"Gullibility is the principal cause of bubbles. Investors and the general public get snared by a “beautiful illusion” and throw caution to the wind. Attempts to identify and control bubbles are complicated by the fact that the authorities who might naturally be expected to take action have often (especially in recent years) been among the most gullible, and were cheerleaders for the exuberant behavior. Hence what is needed is an objective measure of gullibility."

"The short-term way to level the playing field is to update the New Deal so it includes and addresses the current workforce. We need to accept that many people don't work full-time for an employer and that "jobs" no longer mean just W-2 employees, as Douglas Rushkoff explained. Richard Cass, a self-employed technical and business consultant and Freelancers Union member, also puts it well: "Government programs that promote small business generally focus on companies with scores of employees and millions of dollars in annual revenue, which is short-sighted." That has immediate implications for our economic and job policies.

But to really bring a thriving middle class back to life, we need a dramatic shift in thinking, institutions, and assumptions. The role of policy should be to foster newer, more self-sustaining systems that follow this new mutualist paradigm. In the long run, our institutions need to move away from regarding the office as the center of a person's economic life, from business as the provider of benefits, and from government as the provider of social supports. The middle class does not have to be built by focusing on individual wealth. Instead, we can build stable markets and societies where people make a living, communities flourish, and businesses survive -- and not at the expense of others. It's not utopian -- it's a necessity if we want a successful middle class again."

'While Adam Smith may be known as the philosopher who first promoted the idea that “greed is good,” his earlier work suggests we are not condemned to exploit others for the benefit of a few. In his book The Theory of Moral Sentiments, written in 1759, Smith proposed that sympathy for the plight of those who suffer is an inherent part of human nature.

“When we see one man oppressed or injured by another,” he wrote, “the sympathy which we feel with the distress of the sufferer seems to serve only to animate our fellow-feeling with his resentment against the offender.”

With the current occupation of Wall Street and the international condemnation of an economic model that would take advantage of those most in need, we are witnessing Smith’s prediction in action. It is only when the reality of people’s suffering is hidden that greed is allowed to dictate policy. While our current system has chosen the greed of the few over the needs of the many, the intellectual founder of modern capitalism suggests it doesn’t need to be this way. “When we think of the anguish of the sufferers, we take part with them more earnestly against their oppressors.”'

"Thus the most logical interpretation is that as other sources of cash are drying up – jobs, equity lines, etc. -- consumers are now turning to credit cards for basic expenses, and as credit lines become exhausted another round of defaults is in store. Some may say that cash sales are not reflected in the data, but the American way of life and the core economic engine has been plastic-based for as long as we can remember, and is not about to change anytime soon."

"We propose an online form of the cake cutting problem. This models situations where agents arrive and depart during the process of dividing a resource. We show that well known fair division procedures like cut-and-choose and the Dubins-Spanier moving knife procedure can be adapted to apply to such online problems. We propose some fairness properties that online cake cutting procedures can possess like online forms of proportionality and envy-freeness. We also consider the impact of collusion between agents. Finally, we study theoretically and empirically the competitive ratio of these online cake cutting procedures. Based on its resistance to collusion, and its good performance in practice, our results favour the online version of the cut-and-choose procedure over the online version of the moving knife procedure."

"For the GOP to use the debt ceiling to put a gun to the head of the US and global economy until they get only massive spending cuts and no revenue enhancement is therefore the clearest sign yet of their abandonment of the last shreds of a conservative disposition. A conservative does not risk the entire economic system to score an ideological victory. That is what a fanatic does."

"Future historians will look back at this, and marvel. Of course, it’s just part of the broader story of how bad economic ideas — the very ideas that were proved wrong by the crisis, and continue to be proved wrong by subsequent events — have come to dominate the discourse."

"First thing we've got to do is tell the truth. We live in an age where lies are just ubiquitous. The biggest lies are that free markets are self-corrective, that individuals are rich because they're smart, and that somehow America became great because of economic growth as opposed to the moral courage of the citizens of all colors to fight for freedom. We need a democratic awakening. We need organizing, mobilizing. We need to be willing to take a risk to change the world. The Obama moment of hope is over. "

"Yet I find none of the classical, semi-classical, new classical, or neoclassical economists who believe in optimizing growth models stepping forward and saying: "Because r < g right now, what we really need is more government spending and an expanded government debt."

It is very odd..."

"The positive lesson for the US is that we have a lot of scope to give employers incentives to cut hours rather than jobs, including improving and expanding "work-sharing" (part-time unemployment benefit) programs as well as implementing new direct tax credits to firms that expand paid time off (paid sick days, paid family leave, paid vacations, and other measures).

The negative lesson is that focusing on supply-side issues such as training, education, and improved job-matching for the unemployed --as much sense as they make in the long run-- is not likely to get us very far when the economy is at 9 percent unemployment. Denmark does far more than we could ever hope to accomplish along these lines and the unemployment there almost doubled between 2007 and 2010."

"What’s striking, though, is that even in January of 2010, when unemployment was over 10%, deficits received equal mention as unemployment. The media is certainly culpable here, but I’m guessing that their headlines are driven by the political discussion, which since the passage of the stimulus has been entirely warped. Goes to show that our political leaders, and the media by extension, will never give unemployment the attention it deserves."

The charts below give us a rather different view of the U.S. retail economy and the long-term behavior of the consumer. The sales numbers are adjusted for population growth and inflation. For the population data I've used the Bureau of Economic Analysis mid-month series available from the St. Louis FRED with a linear extrapolation for the latest month. Inflation is based on the latest Consumer Price Index. April retail sales adjusted accordingly declined 0.2% from March.

We were already very unhappy about the fact that the review was conducted on 2800 mortgage files across 14 servicers and there seemed to be no scientific process for how the cases were selected. The GAO signaled it had reservations about the exercise. And no wonder. Not only was it a garbage-in, garbage out process (whether the borrowers were delinquent was based on the servicers’ say so, not any analysis to see if the fees, charges, and applications of payments were in compliance with the law and the various agreements), it effectively said pretty much all foreclosures were warranted when it looked at only 100 completed foreclosures:

"Perhaps full-scale economic devastation was the only way to restore the sense of “intimate and inextricable relation to the society” around us that Tom Wolfe famously hoped to instill in readers of his 1987 crash-lit classic Bonfire of the Vanities, one of the last memorable explorations of the morally hazardous culture of the Master of the Universe class."

"As of January 2010, the duration of the current recession stands at 25 months and counting. By lasting this long, it has vaulted into 5th place on the career list, surpassing the 24-month long recession of January 1910 to January 1912. It’s the Ken Griffey of recessions. Next one in our sights is the 32-month long post-Civil War recession that ran from April 1865 to December 1867."

"“We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.”"

"Efficient-market theory ought, with any methodological justice, to be relegated to the Museum of Nice Tries. But there is no unified replacement theory, and developing one will be arduous, involving empirical and theoretical work on all scales, from the experimental psychology of individual investors, through the institutional constraints under which money managers work, to solving for the aggregated effects of market participants’ interactions. In the meantime, efficient-market theory provides a ready basis for precise calculations, and one that is moreover now built into the academic field of finance and into the practice and even infrastructure of the markets."

"In 1790, an intense debate swirled around the debt issued by individual states and the government during the Revolutionary War, much of which had been scooped up by big-city speculators after it had plummeted in value. Treasury Secretary Alexander Hamilton's proposal that the newly constituted federal government assume state debts was wildly unpopular among the agrarian types from Virginia. They loathed speculators and the cities in which they congregated, and they viewed the plan as part of Hamilton's scheme to concentrate power in the federal government."

"Think it can't be done? Surprise: What is past is prologue.
Great Britain faced an existential threat back in the 1940s in the form of the overwhelming Nazi military juggernaut that conquered all of continental Europe. Hitler then blockaded and prepared to invade isolated England.
Without enough metal to re-build new airplanes with, England turned to home wood workers and small furniture builders to build a wood-bodied, twin engine light fighter bomber that became known as the de Havilland Mosquito. The resulting plane became the fastest (>400 mph) bomber of the war and contributed in large part to eventual Allied victory. 7,800 wooden planes were made."