Expansionary fiscal austerity all the rage at Davos

DAVOS, Switzerland -- As much of the globe grapples with lean economic prospects, and as Europe in particular sinks toward a recession that could spread to multiple shores, world leaders gathered here this week appear to be operating with a rough consensus over how to proceed: Attack budget deficits by cutting spending in a bid to sow confidence in bond markets.

The logic of austerity as curative assumes that the basic problem limiting economic growth is investor fears about the size of government budget deficits, and visions that the bond market may suddenly demand sharply higher rates of interest to enable lending. Governments could be forced to impose growth-killing tax increases to square their books. With such worries in mind, those in control of money are supposedly hewing to the sidelines, depriving economies of credit and investment.

Among finance ministers participating here at the annual World Economic Forum, the word “uncertainty” has been getting a vigorous workout. When times are troubled, goes the thinking, lack of clarity provokes investors to imagine the worst, and to act accordingly. They hold tight to their money, producing self-fulfilling prophesies of pullback.

“If you want to have more internal demand, you have to have confidence,” the German finance minister Wolfgang Schaeuble declared here Friday morning, during a discussion about the future of the eurozone. “If you make your deficit sustainable, people will gain confidence.”

But among some economists, deficit reduction as a growth strategy amounts to a wrong-headed leap of faith.

“Austerity won’t even prevent the next crisis, let alone solve the current one,” the Nobel laureate economist Joseph Stiglitz told The Huffington Post.

Cutting government spending in times of economic weakness further reduces demand for goods and services, he said, which reduces incentives for businesses to invest and hire -- a self-reinforcing dynamic of diminishing fortunes.

This is followed by George Soros's warning about debt-deflation as the risk of austerity, along with his accusing Germany of economic imperialism. Ouch.

Dr. Doom (Nouriel Roubini), too, predicting, well, doom.

Oh, and Geithner is on board with austerity “for parts of Europe, for a long period of time...."

Read it at The Huffington Post
World Economic Forum: At Davos, Austerity Reigns

by Peter S. Goodman

This is way beyond clueless and even exceeds moronic. It is malfeasance. "Ignorance is no excuse before the law." 

Belief in the confidence fairy is magical thinking. These people really do act like wizards waving their magic wands around.

Eric Schmidt's (blithe) answer to the jobs crisis

Yes, he acknowledged, many nations on Earth -- not least the United States -- are mired in a crisis of joblessness.

Technological advances such as automation on the factory floor have rendered millions of jobs obsolete, but they have also created millions of fresh ventures, while freeing workers toiling in antiquated industries to forge careers in higher-value pursuits. This is textbook creative destruction, the force celebrated by Joseph Schumpeter, the Austrian economist who is the intellectual touchstone for Silicon Valley....

...No one ought to blame Google, or any tech company, for job destruction in a moral sense. Automation is as old as capitalism, the natural outgrowth of the human impulse to extract greater harvest with less effort while saving the cost of paying other people to do what one cannot or do not care to do oneself.Labor sidelined by technology is a story not confined to the wealthy world. For Americans, a discussion of lost textile jobs conjures thoughts of laid-off mill workers in the Carolinas, with production shipped to factories in China. But China has lost more jobs in the sector than any nation on Earth -- the direct result of automation.

All of that said, Schmidt too blithely dismissed a problem with no easy answers, one at the center of the populist ferment now seething from Cairo to Columbus. In the United States, he suggested, unemployment is predominantly the result of inadequate skills among the workforce, a problem that could be addressed with better education.

Governments have to do something that's hard," he said. "They have to go back and invest in human capital. There are plenty of companies in the U.S. and other countries I've visited that are very short of highly skilled workers...."

...Yet too few Americans have gained a slice of the spoils, leaving too few able to consume enough to propel the economy. That limits demand for all sorts of workers -- from parking-lot attendants and short-order cooks to tax accountants and architects.

Fixing that will require something that the fabulously wealthy executives now here wandering the snow and cocktail circuit are too prone to oppose: making the tax code more progressive, thus enabling more people to enjoy the wealth derived from innovation.

Read it at The Huffington Post
Eric Schmidt At Davos Praises Globalization, Dismisses Jobs Crisis

by Peter S. Goodman

Eric Schmidt should ask some unemployed "human capital" what it feels like to be creatively destroyed or to be busted down to a minimum wage job.

Real wages fall in Q4. So does saving.

On the whole, wages for workers aren't keeping up with the inflation rate, causing them to fork out more just to afford the basics. Median weekly wages rose just 1.6 percent in the fourth quarter over that quarter in 2010. In contrast, prices rose 3.3 percent, according to the Bureau of Labor Statistics. As a result, consumers dipped more into their savings: The annual personal saving rate plunged 29 percent in the fourth quarter (compared with that stretch of 2010), to 3.7 percent. This is the lowest saving rate since 2007's fourth quarter, according to the Bureau of Economic Analysis.

Spending failed to keep up with the production of goods at the end of 2011 because most newly created jobs paid close to the minimum wage, Vitner said. Seventy-seven percent of the jobs created since the end of the recession are in the low-paying sectors of retail, leisure and hospitality, home health care and temporary staffing, according to Vitner. With credit still tight and wages falling (once adjusted for inflation), Americans aren't boosting their spending, he said

Read it at The Huffington Post

As Real Wages Fall In Fourth Quarter, Americans Save Less

by Bonnie Kavoussi

Alex Tabarrok: PUBLIC GOODS PUBLIC GOODS PUBLIC GOODS!!! — Noah Smith

Also known as "public investment," "government investment," "public capital," "government capital," "partially nonrival production inputs," etc, public goods have been a major theme of this blog.

To see Alex Tabarrok trumpeting the importance of public goods is particularly gratifying to me, since Alex writes for Marginal Revolution, a blog whose leanings I would characterize as "libertarian," and works for George Mason University, an institution whose intellectual climate I would characterize as "libertarian." Which means that this article is part of the growing libertarian push for public goods, which first came to my attention from Peter Thiel.

Read it at Noahpinion
Alex Tabarrok: PUBLIC GOODS PUBLIC GOODS PUBLIC GOODS!!!

by Noah Smith

This part is encouraging, but there are caveats.

While this seems to be an advance, I wonder in that Tabarrok wants to pay for public investment but cutting "welfare." Is this just another attack on the "welfare state" going incognito?

I also wonder whether "public goods" is the right term here since public goods are non-rival and non-excludable. We won't know this until we see specifics. 

As the conservatives are so fond of claiming, public investment is just vote-buying, pork, and political cronyism. As always, one has to ask, Cui bono? Turns out that who benefits depends on which party is in power and whose constituency gets rewarded.

It's not what we owe, it's what we OWN!

More ridiculous ranting from CNBC's resident clown, Rick Santelli. This time he does the tired exercise of breaking down the national debt per individual. We've seen this, over and over and over ad nauseum.

The national debt represents the sum total of spending over revenues that the government has done over the past 223 years. The $16 trillion whatever figure means that the government spent $16 trillion more dollars than it took in taxes. Those $16 trillion (dollars) went to people. It went in their bank accounts or in their pockets. It's part of their wealth. It's not what they owe, it's what they own.

Yes, it's a debt of the government, but it's an asset of the non-government. That would be us!

So, it's not $11,971 of debt per citizen. Rather, it's $11,971 of WEALTH per citizen.

Simon Wren-Lewis — Optimism or Pessimism on the EuroZone Crisis?

This suggests that the key problem for the Eurozone is similar to that faced by the US, the UK and others. Too much austerity in the short term is holding back or even killing the recovery from the last recession, because monetary policy has lost its power in a liquidity trap. In these other countries this excessive austerity will ‘only’ result in significantly higher unemployment for many years to come. In the Eurozone the consequences could be more dramatic.   

Read it at mainly macro
Optimism or Pessimism on the EuroZone Crisis?

by Simon Wren-Lewis

Yep.

The Economic Normalcy Bias — David Sirota

In 1977, two Boeing 747s collided on an airstrip in the Canary Islands. According to accident investigators, those who survived the initial blast in one plane had time to escape before a fire consumed the wreckage. But eyewitnesses reported that many remained in their seat looking perfectly content--as if nothing was wrong.

Not surprisingly, dozens of these dazed victims were burned to death, and the episode became a reminder of the so-called normalcy bias--a cognitive phenomenon whereby many who are faced with imminent disaster instantly convince themselves that everything is normal and that they don't have to modify their behavior.

Unpleasant as this anecdote is to recount, it exemplifies the psychology at the root of one of America's most destructive traits: our obsession with materialism and consumerism. To extrapolate the metaphor, if our damaged economy, record-low savings rate and sky-high personal debt levels are that smoldering plane about to explode, then America's "shop till you drop" normalcy bias may be engineering yet another avoidable tragedy.

The most recent holiday binge exemplified the impending crisis. Despite persistent unemployment, flat wages and higher prices for necessities (food, health care, etc.), America nonetheless went on its usual post-Thanksgiving buying spree.

Read the rest at In These Times

The Economic Normalcy Bias
by David Sirota

"Obsession with materialism and consumerism" rots the human spirit. Sages of all times and climes were not being grinches when they cautioned against the corrosive effects, which are deadly for a culture as well as for individual aspirations based on enduring values. The so-called rational pursuit of maximum utility all too easily turns into what Keynes dubbed "animal spirits."

Mark Thoma — GDP Report: Austerity is Holding Back the Recovery

Read it at Economist's View
GDP Report: Austerity is Holding Back the Recovery

by Mark Thoma

Arnold Kling — One-Sentence Tax Reform

Here is my own one-sentence proposal:

If A and B earn the same income, but A saves and B spends more, then A should not have to pay higher lifetime taxes.

Read it at Library of Economics and Liberty

One-Sentence Tax Reform

by Arnold Kling
(h/t Mark Thoma)

Euthanize the rentier. — John Maynard Keynes

Kling seems to think that saving in necessary for investment, and that it is investment (production, supply) that creates demand (consumption), so that saving initiates the supply side cycle.

Keynes knew that investment produces saving, in that saving is income not spent (residual), with income being workers' share of investment in exchange for their labor. Keynes, who disproved Say's law, the basis of supply side, also realized that investment is a response to effective demand, which is income dependent, and household income is the largest share of firm investment.

Banks don't lend out deposits, and there is no stock of "loanable funds." Saving creates demand leakage that reduces consumption, so that the potential output of an economy is not consumed unless government and the foreign sector make up the shortfall. Moreover, saving at the micro level leads to the paradox of thrift at the macro level.

Randy Wray:

...The problem is that because the “classical” analysis has no role for money to play, it cannot explain unemployment, nor can it find a solution to the two “outstanding faults of the economic society in which we live”, “its failure to provide for full employment and it arbitrary and inequitable distribution of wealth and income.” (Keynes 1964, p. 372) 

Both of these problems are linked to the existence of money. If government refuses to spend by crediting bank accounts on the necessary scale to raise effective demand to the full employment level, then unemployment results. Further, because money’s own rate sets the standard that must be achieved by all other assets, if interest rates are too high then private spending is too low to achieve full employment. Finally, a high interest rate rewards “no genuine sacrifice” but keeps capital scarce, resulting in “high stakes” and a “rentier aspect of capitalism”. (Keynes 1964, pp. 374; 376) Lower interest rates would euthanize the rentier, establish a “basic rate of reward” for owners of capital, so that “if adequate demand is adequate, average skill and average good fortune will be enough.” (Keynes 1964, pp. 378, 381) 

In this view, it is mostly fiscal policy that exerts control over the quantity of money, while monetary policy controls the “basic reward” to owners of assets.

L. Randall Wray, "Keynes's Approach to Money: What can be recovered?"

Minsky would add that high rates transfer wealth to rentiers, but if rates are low, there is also the danger that savings will instead go to leveraged financial speculation. This results in boom-bust credit cycles.

Therefore, rather than taxing income, which reduces consumption by leaking away demand, the preferred option is to tax economic rent, which is by definition non-productive and parasitical on the production-distribution-consumption cycle. The preferred course is to tax neither income from work that is rent-free nor real investment by entrepreneurs. Gains from financial "investment" through exchanging already existing financial assets that does not involve new real investment would be considered to be economic rent subject to taxation.

Where's the boom?

“Austerians” have argued that all the government spending has been “crowding out” the private economy. Well, here is gov’t spending collapsing at the fastest rate in 40 years and we’re growing at a measly, 0.8% (when you take out inventories).

Addition to double-speak lexicon — political repression is now "lawfare"

"The government can always articulate rationales for why they're prosecuting one person and not another."

Oakland officials have shifted tactics since conducting a series of violent assaults on Occupy Oakland in October and November in the glare of the national media.

Oakland officials have taken a new tack in their suppression of the Occupy movement, one that seems addressed to the city's public relations problems. Gone are the mass arrests, “less-lethal” weaponry and tear gas, replaced with a kind of "lawfare" on the few protesters who remain in the plaza at the foot of Oakland City Hall where the occupation's tent city once stood.

Authorities are no longer routinely claiming that Oakland's occupiers are rioters, arguing instead that they are blocking public access to walkways and possessing unpermitted property -- conduct that may or may not, in fact, be protected under the First Amendment as "expressive" political activities.

Over the last month, the arrests have come in fives and tens, repeatedly targeting some of the same few and most visible activists. 

Read it AlterNet

Stung by Bad PR, City Officials Adopting New Tactics to Suppress Occupy Oakland

by Susie Cagle

Twitter caves to censorship

Micro-blogging service unveils shift in policy as it seeks to expand into new territories and expand its user base.

The micro-blogging service, Twitter, has announced that it has altered the technology behind the service to allow for country-specific censorship of messages.

The announcement comes as the San Francisco, USA-based company makes a push to expand into new territories hoping to increase their 100 million active user base and generate more money.

Read it at Al Jazeera
Twitter to enable country-specific censorship

Selling the human spirit of freedom to the devil for filthy lucre. Sad.

Twitter follows Google:

Twitter says it has authored the new feature with transparency in mind. In a move similar to search engine Google, Twitter says it "will attempt to let the user know, and we will clearly mark when the content has been withheld." 

Though Twitter says it has yet to utilise the feature, it, like Google, will share removal requests from companies, individuals, and governments on the website.

Bill Mitchell on the US and UK

My assessment is that the major difference between the two economies relates to the conduct of the government in each case. The UK government has been announcing its intention to impose harsh fiscal austerity on the national economy since the day it took office. The fact is that most of the spending cuts are still to come, which doesn’t augur well for 2012, the spending associated with the Olympic Games notwithstanding.

It is highly likely that the “announcement effect” by the government of its intention to harshly cut spending has further eroded confidence among households and business firms, already labouring under the deflationary burden of high unemployment.

By way of contrast, while there has been austerity rhetoric in the US, which is probably held back private spending, the unresolved nature of the current political impasse has not translated into any serious budget cuts to date. The current US regime is still talking job creation and growth, which is far removed from the rhetoric that emerges from the British government.

However, I do not want to suggest that the US government is demonstrating sound macroeconomic policy management. Rather that it hasn’t started to actively undermine private spending and overall economic growth in any major way.If the political environment changes in 2012 or perhaps 2013 after the November election, and more conservative voices gain traction in actual policy settings, then the US will follow the route taken by many of the Eurozone nations and Britain – that is, back towards recession.

The current neo-liberal mantra that governments can successfully engage in a “fiscal contraction expansion” remains in my view an ideological assertion without empirical foundation. The only successful examples of nations growing out of recession when private spending has been flat and governments engage in fiscal contraction occurs when external conditions were favourable and export growth could compensate for the loss domestic demand arising from the reduction in government deficit.

Read the whole post at billy blog

The US is not an example of a fiscal contraction expansion

by Bill Mitchell

Summers: “Inside Job had essentially all its facts wrong”

It’s weird that Summers, who loves debate, generally refuses to sit down in some public forum and answer serious, informed questions about the legacy of his tenure at Treasury; it might well be that this single interview is the closest we’ll ever get. And on the basis of this interview, it’s clear that, far from apologizing for his actions, Summers is going Full Bluster, denying any culpability, and choosing instead to violently reject and belittle any suggestion that he holds any responsibility for the crisis at all.

Read it at Reuters
Summers: “Inside Job had essentially all its facts wrong”
By Felix Salmon
(h/t Kevin Fathi via email)

UK economy needs a shower of money

Printing money might not be dignified, but it does work – just keep the banks and the credit rating agencies out of it

It works like this. You get De La Rue to print £14bn of banknotes, roughly the amount extracted from high-street spending in extra VAT this year. You send a fleet of vans to transfer the money to Northolt and other regional airports. You load it into squadrons of RAF helicopters and, in full view of television cameras, scatter it over shopping streets the length and breadth of the land. The notes are designed to disintegrate within six months and can be banked only by registered firms. Those finding them must spend them fast on goods and services.

"Helicopter money", once a satirical monetarist metaphor, suffers only one serious objection as a cure for a nation suffering from collapsed demand. It is vulgar and undignified. It seems tacky, populist, messy, a smart-alec suggestion not fit for consideration by ministers, bankers or economists.

Read the rest at The Guardian (UK)

The UK economy needs a shower of money in the high street
by Simon Jenkins
(h/t Ralph Musgrave via email)

Goes a bit out of paradigm, but the basic idea is correct. The UK needs a fiscal injection, not more blood-letting in the form of "expansionary fiscal austerity."

Ben Bernanke got this more or less in his call for a helicopter drop, but the less got in the way. Kevin Depew explicates "helicopter drop":

Let's look at what Bernanke really said and what he really meant:  

"A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money."

Yes, it was Milton Friedman who "invented" the helicopter drop of money analogy, but Friedman's invention was actually based on John Maynard Keynes theory of the Liquidity Trap.

A Liquidity Trap occurs in a low-interest rate environment with stagnant economic conditions and high savings. During this environment monetary policy becomes ineffective. Why?

Because under these conditions people believe that they will not receive an adequate return for the risk assumed in owning other financial assets, even bonds, so they prefer to keep cash in short-term bank accounts. In other words, they hoard cash. Sound familiar?

The most frequently misunderstood aspect of the "helicopter drop of money" analogy (from Keynes to Friedman to Bernanke) is that it refers to actions on the part of a central bank, but this is not true.

Bernanke used the phrase in his speech in a section explicitly discussing Fiscal Policy:

"Each of the policy options I have discussed so far involves the Fed's acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money."

 Five Things You Need to Know: Deflation... And the Headstones Climbed Up the Hills
By Kevin Depew at Minyanville

MMT looks at this more simply. The sectoral balance approach and functional finance show that a fiscal injection by government increases non-government net financial assets, thereby providing the public with room to meet an increase in the desired level of saving, thereby facilitating deleveraging after a financial crisis while also stimulating the effective demand needed to close the output gap and reduce unemployment.

Corresponding monetary policy to keep interest rates low is not required in that inflation is not an issue with high unemployment and a wide output gap, which allow the economy to expand to meet increasing demand from the fiscal stimulus without resulting in a continuous increase in the price level (definition of inflation). When fighting deflation, high unemployment, and economic contraction, inflation is not a concern at that time.

John Carney — Why Does Bernanke Lie to Us? Why Can't He Just Admit What the Problem Is?

Read it at CNBC NetNet
Why Does Bernanke Lie to Us? Why Can't He Just Admit What the Problem Is?

by John Carney | Senior Editor

John explains correctly (from the POV of MMT) that this is a "balance sheet recession" in the sense that the issue is excessive leverage as a hangover of the financial crisis and that the private sector continues to deleverage. The increased saving and deleveraging results in demand leakage, and debt-adversity creates reluctance to borrow. Moreover, the financial crisis has resulted in tighter credit, fewer qualified loan applicants, and a reluctance to borrow in the face of adversity or uncertainty.

All well and good. However, John cites Reinhart & Rogoff as a chief piece of evidence. But R&R is about public debt, whereas the issue is excessive private debt applying the analysis of Irving Fisher and Hyman Minsky. Moreover, R&R is a flawed study as many have pointed out.

Bill Mitchell, Watch out for spam! and We will not pay for your crisis

Cullen Roche, Debunking Reinhart And Rogoff and Further Debunking Reinhart & Rogoff

Yeva Nersisyan, The Myths About Government Debt and Deficit as Told By Carmen Reinhart and Kenneth Rogoff and More Reasons to Doubt Rogoff and Reinhart

Richard Koo, Paul Krugman, and the MMT economists, as well as Post Keynesians like John T. Harvey all cite private debt as the issue and say that the government's fiscal balance has to increase to make space for increased private desire to save in the face of the external sector saving as well. This means larger government debt, since deficits are required by law to be offset with tsy issuance. 

While deficit doves warn that the budget must be balanced over the business cycle, MMT economists dismiss this as unfounded. See Scott Fullwiler on the intertemporal government budget constraint (IGBC) in "Interest Rates and Fiscal Sustainability."

So John is correct that Bernanke and the Fed are not coming clean, but the issue is private sector indebtedness and saving-deleveraging rather than public debt, either presently or in the foreseeable future owing to a supposed IGBC.

Fed Press Conference 1/25/2012

Below is the video from the Fed press conference the other day; it is very disappointing as far as the Fed's outlook on employment.  They have basically given up on achieving what MMT would consider full employment with price stability.

Here is a link to the transcript and some excerpts related to their view on their lawful mandate of "maximum employment with stable prices".


 

 With respect to the objective of price stability, it is essential to recognize that the inflation rate over the longer-run is primarily determined by monetary policy, [Ed: Then this should directly open the door to the MMT JG since the JG is NOT part of Monetary Policy and therefore is NOT inflationary; Thanks Ben!]

 and hence, the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer-run with our statutory mandate. Over time, a higher inflation rate would reduce the public's ability to make accurate, longer term economic and financial decisions, whereas the lower inflation rate would be associated with an elevated probability of falling into deflation which can lead to significant economic problems. Clearly communicating to the public,  this 2 percent goal for inflation over the longer-run should help foster price stability and moderate long-term interest rates. It will enhance the Committee's ability to promote maximum employment in the face of significant economic disturbances. [Ed: What "economic disturbances" have there been in now over 3 years?  What is he even talking about?]

Maximum employment stands on an equal footing with price stability as an objective of monetary policy. The difference with the price stability is that the maximum level of employment in a given economy is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market, including demographic trends, the pace of technological innovation, and a variety of other influences including a range of economic policies. Because monetary policy does not determine the maximum level of employment that the economy can sustain in the longer term, and since many of the determinants of maximum employment may change over time or may not be directly measurable, it is not feasible for any central bank to specify a fixed goal for the longer-run level of employment. [Ed: They have thrown in the towel on unemployment and they all should be fired.]

Although the Committee cannot freely choose a longer run goal for employment, it can estimate the level of maximum employment and use that estimate to inform those policy decisions. The Committee considers a wide range of indicators of making these assessments of maximum employment, recognizing that such assessments are necessarily uncertain and subject to revision over time. For example, in the latest set of projections that have been distributed to you, Committee participants' estimates of the longer-run, normal rate of unemployment have a central tendency of 5.2 percent to 6.0 percent, roughly unchanged from last January, but higher than the corresponding interval several years ago. [Ed:  With no rationale provided for the revisions to their "latest projections", it becomes obvious that they are pulling these so-called "normal" rates of unemployment straight out of their ass.]

 As I noted, the level of maximum employment is not immutable. In particular, it could be increased by effective policy such as education and training that improve workforce skills. If the Committee's assessments pointed to an increase in the maximum attainable level of employment, our policy strategy would be modified appropriately to aim at the higher level. [Ed: Now they indicate that they are accepting of current levels of millions of unemployed citizens as somehow "normal" due to a lack of education?  They are all deranged, insane and dangerous people.]

That's enough.

Everyone there is a moron and should be removed from their positions immediately.

They are absolute failures at fulfilling their lawful mandate or articulating the reasons why they cannot succeed. They have given up without admitting it. All of them should be fired and be prevented from holding any sort of public economic policy positions in the future.

The Fed is a disgrace.

John Carney — Kids are capitalists

Read it at CNBC NetNet (short)
Kids Are Capitalists

by John Carney | Senior Editor

John argues that methodological individualism has an ontological basis. I responded in a comment there that this is only partially true based on what we know from cognitive science:

Right, and every parent knows what a job it is getting kids to learn to share. It's called "socialization" and kids that don't get socialized sufficiently grow up to be a delinquents and go on to a life of crime. "Capitalism" may be by nature, but "socialism" is by nature. Although now we know that animals including humans have mirror neurons that induce empathy and sympathy, which are basic to fairness, sharing, and altruism. So socialization isn't all nurture.

See: "The Economics of Fairness, Reciprocity and Altruism – Experimental Evidence and New Theories" by Ernst Fehr and Klaus M. Schmidt (2005

Moritz Schularick — Credit booms gone bust

Carmen Reinhart and Kenneth Rogoff tell the history of financial crisis as a tale of excessive public debt. But what more commonly drives financial instability, says Moritz Schularick, is excessive private debt. Financial crises are credit booms gone bust. Schularick and his collaborators compile a long-run data set of disaggregated credit flows, separating loans for productive investment from loans for the purchase of existing assets. A marriage of economic history and modern statistical methods to investigate the role of finance in the macroeconomy -- this is new economic thinking. 

INET video interview
Credit Booms Gone Bust

by Moritz Schularick, professor of economics at the John F. Kennedy Institute of the Free University of Berlin, Germany. His current work focuses on credit cycles, the determinants of financial crises, and the international monetary system.

The game of chicken in the EZ

Policy reactions to the Eurozone crisis are seen by many as short-sighted, incoherent, and driven by political expediency. This column disagrees. What we are seeing is a game of chicken among the key political and economic powers in Europe. As the crash looms ever closer, the right deals will be struck and Europe will emerge stronger and with its currency intact.

Read it at VOX.eu
The coming resolution of the European crisis
by Fred Bergsten and Jacob Funk Kirkegaard