December Reading List

This will be my first post in a while as I have been busy the past couple of weeks, so I've decided to post my monthly reading list! This list is just fresh off of a great haul from the Harvard Book Store Warehouse Sale and it features a lot of great deals!

Econ Books:
1. The Selected Works of Joseph Stiglitz (Will not be able to finish this month!)
2. The Price of Civilization- Jeffrey Sachs
3. Free to Choose - Milton Friedman (Re-read 5 years later)

Non-Econ Books:
1. Wilson - A. Scott Berg
2. Nixon and Kissinger - Robert Dallek
3. Philip K Dick - Ubik
4. Philip K Dick - Man in the High Castle (re-read)

Another Update

Here's an important update for those that read my blog:

I will no longer be posting information that primarily focuses on economics, but I will instead focus more on some of the slides that I have been writing on international affairs, on public policy and on political economy. I have realized that my interests primarily lie in these particular fields and less on certain categories that are perhaps more dismal in character. I will be more active in this blog this month as I have more free time to do so and I will try to publish some of the posts that have been delayed by unfortunate circumstances.

Concerning Short Working Paper on Application of Game Theory in Political Economy And the Nash Equilibrium

One of the professors in the program have given me an idea of writing a short working paper on the application of game theory in political economy. If you didn't know, I was quite fond of political economy charts and typology charts in R^1 when I was a teenager. This included websites such as the Political Compass, the Nolan Chart and many others like it that are numerous in size and scope. What I want to do here is to rummage through the hordes of papers on this particular subject and write a very short working paper on the Application of Game Theory in Political Economy and how it pertains to the Nash Equilibrium.

In the meantime, I also just started a working paper on economics and public policy and how these are intertwined and how we can utilize powerful tools in both fields to further study income inequality. I'm not exactly sure what the narrow subjects I will focus on this particular working paper, but I will have a good idea as next year rolls around.

October-November Reading List and Some Updates

I've been very busy in the last month, so I haven't had a time to work on the blog post here. In this particular blog post, I will give you my October and November reading list along with some updates which includes my predictions about the big Nobel announcement on Monday.

Reading List for October and November of 2015:

Econ Books:
1. Hyman Minsky - Stabilizing An Unstable Economy
2. Dan Ariely - Predictably Irrational (re-read)
3. Robert J Shiller - Irrational Exuberance 3rd Edition
Non-Econ Books:
1. David M. Broussard - A Radical Approach to Real Analysis (Already finished)

There are other articles and probably more books I'll probably read, but primarily these are the ones I will read. The backlog is enormous as I haven't finished all of the books I was meant to read throughout these times.

As for several updates, I will definitely be writing up the material promised in my last blog post in the coming weeks as I will have some extra time to do so.

My predictions for the 2015 edition of the Nobel Prize in Economics:

Here are my picks for favorites, middle level chances and potential "dark horses":

Favorites:
1. Paul Romer (New York University) - A top macroeconomist known for his work in economic growth. He has one of my favorite papers that I have been reading and re-reading for my working paper.
2. Robert Barro (Harvard University) - A top macroeconomist who is mostly known for his work in growth theory, business cycle theory and a prominent new classical macroeconomist, which is the direct competitor to the top New Keynesian school. Probably I'd put him as my top pick for this year's Nobel Prize
3. John List (The University of Chicago) - He's the Department Chair at the University of Chicago, who specializes in field experiments in economics, which is what landed this University of Wyoming PHD graduate at one of the world's most famous economics departments.
4. Stephen Ross (Massachusetts Institute of Technology) - One of the top guns in the field of finance. I rate him as one of the sharpest minds in all of economics and he should be winning a Nobel Prize for his work in finance.
5. Charles Manski (Northwestern University) - Has an outstanding papers on rational choice theory, but his work also focuses on social policy analysis.
Middle Level Chances:
1. William Nordhaus (Environmental economics)
2. Richard Thaler (Behavioral economics)
3. Michael Woodford (Monetary economics)
4. Nobuhiro Kiyotaki (Macroeconomics)
5. Paul Milgrom (Game Theory/Auction Theory)
6. Alan Krueger (Labor Economics)
7. David Kreps (Game Theory/Corporate Economics)
Potential "Dark Horses"
1. Ben Bernanke (This would be the biggest shocker since Paul Krugman won the Nobel Prize by himself)
2. Richard Blundell (Many people have him as their favorite, but I have it here based on the other notable economists who have not won the Nobel Prize yet)

We will wait and see who wins the Nobel Prize and I will be diligently working on trying to get a couple of blog posts out before the end of this month!

September Reading List and Interesting Assorted Material

In this particular blog post, I will write my usual monthly reading list, but I will talk about other assorted material, which will include an update on my series of posts on business cycles and another related post on the (New Keynesian) Phillips Curve.

September Reading List:

1. Birth of a Theorem: A Mathematical Adventure - Cedric Villani
2. International Dimensions of Monetary Policy - Justin Yifu Lin

The other part of this particular post is about the series of posts on business cycles that I had planned earlier this summer and another related post on the (New Keynesian) Phillips Curve. During the summer, I decided to postpone the series of posts on business cycles as I had a long term project that had attending to, but I will post them gradually throughout this semester as I will definitely have some spare time in order to do so. As for the other related post on the (New Keynesian) Phillips Curve, it is something that has been on my mind all summer. I have reading a series of articles/blog posts and other related material that pertains to the history, the theories and the underlying criticisms of the Phillips Curve and I will attempt to dissect the Phillips Curve from many particular angles. In a relatively long but concise post, I will attempt to investigate the controversial Phillips Curve from both the key concepts within the theory itself and its often interesting policy prescriptions. I have no idea when this post will be completed, but it will probably be up as soon as I have some time to do so.

An interesting blog post by Tyler Cowen on China

I was reading through my usual morning of online econ articles and blog posts and I found a post that was very interesting to those who are interested in the recent Chinese economic slowdown. In this short blog post, we are given Professor Tyler Cowen's view on the current economic crisis facing China. He makes a couple of really interesting points here:

1. China's growth has primarily been driven by lots of investment in their future earnings and that model of growth has been shifted towards economic growth based on consumer spending. History usually tells that this has usually been the case. As opposed to Professor Cowen's opinions on China, I believe that the Chinese government is well positioned to shift investment growth into other avenues of growth, but faces many obstacles such as the Chinese consumer's reluctance to spend. This of course can be attenuated by clever marketing and aggressive monetary policies in order to spur a shift in economic growth.

2. As we all know, the change from investment growth to consumption growth is a tricky one and the Chinese government faces many challenges. If you look throughout history, no country has ever kept the high growth that they have maintained to do in the last 30-40 years, but I believe it's prime time for them to promote a top-down approach to increasing aggregate demand, which will probably shift aggregate supply accordingly.

3. In another related article by a Forbes columnist: Consumption is not primarily the driver of growth. There are other ways of growing the economy as China has mostly invested in expanding their infrastructure, but production is another side of things. Once China develops their internal consumption economy, production in China will greatly expand even beyond the current state. I believe that once foreign companies find Chinese workers too expensive to pay to manufacture their products for them, the Chinese government will pursue aggressive economic policy changes that will promote more products for domestic consumption. We all know the prowess of Chinese manufacturing hubs located mostly in Southern China. What if the average Chinese laborer now has money to spend on products?

In the final and last of the interesting observations Professor Cowen has made, I believe that it is too early to be pessimistic about future Chinese economic growth. Naysayers always point to Japan's economic collapse in the early 1990s, but China is a different animal. It is one of the largest countries in the world and it has yet to develop a fully strong consumer economy and a healthy financial system. Once that happens, predictions will be correct about China surpassing the US as the world's dominant economic powerhouse. We will sit and wait to see if that happens in the coming years.

Puerto Rico, An American Greece?

While most people have been focusing on the crisis unfolding in Greece, attention has not been turned to somewhere closer to home in the US territory of Puerto Rico. Puerto Rico, much to the chagrin of Puerto Rican sovereigntists, is a part of the United States and they utilize the US Dollar as their form of currency. Puerto Rico has been having their own debt crisis coupled with a terrible economy that is failing to diversify beyond tourism (see Greece). Their government also refuses to prioritize paying its creditors over the welfare needs of the most vulnerable of its citizens. They are also in heated negotiations with their creditors, which is not thankfully not as extreme as the IMF. These creditors include mutual funds and hedge funds, which include two large funds, Oppenheimer Funds and Franklin Funds. This is not good news for holders of mutual funds, but also for the markets despite the small size of Puerto Rico.

Chuck Schumer and other Senate Democrats have warned that if the United States government does not help Puerto Rico fix its financial problems, mostly with mutual funds and hedge funds, it could trigger a humanitarian crisis. This is probably more important to people closer to here as it could potentially trigger a massive migration of Puerto Ricans to parts of the United States, which Massachusetts seem to be a very prominent part of their future plans. As it is not saying that US citizens should shun Puerto Ricans, but they need to shun the approach that the creditors are dealing with Puerto Rico. While Puerto Rico's troubles might not be as headline news as Greece, which being a member of a very fragile Eurozone seemingly matters more for the world economy, it should be reminded that Puerto Rico could be in a bigger hole than Greece is. While US manufacturers could be open to moving their operations to Puerto Rico, other options are available to them such as the obvious choices in China and in Mexico, but also in some emerging export-based manufacturing countries. Puerto Rico's tourism industry could be improved and they could promote non-US citizens to travel to their wonderful beaches and resorts, it cannot be the solution to their economic malaise. Similar to Greece, they must take action to revitalize that manufacturing part of their economy, which had been previously a huge part of their local economy. With some work and government legislative actions, Puerto Rico can hopefully not be an American Greece.

Rest of Summer (July-August) Reading List

As summer continues, I will post most of my summer reading list on here. This is as opposed to having two separate reading lists for both the months of July and August. I have been busy the last couple of weeks and it will only get busier as we progress to the next couple of weeks, but I will try to post some of my Real Business Cycle Theory articles that I have almost completed. I will try to finish as many of those proceeding articles until something exciting happens at the end of the summer!

Econ Books:
1. Richard Thaler - Misbehaving: The Making of Behavioral Economics (Half-way through the book)
2. Fischer Black - Business Cycles and Equilibrium (re-read for the 2nd time in preparation for the blog post)
3. Thomas Piketty - Capital in the Twenty First Century (Continued reading and reading the rebuttals as well)
4. Adam Smith - Theory of Moral Sentiments
5. Joseph Schumpeter - Capitalism, Socialism and Democracy
6. Milton Friedman - Money Mischief: Episodes in Monetary History
7. Ha Joon Chang - Economics: The User's Guide

Non-Econ Books:
1. Karl Popper - The Poverty of Historicism
2. Alexis De Tocqueville - Democracy in America (re-read)

Thoughts on replacing Alexander Hamilton on the US $10 bill

There has been an announcement last month by Jack Lew that they are replacing Alexander Hamilton on the 10 dollar bill with a woman. This marks the first time that the United States has someone other than a prominent presidential figure or a prominent founding father (think Benjamin Franklin) and I applaud their decision to make a prominent American woman to be displayed on a major denomination (other than the 1 dollar coin which has included Susan B. Anthony and Sacagawea.) Despite the nobility of the idea, it has set off large amounts of controversy, both within the internet community and among prominent people. While Alexander Hamilton's character has both been controversial in the creation of the First National Bank (precursor to today's central bank) and in the recommendation of building a strong central government and a strong commercial sector, which was opposed by the Jeffersonians of the time, who wanted America to be more of the idealized version that De Tocqueville talked about in his magnum opus, Democracy in America, I agree with both the former Federal Reserve chairman, Ben Bernanke and Hamilton biographer, Ron Chernow that Alexander Hamilton should remain on the ten dollar bill.

I understand that he is controversial among certain people, especially among Democrats, about his role in writing the Federalist papers in interpreting in the Constitution and being a precursor of the modern idea of a strong national government that promotes commercial interests versus the common man, he deserves to remain on the 10 dollar bill for the sake of his promotion of the central bank. There has been a huge debate on whether a central bank is needed in such an age of electronic financial innovation, but the latest financial crisis showed that we do need a central bank to mediate the money supply in a complex developed economy, especially in the cases where decisive action is needed in order to curb the excesses within a critical period in order to restore employment levels or inflation levels to more manageable amounts. Alexander Hamilton was ahead of his time in thinking when he promoted the First Bank of the United States and his equally superb ideas in the 'American School', which happened to be one of my first interests in the particular discipline of economics. For all those who criticize Hamilton as being a rash monarchist or a secret supporter of mercantilism, Alexander Hamilton was a great historical figure that influenced both the monetary history of the United States and the economic philosophy of a nation, and he 100% deserves to be kept on the $10 bill.

Thoughts on the Austrian business cycle theory

As announced in a blog post couple of weeks ago, I will be undertaking a series of posts on certain business cycle viewpoints and I will try to make my first blog post as concise as possible. As described in the previous post, this specific post will be my thoughts on the Austrian Business Cycle Theory, which will involve a short discussion on Hayek and Mises. Despite the particular lengths of which I could go about this particular theory, I will talk specifically about the basics of the Austrian Business Cycle with an objective point of view.

The Austrian business cycle theory, posited by Carl Menger, Ludwig Von Mises and Friedrich Hayek, has been analyzed and refuted many times. Almost all of the mainstream Neo-Classical and Keynesian economists have rejected all components of the Austrian business cycle theory, which Paul Krugman has previously started a particularly interesting edit war on Wikipedia about. Many prominent economists from several different perspectives, like Paul Krugman and others, believe that the Austrian business cycle theory is seriously flawed in all of its various components. While there are various enormous flaws in the details that the theory postulates, I believe it is wise to ruminate about at how the current policy of low interest rates that various central banks are pursuing is effecting the bigger macro-economic picture and to predict possible future crises by utilizing the Austrian business cycle theory.

To those who are not familiar with the Austrian business cycle theory, it was formulated by three prominent economists, Carl Menger, Ludwig Von Mises and Friedrich Hayek, as a possible explanation of how business cycle works. In the theory postulated by these two well-known gentlemen, it regards business cycles as the unfounded result of improper interests rates set up by central banks, which consequently results in a boom and a bust from this malinvestment of excessive business lending by banks. The theory favors an almost completely laissez-faire approach to the resolution of financial crises caused by what they see as a malinvestment of assets. The favored resolution to the crises could momentarily cause abrupt bank failures, but the resolution that the Austrians prefer is a proper liquidation of all debt and assets. This is a cause for consternation among mainstream economists and they see the Austrian business cycle theory as nonsensical, especially its recommendation for a completely laissez-faire economy. By looking at certain components of the Austrian business cycle theory such as interest rates, empirical research and successful predictions of downturns, we could not completely discount its role in the world of economics.

(For those that are interested in more extensive explanations of the Austrian business cycle theory, here are two links: One by Professor Roger Garrison of Auburn University and another by the Better Living Through Liberty blog. Here is a a more simplistic video explanation by Tyler Cowen, Professor at George Mason University.)

The Austrian business cycle has the most peculiar way of utilizing interest rates to explain the mechanisms of business cycles. This approach combines an unique approach of analyzing interest rates in how they interfere with certain market forces, especially since it predicts that most of the booms and busts created by the fractional banking system comes from tinkering with interest rates. The ABCT believes that by tinkering with certain interest rates, the central banks create the impetus for the crises with the setting of interest rates, usually one that is too low compared to the actual interest rate. The Austrians have mentioned that the last financial crisis was caused by the central bank's insistence on keeping the interest rates lower than what is particularly possible, which might be a feasible analysis of the situation.

Despite the numerous other factors that might discount the ABCT, the theory has proven accurate at utilizing the analysis of interest rates in determining the coming financial crisis. There are obvious pitfalls to the Austrian business cycle theory due to the sheer fact that the theory does not come up with an exact interest rate that is required to not cause a catastrophic recession that happened in 2007-2008. The Austrian business cycle also mentions that interest rates should be decided entirely by the market and it could potentially mitigate long recessions such as the one we just witnessed. There are obvious pitfalls in letting the markets decide the "natural" interest rates and permitting a natural market recovery without central bank intervention. Natural interest rates could potentially cause large fluctuations within the market and could also possibly price out certain people out of the market. (such as low income families, small businesses, etc.) Permitting a natural market recovery could have massive fluctuations in employment and could put a potential strain on the workforce, which could cause acute social problems in society. Despite all of these problems that the ABCT faces, I believe it is wise to look at both the ABCT's record in looking at interest rates and also correct predictions of future economic recessions.

Empirical research conducted by prominent mainstream economists have indicated that the Austrian business cycle theory is not entirely feasible. Let's just compare the opinions of the prominent economists versus the Austrian economists in terms of the conclusions of their empirical research. Let's start with a couple of economists who are rated as libertarian by the mainstream economic community:

Milton Friedman - The late Milton Friedman is considered by everyone as one of the top economists of the last 100 years, with many considering him to be the one of the top two libertarian economists of the last 100 years, along with the Austrian economist, Friedrich von Hayek. Friedman's brand of libertarian economics was not too different than Friedrich von Hayek's theories, but they maintained a lot of the Keynesian semblances that Friedman had been influenced by in his younger economist days, especially in the expansionary benefits of money-financed debt spending.

In Studies in the Quantity Theory of Money, the late Professor Friedman promoted the approach that the monetarists at the Chicago School of Economics had developed and rejected the approach that Hayek theorized in his works denouncing Keynes. From an interview excerpt with Professor Friedman, we can conjecture that Friedman felt that the ABCT was incompatible and has done "a lot of harm to the world". From the observations in his book and from the conversations with the late Professor Friedman, we can accurately conclude that Milton Friedman does not agree with the ABCT in its basic tenets of a completely laissez faire approach and the simplicity that it offers. Despite Milton Friedman's promotion of laissez-faire capitalism, he stops short of endorsing of it as intervention could have potentially saved the banking system during the first Great Depression. I might agree with Professor Friedman's conclusions in requiring some sort of intervention in times of crises, but it's interesting that someone who is one of the mainstream proponents of laissez-faire capitalism would be so overtly critical of market corrections in terms of theory and systemic banking failures.

Tyler Cowen - A more recent and less well-known mainstream economist that has been listed as libertarian by both economists and by the media is Tyler Cowen. Tyler Cowen is the Chair of economics at George Mason University in Fairfax, Virginia. Along with Professor Alex Tabarrok of George Mason University, both of them write in  a very popular blog called the Marginal Revolution, which happens to one of the quick links on the right hand side of my blog. In a blog post, he condemned the Austrian Business Cycle Theory and even gave a pretty interesting logical response to the basic tenets of the ABCT. I found the analogy particularly interesting and I have posted in his blog without the official sanction of Professor Cowen!:

"Let’s say that the government subsidized the price of bananas, you bought so many bananas, put them on your roof, and then the roof collapsed.  Is that government failure or market failure?  The price was distorted, but I still say this is mostly market failure.  No one made you put so many bananas on your roof."

I must say that this is a quite interesting observation of Mises and Hayek's business cycle theory and I must presume that I agree with most of statement, with the presumption that government is sometimes and not always the problem.

Many Austrian economists (including the original Austrian economists) have presented their particular economic theories in great detail about the great mysteries that have stumped economists from time to time about the booms and busts in the business cycles that nobody has ever managed fully figure out. We will give two separate examples where Austrian economists have published the empirical evidence that supports the final observations of those that adhere to the Austrian School of Economics.

The first example is an article entitled An Empirical Examination of Austrian Business Cycle Theory, published in the Quarterly Journal of Austrian Economics, written by Professor Robert F. Mulligan, goes through an thorough examination of the Austrian Business Cycle Theory by exploring the basic tenets of Hayek's capital theory, which has to deal with the unsustainable expansion of credit. This expansion of credit is characterized by quantitative easing (QE) and other monetary tools that are available to both policymakers in the US Federal Reserve and other similar central banks. He utilized interesting pieces of data to explore Professor Hayek's theories in how a distorted non-market price for interest rates, often lower than sustainable market-determined interest rates, will eventually create an unsustainable bubble in short-term economic outputs. There is an interesting graph in the article on the major differences between the Austrian and more mainstream (Monetarist and Keynesian approaches), which is located in the middle of the article that I will post in this blog post:

Here we can see the main differences listed between the approaches in monetary policy, but what has the evidence gathered in this article relevant for my particular thoughts on the Austrian Business Cycle Theory developed by Professor Hayek and Mises?

In the empirical data gathered from the Federal Reserve Bank of St. Louis, we see a potential hypothesis answered based on the author's particular biases in the model that he utilized. He concluded from his mathematical model, which was a simple statistical T-test, that the Austrian Business Cycle Theory did indeed exist. What is particular about the results is that it does not offer much hope of any policy or monetary prescriptions beyond the basic Austrian catch-phrases, which are both stated throughout the document and in its conclusion. We have arrived at an interesting
The second example of the Austrian Business Cycle Theory is an article entitled Empirical Evidence of the Austrian Business Cycle Theory, published in the Review of Austrian Economics, written by Professor James P. Keeler. In this particular article, Professor Keeler goes into similar lengths that the previous article fails to cover. I find his particular empirical evidence quite interesting and I'll point them out here:

1. This article goes into very much the basics of the Austrian Business Cycle Theory, which was also stipulated in the section on the previous article. The difference here is that Keeler provides more statistical evidence than Mulligan in how the data is presented. Keeler talked about how the theory contains such a strong adjustment of market to natural rates of interest and how this was implemented and how it offers an interesting perspective on monetary shocks.

2. Keeler strongly covers analysis of stationary measures of interest rates, with the result similar to that of the previous article. However, Keeler mentions Wicksell's notion of the "correct interest rate" that is often torn between market and the nature rates of interest. For those that are are interested in reading Knut Wicksell's "correct interest rate" theory, whom was also one of the economic giants of the late 19th and early 20th century, here is a brief introductory article on the Economist website that introduces the idea to those who are not familiar.

3. As with the previous article, Keeler shows a strong correlation between the empirical data and evidence that the Austrian Business Cycle Theory does indeed exist, which is quite interesting, because there are various ways to collate the data to suggest otherwise. What's fascinating is that the Austrian Business Cycle Theory will continue to be rejected mostly as a matter of its reliance on monetary inaction, rather than the aggressive monetary policy that people from diverse point of views such as Friedman and Stiglitz would recommend. Even though, an interesting development has surrounded Stiglitz's most recent view of the economic situation that we are facing as he has come out and very much validated what some Austrian economists have said for a long time! While curtailing the influence of supply-side economics might be beneficial if supply siders were really in mainstream these days, it's interesting to see how Dr. Stiglitz has similar views towards certain issues as his "ideological opposites".

Ludwig Von Mises in 1929 before Great Depression And the Great Recession

The last interesting part of the Austrian Business Cycle Theory is how two of the landmark Austrian economists, Ludwig Von Mises and Friedrich Hayek, predicted the coming of the economic crisis against some mainstream neoclassical economists who had simply missed predicting last two serious recessions (The Great Depression of 1929-1939 and the Great Recession of 2007-2008). Ludwig von Mises and Friedrich von Hayek had constituted the Austrian Business Cycle Theory with the influence and application of Carl Menger's ideas, which is stipulated in many of his works but most notably in his literary masterpiece, Principles of Economics. This seminal work had a huge influence on the intellectual thought of both of these gentlemen and prompted the start of the marginal revolution, which happens to be the name of a popular economics blog. Here is an article by Victor Aguilar on what the reactions of the prominent Austrian economists would have been to the Great Recession and to the Great Depression (This is because at that time, Mises and especially Hayek were extremely prominent in the economics community). In a quote from the article is that the Austrian economists had predicted the subsequent crash and the depression that followed. Despite the relative accuracy of their predictions, there is much to be desired from their responses. What good does it come when you have correctly predicted the Great Depression, but not offer any ways to counterbalance the negative effects of the boom and bust cycles. The idea of central banking is a nadir to the economic point of view of Austrian economists and Von Mises famously accused many of his classically-liberal minded colleagues at the famous classical liberal society, Mont Pelerin Society, as big government socialists. As listed by the interesting article, Aguilar talked about Austrians' disdain for the full utilization of mathematics, because they associated heavy usage of mathematics as perhaps another tantamount to socialism. While there is nothing wrong with ridiculing most tenets of socialism, it is ridiculous to consider those who don't come up with the same conclusions as Von Mises to be a heretical Keynesian or a "socialist" New Classical.

From the evidence presented here, we should take a look at the textbook definition of the Austrian Business Cycle Theory to analyze what exactly went wrong with the theory as it comes to the mainstream audience in economics. The web link to the definition posted online, but is located in the Business Cycles and Depressions encyclopedic guide that I have been browsing for my series on business cycles. (Of course this just scratches the surface on the related literature that I have been browsing concerning this particular subject and this particular blog post series on business cycles.) For those who are interested in exploring more about the Austrian Business Cycle Theory, there is a tremendous amount of literature out there that covers all kinds of perspectives, but I hope I had covered some of the introductory material in this particular article.

While there is much about the field of Austrian economics that are not particularly relevant due to the rigidity of many of its various policy prescriptions, but I believe it is worthwhile to take a look at the evidence presented by the various Austrian economists such as Hayek and Mises, especially when it pertains to the analysis that surrounds finding the correct interest rate. The presentation of the evidence that they have given to us has been great in predicting the part in interest rates where there is real change in the economy, whether conducted in a partial or a nominal way. As we look at particular ways and methods in studying the booms and busts of the business cycle, we should look at examples such as the Austrian business cycle theory, not because of the unestablished axioms of their origins, but as an addition to the base of knowledge that we have accumulated concerning the study of the nature of the business cycle. As we try to find the perfect linear model to this particular dissimilar equation of solving the mysterious nature of how the markets work, we need to return to the question of linearity within the spectrum of economic models. There are many mysteries to finding the right model in figuring out the various theoretical components of how a business cycle works and based on the record that Austrian economics have set, it should be hard to cross off this particular heterodox approach as completely wrong. As shown by Eugene Fama's much scrutinized efficient-market hypothesis to Ben Bernanke's profound confidence in the financial markets before the Great Recession has shown that various mainstream approaches could sometimes be on the wrong footing with reality as well. From the evidence that we have here and despite the obvious flaws of the theory itself that I had abundantly pointed out here, it would be wrong to completely write off the Austrian business cycle theory.

(For those that did not see the newest update on my particular blog, I will now be writing a blog post on Fischer Black's book, Business Cycles and Equilibrium. This particular book has brought a lot of attention to me based on both his views in this book, but also of his legendary status in the academic discipline of monetary economics and of business cycles. In my next two sequential posts, I will talk about the Real Business Cycle Theory, which is quite popular among those adhering to new classical macroeconomics. They are also blamed by many adherents to the other varying competing schools, for various different and contradictory reasons, for failing to have anticipated the Great Recession of 2008-2009.

June Reading List

Before I post my long delayed first blog post in my Business Cycle series, here is my June Reading list! There might be some overlaps with other months as I have not finished all of the books on every list.

Books:
1. Business Cycles and Equilibrium - Fischer Black (Continued reading)
2. Capital in the Twenty First Century - Thomas Piketty (Continued reading)
3. Richard Thaler - Misbehaving: The Making of Behavioral Economics
4. Francis Fukuyama - The Origins of Political Order: From Prehuman Times to the French Revolution (re-reading final couple of chapters)

Articles:
1. The series on China in the Foreign Affairs Magazine May/June 2015 Issue
2. Various assorted articles on which I will be writing on my series on Business Cycles. Please refer to the articles when I do post them. (Excuse me for the delay.)

Some Interesting May Articles/Books

Before I post my June reading list and the much delayed first article in my series of posts on business cycles, I will post some of the most interesting articles and of course, a couple of interesting econ-related literature that I have found for this month:

1. Professor Richard Thaler of the University of Chicago, one of the top theorists in the field of behavioral economics/finance, has released his latest book on behavioral economics, entitled Misbehaving: The Making of Behavioral Economics. You can pick up your copy on Amazon, but also consider reading several reviews of the book at the Chicago Tribune and the New York Times. I have not read the book, but it looks like a great compact introductory to the field that Professor Thaler has greatly pioneered.

2. Greek Crisis: Everyone is following the Greek crisis as the situation is getting extremely tense between Greece, the creditors and everyone who is following this great Greek disaster unfolding. Now Christine Lagarde, head of the IMF, believes that a Grexit of the Eurozone is possible, which will trigger a tsunami-like effect on the financial markets. I believe it might be still too early on a possible Grexit, as there are reports that Greece is trying to find a compromise with its creditors. But as I had described in an older blog post and posited here by Mohamed El-Erian, Greece needs to act cooperatively with the IMF and vice versa versus playing hardball with the Troika, which is postulated in the late John Nash's non-cooperative game. Let's hope that everything gets resolved in an orderly fashion that does not throw both the Greek people and the world financial markets under the bus.

3. Raj Chetty's Study on Income inequality with several other economists: There was a recent New York Times article on it and here's the related academic literature. A great study on how income effects economic outcomes for the next generation.

4. China's New Silk Road: While Greece and other economic developments have been getting a lot of media coverage, here's a Council on Foreign Relations opinion article about how China is building a politically-based economic network through the former regions where the previous Chinese dynasties had trade routes. There are several other pieces on this particular subject, most notably opinion pieces from all perspectives: Pepe Escobar at Russia Today, Liu Xiaoming at Financial Times and finally Jean-Pierre Lehmann at Forbes. The most important piece of information we can derive from these articles on this subject is that the economic relationships that China have in this region will change global commerce.

Rest In Peace John Forbes Nash

Here is a special post about the death of the mathematician, John Forbes Nash. While he is most well known for his theory in the field of game theory, most notably the non-cooperative game and the Nash equilibrium, he also published papers in the field of partial differential equations and geometry. While his theories in the field of game theory are quite impressive and has had an enormous impact from disciplines such as economics and biology, his works on pure mathematics are not to be underestimated. He had been traveling back from Norway after receiving the Abel Prize in Mathematics from the King of Norway. Up to this date, he is the only mathematician to have won the Nobel Prize, which is says something about the versatility of his intellect. I will go to sleep tonight reading his brilliant 27 page dissertation that is among one of my favorite math-related literature. He will surely be remembered for his brilliance in the field of economics and mathematics and not just for the fame that the Academy Award-winning movie that Russell Crowe starred in had brought him.

May Reading List

As I work on my series of posts on Business Cycles and other related posts, including one that I will write as I read through several of Fischer Black's books and articles (which hopefully won't be too terribly long), I also have other books to read. I haven't completely finished reading and reviewing some of the stuff from the previous months, so this list is perhaps shorter than what it should be.

Econ Books:
1. Exploring General Equilibrium - Fischer Black
2. Business cycles and Equilibrium - Fischer Black
3. Modern Business Cycle Theory - Robert J. Barro (editor)
4. The Analytical Foundations of Marxian Economic Theory - John E. Roemer

Non-Econ Books:
1. The Feynman Lectures on Physics - Richard Feynman (Helps to keep the brain nice and sharp!)

Despite the long delay, the first post on the series of posts on my Business Cycle Series will come out very soon. Keep following!

Couple Interesting Blog Posts/Articles

Before I log my first blog post in my series of posts on business cycles, here is a couple of blog posts and articles that I found interesting:

1. Greg Mankiw's blog post on the controversial TPP (Trans Pacific Partnership) free trade deal and the CEA President, Jason Furman's Brookings explanation: What's not heard by the critics is the mathematical and numerical explanations for the TPP. Other interesting articles on this topic include this Financial Times article, a Brookings article on the geopolitical importance of the TPP and another Brookings article on the updates to the TPP. Very interesting as the controversial TPP deal unfolds with the stagnating economic powerhouse of Japan and with the strong opposition here in the States (Progressive groups, Conservative groups, Labor Unions and your usual Protectionist suspects)

2. Article on Asset Pricing and "Misspecified Recovery": A very interesting article by Lars Peter Hansen, 2011 Nobelist and the Rockefeller Professor at the University of Chicago, Jaroslav Borovicka (New York University) and Jose A. Scheinkman (Columbia University, Princeton University) on Asset Pricing. They nickname this phenomenon "Misspecified Recovery", which are misspecified effects on the long-term effects of information on asset pricing. Very interesting article with a particular interesting twist in that the model makes an interesting utilization of the Perron-Frobenius theory in arriving at interesting information about asset pricing.

3. A Journal of Economic perspectives article from Winter 2009 about the liquidity and credit crunch by Markus K. Brunnermeier by utilizing interesting principles of behavioral economics to explore how a possible financial regulatory framework could put together. I have been reading a bunch of articles on related topics to business cycles and this classic article has helped me on determining how the 2007-2008 crisis has effected our possible perceptions and predictions of how the business cycle works.

4. iM's Business Cycle Index: Interesting calculations that this business cycle index makes. A good basic business cycle index for traders.

5. An article in the latest issue of the Journal of Monetary Economics by Hyun Song Shin: It talks about monetary policy and how the US dollar plays a role in global liquidity transmissions. It goes back to an earlier article of mine on the role of the US dollar in being the global reserve currency and the currency that is most commonly transacted role across financial channels.

Different Approaches to Interpreting Business Cycles and Macroeconomics

As mentioned in my previous posts, I am writing a series of blog posts on the study of business cycles. In this particular blog post, I will illustrate what I will be writing in the series and what to expect from each of the blog posts.

For those not familiar with the study of business cycles, they are downward and upward movement in the aggregate activity levels of Gross Domestic Product, Gross National Income or anything that measures levels of economic wealth. The movements and changes in momentum are often characterized as economic booms or expansions and economic recessions (sometimes depressions). There are many nicknames that could potentially characterize business cycles with the most common one: the boom-bust cycle (The boom being the economic expansion and the bust being the economic recession.) A good, but rather drastic example of a business cycle would be the massive economic boom after the First World War during the Harding and Coolidge administrations and then the massive Great Depression that followed it. There have been many comparable theories explored, argued and disseminated within the study of business cycles and it will be hard to summarize the entire field in just several blog posts. In these series of blog posts, I will mostly discuss certain academic, both mainstream neoclassical and heterodox or non-mainstream approaches to interpreting them. Through the course of the next couple of months, I will be discussing these as listed in this table of contents blog post:

1. Thoughts on the Austrian Business Cycle Theory - In this blog post, I will mostly talk about Mises, Hayek and thoughts by certain mainstream economists. Here's a decent video explanation of the Austrian Business Cycle by Thomas E. Woods, a proponent of the Austrian School of Economics and fellow at the Mises Institute. This is a heterodox approach, but is one of the few heterodox approaches that I used to find extremely compelling as a college undergraduate.

2. Real Business Cycle Theory, Part 1 and Part 2 - In this blog post, I will be exploring the controversial, but interesting Real Business Cycle Theory that was first theorized by Edward C. Prescott. It is generally affiliated with the Chicago School of Economics and the New Classical macro-economists, with it being at the far-right spectrum of mainstream economics. I have found this the basic, introductory explanation of the Real Business Cycle Theory by Tyler Cowen, a writer on the Marginal Revolution website and a professor at the George Mason University.

3. Game Theory, Macroeconomics and Business Cycles - In this blog post, I will be exploring one of the many more detailed thought-bubbles I've had throughout the year. I will be looking at various approaches covered over the next couple of months and trying to synthesize something out of nothing.

4. Milton Friedman, Monetarism and Money Matters - In this blog post, I will be exploring one of the most popular approaches to interpreting the Business Cycle. While I consider the late Professor Friedman to be one of the economists that I have studied the most, I have serious contentious thoughts concerning monetarism and here, I will give several examples that proves him wrong otherwise.

5. New Keynesian Approaches to the Business Cycle - In this blog post, I will be exploring the more recent changes on the old Keynesian approaches in this left-leaning approach to business cycle theory.

6. Thoughts on Fischer Black's Business Cycles and Equilibrium - In this blog post, I will dissect a very interesting book on Fischer Black's thoughts on the causes of business cycles and market equilibrium. I will point out both strong points and weak points of his book in this rather long but concise post.

6. Post-Keynesian and Post-Marxian Approaches - In this blog post, I will be discussing the most popular left-leaning heterodox approaches to the study. Here I will explore the famous adherents to this non-mainstreamschool of economics, including Michael Kalecki, Joan Robinson, John Roemer and Steven Keen. I will also provide excerpts about some current work that I have been reading lately.

7. Other Schools, Questions on Heterodoxy, Final Thoughts on Business Cycles - Here I will be accessing the other macroeconomic approaches, but I will also give some thoughts and questions on the nature of heterodoxy in interpreting challenges to economics and some final thoughts on business cycles.

I will be posting these posts sporadically as soon as I finish completing them. Some of them will be extremely informative and in depth, so keep an eye on my posts as they are completed. I will also be posting several unrelated blog posts throughout the next month, but I will try to tag business cycle series onto the related blog posts.

Edit: I have also included in this series a rebuttal of some of the key points that are detailed in Fischer Black's book, Business Cycles and Equilibrium. Even though the book is relatively dated, the late Fischer Black's ideas still have strong resonance in the eyes of many economists/financial economists. I just wanted to dissect his particular approach described in his book as an exercise in analyzing peoples' arguments and breaking them down. I also found that his book was an extremely read

Series of Related Blog Posts

In the coming months both this spring and this summer, I will be writing a series of blog posts about the various theories between business cycles, interest rates, growth models, long term economic projections and pretty much anything that is related with monetary economics/financial economics. The first posts will be on various business cycle theories, which rotates between more mainstream business cycle theories such as the Real Business Cycle Theory (New Classical) and more heterodox approaches such as the Austrian Business Cycle Theory to predicting the theoretical basis on which business cycles occur.

April Reading List

As I am currently writing my latest blog post that will likely be posted by tomorrow afternoon, here's my April reading list. I have added selected Econ papers that I will be reading as well:

Econ books:
1. Essays on the Great Depression - Ben Bernanke
2. Innovations in Macroeconomics - Paul J. J. Welfens
3. Monetary policy and the great inflation in the United States : the Federal Reserve and the failure of macroeconomic policy, 1965-1979 - Thomas Mayer
4. Inflation, Unemployment and Monetary Policy - Robert Solow / Alvin Hansen Symposium on Public Policy 1995

Econ papers:
1. Country Solidarity in Sovereign Crises - Jean Tirole
2. Liquid Bundles (working copy)- Jean Tirole / Emmanuel Farhi
3. Shops and the City: Evidence on Local Externalities and Local Government Policy from Big-Box Bankruptcies - Daniel Shoag / Stan Veuger
4. Social Norms and the Enforcement of Laws (working copy) - Daron Acemoglu / Matthew Jackson
5. Money Doctors - Nicola Gennaioli / Andrei Schleifer / Robert Vishny

There are more than these econ papers that I might read this month and I have already read the Acemoglu paper, but these ones are particularly recommended as they're highly interesting.

Ben Bernanke's Blog

It has been a while since I've written a substantial post, but I'll write one towards the end of this week. I'll also post a short reading list for this month as well. As for interesting reading, please take a look at the blog of Ben Bernanke, who is most well known for being the Former Chair of the Federal Reserve and former Chairman of the Department of Economics at Princeton University. It has been news around the Economics and Business blogosphere and I find it interesting reading. The most interesting article that he talks about is about Lawrence Summers' secular stagnation discussion. Quite an informative article with a couple of links, along with Professor Summers' rebuttal. I'll be posting more here as soon as I have some free time!

Couple of Interesting Articles That I Have Been Reading

It has been a while since I have last posted here and I have been relatively busy the last couple of weeks. Here are the links to several interesting articles that I have been reading on top of the numerous economics journals and numerous other magazines I have been rummaging through the last couple of weeks:

1. An article by Steve Mufson in the Washington Post on possible Federal Reserve signals that a rate hike is possible. Here's another article on this particular subject written by John Cassidy of the New Yorker. It has been an interesting signal by the Federal Reserve, headed up by Janet Yellen, that they will eventually raise interest rates, but there are conflicted signals on what the economic outlook is. I forsee a not-so-great economic outlook at least for the next couple of quarters.

2. Matt Rognlie's thoughts on Thomas Piketty's observations posted on the Brookings Institution website. Quite an interesting article that he has written and here's the full copy of his work posted again on the Brookings Institution website. He is currently a PHD down the street from where I live at the Massachusetts Institute of Technology and in this article, he comes up with interesting data that somewhat backs up Thomas Piketty's thesis, but refutes it in the most part. He should be one economist to be followed in the coming years as he publishes more works.

3. A charming German couple goes to the former capital of Greece and pays off their portion of the "German World War 2 reparations" to Greece. This is quite a lovely move by the couple on a very serious issue of Greece threatening Germany with seizing German property if they do not pay long overdue World War 2 reparations, but it just shows the desperation of a completely bankrupt nation with no money left in the bank.

4. An interesting article that actually just came out on my news feed approximately 30 minutes ago. It talks about how debt will hit emerging economies. As predicted by an earlier blog post of mine, a potential economic crisis will start when some of these emerging economies see growth slow, debt accumulate and possible defaults happen.

Thoughts on "Firm Leverage and Unemployment During the Great Recession"

There has been several articles, papers and books I have been reading during the last week. The one I will write about today is an article written by Xavier Giroud and Holger Mueller entitled Firm Leverage and Unemployment During the Great Recession. (For those interested in reading the paper, I cannot seem to find the PDF link online, but you can perhaps contact the two professors for a copy of the paper.) Both are professors of Finance and affiliated with the NBER (National Bureau of Economic Research) and the CEPR (Center For Economic Policy Research) , one at the MIT Sloan School of Management and the other at the NYU Leonard N. Stern School of Business. The paper is interesting in that it listed an interesting conclusion in that there is a strong correlation between high-leverage firms and job losses in response to the household demand shocks during the Great Recession. This is an interesting observation that both professors were able to make, but with any article there are significant gaps in which the data was compiled. Due to certain lack of data, I think there needs to be significant improvements to potentially the next paper that they can gather. 

The 3 potential improvements that the two esteemed gentlemen can make are as follows:

1. Utilize more wage/labor data that is available, which could perhaps include statistics by the Bureau of Labor Statistics. This could be utilized perhaps in determining relevant wage levels of certain households within the two sets of data between the change in both high-leverage (ΔLev 02-06 > Median) and low-leverage (ΔLev 02-06 < Median) firms between the years 2002 and 2006. By utilizing wage and labor data, you can also factor the significance that the drop in employment that are caused by both high-leverage and low-leverage firms especially in the realm of (ΔLog Emp) 07-09, which could possibly confirm the conclusions, especially under the Alternative Hypothesis: Growth, Productivity, Wages (Tables 8, 9, 10) sections of the data tables that the paper had presented. With this wage and labor data, there could be potentially another set of information the user could interpret about the changes that are caused between the two time intervals of which the data is measuring.

2. Another striking improvement that I could potentially see is a change in the dependent variables on the regression model that the two professors have used to compute their data. One possible way is to shift the focus towards labor/wages versus unemployment. With this new information, they could generate another new set of information, which could possibly further validate their results that are written under Firm Leverage and Unemployment (Table 2), Instrumental Variable IV Estimation (Table 3) and Industry Sectors (Table 4). With the change in certain dependent variables, they could see a change in the data results in Establishment Closures (Table 5), in Firm-Level Analysis (Table 6), Within-Firm Spillovers (Table 7), Alternative Hypothesis: Growth (Table 8), Alternative Hypothesis: Productivity (Table 9), Alternative Hypothesis: Wages (Table 10) and in the County-Level Analysis (Table 11). The main piece of data that could be changed is how they measured the two corresponding variables: (ΔLog (Emp) 07-09) and (ΔLog (HP) 06-09). By introducing a dependent variable into the design, they can add another dimension in their measurements in order to incorporate better analysis at the end of the day.

3. The last improvement that they could incorporate is by organizing the time and the date each locale  had a significant drop in a better way that represents the drop in employment versus the drop in housing better. Perhaps by compiling a couple of new data tables with different time ranges than just the standard ranges that the data used (02-06, 07-09), we can perhaps see where the most striking changes are and what pertinent macroeconomic results are corresponded in the findings. 

Overall, the paper is a fantastic read for those who are just getting into reading published papers on financial economics, but also an interesting find in that unemployment is correlated heavily to firms that tightened their debt capacity in the run-up in response to household demand shocks than to certain firms that freed their debt capacity. Maybe the authors weren't exactly correct in their predictions and percolations on potential ramifications to macroeconomic theory, but they found an interesting correlation in the data from their current research.

March Reading List

It has been a very snowy and bitterly cold February, so I got a lot of reading done this month, but here's my reading list for March, of which I have not included some of the books I have not yet started on the previous two months.

Econ Books:
1. Theory of the Leisure Class - Thorstein Veblen (re-read)
2. Capital in the Twenty-First Century - Thomas Piketty (reading it thoroughly)
Non-Econ Books:
3. The Origins of Political Order: From Prehuman Times to the French Revolution - Francis Fukuyama
4. The Limits of State Power - Wilhelm Humboldt
5. The Complexity of Cooperation - Robert M. Axelrod

14 Cheesy, but Funny Ways of Love as an Economist

I have stumbled upon this particular link, which is quite a comical take on economics. Fourteen quirky, but lovable charts that describe a Richard-light-hearted approach to Economics.

I hope everyone is staying warm, especially in this particular weather...

Greek Finance Minister, Game Theory and the Big Showdown

In an earlier and rather detailed blog post, I had talked about the Greek debt situation and the stories that surround it. I have decided to post another blog entry primarily about the game theory and the Greek financial minister, Yanis Varoufakis, especially due to his showdown with Germany and the developing crisis in the European Union. The news has just hit today that Germany has rejected the Greek proposal to extend the bailout program by an additional 6 months. The Syriza government had been under enormous pressure by both the European monetary authorities and the officials of various European financial ministries to continue the bailout program despite rejecting the program itself. This article will try to explain the background of the Greek Finance Minister, Yanis Varoufakis, in more detail, but also will go deeper into how his research interest in economics, Game Theory, has also come into play during the midst of this big showdown between the new leftist Syriza government and the European monetary authorities.

The Greek Finance Minister, Yanis Varoufakis, has now become very well-known within the politics of the continent due to his showdown with the European monetary authorities and his penchant for his plain dress combined with a defiant attitude towards what the Troika had committed to his native country of Greece, but also within the economic world with his unorthodox economic views. In two articles, one commentary article written by him in the Guardian newspaper several years back and another article on the left-liberal activist site, CounterPunch, it illustrates a man who is determined not to just change the policies of austerity and liberal capitalism in Greece, but throughout the entire European Union. In the first article, we can picture a man who was trained within the confines of mainstream economics, but had defined himself in 2012 as a Marxist. He did not describe himself as the prototypical Marxist, but one that is committed to changing the economic dimensions within Europe. In the article, he described the economics within the continent as one that is committed to the form of neoliberal capitalism, but his progressive politics of the left will be rejuvenated from the doldrums to saving European capitalism. From this article, we can see a man who is dedicated to the leftist ideology of changing Europe and the economics within the continent towards one that is certainly socialist both in policy and in application.

The second article describes Mr. Varoufakis' plans in detail about changing the dynamics of the European economic system into one that promotes growth and not austerity. The tone of the article also described how a previously unknown Greek economist had stared down the monetary bureaucrats of the European Union and sent some of them scared. It could be best said that Varoufakis had utilized some of his training as an economist, especially in the arts of game theory, to give what little the Greek government had previously into an enormous advantage over the people at the Eurogroup. For those, who are not familiar with Game theory, here's a short BBC article that explores the dimensions of the games (which include possible applications of zero-sum games and of the prisoner's dilemma) that Greece has been playing with the Troika, the Eurogroup and other European countries like Germany. He also has written an article in the New York Times on the big showdown with the European monetary authorities, which includes Germany and Angela Merkel. In the article, he lambasted how they "should not" be utilizing game theory with each other over the debt deal, but should be best focused on how to provide the average population a way out of desperate poverty and destitution. It does make a lot sense to anyone who has read his article, but Varoufakis has been utilizing all sorts of strategies that are based on game theory in dealing with the European monetary authorities! In an article by a popular Forbes contributor, Tim Worstall, there's absolute no room for game theory here! Regardless of whether most people have agreed with Greece's accession into the Eurozone or with the following policy decisions that the European monetary authorities have undertaken, Greece and the European Union are in trouble.

Exactly how much trouble are the European Union, Greece and the Eurozone in? A good question might be to ask about the other debt troubles that various European nations such as Spain, Italy, Portugal and even France have in the future. Germany is not even immortal with its enormous debt burden that it has also managed to start decreasing in the last couple of years, but another crisis could exacerbate the debt levels even in Germany which are already alarmingly high. I strongly disagree with a recent Economist article on how Greece could have made the Eurozone work better. Greece could not have made the Eurozone work better, as there are numerous other economies that are facing similar problems as Greece. I believe that with the Greek Finance Minister's dangerous moves may put the European Union and the Eurozone at its brink, but there is also ample room for finding a balance between the views of both Germany and Greece. By rejecting each other's counter-proposals, they are putting the world economy at risk with their latest proposals. Worried Greek depositors and international investors will now brace for the final showdown between Greece and the European monetary authorities. Let's hope we don't wake up to see an avoidable financial crisis.

Death of Economics, Interesting Book to read

I have been reading an particular interesting book, Death of Economics by Paul Ormerod, over the last week or so. I had chosen to read this book the previous month after rummaging through the large amount of books at my alum mater's economics section. Both the title of the book and the introduction jumped out at me. I read a couple of quick reviews, I decided to add this onto my February reading list. The book jumped out to me as an essential read to me because it shared Ormerod's views of conventional economics such as the many different various forms of modern conventional economics.

In the book, he viewed those adhering entirely to conventional economics as not particularly helpful for economic policy and for monetary policy. He said that their usage of complex mathematics, mathematical models and other complex terminology as having not caused tremendous success in predicting the horrible economic mismanagement that has been rampant in these times. He figured that a return to the political economy of Adam Smith and introducing more non-economists into the arena would benefit economics as a whole. By explaining a lot of his ideas in many well-organized, detailed chapters full of his thoughts and explanations, Paul Ormerod dissects the fundamental deficiencies of modern economics in solving even more complex social situations, while still presenting key information that is necessary for the understanding the basics of economics. In presenting pieces of important information and comparing an economy to ecology and not to a machine, Paul Ormerod has written an excellent introductory book for economics. I think it'll be a great companion book alongside Thomas Sowell's Basic Economics or Henry Hazlitt's Economics in One Lesson.

I highly recommend this book to anyone who wants a quick and fast read on economics as it is only 240 pages or so of relatively fast and quick reading. A great introductory book for those that want to get into the topic at first, but also see the deficiencies within the field as well.

The Greek Debt Situation, the Troika, Syriza and Few Thoughts

As eyes of the world has turned towards the recent developments in Greece, I can admit that this will be an interesting period of time for Greece and the other member states of the European Union. Following the election of Syriza in the latest election, the leader of the Syriza party, Alex Tsipras, has promised the Greeks an end to the crippling austerity that the Greeks have faced ever since the start of the European debt crisis in 2009. The party aims to boost economic growth through stimulating the depressed Greek economy through Keynesian policies that will the new Syriza government promises to generate economic growth and to promote "social solidarity". What has really shocked the markets lately is Syriza's promise to stop negotiating with the Troika that consists the IMF, the European Central Bank and the European Union. The government has promised to return to the government-heavy policies of the past and to negotiate a write-off in Greek government debt. The decisive action in the economic and the political policies of the Marxists and the Keynesians that make up the intellectual leadership for the now ruling Syriza government has ran into a lot of controversy with the mainstream economic institutions that has been bailing out the Greek government and the Greek economy. In this particular blog post, I can hopefully explain the Greek situation in more details, but also impart my opinion on the state of this interesting situation that has been developing in Greece and the European Union.

Debt Situation Background and the Economic Crisis
The debt crisis in Greece had started even before the 2007-2008 Global Financial Crisis with the entrance of Greece into the Eurozone and the overspending that occurred during the Olympics was blamed for the current debt crisis that had its seeds all the way back in 2004. While the Olympic Games was one of the many financial debacles that the Greek government has had in the last two decades, I would say it compares nowhere to the other pressing problems that led up to their debt implosion that occurred after the Global Financial Crisis.

A combination of a corrupt government bureaucracy that struck shady back room deals, a culture of endemic tax evasion and a burdensome public sector led to one of the most serious debt crises that any country has faced. It has been said that the corruption of Greek officialdom led Greece into the Eurozone by utilizing the services of Goldman Sachs to make their debt situation comfortable enough for the not as corrupt European bureaucrats to let Greece into the European Union. The mistake of letting one of the most corrupt nations in Europe to enter the Eurozone was compounded by the fact that much of this debt could have avoided if Greece undertook an immense political restructuring program that changed the way politics in Greece had been operating. From the bribes that the officials had extracted from the Greek taxpayers in order to bribe corrupt European Union officials to the bribes that Greek political parties had handed out in public sector jobs led to one of the worst possible economic environments in all of Europe. The public also engaged in one of the most institutionalized tax evasion schemes in the world. Here are two articles that explain the tax evasion problem that had plagued Greece: One published by the Economist and another by the New Yorker. The Greeks had also simply been living way beyond their means for a long time with the government deficit financed growth and when the financial crisis had hit the country, the entire corrupt Greek political and economic system fell apart.

The US economic crisis caused a huge breakdown in the global debt pyramid that had partially relied on the US mortgage-backed securities for further growth. With the entire debt pyramid collapse, there it unleashed an onslaught of bad debt and bad loans. It triggered a tidal wave of debt crises around in Europe and the worst basket case example in the Hellenic country of Greece. Countries like Greece that had largely been living beyond their means through cheap interest rates that the Eurozone had brought. Through years of unnatural interest rates and a horribly mismanaged national economy, Greece paid the ultimate price for being in the same economic zone with countries like Germany. The Greeks had to be bailed out several times and here's an article from 2012 that described the situation in Greece 3 years ago.

The International Lenders and Greece
The 'Troika' of the International Monetary Fund, the European Union and the European Central Bank had to bailout certain failed European economies, but they also wanted these economies to restructure their economies based on the rules and the regulations of the IMF's "Washington Consensus". Here's an article by the English economist, Dr. John Williamson, which had coined that term as a way to disapprove of the policies that the IMF had implemented in many countries. In Greece, the Troika have demanded the exact same policies as John Williamson had lambasted in his article, especially when it comes to privatization of state industries. This leads to an interesting situation in Greece, where the bloated public sector has been connected to previous political election campaigns of both the major Greek parties as a way of institutionalizing corruption through vote purchasing. The anger of the crowds could be linked to these new policies which should have goals of liberating the Greek economy from the malaise of having an extremely unproductive and corrupt public sector. This has not really worked in Greece as it is very difficult to get rid of the old culture, plus the downward spiral of the Greek economy, which has been exacerbated by the cuts in benefits for ordinary citizens.

The crisis has caused tremendous hardship for many of the normal members of Greece with sharp increases in unemployment, cuts in state spending on welfare and on healthcare, reduction in the state infrastructure and a massive program of privatization. This has not just led to a breakdown in the Greek economy, but also numerous other social problems. Over 25% of Greeks are unemployed, with youth unemployment at 50% of above and many talented Greeks are moving out of Greece to find a more high-paying and desirable job within the Eurozone and in countries such as the United States. There has also been a tremendous breakdown in the normal social order, with countless people living on the streets, rummaging through trash cans to find out and the official poverty rate has increased to 45% by some estimates. Here's an extremely glaring chart that I found on Zero Hedge categorizing the tremendous poverty that has been accelerated acutely by the austerity that has been imposed on the Greece by the Troika:

From this chart, we can talk about the very sharp and very acute increase in poverty that Greece has suffered ever since the start of the financial crisis. There has been reports of a huge resurgence of crime and lawlessness in Greece, which radical political groups such as the anarchists, the fascist Golden Dawn and some say, the current government, Syriza, have all seized the opportunity to increase their following. There have been countless numerous riots and incidents where there have been clashes between the different political elements in Greece. By browsing the internet and YouTube, you will be able to see these many incidents that has happened in a very unsettled and impoverished country. The radical leftists of the Syriza party have seized upon this crisis and by promoting an anti-austerity, pro-stimulus policy program, they have made the rest of the world look at that with a wary eye.

The Recent Election of Syriza and Current Situation
With the rather explosive situation in Greece, the radical leftists of the Syriza party was able to defeat the Troika's favored political party, the mainstream conservative party of the New Democracy. With this election of the Syriza, there has been a tremendous amount of both media coverage in what Alexis Tsipras and the radical Syriza might offer for the country. Here are two articles on Syriza: one that talks about the Syriza intellectuals that were educated in British universities and another on the roots of Alexis Tsipras. What's interesting from this particular situation is the clash between the leftist ideologues within the Syriza party, such as the Finance Minister, and the European finance and banking bureaucrats. Ever since the situation, Syriza has overturned many of the Troika's economic policies, such as the reduction of public sector workforce, the privatization of key publicly held companies and most importantly, they want to overturn the Troika's loan and debt policies. Alexis Tsipras has declared the end of the crippling austerity that the reforms have caused in Greece, but will face a tough battle and an intense clash with the authorities that have been dictating the terms of the Greek economy for the last 5-6 years.

Within the election of Syriza, financial markets at first reacted negatively to the possibility that Syriza would do great harm to the reform process that the Troika had implemented on the Greek economy, but now it has emerged that the European Central Bank will most likely dictate the terms to the Greek government. The Greek government had hoped to renegotiate the terms of the bailout package and the other economic terms that the Troika had implemented on Greece, but it looks like Alexis Tsipras and the Syriza have not completely backtracked from their strong anti-austerity rhetoric. Despite the fact that the European monetary authorities have a strong stranglehold on the Greek government's ability to operate as they had originally promised, they have found little common ground between them and the monetary authorities of countries like Germany. According to a recent article, Greece has been isolated in a previous meeting of finance ministers just before the Eurogroup meeting that will take place on Feb. 11th, which will be an important meeting in which the new Greek authorities will put forth a proposal that they want to be implemented in order to save their country from actually going bankrupt. With this meeting, Alexis Tsipras has just set up a clash with these ministers after laying out concrete plans to end the reforms that the Troika had implemented, especially the crippling austerity that has trapped millions of Greeks into long-term poverty. It will be a very interesting next couple of months for those who will be following how this interferes with the financial markets.

Possible Results and Possible Macroeconomic Effects
I believe that a Greek default and a Grexit of the euro are both entirely impossible. A more realistic solution to this confrontation is a negotiated write-offs of small amounts of Greek debt, while still not solving the problems in the structure of the economic institutions within Greece. Greece will still be continued to be saddled with massive public debt, institutional corruption and an extremely inefficient public sector. To improve the situation in Greece, there must be a change in how Greece functions as a democratic country. There needs to be more transparency in how the bureaucracy is managed, as debts could be potentially saved without resorting to drastic privatization or the massive public sector layoffs. I still don't believe that the institutional corruption or the entrenched political interests within Greece could be fixed overnight, since the new Syriza government wants a return to the statist government that promotes 'social justice' versus an economic model that promotes business growth. I believe that they will be able to get some debt concessions, but it does not address the long-term debt issues that Greece will have to face. The new Syriza government and the European monetary authorities will most likely end up kicking the can down the road.

There are many possible solutions and results that could come from this particular and interesting situation that Greece is facing, not just against its creditors, the Troika and the financial markets, but also against the underlying principles of liberal economics that has been prevalent throughout the world since the 1980s. There has been a resurgence of a previous dominant Keynesian thought in economic thought that has expanded beyond the confines of the New Keynesians and the followers of Paul Samuelson's neoclassical synthesis. I believe the election of Syriza in Greece will continue to trigger the resurgence of left Keynesian economic thought throughout the world, but also other left wing alternatives that might spurn the IMF's Washington Consensus and the general Monetarist and New Keynesian approaches to economic policy. I also believe we could potentially see the development of new economic models to explain the problems that countries such as Greece went through. Maybe there are possible solutions that could be utilized without the pitched ideological battles that has raged within the European community and beyond. I think there are a tremendous sets of new data that could be extrapolated from this particular situation and that data could be analyzed from the resulting resolution to the Greek crisis.

World Addicted to Debt (McKinsey Report)

I was rummaging through my usual several articles to begin the day and I came across a particularly interesting article in the Economist that talked about a McKinsey report on the debt binge that the world has undertaken in the past and in the recent years. Unfortunately, the trend has accelerated at a trajectory that has been quite frightening to those have followed this. Personally, I have followed this ever since I started following the financial markets and the finances of certain countries such as the United States and China. Both countries have had significant problems with the debt, especially when it came to bad debt that had accumulated from the wrongful policy decisions that led to further market turmoil. The most troubling aspect of this debt addiction is the amount of advanced economies that have extreme turmoil in the last decade or so, with some countries more addicted to debt that ever. What's interesting about the article is that some countries have debts that are at extremely dangerous levels, which are at or above 300% of GDP. In this blog post, I will focus on two other situations about debt, but isolated to two of the largest economies in the world in the United States and in China.

In a connected Guardian article about debt, global debt has grown tremendously ever since the financial crisis especially in China. What's interesting about the fact of this tremendous growth in debt is that China has been one, if not the main driver of global economic growth ever since the financial crisis. The chart in the Guardian article gives us several amazing representations of how China's debt has grown since 2000, with the country's total debt quadrupling in the space of 7 years between 2007 and 2014 alone. China's total debt to GDP ratio has reached the levels witnessed in the advanced industrialized economies of the United States, Japan and Western Europe. This curious rise in debt has been especially troubling as the Chinese economy has become an important cornerstone in the world economy.

According to the data gathered by the McKinsey Global Institute, most countries have been leveraging their debt, while the growth rates for many of these countries have not matched the outstanding growth that a country like China has witnessed in the last 35 years. From the new data on debt that McKinsey has out, we can surmise that there is a significant amount of countries that have racked up enormous debts, such as China, but many of these countries cannot utilize these particular instruments to boost growth to Chinese levels via either government stimulated or central bank stimulated growth. What we're seeing here is that with the economic engine of growth that China has been for the world economy in the last 35 years is stalling at the present moment, due to the style of economic growth that China has been pursuing. For this long and sustained period of time, the export engine that is China has been working overtime to ensure that the world economy, which was led by the advanced economies of the United States, Japan and Western Europe, has been running smoothly. With this new piece of information about the Chinese manufacturing Purchasing Manager's Index (PMI) and the continued industrial slowdown that has dented world confidence in China's growth potentials, we are right to be worried about the future growth trajectories of the Chinese economy and the world economy.

Like China and various other economies, the debt in the United States has reached similar troubling levels as total debt has reached close to the 300% threshold, with the debt to GDP ratio at around 269%. While this number is reputed as tremendously higher than perhaps a more ideal debt to GDP ratio, the growth in the debt in the United States is slowing compared to various countries like China, where debt has grown more rapidly. This signals an improvement over the debt battles that have raged within the country's intellectual realms, but there needs to be work done on this to combat the unsustainable growth in the country's government debt.

From the McKinsey report, we can easily picture that the sustainable growth in debt is an extremely worrying trend for the world as a whole, especially in countries like in China, where the growth in debt risks putting the world's largest economy by PPP terms in grave danger. I believe that reports like this particular McKinsey report reveal a world that is needing a new path towards a new economic consensus on growth that is not entirely based on debt and on deficit financing.

Thoughts on this week's World Economic Forum in Davos

Like many around the world, I have been following this year's World Economic Forum in Davos, Switzerland. As I described in a previous blog post, lots of pressing issues are discussed among the leading policymakers from around the world. I mentioned the key points to this year's meeting and it includes many of the pressing issues that we as a world have to face today. Here is the link to the key moments that had happened during this year's World Economic Forum. From what I gather, this year is the year where a combination of low energy prices, terrorism, growing income inequality and a looming economic malaise surround the world at large. I believe the people at this particular conference talked about some of these pertinent issues and they have overall tackled some of the more pressing issues. These issues are very indeed alarming and I believe some of these issues can be tackled without the "action" that some of the conference attendees have come up with.

Thoughts on the key points of the yearly conference:

1. Reduce inequality, but to promote growth
The most pressing issue around the world is the growing inequality that has been prominent in world headlines and in numerous discussions between economists. As Thomas Piketty's book has reached its popularity around the world, numerous other economists and many politicians around the world has mentioned that this was a huge issue that needed to be tackled. There have been tremendous amounts of press coverage in the last couple of years towards this particular subject and the people at the forum have talked about various ways to tackle this pressing issue. Sustainable growth is something that the people at the forum have talked about as a possible resolution to the most critical issue presented at this particular conference. I believe that while it is possible to reduce inequality through promoting growth, it is also important to consider other possible solutions such as structural reform of key institutions and of how certain private institutions could function within the confines of society. It's interesting to note that while some solutions are offered, I believe there should be more radical solutions such as that posited by Piketty's Capital in the Twenty First Century than the more conservative ones mentioned at the forum.

Here are a couple of video links to certain conversations at the forum that concern this particular problematic issue and other related issues: The World Economic Outlook, IMF Director Christine Lagarde's Address, Issue Briefing: Income Inequality, BBC World Debate.


2. Europe's Quantitative Easing program
As announced in a previous post, the European Central Bank has announced a new massive quantitative easing program of over a trillion that will be pumped into the European economy. There has been a lot of discussion over this particular policy decision by the panel discussants at the forum, by top economists such as Robert J. Shiller, by the top bloggers and with some of my friends. As mentioned in a previous blog posts, there has been a tremendous controversy over this particular issue, with numerous speakers giving their particular opinion on the particular issue. Here's a list of quotes by key forum speakers and here's a video on the discussion of the effects of quantitative easing in the United States and beyond. Here are two contrasting opinion articles on the effects of quantitative easing, one from Professor Jeffrey Sachs and another from Stephen S. Roach. With this particular problem that has already been implemented by Mario Draghi, I believe it is important for them to promote these particular policies, even though there might be strong negative consequences that come from this round of quantitative easing, such as a combination of weak growth and of higher inflation that might come from this monetary policy, but we will have to wait and see.


3. Energy Prices
I think the recent drop in energy prices have been affecting everyone domestically here in the United States and globally around the world. Energy consumers have been given a break in the recent drop in petroleum prices, but energy producers have hit a wall. Countries such as Russia, Iran, Iraq, Venezuela and others will suffer tremendously in the coming years, which might contribute to significant political instability. I mentioned in an earlier blog post about Russia's internal and external problems, which I think will compound in the coming years. This will see a surge in Russia's more aggressive and nationalistic foreign policy. The oil producers will see significant domestic problems, which were already tremendous in volume, expand rapidly throughout the Middle East. We could see trouble in the coming years with this drop in oil prices because it cause an acute global recession.

Here's a video of an interesting panel discussion during the conference that concerned energy.

4. Market Volatility
The last important point that the people at the forum have made concerned with the issue of market volatility. The markets have been very volatile over the years since the Great Recession with the recent drop in energy prices and the global stock market rallies been at the forefront of discussion.

Here are a couple of discussions that deal with this pressing issue: Volatility as the New Normal, The New Growth Context.

Other Important Points:

1. China
A couple of key panel discussants talked about China at this year's conference, which included the Chinese Premier, Li Keqiang. As mentioned in a previous paragraph, he was one of the first to talk about the income inequality issue in an address to the Forum. China has tremendous challenges when it comes to its economy and its new role in the global economy, but I think it can be a tremendous benefit to the world to more fully incorporate a nation of China's size into the world economy. Here are two videos that address the issue of China in the world: Video of Premier Li Keqiang's Speech and China's Impact as a Global Investor.

2. Al Gore and Climate Change
There was a discussion by Al Gore and another discussion throughout the 4 day conference that concerned the topic of climate change. As many have watched Al Gore's documentary and other documentaries that have talked about the pressing issue of climate change, we can conclude that this is one of the more important topics talked among conference participants and conference followers. These two discussions presents the views of many that concerned this particular issue, with several others chiming in on the discussion. I think there are a tremendous number of economic issues that we will run into if we implement Al Gore's plan to combat climate change. I believe the biggest issue has to deal with the continued development of emerging economies and with the issue of lifting billions of individuals, while simultaneously counteracting this increase in carbon emissions and in pollution.

3. Conflict zones
There were a tremendous number of discussions that dealt with the increasing number of conflicts that have developed in the world, which include a variety of countries. This included actual military conflicts such as those in Syria, Ukraine and Iraq along with competing geopolitical games that larger powers are always conducting. The key discussion in this particular subject is that of the development of a new multi-polar world, which always had potentially dangerous consequences. This also leads us to the question of the viability of the democratic institutions, which has been the landmark of industrialized Western countries such as the United States. Is the end of history as describe by Francis Fukuyama not possible or is it a new chapter in history? We will have to wait and find out what unfolds in the coming years.

There were a lot of great panel discussions over the course of these 4 days in Davos. Despite the amount of content that was covered at this year's edition of the World Economic Forum, there are many economic (and political) issues that are still yet to be discussed. With the interesting economic and monetary situation unfolding in Europe and in Greece, we will have to wait and see what unravels.