Thursday, February 28, 2013

George Lakoff — Why Ultra-Conservatives Like the Sequester

President Obama has detailed the vast range of harms that the sequester would bring. They are well-known. And they are not necessary. The president sees the sequester, if it happens, as an enormous self-inflicted wound, inflicted on America by a Republican-dominated House elected by Americans.
But pointing out Republican-caused harms to millions of people -- many of them Republicans -- does not sway the ultra-right. Why? Democratic pundits say that Republicans want to hurt the president, to show government doesn't work by making it not work, and to protect "special interests" from higher taxes. All true. But there is an additional and deeper reason. Ultra-conservatives believe that the sequester is moral, that it is the right thing to do....
They believe that Democracy gives them the liberty to seek their own self-interests by exercising personal responsibility, without having responsibility for anyone else or anyone else having responsibility for them. They take this as a matter of morality. They see the social responsibility to provide for the common good as an immoral imposition on their liberty.
Their moral sense requires that they do all they can to make the government fail in providing for the common good. Their idea of liberty is maximal personal responsibility, which they see as maximal privatization -- and profitization -- of all that we do for each other together, jointly as a unified nation.
They also believe that if people are hurt by government failure, it is their own fault for being "on the take" instead of providing for themselves. People who depend on public provisions should suffer. They should have rely on themselves alone -- learn personal responsibility, just as Romney said in his 47 percent speech. In the long run, they believe, the country will be better off if everyone has to depend on personal responsibility alone.Moreover, ultra-conservatives do not see all the ways in which they, and other ultra-conservatives, rely all day every day on what other Americans have supplied for them. They actually believe that they built it all by themselves.
So for them the sequester is not a "self-inflicted wound." It is justice. The sequester is not merely about protecting "special interests." It is about the good people who pursued their self-interest successfully, got rich, and have acted "morally" in avoiding taxes that pay for public provisions by the government....
They are not merely trying to harm their own constituents just to hurt the president politically. Yes, they think hurting the president politically is moral, and they believe that any constituents they are hurting need to become more personally responsible. They see the sequester as serving that purpose.
In short, the sequester is not just about money and political power for the Republicans in the House. It is mostly about what they see as the right direction for the country: maximal elimination of the public sphere.
The Huffington Post
Why Ultra-Conservatives Like the Sequester
George Lakoff | Richard and Rhoda Goldman Distinguished Professor of Cognitive Science and Linguistics at the University of California at Berkeley

Pretty good description of neoliberalism as an ideology built a moral foundation justifying the economics.

Soft Currency Economics Site and Blog - Warren Mosler

Soft Currency Economics

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Marshall Auerback — How the Economic Quacks Promoting Austerity Will Increase the Deficit

The deficit has been falling, but cuts in government investment will only blow it back up.
How the Economic Quacks Promoting Austerity Will Increase the Deficit
Marshall Auerback
(h/t Kevin Fathi via email)

Lars Syll — Phelps smacks down on Lucas’ rational expectations putsch

Adaptive expectations v. rational expectations.

As usual, It's the assumptions, stupid. Or better, the stupid assumptions.

Lars P. Syll
Phelps smacks down on Lucas’ rational expectations putsch
Edmund S. Phelps in Rethinking Expectations

Randy Wray — Six “Facts” About Our Debt: Corrections to Robert Solow’s Op-Ed

In yesterday’s NYTimes, Nobel winner Robert Solow tackled the US debt debate, proclaiming that while it is a serious issue, many Americans are not aware of the facts. See here.

Solow is a “neoclassical synthesis” Keynesian, the type of Keynesian economics that used to be taught in the textbooks. He was also on the wrong side of the “Cambridge controversy”, as the main developer of neoclassical growth theory. Still, he’s often on the “right side” when it comes to macro policy questions. And at least part of what he says about the US national debt is on the right track. But he gets enough confused that it is worthwhile to correct the errors.

I’ll list his six main bullet points, and provide my response. You can see his article for his own explanation of each bullet point.
- See more at:
Economonitor — Great Leap Forward
Six “Facts” About Our Debt: Corrections to Robert Solow’s Op-Ed
L. Randall Wray | Professor of Economics, UMKC

John Quincy Adams — What has America done for the benefit of mankind?

And now, friends and countrymen, if the wise and learned philosophers of the older world, the first observers of mutation and aberration, the discoverers of maddening ether and invisible planets, the inventors of Congreve rockets and shrapnel shells, should find their hearts disposed to inquire, what has America done for the benefit of mankind? let our answer be this--America, with the same voice which spoke herself into existence as a nation, proclaimed to mankind the inextinguishable rights of human nature, and the only lawful foundations of government. America, in the assembly of nations, since her admission among them, has invariably, though often fruitlessly, held forth to them the hand of honest friendship, of equal freedom, of generous reciprocity. She has uniformly spoken among them, though often to heedless and often to disdainful ears, the language of equal liberty, equal justice, and equal rights. She has, in the lapse of nearly half a century, without a single exception, respected the inde-pendence of other nations, while asserting and maintaining her own. She has abstained from interference in the concerns of others, even when the conflict has been for principles to which she clings, as to the last vital drop that visits the heart. She has seen that probably for centuries to come, all the contests of that Aceldama, the European World, will be contests between inveterate power, and emerging right. Wherever the standard of freedom and independence has been or shall be unfurled, there will her heart, her benedictions and her prayers be. But she goes not abroad in search of monsters to destroy. She is the well-wisher to the freedom and independence of all. She is the champion and vindicator only of her own. She will recommend the general cause, by the countenance of her voice, and the benignant sympathy of her example. She well knows that by once enlisting under other banners than her own, were they even the banners of foreign independence, she would involve herself, beyond the power of extrication, in all the wars of interest and intrigue, of individual avarice, envy, and ambition, which assume the colors and usurp the standard of freedom. The fundamental maxims of her policy would insensibly change from liberty to force. The frontlet upon her brows would no longer beam with the ineffable splendor of freedom and independence; but in its stead would soon be substituted an imperial diadem, flashing in false and tarnished lustre the murky radiance of dominion and power. She might become the dictatress of the world: she would be no longer the ruler of her own spirit.
Speech on Independence Day (excerpt)

John Quincy Adams

July 4, 1821

United States House of Representatives
(h/t The Rombach Report in the comments)

Twisted Congressman calls our debt the same as abortion, slavery

Warren Molser — The Seven Deadly Innocent Frauds of Economic Policy free on Kindle this weekend.

It's regularly only a buck anyway, but if you have been waiting or want to recommend it to friends to pick up for free, here's your chance.

The 7 Deadly Innocent Frauds of Economic Policy (MMT - Modern Monetary Theory) [Kindle Edition]

Robert Parry — The Neo-Confederate Supreme Court

The Right’s desperation over U.S. demographic changes has spread to the U.S. Supreme Court where its five Republican partisans appear ready to tear up the most important part of the Voting Rights Act and thus clear the way for suppressing the votes of minorities, reports Robert Parry....
The Supreme Court’s apparent intention to gut the Voting Rights Act also could be viewed in the continuum of its five-to-four ruling in the Citizens United case of 2010 in which the right-wing justices freed up rich Americans to spend unlimited amounts to influence political campaigns. In other words, the Court’s majority seems intent on tilting the political playing field in favor of white plutocrats. 
But the Court’s Neo-Confederate rationale was underscored mostly openly by Justice Scalia and his sneering remark about minority voting rights being a “racial entitlement” and by Justice Kennedy’s insistence that Alabama has the “independent sovereign” right to set its own voting rules without federal oversight.
Consortium News
The Neo-Confederate Supreme Court
Robert Parry

The Civil War is still raging in some quarters and portends to go national as white rule is perceived to be under threat as demographics shift. This has the potential to seriously undercut US soft power globally as the US is increasingly perceived as a rogue state. Unchecked it will also result in rekindling domestic civil unrest.

Due to this neo-Confederate trend that harkens back to the Articles of Confederation, as Parry observes, the issues that led to the Civil War are being revived at the highest levels of the state. Parry presents a useful short lesson in American history that is becoming more and more relevant as whites seek to enshrine their privileged status by using law and enforcement to maintain their position.

Michael McAuliff and Sabrina Siddiqui — John Boehner Compares Tax Proposals Of White House To Stealing

House Speaker John Boehner (R-Ohio) declared Thursday that seeking more revenue in order to reduce the federal deficit or to replace sequestration's pending budget cuts is tantamount to stealing from Americans.
The Huffington Post
John Boehner Compares Tax Proposals Of White House To Stealing
Michael McAuliff and Sabrina Siddiqui

The Speaker losing it, or just pumping the base?

Dean Burnett — 10 amazing scientific facts about list-based news articles

Good advice for writers and bloggers to keep in mind.

The Raw Story
10 amazing scientific facts about list-based news articles
Dean Burnett | The Guardian

AFP — International Monetary Fund: ‘Sequester’ cuts will slow global economic growth

The broad US “sequester” spending cuts that take effect beginning Friday will slow growth in the world’s biggest economy and hit the global economy, the International Monetary Fund said Thursday.
“There will be an impact on global growth,” IMF spokesman Bill Murray said. “We’ll have to reevaluate our growth forecast for the United States and also our other forecasts.”
The Raw Story
International Monetary Fund: ‘Sequester’ cuts will slow global economic growth
Agence France-Presse

John Carney — Citigroup and Blackstone's Capital Requirement Workaround

One of the effects of capital requirements is that they encourage banks to do a lot of things they otherwise might not.
The entire banking sector, for example, is heavily exposed to mortgage risk because capital rules favor mortgages over other types of loans. Similarly, banks bought lots of credit protection from AIG and bond insurers in part because this was a good way of reducing the amount of capital they had to hold against their assets.
Michelle Wiese Bockmann, Liam Vaughan and Ben Moshinsky have a nice story today that illustrates that financial engineering to skirt regulation is still alive and well.
Citigroup and Blackstone's Capital Requirement Workaround
John Carney | Senior Editor

Neil Wilson — The Insidious Arrangement Fee

The excellent post by John Carney on the basics of a bank loan hit a chord with me and brought into focus something that has been worrying me for a long time.

John's post shows that although banks are notionally capital constrained and reserve constrained, it is fairly straightforward to create loans that are self-financing or partially self-financing.

The trick is to realise that banks fund their capital by converting a deposit into a capital instrument. And the easiest way to do that is to create the required capital instrument at the point the deposit is created - when the loan is advanced.

So you issue a loan in the standard fashion - but you charge an 'arrangement fee' and roll it into the loan. That arrangement fee goes straight to the bottom line. The bottom line is the profit and loss account and the profit and loss account is regulatory capital.
The Insidious Arrangement Fee
Neil Wilson

Bill Black — “Pervasive” Fraud by our “Most Reputable” Banks

A recent study confirmed that control fraud was endemic among our most elite financial institutions. Asset Quality Misrepresentation by Financial Intermediaries: Evidence from RMBS Market. Tomasz Piskorski, Amit Seru & James Witkin (February 2013) (“PSW 2013”).
The key conclusion of the study is that control fraud was “pervasive” (PSW 2013: 31).
“[A]lthough there is substantial heterogeneity across underwriters, a significant degree of misrepresentation exists across all underwriters, which includes the most reputable financial institutions” (PSW 2013: 29).
Finance scholars are not known for their sense of humor, but the irony of calling the world’s largest and most harmful financial control frauds our “most reputable” banks is quite wondrous. The point the financial scholars make is one Edwin Sutherland emphasized from the beginning when he announced the concept of “white-collar” crime. It is the officers who control seemingly legitimate, elite business organizations that pose unique fraud risks because we are so loath to see them as frauds.
New Economic Perspectives
“Pervasive” Fraud by our “Most Reputable” Banks
William K. Black | Professor of Economics and Law, UMKC

Fabian Lindner — Saving does not finance  Investment:  Accounting as an indispensable  guide to economic theory

The paper analyses the accounting relationships between the financial and the real economy. It will be shown that accounting can clarify the nature of economic phenomena and be an important building block for economic theory. The paper will argue that there is much confusion about key macroeconomic concepts like saving, investment and finance. This confusion is best summarised in the statement "saving finances investment". After clearly defining the accounting relationships between lending, financial saving and physical investment it will be shown that this is a nonsense statement. The theory behind it – the loanable funds theory – will be analysed and critiqued. It will be shown that the loanable funds theory confuses the concepts of income and production, lending and saving, and financial saving and non-financial saving. It will further be shown that this has not only theoretical but also important policy implications.
Macroeconomic Policy Institute | Working Paper 100 (Oct 2012)
Saving does not finance Investment: Accounting as an indispensable
guide to economic theory
Fabian Lindner
(h/ t DkN in a comment at Asymptosis)

Houston, We Have a Problem. The Same People "Own" All National Policy.

commentary by Roger Erickson

Former [National Security Council Staff] Criticize Iran Policy as US Hegemony

Review of Flynt Leverett and Hillary Mann Leverett's "Going to Tehran: Why the United States Must Come to Terms with the Islamic Republic of Iran" (Metropolitan Books, 2013)

'WASHINGTON, Feb 25 2013 (IPS) - “Going to Tehran” arguably represents the most important work on the subject of U.S.-Iran relations to be published thus far.'

We're just along for the ride?

Why does a dog pretend to ride the flea on it's tail end? Fleas can't even see where they think the dog's heading - or imagine it's actual outcomes. Is the entire electorate of the USA is just part of the 1%'s rendition program? And our little dogs too? And even our kids? If we're along for the outcomes, shouldn't we provide a tad more feedback - before we get there again? Doesn't democracy mean practicing OBT&E nationwide?

Let's add operations and policy, and upgrade from OBT&E to OBTEO&P.

(hat tip to Chuck Spinney)

Brits May Have to Work 10 Years beyond the grave. Thanks to China.

commentary by Roger Erickson

Chinese Exporters Directly Responsible for UK Geriatic Debtors Prison

Warren Mosler comments: "Stupid taken to new heights. Retirement is about no longer producing real goods and services and instead living off of the real output of others, incuding China's exports to you."


Hmmm. How long until they have to work past death?

Better hire a physicist or game theory expert to precisely calculate that nonsense.

And will that debtors prison term be extended too? Even Morticial Security isn't sacred? "No exiting the coffin 'til your fiat balances."

Buddhists may come back and revolt!  Still don't believe in the Zombie Bancopalypse?

When "Fraud" is Called a "Mistake" - by Physicists No Less!

commentary by Roger Erickson

Why It’s Smart to Be Reckless on Wall Street

Another reason why we should teach ethics, adaptation, the definition of treason, outcomes and evolution to everyone - before letting them work on Wall St. You don't hand the keys to the bank to sociopaths. OBT&E shows that if we don't talk about these kind of outcomes until after the fact - we're assured of getting more of them.

How about in Congress? The same traders eventually bought the kind of regulators and Congresspeople that they wanted. All part of the game? Sounds like the "Benedict Arnold" game of looting.

We need a "Be or Do" game.

(hat tip Lynn Wheeler)

Bank Blood Money Part of euro Austerity

commentary by Roger Erickson

Red Cross to send less blood to Greece

"The Swiss Red Cross (SRC) has decided to provide significantly less blood to Greek hospitals after delays in payments, even though Greece relies on imports from Switzerland to make up for shortfalls from local donations."

Somehow, these kind of decisions end up as externalities to orthodox economists.

New Slovenia PM Vows to Halt Dramatic Decline - May Not Know How.

commentary by Roger Erickson

Wow! Sounds like Italy may be breaking out all over the eurozone. Slovenia regrets adopting the euro?

Citizens are marching in the streets, while their bankers are holding out for more austerity for non-bankers. Here's what an orthodox banker says about the new PM: "Bratusek's problem is that the centre-left ... wants more pro-growth oriented policies, but at the same time the problems in the banking sector require pretty orthodox solutions."

When all you've got is orthodoxy, every problem looks like it requires austerity? More of the same? Tina - there is no alternative?  Europeans have considerable expertise in producing balogna, now orthodox bankers everywhere have adopted a semantically twisted version of the practice.

Wednesday, February 27, 2013

Izabella Kaminska — Savers are not sacred cows

I am so bored of the “government is stealing from us by debasing the currency” argument. 
I understand why some people are predisposed to this way of thinking. It relates to society’s general predisposition to treating savings and savers as sacred relics.
You worked for these savings, thus you and your savings must always be protected.
What people forget is that everything is relative.
Toward a leisure society
Savers are not sacred cows
Izabella Kaminska

Josh Ryan-Collins — How can we link monetary systems to the natural world?

Our new report on energy currencies is the first attempt to review existing proposals and projects that link money to energy, anchoring the monetary system in the natural world and encouraging more sustainable economic activity.
NEF — New Economics Foundation
How can we link monetary systems to the natural world?
Josh Ryan-Collins

Cathy O'Neil — How much are the taxpayers subsidizing too-big-to-fail banks, if not $83 billion per year?

  • This question is important- possibly the most important question about the current financial system, as it relates to the average taxpayer. Wouldn’t you want to know how much something you’ve bought costs?
  • And I’m absolutely smitten by the Bloomberg editorial staff for raising the question and coming out with a model and an answer.
  • That doesn’t mean it’s perfect. They were relatively sloppy (but not as sloppy as some people claim).
  • I’m no expert either, but I’m absolutely intrigued by this question and the possible answers.
  • But since I’m a modeler, I know it’s a lot easier to push over a model by complaining about an assumption than it is to come up with a better model that doesn’t make such stupid assumptions.
  • So anyone who complains should also offer an alternative.
  • Because we need to know the answer to this, and since there’s not one answer, we need to have this argument, publicly.
  • And after all what’s the point of modeling if we can’t answer this
How much are the taxpayers subsidizing too-big-to-fail banks, if not $83 billion per year?
Cathy O'Neil

Chris Dillow — Happiness Vs Options

Utility is not the same as happiness.
In Book I of Nichomachean Ethics, Aristotle asserts that every rational agent acts for an end and humans generally agree that this end is happiness. He goes on to observe that people disagree over what happiness is. He then consider various options, including what we now call utility, and rejects them as insufficient to meet his criteria because they engage only a partial aspect of human capacity.

Aristotle then elaborates his own view: While happiness is desired as an end, that is, for itself and not for anything else, it cannot be sought directly because it is a byproduct of excellence in living, that is, unfolding  human potential over the course of one's life by perfecting one's inherent capacity as human being, as well as one's individual talents.

The view of perennial wisdom is similar, but it includes only Aristotle's first criterion, that of perfecting one's capacity as a human being by realizing the full potential of consciousness, the outcome of which the abiding happiness of transcendental bliss. It is said to be "transcendental" because it is of the nature of consciousness and is not dependent on mind, body, or environment.

This view was expressed in a similar vein but more in terms of personal experience by Socrates in describing the method his teacher, the priestess Diotima, had taught him in the famous "ladder of love" passage in the dialogue called The Symposium  210a-212b.

Stumbling and Mumbling
Chris Dillow | Investors Chronicle (UK)

Fabius Maximus on "The Great Game." A reason for the US military expansion into Africa

In 2004 the US military began to expand into Africa. In 2007 they created Africa Command (Africom). Since then they’ve accelerated and expanded operations. Africa has great natural resources, but why more interest now? 
Here is one possible explanation: the great game. A rival great power expands its reach and things of no interest to us suddenly become worth contesting. China has become a major importer from many African nations, and the US replies in the only way it knows how.
Fabius Maximus
A reason for the US military expansion into Africa

Brad DeLong — American Conservatism’s Crisis of Ideas

The problem for American conservatives today is not their choice of candidates or the tone of their rhetoric. It is that their ideas are not politically sustainable.
Project Syndicate
American Conservatism’s Crisis of Ideas
J. Bradford DeLong | Professor of Economics at the University of California at Berkeley, a research associate at the National Bureau for Economic Research, and former Deputy Assistant US Treasury Secretary during the Clinton Administration

Stephen Roach — America’s Strategy Vacuum

As the quintessential laissez-faire system, the US outsources strategy to the invisible hand of the market, with the government locked into a reactive approach to unexpected problems. Thus, both monetary and fiscal policy have been focused on cleaning up after a crisis rather than on how to avoid another one.
Project Syndicate
America’s Strategy Vacuum
Stephen S. Roach | formerly Chairman of Morgan Stanley Asia and the firm's Chief Economist, and currently a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management

Max Keiser interviews Chris Cook on energy-based currency

Keiser Report: When Truth is Found to be Lies

Max Keiser interviews Chris Cook on energy-based currency. The interview begins at the 13 minute mark. If you click on the above link, it will take you to YouTube queued to the mark.

Yves Smith — Thirty Years of Financial Inefficiency

Arjun Jayadev at Triple Crisis provides a quote from Thomas Phillipon that somehow never sees the light of day in the financial press:
…the unit cost of intermediation is higher today than it was a century ago, and it has increased over the past 30 years. One interpretation is that improvements in information technology may have been cancelled out by increases in other financial activities whose social value is difficult to assess.
This of course is a very understated way of suggesting that the bankers have found new ways to sell or bundle other products or services along with the ones made cheaper by information technology, or create new ones of dubious additional value, so as to allow them to fatten their total pricing.
This is a big and important topic, so let me take just an initial slice at it, and I’ll hopefully come back to it in future posts. We can certainly see the net effect, which is the financialization of the economy, which suggest that IT (and other developments) have allowed the banks to move into an oligopoly position and are extracting economic rents. Simon Johnson, in his important 2009 article, The Quiet Coup, described how the financial sector had accomplished the surprising feat of increasing average worker pay packages and increasing their share of GDP. Wages rose from roughly comparable to average private sector worker wages from just after World War II through 1982. They increased to 181% of private sector worker wages right before the crisis. From 1973 to 1982, the financial sector never garnered more than 16% of corporate profits. By the 2000s, it hit 41%.
Naked Capitalism
Thirty Years of Financial Inefficiency
Yves Smith

Steve Randy Waldman — Hidden profits, hidden rents

Evan Soltas attracts the attention of SRW with his analysis of profits and rents.
Evan Soltas has a very good post on the explosive growth of the financial industry since the end of World War II. As a share of GDP, in terms of profits, and in terms of payroll, postwar America has been truly been a golden age for bankers, brokers, and fund managers.
In fact, it’s even better than it looks!
Hidden profits, hidden rents
Steve Randy Waldman

Steve Roth — Does Saving “Fund” Investment?

Steve Roth explains the accounting meaning of funding.’s important to understand what that key accounting verb (“funds”) actually means. It describes an after-the-fact and arguably largely arbitrary accounting allocation of income streams to outflow streams....
I guess my main point here, perhaps obvious to many, is that accounting descriptions — choices about how to describe the past in accounting-speak, especially regarding “saving” and “funding” — are, inevitably, rhetorical hence normative. Or at least, those choices of descriptions have inevitable rhetorical hence normative implications.
Or to put it simply: accounting is normative.
My impression is that many economic discussions and disagreements, especially in the “MM” worlds, are at their root disagreements about what “funds” what (frequently compounded by imprecise sector definitions with different parties using different implicit definitions), and the rhetorical hence normative implications of those competing descriptions.
Does Saving “Fund” Investment?
Steve Roth

See also Steve's How Accounting “Constrains” Economics (February 1, 2012). Lots of comments, too.

Nick Wing — Louie Gohmert: Debt Is 'One Of The Most Immoral Things This Country Has Ever Done'

Tea Party Rep. Louie Gohmert (R-Texas) said this week that his generation's contribution to the national debt is "one of the most immoral things" the nation has ever done. Gohmert went on to include debt in a conversation of national tragedies such as slavery.
“Slavery and abortion are the two most horrendous things this country has done but when you think about the immorality of wild, lavish spending on our generation and forcing future generations to do without essentials just so we can live lavishly now, it's pretty immoral," Gohmert said in an interview with Newsmax.
The aside came during a broader defense of "sequestration" cuts, in which Gohmert argued that "people have got to understand that we're serious about stopping the massive load we are putting on our children and their children. It is one of the most immoral things this country has ever done."
The Huffington Post | Politics
Louie Gohmert: Debt Is 'One Of The Most Immoral Things This Country Has Ever Done'
Nick Wing

Bonnie Kavoussi — Majority Of Americans Don't Think The U.S. Economy Is Fair: Poll

According to a Rasmussen poll released Wednesday, 53 percent of likely U.S. voters disagree with the sentiment that the economy is fair to people "who are willing to work hard." Only 41 percent agree with that statement.
Americans were more evenly divided on the issue just two months ago. In December, 47 percent of Americans agreed with the statement that the economy is fair, while 49 percent disagreed, according to Rasmussen.
This pessimism may reflect growing income inequality in the U.S. where the gap between the rich and the poor has risen more than any other major Western country since 1960. Unsurprisingly, high income inequality is linked to low economic mobility.
The Huffington Post | Business
Majority Of Americans Don't Think The U.S. Economy Is Fair: Poll
Bonnie Kavoussi

Money, Information or Situational Awareness in Politics - Which Rules Now, and Which Will Rule in the Future?

Commentary by Roger Erickson

"The only way to influence the direction of government is to inject money into politics. Putting out information is not enough." Steve Hanson

That adage has been a truism for decades. Yet, like all methods, it will keep working ... until it doesn't.

Do you think the methodology of money & currency in politics will scale?

Politics is about distributing and receiving both influence and feedback ...
which eventually boils down to coordination & return-on-coordination.
Currency won't last as the best method for doing that.
Money and currency are just one form of information.

As many have noted, to be "free," you either have to be wealthy, or reduce your needs to zero. What is it you wish to be free to do?

The people with nothing to lose make their power felt periodically.

No telling what they'll think up next.

Evan Soltas — 5 More Graphs on Finance

Profits and rent in the financial sector.

Evan Soltas | economics & thought

5 More Graphs on Finance

Ellen Brown — How the Fed Could Fix the Economy—and Why It Hasn’t

Ellen looks at the orignal QE proposal of Richard Werner, who surfaced the idea in relation to the Japanese crisis in the Nineties. Werner has recently come into prominence due to his contribution to the development of Positive Money. See also Where Does Money Come From?: A Guide to the UK Monetary & Banking System by Andrew Jackson, Josh Ryan-Collins, Tony Greenham, and Richard Werner

Web of Debt
How the Fed Could Fix the Economy—and Why It Hasn’t
Ellen Brown

Kyle Bass, Jim Rogers...wrong again!! But what else is new?

Looks like these guys--Jim Rogers, Kyle Bass--are wrong again. Their calls for shorting Treasuries and Japanese Gov't bonds (and the yen) are falling apart. Bonds are rallying once again on the prospect of sequester, which is about to hit the economy hard and push the unemployment rate above 8-percent, perhaps well above that level. And the whole Japan "stimulus" thing is falling apart because there never was one in the first place, just like I said. The entire yen move down, driven by levels of speculative selling not seen in years (people like Kyle Bass) is in the process of reversing.

If it's not clear by now that these people are fools, idiots, than I don't know how else to bring that to your attention. When you don't understand the most basic concepts of money and the monetary system, then how can you go out there and call yourself an expert? Furthermore, shame on the clueless media outlets like CNBC, Fox, Yahoo!Finance and the others who constantly put these idiots on the air.

John T. Harvey — Suicide by Sequestration

The comedy of errors being played out in Washington would be funny were it not for the fact that the real victims will be well outside the Belt Line. Estimates of the job loss from sequestration range from 750,000 to 1 million. Not a single one of those will be from the individuals responsible for this debacle.
Forbes — Pragmatic Economist
Suicide by Sequestration
John T. Harvey | Professor of Economics, Texas Christian University

All Street — Alternative Finance System Map

All Street — Alternative Finance
Alternative Finance System Map
(h/t Michel Bauwens at P2P Foundation)

Tuesday, February 26, 2013

Stephen Leahy — Killer Heat Waves and Floods Linked to Climate Change

Scientists in Germany say they have found how greenhouse gases from burning fossil fuels are helping to trap the jet stream, resulting in extraordinary weather such as the 2010 Pakistan flood and the 2011 heat wave in the United States.
Human-driven climate change repeatedly disturbs the flow of atmospheric waves around the globe’s Northern hemisphere, said lead author Vladimir Petoukhov of the Potsdam Institute for Climate Impact Research (PIK) in Germany.
Giant atmospheric waves called Rossby waves are meanders in the strong, high-altitude winds known as jet streams and have a major influence on weather. These wave movements are caused by the difference in temperatures between the cold air from the Arctic and hot air from the tropics.
When the waves shift north, they suck warm air from the tropics to Europe, Russia, or the U.S., and when they swing down, they do the same thing with cold air from the Arctic, said Petoukhov.
“During several recent extreme weather events, these planetary waves almost freeze in their tracks for weeks,” he said. “So instead of bringing in cool air after having brought warm air in before, the heat just stays.”
This unnatural pattern is due to human heating of the climate through emissions of greenhouse gases that result from burning fossil fuels, according to the study published this week in Proceedings of the National Academy of Sciences.
IPS — Inter Press Service
Killer Heat Waves and Floods Linked to Climate Change
Stephen Leahy

Willie Osterweil — The Secret Sharing History of Monopoly

But Monopoly wasn’t actually designed to encourage ruthless cut-throat land grabs. Instead, the game was envisioned as a teaching tool about the injustice of landlords, one whose in-built ruthlessness would demonstrate the dangers of such practice. Called “The Landlord’s Game” when it was first invented by Lizzie Magie, in 1903, the game was in many ways similar to how it is played now.
But recently a remarkable rediscovery has been made: Magie designed advanced rules into the game which were made to demonstrate that everyone could live in harmony and sharing. They were never included in the Parker Brothers version, but, in all the early boxes, you were given an address to send to Magie for her advanced rules. If you did, under the heading of “For Advanced and Scientific Players”, Magie suggested a way to play where, rather than one person owning everything, all the players could share in the wealth.
Magie was a Georgist. The Georgists believed that people should be able to hold onto what they create with their own efforts, but that all things “found in nature”, especially land, are owned by all. For the Georgists, landlords were the root of all injustice, and they argued for a single progressive land value tax, to replace all other forms of taxation. This, they argued, since it would only tax wealth, could bring about equality and justice, and also break down the hegemony of the landlords.
The Secret Sharing History of Monopoly
Willie Osterweil

David Graeber: Some Remarks on Consensus

There has been a flurry of discussion around process in OWS of late. This can only be a good thing. Atrophy and complacency are the death of movements. Any viable experiment in freedom is pretty much going to have to constantly re-examine itself, see what's working and what isn't—partly because situations keep changing, partly because we're trying to invent a culture of democracy in a society where almost no one really has any experience in democratic decision-making, and most have been told for most of their lives that it would be impossible, and partly just because it's all an experiment, and it's in the nature of experiments that sometimes they don't work.
A lot of this debate has centered around the role of consensus. This is healthy too, because there seem to be a lot of misconceptions floating around about what consensus is and is supposed to be about. Some of these misconceptions are so basic, though, I must admit I find them a bit startling.
Occupy Wall Street News
David Graeber: Some Remarks on Consensus

I think that two distinctions are in order. First, that between hierarchical organization and consensus decision making. Hierarchical decision making is the military model of organization that was promulgated in the West through the Roman Empire. Consensus decision making is characteristic of tribal organization in which leadership is natural and based on trust.

The second distinction is between institutional arrangements based on rules and cultural and social rituals based on values, values being expressed in principles if expressed explicitly at all.

Hierarchical organization is based on institutional arrangements set forth as rules. It is used in the military and business in that it is ruthlessly efficient and effective in achieving given objectives. That is the temptation to use it, and why it is not compatible with direct popular democracy, where objectives are not given but are emergent. And being top down, it is antithetical to exploring options.

Consensus decision making is based on cultural and social rituals that rest on shared values, especially voluntary cooperation for mutual benefit, mutuality, reciprocity, fairness, and most importantly treating everyone as intrinsically valuable as a person.

Consensus decision making is neither efficient and effective at achieving objectives because objectives are not given. They are emergent. The process of allowing them to emerge embues them with power instead of coercion.

Consensus decision making is foundational for a complex social system in which the focus of the group is directed onto emergent challenges in a flexible format that allows for exploration of options. This increases the adaptability rate and amplifies return on coordination through crowd sourcing. It's a biological principle that fosters life.

Potentially adaptive systems that do not follow this pattern of distributed decision making that is conducive to exploring alternatives end up in evolutionary dead ends due over-centralization that encourages premature focus and crystallization.

This is how an apparently weaker force can beat a stronger force, even militarily, as guerilla warfare has shown. It's also the basis of the internal martial arts that use circular motion rather than linear, that is, apparently yielding in order to turn the force the opponent against him by putting him off balance.

William Hogeland — Washington’s Birthday and Public Debt

Grover Norquist gets it wrong. George Washington was a strong backer of the tax power in order to fund the national debt, which was financed by the new nation's wealthiest and which Washington saw as necessary to build the nation.


Washington’s Birthday and Public Debt
William Hogeland

John Carney — Basics of Banking: Loans Create a Lot More Than Deposits

When someone says "loans create deposits," usually that means at least that the marginal impact of new lending will be to create a new asset and a new liability for the banking system. But in our system it's actually a bit more complicated than that.
Basics of Banking: Loans Create a Lot More Than Deposits
John Carney | Senior Editor

Bernanke on the Rack

Sen. E. Warrren grills the Fed Chairman over "too big to fail".... 6 more years of this Ben, it's like a nightmare, finally someone who is not a complete moron in Congress now able to give you some informed pointed questions.... perhaps better to just resign and call it quits and spare the rest of us your continuous dispensation of out of paradigm monetarist dogma and fiscal ignorance.

Well in any case it is certainly entertaining to see Bernanke twist a bit.  Video below from CNBC.

This is news here though where Bernanke reveals that it is now apparently Fed policy to "liquidate" the big banks if necessary due to a "failure" ... if that was what he was intending to reveal.

Hey Jamie Dimon, if Bernanke is serious you better start to harpoon your "whales" you fiscal moron!

Monday, February 25, 2013

Thom Hartmann interviews Stephanie Kelton — What is Modern Monetary Theory

What is Modern Monetary Theory?
Thom Hartmann interviews Stephanie Kelton

The Price of Oil & The Decline of The Dollar
Thom Hartmann interviews Stephanie Kelton

The US is Nowhere Near Inflation!

John Carney — Boston Fed President: Banks May Not Have Enough Crisis Capital

John analyzes capital requirements. More about bank funding.


Boston Fed President: Banks May Not Have Enough Crisis Capital
John Carney | Senior Editor

Randy Wray interviewed by Suzi Weissman on “Beneath the Surface”

Short summary and link.

Multiplier Effect
On Financial Transaction Taxes and Nonsense-Powered Economic Headwinds
by Michael Stephens

Bill Mitchell — Ratings firm plays the sucker card … again

Bill excoriates Moody's for the UK downgrade and George Osborne for lying about it. Reinhart and Rogoff come in for criticism too.

Bill Mitchell — billy blog
Ratings firm plays the sucker card … again
Bill Mitchell

Vlad Tarko — Ergodicity for Dummies (via Lars Syll)

... you obtain two different results: one statistical analysis over the entire ensemble of people at a certain moment in time, and one statistical analysis for one person over a certain period of time. The first one may not be representative for a longer period of time, while the second one may not be representative for all the people. The idea is that an ensemble is ergodic if the two types of statistics give the same result. Many ensembles, like the human populations, are not ergodic.
Lars P. Syll
Ergodicity for Dummies
Vlad Tarko in Statistics & Econometrics, Theory of Science & Methodology

See also On Bayesianism, uncertainty and consistency in “large worlds”

JKH — Briefly Revisiting S = I + (S – I)

Drilling down deeper into S = I.

I suggest commenting over at MR in order to keep comments together. JKH is very generous in responding to comments and questions there.

Comments here OK, too, for those who may wish.

Sunday, February 24, 2013

Unlearning Economics — Interest Rates: Too High, Not Too Low

I have previously referenced my support for the idea, advocated by Keynes and Adam Smith, that low long term interest rates are a desirable stance for monetary policy. The claim about the effect of low rates is two fold:
(1) Low rates reduce the cost of investment and so encourage it.
(2) Low rates reduce the yields required to pay back debt incurred, and hence encourage more sustainable, less speculative investments. To phrase it conversely: high rates push people into speculation as they attempt to recoup the money they owe.
Commenter Roman P. is not convinced by this argument. I am willing to admit I have, thus far, provided insufficient evidence for this, mostly due to lack of data. However, I have assembled what data I can below, and believe it offers broad – though not definitive – support for this hypothesis.
A few caveats. First, let me establish clear criteria for what I consider to be ‘low rates.’ John Maynard Keynes wanted the long term interest rate to be as low as 2.5%; he even remarked that 3.5% would be too high for full employment...
Unlearning Economics
Interest Rates: Too High, Not Too Low

A long term rate of below 3.5% implies an overnight rate close to zero. This in turn implies tightly controlling the inflation rate through fiscal policy rather than raising the interest rate, which involves using unemployment as a tool.

Stephen Grenville — Helicopter money

What would the overt monetary financing of fiscal deficits involve? This column explains the differences between “printing money”, quantitative easing, and overt monetary finance. Lord Turner’s proposed “helicopter drop” raises issues for banks’ balance sheets and central bank independence.
Helicopter money
Stephen Grenville | Visiting Fellow, Lowy Institute for International Policy

Stephanie Kelton on Thom Hartmann Monday, Feb 25, at 4PM ET

Stephanie Kelton on Thom Hartmann Monday, Feb 25, at 4PM ET
(Stephanie via FaceBook — MMT, Heterodox and Dissident Economics)

Randy Wray, Frank Partnoy and Robert Benner on the economic crisis – Monday, Feb 25, at UCLA

Neil Wilson — The New Model Bank

Neil proposes a banking model and asks for feedback. Especially relevant for those that have been following comments on JKH's ‘Loans Create Deposits’ – in Context.

3 spoken
The New Model Bank
Neil Wilson

Evan Soltas — The Rise of Finance

Some facts and figures.

Evan Soltas | economics & thought
The Rise of Finance
Evan Soltas

Thomas L. Hungerford on rising inequality due to tax policy

This paper examines changes in after-tax income inequality among tax filers between 1991 and 2006. In particular, how changes in wages, capital income, and tax policy contribute to changes in income inequality is investigated. To examine the role of these three possible contributors to the increase in income inequality, the Gini coefficient is decomposed by income source using the method developed by Lerman and Yitzhaki (1985). The Gini coefficient of after-tax income increased by 15 percent (0.071 points) between 1991 and 2006. By far, the largest contributor to this increase was changes in income from capital gains and dividends. Changes in wages had an equalizing effect over this period as did changes in taxes. Most of the equalizing effect of taxes took place after the 1993 tax hike; most of the equalizing effect, however, was reversed after the 2001 and 2003 Bush-era tax cuts. Similar results are obtained with other inequality measures.

Changes in Income Inequality Among U.S. Tax Filers between 1991 and 2006: The Role of Wages, Capital Income, and Taxes
Thomas L. Hungerford — January 23, 2013

Bill Moyers interviews Robert Wolff

Economist Richard Wolff joins Bill to shine light on the disaster left behind in capitalism’s wake, and to discuss the fight for economic justice, including a fair minimum wage. A Professor of Economics Emeritus at the University of Massachusetts, and currently Visiting Professor in the Graduate Program in International Affairs of the New School, Wolff has written many books on the effects of rampant capitalism, including Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It.
Moyers: Rampant Capitalism Has Created a Social Disaster -- How Do We Right the Ship?
Bill Moyers interviews Robert Wolff

circuit — Helicopter money: an operational view

Turner v. Seccareccia

Fictional Reserve Barking
Helicopter money: an operational view

Randy Wray — Presentation: Fiscal Cliffs, Debt Limits, and  Unsustainable Deficits: Can the US Really Run Out of Dollars?

Slide presentation.

Fiscal Cliffs, Debt Limits, and  Unsustainable Deficits: Can the US Really Run Out of Dollars?
L. Randall Wray | Professor of Economics, ,UMKC

Randy Wray — Krugman is Right about Simpson-Bowles: The Buzzards Circle the Fiscal Cliff

Randy on another tear. Bravo.

Make no mistake. The President as well as both houses of Congress are solidly aligned to gut these programs. That is what the Rube Goldberg machinery is all about.
It is time to get out the pitchforks to destroy the doomsday machine Washington is creating for us.

Economonitor — Great Leap Forward
Krugman is Right about Simpson-Bowles: The Buzzards Circle the Fiscal Cliff
L. Randall Wray | Professor of Economics, UMKC

(I suppose this is what Ted Cruz means by "communism.")

Peter Cooper — Inner Growth Requires Time to Self Reflect

I would say that in the area of economics I have only ever had three light-bulb moments : perceiving the source of surplus value (Marx) ; encountering the principle of effective demand (Kalecki, Keynes) ; and understanding the implications of monetary sovereignty (MMT). Each of these insights had a big impact on me and made sense of a lot of other things all at once.
In thinking about paths to a better society, the understanding of monetary sovereignty seems the most important of the insights. It makes clear that real resources are the only genuine constraint and that, regardless of what capitalists or ‘bond vigilantes’ might think of the matter, economic activity need not be for profit, growth is not compulsory, materialism is not the only alternative, and the wage-labor relation or income tied to labor time is not a law of nature. None of these things are necessary or inevitable for a monetarily sovereign society, if we so choose.
But what will we choose? Do we even know what we really want? As regular commentator jrbarch often points out most eloquently, to know what we really want, we have to know ourselves. Light-bulb moments in our inner lives require self-reflection.
Inner Growth Requires Time to Self Reflect
Peter Cooper

Bonnie Kavoussi — Americans To Washington: Delay The 'Steep' Sequestration Cuts

Politicians have said they may have no choice but to let automatic spending cuts kick in next Friday. But the American people say they better find a way out of it.
The government has scheduled $1.2 trillion in spending cuts, nicknamed the "sequestration," to take place starting on Mar. 1. But 54 percent of Americans support a plan to "delay steep cuts to give the economy a chance to continue recovering which would help reduce the deficit," according to a new Bloomberg poll....

Americans support delaying the sequestration even though 62 percent of Americans believe the budget deficit is growing, the poll found. In fact, the deficit is shrinking, according to the Congressional Budget Office.
The Huffington Post
Americans To Washington: Delay The 'Steep' Sequestration Cuts
Bonnie Kavoussi

Arthur Delaney — Tom Coburn: Obama Administration Exaggerating Sequestration Impact

A top Senate Republican said Sunday that the Obama administration is exaggerating the impact of looming cuts to federal spending.
The cuts, known as "sequestration," will shave $85 billion from the federal budget this year unless Congress strikes an unlikely deal to replace the cuts with something milder. The Obama administration has said many bad things will happen as a result of the cuts, including increased airport delays.
Sen. Tom Coburn (R-Okla.) told "Fox News Sunday" host Chris Wallace that the Obama administration is "absolutely" exaggerating the impact of the cuts.
"It is a terrible way to cut spending, but not to cut 2.5 percent over the total budget over a year when it is twice the size it was 10 years ago? Give me a break," Coburn said. "We see all these claims about what a tragedy it's going to be."
The Huffington Post
Tom Coburn: Obama Administration Exaggerating Sequestration Impact
Arthur Delaney

GOP shrugging of consequences of sequestration?

Joe McCarthy redux?

Senator Ted Cruz has responded to The New Yorker’s report that he accused Harvard Law School of having had “twelve” Communists who “believed in the overthrow of the U.S. Government” on its faculty when he attended in the early nineties. Cruz doesn’t deny that he said this; instead, through his spokesman, he says he was right: Harvard Law was full of Communists.
His spokeswoman Catherine Frazier told The Blaze website that the “substantive point” in Cruz’s charge, made in a speech in 2010, was “was absolutely correct.”
She went on to explain that “the Harvard Law School faculty included numerous self-described proponents of ‘critical legal studies’—a school of thought explicitly derived from Marxism—and they far outnumbered Republicans.” As my story noted, the Critical Legal Studies group consisted of left-leaning professors like Duncan Kennedy, who is a social democrat, not a Communist, and has never “believed in the overthrow of the U.S. Government.”
Among those who have taken issue with Cruz’s castigation of the Harvard Law School faculty are his former law professor, Charles Fried, who is a well-known Republican and former Solicitor General to Ronald Reagan. In his 2010 speech, Cruz had said there was only “one” Republican on the faculty, but his former professor, Fried, told The New Yorker there were at least four, including himself. A spokesman for Harvard Law School, Robb London, also described the school as “puzzled” by Cruz’s allegations.
The New Yorker
Ted Cruz Responds—And Still Sees Red At Harvard Law
Jane Mayer

Cruz makes allegations and refuses to name names, just like Joe. It was despicable then, and now?

I suppose Cruz thinks that President Obama came under the influence of "communists" when he was at Harvard Law School.

I wonder whether he wears a tin foil hat?

AFP — Ecuador’s president vows to push large-scale mining despite indigenous protest

So much for progressivism and environmentalism in Ecuador. Money talks and politicians walk. Indigenous leaders have already declared that any more enclosure of the commons will result in war. And, yes, they have seen Avatar, and they aren't waiting for a white savior either.
“To hurt the government, they are hurting the country, the poor, that Amazonian region,” Correa said, adding that “we are not with the multinationals, we are with the poor.”
“We cannot be beggars sitting in front of a bag of gold,” he said.
Yep, that old bag of gold gets 'em every time. There can be no accommodation with unbridled capitalism over either human rights or the environment, which is really the commons. Correa's calling himself a "socialist" is an oxymoron.

The Raw Story
Ecuador’s president vows to push large-scale mining despite indigenous protest
Agence France-Presse

Killer robots must be stopped, say campaigners

A new global campaign to persuade nations to ban "killer robots" before they reach the production stage is to be launched in the UK by a group of academics, pressure groups and Nobel peace prize laureates.
Robot warfare and autonomous weapons, the next step from unmanneddrones, are already being worked on by scientists and will be available within the decade, said Dr Noel Sharkey, a leading robotics and artificial intelligence expert and professor at Sheffield University. He believes that development of the weapons is taking place in an effectively unregulated environment, with little attention being paid to moral implications and international law.
The Guardian | The Observer (UK)
Killer robots must be stopped, say campaigners
Tracy McVeigh | The Observer
(h/t Andy Blatchford)

Saturday, February 23, 2013

February Fiscal Flows Come Roaring Back

After posting a surplus of $20B in December followed by a $33B deficit in January, the government's fiscal injections of $NFA have swung around to recent highs through the 21st of February.

Through February 21st, net withdrawals from the Treasury account total $347B while net deposits are at $163B for a fiscal deficit ex-post result of $184B, again through just the 21st.  TTM data reports this deficit flow average at a bit under $90B per month so February is currently tracking towards a recent monthly high delta.

A highlight on the withdrawal side for February is the total for IRS Tax Refunds (Individual) of $76B which is contributing substantially to this months out-sized net withdrawals.  This large amount of seasonal $NFA  injection more than offsets the system level $NFA removal effects of the 2% payroll tax increase that went into effect January 1st; the effects of which are estimated at a cet par net removal of $10-12B per month.

Perhaps look for a short term increase in retail sales to close out February as any poor January results and early February warnings (such as that heard from Wal-Mart ) related to the recent 2% payroll tax increase may be counter-enabled by this strong seasonal tax refunding form of $NFA injection.

Short term, the system  is being supplied with $NFA at an adequate rate to prevent systemic instability and associated systemic liquidation.

Friday, February 22, 2013

Lord Keynes — World GDP versus Total Value of Financial Asset Market Exchanges

Any economic theory that ignores this type of spending and its sector of the economy (i.e., the secondary financial asset markets) is deeply flawed and liable to be missing something fundamental about modern market economies....
This type of spending is also a fundamental reason why Say’s law is one of the most ridiculous ideas ever formulated by economists. 
Social Democracy for the 21st Century
World GDP versus Total Value of Financial Asset Market Exchanges
Lord Keynes

Cathy O’Neil — Break up the megabanks already

For the past few months at Occupy we’ve been focusing more and more on having a single message and goal. That has been to break up the big banks.
What’s great about this goal is that it’s a non-partisan issue; there is growing consensus (among non-bankers) from the left and the right that the current situation is outrageous and untenable. What’s not great, of course, is that the situation is so easy to spot because it’s so heinous.
Yesterday another voice joined the Break-Up-The-Big-Banks chorus in the form of an editorial at Bloomberg (hat tip Hannah Appel). They wrote a persuasive piece on breaking up the big banks based on simple arithmetic involving bank profits and taxpayer subsidy. Even the title fits that description: “Why Should Taxpayers Give Big Banks $83 Billion a Year?”....
Occupy Wall Street Alternative Banking Committee
Break up the megabanks already
Cathy O’Neil |

Not only is Occupy not dead or dead in the water, either, "occupy" as a strategy is going to happen. I don't have any idea when or under what circumstances but it is pretty obvious the present course in not sustainable and when enough people are hurt badly enough by it to get off their butts, then places are going to be occupied. But putting a clock on it is not possible now.

Andrew Simms — The four-day week: less is more

More free time, fewer carbon emissions and an answer to our economic woes. Why aren't we all working a four-day week?
The Guardian (UK)
The four-day week: less is more
Andrew Simms
(h/t Andy Blatchford via FaceBook)

Turns out this is a conservative idea originating in Utah, first tried at the city and county level and then instituted at the state level by then governor Jon Huntsman.

Michael Stephens — It’s Time to Shift the Focus of the Deficit Debate

The Congressional Budget Office’s latest report on the budget outlook revealed (perhaps unintentionally) that fixating on Congress and the President as the central players in the federal deficit drama is a mistake. According to the CBO, the path the federal budget deficit will follow over the next 10 years is just as much (if not more so) a question of Federal Reserve policy.
Multiplier Effect
It’s Time to Shift the Focus of the Deficit Debate
Michael Stephens

It's the interest rate, stupid. And that depends on the Fed's inflation target, since the interest rate is a policy variable.

Interest rates are a policy variable.  This growth in debt-service costs, in other words, represents a choice.  The question of whether or not it’s the right choice should receive a lot more attention in our popular discussions, alongside the obsession with “grand bargains” and the rest.  We’re often told (in a near inversion of the truth) that rising budget deficits are the biggest near-term threat to the US economy.  But if you look at what the CBO’s projection says about our collective priorities, what we see here is a decision to allow interest rates to rise at the expense of the deficit....
However, given some model of the interactions between unemployment, inflation, interest rates, and budget deficits, the question of what particular tradeoffs we are making, or should make, needs to be brought to the fore.  One issue raised by the CBO’s projection is the Fed’s apparent commitment to place a 2 percent ceiling on inflation.  Is maintaining this ceiling worth it, given the price that needs to be paid in terms of a more elevated unemployment rate and increased political pressure to reduce spending on essential government functions?  How harmful would inflation in the 3–4 percent range be, given the costs of trying to avoid it?  Whatever your answers are, these questions need to become a more routine part of the deficit debate, for the sake of better public understanding of the choices being made on our behalf. 

The Economic Maverick — BOLLOCKS! Moody's Downgrades UK debt for first time in history. Blames AUSTERITY!

What is most notable about the UK Debt downgrade is not the downgrade itself, but the text. Moody’s is NOT attributing their downgrade to the usual mantras from the austerity caucus such as “fiscal profligacy” and “bond market vigilantes.”Instead they are blaming “slow intermediate term growth” and, most importantly, blaming that slow growth on “the ongoing domestic public- and private-sector deleveraging process.”

Obviously, as the MMTers know too well, concerns of a technical default are misplaced because the UK, (like the US, Japan, Canada, Australia, Switzerland, etc) is an autonomous fiat currency issuer and therefore can’t default on its debt unless it chooses to do so. However, implied in the text are the exact concerns that non-austerians of all disciplines have been repeating incessantly: Austerity in a downtown [down time?] is counter-productive even to the goal of reducing public debt because it hinders growth and therefore impairs the capacity of the economy to generate revenue and repay the debt. This is doubly true after a credit bubble bust because the private sector is deleveraging in an effort to fix its own debt problems. Any efforts by the public sector to simultaneously deleverage will backfire.
The Economic Maverick
BOLLOCKS! Moody's Downgrades UK debt for first time in history. Blames AUSTERITY!

David Edwards — Gohmert: Voters need ‘at least 50 rounds’ in magazines to take out drones

Rep. Louie Gohmert (R-TX) says constituents are telling him that high-capacity magazines should not be banned because people need “at least 50 rounds” to shoot down government drones.
The Raw Story
Gohmert: Voters need ‘at least 50 rounds’ in magazines to take out drones
David Edwards

Seriously? Next they 'll be clamoring for anti-tank RPG's.

And the funny thing is that they don't seem to get that drones shoot back and are armed with missiles. Oh, right, you are shooting from deep in your bunker in the bankyard.

Thursday, February 21, 2013

Bill Mitchell — Unemployment and inflation – Part 4 and 5

Today I have had a major report to complete on “efficiency dividends” in government budgets (for a union), have a lot of travel ahead, and also want to progress my macroeconomics. Report complete except for summary, which I will finish on the plane tonight. So until then I am progressing the Modern Monetary Theory (MMT) text-book, which I am writing in liaison with my colleague and friend, Randy Wray. We are trying to get it completed for use in second-semester 2013 and so I am spending more time on it to meet that expectation. Today, I continue to develop the material on unemployment and inflation.
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 is the continuation of the Chapter on unemployment and inflation – the series so far is:
▪ Unemployment and inflation – Part 1
▪ Unemployment and inflation – Part 2
▪ Unemployment and inflation – Part 3
I am now continuing Section 12.6 on the Phillips Curve …
Chapter 12 – Unemployment and Inflation
Bill Mitchell — billy blog
Unemployment and inflation – Part 4

Unemployment and inflation – Part 5
Bill Mitchell

Dimitri B. Papadimitriou — The Legends of the Greek Fall

Why has the world's premiere deficit-reduction laboratory produced such a dismal failure? European leadership still expects the painful ├╝ber austerity measures imposed on Greece to result in a dramatic improvement of its debt to GDP ratio. But the experiment in endurance is not succeeding for an important reason: Austerity programs have been rooted in myths about what caused the crisis in the first place.
The Huffington Post
The Legends of the Greek Fall
Dimitri B. Papadimitriou | President, Levy Economics Institute; Executive Vice President and Professor of Economics, Bard College

Philip Pilkington: Kill The King – Why Are We So Scared of Fiat Money?

Money is just a token that we use to “keep score” of the debts we owe one another. It is just a unit of account that helps us keep track of who has given who what. Having a central quasi-governmental power in the form of a central bank simply helps us to do this and allows governments to extend deficit-financing in order to keep economic activity stable.
So, what accounts for the visceral reactions we see toward the system? Why do some bow down as if to a deity, while others recoil in horror as if confronted with a demon? The hint to this lies in the way we moderns relate to government and power. The fiat money system is an embodiment of arbitrary power and we in the modern world distrust this. Money is accepted largely by edict in that it is fiat money in which we can pay our taxes and it is also fiat money in which contracts can be legally settled.
Lying behind every dollar, euro and yen is a jailor and a judge who are ready to deprive us of our rights and our freedom should we choose not to play by the rules of the game. It is this aspect of the system that accounts for the strange reactions we see surrounding it. It is this aspect of the system that leads some to hide from themselves the reality of the system and imbue it with an auratic glow and leads others to hysterically attack it as a grave injustice and evil. To get to the heart of this matter we must understand better how we relate to political power today.
Naked Capitalism
Philip Pilkington: Kill The King – Why Are We So Scared of Fiat Money?

Jeff Cox — Who's Afraid of QE Ending? Not the Bond Market

..the stock market sold off at the slightest notion that the Fed might pull the plug.
"Equity markets seem to think of asset purchases as magic pixie dust," Cloherty said. "They just make everything fly. No one has a transmission mechanism for how that works, they just know it does."
The Standard & Poor's 500 lost 1 percent following Wednesday's Fed release and was on pace to add to that decline Thursday.
The bond market, though, was humming along even though a Fed exit from bond buying would seem likely to decrease demand and thus put upward pressure on yields.
Instead, yields fell and a popular exchange-traded fund, the iShares Barclays 20+ Year Treasury Bond fund, gained nearly one percent.
CNBC — US Markets
Who's Afraid of QE Ending? Not the Bond Market
Jeff Cox | Senior Writer

Battle for the Size and Direction of the US Public Budget Finally Getting Serious

commentary by Roger Erickson

Panetta: Supercommittee failure would ‘hollow out’ military's combat force.

Really? Yet the following is also true.
"the US plowed $689 billion into defense in 2011, more than the next 16 biggest military spenders combined, and 40% of total worldwide military spending. Number two China spent $129 billion, number three Russia a measly $64 billion."

Is the entire world really our enemy? Do we want to spend that much on defence? Or might we want to invest that much in broader-based innovation, general welfare of our people, and making friends with the rest of the world?

Plus, the bulk of the DoD budget is dedicated to tactical hardware, NOT to strategy!

For comparison, do we train chessmasters to think, or do we train them to constantly ask for more and bigger and badder pawns and other pieces on the chessboard? There are times to do both, but getting out of balance either way can be fatal.

Are we way out of balance on hardware, and ignoring strategic brilliance? There is no lack of current Pentagon budget reform insiders - dating back to efforts by John Boyd, Chuck Spinney, Winslow Wheeler and even Pres. Eisenhower - who have claimed for decades that the runaway MICC spending on tactical hardware has sucked all emphasis out of strategic thinking both within and outside the DoD, and has therefore done more harm to our nation than all the hardware can possibly be worth. All the hardware in the world is useless in the hands of people lacking strategic brilliance. History has proven that repeatedly.

We're gonna see a vote on those very questions, soon.

Edward Morrissey: What Uncle Sam could learn from the Catholic Church

Article at The Week here.  Author Morrissey misses the mark here in an article where he suggests that indeed we should have a concerned view towards "the poor"; and reject the Randian Objectivist/Libertarian synthesis, but suggests the true problem is a lack of "responsibility and sustainability" because of the typical moron view that somehow we don't want to pay for it.

Here is his warped analysis based on his own brand of a libertarian anti-authority view that our government does not possess absolute fiscal authority:
However, a couple of key elements are also necessary in this paradigm: Responsibility and sustainability. The problem facing the American welfare system and the European nanny states is that they are designed with neither in mind. Their fiscal structure pays more in benefits than it receives, a very basic form of irresponsibility and unsustainability. [Ed: It is only irresponsible and unsustainable to a stupid and blind libertarian who has no view of our government's absolute fiscal authority.]
That forces these systems to borrow massively against future production, which in essence means that these social systems pay benefits with someone else's money — the children or grandchildren to come. One could consider that theft, or at the least taxation without representation.  [Ed: What a dope.  Morrissey here literally asserts  that our fiscal agents in government have a time machine in which they have to travel into the future in order  to borrow our future society's "money" and carry these balances back to the present in order to account for our current production... what a moron.]
It's not difficult to argue that neither of the two philosophers would endorse such a system. After all, even St. Thomas Aquinas did math. Anyone with a calculator can figure this out; it doesn't take philosophers to tell us that we can't borrow money forever without risking collapse.  [Ed: Now this is especially indignation inducing to those of us graced with mathematical maturity, to see such a butchering of basic mathematics.  Who does this blind moron think our government is borrowing from?  Moron: Where does the "money" come from you dummy?  Sober up man!]
 Yet we hear nearly nothing from the political class about the true costs of these programs, or the responsibility for the bills to be paid properly when incurred.  [Ed: Who is not getting paid in all of this?  What is this moron even talking about?  What "bills" are not getting paid?  This guy is a disgraced  embarrassment.]

What can those other blind morons currently occupying positions of authority in our government learn from the Catholic Church?  How about simply first obtaining a foundational view of the inherent authorities of our (government) institution in the first place?

Perhaps the Catholic Church at least has a view of the authority present within it's own institution which is surely lacking in our current institution of government.

If our current blind and stupid occupants of positions of authority in our government would at least become able to see the authority present within their own institution, then perhaps we wouldn't have to be treated with statements such as "We're out of money!" and "we're borrowing from our grandchildren!" from the likes of the similarly blind and stupid libertarian Morrissey here.

Remember the words of the Centurion:  "For I also am a man set under authority..."  To which the Lord replied: "Verily, with no one in Israel so much faith did I find."

Wednesday, February 20, 2013

Harry Bradford — Waffle House Adds 20 Percent Surcharge To Cover Security Guard

America descending into chaos, or the Wild West?

The Huffington Post
Waffle House Adds 20 Percent Surcharge To Cover Security Guard
Harry Bradford

Reuters — Rising Taxes Are Hurting Low-Income Americans

* Payroll tax rise, pump prices crimp spending

* Wal-Mart, Burger King, Kraft already feeling the pinch

* CEOs warn two-speed economy not improving

Feb 19 (Reuters) - It's getting tougher again at the bottom of the food chain.

Rising taxes and soaring gasoline prices have combined to slash spending power at the lower end of the economy, according to executives from fast food chains, discount retailers and other companies that cater to budget-conscious consumers.

"Unfortunately, the loss of so many middle-class jobs in this country makes it tough," said Gary Rodkin, chief executive of consumer packaged foods company ConAgra Foods, in an interview on Tuesday.

"We've got a pretty good pulse on that 80 percent of the population that's still challenged and I would say there's not marked improvement yet," he added.
The good old 80-20 rule.

The Huffington Post
Fast Food Executives: Rising Taxes Are Hurting Low-Income Americans
Martinne Geller and Lucia Mutikani | Reuters

Robert Skidelsky — Rise of the robots: what will the future of work look like?

If one machine can cut necessary human labour by half, why make half of the workforce redundant, rather than employing the same number for half the time? Why not take advantage of automation to reduce the average working week from 40 hours to 30, and then to 20, and then to 10, with each diminishing block of labour time counting as a full time job? This would be possible if the gains from automation were not mostly seized by the rich and powerful, but were distributed fairly instead.

Rather than try to repel the advance of the machine, which is all that the Luddites could imagine, we should prepare for a future of more leisure, which automation makes possible. But, to do that, we first need a revolution in social thinking.
The Guardian (UK)
Rise of the robots: what will the future of work look like?
Robert Skidelsky
(h/t Kevin Fathi via email)

Unlearning Economics Misinterpretations in Mainstream Economics

It is my opinion that major areas of neoclassical economics rest on misinterpretations of original texts. Though new ideas are regularly recognised as important and incorporated into the mainstream framework, this framework is fairly rigid: models must be micro founded, agents must be optimising, and – particularly in the case of undergraduate economics – the model can be represented as two intersecting curves. The result is that the concepts that certain thinkers were trying to elucidate get taken out of context, contorted, and misunderstood. There are many instances of this, but I will illustrate the problem with three major examples: John Maynard Keynes, John Von Neumann and William Phillips.
Unlearning Economics
Misinterpretations in Mainstream Economics

Shamus Cooke — What the 1% Heard During Obama's State of the Union Speech

When President Obama speaks, most Americans hear what he wants them to hear: lofty rhetoric and a "progressive" vision. But just below the surface the president has a subtly-delivered message for the 1%, whose ears prick up when their buzzwords are mentioned. Obama's state of the union address was such a speech – a pro-corporate agenda packaged with chocolate covered rhetoric for the masses; easy to swallow, but deadly poisonous. 

Much of Obama's speech was pleasant to the ears, but there were key moments where he was speaking exclusively to the 1%. Exposing these hidden agenda points in the speech requires that we ignore the fluff and use English the way the 1% does. Every time Obama says the words "reform" or "savings,” insert the word "cuts.”
Z Space
What the 1% Heard During Obama's State of the Union Speech
Shamus Cooke

Yves Smith — Martin Wolf Misses the Real Reason the Eurozone’s Unhappy Marriage Has Not Broken Up Yet

The normally astute and blunt Martin Wolf is either having an uncharacteristic bout of circumspection or is managing to miss an important, arguably determining reason why the Eurozone persists in inflicting destructive austerity on much of its population.
Naked Capitalism
Martin Wolf Misses the Real Reason the Eurozone’s Unhappy Marriage Has Not Broken Up Yet
Yves Smith

Tim Murphy — 10 People You Didn't Realize Were Friends of Hamas

Pretty funny in a pathetic way. US politics has come to this?
Breitbart News editor-at-large Ben Shapiro created a bit of a stir last week when he alleged that Sen. Chuck Hagel, President Obama's nominee to be the next secretary of defense, may have ties to an organization called "Friends of Hamas."
On Wednesday, after reporters at mainstream publications could find no evidence of any such organization even existing, Shapiro* Breitbart News doubled down: "The mainstream media have ignored the fact that at least one prominent supporter of Hamas has donated money to an organization associated with former Sen. Chuck Hagel (R-NE)—namely, the Atlantic Council, which receives support from the Hariri family of Lebanon, whose most prominent member, former Lebanese prime minister Saad Hariri, publicly backs Hamas."
Do you know who sits on the Atlantic Council? Read on.

Nate Silver — Can Republicans Win the Senate in 2014?

The Big Picture 
Summing up the possibilities across all 35 Senate races yields a net gain of four to five seats for Republicans, just short of the six they would need to win back the majority.
However, the margin of error on the calculation is very high at this early stage. Keep in mind that in each of the last four cycles, one party (Democrats in 2006, 2008 and 2012; Republicans in 2010) won the vast majority of the competitive races. If Republicans swept all the “lean” and “tossup” races, they would gain a net of eight seats from Democrats, giving them a 53-to-47 majority in the 114th Congress. If Democrats swept instead, they would lose just one seat and would hold a 54-to-46 majority. Considering the uncertainty in the landscape, estimates from betting markets that Democrats have about a 63 percent chance of holding their majorityappear to be roughly reasonable.
One last factor to consider is that as difficult as the Democratic Senate map looks in 2014, Republicans could face an equally challenging one in 2016. In that year, seven Republican-held seats will be up in states won by Mr. Obama in 2012, while no Democrats will face re-election in states won by Mr. Romney.
Thus, as ridiculous as it might seem to look so far ahead, the most important reverberations from the 2014 Senate races might not be felt until 2016 and beyond. Republicans will need to make considerable gains next year to open up the possibility of a Republican-controlled Congress after 2016. If Democrats hold their ground, conversely, it would provide for the outside possibility of their holding a filibuster-proof majority after 2016.
The New York Times | Five Thirty Eight
Can Republicans Win the Senate in 2014?
Nate Silver