Upon Saint Crispin’s day

25 Oct, 2013 at 16:46 | Posted in Varia | Comments Off on Upon Saint Crispin’s day

 

Post-Crash Economics

25 Oct, 2013 at 13:27 | Posted in Economics | Comments Off on Post-Crash Economics

Post-Crash Economics Society

Few mainstream economists predicted the global financial crash of 2008 and academics have been accused of acting as cheerleaders for the often labyrinthine financial models behind the crisis. Now a growing band of university students are plotting a quiet revolution against orthodox free-market teaching, arguing that alternative ways of thinking have been pushed to the margins.

Economics undergraduates at the University of Manchester have formed the Post-Crash Economics Society, which they hope will be copied by universities across the country. The organisers criticise university courses for doing little to explain why economists failed to warn about the global financial crisis and for having too heavy a focus on training students for City jobs.

A growing number of top economists, such as Ha-Joon Chang, who teaches economics at Cambridge University, are backing the students.

Next month the society plans to publish a manifesto proposing sweeping reforms to the University of Manchester’s curriculum, with the hope that other institutions will follow suit.

The Guardian

Are markets really morally free zones?

25 Oct, 2013 at 10:40 | Posted in Economics, Politics & Society | 2 Comments

negotiation1When reading walked-out Harvard economist and George Bush advisor  Greg Mankiw’s articles on the “just desert” of the one percent, one gets a strong feeling that Mankiw is really trying to argue that a market economy is some kind of morally free zone where, if left undisturbed, people get what they “deserve.”

Where does this view come from? Many neoclassical economists have a more or less Panglossian view on unfettered markets, but maybe Mankiw has also read neoliberal philosophers like Robert Nozick or David Gauthier. The latter writes in his Morals by Agreement:

The rich man may feast on caviar and champagne, while the poor woman starves at his gate. And she may not even take the crumbs from his table, if that would deprive him of his pleasure in feeding them to his birds.

Mankiw has stubbornly refused to nudge on his neoliberal stance on this issue, but let’s see what a true liberal – John Maynard Keynes – has to say on the issue in his General Theory (1936):

The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes … I believe that there is social and psychological justification for significant inequalities of income and wealth, but not for such large disparities as exist to-day.

A society where we allow the inequality of incomes and wealth to increase without bounds, sooner or later implodes. The cement that keeps us together erodes and in the end we are only left with people dipped in the ice cold water of egoism and greed.

Elegy of the Uprooting

24 Oct, 2013 at 18:32 | Posted in Varia | 4 Comments

 

Karaindrou is a giant. In her quiet way she towers over more popular figures, simply by digging through the historical, cultural, and musical past, through the images brought forth by them, and by the poetics of the human heart. There is no hollow sentimentality in this work. In fact, it is stripped of that artifice to reach the purity of emotion, presented by a composer and musicians who understand restraint, allowing the story presented here to reveal itself, not by narrative so much as by context and the honesty of the music itself. Without doubt, this … will go down as a classic in the field.

Thom Jurek

Fama doesn’t pass Solow’s smell test

23 Oct, 2013 at 15:52 | Posted in Economics | 1 Comment

Following the greatest economic depression since the 1930s, Nobel laureate Robert Solow has complained that modern macroeconomics has not only failed at solving present economic and financial problems, but actually is “bound” to fail since it’s based on models that do not pass the smell test: “does this really make sense?” Solow’s surmise is that a thoughtful person “faced with the thought that economic policy was being pursued on this basis, might reasonably wonder what planet he or she is on.”

Reading the Fama interview below I would argue that he doesn’t pass Solow’s smell test:

In the past, I think you have been quoted as saying that you don’t even believe in the possibility of bubbles.

Fama: I never said that. I want people to use the term in a consistent way. For example, I didn’t renew my subscription to The Economist because they use the world bubble three times on every page. Any time prices went up and down—I guess that is what they call a bubble. People have become entirely sloppy. People have jumped on the bandwagon of blaming financial markets. I can tell a story very easily in which the financial markets were a casualty of the recession, not a cause of it.

That’s your view, correct?

Fama: Yeah.

John Cassidy

Fama doesn’t make sense — wonder what planet is he on …

Varför uppstår bostadsbubblor?

22 Oct, 2013 at 18:41 | Posted in Economics | 1 Comment

Enligt de senaste boprisindikatorerna tror en majoritet av de svenska hushållen på fortsatt stigande bostadspriser. Trots finanskris och oro över euron så kommer detta troligen att innebära att svenskarna fortsätter att låna mer och mer för att köpa bostäder – och ytterligare spär på den skuldvolym som bara under de senaste tre åren ökat med över 30 %.

Varje sansad bedömare inser att detta är ett problem som måste lösas innan bostadsbubblan spricker.

housing-bubble4

Men varför har husprisbubblan uppstått? Det finns flera olika förklaringar till detta, men en av de mer centrala mekanismerna går lättast att förklara med hjälp av följande arbitrageargument:

Anta att du har en summa pengar (A) som du vill investera. Du kan antingen sätta in pengarna på banken och få en årlig ränta (r) på pengarna. Om vi för enkelhetens skull bortser från eventuella risker, tillgångsdepreciering och transaktionskostnader ska rA motsvara den inkomst jag alternativt skulle kunna erhålla om jag istället köper ett hus med en insats på A och hyr ut mitt hus under ett år till en hyra på h plus förändringen i huspriset (dhp), dvs:

(1)  rA = h + dhp

Dividerar vi båda sidor med huspriset (hp) får vi

(2)  hp = h/[r(A/hp) – (dhp/hp)]

Ur ekvationen framgår då klart att om du förväntar dig att huspriserna (hp) ska stiga, så kommer priset på huset att stiga. Den här typen av självgenererande kumulativ process är kärnan i själva husbubblan. Till skillnad från vanliga varumarknader där efterfrågekurvan i regel är nedåtlutande, har vi på tillgångsmarknader ofta en efterfrågekurva som är uppåtlutande och därigenom ger upphov till den här typen av icke-stabilitet. Notera också att ju större hävstångseffekter vi har (ju lägre A/hp), ju större blir prisstegringen.

Egeninsatsen vid husköp är i Sverige realiter fortfarande extremt låg. Det innebär att hävstångseffekterna blir desto större. Mot bakgrund av den svåra internationella ekonomiska situationen tvingas Riksbanken hålla relativt låga räntor (även om detta inte gärna medges av en del prominenta före detta Riksbanksdirektionsledamöter). Som i sin tur leder till ännu högre bostadspriser och ännu högre hävstångseffekter. Och ännu större bostadsbubbla.

Med en egeninsats på 20 kan du köpa ett hus som är värt 100. Hävstången är 5 och om priset på bostaden stiger 10% ökar dina tillgångar med 50% – men om priset på bostaden sjunker med 10% minskar å andra sidan dina tillgångar med 50%. När tillgångspriser väl börjar sjunka ger de höga hävstängerna upphov till en kumulativ prissänkningsprocess där ökad osäkerhet och volatilitet snabbt kan leda till ökade krav på säkerheter och egeninsatser. Bostadsbubblan spricker och krisen står för dörren.

Vad bör göras? Den amerikanske Riksbankschefen under 1950- och 1960-talen – William McChesney Martin – lär skämtsamt ha sagt att en centralbanks främsta uppgift är att se till att ta bort bålskålen när festen börjar komma igång. Festen har pågått alldeles för länge redan. För att undvika en bokrasch motsvarande den i USA för fem år sedan krävs krafttag av riksbank och regering.

Sverige har sedan åtminstone mitten på 1990-talet haft en klart stigande trend när det gäller tillgångspriser. Det syns också i den internationellt sett extremt höga skuldsättningen i hushållssektor:

Källa: SCB och egna beräkningar

Hushållens skuldsättning bottnar främst i den ökning av tillgångsvärden som letts av ökad långivning till hushållen och den därav uppkomna bostadsbubblan. På lång sikt är det självklart inte möjligt att bibehålla denna trend. Tillgångspriserna avspeglar i grunden förväntningar om framtida avkastning på investeringar. Om tillgångspriserna fortsätter öka snabbare än inkomsterna blir effekten ökad inflation med vidhängande nedjustering av tillgångarnas realvärde.

Bolånetillväxten i Sverige har under lång tid varit bland de största i världen. Realprisutvecklingen för hus sedan 1986 ser ut så här:

Källa: SCB och egna beräkningar

År 1638 kunde priset på en tulpanlök i Nederländerna motsvara två årslöner. Och hushållen var övertygade om att priserna bara skulle fortsätta att öka och öka. Som alla andra bubblor sprack dock även denna bubbla – tulpanmanin – och lämnade mängder av utblottade och ruinerade människor efter sig. Liknande ting utspelade sig i Mississippibubblan år 1720 och i IT-bubblan för tio år sedan. Hur svårt ska det vara att lära av historien?

A Markov chain application — the gambler’s ruin problem

22 Oct, 2013 at 18:23 | Posted in Statistics & Econometrics | Comments Off on A Markov chain application — the gambler’s ruin problem

[And in case you’re curious what happens if you start out with $25 but we change the probabilities – from 0.50, 0.50 into e. g. 0.49, 0.51 – you can check this out easily e.g. with Gretl:
matrix B = {1,0,0,0; 0.51,0,0.49,0;0,0.51,0,0.49;0,0,0,1}
matrix v25 = {0,1,0,0}
matrix X = v25*B^50
X

which gives X = 0.68 0.00 0.00 0.32]

Simpson’s Paradox (student stuff)

21 Oct, 2013 at 20:46 | Posted in Statistics & Econometrics | Comments Off on Simpson’s Paradox (student stuff)

 

Eternity and a day

21 Oct, 2013 at 18:58 | Posted in Varia | Comments Off on Eternity and a day

 

Alan Greenspan juking the stats

20 Oct, 2013 at 22:41 | Posted in Economics | Comments Off on Alan Greenspan juking the stats


[h/t Jan Milch]

Alan Greenspan — a bad economist and a bad person

20 Oct, 2013 at 19:42 | Posted in Economics, Politics & Society | Comments Off on Alan Greenspan — a bad economist and a bad person

Steven Pearlstein reads Alan Greenspan’s new book, and discovers that Greenspan believes that he bears no responsibility for all the bad things that happened on his watch — and that the solution to financial crises is, you guessed it, less government.

What Pearlstein doesn’t mention, but I think is important, is Greenspan’s amazing track record since leaving office — a record of being wrong about everything, and learning nothing therefrom. It is, in particular, more than three years since he warned that we were going to become Greece any day now, and declared the failure of inflation and soaring rates to have arrived already “regrettable.”

The thing is, Greenspan isn’t just being a bad economist here, he’s being a bad person, refusing to accept responsibility for his errors in and out of office. And he’s still out there, doing his best to make the world a worse place.

Paul Krugman

Well, what would you expect from a person that considers Ayn Rand — with the ugliest psychopathic philosophy the postwar world has produced — one of the great thinkers of the 20th century? A person that even co-edited a book with her — maintaining that unregulated capitalism is a “superlatively moral system”. A person that in his memoirs tries to reduce his admiration for Rand to a youthful indiscretion — but who actually still today  seems to be  a loyal disciple of Rand’s sickening gobsmacking trash.

On assuming additivity and linearity — redux

20 Oct, 2013 at 17:07 | Posted in Statistics & Econometrics | 1 Comment

In an article posted here a couple of weeks ago — What are the key assumptions of linear regression models? — yours truly tried to argue that since econometrics doesn’t content itself with only making “optimal predictions,” but also aspires to explain things in terms of causes and effects, econometricians need loads of assumptions — and that most important of these are additivity and linearity.

Let me take the opportunity to cite one of my favourite introductory statistics textbooks on one further reason these assumptions are made — and why they ought to be much more argued for on both epistemological and ontological grounds when used (emphasis added):

In a hypothesis test … the sample comes from an unknown population. If the population is really unknown, it would suggest that we do not know the standard deviation, and therefore, we cannot calculate the standard error. gravetterTo solve this dilemma, we have made an assumption. Specifically, we assume that the standard deviation for the unknown population (after treatment) is the same as it was for the population before treatment.

Actually this assumption is the consequence of a more general assumption that is part of many statistical procedure. The general assumption states that the effect of the treatment is to add a constant amount to … every score in the population … You should also note that this assumption is a theoretical ideal. In actual experiments, a treatment generally does not show a perfect and consistent additive effect.

Eleni Karaindrou — Adagio

20 Oct, 2013 at 15:51 | Posted in Varia | Comments Off on Eleni Karaindrou — Adagio

 

Dream In An Open Place

19 Oct, 2013 at 17:40 | Posted in Varia | Comments Off on Dream In An Open Place

 

Ingvar Lidholm — Pastoral in the Forest

19 Oct, 2013 at 17:19 | Posted in Varia | Comments Off on Ingvar Lidholm — Pastoral in the Forest

 

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