http://www.forbes.com/sites/steveschaefer/2011/11/30/bernanke-ecb-throw-more-dollars-at-europes-crisis/You know, back in 2006 I didn’t resort to calling people ‘idiots’ when they suggested that the world was decoupling. (I leave the name calling to Paul Krugman.)
If there was any illusion left, it was wiped away today.
Source date (UTC): 2011-11-30 22:31:00 UTC
“Capitalism without failure is like Christianity without Hell. You have to have atonement for ridiculous levels of spending both the US and Europe have gone through. The spending idiocy of the world is going to catch up to itself. And that’s where we are today.” — Kyle Bass, Hayman Capital
Source date (UTC): 2011-11-19 07:55:00 UTC
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.
“In four years of reflection and rather intense involvement with this financial crisis, not a single aspect of dynamic stochastic general equilibrium has seemed worth even a passing thought. … I think the profession is not entirely innocent.” — Larry Summers
Source date (UTC): 2011-11-11 11:29:00 UTC
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. 🙂
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
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
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.
http://blogs.wsj.com/economics/2011/10/25/a-look-at-case-shiller-by-metro-area-5/tab/interactive/Seattle/Portland (Northwest) home prices continue their decline.
I should go through my email from 2004-2006 and see how many people said I was out of my mind. Nope. Wasn’t. And Im in the camp that says it won’t get better for a very, very long time. Originally I said 2014, but maybe as long as 2020. How to fix it? How to fix the economy? Do what I recommended in 2007, what Galbraith recommended in 2008, and what a few major economists are just now recommending – buy down mortgages. But it’s too political. Instead, we have to adjust world wide prices and endure unemployment. I’m a libertarian. I don’t like it. But ethically, if the state creates a problem the state can surely fix the problem.
Source date (UTC): 2011-10-25 11:43:00 UTC
http://www.nytimes.com/2011/10/13/opinion/how-to-stop-the-drop-in-home-values.htmlSomeone else catches on.
If we had written down mortgages in 2007 when I suggested it, we’d have had almost NO recession and saved ourselves something on the order of ten trillion in value.
This was one of the very few boom-bust cycles that was eminently fixable.
Source date (UTC): 2011-10-13 13:30:00 UTC