CapitalistImperialistPig

Tyler Cowen and other semi-conservative economists are flogging the notion that the unemployed are unemployed because they aren't worth their keep - that they aren't being hired because they can't produce enough value for it to be worthwhile for an employer to hire them. Economically speaking, they can produce only zero marginal product. The advent of the automobile caused the transportation value of the horse to drop below the value of the cost of maintaining him, so a lot of formerly useful horses earned a ticket to the glue factory. Is that the designated fate of the American unemployed, metaphorically anyway? Paul Krugman and other Keynesians maintain that the actual problem is insufficient aggregate demand - there just aren't enough people willing and able to buy stuff. At one level, both explanations are almost tautologically true. Given large enough demand, everyone would be hired. If employers were convinced the hiring someone would produce a profit for th...

Is Paul Krugman impressed with Obama's freezing of federal worker's salaries? I'm going to say not favorably: Yep, that’s exactly what we needed: a transparently cynical policy gesture, trivial in scale but misguided in direction, and in effect conceding that your bitter political opponents have the right idea.. It could be that Obama is just very conservative economically, heavily influenced by the Chicago School at which he taught. I tend to think though, that this battle is not one he wanted to fight anyway, so acting first might not have been a terrible idea, but Krugman's point that Obama is doing nothing to construct a credible narrative for intervention in the economy seems indisputable.

Remember Dr. Mike Burry, the one-eyed neurosurgeon turned stock-picker who was the first to figure out the impending collapse of the mortgage backed securities market? Tyler Cowen posts a link to a this Bloomberg story on him. He has closed his hedge fund - got fed up with investors - but he talks to Jon Erlichman and Dakin Campbell about what he's putting his own money in these days and what he thinks of the economy. The story profiles him a bit, but there is much more in Michael Lewis's The Big Short.

Obama looks set to launch his new economic stimulus plan, and it looks to be anemic, loaded with Republican ideas, and probably dead on arrival. Brad DeLong feels our pain: To put forward a weak, ineffective, Republican idea for further stimulus that then does not pass seems the worst of all possible worlds. Will this President never get a clue?

I'v e already mentioned, here how much I liked Michael Lewis's The Big Short while I was reading it. Finishing it only reinforced those positive vibes. The book is mostly the story of the few far-sighted individuals who saw the catastrophe coming and invested in such a way as to bet against the great mortgage securities scam. The featured characters all made big bucks from their bets, but most were somehow scarred by the experience. They had bet against the world, and the world resented it, even, seemingly, the parts of the world that they had made a ton of money for. The one-eyed neurosurgeon who had been the first to see clearly closed his fund and lost interest in financial markets. The guy who had been in the South tower on September 11, 2001 had a recurrence of the nightmares and symptons of that time. Perhaps the biggest irony was the way the rain fell on the just and the unjust alike. Those who foresaw the catastrophe made millions (or, in a couple of cases, bill...

The Prez gave our troops some well-deserved props, but the speech was otherwise pretty low on content. Yes we need to fix the economy, so how do you propose to do that? We would like to get the leaders of al Quaeda, but they don't even seem to be in the country we are taking big casualties to occupy. What's up with that? Where is the leadership? UPDATE: Kevin Drum heard more in the speech than I did and has a somewhat more positive take on it

You probably don't understand the great financial meltdown of 2007 if you haven't read Michael Lewis's book The Big Short . He constructs a persuasive case that that meltdown was the direct result of the most massive fraud in financial history. That fraud had more than one origin, but the engine of doom at its heart was conceived by our friends at Goldman Sachs, picked up by Deutsche Bank and then everybody else. Its elements, as outlined by Lewis, were these: vast packages of really rotten home loans were packaged, tied up with various bows, and sold as triple AAA and other highly rated bonds. In order to get these high ratings they engaged in systematic campaigns to confuse, misinform, bribe, and intimidate the ratings agencies that produced these ratings. Because there weren't enough of these truly rotten mortgages to package, they created synthetic products of side bets on the value of these bonds, and packaged and sold them with high ratings. When the meltdown happ...

The efficient market hypothesis (EMH) is the central tenet of the Chicago economic religion. According to that dogma, the prices of products and capital computed by the market are optimal within the constraints of the information available. This optimization supposedly happens because agents could otherwise profit by taking advantage of mispriced assets. In capital markets this occurs by “shorting” the stock or bond in question, in effect betting that its price will go lower. In the real world, as opposed to the EMH model, information is often in short supply, especially where intent of fraud is in action. In such a circumstance, those who first recognize what’s happening can reap outsize rewards even as a house of cards comes tumbling down. Michael Lewis’s book, The Big Short: Inside the Doomsday Machine , is, among other things, the story of those who figured out how to take advantage of the inevitable collapse of the giant Ponzi scheme that mortgage backed securities (MBS) had becom...

Tyler Cowen: Here is another factor behind the recent German economic success: A vast expansion of a program paying to keep workers employed, rather than dealing with them once they lost their jobs, was the most direct step taken in the heat of the crisis. ... The U.S. auto bailout, for instance, worked better than did most of the stimulus program. Most of the Austrians would disown this point, but you can pull it right out of Lachmann's Capital and its Structure.

Tyler Cowen wonders why Obama fired Rick Wagoner, and offers a pair of tendentious theories: Theory 1: President Obama replaced Wagoner with Fritz Henderson as CEO of General Motors because he is convinced that Henderson will be a better corporate leader. Theory 2: President Obama replaced Wagoner with Fritz Henderson as CEO because the A.I.G. public relations debacle taught him not to appear "soft" with corporate leaders receiving government money. Which theory do you vote for? Which principles do you think should be governing the disposition of leadership in major U.S. corporations? There are more things in heaven and earth, Professor Cowen, Than are dreamt of in your philosophy. The principal reason for firing someone ought to be failure to carry out their duties. Wagoner had come to the country, asking to be bailed out with taxpayer dollars. The government gave him some money (many billions!) on the condition that he come up with a plan to restructure GM that would retur...

I caught the Timolator on ABC's This Week , and he did a pretty good job of defending himself and the administration. I certainly wish the guy asking the questions had been Paul Krugman instead of George S., but oh well. Meanwhile, Brad Delong weighs in with a good defense: Tim Geithner Is Not a Tool of Wall Street (Brad DeLong quoting Ed Luce quoting Brad DeLong) Nor, says Mr DeLong, is it fair to paint Mr Geithner as a creature of Wall Street. “Hank Paulson is a man who grew up in American finance and cannot imagine a world in which America does well and its financial sector does badly,” he says. “Tim Geithner, by contrast, is a bureaucrat and a policymaker. He has never pulled down a multibillion-dollar bonus. They are not the same type of people.” He meant multi-million dollar bonus. It's certainly fair to claim that Tim G. is not a creature of Wall Street like Paulson, Corzine, or Bob Rubin, but he has spent a lot of time working in its neighborhood. Geithner did make t...