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Keyword: ‘out of the shadows’

Out of the shadows

April 11, 2016 2 comments

from David Ruccio

The latest bank to admit criminal fraud is Wells-Fargo. The largest U.S. mortgage lender and third-largest U.S. bank by assets, Wells-Fargo deceived the U.S. government into insuring thousands of risky mortgages, and formally reached a record $1.2 billion settlement of a U.S. Department of Justice lawsuit. Several lenders, including Bank of America Corp, Citigroup Inc, Deutsche Bank AG, and JPMorgan Chase & Co, previously settled similar federal lawsuits.

To read Paul Krugman (who’s “been doing a lot of shovel work for the Hillary Clinton campaign lately”), the real problem in the run-up to the spectacular crash of 2007-08 was not Too Big to Fail banks like Wells-Fargo, but the so-called shadow-banking system. But, as Matt Taibi [ht: db] explains, “Krugman is just wrong about this.”

The root problem of the ’08 crisis lay in a broad criminal fraud scheme in the mortgage markets. Real-estate agents fanned out into middle- and low-income neighborhoods in huge numbers and coaxed as many people as possible into loans, whether they could afford them or not.

Those loans in turn were bought up by giant financial companies on Wall Street, who chopped them up into a kind of mortgage hamburger. Out of this hamburger, they made securities. These securities were then sold to institutional investors like pension funds, unions, insurance companies and hedge funds.

Read more…

Lengthening shadows

from David Ruccio


While Wells Fargo (whose CEO blamed employees for his bank’s failings) has put traditional banks in the news lately, the resurgence of the so-called shadow banking sector has largely gone unnoticed.

Read more…

Paul Samuelson and the Cold War rebirth of David Ricardo

August 15, 2020 6 comments

from Erik Reinert and issue 92 of RWER

In complete contradiction to the ruling practice of the Marshall Plan at the time, Paul Samuelson started building what was to become Cold War economic theory with two articles in The Economic Journal in 1948 and 1949. Communism advanced under the utopian slogan “from each according to his ability, to each according to his needs”. With his renewed interpretation of David Ricardo, Paul Samuelson produced a counter-utopia: under the standard assumptions of neo-classical economics free trade would produce a tendency towards factor-price equalization: the prices of labor and capital would tend to equalize across the planet. This became the noble lie of the neo-classical economics and of neoliberalism as the West faced the evils of communism.

Today’s economists would naturally tend to believe that Cold War Economics – the theories that stood victorious after the 1989 Fall of the Berlin Wall – is part of a tradition that has ruled in economic science since David Ricardo’s 1817 book. However, recent n-gram technology has made it possible to illustrate how David Ricardo and his theory of “comparative advantage” were virtually neglected until the Cold War. Read more…

RWER issue 56: Wade and Sigurgeirsdottir

March 11, 2011 3 comments

Iceland’s meltdown:The rise and fall of international banking in the North Atlantic
Robert H. Wade and Silla Sigurgeirsdottir [1]   [London School of Economics and University of Iceland]

Iceland should be a model to the world” (Arthur Laffer, November 2007)

 “They [the Icelandic banks] shouldn’t be worried about the fundamental soundness of their business model. I think it is very sound and very good”. (Richard Portes, May 2008)

In 2007 average income in Iceland was almost $70,000, about the fifth highest in the world and 1.6 times that of the United States. Read more…

Carter on Keynes

June 28, 2020 8 comments

from Peter Radford

The biography of Keynes by Zachary Carter ends on a decidedly wimpy note.  The concluding chapter is devoted to the financial crisis of 2008 and the subsequent half-hearted sort-0f-Keynesian policy response.  Whilst Carter seems fine with his condemnation of neoliberal policies and is clear about the abject failure of the notion that financial markets act in either a self-correcting or a rational manner, he then goes on to ask why Keynesianism has proven to be so politically weak:

But pointing the finger at neoliberalism raises uncomfortable questions for Keynes and his defenders.  Why has Keynesianism proven to be so politically weak, even among ostensibly liberal political parties and nations?  The Keynesian bargain of peace, equality, and prosperity ought to be irresistible in a democracy.  It has instead been fleeting and fragile.  Keynes believed that democracies slipped into tyranny when they were denied economic sustenance.  Why, then, have so many democracies elected to deny themselves economic sustenance?”

Surely the answer is obvious.  Indeed, the answer is littered throughout the previous pages of Carter’s book.

Neoliberalism as it cohered in the second half of the twentieth century was essentially a reactionary effort to undermine democracy. Read more…

Brave New Money: The trend toward a digital world currency – part 2

August 28, 2018 3 comments

from Norbert Häring                                                                                              part 1

The winner takes all is a basic rule of the digital economy. Whoever is ahead has a large advantage, just from being ahead, and has a good chance to end up as a quasi-monopolist. This has two main reasons, called network effects and economies of scale. Network effects make digital services more attractive, if more people use them. This is true for social media or trading platforms as well as for computer programs like Word or Windows. Economies of scale arise, because once a digital service or a programme has been developed, it often costs next to nothing to provide it to more customers. Thus, the leader, who has the most customers, can offer the most attractive digital services at the lowest cost. This is the reason why Google, Amazon, Apple, Microsoft and Facebook have risen to the top of the league of the most valuable American companies within only a few years. Together with their Chinese look-alikes Alibaba, Baidu and Tencent hold the global top-spots. They all have a near-monopoly in their industry and can command very high profit margins.

The winner takes all applies also to money in a digitalized and globalized environment. Digital money can be produced at near-zero cost, and its utility increases with the number of users. What is in the way for one currency to gain a near-monopoly is only the desire of national governments to have their own currency and their power to enforce its usage at home. This power of national governments, however, might wane in an era of globalized digital commerce.   Read more…

The market paradigm versus the production paradigm

April 27, 2017 8 comments

from Robert Wade

Why have the large majority of professional economists, especially in the academy and in western-dominated international organizations like the World Bank and IMF, been committed to free trade policy, downplaying theoretical and empirical weaknesses in order to remain so?

The teaching of economics in just about all universities of the western world, and in large parts of the developing world, socializes students into belief in the rightness of the “market” paradigm, and the more “rigorous” the training the more thoroughly socialized they become.[1]  The paradigm focuses on price competitiveness – free labor markets, flexible prices, free international trade – as the key to national competitiveness. It treats the market system as “self-organizing”, firms being essentially passive except for competing in price. It treats technology as external to production, as something which firms can buy on the market. It has no built-in process of innovation, no conception of an “industrial ecosystem” of firms competing and cooperating with each other.[2] With all these things stripped out, the culture of the profession elevates belief in comparative advantage and free trade as the litmus test of competence to be an economist, as the earlier quote from Krugman suggests.  Read more…

Introduction to “The Scientist and the Church”

May 28, 2015 2 comments

from Shimshon Bichler and Jonathan Nitzan

This chapter is the introduction to our new book, The Scientist and the Church  (World Economic Association, 2015).

The Scientist and the Church


Shimshon Bichler and Jonathan Nitzan[*]

Human society, one may argue, is propelled by a dynamic clash of two primordial drives: creativity and power. The urge to invent confronts the impulse to conserve, the desire to change contests the quest to impose, the will to transcend conflicts with the impetus to restrict, harness and sabotage. It seems that the ever-present need to create something new always stands against the itch to redistribute and appropriate.  Read more…

Where’s the Structure?

March 5, 2015 4 comments

from Peter Radford

In its long search for the illusion of equilibrium economics has had to barter away one aspect of reality after another. Driven by its desire to unearth laws that explain the presence of that illusion economists have long ago lost contact with the grittiness of actual economies. They prefer the pristine and simplified sanctuary of their models no matter how reduced the image of an economy those models portray.

Oddly I do not criticize them for this. No, I think I understand the logic of the process that produced the result. I applaud the effort. I salute the intellectual energy that has been absorbed into the project.

It’s the outcome I abhor. Economists are simply caught in a valley which, unfortunately for them, sits in the shadows of reality rather than sitting on a peak casting light on it.

I was thinking thus because I was trying to relate how economics, most of it anyway, ignores uncertainty. As you know this ignorance vexes me more than somewhat, because I see uncertainty as central to human existence. Without some element of uncertainty there would be no need to learn — we would know everything already. It is the absence of knowledge that incites us to search, to innovate, and to arm ourselves against the unknown. It is the very essence of life: problem solving is the distinguishing characteristic of life. It is how we tell that something is alive. The intentional imposition of order on disorder is the central property of all things we consider to be living. Read more…

Why no labor controversy?

October 22, 2014 6 comments

from Peter Radford

The familiar so-called “capital controversies” a few decades ago were never fully resolved. This is mainly because the losers of that battle eventually won the war and so were able to overlook their loss. They carried on with a muddled view of what capital actually is and ignored the impact of that muddle as if it were unimportant.

Whichever side you are on in that debate – which still emerges from the shadows now and again – I have a question: why no labor controversy?

Surely labor is as muddled a concept as capital.

If our problem with capital is supposed to be its multitudinous expression in concrete terms – is it a machine? is it money? is it simply a bookkeeping entry on a balance sheet? is it a factory? and so on – then labor too is a similar multitude.

Is labor simply an energy source?

After all people do “work” in the old fashioned sense of that word. They lift, bend, move, and otherwise translate energy into work as they go about business. Labor is thus an energy input.

Is labor a source of skill? Read more…

What is inflation?

September 10, 2014 6 comments

from David Ruccio

Inflation appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing…

One one level, inflation is extremely obvious: it’s an increase in the prices of the commodities people buy. Bread, gasoline, housing, and so on. When their prices go up, we are witnessing (and, for many, suffering) inflation. (The opposite, when prices fall, is deflation.)

Why is inflation important? Well, for most of us, our money (or nominal) incomes are eaten away by increases in prices. Therefore, over time, our real incomes are less than our nominal incomes, thus permitting us to purchase less.

Here’s an USA illustration of the difference: Read more…

Reformist Economics

April 2, 2014 16 comments

from Peter Radford

“… the act of judgement that leads scientists to reject a previously accepted theory is always based upon more than a comparison of that theory with the world. The decision to reject one paradigm is always the decision to accept another, and the judgement leading to that decision involves the comparison of both paradigms with nature and with each other.” – Thomas Kuhn, The Structure of Scientific Revolutions

I will break my recent silence – I am still burrowing down into the issue of inequality – to make a comment on the skepticism I see concerning the Institute for New Economic Thinking.

It is justified.

Let’s think about this a moment.

If we are to set up an institute to support change, provoke discussion, and otherwise meddle about with the established way of thinking, and thus to earn the moniker of “newness”, we ought not to pack our agendas with a steady stream of establishment figures. That is not the way to revolution. It might, however, be the way to raise esteem and thus get the institution media attention. Read more…

Business schools and inequailty

September 21, 2013 3 comments

from Peter Radford

You may not be aware of the article that has created quite a storm on the New York Times website. It is about inequality at Harvard Business School and the insidious consequences of the emergence of a “class” system there.

Don’t laugh.

If HBS is now afflicted by class issues and the social disaster of inequality, then we can assume the rest of the country is in worse shape. HBS is, of course, partly responsible for the inequality we now suffer from through its relentless production of clever people with great connections who exploit finance and consulting without adding on offsetting social value.

Disclaimer: I graduated from HBS in 1979. Things seem to have changed enormously since I was there. Sure we had our contingent of super privileged kids, but the bulk of our class seemed to me to be from pretty ordinary backgrounds. The obnoxious oppression of class was largely absent. At least we could ignore the super wealthy and the quasi aristocrats because they were too few to have much impact.

Since then things have changed. Read more…

Austerity: Democracy versus Capitalism

April 7, 2013 22 comments

From: Peter Radford

That’s where we are. That’s where we’ve been for a while. That’s where we’re likely to stay. Get used to it.

Don’t get me wrong: the history of the past two hundred or so years have shown that capitalism – depending on how you define it – has been a good thing. Yes, it has. My ancestors were much the worse for living in the shadows of an aristocratic England, and it is only in the industrial era that their descendants, me included, have prospered. No, capitalism has not been a disaster, it has been beneficial.

And right there I stop endorsing it. Read more…

Inequality: The silly tales economists like to tell

November 3, 2012 12 comments

from Dean Baker

Some economists don’t get paid to know about the economy, but to justify the trickle-up of wealth.

There is no serious dispute that the United States has seen a massive increase in inequality over the last three decades. However there is a major dispute over the causes of this rise in inequality.

The explanation most popular in elite and policy circles is that the rise in inequality was simply the natural working of the economy. Their story is that the explosion of information technology and globalisation have increased demand for highly-skilled workers while sharply reducing the demand for less-educated workers.

While the first part of this story is at best questionable, the second part should invite ridicule and derision. It doesn’t pass the laugh test.  Read more…

Back with a whimper and Ryan Follies

August 20, 2012 3 comments

from Peter Radford

Wow. I think it’s fair to say that the US economy is firmly adrift. If it’s possible, that is, to be adrift firmly. I have ignored the news for two weeks only to return and discover that nothing has changed. The same malaise. The same lack of leadership. The same problems. And the same intractable politics. Of course no one imagines that things will perk up any time soon, so why would they have changed while I was away? This is an economy where small inklings are major news, and where disinformation, gossip, and ideological trench warfare dominate any notion of discussion.

Let me see.

The few headlines worth paying attention to tell it all: manufacturing is slowing down; consumer confidence is up, but only by a little; inflation has disappeared; wage growth is next to zero or below; the Fed is dithering over whether to go through with QE3; but the Fed is riven through with ideological divisions, so it doesn’t do anything; unemployment is stuck; claims for unemployment assistance bounce up and down depending on arbitrary events, weather, and holidays; the drought is driving up food prices; and Congress is doing nothing, as usual. Oh. And the banks have been caught cheating. Again.  Read more…

Stagnation Beckons

May 16, 2011 5 comments

from Peter Radford

So. What is going on?

Thursday’s report on new claims for unemployment assistance in United States looks good on the surface. It undoes some of the backwards motion of the last few weeks, and so arrests the decline. But it is nowhere near sufficient for us to claim that the US jobs market is back on track.  The 44,000 drop to a total of 434,000 is much better news, and reverses the terrible increases we saw in April, yet it adds to the confusion. Most analysts expected a bigger reversal and that the total would be even smaller. This expectation was based on a string of one off explanations for each of April’s poor numbers, which, when accumulated, would have been enough to get us back below the magic 400,000 mark. Even if we set aside my view that 400,000 is still poor and that a healthy labor market would have claims in the 325,000 or below region, the current pace of claims is still way too high to offer any strong encouragement. The labor market still sucks. Read more…

Reflections on the “Inside Job”

February 24, 2011 41 comments

from Peter Radford

It’s depressing to watch the movie “Inside Job” simply because it is true. Shockingly true. It is also interesting to watch the comments come in from Europe where the movie is just now playing. I wonder whether it will alter public opinion of America. It should.

The American economic policy elite, by which I mean the academics, politicians, and business leaders that comprise it, is shamefully inadequate. In my more extreme moments I would call them irretrievably corrupt.  Read more…

Thought for the day: Uncertainty is the central fact motivating economic activity.

October 17, 2010 7 comments

from Peter Radford 

It seems to me that uncertainty is the central fact motivating all economic activity. Without it we would be living in some kind of nirvana devoid of the problem of scarcity. Uncertainty bedevils all living things. It motivates the invention of problem solving, competition, cooperation, and search. More to the point the process of learning is a response to the constant need to press back against the shadows it casts. Uncertainty causes us to create boundaries within which we protect and control resources. It impels us to plan in order to invent viable futures to act out. It forces us to build institutions to stabilize our relationships and thoughts. It encourages us to develop cultures to enable association, network, and interchange. And it requires us to be relentless in our creativity in order to fend off the degradation and consumption of whatever exists today.  Read more…