They Should Have Gotten the Prize (Again)

Albert Hirschman is alive and deserves the prize.

http://en.wikipedia.org/wiki/Albert_O._Hirschma...>

Definitely Julian Simon and Ludwig von Mises.

Oh, and speaking of "perfect competition", I would REALLY REALLY like to see that theory put back on the shelf. Not because it's not useful for certain very technical constructs, but instead because the main thing that students get out of an economics course in which it is taught is "Markets only work when competition is perfect; in all other instances you need governments to intervene to save markets from themselves." I've seen WAY too many people tell me this, and the only possible source of it is the theory of perfect competition. Just Don't Teach It.

How about Michal Kalecki? He anticipated much of what Keynes said in the General Theory, with more clarity and more attention to statistics. Or Piero Sraffa?

Russell, one alternative model that we sometimes talk about here at Mason is Bertrand competition - firms are simply assumed to set price instead of quantity, and even with N=2 firms you can get similar features to atomistic (oh, sorry, "perfect") competition, such as P=MC.

I nominate Frederick Soddy. I have never seen a better understanding and definition of wealth.

Of course, he was actually not an economist at all, but a famous chemist, who won the Nobel prize for *that* in 1921. Five years later he wrote "Wealth, Virtual Wealth, and Debt"--unfortunately at the dawn of the Keynesian policy bonanza, and so entirely discarded by history--in which he basically warned of the Great Depression, explaining the looming problems in national economics having to do with the misunderstood nature of wealth, debt, and money.

Mises would be a good one too. But perhaps, in fact, he should be posthumously awarded the prize jointly with Soddy =)

How about Aaron Director, who is generally cited as the founder of the law and economics movement, and lived to, what, 102?

Also, FWIW, I suspect that Mancur Olson would have won one had he not died surprisingly at a relatively young age.

Don't forget that Knight essentially beat Coase to the Coase Theorem.

When I attended some elementary economics lectures 40 years ago, the lecturer went out of his way to pour vituperation on Joan Robinson. He doubted her intellectual honesty.

Fischer Black is always put in this category.

His recent biograpy, The Revolutionary Idea of Finance, makes for a great read.

Simon's message was pure beauty as in clear, optimistic and prescient.

Among all these notables, Ludwig von Mises was the big picture Macroeconomic's MacroEconomist.

Who really wins or loses with excessively easy lending terms


or excessively low interest rates?

In the late 1920's buying on credit became widespread. Automobiles,

radios, washing machines - all became available to the American wage


earner - on credit. And they consumed.... and consumed in bolus mass.


On the stock exchange ten percent margin was available for


speculators. Borrowing became rampant. Stock valuation become


overvalued and assets relatively over consumed. The population of


consumers in need of a radio, washing machine, automobile, et. al.,


was rapidly depleted. Ongoing consumption at the median


credit-dependent bolus rate was impossible. Inventories accumulated


and workers were laid off, with the resulting inability to pay for


their own assets acquired on credit. The assets were then repossessed


increasing the already over supply. The deflationary macroeconomic


negative feedback system proceeded in a necessary and mechanistic


fashion.

Lenders were left with repossessed assets whose worth was less than

purchase value - with a falling population of potential consumers.


With less product demand factory owners with capital debt for


machinery and buildings were unable to maintain payments. Stock on ten


percent margin became more than just worthless, it became a liability,


as obligations to pay the entire purchase amount remained even as the


stock valuation decreased by 25, then 50, then 75 percent. As the


macroeconomic system unwound into a deflationary collapse in 1932; the


debtor of last resort, a debtor whose balance sheet was quite good,


became also the employer of last resort. And so as the US GDP


collapsed by 40-45 percent, the US government began its work projects


program creating some of the public infrastructure that still serves


its citizen to this day.

Fast forward three generations. The marvels of the late 1920's were

replaced by the computer, its software, and the new information age of


the nineties. Over borrowing and over investment in this arena left


warehouses full of enough fiberopic cable for a generation and an 80


percent collapse of the NASDAQ over the exact same time frame as the


DJIA top to bottom period from 29 to 32. 'Replaying 1929' - US's, not


the United States', but Urban Survival's insightful recognition of


what was transpiring, i.e., 1858's second subfractal's Groundhog's Day


to 1929 was an instant attractor to the website for all who


qualitatively, and for fractalists, quantitatively, appreciated the


nature of cyclical events.

1932 was not 2002. The internet collapse, while wiping out more than 6

trillion dollars of paper value, had little effect on the GDP. Times


were different. A strange set of world circumstances existed in 2000.


Emerged was both a single superpower with an unparalleled military and


nuclear arsenal and a rapidly evolving, highly capable and rising


manufacturing giant with a massive population willing to work 60-80


hours a week at 1/10-1/20th the cost of the superpower's worker. Even


with oceanic transportation of goods, the American consumer reaped the


benefits of these low cost items. American industry could not compete


and jumped in, closing their own manuafacturing plants, and began


marketing and enhancing the distribution system of foreign made


goods.

At the same time the Federal Reserve and Financial Big Business

synergistically created the last 'great' American industry. This


powerful industry increased the money supply faster than at any other


time in US history. That industry could be labelled 'US Lending


Unlimited.' In the 21st century, that industry has shoehorned the


average American citizen into the role of debtor of last resort. The


citizen-wage earner has been enticed into a speculative housing asset


bubble greater in proportion and magnitude than any prior historical


bubbles.

The new lending parameters have made initial house ownership less

expensive on a monthly basis than rental. They have divorced the


value of homes from traditional savings and wages. The new rules have


artificially inflated the purchase price of homes. Wages have not


proportionally increased, leaving the interest and principle debt to


wage ratio and long term debt burden significantly higher. Equity from


that 'artificially' inflated price has been extracted in record


amounts by home owners who have gone on a consumption spending spree,


bolus consuming items in a two-three years that might otherwise have


been consumed over a decade. Home values soared eventually pricing out


the entry population. Building continued and oversupply resulted.

Now to this mix comes higher property taxes, higher insurance rates

especially in eastern and southern coastal states, and a large


population of readjusting ARM's with higher monthly payments. The


inflationary true debt burden and costs become too many straws for


the camel's back. The oversupply of washing machines and automobiles


in 1929 and fiberoptic cable in 2000 now resonates with the incipient


cateclysm in the over supplied housing market in 2006. The money made


by the builders which was no longer being invested in the housing


markets found its way into the equity market, the last game in town -


for one last blow-off. The composite Wilshire nominally is still 1100


billion or so below its March 2000 value and using housing prices as


dollar-denominated purchasing power is valued at perhaps 60 percent of


its March 2000 worth.

Meanwhile there is very little the US can exchange with its Eastern

'trading' partners except its paper currency and a promise to pay


interest on that paper. This strange symbiotic relationship has


provided 'the glut of world dollar savings' that has serviced the US


federal debt and maintained low interest rates. The US dollar, because


of America's superpower stature, continues and will continue to have


value in its purchasing ability of dollar-denominated oil. As


commodity assets, equity assets, and real estate assets deflate, the


value of the dollar will increase in its purchasing power. Friday's


breakout of the dollar is occurring as an expected coupled event with


the collapsing US housing market and incipient uS equity collapse.

So who wins when credit is so unregulated and made so easy that not to

borrow is to lose money? Who wins when real ongoing inflation creates


a disincentive to saving? As the economy collapses; and folks are


unable to repay their loans; and lenders acquire assets that cannot be


sold; and the world becomes a much more dangerous place - the answer


becomes apparent: no one.

Gary Lammert