Tom Palley has written an excellent opinion piece for the Financial Times on why Obama is failing, and he requested that I reproduce it here. However, to read it, I’d prefer if you clicked on the link in the title of Tom’s piece below. That will take you to the Financial Times blog itself–the more hits that pieces like this are seen to get in the conventional media, the better (to encourage this, there are some links in the Financial Times piece that I haven’t reproduced in this repost).
Though I concur with Tom’s opinions, I can fully understand Obama’s decision to use the same advisors that Clinton before him (and to some extent Bush) had also used. Fundamentally, Obama is a politician, not an expert in economics, and as a politician determined to take an intelligent approach to the problems confronting America, he sensibly decided to get his information on these challenges from the very best.
How was he to know that the world’s leading economists, the “very best” in this crucial field, actually knew nothing about how the real economy actually functions?
Only after 2 years in office, when the economy is not recovering from the recession as his advisors told him it would, and the remedies that he throws at it (on their advice) turn out to be more damp squibs that the weapons of mass economic reconstruction he was told they would be, must it slowly be dawning on him that may don’t understand the economy.
He’s learning the hard way the lesson I and many other critical economists acquired as we studied for our economics degrees–mostly by reacting incredulously to weird propositions that our Professors would use to derive their models–that there is something rotten in the state of economic thinking.
Fortunately, I had time to undertake scholarly research to confirm that initial guttural reaction. Yes, what simply felt like crap to me rather than wisdom, really was crap: the weird propositions that my Professors would put forward were kludges to hide fundamental flaws in the underlying theory. In full view in the academic literature of economics, paper after paper proved that the theory did not hold together.
Sometimes, as with Piero Sraffa, a critic had proven a fatal flaw in one aspect of the theory (in Sraffa’s case, the theory of income distribution and the concept of a production function linking output of goods to inputs of labor and capital). Other times, it was an “own goal”, as leading neoclassical economists tried to prove something they hoped was true–such as that market demand curves obeyed all the laws they had derived for individual demand curves, and that they therefore necessarily sloped downwards so that there could be only one equilibrium between supply and demand–and proved that this wasn’t true.
In any genuine science, these discoveries, being fundamental to the theory, devastating in their impact and vast in number, would have caused an intellectual crisis that would ultimately have led to a revolution–as with the shift from the Ptolemaic to the Copernican view of the structure of the solar system. But in economics, what happened instead was that these flaws were ignored–if they had been discovered by the critics like Sraffa–or papered over by truly absurd assumptions, if they had been “own goals”.
The end result was that economic theory was an utter shambles of false abstractions, and I wrote Debunking Economics to bring this to the attention of people who fighting for social justice but whose endeavors were being blocked by economists.
Unfortunately, Obama didn’t read it.
So now a man who had hopes to be remembered for not only being America’s first black President, but also for being one of its great social reformers as well, will probably go down like Herbert Hoover, who is known more for his failure to prevent the Great Depression than for anything else. To cite Wikipedia here:
When the Wall Street Crash of 1929 struck less than eight months after he took office, Hoover tried to combat the ensuing Great Depression with volunteer efforts, none of which produced economic recovery during his term. The consensus among historians is that Hoover’s defeat in the 1932 election was caused primarily by failure to end the downward economic spiral. As a result of these factors, Hoover is ranked poorly among former US Presidents.
Such will almost certainly be Obama’s fate as well, though not because he was a poor President but because he was determined to be a good one, and he therefore followed the advice of the economists in combating the beginnings of the Second Great Depression. How was he to know that their wayward economic theories had actually helped set up this calamaity in the first place, and that having caused it by means they did not understand, that they were the last ones who were able to give him the economic advice he actually needed?
So much for me; over now to Tom’s views–and please read them via the link, as requested. One of the many reasons that neoclassical economics has become dominant is that newspaper editors believed, as Obama did, that the dominant economists were the best ones, and non-orthodox thinkers like Tom and I were shut out of the opinion pieces even more effectively than we were marginalized within the economics profession itself. The more pieces like Tom’s get read in the mainstream media, the sooner those days will be over–and the long-overdue intellectual revolution in economics can begin.
Deaf to History’s Rhyme: Why President Obama is Failing
Financial Times Economists’ Forum, December 2, 2010
Copyright Thomas I. Palley
The great American novelist Mark Twain observed “history does not repeat itself but it rhymes.” Today the rhyme is with the 1930s, and if you don’t hear it read FDR’s great Madison Square Garden speech of October 1936:
“For twelve years this nation was afflicted with hear-nothing, see-nothing, do-nothing government. The nation looked to government but the government looked away. Nine mocking years with the golden calf and three long years with the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that government is best which is most indifferent.”
Despite this clarity, the Obama administration insists on hearing a rhyme with the 1990s. That tone deafness has its roots in political choices made at the administration’s outset and explains why the administration has stumbled so badly in its first years. If continued, the economic and social consequences will be grave.
In 2008 President Obama captured the nation with a message of change, yet in office he has chosen to deliver change of style rather than change of substance. At the headline level this choice was reflected in his call for bi-partisanship that looked to split the difference with Republicans. In economic policy, it was reflected in the wholesale reappointment of the Clinton administration team led by Larry Summers and Timothy Geithner, a case of continuity not change.
Now, the administration is sinking under failure of its economic policy. That failure is due to its attempt to revive a 1990s paradigm that never worked as advertised and can only deliver stagnation. Painful though it is for Democrats to acknowledge, the reality is the economic policies of President Clinton were largely the same as those of President Bush. On this the record is clear for those willing to see. The Clinton administration pushed financial deregulation; twice reappointed Alan Greenspan; promoted corporate globalization through NAFTA and China PNTR; initiated the strong dollar policy; spoke of the “end of the era of big government”; contemplated privatization of Social Security; and struck down a core element of the New Deal by ending the right to welfare.
The main difference between the Clinton and Bush administrations was the former’s willingness to offer some helping-hand policies to cushion the harsh effects of the invisible hand. Differences in outcomes were not policy driven but reflect the fact the Clinton administration enjoyed the good fortune of the Internet investment bubble. It also benefitted from the beginning of the housing bubble when American families had plenty of untapped home equity and credit.
President Obama’s fateful decision to go with Clintonomics meant the recession was interpreted as an extremely deep downturn rather than a crisis signaling the bankruptcy of the neoliberal paradigm that has ruled both Republicans and Democrats for thirty years. That implied the recession could be fully addressed with stimulus, which was the same response as the Bush administration to the recession of 2001.
The current recession is the deepest economic downturn since the Great Depression of the 1930s, inviting comparisons with President Franklin Delano Roosevelt. FDR had the advantage of taking office three years into the Depression when the unemployment rate was near 25 percent. The verdict was in: the system needed change. President Obama took office as the crisis was deepening. Those who had designed the system could still argue it could be revived and as establishment insiders they had the upper hand. But that argument is done and today the prospect is of long stagnation.
The New Deal was a break with both the politics and economic policies of the past. Its economic policy innovations like Social Security, the Securities and Exchange Commission, the Fair Labor Standards Act, and the Wagner Act granting the right to organize, are still celebrated. However, it was FDR’s new politics of solidarity and compassion that created the necessary political space: solidarity that recognized the country was in the Depression together and compassion that recognized many were suffering through no fault of their own. That is the political rhyme President Obama must hear, while the New Deal is the policy rhyme.
The President’s failure to deliver on the country’s desire for change of substance has left a vacuum that is being filled by dangerous unstable forces. This is the tale of the Tea Party, which is a tale that has resonance for Europe. The economic risk, already more advanced in Europe, is a doubling-down of disastrously failed hardcore neoliberal economic policies. The political risk is a rise of intolerance and xenophobia.
These are not normal times. If the administration persists with its deafness to history it will surely hit the rocks and an historical opportunity for progressive change will be squandered. Worse yet, its deafness will leave the field open to the extreme right whose “blame-the-victim” social message and “liquidationist-austerity” economic policies clearly confirm today’s rhyme is with the history of the 1930s.
Off topic:
Is this statement from a recent ‘Economist’ article always true or only for neo-classical economic models?
“It is an economic truism that savings must equal investment. However, desired savings can be greater or less than desired investment: the two are equalised via the level of interest rates.”
http://www.economist.com/node/17680726?fsrc=scn/fb/wl/ar/savingsinvestment
It’s straight neoclassical static equilibrium thinking DrBob.
they should re name the economist magazine the
“conomist” magazine dr bob,
i have a box full of magazines(all wholesome reading and even some of steves blog articles) in my bathroom dr bob,
which i use for whittling away the moments in there.
yes i know, too much information, may be given away a bit of a snap shot of the psyche there,
but i should have a copy or two of the economist(conomist) magazine in that pile, incase i forget to do the shopping and run out of loo paper.;)
or maybe use it for picking up after the dog during walkies
apologies to anyone in the middle of lunch
lateline continuing to interview its editor in chief is a source of great annoyance and frustration to me.
@ mahaish says:
December 11, 2010 at 9:30 am
There are two entirely different issues to confront and both need a separate approach, resources, skill sets and tacit knowledge:
1. Fixing the global “economic” bind that we are in at present and which will soon end in total collapse (demographically expressed), and
2. Designing and commissioning a totally new scalable socio-economic system which caters for both the real economy as well as the growth industries (wall street), where the former is protected from the losses of the latter.
Note: To achieve both, one must first arrive at a scientific explanation for an heuristically defined and dynamically sound algorithm which fits all the scalular effects (not just the preferred effects) while secondly, defining a sound monetary medium and its distribution and regulation.
It is my considered opinion that item 2. (above) is far easier and more simple, technically to achieve than item 1. (above) but given the human behavioral and moral hazard effects, we are only get to either by first experiencing a World-wide collapse of great magnitude, a priori.
I believe that we can only ask integrity of Ron Paul, , which will be a great step forward for mankind, to say the least, and a nice change; personally, I like the man.
p.
On what basis do you claim that Ron Paul has a problem with private banks printing credit notes? Dr Paul is a libertarian, he believes that free people should be able to enter into business on the basis of any mutually acceptable agreement. In one man wants to accept the IOU of another man, that is their business not mine. But if that IOU happens to turn into a broken promise, it’s not my business to pay the difference either.
Ron Paul specifically has a problem with the Federal Reserve, in particular the fact that the Fed can operate in secret without any checks and balances, and whilst operating in secret it also has massive intervention powers in the economy by driving interest rates and by issuing federal reserve notes that are not backed by anything other than government fiat that forces people to accept these notes in payment of debt.
That was Ron Paul in 1981. Pointing out the danger 30 years ago. He could not get anyone to listen.
That was Ron Paul in 2002, but still no one listening. Note the bit that I highlighted, interest rates set by a central bank. Are you claiming that our modern central banks do not manipulate interest rates? Why is it so difficult to understand the difference between a voluntary agreement and the end product of the use of force?
That was Ron Paul in 2009 (talking about the Federal Reserve and the bank bailouts). This year, 2010, he said:
How long before the US government decides to snatch all the privately owned gold? Can’t happen?
Philip,
How do you prove that Australia’s 1890′s depression was caused by gold? The period before this was a great boom for Australia, indeed it was the discovery of gold in 1951 that was one of the drivers of the boom, so on what basis is gold somehow blamed for the bad times but irrelevant to the good times? Smells plenty fishy.
What about the massive union strikes when they could not keep their boomtime/goldrush wages forever? I suppose you claim they were boosting the nations prosperity by refusing to work. The more people refuse to work, the more prosperous the nation becomes…
Anyhow, I’ve posted above covering stuff about Ron Paul and his sound money ideas.
By the way, strictly speaking the USA ran a silver standard through most of it’s early existence, not a gold standard… not that the difference is particularly significant.
This is my own opinion, not Ron Paul’s –
Every bit of credit currency (i.e. all paper money) is a promise, and nothing more than a promise. It is a promise that at some future time you can redeem this bit of paper for something useful. Every promise is a risk… a risk that the promise will be broken and the redemption will not happen. Now, not all credit is equal to all other credit, because not all promises are equal to all other promises. I can write an IOU for 100 Australian Dollars and I can offer that as payment, you are entitled to accept or reject that payment as you see fit. That’s a promise backed by me. If you trust me you might accept, if you don’t trust me, you would probably reject. If you are a bit unsure you might not accept at full face value and demand I offer $150 of IOU to cover $100 of debt because you factor in the risk.
Let’s consider a whole room full of people all holding various IOU’s from each other. They can keep writing IOU’s forever but no one knows who is rich and who is poor because each one has forgotten the total dollar value of the IOU’s he or she has written, only knowing the total dollar value of what he or she is holding. Note that those IOU’s all have a person’s name on them… so although they are all denominated in dollars, they are not all equal because not all people in the room trust each other in equal amounts. A whole network of trust relations exists in the room so we have a state of entanglement. For arguments sake, consider that the total value of the IOU’s in the room is $10,000.
Now we introduce one silver dollar into the room. That’s 1 part in 10,000 of the money in the room. It makes negligible difference to the total value of IOU’s in the room, but the silver dollar has the special property that everyone in the room has full and complete trust in the value of silver. The person with the dollar then pays back just one dollar of what they owe, and the recipient goes and pays back one more dollar of what they owe and round and round that one dollar goes all over the room. Gradually the total value of IOU’s in the room depletes, so the total value of credit is reducing. This process is called “clearance”.
Eventually, the silver dollar lands at a person who has nothing more to pay back, so someone writes them an IOU for one dollar and swaps that over for the silver dollar and the clearance process continues.
It might be evident at this stage that if there was an honest banker in the room, and if the people in the room trusted the banker, then that banker could write up all the IOU’s onto a sheet and shortcut the clearance process. That is to say, a banker who is both honest and trusted can also operate a clearance system in the same way as the silver dollar operates a clearance system. The difference with the silver dollar is that any of the participants can check it at any time to prove that it really is what it pretends to be. It is much more difficult to audit the banker.
Either with silver or with a banker, the clearance process removes the entanglement from the IOU’s but it won’t reduce the total credit all the way to $0. Unless everyone in the room has done exactly the same amount of work, not every IOU can actually cancel at all. There will come a stage where no more clearance is possible — at this stage we know who is rich and who is poor. Presuming that everyone started the game at $0 (only valid for a closed system with an instantaneous start time) the rich are carrying the IOUs and they are also carrying the risk — a risk that the poor will not pay back what they have promised.
So clearance is one way that credit money can deflate. It happens all the time and we tend to ignore it, but it happens. It’s a healthy way for debt to deflate, and naturally limited to only cancel one debt against another where they can logically cancel.
Another way that the debt can deflate is that the poor work to pay back the rich and gradually the rich expend their savings of IOUs and the poor end up owing less and less. In a mixed group of people with mixed fortunes some poor and rich will regularly be exchanging places. We would expect that while old IOUs are being paid back (via the clearance process), new IOUs are being written as well so the total credit in the system reaches a floating equilibrium (lets say, at $5000 for the whole room).
OK, but what if someone keeps writing IOUs but never does any work to pay them back? Then that person represents a risk to the other people. Let’s call this person “Credit Risk Charlie”. There will come a stage where people are reluctant to accept an IOU with Charlie’s name on it, so when they see $100 nominal value IOU and Charlie’s name, they only accept that as payment for $50 of debts (remember this is a system where no one can be forced to accept any transaction). But maybe already a bunch of people are holding IOU’s with Charlie’s name on them so all of those people take a haircut. For arguments sake, suppose Credit Risk Charlie manages to run up $1000 worth of IOU’s before the rumour goes around that Charlie is a bit dodgy and suddenly that $1000 of IOUs is only worth $500.
The system as a whole drops from $5000 of debt to $4500 of debt.
Now Charlie finds he has to offer double the money for everything he buys, because people don’t trust him. So Charlie gets his knickers in a twist over things and refuses to work at all for anyone. Fair enough, it’s a voluntary system we can’t make him work. Now the people holding IOU’s signed by Charlie find they are worth nothing at all, the system as a whole devalues to $4000 worth of debt.
This is the other way that credit/debt can be destroyed — broken promises.
But there’s a third way it can happen, when after the Charlie episode, everyone in the room is a bit suspicious of everyone else. So they go about business as usual, and concentrate on paying back their IOU’s but they try not to write any new IOU’s and try to avoid accepting any new IOU’s. They just concentrate on working down the debt they have and not racking up any new debt. This is slow deflation and it implies lowering consumption. People feeling nervous will try to minimise their risk so they won’t want to accept IOU’s so a loss of confidence as a whole also drives deflation.
That is the third way you can get deflation — loss of confidence, risk aversion and general distrust. The bad thing is that this also slows down business as a whole, people fall back to survival mode and focus on the basics. There is absolutely no way you can force people to trust one another.
Once we get to this stage, you can “pump prime” the economy as much as you like and nominally you can indeed fill up the hole left by the deflation, but you can’t rebuild the complex network of trust that an economy operates on. If you combine that with obvious fraud, and poor implementation of the rule of law you drive that trust down to rock bottom, then lots more promises get broken, and it all gets worse.
Wait a moment… if Ron Paul is holding gold and just wants to see it go up, why does he keep trying to find ways to block the factors that he believes are driving inflation? Why is he pushing to cut government spending? Why is he trying to prevent the Fed from buying treasury bonds? Why does he want interest rates to go up?
There was a “free” banking system in place during the 1890s depression. Some of its characteristics were:
- No central bank
- No deposit insurance
- No bailouts
- No big four banking cartel (as is today)
- Gold standard
- Minimal regulations
According to the “free” banking model, this is as pure as one can get. As such, according to its advocates, there should’ve been little to no boom-bust activity. Unfortunately, the spurious a priori theory they adhere to has little to no relevance to the real world. As Steve has pointed out, such banks will eventually lend out more than they have in reserves, as banks, like any business, are placed under great pressure to maximize short term profit.
Even granting that banks under the “free” model do not lend out more than they have in reserve, there is nothing inherent within the system that prevents loans from been used to speculate on assets, in this case, residential property.
Two papers bring this to light:
Hickson, C. R. and Turner, J. D. 2002. Free banking gone awry: the Australian banking crisis of 1893. Financial History Review 9:147-167
Fisher, Chay and Christopher Kent. 1999. Two Depressions, One Banking Collapse, RBA.
So what happened during the lead-up to the 1890s boom and bust? “Free” banks lent out loans to be used for purposes of speculation – something that can not occur according to their theory because all agents are rational and markets are either in equilibrium or tending towards equilibrium, which leads to another assumption that assets are priced correctly. There is no other factor apart from lending under the “free” banking model that caused the bubble and subsequent bust.
Austrians and neoclassicals suffer from the “markets are perfect” syndrome, so that if any defect arises in the economy, it must be due to external causes e.g. government policy or unions. This is why Austrians et al are so reliant upon constructing their economic models with unrealistic assumptions: it “proves” that markets, in this case, financial markets, work smoothly, thus every problem can be blamed on external parties.
Austrians et al like to make a lot out of the fact that central banks manipulate interest rates, supposedly leading to bad investments, but it is only one small part of why financial markets do not function correctly. Perhaps if they decide to leave their unrealistic theory behind and instead focus on how markets do actually behave rather than how they ought to behave, maybe then they can begin to figure out that their policies are not sound.
ron paul has a very selective memory tel,
free banking when there was no fed was a disaster, thats why the fed was created,
a look at banking history since 1778 is testament to this ,
ditto for the gold standard or gold exchange standard,
the fed or the treasury arnt the problem,
its the ridiculous arbitrary rules that congress imposses on them, and the mantra these days that central banks should be allowed to target interest rates.
the financial crisis pre and post lehmanns, we could argue happened to an extent because regulators and libertarians like greenspan employed free banking principles to a degree and turned a blind eye to the dubios financial engineering going on in the banking sector, in the missguided belief that the market mechanism was transparent enough to allow accurate risk assessment and pricing.
they didnt figure on market transparency having its own form of kryptonite in the form of the corporate veil
I have the strongest feeling that powerful forces through their weight behind Mr.Obama before he became President Obama because of his abilities as a consensus builder.
I feel that President Obama’s most important ability at the time was to help reduce the US internal bipartisan divides, and to help reduce the global divisions emerging as a result of the previous administration.
In fact, in retrospect, if you think about the language that was used during Mr.Obama’s campaign, it was very much centered on change that removed divisions, was hostile to divisive forces and so on.
While this may have averted some dramatic political crises, it is precisely this consensus building approach that is perpetuating the current economic crisis; what is needed is a clear, statist, state-directed, authoritative intervention. The state must now direct the economy out of its current predicament. It must invest in new technologies, it must invest in new ways of organising society, and it must create a new vision for its populace or humanity in general.
through = threw
The most basic rules of a libertarian free market economy are that all transactions must be voluntary (i.e. all parties to the transaction willingly accept the deal without coercion) and that no fiat exists creating false value. Another general rule for any marketplace is to maximise transparency and availability of information for the participants.
How were these fundamental principles followed to a degree? In the modern economy, 25% of GDP is tax. That is to say, one quarter of all transactions are non-voluntary. Actually, more than that because of the very large number of regulations on business forcing them to undertake activities, probably up to one half of all transactions are non-voluntary. No one knows what a US dollar is worth, because they are issued in secret. How many are being held outside the country? No one even knows the inflation figure, because the US government has a vested interest in underestimating to avoid CPI linked payouts.
You call that a free market system? It’s a scam system. And yes it is true that every free market has it’s share of scams, but a small scam falls over without dragging the whole system down with it, the perpetrators get punished, the victims get over it. The only thing central banking does is centralise the deceit; give more power to the perps and less chance of justice for the victims.
Strange how much the USA was able to actually achieve during it’s early years in terms of growth, productivity, entrepreneurship, and opportunities. What have they achieved in the most recent 50 years under their wonderful central banking system? Inflation, stagnation, farmers going broke and being driven off their land, manufacturing closing down, real industries going offshore, growth in scam industries like mortgage broking and financial paper shuffling. Other growth industries are drug addiction, and ineffective but violent law enforcement — more cops, more junkies. Lovely central bank though, pity nothing useful comes out of it.
“Another general rule for any marketplace is to maximise transparency and availability of information for the participants’
precious little of that on wall street tel
we had a libertarian experiment on wall street in recent times , where we let the market rip, and the regulaters like greenspan and benanke let it rip,
and we had a payments crisis
and we know how well that turned out. the consequenses of free banking are there for all to see on wall street.
if ron paul has a problem with the fed trying to pick up the pieces afterwoods, he needs to understand that its his misguided conviction that markets can solve some of these systemic issues, that got us to that point in the first place.
we live in a world of thick black theory(thick face black heart) as far as corporate politics is concerned.
anything being voluntary, is just a quaint euphamism.
So you point out whole bunch of ways that our current system does not follow a libertarian free market design. Then you go and claim that there was a libertarian experiment which failed. You can’t have it both ways you know.
well no tel,
actually im pointing out that libertarians like ron paul, peter schiff , alan greenspan et al, and free banking advocates are wrong full stop, when it comes to advocating free banking without a central bank that is,
and what happened on wall street with lehmanns and others before and after is proof of it, with a highly deregulated securities market, and the fed out to lunch while the invisible hands in the market place were trying to pick each others pockets
there is a high inelasticity of demand for reserves in the banking system, free banking advocates and libertarians like ron paul dont have a solution for this. the central bank is evil and unneccesary ,full stop, in their eyes. but without a central bank who’s going to gaurantee the payments system. we are just asking for a banking crisis under these arrangements.
please dont misconstrue my resistance to free banking as a measure of support for current US government policy regarding their banking system, because its not, far from it infact. i actually use to be a fan of ron paul, and i still may be on many other things, but not on this stuff.
Well you obviously have yourself convinced, so the contradictory statements must make sense in your mind, there’s nothing more I can say that hasn’t been said by Ron Paul and many others. All I can do is make a prediction:
Wherever there are central banks issuing fiat currency there will be inflation. A little bit of inflation we can live with, but large amounts of inflation will harm the poor, and damage the economy for everyone. The Keynesian stimulus will not encourage growth in the US economy and the US dollar will continue to devalue. I expect that before too much longer the waves of inflation coming from China will wash into Australia too (we are really too small, and too open to protect ourselves no matter how careful our own central bank might be).
Frankly, I don’t care. I bought a house and took on a mortgage precisely because I knew that under our current system inflation will pay that mortgage, and government dingbats will sacrifice anything and everything to keep the housing market rising. If interest rates go up, I’ll just go to my boss and demand a pay rise. He will increase prices for his customers, they will increase prices for their customers and so it goes for another round of interest rate rises. It’s an unfair deceitful system and it hurts the poor but until the poor learn to use their votes constructively to demand a real working system (rather than accepting short term welfare bribes, cleverly designed to keep them perpetually poor) then all I can do is point the finger and say, “that is the way to prosperity” then hunker down for the storm. Pretty sad outcome, but I’m doing what I can.
The “onion” is unravelling…
I find the following fascinating viewing….
(if nothing else watch the first 3 minutes of each video)
Obama and Clinton
http://market-ticker.org/akcs-www?post=174712
Bernie Sanders (was he the guy who culled the action to audit the Fed? – the sister bill to HR1207 ?)
http://market-ticker.org/akcs-www?post=174718
(Please don’t assume that I agree or disagree with any of the above).
@ Sirius . Why is it fascinating to watch Clinton and Obama? I don’t get it.
As for Bernie Sanders, it’s sad to say that more than once he backed off and went with the Democrats. For a long time they refused to ever filibuster in Congress because that would be stooping to the Other Side’s level. But NOW it’s ok? What has it accomplished (other than some MSM soundbites)?
If that’s not enough, now it looks like Obama supports the end-of-the-year extension of the tax cuts that will only benefit people at the top. Why? Is this “bi-partisanship” as Obama understands it? Is this to gurantee their vote for him in 2012? At this point, I don’t know what to believe.
As for the usual line of “be sure to fax and ring up your Senators and Representatives”, that doesn’t work. I’ve been blown off by literally every major progressive politician in Congress. I really believe that they train all of their staff to blow off constituents (no matter what the issue is). If you listen to what they say and HOW they say it, many times it’s obvious it’s either memorized as part of their “training’. Or, it’s a telemarketer script that they read before they hang up on you. Now, if we did this everyday in the “real world”, we’d be sacked. Then again, reality doesn’t matter Inside the Beltway.
Hi i know this question isn’t relevant to this article but i was just wondering if we have finally crossed the Rubicon of the housing bubble with swans report saying on page nineteen that they are purchasing another 4 billion in RMBS ?
Hi fmcurcio,
It is a Rubicon event of sorts. But in Caesar’s case, he knew what he was doing, and he conquered Rome. I think this is closer to a Nero analogy.
It is interesting to note that Herbert Hoover was an Engineer, I feel certain that he would have reached a better understanding of the problems facing the world economy when the problems started but would have also realised that there was nothing that he could do to save the situation.
The problem is that the development of economics started and ended in the elightenment with Adam Smith while the development of science and technology started and took off with Isaac Newton and many others and has not ended yet. Newton was a giant and said that he had seen further because he had stood on the shoulders of giants. Many others have stood on Newton’s shoulders since and look what we have now in technological terms. Nobody, but nobody, has bothered to stand on the shoulders of Smith, Newton and many others to see further in economic functionality and dynamics until Steve Keen. Meanwhile the world has endured about 250 years of economic nonsense with three world depressions with another one pending. Other “economists” did see the present problem brewing but could not give a cogent explanation of the mechanisms at play. Steve Keen has given such an explanation but the “Economists” of the world lack the mathematical ability to fully understand his explanation whereas any Engineers who takes the trouble to read his work is able to see just how superficial and useless the discipline of Neoclassical Economics really is.
Herbert Hoover would have thought, and most Engineers even now would think, that economics is a genuine academic pursuit based on the sound use of mathematics while it has never been that. It makes no real use of calculus, the work of Newton and Liebnitz. Curiously the control theory which lead to the design of stable control systems which in turn led to things such as safe mass air transport and interplanetary space probes was developed at the time of World Depression 1 by Bode, Nyquist, Shannon and others. Economics being much slower could have been mastered much earlier but it seems that greed and self interest has always got in the way of a genuine academic approach.
The very denial of the relevance of time and factors which cause delays make it impossible to analyse or even understand feedback loops, the most ubiquitous mechanisms in the whole economic system. If things were really simple a single feedback such loop could create “General Equilibrium” but they are not that simple. This ignorance also makes it possible to ignore exponential growth in such parameters such as household debt, current account debt and fiscal debt, while any engineer sees exponential rises as akin to detonation and the harbinger of of a system failure . Steve Keen’s “Roving Cavaliers of Credit” explains a feedback loop which shows that banks create credit, credit creates deposits and these deposits are used to create the credit. In a world with TIME here is no start or end to this loop and each of these processes can be influenced by external factors or influence external factors. Neoclassical economists who imagine a world without time can only see part of this loop. TIME must be taken into account DELAYS must be taken into account and it must be understood that if the loop gain exceeds ONE (e.g. once around the loop and there are more “deposits” than at the previous time) the system will go into run away, rise exponentially and eventually FAIL.
Herbert Hoover must have been very relieved to loose the election and hand over to someone who could care because they didn’t understand, not despair because they did understand. At least President Obama not being and engineer, will not be despairing at present.
Thanks for all your great work your doing
You’re being a bit unfair to Smith’s successors. David Ricardo in particular did some good work at the beginning of the 19th C. Things only started going badly wrong with economics at the end of the 19th C when the ultra-rich realised that they could influence the direction of economics research by threatening to to withhold their charitable donations to universities and foundations who were giving tenure to professors that were producing the “wrong kind” of research or educating their students to hold “incorrect” beliefs. Mason Gaffney and Fred Harrison have written an interesting book on this particular aspect of economic history. It’s called “The Corruption of Economics” and discusses why neoclassical economics was originally created to replace classical economics.
Philip,
You are an ignoramus when it comes to Austrian economics. Austrians do not believe that the markets are perfect and can correct any problem. In fact, one of their main points is how free banking causes the business cycle. Murray Rothbard is completely against free banking. I’d continue to correct all your mistakes but I’ve got better things to do. Stop listening to straw man claims about the theory and read it for yourself.