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Eonometricians Gone Totally Mad in Support of Tyranny
Economic Policy Journal ^ | 12/27/09 | Robert Wenzel

Posted on 12/27/2009 9:21:07 AM PST by FromLori

There has always been speculation among economists who apply a verbal deductive methodology to the science of economics as to why econometricians adopt a worshipful posture towards using equations when attempting to explain the economy.

One theory holds that it provides cover to bring about more intervention in the economy. A current proposal by Yale economist Robert Shiller provides an object lesson in how phony equations are created to advance government intervention.

In today's NYT, Shiller writes: Corporations raise money by issuing both debt and equity, the latter giving investors an implicit share in future profits. Governments should do something like this, too, and not just rely on debt.

Borrowing a concept from corporate finance, governments could sell a new type of security that commits them to paying shares in national “profit,” as measured by gross domestic product. Notice what Shiller is doing here.

He is taking a real concept, corporate profits and attempting to adopt it in a manner that is very different.

A shareholder in a corporation is actually a part owner of that corporation. Thus, his profits based on his percentage of ownership are entirely understandable. Where else would the money go?

The government is not a profit producing entity. There are no "profits" to distribute. But Shiller seems to imply there are. What the hell is he talking about? Here's where his worship of everything that can fit into an equation turns him into an apologist for state tyranny: Historically, one impediment [to issuing shares that commits to pay a share of GDP] was the difficulty in accounting on a national scale: governments didn’t even try to measure G.D.P. until well into the 20th century.

Although G.D.P. numbers still aren’t perfect — they are subject to periodic revisions, for example — the basic problem has been largely solved. So why not issue shares in G.D.P. now. Talk about seeing everything through cult like eyes of an econometrician. Shiller thinks a share of GDP "profits" haven't been issued before because it is only recently that econometricians have been able to measure GDP.

Of course, the real problem is that there are no "GDP profits" to distribute. GDP measures in a sketchy method "national production". If Joe creates shoes and exchanges them with Pete for a coat. They each gain, but there is no external profit that the government owns in this transaction. There are no shares in GDP to issue, despite how complex an equation the econometricians can design.

But Shiller sees it differently. Read the last Shiller paragraph I quoted, again: Although G.D.P. numbers still aren’t perfect — they are subject to periodic revisions, for example — the basic problem has been largely solved. So why not issue shares in G.D.P. now? What Shiller is really saying here, if we take an eye off his equations, is that the government owns all production and it's about time that the people realize this. Such a claim thus makes it easier for governments to raise money. Shiller is clear about this: Such securities might help assuage doubts that governments can sustain the deficit spending required to keep sagging economies stimulated and protected from the threat of a truly serious recession. Once he let's the cat out of the bag that it is about making it easier for governments to raise money, he quickly shifts into explaining in more detail the equation that will divide up the GDP: In a recent pair of papers, my Canadian colleague Mark Kamstra at York University and I have proposed a solution. We’d like our countries to issue securities that we call “trills,” short for trillionths.

Let me explain: Each trill would represent one-trillionth of the country’s G.D.P. And each would pay in perpetuity, and in domestic currency, a quarterly dividend equal to a trillionth of the nation’s quarterly nominal G.D.P.

If substantial markets could be established for them, trills would be a major new source of government funding. This is really all mad mumbo jumbo, except for the last paragraph.

Shiller is designing an equation based on exchanges where there is nothing spun off to create any ownership. He intuitively must understand this, since he then tells us about trills: Trills would be issued with the full faith and credit of the respective governments. That means investors could trust that governments would pay out shares of G.D.P. as promised, or buy back the trills at market prices. [Note: I am not sure what Shiller means by "paying out shares". In another part of his column he talks about paying out from "cash flow". Same thing with his comment as to buying back trills at market price. If it truly is a market price, why would it be necessary for the government to buy back trills, or important to even mention, since if it truly is a market price, they could be sold in the market? This indicates a very amateurish effort by Shiller in his entire proposal that doesn't appear to be even internally consistent.-RW] He brings the full faith of government because Shiller realizes that the only thing that brings value to trills then is plain and simple, the power of the state to tax. That's what "backed up by the full faith and credit of the government" means. It just covers it all up in mumbo jumbo about ownership in GDP.

Shiller then goes on to explain how a trill will pay out based on one trillionth of "the annual cash flow". Which is simply another way of saying that the interest on this type security will be variable based on nominal GDP, but it does so in a deceiving way by suggesting that somehow there is an annual "cash flow"to be divided. There is no such thing. There is simply the ability of governments to tax, nothing more, nothing less.

Shiller's equations do nothing but attempt to obfuscate this fact through fancy equations, so that it becomes easier for governments to borrow money that ultimately must be paid for through taxation or inflation. Nothing new here.

TOPICS: News/Current Events
KEYWORDS: economy; govt; tyranny

1 posted on 12/27/2009 9:21:09 AM PST by FromLori
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To: perchprism; LomanBill; JDoutrider; tired1; Maine Mariner; demsux; April Lexington; Marty62; ...



2 posted on 12/27/2009 9:23:07 AM PST by FromLori (FromLori)
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To: FromLori

Marxists are becoming desperate. I long for the days of honest Marxists. The Soviets were perhaps the last honest Marxists, deluded but honest about the lack of private property rights. It seems that Shiller’s idea is a default scheme. If the economy does not grow, you will not receive dividends. The pressure to manipulate the GDP numbers would also increase.

I believe that Shiller is a big defender of Social Security so this proposal fits with his crazed belief in entitlement Ponzi schemes. You can never win an argument with those committed to government. Failures only justify the neeed for larger government and ultimately larger failures.

3 posted on 12/27/2009 9:29:24 AM PST by businessprofessor
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To: FromLori

Economics is NOT a science... maybe Sociology, maybe Psychology. Perhaps, ultimately, a branch of ethics. The whole field is a fraud.

Anyone of those “brainiacs” see the global meltdown coming? Thinking they could slice and dice at most $1T in mortgages, good and bad, and come out with somthing worth.. what is it now? - $500T!! These guys lie to suit whoever is paying them the consulting fees..

Smoke and mirrors insanity. Don’t listen to any of them...

4 posted on 12/27/2009 9:38:57 AM PST by blade_tenner
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To: FromLori
What, pray tell, are "Eonometricians?"

Are they the ones that invented "Ebonics?"

5 posted on 12/27/2009 9:51:38 AM PST by SierraWasp (AARP is guilty of Elder Abuse by endorsing a law that eliminates Medicare Advantaqe plans!!!)
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To: FromLori

By historical standards, the U.S. government ran surpluses, except during war and recession. In the first 150 years, there were what — at least 100 years that showed surplus? So they could sell shares in government profit rather than in GDP. Of course if there is no profit, then shareholders get stiffed for that year.

At this point, I’m not sure who would buy such shares. It might have worked 70 years ago or more. Angry shareholders would have insisted that the government make spending cuts.

6 posted on 12/27/2009 9:59:23 AM PST by scrabblehack
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To: SierraWasp

It means a media bias to a group of economic thought i.e., liberal economists.

7 posted on 12/27/2009 10:01:49 AM PST by FromLori (FromLori)
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To: scrabblehack

A fool and his money is easily separated and so would be the case to invest in this given the amount of spending unless of course they raised taxes so high and given this fascist government of obama and the banks it is a good possibility that could happen. It would otherwise make zero sense to invest in it as the Chinese are figuring out.

8 posted on 12/27/2009 10:07:13 AM PST by FromLori (FromLori)
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To: FromLori

Not all Econometricians nor all Economists think as Schiller does. However - the vast majority at the Ivy League schools do. It has long been known that they are liberal cesspools. The University of Chicago USED to be very conservative; unfortunately, no longer. There is some unfortunate truth to the statement that they mouth whatever the person signing the consulting check or research grant wishes to hear. Evidenced in the recent climate gate scandals - econometricians and economists are no different excepting they are more clever at cleansing data.

All that having been said - God help us all if the government starts issuing shares in GDP.......the mortgage market meltdown was bad enough!

9 posted on 12/27/2009 10:16:07 AM PST by phoenix07
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To: FromLori
The fundamental "mistake" of government apologists everywhere: Presenting government as some sort of asset instead of a liability, and equating it with actual productive businesses, instead of the loss/shrinkage it universally causes.

And then, horror of horrors, basically creating derivatives ("trills") from this fanciful and farsical mis-assignment.

It's like assigning miles-per-gallon values, and using the price of water instead of gasoline to compute running costs.

Sorry, water doesn't burn, and government only produces negative value.

Frowning takes 68 muscles.
Smiling takes 6.
Pulling this trigger takes 2.
I'm lazy.

10 posted on 12/27/2009 10:20:38 AM PST by The Comedian (Evil can only succeed if good men don't point at it and laugh.)
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To: FromLori
It's nothing new:
--Thomas Jefferson

Mercantile criminals are lusting after the helm of the American ship of state.

It is incumbent upon the honorable craftsman
to be aware of whether or not his services are being used
as a means to accomplish evil ends -
and to act accordingly. the outcome isn't written in stone... while this still IS:

11 posted on 12/27/2009 10:22:24 AM PST by LomanBill (Animals! The DemocRats blew up the windmill with an Acorn!)
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To: LomanBill

Bankers Beg God For Forgiveness

They should after donating so heavily to liberals and acorn and wanting climate gate to prosper from!

12 posted on 12/27/2009 10:39:45 AM PST by FromLori (FromLori)
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To: FromLori
There is one major problem with this:

The GDP is not the property of the Federal Government, and thus they have no right to give out shares in it!

13 posted on 12/27/2009 10:44:43 AM PST by PapaBear3625 (Public healthcare looks like it will work as well as public housing did.)
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To: SierraWasp
What, pray tell, are "Eonometricians?"

Economists who study really long term financial issues.

14 posted on 12/27/2009 10:48:09 AM PST by sportutegrl (I was for Sarah Palin before being for Sarah was cool.)
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To: FromLori
[why did financial capitalism become synonymous with crazy risk-taking, with the passing off of toxic investments
to unwitting counterparties and the earning of multi-million pound bonuses, regardless of merit?]
Ex 32:2-4
2 Aaron answered them, "Take off the gold earrings that your wives, your sons and your daughters are wearing, and bring them to me." 3 So all the people took off their earrings and brought them to Aaron. 4 He took what they handed him and made it into an idol cast in the shape of a calf, fashioning it with a tool. Then they said, "These are your gods, O Israel, who brought you up out of Egypt."

15 posted on 12/27/2009 11:18:46 AM PST by LomanBill (Animals! The DemocRats blew up the windmill with an Acorn!)
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To: FromLori

>>Nothing new here.

Meet the New Boss, same as the Old Baal
—The Who?

16 posted on 12/27/2009 11:21:04 AM PST by LomanBill (Animals! The DemocRats blew up the windmill with an Acorn!)
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To: businessprofessor
This is thinly disguised "redistribution", or if you will, socialism.

How long do you think it would be before there would be a call for "equal distribution" of trills. It's not fair to let only the wealthy purchase all the trills since "everyone" contributes to the GDP.

The guys are nothing if not deviously inventive.

17 posted on 12/27/2009 11:49:50 AM PST by HardStarboard ("The urge to save humanity is almost always a false front for the urge to rule - Mencken knew Obama)
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To: blade_tenner
The whole field is a fraud.

No it isn't, but a lot of people who claim to be economists certainly are.

18 posted on 12/27/2009 12:08:57 PM PST by BfloGuy (It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect . . .)
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To: FromLori
Econometrics is a bogus statistical science. It tries to predict human behavior using models and formulas. It ALL nonsense. Just Ask AIG! People do not think mathematically. They think with their stomachs and sex organs. The make random decisions based on current stimulus, culture and mode. We have turned Wall Street over to the Quants who have, predictably, screwed us into the ground. Their models and predictions are no better than Tarot cards...
19 posted on 12/27/2009 5:37:07 PM PST by April Lexington (Study the constitution so you know what they are taking away!)
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