Friday, September 30, 2011

David Sloan Wilson on evolution and economics

A flurry of recent activity indicates that evolution is beginning to occupy center stage in economic debates--and not a moment too soon.

Recently published books include Robert Frank's The Darwin Economy: Liberty, Competition, and the Common Good (in which he predicts that Darwin will eventually be regarded as the father of economics), Yochai Benkler's The Penguin and the Leviathan: How Cooperation Triumphs Over Self-Interest, Geoffrey Hodgson and Thorbjorn Knudsen's Darwin's Conjecture: The Search for General Principles of Social and Economic Evolution, and my own The Neighborhood Project: Using Evolution to Improve My City, One Block at a Time.

Behind the trade books is a growing academic movement, including a recently concluded conference organized by Denise Dollimore and Geoffrey Hodgson titled Evolutionary Thinking and Its Policy Implications for Modern Capitalism. As president of the Evolution Institute, I am privileged to function as a coordinator in addition to my own contribution, including a collaboration with NSF's National Evolutionary Synthesis Center (NESCent) on integrating economics and evolution. One result has been a white paper submitted to NSF titled "The Relevance of Evolution for Economic Theory and Policy", co-authored with economist John Gowdy and with 64 signatories, including luminaries such as Pulitzer prizewinner E.O. Wilson and Nobel laureate Elinor Ostrom....


"Fathers, do not vex your children, lest they may be disheartened." - Colossians 3:21


[veks] Show IPA
verb (used with object)

to torment; trouble; distress; plague; worry: Lack of money vexes many.

Yves Smith — Friedrich Hayek Joins Ayn Rand as a Hypocritical User of Medicare

The next time some Austrian schoolers bloviate about about Rand and Hayek direct them to the link below. Most damning of all, hypocrite-in-chief Charles Koch was implicated in getting Hayek "on the dole" in the US even though he lived abroad at the time.

Mish — Real Disposable Personal Income Drops Second Consecutive Month; Drop is Highly Deflationary

Mish parses the reported data on income decline. Read the whole post at MISH'S Global Economic Trend Analysis

This is doubly interesting because Mish is a subscriber to the Austrian school, and he is one of the few on that side that is calling deflation rather than inflation now.

Occupy Wall Street: "It Is a Revolution"

[Princeton professor Cornell] West, who compared the "U.S. Autumn" to the so-called Arab Spring, believed in the longevity of Occupy Wall Street, as long as protesters stay strong.

"I think we gotta keep the momentum going, because it's impossible to translate the issue of the greed of Wall Street into one or two demands," West stated.

"In the end, we are really talking about what Martin King would call a revolution - a transfer of power from oligarchs to everyday people of all colours. And that is a step-by-step process, it's a democratic process, it's a non-violent process – but it is a revolution."
Read the whole post at IPS, Occupy Wall Street: "It Is a Revolution" by Christian Papesch

This is a big thing and it is the real thing (not manufactured). It is going pretty much along the class and generational lines that Ravi Batra and Strauss & Howe have described.

Five ways #OccupyWallStreet has succeeded

#OccupyWallStreet has accomplished a great deal in the past week and a half, with virtually no resources. The following are some of the things the participants have done that allowed what might have been a negligible and insignificant protest to achieve a remarkable level of success:

1. They chose the right target.

2. They made a great poster.

3. They gave their action time to build.

4. They created a good scenario for conflict.

5. They are using their momentum to escalate.

Read the whole post at Energy Bulletin, Five ways #OccupyWallStreet has succeeded by Mark Engler

Martin Wolf gets it; why not Paul Krugman?

Martin Wolf is the chief economics commentator at the Financial Times and is one of the most influential economics writers in the world. He’s no radical for sure but today’s article entitled “Time to think the unthinkable and start printing again” could have been written by Abba Lerner himself. It completely debunks the accepted wisdom that we need austerity, that we’re tied to the whims of the financial markets, and that government deficits are some dire problem....
Read the whole post at Comments on Global Economic Policy, Martin Wolf gets it; why not Paul Krugman?

Kiss Chocolate and Coffee Goodbye?

Admittedly this is no joking matter, but chocolate may be what it takes to get some action on addressing global warming. And if coffee is similarly threatened, it's a sure thing.

California breaks from 50-state probe into mortgage lenders

California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation's biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.

Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation's five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, Harris told The Times on Friday.

The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street's role in the mortgage meltdown, Harris said.

“It has been a process of negotiating and sitting at a table in good faith, but ultimately I have decided that we have to go our own course and take an independent path. And that decision is because we need to bring relief to Californians that is equal to the pain California experienced, and what is being negotiated now is insufficient," Harris told The Times in an interview.

Harris delivered the news in a letter sent Friday to Iowa Atty. Gen. Tom Miller, who has been leading the 50-state coalition.

CA AG Kamala Harris joining NY AG Eric Schneiderman is a game-changer.

Matt Stoller gets it right about Occupy Wall Street

A lot of pundits are pontificating that the Occupy Wall Street protest is unfocused and needs clear goals expressed as political demands. Matt Stoller disputes this, saying essentially that the protest is actually about the hope and change that President Obama promised and then promptly caved on. It's a grassroots movement, not an orchestration by political activists.

That Yves Smith chose to post Stoller's piece at Naked Capitalism acknowledges not only the political significance of the protest movement that is gathering steam across the US, but also it's economic significance. The protest is, after all, about The Big Rip-Off, in which a few profited wildly on the backs of the many, with many of the many suffering horribly for mistakes in which they were not involved.

Read Stoller's post at Naked Capitalism, Matt Stoller: #OccupyWallStreet Is a Church of Dissent, Not a Protest. Kudos to Matt for writing it and to Yves (Susan) for posting it.

Also interesting is a report by David DeGraw of AmpedStatus on "How Anonymous, AmpedStatus, the NYC General Assembly, US Day of Rage, Adbusters and Thousands of Individual Actions Led to the Occupation of Liberty Park and the Birth of a Movement." Read it at Washington's Blog, A Report from the Frontlines: The Long Road to #OccupyWallStreet and the Origins of the 99% Movement.

While the Tea Party fades into the background, except as pushed by Fox News and astroturf organization like Dick Armey's FreedomWorks, there is a grassroots movement rising up that seems to transcend ordinary categories, at least so far, precisely because it is amorphous and unfocused, except on eliminating corruption. If there is a demand, it is for accountability and restitution.

But mostly it is about changing course. About 80% of Americans agree that the country is veering off course. So it is conceivable that this movement will have strong legs and could even go viral if conditions do not improve or worsen.

This is very much the trend that was predicted to arise at around this time by economist Ravi Batra in The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos (2007), and historians/social scientists William Strauss and Neil Howe in The Fourth Turning (1007). Although Batra's most recent book was published in 2007, his initial published work dates back to The Downfall of Communism and Capitalism (1978).

Colbert explains political money-laundering

Steve Keen — 1,000,000 economists can be wrong

Not only did the global financial crisis catch the vast majority of economists completely unawares, they instead expected tranquil and even buoyant times just as the biggest economic crisis since the Great Depression began. My favourite such observation is from the OECD‘s Economic Outlook for June 2007—in which the Chief Economist suggested that, “the current economic situation is in many ways better than what we have experienced in years . . . Our central forecast remains indeed quite benign.” But there are countless other such utterly wrong prognostications about the economy, from the profession that is supposed to be the font of wisdom on the economy.

Those “in the know” understand that this is not an isolated failing. The Neoclassical model that dominates economics today is riven with logical and empirical fallacies. If economics were a real science, it would have long ago been overthrown and replaced by something more realistic.

Yet at least 90% of academic economists believe in this model, as do almost all economists working in government and private industry. Left to their own devices, they will continue thinking that this model does describe the economy as the real economy falls deeper and deeper into a crisis, even though their model says that this can’t even happen.

Since economics has failed to clean out its own intellectual stable, it will be the public that finally forces reform upon it – as once-supporters like Anatole Kaletsky of The Times calls for “a revolution in economic thought” and George Soros funds an Institute for New Economic Thinking. With luck, in a decade or two, a more realistic approach to economics might emerge. But in the meantime, here’s a simple guide for the public: Anything the vast majority of economists believe is likely to be wrong.

Steve takes on the myth that free trade is necessarily efficient.

...Since capital is destroyed when trade is liberalised, the watertight argument that trade necessarily improves material welfare springs a leak. If economics were a real science, this real-world complication to Ricardo’s argument would be considered, but it has never been seriously addressed.

These and many other failings that explain why, when Dani Rodrik took a careful look at the empirical record of trade liberalisation, he found that it had frequently reduced material welfare rather than increasing it. Writing back in 2001, he summarised his findings for Foreign Policy magazine with the statement that:

“Advocates of global economic integration hold out utopian visions of the prosperity that developing countries will reap if they open their borders to commerce and capital. This hollow promise diverts poor nations’ attention and resources from the key domestic innovations needed to spur economic growth.”

As an economist who has specialised in dissecting the empirical claims for the role of free trade, Rodrik has the might of the majority of the profession against him. As noted above, that’s a good rule of thumb that Rodrik is right.

Thursday, September 29, 2011

Robert Reich — The Moral Question

...All this [cutting vital spending] would be bad enough if the economy were functioning normally. For these cuts to happen now is morally indefensible.

Yet Republicans won’t consider increasing taxes on the rich to pay for what’s needed – even though the wealthiest members of our society are richer than ever, taking home a bigger slice of total income and wealth than in seventy-five years, and paying the lowest tax rates in three decades.

The President’s modest proposals to raise taxes on the rich – limiting their tax deductions, ending the Bush tax cut for incomes over $250,000, and making sure the rich pay at the same rate as average Americans – don’t come close to paying for what American families need....

What Professor Reich does not mention is that the supposed need to balance the budget either in the short term or the long term is itself a moral argument and not economic one. According to MMT, there is no good economic reason for balancing the budget or hitting a debt target over any period, in relation to any other figure like GDP, or in absolute terms.

A government that is sovereign in its own non-convertible floating rate currency is constrained only by inflation, and monetary inflation does not occur in the presence of an output gap and less than full employment (although relative price differences can occur, e.g., from supply pressure).

The entire debate over the deficit and debt needs to be exposed for what it is — magical thinking and moralizing rather than sound economic reasoning based on theory and data. Deficit doves are simply aiding and abetting deficit hawks in their errors.

Taxes do not fund spending, and neither does borrowing. A government that is is the monopoly provider of a non-convertible floating rate currency is not financially constrained. The only constraint is the availability of real resources, and issuing currency in excess of the economy's ability to expand to meet ensuing effective demand will be inflationary. That is never an issue in a deep recession like this one.

In such times as these, government has a moral obligation to provide the amount of currency needed to increase effective demand in the direction of closing the output gap and restoring full employment.

Rothbardian fail?

The blogger known as 'Lord Keynes' appears to have caught the Rothbardians in a logical contradiction. From the post "If Fractional Reserve Banking is Fraudulent, Why isn't the Insurance Industry Fraud": "First, virtually all business investment and insurance industries could be regarded as inherently instable, like FRB, because the future is uncertain. But the insurance industry – just like FRB – can be operated profitably over long periods and is stable. When some unforeseen event happens like a massive natural disaster, the insurance companies could be overwhelmed by claims and collapse, because they cannot pay. If all or a very large number of the policy-holders of an insurance company suddenly needed insurance payments over a brief period, the company might not be able to honour all its claims or find a credit line to allow it to do so. But that is not an even remotely serious argument against insurance, because all business activity involves risk and uncertainty, and both clients of a business and the business itself can never escape uncertainty and the possibility that the business’s contracts might not be honoured."

Jeremy Rifkin— Distributed Capitalism

Energy regimes shape the nature of civilizations... how they are organized, how the fruits of commerce and trade are distributed, how political power is exercised, and how social relations are conducted. The locus of control over energy production and distribution is beginning to tilt from giant fossil fuel based centralized energy companies to millions of small producers, who are generating their own renewable energies in their dwellings and trading surpluses in info-energy commons.

Distributed Capitalism

The new era will bring with it a reorganization of power relationships across every level of society. While the fossil fuel-based First and Second Industrial Revolutions scaled vertically and favored centralized, top-down organizational structures operating in markets, the Third Industrial Revolution is organized nodally, scales laterally, and favors distributed and collaborative business practices that work most effectively in networks. The "democratization of energy" has profound implications for how we orchestrate the entirety of human life in the coming century. We are entering the era of "Distributed Capitalism."

Excerpted from Jeremy Rifkin's The Third Industrial Revolution: How Lateral Power is Transforming Energy, the Economy, and the World, Palgrave Macmillan 2011.

We can quibble over numbers and the exact set of calculations, but the data I observe indicate that as of last year, we were wasting something like 86 percent of all the energy we threw at the economic process.

That means that, as an economy, we are only 14 percent energy-efficient! As one might imagine, that massive level of waste imposes an equally huge array of costs that further constrain the development of our larger economy. The five pillars in Rifkin's Third Industrial Revolution may be the only smart way forward as the synergies of each pillar lift the economy into a higher level of energy efficiency, economic productivity, and sustainability.

The good news is that many in the business and policy communities increasingly see energy efficiency as a smart, no-regrets investment opportunity for the U.S. Just one example?

It turns out that our current system of generating and delivering electricity to our homes and businesses is an anemic 32 percent energy efficient. That is, for every three units of coal or other fuel we use to generate the power, we manage to deliver only one unit of electricity to our homes and businesses. What we waste in the generation of electricity is more than Japan needs to power its entire economy! What is even more astonishing is that our current level of (in)efficiency has been essentially unchanged since 1960 -- since Eisenhower was in office.

And yet, there are larger numbers of Third Industrial Revolution technologies that can improve our performance. Combined heat and power (CHP) systems, for example, can deliver efficiencies of 70-90 percent or more, at a substantial economic savings. There is also an incredible array of waste-to-energy and recycled energy technologies that can further increase our overall resource efficiency and save us money.

My colleagues at the American Council for an Energy-Efficient Economy and I are working on an analysis showing that we could reduce our cumulative energy consumption by as much as one half even as we nearly triple the size of our economy by 2050.

Hayek the hypocrite?

Was Friedrich von Hayek on Social Security and Medicare? According to an article in The Nation, he may have been. The very fabric of the universe is unraveling: "A few weeks later, the institute reported the good news: Professor Hayek had indeed opted into Social Security while he was teaching at Chicago and had paid into the program for ten years. He was eligible for benefits. On August 10, 1973, Koch wrote a letter appealing to Hayek to accept a shorter stay at the IHS, hard-selling Hayek on Social Security’s retirement benefits, which Koch encouraged Hayek to draw on even outside America. He also assured Hayek that Medicare, which had been created in 1965 by the Social Security amendments as part of Lyndon Johnson’s Great Society programs, would cover his medical needs".


With everything that’s going on in Europe and the continuing political charade in America, you might easily be distracted. But there’s another far more important story developing in other regions of the world. And in my opinion, it’s as important and perhaps more important than these other headline grabbers out of Europe and America.

In the last few months we have seen a persistent weakness in trends out of the BRIC nations. This is important because the countries have been the one truly strong leg in the global recovery. This has been nowhere more apparent than in corporate earnings. While domestic revenues have remained flat to down, international companies continue to experience strong growth on the back of this growth. But the trend appears to be changing....

Read the whole post with charts at Pragmatic Capitalist, FALLING LIKE A BRIC…

Anybody seeing a pattern developing?

"Occupy Wall Street" Protest Links Up With Locked-Out Teamsters

Expanding their reach beyond the confines of Wall Street, a dozen activists from the ongoing Occupy Wall Street action disrupted an art auction at Sotheby’s last week.

The protest supported 43 union art handlers, members of Teamsters Local 814, who were locked out August 1 by the tony art seller.

Occupy Wall Street, organized mostly through social media, began protests in lower Manhattan 12 days ago, calling on “the 99%” to confront the “greed and corruption of the 1%.”

Disguised as potential bidders, the activists entered the building and interrupted the auctioneer one at a time as bidding on an item reached $130,000.

The protesters staggered their interruptions through a period of 75 minutes with shouts to “end the lockout” and “make Wall Street pay.”

They were escorted off the premises by security with no arrests....
Read the rest at TruthOut.

This is potentially significant in that this did not happen during the student countercultural and antiwar movement of the Sixties and Seventies, when labor and blue collar workers in general opposed them. as DFH's. This may be a whole new ballgame in opposition to The Big Rip-off. This trend seems to be gathering steam globally.

Update: Washington's Blog, Wall Street Protest Growing

Major Unions Join Wall Street Protest
The Teamsters Union and New York Transit Workers Union have thrown their support behind the Wall Street protests.
Alexander Higgins – reporting live from the protests – notes that United Airlines pilots marched in the protest wearing their full pilot uniforms....

Much more

Mish — China Unraveling?

Here is an interesting email from reader "Kevin" regarding the crashing loan-shark market in China....

At the end of the post, Mish provides links to other posts that point to difficulties developing in China.
The Shanghai stock market depicts a credit bubble that collapsed in 2008, partially rebounded, and is sinking once again.

China did not decouple from the global economy, nor is there any reason to believe it will, or should. China's debt bubble, housing bubble, and copper Ponzi financing schemes are collapsing.

Copper Ponzi Scheme: See Ponzi Financing Involving Copper Trade Gone Wild In China for details of a copper financing scheme now gone bust.

Shark Loans: See Ponzi "Shark Loans" Fuel China's Housing Bubble; Home Sales Plunge 44% in Xiamen; Bubble Busts in Tianjinfor details on how loan shark operations fueled China's real estate bubble.

Ghost Cities: I have done many stories on China's ghost cities, most recently World's Biggest Property Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties

Property Loans Halted: Property Loans Halted in China's 2nd and 3rd-Tier Cities; Is China's Spectacular Real Estate Bubble About to Pop?

All of these schemes are starting to unravel in a major way.

Wm. Hogeland — “Occupy Wall Street” and the History of Democratic Finance Protest

Given some of my key subjects, I can’t help but be interested in the “occupy” movement that, at the moment, has a few hundred protesters more or less living in Zuccotti Park near the New York Stock Exchange in lower Manhattan, and is apparently starting to engage in similar protests in other cities. You can’t find out much about this action via “mainstream media,” and even much of the left media, such as it is, has been critical in some cases, and outright dismissive in others, regarding the movement’s evident formlessness and absence of specific goals.

That absence is pretty much undeniable. Still, in Salon, Glenn Greenwald has shrewdly criticized liberal-Democrat scorn for Occupy Wall Street. On the other hand, Mother Jones criticizes the movement on bases other than those that Greenwald attacks. . . .

But I write about the deep, founding roots of rowdy, American populist protest and insurrection, often visionary and even utopian, yet informed and practical too, specifically over money and the purpose and nature of public and private finance. And despite my pop-narrative books on the subject, and despite my articles here, and in such place as (articles picked up by AlterNet, Huffington, Salon, Naked Capitalism, and others), key indicators of my relative impact (like royalty statements!) give me a sneaking suspicion that most people still don’t connect the American founding period with a rugged drive on the part of ordinary people for equal access to the tools of economic development and against the hegemony of the high-finance, inside-government elites who signed the Declaration and framed the Constitution and made us a nation.

Sometimes people even ascribe democratic ideas to the famous upscale American Revolutionaries, who to a man actually hated democracy and popular finance. Paine, the exception, was ultimately rebuked and scorned by all of the others...
Read the whole post at Hysteriography, “Occupy Wall Street” and the History of Democratic Finance Protest by William Hogeland.

Hogeland is a historian who writes about US economic history. If you are not familiar with his posts on the formation of the US economic and financial system, which were reposted at New Deal 2.o some time ago, I suggest catching up on them at his site, or at the New Deal 2.0 archive where they are conveniently collected.

Wisdom or Magical Thinking?

There are heterodox economists and there are heterodox heterodox economists. John Michael Greer belongs in the later category. He has just put up a post that is fun and interesting if you are into philosophical wonkiness. (Probably not for everybody.) But his conclusion is something we all need to be thinking about:
Thus we’ve arrived as a society, and at a very late stage in the game, at the same point that classical philosophy reached after the execution of Socrates, when it became uncomfortably clear that having a small minority of people passionately interested in asking and answering the right questions was no guarantee against catastrophic levels of collective stupidity.

The Neoplatonist answer was a personal answer, the development of a toolkit to make clear thinking and decisive action possible for anyone with the self-discipline, patience, and persistence to put the tools to work, and it’s as valid an approach now as it was in the days of Iamblichus—though it’s only fair to say that there are other ways of getting to the same place, some similar, some very different.

The question that comes to many minds these days, though, is whether something similar can be done on the large scale—whether, to be precise, it’s possible to banish enough baboonery from our collective conversation about the future that we as a society can confront the real sources of our problems and do what has to be done. We’ll talk about that next week.
Read the whole post at The Archdruid Report: Druid perspectives on nature, culture, and the future of industrial society, A Preparation for Philosophy by John Michael Greer. Greer is the Grand Archdruid of the Ancient Order of Druids in America and the author of more than twenty books on a wide range of subjects, including The Long Descent: A User's Guide to the End of the Industrial Age, The Ecotechnic Future: Exploring a Post-Peak World, and the forthcoming The Wealth of Nature: Economics As If Survival Mattered.

Can we scale up wisdom necessary for survival in a fast-changing environment that requires increasing our adaptability rate and coordination in order to keep up with the pace of change?

Tea Partiers want dollar coin and why it is a terrible idea

Over at TPM, Ryan Reilly has an intriguing post about the interest of some tea partiers for a new circulating dollar coin because it supposedly will save the federal government money. This follows a story in the Huffington Post from a week ago about how Rep. David Schweikert (R-AZ) introduced a bill that would eliminate the dollar bill and substitute dollar coins.

Here's some very personal and U.S. history about the dollar coin and why this is a terrible idea that is really nothing more than a corporate subsidy....
Read the whole post at CapitalGainsAndGames, Tea Partiers Want A New Dollar Coin And Refuse To Listen To The Free Market In The Process by Stan Collender

CMI Report — BEA Adjusts Second Quarter GDP Growth Rate Upward


Even at face value the reported 1.34% growth rate is either sluggish or pathetic, depending on your chosen inclination to spin. When a more reasonable "deflater" is used to calculate the "real" numbers, the second quarter is actually shown to be in contraction. And when using such alternative BLS inflation data the most recent past quarter is the 2nd consecutive "real" quarter to have such negative growth -- meeting one of the common definitions of a new recession.

The restive public clearly understands this -- even if the academicians at the BEA don't. The public has been seeing their (per-capita) "slice of the pie" contract now for six months, and no amount of well spun "sluggish growth" can alter their view of a shrinking reality.
See complete CMI report at Consumer Metrics Institute, BEA Adjusts Second Quarter GDP Growth Rate Upward

Matt Taibbi — A New Movement in the Making?

Tax the rich?

With polls showing strong public support for tax hikes on the rich, Republicans should hardly relish a fight with President Obama over “class warfare.” And yet, for weeks, GOP leaders have been bashing the White House for a tax plan that affects just 2 percent of U.S. households and lets the rest of us off the hook.

How is this smart politics?

Maybe it isn’t, but sticking up for the rich is more popular than one might think – and not just in Palm Beach. America is a famously aspirational country and Republicans have long sought to ally themselves with that ethos. If you want to make a pile of money, the GOP is the party for you – or so they say. It vows to clear away barriers to getting rich, like pesky employer healthcare mandates and environmental rules, and let you keep more of your winnings.

Meanwhile, the conservative story goes, all the left cares about is social leveling. Democrats want to punish the successful in order to subsidize the losers, leading us toward a dreary future in which America’s hot shots no longer even make an effort and everyone ends up poorer. As Fox News puts it, Obama favors “takers” over “makers.”
Read the rest at Reuters, Why the GOP defends the wealthy by David Callahan

This is all about framing. MMT shows how the debate can be framed successfully by showing how wider distribution of effective demand (and therefore income) results in a more efficient economic system that yields more for everybody.

Wednesday, September 28, 2011

Morgan Stanley Report on the European Debt System

Morgan Stanley, European Economics and Strategy, A Panorama of the European Debt System at Scribd

(h/t Zero Hedge)

A peek behind the veil.

Liquidity Networks

No currency will work unless people accept it from each other so this novel money will be put into circulation as a way of rewarding those who are accepting and spending it most.

As deflation bites, some people are thinking out of the box about money.

Democracy or Technocracy?

Americans’ frustration with the federal government is at or near all-time highs. Peter R. Orszag, President Obama’s former budget director, expresses a similar sentiment. In an article for the New Republic, he argues for taking power away from a gridlocked government and giving it to “independent institutions” that will make decisions without undue pressure from politicians or voters.

As Mr. Orszag is well aware, this approach is hardly foolproof. See Catherine Rampell’s response for a good critique.

But I want to note how popular the plan is. It might be less unpopular than you would think....
Read the rest at The New York Times: Stealth Democracy by John Sides

Democracy at risk?

Hundreds of thousands of disillusioned Indians cheer a rural activist on a hunger strike. Israel reels before the largest street demonstrations in its history. Enraged young people in Spain and Greece take over public squares across their countries.

Their complaints range from corruption to lack of affordable housing and joblessness, common grievances the world over. But from South Asia to the heartland of Europe and now even to Wall Street, these protesters share something else: wariness, even contempt, toward traditional politicians and the democratic political process they preside over.

They are taking to the streets, in part, because they have little faith in the ballot box....

Read the rest at The New York TimesAs Scorn for Vote Grows, Protests Surge Around Globe by Nicholas Kulish

Yahoo!/Shiller: The economy has deteriorated significantly since July

Some video featuring Yale's Robert Shiller mostly related to his main area of focus, home prices. But in the interview, he discloses his observation that: "the economy looks weak now". So he must be looking at some type of real time data on general economic activity in advance of the standard government data releases on the economy.

Fiscal flows indicate a forced dose of fiscal drag was implemented by the government sector during the "debt ceiling" debacle back in the summer, and perhaps this is what Shiller is now picking up on this in his advanced data. Since August 3rd, fiscal flows have been re-established and any economic weakness due to this temporary fiscal drag should be corrected going forward.

Interview with Michael Hudson

A transcript of a September 11 interview with Michael Hudson is now available for viewing at Naked Capitalism. Hudson discusses the boondoggle that is the European Union, speculation in commodities, financial fraud in the U.S., and much more.

An except:

"So employees and employers pay much more into the system than is paid out.

That’s the idea: to save enough in advance, beyond what you currently have to pay, to lend the revenue to the government to cut taxes on the rich. It’s pay-in-advance rather than pay as you go. Pay much more than the government needs at present, so that the Treasury has enough money to slash the income tax that wealthy people have to pay. You can follow the Treasury Bulletin or the Federal Reserve Bulletin to see how the savings of the Social Security Administration go up every year – and are lent to government. (George W. Bush wanted to put this money into the stock market to create a stock-price boom that would enrich Wall Street – and would collapse once the flow of funds was reversed and more stocks were sold to pay retirees than new employees paid in. Thank heavens that potential bubble was averted.)

The result that we have today is not really a Social Security system. It’s a system of taxing employees instead of the rich. This tax shift increases the cost of employing people in the United States. That is one of the reasons, in addition to the housing costs, that prices America out of world markets.

The system that financial lobbyists have put in is designed to tax labor and siphon off so much that American labor cannot compete in any market in the world except in arms markets and special markets, and food. So what they call free-market efficiency is crippling the efficiency of the United States by adding to housing costs and adding needlessly to the Social Security and Medicare costs.

There’s no need for these pre-savings to have taken place. Workers could have kept much more of their wages and the government would have had to maintain higher taxes on the rich. But the Republican policy was to tax labor and un-tax wealth – class war with a financial fist.

Since we’ve talked about Social Security, what about the new Super Congress – the Committee of 13, with Obama being the 13th member? What is the composition of this committee, and what automatic budget cuts will go into effect in November if Republicans reject the Obama budget?

The Super Congress is made up of people that President Obama has selected largely because they want to cut Social Security. They pretend that it must be paid as user fees, in advance, to stem the budget deficit that has resulted from untaxing the estates of billionaires – the super-rich – and continuing the regressive tax shift that has been underway since the 1980s.

The basic rule of high finance is that big fish eat little fish. Millions of Americans have put their paychecks into Social Security. Just as corporate raiders set their eyes on emptying out pension funds to pay themselves (and their stockholders and bondholders), so financial lobbyists are seeking to raid the Social Security fund. Their motto is, “Let’s take the employees’ money and give it to ourselves.”

President Obama’s “Main Street” is Wall Street. His talent as a politician is to get votes from Main Street and deliver policies to Wall Street. He actually seems to believe that Social Security should be cut back to give money to his major campaign contributors. The rich are his constituency today, just as they were for George W. Bush. So Obama may cast the deciding tie-breaking vote, but as we’ve spoken on your program before, he’s already appointed people to the Budget Commission and the Social Security Commission when he was first elected, people who want to cut back Social Security by pretending that there’s a crisis. Their working assumption is that if the government needs money the poor should lose, not the rich.

It’s hard for congressmen or senators to vote against Social Security and Medicare, because most voters are in favor of these programs. So President Obama’s strategy is to take the Social Security issue out of Congress – and give himself an opportunity to posture during late September and October to propose pro-labor policies that he knows a Republican Congress will reject, thereby triggering the “automatic” budget cutbacks he negotiated in August with the Republicans.

If you look at who the campaign contributors of the Super Committee, they’re mainly in the financial sector. Even if they committee members are unpopular, they’re going to be able to retire with such high paying jobs in the financial sector. This is what the Japanese call Descent from Heaven. They’ll get their payoff for taking the heat on stiffing the Social Security recipients for their Wall Street constituency.

I’m amazed that there’s not more of a political reaction against this. People have worked hard to save for Social Security out of their paychecks. These are real savings. For Republicans to characterize these payments as an “entitlement” is to treat the elderly as if they’re mere welfare recipients freeloading off the rich – while it’s actually the banks and big fortunes that have been given the handout.

If the Bush and Obama Administration can give $13 trillion to the banks to save them from taking losses on their bad investments, then why can’t they give another trillion to Social Security? The reason is, there’s a class war on. If you don’t realize this, then you’re not going to understand what politics is all about these days.

However, it’s not the kind of class war that people talked about a century ago. It’s fought in the financial arena. The idea is for the big sharks to take the savings of the little savers. They exploit labor not by employing it – as in Marx’s description in Vol. I of Capital – but financially, by loading it down with debt and making labor spend a working lifetime to pay it off. So instead of the wage slavery socialists used to talk about, you have debt peonage today".

Read the entire article here.

Tuesday, September 27, 2011

Jeremy Rifkin on The Third Industrial Revolution

The Third Industrial Revolution is the last of the great Industrial Revolutions and will lay the foundational infrastructure for an emerging collaborative age. The forty year build-out of the TIR infrastructure will create hundreds of thousands of new businesses and hundreds of millions of new jobs. Its completion will signal the end of a two-hundred-year commercial saga characterized by industrious thinking, entrepreneurial markets, and mass labor workforces and the beginning of a new era marked by collaborative behavior, social networks and boutique professional and technical workforces. In the coming half century, the conventional, centralized business operations of the First and Second Industrial Revolutions will increasingly be subsumed by the distributed business practices of the Third Industrial Revolution; and the traditional, hierarchical organization of economic and political power will give way to lateral power organized nodally across society....

Like every other communication and energy infrastructure in history, the various pillars of a Third Industrial Revolution must be laid down simultaneously or the foundation will not hold. That's because each pillar can only function in relationship to the others. The five pillars of the Third Industrial Revolution are (1) shifting to renewable energy; (2) transforming the building stock of every continent into micro-power plants to collect renewable energies on-site; (3) deploying hydrogen and other storage technologies in every building and throughout the infrastructure to store intermittent energies; (4) using Internet technology to transform the power grid of every continent into an energy-sharing intergrid that acts just like the Internet (when millions of buildings are generating a small amount of energy locally, on-site, they can sell surplus back to the grid and share electricity with their continental neighbors); and (5) transitioning the transport fleet to electric plug-in and fuel cell vehicles that can buy and sell electricity on a smart, continental, interactive power grid....

The creation of a renewable energy regime, loaded by buildings, partially stored in the form of hydrogen, distributed via smart intergrids, and connected to plug-in, zero-emission transport, opens the door to a Third Industrial Revolution. The entire system is interactive, integrated, and seamless. When these five pillars come together, they make up an indivisible technological platform--an emergent system whose properties and functions are qualitatively different from the sum of its parts. In other words, the synergies between the pillars create a new economic paradigm that can transform the world.

To appreciate how disruptive the Third Industrial Revolution is to the existing way we organize economic life, consider the profound changes that have taken place in just the past twenty years with the introduction of the Internet revolution. The democratization of information and communication has altered the very nature of global commerce and social relations as significantly as the print revolution in the early modern era. Now, imagine the impact that the democratization of energy across all of society is likely to have when managed by Internet technology.

The Third Industrial Revolution build-out is particularly relevant for the poorer countries in the developing world. We need to keep in mind that 40% of the human race stills lives on two dollars a day or less, in dire poverty, and the vast majority have no electricity. Without access to electricity they remain "powerless," literally and figuratively. The single most important factor in raising hundreds of millions of people out of poverty is having reliable and affordable access to green electricity. All other economic development is impossible in its absence. The democratization of energy and universal access to electricity is the indispensible starting point for improving the lives of the poorest populations of the world. The extension of micro credit to generate micro power is already beginning to transform life across the developing nations, giving potentially millions of people hope of improving their economic situation.

Europe to get financial transactions tax?

Europe looks set to shrug off US objections and go it alone with a financial transactions tax, an EU source said Tuesday, with Brussels due to imminently release proposals likely to raise a storm even within the bloc's ranks.

Shock Doctrine at work again — USPS?

Today, postal workers and their supporters are holding events across the country to press their demand for repealing the benefit-funding mandate and push back against calls for their workplace to be privatized. For months, Americans have heard dire warnings about the impending collapse of the United States Postal Service due to fiscal insolvency and a drop in the use of mail service. In early September, the U.S. Postmaster General told Congress that the USPS is close to default and unveiled a series of radical proposals to cut costs by firing up to 120,000 workers, closing several thousand facilities, scaling back deliveries, and reducing benefits for retirees. But many postal workers say the much-touted crisis facing the U.S. Postal Service is not what it seems. They argue the greatest volume of mail handled in the 236-year history of the postal service was 2006. They also point to a 2006 law that forced the USPS to become the only agency required to fund 75 years of retiree health benefits over just a 10-year span, and say the law’s requirements account for 100 percent of the service’s $20 billion in losses over the previous four years, without which the service would have turned a profit....

Are We Headed Into A Recess/Depress-ion? The Answer In 9 Simple Charts

If a picture is worth a thousand words, then nine graphs must be roughly equivalent to nine thousand words. 'Nuff said. Take a look-see.

David Graeber — With No Future Visible, Young Activists Have Few Options but to "Occupy Wall Street"

Is it really surprising that young protesters on Wall Street and around the world would like to have a word with the financial magnates who stole their future?

And then there was $500 bln more

On Thursday, the government’s checkbook increased by $500 billion. Just like that.

Where did it come from?

Was a tax levied on people and businesses in that amount?


Did they find it laying around in some gov’t warehouse?


Did we dig it up out of the ground? Perhaps a quantity of gold in that amount?


It came from nowhere. We just said, we now have $500 billion more.

That’s it. By decree, which is exactly where all fiat money comes from.

And that’s where all fiat debt comes from, too.

And fiat debt is paid with fiat money so there is no debt per se, or at least not in the sense that most people imagine.

Is it inflationary?

No. Just ask gold traders who bought on that belief. Or forex traders who’ve been selling the dollar on that belief.

That $500 bln allows the government to keep writing the checks.

And it’s all about who writes the check.

Monday, September 26, 2011

Crisis and opportunity

Watch this viral video of trader Alessio Rastani delivering blunt information about the state of the markets:

Daniel Little — Justice is a security issue

Most people would probably say they would prefer to live in a more just world to a less just one. There is a strong moral basis for preferring justice. But is this a consideration that states and large international organizations need to take into account as they design their strategies and plans for serving their present and future interests? Do national governments have good practical reasons to think about the consequences their policies and actions may have on the circumstances of justice in the world? What about policies and actions through which states attempt to secure their future economic wellbeing -- do policy makers need to pay attention to the social justice consequences of these actions?

There is a strong empirical and historical case for thinking that the answer to this question is "yes." Injustice is a source of resentment, indignation, and conflict. In the long run, the victims of injustice will not be ignored. Justice is a security issue for states and supra-national organizations, and simple prudence demands that policy makers take it into account. To put a simple label on this idea, justice is a security issue....
Read the whole post at Understanding Society, Is Justice A Security Issue?

Steven Keen gets grant for model

THE global financial crisis, the latest episode of which boiled over last week, did more than destroy wealth and jobs, or embarrass the rating agencies. It exposed the malaise within the economics profession and the deep flaws in its orthodox theories.

George Soros, the billionaire financier and philanthropist, was among those who joined the search for new ideas. Mr Soros funded a new organisation called the Institute for New Economic Thinking which for the past two years has handed out millions of dollars in grants, funding research projects that look at economics in fresh ways.

This month, the institute gave more than $125,000 to an Australian.
Steve Keen, Associate Professor of Economics and Finance at the University of Western Sydney, has won a grant to turn his money-based model of the macro-economy - which draws on the theories of economists such as Hyman Minsky and John Maynard Keynes - into a computer program for students and economists.
Read the full article at The Sidney Morning Herald, It's time to put money into the equation, says professor

Technology Now Exists to Reduce Emissions by 85% by 2050

The technology needed to cut the world’s greenhouse gas emissions by 85% by 2050 already exists, according to a joint statement by eleven of the world’s largest engineering organisations….

The statement says that generating electricity from wind, waves and the sun, growing biofuels sustainably, zero emissions transport, low carbon buildings and energy efficiency technologies have all been demonstrated. However they are not being developed for wide-scale use fast enough and there is a desperate need for financial and legislative support from governments around the world if they are to fulfil their potential.

Meet the new boss, same as the old boss

Meet Jens Weidman, the new Bundesbank president: "

"Behind the glass facade of ECB headquarters in Frankfurt, a fierce battle over fundamental beliefs has been smoldering for months. ECB President Jean-Claude Trichet and the majority of his colleagues are willing to rush to the aid of embattled EU finance ministers and to make major purchases of the sovereign bonds of debt-ridden euro-zone countries, such as Greece, Portugal and Italy.

For his part, Weidmann is strictly opposed to these measures. He believes they amount to an unacceptable means of financing states through effectively printing money. In fact, he has come to assume the mantle of the last staunch defender of monetary stability".

Read the rest here.

Cops in NYC violently subdue and arrest peaceful protestors

As per Tom Hickey's post's getting ugly.

Olberman nails it! Speaks out on the corruption of our system and how we have little time left

Sunday, September 25, 2011

New MMT blog

Fred Decker recently launched a blog called Modern Monetary Theory — Public Analysis Of Fiscal And Monetary Policy. Several good posts are up already. Here is one on Functional Finance, Economics in the “Golden Age of Capitalism”.

Fred is a financial type who is into modeling, so expect some serious MMT modeling from him. He has already put up some previews based on Steven Keen's approach. He has a download page for his latest work, Latest news, download page, manifestos, and True model update. Fred's already taken on the false government as household budget analogy with simple models in Deficit and Deceit.

Welcome aboard, Fred Decker.

Warning — Trend changing

My gut feeling from ingesting a lot of information, the particulars of which I am not going to cite in this short opinion piece, is that the trend is swiftly changing from a disinflationary environment to a deflationary one. Significantly for markets, this is also becoming the perception.

Convergence of perception and reality may presage big changes in behavior. This could spark the second leg down in the GFC that began with the collapse of Bear Stearns and hit crisis mode with the failure of Lehman Bros. In the interim three years, the prevailing philosophy of TPTB has been "extend and pretend." Converging factors in the US, UK, EZ, Japan, and China are now conspiring to make extend and pretend no longer credible as the financial malaise further undermines the global economy and the hope of any sort of timely recovery is evaporating as a rescue plan.

However, the global ruling elite is still firmly fixated on perpetuating the status quo, making it impossible to address the causes of the crisis, which lead by debt overhang due to Ponzi finance. The ruling elite is still adamant about making themselves whole by squeezing the rest. This is not working as global effective demand dries up, along with confidence. Deflation threatens to set in, and it becomes established as money is hoarded, e.g., as a safety measure and in expectation of falling prices.

This appears to be the beginning of the next stage in unwinding of the Ponzi stage of the long financial cycle. If this is the case, expect debt deflation, recrimination, denial, rushes for the exit, and naked pursuit of self-interest to dominate at the top, with confusion, anxiety, and pain increasing at the middle and bottom, as well as political instability and social unrest rising due to this.

I wish I could be more positive about this, but it is not possible to be more sanguine given the prevailing narrative. As the situation worsens and panic sets in, the story is likely to devolve even more as everyone tries to improve their own position at the expense of others instead of increasing adaptive rate by exploring options cooperatively and attempting to coordinate a solution that benefits all. Of course, I could be surprised and would like to be.

One of the big factors in the difficulty finding solutions in this environment is the convergence of many factors involved in the causality owing to globalization. This crisis is therefore unique. We have not been here before, and there is no historical precedent for dealing with a crisis of this scope and this level of systemic risk.

The plan so far has been just to muddle along with ad hoc patches until the problem fixes itself. That plan is failing. Moreover, the situation is being exacerbated by the predominance of austerity in the current universe of discourse, not only by TPTB, but also on the part of a large swath of the population that equates household and government finance.

MMT shows that none of this is necessary, since there need be no lack of money in a global system based on non-convertible floating rate currencies to offset saving. However, due to both ignorance and narrow self-interest, this solution is neither being considered by TPTB nor advanced in the mainstream media, let alone implemented politically.

Michael Pettis on euro failure

Pettis concludes what I have suggested from the beginning of the crisis — Germany need to leave the EZ and go back to the DM, and political realities will force it to do so. This would save the euro, and then after the crisis is in the past, the EZ could be reconsidered. Otherwise, the asymmetry is too great for a workable solution, and there is no political will to take on the powerful financial industry that is largely responsible for the crisis.

Read the whole post at China Financial Markets, The euro once again

Testimony of Marriner Eccles to the Committee on the Investigation of Economic Problems in 1933

Today's must-read. (h/t Yves Smith)

David Andolfatto — Commodity money is back

You may recall hearing that earlier this year, J.P. Morgan began to accept gold as collateral for some types of loans. The story can be found here. Here is an excerpt:

"Gold hasn't reinvented itself as a currency yet. But it is getting closer.

"J.P. Morgan Chase & Co. said it will allow clients to use the metal as collateral in some transactions. For example, a hedge fund wanting to borrow money for a short period can put up gold as collateral and use the borrowings to invest elsewhere, betting on making a better return. Typically, banks accept only Treasury bonds and stocks in such agreements.

"By making the announcement, J.P. Morgan is effectively saying gold is as rock solid an investment as triple-A rated Treasuries, adding to a movement that places gold at the top tier of asset classes. It also is trying to capitalize on all the gold now owned by hedge funds and private investors that is sitting idle in warehouses."
Read the rest at MacroMania, Commodity money: It's back! (and it sucks)

Why does commodity money suck? Well, what happens when commodities tank?

(h/t Rob Parenteau via Yves Smith)

Saturday, September 24, 2011

Home Weatherization Grows 1,000% Under Stimulus

With a serious investment under the Recovery Act, WAP increased the numbers of homes weatherized by 1000 percent over any previous year since 1976. This means we are close to weatherizing as many homes in one month (25,000) as we previously did in one year. By the end of ARRA’s three-year lifespan next March, the WAP will almost double the number of homes upgraded in the first year of the program — bringing the total number of energy efficiency projects to 720,000.

Read the whole post at Think Progress, Home Weatherization Grows 1,000% Under Stimulus, Creating Jobs, Saving Low-Income Families $400 a Year by Jorge Madrid and Adam James

Siemens out of nuclear, into renewables

Speaking to Germany’s Der Spiegel newspaper Sunday, Siemens CEO Peter Loscher explained that the company did not see a future in building new nuclear plants:

"'The move is a response to the Fukushima nuclear disaster in Japan in March,' chief executive Peter Loescher said. He told Spiegel magazine it was the firm’s answer to 'the clear positioning of German society and politics for a pullout from nuclear energy'. 'The chapter for us is closed,' he said, announcing that the firm will no longer build nuclear power stations....."

Meanwhile, Siemens will continue to focus on renewable energy like wind, concentrating solar power and geothermal. Siemens’s Loscher told Der Spiegel that the switch to renewables is “the project of the century” and explained that Germany’s transition to 35% renewables by 2020 was very realistic.

Bank bailout continues under guise of European sovereign debt crisis

The multi-trillion dollar rescue of the banks that started in 2008 has not ended. It continues today under the guise of sovereign debt bailouts. And the cutbacks – to pensions, education, welfare, and public sector jobs – that wreak havoc on the lives of millions are all about funnelling public wealth to banks, pure and simple.

h/t Russell Huntley