Showing all posts tagged: economics
Slovakia rejects most recent round of bailouts, demonstrating exactly how rickety the 17 country ratification process is. It is unclear whether a new government there — the existing one fell as a result of the bailout ratification effort — will recant, and now EU officials are talking about a ‘workaround’: basically preparing to move ahead with the bailout without ratification by the Slovaks.
What quantitative advice are we supposed to provide to policy makers and politicians about how much effort to spend on averting climate change if the conclusions from modeling fat-tailed uncertainties are not clear cut? Practical men and women of action have a low tolerance for vagueness and crave some kind of an answer, so they have little patience for even a whiff of fuzziness from two-handed economists. It is threatening for us economists to admit that constructive ‘‘can do’’ climate change benefit-cost analysis may be up against some basic limitations on the ability of quantitative analysis to yield robust policy advice. But if this is the way things are with the economics of climate change, then this is the way things are. Nonrobustness to subjective assumptions about catastrophic outcomes is an inconvenient truth to be lived with rather than a fact to be denied or evaded just because it looks less scientifically objective in benefit-cost analysis. If this limits the ability to give fine-grained and concrete answers to an impatient public, then so be it.
Martin Weitzman, Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change
GOP and Dems are seeing different worlds:
Who’s Delusional? - Andrew Sullivan via The Daily Beast
Sullivan credits this enormous boost in Dems’ economic confidence to Bill Clinton’s speech at the DNC. My take is that they are hearing the jobs number touted as sign that Obama’s policies are working. But the GOP is listening to attack ads on TV, I bet, or Fox news.
We are in a post-fact world, as Farhad Manjoo styles it, where every group can potentially live in it’s own version of reality.
Sullivan closes his piece:
And so when I read or hear Republicans talking about this failed presidency in apocalyptic terms, I feel rather like Mark Lilla. It’s not that I disagree. I cannot even begin to see how a conversation can begin. We have different experiences of reality. But that’s why, I think, this election is so fascinating. It will, by default, offer us a direct take on the majority’s perception of reality. If that isolates the GOP on the losing side, they may need David Byrne:
And you may ask yourself
Am I right?…Am I wrong?
And you may tell yourself
MY GOD!…WHAT HAVE I DONE?
Reading an editorial I was struck at how deeply the preconceptions of late stage capitalism — post modernism — are embedded in everything. See my notes embedded below:
The Economy and the Blame - NYTimes.com
Mr. Obama is not free from responsibility for the economy. He did not push hard enough for a larger stimulus and more robust housing relief. He also changed focus prematurely from creating jobs through stimulus to reducing the deficit through spending cuts.
[By ‘responsibility for the economy’ translates to ‘Obama is not greasing the machine to get us back to higher growth’, because growth is essential. ‘Robust housing relief’ means figuring out a way to defuse the housing bust without subsidizing widespread default on monies owed by homeowners to investors. We are going to see millions more foreclosures.]
But Mr. Romney doesn’t criticize the president for those mistakes. He criticizes the use of government to help the economy — including the stimulus, the auto rescue, health care reform and financial regulation — all the while calling for more tax cuts and deregulation, policies that inflated the bubble and led to bust. He wants to couple those policies with savage budget cuts, fantasizing that a swift reduction in the deficit would boost economic growth.
[I agree with the editors that the austerians are wrong.]
Temporary factors, like the Midwest drought, are behind much of the recent weakness. But, over all, the economy is too weak to make steady progress on its own or to withstand premature austerity. A wobbly economy can easily be toppled by external events like the euro crisis, a downturn in China or violence in the Middle East.
[The midwest drought is not temporary. We are headed for a long period — potentially hundreds of years or more — of climate change that will lead to a growing region of significantly lower rainfall in much of the US. So the economic ‘weakness’ will be endemic.
The downturn in China and the euro crisis are not temporary, either. They are both hitting the limits of growth, just like us.
The economic arbitrage that has been fueling China’s growth is a fluke, an imbalance being exploited by the Chinese ruling class and global corporations. It’s not a function of better education, or richer energy reserves: it’s a trick. And now that the Chinese people are starting to demand civil rights — including more money, heath care, and a vote — the Chinese miracle will slow and then stop. It would be even more obvious if we were factoring in the endogenous costs of globalism, like the pollution and global warming involved. (PS Don’t forget the drought in China, too.)
The economy is inherently ‘wobbly’ — subject to rapid swings of increasing amplitude — because we are reaching the end of peak resources of all sorts: peak oil, peak water, and peak food, for example.]
Politicians can control fiscal policies. The challenge is to foster the recovery and then put the budget on a sustainable path. Meeting the first challenge requires a belief that government has a stimulative role to play at times of economic weakness and a willingness to play it, which only Mr. Obama has demonstrated. Meeting the budget challenge requires raising taxes, which Mr. Obama is prepared to do but Mr. Romney is not.
[There is no ‘recovery’ possible. We are going to have continued economic instability, and wrenching change in nearly every aspect of life. The simplistic tinkering with economic levers — like the Federal interest rate, or quantitative easing — have served only to convince investors to keep playing the game. Fundamental changes to the system are needed to transition to a sustainable, steady-state economy, but the NY Times is still buying into the postmodern neoliberal global economy mantra.]
He has assumed voters will reject Mr. Obama because of the weak economy. They may well re-elect him because the economy needs more help.
[I would have expected the NY Times and others on the liberal side of things to be stronger advocates for federal hiring: gearing up to the infrastructure push we need to transition away from the 20th century model of personally-owned cars, highways, and suburban sprawl to a 21st century model of mass transit, shared vehicles, and increasing urban density. But they are gradualists, and believe too much in free markets.]
My hope is that more people begin to reject the official version of the future that dominates policy discussion, even in the liberal wing of the ruling elite. The official future is something like this:
Except it’s all wrong. It’s not temporary. Welcome to the Postnormal.
Dean Baker exposes the stupidity below the ‘better off today’ question that so many are asking, implying that Obama hasn’t done enough for the economy:
Suppose your house is on fire and the firefighters race to the scene. They set up their hoses and start spraying water on the blaze as quickly as possible. After the fire is put out, the courageous news reporter on the scene asks the chief firefighter, “is the house in better shape than when you got here?”
Yes, that would be a really ridiculous question. Hence George Stephanopoulos was being absurd when he posed this question to David Plouffe, a top political adviser to President Obama on ABC’s This Week. Bob Schieffer was being equally silly when he asked Martin O’Malley, the Chairman of the Democratic Governors Association, the same question on CBS’s Face the Nation.
A serious reporter asks the fire chief if he had brought a large enough crew, if they had enough hoses, if the water pressure was sufficient. That might require some minimal knowledge of how to put out fires.
Similarly, serious reporters would ask whether the stimulus was large enough, was it well-designed, and were there other measures that could have been taken like promoting shorter workweeks, as Germany has done. That would of course require some knowledge of economics, but it sure makes more sense than asking if a house is better off after it was nearly burnt to the ground.
(h/t Paul Krugman, who said, ‘Obama came to office in the midst of the worst economic crisis since the 1930s. The question should be how well he dealt with that crisis — and in particular whether the man seeking to replace him would have done better.’)
Between 1995 and 2007 the UK population increased by 5%, the housing stock increased by 10% and house prices increased by 350%, meanwhile mortgage lending by banks increased by 630%. Which of these figures is more likely to have led to a 350% rise in house prices: a 5% rise in population growth which is matched by an increase in supply of housing; or an unprecedented increase in mortgage lending from the banks?
There is further support from Australia and the US where empirical studies have been carried out which show that in US and Australian housing markets house price rises definitely are linked to increased mortgage lending. If it’s true in Australia and America why shouldn’t it be true here?
Australian Economist, Steve Keen, who is responsible for the studies says in an article entitled ‘House Prices and the Credit Impulse’: “Population dynamics – even immigration dynamics – have nothing to do with house prices. What determines house prices is not the number of babies being born, or immigrants – illegal or otherwise – arriving, but the number of people who have taken out a mortgage, and the dollar value of these mortgages. For changes in house prices, what matters is the acceleration of mortgage debt.”
In one sense whether house price rises are driven by population or lending is immaterial and that’s in the effect they have on buyers, especially first time buyers. According to Moneywise, nowadays the average UK home costs six times the average annual salary. And so, according to a study by housing charity, Shelter, access to home ownership is increasingly becoming a matter of inheritance only.
Even more sobering, according to the same report, a similar increase in the cost of private renting means the average time taken to save enough money for a deposit on a house is now 45 years compared to eight years in the past. All of which contributes to the average age of first time mortgage buyers rising by 10 years every decade.
Why exactly is it so expensive for us to own a home? - Lee Williams via Independent Econoblog
The financial crisis, fomented over years by big banks and presided over by executives, involved reckless lending, heedless securitizations, exorbitant paydays and illusory profits, all of which led to government bailouts and economic calamity. Is it plausible that none of that broke the law and that none of the people in positions of power and authority knew what was going on?
It seems likelier that it’s not intent that’s missing, but creative thinking on the part of federal prosecutors about the web of federal statutes that could be brought to bear on potential cases. As far back as 2009, when the Justice Department lost a financial fraud case against a pair of hedge fund managers at Bear Stearns, it seems to have made an institutional determination that it could not win against big banks and top bankers. That stance has dovetailed with the Obama administration’s emphasis on protecting the banks from any perceived threat to their post-bailout recovery.
In the meantime, the statute of limitations, generally five years for securities fraud and most other federal offenses, is running out, precluding the possibility of bringing many new suits dating from the bubble years.
The bankers that brought the world to the brink of collapse are going to get away with it. Moral of the story: If you want to cheat, cheat big.
The dominant economic paradigm rewards more instead of better consumption and private versus public investment in man-made rather than natural capital. Such triple self-reinforcing biases have been locked in the social mentality to promote a promethean notion of chrematistic growth. Associated with the neoliberal ‘mantra’ of the supremacy of markets for fostering prosperity through ever growing efficiency, the praxis of this economic model is built upon privatisation of traditional public goods and services and reinforcing economic globalisation through international governance structures maintained through the likes of the IMF, WTO, and the World Bank. Even after attempts from ecological economics and sister disciplines to demonstrate the intrinsic limits of this model, we now face continuous environmental and economic crises compounded by a growing disjuncture between the real economy (in which the value of natural capital is seldom recognised) and the fictitious paper economy of finance.
In a context of increased global environmental problems, the “sustainable development” discourse (20 years after the Brundtland Report, WCED, 1987) has been unable to produce the overarching policies and radical change of behaviour needed at individual and collective scales. We still live in a world of unchecked consumerism, excessive materials use and fossil fuel addiction. As a result, there are renewed calls to depart from the promethean economic growth paradigm and to embrace a vision of sustainable de-growth, understood as an equitable and democratic transition to a smaller economy with less production and consumption. Such a system, in the eyes of its proponents, would allow a “prosperous way down” (Odum and Odum, 2006) or at least a soft landing rather than a crash due to environmental collapse (Recio, 2008; Martínez-Alier, 2008, 2009; Kallis et al., 2009). This paper puts into context and traces the concept of “sustainable de-growth” and provides insights on the implications of this paradigm.
“De-growth” stands here literally for the French word décroissance. “Socially sustainable economic de-growth” (la décroissance économique socialement soutenable) is a concept that is finding its way into social ecology, human ecology, and ecological economics. The discussion on de-growth that Nicholas Georgescu-Roegen started three decades ago is again a topic for discussion in rich countries. This concept is being catapulted in academic circles in conjunction with wider social and environmental grassroots groups. Not only are ecological economists working on the idea of sustainable de-growth and its implications as an emergent paradigm to break locked-in concepts inherited from the very malleable 1980s idea of sustainable development (e.g., Martínez-Alier, 2009; Kerschner, 2010), but there are also vigorous social debates in non-academic spheres, such as within Northern social movements for environmental and social justice. Altogether there is a flourishing literature directly associated with this perspective.
It is not simple to capture the meaning of sustainable de-growth in a nutshell. Such explicit opposition to the motto of sustained growth does not imply an exact opposition to economic growth. It advocates instead a fundamental change of key references such as the collective imagination (changement d’imaginaire) and the array of analysis, propositions and principles guiding the economy. According to Serge Latouche (2003: 18), perhaps the main intellectual Francophone reference on de-growth, a society of de-growth should be understood as a “society built on quality rather than on quantity, on cooperation rather than on competition […] humanity liberated from economism for which social justice is the objective. […] The motto of de-growth aims primarily at pointing the insane objective of growth for growth. Degrowth is not negative growth, a concept that would be contradictory and absurd, meaning stepping forward while going backward.” Latouche (2006a:16) goes further to point out that de-growth is not a concept and that there is no theory of de-growth, as it does not correspond to a ready-made system. Instead, Latouche describes it as “political slogan with theoretical implications” (ibid).
Supporters of de-growth consider that the attractiveness of this motto comes largely from the failure of traditional economic and political systems and their associated ideologies (e.g., capitalism, socialism, social-liberalism and possibly sustainable development as well). For example, according to Ariès (2005:75), de-growth provides an ‘explosive word’ to pulverize current pro-growth ideologies, hence, an easy way to state that growth is not the solution but a part of the problem.
Joan Martínez-Alier, Unai Pascual, Franck-Dominique Vivien, and Edwin Zaccai, Sustainable de-growth: Mapping the context, criticisms and future prospects of an emergent paradigm
We can’t wait for political leaders — deeply embedded in the late industrial models of exploitative economics and globalization — to create top-down solutions to counter our precarious situation.
Here’s the paradigm summed up that I’ve been advocating: sustainable degrowth. We can’t wait for political leaders — deeply embedded in the late industrial models of exploitative economics and globalization — to create top-down solutions to counter our precarious situation. Instead, we need to build bottom-up cooperatives, starting at the grassroots level, that distribute the returns on labor to the members. And then to link cooperatives into networks to share assets and support each other in mutually beneficial ways. And the emphasis is on needs-based production, intentionally not operating to amass financial power, or to exploit resources for profits.
They were words no one ever expected Sanford I. Weill — the man who helped usher in the age of the financial supermarket — to utter.
“What we should probably do is go and split up investment banking from banking,” Mr. Weill, former Citigroup chief executive, told CNBC’s “Squawk Box” on Wednesday. “Have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”
His words were essentially a call for a return to Glass-Steagall, the financial regulation that for decades separated commercial banking from investment banking in an effort to keep the financial world safer and easier to regulate. And it was an admission rich with irony.
For it was Mr. Weill, the empire builder who progressively turned an insignificant Baltimore-based lender into the towering financial services provider named Travelers and who erased Glass-Steagall with the $70 billion union of his firm with Citicorp in 1998.
- Michael De La Merced, Weill Calls for Splitting Up Big Banks via NYTimes.com
Sandy Weill says that we should break up the banks. Hmmm. I think we should break them up, and nationalize the parts that make a market for municipal bonds, mortgages, and almost anywhere that the banking cartel makes money based on financial market places.
The Rule Of Law Is AWOL
