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February 4, 2013

Latest Posts from Economist's View


Latest Posts from Economist's View


Posted: 25 Jan 2013 12:42 AM PST
Deficit hawks are losing their clout:
Deficit Hawks Down, by Paul Krugman, Commentary, NY Times: President Obama's second Inaugural Address offered a lot for progressives to like. ... But arguably the most encouraging thing of all was what he didn't say: He barely mentioned the budget deficit..., the latest sign that the self-styled deficit hawks — better described as deficit scolds — are losing their hold over political discourse. And that's a very good thing.
Why have the deficit scolds lost their grip? I'd suggest four interrelated reasons.
First, they ... spent three years warning of imminent crisis — if we don't slash the deficit now now now, we'll turn into Greece... But that crisis keeps not happening ... So the credibility of the scolds has taken a ... well-deserved, hit.
Second, both deficits and public spending as a share of G.D.P. have started to decline..., and reasonable forecasts ... suggest that the federal deficit will be below 3 percent of G.D.P., a not very scary number, by 2015.
And it was, in fact, a good thing that the deficit was allowed to rise as the economy slumped. With private spending plunging..., the willingness of the government to keep spending was one of the main reasons we didn't experience a full replay of the Great Depression. Which brings me to the third reason the deficit scolds have lost influence: the ... claim that we need to practice fiscal austerity even in a depressed economy, has failed decisively in practice. Consider ... the case of Britain. In 2010, when the new government of Prime Minister David Cameron turned to austerity policies,... the sudden, severe medicine ... threw the nation back into recession.
At this point, then, it's clear that the deficit-scold movement was based on bad economic analysis. But ... there was also ... a lot of bad faith involved, as the scolds tried to exploit an economic (not fiscal) crisis on behalf of a political agenda that had nothing to do with deficits. And the growing transparency of that agenda is the fourth reason the deficit scolds have lost their clout. ... Prominent deficit scolds can no longer count on being treated as if their wisdom, probity and public-spiritedness were beyond question. But what difference will that make?
Sad to say, G.O.P. control of the House means that we won't do what we should be doing: spend more, not less, until the recovery is complete. But the fading of deficit hysteria means that the president can turn his focus to real problems. And that's a move in the right direction.
Posted: 25 Jan 2013 12:33 AM PST
Brad DeLong:
... How long will it be before the likes of Veronique de Rugy stop denouncing Social Security, Medicare, Unemployment Insurance, etc. as programs that have turned us into "a nation of takers", and stop denouncing these programs beneficiaries as "moochers"?
It is in some ways very odd. It used to be that critics of the welfare state pointed to high net marginal tax rates and argued that they had high deadweight losses. Sometimes they had a point. Then, after bipartisan reforms, we got to a point where there were few high net marginal tax rates large enough to induce large deadweight losses.
And then, in the blink of an eye, the problem became not public-finance deadweight losses but, rather, the moocher class, the nation of takers, etc. ...
Paul Krugman on Paul Ryan's (ahem) defense of Social Security and Medicare:
...everyone has noted Ryan's raw dishonesty here, let's not let the cowardice pass unmentioned. If you're a Randian conservative, as Ryan claims to be, then you should consider Social Security and Medicare every bit as much a part of the moocher conspiracy as Medicaid and food stamps. And don't say that you pay for what you get: Social Security benefits aren't proportional to payment, so that the system is somewhat redistributionist, and Medicare benefits don't depend at all on how much you pay in, so that the system is strongly redistributionist. (You might even say that Medicare takes from each according to his ability, and gives to each according to his needs).
All of this is fine with me, but it should be anathema to Ryan. But he knows that Social Security and Medicare are popular, so he pretends that his radical philosophy has nothing bad to say about these programs, and that we can massively downsize government on the backs of the undeserving poor.
But remember, he's a Brave, Honest Conservative. Everyone says so.
Speaking of social insurance, here's James Kwak:
...Unsurprisingly, most Americans are split between various misconceptions of what Social Security and Medicare are. Many, particularly right-wing politicians and their media mouthpieces, see them as pure tax-and-transfer programs: they gather money from one set of people and give it to another set of people. This feeds easily into the makers-vs.-takers line, with payroll taxes on workers going to fund benefits for non-workers. From this point of view, they are bad bad bad bad bad and should be cut.
Many others, particularly beneficiaries and people who hope to see beneficiaries, see them as earned benefits. The common conception is that you pay in while you're working, so you earned the benefits you get in retirement..., you're just getting back "your" money that you set aside during your career.
Both of these perspectives are wrong, the latter more obviously so. Most people, during their working careers, do not pay nearly enough in payroll taxes to pay for their expected benefits. This is most obvious for Medicare...
The problem with the tax-and-transfer argument is only slightly more subtle. Sure, at any given moment some people pay taxes and others collect benefits (and many do both, since Medicare is funded by general revenues). But most of us will both pay and receive at different points in our lives. So both programs are really more like income-shifting arrangements...
In the inaugural address, I think the president got it basically right. They are risk-spreading programs. You don't get back exactly what you put in: they have a certain degree of progressivity (although less for Social Security than is commonly imagined). Their main function is to protect people against extreme outcomes by pooling a limited share of our resources.
Yes, rich people end up paying payroll taxes for insurance they end up not needing. But that's how insurance always works: you pay the premiums hoping you won't need it. And the key fact is that most young people, whey they start paying payroll taxes, don't know what their own personal outcomes will be. ... Like any insurance scheme, you can make everyone better off simply by moving money around between different states of the world.
These particular insurance schemes, as the president said, have a moral element to them. They are a way of expressing out solidarity with each other as Americans, people united, however loosely, in a common endeavor. They also have an economic element to them. People protected against bad outcomes are more willing to take the risks needed for a vibrant and prosperous society. They are something to celebrate, not something to be embarrassed about whenever the Republicans come after them.
I've written quite a bit about the insurance aspect as well, e.g. see The Need for Social Insurance:
Economic systems differ in their ability to provide goods and services and in the level of economic risk faced by a typical household. Socialism is a low mean, low variance economic system. With a planned economy, cycles in unemployment do not occur unless mandated by planners. Worker income, though low, is not subject to substantial variation over time. Other economic risks, such as access to housing and risks related to healthcare are also very low since these services are provided by the state. Economic risks for workers are low in such a system, but so is average income.
Under capitalism the average level of income is much higher, but economic risk is higher as well. In a capitalist system, workers can be involuntarily displaced as new products are invented, new production techniques are implemented, production moves outside the country, or inevitable business cycle variation occurs. These are shocks that affect workers independent of their own behavior. A worker who has shown up to work every day and worked hard to support a family can be suddenly unemployed for reasons unrelated to anything connected to his or her own behavior.
As the U.S. entered the 20th century, important social changes arising from industrialization were becoming increasingly evident, and these changes exposed the high degree of economic risk under a capitalist system. Migration to cities and the resulting breakup of the extended family, reliance on wage income as a primary means of support, and increasing life expectancy resulted in increased economic risk for the typical worker relative to the more agrarian economy that existed prior to industrialization.
In an agrarian economy, economic security is provided by extended family relationships coupled with the largely self-sufficient nature of farms. On a farm, a recession is a bad harvest, but it generally does not mean a total lack of income. Times can be tough, food can be very scarce and there can be hunger, but generating a subsistence level of income from the farm is usually possible even in the worst of years. For a worker dependent solely upon wage income, the consequences of a recession are much more severe. A recession means a total lack of income, not just hard times. Without the help of others or the existence of some type of social insurance program, abject poverty is a real possibility (see Life After the Great Depression for descriptions of the misery that followed the Great Depression).
Retirement also takes on a different character. On the farm, retirement meant gradually, if often reluctantly, letting the children take over responsibility for the farm, but it did not mean a total loss of income. Children provided for parents. But an aging worker in a city, perhaps disconnected geographically from their children, faces a different circumstance upon retirement. Such a worker may face a complete loss of income, and disability from age is not always an event that occurs according to plan. Even a worker who has diligently saved for retirement can suddenly become impoverished due to events such unexpected health costs, or even a much longer life than expected.
As industrialization progressed, 1920 marks a benchmark year where, for the first time, more than half of the population lived in cities. When the Great Depression hit around a decade later, the social changes the U.S. was experiencing and the need for new ideas regarding the government's responsibility for the economic security of its citizens became clear. The Great Depression made it evident that in a capitalist system, where the whimsies of the marketplace can wreak havoc on people's lives, the government has an obligation to provide economic security. It was also evident that the private sector did not provide the needed level of insurance and that government intervention was required to overcome this problem (due to both moral hazard and asymmetric information problems in the private insurance market).
It is important that the economy be allowed to change with new technology and changing preferences, but the consequences for innocent workers affected by such changes is a social responsibility that needs to be addressed. In addition, as extended family relationships are hindered by geography and the social contract between parents and children breaks down, the elderly need a way to avoid poverty. Programs such as Unemployment Compensation, Medicare, and Social Security arose as a means to mitigate these economic risks under capitalism using the least amount of society's valuable resources.
Drawing a rough analogy, socialism is like investing in T-Bills. Low risk, but low return. Capitalism is like the stock market. There is a higher average return accompanied by higher risk. Financial theory tells how to insure against such risks and there is no reason why this cannot be applied in the social insurance arena to smooth variations in income.
There is a need for social insurance under capitalism.
Posted: 25 Jan 2013 12:24 AM PST
Simon Wren-Lewis argues that the "crisis view" of change in macroeconomic theory is too simple
Misinterpreting the history of macroeconomic thought, mainly macro: An attractive way to give a broad sweep over the history of macroeconomic ideas is to talk about a series of reactions to crises (see Matthew Klein and Noah Smith). However it is too simple, and misleads as a result. The Great Depression led to Keynesian economics. So far so good. The inflation of the 1970s led to ? Monetarism - well maybe in terms of a few brief policy experiments in the early 1980s, but Monetarist-Keynesian debates were going strong before the 1970s. The New Classical revolution? Well rational expectations can be helpful in adapting the Phillips curve to explain what happened in the 1970s, but I'm not sure that was the main reason why the idea was so rapidly adopted. The New Classical revolution was much more than rational expectations.

The attempt gets really off beam if we try and suggest that the rise of RBC models was a response to the inflation of the 1970s. I guess you could argue that the policy failures of the 1970s were an example of the Lucas critique, and that to avoid similar mistakes macroeconomists needed to develop microfounded models. But if explaining the last crisis really was the prime motivation, would you develop models in which there was no Phillips curve, and which made no attempt to explain the inflation of the 1970s (or indeed, the previous crisis - the Great Depression)?

What the 'macroeconomic ideas develop as a response to crises' story leaves out is the rest of economics, and ideology. The Keynesian revolution (by which I mean macroeconomics after the second world war) can be seen as a methodological revolution. Models were informed by theory, but their equations were built to explain the data. Time series econometrics played an essential role. However this appeared to be different from how other areas of the discipline worked. In these other areas of economics, explaining behavior in terms of optimization by individual agents was all important. This created a tension, and a major divide within economics as a whole. Macro appeared quite different from micro.

A particular manifestation of this was the constant question: where is the source of the market failure that gives rise to the business cycle. Most macroeconomists replied sticky prices, but this prompted the follow up question: why do rational firms or workers choose not to change their prices? The way most macroeconomists at the time chose to answer this was that expectations were slow to adjust. It was a disastrous choice, but I suspect one that had very little to do with the nature of Keynesian theory, and rather more to do with the analytical convenience of adaptive expectations. Anyhow, that is another story.

The New Classical revolution was in part a response to that tension. In methodological terms it was a counter revolution, trying to take macroeconomics away from the econometricians, and bring it back to something microeconomists could understand. Of course it could point to policy in the 1970s as justification, but I doubt that was the driving force. I also think it is difficult to fully understand the New Classical revolution, and the development of RBC models, without adding in some ideology.

Does this have anything to tell us about how macroeconomics will respond to the Great Recession? I think it does. If you bought the 'responding to the last crisis' narrative, you would expect to see some sea change, akin to Keynesian economics or the New Classical revolution. I suspect you would be disappointed. While I see plenty of financial frictions being added to DSGE models, I do not see any significant body of macroeconomists wanting to ply their trade in a radically different way. If this crisis is going to generate a new revolution in macroeconomics, where are the revolutionaries? However, if you read the history of macro thought the way I do, then macro crises are neither necessary nor sufficient for revolutions in macro thought. Perhaps there was only one real revolution, and we have been adjusting to the tensions that created ever since.  
Let me follow up on the ideological point with an example. Prior to the New Classical revolution in the 1970s (which, contra some recent descriptions, is different from DSGE models), the people who do not believe that government intervention is bad had a problem. It was very clear in the data that there was a positive correlation between changes in the money supply and changes in employment and real income. Further, though this is harder to establish, the relationship appeared causal. Money causes income, and this allowed government to stabilize the economy.
The (neo)classical model, with its vertical AS curve, could not explain the positive money-income correlation in the data. In the typical classical formulation, so long as prices are perfectly flexible and all markets clear at all points in time, the economy is always in long-run equilibrium. Thus, in these models the prediction is a zero correlation between money and income. But it wasn't zero.
However, a very clever idea from Robert Lucas in the 1970s allowed this correlation to be explained without admitting government can do good, i.e. without admitting that government can stabilize the economy using monetary policy. This is the ideological part -- a way to explain the data without acknowledging a role for government at the same time. I can't say that Lucas approached the problem in this way, i.e. that he started out with the ideological goal of explaining the money-income correlation without allowing a role for government. Maybe it arose in a flash of brilliance completely unconnected to ideological concerns, But I find it hard to explain why this model came about in the form it did without ideology, and the view of government the New Classical model supported surely didn't hurt its acceptance at places like the University of Chicago (as it existed then).
Posted: 25 Jan 2013 12:15 AM PST
Roger Farmer (I have a short comment at the end):
Why financial markets are inefficient, by Roger E. A. Farmer , Vox EU: Writing in a review of Justin Fox's book The Myth of the Efficient Market, Richard Thaler (2009) has drawn attention to two dimensions of the efficient markets hypothesis, what he refers to as:
  • 'No free lunch', what economists refer to as 'informational efficiency';
  • 'The price is right', what economists refer to as 'Pareto efficiency'.
My recent research with various co-authors argues that while there are strong reasons for believing there are no free lunches left uneaten by bonus-hungry market participants, there are really no reasons for believing that this will lead to Pareto efficiency, except, perhaps, by chance (Farmer, Nourry, Venditti 2012).
In separate work, I look at the policy implications of this, showing that the Pareto inefficiency of financial markets provides strong grounds to support central bank intervention to dampen excessive fluctuations in the financial markets (Farmer 2012b). These are strong and polarising claims. They are not made lightly.
Not irrationality, frictions, sticky prices nor credit constraints
Some economists will be sympathetic to my arguments because they believe that financial markets experience substantial frictions. For example, it is frequently argued that agents are irrational, households are borrowing constrained or prices are sticky. Although there may be some truth to all of these claims, my argument for direct central bank intervention in the financial markets does not rest on any of these alleged market imperfections.
Other readers of this piece will wish to challenge my view based on the assertion that competitive financial markets must necessarily lead to outcomes that cannot be improved upon by government intervention of any kind. That assertion has been formalised in the first welfare theorem of economics that is taught to every first-year economics graduate student.
The first welfare theorem provides conditions under which free trade in competitive markets leads to a Pareto efficient outcome, a situation where there is no way of reallocating resources that makes one person better off without making someone else worse off. In my work with Nourry and Venditti (Farmer, Nourry, Venditti 2012), we show why the conditions that are necessary for the theorem to hold do not characterise the real world.
We make some strong but standard assumptions:
  • Households are rational and plan for the infinite future;
  • They have rational expectations of all future prices;
  • There are complete financial markets in the sense that all living agents are free to make trades contingent on any future observable event;
  • No agent is big enough to influence prices.
Crucially, in our model, there are at least two types of people who discount the future at different rates; patient and impatient agents. We show that, even when both types share common beliefs, the belief itself can independently influence what occurs. This follows an important idea originating at the University of Pennsylvania in the 1980s, what David Cass and Karl Shell (1983) call 'sunspots', or what Costas Azariadis (1981) refers to as a 'self-fulfilling prophecy'1.
First welfare theorem, and death
What could possibly go wrong when agents are rational, hold rational expectations, there are no frictions, and markets are complete? Well, the first welfare theorem does not account for the fact that people die and new people are born. In our world:
  • Patient and impatient agents each recognise that the financial markets are fickle and that the value of the stock market could rise or fall;
  • If the markets boom then the patient savers, feeling wealthier, will lend more to the impatient borrowers;
  • If the markets crash, then the savers will recall their loans, made in better times.
But in our model environment, booms and crashes occur simply as a consequence of the animal spirits of market participants. Why should we care if there are big movements in the asset markets? After all, the borrowers and lenders are rational and they have made bets with each other in full knowledge that these large asset movements might occur.
  • The problem is that the next generation is unable to insure against swings in wealth that have a big influence on their lives.
Steve Davis and Till von Wachter (2011) have shown that the present value of lifetime income of new entrants to the labour market can differ substantially depending on whether their first job occurs in a boom or a recession. In our model, the lifetime income of the young can differ by as much as 20% across booms and slumps.
Given the choice, the young agents in our model would prefer to avoid the risk of a 20% variation in lifetime wealth. There is a feasible way of allocating resources that would insure them against this risk, but financial markets cannot achieve this allocation, except by chance. The inability of our children to trade in prenatal financial markets is sufficient to invalidate the first welfare theorem of economics.
In short, sunspots matter. And they matter in a big way.
Conclusions
We show that financial markets cannot work well in the real world except by chance because:
  • There are many equilibria;
  • Only one of them is Pareto efficient;
  • For all other equilibria, the whims of market participants cause the welfare of the young to vary substantially in a way that they would prefer to avoid, if given the choice.
Our paper makes some classical assumptions, but has Keynesian policy implications. Agents are rational, they have rational expectations and there are no financial frictions. Even when agents are rational, markets are not.
References
Azariadis, Costas (1981), "Self-fulfilling Prophecies", Journal of Economic Theory, 25, 380-396.
Cass, David and Karl Shell, "Do Sunspots Matter?" (1983), Journal of Political Economy, 91(2), 193-227.
Davis, Steven and Till Von Wachter (2011), "Recessions and the Costs of Job-Losses", Brookings Papers on Economic Activity.
Farmer, Roger E A (2012a), "The Evolution of Endogenous Business Cycles", NBER Working Paper 18284 and CEPR Discussion Paper 9080.
Farmer, Roger E A (2012b), "Qualitative Easing: How it Works and Why it Matters", NBER working paper 18421 and CEPR discussion paper 9153.
Farmer, Roger E A, Carine Nourry and Alain Venditti (2012), "The Inefficient Markets Hypothesis: Why Financial Markets Do Not Work Well in the Real World", NBER working paper 18647.
Fox, Justin (2009), The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street, New York, Harper.
Thaler, Richard (2009), "Markets can be wrong and the price is not always right", Financial Times, 4 August.
Footnotes
1 See my survey (Farmer 2012a), which documents the evolution of the Pennsylvania School of Endogenous Business
Writing in a review of Justin Fox's book The Myth of the Efficient Market, Richard Thaler (2009) has drawn attention to two dimensions of the efficient markets hypothesis, what he refers to as:
  • 'No free lunch', what economists refer to as 'informational efficiency';
  • 'The price is right', what economists refer to as 'Pareto efficiency'.
My recent research with Carine Nourry and Alain Venditti argues that while there are strong reasons for believing there are no free lunches left uneaten by bonus-hungry market participants, there are really no reasons for believing that this will lead to Pareto efficiency, except, perhaps, by chance (Farmer, Nourry, Venditti 2012).
In separate work, I look at the policy implications of this, showing that the Pareto inefficiency of financial markets provides strong grounds to support central bank intervention to dampen excessive fluctuations in the financial markets (Farmer 2012b). These are strong and polarising claims. They are not made lightly.
Not irrationality, frictions, sticky prices nor credit constraints
Some economists will be sympathetic to my arguments because they believe that financial markets experience substantial frictions. For example, it is frequently argued that agents are irrational, households are borrowing constrained or prices are sticky. Although there may be some truth to all of these claims, my argument for direct central bank intervention in the financial markets does not rest on any of these alleged market imperfections.
Other readers of this piece will wish to challenge my view based on the assertion that competitive financial markets must necessarily lead to outcomes that cannot be improved upon by government intervention of any kind. That assertion has been formalised in the first welfare theorem of economics that is taught to every first-year economics graduate student.
The first welfare theorem provides conditions under which free trade in competitive markets leads to a Pareto efficient outcome, a situation where there is no way of reallocating resources that makes one person better off without making someone else worse off. In my work with Nourry and Venditti (Farmer, Nourry, Venditti 2012), we show why the conditions that are necessary for the theorem to hold do not characterise the real world.
We make some strong but standard assumptions:
  • Households are rational and plan for the infinite future;
  • They have rational expectations of all future prices;
  • There are complete financial markets in the sense that all living agents are free to make trades contingent on any future observable event;
  • No agent is big enough to influence prices.
Crucially, in our model, there are at least two types of people who discount the future at different rates; patient and impatient agents. We show that, even when both types share common beliefs, the belief itself can independently influence what occurs. This follows an important idea originating at the University of Pennsylvania in the 1980s, what David Cass and Karl Shell (1983) call 'sunspots', or what Costas Azariadis (1981) refers to as a 'self-fulfilling prophecy'1.
The first welfare theorem, birth and death
What could possibly go wrong when agents are rational, hold rational expectations, there are no frictions, and markets are complete? Well, the first welfare theorem does not account for the fact that people die and new people are born. In our world:
  • Patient and impatient agents each recognise that the financial markets are fickle and that the value of the stock market could rise or fall;
  • If the markets boom then the patient savers, feeling wealthier, will lend more to the impatient borrowers;
  • If the markets crash, then the savers will recall their loans, made in better times.
But in our model environment, booms and crashes occur simply as a consequence of the animal spirits of market participants. Why should we care if there are big movements in the asset markets? After all, the borrowers and lenders are rational and they have made bets with each other in full knowledge that these large asset movements might occur.
  • The problem is that the next generation is unable to insure against swings in wealth that have a big influence on their lives.
Steve Davis and Till von Wachter (2011) have shown that the present value of lifetime income of new entrants to the labour market can differ substantially depending on whether their first job occurs in a boom or a recession. In our model, the lifetime income of the young can differ by as much as 20% across booms and slumps.
Given the choice, the young agents in our model would prefer to avoid the risk of a 20% variation in lifetime wealth. There is a feasible way of allocating resources that would insure them against this risk, but financial markets cannot achieve this allocation, except by chance. The inability of our children to trade in prenatal financial markets is sufficient to invalidate the first welfare theorem of economics.
In short, sunspots matter. And they matter in a big way.
Conclusions
We show that financial markets cannot work well in the real world except by chance because:
  • There are many equilibria;
  • Only one of them is Pareto efficient;
  • For all other equilibria, the whims of market participants cause the welfare of the young to vary substantially in a way that they would prefer to avoid, if given the choice.
Our paper makes some classical assumptions, but has Keynesian policy implications. Agents are rational, they have rational expectations and there are no financial frictions. Even when agents are rational, markets are not.
References
Azariadis, Costas (1981), "Self-fulfilling Prophecies", Journal of Economic Theory, 25, 380-396.
Cass, David and Karl Shell, "Do Sunspots Matter?" (1983), Journal of Political Economy, 91(2), 193-227.
Davis, Steven and Till Von Wachter (2011), "Recessions and the Costs of Job-Losses", Brookings Papers on Economic Activity.
Farmer, Roger E A (2012a), "The Evolution of Endogenous Business Cycles", NBER Working Paper 18284 and CEPR Discussion Paper 9080.
Farmer, Roger E A (2012b), "Qualitative Easing: How it Works and Why it Matters", NBER working paper 18421 and CEPR discussion paper 9153.
Farmer, Roger E A, Carine Nourry and Alain Venditti (2012), "The Inefficient Markets Hypothesis: Why Financial Markets Do Not Work Well in the Real World", CEPR Discussion Paper No. 9283.
Fox, Justin (2009), The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street, New York, Harper.
Thaler, Richard (2009), "Markets can be wrong and the price is not always right", Financial Times, 4 August.
References
1 See my survey (Farmer 2012a), which documents the evolution of the Pennsylvania School of Endogenous Business Cycles.
______________________________
My question is whether these results hold if there were Barro ("Are Bonds Net Wealth") preferences, i.e. if the utility of the parent depends upon the utility of the child?:
U = Up(x1, x2, x3, ..., xn, Uc)
I asked Roger Farmer this question, and he replied this was a good research topic:
My guess is that Barro preferences are not enough. Why? Because the trades required to eliminate sunspot equilibria would require that some agents are born with negative net worth in some states of the world.  Since the courts would not enforce those trades, the equilibrium would unravel.  
Posted: 25 Jan 2013 12:06 AM PST

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