Read it at Leo Foresta on spirituality and the global crisis
Physics shedding light on the crisis (Part II)
by Leo Foresta
Read it at The Guardian (UK)
If the world economy was a video game, the central bankers and politicians have been struggling to master the controls – and remain stuck on the first level.
PORTO ALEGRE, Brazil — Thousands of critics of capitalism meeting in Brazil called Sunday for a worldwide protest in June to press for concrete steps to tackle the global economic crisis.The World Social Forum wrapped up a five-day meeting in this southern Brazilian city, urging citizens to “take to the streets on June 5″ for the global action, which would be in support of social and environmental justice.
The forum also announced a “peoples’ summit” of social movements to be held in parallel with the high-level UN conference on sustainable development scheduled next June 20-22 in Rio.
The Rio+20 summit, the fourth major gathering on sustainable development since 1972, will press world leaders to commit themselves to creating a social and “green economy,” with priority being given to eradicating hunger....
Addressing the gathering Thursday, Brazilian President Dilma Rousseff appealed for “a development model that articulates growth and job creation, battles poverty and decreases inequalities,” and advocates for the “sustainable use and preservation of natural resources.”
Read it at Dr. Housing Bubble
The Federal Reserve recently came out with an unprecedented analysis directed to the Committee on Financial Services regarding various methods to improving the housing market. The paper is striking because it magnifies how little was learned from this banking and housing debacle. One of the big recommendations centers on creating a “REO to rental” program by facilitating bulk sales to large investors. Ironically the Federal Reserve by bailing out select banks has allowed home values to remain inflated thus causing this backup in inventory to emerge in the first place. Setting that obvious point aside, let us examine the merits of an REO to rental program.
Planting zones are retreating north all over the country, but the United States Department of Agriculture (USDA) won’t state the obvious: the shift is a rock solid indicator of climate change.
On Wednesday, the USDA released a new plant hardiness zone map, which contours the nation according to average annual lowest winter temperatures. The new zones analyze these temperatures for the period 1976-2005, updating a 1990 version of the map, which covered 1974-1986.
Interactive map: USDA upgrades Plant Hardiness Zone MapAlthough these zones, which serve as a guide to the kinds of plants that can grow, have shifted north in most areas, USDA shied away from making a climate change connection.“The map is not a good instrument for determining climate change,” said Kim Kaplan, a spokeswoman for the USDA’s Agricultural Research Service. “It’s not that there hasn’t been global climate change it’s that the map isn’t a good (vehicle) for demonstrating it.”
USDA’s line of reasoning in perplexing. Climate data are used in USDA’s analysis and the northward jog in planting zones is fully consistent with other data and indicators that establish warming of the coldest temperatures in the U.S. (and most locations globally).
Europe is getting tougher on government debt. After more than two years struggling to rescue financially shaky governments, leaders of the 17 countries that use the euro are ready to agree on a treaty that will force member countries to put deficit limits into their national laws.
At first glance, it seems logical – after all, the crisis erupted after too many governments spent and borrowed too much for too long.
But a number of economists – and some politicians – say the focus on cutting deficits is misplaced and that more fundamental problems are being left unaddressed.
It's how the euro was set up in the first place, they say – one currency, but multiple government budgets, economies moving at different speeds and no central treasury or borrowing authority to back them up.
Until those institutional flaws are tackled, the economists say, the euro will remain vulnerable. So far, Greece, Ireland and Portugal have turned to other eurozone governments and the International Monetary Fund for emergency funds to avoid defaulting on their debts.
Nonetheless, European leaders are pushing a new anti-debt treaty as the leading edge of their effort to reassure markets. European Union leaders hope to agree on the treaty's text at a meeting starting Monday, and sign it by March.
The proposed treaty pushes countries to limit "structural" deficits – shortfalls not caused by ups and downs of the business cycle – to a tight 0.5 percent of gross domestic product or face a fine. That comes on top of other recent EU legislation intended to tighten observance of the eurozone's limits: overall deficits of 3 percent of GDP and national debt of 60 percent of GDP.
European leaders are also urging countries to improve growth by reducing regulation and other barriers to business.
Read it at heteconomist
My concern here is with the position of the Monetary Realists on full employment as such. Sometimes they seem to suggest that full employment should not be a policy objective on the grounds that unemployment and, by implication, slack labor markets are conducive to efficiency and high productivity. At other times, they instead make the claim that full employment could be achieved through means other than a Job Guarantee, or even that full employment would occur as a matter of course once other objectives (e.g. “Full Productivity”) were met. In my view, both these claims are unfounded. The latter, in particular, has no legitimate basis in economic theory.
Read it at TruthDig
Such calamities, devastating for those affected, have important implications for how we think about the role of government in our future. During natural disasters, society regularly turns to the state for help, which means such immediate crises are a much-needed reminder of just how important a functional big government turns out to be to our survival.
Non-economists might expect professional economists to pay great heed to these indicators—after all, surely private debt affects the economy? However, the dominant approach to economics—known as “Neoclassical Economics” —ignores them completely, on the a priori grounds that the aggregate level of private debt doesn’t matter: only its distribution can have macroeconomic impacts.
The argument is that a rise in debt merely indicates a transfer of spending power from a saver to a borrower. The debtor’s spending power rises, but saver’s spending power also falls, so in the aggregate there will only be a macroeconomic effect if there is a very large difference in behaviour between the saver and borrower.
Therefore only the distribution of debt matters, not its level or rate of change.
US Federal Reserve Chairman Ben Bernanke provided precisely this rationale to explain why neoclassical economists ignored Irving Fisher’s “debt-deflation” explanation of the Great Depression (Fisher 1933), and he also asserted that the differences in behaviour between saver and borrower could not be large enough to explain the Great Depression....Not only New Classicals think this, but also New Keynesians.
Similarly, Nobel Prize winner Paul Krugman argued recently that the aggregate level of private debt was not a factor in the GFC: only its distribution could be. He therefore developed a model in which the distribution of debt, rather than its level, was the causal factor...Steve shows goes on to show why this is wrong thinking.
"People will accept austerity if we also talk about growth," Danish Prime Minister Helle Thorning-Schmidt said.
PORTO ALEGRE, Jan 27, 2012 (IPS) - For five centuries, Europe has taken it upon itself to enlighten the world, teaching it ways to address and overcome crises, from ideas and wars to missionary work and genocides.
But it forgot it only held a part of the world's knowledge and now it is on the verge of the abyss, and it is time for a different approach.
That is the assessment made by Portuguese sociologist Boaventura Sousa Santos who spoke to an audience of 300 at the Thematic Social Forum (TSF), which is being held from Jan. 24 to 29 in the southern Brazilian city of Porto Alegre and surrounding municipalities.
The TSF is an offshoot of the World Social Forum that originated in this same city in 2001.
This year's edition of the TSF focuses on "Capitalist Crises, Environmental and Social Justice" and has drawn some 10,000 participants.
The thematic meeting also promotes a future of widespread radical democracy, social relations based on the respect for human rights, and an end to international power structures that divide the world into a "centre" and a "periphery".Read the rest at IPS
There clearly is a class of people willing to sacrifice the livelihood and well-being of others in pursuit of their ideological goal of a smaller government (so long as their own future remains secure). The notion of "expansionary austerity" was the cover, but so long as government shrinks as a result of the policy, the expansionary part is secondary. If reducing the size of government slows the recovery, that's a small price to pay for such a worthy goal -- for them anyway, the power behind this is in no danger of becoming unemployed. The main thing is to impose the small government ideology whenever there is a chance, and to use whatever argument is needed to serve that purpose, austerity is expansionary, tax cuts pay for themselves -- whatever works -- the ideologues will even embrace Keynesian economics if it allows them to argue for tax cuts that might further "starve the beast" (e.g. see Bush's argument for the first round of his tax cuts). But in the end the goal is a simple one, reduce the size and influence of government, and everything else is just a means of getting there.Read it at Economist's View
This week, Angela Merkel set out her chilling vision of the EU as a federal superstate:"My vision is one of political union ... We need to become incrementally closer and closer, in all policy areas ... Over a long process, we will transfer more powers to the [European] Commission, which will then handle what falls within the European remit like a government of Europe. That will require a strong parliament. A kind of second chamber, if you like, will be the council comprising the heads of [national] government. And finally, the Supreme Court will be the European Court of Justice."
2011 saw the joyful removal of unelected tyrants across North Africa. Meanwhile, to the north of the Mediterranean, Greece and Italy saw their duly elected leaders deposed, and replaced with unelected ones. Ironically, perhaps, the first leader to be deposed was the Greek president -- pushed from power in the very cradle of democracy itself. Why? Because he dared suggest that the Greek people might want a democratic referendum on Europe.
In a matter of days, these two deposed leaders -- Papandreou and Berlusconi -- were replaced with seasoned and loyal Eurocrats. Yet this was not the handiwork of the EU, as such. In fact, the legitimate institutions of the EU have been sidelined in much the same way as the elected governments of Europe's democratic nation states.
The real power in Europe is now vested in the Groupe de Francfort -- the Frankfurt Group. At last year's G-20 summit in Cannes, some delegates could be seen sporting badges identifying them as members of Europe's new power nexus, which had been founded just weeks earlier in Frankfurt. Reuters quickly -- and not inaccurately -- dubbed the Frankfurt Group the Eurozone's "politburo."
It consists of German Chancellor Angela Merkel, French President Nicolas Sarkozy, IMF chief Christine Lagarde, as well as the heads of the ECB, the Eurogroup finance ministers, the European Commission and the European Council. Essentially, the group consists of unelected technocrats, led by a Franco-German axis. However, its real power lies with Merkel and Sarkozy -- and the real power within "Merkozy" lies with Merkel. Therefore, without any democratic mandate to do so, Angela Merkel and her coterie are now openly seeking a radical federalisation of Europe -- merrily subsuming ancient nation states and riding roughshod over the basic principles of democratic accountability.
At the individual level we have seen unambiguous signs that the economic climate is contributing to discontent. Public sentiment has undergone a distinct shift, and we can be far less certain that a return to previous levels of economic growth can erase this dissatisfaction. Through the Occupy Wall Street movement and other demonstrations, we have heard not only a message of anger at the current situation, but the desire for something else; for something more. The search is underway, particularly among the young people of the world, for a new model of growth.
A fundamental assertion for any new growth model, that is, dynamic and inclusive growth, is that three basic elements -- the economy, society, and the environment -- are each integral and must all contribute to overall improvement. Such thinking is not superfluous or a luxury that can only be afforded during periods of strong economic performance. It is critical to recognize that we must seek to provide not only prosperity, but also leave behind a healthy social and natural environment for future generations.
The new growth model must, in other words, impart more than economic gain. In recent years governments around the world, including Japan, have quietly turned their attention to research into the question of happiness and quality of life. How do we measure, or even define, such a concept? What factors contribute? In an era when so many people face stark economic challenges, does it even matter? Fundamentally, how do we meet the needs of society, and of future generations?
Research and, one could argue, the message from demonstrations around the world, would indicate that the contribution made by society and the environment play an integral role in ensuring our citizens realize their personal goals. Such factors are therefore critical to both prosperity and sustainability; an important part of the new growth model.Read it at The Huffington Post
Austerity supporters are selling the idea that governments, like families, must cut back when income shrinks. But economically, governments are not like families.
Firing teachers, cops and government clerks will, for sure, reduce public spending. But budgets, like the song of the Sirens, are only part of the story. Listen only to the alluring lyrics and, like the many voyagers before Odysseus, we will suffer disastrous consequences - in our case falling incomes and worsening economies.
The full economic story begins with this principle taught to every economics student: spending equals income and income equals spending. Cut spending and incomes must fall; cut incomes and spending must fall.
Those who disagree with this say that only private spending can create wealth and that government spending is inefficient. I think the first argument is wrong, but the second is often true, which is why citizens need to pay close attention to their government.
When private spending shrinks, then either government spending must grow to make up for it or the other side of the equation, income, must shrink.
If we increase spending today by borrowing, we create a claim on future income. Families with debt must divert part of their future income to interest and principal to service that debt or go bankrupt. Governments are different, provided they have monopoly control of their currency. By definition, no sovereign government can ever go broke in its own currency.
WASHINGTON -- Union membership grew slightly last year, giving labor leaders hope that a period of steep declines has finally bottomed out.The number of unionized workers increased by about 50,000 to nearly 14.8 million members in 2011, the Bureau of Labor Statistics reported Friday. The increase comes after unions lost nearly 1.4 million members over the previous two years.Still, unions' share of the overall workforce fell, from 11.9 percent to 11.8 percent, as state and local governments trimmed thousands of jobs to address budget shortfalls. That's the lowest percentage of union workers since the Great Depression in the 1930s.Unions saw losses of about 61,000 workers in government employment. But they grew by 110,000 workers in the private sector, mainly in construction and health care. Despite that growth, unions still represent just 6.9 percent of all workers at private companies, unchanged from 2010.
"The devastating losses from 2009 and 2010 have stopped and that's got to be good news for the labor movement," said John Schmitt, a senior economist with the Center for Economic and Policy Research in Washington.
Schmitt said another positive for unions is that private sector membership grew at about the same rate as overall job growth.
Union membership has declined steadily from its peak of about a third of all workers in the 1950s, and about 20 percent in 1983. The losses have been especially steep in private industry with the loss of manufacturing jobs that traditionally are heavily unionized.
"It is telling that as our country begins to recover the jobs lost during the Great Recession, good union jobs are beginning to come back," said AFL-CIO President Richard Trumka.
As private sector union membership eroded, labor leaders turned increasingly toward workers in state and local governments, where there was often less resistance to organizing. About 7.6 million employees in the public sector belonged to a union last year, compared with 7.2 million union workers in the private sector. And public-sector workers had a union membership rate of 37 percent, more than five times that of private-sector workers.Read it at The Huffington Post
CHICAGO (Reuters) – The percentage of workers represented by a union dipped slightly in 2011, the Bureau of Labor Statistics said on Friday, as organized labor came under attack in states once considered union strongholds, including Wisconsin and Ohio.
In 2011, 11.8 percent of U.S. workers were represented by a union, the BLS said, down from 11.9 percent in 2010 and compared to a peak of 28.3 percent of the workforce in 1954.Strip out government workers, where 37 percent of the work force nationally is unionized, and union penetration of private industry was just 6.9 percent in 2011, unchanged from 2010.
The total number of union members actually grew slightly last year, to 14,764,000 from 14,715,000 in 2010. But the number of workers represented by organized labor remained steady while the overall number of workers employed in the economy grew, the BLS said.
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.
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
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
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
Read it at mainly macro
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.
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
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.
Euthanize the rentier. — John Maynard KeynesKling 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.
...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?"
"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.
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 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.
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 it at Reuters
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.
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.
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
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.
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
INET video interview
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.
Read it at VOX.eu
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 The Slatest
The nation drops 27 places in annual index thanks to the harsh treatment of reporters covering the protests.
Read it at New Deal 2.0
Wall Street is funneling money toward error-riddled studies that stand to muddy the important conversation about implementing Dodd-Frank.
Read it a CNBC NetNet
This underlines a long-running thread here at NetNet: corporate governance matters much less than basic morality. You can set up all the rules you want but if the people running the company are not of high moral character, you'll get cheating, self-dealing and dishonesty. Rules matter less than ethics.
In recent years, however, an organisation called National Popular Vote (NPV) has been pushing an innovative plan to achieve the outcome of a national popular vote, although not by eliminating the electoral college.
The plan is based on idea by Dr. John Koza, chair of NPV. Koza told IPS he's "not one hundred percent sure" when he came up with the idea. "It's been growing for some time. I lost a bet in college where I thought the U.S. Constitution specified how votes (delegates) were awarded. In fact, it doesn't."
The NPV plan is to convince a sufficient number of state legislatures to change the way they allocate their delegates to giving all of their delegates to whoever receives the most votes from U.S. citizens nationwide, that is, to whoever wins the national popular vote.
NPV determined that if enough states to make up a majority of the electoral college delegates agreed to do this, the presidential candidate who receives the most votes nationwide would, by default, become president.
Over the past few years state legislatures having been doing just that, and NPV is quietly drawing close to its goal of having enough states sign on to declare victory.
NPV has been enacted by states possessing 132 electoral votes, making up 49 percent of the 270 electoral votes needed to activate it.
These states are California (55 delegates), Hawaii (four), Illinois (20), Maryland (10), Massachusetts (11), New Jersey (14), Vermont (three), and Washington (12), in addition to Washington, DC (three).Read it at IPS
Almost all university departments and research institutes are now financed directly or indirectly by big business or governments entirely controlled by multinationals through their lobbies and networks.
A key point to grasp is that the mechanistic world vision suits big business, whereas the alternative holistic subtle vision does not.
Mark Thoma asks for thoughts on the following point:
"Psychologists mock what economists call the microfoundations of consumer behavior…. That this framework is suitable for aggregate systems in a globalized economy simply because the tribe called economics has agreed to adhere to these ad hoc assumptions makes no sense. Increased interactions with disciplines that economists have often mocked as unscientific would greatly improve economists’ understanding of the real world and would be more truly scientific. …"
Wouldn't it be nice, Francis Fukuyama writes in an article called "The Future of History" in the current issue of Foreign Affairs, if some "obscure scribbler ... in a garret somewhere" would "outline an ideology of the future that could provide a realistic path toward a world with healthy middle-class societies and robust democracies."
This ideology, Fukuyama goes on:
"could not begin with a denunciation of capitalism as such, as if old-fashioned socialism were still a viable alternative. It is more the variety of capitalism that is at stake and the degree to which governments should help societies adjust to change. Globalization need be seen not as an inexorable fact of life but rather as a challenge and an opportunity that must be carefully controlled politically. The new ideology would not see markets as an end in themselves; instead, it would value global trade and investment to the extent that they contributed to a flourishing middle class, not just to greater aggregate national wealth.
"It is not possible to get to that point, however, without providing a serious and sustained critique of much of the edifice of modern neoclassical economics, beginning with fundamental assumptions such as the sovereignty of individual preferences and that aggregate income is an accurate measure of national well-being."
Last week I wrote about the time-of-use pricing scheme that PG&E offers in San Francisco, and how solar power is worth 14% more compared to a standard flat-rate electricity plan. In reality, it's 36% or more.
In the interest of simplicity, I only looked at the rates PG&E charges for using up to ~250 kilowatt-hours (kWh) per month (their "baseline" rate). But baseline rates only apply to the first 3,000 kWh consumed per year, one-third the U.S. average. Very few customers use so little electricity.
Rather, most customers will consume electricity in Tier 2, which applies to consumption from 3,000 to 6,900 kWh per year, or even Tier 3, which applies to consumption up to 14,500 kWh. And the electricity rates in these tiers are substantially higher.
Obama identified the need for a level economic playing field as "the defining issue of our time" in his State of the Union address Tuesday night, according to early excerpts of his speech made available to the press.
"No challenge is more urgent. No debate is more important," the president said. "We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules." [emphasis added]Read it at The Huffington Post
The U.S., in purple with a Gini coefficient of 0.450, ranks near the extreme end of the inequality scale. Looking for the other countries marked in purple gives you a quick sense of countries with comparable income inequality, and it's an unflattering list: Cameroon, Madagascar, Rwanda, Uganda, Ecuador.
“The American Dream is in trouble right now,” Dr David Madland, director of the American Worker Project at the Center for American Progress think-tank, told AFP. “It is becoming harder and harder to achieve than it once was.”
“There is a perception among a lot of folks that the game is rigged, and there is a widespread view that those at the top have figured out a way that benefits only them,” Madland said.Read it at Raw Story
PORTLAND, Ore (Reuters) – Thousands of disabled Oregonians are stuck segregated in dead-end jobs at “sheltered workshops,” in violation of federal law, because of failed state programs that should help them find mainstream employment, according to a landmark lawsuit filed on Wednesday.
Sheltered workshops, sometimes called “work-activity programs,” are facilities funded by state and local agencies and nonprofit groups around the country that provide jobs to disabled people performing basic, unskilled labor such as packaging or simple assembly tasks.
Workers at these facilities are typically paid less than minimum wage, according to U.S. labor standards for piece work.Read the rest at Raw Story
While intended as stepping stones to jobs in the competitive labor market, sheltered workshops have drawn fire from critics who say too many disabled people are being segregated and exploited by them. Those critics also say sheltered jobs tend to perpetuate a stereotype that disabled individuals are incapable of succeeding at real work.
The federal court suit was filed in Portland, he said, because Oregon once led the nation in providing vocational training services that helped integrate developmentally disabled workers into actual community-based jobs earning minimum wage or better.
But since the mid-1990s, the lawsuit said, “Oregon has reversed course, increasing its reliance on segregated workshops while simultaneously decreasing its development and use of supported employment services.”