Good read: The Debt-Deflation theory of Great Depressions

Keynes Versus Hayek 1932 newspaper article. FOund on a wierd dutch site.

In The Theory of the Leisure Class, which is probably his best-known work, because of its satiric look at American society, the instincts of emulation and predation play a major role. People, rich and poor alike, attempt to impress others and seek to gain advantage through what Veblen coined "conspicuous consumption" and the ability to engage in “conspicuous leisure.” In this work Veblen argued that consumption is used as a way to gain and signal status. Through "conspicuous consumption" often came "conspicuous waste," which Veblen detested.

Great read!

Politicians and talking heads on television are continuously warning the public that the current economic crisis that began in 2007 as a small sub prime mortgage default problem in the United States has created the greatest economic catastrophe since the Great Depression. What is rarely noted , however, is that what is significant about this current economic crisis is that it origin, like
the origin of the Great Depression, lies in the operations of free (deregulated) financial markets. As I pointed out in two recent articles (Davidson, 2008a, Davidson 2008b), it is the deregulation of the financial system that began in the 1970s in the United States that is the basic cause of our
current financial market distress.

Jerome Ravitz: Faith and Reason in the Mathematics of the credit Crunch

The Oxford mathematician Jerome Ravitz in an article entitled “Faith and Reason in The Mathematics of the Credit Crunch” appearing in Oxford Magazine (eighth week, Michaelmas term, 2008) has written:

“...the term faith is believed by these competent present observers to be relevant to the mathematics at the heart of the multi dimensional pyramid game that has led to our present [credit crunch] catastrophe. Combined with the corruption of quality and the abuse of uncertainty in mathematical models, blind faith in [classical] economics and mathematics forms... the toxic mix that has enabled greed an irresponsibility to wreak their destructive way. ... Mathematics first provided an enabling technology with computers, then with a plausible theorem it offered legitimation for runaway speculation....it framed the quantitative specification of its fantasised products. Mathematics thereby became uniquely toxic, what Warren Buffet has called ‘weapons of mass destruction’

Politicians and talking heads on television are continuously warning the public that the current economic crisis that began in 2007 as a small sub prime mortgage default problem in the United States has created the greatest economic catastrophe since the Great Depression. What is rarely noted , however, is that what is significant about this current economic crisis is that its origin, like the origin of the Great Depression, lies in the operations of free (deregulated) financial markets. As I pointed out in two recent articles (Davidson, 2008a, Davidson 2008b), it is the deregulation of the financial system that began in the 1970s in the United States that is the basic cause of our current financial market distress.

ALTERNATIVE EXPLANATIONS OF THE OPERATION OF A CAPITALIST ECONOMY: EFFICIENT MARKET THEORY VS. KEYNES’S LIQUIDITY THEORY

Common-pool resources (CPRs) are resources to which more than one individual has access, but where each person’s consumption reduces availability of the resource to others. Important examples include fish stocks, pastures, and woods, as well as water for drinking or irrigation.

On a grander scale, air and the oceans are common pools. Some common pools exist primarily due to technological properties of the resource. For example, difficulties in controlling people’s resource usage prevent the transformation of a common pool resource into a private resource. However, not all costs of precluding access are strictly technological. There are also cases in which common pools could be profitably privatized, whereupon access could easily be controlled, but where privatization attempts fail because the users cannot agree on the terms. For example, water basins and oil pools are frequently located underneath land that has many different owners.

I find here that the early and mid-aughts (2001 to 2007) witnessed both exploding debt and a consequent “middle-class squeeze.” Median wealth grew briskly in the late 1990s. It grew even faster in the aughts, while the inequality of net worth was up slightly. Indebtedness, which fell substantially during the late 1990s, skyrocketed in the early and mid-aughts; among the middle class, the debt-to-income ratio reached its highest level in 24 years. The concentration of investment-type assets generally remained as high in 2007 as during the previous two decades. The racial and ethnic disparity in wealth holdings, after stabilizing throughout most of the 1990s, widened in the years between 1998 and 2001, but then narrowed during the early and mid-aughts. Wealth also shifted in relative terms, away from young households (particularly those under age 45) and toward those in the 55–74 age group. Projections to July 2009, made on the basis of changes in stock and housing prices, indicate that median wealth plunged by 36 percent and there was a fairly steep rise in wealth inequality, with the Gini coefficient advancing from 0.834 to 0.865.