Cochrane Too

Cassidy has him saying:

What efficient markets says is that prices today contain the available information about the future. Why? Because there’s competition. If you think it’s going to go up tomorrow, you can put your money where your mouth is, and your doing it sends (the price) up today. Efficient markets are not clairvoyant markets. People say, “nobody foresaw saw the market crash.” Well, that’s exactly what an efficient market is—it’s one in which nobody can tell you where it’s going to go. Efficient markets doesn’t say markets will never crash. It certainly doesn’t say markets are clairvoyant. It just says that, at that moment, there are just as many people saying its undervalued as overvalued.

To be filed under “not understanding the difference between necessary and sufficient conditions”.

Fama’s Fallacy

Listen to this excerpt from his interview with John Cassidy:

Back to the efficient markets hypothesis. You said earlier that it comes out of this episode pretty well. Others say the market may be good at pricing in a relative sense—one stock versus another—but it is very bad at setting absolute prices, the level of the market as a whole. What do you say to that?

People say that. I don’t know what the basis of it is. If they know, they should be rich men. What better way to make money than to know exactly about the absolute level of prices.

He makes this point several other times within a few minutes: we know markets are efficient because they are unpredictable.

But those famous monkeys, who sat at their keyboards for centuries hoping to randomly tap out Hamlet, could just as well be inputting unpredictable asset prices.

How can someone be a world famous financial economist and not know the difference between necessary and sufficient conditions?

A Hatchet Job on the Landesbanken

Today’s New York Times putdown of public banking in Germany was probably not intended to be ideological, but, with the luck of the Rolodex, that’s how it turned out. It is certainly true that several Landesbanken have engaged in stupid and even corrupt practices and have needed to be bailed out. What’s missing, however, is the context.

Contrary to the claim by the EU official quoted in the article, Brussels has been on the warpath against the Landesbanken for years. They have been under intense pressure to demonstrate market rates of return, to show that they are not subsidizing domestic credit in Germany. But they have no competence in speculative finance; their stock in trade is financing the extraordinarily productive Mittelstand—the small, family-owned enterprises that outperform any other SME sector in the world and provide the basis for the country’s export machine. Forced to show instant hyper-profits, these naive public bankers went out and loaded up on mortgage-backed securities, Icelandic delicacies, and other such fare. In other words, they tried to turn themselves overnight into poster children for EU financial neoliberalism and got seriously burned.

No doubt Brussels will use this disaster as an excuse to put still more pressure on Germany to move to a private, profit-driven financial system. The consensus in Germany, however, is to find a way to restore the Landesbanken and return them to their core task of maximizing the profits and productivity of their borrowers. American readers would be better informed by an article that described the EU’s campaign for financial liberalization and the role it played in making Europe even more susceptible to a financial implosion whose epicenter was the US.

Class Coalitions and Keynesian Fiscal Policy

I’ve been rethinking some of my earlier writings (this is almost always true), and have changed my views on the political economy of Keynesian fiscal policy.

Old view: Keynes offered the twentieth century’s most influential example of an economic policy that depended on, and also galvanized, a coalition between workers and employers. By recognizing that workers are also consumers and that profits depend on consumption, expansionary fiscal policy à la Keynes identified a common interest in high levels of employment, and therefore wages. While it would not be in the individual interest of any employer to raise the wages of his or her own workers alone, it is at least potentially in the collective interest of the class of employers to enlist worker-voters to support an economy-wide program to bolster worker incomes. This coalition has atrophied for a number of reasons during the past generation or so, and seriously expansionary policy is invoked only in times of economic distress.

New view: Keynesian fiscal policy was central to class coalitions in the liberal, English-speaking world, as above. In the main non-liberal capitalisms coalitions formed over policies to achieve high employment through high levels of investment. This was pursued through public ownership, public-private partnerships, worker and public stakeholder influence in corporate investment policy, and other “microeconomic” mechanisms. As long as these policies worked, additional stimulus via fiscal deficits, at least during non-recessionary times, could legitimately be criticized as inflationary. This helps explain why fiscal expansion has a bad reputation in Germany and Scandivia and a dubious reputation in France. These investment-centered coalitions have proved more durable than consumption-centered ones, although the current crisis, which may yet result in a prolonged period of dampened investment, could put them to the test.

How does Japan fit into this story?

Massively Misrepresenting the Econoblogosphere: "Blogometrics"

The lead article for 2010 in the Eastern Economic Journal (vol. 36, no. 1, pp. 1-10) is "Blogometrics" Franklin G. Mixon, Jr. and Kamal P. Upadhaya. It claims to rank economics bloggers, blogs, and universities, by the scholarly impact of the bloggers in question. This may be a worthy effort, but there is a complete mystery as to the set of blogs that they use in this study, with it apparently being tilted heavily towards Austrian or libertarian blogs, with none "further left" than either Brad DeLong's blog (a former official in the center-left Clinton presidency) and Mark Thoma's Economists View. While highly read Mankiw, Marginal Revolution, and Freakonomics are included, Krugman's blog is not, with him probably being more "progressive" than any of the 83 bloggers listed, of whom it is probably a race between DeLong, Thoma, and the late Paul Samuelson as to who is the "lefiest." As it is, of the 40 blogs considered, at least 5 are Austrian and at least another 5 are overwhelmingly libertarian. In terms of university rankings, while Harvard does come in at #1, George Mason is #16, while Princeton is not even on the list of 44 universities ranked. In the body of the paper it is stated once that they are studying the "main contributors to some of the most well-known blogs," although no method of selecting those is provided. On one table they give average page views per day from the EconDirectory of Gongol for 16 of their 40 blogs. Only three of these blogs are in the top ten of Gongol, with only only 7 of them coming in above the 426 for Econospeak (rank for Dec. 09, 59th), with one of them, macroblog, coming in at zero, and another that was listed as 963, at zero for the latest listing. I list below their list and top 40 from Gongol's most current posting, with commas separating the names of the blogs from the respective lists. I also note that they overstate the dominance of Americans in the econoblogosphere.

Mixon-Upadhaya Gongol
(rank by scholarly impact of
"main contributors) (rank by AVPD)

Becker-Posner, Calculated Risk
Greg Mankiw's blog, Michael Shedlock
RGE Monitor, Big Picture
Inside the Economist's Mind, Marginal Revolution
Neuroeconomics, Naked Capitalism
Organizaion & Markets, Gregory Mankiw
Freakonomics, Baseline Scenario
Game Theorist, Economist's View
Vox Baby, Tax Prof
John Lott's Blog, Credit Writedowns
Grasping Reality with Both Hands, VoxEU
Daniel W. Drezner, Coyote Blog
Marginal Revolution, European Tribune
Economist.Mom.com, Gongol
macroblog, Financial Armageddon
Core Economics, Carpe Diem
Environmental Economics, Overcoming Bias
EconLog, Half Sigma
Cafe Hayek, Angry Economist
Division of Labour, Carl Futia
The Sports Economists, Angry Bear
The Austrian Economists, Triple Pundit
Hypothetical Bias, Economic Edge
Dynamist.com, QandQ
Economics Roundtable, Mess that Greenspan Made
Economist's View, Trader Mike
Mises Economics Blog, EconBrowser
Adam Smith's Lost Legacy, Tim Worstall
timharford.com, Economic Populist
Economic Principals, Wages of Wins
the Attention Economy, John Lott
Reasonable Bystanders, Fistful of Euros
Newmark's Door, Ekonomi Turk
Market Power, Willisms
ElectEcon, Visualizing Economics
Equinometrics, Random Roger's Big Picture
Knowledge Problem, Art Diamond
The Perfect Substitute, Environmental Economics
The Blog of Diminishing Returns, Bonddad Blog
The Capital Spectator, Roth and Co.

Sins Of The Sons Of Samuelson: More From Atlanta

Also in the HES/AEA session I organized in Atlanta was a paper by David Colander and Casey Rothschild entitled, "Sins of the Sons of Samuelson: Vision, Economic Pedagogy, and the Zigzag Wadnerings of Complex Dynamics," available at this link. They argue that Samuelson was aware of complex dynamics and how math models could simplify insights in Marshall and others that had been expressed only in the "zigzag wanderings" of literary expression. They blame the "sons of Samuelson" for turning the push to math models, certainly led by Samuelson, into a mindless dogma that oversimplified economics and misled many in many different ways. They proposed how to change intro textbooks to open students' minds to complexity (and Rothschild will be joining Colander as a coauthor in future editions of his popular intro textbook).

Rajiv Sethi has just posted on Samuelson's own interest in nonlinear dynamics, citing my mentioning a paper by Samuelson on Mark Thoma's blog, with Thoma linking to the Sethi piece. Sethi discusses the nonlinear version of Samuelson's multiplier-accelerator model, which appeared in the same year (1939) as his much more famous linear version. Sethi notes that I had brought this up on Thoma's blog only two weeks prior to Samuelson's death.

As a matter of fact I cite that paper by Samuelson in the paper I presented in the session at Atlanta, "Chaos Theory Before Lorenz," available on my website and also having appeared recently in print in a special issue of Nonlinear Dynamics, Psychology, and Life Sciences, honoring the late Edward Lorenz, the MIT climatologist who was reputed to have "discovered chaos on a coffee break" back in 1961. He was the person who coined the term "buttefly effect."

A Festschrift For Me (Brag, Brag)

If you cannot brag where you co-blog, where can you? Anyway, a book has just been published, _Nonlinear Dynamics in Economics, Finance and the Social Sciences: Essays in Honour of John Barkley Rosser, Jr._, edited by Gian-Italo Bischi, Carl Chiarella, and Laura Gardini, Berlin/Heidelberg: Springer, 2010. Unfortunately it is very expensive. It contains papers presented at a conference held at the University of Urbino in Italy in late September, 2008, honoring my 60th birthday, which was in April of that year. I gave a plenary talk there (not in the volume), and they were very nice to me (the Italians know how to do these things right, :-)).

Bring back The Sedition Act

So I'm reading a very interesting and funny book by Bill Bryson, Made in America, a history of American English, and I come across this oddity:

"The Sedition Act of 1918 made it illegal, among much else, to make critical remarks about government expenditure or even the YMCA."

All you windy fiscal stimulus denialists in the Windy City - you know who you are! - DO NOT PASS GO , DO NOT COLLECT $200!

Euroland Hardball? Atlanta Rumors

One hears things in the hallways of American Economic Association meetings, and I heard some rumors from sources who will remain anonymous but are well connected at the recently finished meetings in Atlanta. So, when the new Greek prime minister came into office in mid-December, George Papandreou, what had been reported as a budget deficit of around 6-7% of GDP, already unpleasantly above the Euroland official limit of 3%, turned out to be more like 12-13%, if not worse. Spreads on Greek bonds have gone way up, and there is a sense of crisis on the nation's foreign indebtedness. It needs help from the ECB and the Eurozone countries more generally or else faces tough cuts. These are probably coming anyway, but Papandreou is resisting somewhat. The rumor is that hardball negotiations are getting going between him and the effective leaders of the Eurozone, Merkel and Sarkozy. The latter will be putting a lot of pressure on Papandreou, but he may use the threat of removing Greece from the euro as a counterpressure. Now many might suggest that this is not much of a counterpressure, given that various eastern European countries are begging to join the euro in the current situation, as is even formerly aloof Iceland (not even in the EU yet). However, it is probably the case that Merkel and Sarkozy do not wish to open the door to having countries leaving the euro (as others might be tempted to follow if a devaluation by Greece works out well in terms of employment growth). France and Germany have worked very hard over a several decade period to make the euro as solid as the Deutsche Mark, and having anybody leave might trigger a more general unraveling of the euro, something long forecast by some US observers such as Martin Feldstein.

It occurs to me that the rise of the US dollar over the last month from around 1.51 to the euro to more like 1.43 might in part be due to the worries about such possible defections (even though presumably the countries still on the euro would be "stronger" ones). At a minimum this will probably scotch any moves to make the euro replace the dollar as the major world reserve currency in the near term (and other alternatives such as the yuan/renmimbi are nowhere near being ready to step in). I must also note that this recent rise of the dollar rather makes ridiculous recent reports, such as one in the Washington Post today, that the rising price of oil in the last few weeks is due to the falling dollar. What falling dollar? I continue to be astounded by the decreasing competence of newspaper reporters on economic matters.

Volcker says its all broken

"The American political process is about as broken as the financial system....The Treasury is an outstanding example of a broken system, but it's not the only one....I think people have lost confidence in government, they've lost trust in government, and it shows. This isn't a question just of this Administration. It's been kind of a steady, downhill path." [*]

[*] Business Week: At the Table December 30, 2009, 5:00PM EST
Paul Volcker: The Lion Lets Loose
Charlie Rose talks financial reform with former Federal Reserve Chairman Paul Volcker
Business Week: At the Table December 30, 2009, 5:00PM EST
http://www.businessweek.com/print/magazine/content/10_02/b4162011026995.htm

The Oil and Money Straitjacket

David Holden and Richard Johns, in their 1981 book ‘The House of Saud: 'The Rise and Rule of the Most Powerful Dynasty in the Arab World’ describe how Saudi oil money was used to hire American firms to industrialise Saudi Arabia with the overall management and fiscal responsibility delegated to the US Department of Treasury. The commission so set up was “independent to the extreme”. “Ultimately, it would spend billions of dollars over a period of more than twenty-five years, with virtually no congressional oversight. Because no US funding was involved, Congress had no authority in the matter, despite Treasury’s role. ”[1]

I wonder how effective monetary policy could be in the US under such a large and secret money regime?

David Holden was murdered in Egypt in December, 1977, while his and Johns’ book was still a work in progress. “Some say that Holden pried too deeply, and that is why he was murdered, others ascribe his death to a case of mistaken identity; almost certainly the truth will never be known.” [2]

A reviewer of Holden and Johns’ work noted that there are “some wonderful nuggets of insight [that are] not discussed in other books. For example a quote from Kissinger's own doctoral dissertation:

"... not shy away from duplicity, cynicism or unscrupulousness, all of which are acceptable tools of statecraft." (p 348)

and, after the death of King Faisal, a quote from the Washington Post:

"[King] Faisal probably did more damage to the West than any other single man since Adolf Hitler." (p382)

Why was the Washington Post so against Faisal?

As it turned out this Saudi Arabian leader was assassinated in March 1975. The timing is interesting. It was only two days before Faisal’s death that the former left-wing Australian Deputy Prime Minister (Jim Cairns) and Australian Senator Wreidt met him in order to negotiate a very large loan for Australia to fully develop its domestic energy infrastructure. This included moves toward the use of solar energy. King Faisal assured Cairns and Wreidt at the time of “the fullest possible cooperation of Saudi Arabia about oil, food and monetary or investment matters.” Cairns believed “it was possible for large sums of money to have been borrowed at far lower rates of interest than would have had to be paid in Australia, and perhaps elsewhere.” [3]

Cairns noted that “the death of King Faisal and later the disarray of the Australian government prevented any progress in 1975. That was the year many Australians point to a coup against Australia’s last social democratic Labor government having occurred with American CIA involvement. [4] Jim Cairns was removed from the office of Treasurer by the then Prime Minister Gough Whitlam after the mainstream newspapers in Australia (virtually then under the control of only three families – Murdoch, Fairfax and Packer) engaged in a campaign attacking the credentials of Cairns. The Melbourne Age, for instance featured banner headlines claiming a member of Cairns family was to get $600,000. Cairns wrote: “It was never possible for anyone to get one cent as a result of anything I, or the government, or any member of it did or did not do.” [5]

Cairns was aware that the aim of the USA at the time was take control of the distribution of oil funds in international financial markets “rather than be lent directly, especially in government to government loans”. “In Washington in October, 1974, OPEC was anathema. If there were to be any ‘cartels they had to be American controlled.”. Cairns added:

“I got the impression, both in Washington and New York, of confidence that oil pressures could be successfully resisted without any military action [6], and that American financial houses could soon regain control of the investment of oil funds.”[7]

And so they did. Wall Street banks monopolized the recycling of petrodollars and the US government acquiesced in vastly inflationary oil price rises in order (at least partially) to bail out its defence contractors. In Australia it was the end of an era. After a relentless oligopoly media campaign, on 11th November 1975 the ‘bunyip aristocracy’ of the Liberal-Country Party coalition came to power in Australia under Malcolm Fraser. It was constantly referred to in Australian corporate media as a ‘landslide’ defeat for Labor, but the party acquired 43.8 percent of the votes – even with the incessant anti-labor campaign – and received only 28 percent of the seats. Cairns thoughtfully wrote in 1976 that such an outcome “may have brought the end of the apparent two-party system.”[8] He was right.

“The strait-jacket was there, and it proved to be one made of money.” [9]...and oil.

[1] [1] David Holden and Richard Johns, ‘The House of Saud: The Rise and Rule of the Most Powerful Dynasty in the Arab World (New York: Holt Rinehart and Winton, 1981), p359. As quoted in ‘Confessions of an Economic Hitman’ by John Perkins. Page 84. Published by Ebury Press Random House, 20 Vauxhall Bridge Road, London SWIV 2SA. 2005. ISBN 978091909109

[2] John P Jones III (reviewer of Holden and Johns book at Amazon).

[3] Jim Cairns ‘Oil in Troubled Waters’1976. Widescope International Publishers, Victoria, Australia. Page 92

[4] 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

[5] Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 92

[6] Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 82

[7] Jim Cairns wrote: “On January 3, 1975, Dr Kissinger, American Secretary of State, indicated that in some circumstances a ‘takeover of Arab oilfields was a possibility’, not because the cost of fuel had quadrupled, but that it would be ‘another matter where there was some actual strangulation of the industrialized world.’ At about the same time Professor Robert Tucker of John Hopkins University had issued a paper settling out the pros and cons of an American seizure of parts of Kuwait and Qatar. He believed that even if the Arabs set fire to the oil wells it would take only a few months to have the oil flowing freely again. He was satisfied that Russia would not intervene.” Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 79

[8] Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 129

[9] Jim Cairns ‘Oil in Troubled Waters’ 1976. Widescope International Publishers, Victoria, Australia. Page 130.

Mirowski On The Market Crash

At the recently completed AEA/ASSA meetings in Atlanta I organized a joint HES/AEA session on "Complexity in the History of Thought." Speakers included me, David Colander, John Davis, and Phil Mirowski of the Notre Dame department that is about to be abolished. He spoke provocatively to an overflow audience on "Inherent Vice: Complexity vs. Behavioral Explanations of the Crisis." In this he dismissed views that emphasized "bad behavior by individuals" including irrationality and corruption as causes of the crash and larger breakdown. He argued that it was a systemic problem, doing so by extending his recent idea of markomata, that markets are fundamentally algorithms that evolve as competing systems with increasing levels of hierarchy in the form of futures and derivatives markets. While conventional theory says such developments should improve efficiency and spread risk, they can lead to increased fragility as the rising complexity can lead to a breakdown of computation as in the halting problem in computer science, implying an inability of the system to set prices, which was exactly what happened in the crash. I was the discussant, and while I had some technical complaints, I find this a very intriguing argument, and it generated considerable and very lively discussion in the session.

What is the Fed up to Now?

Recently I read that the Financial Services Regulatory Relief Act of 2006 will give the Federal Reserve, for the first time, explicit authority to pay interest on reserve balances, beginning on October 1, 2011. [1] I wondered why this change was being introduced.

A clue came yesterday when I read that, at present, THE FED IS UNINTENDEDLY INCREASING BANK RESERVES by its lowering of long-term interest rates and directly supplying credit to borrowers who can’t get money elsewhere. The excess bank reserves created by this process are claimed not to be a spur on credit growth and inflation because “bank lending is constrained by customer demand and by capital [and] right now loan demand is moribund (in spite of a zero federal funds rate) and capital is in short supply.” The Fed wants to drain the ‘tsunami’ of excess reserves caused by its above intervention so that it can regain its capacity to set the Fed Funds rate.[2] It will want to raise the Fed Funds rate eventually and the author of this article hopes they won’t do this anytime in the near future.

However, according to Mark A Sadowski the Federal Reserve -for the first time in history– is already paying the banks interest on excess reserves [ER]. They can earn 0.25% “absolutely risk free on nearly $1 trillion.” This is more than the banks can earn on 1, 3 or 6 month T-Bills right now. “It is a highly deflationary policy that has sharply reduced the money multiplier and has probably rendered the current quantitative easing largely impotent…The IOER appears to be a tool to help prop up the financial sector while keeping long-run inflation expectations low…It is a tragic deflationary mistake.” [3]

It looks like banking has become an unviable business these days. With claims that there are insufficient borrowers at a time when real interest rates are negative [4]. The banks, in any case, don't generally want to lend because most of their customers are insolvent. The solution, therefore is to pay the banks money for doing absolutely nothing.

There is no broadly accepted modern definition of feudalism nor is there one for this more recent emergence of absolute financial nobility [5]. Therein lies our challenge. To find a more apt description for our new lords.

In the absence of any public control over events, self knowledge will at least give us a little power.

[1] Divorcing Money from Monetary Policy
Todd Keister, Antoine Martin, and James McAndrews
http://www.ny.frb.org/research/EPR/08v14n2/0809keis.pdf

[2] The truth about all those excess reserves
Dec 30th 2009, 19:27 by The Economist | WASHINGTON
http://www.economist.com/blogs/freeexchange/2009/12/the_truth_about_all_those_exce

[3] Mark A. Sadowski commenting on Dec 31st 2009 3:50 GMT at:
The truth about all those excess reserves
Dec 30th 2009, 19:27 by The Economist | WASHINGTON
http://www.economist.com/blogs/freeexchange/2009/12/the_truth_about_all_those_exce

[4] Gold and Real Interest Rates. Mark Berger. 20th November 2009
http://education.wallstreetsurvivor.com/gold-real-interest-rates-negative

[5] It could be easily argued that the financiers have always been part of the 'nobility' all along. This may be the first time in history, though, where all the pretense to banking has been abandoned by this class.

New Measures for Bankruptcy Needed

I was reading a Paul Krugman article last night where this economist was addressing, what appears to be, the single-minded pursuit by Government of 'an inadequacy of demand' in the economy.

"It is possible for economies to suffer from an overall inadequacy of demand--recessions do happen" said Krugman. Then he added: "they can usually be cured by issuing more money--full stop, end of story.”[1]

And this is where the issue of bankruptcy plays in. You can't keep fueling consumption when people can't pay their bills without drawing down or abandoning all of the 'houses' they need to survive in.

So here's some reminders to Paul Krugman and company of what an ultimate bankruptcy really means:

“The risk that a 50-year-old white woman will develop breast cancer has soared to 12 percent today from one percent in 1975. Likewise, asthma rates have tripled over the last 25 years and childhood leukemia is increasing by one percent per year.”[2]

"Three out of every four Tasmanians suffer from a chronic health condition. This renders them unable to hold down a job and sees them struggle with simple daily tasks." [3]

"[consumptive water use across the Murray-Darling Basin in Australia] has reduced average annual streamflow at the Murray Mouth by 61 percent. The river now ceases to flow through the mouth 40 percent of the time compared to one percent of the time."[4]

"..In recent years [1992]... we have been witnessing another dramatic drop in biological diversity as a result of human activity, with both species extinctions and gene pool declines occurring at rates unprecedented in the earth’s history."[5]

"The Environmental Protection Agency is ready [April 2009] to start testing 67 pesticide ingredients for their possible endocrine disruption effects. But the testing program the agency plans to use is only a pitiful skeleton of what
it needs to be. This battery of tests, first recommended in 1998, is outdated, insensitive, crude, and narrowly limited. Each test and assay was designed under the surveillance of corporate lawyers who had bottom lines to protect and assorted toxicologists who were not trained in endocrinology and developmental biology."[6]

[1] The Accidental Theorist, All work and no play makes William Greider a dull boy.
By Paul KrugmanPosted Friday, Jan. 24, 1997, at 3:30 AM ET
http://www.slate.com/id/1916/

[2] As quoted in the Tasmanian Times and sourced from:
Cancer From the Kitchen?
By NICHOLAS D. KRISTOF Op-Ed Columnist
Published: December 5, 2009
http://www.nytimes.com/2009/12/06/opinion/06kristof.html?_r=4

[3] Plan to fight chronic disease. DAMIEN BROWN
December 07, 2009 09:13am
http://tasmaniantimes.com/index.php?/weblog/article/plan-to-fight-chronic-disease/
The Mercury link: http://www.themercury.com.au/article/2009/12/07/114171_lifestyle.html

[4] CSIRO, Water Availability in the Murray-Darling Basin- A report from CSIRO to the Australian Government, October 2008, p 5. See www.csiro.au for further information. As quoted in:
Native Title Report 2008, Case Study 2
The Murray-Darling Basin – an ecological and human tragedy
http://www.hreoc.gov.au/social_justice/nt_report/ntreport08/casestudy2.html
..\..\..\Environment\Water\Murray-Darling-Basin\casestudy2.doc

[5] Spellerberg and Hardes 1992 as quoted in:
Biodiversity and Ecosystem Function: Do Species Matter?
Paul S. Giller and Grace O’Donovan. Paul S. Giller, Department of Zoology and Animal Ecology, University College Cork, Republic of Ireland (corresponding author; e-mail: p.giller@ucc.ie); Grace O’Donovan, Department of Environmental Resource Management, University College Dublin, Belfield, Dublin 4, Republic of Ireland.

[6] EPA's new pesticide testing is outdated, crude
http://www.environmentalhealthnews.org/
In its search for endocrine-disrupting chemicals, the EPA should turn to scientists who think outside the box and inside the womb. The agency's testing program is "a pitiful skeleton" that will fail to detect many serious effects on human development.
By Theo Colborn, The Endocrine Disruption Exchange. April 27, 2009

The Doppelgänger Effect

by the Sandwichman (his farewell address)

Ere Babylon was dust,
The Magus Zoroaster, my dear child,
Met his own image walking in the garden.
That apparition, sole of men, he saw.
For know there are two worlds of life and death:
One that which thou beholdest; but the other
Is underneath the grave, where do inhabit
The shadows of all forms that think and live
Till death unite them and they part no more....

Economics has a double. Whenever an economist encounters that shade he lets out a terrified shriek. For Marx, the spectre haunting Europe was called communism. For Dilke, it was disposable time. It was Nassau Senior's "Last Hour". But for militantly anti-union employers at the turn of the 20th century -- and economics textbooks thereafter -- it was a humble lump-of-labor fallacy.

Make no mistake. When economists do it, it is arcane and learned ceteris paribus hokus pokus. But it is a fallacy and an aberration when the uncouth and uninitiated try their hand and apply it to the Great Shibboleth.

Classical political economy did not survive Marx's critique. To get around that embarrassment, economists erected the hydra-headed neo-classical scaffolding of a marginalist analysis whose elusive variations and elaborations make it harder to pin down.

In their heart of hearts, though, contemporary economists cling to a cherished inheritance from their classical forebears: the "wage-fund" of a fixed amount. But in this case, the error of this assumption is projected onto a hazily unspecified Other -- politicians, unionists, Luddites, Utopians or cranks. Whoever. This Other is the tremulous economists' doppelgänger

Economizing is labor saving. Economy means doing more with less. People specialize and trade so that they can have more with less effort. The purpose of technology is to reduce the amount of effort required to make something -- that is, to reduce the amount of wasted effort.

The purpose even of many consumer goods is to bring greater ease into our lives. A washing machine spares the housewife hours of scrubbing and wringing. A car relieves the shopper from the tedium of walking to the grocery store and the burden of carrying groceries back home.

The end of work, that is to say, is leisure. Even when the labor-saving capabilities of specialization, trading and technology are turned toward the production and consumption of more goods, those goods themselves are overwhelmingly aimed at expanding ease and leisure. Adam Smith observed this peculiar fact in his Theory of Moral Sentiments. And he wasn't the only one.

If the end of work is leisure, the end of growth is more work. Houston, we have a paradox. To economize is to save labor but to "grow the economy" is to waste it. Every economic action leads to a fork in the road. To save or to spend? To have more or to work less?

This bifurcation, this paradox, makes any conceivable economic calculation indeterminate. All the great economic thinkers -- Smith, Marx, Mill, Marshall, Veblen, Keynes -- acknowledged this paradox. Economics, then, is in essence the elaboration of a riddle -- an "unsolved riddle" in Leacock's phrase -- not the mechanical grinding out of predictions.

But statesmen, generals and captains of industry don't want to be bothered with silly riddles. They want predictions -- but, of course, only certain kinds of predictions, "mirror, mirror on the wall." And it is the statesmen, generals and captains of industry who write the checks -- even though the toiling masses are the ones who will be compelled to honor those checks with their blood, sweat and tears.

Economists who cash those checks with their mystically pedantic predictions are impostors and charlatans. One of the time-honored ruses of charlatans and crooks is to loudly denounce others as quacks and cranks. It's a good distraction and it establishes the bona fides of the confidence man as someone who can be trusted to proclaim the difference between truth and falsehood. And if the accused replies with a counter-claim? Well, who spoke first? It is to entrap the mark in a hall of mirrors.

Is there a way out? Listen. Touch. Smell. Explore. Remember.

Ten years ago, Tom Walker comprehensively refuted the lump-of-labor fallacy claim in a chapter, "The 'lump of labor' case against work-sharing: Populist fallacy or marginalist throwback," included in the anthology Working Time: International trends, theory and policy perspectives.

Four years after that refutation was published, the bogus fallacy claims again blossomed -- presumably in response to the French 35-hour workweek experiment and to the jobless recovery after the 2001 recession. The Sandwichman began a series of postings to MaxSpeak re-iterating the debunking of the fallacy claim. Those posts evolved into a second article, "Why Economists Dislike a Lump of Labor," published in the September 2007 Review of Social Economy.

The nonsensical nature of the fallacy claim is extreme. It is akin to the innumerable sayings attributed to Mark Twain that he never said or the many beliefs attributed to Marx that, in actuality, he quoted only to criticize. And like those misquotations, the fallacy claim circulates on, oblivious to the truth of its origin, its logical coherence or its factual ground.

The real shame, though, is not so much in the thoughtless circulation of this baseless claim as in the almost unanimous deference paid to the blustering pronouncements by the economics profession. It is a shame because leisure, unemployment, waste, environmental sustainability, social justice and war are important issues and to trivialize and marginalize a potentially effective policy approach to those issues is, to say the least, "inappropriate", if not technically criminal negligence.

Some would say that those who knowingly, or through flagrant and obstinate refusal to perform their duty of due diligence, bring on a war, plague or famine are guilty of mass murder. They are little and not-so-little Eichmanns. But the Sandwichman is wary of such name-calling. The Sandwichman would rather offer incentives than invectives.

On May 1, 2008, the Sandwichman offered a $10,000 prize to anyone who could successfully refute Tom Walker's debunking of the lump-of-labor fallacy and get it published in a leading economics journal. The judge for whether the rebuttal was successful or not would thus have been not the Sandwichman himself but a pillar of the economics profession.

Academics warned the Sandwichman that such a bet was foolhardy because respected journals will publish "all kinds of crap" as long as it conforms to the prevailing ideology. Nevertheless, the deadline for entering the prize competition -- December 31, 2009 -- came and went and the Sandwichman didn't receive a single entry or even an inquiry. Zilch, zip, nada. Not only will the lump-of-labor mongers not put their money where their mouth is, they won't even put their mouths where the money is!

Last year (2009) alone, "Charlemagne" at The Economist, Peter Coy at Business Week, Harvard Economics Professor Edward Glaeser, Ed Crooks at the Financial Times and Northwestern Economics Professor Robert J. Gordon each invoked the lump-of-labor fallacy claim in complete ignorance of what they were talking about. The Sandwichman has been accused of being repetitive. The Sandwichman doesn't like to be repetitive. But when people who get paid to know what they are talking about keep repeating nonsense and lies, the Sandwichman suspects that maybe folks haven't heard yet that the jig is up on the lump-of-labor scam.

Ten thousand dollars says Robert J. Gordon is a buffoon, Edward Glaeser is a impostor, Peter Coy is a con-man, Ed Crooks is a crook and Charlemagne is a charlatan. The Sandwichman is not calling these gentlemen those names, though. He is offering them a wager. Although the original prize offer has expired, terms for an extension remain negotiable.

Listen. Touch. Smell. Explore. Remember. Above all, remember.