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Fresh Book Reviews by my friend Satyajit Das !
Dead Hand of Economics
Posted At : April 20, 2011 7:43 AM Posted By : Satyajit Das

Related Categories: Book Reviews
John Quiggin (2010) Zombie Economics: How Dead Ideas Still Walk Among Us; Princeton University Press, Princeton and Oxford
R. Christopher Whalen (2011) Inflated: How Money and Debt Built the American Dream, John Wiley, New Jersey

Michael E. Lewitt (2010) The Death of Capital: How Creative Policy Can Restore Policy, John Wiley, New Jersey

“Mortmain”, derived from medieval French meaning “dead hand”, refers to legal ownership of property in perpetuity. Jurisprudence, to varying degrees, has sought to prohibit the control of property by the “dead hand”. Unfortunately, economic thinking seems to be controlled by dead economists or as John Quiggin, himself an economist, argues – “living dead” economists.

In “Zombie Economics”, Professor Quiggin takes aim at a number of “dead” ideas – the Great Moderation; Efficient Markets Hypotheses; Dynamic Stochastic General Equilibrium; Trickle Down Economics; Privatisation. The central thesis underlying “Zombie Economics” is that the global financial crisis (“GFC”) exposed the weaknesses of these ideas, which underpin free market or neo-liberal economics. But as William Faulkner argued: “The past is never dead. It’s not even past.” Worried that these ideas continue to live on in the minds of economist and politicians influenced by them, Professor Quiggin wants to kill them off.

Clever titled, with a wonderful and very un-academic cartoon cover and written without excessive use of technical jargon, “Zombie Economics” provides an elegant critical introduction and analysis of some of the key ideas of modern economic thought. The arguments are generally thorough, though lack depth reflecting the brevity of the work (around 200 pages). Professor Quiggin’s personal sympathies, which are politically left of center, are never hidden.

Two recent books – John Cassidy’s (2009) “How Markets Fail: The Logic of Economic Calamities” and Justin Fox’s (2009) “The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street” – cover similar territory. Professor Quiggin’s economics training makes “Zombie Economics” far less character or narrative driven and far more interesting in its understanding and criticism of the theory.

The most interesting thing about “Zombie Economics” is actually its lack of interest in why the weaknesses in the theory, much of which has been recognised for years, does not preclude its acceptance. The answer most likely lies in politicians and ultimately the electorate need for simple painless remedies and nostrums. For example, Professor Quiggin’s criticism of privatisation of infrastructure does not seem to recognise the obvious driver of this policy – political expediency of circumventing public finance constraints.

The interesting thing, of course, is that any “new” idea that takes the place of the “zombie” ideas is not likely to be an improvement. Perhaps homo economicus and homo politicus is like David St. Hubbins in the satiric film This is Spinal Tap: “Before I met Jeanine…my life was cosmologically a shambles. I would use bit and pieces of whatever Eastern philosophy would drift through my transom.”

Christopher Whalen’s “Inflated” deals with one aspect of zombie economics – inflation. Changes in price level are ambiguous at best. Even measuring it can present considerable challenges – some years ago, Argentina consciously decided to exclude items where the price rise was particularly high on the basis that no one could afford to buy such products, justifying their irrelevance to the measured inflation rate. Government everywhere, similarly, manipulate inflation measures.

The real issue about inflation, however measured, is its use as a policy tool. The popular economic narrative assumes that inflation is an outcome of economic activity. In reality, it is a key weapon in policy maker’s armoury. Throughout history, governments have used inflation to wipe out excessive debt, a practice that is now central to the policy of the Bernanke Fed to reduce systemic leverage. cont’d at the source …click!

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Bernanke’s Speech Sends Gold and Silver on a Run….

Hey did anyone manage to see Ben Bernanke’s first ever press conference the other day? Want to know what I think? Either Bernanke doesn’t understand or doesn’t care that inflation sensitive market/price indicators like:

– The falling dollar
– Oil Prices (oil is traded in dollars)
– Rising Gold prices
– The fairly recent commodity index movements.

ONLY mean one thing…additional big inflation ugliness is heading our way! When the markets talk with a consistent unified voice; Helicopter Ben needs to stop resisting them and listen.

He did manage to answer a few of the more pressing questions, but on others… he didn’t seem to have any answers at all. He made it clear that there would be no QE3 as so many of us feared. With 600 billion QE2; still buying all of our debt for the last 6 months scheduled to end by July 1st it’s good to know that the they would soon be stopping the presses. He also hinted that the current 0% federal funds rate days were almost over…both of which would tend to indicate that the “easy” monetary policies of the last 3 years were over as well. On the topic of the plummeting dollar and all of it’s destructive effects on the middle class and the poor…he had nothing to offer, causing both Gold and Silver to close up sharply.

Let’s face facts shall we; the 2008 economic emergency used to rationalize the feds stepped up involvement into the economy has been over now for 2 ½ years. The deflation threat they had us all running from is as statistically and theoretically unlikely to occur as sending a man to mars, in fact, no one has even mentioned it in a very long time. With none of those risks currently present, it’s way past the time for the fed to step back … let rates rise, and stop printing money…something they should have done prior to QE2! There is no justifiable argument for them to do anything else!

President Reagan often argued in the 1980s that a strong dollar was in the nation’s interest, and that a great country, by necessity, needed to have a strong and reliable currency. “Link to gold”, that was Reagan’s argument. Alan Greenspan (during the first three of his four Fed terms) agreed with Reagan. The 20-year collapse of gold prices that followed was associated with an inflation free prosperity and a huge stock market rally that generated a lot of wealth for investors and an economy that created millions of jobs for Americans.

The model for economic growth reads like this: Limited spending, flat tax rates, minimal regulation, and stable money. We are still waiting for someone to step up and restore Reagan’s pro growth model before things get worse.

Smoke And Mirrors!

Don’t Like a Term for Something? Just Change it’s Meaning.

At least that way you don’t have to lie about it!
When we want to know whether prices are going up or down where do we turn? To the Consumer Price Index (“CPI”) of course. Want to compare various price levels over numerous different time periods? Simple, just get the CPI numbers for those years and take a look. Too bad all of those numbers have been rendered almost meaningless by the government over the last 30 years. Specifically, it was the Bureau of Labor Statistics (“BLS”) who has altered the meaning of the CPI from being a statistic that measured the cost of living needed to maintain a constant standard of living and bastardized it to mean nothing of the sort. The CPI numbers we are quoted today are dramatically different than the ones we were quoted a few years ago. The government decided that we would be better off not knowing what the real numbers are so they took out things like gas and oil prices from the calculation along with other equally relevant price numbers.

My friend John Williams; a very smart man who writes a highly respected newsletter at http://www.shadowstats.com/ took the time to crunch the recent numbers using the official 1980’s CPI methodologies and came up with an inflation number JUST FOR THE MONTH OF MARCH 2011, and concluded that prices rose 9.5% that month alone. Since 2004, Shadowstats has cleaned up what the government tells us the statistics say …injects his own special truth serum nd throws in some credibility and integrity and then tells his readers exactly the way things really are… Here is his insightful analysis of where things stand as we start the escalating run up to hyperinflation in this country.

This story is continued at the “Gold is Money” forum…

I was having a discussion with a ‘progressive’ (yes …one of them!) the other day whose mantra of the day was:

“If Obama and the Democrats have really destroyed the economy and were the small business anti-Christ’s like so many people believe …then someone ought to get that message over to Wall Street because earnings/stock prices etc. have never been higher.”

This he concluded was:

“Because of Obama and the democrats and not in spite of them”.

Have you ever tried to explain something to someone who wasn’t smart enough to know they weren’t very smart? Frustrating isn’t it? Not to say that this sort of arm chair analysis and conclusion are logically flawed, unreasonable, or to the casual observers even counter intuitive. If the market is always right …then times must be good for business since their stock prices are way up…right?

Nope…I wish that were the case…but it’s not. What we are seeing in the equity markets right now has nothing to do with the fundamentals. You see the problem is that when no one (with common sense, that is) can justify why stock prices are going up this far for this long in the face of this much uncertainty, there is a strong chance that they shouldn’t be going up. That isn’t investing, that’s crazy.

Remember that is was just a year ago I wrote:

“We’re not just in a recession; we’re in a negative economic mega cycle and with nothing to support the start of significant growth of any kind… Because there is absolutely nothing positive going on right now and spending by consumers has no dynamic to sustain it”

Think about it:

“Old people have lost their interest income, one out of four mortgages, or more, have had more than 100% of their equity sucked out and spent and as a result are currently upside down, easy mortgage lending is gone for the foreseeable future, and all of the homeowners whose homes were lost to foreclosure will not be able to reenter the market any time soon. The problems we have in front of us are serious, systemic, and terminal. It’s too late for the government to fix…if it wanted to”

Growth driven solely by debt expansion, as encouraged by the Fed in recent years, ultimately is not sustainable; it is temporary, as has become painfully obvious to many in the still-evolving systemic-solvency crisis.

So why are we seeing the run up in stock prices if things are so bad? First off, is the market really going up, or is the dollar going down?

Hold that thought and recognize that there are other explanations that are just as equally persuasive. Does anyone remember 2007/8 ….well the same factors that fueled the run up in housing prices, (a.k.a the “housing bubble”), specifically, the “dollar carry trade”

This term refers to the belief that low borrowing costs around the world are allowing traders to borrow at low rates, gear up and then buy higher yielding assets, or t speculate in the commodities markets . The nature of the recent earnings from the likes of Goldman Sachs and Barclays indicate that banks who are too big to fail, and too well connected to go to jail and who are able to borrow freshly printed US Dollars from the Fed at a rate of .025% in almost limitless quantities that they will borrow it and will use it to generate profits that boggle the mind, or as George Soros (a man who is no stranger to currency carry trades) put it recently:

“The banks are being gifted huge profits by central banks pumping billions into the system, which the banks simply put to work in stocks, emerging market debt, gold etc.”


The problem is that this can’t go on forever and at some point the Fed, ECB and other central banks are going to have to put their foot on the brake and start working on an exit strategy. Whether this means the end of quantitative easing or higher rates in 2012 or maybe even 2013, at some point the dollar carry trade will end. When that happens we are in for some very bad, hyperinflationary times that will be much worse than the hyperinflation in Germany in the 20’s.
Are there any Germans who can remember that back in the early 20’s it cost 21,500,000,000 marks just to mail a letter?”

The U.S. government and the Federal Reserve have committed the system to its ultimate insolvency, through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency. The worst part of all of this is that as we sit here today …the U.S. has no way of avoiding a financial meltdown that will be extremely difficult, painful and unhappy times for many in the United States.

Last week. …With all 3 rings of the Great Obama Deception, and Slight of Hand Circus in full swing, it may not have dawned on very many people how horribly we had been dissed by our old buddies …the Germans! Hard to believe I know… but while the rest of the trans-Atlantic alliance was busy voting in favor of the UN’s resolution authorizing the involvement in Libya …the Germans were taking ‘ball in hand’ and chose to ‘abstain’ from voting on the Resolution and, in effect, to side with Russia and China, alongside Brazil and India! To add some historical perspective. …This had never been done before since the founding of the Federal Republic of Germany in 1949. 52 years ago!

Call it whatever you want … I call it the political statement of the decade in US-German relations. I would also point out that it was a vote against the rest of the western alliance…i.e. France, England etc. Obama’s incompetent handling of Libya teaches a lesson about the importance of American leadership (or lack of it). Can we now add Germany to the list of the most isolated countries but more importantly …How can we ever trust Germany again, now that they have broadcast their preference for the likes of Russia, China, Brazil and Greece?

Just when you think you can start trusting the Germans again … they decide to forsake their allies on the world stage! This looks like more than just a worm in the apple!

Morality Degraded: The Academy’s “New Science” of Odd Behavior

by William Damon (Senior Fellow and member of the Virtues of a Free Society Task Force)

“Moral excellence cannot be explained by a science that reduces morality to biological impulses”

Human morality is a fine subject of study, always of interest and full of mysteries yet to be unraveled. Of course morality has been the subject of profound and passionate study for the entire span of recorded history, beginning with the early texts of the world’s great religions. That there are still unsolved mysteries after all these millennia should not deter us from the scholar’s quest; but it does suggest that we might approach the subject with some humility, perhaps even with a certain degree of awe and reverence.

The very existence of moral behavior raises the enormous question of why people ever try to pursue the good in the first place. Why not simply lie, cheat, steal, rape, murder, or whatever else it might take to grab maximum pleasure and advance our own interests in all ways possible? Yet most people actually do not do such things. In fact, once we get past the screaming headlines of the tabloids and sensationalistic “leads that bleed” of the nightly news, the extent to which everyday human behavior is civilized, law-abiding, and downright decent becomes plainly apparent. Most people generally resist whatever anti-social urges they may have. Why is that so?

Layered on this non-trivial question is another rather remarkable phenomenon: A public expression of morality can have an inspirational influence on those who witness it. Leaders with powers of moral persuasion can induce their followers to make momentous sacrifices. Against their prior personal inclinations, people moved by moral visions have been known to throw themselves into breaches during battles, transcend their prejudices to make peace with old enemies, and turn over large shares of their own wealth to others. Why would people be moved to respond to elevating influences in this way? How could this work in a species known for its self-preserving instincts?

Resistance to temptation, sacrifice, commitment, inspiration—this is the stuff of the mysterious moral sense that has broadened individual lives and held societies together for all of human history. But this is very far from the stuff of a “new science of morality” that has emanated from the academy lately, and that is dominating the media’s treatments of morality in places such as “The New York Times.” The “new science” is hard to square with the set of moral concerns that moves ordinary people to sacrifice and commitment in their own lives. The new science of morality has degraded the very way that morality is characterized and explained in contemporary public discourse.

How does this new science envision human morality? The lion’s share of the new science’s studies asks subjects a version of the following dilemma: A trolley car going 150 miles per hour loses its brakes while heading towards five hikers on the tracks. If the conductor lets the train stay on course, the five hikers will be run down. If he instead veers the train in another direction, he will run down just one hapless hiker who happens to be walking on a side track—but this means that the conductor will have done this actively, rather than passively, thus killing person intentionally rather than allowing the train to wreak its own havoc and kill five times that number of people. CONT’D HERE….

Even over here I couldn’t help but notice that Obama had ‘officially declared” that he would be seeking reelection as President of the USA. I had to smile at what I considered to be the absurdity of such an idea. How is it possible for anyone to be so narcissistic and obtuse that they could look at their job performance as measured against any objective criteria and conclude that they were deserving of a second term or even that anyone want him too. With an approval rating scraping the high 30’s and low 40’s and with the knowledge that in 2008 “people didn’t fall for Obama …they fell in line” …”let the facts be submitted to a candid world”

Back in 2008 Obama was a tabula raza upon which people imputed to him qualities and attributes that he may or may not have had. As a US Senator, his handlers made sure he didn’t cast any votes that would provide insights into his radical left wing belief’s or past. His academic records were sealed faster, and sooner than any candidate in the history of the republic. What we know now, is if he really did attend Columbia… (and so far only one person has been able to even recall having a class with him … odd) his academic performance was unspectacular at best, and his acceptance into Harvard Law School had more to do with “the color of his skin than the content of his character” As the “editor” of the Harvard Law Review how was it possible to never once submit even one item for publication in 1 year?

Will it be possible for the ideologues on the left to stop long enough to get off their knees and ask some of the questions that still need to be answered this time around? The good thing for all voters is we are no longer forced to guess about what he will and won’t do, support, or propose. Obama finally has a record to run against. This time all of us get to compare what he said he would do …with what he actually did. This should make the choice easy: After 4 years in office history will show Obama to be the most prolific liar of this century. Additionally, no one has done more to discredit the highest office in the land than “Barrachio” Obama. If this fact alone isn’t enough to cause you to vote for “ABO” (anyone but Obama) then shame on you, but read on:

Can anyone truthfully say they are better off now than they were 3-4 years ago? Really? Obama’s answer to the inflation problem (inherent in printing more money to pay for his 1.6 trillion dollar annual deficit), was to change the definition of inflation by taking little things like food prices, gas prices, and cotton prices, out of the formula…. then with the word inflation no longer meaning what we think of as inflation …Obama looks us all in the eye and says that inflation is under control. Huh? When he says this Obama is lying!

Unemployment is still at record highs and his irresponsible spending has done nothing but put us further into debt.

To this day he continues to defy federal court rulings that Obamacare is illegal, that the moratorium on offshore oil drilling is legal (even though we gave 2 billion dollars to Brazil to support a George Soro’s owned energy company and endorsed their right to drill in the same places Obama refuses to allow US oil companies to drill?)

By ANY OBJECTIVE YARDSTICK you use …the US is worse off than we were 3 years ago.

On the foreign policy front he has shown himself to NOT be the President of closing Gitmo and bringing soldiers home like he promised …instead we know now that he is the President who lied…who kept Gitmo open and is conducting military trials at Gitmo right now (something he swore would not happen when he ran in 08). The soldiers he swore to bring home? … more soldiers are currently engaged in military combat overseas right now than when Obama took office …not less.

When Obama took office we were engaged in military conflict in two countries … 3 yrs later it’s 3 and that’s not counting his refusal to do anything to secure our southern borders as Mexico creeps across our borders and has now made claim to large parts of Arizona.

The lies and scheming and deceptions go on and on and on… one website which tracks lies told by Obama which can be verified has a list of over 4,000!

How could any clear thinking person with any respect for the history of this country or it’s founding principles possibly be willing to vote for 4 more years of this? Before you say “yeah but…what about Bush” …what about Bush indeed! I know that the political polarization that has occurred in this country will make it impossible for the left to suddenly stop and say “oh my God …she is right what were we thinking…we need to vote for a Tea Party candidate!” (Which BTW wouldn’t be a bad idea) but I am hoping that for those of you who are blind only because you refuse to see will find the moral will power to at least peel away the blinders and find someone else on the left, who isn’t Obama, who you can vote for, and whom we can all live with should lightning strike and they were to be elected.

We are all disgusted with the government for one reason or another right now. How will we ever fix the problems with our government until we start to hold our elected leaders to higher standards …standards where lying isn’t ok…standards where the constitution and our laws are followed and not ignored … and standards where their actions aren’t for sale to the highest bidder. I don’t care who you vote for but we are all fully invested in what you vote for … more lies, more wars, more unemployment, more inflation, more trillion dollar deficits, more divisive politics? Or less? Obama …or anyone but Obama?

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