global financial crash yay!

[vimothy]

 

[josef k.]

Krugman vs. Ferguson round-up here.

Links to some good graphs there, Vimothy.

 

[vimothy]

Links to some good graphs there, Vimothy.

Indeed! Reading historical events into market prices is somewhat suspect, and perhaps because of that, I find both explanations reasonable. You?

EDIT: Though, in fairness, Gross is obviously cognisant of that fact: "Both the Fergusonians and the Krugmanites (of whom I count myself one) err in reading too much into short-term fluctuations in bond prices. There's so much more at work."

 

[vimothy]

Although, I have to say, I'm with the Krugmanites in the short-run. In the long-run, inflation will be a worry. But we have to get to the long-run first. (And as we know, as per the most over-quoted line in economics, in the long run...)

 

[josef k.]

Indeed! Reading historical events into market prices is somewhat suspect, and perhaps because of that, I find both explanations reasonable. You?

I found Gross's article persuasive, but I feel beyond my pay-grade on this one.

Spitzer's piece in Slate is also worth reading.

Although, I have to say, I'm with the Krugmanites in the short-run. In the long-run, inflation will be a worry. But we have to get to the long-run first. (And as we know, as per the most over-quoted line in economics, in the long run...)

Keynes had a good line on this.

 

[vimothy]

Richard Epstein is fucking cool.


EDIT: You have to listen to a lot of the podcast before it’s apparent that what he's saying is at all relevant to the financial crisis. Still, it’s a good one.

 

[bob effect]

I thought this was an excellent, frightening, summary. TL: DR version: we're totally fucked

 

[josef k.]

JL:

he cost of the financial crisis is going to be paid not over a few years but over a generation, we have a perfect formula for a deep and growing anger.

So, what has actually happened here? It seems like this: a massive transfer of wealth, to the elites, according to this formula:

1) Predatory, systematic speculation by banks produces massive bubble.

2) Massive salary increases and bonuses to bank employees and other city workers.

3) Bubble bursts, banks left on knees.

4) Government steps in to prop-up banks with public tax revenues. Costs to be repaid over a generation.

So, in effect (working backwards) the revenue flows as follows:

Taxation -----------> Banks -----------> Employees of Banks

Have I missed anything?

 

[Slothrop]

JL:



So, what has actually happened here? It seems like this: a massive transfer of wealth, to the elites, according to this formula:

1) Predatory, systematic speculation by banks produces massive bubble.

2) Massive salary increases and bonuses to bank employees and other city workers.

3) Bubble bursts, banks left on knees.

4) Government steps in to prop-up banks with public tax revenues. Costs to be repaid over a generation.

So, in effect (working backwards) the revenue flows as follows:

Taxation -----------> Banks -----------> Employees of Banks

Have I missed anything?

How much of the money that banks were making by speculation was actually going to the employees, though? There's been a lot of talk about the inordinate size of city bonuses, and there's a strong argument that 'bonus culture' is a significant cause of the boom / bubble because it encouraged risk taking with incorrect incetivising, but is the amount paid to the traders really that big a proportion of the total amount that they make? If I was eg a pension fund and was investing money via a hedge fund manager and it turned out that the hedge fund manager was actually creaming off 70% of the profits he was making with out resources I'd start looking for a different hedge fund...

IOW, your last line should go Banks -------> employees of banks + people with pensions + people with savings accounts etc

Which is still a net win for people with more money over people with net money, but it's not quite the same as banks just theiving a load of cash for themselves.

 

[josef k.]

In other words, a transfer to capital at the expense of labour...

 

[polystyle]

US banks to begin paying back TARP

Still a mess ... with at least one more 'reckoning' to be had.
http://www.nytimes.com/2009/06/10/business/economy/10tarp.html?hp

 

[vimothy]

After a bubble bursts, we expect to see wealth flow from the weak (undercapitalised, illiquid) to the strong. So perhaps it's actually vice versa: a transfer of wealth (in the form of financial assets) from capital (bankers!) to labour (tax payers). Or perhaps it's even more messy than that.

 

[josef k.]

A further question: Was real value in fact produced during the years of the bubble?

Thinks.

What in fact were the years of the bubble?

Thinks a bit more.

Is real value ever produced? Can value be produced? What is value?

Pause.

Lanchester argues that the UK is returning to a time of significant cut-backs, austerity, and that we should be ready. Spitzer says the US economy is structurally fucked. I still don't understand what this means in the long-term... every new question seems to give birth to ten others, and no frame seems big enough to contain them all. Two other factors: China and the Web (and the new media regime in general). A third factor: climate change. A fourth factor: oil...

 

[vimothy]

Value was created, but it was priced wrong.

Then, the crisis of confidence... it's all very hyperstitional.

EDIT: Re Spitzer, he's a bit hung-up on manufacturing, but although not that many people work in manufacturing in the US any more, it produces more than ever -- manufacturing jobs just aren't labour intensive. Producing stuff is great, but Spitzer is studiously old-school -- the world is changing.

 

[vimothy]

This is worth considering: Education and technology: Supply, demand, and income inequality, by Claudia Goldin and Lawrence F. Katz, Vox EU

The American Dream has been placed on hold. Putting aside the recent financial meltdown and the current recession – if you can – the main reason is an educational slowdown. For most of American history, the average American child was far more educated and better off financially than his parents. But ever since the 1970s, US growth in educational attainment for successive generations has substantially slowed. The slowdown in education spells trouble for economic growth and economic inequality, as many authors have noted, e.g. Heckman (2008).

An educated populace is a key source of economic growth directly, through the improved productivity of workers, and indirectly, by spurring innovation and aiding the diffusion of advanced technologies. Broad access to education was a major factor in US economic ascendancy and in the creation of a broad middle class. The American Dream of upward mobility both within and across generations has been tied to educational access.

Ever since the beginning of the twentieth century, technological change has operated to increase the relative demand for educated and skilled workers. In academic parlance, technological change has been “skill-biased” – smart machines require smart workers. Technological change increases the relative demand for skilled and educated workers, but educational advance increases their relative supply. This “race” between education and technology can produce rising, declining, or stable levels of economic inequality.

US economic inequality has been on a roller coaster ride during the past century. Wage inequality and educational wage differentials decreased from around 1910 to 1950. They remained fairly stable until about 1980, after which economic inequality soared. The contrasting descent and rise of economic inequality in the twentieth century is linked to the history of educational attainment.

Krugman's take.

 

[tox]

Krugman's take.

Krugman has been speaking at the LSE for the last two evenings, and is on again tomorrow. The event is ticketed, but today, because of the tube strike, there were a few empty seats, so if anyone's interested then come along!

Otherwise the series is being podcast and streamed here.

I'll try and do a write up after the event.

 

[vimothy]

Nice one. Dani Rodrik and Walter Russell Mead on later this month as well.

 

[josef k.]

I think we need to shift from a model of restricted economy to general economy, along the lines proposed by Georges Bataille in the Accursed Share... An extremely fascinating book, btw.

 

[vimothy]

I think we are doing -- if I'm remembering my Bataille correctly.

 

[josef k.]

Neo-liberal doctrine - focused on growth - is inimical to the theory of general economy, which would claim that the other side of growth is always equally and oppositely decay.