Thursday, May 31, 2012

Brett Fiebiger — The International Dimensions Of Currency Autonomy

Modern economies operate on fiat monetary systems with an accent on plural. Anyone who takes a look at policymaking decisions around the global economy will soon observe that there seems to be substantial differences in the ability of policymakers to determine macro policies… why? In this post I will seek to provide some answers. The gist of it is that there are differing currency regimes in the global economy and macro policy autonomy exists on a spectrum of heterogeneous experiences.
Read it at Pragmatic Capitalism
The International Dimensions Of Currency Autonomy
By Brett Fiebiger, PhD
(Cross-posted at Modern Monetary Realism)

Terry Coxon — Myths And Realities Of Returning To A Gold Standard

Terry Coxon blows off the spurious myths about the gold standard and concludes that the major benefit of being on a gold standard would prevent "reckless expansion" of money so as to preserve the purchasing power of the dollar. Really? Inflation is really roaring these days, isn't it. Oh right, any day now. That must be what historically low rates on Treasuries are signaling. You know the story, historically low rates have no way to go but up.

Nothing about the downside, either — you know, like being deflationary in an era of high private debt and ensuring that foreign trade is mercantilist. Who would end up with the pile of gold at the end of the day? Maybe the Saudis and other oil producers, like Russia?

Read it at Zero Hedge
Myths And Realities Of Returning To A Gold Standard
Submitted by Terry Coxon of Casey Research

Impact Investment

Financial innovation got a bad rep in the financial crisis. But inside the well-barricaded Federal Reserve Bank in downtown San Francisco last month, the financial engineers were at it again.
Teams of financial statistical whiz kids pitched complex new bonds, loan-guarantees, and hybrid structures of debt and equity. Their target? It wasn't mortgages. It was women's economic empowerment. It was energy efficiency improvements and ranchland conservation. It was small businesses in Africa.
The Occupy movement has tarred Wall Street with a broad brush, while economists like Yale's Robert Shiller have tried to rescue finance from the consequences of its excesses. At the Fed, the MBA students competing in the second International Impact Investing Challenge were part of a new crop of financial engineers taking a different tack: tweaking risk and reward to directly tap at least a small part of the $60 trillion private capital markets for positive, measurable social impact.
The contest winners, who come from Stanford, have a plan to bring electricity to remote Indonesian islands -- and 5 to 7 percent returns to investors -- by financing local micro-grids through special-purpose vehicles owned jointly with community co-ops. The runners-up, from the Kellogg School of Management at Northwestern, aimed to help slum dwellers in Mumbai get higher-paying jobs, financing job-training by offering private investors 7 percent of graduates' paychecks for two years.
"These are not idealistic kids," the mastermind of the contest, David Chen, CEO of Equilibrium Capital Group LLC in Portland, Ore., said of the student financiers. "They are making a judgment call on the future. This is the equivalent of investing in hedging strategies or emerging markets, or high-tech 25 years ago. In each of those cases, the market efficiency and information efficiency gains went to those that were first."
Read it at The Atlantic
How Financial Innovation Can Save the World
by David Bank | vice president of Civic Ventures
(h/t Scott Fullwiler via Twitter)

Repent, the end is nigh!

Raoul Pal: "It is the big RESET. From a timing perspective, I think 2012 and 2013 will usher in the end."

Read it at Zero Hedge
"The End Game: 2012 And 2013 Will Usher In The End" - The Scariest Presentation Ever?
Posted by Tyler Durden

Extreme? Well, Warren Mosler said something similar on December 2nd, 2011, in DC takeaway. (h/t Roger Erickson via email)
So from what I can see, there’s no chance that the ECB would fund and at the same time mandate the higher deficts needed for a recovery,In which case the only thing that will end the austerity is blood on the streets in sufficent quantity to trigger chaos and a change in governance.

Tim Duy — Push Comes to Shove

Either Europe pulls together sooner than the German timeline, or finally blows apart.  The middle-ground, muddle-through option looks less attractive each day.
Read it at Tim Duy's Fed Watch
Push Comes to Shove
by Tim Duy

#OWS Alternative Banking Working Group RFP (Request for Proposal)

Those complaining about lack of demand and proposals from Occupy, here's your chance.

Read it at # Occupy Wall Street
Alternative Banking Working Group RFP (Request for Proposal)
by chris wroth

Marshall Auerback — Another one bites the dust

It might seem strange to invoke Freddie Mercury and Queen in the context of the euro zone, but it’s the first thought that springs to mind, as Brussels and the increasingly hapless ECB continue to mismanage their way to catastrophe. On Tuesday, we suggested that the Spanish plan to recapitalise Bankia (which came with the ultimate backing of the ECB, the only entity that can credibly backstop Europe’s banking system) introduced a potential solution to the eurozone’s metastisizing banking crisis. Sadly, it’s another idea which will never get off the bulletin board, as the ECB bluntly rejected any proposal to use its balance sheet to indirectly fund Bankia, the troubled Spanish lender.
So we’re back to floundering and the markets are reacting accordingly. What most investors, experts, and policy makers fail to realize is that this bank run is not simply a Greek problem, which will cease if and when Greece is thrown out of the euro zone. If one looks at the Target 2 balances, the ELA, and the ECB’s lender of last resort facilities, it’s clear that this has extended into all of the periphery countries, including Spain and Italy. We are in the midst of a bank run in Europe in which half the aggregate deposits of Greece, Ireland and Portugal combined and a quarter of the deposits from Italy and Spain have already departed. The ECB’s lender of last resort loss exposure to these countries may now be closing on two trillion euros – more than 20 times its capital. Worse yet, the ECB and the European authorities acknowledge none of this and seem to be doing nothing about it. If anything, “tough talk” from some of them may be escalating the bank run.
Read it at Pinetree Capital | MacroBits
Another one bites the dust
by Marshall Auerback
(h/t Kevin Fathi via email)

Bill Mitchell — The New Economy cannot flourish with fiscal austerity

I support the New Economy initiatives but implore the leading lights to educate themselves about MMT and why macro matters.
Read it at Bill Mitchell — billy blog
The New Economy cannot flourish with fiscal austerity
by Bill Mitchell

"The New Economy" is the latest hot thing among progressives. Bill has that it is basically a good idea but needs to be better informed economically. MMT does that.

Bill Gross: "If Europe decides to issue Eurobonds, the rate on Treasuries would spike"

He actually just said this on CNBC.

He said a Eurobond would "siphon demand away from Treasuries."

It's amazing how dumb this guy is.

Good/Bad News, and Worse News - Depending on Whom You Trust

Trust? Now? Whom?

You're forgiven for being confused. Whom are we to trust? Jaime Dimon? :)

How about ourselves?

Anyway, here's the latest Fed news we're being fed, if you're not too fed up to read it.

"consumer deleveraging continued to advance as overall indebtedness declined to $11.44 trillion, about $100 billion (0.9 percent) less than in the fourth quarter of 2011. Since the peak in household debt in the third quarter of 2008, student loan debt has increased by $293 billion, while other forms of debt fell a combined $1.53 trillion."

That's right, Control Frauds have backed out of other arenas - a bit - but are probing Student Loans as the next mecca for Liar's Loans.  Rumor has it that student liar's loans (SLLs) are actually outracing used-car liar's loans (UCLLs).   Sounds like a great DLL!*  Especially so since the General Theory for turbocharging any & all DLL has been published, as anything but open source!  (That doc circulated among the major families back ~1991, as they were just moving out of S&Ls & into mortgages.  Rumor has it that the original author was the guy who "placed" Greenspan at the Fed, in 1987, although the plan tenets had obviously been practiced in Orange County, CA for decades previously.)

* DLL now means "distributed liar's loans"

ps:  Did you notice there was no mention at all by the Fed of distributed INCOME!!
Can someone check & see if that word is still in their lexicon?

Corruption starts at the top - even in Greece.

Certainly in Europe & on Wall St. too.
 (hat tip @NickMalkoutzis)

Syriza, the newly dominant political party, faces Greece's challenges:

Better coordinating the official & underground economies.
   (How does one say "return-on-coordination" in Greek? απόδοσης του συντονισμού ?)
Alexis Tsipras says: "we will try to restore faith in the law and convince people that the state is equitable and effective"   (Well said!  Too bad he then goes on to talk overmuch about taxes, instead of public initiative and distributed INCOME!)

Do more of what they were already doing!  "90% of the small businesses' production, which are the foundation of the Greek economy, is not exported. It is sold on the domestic market."  (An enviable record.  Just do whatever it takes to maintain that freedom?)

Find an alternative to staying in the present euro structure.   So far, it sounds like few, if any, have much stomach for going back to the Drachma.

Listen to other voices besides Brussels & ECB eurocrats.  Sound economy first.  Sound banks = ones that produce a sound economy, not the inverse.

Force ECB/Brussels/IMF aristocrats to admit their mistakes, and change both policies & institutional momentum.   Good luck with that.   The aristocrats have their own, established & outlandish revenue streams from market business as usual. They will find it hard to replace the individual security they know with an unknown one. "Gods of money" indeed! We're all Greeks now.

Reconstitute the trust & initiative of the Greek people, after 5 years of forced depression.  

Prosecute the corrupt, former Greek leaders, and even the German firms that bribed them.

Give Greeks hope again, that their trust and loyalty to one another will pay off - that this time will be different.   That would give hope to people in other countries too, hope that the class war between aristocratic parasites and their hosts can be transformed to mutually beneficial symbiosis.   All it takes are the brains to recognize the return on coordination.

United States sleepwalking into economic and geopolitical decline

Understatement of the week!
     (hat tip to @ImplodeOMeter)

Discussing security worries, Gen. David Richards, the British chief of staff says the strategic landscape is "worrying" and the outlook "bleak."

He says "America is sleepwalking into economic and geopolitical decline."

That's serious talk, from Brits, who are experts at both forms of decline.  Have we become British, from rising royalty to a growing serf class to rampant financial & royal crime?  Should we be worried that the Rothschild's firm just bought 37% of the Rockefellers investment arm?  Maybe the two are racketeering to stockpile both US politicians & poodles in Labour.

While the good general is talking primarily about military/security policies and a choking bureaucracy overall, his assessment could be applied to most other aspects of domestic as well as foreign policy. Wall St is still brimming with crooks and SDIs, the very mortgage fraud that started our current mess is still continuing, and the core ideologies that created both of those ills is still very much in control of absolutely all policy direction, even campaign finance.  Are we asleep?  Is this all a bad dream?

Wake up America.

First, Know Thyself.

In that honorable tradition, Rodger Mitchell helps a floundering GOP, by holding up a mirror for them, and pulling off the fig leaf that's baffling them.  We can laugh at his accuracy, but this is serious stuff.

The Republican party has become a mouthpiece for four extremist groups, none of which care a fig about the health, happiness or financial welfare of the American people:

Group #1. The pious (but definitely not “religious”), gun-loving right wing, that hates women so much, it doesn’t even want birthprevention, much less stem cell research to save lives or even a life-saving abortion life. And don’t get them started on gays.

Group #2. The Tea Party that wants to cut social benefits, under the masquerade of being against “big government.”

Group #3. The upper 1% income group, that sneers at the 99%, but needs their votes.

Group #4. The “defeat Obama no matter what” group that almost has forgotten why it hates him, but really, really does.

Combine all this crazy extremism, and you have a truly erratic situation. For instance, what does a wealthy Catholic woman do when she doesn’t want to get pregnant? Ah, problems, problems.

An even greater problem, what does the 1% party do when it needs to attract votes from the very people it despises? Well, first it spends millions of dollars and four years of trying everything possible to destroy the economy, hoping the 99% will blame the President. That worked, for a while.

But heaven forbid, if despite all their machinations, the economy begins to recover . . . well, if you can’t beat ‘em, you have to join ‘em, i.e., the Romney mantra. So what you were against, you now are for — more than just for, you actually created.

More at the link - where the commentary only gets better.

With apologies to another great poet, here's what came to my mind:  

"I met a voter from a forgotten republic
Who said: Vast and empty principles
Stand hollowed from a Constitution. In near history,
head buried in the sand, a shattered lineage lies, whose honor,
And shriveled morals, and sneer of cold NeoCons,
Tell that its Roving sculptor well paranoia read
Which yet survive, stamped on these small intellects,
The honor that mocked them and the courage that once fed:
And on the Constitution these words appear:
"My name is GOP, party of Lincoln:
Look on my past works, ye honest, and yet despair anew!"
None of legacy remains. Round the decay
Within that colossal wreck, mindless and bare
Logicless ideology stretches far away."

Bill Gross displays some more of his "gross" ignorance

Bill Gross is out again today with another glaring display of his "gross" ignorance when it comes to sovereign currency/fiat money systems.

Read this:

The global monetary system which has evolved and morphed over the past century but always in the direction of easier, cheaper and more abundant credit, may have reached a point at which it can no longer operate efficiently and equitably to promote economic growth and the fair distribution of its benefits. Future changes, which lie on a visible horizon, may not be so beneficial for our ocean’s oversized creatures. Both the lower quality and lower yields of previously sacrosanct debt therefore represent a potential breaking point in our now 40-year-old global monetary system. Neither condition was considered feasible as recently as five years ago. Now, however, with even the United States suffering a credit downgrade to AA+ and offering negative 200 basis point real policy rates for the privilege of investing in Treasury bills, the willingness of creditor whales – as opposed to debtors – to support the existing system may soon descend. Such a transition occurs because lenders either perceive too much risk or refuse to accept near zero-based returns on their investments. “There she blows,” screamed Captain Ahab and similarly intentioned debt holders may soon follow suit, presenting the possibility of a new global monetary system in future years, or if not, one which is stagnant, dysfunctional and ill-equipped to facilitate the process of productive investment.

Looks like he was really aroused by the whole, Bruno Iksil "London whale" thing as his comments were heavy on the whale/ocean/sea creature analogies.

But here's the point...look at where he says, that the "willingness of creditor whales to support the system is at risk." He seemingly believes that there are these big, private entities ("creditor whales") who have been supporting the whole system with their money (their fiat?) Perhaps he is even making a veiled threat to withdraw his own creditor whale support at some point because I'm sure Gross believes he is one of these creatures.

Gross continues to misunderstand where that "credit" comes from. Where does the fiat (dollars, yen, euros, British pounds, Swiss francs, etc) that he's referring to come from? What is its origin? Does it come from him? Does it come from these so-called, creditor whales? No! The creditor whales are the mere recipients of the fiat issued by the respective governments. It can never run out, which means that the funds to buy government debt can never run out. It is created by government spending itself.

Hey, Bill, there are no "creditor whales." They are figment of your very misguided imagination.

Bill Black Knows Ireland

According to Bill, Sinn Fein emerges as the only Honest and Economically Literate Irish Party

And, he's finally recognized that the some Irish pub goers like shorter posts, and longer songs.  Go Ireland!   Please, please, please help us all get started in a new direction.

Flounder logic. Out of the frying pan & back into the fire?

LFMI, the Luddite Fleeced Market Imps masquerading as the Lithuanian Free Market Institute, are back to flashing their school colors.  To attract sharks? "No remora could possibly have foreseen the scraps generated last time!!"

Over at Mosler Economics, readerAhoi says "Lithuanian Free Market Institute propose Euro-exit plan based on gold standard monies,"

Their proposal is based on a very abstract goal. They prefer "sound money" regardless of what it implies for a sound economy in a highly volatile world.

Let's back up and start with "sound logic" and see if we can sort out this mess, before shackling strategy & policy with fixed tactics?

As a start, have the Lithuanian luddites consult their national logic and mathematical societies, and review "completeness" theories before trying to project nonsensical ideology onto a world chaotic enough as it is.

Flashing so much nonsense that some sharks are confused, or hiding in the mud, are strategies for sardines & flounders.  Lithuania can do better than this.

Wednesday, May 30, 2012

Deficit spending at highest level in three months. That's bullish!

The deficit this month is the largest since February. A lot of the money drained from the private sector in April is now being recycled back into the economy in the form of higher spending. This should be supportive. The market selloff is likely reaching a climax.

Dirk Bezemer — Finance and economic growth delinked

Prof. Bezemer first explains what's wrong with mainstream economics and then how to resolve the crisis by putting the blame where it actually lies rather than punishing the victims of it by enforcing austerity.

Read it at Euro Intelligence
Finance and economic growth delinked
by Dirk Bezemer | Associate Professor at University of Groningen

Joe Romm — The IEA And Others Warn Of Some 11°F Warming by 2100

Joe Romm corrects some misconceptions.

Read it at Climate Progress

Yes, Deniers And Confusionists, The IEA And Others Warn Of Some 11°F Warming by 2100 If We Keep Listening To You
by Joe Romm

BTW, if this scenario should transpire a lot human and other DNA that has made it this far is not going to be around much longer.

Dennis Gartman spews more useless information

Dennis Gartman, who’s almost always wrong, says you should “go to the sidelines” when it comes to stocks.

What does “go to the sidelines” mean? If you have an investment portfolio, does “go to the sidelines” mean, liquidate your stocks and stay in cash?

Does it mean just sit there and do nothing? Hold your stocks, just don’t buy? And if so, does that mean the market will just mark time here?

Does “go to the sidelines” mean that stocks are going down and if so, then why doesn’t he just say, “sell?”

He says go to the sidelines because it’s another wimpy, gutless way of saying, “I don’t know what’s going to happen.” He’s pretending to make a call, without making a call.

No guts, no glory.

Go to the sidelines = useless information

Marijuana Legalization Supporter Bests 8-term Congressman in TX Primary

This could be a one-off, but it could also signal a developing trend as the next generation moves toward assumption of power and seeks to bring the country in line with cultural changes that have taken hold over the recent decades. I suspect a trend in the making, but we'll have to wait and see. Certainly increased rights for minorities, increasing minority participation in the electorate, broader tolerance for formerly social taboos like LGTB, are already signaling broad and deep cultural change becoming institutional change that affects politics in the US. This will have correspondingly broad and deep social, political and economic ramifications as the next generation increasingly replaces the present one. In the meanwhile there will be huge resistance on the part of the present generation and beneficiaries of the status quo, making for cultural and intergenerational conflict.

Read it at The Huffington Post
Beto O'Rourke, Marijuana Legalization Supporter, Beats Rep. Silvestre Reyes
by Matt Sledge

Forbes: Record-Low Treasury Yields A Harbinger Of Coming Bond Market Collapse

Story at Forbes here.  Oh brother.

I guess their economic insight is based on "what goes up must come down".

Stephanie Kelton on why the US doesn't borrow to spend

Excerpt from Stephanie Kelton
"Can Taxes and Bonds Finance Government Spending?" (1998)
(h/t y in the comments)
Federal Reserves notes (and reserves) are booked as liabilities on the Fed's balance sheet and these liabilities are extinguished/discharged when they are offered in payment to the State. It must be recognised that when currency or reserves return to the State, the liabilities of the State are reduced and high-powered money is destroyed. 
The destruction of these promises is no different from the private destruction of a promise once it has been fulfilled. In other words, when an individual takes out a loan, she issues a promise to a bank. Once she 'makes good' on that promise (i.e. repays the loan), she may 'destroy' that loan debt (liability) by eliminating it from her balance sheet. 
Thus, while bank money (M1) is destroyed when demand deposits are used to pay taxes, the government's money, HPM, is destroyed as the funds are placed into the Treasury's account at the Fed. Viewed this way, it can be convincingly argued that the money collected from taxation and bond sales cannot possibly finance the government's spending. This is because in order to 'get its hands on' the proceeds from taxation and bond sales, the government must destroy the money it has collected. Clearly, government spending cannot be financed by money that is destroyed when received in payment to the State! [This may be intended meaning of Warren Mosler's metaphor that tax dollars are destroyed when the tax liability has been removed from the record, rather than being used to fund future spending as most assume — th.]
How, if not by using the money received in payment of taxes and bond sales, does the government finance its spending? Notice that the government writes checks on an account that does not comprise part of the money supply or HPM but that as it does, the funds become part of the money supply (M1 if deposited into checking accounts, M2 if savings accounts, etc.) and part of HPM. It is therefore apparent that while the payment of taxes destroys an equivalent amount of money (M1 immediately and HPM as the proceeds go into the Treasury's account at the Fed), spending from this account creates an equivalent amount of new money - both bank money and HPM. Modern governments, then, finance all of their spending through the direct creation of new (high-powered) money.

Krugman: This may be when it all falls apart (VIDEO)

There are a lot of ugly forces being unleashed in our societies on both sides of the Atlantic because our economic policy has been such a dismal failure, because we are refusing to listen to the lessons of history. We may look back at this thirty years from now and say, ‘That is when it all fell apart.’ And by all, I don’t just mean the economy.
Watch it at Raw Story

Krugman: This may be when it all falls apart
by Eric Dolan

Back to the gold standard in the EZ

Southern Europe’s debtor states must pledge their gold reserves and national treasure as collateral under a €2.3 trillion stabilisation plan gaining momentum in Germany.
Read it at The Telegraph (UK)

Europe’s debtors must pawn their gold for Eurobond Redemption
by Ambrose Evans-Pritchard, International business editor
(h/t Roger Erickson via email)

Ann Pettifor's analogy with the Thirties seems right on.

Tuesday, May 29, 2012

Study rules out stupidity as a cause of disbelief in climate science

"The aim of the study was to test two hypotheses," said Dan Kahan, Elizabeth K. Dollard Professor of Law and Professor of Psychology at Yale Law School and a member of the study team. "The first attributes political controversy over climate change to the public's limited ability to comprehend science, and the second, to opposing sets of cultural values. The findings supported the second hypothesis and not the first," he said.
"Cultural cognition" is the term used to describe the process by which individuals' group values shape their perceptions of societal risks. It refers to the unconscious tendency of people to fit evidence of risk to positions that predominate in groups to which they belong.
The results of the study were consistent with previous studies that show that individuals with more egalitarian values disagree sharply with individuals who have more individualistic ones on the risks associated with nuclear power, gun possession, and the HPV vaccine for school girls.
Read it at Environmental Economics
Study rules out stupidity as a cause of disbelief in climate science
(h/t Mark Thoma)

Another way of putting this is that facts are non-neutral and are formed by the consensual reality of the group to which a person belongs.

Is the bottom really in?

Less than four months ago, I wrote The Housing Bottom is Here and I pointed out that the house price data had a significant lag so we had to look at other data for clues. The post title refers to the many emails I received back in February: "bold call", "gutsy call", "you are insane" ... and many more.
Read it at Calculated Risk
House Prices: From "bold call" to consensus in four months
by Bill McBride

There is good reason to think that a housing bottom is in and good reason to be cautious, too. Same with the economic recovery in general.

The good reason to be optimistic is that real indicators are looking better. The good reason to be pessimistic is that financial indicators are not looking better and in effect nothing has changed the pre-crisis behavior of the financial sector that led to the crisis.

Conclusion. We might squeak by with low growth until the next crisis hits. Since crises hit every five to seven years these days, we are already due. I would not be celebrating this apparent recovery yet.

Rodger Mitchell — Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem

As many here will know, Randy Wray recently posted MMP Blog 50: MMT Without the JG? Conclusion at New Economic Perspectives. Rodger Mitchell brought up several objections in the comments there on which I and others engage him. However, Randy had indicated in the post that he preferred focus on the substance of the post rather than other ideas. So Rodger took the argument to his place for further discussion. I am linking to it here, since I think that the objections are worthy of discussion.

Read it at Monetary Sovereignty
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem
by Rodger Malcolm Mitchell

JKH — Treasury and the Central Bank – A Contingent Institutional Approach

Fiscal and monetary systems do not exist without specific institutional design. In this regard, there is a difference between the facts of actual institutional design, and conceptual distillations that infer hypothetical design. Any overall view of actual treasury and central banking operations should be portrayed accurately in this respect. For example, there is a difference between the consolidated view of separate Treasury and central bank institutions as they actually operate, versus the view of an implied but unstated counterfactual in the sense of a unified institution. The actual operation of separate institutions is not at all the same as that implied by a unified counterfactual institution.
Read it at Modern Monetary Realism
Treasury and the Central Bank – A Contingent Institutional Approach
by JKH

Note: JKH cites Marc Lavoie's The monetary and fiscal nexus of neo-chartalism: A friendly critical look (2011), which brings up a criticism of MMT's consolidation of the Treasury and central bank functions (begins at p. 10). This is the point that JKH is attempting to clarify through an analysis of actual operations.

Dirk Bezemer — Credit is What Credit Does: Finance and Economic Growth Uncoupled

Contrary to conventional wisdom economics is not about money.
“The cutting edge models have no banking sectors at all,” says Dutch economist and INET grantee Dirk Bezemer. “Models that central banks use have no banks. Just let that sink in.”
Bezemer has conducted a careful analysis of the financial sector that provides a much-needed change from the usual macroeconomic models. In his recent presentation at INET Berlin, Bezemer gave an in-depth explanation of how to create a socially useful financial system.
His answer is simple: “Credit is what credit does.” 
“Most of our credit system does not support economic growth in the sense of supporting transactions in goods and services,” he explains. “Most of our finance system, most bank loans, support increased asset prices, which have a number of detrimental effects on the economy.” 
Debt going to asset markets can be helpful at a low level of debt (when overall debt is about 100% of GDP, Bezemer suggests. The U.S., by comparison, is now at more than 400%.). But when debt gets too high, servicing it becomes a big drain on the real economy. And this means lower economic growth. 
But orthodox macroeconomic models won’t tell you any of this. “There are no models tracing credit, so a credit crisis will come out the blue,” Bezemer says. “We can do better than that.”
Bezemer shows that “on average, at higher levels of credit going to asset markets, there is a negative, inverse relation between international financial flows and fixed capital formation. And therefore you have lower growth.” 
Supporting this credit addiction has very obvious symptoms. “It’s not a coincidence that we have excessive speculation in food prices right now,” he says. “All that money is still around.”
The solution, according to Bezemer, is pretty simple. We must greatly shrink the financial sector, while preserving the essential functions of credit allocation to the real economy. As Bezemer writes in his recent article for Eurointelligence, “The threat to growth today is not a shrinking of the financial sector, but it enormous size.”
Read the rest at INET
Credit is What Credit Does: Finance and Economic Growth Uncoupled
Posted by INET

Also Finance and economic growth delinked
by Dirk Bezemer at Euro Intelligence

"Inside Job" Director Charles Ferguson: Wall Street Has Turned the U.S. into a "Predatory Nation"

Democracy Now
"Inside Job" Director Charles Ferguson: Wall Street Has Turned the U.S. into a "Predatory Nation"

Ann Pettifor — Greece: The upside of default

It now seems inevitable that Greece will default on its debts, with all sorts of disastrous scenarios being discussed, particularly if it has to leave the euro.
But I know from my experience of working with Jubilee 2000 to “drop the debt” of poor countries in Africa and Latin America that there is life and economic recovery after sovereign debt crises.
Countries that defaulted in the 1990s suffered recessions that lasted briefly. Then came the rebound, asArvind Subramanian of the Peterson Institute shows. Argentina grew by 8% after its default, Russia by more than 7%, and Indonesia by 5% after its crisis.
Of course Greece would initially suffer a severe shock and economic contraction. Its elites would intensify the export of their wealth to, for example, the City of London, causing inflation.
Greece would have to issue an alternative, parallel currency – at a large discount to the euro – to finance domestic economic activity.
But Greek exporters would benefit from a mega-devaluation of this new currency, and increased competitiveness vis-a-vis European partners, especially Germany.
There are other upsides for Greece too. To understand why, we need to recognise that the eurozone monetary framework is like a “golden corset”. By defaulting on its debts, Greece can escape the “corset” that resembles the “barbaric relic” that Keynes deemed the Gold Standard of the 1930s.
Read it at Prime
Greece: The upside of default
by Ann Pettifor | Director, PRIME

Sanford Levinson — Our Imbecilic Constitution

This is sure to spark some debate, considering that many Americans accord the Constitution the same God-inspired status as the Holy Bible, on the same level of Muslim veneration of Shari'a as God-given, even though the Constitution is not scriptural.

It's actually a conversation I have with people on a fairly regular basis. The problems that the US is confronting and has confronted at various points through out its history were there from the beginning. Not only were many issues hotly disputed at the time of drafting the Constitution, but also subsequent interpretation of the founders' intent has also been controversial.

This mimics the situation in scriptural studies undertaken by scholars, which seeks to determine textural authenticity and interpretation. There are many opinions based on evidence, not all of which is neutral, so that even basic facts are matters of disagreement, let alone discerning the intent of people who lived long ago.

Then there is is the tendentious matter of application in modern circumstances in which there is no historical context for guidance.

What we find historically in the US is a running warfare, sometime even resulting in open conflict and pitched battles as in the Civil War, between those holding that the Constitution is the basis for a strong central "federal" government and those holding that it is the basis for a decentralized confederacy of sovereign states. Some even hold that it is based on individual sovereignty. These issues are still being hotly contested today, and it places the situation is becoming explosive.

Read it at The New York Times | Campaign Stops
Our Imbecilic Constitution
By Sanford Levinson | Professor of Law and Government at the University of Texas, Austin
(h/t Brian Tamanaha at Balkinization)

Ann Pettifor calls rip-off

On May 15th, in what can only be described as an act of coercion, an impoverished and effectively insolvent Greece acceded to the handover of a bond payment – €436 million – to private financial ‘vulture funds’. The Greeks had little choice. However, in acquiescing to this handover - facilitated by its paymasters,‘the Troika’ - impoverished Greeks protected reckless private wealth from the consequences of their risks. Namely: losses and bankruptcy, and the discipline of market forces.
This is a perverse distortion of free market capitalism because, as Professor Kunibert Raffer has argued: “the most basic precondition for the functioning of the market mechanism (is) that economic decisions must be accompanied by (co)responsibility: whoever takes economic decisions must also carry financial risks. If this link is severed – as it was in the Centrally Planned Economies of the former East – efficiency is severely disturbed…. At a time when riskless decision making by bureaucrats is abolished in the East, there is no reason why it should be preserved in the West.” 
Today this new, distorted economic order is enforced, on behalf of private wealth (hedge funds, offshore ‘investment funds’ and private bankers) by unelected EU, IMF and ECB officials and elected EU politicians....
This economic order is the very antithesis of both democratic but also free market principles. However, it is at the heart of the neoclassical monetarist statutes of the European Union, the Eurozone and the ECB – and now the new EU Fiscal Compact....
This is the central purpose of neoliberal economics: to strip democratic states of sovereign economic power and transfer these powers to private markets....
As a consequence of what can only be described as a blatant financial "coup d’etat" financial vultures are not just circling and threatening Greece, Spain and Portugal. They now threaten Europe as a whole with the consequences of disintegration....
Read it at OpenEconomy
An open letter to the leaders of Europe: abandon the Euro's 'gold fetters'
Ann Pettifor | Director, PRIME (Policy Research in Macroeconomics)

Ann Pettifor provides a more detailed analysis of the problems leading to the global financial crisis and Keynesian-based solutions in Ann Pettifor: speech notes for presentation to the Just Banking Conference, Edinburgh, 20th April, 2012. Important.

Monday, May 28, 2012

Reflections on a hierarchy of innovation

[Nicholas] Carr describes what he refers to as the Hierarchy of Innovation, which is loosely analogous to Maslow’s hierarchy of needs. As Carr puts it: 
“The focus, or emphasis, of innovation moves up through five stages, propelled by shifts in the needs we seek to fulfill. In the beginning come Technologies of Survival (think fire), then Technologies of Social Organization (think cathedral), then Technologies of Prosperity (think steam engine), then technologies of leisure (think TV), and finally Technologies of the Self (think Facebook, or Prozac).” 
I’m OK with the hierarchy concept and think it’s a fine first-order mechanism to understand the underlying social values driving innovation at any given stage in civil development. 
However, I think much deeper drivers are worth considering....
Presently, 125 years later, civilization is still reliant on the core energy production technologies created in the Industrial Revolution. Economies with the mastery and control of those technologies enjoy almost unlimited access to abundant and cheap energy, and it is in those societies that we see the shift in innovation so lamented by Carr in his article.
Yet the current energy paradigm, not so unlike the one based on livestock and human power, is fundamentally based on commodity fuels and highly fragmented production and distribution industries that can be owned and controlled (usually to their own benefit) by anyone with the resources and power to do to so. As such, the paradigm is defined by energy haves and have-nots; and the energy have-nots are consistently plagued by crushing poverty and disease. This disparity is growing rapidly.
 On a global basis, this imbalance is likely coming to a critical point, and, like the mid-19th century, the stage is formally set for another innovation in energy production, one that frees us from the burdens and challenges of fossil fuels and unleashes another unprecedented transformation in economies and ultimately the human condition.
Read it at Climate Progress
The World’s Energy Disparity Is Reaching A Critical Stage To Spawn Innovation
by Ned L. Harvey | Chief Operating Officer of the Rocky Mountain Institute

 I have been thinking about technology and innovation lately, too, so I found the post apropos. My thinking has run more along the lines of historical eras. Humans differentiated from other animals through the development of sufficient intelligence through brain development and physical resources like a larynx capable of articulate phonation that made use communication through language possible and opposable thumbs that made tool use available. This all happen in the remote past and we are just beginning to reconstruct the biblical cultural narrative based on discoveries in archeology and anthropology.

Tools were initially used for piercing, cutting, striking and other simple operations, and fire was also domesticated. These were huge advances over other other animals, and it provided humans with an incredible advantage, especially the development of weapons technology for hunting, protection, and territorial defense and expansion. Proto-machines, which bridged the gap between tools and machines also appear, for instance, the use of the lever and pulley to amply effort and the use of the wheel to reduce friction, enabling humans to move heavy objects for construction. All of this is lost in the mysts of time, however, and what remains is monuments that still amaze. It is impossible, however, to exaggerate these accomplishments, which where as huge then as any technological advances made today, since it involved primates leaving their natural environment, to which animals had been confined, and creating an artificial environment and constructing social reality based on information.

My thinking is that technology and innovation need to be viewed chiefly in terms of the expansion of intelligence and the application of information. As a result, humanity when through several major transformations that results in different eras. The first historical era is that of agriculture, which lasted until the industrial revolution. The economy of the agricultural era was feudal, based on control of land as the means of production. The energy was provided by human and animal labor and the technology was agricultural know-how and basic tools like the plow and basic engineering like irrigation. Return on energy invested was low, and the human cost was very high indeed, for most people at least.

The industrial revolution changed all that dramatically with the introduction of labor saving devices that harnessed energy for work. Humans had used water wheels and windmills previously, but heat used in engines had not yet been exploited for transformation into work. This invention catapulted humanity onto altogether different level of functioning, with a concomitant change in society and social organization. Capitalism became dominant economically as machines replaced human and animal labor, and investment was needed to produce the capital goods that resulted huge expansion of consumer goods and also provided the possibility for more leisure, since less labor was needed for subsistence.

Clearly, the transition from the agricultural era to the industrial era, and from feudalism to capitalism, was based on a transformation that arose from a different level of information use. Similarly today, humanity stands on the brink of a new era, the age of information, also known as the age of knowledge and the digital age, as it learns to tap the potential of information directly, instead of using it indirectly through science and engineering. It is as yet unclear what effect this transition is going to have on humanity socially, politically, and economically. However, it promises to be as significant as any of the previous transformations in shaping a new humanity and civilization as the potential of human nature unfolds through evolution and displays itself in the environment.

However, the major transformations of the past, from the primitive era to the era of agriculture, and then to the industrial era have resulted in institutional transformation as well, which has been accompanied by a transformation in collective consciousness. We can expect that this transformation will lay the foundation for the major trends of this century. This is what forward thinkers are now attempting to foresee. What will be the effect of innovation in robotics, molecular medicine, artificial intelligence, and alternative energy as they are scaled, for instance? How is this era of increasing globalism going to be governed? What economic system will either evolve out of capitalism or replace it?

Sunday, May 27, 2012

Clive Thompson — Nothing Grows Forever

On moving from an unlimited growth to a steady-state model.

Read it at Mother Jones
Nothing Grows Forever
By Clive Thompson
(h/t Kevin Fathi via email)

Marshall Auerback — There is no such thing as an ‘orderly’ exit from the Euro Zone

There is no way an exit at the moment could be anything but disorderly. Consider this fact alone: there are $400 trillion in OTC derivatives contracts which reference the euro. They’re all called into question if the currency changes. That won’t do good things to liquidity globally. It will make Lehman seem like child’s play. So they need time, a decent chunk of it, to prepare for contingencies like that. And time is something the European Union does not have on its side right now.
Read it at Pinetree Capital | MacroBits
There is no such thing as an ‘orderly’ exit from the Euro Zone
by Marshall Auerback
(h/t Kevin Fathi via email)

Der Spiegel Interview with Daniel Kahneman

This is four part series, with each part quite short. There are also illustrations that are part of the article, available separately.

Kahneman's work in behavioral economics is transforming the economics profession by calling in question many key assumptions, for example, the concept of rationality that underlies the notion of a representative rational agent and rational expectations hypothesis, which along with the presumption of individualism, form that basis of pursuit of maximum utility as the driving motivator of homo economicus.

Kahneman's conclusions, along with those of cognitive scientists, not only question those assumptions but suggest that they are not a true representation of how people behave. It is a confirmation of Keynes's "animal spirits," in a way, but more carefully articulated and backed up with data derived from experiments

Read it at Der Spiegel
SPIEGEL Interview with Daniel Kahneman
(h/t Kevin Fathi via email)

Kahneman summarizes his book,Thinking, Fast and Slow (2011), in which he reports on his life's work in studying behavior. Wikipedia summarizes the book here, too.

Of course, Kahneman has generated considerable controversy. Jim Holt gives an overview in The New York Times, Two Brains Running (Nov. 25, 2011).

Kahneman's basic thesis is that there are two selves within each of us, although he cautions that this is just a useful fiction representing different mental functions. The first, of System 1, is the experiencing self, and the second, System 2, is the remembering self. Life is essentially remembrance of the past and projection of the future based on it, so the mental aspect that most people identify with is the remembering self.

The remembering self functions very differently from the experiencing self, and it is this dichotomy that leads to cognitive-emotional biases when the remembering self uses heuristics instead of rigorous logical reasoning based on facts to come to quick conclusions, which most people do most of the time. Rather surprisingly, the remembering self interprets experiences non-factually and not always logical. It seems that heuristics are preferred, even through often inexact, for reasons are explicable in terms of evolutionary theory.

There has been a great deal of work done on cognitive bias of late. The major cognitive biases are summarized here. Be warned, there are a lot of them.

As Kahneman notes, Buddhist meditators (and I would add, many others) attempt to disentangle the experiencing self from the remembering self and to identify with the experiencing self, which lives in the present rather than the past and future. To this I would also add, that the object of meditation is to discern the aspect of mind that experiences by observing the distinction between experiencer as subject and experienced as object.

When this has been accomplished, the task is to discover the nature of the experiencer independently of an object of experience. Finally, the objective is to stabilize this state in activity, so that both experiencing self and remembering self are recognized as changing states of mind, while one's true nature is unchanging, which is the definition of "absolute" as distinct from relative.

Now that meditation has been popularized and many people have been practicing various methods for some time, cognitive scientists are studying them to discover what effects this may have on brain function, subjective experience, and behavior. This is incorporated in the nascent field of consciousness studies.

Note: Adaptive preference for heuristics, bounded rationality, and social (cultural and institutional) influences, in addition to "cognitive noise" arising from the interaction of mind and environment, challenge the presumption that human decision-makers use rationality chiefly for optimization (max u). Kahneman focuses on preference for heuristics, Herbert A. Simon is the developer of bounded rationality. Social factors are investigated by psychology, sociology, anthropology, evolutionary theory, and institutionalism.

Peter Soos — Time to stop rewarding economists for bad behaviour

According to conventional economic theory that the majority of economists advocate (neoclassical economics), these assets bubbles should not be forming. Supposedly, the more market-oriented an economy becomes, through deregulation and privatisation, the more efficient it becomes at pricing assets, resources, goods, services and labor. Thus, there should be little to no bubble activity within a freer market economy. History, however, has revealed the opposite.One would think that given the wide gulf between theory and reality, the economics profession should have performed some sort of self-assessment.
Read it at Steve Keen's Debt Watch
Time to stop rewarding economists for bad behaviour
by Peter Soos

Well actually mainstream economists did self-assess and concluded that markets were not free enough to equate price discovered through markets with real value of assets and goods. That's the problem with the theory; there is always an explanation as to why predictions didn't work out as expected by the theory.

The conclusion mainstream economists drew is that the solution lies in removing barriers to laissez-faire, even though all evidence points to concentration of income, wealth and power at the top echelon owing to economies of scale and removal of restrictions on anti-competitive behavior. The result is "monopoly capitalism,"* in which the apparatus of power falls into the hands of a plutocratic oligarchy that controls all principal institutions, essentially replicating the landed aristocracy in a feudal agriculturally based order. The consequence is neo-feudalism with capital playing the role of land in feudalism.

Ravi Batra points out in his work how in eras ruled by acquisitors, the acquisitors corrupt the intelligentsia to theoretically and morally justify their rule as being of the natural order of things, using the carrot of professional status and access, and the stick of exclusion from the debate and exile to minor status and remuneration.

* See Monopoly Capital and the New Globalization, John Bellamy Foster Monthly Review,  2002, Volume 53, Issue 08 (January)

Monopoly Capitalism, Paul M. Sweezy, Monthly Review,  2004, Volume 56, Issue 05 (October)

Paul Krugman and Art Laffer on The Bill Maher Show

Paul Krugman and Art Laffer were on The Bill Maher Show on Friday. If you missed it, here's the clip. Hat tip to Lord Keyes at Social Democracy for the 21st Century.

Paul Krugman calls "Soviet"

Today, however, the big threat to our discourse is right-wing political correctness, which — unlike the liberal version — has lots of power and money behind it. And the goal is very much the kind of thing Orwell tried to convey with his notion of Newspeak: to make it impossible to talk, and possibly even think, about ideas that challenge the established order....

Actually, this reminds me of an essay I read a long time ago about Soviet science fiction. The author — if anyone remembers where this came from — noted that most science fiction is about one of two thoughts: “if only”, or “if this goes on”. Both were subversive, from the Soviet point of view: the first implied that things could be better, the second that there was something wrong with the way things are. So stories had to be written about “if only this goes on”, extolling the wonders of being wonderful Soviets.
And now that’s happening in America.
Read it at The New York Times | The Conscience of a Liberal
The New Political Correctness
by Paul Krugman, Professor of Economics and International Affairs Woodrow Wilson School, Princeton University

Getting close to Godwin's Law.

Here's a relevant snippet from Joshua Holland's AlterNet interview of Roseanne Barr, who is now running for the presidential nomination of the Green Party in competition with Jill Stein.
JH: ... it strikes me that "Roseanne" was one of a very small number of shows on TV that had characters who were good people struggling to pay their bills. Maybe "Good Times" was another one. I’m hard pressed to think of any others. In a sense, you offered a class analysis that’s almost entirely absent from any TV entertainment. Why do you think that is?
RB: Well, because that’s what I wanted to do. 
JH: But why don’t we see more of that? I mean, so many families are struggling you would think that our culture would reflect that once in a while. 
JH: It’s a shame for our culture I think that we don’t see regular people dealing with the issues that regular people actually deal with.
RB: I don’t think that would be in the interest of the people who control what goes on here. It wouldn’t be in their interests. They kind of narrowed the field so they would get approval of all content that was shown over the people’s airwaves. That’s been coming since when the FCC was deregulated. That’s what happened.
JH: That’s the Telecommunications Act of 1996.
RB: Yes, that’s exactly what happened. They took control of all content, all context and all message. They think that the plight of the 99 percent of Americans isn’t worthy of being discussed in any media. 
JH: And we’re probably the only advanced country that doesn’t have really any sense of class. We’re supposed to pretend that class difference don’t exist.

AFP — Law meant to stifle demonstrations buoys Quebec’s student protesters

A poll published Saturday by La Presse showed a divided Quebec, with 51 percent expressing support for the law but with big differences in attitudes between young and old, and between French- and English-speaking residents.
The law sought to clamp down on the student protests by requiring organizers to give police at least eight hours advance warning of times and locations of demonstrations, with big fines for failure to do so.
Authorities have used the emergency law to declare protests illegal, clearing the way for police to disperse protesters.

But opposition to the law has been fierce, drawing nearly 100,000 people into the streets of Montreal on Tuesday.
Amnesty International called the measure an “affront to basic freedoms that goes far beyond what is permissible under provincial, national or international human rights law,” and said it should be rescinded.
The students began the protests in February, boycotting classes, in response to the Charest government’s plan to raise annual fees at Quebec universities by 82 percent, or $1,700, with the increase gradually introduced over five years.
The row has already caused the province’s education minister to quit and is causing a headache for the government.
Read it at Raw Story
Law meant to stifle demonstrations buoys Quebec’s student protesters
by Agence Presse-France

Part of asymmetrical strategy and tactics is to get TPTB to overreact, thereby increasing both popular support and determination of participants to resist what is perceived as patently unjust, undemocratic, and excessively authoritarian.

And again, generational change is on the side of the protestors. A government with only 51% support, largely elderly, for an unpopular policy is at the margin, with the core shifting. That's not where astute party leaders want to be.

A mathematician looks at economics and is baffled by what he sees.

A foundational principle of modern economics is that the creation of credit leads to economic growth. That precept underlies need for quantitative easing, and it is central to the question of what role monetary policy can and should play in stimulating a faster recovery from the Great Recession. It is also the subject of a debate between one of the world’s most prominent economic scholars, Paul Krugman, and a feisty Australian economist, Steve Keen.
Krugman is an unusually public figure for an academic. The Nobel Prize-winner and Princeton professor is also a widely-read New York Times columnist and prolific blogger, with the gift – unusual for someone in so wonky a profession – of clear and persuasive prose. He has earned a large and passionate audience, among them both ardent acolytes and rabid detractors. Krugman represents the mainstream of neoclassical economics, which believes that a combination of central bank monetary policy and government fiscal policy can moderate the business cycle.
Among the dissidents is Keen, the author of a provocative book, Debunking Economics. By his own admission, Keen is proudly out of the mainstream, but also able (“because of impediments like academic tenure,” he says in his book) to challenge it without fatal retribution. Keen thinks central bank controls are not as effective as Krugman believes, because private banks can create money in the form of debt through a process that is beyond the central bank’s control. Because of that, the economy will regularly experience “financial instability,” as advocated by Keynes’s disciple Hyman Minsky.
 The debate in the blogosphere between those in the Krugman camp and those in the Keen camp has generated more heat than light; but the core of the debate is whether or not private banks can create money “out of thin air” to their heart’s content, by extending credit – leaving the central bank with no choice but to sanction this money creation.
Read it at Advisor Persectives
An Attack on Paul Krugman
By Michael Edesess
May 15, 2012
(h/t paul in the comments)
...there are really two aspects to the debate. The first is the general charge that all of neoclassical economic theory is bankrupt because it is enthralled with equilibrium, and therefore it cannot model or understand the dynamic evolutionary economic process. That is to say, the essential nature of the economy is to be indisequilibrium, so theories obsessed with equilibrium cannot model it. 
This charge seems wholly valid to me. In answer to the mainstream’s deficiencies, Keen said in my interview with him, “I want to eliminate the neoclassical mainstream and replace it with a Schumpeterian dynamic growth evolutionary mainstream.”Schumpeter, you’ll recall, was the economist who coined the term “creative destruction” to characterize the capitalist economic process – a term beloved by nearly all economists, but of which it is difficult to find any trace in mainstream economic models. Says Keen, “Creative destruction doesn’t involve equilibrium, so they leave it out completely. It’s about how investment comes in pulses and waves … so you get an inherent explanation for the cyclicality of capitalism out of Schumpeter.” 
The second aspect is a chicken-and-egg problem: Do banks take in deposits and then lend, or do they loan first, then use the proceeds of the loan to create deposits? It is not merely a chicken-and-egg question – those, like Keen, who say banks can create money out of thin air also say that the central bank must condone, willy-nilly, this so-called “endogenous” money creation. Krugman, on the other hand, says the central bank can control the process. That is, he believes money is created only “exogenously” by the central bank. Keen is a disciple of Hyman Minsky, who was a disciple of John Maynard Keynes but also of Schumpeter. Minsky believed that this process of banks creating money, in the form of debt, would inevitably lead to frequent financial bubbles and crises. 
Judging from how much feverish blogging there has been surrounding the Keen-Krugman battle alone, this is a thorny question to resolve one way or the other. The amazing thing is that, in this debate, one side or the other will present what appears to be a very simple proof that they are right – and yet the other side is not persuaded in the least.
I am particularly baffled by these debates, because my background is in pure mathematics. Economics pretends to be mathematics, but it is not mathematics. There is a major difference. No mathematician uses a term in a formula, or a statement of a theorem, unless that term has first been defined with excruciating precision. Hence, there is no question of what the term means, let alone any debate that is carried on only because two disputants have different concepts of the meaning of their terms. As a result, a very simple proof of something will invariably persuade the other side. The cost of this, however, is that mathematics is strictly limited in what it can define and prove. 
In economics, it is completely different. Terms are used in formulas without ever having been precisely defined. Economists may think they’ve defined them, but they should try reading some real mathematics to see what a precise definition truly is. The economists, I think, leave the work of definition to be inferred from the way the terms are used in the formulas. This, to me, is weird – but I suppose it could work, and it does work sometimes, but more often it leads to ridiculous debates that leave matters of real importance unexamined.
That seems to be the case in the Keen-Krugman faceoff. The most central terms – inflation and GDP – are so riddled with measurement problems that they are almost arbitrary fictions, a reality with which no one ever grapples. There is never so much as a nod to the fact that a large body of intelligent people believe that economic growth, by mathematical necessity, cannot continue forever, or even for long – yet efforts to define clearly enough what “economic growth” means in order to close the gap with this external (and sometimes internal) body of thought are rarely seen in debates among economists.
The source of all the confusion, in my view, is the idea that if you can’t measure something and model it mathematically, it has no meaning. There is too much mathematics used and expected in economics, and too much of it is of poor quality and distorts the ideas it is meant to undergird. Keen agrees. “If you’re actually aware of the limitations of mathematics, you say, ‘Well, this is a guide, but I could have missed something,’” he told me. “So there’s more modesty in a proper non-equilibrium dynamic modeling approach than you’ll ever get out of neoclassical equilibrium modeling.”

Occupy is dead. Long live Occupy!

Three years after the May 1968 uprising that swept the world, the great French philosopher Michel Foucault observed that a key strategy of power is to “appear inaccessible to events.” Power, Foucault argued with a nod towards 1968’s failed insurrection, acts to “dispel the shock of daily occurrences, to dissolve the event … to exclude the radical break introduced by events. 
Forty years later, in light of Occupy, Foucault’s observation still strikes home. Despite achieving the impossible at unprecedented speed – sparking a global awakening, triggering a thousand people’s assemblies worldwide, and giving birth to a visceral anti-corporate, pro-democracy spiritual insurrection – Occupy is now struggling through an existential moment. Our movement has been dealt a blow: our May 1 and follow-up events have been dissolved by power; the status quo has shown itself to be far more resilient than many of us expected. 
Now a passionate debate is emerging within our movement. On one side are those who cheer the death of Occupy in the hopes that it will transform into something unexpected and new. And on the other are patient organizers who counsel that all great movements take years to unfold.
Read the rest at Adbusters
Occupy's Spiritual Quest — The fork in the road ahead
Posted by Adbusters

What this will do is separate the revolutionaries from the evolutionaries both strategically and tactically, as well as over policy. Pretty much the same thing happened pretty early on in the Sixties, too.

The scene was very different in the Sixties, at the beginning of the protest movement, however. The Democrats held the presidency and solidly controlled both branches of Congress, and the courts were dominated by years of Democratic administrations, with the interruption of the Eisenhower moderate Republican years. Still, all hell broke loose at the 1968 Democratic Convention.

This time promises to be different. We are still it the early stages, and this has gone viral globally through social media and networking.

All the conditions that sparked Occupy and Indignados remain in place, and TPTB around the world are determined to press their hand. This promises to be another "long march." Expect the unexpected.

The protestors now realize just how asymmetrical this is and how determined TPTB are to crush social protest and political dissent. They will have to adapt.

However bad things get though, it will be nothing like what the anarchists faced in the lead up to the failed revolution of 1848 and the aftermath. However, they changed history in unexpected ways that are still unfolding.

This is shaping up just the beginning of the next awakening predicted by Strauss & Howe in The Fourth Turning (1997) and Ravi Batra (2007) in The Next Golden Age: The Coming Revolution Against Political Corruption and Economic Chaos. It's not going to happen overnight.

If this lasts through the decade at least, as I believe it will, the issues will be decided by an electorate that will be very different in demographic composition and culture. The chances that neoliberalism will survive are extremely slim. It's just a matter of time.

However, youth is impatient and will attempt to push its hand, so there are going to be rough spots, especially when the next financial and economic crisis hits and global warming obviously starts to bite.

This will be the predominant trend of the decade and it will have broad and deep consequences socially, politically, and economically.

Saturday, May 26, 2012

Warren Mosler and Andrea Terzi — The euro area is not running out of euros. Yet, it pretends it is.

Technically, any central bank can spend or lend any amount of its currency with any of its member banks by simply crediting their accounts. This is the basis and the source of any currency, which is nothing more than an account at the central bank—an ECB liability in the case of the euro area. 
This power of “issuing” currency is exercised by simply changing the numbers on the account balance of commercial banks as a result of a loan being extended or of a payment being made. The ECB does this routinely when it makes loans to banks and when it credits banks to settle government payments to the private sector. This power of crediting reserves is held by the Governing Council of the ECB (Article 12.1 of the ECB Statute).

The process can work inversely, of course: the central bank can debit reserves (i.e., “un-print” euros) when banks pay off their loans or when banks pay taxes for their own or their clients’ accounts. 
The political rules of the euro area, however, limit what the ECB can do. Governments are forced by those rules to get funding without ECB support. The ECB is prohibited from buying government bonds or distributing a balance of euros to each government (on a per capita basis) to prevent local states from running out of money. So, euro area governments can run out of money, although their common central bank clearly cannot! 
One would suspect that if the euro area were to undergo an emergency such as a major natural disaster or a war, European governments would request that the ECB put its absolute power at their disposal. Thus, one wonders why European politicians do not believe this is an emergency that justifies the exception.
Read it at MEPOC
The euro area is not running out of euros. Yet, it pretends it is.
by Warren Mosler and Andrea Terzi

Read this in conjunction with Steve Roth's post that I cited earlier today here.

CR — Conviction: Fraud for Housing

Bill McBride quotes from "Unwinding the Fraud for Bubbles, which his co-author, Doris (Tanta) Dungey (d. 2008), wrote in early 2007 and in which she distinguished fraud for housing from fraud for profit. The bubble involved both. We are still working it out. So far, very few of the predatory lenders have been either investigated or prosecuted, although some of the "little guys" have. We're still waiting.

Read it at Calculated Risk
Conviction: Fraud for Housing
by Bill McBride

A New Economic Paradigm: An Interview With Gar Alperovitz

Gar Alperovitz is Professor of Political Economy at the University of Maryland and co-founder of the Democracy Collaborative. He is the author of numerous books, including Unjust Deserts, Making a Place For Community, Rebuilding America, Atomic Diplomacy, The Decision to Use the Atomic Bomb, and America Beyond Capitalism.
Read it at link to video at Truthout
A New Economic Paradigm: An Interview With Gar Alperovitz
By David Barsamian, Alternative Radio | Interview & Video

Video of intervew and transcript.

Steve Roth — The Fed Faces the End Game — And Blinks?

The Pentagon's strategic staff does contingency planning around various potential end games. Ryan Avent applies the technique to economics with respect to end games involving the Fed and monetary policy. Steve Roth draws some conclusions about end game scenarios.
Voilá: MMT World, where Treasury is simply spending newly-created money into existence, at the behest of the legislative and executive branches, by depositing it in recipients’ bank accounts. Bond/debt issuance is immaterial, because the Fed has no choice but to buy all the new bonds for “cash.” (Yes, the Fed is actually “printing” the money, but effectively the Treasury is doing so.) There is no Fed “independence.”
This is the scenario that would result if the Republicans were foolish and feckless enough to take their chicken game to the limit and let the head-on collision actually occur, with a default on U.S. debt. It’s the expected (inevitable) result if they “take it to court” — at least if they leave it that way for any period. (Has anybody mentioned the irony of the Republicans’ claim to be creating “confidence”? And, do you think they’d like the MMT World that they’re unwittingly trying to create? 
Read it at Asymptosis
The Fed Faces the End Game — And Blinks?
by Steve Roth

Good read.

TEDx Video: If You Want Them To Remember, Tell A Story

Read it and link to video at Climate Progress
Must-See TEDx Video: If You Want Them To Remember, Tell A Story
by Tom Smerling
(h/t paul in the comments)

Good advice for presenting MMT.

Millennial generation expected to support Obama two to one

There are 95 million members of the “millennial generation” [born circa 1980-2000] in the United States, making them the largest generational cohort in the United States, and those who are eligible to vote next fall can be expected to support President Obama by a margin of two-to-one as they did in 2008.
That is the opinion of two rather older observers of that generation, Morley Winograd, a former senior policy advisor to Vice President Al Gore and director of the national Partnership for Reinventing Government, and former Democratic pollster Michael D. Hais. The two men are the co-authors of Millennial Momentum: How a New Generation is Remaking America.
Read it at Raw Story
Observers of ‘millennial generation’ expect them to come out for Obama
by Muriel Kane

But here's a study calling that view into question somewhat and explaining why so many millennials are proponents of Ron Paul or supporters of Occupy:
After analyzing 40 years of data on approximately 9 million young adults, researchers have found the so-called Millennial generation to be less environmentally conscious, community-oriented and politically engaged than previous generations were at the same age, according to a new study 
Compared to baby boomers and GenX'ers when they were young adults, Americans belonging to the Millennial generation -- those born after 1982 -- consider money, image and fame more important than values like self-acceptance and being part of a community, according to the study published March 5 in the Journal of Personality and Social Psychology.
The study found that millennials were less interested in donating to charities, participating in politics or helping the environment. The results support the so-called "Generation Me" theory over the "Generation We" description often used in reference to today's young people.
Millennial Generation Money-Obsessed And Less Concerned With Giving Back, Study Finds
Read the rest at the Huffington Post

Oxfam offers free book — Be Outraged

Free download at Oxfam (72 pages)
Be Outraged: There are alternatives
(h/t Clonal in the comments

"There are alternatives" is an obvious reference to Margaret Thatcher's "There is no alterative" (to neoliberalism) aka TINA.
An international group of economists and social scientists argue in this book that austerity is bad economics, bad arithmetic, and ignores the lessons of history. They are outraged at the narrow range of austerity policies which are bringing so many people around the world to their knees, especially in Europe. ‘Be Outraged’ argues that austerity measures and cutbacks are reducing growth and worsening poverty and that there are alternatives – for Britain, Europe and all countries that currently imagine that government cutbacks are the only way out of debt.
  • Richard Jolly – Research Associate, Institute of Development Studies at University of Sussex Giovanni Andrea Cornia, Professor, Department of Economics, University of Florence
  • Diane Elson, Emeritus Professor, Department of Sociology, University of Essex
  • Carlos Fortin, Research Associate, Institute of Development Studies at University of Sussex
  • Stephany Griffith-Jones, Professor, Financial Market Director, Initiative For Policy Dialogue, Columbia University
  • Gerry Helleiner, Professor Emeritus, Department o Economics, University of Toronto
  • Rolph van der Hoeven, Professor, Employment and Development Economics, ISS, Erasmus University
  • Raphie Kaplinsky, Professor of International Development, Open University, UK
  • Richard Morgan, UNICEF (in personal capacity) Isabel Ortiz, UNICEF (in personal capacity)
  • Ruth Pearson, Emeritus Professor of International Development, University of Leeds
  • Frances Stewart, Professor, Department of International Development, University of Oxford
Review here by Duncan Green, the Head of Research for Oxfam GB, who blogs at "From Poverty to Power" on Oxfamblogs.

Succession Plan for the USA: How to Re-purpose the Institutional Momentum of the DoD, Intelligence & Finance Industries

Defense, national security & finance industries have dominated US policy direction for decades, and large parts of the significant budgets of each of those three industries have become SECRET, outside the awareness of our supposedly democratic electorate. Can we survive this institutional momentum? Of course we can! But ONLY if we maintain a robust model for evaluating situations which may easily change faster than our public comprehension can follow.

  Humility & ability to explore the meaning of data streams outside our present understanding is perhaps the #1 requirement for national survival.

To gain perspective, let's wander afield, than come back to our present situation from another angle.

There are countless examples of past species & empires, whose evolving methods failed to help them survive successive challenges.  When a given aggregate fails to cross the next "chasm," the root causality is most evident NOT in the wrong moves it makes, or even in the "right" moves that seem obvious in hindsight.  Root cause always lies one step further back in the causality chain, at the level where institutional momentum caused subsequent decision patterns to become inevitable, and a foregone conclusion.

The root causality of aggregate failure always stems from inability to innovate on an aggregate-wide scale - i.e., an inability to spawn alternate methods and then actually select & propagate their use, widely enough & soon enough. The survival of our current national aggregate depends on the same process affecting every known species - whether molecular, cellular or social.

The issue of sustaining & increasing adaptive rate rules the lifespan of every species or culture. If we can use adaptive process control in defined applications, then why not apply that same talent to our most pressing policy demands, which are make-or-break for our national progress and survival?

In the USA too, our rate of adapting & enlarging our own methods will determine the duration of our republic. We can use past examples, such as failure of the Roman Empire, as guides, but must adapt those lessons to our own, unique circumstances. Above all else, we must constantly scale up our aggregate-wide analyses to encompass the increasing degrees of freedom which we have in choosing failure vs survival paths.

Every aggregate grows by painstaking creation & utilization of its internal institutions, from mitochondria within eukaryotic cells all the way up to the Pentagon, CIA & NSA within the USA. Once you look upon each institution - no matter it's setting - as a component in an organized, evolving system ... then the specific details get very boring, very quickly, from our net perspective. 

Yes, they all play a necessary but not sufficient role, and the tactical details are important at the tactical level. Nevertheless, they're all just components that are devoid of meaning outside their responsibility to their host. The ongoing role any institution plays in the adaptive process of its host falls into very predictable patterns.

The aggregate's task of successfully coordinating those subordinate patterns I call the "Entrepreneurial Aggregate's Task." The US-DoD currently masters this task more proficiently than any other cultural institution on earth.  However, just by doing so it is always on the brink of being able to destroy the very aggregate it serves, just as Roman militarism slowly dissolved the republic that harbored it. 

Compared to DoD officer-training, the level of strategic comprehension of staff in all levels of local, state & federal congresses is past the point of being a national embarrassment and ongoing calamity. That level of institutional decline in our democracy can only occur after prolonged, systemic neglect by a detached, dissasociated & increasingly inept electorate. It's our own fault. How do we recover from this increasingly distributed hangover? Let's take a look at the basic premises which every organized aggregate uses.

Interchanges between institutions & aggregates.

By definition, all newly evolving institutions shepherd dramatic increases in resource throughput, and thereby create their own positive-feedback loops within their aggregate. Keeping that simple rule in mind helps us place any and all information about institutions as tactical details, curious but potentially distracting from the aggregate survival strategy. All existing institutions are needed, at least transiently, but none EVER fully speak for the aggregate.

Yet whole aggregates constantly find themselves with their own, institutional tigers by the tail, and therein face their greatest dangers. There are always future resource streams to pursue, and infinite numbers of additional internal tiger-tails to grab. Static measures of local "value" don't guarantee you'll survive transitions, only agile transaction chains will guarantee that. Survival defines a dynamic value-path, where the only purpose of any local or momentary value metric is it's use in keeping the aggregate close to a constantly emerging survival path. Face it. We are "Context Nomads," wandering through an unfolding, unpredictable future.

It's when we get too absorbed with any transient, institutional-tiger that we over-adapt to an inevitably fleeting situation. When that happens, excessive pursuit of any given example of institutional momentum can take us too far off our unpredictable, adaptive path.  When that happens, our aggregate agility declines, and we lose access to the future.

Internal checks & balances smoothing transition between tiger-tails.

Surviving aggregates invent timely, context-specific checks & balances to survive. Their task is to design catalysts to herd their multiple, emerging institutions into productive vs unproductive interactions. Yet how exactly do they get all emerging institutions to cooperate? What are the internal signals for adjusting very dynamic tolerance limits? It boils down to extracting some distributed signal that is a reliable indicator of net aggregate agility or resilience.  That has to be done by aggressive trial and error, since most combinations of individual & institutional behaviors - no matter how locally impressive - are dead-end diversions from the aggregate survival path.

Never bet the farm? That's one useful rule. Keep a very long return path? That's another good rule. If a statistical or probability model of all existing resource streams is visualized, it becomes far easier to remember that most income-patterns produce local as opposed to global maxima or minima. Simply put, the approach you use to accumulate personal wealth may well preclude survival of your descendents. How do you mitigate that threat? By producing agile citizens and institutions, able to QUICKLY undo any unpredictable dead-end we've previously explored.

Never let examined, distributed trends box your aggregate into instances where the farm is already bet, and return paths are dangerously constrained?   That sounds vague & daunting, but it has to be done.  How?

Adaptive direction is best estimated as a time-weighted average of the net rate of changing outcomes. This is reflected in the corrected, net-present-value calculations used in investment schemes. If you're beginning to wonder why looking ahead is beginning to sound like common sense, don't feel alone.  Why on earth don't we follow that same logic when investing in policy, and also for investing in aggregate agility and resilience?

Now recall that aggregate behavior is all statistics, and mistakes are inevitable, not just possible. Given all this, why are we so sophisticated about engineering, mathematics, or sequestering local resources, and so pathetic about investing in aggregate agility? Why are there no investment forums on investing in democracy, or in a "more perfect union?" We've done that before, and can obviously do it again, so the question translates to "why aren't we making the effort?"

How to invest in emerging methods for scaling our rate-of-coordination?

It's here that we can return to looking at our own, national aggregate in a new light. For centuries, philosophers advised that "to know the truth, ask 'why' 5 times in succession." Iterative questions about causality peel back the institutional momentum that dominates aggregate decision-making at any given time.

In the case of the Roman Empire, the subtle, internal inversion from a stakeholder-driven military to military-dominated stakeholders is offered as one clue to empire collapse. From our perch, however, it's a bit comical to visualize military leaders increasingly adept at mastering the complex interplay of multiple forces and logistics support throughout whole regions - while remaining simultaneously blind to the analogous factors changing the fabric of their own nation!

Yet today in the USA, are we doing any better? Or are we only living out a bigger example of the same process? Has our inversion from stakeholder-driven fiat finance to fiat-dominated-stakeholders already triggered inevitable dissolution of the USA? Is our demise now only a matter of time?

That depends on how aware, perceptive and responsive our electorate is. If US policy must become more agile every year, are WE capable of re-designing the distributed methods that guarantee a successful aggregate? Can we generate the social catalysts that will generate newly agile methods, year after year? Sure we can!  It's a question of whether parents actually want this outcome for their children - and whether the children want it whether the parents will or not.

Sometimes, when a distributed train of thought is taking too long to board at a station, emerging imagination just hops on board and leaves without it. It's called uncovering options by exploring them, before they're fully understood. Our current US culture is rapidly losing moxie & innovative steam in part because we're not giving our youth shoulder enough practice at solving challenges.

If the DoD formally develops discernment through rigorous officer training, then why isn't citizen training and far more professional politician briefing our #1 priority? For us, a simple question arises, one that should be asked in the "citizen training process" of every person in every institution. "Can our aggregate survive over-domination of public policy by YOUR institution?" 

Our ability to improve that citizen-training, I predict, will define the culture of the USA more than any other process we use. At present, we're training citizens to store massive amounts of information, with negligible practice at selecting what little is needed to improve aggregate outcomes.  The result is citizens who are less comfortable taking responsibility for change.

To tune further capabilities from a changing aggregate, there's always something we should be doing differently, and some unpredictable surprises about things we no longer need to do. Why don't we find more time to practice coordination?

Answering that question requires staging, sequencing & linking of a few conceptual tenets - aggregate success, the 1st derivative of aggregate success, and the 2nd derivative of aggregate success.

1) Defining Dynamic Aggregate Success. Model the spectrum of conflicting institutional lobbies that guide & constrain our aggregate path.  View that spectrum not as static walls, but as a vibrant plasma that should be agile enough to sample many outlets, before settling on the outlet that - with reasonable certainty - looks like part of a net, adaptive path for our aggregate.

2) Methods for exploring aggregate options.  A model of the spectrum of methods by which aggregate agility is managed and increased. View that spectrum of methods as also not static, and rather as a dynamic list of catalyst techniques for generating cooperation, no matter the situation.

3) Methods for improving, not just maintaining our coordination methods.  A model of how an adequate supply of emerging social catalysts is spawned.   With a model, we can better manage our own social-catalyst logistics, so that social innovations will be available to our, hopefully still vibrant list of lobbies.  This boils down to a simple re-statement of evolutionary theory, ironically generated by our own Marine Corp, as a tenet of war campaign theory.
a) Success follows the quality & pace of distributed decision-making.  
b) We generate pace by the very act of distributing decision-making.

Note, with social disparity, we're already half way to aggregate failure.  Perhaps if we practiced staging, sequencing & linking of those 3 tenets, alone, we'd keep a higher proportion of our growing aggregate aware of aggregate conditions? It wouldn't be that hard to find out!

The answer seems to be that we simply don't discuss & practice coordination enough, by any measure.  We're heroically overworked individually, simply because we're not investing enough in coordination.

We could be evolving even faster. So far, we rarely even get to levels 4 & 5 of philosophical questioning, because things change so rapidly. Perhaps in another 100 years or less, however, real-time, public analysis of those steps will be required even in everyday life, not just in the DoD. At present, wider practice of even the first 3 steps might revitalize our culture. With that, perhaps a higher proportion of our citizens and policy staff would remain more aware of what their entire range of constituents has to offer, now & in the future?

Who knew that DoD was Zen?   I have no idea whether the CIA & NSA are even half that smart.  As a start, they're too secretive!   Perhaps if we focused more on our own, OpenSource institutional agility, would we ever need to worry about the stupidity of active Knowledge-Disparity, i.e., keeping secrets from ourselves?  If we instead just practiced improving our own, aggregate agility, other cultures would always be so far behind that they'd pursue us through Cargo Cult responses posing no threat to us.   That seems like a more audacious goal to set for ourselves.

It's our own neophytes, conned by the superficiality of their own perspectives which most often kill our aggregates, through pathologically naive, institutional momentum.  Such neophytes, by definition, fail to factor the time-averaged, rate of change of aggregate options, most of which lie beyond the personal awareness of all individuals.

Youngsters initially always fail to allow for the inevitability that they, themselves - or their greatest imaginations - may be evolutionary mistakes and an aggregate dead-end. Get over it. It happens. When it does, it's still a service to your aggregate, even if only as a warning example, no matter baffling.

How to acknowledge & recover fast enough from our ongoing trials & errors is a more dire answer to pursue. Given changing contexts, everything is eventually a mistake, so the only crime is prolonging mistakes after they become one.

Can we survive our next transition well enough to spawn further transitions?   It boils down to discounting tradition enough to generate more of it.  A tradition of audacity demands expanding - not constraining - our own traditions.