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Lawrence J. Kramer

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  • Hard Money Versus Soft Money [View article]
    "I add that when the power of banks to create money was sharply curtailed,"

    And the government subsidized railroad industry had nothing to do with the growth in that era? All this post hoc ergo propter hoc reasoning is astounding.
    Dec 6, 2014. 10:56 AM | 1 Like Like |Link to Comment
  • Hard Money Versus Soft Money [View article]
    "Real wages increase with rising productivity BECAUSE it takes less labor per unit of output. "

    Please address my IQ points argument. Workers are not interchangeable. So far, your only counter is that I have not provided evidence. That's a dodge. Give us a narrative where an innovation that enables an entrepreneur to get a job done by less skillful or less demanding (e.g., foreign) workers (i) leads to higher wages under basic economic principles, or (ii) is rejected because it does not make the entrepreneur's current employees more productive.
    Dec 6, 2014. 10:50 AM | Likes Like |Link to Comment
  • Hard Money Versus Soft Money [View article]
    "Where are all the people who say that we need more college grads because globalization and technology have made the workplace more competitive? "

    They are correct. We need more skilled workers. We just don't need as many of them as there are people who have been displaced by foreign workers and machines. Note that your stats are percentages. What do they look like in absolute terms? Your appeal to that particular shortage is a non sequitur.

    I don't mean to suggest that foreign workers are "dumber" than Americans. But my claim about dumbing down is a specific example of a more general notion - the innovation can save money by expanding the pool of eligible workers rather than by making a narrower pool of "best" workers more efficient. The Invisible Hand does not care. The container ship is a technology that vastly expands the pool of people who can make sneakers for Americans. So is the internet. Do you think the container ship has not taken American jobs than are going begging for lack of skills?

    What evidence would convince you that innovation does not and should not - under principles of supply and demand - ALWAYS (as you posit) lead to higher wages in a free market?

    Look at your list of fastest growing jobs. Which of those scale? What entrepreneur can simply add physical therapists and crank out more healthy people? How many personal trainers can work in one gym? How many home health aids produce goods for export? You are proving my general point by every example - modern innovations expand the pool of eligible workers rather than making "better" workers more valuable.

    Innovation has done this, free trade has done this. Government "assistance" is a non-event. You just wish very desperately that government were to blame, because you cannot stand the idea that in a global economy, the pockets of discontent can be anywhere, including here.
    Dec 6, 2014. 10:45 AM | 2 Likes Like |Link to Comment
  • The Greatest Crash In History Revisited [View article]
    It would be silly to suggest that what happened to the Cyprus stock market after the bail-ins "proves" how important it is to protect a country's brand by protecting its banks' depositors. It doesn't prove it. But it sure as hell makes one wonder whether the "take your medicine" school of banking policy isn't just moralistic hooey with no eye whatsoever on the competitive stance of a national or multinational banking system in which depositors with global access actually have to think about where to bank.

    But for anyone willing to play this horse, the Bank of Cyprus has ADRs that trade on the pink sheets under the symbol BACPY. Their covered bond ratings were recently raised. I report this on a Saturday with no knowledge whatsoever about these ADRs, how they trade, if they trade, what the equity in the bank is worth, whether it is a front for ISIS, or anything else. All I know is that my Google search for Cyprus ADRs yielded a site that lists only BACPY.
    Dec 6, 2014. 10:13 AM | 1 Like Like |Link to Comment
  • Hard Money Versus Soft Money [View article]
    "The two cannot be separated because a gain in productivity due to better plant and equipment allows firms to reduce its marginal, least desirable employees, leaving a more capable workforce that deserves a higher average pay."

    That assumes that the improvement does not consist precisely in making the marginal employees adequate. Take the elevator operator. Once, he ran a machine that required a certain skill not possessed by everyone. Then the elevator got push buttons, but certain luxury establishments kept the guy around because the users did not wish to concern themselves with "driving" themselves up and down. But the new elevator required a lower skill level than the old one. So, the technology did not make the best elevator operators rise to the top. On the contrary, it made the less capable, more abundant, less well-paid worker suitable for a job that once required more than just a pleasant obsequiousness.

    Much of our recent technology has been aimed at dumbing work down. Innovation is like any other economic activity: those who engage in it will seek the outcome with the best pay-off. In some contexts, that means automating low-paid work, but in others, it means routinizing higher-paid work so that lower-paid people can do it. For purposes of analysis, we find it convenient to think in terms of innovation making something called a "worker" more productive. But that's just an abstraction. In the real world, value may lie in making the first 100 IQ points more productive, because the market price of those points is so much less than that of the scarcer next twenty. If you can live on chaff, there is no need to separate it from the wheat.
    Dec 5, 2014. 05:32 PM | 5 Likes Like |Link to Comment
  • A Flawed Analysis Of What Ails The Economy [View article]
    "... and can earn you a timeout in solitary,"

    Solitary I can do. L'enfers c'est les autres.

    I suspect that I disagree with you on substance, but I'm not quite sure what you are saying, so I won't try to dispute it. Simple expository English might be better than the winks and nods and secret handshakes you've been offering. I save the French for one-liners.
    Dec 5, 2014. 05:10 PM | 2 Likes Like |Link to Comment
  • A Flawed Analysis Of What Ails The Economy [View article]
    "As a side note, why is the author not responding to comments to his own article?"

    The artist, like the God of the creation, remains within or behind or beyond or above his handiwork, invisible, refined out of existence, indifferent, paring his fingernails. - James Joyce, A Portrait of the Artist as a Young Man.
    Dec 5, 2014. 01:32 PM | 1 Like Like |Link to Comment
  • Is The Fed "Pretending"? [View article]
    "So far I have seen no signs anywhere that 'reach for yield' is creating any systemic risk."

    This is a great article. I would add only that the "reach for" anything can create systemic risk. In the 2001-2007 range, for example, I would say that the "reach for" safety drove the creation of bogus AAA-rated paper, that there would have been no liars' loans if there weren't so many investors available to be lied to. The trick was simply to find a way to tack a high rating onto an empty promise.
    Thus, while I agree that regulatory failure was key, and is key, to preventing misallocation of investment money when some flavor of investment is in short supply, regulatory capture - look at CFMA 2000 - is a real risk.

    It's difficult to advocate higher rates to prevent regulatory failure. The natural interest rate is what it is, and leaving money on the table where people can see it is political suicide. Still, the risk of regulatory failure is higher in periods when investors are reaching for something, so we should at least hedge ourselves against whatever form of chicanery lies ahead to trap the reachers.
    Dec 4, 2014. 08:45 AM | 2 Likes Like |Link to Comment
  • The Race To 0%: Plunging Yields Across The Globe [View article]
    I think it's a mistake to take the central bankers' motives at their word. This is not a dig at them - they live in a political world, so they must be political girls. But whether or not there is a stimulative wealth effect at any particular time and place, the risk-free interest rate paid by a monetary sovereign should always be as low as it can be without causing undue inflation in goods and services. (So-called "inflation" in the price of financial assets is just as easily viewed as "deflation" in the cost of capital; it's not a useful measure of the value of money.) Any higher rate is simply a fiscal subsidy to people who's bargaining power has fallen because of poor demand for their product, viz., credit. It is not the central bank's role to provide subsidies to the private sector. What we need to understand is that non-inflationary low rates are not a subsidy; they are merely an unnecessary impediment removed.

    In short, when all of the rhetorical smoke clears, there is only one question to ask any central banker: Can you lower rates without causing inflation? If the answer is yes, rates are too high, and any defense of higher rates is just special pleading by those who would benefit from them at the expense of the entire economy.
    Dec 3, 2014. 01:47 PM | 3 Likes Like |Link to Comment
  • A Flawed Analysis Of What Ails The Economy [View article]
    "Manufacturing is not the only form of employment,"

    No, but aside from construction, it's the only kind that scales and does not require above-average intelligence. It takes twice as many bricklayers to lay twice as many bricks. How many more codes could two Alan Turings have broken? Brainwork cannot be done by everyone, and, if it could, it would pay very poorly, because it does not scale. There simply is no way to employ hundreds of millions of people doing it usefully.

    "The real problem is that we NEED to work."

    Well, we need to be useful, but we don't need to be workers any more than a homemaker or full-time parent needs to be one. I'm just saying that the option of being useful by providing marketable outputs is going away, and we need to find some other way to be useful. As I said in my previous post, you cannot will jobs or God into existence.

    Nothing else in your post addresses my claims. The slackers and socialist men are figments of your imagination. They will have to fend for themselves.
    Dec 3, 2014. 01:23 AM | 2 Likes Like |Link to Comment
  • A Flawed Analysis Of What Ails The Economy [View article]
    "So have we arrived at this point economically by "Chance" ?"

    Beats me. Unlike you, I have a high tolerance for doubt, which enables me to avoid including "of course" in my metaphysical rants. If your evidence were as compelling as you say it is, then all the hooey about God's mystery would evaporate, and God's existence, something we are told by your priests we should take on faith, would be not be a matter of faith but of deductive logic. You are, I think, really putting your metaphysics at risk. If your belief is not faith-based, then you are obliged to ask agnostic scientists why they are still agnostic and to ask yourself why you are persuaded and they are not. On the other hand, if your belief is based on faith, you don't need no stinkin' evidence.

    But your post is entirely consistent with my claim: you are not trying to prove God's existence from the fact that life would suck if there were no God. You are offering the much better argument, in logical terms, that life would not exist if there were no God. I have no problem with that argument. The "of course" part sets my teeth a bit on edge, but maybe that's just me.
    Dec 2, 2014. 07:31 PM | 1 Like Like |Link to Comment
  • A Flawed Analysis Of What Ails The Economy [View article]
    "Unless you can come up with some fundamental reason and adequate evidence of such, I think that Occam's razor must apply,"

    A graph of US manufacturing employment since 1970 is adequate for me. If it isn't adequate for you, that's your prerogative.

    "I believe your lack of faith in human capabilities ..."

    What belief? My belief is precisely that we are capable of making work obsolete. YOU are the one lacking faith in our capabilities. Your fundamental error is thinking that we WANT to work, that creating jobs is an achievement. It is not. Creating peace and prosperity is an achievement. Work is a technology, which we will rise above, because we are so capable.

    "I object to your version of the new social paradigm because it's based on the premise that 'the pie must be divided because it will never get any bigger'."

    I have no idea what you're talking about. I have been preaching to anyone who would listen that we are "cursed" with an inability to distribute the abundance we are capable of producing. Does that sound like a pie that doesn't get any bigger to you? Because it is meant to sound like a pie that is growing faster than we can digest.

    "It also assumes that an ever larger portion of the population will never be able to add productivity to society to a degree that will cover their societal costs."

    It does not "assume" it; it CONCLUDES it from observation of what has been happening over the past forty years. If the earth's gravitational field were weakening, would you insist that baseball could still be played, based on history? Our economy is a game held together by scarcity. As scarcity abates, we will need a new paradigm. If that means people don't have to be sufficiently productive to earn what they get, then that's what it means. The facts won't change because we don't like them. You cannot prove God's existence by saying how much it would suck to live in a Godless world.

    " ...but once again history has always proven such 'forced systems' to be suboptimal."

    The US has been such a society since 1933. All in all, we're not doing all that badly...
    Dec 2, 2014. 05:27 PM | 1 Like Like |Link to Comment
  • Structural Destruction [View article]
    "There will always be real demand. Everything wears out and people have to eat. But what you're calling for is pulling ahead future demand to the present by using money that hasn't been earned yet."

    Except it's not future demand. I am not suggesting that people buy what they don't need, or overpay for it. I am suggesting only that they borrow against their human capital, which they have ALREADY earned by education, experience, and demonstration. It's a form of wealth, and there is no reason some prudent part of it cannot be spent.

    I advocate only prudent borrowing from prudent lenders, yet here you are ranting about everyone being "maxed out" all the time. If you had any real arguments to make against my position, you wouldn't have to overstate it.

    "Is it our 'patriotic duty' to borrow and pay interest? Should there be laws to discourage 'anti-social behavior' for not keeping ..."

    Patriotism has nothing to do with it, which is probably why you mentioned it. An economy is a reciprocal system: if we don't spend, we don't earn. The only punishment for not spending is the one that befalls all participants in a tragedy of the commons: a suboptimal outcome. The rest you made up, as usual.
    Dec 1, 2014. 04:34 PM | 3 Likes Like |Link to Comment
  • A Flawed Analysis Of What Ails The Economy [View article]
    "The argument that capital only displaces labor is not borne out by historical fact."

    That may be why I used the word "now."

    "Labor must have the skills that capital can profitably leverage."

    Begging the key questions of whether such skills exist, can be learned by IQ 100 humans, and scale like assembling widgets. I am suggesting that some or all of these questions must be answered in the negative.

    "We will never have the 'technology' to demand all the things we could make, because human demand is limitless."

    No, but perhaps we can do better than we are doing. What you call a new social paradigm is what I call the "technology" to distribute what we can produce. In the end, we are agreeing that some very disruptive changes must come, and that we don't know how that will play out.
    Dec 1, 2014. 02:15 PM | Likes Like |Link to Comment
  • Milton Friedman Was Wrong. Inflation Is Not Always A Monetary Phenomenon [View article]
    "He determined that a 1 percentage point increase in the old-age dependency ratio reduces the effect of such an interest-rate change on inflation by 0.1 percentage point and its effect on the unemployment rate by 0.35 percentage point."

    My guess is that these numbers overstate the demographic problem a bit. They assume no change in supply, i.e., that there is less demand for scarce resources, so less inflation. But if resources are becoming less scarce, then there is a headwind to inflation independent of aging. The solution, however, is the same: fiscal policy.

    I hate the word "stimulus." I don't mind saying that a policy has stimulative effects, but I believe the spender's eye should always be focused on getting value. The "Oh, well, wasted money creates demand as well as well-spent money" argument is simply an apology for stupidity. Wasted money does not create durable jobs, because, when the road to nowhere is finished, no one builds a motel on it for its users. The capex multiplier is far lower for wasted money, and so the job creation effect, the prosperity effect, is much lower.

    OTOH, I don't want to overstate the case against wasteful spending. First, it cannot be helped. Human politicians decide how public funds are spent, and those humans are fallible and flawed. There will be waste. And abuse and fraud. Anecdotal evidence of such things is not a reason reject spending in general. Such evidence is reason to vote at a higher rate than 32%, but it is not a reason for austerity.

    I prefer "opportunity" to describe the fiscal implications of recessions. There is almost always something that can be done to make the national capital plant more robust in a way that cannot be accomplished by the private sector. The interstate highway system is an example, as was the railroad industry, which was created with major Federal subsidies. The financial rewards that COULD have been had do not prove that the risk required to earn those rewards would ever have been taken.

    Public infrastructure work competes with the private use of financial and physical resources. That's why massive public works projects cannot be undertaken in boom times. But it is also why they CAN be undertaken in busts. The resources - the money, manpower, and mortar - are all just sitting there begging to be put to work. And the lines at the airports grow and grow, and the aqueducts fail, and the gas pipes explode. Now is their time, and yet I get surveys in my mailbox all the time asking me which of these measures I prefer as a way to reduce the Federal deficit. Not one of the choices is ever "The Federal Deficit is too small."

    The surveys have not asked the best way to deal with the demographic shift, although they sometimes ask if the Social Security or Medicare eligibility ages should be raised (never whether they should be lowered, as would make far more sense). And I know that if the surveys did ask about what to do about the rising dependency ratio, none of the choices would be "heave a sigh of relief." We desperately need people who are entitled to consume without creating resentment that they are slackers. Retirees are the perfect candidates for that role. We all become old if we live long enough, and we really don't worry that the economy will collapse if all of the old people choose not to work. The problem is that we think deficits are worse than deflation. That simple semantic error is behind our lingering economic misery. As Walt Kelly famously observed, we have met the enemy, and he is us.
    Dec 1, 2014. 09:31 AM | 3 Likes Like |Link to Comment