i'll be right back here and half our. culture is that so much to maybe you should be sitting on the mark with. the muslim brotherhood decision presidential candidate in the election stone debating is appalling.

good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for april fourth two thousand and twelve the internet has been of buzz over the blogosphere boxing match between nobel laureate and new york times columnist paul krugman and the debugger of conventional wisdom and super hero economist stephen keenan when a little like this. that's how we see it at least he can take in on the mainstream machine of economics for people who don't see the world through meal classical lenses because hey we sure can in fact i can't see much of anything out of these now he makes them headway as paul krugman log some seemingly low blows we spoke to steve king to talk about it and also the broader significance and too big to fail bay agreed to pay twenty

million bucks to settle allegations from regulators that it mishandled customer funds before major brokers collapse it may sound familiar but the details may surprise you will tell you about them and last friday we exposed the apparent mess of billionaire investor warren buffett's proclaimed desire to be taxed more well now he's singing a different song literally the owner of the of the whole world herald newspaper serenaded a crowd dressed as a paper board thinking i'm just of paper boy well it's time to demystify the message let's get to today's capital account.

so have you seen the latest major debate to heat up the economic blogosphere because it involves one of our frequent guests and who we maybe would consider the poster boy of establishment economics paul krugman himself now if you are just you know catching up with this let me bring you up to speed so you had heard one comment on one of steve king's blog posts and you can see his post there on his new york times column and he questions and rejects some of what he is arguing in minsk in methodology and he warns us that it's warm and i'll warn you this is all a bit long but it is worth it to bear with us because hey you know we had a major financial crisis and the people who missed it did not see it coming are still the ones largely driving the economic debate forward with those same theories and this applies to policy makers too from what i understand so back to this

response defending his alternative approaches you can see his post there he notes that paul krugman has been commenting on his blog so this continues some others weigh in with their two cents or more back and forth and soon it gets a lot of buzz it seems to and with a kind of an embarrassing really and at least slightly lazy seeming post where krugman takes part of keane's post out of context and then refutes it he does it right here where he says that one of points is all wrong that and k. which i believe stands for new keynesian models are all about sticking prices so what is king saying but what krugman fails to recognize is that keane has already just cleared up this point only slightly later in the post i don't know if you read this far but he said so economists like program and who describe themselves as new keynesian tweak the base case to derive models with sticky prices so i know this is convoluted but basically the plane. is that keen had already cleared up what

crewman is criticizing except of course doesn't have the benefit of having all of the new york times readers see that so it's a little sticky there now we spoke to economist and professor steve kean he is also the author of debugging economics the naked emperor dethroned to get the scoop on all of this and also what it means bigger picture for the fight against the economic establishment professor king let me first just say thank you so much for being on the show we are so happy to have you not only because we think you're fantastic but you have been involved in this blog brawl with paul krugman new york times writer nobel laureate darling of the establishment economic world as it really has just i mean it is all over the blogosphere now i see. an exodus money the new keynesian new classical models a lot of this stuff they may be only

a ph d. economists really understand so help us just first break down really what is the crux of the argument that you two have got into. all across of the argument is the one of the group of non-conventional economists who argue you can't model the economy without including the role of banks and money and crudeness part of the economic establishment which for thirty or forty years has got away with arguing you can model the capitalist economy as if it has no banks in it and no money and debt and we've been screaming for ages from the sidelines saying hey you can't do that you just don't have a model of capitalism if you don't include those components along comes the financial crisis characters like me predicted it using models and putting money banks and did it and now accruing comes along and says i well i can't see why i should actually bother having models of banks that money in macroeconomics there are irrelevant matter to the macro economy which frankly is somebody like me and i

hope most people in the real world gobsmacked because hey we're living in the middle of a banking crisis caused by too much debt ok and so just head to really hammer and nail what is that real major one sticking point that you guys are arguing about that but by real thinking brain. well the real sticking point is whether the with you can have a macro economic model of the economy that leaves out banking and their crew can use that banking and that is irrelevant mix which is frankly bizarre in the middle of the biggest financial crisis in history where the behavior of banks is what gave us the crossers so it's really that total battle that he comes from the convention the the nine stream of economic which has dominated the sixty or seventy years yeah which argues that you can model the economy without talking about those issues without their money and i'm part of the minority which has been progressively marginalized but says you can't do it someone with getting the attention of this

crowd that been ignoring us for decades funny that i kind of seriously but then of course they dismiss our arguments well you certainly are getting a lot of attention and i'll tell you one thing that because that's related to you is this final back and forth you have krugman and you know this is something that i've seen you write about a lot of people on the blogosphere right about his commenters write about it appears that he took part of your quoth out of context and the way that seems really this ingenue with what happened. well i'm the type of model the crewman works on the models where they believe they can model the unit macro economy as if it's one blown up individual if you really like they make it to blown up individuals and they that's what they called for micro foundations approach to macroeconomics now from my point of view that's nonsense you can't do it and actually the the reasons why you can't are actually proven by very good conventional neoclassical economists that simply doesn't work. people are going to

build the model ignoring these strong well founded theoretical criticisms of that whole approach and in general i just think it's a bit like a bunch of ptolemaic astronomers who model the universe as if the earth is in the center and the planets and the sun revolves around us in the way they explain the fact the planets are reversed direction of the working at the socket on top of it and one bunch of got one set of goals another has another bunch there's still. the center of the universe so to me i just use a label calling and dynamics they have at one particular level they call themselves d.s. g. a which stands for dynamics the sick general equilibrium models and i simply said these models start off by shimming all notion of circular it like the means and then two paragraphs down i said because this can't possibly match reality just like the tonic astronomers added on planets going on at the cycles or they could be explained reversal the direction people are crude and actually mentioning by name in frictions slow progression of process sticky pretty wages. downwardly

inflexible wages etc etc then he obviously didn't read the post simply saw the start right talk about the circular motion part of the model and then it is soon that i that i didn't know that the rest was on his own some done through doesn't know the economic literature other frankly as i noted on the literature better than crewman does well and and there were the insult was that was yeah i thought i got insulted live in front of a million readers of the new york times by. somebody could misread my paper right well you know a lot of it commenters though pointed that out and find out that he took you out of context to make his point and then he said if we can bring it up he gave up hate to that post and said essentially time to move on were done this is their it and we have it right there he went on it to sound like he essentially called you a heretic it least is that i'm all for listening to heretics but blah blah blah so i guess my question is this that paul krugman personality thing do you think or is

this more representative of the how neo classical economists think that they need to be right even when they're wrong. it's more that the neo classical think they're right no matter warp i mean they have a vision of the economy that has it in equilibrium or new boy did it from an equilibrium by shocks and all the ups and downs of just physics knowledge and shocks and with been saying for a long long time you can't model the economy as if it's an equilibrium because hey it's not out of the equilibrium and especially a time drug right now so there's because of other approaches to do it and i mean modeling that i do give you models of include banks that actually give you the result that you should have crossed you'd like the one we're in now when i first wrote a model of that nature back in not in ninety five now crewman always ignored us and this is what they simply says oh you don't understand a model's therefore we can ignore your own which is a bit like astronomer saying that galileo you don't understand how to kill

a bunch of of circle models therefore i can ignore you because i was saying how your tables are inaccurate people never get the mediterranean anymore because your tables of lost relevance there's something wrong with the core of your model in my case i'm saying polish your models are right we wouldn't be in a financial crisis. there you go that was economist professor and author steve king will have more with him after the break and still ahead warren buffett may have started out as a newspaper boy in the forty's but now it seems the billionaire investor is trying to play of those routes making headlines for it as well we'll give you our three cents but first because the market numbers.

more news today more lynchings once again flared up. these are the images the world has been seeing from the streets of canada. showing corporations are relieved a. little. sometimes you see a story so. you think you understand it and then something else and you hear or see some other part of it and realize everything you thought. welcome to the big picture.

wealthy british scientists and. writers. market. what's really happening to the global economy with mike's cars are there are no holds barred the global financial headlines. is a report. welcome back so we are trying to break through the conventional mainstream economic wisdom that's what we're talking about right now this recent data we've seen krugman and keene have been duking it out that's recently on the pages of their

blogs but you may recall that it was mainstream economists who largely missed the financial crisis of two thousand and eight in the first place they didn't see it coming and remember this article from crew going him self at right around that time he asked how did it condiments get it so wrong he points out you economists are current crisis coming more important was the profession's blindness to the very possibility of catastrophic failures in a market economy yet catastrophic they were none the less people did predict them ok just maybe not those that are an article like that and according to keane and many others not much has changed with traditional economics with neo classical economics and with its failures that are still considered status quo so i followed up with economist and professor steve keen who i should point out and he said it earlier did see and predict that financial crisis coming well ahead of time and you

said neo classical economists don't want to listen so what does that say about the people whose opinions are still considered the holy grail even though they missed the financial crisis continue to miss things and yet this is considered conventional wisdom. yeah the we are really listening people should not be listening to anymore because the one thing the theory predicted was you couldn't have an enormous long or a long running downturn. and he also says this is the part that i find most outrageous the level of good and the the right of china profit it doesn't matter if you do a graph and you've seen me do this before of the ratio of profit to income in america g.d.p. you get one enormous peak on the great depression than a decline through the great depression another ra's from loaves of did up to high levels of debt right now and then another full the own so the two depressions we've

had in the last century have both being coincident with the rising levels of the g.d.p. now that's irrelevant doesn't matter because on my. logical productive reasoning from the level of that doesn't matter this will become possibly cause a depression to the last two depressions have had that couples they just annoying the it's as if you've got a model of circular motion of the planets and we just had a collision with a huge movie or they claim con happened and it annoying that it matters they really . curricle and it's time we pushed them off the side if well and this maybe breaking into my next question but many of our viewers may know this because they pay attention to the blogosphere and read a lot of the blogs that are popular economic blogs but those they don't this is become a really big deal i've seen people all over the blogosphere writing about this conversation and it's back and forth between you and program in a few others that are peppered in there why do you think this is gotten so much.

well i think that's a pretty good start when you get somebody talking about your work in the new york times and in expressing incredulity and then making the mistake of engaging in a discussion afterwards because the crew can actually set it up by replying to me but what have been exposed far only the beginnings of the bite because you know imagine if you're outside economics that if there's competing views into how the economy operates within economics then surely there are regular divides the reality is no the new across sickles ignore all people like me who are critical so once you suddenly get one of the new cars it was that knowledge and that we even exists suddenly it causes an explosion discussions right across the blogs fear and normally they come back is it out of the senate models therefore we can ignore you but was your models didn't predict the financial crisis we can ignore your models i don't know that is a big shift though that's a big hit so i know you have that in the past that neoclassical economics is going to. change literally one funeral at

a time are you saying though that there's actually a starting to advance the conversation in a way that is material and we just have a minute here. i think it's the beginning of it people who are sitting outside and now they're realizing they calmly with economics that the economists and when they look inside it and see how unrealistic that mindstream and sort of the like myself and the the name entry crowd is wealth of those kinds interested position and even austrians they're saying maybe the people who will be marginalized might make more sense than the most rain does it's time we supported them so maybe we can break down the nearby school so that all the citadel from the outside with the help of the public well maybe it looks like this this blog brawl has started to show some cracks which is really refreshing to see and we really appreciate you being on the show to tell us about it professor king harvest hand in the trenches fighting the good fight we had your superhero doppelganger we did behind us before there spend it and i think the online thank you. and if you didn't get that dollar going i

wanted to make sure you saw this is the great cartoon someone came up with for our guest the steve king superhero version and again i was the economist and professor steve king. all right let's wind down with our out and up with loose change i have to me shannon to talk about this story ok j.p. morgan too big to fail j.p. morgan we talk about them a lot ok they've agreed to pay a twenty million dollars fine to settle regulatory allegations that the bank mishandled customer funds over twenty two months until a financial broker filed for bankruptcy court protection. they knew that money

was not money that they should be touching to pay back that you were to credit on your question from day one of the all of us have very strong suspicions and nothing has happened since then that our money is achieving more than. here's the thing that was to my heart he was a guest on our show talking about j.p. morgan's suspected role in the m.f. global fiasco by amicable customers like him and the ones that he is fighting for to get their money back ok people who have lost their money in the firm's bankruptcy the funny thing is it lines up pretty well with this new story about j.p. morgan however in reality these allegations that j.p. morgan is settling have to do with the lehman brothers bankruptcy ok this the f.t.c. that's the commodity futures trading commission allege that j.p. morgan at the request of lehman began using customer funds to calculate how much credit it would extend to lehman brothers in violation of customer segregation account rules back in november of two thousand and six which so alarming to me is

how much this headline looks like it could read as a development in the m.f. global case of i mean they were supposedly banking on money that they should have a bank on right and this is not the first time they've been caught with their fingers in the cookie jar j.p. morgan is the constant in this situation let's see if you see in two thousand and nine of them three hundred thousand dollars for a commingling customer phones in the u.k. is that the same thing that twenty times per for not problems are going to funds so j.p. morgan is really suspect here and we know that they put on m.f. global's credit lines and then of good will have to hand them customer money so i mean this is this is looking really bad for j.p. morgan i just don't know if they're going to get in trouble for i know i just think it's interesting too because our guests were saying in the m.f. global case j.p. morgan would have known that m.f. global was facing a liquidity issue because they've done a massive amounts of due diligence on them and so i just think that kind of we're seeing maybe what i don't want to speculate too much but it sounds like you know if

it looks like a duck and quacks like a duck i don't sometimes to me and they would think it should be investigated as a duck shannen do anything. i kind of feel like j.p. morgan and the situation because i took to beatrice gold out of the jar yes gaelic i think car was. so you can relate you can relate only you don't have to pay twenty million bucks what are you going to do you know the chairman actually called to a loan i one of the. two allison i don't know the one art is know some of these people but it was up at such as office over there ok but it didn't get reported hypothecated past there because they're for presses and they probably just kept let's move on warren which is a good thing in that case ok warren buffett may be the third richest man in the world but he started out some people may know as a paper boy and here he is ok the billionaire investor dressed as a news boy delivering papers to the crowd at the omaha press club show ok he then

went on to sing as you see there. just a paper boy on and on to the tune of some nine hundred thirty three song it's only a paper moon. ok so he's saying this he did this little ditty he owns the paper and that he's there probably holding oh how the world herald it is a continuation of what we've been talking about one but it's very clever our shox p.r. which is really could be further from what he actually pursuing are trying to do with the actual agenda yeah this is another snow job called a snow job on the public and that's what this is to better or it is couldn't hear because a cop or a cartel won't let us play the song because of those. people would look at these and say that all the people would buy the my dad was a congressman from nebraska for a time congressman he doesn't mention that ok business like he's a billionaire guy oh man this was a pretty good capitalist socialist not the super rich because you want to keep all this money so this is a big p.r. stunt by warren buffett whose p.r.

guy would make rockefeller's whatever the guy's guy the son of the street yeah yeah exactly only that's a modern day version how rockefeller always had this kind of p.r. that he was giving to the poor. yeah it was a parable but it is this whole p.r. stunt we've been talking about where he says tax me more tax the super rich but i really not suggesting that he's taxed more things that actually impact and as our guest on friday said air it's really to advance his crony capitalist ties and here he is our stocks i'm just warren buffett innocent little paper boy santa well it's not that he's just an innocent little paper boy anymore obviously he owns this newspaper yet he's singing that song to the very people who work at that news paper who are definitely not billionaire investor so it's a little patronizing and it's like i'm just. some of those people really are just paper boys and they don't make that kind of line so true and that is that we didn't see after this part we don't have that but he actually took one of those papers and

literally launched it i saw in the crowd because that's how much spice he has. people. so you know really is ok i like to go and you can hear the song to the. let's move on to the it's april which means that i guess bells will be ringing for many couples this is a popular time to tie the knot or start getting ready to tie the knot this summer which means that brides everywhere in the u.s. at least will be buying into the total racket that is planning your dream wedding and buying a dress. how much would you like to spend. i mean because i need to i need to point because we're looking into this is there like twenty four thousand to just this twenty four hours is that a problem ok rarely does the bride go for times over budget. but they do have a sense that they're being ripped off ok this whole issue has an intrepid bride journalist that we saw our producer at n.p.r.

caitlin kenney of planet money doing this whole story to figure out how badly she was ripped off in buying her dress which she paid twenty seven hundred bucks for when really in reality the materials and labor cost seven hundred dollars so i guess the big theme here is that weddings are a total racket and they have not been suffering ok the average amount of a bridal gown that was paid was a slight increase over two thousand and ten in two thousand and eleven twenty two bucks so an increase i mean is this is all the labor costs or how much of this is actually people in vietnam who are working the sweat shops to give her this wedding dress that she wants to walk out there all nice and pretty and this is a this is a this is a consistent problem with women in america same thing with time is they want their blood diamonds or over that or look at it they don't want to worry about that but they want their you have three months. apparently i was told about the morning meeting yeah we had to write a lengthy discussion in our morning meeting about it but i think this speaks more to is how successful this whole wedding dream wedding bracket in the u.s. is think is it something right women hold onto despite tough times we're going to

leave it there shannon unfortunately i love you we've got to end the show because that's all we have time for thanks so much for tuning in please come back tomorrow we will have john perkins he's best selling author of confessions of an economic hit man and he's also a self professed economic hitman and viewers on you tube and twitter like richard have asked me about this if they think that the dollar is manipulative what makes you think they won't manipulate or regulate bull answered that question richard outbuild we're going to try to get you any. sir because friday we're going to speak to mike maloney of gold silver dot com a renowned investor advisor off their industry expert about metal manipulation and don't forget to follow me on twitter at lauren lyster give us feedback at youtube dot com slash capital count and have a great night. we'll

see british soil. because.