Friday, January 31, 2014

What's Going On?

Professor Krugman writes today in the NYT about currency problems in Turkey. I remember in the early 80s when Mexico went through a crippling devaluation. My dreams were dampened; I had to go to Boston with only a fraction of the money I needed to stay at MIT for a post-doctoral visit. My visit was cut short, and eventually I had to leave Mexico for family reasons, not so much unrelated to the economic meltdown of Mexico which started then.

As Krugman explains, open borders are good to put your money wherever you want, but has the consequence of leaving in the hands of foreign investors, the decision of what is good for each country. How much did investors, who pulled out of Mexico, know about my work in Theoretical Physics at MIT, and how much did they care? You guessed it; not at all. All they cared about was, where their investment would have the best profit; according to their best judgement.

The world has entered a globalization stage based on capitalistic principles.

Are we going in the right direction?

You make your mind.

Thursday, January 30, 2014

Talking Troubled Turkey -

Talking Troubled Turkey -

"If this is a good description of our situation, and I believe it is, we now have a world economy destined to seesaw between bubbles and depression. And that’s not an encouraging thought as we watch what looks like an emerging-markets bubble burst."

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Sunday, January 26, 2014

Paranoia of the Plutocrats -

Paranoia of the Plutocrats -

 "The example many are buzzing about right now is the billionaire investor Tom Perkins, a founding member of the venture capital firm Kleiner Perkins Caufield & Byers. In a letter to the editor of The Wall Street Journal, Mr. Perkins lamented public criticism of the “one percent” — and compared such criticism to Nazi attacks on the Jews, suggesting that we are on the road to another Kristallnacht."

President Obama has not, unfortunately, done nearly as much as F.D.R. to earn the hatred of the undeserving rich. But he has done more than many progressives give him credit for — and like F.D.R., both he and progressives in general should welcome that hatred, because it’s a sign that they’re doing something right.

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Venture Capitalist Says "War" on the Rich Is Like Nazi Germany's War on the Jews - Jordan Weissmann - The Atlantic

Venture Capitalist Says "War" on the Rich Is Like Nazi Germany's War on the Jews - Jordan Weissmann - The Atlantic:

 "Regarding your editorial "Censors on Campus" (Jan. 18): Writing from the epicenter of progressive thought, San Francisco, I would call attention to the parallels of fascist Nazi Germany to its war on its "one percent," namely its Jews, to the progressive war on the American one percent, namely the "rich.""

Venture capitalist Tom Perkins (Reuters)
Tom Perkins is known is a founder of one of Silicon Valley's top venture capital firms,  Kleiner Perkins Caufield & Byers. He is not, however, a very adept historian. 
In a letter to The Wall Street Journal, he suggests that progressives protesting income inequality are today's equivalent of Nazi's persecuting Jews.
Regarding your editorial "Censors on Campus" (Jan. 18): Writing from the epicenter of progressive thought, San Francisco, I would call attention to the parallels of fascist Nazi Germany to its war on its "one percent," namely its Jews, to the progressive war on the American one percent, namely the "rich."
From the Occupy movement to the demonization of the rich embedded in virtually every word of our local newspaper, the San Francisco Chronicle, I perceive a rising tide of hatred of the successful one percent. There is outraged public reaction to the Google buses carrying technology workers from the city to the peninsula high-tech companies which employ them. We have outrage over the rising real-estate prices which these "techno geeks" can pay. We have, for example, libelous and cruel attacks in the Chronicle on our number-one celebrity, the author Danielle Steel, alleging that she is a "snob" despite the millions she has spent on our city's homeless and mentally ill over the past decades.
This is a very dangerous drift in our American thinking. Kristallnacht was unthinkable in 1930; is its descendent "progressive" radicalism unthinkable now?
Kristallnacht was a rash of anti-Jewish riots that swept Germany, Austria, and the Sudetenland in 1938, in which ordinary Germans, with Nazi support, destroyed Jewish shops and burned synagogues. As the U.S. Holocaust Memorial Museum notes in its online encyclopedia: 
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Thomas Perkins (businessman) - Wikipedia, the free encyclopedia

Thomas Perkins (businessman) - Wikipedia, the free encyclopedia:

"In 2014, Perkins wrote a letter to the Wall Street Journal[23] comparing the Occupy movement's "demonization of the rich" to Nazi Germany's anti-semitism.
Writing from the epicenter of progressive thought, San Francisco, I would call attention to the parallels of fascist Nazi Germany to its war on its "one percent," namely its Jews, to the progressive war on the American one percent, namely the "rich."
The letter was criticized by Jordan Weissmann in The Atlantic online.[24]
Kleiner Perkins tweeted their dissent and distanced themselves from Perkins:
Tom Perkins has not been involved in KPCB in years. We were shocked by his views expressed today in the WSJ and do not agree.[25]"

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Paranoia of the Plutocrats


Obama and the One Percent

Another week, another outburst by a one-percenter comparing progressive taxation to Nazi atrocities. I particularly liked the end:
Kristallnacht was unthinkable in 1930; is its descendent “progressive” radicalism unthinkable now?
Because it’s just obvious that San Francisco progressives are the political heirs of fascism, right?
You do wonder why the WSJ published this screed. Do billionaires have the right to get their views aired, regardless? Did the Journal think that it was doing a public service by letting the rest of us see the loose screws in this guy’s head? Or — what I suspect, to be frank — did the relevant editors actually think he was making a useful point?
Anyway, thinking about this sort of thing makes me realize that there’s a danger, especially for progressives, of confusing the proposition that Obama’s billionaire haters are stark raving mad — which is true — with the proposition that Obama has done nothing that hurts the plutocrats’ interests, which is false. Actually, Obama has been tougher on the one percent than most progressives give him credit for.
Start with taxes. The Bush tax cuts haven’t gone completely away, but at the very high end they have been pretty much reversed; plus there are additional high-end taxes associated with Obamacare. The result is that taxes on wealthy Americans have basically been rolled back to pre-Reagan levels:
The Atlatntic
Meanwhile, financial reform looks as if it will have significantly more teeththan expected.
So the one percent does have reason to be upset. No, Obama isn’t Hitler; but he is turning out to be a little bit of FDR, after all.

Sunday, January 19, 2014

The Undeserving Rich -

The Undeserving Rich -

"But it is, of course. Partly this reflects Upton Sinclair’s famous dictum: It is difficult to get a man to understand something when his salary depends on his not understanding it. But it also, I think, reflects distaste for the implications of the numbers, which seem almost like an open invitation to class warfare — or, if you prefer, a demonstration that class warfare is already underway, with the plutocrats on offense."

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Saturday, January 18, 2014

[1212.2833] The Illusion of the Perpetual Money Machine

[1212.2833] The Illusion of the Perpetual Money Machine:

We argue that the present crisis and stalling economy continuing since 2007 are rooted in the delusionary belief in policies based on a "perpetual money machine" type of thinking. We document strong evidence that, since the early 1980s, consumption has been increasingly funded by smaller savings, booming financial profits, wealth extracted from house price appreciation and explosive debt. This is in stark contrast with the productivity-fueled growth that was seen in the 1950s and 1960s. This transition, starting in the early 1980s, was further supported by a climate of deregulation and a massive growth in financial derivatives designed to spread and diversify the risks globally. The result has been a succession of bubbles and crashes, including the worldwide stock market bubble and great crash of October 1987, the savings and loans crisis of the 1980s, the burst in 1991 of the enormous Japanese real estate and stock market bubbles, the emerging markets bubbles and crashes in 1994 and 1997, the LTCM crisis of 1998, the dotcom bubble bursting in 2000, the recent house price bubbles, the financialization bubble via special investment vehicles, the stock market bubble, the commodity and oil bubbles and the debt bubbles, all developing jointly and feeding on each other. Rather than still hoping that real wealth will come out of money creation, we need fundamentally new ways of thinking. In uncertain times, it is essential, more than ever, to think in scenarios: what can happen in the future, and, what would be the effect on your wealth and capital? How can you protect against adverse scenarios? We thus end by examining the question "what can we do?" from the macro level, discussing the fundamental issue of incentives and of constructing and predicting scenarios as well as developing investment insights.

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[1401.3281] A Creepy World

[1401.3281] A Creepy World:

"Using the mechanics of creep in material sciences as a metaphor, we present a general framework to understand the evolution of financial, economic and social systems and to construct scenarios for the future. In a nutshell, highly non-linear out-of-equilibrium systems subjected to exogenous perturbations tend to exhibit a long phase of slow apparent stable evolution, which are nothing but slow maturations towards instabilities, failures and changes of regimes. With examples from history where a small event had a cataclysmic consequence, we propose a novel view of the current state of the world via the logical scenarios that derive, avoiding the traps of an illusionary stability and simple linear extrapolation. The endogenous scenarios are "muddling along", "managing through" and "blood red abyss". The exogenous scenarios are "painful adjustment" and "golden east"."

Center of Light 
Figure 4: The movement of the planetary center of light as recorded by 5 different satellites that operated 
between 1992 and 2009. Following a global economic regime shift, it can be seen moving eastwards over a 
distance of roughly 1000 km in that period of 17 years. 

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Didier Sornette - Wikipedia, the free encyclopedia

Didier Sornette - Wikipedia, the free encyclopedia:

"Didier Sornette is Professor on the Chair of Entrepreneurial Risks at Swiss Federal Institute of Technology Zurich (ETH Zurich). He is also a professor of the Swiss Finance Institute, a professor associated with both the department of Physics and the department of Earth Sciences at ETH Zurich, an Adjunct Professor of Geophysics at IGPP and ESS at UCLA. He was previously jointly a Professor of Geophysics at UCLA, Los Angeles California and a Research Director on the theory and prediction of complex systems at the French National Centre for Scientific Research."

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Sunday, January 12, 2014

The Anti-Scientific Revolution in Macroeconomics

Well, now I’m in Dublin to receive the James Joyce Award; life is interesting, although it does tend to get in the way of blogging.
But I thought I could squeeze out a few minutes to talk about something I’ve been thinking about a lot lately: the remarkable extent to which powerful groups, including a fair number of economists, have rejected intellectual progress because it disturbs their ideological preconceptions.
What brings this to mind is the debate over extended unemployment benefits, which I think provides a teachable moment.
There’s a sort of standard view on this issue, based on more or less Keynesian models. According to this view, enhanced UI actually creates jobs when the economy is depressed. Why? Because the economy suffers from an inadequate overall level of demand, and unemployment benefits put money in the hands of people likely to spend it, increasing demand.
You could, I suppose, muster various arguments against this proposition, or at least the wisdom of increasing UI. You might, for example, be worried about budget deficits. I’d argue against such concerns, but it would at least be a more or less comprehensible conversation.
But if you follow right-wing talk — by which I mean not Rush Limbaugh but the Wall Street Journal and famous economists like Robert Barro — you see the notion that aid to the unemployed can create jobs dismissed as self-evidently absurd. You think that you can reduce unemployment by paying people not to work? Hahahaha!
Quite aside from the fact that this ridicule is dead wrong, and has had a malign effect on policy, think about what it represents: it amounts to casually trashing one of the most important discoveries economists have ever made, one of my profession’s main claims to be useful to humanity.
If you read Barro’s piece, what you see is a blithe dismissal of the whole notion that economies can ever suffer from am inadequate level of “aggregate demand” — the scare quotes are his, not mine, meant to suggest that this is a silly, bizarre notion, in conflict with “regular economics.”
You’d never know, either from the WSJ or from people like Barro, why anyone ever felt that regular economics — the economics of supply and demand and all that — was inadequate.
But you see, there are these things we call recessions. And if you believe regular economics is all there is, you should find them very upsetting.
Think, for example, about the Great Recession and its aftermath. Regular economics says that economies should normally get richer each year, as their work force and capital stock grow, and technology advances. But after 2007 the United States and other advanced countries suddenly went into reverse, becoming poorer instead of richer, and for an extended period too:
Real GDP per capitaReal GDP per capita
So did plagues kill off part of the work force? Did termites eat part of the capital stock? Did technology retrogress? No, no. no. On the last point, has anyone noticed that the iPhone was introduced in 2007, and that the whole smartphone/tablet revolution has more or less coincided with a period of terrible economic performance?
So what did happen? Keynes offered an answer: it is, in fact, possible for economies to suffer from an overall lack of demand. Other people had said things along these lines, but Keynesian economics put it front and center.
This really was an intellectual revolution; indeed, while I’m generally against scientific pretensions, it amounted to a scientific revolution, something like plate tectonics in geology. Suddenly the seemingly inexplicable — what elevates mountain ranges? what explains periods of economic retrogression? — became comprehensible.
And yes, the theory has made successful predictions — surprising predictions that people who didn’t accept the theory regarded as absurd until they came true. I’ve written a lot about what happened (or actually didn’t happen) to inflation and interest rates; go back to 2009 and read what the usual suspects were saying. You claim that the Fed can print vast quantities of money without causing inflation? You claim that the government can run huge deficits without driving up interest rates? Hahahaha.
But even better, in a way, is the relationship between government spending and private spending. Demand-side economics says that under depression conditions government spending won’t compete with private spending — in fact, lower government spending will lead to lower private spending too. Hahahaha! After all, common sense says that the government and the private sector are in competition for scarce resources. Except if we look at the euro zone, where some countries were forced into severe austerity while others weren’t, we see this:
Percent changes in real government consumption and real private spending, 2009-2013European CommissionPercent changes in real government consumption and real private spending, 2009-2013
So let me summarize: we had a scientific revolution in economics, one that dramatically increased our comprehension of the world and also gave us crucial practical guidance about what to do in the face of depressions. The broad outlines of the theory devised during that revolution have held up extremely well in the face of experience, while those rejecting the theory because it doesn’t correspond to their notion of common sense have been wrong every step of the way.
Yet a large part of both the political establishment and the economics establishment rejects the whole thing out of hand, because they don’t like the conclusions.
Galileo wept.

[1401.0462] Emergence of statistically validated financial intraday lead-lag relationships

[1401.0462] Emergence of statistically validated financial intraday lead-lag relationships:

According to the leading models in modern finance, the presence of intraday lead-lag relationships between financial assets is negligible in efficient markets. With the advance of technology, however, markets have become more sophisticated. To determine whether this has resulted in an improved market efficiency, we investigate whether statistically significant lagged correlation relationships exist in financial markets. We introduce a numerical method to statistically validate links in correlation-based networks, and employ our method to study lagged correlation networks of equity returns in financial markets. Crucially, our statistical validation of lead-lag relationships accounts for multiple hypothesis testing over all stock pairs. In an analysis of intraday transaction data from the periods 2002--2003 and 2011--2012, we find a striking growth in the networks as we increase the frequency with which we sample returns. We compute how the number of validated links and the magnitude of correlations change with increasing sampling frequency, and compare the results between the two data sets. Finally, we compare topological properties of the directed correlation-based networks from the two periods using the in-degree and out-degree distributions and an analysis of three-node motifs. Our analysis suggests a growth in both the efficiency and instability of financial markets over the past decade.

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If I Had a Hammer -

If I Had a Hammer -

"Put all these advances together, say the authors, and you can see that our generation will have more power to improve (or destroy) the world than any before, relying on fewer people and more technology. But it also means that we need to rethink deeply our social contracts, because labor is so important to a person’s identity and dignity and to societal stability. They suggest that we consider lowering taxes on human labor to make it cheaper relative to digital labor, that we reinvent education so more people can “race with machines” not against them, that we do much more to foster the entrepreneurship that invents new industries and jobs, and even consider guaranteeing every American a basic income. We’ve got a lot of rethinking to do, they argue, because we’re not only in a recession-induced employment slump. We’re in technological hurricane reshaping the workplace — and it just keeps doubling."

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