Paul Krugman on Ireland (New York Times op-ed)

Laminations · 09-03-2010 01:44PM

Let me restate my issue here. In DFs libertarian model we wouldn't have gotten into the mess because the market would be regulated simply by the consequences of various behavior. Certain behaviours equal success and wrecklessness equals failure with no bailouts. All well and good but as people act irrationally in many situations including financial decision making (read Kahneman and Tversky, the allais and elsberg paradoxes, any of the behavioural economics literature, dan ariely, freakonomics etc) and knowledge of consequences is not enough to regulate behaviour to get a stable market.
Capitalistic models have moved towards light touch regulation and libertarianism and thats been an ingredient in the markets failure, the old assumption of neoclassical economics that agents in the market are rational acting based on axiomatic assumptions has been proven to be flawed in many instances

Permabear · 09-03-2010 02:08PM

This post has been deleted.

dvpower · 09-03-2010 03:11PM

donegalfella wrote: »

This post has been deleted.

Isn't there a contradiction here?
How can a deregulated system make institutions responsible for their own decisions? Wasn't a large part of the problem the fact that the banks became too structurally important to the economy to be allowed to fail?

We need regulation to either control the business that they do or to limit the amount of business they can do.

SkepticOne · 09-03-2010 03:20PM

Silverharp2 wrote: »

you might find this interesting

http://www.bis.org/publ/work137.pdf

BIS Working Papers

No 137

The Great Depression as a
credit boom gone wrong

Blame for that credit expansion he in turn laid at the doorstep of the Federal Reserve System, which had kept interest rates below the natural rate for too long in the hope that low rates might help Britain surmount its balance-of-payments problems and thereby solidify the reconstructed gold exchange standard, and ultimately on the doorstep of the new gold standard itself, which gave central banks more leeway to manipulate policy.

I think what is interesting here is the parallels with today. In the earlier part of the last decade interest rates were also held low to facilitate economic activity in Germany and other countries with sluggish economies, however it was wholly inappropriate for Ireland where it caused a massive expansion of credit.

Laminations · 09-03-2010 03:41PM

donegalfella wrote: »

This post has been deleted.

I agree with all that, i.e. you are responsible for your own decisions. Where I start to have problems is that there are people who are dealt a sh!tty hand in life and they live with the consequences of other peoples actions. Some people no matter how hard they try will never get 2 degrees, a masters and a doctorate, so your sense of achievement and entitlement is beyond their natural ability. Every good choice a person makes in life makes the following choices easier and every bad choice makes the following ones harder. Someone born to drug addict parents who have no interest in feeding the child let alone educating him is at a disadvantage before he makes his first choice, and that first choice is inevitably harder than your first choice (assuming you come from a caring, nurturing family). So I expect those who built themselves up from solid and fortunate foundations to help others who had not got the opportunities they had.

you on the other hand, prefer to call them lazy feckless scroungers

ei.sdraob · 09-03-2010 03:47PM

dvpower wrote: »

Isn't there a contradiction here?
How can a deregulated system make institutions responsible for their own decisions? Wasn't a large part of the problem the fact that the banks became too structurally important to the economy to be allowed to fail?

We need regulation to either control the business that they do or to limit the amount of business they can do.

i posted earlier in thread
and ill say it for the nth time

deregulated != not regulated

in a libertarian system contracts would still need to be enforced

there wasnt light regulation in the system, there was complete lack of it

dvpower · 09-03-2010 04:32PM

ei.sdraob wrote: »

deregulated != not regulated

That's the same as:
deregulated == regulated

ei.sdraob wrote: »

there wasnt light regulation in the system, there was complete lack of it

So, does calling for deregulation mean you want more regulation

Laminations · 09-03-2010 05:00PM

dvpower wrote: »

So, does calling for deregulation mean you want more regulation

Very good. They want a system they claim had no regulation to be deregulated.

Idbatterim · 09-03-2010 05:24PM

maybe FG could lend Leo Vradakar to FF for a while to replace the joke Coughlan, country before party and all of that! I was in the dentist today and started reading the Times as the Independent wasnt there, the mentioned setting up an EMF, which I think is a great idea. Does anyone have a link to this article? In Ireland our Government is becoming more and more of a nanny state, but with Europe as Ireland's nanny state .ie Europe being competent, the more integrated with Europe we become and the more power we give away, atleast its going to those who can actually govern. IF you think about it, we could organise a piss up in a brewery here, the more say Europe has over us the better! I.e we have a form of a competent goverment ruling our incompetents! Just found the article read below!

http://www.irishtimes.com/newspaper/finance/2010/0309/1224265878155.html

If and when Ireland Inc does default, I cant wait to sit back and get the popcorn out! Well see if Europe thinks out Public and Civil Servants are "worth it" and see what they reckon of welfare spending being a multiple of other better developed richer European nations! Nothing would / will give me more satisfaction!

Laminations · 09-03-2010 05:29PM

Idbatterim wrote: »

maybe FG could lend Leo Vradakar to FF for a while to replace the joke Coughlan, country before party and all of that! I was in the dentist today and started reading the Times as the Independent wasnt there, the mentioned setting up an EMF, which I think is a great idea. Does anyone have a link to this article? In Ireland our Government is becoming more and more of a nanny state, but with Europe as Ireland's nanny state .ie Europe being competent, the more integrated with Europe we become and the more power we give away, atleast its going to those who can actually govern. IF you think about it, we could organise a piss up in a brewery here, the more say Europe has over us the better! I.e we have a form of a competent goverment ruling our incompetents!

Nicely random. And on that note I'll leave, knowing this debate is pointless as no libertarians will ever convince me of their morals and I will never convince you of the immorality of your wayward, fundamentalist, individualistic, inequitable ideology.

Kermit.de.frog · 10-04-2015 05:18PM

5 years on and where is Paul Krugman?

He use to bring Ireland up a lot at the depth of the crisis and described our economy as a "sick joke".

Since then Ireland has regained competitiveness, has the highest growth rates in Europe and amongst the fastest rate of job creation and even dreaded net emigration looks like being reversed next year with more people coming in than leaving.

What does he have to say about this? I'd be very interested to read it but he seems awfully quiet now about Ireland anyway.

andrew · 10-04-2015 06:00PM

Permabear wrote: »

This post had been deleted.

So, what you've done there is to list the incentives which a bank faces, which will keep it out of trouble. And I agree that if the bank was a person, this is the incentives that person would face. But the probelem is that the bank isn't a person, it's a collection of people. No single person in the bank faces the incentives you list, and the individuals who face different incentives aren't a check on one another. You need a regulator because the regulator is as close as you can get to that person, and the regulator 'feels' the externalities which bank failures lead to, which the individual bankers don't feel.

To be a bit more specific: Suppose we're in a perfect free market system. Even then, you've got information asymmetries which means an individual bank boss has an incentive to make risky loans which improve the bank's balance sheet in the short term, but make it prone to failure in the long term. It's not that bosses fault what happens in the long term, because s/he has savings, and can exploit those information asymmetries to ensure that s/he doesn't lose face when the bank does collapse. So, management don't have an incentive to be prudent.

And shareholders aren't an adequate control either. Speaking of information symmetries even more, shareholders either don't have enough information to adequately put a check on bank operations, or don't care. Many bank shareholders are institutions, pension funds etc., where the ultimate shareholders are workers who have no mechanism by which to monitor bank activities. They trust the pension fund to do so. Meanwhile, the pension funds have their own set of incentives which means they don't care either. Even where shareholders are actual people who hold enough shares to hold companies to account, the company management still has a massive advantage by virtue of their day to day interaction with the company, they can obfuscate the information to provide. Here's an interesting HBR article on the relationship between shareholders and management.

The market doesn't solve this problem because it's in a 'bad' equilibrium. No company has an incentive to become more transparent, especially in a concentrated market like banking where it's easy to engage in implict collusion. This is why many new regulations (such as CRD IV and Solvency II) have had disclosure of information as one of their pillars.

(b) The borrower also knows that if he cannot pay his mortgage, he will not be supported or bailed out by the state. He will be taken to court and held accountable for breach of contract.

I don't see the need for anything more.

People who are currently in arrears bought houses under the impression that they would be evicted if they failed to keep up payments. That didn't stop them from buying houses, did it? Or in america, where they could be absolutely positive they'd be evicted. People here and there thought house prices would continue to rise, so the absence or otherwise of reposession didn't matter to them.

*...didn't realise i was replying to a zombie thread....*

Rightwing · 10-04-2015 10:21PM

Kermit.de.frog wrote: »

5 years on and where is Paul Krugman?

He use to bring Ireland up a lot at the depth of the crisis and described our economy as a "sick joke".

Since then Ireland has regained competitiveness, has the highest growth rates in Europe and amongst the fastest rate of job creation and even dreaded net emigration looks like being reversed next year with more people coming in than leaving.

What does he have to say about this? I'd be very interested to read it but he seems awfully quiet now about Ireland anyway.

Advising Abenomics. There's always a few to listen.

Dannyboy83 · 11-04-2015 09:43PM

andrew wrote: »

*...didn't realise i was replying to a zombie thread....*

Very interesting post nonetheless.

Icepick · 15-04-2015 05:23PM

Kermit.de.frog wrote: »

5 years on and where is Paul Krugman?

still bull****ting and misinterpreting concepts like 'the free market'

porsche959 · 16-04-2015 03:47AM

Kermit.de.frog wrote: »

5 years on and where is Paul Krugman?

Still writing for the New York Times as far as I'm aware.

Kermit.de.frog wrote: »

He use to bring Ireland up a lot at the depth of the crisis and described our economy as a "sick joke".

It was then - and it still is.

Kermit.de.frog wrote: »

Since then Ireland has regained competitiveness, has the highest growth rates in Europe and amongst the fastest rate of job creation and even dreaded net emigration looks like being reversed next year with more people coming in than leaving.

What does he have to say about this? I'd be very interested to read it but he seems awfully quiet now about Ireland anyway.

Vote Zanu Fine Failure!

Kermit.de.frog · 16-04-2015 04:26AM

For you maybe. For most sensible people they know the facts.

mjv2ydratu679c · 17-04-2015 02:06PM

Kermit.de.frog wrote: »

Since then Ireland has regained competitiveness, has the highest growth rates in Europe and amongst the fastest rate of job creation and even dreaded net emigration looks like being reversed next year with more people coming in than leaving.

What does he have to say about this? I'd be very interested to read it but he seems awfully quiet now about Ireland anyway.

which is all built on sand and unfortunately it won't be until the next financial crisis that people realise this.

BoJack Horseman · 17-04-2015 08:42PM

Brody Wet Comic wrote: »

which is all built on sand and unfortunately it won't be until the next financial crisis that people realise this.

We'll just wait a decade of Krugman obsolescence & he can be right for a month or so.

Sand · 17-04-2015 10:43PM

As Bertie noted, Krugman was just a naysayer and Bertie always found it hard to understand why they just didn't do everyone a favour and kill themselves.

Mongfinder General · 17-04-2015 11:05PM

andrew wrote: »

So, what you've done there is to list the incentives which a bank faces, which will keep it out of trouble. And I agree that if the bank was a person, this is the incentives that person would face. But the probelem is that the bank isn't a person, it's a collection of people. No single person in the bank faces the incentives you list, and the individuals who face different incentives aren't a check on one another. You need a regulator because the regulator is as close as you can get to that person, and the regulator 'feels' the externalities which bank failures lead to, which the individual bankers don't feel.

To be a bit more specific: Suppose we're in a perfect free market system. Even then, you've got information asymmetries which means an individual bank boss has an incentive to make risky loans which improve the bank's balance sheet in the short term, but make it prone to failure in the long term. It's not that bosses fault what happens in the long term, because s/he has savings, and can exploit those information asymmetries to ensure that s/he doesn't lose face when the bank does collapse. So, management don't have an incentive to be prudent.

And shareholders aren't an adequate control either. Speaking of information symmetries even more, shareholders either don't have enough information to adequately put a check on bank operations, or don't care. Many bank shareholders are institutions, pension funds etc., where the ultimate shareholders are workers who have no mechanism by which to monitor bank activities. They trust the pension fund to do so. Meanwhile, the pension funds have their own set of incentives which means they don't care either. Even where shareholders are actual people who hold enough shares to hold companies to account, the company management still has a massive advantage by virtue of their day to day interaction with the company, they can obfuscate the information to provide. Here's an interesting HBR article on the relationship between shareholders and management.

The market doesn't solve this problem because it's in a 'bad' equilibrium. No company has an incentive to become more transparent, especially in a concentrated market like banking where it's easy to engage in implict collusion. This is why many new regulations (such as CRD IV and Solvency II) have had disclosure of information as one of their pillars.

People who are currently in arrears bought houses under the impression that they would be evicted if they failed to keep up payments. That didn't stop them from buying houses, did it? Or in america, where they could be absolutely positive they'd be evicted. People here and there thought house prices would continue to rise, so the absence or otherwise of reposession didn't matter to them.

*...didn't realise i was replying to a zombie thread....*

Guidelines have been developed according to Articles 432 and 433 of the CRR, which mandate the EBA to develop guidelines on how institutions shall apply materiality, proprietary and confidentiality in relation to the disclosure requirements laid down in the CRR, and to develop Guidelines on institutions assessing more frequent disclosures of information required by Part Eight of the CRR. Part Eight of CRR specifies disclosure requirements that institutions have to comply with which cover all risk areas (own funds, credit risk, securitisation, market risk, operational risk) as well as information about risk management, exposures, RWA and capital requirements.

Do you honestly think that the average Chimp working in Regulation understands the above requirements let alone knows how to enforce them?

andrew · 20-04-2015 01:19PM

Mongfinder General wrote: »

Guidelines have been developed according to Articles 432 and 433 of the CRR, which mandate the EBA to develop guidelines on how institutions shall apply materiality, proprietary and confidentiality in relation to the disclosure requirements laid down in the CRR, and to develop Guidelines on institutions assessing more frequent disclosures of information required by Part Eight of the CRR. Part Eight of CRR specifies disclosure requirements that institutions have to comply with which cover all risk areas (own funds, credit risk, securitisation, market risk, operational risk) as well as information about risk management, exposures, RWA and capital requirements.

Do you honestly think that the average Chimp working in Regulation understands the above requirements let alone knows how to enforce them?

Well, what you've done there is to just find some random, difficult to understand paragraph, take it out of context, and then imply that that single paragraph is the extent of what regulators have to work with.

Anyway, I don't know what your paragraph refers to, but I was referring to the (well established, clear) information requirements under Pillar 3 of CRD IV and Solvency II. Even if you really think that the regulators are ‘chimps’ [:rolleyes:], the disclosures under Pillar 3 are to the market, not (just) regulators. The point is to impose market discipline on firms, and there are plenty of smart people in the private sector who can spend time and money coming to grips with the information which firms release.

Icepick · 27-04-2015 12:57PM

Brody Wet Comic wrote: »

which is all built on sand and unfortunately it won't be until the next financial crisis that people realise this.

Are you employed?

lochderg · 27-04-2015 02:04PM

bamboozle wrote: »

what annoys me most is that the unions in this country are doing their best to lump all the pressure on the door of rogue bankers and property developers while a blind eye is turned to the ineptness of the Financial Regulator, central bank, dept of finance and government.
How Patrick Neary earns a pension of 140k euro a year after prevailing over years of regulatory ineptness is beyond me. Any other country he'd be fired.

THe Unions?- that annoys you most?-all this info in front of you and you manage to get annoyed with the unions?-imagine it had been the unions' fault?-would they ever be respected or listened to again?-Luckily it was the suits' fault-no blame there

Icepick · 27-04-2015 03:28PM

lochderg wrote: »

THe Unions?- that annoys you most?-all this info in front of you and you manage to get annoyed with the unions?-imagine it had been the unions' fault?-would they ever be respected or listened to again?-Luckily it was the suits' fault-no blame there

The unions and their blind defense of all their members and governments' inability to diminish their influence have done a lot of damage.

Private companies wouldn't be able to do much damage without the politicians and civil service either helping them directly or not doing their work when it comes to basic regulation and oversight. This is a fact the likes of Krugman like to ignore.

lochderg · 27-04-2015 06:07PM

Icepick wrote: »

The unions and their blind defense of all their members and governments' inability to diminish their influence have done a lot of damage.

Private companies wouldn't be able to do much damage without the politicians and civil service either helping them directly or not doing their work when it comes to basic regulation and oversight. This is a fact the likes of Krugman like to ignore.

But why not see the unions' 'blind defence' of their members in the same light as Ceo's and large companies' drive for 'market level' salaries and huge profits?
Get as much as you can and that 'Silent Hand' & 'Trickle Down' will look after us all...?

Icepick · 27-04-2015 08:27PM

lochderg wrote: »

But why not see the unions' 'blind defence' of their members in the same light as Ceo's and large companies' drive for 'market level' salaries and huge profits?
Get as much as you can and that 'Silent Hand' & 'Trickle Down' will look after us all...?

Monopolistic tendencies are indeed harmful no matter where they come from.

lochderg · 28-04-2015 10:40AM

Icepick wrote: »

Monopolistic tendencies are indeed harmful no matter where they come from.

By all means discuss the pros & cons of union strength in society but you sound like the scatty general in the Monty Python sketch who couldn't understand that the war was over when you start ascribing blame for our financial woes to the unions.It woz them nice,articulate,educated men in suits what did it guv.

Icepick · 28-04-2015 06:38PM

lochderg wrote: »

By all means discuss the pros & cons of union strength in society but you sound like the scatty general in the Monty Python sketch who couldn't understand that the war was over when you start ascribing blame for our financial woes to the unions.It woz them nice,articulate,educated men in suits what did it guv.

The unions are greedy and myopic, but I blame the government and the civil service for surrendering to their demands.

lochderg · 29-04-2015 10:52AM

Icepick wrote: »

The unions are greedy and myopic, but I blame the government and the civil service for surrendering to their demands.

no-you,ve still not grasped it -that's the free for all that is our market society-today Mr.Boucher will no doubt confirm his large salary and more but that will be the 'market level' which we have to pay because that's what has been knocked into our stupid heads whereas when the unions try to get the best deal for their members they are 'trouble makers' & communists.No -it was the bankers and the international financial markets who screwed us all-it wasn't the unions-try and show a bit of independent thought

Paul Krugman on Ireland (New York Times op-ed)

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