Dinosaur extinction link to crater confirmed BBC
Who Does What On Wikipedia? Red Orbit
Greece is a harbinger of austerity for all Jeremy Warner, Telegraph (hat tip reader Swedish Lex)
More Bank Marketing James Kwak. Now I know why Citi increased my credit line…
Stiglitz, Nobel Prize-Winning Economist, Says Federal Reserve System ‘Corrupt’ Huffington Post
Sunday Morning Comics – Goldman Sucks Edition Robert Oak, Economic Populist
Defectors Say Church of Scientology Hides Abuse New York Times. This falls into the “this is news?” category.
Volcker Says Too Soon to Cut U.S. Monetary, Fiscal Stimulus Bloomberg
China’s Bank Chief Says Currency Is Unlikely to Rise New York Times
Antidote du jour (hat tip Chris W):
Re: Greece is a harbinger of austerity for all
Typical. We should all brace for austerity, no retirement, while the guilty go unpunished.
Yep. More claptrap from the apologists for the international criminal banking cartel.
You gotta love Warner’s conclusion:
Sadly, the necessary structural reforms must begin with our unsustainable pension and healthcare costs. Which means that working longer and saving more will become the defining mantras of the next decade.
It’s a blatant appeal to middle-class sentimentalities. As Reinhold Niebuhr explains:
The middle classes were proud that their property, unlike that of the inheritances of the leisured classes, sprang from character, industry, continence and thrift; and they were therefore quite certain that any one endowed with similar virtues could equal the competence which they enjoyed. Failure to achieve such a competence was in itself proof of a lack of virtue. This middle-class creed sprang so naturally from the circumstances of middle-class life that it ought perhaps, to be regarded as an illusion rather than a pretension. But when it is maintained in defiance of all the facts of an industrialized civilisation, which reveal how insignificant are the factors of virtuous thrift and industry beside the factor of the disproportion in economic power in the creation of economic inequality, the element of honest illusion is transmuted into dishonest pretension.
–Reinhold Niebuhr, Moral Man and Immoral Society
You have to start making cuts where the impact is the largest. This will in most/all European economies been in social and unemployment benefits plus state pensions.
Greece apparently spends an arm and a leg on defence, for some reason. They should ground the air force, more the fleet and suspend all purchases of new equipment. That would be the easiest way to save a big buck fast without hurting normal people.
I suspect “for some reason” = Turkey (and especially with respect to Cyprus).
Guess so, but the UN presence on the island plus the fact that hundreds of thousands of foreign tourists litter Cyprus as beer-soaked human shields should be enough of a guarantee that the Turks will behave. That plus a number of other factors should be enough for Greece to cut its military spending.
The world increasingly resembles an economic version of Nevil Schute’s On the Beach.
“We should all brace for austerity, no retirement, while the guilty go unpunished.”
We’ve all been guilty of living beyond our means for almost three generations. Austerity going forward is an inevitable result, and it is the punishment of the guilty (at least some of them). It’s not necessarily a bad thing, either. All this borrowed money didn’t make people any happier, from what I can see, and it certainly didn’t improve sanity levels any.
This is quite an interesting article that you might be interested in (despite the title, it also talks about the US economy toward the end):
What would an archaeological investigation (in the manner of Foucault) into the origin of evolution reveal about the role of the discovery of the dinosaurs? And what impact the acknowledgment of the role or the Chicxulub asteroid event have on our understanding of natural selection?
that is one handsome Westie!
My guess is tomorrow we get Bigfoot or the Abominable Snowman for antidote du jour.
2 questions about “Econned”. At the beginning of chapter 2, Krugman is savaged for saying in 2008 that skyrocketing oil prices were not driven by speculation.
1) I don’t understand what argument Krugman was making about futures price and spot price. What should be the relation between futures and spot prices in presence and absence of significant speculation?
2) The other argument by Krugman is illustrated by Figure 2.1. On the horizontal axis is Quantity and on the vertical one is Price. You have two lines representing Supply and Demand. The Supply line goes up, which seems to mean that as producers make more of the same stuff they’re asking higher prices for it. Does that make sense? Are we talking price per item?
One of the arguments made (Mike Masters in particular was big on this) was that investors using futures contracts as an inflation hedge was distorting prices. The data did clearly show a big increase in “non commercial” purchases of commodities futures of all sorts, generally via index funds (personally, I don’t think this was likely the main distortion mechanism; the oil market has a proud history of traders, as opposed to passive investors, pushing prices around).
Krugman basically said those futures purchases were irrelevant, since futures all converge to the spot price.
Re his chart, that depicts a general argument often made. He’s basically saying, “OK, let’s say, despite my belief otherwise, that somehow these speculators pushed prices higher than the level that would be due to fundamental forces.” In that argument, the “higher price” is the horizontal line, the price you’d get from fundamental forces is where the supply and demand lines intersect. The shaded triangle is excess inventories. If you have a higher price than dictated by the “fundamental” price, you’d expect to see inventory accumulation. He said there was no evidence of inventory accumulation, ergo the price must be right (as in the result of fundamental forces).
Thanks for the reply. So, Krugman’s argument was that futures and spot prices were converging.
But, can it happen that all the available oil is bought in the form of futures (by real users and speculators) and there aint any left to be bought on the spot?
The problem lies with the definition of what is an inventory for oil. If one adopts a narrow definition (tanks in cushing, floating storage in supertankers), inventories have not raised by much and the argument by Krugman is valid. However, spare capacity in oil wells that can be tapped quickly represent a “shadow” storage capacity that can be mobilised through the intertemporal oil market (futures and OTC instruments). In normal times, this shadow storagehas no value, but when investors want to get long oil without the capacity to store it, holders of storage capacity(shadow or narrow) can ride the contango by selling the short end futures (no risk to them as they have the capacity to deliver), but knowing very well that these futures are in fact going to be rolled thus extracting a big benefit every time there is a roll, by putting themselves on the other side of the roll trade.
If one counted these “shadow” inventories that were mobilized, Krugman assertion may not be that valid…
The final problem is to find out if this mecanism is “evil” speculation, or “legitimate” market behaviour driven by an adjustement of expectations of future oil availability and demand on one side, and the real value of the dollar on the other.
You need to be a professional (have access to storage) to use futures as a way to “buy” oil. In fact, only people who can take deliver are allowed to enter into contracts where they might have to take delivery.
Krugman’s point on spot v. futures would be correct if people bought oil based on spot prices (or in relationship to spot prices) which is the way it works in most commodity markets. But precisely because oil had had a history of price manipulation, prices were set for many buyers and sellers not via spot prices, but via the BWAVE, which is formula which averages futures prices.
More Sunday funnies here (every week):
Dinos die because of the Yucatan asteroid, 41 experts agree.
Another frigging consensus.
True or not, each should be drowned like unwanted kittens.
Amen, brother. We don’t need a scientific method now, just a vote of experts = consensus = science! Absurd.
Also of note, they (the consensus) discounted the volcano theory because they made some assumptions about volcanic gasses, ran them through their climate models, and concluded the effect was insufficient to account for dino demise.
Note the words “assumptions” and “models” in the above paragraph. The use of current models to establish a scientific consensus about climate tens of millions of years ago strikes me as an analog of the banksters’ mark-to-fantasy bookkeeping. Unfortunately, reality tends to intrude upon the tidy perfection of models. (Hence, no statistically significant global warming evident for over a decade, according to the former head of East Anglia’s Climate Research Unit — now under investigation.)
I’m intrigued by the 3-body problem expounded in Chapter 2 of Econned as an example of non-ergodicity in real-life. Samuelson’s ergodic assumption states that there must exist a “unique, long-run equilibrium independent of initial conditions”. On the other hand Poincare showed that solutions to the 3-body problem were so sensitive to initial conditions that infinitesimal variations in them lead to totally different outcomes.
1) It seems to me that Poincare’s findings only partially negate ergodicity. Let’s say for argument’s sake that there are 2 solutions to the 3-body problem. In the 1st we have a system like sun+earth+mars, body 2 and 3 orbiting body 1. In the second we have sun+earth+moon, body 3 orbiting body 2 that orbits body 1. Those two solutions are different but they’re still stable. What’s most important for economists? The existence of an equilibrium or the uniqueness of that equilibrium? Maybe they can work with ergodicity-lite: “there exist different long-run equilibrium states that depend on initial conditions”.
2) Extreme sensitivity to initial conditions reminds me of climate modeling. We’ve all heard of the “butterfly effect”. You launch a simulation you obtain sunny sky. You change an input variable just a wee tiny bit (like the flap of a butterfly’s wing) you obtain a hurricane. I’m not a climate scientist but my understanding is that they overcome this problem by performing a lot of simulations with a lot of different input parameters. Apparently the average of all the different results is to be trusted. This might be similar to the Monte-Carlo method where you randomly sample the space of all possible configurations. If climate scientists do it and physicists do it, why can’t economists do it too?
I had an elite mathematician (Harvard PhD in theoretical math, which if you know math programs, makes him one of the very top mathematicians in the US) editing the book. This isn’t a matter of two solutions to the three body problem. The number of solutions, for practical purposes, are so large as to be incomputable.
The sensitivity of the 3-body problem can be easily understood by visualizing the Earth-Moon-Sun system if the Earth is magically, gradually moved toward the Sun. The orbit of the Moon will be gradually stretched out toward the pull of the Sun, still orbiting the Earth, until at a critical point the Moon will disequilibrate from the Earth and transition into an orbit around the Sun, possibly orbiting both, depending on the new “initial” conditions. If say a swingby of Jupiter backed up the Earth slightly, the Moon would become locked in a new equilibrium orbiting only the Sun. At the exact cusp of such a critical point is where the oft-cited “butterfly effect” may be of significance.
When one tries to approximate such a nonlinear problem with an infinite series of mathematical terms, a “closure” to finitude is often sought by using some dominant physical property (say an ergodic or entropy theorem, often with questionable, grandiose assumptions) to give an “analytical” solution that a computer can handle (always within limits of validity) on a practical scale.
In the arena of economic contingent-claims (i.e. pricing of derivatives of underlying assets) based on the Nobelistic Black-Scholes type-modeling, the unrealistic assumptions required to allow closure to linearity NECESSARILY impose severe limits to validity that MUST be fully understood and accounted for (if one doesn’t want to get whacked-upside-the-head with a nasty Black Swan that was falsely assumed likely “only once in a thousand years”).
Yves, I hope you’ll comment on T.E.D.’s latest, given that you’ve had experience working under the “administrative guidance” regime in Japan, are well aware of the role currently being played by “administrative forbearance” both in the US and the EU, and seem to have some knowledge and experience of how law intersects with finance.
I’m with TED in that we should have a heavy thumb on resilience as opposed to efficiency. But he seems to be with Greenspan in terms of changing the rules of the game once things go south. Dispiriting, but maybe the best we can hope for.
Also, could you please start a topic on the book so comments would be collected in one place? Maybe better to collect comments for a week (bump the topic every day), then start again next week, leaving a week-by-week record of commentary on the book.
I really applaud you for responding to the book comments in this thread! Cheers Yves!