An Oldie But Goodie: Murphy Contrasts the Classical with Modern Theory of Economic Value
This is for the geeks in the crowd… I came across my critique of Kevin Carson [.pdf] for another project, and–like Ralphie from A Christmas Story–was just really impressed with how good my essay was. So if you want to see a straightforward explanation of how the classical economists explained market prices, and why (in my opinion) the modern approach is superior, check it out. The so-called Marginal or Marginalist Revolution was truly an improvement in theoretical economics, analogous to Einstein’s special relativity versus Newton’s classical laws. In other words, the modern theory is more general, and can handle the classical theory’s meat-and-potatoes as a special case.
Potpourri
* Scott Sumner discusses the Fed’s hints that they will drop the “federal funds rate” as their target variable, and instead will use the interest rate on excess reserves. If you can’t stomach the wonkish stuff, just scroll down to the end where Sumner explains that beyond the jargon, this transition would transfer power from regional Fed banks to DC. Hmmm. BTW, if you really parse their trial balloon statements, it seems that maybe what the Fed gurus are really saying is that they will still be targeting the fed funds rate, because it will trade at some spread relative to the interest rate on reserves. So having put 5 minutes of thought into this, I have to side with Robert Wenzel who says this is a mere codification of what the Fed has been doing already, rather than a stunning change in policy as Sumner argues.
* I haven’t had time to read this carefully, but more on possible government moves to tap into your retirement accounts.
* Chip Knappenberger has an uncharacteristically harsh critique of the IPCC. What I mean is, Chip is usually very moderate in his claims, but he lets loose in this piece describing (apparently) shocking lapses in the IPCC’s official procedures to codify the “scientific consensus” on various points. Chip is actually a published climate scientist so he is not a mere right-wing talking head.
* Doug French describes Rothbard in class.
Bloomberg Catching On to the "Secret Banking Cabal"
David Kramer at LRC relays this choice excerpt from a Bloomberg commentary by David Reilly:
Secret Banking Cabal Emerges From AIG Shadows: David Reilly
Commentary by David Reilly
Jan. 29 (Bloomberg) — The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.
Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.
We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system — apart from the matter of AIG’s bailout — deserves further congressional scrutiny.
The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.
As thrilling as it is to see this frank discussion in a Bloomberg article, Reilly doesn’t go the full distance. If you’re stocking up in preparation for Mad Max times, you need jelly to go with your peanut butter.
Amateur.
Glenn Greenwald Not a Fan of the Iraq Invasion
I’m not entirely outsourcing Free Advice to Glenn Greenwald–he works for union scale–but this post contrasting the British investigations into the Iraq Invasion with our own (nonexistent) ones contains some remarkable paragraphs. For example:
British political news has been consumed for the last several weeks by a formal inquiry into the illegality and deceit behind Tony Blair’s decision to join the U.S. in invading Iraq. Today, Blair himself is publicly testifying before the investigative commission and is being grilled about numerous false claims he made in the run-up to the war, not only about Iraqi weapons programs…and Saddam’s ties to Al Qaeda, but also about secret commitments he made to join the U.S. at a time when he and Bush were still pretending that they were undecided and awaiting the outcome of the U.N. negotiations and the inspection process.
…
[A]ll of this stands in stark and shameful contrast to the U.S., which pointedly refuses to “look back” or concern itself with whether it waged an illegal (and horribly destructive) war….[O]ne can barely even imagine George Bush and Dick Cheney being hauled before an investigative body and forced, under oath, to testify publicly about what they did as a means of determining the legality or illegality of that war. Doing that would fundamentally conflict with two leading principles in American political life: (1) our highest political leaders must never be accountable for actions they take while in power; and (2) whether something they do is “illegal” — especially the starting of wars — is utterly irrelevant. Instead of formally investigating whether they broke the law, we treat them like elder statesmen who deserve a life of luxury and media reverence.
And then this:
I’m periodically criticized for an “angry” tone in my writing, which I always find mystifying. I genuinely don’t understand why anger should be avoided or even how it could be. What other reaction is possible when one looks around and sees the government leaders who committed these grave crimes completely unburdened by any accountability and treated as respectable dignitaries, or watches the Tom Friedmans, Jeffrey Goldbergs, Fred Hiatts and other unrepentent leading media propagandists who helped enable it still feted as Serious and honest experts, or beholds the current Cabinet and Senate filled with people who supported it, or observes the Michael O’Hanlons and Les Gelbs and other Foreign Policy Community luminaries who lent trans-partisan credence to it all continue to traipse around still pompously advocating for more wars that never touch their lives?
The Unemployment Game Show
Tony G. apparently has nothing better to do than send me funny videos. Maybe he’s not in the labor force?
Help Me Out With the "Inventory Bounce" Cynicism
I am as skeptical of GDP numbers as the next guy. But I don’t quite get this commentary by Krugman:
As expected, a big GDP number (pdf), signifying nothing much. It’s an inventory blip: topline growth at 5.7 percent, but only 2.2 of that is final demand.
Don’t get me wrong, I understand the superficial plausibility of distinguishing between changes in final demand versus “mere” changes in inventory. But when we push the analysis one step deeper, I can’t come up with the same conclusion that Krugman reaches. (It’s not just him, by the way, lot’s of people talk like this.)
If I’m not mistaken, the procedure (roughly speaking) goes like this: The BEA measures how much money people spend on finished goods and services. But that figure isn’t necessarily how much businesses produced during the quarter, because some of those sales could have been handled through falling inventories.
So for example, if final sales were $1 trillion, but inventories declined by $100 billion, then they would subtract it and say that GDP was actually only $900 billion. In other words, only $900 billion in stuff was actually produced, since the other $100 billion in sales came from drawing down inventories (which were produced in earlier periods).
OK, so now for today’s announcement of the 4th quarter GDP figures, Krugman is saying that the 5.7% official figure is misleading, because if you strip out inventories, then “final demand” only grew 2.2%. This strikes me as backwards.
If you break down the numbers, inventories still fell in the 4th quarter, they just didn’t fall as sharply as in the 3rd quarter:
Business inventories fell only $33.5 billion in fourth quarter after dropping $139.2 billion in the July-September period. The change in inventories alone added 3.39 percentage points to GDP in the last quarter. This was the biggest percentage contribution since the fourth quarter of 1987.
Am I making sense here? I can understand if inventories rose by a bunch, and then Krugman wanted to say, “Aww, that’s just firms replenishing their depleted inventories–this isn’t really a spike in final demand by consumers.”
Can anybody clarify this? I am hesitant to say not only Krugman, but many other commentators, on this point are getting things backwards, especially since I’m no expert on GDP accounting. I am thinking I’m doing something wrong, because in my version I don’t see where the 2.2% figure is coming from, when you “strip out inventories,” if they only fell by $33.5 billion.
The Fate of the Mighty Dollar
Tony G. passes this along. Note there are some naughty words at the end.
Senate Reconfirms; Bernanke Says, "Come to the Bar, Drinks Are On Dollar-Holders"
CNBC reports:
Federal Reserve Chairman Ben Bernanke won Senate confirmation for a second term, ending a bruising political battle that forced the head the world’s most powerful central bank to fight for survival.
Bernanke’s nomination was approved 70-30 by the Senate after clearling a procedural roadblock with a 77-23 vote. A simple majority of 51 votes in the 100-person chamber was needed for approval.
Well shucks, besides my disappointment that the “Bernanke saved us all” messaging was good enough for government work, his reconfirmation apparently blows a hole in my recent conspiracy theory. I had guessed that the last-minute upset was the way to get the architect of a dollar collapse safely out of power, so that the resulting inflation wouldn’t be the fault of the sitting Fed chair.
Isn’t it perfectly obvious what happened? The shadowy bankers read my last post, then told key senators to switch their votes in order to discredit me.
These guys are good. I had no idea what we were up against.
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