Re: New York Times on Scarcity
Title: RE: [PEN-L] New York Times on Scarcity Do the increases in some price indexes in the last couple of months represent a trend change from a disinflationary to an inflationary period? Michael was inclined to think so, asking us to contemplate the possibility of stagflation. Falling unit labor costs are the major reason to disagree with Michael. But Michael retorts that the danger of stagflation arises from rising commodity prices, even though manufacturing costs are falling. Michael seems to be impervious to explanations of the commodity price increases as the result of speculative bubbles, preferring instead to interpret them as symptoms that "ultimate scarcity looms." But Michael, you then use clean water to illustrate the point about ultimate scarcity. This takes us a long way from commodity price increases. Surely, I can agree with you about this type of ultimate scarcity looming and you could agree with me that there is not yet a good reason to think that the first quarter of 2004 marks a trend change from a disinflationary to an inflationary period? As usual on pen-l, Jim's comments are the final word, in this case on how externalities/socialization of production can cause over-expansion which, in turn, can lead "to rising materials prices even if there is no ultimate problem of scarcity or a shortage of substitutes." But Jim you've not revealed your opinion about the issue of disinflation/inflation. Are we to infer that your analysis of externalites/socialization of production is meant to explain why the recent increases in the price indexes represent a trend change? Tom -Original Message- From: Michael Perelman [mailto:[EMAIL PROTECTED]] Sent: Monday, May 03, 2004 5:32 PM To: [EMAIL PROTECTED] Subject: Re: [PEN-L] New York Times on Scarcity Tom suggests that some backstop technology might exist to take care of scarcity. The most common story is that whale oil became scarce so we switched to oil. I discussed this in my Perverse Economy. Part of the problem is that our efforts to overcome one scarcity bring up new ones. Maybe nuclear power can supplant oil -- I hope not, but water is much more difficult. Yes, plenty of conservation measures are possible, but ultimate scarcity looms. Besides we are pouring pollutants into our water like mad. We have discussed the Mark Jones thread over and over, so I would not want to reignite it, but water is much more difficult. I have some more to send on water later.
Re: New York Times on Scarcity
Title: RE: [PEN-L] New York Times on Scarcity Your speculation assumes the long-run price inelasticity of supply of nonrenewable resources (or of close substitutes). Thus far at least, history is against you. For example, what about the paradigmatic case you've cited in the past against your current concerns--namely, the importance of whale oil to 19th-century capitalism? I continue to suspect that the "resource inflation" you cite is more a product of short-term financial factors resulting from low interest rates than of long-term real factors like the price inelasticity of supply schedules. But for the sake of argument, assume you're right. Then wouldn't an enlightened bourgeoisie prefer higher interest rates to bring aggregate demand into line with the constraints on aggregate supply, rather than having to finance even more foreign adventures? Edwin (Tom) Dickens -Original Message- From: Michael Perelman [mailto:[EMAIL PROTECTED]] I am still struck by the resource inflation ahead along with falling manufacturing costs. If these two trends continue, could we see a reversal of the terms of trade between developed and less developed economies? If so, will we see a more muscular imperialism? Just speculating.
Re: mixed economic signals
Title: RE: [PEN-L] mixed economic signals -Original Message- From: Sabri Oncu [mailto:[EMAIL PROTECTED]] Sent: Tuesday, April 20, 2004 8:26 PM To: [EMAIL PROTECTED] Subject: Re: [PEN-L] mixed economic signals Sabri Oncu writes: I read that "noise traders" paper by Summers et al. It is just one possible explanation and although there are some "noise traders" out there, there are other as well. My response: I was not referring to any particular paper. I was referring to the increasingly common use of the term "noise traders" as a designation of all market participants not acting in accordance with economic fundamentals. I think the locus classicus of the term is a paper by Fisher Black, but I'm not an historian of financial economics. Sabri Oncu writes: Here is one more theory: "Rational irrationality" or "irrational rationality". Put differently, it is not just "noise traders" who drive the bubbles. I think "heuristics and biases" and/or "bounded rationality" also play some role in this. My response: These phenomena are denoted by the term "noise traders," as it is currently used in the economics literature Sabri Oncu writes: I remember a very smart friend who believed that the technology stocks would go up forever and, when I had been waiting for the burst of the stock market bubble in 1999, thought I was crazy. My response: So your friend turned out to be right, no? The investors that resisted the increasingly shrill concerns in 1999 about speculative bubbles, and hung in through January 2000, were the big winners, right? On Wall Street, timing is everything. Sabri Oncu writes: I am more of a "believer" of systemic imbalances than "noise traders". My response: There is no contradiction here. I am a "believer" in the existence of both systemic imbalances and noise traders. Sabri Oncu writes: After all, money/credit is created when one party takes the long and the other takes the short position. My response: This seems to conflate long and short positions with buyers and sellers, two very different phenomena. There need not be a short position offsetting every long position, or vice versa. The important issue, for the original discussion that prompted my interest at any rate, is the leverage which may underlie long and short positions. And insofar as raising short term real interest rates is concerned, the danger is blowing up highly leveraged long positions. Sabir Oncu writes: And sooner or later, whether the long or the short party finds themselves in debt, that is, whoever turns out to be the debtor, the debtor will screw up. My response: Both long and short positions are leveraged. Could you explain what you mean by the notion that sooner or later the debtor will screw up. This seems to fly in the face of how a capitalist economy works--the "too big to fail" doctrine is a case in point. Sabri Oncu writes: And when that happens, money will destroyed. My response: Why? It seems to me that debtors screw up all the time without destroying money. Indeed, it is often the bail outs of debtors that screw up that leads to the creation of money. Sabri Oncu writes: Unlike matter, that can neither be destroyed nor created, money can be both destroyed and created, in other words. As a Turkish saying goes, "No matter where you go, I am behind you." My response: Could you explain what you mean here? I'm having a hard time following you, but maybe that's because I don't know how the Turkish saying is supposed to shed light on the issues at hand. Sabri Oncu writes: So, I my view, neither positive nor negative real short-term interest rates are sustainable, in the long run, that is. My response: In the long run, real interest rates equal the rate of profit. Your statement is thus equivalent to saying that, in the long run, the rate of profit must equal zero. Sounds like textbook microeconomics to me, but maybe you mean something different.
Re:
-Original Message- From: Devine, James [mailto:[EMAIL PROTECTED] Sent: Tuesday, April 20, 2004 7:21 PM To: [EMAIL PROTECTED] Subject: Re: [PEN-L] >If the Fed doesn't see it that way, it seems unlikely that it will succeed (except by accident). The >Fed, of course, denies that there's a housing bubble. I don't know about their attitude toward >commodity markets. I wouldn't hazard a guess about the Fed's chances of success, given the unprecedented nature of the current situation. The last time interest rates were this low, the derivatives markets, hedge funds, even mutual funds and the foreign exchange markets were negligible, as compared with today. All of which means the leverage is enormous. Long Term Capital Management gave us some sense of how enormous. In 1998, it leveraged less than $10 million of capital into a market position with a notional value of $1.25 trillion. At the same time, if the past is any guide, the Fed will be extremely sensitive to consensus opinion on Wall Street. The NY Fed always sees things the way Wall Street does, and Greenspan has not yet allowed any space to open between his opinions and those of the NY Fed.
[no subject]
>it's unclear that the economy can sustain positive real short-term interest >rates.
I was thinking of Jim's assertion that there are speculative bubbles in some real estate markets, and my suggestion that the same might be true in some commodity markets. A speculative bubble exists whenever a market is dominated by investors ("noise traders" in the economics literature) with short time horizons who have taken highly leveraged long positions. Real positive short-term interest rates would force noise traders to unwind their positions. The Fed's task, when it decides to raise interest rates, will be to goad noise traders into unwinding their long positions gradually, as opposed to the more likely panicked stampede for the exits. An apt metaphor is trying to let some air out of a balloon without either popping or deflating it.
Edwin (Tom) Dickens
[pen-l] mixed economic signals
Title: [pen-l] mixed economic signals Scrap metal and other raw material prices top my list of resource costs that may raise the spectre of inflation. But much the same argument used to argue for a real estate bubble can be used to argue for commodity price bubbles, no? If so, then the risk of disinflation still outweighs the risk of inflation, in the sense that it's unclear that the economy can sustain positive real short-term interest rates. It's the free money, in real terms, that feeds the "carry trade" underlying the run-up in commodity prices. >I'm not as sure as you about the certainty of closeting inflation. If >you mean manufacturing costs, there certainly declining. If you include >resource costs, then the uncertainty creeps in. Water -- most of the >West is suffering from drought -- petroleum, some agricultural >commodities. Petroleum is the only part that has the potential to spike >in the very near future, but Prince Bandar may see that nothing occurs >until after the election.
Re: mixed economic signals
Title: RE: [PEN-L] mixed economic signals On Saturday, April 17, 2004 2:11 PM, Michael Perelman wrote: >Will we have to take stagflation out of the closet again? I think it's safe to keep our inflationary expectations in the closet. Even with skepticism about recent productivity gains (and thus with falling unit labor costs), it still seems unlikely that monthly rises in consumer price indexes translate into a sustainable rate of increase in say, the GDP deflator, unless they are built into the wage structure (which is not happening). We may just be seeing a lot of hype by fractions of capital that want to force the Fed's hand before the election. It may be that a campaign for higher interest rates is being put forward by the NY Times, the IMF and fellow travelers as a standard around which the international section of the bourgeoisie can rally and use to re-assert itself. No doubt US-based financial capital is also weary of a falling dollar. Edwin (Tom) Dickens
[PEN-L:4237] job opportunity
One-Year Sabbatical Replacement Position in Economics Drew University, Madison, NJ The Department of Economics at Drew University is inviting applications for a one-year sabbatical replacement position for the 1999-2000 academic year. Our primary fields of interest are economic development and comparative systems. The teaching load is two courses in the fall and three courses in the spring. Teaching responsibilities will include a course in economic development and comparative systems or a course on a specific region of the world, a course on race, class and gender, and possibly two principles of macroeconomics courses. Our highest prioritiy is excellence in teaching, so we are searching for candidates with teaching experience. We would prefer hiring a candidate with a Ph.D., but candidates who are A.B.D. will also be considered. Please send a curriculum vitae, evidence of teaching effectiveness, and three letters of recommendation to Prof. Dorene Isenberg Chair of Search Committee Department of Economics Drew University 36 Madison Avenue Madison, NJ 07940 Review of applications will begin immediately and will continue until the position is filled. Drew University is an equal opportunity/affirmative action employer.
[PEN-L:1228] grad programs
Duncan Foley has accepted an endowed chair in the NS Economics Department. Will Milburg is the new Department Chair. Edwin Dickens
[PEN-L:12092] Re: Greenspan ...
Jim D. points out that overnight lending allows banks to get around holding excess reserves. If banks charge a "fee" for the service of placing corporate funds in, say, T-bills or commercial paper, rather than "interest" for deposits, then there are no reserve requirements, right? This is the "regulatory issue" right now. But I was much more interested in the apparent drift of thinking on this list away from Post Keynesian monetary theory. If anybody would address that issue, I'd appreciate it. Thanks for missing me, Max! Edwin Dickens
[PEN-L:12071] Re: Greenspan on Govt. Intervention in Markets
Picking up on Doug H.'s reference to Minsky, when Max S. calls Tom W. to the right of Friedman, it raises an important problem for radical political economists: our relationship to Post Keynesianism. For Post Keynesians, the principal function of central banks is to prevent debt-deflations by acting as lender of last resort. Max: why aren't lender of last resort interventions like dropping a big bag of money on ailing institutions? If the point is to help labor, let the private-sector institutions fail and set up public-sector alternatives to drop big bags of money on labor. Monetarists and New Classicals reject Post Keynesianism on the grounds that having a lender of last resort causes speculative excesses (due to moral hazard). In some versions, having a lender of last resort is even the major cause of the modern business cycle. The solution is, therefore, Free Banking or at least a legally binding constraint on the rate of growth of the stock of money. What is the Marxian position? Radical political economists have tended to try and build upon the Post Keynesians. But Tom W.'s comments suggest that maybe we're beginning to move beyond that. Apparently, banks are now using overnight investments to get around the last vestiges of reserve requirements. I'd be interested in knowing what rules Jim D. thinks the Fed imposes on banks, except for the ones that help them hold their cartel together. Even Monetarists and their fellow travelers think that the benefits of central banks to private banks (e.g. insurance against bankruptcy, no matter how risky their investments) far outweigh whatever costs are imposed. Edwin Dickens
[PEN-L:10704] Re: Catalysts
Michael Perelman wrote: >...wartime finance started to hurt the stock market. When? For how long? Edwin Dickens
[PEN-L:9426] Re: text book hell
Another possibility, Michael, is The Pathology Of The US Economy, by Michael Perelman. Edwin Dickens
[PEN-L:9112] Re: M-I: Meszaros
Doug, As a contretemps to the current concerns on Pen-l with people reviewing materials they have highly publicized biases against, can you explain why you would rather read a PoMo icon like Foucault rather than a book apparently grounded in Marx (e.g., Foucault never quotes the Grundrisse). I'm looking for what an old dinosaur like you is finding of value in Foucault. Edwin Dickens
[PEN-L:8859] RE: request for help with sources - 1
Does anyone know how to contact David P. Ellerman? Thanks in advance, Edwin Dickens
[PEN-L:8820] RE: query: Keynes quote: "euthanasia of the rentier"?
Robert Naiman asks: >Does anyone have the quote and cite where Keynes talked about >the "euthanasia of the rentier? "Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital" (Keynes, 1964: 375-376)
[PEN-L:8263] RE: Interest rates
Trevor Evans believes that Marx's theory of the interest rate is more or less "complete." As an example of what this means, Trevor points to Marx's rejection of a natural rate of interest. Trevor then speculates that Marx might have a loanable funds type theory of interest rate determination that would support a crowding out argument. Trevor, crowding out implies a natural rate theory of interest rate determination in the sense that it assumes that the level of the interest rate is determined in the long run by real factors alone--the essence of natural rate doctrine. So much for completeness. Trevor suggests that I reduce Marx's theory to a question of the relative strengths of industrial and financial capital. Someone called attention to Van der Pijl's excellent work in this area. I would be most interested in how they think Van der Pijl's work applies to interest rate determination. But I don't think Marx argued that the relative strengths of financial and industrial capital would determine the interest rate. It is hardly profound to point out that people who lend money want a high interest rate while people who borrow money want a low interst rate. To reduce Marx's theorizing to such nostrums is embarrassing. I argued that Marx had intuitions about the determinants of the interest rate that did not pane out when he applied his dialectical method to them. Rather than trying to construct a complete theory from the shards of Marx's tentative efforts, which is the dominant tendency in the extant literature, we are better served by examining why Marx broke off his analyses at the points where he did, what new points of departure he tried, where his results were taking him, and why research in this area kept dropping further and further down Marx's list of priorities. My point still stands whether or not one interprets Marx's book on the state as the capstone of his economic writings. But insofar as I'm concerned, the lack of well-developed links between his economic writings and his political writings is the fundamental lacunae in Marx's oeuvre. And to my mind the theory of interest rate determination is crucial to filling in that lacunae. Edwin Dickens
[PEN-L:8263] RE: Interest rates
Trevor Evans believes that Marx's theory of the interest rate is more or less "complete." As an example of what this means, Trevor points to Marx's rejection of a natural rate of interest. Trevor then speculates that Marx might have a loanable funds type theory of interest rate determination that would support a crowding out argument. Trevor, crowding out implies a natural rate theory of interest rate determination in the sense that it assumes that the level of the interest rate is determined in the long run by real factors alone--the essence of natural rate doctrine. So much for completeness. Trevor suggests that I reduce Marx's theory to a question of the relative strengths of industrial and financial capital. Someone called attention to Van der Pijl's excellent work in this area. I would be most interested in how they think Van der Pijl's work applies to interest rate determination. But I don't think Marx argued that the relative strengths of financial and industrial capital would determine the interest rate. It is hardly profound to point out that people who lend money want a high interest rate while people who borrow money want a low interst rate. To reduce Marx's theorizing to such nostrums is embarrassing. I argued that Marx had intuitions about the determinants of the interest rate that did not pane out when he applied his dialectical method to them. Rather than trying to construct a complete theory from the shards of Marx's tentative efforts, which is the dominant tendency in the extant literature, we are better served by examining why Marx broke off his analyses at the points where he did, what new points of departure he tried, where his results were taking him, and why research in this area kept dropping further and further down Marx's list of priorities. My point still stands whether or not one interprets Marx's book on the state as the capstone of his economic writings. But insofar as I'm concerned, the lack of well-developed links between his economic writings and his political writings is the fundamental lacunae in Marx's oeuvre. And to my mind the theory of interest rate determination is crucial to filling in that lacunae. Edwin Dickens
[PEN-L:8207] RE: Marx on interest rates
Doug Henwood writes: >Well, Tom, what do you think Marx's theory of interest rate >determination was? I think there is a good reason why Marx did not have a complete theory of the interest rate--namely, Marx's initial results prompted him to postpone further consideration of the issue until he got to his planned book on the state. Marx initially believed that the interest rate would link the dialectical movement underlying the contradictions of the commodity, money and capital to their concrete manifestation in financial crises. But when he applied his dialectical method to the interest rate, Marx discovered that he could only determine the maximum, not the average, interest rate. Many commentators have read a lot into this discovery, e.g., arguing that it implies that the rate of profit determines the rate of interest. But the fact that the rate of interest cannot exceed the rate of profit in the long run is a commonplace in finance textbooks with little theoretical or practical import. It can't even distinguish Marx's theory from talk around the watercooler on Wall Street. After abandoning his initial efforts at determining the interest rate, Marx looked for its determinates in the factors mentioned by Trevor Evans, and eventually came upon the closed doors of the Bank of England. As soon as the trail led to the state, the research project fell down Marx's list of priorities. For Marx understood his book on the state to come at the end, and be the capstone, of his economic studies. Jim Devine writes: >Trevor's reading makes sense here: X would be determined >by (a) the amount of surplus-value extracted by industrial >capital that is available to be distributed between industrial >and banking capitalists and (b) the (conjunctural) >institutional balance of power between these two fractions of >capital. Then deviation (i) would be determined by day-to-day or >month-to-month changes in the demand for and supply of money >capital. When "supply = demand," (a) and (b) determine the >interest rate. I've addressed (a) above. And I've got problems with Jim's reading of Marx concerning (b) as well. We can determine the price of production of, say, shoes independently of fluctuations in the demand for and the supply of shoes. Therefore, it makes sense to say that the interaction of demand and supply cause the price of shoes to fluctuate around their price of production. But this is not true in the case of money capital. For example, one of Doug Henwood's pet peeves at the moment is how the state strengthens financial capitalists, by running budget deficits and thus increasing the demand for money capital, rather than taxing them. Take the cases of a rising average interest rate in the early 1980s and a falling average interest rate in the early 1990s. If Jim Devine's rendition of Marx's theory is correct, we must conclude that financial capital was growing in strength relative to industrial capital in the early 1980s, and vice versa in the early 1990s. I'm skeptical, but open to anyone who wants to try and resolve the issue by constructing an index of the relative strengths of financial and industrial capital. Edwin Dickens
[PEN-L:8207] RE: Marx on interest rates
Doug Henwood writes: >Well, Tom, what do you think Marx's theory of interest rate >determination was? I think there is a good reason why Marx did not have a complete theory of the interest rate--namely, Marx's initial results prompted him to postpone further consideration of the issue until he got to his planned book on the state. Marx initially believed that the interest rate would link the dialectical movement underlying the contradictions of the commodity, money and capital to their concrete manifestation in financial crises. But when he applied his dialectical method to the interest rate, Marx discovered that he could only determine the maximum, not the average, interest rate. Many commentators have read a lot into this discovery, e.g., arguing that it implies that the rate of profit determines the rate of interest. But the fact that the rate of interest cannot exceed the rate of profit in the long run is a commonplace in finance textbooks with little theoretical or practical import. It can't even distinguish Marx's theory from talk around the watercooler on Wall Street. After abandoning his initial efforts at determining the interest rate, Marx looked for its determinates in the factors mentioned by Trevor Evans, and eventually came upon the closed doors of the Bank of England. As soon as the trail led to the state, the research project fell down Marx's list of priorities. For Marx understood his book on the state to come at the end, and be the capstone, of his economic studies. Jim Devine writes: >Trevor's reading makes sense here: X would be determined >by (a) the amount of surplus-value extracted by industrial >capital that is available to be distributed between industrial >and banking capitalists and (b) the (conjunctural) >institutional balance of power between these two fractions of >capital. Then deviation (i) would be determined by day-to-day or >month-to-month changes in the demand for and supply of money >capital. When "supply = demand," (a) and (b) determine the >interest rate. I've addressed (a) above. And I've got problems with Jim's reading of Marx concerning (b) as well. We can determine the price of production of, say, shoes independently of fluctuations in the demand for and the supply of shoes. Therefore, it makes sense to say that the interaction of demand and supply cause the price of shoes to fluctuate around their price of production. But this is not true in the case of money capital. For example, one of Doug Henwood's pet peeves at the moment is how the state strengthens financial capitalists, by running budget deficits and thus increasing the demand for money capital, rather than taxing them. Take the cases of a rising average interest rate in the early 1980s and a falling average interest rate in the early 1990s. If Jim Devine's rendition of Marx's theory is correct, we must conclude that financial capital was growing in strength relative to industrial capital in the early 1980s, and vice versa in the early 1990s. I'm skeptical, but open to anyone who wants to try and resolve the issue by constructing an index of the relative strengths of financial and industrial capital. Edwin Dickens
[PEN-L:8170] RE: Marx on interest rates
We now know how to determine important fragments from unimportant ones: Their length and the number of times Marx broke off in mid-sentence because his train of thought had shifted to some other topic. We are dealing, for the most part, with stream of consciousness writing. Given the number of published versions of, say, the dialectical movement from commodity to money to capital, Gil Skillman's criteria seem arbitrary. For there can be no doubt that the passages in question would have been re-worked dozens of times before Marx would have been satisfied with them. In answer to my question about the determinants of the average level of the interest rate, Gil Skillman writes that, for Marx, "there is no law of distribution other than that dictated by competition...what is to be determined is something inherently lawless and arbitrary." All Marx meant here was that the labor theory of value does not determine the average level of the interest rate in the same way that it determines wages, profits and relative prices in general. I should think that this should make Gil Skillman happy since he is no fan of the labor theory of value anyway. But quoting these passages only begs the question of the determinants of the average level of the interest rate...unless, of course, Gil Skillman chooses to interpret Marx's statements above as implying that no further analysis is possible, rather than as implying that the analysis will not take its point of departure from the labor theory of value and may, perhaps, feedback on and have repercussions for the levels of wages, profits and relative prices as determined by the labor theory of value. This was Engel's interpretation. But, of course, Engels was taking seriously Marx's continuation of the analysis in passages that are, according to Gil Skillman, unimportant. Edwin Dickens
[PEN-L:8167] RE: Marx on interest rates
Trevor Evans now appears to hold the position that, for Marx, the market interest rate fluctuates around an average level which is determined by, "amongst other things, . the relative strength of industrial capital and financial capital, institutional factors and even convention." Can we thus conclude that Trevor Evans has retreated from his earlier position that "the interest rate is determined by the relative balance of supply and demand in the market for money capital"? Gil Skillman has provided us with "the key passage" concerning this issue. I like that. Whan sifting through a mass of fragments that Engels admitted to not knowing how to make sense of, how does Gil Skillman identify the key passages? And how do we interpret these key passages? That is to say, according to your reading Gil, when supply and demand are equal, what factors determine the (average) level of the interest rate? Edwin Dickens
[PEN-L:8152] RE: Fiscal deficits and interest rates
Trevor Evans wrote: >And yet...Marx and Keynes both argued that the interest rate >is determined by the relative balance of supply and demand >in the market for money capital. Where did they do that? Edwin Dickens
[PEN-L:7749] RE: Cost of Job Loss query
Eric Nilsson writes: >I've wondered if Fed policy could be shown to respond to changes >in CJL. Is this what your're thinking about? You've got it. (Sorry, Bill Mitchell, some of us do care about Fed policy. When's the next non-US day?) I'm sure the "crude estimates" you would make of the CJL would be no more heroic than the ones underlying the other variables in such a reaction function. Edwin Dickens
[PEN-L:7745] RE: Cost of Job Loss query
Eric, Can you calculate the cost of job loss series on a quarterly basis? Edwin Dickens
