May 27, 2008

"If Obama isn't an old-school Keynesian, what is he?"

Asks John Cassidy (as he reviews "Nudge: Improving Decisions About Health, Wealth, and Happiness" by Richard H. Thaler and Cass R. Sunstein):
One answer is that he is a behavioralist—the term economists use to describe those who subscribe to the tenets of behavioral economics, an increasingly popular discipline that seeks to marry the insights of psychology to the rigor of economics....

The central tenet of the Chicago School is that markets, once established and left alone, will resolve most of society's economic problems, including, presumably, the mortgage crisis. Keynesians—old-school Keynesians, anyway—take the view that markets, financial markets especially, often fail to work as advertised, and that this failure can be self-reinforcing rather than self-correcting. In some ways, the behavioralists stand with the Keynes-ians. Markets sometimes go badly awry, they agree, especially when people have to make complicated choices, such as what type of mortgage to take out. But whereas the Keynesians argue that vigorous regulation and the prohibition of certain activities such as excessive borrowing are often necessary, behavioralists tend to be more hopeful about redeeming free enterprise. With a gentle nudge, they argue, even some very poorly performing markets—and the people who inhabit them—can be made to work pretty well.

41 comments:

rhhardin said...

Obama is Kenyan.

Sloanasaurus said...

Obama doesn't know enough about economics to have an opinion. The jist is that McCain is a dummy about economics. Yet compared to obama, Mccain has a lifetime of experience - he chaired the commerce committee for numerous years.

In contrast gaffe-prone Obama has no economic experience at all. He was a community organizer in black communities in South Chicago. To Obama, economics is all about unions and factories shutting down and organizing mobs to complain about them.

Oh yeah, and Obama also thinks the Iraq war is lost and that we should pull out. Apparently, he thinks taking out Saddam was bad judgment and that the world would be far better off if Saddam was sill around with $130 oil. Does anyone really still believe this dope?

Sloanasaurus said...

Obama, like most democrats, also believes that lower income white voters vote against their economic interests when they elect republicans. So was the theory in "what is the matter with Kansas." Yet, this theory has been proven totally wrong with the recent rise in gas prices. For years most republicans have supported more oil drilling and building more power plants. If more drilling would have been enacted in the 1990s, gas would still be at $2 per gallon rather than $4 and electricity would be cheaper. In contrast, democrats have opposed drilling and building power plants. They want high gas prices and high electricty costs to curb consumption. Democrats don't want lower income people consuming energy. Therefore, why would a lower income voter vote for a democrat. It would be against their economic interest.

Pogo said...

Cass Sunstein, the article notes, endorses an oxymoron called "libertarian paternalism," which is just more third way economic bullshittery.

There is no third way.

Sunstein also wrote the more frankly socialist The Second Bill of Rights: FDR'S Unfinished Revolution and Why We Need It More than Ever which copies communism's failed promises for "guarantees of work, adequate housing and income, medical care and education."

That is, Sunstein endorses smiley-faced fascism.
So does Obama.

Maguro said...

If Obama isn't an old-school Keynesian, what is he?

We're still not sure. Cassidy didn't choose to answer the headline over his own article.

However, I did learn that McCain is heartless and worse than Herbert Hoover.

Thanks for the education, Mr. Cassidy!

George said...

The cheerful Nouriel Roubini supports the Dodd bill (that Obama also favors) to allow banks to reduce the face value of adjustable-rate mortgages and convert them to fixed loans...to prevent..."The Tsunami"! He says the bill has to pass in the next few weeks....or it will be too late!!

Economist Roubini looks like he guzzled a pot of boiling coffee. Or ate a tennis shoe.

His rabbit-eyed interviewer appears nearly catatonic with fear as he talks about preventing "systemic economic and banking crisis...minimum of $1 trillion in losses...catastrophic economic meltdown...accelerating contraction...significant downward pressure on stock prices (down more than 20%)...a severe and protracted recession."

Have a nice day!

Kirby Olson said...

1. What would Keynes think of the reparations for African-Americans that Obama is planning?

2. Keynes believes that eugenics was the only branch of sociology that really mattered (even after WWII he continued to believe this). Would this be another way in which Obama is Keynesian?

downtownlad said...

"In contrast gaffe-prone Obama" - Sloanasaurus.

How would you ever got by without your Republican talking points? Have you ever had an independent thought in your life?

Those are real questions.

downtownlad said...

Ann - If you want to know about Keynesian economics, you should ask Dubya. After all, if sending out $1200 rebate checks and spending $1 trillion on a War isn't Keynesian, I don't know what is.

Keynes was gay too by the way.

Methadras said...

Go look at Obamas Wikipedia page and look at what party he belongs to. Unless I'm mistaken, there isn't a Democratic party but a Democrat Party. This idea that Democrats are referred to as Democratic is nonsense and psychologically and behaviorally speaking it makes sense to say, but it is inaccurate and incorrect.

paul a'barge said...

downtownlad: Keynes was gay too by the way

Don't ask. Don't tell. Don't care. We're not talking about you. Move along.

Methadras said...

downtownlad said...

Keynes was gay too by the way.


Oh dear. I sense a gay frenzy building up within you, DTL.

William said...

Many years ago I read a Galbraith book called, if I remember rightly, The Age of Affluence. In this book Galbraith pointed out that consumers were using their disposable income to buy cars with large tail fins. He felt that this money would be better spent on wisely administered government programs. As I remember that was the era in which enlightened govt leaders were tearing down neighborhoods and throwing up huge Stalinist housing projects. People don't always spend their money wisely, but neither does the govt. And whose money is it?.....In this connection I would like to comment on the GI Bill that the Democrats are proposing. This seems to be a neat piece of ju-jitsu where the sacrifices of our military are made to profit the education-industrial complex. Why not just distribute among the soldiers who served in Iraq and/or Afghanistan a bonus that is equal to the cost of this program. If they want to go to college, fine. If they want to buy a new car, also fine. It is very like a Keynesian liberal to believe that a dollar invested in a Gender Studies Program is worth more than a dollar invested in a new car. Young men have other ideas.

Hoosier Daddy said...

After all, if sending out $1200 rebate checks and spending $1 trillion on a War isn't Keynesian, I don't know what is.

That much is obvious.

Freder Frederson said...

If more drilling would have been enacted in the 1990s, gas would still be at $2 per gallon rather than $4 and electricity would be cheaper.

On what do you base this? Even if we drained every drop of oil from this country (and it is not always only environmentalists who oppose drilling--it is the formerly rich, Republican, real estate developers in Florida and California who don't want drilling off the coast there), it would still not significantly add to the world supply of oil.

The argument could be made that the recent run up in oil prices is caused at least partially by instability in the oil producing regions of the world. We have not helped that much by invading Iraq and crippling its production capability. Iraq is just now producing oil at the rate it was before we invaded.

Freder Frederson said...

The central tenet of the Chicago School is that markets, once established and left alone, will resolve most of society's economic problems, including, presumably, the mortgage crisis.

Yet the mortgage crisis was created exactly because the market was left alone and greedy lenders, financiers and borrowers all colluded to create "wealth" out of thin air. Now like any PONZI scheme, the pyramid is collapsing proving that the market cannot be trusted to take care of itself.

And of course the banks are running to the government to bail them out while insisting that the borrowers be allowed to sink.

PatCA said...

"Markets sometimes go badly awry, they agree, especially when people have to make complicated choices, such as what type of mortgage to take out."

Sure, but we were not in a free market--it was created by the government through FHA and assorted regulation changes that allowed unqualified people (the fabled women and minorities) to borrow more money than they could afford.

The implication is that more government control is necessary since we are not capable of making
"complicated" decisions but so far government intervention has made the mortgage market more volatile, not less.

Roger J. said...

Instability in oil producing regions is certainly a credible factor as it affects supply; but India and China coming "on-line" as consumers has a significant impact on the demand side. Then we can also talk about refining capacity in the US--or lack thereof. In short, there are many reasons for the run-up in oil prices, and very few of them have to do with the policies of this current administration (including the dark lord of the sith, Cheney, and Halliburton). Most can be explained by looking at a basic supply-demand curve.

Hoosier Daddy said...

On what do you base this?Even if we drained every drop of oil from this country .....it would still not significantly add to the world supply of oil.

I think its a basic economic principle called supply and demand. I would like to see what you based your theory off that it wouldn't have any impact on world supply?

Oh and possibly adding to our refining capacity might help. Also as Roger pointed out, China and India who have a couple billion people between them are buying oil at record levels. So while blaming Bush is always your knee jerk reaction, the reality is somewhat more complex.

Yet the mortgage crisis was created exactly because the market was left alone and greedy lenders, financiers and borrowers all colluded to create "wealth" out of thin air. Now like any PONZI scheme, the pyramid is collapsing proving that the market cannot be trusted to take care of itself.

Yes you are correct. I would like you to at least be forthright and spell out in detail, exactly how much power the Federal government should have in determining who gets a mortgage?

Everyone is all for regulation until it keeps them from doing or buying something.

Hoosier Daddy said...
This comment has been removed by the author.
Freder Frederson said...

Sure, but we were not in a free market--it was created by the government through FHA and assorted regulation changes that allowed unqualified people (the fabled women and minorities) to borrow more money than they could afford.

First off, it is completely wrong to even mention the FHA, since all FHA loans are qualifying loans. Secondly, nobody put a gun to these lenders' heads and said you must lend money to people without even bothering to check their credit scores or even if they have a job or income.

Trying to blame this debacle on the government ("it made me lend to these people") is downright dishonest.

Sloanasaurus said...

it would still not significantly add to the world supply of oil.

Increasing supply at the margins has a significant impact on the price. Anticipated shortfalls in supply works to reprice the entire "portfolio" and not just the amount that is short. Therefore, if America were producing 1-2 million more barrels a day, the price per barrel would be significantly less.

It is well known that most democrats prefer higher prices at the pump because they want to reduce demand to curb CO2 emissions, which they believe will cause a global calamity if it remains unchecked. Why lower income voters would support such a stupid policy is beyond comprehension.

Roger J. said...

Hoosier--would also add that as the price of crude rises, other forms of oil extraction become economically feasible: oil shale and oil sands (the latter is already being done by Canadians--although the environmentalists are in arms; and watch for environmental challenges to domestic oil production in the US as well).

Further, the recently discovered Bakken oil field in North Dakota, the Brazilian discovery, and an off shore discovery in the Falklands all promise to increase the supply side gr;adually bringing prices down. And it appears that already markets are working well to shift some driving habits away from larger cars to smaller more efficient cars.

rhhardin said...
This comment has been removed by the author.
rhhardin said...

Rush at 12:40 : Obama is the first candidate educated entirely in the indoctrination mills.

Walking back his just-prior assertion that Obama is stupid, rephrasing it.

Freder Frederson said...

I think its a basic economic principle called supply and demand. I would like to see what you based your theory off that it wouldn't have any impact on world supply?

Correct me if I'm wrong, but U.S. production is a little less than 10% of the world's total. Even if you take the most optimistic figures I have seen, we could raise production by about 5% by drilling in all the areas that are currently off limits. .05 * .1 = .005. So we would increase supply .5%.

Now lets do a straight line supply and demand curve and say a .5% decrease in the price of a barrel of oil. That's a whooping $.65 off a barrel.

Pogo said...

Trying to blame this debacle on the government ("it made me lend to these people") is downright dishonest.


The lending rules were relaxed under Greenspan, and he lowered interest rates to prod the economy.

Result? People borrowed more and more, and banks lent to unworthy borrowers. It was not just the government's fault, but they played a very large role. (See William Bonner, Mobs, Messiahs, and Markets, 2007)

Sloanasaurus said...

How would you ever got by without your Republican talking points? Have you ever had an independent thought in your life?

Whine all you want. Obama is the one making all the gaffes. It is becoming apparent that he has a limited knowledge about many issues especially American History (i.e., his comments about FDR meeting with our enemies). Understanding history is probably the most important requirement that any President should have.

I heard that he made a gaffe about America liberating Aushwitz. I am not sure if this gaffe is true or not. If it is, then it shows again that he has little understanding about the details of World War II and the Holocaust.

Freder Frederson said...

Therefore, if America were producing 1-2 million more barrels a day, the price per barrel would be significantly less.

And preventing other producers from withholding this amount of oil from the market to keep prices up would be . . .

Freder Frederson said...

The lending rules were relaxed under Greenspan, and he lowered interest rates to prod the economy.

So it's the government's fault that the regulations were too lax and the interest rates were too low? You do realize you are arguing for more government regulation, not less. You are saying that the banks are like kids let loose in a candy store who couldn't resist the temptation of lending money to whoever asked for it and seriously need adult supervision.

But somehow I don't think you meant to agree with me.

P. Rich said...

"behavioralists tend to be more hopeful about redeeming free enterprise"

If that is accurate, then no true-believer Democrat such as Obama could ever be a behavioralist. I suspect, however, that this re-framing of market behavior is just another tired liberal ploy to label something old and discredited (FDR's approach, for example) and then declare it good.

Re free markets: They work as advertised, though not necesarily in ways that some group or other wants and not always perfectly the first time. If the "sub-prime mortgage crisis" were left alone to self-resolve, it would. And many of those who contributed to it would learn the appropriate lessons and move on.

Try this experiment:

Hold a bowling ball four feet off the floor immediately above your foot. Drop it. Stand quietly and observe the outcome. Conservatives will resolve not to do that again. Liberals will petition Congress to repeal the Law of Gravity.

Freder Frederson said...

I would like you to at least be forthright and spell out in detail, exactly how much power the Federal government should have in determining who gets a mortgage?

It is not a question of regulating who gets a mortgage but the underlying securities that back the mortgages, and the rating agencies that rate the securities. The subprime debacle happened because nobody cared about the underlying value of the property or the mortgages or the ability to repay them. All the lenders and brokers cared about was the fat commissions they earned by processing the loans and packaging the securities.

Freder Frederson said...

Try this experiment:

Hold a bowling ball four feet off the floor immediately above your foot. Drop it. Stand quietly and observe the outcome. Conservatives will resolve not to do that again. Liberals will petition Congress to repeal the Law of Gravity.


No. A liberal will say: "That's stupid, it will crush my foot." A conservative will say: "This time I know it will go up."

stoqboy said...

Freder is right about the housing/mortgage situation being mostly a market failure. (Government emphasis on low income borrowers notwithstanding). Freder's conclusion that the housing/mortgage market can't be trusted is wrong, however. Markets are already fixing the problems by repricing the assets, banks creating workouts, continued lower interest rates (what happened to all those resets?). Home sales in some of the hardest hit areas are starting to increase. By the time the government writes the new legislation for regulating the industry, most of the problems will be fixed, and many of the prescribed practices will be in place.

Sloanasaurus said...

Correct me if I'm wrong, but U.S. production is a little less than 10% of the world's total. Even if you take the most optimistic figures I have seen, we could raise production by about 5% by drilling in all the areas that are currently off limits. .05 * .1 = .005. So we would increase supply .5%.

This uses incorrect logic. The price for the entire supply is set at the spread point between supply and demand. Thus, a small increase or decrease in supply and/or demand at the margins can have a significant effect on price for all.

Pogo said...

You do realize you are arguing for more government regulation, not less.
...You are saying that the banks are like kids let loose in a candy store...

No on both counts.

The government has, by nature of the Fed, made itself inextricably part of the market. When the banks are given cheaper money by the Fed, it was done precisely to increase lending. Making mortgage lending rules laxer, and endorsing the use of the sale of related derivatives, Greenspan knew full well he was encouraging speculation on junk debt.

Markets routinely go through these boom and bust cycles. Greenspan's actions resulted in or at least furthered two of the biggest busts in modern history.

If markets were completely unregulated and individual banks suffered their own losses from lending, this would have been a minor blip. But the Fed allowed socialization of risk, and we are now all paying for stupid lending and stupid borrowing and stupid investing.

I am not arguing for complete market freedom by any means, but your facile conclusions are also wholly incorrect. People always act like kids in a candy store when they are spending someone else's money. It was ever thus.

P. Rich said...

Here, freder. Let me help you. Really. Try posting NO I'M NOT AND YOU CAN'T MAKE ME! Just like that. Caps, bold, italics. Very eye-catching, I'm told. And don't worry about copyright infringement. What are pals for, anyway.

You'll only ever have to do it once, and then imagine all the free time you'll have to commune with yourself. And all the blog space and Internet bandwidth you'll free up. And how good you'll feel about that selfless act of conservatism. Hey: Maybe then you and dtl could get together for drinkies.

Revenant said...

Secondly, nobody put a gun to these lenders' heads and said you must lend money to people without even bothering to check their credit scores or even if they have a job or income.

Of course not -- but the government can meddle in the markets without putting a gun to anybody's head.

Right now, virtually every politician in the national government is talking about bailing out either the borrowers, the lenders, or both. The government does that sort of thing EVERY time the market "fails". But when lots of people make idiotic financial decisions and suffer for it, that isn't a failure of the market. That's what is SUPPOSED to happen when people do stupid things. That's how markets avoid bad results.

But the lenders know that the US government is unlikely to let them feel the full brunt of their foolishness. The borrowers also know that they can escape the consequences of their actions, through bankruptcy protection if nothing else.

a psychiatrist who learned from veterans said...

A pig always looks better with lipstick on I think is what John Cassidy is saying. YOU may think he is a tooting gaff machine but, since YOU are an uncultured idiot, you, of course, have missed the oh so British elegance of 'an old school Keynesian.'

vbspurs said...

Obama is Kenyan.

LOL. It's always great to start out a thread with a laugh.

It's what a I love about LGF.

Methadras said...

Ah yes, behavioral modification through Socialist/Communist policies and ideology, via higher taxation, and wealth redistribution. That about sums up Obama's Keynesian traits don't you think?