Home > The Economics Profession > Economics is a science?!

Economics is a science?!

from David Ruccio

min+wage

The next time some mainstream economist stands up and says “Economics is a science” and, because it is a science, “We know what the effects of implementing this policy are,” just send them to the current debate about the minimum wage.

Catherine Rampell does a good job illustrating the absurdity of the view that economics is a science. There aren’t many topics in economics that have been the focus of as much theoretical modeling and empirical research as the minimum wage. And there simply isn’t any kind of consensus—among mainstream economists, let alone among all economists—about the effects of raising the minimum wage.

In referring to the results of the survey of the members of the IGM Experts Panel, Rampell observes that,

These responses do not necessarily reflect the beliefs of all economists, the way a traditional poll might aim to be; rather, the panelists are among the more elite members of their profession and were selected to represent some of the better-known conservative, liberal, young and old scholars. They include Nobel laureates, John Bates Clark Medal recipients, Econometric Society fellows, past presidents of both the American Economic Association and American Finance Association, past Democratic and Republican members of the President’s Council of Economic Advisers, and editors of leading economic journals.

Moreover,

of those who responded, about a quarter said they were “uncertain” about the proposition. Exactly zero percent said they either agreed or disagreed “strongly.”

So much for the idea that economics is a science!

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  1. March 6, 2013 at 1:23 pm

    I had a debate in the press several years ago with an economist professor at a local university and baited him into getting frustrated. When he was finally exasperated with me he wrote that Economics is an art not a science. My response was to agree and note that the predictions of economics were no more accurate than reading the entrails of chickens. And, of course, we all know that the purpose of reading the entrails of chickens was to justify political decisions wanted by those in power.

    • DM
      July 10, 2013 at 12:58 am

      The subject of economics is a science, though economic policy is at best an art. This survey means nothing, as the term “noticeably harder” has no precise meaning, and the *size* of the effect of a small change in the minimum wage is itself an empirical matter, one that depends on more than general scientific principles, but also on specific circumstances.

  2. Paul Schächterle
    March 6, 2013 at 2:15 pm

    The fact that economists disagree on certain subjects does not mean that economics is not a science. Science does not mean having only one opinion. On the contrary reducing the debate to one opinion or one paradigm, that would be unscientific.

    IMHO economics – to be more exact mainstream or neoclassical economics – is not a science for a different reason.

    Firstly it defies logic. Neoclassical economists draw conclusions they apply to the real world from assumptions that are clearly counterfactual. They even believe that assumptions do not have to be “realistic” by which they mean that assumption do not have to be true. That is actually a refutation of logic itself.

    Secondly it is based on willful ignorance. Neoclassical economist ignore all arguments made against their theories and keep teaching and applying those theories as if no criticism ever existed.

    Those are the real reasons why (neoclassical) economics is not a science.

    • cloie
      July 1, 2013 at 12:36 pm

      prove it…

      • Paul Schächterle
        July 1, 2013 at 1:11 pm

        Please specify what I need to prove in particular and I will try to come up with an answer. As a preliminary answer I should like to refer to the following book:
        Keen, Steve: Debunking Economics – The Naked Emperor of the Social Sciences.
        This book points out plenty of examples for both, counter-factual assumptions and willful ignorance in mainstream economics.

      • Herb Wiseman
        July 1, 2013 at 1:39 pm

        Science should eventually lead to an increased probability that predictions are reliable and accurate. Economics history is rife with examples where this has not been the case. Another reason economics is not a science (although many other things called science may not be either) is that academia is not looking at various theories and requiring students to analyse, challenge and ultimately devise tests for them.

        The following link may be of interest to readers. The April issue contains an article (Milton Friedman and Conservative Economics: Gatekeeper Economics II) by W. Robert Needham about the problems in academia but primarily focused on opposing the establishment of the Milton Friedman Institute under the auspices of the University of Chicago.

    • July 10, 2013 at 11:07 am

      Good points… IMHO, «Classical Political Economy» was an embryo of a science until mr. Boehm-Bawerk «demonstrated» that «gifts of Nature» such as mines and virgin lands have «value» and therefore discredited the «marxian» labour theory of value… Most young conventional economists today simply ignore the fundamental problem of classical political economy that divided Malthus and Ricardo: «effective demand»… Some time ago I made an informal survey among young post-graduated students and most did not know what I was talking about…

      • Paul Schächterle
        July 10, 2013 at 12:46 pm

        Yes, I also find classical political economy much more scientific than today’s neoclassical gimmicks and blunders. And Malthus was posing the right questions – as Keynes noted in his “General Theory”.
        I must say, though, that I find Mr Böhm-Bawerk’s theory of interest very interesting (pardon the pun!) and would not call it unscientific.
        Also I find Mr Marx’s theory of labour somewhat lacking, one reason for that being that it draws an arbitrary line between labour and machinery as far as it goes to “adding” value. There is a good critique (IMHO) of Marx’s theory of labour in Keen’s Debunking Economics (2001 Ed.). Also it AFAIK Marx’s theory does not sufficiently address the scarcity of non reproducible goods.

      • July 10, 2013 at 3:16 pm

        Yes, you do have a point when you say «it draws an arbitrary line between labour and machinery as far as it goes to “adding” value»… One has to begin by defining «machinery», «technology», «software» (and acquisiton of skills…).
        My contention here is that one may still apply the basic/fundamental tenets of the classical labour theory of value without incurring into the pitfalls of «marginalist price theory». Also, IMHO, «prices» are but an instrument to capture and accummulate «value».
        As regards, the issue of scarcity, IMHO, «scarcity is but a direct function of the difficulty – time/effort/energy that is required to obtain or (re)produce» (whatever. “goods” and/or “services”).
        If one – looks into the practice of professional art dealers, one may be surprised to find how they implicilty make use of the labour theory of value when assessing the price of works of art.

        http://www.artbusiness.com/pricepoints.html

    • MG
      July 31, 2013 at 9:04 pm

      I remember a class (physics? astronomy? calculus?) that proceeded “Assume Jupiter and the sun are point-masses …”. Massive point masses are as counterfactual as can be. Valid science still ensued, in my opinion.

      • Paul Schächterle
        August 1, 2013 at 11:46 am

        The question is whether an “unrealistic” assumption can be seen as an approximation to reality or not. You could say that it is a matter of *how* unrealistic quantitatively an assumption is. You can probably calculate the error of assuming a point mass compared to a more correct model of the mass. And if you want to send a probe around a planet you won’t use the simple assumption.
        Neoclassical economics on the other hand uses assumptions that can not be seen as approximation at all. E.g. the neoclassical theory of the labour market assumes that worker will try to work less if the wage rate falls. That ignores the reason why workers supply work – to make a living. That is no approximation but a fundamental error.
        There are more fundamental errors, including logical errors, in neoclassical theory.

      • MG
        August 1, 2013 at 10:37 pm

        Increased wages in a particular firm, or even a particular industry, may well evoke an increase in the supply of labor for that firm or industry. A growing firm may well pay a premium to hire people away from other employers. Where there is mobility between industries (often though not always the case), higher wages in one industry will convince some people to switch.

        Some full time students may be swayed by salaries and gravitate towards degrees, fields, and firms that promise higher pay.

        I don’t think this is inconsistent with the view that increasing wages over time have resulted in a shortened work week. People buy many things with their wages, including leisure!

  3. Fonseca-Statter
    March 6, 2013 at 3:46 pm

    To me, what is more frustrating is the recurrent, permanent, ongoing (…) confusion between «science» (social or economic…) and «engineering» (social or economic)… The Roman empire engineers did build aqueducts and bridges without having a clue as to the nature of gravity, let alone the subtle difference between Newonian and Einsteinian theories of gravity. But did those bridges work?… Of course they did…

  4. William Neil
    March 6, 2013 at 5:03 pm

    Now here is another topic which deserves more scrutiny along these lines, no where near as deeply researched as the effects of raising the minimum wage on job creation: the correlation, and explanation for it between historical efforts to balance the Federal budget and reduce the national debt, and the fact that six depressions and a serious recession resulted in the wake of all the efforts, which are listed in the following years by L. Randall Wray: the fiscal austerity years come first, the resulting troubles depression/recession, in ( ). 1817-1821 (1819); 1823-36 (1837); 1852-57 (1857); 1867-73 (1873); 1880-93 (1893);1920-30 (1929) and finally 1996-1999 (2001-2002).

    I should add that James Galbraith has also taken note of the correlation, which I never hear mentioned in the present massive coverage of the debate in Washington.

    Of course, in “theoretical” economics during what Polanyi called the “long” 19th century, the reigning policy orthodoxy was for a balanced federal budget, and the fact that it was rarely achieved even prior to social democratic measures should be taken note of (And yes, the orthodoxy was linked to the gold standard and international trade flows). And this was before the regulatory state, and much of it before central banking. In the United States, prior to the Guilded Age, this may have been capitalism’s “purest” institutional expression in terms of many small firms throughout the economy competing with each other, and I include agriculture and the family farm in that description. In some ways, the ability of so many people to fall back upon subsistence agriculture may have served as a form of stabilizer and human buffer from the very grim realities of what followed in the wake of 1819, and 1837 and beyond.

    Historian Daniel Walker Howe, in his fine “What Hath God Wrought,” his history of Antebellum America up to 1848, says that 1819 “was the first time that the American public had experienced collectively what would become a recurrent phenomenon, a sharp-downward swing of the business cycle. Because it was the first time, people had no perspective from which to judge the events.”

    But here we have two, in my opinion, good economists pointing out something very relevant for today’s debate, conducted between the Center and the Right, stating that the history of balanced budget attempts is not a happy one. I should point out as well, that Galbraith, in his “Predator State,” spends a good deal of time stating the near impossibility of balancing the federal budget when the nation is running a large trade deficit, stressing the macro economic accounting flows that say that if we have a large trade deficit either the public sector runs a large debt or the private sector does (which it did during the late 1990’s with the rise of massive credit/and mortgage based personal debt….) but they can’t both do it…

    From this citizens perspective, these two topics would seem, given the current state of the debate and the economy, to deserve much wider, and deeper discussion.

  5. ezra abrams
    March 6, 2013 at 6:57 pm

    Has anyone ever graphed or plotted how economist think on some issue X,
    Vs.
    How issue X affects, directly, economist pocket books ?
    min wage inc has little or no effect; free trade has a big neg effect (most economist are in the upper two quintiles of the income distribution, so they benefit when jobs go overseas and return as cheaper goods)

    PS: to who ever is running this site, the guidelines for comments sound a little, at least to me, pompous – maybe this is a language thing; in std Amer English, they do sound a little off

    • March 7, 2013 at 4:12 pm

      It probably is partly “a language thing”, Ezra, but as William Neil put it just before you, “From this citizen’s [i.e. my] perspective, [our] topics would seem, given the current state of the debate and the economy, to deserve [even] wider, and deeper discussion”.

      Your question, Ezra sounds like a time-honoured method of foresnic science (i.e “follow the money”. As to whether economics is or is not a science, it seems to me it ought to be. The real question is whether so-called economists are or are not scientists, when they have so little interest in truth, use the label “economics” as a euphemism for what they do study (money making or “chrematistics”), and describe obscurely how that IS rather instead of explaining clearly how and why it WORKS (and as economics, doesn’t).

  6. William Neil
    March 7, 2013 at 5:09 pm

    I have no problem with economists trying to pursue their work with as much analytical rigor as they are inclined to apply, including mathematics, but the dynamism of capitalism and the number of variables involved has to leave everyone with just a touch of humility. Let’s think about this correlation that James Galbraith and L. Randall Wray have put forward, an intellectual counter, based on economic history and the obsessions of the current debate – that economic life will be much better if the federal budget were balanced and the debt greatly reduced if not eliminated. Wray puts the correlation in a framework of sustained efforts to do just that (and he left out two panics from the late “founding periord” in the 18th century) and notices that depressions and one tough recession seem always to follow. I’ve just spent some time on Wikileaks looking at how the panics and accompanying years – they are really depressions, because they are running on 3-6 years, longer in some cases, and I couldn’t find a single instance where the fiscal austerity measures were mentioned….no the actual causal mechanism behind the correlation – my take – not necessarily one to one with wray’s – is that the psychology of credit expansion contraction that so drew Keynes interest is at play, but a time when capitalism was very young and banking lagging far behind. It is still not clear to me how the public effort to balance the federal books directly links to the triggering event – over production or classic gluts then falls in the price of cotton – other than we are deeply into a very ambivalent if not schizophrenic (and Robert Schiller, Richard Wolff here we come – both married ot psychologists therapists) pattern of animal spirits in the private sector (always credit and currency short in the 19th century – by theory a tight money, “hard money” economy) and a corresponding default setting to balance the public books. This was a time when the main sources of federal revenue were – James Galbraith are you listening – the tariff and various excise taxes on things like whiskey…so international trade is already figuring into that tight balancing equation that leads Galbraith to say you cannot run a trade deficit and a federal budget surplus unless the private sector turns debtor.

    So let me back up a bit from these complex strands and say that I’d love to see someone write a book about the correlations between frequent panics and depressions – which ought to give any free market capitalist purest pause – because after all, has there ever been a “purer” brand of capitalism than the American Antebellum brand – and yes, undoubtedly it kept growing but the panics and derpressions were hell…just ask John Brown and the famous Union generals who failed as businessmen…and see if in that book we can tighten the correlation-cause between public austerity and private, increasingly universal depressions. Science? I don’t know, doubt it…

    And it may be far easier to prove the reverse: that “sound money” practiced at the federal budget is not guarantor/guarantee of happy economics for the nation…it looks to me, following either strand, that the good old days that so many conservative and even middle of the road economists want to take us back to are the key to future prosperity.

    And let me conclude that as the surviving Founders looked out upon “what they had wrought” in the second and third decade of 19th century, they were more than a bit horrified at the universal participation in “getting ahead,” which seemed to them to have taken the young republic far from its classic roots in the Atlantic republican tradition (Gordon Wood’s take…). It’s a reminder of what I have said and written at a number of points: if the Right, if not the bulk of the economics profession ever got the true logic of their field, that we should all be inventing, striving young capitalists, always anxious for re-invention, and to prevent (hi tom Friedman) ourselves from becoming “road kill” we would have a society not too far removed from the spectacle of one in the act of constantly tearing itself to shreds – my phrasing of part of Wendell Berry’s Jefferson lecture from 2012. So let the “factions” be unleashed: who will balance them today in the public’s long term interest? What econometric equation will answer that for us?

  7. William Neil
    March 7, 2013 at 5:50 pm

    oops, sorry, that should have been Wikipedia, not Wikileaks. And using Wikipedia on economics as sort of a weathervane for the dominant currents in the field, and the politics.. No mention of federal fiscal austerity being tried and failing in all the discussions I read of the Panics and Depressions of the 19th century, which get individual coverage at Wikipedia… And to condense my broader point about Galbraith’s and Wray’s gambit on the correlation between public budget austerity and the depressions: it will be easier to show that the budget balancing didn’t lead to any economic panacea or magic than it will be to show prove that these attempts caused the depressions…especially when the triggering event was in an international trading commodity or credit market…but I could be missing something and I encourage them to elaborate further…it time to start a public discussion of what they have broached….

  8. Reiner Buchegger
    March 8, 2013 at 12:43 pm

    A scientific approach would contain the absolute number of respondents.

  9. March 10, 2013 at 8:38 pm

    Reblogged this on Kezban KARABOĞA.

  10. Ajoy
    July 31, 2013 at 4:07 pm

    In the present age the most widely accepted definition for economics is the one given by Lionel Robins – which states that economics is a science of human behavior in respect to scarce resources. Well,human behavior cannot be predicted and just because 98% of the population behaves in a particular manner doesn’t make that a law. Its weird that an economist Alfred Marshal once even tried to quantize “human satisfaction” in units called utils. All together ,on the surface itself one can find economics is an subject of humanities and not science.

  11. MG
    July 31, 2013 at 8:34 pm

    “Is economics a science?”

    To me, a better question is “can the scientific method be applied to economics?”

    Generally thinking, I think the answer is “yes.” But then, I think the scientific method can be applied to many areas of human enquiry. Some fields are more amenable to the use of the scientific method. It would certainly be nice to do laboratory experiments. But I wouldn’t rule out field observations. It would be nice if there is no interaction between observer and that which is observed. It would be nice if one’s findings had no ideological implications. Baring that, it would be nice if people could accept valid reasoning and data analysis even when it conflicted with their ideological preferences.

    Another question is “how firm is our knowledge?”

    I see great merit in understanding supply, demand, and equilibrium price. It seems clear to me that a price control, be it a ceiling, as in rent control, or a floor, as in the minimum wage, reduces the quantity exchanged in the market place. In the first case, suppliers bail out. In the second place buyers (employers in the case of the minimum wage) bail out. Only the free market equilibrium price balances the interest of buyers and sellers and obtains their maximum participation – maximum quantity transacted – maximum employment. This seems firm. Many won’t agree. The problem here is not “economics,” but the unwillingness to reject such easy coercive fixes as rent controls and minimum wage legislation.

    I found Keynesian macro economics to be more “exciting” when I was in school. If not a philosopher king, I could at least imagine myself as a worldly philosopher advising the king. Shift these curves up, these down and make the world a better place. I now realize that government actions usually involve some form of coercion. Boss (other) people around for a better world. Atlas will never shrug.

    What might one do to make the world a better place? One common answer was “increase government spending.” Amazingly enough, the question was seldom asked “where will government get the money?” So this follow-up question was never asked “What will be the implications of taking all this money from people?” The only attempt to close the loop was through the “balanced budget multiplier” that seemed contrived even when I was in school. It is based on the assumption that G proceeds faster than T. No one took a look at how long it takes to pass a law, for departments to allocate funds, the time required to negotiate contracts, and the time for a company to ramp up production to spend money. No, G was assumed to happen immediately. It was assumed that no one made plans for future changes in tax laws. So T always adjusted a year later than a change in G.

    Real science is a search for the truth. Marxist economics has a fundamental problem common to Marxism in any and all domains. Marxism considers it “a higher morality” to advance the cause, than to find and tell the truth. Marxism, its heirs and relatives, have given us “junk science.” Despite Marxist professors in economics, climate science and elsewhere, real science is an ideal to which we should hold fast.

    • davetaylor1
      August 1, 2013 at 8:47 am

      MG @ #20: “To me, a better question is ‘can the scientific method be applied to economics?’ ”

      Of course, but that doesn’t mean the result will be science.

      THE scientific method? Whose scientific method? Aristotle’s “family tree” method, Bacon’s “take things to bits to see how they work” method, or Hume’s method of plotting inert graphs of points correlated by experimental agreement? Or Kant’s (contra Hume), of “getting hold of the stick at the right end” with the necessary categorial framework? (This providing Poincare’s “hooks to hang ideas on”, and Chesterton’s pragmatic decision making criterion: “if the cap fits, wear it)”. Or with Kuhn, perhaps with Copernicus, Descartes and Einstein in mind, if probably not Shannon), do we need to distinguish “normal” science (coordinates assumed) from “revolutionary ” science (changing the coordinate system)? With Lakatos, do scientific methods apply not to isolated facts but to probing the assumptions of research programmes? Should we not be following Bhaskar, who scientifically studying scientific method by scientific observation of what, together, diverse scientists actually do, i.e. make their own specialised types of contribution in different phases of investigations?

      MG’s understanding of ‘truth’ seems to be a Humean one, failing to see that truths and falsehoods have consequences. Hence the Christian criterion: “by their fruits you shall know them”, and Marx’s rightful condemnation of Capitalism (if not of his own unwise though justifiably angry reaction to it).

      There being no point in crying over spilt milk and replacing one blind dictator with another, the wiser policy is to follow Christ in righting wrongs oneself as best one can, planting the seeds of “Small is Beautiful” credit-based economies for our rapidly approaching post-oil, over-heated future. Science is but one way to reliable knowledge, and having found the wheel, no need to reinvent it: better to use it.

    • Paul Schächterle
      August 1, 2013 at 9:05 am

      Well I agree that scientific methods should be applied in economics. I agree that science is search for the truth. I agree that Marxism (the political movement) has produced junk science. (Though I think Marx himself had some important insights.)
      However I have the impression that your thinking is also ideologically influenced and that you take things as “natural” that are not natural but a product of a certain political or legal order.
      Quote: “Only the free market equilibrium price balances the interest of buyers and sellers and obtains their maximum participation – maximum quantity transacted – maximum employment. This seems firm. Many won’t agree.”
      Indeed I don’t agree. This is IMHO a highly dubious position. I think that the neoclassical model of the simple market is a false and oversimplified model. It does neither take correctly into account production nor the distribution of property between the market participants and therefore ignores their bargaining power. I don’t believe in always self-stabilizing markets. History is IMHO full of counter examples.
      Quote: “I now realize that government actions usually involve some form of coercion.”
      Well every order has elements of “coercion”. Take property as an example. The proprietor may use his property and may exclude others from using it. This is enforced by government action thus by “coercion”. If you are born poor with no property you live in a society with a lot of restrictions.
      I am not arguing against private property, at least to a certain extent it is a very useful and socially beneficial legal institute. But I think it is wrong to see property is something “natural” and the state as something artificial and “coercive”. Also I think you neglect the importance of inequality, i.e. the role of the distribution of property.

  12. August 1, 2013 at 12:23 pm

    Economics is not science, because its knowledge is not derived by the scientific method, which is an endless iterative procedure of deductive theory interacting with inductive empiricism. Many fundamental economic concepts such demand and supply curves have had no rigorous empirical confirmation. Most economic concepts have remained mental heuristics. Economic forecasts are a joke, because they are based on assumptions or “laws” which have never by rigorously proven to have any universal validity whatsoever. How could you deduce a future course of events based on flawed or unproven assumptions?

  13. MG
    August 1, 2013 at 7:06 pm

    I’ve witnessed a veritable cornucopia of ideas and comments. Are there so many “scientific methods” and approaches to “truth” as to render these words worthless? No.

    A Christian view on truth was mentioned and this stimulates a thought. As mono-theists, the Judeo-Christian heritage has no trouble with truth. There is not so much talk of “whose truth,” because it is God’s truth. We can each have our opinions. We may not know the truth, but it is known. Made in God’s image, there is hope than we can find out what is true in a particular domain.

    Going back to introduction to micro-economics, supply, demand and market equilibrium, demand is an abstraction. The process of abstraction is found in physics and elsewhere and certainly cannot be condemned in itself. Abstraction is the process of ignoring, sometimes striking, particulars to focus on a common element that may be essential to understanding. It may not seem “realistic,” but it can be a very powerful and effective process.

    In the case of demand, it has simply been found that many buyers respond to price. If you lower the price, many buyers will want to buy more, or more often. Demand can be seen in the behavior of the individual, but it is mostly about the market – all the potential buyers. So price falls and people (and businesses) are encouraged to buy more. Controversial?

    Supply is another abstraction. It has been found that many suppliers, from farmers to computer makers, will increase production if actual, or forecast, or anticipated prices go up. I know if touched on many possibilities here and some will call me vague. But we may be talking about thousands of markets and millions (billions?) of producers. We all have vast experience as consumers. As suppliers, perhaps not so much. Yet many of us can look to our own experience, or that of others, and see that attention perks up when we hear that more (a lot more!) can be made in selling something than we thought. What did you say they are paying for X? That much??

    Perhaps I am belaboring these basic concepts. So no paragraph on market equilibrium. People really should reflect on the consequences of government price controls. These have been examined in many articles and real world cases. The interesting thing is that the world just behaves as theory predicts – only many people just don’t want to believe it.

    Paul states:
    “But I think it is wrong to see property is something “natural” and the state as something artificial and “coercive”. Also I think you neglect the importance of inequality, i.e. the role of the distribution of property.”

    Yes, I do find something natural about property. In my town, homeless people were camping out in the park. One homeless man stabbed another for infringing on his spot. One can imagine the words “This is MY public property!” “My public property,” there is something about those worlds that makes me smile. Well, people do like to have things, or spaces, that they can all their own.

    Things can also be shared, and relationships nested. Within a family, many possessions can be shared, while some are not. But while the oven may be shared by family members, it is not shared with other families. Manicured parks and vast untouched lands alike are owned by governments (municipal, state, and national) and shared by citizens (and even non-citizens).

    John and Henry are co-workers and each makes the same salary. One fritters his salary away on booze and show girls, the other buys property. I don’t know who is coming out better, but truly this is a case of unequal distribution of property. I am not concerned. You won’t get anywhere by accusing me of “blaming the victim.” There are often reasons why income and property vary. I realize some are born with less. Stephen Jobs of Apple fame comes to mind. It is important to understand how wealth is (ethically) acquired, and I think Mr. Jobs learned that very well. I am one of the beneficiaries of his efforts.

    How about simply taking wealth, perhaps at gunpoint? In my mind that is both unethical and coercive. What if this is done by the government for the purpose of redistribution? If a law is passed first, it is legal (but still coercive and unethical).

    What if I force an intruder out of my home? That is coercive, but ethical.

    Earlier, I promoted the merits of time-tested abstractions. Now I will suggest that examination of particular cases often has merit. It can be too easy to get lost in ill-conceived abstractions, so it is often good to ground oneself by examining particular cases.

    • davetaylor1
      August 2, 2013 at 6:47 am

      A very good reply insofar as you justify supply and demand of diverse goods and property, MG, but what is the demand for rent, interest and profit if not cooercive? Also, if you study the maths, percentages turn out to be a logarithmic measure which added to, multiply the quantity they refer to, the results being approximately linearly related to the logarithm for small numbers but become exponential as the number of additions rises.

      • MG
        August 2, 2013 at 5:06 pm

        Thanks for the positive response. As for the charts, I couldn’t follow your comments. I wondered if perhaps you were referring to another article.

        Dave:
        “what is the demand for rent, interest and profit if not cooercive?”

        There is a lot going on here. For starters, contracts can lead to coercion, and it is the state that coerces. Let’s say that Sallie agrees to pay Bill a set sum for painting her house. He does a good job of painting her house, but she simply refuses to pay him. She has violated the terms of the contract. Bill takes her to court and wins. The court will coerce her into making payment.

        I know this is not what you had in mind. But this level of coercion can exist for rent, interest and profit. Someone rents a unit from an apartment complex. Both parties sign a contract. If either party violates the contract, there may be legal recourse through the courts and someone may be coerced into abiding by the terms of the contract.

        Rent, interest, and profit are three different things, though in practice there may be some overlap.

        Interest, as pure interest, is a recognition of the time value of money. Let’s say that a relative dies and you inherit $50,000. You mention this to your friends. As the discussion proceeds, you admit that you really don’t have any plans yet for the money. A friend steps up and tells you that is just the sum he needs to start up his cab business. He wants the money now, agreeing to return $5,000 each year for ten years. You realize that you will probably find other uses for that money over the next ten years, so you don’t want to tie it up in his business. You say “no” to his offer. Is there any mutually acceptable deal possible between you and your friend?

        The answer may be yes. He can compensate you for the use of your money. The compensation is interest. The next consideration is the interest rate. How are interest rates set? Oftentimes government has a role in setting interest rates. There are numerous ways that government affects interest rates. So if you don’t like interest rates, you might want to direct your complaints at the government.

        I’m going to set government’s role in determining interest rates aside. That would just take too long. Instead, let’s consider a free market context – such as existed in some countries. Here buyer and seller should shop around to get a competitive rate. Risk is a consideration. In the cab example above, is your friend level-headed and responsible? If so, you may be confident that he will make timely and complete payments with minimal to no prompting on your part. You have other friends to whom you would never lend. You have another friend who wants to borrow your money. He offers to pay you a higher interest rate, but he (or his business plan) strikes you as somewhat risky.

        I once saw a list of businesses financed by “junk bonds.” These are higher risk, higher interest rate bonds. To my surprise, many well-known successful companies were financed by junk bonds. And it makes sense. It is riskier to lend to a start-up than to lend to an established company.

        To most of us, rent is a payment for something for a span of time. If you have a particular complaint about your rent, you might want to check out the role of government. As a very simple example, let’s say government won’t allow any more building. Yes, that could drive up the cost of existing houses and apartment complexes – and their rent.

        To economists “rent” is a “term of art.” It refers to the payment to a factor of production that is fixed in supply. Marx was an atheist, but he considered rent sinful. Let’s take an example economic rent. A developer lays in a road and builds identical houses on each side of the road. The costs are identical for each house. The neighborhood is on top of a mountain. The houses on one side of the street are on the mountain bluff and have view over the city. On a clear day one look over the city, over farm land, and see the next city. The bluff houses have a great view. The houses on the other side of the street have no mountain view. The houses on the bluff side sell with a mark-up of 25% to account for the value of the view. The location, on the bluff, is a factor that is fixed in supply. The 25% mark-up is the “economic rent” associated with bluff lots.

        Marx would have hated that mark-up. A doctrinaire communist commissar would declare such mark-ups wrong, extortionate, and the result of greed. Then he would allocate a bluff house to himself and family. Let’s face it. Bluff lots are nice.

        Profit is often presented as “something extra” and wrong. Basic accounting shows that profit is “something left over.” It’s accounting, it’s economics, and it is true. Let’s consider a simple example. Your boss tells you to go to the airport and pick up a package that will arrive on Monday. He also tells you meet a VIP when he arrives at the airport on Wednesday. You determine that the package can wait, at no cost and no lost use value, at the airport for two days. You can go to the airport on Wednesday, pick up the package and meet the visitor and return to the office. You save the time and expense of a round trip to the airport. The time and expense saved is profit.

        Individuals and business manage events to yield a profit. It’s a good thing, not a bad thing. Efforts to restrict profit often lead to waste – two trips to the airport, when one would have sufficed.

      • davetaylor1
        August 4, 2013 at 3:02 am

        MG, if you were a crook – or a good pupil whose teacher was a crook – well, you would say this, wouldn’t you?

        Consider two people looking through a stained glass window, one on the inside, looking out, the other on the outside, looking in. They see the same picture, but they see mirror images of the positioning of the same detail. What’s more, the one in the dark inside sees the picture as clear and vivid, the one in the sunshine as obscure and dull. Have you ever read the story of Plato’s cave?

      • MG
        August 4, 2013 at 1:46 pm

        So now I’m a crook for making sense? I don’t think Plato or Aristotle would approve. They believed in reason, not rejecting it.

      • MG
        August 4, 2013 at 8:48 pm

        Clearly you disagree with me, to suggest that I may be a crook. But two people can disagree, with neither being a crook. So disagreement in no way implies that one is a thief.

        You did not address any particular thing I said. So I don’t know if you disagree with the time value of money, charging a risk premium, or to profit as something left over. For all I know, you disagree with the use of money, perhaps as the root of all evil, and think we should rely on barter. If you had picked out one area where we disagree and responded, that might have proved fruitful.

        One problem with seeing theft (the actions of a crook) where none exists, is that it blinds one to theft where it does exist. Consider the following hypothetical. I have tried to tailor this to catch your interest. Someone assesses your taxes and tells you what you owe. You ask for a breakdown of how your tax money will be spent. Ok, they will be spent for many lavish vacations in Hawaii and other posh locations for the President and his family. Your money will be spent on prostitute services for the Secret Service, IRS and others. Your tax money will fund abortions. Your tax money will fund art such as the a crucifix in a jar of urine. Your money will be spent on a war of which you disapprove. Your taxes will be sent to green energy firms that will subsequently go bankrupt having provided nothing in return. Your tax money will fund the most extreme Muslim leaders the world over, the ones most likely to severely persecute Christians.

        You might go through the list and say: “No. I will not pay for this.” You are then told that if you do not “volunteer” to pay, you will be severely fined, your assets will be seized to pay your taxes and fine. You put those words to the test, and that is exactly what happens. Is there nothing here that resembles theft?

        Granted, I have painted an excessively grim picture on the use of your tax money. But the essential thing is that money will be TAKEN from you. I have heard harsh world directed at Microsoft, Exon, Walmart, General Motors, and Pharmaceutical companies. Accusations have be made. I suppose that each company has been called a thief, by someone who thinks somewhat as you do. But not one of these companies has the power to take my money – or yours.

      • Herb Wiseman
        August 5, 2013 at 1:46 pm

        Maybe those companies do not have the power to take our money but the banks are getting the power through Bail-In legislation already passed in Cyprus and being developed in Canada and I believe there is an agreement to extend this power to the G20. And the banks (and other financiers) already get huge amounts from our tax dollars because countries decline to use their central banks as lenders. Our politicians are their handmaidens.

      • MG
        August 5, 2013 at 2:56 pm

        Herb:

        “Maybe those companies do not have the power to take our money”

        They do not.

        “but the banks are getting the power through Bail-In legislation already passed in Cyprus and being developed in Canada and I believe there is an agreement to extend this power to the G20.”

        Maybe the US will go the way of Cyprus, or maybe not.

        “And the banks (and other financiers) already get huge amounts from our tax dollars because countries decline to use their central banks as lenders.”

        I haven’t seen tax increases, so much as large increases in national debt. Who is lending to the Federal government? Much to do has been made over loans from China, but I’m sure individuals, firms, and governments from around the world have bought Treasury bonds. The Federal Reserve, our central bank, is also buying treasury bonds – referred to as monetizing the debt.

        “Our politicians are their handmaidens.”

        It cuts both ways. But for government coercion (the community re-investment act, prosecution by HUD, etc.) and rewards (adoption of risk by Fannie Mae) banks would never have lowered their mortgage standards as they did (precipitating the mortgage, housing, financing bubble).

        What we have today is not laissez faire free market capitalism. Socialism is always a matter of degree. It’s never 100% or 0%. That said, it can be argued that the United States today is basically socialist.

        An expression that is used in a free market context is “consumer sovereignty,” meaning the consumer is king. Under complete socialism, the government is king. America of recent decades has had mixed sovereignty. Firms and industries have learned the necessity, and the opportunities, associated with “playing ball” and doing the bidding of regulators and politicians. It has to be mutually beneficial to be sustainable. So yes, politicians, bureaucrats and those firms/industries who cooperate will benefit.

      • Herb Wiseman
        August 5, 2013 at 3:30 pm

        I did not raise the issue of socialism and I wouldn’t since nobody is really any more sure of what it is than they know what the definition is of inflation. But to say “…it can be argued that the United States today is basically socialist” is a rather bizarre statement. There are a number of other countries that accept that they are “socialist” to a much greater degree than the USA (and many Americans would agree with that) and on the important indicators the USA is the worst performer or amongst the worst performers of the lot and indeed an outlier on may of the measures. If you have been looking at the comparisons in posts by others on this site you would know that this is true. Infant mortality, homelessness, income decline, real unemployment, number of people imprisoned, education levels, environmental degradation, income inequality, public holidays, maternity leave, mandatory vacation leaves and the list goes on. As near as I can understand the issue, the most so-called socialist countries in the world would NEVER tolerate the conditions rife in the USA.

        USA debt is in the trillions. How much is owed to the Fed? How much to private domestic financiers? How much to foreign domestic financiers able to do so only because their countries hold huge reserves of American dollars or domestic financiers create the money foreign financiers use to buy the debt instruments? Regardless, all of those debts have an interest figure attached to them and that is paid for out of American tax dollars. What would happen if the tax dollars accrued back to the government say through a nationalized central bank? What does the Fed do with its earnings over expenses?

      • MG
        August 5, 2013 at 4:05 pm

        In the US, the government (governments if one considers municipal, county, state and federal) have much more control over the economy than they had in the 1920s, or the preceding century. Today, it is likely that all our industries are regulated in ways that only industry insiders can appreciate.

        Government spending is also a form of government control. In 1900, spending by governments totaled about 8% of GDP. Now it is more like 38%. I agree with you that many countries are even more socialistic than the US. I also agree that many Americans (and others) do not see the US as socialistic. We are seen as the home of laissez faire cowboy capitalism with no regulations and government spending cut to the bone. Perceptions are out of date.

        In 1919, American journalist Lincoln Stephens said “I have see the future and it works,” after visiting communist Russia. People are still selling that message in regards to socialism/communism. It’s an industry. American laissez faire (last seen in the 1920s prior to enactment of the Smoot-Hawley tariffs) is bad. Socialism in some form or other works.

      • Herb Wiseman
        August 5, 2013 at 5:34 pm

        My grandfather died in Russia (actually the Ukraine) in 1919 and my mother was happy to report the depression and poverty under which they were living at the time until she and her mother and brothers emigrated in 1926 only to encounter the Great Depression caused by — wait for it — unregulated economics just as she had suffered in her country under over regulated economics. As an aside, I noted in her eulogy last fall, that she and her family would not have been allowed to immigrate to anywhere in the G20 now. My mother would be 101 now. My grandmother’s progeny now number in the dozens when you go through all the generations and their economic impact is considerable with everybody reasonably prosperous and successful.

        The most recent major recession has its roots in deregulation. Unfettered capitalism like any other unfettered activity can snowball out of control and exponential factors take over. Asian Carp comes to mind. Rabbits in Oz. Hogwart plants. Emerald beetles. Gun proliferation. Oil spills. Nuclear meltdowns. Hydrogen and Atom bombs. Hurricanes and tornados. It is all the same mathematics. Political and economic energy and activity are no different. Let the Koch brothers rule the politics and you will get skews in weird directions environmentally, economically and socially (which will grow exponentially). A good example is the gun lobby in the USA where there are more children killed by gun-wielding cretins than anywhere in the world INCLUDING WAR ZONES! Indeed, with respect to gun deaths, the USA is in a category by itself. Truly an outlier where lack of regulation has increased deaths in the population exponentially.

        The founding fathers of the USA had a vague notion about checks and balances if I remember the history correctly. Since then and certainly more recently, there have been concerted efforts to undo those checks and balances. Resisting that trend does not mean someone is in favour of socialism. Deregulation is an example of undoing a check and throwing the balance off.

        Nature over time has a way to put balances in place but it also causes extinctions. As my favorite economist once wrote, “Wouldn’t it be a shame for the human race to die out because it couldn’t afford to save itself?” The preamble to that quote is even more interesting!

        On Mon, Aug 5, 2013 at 12:05 PM, Real-World Economics Review Blog wrote:

        > ** > MG commented: “In the US, the government (governments if one considers > municipal, county, state and federal) have much more control over the > economy than they had in the 1920s, or the preceding century. Today, it is > likely that all our industries are regulated in ways t” >

      • davetaylor1
        August 4, 2013 at 10:42 pm

        MG, you have just beaten me to this reply, so I hope it (in particular my point about the revolving door between high finance and the treasury) shed’s light on what you are now saying.

        Having said so much previously, I’m trying to be brief, so at your 2nd para, I’ll just say that as a logical analyst I’ve concluded (as in the church window argument) we’re seeing money back to front: as a measure of value when in practice it is an IOU for future indebtedness which is only temporarily reduced by our earning our keep. The more you get of it from interest, rent and profit, the more you owe the rest of society.

        So, I aimed to challenge, not to hurt. Is not this blog all about good pupils having bad teachers who divert attention from the facts? (see Mark 9:40). Unfortunately a story which misrepresents the facts can still make sense, as con men know all too well.

        Your story about interest being offered is not actually a reasonable response to my objection to it being demanded. Nor is blaming government and not the 1694 scheme of public-private partnership with a revolving staff door, in which government was and is again being reduced to a junior partner collecting taxes to pay usurious rents and interest on a fraudulent monetary National Debt. Not that that makes bad government by bankers any better than the unjust lender in Matthew 18:23-35, particularly when they had the option suggested at Luke 16.

  14. davetaylor1
    August 5, 2013 at 6:53 am

    I’m glad that’s understood. Indeed my version is non-standard. Like Egmont Kakarot-Handtke, I long ago saw the need to scrap the lot and start again. One can spend a life-time learning other people’s interpretations of standard thinking, but over the sixty years since I was introduced to it I’ve got to understand pretty well both it and the roots of its failings in an immature human tendency to greed, reinforced by non-scientist David Hume’s 1740 redefinition of science (knowledge) as general agreement [in practice, by those in positions of power].

    • MG
      August 5, 2013 at 7:08 pm

      Definitions:
      Smart – DaveTaylor makes serious money
      Greed – Someone else makes serious money
      Charity – Giving one’s own money or time to help others
      Faux charity – Giving someone else’s money or time to help others.

      • davetaylor1
        August 5, 2013 at 9:07 pm

        My definitions:
        Well brought up: grateful for having more than enough
        Spoiled: expects others to provide more
        Justice: Giving to others as others have given to you.
        Faux justice: fraudulent contracts demanding real goods in exchange for IOU’s created “out of nothing” and honoured by third parties.

  15. davetaylor1
    August 5, 2013 at 9:24 pm

    MG @ #33: “Who is lending to the Federal government?… The Federal Reserve, our central bank, is also buying treasury bonds – referred to as monetizing the debt”.

    Do you not understand that Reserve Banks monetise only the reserve, this allowing them to print perhaps ten times as much and their commercial customers likewise, providing ample money with which to buy treasury bonds in future. Where do you think monetary growth and bubbles and the ability to pay interest come from?

    • MG
      August 5, 2013 at 11:20 pm

      I understand money creation by banks. It is no great revelation. Any student with anyone with two or three courses economics should be familiar with the concept. It was also explained by Jimmy Stewart in the movie “It’s a Wonderful Life.” Since you make up your own economics, I can see that you would be shocked.

      So when did it start?

      According to Wikipedia:

      “Fractional-reserve banking predates the existence of governmental monetary authorities and originated many centuries ago in bankers’ realization that generally not all depositors demand payment at the same time.

      Starting in the late 1600s nations began to establish central banks which were given the legal power to set reserve requirements and to issue the reserve assets, or monetary base, in which form such reserves are required to be held.”

      So this goes back to the 1600s at least.

      • davetaylor1
        August 6, 2013 at 4:14 pm

        MG, now you are being childish. You didn’t need Wikipedia to tell me what I told you at #37.

      • Herb Wiseman
        August 7, 2013 at 7:16 pm

        I believe that the Fed was established in 1917. The Bank of Canada was established in 1935 and nationalized in 1938. The Bank of England was established long before either (do not remember when but the 1600s sounds close).

        The issue for me about money creation is that the state has given it over to the private sector to a too great an extent. What is the relative amounts of federal borrowing from the private sector and the Central bank?

        In Canada in the mid 90s (probably not much different now) that was about 95:5 ratio (private being 95) now whereas in the mid 70s and earlier it was 80:20. We have Data in Canada that 95% of the federal debt (approx. 600 billion) is accumulated interest on about 38 billion of principle (since confederation in 1867). This is the reason that who creates the money and how it is done matters.

        What is the USA experience? UK? Other countries? This data being monitored on a regular basis would give us the foundation of a science.

      • MG
        August 7, 2013 at 8:44 pm

        Herb, this is a reply to post 44. For some reason, there is no “reply” button for me to press on post 44.

        “We have Data in Canada that 95% of the federal debt (approx. 600 billion) is accumulated interest on about 38 billion of principle (since confederation in 1867). This is the reason that who creates the money and how it is done matters.”

        Borrowing is a big deal. I borrowed to buy a house. It was quite a service. Without this option, it would taken a long time for me to save up the money to buy a house outright. Thank you bank. Of course, one has to pay for this service. The interest on a 30 year loan can be considerable. I eventually chose to pay off my loan.

        Likewise for governments. Borrowing is a big deal, even if some politicians would have you think that it is not a big deal. There was a time in US history, when the government would only borrow during war time. In peace time, the government paid off its war time debts. Paying off the debt was probably seen as both a moral obligation and a practical decision. As a practical matter, debt costs. Also, if you pay off your war time debt, you should be able to borrow during the next war or national emergency.

        If you think the government should borrow less, consider the possibility that the government should spend less. I mentioned in an earlier post that US total Government (city through national) spending as a percentage of GDP was around 8% in 1900 and is about 38% today. That more spending should lead to more debt should come as no surprise.

  16. MG
    August 6, 2013 at 4:35 pm

    Not at all. I was merely pointing out that money creation is well known to anyone who has studied economics, and the practice is long standing.

    • davetaylor1
      August 7, 2013 at 4:57 pm

      But the issue isn’t just money creation. Galbraith in “Money” (1975), for example, famously says “The process by which banks create money is so simple the mind is repelled”, but not so famously the understated remark “It was not a detail that the bank would have the interest on the loan so made”. JKG continues to explain this amusingly in some detail, though (as a canny Presbyterian Scot with interests in monetary returns on investments), not the fact that in Christendom usury used to be illegal, as it still is in Islam. Samuelson’s “Economics” (6th edition, 1964) likewise describes how money is “created out of thin air” without even a mention of how monetarily profitable is interest, to bankers and others who, via Paul Grignon’s “twice lent money – Adam Smith’s “circulation” of loans – have acquired fictitous “money to lend”. All of which begs the question of what constitutes REAL profit when the real costs are not counted.

      • MG
        August 7, 2013 at 8:18 pm

        People have always found ways to complain about others making money. Some of this is covetousness. Some of it is ignorance. The complainer imagines that the other guy makes easy money. And yet he very seldom tries to emulate him. Since our economy is more complex than trading tomatoes for eggs, the opportunity to talk oneself into seeing injustice is so much greater.

        “But the issue isn’t just money creation.” Apparently money creation is still an issue with you.

        ‘ Galbraith in “Money” (1975), for example, famously says “The process by which banks create money is so simple the mind is repelled”,’

        The great AUTHORITY has spoken. If I wanted an authority, I would look towards Ludwig Von Mises, or Peter Schiff. I find that once one understands money creation, there is no reason to be repelled. Neither did the viewers of the movie “It’s a Wonderful Life.”

        ‘ “It was not a detail that the bank would have the interest on the loan so made”. JKG ‘

        Banks charge interest on loans. Shocking. They also pay interest to depositors. Rates depend on many things, including the government’s monetary policy. The spread, between interest rates charged and paid, pays for the building of the bank and the payment of salaries. It also pays stockholders. You might want to buy bank stock. If that doesn’t excite you as an investor, you might want to start your own bank. Whatever you do, you might find that making money hands over fist in a competitive marketplace is not so easy as you first imagined.

        “in Christendom usury used to be illegal, as it still is in Islam.”

        It is good news that some Christians have moved beyond primitive thinking in regards to a portion of the economy.

      • Herb
        August 8, 2013 at 4:30 am

        MG you seem to have have missed my point. Rather than repeat myself I am asking that you please read what I wrote. I will add this. I have no problem borrowing from the banks for my mortgages — I have two on two properties. I have a huge problem paying taxes when that money is being transferred to the private banks unnecessarily and there are vast unmet social needs. Let me simplify it for you.

        If you owned a gas station and needed gas for your car would you buy it from your own station paying market price knowing that you will receive any profit or would you go down the street and buy it from a competitor at the same price and let him pocket the profits? In Canada (and probably many other countries) our government borrows more than 95% of its needs from the private sector paying interest on it. But our government owns its own bank. Why not borrow a larger portion from its own bank instead of foreign or private banks so that any interest it pays will be returned to the government minus some admin charges? Indeed, borrowing from the private sector may be inflationary because more money must be created to pay the interest and there are no new goods or services developed for that money creation. Another research question.

      • MG
        August 8, 2013 at 2:32 pm

        reply to post 48:
        ” I have a huge problem paying taxes when …”.

        As a practical matter, you have little choice but to pay. That is one of the problems with “our” relying on government. While we may imagine that the government is good, smart, and powerful, and will take money mostly from others to spend as we wish, it sometimes takes money from us and spends it contrary to our wishes. You have a huge problem? Join the club.

        “If you owned a gas station and needed gas for your car …”.

        I understand your argument. You think the Canadian government should monetize the debt. Perhaps monetizing the debt would be more inflationary than you realize and have its own problems. But it is none of my business, I’m an American.

        In general, I think the world would be a better place if people did mind their own business. There are two general reasons for this. The first is that people do a terrible job of minding the business of others. The history of government activism is mostly a history of unanticipated, unfortunate consequences. The other reason to mind one’s own business is that you can’t trust others to do a good job of minding your business. Get educated, get a job, start a business, take care of your customers. Minding one’s business should be viewed broadly, to include personal health, care for family members, church and/or charitable activities. Self-interest is that which interests the self. I have observed that it often includes contributing one’s own time and money to helping others. Probably best is the contribution of time. The reason is that it is an information rich process. You get to see if you are actually doing good, or harm.

  17. davetaylor1
    August 8, 2013 at 8:41 am

    It is people like MG that Robert Locke had in mind when he coined the phrase “The Wilfully Ignorant”. Unreal world enthusiasts for crazy chrematism who, being all mouth and without the human virtues of social responsibility and creative imagination – to say nothing of scientific curiosity – are unable to accept being wrong and join in serious discussion simply to save face or heckle. I’ve tried to treat MG with respect, but #48 leaves no doubt, he won’t even want to try and think about what that means. His authority is von Mises! I’ll sadly repeat the comment I made earlier. How childish!

    • MG
      August 8, 2013 at 1:39 pm

      Response to post 50, DaveTaylor:

      We are back to the personal attacks instead of reason.

  18. Robert Locke
    August 8, 2013 at 9:55 am

    MG, Thread 48

    In Confronting Managerialism (2011) Spender and I wrote “For people in praxis to collaborate with business school finance professors in model building and product design is one thing, but why turn actual trading in hedge funds and investment banks over to a bunch of mathematics geeks who knew almost nothing about finance? The answer is that the geek’s models made money and lots of it. Quantification added volume, speed, and spread to market trading, which raised it to a higher dimension of trading experience because of the Information Revolution and 24 hour global operations. As Scott Patterson phrased it, “[the quants creat[ed] a massive electronic network, a digitized, computerized money trading machine that could shift billions around the globe in the blink of an eye, at the click of a mouse.” (Patterson, 2010, 119; see also Bowley, 2011) Patterson dubbed the system “The Money Grid.” The assets were toxic, the finance system collapsed. Pimple faced kids made billions and the heads of banks took their cut, too. If you don’t see anything wrong with this system of casino investor capitalism, I’m afraid Dave has a point, you are among the Wilfully Ignorant.

    • MG
      August 8, 2013 at 2:10 pm

      Is there something wrong with combining computers, mathematical models, and 24 hour world-wide investing? Maybe. Did pimple-faced geeks who knew almost nothing about finance make lots of money through casino investing? Maybe. Of course the loaded words almost make the argument for you.

      Or is this (whatever it is) merely the latest thing to blame, like interest (usury), money (the root of all evil), economic rent (contrary to Marx’s labor theory of value), greed (usually someone else making money), etc.? You mention “toxic” assets. Did Fannie Mae, the Department of Housing and Urban Development, the Federal Reserve and any other government or government sponsored entities have any role in the generation of “toxic” assets in mortgages, housing, etc.? Apparently not to you. Who is the one who is willfully ignorant?

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