Wednesday's Top 10 with NZ Mint: 'Markets are not stable, efficient or self-correcting'; The 'Great Gatsby' parties return; Krugman and Summers adopt MMT?; 7 myths about Keynesian economics; Dilbert

Here's my Top 10 links from around the Internet at 12 midday today in association with NZ Mint.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read is #9 on the myths about Keynes.

1. 'Markets are not stable, efficient, or self-correcting' - Nobel prize winning economist Joe Stiglitz makes this point in an excellently argued piece over at Economonitor.

Stiglitz is touching on a big boil that has yet to be really lanced in the economics community.

All the 'End of History' hubris in the wake of the collapse of Russian communism in the late 1980s has been exposed.

Most policymakers in New Zealand and elsewhere were taught through the 1980s, 1990s and early 2000s that markets are best.  Markets work.

All you need to do is deregulate, privatise and target stable inflation and everything will work.

Broadly, they still believe that. I listen every day to this group think in Wellington. Treasury, the Reserve Bank and the cabinet have not changed that mindset.

The Global Financial Crisis has exposed that as both arrogant and wrong. New Zealand can kid itself that our relative economic stability and apparent prosperity (relative to everyone else) is the exception that proved rule.

But we all know we escaped because we were lucky. Our banking system was simple and backed by Australian taxpayers. China (which doesn't believe in the free markets group think) reacted quickly and forecefully to stabilise its economy. We (and Australia) just happened to benefit from the actions of a communist government in China. Whether that can be sustained is questionable, given the new leaders of that communist government are actively trying to slow down that investment-led growth. Sadly, we also got very lucky in an economic growth sense (but not much else) with the Christchurch earthquakes.

Here's Stiglitz capturing the lessons well. They have yet to be learned or accepted here.

The big lesson that  this crisis forcibly brought home—one we should have long known—is that economies are not necessarily efficient, stable or self-correcting.

There are two parts to this belated revelation. One is that standard models had focused on exogenous shocks, and yet it’s very clear that a very large fraction of the perturbations to our economy are endogenous.  There are not only short‑run endogenous shocks; there are long‑run structural transformations and persistent shocks.  The models that focused on exogenous shocks simply misled us—the majority of the really big shocks come from within the economy.

Secondly, economies are not self-correcting.  It’s clear that we have yet to fully take on aboard this crucial lesson that we should have learned from this crisis: even in its aftermath, the tepid attempts to fix the economies of the United States and Europe have been a failure.  They certainly have not gone far enough.  The result is that we continue to face significant risks of another crisis in the future.

------------------------------------------------------------------------------------------------------------------------------------------

Keep it safe. Keep it in a New Zealand Mint safety deposit box. Details here »
------------------------------------------------------------------------------------------------------------------------------------------

2. Great Gatsby parties - Quartz has an interesting piece on the fashion for 'Great Gatsby' parties and the apparent lack of self awareness among a certain social set in America, despite everything that has happened since 2008. The movie starring Leonard di Caprio opens in American theatres on Friday night.

In the novel, Gatsby’s infatuation with social class is represented by the green light on the dock of the Buchanan estate across the bay from his house. And if there’s one line that neatly, almost overbearingly, conveys the novel’s jaundiced view of the American dream, it’s this one: “Gatsby believed in the green light, the orgastic future that year by year recedes before us.”

At Boston Latin School, however, the green light is just good old American ambition. “My green light is Harvard,” a 14-year-old Chinese-American immigranttold a reporter visiting her English class. On the wall of the classroom, students had written their own “green lights” (pdf) on a large piece of green construction paper in the shape of a lightbulb: Pediatric neurosurgeon … Earn a black belt … Make it to junior year… Become incredibly rich.

------------------------------------------------------------------------------------------------------------------------------------------

New Zealand Mint. Experts in gold & silver bullion, commemorative coins and jewellery. Details here »
------------------------------------------------------------------------------------------------------------------------------------------

3. The rise and the fall of the Guaranteed Minimum Income idea - I had no idea that the US House of Representives voted in favour of the Guaranteed Annual Income (GAI) in 1970. It was rejected by the Senate, but clearly has been around for a while. It is similar to Gareth Morgan's Universal Basic Income idea which he has wrapped into his Big Kahuna plan.

Here's RemappingDebate with a piece on the pros and cons and history of the GAI.

In the course of weeks of reporting — both through interviews and an exploration of the documentary record — Remapping Debate found that GAIproposals were given room to breathe in a social and political environment that took seriously the values of citizenship and mutual obligation, and that accepted the fact that social problems could be — indeed, should be — solved by governments.

That environment has disappeared, due in large measure, we found, to the rise of “market thinking,” a mindset that subordinated — and, in some respects, supplanted altogether — the values of citizenship and mutual obligation.

On both sides of the aisle, the voices describing unfettered market relations as a virtuous and unstoppable force to which the citizenry had to adapt and submit (as with globalization) grew ever louder. Ultimately, these market devotees drowned out those who continued to believe that government has a vital role to play and that markets do not on their own reflect and honor a broad range of important social values.

------------------------------------------------------------------------------------------------------------------------------------------

Available now. Our brand new 1 oz Taku gold bullion coin. Details here »
------------------------------------------------------------------------------------------------------------------------------------------

4. Have Krugman and Summers adopted Modern Monetary Theory? - L Randall Wray reckons they have. Let the money printing begin....or continue....forever...

5. Abenomics is sweeping the world - The brand of economics practiced in Japan, Abenomics, is taking off, says Ed Hugh in this piece at Economonitor

6. China steps up its Cyber-War - The FT reports on the biggest cyber-hackers around. I hope the GSCE is reading.

7. Career retailer? - I like this Warehouse plan to increase wages to improve employee engagement and reduce staff turnover. It smacks of the Henry Ford idea from 1914 to double wages so as to keep his staff and give them an income big enough to buy his cars.

8. Long term unemployment - Tim Harford writes here about the horrible trap of long term unemployment. 

9. Seven myths about Keynesian Economics - Here's Mark Thoma with an excellent piece in the wake of Niall Ferguson's painful apology over a smear aimed at John Maynard Keynes.

10. Totally Jon Stewart on the NRA convention.

And Part II