The Logical Outcome of Protecting the Rich Is Massive Unemployment - FDL

[WillyT]

The Logical Outcome of Protecting the Rich Is Massive Unemployment
By: masaccio - FDL
Sunday June 26, 2011 10:30 am


John Maynard Keynes (photo: IMF)

<snip>

Paul Krugman gave a paper: http://voxeu.org/index.php?q=node/6668 at a recent conference at the University of Cambridge to honor the 75th anniversary of the publication of John Maynard Keynes’ great work, The General Theory of Employment, Interest and Money. The paper is very readable. There are snide remarks about economists who ignore the hard-earned wisdom of the past, and an explanation of the failure of our political system to come to grips with the Little Depression, in Brad DeLong’s accurate phrase.

There is also a somewhat wonky explanation in Keynseian terms why issuance of more debt does not drive up interest rates. Too briefly, Keynes says that levels of the supply and demand for money in the form of savings and investment can only be determined at given levels of income. This is intuitively appealing, because as income rises, people save and invest more, and if incomes are lower, they save and invest less. Of course, there are many other factors for specific people, and therefore, in the aggregate the curves are different at different times and situations.


Figure 5 from Professor Krugman's paper, link above

… What the supply and demand for funds really give us is a schedule telling us what the level of income will be for a given rate of interest. That is, it gives us the IS (Investment/Savings) curve of Figure 5; this tells us where the central bank must set the interest rate so as to achieve a given level of output and employment. Of course, as the figure indicates, it’s possible that the interest rate required to achieve full employment is negative, in which case monetary policy is up against the zero lower bound, that is, we’re in a liquidity trap.

Krugman says that in a liquidity trap, government borrowing won’t drive up interest rates. It will just sop up some of the excess savings, satisfying people’s need for safety and liquidity, a necessary and important step to providing stability to the economy. That good thing requires government action: therefore in our crazy political environment, it is evil. Take another look at Figure 5: the problem is that in order to reach full employment, we would need a negative interest rate. Since we seem to be there, and since the models allow it, maybe we should take another look at that seeming impossibility...

<snip>

Much More: http://firedoglake.com/2011/06/26/the-logical-outcome-of-protecting-the-rich-is-massive-unemployment/

:kick:

[lovuian]

1. Economics 101 when 90% of a country's assets are in the

hands of a few ... A Depression happens

its simple Economics ...but college professors don't seem to be talking about it

[TBF]

10. College professors are owned by corporations these days.

Well-known professors at the best schools could be more influential if they liked, but many depend upon grants from corporations to finance their research. So ...

[annabanana]

2. And when everything DOES turn into a steaming pile of crap..we'll hear

"No one could have foreseen this disaster." They'll talk about it as if it were an earthquake or tornado... You know "Just one of those things".

[izquierdista]

3. I love it!

An abscissa, an ordinate, and a line pulled completely out of thin air. Damn, why did I take graduate courses in physics and math, when with a lot less effort, I could have been a Nobel Prize winning economist? Don't get me wrong, Krugman usually comes up with insightful analyses of economic situations, but this particular figure should be in the dictionary for the definition of the word "sophistry".

When, when, WHEN are economists going to learn some mathematics so they can describe their field of study in a quantitative manner??

[Taitertots]

4. Your ignorance of economics is stunning

Economists DO support their work with quantitative data. The whole model he is citing is almost entirely based on quantitative analysis. Why don't you bother learning anything about economics before you embarrass yourself more.

[WillyT]

5. Either He Doesn't Know How To Read, Or Operate The Links...

Or both.

:shrug:

[izquierdista]

7. spelling error

Economists work with quaLitative data. They are no further advanced than long ago physicists or chemists debating how waves propagated in the aether, or how phlogiston was transferred from warmer to cooler objects.

When it comes to mathematics, they are pre-scientific imbeciles. They have this word they like to throw around, "marginal", thinking it to be a great insight they have discovered, while scientific disciplines realize that the concept of differential calculus was developed by Newton and Liebniz.

Now in Krugman's defense, he spent a lot of time at M.I.T., where ALL freshman are expected to become adept at calculus, so I would presume that he can indeed speak the language of mathematics. The problem lies in the larger academic community of economists, where semi-mathematical hand waving is deemed acceptable and not laughed at like it should be. The small minority of mathematically learned economists has had to tone down their analysis, just as Krugman has done here, to have it be acceptable for peer review.

Even if you look at the seminal works of economists, for example the Black-Scholes option pricing model, you find that it is merely a special case of a partial differential equation that was solved over a century earlier. The reason that economics is such a dismal science is not because they have noisy data sets, or that variables are cross-correlated, or they can't control experimental variables, it's because most economists have not been adequately trained in the scientific method. They engage in a lot of 'cargo cult' science, as Richard Feynman coined it, where emulating the appearance of technology is substituted for the actual principles of science and technology.

I'll say it again, economics is the province of charlatans and frauds. All one need do is look at Milton Friedman and his followers. They have a worse track record than astrologers, phrenologists, and homeopaths, mainly because the astrologers, phrenologists and homeopaths get lucky on occasion with their cures and prognostications.

I'm not going to end this screed without some positive suggestions on how an aspiring economist could actually lead his field out of the Middle Ages and into the Enlightenment. Here are just a few positive steps:

1. Learn some mathematics and use it. That means defining terms, stating axioms clearly, and requiring rigorous proofs.
2. Learn some multivariate calculus and how to apply it to your observations.
3. Learn how scientists propose physical laws and use those techniques to hypothesize economic laws. Then test the hypotheses.

[Taitertots]

8. You have done nothing but reinforce my earlier post

Economics is based totally on the quantitative analysis of multiple economic variables using sound and rigorous statistical and mathematical analysis. Your screed does nothing but prove that you are totally ignorant about economics and the work of economists.

[izquierdista]

9. Quantitative?!

:rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl:
Then why, on the figure in question, aren't there any numbers (quantities)?

[WillyT]

11. Probably Because You Never Bothered To Go To The Link I Highlighted At The Top Of The OP !!!

Here, try again: http://voxeu.org/index.php?q=node/6668

:shrug:

[izquierdista]

13. Which has no numbers

Numbers look like this: 1 2 3 4 5 6 7 8 9 0 They can be found at the top of most keyboards. Some keyboards have a number pad at the side as well.

For something to be 'quantitative', it has to have numbers. Letters with subscripts are not numbers. An abscissa and an ordinate with some intersecting arcs drawn on them are not numbers. Putting letters and primes on the arcs does not turn a verbally persuasive argument into mathematics. Mathematics is based on axioms and definitions, from which follow lemmas and theorems. Often a useful theorem will spawn various corollaries. The link sited is clear of any traces of mathematics. Just as the picture below is clear of any working aircraft:



Although their plane made of sticks and banana leaves has some nice arcs to it, as does the link you continue to wave at me, it is not aerodynamic and it will not fly. In the same way, this economic argument, typical for what passes for economic thought and what is taught in university economic departments, also will not fly. It is imitation science and mathematics, not the real stuff.

[WillyT]

14. Weird... Cause This Doesn't Have Any Numbers...

And yet it changed the whole damned world.

:shrug:

[izquierdista]

15. 2 is a number

In your example, it is known as an "exponent". Mathematicians and scientists use "exponents" in formulating various physical laws (see inverse square law, http://en.wikipedia.org/wiki/Inverse-square_law). Economists have yet to explain what sort of "exponent" goes with their arcs and why.

[WillyT]

16. That "2" Is An Exponent True, But I Could Have Easily Written It As

E=M(C*C)

See... no numbers.

Amazing shit... ain't it.

:shrug:

[Taitertots]

18. Economists have already created complex models with quantitative values that explain the arcs...

If you ever read an economics journal you would know that.
http://www.jstor.org/pss/3694815
http://www.jstor.org/pss/2138201
http://www.nber.org/papers/w15573
Or you could just ask FRED....http://research.stlouisfed.org/fred2/


Physical laws are easy. Economics is studying the combined effects of billions of people and countless variables. Wouldn't it be great if it was as simple as physics.

[Taitertots]

17. There are, at the link in the OP

If you educated yourself about the subject, you would see that economics is entirely based on quantitative analysis.

[amborin]

6. K&R

[handmade34]

12. they are called "economic theorists"

Keynes' theories produced results; Milton Friedman's not so much... doesn't stop some from loving him