Predicting Bubbles on Modeled Behavior: I think we can see and measure booms and bubbles. I just think we’re lying to ourselves when we say we want to stop them. We WANT people to live beyond their equilibrial (‘natural’) value to the world market. Bubbles and credit help us do that. If predicting bubbles meant that the class structure would become even more rigid (it would) then would you want to eliminate bubbles? Or would you simply try to allow them to pop earlier? We can predict bubbles. Because they’re easy to predict. A bubble occurs whenever people seek to sieze opportunities in a domain in which they have no expertise. ie: when they are gambling on momentum – swarming. You cannot necessarily deduce a bubble from the trading data as other than some vague heuristic driven by price volatility. But if you survey consumers you can deduce bubbles all the time. If members of the lower middle class, and upper proletariat are speculating then it’s a bubble. If people outside a field are rallying to create speculative gains rather than PRODUCTIVE gains, then it’s a bubble. (PRODUCTIVE meaning that they applied additional capital to the thing that they purchased, prior to reselling it.) There is always value created by speculators who identify asymmetry of information and profit from informing others of that asymmetry. There is no value created by speculators who are swarming information that they do not understand, and where capital is not applied to transform the asset they wish to resell — in effect, where speculators are distorting information in the pricing system. (Ethically, this means liquidity encourages fraud.) If we are borrowing to create productive increases so that people can live a higher standard of living now than they could in the future if they had the ability to use current knowledge to create current production, then it’s good spending. If we are providing liquidity because of a shortage of ‘money’ (money in the broader sense) then we are helping people to create the highest level of productivity possible. If we are borrowing to to increase consumption without increasing relative production (exports) somewhere else in the economy, then we are not creating productivity and spreading it around, we are just going into debt by consuming now despite not increasing productivity — i.e. the ability to pay it back. A bubble is a knowledge problem caused by the failure of the pricing system to convey accurate information to participants in the economy. Cheap GENERAL credit allows average consumers to swarm opportunities. Productivity matters. The inter-temporality of consumption vs production matters. And disconnecting consumption from productivity causes booms and busts. So, again, maybe we (you) actually want our booms and busts if it gives people the ability to consume during booms that would never be able to consume goods above their economic class otherwise? But targeting inflation or nominal GDP is too loose a tool for accomplishing policy goals unless the country is small and relatively homogenous.
Category: Economics, Finance, and Political Economy
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Krugman Watch: Culture Is A Status Economy
The assertion that Europe’s crisis proves that the welfare state doesn’t work comes from many Republicans. … The idea, presumably, is that the crisis countries are in trouble because they’re groaning under the burden of high government spending. But .. the nations now in crisis don’t have bigger welfare states than the nations doing well — if anything, the correlation runs the other way. Sweden, with its famously high benefits, is a star performer… Meanwhile, before the crisis … spending on welfare-state programs … was lower, as a percentage of national income, in all of the nations now in trouble than in Germany… Oh, and Canada … has weathered the crisis better than we have.
( Sweden is a small homogenous protestant germanic country. It is an outlier. ) No one argues that highly redistributive societies are possible. We argue that large redistributive empires are impossible. This impossibility is caused by the fact that the social ‘economy’ that consists of opportunities, habits, manners, ethics and morals consists of a set of ‘costs’ that people must bear by ‘forgoing opportunity for privatization’. This forgone opportunity economy’s currency is status and this status economy rewards people for paying the fees of forgone opportunities. Money is the tool by which people pursue status by competing in the market. In any economy, racial and cultural (linguistic) diversity creates diverse sets of status signals cause economic competition that discourages redistribution. Therefore a redistributive economy can only persist in a homogenous society. And a rich, redistributive economy is only LIKELY to persist in a country where people are homogenous — culturally and racially. So, all external factors being equal, because of signaling, all empires are under constant pressure to fragment into tribes, and all tribes are under pressure to develop competitive institutions. Nationalism then is a prerequisite for wealth and redistribution. As Taleb states, the Levantines thought they were special too. Until there weren’t enough christians… Germanic protestants resent Northern germanic-italians resent souther greco-italians. And public intellectuals resent the status of both politicians and entrepreneurs and seek to alther the status economy for their benefit — just as Schumpeter said they would. 🙂
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Economics is a subset of politics, not the other way ’round. In the long run we are all human.
from Modeled Behavior on the Jobs Report
…here is the long-run trend on private sector service sector employment.
Notice that its just as strong as the last recovery though coming sooner. Not quite as strong as the 80 and 90s. On the other hand goods and government over that period look like this
To the extent there is a structural transformation afoot in the US economy, this is it.
Yes, the average citizen can attest to the fact that you’re correct simply by casual observation while living daily life. The problem you’re stating is obvious. But the question that is currently circulating in the popular media is whether increased money supply that increases demand, and whether additional taxation and redistribution, will improve that long term trend, or whether we had better improve our schools, improve our industries, improve our infrastructure, and improve the world marketability of our unskilled, and semi-skilled working classes. We cannot make our lower classes more productive by demonizing our upper classes. And we are too heterogeneous now to form a ‘society’ that will support different classes under the emotional sentiments of tribal nationalism. Germany promises the working classes skilled labor. America promises the working classes entry into the middle and upper middle classes. But, america’s promise if false. Its just not possible. And what you’re seeing today is the acknowledgement among the laboring classes that their status is depreciating along with their incomes, and that given their ages and knowledge, that the rest of their lives are questionably comfortable due to the false promise of middle class membership — given to them to assuage the natural problem if integration of races and cultures with different potentials both environmental, physical and cultural. Economics is a subset of politics, not the other way ’round. In the long run we are all human.
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Illustrating The Moral Dilemma Of Monetary Policy Using An OWS Poster
Illustrating The Moral Dilemma Of Monetary Policy Using An OWS Poster http://www.capitalismv3.com/index.php/2011/11/illustrating-the-moral-dilemma-of-monetary-policy-using-an-ows-poster/
Source date (UTC): 2011-11-05 10:37:15 UTC
Original post: https://twitter.com/i/web/status/132768432369319936
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Karl Smith says that a government with it’s own currency can never be insolvent.
Karl Smith says that a government with it’s own currency can never be insolvent. But this is not true. There is a very practical point whereupon the rate of inflation makes planning and coordinating production impossible because prices along the production cycle are no longer calculable. At that point production rapidly crashes, consumption rapidly crashes, people ‘forget’ skills and relationships that make businesses cooperate. They abandon social conventions and mores. They develop black markets for goods and social status. The tax base crashes. And public order fails. To the modern macro economists this is an absurd and impossible probability. To Austrians it is a deterministic and logical consequence of monetary policy.
Source date (UTC): 2011-11-05 07:02:00 UTC
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RUMINATION: Macro always seems to have a sort of 19th century concept of an econ
RUMINATION: Macro always seems to have a sort of 19th century concept of an economy — one of trying to distribute the basics, rather than a 21st concept of an economy that consists almost ENTIRELY OF STATUS SIGNALS.
Source date (UTC): 2011-11-05 06:57:00 UTC
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Jarrow On Predicting Asset Bubbles
In, How to Detect an Asset Bubble, Robert Jarrow, Younes Kchia and Philip Protter describe the method by which asset bubbles can be deduced from the asymptotic behavior of prices. I can just about follow the reasoning, and it make sense – although they don’t explain WHY it makes sense as a series of incentives and actions – which an Austrian would require. And I while I appreciate their work, I’m struck the the fact that, at least for me, asset bubbles are so easy to detect that it’s ridiculous: The old adage that if your gas station attendant or your school teacher is concerned about it then it’s ready to pop, and you should sell.
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Why 30 Large Companies Paid Only 18% Tax
Rick writes:
RE: “One big one is accelerated depreciation that lets them write off equipment faster than it actually wears out. Deductions on executive stock options help. So do tax breaks for research and development and for making products in the United States instead of overseas. Offshore tax shelters play a role, too.”
They enacted accelerated depreciation because the usa has the second highest total corporate tax burden in teh world, second only to japan. And this tax burden is equally distributed against low risk companies like the financial, legal, accounting, and other services sectors as well as the high risk companies that require significant capital investment in order to function. So what was happening, because of this extremely high corporate tax rate, was that high capital investment companies were going broke or leaving the country, depriving the country of unskilled, and low skilled, labor-class jobs. For example, the state says that your laptop must be depreciated over three to five years, however, in reality, it becomes almost valueless the moment you buy it. IN this way the state artificially increase profits and increases taxes on those profits by disallowing companies to expense things like laptops at the low end and mechanical equipment at the high end. This process effectively forces heavy industry to be uncompetitive on the world stage where other nations actively subsidize those heavy industry investments. These tax breaks effectively BUY JOBS that would depart if not. IN the case of power companies, it makes no sense to tax them if the all it does is pass through costs for energy to consumers. So we are BUYING cheaper energy for consumers by offering tax breaks to them. Executive stock options are not ‘real’. The purpose of stock options is to create an incentive for execs to increase the value of a company for shareholders. Options differ from stock in that they are not taxable until you exercise them. If you grant stock to someone they have to pay taxes on it now, despite the fact that no one has made any money yet. That would be like asking you to pay your taxes for the year, before you could take a job and earn the income. Options differ in that they give people incentives even though they are rarely paid out except in public companies, but that the employee only earns income if the stock appreciates in value – ie: they were successful. Offshore income is necessary because most corporations make their money these days outside the country. If they did not, then they might not even exist. We give shelters to people and companies because if we didn’t they would just circumvent the system or they would leave teh country entirely because the opportunities in the developing world are higher than they are domestically. The majority of depositors in swiss accounts are average european citizens who are hiding their incomes from high taxes so that they can retire safely and in some degree of comfort. Europeans rarely own homes and they tend to live in apartments, and so they do not have home equity to rely upon at retirement. If you want to tax goldman sachs you won’t get any complaints. But politicians making tax policy are far more rational than we think they are
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Profit Is Not A Motivator – It’s A Sensation
Profit Is Not A Motivator – It’s A Sensation. http://www.capitalismv3.com/index.php/2011/11/profit-is-not-a-motivator-its-a-sensation/
Source date (UTC): 2011-11-03 18:23:18 UTC
Original post: https://twitter.com/i/web/status/132160941457539072
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Untitled
http://www.capitalismv3.com/index.php/2011/11/linda-beale-says-inequality-is-a-fact/
Source date (UTC): 2011-11-03 15:36:00 UTC
