economics - where to begin?

But they beat Russia last night, they aren't out :-)

Not really about a bad thing - things are v bad now. Some people will lose a lot of money outside Greece, others have already lost their lives inside the country.

Reports I have read say that Greece are already out of the Euro...whatever the outcome it seems patience has run out.

the problem aiui is that greece is so obviously a basket case and a barrier to any kind of eurobonds/debt mutualization or w/e and because its fiscal management was so disgraceful it allows a lot of fat lutherans to moan about RESPONSIBILITY and AUSTERITY (even though many other troubled govts like spain were running a surplus prior to 2008)

so why is a greek exit from the euro quite so feared? it must represent like 3% of the eurozone economy....and unlike a default, the debts held by northern banks will presumably be renominated in nu-drachmas.....it would create turbulence but the current pattern of indecision and torpor is doing exactly the same

Because if Greece exits Spain, Portugal and Ireland may be tempted to do the same and the whole Euro "project" loses credibility, banks become overexposed (again), and it's back to 2008..

spain is big enough to extract bargains from the ecb/germany

ireland is fucked thanks to the ahern guarantee, and there is no political will to renege on that afaik

portugal maybe? but again it is a tiny economy

Not so much about Ire and Por as about Spain and then speculation about Italy. Those are too big to fail type thing.

the last six months or so has been about exceptionalizing greece and firewalling it wherever possible

a greek exit will probably look nasty enough on the streets of athens to thoroughly dissuade spain and italy from following

tbf it`s the lenihan guarantee

the Greeks are fucked no matter what they do ... if they leave the euro, they'll be less fucked (b/c they can then control their own currency) but shit will still be bad for at least a while. obviously the devil will be in the details, but theoretically if the Greeks have their own, non-Euro currency then the new Greek currency can be devalued and make Greek products and services more competitive which would (theoretically at some point) aid their economic recovery.

the band-aid analogy is apt here ... they can rip it off fast and be in excruciating pain for a concentrated period of time; or peel it off slowly and be in lesser (though still agonizing) pain for a longer period of time.

hard truths from dr eisbaer :(

if Greece exits Spain, Portugal and Ireland may be tempted to do the same

A revival of the infamous 'domino theory'?

The most interesting thing to me is that, if Greece stays in the euro, their path out of penury is wholly dependent on bailouts and guarantees to prop up their euro-denominated debt, and therefore their future is placed in the hands of governments whose interests do not lie in Greece, except in the most tangential and attenuated sense. The Germans really don't give a rip if Greece sinks, so long as the euro floats.

Given this fact, I think the Greek people correctly suss that fleeing the euro at least gives them the power to seek their own interests, and perhaps a shorter way through the blinding pain of retrenchment and back into relative health. As a tourism-heavy economy, a retreat to cheaper drachmas makes a hell of a lot of sense to me, since you can sell 'cheap holidays' over and over and still have more tourism left to sell tomorrow.

http://www.thedailybeast.com/articles/2012/08/15/thanks-for-the-feedback.html

for a year or two now Frum's been preaching that low interest rates coupled with mild inflation could be the tonic to pull us out of our situation. the idea (as i understand it, and i'm very dumb on these matters) being that mild inflation would accelerate debt reduction and help households regain confidence to spend.

is he on to something? and is anyone listening? and if they are, would it even matter? because it seems that the one of the few places where mainstream GOP and Paul freaks see eye-to-eye is on tight money. and, let's face it, these guys are winning the messaging war when it comes to monetary policy.

he's not the only person talking about this, paul krugman's latest book is all about this, and the academic consensus is that the fed are not being aggressive enough

in theory monetary policy should not be influenced by GOP rhetoric or ron paul, the fed are an independent ("monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government" - wikipedia) although the extent to which this is perfectly true is debated ("we would treat [Bernanke] pretty ugly down in Texas" - rick perry). it's always a guessing game as to what the fed's real intentions are; their control over "expectations" is equally if not more powerful as their control of interest rates. central bankers might be playing it safe in case of a republican win, but that's only one of many possible explanations

relevant utube:

https://www.youtube.com/watch?v=a62dNGqQfNM

yeah, i think plenty of people agree, but stuff like that will get zero traction from republicans anytime soon. paul ryan getting the vp nomination sort of underscores how hard moneyism has become totally dominant for the gop. ben bernanke has basically become a pariah despite being extremely cautious.

and increasing inflation is hard in a depressed economy. you can't really have inflation if nominal wages are stuck. i haven't read frum lately to know what exactly he wants monetary policy to be doing.

apparently the fed has 2 mandates - control inflation & reduce unemployment; most economists that i read seem to think they're worrying too much abt the former & not enough abt the latter. rich ppl care more abt inflation because they have a lot of fixed income investments

The Federal Reserve tripled their balance sheet and it hasn't stirred inflation.

http://upload.wikimedia.org/wikipedia/commons/0/08/US_Federal_Reserve_balance_sheet_total.png

Asian competition continues to be disinflationary on the goods and tradable services side, and newfound prudence from banks has prevented the funds from escaping into the real economy through loans. Quantitative Easing II (the last major money printing round) largely just enriched commodity traders.

My take is that we've had a hollowing out of the economy from the early 90s that was obscured by internet and housing bubbles. Take the bubbles away, and you get the economy of the early 1990s, only with a lot more workforce and a lot more debt. You can toss tons and tons of dollars in, but that doesn't change the fundamental bias towards deleveraging (paying off debt). Banks are beginning to offload their inventory of foreclosed property in earnest, so there's no tailwind from housing.

Also, as its not a normal inventory rebalancing based recession, but a financial/asset bubble collapse, different timescales apply. Normal recessions reduce inventory and resume growth in a couple of years. Credit bubbles take a lot longer to work themselves off. In Kondratieff's cycle, the "winter" generally lasts 17 to 20 years, until the generation that was scarred by the crisis is replaced.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/draghi/NWO%2014.jpg

the generation that was scarred by the crisis is replaced

ie the generation that was scarred by inflation in the 70s?

Also, most of my fellow bear forum travellers that have watched Ron Paul in every Humphrey-Hawkins congression testimony have known he's a nutter for ages. Some of the ideas are sound, in historical terms, but he's such a broken record there's no evidence of a mind behind the vitriol.

Um, the best recent book on Kondratieff may be the one by Michael Alexander, who ties it into Strauss and Howe generational analysis (the guys that gave us "Greatest Generation" and "Generation X").

My own grandfather, age 22 in 1929, abjured debt his entire life (I've inherited that). Its wasn't uncommon for those of his generation. It took about a generation, until 1948, until people started seeking credit for suburban homes and all the trimmings.

From 1992 to 2007, rare was the week in which I wasn't offered another credit card in the mail. A lot of peeps are paying for them, and student loans, and mortgages on credit bubble inflated property. Funds going to pay down debt are not spent, and don't contribute to GDP.

It isn't clear whether the Kondratieff peak should be 1999 (for financial assets) or 2006-7 (for household assets - mostly housing, and credit). The latter seems more compelling to me. Macroeconomics largely ignores mass psychology, and perhaps rightly so, as there aren't too many levers economists exert over it.

i have no debt

i also have no assets or money to speak of

if only i'd bought and sold before all this went down

My take is that we've had a hollowing out of the economy from the early 90s that was obscured by internet and housing bubbles. Take the bubbles away, and you get the economy of the early 1990s, only with a lot more workforce and a lot more debt.

This seems to me to be entirely correct.

The deflationary forces are very strong now, and attempts to pump money into the economy since 2009 have mostly fueled a variety of commodity bubbles, like gold. The Fed's asset acqusitions have been little more than shoveling free money into banks, without the slightest quid pro quo.

This kind of economy is when a more sensible government would be trying to finance a lot of public works and infrastructure modernization, just to get people working. Republican policies seem to be aimed at reestablishing a vast peasantry under the thumb of a tiny aristocracy. Their apres moi l'deluge sentiments are pretty frightening.

Don't know where to put this so:

Libertarians love neoclassical economics when it suits them. "People are rational utility-maximizers and we should trust them to make the right decisions." Then they turn around and blame poor people for their plight - lazy, stupid, uneducated, trapped in a "culture of poverty". They can't reconcile their assumption that people will make the right decisions for themselves with their assumption that the results of capitalism are not just Pareto-optimal but just.

I'm not just making an abstract point, you can find tons of example of microeconomic thinking (as much as I hate the Freakonomics guys, they have some good examples here) where the key to properly understanding a bizarre-looking situation is imagining "what if people are actually making the optimal decisions in this situation, based on the resources available to them?" But libertarians won't apply that thinking to the poor.

To play devil's advocate, some libertarians would probably argue that the poor are optimizing in response to a bad set of government policies (such as welfare) that reward laziness.

when you consider that libertarians tend to be privileged racists and replace "the poor" with "the non-white," their bullshit makes more 'sense'

Yeah both of you otm, although o. nate what triggered this for me was someone ridiculing an article about poor food options in rural areas with "what about the fact that these people are uneducated and have too many kids, eh? that's why they make poor food choices"

Yeah, I'm not saying that many libertarians aren't inconsistent in applying their assumptions. Personally I think the idea that welfare causes poverty is ludicrous.

anyone else reading/planning on reading thomas piketty's capital?

placed an order for my copy a little while ago

The reviews have been illuminating but it sounds like a bear of a book to actually read.

if i remember i'll report back

Sounds like it'd be worth a thread (I've been meaning to read it, but haven't got a copy yet).

i feel like it'd get very few posts

This Piketty book is kinda blowin up, huh --- got a scoff from Ross Douthat in the NYT last Sunday, plus a profile in the biz sec.

pik shit poppin, little shit scoffin

http://www.theguardian.com/commentisfree/2014/may/09/university-economics-teaching-lobotomy-non-mainstream

1% bristling at the suggestion it has an unfair economic advantage

The economic advantage of great wealth isn't unfair, because it exists. Its existence proves its right to exist. I have now used the word "right" and applied it to the advantages of great wealth, and what is right cannot simultaneously be unfair. QED. /think tank flack

Sobering history of the politics of inequality in the US by Eduardo Porter:

http://www.nytimes.com/2014/05/14/business/economy/the-politics-of-income-inequality.html?ref=business&_r=0

https://www.jacobinmag.com/2015/11/microcredit-muhammad-yunus-bono-clinton-foundation-global-poverty-entrepreneurial-charity/

hey can i get a quick read on this by an econ person

Not an economist and not qualified to talk about the bulk of his piece, but I did work at a nontraditional MFI for smallholder farmers. He completely ignores a billion subsistence farmers, who I (obviously) believe do benefit from properly structured microfinance programs. His arguments about Say's law don't apply here, because subsistence farmers have a pure supply problem (many are slowly starving.)

The rest of the piece might be right. Traditional microfinance hasn't been shown to increase incomes. Going directly to the poor rather than through corrupt governments is good, but just giving them money seems to be more effective. If microfinance detracts from fundamental reforms, that would be bad. Those reforms are never going to come from the outside, though.

Proof that I'm a neoliberal stooge: I used to sit in a cafe in Nairobi frequented by NGO workers and Chinese businessmen and wonder which group was having a more positive impact. (Kenya doesn't have natural resources to extract, so Chinese businesses there are just building roads, selling cheap high-quality farm equipment, etc.)

'detracts from fundamental reforms' seems so go-to for these guys that as an argument it ought to have a name

I feel like part of the problem with "microfinance" as a concept is that it's sort of like "charter school" -- it's a vague buzzword that doesn't actually tell you much about the actual structure of the specific thing in question, and which can be applied to a wide variety of different enterprises -- non-profit, for-profit, super-predatory for-profit, etc.

not really my field but my impression of the evidence is that since duflo and banerjee and their crew started looking at it people realized it's not as hot as first believed. like just poking through some nber wps

This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution (Spandana) while the remainder were not, although other MFIs were free to enter those slums. Fifteen to 18 months after Spandana began lending in treated areas, households were 8.8 percentage points more likely to have a microcredit loan. They were no more likely to start any new business, although they were more likely to start several at once, and they invested more in their existing businesses. There was no effect on average monthly expenditure per capita. Expenditure on durable goods increased in treated areas, while expenditures on "temptation goods" declined. Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts. Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end. We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women's empowerment. The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts.

http://www.nber.org/papers/w18950

Theory and evidence have raised concerns that microcredit does more harm than good, particularly when offered at high interest rates. We use a clustered randomized trial, and household surveys of eligible borrowers and their businesses, to estimate impacts from an expansion of group lending at 110% APR by the largest microlender in Mexico. Average effects on a rich set of outcomes measured 18-34 months postexpansion suggest no transformative impacts.

(http://www.nber.org/papers/w19827)

We use an RCT to analyze the impacts of microcredit. The study population consists of loan applicants who were marginally rejected by an MFI in Bosnia. A random subset of these were offered a loan. We provide evidence of higher self-employment, increases in inventory, a reduction in the incidence of wage work and an increase in the labor supply of 16-19 year olds in the household's business. We also present some evidence of increases in profits and a reduction in consumption and savings. There is no evidence that the program increased overall household income.

http://www.nber.org/papers/w18538

i think the problem is micro-credit creates a lot of very small unproductive firms. in poor countries there are ten people selling coca cola and water bottles on every block. what they need is big productive firms. i don't know why there aren't more of those. dani rodrik emphasizes coordination failures, other people emphasize weak property rights or extractive institutions. despite all the criticisms i think weakening credit constraints for poor people is really important, maybe the interest rates on these loans are just too high?

j. i think i told you i would get you some links about universal basic income the other week too? that actually prompted me to find some cool stuff. i've got to go to bed now but i'll bump that thread when i have a chance

this was a fun thread to read

curious whether lex has given up now or feels he has some knowledge.

currently reading this https://www.theguardian.com/books/2014/may/29/economics-the-users-guide-ha-joon-chang-review and really enjoying it

what econ bloggers should i read? there are too many

Noah Smith (blog and Bloomberg column)
Marginal Revolution
Chris Dillow

more growth/economic history/development focus:
Pseudoerasmus
Dietrick Vollrath

prob a bit 'advanced' (strict academic focus and assumes knowledge of economic theory) but my personal fav is

A Fine Theorem

oh also Mark Thoma basically runs a huge econ blog aggregator, updated daily

http://economistsview.typepad.com/

curious whether lex has given up now or feels he has some knowledge.

neither but i've stopped feeling shit about it i guess?