By ROBERT J. SHILLER
But the economic situation is primarily driven by hard-to-quantify sociological factors that play out over many years. …
A half-century ago, there was a lively discussion among economists about the dynamics of price expectations. For example, Alain C. Enthoven, then of the Massachusetts Institute of Technology, and Kenneth J. Arrow of Stanford wrote in 1956 that expectations that extrapolate past price increases can produce economic instability. But that thinking was largely cast aside in the 1960s, when my profession embraced the theory that efficient markets formed by people holding rational expectations could explain virtually all economic activity.
As a result, economists in recent decades have not developed expectations theory much further. That needs to be corrected in coming years. In the meantime, this failing helps explain why the current crisis was generally unpredicted, and why its future course is so poorly understood.
Does this kind of thinking make it more difficult to look at long term effects such as
- Jobs not being created
- Rich-poor increasing divergence
- And the policies that support 4 while undermining 1-3 get the support of politicians.
Seems to me an example of stove piping, that is, keeping a discussion within narrow limits while appearing to be systemic and forthright.
Interesting that Friedman follows up his important The World Is Full article with this one
If you want to understand why the unemployment rate has been stubbornly lodged around 9 percent, a good place to start is with the eye-popping mortgage statistics released last week by the economic analysis firm CoreLogic: 38 percent of homeowners with second mortgages are underwater
Indeed, this mortgage mess just feeds the three other big problems undermining U.S. job growth today: weak aggregate demand, structural impediments and an epidemic of uncertainty about what the future holds for everything from health care to the rate of taxation to Social Security and Medicare spending to the availability of credit to the general direction of the economy — the sum of which has people holding back and thus undermining the government’s stimulus.
We need to be working on all three at once, and urgently. How? Others have focused on the aggregate demand problem, so I’d like to address some of the structural impediments and uncertainty.
So no mention of ecology, climate, population of failure of governance. As above, it seems to me that if we are not more consistent and systemic, we will lose people who cant follow a conglomerate of unconnected threads. As we know it was ony last week that Friedman wrote aboutb"the world is full". How does a mind get from that to this.
Ezra Kline says we need to rethink the war on drugs and that many serious leasers are saying so. He asks,
What alignment of political forces and events would be needed for America to seriously rethink its drug laws? Would it have to begin in the states?
He also talks about the republicans and regulation of banks.
Dodd-Frank didn’t go nearly far enough. The Consumer Financial Protection Bureau isn’t strong enough. But it barely took three years for the pendulum in Washington to swing from “it’s time to get a handle on Wall Street” to “leave Wall Street alone!” Even if Dodd-Frank survives this round of attacks, it’s pretty obvious that any approach that relies on regulators is an approach that, sooner than later, Congress will undermine.
Unspoken is why the Republicans take this position. Bank clients? Is it as simple as that, or is it seen as the only route to power, a long shot, but the only shot.
We have all absorbed ideas such as class, the dynamics of capitalism, the shift from one mode of production from another – all from Marx. David Harvey has gone a long way to briing back Marx as a body of thought that helps us For example His the enigma of capital.
It is sort of coming back. The site Understanding Society has
Not the whole picture but useful.
This perspective yields answers to three key questions which cannot be answered without the concepts of class and power:
- why has inequality increased since the 1980s? It’s because a mix of technical change and the emergence of a mass supply of cheap labour from China and India have increased the power of capital relative to labour.
- why is the pain of deficit reduction falling upon public sector workers and benefit claimants rather than the “rich”? It’s because the “rich” have power and workers and benefit claimants don’t.
- why did the state bail out bankers but not ordinary workers who lost their jobs? It’s because bankers have power – though the precise source of this is another question.
This raises the question. If class is so central to an understanding of the economy, why is it so little discussed?
Most of us hold the answer as reasonable to some degree beyond minimal. Another posting on Marx today,
Second, I argued that Marx’s explanations were almost always grounded in an analysis that highlighted rational individual decision-making. But Marx differed from the perspective we would now call "public choice theory" in that he gave much greater attention to the historically specific motives and values of the actor. Marx highlighted what we might now call "political psychology" of the actor — the socially specific ideas, motivations, and ideologies that the actor acquired through ordinary experience of capitalism. So there is a developed "action theory" present in Marx’s writings. It is a theory that gives prominence to means-end rationality. And it gives attention to the social specificity of the actor as well.
I posted there
It is correct that we should not cut government spending in a recession, and, in fact better to increase it. But the idea is that such "stimulus" will create jobs. But we may be stuck. Increased demand can be met by increasing spending on tech and making the remaining (higher quality) workers work harder.
At the same time cutting taxes and government spending will not lead to new investment (there is already lots of cash) because there are few projects that, given the low purchasing power, can yield increasing consumption. So if the only alternatives are tax cuts to help the rich invest, or stimulus to help people consume, and neither work…
But this might hide the real issue being played out> who keeps and who pays. never mind creating an economy, its only who benefits now from the economy we have been through.
Big bang, remember? The Play Serious Money, Carol Churchill, .. London 1987. Bonfire of the Vanities, the Movie Wall Street.
Is this re-de – cession going away?
Other people’s money
Ideology is a secondary way of looking at the world. Nothing fresh.
Perhaps a core way of looking at the economic problem is that capitalists easily follow profit maximization/ costs minimization, so, as the US was doing well in the 50′s, the awareness of the world increased, and owners simply took their money to cheaper labor markets. Does all else follow?
How something not so terrific is seen as plain good.
In 1900 the average American had nearly nothing to do with financial markets and institutions, but by the time of the stock market crash of 1929 stock ownership had spread to a quarter of American households. In When Wall Street Met Main Street: The Quest for an Investors’ Democracy, Julia C. Ott traces this expansion of investment through the opening decades of the twentieth century. While American policymakers wrangle over raising the debt ceiling in 2011, Ott explains below how the mass effort to underwrite the federal debt incurred during World War I played a central part in the U.S. transition to an investors’ democracy.
So getting people to invest means brokers can use other people’s money, collect fees, and drive politics. There is also the fact that the business cycle drives wealth upwards because the rich have better information, and so buy earlier and sell earlier in a cycle. The less informed by later and sell later. Thus they pay more for thee same stock, and get less for it when they sell it late.
A note on Walter Benjamin
The pieces are concerned with matters ranging from the spiritually fruitful appropriation of history to the intellectual relevance of Romanticism in particular, from the theory of education to the idea of experience and the idea of love. The diversity of interest and profundity of thought characteristic of his better-known work from the Twenties and Thirties are already in evidence here.