The Economists for Romney definitely are not aligned with Obama's Plan or Paul Krugman's Views. And William Anderson even set up a site called Krugman in Wonderland.
Here are some ideas:
- They have completely different belief systems. (Classical, Marxist, Neoclassical, Keynesian, Chicago, Austrian, etc) And these philosophies affect how they interpret everything. (Is the sun circling the earth or the earth circling the sun?)
- There are so many factors in play that are varying over time that they have a very hard time assigning Causation. How often do you think an Economist gets to repeat the identical "experiment" on a Global level? Never...
- There crystal balls are very foggy. How well do you think they can predict what will happen regarding all those factors across the globe? Not...
- They all have different concepts regarding what SUCCESS is? If 80% of the population does extremely well and the GDP is maximized, is that success? Or is success when 100% do moderately well and GDP is half of it's maximum? This will definitely drive different recommendations.
- They are human, have access to different information, they like their paychecks, maybe like popularity, etc.
Wiki Economics and Economic Theories
G2A Correlation Does NOT Imply Causation
TWM Austrian vs Keynesian
IL Differences
23 comments:
Just in glancing at the Krugman in Wonderland piece, I notice that it is pretty much nonsense. For one thing, I always have a problem with this notion that business requires certainty to thrive. We live in an inherently uncertain world, so if certainty is necessary for prosperity, it's certain we will never prosper. But it's also the case that there are things in this world that are pretty close to certain, specifically the aging of the population. How we will respond to this challenge is not always clear and always open to debate. But that it will happen, and will require some response, is certain no matter who gets elected president.
==Hiram
I thought I would expand a bit on the notion of certainty in a business context. Initially, it's easy to dismiss the quest for certainty out of hand. That we live in an uncertain world is rather obvious. But not everything is uncertain, and you can see this in the way Mitt Romney did business. Mitt would buy companies, immediately extract the equity in the form of loans and management fees, fiddle with the business a bit, and them sell them off as quickly as possible. This business model doesn't work with every business. What kind of business does it work for? Businesses with strong and consistent cash flows. In other words, businesses that had high relative certainty. Why is this? Because the predictability of cash flow provided security for the lenders who would loan Mitt their money. That's why Mitt would stay away from innovative cutting edge business which might lead an economic recovery, but also involved a much higher degree of risk then Mitt financial partners would find acceptable. Among other reasons, that's why for the most part, you have never heard of the deals Mitt was involved in. They were minor, trivial deals around the periphery of the economy.
--Hiram
"minor, trivial deals" like getting Staples off and running, now a highly successful venture. Places like Steel Dynamics, an American steel company going under like all the rest, and now a thriving business with 1200 new jobs rather than zero.
The thing most people miss about Romney is that he is a "numbers guy," able to sift through a company's financials and find out how to rescue it from mismanagement. Sounds like EXACTLY the kind of guy we need as President.
J. Ewing
My assessment of economists is much the same as my Dad's usual query of stockbrokers and their recommendations, which is, "If you're so dam smart, why ain't you rich?"
J. Ewing
Hiram,
No wonder you don't agree with the Wonderland site. I thought the TWM quote was describing you....
"Keynesian proponents are much less optimistic on their views of how efficient the private sector really is. They say that laissez faire style economics creates inequality for the whole and actually damages an economy. This is why followers of Keynesian principles are in favor of government agencies designed to compensate for these problems and stabilize the economy."
"Most Keynesian thinkers do agree that a mixed economy is the best choice, meaning that a private sector is overseen by a benevolent government. Furthermore, most of them concur that major economic changes in an economic cycle of booms to bust harm the economy and individual person. They take this idea to its logical conclusion and say that the government is the body with the power and expertise to steady and right the otherwise unstable free markets."
As for stability, business thrives on normal variation. It gives them the opportunity to raise prices, earn market share, etc. However, significant government policy changes and wars are hopefully rare atypical variation. (kind of like a tornado hitting your plant) The only upside is that it is actually more like a country wide drought, since hopefully most of your company's competitors are also impacted.
Of course if it only negatively impacts USA based companies, then we have problems.
J,
Not to leave you out... TWM also has you covered...
"In Austrian economics, national and world markets function better without the intrusion of government intervention and should be allowed to operate according to this free market “Laissez Faire” principle. The basic idea behind this school of thought is that government officials are not capable of intelligently managing complex economic systems. The proponents of Austrian economics argue that by human nature individuals will try to improve their family’s economic situations and when they succeed, this in turn will improve the greater economy as a whole."
No wonder our discussions are never dull.
By the way, I liked the Stock Broker comment. Same thing I think.
Laurie,
Does this explain why Krugman can be incredibly correct or incredibly backwards depending on one's perspective? And why I referred to him as "Liberal"? (ie Keynesian) I was not trying to insult him, I was trying poorly to describe his views.
I forgot to ask, what did you think of the Economist for Romney site? There are a lot of awards and names on it, however I am guessing most of them lean towards the Austrian system.
"minor, trivial deals" like getting Staples off and running, now a highly successful venture
From what I hear, Bain played a relatively minor role in financing Staples early on, along with many others. It was never a typical kind of investment for Bain. That said, Staples, like Domino's and Sports Authority, the other success stories Mitt cites, are service industry businesses, and in their own terms relatively predictable. This isn't a guy who got involved with Microsoft or Apple, risky, but also transformative businesses.
--Hiram
"Keynesian proponents are much less optimistic on their views of how efficient the private sector really is."
I don't think private sector efficiency issues are specific to Keynesianism. Some businesses are more efficient than others quite independently of Keynes' theories on macroeconomics. Mitt prefer cash flow businesses not prone to surprises. Those are the kinds of businesses that can often be made more "efficient" in various ways. The big box retailers that were so fashionable back then were like that, not only Staples but Toys R Us, Home Depot, and others. Best Buy and the late, and mostly unlamented Circuit City. What Mitt wasn't interested in was businesses subject to risk, requiring a lot of R&D, something that can easily be mistaken for inefficiency.
--Hiram
There are a lot of awards and names on it, however I am guessing most of them lean towards the Austrian system.
I don't pay that much attention to awards. That's mostly an appeal to authority, a very weak form of argument. Krugman has a Nobel Prize somewhere in his closet too.
I only mentioned the names and awards because Laurie had noted Krugman's award as one of his credentials, and that I had not provided names previously.
They could all be quacks for all I know.
There are a lot of awards and names on it, however I am guessing most of them lean towards the Austrian system.
Possibly. One purpose of awards is to create an aura of credibility. That's why every journalist in Washington has a Pulitzer Prize. Since Austrian economists aren't taken seriously, for the most part, it makes sense that they would try to create credibility for themselves by creating and giving themselves a lot of awards. No one ever gets smarter by winning an award or dumber from losing one. Where Nobel Awards are concerned, the list of people who were denied them is a lot more impressive than the list of winners.
Kurt Hamsun, anyone?
==Hiram
It's Knut Hamsun, not Kurt. My mistake.
Bascially, the reason there is a Nobel Prize in Economics is to give Economics credibility as some sort of science.
--Hiram
If not Austrian... Maybe they are one of these other non-Keynesian...
It seems the Keynesian's as far off to one side as the Austrian's are to the other.
School Graphic
Schools of Economics
I will wait for the English translation of those links. In simpler terms, Krugman sees our current problems as a crisis of a lack of demand, not of a lack of supply. Businesses are contracting because they feel there isn't sufficient demand for what they have to sell. When that perception prevails, the standard B-School formula is to focus on cost cutting in various ways, reduce the number of stores or limit expansion, lay off workers, shrink inventory. We have seen that in the economy, and those tactics have had wide success in maintaining earnings, a reason why the stock market has been so strong.
In his famous Boca Raton tour d'horizon, Mitt explained to us that markets would react well to the prospect of his presidency. I regarded this as another example demonstration of the limited understanding businessmen are prone to, when thinking about larger market and economic issues. The fact is, the markets have performed very well under President Obama. Inflation is low, stock markets have rallied. Since Romney's discussion of these issues last May, markets have rallied even further despite {or is it because of?} the diminishing of Mitt Romney's presidential prospects. Why, by the way, is that? Why is it, that a candidate so often praised for his economic smarts, gets it wrong?
--Hiram
I expect one big reason is that the market has a sense that if Mitt were elected president, he would impose an era of austerity that would quite simply be bad for business. He would fire some government workers, and lower the pay of others. That means fewer customers for business, and greater pressure on other things the government pays for, like unemployment insurance and various forms of health care. This is the scenario we have seen played out in Europe.
Mitt Romney made his fortune selling America short. In an economic environment where expansion was becoming more difficult, he focused his career on contraction. If you look at his tax returns, what you find is a lot of investments designed to insulate himself and his fortunes from the problems of America's economy. These strategies worked out well for him, and on a personal level, I don't have any problem with that. But those aren't strategies which contribute to growth or demonstrate any understanding at all of how America can grow. And the problem with Mitt is that is huge personal success has blinded him to the limitations of that success and how it was achieved. For one thing, as a guy who made a fortune laying people off, he views hiring someone, not as a contract engaged in for an unsentimental mutual benefit, but as an act of compassion as his recent tin-eared commercial demonstrates.
--Hiram
By the way, this emphasis on predictability that was essential to the Romney way of doing business, is ironic. The key to the Romney way is to select businesses which are save. Office supplies, pizzas, gym shoes, these are all things that are relatively immune to innovation. The demand for them is relatively constant, there isn't much product differentiation, so the key to profitability in those businesses is to cut costs. Romney's access to capital which made it possible for the businesses he involved himself with gave him economies of scale which he could use to drive the local mom and pop stores that previously dominated those market sectors, out of business. What was hard to foresee then, but is very clear now is that those businesses aren't risk free at all, and that the risk doesn't come from product innovation, but from the internet. The business model of category killer retailers, so predictable in the past, is now under pressure from the internet. I noted in the Journal the other day that Staples, one of the Romney success stories, is now closing stores, laying off workers and refocusing on internet sales. It's strength has become it's weakness, since it's lack of product differentiation makes what it has to sell ideal for selling over the internet. That makes it no longer a Mitt Romney kind of business of which there are fewer all the time.
--Hiram
That's funny... Mine comes up in English.
Th problem is that Krugman looks to Government to create a temporary and likely undesireable demand through spending our tax dollars or taking on debt. I say "undesireable" because many of the expenditures are politically motivated, not market driven. (ie not self perpetuating and on going)
I thought it was funny when the Liberal politicians were rationalizing spending more through TANF because it increased the GDP relatively immediately. Talking about a one time gain...
I'm thinking that maybe the markets did well the last 2 years because of the Congress. The businesses knew that Obama and any desires he had to pull the country further Left were stymied. Of course, we will never know for sure.
As Keynes famously observed, in the long run we are all dead. The problem is that there isn't anything necessarily temporary about shortfalls in demand. Recessions and depressions can be very stable economic systems. The problem I have right now is that they are becoming structural. Business has learned far too well how to make money in stagnant economic conditions. Mitt Romney made a fortune from essentially shorting the American economy.
Congress has affected markets and the economy adversely through inaction. Last summer we saw a deliberate attempt by Republicans to sabotage the economy by dishonoring America's debt. Want to see the effect on markets the Republican sabotage had? Don't take my word for it. Check out this link:
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=DJIA&insttype=Index&freq=1&show=&time=9
--Hiram
Thank heavens for time and innovation. Since no product or service lasts forever, there will always be new demand created. Though it may be for something you did not expect nor when you want it.
Big Charts DOW
Again you blame Congress... Didn't your Mom teach you that it takes 2 to argue?
My point is that BOTH the DFL & GOP were trying to "WIN". Therefore NEITHER gave in until the last minute.
Didn't your Mom teach you that it takes 2 to argue?
Sure. One side wanted to sabotage the economy, the other side didn't. That's what the argument was about. Democrats wanted to act responsibility, to pay our bills as they came due. Republicans wanted to win, and the argument was about that as well. Sometimes there just isn't moral equivalence.
--Hiram
This reminds me of when my daughter's argue. (ever so rarely) Each is adamantly certain that it was the others fault, and that the other was wrong. While they of course were both rational and understanding.
Thank you for giving me a reason to link up 2 of my favorites.
G2A Conflict and Collusion
G2A Breaking the Cycle
"Democrats wanted to act responsibility, to pay our bills as they came due. Republicans wanted to win, and the argument was about that as well. Sometimes there just isn't moral equivalence." -hiram
Really? You can twist your mind around that far? Democrats had maxed out the credit card, and Republicans wanted to talk about getting spending under control. Democrats wanted to open up an unlimited credit line and continue the spending, and painted fanciful stories about what would happen if Republicans didn't give up on that "fiscal responsibility" thing.
J.
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