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Read this book: Ann Pettifor, Just Money February 24, 2014

Posted by larry (Hobbes) in economics, money.
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After you finish reading this short book, devoted to explicating the nature and function of money in modern societies, you will be able to see not only just that almost everything that Osborne and Balls say about this aspect of the economy is wrong, but why it is is wrong. The intended audience of this book is that group of people who don’t quite understand what money is or how it works, which unfortunately includes both Osborne and Balls, so it is written in as jargon-free and elementary a manner as possible. It is in Chapter 4 where she really drives the knife into the neoclassical acolytes and their financial backers.

In reading this book, you will obtain a greater understanding of what is wrong with the austerity policies of this and other governments and what to do about it. I would recommend reading Just Money before going on to other more complicated, but also reasonably accessible, books like that of Randall Wray’s Modern Money Theory. Just Money and Modern Money Theory, in that order, the latter going beyond the former to cover the entire economic system, will tell you almost everything you need to know in order to understand what is wrong with contemporary economic policies. How they can be so wrong and their justifications so misguided is sometimes difficult to believe.

Also, the subject is not easy, but Ann Pettifor knows that and does her best to explicate what is difficult to explicate. In order to see that most journalists also fail to clearly understand the function of money in our society, even when that is supposedly their specialty, this book is a must read. It is available in pdf format from PRIME or in Kindle format from Amazon.

What do the elites think they are doing? Or are they thinking at all? February 13, 2014

Posted by larry (Hobbes) in Abuse of power, economics, Justice, social justice.
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If aggression and nastiness have been the drivers of natural selection that put humans at the top of the food chain, then maybe it is time we became extinct. Keanu Reeves made a great mistake in the film The Day the Earth Stood Still. He probably should have allowed the machine to do what it was brought here to do, exterminate the earth’s primary predator in order to save the planet itself.

When people look around and think about what is happening, some of them no doubt wonder what is wrong with the picture they see. There is something deeply awry. But only a perfect cataclysm will alter how the system currently works. That it used to work a little better was probably just an accident. The past thirty years was spent, more or less, working up to now, only of course it wasn’t supposed to go to shit. Which just shows you how stupid many members of  the élite (I’m lumping them all together.) actually are. And the funny thing is, if there is anything funny in this madness,  is that small government means that there won’t be the resources to bail out some of the asses the next time. And by next time, I don’t mean the housing bubble that will burst one of these days. I mean that they’ll do something so monumentally stupid that this past crash will look like a bit of a blip.

So far, the assholes are winning. And those who see that the economic system is in bad shape, fails to reflect actual economic reality, and needs to be reformed hardly get any air time on the mainstream media. Last week’s Question Time had George Galloway, MP for Bradford, a notoriously poor city, on the program. Galloway is a “deserter” from the Labour Party, which for the past 20 years hasn’t done much for its constituency, the average person including the working person. Galloway is someone the main parties love to hate. But last week, he uttered something quite profound and I doubt most people realized how profound it was. In response to some Tory on the panel saying that there weren’t funds for something involving poor people, Galloway pointed out that the government has found money for Trident, high-speed rail, the banks, and their friends in general. In other words, it is complete bullshit that the government is spending constrained.

In the US, it is almost the same. The governments of the US and the UK, which are quite large, can fund whatever they need to fund in their own currency. A related issue was being discussed on the program when Galloway’s comment was made. Neither of these governments can go broke. Of course, if they are much smaller than they are now, they won’t be able to go broke either, but they won’t have the internal resources, which the UK government is slowly dismantling, to be able to do much for anyone, even the rich. The ONS now admits that there are statistical data that it no longer has the resources to collect and analyze. And this is only one example. So, the élite is now cutting off its nose to spite its face, as it were. Except for the .1% and a few others who think they don’t need government anyway. They think they can buy whatever they need. And under the present regime, they can. But are they going to fund the education system or the various research systems that allow them to be able to do this when government becomes too small to support these activities? No matter how rich they are, they won’t have the resources to do it. They are marching spiritedly, and ignorantly, into the past.

The current elites are parasites destroying their own host.

Saving the Hypothesis August 22, 2013

Posted by larry (Hobbes) in economics.
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An Inherent Complication in Assessing Tests of Scientific Hypotheses

L Brownstein

The testing of scientific hypotheses is not as straightforward as it often looks and perhaps contributes to the fact that many politicians do not pay as much attention to the character and context of scientific evidence as they should.

Most of us are familiar with the probabilistic character of many scientific hypotheses and the ways in which these can affect the testing scenarios. But what is not as well-known is a strategy for “saving the hypothesis” that is independent of probabilistic considerations. This strategy makes the testing of scientific hypotheses more complicated than Karl Popper and others thought it was.

The methodology described briefly by the reviewer is that developed by Karl Popper, which is that scientists should concentrate on falsifying their theories rather than corroborating them. Many ordinary scientists use Popper’s falsification model as their guide. Effectively, what you do is list the initial conditions, and the lawful regularities, and in the case of the more formalized sciences, you deduce consequences from these, for instance a particular event – a procedure that has been discussed in physics and in other more formalized disciplines. If the event predicted by the theory under test does not occur, that is, is not observed, then Popper concludes that the theory has been decisively falsified. If the event does occur and has been observed, the theory has only been corroborated, that is, the likelihood that it is true has increased. For strictly logical reasons, no theory can ever be conclusively verified, that is, proved to be true, though Popper never explicitly points this out.

There is, however, a kind of get out of jail free card that can be used to “save the hypothesis”. This is known as the Duhem-Quine gambit. When you set up your theory testing scenario, in addition to listing all the initial conditions that apply and the regularities that are involved, there are a number of auxiliary hypotheses that usually go unstated with respect to the testing scenario. In physics, this is because experimental physicists often know what these possible contaminants of the testing process are and attempt to control for them. In less formalized sciences, such influences may be unknown or only informally considered. The Duhem-Quine gambit, when utilized appropriately, is a legitimate procedure, not an attempt to cheat the testing process.

Basically, if the result of the test of a given scientific hypothesis is not observed, for whatever reason, instead of directly falsifying the hypothesis or theory under test, the testers can select one or more of the auxiliary hypotheses as the culprit, such as the nature and operation of the equipment, any presumed biases on the part of the testers, sampling problems, the general environment in which the test takes place, and so forth. Selecting one or more of the auxiliary hypotheses that inevitably accompany any scientific testing situation will enable the scientist to “save the hypothesis”. Of course, one cannot continue to blame failure to obtain a result the theory says should have been observed but wasn’t on the auxiliary hypotheses. Continued failure to observe a result predicted by a theory must eventually lead to that theory (or a portion of it) being considered to be falsified.

Elliman’s point that more scientists should be involved in independent ways in policy decisions not subject to direct ministerial control becomes even more salient in light of the inevitable availability of the Duhem-Quine gambit, a central feature of any scientific testing scenario, which renders assessment of the relevance of scientific evidence for policy purposes even more problematic than it might otherwise be considered to be.

Apostrophe Quiz & probs w/ WordPress August 16, 2013

Posted by larry (Hobbes) in economics.
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I had thought I would gloat a little over getting 100% on the Independent’s apostrophe quiz. But most everyone else who took the quiz got most of them right. So, either it wasn’t very hard, which is difficult to judge, or there is a self-selection bias with respect to those taking the quiz. Anyway, here is the link so you can, if you like, also take the quiz. That is, if like me, you are an apostrophe nut.


You can also see how others have done.

By the way, the hyperlink function isn’t working in WordPress, so you will have to copy and paste the above link to to directly to the relevant page. Sorry.  I can’t seem to add Media either.

When I published the post, the link did work. But the Media button still didn’t. Hmmm.

Some physicists should stick to their lasts July 22, 2013

Posted by larry (Hobbes) in economics.
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Here is one of the reasons I think some physicists should recognize their limitations. Forshaw is one of them. Should you have the time to peruse the article, you will find this:

“The most famous equation in finance was published in 1972 and is named after American economists Fischer Black and Myron Scholes. The Black-Scholes equation provided a means to value “European options”, which is the right to buy or sell an asset at a specified time in the future. Remarkably, it is identical to the equation in physics that determines how pollen grains diffuse through water.”

While Forshaw is right to claim that this is a famous equation, he neglects to mention that it is false in its intended application/interpretation. That it is identical to a physics formula rather undercuts the reasons for giving the authors the Swedish Bank prize. For your convenience, here is their formula.


Now, if the market conformed to two of their assumptions, one being central, that of the Gaussian character of the underlying distribution, all might be well. But market distributions are well known by many to be, and have been shown to be, non-normal by Mandelbrot more than 20 years ago. The Cauchy-Mandelbrot distribution, in fact, has no calculable mean or variance, hence no calculable volatility. Which makes it entirely useless for its intended purpose. Thorp came up independently with a similar set of equations to those of Bachelier, mentioned by Forshaw.

However, Thorp’s were initially developed for Blackjack, a situation more similar to the pollen example than that conceived by BSM. He was banned by every casino in Vegas for his trouble. But that didn’t bother him, as he had adequately tested his theory. Or perhaps I should say in this context, his policy recommendations on how to play Blackjack and win. (His recommendations require the player to compute large ratios in their heads, something most of us can’t do. Using a calculator is banned, as they think you’re counting cards which is a no-no.)

I am presuming Forshaw is thinking of Brownian motion, or something along those lines, which makes pollen distribution in a liquid more or less random and approximate a normal curve. Neither of which is true of the market.

What does this sort of thinking say about the burgeoning field of econophysics? Not much that is positive.

Here is the link: http://www.guardian.co.uk/science/2013/jul/21/physics-graduates-gravitate-to-finance.

Just to show I am being even-handed, here is an assessment of market behavior by a physicist and a financial economist, Vasquez and Farinelli. Here is the link:

http://arxiv.org/pdf/0908.3043v1.pdf. They argue that there is geometric curvature and, therefore, path dependence in real market data, something anathema to the neoclassical paradigm.

Theme for a Neo-Thatcherite World, Classical version: Albinoni’s Adagio in Gm May 1, 2013

Posted by larry (Hobbes) in Culture, economics, Music as Metaphor.
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This version was posted on youtube by José Manuel Rosón. The beautiful photos belie the music’s underlying pathos and despair, and to this end it is essential that the tempo makes the piece last around 12 minutes, essential in order to achieve the composer’s funereal effect.  This version is by Karajan (in his middle period I think). I realize that Karajan was a member of the Hitler Jugend. But a number of us agonized over this for a long time before deciding that Karajan was more of a narcissistic opportunist than a Nazi. Besides, the Berlin Phil is a great orchestra.

Enjoy, if that is the right term.

Music for our time: Brother, Can you spare a dime? May 1, 2013

Posted by larry (Hobbes) in economics.
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I have chosen this version for two reasons. One is for its musicality. But the other is that it includes the intro, which many versions don’t. A sign by a Chamber of Commerce is one of the images that are shown (notice that the apostrophe is in the right place). The first skyscraper shown is the Empire State Building and the second is the Chrysler Building.

This version was placed on youtube by musicinhistory.

This song is sung by others, such as Peter Yarrow and Tom Waits, but neither includes the intro.

Is the UK Broke? – the recent report by Reed & Clark April 26, 2013

Posted by larry (Hobbes) in economics, social policy.
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Howard Reed & Tom Clark, Britain is Broke – We Can’t Afford To Invest — NEF & Tax Justice Network

This is the new report by Howard and Tom. Many of you know Howard and he has given talks at our conferences in the past. I think this is an excellent report. But I have some qualms about it. My fundamental problem about the report is that it fails to go deeply enough. This can be interpreted as me wishing that they had written a slightly different report.

As Howard and Tom argue and as anyone who knows anything about the new economics knows, not only is Britain not broke, it can’t go broke. Howard and Tom are clear about that and document that well. What they don’t clarify very well is why this is the case. A related myth they attack is the idea that a sovereign state is like a household. It is not. Paraphrasing Sylvia Nasar who is paraphrasing Keynes, the state is the spender of last resort while the central bank is the lender of last resort. Neither of these functions have been implemented properly due to the austerity program that has been in place. And neither of these functions is available to any household. And if you think the Bitcoin constitutes an exception, I suggest a look at Varoufakis’s analysis here: http://yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerous-fantasy-of-apolitical-money/.

A real gem is their Figure 2, which shows that the debt to GDP ratio has been historically higher than it is now and no internal disasters generated by economic crises with this as the cause took place. They also show that the UK has never defaulted on its debts in the past 250 years. And the reasons for thinking that it would now? Specious. They also show that interest rates are quite low. What they fail to clarify is why this was, and continues to be, so. What is missing is a theory of interest rates. The government sets the basic interest rate and, as Keynes noted, this could and should always be as low as possible.

They could have been clearer on the economic differences between the Eurozone and the UK and other non-Eurozone countries. The latter are, as they note, countries with their own sovereign currencies. Comparing members of the Eurozone and the UK macroeconomically is worse than comparing apples and oranges. At least in the latter, you are comparing the same kind of thing, fruit. Macroeconomically, the differences among the Eurozone countries and the UK are very much greater than their similarities. It is like comparing fruits (sovereign currency countries) and vegetables (non-sovereign currency countries -those in the Eurozone) while not knowing in which group to place tomatoes (the UK). [ck Oxford dict..]

I would also have liked them to have done more about what was going on from the end of WW2 until the Nixon pronouncement, which acted like an exogenous shock to the world economic system. What had been taken for granted was now as sand, virtually overnight. While this period was characterized as being Keynesian, it was not. Samuelson had the best term to describe this period – neoclassical synthesis Keynesianism. Joan Robinson called it bastard Keynesianism. The currency system during this period, while being a fiat currency system identical to the one operating today, was viewed as being akin to a system on the gold standard. This view influenced economic decisions more than was possibly realized at the time.

The upshot of this is that the stagflation that took place in the later sixties and early seventies can not be laid at the door of Keynes’ doctrines as they were non-operational for the most part during the preceding period. While Keynes’ doctrines were seen as being used, they were so watered down that it is a travesty to contend that the doctrines implemented were Keynesian.

Take arsenic. You are a physician and you prescribe it as a treatment for a patient.  If you dilute it so much that hardly any arsenic is left, for the benefit of the patient of course, can it then be truly claimed that the patient received any arsenic at all? Moreover, if what is needed is for the patient to alter his/her behavior, prescribing what is effectively a placebo will surely not achieve that end. So, implementing non-Keynesian policies while calling them Keynesian will inevitably fail to bring about the desired result except under the most unlikely fortuitous circumstances. The consequence of the inevitable failure will likely lead to worse policies being implemented. Which is precisely what took place in the eighties in the US and the UK and what is taking place right now.

Osborne, GDP, & Recession April 25, 2013

Posted by larry (Hobbes) in economics.
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I am here simply going to repeat something I wrote some time ago on this subject.The media along with certain politicians and economists get all fired up about miniscule alterations in an index that may in itself be inherently flawed.

There may well be no referent for the term GDP (or GNP) that has any real sociopolitical relevance, in the sense in which it is generally used by mainstream politicians and economists.  A number of economists and related scientists have wondered over the years whether certain general notions such as GDP, conceived as collections of a number of individual measurements of different factors, actually ends up referring to anything meaningful. Indeed, the factors whose measures that make up, say, GDP can be seen as problematic themselves.   A read of Myrdal’s Against the Stream should convince anyone of this who is not already convinced otherwise.

More could be said about this, for example, that the collection of individual measures into collective measures involves more than composition fallacies,  but I will have to leave this matter for another time.

Mass psychosis: an additional consideration April 25, 2013

Posted by larry (Hobbes) in economics.
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As a number of people are familiar with the concept of psychosis, they invariably think it is caused by some sort of neurological or drug induced condition. When it comes in individuals per se, this is generally true. But when it comes to a large mass of people, possibly an entire social group, this causation link fails as a general explanation. While such explanations can work under particular circumstances, in the case at hand, that of austerity beliefs, it fails because the mechanism is implausible. Indeed, it is not necessary, and indeed otiose, to resort to such individual-centric explanations of such socio-cultural phenomena.

There are other ways of inducing functioning psychotic belief systems, particularly where the social system is organized in such a way that they do not interfere with daily life, indeed, sometimes they may be considered to enhance such life. Inculcating what is effectively a psychotic belief system, that is, one completely detached from reality, can be accomplished by means of social and cultural programming — that is, the programming of social behavior and conceptual (or mental) constructs such as values, beliefs, norms, and the like. (I have dealt with these conceptions in earlier posts, but I did elaborate on them possibly in rough form some time ago in the 1995 issue of the journal, Social Epistemology , in “A Reappraisal of the Concept of ‘Culture'”).

I doubt it can be plausibly argued that beliefs surrounding austerity can be considered in any sense to be life enhancing. If such an argument soundly showing that austerity is indeed life-affirming, contrary to what appears to be the case on the ground, as it were, I would be grateful to know what it is. (I am going to be a stickler and insist that a sound argument is one that is both valid and its premises true.)

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