Bill Mitchell – The NAIRU/Output gap scam reprise

It is Wednesday and despite being on the other side of the Planet than usual (in Helsinki at present) I am still not intending to write a detailed blog post today. I am quite busy here – teaching MMT to graduate students and other things. But I wanted to follow up on a few details I didn’t have time to write about yesterday concerning the role that NAIRU estimates play in maintaining the ideological dominance of neoliberalism. And some more details about the Textbook launch in London on Friday, and then some beautiful music, as is my practice (these days) on Wednesdays. As you will see, my ‘short’ blog post didn’t quite turn out that way. Such is the tendency of an inveterate writer.

Macroeconomics Textbook Launch – London, Friday, March 1, 2019

There are a few places left and the list closes 17:00 (Wednesday).
If you want to come, please E-mail me and I will get your name put on the door.

The program for the Book Launch in London of Friday is more or less decided:

17:00 Doors open (light refreshments will be served)Doors open (light refreshments will be served)17:20 A welcome from Macmillan International Higher Education & introduction to the launch of Mitchell, Wray & Watts: Macroeconomics 1e – (Philip Rees/Jon Peacock/Jon Finch)17:30 An introduction to the book! – Dr Sandy Hager (City University)17:45 Integrating the MMT approach into the delivery of Macroeconomics HE courses – Professor Heikki Patomaki (Helsinki University)18:00 A word from our author! – Professor Bill Mitchell (University of Newcastle, Australia & Director of CofFEE – (Centre of Full Employment & Equity, University of Newcastle))18:15-18:30 Q&As (compered by Philip Rees, Macmillan)18:45 Finish
Location: The event will be held at the Macmillan publishers complex at the Springer Nature – Stables Building, Trematon Walk, Kings Cross, London from 17:00 to 19:00.

Here is a short video introducing the features of the new textbook

Bill Mitchell – billy blog
The NAIRU/Output gap scam reprise
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — The NAIRU/Output gap scam

There is a campaign on the Internet calling itself CANOO (the Campaign against nonsense output gaps) which one Robin Brooks, economist at the Institute of International Finance and former Goldman Sachs and IMF employee, is pursuing. You cannot easily access his written memos on this because the IIF forces you to pay for them. However, there is nothing novel about his claims and the points he is making are well-known. However, they are points that are worthwhile repeating at loud volume because the implications of the ‘nonsense’ are devastating to the well-being of workers, particularly those most vulnerable to precarious work and unemployment. So while the CANOO is just dredging up old issues I am very glad that it is. The concept of biased estimates of output gaps and so-called ‘full employment unemployment rates’ goes to the heart of the way the neoliberal economists, who dominate policy making units in government and places like the IMF, the OECD and the European Commission, create technical smokescreens to justify their dirty work. The more people find out about the basis of the scam the better. I have been working on this issue (estimating, writing and publishing) since the late 1970s as a graduate student. So welcome Robin Brooks, and make a lot of noise....

Bill Mitchell – billy blog
The NAIRU/Output gap scam
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — US economy slowdown – not likely to be a trend

Fairly detailed look at the US economy and its prospects. Bill also looks at the output gap and how it is figured.

Bill Mitchell – billy blog
US economy slowdown – not likely to be a trend
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brian Romanchuk — Output Gaps And MMT

A commenter on my blog drew the article "Thin Air’s money isn’t created out of thin air," (by Michael Pettis) to my attention. It refers to output gaps, which appears related to my recent article on output gaps. In his article, he makes some statements about Modern Monetary Theory (MMT). Although I would put myself in the MMT camp, I would note that I cannot write on behalf of an official MMT line; I disagree on a few points, and it is unclear what the MMT position is on some topics.

Pettis' article is quite long and contains a great deal of content. Although I find myself in agreement with much of what he says, he packs in so many theoretical asides that I cannot hope to summarise them. As a result, I am not attempting to respond to his underlying thesis. Instead, I just want to highlight some hidden assumptions around output gaps.

What Does MMT Say?

My reading is that "MMT says" that involuntary unemployment, that is, unemployment in excess of transitional, estimated to be about 2%, is evidence of an "output gap" defined as idle resources that could be put to use. The assumption is that there is enough potential work and enough other resources to perform the extra work in order to eliminate involuntary unemployment by creating a job offer for all those willing and able to work and supporting those unable to work with transfer payments. The constraint is demand side inflation, which can be addressed by functional finance and a price anchor, that is, the JG wage paid for an hour of unskilled labor.

No need for economic models to determine the output gap, which is an unobservable theoretical construct. Instead "look at the length of the unemployment line."

That leaves measuring inflation. One way to do that is to observe the size of the JP pool. If there is no one in it, then wage pressure has risen.

Admittedly, this is a simplified conceptual model. But it conveys the point that government as currency issuer can always "afford" to employ available resources by purchasing any resources in excess of what the private sector is willing to purchase and which would otherwise be idle. The government can also address the price level using its power as the currency monopolist as well.

Under the concept of popular sovereignty, state sovereignty rests with the people acting through the representatives they choose, who are commissioned to act for public purpose rather than for private gain by interests. Under this framework, the people can expect that the government will be guided by the welfare state as a model that emphasizes the general welfare and common good, rather by a market state model that privileges interests and private gain.

Under a welfare state model in which the government as currency issuer can put all available resources to use continuously, full employment (excluding transitional) becomes a civil right.

Bond Economics
Output Gaps And MMT
Brian Romanchuk

Brian Romanchuk — Output Gaps And Inflation

The output gap is a key concept in mainstream economic analysis of inflation. Although I am not happy with the details of the standard analysis of what determines inflation, I use a weaker version of the standard output gap in my thinking. I refer to this version as the generalised output gap (GOG). In this article, I give a simplified summary of economic theories of inflation and how various conceptions of the output gap relate to this.

Bond Economics
Output Gaps And Inflation
Brian Romanchuk

Brian Romanchuk— U.S. Economic Growth - Mediocrity Rules

In summary, the dependence upon non-measured variables, of which we have little certainty as to their values, is a severe drawback of modern mainstream macro.

Bond Economics
U.S. Economic Growth - Mediocrity Rules
Brian Romanchuk

Corporatists Divide & Conquer ... By Getting The Plebes Arguing Over Crumbs

   (Commentary posted by Roger Erickson)

Reich & Hanauer Waste Political Capital Arguing Over Crumbs

They want to restore guaranteed overtime to more salaried workers - often middle "management."

Sadly, Reich & Hanauer are missing the point. Arguing details while missing the pink elephant in the room. Worse, their message is addictive for the Middle Class they say they want to save.

Overtime is profitable for corporations. It's how they nudge current staff back towards 80 hour workweeks instead of 2x as many people working 40 hours per work. That's bad for the Middle Class, however, since it reduces the number of people working, and also promotes private savings while reducing net consumption.

Instead, why not just lower all taxes on labor, so that the working class can consume more of what they're able to produce?

If citizens don't consume what they produce, someone just uselessly hoards that production .. which doesn't do anyone any good in the long run. 

In a social species, the best form of SAVINGS is full investment in co-citizen capabilities ... since they're the ones who look out for one another.

Increasing an Output Gap benefits even parasites only short term, by making their host transiently vulnerable ... so that the parasites can insert themselves into protected positions. Yet that protection only persists if the host's vulnerability is only transient. A sustained Output Gap guarantees that some other culture will have a higher Adaptive Rate, some culture with immunity to the current form of NeoLiberals.

There's a simple principle at work.

The pricing structure's connected to the monopoly supplier, and the monopoly supplier's behavior is connected to the Cultural Adaptive Rate.

If either connection is broken, the CAR stalls ... and we start to roll backwards.

Instead of more overtime, why not see all the way through, and raise wages, cut FICA/Medicare/labor taxes, mandate a 32 hour work week, and guarantee everyone 1 month of paid vacation per year? We'd have fewer McScrooge billionaires sitting on their hoarded "piles" lobbying for preparation H-bomb subsidies (corporate welfare) ... but we'd have a virtuous cycle of consuming more, thereby providing the incentive to produce ever more.

Reich's getting senile. I'd quit listening to him. And tell Hanauer to raise his aim about 10x higher, or not bother.

There are times when arguing over crumbs makes you miss the train. Then it's too late.

That's what Upper Looting Class parasites think they want, along with their mindlessly narrow NeoLiberal lapdogs. Divide & conquer, by getting the plebes arguing over crumbs. And, hopefully, keep 'em arguing long enough for the gravy train to slip out of the next station. Is it our goal to hunker down at some fixed station in life, or to be onboard the moving train of cultural evolution?

We used to know these things. Why do grandchildren have to re-learn ... the hard way ... things their grandparents knew, yet their parents either forgot, or weren't taught?

Nevertheless, as you can see below, whole citizen armies can be mobilized to argue over crumbs, and the Upper Looting Class never hesitates to spend whatever it takes to mobilize competing Plebe armies to divide and keep busy conquering one another ... FOR the ULC. Yes, division & recombination works, but through coordination ... not factional strife.

And yes, those plebe armies - staging social civil war for the profit of parasites - include occasional VCs, planted or not.

Riddle me this, propaganda man.

If a VC speaks out of paradigm in a plebe army (or sets his sights too low) ... does it matter, in the long term, what he says?

...

From: Robert Reich <info@democracyforamerica.com> 

Dear [Plebe] -- 

In November, President Obama issued an executive order on immigration, protecting millions of families from deportation. There's another action the President can take to help working Americans, without waiting for Congress:
He can direct the Department of Labor to expand the number of workers who can receive overtime pay, putting more money in the pockets of as many as 10 million Americans. 

Seattle-based venture capitalist Nick Hanauer wrote an important piece in Politico calling on President Obama and the Department of Labor to make more workers eligible for overtime. Nick and I have joined forces with Democracy for America to launch a petition to the president asking him to raise wages and create jobs by expanding overtime. Below is the email Nick sent to DFA members. 

I hope you'll sign Nick's petition. President Obama is listening. Let's give him the support he needs to expand eligibility for overtime pay in America. 

- Robert
Robert Reich
Former Secretary of Labor 

---------- Forwarded message ----------
From: Nick Hanauer via Democracy for America
Date: Fri, Nov 21, 2014 at 10:40 AM
Subject: SIGN MY PETITION: Tell President Obama to restore overtime pay! 

I'm getting rich and you're getting screwed. Sorry. But with a stroke of the pen, President Obama can make sure you get what you earned, without any congressional action at all. 

If it feels like you're struggling harder than your parents did, working longer hours for less money, it's because you are. Meanwhile, a handful of capitalists like me are growing wealthy beyond our parents' wildest dreams.
What's changed? Overtime pay. 

Your parents got a lot of it, and you don't. In 1975, more than 65 percent of salaried workers earned overtime pay -- today, just 11 percent do. That's because the federal government has allowed the overtime threshold to erode to less than the poverty line for a family four. Earn more than $23,660 a year, and business owners like me can make you work unlimited overtime hours for no additional pay at all. 

But to get the country back to the same equitable standards we had in 1975, the Department of Labor would simply have to raise the overtime threshold to $69,000. In other words, if you earn $69,000 or less, the law would require that you be paid time-and-a-half for every hour worked over 40 hours a week.
That would mean 10.4 million middle-class Americans with more money in your pockets or more time to spend with friends and family. And if corporate America didn't want to pay you time and a half, it would need to hire hundreds of thousands of additional workers to pick up the slack -- slashing the unemployment rate and forcing up wages. 

President Obama could also expand the ranks of workers eligible for overtime pay by ending the exemption that denies overtime to teachers, doctors, computer professionals, and many others. And he can do all this simply by instructing the Department of Labor to change the rules -- immediately putting money into the pockets of millions of American workers. 

That's why I'm joining Democracy for America and Robert Reich in calling on President Obama to do exactly that. Sign our petition to the president: Raise the overtime threshold to give more Americans the overtime pay they've earned! 

Many of my fellow capitalists will warn you that a higher overtime threshold would be a job killer, but the truth is, we already have more capital than we know what to do with. Corporate profits have doubled over the past 40 years to more than 12 percent of GDP; that’s about a $1 trillion a year in extra profits.
But rather than invest in creating jobs or raising wages, executives like me are mostly spending our windfall profits manipulating the price of our own shares through stock buybacks. In fact, over the past decade, public U.S. corporations have spent an astounding $6.9 trillion buying back shares, reducing the total outstanding, and increasing the value of the remaining shares owned by capitalists like me. 

We get richer. You get nothing. Again, sorry. But we're only playing by the rules -- rules that President Obama has the power to change. 

President Obama is showing that he isn't shy about using his executive powers to do good things for the American people. But the White House needs a strong public push -- the president needs to hear from as many of you as possible that overtime pay is to the middle class what the minimum wage is to the working poor, and that a stronger middle class is good for business and good for America. 

Join me, Robert Reich and Democracy for America in telling President Obama to instruct the Labor Department to expand overtime eligibility. Let's raise the wage and put more Americans back to work. 

Thank you for standing up for the middle class. 

- Nick

[Roger: Nick's heart may be in the right place, and he may be trying to do what he thinks is right, yet to me he's no Saint Nick. We have a class war to win, not just a Pyrrhic Victory to get sidetracked to. You don't win wars by orienting strategy to local tactics. Keep the end prize in mind ... or don't bother.]

Most Common Way To Entice People To Explore Their Own Options .. Is An Opportunity To Destroy Other People's Options?

(Commentary posted by Roger Erickson)



In email from Warren Mosler, this part was especially entertaining;

"[Auto] Manufacturers are experienced at gaming the [vehicles sold] numbers."

Imagine where we'd be if Gutenberg hadn't made the illegal move of inventing printing. Or what if permanent Copy/Patent-Right had gone back to the original AdaptiveRight and OpenSource of evolution - faster than it already is?

Seeing that much effort to avoid sharing data here in a mature USA industry sector makes one appreciate how mal-adaptive policy adaptive rate remains in less coordinated industries (e.g., Wall St.) and economies.

Plus, it makes you realize how vast the untapped potential of human nation-aggregates already is! Our dynamic Output Gap is always far bigger than the static output gap we already recognize.

And, war remains the most reliable way to recruit return-on-coordination?

Wait a minute. The easiest way to entice people to explore their own options are opportunities to destroy other people's options? Go figure!

BMHOTK!

What happened to "WE came. WE saw. WE made a more perfect union?" :(

The eventual epitaph of the USA may someday feature words from an old folk song, appropriately connected to un-prosecuted fraud. (Shades of banksters with loyal, misguided accomplices!)

Hang down your head dumb electorate,

hand down your head and die,

Hang down your head dumb electorate,

poor souls, you've gone bye-bye. 

Met ourselves in the mirror, there we took our lives,

met ourselves in the mirror, shot ourselves in the foot. 

(repeat Chorus) 

This time next context, reckon we could'a still been here,

'stead of just a past tense, swinging from an old memory; 

Met ourselves in the mirror, shot ourselves in the foot,

hadn't been for orthodox, we'd still be here with even more diversity.

Our old image in the mirror, didn't wanna see no change,

hadn't been for fixation on stasis, we'd still be dynamic and free.

(With apologies to Laura Grandchild)

They're A Bit More Honest In Canada? Maybe ETI Will Contact Them First?

(commentary posted by Roger Erickson)

Generation Screwed: Youth [have no purpose] struggle for jobs, home ownership

That's telling it like it is. Luddites are winning? Winning what?

Nevertheless, even Canadians are only a bit more honest than us here in the states. After all, what kinds of "experts" totally miss the point like the experts quoted in the next newsline from Canada?

BMO job cuts have little to do with sky-high profits
"Technology, sluggish economy mean job losses would occur despite how much banks make, experts say."

Huh?

Translation: We're squeezing water from a stone ... because we don't know what else to do with our citizens and nation. Might as well extract rising rents from our own citizens .. until our nation withers and dies. Our mantra is to do ANYTHING EXCEPT set new goals worthy of re-dedicating our nation, culture and populous to.

Why?

Is there a endgame plan at work here, even by default? I mean, other than parasites consuming the host they THINK they own? That's a dead-end game, not an endgame leading to expanding options. What on Earth has happened to homo sapiens? They used to be a social species, but seem to be reverting to hermit, cultural cannibals before our very eyes. Maybe we're lacking a cultural mirror ... more than any other missing piece of technology? Maybe banksters could hire all those citizens they deem "useless" to work on a cultural mirror system, and thereby help us regain group intelligence?

Until then, we'll continue with unchecked, purposeless rent extraction? Simply because we can? What is the Desired Outcome behind that?

That kind of pea brain outlook is equivalent to a parent saying they ate half the neighborhood children because technology made it possible ... and because they couldn't imagine any other options.

A little more imagination might be called for?

Personally, I'm sure that youth of this age have plenty of imagination - since they always have had, or else evolution wouldn't have occurred. Just because you CAN do things, that doesn't mean you SHOULD. Imagine being more adaptively selective! Isn't that what homo sapiens was named for? Are homo sapiens being replaced by NeoLiberals, or just stuck, temporarily in the no-evolution land between feudalism and further evolution? Growing an Output Gap for three thirds of us doesn't seem like much of a "way."

Adequate youthful imagination would likely be expressed quickly enough, as further cultural evolution ... if only the old farts would quit trying to hoard REAL national options that they can't take with them to the grave? Ya think? These are our kids, grandkids and great-grandkids we're talking about here. Why aren't we managing THEIR options, instead of uselessly trying to constrain OUR current fiat?

What kinds of "experts" miss that point? Those designing their own extinction? Like dinosaurs? Perhaps the kind that never interacted enough with their own kids to notice that there's no adaptive point in economic cannibalism?

We haven't seen such an anal, "bankster" outlook this widespread since ... well, really, since the pre-Christian era in Europe, or the pre-Buddhist & pre-Jain era in Asia. Certainly not since the Reformation and Renaissance. The bankster mentality has degenerated all the way back to class war and the culture of class-based vs nation-based mercantilism. Do we really want to return to squabbling subunits that pit "our" classes, clans, castes and tribes against all others ... INSTEAD of at least sticking together by national allegiance, reaping the insane return-on-coordination, assimilating all citizens, and creating even more, newer cultures, more ethnic diversity and more, newer mythologies?

Sure, we may envision a time when there is once again guaranteed mobility, at least for honest, non-toxic individuals & sub-groups whose negative reputations don't precede them. But do we really want to let a tiny cabal of existing uber-merchants (instead of Communists) Centrally Plan and rush this transition, without more careful consideration? Are we to trust Merchant Central Planners, just because they claim to be OUR central planners? Something seems amiss in the message they promote. Every prior rush to deregulate without re-regulating even more productively - by decentralized consensus - has only ushered in a chaotic period of rampant looting by whomever can get away with the initial deregulation. Somehow the CP-deregulators themselves never get around to decentralized re-regulation again. By definition, it's beyond them. It's simply not in their repertoire.

Well, gag me with a Luddite and call me stupid! 'Cuz I don't see the point in being NON-SELECTIVE about deregulation. At all. We're throwing our entire next generation out with the nominal, fiat bathwater this time. Tune the damn system, carefully, rather than just looting components willy nilly?

There is no way to hoard static assets without growing a group Output Gap.

And tempo matters. 50% cultural degradation this year is FAR, FAR worse than 100% cultural growth next year.

Why? Because the evolutionary value of Dynamic Assets leaves the value of Static Assets in the dust. That's why social species succeed, and why homo sapien cultures outstripped other primate species. It's far smarter to stay fully invested in growing dynamic assets, than to stupidly hoard static assets. That means investing in Democracy, NOT just in personal ownership of more static assets. The whole strategy of social species is 2-stage optimization: keep the components alive AND grow the system (faster than either can grow when working at cross purposes). Instead, humans in NeoLiberal regimes are reverting to negative rates of interest in expanding group intelligence.

"Banksterism AND Busted Evolution" - that's become our motto. Some twisted minds even posit that as doing the work of one or more gods. SETI results are suggesting otherwise.

Talk About An Output Gap! It'll Persist Until We Lower The Barrier To Activating Group Intelligence

(commentary posted by Roger Erickson)

@#$%^&!!   Humans are capable of so much more than this!

The Ebook "Taken," documents horrors of child sex slaves

Why, in the 21st century, even as a 4th nation launches missions to Mars, is such a waste of human talent still so persistent and widespread?

The bigger story here is that dumb or neglected policy mistakes cause 10x more harm than all the damage which material aid mitigates, worldwide. That is exactly HOW and WHY "need" always rises to exceed humanitarian donations, year after year.

If we don't FIRST export examples, training and practice of improved policy making before blindly throwing material aid at tasks .... we ALWAYS encourage more looting than adapting, as the dominant, systemic local adjustment?

There is not a single situation on Earth that can be easily improved without paying attention to systemic, context-dependent inter-dependencies FIRST!

Tune the damn system! NOT just some of the components!

How? By helping people carfully tune their own contexts, before letting outsiders disruptively tinker with components in contexts that outsiders CANNOT be adequately familiar with!

Otherwise, it's usually as bad as pouring more gas into a leaking gas tank, in a rusting car with dangling parts still spewing sparks. Really? We can send a rocket ship to Mars, but we can't solve simple process problems in our own neighborhoods? Seriously?

If Data is Meaningless without Context .... then - frankly - the long term outcomes of random aid are meaningless too, unless interventions are carefully tuned to context, instead of just tinkering with random components.

Two partners need to practice together, if new dance steps are the desired outcome.

People trapped in a given context are - by definition - digging themselves into a hole, and need greater perspective more than anything else. If you as an outsider offer to help, they'll invariably ask that you jump in and help them dig.

Outside contributors have an equal but different dilemma. They have additional perspective, but inadequate "domain expertise." They cannot possibly fully know the context of those who need help, or they'd BE one of them.

Adaptive solutions, as countless examples document, come from building joint experience through interactions, so that affinity and motivation follow. Then, and only then, can participants EXTEND their vision of desired outcomes (goals higher than simply digging the hole deeper). Only then can the people originally stuck in the hole decide how best to alter their tactics, and find a better way!

By the time that process is done, they'll invariably ask for something OTHER than more shovels - which is what is usually easiest to "justify." And, as Gen. Patton observed, the solutions they come up with will be unpredictable, and NOT worth impeding. Plus, they'll amaze you (and themselves) with their ingenuity.

Put it this way. For God so loved the USA that SHE instructed Patrick Henry, Tom Paine, Tom Jefferson, James Madison, Ben Franklin, John Adams et al ..... to write the US Constitution .... BEFORE trying to hand out free food and clothing.

[i.e., She suggested that they first use their heads, to direct how BEST to use their hearts. Rumor has it that it was their daughters, sisters, fiances, wives & mothers et al, who relayed that sensible message. :) ]

If only we'd develop and use ALL of our available brainpower, instead of following the myth that 50% of them - or less - is adequate.


ps: Why is it so often true that gentle Sacreligion prods the most good out of all people, including bureaucratically organized religions? Is it because all people - even religious ones - will do anything in their power to avoid thinking, until absolutely necessary? And because shared laughter, as a neural catalyst, reduces the risk of staying around and activating those brain circuits - which burn lots of calories in order to execute logical pattern matching?

And, what's our next step, now that there are ~320 million of us in the USA? If shared laughter is so critical for reducing the risk of activating thinking in individuals ... what is the corresponding analogy - group laughter? - that lowers the risk associated with actually activating and leveraging Group Intelligence?  Is it the shared, group-behaviors of group acknowledgement, group sharing, and extending group affinity? Possibly? How could we find out? Practice? Sounds like exploring the return-on-coordination. Why the heck isn't that "Job1" in all economics textbooks? Instead of all the banal drivel called ISLM?

Dylan Steelman, Samuel Ellenbogen, Scott Frank and Steve Bodenheimer — Should We Mind the Gap?

Authors are graduate students in Stephanie Kelton’s Macro Economic class at UMKC

Well done! Pace John Carney. :)

New Economic Perspectives
Should We Mind the Gap?
Dylan Steelman, Samuel Ellenbogen, Scott Frank and Steve Bodenheimer

The Sad Death Of An Adjunct Professor Sparks Some, But Too Little, Labor Debate, Possibly Too Late

Commentary by Roger Erickson

Here is another example of how more people in more professions every year are "just eking out a living" - without any explanation for why we should settle for that outcome.
The Sad Death Of An Adjunct Professor Sparks A Labor Debate
   (hat tip John Leonard)

With this kind of dis-coordination, our Output Gap must be - voluntarily - off the charts. We've been slogging away at our current course for over 30 years now. Isn't it past time to stand up, look around, and consider other options more carefully?

As a start, who are they, exactly, who are volunteering us for this suicide mission? Why? And to what purpose?

And if both their motives and desired outcome are suspect, where are the legions declaring "Hell No, We Won't Go" quietly into a state of total dis-coordination? If reducing our Output Gap is an alternative goal, then halting compliance with the anarchists is an obvious, early step. They can't volunteer us for self-assisted suicide if we simply refuse to cooperate.

If return-on-coordination - i.e., teamwork - is the highest return, by far, why are we throwing it away, instead of discarding stuff we DON'T need anywhere near as much? What other selections might we be making, instead? If there are so many options, why aren't we exploring them?

This is natural selection at work, folks, and at the moment WE are not selecting wisely. Is the sad death of the entire US Middle Class really our choice?

Bill Mitchell — The intergenerational consequences if austerity will be massive

Conclusion

What the hysteresis literature – both theoretical and applied – teaches us is that governments should do everything within their capacity to avoid recessions.

Not only does a strategy of early policy intervention avoid massive short-run income losses and the sharp rise in unemployment that accompany recession, but the longer term damage to the supply capacity of the economy and the deterioration in the quality of the labour force can also be avoided.

A national, currency-issuing government can always provide sufficient aggregate spending in a relatively short period of time to offset a collapse in non-government spending, which, if otherwise ignored, would lead to these damaging short-run and long-run consequences.

The “waiting for the market to work” approach is vastly inferior and not only ruins the lives of individuals who are forced to disproportionately endure the costs of the economic downturn, but, also undermines future prosperity for their children and later generations.

Bill Mitchell – billy blog
The intergenerational consequences if austerity will be massive
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

We're Back to Banksters Calling Thieves Crooked

Commentary by Roger Erickson

"A worldwide gang of criminals stole $45 million in a matter of hours by hacking their way into a database of prepaid debit cards and then draining cash machines around the globe, federal prosecutors said Thursday — and outmoded U.S. card technology may be partly to blame."

SO FREAKING WHAT?! Boo hoo!

TBTF banks stole $29TRILLION, PLUS our Output Gap!!
http://www.economonitor.com/lrwray/2011/12/14/the-29-trillion-bail-out-a-resolution-and-conclusion/

Worse, they can't wield or use either! It's just mindless hoarding of OUR fiat. $45million isn't even what banksters gave themselves as bonuses for getting away with their useless theft.

I'd take Robin Hood over the Fed & TBTF'ers any day. At least that $45 mil likely got spent into the economy.

Look, you don't just take the most stupid, criminogenic, sociopathic people in society ... and make 'em bankers. Or politicians either.

Finally, economists who didn't notice that we went off the gold std in 1933 - 80 YEARS AGO! - are whining about OTHER processes being obsolete?

How often can you sue the bastards for making your jaw drop?

(Is expectations theory simply a problem of perception?)

John T.Harvey — Austerity Leads To... Austerity!

Ever since this blog started about two years ago, I’ve been repeating over and over that what the economy needs is more deficit spending, not less. This is so because:

* We have plenty of idle capacity....

* The reason for the idle capacity is the systemic inability of the private sector to generate sufficient demand to hire every willing worker....

* The extra demand necessary to bring us back to full capacity and employment can come from foreign countries (i.e., US exports) or the public sector (i.e., the government)....

* Not only that, but the federal government does not face a budget constraint....

* The basic accounting is inescapable: public sector deficits = private sector income and public sector debt = private sector assets....

And so it is high time for an outright rejection of the austerity model for recovery. It doesn’t make sense theoretically, there is no empirical evidence, and it is illogical. Are the groceries that air traffic controllers used to buy gone? Did we have less stuff to go around and therefore needed to reduce their income so their demand wouldn’t just lead to inflation? Of course not, the groceries are still there, they are just sitting unsold on the shelf. The air traffic controllers are worse off, the grocery store is worse off, the farmers are worse off, and air travelers are worse off. Nothing positive have been accomplished. Austerity accomplishes one thing and one thing only: austerity. We demand aggregate demand.

Forbes — Pragmatic Economics
Austerity Leads To... Austerity!
John T.Harvey | Professor of Economics, Texas Christian University

Michael Stevens — How Much Fiscal Stimulus Do We Need?

How much fiscal stimulus would the government need to inject into the economy over the next two years in order to get the unemployment rate into the 5.5–5.9 percent range? In their newest strategic analysis, Dimitri Papadimitriou, Greg Hannsgen, and Michalis Nikiforos provide us with some harrowing answers.

Multiplier Effect
How Much Fiscal Stimulus Do We Need?
Michael Stevens

Replacing the Imaginary Fear of Fiat Currency Inflation, with Confidence in the Return on Coordination

Commenatary by Roger Erickson

Successful outcomes can always be interpreted in short, medium and long-term metrics.* For more pragmatic monitoring of cultural outcomes, how about promoting more distributed understanding of the following methods?

.. fiat currency accounting?

.. proportional population employment?

.. survival of the country (capabilities, affinity, options & output of the USA).

Yes, there are measures that let the public track success, but that doesn't mean that they're used. Most of our current cultural problems were very directly addressed by the Automatic Stabilizers enacted during the 1930s-1940s (social security, FDIC, unemployment benefits, etc). The first cultural method to be sysematically undermined was regulation of Control Fraud - despite the myth of the SEC, DoJ District Attorneys and the FBI actions against White Collar Crime - (google William K. Black), and that's only because we let absolute crooks and traitors like Alan Greenspan, Robert Rubin and Larry Summers bribe, sweet talk and BS our Congress into gradually deregulating financial crime, right up to repealing Glass-Steagall.

Everything else is policy war between local vs long-distance merchants** over currency supply, either restricting it to preserve the buying power of hoarded cash, or letting it depreciate to scale net national liquidity with national growth. Let's see how many people can grasp the following, dynamic systems argument.

How do we afford to pay the "fiat interest on fiat bonds."

If carried far enough, that discussion eventually leads to 2 points.

First, we can't fail to pay the interest, since we can always generate as much fiat liquidity units as we want.

So, second, the argument reduces to either

a) arbitrarily maintaining the purchasing power of previously hoarded fiat (liquidity units), by progressively depriving an increasingly complex economy of both relative liquidity AND return-on-coordination [That is, pay the fiat interest by draining private savings of previously issue currency; even though population, capabilities and cultural options are all increasing. Even fools don't want that, when faced with a choice. Only pure sociopaths do.]

or

b) Enlarge the fiat currency base [# of liquidity units] with expanded public spending initiative, thereby SUPPOSEDLY diluting the buying power of yesterday's liquidity units. Why? TO PROVIDE ENOUGH LIQUIDITY TO RAPIDLY EXPLORE THE EXPANDING OPTIONS FACING TOMORROW'S POPULATION! More people, more capabilities, more options worth exploring = better/faster/cheaper new stuff to buy with old liquidity units.

To be blunt, social species - and modern economies - work because Return-on-Coordination far outraces inflation. Inflation is just one - faux - aspect of the always affordable cost-of-coordination. There's only one return that exceeds the cost of coordination, and that's the immense return on coordination. Luckily R-on-C far outstrips C-of-C, always, if we just let it.

Our task is to scale liquidity proportionally with the product of population-x-capabilities, so that we can rapidly explore all our emerging group options.

That, in a nutshell, is the "SOCIAL-SPECIES OPTION." It's an easy choice for those with the brains to sense dynamic incentives. Chase the biggest return, dummy! It's a dilemma only for overly-isolated Luddites. Our task is evolve and stay in the adaptive race, by organizing on a larger scale ... or else become a has been culture, either extinct or a domesticated lunch source for some other, more rapidly adapting culture - i.e., one optimizing it's liquidity in order to explore it's expanding options faster than our culture does.

People who save static assets excessively, including hoarding fiat, aka, hoard public initiative, are constraining today's dynamic output and thereby depriving their grandchildren of expanded options.

Our granchildren's options are reduced without our full investment in generating those options. Our Output Gap => grandchildren's Options Gap, and the relationship is not linear, but exponential.

If our output gap is "j", their options gap is [j(e)], i.e., "j" to some unpredictable exponential "e".

That's how evolution has worked since the dawn of time. We die & get out of the way so that our descendents can be far more than we were. It's called sexual recombination, or cultural recombination, or - in general form - Options Recombination. If we don't allow our own culture to reconfigure as fast as it could - we preclude it from exploring it's exponentially expanding options.

(see the "Traveling Entrepreneurs Task")

This all follows from the simple, bottom-up dynamics of adaptive systems.

Walter Shewhart: "In all complex systems, the highest cost, by far, is the cost of coordination."

Obvious corollary: "In all complex systems, the highest RETURN, by far, is the RETURN on coordination."


* This previously appeared as a comment at Seeking Alpha, and a longer, discussion at Economic Intersect.

** Actually, the clan-war between long distance & short distance merchants is unnecessary. It's a non-cooperative battle to tilt policies to favor one or the other, beyond adaptive utility. Policies favoring long-distance mercantilism over local resiliency can easily spill over into reduced Adaptive Rate. Yet that happens only if we let it happen. Systems tilt into maladaptive process patterns only in the absence of adequate public discourse. We're not all stupid, just ignorant - and above all else, unpracticed - when it comes to grasping all the changing nuances of emerging Situational Awareness.

St. Louis Fed Lies to Students, Says We Must Have an Output Gap

commentary by Roger Erickson

So it's NOT a fiat Output Gap, and things HAVE to be this way? So says the St. Louis Fed!

Educators: A lesson for your students on the output gap

Prepared by Scott A. Wolla
Economic Education Group of the Federal Reserve Bank of St. Louis

excerpt

At the end of the third quarter of 2012 (August 31), total consumer debt stood at $11.31 trillion (see first chart). [at link]

Government Spending
In many ways, the government faces these same choices. Citizens have collective wants and the government attempts to satisfy these wants through its spending. Social Security, health care programs such as Medicare and Medicaid, and national defense are among the top federal spending categories. But the ability to satisfy our society’s wants is constrained by the level of government income, which is generated primarily by taxing workers and companies. Just like individuals who make spending choices, when the government chooses, there is an opportunity cost. If more money is spent on national security, the result might be less spending on health care. It is possible to raise taxes to provide additional income for the government to allocate, but that imposes further budget constraints on workers and companies who pay taxes—so, this policy choice also has opportunity costs. Of course, the government’s spending is not limited to tax revenue. Just as families can, the government can use debt to pay for some of its goods and services. At the end of the third quarter of 2012 (August 31), total federal debt stood at $16.07 trillion (see second chart).

What is the downside of government debt? 

Using debt to buy goods and services today means the government is borrowing future income (that is, tax revenue)—which means less income in the future for buying goods and services then. In addition, there is a limit to how much credit lenders (or investors) will extend to a country; they will avoid lending beyond the government’s ability or willingness to repay the loan or will do so only at very high interest rates.

[Wow! This author wouldn't know an option if it exploded inside what passes for his brain! In any other profession, the Fed could be sued for either fraud, for lying to the public, or for libel (insinuating that the electorate is as freaking dumb as the St.L-Fed implies) I can't wait to hear Scott Wolla's explanation for why we must saddle the current crop of college students with $1Trillon in debt, just to take their "proper" place in society.]

Up Against the Wall, Orthodox Ma's

commentary by Roger Erickson

Where does a lowly citizen go to get transaction liquidity? A local dealer or bartender?

"Bartender, gimme a case of liquidity."

Forget School Drug Sweeps. How About Congress Common Sense Sweeps?

Instead of complaining about rising stupidity, we can simply replace it, and crowd it out with adaptive suggestions, which are always more attractive, by definition. It's purely a matter of phrasing, and taking the time to know your audience (i.e., each other). We're all motivated, but the more of us there are, the harder it is to keep up with shifting communication channels and currently distributed themes.

So how about some Congressional Common Sense Sweeps? Ditto for school boards, blog discussion boards, and conversations in general? Surely it's possible to come up with - and use - an OpenSource index for how adaptive a discussion process is? Can we achieve a common taxonomy for describing adaptive discourse? That's one way to embrace accelerate use of escalating diversity.

Tom Hickey, in a recent comment, reminded us of an eternal truth, which I'll state even more generally. ALL information exchanges in organized networks boil down to attempts to parse, and then enlarge, "policy space." Warren Mosler calls this simply "exploring options." Charles Darwin said it's what adaptive species do, and William Thomson said it's what reverse-entropy networks do.

Shoot! We could do that.

We always do ... eventually ... in our spare time ... when we're not pursuing orthodoxy. All morons, no matter how credentialed or orthodox, eventually stop beating their heads against the walls of change, at a speed we refer to as Adaptive Rate. It really does feel better. We should try it more often, and even consider measuring it in real-time. Just as individuals use biofeedback, groups use culturofeedback, including terms like liquidity, Output Gap and group intelligence.

Policy Space Sweeps?

If we don't do such sweeps, then too often, when we trip over an adaptive option, we may just dust ourselves off and go about our orthodoxy as though nothing new had happened.

Here's a suggested theme song for a "Save Our Policy Space" campaign, to help people willing to cross dangerous lines.

"Up Against the Wall, Orthodox Ma's"

Where's the Pete Peterson Foundation HQ? I'll volunteer to walk in and order a case of liquidity. What's the worst they can do? Revoke my voting license for 6 months?

"Hey Gomer, gimme a case of that there leeeeQuidiTee! Pronto."
"We got a bunch of hairyAudacious citizens waitin' ta grease some option exploration. Wait'll ya hear the record. You won't recognize it at all, but I guarantee you're gonna like it."

Ever had your whole community beat up by a bunch of dumb-ass banksters?  We've all been there.  It's their mama's fault.  It's the way they was raised, but times are a'changin, as usual.  In 50 years, they'll be obsolete, and singing our tune along with us.

Civilian Employment-Population Ratio - Anyone Have a Plot Back to 1900?

commentary by Roger Erickson

The Civilian Employment-Population Ratio, is a more useful way to look at our Output Gap - since it is one indication of the fraction of our population actually utilized. In addition to net employment data, the St. Louis Fed office has many informative plots of employment data for men, women and other subcategories, going back to 1948. The net employment picture is not a pretty one.

Yet it would be even more useful to have a similar plot going all the way back to, say, 1900. Anyone have one?

ps: The only way this plot wouldn't be frightening is if ALL of those US citizens not employed by co-citizens had suddenly become owners of companies maintaining overseas employees. Unfortunately, that isn't the case.