Social and Behavioral Sciences Commons^™

Bank Solvency And Economic Activity, Lester G. Telser

Lester G Telser

This note explains why bank solvency is extremely important in a modern economy. Although banks provide many services including loans to business and households, these are secondary. Provision of the means of payment is primary. Every transaction in a modern economy involves a means of payment offered by the buyer and acceptable to the seller.

Ii Keynes On Safe Assets, Lester G. Telser

Lester G Telser

Only the monetary authorities can create and issue safe assets. A safe asset is not offset by any liability so no private entity can issue it. The nominal value of a safe asset is fixed and it usually offers no nominal yield. The rationale for safe assets can be traced to the factors underlying the Keynesian liquidity trap. Since late 2008 the Fed has paid 0.25 percent on member bank reserves held in deposits at the Fed. This is part of the program known as ‘quantitative easing.’ It may have presented collapse of the U.S. banking system.

How Default Probability Affects Returns On Loans, Lester G. Telser

Lester G Telser

Even the simplest kind of default as an independent random event poses difficulties. The correct formulas for the nominal return on a default free loan and the revisions to apply for a loan that may default follow from 2 assumptions. 1. A good now is better than a good later because survival from now to later is not sure. 2. Private loans occur only if the probability of default does not exceed an upper bound set by the reciprocal of the nominal return on a default free loan. This upper bound makes sense if and only if the nominal interest …

How Low Interest Rates Impede Recovery, Lester G. Telser

Lester G Telser

A super market and a bank in the money market treat their customers differently. A supermarket stands ready to sell to any customer any amount available of a commodity at a given price without regard to the customer’s credit standing. The credit standing of a potential borrower is paramount to a bank. Whether a bank offers a loan, its size if it does, and the interest rate it asks all depends on its assessment of the credit risk. Keeping interest rates low impedes lending and economic recovery.

The Actual Economy Versus A Fictional Economy, Lester G. Telser

Lester G Telser

This note describes some practical problems of the actual economy ignored by the standard theory

An Economist's Analysis Of The Voting Paradox, Lester G. Telser

Lester G Telser

It has been said that democracy is the worst form of government except all the others that have been tried. The best argument against democracy is a five-minute conversation with the average voter. Winston Churchill

Lessons From The U.S. Great Depression And The German Hyperinflation, Lester G. Telser

Lester G Telser

Abstract. The German hyperinflation and the U.S. Great Depression have in common the effects of an insufficient amount of useful media of exchange. In Germany too much currency was printed and in the U.S. widespread bank failures undermined confidence in all demand deposits so all bank checks were regarded suspiciously. The effects were the same in both countries, very high rates of unemployment coupled with collapse of their economies. The German Hyperinflation gives evidence against the Phillips Curve. JEL E65 Study of Particular Policy Episodes

Non Profit Suppliers Of Higher Education: Corollaries, Lester G. Telser

Lester G Telser

The American Association for the Advancement of Science bills Harvard University $26,675 for a one year subscription to their weekly publication Science. That anon profit suppliers of higher education is willing to pay such amounts far above the true incremental cost of supplying it with such publications is a corollary of the economic explanation of their behavior. Nonprofit Organizations JEL L30

Digital Storage In The Computer Age And The Irish Potato Famine, Lester G. Telser

Lester G Telser

The Wealthiest One Percent, Lester G. Telser

Lester G Telser

The distribution of the returns to stock portfolios of various sizes and the distribution of the gains from stock holdings among households implies that households own relatively few stocks. The evidence shows that the more diversified is the stock portfolio, the less variable the return. Hence to observe a high concentration of the gains among households suggests that they do not pursue the safer course of holding diversified stock portfolios. It seems plausible therefore that luck plays a bigger role than skill in determining the return from stock holdings. This essay supports this conclusion with a variety of evidence.

On The Means Of Payment, Lester G. Telser

Lester G Telser

Economic Paradise: gold and free banking is the first topic. Paradise Lost: the Garden of Eden has a Serpent is the second topic. The third topic is Fiat Money and the Monetary Authority. It describes some banking reforms proposed by Henry Simons writing during the 1930’s when the U.S. economy was in the Great Depression. The main lesson relevant today is the danger inherent in linking the means of payment to credit. Restoring required reserves on all forms of deposit in banks as well as in firms that offer checkable accounts follows from Simons’ proposals. The fourth topic describes sources …

The Truth About Federal Deficits, Lester G. Telser

Lester G Telser

The arithmetic for the Federal capital account is not related to those for the other Federal accounts. It has nothing to do with correct measures of the true Federal deficit. JEL H62 Deficit and Surplus

Intransitivity Shown By An Assignment Problem, Lester G. Telser

Lester G Telser

Ricardian Rent Explains Costs Of Elite Colleges, Lester G. Telser

Lester G Telser

The Wealth Of Nations Updated, Lester G. Telser

Lester G Telser

Proposition 1. If all workers are assigned to food production and none to knowledge production, then food output per capita will decrease over time. Proposition 2. A growing work force and constant ratio of workers in food and knowledge production can maintain constant per capita food output over time if there are increasing returns in the knowledge production sector. Corollary. A growing work force and constant ratio of workers in food and knowledge production can maintain constant per capita food provided knowledge per unit of food output rises over time.

Modern Economics In The Modern World, Lester G. Telser

Lester G Telser

A commodity is a creature of society, its traditions, its experience and, when necessary, its laws. Society defines and controls the legitimate use of commodities almost without exceptions. The three main categories of commodities are private, semi private and non private. An eating apple is a private commodity, an airline seat is a semi private commodity and a computer software program is a non private commodity. This essay describes how modern economics treats these categories.

What Linear Models Of An Economy Can Teach Us, Lester G. Telser

Lester G Telser

What Linear Models of an Economy Can Teach Us The best way to appreciate the importance of convexity in models of the economy is by a careful examination of a linear model. Because a linear model relies on von Neumann's Saddle Value Theorem, this Theorem is the starting point of the model for two reasons. First, it explains its original application to 2-person zero sum games and its use of mixed strategies. Second, it shows why mixed strategies mislead economic analysis of non convexity in production. The linear model of the economy is a valid application of the Saddle Value …

Ii. Safety First, Lester G. Telser

Lester G Telser

Abstract Selecting that portfolio which maximizes the expected return such that the probability of disaster is below a prescribed level furnishes a reasonable criterion for choice among risky alternatives although it expresses preferences only among alternatives that satisfy the constraint. Criteria for Decision Making under Risk and Uncertainty JEL D81

Plain Talk On Preferences, Lester G. Telser

Lester G Telser

Assume the preferences of each individual are transitive but preferences for the same alternatives differ among some individuals. Condorcet (1785) showed that choices made by majority voting are not always transitive. Therefore,the choice among alternatives made by a group will not coincide with the preferences of any individual in the group. This is also Arrow's conclusion. Drop the assumption that all individuals have transitive preferences and the paradox loses much of its force. How groups resolve the perennial conflict between liberty and consensus remains unsolved by majority voting.

How Keynes' General Theory Enters Economics, Lester G. Telser

Lester G Telser

Keynes' General Theory contributes to economics by showing how uncertainty affects the economy. Greater uncertainty shortens the duration of commitments, increases the desire for safety, reduces employment especially in durable goods industries, defers replacement of worn-out capital goods and so on. Political remedies ignorant of the causes of greater uncertainty can only increase their adverse effects.

An Economy Is Not A Zero Sum Game: How Economics Uses Game Theory, Lester G. Telser

Lester G Telser

Two Certainties: Death, Taxes And An Honorable Mention, Financial Crises, Lester G. Telser

Lester G Telser

If the probability of a financial crisis were a fixed number, no matter how small, then the law of large numbers says a financial crisis will occur eventually. In my model the probability of a crisis approaches but never reaches zero. It yields the surprising result that the probability of a financial crisis does not exceed 0.63212=1-1/e. Financial Institutions and Services. JEL G2

Competition In The Core, Lester G. Telser

Lester G Telser

Models of competition using the theory of the core JEL C714

Iii Ventures With A Finite Sequence Of Payments Of Uncertain Duration, Lester G. Telser

Lester G Telser

Part III describes a model of the valuation of ownership shares in joint ventures with limited liability such as corporations.

Ii Distribution Of Share Valuations, Lester G. Telser

Lester G Telser

A model of the market in shares of common stock enhances understanding of the empirical results in Part I

Iii. Computing The Saddle Value For Von Neumann's Model Of An Expanding Economy With Constant Returns, Lester G. Telser

Lester G Telser

Iterations of suitable linear programming problems can rapidly find the saddle value of the input output matrix although the problem is hard owing to its nonlinearity. The growth rate and real interest rate are equal in equilibrium in v. Neumann's model.

I Why The New York Stock Exchange Crashed In 1929 And 1987 And Why It Could Crash Again, Lester G. Telser

Lester G Telser

Between January 2, 1929 and December 31, 1988 the Dow-Jones Index of 30 Industrial moved up or down more than 2 percent on 958 trading sessions out of the 16,084 total. Twice in October, 1929 and in October 1987 the drop was more than 23 percent. An unmistakable striking similarity in the trading pattern before both Crashes explain why they occurred.

Tools Of The Fed:Playing With Fire?, Lester G. Telser

Lester G Telser

How the Fed controls the Federal Funds Rate

What Makes Government Grow, Lester G. Telser

Lester G Telser

For more than 80 years government outlays at all levels in the U.S. are an increasing fraction of measured GDP. No problem than this is more deserving of close scrutiny by economists. Treading on its heels what should and should not government do. Even so opposing forces were in play. Some activities went from governmental to private hands and some went the other way. We have work to do.

Can Monetary Policy Stabilize The Economy, Lester G. Telser

Lester G Telser

. No individual bank can expand without cost when most banks are contracting. Likewise no bank can contract without cost when most banks are expanding. The cause lies in the nature of clearing debts and credits among banks. The result places a heavy burden on the Fed that wants to stabilize the economy by inducing banks to reverse course. To understand the reason for this requires analysis of clearing houses in organized futures markets and in banking.