by Michal Kalecki
The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy's economic character. Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest. They also induce competitive rearmament of other countries. This causes the main aim of spending to shift gradually from full employment to securing the maximum effect of rearmament. As a result, employment becomes 'over-full'. not only is unemployment abolished, but an acute scarcity of labour prevails. Bottlenecks arise in every sphere, and these must be dealt with by the creation of a number of controls. Such an economy has many features of a planned economy, and is sometimes compared, rather ignorantly, with socialism. However, this type of planning is bound to appear whenever an economy sets itself a certain high target of production in a particular sphere, when it becomes a target economy of which the armament economy is a special case. An armament economy involves in particular the curtailment of consumption as compared with that which it could have been under full employment.
The fascist system starts from the overcoming of unemployment, develops into an armament economy of scarcity, and ends inevitably in war.
next
Friday, May 15, 2009
Thursday, May 14, 2009
Undercover in Burma
My former student, Ryan Libre, snuck into Burma to meet with the Kachin Independence Army.
He is one of my favorite students, even though he has a long-standing incomplete in one of my classes.
Our local weekly has a short story about his work.
http://www.newsreview.com/chico/content?oid=980928
He is one of my favorite students, even though he has a long-standing incomplete in one of my classes.
Our local weekly has a short story about his work.
http://www.newsreview.com/chico/content?oid=980928
Why Environmentalists Should Oppose the Waxman-Markey Bill
Media coverage has been predictably confused about the compromises loaded onto the Waxman-Markey climate change bill. The headlines obsess on targets for 2020 (relaxed) and 2050 (maintained), as if decisions made today somehow preempt our choices over the next 10 or 40 years. They don't, of course, and reasonable people should pay no attention to them. Targets for the first year or two matter; beyond that it’s all rhetoric.
So forget the targets. What really matters is the architecture. If we put the wrong system into place, our job will only get harder, since it is much more difficult to dismantle and rebuild a regulatory structure than to set one up from scratch — sort of like the difference between brownfield and greenfield. To see this truth in action, just look at the struggle of the EU to get out from under their disastrous European Trading System.
So how does Waxman-Markey rate on architecture? It’s a loser. The single biggest flaw, one which is fundamentally not fixable, is the decision to issue permits on an industry-by-industry basis — to cap the uses of carbon fuels rather than their sources. This is an invitation to never-ending bickering over who is allowed to emit how much. Every little tweak of the system — whether to include freight transportation or agriculture (which crops!) — has to be hammered out separately. Reductions are calculated from a baseline, but there are acres of wriggle room about how to measure who emitted how much in the base year and therefore how much should be reduced tomorrow. Enforcement is complex, expensive and full of loopholes. Only lawyers (and politicians with extortionary campaign finance strategies) could love this.
There needs to be a single comprehensive cap on the sources, not the uses, of carbon fuels. Require permits for the extraction of these fuels from the ground or importing them from abroad. Limit the number of permits to achieve an emissions target, then leave it to the normal workings of the market to determine which industries will get which share of the stuff.
Auctioning the permits is also extremely important, but this is fixable in future iterations if the architecture is right. It is not fixable under Waxman-Markey, because the percentage has to be set for each industry separately, and cranking each one up to 100 is an impossible political task.
Mainstream environmental groups are not blind to these problems, but they see them as second-order. Above all, they are soooooo happy that climate deniers are not in command of politics any more. They are fighting yesterday’s battle, to get general agreement on the principle that climate change is caused by people, and people need to do something about it. They like the nice feeling that comes from all of us raising our hands and pledging, scout’s honor, to achieve sustainability by 2050. But they are losing today’s battle to put into place a viable means to get from here to there, and judging from their public statements they don’t even know it.
So forget the targets. What really matters is the architecture. If we put the wrong system into place, our job will only get harder, since it is much more difficult to dismantle and rebuild a regulatory structure than to set one up from scratch — sort of like the difference between brownfield and greenfield. To see this truth in action, just look at the struggle of the EU to get out from under their disastrous European Trading System.
So how does Waxman-Markey rate on architecture? It’s a loser. The single biggest flaw, one which is fundamentally not fixable, is the decision to issue permits on an industry-by-industry basis — to cap the uses of carbon fuels rather than their sources. This is an invitation to never-ending bickering over who is allowed to emit how much. Every little tweak of the system — whether to include freight transportation or agriculture (which crops!) — has to be hammered out separately. Reductions are calculated from a baseline, but there are acres of wriggle room about how to measure who emitted how much in the base year and therefore how much should be reduced tomorrow. Enforcement is complex, expensive and full of loopholes. Only lawyers (and politicians with extortionary campaign finance strategies) could love this.
There needs to be a single comprehensive cap on the sources, not the uses, of carbon fuels. Require permits for the extraction of these fuels from the ground or importing them from abroad. Limit the number of permits to achieve an emissions target, then leave it to the normal workings of the market to determine which industries will get which share of the stuff.
Auctioning the permits is also extremely important, but this is fixable in future iterations if the architecture is right. It is not fixable under Waxman-Markey, because the percentage has to be set for each industry separately, and cranking each one up to 100 is an impossible political task.
Mainstream environmental groups are not blind to these problems, but they see them as second-order. Above all, they are soooooo happy that climate deniers are not in command of politics any more. They are fighting yesterday’s battle, to get general agreement on the principle that climate change is caused by people, and people need to do something about it. They like the nice feeling that comes from all of us raising our hands and pledging, scout’s honor, to achieve sustainability by 2050. But they are losing today’s battle to put into place a viable means to get from here to there, and judging from their public statements they don’t even know it.
Political Aspects of Full Employment III, 1.
by Michal Kalecki
One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.
The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism. The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed. In a democracy, one does not know what the next government will be like. Under fascism there is no next government.
The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.
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One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.
The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism. The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed. In a democracy, one does not know what the next government will be like. Under fascism there is no next government.
The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.
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Wednesday, May 13, 2009
Political Aspects of Full Employment II, 4.
by Michal Kalecki
We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome--as it may well be under the pressure of the masses-the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.
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We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome--as it may well be under the pressure of the masses-the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.
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Social Security in Crisis: Act Now!
Like many of you, I am deeply troubled by the latest news about the Social Security trust fund. Until this morning, I was mired in complacent ignorance, soothed by the belief that it would be sufficient to pay all benefits until 2041. Now I know the awful truth: because of the current economic downturn, the fund will be exhausted in 2037, a mere 28 years from now.
Unwilling to face reality, my first reaction was denial. Aha! I thought, the prognosticators have overlooked the effects of the Great Boom of 2021-24. This will add almost a decade to the fund’s lifespan and forestall the need for painful reforms. But then I remembered that there will be a terrible slump in the early 30s, and that this would drain the fund once and for all.
Fellow citizens, wake up! There is no escaping the inevitable. We must begin to make major sacrifices now, and I mean today, in order to avert this impending debacle. Cut benefits! Raise taxes! This is your last chance to save Social Security!
Unwilling to face reality, my first reaction was denial. Aha! I thought, the prognosticators have overlooked the effects of the Great Boom of 2021-24. This will add almost a decade to the fund’s lifespan and forestall the need for painful reforms. But then I remembered that there will be a terrible slump in the early 30s, and that this would drain the fund once and for all.
Fellow citizens, wake up! There is no escaping the inevitable. We must begin to make major sacrifices now, and I mean today, in order to avert this impending debacle. Cut benefits! Raise taxes! This is your last chance to save Social Security!
The Yanks - Over-subsidised, Over-paid and Over here
A former Central Intelligence Agency economic analyst has helped to set up a Cayman Island registered partnership to take advantage of what is referred to by the directors and partners as "climate related market drivers" and "vigorous demand" for water in Australia.
Matt Dickerson is a former international economic analyst at the CIA. He is now Summit Global Management's CEO, portfolio manager and chief marketing officer. Summit has a $500 million dollar water-purchasing strategy for Australia which is to buy water entitlements from farmers hit by prolonged drought and then sell the water back to them. Where this half a billion dollar purchasing fund is coming from is anyone's guess. "We're not ready to publicise anything....It's a private fund" says the chairman of Summit's registered company in Australia. [1]
When I think CIA I tend to think of Henry Kissinger who was the trusted aid of Nelson Rockefeller. It so happens that a related Robert Rockefeller (President of the Property Council of Australia) has been heavily involved in pushing for water market reform in Tasmania for the past decade. The latter Rockefeller has successfully persuaded the State Government to seize the water assets of my local municipality without providing adequate compensation for the ongoing loss of revenue that this action entails.
When I think of Henry Kissinger I think of his close admirer - the Prime Minister of Australia, Mr Kevin Rudd. Mr Rudd has a habit of flying over to Washington on a regular basis and having "productive talks" with Mr Kissinger [2].
How strange. An Australian Labor Prime Minister meets regularly with the man who was head of an organisation responsible for overseeing the CIA. When the CIA was, in turn, involved in a coup against a former Labor Government here when that administration tried to avoid the Wall Street banking cartel and attempted to fund a national energy industry. [3]
Speaking of coups, this must be one for the creation of a perfect neoliberal 'market'. Captured buyers - we all have to consume the stuff - and there's no substitute product available. "The absence of alternatives clears the mind marvelously", as Kissinger has said.
The price of this water is indexed to inflation. It seems to me that there's nothing like water scarcity and water charges (the latter being a tax on food producers) to cause a general rise in prices within the economy. Higher prices, higher water charges --> higher prices --> higher water charges. And round and round it goes.
In today's new market there is no need for 'entrepreneurs' to produce anything. Nifty ways of generating revenue are found for the lucky few who have money today (the recipients of taxpayer-funded bailouts?)
Well, what can one expect these days. After all, quoting Henry K again: "foreign policy is not missionary work."
[1] Graham Dooley, Chairman of the Adelaide registered 'Summit Water Holdings' which is a subsidiary of Summit Water Development (part of Summit Global Management Incorporated). As per the article: 'US enters Aussie Market - Yanks Raid Water'. Weekly Times, 1st April 2009. Pages 1,4, 15, 16.
[2] Kevin Rudd and Henry Kissinger in 'productive' talks
Article from: Herald Sun
http://www.news.com.au/heraldsun/story/0,21985,24403752-661,00.html
And Rudd met Kissinger again in last week of March this year.
[3]
A Coup in Australia and the CIA
Brenda Rosser. Saturday, July 5, 2008
http://econospeak.blogspot.com/2008/07/coup-in-australia-and-cia.html
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A conversation with the US ambassador
Brenda Rosser. Wednesday, April 15, 2009
http://econospeak.blogspot.com/2009/04/conversation-with-us-ambassador.html
Matt Dickerson is a former international economic analyst at the CIA. He is now Summit Global Management's CEO, portfolio manager and chief marketing officer. Summit has a $500 million dollar water-purchasing strategy for Australia which is to buy water entitlements from farmers hit by prolonged drought and then sell the water back to them. Where this half a billion dollar purchasing fund is coming from is anyone's guess. "We're not ready to publicise anything....It's a private fund" says the chairman of Summit's registered company in Australia. [1]
When I think CIA I tend to think of Henry Kissinger who was the trusted aid of Nelson Rockefeller. It so happens that a related Robert Rockefeller (President of the Property Council of Australia) has been heavily involved in pushing for water market reform in Tasmania for the past decade. The latter Rockefeller has successfully persuaded the State Government to seize the water assets of my local municipality without providing adequate compensation for the ongoing loss of revenue that this action entails.
When I think of Henry Kissinger I think of his close admirer - the Prime Minister of Australia, Mr Kevin Rudd. Mr Rudd has a habit of flying over to Washington on a regular basis and having "productive talks" with Mr Kissinger [2].
How strange. An Australian Labor Prime Minister meets regularly with the man who was head of an organisation responsible for overseeing the CIA. When the CIA was, in turn, involved in a coup against a former Labor Government here when that administration tried to avoid the Wall Street banking cartel and attempted to fund a national energy industry. [3]
Speaking of coups, this must be one for the creation of a perfect neoliberal 'market'. Captured buyers - we all have to consume the stuff - and there's no substitute product available. "The absence of alternatives clears the mind marvelously", as Kissinger has said.
The price of this water is indexed to inflation. It seems to me that there's nothing like water scarcity and water charges (the latter being a tax on food producers) to cause a general rise in prices within the economy. Higher prices, higher water charges --> higher prices --> higher water charges. And round and round it goes.
In today's new market there is no need for 'entrepreneurs' to produce anything. Nifty ways of generating revenue are found for the lucky few who have money today (the recipients of taxpayer-funded bailouts?)
Well, what can one expect these days. After all, quoting Henry K again: "foreign policy is not missionary work."
[1] Graham Dooley, Chairman of the Adelaide registered 'Summit Water Holdings' which is a subsidiary of Summit Water Development (part of Summit Global Management Incorporated). As per the article: 'US enters Aussie Market - Yanks Raid Water'. Weekly Times, 1st April 2009. Pages 1,4, 15, 16.
[2] Kevin Rudd and Henry Kissinger in 'productive' talks
Article from: Herald Sun
http://www.news.com.au/heraldsun/story/0,21985,24403752-661,00.html
And Rudd met Kissinger again in last week of March this year.
[3]
A Coup in Australia and the CIA
Brenda Rosser. Saturday, July 5, 2008
http://econospeak.blogspot.com/2008/07/coup-in-australia-and-cia.html
+
A conversation with the US ambassador
Brenda Rosser. Wednesday, April 15, 2009
http://econospeak.blogspot.com/2009/04/conversation-with-us-ambassador.html
Tuesday, May 12, 2009
Political Aspects of Full Employment II, 3.
by Michal Kalecki
The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent: public investment and subsidizing mass consumption.
The economic principles of government intervention require that public investment should be confined to objects which do not compete with the equipment of private business (e.g. hospitals, schools, highways). Otherwise the profitability of private investment might be impaired, and the positive effect of public investment upon employment offset, by the negative effect of the decline in private investment. This conception suits the businessmen very well. But the scope for public investment of this type is rather narrow, and there is a danger that the government, in pursuing this policy, may eventually be tempted to nationalize transport or public utilities so as to gain a new sphere for investment.[*]
One might therefore expect business leaders and their experts to be more in favour of subsidising mass consumption (by means of family allowances, subsidies to keep down the prices of necessities, etc.) than of public investment; for by subsidizing consumption the government would not be embarking on any sort of enterprise. In practice, however, this is not the case. Indeed, subsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that 'you shall earn your bread in sweat'-unless you happen to have private means.
[*]It should be noted here that investment in a nationalized industry can contribute to the solution of the problem of unemployment only if it is undertaken on principles different from those of private enterprise. The government must be satisfied with a lower net rate of return than private enterprise, or it must deliberately time its investment so as to mitigate slumps.
next
The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent: public investment and subsidizing mass consumption.
The economic principles of government intervention require that public investment should be confined to objects which do not compete with the equipment of private business (e.g. hospitals, schools, highways). Otherwise the profitability of private investment might be impaired, and the positive effect of public investment upon employment offset, by the negative effect of the decline in private investment. This conception suits the businessmen very well. But the scope for public investment of this type is rather narrow, and there is a danger that the government, in pursuing this policy, may eventually be tempted to nationalize transport or public utilities so as to gain a new sphere for investment.[*]
One might therefore expect business leaders and their experts to be more in favour of subsidising mass consumption (by means of family allowances, subsidies to keep down the prices of necessities, etc.) than of public investment; for by subsidizing consumption the government would not be embarking on any sort of enterprise. In practice, however, this is not the case. Indeed, subsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that 'you shall earn your bread in sweat'-unless you happen to have private means.
[*]It should be noted here that investment in a nationalized industry can contribute to the solution of the problem of unemployment only if it is undertaken on principles different from those of private enterprise. The government must be satisfied with a lower net rate of return than private enterprise, or it must deliberately time its investment so as to mitigate slumps.
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Monday, May 11, 2009
Political Aspects of Full Employment II, 2.
by Michal Kalecki
We shall deal first with the reluctance of the 'captains of industry' to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence.
next
We shall deal first with the reluctance of the 'captains of industry' to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence.
next
Wanda Sykes on Torture
I watched the comedienne Wanda Sykes' remarks at the White House Correspondent's Dinner on You Tube. Commenting on Cheney, she said, in paraphrase, 'Cheney talks about all the valuable information the torture produced. It's just as if I were to rob a bank and then tell the judge, yes I did rob the bank, but look at all the bills I payed with the money.'
This is exactly right. The reason we don't torture is not or shouldn't be that it doesn't yield reliable information, or that it protects our own captive soldiers in the future, whether or not these things are in fact true. Cheney's claim that the former is false, even if it were so, is irrelevant. The logic of our moral reasoning is not a consequentialist logic. Obama has spelled out this non-consequentialist logic explicitly. The reason not to torture, he has said, is that it corrupts our character.
This is exactly right. The reason we don't torture is not or shouldn't be that it doesn't yield reliable information, or that it protects our own captive soldiers in the future, whether or not these things are in fact true. Cheney's claim that the former is false, even if it were so, is irrelevant. The logic of our moral reasoning is not a consequentialist logic. Obama has spelled out this non-consequentialist logic explicitly. The reason not to torture, he has said, is that it corrupts our character.
Sunday, May 10, 2009
Economics Was OK, It Was Only the Economists who Failed (Disputed)
There has been a lot of discussion of this recent article by Barry Eichengreen in The National Interest. In a nutshell, Eichengreen’s argument is we should not blame economic theory for the failure to anticipate and avoid the financial crisis. Theory had the tools—agency theory, asymmetric information, behavioral economics—to do the job. The problem was that some academic economists were seduced by extramural income opportunities to ignore these subfields, while the others followed along to avoid the costs of nonconformism. Fortunately, he concludes, economics is becoming more empirical, so embarrassing episodes like this will be less common in the future.
Some parts of this are unarguable. There were important theoretical developments during the past 20 years that can be drawn on to understand what went wrong. To a considerable extent, the economics profession has been suborned; it has bent itself, heliotropically, to the sources of its enrichment. Nevertheless, I would take issue with Eichengreen on two main points.
First, economic theory, taken as a whole, is culpable. The core problem is that each theoretical departure, whether it is a knotty agency problem or a behavioral kink, is inserted into an otherwise pristine general equilibrium framework. The only way you can get an article published in a mainstream economics journal (and therefore reproduce the conditions of your existence as an academic economist) is to present your departure piecemeal, showing that it exerts its effects even in an otherwise pristine universe. According to the standards that rule the profession, a GE model with one twist is theory’s version of the controlled experiment. This is why the picture Eichengreen paints for us, in which multiple unorthodox insights come together and interact synergistically, is never seen in a peer-reviewed economics journal. As a result, even though every organ of 1960's-era orthodoxy is mortally wounded, the entire body strides vigorously forward. That is a prime reason why, despite the labors of so many clever and right-thinking economic theorists, we are in this mess.
Second, the shift toward empiricism is not an unalloyed gain. Yes, much of this work is refreshingly open-minded, allowing the data to lead. An honest tally of the published literature, however, particularly in the top journals, will show that a majority of quantitative articles are concerned to calibrate existing theoretical models. Unless a model is so out of step or inflexible that it cannot be calibrated at all, it passes the empiricist’s “test”. Economics, as I have argued before here and elsewhere, has no culture of what in real sciences is known as a critical test, a confrontation with data that can be survived only if the hypothesis in question is highly likely to be correct. In other words, empirical work in economics, whatever sophisticated estimators it employs and stringent p-values it seeks, has little to do with the minimization of Type I error, properly understood. For this reason, bad theory (like the mind-numbing onslaught of DSGE models in macro) prosper even in the midst of the “empirical turn”. With enough tweaking, I can calibrate an equilibrium model of the US economy as of 2006, and again as of 2009. It won’t be exactly the same model, but it will use a standard set of baseline assumptions, so who cares?
The bottom line is that economics in both its theoretical and empirical modes is implicated in the current debacle. Making the funding of economists more transparent would help, and attention should be given to the institutional structures that favor conformism within the profession, but economics itself needs to be reformed.
Some parts of this are unarguable. There were important theoretical developments during the past 20 years that can be drawn on to understand what went wrong. To a considerable extent, the economics profession has been suborned; it has bent itself, heliotropically, to the sources of its enrichment. Nevertheless, I would take issue with Eichengreen on two main points.
First, economic theory, taken as a whole, is culpable. The core problem is that each theoretical departure, whether it is a knotty agency problem or a behavioral kink, is inserted into an otherwise pristine general equilibrium framework. The only way you can get an article published in a mainstream economics journal (and therefore reproduce the conditions of your existence as an academic economist) is to present your departure piecemeal, showing that it exerts its effects even in an otherwise pristine universe. According to the standards that rule the profession, a GE model with one twist is theory’s version of the controlled experiment. This is why the picture Eichengreen paints for us, in which multiple unorthodox insights come together and interact synergistically, is never seen in a peer-reviewed economics journal. As a result, even though every organ of 1960's-era orthodoxy is mortally wounded, the entire body strides vigorously forward. That is a prime reason why, despite the labors of so many clever and right-thinking economic theorists, we are in this mess.
Second, the shift toward empiricism is not an unalloyed gain. Yes, much of this work is refreshingly open-minded, allowing the data to lead. An honest tally of the published literature, however, particularly in the top journals, will show that a majority of quantitative articles are concerned to calibrate existing theoretical models. Unless a model is so out of step or inflexible that it cannot be calibrated at all, it passes the empiricist’s “test”. Economics, as I have argued before here and elsewhere, has no culture of what in real sciences is known as a critical test, a confrontation with data that can be survived only if the hypothesis in question is highly likely to be correct. In other words, empirical work in economics, whatever sophisticated estimators it employs and stringent p-values it seeks, has little to do with the minimization of Type I error, properly understood. For this reason, bad theory (like the mind-numbing onslaught of DSGE models in macro) prosper even in the midst of the “empirical turn”. With enough tweaking, I can calibrate an equilibrium model of the US economy as of 2006, and again as of 2009. It won’t be exactly the same model, but it will use a standard set of baseline assumptions, so who cares?
The bottom line is that economics in both its theoretical and empirical modes is implicated in the current debacle. Making the funding of economists more transparent would help, and attention should be given to the institutional structures that favor conformism within the profession, but economics itself needs to be reformed.
Prediction
by the Sandwichman
May BLS Non-farm payroll employment decline: -775,000 to -835,000 jobs lost.
One of the things I noticed mucking around with the BLS birth/death model is that the Business Employment Dynamics data upon which the model is based doesn't quite seasonally adjust. That is to say the 'seasonally-adjusted' series of business openings and closings still displays a noticeable seasonal fluctuation. Thus when the imputed birth/death adjustment is added back into raw employment data and then seasonally-adjusted, the birth/death adjustment might be partly undoing the seasonal adjustment of the employment totals.
Another thing I noticed is that seasonally unadjusted January to June employment numbers consistently display a steady slope, with the seasonally-adjusted employment figures intersecting that line at April. So far this year, the January to April segment of that line has been flat, with a minor dip down in February and March followed by a small bounce in April. That small bounce might reflect the 62,000 census workers plus the residual unadjusted seasonal variation from the birth/death model.
Assuming that the flat-line slope of the unadjusted employment figure follows the usual pattern and applying a rough seasonal adjustment formula to the result produces a trend projection loss of between 775,000 and 835,000 jobs in May, depending on whether one discounts the one-time-only 2010 census jobs. The reported number could be less because of upward revision of the April job loss figure.
May BLS Non-farm payroll employment decline: -775,000 to -835,000 jobs lost.
One of the things I noticed mucking around with the BLS birth/death model is that the Business Employment Dynamics data upon which the model is based doesn't quite seasonally adjust. That is to say the 'seasonally-adjusted' series of business openings and closings still displays a noticeable seasonal fluctuation. Thus when the imputed birth/death adjustment is added back into raw employment data and then seasonally-adjusted, the birth/death adjustment might be partly undoing the seasonal adjustment of the employment totals.
Another thing I noticed is that seasonally unadjusted January to June employment numbers consistently display a steady slope, with the seasonally-adjusted employment figures intersecting that line at April. So far this year, the January to April segment of that line has been flat, with a minor dip down in February and March followed by a small bounce in April. That small bounce might reflect the 62,000 census workers plus the residual unadjusted seasonal variation from the birth/death model.
Assuming that the flat-line slope of the unadjusted employment figure follows the usual pattern and applying a rough seasonal adjustment formula to the result produces a trend projection loss of between 775,000 and 835,000 jobs in May, depending on whether one discounts the one-time-only 2010 census jobs. The reported number could be less because of upward revision of the April job loss figure.
Mexico: Not a Model State (Yet)
In today’s New York Times, Larry Rohter writes this in the middle of an article about how Mexico is a much better place than it used to be:
Just before President Obama visited here on April 16, in contrast, the Mexican Senate approved a request by the government of President Felipe Calderón to allow the Mexican Navy to participate, for the first time, in annual exercises with the United States and other nearby countries. During Mr. Obama’s trip, Mr. Calderón even briefly addressed Mr. Obama in English in public at the Mexican White House; that was something that Mexican presidents always avoided in my day, for reasons of sovereignty, self-image and the very complicated history of American-Mexican relations.
None of this suggests that Mexico has become a model state.
Political Aspects of Full Employment II, 1.
by Michal Kalecki
The above is a very crude and incomplete statement of the economic doctrine of full employment. But it is, I think, sufficient to acquaint the reader with the essence of the doctrine and so enable him to follow the subsequent discussion of the political problems involved in the achievement of full employment.
In should be first stated that, although most economists are now agreed that full employment may be achieved by government spending, this was by no means the case even in the recent past. Among the opposers of this doctrine there were (and still are) prominent so-called 'economic experts' closely connected with banking and industry. This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic. That is not to say that people who advance them do not believe in their economics, poor though this is. But obstinate ignorance is usually a manifestation of underlying political motives.
There are, however, even more direct indications that a first-class political issue is at stake here. in the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany. This was to be clearly seen in the USA (opposition to the New Deal), in France (the Blum experiment), and in Germany before Hitler. The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter's profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question with which we intend to deal in this article.
The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. We shall examine each of these three categories of objections to the government expansion policy in detail.
next
The above is a very crude and incomplete statement of the economic doctrine of full employment. But it is, I think, sufficient to acquaint the reader with the essence of the doctrine and so enable him to follow the subsequent discussion of the political problems involved in the achievement of full employment.
In should be first stated that, although most economists are now agreed that full employment may be achieved by government spending, this was by no means the case even in the recent past. Among the opposers of this doctrine there were (and still are) prominent so-called 'economic experts' closely connected with banking and industry. This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic. That is not to say that people who advance them do not believe in their economics, poor though this is. But obstinate ignorance is usually a manifestation of underlying political motives.
There are, however, even more direct indications that a first-class political issue is at stake here. in the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany. This was to be clearly seen in the USA (opposition to the New Deal), in France (the Blum experiment), and in Germany before Hitler. The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter's profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question with which we intend to deal in this article.
The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. We shall examine each of these three categories of objections to the government expansion policy in detail.
next
Saturday, May 9, 2009
Scientific Integrity for Economists
The federal Office of Science and Technology Policy is taking comments on its draft principles of scientific integrity. Here's what I wrote:
UPDATE: The rules for biomedical researchers may be tightening. Why can't we do this for economists?
I am writing to offer a comment on scientific integrity. As we know, it is important that those whose work is used to provide a scientific basis for policy decisions reveal the sources of their funding so as to avoid conflicts of interest or undisclosed potential bias. This stipulation has made gradual progress in the medical sciences in particular -- something for which we should all be grateful. Unfortunately, in my own field of economics no one makes or enforces such a rule. Economic analysis often plays a central role in decision-making, and economists are often funded by interested parties, but disclosure is nonexistent. It is unlikely that the economics profession will take the lead in remedying this situation, so we have to look to our clients. If OSTP would take a clear stand on this matter it would improve the credibility of analysis entering the regulatory process and would also have a salutary effect on the profession itself.
UPDATE: The rules for biomedical researchers may be tightening. Why can't we do this for economists?
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