Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Crash Edition - 26th Mar 19
Handy Ways to Boost Your Home Income - 26th Mar 19
US Treasury Bond Yield Inversion and Political Fed Cycles - 26th Mar 19
Golan Heights Oil all about the Shekels - 26th Mar 19
Falling Yields a Catalyst for The Gold Catalyst - 26th Mar 19
Can We Lock Up Rachel Maddow Now? - 25th Mar 19
Real US National Debt Might Be $230 Trillion - 25th Mar 19
Friday's Stock Market Sell-Off - New Downtrend or Just Correction? - 25th Mar 19
20 Days Left to Find Buying Opportunities In Gold - 25th Mar 19
Will the Historic Imbalance in Gold Stocks to Gold Price Resolve ? - 25th Mar 19
EasySMX Wireless Games Controllers Review - 25th Mar 19
Stock Market Short-term Top - 25th Mar 19
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Escape From Economics

Politics / Economic Theory Aug 01, 2012 - 01:45 PM GMT

By: Paul_Craig_Roberts

Politics

Best Financial Markets Analysis ArticleReaders ask me from time to time to recommend a book from which they can learn about economics.

The problem with reading a book to learn economics that is taught in the universities and practiced in Washington is that economics is now a highly formalized subject based on abstract models and assumptions and has been mathematized. It is not that the subject is totally useless and without any applicability to real world problems. Rather, the problem is that the discipline both lags an ever-changing world and got some things wrong at the beginning. Consequently, learning economics places one inside a box where some of the tools and understanding provided are outdated and incorrect.


For example, every textbook will draw a picture of agriculture as the perfect example of competitive markets in which “no producer’s output is large enough to affect price.” This made sense when one-third of the US work force was on family farms. Today, American agriculture is dominated by corporations and agribusiness. Additionally, part of the disastrous financial deregulation pushed by no-think economists and special interests was the removal of position limits on speculators. Formerly, speculators smoothed agricultural and commodity markets by buying and selling in order to stabilize price over periods when supply and demand were out of balance. Now speculators can dominate markets and rig prices to the benefit of their profits.

There are many such examples where economics no longer speaks to the real world.

Two other examples will suffice:

Most intelligent people are aware that natural resources are finite, including the environment’s ability to absorb the wastes or pollution from productive activities (see for example, Jared Diamond, Collapse, 2005). But few economists are aware, because economists assume that man-made capital is a perfect substitute for nature’s capital. This assumption implies that there are no finite environmental limits to infinite economic growth. Lost in such a make-believe world, economists neglect the full cost of production and cannot tell if the value of the increases in GDP are greater or less than the full cost of producing it.

Economists have almost universally confused jobs offshoring with free trade. Economists have even managed to produce “studies” purporting to show that a domestic economy is benefitted by being turned into the GDP of some other country.

Economists have managed to make this statement even while its absurdity is obvious to what remains of the US manufacturing, industrial, and professional skilled (software engineers, for example) workforce and to the cities and states whose tax bases have been devastated by the movement offshore of US jobs.

The few economists who have the intelligence to recognize that jobs offshoring is the antithesis of free trade are dismissed as “protectionists.” Economists are so dogmatic about free trade that they have even constructed a folk myth that the rise of the US economy was based on free trade. As Michael Hudson, an economist able to think outside the box has proven, there is not a scrap of evidence in behalf of this folk myth (see America’s Protectionist Takeoff 1815-1914).

My advice to readers who wish to develop economic comprehension is to begin with the outside-the-box economists who are addressing real issues. For example, Herman E. Daly and John B. Cobb’s For the Common Good is accessible to ordinary readers willing to take the effort to google the definitions of unfamiliar terms. However, the most

important development in trade theory is not. Global Trade and Conflicting National Interests by Ralplh E. Gomory and William J. Baumol (MIT Press, 2000) is apparently even over the heads of professional economists, who prefer to babble on ignorantly about the “benefits of free trade” than to learn what they don’t know. Nevertheless, readers should understand that the case for free trade will never been the same after its dissection by Gomory and Baumol.

With this preface to the column, I now turn to its subject: economist Michael Hudson.

Hudson is totally outside the matrix in which economists imprison themselves. Hudson doesn’t live in the artificial reality of economists or shill for corporations and Wall Street.

A person can learn a lot from Hudson. His book, Trade, Development and Foreign Debt (2009) explains how foreign trade and economic development have been used to concentrate economic power in the hands of dominant nations. What is really going on is covered up with do-good verbiage and formal models. In reality, trade and development are ways to colonize countries that think they are independent. (Another good book on this subject is Michel Chossudovsky’s The Globalization of Poverty.)

Perhaps the best place to begin with Hudson is his latest book, The Bubble and Beyond, which should be available within a few days of the appearance of this column. In this book Hudson addresses the crisis in the economy and the crisis in the discipline of economics. From this book you can understand not only the crisis but also why economists have misdiagnosed the crisis and are applying incorrect remedies.

Hudson shows that a central problem is that economic theory ignores the role of debt in the economy. Economic theory also pretends that economic policy, such as the Federal Reserve’s monetary policy, serves the public’s interest rather than the interests of powerful private interests.

As Lenin and others predicted, industrial capitalism has turned into finance capitalism. Finance capitalism does not finance or create new real investments such as manufacturing facilities. Instead, finance capitalism functions as a rentier. It leverages debt and extracts interest payments (and today taxpayer bailouts for its over-leveraged gambles). Finance capitalism flourishes by converting more and more of society’s resources into payments to itself.

One result is that markets cease to expand and economies cease to grow as austerity is imposed to service the build-up in debt. Austerity pushes economies down as consumption and investment are cut back in order to service debt. Hudson concludes that the result is that bankers now receive the rents (a form of unearned income) that once flowed to the landed aristocracy. Unlike the aristocracy, who were dispossessed of their rents, the bankers have not been.

Hudson knows the history of economic thought and economic history. Reading The Bubble and Beyond lets readers see how economic ideas developed in ways that leave economists unable to perceive the real character of the problems that are challenging them. Trapped in the matrix that they have constructed for themselves, economists are unable to devise solutions.

Hudson writes that western economies are at a turning point. GDP growth consists increasingly of the build-up of financial overhead. The wealth gains are paper gains, not gains from real plant and equipment, and are increasingly concentrated in the hands of the one percent. Financial earnings are extracted from the earnings of tangible capital and labor. Matt Taibbi captured the point with his imagery of Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

My suggestion is that you read Hudson along with Taibbi’s Griftopia, Nomi Prins’ It Takes A Pillage, Gretchen Morgenson and Joshua Rosner’s Reckless Endangerment, and Daly and Cobb’s For the Common Good. Then if you ever do study economics, you will be armored against being ensnared in the matrix that produces economists as shills for finance capitalism, environmental destruction, and the offshoring of the economy.

Everyone always wants a solution. Hudson offers suggestions how to reconstruct the economy in order that it serves the needs of the 99% instead only of the needs of the 1%.

Get busy. Reading these books will do you much greater good than playing video games, watching TV or hanging out in bars. Our country needs a larger informed younger generation to replace the smaller informed older generation.

Note to readers: Accompanying my column today is an article in the guest section by Herman Daly. For those looking for solutions to the banking crisis, this astute and highly experienced economist tells you what can be done. http://www.paulcraigroberts.org/2012/0...

Paul Craig Roberts

http://www.paulcraigroberts.org/

Paul Craig Roberts [ email him ] was Assistant Secretary of the Treasury during President Reagan's first term.  He was Associate Editor of the Wall Street Journal .  He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington ; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy , and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice . Click here for Peter Brimelow's Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.

© 2012 Copyright Paul Craig Roberts - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules