November 1, 2012
"As the French poet Charles Baudelaire noted: “The devil wins at the point where the public comes to believe that he doesn’t exist.” Finance wins at the point at which economists stop talking about debt, and talk as if all loans were productive and the debts could be paid. So today’s economics curriculum is basically a disinformation system, subsidized by financial lobbyists to turn out “useful idiots” who don’t believe that a debt problem exists, any more than they believe that there is any such thing as a free lunch. To deter reform, the financial sector selects people like Alan Greenspan or Ben Bernanke who actually believe what they’re saying. The best con man or disinformation lobbyist is one who believes what he’s saying."

— Michael Hudson

12:28am  |   URL: http://tmblr.co/Ze50rxWMwgFz
Filed under: debt michael hudson finance economy economics greenspan bernanke 
July 9, 2012
Another Recession

By our analysis, the U.S. economy is presently entering a recession. Not next year; not later this year; but now. We expect this to become increasingly evident in the coming months, but through a constant process of denial in which every deterioration is dismissed as transitory, and every positive outlier is celebrated as a resumption of growth. To a large extent, this downturn is a “boomerang” from the credit crisis we experienced several years ago. The chain of events is as follows:

Financial deregulation and monetary negligence -> Housing bubble -> Credit crisis marked by failure to restructure bad debt -> Global recession -> Government deficits in U.S. and globally -> Conflict between single currency and disparate fiscal policies in Europe -> Austerity -> European recession and credit strains -> Global recession.

In effect, we’re going into another recession because we never effectively addressed the problems that produced the first one, leaving us unusually vulnerable to aftershocks. Our economic malaise is the result of a whole chain of bad decisions that have distorted the financial markets in ways that make recurring crisis inevitable.

- John Hussman (This essay is a must read.)

6:14pm  |   URL: http://tmblr.co/Ze50rxP0xqPm
Filed under: recession economics 
June 29, 2012
"In a free market to succeed you can’t just innovate, you have to successively innovate to constantly succeed. The alternative model in which you innovate once and then sue everyone to protect your lead is nice for lawyers, but terrible for consumers and the world."

—

Yglesias

Something really must be done about the way we treat intellectual property in this country. If you want to know more, this This American Life episode is the best possible starting point. Read it! (Or listen to it!)

9:28pm  |   URL: http://tmblr.co/Ze50rxOOSwg0
(Notes: 1)
  
Filed under: patents intellectual property ip this american life npr free markets markets economics innovation barriers to entry 
June 4, 2012
"The developed world’s youth shouldn’t expect much help from an older generation that has preserved its generous arrangements at the cost of increasingly stark prospects for its own progeny. Instead the emerging generation needs to push its own new agenda for economic growth and expanded opportunity."

— via Joel Kotkin @ The Daily Beast

2:22pm  |   URL: http://tmblr.co/Ze50rxMl7d-Q
Filed under: economic growth economics generation gen y millenials recession 
June 1, 2012
Two Views On The Nature Of Innovation: Hayek vs. Schumpeter

Quotes from this post on Forbes.com by Timothy Lee:

1. The Schumpeter View:

The Schumpeterian view of innovation focuses on the importance of incentives. On this view, the larger the rewards to innovation, the greater incentives firms have to innovate, the more money they’ll spend on innovation, and the more innovation we’ll get. In other words, “where there’s a will there’s a way.” Schumpeterians favor policies to help firms capture as large a share as possible of the positive externalities generated by their innovations, in order to increase the incentive for future innovators. And they tend to be unconcerned about competition, believing that an unregulated, rational monopolist has as much incentive to maximize output as firms operating in a competitive market do.

2. The Hayek View:

The Hayekian view of innovation focuses on the limited knowledge and capabilities of economic actors. They view innovation as a matter of trial and error and seek to maximize the number of firms that have the opportunity to try to solve any given problem. Hayekians emphasize that mature firms tend to be extremely good at a few things and bad at everything else—Google isgood at designing network services and bad at designing devices; the opposite is true at Apple. A problem that’s trivial for one firm to solve can excruciatingly difficult for most others. This means that incentives often don’t matter very much, because the firm that’s best-positioned to solve a particular problem won’t need a very large reward to solve it.

3.

Which is right?:

I’m in the Hayekian camp because I see overwhelming evidence that firms are much less versatile and rational than the Schumpeterian worldview assumes. Take, for example, (that) many companies have tried and failed to produce commercially viable alternatives to the iPad… Building an iPad didn’t just require millions of dollars, it required that those millions be spent by the right company. And the only way to figure out which company is the right one is to let a bunch of them try and fail.

4.

Case study: Monopolies. Schumpter says they aren’t a big deal, Hayek says they are. The author takes Hayek’s side, and I totally agree with him.

This is why monopolies are so harmful. Theoretically, a monopolist has as much incentive to produce innovative products as a bunch of smaller, competing firms do. But the incentive to innovate and the ability to do so are very different things. Giving the incumbent a monopoly in order to increase its incentive to innovate likely means locking out other firms that are willing and able to produce superior innovations for much less money.

Commentary:

I think you can expand the line “the only way to figure out which company is the right one is to let a bunch of them try and fail” to a broader spectrum of organizations beyond just companies. Take, for example, charter schools vs. public schools. In the case of public schools, you could say that a mix of federal and state laws and regulations allow them to create a monopoly on the product of primary and secondary school education. Competing models, be they Montessori, magnet, IB, private, etc. in some ways act as competitors to the governments monopoly, though, in some cases, regulations constrain the amount of freedom these organizations may have to innovate.

It’s in this light that I think people should be viewing the charter school movement -  as a critical step in the evolution of the “market” for education services, one that contributes to the breaking of the government’s “monopoly” on the industry. Similarly, its seems quite obvious that the monopoly that the American college and university system has on post-secondary education is coming to an end, because clearly they haven’t been able to innovate in a way that has kept prices affordable or the product relevant to employers or macroeconomic needs (i.e. STEM degrees). The solution then, in the spirit of Hayek and contrary to the spirit of Schumpeter, is to bring more competition into this industry.

8:14pm  |   URL: http://tmblr.co/Ze50rxMa0HDy
(Notes: 3)
  
Filed under: higher education innovation hayek schumpeter economics 
May 8, 2012
Paul Krugman: How Bad Things Are

A state-of-the-union assessment excerpted from his new book, End This Depression Now!

11:06pm  |   URL: http://tmblr.co/Ze50rxL8qezf
Filed under: Krugman economics The Great Recession 
May 6, 2012
Why Population Decline Is Disastrous For Economies

Many people are concerned with overpopulation, but the issue is much more complicated than simply “everything would be better if we had less people in the world.” One especially critical issue concerns the link between population growth and economic growth. Yglesias explains:

In a very abstract sense, the way “savings” happens is that you build something expensive that lasts a long time—a building or an airplane or a really large boat—and then you rent it out to future people. This gets very hard to do if the quantity of people alive in the future is going to be shrinking.

Example:

An equivalently costly-to-construct building earns a lower rental income in a lower population growth dynamic. That means that unless future old people want to accept lower incomes, they need to start investing in increasingly lavish and expensive to build structures. That means that saving rates need to get really high.

How this becomes a serious long-term problem:

In the short term, an open economy facing demographic decline can try to deal with this by externalizing the savings and buying foreign assets. That’s part of the story with Germany, Japan, and persistent current account surpluses. But as the world as a whole shifts to a more Japan-esque demographic, there’s no “abroad” to invest in. Given such overwhelming desire to save for the future, the economy will either fall into a state of permanent recession, permanently negative real interest rates, or both (see again Japan)… 

And how this could happen while overall global population growth still increases:

And global population doesn’t need to be strictly declining for a similar dynamic to take place. If all the world’s net population growth is happening in economic and institutional basketcases like Nigeria then absent a radical shift in the politics of immigration you get the same problem.


10:07pm  |   URL: http://tmblr.co/Ze50rxL0sBek
Filed under: Yglesias population growth economics economic growth population decline 
April 8, 2012
underpaidgenius: This time it’s different: Still Crawling Out of a Very Deep Hole By Teresa Tritch What distinguishes this jobs recovery from others is the sheer scale of the job loss that preceded it. The economy has regained 3.6 million jobs since employment hit bottom in February 2010, but it is still missing nearly 10 million jobs — 5.2 million lost in the recession and 4.7 million needed to employ new entrants to the labor market. The Economic Policy Institute estimates that at the average rate of job creation in the last three months, it would take until the end of 2017, fully 10 years from the start of the Great Recession in December 2007, to return to the prerecession jobless rate of 5 percent. And there is no guarantee we will ever get there. It took about four years to close the job gaps created by the recessions that began in mid-1981 and mid-1990. In the tepid expansion after the 2001 recession, the job gap had still not closed by 2007. Perhaps it’s a depression, not a recession? I recommend reading John Hagel and Deloitte’s The Shift Index report to better understand what’s been going on with the national and global economies. I don’t understand why this report is not more widely discussed. It’s from the the writers/research center behind The Power Of Pull.

underpaidgenius:

This time it’s different:

Still Crawling Out of a Very Deep Hole By Teresa Tritch

What distinguishes this jobs recovery from others is the sheer scale of the job loss that preceded it. The economy has regained 3.6 million jobs since employment hit bottom in February 2010, but it is still missing nearly 10 million jobs — 5.2 million lost in the recession and 4.7 million needed to employ new entrants to the labor market. The Economic Policy Institute estimates that at the average rate of job creation in the last three months, it would take until the end of 2017, fully 10 years from the start of the Great Recession in December 2007, to return to the prerecession jobless rate of 5 percent.

And there is no guarantee we will ever get there. It took about four years to close the job gaps created by the recessions that began in mid-1981 and mid-1990. In the tepid expansion after the 2001 recession, the job gap had still not closed by 2007.

Perhaps it’s a depression, not a recession?

I recommend reading John Hagel and Deloitte’s The Shift Index report to better understand what’s been going on with the national and global economies. I don’t understand why this report is not more widely discussed. It’s from the the writers/research center behind The Power Of Pull.

(via i-am-a-lion-meow)

3:49pm  |   URL: http://tmblr.co/Ze50rxJJdHLG
(Notes: 48)
  
Filed under: shift index the power of pull john hagel Deloitte Center For The Edge recession depression job market job recovery economics economic growth 
April 5, 2012
“We are on track to becoming a country where the top tier remains wealthy beyond imagination, and the remainder, in one way or another, are working in jobs that help make the lives of the elites more comfortable,” says Harvard’s Lawrence Katz, one of America’s foremost labour economists. “They will be taking care of them in old age, fixing their home WiFi, or their air-conditioning, teaching or helping with their kids and serving them their food. It is not a very elegant prospect.”

More from this Financial Times essay by Edward Luce:

The US faces two core problems that intertwine like a Gordian knot. Unless that knot is cut, it is hard to see how America will renew itself.

1.

First, the great American middle class is in long-term crisis. Most people cannot get secure, well-paid jobs any longer. The top 1 per cent captured 93 per cent of the income gains in 2010. The remaining 99 per cent were either treading water or seeing falling incomes. This includes those with an undergraduate or vocational degree, whose incomes have not budged in real terms since 2001. Only postgraduates and those with PhDs have seen income growth since then. Income mobility, once America’s greatest exception, is now wallowing at sub-European levels.

2.

Second, American politics tracks the growing divide between the elites and everyone else. The two reinforce each other – America’s bifurcating economy polarises the politics and vice versa. America’s parties now behave in a Westminster parliamentary fashion in a system consciously designed to grind to a halt unless there is cross-party co-operation… Beneath the fiscal high jinks, however, lies even more troubling evidence that America’s sense of pragmatism is missing. In daggers-drawn Washington, Democrats and Republicans have been able to agree only on a certain type of spending cut. The bulk are targeted at the one slice of the federal budget that qualifies as investment – “domestic non-defence discretionary spending”, which accounts for only 12 per cent of the pie. This includes research and development, infrastructure and education programmes – areas that matter greatly to America’s future competitiveness. They could be described as the “tomorrow” part of the US budget. The remainder, which is mostly healthcare for retirees, pensions, defence and interest payments on past debt, might be seen as the “yesterday” portion. Yet Washington’s first instinct in the new era of austerity was to shortchange the future. There will be more to come even if Obama is re-elected.

8:34pm  |   URL: http://tmblr.co/Ze50rxJ9LCqA
(Notes: 1)
  
Filed under: FT Financial Times economy economics millenials generation America United States of America 
March 14, 2012
Extraction Economy, Revisited

One of the big news stories of the day is the resignation letter published in the Times by a Goldman Sachs exec. director, which says some pretty inflammatory things about Goldman Sachs. None of these are new criticisms about the company or about the greater business practices of Wall Street, but it’s certainly notable to see the sentiments come out of someone entrenched in that world. I just wanted to quickly point out that a lot of what he says is not just rampant with Goldman Sachs or even Wall Street, but is evidence of an ominous trend happening with many of the institutional pillars of our society and economy. 

Take this quote from the op-ed:

What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

It sounds a lot like this brief framework, covered in a post on this tumblr a few months ago:

We’re basically in an extraction economy right now, where the real money is in finding points to siphon off all of the income that people generate. Unregulated utility monopolies, rapacious health insurance companies and the medical industry generally, and of course Big Finance, are all devoted to increasing the slice of your life that they can steal from you, fair and square.

6:04pm  |   URL: http://tmblr.co/Ze50rxH_vcD_
Filed under: wall street goldman sachs greg smith extraction economy economics 
Liked posts on Tumblr: More liked posts »