The PIIGS still fly

[FrankL]

Re: The PIIGS still fly

As a spaniard living in Madrid, I would like to tell you that a lot of news concerning Catalonia appeared outside Spain are fake news. The secession of Catalonia from Spain is not different from what would be the secession of Texas from the rest of the USA. Something totally illegal and against the Constitution of the country. 10% of the catalan government are some kind of terrorists (the CUP), and the rest of the catalan government are more or less hostages to these people. It is not impossible that there is a small war in Catalonia, won by Spain obviously, but with a lot of pain that will take decades to heal. I don't desire this outcome but nobody has asked me what I want.

As you surely know, it is very easy to misinform people who are not living in the country, and the catalan government has been misinforming foreign media for a long time.

Maybe I'm naive, but shouldn't the question of independence primarily be the result of self-determination of a nation and its people, rather than letting it be decided by whoever rules over them?
A vote would show if there's support from a majority of citizen, or whether it's truly the 'terrorist 10% of Catalan government'. The fact that the Spanish government/constitution made this vote illegal doesn't really mean much when seeking independence, other than a facade by the central government for the unwillingness to learn how strong the will for independence really is.

As a Spaniard, maybe you should imagine Gibraltarians wanting to vote for independence from the UK, and the UK saying that they cannot keep a vote as it is against their law. Not that the UK would do such a thing, as they do let their citizen vote about these type of questions...

[Alvaro Spain]

Re: The PIIGS still fly

So now with the AfD results in Germany and the Catalonia vote upcoming -- are these merely speedbumps or potential sinkholes?

Haven't been on the site in some time -- interesting to see many of the old names still battling it out. :-)

As a spaniard living in Madrid, I would like to tell you that a lot of news concerning Catalonia appeared outside Spain are fake news. The secession of Catalonia from Spain is not different from what would be the secession of Texas from the rest of the USA. Something totally illegal and against the Constitution of the country. 10% of the catalan government are some kind of terrorists (the CUP), and the rest of the catalan government are more or less hostages to these people. It is not impossible that there is a small war in Catalonia, won by Spain obviously, but with a lot of pain that will take decades to heal. I don't desire this outcome but nobody has asked me what I want.

As you surely know, it is very easy to misinform people who are not living in the country, and the catalan government has been misinforming foreign media for a long time.

[dcarrigg]

Re: The PIIGS still fly

So now with the AfD results in Germany and the Catalonia vote upcoming -- are these merely speedbumps or potential sinkholes?

Haven't been on the site in some time -- interesting to see many of the old names still battling it out. :-)

If history is a guide, this doesn't bode well.

AfD is a new far-right party that showed up and pulled 13% with the leading party pulling in 33%.

Remember what happened the last time a new far-right party showed up in Germany and pulled 18% with the leading party pulling in 25%?

History rhymes, it doesn't repeat.

But the far-right is back. Big time. And, historically, they don't wait to capture 51% of the vote. They take power.

[jpatter666]

Re: The PIIGS still fly

So now with the AfD results in Germany and the Catalonia vote upcoming -- are these merely speedbumps or potential sinkholes?

Haven't been on the site in some time -- interesting to see many of the old names still battling it out. :-)

[vt]

Re: The PIIGS still fly

No problem DC. I do appreciate your well thought out and lucid views, and learn from them.

[thriftyandboringinohio]

Re: The PIIGS still fly

Why thanks dc.
No offense taken at all sir, and the kind words are most appreciated.

[dcarrigg]

Re: The PIIGS still fly

Hey thrifty:

Sorry if I came off terse in this one too. Seems like I was heated on the topic back then for some reason or other. Just wanted to say hi and be a bit more charitable with my words. VT, if you're reading this, I owe you one too!

Best,
-DC

[dcarrigg]

Re: The PIIGS still fly

dc, i think i understand your argument but i also like the maxim that all models are wrong, but some are useful. the broader movements in the price of oil [not the day to day noise], for example, are illuminated by looking at both supply and demand factors.

Sorry I dropped off this. Been very busy. I don't disagree at all here, jk. And gnk, I'm having fun with this too, just prodding folks to think a bit--or else trying to.

JK, I think my answer to this was actually at the end of my last post:

None of that says that the old grandfather's explanation wasn't useful for selecting a harvest time or was some theory that didn't work under very specific conditions. But when you try to generalize it out over time and space, it falls apart. Still, it's not a terrible thought experiment, and maybe a more comforting explanation than nothing. So goes 'market equilibrium."

Even if you don't know those stars are giant balls of hydrogen etc. undergoing nuclear fusion light-years away, and you think they're holes in a geocentric firmament, you can still track the holes to figure out when to plant and when to harvest. Just because a theory is wrong does not mean it's not useful. In fact, the theories that tend to ossify into faiths and provoke the most rage when questioned are usually those that are useful more often than not.

[jk]

Re: The PIIGS still fly

dc, i think i understand your argument but i also like the maxim that all models are wrong, but some are useful. the broader movements in the price of oil [not the day to day noise], for example, are illuminated by looking at both supply and demand factors.

[dcarrigg]

Re: The PIIGS still fly

i can't say i can follow that reference very well, dc; i don't have the proper education.

but i do know that minsky brought the behavioral, the human, back into economics. the "magic of the market" depends on its participants not being humans, with humans' well-known [by now] behavioral tics and biases. humans are subject to moods and the madness of crowds. they are overly confident and then overly frightened. none of those things fit into the "free markets" theory of how the world works.

warren buffett is the only super-rich person of whom i'm aware who made his money by investing, as opposed to capitalizing an entrepreneurial enterprise. and buffett talks of all his trades being conducted with the manic-depressive "mr. market" ecstatic and free-spending some of the time, bidding up prices, and morose and avoidant at other times, selling cheap. "mr. market" does not fit into anyone's ideal of "free markets." mr. market is the emergent phenomenon of humans' herding instincts, and humans' emotions. and mr. market's mood swings end up hurting a lot of people.

the practical question before us is whether we are heading for another minsky moment any time soon. it sure seems like we've been in the realm of ponzi finance for some time. the levels of debt and off-balance sheet liabilities are unpayable. you don't get more ponzi than that.

The problem is simple, and doesn't take very much education to understand. Sometimes parables help. So I'll try to whip up a simple one.

A young boy looked up at the night sky and was fascinated with what he saw. He went to his wise old grandfather and asked, "What are the lights in the sky?" The grandfather responded, "They are holes in the firmament, the great dome that keeps all the light of the heavens from splashing down upon us like a tidal wave." The young boy thought for a minute and said, "Well, what of the moving lights. Surely holes cannot move upon a fixed dome!" The grandfather responded, "Silly boy, the moving lights are gods, traversing the firmament as they see fit. The gods appear and disappear with the seasons, travel to and fro, and remind us of times to plant and harvest and times to give sacrifice! They bring the rains and the heat and the cold and the snow! Through them all nature draws strength!" And this, to the young boy, seemed a complete answer. Much better than if his old grandfather had said, "I don't know." And he learned that the forces of the gods were very real. So real he knew when the evening star set it was time to lay to rest, and when the large one returned in the evening it would be two moons until the harvest. And this was the way of nature, the force of the gods as real as the damp of the rain or the heat of the sun. Give sacrifice to them and heed their rhythm and the harvest would be good and plentiful. Deny them and act in ways discordant to their will and there may be suffering, drought and famine. And he taught his children likewise all he had learned. And they each cursed the gods on the day they starvation came to their village regardless.

The problem even with behavioral economics is that it is asking the wrong question again. Kahneman and Tversky are brilliant. But all prospect theory showed was predictable, replicable ways human action does not comport with market criteria. The real question should be why the hell was anyone surprised by this in the first place, given the terrible track record of markets predicting prices--the most basic thing they are supposed to do?

It's as if you found out that the stars are not static...that indeed all of them move...and that the ones that move a lot are planets...and that they do not show up on a long time scale in rhythm with the earth's revolution as they appear to on a short time scale. But the thing you took away from that was that the firmament is still fixed, these stars are just behaving wrong, and the solution to the problem of your theory not matching your observations is to sacrifice 100 goats and 100 virgins until the lights are fixed in the firmament again.

But you just can't give it up because you know The Market, like The Firmament, is real and natural and not to be trifled with...

None of that says that the old grandfather's explanation wasn't useful for selecting a harvest time or was some theory that didn't work under very specific conditions. But when you try to generalize it out over time and space, it falls apart. Still, it's not a terrible thought experiment, and maybe a more comforting explanation than nothing. So goes 'market equilibrium."

[jk]

Re: The PIIGS still fly

i can't say i can follow that reference very well, dc; i don't have the proper education.

but i do know that minsky brought the behavioral, the human, back into economics. the "magic of the market" depends on its participants not being humans, with humans' well-known [by now] behavioral tics and biases. humans are subject to moods and the madness of crowds. they are overly confident and then overly frightened. none of those things fit into the "free markets" theory of how the world works.

warren buffett is the only super-rich person of whom i'm aware who made his money by investing, as opposed to capitalizing an entrepreneurial enterprise. and buffett talks of all his trades being conducted with the manic-depressive "mr. market" ecstatic and free-spending some of the time, bidding up prices, and morose and avoidant at other times, selling cheap. "mr. market" does not fit into anyone's ideal of "free markets." mr. market is the emergent phenomenon of humans' herding instincts, and humans' emotions. and mr. market's mood swings end up hurting a lot of people.

the practical question before us is whether we are heading for another minsky moment any time soon. it sure seems like we've been in the realm of ponzi finance for some time. the levels of debt and off-balance sheet liabilities are unpayable. you don't get more ponzi than that.

[dcarrigg]

Re: The PIIGS still fly

you might enjoy ray dalio's "how the economic machine works." he constructs a model of the economy in terms of actual transactions.

It's amazing (or maybe not) how much he sounds like Piketty around the 28m mark. And the first world has only been following the 2nd of his 3 rules of thumb. I'll give Ray this, not only is he not saying markets have forces that invent things or do other spooky actions, but he's even conceding that prices can be arbitrary and way out of whack rather than saying that markets always bring them to equilibrium. Long story short, it's probably a better way to introduce kids to concepts than most econ 101 books.

Only problem is we're still using totally arbitrary 'quantities' and insisting on a 1:1 ratio that can't be proven to work in reality. Not everything can be aggregated like that. And not everything scales smoothly. Not all prices are uniform, since arbitrage and suckers are both real. So it's kind of a neat idea...more closely rooted to the ground than some...but ultimately not quite up there with

But then again, macro has always been more closely rooted to reality than micro in my estimation--which is the opposite of what most people say, but most people are mystified by markets. They like the game of it. They can draw little graphs and do little algebra equations and score things. When you ask, "in what way does that represent the real world?" Or, "can you use this to consistently and reliably predict future events," the truth is "Only under extremely specific conditions that we don't find outside the lab."

Of course, it's not as interesting as the classic work in the field. Old Keynes himself started by questioning three assumptions of classical economics, which were:

1. That real wage equals the value lost to an employer by laying off an existing employee,
2. That absent intervention there is no such thing as involuntary unemployment, and
3. That supply creates its own demand.

The reason he called his a 'general theory' was that he found that these classical assumptions were 'special theories' that were only applicable under specific conditions (that did not exist in the real world).

The mistake of the neoclassical turn in the field--the fetishization of markets and the assumption that there exists a "natural equilibrium" that's drawn from Samuelson--is that we've moved back to a 'special theory' becoming central to our understanding and decision-making rather than trying to refine a general theory.

When people ask why macro and micro economics cannot be unified, the naive way to think about it is like quantum theory and relativity--different incompatible scales.

But it's not really that at all. The real difference is that macro is trying to be a general theory and micro is only a special theory, with many insisting it is general.

Don't forget, the neoclassical turn in economics really only reached its ascendence beginning in the 1970s. Before that, it was much more fringe. This is when Market Religion is born. I think it's no small coincidence that wages have stagnated and inequality has spiked since that time. Like Minsky said, the interjection of general equilibrium to macroeconomics tossed out the central revelation of made in the General Theory and reduced it to a mere banality--a series of soft equations by which central bankers might set interest rates.

Here, jk, if you just read this page and the first paragraph on the next page, perhaps you'll see what I mean put more succinctly, and my meaning in this thread will begin to come into focus.

It's no accident that obvious failures of market theory are now known colloquially as "Minsky Moments." At least we got something right in pop culture...

[jk]

Re: The PIIGS still fly

you might enjoy ray dalio's "how the economic machine works." he constructs a model of the economy in terms of actual transactions.

[dcarrigg]

Re: The PIIGS still fly

"market forces" exist in the same way as temperature and pressure. the latter, physical, phenomena are just manifestations of atomic/molecular movements and "emerge" via statistical mechanics. they have no fundamental reality, but they are useful when analyzing macroscopic events.

Do they, though?

With temperature, we can measure it on scales based on physical reality. In fact, in Kelvin, we can build a scale based on a physical constant--absolute zero. We can explain the mechanism behind the phenomenon--hence "atomic/molecular movements." These we can observe.

What is the physical constant upon which supply and demand rest? What scale shall we measure them in? Is it rooted in physical reality? What is the physical mechanism behind the phenomenon? Better yet, what actually is the phenomenon? These should be simple questions to answer if markets are as real as temperature.

I mean, the textbook answer is that supply and demand are functions of price at a given quantity. But what is price? You'll undoubtably tell me price is a function of supply and demand. That's just circular. So quantity is the only thing left that conceivably is rooted in physical reality. But it's so general as to be nearly meaningless. It just means "a given number." Of what? Of anything. Absolutely anything. Could be atoms or orgasms, baseballs or prayers, hours or photons--anything. Not much of a root if you ask me.

I don't disagree that "market forces" were conceived of in a model purposefully meant to mirror physical science like temperature (hence Samuelson). But they are more of an abstract thought experiment than something measurable in physical reality. In fact, as I have been arguing, predictions made by market models quite often fail to predict reality in any meaningful way.

In the real world, when you heat a substance, it's temperature doesn't periodically and rather unpredictably drop to near absolute zero in the process for no apparent reason...market prices on the other hand...

Well I guess we just write off complete and total failures of the theory to describe reality as "irrational exuberance" and move on believing the theory to be true. But the thing is, if such a total failure to describe reality ever happened in the physical world--if an unexpected and unexplained massive drop in temperature while supplying heat in a closed system happened like I described above--chemists and physicists would explore the phenomenon, throw what we thought we knew on its head, and work to develop a new model. Not so with "The Market." We just blame human beings for not behaving as market theory predicts--label them irrational--and move on insisting market theory is correct.

Again, totally unscientific. The project now is to attempt to force reality to conform to the theory instead of forcing the theory to conform to reality.

[jk]

Re: The PIIGS still fly

"market forces" exist in the same way as temperature and pressure. the latter, physical, phenomena are just manifestations of atomic/molecular movements and "emerge" via statistical mechanics. they have no fundamental reality, but they are useful when analyzing macroscopic events.