Goldman Sachs abandons kittens (we’re not making this up) New Deal 2.0. In case you missed this (as I had)
Bush rats fight back PhysOrg
Skunk’s Strategy Not Just Black and White PhysOrg. Maybe I can come back as a skunk. They have nice personalities and no one messes with them.
Mortgage Program Gathers Steam After Slow Start Wall Street Journal. Major disconnect between the opening paras and the money quote here, pure Orwellian reporting. The claim of success is based on 20% of eligible borrowers getting a trial mod. So what? As the story points out further on:
Whether the program will ultimately be judged a success will depend upon how many trial modifications become permanent. To receive a permanent fix, borrowers must be current on their payments in the trial program after three months and submit a hardship affidavit and other documents.
The administration won’t release figures on completed modifications until December, but so far it appears that very few trial modifications are becoming permanent, often because of a lack of documentation.
Willem Buiter Apparently Does Not LIke Gold, and Why Jesse. This was not one of Buiter’s finer moments.
How Banks View Loan Modifications Mandelman
Powerful interests are trying to control the market John Kay, Financial Times
Ambac may file bankruptcy soon Ed Harrison
Will rising oil prices derail the recovery? Jim Hamilton
On a New Form of Indentured Servitude The Confluence (hat tip reader John D)
Massive Defense Spending Leads to Job Loss Dean Baker (hat tip reader Gordon). Today’s must read.
Antidote du jour:
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I thought “Bush Rats Fight Back” was going to be about Cheney’s and Rove’s latest rants.
Veterans Day
Never shall I fail my comrades. I will always keep myself mentally alert, physically strong and morally straight and I will shoulder more than my share of the task whatever it may be. One-hundred-percent and then some.
Skippy…To all and the places I served 1/75 rgr HAAF, 2/327 101st and 1/9th DMZ have a nice cool drink and remember each other always.
The most important day of the year. Sadly, I prefer it in Canada, where the towns stop, out of respect.
When I was in the operating engineers union, that was the first day they gave up in negotiations.
Took one of the old boys out for a cruz today.
Thank you.
In Flanders fields the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.
We are the dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved, and were loved, and now we lie
In Flanders fields.
Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.
— Lt.-Col. John McCrae (1872 – 1918)
@”Willem Buiter Apparently Does Not LIke Gold, and Why”
Jesse’s post ties in beautifully with comments by ndk and Anonymous Jones from yesterday’s “Links,” and also with Yves’ post “Do Businesses Hate Their Workers? (Income Disparity Myths Edition).”
ndk commented that “I do want to see all employees and employers who do meaningful work rewarded, and rewarded fairly.” Anonymous Jones, picking up on the word “fairly,” responded that “Hayek elucidates how broad markets give the market participants context with which to determine whether deals are ‘fair’ or not.”
Yves’ post talked about how “most companies treat employees as liabilities, doing everything they can to minimize labor costs, getting rid of workers whenever possible.” And Jesse’s post is an argument with Buiter over the price of gold.
What Jesse’s post, Yves’s post and the comments by ndk and Anonymous Jones all have in common is how we arrive at value.
As Jesse explains, value is arrived at in three different ways. First, there is what Marx called “use value,” Locke called “worth,” and Jesse calls “industrial and decorative uses.” Second, there is “exchange value,” which according to Abbey Galiani is “an idea of proportion between the possession of one thing and the possession of another in the conception of man.” It “always means value in exchange,” says Alfred Marshall. “For it is only in the exchange market, where everything can be exchanged for something else,” writes Hannah Arendt, “that all things, whether they are products of labor or work, consumer goods or use objects, necessary for the life of the body of the convenience of living or the life of the mind, become ‘values’.” “This value consists solely in the esteem of the public realm where the things appear as commodities,” she continues, “and it is neither labor, nor work, nor capital, nor profit, nor material which bestows such value upon an object, but only and exclusively the public realm where it appears to be esteemed, demanded, or neglected.” And third, as Jesse points out, there is value imposed by government “fiat.”
It is placing a value on labor where the classical economic theory that has perhaps come to most grief.
First there is the commoditization of labor within capitalist theory, subjecting it to the vagaries of the exchange market, or as Arendt put it the “degradation” of labor “in a manufacturing society which judges men not as persons but as producers.” It’s all laid out in Adam Smith’s Law of Population, described here by Robert Heilbroner:
To Adam Smith, laborers, like any other commodity, could be produced according to demand. If wages were high, the number of workpeople would multiply; if wages fell, the numbers of the working class would decrease. Smith put it bluntly: “…the demand for men, like that for any other commodity, necessarily regulates the production of men.”
Nor is this quite so naïve a conception as it appears at first blush. In Smith’s day infant mortality among the lower classes was shockingly high. “It is not uncommon,” says Smith, “…in the Highlands of Scotland for a mother who has borne twenty children not to have two alive.” In many places in England, half the children lived only to the age of nine or ten. Malnutrition, evil living conditions, cold, and disease took a horrendous toll among the poorer element. Hence, although higher wages might have affected the birth rate only slightly, they could be expected to have a considerable influence on the numbers of children who would grow to working age.
–Robert L. Heilbroner, >i<The Worldly Philosophers
The second place where capitalism has come to grief is that it has proven itself completely impotent in the face of those who would affix the value of labor by fiat. The multi-million-dollar remuneration that our financial overlords pay themselves is the most blatant example of this. These colossal pay packages cannot be justified by “use value,” and even less so by “exchange value,” which requires sanction by the society. No, as Reinhold Niebuhr said:
No impartial society determines the rewards. The men of power who control society grant these prerequisites to themselves. Whenever special ability is not associated with power, as in the case of the modern professional man, his excess of income over the average is ridiculously low in comparison with that of the economic overlords, who are the real centres of power in an industrial society.
–Reinhold Niebuhr, Moral Man & Immoral Society
“This was not one of Buiter’s finer moments” – but surely a “six thousand year bubble” is a fine remark?
> Massive Defense Spending Leads to Job Loss Dean Baker (hat tip reader Gordon). Today’s must read.
Call me surprised. The third Reich under Hitler pulled off an enourmos rearmament program and reduced unemployment drastically. Most people have seen causation here and not contradiction. On the other hand, rearmament became so expensive that it caused inflation in Germany and forced Hitler to start his violent expansion earlier than he had planned originally.
Why surprised? The Nazis massive rearmament programme forced the diversion of resources to military purposes, leading to reduced welfare and severe balance of payments problems in Germany. There was rationing there even before WWII started. Measured unemployment fell largely because everybody was in uniform. I have no trouble at all believing the CEPR report.
The idea that military expenditure is just as good as any other sort of Govt. expenditure for stimulus purposes is called “military Keynesianism”. The Nazi experience is a good historical indication that it is wrong, and the CEPR report shows this again with economic analysis.
Military Keynesianism is more fully described here:
http://en.wikipedia.org/wiki/Military_Keynesianism
Sadly, Prof. Krugman flirts continually with military Keynesianism, most recently in this blog post:
http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/
He should know better.
Skunk’s Strategy Not Just Black and White
“Maybe I can come back as a skunk. They have nice personalities and no one messes with them.”
Well, the article confirmed that no one messes with them after they (the messers with) have learned not to mess with them.
Animals seem to learn and remember in one shot – how many financial crisis es have we had?
Willem Buiter Apparently Does Not LIke Gold, and Why
“It is fortunate indeed that Willem does not wish to argue this point, because his proposition on this score smacks of mere petulance. In the words of financier Bernard Baruch, “Gold has worked down from Alexander’s time… When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory.” And he is right, unless you are looking at history with very selective contortions.”
First, I enjoy the analysis of Mr. Buiter very much.
I would note that gold has captivated man far longer than 2,000 years, and in every society above stone age.
Will the US last longer than man’s desire for gold? – of course not…and one reason being that success is hard won, and easily lost, and when one has succeeded, the traits of modesty, temperance, prudence, and self control are forgotten. Gold is that pesky reminder that we earn wealth, that it is limited, and that the machinations of man’s councils can no more make us wealthy, than that such a council can make us thing that an ounce of gold is the same as an ounce of iron.
Oh, fiddle-de-dee. Civilization has developed to the point where Gold serves only as the bogeyman to keep all good little Calivinsts in line. Other than a few sophisticated applications in the more esoteric siences, an ounce of gold has fewer uses than an ounce of iron. It represents wealth only because the machinations of man’s councils say it does. It is those machinations that enable wealth now, and the longer we take to get that through our heads, the more uncertain our long term survival as a civilization becomes.
RE Buiter: Yes, the mistake that gold still has some industrial uses initially appears to weaken his analysis, but what we got here is a genuine clash of paradigms in a nearly “Kuhnian” sense. A fiat commodity on par with pet rocks makes more sense to me than anything the gold bugs try to explain. I’ve noticed before (am I mistaken?) that Jesse’s Cafe accepts no comments – so, is he talking book? I also noticed that he calls up the Godwin Rule: If Hitler is agin’ it, it must be good…
Three cheers to bad sausage, dyspepsia, and grumpiness!!!
Nice, Jesse. About time we have a little poetry in this blog.
Here is one of my best ones (a Haiku about Haiku)
If you can’t say it
In seventeen syllables
Well, don’t say it then.
Gold does not always preserve value.
I know of many a woman with gold in her hair and yet, sadly, it did not prevent her from losing her value to purchasers of her beauty.
About the kitten, a thousand of dollars vet bill ? for five kitten ? Is it a mistake or everything get inflated when it is too close from Goldman Sachs ?
I rather liked Buiters article, although I am not universally a fan of his. If you look at the title and the contents you know immediately this is intended as an in-your-face contrarian piece. He is not arguing that gold hasn’t had its economic uses – nor that its current rise isn’t rational. He is arguing that it rises and falls like other bubbles – like Tokyo real estate in the 80’s.
Jesse’s most pointed (and perhaps fairest) critisism of Willems point was that he was playing with the definition of fiat currency. Most of us know definitionally what this means, but I thought his point was not to put things into black and white. Weimar fiat currency is not the same as American fiat currency. Pet rock assets are not the same as tokyo real estate assets. If you were to pick a metaphor to make this point, gold is excellent.
But even if you have not sense of humor, and can accept no irony, one has to admit that gold today acts more like a bubble asset (mens jacket price aside – another historical relic) than a store of wealth.
I think his piece added to the public debate.
Re Dean Baker: Interesting rhetorical strategy (If the same model demonstrating “that measures to reduce greenhouse gas emissions (GHG) and slow global warming” reduces GDP also demonstrates that “defense” spending reduces GDP, what ya gonna do if you’re opposed to the former measures for that reason ….? Either the model has to go, or as my mathematician-turned-accountant-turned-lawyer friend in St. Lake City oft says about contradictions: It must be “dialectical.”)
How would a John Kay respond? He wants a government that is neither too big but neither too small, one right-sized to stop any economic actors from being too big to “control” the market. I don’t think it is inaccurate to say he expresses a Austrian-Libertarian model. The state is always big enough to enforce contracts, lock up thieves, and repel invaders. It isn’t so clear whether the state is big enough to prohibit negative externalities (tax the sources, punish the makers). Could be the only truly “efficient” model is the Biggest Stick Economy: To each according to his threat advantage, from each according to his intimidation.
Why should I internalize norms that benefit him if they don’t benefit me?
Everybody seems to have forgotten J.K.Galbraith’s concept of countervailing power. The memory hole gets bigger every year.
I enjoyed Buiter’s article on gold, but his commentators pointed out three flaws in the argument:
1. The value of gold is a measure of value is that over half the gold has already been mined. Its difficult for a government to simply create more of it. I think Buiter in his article greatly overestimated the extent that more gold can be created.
2. Gold in fact does have some industrial uses, though this is a minor point.
3. When you are talking about a “six thousand year bubble”, its probably not a bubble. The phrase was probably tongue in cheek.
I think the article was intended to be provactive. A fiat paper currency is supposed to be “backed” by the goods and services created by the country issuing it, or at least the ability of its government to raise revenue. Consider a situation where the economy of a country shrinks. This implies that the amount of the fiat currency issued by the country would have to shrink in order to maintain its value.
Instead, policymakers got the idea (and no, this wasn’t what Keynes meant) that if an economy shrinks, you just create more money, and the economy will expand again! Maybe the economy continues to shrink, for the reasons that caused it to get into trouble in the first place, and the currency loses its value.
Is there any history of paper money in China? All I know is that it was first issued by the Song but the later Ming dynasty abandoned the whole experiment. The Ming are criticized for this by historians but a more detailed look at what happened would be interesting.
@Skippy and Jesse
Got home a little while ago after passing by the Veteran’s Day parade on Fifth Avenue that, watching the military pipes and drums march by, to my surprise, brought tears to my eyes. Thank you for sharing your reverence for the day with us. I’m very moved by the poetry.
People interested in reading the CEPR report which Dean Baker updates in the linked piece can download it from here:
http://www.cepr.net/index.php/publications/reports/the-economic-impact-of-the-iraq-war-and-higher-military-spending/
I think Americans should follow like other nations and pay a bit more respect. I like the idea that Canadians have by wearing the poppy from Nov 1st through November 11th or at least on Nov 11th. This clearly visible symbol helps provide more of a reminder.
Selling the poppies for whatever a person wants to donate also helps raise funds for Vets and their families…. EXCELLENT IDEA!!