Feelings of Depression

Can talk cause depressions? No, I don't believe talk causes anything but is the result of experience, and while emotion is important, it can be fleeting. Psychology can be longer lived though. I think there is a short term rational response that leads to an irrational longer term response, that is, irrational in the very long term. I think people are captive to their experiences and memories and their reactions to them can lead to exactly this, while in the much longer term, these can be exaggerated. For all those past depressions, life went on, they all ended, and times improved as will happen this time, but when we are in the midst of one, we can't see how or when. In part, people want a depression, they want to be punished for prior excesses, they want frugality and righteousness to be rewarded, and morality restored. Once they believe they have been punished enough, that as bad as things are, worse really won't be that much worse, and that tomorrow will come and be a bit brighter, times will improve. Can this process be hurried along? It is really difficult as we are captive to our past, but it must be tried with every fiber of our being, to do otherwise is to yield to fate. As Chauncey Gardener said, spring will come again. Looking for it better than lamenting winter.

Investment, The Fallen

Why has investment fallen?  There is a great fall in investment because those investments were bad, finance and housing number one among them. There is also a great fall in investments that while seemingly good in themselves were predicated on spending from the bad debt they created and from the false profits generated by them, cars and most consumer goods being among these. A false market was created and there was too much investment in these and now these must be written off. There is no lack of goods that more investment would solve but rather a surplus that cannot be afforded. Now there is some investment that can make sense, but this investment is innovative and risky. It is small and scattered. It takes time to develop and grow, and it is not in a position to help us much now. So now we have a long tough slog to write off bad debt, bad inventory, and bad investment. The best way to ease and hurry the process and reduce the overhang is more inflation to combat deflation. Debit cards are interchangeable with cash so that doesn't require more spending but more cash, a lot more cash, say $8000 per citizen, in people's hands is just what is needed.  Debit cards may be a useful method of distribution though.  They could be loaded quarterly until positive inflation and growth is sustained.  

On Macroeconomic Disagreements

Why do economists differ so greatly as to solutions to the current economic crisis?  Why haven't they explored situations like these and arrived at a consensus?  There are several possibilities.  

Ignorance.  They do not know what they do not know, and they do not want to know it.  

Arrogance.  They already presume to know so no investigation or proof is necessary.  They have accepted their position as an article of faith, therefore nothing can contradict it.  Anything that does is in error.  Ideology is more important than reality.  

Antipathy.  The result may be contrary to their personal consideration and it is better to deny than admit it.  They seek power rather than truth.  

More deeply, I think the situation that would call for fiscal stimulus has been consciously avoided because the implications and solutions are highly unpleasant to economists. Instead the belief that monetary policy would always be sufficient and superior held sway. Economists want to believe markets are always and everywhere superior to government, that they are always more efficient, that their distribution is optimal, and that the worst market failures are less than the least government imperfection. There have been circumstances where they have had to confront externalities and failures, but have done so only at the greatest reluctance. Something as deeply problematic as catastrophic economic failure is confronted with shock, denial, and all of grief.

At least that is the charitable view. Others see in this the denial and propaganda of the true believer or the greedy self-interest of the powerful to preserve and protect their ideology or interests at the expense of the others and the public. I do not doubt many know what they are paid to offer and that they were selected for that. They know what their customers want to hear and they want to give it them. It is far from uncommon to seek narrow short-term advantage at the expense of broad long-term gain.  That is, after all, what got us to where we are now, but that is not a comfortable place.  Deluded or deluding?  Obsequious or opportunistic?

The Disconnect of Economic Measures

So often, economists focus on the wrong measures and end up with the wrong arguments and then wonder why people are unconvinced and feel differently.  Economists focus on measures like gdp, employment, and inflation, when what is important to people is gdp per capita, employment over workforce growth, and real wages.  Their economic measures are important and have their place for a country, but are not nearly as important as these more relevant measures to people.  A country may grow even while life becomes increasingly tough for people.  Economists too often feign cluelessness about this, and consider it whining.  They are just using the wrong measures and should know better.  

Often these errors, innocent or not, are made promoting an agenda or view favorable to theirs.  Economics suffers from political bias more than most fields because arguments can be put together so easily that appear meaningful while ignoring more relevant conflicting information, stretching facts to fit desired conclusions.  It takes advantage of the fact that most people seek to confirm their biases rather than analyze arguments.  

Inflation and Living Standards

Inflation is difficult to measure and living standards difficult to compare over long periods of time. Most of what we spend money on does not change that much. The basics are quite basic and the areas that change the most are often those that not much is spent on in the first place. Cell phones and the internet are great advances and allow us to do things we never could before, but they are not that expensive.

Over long periods, I like to look at real gdp per capita and consider the period to double the standard of living. Over the last 30 to 50 years it doubled in around 36 years. If you believe inflation has been overstated by 1% though, it doubled in around 24 years. The latter seems preposterous to me. I hardly even notice the difference other than on inconsequentials. Even 36 years seems short. How much has life really changed over that period? Records have gone and computers and ipods are here but day to day living has only moderately changed. A doubling should be noticeable. I am more willing to believe it has doubled in 50 years or so, but this is probably more due to less personal experience to compare with over that time.  Then again, it may be because my spending has been relatively constant over much of that time.  

Is income taxation progressive?

Superficially it is.  Those with higher incomes pay at higher marginal rates.  How could it not be?  The fallacy here is in accepting how is income defined.  

One cannot define income without accounting for the expenses of generating that income and offsetting these against it.  To do otherwise is to measure revenue or sales, not income.  If those at the bottom truly identified all those costs and could deduct them, if they did not have to pay more for less, if they had healthcare and pensions, they would have no true income and would not be paying any tax. The rich get very nervous at the thought of this, that a large number of people that pay no taxes would have no objection to raising them. To circumvent this, they tax them on income they don't actually have, only to subsidize them and complain about having to do it, to persuade them to oppose taxes on themselves while telling them they are on their side and support them through those subsidies. This is called having everyone pay their fair share, or pay something.  It is all a shell game played through the tax code and other spending.  

Now if everyone could deduct anything soon no one would have any income.  The main difference is the rich have more power to accommodate the law and accommodate to the law.  

On Finance

Will the finance industry repeat the same mistake in the future?  No, they won't make the exact same mistake again, but they are creative and will find new ways to make it. That is the foundation of the finance industry; it isn't very profitable without them in the short term, or very profitable with them in the long term. It is called separating fools from their money. The public good of finance is the allocation of capital to where it is best used.  The private good is that it does better out of the hands of fools.  Unfortunately, taxpayers are often left as the greatest fool.