Monday, November 28, 2011

Nationalize the Fed!

Paul Krugman's wife, Robin Wells, came out with a piece arguing Occupy Wall Street's issues are something economists should address. I wonder whether she thinks biologists should all teach about creationism because so many students believe in some sort of transcendental spark to life. Probably not. I do think there should be classes on free markets vs. Keynesian debates led by different professors, because it's not like this issue isn't always there, but I don't think OWS has made this any more pressing.

That is, in graduate school we never had any formal presentations by professors as to why Keynesians/Supply Siders are right, even though eventually this is the question everyone wants to know from macroeconomists. It was as if they thought they could be above such practical questions, and focus like Tom Sargent on technical issues. This is naive, avoiding the elephant in the room. Such debates or presentations wouldn't generate nice problem sets, and they would often be talking past each other, but it would be good to get this in front of the 24 year-olds so they don't have to figure it out themselves reading between the lines. Further, it would highlight to the presenters what kinds of questions they need to answer, what sort of arguments are most compelling, to thoughtful young people who at that point just want to pick a side they think is winning.

I find the Occupy Wall Street movement profoundly pre-adolescent, like when my 4 year old daughter throws a tantrum with inconsistent or impossible demands (indeed, Miley Cyrus has a video supporting them). For example, they generally are proud of not having explicit objectives, being grass-roots and all, and so fundamentally do not understand that decisions will never, can never, reflect everyone's preferences. Some souls did create a wiki of beliefs, that are the best we can address of this movement, which includes things like 'balance' and 'protecting human rights' . It's easy to want such things, and such rights were in the Soviet Union's 1936 Constitution just after committing genocide against the Ukrainians and right before finishing off the remaining Kulaks (alas rights conflict, and you always have priorities). They act as if Rousseau's social will exists, that everyone shares some trans-human soul with a preference towards drum circles and organic legumes.

I got a kick out of these items from the OWS set of demands:

  • Transitioning the IMF and World Bank into transparent, publically owned and operated entities
  • Ending the Federal Reserve Bank and replacing it with an accountable, decentralized, transparent and publically owned financial system

  • These institutions were created by democratic governments, populated primarily by those on the left (my friends who went this route were all conventional Liberals). That they are considered insufficiently transparent and unaccountable highlights that reality never creates the social vision they seek, which is some sort of transparent consensus on matters of incredible technicality. You see the same thing with Noam Chomsky, were socialism always is to be encouraged, but any time it happens, as in the Soviet Union, the Eastern Bloc, or Cambodia, these aren't considered 'true' socialist countries (if only Trotsky won!). Their naive beliefs do not work because they aren't feasible, and so too the idea that large banks can be some big cookie jar for agreed-upon investments as opposed to being administered by professionals.


    Anonymous said...

    You're missing the point of the OWS movement. It's for everything. There are lots in that crowd that want to nationalize central banking authorities, but that's not everyone's viewpoint. It's not a completely youth movement. And not all youth support it.

    And that is why you actually shouldnt dismiss it and disparage it as you have done. The movement is crossing many generations and cultures. And that's why it's not just in New York. It's not just in the US. It's white people. It's black people, asian people, hispanic people.

    We have a system. It's not the best it can be. Actually, it's gotten worse. OWS raises the question why are things getting worse?

    Look at Occupy Oakland and the Occupy UC Davis. We pay thugs to shoot mentally ill people (Oakland). We are paying thugs 100k a year to pepper spray students (UC Davis). Then they get suspended with pay and get a pension they can retire on.

    You're right in the sense that it's pre-adolescent. Someone else is holding all the cards and all the populous can do is whine. That's kind of the point of the movement..... this is supposed to be a democracy. We the people are not 4 years old and other people are not supposed to be holding all the cards.

    Yes, Hitler, Stalin, and Mao were worse... Those kids would be killed in those governments. The point of the movement is to ask why our standards are so low.

    Anonymous said...

    Why does the top 0.1% get the amount of income and wealth that they do?

    Why do CEOs get big bonuses when they run their companies into the ground?

    Why is banking and finance a bigger proportion of the economy than 30 years ago?

    Why did banks lend so much leading up to 2007?

    These all sound like questions that economists should be addressing. I'm sure for most groups you can pick out silly statements and questions, and focus on those to make the whole group look silly. It's a pretty common method of non-debating. You're better than that.

    Neither the Soviet Union, nor Cambodia followed Noam Chomsky's ideas, or even had anything slightly in common with them, so why would they be evidence that his ideas don't work? You'd have more ground to stand on if you used the anarchists in Barcelona during the Spanish civil war as evidence that his ideas don't work. At least Barcelona had a passing resemblance to the sorts of things he favours.

    On a more general note, why not use Norway or Sweden as examples of socialist failure?

    B. A. said...

    guys, fwiw I agree with Eric on this one. what I don't like about the OWS movement is that they are not looking for answers (see the questions from the post before me - not really looking for answers, but implying they are obvious). protesters already have all the answers. to them it's all clear, it's good versus absolute evil. most of their answers are just ridiculously wrong though. things have become incredibly technical when it comes to finance, and the last thing the world needs is more ignorant people who think that the solutions for the mess we are in are slogans like "nationalize the fed" or "more regulation". the world needs more people who can understand the technical part. indignants and moralists are in no short supply.

    Eric Falkenstein said...

    I agree that CEOs of large public companies often get paid too much (Bob Nardelli, for example), but I think this comes out of the shareholders pocket, not the workers. I think they are in the best position to come up with solutions, in that they have the incentives and information.

    As per socialism being proven via the Scandinavian countries, this is really selective. Scandinavian in the US have even better demographics, so there's something about that tribe. But they are still 55% market economies, and there are lots of other data point, such as Venezuela, Kenya, Ghana, etc. where explicitly socialist government took over and ran the country into the ground. Then there are government administered programs like public housing, and public schools, which are problematic. You have to look at all the data, not just a handful of cases where where it seems to work, and control for everything else (eg, Swedish Americans are considerably wealthier than average Americans, and have much lower poverty rates). In these types of studies, at the margin, giving more control to government doesn't help.

    Mercury said...

    I doubt 99% of the "The 99%" could articulate a coherent case for ending The Fed but the fact is the Federal Reserve is currently totally out of control and way too powerful.

    If anyone would like to illustrate how (for instance) the policies of "Too Big To Fail" and (apparently) perpetual near-zero interest rates will eventually lead us to the sunny uplands of prosperity....go for it.

    That The Fed (or the unelected, unaccountable technocrats at the IMF) was created by a democratic government(s) is meaningless. Democracy all by itself is morally neutral and does not necessarily protect things like life, liberty and property.

    Mercury said...

    oops, I meant 1% of the 99%

    Anonymous said...

    Choosing Norway and Sweden is really selective, but so is choosing the Soviet Union and Cambodia. Picking any particular examples is selective. If the selection illustrates something, then it's useful to the discussion.

    Kenya and Ghana are far less socialist than any western country. Try being unemployed or old there and see what happens. Just because governments say they plan to do certain things doesn't mean that they actually do them. It has been common over the last 60 years for governments to claim to be socialist for popularity reasons. Many countries in the world are examples of that. Few are examples of socialism.

    From looking at many examples, it seems clear that countries that stop or severely restrict their citizens from trading with each other get into trouble, at least eventually. But it isn't clear that countries that provide social assistance and re-distribution of wealth necessarily get into trouble. Sometimes they do, and sometimes they don't. Countries that don't provide these also get into trouble sometimes (or just stay in trouble more likely).

    It's interesting that many people take the questions about CEOs, and the top 0.1% as rhetorical jealous complaints about rich people, rather than on face value as actual questions, which is what they are. I think that they are very interesting questions that go to the heart of the way our societies are arranged. To answer them you have to touch on hierarchical management structures, shareholder motivation, markets settling in many cases on a few providers (but not in other cases), and so on.

    Or maybe not. The answer might be that these people are super humans, 1000 times as productive as average, and the only way to get them to use their abilities for the good of mankind is to arrange for tens of millions of dollars to be put into their bank accounts every year, and due to their super humanness they are motivated by this when ordinary people would retire after the first 10 million. And the areas where society most benefits from the superior abilities happens to be banks, hedge funds, football teams and movies, not hospitals, factories, shops, or call centres. It's possible, isn't it?

    Dismissing the questions is just a way not to think. The questions are not rhetorical, they are questions.

    B. A. said...

    Thanks for giving the obvious answers :) My view is that high salaries and big income inequality are just a natural consequences of free trade. I have no idea who is entitled to earn how much, and on what basis. The concept itself is very hard to define, and we will never agree about it anyway. Don't see how it could be useful either. It's not about entitlements or fair rewards for skill or effort, and it shouldn't be. It's about people choosing freely, and sometimes wrongly, what they do with their money. I will choose, maybe wrongly (if there is such a thing), to watch a Tom Hanks movie, or buy somebody's new book, and many other people doing so will make that person extremely rich compared to a doctor. That's nobody's fault, and nobody else's business, as long as he doesn’t break any law. It doesn't mean that Tom Hanks is 1,000 times better than some other actor, or that many times more useful to society than a doctor. The same happens to fund managers and CEOs, where wrong choices are easier to define. But If you restrict the buyer's freedom to choose, or take away too much of the gains of the seller, all in the name of greater equality or some other social ideal, you will destroy the motivation for creating new wealth. I grew up in a communist country, seen it first hand.

    Anonymous said...

    Such is the schizophrenic nature of the world economic system that US Bank credit ratings are falling while the Dow is on a holiday tear. The system looks good on the outside, but it's hiding a cancer:

    zby said...

    You call it pre-adolescent - I call it playfull: Before demanding the new rules it is wise to play with the possibilities. Starting dead serious would only make people entrench their positions more.