Why Money Does Not Buy You Freedom

This article (via Manan Shukla) posted on a site frequented by Wall Streeters, tells a story about life as an investment banker. Everyone knows that it will be hard work, but they start out with the belief that they will earn enough money to buy their freedom after a short period of hard work. What they don't know is that there is never enough money. The more that one makes, the more one needs to keep up with their peers.

The author suggests the possibility that Wall Street is no exception to this rule. Working one's way up the corporate ladder may be similar. I think that there are similarities but that Wall Street is in a class by itself. The Wall Street culture is very different from the typical corporate culture. It is a money culture on steroids.

Milton Friedman's Description Of An Imaginary World Is Simply Wrong

In this article, Brad DeLong takes a big step. He has moved from arguing that many of the arguments coming from economists at The University of Chicago, about how to deal with the economic crisis, violated some of the views held by Milton Friedman, to the view that Friedman was simply wrong. Friedman advocated a libertarian view in which the free market would work its magic to produce the best of all possible worlds. Market failures, or externalities would be rectified by the legal system. There was no need for government interference with the market mechanism. The problem with Friedman's perspective is that he described a world that that does not exist. DeLong provides several examples to make that point.

 Paul Krugman seconded DeLong's critique of Friedman's libertarianism. He took it a step further, however. He argued that the research done by the Friedman's on the causes of the Great Depression showed that the Fed could have prevented the Great Depression by expanding the money supply. This implied a more active role for the government than they liked, so they argued instead that the government caused the Great Depression. The best of all possible worlds would exist as long the Fed did not play an active role in adapting monetary policy to the business cycle. They advocated a passive policy in which the money supply expanded with the economy. Moreover, there was no need for counter cyclical fiscal policy. Market mechanisms were sufficient to deal with recessions. We still live with the legacy of Friedman's description of an imaginary world.

A View From Europe On How To Deal With The Failure Of Current Policies

Charles Wyplosz, an economist from Geneva, explains why procyclical fiscal policy is failing in the eurozone. He offers some suggestions for restructuring the eurozone that make it workable until it is possible to have greater fiscal integration in the eurozone. He also raises a flag about the potential banking crisis that is on the horizon. They hold large amounts of sovereign debt that is at risk.

WSJ Reports Favorably On Patagonia And Its CEO

The WSJ (via Manan Shukla) extols the virtues of Patagonia's founder and CEO who has written a new book entitled The Responsible Company. Corporate social responsibility (CSR), is a sideshow in most MBA programs. This article describes the influence that Yvon Chouinard ideas have had on several major corporations. CSR is not necessarily inconsistent with shareholder value. Chouinard's values and his leadership style might have influence on some businesses. Business does not have to be evil.

The Real Political Problem In The US Is The Radical Republican Party.

This is a blistering critique of the Republican Party and the disastrous impacts of that change on governance in the US. It is even more remarkable that Norman Ornstein, who is a leading conservative thinker, co-authored the article.

British Committee Issues A Damning Critique Of Murdoch's Leadership

The British committee that investigated the hacking scandal by Rupert Murdoch's tabloid concluded that he was not fit to run a major corporation. Murdoch claimed that he was unaware of the behavior. The committee stated that there was a major cover-up of the problem and that Murdoch was either part of the cover-up, or he is incompetent. The committee's report may have an effect on Murdoch's 39% stake in the satellite network that is his major asset in Britain.

A Reflection On Major Issues Discussed At The INET Conference In Berlin

This article was written by a participant in the recent INET conference in Berlin. It reflects some of his views on the issues discussed at the conference. It goes into many areas that are interesting but I have selected a few of them in this post.

The theme of the conference was Paradigm Lost. The lost paradigm is neoclassical economics. There was not consensus on what will replace it. Thomas Fricke spoke about the problem in Germany. He claimed that German economists were sold on the neoclassical paradigm, and they used it to implement successful reforms which enabled the transition to a united Germany. Some now recognize the problems with the paradigm in the current crisis, but it is hard for many to make changes. This is particularly true for central bankers. I think that this is also true in the US. Change is not easy in any profession. I have not seen much change in the textbooks used in the introductory courses taken by most students. Furthermore, central bankers in the US still use the DSGE models that assume that banking and credit are exogenous to the real economy.

The use of credit and leverage, enabled by financial derivatives, has enabled the advanced economies to over consume. This, coupled with the entry of 4 billion to the consuming middle class in developing countries, has placed huge demands on natural resources which are not ecologically sustainable. National political constraints stand in the way of making the sacrifices that are necessary to sustain the environment for future generations. Politicians sell a paradise for self interested free riders who have little interest in self sacrifice.

Globalization was also a theme at the conference. Globalization has enabled convergence that has reduced the inequalities of income, wealth, and knowledge between the advanced nations and many developing economies. At the same time, it has fostered growing inequality within nations. There is a recognition of the impact of globalization on how we think about economics, and how we should deal with the transition, but it remains an issue without a clear solution.