notes oct 11 2008

October 11, 2008 § Leave a comment

6:14 On the idea that we overdo our corrections and everyone is looking to make their own life work, i consider that the whole financial stuff may tun around a bit this week coming. But the aftermath of redistributing debt and poverty will take a long time.

But there may be more destruction to come, and more reaction from the centers of power.

When the FT writes

“It is not just the reputation of capitalism that has suffered a blow from the financial crisis. The prestige of democracy has been struck amidships. We have been in the habit of talking about “democratic capitalism” and “liberal democracy” and “liberal democratic capitalism” as if all these products of our philosophical sophistication can be bundled together. In a time of prosperity, they can be. But there are circumstances in which people are forced to choose which they want more – democracy or prosperity. We are picking the latter.”

we realize that the debate that should have been is now  being given is fifteen minutes of fame.

Elected bodies look venal and shambolic. A week ago the US Congress rejected Hank Paulson’s troubled assets relief programme. The bill was rescued not through further deliberation, but by purchasing the votes of congressmen with “pork barrel” spending, the living symbol of US legislative corruption.

best statement of corruption. and the following is a very clear analysis.

A beloved myth holds that dogmatists (or ideologues) get us into problems like these, and pragmatists get us out. In fact, the difference between dogmatists and pragmatists is hard to draw. We got into this mess in a pragmatic way. We kept following a method that had succeeded before. In the 1990s, securitised mortgages and various derivatives seemed to offer a sophisticated way of managing risk. Whatever works gets overdone. The longer the system went on without collapsing, the more incentive there was to strip protective “give” out of the system. The system became more complicated, diversified, elegant and (as we now know) fragile. There were horrible excesses, but they were excesses of pragmatism, not of ideology. (dc bold)

7:47  and then a warning..


The recovery of the Russian economy after the rouble crisis of 1998 coincides with the arrival of Vladimir Putin in power. If a strong hand coincides with prosperity, the public sometimes assumes a stronger hand will mean more prosperity. Needless to say, leaders always think like that.

The way Palin would do this is vastly different from the way Obama would do it. But it will get done. Alternative?

For a good inteview on tz history and its relation to spending – cause and effect ideology – see

Interview with Christina and David Romer, Douglas Clement – Editor, The Region, September 2008:


CR: Right. Tax cuts led, eventually, to tax increases. Basically, something has to give; there is a government budget constraint. … A substantial fraction of a tax cut is typically undone in the subsequent five years.

They first had the idea that there was a permanent trade-off between inflation and unemployment, so if we were just willing to have more inflation, then we could permanently lower unemployment.

That view disappeared pretty fast, but then policymakers replaced it with a natural rate of unemployment view where they thought the sustainable level of unemployment was, maybe, 3 percent. Then we see Arthur Burns in the early 1970s struggling with the fact that that didn’t seem to be right. So he added the idea that maybe monetary policy just can’t do anything—that inflation doesn’t respond to slack. So another twist and turn, but a wrong turn. Policy in this period reflected these views-it was wildly overly expansionary most of the time, with a few half-hearted monetary contractions aimed at controlling inflation thrown in.

From Calculated Risk

David McCormick, the Treasury undersecretary for international affairs, was on ABC News this morning. The WSJ has a summaryof his comments:

Mr. McCormick said the G-7 held “an absolute common view on the urgency of the situation” and on the steps needed to “work on immediately to try to being some stability to the market.”
Asked about investor frustration with leaders in Washington and too much talk about action, Mr. McCormick said he agrees with the sentiment that actions are more important than words.

Note tat the concern is with investors returning to market.not pensioners, Social Security retirees. climate change, or any other non financial constituency. the idea is that either we are  freemarket capitalists or we don’t count.

10:30 and

On Friday, U.S. Treasury Secretary Henry Paulson announced plans for a standardized government program to buy equity in a wide range of financial companies.
Mr. McCormick said the specifics of the plan will be unveiled in coming days and it will be put into place within weeks.

which seems very slow compared to the financial industry’s desire for strong IMMEDIATE action. We might be fortunate that the center cannot act that fast.

10:38 And fromNYT

Mr. Shiller, a leader in the field of behavioral economics, believes that bubbles and crashes are a kind of social epidemic. “Ideas become contagion,” he said. When housing prices were rising quickly in the early part of this century, he said, “people misinterpreted the meaning of the price increase. The theory that housing prices could only go up began to sound plausible. It became a thought virus. And people believed it was true rather than realizing it was a thought epidemic.”

I disagree.

When the market is moving, the real choices people face are to go along or miss out. The choice is pragmatic, not hypnotic. the logic here is another form of blaming the people, not the rules and the system and those who control at that level. (posted to Joe’scolumn)

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You are currently reading notes oct 11 2008 at Reflections on GardenWorld Politics Douglass Carmichael.


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