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Keynes: Pragmatist. Hayek: Utopian. Who Sez?

…if you read about the tussle between the two great economists, you are struck by two things. First, how pragmatic a man John Maynard Keynes was. And second, how utopian the ideals of Friedrich Hayek are. This is odd, as each man attached himself to a polar opposite political philosophy: Keynes’s ideas were adopted by idealistic lefties, while Hayek’s thoughts were lapped up by conservatism, a philosophy that by definition rejects dogma. It is as if we have gone through the looking glass.

Who could have said such a thing?!

Keynes and Hayek: Adventures in Wonderland | The Economist.


Hayek was concerned with principles, not with the political reality of implementing them. It is noteworthy, too, that Hayek—unlike Keynes—spent most of his life as an academic. Hayek never campaigned for a political party or advised the government of the day. He had little time for men who did not share his view.

This is the antithesis of the conservative tradition. From Disraeli to Oakeshott, conservatism has been defined for its distrust of ideology, and a preference for pragmatism, compromise and what has gone before.

Cross-posted at Asymptosis.

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Ryan opinion on rape and abortion

Via Alternet:

After the Akin brouhaha, Paul Ryan was asked his opinion on rape and abortion. He said that “the method of conception doesn’t change the definition of life.”

Gottalaff wrote at the Political Carnival about where this easily deployed logic actually ends up:

So rape is just, you know, another way to conceive. There’s consensual sex, sex out of wedlock, and then there’s forcing a woman to do something against her will (rape), traumatizing her for life. All are equal, all are simply “methods of conception” and if a woman gets pregnant by any “method,” men like these, lawmakers like these, will tell her what she can do or can’t do with her own body.

HuffPo blogger Paul Slanskly worried about the lack of media coverage for this moment, “a far more offensive remark than Todd Akin’s imbecilic blurt of last weekend. What, are we tired of stupid remarks about rape now, so Ryan gets a free pass?” he asks.

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Engaging voters in assunptions…

“$1 million per job. That’s what America’s top money man says we’ve spent on stimulus from the Fed alone,” Burnett said on her CNN show “OutFront” on Friday.

These mistakes are particularly noteworthy because Burnett is a business news veteran who also has worked at Goldman Sachs and Citigroup. She was an anchor at CNBC before moving to CNN last year. Burnett also has worked at Bloomberg TV.

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Wall Street’s War Against the Cities:

From Naked Capitalism:

Wall Street’s War Against the Cities: Why Bondholders Can’t – and Shouldn’t – be Paid

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, a research associate at the Levy Economics Institute of Bard College, and author of “The Bubble and Beyond,” which is available on Amazon.

The pace of Wall Street’s war against the 99% is quickening in preparation for the kill. Having demonized public employees for being scheduled to receive pensions on their lifetime employment service, bondholders are insisting on getting the money instead. It is the same austerity philosophy that has been forced on Greece and Spain – and the same that is prompting President Obama and Mitt Romney to urge scaling back Social Security and Medicare.

Unlike the U.S. federal government, most states and cities have constitutions that prevent them from running budget deficits. This means that when they cut property taxes, they either must borrow from the wealthy, or cut back employment and public services.

For many years they borrowed, paying tax-exempt interest to wealthy bondholders. But carrying charges on these have mounted to a point where they now look risky as the economy sinks into debt deflation. Cities are defaulting from California to Alabama. They cannot reverse course and restore taxes on property owners without causing more mortgage defaults and abandonments. Something has to give – so cities are scaling back public spending, downsizing their school systems and police forces, and selling off their assets to pay bondholders.

This has become the main cause of America’s rising unemployment, helping drive down consumer demand in a Keynesian nightmare. Less obvious are the devastating cuts occurring in health care, job training and other services, while tuition rates for public colleges and “participation fees” at high schools are soaring. School systems are crumbling like our roads as teachers are jettisoned on a scale not seen since the Great Depression.

Yet Wall Street strategists view this state and local budget squeeze as a godsend. As Rahm Emanuel has put matters, a crisis is too good an opportunity to waste – and the fiscal crisis gives creditors financial leverage to push through anti-labor policies and privatization grabs. The ground is being prepared for a neoliberal “cure”: cutting back pensions and health care, defaulting on pension promises to labor, and selling off the public sector, letting the new proprietors to put up tollbooths on everything from roads to schools. The new term of the moment is “rent extraction.”

So having caused the fiscal crisis, the legacy of decades of property tax cuts financed by going deeper into debt are now to be paid for by leasing or selling off public assets. Chicago has leased its Skyway for 99 years to toll-collectors, and its parking meters for 75 years. Mayor Emanuel has hired J.P.Morgan Asset Management to give “advice” on how to sell privatizers the right to charge user fees for previously free or subsidized public services. It is the modern American equivalent of England’s Enclosure Movements of the 16th to 18th century.

Read more at Naked Capitalism

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Monetary Policy Lower Bounds

I will probably publish a much longer post after I edit out some of the rudeness.  This isn’t just convention season it is also Jackson Hole Monetary Conference season.  There is quite a lot of discussion of forward guidance, that is public statements about monetary policy in the medium distant future.  Many pages of it are in this paper by Michael Woodford. 

I will use the phrase as he does to refer to guidance regarding future safe overnight rates (the federal funds rate for the USA). He treats the direct effects of massive asset purchases separately.   Here I will pretend that the only thing the FOMC does is target the federal funds rate, so forward guidance means statements about what the target will be a few years from now.  I will assume that the Fed surely can’t precommit beyond Bernanke’s current term that is roughly beyond the next 5 years.  The guidance can be conditional.  It could be that the target rate will be below 0.25% until nominal GDP is within 1% of the pre-2007 trend (with a published estimate of the trend for precision).

The point of forward guidance is that even if the monetary authority can’t drive current short term nominal rates significantly lower (since they are already essentially zero) it can cause lower expected future short term rates.  The aim could be to cause increased mid term expected inflation.

The problem is that there is a zero lower bound for expected future interest rates.  Given my assumptions, all effects of forward guidance should show up in the 5 year constant maturity treasury interest rate series.  I note that bond traders pay obsessive attention to everything FOMC members say and it is very possible that the guidance will influence their beliefs, but not those of home builders, potential home buyers or even mortgage loan officers.

The current Treasury 5 year rate is 0.66% .  I think the outer limit of possible forward guidance would be to lower it by about 0.5%.  This, it seems to me, is not a big enough deal to justify the huge spillage of ink and killage of trees.  Things were very different fro mid 2009 through early 2010 when the rate was well over 2%.   It is obviously impossible to achieve so large a further reduction given the lower bound.  Yet advocates of forward guidance criticize the FOMCs effort.  They really couldn’t achieve as much again as has happened already (which past decline might not be due to forward guidance).

Another way to look at it is to try to guess about expected short term rates given the medium term rate (5 years as the limit of conceivably credible pre-commitment).  A way to summarize the information is to imagine a forecast of 0 until t then normal short term rates from then on.  The normal rate must be over 2% — no one can imagine policy setting interest rates below the target inflation rate indefinitely.  The yield curve slopes up (on average) although there is no decade long upward trend in short rates, so it is normal to assume a risk premium in 5 year rates.  Set it to zero.
Conveniently with miniscule interest rates over short periods of time compounding is almost exactly summing.  So the duration of the period of 2% in the next 5 years in the just to summarize calculation is 2% is 0.66*5/2 = 20 months.  The duration of the period of expected 0 rates is 3 years and 4 months.  Bond traders seem to expect essentially zero short term rates through December 2015.

Importantly the FOMC predicts (not promises predicts) extremely low rates through 2014.  It seems to me that bond traders take their prediction as a promise and then add a year. I don’t see how a cross my heart and hope to die and if I break my world all may know I am no gentleman promise could work any better.

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