Category Archives: The dismal science

Scott Fullwiler: Krugman’s Flashing Neon Sign

By Scott Fullwiler, Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College. Cross posted from New Economic Perspectives

The debate between Paul Krugman and my friend Steve Keen regarding how banks work (see here, here, here, and here) has caused me to revisit an old quote. Back in the 1990s I would use Krugman’s book, Peddling Prosperity (1995), in my intermediate macroeconomics courses since it provides a good overview of what were then contemporary debates in macroeconomic theory as well as Krugman’s criticisms of various popular views on macroeconomic policy issues from that era. One passage near the very end of the book has always remained in the back of my mind; in it, Krugman critiques a popular view that was and still is highly influential regarding productivity and trade policy. He writes:

So, if you hear someone say something along the lines of ‘America needs higher productivity so that it can compete in today’s global economy,’ never mind who he is or how plausible he sounds. He might as well be wearing a flashing neon sign that reads: ‘I DON’T KNOW WHAT I’M TALKING ABOUT.’ (p. 280; emphasis in original)

In his latest post in this debate (which Keen replied to here), Krugman demonstrates that he has a very good grasp of banking as it is presented in a traditional money and banking textbook. Unfortunately for him, though, there’s virtually nothing in that description of banking that is actually correct. Instead of a persuasive defense of his own views on banking, his post is in essence his own flashing neon sign where he provides undisputable evidence that “I don’t know what I’m talking about.”

Michael Hudson on the Federal Reserve System

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College

An interview with Michael Hudson published on the Russian website Terra America (TA).

What is the place of the Federal Reserve System in the American financial and economic structure?

Philip Pilkington: MMT to the Rescue in the the Eurozone?

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

We’ve already seen how, paraphrasing Archimedes, that financial instruments can move the world in a bad way. We have an opportunity to reverse that. Warren Mosler and I have just published a policy note at the Levy Institute that would, if implemented, bring an end to the Eurozone sovereign debt crisis.

Housing Bubbles, House Prices, and Interest Rates

It might surprise readers to learn that economists are still debating whether low interest rates in countries like Ireland and Spain were responsible for their housing bubbles. A new paper by Christian Hott and Terhi Jokipii at VoxEU looked at housing prices in 14 OECD countries from 1985 onward to assess the impact of protracted periods of low short term interest rates. Their conclusion was that they explained up to 50% of housing overvaluation in bubble-afflicted markets.

The interesting part of the paper is that they created a model for fundamental housing market values:

Philip Pilkington: Krugman Makes Accusations of Fundamentalism to Defend His Own Dogma

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

You’re at a party and you’re having a conversation. One person interrupts, giving his view without engaging with what you’re saying. It is a presumptuous act based on the assumption that he – the speaker – already know everything there is to know about the conversation and so can simply steamroll over what everyone else says.

Paul Krugman has just done the intellectual equivalent on a blog ‘contesting’ Steve Keen’s recent piece criticising his model of debt dynamics.

Philip Pilkington: Scattergun Economics – The BBC’s Stephanie Flanders Muddies an Already Impenetrable Argument

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

Last Friday the BBC’s economics editor Stephanie Flanders ran one of the most terrible economics articles I’ve ever read: ‘The Truth About UK Debt.’ The problem is that it contains very little truth.

Bill Black: (Re) Occupy Greece

Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.

While the Occupy Wall Street (OWS) movement set its sights on occupying a financial center, Germany has accomplished the vastly more impressive feat of occupying an entire nation – Greece. Germany has experience at occupying Greece having done so during World War II. The art of occupying another nation is to recruit a local puppet to do the dirty work required to repress the citizens. Germany used several puppets, most notoriously the murderous Ioannis Rallis, to (nominally) rule Greece and terrify the Greek people during World War II. (After Germany’s defeat, Rallis was executed for his treason.)

This time around, Germany has been far more successful in recruiting and using a puppet to (nominally) rule Greece and terrify the Greek people before the German occupation.

Philip Pilkington: The Irish Begin to Wake Up to the Fact That They are Repaying Money That is Then Burned

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

About a year ago a couple of friends and I were sitting around drinking beer and talking. As so often happens today in day-to-day Irish conversation, the economic situation and the repayment of debts was raised. One of my friends said that, naturally, the debts had to be repaid. I pointed out to him that by repaying the debt we were just sending away money to be effectively destroyed.

Gillian Tett Exhibits Undue Faith in Data and Models

I hate beating up on Gillian Tett, because even a writer is clever as she is is ultimately no better than her sources, and she seems to be spending too much time with the wrong sort of technocrats.

Philip Pilkington: Policing the Economists from Within Their Own Minds – ISLM as a Model of Intellectual Control

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

We want structures that serve people, not people that serve structures!

– Graffiti in Paris, May ‘68

Recently there has been a bit of debate about MMT knocking around the blogs. To a large extent it has been rather superficial. This was not the fault of those involved – despite a few displays of pomp and bluster from some of the cruder economic bloggers (no names!). The superficiality of engagement was mainly due to the nature of the medium itself. For all their accessibility blogs don’t allow, or should I say, don’t generally encourage the scholarship that is required before considering a new theoretical approach. Indeed, the very nature of blogs is restrictive in that it demands that authors engage with a new theoretical approach only in a cursory manner. After all, there will always be something new to write about tomorrow.

Better, I thought, to engage with one of the participants more directly.

The New Priesthood: An Interview with Yanis Varoufakis Part II

Yanis Varoufakis is a Greek economist who currently heads the Department of Economic Policy at the University of Athens. From 2004 to 2007 he served as an economic advisor to former Greek Prime Minister George Papandreou. Yanis writes a popular blog which can be found here. His treatise on economic theory ‘Modern Political Economics: Making Sense of the Post-2008 World’, co written with Nicholas Theocrakis and Joseph Haveli is available from Amazon.

Interview conducted by Philip Pilkington.

Philip Pilkington: In the book you talk about how humans are extremely hard to model – you go as far as to call them a ‘radical indeterminacy’. Now, some of this comes back to the classical theory of value that we already discussed. That theory of value seeks out the basis of value in the human capacity for labour – essentially putting humans out front and centre when modelling is undertaken. But the neoclassical theory of value – that is the marginal theory of value – also relies on humans to build models, in that it concentrates on their consumption preferences and derives so-called laws from these. Could you talk about this a little?