I interviewed John Cochrane in his office at the Booth School of Business, and I began by asking him about the economics of today’s Chicago, and how it differed from the strident free-market school of a bygone era—the Chicago of Milton Friedman and George Stigler.
John Cochrane: This is not an ideology factory. This is a place where we think about ideas and evidence. Gene Fama is in the next-door office. Dick Thaler is across the hall. Rob Vishny is just down the corridor. The Chicago of today is a place where all ideas are represented, thought out, argued. It’s not an ideological place. The real Chicago is about thinking hard and arguing with evidence... We like good quality stuff no matter where it comes from.
And you have some banking experts who can, perhaps, claim to be among the few economists that warned us about this crisis. Raghu Rajan, and so on?
(Laughs) Well, every conference I go to lately, everybody says, “The crash proved my last paper right.” But Raghu and Doug (Diamond) have a better claim to that than most people.
But there is still a Chicago view of the world, even if it is not as dominant as it once was, is there not? One that favors free markets?
Well, many of us at least view free markets as a good place to start, because of the centuries of experience and thought that it reflects. All science is, to some extent, conservative. You find one butterfly that looks weird, you don’t say, “Oh, Darwin was wrong after all.” We have a similar centuries-long experience that markets work tolerably well, and governments running things works pretty disastrously. We have got to think hard before we throw all of that out.
Even our behavioralists are not jumping into “the government needs to run everything.” They are pretty good about (saying) well, if we’re irrational, the guys who are going to regulate us are just as irrational, and they are subject to political biases too. You don’t jump from “We are irrational” to “the federal government is the father who can come and make everything right again.”
Did the government have to step in and save the banks, or should it have let them collapse? Isn’t the free-market view that if Citigroup had been allowed to collapse, Citigroup 2 would quickly have arisen from the ashes?
Yes, this is a good debate we can have. I tend to be fairly sympathetic to that view. Though, in some sense, the government had painted itself into a corner. We did not wake up on September 24 (of 2008) with a completely free market that collapsed. We had a mortgage market that was very much run by the federal government, a very regulated banking system, and everybody expecting that the government was going to bail out the big players.
To say, “wake up on September 24, 2008 and get some spine” is a very different recommendation to saying we need to build a system in which there is less government intervention. If everybody expects you to bail them out than not doing so is much harder.
So, given the circumstances of the time, do you think the federal government did the right things?
No. I don’t want to criticize personalities. If I’m the captain of the Titanic and I’m woken up and somebody says there’s an iceberg two hundred yards ahead, would I have done any better? I don’t know. But I’ve been on the record saying that the TARP policy and the TARP idea—that the key to stabilizing the system was buying up mortgage-backed securities on the secondary market—was a bad idea. Those speeches provoked the panic, probably more than the fact of Lehman going under. When you get the President going on national television and saying, “The financial markets are near collapse,”...if you weren’t about to take all of your short-term debt out of Citigroup, you are going to do so now.
Do you think that what we witnessed was a government failure rather than a market failure?
I think it was a combination, a failure of both. The government set up some regulations. The banks were very quick to get around them. Lots of people did not think enough about counterparty risk, because they thought the government will take care of it. But this was hardly a libertarian paradise gone wrong.
What about today? Do we need more regulation, or should Wall Street be deregulated further, like trucking or telecoms?
Not completely, but a lot more than it is now. And the path we are headed on is allowing the great big banks to do whatever they want with a government guarantee, basically. And then future regulators are going to be so much smarter than the last ones that they’ll keep the banks from getting in trouble, even though we all know we are guaranteeing their losses. This strikes me as a recipe for disaster.
The right and the left agree on that, no?
Yes. (Laughs) If you are going to guarantee them, you can’t guarantee and not regulate. A central bank, a lender of last resort, deposit insurances with the supervision that comes with it—these are reasonable regulations. If you just say regulation versus no regulation that becomes an undergraduate 2 A.M. bullshit fest. Talking about “regulation” vs. “deregulation” in the abstract is pointless. We have to talk about specifics if we want to get anywhere. Stuff like, Do you think credit default swaps should be forced on to exchanges? It’s all very boring to your readers, but unless you are specific you don’t get anywhere... If you are vague, it sounds kind of fun: ideology, Chicago versus Harvard, and so on. But to get anywhere you have to be specific.
The banking research that was done in Chicago before the crisis, about liquidity and so on: Did it attract much internal attention here?
Goodness gracious, yes. It was central. I regard what we went through as not something special or new. We’ve had regular banking panics since at least about 1720. The Diamond and Dybvig paper—(“Bank Runs, Deposit Insurance, and Liquidity,” the Journal of Political Economy, 1983)—which Doug and Phil should have got the Nobel Prize for already, described the fragility of assets where you can run. I don’t think we have systemically dangerous institutions. I think we have systemically dangerous contracts, and bank deposits are one of them, as Doug described. A bank can have risky assets but tell you, “We’ll always pay you a dollar, first come first served.” Doug described how that thing can cause problems, and I think that’s basically what happened.
Doug’s here for a reason. We all said, “Wow, that’s great!” And he’s devoted a career to deepening that analysis. He’s been one of our stars ever since he came here, which must be thirty years ago now.
The two biggest ideas associated with Chicago economics over the past thirty years are the efficient markets hypothesis and the rational expectations hypothesis. At this stage, what’s left of those two?
I think everything. Why not? Seriously, now, these are not ideas so superficial that you can reject them just by reading the newspaper. Rational expectations and efficient markets theories are both consistent with big price crashes. If you want to talk about this, we need to talk about specific evidence and how it does or doesn’t match up with specific theories.
In the United States, we’ve had two massive speculative bubbles in ten years. How can that be consistent with the efficient markets hypothesis?
Great, so now you know how to define “bubbles” for me. I’ve been looking for that for twenty years.
So you take the Greenspan view that bubbles can’t be identified except in retrospect? In 2005, you didn’t think there was a housing bubble?
I think most people mean by a “bubble” just, “Prices were high and I wish I sold yesterday.” The efficient markets (hypothesis) never told you that wasn’t going to happen. What efficient markets says is that prices today contain the available information about the future. Why? Because there’s competition. If you think it’s going to go up tomorrow, you can put your money where your mouth is, and your doing it sends (the price) up today. Efficient markets are not clairvoyant markets. People say, “nobody foresaw saw the market crash.” Well, that’s exactly what an efficient market is—it’s one in which nobody can tell you where it’s going to go. Efficient markets doesn’t say markets will never crash. It certainly doesn’t say markets are clairvoyant. It just says that, at that moment, there are just as many people saying its undervalued as overvalued. That certainly seems to be the case.
Ok, now you know what “efficient markets” means. What is there about recent events that would lead you to say that markets are inefficient? The market crashed, to which I would say, we had the events last September in which the President gets on television and says the financial markets are near collapse. On what planet do markets not crash after that?
There are things, by the way, that I saw last year that say markets are not efficient, but not the ones you had in mind. The interesting things about efficiency are going to be more boring to your readers. There were lots of little arbitrages. For example, you could buy a corporate bond or you could write a credit default swap and buy a Treasury (bond). Those are economically the same thing, but one of those was trading about three per cent higher than the other: one was eighty-two, the other was eighty-five.
So there were arbitrage opportunities?
Well, close to arbitrage opportunities. The problem was that you need funding. You needed to be able to borrow money to buy the corporate bond, and it was hard to borrow money. Those are, strictly speaking, violations of efficiency. Two ways of getting the same thing for a different price—that smells. You’ve gotta rethink some part of your theory. What we saw were funding and liquidity frictions. Those were really interesting last winter.
But that’s not: Why did we see house prices go up and come down? Why did we see stock prices go up and come down? Those things are not new. We saw stock prices go up and come down in the nineteen-twenties, the nineteen-fifties, the nineteen-seventies...
You appear to be saying that the efficient markets hypothesis doesn’t have any implications for the absolute level of prices, just relative prices. How can that be a theory of pricing?
It does have implications for absolute pricing, and the focus of rational/irrational debate is exactly on this question. But last fall was not a particularly new and puzzling data point. The phenomenon of prices going up and coming down is something we have been chewing on for twenty years. So here are the facts:
When house prices are high relative to rents, when stock prices are high relative to earnings—that seems to signal a period of low returns. When prices are high relative to earnings, it’s not going to be a great time to invest over the next seven to ten years. That’s a fact. It took us ten years to figure it out, but that’s what (Robert) Shiller’s volatility stuff was about; it is what Gene (Fama)’s regressions in the nineteen-eighties were about. That was a stunning new fact. Before, we would have guessed that prices high relative to earnings means we are going to see great growth in earnings. It turned out to be the opposite. We all agree on the fact. If prices are high relative to earnings that means this is going to be a bad ten years for stocks. It doesn’t reliably predict a crash, just a period of low returns, which sometimes includes a crash, but sometimes not.
Ok, this is the one and only fact in this debate. So what do we say about that? Well, one side says that people were irrationally optimistic. The other side says, wait a minute, the times when prices are high are good economic times, and the times when prices are low are times when the average investor is worried about his job and his business. Look at last December (2008). Lots of people saw this was the biggest buying opportunity of all time, but said, “Sorry, I’m about to lose my job, I’m about to lose my business, I can’t afford to take more risk right now.” So we would say, “Aha, the risk premium is higher!”
So that’s now where this debate is. We’re chewing out: Is it a risk premium that varies over time, or is it psychological variation? So your question is right, but it is not as obvious as: “Stocks crashed. We must all be irrational.”
And if the explanation is time-varying risk premiums, it could all be consistent with rationality and market efficiency?
Yes. Now, how do you solve this debate? This is supposed to be science. You need a model. You need some quantifiable way of saying, “What is the right risk premium?” or, “What is the level of irrationality—optimism or pessimism?” And we need that not to be a catchall explanation that says, “Oh, tomorrow if prices go up it must mean there is a return to optimism.” That’s the challenge. That’s what we all work on. Both sides say, “We don’t have that model yet.”
(Later in the interview, I brought up the efficient market hypothesis again. This time, Cochrane argued that in some ways what happened to the credit markets was a vindication of the theory, because it showed investors generally can’t beat the market without taking on more risk. Here is what he said:)
If you listened to Eugene Fama and believed that markets are efficient, you wouldn’t have invested in auction rate securities that claimed to be as good as cash, but which offered fifty extra basis points. You wouldn’t have invested in a Triple A rated mortgage-backed securities pool that said this is as good as Treasuries, but offered fifty extra basis points of yield. The whole point of efficient markets theory is that you can’t beat the market without taking on more risk. People (here) were saying for years, if you invest in hedge funds that make abnormally high returns there is an earthquake risk, a tail risk, that nobody is telling you about.
What about the rational expectations hypothesis? Richard Posner is a Keynesian now?
I don’t want to comment on Posner. He’s a nice guy. But I spend my life trying to understand this stuff. My last two papers, which took me three years, were on determinacy conditions in New-Keynesian models. It took me a lot of time and a lot of math. If Posner can keep with that and with Law and Economics, good for him. (Laughs)
Rational expectations. Again, it is good to be specific. What is rational expectations? It is the statement that you fool all the people all the time. In the nineteen-sixties, people said the government can give us a burst of inflation, and that will give us a little boom in output because people will be fooled. They’ll think inflation means they are getting paid better for their work and they’ll be fooled into working harder. The rational expectations guys said, “Well that may happen once or twice, but sooner or later they will catch on.” The principle that you can’t fool all the people all the time seems a pretty good principle to me. So, again, I say be specific. What do you see about the world that invalidates the theory of rational expectations?
O.K. The rational expectations hypothesis by itself is a technical device. But when you marry it to what is, basically, a market-clearing model, which is what Bob Lucas and others did, there is no room for involuntary unemployment, for example. Recessions are a matter of workers voluntarily substituting leisure for work. Is that realistic?
O.K. Now, we are going beyond Lucas to Ed Prescott and the real business cycle school. Today, there is no “freshwater versus saltwater.” There is just macro. What most people are doing is adding frictions to it. We are playing by the (Finn) Kydland and Prescott rules but adding some frictions.
But unemployment is now ten percent. That seems to be inconsistent with a market-clearing model, no?
It’s not as simple as that. Unemployment is job search. I think the rational expectations guys made incredibly valuable contributions. First, the way you do macro. You don’t just write down consumption, investment, and so forth. You really write down an economy. You talk about people and what they want. You talk about their productive opportunities. You talk about market structure. That revolution in macroeconomics remains. New-Keynesians? One hundred per cent, yes: this is how we do things.
The second valuable contribution: As of the seventies, people took for granted is that the way the economy should work is that potential output always looks like this. (Cochrane stood up at the chalk board and drew and straight line rising from left to right.) And anything that looks like this (Cochrane drew a line that zig-zagged as it rose from left to right) is bad. Unemployment should always be constant. Well, wait a minute. That’s not true. The upward trend comes from productivity, and where is it written on tablets that productivity grows at 3.0259 percent constantly. In the nineteen-nineties, you discover the Internet, and it makes sense for output to grow faster, and for everybody under the age of thirty to spend twenty hours a day writing websites. So the baseline of an economy working well will include some fluctuations, and the baseline of an economy well will also include some fluctuations in unemployment.
When we discover we made too many houses in Nevada some people are going to have to move to different jobs, and it is going to take them a while of looking to find the right job for them. There will be some unemployment. Not as much as we have, surely, but some. Right now, ten percent of people are unemployed. Many of them could find a job tomorrow at Wal-Mart but it is not the right job for them—and I agree, it is not the right job for them. That doesn’t mean the world would be right if they took those jobs at Wal-Mart. But some component of unemployment is people searching for better fits after shifts that have to happen. The baseline shouldn’t be that unemployment is always constant. So that is a big and enduring contribution—some amount of fluctuation does come out of a perfectly functioning economy. Now have to talk about how much, not just look at any unemployment and say markets are busted.
Is ten per cent the right number? Now we are talking opinions. My opinion is I agree with you. What we are seeing is the after-effects of a financial crisis that is socially not optimal—agreed one hundred per cent. But what we need is models, data, predictions to really talk about this. Not my opinion versus your opinion.
Years ago, Bob Lucas said something similar to what you are saying about the Great Depression—that many of the unemployed could have taken jobs at lower wages.
Yes, but it wasn’t the right thing for them to do. Let me not even hint that this is the right thing now. We had a financial crisis last fall which was socially not optimal. This is probably where the Minnesota crowd would disagree. It seems to me pretty obvious that we had a financial crisis last fall, a freezing up of short-term credit markets, a flight to quality. As a result of that financial crisis, we saw a lot of real effects that didn’t have to happen. Businesses closed and people lost their jobs. It didn’t have to happen. Now in a way, this is what we saw in 1907, 1921, 1849—you can say we’ve seen these things before. There I would agree with you, rather than with some mythical figure from Minnesota who says finance is just totally irrelevant. That makes no sense.
Is that the lesson here—that we need to integrate finance into macroeconomics?
Well, yeah...I’ve been preaching that for twenty years. I do half finance and half macro. I see this as a great research opportunity. People who are trained in macro, they think about the interest rate. They don’t think about variation in credit spreads or risk premiums. In my finance (research), I see risk and risk premiums as being what matters most. Macro until a couple of years ago wasn’t really thinking about risk and risk premiums. It was just, oh, the Fed and the level of interest rates. So I’ve thought these things should marry each other for a long time. But that’s an easy thought to have. Doing it is the hard part.
Has anybody got anywhere on it?
Oh yeah, but it’s hard. Asking big questions, talking about fashionable ingredients is easy, it’s the answers that are hard, actually cooking the soup. People also say economics needs to incorporate the insights of psychology. Great. Thanks. I’ve heard that from (Robert) Shiller for thirty years. Do it! And do it not just in a way that can explain anything. Let’s see a measure of the psychological state of the market that could come out wrong. That’s hard to do. Calling for where research should go is fun, but I think it’s far too easy.
Back to John Maynard Keynes. Judge Posner is not the only who has rediscovered him and his policy prescriptions. You have been very critical of the Obama administration’s stimulus package and of the Keynesian revival. Why?
Look, evaluating economic models is a lot harder than just staring out the window and saying, “This is going on. Keynes was right.” Nothing in the incoming data has removed the inconsistencies that plagued Keynesian economics for forty years until it was thrown out. I mean, we threw it out for a reason. It didn’t work in the data. When inflation came in the nineteen-seventies that was a major failure of Keynesian economics. It was logically incoherent.
What happened is the government wanted to spend a lot of money. They said “Keynesian stimulus” and people got excited. What event, what data says we’ve got to go back to Keynesianism? Again, I’m going to throw it back on you. What about it other than that Paul Krugman thinks we need another stimulus tells us that this is an idea to be rehabilitated?
You don’t believe stimulus packages work. You are arguing what—every dollar the government dissaves somebody else saves with an eye to the future tax burden? The so-called “Ricardian equivalence” argument: Is that it?
I would go further. Ricardian equivalence is a theorem, a theorem whose “ifs” are false. But it is a nice background theorem. In the world of that theorem, deficit finance spending has no effect whatsoever—really, no effect different from taxing people now and spending—because, as you mentioned, people offset it by saving more. Now, we know that theorem is false. One of the ifs is “if the government raises taxes by lump sum payments.” In fact, the government raises money by taxes that distort incentives, so, if anything, you are going to get a negative multiplier—a bad thing. However, government spending also changes the composition of output. You build roads. There are lots of models where you can have a positive effect, so I don’t want to say exactly zero. But if you want to get a multiplier you have to say exactly which “if” is false, exactly what friction you think the government can exploit to improve things by borrowing and spending and how.
What do you think the fiscal policy multiplier is?
I think it is the wrong question. In many models with positive multipliers it is socially bad to do it. Just because you get more output doesn’t mean it is a good thing. People have pointed to World War II and (said), oh, there’s a case where we had lots of output. “Well, let’s fight World War II again” is not socially good.
So is that your argument against the stimulus? Or you just don’t think it will work?
The claim was that this would, on net, reduce unemployment, create jobs, improve the economy in some quantifiable way. I just don’t think it is going to happen. My guess is (that the impact is) a lot closer to zero, and probably slightly negative, for deficit spending right now.
Why? What is the mechanism that prevents it from working?
It is even deeper than saying people will respond by saving. First of all, there’s this presumption that spending is good and saving is bad—except that we also want saving to be good and consuming bad. Let me try to put it (like this): You save money. It goes into a bank, which lends it out to somebody to buy a forklift. Why is that bad, but you buying a car with the same money is good? So, presumption number one, that consuming rather than saving is good for the economy, I don’t get that. The Chinese are investing fifty per cent of their income, and they seem to be booming.
Second, just on basic accounting: I’m going to be the government, I’m going to borrow from you, and I’m going to spend it. So over here, that’s more output. But you were going to do something with that dollar, which is now invested in government debt. Now, what else were you going to do with it? Well, you were going to buy a mortgage backed security; you might have bought a car. You were going to do something with that money. So, on basic dollar accounting, if I take that money that’s a dollar more demand, but you have a dollar less demand.
Barro’s theorem is about tax vs. debt financing having no effect whatsoever. This is a deeper point. If you were going go buy a car, and I, the government, go and build a road, we have one less car and one more road, so there is an effect. But we have one less car. That money has to come from somewhere. That’s what people miss out when they think about the stimulus.
What about if foreign investors are buying the government bonds, as they are in the U.S. case? Surely, they are not crowding out domestic demand?
Well, that makes it harder to explain. We have to go through the fact that trade is balanced. If they were not buying the bonds, they were going to do something with that money, and blah, blah, blah. You can shuffle resources around, but you can’t create anything out of thin air.
The other reason I’ve been against the stimulus: it’s pretty clear what the problem with the economy was. For once, we know why stock prices went down, we know why we had a recession. We had a panic. We had a freeze of short-term debt. If somebody falls down with a heart attack, you know he has a clogged artery. A shot of cappuccino is not what he needs right now. What he needs is to unclog the artery. And the Fed was doing some remarkably interesting things about unclogging arteries. Even if (the stimulus) was the solution, it’s the solution to the wrong problem.
If I were Keynes, I would say we are in a recession; we are not the potential output level. There are unemployed resources out there. You’re argument may be correct at full-employment, but when there are unemployed resources out there we can make something out of nothing.
Possibly, but it’s not obvious how “stimulus” is going to help this recession. Think about an unemployed accountant in New Jersey, fired from a big bank. How is going to build a road in Montana going to help him? Keynes thought of a world in the nineteen-thirties where labor was more amorphous labor. If you hired people to dig ditches, that would solve the unemployment line in the car industry. We have very specialized labor, and just hiring people doesn’t resolve the problem. Somebody who lost their job in a bank—building more roads is not going to help them.
It’s a long logical leap from the fact of unemployed resources to the proposition that the federal government borrowing another trillion dollars and spending on pork is going to make those resources employed again.
So what should the government response have been?
Not making so many mistakes. First rule: do no harm. What we experienced was a fairly classic bank run, panic, whatever. There were good things the government did. The Fed intervened very creatively, in sort of a classic lender of the last resort way. We also did a lot of stuff—lots of bailouts—that didn’t need to be done. I think the TARP was silly. The equity injections were silly. Lender of the last resort—get frozen markets going again, and get out of the way—is probably plenty.
And don’t cause more panic. There was lots of confusion and uncertainty about: What’s the government going to do? When is it going to do it? Who is going to get bailed out? Who isn’t going to get bailed out? That doesn’t help.
Where should we go from here? If you were hired as head of the White House Council of Economic Advisers, what would you tell the President?
I’d get fired in about five minutes. I’d start with a broad deregulatory approach to health care reform. There, I just got fired. Financial deregulation, yes, but going in the opposite direction to where they are going. Financial regulation based on getting out of this too-big-to-fail cycle. Setting it up so that those things that have to be protected are, but in as limited a way as possible. Simple, transparent reform.
And I think the government needs to encourage Wall Street to solve its own problems. Let’s go back to Bear Stearns. Here we had a proprietary trading group married to a brokerage. We discovered you could have runs on brokerage accounts—that was the systemic thing. So what I thought would happen after that is that Wall Street would say, “Oh wow, we’ve got a problem!” Marrying proprietary trading to brokerage is like managing gambling to bank deposits. What I thought Wall Street would say is: “We’ve got to separate these things. Customers want to know that their brokerage isn’t going to get dragged down by the proprietary trading desk, and we want to separate them fast so that Washington doesn’t come in and regulate us.” Unfortunately, that’s not what happened. What happened is that everybody said, “Aha, the Fed is going to bail us all out. We can keep this game going forever.”
So what I would like to see is a strong (statement): “You guys have got to set this us so it can go bankrupt next time around. And we are going to set it up so we don’t even have the legal authority to bail you out, so you’d better get cracking.”
You mean a new Glass-Steagall act for Wall Street? Or some version thereof?
Yeah...Glass Steagall itself had a lot of problems, but some of the basic ideas are good.
But the same principle—separating the casino from the utility?
Separating the casino from the dangerous contracts—yes. We all understand that you can’t run an institution that offers bank accounts and gambling in the same place. We are trying to do that now in the hope that the regulators will watch the gamblers. That’s not going to work.
It appears that there is liberal and conservative agreement on this issue.
Yes. Which brings me back to where you started. It’s not about liberal or conservative, and analysis of these things doesn’t have to be ideological. Let’s just think through what works and look hard at the evidence.
Fonte: New Yorker
sexta-feira, 22 de janeiro de 2010
quinta-feira, 21 de janeiro de 2010
Entrevista com Eugene Fama
I met Eugene Fama in his office at the Booth School of Business. I began by pointing out that the efficient markets hypothesis, which he promulgated in the nineteen-sixties and nineteen-seventies, had come in for a lot of criticism since the financial crisis began in 1987, and I asked Fama how he thought the theory, which says prices of financial assets accurately reflect all of the available information about economic fundamentals, had fared.
Eugene Fama: I think it did quite well in this episode. Stock prices typically decline prior to and in a state of recession. This was a particularly severe recession. Prices started to decline in advance of when people recognized that it was a recession and then continued to decline. There was nothing unusual about that. That was exactly what you would expect if markets were efficient.
Many people would argue that, in this case, the inefficiency was primarily in the credit markets, not the stock market—that there was a credit bubble that inflated and ultimately burst.
I don’t even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means. I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.
I guess most people would define a bubble as an extended period during which asset prices depart quite significantly from economic fundamentals.
That’s what I would think it is, but that means that somebody must have made a lot of money betting on that, if you could identify it. It’s easy to say prices went down, it must have been a bubble, after the fact. I think most bubbles are twenty-twenty hindsight. Now after the fact you always find people who said before the fact that prices are too high. People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.
Are you saying that bubbles can’t exist?
They have to be predictable phenomena. I don’t think any of this was particularly predictable.
Is it not true that in the credit markets people were getting loans, especially home loans, which they shouldn’t have been getting?
That was government policy; that was not a failure of the market. The government decided that it wanted to expand home ownership. Fannie Mae and Freddie Mac were instructed to buy lower grade mortgages.
But Fannie and Freddie’s purchases of subprime mortgages were pretty small compared to the market as a whole, perhaps twenty or thirty per cent.
(Laughs) Well, what does it take?
Wasn’t the subprime mortgage bond business overwhelmingly a private sector phenomenon involving Wall Street firms, other U.S. financial firms, and European banks?
Well, (it’s easy) to say after the fact that things were wrong. But at the time those buying them didn’t think they were wrong. It isn’t as if they were naïve investors, or anything. They were all the big institutions—not just in the United States, but around the world. What they got wrong, and I don’t know how they could have got it right, was that there was a decline in house prices around the world, not just in the U.S. You can blame subprime mortgages, but if you want to explain the decline in real estate prices you have to explain why they declined in places that didn’t have subprime mortgages. It was a global phenomenon. Now, it took subprime down with it, but it took a lot of stuff down with it.
So what is your explanation of what happened?
What happened is we went through a big recession, people couldn’t make their mortgage payments, and, of course, the ones with the riskiest mortgages were the most likely not to be able to do it. As a consequence, we had a so-called credit crisis. It wasn’t really a credit crisis. It was an economic crisis.
But surely the start of the credit crisis predated the recession?
I don’t think so. How could it? People don’t walk away from their homes unless they can’t make the payments. That’s an indication that we are in a recession.
So you are saying the recession predated August 2007, when the subprime bond market froze up?
Yeah. It had to, to be showing up among people who had mortgages. Nobody who’s doing mortgage research—we have lots of them here—disagrees with that.
So what caused the recession if it wasn’t the financial crisis?
(Laughs) That’s where economics has always broken down. We don’t know what causes recessions. Now, I’m not a macroeconomist so I don’t feel bad about that. (Laughs again.) We’ve never known. Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity.
Let me get this straight, because I don’t want to misrepresent you. Your view is that in 2007 there was an economic recession coming on, for whatever reason, which was then reflected in the financial system in the form of lower asset prices?
Yeah. What was really unusual was the worldwide fall in real estate prices.
So, you get a recession, for whatever reason, that leads to a worldwide fall in house prices, and that leads to a financial collapse...
Of the mortgage market…What’s the reality now? Everybody talks about a credit crisis. The variance of stock returns for the market as a whole went up to, like, sixty per cent a year—the Vix measure of volatility was running at about sixty per cent. What that implies is not a credit market crisis. It would be stupid for anybody to give credit in those circumstances, because the probability that any borrower is going to be gone within a year is pretty high. In an efficient market, you would expect that debt would shorten up. Any new debt would be very short-term until that volatility went down.
But what is driving that volatility?
(Laughs) Again, its economic activity—the part we don’t understand. So the fact we don’t understand it means there’s a lot of uncertainty about how bad it really is. That creates all kinds of volatility in financial prices, and bonds are no longer a viable form of financing.
And all that is consistent with market efficiency?
Yes. It is exactly how you would expect the market to work.
Taking a somewhat broader view, the usual defense of financial markets is that they facilitate investment, facilitate growth, help to allocate resources to their most productive uses, and so on. In this instance, it appears that the market produced an enormous amount of investment in real estate, much of which wasn’t warranted...
After the fact...There was enormous investment across the board: it wasn’t just housing. Corporate investment was very high. All forms of investment were very high. What you are really saying is that somewhere in the world people were saving a lot—the Chinese, for example. They were providing capital to the rest of the world. The U.S. was consuming capital like it was going out of sight.
Sure, but the traditional Chicago view has been that the financial markets do a good job of allocating that capital. In this case it, they didn’t—or so it appears.
(Pauses) A lot of mortgages went bad. A lot of corporate debt went bad. A lot of debt of all sorts went bad. I don’t see how this is a special case. This is a problem created by a general decline in asset prices. Whenever you get a recession, it turns out that you invested too much before that. But that was unpredictable at the time.
There were some people out there saying this was an unsustainable bubble…
Right. For example, (Robert) Shiller was saying that since 1996.
Yes, but he also said in 2004 and 2005 that this was a housing bubble.
O.K., right. Here’s a question to turn it around. Can you have a bubble in all asset markets at the same time? Does that make any sense at all? Maybe it does in somebody’s view of the world, but I have a real problem with that. Maybe you can convince me there can be bubbles in individual securities. It’s a tougher story to tell me there’s a bubble in a whole sector of the market, if there isn’t something artificial going on. When you start telling me there’s a bubble in all markets, I don’t even know what that means. Now we are talking about saving equals investment. You are basically telling me people are saving too much, and I don’t know what to make of that.
In the past, I think you have been quoted as saying that you don’t even believe in the possibility of bubbles.
I never said that. I want people to use the term in a consistent way. For example, I didn’t renew my subscription to The Economist because they use the world bubble three times on every page. Any time prices went up and down—I guess that is what they call a bubble. People have become entirely sloppy. People have jumped on the bandwagon of blaming financial markets. I can tell a story very easily in which the financial markets were a casualty of the recession, not a cause of it.
That’s your view, correct?
Yeah.
I spoke to Richard Posner, whose view is diametrically opposed to yours. He says the financial crisis and recession presents a serious challenge to Chicago economics.
Er, he’s not an economist. (Laughs) He’s an expert on law and economics. We are talking macroeconomics and finance. That is not his area.
So you wouldn’t take what he says seriously?
I take everything he says seriously, but I don’t agree with him on this one. And I don’t think the people here who are more attuned to these areas agree with him either.
His argument is that the financial system brought down the economy, and not vice versa.
Well then, you can say that about every recession. Even if you believe that, which I don’t, I wonder how many economists would argue that the world wasn’t made a much better place by the financial development that occurred from 1980 onwards. The expansion of worldwide wealth—in developed countries, in emerging countries—all of that was facilitated, in my view, to a large extent, by the development of international markets and the way they allow saving to flow to investments, in its most productive uses. Even if you blame this episode on financial innovation, or whatever you want to blame, would that wipe out the previous thirty years of development?
What about here in Chicago—has there been a lot of discussion about all this, the financial crisis, and what it means, and so on?
Lots of it. Typical research came to a halt. Everybody got involved.
Everybody’s got a cure. I don’t trust any of them. (Laughs.) Even the people I agree with generally. I don’t think anybody has a cure. The cure is to a different problem. The cure is to a new problem that we face—the “too-big-to-fail” problem. We can’t do without finance. But if it becomes the accepted norm that the government steps in every time things go bad, we’ve got a terrible adverse selection problem.
So what is the solution that problem?
The simple solution is to make sure these firms have a lot more equity capital—not a little more, but a lot more, so they are not playing with other people’s money. There are other people here who think that leverage is an important part of they system. I am not sure I agree with them. You talk to Doug Diamond or Raghu Rajan, and they have theories for why leverage in financial institutions has real uses. I just don’t think that those effects are as important as they think they are.
Let’s say the government did what you recommend, and forced banks to hold a lot more equity capital. Would it then also have to restructure the industry, say splitting up the big banks, as some other experts have recommended?
No. If you think about it...I’m a student of Merton Miller, after all. In the Modigliani-Miller view of the world, it’s only the assets that count. The way you finance them doesn’t matter. If you decide that this type of activity should be financed more with equity than debt, that doesn’t particularly have adverse effects on the level of activity in that sector. It is just splitting the risk differently.
Some people might say one of the big lessons of the crisis is that the Modigliani-Miller theory doesn’t hold. In this case, the way that things were financed did matter. People and firms had too much debt.
Well, in the Modigliani-Miller world there are zero transaction costs. But big bankruptcies have big transaction costs, whereas if you’ve got a less levered capital structure you don’t go into bankruptcy. Leverage is a problem...
The experiment we never ran is, suppose the government stepped aside and let these institutions fail. How long would it have taken to have unscrambled everything and figured everything out? My guess is that we are talking a week or two. But the problems that were generated by the government stepping in—those are going to be with us for the foreseeable future. Now, maybe it would have been horrendous if the government didn’t step in, but we’ll never know. I think we could have figured it out in a week or two.
So you would have just let them...
Let them all fail. (Laughs) We let Lehman fail. We let Washington Mutual fail. These were big financial institutions. Some we didn’t let fail. To me, it looks like there was not much rhyme or reason to it.
What about Ben Bernanke and Hank Paulson’s argument that if they hadn’t taken action to save the banks the whole financial system would have come crashing down?
Maybe it would have—for a week or two. But it pretty much stopped for a week or two anyway. The credit markets stopped for more than a week or two. But I think that was really a function of increased uncertainty about the future.
Did you think this at the time—that the government should let the banks fail?
Yeah—let ‘em, let ‘em. Because the failures of, like, Washington Mutual and Wachovia—other banks came swooping in to pick up their deposits and their other good assets. Of, course, they didn’t want their bad assets, but that’s the nature of bankruptcy. The activities that these banks were engaged in would have continued.
Why do you think the government didn’t just step back and let it happen? Was the government in hock to Wall Street, as many have claimed?
No. I think the government, Bernanke...Bob Lucas, I shouldn’t quote Bob Lucas, but what he says is “not on my watch.” That, basically, there is just a high degree of risk aversion on the part of people currently in government. They don’t want to be blamed for bad outcomes, so they are willing to do bad things to avoid them. I think Bernanke has been the best of the performers.
Back to Chicago economics. Is there still anything distinctive about Chicago, or have the rest of the world and Chicago largely converged, which is what Richard Posner thinks?
The rest of the world got converted to the notion that markets are pretty good at allocating resources. The more extreme of the left-leaning economists got blown away by the collapse of the Eastern bloc. Socialism had its sixty years, and it failed miserably. In that way, Chicago theory prospered. Milton Friedman and George Stigler were fighting that battle pretty much alone in the old days. Now it is pretty general. An experience like we’ve had rehabilitates the remnants of the old socialist gang. (Laughs) Unfortunately, they seem to be in control of the government, at this point.
In the old days, a person like (Richard) Thaler would have had trouble getting a job here. But that was a period of time when Chicago economics was basically under attack the world over. There was a kind of a bunker mentality. But now we’ve become more confident. Now, our only criterion is we want the best people who do whatever they do. As long as they are honest about it, and they respect other people’s work, and we respect their work, great.
I know the business school has a lot of diversity, but is that also true of the university economics department?
Sure. John List is over there. He’s a behavioral economist. Steve Levitt is a very unusual type of economist. His brand of economics, which is an extension of Gary’s is taking over microeconomics.
I spoke to Becker. His view is that what remains distinctive about Chicago is its degree of skepticism toward the government.
Right—that’s true even of Dick (Thaler). I think that is just rational behavior. (Laughs) It took people a long time to realize that government officials are self-interested individuals, and that government involvement in economic activity is especially pernicious because the government can’t fail. Revenues have to cover costs—the government is not subject to that constraint.
So you don’t accept the view, which Paul Krugman, Larry Summers, and others have put forward, that what has happened represents a rehabilitation of government action—that the government prevented a catastrophe?
Krugman wants to be the czar of the world. There are no economists that he likes. (Laughs)
And Larry Summers?
What other position could he take and still have a job? And he likes the job.
What is your view on regulating Wall Street? Do we need more of it?
I think it is inevitable, if you accept the view that the government will bail out the biggest firms if they get into trouble. But I don’t think it will work. Private companies are very good at inventing ways around the regulations. They will find ways to do things that are in the letter of the regulations but not in the spirit. You are not going to be able to attract the best people to be regulators.
That sounds like an old-fashioned Chicago argument—skepticism about regulation.
Yes. We have Ragu (Rajan), Doug Diamond—they are as good banking people as there are in the world. I have been listening to them for six months, and I would not trust them to write the regulations. In the end, there is so much uncertainty, and so much depends on how people will react to certain things that nobody knows what good regulation would be at this point. That is what is scary about government bailouts of big institutions.
So what should we do? If the President called you tomorrow and said, “Gene, I don’t think our way is working. What should we do?” How would you respond?
I don’t know if these are even the big issues of the time. I think that what is going on in health care could end up being more important. I don’t think we are going down the right road there. Insurance is not the solution: it’s the problem. Making the problem more widespread is not going to solve it.
When all this (the financial crisis) started, I joined the debate. Then I stepped back and said, I’m really not comfortable with my insights into what the best way of proceeding is. Let me sit back and listen to people. So I listened to all the experts, local and otherwise. After a while, I came to the conclusion that I don’t know what the best thing to do it, and I don’t think they do either. (Laughs) I don’t think there is a good prescription. So I went back and started doing my own research.
Couldn’t we just ban further bailouts, passing a constitutional amendment if necessary? That would be in line with your views, wouldn’t it?
Right, but is that credible? It’s very difficult to explain how A.I.G. issued all the credit default swaps it issued if people didn’t think the government was going to step in and bail them out. Government pledged, in any case, have little credibility. But that one—I think it’s pretty sure that we they couldn’t live up to it.
What will be financial crisis’s legacy for the subject of economics? Will there be big changes?
I don’t see any. Which way is it going to go? If I could have predicted that, that’s the stuff I would have been working on. I don’t see it. (Laughs) I’d love to know more about what causes business cycles.
What lessons have you learned from what happened?
Well, I think the big sobering thing is that maybe economists, like the population as a whole, got lulled into thinking that events this large couldn’t happen any more—that a recession this big couldn’t happen any more. There’ll be a lot of work trying to figure out what happened and why it happened, but we’ve been doing that with the Great Depression since it happened, and we haven’t really got to the bottom of that. So I don’t intend to pursue that. I used to do macroeconomics, but I gave (it) up long ago.
Back to the efficient markets hypothesis. You said earlier that it comes out of this episode pretty well. Others say the market may be good at pricing in a relative sense—one stock versus another—but it is very bad at setting absolute prices, the level of the market as a whole. What do you say to that?
People say that. I don’t know what the basis of it is. If they know, they should be rich men. What better way to make money than to know exactly about the absolute level of prices.
So you still think that the market is highly efficient at the overall level too?
Yes. And if it isn’t, it’s going to be impossible to tell.
For the layman, people who don’t know much about economic theory, is that the fundamental insight of the efficient market hypothesis—that you can’t beat the market?
Right—that’s the practical insight. No matter what research gets done, that one always looks good.
What about the findings that long periods of high returns are followed by long periods of low returns?
Now, there is no evidence of that...The expected return on stocks is just a price—the price people require to bear the market risk. Like any price, it should vary from time to time, and maybe it should vary in predictable ways. I’ve done a lot of work purporting to show there’s a little bit of predictability in overall market returns, but that branch of the literature has so many statistical problems there’s not a lot of agreement.
The problem is that, almost surely, expected returns vary through time because of risk aversion—wealth, everything else varies through time. But measuring that requires that you have a good variable for tracking (risk aversion) or good models for tracking it. We don’t have that. The way that people do it, including me, is by using kind of ad hoc variables to pick it up. All the argument centers on whether what’s picked up by these variables is really what’s there, or whether it is just kind of a statistical fluke. There’s a whole issue of the Review of Financial Studies with people arguing very vociferously on both sides of that. When that happens, you know that none of the results are very reliable.
Do you and Dick Thaler discuss this stuff when you are playing golf?
Sure. We don’t want to discuss his golf game, that’s for sure.
Has the advance of all this behavioral stuff, behavioral finance, made you rethink anything?
Yes, sure. I’ve always said they are very good at describing how individual behavior departs from rationality. That branch of it has been incredibly useful. It’s the leap from there to what it implies about market pricing where the claims are not so well-documented in terms of empirical evidence. That line of research has survived the market test. More people are getting into it.
But you are skeptical about the claims about how irrationality affects market prices?
It’s a leap. I’m not saying you couldn’t do it, but I’m an empiricist. It’s got to be shown.
Thanks very much. Finally, before I go, what about Paul Krugman’s recent piece in the New York Times Magazine, in which he attacked Chicago economics and the efficient markets hypothesis. What did you think of it?
(Laughs) My attitude is this: if you are getting attacked by Krugman, you must be doing something right.
Fonte: New Yorker
Eugene Fama: I think it did quite well in this episode. Stock prices typically decline prior to and in a state of recession. This was a particularly severe recession. Prices started to decline in advance of when people recognized that it was a recession and then continued to decline. There was nothing unusual about that. That was exactly what you would expect if markets were efficient.
Many people would argue that, in this case, the inefficiency was primarily in the credit markets, not the stock market—that there was a credit bubble that inflated and ultimately burst.
I don’t even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means. I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.
I guess most people would define a bubble as an extended period during which asset prices depart quite significantly from economic fundamentals.
That’s what I would think it is, but that means that somebody must have made a lot of money betting on that, if you could identify it. It’s easy to say prices went down, it must have been a bubble, after the fact. I think most bubbles are twenty-twenty hindsight. Now after the fact you always find people who said before the fact that prices are too high. People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.
Are you saying that bubbles can’t exist?
They have to be predictable phenomena. I don’t think any of this was particularly predictable.
Is it not true that in the credit markets people were getting loans, especially home loans, which they shouldn’t have been getting?
That was government policy; that was not a failure of the market. The government decided that it wanted to expand home ownership. Fannie Mae and Freddie Mac were instructed to buy lower grade mortgages.
But Fannie and Freddie’s purchases of subprime mortgages were pretty small compared to the market as a whole, perhaps twenty or thirty per cent.
(Laughs) Well, what does it take?
Wasn’t the subprime mortgage bond business overwhelmingly a private sector phenomenon involving Wall Street firms, other U.S. financial firms, and European banks?
Well, (it’s easy) to say after the fact that things were wrong. But at the time those buying them didn’t think they were wrong. It isn’t as if they were naïve investors, or anything. They were all the big institutions—not just in the United States, but around the world. What they got wrong, and I don’t know how they could have got it right, was that there was a decline in house prices around the world, not just in the U.S. You can blame subprime mortgages, but if you want to explain the decline in real estate prices you have to explain why they declined in places that didn’t have subprime mortgages. It was a global phenomenon. Now, it took subprime down with it, but it took a lot of stuff down with it.
So what is your explanation of what happened?
What happened is we went through a big recession, people couldn’t make their mortgage payments, and, of course, the ones with the riskiest mortgages were the most likely not to be able to do it. As a consequence, we had a so-called credit crisis. It wasn’t really a credit crisis. It was an economic crisis.
But surely the start of the credit crisis predated the recession?
I don’t think so. How could it? People don’t walk away from their homes unless they can’t make the payments. That’s an indication that we are in a recession.
So you are saying the recession predated August 2007, when the subprime bond market froze up?
Yeah. It had to, to be showing up among people who had mortgages. Nobody who’s doing mortgage research—we have lots of them here—disagrees with that.
So what caused the recession if it wasn’t the financial crisis?
(Laughs) That’s where economics has always broken down. We don’t know what causes recessions. Now, I’m not a macroeconomist so I don’t feel bad about that. (Laughs again.) We’ve never known. Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity.
Let me get this straight, because I don’t want to misrepresent you. Your view is that in 2007 there was an economic recession coming on, for whatever reason, which was then reflected in the financial system in the form of lower asset prices?
Yeah. What was really unusual was the worldwide fall in real estate prices.
So, you get a recession, for whatever reason, that leads to a worldwide fall in house prices, and that leads to a financial collapse...
Of the mortgage market…What’s the reality now? Everybody talks about a credit crisis. The variance of stock returns for the market as a whole went up to, like, sixty per cent a year—the Vix measure of volatility was running at about sixty per cent. What that implies is not a credit market crisis. It would be stupid for anybody to give credit in those circumstances, because the probability that any borrower is going to be gone within a year is pretty high. In an efficient market, you would expect that debt would shorten up. Any new debt would be very short-term until that volatility went down.
But what is driving that volatility?
(Laughs) Again, its economic activity—the part we don’t understand. So the fact we don’t understand it means there’s a lot of uncertainty about how bad it really is. That creates all kinds of volatility in financial prices, and bonds are no longer a viable form of financing.
And all that is consistent with market efficiency?
Yes. It is exactly how you would expect the market to work.
Taking a somewhat broader view, the usual defense of financial markets is that they facilitate investment, facilitate growth, help to allocate resources to their most productive uses, and so on. In this instance, it appears that the market produced an enormous amount of investment in real estate, much of which wasn’t warranted...
After the fact...There was enormous investment across the board: it wasn’t just housing. Corporate investment was very high. All forms of investment were very high. What you are really saying is that somewhere in the world people were saving a lot—the Chinese, for example. They were providing capital to the rest of the world. The U.S. was consuming capital like it was going out of sight.
Sure, but the traditional Chicago view has been that the financial markets do a good job of allocating that capital. In this case it, they didn’t—or so it appears.
(Pauses) A lot of mortgages went bad. A lot of corporate debt went bad. A lot of debt of all sorts went bad. I don’t see how this is a special case. This is a problem created by a general decline in asset prices. Whenever you get a recession, it turns out that you invested too much before that. But that was unpredictable at the time.
There were some people out there saying this was an unsustainable bubble…
Right. For example, (Robert) Shiller was saying that since 1996.
Yes, but he also said in 2004 and 2005 that this was a housing bubble.
O.K., right. Here’s a question to turn it around. Can you have a bubble in all asset markets at the same time? Does that make any sense at all? Maybe it does in somebody’s view of the world, but I have a real problem with that. Maybe you can convince me there can be bubbles in individual securities. It’s a tougher story to tell me there’s a bubble in a whole sector of the market, if there isn’t something artificial going on. When you start telling me there’s a bubble in all markets, I don’t even know what that means. Now we are talking about saving equals investment. You are basically telling me people are saving too much, and I don’t know what to make of that.
In the past, I think you have been quoted as saying that you don’t even believe in the possibility of bubbles.
I never said that. I want people to use the term in a consistent way. For example, I didn’t renew my subscription to The Economist because they use the world bubble three times on every page. Any time prices went up and down—I guess that is what they call a bubble. People have become entirely sloppy. People have jumped on the bandwagon of blaming financial markets. I can tell a story very easily in which the financial markets were a casualty of the recession, not a cause of it.
That’s your view, correct?
Yeah.
I spoke to Richard Posner, whose view is diametrically opposed to yours. He says the financial crisis and recession presents a serious challenge to Chicago economics.
Er, he’s not an economist. (Laughs) He’s an expert on law and economics. We are talking macroeconomics and finance. That is not his area.
So you wouldn’t take what he says seriously?
I take everything he says seriously, but I don’t agree with him on this one. And I don’t think the people here who are more attuned to these areas agree with him either.
His argument is that the financial system brought down the economy, and not vice versa.
Well then, you can say that about every recession. Even if you believe that, which I don’t, I wonder how many economists would argue that the world wasn’t made a much better place by the financial development that occurred from 1980 onwards. The expansion of worldwide wealth—in developed countries, in emerging countries—all of that was facilitated, in my view, to a large extent, by the development of international markets and the way they allow saving to flow to investments, in its most productive uses. Even if you blame this episode on financial innovation, or whatever you want to blame, would that wipe out the previous thirty years of development?
What about here in Chicago—has there been a lot of discussion about all this, the financial crisis, and what it means, and so on?
Lots of it. Typical research came to a halt. Everybody got involved.
Everybody’s got a cure. I don’t trust any of them. (Laughs.) Even the people I agree with generally. I don’t think anybody has a cure. The cure is to a different problem. The cure is to a new problem that we face—the “too-big-to-fail” problem. We can’t do without finance. But if it becomes the accepted norm that the government steps in every time things go bad, we’ve got a terrible adverse selection problem.
So what is the solution that problem?
The simple solution is to make sure these firms have a lot more equity capital—not a little more, but a lot more, so they are not playing with other people’s money. There are other people here who think that leverage is an important part of they system. I am not sure I agree with them. You talk to Doug Diamond or Raghu Rajan, and they have theories for why leverage in financial institutions has real uses. I just don’t think that those effects are as important as they think they are.
Let’s say the government did what you recommend, and forced banks to hold a lot more equity capital. Would it then also have to restructure the industry, say splitting up the big banks, as some other experts have recommended?
No. If you think about it...I’m a student of Merton Miller, after all. In the Modigliani-Miller view of the world, it’s only the assets that count. The way you finance them doesn’t matter. If you decide that this type of activity should be financed more with equity than debt, that doesn’t particularly have adverse effects on the level of activity in that sector. It is just splitting the risk differently.
Some people might say one of the big lessons of the crisis is that the Modigliani-Miller theory doesn’t hold. In this case, the way that things were financed did matter. People and firms had too much debt.
Well, in the Modigliani-Miller world there are zero transaction costs. But big bankruptcies have big transaction costs, whereas if you’ve got a less levered capital structure you don’t go into bankruptcy. Leverage is a problem...
The experiment we never ran is, suppose the government stepped aside and let these institutions fail. How long would it have taken to have unscrambled everything and figured everything out? My guess is that we are talking a week or two. But the problems that were generated by the government stepping in—those are going to be with us for the foreseeable future. Now, maybe it would have been horrendous if the government didn’t step in, but we’ll never know. I think we could have figured it out in a week or two.
So you would have just let them...
Let them all fail. (Laughs) We let Lehman fail. We let Washington Mutual fail. These were big financial institutions. Some we didn’t let fail. To me, it looks like there was not much rhyme or reason to it.
What about Ben Bernanke and Hank Paulson’s argument that if they hadn’t taken action to save the banks the whole financial system would have come crashing down?
Maybe it would have—for a week or two. But it pretty much stopped for a week or two anyway. The credit markets stopped for more than a week or two. But I think that was really a function of increased uncertainty about the future.
Did you think this at the time—that the government should let the banks fail?
Yeah—let ‘em, let ‘em. Because the failures of, like, Washington Mutual and Wachovia—other banks came swooping in to pick up their deposits and their other good assets. Of, course, they didn’t want their bad assets, but that’s the nature of bankruptcy. The activities that these banks were engaged in would have continued.
Why do you think the government didn’t just step back and let it happen? Was the government in hock to Wall Street, as many have claimed?
No. I think the government, Bernanke...Bob Lucas, I shouldn’t quote Bob Lucas, but what he says is “not on my watch.” That, basically, there is just a high degree of risk aversion on the part of people currently in government. They don’t want to be blamed for bad outcomes, so they are willing to do bad things to avoid them. I think Bernanke has been the best of the performers.
Back to Chicago economics. Is there still anything distinctive about Chicago, or have the rest of the world and Chicago largely converged, which is what Richard Posner thinks?
The rest of the world got converted to the notion that markets are pretty good at allocating resources. The more extreme of the left-leaning economists got blown away by the collapse of the Eastern bloc. Socialism had its sixty years, and it failed miserably. In that way, Chicago theory prospered. Milton Friedman and George Stigler were fighting that battle pretty much alone in the old days. Now it is pretty general. An experience like we’ve had rehabilitates the remnants of the old socialist gang. (Laughs) Unfortunately, they seem to be in control of the government, at this point.
In the old days, a person like (Richard) Thaler would have had trouble getting a job here. But that was a period of time when Chicago economics was basically under attack the world over. There was a kind of a bunker mentality. But now we’ve become more confident. Now, our only criterion is we want the best people who do whatever they do. As long as they are honest about it, and they respect other people’s work, and we respect their work, great.
I know the business school has a lot of diversity, but is that also true of the university economics department?
Sure. John List is over there. He’s a behavioral economist. Steve Levitt is a very unusual type of economist. His brand of economics, which is an extension of Gary’s is taking over microeconomics.
I spoke to Becker. His view is that what remains distinctive about Chicago is its degree of skepticism toward the government.
Right—that’s true even of Dick (Thaler). I think that is just rational behavior. (Laughs) It took people a long time to realize that government officials are self-interested individuals, and that government involvement in economic activity is especially pernicious because the government can’t fail. Revenues have to cover costs—the government is not subject to that constraint.
So you don’t accept the view, which Paul Krugman, Larry Summers, and others have put forward, that what has happened represents a rehabilitation of government action—that the government prevented a catastrophe?
Krugman wants to be the czar of the world. There are no economists that he likes. (Laughs)
And Larry Summers?
What other position could he take and still have a job? And he likes the job.
What is your view on regulating Wall Street? Do we need more of it?
I think it is inevitable, if you accept the view that the government will bail out the biggest firms if they get into trouble. But I don’t think it will work. Private companies are very good at inventing ways around the regulations. They will find ways to do things that are in the letter of the regulations but not in the spirit. You are not going to be able to attract the best people to be regulators.
That sounds like an old-fashioned Chicago argument—skepticism about regulation.
Yes. We have Ragu (Rajan), Doug Diamond—they are as good banking people as there are in the world. I have been listening to them for six months, and I would not trust them to write the regulations. In the end, there is so much uncertainty, and so much depends on how people will react to certain things that nobody knows what good regulation would be at this point. That is what is scary about government bailouts of big institutions.
So what should we do? If the President called you tomorrow and said, “Gene, I don’t think our way is working. What should we do?” How would you respond?
I don’t know if these are even the big issues of the time. I think that what is going on in health care could end up being more important. I don’t think we are going down the right road there. Insurance is not the solution: it’s the problem. Making the problem more widespread is not going to solve it.
When all this (the financial crisis) started, I joined the debate. Then I stepped back and said, I’m really not comfortable with my insights into what the best way of proceeding is. Let me sit back and listen to people. So I listened to all the experts, local and otherwise. After a while, I came to the conclusion that I don’t know what the best thing to do it, and I don’t think they do either. (Laughs) I don’t think there is a good prescription. So I went back and started doing my own research.
Couldn’t we just ban further bailouts, passing a constitutional amendment if necessary? That would be in line with your views, wouldn’t it?
Right, but is that credible? It’s very difficult to explain how A.I.G. issued all the credit default swaps it issued if people didn’t think the government was going to step in and bail them out. Government pledged, in any case, have little credibility. But that one—I think it’s pretty sure that we they couldn’t live up to it.
What will be financial crisis’s legacy for the subject of economics? Will there be big changes?
I don’t see any. Which way is it going to go? If I could have predicted that, that’s the stuff I would have been working on. I don’t see it. (Laughs) I’d love to know more about what causes business cycles.
What lessons have you learned from what happened?
Well, I think the big sobering thing is that maybe economists, like the population as a whole, got lulled into thinking that events this large couldn’t happen any more—that a recession this big couldn’t happen any more. There’ll be a lot of work trying to figure out what happened and why it happened, but we’ve been doing that with the Great Depression since it happened, and we haven’t really got to the bottom of that. So I don’t intend to pursue that. I used to do macroeconomics, but I gave (it) up long ago.
Back to the efficient markets hypothesis. You said earlier that it comes out of this episode pretty well. Others say the market may be good at pricing in a relative sense—one stock versus another—but it is very bad at setting absolute prices, the level of the market as a whole. What do you say to that?
People say that. I don’t know what the basis of it is. If they know, they should be rich men. What better way to make money than to know exactly about the absolute level of prices.
So you still think that the market is highly efficient at the overall level too?
Yes. And if it isn’t, it’s going to be impossible to tell.
For the layman, people who don’t know much about economic theory, is that the fundamental insight of the efficient market hypothesis—that you can’t beat the market?
Right—that’s the practical insight. No matter what research gets done, that one always looks good.
What about the findings that long periods of high returns are followed by long periods of low returns?
Now, there is no evidence of that...The expected return on stocks is just a price—the price people require to bear the market risk. Like any price, it should vary from time to time, and maybe it should vary in predictable ways. I’ve done a lot of work purporting to show there’s a little bit of predictability in overall market returns, but that branch of the literature has so many statistical problems there’s not a lot of agreement.
The problem is that, almost surely, expected returns vary through time because of risk aversion—wealth, everything else varies through time. But measuring that requires that you have a good variable for tracking (risk aversion) or good models for tracking it. We don’t have that. The way that people do it, including me, is by using kind of ad hoc variables to pick it up. All the argument centers on whether what’s picked up by these variables is really what’s there, or whether it is just kind of a statistical fluke. There’s a whole issue of the Review of Financial Studies with people arguing very vociferously on both sides of that. When that happens, you know that none of the results are very reliable.
Do you and Dick Thaler discuss this stuff when you are playing golf?
Sure. We don’t want to discuss his golf game, that’s for sure.
Has the advance of all this behavioral stuff, behavioral finance, made you rethink anything?
Yes, sure. I’ve always said they are very good at describing how individual behavior departs from rationality. That branch of it has been incredibly useful. It’s the leap from there to what it implies about market pricing where the claims are not so well-documented in terms of empirical evidence. That line of research has survived the market test. More people are getting into it.
But you are skeptical about the claims about how irrationality affects market prices?
It’s a leap. I’m not saying you couldn’t do it, but I’m an empiricist. It’s got to be shown.
Thanks very much. Finally, before I go, what about Paul Krugman’s recent piece in the New York Times Magazine, in which he attacked Chicago economics and the efficient markets hypothesis. What did you think of it?
(Laughs) My attitude is this: if you are getting attacked by Krugman, you must be doing something right.
Fonte: New Yorker
quarta-feira, 20 de janeiro de 2010
Entrevista com Posner
I[John Cassidy] spoke to Posner in his chambers at the Federal courthouse in downtown Chicago, where he sits on the United States Court of Appeals for the Seventh Circuit. I began by telling him that I was researching an article about how the financial crisis had affected Chicago economics, and, indeed, economics as a whole.
At this distance from the financial blow up, what was the nature of the intellectual challenge it presented?
I think the challenge is to the economics profession as a whole, but to Chicago most of all.
Has there been much self-analysis, or critical reassessment of long held positions, here in Chicago?
I don’t think so. There are people here who are not part of the orthodox Chicago School—the Bob Lucas/Gene Fama crowd—people like Raghu Rajan, Luigi Zingales, and Dick Thaler. But I don’t think there has been much in the way of re-examination.
What about your critique of some aspects of Chicago economics, which you detailed in your recent book, “A Failure of Capitalism?” Have you received much of a reaction to that?
I’ve had an exchange with Lucas and Fama—some of it on my blog at The Atlantic. It’s all very civil: not angry. But I think they are pretty much sticking to their guns. (Laughs.) Even before this, macro was seen as quite a weak field, and the efficient markets theory had taken a lot of hits: the behavioral finance school—Andrei Shleifer, Bob Shiller. Already, the orthodox Chicago position had been under criticism. But last September’s financial collapse came as a big shock to the profession.
What is Chicago macroeconomics? And what went wrong with it?
Going back to Milton Friedman, there was the idea that the Great Depression was a product of inept monetary policy and could have been avoided if only the Fed had not tightened the money supply. That remains very controversial, but also it didn’t prepare anybody for what has happened recently. The concern then was that the Fed had raised rates prematurely during the Depression. But now the concern is that the interest rates were too low during the early 2000s, and that is what precipitated all the trouble. For that, the monetarists were unprepared. When the crisis began Bernanke reduced the federal funds rate essentially to zero and nothing happened. That was the point at which Friedman’s macro theory, along with Lucas’s macro theory, did not have a clue as to what had happened. That was pretty bad.
Also, and more interesting to me, it called into question a whole approach to economics—one that is very formal, making very austere assumptions about human rationality: people have a lot of information, a lot of foresight. They look ahead. It is very difficult for the government to affect behavior, because the market will offset what it does. The more informal economics of Keynes has made a big comeback because people realize that even though it is kind of loose and it doesn’t cross all the “t”s and dot all the “i”s, it seems to have more of a grasp of what is going on in the economy.
In the fall, you wrote a big piece in The New Republic in which you declared yourself to be a Keynesian. What was the reaction to that article?
I haven’t got much of a reaction from my colleagues. Bob Barro (a conservative economist at Harvard) sent me an email in which he referred me to an early article of his. It was a good article.
I think there is a question of whether modern economics, including Chicago economics, is too formal and too abstract. Another question is whether modern economists have lost interest in or feel for institutional detail that might be very important. I don’t know how many of these economists really knew anything about how modern banking operates, how the new financial investments operate—collateralized debt obligations, credit default swaps, and so on.
So modern economics is too formal, and it has lost interest in institutional reality: is that what you are saying?
You don’t want to characterize all of economics in that way. What we tend to think of as the Chicago approach is great skepticism about government and faith in the self-regulating characteristics of markets: that’s the essential outlook of Chicago. In addition, there is the increasing mathematization of economics. That is not necessarily Chicago-led. Chicago once resisted that—people like Ronald Coase and George Stigler. Even Gary Becker—he’s more mathematical than they are, but he’s not as mathematical as, say, M.I.T. and Berkeley economists.
Modern economics is, on the one hand, very mathematical, and, on the other, very skeptical about government and very credulous about the self-regulating properties of markets. That combination is dangerous. Because it means you don’t have much knowledge of institutional detail, particular practices and financial instruments and so on. On the other hand, you have an exaggerated faith in the market.
That was a dangerous combination.
But that is not all there is in economics. There is also behavioral economics, which has made a lot of progress. It’s about challenging the assumptions about markets because of human irrationality. I don’t much like it myself, because I think they are very vague about what they mean by rationality. They use terms like “fairness,” which are really contentless. But some of their skepticism is warranted. And behavioral finance, I find very convincing. It’s obvious if you look at how people trade in markets: they are not calculating machines that flawlessly discount future corporate profits.
I put a lot of emphasis on the Frank Knight (a famous Chicago economist who taught at Chicago from the nineteen-twenties to the nineteen-sixties) and Keynes view of uncertainty. That makes economists very uncomfortable, because it is very hard to model. Once you introduce uncertainty, it means that a lot of consumer behavior is not going to be easily modeled as cost-benefit analysis.
In that sense, then, your version of Keynesianism is what some professional economists would refer to as “Post-Keynesianism”?
Yes. I’ve read Davidson. (Paul Davidson, a professor at University of Tennessee is a leading post-Keynesian.) I’ve read some of those people. But I don’t really get much out of it that isn’t in Keynes. I’m kind of stalled in the General Theory and his essay in the Q.J.E. (In 1937, a year after the publication of The General Theory of Employment, Interest, and Money, Keynes wrote an expository article in the Quarterly Journal of Economics.)
So, in sense, you see yourself reviving an older Chicago tradition—Knightian economics—which in some ways is closer to Keynes?
Not only that, but there is a curious link between Keynes and Coase, even though they are at opposite ends of the political spectrum. I never heard Coase mention Keynes, but I am sure he would have regarded him as a dubious left-wing character Coase is very, very conservative. But they are very similar in their informality. Coase was always saying that he didn’t believe in utility maximization. He didn’t believe in equilibrium. Both of them, they are not concerned with the kind of axiomatic reasoning where you start with human beings assumed to have rational calculators inside them. They are much more likely to take people as they are.
And Knight was not at all a formal economist. His book “Risk, Uncertainty, and Profit,” I read it for the first time. It really was excellent. There’s no math. Coase in his later work: no math. Keynes in the General Theory: some math, but it’s not central to his argument.
Do you regard yourself as an economist?
No. (Smiles) I’m not a professional economist. I don’t have any economics training. But I’m interested in it. I’m not bashful about writing about it.
You’ve received some criticisms from professional economists—from Brad De Long, of Berkeley, and from others.
Yes. These people are impossible. I haven’t read (DeLong’s) academic work, just his blog. His criticism of me was crazy. He had me fighting a last-ditch stand for Chicago—the exact opposite of what I wrote.
It does bother me about economists—not just (Paul) Krugman and De Long; it’s not just a liberal versus conservative thing. Some conservative writing bothers me also. They are not at all reluctant about taking extreme positions in an Op-Ed, or in blogs, and so on. It really demeans the profession. Krugman is obviously a good economist. He’s got this book, “The Return of Depression Economics.” It’s very good...But his column for The New York Times is really irresponsible, nasty. Sometimes on his blog he makes accusations. In one of his columns, he suggested that conservatives were traitorous. He used the word “treason.” I’m bothered by that. If you have a very politicized academic profession, you lose your confidence in their objectivity
Well, some Chicago economists also express very strong views. John Cochrane (a professor at Chicago’s Booth School of Business) for example, says that government stimulus programs don’t have any impact at all on unemployment and G.D.P.
That’s another reason to be distrustful of the profession. You have irresponsible positions about the stimulus on both sides. What are people supposed to believe?
Has your critique of the efficient markets hypothesis made you rethink your view of markets outside of finance?
Even before this, I had become less doctrinaire about markets. For example, one of the topics Gary Becker and I debated on our blog was New York City’s ban on transfats. I supported that. The country has an obesity problem. I didn’t think that just listing the amount of transfats on a menu would deal with it—people don’t know this stuff. I thought a ban, even though it violated freedom of contract, made sense.
What has been Becker’s reaction to your views?
You mean about the economy, about Keynes. I think he disagrees. We had a debate before the university women’s board some months ago. He’s very down on the stimulus. Some of the things we agree about. I thought the cash-for-clunkers program was quite pointless.
Now that we appear to be coming out of the recession, the right is saying things aren’t too bad after all, and that markets are resilient. The left is saying without government intervention we would be back in the nineteen-thirties. What do you think?
It depends what you mean by government intervention. If the government had limited itself to reducing the federal funds rate and had not bailed out the banks, we could easily have gone down the route of the nineteen-thirties. On the other hand, if there had just been a bank bailout and no stimulus, then, no, we would not have gone down as far as the nineteen-thirties, because the economy is different now. In particular, (there’s been) the shrinkage of the construction and manufacturing industries. That is where unemployment was highest in the Depression. And we have the automatic stabilizers—unemployment insurance, and so on. It wouldn’t have been as bad, but it could have been considerably worse without the stimulus. You can never be certain how far down an economy will spiral.
After all the federal government has done, does the amount of public intervention in the economy not worry you?
I think it is worrisome. A lot of things they have done, I don’t approve of. I don’t like the idea of taking an ownership stake in General Motors: I think that’s very bad. I don’t like this messing with compensation: that’s unhealthy. And I’m particularly concerned about the deficits, and what health reform will do to what are already massive deficits. So I don’t think the government’s handling of this has been flawless, by any means. But I think the stimulus probably was essential.
As a result of all that has happened, what has the economics profession learned?
Well, one possibility is that they have learned nothing. Because—how should I put—it market correctives work very slowly in dealing with academic markets. Professors have tenure. They have a lot of graduate students in the pipeline who need to get their Ph.Ds. They have techniques that they know and are comfortable with. It takes a great deal to drive them out of their accustomed way of doing business.
Robert Lucas takes a very hard line on this. He says the theory of depressions is something economics isn’t good at. He hasn’t been doing depression economics, so he’ll stick with what he’s doing and unapologetically.
But isn’t Lucas still offering policy advice on the basis of his theories?
Yes, he is occasionally. But he’s a real academic. He’s content with his academic career and his models and so on. And it isn’t very clear what replaces his modern vision. It isn’t as if there is a school of economics that has great ideas and techniques for dealing with our economic situation.
What about Chicago economics in particular? At this stage, what is left of the Chicago School?
Well, the Chicago School had already lost its distinctiveness. When I started in academia—in those days Chicago was very distinctive. It was distinctive for its conservatism, for its 1968 fidelity to price theory, for its interest in empirical studies, but not so much in formal modeling. We used to say the difference between Chicago and Berkeley was Chicago was economics without models, and Berkeley was models without economics. But over the years, Chicago became more formal, and the other schools became more oriented towards price theory, towards micro. So, now there really isn’t a great deal of difference.
Ronald (Coase) is alive, but he’s very, very old. He’s not active. Stigler is dead. Friedman is dead. There’s Gary (Becker) of course. But I’m not sure there’s a distinctive Chicago School anymore. Except there are probably a higher percentage of conservative people here, but not all. Jim Heckman—not particularly conservative at all. He’s very distinguished. Steve Levitt—he’s very famous. I don’t think he’s conservative. You’ve got people like (Richard) Thaler. So probably the term “Chicago School” should be retired.
There were people—people like Stigler and Coase, Harold Demsetz, Reuben Kessel, and people at other schools like Armen Alchian. They were people rebelling against the very liberal economics of the nineteen-fifties—very Keynesian, very regulatory, very aggressive anti-trust, little faith in the self-regulating nature of markets. Francis Bator, who’s a very distinguished Harvard economist, he wrote a famous essay entitled “The Anatomy of Market Failure.” And he gave so many examples of market failure that you couldn’t believe a market could exist. You have to have an infinite number of competitors, full information, you can’t have any economies of scale, and so on. It was too austere. That was what the Chicago people, with their more informal approach, rebelled against. So we had our moment in the sun, but by the nineteen-eighties the basic insights of the Chicago School had been accepted pretty much worldwide.
Where the divide continues is in macro—in business cycle economics. That’s where you have these very liberal people at Berkeley, Harvard, M.I.T., and so on, and very conservative people like Lucas, Fama, and so on, in Chicago.
You are famous for extending economic analysis, and a free-markets approach, to the law. Has the financial crisis undermined your faith in markets and the price system outside of the financial sector?
No. But of course one of the more significant Chicago (positions) was in favor of deregulation, based on the notion that markets are basically self-regulating. That’s fine. The mistake was to ignore externalities in banking. Everyone knew there were pollution externalities. That was fine. I don’t think we realized there were banking externalities, and that the riskiness of banking could facilitate a global financial crisis. That was a big oversight. It doesn’t make me feel any different about the deregulation of telecommunications, or oil pipelines, or what have you.
Talking of banking externalities, isn’t that an application of traditional price theory? Going back as far as Pigou, economists have talked about externalities in many parts of the economy.
There’s nothing inconsistent with basic economic theory in externalities. Of course, you have to know a lot about banking, and that was not the case with economists. Odd in a way, because macroeconomists and finance theorists have always been interested in banking, but I don’t think they really understood a lot about it.
Fonte: New Yorker
At this distance from the financial blow up, what was the nature of the intellectual challenge it presented?
I think the challenge is to the economics profession as a whole, but to Chicago most of all.
Has there been much self-analysis, or critical reassessment of long held positions, here in Chicago?
I don’t think so. There are people here who are not part of the orthodox Chicago School—the Bob Lucas/Gene Fama crowd—people like Raghu Rajan, Luigi Zingales, and Dick Thaler. But I don’t think there has been much in the way of re-examination.
What about your critique of some aspects of Chicago economics, which you detailed in your recent book, “A Failure of Capitalism?” Have you received much of a reaction to that?
I’ve had an exchange with Lucas and Fama—some of it on my blog at The Atlantic. It’s all very civil: not angry. But I think they are pretty much sticking to their guns. (Laughs.) Even before this, macro was seen as quite a weak field, and the efficient markets theory had taken a lot of hits: the behavioral finance school—Andrei Shleifer, Bob Shiller. Already, the orthodox Chicago position had been under criticism. But last September’s financial collapse came as a big shock to the profession.
What is Chicago macroeconomics? And what went wrong with it?
Going back to Milton Friedman, there was the idea that the Great Depression was a product of inept monetary policy and could have been avoided if only the Fed had not tightened the money supply. That remains very controversial, but also it didn’t prepare anybody for what has happened recently. The concern then was that the Fed had raised rates prematurely during the Depression. But now the concern is that the interest rates were too low during the early 2000s, and that is what precipitated all the trouble. For that, the monetarists were unprepared. When the crisis began Bernanke reduced the federal funds rate essentially to zero and nothing happened. That was the point at which Friedman’s macro theory, along with Lucas’s macro theory, did not have a clue as to what had happened. That was pretty bad.
Also, and more interesting to me, it called into question a whole approach to economics—one that is very formal, making very austere assumptions about human rationality: people have a lot of information, a lot of foresight. They look ahead. It is very difficult for the government to affect behavior, because the market will offset what it does. The more informal economics of Keynes has made a big comeback because people realize that even though it is kind of loose and it doesn’t cross all the “t”s and dot all the “i”s, it seems to have more of a grasp of what is going on in the economy.
In the fall, you wrote a big piece in The New Republic in which you declared yourself to be a Keynesian. What was the reaction to that article?
I haven’t got much of a reaction from my colleagues. Bob Barro (a conservative economist at Harvard) sent me an email in which he referred me to an early article of his. It was a good article.
I think there is a question of whether modern economics, including Chicago economics, is too formal and too abstract. Another question is whether modern economists have lost interest in or feel for institutional detail that might be very important. I don’t know how many of these economists really knew anything about how modern banking operates, how the new financial investments operate—collateralized debt obligations, credit default swaps, and so on.
So modern economics is too formal, and it has lost interest in institutional reality: is that what you are saying?
You don’t want to characterize all of economics in that way. What we tend to think of as the Chicago approach is great skepticism about government and faith in the self-regulating characteristics of markets: that’s the essential outlook of Chicago. In addition, there is the increasing mathematization of economics. That is not necessarily Chicago-led. Chicago once resisted that—people like Ronald Coase and George Stigler. Even Gary Becker—he’s more mathematical than they are, but he’s not as mathematical as, say, M.I.T. and Berkeley economists.
Modern economics is, on the one hand, very mathematical, and, on the other, very skeptical about government and very credulous about the self-regulating properties of markets. That combination is dangerous. Because it means you don’t have much knowledge of institutional detail, particular practices and financial instruments and so on. On the other hand, you have an exaggerated faith in the market.
That was a dangerous combination.
But that is not all there is in economics. There is also behavioral economics, which has made a lot of progress. It’s about challenging the assumptions about markets because of human irrationality. I don’t much like it myself, because I think they are very vague about what they mean by rationality. They use terms like “fairness,” which are really contentless. But some of their skepticism is warranted. And behavioral finance, I find very convincing. It’s obvious if you look at how people trade in markets: they are not calculating machines that flawlessly discount future corporate profits.
I put a lot of emphasis on the Frank Knight (a famous Chicago economist who taught at Chicago from the nineteen-twenties to the nineteen-sixties) and Keynes view of uncertainty. That makes economists very uncomfortable, because it is very hard to model. Once you introduce uncertainty, it means that a lot of consumer behavior is not going to be easily modeled as cost-benefit analysis.
In that sense, then, your version of Keynesianism is what some professional economists would refer to as “Post-Keynesianism”?
Yes. I’ve read Davidson. (Paul Davidson, a professor at University of Tennessee is a leading post-Keynesian.) I’ve read some of those people. But I don’t really get much out of it that isn’t in Keynes. I’m kind of stalled in the General Theory and his essay in the Q.J.E. (In 1937, a year after the publication of The General Theory of Employment, Interest, and Money, Keynes wrote an expository article in the Quarterly Journal of Economics.)
So, in sense, you see yourself reviving an older Chicago tradition—Knightian economics—which in some ways is closer to Keynes?
Not only that, but there is a curious link between Keynes and Coase, even though they are at opposite ends of the political spectrum. I never heard Coase mention Keynes, but I am sure he would have regarded him as a dubious left-wing character Coase is very, very conservative. But they are very similar in their informality. Coase was always saying that he didn’t believe in utility maximization. He didn’t believe in equilibrium. Both of them, they are not concerned with the kind of axiomatic reasoning where you start with human beings assumed to have rational calculators inside them. They are much more likely to take people as they are.
And Knight was not at all a formal economist. His book “Risk, Uncertainty, and Profit,” I read it for the first time. It really was excellent. There’s no math. Coase in his later work: no math. Keynes in the General Theory: some math, but it’s not central to his argument.
Do you regard yourself as an economist?
No. (Smiles) I’m not a professional economist. I don’t have any economics training. But I’m interested in it. I’m not bashful about writing about it.
You’ve received some criticisms from professional economists—from Brad De Long, of Berkeley, and from others.
Yes. These people are impossible. I haven’t read (DeLong’s) academic work, just his blog. His criticism of me was crazy. He had me fighting a last-ditch stand for Chicago—the exact opposite of what I wrote.
It does bother me about economists—not just (Paul) Krugman and De Long; it’s not just a liberal versus conservative thing. Some conservative writing bothers me also. They are not at all reluctant about taking extreme positions in an Op-Ed, or in blogs, and so on. It really demeans the profession. Krugman is obviously a good economist. He’s got this book, “The Return of Depression Economics.” It’s very good...But his column for The New York Times is really irresponsible, nasty. Sometimes on his blog he makes accusations. In one of his columns, he suggested that conservatives were traitorous. He used the word “treason.” I’m bothered by that. If you have a very politicized academic profession, you lose your confidence in their objectivity
Well, some Chicago economists also express very strong views. John Cochrane (a professor at Chicago’s Booth School of Business) for example, says that government stimulus programs don’t have any impact at all on unemployment and G.D.P.
That’s another reason to be distrustful of the profession. You have irresponsible positions about the stimulus on both sides. What are people supposed to believe?
Has your critique of the efficient markets hypothesis made you rethink your view of markets outside of finance?
Even before this, I had become less doctrinaire about markets. For example, one of the topics Gary Becker and I debated on our blog was New York City’s ban on transfats. I supported that. The country has an obesity problem. I didn’t think that just listing the amount of transfats on a menu would deal with it—people don’t know this stuff. I thought a ban, even though it violated freedom of contract, made sense.
What has been Becker’s reaction to your views?
You mean about the economy, about Keynes. I think he disagrees. We had a debate before the university women’s board some months ago. He’s very down on the stimulus. Some of the things we agree about. I thought the cash-for-clunkers program was quite pointless.
Now that we appear to be coming out of the recession, the right is saying things aren’t too bad after all, and that markets are resilient. The left is saying without government intervention we would be back in the nineteen-thirties. What do you think?
It depends what you mean by government intervention. If the government had limited itself to reducing the federal funds rate and had not bailed out the banks, we could easily have gone down the route of the nineteen-thirties. On the other hand, if there had just been a bank bailout and no stimulus, then, no, we would not have gone down as far as the nineteen-thirties, because the economy is different now. In particular, (there’s been) the shrinkage of the construction and manufacturing industries. That is where unemployment was highest in the Depression. And we have the automatic stabilizers—unemployment insurance, and so on. It wouldn’t have been as bad, but it could have been considerably worse without the stimulus. You can never be certain how far down an economy will spiral.
After all the federal government has done, does the amount of public intervention in the economy not worry you?
I think it is worrisome. A lot of things they have done, I don’t approve of. I don’t like the idea of taking an ownership stake in General Motors: I think that’s very bad. I don’t like this messing with compensation: that’s unhealthy. And I’m particularly concerned about the deficits, and what health reform will do to what are already massive deficits. So I don’t think the government’s handling of this has been flawless, by any means. But I think the stimulus probably was essential.
As a result of all that has happened, what has the economics profession learned?
Well, one possibility is that they have learned nothing. Because—how should I put—it market correctives work very slowly in dealing with academic markets. Professors have tenure. They have a lot of graduate students in the pipeline who need to get their Ph.Ds. They have techniques that they know and are comfortable with. It takes a great deal to drive them out of their accustomed way of doing business.
Robert Lucas takes a very hard line on this. He says the theory of depressions is something economics isn’t good at. He hasn’t been doing depression economics, so he’ll stick with what he’s doing and unapologetically.
But isn’t Lucas still offering policy advice on the basis of his theories?
Yes, he is occasionally. But he’s a real academic. He’s content with his academic career and his models and so on. And it isn’t very clear what replaces his modern vision. It isn’t as if there is a school of economics that has great ideas and techniques for dealing with our economic situation.
What about Chicago economics in particular? At this stage, what is left of the Chicago School?
Well, the Chicago School had already lost its distinctiveness. When I started in academia—in those days Chicago was very distinctive. It was distinctive for its conservatism, for its 1968 fidelity to price theory, for its interest in empirical studies, but not so much in formal modeling. We used to say the difference between Chicago and Berkeley was Chicago was economics without models, and Berkeley was models without economics. But over the years, Chicago became more formal, and the other schools became more oriented towards price theory, towards micro. So, now there really isn’t a great deal of difference.
Ronald (Coase) is alive, but he’s very, very old. He’s not active. Stigler is dead. Friedman is dead. There’s Gary (Becker) of course. But I’m not sure there’s a distinctive Chicago School anymore. Except there are probably a higher percentage of conservative people here, but not all. Jim Heckman—not particularly conservative at all. He’s very distinguished. Steve Levitt—he’s very famous. I don’t think he’s conservative. You’ve got people like (Richard) Thaler. So probably the term “Chicago School” should be retired.
There were people—people like Stigler and Coase, Harold Demsetz, Reuben Kessel, and people at other schools like Armen Alchian. They were people rebelling against the very liberal economics of the nineteen-fifties—very Keynesian, very regulatory, very aggressive anti-trust, little faith in the self-regulating nature of markets. Francis Bator, who’s a very distinguished Harvard economist, he wrote a famous essay entitled “The Anatomy of Market Failure.” And he gave so many examples of market failure that you couldn’t believe a market could exist. You have to have an infinite number of competitors, full information, you can’t have any economies of scale, and so on. It was too austere. That was what the Chicago people, with their more informal approach, rebelled against. So we had our moment in the sun, but by the nineteen-eighties the basic insights of the Chicago School had been accepted pretty much worldwide.
Where the divide continues is in macro—in business cycle economics. That’s where you have these very liberal people at Berkeley, Harvard, M.I.T., and so on, and very conservative people like Lucas, Fama, and so on, in Chicago.
You are famous for extending economic analysis, and a free-markets approach, to the law. Has the financial crisis undermined your faith in markets and the price system outside of the financial sector?
No. But of course one of the more significant Chicago (positions) was in favor of deregulation, based on the notion that markets are basically self-regulating. That’s fine. The mistake was to ignore externalities in banking. Everyone knew there were pollution externalities. That was fine. I don’t think we realized there were banking externalities, and that the riskiness of banking could facilitate a global financial crisis. That was a big oversight. It doesn’t make me feel any different about the deregulation of telecommunications, or oil pipelines, or what have you.
Talking of banking externalities, isn’t that an application of traditional price theory? Going back as far as Pigou, economists have talked about externalities in many parts of the economy.
There’s nothing inconsistent with basic economic theory in externalities. Of course, you have to know a lot about banking, and that was not the case with economists. Odd in a way, because macroeconomists and finance theorists have always been interested in banking, but I don’t think they really understood a lot about it.
Fonte: New Yorker
terça-feira, 19 de janeiro de 2010
Entrevista com Kevin Murphy
John Cassidy publicou, recentemente, na New Yorker um ótimo artigo, "After the blowup", sobre a reação da Escola de Chicago à crise econômica. A entrevista abaixo é parte de uma serie de entrevistas que ele fez com vários economistas de Chicago.
Kevin Murphy is one of the best-known Chicago economists from the post-Lucas, post-Fama generation. In 1997, he was the recipient of the John Bates Clark Medal, which is presented to the best American economist under forty. Although he is primarily a microeconomist, Murphy has published articles on a wide range of subjects, including income inequality, the value of medical research, economic growth, and unemployment. He wasn’t available to see me when I was in Chicago, but I subsequently talked to him on the telephone, and these are the notes of our conversation.
To what extent has the financial crisis and subsequent recession damaged the prestige of Chicago economics?
The Chicago straw man has taken a beating. The Chicago economist who says that markets always get things right and financial markets always work efficiently, he has taken a beating—no doubt. But the Chicago economist who I think about when I hear that phrase, he’s in the same place that he was in a year ago.
So what is Chicago economics, if it isn’t its media image?
I’ve always thought of Chicago economics as an approach to the subject—a way of doing economics. It’s based on the belief that the tools of economic analysis are really useful for explaining things in the real world. When you approach problems in the real world, you use the same tools you use in doing economic theory. That has always been the test—a guy would give the same answer in a seminar to a question about the economy that he would give if somebody stopped him in the street. He wouldn’t say, the theory is this but the actual answer is something else.
Is that attitude reflected in your own research and teaching? [Murphy teaches graduate courses on economic theory, with Gary Becker, and on the economic analysis of policy issues.]
Yes. [Murphy explained that he sometimes teaches summer camps in price theory for Ph.D. students from other universities.] Many of them say they have never been taught in that way, or done a course like ours. In tying theory to data when studying a range of phenomena in the real world, you are always trying to give an example. If you can’t give one it is a problem.
It is also true in seminars. If you present a paper in Chicago, you don’t get much of a chance to present. You have to defend. The type of paper where the presenter says, “Well, this assumption clearly isn’t realistic, but I’m just going to ignore that for now and derive some results”—there isn’t a whole lot of sympathy for that approach here in Chicago. You’ve got to be telling us something that is valuable and applicable to the real world. People like Friedman and Stigler really instilled that tradition in this place.
What about skepticism toward the government: Isn’t that also a key part of the Chicago tradition?
Sure. You have to ask why would the government get it right. You can’t just say, here’s a market failure and the government needs to step in and address it. You have to look in detail at what the government might do, and compare the relative effectiveness of the two.
What about the efficient-markets hypothesis and the idea that speculative bubbles are very rare, or might not even exist? Is that the Chicago view?
I teach economics a lot. I teach in the economics department; I teach in the business school. I talk about house prices, and I think I’ve always raised the possibility that prices might get too high.
[Murphy cited the example of the Japanese real estate bubble in the late nineteen-eighties and early nineteen-nineties.]
I was looking at that, and I was thinking, “Geez, these prices are assuming that the returns from housing—the rental cost of housing capital—is going to be really high in the future. How realistic is that? Boy, it’s really hard to justify these prices.” During the Internet stock bubble, same thing. I looked at those prices and said, “Geez, can I rule out the possibility that investors are being irrational?” I think we believe that prices can depart from economic reality. The problem is that you can’t see it in advance.
So is the efficient-markets hypothesis consistent with that idea—that prices sometimes depart from fundamentals?
It could be.
[Echoing what John Cochrane had told me, Murphy explained that there were two rival explanations for big movements in asset prices: attitudes to risk that vary over time, which are consistent with an efficient-market equilibrium, or irrational exuberance and bubbles, which aren’t.]
Empirically, I don’t see how you can distinguish between the two. It’s become almost a matter of semantics. Do you call it time varying risk premiums or irrational exuberance?
But the fact is that much of the variation in the market is unpredictable. In finance research, it’s a major victory if you can explain half of one per cent of the price variation with your model. The idea that you can’t beat the market, or predict it—that part of the efficient-markets hypothesis is very much alive and well.
What about the rational-expectations hypothesis and the work of Robert Lucas? How does that fit in with your idea of Chicago economics, and the idea of tying theory to data? Surely the data rejected much of that work early on.
Well, I think that work does have empirical implications, but it is certainly a larger distance back from the theory to the data.
[At this point, Murphy defended Lucas’s work, saying that it helped fill in an important gap in Keynesian economics, which couldn’t explain the inflation of the nineteen-seventies. Going back to the nineteen-sixties, Milton Friedman and Columbia’s Edmund Phelps had put forward the idea that, contrary to Keynesian ideas of the time, there was no long-run trade-off between inflation and unemployment—in the jargon of economics, the “Phillips Curve” was vertical. Lucas added a lot of rigor to that idea, Murphy said. He also brought up Lucas’s work on the causes of economic growth, which date back to the nineteen-eighties.]
That side of his contribution is probably even more important, because it says that the questions of what we can do to keep creating growth is really critical. That gets us back to physical capital, human capital, and technical progress—and those are the things that really matter in the end. How do we do a better job of promoting physical investment, human capital investment, and technological progress? When you think that way, you have to always consider the long-run implications of short-term actions.
That takes us neatly back to the current situation. You have written skeptically about the Obama administration’s stimulus package. Why are you so critical?
[Murphy referred me to a January 2009 presentation of his (pdf). The presentation analyzes the likely impact of the stimulus and concludes that it wouldn’t do much good. The key to his negative result, Murphy explained, was two assertions: 1) that the taxes necessary to pay for the stimulus would act as a significant disincentive for people to work and for businesses to invest, and 2) that the government wouldn’t spend the stimulus money wisely, and that much of it would be wasted.]
The reason I think it’s neat is that it makes clear what really matters. You can say it’s Keynes versus Friedman, but it’s really a debate about bigger government versus smaller government. The whole question of what size the [fiscal] multipliers are—that’s just part of the question.
Fonte: The New Yorker
Kevin Murphy is one of the best-known Chicago economists from the post-Lucas, post-Fama generation. In 1997, he was the recipient of the John Bates Clark Medal, which is presented to the best American economist under forty. Although he is primarily a microeconomist, Murphy has published articles on a wide range of subjects, including income inequality, the value of medical research, economic growth, and unemployment. He wasn’t available to see me when I was in Chicago, but I subsequently talked to him on the telephone, and these are the notes of our conversation.
To what extent has the financial crisis and subsequent recession damaged the prestige of Chicago economics?
The Chicago straw man has taken a beating. The Chicago economist who says that markets always get things right and financial markets always work efficiently, he has taken a beating—no doubt. But the Chicago economist who I think about when I hear that phrase, he’s in the same place that he was in a year ago.
So what is Chicago economics, if it isn’t its media image?
I’ve always thought of Chicago economics as an approach to the subject—a way of doing economics. It’s based on the belief that the tools of economic analysis are really useful for explaining things in the real world. When you approach problems in the real world, you use the same tools you use in doing economic theory. That has always been the test—a guy would give the same answer in a seminar to a question about the economy that he would give if somebody stopped him in the street. He wouldn’t say, the theory is this but the actual answer is something else.
Is that attitude reflected in your own research and teaching? [Murphy teaches graduate courses on economic theory, with Gary Becker, and on the economic analysis of policy issues.]
Yes. [Murphy explained that he sometimes teaches summer camps in price theory for Ph.D. students from other universities.] Many of them say they have never been taught in that way, or done a course like ours. In tying theory to data when studying a range of phenomena in the real world, you are always trying to give an example. If you can’t give one it is a problem.
It is also true in seminars. If you present a paper in Chicago, you don’t get much of a chance to present. You have to defend. The type of paper where the presenter says, “Well, this assumption clearly isn’t realistic, but I’m just going to ignore that for now and derive some results”—there isn’t a whole lot of sympathy for that approach here in Chicago. You’ve got to be telling us something that is valuable and applicable to the real world. People like Friedman and Stigler really instilled that tradition in this place.
What about skepticism toward the government: Isn’t that also a key part of the Chicago tradition?
Sure. You have to ask why would the government get it right. You can’t just say, here’s a market failure and the government needs to step in and address it. You have to look in detail at what the government might do, and compare the relative effectiveness of the two.
What about the efficient-markets hypothesis and the idea that speculative bubbles are very rare, or might not even exist? Is that the Chicago view?
I teach economics a lot. I teach in the economics department; I teach in the business school. I talk about house prices, and I think I’ve always raised the possibility that prices might get too high.
[Murphy cited the example of the Japanese real estate bubble in the late nineteen-eighties and early nineteen-nineties.]
I was looking at that, and I was thinking, “Geez, these prices are assuming that the returns from housing—the rental cost of housing capital—is going to be really high in the future. How realistic is that? Boy, it’s really hard to justify these prices.” During the Internet stock bubble, same thing. I looked at those prices and said, “Geez, can I rule out the possibility that investors are being irrational?” I think we believe that prices can depart from economic reality. The problem is that you can’t see it in advance.
So is the efficient-markets hypothesis consistent with that idea—that prices sometimes depart from fundamentals?
It could be.
[Echoing what John Cochrane had told me, Murphy explained that there were two rival explanations for big movements in asset prices: attitudes to risk that vary over time, which are consistent with an efficient-market equilibrium, or irrational exuberance and bubbles, which aren’t.]
Empirically, I don’t see how you can distinguish between the two. It’s become almost a matter of semantics. Do you call it time varying risk premiums or irrational exuberance?
But the fact is that much of the variation in the market is unpredictable. In finance research, it’s a major victory if you can explain half of one per cent of the price variation with your model. The idea that you can’t beat the market, or predict it—that part of the efficient-markets hypothesis is very much alive and well.
What about the rational-expectations hypothesis and the work of Robert Lucas? How does that fit in with your idea of Chicago economics, and the idea of tying theory to data? Surely the data rejected much of that work early on.
Well, I think that work does have empirical implications, but it is certainly a larger distance back from the theory to the data.
[At this point, Murphy defended Lucas’s work, saying that it helped fill in an important gap in Keynesian economics, which couldn’t explain the inflation of the nineteen-seventies. Going back to the nineteen-sixties, Milton Friedman and Columbia’s Edmund Phelps had put forward the idea that, contrary to Keynesian ideas of the time, there was no long-run trade-off between inflation and unemployment—in the jargon of economics, the “Phillips Curve” was vertical. Lucas added a lot of rigor to that idea, Murphy said. He also brought up Lucas’s work on the causes of economic growth, which date back to the nineteen-eighties.]
That side of his contribution is probably even more important, because it says that the questions of what we can do to keep creating growth is really critical. That gets us back to physical capital, human capital, and technical progress—and those are the things that really matter in the end. How do we do a better job of promoting physical investment, human capital investment, and technological progress? When you think that way, you have to always consider the long-run implications of short-term actions.
That takes us neatly back to the current situation. You have written skeptically about the Obama administration’s stimulus package. Why are you so critical?
[Murphy referred me to a January 2009 presentation of his (pdf). The presentation analyzes the likely impact of the stimulus and concludes that it wouldn’t do much good. The key to his negative result, Murphy explained, was two assertions: 1) that the taxes necessary to pay for the stimulus would act as a significant disincentive for people to work and for businesses to invest, and 2) that the government wouldn’t spend the stimulus money wisely, and that much of it would be wasted.]
The reason I think it’s neat is that it makes clear what really matters. You can say it’s Keynes versus Friedman, but it’s really a debate about bigger government versus smaller government. The whole question of what size the [fiscal] multipliers are—that’s just part of the question.
Fonte: The New Yorker
segunda-feira, 18 de janeiro de 2010
Mad Men in the He-Cession
Ótimo artigo sobre sobre crises financeiras no Imperio e seu impacto sobre o comportamento da população masculina.
Market analysts have discovered that there are a few growth industries during depressions: Macaroni and cheese is flying off the shelves, along with cheap gin, video games, running shoes, and handguns. It is a disturbing image—one imagines unemployed men with time on their hands playing Fallout 3 (shoot mutants in a postapocalyptic Washington) and Overlord II (control evil minions who burn houses and beat up peace-loving, dope-smoking elves) while eating mac and cheese. Are those same men lacing up their running shoes in preparation for Armageddon?
Pundits have come to label the current economic downturn a "he-cession." In the summer issue of Foreign Policy, Reihan Salam, a fellow at the New America Foundation, suggested that because men's traditional jobs (particularly in finance and construction) have declined faster than women's (particularly in health care and the service sector), we might see a rise in angry, unemployed men—a source of social instability in 1990s Russia and today's Middle East.
There have been a lot of economic downturns in American history. While economists in the Reagan years tended to highlight the slow, gentle increase in American GDP that seemed to feed economic growth from the American Revolution forward, heterodox economists have argued that the American economy has been riven with crises, shocks, and other bear-market calamities. Where orthodox economists have read back into history the "Great Moderation," heterodox economists have seen hysteria, chaos, and violence. Cultural historians, meanwhile, have noticed a lot of hysterical talk about manhood, violence, and chaos during the panics of 1785, 1819, 1837, 1857, 1873—the list goes on. So what do scholars have to tell us about the tribulations of previous American panics? Was manhood in peril then? Were unemployed men really dangerous?
The United States has been thick with bad debts since the beginning of the Republic. As Woody Holton showed in Unruly Americans and the Origins of the Constitution (Hill and Wang, 2007), revolutionary states often financed and fed their armies with IOU's that they did not or could not pay. The value of the IOU's and state currencies fell with Schwarzeneggerian speed as banks and other creditors refused to accept them. The states promised to pay eventually (this may be sounding familiar), but those who needed cash—soldiers and widows—could not wait. Speculators bought up their IOU's at pennies on the dollar. (Speculation could be equal opportunity, as far as gender was concerned; Abigail Adams proved a fairly adroit speculator in New England paper.) Though some people fared well in the postrevolutionary crisis, tempers flared. Responding to public pressure, states passed "stay laws" to prevent creditors from seizing land. Other states guaranteed that valueless state money would be payable for all debts. That angered a young Thomas Jefferson, who sold his father-in-law's land on the installment plan. Virginia law forced him to take useless state currency for it.
Para ler o resto do artigo clique aqui
Market analysts have discovered that there are a few growth industries during depressions: Macaroni and cheese is flying off the shelves, along with cheap gin, video games, running shoes, and handguns. It is a disturbing image—one imagines unemployed men with time on their hands playing Fallout 3 (shoot mutants in a postapocalyptic Washington) and Overlord II (control evil minions who burn houses and beat up peace-loving, dope-smoking elves) while eating mac and cheese. Are those same men lacing up their running shoes in preparation for Armageddon?
Pundits have come to label the current economic downturn a "he-cession." In the summer issue of Foreign Policy, Reihan Salam, a fellow at the New America Foundation, suggested that because men's traditional jobs (particularly in finance and construction) have declined faster than women's (particularly in health care and the service sector), we might see a rise in angry, unemployed men—a source of social instability in 1990s Russia and today's Middle East.
There have been a lot of economic downturns in American history. While economists in the Reagan years tended to highlight the slow, gentle increase in American GDP that seemed to feed economic growth from the American Revolution forward, heterodox economists have argued that the American economy has been riven with crises, shocks, and other bear-market calamities. Where orthodox economists have read back into history the "Great Moderation," heterodox economists have seen hysteria, chaos, and violence. Cultural historians, meanwhile, have noticed a lot of hysterical talk about manhood, violence, and chaos during the panics of 1785, 1819, 1837, 1857, 1873—the list goes on. So what do scholars have to tell us about the tribulations of previous American panics? Was manhood in peril then? Were unemployed men really dangerous?
The United States has been thick with bad debts since the beginning of the Republic. As Woody Holton showed in Unruly Americans and the Origins of the Constitution (Hill and Wang, 2007), revolutionary states often financed and fed their armies with IOU's that they did not or could not pay. The value of the IOU's and state currencies fell with Schwarzeneggerian speed as banks and other creditors refused to accept them. The states promised to pay eventually (this may be sounding familiar), but those who needed cash—soldiers and widows—could not wait. Speculators bought up their IOU's at pennies on the dollar. (Speculation could be equal opportunity, as far as gender was concerned; Abigail Adams proved a fairly adroit speculator in New England paper.) Though some people fared well in the postrevolutionary crisis, tempers flared. Responding to public pressure, states passed "stay laws" to prevent creditors from seizing land. Other states guaranteed that valueless state money would be payable for all debts. That angered a young Thomas Jefferson, who sold his father-in-law's land on the installment plan. Virginia law forced him to take useless state currency for it.
Para ler o resto do artigo clique aqui
sábado, 16 de janeiro de 2010
When I was small, a Woman died , Emily Dickinson
When I was small, a Woman died --
Today -- her Only Boy
Went up from the Potomac --
His face all Victory
To look at her -- How slowly
The Seasons must have turned
Till Bullets clipt an Angle
And He passed quickly round --
If pride shall be in Paradise --
Ourself cannot decide --
Of their imperial Conduct --
No person testified --
But, proud in Apparition --
That Woman and her Boy
Pass back and forth, before my Brain
As even in the sky --
I'm confident that Bravoes --
Perpetual break abroad
For Braveries, remote as this
In Scarlet Maryland --
Today -- her Only Boy
Went up from the Potomac --
His face all Victory
To look at her -- How slowly
The Seasons must have turned
Till Bullets clipt an Angle
And He passed quickly round --
If pride shall be in Paradise --
Ourself cannot decide --
Of their imperial Conduct --
No person testified --
But, proud in Apparition --
That Woman and her Boy
Pass back and forth, before my Brain
As even in the sky --
I'm confident that Bravoes --
Perpetual break abroad
For Braveries, remote as this
In Scarlet Maryland --
sexta-feira, 15 de janeiro de 2010
How to keep a new year's resolution
Dicas do filosofo Peter Singer sobre como manter as promessas para o ano novo.
Did you make any New Year's resolutions? Perhaps you resolved to get fit, to lose weight, to save more money, or to drink less alcohol. Or your resolution may have been more altruistic: to help those in need, or to reduce your carbon footprint. But are you keeping your resolution?
We are not yet far into 2010, but studies show that fewer than half of those who make New Year's resolutions manage to keep them for as long as one month. What does this tell us about human nature, and our ability to live either prudently or ethically?
Part of the problem, of course, is that we make resolutions to do only things that we are not otherwise likely to do. Only an anorexic would resolve to eat ice cream at least once a week, and only a workaholic would resolve to spend more time in front of the television. So we use the occasion of the New Year to try to change behavior that may be the most difficult to change. That makes failure a distinct possibility.
Nevertheless, presumably we make resolutions because we have decided that it would be best to do whatever it is that we are resolving to do. But if we have already made that decision, why don't we just do it? From Socrates onwards, that question has puzzled philosophers. In the Protagoras, one of Plato's dialogues, Socrates says that no one chooses what they know to be bad. Hence choosing what is bad is a kind of error: people will do it only if they think that it is good. If we can teach people what is best, Socrates and Plato seem to have thought, they will do it. But that is a hard doctrine to swallow—much harder than eating the extra slice of cake that you know is not good for you.
Aristotle took a different view, one that fits better with our everyday experience of failing to do what we know to be best. Our reason may tell us what is best to do, he thought, but in a particular moment our reason may be overwhelmed by emotion or desire. Thus, the problem is not lack of knowledge, but the failure of our reason to master other, non-rational aspects of our nature.
That view is supported by recent scientific work showing that much of our behavior is based on very rapid, instinctive, emotionally based responses. Although we are capable of deciding what to do on the basis of rational thought processes, such decisions often prove less powerful than our instinctive feelings in moving us to action.
What does this have to do with keeping resolutions? Richard Holton, a professor of philosophy at MIT and the author of Willing, Wanting, Waiting, points out that a resolution is an attempt to overcome the problem of maintaining an intention when we expect that, at some future time, we will face inclinations contrary to our intention. Right now, we want to lose weight and we are rationally convinced that this is more important than the pleasure we will get from that extra slice of cake. But we anticipate that, faced with cake tomorrow, our desire for that rich chocolate texture will distort our reasoning so that we might convince ourselves that putting on just a little more weight doesn't really matter all that much.
To prevent that, we seek to shore up our current intention to lose weight. By making a solemn resolution and telling our family and close friends about it, we tilt the scales against succumbing to temptation. If we fail to keep our resolution, we will have to admit that we are less in control of our behavior than we had hoped, thus losing face in our own eyes and in the eyes of others about whom we care.
This fits well with what psychologists have discovered about how we can improve the odds that we will keep our resolutions. Richard Wiseman, a professor of psychology at the University of Hertfordshire, has tracked 5,000 people who made New Year's resolutions. Only about one in ten managed to stick to what they had resolved. In his recently released book 59 Seconds, Wiseman sets out the things that you can do to make success more likely:
Break your resolution into a series of small steps;
Tell your family and friends about your resolution, thus both gaining support and increasing the personal cost of failure;
Regularly remind yourself of the benefits of achieving your goal;
Give yourself a small reward each time you achieve one of the steps towards your goal;
Keep track of your progress towards your goal, for example by keeping a journal or putting a chart on the fridge door.
Individually, each of these factors seems trivial. Collectively, they are ways of exerting our self-control not only now, but in the future as well. If we succeed, the behavior we judge to be better will become habitual—and thus no longer require a conscious act of will to keep acting in that way.
These tools for keeping a New Year's resolution can help us to make progress, not only in losing weight or staying out of debt, but also in living more ethically. We may even find that that is the best resolution to make, for our own benefit and that of others.
Did you make any New Year's resolutions? Perhaps you resolved to get fit, to lose weight, to save more money, or to drink less alcohol. Or your resolution may have been more altruistic: to help those in need, or to reduce your carbon footprint. But are you keeping your resolution?
We are not yet far into 2010, but studies show that fewer than half of those who make New Year's resolutions manage to keep them for as long as one month. What does this tell us about human nature, and our ability to live either prudently or ethically?
Part of the problem, of course, is that we make resolutions to do only things that we are not otherwise likely to do. Only an anorexic would resolve to eat ice cream at least once a week, and only a workaholic would resolve to spend more time in front of the television. So we use the occasion of the New Year to try to change behavior that may be the most difficult to change. That makes failure a distinct possibility.
Nevertheless, presumably we make resolutions because we have decided that it would be best to do whatever it is that we are resolving to do. But if we have already made that decision, why don't we just do it? From Socrates onwards, that question has puzzled philosophers. In the Protagoras, one of Plato's dialogues, Socrates says that no one chooses what they know to be bad. Hence choosing what is bad is a kind of error: people will do it only if they think that it is good. If we can teach people what is best, Socrates and Plato seem to have thought, they will do it. But that is a hard doctrine to swallow—much harder than eating the extra slice of cake that you know is not good for you.
Aristotle took a different view, one that fits better with our everyday experience of failing to do what we know to be best. Our reason may tell us what is best to do, he thought, but in a particular moment our reason may be overwhelmed by emotion or desire. Thus, the problem is not lack of knowledge, but the failure of our reason to master other, non-rational aspects of our nature.
That view is supported by recent scientific work showing that much of our behavior is based on very rapid, instinctive, emotionally based responses. Although we are capable of deciding what to do on the basis of rational thought processes, such decisions often prove less powerful than our instinctive feelings in moving us to action.
What does this have to do with keeping resolutions? Richard Holton, a professor of philosophy at MIT and the author of Willing, Wanting, Waiting, points out that a resolution is an attempt to overcome the problem of maintaining an intention when we expect that, at some future time, we will face inclinations contrary to our intention. Right now, we want to lose weight and we are rationally convinced that this is more important than the pleasure we will get from that extra slice of cake. But we anticipate that, faced with cake tomorrow, our desire for that rich chocolate texture will distort our reasoning so that we might convince ourselves that putting on just a little more weight doesn't really matter all that much.
To prevent that, we seek to shore up our current intention to lose weight. By making a solemn resolution and telling our family and close friends about it, we tilt the scales against succumbing to temptation. If we fail to keep our resolution, we will have to admit that we are less in control of our behavior than we had hoped, thus losing face in our own eyes and in the eyes of others about whom we care.
This fits well with what psychologists have discovered about how we can improve the odds that we will keep our resolutions. Richard Wiseman, a professor of psychology at the University of Hertfordshire, has tracked 5,000 people who made New Year's resolutions. Only about one in ten managed to stick to what they had resolved. In his recently released book 59 Seconds, Wiseman sets out the things that you can do to make success more likely:
Break your resolution into a series of small steps;
Tell your family and friends about your resolution, thus both gaining support and increasing the personal cost of failure;
Regularly remind yourself of the benefits of achieving your goal;
Give yourself a small reward each time you achieve one of the steps towards your goal;
Keep track of your progress towards your goal, for example by keeping a journal or putting a chart on the fridge door.
Individually, each of these factors seems trivial. Collectively, they are ways of exerting our self-control not only now, but in the future as well. If we succeed, the behavior we judge to be better will become habitual—and thus no longer require a conscious act of will to keep acting in that way.
These tools for keeping a New Year's resolution can help us to make progress, not only in losing weight or staying out of debt, but also in living more ethically. We may even find that that is the best resolution to make, for our own benefit and that of others.
quinta-feira, 14 de janeiro de 2010
Philosophy is back in business
Gostei do artigo e acho que ele tem razão. Não vejo, contudo, oposição entre economia e filosofia, muito pelo contrário. Há vários exemplos de bons economistas que são ótimos filosofos, como é o caso, por ex. do Sen e do Broome. Sempre achei estranho a ausência de filosofia no curriculum dos cursos de graduação em economia.
The financial and climate crises, global consumption habits, and other 21st-century challenges call for a "killer app." I think I've found it: philosophy.
Philosophy can help us address the (literally) existential challenges the world currently confronts, but only if we take it off the back burner and apply it as a burning platform in business.
Philosophy explores the deepest, broadest questions of life—why we exist, how society should organize itself, how institutions should relate to society, and the purpose of human endeavor, to name just a few. The Wealth of Nations, a book that serves as the intellectual platform for capitalism, lays out how markets should be organized and how people should behave in such markets. The book's author, Adam Smith, was not an economist, as many believe, but a philosopher. Smith was chairman of the Moral Philosophy Dept. at Glasgow University when he wrote the book.
Like other philosophers, Smith attempted to create a new framework for understanding the world, addressing how we as humans seek alignment in our relationships and among competing interests.
The philosophical approach Smith pursued has faded from use, yet it's more relevant than ever in light of the crises our organizations and countries face. Credit, climate, and consumption crises cannot be solved through specialized expertise alone. These problems, like most issues businesses confront in the global marketplace, feature complex interdependencies that require an understanding of how political, financial, environmental, ethical, and social interests influence each other. A philosophical approach connects the dots among competing interests in an effort to create synergy. Linking competing interests requires philosophers to examine areas that modern-day domain experts too often ignore: core beliefs, ethics, and character.
When I say we need to return to a philosophical approach in relation to problem-solving, I mean that we need to broaden our understanding of problems by looking deeper at our own beliefs, values, ethics, and character, and then understand how they relate to those of others who share a stake in our problem-solving efforts.
Para ler o resto do artigo clique aqui
The financial and climate crises, global consumption habits, and other 21st-century challenges call for a "killer app." I think I've found it: philosophy.
Philosophy can help us address the (literally) existential challenges the world currently confronts, but only if we take it off the back burner and apply it as a burning platform in business.
Philosophy explores the deepest, broadest questions of life—why we exist, how society should organize itself, how institutions should relate to society, and the purpose of human endeavor, to name just a few. The Wealth of Nations, a book that serves as the intellectual platform for capitalism, lays out how markets should be organized and how people should behave in such markets. The book's author, Adam Smith, was not an economist, as many believe, but a philosopher. Smith was chairman of the Moral Philosophy Dept. at Glasgow University when he wrote the book.
Like other philosophers, Smith attempted to create a new framework for understanding the world, addressing how we as humans seek alignment in our relationships and among competing interests.
The philosophical approach Smith pursued has faded from use, yet it's more relevant than ever in light of the crises our organizations and countries face. Credit, climate, and consumption crises cannot be solved through specialized expertise alone. These problems, like most issues businesses confront in the global marketplace, feature complex interdependencies that require an understanding of how political, financial, environmental, ethical, and social interests influence each other. A philosophical approach connects the dots among competing interests in an effort to create synergy. Linking competing interests requires philosophers to examine areas that modern-day domain experts too often ignore: core beliefs, ethics, and character.
When I say we need to return to a philosophical approach in relation to problem-solving, I mean that we need to broaden our understanding of problems by looking deeper at our own beliefs, values, ethics, and character, and then understand how they relate to those of others who share a stake in our problem-solving efforts.
Para ler o resto do artigo clique aqui
quarta-feira, 13 de janeiro de 2010
Os cães ladram e a caravana passa
"Este avanço de 1,1% em relação a outubro de 2009, na série com ajuste sazonal, foi o maior desde janeiro de 2001, mas o pessoal ocupado na indústria recuou (-4,1%) em relação a novembro de 2008. O número de horas pagas na indústria subiu 0,9% em relação a outubro de 2009, mas teve recuo (-3,6%) em relação a novembro de 2008. A folha de pagamento real teve recuos em ambas as comparações: -0,8% em relação a outubro de 2009 e -2,7% em relação a novembro de 2008. Os indicadores acumulados para pessoal ocupado, horas pagas e folha de pagamento real, respectivamente, ainda apresentam-se negativos, tanto no ano (-5,5%, -6,0% e -2,7%) quanto nos 12 meses (-5,2%, -5,6% e -2,0%)."(IBGE)
Bons numeros, sem dúvida, confirmando, mais uma vez, a recuperação do mercado de trabalho na indústria. É claro que a turma de sempre vai ficar chateada e apontar para o grande recuo em relação a novembro de 2008. Naturalmente, é um não argumento, mas, ..., deixa para la...como no antigo provérbio arabe - me parece - os cães ladram e a caravana passa.
Bons numeros, sem dúvida, confirmando, mais uma vez, a recuperação do mercado de trabalho na indústria. É claro que a turma de sempre vai ficar chateada e apontar para o grande recuo em relação a novembro de 2008. Naturalmente, é um não argumento, mas, ..., deixa para la...como no antigo provérbio arabe - me parece - os cães ladram e a caravana passa.
terça-feira, 12 de janeiro de 2010
O incompetente
Enquanto no grande bananão o preço da cesta básica cai ate 14,92%, ajudado, é verdade pela queda da demanda por commodities e pelo aumento da oferta, no novo paraiso "socialista" latino americano a situação macroeconômica vai de mal a pior: queda do PIB, inflação mais alta da região. A saida - um classico latino americano - é duas taxas de câmbio.
A estupida burguesia local, neste caso, tem culpa no cartório, porém, ela não é o fator mais importante. O grande responsável é o Chaves e sua política econômica "criativa", não-burguesa, cantada em verso e prosa pela turma de sempre. Felizmente Lula, não da ouvidos a este canto de sereia.
A estupida burguesia local, neste caso, tem culpa no cartório, porém, ela não é o fator mais importante. O grande responsável é o Chaves e sua política econômica "criativa", não-burguesa, cantada em verso e prosa pela turma de sempre. Felizmente Lula, não da ouvidos a este canto de sereia.
segunda-feira, 11 de janeiro de 2010
Crise na Argentina
Ótimo artigo do Bresser Pereira sobre a situação econômica e política na Argentina.
Um presidente eleito segundo todas as boas regras da democracia cria um fundo fiscal usando para isso uma parte modesta das reservas do país no banco central. O presidente desse banco, em nome da "independência do BC", opõe-se ao uso das reservas do país depositadas no banco para constituir o fundo porque o governo teria outros recursos fiscais para pagar as dívidas. A presidente do país demite o presidente do banco por decreto. Indignação geral - indignação da direita e da esquerda: dos que querem que se pague a dívida do Estado e dos que não querem. Esse país é a Argentina. A presidente é Cristina Kirchner, que, como seu marido, embora fiel à democracia, tem um estilo de governo autoritário que foi fundamental para que o país lograsse sair muito bem da grande crise de 2001. Agora, porém, em nome da democracia, da lei, e do princípio da independência do BC, a oposição de direita, que nunca se conformou com o êxito da redução da dívida externa lograda pelos Kirchner, e a oposição de uma esquerda que está sempre em busca do governo perfeito, apoiam o presidente do BC e criam uma grave crise política no país.
Não vou discutir se a demissão por decreto é legal se o presidente do BC pode continuar no cargo enquanto a Justiça resolve mantê-lo ou não. A presidente da Argentina demitiu Martín Redrado por "falta de cumprimento dos deveres de funcionário público". Redrado recusou-se a cumprir a ordem porque a lei argentina garante que o BC não estará sujeito a ordens, indicações ou instruções do Poder Executivo na formulação e na execução da política monetária. Não vou também discutir o princípio antidemocrático da independência plena dos bancos centrais. Afirmo apenas que uma "razoável" independência -como a que existe nos Estados Unidos ou no Brasil- é algo muito bom uma independência plena é um absurdo. No caso, porém, ainda que a decisão da presidente tenha elementos financeiros e esses se confundam com os problemas fiscais, sua decisão não é uma decisão de política monetária, e sim de política fiscal.
Diz respeito à forma de utilizar os recursos do Estado. Quando o presidente do BC e os opositores do governo argumentam contra a utilização das reservas "porque o governo dispõe de recursos fiscais correntes para pagar a dívida, e porque a utilização das reservas abriria espaço para maiores gastos fiscais sem aumentar o deficit público", o argumento é estritamente fiscal. Nada tem a ver com a autonomia da política monetária que justificaria a independência dos bancos centrais. Para apoiar o presidente do BC, portanto, teremos de atribuir a essa instituição não apenas autonomia monetária, mas o direito de interferir diretamente na política fiscal do governo. É isso que queremos? A ditadura dos "técnicos"? A oposição já está, inclusive, falando em impeachment de um governo que, desde a traição do vice-presidente, Julio Cobos, no caso das "retenciones" variáveis (necessárias para neutralizar a doença holandesa), ficou enfraquecido. Os argentinos ainda não descobriram o caminho do desenvolvimento econômico não perceberam que a neutralização da doença holandesa originada na agropecuária é a condição fundamental de seu desenvolvimento. Mas a maioria dos argentinos sabe que a democracia é um valor universal. Por isso, apesar da violência da oposição, a democracia não está ameaçada na Argentina é o desenvolvimento econômico que continua em questão.
Fonte: UOL
Um presidente eleito segundo todas as boas regras da democracia cria um fundo fiscal usando para isso uma parte modesta das reservas do país no banco central. O presidente desse banco, em nome da "independência do BC", opõe-se ao uso das reservas do país depositadas no banco para constituir o fundo porque o governo teria outros recursos fiscais para pagar as dívidas. A presidente do país demite o presidente do banco por decreto. Indignação geral - indignação da direita e da esquerda: dos que querem que se pague a dívida do Estado e dos que não querem. Esse país é a Argentina. A presidente é Cristina Kirchner, que, como seu marido, embora fiel à democracia, tem um estilo de governo autoritário que foi fundamental para que o país lograsse sair muito bem da grande crise de 2001. Agora, porém, em nome da democracia, da lei, e do princípio da independência do BC, a oposição de direita, que nunca se conformou com o êxito da redução da dívida externa lograda pelos Kirchner, e a oposição de uma esquerda que está sempre em busca do governo perfeito, apoiam o presidente do BC e criam uma grave crise política no país.
Não vou discutir se a demissão por decreto é legal se o presidente do BC pode continuar no cargo enquanto a Justiça resolve mantê-lo ou não. A presidente da Argentina demitiu Martín Redrado por "falta de cumprimento dos deveres de funcionário público". Redrado recusou-se a cumprir a ordem porque a lei argentina garante que o BC não estará sujeito a ordens, indicações ou instruções do Poder Executivo na formulação e na execução da política monetária. Não vou também discutir o princípio antidemocrático da independência plena dos bancos centrais. Afirmo apenas que uma "razoável" independência -como a que existe nos Estados Unidos ou no Brasil- é algo muito bom uma independência plena é um absurdo. No caso, porém, ainda que a decisão da presidente tenha elementos financeiros e esses se confundam com os problemas fiscais, sua decisão não é uma decisão de política monetária, e sim de política fiscal.
Diz respeito à forma de utilizar os recursos do Estado. Quando o presidente do BC e os opositores do governo argumentam contra a utilização das reservas "porque o governo dispõe de recursos fiscais correntes para pagar a dívida, e porque a utilização das reservas abriria espaço para maiores gastos fiscais sem aumentar o deficit público", o argumento é estritamente fiscal. Nada tem a ver com a autonomia da política monetária que justificaria a independência dos bancos centrais. Para apoiar o presidente do BC, portanto, teremos de atribuir a essa instituição não apenas autonomia monetária, mas o direito de interferir diretamente na política fiscal do governo. É isso que queremos? A ditadura dos "técnicos"? A oposição já está, inclusive, falando em impeachment de um governo que, desde a traição do vice-presidente, Julio Cobos, no caso das "retenciones" variáveis (necessárias para neutralizar a doença holandesa), ficou enfraquecido. Os argentinos ainda não descobriram o caminho do desenvolvimento econômico não perceberam que a neutralização da doença holandesa originada na agropecuária é a condição fundamental de seu desenvolvimento. Mas a maioria dos argentinos sabe que a democracia é um valor universal. Por isso, apesar da violência da oposição, a democracia não está ameaçada na Argentina é o desenvolvimento econômico que continua em questão.
Fonte: UOL
sábado, 9 de janeiro de 2010
The Hollow Men, T.S.Eliot
Mistah Kurtz -- he dead.
A penny for the Old Guy
I
We are the hollow men
We are the stuffed men
Leaning together
Headpiece filled with straw. Alas!
Our dried voices, when
We whisper together
Are quiet and meaningless
As wind in dry grass
Or rats' feet over broken glass
In our dry cellar
Shape without form, shade without colour,
Paralysed force, gesture without motion;
Those who have crossed
With direct eyes, to death's other Kingdom
Remember us -- if at all -- not as lost
Violent souls, but only
As the hollow men
The stuffed men.
II
Eyes I dare not meet in dreams
In death's dream kingdom
These do not appear:
There, the eyes are
Sunlight on a broken column
There, is a tree swinging
And voices are
In the wind's singing
More distant and more solemn
Than a fading star.
Let me be no nearer
In death's dream kingdom
Let me also wear
Such deliberate disguises
Rat's coat, crowskin, crossed staves
In a field
Behaving as the wind behaves
No nearer --
Not that final meeting
In the twilight kingdom
III
This is the dead land
This is cactus land
Here the stone images
Are raised, here they receive
The supplication of a dead man's hand
Under the twinkle of a fading star.
Is it like this
In death's other kingdom
Waking alone
At the hour when we are
Trembling with tenderness
Lips that would kiss
Form prayers to broken stone.
IV
The eyes are not here
There are no eyes here
In this valley of dying stars
In this hollow valley
This broken jaw of our lost kingdoms
In this last of meeting places
We grope together
And avoid speech
Gathered on this beach of the tumid river
Sightless, unless
The eyes reappear
As the perpetual star
Multifoliate rose
Of death's twilight kingdom
The hope only
Of empty men.
V
Here we go round the prickly pear
Prickly pear prickly pear
Here we go round the prickly pear
At five o'clock in the morning.
Between the idea
And the reality
Between the motion
And the act
Falls the Shadow
For Thine is the Kingdom
Between the conception
And the creation
Between the emotion
And the response
Falls the Shadow
Life is very long
Between the desire
And the spasm
Between the potency
And the existence
Between the essence
And the descent
Falls the Shadow
For Thine is the Kingdom
For Thine is
Life is
For Thine is the
This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.
A penny for the Old Guy
I
We are the hollow men
We are the stuffed men
Leaning together
Headpiece filled with straw. Alas!
Our dried voices, when
We whisper together
Are quiet and meaningless
As wind in dry grass
Or rats' feet over broken glass
In our dry cellar
Shape without form, shade without colour,
Paralysed force, gesture without motion;
Those who have crossed
With direct eyes, to death's other Kingdom
Remember us -- if at all -- not as lost
Violent souls, but only
As the hollow men
The stuffed men.
II
Eyes I dare not meet in dreams
In death's dream kingdom
These do not appear:
There, the eyes are
Sunlight on a broken column
There, is a tree swinging
And voices are
In the wind's singing
More distant and more solemn
Than a fading star.
Let me be no nearer
In death's dream kingdom
Let me also wear
Such deliberate disguises
Rat's coat, crowskin, crossed staves
In a field
Behaving as the wind behaves
No nearer --
Not that final meeting
In the twilight kingdom
III
This is the dead land
This is cactus land
Here the stone images
Are raised, here they receive
The supplication of a dead man's hand
Under the twinkle of a fading star.
Is it like this
In death's other kingdom
Waking alone
At the hour when we are
Trembling with tenderness
Lips that would kiss
Form prayers to broken stone.
IV
The eyes are not here
There are no eyes here
In this valley of dying stars
In this hollow valley
This broken jaw of our lost kingdoms
In this last of meeting places
We grope together
And avoid speech
Gathered on this beach of the tumid river
Sightless, unless
The eyes reappear
As the perpetual star
Multifoliate rose
Of death's twilight kingdom
The hope only
Of empty men.
V
Here we go round the prickly pear
Prickly pear prickly pear
Here we go round the prickly pear
At five o'clock in the morning.
Between the idea
And the reality
Between the motion
And the act
Falls the Shadow
For Thine is the Kingdom
Between the conception
And the creation
Between the emotion
And the response
Falls the Shadow
Life is very long
Between the desire
And the spasm
Between the potency
And the existence
Between the essence
And the descent
Falls the Shadow
For Thine is the Kingdom
For Thine is
Life is
For Thine is the
This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.
sexta-feira, 8 de janeiro de 2010
A dissident in China
Artigo interessente do Ian Buruma sobre o ambiente político chines.
2009 was a good year for China. The Chinese economy still roared ahead in the midst of a worldwide recession. American President Barack Obama visited China, more in the spirit of a supplicant to an imperial court than the leader of the world’s greatest superpower. Even the Copenhagen summit on climate change ended just the way China wanted: failure in its attempt to commit China, or any other industrial nation, to making significant cuts in carbon emissions, with the United States getting the blame.
The Chinese government, under the Communist Party, has every reason to feel confident. So why did a gentle former literature professor named Liu Xiaobo have to be sentenced to 11 years in prison, just because he publicly advocated freedom of expression and an end to one-party rule?
Liu was co-author in 2008 of a petition, Charter 08, signed by thousands of Chinese, calling for basic rights to be respected. Liu is not a violent rebel. His opinions, in articles published on the Internet, are entirely peaceful. Yet he was jailed for “inciting subversion of state power.”
The notion that Liu might be capable of subverting the immense power of the Communist Party of China is patently absurd. And yet the authorities clearly believe that they had to make an example of him, to prevent others from expressing similar views.
Why does a regime that appears to be so secure consider mere opinions, or even peaceful petitions, so dangerous? Perhaps because the regime does not feel as secure as it looks.
Without legitimacy, no government can rule with any sense of confidence. There are many ways to legitimize political arrangements. Liberal democracy is only a recent invention. Hereditary monarchy, often backed by divine authority, has worked in the past. And some modern autocrats, such as Robert Mugabe, have been bolstered by their credentials as national freedom fighters.
Para ler o resto do artigo clique aqui
2009 was a good year for China. The Chinese economy still roared ahead in the midst of a worldwide recession. American President Barack Obama visited China, more in the spirit of a supplicant to an imperial court than the leader of the world’s greatest superpower. Even the Copenhagen summit on climate change ended just the way China wanted: failure in its attempt to commit China, or any other industrial nation, to making significant cuts in carbon emissions, with the United States getting the blame.
The Chinese government, under the Communist Party, has every reason to feel confident. So why did a gentle former literature professor named Liu Xiaobo have to be sentenced to 11 years in prison, just because he publicly advocated freedom of expression and an end to one-party rule?
Liu was co-author in 2008 of a petition, Charter 08, signed by thousands of Chinese, calling for basic rights to be respected. Liu is not a violent rebel. His opinions, in articles published on the Internet, are entirely peaceful. Yet he was jailed for “inciting subversion of state power.”
The notion that Liu might be capable of subverting the immense power of the Communist Party of China is patently absurd. And yet the authorities clearly believe that they had to make an example of him, to prevent others from expressing similar views.
Why does a regime that appears to be so secure consider mere opinions, or even peaceful petitions, so dangerous? Perhaps because the regime does not feel as secure as it looks.
Without legitimacy, no government can rule with any sense of confidence. There are many ways to legitimize political arrangements. Liberal democracy is only a recent invention. Hereditary monarchy, often backed by divine authority, has worked in the past. And some modern autocrats, such as Robert Mugabe, have been bolstered by their credentials as national freedom fighters.
Para ler o resto do artigo clique aqui
quinta-feira, 7 de janeiro de 2010
Desenvolvimento com justiça social
O projeto de lei que regulamenta terceirização no país, ainda não foi apresentado ao Congresso, mas já esta sendo bombardeado pelo setor empresarial do grande bananão. Reação normal e conhecida, afinal este setor sempre se colocou contra qualquer legislação de defesa dos interesses dos trabalhadores. Tão pouco o argumento contrário é original: para Casali, gerente-executivo de Relações de Trabalho da CNI, "terceirizar significa buscar redução de custos e mais qualidade para tornar a empresa competitiva, protegendo os trabalhadores"( FSP, dinheiro B7). So rindo, para não chorar...
É preciso lembrar o obvio: não há nenhum fundamento teorico para a idéia de incompatibilidade entre uma economia de mercado robusta e competitiva e a manutenção de um bom padrão de vida e direitos para os trabalhadores. Muito pelo contrário: os dois objetivos podem e devem andar juntos. Há uma serie de exemplos históricos que comprovam esta compatibilidade, assim como o desejo de alguns de abocanhar uma parcela cada vez maior do lucro em detrimento do bem estar da maioria.
É urgente retomar a agenda de um desenvolvimento econômico com justiça social e respeito as direitos da pessoa humana. Que é, alias, a definição correta do próprio desenvolvimento econômico, como nos ensina a encíclica populorum progressio e os trabalhos do economista Amartya Sen.
É preciso lembrar o obvio: não há nenhum fundamento teorico para a idéia de incompatibilidade entre uma economia de mercado robusta e competitiva e a manutenção de um bom padrão de vida e direitos para os trabalhadores. Muito pelo contrário: os dois objetivos podem e devem andar juntos. Há uma serie de exemplos históricos que comprovam esta compatibilidade, assim como o desejo de alguns de abocanhar uma parcela cada vez maior do lucro em detrimento do bem estar da maioria.
É urgente retomar a agenda de um desenvolvimento econômico com justiça social e respeito as direitos da pessoa humana. Que é, alias, a definição correta do próprio desenvolvimento econômico, como nos ensina a encíclica populorum progressio e os trabalhos do economista Amartya Sen.
quarta-feira, 6 de janeiro de 2010
The Catholic Intellectual Tradition
1. The intellectual as spiritual: no intellectual endeavor can ever take us away from God. Because God is absolute truth, we hold that any attempt to discover the truth leads the person closer to God. Catholicism sees itself engaged wherever there is a genuine search for truth. Thus, no academic discipline lies, in principle, outside the intellectual tradition of Catholicism.
2. The existence of truth: despite the weakness and limitations of human understanding, the tradition maintains strongly that the human mind is capable of attaining truth. Reality does not lie beyond the human ability to understand it, at least in part. The Catholic Intellectual tradition has always embraced scholarship and academic life. The great monastic orders of medieval Europe sought to conserve and pass on the wealth of ancient scholarship.
3. The affirmation of human dignity: Human dignity, not sin, stands at the center of this intellectual tradition. The dignity of each person is founded upon the fact that each one is created in the image of God. This tradition holds firmly to the truth that each person mirrors God’s presence. The journey of human introspection and self-awareness is a spiritual journey that reveals the presence of God within.
4. Reality is a sign to be deciphered: God has written two books: nature and the Bible. This means that all that exists carries the sign of the Creator. Created reality is an expression and sign of its Author. By looking carefully at everything, the human mind can see beyond the fragmentary to grasp (even in an obscure manner) the totality of all that exists and the way in which it all has meaning. Thus, the Catholic tradition is neither fundamentalist nor literalist. Catholic universities are not Bible colleges. Symbols and allegory play a major role in the Catholic understanding of reality. Everything points beyond itself.
5. Rationality is not meant to be frustrated: The intellectual tradition Catholicism affirms that human existence is not absurd and meaning can be found. The meaning of life is the goal of all human reasoning; the tradition holds that such meaning does exist at an ultimate level (God) and that the journey toward discovery of that meaning is deeply satisfying.
6. Grace perfects, it does not suppress or destroy nature: the natural order holds the key for the journey of understanding. It is where everything begins. It lies in a continuous relationship to the realm of the divine. The mystery of the divine is revealed in and through the human person which it transforms. The journey toward truth, understanding and thus, God, is an optimistic journey despite the recognition of the human capacity for sin. The tradition identifies itself as Christian Humanism.
7. All cultures hold the seeds for this fuller understanding: In the Catholic tradition, truth is assumed to be everywhere and can be found in every culture. Even in early Christian times, pagan philosophy was seen to hold meaningful truths and helpful ways of understanding human nature (cf. Justin Martyr’s Dialogue with Trypho). These truths helped clarify the Catholic understanding of what it means to be human and how, in our nature, we are capax Dei (open to God).
8. Reason and faith exist in mutual support: for this tradition, faith and reason are not opposed to one another. Rather, they exist in a creative tension that enlivens both. Reason challenges faith to explain itself and faith challenges reason to go beyond itself. This is why philosophy has always held a prominent place in the Catholic intellectual tradition.
9. Celebrating the great mysteries of life and God’s goodness is part of our tradition. The sacramental dimension of the Catholic tradition is expressed both in the tendency to celebrate (especially with meals) and in the enormous importance the arts and music have. This is why Liturgy plays such a central role in the Catholic tradition’s self-understanding and why Catholic liturgy is so rich.
10. The conversation can always include more voices. Because of all of the above, the intellectual tradition of Catholicism likes to understand itself as a banquet, where more and more guests arrive and the conversation gets better and better. It’s a vibrant intellectual exchange that brings the past in communication with the present.
Mary Beth Ingham, C.S.J.
2. The existence of truth: despite the weakness and limitations of human understanding, the tradition maintains strongly that the human mind is capable of attaining truth. Reality does not lie beyond the human ability to understand it, at least in part. The Catholic Intellectual tradition has always embraced scholarship and academic life. The great monastic orders of medieval Europe sought to conserve and pass on the wealth of ancient scholarship.
3. The affirmation of human dignity: Human dignity, not sin, stands at the center of this intellectual tradition. The dignity of each person is founded upon the fact that each one is created in the image of God. This tradition holds firmly to the truth that each person mirrors God’s presence. The journey of human introspection and self-awareness is a spiritual journey that reveals the presence of God within.
4. Reality is a sign to be deciphered: God has written two books: nature and the Bible. This means that all that exists carries the sign of the Creator. Created reality is an expression and sign of its Author. By looking carefully at everything, the human mind can see beyond the fragmentary to grasp (even in an obscure manner) the totality of all that exists and the way in which it all has meaning. Thus, the Catholic tradition is neither fundamentalist nor literalist. Catholic universities are not Bible colleges. Symbols and allegory play a major role in the Catholic understanding of reality. Everything points beyond itself.
5. Rationality is not meant to be frustrated: The intellectual tradition Catholicism affirms that human existence is not absurd and meaning can be found. The meaning of life is the goal of all human reasoning; the tradition holds that such meaning does exist at an ultimate level (God) and that the journey toward discovery of that meaning is deeply satisfying.
6. Grace perfects, it does not suppress or destroy nature: the natural order holds the key for the journey of understanding. It is where everything begins. It lies in a continuous relationship to the realm of the divine. The mystery of the divine is revealed in and through the human person which it transforms. The journey toward truth, understanding and thus, God, is an optimistic journey despite the recognition of the human capacity for sin. The tradition identifies itself as Christian Humanism.
7. All cultures hold the seeds for this fuller understanding: In the Catholic tradition, truth is assumed to be everywhere and can be found in every culture. Even in early Christian times, pagan philosophy was seen to hold meaningful truths and helpful ways of understanding human nature (cf. Justin Martyr’s Dialogue with Trypho). These truths helped clarify the Catholic understanding of what it means to be human and how, in our nature, we are capax Dei (open to God).
8. Reason and faith exist in mutual support: for this tradition, faith and reason are not opposed to one another. Rather, they exist in a creative tension that enlivens both. Reason challenges faith to explain itself and faith challenges reason to go beyond itself. This is why philosophy has always held a prominent place in the Catholic intellectual tradition.
9. Celebrating the great mysteries of life and God’s goodness is part of our tradition. The sacramental dimension of the Catholic tradition is expressed both in the tendency to celebrate (especially with meals) and in the enormous importance the arts and music have. This is why Liturgy plays such a central role in the Catholic tradition’s self-understanding and why Catholic liturgy is so rich.
10. The conversation can always include more voices. Because of all of the above, the intellectual tradition of Catholicism likes to understand itself as a banquet, where more and more guests arrive and the conversation gets better and better. It’s a vibrant intellectual exchange that brings the past in communication with the present.
Mary Beth Ingham, C.S.J.
terça-feira, 5 de janeiro de 2010
O filho do Paul Singer
É provavelmente o artigo mais comentado na atualidade e é, de fato, muito bom. Trata-se do trabalho do Andre Singer - filho do Paulo Singer, sobre as " raíses sociais e ideológicas do lulismo". "O artigo sugere hipóteses para compreender o realinhamento
eleitoral que teria ocorrido em 2006. O subproletariado, que sempre se manteve distante de Lula, aderiu em bloco à sua candidatura depois do primeiro mandato, ao mesmo tempo em que a classe média se afastou dela. A explicação estaria
em uma nova configuração ideológica, que mistura elementos de esquerda e de direita. O discurso e a prática, que unem manutenção da estabilidade e ação distributiva do Estado, encontram‑se na raiz da formação do lulismo".
Gostei do artigo, mas é preciso algum tempo para digeri-lo, adianto que não vejo novidade alguma na tese apresentada: para quem vive ou circula - de olhos abertos e livres do marxismo vulgar de perdizes e alhures - pela periferia paulistana é apenas a reinvenção da roda. Ela, alias, explica, também, as dificuldades(fracasso?) de certo catolicismo na periferia e o crescimento dos pentacostais...
eleitoral que teria ocorrido em 2006. O subproletariado, que sempre se manteve distante de Lula, aderiu em bloco à sua candidatura depois do primeiro mandato, ao mesmo tempo em que a classe média se afastou dela. A explicação estaria
em uma nova configuração ideológica, que mistura elementos de esquerda e de direita. O discurso e a prática, que unem manutenção da estabilidade e ação distributiva do Estado, encontram‑se na raiz da formação do lulismo".
Gostei do artigo, mas é preciso algum tempo para digeri-lo, adianto que não vejo novidade alguma na tese apresentada: para quem vive ou circula - de olhos abertos e livres do marxismo vulgar de perdizes e alhures - pela periferia paulistana é apenas a reinvenção da roda. Ela, alias, explica, também, as dificuldades(fracasso?) de certo catolicismo na periferia e o crescimento dos pentacostais...
segunda-feira, 4 de janeiro de 2010
Soros e o protecionismo financeiro
Gostei do artigo do Soros publicado ontem no jornal da Ditabranda. Não compartilho do seu pessimismo, mas concordo que há riscos, no caso americano, de uma segunda desaceleração - a performance da economia no período pós medidas emergenciais ainda é uma grande incognita. O clima político também não é nada alentador.
O ponto mais interessante do artigo é o que ele chama de "protecionismo financeiro", resultado da impossibilidade política de criar um sistema de regulamentação internacional do sistema financeiro. Confesso que não havia pensado no assunto e concordo que ele é de fato problematico. Contudo, ainda é cedo para visualizar como será o novo sistema financeiro mundial: é necessário esperar o inevitável processo de aquisição de algumas destas instituições por parte dos paises emergentes. É a hora da "xepa" para as instituições brasileiras, chinesas e indianas,entre outras.
O ponto mais interessante do artigo é o que ele chama de "protecionismo financeiro", resultado da impossibilidade política de criar um sistema de regulamentação internacional do sistema financeiro. Confesso que não havia pensado no assunto e concordo que ele é de fato problematico. Contudo, ainda é cedo para visualizar como será o novo sistema financeiro mundial: é necessário esperar o inevitável processo de aquisição de algumas destas instituições por parte dos paises emergentes. É a hora da "xepa" para as instituições brasileiras, chinesas e indianas,entre outras.
sábado, 2 de janeiro de 2010
O Capitão! meu Capitão, Walt Whitman
Pensando no meu pai, Jose Paula dos Santos, 05 de Fevereiro de 1930 - 31 de Dezembro de 2009.
Ó capitão! Meu capitão! terminou a nossa terrível viagem,
O navio resistiu a todas as tormentas, o prêmio que
buscávamos está ganho,
O porto está próximo, ouço os sinos, toda a gente está
exultante,
Enquanto segue com os olhos a firme quilha, o ameaçador e
temerário navio;
Mas, oh coração! coração! coração!
Oh as gotas vermelhas e sangrentas,
Onde no convés o meu capitão jaz,
Tombado, frio e morto.
Ó capitão! meu capitão! ergue-te e ouve os sinos;
Ergue-te – a bandeira agita-se por ti, o cornetim vibra por ti;
Para ti ramos de flores e grinaldas guarnecidas com fitas –
para ti as multidões nas praias,
Chamam por ti, as massas, agitam-se, os seus rostos ansiosos voltam-se;
Aqui capitão! querido pai!
Passo o braço por baixo da tua cabeça!
Não passa de um sonho que, no convés,
Tenhas tombado frio e morto.
O meu capitão não responde, os seus lábios estão pálidos e imóveis,
O meu pai não sente o meu braço, não tem pulso nem vontade,
O navio ancorou são e salvo, a viagem terminou e está concluída,
O navio vitorioso chega da terrível viagem com o objetivo ganho:
Exultai, ó praias, e tocai, ó sinos!
Mas eu com um passo desolado,
Caminho no convés onde jaz o meu capitão,
Tombado, frio e morto"
(Tradução de Maria de Lurdes Guimarães)
Ó capitão! Meu capitão! terminou a nossa terrível viagem,
O navio resistiu a todas as tormentas, o prêmio que
buscávamos está ganho,
O porto está próximo, ouço os sinos, toda a gente está
exultante,
Enquanto segue com os olhos a firme quilha, o ameaçador e
temerário navio;
Mas, oh coração! coração! coração!
Oh as gotas vermelhas e sangrentas,
Onde no convés o meu capitão jaz,
Tombado, frio e morto.
Ó capitão! meu capitão! ergue-te e ouve os sinos;
Ergue-te – a bandeira agita-se por ti, o cornetim vibra por ti;
Para ti ramos de flores e grinaldas guarnecidas com fitas –
para ti as multidões nas praias,
Chamam por ti, as massas, agitam-se, os seus rostos ansiosos voltam-se;
Aqui capitão! querido pai!
Passo o braço por baixo da tua cabeça!
Não passa de um sonho que, no convés,
Tenhas tombado frio e morto.
O meu capitão não responde, os seus lábios estão pálidos e imóveis,
O meu pai não sente o meu braço, não tem pulso nem vontade,
O navio ancorou são e salvo, a viagem terminou e está concluída,
O navio vitorioso chega da terrível viagem com o objetivo ganho:
Exultai, ó praias, e tocai, ó sinos!
Mas eu com um passo desolado,
Caminho no convés onde jaz o meu capitão,
Tombado, frio e morto"
(Tradução de Maria de Lurdes Guimarães)
sexta-feira, 1 de janeiro de 2010
Ivy league lightbulb jokes
How many Princeton students does it take to change a lightbulb?
Two---one to mix the martinis and one to call the electrician.
How many Brown students does it take to change a lightbulb?
Eleven---one to change the lightbulb and ten to share the experience.
How many Dartmouth students does it take to change a lightbulb?
None---Hanover doesn't have electricity.
How many Cornell students does it take to change a lightbulb?
Two---One to change the lightbulb and one to crack under the pressure.
How many Penn students does it take to change a lightbulb?
Only one, but he gets six credits for it.
How many Columbia students does it take to change a lightbulb?
Seventy-six---one to change the lightbulb, fifty to protest the lightbulb's
right to not change, and twenty-five to hold a counter-protest.
How many Yale students does it take to change a lightbulb?
None---New Haven looks better in the dark.
How many Harvard students does it take to change a lightbulb?
One---he holds the bulb and the world revolves around him
How many MIT students does it take to change a lightbulb?
five ---one to design a nuclear-powered one that never needs changing,
one to figure out how to power the rest of Boston using that
nuked lightbulb,
two to install it,
and one to write the computer program that controls
the wall switch
Two---one to mix the martinis and one to call the electrician.
How many Brown students does it take to change a lightbulb?
Eleven---one to change the lightbulb and ten to share the experience.
How many Dartmouth students does it take to change a lightbulb?
None---Hanover doesn't have electricity.
How many Cornell students does it take to change a lightbulb?
Two---One to change the lightbulb and one to crack under the pressure.
How many Penn students does it take to change a lightbulb?
Only one, but he gets six credits for it.
How many Columbia students does it take to change a lightbulb?
Seventy-six---one to change the lightbulb, fifty to protest the lightbulb's
right to not change, and twenty-five to hold a counter-protest.
How many Yale students does it take to change a lightbulb?
None---New Haven looks better in the dark.
How many Harvard students does it take to change a lightbulb?
One---he holds the bulb and the world revolves around him
How many MIT students does it take to change a lightbulb?
five ---one to design a nuclear-powered one that never needs changing,
one to figure out how to power the rest of Boston using that
nuked lightbulb,
two to install it,
and one to write the computer program that controls
the wall switch
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