Stop Me Before I Vote Again

Our fearless pwog terrier, Paul Krugman, has won the Swedish bank's pseudo-Nobel prize for "economic science." This rigorous friend of all things small-fry and Bush-battered, champion of long-gone well-hung safety nets, and well-versed anal-solonic regulators, and... and... oh Christ, blah blah blah.

Why him? Well, before he became the relentless tribune of the naked truth, the master of bright-line, gotcha! political arithmetic, over there on the op-ed pages of the Times of Laputa -- before all that, he was an innovative breakthroughish academic econ-conner; in fact, a paragon in his field. It's a field which for the last 60 years or so has required its heros and saints to boldly go where no academic mind has gone before, and formally, simply, and crisply, model some chunk of obvious everyday marketplace reality that has stared us all in the face since Columbus cheated Chief Nugawana at cards, and yet, until the publication of this particular paper, has evaded algebraic capture. Yes, trap it in Greek letters and render it in the toonish galaxy-far-far-away terms that please the rarefied minds of ivydom's Dismalians.

In Paul's case, he took an earlier breakthrough model by Dixit Stiglitz and frigged it around some, and used it, after suitable relabeling, to prove something -- well -- obvious: Toyota and General Motors might rationally choose to sell and produce in each others' home markets -- and profit maximally.

Sound impressive? No? Well, it got him overnight to the top tier of young Turks in trade theory.

But wait! There's more! Not satisfied with his initial earthshaking achievement, about a decade later, Paul built a model of optimal human civilization -- the genesis of urban habitat, those nodes of folks that pimple the market plain, swelling to the point where the economies of agglomeration just nicely balance the costs of transportation. As a lover of such toy train-set worlds, I could go on and on -- but I won't.

Street value of this body of work that won him the Swedish bankers' prize? Somewhere between the value of six mice and one large pumpkin, down at the local cab stand.

The poli-econ green-eyeshade pinkos strike back! Corporate boardrooms tremble:

"[F]rom 2000 to 2007, the income of the median working-age household fell by $2,000-an unprecedented decline. In that time, virtually all of the nation’s economic growth went to a small number of wealthy Americans. An important reason for the shift from broadly-shared prosperity to growing inequality is the erosion of workers’ ability to form unions and bargain collectively....

The problem is that the election process overseen by the National Labor Relations Board has become drawn out and acrimonious, with management campaigning fiercely to deter unionization, sometimes to the extent of violating the labor law....

To remedy this situation, the Congress is considering the Employee Free Choice Act....

As economists, we believe this is a critically important step in rebuilding our economy and strengthening our democracy by enhancing the voice of working people in the workplace. "

• Kenneth Arrow, Stanford University
• Dean Baker, Center for Economic Policy and Research
• Jagdish Bhagwati, Columbia University
• Alan S. Blinder, Princeton University
• Brad DeLong, University of California/Berkeley
• Robert H. Frank, Cornell University
• Richard Freeman, Harvard University
• James K. Galbraith, University of Texas
• Robert J. Gordon, Northwestern University
• Dani Rodrik, Harvard University
• Jeffrey D. Sachs, Columbia University
• Robert M. Solow, Massachusetts Institute of Technology
• Lester C. Thurow, Massachusetts Institute of Technology

" The institutions that govern the labor market have also failed, producing the unusual and unhealthy situation in which hourly compensation for American workers has stagnated even as their productivity soared"

The Economist, previously and charitably described as "eternally gaseous", is attempting to get real with its readership on the jobs crisis. They believe that the asset immolation was caused by excessive borrowing and the solution, in the long run, is increased labor flexibility. Labor, not content with its golden lunch pail, created this mess and will eventually have to make up for it by accepting less security. Once they all calm down. The editorial is actually less coherent than that, but I want to jump ahead to the main point: it is obvious that none of the writers have every held a job or run a business in a sector that could not count on cradle to grave state support.

Labor "flexibility" does not make job creation easier. It eliminates labor's bargaining power, which keeps the cost of labor down, for a little while. Eventually it destroys demand and then there's no need for labor at all. Once you are no longer providing a service or offering a product, you don't need a labor force. This simple lesson was accessible to a vicious, narrow minded, serial failure named Henry Ford who, after repeated destruction of his own endeavors, realized one day that workers who couldn't buy a product, wouldn't.

Inflated collateral to facilitate borrowing delays the need to pay wages, but inevitably the process reaches a breaking point. Which is where we are now. The strongest businesses in sectors that can demand a bail out are doing so. Those that can't are folding. This reduces demand, which reduces the need for a labor force that can produce the product or offer the service that once had a market. Through a mysterious transformation, understood by only 90% of humanity, the loss of livelihood affects people's ability to make payments on what was once collateral, but is now the financial equivalent of toxic waste.

It would be helpful if the slackers at The Economist could get their sticky little fingers out and try to find a job in the real world. Then, perhaps, they would understand. Work is hard, but it would help them feel better about themselves. The good feeling they could get from it is the first step on the road to shrugging off a crippling sense of entitlement and exiting the culture of dependency.

The public good, in Democratic Party philosophy, is defined by the famous "three bowls of hypothetical porridge" method. The middle bowl is defined by what's not in it, as that relates to the other two, which for the purposes of defining the middle bowl are represented as repositories of what's not in them either. In this way, a happy medium is achieved. If that doesn't make any sense and is highly irritating, don't worry. Everything is fine. You're a decent person. If it does make sense, and you can see a thesis, you're eligible for high standing in this crackpot blight on the humanities. You're also a bad person.

I mention this as an introduction to trends in risk management, and as a follow up to Owen's post on shafting the investors who are small enough to fail. Sometimes they get an additional push.

The global financial crisis should have prompted financial institutions to focus on risk management, but according to new research sponsored by SimCorp, risk management has lost status within organisations and is not being treated as seriously as it should be.

The research has been undertaken by the recently-established SimCorp StrategyLab in cooperation with The Nielsen Company and suggests that the number of risk managers actually reporting to boards has been dropping.

The research revealed that since 2007, the number of organisations that had the risk management function reporting to the board of directors had dropped by 5 per cent, from 36 per cent to 31 per cent.

The director of SimCorp StrategyLab, professor Ingo Walter, said much had been learned about the failures of risk management during the current financial crisis and it was therefore disturbing that the survey had indicated some institutions were moving in the wrong direction.

Institutions losing sight of risk management priorities -- I think that's supposed to be funny, not sure.

Why manage risk when you can not only get a bail out, but you also get to redefine risk according to metrics that are as empty as the three hypothetical bowls?

NEW YORK – General Motors Corp. has agreed to take on responsibility for future product liability claims, removing what could have been a sizable roadblock on the automaker's path to a quick sale of its assets and emergence from Chapter 11 bankruptcy as a new company.

As part of its government-backed restructuring plan, GM wants to sell the bulk of its assets to a new company and leave behind unprofitable assets and other liabilities such as product-related lawsuits. A hearing on the proposed sale is scheduled for Tuesday.

The previous business model was the best effort of well-meaning managers, but somehow or other the dead weight of "unprofitable assets and other liabilities" grew and grew until, sadly, poor GM went bankrupt. Unprofitable assets and other liabilities occur without agency, needless to say. They just happen! All we can do is bob along on the tides that generate them. And anyway, the golden lunch pail crowd and the sinister Asians made them do the things that occurred without agency.

GM's founder, Abner Snopes, was a humble man who didn't take shit from no one. He worked hard, but couldn't get a break. Beset from all sides, he did what any man might do in his circumstances and handed the torch, er, managerial ethos on to his successors.

They did their best too, as their legacy demanded, and I think we can all agree that recriminations are unhelpful, with the exception of recriminations for the golden lunch pail crowd and any other undeserving wretches that need a sharp lesson in economic realities.

Shorter Samuel Brittan.

The findings are in: for actually existing economists, a knowledge of the economy is impractical, and irrelevant to their careers.

To my way of thinking, this makes them perfect for guiding, overseeing and opining on actually existing capitalism.

I haven't kicked Bubbles Delong around recently. It's time. Here's the Prof:

"I am -- in normal times -- a deficit hawk. I think the right target for the deficit in normal times is zero, with the added provision that when there are foreseeable future increases in spending shares of GDP we should run a surplus to pay for those foreseeable increases in an actuarially-sound manner. "

(There's some variant on Leda and the swan that we might elaborate here -- but let's not.)

More Bradford:

"I think this because I know that there will come abnormal times when spending increases are appropriate. And I think that the combination of (a) actuarially-sound provision for future increases in spending shares and (b) nominal balance for the operating budget in normal times will create the headroom for (c) deficit spending in emergencies when it is advisable while (d) maintaining a non-explosive path for the debt as a whole."

Oh, I know. I mutter, I mime, I sputter, I spit. But the weight of this tinkling brass self-displaying claptrap in a time of mass misery weighs on my broken housecat of a chest like the oaken catafalque of a frost giant.