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Javier E

Opinion | A Nobel Prize for the Economics of Panic - The New York Times - 0 views

www.nytimes.com/...s-bernanke-diamond-dybvig.html

economics nobel prize panic bank great recession depression theory

shared by Javier E on 12 Oct 22 - No Cached
  • Obviously, Bernanke, Diamond and Dybvig weren’t the first economists to notice that bank runs happen
  • Diamond and Dybvig provided the first really clear analysis of why they happen — and why, destructive as they are, they can represent rational behavior on the part of bank depositors. Their analysis was also full of implications for financial policy.
  • Bernanke provided evidence on why bank runs matter and, although he avoided saying so directly, why Milton Friedman was wrong about the causes of the Great Depression.
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  • Diamond and Dybvig offered a stylized but insightful model of what banks do. They argued that there is always a tension between individuals’ desire for liquidity — ready access to funds — and the economy’s need to make long-term investments that can’t easily be converted into cash.
  • Banks square that circle by taking money from depositors who can withdraw their funds at will — making those deposits highly liquid — and investing most of that money in illiquid assets, such as business loans.
  • So banking is a productive activity that makes the economy richer by reconciling otherwise incompatible desires for liquidity and productive investment. And it normally works because only a fraction of a bank’s depositors want to withdraw their funds at any given time.
  • This does, however, make banks vulnerable to runs. Suppose that for some reason many depositors come to believe that many other depositors are about to cash out, and try to beat the pack by withdrawing their own funds. To meet these demands for liquidity, a bank will have to sell off its illiquid assets at fire sale prices, and doing so can drive an institution that should be solvent into bankruptcy
  • If that happens, people who didn’t withdraw their funds will be left with nothing. So during a panic, the rational thing to do is to panic along with everyone else.
  • There was, of course, a huge wave of banking panics in 1930-31. Many banks failed, and those that survived made far fewer business loans than before, holding cash instead, while many families shunned banks altogether, putting their cash in safes or under their mattresses. The result was a diversion of wealth into unproductive uses. In his 1983 paper, Bernanke offered evidence that this diversion played a large role in driving the economy into a depression and held back the subsequent recovery.
  • In the story told by Friedman and Anna Schwartz, the banking crisis of the early 1930s was damaging because it led to a fall in the money supply — currency plus bank deposits. Bernanke asserted that this was at most only part of the stor
  • a government backstop — either deposit insurance, the willingness of the central bank to lend money to troubled banks or both — can short-circuit potential crises.
  • Such arrangements offered a higher yield than conventional deposits. But they had no safety net, which opened the door to an old-style bank run and financial panic.
  • So banks need to be regulated as well as backstopped. As I said, the Diamond-Dybvig analysis had remarkably large implications for policy.
  • From an economic point of view, banking is any form of financial intermediation that offers people seemingly liquid assets while using their wealth to make illiquid investments.
  • This insight was dramatically validated in the 2008 financial crisis.
  • By the eve of the crisis, however, the financial system relied heavily on “shadow banking” — banklike activities that didn’t involve standard bank deposits
  • But providing such a backstop raises the possibility of abuse; banks may take on undue risks because they know they’ll be bailed out if things go wrong.
  • And the panic came. The conventionally measured money supply didn’t plunge in 2008 the way it did in the 1930s — but repo and other money-like liabilities of financial intermediaries did:
  • Fortunately, by then Bernanke was chair of the Federal Reserve. He understood what was going on, and the Fed stepped in on an immense scale to prop up the financial system.
  • a sort of meta point about the Diamond-Dybvig work: Once you’ve understood and acknowledged the possibility of self-fulfilling banking crises, you become aware that similar things can happen elsewhere.
  • Perhaps the most notable case in relatively recent times was the euro crisis of 2010-12. Market confidence in the economies of southern Europe collapsed, leading to huge spreads between the interest rates on, for example, Portuguese bonds and those on German bonds. The conventional wisdom at the time — especially in Germany — was that countries were being justifiably punished for taking on excessive debt
  • the Belgian economist Paul De Grauwe argued that what was actually happening was a self-fulfilling panic — basically a run on the bonds of countries that couldn’t provide a backstop because they no longer had their own currencies.
  • Sure enough, when Mario Draghi, the president of the European Central Bank at the time, finally did provide a backstop in 2012 — he said the magic words “whatever it takes,” implying that the bank would lend money to the troubled governments if necessary — the spreads collapsed and the crisis came to an end:
Javier E

Revolving Door: Former Federal Reserve Chairman Ben Bernanke Takes Job With Hedge Fund ... - 0 views

www.theatlantic.com/...390669

fed financial Wall Street conflict of interest corruption

shared by Javier E on 17 Apr 15 - No Cached
  • This is, of course, how systemic problems work—few individual cases are obviously unacceptable, but the whole is horrifying. In this case, it's the "revolving door" of movement between government positions and the financial sector—that is to say, from modestly paying positions in the public sector, overseeing financial firms, to higher-paying jobs in the private sector.
  • Bernanke is going to work for Citadel, a $25 billion hedge fund that is one of the country's largest. While Bernanke is a talented economist, he has also never worked in the industry, so it's fairly clear that what Citadel wants is inside information
  • this is just the latest in a stream of prominent government officials:
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  • Perhaps what makes Bernanke's case so worrisome is that he has an almost universal reputation for probity. If the revolving-door system is so powerful that it can make even him look suspect, is it beyond redemption?
  • That doesn't even include non-hedge-fund and private-equity moves. Peter Orszag, who led President Obama's Office of Management and Budget, took a job with Citigroup when he left. The Obama administration had been closely involved with Citi in the aftermath of the financial collapse, and the bank received nearly $500 billion in bailouts. Orszag is not allowed to deal with the federal government directly, but as The Times noted, perhaps wryly, "Mr. Orszag’s actual duties are murky at best. He is expected to draw on his deep knowledge of public sector financial issues and his experience overseeing the federal budget to counsel Citi’s clients on various policy actions."
  • This is, of course, how systemic problems work—few individual cases are obviously unacceptable, but the whole is horrifying. In this case, it's the "revolving door" of movement between government positions and the financial sector—that is to say, from modestly paying positions in the public sector, overseeing financial firms, to higher-paying jobs in the private sector.
maddieireland334

Dr. Doom: Liquidity 'time bomb' will trigger next financial collapse - 0 views

diigo.com/07ogqk

Economics financial collapse crisis

shared by maddieireland334 on 02 Jun 15 - No Cached
  • maddieireland334 on 02 Jun 15
     
    Nouriel Roubini, who has been dubbed "Dr. Doom" for his dark predictions, warned in an Op-Ed in The Guardian on Monday about the existence of a "liquidity time bomb" that he fears will eventually "trigger a bust and a collapse." The New York University economist joins a growing number of observers who are worried about the issue.
Javier E

Book Review: Models Behaving Badly - WSJ.com - 1 views

online.wsj.com/...3430404577094760894401548.html

economic modeling social science error

shared by Javier E on 16 Dec 11 - Cached
  • Mr. Derman is perhaps a bit too harsh when he describes EMM—the so-called Efficient Market Model. EMM does not, as he claims, imply that prices are always correct and that price always equals value. Prices are always wrong. What EMM says is that we can never be sure if prices are too high or too low.
  • The Efficient Market Model does not suggest that any particular model of valuation—such as the Capital Asset Pricing Model—fully accounts for risk and uncertainty or that we should rely on it to predict security returns. EMM does not, as Mr. Derman says, "stubbornly assume that all uncertainty about the future is quantifiable." The basic lesson of EMM is that it is very difficult—well nigh impossible—to beat the market consistently.
  • Mr. Derman gives an eloquent description of James Clerk Maxwell's electromagnetic theory in a chapter titled "The Sublime." He writes: "The electromagnetic field is not like Maxwell's equations; it is Maxwell's equations."
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  • He sums up his key points about how to keep models from going bad by quoting excerpts from his "Financial Modeler's Manifesto" (written with Paul Wilmott), a paper he published a couple of years ago. Among its admonitions: "I will always look over my shoulder and never forget that the model is not the world"; "I will not be overly impressed with mathematics"; "I will never sacrifice reality for elegance"; "I will not give the people who use my models false comfort about their accuracy"; "I understand that my work may have enormous effects on society and the economy, many beyond my apprehension."
  • As the collapse of the subprime collateralized debt market in 2008 made clear, it is a terrible mistake to put too much faith in models purporting to value financial instruments. "In crises," Mr. Derman writes, "the behavior of people changes and normal models fail. While quantum electrodynamics is a genuine theory of all reality, financial models are only mediocre metaphors for a part of it."
  • Although financial models employ the mathematics and style of physics, they are fundamentally different from the models that science produces. Physical models can provide an accurate description of reality. Financial models, despite their mathematical sophistication, can at best provide a vast oversimplification of reality. In the universe of finance, the behavior of individuals determines value—and, as he says, "people change their minds."
  • Bringing ethics into his analysis, Mr. Derman has no patience for coddling the folly of individuals and institutions who over-rely on faulty models and then seek to escape the consequences. He laments the aftermath of the 2008 financial meltdown, when banks rebounded "to record profits and bonuses" thanks to taxpayer bailouts. If you want to benefit from the seven fat years, he writes, "you must suffer the seven lean years too, even the catastrophically lean ones. We need free markets, but we need them to be principled."
tongoscar

Donald Trump's trade wars have not been 'easy to win'  | Financial Times - 0 views

www.ft.com/...98-36ed-11ea-a6d3-9a26f8c3cba4

shared by tongoscar on 20 Jan 20 - No Cached
  • The phase one trade agreement between the US and China signed on Wednesday is only a truce in the trade war, rather than a major reversal of the tariffs imposed since 2018. Nevertheless, it halts a dangerous political momentum.
  • Jan Hatzius of Goldman Sachs describes this as a “subtraction of the negatives”. Paradoxically, the worse the effects on US growth rates in the past two years, the greater the scope for a bounceback this year. Mr Trump’s initial confidence about the effects of trade protection was based on a belief that China’s bilateral trade surplus with the US would force President Xi Jinping to make major policy concessions to safeguard his own export sector. The outcome was rather different: China retaliated with similar measures and this damaged American manufacturers. 
  • The damage to financial and business confidence triggered by the trade announcements hurt US growth still further. The tightening in financial conditions caused by the rising dollar and the collapse in equities late in 2018 would probably have been more severe if the Fed had not reduced policy interest rates by 75 basis points since then.
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  • The good news is that part of this overall drag may disappear before the end of 2020, boosting American GDP growthby at least half a percentage point.What about the longer-term benefits of the trade deal?The purchase of $200bn of additional US exports in the energy, agriculture, manufacturing and services sectors, spread over two years, will reduce the bilateral trade deficit with China. But many of these exports will probably be redirected from elsewhere and will not boost US domestic output in those sectors. Longer term, China’s business restrictions, including alleged unfair trading practices, appear to be easing. Given the political boost from the phase one deal, Chinese economic reformers such as vice-premier Liu He may be in the ascendancy in Beijing for a while. 
  • The trade war has significantly damaged US growth in 2018-19Since President Donald Trump became more aggressive in his threats about trade protection early in 2018, US tariffs on Chinese goods have risen markedly, prompting retaliation from China. There have been only a few comprehensive studies on the overall impact of tariffs on the US growth rate. A notable exception is the work of Jan Hatzius’s US economics team at Goldman Sachs. They have estimated the possible impact of rising tariffs on net trade flows, real incomes, financial conditions and business confidence, and have combined these effects to produce the aggregate growth estimates shown in the graph below. As the negative effects of rising tariffs fade in 2020, the US growth rate is expected to be boosted by at least half a percentage point.
Emilio Ergueta

7 facts that show the American dream is dead - Salon.com - 0 views

www.salon.com/...american_dream_is_dead_partner

american dream psychology

shared by Emilio Ergueta on 27 Oct 14 - No Cached
  • The public has reached this conclusion for a very simple reason: It’s true. The key elements of the American dream—a living wage, retirement security, the opportunity for one’s children to get ahead in life—are now unreachable for all but the wealthiest among us. And it’s getting worse. As inequality increases, the fundamental elements of the American dream are becoming increasingly unaffordable for the majority.
  • Sure, there are still some scholarships and grants available. But even as college costs rise, the availability of those programs is falling, leaving middle-class and lower-income students further in debt as out-of-pocket costs rise.
  • These cost increases, combined with wage stagnation, mean that families are struggling to make ends meet—and that neither parent has the luxury of staying home any longer. In fact, parenthood has become a financial risk. Warren and Tyagi write that “Having a child is now the single best predictor that a woman will end up in financial collapse.” This book was written over a decade ago; things are even worse today.
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  • “Over the past 20 years the average increase in spending on some items has exceeded the growth of incomes. The gap is especially poignant for those under 25 years old.”
  • As of 2013, tuition at a private university was projected to cost nearly $130,000 on average over four years, and that’s not counting food, lodging, books, or other expenses.
  • “Not only has the wealth of the very rich doubled since 2000, but corporate revenues are at record levels.” Edsall also observed that, “In 2013, according to Goldman Sachs, corporate profits rose five times faster than wages.”
  • Even as overall wealth in this country has shifted upward, away from middle-class families, the cost of medical care is increasingly being borne by the families themselves. As the Milliman study shows, the employer-funded portion of healthcare costs has risen 52 percent since 2007, the first year of the recession. But household costs have risen by a staggering 73 percent, or 8 percent per year, and now average $9,144.
  • he financial crisis of 2008, driven by the greed of Wall Street one percenters, robbed most American household of their primary assets. And right-wing “centrists” of both parties, not satisfied with the rising retirement age which has already cut the program’s benefits, continue to press for even deeper cuts to the program.
  • Vacations; an education; staying home to raise your kids; a life without crushing debt; seeing the doctor when you don’t feel well; a chance to retire: one by one, these mainstays of middle-class life are disappearing for most Americans. Until we demand political leadership that will do something about it, they’re not coming back.
  • Can the American dream be restored? Yes, but it will take concerted effort to address two underlying problems. First, we must end the domination of our electoral process by wealthy and powerful elites. At the same time, we must begin to address the problem of growing economic inequality. Without a national movement to call for change, change simply isn’t going to happen.
Javier E

The Price of the Coronavirus Pandemic | The New Yorker - 0 views

www.newyorker.com/...ce-of-the-coronavirus-pandemic

pandemic profit economic response opportunity financial

shared by Javier E on 21 Apr 20 - No Cached
  • “You don’t know anyone who has made as much money out of this as I have,” he said over the phone. No argument here. He wouldn’t specify an amount, but reckoned that he was up almost two thousand per cent on the year.
  • He bought a big stake in Alpha Pro Tech, one of the few North American manufacturers of N95 surgical masks, with the expectation that when the virus made it across the Pacific the company would get government contracts to produce more. The stock was trading at about three dollars and fifty cents a share, and so, for cents on the dollar, he bought options to purchase the shares at a future date for ten dollars: he was betting that it would go up much more than that. By the end of February, the stock was trading at twenty-five dollars a share
  • He quickly put some money to work
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  • He shorted oil and, as a proxy for oil, the Canadian dollar. (That is, he bet against both.) Finally, he shorted U.S. equities.
  • Last October, he listened to an audiobook by the Hardcore History podcaster, Dan Carlin, called “The End Is Always Near.” “So I had pandemics and plagues in my head,” the Australian said. “In December, I started seeing the first articles about this wet-market thing going on in China, and then in early January there was a lot on Twitter about the shit in Wuhan.” He was in Switzerland on a ski holiday with his family, and he bought all the surgical masks and gloves he could find.
  • The Australian, who spoke on the condition that his name not be used, is a voluble redhead just shy of fifty.
  • The problem, he said, was that, perhaps more now than ever, Americans lack what he called “social cohesion,” and thus the collective will, to commit to such a path.
  • perhaps the government should reward each citizen who strictly observed the quarantine with fifty thousand dollars. “The virus would burn out after four weeks,” he said. The U.S. had all the food and water and fuel it would need to survive months, if not years, of total isolation from the world. “If you don’t trade with China, they’re screwed,” he said. “You’d win this war. Let the rest of the world burn.
  • I’d been eavesdropping for a week on the friend’s WhatsApp conversation with dozens of his acquaintances and colleagues (he called them the Fokkers, for an acronym involving his name), all of them men, most of them expensively educated financial professionals, some of them very rich, a few with connections in high places. The general disposition of the participants, with exceptions, was the opposite of the Australian’s
  • they expressed the belief, with a conviction that occasionally tipped into stridency or mockery, that the media, the modellers, and the markets were overreacting to the threat of the coronavirus
  • They mocked Jim Cramer, the host of the market program “Mad Money,” on CNBC, for predicting a great depression and wondering if anyone would ever board an airplane again. Anecdotes, hyperbole: the talking chuckleheads sowing and selling fear.
  • it’s hard for a coldhearted capitalist to know just how cold the heart must go. Public-health professionals make a cost-benefit calculation, too, with different weightings.
  • This brutal shock is attacking a body that was already vulnerable. In the event of a global depression, a postmortem might identify COVID-19 as the cause of death, but, as with so many of the virus’s victims, the economy had a preëxisting condition—debt, instead of pulmonary disease.
  • “It’s as if the virus is almost beside the point,” a trader I know told me. “This was all set up to happen.”
  • the “smart money,” like the giant asset-management firms Blackstone and the Carlyle Group, was now telling companies to draw down their bank lines, and borrow as much as they could, in case the lenders went out of business or found ways to say no. Sure enough, by March’s end, corporations had reportedly tapped a record two hundred and eight billion dollars from their revolving-credit lines
  • In a world where we talk, suddenly, of trillions, two hundred billion may not seem like a lot, but it is: in 2007, the subprime-mortgage lender Countrywide Financial, in drawing down “just” $11.5 billion, helped bring the system to its knees.
  • It is hard to navigate out of the debt trap. Creditors can forgive debtors, but that process, especially at this level, would be almost impossibly laborious and fraught. Meanwhile, defaults flood the market with collateral, be it buildings, stocks, or aircraft. The price of that collateral collapses—haircuts for baldheads—leading to more defaults.
  • In New York State, where nearly half a million new claims had been filed in two weeks, the unemployment-insurance trust began to teeter toward insolvency. Come summer, there would be no money left to pay unemployment benefits.
  • As April arrived, businesses, large and small, decided not to pay rent, either because they didn’t have the cash on hand or because, with a recession looming, they wanted to preserve what cash they had. Furloughed or fired employees, meanwhile, faced similar decisions
  • On March 20th, Goldman Sachs spooked the world, by predicting a twenty-four-per-cent decline in G.D.P. in the second quarter, a falloff in activity that seemed at once both unthinkable and inevitable. Subsequent predictions grew even more disma
Javier E

The Obama legacy that can't be repealed - The Washington Post - 0 views

www.washingtonpost.com/...6-9a51-cd56ea1c2bb7_story.html

obama presidency great recession

shared by Javier E on 19 Dec 16 - No Cached
  • There is no mystery about Barack Obama’s greatest presidential achievement: He stopped the Great Recession from becoming the second Great Depression. True, he had plenty of help, including from his predecessor, George W. Bush, and from the top officials at the Treasury Department and Federal Reserve. But if Obama had made one wrong step, what was a crushing economic slump could have become something much worse.
  • It is Obama’s unfortunate fate that the high-water mark of his presidency occurred in the first months, when the world flirted with financial calamity. The prospect of another Great Depression — a long period of worsening economic decline — was not far-fetched.
  • In the first quarter of 2009, as Obama was moving into the White House, monthly job losses averaged 772,000. The ultimate decline in employment was 8.7 million jobs, or 6.3 percent. Housing prices and stock values were collapsing. From their peak in February 2007 to their low point, housing prices dropped 26 percent. Millions of homeowners were “underwater” — their houses were worth less than the mortgages on them. Stock prices fell roughly by half from August 2007 to March 2009.
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  • There was no guarantee that the economy’s downward spiral wouldn’t continue, as frightened businesses and consumers curbed spending and, in the process, increased unemployment. The CEA presents a series of charts comparing the 2008-2009 slump with the Great Depression. In every instance, the 2008-2009 downturn was as bad as — or worse than — the first year of the Great Depression: employment loss, drop in global trade and change in households’ net worth.
  • The starkest of these was the fall in households’ net worth (people’s assets, such as homes and stock, minus their debts, such as mortgages and credit-card balances). It dropped by $13 trillion, about a fifth, from its high point in 2007 to its trough in 2009. This decline, the CEA notes, “was far larger than the reduction [adjusted for inflation] . . . at the onset of the Great Depression.”
  • What separates then from now is that, after 18 months or so, spending turned up in 2009 while it continued declining in the 1930s. This difference reflected, at least in part, the aggressive policies adopted to blunt the downturn. The Fed cut short-term interest rates to zero and provided other avenues of cheap credit; the Troubled Asset Relief Program (TARP), enacted in the final months of the Bush administration, poured money into major banks to reassure the public of their solvency.
  • Still, Obama’s role was crucial. Against opposition, he decided to rescue General Motors and Chrysler. Throwing them onto the tender mercies of the market would have been a huge blow to the industrial Midwest and to national psychology. He also championed a sizable budget “stimulus.” Advertised originally as $787 billion, it was actually $2.6 trillion over four years when the initial program was combined with later proposals and so-called “automatic stabilizers” are included, the CEA says
  • More generally, Obama projected reason and calm when much of the nation was fearful and frazzled. Of course, he didn’t single-handedly restore confidence, but he made a big contribution
  • the recovery from the Great Recession is mostly complete. This seems plausible. Since the low point, employment is up 15.6 million jobs. Rising home and stock prices have boosted inflation-adjusted household net worth by 16 percent. Gross domestic product — the economy — is nearly 12 percent higher than before the financial crisis
  • his impact is underestimated. Suppose we had had a second Great Depression with, say, peak unemployment of 15 percent. Almost all our problems — from poverty to political polarization — would have worsened. Obama’s influence must be considered in this context. When historians do, they may be more impressed.
Javier E

The M.I.T. Gang - The New York Times - 0 views

www.nytimes.com/...paul-krugman-the-mit-gang.html

economics theory social science Keynes

shared by Javier E on 24 Jul 15 - No Cached
  • what distinguishes M.I.T. economics, and why does it matter? To answer that question, you need to go back to the 1970s, when all the people I’ve just named went to graduate school.
  • At the time, the big issue was the combination of high unemployment with high inflation. The coming of stagflation was a big win for Milton Friedman, who had predicted exactly that outcome if the government tried to keep unemployment too low for too long; it was widely seen, rightly or (mostly) wrongly, as proof that markets get it right and the government should just stay out of the way
  • Or to put it another way, many economists responded to stagflation by turning their backs on Keynesian economics and its call for government action to fight recessions.
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  • At M.I.T., however, Keynes never went away. To be sure, stagflation showed that there were limits to what policy can do. But students continued to learn about the imperfections of markets and the role that monetary and fiscal policy can play in boosting a depressed economy.
  • And the M.I.T. students of the 1970s enlarged on those insights in their later work. Mr. Blanchard, for example, showed how small deviations from perfect rationality can have large economic consequences; Mr. Obstfeld showed that currency markets can sometimes experience self-fulfilling panic.
  • This open-minded, pragmatic approach was overwhelmingly vindicated after crisis struck in 2008. Chicago-school types warned incessantly that responding to the crisis by printing money and running deficits would lead to 70s-type stagflation, with soaring inflation and interest rates. But M.I.T. types predicted, correctly, that inflation and interest rates would stay low in a depressed economy, and that attempts to slash deficits too soon would deepen the slump.
  • The truth, although nobody will believe it, is that the economic analysis some of us learned at M.I.T. way back when has worked very, very well for the past seven years.
  • But has the intellectual success of M.I.T. economics led to comparable policy success? Unfortunately, the answer is no.
  • True, there have been some important monetary successes. The Fed, led by Mr. Bernanke, ignored right-wing pressure and threats — Rick Perry, as governor of Texas, went so far as to accuse him of treason — and pursued an aggressively expansionary policy that helped limit the damage from the financial crisis. In Europe, Mr. Draghi’s activism has been crucial to calming financial markets, probably saving the euro from collapse. Continue reading the main story 215 Comments
  • On other fronts, however, the M.I.T. gang’s good advice has been ignored. The I.M.F.’s research department, under Mr. Blanchard’s leadership, has done authoritative work on the effects of fiscal policy, demonstrating beyond any reasonable doubt that slashing spending in a depressed economy is a terrible mistake, and that attempts to reduce high levels of debt via austerity are self-defeating. But European politicians have slashed spending and demanded crippling austerity from debtors anyway.
  • Meanwhile, in the United States, Republicans have responded to the utter failure of free-market orthodoxy and the remarkably successful predictions of much-hated Keynesians by digging in even deeper, determined to learn nothing from experience.
  • being right isn’t necessarily enough to change the world. But it’s still better to be right than to be wrong, and M.I.T.-style economics, with its pragmatic openness to evidence, has been very right indeed
Javier E

The Obama Boom - The New York Times - 1 views

www.nytimes.com/...the-obama-boom.html

obama boom economic policy politics history reform invisible hand orthodox economics theory

shared by Javier E on 11 Jan 16 - No Cached
  • What did Mr. Obama do that was supposed to kill jobs? Quite a lot, actually. He signed the 2010 Dodd-Frank financial reform, which critics claimed would crush employment by starving businesses of capital.
  • He raised taxes on high incomes, especially at the very top, where average tax rates rose by about six and a half percentage points after 2012, a step that critics claimed would destroy incentives.
  • Yet none of the dire predicted consequences of these policies have materialized.
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  • And he enacted a health reform that went into full effect in 2014, amid claims that it would have catastrophic effects on employment.
  • what do we learn from this impressive failure to fail? That the conservative economic orthodoxy dominating the Republican Party is very, very wrong.
  • conservative orthodoxy has a curiously inconsistent view of the abilities and motivations of corporations and wealthy individuals — I mean, job creators.
  • On one side, this elite is presumed to be a bunch of economic superheroes, able to deliver universal prosperity by summoning the magic of the marketplace. On the other side, they’re depicted as incredibly sensitive flowers who wilt in the face of adversity — raise their taxes a bit, subject them to a few regulations, or for that matter hurt their feelings in a speech or two, and they’ll stop creating jobs and go sulk in their tents, or more likely their mansions.
  • It’s a doctrine that doesn’t make much sense, but it conveys a clear message that, whaddya know, turns out to be very convenient for the elite: namely, that injustice is a law of nature, that we’d better not do anything to make our society less unequal or protect ordinary families from financial risks. Because if we do, the usual suspects insist, we’ll be severely punished by the invisible hand, which will collapse the economy.
  • From a conservative point of view, Mr. Obama did everything wrong, afflicting the comfortable (slightly) and comforting the afflicted (a lot), and nothing bad happened. We can, it turns out, make our society better after all.
Javier E

What Can't Tech Money Buy? - The New York Times - 0 views

www.nytimes.com/...what-cant-tech-money-buy.html

rich oligarchy philanthropy tech elite social gospel billionaire politics

shared by Javier E on 29 May 16 - No Cached
  • IT did not take long for the tech industry to become the new establishment, and to assign itself the rights and responsibilities that come with such prosperity.
  • Tech’s elite, lauded for their originality, are influencing media, politics and society at large with a kind of venture philanthropy, much as their industrial predecessors did more than 100 years ago.
  • The robber barons of the 19th and 20th centuries were kings of infrastructure. The people with towering wealth today are kings of information. The rise of Silicon Valley is best understood as a new industrial revolution in this tradition.
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  • In recent years, many of the industry’s elite have pledged financial support to schools, hospitals, police stations and homeless shelters, all while many of the industry’s companies have avoided paying taxes that would fund those same vital public institutions.
  • Any philanthropy seems legitimate when it aligns with your own goals.
  • We did indeed give them this mandate through our politics: loose campaign finance laws and lower tax rates. Through policies that have reinforced exceptional wealth disparities, we have allowed them not just to govern themselves, but us as well.
  • To many of Gawker’s critics, Mr. Thiel is a hero on a charitable crusade for justice. It would be safe to say that this is how his fellow Silicon Valley philanthropists would also define their giving. They are under a presumptive mandate to improve society according to their own values, purely because they have made a lot of money while most everyone else has not. The Gospel of Wealth dictates that this is not only their ability, but their responsibility.
  • the concerned public might take a different, simpler tack.Mr. Thiel told an interviewer in 2012 that he feared the result of this precipitous wealth gap. “In the history of the modern world, inequality has only been ended through Communist revolution, war or deflationary economic collapse,” he said. “It’s a disturbing question which of these three is going to happen today, or if there’s a fourth way out.”
  • If we’re lucky, there may be, but Mr. Thiel isn’t going to like it. Wealth gleaned by way of tax dodges and monopolistic business practices is wealth stolen from the public, even when it is returned in the form of supposed gifts.
  • Philanthropy has the power to do a great deal of good, but so do tax dollars allocated in an equitable democratic system. Perhaps it’s time to adopt a Gospel of Government.
kushnerha

When Was America Greatest? - The New York Times - 0 views

www.nytimes.com/...when-was-america-greatest.html

new york times politics memory bias greatness patriotism research

shared by kushnerha on 28 Apr 16 - No Cached
  • The slogan evokes a time when America was stronger and more prosperous. But Mr. Trump doesn’t specify whether he’s expressing nostalgia for the 1950s — or 10 years ago. That vagueness is reflected by his voters, according to the results of a new survey, conducted online by the digital media and polling company Morning Consult.
  • Trump supporters offered a wide range of answers, with no distinct pattern. The most popular choice was the year 2000. But 1955, 1960, 1970 and 1985 were also popular. More than 2 percent of Trump’s supporters picked 2015, when Mr. Trump’s campaign began.
  • Political science research suggests that Americans’ optimism can be influenced by whether their political party is in the White House. So it’s perhaps not surprising that Democrats feel better than Republicans about current circumstances.
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  • In March, Pew asked people whether life was better for people like them 50 years ago — and a majority of Republicans answered yes. Trump supporters were the most emphatic, with 75 percent saying things were better in the mid-1960s.Democrats, though, were less enthusiastic about the past. Forty-eight percent said life was better now than it was 50 years ago, while 17 percent of Democrats said it was the same, and only 28 percent said it was worse.
  • In the Morning Consult survey, 44 percent of people over all said America’s greatest years were ahead of it, while 36 percent said those years had already passed. But in an election when America’s past greatness has played such a starring role, we wanted to see more details about just how voters saw the past and the future.
  • So, when was the greatest year?Over all, 2000 was the most popular choice, a preference that cut across political party, candidate preference, gender and age. The year’s popularity may partly reflect people’s fondness for round numbers. But many voters explained their choice by referring to a greater sense of security. The Sept. 11 attacks occurred the following year. (An election year also has something for all partisans to grab onto. Bill Clinton was president that year, but George W. Bush won the election to replace him.)
  • Some people, of course, reached farther back into history. The year the Declaration of Independence was signed, 1776, got a few votes. One person chose 1789, the year the Constitution took effect. One person chose 1800. One chose 1860, the year Southern states began to secede from the Union. But most answers were of a more recent vintage.
  • partisan patterns in views of America’s greatness. Republicans, over all, recall the late 1950s and the mid-1980s most fondly. Sample explanations: “Reagan.” “Economy was booming.” “No wars!” “Life was simpler.” “Strong family values.” The distribution of Trump supporters’ greatest years is somewhat similar to the Republican trend, but more widely dispersed over the last 70 years.
  • Democrats seem to think America’s greatest days were more recent; they were more likely to pick a year in the 1990s, or since 2000. After 2000, their second-most-popular answer was 2016. Sample explanations: “We’re getting better.” “Improving social justice.” “Technology.” Even 2008, a year of financial collapse, was pretty popular, perhaps because President Obama was also elected that year.
Javier E

Do You Know What You Don't Know? - Art Markman - Harvard Business Review - 0 views

blogs.hbr.org/...ver_what_you_need_to_know.html

knowledge gap depth cognitive unknown psychology

shared by Javier E on 04 May 12 - Cached
  • You probably don't know as much as you think you do. When put to the test, most people find they can't explain the workings of everyday things they think they understand.
  • Find an object you use daily (a zipper, a toilet, a stereo speaker) and try to describe the particulars of how it works. You're likely to discover unexpected gaps in your knowledge. In psychology, we call this cognitive barrier the illusion of explanatory depth. It means you think you fully understand something that you actually don't.
  • We see this every day in buzz words. Though we often use these words, their meanings are usually unclear. They mask gaps in our knowledge, serving as placeholders that gloss concepts we don't fully understand.
  • ...5 more annotations...
  • an upsetting instance of knowledge gaps in the last decade was the profound misunderstanding of complex financial products that contributed to the market collapse of 2007. Investment banks were unable to protect themselves from exposure to these products, because only a few people (either buyers or sellers) understood exactly what was being sold. Those individuals who did comprehend these product structures ultimately made huge bets against the market using credit-default swaps. The willingness of companies like AIG to sell large quantities of credit-default swaps reflected a gap in their knowledge about the riskiness of products they were insuring.
  • To discover the things you can't explain, take a lesson from teachers. When you instruct someone else, you have to fill the gaps in your own knowledge
  • Explain concepts to yourself as you learn them. Get in the habit of self-teaching. Your explanations will reveal your own knowledge gaps and identify words and concepts whose meanings aren't clear.
  • Engage others in collaborative learning. Help identify the knowledge gaps of the people around you. Ask them to explain difficult concepts, even if you think everyone understands them
  • When you do uncover these gaps, treat them as learning opportunities, not signs of weakness.
Javier E

New Thinking and Old Books Revisited - NYTimes.com - 0 views

krugman.blogs.nytimes.com/...inking-and-old-books-revisited

economics theory crisis equilibrium modeling

shared by Javier E on 01 Dec 13 - No Cached
  • Mark Thoma’s classic crack — “I’ve learned that new economic thinking means reading old books” — has a serious point to it. We’ve had a couple of centuries of economic thought at this point, and quite a few smart people doing the thinking. It’s possible to come up with truly new concepts and approaches, but it takes a lot more than good intentions and casual observation to get there.
  • There is definitely a faction within economics that considers it taboo to introduce anything into its analysis that isn’t grounded in rational behavior and market equilibrium
  • what I do, and what everyone I’ve just named plus many others does, is a more modest, more eclectic form of analysis. You use maximization and equilibrium where it seems reasonably consistent with reality, because of its clarifying power, but you introduce ad hoc deviations where experience seems to demand them — downward rigidity of wages, balance-sheet constraints, bubbles (which are hard to predict, but you can say a lot about their consequences).
  • ...4 more annotations...
  • You may say that what we need is reconstruction from the ground up — an economics with no vestige of equilibrium analysis. Well, show me some results. As it happens, the hybrid, eclectic approach I’ve just described has done pretty well in this crisis, so you had better show me some really superior results before it gets thrown out the window.
  • if you think you’ve found a fundamental logical flaw in one of our workhorse economic models, the odds are very strong that you’ve just made a mistake.
  • it’s quite clear that the teaching of macroeconomics has gone seriously astray. As Saraceno says, the simple models that have proved so useful since 2008 are by and large taught only at the undergrad level — they’re treated as too simple, too ad hoc, whatever, to make it into the grad courses even at places that aren’t very ideological.
  • to temper your modeling with a sense of realism you need to know something about reality — and not just the statistical properties of U.S. time series since 1947. Economic history — global economic history — should be a core part of the curriculum. Nobody should be making pronouncements on macro without knowing a fair bit about the collapse of the gold standard in the 1930s, what actually happened in the stagflation of the 1970s, the Asian financial crisis of the 90s, and, looking forward, the euro crisis.
Javier E

Thomas Piketty Tours U.S. for His New Book - NYTimes.com - 0 views

www.nytimes.com/...tours-us-for-his-new-book.html

economics history inequality income tax

shared by Javier E on 19 Apr 14 - No Cached
  • The response from  fellow economists, so far mainly from the liberal side of the spectrum, has verged on the rapturous. Mr. Krugman,  a columnist for The New York Times, predicted in The New York Review of Books that Mr. Piketty’s book would “change both the way we think about society and the way we do economics.”
  • Mr. Piketty’s dedication to data has long made him a star among economists, who credit his work on income inequality (with Emmanuel Saez and others) for diving deep into seemingly dull tax archives to bring an unprecedented historical perspective to the subject.
  • Six years after the financial crisis, “people are looking for a bible of sorts,” said Julia Ott, an assistant professor of the history of capitalism at the New School, who appeared on a panel with Mr. Piketty at New York University on Thursday. “He’s speaking to a real feeling out there that things haven’t been fixed, that we need to take stock, that we need big ideas, big proposals, big global solutions.”
  • ...3 more annotations...
  • At the book’s center is Mr. Piketty’s contention — contrary to the influential theory developed by Simon Kuznets in the 1950s and ’60s — that mature capitalist economies do not inevitably evolve toward greater economic equality. Instead, Mr. Piketty contends, the data reveals a deeper historical tendency for the rate of return on capital to outstrip the overall rate of economic growth, leading to greater and greater concentrations of wealth at the very top.
  • Mr. Piketty rejected any economic determinism. “It all depends on what the political system decides,” he said.
  • Mr. Piketty, who writes in the book that the collapse of Communism in 1989 left him “vaccinated for life” against the “lazy rhetoric of anticapitalism,” is no Marxian revolutionary. “I believe in private property,” he said in the interview. “But capitalism and markets should be the slave of democracy and not the opposite.”
Javier E

Enter the Age of the Outsiders - The New York Times - 0 views

www.nytimes.com/...-the-age-of-the-outsiders.html

reason anarchy institutions decentralization fringe spiritual culture meaning mission realism barbarism

shared by Javier E on 20 Oct 15 - No Cached
  • In the 1990s, the central political institutions radiated confidence, derived from an assumed vision of the post-Cold War world. History would be a slow march toward democratic capitalism. Nations would be bound in peaceful associations like the European Union. The United States would oversee a basic international order.
  • This vision was materialistic and individualistic. Nations should pursue economic growth and a decent distribution of wealth. If you give individuals access to education and opportunity, they will pursue affluence and personal happiness. They will grow more temperate and “reasonable.”
  • The uncertain Republican establishment cannot govern its own marginal members, while those on the edge burn with conviction. Jeb Bush looks wan but Donald Trump radiates confidence.
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  • the deeper problem was spiritual. Many people around the world rejected democratic capitalism’s vision of a secular life built around materialism and individual happiness. They sought more intense forms of meaning. Some of them sought meaning in the fanaticisms of sect, tribe, nation, or some stronger and more brutal ideology
  • In case after case, “reasonableness” has been trampled by behavior and creed that is stronger, darker and less temperate.
  • Since 2000, this vision of the post-Cold War world has received blow after blow. Some of these blows were self-inflicted. Democracy, especially in the United States, has grown dysfunctional. Mass stupidity and greed led to a financial collapse and deprived capitalism of its moral swagger.
  • The Democratic establishment no longer determines party positions; it is pulled along by formerly marginal players like Bernie Sanders.
  • Republicans blame Obama for hesitant and halting policies, but it’s not clear the foreign policy and defense apparatus believes anymore in its own abilities to establish order, or that the American public has any confidence in U.S. effectiveness as a global actor.
  • the primary problem is mental and spiritual. Some leader has to be able to digest the lessons of the last 15 years and offer a revised charismatic and persuasive sense of America’s historic mission.
  • This mission, both nationalist and universal, would be less individualistic than the gospel of the 1990s, and more realistic about depravity and the way barbarism can spread. It would offer a goal more profound than material comfort.
Javier E

Accelerationism: how a fringe philosophy predicted the future we live in | World news |... - 1 views

www.theguardian.com/...redicted-the-future-we-live-in

philosophy fringe acceleration psychology technology

shared by Javier E on 11 May 17 - No Cached
  • Roger Zelazny, published his third novel. In many ways, Lord of Light was of its time, shaggy with imported Hindu mythology and cosmic dialogue. Yet there were also glints of something more forward-looking and political.
  • accelerationism has gradually solidified from a fictional device into an actual intellectual movement: a new way of thinking about the contemporary world and its potential.
  • Accelerationists argue that technology, particularly computer technology, and capitalism, particularly the most aggressive, global variety, should be massively sped up and intensified – either because this is the best way forward for humanity, or because there is no alternative.
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  • Accelerationists favour automation. They favour the further merging of the digital and the human. They often favour the deregulation of business, and drastically scaled-back government. They believe that people should stop deluding themselves that economic and technological progress can be controlled.
  • Accelerationism, therefore, goes against conservatism, traditional socialism, social democracy, environmentalism, protectionism, populism, nationalism, localism and all the other ideologies that have sought to moderate or reverse the already hugely disruptive, seemingly runaway pace of change in the modern world
  • Robin Mackay and Armen Avanessian in their introduction to #Accelerate: The Accelerationist Reader, a sometimes baffling, sometimes exhilarating book, published in 2014, which remains the only proper guide to the movement in existence.
  • “We all live in an operating system set up by the accelerating triad of war, capitalism and emergent AI,” says Steve Goodman, a British accelerationist
  • A century ago, the writers and artists of the Italian futurist movement fell in love with the machines of the industrial era and their apparent ability to invigorate society. Many futurists followed this fascination into war-mongering and fascism.
  • One of the central figures of accelerationism is the British philosopher Nick Land, who taught at Warwick University in the 1990s
  • Land has published prolifically on the internet, not always under his own name, about the supposed obsolescence of western democracy; he has also written approvingly about “human biodiversity” and “capitalistic human sorting” – the pseudoscientific idea, currently popular on the far right, that different races “naturally” fare differently in the modern world; and about the supposedly inevitable “disintegration of the human species” when artificial intelligence improves sufficiently.
  • In our politically febrile times, the impatient, intemperate, possibly revolutionary ideas of accelerationism feel relevant, or at least intriguing, as never before. Noys says: “Accelerationists always seem to have an answer. If capitalism is going fast, they say it needs to go faster. If capitalism hits a bump in the road, and slows down” – as it has since the 2008 financial crisis – “they say it needs to be kickstarted.”
  • On alt-right blogs, Land in particular has become a name to conjure with. Commenters have excitedly noted the connections between some of his ideas and the thinking of both the libertarian Silicon Valley billionaire Peter Thiel and Trump’s iconoclastic strategist Steve Bannon.
  • “In Silicon Valley,” says Fred Turner, a leading historian of America’s digital industries, “accelerationism is part of a whole movement which is saying, we don’t need [conventional] politics any more, we can get rid of ‘left’ and ‘right’, if we just get technology right. Accelerationism also fits with how electronic devices are marketed – the promise that, finally, they will help us leave the material world, all the mess of the physical, far behind.”
  • In 1972, the philosopher Gilles Deleuze and the psychoanalyst Félix Guattari published Anti-Oedipus. It was a restless, sprawling, appealingly ambiguous book, which suggested that, rather than simply oppose capitalism, the left should acknowledge its ability to liberate as well as oppress people, and should seek to strengthen these anarchic tendencies, “to go still further … in the movement of the market … to ‘accelerate the process’”.
  • By the early 90s Land had distilled his reading, which included Deleuze and Guattari and Lyotard, into a set of ideas and a writing style that, to his students at least, were visionary and thrillingly dangerous. Land wrote in 1992 that capitalism had never been properly unleashed, but instead had always been held back by politics, “the last great sentimental indulgence of mankind”. He dismissed Europe as a sclerotic, increasingly marginal place, “the racial trash-can of Asia”. And he saw civilisation everywhere accelerating towards an apocalypse: “Disorder must increase... Any [human] organisation is ... a mere ... detour in the inexorable death-flow.”
  • With the internet becoming part of everyday life for the first time, and capitalism seemingly triumphant after the collapse of communism in 1989, a belief that the future would be almost entirely shaped by computers and globalisation – the accelerated “movement of the market” that Deleuze and Guattari had called for two decades earlier – spread across British and American academia and politics during the 90s. The Warwick accelerationists were in the vanguard.
  • In the US, confident, rainbow-coloured magazines such as Wired promoted what became known as “the Californian ideology”: the optimistic claim that human potential would be unlocked everywhere by digital technology. In Britain, this optimism influenced New Labour
  • The Warwick accelerationists saw themselves as participants, not traditional academic observers
  • The CCRU gang formed reading groups and set up conferences and journals. They squeezed into the narrow CCRU room in the philosophy department and gave each other impromptu seminars.
  • The main result of the CCRU’s frantic, promiscuous research was a conveyor belt of cryptic articles, crammed with invented terms, sometimes speculative to the point of being fiction.
  • At Warwick, however, the prophecies were darker. “One of our motives,” says Plant, “was precisely to undermine the cheery utopianism of the 90s, much of which seemed very conservative” – an old-fashioned male desire for salvation through gadgets, in her view.
  • K-punk was written by Mark Fisher, formerly of the CCRU. The blog retained some Warwick traits, such as quoting reverently from Deleuze and Guattari, but it gradually shed the CCRU’s aggressive rhetoric and pro-capitalist politics for a more forgiving, more left-leaning take on modernity. Fisher increasingly felt that capitalism was a disappointment to accelerationists, with its cautious, entrenched corporations and endless cycles of essentially the same products. But he was also impatient with the left, which he thought was ignoring new technology
  • lex Williams, co-wrote a Manifesto for an Accelerationist Politics. “Capitalism has begun to constrain the productive forces of technology,” they wrote. “[Our version of] accelerationism is the basic belief that these capacities can and should be let loose … repurposed towards common ends … towards an alternative modernity.”
  • What that “alternative modernity” might be was barely, but seductively, sketched out, with fleeting references to reduced working hours, to technology being used to reduce social conflict rather than exacerbate it, and to humanity moving “beyond the limitations of the earth and our own immediate bodily forms”. On politics and philosophy blogs from Britain to the US and Italy, the notion spread that Srnicek and Williams had founded a new political philosophy: “left accelerationism”.
  • Two years later, in 2015, they expanded the manifesto into a slightly more concrete book, Inventing the Future. It argued for an economy based as far as possible on automation, with the jobs, working hours and wages lost replaced by a universal basic income. The book attracted more attention than a speculative leftwing work had for years, with interest and praise from intellectually curious leftists
  • Even the thinking of the arch-accelerationist Nick Land, who is 55 now, may be slowing down. Since 2013, he has become a guru for the US-based far-right movement neoreaction, or NRx as it often calls itself. Neoreactionaries believe in the replacement of modern nation-states, democracy and government bureaucracies by authoritarian city states, which on neoreaction blogs sound as much like idealised medieval kingdoms as they do modern enclaves such as Singapore.
  • Land argues now that neoreaction, like Trump and Brexit, is something that accelerationists should support, in order to hasten the end of the status quo.
  • In 1970, the American writer Alvin Toffler, an exponent of accelerationism’s more playful intellectual cousin, futurology, published Future Shock, a book about the possibilities and dangers of new technology. Toffler predicted the imminent arrival of artificial intelligence, cryonics, cloning and robots working behind airline check-in desks
  • Land left Britain. He moved to Taiwan “early in the new millennium”, he told me, then to Shanghai “a couple of years later”. He still lives there now.
  • In a 2004 article for the Shanghai Star, an English-language paper, he described the modern Chinese fusion of Marxism and capitalism as “the greatest political engine of social and economic development the world has ever known”
  • Once he lived there, Land told me, he realised that “to a massive degree” China was already an accelerationist society: fixated by the future and changing at speed. Presented with the sweeping projects of the Chinese state, his previous, libertarian contempt for the capabilities of governments fell away
  • Without a dynamic capitalism to feed off, as Deleuze and Guattari had in the early 70s, and the Warwick philosophers had in the 90s, it may be that accelerationism just races up blind alleys. In his 2014 book about the movement, Malign Velocities, Benjamin Noys accuses it of offering “false” solutions to current technological and economic dilemmas. With accelerationism, he writes, a breakthrough to a better future is “always promised and always just out of reach”.
  • “The pace of change accelerates,” concluded a documentary version of the book, with a slightly hammy voiceover by Orson Welles. “We are living through one of the greatest revolutions in history – the birth of a new civilisation.”
  • Shortly afterwards, the 1973 oil crisis struck. World capitalism did not accelerate again for almost a decade. For much of the “new civilisation” Toffler promised, we are still waiting
jmfinizio

NRA files for bankruptcy - CNN - 0 views

www.cnn.com/...index.html

NRA files bankruptcy

shared by jmfinizio on 17 Jan 21 - No Cached
  • The National Rifle Association of America, the nation's foremost gun lobby, has filed for bankruptcy
  • The group said it plans to leave New York State, where it was founded in 1871, and reincorporate as a Texas nonprofit in a move it is calling "Project Freedom,"
  • New York Attorney General Letitia James filed a lawsuit in August accusing the NRA's senior leadership of violating laws governing nonprofit groups and using millions of dollars from the organization's reserves for personal use and tax fraud.
  • ...5 more annotations...
  • In response, the NRA filed a countersuit alleging the attorney general was hampering the group's First Amendment rights.
  • "while we review this filing, we will not allow the NRA to use this or any other tactic to evade accountability and my office's oversight."
  • The NRA said Friday it is in its "strongest financial condition in years," but the restructuring will help to "streamline costs and expenses."
  • The largest creditor listed on the NRA's bankruptcy filing is its former advertising firm, Ackerman McQueen, with which the NRA has been in a contentious legal battle after nearly 30 years in business together.
  • "The NRA, a get rich quick scheme for its executives that pushed positions wildly out of step with gun owners, is collapsing, just as Congress readies to vote on a comprehensive background checks proposal with 90% public support,"
marleen_ueberall

Markets and Governments: A Historical Perspective - The Globalist - 0 views

www.theglobalist.com/ments-a-historical-perspective

markets governments

shared by marleen_ueberall on 28 Mar 20 - No Cached
  • The idea that competitive markets are sufficient to ensure efficient outcomes and stable economies is under heavy intellectual fire
  • The crisis has prompted a fundamental re-think of the relationship between markets and governments
  • but between competing systems of political economy and models of governance.
  • ...25 more annotations...
  • Striking the right balance between markets and government is the central issue in policy debates over economic developmen
  • What is the role of governments in promoting economic growth?
  • What can governments do to seize the opportunities of globalization, while minimizing its downsides?
  • we have to recognize that the tension between markets and government is not new. In fact, it has been the central issue in the evolution of political economy over the last 200 years.
  • There have been three distinct phases in this evolution.
  • Phase One: The rise of the market
  • The “rise of the market” began in the late 18th century, shaped by the writings of Adam Smith and David Ricardo. The “invisible hand” of the market guided supply and demand toward equilibrium and efficiency.
  • This phase came to an end in the 1930s, when the concept of self-correcting markets collapsed under the weight of the Great Depression.
  • Falling prices, instead of bringing demand and supply into equilibrium,
  • Phase Two: The rise of government
  • markets were inherently unstable. Left on their own, they may not always self-correct
  • Government intervention was necessary to boost aggregate demand during periods of high unemployment.
  • The 1940s also saw the advent of the welfare state.
  • The welfare state was enabled through redistributive taxation and government regulation.
  • Phase Three: The return of the market
  • This phase began with growing disenchantment with government’s ability to deliver and was driven forward mainly by U.S.-based economists
  • The stagflation of the 1970s — persistently high inflation and unemployment — called into question the ability of governments to fine-tune the economy. Meanwhile, the welfare state began to impose an unsustainable fiscal burden,
  • Friedrich Hayek and Milton Friedman led the charge against “Big Government.” They argued eloquently how an overreaching government dulled the fundamental human instincts that power the capitalist system:
  • In the 1980s, U.S. President Ronald Reagan and UK Prime Minister Margaret Thatcher reduced taxes, deregulated industries, privatized state-owned enterprises, curbed union power, and scaled back welfare programs. The global economy boomed.
  • Phase Four: Balancing markets and governments
  • The financial crisis has revealed significant imperfections in market mechanisms: information asymmetry, moral hazard, systemic risks and behavioral or nonrational motivators of choice.
  • In a more globalized and complex economy, governments have fewer levers to pull
  • It has also revealed the inherent limitations of governmen
  • Neither market fundamentalism nor central planning has worked.
  • Yet one thing is certain: The choice is not between big government and small government. It is about creating effective government. What matters is what governments do, not how big they are.
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