Real, meaningful, and major differences in economical views are re-emerging?

[Viking]

The epoque with the economics savvyness of the people is the one immediately following an economic catastrophy or an economic miracle. Edwardian Englishmen were dogmatic free traders, post-WWII Germans were dogmatic sound moneyists.

It's not really an golden age of economic literacy, but I suggest that economic literacy is a function of recent economic change.

We are not entering an age where an alternative to liberal free market economics is being proposed, rather that were are in a situation where there is anger at the inability of the market to provide the value that people have assumed would be provided.

Uhm, you do realize that recessions and depressions did happen before WW2, and they were much more painful/destructive than what we have now, right?

I don't know what you learned in school, but in west germany they learned that the weimar inflation was the first step in getting hitler. That's why the germans were paranoid about losing the mark.

[Martinus]

I think the recent years simply show that ultimately we have no idea. The global economy is a confidence game with a nearly countless number of actors. I think advanced physics would describe it better than any actual economic theory. This confidence has now largely evaporated and hence we are seeing a downturn even though most likely people today are not less productive than they were 5 years ago.

People in the streets and elsewhere panicking because politicians seem to have no way to stop this, and I don't think they will have. We just need to wait until the turbulences stop. For now it's a free fall.

Yes. I think it is ridicoulous to think that local national tinkering with economic policies can have a guaranteed effect in today's world. They just make things worse, as they pump up false confidence and in turn reckless risk-taking which is bound to fail.

Regulations are powerful tools for politicans and their allies in the financial world to get unfair advantage over the rest. They should be minimized, not extended.

I don't know about "false confidence". There is no such thing as false vs. non-false confidence when it comes to the market. We need people to start buying stuff again - this will prop up the economy. If it needs "false confidence" to convince them to do so, so be it.

And I disagree we need more deregulation. The global market is an amorphous, almost "natural" force that is produced by our collective greed, and it certainly is not one that produces desireable results when unchecked.

I agree that national regulations are largely useless but that's because a national government is simply no match for the global market. We need international/global regulations however. Unchecked globalization is neither ethical nor pretty.

You are like someone arguing that since regulating rivers/protecting against floods at a township level is unfair (because, if one city builds a levee, the water will flood another town down the river) we should abandon any attempts to regulate them altogether. I am saying that no, we should regulate but take into account a bigger picture and not just particular interests of individual townships.

[Tamas]

I don't know about "false confidence". There is no such thing as false vs. non-false confidence when it comes to the market. We need people to start buying stuff again - this will prop up the economy. If it needs "false confidence" to convince them to do so, so be it.

This is the EXACT sentiment which got us here in the first place.

[Neil]

I don't know about "false confidence". There is no such thing as false vs. non-false confidence when it comes to the market. We need people to start buying stuff again - this will prop up the economy. If it needs "false confidence" to convince them to do so, so be it.

This is the EXACT sentiment which got us here in the first place.

Yeah, but it's true.  Mind you, it won't happen anymore because the 'consumer confidence' model has reduced the largest, most affluent group of consumers, Americans, to poverty.

[The Minsky Moment]

Uhm, you do realize that recessions and depressions did happen before WW2, and they were much more painful/destructive than what we have now, right?

And this last one would have been like that had it not been for the post-WW2 welfare states and their automatic fiscal stabilizers, and Paulson and Bernanke firing their trillion dollar bazooka.

[The Minsky Moment]

I don't know about "false confidence". There is no such thing as false vs. non-false confidence when it comes to the market. We need people to start buying stuff again - this will prop up the economy. If it needs "false confidence" to convince them to do so, so be it.

This is the EXACT sentiment which got us here in the first place.

The problem is that although mass consumer spending is the ultimate driver of a capitalist economy, where wages and median incomes are stagnant (as has been the case in the US for some time now), that engine can be fueled only by consumer debt or asset bubbles.  And since ultimately the former can only be financed or collateralized by the latter, US economic growth has become dependent on figuring out ways to inflate asset values.

Back in 1976, Hyman Minsky warned of the dangers of adopting economic policies aimed at directly encouraging investment instead of protecting worker income levels.  He admitted the investment promotion strategy could and would increase growth but at the cost of greater instability as absent growth in labor incomes, such growth can be sustained only by turning up the treadmill faster and faster.  What was happened since then is an extreme version of the scenario he warned against. 

Ultimately, the income "inequality" problem however denoted is inextricably connected with America's economic problems generally.

[frunk]

Black swans are not the issue - capitalist economies don't experience financial crises because of unexpected, extreme low probability events; rather capitalist economies are inherently prone to cycically recurring financial crises.  It is a certainty that it will happen; the only uncertainty is the precise timing of a severe experience.  Risk management can be used to mitigate the impact of such events but only if the proper incentives are in place to do so. 

Pretty much all future-regarding economic activity - whether characterized as investment or speculation - involves consideration and analysis of "unknown unknowns" - which is a big reason why the RE framework and DSGE models don't work except under conditions of relative stablity.  Ie even something really basic like figuring out cash flows from Project X in year 4 involves considering potentially infinite variety of factors many of which there is just zero tangible information to support; the mainstream framework however in effect treats this as a simple pre-determined probability model akin to predicting the relative probabilities and outcomes of  roulette wheel spins.  Keynes pointed all this out decades ago, but that aspect of his work was mostly ignored until recently.  For a more contemporary take try: http://www.amazon.com/Beyond-Mechanical-Markets-Asset-Swings/dp/0691145776

Your second paragraph pretty well describes what black swans are, so I think black swans are the issue.  Extreme events of this sort aren't quantifiable using a standard statistical model, primarily because the large number of variables and the relatively small amount of data available make it wholly inadequate to the task.

[The Minsky Moment]

Your second paragraph pretty well describes what black swans are 

Except that black swans are supposed to be about extreme events.
The reality is that non-extreme or even relative commonplace events can be destabilizing.  The last crisis was not triggered by any extreme event - just a garden variety slow-down in the housing market.

[Tamas]

Could we please stop the ensuing nerdrage and Languish-"debate" over what the fuck a black swan is? Who cares?

Interesting stuff Minsky, I'll have to read up on that, well, Minsky fellow.

[PDH]

Could we please stop the ensuing nerdrage and Languish-"debate" over what the fuck a black swan is? Who cares?

Get off your fucking high beet wagon and let the debate flow.

[crazy canuck]

JR,

What did Minsky propose for protecting worker incomes rather than inflating assets?

[Razgovory]

Could we please stop the ensuing nerdrage and Languish-"debate" over what the fuck a black swan is? Who cares?

Interesting stuff Minsky, I'll have to read up on that, well, Minsky fellow.

http://www.amazon.com/Black-Swan-Impact-Highly-Improbable/dp/1400063515

Luckily I just picked up this book last week, so I'm with the class on this one.

[Eddie Teach]

Could we please stop the ensuing nerdrage and Languish-"debate" over what the fuck a black swan is? Who cares?

It's a movie about a ballerina.

[crazy canuck]

Could we please stop the ensuing nerdrage and Languish-"debate" over what the fuck a black swan is? Who cares?

It's a movie about a ballerina.

And its on netflix if you missed it.

[The Minsky Moment]

JR,

What did Minsky propose for protecting worker incomes rather than inflating assets?

Progressive direct taxation of income and heavy taxation of estates.
Negative income tax
"ELR" - Government to act as employer of last resort via souped-up New Deal-type programs
Expanded government role in financing investment in infrastructure and housing
"Peace among nations" - Minsky believed that although armaments production could have a stimulative impact, that in the long-run such expenditures were de-stabilizing because of their built-in rapid obsolescence and capital-intensivity

It's worth pointing out that like Keynes, H. Minsky frowned upon the pursuit of GDP growth for its own stake.  One can query whether his program may be naive in the context of a competitive state system where economic muscle translates into military and diplomatic potential.