Minsky, the Lucas Critique, & the Great Moderation

Last week, I noted that the post-2008 world had provided an astonishingly good test for Milton Friedman’s notion that stabilising M2 growth was an effective antidote for economic depressions. Bernanke stabilised M2 growth, yet the depressive effects such as elevated unemployment, elevated long-term unemployment, and depressed growth still appeared, although not to such a great extent as was experienced in the 1930s. Friedman-style macro-stabilisation may have succeeded in reducing the damage, but in terms of preventing the onset of a depression Friedman’s ideas failed.

Of course, the onset of the post-2008 era was in many ways also a failure of the previous regime, and its so-called Great Moderation. Ben Bernanke in 2004 famously noted that “one of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility”.  Bernanke saw successful monetary policy as a significant reason for this stabilisation:

The historical pattern of changes in the volatilities of output growth and inflation gives some credence to the idea that better monetary policy may have been a major contributor to increased economic stability. As Blanchard and Simon (2001) show, output volatility and inflation volatility have had a strong tendency to move together, both in the United States and other industrial countries. In particular, output volatility in the United States, at a high level in the immediate postwar era, declined significantly between 1955 and 1970, a period in which inflation volatility was low. Both output volatility and inflation volatility rose significantly in the 1970s and early 1980s and, as I have noted, both fell sharply after about 1984. Economists generally agree that the 1970s, the period of highest volatility in both output and inflation, was also a period in which monetary policy performed quite poorly, relative to both earlier and later periods (Romer and Romer, 2002). Few disagree that monetary policy has played a large part in stabilizing inflation, and so the fact that output volatility has declined in parallel with inflation volatility, both in the United States and abroad, suggests that monetary policy may have helped moderate the variability of output as well.

Bernanke’s presumptive successor, Janet Yellen explained in 2009 that from a Minskian perspective, this drop in visible volatility was itself symptomatic of underlying troubles beneath the surface:

One of the critical features of Minsky’s world view is that borrowers, lenders, and regulators are lulled into complacency as asset prices rise.It was not so long ago — though it seems like a lifetime — that many of us were trying to figure out why investors were demanding so little compensation for risk. For example, long-term interest rates were well below what appeared consistent with the expected future path of short-term rates. This phenomenon, which ended abruptly in mid-2007, was famously characterized by then-Chairman Greenspan as a “conundrum.” Credit spreads too were razor thin. But for Minsky, this behavior of interest rates and loan pricing might not have been so puzzling. He might have pointed out that such a sense of safety on the part of investors is characteristic of financial booms. The incaution that reigned by the middle of this decade had been fed by roughly twenty years of the so-called “great moderation,” when most industrialized economies experienced steady growth and low and stable inflation.

Minsky’s financial instability hypothesis can be thought of as an instance of the Lucas Critique applied to macro-stabilisation. Lucas’ contribution — earlier stated by Keynes — is that agents alter their behaviour and expectations in response to policy.  By enacting stabilisation policies, policy makers change the expectations and behaviour of economic agents. In the Minskian world, the promise and application of macro-stabilisation policies can lead to economic agents engaging in increasingly risky behaviour. A moderation is calm on the surface — strong growth, low inflation — but turbulent in the ocean deep where economic agents believing the hype of the moderation take risks they would otherwise not. In a Minskian world, these two things are not separate facts but deeply and intimately interconnected. Whichever way monetary policy swings, there will still be a business cycle. Only fiscal policy — direct spending on job creation that is not dependent on market mood swings — can bring down unemployment in such a context while the market recovers its lost panache.

The march of monetarists — following the lead of Scott Sumner — toward nominal GDP targeting, under which the central bank would target a level of nominal GDP, is a symptom of Friedman’s and the Great Moderation’s failure. If stabilising M2 growth had worked, nobody would be calling for stabilising other monetary aggregates like M4 growth, or stabilising the nominal level of economic activity in the economy. Sumner believes by definition, I think, that the policies enacted by Bernanke following 2008 were “too tight”, and that much more was needed.

Of course, what the NGDP targeters seem to believe is that they can have their Great Moderation after all if only they are targeting the right variable. This view is shared by other groups, with varying clinical pathways. Followers of von Mises’ business cycle theory believe that an uninhibited market will not exhibit a business cycle, as they believe that the business cycle is a product of government artificially suppressing interest rates. Minsky’s financial instability hypothesis and its notion that stability is destabilising is a slap in the face to all such moderation hypotheses. The more successful the moderation, the more economic agents will gradually change their behaviour to engage in increasingly risky activities, and the more bubbles will form, eventually destabilising the system once again. Markets are inherently tempestuous.

Or at least that is the theory. It would be nice to see empirical confirmation that the moderation produced by Sumnerian NGDP targeting is just as fragile and breakable as the Great Moderation. Which, of course, requires some monetary regimes somewhere to practice NGDP targeting.

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40 thoughts on “Minsky, the Lucas Critique, & the Great Moderation

  1. Great Moderation record – three stock market crashes, dot com bubble (“irrational exuberance”), oil futures bubble, housing bubble/bust, 2000 recession, 2008 recession (depression), gold bubble/inflation indicator?, between 2001 and 2011 gasoline up 105.8%*, higher education up 91.1%*

    * Source: a BLS economist referenced in the Greenlees paper. Identity withheld to protect from leak accusations. The reported CPI during the 2001-2011 period also from the BLS: 31% +/- .5.

    The Great Moderation is more accurately the Great Moderation Mythology and the moral of the story is that you cannot hide the volatility associated with unreported inflation and excess liquidity..no amount of economic theories will explain.

      • Bubbles indicate too much money. Inflation indicates too much money. I can’t argue endogenous money or Divisia M4. But I do not need a measure of liquidity if I see the indisputable effects of excess liquidity. We see the effects of excess liquidity in the bubbles and yes, inflation. Look at my gasoline and higher education inflation. Healthcare which is 16-20% of U.S. GDP is going up at 6-10% a year.

        As I said before, hyperinflation is a red herring. We have never had hyperinflation in the U.S. that I know of and never will IMO but we have had damaging and problematic inflation and we have that now– unreported.

        Interesting that Kudlow said in the Schiff/Sumner youtube “we have little inflation at least the reported inflation”….

        • Stocks are still cheaper in real terms than they were 5 years ago. Real estate is much cheaper in real terms than it was 5 years ago. Food and fuel are cheaper in real terms than they were 5 years ago. Maybe 5 and 6 and 7 years ago we were in a bubble, but we can’t really call it “excess liquidity” if the point of the liquidity is to reinflate the economy, and if it hasn’t even done that.

          If there’s so much unreported inflation, you need to be able to show it in some data. Shadowstats has tried, and its method is adding an arbitrary constant onto the real CPI numbers. Nope. You have to measure it. BPP has tried, and guess what? It shows the CPI is roughly correct.

      • Of course stocks and real estate (short term) are down after excess liquidity drove them to the stratosphere followed by a crash!! The only reason fuel is cheaper than 5 years ago is because of the oil futures bubble. That is hardly a legitimate baseline for saying cheaper than 5 years ago. Come on JA. I’m starting to label you a propagandist with a political agenda rather than a scholar and an information source.

        (btw, I gave you two price changes and a CPI figure. I will ask my BLS contact for some others if you want. But the damaging effects of excess liquidity are apparent as I stated above. Please explain the UNPRECEDENTED bubbles of the last 15 years.

        • If I’m a propagandist, what am I a propagandist for?

          I’ll be pretty clear. I do have an agenda. I think mass unemployment above 5% and especially above 10% is destructive and I do think the government and corporations should enact policies to bring that down. Whether those new jobs are in the private sector or government sector I don’t really care, but it needs to be done having so many people out of work for so long is harmful.

          As for ideas of excessive liquidity, I think that when we look at the real liquidity numbers (i.e. divisia M4) it is clear that the market prior to 2008 created vastly more liquidity than the Fed has created since then. So the bubbles before 2008 were a result of the market — irrational exuberance, animal spirits, greed, etc. Since 2008, the Fed has tried to reinflate the bubbles after the market-based pre-2008 liquidity dried up, but hasn’t really done so very convincingly. If we were looking at stocks and real estate matching up with their pre-2008 growth trend, then we could start talking about excess liquidity. But hardly so. Yes, we’ve seen some reinflation, but not much. Prices, as I say, are still lower in real terms than they were 5 years ago.

          Yes, there is inflation in some sectors like healthcare and higher education (although that, of course is being balanced out by large deflation in other sectors — consumer electronics, real estate, services). Personally, I live in the UK and like the rest of Europe, healthcare inflation is controlled because it is socialised. If the USA doesn’t want to do that, that’s the USA’s choice, but right now the USA seems to have the worst of both worlds — government-imposed barriers to entry, coupled with private profit. So healthcare costs soar, but competition cannot bring down prices down as it would in another market. To bring down healthcare costs, either the USA needs fully socialist healthcare like the UK and Europe, or it needs a fully competitive marketplace and not a series of enforced monopolies and duopolies. Higher education has a similar problem — enforced monopolies and duopolies coupled with extractive hierarchies that want to take students and subsidies for every penny possible. Either you need a competitive marketplace or you need regulation to stop the racket. The UK has a similar problem with housing laws — we have very strict planning laws, so housing prices keep rising because supply is not allowed to equilibriate to meet demand. In order to create enough supply to meet demand at affordable prices we either need government housebuilding, or we need a competitive marketplace with fewer building restrictions. But I digress.

          The point is that these sector-specific inflations are not indicative of price trends within the wider economy. They’re indicative of barriers to entry and rent-seeking. So I think the assertion that the USA is suffering from ’70s-style inflation is untrue. Core inflation is the lowest in history. The BPP is closely matching the CPI.

  2. R.T. Greenwood – I agree, inflation is everywhere. Come on, Aziz, are you living under a rock? Great Moderation? Ha, it should be called the Great Rape.

    Way too much cheap credit and leverage chasing anything that moves, of course benefitting only the elite, courtesy of the Fed.

    “…depressed growth still appeared, although not to such a great extent as was experienced in the 1930s.” There’s how many people on food stamps, 1 in 6? That’s 50 million people, approximately 1 million per state. Picture them all lining up daily in soup lines, and then you might envision the Great Depression. Take away all the extended unemployment payments, the people living in homes for three or more years without paying their mortgages, welfare payments, Social Security disability payments, and then the picture might get darker still.

    Bernanke is holding up the stock market, the housing market, the bond market. He’s thrown everything at it but the kitchen sink, and still here we are – the Great Depression II. The masses are hammered with declining incomes and inflation, and the elite band plays on.

    Attaboy, Bernanke. The debt needs to be cleared away by a tried and true method – bankruptcy.

    • Bernanke is holding up the stock market, the housing market, the bond market. He’s thrown everything at it but the kitchen sink, and still here we are – the Great Depression II. The masses are hammered with declining incomes and inflation, and the elite band plays on.

      Because — as I noted in the piece — monetarist stabilisation is ineffectual at the lower zero bound. You lead the horse to water, but it doesn’t drink. If you want to reverse out of the depression, you need direct spending.

      • No, you need bankruptcy, including the big banks. And after a few very painful years of suffering, when all of the artificial growth of the last 30-odd years has been put to rest, you begin again, but this time WITHOUT the Fed. No monetarist gerrymandering – err, stablization!!!!!

        Stabilization – what a complete laugh. All it does is skew everything in favour of the elite. Bernanke works for the big banks. That’s where his prime focus is. If we happen to coincidentally benefit, fine, but he’s not concerned with us. He’s there to help unemployment and create stable prices? Yeah, right, that’s all just make believe, but it looks good to the public. He’s there to make sure the banks get to play loose and hard, and then bail them out when they get in trouble.

        As I said, he’s keeping a floor under house prices by buying 90% of MBS, he is the bond market, the stock market. And the banks are having a field day in the commodities markets, hoarding vast quantities of metals in warehouses stacked to the rafters, or oil in tankers. Supply and demand at its finest! Same thing with houses, where inventory is kept off the market, and losses kept off the books. Talk about rigged!

        No, this needs to stop NOW. A call for “stimulus” or “direct spending” (without clearing out the debt first) merely papers over what got us here in the first place. All this will do is allow the destructive behaviour to continue unabated.

        With this type of thinking, the tsunami will be something for the history books.

        • And after a few very painful years of suffering, when all of the artificial growth of the last 30-odd years has been put to rest, you begin again, but this time WITHOUT the Fed.

          You wanna see a tsunami? Good luck with the riots when you have 25% unemployment and negative growth like some places in Europe.

          If you want to put the entire economy into liquidation you’ll end up taking down lots of good, successful businesses that otherwise would have succeeded in the mayhem. That’s what a depression does. Enforced liquidationism is the worst kind of central planning. Even in the world prior to the creation of the Fed, e.g. the 1907 panic there was not enforced liquidationism — J.P. Morgan acted as a lender of last resort.

      • How can you get more direct spending? Meaning that the state accounts for the spending through infrastructure expenditure and such? Wouldn’t that mean more public debt added on already large debt to gdp ratio? And hoping for more growth? There is too much debt in the world, both publicly and privately. As you say about the horse analogy, people cannot incure more debt when they are already paying down the debt/overindebted.

        As Rogoff and Reinhart proposed such as others, that you need to write down the debt, at least some of the harmful debt (both private and public in this case) perhaps nationalise some banks etc.

        I would say (I am a layman) in order to reverse out of a depression, write down the debt on the private side when it is too much debt on the state side, and if there is too much debt on the private side, spend if must be through the government. We are though in a world where both balance sheets are full of it.

        One of the biggest mistakes I believe is that the governments around the world were incuring the private debts and risks from banks to let it fall on the public balance sheet. This set the stage for more misdameaner and fraud in the financial markets posing an even greater threat to the world economy and sink more people into poverty levels through shadow banking, unregulated derivatives, accounting fraud etc.

        To have direct spending without adressing the private/public debt is in my opinion a big mistake.

        • How can you get more direct spending? Meaning that the state accounts for the spending through infrastructure expenditure and such? Wouldn’t that mean more public debt added on already large debt to gdp ratio?

          Exactly.

          As Rogoff and Reinhart proposed such as others, that you need to write down the debt, at least some of the harmful debt (both private and public in this case) perhaps nationalise some banks etc.

          Agreed — and debt writedowns would make direct spending to revitalise the economy easier — but what if you can’t have direct writedowns via some kind of debt jubilee? You need a politically viable alternative.

          To have direct spending without adressing the private/public debt is in my opinion a big mistake.

          Assuming we cannot have debt writedowns, it is probably is not a big mistake (i.e. it won’t actively make things worse), but it’s possibly insufficient. If we can get enough additional activity by bringing down the unemployment rate to 2% to bring the debt-to-GDP ratio down to a healthy level, then that’s great. If not, then generating sufficient inflation (because, of course, most debt is denominated nominally) can assist further in reducing the burden of the debt and bringing it down to a healthy level.

          Obviously, I think that direct debt writedowns would be the most honest thing to do, but maybe other things must be tried, and can be successful.

          The last time the world was in a global depression (the 1930s), that decade ended in a world war, after nations in Europe got sick on unemployment and elected to power radical parties. I think we should do everything possible to prevent that happening again.

    • Bankruptcy, then Government infrastructure projects to kee employment low and give surviving business a reason to invest. Think Nazi Germany economic and infrastructure policy.

  3. It’s amazing the number of so called authorities on money who are quite clearly clueless. Milton Friedman is one and Tim Congdon is another.

    The amount of M2 is largely the RESULT OF the private sector’s desire to borrow and do business. It doesn’t of itself CAUSE anything much. It RESULTS FROM an increase in confidence, for example. E.g. if I go out and borrow £50,000 to buy a bigger house, then M2 immediately rises by £50,000.

    As for Scott Sumner (whose blog I studiously avoid) and his NGDP targeting, NGDP targeting is a perfectly good idea. Only problem is that the tool used to hit the target, monetary policy, quite possibly has no effect on GDP!!! Indeed others have made that point. Certainly the effect of QE is feeble. As for interest rate cuts, there’s some empirical evidence here that interest rate cuts in a recession do not raise investment spending (and hence GDP):

    http://realestate.colorado.edu/storage/publications/thibodeaupeng_interestrate.pdf

  4. Having worked in finance, don’t put down to conspiracy when it can be put down to stupidity. Basically the risk averse conservative types get drowned out by the gun ho sales types. In meeting where the CEO tries to change direction or policy, he’ll be influenced by greedy sales based staff, whereas the conservative types are not as good as influencing.

    The Fed, being academic based, has no idea of this office politic dynamic. Mynsky’s insights are just the result of an economist who has an understanding of human nature.

    • Buddy Rojek – I have seen the dynamic you described above over and over again too: the salesmen versus the risk-averse types. Now, there’s a subject that needs to be discussed a lot more, that is if we want to save our civilization and this planet.

      I can just picture the conversations regarding Fukushima, for instance. The movers and shakers want good, cheap energy (or to quietly build military weaponry). Fine, but they are not future thinkers; they are only concerned with the present. They do not think of consequences. They plow ahead, everything is explained in rosy terms, and they get ticked when some risk-averse “doomsayers” are always trying to stop them.

      The talk goes back and forth – blah, blah, blah – and pretty soon they’re excitedly building nuclear reactors on a known fault line, with a protective wall that isn’t high enough and with back-up generators located on the ground level. Duh!

      Present versus future thinkers – that is the difference I see. This scenario is painted all over governments: give-me-it-now present-type thinkers who have little regard for the future. And the conservative future-oriented people are left to say “I told you so,” and mop up after them.

      Almost like children versus adults.

      • Exactly. And you are right, this needs to be promoted more and could be the fundamental reason why humans have not advanced.

        The reason why my political enemies are screwed is I am risk averse thinking type with balls of steel and fire in my belly. I am going to eat these Sales guys for breakfast and pass them out you know where.

        I hope I can motivate the intelligent meek to get a voice and say “I am not going to take this anymore!”

  5. Charles Hugh Smith explains massive carry trades and speculation:

    “The Fed’s control of the real economy boils down to persuading us that it is omniscient and holds the levers of real power. Neither is true. The only sustainable engine of real wealth creation is innovation, and the Fed has essentially nothing to do with innovation, other than creating massive incentives for carry trades and financier speculation, i.e. the acme not of wealth creation but of rentier wealth skimming. […]

    Profits from speculative gambling in malinvestments are yours to keep, while losses are either transferred to the public or buried in the Fed’s balance sheet. Why bother seeking real-world returns earned from real innovations?

    Apologists within the Fed Cargo Cult’s gloomy hut (repetitive chanting can be heard through the thin walls—humba, humba, aggregate demand!) claim that the Fed’s financial repression of interest rates boosts innovation by making money cheap for innovators to borrow.

    But this is precisely backward: cheap money fuels unproductive speculative bubbles and siphons resources away from innovation, while high interest rates reward innovation and punish malinvestments and financial gambling.

    Let’s say J.Q. Public has the opportunity to borrow $1 billion at 0% interest rate from the Federal Reserve. It costs absolutely nothing to keep the $1 billion. How careful will J.Q. be with the $1 billion? There’s a casino open; why not bet a few thousand dollars at roulette? Actually, why not bet a couple of million? If J.Q. loses the entire $1 billion, there’s no recourse for the lender, while J.Q. gets to keep the winnings (if any).

    With essentially free money, there is little incentive to seek out long-term real-world investments that might pay off in the future, and every incentive to seek financial carry trades that generate short-term profits with little risk. In other words, if you can borrow money at 1%, then shifting the funds around the world to lend at 4% generates a 3% return with modest risk. Since 3% guaranteed return beats the uncertain return of investing in innovative real-world companies, the carry trade is the compellingly superior choice.”

    http://www.oftwominds.com/blogaug13/Fed-illusion7-13.html

  6. Charles Hugh Smith cont’d:

    “If we can only borrow money at an annual rate of 10%, there aren’t many carry trades available, and those that are available are very high-risk. At 10%, we have to sharpen our pencils and select the very best investments that offer the highest returns for the risk.

    Let’s say you’re an entrepreneur and it costs 10% per annum to borrow money to pursue a business opportunity. The only investments that make sense at this rate are the ones with outstanding risk-return characteristics.

    In other words, cheap money doesn’t incentivize risky investments in high-return innovation; it incentivizes carry trades and financial speculation, which actively siphon off talent and capital that could have been applied to real-world enterprises. High real interest rates force entrepreneurs to choose the best investments, a process that favors high-risk, high-return innovations.”

    • If there are projects out there that can be profitable at a real interest rate of 10% (i.e. that could yield 12% or 13% in a ZIRP environment) no sane entrepreneur is going to choose a carry trade that yields 3% over a sound project that yields 13%. The problem is that new high-yielding projects are rare at the moment, because the economy is depressed, and there are still ongoing business failures. So there is still too much fear that projects will yield -100% (i.e. bankruptcy), and that is why the carry trades are still attractive. Wages and employment need to rise — creating lots of realisable demand for goods and services — to balance these fears out, and bring capital markets back to normality.

      • No, the problem is that the Fed is handing their friends cheap money, and then if they lose, they’re bailed out. The point is that the rest of us don’t have this luxury, do we?

        Aziz, it’s not so much in what you say, but what you don’t say. Devoid of anything that smacks of corruption, fraud, collusion, gerrymandering, unfairness. Crickets. And you even believe the CPI and rely on it – aaahh!

        Your answer is growth, growth and more growth, the firm belief that technology will take care of everything, and that space is the next frontier.

        “Wise men say, and not without reason, that whoever wishes to foresee the future must consult the past; for human events ever resemble those of preceding times. This arises from the fact that they are produced by men who ever have been, and ever will be, animated by the same passions, and thus they necessarily have the same results.” Niccolo Machiavelli

        • I don’t believe the CPI, exactly. It’s an imperfect measure. I believe BPP, though. And BPP says the CPI is roughly correct. What else is there for me to even consider? Shadowstats?

          As for your Machiavelli quote, I agree with it wholeheartedly. Again and again human ingenuity has averted total disaster and collapse. Humanity seems pretty antifragile to me. Growth and technology ended the last global depression — in the worst possible way, of course, via total war. I’d rather spend a few trillion on solar panels and fiber optic internet, mass transit systems and space exploration than spending a few trillion on war.

  7. Marketticker on GDP, currency debasement, and leverage:

    What’s the real (debt-adjusted) GDP growth rate again on a quarterly basis? How many times have we managed to put up a positive figure by expanding credit? That would be never, right?

    “It called for direct action to buy “bundles” of small business loans, as well as “packages of government debt” across EMU states, including German Bunds. “The ECB will have to be clear that surplus countries will experience inflation above 2pc for extended periods of time,” and must be prepared to “explain to the German public” that this is desirable.”

    Ah, I see. So the solution to people taking on too much debt (as a direct consequence of banks, including central banks, intentionally mispricing credit so as to entice them to do so) is to then have their purchasing power stolen retroactively?

    This is “growth”?

    Uh, no, it’s fraud and those pressing such a claim under false pretense deserve to be boiled in hot oil and then drawn and quartered. After all, they’re only trying to steal from everyone at once by doing so — clearly far worse than stealing a small amount — right?

    “Most important, the ECB needs to start by recognising that Europe’s problems are more than structural. It needs to stop using monetary policy as a lever for achieving structural changes and to end its contractionary policy.”

    Contractionary policy?!

    You can only have real growth in the economy through mining, growing (from the ground) or manufacturing something. All other forms of alleged “growth” are illusory.

    The premise that by making money “easier” one “stimulates” growth is horsecrap. What you stimulate is leverage — that is, the sensitivity to either improvements or declines in the economy in the outcome that people experience. By increasing the denominator you increase the cost of living in nominal currency units and this inherently decreases everyone’s standard of living.

    The “counter-balance” to this is that technology tends to make possible the doing of more with less over time. But the fruits of that should belong to the people at large, not some tiny cartel of banksters who con you into letting them steal both that improvement and more.

    The reaction to those who not only advocate but act upon a premise of theft as a business model should be indictment, prosecution, conviction and punishment that is severe-enough to deter the behavior.

    The first challenge, unfortunately, is to get people to recognize exactly how perverse and outrageous this conduct and its advocacy really is.”

    http://market-ticker.org/akcs-www?post=223295

    • From my experience with Socialist opponents, they are basically criminals feathering their nest while they siphon off the wealth of the working class at the same time saying “I love you” We have seen these types before, emotional financial and physical rapists. No consent!

  8. And another insight about this website. Aziz has been non partisan and non right left aligned from day one. The Left and the Right had ample time to voice their economic and philosophical soapbox. We have no real Keynesesian, Krugman Bernanke QE supporters because we are all intellectual giants who contribute here, and we scare them. They rely on catch slogans to spoon feed the non critical masses. Hitler wrote the same thing in Mein Kampf about the Communists of his time. They had no real solutions but beat their humdrum. But they forced an impoverished and destitute Hitler to pay them Uniuon dues to work on construction sites, and would attack him if he questioned them. No wonder he hated Communists. No wonder he did a pre-emptive strike a Blitzkreig, on Stalin. Who could blame him. They are amoral and criminal people. Don’s Chicago gangsterism is a precise description. They are thugs.

    I read today that Melbourne has had its warmest winter day in record today. The Left was all over it. I obliterated them with the insight that Melbourne had been the fastest growing city in Australia, with road networks building and houses goin up all over. Urban heat sink effect causes the temperature rise. As houses and roads have been built (Black roads are fcking hot to walk on with bare feet in summer) so has the average temperature risen. Can anyone see the causal effect? ….Crickets chirping in the Green and Left camps. I am actually getting bored arguing with these types. I might as well be talking philosophy with Children.

  9. Unrestricted capitalism allows market actors to externalize costs in various ways. It will appear to create moderation and stability in finance markets, but that is only because they are not accounting for costs which are being externalized elsewhere and off the balance sheets. The excess risk taking activity is but a form of temporal externalization, taking present costs (like unstable price patterns emerging) and pushing them off to the future. Its an economic calculation problem on a grand scale, when you allow price signals to be the only structural force in the economy, people have an incentive to externalize costs so that they can make exchange value as competitive as possible. And when we allow exchange value to be the only measure of economic costs (like the monetarists and other neo-classicals want) we will get externalization of costs which are hidden from the balance sheets, masking instability with an apparent boom. As Joe Stiglitz said, when you have people taking excessive risks that bring the economy to its knees, you don’t have an interest rate problem, you have a regulation problem.

    • “Unrestricted capitalism allows market actors to externalize costs in various ways.”

      Au contraire, Atty Hobbes. Unrestricted capitalism would be quite the opposite. What you refer to as “unrestricted” is about as restricted as it gets, and should rightly be termed fascism.

      This economy is so screwed-up that it is amazing anybody can do anything anymore.

  10. Aziz – “I don’t believe the CPI, exactly. It’s an imperfect measure. I believe BPP, though. And BPP says the CPI is roughly correct. What else is there for me to even consider? Shadowstats?”

    Again and again, crickets from you as far as how the calculation of CPI has changed over the years so as to ensure the end result is a low inflation rate (not indicative of what’s happening). Zip. How about that hoarding of commodities or the excessive amounts of liquidity (courtesy of QE) flying around the world by the big banks? I suppose that’s having no effect on prices?

    Everyone, just shut up about the non-existent inflation, and let’s take this sucker up!

  11. Aziz – “As for your Machiavelli quote, I agree with it wholeheartedly. Again and again human ingenuity has averted total disaster and collapse. Humanity seems pretty antifragile to me. Growth and technology ended the last global depression — in the worst possible way, of course, via total war. I’d rather spend a few trillion on solar panels and fiber optic internet, mass transit systems and space exploration than spending a few trillion on war.”

    Here’s an interesting video on war: “All Wars Are Bankers Wars”. Gee, that’s a surprise! Are governments calling the shots, or are bankers?

    Humanity might be anti-fragile, but civilization is not and it’s going down now. By merely advocating for more technology and more growth, you are essentially calling for more of the same that got us here in the first place, pushing the ultimate explosion off into the future, eventually destroying “civilization”.

    But humans have not evolved much past the hunter-gatherer stage (“present” thinkers, not “future” thinkers), and again and again throughout history the story ends the same – in loss and destruction – and all because of hubris.

    Wars? They’re either fought against outside parties (other countries) or inside parties (their own countrymen), and all because a bunch of psychopaths want to hold onto their power and control.

    But let’s crank it back up and have more of the same until…..

    • Speaking from my personal experiences, we have focused on the wrong group. It is not banking, it is the political process. The party machine grooms people by promising then futures in the party, so they compromise ethics and values for the sake of the “Party” and their own interest.

      As a result you get goal incongruence . It is the selfish man in all of us that destroys the future of humanity. If we were run by women councils would system be the same of better or worse?

      We have been focusing on Bankers yet they problem is in all of us.

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