Thorstein Veblen lives...

http://www.boingboing.net/2009/03/14/thorstein-veblen-pre.html

Grrr.... Thorstein Veblen is dismayed...

This time, by Harvard's Dani Rodrik.

Dani quotes a former student (now at the ILO) on stimulus sizes from around the globe. The US stimulus is listed as "5.5% of GDP"! If only that were so...

So Thorstein wrote:

The US stimulus is nowhere close to 5.5% of GDP... That's off by nearly an order of magnitude... The stimulus is over three years, not one -- that makes it 1.8%. Secondly, half of it is just plugging the state and local budget shortfalls, so the net size of the US stimulus is perhaps 1% of GDP at best...

Dani, you've got to start butting back on this wingnut stuff a little harder...

Hoisted from the comments!

Anonymous writes:

You seem like you have common sense....why are you in an economics program again?

There is better stuff coming out of the post-Keynesian school - the one that doesn't think that all of the world can be boiled down to 'efficiency' in markets (e.g. the world isn't solved like an algebraic equation).

I'd be interested to hear what you'd like to see taught as economics. I happen to like a book like Jonathan Kirshner's Currency and Coercion (an IR book, but an IR book that deals with the real world and the economy, at the same time!), but I'm also interested in Joan Robinson's work, among others. Besides that, economics students should be forced to be traders for a year as a class so that they are forced to better understand how markets work (or don't work) or don't make sense so easily.

First, why am I in an Economics program (to take that question seriously...) -- merely for the certificate. Times like this, the President feels he needs to trust somebody who's CV says "Economist" even if that person's (Larry Summers) formal academic training is utterly unrelated to the (poor!) decisions he is making now...

Re: "There is better stuff coming out of the post-Keynesian..." Oh, of this I have no doubt. There are good papers out there, certainly. Temin's Treaty of Detroit paper is generally quite solid, as is his "Two Views of the IR", Kremer's long run growth paper is good, Krugman's book on Economic Geography is fantastic, as is Greg Clark's recent book on the Industrial Revolution (or, at least most of it)... These all come to mind, and there are probably lots more good papers out there, just waiting to be read. Unfortunately, 9 out of 10 published (if not 19/20), peer-reviewed Econ papers i pick up prove to be an almost complete waste of time. (And, due to the hard math, that's a lot of time...)

Hmmm... I'll have to check out Joan Robinson & Jonathan Kirshner... Not familiar with either...

What would I teach as economics? Well, I would bring back both reading and writing in the first year curriculum. No real learning goes on by doing mere algebra. I would also bring back discussion section/debate into the classroom. Economics is not mathematics, and shouldn't be taught like it. Would bring back Economic History -- every student should learn about the Industrial Revolution and the Great Depression at a bare minimum. I would keep teaching theory (and still do lots of math!), of course, but it would be supplemented. Presentations, Term papers, projects, class participation and essay questions should be used to gauge student ability in addition to timed math exams. For the second year courses, once students have proved their meddle in the first year, more exams are just redundant. At this point, the professors should just get out of the way and let their students do research on topics of interest to them -- whereas in my program, only half of the courses do this. The other half continue to force students to rote memorize horrendous numbers of utterly irrelevant, intricate models and take difficult, timed math exams... Much of the current Econ Ph.D. sequence just smacks of useless waste of energy. There's lots of commotion, but little real learning or understanding... I posted more about this if you check from about six weeks ago...

AIG, Obama's Bay of Pigs?

I think it's pretty clear at this point that the AIG bonus scandal, and it is indeed a scandal, is the first clear instance where Obama's judgment will be called into question. And rightly so, for it didn't need to happen. There's chatter over at Talking Points Memo that the Congress had inserted language into the bailout money giving Treasury the final say over things such as bonuses, and Larry "we-don't-tell-our-banks-what-to-do" Summers stripped out the clause. Even if this particular anecdote is not true, it is clear the White House could have given itself control over AIG and chose not to. It was an ill-begotten decision borne of fealty to a blind, anachronistic ideology which properly died a natural death 200 years ago in the minds of thinking men. And hence our president, our new blind and deaf Don Quijote as Keynes would no doubt quip, had decided to write hundred-billion dollar checks to banks with no strings attached. The critics had said "you can't separate ownership and control. You'll get asset stripping." Yet our helpless President had entered a dark cavern where the glittering blade lie w/ Larry Summers, who *knows* that the government should let Wall Street run itself.

Thanks to the (well-founded) populist rage boiling throughout the country, I with the Obama Administration good luck in trying to get another bailout package through the Congress this fall when the banks (who say they are profitable) pony up to the trough for another $350 billion...

Free Larry Summers?

If by "free", we mean "fire", then yes, free larry summers!

Noam Scheiber has a truly awful, awful, awful portrait of Larry Summers in TNR...

http://www.tnr.com/politics/story.html?id=aaa57c05-d73e-4321-8893-70d5b45577d1

You see, since Scheiber went in and got to hang out with Larry Summers and drink a Diet Coke, and probably get invited to a White House dinner, they are now friends. And friends scratch each others back. The result is this piece of propaganda fit for Pravda, not for a reputable rag in a free society...

Noam Scheiber is fit to be hanged. And then drawn and quartered.

And yet, TNR will not publish Thorstein Veblen. Woe is me.

AIG bonuses...

These are outrageous, and are also the Obama administration's fault.

The Obama people (Summers, Romer) are saying they are doing "everything possible" to stop the bonuses, but asset stripping, which is what it is, is precisely why you do not separate ownership from control. This is precisely the argument why the government should not merely write large checks and hope everything works out well without taking an ownership stake or getting any sort of control. Listening to the Obama economists, it's clear that's what they've done with AIG. They've written bunches of large, blank checks that let corporate American walk all over them.

That's outrageous.

Gotta Luv Dicky V

http://espn.go.com/

Unrelated to Larry Summers, but click on the Dicky V discussion on espn... He makes the case that St. Mary's of California shoulda gotten into the tournament. They went 26-6 during the regular season, and had their star player injured for four of their losses, and lost another game right when he came back (a little too soon and shot 2 for 16). Yet 20-13 Arizona gets in.

Vitale then argues vehemently with the other commentators, arguing on behalf of the underdog vs. the "power conference" teams, which only makes Dicky V. that much more endearing... I wish he would become a Democrat and make his case for working-class families vs. Wall Street elites...

I am Shocked, Shocked...

To read yet another disappointing Great Depression paper written by an economist. The Christina Romer paper I wrote about earlier, entitled "The Great Crash and the Onset of the Great Depression" turned out to be no better than the Bernanke paper. The new Chairperson of the Council of Economic Advisers writes that the fall in household wealth from the Great Crash was not large enough to cause the reduction in consumer spending that it did. This, as in many GD papers I've read, starts out with too many vague pronouncements and not enough hard facts. She (as does Temin) goes out of her way not to say how large the decline in the stock market was, or how large the decline in consumption was (in the beginning of her paper at least), and farms the evidence that the stock market crash couldn't explain the contraction in consumption to MIT's Peter Temin, who also goes out of his way not to say how much equities declined.

Now, I love Temin (or at least, usually I love Temin), but his Econometric results (in his 1976 book) indicating that a 100% reduction in wealth would only reduce consumption by 1.65% (or 1.52% for an alternative series) is somewhat less than completely credible. Most likely it is non-linear – in normal times, a 10% increase or decrease in my stock portfolio doesn’t have any effect on my spending (especially b/c I don’t watch the stock market every day); but once there is a crash and I become aware that my stock portfolio is down 55%, I start to cut back, and by much more than just .8%...

The contraction in consumption, it turns out, was just 5% between 1929 and 1930, whereas, in the initial crash, the stock market dropped about 33%. So, if you were trading on margin (and everyone was), then that could equate to a 50% loss in liquid real wealth. And, by the end of 1930, the market had dropped more than 50%... So is a 5% drop in consumption thus really a mystery that needs explaining? No, it is not.

And this woman is Chairperson of the CEA. Scary.

Romer: More of the same?

So, I just started in on a Christina Romer paper, and I read:

"This paper argues that there may in fact be a very important link between the stock market crash and the acceleration of the decline in real output in late 1929 and throughout much of 1930."

No kidding. You don't say. Are there really people out there arguing otherwise? Of course, economists never cease to disappoint me. Just when I start to feel that my opinion of the profession couldn't get any worse, I read some new whopper coming out of Cambridge or Hyde Park, like the theory that the Great Crash of 1929 and the Great Depression are unrelated events, or that the current increase in unemployment is caused by a contraction in labor supply...

Mediocre Bernanke...

I just read another Bernanke paper. This one on the Great Depression, entitled "The Macroeconomics of the Great Depression" ... http://www.jstor.org/stable/2077848

This was only the 2nd Bernanke paper I've ever read, and like the first, it struck me as entirely mediocre. Bernanke argues that the proper approach to studying the Great Depression is to take an international, comparative approach. Sure, I agree, but isn't this rather, well, obvious? Bernanke dismisses Temin's critique of Friedman (who has seemingly been proved wrong by current events) by accusing Temin of "talking past" Friedman. The heart of Temin's critique, as i understand it, was that Friedman argued that the Great Depression was all about Money Supply by... assuming it was all caused by shifts in the money supply. I have not read all of Temin or Friedman, but at first glance it looks like Bernanke dismisses Temin (who I think is brilliant and have great respect for), much too easily.

Next, much of the paper has this sort of no-shit-sherlock, I'll-state-the-obvious and-present-it-as-deep-insight quality to it. It's as if Bernanke regresses deaths on gunshots to the head, and then reports that "gunshots to the head appear to significantly increase the liklihood of death, with a t-score of 2.6"... He doesn't go that far, but is anyone surprised that mass banking panics of 1931 would affect Macroeconomic variables in a statistically significant manner? This clearly falls into the category of something everyone knew who actually lived through it... and it also falls into the category, apparently, of novel academic economic research published in a top-flight, peer-reviewed journal.

One main point of the paper, that countries who went off the gold standard earlier did better, is of course accurate. Certainly, i believe that going off gold was the correct policy response, and should have had a positive effect, and in fact did help. Yet, Bernanke screws up when he writes that the potential endogeneity should bias the impact of leaving gold negatively rather than positively, as the worst-hit countries would also have the most incentive to leave gold. It seems to me, in at least the US case, that quite the opposite is true: the US didn't go off gold until after FDR was sworn in (despite being hit the worst), after which all economic policy changed dramatically -- there was an increase in government spending (which bernanke inexplicably ignores and, indeed, appears ignorant of), FDR's banking holiday & guarantee of bank deposits, and all the other New Deal programs... In other words, going off of gold was a proxy for a reverse course in economic policy generally. Staying on gold was a proxy for having economic policymakers that didn't have any idea what they were doing. How Bernanke cannot see this is an absolute mystery.

On the whole, the paper reads like a graduate student's term-paper they wrote over a long weekend in order to sneak in for the deadline, not an academic, scholarly work. One thing I worry about with economics is that, since the peer-review process is not anonymous, once top authors have established reputations, they can publish virtually every paper they write. So, then their incentive is to produce tons of papers very quickly, as they are still assured of publishing their work in good journals. The downside is that their work often feels incomplete, misses the point, and smacks of being written over a weekend, all of which is pretty much a necessity if you are to have an output of 7-8 papers a year on top of teaching and journal editing...

Yet now this guy is in charge of our nation's monetary policy, so it does kind of suck that his analysis of the Great Depression was something short of spot-on...

My Wall Street Journal Tells Me: Things are looking up!

Accordingly, they give a list of indicators of why things are looking up. 1) The stock market is up, 2)Citi & BoA purportedly made profits in Jan. & Feb. (notwithstanding the hundreds of billions of losses last year -- of course, the WSJ had no evidence of this...), 3) Several indicators of manufacturing & consumer sentiment were either flat or up very marginally in feb/late feb/early march vs. january...

Since i'm a bit suspicious of 2), and 3) seems like a wash (things were really bad in january, i don't think it's any shock that things didn't get any worse...), this basically reduces to: things are looking up b/c the stock market is up and all else at least doesn't look like it's getting demonstrably worse.

That being said, I just can't believe that the US is about to fall into anything like the Great Depression. 12% unemployment, perhaps, but not total Armageddon. Dow 6500 does seem a bit cheap...

that wordsmith Keynes...

Lol... Here's Keynes description of Wilson, as he seeks to explain Wilson's retreat at Versailles from the idealism of the 14 points to agreeing to vindictive reparations: "But this blind and deaf Don Quixote was entering a cavern where the swift and glittering blade was in the hands of the adversary."
from the Economic Consequences of the Peace

The only thing which makes me suspicious of Keynes take on Wilson is that Keynes has much harsher words for Wilson that he did for Lloyd George or Clemenceau, even though, on every issue, George and Clemenceau would have pushing for a tougher stance on Germany and Wilson for a softer approach. Plus, if memory serves, the US Senate never even ratified the Treaty as it was b/c of the League of Nations clause (and probably b/c it didn't get the US enough of Germany's money)... So Wilson may have been put in an impossible situation in any event... Had Lloyd George not promised English voters "not to let the Hun off", history might have been different...

http://www.gutenberg.org/files/15776/15776-8.txt

Who's sayin' there's no such thing as bubbles?

Well, I just got into a debate with a professor about it... And this was no right-wing professor, it's a guy who's definitely a democrat. I've noticed there are quite a few Dem-leaning economists who nevertheless feel a need to buy into a certain amount of right-wing propaganda to show the world that they are serious-minded economists...

The commenter Ssendam asked "who's sayin' this?"

Here's the 2nd dumbest paper title of all time: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=557061 "Was there a Nasdaq Bubble in the 90s?"

2nd dumbest, b/c the dumbest paper title of all time was Ben Bernanke's "Is growth endogenous?" Comically stupid b/c, of course growth is endogenous. How much any particular endogenous growth model has to say about reality is another matter...

You can also find arguments that there was no bubble in the 1920s, and that tulip prices in the Netherlands in the 1500s merely reflected fundamentals, and that the recent housing bubble wasn't a bubble t'all...

I don't get it...

Today, the Times published the opinions of 10 "experts" on the financial crisis, and whether they think it would end. I think pretty much every author hit the right tone of pessimism, but even as they acknowledged that things are bad and not likely to get better soon, many would then add that things are likely to turn around by the end of the year. None that I read called for more stimulus. Instead, they wrote things like this:

Today’s low prices, painful though they may be, are the market’s own shovel-ready stimulus. Before you know it, the stock market, and the residential real-estate market, too, will be on their way back up again — just don’t ask when.

In any event, it looks like the debate about monetary policy is over. (In fact, we already knew this.) Why do we know this? Conservatives continue to ask. Well, the evidence is the f*cking 10 car pile-up right in front of our faces, for all to see, that is the world economy which is simply *not* being ameliorated by monetary policy...

Where to begin? Feb. new car sales now expected to be the worst in some 40 years, even worse than Jan., stocks and housing markets hitting rock bottom day after day, 10% plus unemployment expected by yearend, another 600K-plus job losses, the worst consumer sentiment numbers ever recorded which came out in the past week...

Absent another stimulus, however, I still do not see what is supposed to turn things around...