Archive for the ‘Economics’ Category


September 15, 2011 Leave a comment

I’ve been redditing a lot lately, under the name Pendergrass because that’s who I was listening to when I made my account and I’m not very creative when it comes to making using names. Mostly on /economics.

I don’t know why… it is kind of a sad reflection of the state of affairs in my life that I’ve been spending hours a day engaging in economic and political arguments with people whose sense of surety comes from reading Paul Krugman or Naked Capitalism.

I do know why: it has been making me a better writer, more easily able to state my opinion clearly and concisely (regular readers <all two of you… hi Mom!> are probably in disagreement with this self-assessment).

Mainly I am just trying to be a good Samaritan by clearing up misconceptions and explaining technical stuff. Generally, most of the feedback I get is positive, which I guess is another reason I go there (to get feedback). At the end of the day, if I can light a candle for someone, I guess it makes it all worthwhile. If I seem so nonplussed about it, it’s because the level of discussion leaves something to be desired. It is better than most of the internet, but it is still the internet…

I was going into /politics at first but realized that it is pretty useless leaving meaningful comments there, since its all just an ideological pep rally. /economics is only slightly better than /politics in this regard.

One thing that both groups have made me notice is the divide between liberal people’s understanding of economics, and conservative people’s understanding of politics. I think a lot of liberals have very well-informed political ideas and realistic models of political organization, but they don’t have as much of a grasp on economics, particularly the “hard science economics” of mathematical equations. Conversely, I think the conservatives are blind to the realities of politics, but they seem (in general) to have a more solid understanding of rigorous economic models. I think a lot of this is just an accident of ideology, and it could speak more about my own ideology than about America or the world at large, but it is an interesting phenomena nonetheless.

Does anyone know of any good economics forums that are inhabited by grad students and Ph.D’s? I like most of Marginal Revolution’s commenters, but its not exactly a forum or community.

Categories: Culture, Economics, Technology

In Which I Abandon Many of My Previously Held Beliefs and Attempt to Steer My Liberal Brothers and Sisters Towards The Harsh But Comforting Glow of Reality (and the conservatives can come along for the ride too, but frankly I think most of them are weird, and if you are socially conservative, I wonder why you even read my blog unless you just like getting angry)

September 14, 2011 Leave a comment

I’ve come to the conclusion that most self-styled liberals have confused or combined two distinct questions in economics: how do we best divide the pie? how do we best make the pie bigger? The answers to these questions are distinct. Any piece of policy can have effects on both, but to use a single policy to address both issues is to ignore the fundamental difference between the two questions. I think that the problem many liberal leaning economist have gotten themselves into lately is that they have let their desire for social justice overshadow their understanding of market fundamentals.

As a progressive and a social Marxist, I understand and sympathize with their passion. The equitable distribution of society’s resources is a noble cause, and one that shouldn’t be abandoned. Unfortunately for us, the current ruinous state of the economy cannot be fixed by redividing the pie. It also can’t be fixed by government directed intervention.

They may be able to prop up employment temporarily with additional spending, but any of the jobs the government can create in this way are not sustainable. All of the contractors repairing schools and bridges are out of work again when the job is done. The liberal thesis is that the economy will somehow self-correct in the interim, but this correction will not take place because the strategy of financing these stimulus projects with deficit spending and tax hikes exacerbates the root cause of the countries structural economic problems: we are broke. Our country’s balance sheet is sagging to the right, which is the side that all of the debt is on if you are not familiar with accounting.

I am going to do a 180° on what I have written before and say that the government can’t afford to do more spending. I’ve called for it in the past, because of the low interest rates and excess capacity of our economy, but my outlook has fundamentally changed based the economic happenings around the world and the political ineptitude right here at home. The specific ineptitude I am referring to is the Republican Party’s debt-ceiling hostage fiasco and Obama’s latest Job Program theatrics. I think the damage done by the debt ceiling debate is self-evident. As for Obama’s latest policy objective, it is a half-assed jobs program that is more than a day late and trillions of dollars short. It might have been an okay idea if we hadn’t bailed out the banks, and if he had gotten it passed when he first came into office instead of pursuing his disastrous health care overhaul, and if it were about 3 or 4 times as big. But now, the window of time where it would have been effective has closed, we can’t afford it, and in it’s current incarnation, it’s not designed to actually pass anyway. It is a political ploy for him to blame the Republicans for his failed economic policy. The truth is that neither party is doing anything of substance. Everything has been reduced to a zero-sum game because of political squabbling. S&P knows this, the markets know this, and you and I should know it as well.

My interest rate argument, which essential went “we should borrow money now at 2% and spend it on projects that have a return of greater than 2%”, I think it is a pipe dream in this political environment that the money would get to where it needs to be. Furthermore, doing more research about the economy outside of the United States has led me to believe that interest rates are artificially low. The relative weakness of other currencies and the lack of safe assets has created a scenario where interest rates in the US are being held low because treasury bills have come to be viewed as a financial safe haven due to the overall shittiness of the developed world’s macroeconomic conditions. Current rates are not a reflection of the fundamental strength of the US economy or the dollar, but of our relative perceived strength in comparison to the Eurozone and equity markets. In addition to foreign capital flowing into treasury bills, we also have the Federal Reserve injecting trillions of dollars into the treasury market to maintain these artificially low rates. The continued injection of trillions of dollars into the economy will create inflation as soon as demand picks up. The reason it hasn’t created inflation yet is because banks, and the few corporations that have some, are parking their cash on their balance sheets or giving it back to the government by buying treasuries. The government is using this cash to pay off the interest on the treasuries that are already outstanding and to prop up the economy with its weak and ineffective “stimulus” policies.

(Even my “brilliant” “a trillion dollars for fusion energy plan” would probably end up destroying more jobs than it creates, as the entire energy sector would probably shed more than half of its work force after widespread fusion energy became available. It is not what the economy needs right now; when we are back standing on our own two feet, instead of being propped up by the Fed and China, it would be an excellent idea, but for now we need a fundamental change in the government’s balance sheet.)

Capital needs to be in private hands where it can flow freely to the enterprises that can put it to the best use. This is the only way the economy can be restored. Hatred of bank bailouts is not a reason to keep capital out of private hands… if anything, it is a reason to keep capital out of the government’s hands, because the government is the one who bailed out the banks! If the banks that made bad mortgages were allowed to fail three years ago, it would have caused a larger recession, but it also would have given us a solid foundation to recover from. We currently have no such foundation, and we are now headed towards an even more monumental collapse because of our failure to address these issues in 2008.

I know I have called for additional infrastructure spending and a Manhattan Project for renewable energy on these pages, but I am now forced to temper these beliefs with my conviction that the government is not capable of efficiently allocating resources. The projects created by government spending have all been designed to boost consumption rather than investment, and they have done a poor job even at that. This past couple of weeks , I’ve been reading Keynes for the first time since college (actually I never read him in college, I just got the encapsulated version presented to me in textbooks). This reading has given me the insight that the biggest problem in the economy right now is a lack of investment. The easiest way for the government to incentivize investment is to lower taxes and reduce spending. We need lower taxes to generate private industry investment, and we need reduced spending to keep the deficit under control and send signals to the markets that we are finally getting serious about getting our economic house in order.

This means that social safety nets will get cut. It means that real wages will fall. But there is no way around it at this point. The facts on the ground stay the facts no matter how deep we have our head stuck in the sand, or how much we hate the other party. The United States is essentially insolvent and the only thing keeping us afloat right now is our collective lack of desire to acknowledge it. We can shellac more layers of debt onto the problem, but it’s only going to give us a sharper hangover when we finally have to wake up to the next morning in America.

I know that lower taxes, especially on the rich, is a hard pill for progressives to swallow. The entire narrative of evil bankers and corporations require that we punish them, that they be made to contribute towards the maintenance of our social capital, social capital that has been eroded by our elected officials because of corporate malfeasance. The problem with this narrative is that it is wrong. It is not the corporations that are evil, it is the elected officials who let them be bailed out, who stuffed the regulatory agencies full of corporate cronies, who choose to cut the social safety net instead of let their corporate sponsors go bankrupt. The “leaders” on both sides of the aisle are guilty of these same transgressions. It is not a case of the Democrats being for the working joe union member, and the Republicans being for responsible governance. They are both the parties of corporate America. That is why an independent, outside candidates like Ron Paul or Jon Huntsman or Ralph Nader or Dennis Kucinich don’t get a fair shake in the media. That is why the big banks and corporations donate to both parties instead of just the Republicans or just the Democrats. That is why senators and representatives from both parties voted for the bailouts. The only reason the Republicans have flipped over to being against the bailouts and against more band-aid style stimulus spending is because there energized base is standing up and demanding it (believe me, the Republicans would love to bring home the bacon, especially the ones who were there for the Bush administration).

The Democrats could learn a lot from the Tea Party bozos that they love to deride. They may be stupid and bigoted, but at least they are loud and make things happen.

The Democrats masquerade behind the moral, populist high road, but it is all a charade. The Democrats have used this story of evil bankers to distract us from dealing with the fundamental realities of our country’s political economy. Obama hasn’t delivered anything to us, except a disastrous health care plan that makes huge concessions to the drug companies and medical equipment manufacturers (guaranteeing them outsized profits and artificial monopolies), and a stimulus bill that has rescued politically favored corporations at the expense of the tax payer, all the while tacking on another trillion dollars of the fundamental problem (debt) and doing nothing to create sustainable jobs, jobs that will still be here when the stimulus money runs out (if you think he has, or if you are the type of person who likes to quote how many people have health insurance now, or you’ve ever linked anyone to this site, please read this post that I wrote especially for you).

The Republicans are no better than the Democrats. They do a good job of speaking as if they understand the fundamentals of market capitalism, and pretending that they are for smaller government, but then when they are elected they shift their policy agenda to social issues and give favors and breaks to their corporate benefactors. They spend just as irresponsibly as the Democrats, and they do it in ways that are to the benefit of a selected few rather than the majority of this country’s people. I’m not going in as hard on them because I am really wanting to focus this piece on my friends and readers who are liberal democrats, because I feel like I have a greater chance of saving you than I do of turning a Tea Partier into a born again liberal. So yes, Republicans are very bad.

The bad news is that things are going to have to get a lot worse before they can get better. The good news is that things can get better, we just have to stop lying to ourselves, and stop believing the lies being told to us by the charlatans that we keep putting into office.

Of all the deficits we have, I think the biggest one is a deficit of leadership. The problems in both our economy and our government are structural, and they are related to each other. It is an addiction to spending and abuse of the power of appropriation that has given us these structural defects; the toxic mortgages were just the termites. Neither party wants to address the real issues because they know they are part of the problem; the biggest part.

They are going to trick you into voting for one of them next year by making the other party into a boogieman, and it is going to scare you, and you are going to vote for a candidate who you think will do a less worse job than the other one… and your candidate may win, and you will look at his or her future policy accomplishments and say: “that’s not too bad… imagine what would have happened if the other guy got into office!” and you will feel good about yourself and your vote, or about as good as you can feel about such a thing, but deep down inside you will know that something is wrong, that the system is rotten. You will justify your candidates inefficacy by blaming democracy (“its the worst system, besides all the other ones! hahaha Churchill”), the two-party system (“well I can’t let that other bozo get into office”), the corporate interests (“it’s the greedy corporations that mess everything up”), the lobbyists (“it’s not really the corporations that are bad, but all the money they put into politics”), the banks (“they screwed us over by giving me a mortgage I can’t afford… why did they let me do that?”). It will be anybody but your candidate’s fault. Mainly it will be your fault, because you’ve read this piece, and now you know that the two major parties aren’t going to do jack shit for you (or maybe you don’t believe me… if so, leave me a comment or send me an email heftionezip(at) and tell me why not).

Vote for anyone but an establishment candidate.

If you want to vote for a liberal politician, vote for Ralph Nader.

If you are sick of politicians, vote for yourself, or your mom, or your best friend.

I’m going to be voting for Dr. Ron Paul. I don’t agree with the man on everything he has to say, but I believe his conviction in what he says, and I can’t say the same thing about Obama… I’m sure you remember from the last election cycle all the empty sloganeering and smooth rhetoric that whetted the media’s collective pussy and probably yours too. How many of those promises has Obama delivered on? How many has he even tried to deliver on? I’ll give him health care (for now… I’ll crack that coconut on another day), but Guantanamo? The Wars? Gay Marriage? The Economy? Wall Street/Banker Bonuses? Ron Paul has a 30+ year record of sticking to his principles that you can see in his voting record in congress. Get the man elected, and you know he is going to do what he says he will. And if you are still scared that he is going to criminalize abortion, or that disbanding the DoED will somehow hurt America, or that he is going to let corporations run amok and pollute all over the place… if those are the only things holding you back, keep coming back here and listening to what Dr. Paul has to say, because I think that 14 months might be enough time to assuage those fears and change your mind.

College Degree Wage Premiums: Signaling vs. Human Capital Accumulation

September 12, 2011 Leave a comment

The general consensus in the sub-field of education economics is that college graduates command a wage premium because of two separate effects: human capital accumulation (a.k.a. learning) and signaling (a.k.a. getting a piece of paper for being a good little monkey and jumping through the hoops). Every study I have read on the subject comes to a different conclusion about how much of the premium comes from human capital, and how much comes from signaling. The general consensus, from what I remember from the survey course I took in 2008, is that the majority of the effects come from signaling.

This recent study done at Georgetown, that specifically looks at wages and how they are effected by college degrees and other factors such as demographic identity and occupational choice, doesn’t really tell us anything that is new. It does have some surprising figures about proportions of relatively uneducated people who hold “highly respectable” occupations such as executives and legislators, but all in all it isn’t paradigm shifting or even a surprise to anyone who is already familiar with the subject.

This article makes the claim that signaling makes up most of the wage premium. The article is a commentary on the aforementioned study, and more anecdotal than empirical in its analysis, but it does make interesting implications about the supposed bubble in higher education.

It is hard to measure a bubble in higher ed. Most of the models Read more…

Categories: Economics, Education

On Greece and the Market Psychology of Bailouts

September 12, 2011 Leave a comment

“You know the first time someone plays poker they are afraid to bluff. The second time they decide bluffing is great. By the third time they are so confused about who is bluffing and when that they might as well just hand their chips to the best player at the table and save everyone the time and effort or taking the chips.  I think the central bankers and governments have gotten so confused they are bluffing with a few low off suit cards and don’t even realize the cards are face up.”

More here at Zero Hedge.

Categories: Economics, Institutions, Money

Greek Bond Death Watch: Current Time is Oh Shit O’Clock

September 12, 2011 Leave a comment

The Good News today: The Chinese are signalling interest in buying Italian bonds (here is the best piece on the news). While Greece is probably too far gone, shoring up Italy and (hopefully) Spain should limit most of the spillover to world markets.

Categories: Economics, Money

The Feta is About to Hit the Fan

September 12, 2011 Leave a comment

I’ve been pretty busy on the internet today. To my intellectual detriment, I haven’t really been paying attention to the EU this year, so I caught up on things today. My worry meter is at about a 9/10. European politicians aren’t all that different from the ones here in the USA. The conservatives are essentially holding the economy hostage by not bailing out the troubled sovereign economies. I am not sure if they don’t understand what is at stake, or if they do and just don’t care because it is all part of some diabolical plot. In either case, things are not boding well for any type of political solution.

Spain, Italy, France, and then the entire EU are at risk, in that order. I would wager that if any country’s beside Greece default, we will be in for another sharp recession, and if they all go down (I have to believe the ECB or even the Fed would step in before this happened) we will be witnessing the final curtain for the Western finance, The Greater Depression. I don’t like sounding so melodramatic, but its warranted given the circumstances. How many politicians are willing to double down on another bailout? How many people would take to the street if such a thing came to pass? I know I would…

We’ve been hearing this possible chain of events for almost three years now, but the chickens have come to roost finally. The time frame for this happening is before the end of year; Greece may default as early as this week.

Social Security is NOT a Ponzi Scheme, It’s Just A Socially Regressive Tax Used To Fund A Mandatory Insurance Scheme

September 11, 2011 2 comments

Lots of talk in the blogosphere about Social Security: is it a Ponzi scheme? Yes, no, maybe so…

I started writing this article thinking “of course its a Ponzi scheme”, then I went to thinking it wasn’t, then back to it was, and finally, I have settled on the conclusion that it is not a Ponzi scheme, “definitely not”, and I’m actually kicking myself for not realizing it sooner.

The short reason why Social Security is not a Ponzi scheme is because Social Security is not an investment scheme; instead it is a mandatory insurance scheme (akin to Obamacare).

Read more…