“Arguments continue after hours for the fun of it. This is an important factor in the proofing of ideas: because it is only through a process of rigorous and prolonged argument - with people not sympathetic to your ideological bent - that ideas are refined and matured. Or, sometimes, revealed to be riddled with flaws. Whichever it is, it's a valuable process.”
Read it at The Age
Intellectual substance abuse
by Parnell McGuinness
Parnell begins the piece by noting an important revelation: “both the right and the left care about creating a healthier, happier, more prosperous society.” This recognition is often forgotten in policy debates, as each side attacks the other’s goals, not realizing that the true differences lie in the means by which that end is realized. An unfortunate consequence of the technology age has been to encourage sound-bit advocacy, discouraging lengthy public debates about why certain policies will or will not most effectively create a better society.
Within my personal life I generally try to fulfill the message in the quote from Parnell at the top of the page. Although my family and friends may at times be frustrated by my efforts, I often try to engage in arguments with those holding different ideologies. Occasionally I will even attempt to make an argument opposing my own ideology, if I believe it will encourage a more rigorous discussion of the ideas. The purpose of these actions is not to argue for the sake of arguing, but to ensure the ideas I pursue are the most logically sound.
At the heart of this article appears to be a belief in the natural selection of ideas similar to either Darwinian evolution or Schumpeter’s “creative destruction.” Parnell seemingly hopes to inspire think tanks to engage each other in greater public debate instead of focusing on advocating policies to fit a political bias. I think Parnell offers a great lesson about learning and hopefully think tanks will adhere to some of his suggestions going forward.
...from A JOB GUARANTEE IS NOT A “PRICE ANCHOR”, IT’S A “PRICE BUOY” by Cullen Roche, of Pragmatic Capitalism:“Modern
day economists seek the holy grail of macroeconomics which has come to
be price stability and full employment. These two features of modern
macro are held up on pedestals as if giving a person a job and a steady
wage is all one needs to live a happy and prosperous life. I say these
goals entirely miss the point and steal the potential lives that future
generations can live. What we should seek is the way in which we
maximize our living standards. In doing so we reach the true holy grail
of macroeconomics – the thing that every human seeks – the fountain of
youth, hence, more TIME. After all, it is only through increased
productivity, innovation, creativity and ultimately higher living standards that we are able to attain this (see here for more).”Over
the past few weeks, a heated debate has been raging among individuals
either subscribing to or interested in MMT (Modern Monetary Theory)
economics. The discussion is related to the notion of a federal Job
Guarantee (JG) to promote full employment, and in theory, price
stability. As Cullen points out, while these are noble goals, full
employment and price stability alone do not guarantee any sort of
prosperity. Democratic and Socialist governments at different points in
history have attempted and, for short-periods, even achieved full
employment with generally disappointing results in economic growth and
public support.Peter Cooper at heteconomist.com expands on Cullen’s view in Opposing Visions of the Future.
Apart from the JG, Peter considers a Basic Income Guarantee as a means
“to undermine capitalism, particularly the wage labor relation.”
- Fundamental and Mathematical Case for Structurally High Unemployment for a Decade
- Mish Shedlock exposes the declining labor force, despite population
growth, as the main reason for the falling unemployment rate.
- Bubbles and Beauty Contests – To What Extent is Keynes Relevant to Investors?
- Philip Pilkington uses one of Keynes’ best passages from the General
Theory to show how most investors’ fool themselves into poor decisions.
- Why I’m feeling strangely Austrian
- Gideon Rachman sheds light on some emerging trends in
political/economic ideology (rightwing populist, social
democratic-Keynesian, libertarian-Hayekian and
anti-capitalist/socialist).
- A slightly off-center perspective on monetary problems. Saving isn’t “setting money aside,” it’s BUILDING CAPITAL GOODS
- Scott Sumner deals with some misconceptions about the actual meaning
of saving as it relates to economics and economic statistics.
- European Identities Part II
- Francis Fukuyama describes the real EU crisis as a lack of European
identity. The relationship between people living in Kentucky and New
York is far different than that of Greeks and Germans. He mentions the
rise of populist governments as something troublesome to watch for in
the years ahead.
Pretty much everyone knows that the economic outlook for Greece has been poor for quite some time and getting worse. But who would have imagined that the Greek recession/depression would lead to a shortage of aspirin? Aspirin is cheap to produce and purchase, as well as easily transferable. Michael Munger of Duke University plainly describes how government price controls can lead to product shortages, even of aspirin.
Read it at Euvoluntary Exchange
Solve the Mystery! Why is There an Aspriin Shortage in Greece?
by Michael C. Munger
Note: Although some may regard this problem as specific to Greece (or Europe), Americans should recall that price controls (more popular in the 1960’s and 1970’s) led to gasoline shortages. While I wasn’t around back then, today it’s hard to fathom not being able to get gas from a gas station or aspirin from a drug store.
With countless others offering predictions for the year ahead, I thought I’d take a chance and throw my own projections into the ring. Similar to Byron Wien and Edward Harrison, I mostly selected events that are widely seen as having a low probability (less than 33%) but which I believe hold a greater than 50% chance of occurring.
1) Greece leaves the Euro - As the year progresses the Greek economy continues to contract and unemployment continues to rise, surpassing 50% for youth. This combination of factors offsets attempts to reduce the budget deficit as the country repeatedly misses EU and IMF required targets. Despite potential for further bailouts, the Greek people finally decide the consequences of tied promises outweigh the benefits of remaining in the Euro. Greece defaults on all debts, returning to a heavily depressed drachma.
2) Italy and Spain lose access to credit markets - A Greek default raises concerns about the potential for creditors to face actual losses on EU sovereign debt. The ECB’s measured efforts are not strong enough to overcome fear and concern about future growth in Italy and Spain. Deep recessions take hold in both countries, pushing deficits higher.
3) The Eurozone enters recession - Practically the entire Eurozone falls into recession, including the likes of France and Germany. A deteriorating economic outlook causes deficit estimates to be raised across the board, facilitating credit rating downgrades. Agreements for greater austerity fail to stem the tide and other attempts to kick the can down the road are pursued.
4) China’s GDP growth falls below 7% - As exports to Europe contract, the busting of China’s housing bubble continues unabated. Expectations for massive monetary easing in Europe and the US, along with fear of flare ups in the Middle East sets a floor under energy and food commodity prices. Monetary easing and fiscal stimulus in China are applied too slowly to prevent growth from slowing below the supposedly necessary 8%. (Note: This will be not be considered a hard-landing, which I deem growth below 5%. That may come in 2013, but for 2012 most economists/analysts will be able to maintain expectations of a soft-landing.)
5) Oil prices will spike above $120, finish year below $90 - (Using WTI crude prices, currently ~$102) At some point during the year Iran attempts to block the Strait of Hormuz. Further attempts to overthrown governments in the Middle East, possibly some that only recently gained power, hit the headlines again. Combined with global monetary easing, oil prices will move higher and gasoline will once again hit $4 per gallon in the US. These higher prices will exaggerate the reduction in global demand for other goods and push growth lower. As fears of a global recession take over, oil prices will fall, finishing the year down more than 10%.
6) US enters recession in 2nd half - Despite higher 4th quarter GDP in 2011, the lower savings rate and energy prices are unlikely to add much growth in 2012. With Europe contracting and China slowing down more than expected, US exports will take a hit. Extensions of the payroll tax cut and unemployment benefits will help ensure the federal deficit holds above 8%. Housing prices will continue to fall (based on Case-Shiller) causing the savings rate to once again reach 5%. By the end of 2012, the US will be in a recession (although NBER may not confirm this until 2013).
7) Federal Reserve extends forecasts for ~0% rates until 2015 - As growth in the US weakens once again and the global economy slows, expected inflation over the next ten years (based on Cleveland Fed estimates) will fall towards 1%. With unemployment holding steady around 9%, the Fed will move it’s forecasts for the first interest rate hike out to 2015. (Some form of QE3 is also likely, but aside from promoting short-term speculation, the effects on growth are likely to be muted.)
8) President Obama will win re-election - Generally a weakening economy has been poor for incumbents but this time will be seen as abnormal circumstances. The troubles in Europe and high unemployment will actually spark desire for a more interventionist government. Given the choice between Obama and Romney, the President will win re-election by a slim margin (2% or less).
9) The US dollar rises over 5% - (Based on dollar index) In spite of QE efforts and another sizable deficit, the US dollar retains its safe haven status. As fears of European defaults spread and China’s slowing growth impacts commodity prices, the dollar will continue to trend higher.
10) Bonds outperform stocks - The consensus once again favors stocks, although US Treasuries have now outperformed stocks over the past 1, 10 and 30 year horizons. With global growth slowing, inflation expectations will fall. Before this bull market in bonds ends, 10- and 30-year Treasuries may reach 1% and 2%, respectively.
For some potential investment themes based on these predictions, I suggest taking a look at Gary Shilling’s 2012 Investment Themes.
