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    Maxine's Essays

    • 21st Century Regress
      Sometimes it seems like the world is going to hell and there's absolutely nothing a girl economist can do about it.
    • What Exactly Are We Crowding Out?
      The current economic downturn isn't a random draw of a black ball from an urn containing white balls and black balls. There's no sampling distribution. Very specific policies and actions landed us here. Now we must decide not only what policies need to be put in place to prevent it happening again, but also what policies would best drive us out of the ditch faster and sustainably.
    • I Wish It Were Only Butter
      We should be giving up some butter if we must. We should not give up education or health investment (or infrastructure or the environment (hello, BP). They may be the only legacies of any value that we pass on to our children and grandchildren.
    • Rational Health Investment?
      The obvious "market solution" is to improve the long run return on investments in health among the disadvantaged through meaningful and effective publicly funded education. The obvious short run "market solution" is to reduce the costs of investment and the shadow price of health for the disadvantaged by providing health insurance cover and reduced out-of-pocket costs.
    • The Socrates Parameter
      To the extent that our limbic systems respond to such engineering by over-riding the judgment of our frontal lobe and to the extent that our frontal lobe is deprived of the information it requires to make a rationally self-interested judgment, we are not only pigs and fools, we are slaves.
    • The Economic Rewards of Virtue
      If individual virtue tempers our "piggy" desires and conditions our choices to something that is both individually and socially better, then the economic rewards of virtue as embodied in and promoted by societal norms and institutions are far greater than we have ever suspected. As economists, we would do well to recognize this when we teach U max.
    • The Market for Morals
      Markets then are places where more is exchanged than goods and services, labor and product, credit, and interest. They are places where we also develop the personal virtues of temperance and prudence and the social virtues of benevolence and justice. When they function well, they produce trust, loyalty, and sympathy among those who trade there.
    • Post-Modern Applied Economics: It’s the Error Term, Stupid
      Maxine believes it’s time to refocus attention and discussion on the error term. It is often where much of the action is in our models. It is where unexpectedly catastrophic events dwell resulting in fat tails. It is where our animal spirits manifest and cause us to do the right thing or the wrong thing or the thing everyone else is doing rather than the self-interested, fully-informed rational thing. It is where God and miracles and chance dwell.
    • Intergenerational Win-Win: Health Insurance, Education, Environment, Infrastructure
      So when we’re talking about fiscal stimulus packages and we’re borrowing from our grandchildren to finance them, we should be thinking about how to use stimulus monies to create value for those grandchildren AND stimulate our economy.
    • Short-term Private Payoffs, Long-term Social Costs
      The real health reform discussion, the one we should be having, is “What must we do to create a health system that is both efficient and fair?” The answer will almost certainly include relegating the private sector to markets where market forces or regulation are effective at aligning short-term private incentives and goals with long-term societal interests. If such markets are scarce or non-existent in health, then the private health sector will be of limited value.
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    I just wanted to say "Thank you" for what you are writing. It is engaging, easy to read and understand, and, for once, makes me feel that economists are worthwhile.

    Paul McConaughy

    Great essay. I have more thoughts on this, but so far they haven't jelled. Maybe, on my own blog, if I find time.

    Huh!...a used Karmann Ghia? Looks like we have the same taste in cars... ;-)


    Thanks, Raven. I'll look forward to reading it if you write it.

    The poor woman's Porsche, Pancho. (Love the alliteration in that one!) :-)

    im still wondering where we'll end up when this is all over; some advanced version of tomahawk rights, i suspect...

    rjs, I saw something recently where local law enforcement officers refused to evict a family that had moved back into their foreclosed upon home (which I believe had been acquired by someone else in a short sale). My point being that just as US property rights and the laws governing them evolved in some part to accommodate those early tomahawk rights, so it may be that property rights and law will evolve again (or break down thanks to the banks' wholesale disregard of them) in response to this latest development. Like you, I too wonder where we will end up.

    "So this is a message to bankers and anyone else who at least putatively cares about capitalism and commercial exchange."

    There's the rub. They very much care about capitalism which is defined as maximizing their wealth.

    I would suggest an alternative conclusion: "So this is a message to bankers and anyone else who at least putatively cares about capitalism and commercial exchange. If you break the law you will be punished with confiscation of property and free time. The latter is also known as a jail sentence. "

    No fixes needed other than enforcement of our laws.

    This was a wonderful essay. I am going to buy my first house in the next few months and I just had issues with my student loans being sold to another company that is charging a higher interest rate so have been considerably worried about these issues when I finally do get a mortgage.

    It was a nice post, and if you don't mind I would like to add something more on your concluding message.
    I certainly agree on the value of capitalism when indeed is functioning well. However, the context of the underlined assumptions for a productive capitalism is never met in practise. In contrast, the system has reverted, as you already said, into a market structure where in numerous cases the gains are individualized while the costs are socialized. This leads me to admire more and more Churchill's perfect insight. He said:
    "The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries".
    And if you think of it, it is an astonishing insight of a man, who was leaving in a period where modern capitalism was just an infant. Keynes, long before was adding another rhetoric remark by observing that "the real political problem of our world is to combine economic efficiency, social justice and individual freedom". Hence he valuably summarized the underlined trade-offs among the economic systems and governance.
    But, What I want to say from all the above? Basically one thing, or more precisely just wondering on two issues. First, on how the trade-offs can be resolved in practise. And second, on the real impact of economics on social matters. Apart from shifting “consumption” across people and among generations, what effectively else are economics implementing??
    Especially, the last question was triggered by a recent conversation of mine. Once I first met in our shared kitchen my flat mate, I asked him what he was studying. He answered by saying "I study something useless".” What is it?” I wondered. "Literature” he replied and asked about me. I told him "economics" But then, instantly and unconsciously I responded "Well, you know what the great difference between you and me is? Is that I do something very useful but very few appreciate. While you do something useless but a lot more appreciate". I don’t know if I am right or not, but it makes me think of what can be done.
    In general, I am sure that similar questions might have being raised many times and by numerous people. Even in this blog. But, none proved to be satisfactory or sufficiently influential. I believe, it is the sufficient answers to those questions, which might make us not talking again about failures of capitalism or inefficiencies of socialism. The focus and effort on this particular point, is what can bring a sustainable progress, with the only reservation to hold an ability to distinguish between progress and evolution. And is the first of what we are lacking.
    One proposition that first comes to my mind , and which is implied by your post, is to bring more morality to economics. Or in more precise terms, is time to finally bring morality into modern economics. The “dismal science” should remain a social science. It is necessary to preclude any transformation of becoming a pure mathematical branch or business apparatus. Then the death of each economic system could be brought by its berth. Whatever the proposition might seem, for instance like Idealistic, romantic or implausible, I firmly believe that is feasible. And will become feasible when we recall that morality had changed the world and shaped the evolution of economics in their initial times and the subsequent periods. It is even true that in many cases, questions of moral turned to economic theories. Now many of those are lying in hibernation.
    Sorry for my long comment

    Phd University of Warwick

    If capitalism can't improve living standards it is finished like any other system. And saying this isn't 'real capitalism' sounds like old Communists talking about the USSR not being 'real Communism'.

    this may be the story you saw, maxine:

    what this points to is that the whole ownership system seems to be breaking down...nationally, the time from when people stop paying on their mortgage til the foreclosure is 448 days; in florida, its 678; in new york, its 792...ive seen comments all over from people who are current on their mortgage who feel like they're suckers for continuing to pay; some even say they'll stop...the country is so overbuilt, with 19 million vacant houses, it could very well deteriorate into a lawless situation where squatting becomes nine tenths of the law...

    I think an interesting question to ask is why it took so long for enough people to pursue naked, short-term self-interest to completely erode the system. In any system, it seems like there's always a personal advantage to be gained by undermining the system. Why were, for example, Soviet leaders so quick to betray the principles of the system for short-term gain, while in America bankers existed for centuries without turning into the ruthless, socially destructive miscreants that they are today?

    Hi Maxine, great article. I don't think it's the death of capitalism. But you are right, these are businesses that disconnect from participating in their local community, state, country. It's by being too smart, and greedy, that they damage the good that comes from the benefits that can flow from capitalism.

    I think there is an obligation for business that benefit from all that the community provides (over many years and generations) to give back, as a partner, to be fair. The sad thing is that such behaviour is tolerated and often admired.

    In Australia we have had our share heroes of capitalism who are admired by the media, and then fall over several years later when their shonky practices are revealed.

    Maxine, that's a very nicely told story.

    I wonder if the turning point you found isn't the general one we should turn to. The idea of 'local' in food, etc. appeals to people. Why not the same 'local' in banking of all kinds, as you did.

    This is what the monsters could be broken up to be again, isn't it? Then who loans and provides other services must reckon on much more than just the moment's fiduciary factors -- and that brings the humanity we need and want, or so it may seem at the moment. A thought.


    Devin: Bankers were always noted for their naked short term interest which is why the economy regularly crashed in the 19th century. Most people survived because of pre-Marxist land reform. They were agricultural and owned their own farms on land taken from its original owners, the native Americans. This boom and crash cycle went on until the 1980s when a long persistent campaign of lies convinced enough Americans that rising living standards and economic growth were not worth the horrid price of a regulated economy. As regulation lapsed, the bankers came out to play again. This was predictable, predicted and proven.

    I want to put my hand up at the back of the class and say "Don't forget land prices. They are an important and much forgotten part of this story."

    For instance, I think it is often forgotten that although sub-prime went bust, what they did do was to push up land prices for all new buyers (and even some old ones through equity extraction). Maybe that was the idea?

    If you'll allow me to comment again some things struck me about your anecdote.

    Firstly, I don't see either finance or owner/occupied housing as having anything particularly to do with capitalism. Socialism usually allows ownership of personal goods (and it is arguable) that a house to live in is such. And when I grew up in Australia, most lending (for both housing and working capital for firms) was done by publicly owned banks. (Banking at one time was seen as a public service, like mail and telephone was, with cross-subsidation of remote areas.)

    Secondly, I wonder about the clerk that responded to your query by upping the priority of your loan for foreclosure. How does he sleep at night? I'm sure I couldn't do his job and feel good about it. Capitalists are meant to be heartless calculating machines. But not the people that work for them. What has happened?

    your version of capitalism and the bankers' version are quite different now. Bankers have practiced a "winner take all" Monopoly outlook.

    the loss of the partnership is their doing, their choice. unfortunately a powerful number of bankers broke the contract between with what used to be middle class America.

    the new contract the Bankers have is with the Owners who decided to cash in their chips, now.

    The comments to this entry are closed.

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