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Weekend Economists Wild, Wild, World Roundup February 17-19, 2012
So, here we are, still contemplating the wealth of nations. What makes a nation wealthy?
1) Natural resources
The soil, the minerals under it, the quality and quantity of the water and the air, the ecosystem (plant and animal), the climate, the configuration of the land (remember "no defensible borders" Poland!), the tendency to earthquake, wildfire, drought, tornado and hurricane, blizzard, or other natural disaster, the solar irradiation and the prevailing winds and the running water for energy. The natural beauty of the land, a source of pleasure for its people and visitors alike. The capacity for abundance of food, fiber, wood, other renewables.
2) The human population
Their health, education, degree of gullibility, capacity for empathy and community-building, willingness to demand and follow a rule of law, ability to function alone and in groups, and capacity to defer gratification and live in moderation. The ability to know right from wrong, and insist on the right. The ability to protect and maintain the natural resources, to live in peace with neighbors, and to choose cooperation over competition. The willingness to accept and rejoice in commonalities, and delight in differences. CREATIVITY! AND PROBLEM-SOLVING ABILITY! UNWILLINGNESS TO WASTE TIME OR RESOURCES OR PEOPLE!
3) The social organizations (or lack thereof) and how well they serve the people and the nation.
Based on these criteria, we are a rapidly declining nation, perhaps not yet as bad as some, but much less than we were.
Funny, I don't see any mention of "Finance" in the above. Nor do I see any explicitly specified "Corporations".
OR "MONEY".
OTHER FORMS OF WEALTH FOR A NATION: STRUCTURES--THE GREAT AND THE SMALL- FOR SHELTER, FOR CEREMONY, FOR HISTORICAL STUDY...AND INVENTIONS, AND ART: THE FRUITS OF GENIUS AND/OR COLLECTIVE EFFORT.
69 replies
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http://timiacono.com/index.php/2012/02/16/when-models-trump-common-sense/
More evidence that U.S. economists are particularly ill-suited to run the U.S. economy comes via the fascinating exchange in recent days between St. Louis Federal Reserve President James Bullard and a small army of bloggers with PhDs in economics, nearly all of the latter ganging up on Bullard after he suggested that the “output gap” theory for what ails the U.S. economy may be fundamentally flawed and that attempts to boost overall demand to close that gap through freakishly low interest rates and other super accommodative Federal Reserve policies might end up doing more harm than good.
Bullard threw a cat amongst the pigeons in this speech(.pdf) when he noted the following:
Recall that I’ve railed on this subject a number of occasions over the years, the last time being this offering from about six months ago when it was noted:
Of course, I don’t have any models to back up the contention that an unusually large portion of economic output we saw in the middle of the last decade was “artificial” due to the housing bubble, but economists do have models, and that’s the crux of the problem. As Bullard noted, the models economists use to determine the “potential” of the U.S. economy, in essence, extrapolates from the pre-2007 period to the post housing bubble period and, as a result, you end up with a big gap between potential and actual output that policy makers are now seeking to close by borrowing and printing money on a scale never before witnessed by Mankind. For those of you preferring pictures to words, the chart below by Neil Irwin from this neat little interactive graphic at the Washington Post might be helpful.
Being more detached from reality than the population at large, economists seem to prefer the idea of debating ways to close the gap that has developed in recent years rather than thinking about whether the output gap even makes sense as Bullard has suggested. The failure to deal with the real world rather than how that reality is reflected in models and the reluctance to venture outside of their analytical comfort zone to embrace common sense (as Bullard clearly has) have clearly produced yet another example where models – whether they’re good, bad, or indifferent – rule.
MUCH MORE AT LINK
More evidence that U.S. economists are particularly ill-suited to run the U.S. economy comes via the fascinating exchange in recent days between St. Louis Federal Reserve President James Bullard and a small army of bloggers with PhDs in economics, nearly all of the latter ganging up on Bullard after he suggested that the “output gap” theory for what ails the U.S. economy may be fundamentally flawed and that attempts to boost overall demand to close that gap through freakishly low interest rates and other super accommodative Federal Reserve policies might end up doing more harm than good.
Bullard threw a cat amongst the pigeons in this speech(.pdf) when he noted the following:
The recent recession has given rise to the idea that there is a very large “output gap” in the U.S. The story is that this large output gap is “keeping inflation at bay” and is fodder for keeping nominal interest rates near zero into an indefinite future. If we continue using this interpretation of events, it may be very difficult for the U.S. to ever move off of the zero lower bound on nominal interest rates. This could be a looming disaster for the United States. I want to now turn to argue that the large output gap view may be conceptually inappropriate in the current situation. We may do better to replace it with the notion of a permanent, one-time shock to wealth.
Recall that I’ve railed on this subject a number of occasions over the years, the last time being this offering from about six months ago when it was noted:
The theory posits that it is not important what level of overall demand an economy has reached or how it got there, but that, when all the wheels fall off the wagon as they did back in 2008, the imperative is for the government to somehow restore that level of demand. Otherwise, you get another Great Depression.
It makes no difference if, back in 2005, people making $40,000 a year were buying no money down $500,000 homes and then, after the home’s value went up to $600,000 in 2006, pulling out their $100,000 in brand new home equity to put in a pool, buy a motor home, and install big screen TVs in every room of the house because, once you reach a certain level of demand and it begins to drop like a rock because everyone has become indebted up to their eyeballs, it must be restored.
At that point, it simply becomes a question of how much taxes must be cut or how much money must be borrowed or printed to accomplish that goal.
It makes no difference if, back in 2005, people making $40,000 a year were buying no money down $500,000 homes and then, after the home’s value went up to $600,000 in 2006, pulling out their $100,000 in brand new home equity to put in a pool, buy a motor home, and install big screen TVs in every room of the house because, once you reach a certain level of demand and it begins to drop like a rock because everyone has become indebted up to their eyeballs, it must be restored.
At that point, it simply becomes a question of how much taxes must be cut or how much money must be borrowed or printed to accomplish that goal.
Of course, I don’t have any models to back up the contention that an unusually large portion of economic output we saw in the middle of the last decade was “artificial” due to the housing bubble, but economists do have models, and that’s the crux of the problem. As Bullard noted, the models economists use to determine the “potential” of the U.S. economy, in essence, extrapolates from the pre-2007 period to the post housing bubble period and, as a result, you end up with a big gap between potential and actual output that policy makers are now seeking to close by borrowing and printing money on a scale never before witnessed by Mankind. For those of you preferring pictures to words, the chart below by Neil Irwin from this neat little interactive graphic at the Washington Post might be helpful.
Being more detached from reality than the population at large, economists seem to prefer the idea of debating ways to close the gap that has developed in recent years rather than thinking about whether the output gap even makes sense as Bullard has suggested. The failure to deal with the real world rather than how that reality is reflected in models and the reluctance to venture outside of their analytical comfort zone to embrace common sense (as Bullard clearly has) have clearly produced yet another example where models – whether they’re good, bad, or indifferent – rule.
MUCH MORE AT LINK
Thanks, Demeter!
http://www.chrismartenson.com/blog/why-currency-fail/70928
The idea that the very same economic forces that are currently plaguing Greece, et al., are somehow not relevant to the United States' circumstances does not hold water. As goes the rest of the world, so goes the US.
When we back up far enough, it is clear that money and debt are there to reflect and be in service to the production of real things by real people, not the other way around. With too much debt relative to production, it is the debt that will suffer. The same is true of money. Neither are magical substances; they are merely markers for real things. When they get out of balance with reality, they lose value, and sometimes even their entire meaning....This report lays out the case that the US is irretrievably down the rabbit hole of deficits and debt, and that, even if there were endless natural resources of increasing quality available at this point, servicing the debt loads and liabilities of the nation will require both austerity and a pretty serious fall in living standards for most people. Of course, the age of cheap oil is over. And as Jim Puplava says, the oil price is the new Fed funds rate, meaning that it is now the price of oil that sets the pace of economic movement, not interest rates established by the Fed.
However, of all the challenges that catch my eye right now, the one most worrisome is the shredding of our national narrative to the point that it no longer makes any sense whatsoever. I'm a big believer that our actions are guided by the stories we tell ourselves. To progress as a society, having a grand vision that aligns and inspires is essential. But when words emphasize one set of priorities and actions support another, any narrative falls apart. At a personal level, if someone touts their punctuality but chronically shows up hours late, the narrative that says "this person is reliable" begins to fall apart....Likewise, if a company boasts about being green but its track record belies them as a major polluter, the "green" narrative fizzles....And at the national level, if we say we are a nation of laws, but the Justice Department selectively prosecutes only the weak and relatively powerless while leaving the well-connected and moneyed entirely alone, then the narrative that says "we are a nation of blind justice and equal laws" falls apart. I wish this was just some idle rumination, but I see more and more examples validating the importance of alignment of narrative and behavior. Because when there is a disconnect between words and actions, anxiety and fear take root...SAVAGING OF THE STATE OF THE UNION ADDRESS FOLLOWS
...It is quite obvious that the Fed has been a major participant in the bond markets and a major reason why Treasurys are priced so high and offer so low a yield....It seems that it is well past time to speak directly to the enormous fiscal deficits in a credible way, not merely bemoaning them being too high. And we're also overdue for an adult national conversation that it's unwise and unsustainable for a country to lean on its central bank to print up the difference between receipts and outlays...MORE
The idea that the very same economic forces that are currently plaguing Greece, et al., are somehow not relevant to the United States' circumstances does not hold water. As goes the rest of the world, so goes the US.
When we back up far enough, it is clear that money and debt are there to reflect and be in service to the production of real things by real people, not the other way around. With too much debt relative to production, it is the debt that will suffer. The same is true of money. Neither are magical substances; they are merely markers for real things. When they get out of balance with reality, they lose value, and sometimes even their entire meaning....This report lays out the case that the US is irretrievably down the rabbit hole of deficits and debt, and that, even if there were endless natural resources of increasing quality available at this point, servicing the debt loads and liabilities of the nation will require both austerity and a pretty serious fall in living standards for most people. Of course, the age of cheap oil is over. And as Jim Puplava says, the oil price is the new Fed funds rate, meaning that it is now the price of oil that sets the pace of economic movement, not interest rates established by the Fed.
However, of all the challenges that catch my eye right now, the one most worrisome is the shredding of our national narrative to the point that it no longer makes any sense whatsoever. I'm a big believer that our actions are guided by the stories we tell ourselves. To progress as a society, having a grand vision that aligns and inspires is essential. But when words emphasize one set of priorities and actions support another, any narrative falls apart. At a personal level, if someone touts their punctuality but chronically shows up hours late, the narrative that says "this person is reliable" begins to fall apart....Likewise, if a company boasts about being green but its track record belies them as a major polluter, the "green" narrative fizzles....And at the national level, if we say we are a nation of laws, but the Justice Department selectively prosecutes only the weak and relatively powerless while leaving the well-connected and moneyed entirely alone, then the narrative that says "we are a nation of blind justice and equal laws" falls apart. I wish this was just some idle rumination, but I see more and more examples validating the importance of alignment of narrative and behavior. Because when there is a disconnect between words and actions, anxiety and fear take root...SAVAGING OF THE STATE OF THE UNION ADDRESS FOLLOWS
...It is quite obvious that the Fed has been a major participant in the bond markets and a major reason why Treasurys are priced so high and offer so low a yield....It seems that it is well past time to speak directly to the enormous fiscal deficits in a credible way, not merely bemoaning them being too high. And we're also overdue for an adult national conversation that it's unwise and unsustainable for a country to lean on its central bank to print up the difference between receipts and outlays...MORE
http://www.japantimes.co.jp/text/nb20120218n1.html
Goldman Sachs Group Inc. delayed its first sale of samurai bonds in four years after Moody's Investors Service placed the bank under review for downgrade, according to a source.
Goldman Sachs pushed back the offering, which may have been as early as Friday, to at least Tuesday, the source said, asking not to be identified because the information is private. The brokerage told investors it plans to raise the size of the sale to at least ¥60 billion from ¥50 billion, and will widen the proposed yield premium, the source said.
The five-year sale will make it the busiest start to the year on record for the market for yen-denominated notes issued by overseas borrowers, according to data compiled by Bloomberg. A taxation rule change next month may make it more difficult for U.S. borrowers to sell samurai bonds. Moody's said Goldman Sachs' rating may be cut by two grades, which will lower it to A3, the seventh-highest level.
"Japanese investors have strong faith in Goldman Sachs, so they will buy the bonds," Hiroaki Fujioka, a senior credit analyst at Daiwa Securities Capital Markets Co., said in a telephone interview from Tokyo.
*** samurai?
Goldman Sachs Group Inc. delayed its first sale of samurai bonds in four years after Moody's Investors Service placed the bank under review for downgrade, according to a source.
Goldman Sachs pushed back the offering, which may have been as early as Friday, to at least Tuesday, the source said, asking not to be identified because the information is private. The brokerage told investors it plans to raise the size of the sale to at least ¥60 billion from ¥50 billion, and will widen the proposed yield premium, the source said.
The five-year sale will make it the busiest start to the year on record for the market for yen-denominated notes issued by overseas borrowers, according to data compiled by Bloomberg. A taxation rule change next month may make it more difficult for U.S. borrowers to sell samurai bonds. Moody's said Goldman Sachs' rating may be cut by two grades, which will lower it to A3, the seventh-highest level.
"Japanese investors have strong faith in Goldman Sachs, so they will buy the bonds," Hiroaki Fujioka, a senior credit analyst at Daiwa Securities Capital Markets Co., said in a telephone interview from Tokyo.
*** samurai?
i need a break...
http://www.alternet.org/economy/154192/it%27s_time_we_get_to_cash_in_as_equity_owners_of_our_common_wealth/?page=entire
It's Time We Get to Cash in as Equity Owners of Our Common Wealth
... So why don’t we pay everyone some non-labor income — you know, the kind of money that flows disproportionally to the rich? I’m not talking about redistribution here, I’m talking about paying dividends to equity owners in good old capitalist fashion. Except that the equity owners in question aren’t owners of private wealth, they’re owners of common wealth. Which is to say, all of us.
One state—Alaska—already does this. The Alaska Permanent Fund uses revenue from state oil leases to invest in stocks, bonds and similar assets, and from those investments pays equal dividends to every resident ... It’s therefore no accident that, compared to other states, Alaska has the third highest median income and the second highest income equality.
... A major source of revenue could be clean air, nature’s gift to us all. Polluters have been freely dumping ever-increasing amounts of gunk into our air, contributing to ill-health, acid rain and climate change. But what if we required polluters to bid for and pay for permits to pollute our air, and decreased the number of permits every year? Pollution would decrease, and as it did, pollution prices would rise. Less pollution would yield more revenue. Over time, trillions of dollars would be available for dividends.
... So why don’t we pay everyone some non-labor income — you know, the kind of money that flows disproportionally to the rich? I’m not talking about redistribution here, I’m talking about paying dividends to equity owners in good old capitalist fashion. Except that the equity owners in question aren’t owners of private wealth, they’re owners of common wealth. Which is to say, all of us.
One state—Alaska—already does this. The Alaska Permanent Fund uses revenue from state oil leases to invest in stocks, bonds and similar assets, and from those investments pays equal dividends to every resident ... It’s therefore no accident that, compared to other states, Alaska has the third highest median income and the second highest income equality.
... A major source of revenue could be clean air, nature’s gift to us all. Polluters have been freely dumping ever-increasing amounts of gunk into our air, contributing to ill-health, acid rain and climate change. But what if we required polluters to bid for and pay for permits to pollute our air, and decreased the number of permits every year? Pollution would decrease, and as it did, pollution prices would rise. Less pollution would yield more revenue. Over time, trillions of dollars would be available for dividends.
Goes on to talk about "dividends" from our banking system, airway rights, etc.
It's not that his idea is so terrible - for sure, our air/water/airwaves/land (think of all those cheap leases out west for grazing)/mines are part of our "Commons" and rightly our common wealth. But the article assumes that we can continue indefinitely "extracting" wealth one way or another from our "commons" - it notices no limits to growth, assumes we have plenty of time to clean up our air, and pretty much assumes that things will go on as they are. Nor, I think, does it touch real inequality - Bill Gates would still be stratospherically rich! Hurrah for him - no "class warfare here!"
To illustrate to what degree this proposal actually supports the status quo, he touts Alaska for it's "second highest income equality" but Alaska's Gini coefficient is about 0.422 while NY's is about 0.499 - sorry, I don't think that's a huge difference (I say "about" because I used WIKI for the Ginis). For a real difference, look at the Gini for the Scandinavian countries, which is in the 0.20's, while the US is in the 0.40's.
There is one more radical idea buried in the article:
Banks are another large recipient of our collective largesse. I’m not talking about bail-out funds; I’m talking about the hugely valuable right we give banks to create money out of nothing. Banks do this (with our generous permission) by lending roughly seven times the money customers deposit (this is called ‘fractional reserve banking’); they then charge interest on these magically minted dollars. This gift to banks is justified on the grounds that it injects needed cash into the economy, but a comparable boost could be achieved by giving people new government-issued dollars — for example, by wiring money to their bank accounts — and limiting bank lending to money actually on deposit. Fresh money would then trickle up through households rather than down through banks.
This rather echoes something I think every time Obama comes out with another of his boring proposals for more tax breaks for the Corps if they just will "do the right thing" - whatever the version of the right thing is today: the Corps are already sitting on huge profits - why not just give money to the people instead of the Corps, so the people can buy some of the things they need? (To my mind there's nothing more telling about what a true 1%er the Big O is than his constant prostrations before the all-holy "Market" and seemingly infinite willingness to hand over more and more of our $$ to the Corporate Masters of the Universe.)
This would, at least, have the virtue of alleviating some of the hardship down here in the 99% short-term. But it's no real solution - it too, presupposes we have time and lots of it to "fix" the death of the earth our insane consumption has caused - and we don't. (It also strikes me that the old usage of "Consumption" to denote TB is a good metaphor for our "consumption"
You know, thinking of this article and the one Demeter posted earlier that I replied to, it strikes me that a few of the more intelligent and aware of at least the conventional "Liberals" among TPTB are starting to get a little scared? Starting to think that we need to do something about the raw gaping wounds oozing on the rabble? Maybe more on that thought later.
Just last week, I had decided to wash up all the bedding from 2 beds, extra blankets, and bedspreads.
I used three of those triple loader king sized front loader washers.
Each washer needed $5.75, in quarters! They were new washers though.
Fortunately, spouse saves all his change, so I was able to find all those quarters to take with me.
But jeezo, that was expensive.
You have my sympathy. I hope you get the washer repaired soon.
And everyone else who participates and lurks in this little corner of sanity.
hamerfan
