That’s the right spirit – Ed Miliband proposes an updated Glass-Steagall Act

30 September, 2012 at 20:43 | Posted in Economics | Comments Off on That’s the right spirit – Ed Miliband proposes an updated Glass-Steagall Act

In an interview with the Observer, the Labour leader Ed Miliband says he will confront the City of London with what is seen as the nuclear option for reform if the banks fail to separate their “casino” investment operations from services to account holders, savers and businesses …

In terms that will anger the investment banking industry, Miliband tells the Observer a Labour government, as one of its first acts, would push through a modern-day equivalent of the 1933 Glass-Steagall Act, which split the commercial and investment operations of US banks after the 1929 stock market crash …

Speaking ahead of Labour’s annual conference, which opens in Manchester on Sunday, Miliband says banks must concentrate on core functions such as lending to small businesses “rather than playing the international money markets”. Such behaviour puts ordinary customers at risk of having to share the consequences of failed investments.

Echoing concerns expressed last month by Sir Mervyn King, governor of the Bank of England, who believes that reforms proposed last year by Sir John Vickers are being “watered down” after lobbying by the banks, Miliband says it is time to stop backsliding, and to change banking culture for good. The recent Libor scandal involving the fiddling of inter-bank interest rates and the £10bn scandal over mis-selling of payment protection insurance showed the culture was still rotten …

“The banks and the government can change direction and say they are going to implement the spirit and principle of Vickers to the full. That means the hard ringfence between retail and investment banking. We need real separation, real culture change. Or we will legislate.”

The Guardian

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Greg Mankiw on Finance

30 September, 2012 at 16:56 | Posted in Economics | 1 Comment

Greg Mankiw has added a new chapter on the financial system to the 8th edition of his intermediate textbook Macroeconomics.

Having read it, yours truly have to confess of not being particularly impressed.

After thoroughly neglecting anything resembling a real-world finance system, Mankiw appends the new chapter to the other nineteen chapters where finance more or less is equated to the neoclassical thought-construction of a “market for loanable funds.”

On the subject of financial crises he admits that

perhaps we should view speculative excess and its ramifications as an inherent feature of market economies … but preventing them entirely may be too much to ask given our current knowledge.

This is of course self-evident for all of us who understand that both ontologically and epistemologically founded uncertainty makes any such hopes totally unfounded. But it’s rather odd to read this in a book that bases its models on assumptions of rational expectations, representative actors and dynamically stochastic general equilibrium – assumptions that convey the view that markets – give or take a few rigidities and menu costs – are efficient! For being one of many neoclassical economists so proud of their (unreal, yes, but) consistent models, Mankiw here certainly is flagrantly inconsistent!

And as if being afraid that all the talk of financial crises might weaken the student’s faith in the financial system, Mankiw, in his concluding remarks, has to add a more Panglossian warning that we

should not lose sight of the great benefits that the system brings … By bringing together those who want to save and those who want to invest, the financial system promotes economic growth and overall prosperity

Really?

Finance has its own dimension, and if taken seriously, its effect on an analysis must modify the whole theoretical system and not just be added as an unsystematic appendage. Finance is fundamental to our understanding of modern economies, and acting like the baker’s apprentice who, having forgotten to add yeast to the dough, throws it into the oven afterwards, simply isn’t enough.

Finanskrisernas lösning

30 September, 2012 at 11:31 | Posted in Economics | 3 Comments

Anta att du har ett kooperativ där en grupp föräldrar ställer upp och sitter barnvakt mot betalning i form av andelsbevis (kuponger) som berättigar innehavaren en timmes barnvakt. Anta vidare att systemet garanterar att varje förälder sitter barnvakt lika många timmar som man själv använder barnvakt.

Problemet med denna form av barnvaktssystem är att det kräver tillräckligt många kuponger i cirkulation. Risken finns att föräldrar som för tillfället inte har behov av barnvakt bjuder ut sina tjänster i större omfattning för att kunna ackumulera reserver av kuponger för användning i framtiden, när man tror sig ha mer behov av barnvakt.

Över tiden kan detta resultera i en kumulativ process som gör att alldeles för få kuponger cirkulerar. De som vill ackumulera kuponger efterfrågar ingen barnpassning, de som behöver barnpassning har svårt att hitta barnvaktsuppdrag, vilket i sin tur gör att föräldrar är ännu ovilligare att spendera sina reserver o s v. Lågkonjunktur för barnvaktskooperativet är ett faktum. Orsak: för låg effektiv efterfrågan. Istället för att konsumera barnvaktstid ackumulerar man kuponger.

Hur tar man sig ur denna lågkonjunktur? Man ökar helt enkelt utbudet på kuponger! Genom att utfärda fler kuponger, ökar kupongreserverna hos föräldrarna, som därigenom blir både mer villiga att sitta barnvakt och efterfråga banvakt o s v. Genom att trycka fler kuponger vänder man konjunkturnedgången.

Men ibland händer det likväl att vissa föräldrar kanske behöver mer barnvakt på kort tid än vad de hinner ackumulera i form av kuponger att betala med. Kooperativet kan då bestämma att föräldrar kan låna ett extra antal kuponger mot att man i framtiden betalar tillbaka dessa. För att systemet inte ska utnyttjas av rent okynne bestämmer man också att låntagarna utöver de lånade kupongerna betalar tillbaka ett antal ytterligare kuponger (ränta).

I normalfallet fungerar detta väl. Men om säsongsvariationen är stor (alla vill kanske helst ha barnpassning på våren) skulle man kunna hamna i en situation där även om kuponglånen kunde betalas tillbaka med noll procents ränta så skulle det finnas fler föräldrar som vill sitta barnvakt än föräldrar som efterfrågar barnvakt. Kooperativet befinner sig i en likviditetsfälla och lågkonjunkturen står åter för dörren.

Vad gör man? Man sätter priset på barnvaktstjänsten rätt – så klart. Värdet på de kuponger som tjänas in under ”lågsäsong” skrivs helt enkelt ner om föräldrar håller på dem till ”högsäsong”. Det innebär att föräldrar har incitament att spendera sina barnvaktskuponger snabbare istället för att lägga dem på hög (tesaurera), eftersom kupongernas reala värde minskar över tiden. Ungefär som pengar när man har inflation. Nedskrivning – och redan förväntningen om en framtida nedskrivning – av kupongernas respektive pengarnas värde innebär på så vis att man kan ta sig ur likviditetsfällan och få fart på kooperativ och ekonomi.

Vad säger oss då denna lilla parabel? Jo, att inflation kan hjälpa oss ta oss ur ekonomiska lågkonjunkturer och depressioner. Inflation får oss att spendera nu – vare sig det gäller barnvaktskuponger eller pengar – och ökar den effektiva efterfrågan och får fart på både kooperativ och ekonomin.

Farväl Vassilis Bolonassos

30 September, 2012 at 10:31 | Posted in Varia | Comments Off on Farväl Vassilis Bolonassos

I dessa tider – när ljudrummet dränks i den kommersiella radions tyckmyckentrutade ordbajseri och fullständigt bedövande, intetsägande, kulisser av skvalmusik – har man ju nästan gett upp. Men det har funnits ljus i mörkret! I radions P2 har varje söndag, 9.00-11.00, gått ett vederkvickelsens och den seriösa musikens Alltid på en söndag.

Underbart. Ett program där man alltid känner sig varmt välkommen. Ett program som ingjuter sina lyssnare med gott mod och vingar! Ett program där det förflutna blir levande och rörligt, en musikfest där man alltid känner sig särskilt inbjuden. Att i två timmar få lyssna till denna musik ger sinnet ro och får hoppet att återvända.

Men säg den lycka som är beständig. Idag sändes det sista Alltid på en söndag med Vassilis Bolonassos som programledare. Ett stort tack för alla dessa söndagsförmiddagar med underbar musik, Vassilis. Vi är många som kommer att sakna din röst i etern!

Austerity? Of course – but only for the poor!

29 September, 2012 at 12:50 | Posted in Economics, Politics & Society | 5 Comments

The model is dead; long live the model. Austerity programmes are extending the crises they were meant to solve, yet governments refuse to abandon them. The United Kingdom provides a powerful example. The cuts, the coalition promised, would hurt but work. They hurt all right – and have pushed us into a double-dip recession.

This result was widely predicted. If you cut government spending and the income of the poor during an economic crisis, you are likely to make it worse. But last week David Cameron insisted that “we will go on and finish the job”, while the chancellor maintained that the government has a “credible plan, and we’re sticking to it” …

What is presented as an economic programme is in fact a political programme. It is the implementation of a doctrine: a doctrine called neoliberalism. Like all such creeds, it exists in its pure form only in the heavens; when brought down to earth it turns into something different.

Neoliberals claim that we are best served by maximising market freedom and minimising the role of the state. The free market, left to its own devices, will deliver efficiency, choice and prosperity. The role of government should be confined to defence, protecting property, preventing monopolies and removing barriers to business. All other tasks would be better discharged by private enterprise. The quest for year zero market purity was dangerous enough in theory: distorted by the grubby realities of life on earth it is devastating to the welfare of both people and planet …

The neoliberal hypothesis has been disproved spectacularly. Far from regulating themselves, untrammelled markets were saved from collapse only by government intervention and massive injections of public money. Far from delivering universal prosperity, government cuts have pushed us further into crisis. Yet this very crisis is now being used as an excuse to apply the doctrine more fiercely than before …

A programme that promised freedom and choice has instead produced something resembling a totalitarian capitalism, in which no one may dissent from the will of the market and in which the market has become a euphemism for big business. It offers freedom all right, but only to those at the top.

George Monbiot

En lisa för själen

28 September, 2012 at 20:09 | Posted in Varia | Comments Off on En lisa för själen

Söndag var förr en självklar vilodag för arbetande människor. Det borde den vara idag också. Men jag är inte säker på att så är fallet.

I alla “moderna” människors liv behövs det tid för andhämtning och reflektion. Och ibland när alla måsten och krav från omgivningen bara blir för många och trängande kan det vara skönt att dra sig undan och slå av på takten för en stund.

Alla har vi väl olika sätt att göra det på. Själv brukar jag gå in i tv-rummet och ladda spelaren med Gubben i stugan – Nina Hedenius underbara dokumentärfilm om den pensionerade skogsarbetaren Ragnars liv i Dalarnas finnskogar.

Enkel. Vacker. En lisa för själen.

We the People

28 September, 2012 at 19:38 | Posted in Politics & Society | Comments Off on We the People


 
I en lysande artikel i Efter Arbetet skriver förre kultur- och utbildningsministern Bengt Göransson följande kloka ord:

I ett välfärdssamhälle – och ett där verklig demokrati råder – måste man lära sig att se andra som sina medmänniskor, inte som försörjningsobjekt eller produktionsfaktorer. Och om man vidgar perspektivet ytterligare och funderar över Vattenfalls och storföretags och bankers svindlande pengaregn över direktörer som får sparken behöver man knappast vara marxist för att ana att den tid vi nu lever i kan vara kapitalismens slutfas. Svindleri, hämningslös materialism, moraliskt förfall har förr kännetecknat slutet för hela civilisationer. Det betyder inte att världen går under. Men som lundensaren Bengt Lidforss en gång skrev i Barbariets renässans: det organiserade proletariatet är ‘i vår tid den enda samhällsklass, som med kraft och allvar bär upp de ideella kraven, medan däremot överklassen – den maktägande och avgörande överklassen – numera är en samling människor utan framtidstro, utan ideal och blott med ett intresse: att tjäna pengar. Denna sänkning av överklassens andliga nivå är en direkt följd av kapitalismen.’

Bengt Göransson var en stor inspirationskälla för mig när jag började intressera mig för folkbildning på 1980-talet. Det är han fortfarande.

Sherlock Holmes of the Year

28 September, 2012 at 14:34 | Posted in Economics, Varia | Comments Off on Sherlock Holmes of the Year

Hervé Hannoun – Deputy General Manager of the Bank for International Settlements (BIS) – in a speech on sovereign risk in bank regulation and supervision, on 26 October 2011, said:

My topic today is the treatment of sovereign risk in banking regulation and supervision. This theme has been spotlighted by the sovereign debt strains affecting most advanced economies. My conclusion is that market participants’ complacent pricing and accumulation of sovereign risk in the decade up to 2009 was a market led phenomenon that cannot be attributed to the Basel standards. However it becomes crucial for regulators and supervisors of large banks to clarify that although sovereign assets are still a relatively low risk asset class, they should no longer be assigned a zero risk weight and must be subject to a regulatory capital charge differentiated according to their respective credit quality.

Impressive indeed – who would have thought anything like that with countries like Greece, Spain and Italy hanging on the ropes …

On Krugman’s reading list

28 September, 2012 at 11:07 | Posted in Economics | 3 Comments

As we all know Paul Krugman is very fond of referring to and defending the old and dear IS-LM model.

John Hicks, the man who invented it in his 1937 Econometrica review of Keynes’ General TheoryMr. Keynes and the ‘Classics’. A Suggested Interpretation – returned to it in an article in 1980 – IS-LM: an explanation – in Journal of Post Keynesian Economics. Self-critically he wrote:

I accordingly conclude that the only way in which IS-LM analysis usefully survives — as anything more than a classroom gadget, to be superseded, later on, by something better – is in application to a particular kind of causal analysis, where the use of equilibrium methods, even a drastic use of equilibrium methods, is not inappropriate. I have deliberately interpreted the equilibrium concept, to be used in such analysis, in a very stringent manner (some would say a pedantic manner) not because I want to tell the applied economist, who uses such methods, that he is in fact committing himself to anything which must appear to him to be so ridiculous, but because I want to ask him to try to assure himself that the divergences between reality and the theoretical model, which he is using to explain it, are no more than divergences which he is entitled to overlook. I am quite prepared to believe that there are cases where he is entitled to overlook them. But the issue is one which needs to be faced in each case.

When one turns to questions of policy, looking toward the future instead of the past, the use of equilibrium methods is still more suspect. For one cannot prescribe policy without considering at least the possibility that policy may be changed. There can be no change of policy if everything is to go on as expected-if the economy is to remain in what (however approximately) may be regarded as its existing equilibrium. It may be hoped that, after the change in policy, the economy will somehow, at some time in the future, settle into what may be regarded, in the same sense, as a new equilibrium; but there must necessarily be a stage before that equilibrium is reached …

I have paid no attention, in this article, to another weakness of IS-LM analysis, of which I am fully aware; for it is a weakness which it shares with General Theory itself. It is well known that in later developments of Keynesian theory, the long-term rate of interest (which does figure, excessively, in Keynes’ own presentation and is presumably represented by the r of the diagram) has been taken down a peg from the position it appeared to occupy in Keynes. We now know that it is not enough to think of the rate of interest as the single link between the financial and industrial sectors of the economy; for that really implies that a borrower can borrow as much as he likes at the rate of interest charged, no attention being paid to the security offered. As soon as one attends to questions of security, and to the financial intermediation that arises out of them, it becomes apparent that the dichotomy between the two curves of the IS-LM diagram must not be pressed too hard.

Back in 1937 John Hicks said that he was building a model of John Maynard Keynes’ General Theory. He wasn’t.

What Hicks acknowledges in 1980 is basically that his original review totally ignored the very core of Keynes’ theory – uncertainty. In doing this he actually turned the train of macroeconomics on the wrong tracks for decades. It’s about time that neoclassical economists – as Krugman, Mankiw, or what have you – set the record straight and stop promoting something that the creator himself admits was a total failure. Why not study the real thing itself – General Theory – in full and without looking the other way when it comes to non-ergodicity and uncertainty?

Evidence and randomization (wonkish)

27 September, 2012 at 20:33 | Posted in Statistics & Econometrics, Theory of Science & Methodology | Comments Off on Evidence and randomization (wonkish)

  

 
Nancy Cartwright gave this lecture at a symposium on March 11th 2012 at Stanford. Part two and three of the speech – and a question and answer session after the speech – can be seen by clicking the link below:
http://youtu.be/ml7Ot-NokQc
 
For more on evidence and randomization see here, herehere and here.

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