The myth that sold the financial bailout

Originally posted on Real-World Economics Review Blog:

from Den Baker

If there had been political support for massive spending in these areas, the Depression could have ended in 1931 instead of 1941.

Today marks the sixth anniversary of the collapse of Lehman Brothers. The investment bank’s bankruptcy accelerated the financial meltdown that began with the near collapse of the investment bank Bear Stearns in March 2008 (saved by the Federal Reserve and JPMorgan) and picked up steam with Fannie Mae and Freddie Mac going under the week before Lehman’s demise. The day after Lehman failed, the giant insurer AIG was set to collapse, only to be rescued by the Fed.

With the other Wall Street behemoths also on shaky ground, then–Treasury Secretary Henry Paulson ran to Capitol Hill, accompanied by Federal Reserve Chairman Ben Bernanke and New York Fed President Timothy Geithner. Their message was clear: The apocalypse was nigh. They demanded Congress make an open-ended commitment…

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Academic Sophistry: Dart-Throwing Monkeys and the EMH

Originally posted on Fixing the Economists:

sophistry

The other day I did a post on the Efficient Markets Hypothesis (EMH) that generated some discussion. I want to deal with a few of the issues raised in a some upcoming blogposts.

One issue of interest was that many EMH proponents said: “Sure, Warren Buffett and Keynes beat the market over a long-period we’re not saying that. Some people might beat the market out of pure luck.” Well that seems like rubbish to me.

Think about this. If the EMH says that no one single person can beat the market over the long-run that is a testable proposition. But if they then say that some people might but this is “by luck” that is not testable. That is, in fact, based on an a priori assumption that anyone who beats the market did not do so by skill.

Now, personally I think that some people beat the market by…

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How Do Capitalist Firms Grow?

Originally posted on Fixing the Economists:

Home businessI’m currently reading Marc Lavoie’s new book Post-Keynesian Economics: New Foundations. This really is the defining text of Post-Keynesian economics today. Anyone who is really interested in Post-Keynesian economics should try to get their hands on it. It is a bit overpriced right now — so you can probably only realistically get it if you order it to your university library — but hopefully Marc can find a way to get it out for lower cost

The book is over 600 pages long and most of those pages are pretty dense. When I’ve finished it I will be either writing a review on the book or a full paper. I’m leaning toward the latter right now as I think there are a few things that might be worth saying. Anyway, for now I just want to discuss a single component of the theory that can be summarised in one…

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FROM THE ARCHIVES: ON CIVILIZATIONS

Originally posted on Pandaemonium:

brueghel tower of babel

Another review from the archives while I am away, the last hopefully before normal service resumes on Pandaemonium. This is a review of Felipe Fernández-Armesto’s Civilizations, first published in the Independent on Sunday, 8 October 2000.


‘It can now be asserted upon convincing evidence that savagery preceded barbarism in all the tribes of mankind, as barbarism is known to have preceded civilization.’ So wrote Victorian anthropologist Lewis Henry Morgan in his 1877 classic Ancient Societies. According to Morgan, savagery, barbarism and civilization ‘are connected with each other in a natural as well as a necessary sequence of progress.’

The idea of history as progressing in a series of natural stages from savagery to civilization is a very Victorian notion, testament to the values of a bygone era. Ours is an age deeply skeptical both of the idea of historical progress and of the capacity of humans…

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Misdirection in the United States

Originally posted on Real-World Economics Review Blog:

from David Ruccio

private employment

The Washington Post tries to put a positive spin on the recent pattern of job growth. However, the underlying study (from the National Employment Law Project [pdf]) offers quite a different view: even though jobs gains have recently accelerated in higher-wage industries, the imbalance of especially pronounced gains at the bottom and slow growth in mid-wage industries persists.

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Misunderstanding (Totally!) Competitive Currency Devaluations

Originally posted on Uneasy Money:

Before becoming Governor of the Resesrve Bank of India, Raghuram Rajan professor was Professor of Finance at the University of Chicago Business School. Winner of the Fischer Black Prize in 2003, he is the author numerous articles in leading academic journals in economics and finance, and co-author (with Luigi Zingales) of a well-regarded book Saving Capitalism from the Capitalists that had some valuable insights about financial-market dysfunction. He is obviously no slouch.

Unfortunately, based on recent reports, Goverenor Rajan is, despite his impressive resume and academic credentials, as Marcus Nunes pointed out on his blog, totally clueless about the role of monetary policy and the art of central banking in combating depressions. Here is the evidence provided by none other than the Wall Street Journal, a newspaper whose editorial page espouses roughly the same view as Rajan, summarizing Rajan’s remarks.

Reserve Bank of India Governor Raghuram Rajan warned Wednesday…

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AS IF STILL BURNING

dmerciar:

A date many of us will have forgotten:

Originally posted on Pandaemonium:

hiroshima before    hiroshima after

This week marked the 100th anniversary of the start of the First World War. Today marks  the anniversary of an even more grotesque event – the dropping of the atom bomb on Hiroshima on 6 August 1945. Three days later the second bomb was dropped on Nagasaki. These remain the only use of nuclear weapons in warfare.

Some 12 km² of Hiroshima were destroyed, as were around 69% of the city’s buildings. The images above, which were taken by the US military on the day, show Hiroshima before and after the bombing. Some 66,000 people are thought to have died in Hiroshima on the day; probably a similar number again died over the next four months as a result of their injuries or from radiation sickness. So fierce was the heat that people were vaporised but their shadows left upon the walls.

In the years since the…

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