Sunday, August 25, 2013

On a recent brush with the real economy

Last Sunday, I created a post that included Rob Urie's institutional look at the triumph of neoliberalism.  In a comment, a valued regular reader (DB) suggested that we were all just following in the wake of Bill Black over at Naked Capitalism—who he assumed I read regularly.  Now I like Black a lot, and he works for one of the two schools left in USA that claim to teach heterodox, institutional economics (U. Missouri at Kansas City—U Mass Amherst is the other).  But the truth is Black is a pretty late arrival to Institutionalism and his claim to fame is that he actually helped put many of the Savings and Loan crooks in jail. It is true that many of the folks who crashed the economy in 2008 were indeed breaking some of the remaining laws put in place over the years to help minimize the predation of the creditor / rentier classes.  It is also true that we need to re-regulate the finance sector.  But the real problem is that the financial sector has always been a burden on the real economy so that whether their activities are legal or illegal is a pretty small matter compared to the fact that the FIRE sector has become so big, it is literally destroying the real economy's ability to survive.

I will admit that when I read Black, I have my "right on! yeah! let's throw them in jail, let's bring back the guillotine!" moments.  It's only natural to praise the good cops who are on the side of the good guys.  But in the end, law enforcement is but a small slice of the very necessary struggle to maximize the resources available to the real economy by minimizing the looting of the Predators.  So while I understand why folks enjoy reading Naked Capitalism, I don't read it because it is written from the POV of a paper-pusher on Wall Street.  This perspective has utterly dominated the conversation for decades.  James Carvelle, Clinton's political guru once remarked the he wanted to be reincarnated as the bond market in the next life so he could have real power. The Bonfire of the Vanities was Tom Wolff's 1980s fictional account of the triumph of the "bond bores."  It's pretty hard to miss the Wall Street perspective even when one tries to ignore it in the pursuit of understanding what is happening to the real economy.

But the fact that someone assumes that I am interested in the crime reporting over at Naked Capitalism probably means I should trot out more examples of the real economy.  And I saw an especially delicious example Friday night.  I had driven over to see Tony who was selling books at the antique tractor show in Edgar Wisconsin—it's his closest swing to Minnesota.  We were driving back to the motel when he spotted a gleaming new combine parked on very prosperous-looking dairy farm.  He stopped and insisted I take a picture  The sun was setting so we had some late summer golden-hour lighting.  I only had a Canon Powershot S95 along but I thought it worth at try.  It's a great little camera but has a small lens so low light trips it up.

The combine is a Massey-Ferguson 9560 (click the 9560 button) which lists for (are you sitting down?) $426,819.  It comes with some nice reviews but seriously, this is a LOT of money to spend on something used only a few days a year.  So the real economy questions are, Why would anyone possibly need a machine so complex to accomplish a task that was mostly done by hand for most of human history? and Why would a manufacturer go to all the trouble to build something like that?  Got to milk a lot of cows to pay for so much technology.

(the factory photo of 9560 minus the harvesting head)


  1. Farm equipment is a tax write-off, and farmers are making good money thanks to the government's ethanol mandate.

    1. Got to have an income for a tax write-off to mean anything. Crop prices are way down from last year and out near Wausau Wisconsin, the crops look horrible. They had a long wet spring so that some did get planted until late June. Then the rain stopped and so the runty little corn is burning up. Yes some farmers made some serious bucks over the last few years ( I know a couple) but many, and that includes a lot of dairy operations, went broke due to low prices. It's an insanely difficult way to make a living and climate change is making it a lot worse. If you think it is easy, go ahead and try it. Then come back and talk about tax write-offs and ethanol mandates.

      And I stick by my point—half $million is a lot of capital to tie up for something that is used—at best—for two weeks a year. Very few working farmers are THAT rich.

    2. Than you for the mention and I have never implied that your arguments are in any ways derivative of mine. I am not, however, a latecomer to institutional ideas ( I was trained in them beginning in 1969) and any fame I have does not come principally from helping the FBI and DOJ to jail the leaders of the S&L control frauds. I was best know in the academy (before I joined it) for my institutional work as the staff member who took the lead in designing and implementing the reregulation of the S&L industry. As you probably know, UMKC is a center of thought on institutional economics. I agree that the key is changing the institutions to prevent or minimize future crises. That is the primary thrust of my scholarship. The failure to prosecute is symptomatic of the institutional crisis.

      Bill Black

    3. No! It was certainly not you who implied I was somehow following in your wake. And I am sorry I did not know you had Institutionalist cred that predated your magnificent work jailing the S&L crooks. Because I live nearby and followed the restoration of the childhood home of Veblen so closely, I have given a bunch of house tours to Veblenites from many countries. These folks, not surprisingly, are very serious. And I did it often enough that I used to joke that I could detect Veblenian influences in parts per trillion. I have seen you many times on TV (Youtube) and didn't detect your Institutionalist bias so I guess I cannot tell that joke any longer. (sigh)

      Anyway, thanks for stopping by and keep up the good work.

  2. I'd just like to offer a positive thought about Naked Capitalism ( ) by way of a comparison. I'm a regular follower of NC, as I am of ZeroHedge ( ). I feel obligated to follow ZH for my radio listeners because they do break a lot of important stories. They also raise some false financial alarms, but the heaviest price I pay is to even half-wade through the comments section. Descending from the acronym laden stories, the comments section highlights the argot of financial fan-boys lashing out at their bosses, while reinforcing the group-think that they are, after all, doing "God's Work" for the befuddled masses.

    Contrast this ZH garbage with the comments in Naked Capitalism, the comments in NC are moderated, they stay on point, and generally make a positive contribution to the article's topic. I can tell that the moderators put a lot of effort into keeping the comments useful and relevant. I have even tested their moderating and have been banned, earning my inner Marxist (Groucho) approval - "I wouldn't want to be part of any club that will accept people like me as a member".

    I appreciate your service to keeping us informed, especially on the under reported (not reported at all in New England) crop conditions as we head into harvest.

    All the Best,
    David Bauer