John Maynard Keynes & Obama's upcoming plan...

Group think and confirmation bias are pretty common fair in the academic community, no body wants to be a social outcast for their unpopular beliefs.

I'll stick with my disagreement on my usage, but let's forget the terms and focus on what I meant by them.

This wasn't the first time the federal government has stepped to bail out privates companies (Penn Central Rail, Chrysler, Franklin National Bank), there was an awareness within the financial community that they wouldn't be made to bear the burden of their errors. This encouraged risky behavior, those with the most incentive to be risk averse (the lenders) were insulted from the downsides and acted accordingly.

The problem to me seems to be that those who have the greatest incentive to be careful, aren't the same ones designing the regulations that guides them, instead we get half-hearted regulations instituted by outside organization that does little other than increase barriers to entry and the cost of compliance, thus limiting competition and ... in turn polluting attempts at solving these issues politically.

Whether it was the intention or not is irrelevant to my conclusion. The existence of a precedence for a bail-out encouraged GM and AIG to take actions that they normally would have avoided, it may very well have been necessary to prevent a macroeconomic catastrophe, but that doesn't diminish nor mitigate the fact that a environment has been created where large financial institutions can bank on the fact that they won't be allowed to fail.

 

Ah the conspiracy theory of science. It's popular among Tea Partiers.

 

On the contrary it makes all the difference or you wouldn't have used the mischaracterization.

If the purpose of the bail out was to prevent the failed conservative policies of Bush from causing massive credit bottlenecks and hence massive unemployment, it worked. Indeed that was the intent.

The fact that a couple large corporations benefited too speaks to the fact of how misguided conservative deregulatory policies were and how they put us in such a bad situation that even Democrats had to support bailing them out against their instincts becuase the GOP made such a balls of the economy.

As to AIG and GM, it's pure deregulation that cause the problem since Phil Graham succeeded in getting CDSs protected from regulation as securities and CDSs are at the core of the Bush Recession. The other narratives are Tea Party nonsense.

 

Sorry, but this is nonsense. The variation in journals ensures that its possible to get published with ease (assuming of course minimum quality standards are achieved). The real problem is publication bias, but that's a different issue and reflects how insignificant results- with a lower chances of being published- are less likely to be acknowledged in a literature review. We can refer to other aspects, such as how journal ratings encourages the orthodox, but that's typically a neoclassical-specific phenomena impacting on the margin (such as an over-reliance on mathematical analysis)

You can stick with what your 'meant', but you did misapply the term.

That the mechanisms of capitalism will defend the status quo is obvious. This only describe the utter folly of neoliberalism, which finds gains from a more unstable environment.

Regulations have been skewed by the nonsense of 'free market economics'. This was never about free market (given that result isn't achievable in capitalism), but coercing a result inconsistent with liberal democracy

 

We shouldn't ignore inherit flaws in academia anymore than we don't ignore the biases from other groups, it doesn't make all information from these sources moot, but I think it's important to approach virtually everything with a certain amount of skepticism.

We've seen time and again our ability to predict economic outcomes is limited, so when models are created (ex-post) to show the effects of actions we didn't take, I'm a wee bit more than highly skeptical.

Moreover... it was tangential to my actual point.

 

Again, whether it was successful or not is irrelevant. The intent is also irrelevant. It's the outcome that's relevant and that outcome is a complete lack of risk aversion and a reliance on the tax payer to be the payer of last resort.

Just and FYI, I'm completely uninterested in the political aspect or partisan finger pointing. I have no party affiliation and find the entire process to be mostly a fools errand.

 

Semantics, not only did the bail-outs encourage behavior that was less risk averse than would be normal, there was a disconnect between the knowledge that a bail-out was forthcoming and the behavior that would warrant it. The situation demonstrates both a lack of risk aversion and asymmetrical information.

I won't disagree with this because it's true, but it's this in combination with the type of regulations being determined too often by bureaucrats with their own political skin in the game.

 

No accuracy! You've misapplied a term and, by doing that, ignored the political economy required to understand what has happened. The idea that you can just apply asymmetric information, as used within standard orthodox microeconomic theory, is optimism taken to the nth degree.

There's not an asymmetric information problem here. You're referring to "don't worry lads, they'll save us" attitudes of the financial class. That's just an appreciation of neoliberalism and how disgustingly 'free market economics' has been used to coerce profiteering at our expense.

 

Yeah, and the outcome prevented the dominos falling caused by lack of regulation of toxic assets, i.e., CDSs. There isn't a serious economist who doens't think the financial markets were about to freeze up due to foolish conservative deregulatory policies.

That crisis was prevented. The cost was taxdollars going to the affected businesses to prop them up until the bottlenecks eased.

Don't blame the bad option left over after years of deregulation. It's predictable: it you fail to vigorously regulate securities, you'll be left with bad option when the whole thing explodes.

That's fine and dandy but the political aspects determine the economic aspects, as always, since there are no default rules to economic systems, only the rules we institute. This economic crisis, like every economic crisis, were the result of the particular rules in force, and those rules are always political in nature.

 

Bravo!!!

So many people are running about screaming that the sky is falling.
In their panic to "fix" the sky, they are actually bringing it down.

NOBODY liked having to bail out Wall Street and the auto makers.
But the T-Party led Republicans have gone into panic mode.
Unfortunately, when one panics, one tends to make hasty and uninformed decisions.

This is exactly why I say the T-Party is now dangerous.

 

Except that the scientific method takes bias into consideration.

That doesn't mean biased results don't happen -- it does mean that there are systems in place to identify such biased results, if not immediately then in the longer run.

So to suggests that any group of people engaging in genuine empirical research is no better than, say, Fox News, is to mistate the case.

As to the narrative nature of scientific theories, yep, we're stuck with that. We contruct narratives to explain data, even non data. It's all we got. But at the very least such narratives are subject to disconformation at various levels. Even the claim that X didn't happen because of Y can be supported or rebutted by all sorts of data.

 

Wouldn't a neoliberal approach to this problem be just to let the losers lose and for the rest of us to suffer those consequences regardless of what they may have been?

I'm just not seeing how this isn't a moral hazard problem, the criteria seems to be met and the results are clear.

Just to be perfectly clear, I'm not saying the bailout wasn't the best of a bunch of bad solutions, only that it did in fact pollute and perverse incentives. Bear in mind that this time around, the precedence was already in place, there was no waffling over whether the tax payers would step up this time around.

[/quote]That's fine and dandy but the political aspects determine the economic aspects, as always, since there are no default rules to economic systems, only the rules we institute. This economic crisis, like every economic crisis, were the result of the particular rules in force, and those rules are always political in nature.[/quote]
And likewise, the economy isn't a piece of clay that can be molded by those with their hands on the wheel. It's organic and it's reactions to stimuli are as unpredictable as the agents acting within it. So we can make the rules, but I don't have much faith in our ability to shape the outcomes with them.

I'd never make such an absurd claim. As much as it'd like to be Economics is a social science and as a result suffers many of the same challenges of sociology or psychology, this doesn't detract from the insights it offers, but demands that we be cautious in our adoption of theories.

 

The neoliberal response is 'protect the reproduction of profits'.

Its not about asymmetric information. Its about skewing capitalism's apparatus.

 

Frankly, I wonder how many forum members and others will listen to Obama tonight, or watch the Packers and Saints?

Somehow, Green Bay, a small city, supports an NFL team and stadium without a stimulus or bailout. I think. Does the state government help the cause or is it just the citizens and shares?

Perhaps, this could be utiklized as an economic model.

 

Uhh, are you aware that the Packers are a publicly owned nonprofit? They are the opposite of the for-profit model. They exist because of tax breaks under the IRC.

 

Well, maybe it did, maybe it didn't. I don't believe there is any data supporting the claims about moral hazard. This was a unique crisis situation with a unique solution born out of necessity. I rather doubt large corporations are sitting around thinking they can take any risk they want because the taxpayers will bail them out, just like AIG and GM. In any case, there isn't any research one way or the other on that.

We don't disagree. It's a complex system and complex systems have unpredictable results, and very much depend on initial conditions. That said, to the extent that we have to make rules (and we must since failure to make a rule is making a rule), we should make them based on empirical data and research, based on reason and experience, not based on ideological fetishes like "austerity" or "debt is bad." The idea that macroeconomics play by the rules of homespun virtues like thrift is beyond silly. It's dangerous.

I agree. It's a soft science. Nonetheless it does have some of the safeguards of the hard science like peer review. It's the best we can do in this contingent complex world of ours.

 

Actually, I think you misread into the data from those "headline inflation" prices.Oil and Food prices are semi-effected by inflation by 2 different reasons.

For example majority of Oil is actually imported to the US. So dollar value in terms Oil prices rises and falls by a % due to weakness of dollar in the Global market. Fed Interest rates also have an effect. Lower rates means Oil becomes a better investment then say bonds. The opposite happens with higher interest rates.

Food on the other hand isn't strictly based on the Global economy since the US produces the majority of its food, so when those headline numbers come out, that's inflation in the US. Excepts are things like Coffee, Sugar and such. These items are currently facing the effects of the decline of the dollar (inflation) globally. That inflation overseas is passed on to the US consumer.

Wow.. not even close. Core inflation as measured in July numbers is at 1.8%. We are on pace for a inflation rate of 2.6% plus this year.

 

The shareholders cannot cash in, or utilize the investment as collateral? Where do the profits go? Infrastructure? Educatiion?

Indeed, I was unaware of the non-profit part; hence, it isn't the entrepreneurial economic model, I thought it was.

 

http://en.wikipedia.org/wiki/Green_Bay_Packers_Board_of_Directors

http://www.answers.com/topic/green-bay-packers

There are technicalities of Wisconsin law that I don't know about concerning publicly owned nonprofits. My understanding is that profits go to the team, the American Legion, and other nonprofit purposes (like supporting municipal functions), though the stocks can be traded. There are no dividends, in other words. The owner rely on the stock going up if the want to make money, and I presume most didn't buy the stock to make money in any case.

 

The economic crisis in the world started with houses in America. Homes for those who could not afford them, which also allowed the flippers to get involved.

Jimmy Boy Carter initiated his Community Re-Investment Act, then Define Sex Clinton insisted that banks assist people for homes.

The banks tried to find a model that could work. Hence, packaging of mortgages and derivatives. Then, they sold to Fanny Mae and Freddie Mac, and so forth. There were some mortgage dealers that were absolutely nefarious. Even those who passed away were allowed to have a mortgage.

The toxic houses are still there.

 

I very much disagree with the concepts of "stimulus" and "debt contagion". Individuals, financial institutions, and the government have built themselves a "house of cards" by making themselves reliant on non-sustainable practices. It is inevitable that the system is going to come crashing down, at least the part parts of the system that were never sustainable. The USA cannot keep outsourcing and allowing such high levels of immigration forever, and both consumers and the government cannot continue to borrow money like they have been, getting themselves into ever increasing debt. Things must and will change, there is no way to stop it. It is only a matter of when. More stimulus will just prolong the inevitable. A big bubble has been created, and it needs to be deflated. Trying to prop the bubble up with more stimulus will likely cause it to pop, in a very sudden and uncontrolled way.

People and the government have gotten themselves into unsustainable debt. Housing prices have risen to unaffordable levels. The overly high debt levels and housing prices cannot, and should not, remain at the current levels. Yet the government is trying to prop it up, to sustain the unsustainable, with "stimulus".

The real "debt contagion" has already happened several years ago, when most of the western governments, tied into the international financial system, allowed severe trade imbalances, while peoples personal debt levels spiraled out of control. Lack of transparency meant that banks and pension funds in Europe were unknowingly investing in poor-quality, or over-priced, mortgages in the USA. Debts must come down to sustainable levels. By viewing the process of defaults as a "debt contagion", many economists reveal their unrealistic stance about protecting the current market prices.
The sooner that debt begins to be paid off, and market prices fall, the sooner the economy get back on track to becoming healthy and sustainable.

The government certainly should have a number of roles during the transition. The high standards of living in the western countries should be protected from the survival-level wage levels in the third world countries. The governments should also create safety nets to help catch people that temporarily fall into poverty. But the western governments should not be trying to prop up unsustainable house prices and debt levels through stimulus.