Saturday, June 30, 2012

Michael Stevens — Greenspan and Godley

Alan Greenspan is apparently writing a book to determine why economic models (all of them, he says) failed to sniff out the financial crisis and ensuing recession. “While the models themselves capture the nonfinancial part of the economy rather well,” says Greenspan, “they’ve been wholly inadequate in understanding how the complex financial system works, both in the United States and globally....” Godley and Lavoie wrote, “[t]he problem now is not so much the lack of appropriate data … but rather the unwillingness of most mainstream macroeconomists to incorporate these financial flows and capital stocks into their models, obsessed as they are with the representative optimizing microeconomic agent.”
Read it at Multiplier Effect
Greenspan and Godley
by Michael Stevens

Anyone know Greenspan well enough to recommend he read Godley and Lavoie before writing anything further? And to introduce him to Bill Black.

Richard Wolff — Yes, there is an alternative to capitalism

There is no alternative ("Tina") to capitalism.
Really? We are to believe, with Margaret Thatcher, that an economic system with endlessly repeated cycles, costly bailouts for financiers and now austerity for most people is the best human beings can do? Capitalism's recurring tendencies toward extreme and deepening inequalities of income, wealth, and political and cultural power require resignation and acceptance – because there is no alternative?
I understand why such a system's leaders would like us to believe in Tina. But why would others?
Of course, alternatives exist; they always do. Every society chooses – consciously or not, democratically or not – among alternative ways to organize the production and distribution of the goods and services that make individual and social life possible....
Capitalism thus entails and reproduces a highly undemocratic organization of production inside enterprises. Tina believers insist that no alternatives to such capitalist organizations of production exist or could work nearly so well, in terms of outputs, efficiency, and labor processes. The falsity of that claim is easily shown. Indeed, I was shown it a few weeks ago and would like to sketch it for you here.
Read the rest at The Guardian (UK)
Yes, there is an alternative to capitalism
by Richard Wolff
In short, MC worker-members collectively choose, hire and fire the directors, whereas in capitalist enterprises the reverse occurs.
Interestingly, a very similar distinction is manifest in religious denominations — between "low" churches that are congregational and "high" churches that are hierarchical. In the congregational modle the congregation chooses the minister, and in the hierarchical model, authority is centralized and imposed from the top, with parishioners required to be subservient and to conform.

Joseph Stiglitz — reduce the rent-seeking

Textbooks teach us that we can have a more egalitarian society only if we give up growth or efficiency. However, closer analysis shows that we are paying a high price for inequality: it contributes to social, economic and political instability, and to lower growth.... 
There is good news in this: by reducing rent-seeking – finding ways of getting a larger share of the pie, rather than making the pie larger – and the distortions that give rise to so much of America’s inequality we can achieve a fairer society and a better-performing economy.
Read it at The Financial Times | Opinion
America is no longer a land of opportunity
by Joseph Stiglitz

Brandon Smith — Americans Are Being Prepared For Full Spectrum Tyranny

Last week, I covered the disturbing use of armored vehicles (APC’s or urban tanks) in open training regiments on the streets of St. Louis by the U.S Army, despite the fact that all of their exercises could have easily been accomplished on any number of military bases across the country. The action is an obvious attempt to condition the American populace to the sight of military units operating in a policing capacity:
I received multiple letters from current serving military who stated that in all their years in the armed forces they had never seen such a brash mishandling of public relations or an overstepping of bounds when it came to the restrictions of Posse Comitatus. It was encouraging to hear from military men and women who did not agree with or condone this kind of psyop activity on the part of our government.
Though the St. Louis event is not isolated, I believe it does represent an escalation.
Read it at
Americans Are Being Prepared For Full Spectrum Tyranny
by Brandon Smith

Paul Smith — TrustCloud: The Path to Establishing Trust Online?

Read it at Shareable:WORK & ENTERPRISE
TrustCloud: The Path to Establishing Trust Online?
by Paul Smith

You thought your agency credit rating was all there was to it? Think again.

NBC Meteorologist On Record Heat Wave: ‘If We Did Not Have Global Warming, We Wouldn’t See This’

Turning point approaching in public awareness and political demands? If so, some basic decision will be made affecting economic policy, energy policy, and negative externality. Capitalizing the gains and socializing the losses may not be a viable economic strategy much longer.

Read it at Climate Progress
NBC Meteorologist On Record Heat Wave: ‘If We Did Not Have Global Warming, We Wouldn’t See This’
by Joe Romm

Jack Balkin on why institutions count

Politically, society is orded by a social compact through its institutions. When those institutions and their arrangements are established by law, the social compact become a social contract, and it is enforceable in law. The social compact is otherwise carried out through custom and social pressure to conform to custom. These two terms are often used interchangeably without drawing this distinction. I believe that this is a mistake.

Prof. Balkin's point, generally correct, I believe, is that the social compact changes over time and those changes are eventually reflected in formal changes to the social contract through laws, regulation, and judicial interpretation.

Read it at Balkinization
The Health Care Case and the Social Contract
by Jack Balkin | Knight Professor of Constitutional Law and the First Amendment at Yale Law School

Randy Wray — Brad Delong: We’re All Minskians Now!

Another great one from Randy.

Read it at Economonitor | Great Leap Forward
Brad Delong: We’re All Minskians Now!
by L. Randall Wray


See also

Zero Hedge
Guest Post: Whitewashing The Economic Establishment
Submitted by John Aziz of Azizonomics

Mentions Steve Keen and Randy in taking down DeLong and the mainstream. Increasing non-typical stuff is showing up at ZH.

Lars P. Syll — Knut Wicksell and the origins of Modern Monetary Theory

Many mainstream economists seem to think the idea behind Modern Monetary Theory is new and originates from economic cranks.
New? Cranks? How about reading one of the great founders of neoclassical economics – Knut Wicksell. This is what Wicksell wrote in 1898 on “pure credit systems” in Interest and Prices(Geldzins und Güterpreise), 1936 (1898), p. 68f....
What Modern Monetary Theory (MMT) basically does is exactly what Wicksell tried to do more than a hundred years ago. The difference is that today the “pure credit economy” is a reality and not just a theoretical curiosity – MMT describes a fiat currency system that almost every country in the world is operating under.
In modern times legal currencies are totally based on fiat. Currencies no longer have intrinsic value (as gold and silver). What gives them value is basically the simple fact that you have to pay your taxes with them. That also enables governments to run a kind of monopoly business where it never can run out of money. A fortiori, spending becomes the prime mover and taxing and borrowing is degraded to following acts. If we have a depression, the solution, then, is not austerity. It is spending. Budget deficits are not the major problem, since fiat money means that governments can always make more of them.
Read it at Lars P. Syll's Blog
By Lars P. Syll | Professor, Malmo University
(h/t paul in the comments)

Sarah Jaffe — Corporate Profits at All-Time High; Wages at All-Time Low: Can We Call it Class War Yet?

The middle class is being hollowed out; increasingly, there are the super-super-rich, and there are the rest of us....
As Hayes writes, we're ruled by an ever-smaller group of elites who not only control all the resources, but all the power. The same people who are pushing wages downward are the ones paying for politicians' campaigns, and they're the same people on the boards of directors and trustees of our universities, our institutions—like JP Morgan Chase's Jamie Dimon, who serves on the Board of Directors of the Federal Reserve Bank of New York, the National Center on Addiction and Substance Abuse, the Harvard Business School, Catalyst, as well as on the Board of Trustees of New York University School of Medicine. 
Meanwhile, for the vast majority of us, the recession that supposedly ended in 2009 looks more like a depression each day, and as long as low wages and high unemployment remain the order of the day, there's no recovery in sight.
Read it at AlterNet | News & Opinion
Corporate Profits at All-Time High; Wages at All-Time Low: Can We Call it Class War Yet?
by Sarah Jaffe

Washington's Blog — Mainstream Economics is a Cult

Washington's Blog coming into the fold. Profusely quotes Steve Keen, Michael Hudson, Bill Black, and Philip Pilkington

Read it at WashingtonsBlog
Mainstream Economics is a Cult
Posted by WashingtonsBlog

Interestingly, Washington's Blog is reposted on a regular basis at Zero Hedge and less regularly at Naked Capitalism, kind of opposite ends of the spectrum.

Chis Hedges — Book Review: The Righteous Road to Ruin by Jonathan Haidt

Chris Hedges eviscerates Jonathan Haidt, as only he can do.
Haidt like E.O. Wilson, whom Haidt calls “a prophet of moral psychology,” believes that evolution has constructed us to be selfish. We rationalize selfish behavior, he writes, as moral. He asks whether moral reasoning wasn’t “shaped, tuned, and crafted to help us pursue socially strategic goals, such as guarding our reputations and convincing other people to support us, or our team, in disputes?” The moral glue that holds us together, Haidt writes, is concern for our reputations [read "ego"]....

But while Haidt correctly excoriates conventional morality as largely a form of self-justification, his solution is not to seek a moral code that benefits our neighbor but to ask us to surrender to this self-interest and become part of human “hives,” including corporations....
Happiness, then, comes with conformity. If we are unhappy it is not because there is something wrong with the world around us. It is because we have failed to integrate into the hive. This, of course, is the central thesis of positive psychology, which Haidt is closely associated with. And it is an ideology promoted by corporations and the U.S. military to keep people disempowered....
Haidt mistakes the immoral as moral. Totalitarian structures, including corporate structures, call for us to sublimate our individual conscience into the collective. When we conform, we become, in the eyes of the state, or the corporation, moral and righteous. Haidt would do well to remember historian Claudia Koonz’s observation that “the road to Auschwitz was paved with righteousness.” This is a book that, perhaps unwittingly, sanctifies obedience to the corporate state and totalitarian power. It puts forth an argument that obliterates the possibility of the moral life. Submission, if you follow Haidt, becomes the highest good.
Read it at Truthdi
Book Review: The Righteous Road to Ruin
by Chris Hedges

Especially telling:
[Haidt's] transformation from a liberal to a conservative, he writes, took place on 9/11 when “the attacks turned me into a team player, with a powerful and unexpected urge to display my team’s flag and then do things to support the team, such as giving blood, donating money, and yes, supporting the leader.” In short, Haidt became a lover of conservatism and nationalism when he became afraid. He embraced an irrational, not to mention illegal, pre-emptive war against a country, Iraq, that had nothing to do with 9/11. And if there was ever a case for reason to conquer fear and the emotionalism of the crowd, the Iraq War was it. But Haidt, rather than acknowledge that fear had turned him into a member of an unthinking, frightened herd, holds this experience up as a form of enlightenment.
Ok, swept up in emotion, but this is the kicker:
In a very revealing anecdote—which he titles “How I became a pluralist”—Haidt writes of his three months in the Indian city of Bhubaneswar. He has servants. He visits the homes of male colleagues and is waited on by their wives. He writes that “rather than automatically rejecting the men as sexist oppressors and pitying the women, children, and servants as helpless victims, I began to see a moral world in which families, not individuals, are the basic unit of society, and the members of each extended family (including its servants) are intensely interdependent.”
 His embrace of rigid social hierarchy and oppression, which makes him sound like the apologists for racial segregation, is a window into the entire book. He does not speak Oriya, the local language, and so is dependent on an educated, wealthy elite. He, by the standards of India, is rich. He makes no effort to explore the lives of the underclass. He celebrates what he calls “a moral code that emphasizes duty, respect for one’s elders, service to the group, and negation of the self’s desires.”
Here Haidt doesn't see that he is buying into the caste system that is culturally endemic in India, and the quintessential example of class division based on heredity. Hedges doesn't point that out, but I'll do it for him.

Haidt is so clueless he hasn't seen what has happened to him. He has become diminished as a human.

Chris Dillow — Changing banking culture

In banking, however, the culture that helps solve agency problems is lacking.
So, how to create it, given the obstacles I've described?
We could learn from pre-modern states. They imposed brutal punishments upon wrong-doers, in part because they needed to terrorize their subjects into submission simply because they had no other means of controlling them. Similarly, if shareholders or regulators cannot control bankers - and it looks like they can't, draconian punishments for wrongdoing are needed to keep them in line. As Voltaire nearly said, "it is wise to kill a banker from time to time to encourage the others."
Read it at Stumbling and Mumbling

Changing banking culture
by Chris Dillow | Investors Chronicle

Whatever it takes, I guess. We lock up people for a long time for a lot less.

Friday, June 29, 2012

Noah Smith — "Science" without falsification is no science

So as things stand, macro is mostly a "science" without falsification. In other words, it is barely a science at all. Microeconomists know this. The educated public knows this. And that is why the prestige of the macro field is falling. The solution is for macroeconomists to A) admit their ignorance more often (see this Mankiw article and this Cochrane article for good examples of how to do this), and B) search for better ways to falsify macro theories in a convincing way.
Of course, if people also read heterodox macroeconomists, then they would know that some macroeconomists actually did get it right, and they also explain why mainstream economists get it wrong.

See James K. Galbraith, Who Are These Economists, Anyway? And it is not like Prof. Galbraith is an unknown upstart, either. Don't these people go outside, once and awhile at least.

Read it at Noahpinion
"Science" without falsification is no science
by Noah Smith | PhD candidate in economics at the University of Michigan. (In the fall he will start as an assistant professor of finance at Stony Brook.)

Noah Smith is an economist with a background in physics.

I left this comment there:

Tom Hickey 11:48 PM
Actually, some macroeconomists did get it right and explained why the mainstream was getting it wrong. Notably, the late Wynne Godley. For his approach to macro using stock-flow consistent modeling and sectoral balances, see Godley and Lavoie, Monetary Economics (Elgar, 2007, 2nd ed. 2012). See James K. Galbraith for some economists who did get it right — "Who are these economists anyway?"


Simon Wren-Lewis has an equally uniformed post at mainly macro

What microeconomists think about macroeconomics

I left this comment there:

Simon, have you read much Wynne Godley, especially Godley and Cripps, Macroeconomics (182) and Godley and Lavoie (2007, 2nd ed. 2012)? Or did you see James K. Galbraith, "Who are these economists anyway?" I am afraid your comments reflect the ignorance of the profession about Post Keynesianism. OK, you are an Oxford prof, and Cambridge was the citadel of PKE, and Godley there. But to miss or dismiss major economists since Keynes, really now.

Mike Sax — Fiscal vs. Monetary Policy: Scott Fullwiler vs. Lars Christensen

This is the essence of it: 
In any case following Fullwiler here we get a working distinction between fiscal and monetary policy that's easy to follow. Fiscal [policy] increases the net worth of the non-government sector [by increasing non-govt net financial assets  through deficits]; monetary policy increases liquidity [reserve quantity] through asset swaps [that change the composition of assets but do not affect net financial assets of non-govt]. In the liquidity trap this breaks down as you have perfect substitutes being swapped-money and bonds.
Read it at Diary of a Republican Hater
Fiscal vs. Monetary Policy: Scott Fullwiler vs. Lars Christensen
by Mike Sax

Obamacare is NOT a tax

Ann Pettifor — Be angry at bankers, be angrier at economists

Orthodox economists stand aloof from a crisis of their own making. Time for a public inquiry where they can be interrogated
Like millions of others I am outraged by the Libor scandal, by the wrongdoings of the "submitters" and other traders at Barclays Bank under Bob Diamond, and their fellow travellers at the British Bankers' Association. That is why I and my colleagues at Prime have launched a government e-petition calling for a judicial public inquiry into the wrongdoings of banks, and for the inquiry to have powers to summon witnesses and question them under oath.
But this scandal is just a symptom of a much bigger dysfunctional banking system, one that is staunchly upheld by the British establishment – many of whom have their heads firmly below the parapet. And it is a direct result of the flawed, mainstream economic theories on which the global, so-called free market in money has been built.
Above all, it is mainstream economists who are directly responsible for the financial crisis and who have brought our global financial system to this pass.
Read it at The Guardian (UK)
Be angry at bankers, be angrier at economists
by Ann Pettifor
(h/t Kevin Fathi)

Ann rips 'em a new one. Bravo. Encore.

Bill Mitchell — Mass unemployment is involuntary

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

This section continues the work on stylised facts that should be explained by any credible macroeconomic theory. In this part I deal with involuntary unemployment and its associated time series properties.
Read it at Bill Mitchell — billy blog
Mass unemployment is involuntary
by Bill Mitchell

John Michael Greer — The Cussedness of Whole Systems

There’s an interesting divergence between the extreme complexity of the predicament that besets contemporary industrial civilization, on the one hand, and the remarkable simplicity of the failures of reasoning that have sent us hurtling face first into that predicament, on the other. Nearly all of those failures share a common root, which is the inability—or at least the unwillingness—of most people in the modern world to pay attention to the natural cussedness of whole systems.
Read it at The Archdruid Report
The Cussedness of Whole Systems
by John Michael Greer | Grand Archdruid of the Ancient Order of Druids in America

This is post is about infinite demand for scarce resources and how human affect the system of which they are a part through their impact on real resources such as energy and food. Greer also looks at the non-financial implications of this in increasing financialization.

Whether one agrees with Greer's analysis or conclusions, this is the holistic approach that is needed for global logistics, with which the global economy and global economics is intimately involved. 

Back when, Bucky Fuller devised the World Game for the purpose as applying design science to the developing challenges.

Greg Palast — Robert Mundell, evil genius of the euro

For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan
Read it at The Guardian (UK)
Robert Mundell, evil genius of the euro
by Greg Palast |

Palast Nails it, as usual. Turns out he knew Mundell and got the story from his lips to Palast's ear. If this doesn't knock your socks off, you aren't wearing any.

I have hammering on this for some time, as readers here know. The EZ "experiment is the neoliberal game plan for globalization that transcends democracy and establishes the rule of international institutions committed to neoliberal principles. Except when events go against their interests, then use their influence over government to force government bailouts of "an indispensible financial sector that transcends national boundaries." And yes, the US did bail out several foreign banks considered "to big to fail."

Here's what I wrote in comment over at MMR:
Tom Hickey June 27, 2012 at 1:19 pm
Mike, I have been warning for some time‚ decades, that the neoliberal thrust is for an international economic system that transcends governments and is controlled by the global elite. They don’t mind disasters occurring, since they never let crisis go to waste and even use crisis as a tool to advance their agenda.
The EZ-EMU is a brazen step in that direction, specifically designed for that purpose. Which is why the elite is resistant to any solution that does not move their agenda forward. While the breakdown of the EZ is “unthinkable,” it will happen if elites find that they cannot control the process any longer. They will just shift course and organize the rubble [I should have added here, at two cents on the dollar, euro, or whatever].
This may sound like the New World Order conspiracy theory but it is the opposite. The NWO conspiracy theory is aimed against world socialism and the UN as a world government that will deprive the US of national sovereignty.
This nwo is designed to make sovereignty irrelevant wrt multinational interests under the control of the global elite that controls “capital.’ National sovereignty remains in place legally but it doesn’t affect elite interests, since elites can manipulate govts through capture and just go above them in terms of economic-financial global infrastructure.
This is the opposite of “socialism” and the logical outcome of “capitalism” as monopoly capital.

Stephanie Kelton — MMT Basics: You cannot consider the deficit in isolation


Presentation at Slide Share (Posted by Mitch Green)
MMT Basics: You cannot consider the deficit in isolation
Stephanie Kelton | Associate Professor of Economics, UMKC
(h/t Scott Fillwiler via Twitter)

Thursday, June 28, 2012

Bill Mitchell — The on-going crisis has nothing to do with a supposed liquidity trap

The problem is that while there are some leading economists who are arguing against harsh fiscal austerity at present at the basis of their reasoning is a thoroughly mainstream approach which has helped create the problem. I don’t think their version of ECO101 Macroeconomics provides the answers. There is some common ground with Modern Monetary Theory (MMT) but an even deeper incongruence.
Read it at Bill Mitchell — billy blog
The on-going crisis has nothing to do with a supposed liquidity trap
by Bill Mitchell

John Carney — The Mystery of the US Treasury Market

The US Treasury market continues to baffle.
Despite an almost unfathomable supply of U.S. government debt, yields right across the curve remain at stunningly low levels. It almost seems as if the law of supply and demand has been suspended.
The quest to explain this phenomenon is giving rise to a conspiracy theory of the markets: the Fed is secretly propping up demand for Treasurys by printing dollars....
Viewed in this light, there is no contradiction or mystery at all to falling Treasury yields. Investors are buying the stock of safe assets even faster than the world can produce them....
Getting this right is important for understanding fiscal and monetary policy. We’re living through a great contraction of safe assets, which puts enormous strain on a financial system heavily reliant on collateralized trading between counter-parties. Any program that threatens to reduce, say, the amount of debt issued by the U.S. government should at least take into consideration the likely effects of further contraction.
Read it at CNBC NetNet
The Mystery of the US Treasury Market
by John Carney | Senior Editor

Another good one from John.

UPDATE: Prof. Scott Fullwiler in the comments:
STF said...
Apparently none of these people have heard of arbitrage (and hedging net long/short positions via derivatives), particularly where the dealers are guaranteed liquidity in the repo mkt by the Fed (not to mention CB swaps to stabilize access to offshore funds for non-dealers). And that's all the time, not just now, as Eccles explained. Supply/demand is true, but you have to have the right supply/demand to get the analysis right. So "there's more debt supply so rates should be higher as prices fall unless there's some Fed conspiracy" is applying Econ 101 to a far more complex context.
June 28, 2012 7:03 PM

Pity the Poor Banksters

The innocent banks were unwittingly duped by these petty crooks.

As a consequence, they're stuck with a bridge in Arizona which the MUST sell to you, in order to "rescue" their essential bank.

Brother, can you spare a $10Billion? They just must unload that bridge, or the whole country will theoretically collapse.

Los Gatos developer, two others indicted on charges related to mortgage fraud

All together now! "THIS WILL NOT STAND!"

We must act quickly to save our White Collar Criminals from the depredations of smug, petty beginners ... trying to exceed their licenses & move into the big leagues.

Yessir. Go, I say, go get 'em boy!

Sheesh! Just how dumb do these people think the US electorate is?

Next Steps for OpenSource Social Media, Inter-Connectivity and OpenEconomics

Take all the economic doom & gloom as one example. As another example, take all the kerfluffle about the Artificial-Intelligence "singularity", and fears that we'll be conquered by our own Borg machines.

Not to worry. As anyone experienced in Operations vs pure theory will probably appreciate, what matters above else is adaptive agility, and how to build more of it, cheaper/faster/better.

The way all "selection" occurs is through ontogeny - the rebuilding from scratch of complex systems, rather than the constant, recursive tuning of systems already to densely engineered to context. The desperate race to densely engineer JIT/JAN* solutions to fleeting contexts, dictates that endless hacks must be utilized. So many hacks are eventually used that all system hacks, from genes to fore brains to gold-std Central Bank operations, are first built on top of old hacks, and eventually completely replaced. They are rarely, if ever, redesigned.

* (Just in time / Just as needed)

Ontogeny works via agile recombination. NEVER underestimate that. Ontogeny means semi-random regeneration, where everything is reconnected to everything, and ONLY THEN relaxed to the minimal connections, data exchanges & inter-dependencies needed in order to map system function to a given, fleeting context.

There's a reason why all known complex species generate planned obsolescence into their members. Most lifetimes are tuned to the recent rate of context change that cannot be handled by plasticity of member behavior. Instead of endlessly hacking older systems, it's safer to re-launch updated models after intervals dictated by accumulating experience.

In the case of economics of nation states, it's not about the static assets tracked by economists & accountants. Rather, it's about the group intelligent agility quotient (GIAQ) that a given electorate can muster as contexts keep changing.

Design-build in construction is a practical analogy for those not familiar with biology. Decades ago, architects & builders recognized the divergence of what can be designed, vs what can actually be built, in sequence. Rather than the high cost of re-building with increasing frequency, a logical solution was formed. Design & construction were fused, basically dictating that only the skeleton of a design was constructed, before anyone attempted to finalize the more superficial design details. The same logic is followed in various forms of "Agile Programming", where initial function is tested before trying to nail down all superficial features & interdependencies.

Cultural evolution is no different in principle than physiological evolution. As contexts change, how quickly can a given culture reinvent itself & explore as many of it's available options as possible? What social catalysts can it invent - and how soon - to accelerate the process of re-connecting all old & expanding numbers of citizens? Then, how quickly can the same or different catalysts work in reverse to allow an enlarged population to relax into the minimal connectivity patterns allowing it to tune to a new context? And, how does it perform both steps WHILE ALSO retaining the intrinsic capability to do it all again, as soon as needed?

At the end of the Civil War, Joshua Chamberlain famously said: "We know not of the future and cannot plan for it much. But we can ... determine and know what manner of men we will be, whenever and wherever the hour strikes ... ."

Today, we must ask of ourselves and country a more distributed question. We still cannot plan for a completely unpredictable future. Yet we can, indeed, determine what multi-level, adaptive rates our citizenry & diverse processes can muster - when the micro-second strikes.

We can do that by developing the social instrumentation to connect everyone to everyone, upon demand, JIT/JAN. We can also allow most people to settle into the practiced routines that allow us to optimally adapt to a given context. When that context changes, however, we must have a populace previously and fully aware of the need to rapidly meet demands for radically adaptive change, and expecting to meet that challenge sooner or later. A population comfortable with change, and trusting it's ability to change, will be the superior "Context Nomads."  A population not prepared, will be less likely to successfully migrate across successive, changing contexts.

Can we retain a Context Nomad culture? Of course we can. We're already over-able to accomplish such maneuvers, as our various military, sports, theater, music, charity and business entities amply prove. All we're missing are two subtle requirements to scale group agility nationwide. First, incorporating "adaptive change at any moment" more fully into our teaching, training and practice habits. Second, selecting the social catalysts that allow us to practice responding to whatever changes we advise ourselves to prepare for, including surprises themselves.

We're mostly there. We've always had social mobilization methods, and are well on our way to formalizing them in virtual forms capable of supporting data throughputs previously unheard of !

In the case of the AI "singularity," it's far fetched. Who's going to rewire millions of new cpu models every 9 months or less? Who's going to redesign and rebuild all the "catalyst" machines that will redesign hardware? And what reference survival purpose will that hardware be aligned to?

What's seems inevitable is an inflection point in human GIAQ. Once our populations are better "instrumented," and can rapidly parse all OpenSource info across large populations - to converge to what matters most in any context - then large human aggregates will "know what they all know," upon demand, and be prepared to use it with agility too. After that, it's entirely a matter of practice.

Our cultural challenge is rather like that of the ~70 trillion cells in your body having their cake, and being able to wield a credit card, refrigerator, table, plate, knife & fork too - before someone else eats our lunch - and us - first! Tempo is always part ofan  agility equation. With group practice we can eventually even link, stage & sequence ingredients, utensils & ovens.

What proportion of available data is passed between your 70 trillion cells at any instance in any context? Amazingly little. Only what absolutely needs to be. 70 Trillion is a very large number. In comparison, with only 312 million members in the USA (2012), we have one helluva inflection point to go through ourselves.

There's still an additional subtlety that Economists & IT people don't fully appreciate from biology. It follows a thread that Walter Shewhart stated back in the 1920s - "Data are meaningless without context." We also know that most data are also irrelevant even within a given context. What we always face, therefore - in our adaptive race with tempo-driven milestones & frequent choke-points - is that all historically known instrumentation systems are under two types of unrelenting pressure. First, to converge to reduced bandwidth just minimally necessary for the RANGE of contexts we encounter. Secondly, and simultaneously, to retain the ability to adjust that range - through rapid recombination - to the changing demands of new contexts.

By studying the envelope of data exchanges required over time, we can evolve social media channels tuned to the minimally productive bandwidth which allows adaptive group agility.  We can do that WHILE retaining the capability to change any bandwidth, as needs change.  Developing the tools to change anything even faster is the real adaptive race.

The bandwidth point is consistent with all known sensory systems. All of our known physiological senses are constrained to the particular visual/auditory/tactile/olfactory/taste/vestibular BANDWIDTHS describing the minimal envelope of challenges we've recently faced. We've learned we don't NEED most data, and so don't need to collect, parse, separate or use most of it. That saves a LOT of overhead, and is an intrinsic part of agility, ontogeny & evolution. We can augment our data bandwidth at will, but will waste time doing so UNLESS and UNTIL it's actually required. 

As an aside, investors may think of the differing rates-of-change of multiple social-media data bandwidths as analogous to 2, 20, 50 and 100 day moving averages. In social media, however, the bandwidth of each data channel can drift with time, based on full-group feedback about group outcomes.

Rigorous bandwidth tuning will apply to all our emerging, OpenSource social media channels. There's an urgent need to "cut down the useless chatter" when short-term group agility is needed. The signal/noise ratios required for specific group maneuvers is a dynamic property defined entirely by context-specific group practice - called OutcomesBased practice. More to the point, to tune social communications upon demand, we'll need to describe, define and invent social sub-catalysts specific for the task of tuning social-media catalysts upon demand.  OpenSource social media already demands nested levels of catalyst & sub-catalysts.

We're just starting the process of applying OutcomesBased training to social media. Once practiced, the outcome will be astounding, compared to our previous abilities.

Only then will we be able to replicate agile social ontogeny, and drive the Adaptive Rate of the USA at a tempo ensuring not just survival, but also insanely great accomplishments we can't possibly predict or even imagine.

Greeks Should Have Seen This Coming - in 1992

Wynne Godley nailed it, way back then.

"The central idea of the Maastricht Treaty is that the EC countries should move towards an economic and monetary union, with a single currency managed by an independent central bank. But how is the rest of economic policy to be run? As the treaty proposes no new institutions other than a European bank, its sponsors must suppose that nothing more is needed. But this could only be correct if modern economies were self-adjusting systems that didn’t need any management at all."

(Hat tip to EconomicsNewZealand ‏@economicsNZ)

An uninformed population and it's options are soon parted?

Read blogs for the news, Bloomberg for the Party Line

Can no one in for-profit media be trusted? Bloomberg already has a whole city and his own army - how much more payment per word does he need from his editors & journalism staff?

Watching the Barclay's piece on his live news immediately triggered the following response: "They have a lotta nerve pitching the story that way! It's propaganda."

Wasn't there an old rock & roll song about that?

Who put the lie in the lie de liebor?
..Who put the cash in the till a ling ding dong?
Who was that man, who made him act that way?
..Who was that man? I'd like to grease his palm.
.....He's the man, the man who made the serfs vote for meeeeeee!"

According to Bloomberg, the story was all about the massive fines, slap down of management and significant moves made by both Barclay's mgt & UK regulators to correct a serious flaw in international banking operations.  Seriously.

Others called it what it was, a slap on the wrist for collaborators funding the very politicians who manage the regulators. Just whom is managing whom?

What do we need to goad people into action? Distribute bumper stickers saying "Honk if your politician is a crook too" - or something even more direct?  Perhaps a "Bernay's Own Political Salad Dressing" - or democracy repellent?

Our electorate is NOT taking this seriously enough. A recent example found a humorously shocking "prevalence of misconceptions about scientific information in our society, and to inspire revision of our national approach to science education at the college level."

Scientific information?  Heck, if we did a similar study on the prevalence of misconceptions about the nature of credit, coin & circulation in our local, state & national legislatures, we'd find an the state of affairs to be far, far worse.

Monetary operations is to economics like engineering is to physics. Yet we don't even have an academic field of "Monetary Operations."

No wonder that: "All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation." - (circa 1815?) John Adams

Citizens don't let citizens send ignorant delegates to a democratic legislature!

But banking lobbies do.  In fact, they encourage it.

Wednesday, June 27, 2012

circuit — Employment and productivity growth

Contrary to the microeconomic/market approach, my take is that productivity is very much a macroeconomic issue. In this regard, I side with post-Keynesian economists Nicholas Kaldor and Robert Eisner, both of whom argued that the level of employment and the degree of competition in labour markets have an incidence on productivity and overall growth. James Galbraith summarizes this point succinctly when he argues that
...full employment production foments ample competition in product markets, high rates of technical change, and declining costs, as business seek ways to save on scarce and expensive labor. In other words, productivity growth accelerates because of full employment itself. (emphasis added)
Now, it's important to recognize that employment growth irrespective of the type of employment probably won't do much to increase productivity. As highlighted in the OECD report cited above (and implied in the quote by Galbraith), the type of employment growth is a critical factor impacting on productivity.
 For this reason, it is best if policymakers seek to prioritize employment growth in the manufacturing sector, the sector that is most amenable to improvements in productivity (see here for more on why manufacturing matters for productivity growth).
Read it at Fictional Reserve Banking
Employment and productivity growth
by circuit

Brenda Rosser — The assumption that markets are 'natural'

On David Graeber's Debt: The First 5000 Years and its implications for economics. It speaks to some the recent controversy in the comments, too.

There is no evidence of markets before the introduction of money. Exchanges between individuals informally? Yes. Through markets? No.

Graeber: ....Call this the final apotheosis of economics as common sense.  Money is unimportant.  Economies - "real economies" - are really vast barter systems.  The problem is that history shows that without money, such vast barter systems do not occur....

"Apotheosis" def= exalting someone or something to divine status.

Do not worship at the altar of false gods.

Read it at Econospeak (very short)
The assumption that markets are 'natural'
by Brenda Rosser
(h/t Angry Bear)

Older essays on the Nature of Coin, Credit and Circulation

Here are yet more forgotten links - this time by one Alfred Mitchell-Innes, and one Arthur Kitson.  They both make many shockingly modern points about monetary operations - shocking only because they were ignored and/or actively suppressed for so long. Some points they obviously miss, but what they caught 100 years ago are still unknown to most citizens today.

Still shocking to see how much of this was known that long ago, yet NOT widely disseminated - or at least not widely acknowledged or accepted.

The work from the same period of Fischer, Rutherford, Curie, Pavlov, Koch, Cajal, Ehrlich, Röntgen, Thomson, Michelson, van der Waals, Bragg, Kipling, Maeterlinck, Teddy Roosevelt, Poincaré, Planck, Kelvin, Boltzmann, Einstein, etc is taught in most highschools. Why aren't analyses of MONETARY OPERATIONS equally highlighted?

There's nothing more limiting to an economy, electorate and nation than to remain ignorant about the nature of "coin, credit and circulation."

'What is Money' (1913)

'The Credit Theory of Money' (1914)

Arthur Kitson, 1860-1937

The Money Problem, 1903

Unemployment : the cause and a remedy / by Arthur Kitson. (London : C. Palmer, [1921])

Kitson economics articles in Popular Science, 1890-1892

Thomas Edison Questions Arthur Kitson

"The Bank of England inflicts more trade damage on British industry than all the trade tariffs of the world combined."
  (hat tip to "Paul", from comments to a recent post)

After reading these, an analogy comes to mind.

Monetary operations is to economics as engineering is to physics or chemistry?

If so, we need a separate academic field devoted to monetary operations. It's clearly lacking, and that ignorance is chronically debilitating our economy.  Not many physicists can build a bridge or power plant, no matter how much theoretical knowledge they have.  Yet they're all we talk to when setting fiscal policy.

If this were physiology, monetary ignorance would be considered as terrifying as drug-resistant tuberculosis, malaria or smallpox - regardless of how much we knew about genetics or cellular biology or biochemistry. In response, we'd be vaccinating students before age 10 and draining every swamp of ignorance in sight.  We'd also be quarantining virulent pathogens (e.g., ignoring the quacks, & prosecuting the frauds propagating criminogenic contexts).

Together, these provide very interesting commentary. Makes one wonder how to define an operational field dedicated to regulating Control Fraud. We're lacking that too.  In regards to incompetent or fraudulent monetary operations, there seems to be a pattern.

1903 - Trust Busting, onset of Dept Commerce, etc
.....(the Empire gradually strikes back, goes back to gold std) 

1933 - Leaving the Gold Standard (again)
....(the Empire gradually strikes back; reinstating a quasi gold std) 

1973 - Closing the last Inter-Gov Gold Window
.....(the Empire gradually strikes back, significantly de-regulating everything coordinated since 1903) 

20?? - Downsizing the Financial Sector to Automatic Stabilizer status ?
.....(we better hope so)

30?? - A fully OpenSource electorate finally realizes that everything invented harms as much as helps until it is regulated ASAP to Public Purpose and policy of competing nation states.

40??  Our born-Open-Source electorate further realizes that every fully-provisioned electorate generates far more innovations and options than it has means to quickly & wisely select from?    At that point, we'll pass an inflection point.  We'll go from simply generating innovations & hoping some fraction get noticed - to investing in catalysts specifically for improving the fraction of our innovations that actually get tested.  Even then, we only realize that our Output Gap is infinite, and practically defined only as what the majority can already see we could but aren't achieving.

While there are many details to sift through, there are a few, key concepts that can be described, visualized and taught through simplified models & neural-net visualizations.   The few things we need to do are not complex, only subtle.

Ramanan on US U.S. Net International Investment Position

The direct investment abroad makes a huge killing for the U.S. as can be seen from the balance of payments. In 2011, direct investment receipts was around $480bn and direct investment payments only $159bn.
Read it at The Case of Concerted Action

U.S. Net Indebtedness Above $5T Now
by Ramanan

Demand leakage in the US to external saving in dollars has resulted in an add to unemployment in addition to that resulting from debtor and consumer deleveraging owing to the balance sheet recession.

At the same time, US multinationals have been raking in money abroad through their investments there.

Whether or not it is sustainable economically, I doubt it is sustainable politically.

BTW, during his campaign trip to Iowa this week, Biden was going after Romney big on this.

Scott Fullwiler — Prezi of MMT JG simulation

Twitter: stf18: My Job Guarantee simulations for the Minsky Summer School

Find it at Prezi
Simulating the Logic, Effects and Costs of the Job Guarantee
by Scott Fullwiler — Associate Professor, Wartburg College

Business investment in the post WWII period

Here is a breakdown of private investment (and components) in the post WWII era. As you can see from the chart, Obama, in three and a half years, has faired pretty well with the exception of residential investment. In contrast, there was a residential boom under Reagan. George W. Bush got blown away in just about everything due to the financial crash. Rounding out, Nixon, Ford, Carter saw pretty good investment with Carter seeing a sharp increase in private non-residential as oil and gas prices were deregulated. (*Change in business inventories not included.)

How to Stop Revisiting the Illogic of a Gold Standard

Rather surprisingly, the following statement was recently posted online, nearly 80 years after the last significant country abandoned the gold-standard for a fiat-currency standard or, more accurately, a public-spending standard.

"The United States abandoned the gold standard, for an incomprehensible reason dreamt up by Franklin Roosevelt and a farm economist whose earlier scholarship included Alfalfa, An Apple Orchard Survey of Orleans, and Some Suggestions for City Persons Who desire to Farm."

Not at all. What this writer is missing is the difference between static & dynamic value. Public initiative is very dynamic, and essentially limitless, as shown by evolution alone (human populations and capabilities have both come a long way in the last 100,000 years, not just the last 200 years).

First, there's no way to efficiently yoke a constantly growing & limitless dynamic public capital (return on coordination) using a limited, slowly changing supply of any commodity. Alchemy failed, but public initiative hasn't yet.

Second, there's no way for rate of change of a commodity supply to match the agility of public initiative. WWII was a prime example. We mobilized incredible increases in coordination, alignment & output literally overnight, with no possible way to expand the world's gold supply at the same rate. Public initiative can & must drive currency supply at will, with any required tempo.

Here's my formal statement on the illogic of a gold-std.

“Why is state money better than gold?”
Because the highest return is always the return-on-coordination. Scaling up ability to explore large-group options requires scalable large-group agility, scalable large-group intelligence and coherent alignment to emerging options. Same reasons no species or armies are resource constrained. The bigger constraint is always organizational ability.

That means that only state-money denominations are agile enough to keep up with the kinetic demands of uncontrollable public initiative. Commodity-money was thoroughly tested, and was found inadequate. It’s valuation has to be constantly re-scaled, simply because populations & their options scale faster than the magnitude of any commodity store. If that’s the case, just simplify and cut the commodity out of the re-scaling loop that links organizational ability to group outcomes.

Why don't we teach this in elementary school?  It's as obvious as teamwork on sports teams, music orchestras, dance teams or music bands.  (What's more valuable, hoarding equipment, or learning team play, and staging, linking & sequencing actions?)

You also need look no further than warfighting doctrine to see the difference between static & dynamic capital.

1) "success follows the quality [& tempo] of distributed decision-making"
USMC on Warfighting

2) "we generate tempo by decentralizing decisionmaking"
USMC on Campaigning

3) We decentralize decision-making by adequately distributing training, resources & practice.
 (me, paraphrasing common sense)
A resilient democracy means anyone can be easily replaced by people who've already practiced the duties and activities of the person lost.

Lesson: National growth involves continuous transition from hoarding of static assets to accumulating coordination capabilities. Most just call it teamwork, and find it's value to be obvious once practiced.  It's what all social species do.  They trust in the return on extending distributed credit, by fiat.  It's a scalable policy choice that defines human tribes, cultures, nations and markets.

We forget that coordination is also one of the forms of capital, and the most valuable one of all.

Affordable Dental Care Unavailable To One-Third Of Americans: Report

More than 100 million Americans do not go to the dentist for checkups and cleanings because of the cost, according to PBS FRONTLINE and the Center for Public Integrity. As a result, many go broke trying to afford dental care or suffer from extreme pain. Some die....
Forgoing dental care sometimes is fatal. Kyle Willis, a 24-year-old father from Cincinnati, died from a tooth infection last year because he could not afford antibiotics or to get the tooth pulled out, according to ABC News. He was unemployed and had no health insurance. The infection spread, caused his brain to swell and then killed him.
Read it at The Huffington Post
Affordable Dental Care Unavailable To One-Third Of Americans: Report
by Bonnie Kavoussi

And nothing on the table to address this.

Teresa Sullivan Is Back: University Of Virginia Board Of Visitors Unanimously Reinstates Ousted President

Education gets a reprieve from corporatism.

Read it at The Huffington Post
Teresa Sullivan Is Back: University Of Virginia Board Of Visitors Unanimously Reinstates Ousted President
by Tyler Kingkade

More signs of a banana republic

This is how we roll?

Read it at Raw Story
Sen. Kyl: ‘Impeachment is always a possibility’ for Obama
by Stephen C. Webster

Tuesday, June 26, 2012

Is the purpose of banks to generate profits for their owners?

Cullen Roche put up a post at Pragmatic Capitalism today that argues the neoliberal position that the primary purpose of private firms is to increase shareholder value, that is, to maximize owner utility. The neoliberal idea behind this is that by doing so, the invisible hand of the market will guide the economic toward utility maximization for all participants.

I regard that as a gratuitous assumption. It also overlooks functional differences among firms in the economy.

Most pertinently here, the financial sector has fiduciary responsibilities that the non-financial sector does not. Its role in financial intermediation also makes it a lynchpin in the performance of the economy. Moreover, systemic risk due to leverage hangs over the economy like a sword of Damocles.

As a result of these and other factors, there is considerable public interest at stake in financial institutions, rules, incentives, processes, and potential outcomes. Much negative externality involved, especially since the financial sector deals much more in extracting rents rather than earning gains from productive contributions.

Moreover, modern banking is institutionally constructed by law as a public utility, and it is therefore subject to careful regulation, oversight and accountability as far as what is allowed, with a view to public safety and interest.

In addition, modern banking, including central banking, is based on the premise that banks are franchises of government, as it were, in money creation denominated in the nation's currency as the unit of account and settled in the currency of unit of account and medium of exchange, and saving in banks is also denominated in the unit of account and enjoys government guarantees.

So representing banks as purely private enterprises seems to be going beyond the facts. Is this view the way the author would like things to be or the way they actually are, as he believes?

Read it at Pragmatic Capitalism

Misunderstanding Banking is Helping Bankrupt an Entire Society
by Cullen Roche

Breaking Through Information Monopoly

Access to information is, indeed important.

Information convergence, however, is even more important than information alone. Very little information matters at any instant, and parsing it cheaper/better/sooner separates group success from group failure.

Here's an example: How little of the "information" generated by the billions of cells in the human body, is actually passed - and in what patterns - to other cells?

An incredibly small amount, in surprisingly lean patterns and sub-patterns.

That's the way an efficient market works as well - JIT/JAN info (just in time, just as needed).

In markets, eco-systems and cultures, just like basic biology, what we really have are selection markets, not just financial markets.

Trial & error discovery of cheaper/faster/better ways to accelerate Adaptive Rate is always the real goal. Inventing diverse methods for recognizing patterns, perceiving needed data, asking better questions, getting data, parsing data, and probing the return on actions - those obvious things are what drives our national economy as well. Inventing ways to do it all faster is how we compete.

Tools are the first step.
Learning how to use tools is next.
Learning when & why to use them in novel contexts follows.
Learning how to accelerate learning of when, why & how is briefly nirvana.
Then we notice we need even more tools.
Learning how to accelerate when/why/how/what - on demand - never ends?

Where would we put banksters and economics in this cycle? Back at stage 2? Banksters & orthodox economists learn everything about currency as a tool ... but nothing about when & why? Hence, they're unable to regulate their own education, training & practice.

Bankers & economists need a Hippocratic Oath?

For that matter, so do citizens.

What was that rule? Every process is too important to be left to the presumed process owners.

Democracy means we all share some distributed ownership of all inter-dependencies. The patterns are incredibly complex. And, they change. That's why democracy only works with practice. Couch potatoes & their democracy are soon fat fried.

Bill Mitchell — Neo-liberalism has failed but we still don’t get it

One of the puzzles that accompany this gruelling economic crisis is why neo-liberal economic thinking, which when applied caused the crisis and has delivered very little to so many, remains the dominant paradigm in economic policy making and has managed to turn a disaster for practitioners of that ideology into a triumph. How is it that the leading voices now are preaching exactly the same policies that caused the crisis as the solution to the crisis. Is there that much asymmetry? I noted a recent comment on my blog (Tom) that raised issues relating to the philosophy of science along the lines of how are we to judge whether the mainstream macroeconomics paradigm has failed. I understand the demarcation issues involved and the problems of “truth testing”. But we can take a more simple approach to the question. Here are two ways we know that the mainstream approach failed – they didn’t have a clue what was happening in the years leading up to the crisis and now they are scrambling in a stunned state to add banks and financial markets to their defective models. The problem is that they are just building more defective approaches. But the continued dominance demonstrates that their failures are not yet fully understood.
Read it at Bill Mitchell — billy blog
Neo-liberalism has failed but we still don’t get it
by Bill Mitchell

Bill incisively cuts to the core of a fundamental issue facing not only the global economy but humanity at a crossroads — neoliberalism as the basis of globalization, or not?

9 Goals Every Citizen Must Endorse, to Rescue the USA

We have 312 million people in our culture. Keeping them aligned to common cause gets more difficult daily, but the payoff always outdoes any cost. Return on coordination works, no matter the cost of coordination. The only way to tune any complex "engine" is through mapping, instrumentation, analysis & testing.  It's the same in an economic engine with 312 million human pistons.

We've had smart people recognize & review some of the key factors which have limited our coordination, and depressed the outcome and well being of the people. For over 80 years, the surprisingly trivial task of right-sizing fiat currency supply and maintaining a functional, nationwide network of project peer review (banks) has been rate limiting. Given that as a chief impediment, lets set some goals, agree on a few things worth doing, and never tell people how to do them. That way we can get back to being amazed by the diversity of American ingenuity.

If all our obstacles involve credit, currency, criminology & policy capture, then our goal is clear.
Re-Occupy our own Country!

Let's put our heads together and consider how to address the fewest issues that matter most.  We are upset and angry. What happened? How did we get to this point. Most importantly, what are we going to do about it? It gets harder every day to keep a bigger population organized. So above all else, we need organized focus. Here are 4, inseparable issues to consider. Credit - Currency - Criminology - Policy.

1) CREDIT is organized sharing of time, effort, resources & risk among residents. It is the chief feature of an organized nation. When distributed credit is organized in productive patterns, a whole that is more than the sum of it’s parts appears, providing “return-on-coordination.” The group value of coordination dwarfs the personal values that citizens credit to one another, most of which are written off as the “cost of doing business,” or the “cost-of-coordination.” What has happened instead? The supposedly united States of America have let “banksters” usurp ownership of our credit patterns! Yet we are the real owners of our own, distributed credit! Banksters are just accountants who work for us. We don't work for them. We benefit only when we retain the return on our own coordination! Accountants should not unfairly profiteer from our credit, or act like they own it.  Let's not dictate how to do this in all instances, but:

People who own assets sell them. Agile populations accelerate transition to new owners - and let people tackle new projects - via state-backed credit, extended through institutions called licensed banks.  The service banks are licensed & paid to perform is transaction review, rather improperly called credit rating.  The real rating involves whether the transaction will work, and whether it will benefit people, regions and nation.  Proper transaction rating involves interviewing all the professions and institutions affected by the proposed transaction or project.  Accountants track the numbers, but real bankers know their business community.  If it's only about the money, it's not going to work for long.  Bankers perform transaction reviews, but YOU collectively perform banker reviews, and set the standards.  Start doing so.

2) PUBLIC CURRENCY is a fluidly distributed accounting method used to organize distributed transactions into valuable patterns. Financial returns accrue when productive patterns of currency-use follow intelligent patterns of credit decisions. In short, currency follows real results, not the inverse.  We the people are more important than the currency which we create for our own use. We can create as much currency as we want, in unlimited quantities, and use it in any pattern we choose, based upon our distributed credit decisions. Our fiat currency is only as useful as the way in which we decide to use it! The quality of life for citizens of the USA depends upon the quality and tempo of our distributed decision-making, NOT upon how much fiat currency some individuals hoard and keep from distributed use.

We profit more when we hoard group capabilities and coordination methods, not fiat currency!  We can achieve most anything we the people set our minds to, and we can always make enough currency to denominate whatever we decide to do.  That's what fiat means.  Again, let's not dictate how, but:


There are many people who know currency operations inside out, and we're not utilizing their knowledge.  Studying economics without practicing operations is like studying ballistics while ignoring what gun you're using.  Dig in and see what our national options actually are.  You'll be amazed at all the things we're NOT doing right.

3) CRIMINOLOGY services protect us only if intelligently applied! What methods have banksters used to defraud the public? Which gray areas and cracks in our evolving operations do they hide in? Credit & currency are useful only if organized patterns of use are identified, understood and tolerance limits are actively regulated. Banking is a publicly-licensed set of methods whose tolerance limits must be widely known. Unproductive practices must be quickly noticed, and whistleblowers must be heard and protected. Offices receiving referrals must be adequately staffed and funded. Institutions for prosecuting distributed frauds and Control Frauds must be adequately staffed and funded. In short, a market economy must be constantly tuned by distributed feedback, not by mindlessly narrow central planning by a small number of banksters!  This sounds expensive, but remember that the return on coordination always dwarfs the cost of coordination.  If we were worried about the cost of coordination, we should have stayed overseas and never created the 50 united states of America.  Let's not dictate how, but:


As with banks, regulatory agencies from local police up to & beyond the FBI are staffed by criminology sub-specialists. Yet YOU collectively set the standards and mission of all staff in every one of those agencies. Start doing so.

4) Only PUBLIC OWNERSHIP OF POLICY can direct useful organization of credit, currency & criminology. These inseparable processes are far too important to be left to narrow lobbies which are today largely owned by banksters. Banksters see no further than currency profiteering, and are blind to the their actions have on the USA!   We have to save them from themselves.  It is up to us to re-regulate what banksters are and are not allowed to do. It is our own fault for letting things get this far. Democracy owners don't let their junior staff play games with the national controls. We simply have to take the reins back into adult hands, and reinstitute adequate community feedback.  Let's not even try to dictate how, but:


How do we get there from here?

5) WE ALREADY HAVE ENOUGH, DIVERSE, EXPERTS in each of the fields mentioned here.
Sample and use them ALL! Not just the few, tired ideologues we hear from repeatedly!
If more Americans knew what diverse Americans already know, we wouldn't have to worry about our employment, growth rate or Output Gap! To coordinate, just seek and share information. And remember that credit, currency, criminology & policy must be integrated, not managed in isolation.

Then consider which things we have to start doing differently, ASAP.
Find out who's saying sensible things, different from what the banksters say.
Invite the different, sensible people currently ostracized by banksters.
Hear their input. Decide for yourself how to guide the USA down a different path.

6) Zero in on credit researchers & operations staff who have long practice and can explain many things about DISTRIBUTED PUBLIC CREDIT, and how it is organized to achieve amazing things.  For example, read & contact anthropologists who study the "anthropology of credit".  Adequately sample all professions with feedback on credit, but rely upon none alone.  

There is no point of stability in the natural world that is not a dynamic equilibrium between conflicting forces.  We want to be greater than the sum of our parts, not just let one part eat the other parts.

7) Seek people with operational experience, who know how our modern, FULLY FIAT CURRENCY SYSTEM actually works. We solved this once, in 1933, by rejecting the plutocrats and their gold standard, and by jailing frauds. Banksters have been systematically trying to undermine our credit, currency, criminology & even policy systems ever since! Don't let them!! This is not about falling prey to divide-and-conquer party politics.

If no one else, contact Warren Mosler - the functional reincarnation of Marriner Eccles, Fed Chief 1933-1951 - and be sure to discuss things at length with him. Understanding fiat currency is a process, not something to throw superficial slogans and presumptions at. Success depends on operations, not just intent.

8) Seek people with operational experience in the CRIMINOLOGY OF CONTROL FRAUD, including those who handled the last flare up, the S&L fraud crisis of 20 years ago. We handled that adroitly, but haven't even tried to prosecute the current banksters.

If no one else, invite Bill Black, Michael Patriarca, Janet Tavakoli, or Brooksley Born to speak in your town. And delve into how policy fraud happens, who makes it happen, and which regulatory cracks Control Frauds hide in and enlarge. Then consider what YOU have to do differently, in order to do something about this very distributed task.

9) Seek new, honest, INFORMED DELEGATES who neither want nor need to be professional politicians. Policy is what normal people participate in, as a rotating duty, not just for personal gain! This is where no one can be a better operational expert than you, yourself. Think about the policies affecting you, act on how your delegates are selected, consider what kind of people they are, and care who is actually selected.

Don't settle for wealthy ideologues who claim to have easy, guaranteed answers to complex, emerging issues that can't possibly be answered without continuous discussion and coordination. THERE ARE NO PAT ANSWERS! There is only reliable success from coordinated operations. Try it.

Monday, June 25, 2012

Why can't the Treasury borrow directly from the Fed

Hat tip to Scott Fullwiler.

Marriner Eccles, Chairman of the Board of Governors of the Federal Reserve System 1947:

There was a feeling that this [Fed overdrafts to the Treasury's General Account] left the door wide open to the Government to borrow directly from the Federal Reserve bank all that was necessary to finance the Government deficit, and that took off any restraint toward getting a balanced budget. Of course, in my opinion, that really had no relationship to budgetary deficits, for the reason that it is the Congress which decides on the deficits or the surpluses, and not the Treasury. If Congress appropriates more money than Congress levies taxes to pay, then, there is naturally a deficit, and the Treasury is obligated to borrow. The fact that they cannot go directly to the Federal Reserve bank to borrow does not mean that they cannot go indirectly to the Federal Reserve bank, for the very reason that there is no limit to the amount that the Federal Reserve System can buy in the market. That is the way the war was financed.

Therefore, if the Treasury has to finance a heavy deficit, the Reserve System creates the condition in the money market to enable the borrowing to be done, so that, in effect, the Reserve System indirectly finances the Treasury through the money market, and that is how the interest rates were stabilized as they were during the war, and as they will have to continue to be in the future. So it is an illusion to think that to eliminate or to restrict the direct borrowing privilege reduces the amount of deficit financing. Or that the market controls the interest rate. Neither is true.


It boggles the mind to see yet another reminder of how thoroughly this was understood 60 years ago. It's not feasible to imagine that later Fed staff, economists and financiers didn't know this. Most had to consciously choose to not believe it, and therefore to not teach the truth to later students.

Four score years ago, our forefathers set up a workable fiat currency system, with much trivia modified unchanged from the shambles of the failed gold-std. It is our job to see that monetary policy of the people, by the people and for the people does not vanish from the face of the earth?

Tschäff Reisberg — Flying sucker class

Tschäff analyzes frontline employment in the airline industry. Readers will recognize that the syndrome that has developed here is hardly unique to the airlines and is found in the frontline of many large corporations. Those familiar with complaints of those who were living behind the Iron Curtain will recognize the similarity, too. Horrible trend to be developing.

Read it at This Episode of Life
Flying sucker class
by Tschäff Reisberg

Randy Wray — Paul McCulley: MMT Won: Declare Victory But Be Magnanimous About It

Randy reports on the discussion of Euroland at the Levy conference.

Bonus: Link to pre-order a print copy of Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, by L. Randall Wray , Palgrave Macmillan, August 2012

Read it at Economonitor | Great Leap Forward
Paul McCulley: MMT Won: Declare Victory But Be Magnanimous About It
by L. Randall Wray

Cities forced to sell ads for chicken wings on public works!

The ongoing looting of public income and assets continues unabated. To survive, municipalities have been lowered to basically prostituting themselves: forced to reach for any means of producing income, whether that be through the sale of assets, heightened and expanded fines or other penalties and now even advertising on public works. That's right, cities are resorting to ad placement on such things as firetrucks, fire hydrants, manhole covers and whatever else they can find, in an effort to generate desperately needed revenue. Do you suddenly find yourself in the mood for spicy chicken wings? Well maybe that's because you just saw it advertised on a sewer grate.

In other words, instead of investing in the stuff that we really need like roads, bridges, tunnels, all kinds of infrastructure, 21st century public transportation, schools, research facilities--the things that comprise the real capital to support growth, prosperity and a high standard of living for the next generation or two--we force our economy deeper and deeper into this junk-consumption/rent-extracting mode, that will leave us short of the real assets we need to be a first world nation. But, hey, life will be wonderful for landfill operators!

And why do we do this lunacy? Because of an idiotic belief that we've "run out of money." NO more fiat. Can't push that button on the keyboard.

As the public sector is forced violently to shrink, what does the vaunted private sector create in its absence? Remember, we've been told that the problem was that government was too big, that the private sector was getting crowded out and if it were just left alone to work its magic, then there'd be jobs and a vibrant, efficient economy with prosperity for all. So this is the private sector answer: prisons, reality TV shows, plastic throway crap that pollutes the environment and turning everything into a billboard.

To be sure, the wealthy and big business are loving it. They can scoop up all the valuable public assets, which have been paid for 50 times over by you and me in the form of taxes, and then they can extract rents for their use. Mind you, we used to have these things for free or at minimal cost, but that's not how the efficient private sector works; it has to make profit.

Our kids, who no longer have first-rate educations because of school closures, teacher layoffs and budget cuts, can look forward to a future of menial work (that is, if they're lucky), perhaps waving palm frons over the rich as they relax leisurely while their bank accounts grow from the income earned on the assets that WE BUILT AND PAID FOR!

What a lovely system. All hail the private sector! All hail austerity!

Ten Points Every Citizen MUST Understand About Modern Currency

1) Where currency comes from, and where it goes.
Our relationship to money changed fundamentally within the last century, as we changed from a gold-standard to a public-spending-standard. Modern sovereign currency is first created ONLY via public initiative, as public spending and/or public denomination of privately lent assets. Taxes define citizen responsibility to their country, and the initial public spending creates the currency citizens need in order to pay taxes. Given whatever is not clawed back as taxes (nominal “deficit” spending) constitutes net private financial savings, which residents may use to drive private innovation. Modern currency is simply bookkeeping, to coordinate national capabilities.  (see note "a")

2) How currency is utilized.
Like all public services, currency use changes with context. In small populations with slowly adapting economies, it once seemed plausible to use commodity currency as a stable store of value. However, in large, dynamic economies, modern “fiat” currency is overwhelmingly a bookkeeping unit for denominating constantly changing transaction chains. The static value of dynamic modern currency must float, and is therefore becoming more negligible as a stable store of value. It is useful to have some currency credits on hand, for operational agility, but as a primary savings vehicle fiat currency is less useful every year in a growing economy. (see note "b")

3) Sovereign Currency Serves Public Purpose.
The purpose of any nation and government is to maximize the general welfare of it’s people. To explore emerging options citizens must understand the currency they use to organize coordinated actions. Modern currency supply must automatically grow to denominate any and all transactions that an organized electorate agrees upon. National goals typically include sustainable economic growth, security, civil order, public health, adequate employment rates, smooth price changes, policy fairness, etc, etc. Policies which achieve these goals are productive policies. (see note "c")

4) Fiat Currency Budgets are Set by Fiat Policy.
Individual and national currency budgets are completely different. Tax liabilities induce citizen service in exchange for currency units. Subsequently, populations distribute currency in order to efficiently enable member contributions to public purpose. Nations, as currency issuers, manage real input, output and capability budgets, and create sovereign currency purely for internal bookkeeping, as a method for provisioning the government and the people. Currency users, on the other hand, use that monopoly currency as an accurate proxy for local budgets. (see note "d")

5) Dynamic Currency Supply Serves Dynamic Public Purpose.
How much currency does a nation need? It’s a function of population size and the number of transactions the people may want to make while pursuing Public Purpose. It is extending of established credit that creates the funds called bank deposits. There is no constrained currency supply that is “lent out,” as occurs when a nation is on a gold or other “convertible” currency standard. (see note "e")

6) Currency Buying Power Must Float - to Enable Agile Public Purpose.
The value of total teamwork dwarfs the value of subgroup or any static asset. To pursue that return on coordination with optimal agility, the value of our currency to our nation must float. The best way to manage currency exchange value is to manage public initiative. (see note "f")

7) Revenue and Deficit are Obsolete to a Fiat Currency Issuer.
For modern currencies, fiat revenue and deficits have become entirely NOMINAL. Modern currency is simply cheaper than attaching spreadsheets to every citizen. We needn't run out of spreadsheet columns, hockey leagues needn't run out of points, math classes needn’t run out of numerals to use, and we needn't ever run out of our own, fully fiat currency. (see note "g")

8) Monetary Policy is also Obsolete for a Modern Currency.
Once currency supply is allowed to float automatically, subsequent to policy constraints and local credit ratings, then there is little or no reason to tinker with inter-bank interest rates separate from credit ratings. Also, Treasury Securities since 1933 have no effect on currency supply. (see note "h")

9) Foreign Currency Reserves Are Not an Overwhelming Consequence to a Sovereign Currency Issuer (Fx).
We needn't much care how much of our currency other countries hold. Foreign currency reserves only affect foreign exchange rates. (see note "i")

10) In a Modern Economy, Fiscal Policy Dominates All Currency Issues.
A growing economy is required to distribute enough modern, fiat currency - by fiscal spending - to do 3 things.

A) provide residents enough income to establish reference allegiance, by paying taxes set in that currency;

B) leave enough currency (i.e. "deficit" spending) so that residents may advance public purpose by:
i) efficiently denominating all necessary dynamic transaction chains of goods & services;
ii) hoard enough currency to enable distributed agility (nominal savings).

C) do NOT allow competitive social classes to over-tax and under-fund one another.  That only weakens the aggregate. (see note "j")

[An extra point, as a corollary:
11) A nation must put priority on managing the stability of internal transactions among it's own citizens, and make secondary the international exchange rates between national currencies.
International exchange rates are of importance only to those who trade goods, services & currencies internationally. It is they who must individually take on the personal liabilities attendant to such trading. Any attempt to manage international currency exchange rates, as opposed to letting them float, represents discriminatory action arbitrarily favoring some citizens - traders - at the expense of others.
  Hence, the Fed's propping up foreign currency exchange rates via currency swaps at fixed rates can probably be challenged in court as un-Constitutional. The Fed presumably has no right to be a selective currency trader outside policies of the US government and US public purpose.]


a) Currency. Archaic currency supplies were often but not always based upon key commodities, such as jewels or precious metals. Centuries ago, nations used commodity-restricted public spending standards, with public initiative arbitrarily constrained per stored commodities (e.g. gold). All countries now use simpler public-spending standards, recognizing that public initiative cannot be limited by any commodity. Currency has dramatically evolved from constrained to more adaptive standards, with significant implications.

b) Currency use. Saving dynamic fiat is counter-productive, since it decreases current output and reduces future assets. Modern, sovereign currency is ultimately a metric for organizing common citizen effort. A depreciating asset like the proverbial prodigal children, most fiat currency should be put to work, not held idle. Fiat currency vs gold-std currrency are like army ant policy vs snail policy. One scales, the other does not. National prosperity today depends upon public initiative and agility, not upon arbitrary currency models. Populations coordinating dynamic initiative by fiat can run circles around those clinging like snails to static models of commodity value.

c) Serving Public Purpose. Given too little currency, the Output agility of an economy will be arbitrarily constrained. Just-in-time, unlimited, fiat currency supply removes currency as a limit on Output growth. Too much circulating currency can also reduce Output by encouraging excessive, non-productive activities. Taxes and interest rates on access are used to reduce currency supply. The ONLY thing a modern currency is guaranteed "convertible" to upon demand (collectively, not even personally) .... is national initiative. $US international exchange value is based entirely upon confidence in US initiative.

d) Currency Budgets. National budgets are formally denominated terms of public initiative, and “balance” only when nations have no net growth. Sub-national budgets are formal measures of sub-population interactions with the rest of a nation, as measured by currency throughput. Population subsets seeking Fx stability between nations are, like stockholders, risking citizen benefits and responsibilities for commodity measures. Nominal, national currency budgets have no relevance to sub-groups accounting for local responsibility.

e) Currency Supply. If a hockey leagues decides to double the number of teams playing, do they worry about running out of either hockey pucks or points? No. During play, does it matter what happens to pucks? Yes, but only symbolically. Currency and points do not denominate all the efforts prized by electorates. Overall, stakeholders track individual, team and league initiative - similar to the plus/minus transaction ratings of players and teams throughout games & seasons. If a hockey leagues decides to double the number of teams playing, do they worry about running out of hockey pucks or getting enough points to put on scoreboards? No. During play, does it matter what happens to pucks? Yes, but only symbolically. Currency and points do not denominate all the efforts prized by electorates. Overall, stakeholders track individual, team and league initiative - similar to the plus/minus transaction ratings of players and teams throughout games & seasons.
  National budget balances for a fiat currency matter no more than how many pucks or points are used during a hockey league season. Pucks and points are used only as the means and measures for organizing team efforts. In a fiat currency system, it no longer matters whether a nation balances a purely nominal currency budget which is used only to instrument transactions. However, neither a league or a nation can grow efficiently if there are not enough pucks, points or currency available to allow all necessary transactions to quickly occur. If a league lets the supply of hockey pucks get too low, or can’t put points on scoreboards, aggregate demand from stakeholders may melt away and take years to rebuild. Too many pucks on the ice or points on a scoreboard can distract and confuse everyone. Ditto for modern currency.

f)  Stable Buying Power. The whole purpose of a fiat currency is to allow currency volume and value float in response to agility of public initiative. If a dynamic population can transform itself over night, so that horse buggies or cars of today are not needed, then the changing prices of all products should reflect the relative importance of the product. Given that a growing economy needs a growing currency supply, the solution is to increase most incomes as a function of currency inflation. That way, the currency can float while welfare of the people can be automatically stabilized.
Modern currency reserves do not guarantee stable pricing of ANY asset – only smoothly floating prices. In contrast, public initiative sets the ultimate value of a national currency.

g)  Fiat Revenue & Debt. Granted, international exchange rates can fluctuate, based upon demand by international traders. IF that ratio matters to enough co-citizens it is best managed via national initiative, not by constraining use of hockey pucks or currency.

h)  Monetary Policy. The entire purpose of Treasury Securities is to drain virtual Banking Reserves from the Federal Reserve bank’s double-entry accounting system. Treasury securities are issued after currency is issued and are NOT national debt.

i)  If a population desires different Fx rates, the best tool is national initiative, not confusion over allegiance to international traders vs nation. Modern currency does NOT store intrinsic value. If robbers instantly stole all cash throughout the USA - leaving behind only empty ATM machines - citizens could instantly distribute a new currency and take the initiative to find alternatives to imported products.
  Unless the UN can impose a world currency [don't hold your breath], every nation must place priority on managing the stability of internal transactions, and let floating Fx rates actually float. Exchange rates are of importance only to international traders, who must individually take on the liabilities attendant to such trading. Manipulating currency exchange rates, as opposed to letting them float, represents discriminatory action arbitrarily favoring some citizens – international traders - at the expense of others.
  The purpose of collective, civil government is to protect REAL aggregate demand and national capability. No subset of our economy should ever be allowed to hinder net aggregate demand simply for fear of not balancing purely nominal currency budgets. Manage public initiative, aggregate demand and national capability, not virtual score balances. Exactly how much money we do or don't print matters little, other than that we should never have so little circulating that people can't easily transact business (e.g., deflation), nor so much that it becomes a distraction (e.g., inflation) - nor confuse buyers & sellers with changes occurring too frequently. It would be better to track only too-little/too-much ratings, say inflation, rather like plus/minus ratings in sports leagues. The NBA doesn’t much care if 5000 more or fewer points are used year to year, and neither should we care if our growing economy uses more currency yearly. In fact, we should be worried if it doesn’t!

j) Rather, optimize national success by ensuring the quality and tempo of distributed decision-making. A resilient nation enables the unpredictable capabilities of sexually recombinant residents, and selects from their talents as contexts unfold.