Conference of Economists Presentation
Sep27
on September 27, 2010
at 11:40 am
I’m presenting this talk to the Australian Conference of Economists this morning (at 11 am). If you’d like to see the slideshow, right click on the link to save it to your PC (a simple click may bring it up in Google Docs where you lose the animations and some of the formatting).
Jack, and that is what they are doing and with the currency as well. Confucious say fortuitous meeting where well managed money speaks in turn, politely!
What is the signficance of a subscripted letter following a normally positioned letter – does is just indicate a further word labelling the discrete mathematical entity in a way that avoids confusion i.e. “TH” for “Top Hat” would without subscripting of the “H” raise confusion as to whether or not we were saying value T times value H or a single value TH?
Examining the formulas as a whole (a) it seems that the letter r is a placeholder for the word “Rate” on all occasions however (b) it appears subscripted to “Y” in the representation of the label “Level of output”. Is “(a)” above correct? I guess a rate can be at a particular level?
In the formulas in slide “Modelling Minsky – The full system we have the following characters:
Defined:
1. BC -> Bank Capitol
2. BPL -> Bank Profit/Loss
3. FD -> Firm Deposit
4. FL -> Firm Loan
5. WD -> Worker Deposit
6. Yr -> Level of output
7. L -> Employment
8. (pi)r -> Rate of Profit
9. (lambda) -> Rate of employment
10. g -> Rate of economic growth
11. W -> Rate of change of wages
12. PC -> Rate of change of prices
13. Kr -> Rate of change of capitol stock
14. a -> Rate of growth of population
15. N -> Rate of growht of productivity
Not defined but in formulas:
16. v
17. RL
18. LC
19. (tau)B
20. (tau)W
21. Inv
22. alpha
23. beta
24. delta
25. Ph
26. omega
27. s
What are 16 to 27?
Hi Jason,
You’d be better off reading about the model in a paper (linked here), but to answer your questions:
yes, generally r is a place holder for rate- rL the rate of interest on loans, rD on deposits (suitably subscripted). Yr stands for real output, versus Y alone which is nominal output.
The greek letter tau stands for a time constant in the system tau_RL and tau_LC refer to the rate at which firms repay loans and at which banks relend existing money respectively. tau_B is the time lag in bankers’ consumption and tau_W the time lag in workers’ consumption.
v is the capital to output ratio (this is a common term in economics), Inv is an investment function (based on the rate of profit), alpha is the rate of change of labor productivity, beta the rate of population growth, delta the rate of depreciation, Ph is a “Phillips curve” relationship between the employment rate and the rate of change of money wages, s is the share of surplus going to capitalists (with workers getting [1-s]).
UBS Recommends Boosting Equities, Cutting Bonds and Cash 15:51 [10/01/10]
“UBS recommends raising holdings in equities to 47% of model portfolio from 45%, while reducing corporate bonds to 11% from 12%, cash to 1.75% from 2.75%.
A ‘re-leveraging cycle’ lasting several years should boost PE multiples even while earnings growth slows; equities should outperform government bonds and corp credit.”
…that’s it I give up, I can’t take this nonsense anymore
http://www.youtube.com/watch?v=4DVAsmrwdtQ&feature=related
Mr Steve Keen is it time to tell these economists at the conference to read more history and understand extreme credit is unstable.
Our education system needs to be more open,honest with strong critical thinking.
These books need to be read by all these elite economists and university educated bloggers.
Manics Panics and Crashes by Charles Kindleberger.
How the Mighty Fall by Jim Collins
Extra Ordinary Popular Delusions and Madness of Crowds.
Full House by Stephen Gould.
Mobs Messiahs and Market by William Bonner.
True Believer by Eric Hoffer.
Common Stocks and Uncommon profits by Philip Fisher.
Fooled by Randomness by Nassim Taleb.
Conquer the Crash by Robert Prechter.
Guns Germs and Steel by Jared Diamond.
10 best and 10 worst decisions by Robert Gottliebsen.
Built To Last by Jim Collins.
The Psycholgy Influence of Persuasion by Robert Cialdini.
Empire of Debt by Bill Bonner.
The Crowd A Study of the Popular Mind by Gustave Le Bon.
Working with Monsters by John Clarke.
Irrational Exuberance by Robert Shiller.
The Road to Serfdom by Hayek.
95% of the bloggers on this website are University educated and 5% are self educated.
5% who do comment are humble by Mr Market and are still successful because they read what they like.
Not like the other 95% who are forced to read stuff they know is total poor crap.
That’s why Mr Keen you have nasty comments sometimes because the other 95% are fustrated don’t have any idea how the market really works.
In unstable extreme credit expansion you will eventually have deflation and pain.
Accept the pain now or face worst meltdowns in the future.
You will notice most of these books are about herd failure,fraud, moral hatred against large unsustainable debt and incompetent large central government planning.
Thanks sj,
I agree with those reading recommendations–though I’d suggest balancing the Road to Serfdom with Minsky’s “Can It Happen Again?”.
What is true, stable demand and what is perverse, counter-productive faux demand that is bound fade? Cleary debt gives false signals but if I look at US housing, I’m vexed by chicken/egg thing. We built more houses than we had households, true enough, so it was a ponzi scheme fueled by easy debt that would eventually end when there were no additional suckers to draw into scheme. Debt hid the fact that US wages were falling.
But there was a time when I was in HS in a white working class neighborhood, where the guys could walk out of HS with no college degree, get a factory job, buy a new truck, in a few short years, buy a house and raise a family of four on his salary alone. A lot my classmates dads had working class jobs, owned decent houses in decent neighborhoods and they often owned a cabin up north. This was true for even large catholic families, with 4-7 kids, dad worked at a factory as regular guy (not an executive, not a brilliant enterpeneur, not a guy that worked 60-70 hours a week) nad had a hosue and cabin and well fed kids. Two house on one income, and houses were likely paid for in 25-35 years, houses always, slowly increased in value, and that same guy could look forward to a good pension when he retired. In 2005, to have same lifestyle, debt was needed even for two income family, no way one working class guy could pay for all that and many two-income families with two houses, or even just one, are underwater with their mortgages now. Wages relative to cost of housing were way way way down.
So what’s the real demand, one was debt fueled in 2005, but a similar lifestyle and number of houses was obtainable without a overburdening of debt in 1970, due to higher relative wages?
good list sj,
let me add a few to the list
“the third chimpanse”,by jarred diamond, since its the inner chimpanse and all the character flaws that go with it, that we have dragged along with us for thousands upon thousands of years, that gets us into strife from time time.
“blood in the streets” , by william reese mogg, since its the geo political and technological dog that wags the economic tail. the british lost there empire and fortune, when the colonials got there hands on british technology and turned it against them. the same fate awaits the americans perhaps.
inventions and their proprietel control allow the capture of significant chunks of global gdp
“principle centred leadership”, by stephen covey, since moral courage and leadership has been singularly lacking by our political leaders as we race towards a potential abyse
and offcourse anything written by our kind host,
i will finish with a quote from henry david thoreau
“All this worldly wisdom was once the unamiable heresy of some wise man”
For other contrarian (pre-crash) views, I liked Mandelbrot’s The Misbehavior of Markets, Taleb’s The Black Swan, and Rebonato’s The Plight of the Fortune Tellers. (I don’t agree with everything in these, by any means, but they’re all easy to read and present a critical perspective on some common assumptions.)
glubilee @34
Good to see you posting here again. (I like the way you write).
Here’s something that may interest you…
http://market-ticker.org/akcs-www?post=168121
The following (“free trade” wage arbitrage and pollution arbitrage).
http://market-ticker.org/akcs-www?post=166499
Please note though that I disagree 100% with some of the things that Denninger says.
I get the impression you are a reasonable man who can think for himself. On that basis I will take a risk and write the following words…
I have come more and more to consider that our general understanding about what a monetary based economy is all about is wrong.
People think (myself included until fairly recently) that it was about buying things at cheaper and cheaper prices and forget the rest.
It appears to me that this is very far from the truth.
I think the USA has had it “too good” for too long. By “too long” I mean decades. The more this goes on, the more it is “expected”. Please realise that I also talk about the UK here as well as other places.
I present an extract from a poster on another blog…
“”Feel free to scapegoat the Western financial system for allowing Chinese peasants to work 18 hours a day for 2 bowls of rice in order to sell us cheap goods but please don’t expect those of us who have watched this incubate over the last 40 years to swallow the same mother’s eyes.
“”
During that time the rich have got proportionally richer, the middle class have got and more debt and the “people across the waters” (our new slaves) have got on aggregate even poorer and have been further taken advantage of by ourselves.
I think that decades ago, people in the developed countries shared their wealth more uniformaly amongst their populations (whilst people of the underdeveloped nations still suffered at our hands).
We have a system that created so much for consumption today and left little need for things to be produced tommorrow.
What benefit is there to a man who can earn 100,000 dollars for 3 years if during the next 3 years he will have no job or a much reduced income?
The answer is none.
With mass production and the financial system we forgot that “the price” should have been used to limit the system in such as way to spread the benefits (more) equally and still leave demand for tommorrow and the years after.
In so doing people could then enjoy a reasonable level of retirement as the younger hands that took their place were passed on the infrastructure and cultural heritage that was built and maintained by those who retired. (A monetary based contract linked to real wealth).
Back to our consumptive lifestyle of today….In order to continue that lifestyle, greater and ever increasing amounts of energy (oil) were needed, since without oil production could not have occurred on the scale that we had, and people could not drive the huge distances in their cars without consideration as to how much energy was being wasted.
In spite of the diminishing oil “reserves” in the USA the USA sought to import more rather than regulate that which really needed to be regulated. The contract between people and nature for a sustainable system th did not have huge external dependencies (upon what appears to be a yet another dwindling resource).
Man may have desire for an unlimited amounts of “things” but he cannot break the physical laws that man himself did not create.
Nonetheless the USA (and others) continued to demand more and more.
So much so that those societies are now drunk on energy.
It is the combination of all these things that are coming together to haunt the USA at this time. (The USA situation is most evident).
I have read many (if not all) of your posts and I get a real impression that you are sane and caring human being. (My words are meant to help diagnose the problems so that a long-term solution can be developed).
I have wished the USA would extricate itself from this mess and “do the right thing” for itself and other peoples.
In all honesty I have pretty much given up trying to talk to people as I have attempted “communication” with other Americans I received a response which pretty well said “go away”.
Fair enough.
More recently I have read about greater and greater fraud.
Take Alan Grayson who seems to me “to be a good guy”…
http://www.youtube.com/watch?v=3FQGcmTNKwk
Yet I hear other Americans villify him for reasons that are not specified.
So I really don’t understand.
I probably have not done a very good job of expressing that I wished to communicate here.
(I hope that I can improve upon this).
Best wishes go to all reasonable and “human” USA citizens.
@Sirius,
Speaking as one of the “sane and reasonable” people in the States, here are a few extra thoughts to add to your post.
Despite everything that’s going on right now, what’s one key that continues? The haves keep grabbing all they can get. The have nots struggle to hang onto what they do have. In addition, the mass apathy and refusal to see the obvious continues.
Why? Consider Alan Hart’s point re: the States (I’m paraphrasing a little). “Not all but many of the people in the States are the most ignorant and gullible people on the face of the Earth”.
Can anyone seriously dispute that?
One reason this continues? It’s the old thing of being in a crowded room and nobody does anything. Everyone knows what the problems are and what needs to be done. But nobody moves until someone else takes the “risk” and then others see that and the consequences of it.
Is this human nature or mass apathy? I could write a book with a title like that. But do we really need another “in-depth analysis” book?
For many of the have nots, they’re literally burned out. Keep in mind that here in the States (IMO), weakness isn’t tolerated. It’s a 24/7 dog-eat-dog or you’re screwed mentality. 23 years ago the first Wall Street film came out. Was Micheal Douglas smart enough to trademark “greed is good” and make billions of it? Probably not. Yet, more importantly, what’s improved in that time?
Wall Street II comes out. To his credit, Douglas is involved in lots of worthwhile causes (ex., Ploughshares for Peace). He gives a talk at the U.N. and then a press conference. Does anyone in the corporate MSM take him seriously as being an informed celebrity trying to better the world? Of course not. Instead, it’s endless idiotic Gordon Gekko jokes. The longer they went on the more pissed off he became.
Frankly, many people at the top have no limits for money or power. If you disagree with that, can you name one CEO that’s ever said no to a bonus or a golden parachute? I can’t. Why do these people even more megamillions, homes, cars, private jets and all the rest of it? Because they’re “entitled” to it.
I’m the only person in the world that can do my incredibly demanding and complex job. Therefore, I deserve all I can get.
Is this “responsible” capitalism? No it’s not. But even in other places like the U.K., “regulation” to many in power means “socialism”.
How many times have you heard bankers in London, Singapore, Hong Kong or elsewhere essentially say, you don’t have the guts to mess with us. Regulate us and we’re leaving. What will you do then? Where will you get your tax revenue? It can’t all come from the usual sources (alcohol, cigarettes, etc.)?
The govt. won’t touch them. The MSM continues to write books about this and make money off it. Which means that almost everybody has a vested financial interest to see this rubbish continue.
What are some results of this? More is being outsourced. In the U.K., the govt. is asking new cops to work for free for 18 months before joining the force. Would you risk your life every day for free for 18 months? In return, the police agree to give up their overtime and bonuses for the right to strike.
Imagine if cops in the States or Australia went on strike.
If the rich and powerful see a threat to their money and power, they will do literally anything to stop it. If you can’t see that, you’re not paying attention.
soho44 @38
First of all thank you for your reply. It was greatly appreciated (more than you probably would realise).
“”Frankly, many people at the top have no limits for money or power. If you disagree with that,”"
I don’t disagree.
“”How many times have you heard bankers in London, Singapore, Hong Kong or elsewhere essentially say, you don’t have the guts to mess with us. Regulate us and we’re leaving.”"
I personally have no experiences but Alisdair Darling has reported that “the bankers” have said that to him on several occasions.
“”The govt. won’t touch them.”"
That is very clear. But as a retort why would I expect the govt. to touch them? One only needs to look back in history to where the roots of the govt. come from to realise this.
Furthermore why would I expect the govt. to touch “them” (the bankers) when in fact the majority of the UK population are “happy” with the status quo ?
The short answer is that I do not.
Unless (sufficient) people demand to put a stop to it and are willing to behave responsibly themselves and to others, then the voters have given the govt. consent (or we at least merit the govt. we have got).
You may find this latter part “reactionary” but it is the conclusion that I reached if you are prepared to be “honest with oneself”.
From where I am standing the situation just looks a lot worse in the USA from the point of fraud and law-breaking that appears to be taking place. I appreciate that it is always dangerous to assume something when one is not actually there.
However I felt there would have been some serious protesting by now and it simply has not happened.
We all get propoganda. One hears of the “American dream” still on the television. I just still find it hard to believe that the apparently huge disconnect between “the image” and reality. I think also that “one does not want to believe it”.
Historically speaking it does not bode well.
However, things have a strange way of working out. I cannot say if things will get better or worse in the longer term. The path that the Developed nations were following were unsustainable based upon the researches that I have conducted.
Furthermore, it has been my personal experience that a “shock to one’s system” can result in a very positive outcome.
And maybe that is the point – it is time for a change whether we like it or not.
Your reply has enlightened me. I shall just have to accept things as best as I can and look forward to a change that I feel must inevitably come.
sirius, I have not read your links but to your comments,… I hold no illusions about how much US lifestyle has been dependent on getting cheap labor and resources from rest of world and horrors our regime have committed in the anme of US citizens. Some of majority or something close to that have supported, at least at first, like Iraq war 2, Vietnam and many things refular US people have no clue about, like how the CIA took out Mossadeq in Iran and replacing him with the repressive Shah.
In my view, US essentially inherited Britain’s and some of Japan’s colony after world war 2 and had the most intact industrial base after war, so everyone was our customer of manufactured goods while we got resourses on the cheap. Plus after a decade of default, we had deleveraged, so we scored on a global economic timing basis and were off and running for 30-40 years, and then another 20 of very nice thank you, even tho declining.
And while China, India, Brazil some other parts of South America, some of middle east have gain as US has delined, I don’t see it directly as US worker wealth transfering to to worker wealth in rest of world. Then I would feel better. But here in US, wealth and income equality have balooned, I get the sneaking suspicion that most of the regular folks wages and demand have simply gone to super rich.
glubilee @ 40
“I get the sneaking suspicion that most of the regular folks wages and demand have simply gone to super rich.”
Too true.
I found this incredible stat yesterday…I had heard it many times before, but this seems to quantify it.
http://thedepression.org.au/?p=1802
Real US wages have delcined by 18% since 1972! I think this is why your post @ 34. The decline in real incomes was substituted by increased private debt (so that lifestyle remain unchanged). 2007 became the tipping point. I think this incredible income inequality is one of the main reasons the US is struggling to recover.
Just my 2c.
bb,
You’re quite right here. For the bottom 80% of income earners, wages have actually decreased since 1973, adjusted for inflation in the U.S. For those within the 11% – 20% bracket, wages have stagnated, but it is the top 10%, especially the top 1% who have captured (monopolized) the productivity gains.
It is outrageous to think that workers who are approximately 45% more productive since 1973 have had to put up with declining wages.
This is why the U.S. is resembling a second world country: islands of incomparable wealth surrounded by a sea of misery and poverty.
The policies that have caused this have been implemented quite consciously, relying upon the economic rationalist program: state protection and subsidy for the rich, and freer markets for everyone else, ludicrously and falsely called free market enterprise.
@glubilee, Philip, bb
Thank you for your replies. They are in harmony with my thinking.
The huge imbalance in wealth distribution was a topic in Chris Martenson’s “Crash Course”. (Well worth watching IMO).
I came across another one of his articles last evening…
http://www.silverbearcafe.com/private/10.10/prediction.html
(I suggest that like most things don’t expect 100% agreement with one’s own thoughts).
For me it’s “back to basics”.
sj, way to go including cialdini’s “influence” on your list, also id put “confessions of an economic hit man” by Perkins on there as well as the follow-up collection of essays “a game as old as empire” for another take on why debt is ‘over-looked’ by economists, ie over-indebtedness as a tool to ensure default is much more effective tool for extracting resources from developing countries than a colonial army.
Mr Denninger is iterating what I am saying as well…
(He also mentions Jimmy Carter – clearly he could not suceed without backing from those around him – backing which he would not get – let alone from the population of the USA).
“”Here Come The Fearmongers (Luskin)”"
http://market-ticker.org/akcs-www?post=168160
“”James E. Carter 1077-81
Jimmy Carter later said of himself:
“I was not part of the Wall Street business Establishment, the Washington political Establishment or the Hollywood entertainment Establishment. I was not part of the Establishment in any way. I was a Southern peanut farmer, populist type”"”
President Jimmy Carter – “Crisis of Confidence” Speech
http://www.youtube.com/watch?v=1IlRVy7oZ58
The truth is the truth whether we “like it” or not. Personally I do not see a problem to living with our “energy means” but this seems to be a vertical cliff to everybody else that I talk to !