher incomes than those who rent. Thus the mtg tax deduction is highly regressive.

Probably the way to start going from A to B would be to slowly bring down the cap on how much mortgage interest can be deducted, and then correspondingly start raising the standard deduction. However, given that having a $900,000 mortgage means something very different in New York City than in Dayton, there might have to be a more complicated system for bringing down the cap, based on regional average costs.

Reply Mar 07, 2010 at 11:03 AM

anne said...
Mom, Apple Pie, Mortgages, and fierce and persisting discrimination that is never ever to be mentioned in these times in polite company:

http://www.nytimes.com/2010/03/07/business/07view.html

March 5, 2010

Mom, Apple Pie and Mortgages
By ROBERT J. SHILLER

This time, the best answer isn’t found in traditional economics but rather in American culture: a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity. Historically, homeownership has been associated with freedom, while renting — often in tenements or mill villages — has been linked to the oppression of a landlord....

Reply Mar 07, 2010 at 11:14 AM

anne said...
http://www.nytimes.com/2005/09/14/business/14lend.html

September 14, 2005

Blacks Hit Hardest by Costlier Mortgages
By EDMUND L. ANDREWS

WASHINGTON - Regardless of income levels, blacks were about three times as likely as whites to borrow through more expensive "subprime" mortgages last year, according to a nationwide lending survey released Tuesday by the Federal Reserve.

The new report, based on data collected from 8,853 lenders, is the Fed's first attempt to look for evidence of racial and ethnic discrimination in the booming business in exotic mortgages and subprime lending.

Among low-income homebuyers, about 39.2 percent of blacks but only 12.9 percent of whites took out high-priced mortgages, which the Fed defined as loans with interest rates about 2 percentage points higher than those for "prime" customers with good credit.

For buyers of a $200,000 house last year, that would have meant about $3,000 extra in annual interest payments....

[What is always saddening but increasing startling as the trend continues, is that the legacy of discrimination, especially discrimination against Blacks in housing and mortgages is simply turned away from. Federal Reserve executives would turn away even when the Fed's own researchers pointed to the problem and the New York Times wrote of the problem. Black homeowners and Black communites have been fiercely harmed these last years and special attention is needed but the problem is virtually never addressed by analysts.]

Reply Mar 07, 2010 at 11:20 AM

anne said...
http://www.nytimes.com/2010/02/19/us/19evict.html

February 19, 2010

A Sight All Too Familiar in Poor Neighborhoods
By ERIK ECKHOLM

MILWAUKEE — Shantana Smith, a single mother who had not paid rent for three months, watched on a recent morning as men from Eagle Movers carried her tattered furniture to the sidewalk.

Bystanders knew too well what was happening.

“When you see the Eagle Movers truck, you know it’s time to get going,” a neighbor said.

On Milwaukee’s impoverished North Side, the mover’s name is nearly as familiar as McDonald’s, because Eagle often accompanies sheriffs on evictions. They haul tenants’ belongings into storage or, as Ms. Smith preferred, leave them outside for tenants to truck away.

Here and in swaths of many cities, evictions from rental properties are so common that they are part of the texture of life. New research is showing that eviction is a particular burden on low-income black women, often single mothers, who have an easier time renting apartments than their male counterparts, but are vulnerable to losing them because their wages or public benefits have not kept up with the cost of housing.

And evictions, in turn, can easily throw families into cascades of turmoil and debt....

The study found that one of every 25 renter-occupied households in the city is evicted each year. In black neighborhoods, the rate is one in 14. These figures include only court-ordered evictions; the true toll, experts say, is greater because far more tenants, under threat of eviction, move in with relatives, into more run-down apartments or, sometimes, into homeless shelters.

Women from largely black neighborhoods in Milwaukee constitute 13 percent of the city’s population, but 40 percent of those evicted. Housing lawyers in Los Angeles and New York described a similar predominance of minority women, including Hispanic women, in eviction cases. (The figures do not include displaced renters from foreclosed properties.)

Even for working mothers, evictions and the ensuing damage to social ties, schooling and credit ratings can be an ever-hovering threat....

Reply Mar 07, 2010 at 11:25 AM

OrganicGeorge said...
I agree with Mark G. and Bruce that Shiller is talking his book.

This is the type of shameful propaganda that passes as social/economic comment.

Whats' good for Mr. Shiller's fortune's, and his clients on Wall St, must be what's good for the middle class and blue collar workers. If not for the fact that Wall St. has destroyed the middle class and blue collar jobs in their never ending search for market efficiencies.

What a shameful period of US history.

Reply Mar 07, 2010 at 11:32 AM

Winslow R. said...
I find it hilarious that Shiller is suggesting people should rent at exactly the time they should buy.

Rents here are 2x what it costs to buy.

How's that for timing?

Reply Mar 07, 2010 at 01:04 PM

Comment below or sign in

The Dangers of Deficit Reduction, by Joseph E. Stiglitz, Commentary, NY Times: A wave of fiscal austerity is rushing over Europe and America. ...
Most economists ... agree that it is a mistake to look at only one side of a balance sheet (whether for the public or private sector). One has to look not only at what a country or firm owes, but also at its assets. This should help answer those financial sector hawks who are raising alarms about government spending. ... Spending, especially on investments in education, technology, and infrastructure, can actually lead to lower long-term deficits. ...
Faster growth and returns on public investment yield higher tax revenues, and a 5 to 6% return is more than enough to offset temporary increases in the national debt. A social cost-benefit analysis (taking into account impacts other than on the budget) makes such expenditures, even when debt-financed, even more attractive.
Finally, most economists agree that ... a ... weaker economy calls for a larger deficit, and the appropriate size of the deficit in the face of a recession depends on the precise circumstances. ... Yet, even with large deficits, economic growth in the US and Europe is anemic, and forecasts of private-sector growth suggest that in the absence of continued government support, there is risk of continued stagnation...
As the global economy returns to growth, governments should, of course, have plans on the drawing board to raise taxes and cut expenditures. The right balance will inevitably be a subject of dispute. ...
The financial sector has imposed huge externalities on the rest of society. America’s financial industry polluted the world with toxic mortgages, and, in line with the well established “polluter pays” principle, taxes should be imposed on it. Besides, well-designed taxes on the financial sector might help alleviate problems caused by excessive leverage and banks that are too big to fail. Taxes on speculative activity might encourage banks to focus greater attention on performing their key societal role of providing credit.
Over the longer term, most economists agree that governments, especially in advanced industrial countries with aging populations, should be concerned about the sustainability of their policies. But we must be wary of deficit fetishism. Deficits to finance wars or give-aways to the financial sector ... lead to liabilities without corresponding assets, imposing a burden on future generations. But high-return public investments that more than pay for themselves can actually improve the well-being of future generations, and it would be doubly foolish to burden them with debts from unproductive spending and then cut back on productive investments.
These are questions for a later day..., prospects of a robust recovery are, at best, a year or two away. For now, the economics is clear: reducing government spending is a risk not worth taking.

Posted by Mark Thoma on Saturday, March 6, 2010 at 12:58 AM in Budget Deficit, Economics Save to del.icio.us Tweet This Permalink Comments (33)

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ken melvin said...
I see the sons of Texas, Virginia and Alabama (their very finest) on C-span arguing that increasing the deficit is a mortal sin and think back to their support of tax cuts and wars and know that their real problem is the skin color of the man in the white house. Thes SOBs have never been right about anything.

Reply Mar 06, 2010 at 04:38 AM

stunney said in reply to ken melvin...
Deficit spending, begun in the 30s by liberal elitist F. D. Roosevelt, entails Central Planning and has resulted in the same sorry anti-market state of affairs here that brought ruin to the Soviet Union.

Is it any wonder that Tea Bagging patriots by the million are demanding an end to this failed 75 year experiment with Socialism, now led by a foreign-born coloured "President"?

Brought to you by the Glenn Beck Foundation for the Economic Education of America

Reply Mar 06, 2010 at 08:22 PM

OhNoNotAgain said in reply to stunney...
Your use of the word "coloured" hints to you possibly being one of those namby-pamby Euros. :-)

Reply Mar 07, 2010 at 01:53 AM

paine said...
useless mush

joe has the insight like few others
and he stubbornly sez what he sez
but he often has the attack instincts
of a passive aggressive ewe

how has he sharpened the debate here
what has he used his "authority" to enlighten

this: "most economists agree..." blah blah blah
or cud chewings like this
"The right balance will inevitably be a subject of dispute"

let alone dangerous sops to the hawks like this
"As the global economy returns to growth, governments should, of course, have plans on the drawing board to raise taxes and cut expenditures. "

joe plays consensus builder
when the middle can not hold
and he knows much much better

has he just spent too much time telling us the same stuff without result ???

some folks might tire of the response and up the ante

joe i guess tried that in the late 90's
and just wants to be admired too much
by too many unprincipled souls

we need a chomsky among economists
and joe gives us mrs butterworth

Reply Mar 06, 2010 at 05:31 AM

julio said in reply to paine...
Darn, happened again, I have a clear take on an article and paine beats me to the punch.

I almost invariably agree with Stiglitz, and so too in this case, but found the article flabby. A number of random quotes as I went along:

"The financial sector has imposed huge externalities on the rest of society. America’s financial industry polluted the world with toxic mortgages, and, in line with the well established “polluter pays” principle, taxes should be imposed on it. "

["Well-established"? Where has he been? But the whole riff on "toxic mortgages" is silly -- economic policy by metaphor?]

"Over the longer term, most economists agree that governments, especially in advanced industrial countries with aging populations, should be concerned about the sustainability of their policies. "

[As opposed to the rest of the economists, that say "what the hell"?]

"Faster growth and returns on public investment yield higher tax revenues, and a 5 to 6% return is more than enough to offset temporary increases in the national debt. "

["Temporary"? Isn't that dodging the issue?]

"But high-return public investments that more than pay for themselves can actually improve the well-being of future generations,"

[That should quiet the people who are against high-return public investments that more than pay for themselves.]

Other than that ;-), glad to see Stiglitz chiming in.

Reply Mar 06, 2010 at 09:17 AM

ilsm said...
Militarist spending, 7% of GDP, 20% of federal outlays, makes no contribution to (hurts) US productivity, and provides welfare benefits only to war profiteers.

Talk of deficit reduction which leaves militarist plundering at present levels is Orwellian, class warfare.

In 1987 military waste was reduced in the face of the soviet threat.

Today militarism is in charge, protected by propaganda and wildly inflated fear of a bunch of thugs.

Reply Mar 06, 2010 at 05:32 AM

paine said in reply to ilsm...
ilsm
you are allowing the other side to draw you off into a fight between welfare budget and security budget
when this is about sufficient effective demand

you need to fight the battle in front of you

not switch off to
ride your moralizing pacificism

i'm prolly ten times more anti pentagon
then you'll ever be
a total anti imperialist
bring em all home guy

but this isn't about that
we can get hemet hheads to agree on a deficit powered fast recovery without banging them on the head about their support
for uncle's bloody crusade
to open central asia to unimpeded
nato nation corporate expansion

Reply Mar 06, 2010 at 05:55 AM

btg said in reply to ilsm...
on top of military spending, add in the prison population and the costs (federal and state) associated with warehousing so many non-violent offenders in jail because of a failed war on drugs.

Reply Mar 08, 2010 at 07:59 AM

paine said...
"Joseph Stiglitz picks up where Jamie Galbraith left off"
quite the contrary joe drops the baton jamie passed on
this column adds nothing and gives back a lot

that mark thoma our gracious host won't admit this
troubles me
take this half poison pill :

sugar coat :
" high-return public investments that more than pay for themselves can actually improve the well-being of future generations, "

ya lame one ya

poison core:

"and it would be doubly foolish to burden (future generations) with debts from unproductive spending and then cut back on productive investments. "

burden the future ???
unproductive spending ???

these are the macro ignorant enemies faux talking points
validated
as if joe is clever enough to beat em after granting them the framing process

the present always takes from the present

with production slack no incremental expenditure
that stimulates putting idle factors back into production is ..."unproductive"

the waste is leaving these factors idle

as keynes put it

we're not storing up these lost idled manhours
that result from insufficiend effective demand
for future use
no
those un utilized hours are wasted

the souls of millions
left to decay
to simmer away in despair and misery

Reply Mar 06, 2010 at 05:48 AM

julio said in reply to paine...
"with production slack no incremental expenditure
that stimulates putting idle factors back into production is ..."unproductive"

the waste is leaving these factors idle "

It's not binary, it's ternary:

We can do nothing,
We can dig holes and fill them up -- better, but still arguably "unproductive",
We can build something useful for the future.

Reply Mar 06, 2010 at 09:25 AM

bakho said...
We have been getting BAD policy. We have bailed out the wealthy banskters, a TRICKLE DOWN policy designed to jumpstart lending. It has NOT. Trickle down never works because the wealthy are positioned to take money out of the economy from everyone else and those on the lowest rungs are in the weakest position to extract money from the wealthy.

We have frittered away "stimulus" on tax cuts for the wealthy who don't need them and are not using them to increase demand. States are laying off teachers and other workers, canceling projects and cutting services as we speak. We are sitting on our hands arguing over cap and trade while our competitors are investing in alternative energy systems, building smart electric grids and putting the 21st century infrastructure in place. We are subsidizing the status quo BigEnergy dinosaurs that are headed for extinction. We are not taxing their record profits.

We have bad labor policy. Our community colleges are overflowing with workers trying to retrain on their own dime. We subsidize loan sharks with our tax dollars to turn workers trying to educate themselves into debt hell. We have politicians who have no vision and do no planning for the future. They turn policy over to the special interests who have a vision of a future where the special interests own everything and the rest of us are their serfs.

We have poor leadership coming from the administration that was elected to change. This administration grovels before the status quo, restrained by the special interests. Our politicians are a bunch of wealthy elites who don't understand the middle class, don't understand jobs and are completely out of touch with the American people.

The Republicans at least are in touch with the segment of the population that is special interest and wants to punish everyone who isn't like them. The Democrats are trying to split the difference and delivering tepid policy that does nothing to relieve the suffering of their own base, creates an economic environment that is certain to erode support and allows the opposition to gain traction.

Obama doesn't get it. The Democrat elites don't get it. The Obama administration is a major disappointment.

Reply Mar 06, 2010 at 06:42 AM

anne said...
Paine:

useless mush

joe has the insight like few others
and he stubbornly sez what he sez
but he often has the attack instincts
of a passive aggressive ewe

how has he sharpened the debate here
what has he used his "authority" to enlighten

this: "most economists agree..." blah blah blah
or cud chewings like this
"The right balance will inevitably be a subject of dispute"

[Which reminds me of when Stiglitz was complaining that Krugman is fine as an economist but too shrill politically. This is political-economics mush.]

Reply Mar 06, 2010 at 07:48 AM

Bruce Wilder said...
paine, do you think Stiglitz has, himself, a coherent macroeconomics?

I don't.

What you say about the mushy rhetoric, and the needs of the political moment strikes me as perfectly sensible, except for one niggling detail: where would an icon of mainstream economics come up with a coherent "architectural" view? Reading Michael Woodford? I don't think so.

The problem is not just rhetoric. Stiglitz really does lack a sense of the economy as something structured, which we collectively do, as opposed to a separate, spontaneous, disjointed animate, which we can only prod, interpret and manage a bit around the edges.

Reply Mar 06, 2010 at 09:18 AM

Anonymous said...
We should borrow money and spend it wisely because we just got through borrowing money and spent it foolishly?

Reply Mar 06, 2010 at 10:13 AM

OhNoNotAgain said in reply to Anonymous...
Yep, that's 100% correct. This isn't your personal household that we're talking about, and important investments that were not made in the past must still be made now. Also, now is the best time to do so, with so much potential productivity being wasted day after day in our unemployed citizens. It's what Bush should have done instead of tax cuts. The problem has always been a lack of demand due to flat wages and a lack of wealth-creating employment. Selling mani-pedis to each other isn't going to make us all wealthy.

Reply Mar 07, 2010 at 02:00 AM

anne said...
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=03&year=2010&base_name=missing_the_story_on_iceland_c

March 6, 2010

Missing the Story on Iceland: Can the Bankers Steal Your Kids' Money

The New York Times article * on Iceland's referendum on using public money to pay debts to foreign bank depositors failed to explain the real issues involved. During the boom, several Icelandic banks courted deposits outside the country, mostly in the UK and the Netherlands, by offering higher interest rates. The banks then used these deposits to finance a range of highly speculative investments.

As long the bubbles kept expanding, this model was hugely successful. However, when the bubbles burst, the value of the banks' assets collapsed and they had no ability to repay their depositors. This would have all been a private matter, except that the government insures bank deposits up to a certain level (like the FDIC in the United States). Iceland, as a matter of its treaty obligations with the European Union, is obligated to maintain a system of public deposit insurance which applies to both domestic and foreign depositors.

The issue here is whether private banks can effectively create enormous obligations (the money at stake would be equivalent to $6 trillion in the United States) for taxpayers. There was obviously an enormous regulatory failure on the part of the Icelandic bank regulators. International agencies like the IMF also played a role in failing to call attention to what were obviously very speculative investments. (Frederick Mishkin, a former Federal Reserve Board governor, did his part to promote the Iceland catastrophe, touting the great strength of its economy in a 2006 report. ** He does not appear to have faced any consequences as a result.)

It is also likely that some of the banks' actions involved fraudulent accounting practices if they concealed the extent of their true liabilities. The question then is whether the taxpayers or the depositors should bear the risk from fraudulent actions by banks. Arguments could be made in both directions, but this issue is never mentioned in the article.

It should also point out how the Iceland bank actions makes a mockery of anyone who claims to support leaving financial activities to the market. In almost all cases, actors in financial markets assume that governments will stand behind banks at the end of the day. Therefore when they say want the government to leave things to the market they are lying. They just want to be able to take risks with taxpayers money, without being fettered by regulations limiting the extent of these risks. In short, the finance boys want a free lunch, not a free market.

* http://www.nytimes.com/2010/03/06/world/europe/06iceland.html

** http://www.vi.is/files/555877819Financial%20Stability%20in%20Iceland%20Screen%20Version.pdf

-- Dean Baker

Reply Mar 06, 2010 at 11:33 AM

Goldilocksisableachblond said in reply to anne...
Am I wrong to think Salmon sounds bit nervous about the notion that the people might actually be able to exert some control over their own government , and simultaneously flip the bird to outside governments and banks ? :

http://blogs.reuters.com/felix-salmon/2010/03/06/iceland-says-no/

Iceland says no
Mar 6, 2010 17:34 EST

Does any referendum, ever, get a 98% no vote — especially when it’s a referendum on a bill which was passed by a democratically-elected legislature? The first reaction is that the people have obviously spoken with one voice. But then the question arises: What have they said?

It’s worth noting, here, that the bill they were voting on — that Iceland repay its $5.3 billion debt over 15 years, with 5.5% interest — is no longer the deal being offered by the UK and Holland, which have now offered a two-year interest holiday and a lower interest rate. And it’s also worth noting that the “no” vote was certainly split between people saying “no to this deal” and people saying “no to any deal”.

So maybe this is simply a sensible national negotiating tactic, giving Iceland some small amount of leverage in the run-up to a new deal being hammered out in coming weeks.

Or maybe it’s just in the national character to want to stand up to bullies
.....

In a previous column , Salmon implied a certain solidarity with the Icelanders , but I wonder if his heart was really in it :

http://blogs.reuters.com/felix-salmon/2010/01/06/iceland-stands-up-to-bullies/

"In principle, I’m with Mish on this one: if you’re the president of a country where 70% of the population opposes the bill and 20% have signed a petition urging you to veto it, the noble course of action is clear."

Reply Mar 06, 2010 at 04:06 PM

anne said...
http://www.vi.is/files/555877819Financial%20Stability%20in%20Iceland%20Screen%20Version.pdf

May, 2006

Financial Stability in Iceland
By FREDERIC S. MISHKIN and TRYGGVI T. HERBERTSSON

EXECUTIVE SUMMARY

There has been good and bad news for the Icelandic economy. The good news is that it is receiving a lot of attention. The bad news is that it is recieving a lot of attention. Recent volatility in Iceland's asset markets have raised concerns about the fragility of Iceland's economy. In this respect many have looked to the country’s large current account deficit. This study provides a framework for evaluating financial fragility by examining the fundamentals of Iceland's economy to see whether they suggest that the country could go down the traditional routes to financial instability.

Iceland is unique in that it is the smallest economy in the world to have its own currency and a flexible exchange rate. It has experienced high current account deficits before, but rapid adjustment has taken place in the past without significantly stressing the Icelandic financial system. Iceland is also an advanced country with excellent institutions (low corruption, rule of law, high education, and freedom of the press). In addition, its financial regulation and supervision is considered to be of high quality. Iceland also has a strong fiscal position that is far superior to what is seen in the United States, Japan and Europe. Iceland's financial sector has undergone a substantial liberalization, which was complete over a decade ago, and its banking sector has been transformed from one focused mainly on domestic markets to one providing financial intermediation services to the rest of the world, particularly Scandinavia and the UK.

There are three traditional routes to financial instability that have manifested themselves in recent
financial crises: 1) financial liberalization with weak prudential regulation and supervision, 2)
severe fiscal imbalances, and 3) imprudent monetary policy. None of these routes describe the
current situation in Iceland. The economy has already adjusted to financial liberalization, which was already completed a long time ago, while prudential regulation and supervision is generally quite strong. Fiscal imbalances are not a problem in Iceland: quite the opposite, with Iceland having an excellent fiscal position with low government net debt (less that 10% of GDP) and a fully funded pension system (with assets amounting to more than 120% of GDP). Monetary policy has also been successful in keeping inflation low and near the inflation target, particularly when housing prices are excluded from the inflation measure, as is the case in the United States and the eurozone. It is true, however, that Iceland is running very large current account deficits, but current account deficits by themselves do not lead to financial instability. Our analysis indicates that the sources of financial instability that triggered financial crises in emerging market countries in recent years are just not present in Iceland, so that comparisons of Iceland with emerging market countries are misguided....

Reply Mar 06, 2010 at 11:49 AM

anne said...
What is fascinating is precisely at the time Mishkin and Herbertsson were writing of the dynamism of Iceland's economy, hedge funds were already understood to have pulled investments or short term funds from Iceland. * Nonetheless, there was no evident concern from Icelandic or European economic regulators responsible for at least monitoring banking fund flows and investments.

* http://www.nytimes.com/2006/04/18/business/worldbusiness/18iceland.html

April 18, 2006

Iceland's Fizzy Economy Faces a Test
By HEATHER TIMMONS

Reply Mar 06, 2010 at 11:56 AM

anne said...
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=03&year=2010&base_name=missing_the_story_on_iceland_c

March 6, 2010

Frederick Mishkin, a former Federal Reserve Board governor, did his part to promote the Iceland catastrophe, touting the great strength of its economy in a 2006 report. He does not appear to have faced any consequences as a result.

-- Dean Baker

Mishkin, who may not have read New York Times accounts of Iceland's difficulties in 2006 and evidently did not read Times accounts of mortgage abuses that Federal Reserve researchers had studied and did not read the Times account of hedge funds openly taking positions against American mortgage holders, would become a Governor of the Federal Reserve in September 2006.

Reply Mar 06, 2010 at 12:10 PM

julio said in reply to anne...
I'd say Mishkin is an Idiot, but that would be too easy.

Reply Mar 06, 2010 at 04:13 PM

Bruce Wilder said in reply to anne...
Mishkin is an idiot.

[I need easy, today.]

Reply Mar 07, 2010 at 09:16 AM

ken melvin said...
Seemingly, no ones knows what the hell is going on. None more so than the administration. Stiglitz at least senses that something is awry with the model

Reply Mar 06, 2010 at 02:40 PM

Winslow R. said...
JK touched on the difference between types of money (bank and government) which is missing from Stiglitz's analysis.
The creation of government money drives down interest rates, not the reverse. If interest rates do rise it is because the government wants to pay bondholders more (a class issue).

Too little attention is paid to long-term interest rates and the effect on the economy.

We've had falling long-term rates for 3 decades which is now coming to an end as it hits the zero bound.

As interest rates stabilize, the economy will shift away from depending on capital gains to justify investment. Income flows are taking over in making investment decisions!

There is a fine line in the economy between falling asset prices leading to falling incomes. Given present monetary and fiscal policy it could be crossed in the next year or so.

The amorphous elite (monarchy in many countries) seem to be quite confident they can retain control (as they were prior to WWII).

We'll see. Each crisis should lead us towards a more democratized financial system. This crisis, so far, has been a total failure.

Almost all economists see quite content to retain a banker monopoly.

Allow citizens to use government bonds as collateral at the Fed window. Let citizens borrow at the overnight rate.

Reply Mar 06, 2010 at 04:25 PM

suburbanite said...
a penny saved is a penny earned.

save up for rainy day.

borrowing dull the edge of husbandry.

Reply Mar 06, 2010 at 05:50 PM

danny said...
Spending and in turn agregate demand can be increased without increasing the debt burden of either the government or the private sector.

New money should be created without it being recognised as debt. Central banks should conduct monetary policy directly with the public. Instead of a handful of major financial institutions dealing with the central bank the system should be adapted so that all adult citizens have an account with the central bank. For example if aggregate demand is insufficient a requisite expansion of the money supply (taking into account inflationary considerations) would be credited into citizens accounts. This would bypass liquidity traps and curtail the excessive financial power due to access to easy funds the major financial players experience. As a result excessive destabilising derivative markets or inflated housing sectors through excessive debt wouldnt emerge as the large banking organisations would have to obtain financing from the public who would be weary of losing their capital investing in institutions engaging in questionable practises.

On the other hand inflationary pressures could be mopped up through a targeted consumption tax designed to remove excessive liquidity out of circulation.

Reply Mar 06, 2010 at 06:25 PM

Goldilocksisableachblond said...
After watching Stiglitz on Charley Rose , I'm confused.

He keeps saying : " Right now , we must focus on the steaks. " and : " We've got a real problem with the steaks. "

What is the problem ? Mad Cow Disease ?

Reply Mar 06, 2010 at 09:00 PM

Sean said...
"Deficits to finance wars or give-aways to the financial sector ... lead to liabilities without corresponding assets, imposing a burden on future generations. But high-return public investments that more than pay for themselves can actually improve the well-being of future generations, and it would be doubly foolish to burden them with debts from unproductive spending and then cut back on productive investments."

I'm all for expanding government-funded health care if you make the humanitarian argument, but I can't think of a better example of reallocation of resources from high-return assets to low-return assets.

Reply Mar 06, 2010 at 10:04 PM

Goldilocksisableachblond said...
"I'm all for expanding government-funded health care if you make the humanitarian argument, but I can't think of a better example of reallocation of resources from high-return assets to low-return assets."

You're committing a common fallacy of logic. You're taking a proposition that is probably true for you , as an individual , and assuming that it also true for everyone else.

It is not. The highest-returning capital asset , as a class , is human capital. That there may be occasional exceptions amongst individuals doesn't change that fact.

Reply Mar 06, 2010 at 10:39 PM

Young Economist said...
Now each country have the different problem. For US, they face the high unemployment and high government debts. They face the bubble in commodities and gold but crash of property price. They face the declining consumption but rising wealth for Wall street. I think US fail to use the right prescription because the real problem is the survivors get stronger, the losers get weaker. The inflation look OK, but it is due to the declining core inflation that mostly represents the real demand but rising food and commodities prices that represent the strong speculation and investor purchasing power. US both fiscal and monetary policies must focus to help the loser and discourage the stronger. The generalized low interest rate and fiscal support will cause the problem and cannot help the weaker. US should focus the specific policy to help the weaker parts in consumers and should raise interest rate and tax on the speculators and wall streets.

For EU and Japan, they face the long term deflated economy because of mature economy and aging population. They are wrong to use the growth target policy but they should focus the stability policy. Japan fail to target growth but they create the unpaid government debts from growth target policy. Now they should use stabilizing policy and tries to bring down debts. Surely, Japan face declining population and if they face the declining capital or capital flight; for example, all big corporations move out of Japan, they cannot pay back debts.

For EU, the monetary union at the end will benefit the most competitive countries like Germany and they can use fix exchange rate policy in the union to reduce unemployment under the cost of unproductive economies such as Spain, Greece, Italy and others. Surely the unproductive economies will face severe unemployment and political instability in the future and the political conflicts will occur at some points. The solution is that they need the flexibility in the region in every aspect including fiscal flexibility to transfer, labor flexibility or even currency flexibility such as the internal exchange rate adjustment but no external rate adjustment.

The last is emerging economies. For China, BRIC , they face the bubbles in asset prices nearly all assets in commodities, food, property, equities. They need the create the right monetary policy and fiscal policy. China will face bigger problem if they decide to appreciate renminbi because noone know the government debt level and credit level but all knows debts are quite high at 100% of GDP for government debt and 120% for credit/GDP. They must do 1. control the debts level to grow less than GDP for government and credit. 2. control asset price especially property price by using both fiscal tool like tax and increasing supply. They also need the more stringent lending regulation and the banking capital and risk management. At the end, they cannot allow renminbi to float at this point on fragile economy and maybe all emerging counties with larger trade surplus must use capital control and Tobin tax on short term capital movement to stabilize economy and reduce bubble and crises.

The biggest problem for the global economy is the very low interest from Fed and this low funding cause the quick movement in the liquidity to cause bubble and crises. Surely, the Volcker rule is the must but the Tobin tax for speculation may be the best tool because the low rate must be taxed for speculation to tackle the bubble and crash.

Reply Mar 07, 2010 at 03:36 AM

Fred C. Dobbs said...
If 'All politics is local',
then is 'All economics' short-term?

Reply Mar 07, 2010 at 06:59 AM

Anonymous said in reply to Fred C. Dobbs...
You partly hit the head on the nail. Shovel-ready is local, not federal. Local has no money, federal takes the bulk of taxes. Local is struggling to reform, yet Washington DC is growing like crazy.

Reply Mar 07, 2010 at 11:40 AM

Rob Parenteau said...
Stiglitz seems to be missing the point.

Sector financial balances do not exist in a vacuum.

They are interconnected.

Raise taxes or cut government expenditures and you reduce private sector cash flow.

Unless the trade balance increases in an offsetting fashion to fiscal deficit reduction, the result is private sector will face a reduction in its financial balance.

Either household and business net saving will fall, or the private sector deficit spending will deepen.

This is not high theory - it is double entry bookkeeping, which should be familiar by now.

The connectedness of sector financial balances is introduced in the link below and the recent issue of the Richebacher Letter, with application to the eurozone predicament.

The sooner more people understand these trade-offs, the less damage will be done.

http://www.nakedcapitalism.com/2010/03/parenteau-on-fiscal-correctness-and-animal-sacrifices-leading-the-piigs-to-slaughter-part-1.html

Reply Mar 07, 2010 at 04:05 PM

Comment below or sign in with TypePad F

This Is Getting Good, by Joe Klein: Jim Bunning is doing all of us a favor. As this comment from the Number 2 Senate Republican, Jon Kyl of Arizona, makes clear, the Republicans are turning toward a form of reactionary radicalism that is well to the right not only of traditional conservatism, but also of post-Victorian concepts of government and--not to put too fine a point on it--of common decency as well:
Sen. Jon Kyl of Arizona, the Republican whip, argued that unemployment benefits dissuade people from job-hunting "because people are being paid even though they're not working." Unemployment insurance "doesn't create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work,"
The idea that those who have lost their jobs in this Wall Street/mortgage-scam recession are simply deadbeats, choosing to stay on unemployment rather than look for work, seems more appropriate to Scrooge's London than the 21st century. But Kyl has spoken his version of the truth, and we should be grateful for that: this is what the Republican Party is now all about. ...
Let's call the roll. Let's see how many allies Jim Bunning and Jon Kyl have. Let's find out their names and remember them. This is so important that we should stop all other business: Let them filibuster...and spend hours telling us exactly what else they would abolish.
The quote from Kyl reminds me of a quote from Nassau William Senior (1790-1864). Senior was head of the Poor Law Commission that rewrote the existing laws dictating when relief to the poor would be paid. To give you some idea of what this was all about, note that "Oliver Twist was written in retaliation against the Poor Law."

In his book Three Lectures on the Rate of Wages, Senior explains why he believes that relief for the poor will lead them to acquire the attitude that they have the right to exist without having to do any work:

greater exertion and severer economy are ... [the laborer's] resources in distress; and what they cannot supply, he receives with gratitude from the benevolent. The connexion between him and his master has the kindliness of a voluntary association, in which each party is conscious of benefit, and each feels that his own welfare depends ... on the welfare of the other. But the instant wages cease to be a bargain-the instant the labourer is paid, not according to his value, but his wants, he ceases to be a free man. He acquires the indolence, the improvidence, the rapacity, and the malignity, but not the subordination of a slave. He is told that he has a right to wages .... But who can doubt that he will measure his rights by his wishes, or that his wishes will extend with the prospect of gratification? The present tide may not complete the inundation, but it will be a dreadful error if we mistake the ebb for a permanent receding of the waters. A breach has been made in the sea-wall, and with every succeeding irruption they will swell higher and spread more widely. What we are suffering is nothing to what we have to expect.
Let me back up and repeat from an old post (from four and a half years ago):

Nassau Senior (1790-1864) was a lawyer with an interest in social, economic, and political issues. He was a friend of many of the more prominent members of the Whig party and he was the party’s general adviser on matters involving economic and social issues. In 1825 he was appointed to the first chair of political economy at Oxford University.

In his early years, his main concern was the causes and consequences of poverty and the standard of living of the poor. Prior to 1830 Senior had considerable sympathy for the plight of the poor, and his concern appears to have been generally benevolent. He rejected Malthus’ population theory which implied long-run misery for the masses and instead believed that improvements in productivity would coincide with increases in moral character to lift the poor from their misery. He saw moral education as the only answer to poverty and actively promoted efforts to uplift intellectual and moral standards.

Conditions for the working class during this time were almost, if not surely sub-human. Exploitation and degradation were commonplace and there came a time in the 1820s and 1830s when labor began to organize and fight back. The result was widespread strikes, industrial sabotage, riots, and fires, all of which had a great influence on Senior. He changed. He particularly cited “the fires and insurrections which terrified the south of England in the frightful autumn of 1830” (Nassau Senior, Industrial Efficiency and Social Economy, 2:156). He came to believe that the poor laws and government’s dole to the poor and the unemployed were the principle causes and consequences of poverty and that this threatened to undermine the very existence of capitalism in England.

In 1830 Senior published Three lectures on the Rate of Wages. After the unrests in the autumn of 1830, he added a preface called “The Causes and Remedies of the Present Circumstances” the source of the famous wages fund doctrine. Setting aside all the finer details, the essence is that there is a fixed pool of income to divide among workers and the size of the pool is determined solely by labor productivity. Thus, to improve living conditions, labor productivity has to rise or the number of poor depending upon the fixed fund has to fall.

How to increase labor productivity? He advocated two solutions. First, the removal of all restrictions on free commerce and the accumulation of capital. Second, abolition of the poor laws which “made wages not a matter of contract between the master and the workman, but a right for one, and a tax on the other.” Senior was no longer worried about the misery caused by poverty. The events of 1830 led him to worry about the “threat of an arrogant laboring class, resorting to strikes, violence, and [unions], a threat to the foundation not merely of wealth but of existence itself.” Poor laws and dole led to a decreased incentive to work and created the arrogant attitude that workers and their families had a right to exist even if they could not or would not find work.

With his connections to the powerful Whig party, Senior was able to put some of his ideas into practice. In 1832 he was appointed to the Poor Law Inquiry Commission which was to study existing poor laws and methods of dealing with poverty and recommend reform. The report issued in 1834 was by all accounts largely Senior’s work. The new law stated:

Workers should accept any job the market offered, regardless of working conditions or pay.
Any person who would not or could not find work should be given just enough to prevent physical starvation.
The dole given to such a person should be substantially lower than the lowest wage offered on the market, and the workers general condition should be so miserable and should so stigmatize so as to motivate the search for employment irrespective of pay or conditions.
[Since I didn't mention the connection between the Poor Laws and the workhouses of the 1850s and 1860s, let me add this update: "The Commission's recommendations were based on two principles. The first was less eligibility - conditions within workhouses should be made worse than the worst conditions outside of the workhouse so that workhouses served as a deterrent - only the most needy would consider entering them. The other was the "workhouse test," that relief should only be available in the workhouse. ... Despite the fact that the Act was passed in 1834 most workhouses were erected in the 1850s and 1860s and until then the 'workhouse test' did not operate."]

One historian, E.J. Hobsbawn (Industry and Empire: An Economic History of Britain since 1750) said the poor law Senior was influential in creating was
…an engine of degradation and oppression more than a means of material relief. There have been few more inhuman statutes than the Poor Law of 1834, which made relief “less eligible” than the lowest wage outside, confined it to the jail-like workhouse, forcibly separated husbands, wives, and children in order to punish the poor for their destitution, and discourage them from the dangerous temptation of procreating further paupers.

Whenever I go back and read about these times, the people, the policies, there are echoes of present day policy debates everywhere. To repeat a cliche, little is truly new in this world. A close look at the principles underlying contemporary rules for Unemployment Compensation reveals strong echoes of Senior’s policies. Much of the rhetoric surrounding welfare reform, Social Security reform and so on can be found in the literature surrounding the birth of capitalism and its struggle against socialist ideas, ideas abounding during Senior’s time. As we begin another episode where these same ideas clash, are we fully aware of how this resolved itself in the past when societies struggled with the very same issues?
________________________
*This discussion relies heavily upon E.K. Hunt's History of Economic Thought: A Critical Perspective.

Posted by Mark Thoma on Tuesday, March 2, 2010 at 12:09 AM in Economics, History of Thought, Social Insurance Save to del.icio.us Tweet This Permalink Comments (54)

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ken melvin said...
Yes indeed, let the sun shine on these dark souls.

Reply Mar 01, 2010 at 09:31 PM

purple said...
Has that foolish senator looked at the unemployment rate in his state ?

Reply Mar 01, 2010 at 09:42 PM

Mike said...
Perhaps it is time to place new emphasis on history of economic thought education. We need to purge our ranks of tired and stodgy souls.

Reply Mar 01, 2010 at 09:44 PM

Dana J. said...
Wow, I actually agree with that Senior guy!

Reply Mar 01, 2010 at 10:11 PM

reason said in reply to Dana J....
????

You like Dickensian poverty (and crime)?

Reply Mar 03, 2010 at 07:05 AM

gordon said...
Sen. Kyl's remarks are a timely reminder that (despite what we are constantly told) class war begins at the top, not the bottom.

Reply Mar 01, 2010 at 10:12 PM

paine said in reply to gordon...
but it ends at the bottom

and thru that four square prophecy
we can look forward with pleasure

Reply Mar 02, 2010 at 05:13 AM

marcello said...
wake up and smell the Folger's. Politics isn't about left versus right. It's about top versus bottom. And the top is a big powerful club, and you ain't in it.

whine, bitch, complain. they can take it. Really, whad'ya going to do, revolt or something ?

(with apologies to Jim Hightower and George Carlin)

Reply Mar 01, 2010 at 10:33 PM

Craig Bardo said...
Not surprising that the left falls for the Marxist "class" construct as applied to America as if it were a feudal caste society and two, that the left has no concept of incentives that even Tocqueville understood when he wrote for the Royal Academy of Cherbourg a Memoir on P Pauperism.

It's just like Marxist theorists who invariably fail to grasp human nature. Too bad.

Reply Mar 01, 2010 at 10:35 PM

paine said in reply to Craig Bardo...
bargo = garbo

Reply Mar 02, 2010 at 05:11 AM

GipsyKing said in reply to Craig Bardo...
as if it were a feudal caste society

working on it, working on it -- won't be long now!

Reply Mar 02, 2010 at 07:39 AM

kthomas said in reply to Craig Bardo...
Working together for the collective benefit of all is a good thing. This is human nature, too.

Still, I sense you are trying to get to the essence of something. So please, do come hither.

Reply Mar 02, 2010 at 07:58 AM

roger said in reply to Craig Bardo...
Well, congrats. You get the first and easiest element of Marxism - the difference between the medieval caste system and the free labor of capitalism - completely wrong! Excellent. Having obviously derived your Marx from a john birch cartoon, you will, of course, continue not to know what you are talking about until, I'd guess, the end of your days.

Reply Mar 02, 2010 at 07:58 AM

reason said in reply to Craig Bardo...
??? Is this relevant? The class construct in this case was coming from 19th Century Whig (Left?) politicians.

Reply Mar 03, 2010 at 07:12 AM

Mindrayge said...
A day of reckoning is coming much sooner than any of those in the investor class or their lackeys in Washington think imaginable. They should be thankful that, at least in these modern times and especially in this country, the people will give it a try at the ballot box a few times before they would have to change things the hard way.

Reply Mar 01, 2010 at 10:47 PM

paine said in reply to Mindrayge...
nice glare to that passage

Reply Mar 02, 2010 at 05:10 AM

kthomas said in reply to Mindrayge...
True. And stopping unemployment benefits would surely hasten this day of reckoning.

Reply Mar 02, 2010 at 07:59 AM

Min said...
Senator Kyl says that unemployment insurance does not create new jobs. So he should support legislation to put people to work instead, right?

Extending unemployment benefits for longer periods is a palliative. Long term unemployment is not good for the unemployed, nor is it good for society as a whole. Let's create 7-8 million jobs by the end of 2011!

Reply Mar 02, 2010 at 01:37 AM

paine said in reply to Min...
right on

Reply Mar 02, 2010 at 05:09 AM

julio said...
"But the instant wages cease to be a bargain-the instant the labourer is paid, not according to his value, but his wants, he ceases to be a free man. He acquires the indolence, the improvidence, the rapacity, and the malignity, but not the subordination of a slave."

Looking at Wall St., he may have a point...

Reply Mar 02, 2010 at 01:51 AM

paine said in reply to julio...
julio

nice point

but those are management clique
"marshallian quasi rent "
share payments
strictly speaking
no subject to the iron law of wages
but the spongiform law
of tower suite profit scimming

Reply Mar 02, 2010 at 05:08 AM

paine said...
the problem with all this fine souled safety net crap is the fact no safety net is necessary for the able bodied
if the system operates continuosly at hyper employment
ie where job opennings by type exceed existing supply

uncle has the means to enforce such job market conditions by effective demand management linked to a reinforcing credit policy

senior to me is hardly worse then the humane neo liberal
that for love of fiscal deficit fetish or inflation taboo denies a job to millions

the dole is a squalid compromise with profiteers rentiers and assorted dignified social parasites

Reply Mar 02, 2010 at 04:38 AM

paine said in reply to paine...
i need to add

that globalist breed of neoliberals
with a BOP mania
willing to crucify jobblings
on an over valued dollar

Reply Mar 02, 2010 at 05:03 AM

Fred C. Dobbs said...
'Sen. Jon Kyl of Arizona, the Republican whip, argued that unemployment benefits dissuade people from job-hunting "because people are being paid even though they're not working."'

Same deal for Social Security, nothing more than
Unemployment benefits for oldsters. At least
it gets them of the Unemployment rosters.

Now, get outta my elevator!

Reply Mar 02, 2010 at 04:45 AM

paine said...
we can both control inflation and push employment to a maximum

"real" shortages ??

yup

but any dynamically robust
effectively macro managed
production systems
will thrive on shortages

wage bargains squeezing out operating margins ??

prolly

end to the profits system ???

nope

so long as top mangement is rewarded by profit loss performance
what sez efficiency and productivity growth
can't adjust to sub zero system wide profit conditions
now and again
and more basically long run zero profit conditions ???

red ink costs as little to make as black ink

Reply Mar 02, 2010 at 04:46 AM

ken melvin said...
Small irony that the very lot that have so championed gun rights, detested public education, social programs, ... may be the first to taste the hot lead of an armed, barbaric underclass.

Reply Mar 02, 2010 at 04:47 AM

Richard said...
Soooo, it is not prudent to take the words of a single congressman and extrapolate them to the views of his entire party? Perhaps we should take soundbites from Nancy Pelosi and declare them the final word from Democrats!

Reply Mar 02, 2010 at 05:17 AM

roger said in reply to Richard...
Soundbites from Pelosi would make the Dems sound much better than they are. Pelosi consistently soundbites liberal. Unfortunately, she leads a party that isn't. If Pelosi's soundbites had been policy, we would have: withdrawn from Iraq in 2006 (among other things, saving us a nifty 200-300 billion - not that the right really cares), we would have strong laws guaranteeing fair unionization practices, instead of the current system outrageously benefiting capital, we would have a robust public option in healthcare, and a strong policy to address global warming.
I think we can all agree that these would be excellent things.

Reply Mar 02, 2010 at 08:26 AM

littleblackduck said...
"...have the right to exist without having to do any work" but that doesn't somehow stretch to either trust-fund brats or widows with BoD positions whose only qualification is who they were married to...

In theory one could argue something similar about people who live off dividends and other income investments... They don't 'work' either and if it was inherited wealth they didn't earn it either.

I'm not saying that should end, but the puritanical work ethic of drudgery for the sake of drudgery needs to be put to rest, particularly if it is only applied to one class of people.

Reply Mar 02, 2010 at 05:41 AM

Noni Mausa said...
If a plague struck America and rendered 17% of people invalids -- bed bound, weak, deluded, either depressed or prone to episodes of raving or even violence, and dependent on their families or communities for everything -- would anyone doubt it was an historic disaster and a threat to the nation? Would the Senate scold those invalids and tell them their illness was a motivation to greater efforts?

These vindictive, grasping policies make a far weaker country. "Deserving" and "undeserving" has nothing to do with it. If there is one job for every six job-hunters, the remaining citizens are wasted and weakened and that weakens the whole country.

America has enemies, and I am certain that they get a chuckle every day, reading in the papers accounts of the US cutting off huge swathes of human capital in the fear someone might get a dollar they didn't work for.

You don't put out a fire by measuring a thimble of water per square inch of flame. You pour the water on and if some of it accidentally waters the flower bed, so what?

Noni

Reply Mar 02, 2010 at 07:08 AM

don said in reply to Noni Mausa...
Nice statement. Part of the problem is that there is much truth to Bunning's (and senior's)arguments, it's just that they are poorly applied to today's unemployment. Netherlands found out what gilt-edged unemployment benefits do to employment over the long term, and "welfare mothers" were an unfortunate, but real side effect of welfare. A look at Klamath Falls provides another lesson on the effects of generous welfare.
The best solution is obvious, as paine and other note: more jobs. And they don't have to be created at danger of fiscal credibility. We just have to stop the wasteful attempts of the past, especially bailouts. And we have to stem the current account bleeding.

Reply Mar 02, 2010 at 09:31 AM

Barkley Rosser said in reply to don...
How does looking at Klamath Falls prove that "there is much truth" to Bunning;s and Senior's arguments, please? Talk about odd references and empty arguments.

Reply Mar 02, 2010 at 10:43 AM

beezer said...
You have to love the trust fund concept.
Put the investments in a trust fund. Let the investments grow and then give them to heirs, who have a cost basis at the time of inheritance--not when the investments were actually purchased.

Bingo. No taxes paid on the investments.

But for those in the labor class (read those who actually make things) who can't find work the standards applied are quite different. No? For them, the idea of unemployment checks is corrupting.

So change the name. Will semantics matter here? Call it the unemployment TRUST fund. How's that? Now, there's no curruption, right?

Reply Mar 02, 2010 at 07:19 AM

Σπάρτακος said...
what scared nassau:

http://en.wikipedia.org/wiki/File:Chartist_meeting,_Kennington_Common.jpg

Reply Mar 02, 2010 at 07:40 AM

Barkley Rosser said in reply to Σπάρτακος...
Um, that photo was taken in 1848. The Chartist movement came much later than the events of 1830 that upset Senior, although they were certainly the lineal descendant of those earlier events (which were associated with Robert Owen coining the term "socialism" in that year).

Reply Mar 02, 2010 at 10:46 AM

yuan said in reply to Barkley Rosser...
IMO, its no surprise that Nassau's policies coincided with the birth of socialism. (I could not find a similarly interesting image of the earlier riots.)

'which were associated with Robert Owen coining the term "socialism" in that year'
Owens' observation of social inequity in the USA contributed greatly to his ideas of "cooperative" society.

Reply Mar 02, 2010 at 04:37 PM

anne said...
http://www.democracynow.org/2010/3/2/headlines#5

March 2, 2010

Obama Voices Approval for Firing of Rhode Island Teachers
By Amy Goodman

In education news, President Obama has voiced support for the mass firings of every teacher at a public high school in Rhode Island. Last week, all ninety-three teachers and school personnel at Central Falls High School were told they were being fired at the end of the school year because of the school’s low achievement scores and low graduation rates. Last week, Education Secretary Arne Duncan applauded the move, saying school committee members were “showing courage and doing the right thing for kids.” On Monday, President Obama added his support for the mass firings.

"So, if a school is struggling, we have to work with the principal and the teachers to find a solution. We’ve got to give them a chance to make meaningful improvements. But if a school continues to fail its students year after year after year, if it doesn’t show signs of improvement, then there’s got to be a sense of accountability. And that’s what happened in Rhode Island last week at a chronically troubled school, when just seven percent of eleventh graders passed state math tests. Seven percent. When a school board wasn’t able to deliver change by other means, they voted to lay off the faculty and the staff.”

President Obama’s comment during a speech promoting School Turnaround Grants for low-performing schools. The President encouraged school districts to fire teachers at poorly performing schools, open more charter schools, and close some schools outright. The president of the American Federation of Teachers, Randi Weingarten, responded to the President’s speech by saying, “We know it is tempting for people in Washington to score political points by scapegoating teachers, but it does nothing to give our students and teachers the tools they need to succeed.”

[Combining the President's job and education programs, for the sake of efficiency.]

Reply Mar 02, 2010 at 08:21 AM

Outsider said...
Go Noni!

Reply Mar 02, 2010 at 08:50 AM

Noni Mausa said in reply to Outsider...
~curtsey~

Reply Mar 02, 2010 at 12:38 PM

djt said...
What's fascinating about the Republicans today is how they keep going further and further back in time to find a conservative idea that has not been completely discredited in the recent memory of the living. Go back to Reagan! No that created huge deficits. Go back to Nixon! No, he was a crook. Go back to Eisenhower! No, he drew attention to the MI complex. Go back to Hoover! No, his policies led to the great depression. Go back to Coolidge! Go back to Teddy! (Beck rejected that one)! How far back does the Republican party need to go before they find someone they respect?

Reply Mar 02, 2010 at 10:27 AM

Barkley Rosser said...
We might also keep in mind that Kyl's stuff and Senior's as well have been pushed by quite current economists. Thus Lucas's older model and the newer rhetoric spewing out of Casey Mulligan has seen involuntary unemployment as impossible. It is all voluntary. Our current high unemployment rate is due to an exogenous shift of the labor-leisure tradeoff by a whole lot of suddenly lazy workers, although they may have been inspired by some adverse technology shock a la RBC models, maybe in the housing industry. You know, suddenly all the toilets do not flush, so all those lazy workers decided that they did not want to work to buy anymore homes. That's it for sure.

Reply Mar 02, 2010 at 10:48 AM

Dirk van Dijk said...
Democrats and republicans both want to see the economy return to the condition it was in in the 90's. The difference is that the Dems want a return to the 1990's of Clinton, while the GOP wants to return to the 1890's of McKinley.

Reply Mar 02, 2010 at 11:10 AM

sth said...
A national guaranteed jobs program fixed at the home state's minimum wage would help a lot here. Anyone who wanted a job really /could/ have one then. At the very least it could be a way to keep people from going nuts from being idle or having their skills (in certain cases) deteriorate. When the private markets picked back up, they could go back to the private sector at higher wages. This could replace the unemployment insurance system.

Reply Mar 02, 2010 at 11:51 AM

LJM said...
John Perkins wrote in his latest book Hoodwinked, that the problem isn't capatilism, the problem is we have a virus infecting captilism. Apparently the "too greedy for words" virus has been a problem before. It seems everytime there's a threat to the middle class and the result is fat cats and serfs, people rise up and it gets ugly. Do the Republicans basically hate the middle class? Is that their point? Anyway, Perkins says so long as we divide ourselves between left and right, nothing will get fixed. The division is between top and bottom or up and down.

Reply Mar 02, 2010 at 12:12 PM

Linda R. said...
"But the instant wages cease to be a bargain-the instant the labourer is paid, not according to his value, but his wants, he ceases to be a free man."

1) People I know well share this attitude. One said to me, "Don't you think that every time you take a handout from government, you lose some of your freedom?" This same person will at times say, in response to my lamenting the condition of the unemployed, the poor (employed or not), or some other relatively less fortunate person/group, "There's a program for that problem, isn't there?" This person has, in fact, taken advantage of programs for which she and her husband qualified. No doubt they justified that by the fact that without those programs their ability to hold onto their house, or even put food on the table would be threatened. (Thus exposing their true prejudices). They have even continued to cash those checks when their eligibility no longer existed - until it was time to requalify by filling out another set of forms.

2) The idea of workers being paid "according to [their] value" is a radical concept. Under Senior's rubric, workers were to be paid according to their power, not their value.

3) My more creative side wonders. If freedom equals "nothing left to loose," then shouldn't we do something to assure that even the well-off know the joys of such freedom?

My first reaction to Joe Klein is that he's right. My second is that whether due to lack of knowledge of the history, lack of reading Dickens, or inability to think, there are people who will never connect what the Republicans say, in their reactionary frenzy, to their own lives. The "Republicans" who will listen and connect it with their own life or that of their neighbors are already RINOs, Independents, or Democrats! What will the soundbites on local news show? How about putting some people to work writing and producing a modern day Oliver Twist movie? And show it on TV. (Oh, and since there are no longer any restrictions, it could name names and be shown the week before Election Day!)

Reply Mar 02, 2010 at 01:29 PM

Barkley Rosser said...
Rush Limbaugh says Bunning is a hero, and both of the candidates running for the GOP nod to replace him are saying so also and agreeing with him (one of them is Rand Paul, Ron's son). So, well, I think we are talking Senior Debt here...

Reply Mar 02, 2010 at 02:02 PM

Fred C. Dobbs said...
Kentucky being as solid a red state as you'd find, even if
Bunning barely won relection last time around, he & the GOP
have nothing to gain by seeming 'moderate' even. It has been
suggested that Bunning is demented, health-wise, if he needs an excuse.

Reply Mar 02, 2010 at 03:05 PM

Resnyc said...
"But the instant wages cease to be a bargain-the instant the labourer is paid, not according to his value, but his wants, he ceases to be a free man."

I'm no economist, but the essential issue here, it would seem to me, is defining relative terms. The laborer sees his work and time as having a certain "value" and the capitalist sees a different "value" to the same thing. It's perception. One capitalist might decide that a profit margin of 20 percent is good enough for him and give the rest of the surplus "value" back to the workers; another capitalist might decide that margin should be much higher... On some level, the labor movement knew this and simply demanded to have the "value" of their time and work be perceived differently, using novel means of persuasion such as strikes, demonstrations, riots, and, after the point was made, sitting down and bargaining as a collective. Fast forward to today - unions represent, what, 8 percent of private-sector workers, so they have very little actual leverage - the unions are more like just another lobbying group vying for legislators' attention. And yet no one else speaks for workers as a group, and most workers have little idea what public policy has to do with their lives, having been drinking the koolaid that if they work hard enough they can become management one day, or strike out on their own as a small business. That day of reckoning that someone above said is coming - it would seem a logical outcome to the present acceleration of wage-earners' marginalization, but it is very difficult to imagine a large-scale cultural reaction against low wages or chronic high unemployment, much less what it would look like, because labor couldn't be less aware of itself as a class than it has become in the last 25 years. Instead, we have the populism of Sarah Palin and the Tea Partiers, supposedly readying a revolution against "big government". Perhaps the reckoning will simply be the complete collapse of late-capitalism because that paradigm was dependent on labor pushing back hard enough to secure wages that kept demand up for all the consumer products the capitalists have been profiting from.

Reply Mar 02, 2010 at 04:30 PM

kaleberg said...
Wasn't that also the year the Brits outlawed black slavery? Seems to have been the same year they introduced white slavery.

Reply Mar 02, 2010 at 05:16 PM

reason said in reply to kaleberg...
Close
http://en.wikipedia.org/wiki/Slavery_Abolition_Act_1833
And it is a very good point!

Reply Mar 03, 2010 at 07:31 AM

Lafayette said...
CENTRISM

{Senior explains why he believes that relief for the poor will lead them to acquire the attitude that they have the right to exist without having to do any work}

The explanation is, of course, short-sighted. Any awake economist will easily explain that support payments do not go into savings accounts but back directly into the economy, thus maintaining Demand and thus maintaining employment. Maintaining employment is crucial to creating jobs. When employment is not maintained, neither are jobs created -- businesses do not expand the production of goods and services at a time when job losses reduce National Income. (QED)

Secondarily, nobody in their right mind wants to sit around watching the four walls on the dole. Well, perhaps a truly ignorant few do, but most people would like a job to occupy their time. And not only for its monetary benefits, but also because it fulfills a social function. People who work are "in the rat-race looking out, rather than outside the rat-race and looking in". Like it or not, in our day and age, participating in the rat-race is preferable to its alternative.

Then there is the matter of the Work Ethic. This ethic was once a cultural hand-me-down from generation to generation. It arrived in America with the Protestants (particularly the Calvinists) and embedded itself within the national psyche. It is entirely possible that this ethic, worn with time, needs some burnishing and promotion within American secondary schooling.

POST SCRIPTUM

Let us not expect the Replicants to think beyond their noses. They've never done so in the past, why should we expect them to do so in either the present or the future?

It is beyond the capability of their mental processes. Except for an enlightened few ... who will be making their way back to lead the party. Yep, the delusional era of Reaganonomics is clearly over.

It is less clear what will take its place on the Replicant side of the legislative division. Methinks the time opportune for a third way, that of Centrism in the form a Social Democratic Party. Meaning a real Left-of-center party rather than the present Dem variety -- a smörgåsbord of differing dishes, some to the Right-of-center.

Reply Mar 03, 2010 at 12:28 AM

Lafayette said...
AN EPIPHANY

We've let the troglodytes take over both parties, that fact is clear.

Maybe there should be tenure time-limits? Three successive tenures and then you're out. Make room for new blood, new thinking.

Monarchies used to have to wait for a crowned head to die before regimes changed. Democracies have tied themselves into a knot by allowing the "oldies" to stick around for far longer than their "useful end-date" on the packaging.

But, of course, tenure is for the citizens to decide. Don't expect either chamber of Congress to happen upon such an epiphany spontaneously.

Reply Mar 03, 2010 at 12:38 AM

ken melvin said in reply to Lafayette...
Here in CA we've a young exciting new dem running for guv by the name of Jerry Brown.

Reply Mar 03, 2010 at 05:23 AM

Lafayette said in reply to ken melvin...
Ha! Only in California ...

Jerry Brown on Viagra. That will be a sight to see ... !

Reply Mar 04, 2010 at 12:36 AM

No matter how this debate plays out, once employment is back on track -- which doesn't look likely to happen anytime soon -- it will be time to pay for the money that was borrowed to get us through the downturn, and to begin looking toward longer term budget issues. But if we listen to the overly anxious about the debt and begin to pull back too soon, it will delay the time it takes for labor markets to recover even further and, in the very worst case, send us back into recession. Right now, the economy needs more help, not less.

Even relying upon traditional measures of output and unemployment to execute the "correct" budget policy could cause policymakers to contract too soon. The recession "may have been deeper, and longer-lasting than previously thought" based upon standard measures of economic activity:

Is Okun’s Law Really Broken?, by Justin Wolfers: “Okun’s law” is a much-loved rule of thumb — it links increases in the unemployment rate with decreases in output. The red dots in the chart below illustrate Brad DeLong’s version of this rule, which relates the change in output over the past eight quarters with the change in the unemployment rate. Most of these dots lie pretty close to the dashed line, which suggests a stable relationship. Based on this rule, and the relatively mild decline in measured output, you might have expected the unemployment rate to have risen by 3.5 percentage points over the past two years, to about 8 percent. But the dots at the top left show what actually happened—unemployment rose by something closer to 5.5 percentage points, and the unemployment rate is closer to 10 percent. That’s a big difference. And it has led many commentators to ask whether Okun’s Law is broken.
But perhaps the problem isn’t Okun’s Law. Perhaps the problem is how we measure output growth. In fact, there are two measures of output growth—the usual measure, which adds up total spending in the economy, and the alternative, which adds up total income. In theory, the two should be exactly the same. In practice, they have been very different during this recession. The blue dots show recent changes in this alternative measure of output. These GDI numbers suggest that output growth actually declined much more sharply than had been widely understood. Based on this alternative measure, the recent sharp rise in unemployment is no mystery at all. (Indeed, the 2008 data suggest that the real mystery may be why it didn’t rise faster, earlier.)

There’s a simpler way to show all this: Let’s map out Okun’s Law using this alternative income-based measure of output. That’s what is shown in [this] figure... The rise in unemployment seems quite consistent with these alternative output data. If anything, the puzzle now appears to be why unemployment didn’t rise by more in early 2008, given the very weak state of this income-based measure of output.
What’s good news for Okun’s law, though, is bad news for the economy. This alternative measure of output growth suggests that the recession may have been deeper, and longer-lasting than previously thought, although data for the fourth quarter aren’t yet available. While many economists believe the recession ended in the second quarter of 2009, this income-based measure of output kept shrinking in the third quarter, too. And while the expenditure-based measure is back to its level from the third quarter of 2006, the income-based measure suggests that output is still 3.5 percent below that level. That’s a pretty big hole to dig out of.
Which is the right measure of output to focus on? It’s still an open question, but some interesting recent research by the Fed’s Jeremy Nalewaik suggests that we should be thinking harder about the income-based measure. And Jeremy has promised further new results, which he’ll present at the forthcoming Brookings Panel.

However it's measured, output is far too low, unemployment is far too high, and disinflation is still a worry. Don't let the deficit and inflation hawks convince you otherwise.

Posted by Mark Thoma on Tuesday, March 2, 2010 at 12:30 AM in Budget Deficit, Economics Save to del.icio.us Tweet This Permalink Comments (33)

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M.G. in Progress said...
"Right now, the economy needs more help, not less."

Everybody should agree on that regardless the level of debt, whose reimbursement could be postponed, but not too long.

The point is who has to foot the bill of the help now and how to redistribute scarce resources. If we continue to say that we cannot raise taxes on the finance industry, bonuses or on financial transactions just because we are happy of their contribution to the growth of a country and we continue to discuss if financial innovation is socially useful we will never escape the conundrum of the debt. We can have more debt but you have to tell people who is going to reimburse and share that burden. Somebody made some clear mistakes, make them to pay. As far as we can see we continue to have unemployment everywhere but profits and bonuses in the finance industry. Something is wrong. But we have to admit that the work of Joe the plumber is not less socially useful or valuable than the Wall Street trader's one.

Reply Mar 02, 2010 at 12:31 AM

Min said...
I have some simple questions.

If the debt is so bad, why not pay it off? Andrew Jackson did, but that didn't work out too well, as America's first depression soon followed. Was that just bad luck? Or would it be a bad idea to pay off our current debt?

If paying off the debt would be a bad idea, why would it be a good idea to reduce it? Interest payments on the debt are a sizable portion of the Federal budget. Of course, it would be disastrous if they were the whole budget. Perhaps that is the key statistic about the debt. Well, interest rates are low now. Maybe we should load up on low cost debt?

Reply Mar 02, 2010 at 01:26 AM

paine said in reply to Min...
min you fire off lots of notions here

i submit however
if you want to be constructive
suggest we close our trade gap
before we start paying down our federal debt

that by itself will reduce the ongoing
" full employment deficit "

the notion of a full employment budget deficit
lies behind any coherent discussion of debt reduction

if we had a large export surplus we could run a surplus budget and pay down the debt
that is
so long as firm investment
recycled ALL post tax income
not spent
directly or thru credit
by households

Reply Mar 02, 2010 at 07:35 AM

Min said in reply to paine...
"min you fire off lots of notions here

"i submit however
if you want to be constructive"

I think that my strengths like in two areas: First, in critique, in uncovering logical flaws, unwarranted assumptions, and ambiguous language; second, in the production of ideas. Neither is sufficient to construct and maintain practical solutions. But, hey! two out of three ain't bad. ;)

Reply Mar 02, 2010 at 01:14 PM

Anonymous said...
We have declining debt because we have less certainty about the future and the household is voluntarily reducing their debt because the future looks uncertain. That is why we have low interest rates. There is no reason why Congress would be any different.

Reply Mar 02, 2010 at 02:11 AM

paine said in reply to Anonymous...
most debt obligations are paid because
they're due ..not pre paid because of uncertainty
right ?
it's mostly net credit extention atrophy
that causes present household system wide
net de leveraging
not accelreated repayments
let alone
increased "saving"

note the default rate
and you realize
the atrophy of credit
is not about lender uncertainty
but lender caution

Reply Mar 02, 2010 at 07:40 AM

ken melvin said...
There are no laws of economics. Okun's, an observation as to historical relations, can not be expected to apply in today's new and changed economics. Ours is very little like those of then.

Reply Mar 02, 2010 at 04:40 AM

bakho said...
On the contrary, it is apparent that Okun's law indeed applies if GDP is properly measured. It was clear from the original graph that GDP was in some way artificially inflated. It was also clear that maintaining consumption by borrowing more was not sustainable. Economists who expect a fast recovery from a "return to normal" are likely to be disappointed. Normal was not sustainable and will not return. We are "borrowed out" and going forward will require fixing the balance sheets on the bottom rungs of our economy.

Reply Mar 02, 2010 at 05:02 AM

roger said in reply to bakho...
I do wish there were more discussion of just how GDP is constructed. Whenever knuckleheads (for instance, Robert Gordon in a recent debate in the Economist that was here: http://www.economist.com/debate/days/view/436/print) compare GDP between, say, the U.S. and the E.U., things that seem counter-intuitive pop up. For instance, the vastly greater spending on healthcare in the U.S. counts as a positive in the GDP sweepstakes, if I am understanding it correctly. Meanwhile, things that are normally part of a compensation package - say, paid vacation - count against the country that mandates them. Theoretically, if we could just double our healthcare costs and make sure no worker has a vacation, the GDP would get bigger.

Or so it seems. I'd like a measure of goods and services that more accurately reflects wealth. Is there one?

Reply Mar 02, 2010 at 08:12 AM

NKlein1553 said...
Why does the federal government issue debt? Certainly not to pay for anything. The consolidated government sector (Treasury plus Fed) has all the dollars it could ever need at its disposal. With a few key strokes by Chairman Bernake and Secretary Geithner the national debt could be gone. Poof! The question then is what stops our government officials from taking a few zeros off the spread sheet. The answer is these officials want to maintain the primacy of monetary policy. If the Treasury Department were to simply start sending out checks without any corresponding debt-issuance huge amounts of reserves would start piling up in the banking system and competition in the interbank market would drive interest rates down to whatever rate the Fed was paying on excess reserves (formerly zero, but now it's some small positive number I can't recall). In short, the Fed would lose control over its target rate and become irrelevant. Now, before all the debt-moralists out there start screaming at me and calling me a communist and other such pleasantries let me state up front I'm not arguing creating new money in this fashion (spending without any corresponding debt-issuance) is necessarily a good idea. The truth is I really don't know. I acknowledge the fear that government creating new money like this will lead directly to inflation. This is why the dominant philosophy over the past thirty years or so has been monetary policy is necessary to keep inflation under control. But maybe now it's time to start rethinking that paradigm. In any case we should acknowledge that the real debate should be over the primacy of monetary or fiscal policy, not over whether or not the government can "afford," to spend its own sovereign currency it issues under monopoly conditions.

Reply Mar 02, 2010 at 06:17 AM

Lyle said...
Note that the British debt according the the book God and Gold by Walter Russel Mead peaked at 216% of GDP in 1816, which arguably was the point of greatest British domination of the world. Britain had just won its about 28 years final war with France at that point, and the rest of Europe was beginning to recover from the Napoleonic wars. However at that point the British economy was beginning to undergo one of the nineteenth century supply shocks and production increased rapidly.

Reply Mar 02, 2010 at 06:31 AM

Eric said...
"(T)he economy needs more help, not less." This is a statement that most would agree with but is there any agreement on what people think is helpful? Was "Cash for Clunkers" the kind of help we mean? It moved inventory for awhile, but did it jump start auto sales generally? Is HAMP helpful or is it actually slowing down housing market recovery? In many areas foreclosures are selling briskly, so a program that slows that activity down, but doesn't seem to do much beyond that is maybe misguided. Is billions of seed money for high-speed rail that has huge ultimate capital requirements a help or a hindrance if it comes at the expense of funding 1000 individual sewer projects, each of which can be completed and has a more certain benefit? The nation will have to pay back every dollar of debt somewhere along the line. A significant part of what is labeled the deficit hawk position is being driven by a sense that a lot of the proposed incremental expenditures don't have good enough likely public benefit associated for the money spent.

Reply Mar 02, 2010 at 06:57 AM

paine said...
"However it's measured, output is far too low, unemployment is far too high"
now that's the way to attack this problem
set a job growth path and kkep using your macro tools till you get on it and then use em to stay on

feed back requires no exactitude in the model reality "match"
so long as the macro tools are used with an up and down
dial in continuous adjustment

its absurd to say "we will use fiscal stimuls to create x jobs...period "

we ought to say we will use fiscal stimulus to return us to full employment --which is an unemployment rate of z--
by date y with this set of intermediate UE rates as goal posts

yes science oughta discover the biggest bang methods but the result is paramount eh ??

is there a price too high for rapid job recovery ??
if so
please state it

Reply Mar 02, 2010 at 07:26 AM

julio said in reply to paine...
Goldman goes bust.

Reply Mar 02, 2010 at 04:28 PM

Steve Roth said...
The Reinhart and Rogoff paper seems to me (in my amateurish ignorance) to make the most basic error that I see in almost all "determinants of growth" econometrics: it doesn't consider multiple lags--what periods (of debt) are being compared to what ensuing periods (of growth).

Post hoc obviously doesn't mean propter hoc, but "ensuingness" is one of the few natural-experiment handles we've got in a science where you can't re-run the experiment.

While the paper (oddly, it seems to me) doesn't say so explicitly, it seems to be comparing a country's debt levels in a given year to that country's GDP growth *in the same year.* While the data set is impressive (are they sharing?), the analysis is based on the most simplistic of correlations.

And it's not even adjusted for the most widely-accepted of necessary corrections--"convergence" or the "catch-up effect"--the tendency of less-prosperous economies to catch up with their cohorts due to transfers of technology, expertise, trade, capital, etc. (Which effectively changes the question to something like, "Gee, these countries didn't catch up, when they should have. Why not?") That correction is actually impossible in absence of a lag period.

But putting the convergence issue aside for a moment: Reinhart and Rogoff acknowledge their lag-blindness in a decidedly less-than-reassuring parenthetical:

"(Using lagged debt should not dramatically change the picture.)" p. 7

"Should not." Now that's a convincing piece of robustly supported econometric evidence and argument, don't you think?

The paper provides at least one perfect--downright eye-popping--example of this lag-blindness, and the false picture it paints. In Figure 3 (p, 10), they show their debt-to-growth correlations (broken into their "buckets" by debt/GDP ratio) for the U.S., purportedly demonstrating that debt/GDP levels above 90% result in far lower GDP growth levels.

But note the footnote to this table: they have only 5 samples (years) out of 216 in which debt/GDP was greater than 90%.

It's not hard to figure out what years those were:

U.S. Federal Debt as a Percentage of GDP
1944 91.45
1945 116.00
1946 121.25
1947 105.81
1948 93.75
1949 94.60

http://www.usgovernmentspending.com/downchart_gs.php?year=1930_2015&view=1&expand=&units=p&fy=fy11&chart=H0-fed&bar=0&stack=1&size=l&title=&state=US&color=c&local=s

I find six years to their five, but in any case.

The growth figures for these years, obviously, are wildly distorted by the war imperatives: the profound effects of rationing, military spending, post-depression, wartime consumer savings versus consumption (reversed in the late 40s and 50s), etc. etc.

While arguments can be made to the contrary, it's not insane to suggest that the debts of the late 40s--finally breaking the back of The Great Depression--were in fact the impetus (or at least enabler) for the Great Prosperity of ensuing decades.

But whether or not you buy that argument, this example demonstrates that Reinhart and Rogoff's lag-blindness in this paper quite resoundingly undercuts that value of its conclusions.

Their choice of correlations--year-X debt to year-X growth--exemplifies a dismaying tendency among U.S. growth econometricians, particularly those like Rogoff who display a predeliction for making political points: a tendency to concentrate on short-term results rather than long-term benefits.

I think almost all will agree that the important question we need to be asking is, "What effect will debt levels have on our (country's) long-term prosperity and well-being?" Will our children and grandchildren decades hence be more or less prosperous as a result of Policy X, or Policy Y? (This also because we can actually have an effect on those long-term outcomes. Short-term fixes are always iffy...)

In my amateurish way, I'd like to suggest that answers to those questions can be found more readily by looking at many lag periods for any given correlation. In particular--since many important economic effects (arguably the most important ones) play out over many years or decades, and it takes years or decades to implement significant policies--we should be looking at long lag periods to draw our conclusiosn. This also has the statistical benefit of smoothing out short-term blips and bleeps that serve only to confuse and pollute our judgments.

Here is one example--comparing U.S. to EU15 GDP/capita growth rates for all the periods from 1970 to 2006. (I apologize that this is *not* corrected for convergence/catch-up.)

http://www.asymptosis.com/europe-vs-us-who%e2%80%99s-winning.html

And another example here, suggesting that wealth equality correlates with somewhat slower growth in the short term, but profoundly faster growth in the long term. (Again, not corrected for catch-up.)

http://www.asymptosis.com/wealth-equality-and-prosperity.html

Hendry's charts, by the way--essentially efforts to demonstrate correlation or lack of same but without a correlation matrix that lays it out for us--strike me as falling prey to many of the same types of failings, notably the concentration on a single country with nothing to compare it to.

Steve
http://asymptosis.com

Reply Mar 02, 2010 at 08:13 AM

Goldilocksisableachblond said in reply to Steve Roth...
Steve,

Good stuff.

I remember having some doubts when I first read R&R , particularly about using only 5 datapoints out of a couple hundred to arrive at their conclusion about debt/gdp >90%. Your point about lags and study periods must be considered as well.

I see Rogoff as a bit of a deficit hawk , for reasons that probably extend beyond his research results , based on what I've heard from him in interviews , including , among others , at Davos this year.

The austerity camp will direct the attention of policymakers towards the 90% " money shot " in the R&R work , leaving aside any questionable assumptions like those you've highlighted. Deflation's benefits accrue to the creditor class , aka the "squeaky wheel" , and odds are good they're about to get another nice grease job.

I think if it were possible to reconstruct the economic arguments of 1930 , they'd sound much like those of today -- polarized on idealogical grounds , with widely different interpretations of the same economic data. Fast-forward to 1950 or 1960 and the self-evident success of certain policy choices must have forced considerable concessions from one side , resulting in a closing of the gap between the two. Ten feet of sea level rise would do the same for the climate debate.

Those old arguments and the economy that succeeded them are largely forgotten in the 1930 economy of the present-day , so we debate anew , and maybe don't make such good choices this time.

Ten years of post-GFC "dust-settling" will , like the ten feet of sea-level rise , clarify the issues under debate. Among the advanced economies , the contrast in outcomes between "winner-take-all" , laissez-faire , free-market havens on the one-hand , and more egalitarian , social-democratic capitalist systems on the other , will be obvious.

I hope we decide to revisit our history in choosing the path forward. If we do , I think we'll be OK.

Reply Mar 02, 2010 at 07:58 PM

Steve Roth said in reply to Goldilocksisableachblond...
Thanks, Goldilocks. I should just add that I am in no way arguing that debt is benign, or that there might not be some thresholding effect where it starts to get decidedly non-benign.

I'm simply saying that because of their analysis methods, R&R's paper doesn't give us any real insight into that. Because of their zero-lag analysis, they certainly give no insight into the long-term effects, which strike me as the effects that really matter. Compounding interest and all that...

Reply Mar 02, 2010 at 08:15 PM

Goldilocksisableachblond said in reply to Steve Roth...
Understood and I agree . I think we're already experiencing the non-benign effects of too much household debt , and too much overall debt. However , I think aggressive austerity measures at the gov't level now are likely to make things worse , and our best chance is to try to engineer a controlled and gradual descent from current high overall debt/gdp levels. Raising the denominator should receive as much , if not more , attention than shrinking the numerator.

A progressively targeted program of debt restructuring/forgiveness would help accelerate the process and partially redress past economic injustices , but politically , it's a no-go.

Reply Mar 02, 2010 at 09:07 PM

Steve Roth said in reply to Goldilocksisableachblond...
>Raising the denominator should receive as much , if not more , attention than shrinking the numerator.

Yes. Perfectly encapsulated, and blessed in its conciseness and cogency.

It took us thirty-five years to work down the debts from The Great Depression/World War II--largely through economic growth.

We don't have the advantage now, of course, of having 15 years of private frugality behind us that was (then) converted to consumption. So it won't be easy.

Reply Mar 03, 2010 at 09:15 AM

James B said...
One of my pet peeves is that, when economists talk about "debt", they often don't define what they're talking about. In this case--and I think this applies to both Hendry and R&R--they look at government debt only, without considering private debt. So, for instance, government debt/gdp was quite high in WWII in the US, but that corresponded to an all-time low in private debt/gdp. The situation now is different--we have moderate levels of government debt piled on top of huge amounts of private sector debt. The government response to the crisis has largely involved exchanging private for public debt. If that policy continues, we could have government debt/gdp levels rivaling those of Japan in pretty short order.

Reply Mar 02, 2010 at 09:53 AM

Bruce Wilder said in reply to James B...
Economists being stupid is the larger part of discussion among economists, as long-time readers of econ-blogs can attest.

Reinhart and Rogoff find that external debt, particularly debt in a foreign currency, can be a drag on growth. Shocking, I know.

Hendry is discovering that a marketable national debt in a sovereign's currency and held by nationals is a public good, which can be used by the financial sector in arbitrage operations that facilitate productive investment and, yes, growth(!) in the real economy.

In the U.S., household debt is a terrible burden, greatly reduced household wealth, pensions, etc., and the increasingly predatory nature of the financial sector, might all be causes for concern. And, many acute observors have pointed to the expansion of intra-financial-sector debt (debts -- credit default swaps might come to mind) as a cause for concern.

In the meantime, as you say, the policy -- THE ACTUAL POLICY -- has been to exchange (often extremely dubious) private for public debt. The policy is scarcely acknowledged, and its implications remain largely unanalyzed, except to be told we cannot afford fiscal stimulus spending of sufficient size to relieve growing, long-term unemployment. (We can afford Jamie Dimon's $17 million in annual "compensation", though.)

Reply Mar 02, 2010 at 10:28 AM

Min said in reply to Bruce Wilder...
"In the meantime, as you say, the policy -- THE ACTUAL POLICY -- has been to exchange (often extremely dubious) private for public debt."

Yes, but whose private debt? The guys with private planes, that's who. :(

Reply Mar 02, 2010 at 01:34 PM

Bruce Wilder said in reply to James B...
I think the failure to make distinctions, where they would seem to be of obvious usefulness is symptomatic of a general failure in economics, as it is practiced in the public discourse (I'm not saying anything about the purely academic activity), to separate mechanism from morals.

If you think that the channel to consequence is an essentially moral one -- the sin of debt or a "weak" currency or some similar claim, it leads to a very different set of operational ideas about how policy works, and who is to blame, etc.

If you think the financial sector, or markets generally, are institutional mechanisms, it leads to a completely different approach to analysis.

These polar opposite viewpoints are not separated in economics -- not separated even in individual economists!

Business confidence or morale can be invoked as a mechanism -- animal spirits! -- and then treated, in the next breath a moral quantity, as people speculate on how, say, the stock market might react to some bit of political news, projecting onto the stock market, what the ancients might have attributed to the jealousy of the gods.

These correlation studies seek a broad audience, by trying to bridge the chasm between these approaches. Their authors don't see any percentage in excluding one, in favor of investigating the other. So, debt is treated as if it is an ethical question, where principles are adopted in ignorance of proximate consequences, but hope of some more diffuse benefit in the long-run. Is "high" debt a "burden" becomes like the question, is "honesty" a "handicap"?

Also, if one were to be diligently mechanistic, correlation would lose its purchase on the data, as there are always too few cases, and Marshall's great insight -- that economic variables are overdetermined -- must be ignored by the econometrician, if he is to go on.

Reply Mar 02, 2010 at 11:19 AM

Min said in reply to Bruce Wilder...
"there are always too few cases"

Oui, mon frere! C'est domage!

"Life is the art of drawing sufficient conclusions
from insufficient premises."
-- Samuel Butler

:)

Reply Mar 02, 2010 at 01:48 PM

Ryberg said in reply to Bruce Wilder...
Lets define some terms. Assets represent the ability to produce economic value. Debt is a claim on assets, typically denominated in some currency. Liabilities, like debt, are promises to pay in the future although they are often not quantified in the present. Generally, additional debt and liabilities does not directly increase assets except for the entities (e.g., banks) that issue the debt. During periods of strong economic growth, that is periods of growing production of assets, their will be a increase in optimism about the ability to repay debt or to take on liabilities. That optimism can growth faster than the economy. The causal link, if there is one, is significantly economic growth to optimism to debt growth. There is a positive feedback for the financial sector where debt growth leads to economic growth. When the government enters the picture with deficit financing, the causal link is quite obscure. The benefits to the financial sector are pretty clear as risky financial assets and replaced by safer government guarantees. The benefits to the rest of society are at best second order. As unemployment increases, the ability of the economy to produce things of values is impaired, which in turn reduces the ability to pay claims on these things of value. It also reduces the ability to meet future obligations. At some point, adding more debt and liabilities to this economic brew is counterproductive. Indeed, where is the incentive to produce at all when the claims on this production may exceed the value of the production itself? Total US debt is 370% of GDP according to the Fed. Increasing the public sector portion of this debt is promoted as a stimulus to GDP but one has to question whether we really understand the nature of debt.

Reply Mar 04, 2010 at 05:03 AM

im1dc said...
I had come to believe that Economists were a hopeless breed of flops, but now I see in "Maybe Debt Doesn’t Matter After All"? the profession has begun to recognize that National Debt/GOVT Spending is relative in economy's, i.e., just one factor among many and not the ONLY/DECIDING/DEFINING one, well, that assessment may have been too rash.

Hope is renewed.

I can't help but think Paul Krugman has known and taught this all along but that few listened to him within or outside the Economics profession.

Reply Mar 02, 2010 at 11:00 AM

Barkley Rosser said...
What? Debt does not matter? Oh, sinners in the hands of an Angry God, dangling above the abyss of fire and brimstone! Repent ye while there remains some time before (aaaaahhh!!!)...

Reply Mar 02, 2010 at 02:00 PM

M.G. in Progress said in reply to Barkley Rosser...
Sinners on Thanksgiving day...
http://mgiannini.blogspot.com/2009/11/rich-countries-bond-defaults-or-debt.html

Reply Mar 02, 2010 at 09:27 PM

anne said...
http://www.nytimes.com/2010/03/03/business/global/03pound.html

March 3, 2010

U.K. Teeters on the Brink of Its Own Greek Tragedy
By LANDON THOMAS Jr.

LONDON — Could Britain be on the verge of a debt panic?

The fiscal crisis in Greece and a growing worry that the coming elections here could result in a hung Parliament, with no political party strong enough to push through unpopular deficit-cutting measures, have sparked fears that Britain will experience its own sovereign-debt meltdown. In such an event, foreign investors would sharply cut back on their purchases of British government bonds, leading to an interest-rate spike and a potential double dip-recession, if not worse.

“If you really want a fiscal problem, look at the U.K.,” said Mark Schofield, a fixed-income strategist at Citigroup. “In Europe the average deficit is about 6 percent of G.D.P. and in the U.K. it’s 12 percent. It is only just beginning.”

Since the Labour government’s intense fiscal intervention in 2008 and 2009, yields on British government debt have soared to among the highest in Europe. And on a broader scale, which includes the borrowing of households and companies, the overall level of debt in Britain is the second-largest in the world, after Japan’s, at 380 percent of the country’s gross domestic product, according to a recent report by the consulting company McKinsey.

In recent weeks, the focus of attention has been on debt scofflaws in Europe like Greece, Portugal and Spain, countries where borrowing costs have shot up in line with their burgeoning deficits as investors demanded higher rates to compensate them for the added risk of lending the governments money.

But the recent plunge in the value of the pound below $1.50 and the gradual move upward of Britain’s benchmark 10 year borrowing rate on government bonds, or gilts, to above 4 percent suggest that investors are now getting ready to reassess the country’s fiscal condition.

On Tuesday, the pound was at $1.4977 and the yield on 10-year gilts was down 6 basis points at 4.02 percent. That followed a big fall in the value of the pound Monday, after polls released over the weekend indicated that the opposition Conservatives had lost their clear lead in the election race.

Britain is not in the 16-nation euro zone and, unlike Greece and other struggling countries that use the currency, it retains control over its monetary policy. As it result, it has benefited so far from a huge bond-buying program undertaken by the Bank of England — proportionally, the largest in the world — that has kept mortgage rates and gilt yields at unusually low levels.

That means the government and its citizens have been able to continue to borrow at interest rates that do not reflect their true financial situation....

Reply Mar 02, 2010 at 02:13 PM

anne said...
http://www.measuringworth.org/datasets/exchangeglobal/result.php?year_source=1960&year_result=2008&countryE%5B%5D=United+Kingdom

Price of an American Dollar in British Pounds, 1992-2009

British Pounds

1992 ( 0.57)
1993 ( 0.67) Clinton
1994 ( 0.65)

1995 ( 0.63)
1996 ( 0.64)
1997 ( 0.61)
1998 ( 0.60)
1999 ( 0.62)

2000 ( 0.66)
2001 ( 0.69) Bush (High)
2002 ( 0.67)
2003 ( 0.61)
2004 ( 0.55)

2005 ( 0.55)
2006 ( 0.54)
2007 ( 0.50) (Low)
2008 ( 0.54)

December 31

2009 ( 0.62)

March 3

2010 ( 0.67)

Reply Mar 02, 2010 at 02:14 PM

anne said...
http://www.measuringworth.org/datasets/exchangeglobal/result.php?year_source=1999&year_result=2008&countryE%5B%5D=Europe

Price of an American Dollar in Euros, 1999-2010

Euros

1999 ( 0.94)

2000 ( 1.08)
2001 ( 1.12) Bush (High)
2002 ( 1.06)
2003 ( 0.88)
2004 ( 0.80)

2005 ( 0.80)
2006 ( 0.80)
2007 ( 0.73)
2008 ( 0.68) (Low)
2009 ( 0.72)

March 3

2010 ( 0.74)

Reply Mar 02, 2010 at 02:15 PM

Debtsolver said...
I believe that debt does in fact affect GDP growth, as GDP growth is in fact measured by consumer spend. Consumers are less likely to spend on buying new things if they are in debt, and most people are more likely to save during hard times...If there is a connection between personal debts and economic growth, it would be due to decreased spending due to increased prices because of inflation.

Reply Mar 05, 2010 at 06:31 AM

enrque said...
This is another example how economists adapt their ideas to the interests of the ruling class : The consumer is exhausted and cannot be loaded with additional debt to compensate the loss of purchasing power due to the impoverishment of mass consumers ( = working class) , devaluation is useless so
the government turns once again to be the "solution" and not the "problem" . The Capitalist system is in a desperate need for consuming power , so suddenly economists turn the basic orthodoxy of low deficits ( not taxation! ) into a questionable issue. I will not be surprised if we´ll see a proliferation of papers with fancy econometric models justifying the need of additional deficits ... and within a few years from now the need to cut social

Appearance and reality in public life, by Daniel Little: So what kind of democracy do we have? Do our institutions do a great job of establishing the public interest over the medium term, or have our institutions been captured by private interests, leaving essentially no real power in the hands of citizens?

The way it is supposed to work, according to Civics 101:
Elected officials faithfully consider proposed legislation, based on their expressed political values, the interests of their constituents, and their perception of the best longterm interest of the polity.
Decisions are made in public view.
Legislative debates turn on the public presentation of reasons in favor of or against proposed legislation, invoking only rational assessment of likely consequences, fitness of proposed legislation to the longterm best interests of the polity, and consistency with existing law and constitution.
Agencies use experts to faithfully create regulations that implement legislation in ways that are consistent with legislative intent, grounded in rational study of relevant scientific findings, and impartially applied without regard to persons or specific private interests.
Lobbyists are able to influence legislation and regulation only through compelling rational arguments based on cost-benefit analysis, legitimate expression of a given set of affected interests, and public knowledge of their advocacy.
This sounds pretty much like the way that Rousseau would have expected the legislative process to have worked within the ideal polity; legislation enacts the "general will".

The not-so-ideal case:
Elected officials give excessive importance to the impact their positions will have on the voters back home -- thereby paying less attention to the facts and consequences for the public good of various legislative initiatives.
Elected officials sometimes permit themselves to be influenced by campaign contributions and other personal advantages from industries and other private interests, thereby supporting or opposing initiatives for reasons other than the overall goodness or badness of the legislation for the public good.
Regulative agencies are influenced by industry "experts" in writing regulations, with the result that regulatory regimes are tilted towards the private interests of the regulated industries rather than neutrally establishing public health and safety.
Lobbyists have substantial access to legislators and regulators, with the result that they are able to move the dial in their favored direction.
We might describe this scenario as the pluralism scenario, along the lines of Robert Dahl's theories of democracy. Various interests contend through the use of various legal tools of influence, and the resulting set of laws, policies, and regulations represent a rough-and-ready balance of the many interested parties in a complex society. Private interests have weight on this scenario, but they don't determine the outcomes.

The nightmare scenario for democracy:
Elected officials have no sincere adherence to the public good; they pursue their own private and political interests through all the powers available to them. (Senator Jim Bunning's unembarrassed willingness to block extension of unemployment legislation for narrow personal and political reasons falls in this category.)
Elected officials are sometimes overtly corruptible, accepting significant gifts in exchange for official performance.
Elected officials are intimidated by the power of private interests (corporations) to fund electoral opposition to their re-election. (The Supreme Court decision on corporate free speech makes this much more likely.)
Regulatory agencies are dominated by the industries they regulate; independent commissioners are forced out of office; and regulations are toothless when it comes to environmental protection, wilderness protection, health and safety in the workplace, and food safety.
Lobbyists for special interests and corporations have almost unrestricted access to legislators and regulators, and are generally able to achieve their goals.
This is the nightmare scenario if one cares about democracy, because it implies that the apparatus of government is essentially controlled by private interests rather than the common good and the broad interests of society as a whole. It isn't "pluralism", because there are many important social interests not represented in this system in any meaningful way: poor people, non-unionized workers, people without health insurance, inner-city youth, the environment, people exposed to toxic waste, ...

The fact that healthcare reform, regulation of CO2 emissions, and significant reform of the financial system have all been essentially blocked in the current legislative process seems to point to one of these scenarios; and it isn't the first or the second.

I'll quote an idea used in the previous posting to suggest one possible way forward for our democracy: a movement towards substantially greater participatory democracy in this country. Archon Fung and Erik Olin Wright address the future of our democracy in Deepening Democracy: Institutional Innovations in Empowered Participatory Governance. Here is how they set the stage for their analysis:
As the tasks of the state have become more complex and the size of polities larger and more heterogeneous, the institutional forms of liberal democracy developed in the nineteenth century -- representative democracy plus techno-bureaucratic administration -- seem increasingly ill suited to the novel problems we face in the twenty-first century. "Democracy" as a way of organizing the state has come to be narrowly identified with territorially based competitive elections of political leadership for legislative and executive offices. Yet, increasingly, this mechanism of political representation seems ineffective in accomplishing the central ideals of democratic politics: facilitating active political involvement of the citizenry, forging political consensus through dialogue, devising and implementing public policies that ground a productive economy and healthy society, and, in more radical egalitarian versions fo the democratic idea, assuring that all citizens benefit from the nation's wealth. (3)
It is an interesting question to consider whether a participatory process surrounding the issue of healthcare reform would have led to a more satisfactory outcome. Given the results of the raucous, aggressive, and incivil disruption of town-hall meetings that occurred last summer around this issue, it is hard to be too optimistic about this approach either.

Posted by Mark Thoma on Wednesday, March 3, 2010 at 04:38 PM in Economics, Politics Save to del.icio.us Tweet This Permalink Comments (36)

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Denis Drew said...
What; no comments so far? The explanation is so simple: the disappearance of the middle class ALONG WITH middle class outrage that normally controls government going too far off into whatever field -- like control rods in a nuclear reactor -- WHICH IN TURN IS EXPLAINED by the disappearance of effective bargaining power in our de-unionized labor market CAUSED SIMPLY BY NOBODY BETWEEN THE OCEANS AND BELOW OUR BORDER THINKING BARGAINING EFFECTIVELY IN THE LABOR MARKET PARTICULARLY NECESSARY.

A portion of a letter to a San Francisco Chronicle columnist fills out the point:
There is a reason the Republican party keeps coming back like Robert De Niro in "Cape Fear". While the Republican financial elite ironically try to keep wrecking the economy and make 90% even poorer the Democratic academic elite keep themselves busy trying to rescue the macro economy while totally ignoring the crazy-desperate (!) state of our labor market: ignoring and thereby undermining the middle class (how can you help the poor if you cannot even help the middle class?).

I think that all it would take to be a giant American political hero would be to support balanced middle class (neither financial or academic elite) concerns: being more worried about protecting the country from outside -- which the Repubs do a great job of: read "The Terrorist Watch" -- than whether the FBI reads a few emails it should not and push for world-wide tested sector-wide labor agreements by law here: would rebuild labor overnight. Of course Mr. Anybody would have to alert people to things like 30% of American families are plausibly living below the poverty line even in good times if you don't count government helps like food stamps -- 40 years and double the average income (!) after LBJ declared war on poverty.

What happens when the majority economic middle class disappears is most dramatically illustrated in the neighborhood I grew up in the South Bronx:

New York's billionaire mayor for whatever unbalanced rationale decided -- after crime was reduced more than half -- that what the Bronx needed was a new $400 million courthouse to replace the two existing courts: the oldest on the corner of Grand Concourse and 161 St. is a classic building, arguably the most beautiful building in the Bronx (don't laugh -- it is that building you see in the background looking towards the outfield from the old stadium) and the other, a block east, was brand spanking new when I spent many hours there with some neighborhood kids in just the late 1970s.

The mayor also closed down an entire park block a few blocks west of the courthouses on which a track and field used by 39 Bronx schools resided along with a softball and a baseball field to make room for a new Yankee Stadium equipped with a couple of thousand fewer seats but with 43 more skyboxes for millionaires. And like the slum landlord who replaced our old refrigerator when we moved into our 1966 East Village apartment so he could raise the rent but did not bother to remove the old refrigerator our billionaire mayor left behind (at my last look) the old stadium to rot.

The mayor's legacy in the Bronx may be adding 3 (more) giant derelict structures in what you may have gathered is sort of the geographic center of gravity of the Bronx (the missing park was part of a three large block park stretch -- sort of our Central Park) -- which could never have happened when middle class outrage still controlled. But our (I say because of our race to the bottom labor market) poor folks don't have any idea of their power to control -- which I see as the story of America (but I am just an over the hill, former cab driver not a Berkeley supposed progressive).

Reply Mar 03, 2010 at 05:07 PM

paine said in reply to Denis Drew...
"the Democratic academic elite keep themselves busy trying to rescue the macro economy while totally ignoring the crazy-desperate (!) state of our labor market"

really ???

isn't their "runaway" inflation taboo implicit colaboration with the corporate exploitation system ???
what with its pre emptive slack job market macro RX

isn't the high priets of social liberality
with their cow tow to popular fiscal deficit superstitions
essentially unilateral disarmament
leaving the wall street out house
we call the fomc to reign "in good " times
and fiscal half measures in bad times ???

what of their odd secret celebration
of our oecd industrial devestation
or their complicity in wrecking crew trade itself
by leaving free range corporations
to plow about as they will scooping
arbitrage wind falls anywhere and everywhere
and last but not least
their fondness for laisez allez currency dukes
that facilitate decline by dollar policy madness

an independent fed
the final completion of the capitulation to the status quo

Reply Mar 04, 2010 at 05:15 AM

Denis Drew said in reply to paine...
Paine; all you are saying is that the Dems are even more useless than I say -- I disagree.

The core pathology is not in Wall Street or with the corporations getting away with murder -- it is what opened the way for them to do so -- the same marketeers exist in Europe without impoverishing everyone. The real problem starts at the bottom of our uniquely broken American labor market where the minimum wage is now 75 cents below what it was in 1956, inflation adjusted -- 250% the average income later. The real problem is with only 12% of labor unionized in the private market -- compared to L-E-G-S-L-A-T-E-D S-E-C-T-O-R W-I-D-E labor agreements in operation everywhere else in the first world (only other notable exception: labor screwed Japan where half the workers are about as well off as our illegals and the other half work 60 hours and pay 50% too high prices) and in lots of places in the second (Argentina) and the third (Indonesia!) world.

Most of Wall Street's gamblers are not even getting the 15% of labor income that has slipped away from the bottom 90% to the top 3% -- mostly the top 1/10 of 1% of earners -- not most of them anyway since 1973. In 2007, 180,000 Wall Street gamblers averaged "only" $180,000 bonuses on top of their average "only" $120,000 salaries.

Top 1 percentile household income, 2006: $1.2 million! That sounds to my untrained economic self (but my family has starred in competitions in eighth grade math) as if top 1/10 of 1 percentile households must be doing something in the range of $10 million a year -- one out of every thousand people!

What people? People who by and large are not smart enough to exploit the rest of us: linebackers (the stars of my day are tending bar now), new anchors and CEOs earning 25X what they did decades ago for the same work input.

The only way this can happen to my actual victim of labor market rape mind -- not some too distant to see what should too obvious academic mind: simplest of economic/PHYSICS -- squeeze a toothpaste tube on the bottom, the pressure equalizes in the middle, it all comes out the top. Where else?

Said process is totally enabled by total lack of awareness in the American labor market -- otherwise we would not be having this conversation. :-)

Reply Mar 04, 2010 at 09:42 AM

TigerPaw said...
I'm not sure it's even a question ... it's painfully obvious that the "nightmare scenario" is in full swing. The real question is can things be pulled back from the edge of the abyss?

Sadly I think I know the answer to that question as well.

What this all will likely lead to however, at some point is the appearance of a demagogue. Whoever it is, will take advantage of the mess and chaos, will appeal to the worst aspects of human nature, and in the name of fixing things will take power. And if you don't think it can happen ... why is it suddenly OK to wiretap, torture, and all those other "unthinkable" things. We're already halfway there. The stage is set, the audience is waiting, all that's left is for a devious ambitious person to pick up the microphone and say "follow me".

Reply Mar 03, 2010 at 05:18 PM

Bruce Wilder said...
I am myself pretty much an idealist, and a liberal and a progressive, as well as a self-identified capital-D, Democrat. As such, I am distressed and frustrated by the current course of U.S. politics, and have been for the last decade -- indeed since 1980.

Politics, I am fond of repeating, is a team sport. The U.S. two-party system plays the game with three teams, one of which fails to acknowledge that it is a team, or plays.

Little's analysis is typical of the narcissistic idealism of many "independent" non-partisans, who congratulate themselves on having a point of view that denigrates actual participants, while celebrating a pure vision of "participation" and abstract argument. Policy becomes an expression of the public will in pursuit of the common good; actual politics is grubby, actual politicians petty and corrupt. This isn't social science, it is some kind of Manichean Platonism.

The strawman of Little's imagined "Civics 101" reminds me of nothing so much as Dory Previn's "Mythical Kings and Iguanas". (Boy, does that date me!)

I don't find this contempt for materialism and the pursuit of self-interest particularly enlightening as social science. It tells me that Little is a somewhat detached academic, with the gift of logorrhoea and somewhat excessive regard for his own point of view and judgments. (Yeah, I know, takes one to recognize one.) But, it does not constitute any sort of political science.

Political science would start with social governance as a set of interconnected problems to be solved. It would not presume that solutions are waiting just outside the Platonic Cave, ready to be grasped by those, who walk in the light, nor would it prescribe contempt for the material nature of a process concerned with material things.

Reply Mar 03, 2010 at 05:23 PM

paine said in reply to Bruce Wilder...
liberals often soar
because civil society is filled with conflict
and it's material base
a class cloven sphere grinding away at itself between aweful quakes

there is no general will only necessary class missions
not a mass drama
fit for self created free spirits
to mire away in squalid slug fests
would be ...a purgatory without an exit

Reply Mar 04, 2010 at 05:02 AM

Bruce Wilder said...
Dory Previn
Mythical Kings And Iguanas

i have flown

to star-stained heights

on bend and battered wings

in search of

mythical kings

mythical kings

sure that everything of worth

is in the sky and not the earth

and i never learned

to make my way

down

down

down

where the iguanas play

i have ridden

comet tails

in search of magic rings

to conjure

mythical kings

mythical kings

singing scraps of angel-song

high is right and low is wrong

and i never taught

myself to give

down

down

down

where the iguanas live

astral walks i try to take

i sit and throw i ching

aesthetic bards

and tarot cards

are the cords

to which i cling

don't break my strings

(i wish you would)

or i will fall

(i wish i could

i wish i could

i wish i could)

curse the mind

that mounts the clouds

in search of mythical kings

and only

mystical things

mystical things

cry for the soul

that will not face

the body as an equal place

and i never learned

to touch for real

or feel the things

iguanas feel

down

down

down

where they play

teach me

teach me

teach me

reach me.

Note: Dory Previn was the wife of the celebrated conductor and composer, Andre Previn, until Andre ran off with the young actress, Mia Farrow. Dory launched a career writing and singing songs, beginning with the aptly named, "Beware of Young Girls"

Reply Mar 03, 2010 at 05:32 PM

paine said in reply to Bruce Wilder...
ghastly gurggle

the iguana tries fleeing her
fails
like a sky rocket squib

Reply Mar 04, 2010 at 04:55 AM

Hal said...
The US now is not a democracy but a plutocracy controlled by Wall Street and its supporters and hangers-on. What worries Little has already taken place.

Reply Mar 03, 2010 at 05:32 PM

Bruce Wilder said...
DL: "Elected officials have no sincere adherence to the public good; they pursue their own private and political interests through all the powers available to them. (Senator Jim Bunning's unembarrassed willingness to block extension of unemployment legislation for narrow personal and political reasons falls in this category.)"

What can be the justification for this judgment?

I think Bunning is an idiot, but I don't see the evidence that he fails in some ethical way, to fulfill an ethical duty to adhere to the public good. I don't know what adhering to the public good would look like, in the abstract. Was he bribed? I don't think so. Was he getting back at someone, for insulting his wife? No.

This whole line of reasoning is faulty, and it doesn't improve by this connection to current events, in the degeneration of our politics.

Bunning, during his last election, was doing pretty much everything he could to demonstrate his personal unfitness for office. One could try to understand how somebody so incompetent -- never mind his politics -- gets elected. But, he wasn't hiding either his personal eccentricities or his politics under a bushel basket. People in Kentucky voted for him.

Is the objection to Bunning's "abuse" of procedure? Maybe, the social scientists would like to step forward and explain why legislative bodies have complex rules of procedure?

There's something peculiarly contradictory about complaining of Bunning's actions, and also talking about transparency. Bunning's actions have received more public attention that most acts of policy-making ever do. Is this a good thing?

Reply Mar 03, 2010 at 05:52 PM

Richard said...
I find it interesting that so many clearly see the corruption and self-interest that takes place in Washington and at the same time wish to further centralize control there. Decentralized decision making is by no means a panacea, but it sure is better than the alternative.

Reply Mar 03, 2010 at 06:18 PM

Bruce Wilder said in reply to Richard...
That's seems to me to be a ridiculously mindless assertion.

What does "decentralized" even mean?

Reply Mar 03, 2010 at 07:22 PM

Richard said in reply to Bruce Wilder...
Might I suggest a dictionary?

Reply Mar 04, 2010 at 05:09 AM

Bruce Wilder said...
"Elected officials
. . . . have no sincere adherence to the public good; they pursue their own private and political interests . . ."
. . . . are sometimes overtly corruptible, accepting significant gifts in exchange for official performance . . ."
. . . . are intimidated by the power of private interests (corporations) to fund electoral opposition to their re-election. . . "

Imagine having human beings in public office! Such bad design.

Politicians pursuing their own political interests -- oh, the unexpected horror!

Look, I am, genuinely, distressed (and pessimistic) by the deterioration in American political institutions, and the increasing dominance of plutocratic interests over middle class interests, mentioned by other commenters. But, how can we take Little's diagnosis seriously?

The patient is sick -- no one doubts that -- but can "the disease" be that our politicians are self-interested human beings? This is like telling a person, who is sick, that she is ailing, because she's alive. That might fly as a kind of philosophical insight, but it's not a medical diagnosis, and cannot lead to a practical prescription.

I don't see this kind of detached idealism as helpful, but it represents the understanding of politics of a lot of people. And, it is part of the problem, imho. It doesn't help the system to discriminate good policy from bad, good procedure from bad procedure, or even good politicians from bad.

Political governance is a tough, tough problem. Many of the problems, requiring some kind of resolution, are beyond the capacity of individual humans to comprehend. There are no calipers we can use to measure the "general good". Many participants in the political process are only going to understand their own interests -- and will understand even their own interests with a highly imperfect mixture of acute familiarity and global stupidity: not the clean asymmetry of economic principals and agents, but the more normal of condition of human beings, up to their ears in half-remembered ideas, half-understood information, passionate conviction in nonsense and common sense, and confusion.

Our political institutions may not be serving us all that well. (Morons, who think they served the 19th century well, should probably just shut up.) One might suspect that someone thinks they benefit from the deterioration.

Reply Mar 03, 2010 at 07:01 PM

wjd123 said in reply to Bruce Wilder...

"The patient is sick -- no one doubts that -- but can "the disease" be that our politicians are self-interested human beings? This is like telling a person, who is sick, that she is ailing, because she's alive. That might fly as a kind of philosophical insight, but it's not a medical diagnosis, and cannot lead to a practical prescription." Bruce Wilder

Bruce,

People are self interested but they also have a hierarchy of values. A hierarchy that people act on and are motivated by. Don't people sacrifice for their families instead of living a high life? Don't they volunteer for the good of their community and not just to meet interesting people?

Why shouldn't someone who goes into politics to help those who can help him or her be seen as deficient by those who don't see acting on ones self interest as particulary moral. Have you no Kant in you?

Aren't values the very motivation that help bring about change. I see self interests first and always as the motivation to action as the wrong attitude for public office. That is how the system ends up leaving 45 million citizens without health insurance.

We love a good fight, but being constantly at war with ones fellow citizens is hard on the nerves and society.

Reply Mar 04, 2010 at 03:12 PM

mrrunangun said...
I grew up in a corrupt political system in Chicago in the 50s and 60s. The people who ran the system had their own interests in mind, but the public interest as well and sufficiently so that Chicago was transformed from a sprawling industrial slum into one of the world's most beautiful and prosperous cities. It helped a lot that the country was rich and getting richer, as the postwar prosperity era was at its peak. What is missing now is any decisive action on behalf of the general welfare at any level of gevernment. We have only ourselves to blame because we vote for these people on the basis of their professed stands on identity political grounds rather than any record of constructive achievment.

Reply Mar 03, 2010 at 07:08 PM

Bruce Wilder said in reply to mrrunangun...
What do you mean, "we"? And, what do you mean by "identity political grounds"?

You don't have to look any further than the Presidential election of 2000. The Democrats nominated the sitting Vice-President, a man with a solid record of constructive achievement.

Many journalists in the mainstream Media joined in campaign to stir up resentment against those very achievements ("Gore claims to have invented the internet!"). His opponent, an alcoholic, was promoted as a good guy with whom to have a beer.

The Republican caucus on the Supreme Court appointed Bush to the Presidency.

The rest is history, as they say.

Those on the Right don't like to see people using government to provide public goods, don't like to see ordinary people represented, say, on the public utilities commission or the Federal Reserve Board.

So, Al Gore is labeled a "hypocrite" on global warming, but the Chairman of Exxon-Mobil is just doing his job, as is the journalist, who reports what the Exxon-funded so-called thinktank puts out, as if it constitutes "scientific" debate and dispute.

Resentment is as real a phenomenon, and as powerful a force in politics, as admiration -- maybe more powerful. Fear is as real and powerful as hope. People, whose politics is founded on their fear and resentment, will vote for the fake over the genuine hero, every damn time.

Fear and resentment have been winning a very high percentage of elections.

And, lots of ordinary people seem to have lost any sense of politics as a means to solve problems and make a better life in a better world. Whether it is an ideological "faith in free markets" or a pessimism about the possibility of fairness, too many people seem to have very strange ideas about the possibilities of politics. Their schools don't have a prayer of educating Johnnie and Jane, and these folks think the solution is to put prayer in schools, and creationism in biology class.

Reply Mar 03, 2010 at 07:57 PM

Bruce Wilder said...
DL: "This is the nightmare scenario if one cares about democracy, because it implies that the apparatus of government is essentially controlled by private interests rather than the common good and the broad interests of society as a whole. It isn't "pluralism", because there are many important social interests not represented in this system in any meaningful way: poor people, non-unionized workers, people without health insurance, inner-city youth, the environment, people exposed to toxic waste, ..."

Obviously, I'm getting exercised about this line of argument, but the more I think about it, the more wrong and unhelpful, I think it is.

The opposition of "private interests" to "the common good and the broad interests of society as a whole" may sound idealistic, but the abstractness of it is pernicious. Appearance vs reality is platonic b.s. In actual democracy, we citizens, every one, represent "private interests".

We don't have royalty to embody sovereignty in a public person, and that's actually a good thing.

Overarching vision can certainly be useful in marshalling working majorities for broad programs, but it has no legitimate claim of privilege over the guy, who just wants the pothole on his street, filled.

Politics is a contest of organization for power, with material outcomes at stake. Conflict, not airy fairy notions of the common good, is at its core.

I'm not saying that specific concepts of the common good are not sometimes useful in resolving conflict, but the conflict has to come first. I suspect that Little's affection for abstraction masks a distaste for the reality of conflict. Too many "independents" simply wring their hands, shout a pox on all the partisans, and fail to participate in the political conflict. They know nothing. They vote randomly. And, then, like Little, they wonder why the game is won by those who play.

Reply Mar 03, 2010 at 08:36 PM

paine said in reply to Bruce Wilder...
"Politics is a contest of organization for power, with material outcomes at stake. Conflict, not airy fairy notions of the common good, is at its core"

conflict between wings of the elite
can drift far from the masses "interests"
and as often as not they turn effectively bipartisan in the face of a popular fury
like the nasty bank bail played out
in two acts
the last time the elites were this remote
prolly ended with the nomination of bill bryan
yes ended that ended swiftly
in a defeat of the popular "will"
but the impasse was shattered
and party dynamics became "real" err...till 1916

Reply Mar 04, 2010 at 05:35 AM

gaddeswarup said...
Bruce Wilder,
What do you think of subsidiarity as discussed in this article:
"The Limited Modesty of Subsidiarity" by
Nicholas Barber, European Law Journal, May 2005
(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=712191)

Reply Mar 04, 2010 at 12:44 AM

Lafayette said...
CELEB CULTURE

Both Plato and Socrates, upon occasion, disdained democracies. Perhaps they thought common people were not apt at electing good managers of the public commonwealth? Current evidence makes them seem right.

Some Enlightenment Philosophers thought up the notion of the Benevolent Dictator, a person who would rule absolutely but purely in the public interest. That person with such admirable selflessness was never born to a woman, methinks.

And given the current array in Congress, far too many deeply indebted to Vested Interests ... it does make on wonder. The first two years of FDR's administration were attributed to Roosevelt as the Enlightened Despot. Of course, the economic situation was so bad, even Mickey Mouse would have earned that titled had he been able to rectify it.

We have opted for democracy because, as Winston Churchill said, and I paraphrase, "the option to democracy is unthinkable". So we must make the best of it. Meaning what?

Meaning that as much as we might be seduced by whatever Quick Fix that would change the Awful Mess in LaLaLand on the Potomac ... uh, there is no Quick Fix. We've taken decades to get where we are with this presently poor caliber of republican representation (small "r", the difference IS important). No Quick Fix will show us the exit.

The solution is longer-term. Ignorant Twerps will elect twerps -- we saw that with Lead-head. The "intellectually challenged" will be manipulated by base media -- which is why money is sooo very important to American politics. And furthermore, which is why money is donated, most assuredly, with strings attached.

The Plutocrats, these anal individuals who MUST control everything, seek to control thought. So our candidates are offered up as handsome blown-dried guy/gal, cute children, with a perfect spouse. Are any of these Real Criteria for a presidency or are they the sauce in the salad? Methinks not -- more likely, they suit voting for Hollywood Celeb Of the Day.

Which is what we've become -- a banal Celebrity Culture. Which sparked John Lennon to say, "We're more popular than Jesus ...". There is no disrespect (for God) in that statement of fact. The Beatles were indeed more famous than God; the media having made them so.

What to do? First, shut off the Boob Tube. Then, sit down and think. Really think. Then vote.

Reply Mar 04, 2010 at 01:13 AM

Reality Bites said...
Whatever happened to individual people doing something themselves? I don't the usual "doing something" which means complain or urge politicians to do something, I mean do something as in put in work yourself to improve the community and get like-minded people to join.

It seems to me that the focus of late and especially with the left is that they want government to do something for them. More importantly, they want government to take away from others and use that to do something for them. Seems very destructive and self-centered, but all this anger seems centered upon the government unable to do something for them.

There are many community organizations that could use some help, volunteer some time, it can be fun or at least interesting as most new experiences are. Obama encouraged people to get active in private charities and non-profit organizations, do something yourself to help out instead of calling on the government to take away from another to give to you.

Reply Mar 04, 2010 at 02:22 AM

reason said in reply to Reality Bites...
Sigh. OK so want do about climate change, that won't be offset by someone else? Or lets make it local, about river pollution. (Well you could do tests, find out what is there, trace it to its source and then bully them to stopping. But you needs lots of specialist help - including hired thugs probably.)

Reply Mar 04, 2010 at 03:25 AM

reason said in reply to reason...
Is that something about the concept of externalities, that escapes you?

Reply Mar 04, 2010 at 03:26 AM

reason said in reply to reason...
Or economies of scale for that matter.

Reply Mar 04, 2010 at 03:48 AM

reason said in reply to reason...
I also think that you don't understand the problems with private charity. Robert D. Feinman who has often posted here, wrote a good essay about it:
http://robertdfeinman.com/society/abolish_philanthropy.html

The problem with private charity is that it is volatile, potentially controlling and demeaning (even when it doesn't plan to be). It is not a dignified solution to the problem, which is why almost every rich, civilised society has developed publicly financed alternatives.

Reply Mar 04, 2010 at 03:38 AM

reason said in reply to reason...
And of course the correct answer is, they in fact do. But each individual has limited resources and competition (for jobs/mates/resources) means that altruists are punished.

Reply Mar 04, 2010 at 03:44 AM

mark said...
But the liberal wing of the Democratic party only has itself to blame for this. It's due to the expansion of the federal government's role that individual voices are drowned out in federal policy making. If power were devolved to the state and local level, individuals would have more influence. That is the way to revive democracy in the US. But it contrasts with the New Deal / Great Society mentality which is Democratic-driven. Also face it, there are many issues where the left does not want government to reflect the popular will, because it would cost the left a position. That is another factor - no faction has an unalloyed devotion to democracy because it will inevitably cost them some of their agenda.

Reply Mar 04, 2010 at 11:53 AM

Goldilocksisableachblond said...
Some insight into the "appearance and reality" of Republican campaign tactics and imagery , revealed by Politico , no less:

http://www.politico.com/news/stories/0310/33866.html

Un-freakin'-believable.

Reply Mar 04, 2010 at 12:32 PM

gordon said in reply to Goldilocksisableachblond...
I wonder what “tchochkes” means.

Actually, for some reason the article reminded me of "Charlie Wilson's War" (the movie) where there is some dialogue like this (from memory):-

Wilson: "I'm worried about helping these Moslems. I'm supported by Jews, remember?"

(somebody else): "How many Jews are there in your Congressional District?"

Wilson: "Seven. But your supporters aren't your voters, they're your contributors. I'm Israel's good buddy up there on the Hill".

Reply Mar 07, 2010 at 05:28 PM

anne said...
Notice the way in which a lie is shaped:

"But the liberal wing of the Democratic party only has itself to blame for this. It's due to the expansion of the federal government's role that individual voices are drowned out in federal policy making."

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=87&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=2007&LastYear=2009&3Place=N&AllYearsChk=YES&Update=Update&JavaBox=no#Mid

January 15, 2010

Federal Government Net Saving, 1992-2008

(Billions of dollars)

1992 (- 302.5)
1993 (- 280.2) Clinton
1994 (- 220.4)

1995 (- 206.2)
1996 (- 148.2)
1997 (- 60.1)
1998 ( 33.6)
1999 ( 98.8)

2000 ( 185.2)
2001 ( 40.5) Bush
2002 (- 252.8)
2003 (- 376.4)
2004 (- 379.5)

2005 (- 283.0)
2006 (- 203.8)
2007 (- 236.5)
2008 (- 642.6)

Reply Mar 04, 2010 at 12:41 PM

anne said...
"But it contrasts with the New Deal / Great Society mentality which is Democratic-driven."

Imagine failing to understand or rather wishing to be false about the astonishing long-lasting successes of the Roosevelt-New Deal and Kennedy-Johnson Presidencies:

http://www.measuringworth.com/growth/

February 22, 2010

Annualized Growth Rates

Roosevelt

1933 to 1940 Real GDP = 7.22%
1945 to 1940 Real GDP per capita = 6.46%

Kennedy & Johnson

1961 to 1968 Real GDP = 5.21%
1961 to 1968 Real GDP per capita = 3.89%

Reply Mar 04, 2010 at 12:52 PM

anne said...
"But it contrasts with the New Deal / Great Society mentality which is Democratic-driven."

http://www.measuringworth.com/growth/

February 22, 2010

Annualized Growth Rates

Bush II

2001 to 2008 Real GDP = 2.31%
2001 to 2008 Real GDP per capita = 1.36%

Reply Mar 04, 2010 at 12:54 PM

anne said...
What is beyond absurd is criticizing Democrats for increasing the power of the Presidency, when there may never have been a Presidency in which power was more concentrated than the Bush Presidency. The referral however is really to the federal breaking down of the call for state's rights as a way in which to deny individual or civil rights, which Republicans continue to be willing to refer to in coded ways.

Reply Mar 04, 2010 at 01:10 PM

mark said...
All of Anne's many responses are not responsive to the comment I made. Economic growth is achievable while constraining democratic participation..See China, 21st century.

That a Republican expanded presidential power vs Congressional or Judicial power in 2001-2008 proves nothing about whether Democratic administrations expanded federal power vs state power in the 1933-1968 period.

Individual and civil rights are anti majoritarian rights by definition; they are supposed to endure regardless of democracy.

I am not a Republican.

Small is beautiful, in government (and in comments).

Reply Mar 05, 2010 at 09:48 AM

wjd123 said...
"Individual and civil rights are anti majoritarian rights by definition; they are supposed to endure regardless of democracy.--Mark

Mark,

And who is supposed to enforce our individual and civil rights? A benevolent despot.

And who is suppose to keep other power centers like corporations from encroaching on our rights? They have already manage to weaken democracy.

Shrink government and there will be other powerful forces ready to exploit the power vacuum.

I'm not happy about government capture by powerful special interests. But I don't see how small government will make the situation any better.

Small government in today's world is a bumper sticker on the rear of a carriage in which ride gentlemen with wigs and ladies with corsets.

We have to deal with the world we live in. Shrinking government won't help, nor will it strengthen democracy. The idea is both reactionary, romantic, and dangerous.

We have to reform government. We have the means, the ballot box. We don't need to destroy the village in order to save it.

i take it to mean i need to start
using this blog as intended again
after years of wondering

thoughts need a matrix e4h ??

this works better and less exhibitionistically then comment splattering
even if the thoughts are only there as they get written down
in response to challenges

If one assumes that Financial Wizardry is our Whodunnit, then one has to ask how long does it take the financial wizards to adjust? It has been two years, how long can the likes of Hank Paulson be hysterical before they do the rational readjustment? If its two years, then one's economic theory has to include collusion between Government and Financial Wizards.

If we suffer a retail adjustment only, then the problem would not reach that far up. The consumer delevers when he cannot make adjustments in household inventories, passing the problem up the chain. The consumer must be suffering a distortion in the range of elasticities he is looking at, one or more of several inputs is way out of bounds.

Reply Mar 01, 2010 at 04:51 AM

Goldilocksisableachblond said in reply to Anonymous...
"The consumer must be suffering a distortion in the range of elasticities he is looking at, one or more of several inputs is way out of bounds."

For many years , consumers have been taking inputs up the wazoo . 'Out of bounds' is putting it mildly. That they would then suffer from distorted elasticity should not be surprising.

Tell us something we don't know.

Reply Mar 01, 2010 at 07:00 AM

Miep said...
That pretends the past growth was all sustainable, or more basic desirable. I dont share that optimism. A stimulus that closes the entire gap would be crazy anyway.

Reply Mar 01, 2010 at 04:56 AM

jazzbumpa said in reply to Miep...
Ahhh - Miep.

The blue line that you call "pretense" has been sustainable (except for certain aberrant periods like the OTHER Great Depression. Which, by the way, also demonstrated a sizable output gap.

Optimism has nothing to do with it. Recognizing a couple centuries of history does.

Cheers!
JzB

Reply Mar 01, 2010 at 04:13 PM

Oskar Shapley said in reply to Miep...
You are right that that some part of the old output level was not desirable.

The people who were e.g. in construction and finance are unemployed now. They stopped producing those wasteful things. Step 1 completed.

What should have happened now is Step 2 where the omnipotent market seamlessly reallocates the idle labour force into other industries. Like, I don't know, candy making and more of everything else by a bit.

There is no reason to believe that the current level of output is where GDP should be. We know this because there is high unemployment. Rather we see, that at least half of a trillion of stuff is not being made.

If the private sector does not pick this up, the government should. Spend the money on repairing some old bridges and useful things like that.

Reply Mar 01, 2010 at 05:03 PM

bakho said...
As Fatas and Mihov note, the unemployment gap is even larger than the GDP gap. See their Figure 2. Employment growth is below where it should be on the regression.

http://fatasmihov.blogspot.com/2010/02/labor-markets-and-current-cycle-and.html

Does this indicate that the "Bailout" added to the GDP (or made it less negative, especially for the banksters) but that too much of the stimulus was poorly targeted for job creation?

Reply Mar 01, 2010 at 05:06 AM

anne said...
"That pretends the past growth was all sustainable, or more basic desirable. I don't share that optimism. A stimulus that closes the entire gap would be crazy anyway."

Say what? What past growth wasn't all that sustainable and when?

http://www.measuringworth.com/growth/

February 22, 2010

Annualized Growth Rates

Eisenhower

1953 to 1960 Real GDP = 2.71%
1953 to 1960 Real GDP per capita = 0.90%

Kennedy & Johnson

1961 to 1968 Real GDP = 5.21%
1961 to 1968 Real GDP per capita = 3.89%

Nixon & Ford

1969 to 1976 Real GDP = 2.72%
1969 to 1976 Real GDP per capita = 1.65%

Carter

1977 to 1980 Real GDP = 2.78%
1977 to 1980 Real GDP per capita = 1.65%

Reagan

1981 to 1988 Real GDP = 3.49%
1981 to 1988 Real GDP per capita = 2.56%

Bush I

1989 to 1992 Real GDP = 1.67%
1989 to 1992 Real GDP per capita = 0.39%

Clinton

1993 to 2000 Real GDP = 4.01%
1993 to 2000 Real GDP per capita = 2.81%

Bush II

2001 to 2008 Real GDP = 2.31%
2001 to 2008 Real GDP per capita = 1.36%

Reply Mar 01, 2010 at 06:50 AM

bakho said in reply to anne...
The two periods with the largest GDP growth are the 2 periods with the greatest reductions in poverty level. Both LBJ and Clinton pursued policies that delivered more money to those at the bottom of the economy and created an upward spiral. GDP growth and making more people productive go hand in hand.

Reply Mar 01, 2010 at 07:04 AM

Matt said in reply to bakho...
Ironically, when Clinton was President some people were saying that welfare reform, not to mention NAFTA, would increase poverty.

Also, Piketty and Saez claim that income inequality dramatically increased during the Clinton administration- specifically, the share of income held by the top 1% was 8% in 1980, 13% in 1992, and 17% in 2000. If Clinton pursued policies that "delivered more money to those at the bottom of the economy" he didn't do a good job, did he?

Reply Mar 01, 2010 at 08:36 AM

jazzbumpa said in reply to Matt...
Well, NAFTA ultimately did increase domestic poverty.

Clinton's term was a mixed bag. Poverty levels decreased in both absolute and relative terms, but wealth continued the Reagan thrust of accumulating at the top - though far less so than under Bush, Jr. I just read today that in CY 2005, every penny of income growth was captured by the top 10%.

The Clinton rising tide did a little something to help float the dinghies; unlike under Reagan and the Bushes, when they got swamped.

But for now - we're screwed.
JzB

Reply Mar 01, 2010 at 04:33 PM

Goldilocksisableachblond said in reply to anne...
"Say what? What past growth wasn't all that sustainable and when? "

When it became dependent on total credit market debt growing at a faster rate than GDP , starting about 30 years ago. From 1945 to 1975 or so you can say that GDP growth was "real" and sustainable , as total debt/gdp remained essentially constant. Since then we've gone from one debt-financed 'Greenspan Put' to the next , and like Japan , we now face the large corresponding 'Take'.

To see what the chart above looks like 10 years from now , we just need to look at Japan.

Reply Mar 01, 2010 at 07:21 AM

Goldilocksisableachblond said in reply to Goldilocksisableachblond...
Here's a presentative chart showing Japan's gdp , and the effects of the collapse of their debt-fueled stock and RE bubbles , starting around 1990.

http://www.taipanpublishinggroup.com/images/web/reports-whitepapers/japanese-real-gdp.gif

Reply Mar 01, 2010 at 07:43 AM

Miep said in reply to anne...
[quote] Say what? What past growth wasn't all that sustainable and when?

http://www.measuringworth.com/growth/ [/quote]

From arround 2000 onwards. Higher growth in the past is nice. It is not obvious at all if growth just decreases no matter what is done with a higher basis level. By international developed standards, US growth was more off an expectation than the rule. The high gdp growth we got used to just goes back arround 200 years. Before that growth was much slower. Imagine someone in Japan or Germany would have drawn such a line in 1990. For the big picture, 20 year or even 2000 year data can be very misleading.

Many mistakes were made after after 2000. So even asuming potential growth is still up at the old numbers, that does not translate into an opportunity to "close the gap" by keynsian stimulus spending on the fast. US growth from 2000 onwards was done with huge misalocations towards real estate, record low saveing rates and huge current account deficits. Also lets not forget the wars. Those soldiers cant just switch to civil jobs and be very productive there. That will take years.

As far desirability is concerened:
I dont know, i am lazy i find the working hours in rich European countries long enough. Americans work longer. What they do in those long hours is often off doubtfull utility. They guard other people in prisons, occupy foreign countries, or pack everything in little bags at sumpermarcets. I am unconvinced if Americans would keep working those hours in a more egalitarian society.

Reply Mar 01, 2010 at 08:59 PM

anne said...
Bakho:

The two periods with the largest GDP growth are the 2 periods with the greatest reductions in poverty level. Both LBJ and Clinton pursued policies that delivered more money to those at the bottom of the economy and created an upward spiral. GDP growth and making more people productive go hand in hand.

[Precisely and importantly so.]

Reply Mar 01, 2010 at 07:13 AM

beezer said...
Yes to Anne and Backho.

One wonders how Obama can package this better distribution and call it "reform." Can't wait to see the Republicans block letting 80% of the population get more of the pie.

Reply Mar 01, 2010 at 07:26 AM

anne said...
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=87&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=2007&LastYear=2009&3Place=N&AllYearsChk=YES&Update=Update&JavaBox=no#Mid

January 15, 2010

Federal Government Net Saving, 1992-2008

(Billions of dollars)

1992 (- 302.5)
1993 (- 280.2) Clinton
1994 (- 220.4)

1995 (- 206.2)
1996 (- 148.2)
1997 (- 60.1)
1998 ( 33.6)
1999 ( 98.8)

2000 ( 185.2)
2001 ( 40.5) Bush
2002 (- 252.8)
2003 (- 376.4)
2004 (- 379.5)

2005 (- 283.0)
2006 (- 203.8)
2007 (- 236.5)
2008 (- 642.6)

[Through the Clinton years there was a continually declining government budget deficit which became an increasing surplus. Then came the purposeful immediate and continuous reversal of Clinton economic policy in the Bush years. So much for the debt nonsense about what was sustainable and when.]

Reply Mar 01, 2010 at 07:29 AM

Drake said in reply to anne...
How about presenting this data with annotations also showing which party controlled the House and Senate during those years?

For instance, the Republicans controlled the House from 95-2006, and the Democrats from 2007 - present.

Reality is more complex that who sits in the Oval Office.

Reply Mar 01, 2010 at 07:54 AM

jazzbumpa said in reply to Drake...
Actually, Cactus at Angry Bear did the heavy lifting on this back in '07. Rep Pres is always worse. Dem Pres with Dem congress is best.

I wrote about it and have a table here, od info from cactus.

http://jazzbumpa.blogspot.com/2010/01/republicans-all-wrong-all-time-pt-6.html

Or you can go right to the source.

http://www.angrybearblog.com/2007/02/god-punishes-us-when-we-collectively_16.html

Two data supported facts:
1) Republicans are bad for the economy
2) Reagan/Bush Tax cuts are bad for the economy.

JzB

Reply Mar 01, 2010 at 04:45 PM

Goldilocksisableachblond said in reply to anne...
anne ,

Call it debt nonsense if you like , but be prepared to hear more about this nonsense over the coming years. It's the basis of all of our economic problems , both here and in many advanced economies worldwide.

You're focused on public debt , which is the smaller part of our debt problem. Private debt is what has really skyrocketed since 1980. An as we see today , bad private debt can end up on public balance sheets. Total debt growing at a faster rate than gdp is not sustainable -- something has to give , eventually. It's simple math , really.

A typical graph of total debt/gdp:

http://www.americanthinker.com/debt_gdp.png

I happen to agree with you about the superiority of Clinton's policies compared to what came before or after him. Had we continued and expanded those policies , we'd likely be in a lot better shape today , because a middle class getting its fair piece of the economic pie wouldn't be as likely to become so over-indebted. Total debt/gdp growth levels even moderated briefly for a few years in the 1990's , but , overall , the trend was ever higher.

The debt gimmick was a way to borrow , or steal , GDP growth from the future. Now , it's payback time.

Reply Mar 01, 2010 at 08:21 AM

NKlein1553 said in reply to Goldilocksisableachblond...
Public sector debt and private sector debt are inversely related. The Clinton surpluses of the late 90's were one of the major factors that contributed to the explosion of private sector debt in the early 00's. Another important and related factor was the deregulation of the financial sector that Clinton's advisers like Rubin encouraged.

Reply Mar 01, 2010 at 09:04 AM

Goldilocksisableachblond said in reply to NKlein1553...
"Public sector debt and private sector debt are inversely related."

That's the way it's supposed to work , gov't engages in countercyclical deficit spending to offset periods of private sector saving or deleveraging. It worked that way without increasing the combined debt/gdp level significantly up until about 1980. Since then , debt/gdp has soared. The accounting difference between the ( normally offsetting ) public vs. private savings is reflected in our large external debt.

Reply Mar 01, 2010 at 09:27 AM

acerimusdux said in reply to Goldilocksisableachblond...
What changed in 1980 was monetary policy became more single-mindedly focused on reducing inflation. Thus, less money was printed. With not enough money to keep up with economic growth, economic expansion then instead becomes dependent on increasing levels of debt.

Now, of course, in the high inflation late 1970s and early 1980s, there was some good cause for this policy shift. The problem is it has gone too far and no one (at the Fed anyway) seems to be willing to admit it. This extreme low-inflation targeting is the cause of the strong dollar, and thus exchange rate imbalances, trade deficits, and uncompetitive US export industries.

Reply Mar 01, 2010 at 05:23 PM

paine said in reply to Goldilocksisableachblond...
maybe u ought to say

changes in the rate of change in pub vs pri debt
will move inversely if stabilizing production expansion rates at some notion od sustainable "full capacity "
is the concious goal of gub macro managers

Reply Mar 02, 2010 at 04:23 AM

Goldilocksisableachblond said in reply to paine...
That works for me.

You could also add the stipulation that " expanding a parasitic financial sector is NOT the conscious goal of gub macro managers ".

Those desired conditions held for 3 decades or so after WWII , and countercyclical fiscal policy worked pretty well , debt levels offset , and overall debt/gdp was remarkably constant relative to what's occured since then. These two periods define the difference between sustainable and unsustainable financing of an economy.

Reply Mar 02, 2010 at 01:18 PM

MKS said in reply to anne...
so what's the difference between these numbers and the OMB? The numbers found in the OMB's historical tables, while maintaining the same general trend, are significantly different in most of those years.

http://www.whitehouse.gov/omb/budget/historicals/

for the years listed in your post:

-290,321
-255,051
-203,186
-163,952
-107,431
-21,884
69,270
125,610
236,241
128,236
-157,758
-377,585
-412,727
-318,346
-248,181
-160,701
-458,555

Reply Mar 01, 2010 at 11:00 AM

anne said...
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=87&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=1992&LastYear=2009&3Place=N&Update=Update&JavaBox=no#Mid

January 15, 2010

Federal Government Net Saving, 1992-2009

(Quarterly at annual rates, Billions of dollars) *

Qtr1 Qtr2 Qtr3 Qtr4

1992 (- 296.0) (- 302.2) (- 313.2) (- 298.6)
1993 (- 312.1) (- 275.3) (- 282.2) (- 251.3) Clinton
1994 (- 236.4) (- 202.9) (- 220.6) (- 221.7)

1995 (- 221.4) (- 206.2) (- 210.3) (- 186.7)
1996 (- 194.3) (- 149.5) (- 138.3) (- 110.8)
1997 (- 92.4) (- 71.0) (- 35.6) (- 41.5)
1998 ( 7.9) ( 20.7) ( 52.3) ( 53.4)
1999 ( 79.1) ( 96.1) ( 103.5) ( 116.6)

2000 ( 205.3) ( 175.0) ( 181.8) ( 178.8)
2001 ( 159.4) ( 119.0) (- 104.4) (- 12.0) Bush
2002 (- 205.4) (- 249.7) (- 262.9) (- 293.0)
2003 (- 300.6) (- 375.0) (- 451.4) (- 378.5)
2004 (- 409.3) (- 384.4) (- 361.6) (- 362.5)

2005 (- 288.9) (- 288.1) (- 287.4) (- 267.7)
2006 (- 207.3) (- 229.4) (- 215.5) (- 163.0)
2007 (- 200.9) (- 221.3) (- 258.8) (- 265.0)
2008 (- 433.5) (- 796.9) (- 665.7) (- 674.1)
2009 (- 969.1) (-1,268.9) (-1,327.0) Obama

* Seasonally adjusted

Reply Mar 01, 2010 at 07:30 AM

anne said...
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=02&year=2010&base_name=fourth_quarter_final_demand_gr

February 27, 2010

Fourth Quarter Final Demand Growth Revised Down to 1.9 Percent

The reporting on the revisions to fourth quarter GDP noted that the growth rate was revised up from 5.7 percent to 5.9 percent. However, this increase was attributable to revisions to the rate of inventory accumulation (actually slower de-accumulation). The rate of final demand growth was actually revised down from 2.2 percent to 1.9 percent. This bad news went largely unnoticed.

--Dean Baker

Reply Mar 01, 2010 at 07:39 AM

kharris said...
I remember many a conversation back in the good old days, looking at the level of policy stimulus against the output gap in the cycle before the crunch. (This, by the way, may be related to issues of "sustainability".) Look at the track of actual output against potential during the 2005 to late 2007 period. We had a large structural deficit and fairly accommodative monetary policy in the middle years of the decade, and did no better than keep up with trend. Compare that to the prior cycle, in which output rose above trend before undershooting modestly.

What the heck was wrong with the economy in the "oughts"? There were obviously some distortions. The 40% of corporate profits going to finance and housing's contribution to growth nearly double the norm were hints signs of distortion, right along with the problem of huge stimulus getting nothing more than trend growth.

So, we have research showing that financial crunches lead to slow recover, and that global recession leads to slow recovery. Is it worse than that? Do we need to look for slow recovery relative to a less steep growth trend?

Reply Mar 01, 2010 at 07:57 AM

Goldilocksisableachblond said in reply to kharris...
"Is it worse than that? Do we need to look for slow recovery relative to a less steep growth trend? "

That's my bet. I wish they'd run it on Intrade.

"We're turning Japanese
I think we're turning Japanese
I really think so "

Reply Mar 01, 2010 at 06:30 PM

anne said...
Interestingly enough, Congressional Republicans did all that could be done to prevent or undermine Clinton economic policy including shutting down the government for a time, fortunately to almost no avail. Governor Bush however campaigned for the Presidency with the continually express intent to change Clinton policy and that is precisely what happened with the assistance of Congressional Republicans from the time Bush became President. The results are quite sadly clear.

Reply Mar 01, 2010 at 08:05 AM

anne said...
http://www.bls.gov/webapps/legacy/cesbtab1.htm
http://www.bls.gov/webapps/legacy/cpsatab1.htm

February 5, 2010

The Bush experience in monthly job creation was,

19,200 x 96 months = 1.84 million jobs created in all;

the Clinton experience was,

240,310 x 96 = 23.07 million jobs created in 96 months;

enough job creation to keep up with civilian work force growth would have meant,

140,500 x 96 = 13.49 million jobs created in 96 months.

Reply Mar 01, 2010 at 08:07 AM

anne said...
http://www.bls.gov/webapps/legacy/cpsatab1.htm

February 5, 2010

The Bush experience in monthly private job creation was,

900 x 96 months = 86 thousand jobs created in all;

the Clinton experience was,

220,250 x 96 = 21.14 million private jobs created in 96 months.

Total Nonfarm Private Employment, 1992-2008

(Thousands) *

December 1992 ( 90,537)
December 2000 ( 111,681)
December 2008 ( 112,542)

Clinton ( 21,144) (+ 23.4%) Total private jobs created
Bush ( 86) (+ 0.0%)

(Actual averages)

Clinton ( 220,250) Monthly private jobs created
Bush ( 896)

* Establishment data, seasonally adjusted.

Reply Mar 01, 2010 at 08:10 AM

anne said...
http://www.census.gov/prod/2009pubs/p60-236.pdf

September 10, 2009

Real Median Black Household Income, 1992-2008

1992 ( 28,199) *
1993 ( 28,660) Clinton
1994 ( 30,208)

1995 ( 31,414)
1996 ( 32,087)
1997 ( 33,506)
1998 ( 33,442)
1999 ( 36,065)

2000 ( 37,093) (High)
2001 ( 35,840) Bush
2002 ( 34,739)
2003 ( 34,705)
2004 ( 34,304)

2005 ( 34,033)
2006 ( 34,139)
2007 ( 35,219)
2008 ( 34,218)

* Income in 2008 adjusted dollars

[Interestingly, real median Black household income was $28,090 in 1973 and $28,199 in 1992. I would say that Clinton did a good job indeed.]

Reply Mar 01, 2010 at 08:52 AM

anne said...
http://www.census.gov/prod/2009pubs/p60-236.pdf

September 10, 2009

Poverty Rate Black, 1992-2008

(Percent of Black Population)

1992 ( 33.4) (High)
1993 ( 33.1) Clinton
1994 ( 30.6)

1995 ( 29.3)
1996 ( 28.4)
1997 ( 26.5)
1998 ( 26.1)
1999 ( 23.6)

2000 ( 22.5) (Low)
2001 ( 22.7) Bush
2002 ( 24.1)
2003 ( 24.4)
2004 ( 24.7)

2005 ( 24.9)
2006 ( 24.3)
2007 ( 24.5)
2008 ( 24.7)

[Interestingly, Black poverty was 31.4% 1973 and 33.4% in 1992. I would say that Clinton did a good job indeed.]

Reply Mar 01, 2010 at 08:55 AM

anne said...
http://www.census.gov/prod/2009pubs/p60-236.pdf

September 10, 2009

Real Median Household Income, 1992-2008

1992 ( 46,063) *
1993 ( 45,839) Clinton
1994 ( 46,351)

1995 ( 47,803)
1996 ( 48,499)
1997 ( 49,497)
1998 ( 51,295)
1999 ( 52,587) (High)

2000 ( 52,500)
2001 ( 51,356) Bush
2002 ( 50,756)
2003 ( 50,711)
2004 ( 50,535)

2005 ( 51,093)
2006 ( 51,473)
2007 ( 52,163)
2008 ( 50,303)

* Income in 2008 adjusted dollars

[Interestingly, real median household income was $45,533 in 1973 and $46,063 in 1992. I would say that Clinton did a good job indeed.]

Reply Mar 01, 2010 at 09:07 AM

anne said...
http://www.census.gov/prod/2009pubs/p60-236.pdf

September 10, 2009

Poverty Rate, 1992-2008

(Percent of population)

1992 ( 14.8)
1993 ( 15.1) Clinton (High)
1994 ( 14.5)

1995 ( 13.8)
1996 ( 13.7)
1997 ( 13.3)
1998 ( 12.7)
1999 ( 11.9)

2000 ( 11.3) (Low)
2001 ( 11.7) Bush
2002 ( 12.1)
2003 ( 12.5)
2004 ( 12.7)

2005 ( 12.6)
2006 ( 12.3)
2007 ( 12.5)
2008 ( 13.2)

[Interestingly, the poverty was 11.1% 1973 and 14.8% in 1992. I would say that Clinton did a good job indeed.]

Reply Mar 01, 2010 at 09:12 AM

anne said...
"Public sector debt and private sector debt are inversely related. The Clinton surpluses of the late 90's were one of the major factors that contributed to the explosion of private sector debt in the early 00's."

Say what?

http://etext.library.adelaide.edu.au/c/carroll/lewis/looking/chapter2.html

1872

Through the Looking-Glass, and What Alice Found There
By Lewis Carroll

The Garden of Live Flowers

Alice never could quite make out, in thinking it over afterwards, how it was that they began: all she remembers is, that they were running hand in hand, and the Queen went so fast that it was all she could do to keep up with her: and still the Queen kept crying 'Faster! Faster!' but Alice felt she could not go faster, though she had not breath left to say so.

The most curious part of the thing was, that the trees and the other things round them never changed their places at all: however fast they went, they never seemed to pass anything. 'I wonder if all the things move along with us?' thought poor puzzled Alice. And the Queen seemed to guess her thoughts, for she cried, 'Faster! Don't try to talk!'

Not that Alice had any idea of doing that. She felt as if she would never be able to talk again, she was getting so much out of breath: and still the Queen cried 'Faster! Faster!' and dragged her along. 'Are we nearly there?' Alice managed to pant out at last.

'Nearly there!' the Queen repeated. 'Why, we passed it ten minutes ago! Faster!' And they ran on for a time in silence, with the wind whistling in Alice's ears, and almost blowing her hair off her head, she fancied.

'Now! Now!' cried the Queen. 'Faster! Faster!' And they went so fast that at last they seemed to skim through the air, hardly touching the ground with their feet, till suddenly, just as Alice was getting quite exhausted, they stopped, and she found herself sitting on the ground, breathless and giddy.

The Queen propped her up against a tree, and said kindly, 'You may rest a little now.'

Alice looked round her in great surprise. 'Why, I do believe we've been under this tree the whole time! Everything's just as it was!'

'Of course it is,' said the Queen, 'what would you have it?'

'Well, in our country,' said Alice, still panting a little, 'you'd generally get to somewhere else—if you ran very fast for a long time, as we've been doing.'

'A slow sort of country!' said the Queen. 'Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!'

'I'd rather not try, please!' said Alice....

Reply Mar 01, 2010 at 09:21 AM

NKlein1553 said in reply to anne...
Anne, I thought you were supposed to be data set lady or something like that. Instead of quoting Alice in Wonderland maybe you should try looking at one of your famous spreadsheets. Here's a nice graph showing the relationship between public sector debt and private sector debt:

http://3.bp.blogspot.com/_a-xfgIB_zfs/SmzmAFpko6I/AAAAAAAAAQo/FFiSwIDd0l0/s1600-h/Imagem3.png

And here's a nice explanation of how the sector financial balances operate:

http://www.nakedcapitalism.com/2010/03/parenteau-on-fiscal-correctness-and-animal-sacrifices-leading-the-piigs-to-slaughter-part-1.html

When Goldilocksisableachblond writes:

"The accounting difference between the ( normally offsetting ) public vs. private savings is reflected in our large external debt," she is exactly correct as can be clearly seen in the first graph. However, I disagree with her about the superiority of Clinton's policies. Running public sector surpluses is generally a bad idea.

Reply Mar 01, 2010 at 09:45 AM

kharris said in reply to NKlein1553...
Disagreeing over a policy, without giving any notion of why, doesn't really count for much. Seems nothing more than personal preference.

While we're on the subject, my preference is to look at debt levels and future obligations in determining the relative virtues of various budget balances. Since the US faces a demographic budget challenge for the next couple of decades, I have a hard time seeing how a public sector surplus, starting around the time we actually had one, is a bad idea. Ir would very likely have gone away on its own pretty soon.

Reply Mar 02, 2010 at 07:34 AM

anne said...
"Public sector debt and private sector debt are inversely related. The Clinton surpluses of the late 90's were one of the major factors that contributed to the explosion of private sector debt in the early 00's."

There is no necessary relation between government and private debt, and this is so much nonsense but do go on and remember the problem is always and forever the success of Clinton economic policy which has to be turned to failure. I understand.

Reply Mar 01, 2010 at 09:55 AM

Goldilocksisableachblond said...
Here's a 12/09 paper from the St. Louis Fed that illustrates the point I've made about phoney , debt-fueled gdp growth. It's Fed-speak , so not absolutely explicit , but you should be able to draw your own conclusions :

http://www.zerohedge.com/sites/default/files/output%20gap.pdf

An excerpt:

"Components of existing statistical methods to estimate potential output are typically subject to inertia. Hence, if the recent real estate bubble increased GDP and productive
inputs to levels higher than what would be expected by economic fundamentals, then it is likely that potential output estimates will also be beyond what economic fundamentals would imply. Thus, these estimates would be
biased. One way to better understand how bubbles affect key macroeconomic indicators is to consider that high growth in real estate prices may affect GDP not only through the
increase in the value of residential services, but also through its indirect impact on higher-than-usual growth in (i) the finance and insurance sector and (ii) consumption—the latter caused by perceived increases in personal
wealth."
.....

"...consumption—the latter caused by perceived increases in personal wealth"

This " perceived increase in wealth " was felt not just by the owners of homes with inflated values , but also by the lenders who were willing to shower those homeowners with cash based on that perception. Add in the virtually nonexistent lending standards , and you've got a recipe for trouble , but also a recipe for a boost , albeit temporary , in gdp.

They go on to estimate that the true output gap , rather than the 6% figure CBO estimated at that time , may be more like 1%. Thus , 5% of GDP was bubble BS --- gone , and not coming back , so don't base economic policy on chasing it.

They only considered the RE bubble , but the same could be said about the dotcom bubble , and about the entire debt bubble since 1980.

Given ever-expanding access to cheap credit , any individual , or any country , can appear prosperous -- for a time. We're in the process of discovering what happens when that time runs out.

Reply Mar 01, 2010 at 10:32 AM

NKlein1553 said...
Anne, I'm not saying all of Clinton's economic policies were bad. In fact, the earned income tax credit was a terrific idea. But the decision to attempt to pay off the national debt by running continuous budget surpluses was not only misguided (few people realize the national debt is a public good), but it was also destined to fail. Goldilocksisableachblond is correct, what is important is the overall level of debt, not the ratio of public sector debt to GDP. Trying to reduce overall debt levels by cutting the public sector debt will be counterproductive. If the current account is in deficit the only way for the public sector to run a surplus is for the private sector to also run a deficit. The deregulation of the financial sector, which was not started by Clinton, but was certainly encouraged by his economic advisers, enabled the private sector to increasingly rely on debt and leverage to mitigate stagnating real wages. This was clearly not a sustainable growth strategy and while President Bush's subsequent economic policies were certainly disastrous I don't think it is reasonable to lay the blame for the early 00's recession solely on him. President Clinton certainly must share much of the blame. Anne, you seem like a reasonable person so I don't understand the Clinton worship.

Reply Mar 01, 2010 at 10:41 AM

kharris said in reply to NKlein1553...
You have implied a causal direction between domestic debt and the current account - you seem to suggest the current account drives the domestic savings rate. If that is not what you meant, I have a hard time seeing that the rest of what you wrote early in the above comment makes any sense. The standard view is quite the opposite, that the domestic savings rate drives the current account. If so, then there is nothing contradictory about both the public and private sectors running surpluses simultaneously. The only problems presented are managing assets held abroad and making sure that the level of domestic consumption justifies the high savings rate - no sense starving people so that they can save.

Reply Mar 02, 2010 at 07:40 AM

john c. halasz said in reply to kharris...
These are GDP accounting identities, not causal/behavioral claims. Further they are aggregates, so what actually is causing what amidst the behavior of myriad dispersed agents or agencies or the incentives of conflicted policy dilemmas isn't transparent or readily explained. Probably, the most that could be said on a generalized level is that flows will be driven by the seeking out and capture of productive surpluses.

At any rate, since savings=investment is a short-run accounting identity, a lack of productive profitable investment opportunities, thus a lack of investment spending, will lower savings rates, since through lowering costs and raising profits such investment produces further "savings" and since the lack of investment spending will dampen wages and employment. Thence lowered savings will tend to blow out the CA deficit (i.e. import output from foreign capital investment to compensate for the lack of domestic investment/output).

Yes, it is possible for a country to be saving in both public and private sectors, provided it runs a CA surplus: e.g. China. But all countries can't do so in the same time frame. If you're alluding to the "global savings glut hypothesis", then since saving=investment, global figures indicate no such thing, since both have declined marginally over the last decade. What has occurred is a massive rise in for-ex reserves, with China leading the pack. Such excess for-ex reserves amount to a policy of forced domestic savings, which has the effect of Keynesian hoarding, marginally subtracting from global aggregate demand, while the recycling of such reserve surpluses abroad has distorted investment allocations.

Reply Mar 02, 2010 at 10:27 AM

anne said...
N Klein:

But the decision to attempt to pay off the national debt by running continuous budget surpluses was not only misguided (few people realize the national debt is a public good), but it was also destined to fail. Goldi is correct, what is important is the overall level of debt, not the ratio of public sector debt to GDP. Trying to reduce overall debt levels by cutting the public sector debt will be counterproductive. If the current account is in deficit the only way for the public sector to run a surplus is for the private sector to also run a deficit....

[Thanks. I will think through rather than being dismissive of the possibility of a necessary relation between public and private debt.]

Reply Mar 01, 2010 at 10:51 AM

paine said in reply to anne...
"Goldi is correct, what is important is the overall level of debt, not the ratio of public sector debt to GDP"

anne this is bogus

Reply Mar 01, 2010 at 12:02 PM

NKlein1553 said in reply to paine...
paine, I'm not sure what you think is bogus. Are you saying that the federal government needs to retrench and starting to cut back on the deficit spending? Or are you saying that the overall level of debt in the economy is unimportant? Can you clarify? Your point below about the federal deficit being too small in Jackson's time to make a significant impact on the overall economy is well taken, but I'm not really trying for an in depth analysis here. So while Jackson's fiscal policy certainly didn't *cause* the crash of 37 it certainly didn't help. In general, I don't think it's possible to state with any degree of certainty what caused what when dealing with events that far in the past. My only purpose in criticizing the Clinton surpluses here is to try and convey the fact that government spending underpins private savings. After people understand that then private investment decisions based on animal spirits, balance of trade issues, and other such things can be added on. Or is it your position that how much the federal government spends and what it spends its deficits on has no relationship to private sector savings? Thank you for your responses.

Reply Mar 01, 2010 at 12:25 PM

paine said in reply to NKlein1553...
" are you saying that the overall level of debt in the economy is unimportant?"

not unimportant but hardly a barrier to full employment fiscal deficits

trade gaps need closing however

savings is a word i only use in micro talk about households

it has no serious macro use beyond
the stale taste of thrift it imparts
to the discussion

if you mean to say the federal budget oughta borrow all that firms and households don't spend yup i agree
the cycle requires
total expenditures on real domestic output
equal total income from domestic real output

if uncle wants to maintain total output and employment levels
he has to expend any difference eh ??

Reply Mar 01, 2010 at 01:53 PM

NKlein1553 said...
Thank you Anne. If you look at the private sector net savings and public sector deficit data you will see an extremely strong positive correlation. I know that correlation is not causation, but examining the historical data for past U.S. recessions/depressions caused by private sector debt buildups (1819, 1837, 1857, 1873, 1893, and 1929) you will see that all of these recessions/depressions were preceded by federal government attempts to pay off the national debt. President Jackson actually succeeded in paying off the national debt in 1837 (the only time in U.S. history that there was no national debt), which was immediately followed by a severe depression under President Van-Buren. Somehow I doubt this is all coincidence. Again, I want to emphasize I am not condemning all of President Clinton's economic policies. We are only talking about the national debt here.

Reply Mar 01, 2010 at 11:07 AM

NKlein1553 said in reply to NKlein1553...
For a more academic explanation of the sector financial balances than the link to Naked Capitalism I posted earlier see:

Godley, Wynne and Marc Lavoie. "An Integrated Approach to Credit, Money, Income, Production, and Wealth." (2006, Palgrave-Macmillan).

This website also has a pretty detailed explanation of what Godley calls "stock-flow consistent macro-economic models."

http://bilbo.economicoutlook.net/blog/?p=4870

Reply Mar 01, 2010 at 11:16 AM

paine said in reply to NKlein1553...
nklein

the fiscal policy of andy jackson hardly produced the 37 crash
the federal budget was way too small

even r the battle with nicky biddle
though it hardly helped
didn't have serious impaxt either

your point has no depth or application in and of itself
you need much else

take jacksonian america

we ran trade gaps back then and bop deficits
once firms failed to invest like wild men
the system contracted and stagnated

Reply Mar 01, 2010 at 12:01 PM

anne said...

http://www.economagic.com/em-cgi/data.exe/var/togdp-householdsectordebt
http://www.economagic.com/frbz1.htm

January 30, 2010

Household Sector Debt as a Percent of GDP, 1992-2008

1992 ( 61.02)
1993 ( 61.28) Clinton
1994 ( 61.77)

1995 ( 63.41)
1996 ( 64.21)
1997 ( 64.09)
1998 ( 64.95)
1999 ( 66.16)

2000 ( 67.55)
2001 ( 71.68) Bush
2002 ( 76.36)
2003 ( 81.50)
2004 ( 85.12)

2005 ( 88.86)
2006 ( 93.14)
2007 ( 95.37)
2008 ( 95.72)

[Household sector debt increased 10.7% through the Clinton years and 41.7% through the Bush years. This despite the dramatically changed government budget situations during the respective Presidencies. There would seem to be no necessary relation between public and private debt, judging from such a period of time.]

Reply Mar 01, 2010 at 11:10 AM

NKlein1553 said in reply to anne...
I should add that it is not only the level of public sector debt that matters, but also how the debt is used. So while the presidency of George W. Bush saw a massive increase in deficit spending most of that money was diverted to unproductive mal-investment (mostly going to the military, tax-cuts to the wealthiest Americans, and a poorly designed Medicare subsidy) and hence not saved. So while it is true that the private sector cannot accumulate financial assets without the federal government net-spending (either through tax cuts or through physical disbursements), it is vitally important how the money is spent.

Reply Mar 01, 2010 at 11:33 AM

Goldilocksisableachblond said in reply to anne...
anne,

"There would seem to be no necessary relation between public and private debt, judging from such a period of time."

Change that to " between public and household debt " and it would be more accurate.

All sectors have to be considered public -- composed of federal , state , and local gov't -- household , financial and non-financial business , foreign , etc.

The continued growth in total debt/gdp over the Clinton terms was mainly due to the financial and business sectors , associated with the dotcom boom.

Your numbers do illustrate an important point about the Clinton era vs. the Bush era --- household debt growth was much more subdued under Clinton. We should have tried to improve on that trend , rather than reversing it , as occurred on Bush's watch.

Reply Mar 01, 2010 at 11:55 AM

paine said in reply to anne...
look at corporate debt
and financial corporate debt in particular

Reply Mar 01, 2010 at 12:20 PM

anne said...
N Klein:

I know that correlation is not causation, but examining the historical data for past U.S. recessions/depressions caused by private sector debt buildups (1819, 1837, 1857, 1873, 1893, and 1929) you will see that all of these recessions/depressions were preceded by federal government attempts to pay off the national debt.

[Arguing that a government budget surplus may produce conditions leading to a recession, possibly a severe recession, is interesting. James Galbraith mentioned such a possible problem, but I am not sure where since I did not consider the idea all that seriously.

I am thinking.]

Reply Mar 01, 2010 at 11:19 AM

Worker said...
Like an alcoholic I once knew. Lot's of potential.

But he kept trying to cure his hangovers with a bloody mary brunch.

Pretty soon he wasn't showing as much potential.

Reply Mar 01, 2010 at 11:45 AM

paine said in reply to Worker...
sense less analogy
credit is not booze

Reply Mar 01, 2010 at 11:55 AM

paine said...
this potential out put line is a sick joke

if as this graph suggests out put in certain years
exceeds potential output what does that mean ???

non sustainable ??
how and why ??

we operate with a taboo line not a production ceiling
if a ceiling could be said to exist we maybe came close to hitting it in...1943 not 2000

as to running a steady fiscal surplus
not while running a steady BOP deficit

the trade gap was never addressed by the rubinoids
in clinton II

forget the bush tax cut substitute and infra structure boom by green gore to pull us out of the recession of 01
and you still need to confront the trade gap eh ???

Reply Mar 01, 2010 at 11:54 AM

paine said in reply to paine...
taboo line ??

nairu baby nairu

god love clinton II
for at least proving a generation of big footed econ cons
had missed the taboo line on the high side

Reply Mar 01, 2010 at 12:17 PM

anne said...
"Goldi is correct, what is important is the overall level of debt, not the ratio of public sector debt to GDP"

I realize this does not make sense, but I am trying to find a way to be sympathetic to the argument against a budget surplus per se.

Reply Mar 01, 2010 at 12:06 PM

paine said in reply to anne...
what is a vvery interesting data run of course
is the flow of net borrowings by financial outfits in this period

ballooning its way to a pop !!

Reply Mar 01, 2010 at 12:12 PM

paine said in reply to anne...
a budget surplus per se
is like an audience with one hand
for a clap we at least need two

and for applause we need many hands

a few other hands

trade gap

corporate investment rate

houseold borrowing

Reply Mar 01, 2010 at 12:15 PM

paine said...
goldi and nklein are operating with way too simple a tool kit here

its like trying to do systemic bypass surgery
with a box cutter and a bicycle pump

Reply Mar 01, 2010 at 12:08 PM

paine said...
household debt after 20 years of fairly stable jiggering

took off in 85

from 45 % => 100% of gdp now ...more or less

we've been "here" before of course ..in the big D

is it sustainable ??? probably not
even if jobs and wages come alive again

but
a nice 6 % inflation
with a fed lock on nominal rates would of course
allow a nice decline in ten years or so

the dollar ??
DOWN !!!!

well it needs to fall anyway eh ??
as prolly
almost all oecd currencies need to fall

Reply Mar 01, 2010 at 12:32 PM

don said in reply to paine...
Paine: "the dollar ??
DOWN !!!!
well it needs to fall anyway eh ??
as prolly
almost all oecd currencies need to fall"
Why not just revalue the others? I would be happy with a cessation of reserve buildups abroad.

Reply Mar 01, 2010 at 03:41 PM

NKlein1553 said...
paine, I mentioned the trade gap in my earlier comments.

"If the current account is in deficit the only way for the public sector to run a surplus is for the private sector to also run a deficit."

So if the U.S. were running a sufficiently large balance of payments surplus it would be possible for both the public sector and the private sector to also run surpluses. So my argument is not against a budget surplus per se. Of course you have to look at what other sectors are doing, I never said otherwise.

Reply Mar 01, 2010 at 12:36 PM

NKlein1553 said in reply to NKlein1553...
But the fact is the U.S. was not running a current account surplus in the late 90's, is not running a current account surplus now, and will almost certainly not be running a current account surplus in the near future. So what's left? Only the public sector and the private sector. Of those two only the public sector has the wherewithal to create financial assets safely. The private sector can expand credit money, but ultimately that's going to lead to a bubble. If you want to blast through the NAIRU wall the public sector is going to have to step up to the plate. Both Presidents Clinton and Bush primarily relied on the private sector and we see where that got us.

Reply Mar 01, 2010 at 12:48 PM

paine said in reply to NKlein1553...
"If you want to blast through the NAIRU wall the public sector is going to have to step up to the plate."

exactly

i don't think we disagree here
the other categories of expenditure were in the back of your mind

trade balance and net corporate investment

the total debt incubus bit troubles me however

the system is closed since
we borrow in our own limitless currency

is it the default on private debt you think cracks the system eventually
it isn't
it's the sudden slow down of the credit flow
which is the product of fragmented
banking systems with self imposed constraints

that ultimately emerge out of the
partitioning of decision making
inherent in a multitude of seperated profit pools

ie there is no reason for mass waves of default
if credit flows can be maintained and work outs
are gradually partially serially imposed
too much debt service is like to much taxes
impossible to calculate without a whole system specification
including constraints that in the end are accidental

why in

Reply Mar 01, 2010 at 02:07 PM

Patrick said in reply to paine...
I take it you'd go with Stiglitz's Bank of Uncle idea? As currently configured, the hi fi boyz are clearly incapable of investing in anything other than fraudulent paper fantasies. And the much vaunted community banks are about to take eat CRE turd sandwich. That leaves uncle to as the banker of first and last resort.

Reply Mar 01, 2010 at 08:04 PM

paine said in reply to NKlein1553...
fair enough

Reply Mar 01, 2010 at 02:21 PM

anne said...
Paine:

what is a very interesting data run of course
is the flow of net borrowings by financial outfits in this period

ballooning its way to a pop !!

http://www.economagic.com/em-cgi/data.exe/var/togdp-totalcreditdebt
http://www.economagic.com/frbz1.htm

January 30, 2010

Total Credit Market Debt as a Percent of GDP, 1992-2008

1992 ( 234.87)
1993 ( 236.02) Clinton
1994 ( 236.82)

1995 ( 241.99)
1996 ( 245.92)
1997 ( 247.22)
1998 ( 255.62)
1999 ( 263.24)

2000 ( 265.43)
2001 ( 276.76) Bush
2002 ( 288.71)
2003 ( 300.67)
2004 ( 307.24)

2005 ( 315.24)
2006 ( 326.85)
2007 ( 342.39)
2008 ( 357.75)

[Credit market debt increased 13.0% as a percent of Gross Domestic Product through the Clinton years and 34.8% through the Bush years.]

Reply Mar 01, 2010 at 12:44 PM

paine said in reply to anne...
no anne
just the borrowings of financial outfits
can't locate it it

but as i recall it really took off recently
more then nonfiancial corporate debt

while household debt is obviously borrowing against lot values

the hi fi bit was pure paper towering
neither is worse then the other
but it was the paper towers treatened collapse
that caused the crisis
even if raised on faulty lot collateral
at its base

Reply Mar 01, 2010 at 02:18 PM

spencer said...
NKlein -- you are almost right.

The current account deficit is equal to the domestic savings gap.

So it is the sum of the private and public debt.

Both can have debt, or one can have debt and the other in surplus.

Reply Mar 01, 2010 at 12:52 PM

paine said in reply to spencer...
see how empty this gets at such a level of abstraction

Reply Mar 01, 2010 at 02:09 PM

anne said...
http://www.economagic.com/em-cgi/data.exe/var/togdp-totalcreditdebt
http://www.economagic.com/frbz1.htm

January 30, 2010

Total Credit Market Debt as a Percent of GDP, 1980-2008

1980 ( 162.84)
1981 ( 161.33) Reagan
1982 ( 170.43)
1983 ( 174.53)
1984 ( 178.92)

1985 ( 191.85)
1986 ( 208.26)
1987 ( 219.97)
1988 ( 224.09)
1989 ( 227.31) Bush

1990 ( 231.16)
1991 ( 235.70)
1992 ( 234.87)
1993 ( 236.02) Clinton
1994 ( 236.82)

1995 ( 241.99)
1996 ( 245.92)
1997 ( 247.22)
1998 ( 255.62)
1999 ( 263.24)

2000 ( 265.43)
2001 ( 276.76) Bush
2002 ( 288.71)
2003 ( 300.67)
2004 ( 307.24)

2005 ( 315.24)
2006 ( 326.85)
2007 ( 342.39)
2008 ( 357.75)

[The expansion of public or private credit market or household debt was simply no problem through the Clinton Presidency, quite unlike the Bush and Reagan Presidencies.]

Reply Mar 01, 2010 at 01:20 PM

anne said...
http://www.economagic.com/em-cgi/data.exe/var/togdp-totalcreditdebt
http://www.economagic.com/frbz1.htm

January 30, 2010

Total Credit Market Debt as a Percent of GDP, 1980-2008

1980 ( 48.26)
1981 ( 46.68) Reagan
1982 ( 47.44)
1983 ( 46.61)
1984 ( 47.03)

1985 ( 50.70)
1986 ( 54.12)
1987 ( 56.14)
1988 ( 57.21)
1989 ( 58.36) Bush

1990 ( 60.04)
1991 ( 61.46)
1992 ( 61.02)
1993 ( 61.28) Clinton
1994 ( 61.77)

1995 ( 63.41)
1996 ( 64.21)
1997 ( 64.09)
1998 ( 64.95)
1999 ( 66.16)

2000 ( 67.55)
2001 ( 71.68) Bush
2002 ( 76.36)
2003 ( 81.50)
2004 ( 85.12)

2005 ( 88.86)
2006 ( 93.14)
2007 ( 95.37)
2008 ( 95.72)

Reply Mar 01, 2010 at 01:21 PM

anne said...
Correcting heading above:

Household Sector Debt as a Percent of GDP, 1980-2008

Reply Mar 01, 2010 at 01:24 PM

anne said...
http://krugman.blogs.nytimes.com/2010/03/01/a-great-failure/

March 1, 2010

A Great Failure
By Paul Krugman

Mark Thoma, the trillion-dollar gap: *

[Actual versus potential real Gross Domestic Product\, 1990-2010]

It’s crucial to realize that the trillion dollars’ worth of goods and services we could have produced this year, but won’t, is a loss we’ll never make up. And that doesn’t count the suffering and damage to our future inflicted by the non-monetary costs of mass long-term unemployment.

And yet, the prevailing sentiment in Washington and other centers of power is that we’ve done enough, and that it’s time to start pulling back — to normalize monetary policy, tighten our fiscal belts. Policymakers are congratulating themselves for avoiding total collapse, when they should be berating themselves for failing to engineer recovery.

It’s tragic.

* http://economistsview.typepad.com/economistsview/2010/02/the-trillion-dollar-gap.html

Reply Mar 01, 2010 at 01:29 PM

Reality Bites said...
Nklein, you are wrong to tie public sector debt to private sector debt/surplus before the end of Breton Woods. We operated off of the gold standard back in the days of Jackson and under that standard, it is possible for both the private sector to save and the government to run surpluses.

Your analysis is only correct when applied to modern fiat currencies where the private sector can save only by holding debt. The Federal Reserve Note is the "debt" of the FED and the US Treasury obligations that pensions and so many private sector entities hold as assets are the debt of the US Government.

However the model is incomplete I believe, you can save by storing non-perishable commodities like gold and oil instead of someone else's debt. However the total amount of savings in the form of debt far outweighs the amount of commodities so the model can be a very rough approximation. What makes the model wrong is that savings can be accumulated from any future obligation, not just future obligations from the public sector. I can save by buying Microsoft bonds, Berkshire bonds, or even stock equities that confer the right to future profits. When a company goes IPO, that creates private sector savings.

Keen says that the money to buy that IPO has to be created by the FED, but money can be created without the need for the FED to buy government debt. Banks can borrow directly from the FED and create money through making loans only subject to capital requirements. Thus there is a way for the private sector to save without the government ever having to issue more debt.

P.S. Alternate theories say that the correlation between higher government deficits and private savings is due to the public realizing that they must save more in order to pay for the higher taxes that are inevitable. Sure enough, the Bush tax cuts are expiring and we have Obama already thinking about raising taxes further beyond that. The private sector sees this and knows it must save more now to be able to consume their preferred amount in the future with the higher tax rate.

Reply Mar 01, 2010 at 01:46 PM

paine said in reply to Reality Bites...
i think nklein gets the post gold standard proviso
rb

you are making sense however
where's the old reality bites
i like this one better

"money can be created without the need for the FED to buy government debt. Banks can borrow directly from the FED and create money through making loans only subject to capital requirements"
right on !!!

you go off course in the ps
wish you'd left it out
--along with the keen reference --

Reply Mar 01, 2010 at 02:28 PM

NKlein1553 said in reply to paine...
Yeah, Ricardian Equivalence is just silly.

Reply Mar 01, 2010 at 05:44 PM

NKlein1553 said in reply to Reality Bites...
Thank you for the correction Mr. Bites (love your name btw). You are correct to point out that technically my comments only apply to the post-Brenton Woods system. However, I would add that because the U.S. government held a monopoly over gold distribution at the time and was able to set a fixed conversion rate the situation was a bit more complicated than you describe. Also, paine was right to call attention to the fact that because the federal budget was such a small fraction of overall GDP at the time the fiscal policies of Jackson probably didn't have much of an effect on the economy. It seems my lame historical analogies won't fly with this crowd =)

As for Steve Keen, I've seen some of his "Debunking Economics," slides, but I really haven't done much reading about Circuitist theories. I'll have to look into it more. As a recent college graduate teaching various social studies subject (including economics) to public high school students I'm open to different theories (I don't want anyone to accuse me of brainwashing anyone). Recently I've been looking through various blogs and other material to try and broaden my horizons beyond the traditional textbook explanations I got as an undergrad. I like this blog a lot because it presents a pretty wide range of viewpoints all in one place. I also really admire Anne's commitment to using hard data to support her arguments. However, in this case I don't agree that the pursuit of budget surpluses is a good policy objective in and of itself (which is how I perhaps mistakenly interpreted her post at 7:29 a.m). This is especially true since during the 90's the U.S. was running a current account deficit and, despite the comparatively robust job growth, the dreaded NAIRU was still lurking about distorting everyone's perceptions about what the potential for the U.S. economy actually was. IMHO, there is no given correct level of public debt, it all depends on capacity utilization rates and the price level. So I'm pretty sympathetic to the Chartalist theories because it seems to me at least the major problem with modern capitalism is a lack of demand, not supply. Therefore, I agree with paine. The government should do what it can to fill the AD gap. But I'm sure I could be wrong. And if my analysis seems like "trying to do systemic bypass surgery with a box cutter and a bicycle pump," it's because I'm not really a very sophisticated commentator. I've been going through that Godley book recently and there's certainly a lot I don't understand yet. But still I do my best to present what I think is right.

Reply Mar 01, 2010 at 05:09 PM

Reality Bites said...
As you can tell, I'm conflicted over the theory tying private savings to public sector deficits/debt. The theory has some strong points, but it also seems to be missing crucial factors and completely dismisses the ability for the private sector to save other than through government deficits. That strikes me as wrong.

Reply Mar 01, 2010 at 01:50 PM

paine said in reply to Reality Bites...
you are missing the part whole mirage

yes i can really save
but the system can't if
the amount of my saving and every one elses
saving isn't spent
by some one some where some how
if it isn't spent then the production that would make my saving a real increment to wealth or welfare is lost
thru slack productive capacity

Reply Mar 01, 2010 at 02:31 PM

Goldilocksisableachblond said...
One thing I should make clear , I'm not a deficit hawk given the situation we face now. I think the gov't should be going balls-out creating jobs right now , preferably geared to future productivity and sustainability -- infrastructure , green energy , etc.

IIRC , there's a theory , backed by real math , that says that debt/gdp ( or debt/income , for an individual ) levels can increase indefinitely and sustainably , PROVIDED credit remains available and PROVIDED revenue ( or income ) grows faster than the prevailing interest rate on debt , since debt-servicing ability will always be covered by the new debt plus revenue increases.

This theory is of no use to typical individuals , since overall interest rates on household debt is rarely , and never consistently over the long haul, lower than the rate of household income growth. Nor is credit availability guaranteed.

For gov't , it's easier to imagine the possibility , and Japan proves you can function for a long time with gov't debt/gdp more than double what we now have. The problem is that when debt/gdp is so high , a prolonged spike in borrowing costs causes the situation to quickly spiral out of control. It's for this reason , I'm guessing , that the EU tried to set a fairly restrictive standard of 60% debt/gdp on member states.

Anyway , this leads to my preferred way out of this mess. The gov't acquires ALL household debt , forcing a hefty haircut on the banks since a good chunk of it is dead meat , then refinances ALL of it at rates that would lower the debt servicing costs of the current debt to a level that would result in trivial default rates. Impose fairly tight restrictions against accumulation of added debt until the gov't-held debt is paid off or moved back into the private sector. The only cost to the gov't is the differential between the return received on this basket of debt compared to that of Treasuries , plus the markdown resulting from the interest rate difference as compared to the initial bank loans.

Borrowers would make exceptional efforts to stay current , since this would be a once-in-a-lifetime deal , and they're pissed at the banks and their 30% rates , anyway.

There's the moral hazard , of course , but that hasn't stopped us from bailing out the bigshots.

The way to get this done is to first lobby for a total debt jubilee , claiming that creditors should eat the totality of their own crap. Panic will ensue , which will be fun to watch for awhile , then we make the compromise offer outlined above.

Reply Mar 01, 2010 at 02:00 PM

paine said in reply to Goldilocksisableachblond...
"The problem is that when debt/gdp is so high , a prolonged spike in borrowing costs causes the situation to quickly spiral out of control"

sky hooked claim needs grounding :

run some numbers past us

like
debt to gdp ratio at peak

debt service as percent of gdp
--assume a rate of interest in peak year --
now add your assumed
tax structure to service the debt

maybe u'll see 60 % is ridiculously arbitrary and low
as is the 3% average fiscal deficit to gdp ratio
which with 2 % growth and 3 % inflation
ends up with a 60% debt limit

3/5 of gdp

imagine 5 % interest rate as debt service --high--
then 3 % of gdp goes in taxes to pay the debt service chicken feed
out of 18% gdp uncle takes now
that would be 17% of fed budget

now tax wealth
wealth is what 4 times gdp
so we tax the top half of the wealth upside down pyramid

2 times gdp
so tax rate 1.5 % (3%/2)
a mere pinprick eh ??

simple
eh what ??

Reply Mar 01, 2010 at 03:03 PM

Goldilocksisableachblond said in reply to paine...
I agree the 60% figure might be overly conservative.

I'm thinking along the lines of Japan , or worse. Say 200-300% gov't debt/gdp. Interest rates of 10% would gobble 20-30% of GDP. In the U.S. , that would be over 100% of current revenues. I'm with you on raping the rich if we ever get to that point.

Rogoff says that , historically , gov't debt/gdp > 90% is associated with reduced gdp growth. It's not an absolute rule , but it's probably the kind of thing the EU looked at in setting their limit.

Reply Mar 01, 2010 at 03:39 PM

paine said in reply to Goldilocksisableachblond...
"Rogoff says that , historically , gov't debt/gdp > 90% is associated with reduced gdp growth."
my guess if it tells us anything it tells us slowed growth leads to increased deficits

Reply Mar 01, 2010 at 05:49 PM

paine said in reply to Goldilocksisableachblond...
love the boldness here:
why can't academic economists spread their wings like this

likely loss of respectiblity ??

" The gov't acquires ALL household debt , forcing a hefty haircut on the banks since a good chunk of it is dead meat , then refinances ALL of it at rates that would lower the debt servicing costs of the current debt to a level that would result in trivial default rates. "
beautiful

"Impose fairly tight restrictions against accumulation of added debt until the gov't-held debt is paid off.."
why bother ??? the banks you bought the mortgages from would end up owning most of the incremental
t bills you created to buy em

you already gave em a hair cut give em
another ...every year

" or moved back into the private sector."

what is that all about ???

Reply Mar 01, 2010 at 03:11 PM

Goldilocksisableachblond said in reply to paine...
paine,

My idea of restrictions against added debt was only meant to apply to those households under the new , sweetheart payback deal. The idea being we do the big moral hazard thing only once a century or so. The restrictions need not be absolute , but tight enough to prevent another big overleveraging episode. Those consumers who chafed at the restrictions could pay off the gov't paper via private sector credit , if they wanted.

Banks would have newly cleaned sheets , so they could go crazy lending to everyione else. That would be fine with me , so long as they don't expect more bailouts.

Reply Mar 01, 2010 at 03:24 PM

Bruce Wilder said...
Increasing leverage, while decreasing (productive) investment, is a way to disguise, for a time, a change in income and wealth distribution. It's all promises, but no delivery, isn't it?

The chart draws a mis-leading trend-line, because GDP was inflated for much of 00s, by the misleading numbers generated by financial sector debt growth. There wasn't enough investment in real, productive capital stock, after the end of the Clinton/dot-com boom, to sustain any economic growth (beyond the effect of population growth). ANY!

It was all a shell game. Leverage can be a shell game. You take $100 of prospective cash flow, divide it up, and sell it for $150.

Some one is going to lose. And, later, they are going to find out that they lost.

Reply Mar 01, 2010 at 02:32 PM

paine said in reply to Bruce Wilder...
"Increasing leverage, while decreasing (productive) investment, is a way to disguise, for a time, a change in income and wealth distribution. It's all promises, but no delivery, isn't it?"

bruce
maybe you're losing me here
income :
if you're saying unsustainable micro household borrowing rates can mask the fact income is falling behind expenditures for that household
i agree
wealth :
well if a household is borrowing against collateral (ie wealth) that's value collapses (lot values)
i agree

no delivery:
as in no real net wealth
again at the household level yes
but the system has say
new houses built with borrowed funds eh ??

the hi fi sector produced and sold "services "
that were consumed like bon bons
by their clients that was their real output

the welfare value of these services ???

no less then a heroin injection
to a

Financial Market Imperfections and Macroeconomics
Federal Reserve Bank of San Francisco
101 Market Street
San Francisco, CA
March 5, 2010

Morning Session Chair: Eric Swanson, Federal Reserve Bank of San Francisco

8:10 A.M. Continental Breakfast
8:50 A.M. Welcoming Remarks:
Janet Yellen, Federal Reserve Bank of San Francisco
9:00 A.M. Mark Gertler, New York University
Nobuhiro Kiyotaki, Princeton University
Financial Intermediation and Credit Policy in Business Cycle Analysis
Discussant: Lawrence Christiano, Northwestern University
Simon Gilchrist, Boston University
10:20 A.M. Break
10:40 A.M. Vasco Cúrdia, Federal Reserve Bank of New York
Michael Woodford, Columbia University
Conventional and Unconventional Monetary Policy
Discussants: Robert Hall, Stanford University
Noah Williams, University of Wisconsin, Madison
12:00 P.M. Lunch – Market Street Dining Room, Fourth Floor
Afternoon Session Chair: Sylvain Leduc, Federal Reserve Bank of San Francisco
1:15 P.M. Paul Beaudry, Oxford University
Amartya Lahiri, University of British Columbia
Risk Allocation, Debt Fueled Expansion and Financial Crisis
Discussants: David Lopez-Salido, Federal Reserve Board of Governors
Martin Schneider, Stanford University
2:35 P.M. Break
2:50 P.M. Moritz Schularick, Free University of Berlin
Alan Taylor, University of California, Davis
Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008
Discussants: Pierre-Olivier Gourinchas, University of California, Berkeley
Carmen Reinhart, University of Maryland
4:10 P.M. Break
4:25 P.M. Marco Del Negro, Federal Reserve Bank of New York
Gauti Eggertsson, Federal Reserve Bank of New York
Andrea Ferrero, Federal Reserve Bank of New York
Nobuhiro Kiyotaki, Princeton University
The Great Escape? A Quantitative Evaluation of the Fed’s Non-standard Monetary Policy
Discussants: James Hamilton, University of California, San Diego
Zheng Liu, Federal Reserve Bank of San Francisco
5:45 P.M. Reception – West Market Street Lounge, Fourth Floor
6:30 P.M. Dinner – Market Street Dining Room, Fourth Floor
Introduction: Janet Yellen, Federal Reserve Bank of San Francisco
Speaker: Lars Svensson, Sveriges Riksbank

Posted by Mark Thoma on Friday, March 5, 2010 at 08:16 AM in Academic Papers, Economics Save to del.icio.us Tweet This Permalink Comments (17)

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Pingry said...
Will this conference be available at all? I would love to watch the video, if available.

--Pingry

Reply Mar 05, 2010 at 09:20 AM

mark said...
Leverage limits through out the economy! In home buying, credit card issuance, derivatives, banks, etc etc.We have margin requirements for securities, we should have analogous rules for all financed transactions.

Reply Mar 05, 2010 at 09:41 AM

jrossi said...
"Imperfections." Gotta love the understatement. In health care we sometimes call "discomfort" what others might call "excruciating pain."

Reply Mar 05, 2010 at 09:45 AM

paine said in reply to jrossi...
hey
i like you today doc

Reply Mar 05, 2010 at 12:51 PM

paine said...

after
"continental Breakfast"
things seem to go straight down hill
till

"Reception – West Market Street Lounge"

go ahead take in the various serious
gas releases
it's your duty
but i'd take a hike after "Reception"
u know
hoists a few shoke a few
and hit the bricks
err
that's what i'd do
if i were u doc

Reply Mar 05, 2010 at 11:45 AM

bd said in reply to paine...
I think I can discern a few ivy bacons and math hams among the speakers.

Reply Mar 05, 2010 at 01:45 PM

paine said...
in his effort here
woodford is up to his usual sycophantic
reinforcement of the neo liberal
technocratic establishment

its a matter of grave importance to defend the efficacy
of the policy rate hand axe
where if anything gentle ben with his improvised dabbling
may have shown the fed really ought to invest widely
if not wisely
all the time
u know "manipulate " any and all credit markets directly according to a common plan with perhaps divergent targets
for various credit sectors but an over view to their integration and stablity

ahh but that smacks of the people's republic don't it ...

Reply Mar 05, 2010 at 12:46 PM

paine said...
he does come out for price level targets

i guess that's what makes him "centrist"
a techncrats technocrat
not say a john taylor or joe stiglitz

Reply Mar 05, 2010 at 12:47 PM

paine said...
time varying "credit frictions"
what a nice glitz that term offers

state varying and sector varying might be more concrete however and less about uncertainly occuring "shocks "

Reply Mar 05, 2010 at 12:49 PM

paine said...
"On the real side, a striking result is
that the economic impact of financial crises is no more muted in the postwar era than in the
prewar era....The credit system
seems all too capable of creating its very own shocks, judged by how successful past credit
growth performs as a predictor of financial crises ...
we are hopeful that some of the evidence we have
assembled will inform new avenues of research into the role of credit in the macroeconomy"

translation
woodfordoids wake up !!!!

something worth the trolling to find

http://www.frbsf.org/economics/conferences/1003/schularick_taylor.pdf

Reply Mar 05, 2010 at 01:09 PM

paine said...
"excluding lending within the financial
system "

caveat that i suspect only leads to under estimating the internal shock generation of hi fi
by not noticing its own internal accelerators

Reply Mar 05, 2010 at 01:13 PM

Goldilocksisableachblond said...
"by not noticing its own internal accelerators "

Exactly. He should have weighted "lending within the financial sector" UPWARDS by some factor, given that most of it is dark matter --- we know it's out there , but don't know anything about it.

A quadrillion in derivatives that collectively offset to zero ? I don't think so , not for a minute , not when you can buy naked CDSs on Greek debt , for example. It's insanity.

Debates about a few hundred billion in extra budget deficits will look silly once we cross the derivative event horizon.

Reply Mar 05, 2010 at 01:38 PM

bd said...
Hope the lunch was good. Are you going to make some observations?

Reply Mar 05, 2010 at 01:47 PM

The Buggy Professor said...
Goldie:

In the Chile-Chicago Boys thread, I responded in detail to your query. Possibly, maybe very likely, that thread is now in its death-throes, and so I will post the response here:

....

"Goldilocksisableachblond said, citing buggy prof stuff first...

" The biggest mismatch here is above all Norway, ranked 34th in economic freedom but 1st in per capita income. What explains this?

Well, among other things, Norway happens to be the 3rd largest oil exporter in the world, and about half of the value of its $124 billion exports in 2009 were oil or $62 billion. With a GDP in PPP of $279 billion, a good 22% of its GDP and hence per capita income vary with the price of oil in world markets. "
...

No such disclaimer for Chile ?

In 2007 , copper was responsible for 22.1% of Chile's GDP , in 2008 , 16.4%. So , I guess we might say that its GDP , and hence per capita income vary with the price of copper in world markets , unless markets cut them a special deal because of their super-duper Heritage Economic Freedom Index.' ... Goldie
..

Goldie:

1) In 2002, after the recession, Norway's per capita income was slightly under $32,000 in PPP dollars. In 2009, it had soared to almost $60,000. Do you think Norway has uncovered a miraculous formula for a rich advanced country to roughly double its per capita income in 7 years?

So what happened?

In 2002, the price of a barrel of oil in world markets averaged about $29. In 2008, it averaged over $100, and in 2007 it averaged over $130-150.

Norway has less than 5 million people.

..

2) Chile, a developing country with over 16 million people, is heavily export-oriented too. Its main export is copper.

Copper, however, despite huge volatility in prices, had not averaged in price during 2008 much more than it did in 2002 . . . after Chile had emerged from the recession there a year earlier, only to be badly hurt by the global recession:

http://www.mongabay.com/images/commodities/charts/copper.html

In 2002, Chile's per capita income was $10,000. In 2009, Chile's per capita income was $14,700 . . . down slightly from $15,100 in 2008 when copper prices were at a six year low.

....

2) Leave aside these comparisons about oil and copper in the two countries.

To compare Chile's economy with that of a highly developed rich country --- whose population is one-quarter lower (not even at reproduction level, whereas Chile's population continues to grow) --- seems not just misconceived, but derisory.

..

Chile should be compared with Argentina --- Uruguay with less than 4 million and heavily export-oriented is about 20% poorer in per capita PPP terms.

Historically, Chile was always poorer than Argentina --- usually by a third or more since 1900. Today, it is richer. It is in fact the richest country in Latin America.

Chile also maintained until the military coup in 1973 one of the best and most uninterrupted democratic systems in Latin America (along with Uruguay).

Even more extraordinary after the return to democracy when, under US pressure, Pinochet held free elections in 1990 and stepped down after losing, the country has racked up the best record in containing corruption of all developing countries world-wide . . . better even than Southern EU-countries, and only recently matched by tiny Uruguay. In 2008, to be exact, it was ranked 23rd in the world --- the USA and Belgium at 18 --- along with France and Uruguay.

And its government was dominated by center-left parties since the late 1990s . . . at any rate, until the very recent elections. It had the first female president, moreover, in Latin American history. The new president is a Harvard-trained graduate and was voted into office --- still a week or so away from officially entering it --- because of disenchantment with the country's recent economic performance.

....

3) As a finishing touch, allow me, please, atrio of personal views about Norway and Chile

* The Norwegian ambassador to the USA in the middle of the last decade was a graduate student of mine at UCSB, and a friend. We met last in Santa Barbara in 2005 and had a long luncheon together. He had earlier headed the EU mission to Bosnia, and earlier been the 2nd in command of Norway's foreign ministry.

He and the Norwegian students I had when I was a professor were very good, but he was concerned that they were increasingly spending more time in Australian universities than earlier. When I said the Australians had a good university system, he said that his country needed them to be trained in theoretical and methodological manner that, in his view, only US universities did well.

.

Which was in line with what Professor Gilles Saint-Paul, an economist at the best economic dept. in France (Toulouse), said in an article on the European Brain Drain to the USA at VoxEu in 2008 . . . where he argued that about half the most promising and talented Europeans full of promise for the future were now residing in the USA:

"Conclusion

"The data confirm the presumption that the skill composition of expatriates is much better than the source countries' general population. The quantitative significance of that, however, is open to debate, as the total number of expatriates ranges between 0.5% and 1% of the population.

"If one takes the view that labour is a small number of homogeneous inputs, such as skilled labour and unskilled labour, then our back-of-the envelope computations suggests a moderate adverse effect of the brain drain on inequality and income in home countries, with say a 2-3% increase in the relative wage of the skilled and a 0.5-0.7% decline in GDP per capita.

" On the other hand, if one assumes that labour is not a collection of homogeneous inputs, but instead that very talented individuals are crucial for innovation, business formation, and management1, the loss could be considerably bigger, though much harder to estimate (an interesting first step is Zucker et al. 2003).

:My speculative extrapolations suggest that the proportion of Europeans who ‘’matter’’ and who are in the US could be as high as 50%; that is huge and could in principle have dramatic consequences for Europe’s growth potential – while such a number can be disputed, casual observation suggests that in my field (research in economics), it is about right."

http://www.voxeu.org/index.php?q=node/2739

..

...

* A Chilean Ph,D. student of mine in the Allende-Pinochet period of the early 1970s --- he ended up as a professor at two of Canada's best universities, then returned to Chile not long after the return to democracy in the early 1990s --- liked neither Allende nor Pinochet, and his dissertation dealt with the abuses of democracy before and during the Allende period.

At the same time, another Chilean graduate student of mine --- a former ambassador of Chile whose post he resigned when Pinochet came to power --- shared essentially the other Chilean student's views. I wasn't on that student's Ph.D. dissertation, so I'm not sure what happened to him, except that initially he became a journalist in the USA and writing for a prestigious newspaper.

...

* Finally, a Peruvian Ph.D. student of mine --- a full-blooded Quechua (descendants of Incas) – had been discouraged in Peru from even going to high-school, let alone university.

He came to this country, graduated from UC Davis, then got his Ph.D. in 2004 when he completed successfully a very good dissertation, quantitative and case-study oriented on US drug policies and Latin America, and went on to his academic career. As a grad student, he helped run a program sponsored by both the Chilean and US governments for high-school teachers in Chile with the aim of raising academic standards.

The Chilean government was particularly concerned to try encouraging more high-tech industries, and the Quechuan Ph.D. student was very impressed with the teachers and the government officials he worked with. .

….

Michael Gordon, AKA the buggy professor

Reply Mar 05, 2010 at 02:20 PM

paine said in reply to The Buggy Professor...
oh lord

ichabod rides again

Reply Mar 05, 2010 at 05:18 PM

Goldilocksisableachblond said in reply to The Buggy Professor...
"In the Chile-Chicago Boys thread, I responded in detail to your query. Possibly, maybe very likely, that thread is now in its death-throes ..."

I think your death perception is off.

No "throes" , that poor thread was flat-lined --- another victim of excessive buggery.

Now that you've exhumed the corpse , if you want to try mouth-to-mouth on it , be my guest. The stench is too much for me.

It would be far more humane to just throw it back in the hole and cover it with dirt , which would also limit the risk of infecting this perfectly innocent thread.

Reply Mar 05, 2010 at 06:08 PM

bob mcmanus said...
"The important structural changes that have taken place in the financial system over the past decades have led to a greater, not smaller role of credit in the macroeconomy. It is mishap of history that just at the time when credit mattered more than ever before, the reigning doctrine had sentenced it to playing no constructive role in monetary
policy."

From Schularik & Taylor linked above, and recommended by DeLong.

"A mishap of history"

We so badly need some meta-economics and discourse analysis.

Reply Mar 05, 2010 at 03:14 PM