Category Archives: Free markets and their discontents

Philip Pilkington: Beyond growth – are we entering a new phase of economic maturity?

By Philip Pilkington, a journalist and anti-economist writing from amidst the devastated ruins of Dublin, Ireland

All successful revolutions are the kicking in of a rotten door – JK Galbraith

What’s the easiest way to embarrass an economist? Okay, that’s a bit of a trick question. After all, economics is a pretty embarrassing profession and there are a million questions you could put to an economist that would likely turn his or her cheeks red. You could, for example, approach your typical ‘academic of ill-repute’ and ask them if they saw the bursting of the US housing bubble coming or the unsustainable debt-overload that accompanied it – yep, that would probably do the trick.

One topic that does cause your average economist a lot of brain-bother, though, is the environment. After all, everyone and their cat cares about the environment these days, but such concern seems irreconcilable with the ‘infinite growth’ assumptions of most economists. It has long been pointed out by environmentalists, concerned citizens and the sane how, if we are to prevent global warming from melting the planet, we have to put some sort of a ceiling on economic growth and industrial development. This is a truly pressing concern – yet it appears that economists and policymakers simply cannot integrate it into their worldview.

But here’s an uplifting thought: what if History is doing our work for us? What if we are already entering a sort of ‘post-growth’ world?

Bill Black: In Praise of Sorkin’s Praise of Lowenstein’s Praise of Financial CEOs

By Bill Black, an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. Cross posted from New Economic Perspectives

Roger Lowenstein has just taken the brave step of praising the failure to prosecute elite financial managers for fraud as a demonstration of the greatness of America. Lowenstein declares (1) that Blankfein was right – Goldman really was doing “God’s work,” (2) virtually no financial elites committed crimes, (3) any crimes they may have committed were trivial and played no material role in causing the crisis, (4) those that wish to hold fraudulent elites accountable for their crimes are (a) financially illiterate, (b) paranoid conspiracy theorists equivalent to those claiming the U.S. attacked the twin towers on 9/11, (c) a threat to our democracy and constitutional rights, and (d) engaged in “punishing profit,” (5) the prosecutors who refuse to bring criminal charges where they find elite frauds are the heroes safeguarding our democracy and constitutional rights, (6) the FBI is conducting a “serious” investigation of the elite financial frauds (despite points one through four above), and (7) the crisis was caused by “society” – because we’re all guilty no one should be held accountable – except those paranoids who want to destroy America’s greatness by prosecuting financial CEOs on fraud charges.

Wall Street: Not Guilty (May 12, 2011)

Lowenstein’s former colleague at the New York Times, Andrew Ross Sorkin, twittered that Lowenstein was “courageous” and “probably right.”

I join Lowenstein and Sorkin in denouncing the demagogues that denounce America’s financial CEOs for fraud and corruption and those that denounce our economic system for cronyism. My research has detected the ravings of two of the worst examples of this form of parasite. Two of the nation’s leading financial commentators have filled their books and columns with demagogic attacks on the productive class. Here are some of one’s vicious assaults on America’s CEOs and capitalist system.

Battle Over IMF Chief: Proxy War Over Power of Banks?

There’s a fight afoot over who will be the next head of the IMF. Yours truly is not making odds on this one, save that Christine Lagarde is getting far and away the most attention in the media and more generally, a big push is on to have a European take the reins. The logic is that with the eurozone mess far and away the biggest priority, the new IMF chief needs to have credibility with the major actors, and that argues for a European choice.

The contrary camp is the “the countries formerly known as emerging” who point out that it is their turn to have an IMF head from one of their countries. The IMF has been led by a European since its inception. Even though votes have been rejiggered to give younger economies more weight, the mature ones still are in control of the outcome.

But what is intriguing are the arguments that follow, which reveal what the real stakes are.

Marshall Auerback: IMF’s Predatory Policies Likely to Continue with New Leadership

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0.

It doesn’t matter who leads the IMF when the institution is governed by ideology.

Greece and Ireland appear to have lost an important political ally with the sidelining of Dominique Strauss-Kahn as both plead for more financial assistance from European partners to avoid an early restructuring of debt. The key word is “appears,” as in truth, arsenic remains arsenic, even if it is coated in sugar by an ostensible champagne socialist like Mr. Strauss-Kahn.

On Short-Termism and the Institutionalization of Rentier Capitalism

Andrew Haldane and Richard Davies of the Bank of England have released a very useful new paper on short-termism in the investment arena. They contend that this problem real and getting worse. This may at first blush seem to be mere official confirmation of most people’s gut instinct. However, the authors take the critical step of developing some estimates of the severity of the phenomenon, since past efforts to do so are surprisingly scarce.

A short-term perspective is tantamount to applying an overly high discount rate to an investment project or similarly, requiring an excessively rapid payback. In corporate capital budgeting settings, the distortions are pronounced:

Doug Smith: Shock Therapy For Economics, Part 1

By Douglas K. Smith, author of On Value and Values: Thinking Differently About We In An Age Of Me

In “Economics In Crisis”, professor Brad DeLong notes:

The most interesting moment at a recent conference held in Bretton Woods … came when Financial Times columnist Martin Wolf (asked) Larry Summers, “[Doesn’t] what has happened in the past few years simply suggest that [academic] economists did not understand what was going on?”

DeLong agreed with Summers’ response: “the problem is that there is so much that is “distracting, confusing, and problem-denying in…the first year course in most PhD programs.” As a result, even though “economics knows a fair amount,” it “has forgotten a fair amount that is relevant, and it has been distracted by an enormous amount.” DeLong then goes on to call for serious change in what economics departments do and teach.

In Part 2 of this post, I’m going to address the realities of ‘serious change’; and, in that context, what is troubling for INET about Summers’ presence at the recent Bretton Woods gathering. I’ll do this from my experience in leading and guiding real change as well as by contrasting INET with another, smaller, and more nascent effort called Econ4.

For now, though, let’s put aside the serious lack of self-respect in paying any attention at all to a world historical failure like Summers (Why is this arrogant sophist even on anyone’s C list, let alone A list? Why isn’t Summers wearing sack cloth and rolling in ashes?). Instead, let’s respond to DeLong’s ‘fessing up to the crisis in economics:

Marshall Auerback: Obama Needs to Get Serious About Jobs

Yves here. I have no doubt that some readers will give a knee jerk negative response to the idea of aggressive measures to create more jobs, seeing it as undue government intervention in the economy.

But that horse has left the barn and is now in the next county. Like it or not, the economic damage done by the financial crisis was too severe for governments to sit on their hands. So the question is not intervention versus no intervention, but what sort of intervention is most likely to be salutary? That means the benchmark is not doing nothing, but the measures taken thus far, which consist heavily of overt and hidden subsidies to the financial sector.

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0

A universal Jobs Guarantee Program could free us from the predations of politicians and foster a strong economy.

On the anniversary of the inauguration of the Works Progress Administration (WPA), it is striking to compare the unemployment record of Franklin Delano Roosevelt, and that of his modern day successor, Barack Obama. FDR’s achievements in putting Americans back to work are among the most impressive of his tenure; he took the rate from 25% to 9.6% by 1936. But so far, Obama’s policies have failed to “jump-start” unemployment in a significant way, even as Wall Street has continued a recovery utterly and totally divorced from Main Street.

Geithner Blocked IMF Deal to Haircut Irish Debt

Was the US Treasury Secretary’s deep sixing of a plan by the seldom-charitable IMF to give the Irish some debt relief Versailles redux? By that I mean the Treaty of Versailles, the agreement at the end of World War I devised by the victors to dismember the German economy. Bear with me as I tease out this conceit.

Guest Post: Overruled

Cross posted from MacroBusiness

Ok, we all know that anyone who says “this time it is different” is to be treated at best as misinformed, at worst as a fool. “They are the five most dangerous words in the English language” etc. etc. But, to repeat my question: “Are things always the same?” Mostly, yes. Modern housing bubbles are not unlike 17th century Holland’s Tulipmania, government debt crises have not changed all that much since Henry VIII reduced the gold in coinage, greed, profligacy, irresponsible plutocracies are always with us.

But in global finance there are some things happening that are genuinely different. Dangerously so.

Euro Whacked by Reports that Greece May Leave the Eurozone?

The Euro has fallen from roughly 1.49 to the dollar to 1.43 in a mere two days, which is a huge move. Many pundits have argued that the ECB’s newly accommodative stance is the trigger, but there may be additional forces at work. Most experts have deemed the idea that any eurozone member would exit the currency to be simply inconceivable, that it would be too costly and disruptive. But with the hair shirt that Greece is being asked to wear, all bets may be off.

As of this juncture, this reports in Der Spiegel does not appear to have gotten traction among the Usual Suspects in the MSM. Headline: “Greece Considers Exit from Euro Zone” (hat tip readers John M and Illya F).

Jamie Dimon Says Banks Are Being Nice to You When They Take Your House

Jamie Dimon has finally managed the difficult feat of making Lloyd Blankfein look good.

When Blankfein said Goldman was “doing God’s work,” as offensive and laughable as that sounds, it’s an arguable position.

Guest Post: Beware of runaway headline inflation

Yves here. As much as this post makes an interesting observation, note the emphasis on reducing labor bargaining power as the solution to booms and busts, when the era of weak labor bargaining power (which started taking hold in a serious way in the Reagan/Thatcher eras) showed far more financial instability that the preceding period where productivity gains were shared with workers. As a result, consumers didn’t need to resort to debt to compensate for stagnant worker wages. As long as we keep resorting to failed remedies, there isn’t much reason to hope for better outcomes.

By Heleen Mees, Researcher, Erasmus School of Economics and Assistant Professor, University of Tilburg. Cross posted from VoxEU

The latest figures from the US show that the consumer price index rose 0.5% in March, whilst the core personal consumption expenditure price index rose only 0.1%. This column explains the roles of these competing measures and argues that US monetary policymakers should pay close attention to headline inflation. It warns that neglecting headline inflation risks feverish boom-and-bust cycles with prolonged periods of high unemployment.