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Politics : The Castle -- Ignore unavailable to you. Want to Upgrade?


To: tejek who wrote (5782)6/21/2011 7:53:07 PM
From: TimF1 Recommendation  Respond to of 7936
 
Stimulus in the form of infrastructure improvements and research will create jobs.

It certainly will. And paying for it will destroy jobs. (Even the spending itself shifts resources and so destroys some jobs, if not directly as many as it creates).

It also takes a long time to get going, and while research and infrastructure are important, a lot of the spending in these areas gets wasted.

The non-wasted spending can produce useful things that help the economy, but that help isn't as a stimulus, its not that we are spending money to hire people. Hiring people, spending money, those things are costs not benefits. The benefit is the new bridge, or the repaired roads, or the new scientific knowledge.

That's an important role for gov't. Its what the Asian countries do very well.

The Japanese spent massively on infrastructure for decades, and have had poor economic performance. In China, which can invest cheaper, which doesn't have a shrinking population, and which is starting out less developed, such projects make more sense but a lot of the resources get wasted, and a lot of what does get built does little for the average Chinese person (who for example can't afford to normally ride the high speed rail).

But there is a problem......due to nearly non stop warring for the past 20 years, too many revenues have been diverted for war efforts that should have been spent on this country.

Non security related government spending has been growing quickly for the last twenty years and longer. It is still doing so.

Defense has over the decades decline as a percentage of GDP, and as a percentage of government spending. The idea that non-military government spending has been starved of funding is laughable.

As for Canada their doing relatively better than the US didn't start with the financial crisis, and recession, it started long before that, when they started to reign in their government spending.



To: tejek who wrote (5782)7/29/2011 5:15:41 PM
From: TimF1 Recommendation  Respond to of 7936
 
Power Imbalance: The Difference Between Liberal and Libertarian Philosophy
Jun. 24 2011 - 3:09 pm

Warren Meyer
Coyote Den

Earlier this week, New York Times columnist and Princeton professor Paul Krugman argued that folks on the Left were better able to accurately reiterate competing (ie conservative or libertarian) economic and political positions than, say, the Right could outline the liberal position.

We will leave aside issues we might have with a Nobel Prize winning economist making such sweeping statements based on absolutely no facts. To a large extent, Krugman’s conceit is just part and parcel of the liberal hubris that they are smarter, better educated, and more empathetic than their political opponents (a conceit that is actually philosophically necessary for these former 1960's anti-authoritarians to convince themselves they are justified in swinging the heavy club of the state).

We will also leave aside how absurd this statement is from many a libertarian’s experience. Readers as old as I am will remember the old Tootsie-Pop commercial where the owl can never lick the candy more than three times without biting into it. This is my experience with the Left attempting to mimic the libertarian position. They can never get more than three sentences into free markets and smaller government without saying “because all libertarians just want to see everything polluted and everyone get poor and die.”

I wanted to see if, contrary to Krugman’s hypothesis, I could accurately articulate the liberal position. My gut feeling is that I can. In part, I have Krugman to thank. I attended Princeton University, where he is on the faculty, and took enough economics courses that I could have minored in the subject if Princeton offered such an option. Most of the economics curriculum there, and I would bet at other major universities, is taught from a left of center perspective. It is therefore hard to accept Krugman’s hypothesis the the Left is best at outlining the competing economic position when liberals are the one group who can safely escape college without even being exposed to opposing points of view beyond a few notes in the margin.

If I were to articulate the mainstream Liberal view, I would need to avoid the parallel Tootsie-Pop mistake of ranting Marxist notions before I was three sentences in. The mainstream liberal does not consider herself a socialist and accepts private property (though often as a construct of government rules rather than as a human right).

The approach I would take would focus on power imbalances. Just as enforcing personal morality seems to be a unifying principle behind many conservative appeals for government interventionism, liberals seem to be driven by a desire to reverse perceived power imbalances. My attempt would go something like this:

A good example is labor law. While it is a nice theory that wages are negotiated between employer and employee to the mutual self-interest of each, in reality large corporations have all the power and can impose low wages and bad working conditions on nearly powerless workers. This is why unions must be encouraged, to give workers more equal bargaining power, and why minimum standards for pay and working conditions must be imposed by the government.

The same kind of power imbalance obtains in product and financial markets, where individual consumers can be ripped off by powerful manufacturers and only minimum government standards prevent companies from offering the shoddiest possible product. Monopolies where one of the first examples of such power imbalances that government had to correct, with large trusts and corporations growing so large that no new entrant could take them on, leading to the specter of these now dominant enterprises abusing their position with higher prices.

Perhaps it is easy for me to articulate these Leftish positions because we libertarians share this fear of aggregations of power (though we address it in entirely different ways, more in a moment). But I will grant Krugman a partial win, as there is an element of modern Liberal philosophy that I find it impossible to mimic: the complete disdain for the average person’s ability to make decisions for him or herself.

To a large extent, this is tied up with the notion of power imbalances we discussed earlier. Liberals believe that power imbalances exist that must be corrected, not due to any structural factors but due to, for lack of a better term, the basic incompetence of the individual. Ralph Nader has made an entire career out of challenging product marketing, the underlying assumption of which is that people are rubes and fall for anything that is put on TV enough times. In fact, the leftish infatuation with campaign finance spending limits is based on roughly the same assumption. Bombarding people with messages creates a power imbalance because more poor benighted fools will be sucked in by the hype.

The difficulty in mimicking the liberal position is not in faking this disdain for the individual, but the requirement that it be done inconsistently. For example, teenage girls are smart enough to make decisions on abortion without parental involvement but strict state controls are needed to keep them out of tanning salons. The rubes out there can make good decisions about their sexual practices but can’t be trusted to eat the right foods. They can be trusted to consume violence and sex in the media intelligently but are incapable of accurately parsing political or product ads. Frankly, I can’t figure out the decision rule at work here.

So perhaps Krugman is right. If I wanted to be snarky, I could argue that my brain is simply not wired for the cognitive dissonance of contrdictory positions on personal liberty that is required to communicate either the liberal or conservative position.

But I do understand the leftish position well enough to identify its key mistake. As I mentioned earlier, we libertarians are similarly concerned with aggregations of power. We have, at best, a love-hate relationship with large corporations, for example, enjoying the bounties they can bring us but fearing their size and power.

But what the Left ignores is that there is absolutely no power imbalance as large as that between the government and its citizens. After all, you may get ticked off when Exxon charges you $4 a gallon for gas for reasons that aren’t transparent to you, but you can always tell Exxon to kiss off and buy from someone else, or ride a bike, or stay home. Because Exxon does not have armies and police and guns and prisons.

Every single time we give the government the power to right a perceived imbalance, we give the government more power than the private entity we are trying to contain. In effect, we make things worse. Because we want the government to counter-act the power of oil companies, Congress now has the power to dump large portions of our food supply into motor fuel, to the benefit of just a few politically connected ethanol companies.

One of the reasons the Left often cannot adequately articulate the libertarian position is that the notion of bottom-up emergent order tends to be difficult for many to understand or accept (this is mildly ironic, since the Left tends to defend the emergent order of Darwinian evolution against the top-down Christian creation vision).

The key to much of libertarian economics is not that libertarians trust private actors, but that libertarians trust natural correction mechanisms in free markets far more than it trusts authoritarian power of the government. When, for example, large corporations become sloppy and abusive and senescent, markets will eventually bring them down.

In fact, when government is given power, nominally to correct such imbalances, they tend to use it to protect those in power as often as they do to protect the disenfranchised. Government restrictive licensing of hair dressers, interior designers, and morticians; bailouts of GM, Chrysler, and AIG; corporate welfare to GE and ADM; and use of imminent domain to hand private property to favored real estate developpers — all are examples of finding government cures for perceived private power imbalances that are worse than the disease.

Isacc Asimov, in a book called Foundation that Paul Krugman recently rated as one of the most influential on his life, related this fable: Once there was a man and a horse, who were both imperiled by a wolf. The man approached the horse, and said that if the horse would put its superior speed at his disposal, he could kill the wolf. And so the horse agreed to take the man’s saddle and bridle, and helped the man kill the wolf. The horse said, “great job, now remove your saddle and we can both be free,” and the man said “never!”

I hope the moral of the story is clear. In trying to deal with the threat of the wolf, the horse gave the man so much power he became an even bigger threat. So too when we look to government to solve our problems.

blogs.forbes.com



To: tejek who wrote (5782)9/19/2011 12:35:07 PM
From: TimF  Read Replies (1) | Respond to of 7936
 
...Assume for sake of argument that speculative activity in a commodity derivatives market has distorted the price of the commodity; convergence implies that if nearby futures prices are indeed distorted, physical prices have to be distorted too. Millions–and in some cases billions–of individual consumers, and myriad producers, face these prices. If these producers and consumers are not playing the same learning game that is going on in the futures market, the price distortion will affect their production and consumption decisions. All else equal, if speculators cause the price to be too high, consumption will be depressed, and production will increased. This will lead to an accumulation of inventories. If the price distortion is large, the inventory accumulation is likely to be large.

Now, there are circumstances in which it may be difficult to detect empirically the inventory accumulation. If supply and demand are extremely–extremely–inelastic, large price moves may result in small inventory changes that are hard to detect in the noisy stock data that are available for some commodities. Moreover, all else may not be equal. As Singleton (perhaps cleverly) notes, my research shows that a decline in fundamental uncertainty could lead to a decline in inventory that masks the speculation-induced change. (Although more plausibly, higher fundamental volatility leads to greater speculation, which would lead to an increase in inventory that could be blamed on speculative price distortions.)

But there are historical episodes–like the Hunts in silver and government price-support programs–in which price distortions have been associated with huge accumulations of inventory. Those claiming speculative distortion need to provide a credible explanation whenever an alleged price bubble is not accompanied by a rise in inventories. It can happen, but it’s unlikely–so show me how.

So, for the Singleton story to work, it has to be the case that consumers and producers–or at least a big chunk of them–are playing the same learning game as the investors. I find this wildly implausible, particularly for consumers. Would consumers really buy more gasoline today–gasoline which they are going to consume, not store in anticipation of profiting from price appreciation–for speculative reasons because prices have been trending up? Really? (Perhaps you could argue that they would engage in intertemporal substitution, but this also stretches credulity.) It might be somewhat more plausible that suppliers would not produce more today in response to a speculative price bubble in anticipation that they can sell at a higher price in the future.

These stories–and they are just that–are not logically impossible, but they are just implausible, to me anyways. The consumer side is particularly implausible. To emphasize: most consumers of gasoline or copper or corn or whatever cannot store the commodity, and hence cannot earn a speculative profit. Thus, they should respond parametrically to prices, and respond to higher prices by reducing consumption. The decline in consumption in markets (like the US) where consumers are subject to price changes (because there are no price controls or subsidies) during the oil price spike of 2008 supports this view. So price distortions should lead to inventory accumulation.

This is an excellent illustration of why commodities are a good place to test theories of speculative distortion. The speculators may play their games in the financial markets, but if they affect prices, consumers and producers who don’t play the game alter their behavior. Looking for evidence of behavioral changes–consumption and production changes–is a great way to detect price distortions. That is not possible in asset markets. Consumers and producers are canaries in the coal mine.

Which all means that to persuade, Singleton, and those who are using his paper to say Eureka!, need to provide a plausible explanation of how learning/behavioral finance effects change the behavior of producers and consumers in ways that what would mean that price distortions do not lead to noticeable changes in quantities like inventory. That is, he points to models of asset markets in which there are no consumers; to make a realistic and testable model, you would need to include producers and consumers as well–not just demand for a stock of assets, but flow demand and supply.

One last thing. The Singleton paper has “boom and bust” in the title, and many behavioral finance/learning models predict boom and bust patterns in speculative prices. There was a boom and bust in oil prices and other commodity prices–but the bust in 2008 was not plausibly the kind of speculative bubble bursting that occurs in the models. It was definitely driven by a huge collapse in demand resulting from the financial crisis. Thus the “bust” part of the price movements should not be used as evidence in favor of the theory. Instead, it fits far better a fundamentals-based story. As I told many reporters as prices peaked in summer 2008, when they asked what would bring down prices: be careful what you ask for. A major recession would be the most likely cause of a big price decline. That’s what happened–not the bursting of a speculative bubble.

Relatedly. Prices that positively cannot be driven by asset pricing bubbles–because they are are definitively not assets–boom and bust. During the same period that oil prices were booming and then busting, shipping rates were doing the same thing. Space on a ship is not an asset. It is not storable; you use it or lose it. You can speculate on the price of the ship, but the price of the services of the ship cannot be subject to asset pricing bubbles–because these services are not an asset. The spike and thudding collapse of shipping rates in 2007-early 2009 is indicative of a rise and fall in the demand for commodities (which are transported by ship), and cannot be explained by speculative distortion induced by learning, etc. Put differently, booms and busts occur in markets in which asset price bubbles are impossible.

To summarize. 1. Singleton’s results are perfectly consistent with rational pricing, no speculative distortions, and financial market frictions. 2. The conditions that would reconcile the kind of learning/behavioral finance model that would be necessary to explain the lack of inventory accumulation are highly implausible. If somebody wants to tell a more convincing story about commodity price bubbles, it is necessary to do more than just genuflect to models devised to explain things like the dot-com bubble. You have to create a model that includes flow demand and supply, and derive testable implications of investor/speculator learning or irrationality for quantities produced, consumed, and stored. Only then will it even be remotely possible to determine the real implications of these learning models for commodities.

streetwiseprofessor.com