Category Archives: macroeconomics

A Clutch of Random Goodies- finance, net neutrality, deficit…

Here is just a clutch of good randomness that has been accumulating on my desktop…

PS featured image is Simon Johnson.

Bucknell and Truth

Bucknell gets unexpected reward for being honest about a mistake.  Is this worthy of an ethical snap?

Net Neutrality?

What the hell is net neutrality?  Baratunde Thurston  one of our tech/no speakers, explains it so well, it got picked up by Raw Story.   I love how Bucknell can be a producer of information and wisdom and not just a user. 

Organization Theory is Cool

A book review about organization theory I really need to read.  Orgtheory.net is the one blog I wish I read more.

Learn from Nice Rich People

Lessons for failure and management from philanthropists.

We are drowning in deficit! (are we?)

Compare your answers to the US public and, um, the reality.

Change Doesn’t Happen.  Until it Does.

From AFL-CO vs Home Depot, through Frank-Dodd, to Citigroup.  Is corporate governance and executive compensation changing?  Maybe.  Read abotu some pretty big changes at the link.

Is a Tax Better than Regulations?

You want policy ideas?  You like finance? You dislike “regulation” that tries to dictate firm behavior?  Try this one.  Instead of trying to tell financial firms what they can or can’t do, how much capital to have on the books, and so on, how about you tax a vice- like we do with alcohol and tobacco- and simply tax financial transactions to make trading for the sake of microscopic gains on immaterial price shifts non-economic?  Read. here about Europe’s experiment with a different, and I would argue,  less intrusive form of regulation to change financial markets and firms.

You want even more financial regulation news?

You are really, really troubled.  I hope Vinny, Loukas, Mike, and… (who else are finance jocks?) are reading this. Simon Johnson.  yes, THAT Simon Johnson, had this blog post about the 12 “angry bankers” of the Fed and their ideas to push for transparency in money market fund valuations as part of the (yes, that same one) Frank Dodd bill reforms that created the systemic risk council.  In a nutshell, the financial industry does NOT WANT such valuation while the regulators do.

I am never surprised when practicing “capitalists” fight against actual free markets (with liquidity and transparency).  Businesspeople are often, perhaps usually anti-capitalist if you define capitalism not as maximum wealth accumulation, but as free markets that expand the prosperity of a society.  Am I alone in seeing this?

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Filed under Business, Government, innovation, macroeconomics, management, organization theory, policy, Political Economy, Politics, Power, Activism, Social Innovation and Entrepreneurship [SiSe]

Popular Economics Writing

Like most of us, I want to understand the economy and the political economy for my teaching and for my own sake.  I enjoy reading what we might call “popular” economics writing.  For example, I always try to check out James Surowiecki’s column in the New Yorker called the “Financial Page.”  Recently he wrote about the classic arguments about the source of unemployment: structural or cyclical factors (January 3,2100; page 23).  He pointed out how a blind allegiance to a vague ideology explains the persistence of belief in the idea that there must be something structural with unemployment this time.  In other words, the problem is that we do not have the “right kind” of workers for the available jobs.  Stimulus can do nothing since we just need to wait for people to retrain or leave the labor force, or die, I suppose.  If structural, then we just have to let labor markets “sort themselves out.”   The problem with the structural argument, as Surowiecki points out, is that there is scant evidence for it.  Payrolls are down and hiring stagnant across the board and not just in certain industries.  What are the industries with openings and not enough supply of workers?  None.

I have also picked up two books that I am making my way through.  One is “Crisis Economics” by Nouriel Roubini and Stephen Mihm.  I heard about him on the Planet Money podcast as one of the the economists who tried to sound the alarm bell on the housing bubble when no one was listening.  I am not sure that makes him clairvoyant all the time (of course!  He is an econmist!) but it seemed worth checking out.  I am only into the second chapter, but he already said something I have repeated so often in my classes: greed does not explain the bubbles nor their negative after effects.  My students almost universally will latch onto greed as the explanation and I see it as a key teaching need and challenge to get them off that well-worn groove.

There are two flaws in this kind of folk explanation.  First, greed can only be an explanation if you ignore the complexity of human systems and assume that what we observe as facts is due to the choices of a few people.  Given the complexity of human behavior and the way our actions are shaped by our history and context, one can not argue that it the recession is due to “some greedy people.”  This is the flaw of an under-socialized theory of human agency.  The second flaw is to grant the causal force of greed to the fact that some unspecified amount of people have just become more greedy.  As Roubini points out as well, why would wall street types become more greedy from 2002 to 2008?  Or from 1978 to 1998?  Aren’t they always very acquisitive and ambitious?  In fact, isn’t that exactly what my students admire and idolize about a career in finance?  There is no clear causal argument for why many more people would become greedy.  This line of folk reasoning makes invisible all of the inter-related organizational, institutional, and cultural forces that can interact to change the conditions of being “greedy” to make it either a controlled burn of energy or an uncontrolled conflagration. This is the second half of the under-socialized view (the term comes from the essay by Dennis Wrong) because it points out what needs to be added to have a more accurate theory of human agency.

In other words, greed ain’t enough to explain this shitstorm of economic problems.  To rely on this flawed reasoning leaves one to argue that the solution is for people to out of the blue just be “less greedy” and “more moral.”  To try to apply these solutions will only perpetuate an under-socialized view of human agency and any possibility for more effective action that addresses the conditions that enabled the recession.

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Filed under economics, macroeconomics, Scholars, Uncategorized

0% almost never appears in public polls

The National Economy
No Americans say that the national economy is getting better, 13% say it is staying the same, and 82% say the national economy is getting worse.

National economy

Getting better

Staying the same

Getting worse

Undecided

Sep 2008 13% 82% 5%
Aug 2008 18% 19% 60% 3%
Jul 2008 3% 20% 76% 1%

You almost never see 0% in public polls. They must not have any BOA executives, gold stock holders, or other speculators who bet the right way in their poll.  Or maybe those folks see that their immediate gain comes with the risk of financial downturn for all?

And Bush’s approval is down to 19% among RVs in the same poll.  That has to be some kind of record?

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Filed under economic sociology, economics, macroeconomics

No blank check for Wall Street.

No blank check for Wall Street.
This is worse than a bad deal – this isn’t a deal at all. This is a blank check to some of the richest companies in the world.

This is a blog post with a petition linked to  it.  I may not agree with all the language, but this is not the time to let the desire for the perfect trump the reality of present action.

We should express our concerns as citizens about the parameters fo this extraordianry action, even if we don’t get to write the legislation.

Krugman on “Cash for Trash.

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The end of history, again

When the Berlin wall fell, and then the Iron Curtain, and then the Soviet Union dissolved into national tribes pursuing free market economies, the academic conservatives were gleeful.  “The End of History” was the zeitgeist text and meme that Fukuyama penned.  The metanarrative debate and power struggle about the role of government at “the commanding heights” was over.  Government had little role in the economy.  She could (and the female pronoun is very apt) nurture the children and clean up the messes, but had to stay in the private sphere of domestic concerns and stay out of the public sphere of productive work and economics.

With the tectonic shifts in the last two weeks, leading to today’s headlines about a massive bail out of the bad debt and paper by a government agency; with the infusion of something like $300 billion Treasury dollars into Bear Stearns, the FMacs, and AIG; with monetary policy at  the bottom of the tool box with only a few thumbtacks left (the key T billrate dropping to essentially zero), I suggest its the end of history, again.

There are no Unicorns, and there can be no totally free markets.  The Fed and Treasury had to step in and take direct action, in the spirit of Keynes, because they had no other choice to avoid a massive, 1932-esque economic collapse.

The debate is on again about the role of government, law, policy, and institutions in managing the economy and how to achieve a more just society.

I am not going to even respond to any neoliberals or other market ideologues until they acknowledge that the Reagan-Thatcher revolution has come to a grinding end.  The overall governing philosophy that “markets are always better and government must be progressively marched to the sidelines of the economic game” is dead, dead, dead.  When real people had to make real decisions over the last two weeks, that world view came up empty of ideas and solutions.

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Filed under macroeconomics, Political Economy, Politics, Power, Activism, social theory

All that is solid melts…

My thoughts exactly…

Daily Kos: State of the Nation
Now that the People own a major insurance company, it’s fair to ask how the People’s Insurance Company, along with the People’s Mortgage Companies and the People’s Investment Banks, will benefit the People who Own them. Can we expect lower premiums, equity sharing, and corporate perks for our hundreds of billions of dollars?

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A picture is worth a 10,000 words (inflation)

How much does this explain?

Look familiar to you?

Look familiar to you?

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Micro census data

Not sure how I got on this mailing list, but it seems like fascinating data.  I wonder if it could be used for network research?

IPUMSI-Project Description
The data series includes information on a broad range of population characteristics, including fertility, nuptiality, life-course transitions, migration, labor-force participation, occupational structure, education, ethnicity, and household composition. The information available in each sample varies according to the questions asked in that year and by differences in post-enumeration processing.

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Facing Default, Some Walk Out on New Homes

This NYT article caught my attention as a nice example of economic sociology.  The gist of it, captured in the quotation below, is about the shift in attitudes and practices around home buying and ownership in the US.   Traditionally home ownership is promoted by government policy and cultural norms because it is a means of encouraging personal savings, it boosts household credit ratings, and it improves neighborhoods by creating more local buy-in.  However, When those laudable goals merged with the world of financial innovation, deregulation, and a rise in a particular portfolio thinking world view, we end up with a new set of attitudes and behaviors about home ownership.  less than a Jimmy Stewart, feel-good, iron clad agreement between bank and homeowner, home ownership is a more fluid, transient financial deal that can be done or undone depending on the individual valuations of the players involved.  Home-ownership is one more liquid and negotiable financial arrangement, like owning stock, buying futures, or being paid in stock options.

Facing Default, Some Walk Out on New Homes – New York Times
You Walk Away is a small sign of broad changes in the way many Americans look at housing. In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of   and foreclosure have changed, economists and housing experts say.

As the article points out, this change is made clearer by the foreclosure bulge (upswing?  crisis?  not sure which term is the most objective).  As Todd Sinai, a professor at Wharton, points out, the very loans that made the housing market balloon set the stage for people to walk away.  many marginal home buyers shifted from being renters to nominally owners.  What actually happened is that they started renting from the bank with the chance to won if the value of the home increased faster than their repayment obligations.  If it doesn’t, quite rationally, they walk away from a mortgage that costs more than the underlying value of the house.  For the purchaser, he says, its a Heads-I-win-tails-you-lose situation.

Of  course, banks could sue in some states, but what bank is going to sue someone who can’t afford the mortgage?  Seems like a bit of poetic justice to me.

The article also focuses on You Walk Away, a company that somehow (I don’t get the business model) makes a profit on people walking out.  There seems to be  another interesting tension over the knitting  together of economic and moral realities.  Traditional auxiliaries to the home buying process don’t want to encourage people to walk away due to the embedded assumption that home ownership is indisputable social good.  Jon Maddux, one of the owners of You Walk Away responds:

“It’s not a moral decision,” Mr. Maddux said of foreclosure. “The moral decision is, ‘I need to pay my kids’ health insurance or my car payment so I can get to work.’ They made a bad decision, but they shouldn’t make more bad ones just because they have this loan.”

Mr. Zulueta said he felt he had let down the lender, himself, and his family.

“But you got to move on,” he said. “I know in a few years my credit’s going to be fine. If I want to get another house, it’s going to be there. I’m not the only one who went through this. I know I’m working the system, but you got to do what you got to do. There’s always loopholes.”

Zulueta is one of the homeowners who Walks Away (is that trade-marked?  haha).

His line of reasoning seems good to me.  The financial and home buying industries ravaged the marginal home buyers and waved their magic wands of financial innovation to off load the debt to other financial players.  The unraveling of a social compact around home buying started among the banks and mortgage companies.  Seeing the writing on the wall, the home owners are following suit and treating a mortgage as one more financial arrangement and not a “marriage contract.”

My interest  in this was piqued by some work Jerry Davis is doing on “The Portfolio Society.”  So keep an eye peeled for that.

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Filed under Banking, economic sociology, innovation, macroeconomics, Political Economy

Irrational versus Rational Financial Panics

There is  a big difference between a crisis of liquiditya nd solvency, as Pual Krugman popintso ut in today’s NY Times.  Liquidity is a problem of access to cash in a defined time frame.  Solvency is a problem of not having value (assets).  The problem with the current housing blues (sub prime weakness et al) is one of solvency, not liquidity.   The big financial institutions simply made a lot of bad loans.  Until those are uncovered and dealt with, fundamental confidence will not return.  hence, investors, worried that market signals about which loans and institutions are high irsk are not clear at all, are quite rationally paniced.  This is quite different from the “irrational” bubbles I discussed with my students like the 17th century tulip bubble or the 1990s dot-con bubble.  In those cases, values were bid up over hard to specify assets because decision makers paid attention to relevant others.

When will things be better?   Can the Fed and Treasury make things right? Here is what Krugman prognosticates:

After the Money’s Gone – New York Times
Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed.

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Filed under Banking, Government, macroeconomics, Political Economy