77 thoughts on “Monday Message Board

  1. This arrived in an email with the note “someone is going to hell for this”. So here it is for anyone who has not seen it.

    PriestOff advertisement.

  2. @John Quiggin

    Tks John – I will be interested to see this article.

    Regarding your concerns about the initial LtG story.

    1. I agree the numbers are rubbery and subject to many uncertainties which arent well documented and couldnt be modelled back then. Some subsequent developments are notionally positive depending on your perspective – for example the potential for increasing crop yield through genetic engineering if the social decision to go this road occurs.

    2. But the numbers are still useful in that they beg the question if these paths are incorrect when will levelling off happen – 2060, 2100? These dates are a little way off, but not that far. So it seems reasonable to ask what alternative dates mainstream macromacro economists might propose and what are their assumptions might be.

    3. Regarding total industrial output levelling off – I agree. But how much is actually net benefit industrial output per capita. Is this in fact levelling off. This goes back to the issue of how much resources should be allocated to the Red Queens Race of running fast to stay in the same place – one familar example of pretty useless industrial production is the inputs to the 3 hour commute in our big cities as against the optimum of 30 minutes which prevails in Hobart.

    An interesting off shore example is industrial production in China – nominally at 8-10 % increase per annum, but the degradation to the production environment e.g. SO2 driven acidification of their soils is not counted. Perhaps they have fixed that a bit – but their rivers are certainly going backward.

    4. Regarding food – production may be increasing but the cost curves are a worry http://www.indexmundi.com/commodities/?commodity=food-price-index&months=240 as is the cost of rock phosphate and nitrogen – a case like/linked to oil – of more resources being put into staying in the same place.

    I suspect Graham Turner would argue that its the trend that should be explored as much as the absolute numbers. But that’s not the real issue for me – its more about the need for mainstream economists to seriously engage with scientists over this LtG matter – the climate change example is an obvious model. Happily there are signs that this is happenning driven not so much by tree hugging but by the corporate dawning that wasting resources is about wasting money. Doh! That said the US president candidates (Bachmann?) in promoting freedom to use inefficient tungsten bulb did show such basic commonsense is still rationed.

  3. Fran, the estimate is certainly open to challenge but it’s not the calculation of those alleged costs that upsets me; it’s a form of partisan political messaging that’s been mandated by law and reaches every household in NSW who pays for electricity. It looks like a form that is particularly able to hit the ‘hip pocket nerve’ and has no ‘fair and balanced’ provisions. There’s no place on those bills for the other causes of rising energy costs – which exceed those of the Carbon Tax and green energy schemes. There’s definitely no place for estimates of what failure to adequately address the climate/emissions/energy problem could be expected to cost. Is anyone challenging O’Farrell’s government over this?

  4. Nothing to do with climate emissions, but perhaps of interest:

    I have been lately told, by two experienced journalists in separate circumstances, that The Australian no longer pays most of its columnists at all. People like Henry Ergas now consider the notion of having a platform in The Oz to be adequate compensation for the fact that they don’t get paid for their articles. This seems extraordinary, yet I have no reason to doubt my informants.

  5. We live in strange times, Orwellian times. And the “Truth” Ministry does not even have to pay its minions.

  6. Federal labor is both stupid and gutless. At least, that is my thesis. A local paper, “Bayside and Northern Suburbs STAR” carried an article on Page 3 titled “Protesters march to save Eventide aged care facility” back on Nov. 28th.

    Right in the middle foreground is Wayne Swan, member for Lilley and Federal Treasurer. The Federal Treaurer marches in supplication begging Cambell Newman not to close Eventide! This is when the Federal Govt holds almost all the funding purse strings!

    Surely, he should simply announce a Federal takeover and full funding of Eventide. Then he could slip in “and we will be taking the full cost out of the Newman govt’s allocation of GST monies. If Newman wants to act like a silly bugger he will be treated like a silly bugger.”

    The fact is the Federal Govt holds (virtually) all the purse strings. They should have the guts to call the tune on recalcitrant states.

  7. http://noahpinionblog.blogspot.com.au/2012/12/macro-what-have-you-done-for-me-lately.html

    Since any comments with more than two links will go into moderation, I’ll simply link Noah’s post because he had also linked other economists’ input on this issue.

    I usually considers Noah to be a bright, thoughtful and unbiased (or less biased compared to other economic commentator), however I am very disappointed by this piece. Perhaps not just at Noah Smith, but at Simon Wren-Lewis as well. First I should disclose that I started my economics training as a Neoclassical Keynesians (mainstream macro textbook models), although I now have significant disagreement with Neo-Keynesians, there might be some bias towards the New Classical school in my comment.

    Noah claims that there is less disagreements now with “Saltwater” and “Freshwater” economics within the younger faculty. I’d assume that he would be refering to the New Keynesians school and the New Neoclassical Synthesis models. In this case, he is right of course, that New Keynesians do accept ‘rational expectations’ but have disagreements in regards to the flexibility with price, wage and that the market does not self adjust at least in the short run with the New Classicals. A good example of a convergence of thoughts would be the Credit Rationing Theory (people can check on the internet what this theory is), when this theory is built on the basis of ‘rational expectations’, it is very difficult if not impossible for a New Keynesian economist to answer/explain what triggered, or contributed the GFC using his/her model.

    While I agree with Simon Wren-Lewis’ point that the increase in the number of policy tools for managing the economy is a good progress. The main point in Noah post (and Simon Wren-Lewis’ post) that I was disappointed at was that they don’t seem to think that the convergence of thought between the different schools is a problem (this is one of the biggest problem that I personally fear). At the moment, there is large disagreements on what policy should be used to tackle the recession/depression in EU, US and Japan, this is mainly due to the large difference in the theories of the Keynesians and New Classicals. They can be classified as the old “saltwater” and “freshwater” economics which Noah correctly notes there are large disagreements. Despite the fact that New Classicals keeps failing in the real world with their prescribed austerity, the prediction of hyperinflation from QE keeps failing to come true, they are considered as a large school of thought in mainstream economics.

    But what of the “younger faculty”? Not only that New Keynesian school is problematic at the present, but how will that school develop in the future when it accepts ‘rational expectation’ is also an important question. Noticing how much supply-side and neoclassical theories have affected the mainstream theories, it is worrying if the “younger faculty” sees less of a conflict.

  8. @Tom

    Yes, all the empirical evidence shows that neoclassical economics is comprehensively wrong. It is ideologically driven nonsense masquerading as mathematical modelling.

    The piece is basically saying;

    1. Let’s all agree (i.e. pretend) that neoclassical economics is correct.
    2. Let’s all agree (i.e. pretend) that everyone agrees with statement 1.

  9. Ikonoclast:

    Exponential growth in per-capita GDP can continue indefinitely provided that there is a similar exponential reduction in resource inputs per unit of output.

  10. @Tim Peterson

    With the proviso the statement is alright. I am not sure if the reduction in inputs needs to be an exponential reduction but it might need to be.

    I am not sure that GDP will be all that important a measure in the long run. It is a very crude and semi-meaningless measure even now and all sorts of negative events increase GDP. A burnt down house can lead to an increase in GDP when a new house is built.

    A more meaningful measure would count GDA (Gross Domestic Assets) and GNA (Gross Natural Assets) as well as GDP.

  11. @Ikonoclast

    GDP is relevant in macroeconomics because it is the measure of aggregate activity that corresponds most closely to employment (eg Okun’s law).

    It is less that ideal as a measure of income. Net national product, net of (physical and ecological) capital consumption would be a better measure.

  12. @Tim Peterson

    It may be the aggregate measure that corresponds most closely to employment, but how is it closer than ABS “hours worked” data?

    Real GDP is equal to the market value of domestic goods and services.

    “Market value” consists of, or is corrupted by, debt funded price levels. Competitive market prices also embed profits which in effect separate GDP from the household incomes available to purchase the annual product of goods and services.

    There is also the issue of imputed rents – explained here:


  13. Tim Peterson

    It may be the aggregate measure that corresponds most closely to employment, but how is it closer than ABS “hours worked” data?

    Real GDP is equal to the market value of domestic goods and services.

    “Market value” consists of, or is corrupted by, debt funded price levels. Competitive market prices also embed profits which in effect separate GDP from the household incomes available to purchase the annual product of goods and services.

    There is also the issue of imputed rents – explained here:


  14. I was referring to the GDP as a measure of overall health of the economy. I was pointing out that the overall economic health (even crudely) must be a function of total national assets plus total annual national production plus total natural assets and their condition (forests, rivers, land etc.) If high annual GDP is purchased at the cost of destruction or neglect of these assets then it must be discounted appropriately.

    If high GDP is purchased at the cost of inequality and destruction of human lives and potential (as is the standard in exploitative capitalism) then again it must be discounted as being in reality worth much less than the national accounts figure. Finally, if it is purchased at the cost of destruction of the biosphere’s capacity to sustain civilization then its value is actually negative. In this case, the net production of a sustainable nomad culture is higher after accounting for biosphere damage.

  15. @Chris Warren

    Hours worked in not a measure of activity.

    I don’t understand what you mean by “debt funded price levels”.

    The retained earnings of corporations are reinvested, injecting the money not payed out to households back into the circular flow of income. Distributed profits are available to households for consumption.

  16. @Tim Peterson

    If paid labour is not the basis for GDP, what is?

    If prices are $100 without debt, the same goods can be sold for $110 if there is $10 of credit.

    $110 is a debt funded price level.

    If profits are available to households for consumption we would not be suffering the global economic catastrophe that is spreading across the earth.

    But then this would not be capitalism.

  17. @Ikonoclast Brad de Long has a nice quote on the labour theory value (LTV): ‘the LTV was like LSD in the ’60s–it ruined a lot of good minds’.

    De long also notes that “Marx’s labor-theory-of-value-schema makes no distinctions between profits on capital that have their origins in luck, theft, and choosing the right parents on the one hand; and profits on capital that have their origins in sacrifice, industriousness, or flashes of genius on the other.”

  18. @Jim Rose

    Subjective theory of value is like heroin – it posits that irrespective how much a commodity cost to produce that someone can be found who will pay more because they value it based on a subjective basis (utility). Once one commodity is sold on this basis, and an artificial profit realised, the capitalist demands more and more and more just to get the same hit

    This led to predatory wars as the capo-addicts necessarily sought out new lebensraum.

    Your capitalism ruined a lot humanity and threatens worse.

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