Felix Salmon and Your Humble Blogger Disagree on BNN

Here I thought I had my TV technique down…and saw otherwise today. I am not yet media seasoned enough to smile to machinery with no pictures to help me pretend (ie, it was just me and a lens on my end).

But I think readers will still find the exchange entertaining, even though I was not at my best.

Picture 54

You can view the clip here. Enjoy!

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  1. anon

    Two tips of the day:

    1. Do NOT smile. That mean’s forcing a smile, which is disasterous. Your natural facial expression is perfect because it brings through a smile through your eyes when you’re making a strong point successfully. It’s easy to detect. Do NOT listen to commenters who want you to smile more and do NOT listen to PR people who say the same thing. You’re personality comes through just fine – which includes serious intensity punctuated by smiling eyes (and just a touch of same at the corners of the lips). Do NOT listen to people who want to pretend. You are you’re own brand.

    2. Sorry to say that Felix destroyed you this time. I couldn’t watch it after the first 30 second of his response. I don’t know how your book frames, but it can’t possibly be what the host forced you to defend. You’ve got to get more coherent. It sounds like its got something to do with the effect of market fundamentalism on regulation, maybe among other things. That’s the thing you’ve got to get better at explaining – not smiling.

    1. SSpix

      I thought Yves argued the point very well. For Salmon to say economists had little to do with the mess seems oddly myopic. Who provided the intellectual justification for rampant deregulation? Economists! Greenspan, the free market ideologue, had little influence? Give me a break. Salmon clearly has something in mind, but I couldn’t figure out what it was. (His point is as silly as arguing that medical researchers are simply cloistered theorists, and that the only work having any real impact on patient health is done by surgeons.)

      1. run75441


        Actually Felix had nothing in mind other than to place Yves on the defensive so he could sit back with that “sh*t eating smirk” and force Yves into explaining a stance. He just sat back and nit-picked at his leisure then.

        Sometimes a hesitation to evaluate the question and where it is going to is necessary. And if the question appears to be too broad, ask a question in return and place them on the defensive.

        There is no question that Volcker, Friedman, and Greenspan had an influence upon the economy from the seventies onward. I am not so sure that returning Volcker at the helm of the economy would be good . . . only for Labor to suffer another market correction to fix capital.

  2. Jonnyrich

    Have to disagree with Anon, I thought Yves made her points pretty well, little bit hesitant here and there but overall your points about Chicago school / Friedman impacting the thinking across economics, in particular US economic thinking seems completely obvious to me. A lot of those who went to college and studied those theories in the 70’s and 80’s would have then gone on to Wall St and enacted them. Felix’s idea that they would have happened anyway without this fundamental paradigm shift in economic thinking doesn’t stand up in my view.

    1. Kievite

      Chicago school is really as close to Trofim Lysenko and his followers as one can get. Yves correctly stated that they were essentially recruited by particular kind of extremists as a Fifth column. And they really did “hecuva job” in training a new generation of indoctrinated kids who went to investment banks and government to finish the job. Interesting but far from being a unique case of self-poisoning of a social system.

  3. cool

    Yves: good arguments and good composure (indeed do NOT change your natural presentation).

    I thought Yves factually blew Salmon of the table, with both first hand experience (her remarks on the 1980s) and broader historical perspective.

    Finally, I thought Yves gave a clear description of the contents and analysis of her book “ECONned”.

  4. Secehl

    Big fan of yours, though I do not always disagree. Listening to your argument, I came away that you had not proved your case. You were argument seemed to be anecdotal. You never named the economists you were referring to. Perhaps you should have spoken more about how particular economists such as Milton Friedman influenced particular politicians and policy makers. The message got lost.

  5. winstongator

    I love your point on stability. As an electrical engineer who worries all the time about feedback amplifier stability, it was well put. Feedback theory should be taught to economists. People talk about the EMH and ‘perfect prices’. Do prices find perfection immediately? No feedback system instanteneously arrives at steady state, there is a time-lag. Too much time lag can hurt stability. My example would be that maybe housing took 7 years, from 2003 to today to find ‘perfect prices’. Quite a bit of damage took place between then and now.

    The FIRST thing any engineer checks with a new amplifier is whether it is stable and not oscillating!

    1. Bill Wilson

      Just reading “The Origin of Wealth” which after my university training in economics (many years ago) is a breath of fresh air. The author looks at economies as complex adaptive systems, and basically trashes traditional economics (equilibrium , rational actors etc.).

    2. alex

      “As an electrical engineer …”

      Damn, that makes at least two of us. And I thought this was a classy blog.

      All joking aside, you made the point very well about how fundamental stability analysis is. Like other engineers and physical scientists who take at least a passing interest in economics I’m astounded by how little (if any) thought most mainstream economists put into dynamics and stability. As any engineer knows, equilibrium (i.e. static or quiescent) analysis is usually a trivial problem compared to dynamic and stability analysis. It’s as though having passed EE101 they want to rest on their laurels and not bother with EE102.

      That was the point of Keynes’ remark that “in the long run we’re all dead”. Contemporary economist Steve Keen also puts a lot of emphasis on dynamics and stability (admittedly I’m not put off by the fact that he speaks flatteringly of engineers). See his blog if you’re interested in this (I believe he cross-posted here at least once).


      I haven’t read Yves’ ECONned yet, but I’m intrigued by the fact that she deals with the flaws in mainstream economics. Keen’s book “Debunking Economics” also deals with this. I’d recommend reading it right after you read Yves’ book.

    3. dsawy

      I guess this is becoming the suave place for EE’s to hang out, since I make three.

      In addition to finding fault with economists’ theories from a standpoint of control systems and the apparent lack of stability (or convergence) we observe in macro-economic modeling, there’s also the outlandish unfounded assumptions I find littered throughout economists’ theories and papers.

      For starters: price movements can be described by a Gaussian distribution. Anyone who has been around markets awhile can see (and Mandelbrot showed) that price movements are not gaussian at the points of panic or euphoria – as some of these yahoos have taken to saying “the tails are much fatter than we thought…”

      No, really?

      So what do economists do when their underlying assumptions are proven incorrect about their models? Do they ditch them?


      Then let’s look at what happens when academic economists get near actual stuff in the real world… you know, money. Let’s take the case of LTCM. They had not one, but TWO Nobel-winning economists on their staff… who drove their models down into the ground like a controlled, full-powered flight into terrain.

      Way to go, guys.

      Listening to economists prattle on about their theories reminds me of dealing with physicists in engineering school. Oh, they’d go on and on about the minutia of theory, but in the “real world,” it was kinda odd that they usually had to find employment in government labs, whilst we EE’s and MechE’s went out to industry and made some pretty fair coin. The old engineering joke about God putting an engineer, a physicist and a pretty girl on a basketball court seems to apply here.

      Does it surprise any engineer to discover that Wall Street hired a bunch of physics jocks for their quants? Physics jocks and economists running money together is the sort of thing that makes engineers go “Uh…. not *my* money, please…”

      1. alex

        “I guess this is becoming the suave place for EE’s to hang out, since I make three.”

        Actually five (see below). As a fellow EE I’ll assume that your reference to anything involving EE’s being “suave” is tongue-in-cheek. Most respectable blogs ban us, but Yves seems to be involved in a radically egalitarian experiment.

        I agree with you about the empiricism free approach of many economists, including many who are highly influential. To be fair though there are also a minority of economists, including those who are usually considered orthodox rather than heterodox, who saw all along that the emperor has no clothes. Names that come to mind include Joe Stiglitz, Paul Krugman and Dean Baker. I’m sure there are many others.

        Nevertheless the ranks of empiricism free economists are large and overly influential. It amazes me that they’re taken so seriously instead of being laughed out of the profession.

        I can’t agree with your criticism of physicists as a group though. The reason so few are employed in private industry is that private industry has (understandably) little interest in pure science. There are many applied physicists in industry, including important fields like semiconductor processing. I’ve also personally known a number of excellent engineers who came from a physics background.

      2. charcad

        So what do economists do when their underlying assumptions are proven incorrect about their models? Do they ditch them?

        “The people having lost the confidence of the government, it was decided to elect a new people…”

        Berthold Brecht on the East German regime circa 1953.

      3. David

        Six. But I’m an EE who retrained in economics, because I wondered what all the fuss was about …

        Econ. models have lots of stuff that’s hard to estimate. That’s why there’s a whole field of “econometrics” which is basically statistics where the inputs are only observable with noise.

        My specialty in financial economics is theoretical modeling. In my opinion, a complicated model isn’t very interesting. I like a simple model, with a few variables, that tells a story. It’s not going to be exact! The complex model won’t be exact either, but it will falsely look like it could be, and that’s a mistake.

        Stability analysis (including “second order conditions” and if you get fancy, “transversality”) requires much more data to estimate for any given model than equilibrium (“first order conditions”). Economic models have so many unknowns, they tend to exist in infinite-dimensional spaces. Even theoretical physicists don’t have quite that degree of craziness to deal with, as far as I know. Many economists understand the importance of stability analysis, and the process of adjustment to equilibrium (“tatonnement”) is sometimes discussed, but the estimation problem is large.

        Econ. is an almost infinitely hard problem to model, and all I can hope for is something that takes in a bit of data and says something interesting and perhaps a bit surprising. That’s a good model, and that’s all we should hope for.

        Arbitrage-based models like Black-Scholes are an exception; they should be believed if properly formulated, and give exact prices. But note that B-S is just a relationship between an option’s price and its “implied volatility”. It doesn’t really tell you much about price, because the implied vol doesn’t come from anywhere else, at least not as a precise number. What B-S tells you is how to hedge the option with futures (and you have to adjust that dynamically, too.)

        1. Claire

          *Sigh* Seven of us (is anybody on this board NOT an EE??)…Kind of surprising, really–I don’t know all that many engineers who even remotely care about economics. I wonder why so many EEs and no mechs or civils?

          I could be way off mark, but I assumed that B-S made the assumption that any random distribution eventually tends to Gaussian (central-limit theorem). I really don’t remember my stats courses, that well, though, so I could be wrong.

          1. nicholsong

            Eight. I’m an EE, and while I’ve worked in a few different fields (clinical engineering, controls, now photovoltaics) I’ve always been interested in economics. Systems are systems, some just have more variables. I really learned that in clinical engineering; circuits that are otherwise straightforward become very interesting once a human is introduced into the circuit. So too with sociometric or socionomic elements introduces into large scale energy transfer systems such as economies.

          2. alex

            “I wonder why so many EEs and no mechs or civils?”

            There are a couple of self-admitted mechanical engineers down thread.

        2. alex

          David: “Stability analysis (including “second order conditions” and if you get fancy, “transversality”) requires much more data to estimate for any given model than equilibrium (”first order conditions”). Economic models have so many unknowns, they tend to exist in infinite-dimensional spaces.”

          I understand that economic systems are far harder to characterize than physical systems, especially when those physical systems are, as in engineering, actually designed to be “easy” to characterize (as opposed to some physical systems, like climate, that aren’t so designed).

          Nevertheless, despite your statement that many economists understand that stability analysis is important, from a practical/regulatory POV the topic is given short shrift. Whereas in engineering the topic is paramount in dynamical systems, in economics there seems to be an “oh, yeah, that too” attitude amongst many. Perhaps this is because people who care about stability can’t clearly prove that a system is unstable. Ergo the people who don’t want to believe a system is unstable can conveniently assume that it isn’t.

          As in engineering it seems that when faced with a situation where exact analysis is intractable, the right thing to do is to rely on experience and simple “sanity check” analysis.

          For example, what happens if real estate prices return to the historical trend of the Case-Shiller index? Will the banks be solvent? What happens with CDS? (e.g. AIG not having the money to cover their CDS with G-S).

          Obviously this sort of rudimentary analysis was not done prior to the Great Meltdown or, if it was, the conclusions were conveniently ignored.

          1. David

            Sanity check analysis is the right thing to do in economics, and investing, too. Those who do generally do better than those who don’t.

            A fair amount of the complaining these days is from people who did act in such a rational manner, but then because they did not well predict the actions of the Fed, are being punished or are not getting the reward they expected. I complain about this too. (I expected the Fed to do QE earlier, and I was quite annoyed at all the alphabet-soup tricks Bernanke used to avoid it. Just freakin’ print, Ben!!)

            Sometimes the incentives do not promote rational or reasonable action from all important economic actors. Bankers are paid in annual bonuses. Policymakers get paid off. Corruption and twisted incentives exist in spades. And Yves gets my respect for calling those spades, spades.

    4. Uncle Billy Cunctator

      I don’t come from a science background, but it’s just seemed so obvious that we need engineers when building or rehauling financial, political, and social systems. They *are* systems!

  6. winstongator

    Also, explaining a multi-hundred page book in 10 minutes of tv back-and-forth is impossible. If you could distill the ideas into 10 minutes of reading, you would.

    You should simply ask for an economic paper that does not assume stability or equilibrium? Ask if anyone considered the period from 2006- stable or in a state of equilibrium? Ask how many economists study the theory of market stability – what makes them more/less stable? Get the other party to say your point instead of you. Teasing the answers out forces them to think about things outside their normal perspective.

  7. DownSouth

    How can one say the economists didn’t play an important role in all this?

    That would be like saying the church and the faith didn’t play a role in the conquest of the Americas. Or as J.H. Elliot wrote:

    The dedication, however, required a cause, and the sacrifice a recompense. Both were described with disarming frankness by Cortes’s devoted companion, the historian Bernal Diaz del Castillo: “We came here to serve God and the king, and also to get rich.”

    Modern economic theory finds its historical parallel in the doctrines of the church. Classical and neoclassical economic theory perhaps have a bit more basis in factual reality than the tenets of the Catholic faith (but certainly not much). They both nevertheless serve the same purpose, which is to lend moral and intellectual license to conquest and plunder. This is probably no more succinctly put forth than in the Requerimiento:

    Wherefore, as best we can, we ask and require you that you consider what we have said to you, and that you take the time that shall be necessary to understand and deliberate upon it, and that you acknowledge the Church as the Ruler and Superior of the whole world, and the high priest called Pope, and in his name the King and Queen Doña Juana our lords, in his place, as superiors and lords and kings of these islands and this Tierra-firme…

    If you do so, you will do well, and that which you are obliged to do to their Highnesses, and we in their name shall receive you in all love and charity, and shall leave you, your wives, and your children, and your lands, free without servitude, that you may do with them and with yourselves freely that which you like and think best, and they shall not compel you to turn Christians, unless you yourselves, when informed of the truth, should wish to be converted to our Holy Catholic Faith, as almost all the inhabitants of the rest of the islands have done. And, besides this, their Highnesses award you many privileges and exemptions and will grant you many benefits.

    But, if you do not do this, and maliciously make delay in it, I certify to you that, with the help of God, we shall powerfully enter into your country, and shall make war against you in all ways and manners that we can, and shall subject you to the yoke and obedience of the Church and of their Highnesses; we shall take you and your wives and your children, and shall make slaves of them, and as such shall sell and dispose of them as their Highnesses may command; and we shall take away your goods, and shall do you all the mischief and damage that we can, as to vassals who do not obey, and refuse to receive their lord, and resist and contradict him; and we protest that the deaths and losses which shall accrue from this are your fault, and not that of their Highnesses, or ours, nor of these cavaliers who come with us.

    And, as J.H. Elliot observes in Empires of the Atlantic World, there was a similar theology operative in the English colonies as well:

    The providentialist vision therefore transcended the Protestant-Catholic divide, giving America, in the eyes of the Franciscans and Puritans alike, its assigned place in the great drama of judgment and salvation. But where the Franciscans made the conversion of the Indians the centerpiece of this drama, the Puritan version of it was exclusive, not inclusive, and was framed in terms of the salvation of the elect.

    1. Kevin de Bruxelles


      Looking at this through your religious metaphor helps clarify the differences between Yves and Felix Salmon. If we take economists to be priests, then Yves is saying that the ideas they preached have caused the problems. But a priest normally only has the ability to preach, it takes people with real power to implement his words into real world policies. Salmon is saying that powerful people and institutions saw profit and gain in adopting Milton Friedman’s ideas of deregulation and that’s why his “religion” was chosen over say Marxist economic religion.

      We have a bit of a chicken or the egg debate here.

      1. DownSouth

        Exactly. Except I’m not so sure that Salmon is even admitting to the possibility of an egg.

        His opening statement reminds me of Luther when Luther says “everything we do, everything that happens, even if it seems to us to happen mutably and contingently, happens in fact nonetheless necessarily and immutably, if you have regard to the will of God.” Of course in our modern, secular age we can replace the word “God” with the word “nature,” or in the words of Salmon with “large institutions.” So the theology of Luther, with the helping hand of Descartes and Hobbes along the way, gets transformed into this:

        They lived in a world that was not only harsh and cruel but that rationalized its cruelty under the guise of economic law. Necker, the French financier and statesman, said at the turn of the (19th) century, “Were it possible to discover a kind of food less agreeable than bread but having double its substance, people would be reduced to eating only once in two days.” Harsh as such a sentiment might have sounded, it did ring with a kind of logic. It was the world that was cruel, not the people in it. For the world was run by economic laws, and economic laws were nothing with which one could or should trifle; they were simply there, and to rail about whatever injustices might be tossed up as an unfortunate consequence of their working was as foolish as to lament the ebb and flow of the tides.

        The laws were few but final. We have seen how Adam Smith, Malthus, and Ricardo elaborated the laws of economic distribution. These laws seemed to explain not only how the produce of society tended to be distributed but how it should be distributed. The laws showed that profits were evened out and controlled by competition, that wages were always under pressure from population, and that rent accrued to the landlord as society expanded. And that was that. One might not necessarily like the result, but it was apparent that this result was the natural outcome of society’s dynamics: there was no personal ill will involved nor any personal manipulation. Economic laws were like the laws of gravitation, and it seemed as nonsensical to challenge one as the other. Hence a primer of elementary economic principles said: “A hundred years ago only savants could fathom them [economic laws]. Today they are commonplaces of the nursery, and the only really difficulty is their too great simplicity.”
        –Robert L. Heilbroner, The Worldly Philosophers

        Salmon embraces this sense of inevitability in the same way that Clayton Williams did when, during his campaign for Texas governor, he publicly made a joke likening rape to bad weather, having quipped: “If it’s inevitable, just relax and enjoy it”.

        I see Yves as being more in the humanist camp along with Erasmus, whose philosophies are described here by Michael Allen Gillespie. (I’ve put what I believe to be Salmon’s interpretation in parentheses):

        For Luther there is literally nothing that man can do to attain salvation, since everything depends on God (large institutions) alone. There is thus no path to salvation for Luther. In Erasmus’s view this univocal focus on divine will (the will of large institutions) utterly undermines morality. Almost as if reflecting on Luther’s famous advice to Melanchthon to “Sin boldly!” Erasmus remarks: “If it is predetermined that I am damned, any effort I make is useless. If I am destined to be saved, there is no reason not to follow my every whim.” They can also improve themselves by combining humanitas and pietas within the philosophia Christi. Erasmus was convinced that “a large part of goodness is the will to be good. The further that will leaves imperfection behind, the closer a person is to grace.” To abandon morality and moral education, to see the formation of character as irrelevant to human well-being, can end only in a world in which force alone rules, a world in which the murderer, the rapist, and the tyrant rule, or worse a world in which the faithful rape, murder, and tyrannize over others in the name of God (large institutions) and as agents of his (large institutions’) omnipotent and indifferent will.”
        –Michael Allen Gillespie,
        The Theological Origins of Modernity

      2. Yves Smith Post author


        The problem is that I am a LONG way away from having figured out how to do soundbite snapbacks to arguments that are in the book. For instance, the book CLEARLY shows, just via going through the evolution, that the shift in the economic profession to more “scientific” methods, which favored neoclassical economics and promoted the rise of financial economics (and also stripped the most important ideas of out Keynes; Keynsianism as taught in the US is merely a special case of neoclassical economics, something most do NOT recognize) took place in the 1940s and 1950s, WELL before their adoption and promotion by business interests in the 1970s as a part of a concerted, rightwing pushback (on MANY fronts, not just econ policy) against the “antiestablishment” shift in values and sentiment of the 1960s. The shift in economic thinking clearly antedated its being promoted by businesses.

        And there are mundane data points to support this to, for example, the University of Chicago graduate schools were the first to raise money from corporations. They knew full well who would like their ideas.

        Frankly, Felix is showing his age. He cannot relate to how different the values were thirty years ago. Corporate lobbying was far less advanced and influential then too. For instance, you saw almost no financial services lobbying of Congress. They did what the ratings agencies do now, they “lobbied” via trying to win over regulators. Very different process.

        I have chapter in the book “How ‘Free Markets’ Was Sold”, and the action did not begin till the 1970s.

        1. i on the ball patriot

          Create some talking point sound bite snapbacks IN ADVANCE and preface answers for each question you are asked with them …

          “Well, we all know that ‘free markets’ DO NOT exist, and that they were simply used as a deflective decoy ideal, to sell and mask the machinations of — ya da ya da ya da“ …

          Or ..

          “Certainly everyone with half a brain knows by now that the ‘Rule of Law’ in scamerica is a complete farce and tilts the playing field in favor of the wealthy ruling elite who bought the politicians to create it and administer it for them — ya da ya da ya da” …

          OK, you don’t have to say scamerica, but you get the drift … and they should also all end with; “which is explained in great detail in my book.”

          Deception is the strongest political force on the planet.

        2. Kevin de Bruxelles


          I look forward to reading your book (when it comes out over here) and learning more about this and I’m sure most of my confusion will be cleared up then. And I am very sympathetic to your sound bite dilemma, it is quite difficult to condense complex ideas and historical processes into a sentence or two and still maintain a high degree of honesty. But I hope you continue to do these interviews because your intellectual honesty is such a fresh antidote to what goes on in most of these shows.

          It was just that when I listened to the discussion between you and Felix (who I know nothing about ) I basically heard an argument about theory vs. power. You seemed to be say the theoreticians got it wrong and Salmon replied that theory was irrelevant and that it was the powerful institutions would have warped things towards serving their interests regardless. To me you need both theory and power, it is an endless cycle of theory rising to meet the needs of powerful interests. We saw this before in the cycle leading up to the Great Depression with the rise of regulation in the Progressive era which was quickly followed in the 1920’s by the inevitable comeback of laissez-faire with catastrophic results.

          My guess is that the regulation vs. deregulation pendulum is controlled by the perceived economic interests of people with wealth and power. And up and coming economists sense the changing cycles and offer up theories to encourage these changes. After a crisis, wealth searches for stability and any way forward (as opposed to falling back further into depression) and accepts the limits of regulatory training wheels. Once the good times start rolling again, wealth seeks to lose those training wheels and its not long before they are popping wheelies and riding with no hands with no regard for risk right up until the inevitable next crash.

          It seems there is an endless cycle of boom / bust that is mirrored by a similar cycle of regulation / laissez-faire. So while it is certainly true that in this latest cycle leading up to the recent crash, the the rise of deregulatory theory preceded its implementation, is there really any fundamental difference between Milton Friedman and laissez-faire theories in the past? Were his theories really that different from the theories that lead to the deregulation in the 20’s? And most important of all, how were his theories transformed from paper to reality? Someone with power had to implement them. While I am sure you are correct that the banking industry did not lobby for them, someone in power had to be motivated in some way or another to implement these theories.

          To me since a theorist has no power to implement her theories, she cannot therefore take all the blame when the theories go wrong. It’s like an architect who draws an ugly building. The damage is limited to the blueprints (I know, no one uses blueprints any more) until the point a developer decides to take the designs and implement them in reality. At this point an ugly building is built (the architect will of course claim the developer didn’t follow the plans correctly!). Similarly when a economist theorizes incorrectly the damage is limited to the papers he issues. Only when a policy maker or powerful interest implements the economist’s theories in reality does the damage start to become real. And again the economists will blame the policy makers for not following their ideas correctly.

          It is perhaps a minor point and is not related to your book but my impression is that power and theory exist in a symbiotic relationship and both sides of this equation share blame when things go wrong.

          1. Yves Smith Post author


            If that is what you heard, it is a very serious distortion of my argument.

            First, banks were not powerful circa 1980, either individually or colllectively. The Federal Reserve System held something like 20% of total banking assets, far more than the biggest bank. So Felix’s “bankers had power and would have gotten here anyhow” is just wrong.

            But second, theories are VERY powerful. They become frame for action, ways to organize decisions and shape reality. And they are most powerful when they become ideologies. “Free markets” is just neoclassical econ lite.

          2. DownSouth

            Kevin de Bruxelles,

            The discussion on this thread has helped me clarify some things, and I think I’m going to have to throw my lot in with Yves on this one.

            anon at 7:42 p.m. (see comment below) says: “However, I lean toward Felix’s position that politicians decide what they want to do first and then use economics to justify their position.”

            The sentiment anon expresses echoes something that William Manchester wrote in A World Lit Only by Fire. In regards to the revolution in thinking and ideas known as the Renaissance, which provoked the Reformation, the Counter Reformation, the Inquisition and 150 years of non-stop religious wars, he muses:

            When we look back across five centuries, the implications of the Renaissance appear to be obvious. It seems astonishing that no one saw where it was leading, anticipating what lay round the next bend in the road and then over the horizon. But they lacked our perspective: they could not hold a mirror up to the future. Like all people of all times, they were confronted each day by the present, which always arrives in a promiscuous rush, with the significant, the trivial, the profound, and the fatuous all tangled together. The popes, emperors, cardinals, kings, prelates, and nobles of the time sorted through the snarl and, being typical men in power, chose to believe what they wanted to believe, accepting whatever justified their policies.

            The problem is that very, very few humans are capable of original thought. The popes, emperors, cardinals, kings, prelates, and nobles of the 14th to 17th centuries may have indeed “chose to believe what they wanted to believe.” But they certainly did not author what they chose to believe, no more than Ronald Reagan did. Thinkers did that. And you, anon and Manchester don’t dig into the process of choosing or deciding. How did Reagan come to decide? What influenced him in his decisions? Who thought up the ideas that he embraced? Who taught him, schooled him or sold him on the ideas he eventually chose?

            The Renaissance—-a revolution of thought—-came first. The other stuff came in its wake.

          3. DownSouth

            One place where I agree with you over Yves (and I may be talking out of place here, because I haven’t read the book yet) is I don’t get the difference between classical and neoclassical economics. I suppose I’ve come to see things from a Latin American perspective:

            It is worth recalling that the prefix neo is particularly well suited to this doctrine, which already had its chance in Latin America during the last century. Throughout the nineteenth century, Latin America followed the precepts of laissez-faire and the magic of the market, and its nations implemented policies geared toward exporting raw materials while importing capital and manufactured goods. Powerful economic elites emerged from Mexico to Argentina. The hope was that the wealth accumulated at the top would sooner or later find its way down to the bottom. This did not happen. It has never happened. Instead, the wealth generated at the working base found its way up to the top and stayed there.
            –Carlos Fuentes, A New Time for Mexico

            But I perceive Yves operating in the great tradition of Keynes and FDR. She came to save capitalism—-to reform it and not destroy it. And in this I wish her all the luck in the world. The transitioning away from the liberal paradigm could unleash a wave of human suffering the likes of which have never been seen before.

            But you’ve got to cut guys like me, i on the ball patriot and attempter some slack:

            There is only one step from a rationally moderated idealism to opportunism, and only another step from opportunism to dishonest capitulation to the status quo. The absolutist and fanatic is no doubt dangerous; but he is also necessary. If he does not judge and criticize immediate achievements, which always involve compromise, in the light of his absolute ideal, the radical force of history, whether applied to personal or to social situations, finally sinks into the sands of complete relativism.
            –Reinhold Niebuhr, Moral Man and Immoral Society

          4. Kevin de Bruxelles

            Just to be clear I am not agreeing with Felix’s statement that the banks would have done it anyway. All I am saying is that theory is impotent without powerful interests implementing it and at the same time power is disorganized and unable to assert itself without theory behind it. Theory and power thus exist in a symbiotic relationship. Perhaps mine is a middle position between Yves and Felix although I hesitate to say this because I’m not sure I really understand either side’s view completely.

            There is no doubt that at times the theory portion can take the lead position; in other words ideology gets out of control and will lead power along towards some dangerous destination. Other times it will be power that leads by shopping carefully for just the right ideology to get he job done. Maybe a study of the Soviet Union would show the Lenin period was the former while the Stalinist period was an example of the latter.

            On your questions about Ronald Reagan it is clear that powerful interests, namely General Electric and their vice President Lemuel Ricketts Boulware, helped convince Reagan to convert to and then sell to the public corporate friendly policies. His job as the host of General Electric Theater was to be the mouthpiece of these policies to Democrats. He spent nearly ten years (1953-62) on television and radio using his status as a Democrat to push his party to the right. Then, after the show was cancelled, he dumped the Democrats and as a reward from the powerful corporate interests that backed him he was able to become governor of California as a Republican where he could further popularize these policies. So this is a clear example of corporate interests pushing the laissez-faire, anti-union ideology back in the 50s’ and 60’s.

            Below is a link that describes Regean’s voyage from the New Deal to neo-Liberal laissez-faire.


          5. i on the ball patriot

            Kevin, for insight into Reagan you need to go back a bit further into the history of Reagan’s GE mentor, Lemuel Boulware, and get a better source than the white wash Thomas Evans link you provide. Boulware was a labor union bashing scum bag and any opposition was painted a dirty commie pinko. Reagan learned, and internalized, his master’s lessons well.


            “In the course of advancing its own proposal which is treated later in this report, the General Electric Corp., through Mr. Lemuel Boulware, criticizes the tripartite feature of the IUE proposal. The function of
            deciding the important question “of whether an individual or organi-zation is serving the interests of a Communist foreign government” is not properly a matter for tripartite determination but one that should be determined by a Government agency. The special interests of unions or employers should not be permitted to affect national policy
            on an issue of such great moment (pt. III, p. 9).
            Mr. Boulware’s positive proposal is in line with the category of i emedies which would lodge the responsibility for making determina-tions of Communist-dominated unionism in an all-public Government agency. He supports legislation to achieve this purpose on the ground that the unions have not really demonstrated their capacity to rid their organizations of Communist leadership. The expulsion of the
            Communist unions by the CIO, Mr. Boulware attributes to the refusal of the Communist unions to follow the “political” line of the CIO and not “because they were found to constitute a danger or threat to the country” (pt. IV, p. 4). Mr. Boulware makes three specific recommendations as to the principles which should be followed in such legislation.
            1. Official Government investigation and identification of Communist-domi- nated unions and Communist union leaders.
            2. Establishment of criteria, pursuant to which the independent agency would make its determination.
            3. Disabilities and penalties resulting from determination by the Commission that an organization is Communist-dominated (pt. IV, pp. 8-10). The penalties anddisabilities applied to a Communist-dominated union as contemplated by Mr. Boulware in (3) above come to, in the last analysis, a form of disestablishment, and loss of the rights and
            privileges which accrue to it as a labor organization, comparable to the sanction invoked against a company-dominated union under both the Wagner and Taft-Hartley Acts.
            Mr. Gwilym Price, president of the Westinghouse Corp., makes a proposal comparable to that of Mr. Boulware, involving officialdeter- mination of Communist domination and the application of drastic sanctions resulting ultimately in the disestablishment of the labor
            organization for all practical trade-union purposes (pt. IV, p. 15 ff.)”

            More here …


            Deception is the strongest political force on the planet.

  8. anon

    Sorry, Yves, I saw no flaws.

    Your points were well made and succinct. What came through was a solid grasp of the issues, the skill to make a cogent case, and you stayed on message. Clearly you could have talked for hours about any bit and I personally love to watch someone who can present a point, nimbly digress, then return to the main part without skipping a beat.

    Someone suggested getting on John Stewart the other day. I’d also target Bill Maher. His interview with E Warren last week was smart and fun and there was an adorable bit at the end when he asked her to just hold him. I miss Dick Cavett.

  9. Tahoe

    Great video and energetic debate. In my view there appeared to be some common ground in the discussion and in a sense almost felt like semantics – who’s writing the policies and who’s enacting them. I believe the the foundation to both is a human error in choices that disrespected the full potential effects on others than themselves. Excellent discussion from two of my favorite personalities in this blogosphere! thanks!

  10. fiscalliberal

    Electrical Engineer here with a minor in economics. Thought your interview was excellent, especially with the analogue of stability. As noted previously by a respondent, a engineer stays away from instability like the plague. Toyota is an example of where that was not observed. Keep going, you will get better with more exposure to media. Hillary got much better as the campaign went forward. You have an important message and keep to the simple analogues. Identify the terms Procyclical and countercyclical in terms of stability and unstability.

    1. JeffC

      Another electrical engineer (EE) here – former professor of said discipline in fact – and I have to agree most strongly with my two EE colleagues who have commented in this thread on stability. Economics is never going to grow up into a nontoy science until it gets away from assuming that feedback pressure with the right sign, towards equilibrium, is enough to move an economy quickly and smoothly to that equilibrium. It just isn’t that simple.

      The engineering discipline has built up a truly enormous body of understanding of the dynamics of feedback systems, and without that understanding many airplanes would not stay in the air, our cars’ power-steering systems would not work, and some of our bridges would not even hold up. (Go to youtube and search “Tacoma Narrows bridge collapse.”) It’s utterly ridiculous that the whole profession of economics (except Aussie prof Steve Keen) ignores it all and relies on simpleminded equilibrium arguments. And then they’re mystified by wild swings and oscillation in the variables! Like GEICO caveman says, “Unbelievable!”

  11. Jeff

    Great job, Yves, and I know how difficult it can be to be alone staring at the lens and not able to pick up on the facial cues of the others and dealing with a slight delay, etc. I was struck by what a great discussion we got–would be impossible on the ADHD CNBC or nightly newses; maybe Moyers or Lehrer’s show could allow such depth. I’m ordering the book now.

  12. LeeAnne

    You did very well Yves; better on TV than anyone else could do with the complicated issues you address. The FS cool does make him seem more authoritative which is the goal actually and probably why he was chosen to debate you.

    The rule for TV debate is to provoke. When your goal is to communicate truth no matter how complicated or controversial, TV is not kind considering the people pulling the strings behind the curtain.

    What passes for ‘debate’ in current TV mode is for thugs. Even those not usually thought of in that context can be counted on to rise to it for the occasion and really throw you off. The combat is as intense as any football game.

    I think you were blindsided and need good PR and coaching to push ahead on the book in the media on all fronts.

    Please get the best PR possible before you go on TV again. I thought that barstool interview was a real MSM set up that will come back to haunt you.

  13. Dan Bednarz


    You did quite well, especially since Felix was obscure/obtuse in revealing his argument. He seems to be dealing in straw-man rhetoric.

    I would note that most industries want regulation to level the playing field and to maintain stability and predictability, i.e., to control for turbulence and uncertainty.

    Most important, to complement your argument, oil production peaked in the US in 1970, in the world in 2005. !970 was not faced and its implications were enormous; 2005 means that the past pattern of perpetual physical grwoth of the economy is no longer possible. The looting you describe is, in ecological terms, the behavior of yeast in a wine vat.

    1. alex

      “You did quite well, especially since Felix was obscure/obtuse in revealing his argument. He seems to be dealing in straw-man rhetoric.”

      I agree that Yves made her point well, but disagree with you about Felix (his one cheap shot was putting the phrase “evil economists” into Yves’ mouth, and as a Saturday morning quarterback I’d say Yves should have countered it).

      My gut reaction would normally be to agree with Felix that rent seeking can always find an intellectual cover, and hence that bad economics was not the original cause of the problem. It says how well Yves made her point that I now question my usual assumption. I’ll have to read ECONned to get a fuller argument.

    2. Andrew Bissell

      I would note that most industries want regulation to level the playing field and to maintain stability and predictability, i.e., to control for turbulence and uncertainty.

      This may be what they *say* about why they want regulation, but what they really want is to quash potential competition. This is especially the case with tobacco, for instance.

  14. alex

    Yves a fifth columnist?

    Consider that Canadian finance, thanks to prudent regulation, didn’t blow up the way American finance did, and that an economically depressed America has bad ramifications for Canada. Now Yves claims that she’s originally from the northern Midwest. Ok, that’s good cover for the accent. But the truth is that she’s a deep Canadian “plant” sent here to save us from ourselves. Those evil Canucks!

    1. Yves Smith Post author

      Actually, I’m “from” nowhere in particular, although I suppose you could call it “paper mill America”; small towns where the local paper mill was the biggest employer. But as a result, I grew up with the world view that manufacturing was important, and didn’t have to be evil (one of the mills my father started up got an award for its environmental standards).

      And to show the shift in values collectively, my father was VERY conservative, yet he accepted the need to clean up the paper industry. He never grumbled about government meddling, the way people would now. It’s just that from a pragmatic standpoint, it was very easy to build new mills that were environmentally friendly, while retrofitting old mills was costly, and paper machines are VERY long-lived assets. Another problem is that the human nose is very sensitive to the smell of sulphur (it can detect it at only 4 parts per billion) so even a clean mill still smell bad (but a lot less so than a old mill).

      But that meant I lived in West Virginia, panhandle of Maryland, Massachusetts for a bit, Oregon, Ohio (several different towns/cities) and the Upper Peninsula of Michigan.

  15. DavosSherman

    hum·ble (hmbl)
    adj. hum·bler, hum·blest
    1. Marked by meekness or modesty in behavior, attitude, or spirit; not arrogant or prideful.

    1. anon 1

      This looks like weasely criticism. Make a point please. Note:Remaining anon to avoid appearance of sucking up.

  16. run75441


    I agree with the EE above on the stability argument but perhaps from a different stance. How does one know the data distribution is normal unless one tests it? Too many people cite studies from a stance of normality without understanding or knowing if the data distribution is normal. With each input of data, the distribution has to be tested. In manufacturing, we would look to minimize variation from the norm, target, or critical dimension. We constantly test and look for root cause for variation rather than allow it to magnify over time.

    As other posters have said:

    – You stated your points well.

    – Your presentation will improve the more you do it and answer questions.

    – I thought Felix’s openning remark was meant to provoke more than present a factual argument. You were placed in a defensive posture from the beginning. Sometimes a quick retort is the best answer or a slight hesitation to determine a response and turn the tables.


    1. alex

      “How does one know the data distribution is normal unless one tests it?”

      Assume we have a can opener.

    2. Claire


      In fairness to B-S, I think (I didn’t rad the original paper) that the point is that PROVIDED certain assumptions, we can CONCLUDE [whatever]. That’s how most papers are written–the point, after all, is normally to publish, not to reach some brilliant conlcusions. This is why academic journals are so full of crap.

      I doubt that B-S claimed that the assumptions were inherently correct–they just needed some place to start.

      I could be wrong, though

  17. Maxine Udall (girl economist)

    First of all, you did good as we used to say in my childhood sport. And the first commenter is right. Don’t worry about smiling.

    Salmon did not engage the substance of your argument at all, instead resorting to tricks like reframing your position to something indefensible in hopes you would then be sidetracked into defending it (e.g., his hyperbolic statement suggesting that your position somehow involved an “evil” Milton Friedman). You dodged it nicely.

    My own argument is that economists and economics have either wittingly (as in: we can make a lot of money if we are willing to provide the moral and economic underpinnings of a narrative in which individual self-interest serves the public interest best) or unwittingly (as in: we’re scientists and therefore eschew any normative evaluations of the processes, outcomes, and equilibria that we study) provided or supported a narrative about narrowly defined self-interest that was in turn “cover” for very unethical, socially harmful behavior. Regardless of motive, as a discipline, we greased the skids for the ensuing wreck.

    We also have the power as a discipline to help the recovery if we’re willing to translate theory and thought, speak in parables instead of equations and jargon, and help people to understand the importance of incentives (not just incentives for productive activity but incentives for socially harmful behavior), the economic and social gains from an economic system that supports a more equal distribution of resources and opportunity, the necessary role that a democratically elected government must play in regulating and stabilizing a large and complex economy populated by large firms with concentrated market and politcal power, and, as you so eloquently put it, the value of stability in fostering innovation, entrepreneurial endavor, and economic growth.

    I can’t wait to read the book. :-)

  18. velobabe

    yves, i listen to your words and use my eyes to read your thoughts. articulate virgin, not yet spun or been woven. your beautiful!
    Go forth into the world in peace;
    Be of good courage, Hold fast that which is good,

  19. kevinearick

    keepin it real, gotta love it.

    if you are attracting EE positive feedback, you are “HOOKED UP”, because the EEs are going to be driving development of the foundation for the next economy, and building the new middle class around them. Hopefully, they will remember lessons learned from the financial engineers / doctors, that the real economy is the safety net, humans need to be the circuit supply loop, and capital is best kept at a distance.

    1. alex

      “EEs are going to be driving development of the foundation for the next economy”

      Right, just as soon as the unemployed members of our ranks find work (preferably in the US – Elbonia and Lower Slobbovia are terrible this time of year).

      1. kevinearick

        (SKIP THIS COMMENT, ALEX is having a rough day)

        Rome was not built in a day.

        First you need a market:

        Symbiotic Economic System Articulation

        OK, so we need to hook up to those electrons, which have a voltage potential proportional to the global cartel protons, but we cannot “know” where they are, because the cartels constantly hunt them down.

        We start with what we cannot do, but what the passive investment markets are doing, through the misdirection of government promises:

        arbitrarily assigning debt to others, and holding their future hostage as collateral to ensure collection, for the purpose of claiming their assets as a basis for issuing debt; obtaining unearned, compounding returns, which is, in a word, extortion, and such an economy is not going to attract the required talent to provide necessary circulation.

        What it attracts is people who want something for nothing, in a self-reinforcing algorithm that Greenspan called irrational exuberance, as he fueled the fire with increasing leverage. He gave everyone involved what they wanted, a scapegoat, in the high school, get-along-to-go-along algorithm.

        Most of the financial pyramid will dissolve. It always does. That’s the “secret” of long-term investment, watching pyramid assembly followed by disassembly. Secondary markets require independent investigation for the price mechanism to function. Replication and multiplication attracts the sharks, the sharks are perfectly attuned to watch as the medium fish eat the small fish, and on up the line, before attacking, and finally cannibalizing each other.

        (not to worry if you are willing to get your hands dirty; the process of induction is already well under way, which is why the market is starting to produce all kinds of independent market analysis tools – where you want to be developing for immediate return on investment.)

        next, we take a look at mature, efficient operations to be recycled, the economic activity cash cows, producing large economic losses, with low-orbiting electrons:

        organization A decides it’s not satisfied with its returns, so it modifies its output portfolio 1,2, & 3, by reorganizing its internal processes a,b, & c. B receives A’s output as input, which no longer meets its requirements for d,e, & f. Organization B reorganizes, but incurs heavy losses in its 4,5, & 6 portfolio, delivering only 50%, through e & f to organization C. C cannot process g,h, or i to completion, incurs a complete loss on its portfolio, which provides input back to A, in a vertically controlled company, crashing it.

        In the old economy, this scenario is avoided by limiting change to small, incremental improvements, over long time periods, and by seeking greater and greater hidden subsidies from the rest of society, through government control of markets, to avoid more nimble replacements.

        We’ll skip our way up to the small, entrepreneurial companies, with high orbital electrons, that the nexus is currently preventing from backfilling the market pipeline. We have a simple system with four workers & their productivity:

        A + B + J = 5 + 6 + 8 = 19
        B + J + S = 6 + 8 + 4 = 18
        A + J + S = 5 + 8 + 4 = 17
        A + B + S = 6 + 7 + 5 = 18

        As a manager, I need 22 for profit-sharing. Do I promote Johnny and ask him to find some friends to replace the other 3 (8 + 8 + 8 = 24)? In an efficient organization, the answer would be yes, but we are not running an efficient organization at this level.

        Sue is creating multiplier effects, and Johnny is stealing productivity from his fellows. I promote Sue, fire Johnny, and production quickly rises to the required rate of return. To the extent Sue(s) are paid to lever production in the aggregate, and remain hidden from the nucleus, economic profit develops.

        (Sue has such a large multiplier effect because she sees the entire system, not only at work, but in her community as well, eliminating layers of management everywhere she goes. From the perspective of a rigid State, Sue is the enemy, and its attempt to target her collapses the system)

        Finally, we tie the system together with very high orbital electrons, customers who can accurately calculate real price of goods and services:

        What all new economy, viral growth products have in common is the effect of increasing mobility – physical, psychological, and virtual, of customers in a manner that increases their intrinsic value. As they become ever more mobile, and gain access to an increasing diversity of options, they re-invest in and promote the same learning in others to take over the market, partnering with the new franchises and cutting off the old franchises from their margins.

        In a stable, equilibrium system, the functional secondary market, full of independent price discovery, determines the rate of circulation, not promises from the nexus, which is monopolizing price discovery.

        As you can see, Apple is becoming a mature enterprise, due to self-fulfilling prophesy investment in the secondary market. It’s becoming like Burton Boards, a high priced name that the leading edge kids, the highest orbital electrons, are migrating away from.

        We do not need to “know” where the electrons are to induce circulation. We need a healthy secondary market, a transformer, with independent price discovery.

        1. kevinearick

          the next link is a market to combine labor and capital on projects, eliminating all the middlemen. The capital is there. The EEs need to form teams and propose projects.

          There are several elements out there prototyping the market. That’s something some EEs will want to get in on as well.

          The “jobs” are not coming back. Jobs are completely “commodified”. Unless you want to build a vehicle that travels backwards, uphill.

          Who is more qualified, you or Bernanke?

  20. charcad


    Preceding commenters are right. Don’t force the smiles and certainly don’t force the big ones. They’re just not you. That small Cheshire cat smile at the end of a proof is you.

    I was not impressed in the least by Felix Salmon. He lacked any substance. He merely constructed a strawman Yves that he demolished with sneering wisecracks. He compares to real debaters the way TV WWC wrestlers compare to Olympic wrestlers.

    Why do you think you did so poorly with him? I don’t.


    1. charcad


      r.e. the substance of your comments.

      1. I also loved the stability analogy. Any other mechanical engineers in the house? Or is just under-employed EE’s?

      2. On late 1970s and Reagan era “economics”. The principle policy concern in that era was controlling the size and power of government. It was considered that the best way to do this was to limit the government’s revenues.

      The leaders of that movement viewed “Government” the same way you talked about financial markets in your appearance. They do not tend towards stability in size and power. They instead favor boom and bust cycles.

      fyi, the so-called “neocons” were appearing in the GOP but were almost entirely MIA in the economics wars. Their issues were Israel, the Cold War, Israel, anti-Stalinism (since nearly all the Jewish neocons were ex-Trotskyites), Israel, a faux social conservatism designed to recruit Middle American foot troops for the GOP to pursue their pro-Likud policies, Israel…

      I don’t know how “extreme right wing” the economics proponents can be described. Milton Friedman was squarely in the Austrian school. He also favored ending the military draft.

      Arthur Laffer became the poster boy for “Supply Side Economics” and the Laffer Curve. He later opposed the Bush family and supported Clinton in 1992 & 1996.

      Jude Winniski at the WSJ was key in popularizing Laffer. Following the first Gulf War Winniski began warning (late 1991) that Iraq was already fully disarmed of WMDs and that neocon warmongers would use this issue as a red herring.

      Paul Craig Roberts (Ph.d economist, WSJ editor and assistant Sec/Treasury in Reagan’s first term) now writes for Counter Punch.

      Jerry Pournelle (one of the prime movers with General Graham behind “Star Wars” SDI) openly opposed the First Gulf War in 1990-1991.

      As a group these people were already headed for the exits during the elder Bush’s Administration in 1989-1992.

      3. Surprise 1980s Wall Street Deregulation? No Wall Street influence on it?

      This one doesn’t fly so good. Don Regan (former chairman of Merrill Lynch) was Reagan’s first Treasury Secretary from 1981-1985. Regan later swapped jobs with Baker in the second term and became WH Chief of Staff for two years. He then resigned during the Iran Contra fallout.

      1. DownSouth

        I’m a mechanical engineer. But I’ve been retired for 10 years, so maybe I don’t count.

        As to scientific objectivism, it has had much more success in the natural sciences than in the social sciences. Someone back up the thread mentioned Mandelbrot, and I always remember an interview he did a year or so ago with Nicholas Taleb. Imagine the weather, he said, and how difficult that has been for scientists to predict. Human behavior, he asserted, is infinitely more complex than the weather.

        One of the things that makes the natural sciences so much simpler is that natural processes operate independent of human belief systems. Gasses are going to behave the same, for instance, regardless of whether humans believe in God or not, or whether they are orthodox capitalists or died-in-the-wool Marxists. This cannot be said of human behavior, however, regardless of what Felix Salmon says. What humans believe affects human behavior. So this adds a whole level of complexity in dealing with the behavior of humans that doesn’t exist with the behavior of gasses.

        1. i on the ball patriot

          DS says — “Gasses are going to behave the same, for instance, regardless of whether humans believe in God or not, or whether they are orthodox capitalists or died-in-the-wool Marxists.”

          I think you are wrong here. I think belief systems do affect the behavior of gasses.

          I think believers in god are more inhibited and tend to hold back their gas. They even buy and use a product called, “Beano”, so as to release gas slyly and silently. Capitalists (really gangsters) just let their gas rip. And Marxists of course, don’t generate any gas at all.

          Deception is the strongest political force on the planet.

      2. Costard

        Just to nitpick: Milton Friedman took from the Austrian school, but monetarism is its own philosophy. Inflation being the center of contention.

        Agree with you regarding “extremism” of economic thought. And it’s worth pointing out that, in the face of late 70’s inflation, the only truly extreme solution would have been to remain with the status quo.

      3. DownSouth

        As to the economic “principles” of Reagan, I believe that with him, as with Obama, one must separate shadow from substance. He was about as sincere about “controlling the size and power of government” as Obama was about implementing substantive financial sector reform, or ending the wars in the Middle East. Under Reagan big government took on new and unprecedented proportions, as did militarism. Reagan’s objective was state capitalism, a system whereby industry controls government. And the two most powerful industries in the US are the financial industry and the military industry. So I don’t see Reagan’s military and economic policies as emanating from two totally separate camps.

        Furthermore, there is an ideological affinity between the neoliberals and the neocons, as Reinhold Niebuhr warned of sixty years ago:

        We have heeded the warning “let not the wise man glory in his wisdom, let not the might man glory in his strength.” Though we are not without vainglorious delusions in regard to our power, we are saved by a certain grace inherent in common sense rather than in abstract theories from attempting to cut through the vast ambiguities of our historic situation and thereby bringing our destiny to a tragic conclusion by seeking to bring it to a neat and logical one.

        Significantly the elements in our population which are most prone to defy the limits of power, possessed by any particular agent in history and to seek a resolution of our difficulties by a sheer display of military power, are frequently drawn from a bourgeois-liberal tradition which was, until recently, unconscious of the factor of power in political life. It is the nature of a business community that it deals with the covert forms of power in economic life and to be insensible to the significance and the complexity of more overt forms of power, even as it is insensible to the motive of the lust for power as an element in human nature. It is quite conscious of the force of self-interest in life; but it imagines that this force is nicely checked and contained by prudence on the one hand and by the balance of competing interests on the other. The realm of the political with its vast imponderables of power is a terra incognita to it. When experience suddenly thrusts the facts and perils of this world upon it, it is inclined to exchange the sentimentalities and pretensions of yesterday, which obscured the power element in life, for elements in the American business community because American world authority rests so directly upon our military power; and this in turn is drawn so immediately from our economic strength. We have had so little experience in managing or participating in the conscious and quasi-conscious power struggles of life and in fathoming the endlessly complex compounds of ethnic loyalties, historic traditions, military strength and ideological hopes which constitute historic forms of power, that we would fain move with one direct leap from the use of economic to the use of military power. These are the political and moral hazards of a great commercial nation, moving directly and precipitately into the baffling currents of world politics. Despite the hazards, we have managed to achieve some patience and shrewdness and have avoided the ultimate error of trying to bring the historic process to what would seem to us to be its ultimate conclusion.


        The fact that the European nations, more accustomed to the tragic vicissitudes of history, still have a measure of misgiving about our leadership in the world community is due to their fear that our “technocratic” tendency to equate the mastery of nature with the mastery of history could tempt us to lose patience with the tortuous course of history. We might be driven to hysteria by its inevitable frustrations. We might be tempted to bring the whole of modern history to a tragic conclusion by one final and mighty effort to overcome its frustrations. The political term for such an effort is “preventive war.” It is not an immediate temptation, but it could become in the next decade or two.

        A democracy can not of course engage in explicit preventive war. But military leadership can heighten crises to the point where war becomes unavoidable.
        –Reinhold Niebuhr, The Irony of American History

        1. charcad

          As to the economic “principles” of Reagan, I believe that with him, as with Obama, one must separate shadow from substance. He was about as sincere about “controlling the size and power of government” as Obama was about implementing substantive financial sector reform, or ending the wars in the Middle East.

          This is true. Ronald Reagan only delivered half a loaf to the “Supply Siders”. That was lower tax rates. He reneged on the reductions in government spending and on really throttling government regulation. He could have done much on the latter with executive orders. There was early disillusionment over his failures to tackle EEOC, EPA & OSHA.

          And the two most powerful industries in the US are the financial industry and the military industry.

          I would choose finance and media. This is unsurprising following an actor President who put Merrill Lynch in charge of the Treasury and whose best buddy was Walter Annenberg. “Military industry” only looks powerful in comparison to the collapse of American non-military industry.

          fyi, according to Don Regan’s autobiography (Donald T. Reagan For The Record) he had only met Ronald Reagan twice in public campaign functions before he received a phone call asking him to be Secretary of the Treasury. Regan does tell that after the 1980 election an anonymous “Wall Streeter who was on the inside of the Reagan camp” called him about the job.

          On the same page Regan reports that in 1980 he worked with John Whitehead, then an executive with – surprise surprise surprise – Goldman Sachs, to raise money and generally promote Ronald Reagan on Wall Street.

          William Casey, NYC corporate attorney and former SEC Chairman, is said to have been a main backer of Donald Regan for Treasury Secretary. Casey himself went off to become DCI.

      4. Yves Smith Post author


        Was not clear enough. The extreme right wing I was mentioning was the POLITICAL extreme right wing, which started promoting a much broader agenda in the 1970s, the economic bit was only one part. So the new militant arm of the right wing (this isn’t a stretch, they were Jesuit-like in their operations) took up and promoted neoclassical econ ideas.

        Now Friedman had separately been promoting theses ideas (he’d had a Newsweek column since 1966) but if you look at what he endorsed policy-wise, like a negative income tax (!) he was more moderate in the 1960s than when the right wing started taking up his and his followers’ thinking.

        1. charcad


          The extreme right wing I was mentioning was the POLITICAL extreme right wing, which started promoting a much broader agenda in the 1970s, the economic bit was only one part.

          I know the group you’re talking about. This gang:

          That crew never really cared about economics. Most of them didn’t know anything about economics, beyond collecting lots of money from their erstwhile followers. For them economics was just another handy club to beat Jimmy Carter with.

          They existed as a self-aware cooperating group long before they officially founded the CNP. Their “economic vision” was limited to anti-unionism (for them “Free Trade” was a tactical part of this) and a general belief in an ill-defined and unfettered Free Enterprise as a Deus Ex Machina that would solve all their problems. In operation they were very close to Felix Salmon’s Forest Gumpism yesterday: “economies happen”.

          They were political heavyweights able to turn out lots of ground troops when and where it counted for the GOP. They spanned the Southern Baptist convention, the entire evangelical Christian Zionist group (Jerry Falwell, Pat Robertson, etc.), the remnants of the John Birch Society and most of the then highly organized AMWAY network.

          But they never had a profound economic vision or theory. Friedman, Laffer, Roberts, Wanniski, George Gilder and others were the ones doing the heavy theoretical lifting. And they were either Traditional Conservatives, as you noted, or they were Austrian School/Libertarians of one degree or another.

          1. john c. halasz

            In the mid-1970’s there was a gathering alliance between phalangist “Christian” reactionaries, hard-line Cold Warriors, oligopolist corporations, and rentier heirs like the Coors and Mellon Scaife. Mobil Oil, for example, began to regularly run op-ed adds on the editorial pages of major newspapers. Opposition to godless communism was mixed with evangelization for “free markets” and advocacy of increased social discipline and opposition to unions and social spending. Basically, in the midst of a crisis in profitability associated with the stagflation of the time, the anti-New Deal coalition was revived, and the unstable and contradictory coalition came to power with the election of Reagan, reaching its self-destructive apogee under Dubbya. It’s not hard to figure which were the dominant sophisticated elements in the coalition. Basically, the slogans of “freedom”, “opportunity” and “competition” were evoked to advance the rent-seeking interests of corporate oligopolies, while securing it a popular base through mobilizing resentments.

          2. Yves Smith Post author


            I have to disagree with you, both I and some researchers working with me went back and looked at the historical record (articles and books from the 1960-1980s).

            First, you overstate the degree of “intellectual heavy lifting”. Friedman was a brilliant polemicist, and his popular writings did a great deal to reframe the debate, much more than his academic work. He was a Newsweek columnist from 1966 to I believe 1984. He wrote Capitalism and Freedom in 1962!

            We all like to forget that economics was once called “political economy”, to make the fact that how societies go about resourcing themselves involves political decisions. The contemporary use of the term “economics” and the faux science mantle tries to paint economics as value-free, when it is anything but that. I’ve been reading the Marxist economics historian Robert Brenner, and the Marxist perspective (of looking at long term trends in corporate profitability as the driver of recurrent capitalistic crises) is a useful one that it utterly verboten in normal economic discourse because of the political overtones of Marxism. In a real science, do you see ideology making certain forms of analysis or framing of problems impermissible (as long as the underlying methodologies are sound)? No.

            Second, you claim that ” general belief in an ill-defined and unfettered Free Enterprise as a Deus Ex Machina that would solve all their problems” was a POLITICAL idea that sprung out of Zeus’ head full formed? That’s straight dumbed down neoclassical economics. You’ve endorsed my argument. And they over time rebranded “free enterprise” as “free markets” to make it sound more friendly to the little guy.

            Second, the conservative economists of the 1960s actually did not differ as much as is now portrayed from the Keynesians, and it was also evident that they disagreed more about politics and philosophy (role of the state v. private action) than on concrete policy recommendations.

          3. DownSouth

            I believe the large economic organizations that enjoy almost a monopoly of political power in the US like to play coy, insisting that they wield little or no political power whatsoever. These pretensions to political powerless are made simultaneously with the flexing of the long arm of the government to smash the little guy into oblivion. (For those who have studied domestic abuse, I think the neoclassical economists have something in common here with wife beaters.)

            In Latin America the wielding of power, both political and military, has been a little bit more overt. In the 1970s, the mandarins of neoclassical economics didn’t demur from using violent coercion to implement their economic nostrums. Salomon Partnoy points to the “Dirty Wars” of the military dictatorship that started Argentina down the road to neoliberalism:

            In 1987, the Argentine Human Rights Commission denounced the activities of the military and its “Dirty War” before the International Human Rights Commission in Geneva, accusing it of having committed 2,300 political assassinations, making 10,000 arrests for political reasons and ‘disappearing’ between 20,000 and 30,000 persons, many assassinated or buried in unknown graves. During this reign of terror, the Videla government imposed a rigid economic plan that initiated a period of “easy money” [plata dulce] in which the national currency and corporate assets were overvalued, facilitating sumptuous spending abroad. Thus, between unlimited terror inside the country and unlimited spending abroad, between the concentration of income in a few hands and the enormous impoverishment of the poor majorities, life in Argentina was a dream for the few, but a nightmare for most.

            Perhaps the first use of overt coercion to implement neoclassical policy was in Chile:

            In Chile, the socialist government of Salvador Allende was overthrown in 1973 by a military coup headed by General Augusto Pinochet. In a savage action, Allende partisans were rounded up, gathered in a stadium, and murdered en masse. Others were sent to concentration camps, and still others were exiled and sometimes murdered abroad. Pinochet did all of this in the name of democracy and anticommunism.
            –Carlos Fuentes, The Buried Mirror

            And of course the Chicago boys—-Friedman, Hayek, Robert Lucas—-along with the IMF, were all on board for murder and mayhem, whatever it took to see their economic theories implemented. “My personal preference,” Hayek told a Chilean interviewer, “leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism.” In a letter to The London Times he defended the junta, reporting that he had “not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende.” http://www.counterpunch.org/grandin11172006.html

            The wielding of raw, visible power came with a heavy price, however, so the paladins of neoclassicism went underground, learning to wield power in more subtle and sophisticated ways. But economic crises pull back the curtain on the hidden puppeteer. The Argentine economist Miguel Teubal did an analysis of

            the way economic policy systematically favored the various large economic conglomerates operating in Argentina… In the midst of the crisis these large conglomerates or grupos economicos are once again showing their muscle pressuring the government to pay for foreign debt, increase public rates, compensate the banks for their losses due to capital flight, etc. In effect, the crisis itself shows the bare anatomy of the economic structure in which these large conglomerates reign supreme…
            –Miguel Teubal, Rise and Collapse of Neoliberalism in Argentina: The Role of Economic Groups

  21. lambert strether

    1. Agreed — be you. You’re the brand. The Cheshire cat smile at the end is fine.

    2. Sounds to me like you don’t have your talking points prepared and bite-sized for the teebee. If blogging’s good for anything, it’s good for that. Heck, why not “crowd-source” your talking points from the community here as part of the talking about the book.

    3. Back to #1. At least in my experience, if you’ve got the talking points honed and ready, the confidence flows, and with that the perception of confidence. That’s the idea behind the “smile more” feedback, though IMNSHO the advisor who gave that suggestion should be approached with caution in future ;-)

  22. Gareth

    I enjoy reading Felix’s blog posts but frankly, as one who is turning 60 shortly, I don’t think he is old enough to truly appreciate the economic propaganda campaign administered through well funded corporate think tanks that emerged in the late 70’s. It does help to have lived through that era rather than having just read about it. He lost me when he essentially accused you of promulagating a conspiracy theory involving evil economists. This was a rhetorical gimmick more worthy of bar room political debate.

    By the way, I deeply distrust intellectuals who immediately start grinning lick chimpanzees as soon as the camera is fixed on them.

  23. Chris M.

    I thought you came across very well and I plan to buy your book. I was pleasantly surprised to see such thoughtful, intelligent and relatively thorough discourse in US main stream media, not only in your piece but also the hosts’ initial reporting of the US job situation. Then I remembered it wasn’t US main stream media at all, where you’d never see this sort of thing. It was Canada.

    You both seem to agree that financial deregulation was disastrous, whether politicians got bad advice from economists or the financial industry just used them. Both things probably occurred. At this point, it’s abundantly clear that main stream economists failed us, miserably. We need better, more realistic, economic theory, as Krugman has pointed out.

    We also need much better politicians who actually work for the good of all Americans, or at least their constituents, and not just big contributors and various special interests, many of whom are outside their district or state. In order for that to happen, we need to have campaigns that are 100% publicly financed and put an end to the private campaign contribution system that is nothing less than legalized bribery.

  24. Wayne Martin

    > You both seem to agree that financial deregulation was
    > disastrous, whether politicians got bad advice from
    > economists or the financial industry just used them.

    Former Senator Phil Gramm has a PhD in Economics, doesn’t he?

    Gramm–Leach–Bliley Act:

    Gramm has not been on many talk segments of financial news programs, has he? Might be interesting to have him and Yves Smith as guests on a 60-minute segment, rather than this hit-and-run format of this show.

    1. fiscalliberal

      Phil Grahm has a Phd, but he is intellectually dishonest. Do not waste your time with a hasbeen.

  25. Costard

    Impressive, Yves. I don’t think you came across poorly, and the hesitations didn’t bother me nearly so much as your interruptions of Felix. He had perhaps a third of the speaking time, and it doesn’t seem to me that he had the opportunity to make a case. That, and the move into politics at the end – “right wing right wing right wing” – gutted your argument for me.

    Fact is, by pegging the end of 70’s as your turning point for when “things began to go sour”, you open yourself for major criticisms (which, again, Felix did not provide). The 70’s were an awful period economically, and not simply because of the oil embargo. Stagflation was a result of the old paradigm that your are defending. Inflation was rising in tandem with interest rates as early as the mid-60’s. You want to return to this? Or have you another economic theory in mind?

    Furthermore, one cannot hold industry deregulation responsible for the loss of manufacturing jobs and the consequent focus on paper. One can look to decades of political opportunism at corporate expense and the legacy costs left over from your “golden period”. One can look to a perennially strong dollar. But economists themselves? I’m with Felix on this. IMO economists, like priests, are there merely to provide authority to the wishes of autocrats and the pleas of lobbyists.

    Finally, I question your characterization of the 30’s-70’s as a period without booms and busts. Even discounting the catastrophic 30’s and the 70’s, it is categorically false, for there were a number of bear markets, and it is also disingenuous with regard to world events. WW2, the destruction of European manufacturing and capital (to our benefit), post-war rebuilding and the arms race were economical as well as political events. There was little focus on innovation outside the military, because there was little need to be. Global misfortune and insecurity was our mana from heaven. I haven’t read your book – perhaps you make a better case there – but neither have most viewers. You need to either make a firmer argument, or focus on smaller topics. And avoid politics — it alienates people and gains your point nothing.

    That being said, this was considerably better discussion than one normally finds on the news. Congratulations and good work, and keep it up!

    1. citizen bagholder

      Hooray to Yves for her great performance.

      Yves should not avoid politics because politics drives policy and policy created the conditions for the financial disaster of 2008. She did a great job of taking a political stance without sounding ideological. And this is essential to being able to communicate to a wide audience. Yves’s point was that our mid-century regulation prevented the cycle of extreme booms and busts. Regulation moderated the economic cycle, and we avoided the traditional pattern of having a financial panic every decade. The Chicago school gives air cover or legitimacy to the new robber barons and we are returning to an era of instability and extreme inequality.

    2. alex

      “The 70’s were an awful period economically, and not simply because of the oil embargo. Stagflation was a result of the old paradigm that your are defending.”

      How was stagflation a result of the old paradigm rather than the oil embargoes? Oil was a supply side shock. Arguably the Fed should have raised interest rates earlier or somesuch, but otherwise what about the old paradigm handled this poorly that the new paradigm would have handled well?

      “one cannot hold industry deregulation responsible for the loss of manufacturing jobs and the consequent focus on paper.”

      I disagree. Finance loves an overvalued dollar. Economists spent the 90’s promoting so-called free trade (never mind that with a pegged yuan and other barriers it’s anything but free). Moreover mainstream economics (e.g. the IMF) dealt badly with the downside of so-called free trade. For example, IMF policies made Asian countries swear to never again be in a position where they had to deal with the IMF. Rubin’s “fixes” were great for finance but terrible for manufacturing. OTOH capital controls, as used in Malaysia (and advocated by Krugman, et al) worked well but were anathema to the IMF and most mainstream economists.

      “I question your characterization of the 30’s-70’s as a period without booms and busts.”

      It’s not that there were no booms or busts, but that booms and busts between the Great Depression and our current Great Recession were comparatively mild, not only as compared to those two “Greats” but compared to the Panic of 1907 or our numerous 19th century panics.

      “WW2, the destruction of European manufacturing and capital (to our benefit), post-war rebuilding and the arms race were economical as well as political events. There was little focus on innovation outside the military, because there was little need to be. Global misfortune and insecurity was our mana from heaven.”

      The benefits to the US of the destruction of Europe in WW2 have been greatly exaggerated. Trade was a pretty small part of our economy post-WW2, so our growth was based mostly on domestic markets. The big economic effect of WW2 was the stimulus that truly brought us out of the Great Depression.

      And when, other than during WW2 itself, was there little focus on innovation outside the military? There was tremendous non-military innovation both before and after the war.

      1. Kievite


        I think you are misreading history. Costard actually hit the nail in his assessment of the post war history:

        "Finally, I question your characterization of the 30’s-70’s as a
        period without booms and busts. Even discounting the catastrophic
        30’s and the 70’s, it is categorically false, for there were a
        number of bear markets, and it is also disingenuous with regard to
        world events. WW2, the destruction of European manufacturing and
        capital (to our benefit), post-war rebuilding and the arms race were
        economical as well as political events
        . There was little focus on
        innovation outside the military, because there was little need to
        be. Global misfortune and insecurity was our mana from heaven. ."

        Post WWII destruction eliminated major competitors (Germany and
        Japan) for a long time and permitted the US manufacturing dominating the
        world scene.  And yes, paradoxically the USSR was the major
        enabler, if not the architect of the US post War boom.  One
        important effect of the existence of the USSR is that it kept "free
        market" extremists which later hijack republican party in check as it
        was too dangerous to push unions and middle class too hard. 
        Dissolution of the USSR destabilized the USA in a major way unleashing
        the most reckless elements into mainstream: case of toxic self-poisoning
        of the  political discourse.  Dyslexic corporatists like Bush
        II or reckless militarists like Cheney would never get to the political
        mainstream, if the USSR would exist. Moreover dissolution of the USSR
        enabled the postponement of the current crisis (which has a test run as 
        savings and loan crisis) for twenty years via dollarization and
        looting of the huge region with almost a half billion people.

        Also I think it is true to state that post WWII innovation was
        by-and-large fallout from military research (for example via DARPA).

    3. Yves Smith Post author


      The boom-bust point was across the financial system. Just look at the Reinhart/Rogoff work, or ANY discussion of financial history. This was a period with remarkably few bank failures and runs by any historical standard.

      Booms and busts that are in goods markets do not have the blowback to overall systemic stability that ones levered by debt do. Look at the contrast between Japan’s joint stock/real estate bubble, which were fueled heavily by debt, versus our dot-com mania, which was not. Yes, we had a recession after that, there were consequences to the dot com implosion, but was that a systemic event? Not even close. That’s the issue here.

      The book also does NOT defend Keynesians, which you imply here. Keynesians (who ditched Keynes’ most important insights, namely that of the fundamental instability of the economic system, and of how the financial system interacts with the real economy) use the same equilibrium assumptions that neoclassicals do; Keynesianism and neoclassical economics sit on the same chassis. The book discusses precisely how the Keynesians screwed up (remember “fine tuning”? Sheesh, how arrogant).

      1. Andrew Bissell


        I still think one cannot simply point to the 1940s-1960s (the 30s and 70s had plenty of boom/bust) as a period of tighter regulation and stability and say that one caused the other. Leverage had been so thoroughly squeezed out of the economy, and risk-taking had been so thoroughly squeezed out of investors’ psyches by the Great Depression, that a period of financial stability should have been expected to follow it no matter the regulatory regime in place. In fact, since there is usually a trend toward greater regulation *after* financial crises and debt deflations have hit, I would think we could find similar correlations between tighter regulation and post-crash periods of stability. The question is whether any such regulatory frameworks have yet managed to perpetuate themselves long enough to prevent the next phase of the cycle and the answer, so far, is clearly “no.”

        Throughout the 50s and 60s the foundations were already being put in place for a lot of the credit superstructure that plagues us today, especially the expansion of consumer credit. The precedent of “too big to fail” and Fed backstops for the credit markets was established with their interventions in the aftermath of the Penn Central bankruptcy. Imbalances had already built to such a point in 1971 that Nixon had to close the gold window to allow further leveraging of the economy to continue. Maybe the 50s and 60s seem so stable because the developing problems were then in their relative infancy? Perhaps the relative absence of financial panics was attributable not to effective regulation but the burgeoning moral hazard and the sense that Uncle Sam was there to catch anyone who put their money in a bad bank or dodgy commercial paper?

        1. Yves Smith Post author


          It is very difficult to prove counterfactuals. However, mutual funds had become popular by the 1950s, before the dismantling of financial regulation began. Similarly, it was economists who endorsed financial leverage, both via Modgliani-Miller and by CAPM (you can reach a higher investment frontier via the use of leverage). This was institutionalized via MBA programs. When I was a kid on Wall Street, a lot of companies believed having an AAA or AA rating was really important. A generation of financial economists taught them they were fools for thinking that.

          Similarly, the Bretton Woods system had a design flaw, in that countries that run chronic surpluses and accumulate reserves don’t face any punishment or disincentives (there were similar problems with the gold standard, the accumulation of gold contributed to instability). The US tested the Bretton Woods system to destruction via our 1960s policies (running the fiscal deficits that went with conducting a ground war in Asia while also funding a space program and a war on poverty). Both Friedman and Walter Heller warned about the deficits, but because the Keynesians were still in key policy positions, and had advocated deficit spending to combat a stubborn early 1960s slump, it was the Chicago crowd that got the cred for warning against the deficits.

          Now you can argue the Bretton Woods system would have broken down eventually, that’s probably a fair point. But without the way we abused it, it is difficult to say how long it would have persisted. And a slower breakdown (as opposed to the Nixon shock) might have allowed for slower implementation of responses (which would have had the advantage of being able to see connections between cause and effect and come up with better course corrections).

          1. charcad


            I posted the below before I saw your response.

            The US tested the Bretton Woods system to destruction via our 1960s policies (running the fiscal deficits that went with conducting a ground war in Asia while also funding a space program and a war on poverty).

            That Asian ground war was a fairly low budget deal. US defense spending was higher throughout the 1950s as a percentage of GDP. Nor was the high spending during the Korean War due entirely to Korea.

            I estimate that no more than 3% of US GDP was ever spent annually on either the Korean or Vietnamese wars.

            How much was actually spent on the “War On Poverty”?

            I think the accumulating US imbalances in the 1960s had far greater origin in the growing US appetite then for VWs, Hondas, Japanese consumer electronics, textiles and foreign oil.

          2. Andrew Bissell

            I agree with you about the harmfulness of Modigliani-Miller and CAPM (I still shudder when I remember learning in 2005 that corporations should strive to keep their cash levels as low as possible). However, doesn’t the main harm of MM arise from the existence of the tax shield for interest payments?

            On its own, MM just says, “given a bunch of assumptions, it doesn’t matter whether you fund a firm’s capital structure using debt or equity.” The reason it became an excuse for outsized leverage was because interest payments were tax deductible corporate income while dividends were not. In that context MM basically just said, “the government is subsidizing the use of debt, you should take advantage.”

            It was still bad theory and practice for firms to use MM as an excuse to lever up. But the proximate cause of harm was the subsidy, not the theory telling businesses to take advantage of it.

          3. DownSouth


            Here are the figures.

            During the decade of the 60s, defense spending fluctuated between 42.8 and 52.2 percent of the total federal budget.

            Spending on “Human Resources” during the 60s, which includes social security, medicare, veterans benefits, education spending, etc. as well as the “War on Poverty” fluctuated between 28.4 and 33.3 percent of the total federal budget.

            During the Reagan years (1981-1988) defense spending grew from 23.2 % of the total federal budget in 1981 to a maximum of 28.1 percent in 1987.

            Spending on “Human Resources” fell from 53.4 percent of the total federal budget in 1981 to low of 48.6 percent in 1986.

            See Table 3.1 http://www.gpoaccess.gov/usbudget/fy11/hist.html

        2. charcad

          I still think one cannot simply point to the 1940s-1960s

          That entire era was characterized by extremely high direct government spending in the “real” economy.


          Table 1 has some educational numbers for those who still love to characterize the Reagan Era as a period of uncontrolled and outsized defense spending. Reagan’s top year of 1986 (6.2% of GDP spent on military budget lines) was handily exceeded every year from 1951-1970. iow during most of Truman’s Presidency, and all of Eisenhower’s, Kennedy’s, Johnson’s and most of Nixon’s.

          There were three Democratic and two Republican administrations during that era. Extend back to 1940 and toss in FDR for 30 years. Congress was essentially a Democratic institution for all but four years between 1940 – 1970.

          1947-1950 represented the brief interregnum of semi-“normalcy” on military budgets. These levels were not seen again until after Desert Storm and the post-Cold War “peace dividend”.

          If I were to reach any conclusion about the 1940s – 1960s it would be that vast government programs – procured entirely inside the USA – are the real key to American industrial prosperity.

          The military spending during that era is obvious. Even the slight reduction after 1960 was offset by increased NASA spending. The space race absorbed nearly 1% of GDP annually at its peak in 1968-1969. And there was the interstate program.

          otoh this Democratic Administration and Democratic Congress managed to settle on a “stimulus”, 80% of which often went to China. Here I have to defer to Rahm Emanuel’s deep insight. He does know his political allies best: “fucking retards”.

          1. DownSouth


            You assert that “this Democratic Administration and Democratic Congress managed to settle on a ‘stimulus’, 80% of which often went to China.”

            I believe that to be factually incorrect.

            When President Obama spoke to the Republicans at their retreat in Baltimore, Maryland, here’s the rundown on the stimulus he gave:

            The package that we put together at the beginning of the year, the truth is, should have reflected — and I believe reflected what most of you would say are common sense things. This notion that this was a radical package is just not true. A third of them were tax cuts, and they weren’t — when you say they were “boutique” tax cuts, Mike, 95 percent of working Americans got tax cuts, small businesses got tax cuts, large businesses got help in terms of their depreciation schedules. I mean, it was a pretty conventional list of tax cuts. A third of it was stabilizing state budgets.
            There is not a single person in here who, had it not been for what was in the stimulus package, wouldn’t be going home to more teachers laid off, more firefighters laid off, more cops laid off. A big chunk of it was unemployment insurance and COBRA, just making sure that people had some floor beneath them, and, by the way, making sure that there was enough money in their pockets that businesses had some customers.
            You take those two things out, that accounts for the majority of the stimulus package. Are there people in this room who think that was a bad idea? A portion of it was dealing with the AMT, the alternative minimum tax — not a proposal of mine; that’s not a consequence of my policies that we have a tax system where we keep on putting off a potential tax hike that is embedded in the budget that we have to fix each year. That cost about $70 billion.
            And then the last portion of it was infrastructure which, as I said, a lot of you have gone to appear at ribbon-cuttings for the same projects that you voted against.
            Now, I say all this not to re-litigate the past, but it’s simply to state that the component parts of the Recovery Act are consistent with what many of you say are important things to do — rebuilding our infrastructure, tax cuts for families and businesses, and making sure that we were providing states and individuals some support when the roof was caving in.


            So somebody’s speaking with forked tongue, either you or the president. And even though I don’t trust Obama, I nevertheless believe him to be entirely too wily to make blatantly false statements before his political enemies.

            Also, to try to make the case that defense spending wasn’t the top budget priority for Reagan, and that he didn’t greatly increase defense spending, is also disingenuous. Just follow the money. Defense spending almost doubled under Reagan, from $158 billion in 1981 to $304 billion in 1989. This happened at the same time that the total federal budget increased only 69%, from $678 billion to $1,144 billion.

  26. gnk

    I’m going back to my roots and use the vernacular of my neighborhood to describe what I witneesed:

    Yves, you kicked ass!

    In both the manner you presented yourself and what you said, you beat Salmon. Salmon came off as the guy that was kicked around in the playground when he was young and now that he has some fame, feels that he only needs to smirk and shoot off one liners as a means of attack.

    You didn’t fall for it. You held your ground and used history and personal experience as the basis for your argument. Felix didn’t come close in using either.

    Yves – 1
    Salmon – 0

    And by the way, the critical comments I see here, though to me seem to come from people that are genuinely sincere and want to help you – are irrelevant. You already won over the eggheads here – myself included.

    Your style will win over the other 90% of the population: the J6Packs, and that’s what matters when/if you go prime time. Don’t ever forget that they are also watching. Forget us eggheads – we already know what side we’re on. Focus on them – that’s what right wingers do and it works.

  27. psychohistorian


    Why is smiling now a required look when talking about financial criminality at this level? I give you lots of credit for not screaming at some of these folks.

    Please focus on the clarity of the message and not being gamed by the paid shills. They are going to pay lots of money to folks to try and take you out (metaphorically speaking of course at this time). Grow very thick skin because you are going to need it. Your message is clear and direct which continues to show the empire’s lack of clothes. That is not the message the rich want clarified for the poor.

    Thanks for your efforts.

  28. catlady

    Brava, Yves!! I thought you blew that pompous a$$ away with your factual and anecdotal responses. It was obvious that you had much more to contribute than he did. One thing I always find very ‘illuminative’ about economics (and I did my little stint studying at the feet of Milton Friedman, Gary Becker, etc.) is that joke about the chemical engineer, the physicist (or whichever fact-based sciences you choose to use)and the economist stranded on the desert island when the box of canned goods washes up–punchline, the economist solves the problem by ‘assuming a can opener.’ Isn’t that exactly what these intellectually bereft charlatans do?

  29. Siggy

    I watched the clip. You did well.

    As to Felix Salmon, who is he? Is he some personage of note within the journalistic community, or any other community?

    To assert that there is no causal linkage between the popular economic theories of the present and recent past and the economic actions that have been taken is rather ingenuous by design. While his challenge gave me a moment’s pause, it did lead me to conclude that he is a dilettante.

    As to your presence and performance; be who you are, you can’t be someone else and the camera is brutal in its ability to expose a poseur. You might consider having a person stand behind the camera. You then direct your comments to that person.

  30. EmilianoZ

    I agree with some commenters above: there’s not much of a disagreement between Yves and Felix, just a chicken and egg problem. It doesn’t matter much to me who came first. Economists, financiers, politicians, MSM, they all work toward the same goal like different members of the same mafia family.

    I find myself disliking Felix Salmon more and more. In the wake the Greek events he launched into a staunch defense of CDSs. More precisely naked CDSs, which are probably the majority of CDSs being sold. I was disgusted.

    When he talked about “Econned” (he didn’t review it, he just talked about the price of the kindle edition) he suggested that Amazon was subsidizing the book. I don’t understand this. Is there any truth to that? Why would Amazon be willing to lose money selling “Econned”? I did buy another book when ordering “Econned” to get free shipping but the other book had the same amount of discount. Most books on Amazon seem to have that amount of discount. Does Amazon lose money on all the books it sells?

    I just started reading “Econned”. So far it is top-notch, much more polished than her blog writing. I was surprised to find the word “dodgy” in it. It is used on a daily basis in the UK but I haven’t come across that word a lot in the US.

  31. tyaresun


    I think you did very well. Felix used a typical debating strategy that while not adding anything to the debate puts the other side on the defensive. I just wish that the BNN reporters would be well aware of such a strategy and put Felix on the spot by asking does he really believe that ideas are not important at all and that we should close down all the universities, all the TV channels, all the newspapers, and stop writing books.

  32. john c. halasz

    Re equilibrium and stability: I would put the point slightly differently, in terms of market clearing assumptions. The sort of neo-classical economics at issue assumes that there is a single continuous price setting-and-adjustment system, whereby all markets, capital goods, consumption goods, labor, and financial assets and credit, clear with respect to one another through matching supply with demand, and therefore do not model the finance and credit independently at all. Regardless of how market clearing assumptions work out in the real economy, the glaring absence of any separate treatment of finance and credit amounts to the assumption that the value of financial assets transparent reflects what is going on in the real economy and thus optimalizes the allocation of capital investment. (And they fail to model the financial sector independently, in spite of the fact that as at least quasi-monetarists, they conceive of the “credit channel” as the prime, if not sole, policy mechanism for regulating and stabilizing the economy). But this assumption of “transparency” in the pricing of financial assets is precisely what the crisis has glaringly falsified, as the financial system accumulated vast amounts of fictitious capital and drastically mis-allocated investment in the real economy, resulting in its hollowing out and collapse.

    The problem with emphasizing equilibrium and stability, in the short space of a sound-byte constrained media interview or debate,- (and not only will you, Yves, be attacked for your views, but the media types will be wanting to set up conflict for its “entertainment” value),- is not just that equilibrium is taken to mean stability, but that it then seems as if you are opposing stability to efficiency and thereby arguing against economic growth, for which the ideologues will roundly denounce you. What needs to be emphasized to the contrary is that growth is a long-run dynamic process and depends crucially on real productive investment in the real economy, the allocation of which the financial system is supposed to intermediate, for which process stability in the financial system is crucial. If the unregulated financial economy over-grows the real economy through the manipulation and inflation of asset prices, it not only doesn’t perform its allocating and counter-balancing function adequately, but it sucks unproductive rents off of the real economy, amounting to a private tax on it, which the bail-out has made explicit and public. Therefore such unregulated and unstable finance is inimical to sustainable growth.

    Salmon’s claim that the mainstream economics profession had nothing to do with the neo-liberal policies of de-regulation and globalized finance and “free trade” was ridiculous. This society is as ridden with economists as with lawyers, (just as 18th century France was ridden with priests), and they occupy key positions of power and policy. Whether as a techno-structure or a sheer ideology, (and I think it’s both), mainstream neo-liberal economists played a large and open role in designing and encouraging de-regulatory policies in the name of enhanced economic growth. But you lost the thread in the interview, Yves, about their conduct being “anti-democratic”. Aside from “democracy” itself being a problematic notion, you should emphasize that their highly abstract, (and often erroneous and anti-empirical), models foster a tendency to rule by fiat, rather than fostering discussion of available alternatives.

  33. Joe William

    I think that, basically, Yves and Felix aren’t disagreeing that much. Yves very correctly said economists came up with a supposedly “scientific” anti-regulation philosophy that the financial industry enthusiastically adopted – because it corresponded to their interests. Felix said the industry wanted deregulation and – because it is very powerful – would have had it anyway, independently of whether the economists would come up with the necessary theories or not. So it all comes down to what came first – the chicken or the eggs. They both agree on the most important point – that deregulation benefits the financial industry, right? So I’d suggest that next time the interviewers not induce their guests to waste so many minutes of precious airtime in discussions on chicken-or-egg issues.

    On the other hand, Yves made a very important observation that, unfortunately, was not picked up by the interviewers. She reminded us that real wages have been stagnant for the last decades, and that this disturbing reality was until recently successfully disguised by the huge amount of debt taken by US households that fueled a consumption boom. This observation, I think, is a devastating critique that can be made against economists of all schools – monetarists, neo-keynesians whatever. None of these schools of thought even tried to present a theory that attempts to explain this evolution – how can productivity increase for decades while real wages stagnate? It’s a scandal that the economics profession can benefit from subsidies and grants for research paid by taxpayer money yet doesn’t have a clue about the very real issues of stagnating incomes that have plagued the American economy since the 1970s.

  34. MarcoS

    dsawy says:
    March 6, 2010 at 10:45 am

    The old engineering joke about God putting an engineer, a physicist and a pretty girl on a basketball court seems to apply here.

    Please, tells the joke !

  35. martin

    Well done Yves.

    You say ideas and politics matter. He says its all blind self-interest that somehow comes to dominate but he neglects to say how the narrow self-interest of the few comes to overwhelm the majority.

    Self-interest has to sell itself and portray its interest as the general good and in the case of financial dereg Wall Street needed the snake oil of neo-classical economics. The move to undue the New Deal meant New Deal ideas had to be defeated.

  36. anon

    Good job, Yves! I think you were clear, articulate, and fairly concise.

    I don’t think you need to smile more. IMO your main stumbling point was where you had to backtrack and insert the parenthetical that one can always find an obscure paper, etc. advocating virtually any POV in economics. While true, that whole foray was IMO tangential and detracted from your point by making it too long and circuitous. Unfortunately, I think one has to present overgeneral (and, therefore, necessarily somewhat inaccurate) soundbites even on shows that allow discussion. The place to clarify (or limit) those overbroad points is on the blog, in your book, or via other media. IMO, of course.

    Re: Felix v Yves:
    I agree with EmilianoZ @ 3:40 (and others above): I think your disagreement with Felix is a chicken and egg or semantic problem that really doesn’t matter much at this point. It’s like the current debate about whether the politicians are controlling the banksters or the banksters are controlling the pols.

    For 99% of the population, it’s irrelevant. They are united in a symbiotic relationship that benefits itself at the expense of rest of the country and world. I really don’t care which party of the two is the pawn and which is the chess player, I’m more concerned with ending their control of the political and economic systems. IOW, that particular disagreement is a distraction so don’t get bogged down in it! It’s more important to figure out how where we should go from here and how we should get there.

    Again, good job!

    1. Yves Smith Post author

      Thanks, I did reply longer form above, if you do a historical treatment, as I did in the book, it is clear that the econ ideas developed first, and then were picked up and promoted by POLITICAL types who understood their potential. Even though businessmen took part, this campaign really was part of a bigger effort to undo the shift in values that had occurred during the 1960s.

      Also, one thing which is hard to convey in TV, but is in the book: even though neoclassical economic is the prime suspect, it is far from alone. There is a good bit of discussion of how Keynesian economics has the same (dangerous) equilibrium assumptions as neoclassical economics (and that is actually NOT what Keynes believed in AT ALL, “Keynesianism” and neoclassical economics are two different car models with the same chassis underneath). The book is very hard on Paul Samuelson.

      The book also takes down financial economics, which also has influenced policy via bank regulation (all those VaR models, for instance).

      1. anon

        Yves, Thanks for the reply. I look forward to reading your book.

        As a lawyer, I’m sure that the economic theories were developed first. (I say “as a lawyer” because the majority of law school is watered-down and distorted economic theory along with watered-down and distorted philosophy, sociology, psychology, and other social sciences plus a few “guest lecturers” from – and classes at – the B school where ideas from the above disciplines are even more distorted, incorrectly applied, and watered down than they are at the law school.)

        I also know first-hand that much of the above is what passes for policy analysis. After attending a few sessions from several different course offerings at a prestigious grad program in policy analysis, I asked the head of the program if the entire program would essentially be a rehash of law school. After discussing what I’d studied in law school, he said I probably wouldn’t learn anything from the program. Moreover, he said that many of the law professors I’d studied with were economists. (They weren’t, they’re lawyers although some consult with governments about some aspects of their economic and monetary policies.) So there’s not even a clear distinction in the minds of policy analysts – who often advise politicians (or provide cover for them, if you’re being less charitable) – about the difference between a lawyer and an economist. That is how emeshed the two have become in the political realm. Economists = lawyers = policy analysts.

        However, I lean toward Felix’s position that politicians decide what they want to do first and then use economics to justify their position. E.g., We snarkily called Bill Baxter’s anti-trust class “Trusts” because many of his ideas encouraged the formation of large multi-national corporations. People did talk about distributional problems, the relative importance of wealth transfer effects vs efficiency, and whether equilibrium models were appropriate in his anti-trust class. And we were just lowly law students. I’m sure if the students talked about those problems (and many others!), there were economists and even politicians who could have argued the opposing theories much more effectively and with a great deal more understanding than we did. But I’m pretty sure Reagan (and by Reagan, I mean the people behind Reagan who made the decisions) picked Bill Baxter because he argued strongly for things that Reagan wanted to accomplish. Had Reagan wanted to do the opposite, I’m sure he could and would have found advisors (including economists) who wanted to implement those positions. I think that’s primarily what Felix was saying. Do you disagree with that?

        In any event, I look forward to reading your book. I’m sure that I’ll learn a lot.

  37. fiscalliberal

    I bought Yves book and am looking forward to reading it. That said, we need to get back to the fundamentals that writing bad loans and knowingly securitizing them to the public is bad. More over the folks that said housing was unlimited, never heard of the supply demand curve. Isn’t that the fundamental curve of any macro or micro book. Any farm person can tell you about that in terms of producing to much. The market eventially gets satiated.

    It seems that Bernanke who was a student of the depression did not care to learn from it. More over the financial industry did not care to learn from the lessons of LTCM. Most amazing is that the wonders of the Ivy League business schools did not use the data from the depression years in their statistical risk models.

  38. scraping_by

    Yves — Count me part of the chorus giving you a thumbs up. Not the Italian thing, the American WWII thing, you know.

    If you want to handle that why economists question, just point out that when Obama and Bush and Greenspan and Bernanke and all the other kleptocrat mouthpieces talk rot about the economy, they’re not quoting poets or historians or street sweepers, they’re quoting economists. When they create the poor by taking from the middle class to give to the rich, they defend it not by quoting phys ed teachers or electrical engineers, but by quoting economists. And if, God help us all, they actually believe that tissue of nonsense and are genuinely confused why things keep rolling downhill, they weren’t confused by truck drivers or artists or shopgirls, they were mislead by economists.

    The cult of expertise has led us into many blind alleys. Thanks for pointing out how dark this one is.

  39. ftm


    Ignore Salmon. Your position is correct. The economic mainstream has been dominated by the right since the inflation of the 70’s. Not only have they dominated their “profession”, they’ve controlled the policy climate in Washington and a found a rich uncle in the Fed.

    Wall Street Bankers would never have been able to run the country into the ditch without their ideological and political enablers in economics.

    Work on limiting the asides in your presentation and stick to your talking points. TV, even Canadian TV, doesn’t reward nuance.


  40. EmilianoZ

    Having read Yves’ follow-up replies and looked up a biography of Milton Friedman in wikipedia, I have to revise my opinion. It looks like she’s right when she says the shift started in academic economics. Friedman did start writing in the 40ies. The question is: was he popular before politicians took up his ideas in the 70ies?

    I’m about the same age as Felix Salmon. As far back as I can remember there wasn’t a time when free markets were not extolled. In fact I’ve pretty much lived in a binary world. It was either free markets or communism (mucho evil). I blame the MSM for restricting my world view to those two extremes with nothing in between.

    I’ve started reading blogs only one year ago. Before that I knew nothing except MSM. That means I’ve had decades of brainwashing. I had no idea that Adam Smith had criticized employers for colluding to keep wages low or that Keynes had advocated such a thing as “the euthanasia of the rentier”. My reeducation has just begun.

  41. anon


    Thanks for giving us (your fans) a chance to comment on what your project (naked capitalism) means to us. This interview and the comments about it speak more to our , at least my, gratitude and respect that you’ve set up a place where thoughtful people can gather and debate fundamental issues free of partisan bias.

    Unravelling the mechanisms that got us here is critical, so naturally that responsibility falls to ‘experts’. Frankly, this is the only place I’ve found where that expert analysis is comprehensively organized. It’s hard to tell which supports which, the book supports the blog, or vice versa. Both are equally valuable.

    The next phase, translating the findings of the experts into laymans terms so appropriate political action results is the major challenge.

    I think you can do that, so keep going. we’ll help.

  42. EmilianoZ

    One small gripe about the book. At the beginning of each chapter, just below the title, there should be a brief description of what the chapter is about. Don Quixote style. Taleb did that for “Black Swan” although not in a too serious way.

    I find myself in the middle of a chapter wondering: what’s the purpose of that chapter.

    For instance what’s the point of Chapter 1, “The sorcerer’s apprentices”? I go back to the introduction. There’s no description of Chapter 1. Chapter descriptions start with Chapter 2. Do we assume Chapter 1 is some kind of introduction?

    There are only 2 primers in the whole book, one on structured finance and one on Gaussian distributions. We like primers. The more the better.

    1. reprobate

      Taleb as the gold standard for writing? Many complain that the book was discourteous to the reader (I found it to be so). I’m pretty sure Taleb himself said he made the book not user friendly to force people to think.

      Sounds like you prefer tightly structured arguments. Some people really like Malcolm Gladwell and Michael Lewis, who are highly narrative. And some authors build their argument over chapters (like Naill Ferguson’s The Cash Nexus) and it isn’t clear till the very end how the threads all tie together.

      1. EmilianoZ

        Funny, “discourteous” never crossed my mind when reading Taleb’s “Black swan”. I thought he was a bit disjointed at times. I remember a passage where out of the blue he writes something like “Sometimes I love Nietzsche, sometimes I hate him”. And I thought I was transported into “Amelie” (there’s a scene in the movie where the actress randomly lists stuff she likes).

        But, the way he started “Black swan”, with his recollections of the war in Lebanon, I never really expected what you call a “tightly structured argument”. It immediately signaled light reading to me. And that’s what the book is: light philosophical/economical/psychological musings.

        On the other hand I feel that Yves Smith’s book looks more serious. That’s why I’m trying to concentrate more while reading it. I guess I’m expecting a “tightly structured argument” from her.

  43. Jared

    Yves says: “the link between the Dems and Wall Street”

    Salmon works for Reuters an offshoot of the DNC

    Salmon is a loser, he really is – otherwise he’d have his own blog and be out there exposed and “naked”

    1. Claire

      umm…he does have his own blog. It’s not nearly as good as Yves’, but it’s got a good following. Moreover, he has a vry good grasp of the markets. He could (and probably does) *easily* make a very good living off his own merits.

      Yves, did you consider Charlie Rose? He never shuts up and constantly interrupts, but you’d probably have the audience that you are catering to…

  44. KFritz

    When Salmon made his disparaging remark, the first thought in my head was “Milton Friedman.” Can he say that Milton Friedman and, especially, his ideas didn’t influence American political and economic policy after Ronald Reagan’s election?
    Could you have parried him that way and then resumed the more substantive thread of your argument? If he tries to make that claim, you can smirk at him. The commentators might even role their eyes at a howler like that.

  45. Claire

    I know it’s not worth much, but here is my opinion of the appearance:

    1. You are blinking far too much! Combined with the staring and your posture, this makes you come off as very harsh. Even if you aren’t comfortable with the lens, at least try to wear softer colors and lean back a little bit (or keep your heartbeat under 200 ;).

    2. You too often speed up and trail off/lower your voice at the end of your sentences as if the ending is superfluous. The sentence conclusion IS NOT obvious to those who are exposed to you only through interviews, so try to end while maintaining the same speed and cadence as you keep during the rest of the sentence.

    3. I don’t know why there’s so much criticism of Felix by the other posters–I thought he was an excellent guest. I disagreed with him, but he came off as obviously knowledgeable and polite, and even let you finish your points without interrupting (Yves, you didn’t show him the same courtesy–shame on you!–especially since you had the first part of the segment all to yourself!)

    4. I disagree with the posters above who say that you should be scripted. You *clearly* come off as knowing what you are talking about; scripting and rehashing the same things over and over again in future interviews would not make people want to watch you more; it’d have the reverse effect and would probably leave people wondering if your book has anything to offer other than your often-repeated talking points. Of course, I have no expertise in book promotion, but that’s how I would feel.

    5. (just a guess based on what I know of psychology) Instead of saying “I wrote in the book that” (or whatever), you might get people to remember the book more by saying “I write in Econned that…” or “Econned explains…”). The book title should probably be repeated more often than the indefinite noun “book”

    Finally (sorry!!) I think that although you are trying to make the point that your views aren’t partisan, you have to realize that most of the country views things along partisan lines, so you should be extra-careful about how you phrase those aspects.

    Sorry, but really, if I buy your book (and I will), it’s going to be based on your site, not the interview that you linked to, in which you could have been (and probably have been) more or less been replaced by any number of authors who published since 2008 and who don’t have anywhere near your depth or bredth of understanding… Until you perfect the television medium, maybe you could request that the headings post your blogsite as well as your book title?

    Just my (perhaps overly critical) initial impressions.

    1. Yves Smith Post author


      1. I wear contacts, and the harsh studio lights create extra glare, so I can’t do much about the blink speed, unless I take meds, which I am not willing to do. Bernanke, with his low blink speed, is clearly medicated and I find it disturbing.

      2. I don’t own soft colors, I look lousy in them, and I’ve been advised by a TV pro to stick with the strong colors I usually wear (and he’s given me notes on every presentation, he likes the assertive colors).

      3. I have also been told by TV pros to lean into the camera. Leaning back is worse. But they had a fixed lighting setup, so the light placement may have assumed I was sitting back.

      The thing I learned most from this one is that I need a remote visual. I could not see the people I was talking too, and that seems to lead to an even more severe facial expression from me. This is the second time on TV when I had no remote visual, and in both cases, my face was particularly stern. Shut your eyes and listen to Felix. I betcha it sounds much harsher than if you see his face along with his words. That colored my response. I can’t afford to learn how to correct for that (as in I don’t get on TV often enough to learn this on the job), I am just going to have to turn down TV opportunities like this, where I don’t have a remote visual.

  46. Richard

    Yves, for God’s sake, stop worrying about your presentation and what people will think. Americans are frivoulous and superficial enough as it is. If they can’t take your physical presence, then let ’em remain stupid. Your material is riveting and your knowledge of your subject absoutely indisputable. You’re doing just fine. DO NOT TRY TO SMILE. you will come off as insincere and IT WILL DETRACT FROM YOUR MESSAGE. That’s a given and a cert…
    Congratulations and good luck with the book.

  47. Edward Lowe

    I am not an EE or a lawyer, but as an anthropologist I have spent some time studying cultural belief systems and am slowly coming to terms with how they work. I think some of your commentators would be helped if they distinguished between those who are conscious of their assumptions and their origins, and those who are not (i.e., most people). People underestimate just how deep the core assumptions of classical economics run through almost all course material in the applied and basic social sciences in most if not all of the university programs in the world (i.e., the rational, self-interested actor, markets (indeed all human systems) tend toward equilibrium, etc). By the time businessmen or politicians start their work as such, they have these assumptions firmly in place as ‘cultural models’ for orienting toward and explaining the world. Their policy decisions and their affinity for particular popularized economic theorists are some form of confirmation bias (essentially a positive feedback loop between tacit knowledge and explicit declarations of knowledge).

    When I discuss these assumptions as assumptions within a cultural system with my students, they look at me as if I am from another planet, they are already so well conditioned to accept these assumptions as fundamental truths that they cannot easily extract themselves from them enough to look at them critically and objectively. I should note, that most of my colleagues in a small social science program also accept these assumptions a prioi and therefore it is quite rare for students to become aware of them as assumptions rather than statements of natural law. This is a reflection of academics generally no longer being trained broadly in the liberal arts prior to specializing in a particular field. The sin is passed on to students who generally specialize immediately upon entry into the academy with little or no exposure to readings that address core debates surrounding modern philosophy.

    One final note about theory and practice … It is hard to conceive of a meaningful human activity that is not guided by theory or at least a set of working assumptions, either implicit or explicitly held by the actor. The question for policy makers of all sorts and at all levels is whether or not that particular theory leads to beneficial or deleterious outcomes over the near, medium, and long term. This, in a nutshell, is the question of cultural systems as adaptive or maladaptive systems. Some might argue that, in a world determined by larger unseen and personally uncontrollable forces, intentional policy making and attention to the theory that guides it is folly. But, if this were so, modern medicine, public health, and urban planning guided by the modern theory of microbial disease would be folly, clearly that has not been the case, at least on average.

    1. craazyman

      Yes Ed I could’t agree more. Just to establish my credentials up front here: I’m a professor of contemporary analysis at the University of Magonia. Now some people would argue that there is no University of Magonia and that I’m not really a professor there or anywhere. They would tell me that it’s all only in my imagination. But then I’d argue that the only reason some professor at Princeton believes that they are a professor there, and even that there is a Princeton at all, reduces to the same ontological structure and only achieves so-called legitimacy because this imaginary structure is a group structure whereas mine is a “sole proprietorship” so to speak. You get my drift, I am sure. Some people would call this a delusion but I say the entire edifice is delusional because there is no physical or material boundary that defines Princeton or not-Princeton, If you fly over Princeton in an airplane, there is no line on the ground there and there is no point at which you enter or leave it, there aren’t any points anywhere. That’s another delusion. So it’s all based on a set of communcally accepted imaginary relationships, as are all human organizations. As is everything. This is how it all works, in the boilerroom. My friend is the night shift guy there. I know. The trick is to keep from getting your hands burned when you change the fuel. –Sincerely, Professor D. T. Tremens, Univ. Magonia, PhD, MA, LLC, NFL

      1. craazyman

        and one more thing . . . Where did Felix Salmon get that accent? From a Merchant Ivory film? Boooowhaha hahaha hahahah! From “Horse & Hound Magazine”? Boow ahaha hahahah! From “Wuthering Heights”? haha hahaha ha! aBahaha hahah! hahahah . . . OK, just goofing.

  48. anon

    “I am just going to have to turn down TV opportunities like this, where I don’t have a remote visual.”

    Yves, Please reconsider. While I agree with much of what Claire (March 7, 2010 at 3:54 am) says (but not with point 1) and understand that some of the problems came about from your lack of visual feedback, I don’t think you need to avoid interviews where you don’t have a remote visual.

    I think you are being far too hard on yourself. I agree that the lack of a remote visual seems to cause problems for you. You don’t come across as well as you would under more ideal circumstances. But even with those problems, you come across well, sound knowledgeable, effectively present your ideas, and generate interest in your book. Weren’t those the primary purposes of the interview? Or am I missing something?

    If the choice is between an interview with a remote visual and one with no remote visual, take the one with the remote visual (other factors being equal, which of course they never are). But if the choice is between an interview without a remote visual and no interview, why pass up an opportunity to look good to people who might not have otherwise heard you just because you could have looked even better if you’d had a remote visual?

    Re: smiling and a softer expression
    Both the woman anchor and Felix smile a lot and probably get away with a bit more because of it. But the male anchor doesn’t smile much either. His expression is relatively harsh too. Yet he seems to do fine. Do you think he needs to change in order to do his job? Do you think he’s ineffective because he doesn’t smile enough? Why not compare yourself to him? To me, this is another example of you being too harsh with yourself and thinking that because your performance wasn’t a 10 it was not worthwhile. You did an excellent job overall.

    All of the above is just my opinion.

  49. Paul Tioxon

    Greenspan was shocked that his beliefs in the power of his version of economics to explain and predict left him blindsided by the inability of a self correcting system to self correct. Well, Yves, as the your book points to in the intellectual underpinnings of economics as a science, it may have tried to adopt the patina of physics, but clearly, has not produced anything close to the successes of physics.

    I have not read your book yet, I am not sure if you reference Phillip Marowski but here is an Amazon Review that gets to the point and confirms your critique.

    Neoclassical Economics as Outdated Physics, December 29, 2007
    By James F. Mueller “Lachmanniac”
    Before there was “More Heat than Light”, and his ‘magnum opus’ “Machine Dreams”, there was this book, “Against Mechanism”. Mirowski’s main argument, covered in the first part of the book, is that neoclassical economics borrowed a lot of their methods and tools from 19th century physics. While more recent mainstream economists will either reject or understate the truth and importance of this claim, a brief review of the history of the “neoclassical paradigm” will reveal that the progenitors of this program were very interested in physics and eventually came to work this into economics by simply renaming the variables found in “mechanistic” equations and formulations.

    Notions of “natural market forces”, “equilibrating tendencies”, and “economic laws” can all be traced back to the theories found in the now obsolete 19th century physics program, where equilibrium concepts and conservation principles determined the way in which the world operated. New discoveries in physics has, of course, succeeded in throwing a lot of this out. Unfortunately, mainstream economics has yet to realize the “errors” of their way.

    This, I believe, can be attributed to the similarities that exist between both the supporters and critics of neoclassical economics. Critics of the mainstram approach (New Institutional Economics, Austrian Economics, Game Theorists, and many others) still seem to believe in the “natural forces” of the market. For example, any disequilibrium tendencies or forces can be blamed on “exogenous” elements, like natural disasters or government intervention. [Absent all intervention, markets will clear] — so the argument goes. Even critics of the equilibrating free market argue that the only solution to the “inherently unstable” market is government intervention, ignoring the possibility that the problems with a “rapacious” market are sometimes even more evident in government regulation.

    This book opened up my eyes to the very real possibility in the myth or absense of any universal economic law. The methods employed for either justifying or empirically proving concepts like diminishing marginal utility or comparative advantage are standards that have been borrowed from a now defunct and thoroughly untenable scientific research program. One will finish this book thinking to himself “why do scientists and philosophers get to have all the fun?” It is time that economists really begin revolutionizing or subverting their current paradigm in hopes of finding a better and more useful alternative.

    Notions of “natural market forces”, “equilibrating tendencies”, and “economic laws” can all be traced back to the theories found in the now obsolete 19th century physics program, where equilibrium concepts and conservation principles determined the way in which the world operated. New discoveries in physics has, of course, succeeded in throwing a lot of this out. Unfortunately, mainstream economics has yet to realize the “errors” of their way.

    This, I believe, can be attributed to the similarities that exist between both the supporters and critics of neoclassical economics. Critics of the mainstram approach (New Institutional Economics, Austrian Economics, Game Theorists, and many others) still seem to believe in the “natural forces” of the market. For example, any disequilibrium tendencies or forces can be blamed on “exogenous” elements, like natural disasters or government intervention. [Absent all intervention, markets will clear] — so the argument goes. Even critics of the equilibrating free market argue that the only solution to the “inherently unstable” market is government intervention, ignoring the possibility that the problems with a “rapacious” market are sometimes even more evident in government regulation.

    This book opened up my eyes to the very real possibility in the myth or absence of any universal economic law. The methods employed for either justifying or empirically proving concepts like diminishing marginal utility or comparative advantage are standards that have been borrowed from a now defunct and thoroughly untenable scientific research program. One will finish this book thinking to himself “why do scientists and philosophers get to have all the fun?” It is time that economists really begin revolutionizing or subverting their current paradigm in hopes of finding a better and more useful alternative.

  50. Sundog

    I have no formal background nor practical experience in finance or finance, but after reading among others Paul Ormerod’s The Death of Economics, Robert Shiller’s Irrational Exuberance, Justin Fox’s The Myth of the Rational Market, and being just about to finish John Cassidy’s How Markets Fail, it’s pretty damn obvious that the ideas of economists really do matter.

    Conor Clarke of The Atlantic interviewed Paul Samuelson not long before he died. Here’s Samuelson:

    The craze that really succeeded the Keynesian policy craze was not the monetarist, Friedman view, but the [Robert] Lucas and [Thomas] Sargent new-classical view. And this particular group just said, in effect, that the system will self regulate because the market is all a big rational system.

    Those guys were useless at Federal Reserve meetings. Each time stuff broke out, I would take an informal poll of them. If they had wisdom, they were silent. My profession was not well prepared to act.

    And this brings us to Alan Greenspan, whom I’ve known for over 50 years and who I regarded as one of the best young business economists. Townsend-Greenspan was his company. But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can’t take the cult out of the boy.


    Just had to toss this in. I though Yves came across quite well; Felix, not so much though I enjoy his blog too.

    BTW on the subject of naked CDS, Mark Thoma pointed me to a post by Rajiv Sethi in which he quotes FT’s Munchau and takes on Felix and FTA’s Sam Jones. Classic example of the econo-blogosphere at work.


  51. L

    My only comment is that “free markets” have been extolled, yet they have NEVER been practiced.

    The only theories that hold true are those of the Austrians. I can’t understand why they aren’t more mainstream…correction, I do understand…they prove all others wrong!!

    I’m always surprised by the lack of Austrian perspective in the commentary here at NC.


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