Archive for the ‘Global Economic Crisis’ Category

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Recent Reading 13

Published by peter on 2017-07-06 in Books, Communism, Concats, Economics, Fiction, Global Economic Crisis, History, Intelligence and Espionage, Literature, Politics and Recent Reading. Closed

The latest in a sequence of lists of recently-read books. The books are listed in reverse chronological order, with the most recently-read book at the top.

  • Dan Shanahan [2017]: Camelot Eclipsed: Connecting the Dots.  Independently published.
  • China Mieville [2017]:  October: The Story of the Russian Revolution. UK:  Verso.
  • Joshua Rubenstein (Editor) [2007]: The KGB File of Andrei Sakharov. USA:  Yale University Press.
  • Henry Hemming [2017]: M: Maxwell Knight, MI5’s Greatest Spymaster.  UK:  Preface Publishing.
  • Evelyn Waugh [1935]:  Edmund Campion, Jesuit and Martyr. UK:  Longmans.
  • Alison Barrett [2015]:  View from my Tower: Letters from Prague, March 1985 – May 1988.   A fascinating series of letters from wife of the British Ambassador to members of her family about her time in Prague, in the period of stasis just before the Velvet Revolution.
  • John O Koehler [2008]:  Stasi:  The Untold Story of the East German Secret Police.  USA:  Basic Books.

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Next year in Nuremberg

Published by peter on 2016-06-19 in Economics, Global Economic Crisis and Politics. 0 Comments

Ambrose Evans-Pritchard of The Telegraph puts eloquently and compellingly the prosecution case for the greatest deliberate economic misfortune of our era.  He argues that this gross failure of democracy leads him to vote to leave the EC. But, as President G. W. Bush used to say, you are either at the table or you are lunch. This failure should mean we redouble our efforts to reform European institutions and rid them of the Dutch-German austerity policies which so dominate economic policy.
 

Nobody has ever been held to account for the design faults and hubris of the euro, or for the monetary and fiscal contraction that turned recession into depression, and led to levels of youth unemployment across a large arc of Europe that nobody would have thought possible or tolerable in a modern civilized society. The only people that are ever blamed are the victims.
There has been no truth and reconciliation commission for the greatest economic crime of modern times. We do not know who exactly was responsible for anything because power was exercised through a shadowy interplay of elites in Berlin, Frankfurt, Brussels, and Paris, and still is. Everything is deniable. All slips through the crack of oversight.
Nor have those in charge learned the lessons of EMU failure. The burden of adjustment still falls on South, without offsetting expansion in the North. It is a formula for deflation and hysteresis. That way lies yet another Lost Decade.
Has there ever been a proper airing of how the elected leaders of Greece and Italy were forced out of power and replaced by EU technocrats, perhaps not by coups d’etat in a strict legal sense but certainly by skulduggery?
On what authority did the European Central Bank write secret letters to the leaders of Spain and Italy in 2011 ordering detailed changes to labour and social law, and fiscal policy, holding a gun to their head on bond purchases?
What is so striking about these episodes is not that EU officials took such drastic decisions in the white heat of crisis, but that it was allowed to pass so easily. The EU’s missionary press corps turned a blind eye. The European Parliament closed ranks, the reflex of a nomenklatura.
While you could say that the euro is nothing to do with us, it obviously goes to the character of the EU: how it exercises power, and how far it will go in extremis.”

O ignorance! O mores!

Published by peter on 2011-10-17 in Economics, Global Economic Crisis and Mathematics. 0 Comments

In the last few weeks, it was reported that mathematician Edward Nelson of Princeton had claimed to show that Peano Arithmetic, one of many possible axiomatic systems for the numbers, was internally inconsistent.   Within a short period, his claim and proof were subject to examination by other pure mathematicians, not least Terence Tao of UCLA, who thought Nelson’s argument had potential flaws.   Nelson initially defended himself and then, accepting the criticisms, retracted his claim.  More details can be found in a post by John Baez on the n-category blog, which initiated a dialog in which both Tao and Nelson participated, and where Nelson announced his retraction.   A subsequent discussion of what happened in this dialog and the lessons for the philosophy of mathematics can be found on the blog of Catarina Dutilh Novaes, a discussion to which Tao again contributed, this time on his methods.
This example of fast proposal-criticism-retraction contrasts sharply with mainstream Economics, where an error in deductive reasoning may be pointed out, with neither retraction nor revision nor apparent learning from its adherents 70 years on.  Keynes’ criticisms of conventional austerity economics were first uttered in the 1930s, and yet they still have to be repeated.  Relcalcitrant ignorance indeed.
One of the key insights of Keynesian economics is that a government is not like a household:  Governments can increase their income by increasing their spending, something most households cannot do.   Another key insight is that the effect of one person doing something may be very different if many people also do it.  To see better at a baseball stadium, for instance, you can stand up, but this only works if the people in front of you stay seated; if everyone stands, you will see no better than if everyone stayed seated.    Likewise, the economy-wide effects of individuals saving may be deleterious even when the effects are beneficial for an individual.   Keynes called this the savings trap.  Instead of learning from such insights, we get a British Prime Minister telling us all in 2011 to save hard and reduce our personal debt, and treating the national budget as if he were running a a household in Grantham.

Recalcitrant ignorance in economics

Published by peter on 2011-10-17 in Economics and Global Economic Crisis. 0 Comments

British business economist John Kay has written an essay for the Institute for New Economic Thinking on the failures of mainstream macro-economics.   Among many insightful comments, there is this:

What Lucas means when he asserts that deviations are ‘too small to matter’ is that attempts to construct general models of deviations from the efficient market hypothesis – by specifying mechanical trading rules or by writing equations to identify bubbles in asset prices – have not met with much success.  But this is to miss the point: the expert billiard player plays a nearly perfect game, but it is the imperfections of play between experts that determine the result.  There is a – trivial – sense in which the deviations from efficient markets are too small to matter – and a more important sense in which these deviations are the principal thing that matters.”

Mostly agreeing with Kay, Paul Krugman repeats a point he has made before about the freshwater economists — their failure to understand the deductive implications of their own models:

Here’s what we agree on: if consumers have perfect foresight, live forever, have perfect access to capital markets, etc., then they will take into account the expected future burden of taxes to pay for government spending. If the government introduces a new program that will spend $100 billion a year forever, then taxes must ultimately go up by the present-value equivalent of $100 billion forever. Assume that consumers want to reduce consumption by the same amount every year to offset this tax burden; then consumer spending will fall by $100 billion per year to compensate, wiping out any expansionary effect of the government spending.
But suppose that the increase in government spending is temporary, not permanent — that it will increase spending by $100 billion per year for only 1 or 2 years, not forever. This clearly implies a lower future tax burden than $100 billion a year forever, and therefore implies a fall in consumer spending of less than $100 billion per year. So the spending program IS expansionary in this case, EVEN IF you have full Ricardian equivalence.”

As Krugman says:

The fact that these guys don’t even get the implications of their own models right tells us that the problem runs deeper than believing too much in abstract math. At some level it has to be political: they want to declare government policy ineffectual so badly that for all their vaunted modeling mojo they can’t be bothered to think it through, or listen to other people who point out their error.”

The macroeconomic dark ages

Published by peter on 2011-09-10 in Economics and Global Economic Crisis. 0 Comments

Paul Krugman, writing about the failings of macro-economists before and after the Great Recession, notes the wide social consequences of the pro-abstraction, anti-history turn in the study of economics this last half-century.   Sadly, this turn has been another instance of the dominance of Descartian autism in western intellectual culture.

Early in 2009, when the Obama stimulus was under discussion, I was stunned to read statements from a number of well-regarded economists asserting not merely that the plan was a bad idea in practice — a defensible idea — but that debt-financed government spending could not, in principle, raise overall spending. Here’s John Cochrane:
Continue reading ‘The macroeconomic dark ages’

Tim Harford at LSE: Dirigisme in action

Published by peter on 2011-06-11 in Decision theory, Economics, Forecasting, Global Economic Crisis and Project Management. 0 Comments

This week I heard economic journalist Tim Harford talk at the London School of Economics (LSE), on a whirlwind tour (7 talks, I think he told us, this week) to promote his new book.   Each talk is on one topic covered in the book, and at LSE he talked about the GFC and his suggestions for preventing its recurrence.

Harford’s talk itself was chatty, anecdotal, and witty.    Economics is still in deep thrall to its 19th century fascination with physical machines, and this talk was no exception.   The anecdotes mostly concerned Great Engineering Disasters of our time, with Harford emphasizing the risks that arise from tightly-coupling of components in systems and, ironically, frequent misguided attempts to improve their safety which only worsen it.

Anecdotal descriptions of failed engineering artefacts may have relevance to the preventing a repeat of the GFC, but Harford did not make any case that they do.  He just gave examples from engineering and from financial markets, and asserted that these were examples of the same conceptual phenomena.    However, as metaphors for economies machines and mechanical systems are worse than useless, since they emphasize in people’s minds, especially in the minds of regulators and participants, mechanical and stand-alone aspects of systems which are completely inappropriate here.  

Economies and marketplaces are NOT like machines, with inanimate parts whose relationships are static and that move when levers are pulled, or effects which can be known or predicted when causes are instantiated, or components designed centrally to achieve some global objectives.  Autonomous, intelligent components having dynamic relationships describes few machines or mechanical systems, and certainly none from the 19th century.   

A better category of failure metaphors would be ecological and biological.   We introduce cane toads to North Queensland to prey upon a sugar cane pest, and the cane toads, having no predators themselves,  take over the country.    Unintended and unforeseen consequences of actions, not arising merely because the  system is complex or its parts tightly-coupled, but arise because the system comprises multiple autonomous and goal-directed actors with different beliefs, histories and motivations, and whose relationships with one another change as a result of their interactions.  

Where, I wanted to shout to Harford, were the ecological metaphors?  Why, I wanted to ask, does this 19th-century fascination with deterministic, centralized machines and mechanisms persist in economics, despite its obvious irrelevance and failings? Who, if not rich FT journalists with time to write books, I wanted to know, will think differently about these problems?

Finally, only economists strongly in favour of allowing market forces to operate unfettered would have used the dirigismic methods that the LSE did to allocate people to seats for this lecture.  We were forced to sit in rows in our order of arrival in the auditorium. Why was this?  When I asked an usher for the reason, the answer I was given made no sense:   Because we expect a full hall.    Why were the organizers so afraid of allowing people to exercise their own preferences as to where to sit?  We don’t all have the same hearing and sight capabilities, we don’t all have the same preferences as to side of the hall, or side  of the aisle, etc. We don’t all arrive in parties of the same size.  We don’t all want to sit behind a tall person or near a noisy group.

The hall was not full, as it happened, so we were crammed into place in part of the hall like passive objects in a consumer choice model of voting, instead of as free, active citizens in a democracy occupying whatever position we most preferred of those still available.  But even if the hall had been full, there are less-centralized and less-unfriendly methods of matching people to seats.  The 20 or so LSE student ushers on hand, for instance, could been scattered about the hall to direct latecomers to empty seats, rather than lining the aisles like red-shirted troops to prevent people sitting where they wanted to.

What hope is there that our economic problems will be solved when the London School of Economics, of all places, uses central planning to sit people in public lectures?

Update: There is an interesting critical review of Harford’s latest book, here.

Concat: The crisis in macroeconomic policy execution

Published by peter on 2010-11-30 in Concats, Economics, Global Economic Crisis and Globalization. 0 Comments

During the Great Depression, as the Bank of England and British banks were attempting to renegotiate the terms of their loans from the USA, the British sent Sir Otto Niemeyer to Australia to prevent Australia doing the same for its loans from Britain.    The injustice and unabashed hypocrisy of this – where you stood on the issue of debt repayment clearly depending on where you sat – always angered me.    Had I been around in 1932, I would have supported New South Wales Premier Jack Lang’s refusal to hand over moneys from the NSW State Government owed to the Australian Commonwealth Government for its payment of interest on NSW foreign debts.
We seem to be in for more hypocrisy and hard times, as the share-owning class, having received bailouts from western taxpayers for their investments in failed and paralyzed banks, now raise a wacka wacka huna kuna against public sector debt.    The plain people of Ireland, for example, will now be paying for the malfeasance and incompetence of their richer compatriots.
Two illuminating posts from Brad DeLong and Paul Krugman on our failed western political system, which seems unable to fix our failed economy, despite us knowing what should be done:

And here is Barry Eichengreen on the Irish bailout:

Some older articles on the crisis:

 
 
 

Concat 1: The GEC

Published by peter on 2010-07-21 in Concats, Economics, Global Economic Crisis, History and Politics. Closed

A post to concatenate interesting material on the GFC and the GEC:

Mass customization of economic laws

Published by peter on 2010-07-06 in Economics and Global Economic Crisis. Closed

Belatedly, I have just seen a column by John Kay in the FT of 13 April 2010 (subscribers only), entitled:  “Economics may be dismal, but it is not a science.” His column reminded me of Stephen Toulmin’s arguments in his book Cosmopolis about the universalizing tendencies of modern western culture these last four centuries, which I discussed here.
An excerpt from Kay’s column:

Both the efficient market hypothesis and DSGE [Dynamic Stochastic General Equilibrium models] are associated with the idea of rational expectations – which might be described as the idea that households and companies make economic decisions as if they had available to them all the information about the world that might be available. If you wonder why such an implausible notion has won wide acceptance, part of the explanation lies in its conservative implications. Under rational expectations, not only do firms and households know already as much as policymakers, but they also anticipate what the government itself will do, so the best thing government can do is to remain predictable. Most economic policy is futile.
So is most interference in free markets. There is no room for the notion that people bought subprime mortgages or securitised products based on them because they knew less than the people who sold them. When the men and women of Goldman Sachs perform “God’s work”, the profits they make come not from information advantages, but from the value of their services. The economic role of government is to keep markets working.
These theories have appeal beyond the ranks of the rich and conservative for a deeper reason. If there were a simple, single, universal theory of economic behaviour, then the suite of arguments comprising rational expectations, efficient markets and DSEG would be that theory. Any other way of describing the world would have to recognise that what people do depends on their fallible beliefs and perceptions, would have to acknowledge uncertainty, and would accommodate the dependence of actions on changing social and cultural norms. Models could not then be universal: they would have to be specific to contexts.
The standard approach has the appearance of science in its ability to generate clear predictions from a small number of axioms. But only the appearance, since these predictions are mostly false. The environment actually faced by investors and economic policymakers is one in which actions do depend on beliefs and perceptions, must deal with uncertainty and are the product of a social context. There is no universal economic theory, and new economic thinking must necessarily be eclectic. That insight is Keynes’s greatest legacy.