Monday, August 31, 2015

Eric Schliesser — Smith, Design, Hume/Kant, and Transcendental Illusions

Adam Smith versus David Hume on foundations. Smith and Hume, who were contemporaries, were correspondents.

Smith, Design, Hume/Kant, and Transcendental Illusions
Eric Schliesser | Professor of Political Science, University of Amsterdam’s (UvA) Faculty of Social and Behavioural Sciences

Dirk Ehnts — Zhi: A Critique of Modern Money Theory and the Disequilibrium Dynamics of Banking and Government Finance

Such is the title of Tianhao Zhi’s recent paper. Zhi sums up MMT like this:
MMT is getting around.

econoblog 101
Zhi: A Critique of Modern Money Theory and the Disequilibrium Dynamics of Banking and Government Finance
Dirk Ehnts | Lecturer at Bard College Berlin

Jesse Livermore — Fiscal Inflation Targeting and the Cost of Large Government Debt Accumulation

The insight that fiscal policy can be used to manage inflation, in the way that monetary policy is currently used, is not new, but is attributable to the founders of functional finance, who were the first to realize that inflation, and not the budget, is what constrains the spending of a sovereign government. Advocates of modern monetary theory (MMT), the modern offshoot of functional finance, notably Scott Fulwiller [sic] of Wartburg College, have offered policy ideas for how to implement a fiscally-oriented approach. 
My view, which I elaborated on in a 2013 piece, is that the successful implementation of any such approach will need to involve the transfer of control over a portion of fiscal policy from the legislature and the treasury to the central bank. Otherwise, the implementation will become mired in politics, which will prevent the government’s fiscal stance from appropriately responding to changing macroeconomic conditions. 
There are concerns that such a policy would be unconstitutional in the United States, since only the legislature has the constitutional authority to levy taxes. But there is no reason why the legislature could not delegate some of that authority to the Federal Reserve in law, in the same way that it delegates its constitutional authority to create money. In the cleanest possible version of the proposal, the legislature would pass a law that creates a special broad-based tax, and that identifies a range of acceptable values for it, to include negative values–say, +10% to -10% of earned income below some cutoff. The law would then instruct the Federal Reserve to choose the rate in that range that will best keep inflation on target, given what is happening elsewhere in the economy and elsewhere in the policy arena.
Ultimately, the chief obstacle to the acceptance and implementation of fiscal inflation targeting is the fear that it would lead to the accumulation of large amounts of government debt. And it would, particularly in economies that face structural weakness in aggregate demand and that require recurrent injections of fiscal stimulus to operate at their potentials. But for those economies, having large government debt wouldn’t be a bad thing. To the contrary, it would be a good thing, a condition that would help offset the weakness.
The costs of large government debt accumulation are not well understood–by lay people or by economists. In this piece, I’m going to try to rigorously work out those costs, with a specific emphasis on how and in what circumstances they play out. It turns out that there is currently substantial room, in essentially all developed economies that have sovereign control over credible currencies, to use expansive fiscal policy to combat structural declines in inflation, without significant costs coming into play.

The reader is forewarned that this piece is long. It has to be, in order to make the mechanisms fully clear. For those that want a quick version, here’s a bulleted summary of the key points:
Philosophical Economics
Fiscal Inflation Targeting and the Cost of Large Government Debt AccumulationJesse Livermore
ht Phillipe in the comments

Chris Hedges — The Great Unraveling

The ideological and physical hold of American imperial power, buttressed by the utopian ideology of neoliberalism and global capitalism, is unraveling. Most, including many of those at the heart of the American empire, recognize that every promise made by the proponents of neoliberalism is a lie. Global wealth, rather than being spread equitably, as neoliberal proponents promised, has been funneled upward into the hands of a rapacious, oligarchic elite, creating vast economic inequality. The working poor, whose unions and rights have been taken from them and whose wages have stagnated or declined over the past 40 years, have been thrust into chronic poverty and underemployment, making their lives one long, stress-ridden emergency. The middle class is evaporating. Cities that once manufactured products and offered factory jobs are boarded up-wastelands. Prisons are overflowing. Corporations have orchestrated the destruction of trade barriers, allowing them to stash $2.1 trillion in profits in overseas banks to avoid paying taxes. And the neoliberal order, despite its promise to build and spread democracy, has hollowed out democratic systems to turn them into corporate leviathans.

Democracy, especially in the United States, is a farce, vomiting up right-wing demagogues such as Donald Trump, who has a chance to become the Republican presidential nominee and perhaps even president, or slick, dishonest corporate stooges such as Hillary Clinton, Barack Obama and, if he follows through on his promise to support the Democratic nominee, even Bernie Sanders. The labels “liberal” and “conservative” are meaningless in the neoliberal order. Political elites, Democrat or Republican, serve the demands of corporations and empire. They are facilitators, along with most of the media and most of academia, of what the political philosopher Sheldon Wolin calls our system of “inverted totalitarianism.”
How could I not post a link to an article with a lede like that?

The Great Unraveling
Chris Hedges
ht Don Quijones at Naked Bull-Shit

Izabella Kaminska — Scaling and why it matters

Not enough attention is paid to scale. Scaling is the basis of civilization. As Roger Erickson has pointed out, it is also the basis of evolution. Dizzy calls our attention to it with respect to the push for decentralization and sharing. Descaling won't work, especially in a capitalistic system in which there are economies of scale.

Scaling and why it matters
Izabella Kaminska

David F. Ruccio — The idea that we shouldn’t be concerned about inequality is bullshit

I think that "inequality" is the wrong term and concept here. The opposite inequality and none of the parties to the debate is arguing for equality of income or wealth. The problem is not resolved just by giving the poor more since the issues are broader and deeper. The problem is not "inequality," but asymmetry and disparity.

Asymmetry and disparity affect not only individual but also systemic functioning. This is both immoral and uneconomic and the two should be kept distinct since one is chiefly a normative issue and the other a factual one.

Better to emphasis basic rights along with systemic asymmetries and social disparity that results in privilege at the top and exclusion from the system at the bottom, both unmerited for the most part. The result is social, political and economic dysfunction.

In addition, there needs to be a distinction drawn between needs and wants. Basic needs that are vital are matters of right instead of merit in situations in which they can be met. Disparity in satisfying wants is not itself crucial. The issues resulting from disparity of wealth and income relate more to the resultant social, political and economic asymmetries that lead to systemic dysfunction.

Occasional Links & Commentary
The idea that we shouldn’t be concerned about inequality is bullshit
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

See also

Capitalism—a love story

Lars P. Syll — Brad DeLong is wrong on realism and inference to the best explanation

Lars follows up on Brad's post on David Little.

I think that debate could be clarified logically by a discussion of criteria. There seem to be a lot of implicit assumptions about this. Best to make them explicit.

This gets back to the philosophical debate over ontological reality and epistemic knowledge of reality. The history of philosophy is a large measure an enquiry about three fundamental questions:
  1. What is there? (Ontology and Metaphysics)
  2. What can be know about what there is? (Epistemology and Theory of Knowledge)
  3. What can we express about what is? (Philosophical logic, Analytic Philosophy, and Semiotics)
Realism holds that humans have immediate knowledge of what is. Idealism holds that knowledge is mediated by the mind, process of experience, or confined to the mind, so that "reality" for humans is consciousness-based and determined by human consciousness. Some idealists hold that while knowledge is confined to experience, human believe that there is something independent of experience responsible for it, but that humans have no way of going beyond experience, which is phenomenal, that is, appearance.

The philosophical issue is about reality versus appearance.

Naïve realism aka the commonsense view of the world holds that we know what is directly as a matter of self-evidence. This is the view that is generally held. This is disputed in the history of philosophy from ancient time. Now the debate has extended to cognitive science and psychology.

Critical realism holds that we know reality directly and attempts to explain how.

Idealism hold that knowledge is of the mind rather than external reality. Positivism and empiricism are subjective idealists, holding that knowledge is model-based and sense-based. Subjective idealism as phenomenalism because widespread among those who appreciated science after the discovery of how perception functions through the senses being receptive to light and sound waves from the environment. From this point of view it seemed as if realism must wrong since all humans know about what is comes by way of experience, which is phenomenal.

Pragmatists attempt to avoid the issue by holding that knowledge is about experience. But human experience is phenomenal unless one assumes that experience is reality, in which case idealism follows from the assumption unless an explanation based on solid criteria is forthcoming about how experience is not mentally based.

Idealistic views involve a denial of intellectual intuition that bridges the knowledge gap between experience as appearance and reality existing prior to and independently of experience.

Why is this significant? It relates, for example, to the issue of certainty versus uncertainty, true knowledge versus opinion. It also relates to causality. Is so-called causality over constant conjunction of observables, as Hume asserted, or it causality the structure and functioning of real things that exist ontologically independently of observation.

Hume held that knowledge is limited to sense data and logical operations, and universals are mental abstractions. Aristotle held that in addition to sense intuition by which objects are known, human also use intellectual intuition to know the essences of objects as universals.

In between these two positions there is a lot of waffling. (Just kidding.)

Wittgenstein says to look to how language works as a symbolic system, and especially, examine the criteria. In my view, this is a prerequisite to debate. Much of the debate is misplaced, since the participants don't appreciate the issues and don't formulate them in a sound form that makes assumptions explicit. So parties end up at loggerheads over implicit assumptions.

While these questions may seem to some to be trivial, exotic, or even a waste of time, everyone makes assumptions about them that determine one's ideological framework that shapes one's worldview. This influences thought and action, and so the consequences are far-reaching, for example, in macroeconomics and political economy with respect to policy formulation.

Lars P. Syll’s Blog
Brad DeLong is wrong on realism and inference to the best explanation
Lars P. Syll | Professor, Malmo University

Cheap oil always boosts economic growth - UK economist

If you remember back when it was going up, everybody thought it would cause a collapse, now with it going down, everybody thinks it will cause a collapse.

Sunday, August 30, 2015

Brad DeLong — Live from Yellowstone Lake Lodge: WTF!? Daniel Little: The Case for Realism in the Social Realm

Brad gets critical about critical realism. Regardless of who is correct (how can we know?), it is good to see economists dealing with fundamental ontological and epistemological questions.

Grasping Reality
Live from Yellowstone Lake Lodge: WTF!? Daniel Little: The Case for Realism in the Social RealmBrad DeLong | Professor of Economics, UCAL Berkeley

Bill Mitchell — Monetary liquidity operations and fiscal policy interventions

Today, is the official launch of my new book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – in Maastricht, which is an appropriate geographic location given the book proposes to dismantle the Eurozone. It just happens to be the place (Maastricht University), where we established CofFEE-Europe (a sister centre to my research centre in Australia). There are two excellent guest speakers (see below) and I am very grateful that they agreed to accept the invitations. The upshot is that I haven’t all that much time today. Over the next few days I will address some points that were raised in question time or at the reception (aka cup of tea and cakes) after the event in London last Thursday evening. There is still work to be done if the progressive side of politics is to fully understand Modern Monetary Theory (MMT) and the implications of it for policy development and choice.
Hopefully, the book will have a broad and deep readership, and make a difference.

Bill Mitchell – billy blog
Monetary liquidity operations and fiscal policy interventions
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Saturday, August 29, 2015

Conn M. Hallinan — Europe’s New Barbarians

On one level, the recent financial agreement between the European Union (EU) and Greece makes no sense: not a single major economist thinks the $96 billion loan will allow Athens to repay its debts, or to get the economy moving anywhere but downwards. It is what former Greek Economic Minister Yanis Varoufakis called a “suicide” pact, with a strong emphasis on humiliating the leftwing Syriza government. 
Why construct a pact that everyone knows will fail?
Dispatches from the Edge
Europe’s New Barbarians
Conn M. Hallinan is a columnist for Foreign Policy In Focus, “A Think Tank Without Walls, and an independent journalist. He holds a PhD in Anthropology from the University of California, Berkeley. He oversaw the journalism program at the University of California at Santa Cruz for 23 years, and won the UCSC Alumni Association’s Distinguished Teaching Award, as well as UCSC’s Innovations in Teaching Award, and Excellence in Teaching Award. He was also a college provost at UCSC, and retired in 2004. He is a winner of a Project Censored “Real News Award,” and lives in Berkeley, California.
ht Clonal

Friday, August 28, 2015

Sputnik International — Weak Ruble Drives Russian Car Production Boom

Volkswagen and Hyundai representatives have announced unprecedented plans to increase the production of their cars in Russian factories, for eastern export markets
Russian manufacturers gearing up too.

Russia Insider
Weak Ruble Drives Russian Car Production Boom
Sputnik International

Alexrpt — Forbes Fail! Western media outlet publishes fake Russian troop casualty article, and its zombie readers actually believe it

Funny. Especially since the butt of the joke is Paul R. Gregory, a noted Russophobe "expert," who got punked, along with a few others.

Paul R. Gregory is a Research Fellow, Hoover Institution, Cullen Professor of Economics, University of Houston, research professor at the German Institute for Economic Research in Berlin, chair of the International Advisory Board of the Kiev School of Economics, and co-editor of the Yale-Hoover Series on Stalin, Stalinism, and Cold War. He has co-edited archival publications, such as the seven volume History of Stalin’s Gulag (2004) and the three-volume Stenograms of Meetings of the Politburo (2008). Gregory is the organizer of the Hoover Sino-Soviet Archives Workshop that takes place in the summer at the Hoover Institution. His recent publications include Lenin’s Brain and Other Tales from the Secret Soviet Archives (Hoover 2004) and Terror by Quota (Yale, 2009).

Red Pill Times
Forbes Fail! Western media outlet publishes fake Russian troop casualty article, and its zombie readers actually believe it

SYRIZA is slipping. New poll shows only a 3.5 point lead over rival pro-EU party New Democracy

Forget the Greek elections. Ex-finance minister Varoufakis is launching Pan-Εuropean network to fight austerity

F. William Engdahl — China Rails Linking Eurasia

China has become the world’s leading makers of modern railroads and equipment. It has done so as part of a long-term strategy to weld a new economic space, build entirely new markets where none before existed. They studied the European rail-makers, studied the German ICE high-speed railways, engaged Siemens and a German consortium to build the world’s first magnetically levitated (maglev) train to link Shanghai’s international convention center to its new international airport at speeds between 300-400 km per hour. Now they are working on an entire new concept of fast rail as well as negotiating with some 28 countries to build high-speed conventional rail lines. China has become the address when it comes to rails and it is changing the world as we know it.….
New Eastern Outlook
China Rails Linking Eurasia
F. William Engdahl

Susie Cagie — Best way to solve homelessness? Give people homes.

Homelessness has always been more a crisis of empathy and imagination than one of sheer economics. Governments spend millions each year on shelters, health care and other forms of triage for the homeless, but simply giving people homes turns out to be far cheaper, according to research from the University of Washington in 2009. Preventing a fire always requires less water than extinguishing it once it’s burning.

By all accounts, Housing First is an unusually good policy. It is economical and achievable. The only real innovation lies in how to inspire the necessary compassion and foresight to spur governments into building those needed homes.

But Housing First is not very popular. It runs directly counter to the US meritocratic mythology, where one is presumed to fail or succeed by one’s own hand. The homeless are presumed to have earned their place on the street.

Complement to the Job Guarantee. Food, shelter, health care and a job guarantee are vital needs that should be recognized as human rights in developed societies. The opportunity cost is low when compared with the alternative — a dysfunctional society that perpetuates itself. 

The argument against it seems to be that this would destroy incentive and undermine a capitalistic economy, where capital is prioritized over people and the environment. Societies with socialistic economies get this, however, since they prioritize people and the environment over capital.

Moreover, the argument might have made sense when people had access to resources for obtaining food and shelter by their own initiative, but since primitive accumulation and the proliferation of private property that no longer applies, especially in modern urban life.

It is societal institutions that produced this change and therefore it is up to society to address the consequences adequately so that the social fabric is maintained and no one suffers needlessly where there are adequate resources.

Aeon Magazine
Best way to solve homelessness? Give people homes
Susie Cagie

Toyota Lowering Prices

Toyota lowering the price of Prius liftbacks in USD terms (at least temporarily):

Matias Vernengo — Thirlwall à la Godley

Arguably Godley had a version of Thirlwall's Law in his model too. As noted by Zezza: "the ideas underlying the ‘New Cambridge Hypothesis,’ which assumed... that the private sector would adjust rather quickly to a shock, to restore its desired income/assets ratio." In this sense, in the long run in a steady state Godley assumed that the net acquisition of financial assets would be zero. This would be a stock version of the flow equilibrium between investment and savings, the private balance.
Naked Keynesianism
Thirlwall à la Godley
Matias Vernengo | Associate Professor of Economics, Bucknell University

Yannis Palaiologos — Parallel currency would have led to Grexit, says Jeffrey Sachs

Jeffrey Sachs confirms Yanis Varoufakis's side of the story.

Parallel currency would have led to Grexit, says Jeffrey Sachs
Yannis Palaiologos
ht Clonal

Tropical Update

Notice how our qualified and competent meteorologists have included the time domain in their analysis and resultant predictive path for the current tropical storm Erika:

Thursday, August 27, 2015

Nadia Prupis — At Washington’s Insistence, WTO Rules Against India’s Push for Clean Energy

The World Trade Organization (WTO) on Wednesday ruled against India over its national solar energy program in a case brought by the U.S. government, sparking outrage from labor and environmental advocates.

As power demands grow in India, the country’s government put forth a plan to create 100,000 megawatts of energy from solar cells and modules, and included incentives to domestic manufacturers to use locally-developed equipment. 

According to Indian news outlets, the WTO ruled that India had discriminated against American manufacturers by providing such incentives, which violates global trade rules, and struck down those policies—siding with the U.S. government in a case that the Sierra Club said demonstrates the environmentally and economically destructive power of pro-corporate deals like the Trans-Pacific Partnership (TPP).…

I'm waiting for when US meat exporters sue India for prohibiting the exportation of beef. Oh, and when dope is legalized in the US, the US dope industry, which will no doubt be Big Pharm, will be suing countries that ban it. The US porn industry will also have a field day suing for damages from market exclusion. Big bucks there.

Raging Bull-Shit
At Washington’s Insistence, WTO Rules Against India’s Push for Clean Energy
Nadia Prupis, Common Dreams

Zhang Xuan — Over 4.7 million youths apply to the army: MND

The annual salary of a new soldier could reach up to 88,000 yuan ($13,745), higher than the starting salary of many other professions, Zheng said.…
When they are discharged after two years of service, some enjoy benefits like funding for further education, while others can choose to continue military service as officers, according to Song.
Reports said 3,075 university students who served as soldiers were promoted and 1,573 of the best soldiers were recommended for postgraduate studies in 2013.
Well, that's one way of dealing with youth employment and funding education. The Chinese leadership doesn't seem to think that China is running out of money.

I see the Dow trading back to the low, 17,000s, but not doing much after that

The U.S. stock market is in "recovery" after the irrational plunge of late last week/early this week. It's coming back as I said it would, however, I don't see the Dow going much above the low, 17,000s for now.

We're really going to have to wait until the new fiscal year and what Congress decides with respect to the debt ceiling. Failure to raise the debt ceiling will have very damaging consequences so this bounce back in the stock market could be the rally to sell if you are into shorting stocks (which I am not).

If they raise the debt ceiling and continue on the spending path that is forecast by the CBO (spending increases by $250b) then we should have another very decent year for the market.

Don't look at the deficit. It might even be a surplus in 2016. Then what are people going to say?

The Saker — Europe in free fall

Europe is in free fall. Nobody can doubt that any more. In fact, the is EU simultaneous suffering from several crucial problems and any one of them could potentially become catastrophic. Let’s look at them one by one.…
The Vineyard of the Saker
Europe in free fall
The Saker

Victor Veritov — The Collapsing World Order is Russia's New Challenge

Politics is a huge and complex world of relations between people and states. We watch the news on television and we read articles which tell us about various problems, conflicts, and state figures. Being in a giant whirlpool of information, it is difficult to fit everything into some kind of overall picture. It’s even more difficult to understand where and towards what the whole world, led by these or those political forces, is going.
Challenges are frightening. The fact of the existence of weapons of mass destruction has not been abolished, and this means that there is a chance that they will be used. Everyone understands that a nuclear war will destroy everyone, and it keeps the world from starting a new conflict. But the generation of those who remember the horrors of the world wars is almost gone. And history, unfortunately, teaches us that no one learns and nothing is learned. Everything is always repeated again by the same scenarios and patterns.…
Fort Russ
The Collapsing World Order is Russia's New Challenge
Victor Veritov, PolitRussia
Fort Russ translation by J. Arnoldski -

Frances Coppola — Europe's Shame

Shame, or just showing true (neoliberal) colors? Same in the USA, especially the broad reception for Trump's neo-fascist view of immigration.

Coppola Comment
Europe's Shame
Frances Coppola

Stratfor — How China's Currency Policies Will Change the World

There were several reasons behind China's decision, but it nevertheless came as a surprise to many. In search of stability, China has tied its currency to the U.S. dollar since 1994, usually at a low value relative to the dollar. During the 2000s, the connection helped China keep its exports competitive, with the developed world consuming its output. The West's economic collapse in 2008 meant that this model could no longer function, and China began trying to grow consumption levels so that the domestic consumer might come to fill the hole left by the faded international market. 
Changing China

Transforming from an export-led economic model to a consumption-led one could be described as changing from being like Germany to being like the United States, and China has tried to reproduce some of the advantages that the United States has created for itself in the same role. One of those advantages is the dominant position of the U.S. dollar in world trade, which means U.S. consumers can go deeply into debt and global demand for dollars will delay the moment at which this comes to a head by those debts being catastrophically called in. Thus China sought to grow international usage of the yuan, making strides in its attempts to do so. The next step would be for the yuan to be accepted into the International Monetary Fund's "currency," the Special Drawing Right. However, the IMF has said that China would need to liberalize its currency before such a step could take place. The IMF makes the decision every five years, with one originally set for November this year, but the institution recently pushed it back to October 2016.….
Neoliberal-think. All about interest rates, exchange rates, and central banking.

How China's Currency Policies Will Change the World

Sputnik International — No Clear View of How Eurozone Will Weather Crisis [Wray interview]

Sputnik's interview with Randy Wray published today.

Sputnik International
No Clear View of How Eurozone Will Weather Crisis

Pepe Escobar — Brave (Miserable) New Normal World

  • For China this is a necessary stock market correction - not an economic implosion
  • It's not a harbinger of a new global crisis - just a sign we never really got out of the last one
  • The outlook for everyone is bleaker than many thought - but probably less so for China than Europe and even the US
Russia Insider
Brave (Miserable) New Normal World
Pepe Escobar

Gonna short USDJPY pretty soon

The dollar is experiencing a bounce along with stocks after getting crushed over the past week. I don't know about the euro, which may very well head lower as it's doing now, however, I think the dollar's break all the way down to 116 yen on Monday signals a change in trend.

I have been looking for the yen to rally based on a couple of factors, one being the steep drop in oil prices and the other, the fact that after four years Japan has begun restarting their nuclear reactors.

Right now I am looking for a level  to short USDJPY and I think I may enter this trade around 121.28 if we get up there.

Deficit too small? Then how'd we get a 3.7% GDP growth rate?

Second quarter GDP just came out with a 3.7% growth rate. Not too shabby. But the deficit is supposedly too small,  so how did we achieve such a strong growth rate?

As Matt and I have been saying here, for the last two years: when top line government spending is over $4 trillion annually, that's a leading flow. That drives everything. The deficit is what it is. Looking at the deficit will send you astray and you will lose money. We're the only ones getting this correct.

It's not about the size of the deficit.