Rolling US Economy Into The Shitbin Thread

Mainstream economists nowadays might not be particularly good at predicting financial crashes, facilitating general prosperity, or coming up with models for preventing climate change, but when it comes to establishing themselves in positions of intellectual authority, unaffected by such failings, their success is unparalleled.

not true of the current administration, which the left, right and center of the economics establishment have all been shut out of

flopson as an economist can you defend the existence of your alleged field of study

― silby, Sunday, May 10, 2020 3:34 PM (six minutes ago) bookmarkflaglink

my reason for studying: seriously engaging with economics is unavoidable if you care about the answers to the questions that economics asks. when i was young i became obsessed with many of those questions (why are some countries rich and others poor? why did the great depression happen? why does poverty exist in rich countries? etc) and the main path to spending your life seriously thinking about them is to engage with economics, mostly mainstream economics

economics is a very hard topic. it's not hard because of math or technicality, but due to fundamental aspects of economic systems that place limits on how much we can use empirical evidence to reject theories about them. Keynes understood this, so did Max Planck

mainstream economists are mostly true-believers and epistemically humble relative the general population and researchers in other fields. they are humbled by the act of doing economics, which despite being impossible they do tirelessly; here are a selection of the applied economics papers that were written this week https://www.nber.org/new.html

the difference between mainstream and "heterodox" economics are based on minor methodological issues that people outside the field shouldn't concern themselves with imho. however, briefly (i) heterodox is smaller and therefore produces much less research--the amount of work that is in the NBER weekly is roughly proportional to the total annual product of research by european post-keynesians, (ii) it is more fractured relative to the unity of mainstream economics and therefore effectively even smaller, and (iii) standard for empirical work are much lower; about 2 decades behind, (iv) lower formal requirement for theories in heterodox. while i think (i), (ii) and (iii) are pretty uniformly bad, (iv) is actually good in a way because it might allow for creativity in generation of speculative pre-formalized ideas. this creates useful cross-pollination, where mainstream economists can formalize and incorporate heterodox ideas. heterodox economists paradoxically both complain that mainstream economists completely ignore them, and also steal their ideas :)

despite their marketing, the main parts of heterodox econ that have currently caught hold with a significant swathe of the business press--post-keynesian economics and modern monetary theory--do not differ in a substantive way in understanding of the economy. everything in MMT is also expressed by canonical mainstream economics models. the main difference is (i) a preference for using monetary policy to fund fiscal policy and use taxation to control inflation (called "functional finance"), and (ii) interest in the institutional details of accounting and monetary systems which mainstream economics largely abstracts from. there are mainstream monetary economists who have interesting discussions with MMT people and post-keynesians, and if you read these discussions you will find them agreeing with each other a lot

there is a perception that MMT is "left", probably because of its current political alliances. but it was started by a billionaire financier who wanted to reduce his taxes, and its proponents have explicitly stated that they are politically opportunistic and that functional finance can be used by the left to expand programs and the right to cut taxes etc

as an advocate of large social-democratic welfare states (a preference that was not beat out of me by a neoliberal indoctrination in economic theory, but imho strengthened by it) i think high, broad-based, and progressive taxes are a better way to fund a welfare state and other permanent spending than segniorage and inflation. part of this preference is empirical status quo bias: that's how the existing successful social democracies do it, so why try something else that seems to have resulted in hyperinflation in many other contexts? another reason is transparency and fairness: it's hard to know "who" inflation is taxing, whereas taxes are more straightforward (interestingly, taxes are not perfectly transparent due to what's called "incidence", the tendency for prices to adjust in response to a change in tax rates. e.g.: if you "subsidize" home-buying by giving a credit, home prices will increase. this is one of the reasons economics is impossible). that's *permanent* spending btw, not transitory/temporary spending. transitory spending is much more ambiguous, and people like Olivier Blanchard have argued for "MMT"-type policies for current transitory spending using mainstream arguments

there is no "other economics" ready for us once we abandon mainstream economics. furthermore, most heterodox economics is monetary and financial macroeconomics, which is a small part of economics. so even if we ditched all of mainstream monetary and financial macroeconomics for its heterodox counterpart, we'd still have 75% of economics intact

i should say that my personal path took me out of studying monetary-financial macroeconomics. although it was my intended field of study for most of my undergrad, i now study the labour market, and in my research i try to do work that pushes forward understanding of how pay is determined in modern labour markets. specifically, many economic theories imply that competition between employers plays a key role in determining wages. it's been hard to test those theories until very recently, since most data was stuff like "the average wage in Wisconsin in Q1 in 1978 was 13$" which can't distinguish between competitive and non-competitive theories of the labour market. the data i work with comes from social security records and links every worker to their employer at every point in time, for their entire lives. this provides a much richer set of facts that you can use to test theories. this is a general pattern happening all over economics: richer data is allowing us to (i) test "old" theories assuming things like perfect competition (ii) reject them and replace them with more realistic ones. for example, models of imperfectly competitive labour markets have much more room for policies like labour unions, sectoral minimum wages, etc, to be optimal

more speculatively, and personally, i genuinely believe that economic theory contains within it the potential for emancipatory change of society and could allow us to create a fairer and more efficient world. this belief is mostly due to my exposure to modern micro-economic theory; things like mechanism design (the generalization of the theory of auctions: the policy-marker is a 'game-designer' who structures things like the timing information revelation so that the game played by firms, workers, or whomever has desirable properties. for example, national food banks use auction-style mechanisms to allocate food across municipalities so that food matches local tastes), and market design/matching theory (the theory of non-market allocation mechanisms; applied to matching kidney transplants, and also in certain labour markets, for example matching medical students to hospitals based on two-sided rankings: you want to have med school graduates work at the hospital they prefer, at a hospital where their specialization is useful. centralized matching mechanisms can improve on decentralized approaches).

history is slow, painful, and sometime backwards and frustrating, and we probably won't live to enjoy that world. there's a "sci-fi" aspect to economics where you're contributing to a corpus of knowledge that is part of a long-term project, that might only realize itself far in the future. i find that somewhat inspirational, during those hard times when you doubt everything

addendum for nuance: of course i am an opinionated person and could complain to you at length about all the models, ideologies, norms, etc that i hate in mainstream economics. but i don't think those forces are oppressive within the field, and i think it would be irresponsible of me. also i mostly come here to read about music and usually regret posting about economics lol

Hmm I don’t feel like I deserve the effort that went into that but good post

lol np (and thx), it mostly absorbs some responses i was writing to the greaber essay that got xp'd by your post

Booming post flops. That reminds me why I got interested in economics in the first place. I feel like most of the complaints around economics as a general field are mostly complaints with the swathe of neoliberal/libertarian leaning economics professors that take up most of the undergraduate professoriate across the country.

thx flopson

haha great post flopson!

i admit to being very sympathetic to graeber's view that the metastasization of naively applied economics throughout social science is ... not good in the same way the spread naively applied physics into other bits of natural science has not been good.

do you have any thoughts on the book/author graeber is reviewing? is he part of this post-keynsian niche you're talking about?

more speculatively, and personally, i genuinely believe that economic theory contains within it the potential for emancipatory change of society and could allow us to create a fairer and more efficient world. this belief is mostly due to my exposure to modern micro-economic theory; things like mechanism design (the generalization of the theory of auctions: the policy-marker is a 'game-designer' who structures things like the timing information revelation so that the game played by firms, workers, or whomever has desirable properties. for example, national food banks use auction-style mechanisms to allocate food across municipalities so that food matches local tastes)

am i on the right lines here that some (most?) of the empirical progress here in the last few decades is driven by display ad auctions at google etc.? or is that a different problem?

I don't really like this guy's writing, and he needs an editor (the final paragraph is posted twice) but it's hard not to agree with his major point here.

Coronavirus — or more accurately — the lack of response to it will probably finish off what’s left of the American economy. America will end up a country with permanently lower levels of all the following: employment, income, savings, trust, happiness, assets, and so forth. America was already in the process of becoming something very much like a poor country, with the failed politics of one, too — but Coronavirus will accelerate and finalize America’s grim transformation into poverty, paralysis, and collapse.

...

What happens to poorer societies? They’re left in a kind of terrible paradox, which is my fourth transformation: they can’t afford the very things they need to survive most. Why is it that the average American is the only person in the rich world by now who votes against their own healthcare, retirement, education, childcare, and so on? Because they can’t afford it. 80% of Americans lived paycheck to paycheck before Coronavirus. Who can afford to pay an extra 5% or 10% in taxes for decent social systems? Nobody, really, except the already rich — who don’t need them. Hence, the famous paradox of the American Idiot: people who vote against their self-interest. It’s not their fault, really: they have no choice. They can’t afford to vote for things like public healthcare.

America was already becoming too poor a society to have functioning public goods, like healthcare or retirement for all. Coronavirus is going to seal that fate. America will be poor now — far too poor to ever really make the transition to having decent public goods. Think of that full half of the American population who’s now not employed. How exactly are they going to afford the higher taxes it takes to have a European or Canadian style social contract? They struggled to before — and after Coronavirus, it’s going to be flatly impossible.

i don’t really... buy that? below a certain income level you don’t need to pay any tax at all. and that level can be changed.

so i just came here to post that

i think it's more like, he thinks the mass immiseration of american workers will lead to a further entrenchment of the "self-preservation" mindset.

however, it is also possible the opposite will happen. the last great depression led to the new deal and the rise of the 20th century middle class. why can't it be done again? young people, especially, seem ready to let go of old paradigms about low taxes, self-sufficiency etc.

this is redundant, but i feel very angry that it's gotten to this point. all of it was preventable.

Disinformation plays a large role as well. Even non-rich folk who can afford the taxes comfortably will vote against them due to being programmed by the right with a zero-sum, us vs them mentality.

"Why should I pay to take care of other people, esp degenerate homeless people?" et al.

Xpost the great American paradox is that we're fundamentally too stupid to take care of ourselves even though we've always had the capability

see that's why we need a change in consciousness. it doesn't need to be "radical," but it does need to be a revolution, as bernie said.

one thing about this description too -- and i am no economist -- but won't it destroy the tech monopolies too? their products depend on the american consumer.

I'm angry about it too to the point where I'm glad I'm already middle aged and don't plan to have kids.

(There's nothing wrong with having kids at any time, even in times of strife, but I just can't do it with my hyperanxious brain. the moment they became an adult, I'd be consumed with fear for how they'd make it)

i mean, there are always doomsday scenarios. that is flippant, but i think it's true. there is no reason the US can't get on a sane path. break up the banks, break up the tech giants, forgive student debt, raise the minimum wage to a living wage even for gig workers, make healthcare and education accessible, invest in green infrastructure—this isn't "free stuff" but a way to put the country on a path where people feel they have some opportunity and a stake in the health of the society.

the US is in a unique position in that it can, if it wants to, move heaven and earth to transform the society. greece, for instance, couldn't due to their limited means.

America was already becoming too poor a society to have functioning public goods, like healthcare or retirement for all. Coronavirus is going to seal that fate. America will be poor now — far too poor to ever really make the transition to having decent public goods.

what does this mean - should already poor countries give up on having anything better bc once you're "too poor a society" nothing can ever get better? we already don't have healthcare or retirement for all.

i mean, there are always doomsday scenarios. that is flippant, but i think it's true. there is no reason the US can't get on a sane path. break up the banks, break up the tech giants, forgive student debt, raise the minimum wage to a living wage even for gig workers, make healthcare and education accessible, invest in green infrastructure—this isn't "free stuff" but a way to put the country on a path where people feel they have some opportunity and a stake in the health of the society.

― treeship., Monday, May 11, 2020 9:29 AM bookmarkflaglink

you're not wrong. we won gay marriage and a form of universal health care not even that long ago. we just need to be free of the grip of Republicans and Trump and also Libertarians and also a pandemic that is being subverted for political purposes.

the US will continue to be wealthier than many countries and someday in the future maybe 10 years from now coronavirus will be over and the depression will be over. we already know the US is willing to spend huge amounts of money to get the economy rolling again. making the case otherwise requires a much more sophisticated and evidenced argument than the author includes.

yeah, i don't understand the fact that america was "too poor a society" for basic public services. that was never the reason we lacked free healthcare and college.

yeah. it's this devotion to meritocracy from some voters, asking classist questions like "what money do burger flippers/retail employees DESERVE", which really means "what level of comfort and quality of life do these peons deserve", often uttered not just by the haves, but also have-nots who are working equally menial jobs and making little money (ie, the temporary inconvenienced millionaire syndrome).

we focus on the 0.1% that refuse to work and assume all unemployed people are lazy people, all people on food stamps are eating Ruth's Chris quality meals, and all welfare recipients use drugs AND any recreational drug use means these are subhuman people who deserve no aid.

the mindset has to be eroded, which will be helped by millions of boomers dying, but also if these talking points aren't validated by the President and/or Majority Senators. but we're years away from any of this eroding.

80% of Americans lived paycheck to paycheck before Coronavirus. Who can afford to pay an extra 5% or 10% in taxes for decent social systems?

vs

the top 3 richest americans have more wealth than the bottom 50% of the country

it's impossible! there's nothing that can be done to fix it! and whatever you do, do NOT look over there at those three old guys

it's "funny", I was watching New Jack City yesterday and in 1991, it was talking about the deepening gulf between rich and poor and wage inequality, and I just screamed at the screen "OH, IF U ONLY KNEW!"

weirdly the tv answered me back with "SHUT UP BITCH", so I decided I needed sleep

it's not even about direct aid, it's about structuring the economy so people aren't ground into the dirt. that makes them better workers, better consumers, more likely to take risks and be entrepreneurial, and better citizens as they feel like they have a stake in american society.

a large middle class is just better

America will be poor now — far too poor to ever really make the transition to having decent public goods. Think of that full half of the American population who’s now not employed. How exactly are they going to afford the higher taxes it takes to have a European or Canadian style social contract? They struggled to before — and after Coronavirus, it’s going to be flatly impossible.

is this guy a Republican speechwriter? what taxes is he even talking about? Like, "taxes" aren't monolothic. There isn't just "one" type of tax, assessed in one way ... Maybe if he is talking about property taxes, which are often not contingent on the owner's income ... but then not everyone pays property taxes.

yeah. my belief is that there is enough wealth in the economy to invest in a better future.

it's impossible! there's nothing that can be done to fix it! and whatever you do, do NOT look over there at those three old guys

― porlockian solicitor (Karl Malone), Monday, May 11, 2020 7:42 AM (one hour ago)

also DO NOT LOOK AT THE DEFENSE BUDGET; do not think about how much more the US spends on the military and weapons than countries that make sure people have housing and food and healthcare ... nope, don't do it, Bill, just don't! It's the fucking destroyed statue of liberty out there in the forbidden zone

i'm not an economist but you don't have to be. it's not like we made a good-faith effort at securing "decent public goods" and failed due to lack of money. we've never acquired the political power to really enact this stuff.

you're not wrong. we won gay marriage and a form of universal health care not even that long ago. we just need to be free of the grip of Republicans and Trump and also Libertarians and also a pandemic that is being subverted for political purposes.

Notable that gay rights/marriage was the one thing that didn't challenge the economic status quo and Obamacare is a permanent subsidy for all the interests that make healthcare awful.

Better things are going to require way more than breaking "free of the grip of Republicans [etc.]."

The real death grip is the plutocracy.

gay rights/marriage was the one thing that didn't challenge the economic status quo

Gay marriage is a net economic plus.

I think this is a good thing?

https://www.engadget.com/tsmc-12-billion-chip-plant-arizona-083518143.html

Do economists not know how much things cost pic.twitter.com/dMdSoaL3tA

— Keezy Young 🌸👻 (a ghost) (@KeezyBees) May 17, 2020

it's one banana michael

(of course that was in the twitter replies, my referential humor is so feeble!)

"might not have a reason to buy a new car with fewer places to visit"

uh huh uh huh, tell me more

I'm close to paying mine off (for the first time in my life, I'll have a pink slip", and I hope to not buy another one for 27 years

In case you’ve been wondering “I wonder what fucked up shit lurking under the surface is going to be brought up by this crisis” here’s a good candidate.

https://www.propublica.org/article/whistleblower-wall-street-has-engaged-in-widespread-manipulation-of-mortgage-funds

ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change.

Is this the right analogy though? Wouldn't it be more like inflating the property value of the house by saying it was purchased for more than it actually was? Or are these loans not made based on LTV but other criteria? idk

I think commercial mortgages are a lot more tied to the amount of income a property is supposed to produce rather than a static "value."

In the case of a commercial mortgage, the lender is willing to lend based on whether the property produces enough income to service the mortgage. In a residential mortgage, the lender is willing to lend based on whether the owner earns enough income to service the mortgage. In both cases the question is whether the mortgage can be paid, not what the property is "worth."

In the case of a commercial mortgage, the lender is willing to lend based on whether the property produces enough income to service the mortgage

yeah, and that income (or projected income if the property is "underutilized") is what comprises the "value" right? It's investment property. It's value -- what it's worth -- is how much income it can generate (also factoring in expenses and other debt), yeah? Like isn't it the standard thing that a commercial lender won't do more than 80% of the "value" of the property? ...value doesn't equal "assessed value" of the building, as opposed to a residential loan which is based both on the assessed value of the building (e.g. the underwater issue) AND the borrower's ability to pay.

a lender for a residential mortgage generally isn't going to loan the borrower more than they believe the house can be re-sold for, because the house is the collateral securing the loan.

Yeah, the "value" of commercial property is basically the present value of the future cash flows as I understand it.

yeah ... I like a lot of propublica's coverage, but it has a tendency to oversimplify and/or make not-so-good analogies to explain things to readers (which, some of these topics are complex, and it is really good that they are covering them in an accessible way). I think there was an article a few weeks back about taxes/tax policy (something like that) that was like 90% right, but 10% misleading/inaccurate but I don't recall the exact article.

eh ... i might be being too negative ... maybe it was more like 95% right/5% misleading/inaccurate