You will recognise yourself from my description. (Or you will recognise others who fit this description).
You are probably very smart. You are probably very well-educated — either formally, or self-educated, and probably both. You spend a lot of time on the internet reading economics blogs and commenting on those blogs. You maybe even have a blog of your own, where you write about economics topics. You are probably politically engaged. You are probably a lefty, but may be a righty, or someone who is not easily categorised on that political spectrum. You probably think of yourself as a critic of economics, or a critic of what you see as orthodox economics. You are probably sympathetic to what you see as heterodox economics.
But you have never once read a first year economics textbook.
You have probably many times told me, or people like me, that I really really should read something you want me to read.
Well now it's my turn.
I think you really really should read a first year economics textbook.
You have invested so much time in thinking about, reading about, and writing about, economics. Don't you think it would make sense to spend a tiny fraction of that time just reading a standard first year textbook, cover to cover? You could do it in one day. Maybe two, if you go really slowly and carefully. They were designed to be read by an average reader who is probably less smart and less motivated and less knowledgeable than you are. It's gonna be a breeze!
Even if you think you won't agree with it. Even if you think it's going to be all horribly wrong.
Because, at the very least, you will better understand how the people you are criticising view the world.
Because, at the very least, you will better understand the language that is used by the people you are criticising.
Because, at the very least, you will better understand what is and is not an idea that is seen as "heterodox" by the people you are criticising.
Because, at the very least, you would make this blog and other blogs better.
(The final straw that lead me to write this post was reading a comment on another blog which said that "loans create deposits" is a heterodox idea. Every first year textbook I can remember reading contains a description of how loans create deposits.)
This is said with the greatest of respect (and I do mean that, because I really do respect the amount of intelligence and effort some of you are putting in). But also with frustration.
Now, a second plea: does anyone know a free online source for any reasonably good and reasonably standard first year textbook? One that covers much the same topics and in much the same way as any of the best-selling first year university textbooks? Because I know you can pick up old editions of paper copies of the best-sellers for next to nothing, but I also know that people are much less likely to do this.
(P.S. Non-economists may be surprised that I haven't said which textbook I would recommend. That's because it doesn't really matter much. They are all fairly similar in coverage and treatment. And they are almost all good, in my opinion.)
Worthwhile Canadian Initiative 
genauer,
“That shows that you still dont understand the fundamental difference between a numerical calculation and an exact, analytical solution.”
Jesus! No, it shows that the difference between 2-body and 3-body is not about numerical issues. The difference is that 3 is chaotic and therefore has no uniformly convergent analytical solution. The infinite series (do infinite series count as “fundamental” solutions?) that represents the “solution” converges only pointwise in time. Are you actually quibbling over the fact that I used the word “solution” to describe a numerical “solution?” If so, I apologize.
“apparently a professor for theorectical physics is needed to teach you the difference”
Please stop telling us about your rank. Nobody cares. If you must have our admiration, then say something substantive, relevant, clear and interesting. Something. Anything!
Nick,
Your intuition that averages are what should matter in economics in the large n limit is shared by every physicist who has ever thought about economics for a second. The real difficulty (as genauer points towards) which some physicists may not consider on the first pass is the Lucas critique. If molecules were universal Turing machines (which for example changed their behaviour in response to the pattern by which you varied the temperature) then statistical mechanics would be really tough if not formally undecidable.
Generally my feeling is that economists have a pretty strong grip on what are the issues in their field, and it’s not by looking towards more tools of theoretical physics that the field will make the most progress. The biggest issues are agent behaviour like reasoning, preferences and innovation which physicists have nothing in particular to contribute on. What economists could use is a good dose of the culture of skepticism towards data and model testing that is really strong among experimental physicists.
Dark Jaws,
Vimothy, or excuse me, “vimothy”, if you expect us to take your claim seriously that you entered neoclassical economics as a critic and came away a believer, then you are 1)a complete fool or 2)a liar. I happen to think you’re a liar.
What, you mean I can’t be both?
Look, I don’t know you and don’t expect you to do anything. What I was trying to say was that I went back to university as a “critic”, but not a very good one. I didn’t really understand the things that I was critical of because I’d never bothered to find out much about them, and so most of my criticisms were pretty superficial and probably a bit rubbish.
As I tried to explain to Wh10, I think there’s always room for different approaches. And personally, I still enjoy reading post Keynesian, Marxian and Austrian stuff as well as all the rest. There’s no need to come to a definitive judgement about the value of an entire school or research programme. There’s certainly no need to believe in them. Better I feel to aim for somewhere between being sceptical and being humble about your own limitations–then you can take what you need without ever getting too attached to what you think you’ve got. Remember that there are more things under heaven and earth than are dreamt of in your philosophy, Horatio.
vimothy: Dark Jaws went a bit overboard there. I had already noted it. As had others. (Just in case you hadn’t seen.)
Geneur: “a) before blowing up the first nuke, making sure, that not the whole atmosphere of the earth goes with it”
My recollection was that mid-July 1945 some of the scientists at Los Alamos were betting that that was exactly what was going to happen (I’m not sure why, that doesn’t seem like a bet that you can win in an meaningful sense). Modern critics of Truman’s decision to use the atomic bombs often fail to grasp just how little people, even the geniuses who invented it, knew about the results of a nuclear detonation. Sorry for the digression.
Okay, thanks Nick.
The Leontief production function is in Varian’s first year Micro textbook.
Gavin: yep. It’s not uncommon. And I don’t know where Anonymous was coming from there. (But isn’t Varian intermediate? Or does he have an Intro book too now?)
I think Gavin means first year grad tb.
Dennis Robertson’s story is inconsistent with Leontief production functions.
DavidN. No I didn’t. Varian Intermediate Microeconomics was what I used in my first year of Bachelors.
Anon: I was referring to unlearning’s example, not Dennis Robertson’s story.
wise words vimothy
„K“,
when you read my last post, relating to you, apparently, as a claim from my side to be a professor of theoretical physics, you have apparently not only problems with your understanding of physics, what it can do, and what not, but with your reading abilities as well. “totally hopeless that you ever accept the explanation from me”
Bob Smith, and all,
I do not know, but I am pretty interested to know, how you feel about that decision in Los Alamos in 1945, that they felt confident enough to blow the first nuke, based on some seemingly exact calculations of what they did know at that time, keeping in mind, that physics has a lot of extremely exact laws, and biology, chemistry, and especially social studies, like economy, very much less so. Trading estimates of some hundreds of thousands of anglo soldiers against a small risk of wiping out all biological life on earth.
As of today, the vast majority of German voters are willing to pay 29 euro cent / kWh (40 US cent), and more, in stark contrast to 8 US cent, US consumers already complain about. We still try to “lead by example”, but this runs at some point into limits and a possible back lash.
To be fair that was somewhat ambiguous in English.
Jake,
your mentioning of Alex Weber, shows that you are 1.5 years behind the curve, he resigned on 9th February of 2011 from the ECB, followed by Jürgen Stark on 9th September 2011. In my world these are not just meaningless blanket warning shots, but the last ones across the bow. The next ones go right for the machine and the rudder.
Your usage of vocabulary like “Stasi 2.0” shows your affiliation with the tiny criminal left in Germany. Your choice, it just kills your credibility with respect to everything else.
Versailles? This put in printing that Germany should have paid some 10 % of GDP for ever. Completely impossible, and it was meant that way. Please read Keynes “the economic consequences of peace” 1919. A truly carthaginem “peace”.
In gross contrast Greece still expects to blackmail the rest of Europe for 10 % of their GDP for ever.
Just one example: Greece still fighting to cap public pensions at 2200 Euros. Huugh? Even with working full time, at maximum contribution, to the maximum age of 67, I would get only 1848.40. The median is around 1050, in a nation of 40% home ownership vs 80% in Greece. Now, who do you think gets these kinds of pensions in Greece, the average guy, or the clientele of the ruling criminal families, the Papandreou, Venizelos, Karamanlis, Samaras. The guy who was responsible for privatizing companies, was dreaming up schemes for 20 % GDP to invest in new ones.
I am not aware of any other country in the history of mankind, which was pampered so much by its neighbors. Greece got around 80 % of GDP in subsidies from Europe, defaulted on 94 % of its private debt, and what we will see back from what the greek people owe the europan people, remains to be seen.
“Solidarity” is supposed to flow from the rich to the poor, and not the other way. What is tried now, with nearly every week a new version, is to abuse the central bank for giant wealth transfers from the disciplined north to the criminal south. The risk premiums Italy and Spain have to pay reflect the conclusions investors draw from that behavior. Especially Italy could reduce their debt easily, if they would tax their people, as we did after reunification, they are richer than us.
If these endless criminal attacks don’t stop, then it could be in this year, that northern people say, enough is enough, there is an end to the Euro. Merkels dictum is “if the Euro fails, Europe fails”. It could be, that if the Euro blows up, the subsequent attempts to not honor their debt could blow up the whole European Union.
Finland has already declared, that they are not married to the Euro, and demands collateral for all new bonds.
http://www.reuters.com/article/2012/07/27/eurozone-idUSL6E8IRC2C20120727
Latvia says openly, Poland and Czech less openly, that first Greece has to go, before they will join. The fundamental dishonesty and criminality of all the Greek “elite” is simply too much.
It membership in the Euro would be bad for Greece, why want 80 % of Greeks to stay in, and 65% of Germans them out ?
mandos, for my last sentence, I ll give you that. But the postings before that made clear, that I had given up that he accepts any explanation from me, at least “publicly” and should get some advice of his local real physicist of his choice, from whom he would accept it.
Anyway, being accurate, but a little less than perfectly nice with him, effectively killed a discussion, where people could have learned a few things from an old hack like me. Like expanding a little more on that real science progresses differently compared to the impressions they get from textbooks.
Last thing,
there are as many “production functions” as there are situations in real life.
The Cobb-Douglas example is very bad.
There can be situations, where more workers (or capital) can actually reduce output. Unneeded workers can distract the others from work, or dream up, especially in public offices, unneeded schemes to waste time and resources, in software there is the “classical man-hour myth”, and how just adding more people/ resources to projects very often does not increase speed.
Nick,
I went back and re-read the money & banking sections of my two intro to macro textbooks. Fellows/Flanagan/Shedd/Waud (1993) explained quite explicitly how loans create deposits – in lending to clients, banks are creating and renting out deposits, so to say. Abel/Bernanke/Smith (1995) fudged things a bit. They said that banks take in deposits of cash, and then lend this cash out to clients. This seems more of a deposits create loans viewpoint and doesn’t seem to me to properly describe modern banking. Given these two somewhat different explanations of the money creation process, I can see why confusions arise.
Anyways, you’ve inspired me to re-read my old textbooks, if not for the money creation bits, at least the other parts.
test
I took Econ 100 (micro/macro), Econ 200 (micro), and Econ 400 (macro) and got A’s in all three. There was nothing about banking. If there was 1/reserve requirement (I don’t remember), it was brief.
Wikipedia may not be the best source for economics, but I hope it will be sufficient here.
http://en.wikipedia.org/wiki/Fractional_reserve_banking
Nick, is this a good example of what you consider loans creating deposits?
Example of deposit multiplication
The table below displays the mainstream economics relending model of how loans are funded and how the money supply is affected. It also shows how central bank money is used to create commercial bank money from an initial deposit of $100 of central bank money. In the example, the initial deposit is lent out 10 times with a fractional-reserve rate of 20% to ultimately create $500 of commercial bank money. Each successive bank involved in this process creates new commercial bank money on a diminishing portion of the original deposit of central bank money. This is because banks only lend out a portion of the central bank money deposited, in order to fulfill reserve requirements and to ensure that they always have enough reserves on hand to meet normal transaction demands.
The relending model begins when an initial $100 deposit of central bank money is made into Bank A. Bank A takes 20 percent of it, or $20, and sets it aside as reserves, and then loans out the remaining 80 percent, or $80. At this point, the money supply actually totals $180, not $100, because the bank has loaned out $80 of the central bank money, kept $20 of central bank money in reserve (not part of the money supply), and substituted a newly created $100 IOU claim for the depositor that acts equivalently to and can be implicitly redeemed for central bank money (the depositor can transfer it to another account, write a check on it, demand his cash back, etc.). These claims by depositors on banks are termed demand deposits or commercial bank money and are simply recorded in a bank’s accounts as a liability (specifically, an IOU to the depositor). From a depositor’s perspective, commercial bank money is equivalent to central bank money – it is impossible to tell the two forms of money apart unless a bank run occurs (at which time everyone wants central bank money).[2]
At this point in the relending model, Bank A now only has $20 of central bank money on its books. The loan recipient is holding $80 in central bank money, but he soon spends the $80. The receiver of that $80 then deposits it into Bank B. Bank B is now in the same situation as Bank A started with, except it has a deposit of $80 of central bank money instead of $100. Similar to Bank A, Bank B sets aside 20 percent of that $80, or $16, as reserves and lends out the remaining $64, increasing money supply by $64. As the process continues, more commercial bank money is created. To simplify the table, a different bank is used for each deposit. In the real world, the money a bank lends may end up in the same bank so that it then has more money to lend out.
Although no new money was physically created in addition to the initial $100 deposit, new commercial bank money is created through loans. The 2 boxes marked in red show the location of the original $100 deposit throughout the entire process. The total reserves plus the last deposit (or last loan, whichever is last) will always equal the original amount, which in this case is $100. As this process continues, more commercial bank money is created. The amounts in each step decrease towards a limit. If a graph is made showing the accumulation of deposits, one can see that the graph is curved and approaches a limit. This limit is the maximum amount of money that can be created with a given reserve rate. When the reserve rate is 20%, as in the example above, the maximum amount of total deposits that can be created is $500 and the maximum increase in the money supply is $400.
TMF: Yep. That Wiki is (roughly) the standard textbook story, in which an initial deposit creates a multiple expansion of loans and deposits.
“Although no new money was physically created in addition to the initial $100 deposit, new commercial bank money is created through loans.”
That sentence is less than perfectly clear at the beginning, but it gets it at the end.
I’m pretty sure the MMT/accounting story and the standard textbook/Wiki example story don’t agree with each other.
I agree with the MMT/accounting story.
The point is the MMT/accounting story of loans creating deposits and the standard textbook/Wiki example story of loans creating deposits are different.
For example, if the reserve requirement is 20% and the entire banking system is actually “reserve constrained”, I believe the MMT/accounting story would say that $100 of currency deposited in a bank could possibly become $400 of demand deposits/loans ($500 of demand deposits total) IN ONE LOAN.
People, who look on “production functions”,
should also be aware, that in real life there will be an optimum in the dependence on capital as well, in the most cases. inventory, machines, you dont use or need have some carrying costs, and mosts are not the interest in the bank.
Related to the question, how far what functioning of banks is “standard” lore of macro economics:
some folks bitch a little bit about the business cycle models of the FRB and the ECB. That they do not really contain the banking sector, despite the 300 equations in the FRB/US.
The Khan Academy site has a very accessible introduction to banking and money where the concept that loans create deposits is discussed. I found it very clearly and credibly worked up from an economy based in exchange of hard currency (gold) to one based entirely in fiat currency. I haven’t yet gone all the way through the rest of the finance and economics topics, but I’ve found what I’ve worked through so far has vastly improved my understanding of banking and economics.
Khan Academy module on Banking and Money
“(The final straw that lead me to write this post was reading a comment on another blog which said that “loans create deposits” is a heterodox idea. Every first year textbook I can remember reading contains a description of how loans create deposits.)”
I believe this is a “heterodox” (not money multiplier) loans create deposits post.
http://neweconomicperspectives.org/2012/04/krugmans-flashing-neon-sign.html
genauer,
“totally hopeless that you ever accept the explanation from me”
That is a very convenient excuse for someone who
a) has dug in deep with repeated unsubstantiated claims to have vast knowledge to impart, and
b) has demonstrated literally zero knowledge of the matter at hand.
“Anyway, being accurate, but a little less than perfectly nice with him, effectively killed a discussion, where people could have learned a few things from an old hack like me.”
Puffery: “term frequently used to denote the exaggerations reasonably to be expected of a seller as to the degree of quality of his product, the truth or falsity of which cannot be precisely determined.”
Example: “C’mon genauer, stop the puffery. If you have some wisdom to impart to people, don’t hold back! Why are you letting me stop you from providing a public service?”
Oh yeah. And please stop the puffery.
I was reminded recently that there was a time when people, for the most part, did not write checks (cheques) against their deposits, but used bank notes. So in those days what was the practice? When you took out a loan from a bank did they hand you some bank notes? If so, would they have said that loans create bank notes?
Thanks. 🙂
I am referring to notes on their own bank. 🙂
Min: If that’s how banks made loans in the past (sounds plausible to me) then I would say “yes”.
I can think of 3 ways nowadays a bank might extend a loan:
1. I bank at BMO and BMO just adds the loan to the balance in my chequeing account.
2. BMO writes me a cheque, which I deposit in my account either at BMO or at some other bank.
3. BMO gives me BoC banknotes, which I might then deposit in my chequeing account.
As long as there is not a “currency drain” (I want to hold BoC notes, not deposits), the loan will create deposits, either directly or indirectly.
Too late for this discussion perhaps, but since policymakers and many prominent economists largely operate out of the Econ 101 textbooks of their youth – we’re talking 40 years ago, reading current textbooks is not necessarily useful regarding public policy debates.
“k”,
We have on file in this blog YOUR initial statement:
Nick: “physics can solve the “2 body problem” (Newtonian mechanics) but has runs into problems for numbers bigger than 2″ I wouldn’t say that. Here is a list of rigid body physics simulation software toolkits.
My response related to that was:
““k”, when you refer to some numerical simulation toolkits, you simply don’t understand the problem”.
After that you responded with insults, allegations, etc.
My reply:
“please contact a good physicist in your vicinity. She can explain to you, why I can make such a categorical, hard statement, that no numerical simulator, you referenced to, can ever deliver a fundamental “solution” to the n-body problem, the people sought for, no matter how sophisticated it is.”
Every reader here can make up his own mind, by just looking at the wiki, Nick Rowe referenced in reply to you ( or take it as a nicely contained 2 sentence problem to his/her favourite local physicist.
genauer (and K): I’m not actually following your personal argument (other than to skim your comments to see if either is being too offensive to the other). I don’t think anyone else is either. So stop it now.
Metatone. Never too late, because I’m still reading!
You are probably partly right. But in many ways, Intro textbooks haven’t changed very much over 40 years. That is mostly because economists’ views on many basic questions haven’t changed much over 40 years (or longer); so you get exactly the same diagram for a monopoly, for example, though macro has changed a bit more. It’s partly because the market for Intro texts tends to be a (small c) conservative market. People want to teach what they are familiar with teaching, and want to teach what everyone else is teaching because then it works as a prerequisite for upper-level courses when all students come into that course with the same background knowledge. It’s hard to change anything when everyone must change at the same time. (First year texts are sticky for the same reason that prices are sticky, IMO).
Thanks, Nick! 🙂
Tl;dr: Everything genauer posted about contemporary European affairs is ignorant or mendacious (inclusive ‘or’).
Full Fisking:
“your mentioning of Alex Weber, shows that you are 1.5 years behind the curve,”
That’s Axel Weber, and no I’m not. Both he and Stark are still polluting the European public debate. Not that Weidman is any less of a gold standard quack.
“Versailles? This put in printing that Germany should have paid some 10 % of GDP for ever.”
I don’t know who fed you that particular bit of revanchist historical revisionism, but about five seconds on Google could have told you that it’s not true. That the Versailles terms were both punitive and stupid are not in dispute – that, of course, is why they are such an apt comparison for the privatization and austerity madness being pushed on Southern Europe. But the indemnities were not perpetuities, and did not come with particularly punitive interest rates.
The Troika has set back Greece, Portugal, Spain and Ireland back at least thirty years in industrial development through deflationist policies which are idiotic or mendacious (that’s an inclusive ‘or’). Versailles is a perfectly apt comparison.
“In gross contrast Greece still expects to blackmail the rest of Europe for 10 % of their GDP for ever.”
[Citation needed]
No actually, just fuck off.
German wages have failed to track productivity at least since the turn of the present century. Wage dumping creates unemployment, unless one of your trading partners runs a current account deficit (and engineering such a CA imbalance was, of course, the point of wage dumping in the first place). In which case you are exporting unemployment and sovereign deficits to your trading partners.
Greece should have defaulted and devalued from the day it became obvious that Germany was going to demand that Greece pay for a decade of German industrial subsidies by way of wage dumping.
“Just one example: Greece still fighting to cap public pensions at 2200 Euros.”
[Citation needed]
“Huugh? Even with working full time, at maximum contribution, to the maximum age of 67, I would get only 1848.40.”
Protip: Get a better union and vote Linke next election. Because 2 k€ a month is a puny pension. The lowest rate of Danish pensions for permanent residents is around 1.4 k€ per month. That’s the public pension, and you only go that low if you already have private net worth to tap.
“The median is around 1050, in a nation of 40% home ownership vs 80% in Greece.”
Solution: Higher pensions for Germans.
“The guy who was responsible for privatizing companies, was dreaming up schemes for 20 % GDP to invest in new ones.”
That privatization scheme was both demanded and approved by the Troika. If you don’t like it, take it up with Stasi 2.0, because he signed off on it.
“I am not aware of any other country in the history of mankind, which was pampered so much by its neighbors.”
The Confederate States of America and the West German republic both come immediately to mind.
“Greece got around 80 % of GDP in subsidies from Europe,”
[Citation needed]
“defaulted on 94 % of its private debt,”
[Citation needed]
““Solidarity” is supposed to flow from the rich to the poor, and not the other way.”
Quite.
GDP pro capita (PPP): Greece: 27 k€ (26 k€). Germany: 44 k€ (38 k€).
(IMF data)
“What is tried now, with nearly every week a new version, is to abuse the central bank for giant wealth transfers from the disciplined north to the criminal south.”
Racist blather.
West Germany has had one single foreign policy objective for at least the last forty years: To get someone who is not the Bundesbank to pay for defending the Bundesbank’s inflation target. First we had the currency snake, then we had the ERM, then we had Kohl’s idiotic or mendacious Ostmark:DMark parity conversion, then we had the EMU. If Germany wants moronic policies like a 2 % inflation target rather than a more sensible 6 or 7 % target, then Germany can keep the resulting unemployment instead of fobbing it off on their trading partners through a fixed exchange rate regime.
“The risk premiums Italy and Spain have to pay reflect the conclusions investors draw from that behavior.”
The bondholder subsidies that Italy and Spain have to pay reflect the fact that the European Central Bank refuses to do its job. Any country can be subjected to a run if the central bank refuses to monetize bonds in a timely and expeditious manner. As the Finnish are about to find out.
(Finland, incidentally, might provide the swing vote in favor of monetization in the ECBuBa’s politburo.)
“Especially Italy could reduce their debt easily, if they would tax their people, as we did after reunification, they are richer than us.”
That would be a lie.
GDP pro capita (PPP): Italy: 36 k€ (30 k€). Germany: 44 k€ (38 k€).
(IMF, again)
“If these endless criminal attacks don’t stop, then it could be in this year, that northern people say, enough is enough, there is an end to the Euro.”
Come the day. Then we’ll see how Germany and Holland like re-importing all the unemployment they’ve been offloading to Southern Europe for a decade.
“Merkels dictum is “if the Euro fails, Europe fails”. It could be, that if the Euro blows up, the subsequent attempts to not honor their debt could blow up the whole European Union.”
You mean “the brinkmanship of creditors to odious debts.” The simple truth is that the Greek, Spanish and Irish debts are a backlog of German (and Dutch, and Austrian, and Finnish) industrial subsidies by way of wage dumping and vendor finance. If Germany wants its workers to subsidize its export industries through wage cuts, then by all means go ahead and do so. But keep the unemployment at home, and don’t piss and moan when other countries refuse to pay for the privilege of laundering your export subsidies.
“It membership in the Euro would be bad for Greece, why want 80 % of Greeks to stay in, and 65% of Germans them out?”
Beats me. Maybe they believe in the European political project. Why they still think that the Euro is viable given German behavior over the last twenty years is beyond me.
But of course if you ask Greeks whether they want to stay in the Euro at the cost of being Versailled with insane austerity demands, then the answer is “no,” with pretty much equally high margin.
– Jake
Rowe,
Sorry about cluttering your comments with a full debunking of Bild Zeitung‘s party line. Ignorant, racist blather just pisses me off no end.
I actually came back to this thread to point you to what I think is an excellent example (h/t) of the sort of muddled thinking that you get out of loanable funds models.
The hat tip link includes a thorough debunking, but essentially, Ball and Mankiw argue that government deficits reduce loanable funds, which raises interest rates. This is obviously silly: The central bank sets the interest rate, and banks lend at that interest rate if they can find remunerative investments to finance at that rate.
The deficit only enters into it insofar as the CB raises interest rates in response to the deficit. Which is a more polite way of saying that the CB deliberately sabotages the government’s economic policy. But re-casting the model that way immediately demolishes Ball and Mankiw’s argument – because it makes clear that the dysfunctions they enumerate are a function of the central bank sabotaging government policy rather than of the government policy in the first place. So either Ball and Mankiw are ignorant of the role of central banks in setting interest rates (which I suppose is, while unlikely, possible), or they are wrapping a partisan political agenda in unnecessary algebra.
So with respect, so long as Ball and Mankiw are counted as members in good standing of the central tradition, people like Mitchell (who I agree is not the world’s greatest diplomat) is not wholly wrong to say unkind things about it.
– Jake
“That’s Axel Weber, and no I’m not. Both he and Stark are still polluting the European public debate”
According to my google search Axel Weber gave just 2 interviews, since his resignation.
Google “interview axel weber 2012” one single event on 3rd of may 2012 with regard to his new UBS job
Google “interview axel weber” one single entry after his resignation 1st of October 2011
http://www.handelsblatt.com/politik/international/axel-weber-im-interview-es-gibt-kein-grundrecht-auf-verschuldung-seite-all/4676332-all.html
“no fundamental human right for debt”
That is in present times talking culture more like “silent as a fish” and he speaks the truth, purifying the debate.
“Versailles? This put in printing that Germany should have paid some 10 % of GDP for ever.”
I ll gave you the source already: John Maynard Keynes 1919 The economic consequences of peace, you can take it from project gutenberg
“”In gross contrast Greece still expects to blackmail the rest of Europe for 10 % of their GDP for ever.”
http://www.economist.com/node/21560293 projected budget balance minus 8 percent, and they demand relaxations
“Just one example: Greece still fighting to cap public pensions at 2200 Euros.”
http://m.theglobeandmail.com/report-on-business/international-business/greece-warned-austerity-measures-could-be-wasted/article4444934/?service=mobile
“Mr. Venizelos and Mr. Kouvelis raised objections to proposals to cap pension payments at €2,200 to €2,400 a month”
Protip: Get a better union and vote Linke next election. Because 2 k€ a month is a puny pension
The “Linke” was the only German party, which voted against the ESM, refusing any more credit to GIPSI states.
“The median is around 1050, in a nation of 40% home ownership vs 80% in Greece.” Solution: Higher pensions for Germans.”
Since 2002 everybody in Germany gets a yearly statement, how much public pension she can expect, based on the rule, that not more than 20 % are drawn from the salaries, and the German public voted three times since then.
“That privatization scheme was both demanded and approved by the Troika. If you don’t like it, take it up with Stasi 2.0, because he signed off on it.
Privatization were and are part of the agreements Greece signed off, targeting budget deficits. Instead of actually selling any Greek state property, Costas Mitropoulos dreamed up new schemes for 55 billions to be given to Greece.
http://www.ft.com/intl/cms/s/0/4ecaf2c4-afdd-11e1-b737-00144feabdc0.html#axzz23ARKaCz3
“I am not aware of any other country in the history of mankind, which was pampered so much by its neighbors.”
I should have been more precise here. It is the distant and not the direct neighbors, like Germany and the EU, NATO, who were very kind to them. With all their direct neighbors, Greece has very rocky relationships, like Turkey, Macedonia, Bulgaria. There are no direct rail connections any more, all the major streets of their neighbors go around them.
“Greece got around 80 % of GDP in subsidies from Europe,”
http://money-go-round.eu/Country.aspx?id=EL&year=2010&method=gdp
“”defaulted on 94 % of its private debt,”
http://ftalphaville.ft.com/blog/2012/03/19/929071/final-auction-results/
CDS claims were settled for 21.5 % of face value, of which 15% were Euro guarantees, my money, and the rest traded immediately for 20% of the renewed face value, now 15% (e.g. GR0138010765). 100 + 15 – 21 = 94% default
“Especially Italy could reduce their debt easily, if they would tax their people, as we did after reunification, they are richer than us.”
https://www.allianz.com/de/economic_research/publikationen/spezialthemen/agwr11d.html
page 91: Italy cash per capita 60818, Germany 60123,
Click to access 2011_global_wealth_report.pdf
pick your favourite comparison chart, where is Germany richer than Italy?
Your GDP numbers show that Germany is more productive than Italy. How doesthat square with your allegations of “wage dumping”. Any evidence from your side?
The Maastricht treaty clearly spelt out: no bail out, no money printing. The ECB is not to be used for transfers between countries.
We are sick and tired of all those attempts to violate this treaty.
“given German behavior”
Germany was way too long too nice, giving some folks the idea, they can extract money by slandering and the endless Nazi smears.
Now to summarize all of that, where did you fisk me (prove me wrong)?
Are you missing any thing? Where do you need further explanations ?
JakeS and genauer: nobody is reading your argument about Germany, it’s way off topic, and i would have deleted some of your posts if I had found them earlier, because they aren’t always respectful. Stop now.
Jake S: “The deficit only enters into it insofar as the CB raises interest rates in response to the deficit. Which is a more polite way of saying that the CB deliberately sabotages the government’s economic policy.”
I disagree. Take Canada for example. The government and Bank of Canada agree that the BoC should do what it think it needs to to keep inflation at the 2% target. So in 1996, when the government cut the deficit (to stop the debt/GDP ratio growing), the BoC loosened monetary policy to offset the fiscal tightening to prevent inflation falling below target. that was not a deliberate sabotaging of the government economic policy. They were doing exactly what the government agreed they should do.
Nick’s post said: “… the BoC loosened monetary policy …”
Could you define loosened monetary policy?
Not sure if in a first year textbook but …
An increase in productivity automatically leads to an increase in real wages.
An increase in price inflation automatically helps the real debt (currency denominated) burden.
TMF: “Could you define loosened monetary policy?”
In this context only (because I wanted to speak in a language that JakeS would find familiar: it means “lower interest rates and/or exchange rates”.
“An increase in productivity automatically leads to an increase in real wages.”
Not automatically. I can think of examples where it doesn’t, and I teach these (sometimes).
“An increase in price inflation automatically helps the real debt (currency denominated) burden.”
If the increase in inflation was unanticipated.
I’m learning alot from reading “economics of chemical engineering plants”, or whatever it is called. The tangential field is great. I didn’t know chemical engineers considered profit so carefully. I guess every Canadian who still has value chain ethics (USA biz schools lost this in 60s or 70s), has a big advantage over American economics/finance. The biggest downfall of the book so far is it sets the cost of capital so important. This in effect, makes chemical engineering about finance. The efficiency of the former is depedant on the past curriculums of biz schools. If you give them a cheaper loan line, it affects project construction big time. Since we still guess about why interest rate targetting seems to be or was okay at 2-3%…finance needs to come back to engineering earth to make engineering more efficient. Right now, whoever gets loans or is/was rich, will be considered a role model. Instead of licky. Tax rates will be set accordingly, even if you cause a pandemic you get laid/housed under this AB mental.
Nick, on behalf of a properly indoctrinated economist thank you for the post.
I have often wondered, on blogs related to astrophysics will one find comments from people who never studied Newton’s laws along the lines of “you’ll get there quicker if you point the shuttle a little to the left?”
A rudimentary understanding of the meaning of GDP=C+I+G+NX (let alone the other contents of a basic undergraduate macro text) would do many people a lot of good, especially those with the time and desire to rant throughout the blogosphere.
Thanks Josh! (Those moon landing photos were all faked anyway!)