Monday, March 31, 2014

Zachary Keck — Why Did BRICS Back Russia on Crimea?

The BRICS’s support for Russia shows the Western-dominated post-Cold War order is eroding....
The BRICS and other non-Western powers’ support for Russia also suggests that forging anything like an international order will be extremely difficult, given the lack of shared principles to act as a foundation. Although the West generally celebrated the fact that the UN General Assembly approved the resolution condemning the Crimea referendum, the fact that 69 countries either abstained or voted against it should be a wake-up call. It increasingly appears that the Western dominated post-Cold War era is over. But as of yet, no new order exists to replace it.
The Diplomat

Brett LoGiurato — Paul Ryan Is About To Become The Most Powerful Member Of The House Of Representatives

How's that? Chair of the Ways and Means Committee. The guy that handles the money.

Business Insider
Paul Ryan Is About To Become The Most Powerful Member Of The House Of Representatives
Brett LoGiurato

John LIght — Five Key Takeaways From the Frightening IPCC Climate Change Report (via Moyers & Company)

Five Key Takeaways From the Frightening IPCC Climate Change Report (via Moyers & Company)
The United Nation’s Intergovernmental Panel on Climate Change (IPCC) issued its latest report today. It focuses on how climate change will affect human society in coming years painting a picture of a world destabilized by a rapidly changing environment…

Peter Martin — The economics of a budget surplus: Something to think about before making rash promises

Left of centre political parties are nearly always faced with the charge, levelled by their right of centre opponents, of fiscal profligacy. Accusations are made that the more socially minded parties cannot be trusted with a nation’s finances. They will tend to spend too much ‘taxpayers’ money’ on what they consider to be worthy causes. This supposed tendency is often disingenuously linked to the size of the government budget deficit, which in turn is equally disingenuously linked to the size of government itself. Left unanswered this charge will cost votes. So how should they best respond to the very predictable attacks along these lines which will be only too familiar to Labour Party strategists?
MMT solution follows. Why "fiscal responsibility" is irresponsible.

Glenn Greenwald — NSA Blows Its Own Top Secret Program in Order to Propagandize

Hypocrisy? Compare Nixon: The president doing it makes it legal.

The Intercept
NSA Blows Its Own Top Secret Program in Order to Propagandize
Glenn Greenwald

Simon Wren-Lewis — The Left and Economic Policy

This gives us two problems that occur for the left and not the right. However the right has two problems of its own when it comes to getting good policy advice. The first comes from a key difference between the two: the right has an ideology (neoliberalism), the left no longer does. The second is that the resources for the right often come with strings that promote the self interest of a dominant elite. So although the right has more resources to get good economic advice, these strings and their dominant ideology too often gets in the way. But what this ideology and these resources are very good at is providing simple sound bites and a clear narrative.
Thatcherism has been successful in framing the debate in terms of TINA — there is no alternative (to neoliberalism), when there is actually, but the left is unable or unwilling to mount the argument. The result is that there is no left, and bad advice dominates the policy debate owing to ideological bias based on ruling class interest.

Mainly Macro
The Left and Economic PolicySimon Wren-Lewis | Professor of Economics, Oxford University

Austin Frakt — Job lock: Entrepreneurship lock

The preponderance of evidence from the literature is that “entrepreneurship lock” exists, though there are varying estimates of its extent.
The Incidental Economist
Austin Frakt | Assistant Professor of Psychiatry at BostonUniversity School of Medicine, Assistant Professor of Health Policy and Management at Boston University School of Public Health. and a Health Economist with Health Care Financing & Economics, VA Boston Healthcare System
(h/t Brad DeLong)

Janet Yellen — What the Federal Reserve is Doing to Promote a Stronger Job Market

I am here today to talk about what the Federal Reserve is doing to help our nation recover from the financial crisis and the Great Recession, the effects of which were particularly severe for the people and the communities you serve....
What the Federal Reserve is Doing to Promote a Stronger Job Market
Chair Janet L. Yellen
At the 2014 National Interagency Community Reinvestment Conference, Chicago, Illinois. March 31, 2014

Rodger Mitchell — Is this the end, or just the beginning, of money?

Drawing the implications of Vodafone's M-Pesa (M for mobile, pesa is Swahili for money) for monetary theory.

Federal Debt Is Money

Bill Black — Hoy, a Newspaper in Ecuador, Wants Us to Know How Much It Despises the People of Ecuador

Classic dismissal of the rabble as unfit for rule by one of the Latin American elite. The elite there are just more up front about their beliefs than the elite in the developed countries, who reserve such rants for behind closed doors. Candidate Romney was caught out doing this for example, and his attack on the 47% of "takers" was fatal.

Interestingly, too, Bill is put down as being from a backwater school.

New Economic Perspectives
Hoy, a Newspaper in Ecuador, Wants Us to Know How Much It Despises the People of Ecuador
William K. Black | Associate Professor of Economics and Law, UMKC

Chris Mayer — The Real Reason the U.S. Dollar Has Value

Chris Mayer is an Austrian-Libertarian who has seen the light about MMT's monetary economics.

While he is essentially correct, MMT economists say that taxation creates demand for the currency, which gives it spending power since those with liabilities imposed by government that the government requires its currency to satisfy must obtain the currency to do so. Government satisfies this demand by spending or lending. The prices that the government is willing to pay, e.g., as interest on its currency (own rate) and for goods and services it purchases in order to transfer private resources to public use, determine the value of the currency. Since government is the sole provider of its currency, it is the currency monopolist and can set the prices it chooses, as well as the tax rate to regulate demand.

Daily Reckoning
The Real Reason the U.S. Dollar Has Value
Chris Mayer
(h/t Warren Mosler at The Center of the Universe)

Randy Wray — Modern Money In Six Short Videos

Go get 'em.

Economonitor — Great Leap Forward
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City

"The Speed At Which [Teams] Could [Adjust] Would Make Mental Flexibility In Leadership Even More Valuable"

   (Commentary posted by Roger Erickson)

[ ... political and other pressures ... resulted in the appointment to high command in ... of so many mediocre and even incompetent [policy leaders, in all categories].

Why on earth isn't that need - to assess and promote policy agility - considered a truism for economic policy today, and all other policy disciplines?

This is a great read. One of my suggestions as required reading, for every highschool freshman in the country.

For comparison, why the hell didn't Obama just instantly fire and/or force the retirement of every single one of the GORBS*, the day after his inauguration, back in 2009, like half the country fully EXPECTED him to do?

* GORBS = Greenspan, Geithner, Orszak, Rubin, Bernanke, Summers

If National Fiat = Public Initiative, Then A National Budget Surplus = Unused (Squandered) Public Initiative

(Commentary posted by Roger Erickson)

Static assets can be held in reserve, but that concept doesn't apply for dynamic assets, such as personal or public initiative, or fiat currency to a currency issuer.

You may wonder how entire governments end up expressing the exact opposite of something so simple. By 1001 ways? That's how a 10 year process of bureaucratic planning, left to the bureaucrats, ends up painting itself into a corner - as beautifully illustrated in the ongoing review by Bill Mitchell of the march to launch of the euro monetary union.
"Adherence to the objective of sound budgetary positions close to balance or in surplus will allow all Member States to deal with normal cyclical fluctuations while keeping the government deficit within the reference value of 3 % of GDP." [European Council, 1997b]
Using simple, algebraic substitution, one can translate that into the legal proposition that net national Public Initiative should be frozen, or partially wasted.

You can almost see where this 1st-grade thinking got started. If there was zero population growth and/or zero innovation rates, one might be tempted to see that rule as a way to keep adequate reserves of public initiative. However, that is, of course, NOT how things actually progress.

Attempting to use the EMU 1st-draft as permanently propagated policy is like requiring a child growing from age 2 to age 18 to spend the same amount of time motionless on the couch ... regardless of growth in size, capabilities or context. We're immediately talking criminal negligence! Seriously, everyone involved in the worldwide rape of the Middle Class should end up as defendants in a Nuremberg-like class-war--crimes trial. The scale of the social destruction is unprecedented.

As Bill notes, there has been a steady trickle of opposition even within orthodox economics.
"Most mainstream macroeconomic theoretical innovations since the 1970s (the New Classical rational expectations revolution associated with such names as Robert E. Lucas Jr., Edward Prescott, Thomas Sargent, Robert Barro etc, and the New Keynesian theorizing of Michael Woodford and many others) have turned out to be self-referential, inward-looking distractions at best. Research tended to be motivated by the internal logic, intellectual sunk capital and esthetic puzzles of established research programmes rather than by a powerful desire to understand how the economy works – let alone how the economy works during times of stress and financial instability. So the economics profession was caught unprepared when the crisis struck …" [Willem Buiter, 2009]
But to no avail. It's been too little, too meek, too late.

Unfortunately, a critical policy process was once again left to the presumed process owners. Equally inevitable, that entire field, systematically denied external feedback, promptly spiraled into self-referential insanity, divorced from the ongoing evolution of unpredictable reality. You can still see them, shuffling in front of their tenured mirrors, intellectual spittle showing at the side of their articles, mouthing "ISLM" reassuringly at their reflected images, and holding up large stacks of self-references as "overwhelming" proof. The only difference is in the public health profession, which finally sees the slack-jawed self-references for what they are, and has announced a diagnosis. Austerians.

The only step remaining is convalescence, and either therapeutic recovery or aggressive interventions. We can make recovery a face-saving, painfully drawn out adjustment, or simply change directions and drain the academic swamp, rather like George Marshall once did, to catalyze more agile responses to another war.

One Flew Over The Economic Cuckoo Nest? That may be a fascinating read, but it would have been more useful as a warning fiction, not as a review of experienced reality.
Now we're left wondering whether or not the main culprit, Big Purse, deserves all the blame, whether she should be fired, or whether all the actors are equally to blame ... for biasing the entire system in that direction, for letting the charade go on this far, and for participating in the first place! Instead of more letters to economists asking them what happened, why not pen letters to our aggregate self, asking ourselves "Whiskey, Tango Foxtrot happened?"

Our biggest regret, and shame, is that we all allowed this debacle to occur, under our very noses. And it is NOT just in Europe. Austerianism is an infectious cultural disease that works by perverting cultural embryology and stunting cultural development. The effects on specific cultures depends on local variables, but the outcomes are all bad. As always, prevention is the best cure, delivered via an educational vaccine, so that all citizens are immune to the regressive agents, whether memo-viruses, or a social Noirp.

Just put the book down, slowly back away, take a step outside ..... and return to discovered, operational reality?

Why? Here's why.

Ever notice that none of the characters in the original Cuckoo's Nest story had children, and were successfully reproducing, and then rearing productive adults? Those two themes don't interesect, which is reason enough to keep Economic Cuckoos in the realm of fiction, and out of the policy pages.

If we want a propagating future for the USA, do we want more aggregate options? Or do we want to sit on our fiat budgies, and be content to stare blankly at virtual non-reality, with simple, neat lines of ISLM drool on the cheeks of a declining, couch-potato nation?

Home Depot co-founder: Populist liberals adopting Nazi rhetoric

More shameless hijinks from Langone.  Story here at Haaretz.
“Because if you go back to 1933, with different words, this is what Hitler was saying in Germany. You don’t survive as a society if you encourage and thrive on envy or jealousy," Langone told the website on Tuesday. 
His frankness was preceded by venture capitalist Tom Perkins, who – a multi-millionaire, not a billionaire, he says – alerted the world to the evils of attacking the 1 percent: "Kristallnacht was unthinkable in 1930; is its descendant "progressive' radicalism unthinkable now?" wrote in a letter to the Wall Street Journal this January. His own firm disclaimed his broadside. 
Larry Summers, former secretary of the Treasury and a business baron himself, agrees on the perils of populism but put it less controversially: “Reducing inequality is good, but it’s 50 times better to do it by lifting those up who are low than by tearing those down who are high,” he told Politico, adding: “The better politics are the politics of inclusion where everyone shares in economic growth.”
Pretty bad when all you can do is resort to the Reductio ad Hitlerum.  Resorting to this fallacy means you have no real argument.

Monks try crowdfunding to restore St Francis cell (via AFP)

Monks try crowdfunding to restore St Francis cell (via AFP)
Crowdfunding and medieval history are coming together in Rome as a group of Franciscan monks take to the Internet to drum up funds to restore a dusty cell said to have been used by St Francis of Assisi himself. Located in the trendy Trastevere district…

Sunday, March 30, 2014

Cameron Murray — Uncertainty is not what you think it is

Looking at risk and uncertainty through the lens of options theory.

Fresh economic thinking 
Uncertainty is not what you think it is
Cameron Murray (rumplestatskin)

Ellen Brown — Banking Union Time Bomb: Eurocrats Authorize Bailouts AND Bail-Ins

On March 20, 2014, European Union officials reached an historic agreement to create a single agency to handle failing banks. Media attention has focused on the agreement involving the single resolution mechanism (SRM), a uniform system for closing failed banks. But the real story for taxpayers and depositors is the heightened threat to their pocketbooks of a deal that now authorizes both bailouts and “bail-ins” – the confiscation of depositor funds. The deal involves multiple concessions to different countries and may be illegal under the rules of the EU Parliament; but it is being rushed through to lock taxpayer and depositor liability into place before the dire state of Eurozone banks is exposed....
Web of Debt
Banking Union Time Bomb: Eurocrats Authorize Bailouts AND Bail-Ins
Ellen Brown

Brian Romanchuk — Book Review: Capital In The Twenty-First Century

Brian Romanchuk weighs in on Piketty. First review of which I am aware by someone conversant with MMT.

Bond Economics
Book Review: Capital In The Twenty-First Century
Brian Romanchuk

Patrick Graham — ECB’s Weidmann says euro zone not in deflationary cycle

You know what that means.

Across the Curve
ECB’s Weidmann says euro zone not in deflationary cycle
Patrick Graham

See also ABCNews, Spain Falls Into Deflation, Upping Pressure on ECB

Econolosophy — Complexity Economics, Bots, and All That

This is an important post in that it identifies the fundamental characteristic of biological system as self-referential which mechanical and cybernetic systems are not. In addition, human being are self-referential and self-reflective to a greater degree than any other known organisms. This puts them in a different ontological, epistemological, ethical, aesthetic, and social category from other species.

The result is that human beings are individually complex and their interaction socially is therefore even more complex. Any economic theory that does not take this sufficiently into account will be too simplistic to model a society and its economy representationally other than superficially.

Those familiar with the disciplines of  philosophy, history, anthropology, sociology, psychology, and other disciplines involving human reflexivity know that there is no general agreement about theory in any of them such as there is in the physical sciences and even the life sciences. One could trace this to the absence of a theory of consciousness, let alone one that is agreed upon. The level of complexity is too great to get a handle on in terms of a single overarching model. What expect anything different of economics?

Complexity Economics, Bots, and All That

Brett Scott — LSFA: Building a financial hackerspace in 3 phases

 Note: "Hacking" has acquired the sense of breaking into a cybersystem access data. The actual meaning is to alter the code (rules, structure) of an existing system to make it perform better.
Over the last 5 years I’ve been working on ways to break down the oppressive wall of mystique that shrouds global finance, and to experiment with methods of 'hacking' financial systems. At first this took the form of my own ‘gonzo’ anthropological explorations of the world of derivatives trading. It has since merged into me working with campaign groups like ActionAid, MoveYourMoneyUK and the World Development Movement, and getting involved in the alternative finance community via initiatives like the Finance Innovation Lab.
In 2013, whilst writing The Heretic's Guide to Global Finance, I decided to start developing an experiential workshop series to help London's diverse array of activists, artists and alternative economists grapple with the financial sector in their midst. I decided to call this London School of Financial Activism (LSFA)....
Suitpossum: Post-Crisis Adventures in Financial Subversion

Anarchic Adventures in Arts, Activism, Anthropology and Alternative Economics

David Edwards — Former George W. Bush aide rips Jeb Bush for ‘kissing the ring’ of billionaires (via Raw Story )

Former George W. Bush aide rips Jeb Bush for ‘kissing the ring’ of billionaires (via Raw Story )
Matthew Dowd, who was chief strategist for George W. Bush’s 2004 campaign, on Sunday ripped Republican presidential hopefuls for lowering themselves to “kiss the ring” of billionaires like Las Vegas casino tycoon Sheldon Adelson. During a Sunday…

Sandwichman — Inequality and Sabotage: Piketty, Veblen and Kalecki (for anne at Economist's View)

Veblen and Kalecki explain Piketty a century ago (Veblen) and a half century ago (Kalecki). Great quotes.

Inequality and Sabotage: Piketty, Veblen and Kalecki (for anne at Economist's View)

For some reason, the page is now not available. Here are the quotes.

UPDATE: link is now working. I'll leave the quotes up anyway.

Veblen in The Engineers and the Price System:
The mechanical industry of the new order is inordinately productive. So the rate and volume of output have to be regulated with a view to what the traffic will bear — that is to say,what will yield the largest net return in terms of price to the business men who manage the country's industrial system. Otherwise there will be “overproduction,” business depression, and consequent hard times all around. Overproduction means production in excess of what the market will carry off at a sufficiently profitable price. So it appears that the continued prosperity of the country from day to day hangs on a “conscientious withdrawal of efficiency” by the business men who control the country's industrial output. They control it all for their own use, of course, and their own use means always a profitable price. In any community that is organized on the price system, with investment and business enterprise, habitual unemployment of the available industrial plant and workmen, in whole or in part, appears to be the indispensable condition without which tolerable conditions of life cannot be maintained. That is to say, in no such community can the industrial system be allowed to work at full capacity for any appreciable interval of time, on pain of business stagnation and consequent privation for all classes and conditions of men. The requirements of profitable business will not tolerate it. So the rate and volume of output must be adjusted to the needs of the market, not to the working capacity of the available resources, equipment and man power, nor to the community's need of consumable goods. Therefore there must always be a certain variable margin of unemployment of plant and man power. Rate and volume of output can, of course, not be adjusted by exceeding the productive capacity of the industrial system. So it has to be regulated by keeping short of maximum production by more or less as the condition of the market may require. It is always a question of more or less unemployment of plant and man power, and a shrewd moderation in the unemployment of these available resources, a “conscientious withdrawal of efficiency,” therefore, is the beginning of wisdom in all sound workday business enterprise that has to do with industry. [emphasis added]

Should the business men in charge, by any chance aberration, stray from this straight and narrow path of business integrity, and allow the community's needs unduly to influence their management of the community's industry, they would presently find themselves discredited and would probably face insolvency. Their only salvation is a conscientious withdrawal of efficiency.
Kalecki in "The Political Aspects of Full Employment":
Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter's profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them?
Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence.

Rob Urie — Capitalism and Income Inequality

As put forward in capitalist theories of ‘natural’ distribution redistribution allocates income and wealth away from their most economically ‘productive’ uses, from their ‘natural’ homes. Economic dynamism may produce ‘winners’ and ‘losers’ but so what? Capitalist theory, a/k/a Western economics, is the science of Social Darwinism. If aggregated abundance— the ‘most’ that ‘a society’ can produce, is the goal and redistribution reduces this theoretical abundance through the inefficient allocation of economic resources then it is antithetical to the primary social goal of Western political economy.
However, implied in these redistribution schemes is that there exist social virtues other than producing ‘the most’ regardless of its distribution. The problem again is that once the premise is granted that capitalism produces / has produced Western abundance and that this abundance is the rationale for Western political economy then redistribution simply buggers ‘the system.’
Of course the whole package is nonsense—Western political economy was ‘founded’ by genocidal plutocrats whose fortunes derived from the expropriated labor of slaves and from the expropriated lands of indigenous peoples. Western industry has been wholly dependent on standing armies, on imperial foreign policies to ‘secure’ industrial resources and on the ability to force its costs in terms of social and environmental dysfunction onto others.
As far as theories of ‘natural’ distribution go, the only way any working person in the West ever got a paycheck was through free-riding on the unionists who got their heads kicked in by Pinkertons and through credible threats of socialist / communist revolution as was seen in the 1930s. The ‘pragmatic’ concessions of the New Deal such as social guarantees were to prevent wholesale revolution.
Without New Deal programs capitalist distribution is landing exactly where it is intended to land— in the coffers of the already wealthy. By different measures the capitalist U.S. has much less social mobility than the European nations that have retained social guarantees.
Liberal and progressive politicians and their constituents who support both the corporatist policies of capitalist democracy and programs of economic redistribution are more than simply theoretically muddled, they support the very political economy that creates the need for economic redistribution....
Best line: "The U.S. government has a fiat currency meaning that it can simply ‘create’ the money needed to pay labor a living wage but Mr. Obama, like Mr. Clinton before him, hides behind the contrived lie that budget ‘constraints’ prevent the Federal government from acting in the interests of those made and kept poor by monopoly capitalism."

Capitalism and Income Inequality
Rob Urie

Thomas Frank — Plutocracy without end: Why the 1 percent always defeats the middle class

I’ve been writing about what we politely call “inequality” since the mid-1990s, but one day about ten years ago, when I was traveling the country lecturing about the toxic curlicues of right-wing culture, it dawned on me that maybe I had been getting the entire story wrong. All the economic developments that I spent my days bemoaning—the obscene enrichment of the CEO class, the assault on the regulatory state, the ruination of average people—were very possibly not what I thought they were. When I talked about these things, I assumed they were an outrage, an affront to the affluent nation I still believed we were; once the scales fell from our eyes and Americans figured out what was happening, I argued, we would yell “stop,” bring this age of folly to a close, and get back to middle-class prosperity as usual.
What hit me that day was the possibility that my happy, postwar middle-class world was the exception, and that the plutocracy we were gradually becoming was the norm. Maybe what was happening to us was a colossal reversion to a pre-Rooseveltian mean, and all the trappings of ordinary life that had seemed so solid and so permanent when I was young—the vast suburbs and the anchorman’s reassuring baritone and the nice appliances that filled the houses of the working class—were aberrations made possible by an unusual balance of political forces maintained only by the enormous political efforts of its beneficiaries.
Maybe the gravity of history pulled in the exact opposite direction of what I had always believed. If so, the question was not, “When will we get back to the right order of things,” but rather, “Would we ever stop falling?”
Frank's epiphany is the subject of Piketty's study, which confirms it, as if it needed confirmation. Anyone with any sense of history can see that the post-war prosperity was a blip on the screen.

I recall predicting this was going to happen in spades once the Berlin wall came down and the USSR dissolved, "proving the superiority of capitalism," and removing the need of the elite to co-opt the rest of the population in order to forestall the rise of socialism in the West. Once that possibility receded, the full force of elite accumulation was again launched by those in power. It doesn't matter what the basis of the power is, raw force, feudalism, or capitalism. The tendency of power is to aggregate and exclude by establishing privilege.

Plutocracy without end: Why the 1 percent always defeats the middle class
Thomas Frank

Matt Bruenig — America's Class System Across The Life Cycle

Charts, lots of them. Don't let anyone tell you that there is no class structure in America. That's a myth, as is the claim that class structure is un-American. It may be un-American as the narrative goes, but it's entrenched big time, and it's destroying lives and sapping national potential.

Demos — Policy Shop
America's Class System Across The Life Cycle
Matt Bruenig

Derek Thompson — How You, Me and Everyone Got the Top 1 Percent All Wrong

The media frenzy over inequality continues.

Atlantic Business
How You, Me and Everyone Got the Top 1 Percent All Wrong — Unveiling the real story behind the richest of the rich
Derek Thompson

On the study by Emmanuel Saez and Gabriel Zucman

House of Debt
Measuring Wealth Inequality
Atif Mian and Amir Sufi

Pepe Escobar — Why It's Going to Be Impossible to Isolate Russia

Pepe Escobar is a go-to guy for the inside story on the status of The Great Game. The neocons that President Obama is taking his cues from are clueless. This course is self-defeating for the US. Main RSS Feed
Why It's Going to Be Impossible to Isolate Russia
Pepe Escobar, Asia Times

Sergey Lavrov — Russia has no intention to send troops into Ukrain

The Russian side of the story. Betrayal.

Interview with Russian Foreign Minister Sergey Lavrov. Video and transcript.

Russia has no intention to send troops into Ukraine – Lavrov

Zero Hedge — The US Is #1 (In Global Income Inequality)

Zero Hedge
The US Is #1 (In Global Income Inequality)
Tyler Durden

Tyler Cowen — Austrian business cycle theory refuses to die

Even Tyler Cowan throws ABCT under the bus for Minsky.

Marginal Revolution
Austrian business cycle theory refuses to die
Tyler Cowen | Holbert C. Harris Chair of Economics at George Mason University

Lord Keynes — What is Wrong with Neoclassical Economics?

The list is a long one and includes practically every major theory:.......After all these have been thrown aside, there is not much left of mainstream economics.
Social Democracy For The 21St Century: A Post Keynesian Perspective
What is Wrong with Neoclassical Economics?
Lord Keynes

See also
Economics as ideology

Is INET nothing but a Trojan horse of the financial oligarchy?
Lars P. Syll | Professor, Malmo University

Paul R. Pillar — Forgetting the Lessons of Deterrence

“Tough-guy/gal-ism” is rampant again in Official Washington with many New Cold Warriors lusting for a military confrontation with Russia. But few of these hawks have a clear idea how deterrence worked during the real Cold War, writes ex-CIA analyst Paul R. Pillar.
Paul R. Pillar

See also The Danger of False Narrative by Robert Parry

Amateurs in charge. Grownups missing.

Saturday, March 29, 2014

Henry Blodget — Sorry, But There's No 'Law Of Capitalism' That You Have To Pay Employees As Little As Possible

Sorry, Mr. Blodget, but it is a law of capitalism. It is the fatal flaw of capitalism along with the tendency of capital, both real and financial, to concentrate. It's called market efficiency. This is the way markets work left to themselves. This is what happens when economists ignore the effects of power, as Marx observed. 

Competition results in Pareto optimality, where no one can be made better off without making someone else worse off. Redistribution makes a few less well off in order to make everyone else better off, and that's why plutocratic oligarchy uses its power to prevent this from happening institutionally. 

Business Insider
Henry Blodget

Joe Weisenthal — Incredible Chart Shows Why Talking About The Rise Of The 'Wealthiest 1%' Is Totally Flawed

Business Insider
Incredible Chart Shows Why Talking About The Rise Of The 'Wealthiest 1%' Is Totally Flawed
Joe Weisenthal

Paul Craig Roberts — Pushing Toward The Final War

Does Obama realize that he is leading the US and its puppet states to war with Russia and China, or is Obama being manipulated into this disaster by his neoconservative speech writers and government officials? World War 1 (and World War 2) was the result of the ambitions and mistakes of a very small number of people. Only one head of state was actually involved–the President of France.
In The Genesis Of The World War, Harry Elmer Barnes shows that World War 1 was the product of 4 or 5 people. Three stand out: Raymond Poincare`, President of France, Sergei Sazonov, Russian Foreign Minister, and Alexander Izvolski, Russian Ambassador to France. Poincare` wanted Alsace-Lorraine from Germany, and the Russians wanted Istanbul and the Bosphorus Strait, which connects the Black Sea to the Mediterranean. They realized that their ambitions required a general European war and worked to produce the desired war.
A Franco-Russian Alliance was formed. This alliance became the vehicle for orchestrating the war. The British government, thanks to the incompetence, stupidity, or whatever of its Foreign Minister, Sir Edward Grey, was pulled into the Franco-Russian Alliance. The war was started by Russia’s mobilization. The German Kaiser, Wilhelm II, was blamed for the war despite the fact that he did everything possible to avoid it.
Barnes’ book was published in 1926. His reward for confronting the corrupt court historians with the truth was to be accused of being paid by Germany to write his history. Eighty-six years later historian Christopher Clark in his book, The Sleepwalkers, comes to essentially the same conclusion as Barnes.
In the history I was taught the war was blamed on Germany for challenging British naval supremacy by building too many battleships. The court historians who gave us this tale helped to set up World War 2.
We are again on the road to World War....
Institute for Political Economy
Pushing Toward The Final War 
Paul Craig Roberts, formerly Assistant Secretary of the Treasury for Economic Policy in the Reagan Administration

Zachary Keck — Russia's Military Begins Massive Nuclear War Drill

According to the Russian daily Nezavisimaya Gazeta, on Thursday Russia’s Strategic Missile Forces began a massive three-day exercise involving 10,000 soldiers and 1,000 pieces of equipment from more than 30 units. The major purpose of the drill, according to the report—which cites multiple senior Russian military officers—is to ensure Russia’s Strategic Missile Forces have sufficient readiness to conduct offensive operations involving the massive and simultaneous use of nuclear missiles.
Global Security Newswire previously carried a story on the nuclear exercise, also citing the Nezavisimaya Gazeta article. GSN described the exercise as “as practice for a large-scale nuclear offensive.” It added: “Exercise participants were set to position and prepare missile-firing units for launch, and to practice various administrative and support functions for the operation.
As Russia’s conventional military capabilities have deteriorated following the collapse of the Soviet Union, Moscow has become increasingly reliant on operationalizing its nuclear arsenal. This has been reflected in successive Russian security documents. For example, Russia’s 1997 national security concept stated that Russia would use its nuclear arsenal “in case of a threat to the existence of the Russian Federation,” whether that threat came in the form of nuclear weapons or from a conventionally superior military power.
This threshold was further lowered in Russia’s 2000 military doctrine, which was the first released during Vladimir Putin’s presidency. This document said that Russia would use nuclear weapons “in response to large-scale aggression utilizing conventional weapons in situations critical to the national security of the Russian Federation.” This held out the possibility that Russia would use nuclear weapons even if Russia proper hadn’t been attacked. The same doctrine further noted that Russia reserved the right to use nuclear weapons in response to the use of any kind of weapons of mass destruction against it.
Shortly before reassuming the Russian presidency for a third term, Putin reaffirmed the importance he placed on Russia’s nuclear forces in a number of articles and speeches. For example, in an op-ed article in Foreign Policy magazine, Putin wrote: “We will, under no circumstances, surrender our strategic deterrent capability. Indeed, we will strengthen it.”
The Diplomat
Russia's Military Begins Massive Nuclear War Drill
Zachary Keck

Sen. Sanders — ‘Will This Nation Become an Oligarchic Form of Society?’

Sanders says political power is no longer divided between the Republican and Democratic parties, but instead is held by a billionaire party in which candidates on both sides of the aisle depend on the “financial speech” of a few extremely wealthy donors. Those donors are capable of outspending the entire U.S. middle and lower classes. The exemplars of these superrich working to shape politics are the Koch brothers, currently the second-wealthiest family in this country. The Kochs to date have spent hundreds upon hundreds of millions of dollars on extreme right-wing Republican candidates and causes. Their efforts have paid off. Thanks to tax cuts and other measures passed by their politicians, their wealth in the last year alone increased by $12 billion to some $80 billion altogether.
With 95 percent of all income during the period between 2009 and 2012 going to the top 1 percent of earners, the problem Sanders describes is getting far worse. As it is currently being reported, the “Adelson Primary,” in which Las Vegas billionaire Sheldon Adelson gathers GOP favorites like former Florida governor and brother to former president George W. Bush, Jeb Bush and New Jersey Gov. Chris Christie to discuss plans for the 2016 presidential election, is becoming the new standard model for campaign planning.Sanders concludes his speech by asking, is “this nation ... going to become an oligarchic form of society?”
Going to become?

Truthdig: Drilling Beneath the Headlines
Sen. Sanders: ‘Will This Nation Become an Oligarchic Form of Society?’
Bernie Sanders video and transcript

Nick Turse — Revealed: The U.S. military’s next shadow war

U.S. military ops -- including airstrikes, raids and proxy wars -- have surged by more than 200 percent in Africa
The numbers tell the story: 10 exercises, 55 operations, 481 security cooperation activities.
For years, the U.S. military has publicly insisted that its efforts in Africa are small scale. Its public affairs personnel and commanders have repeatedly claimed no more than a “light footprint” on that continent, including a remarkably modest presence when it comes to military personnel. They have, however, balked at specifying just what that light footprint actually consists of. During an interview, for instance, a U.S. Africa Command (AFRICOM) spokesman once expressed worry that tabulating the command’s deployments would offer a “skewed image” of U.S. efforts there.
It turns out that the numbers do just the opposite.
Last year, according AFRICOM commander General David Rodriguez, the U.S. military carried out a total of 546 “activities” on the continent — a catch-all term for everything the military does in Africa. In other words, it averages about one and a half missions a day. This represents a 217% increase in operations, programs, and exercises since the command was established in 2008.
Revealed: The U.S. military’s next shadow war
Nick Turse, Tomdispatch.Com

Ian Welsh — Ukraine’s Unelected Government Imposes IMF Austerity

Meanwhile the new PM in the Ukraine is imposing IMF austerity measures, like removing subsidies on Gas (50% increase) and cutting pensions (50%) cut. He says he’s on a Kamikazee mission. That’s because he’s not elected, so he can do thing that an elected leader could never do.
Which is to say: there is a coup, backed by a popular uprising in the capital, which puts in place an unelected government, which does things that elected governments repeatedly refused to do. The East and South of the country, which voted in the last elected government, is unhappy with this.
It’s really hard to conclude that Crimea didn’t do the right thing for most of their population by joining Russia. 50% increase in natural gas prices and 50% cut in pensions? Would you stand still for that? Oh, and the average pension in the Ukraine is—$160/month. $80 after it’s cut.
Ukraine’s Unelected Government Imposes IMF Austerity
Ian Welsh

Simultaneously, President Obama echoes the neocon excoriation of President Putin for acting like Hitler. Hypocritical isn't the word for it. More like conspiratorial.

Chris Arnade — The Pope, Obama and a Former Banker Walk Into a Slum—Does the 1% Still Win?

Barack Obama is not Pope Francis, and not just because the slums of Buenos Aires are so much worse than the South Side of Chicago. Pope Francis knows, in a visceral way, that the income equality we have in the US and Europe will get much worse if nothing changes. More importantly, he knows that these first-world problems are embryonic relative to those back home in Argentina.
The pope knows that the US is moving toward a Latin America-style economy, one wherein the Koch brothers get multiplied many times over – one wherein the wealthy don’t just want more money or opportunity, they want power. The problem with Francis’ Argentina writ large is a 1% that wants a political system run with the intent to guarantee that their wealth is never threatened. The problem with that is a wealthy class that wants the working class to be disposable, voiceless and immobilized.
This is the real issue President Obama faces: he needs to stare down, as Pope Francis has, the morally and intellectually corrupt philosophy that unregulated free markets help everyone.
It is a philosophy at the heart of the American conservative movement.When needed, conservatives drag out a gaggle of economists to argue their position. These economists, always a thoughtful lot when it comes to human behavior, know the wealthy will benefit far more. Yet the GOP’s sham philosophers argue that growth, even if unevenly distributed, will be a net benefit – because the winners will win more than the losers lose. We will then all share the winnings, goes this bankrupt economic philosophy, either by way of investments that boost jobs, or else from politically forced redistribution by way of taxes.
The sharing-the-winnings part never happens....

Steven Rosenfeld — How Deficit Hawks Are Pitting Millennials Against Seniors to Attack Social Security and Medicare

Pete Peterson and cronies at work. Disgusting.

How Deficit Hawks Are Pitting Millennials Against Seniors to Attack Social Security and Medicare
Steven Rosenfeld

Noah Smith — "Land of the brave" no more?

Noah Smith speculates on reasons for the decline in entrepreneurship in the US implying an increase in risk aversion. They are all correct in my view. 

What he leaves out is the tightening of bankruptcy law, the purpose of which is to offset consequences of failure in addition to providing recourse for creditors. Now it is skewed toward creditors thanks to creditors' lobbying efforts.

Another reason may be concentration of capital in dominant players, leaving only relatively minor niche markets available for modest startups. Before Walmart and the big box stores, and now Amazon and the Internet, it used to be less difficult to carve out a niche in retail, for instance.

"Land of the brave" no more?
Noah Smith | Assistant Professor of Finance, Stony Brook University

Jonathan Larson — Money creation—the mind is repelled

Lots of quotes and links for reference.

real economics
Money creation—the mind is repelled
Jonathan Larson

Neil Wilson — Scottish Independence - a Modern Money analysis

Neil gets real. Forget about the money, look at the reality. Scotland has everything it need to be an independent nation and then some. The rest is just bookkeeping.


Look at this crap analysis of the euro from Citi's FX group

Read this Citi analysis of the euro.What a bunch of ueseless garbage. They fail to even mention the one and only reason the euro remains strong: AUSTERITY!! It's austerity, stupid! Austerity removes euro from the system. Makes euro harder to get. Creates a shortage.

The Citi "analysts" end their article with this pathetic expression of conviction:

We are no less convinced than we were at the start of the year that EURUSD is going to head much lower over the coming years
We anticipated this move would already have begun at this stage yet we sit at almost the exact level where we closed 2013
We believe the “day of reckoning” is not far away and that as detailed above the building blocks are now falling in place. We may have already peaked with the marginal new high posted at 1.3967 this month but either way we are skeptical of any sustainable move over 1.40 materialising and still believe that we may see EURUSD much closer to 1.20 than 1.40 before this year is behind us.

The "day of reckoning."

"Building blocks."

OMG, what a joke.

Do yourself a favor and fade these guys and take their (and their clients') money. You're doing the world a favor, believe me. Consider it as euthanizing something sick.

Any currency analyst should understand that auserity keeps a currency strong. Look at what happened to Latvia or Estonia, when they imposed austerity to position to join the euro. Their economies collapsed, but their currencies soared.

These analysts at Citi (and on Wall Street in general) are clueless.

By the way...I teach this in my course and it's one of the reasons why I have been able to rack up 10 months without a loss and grow my account by 120% and a client's account by 40% in one month.

Ramanan — Nicholas Kaldor On Rational Expectations

This [revision of] rational expectations theory goes beyond the untestable basic axioms of the theory of value, such as the utility-maximising rational man whose existence can be confirmed only by individual introspection. The assumption of rational expectations which presupposes the correct understanding of the workings of the economy by all economic agents—the trade unionists, the ordinary employer, or even the ordinary housewife—to a degree which is beyond the grasp of professional economists is not science, nor even moral philosophy, but at best a branch of metaphysics.
The Case For Concerted Action

Merijn Knibbe — The UK – even a flexible labour market still is a LABOUR market

A wage is not just the atomistic market remuneration for your labour. It’s also a powerful social token of the respect you earn and a neon sign of your position in society. You’re paid for a position – not for your work. As far as I’m concerned this characteristic of wage setting is more important than the famous ‘stickiness’ of wages.
Real-World Economics Review Blog
The UK – even a flexible labour market still is a LABOUR market
Merijn Knibbe

This time is finally different. The world will truly go dark, if we don't find new reserves of fiat. :(

   (Commentary posted by Roger Erickson)

OECD countries’ debt ‘to top’ post-war highs 
"The combined debt burden of the biggest developed economies will surpass this year record levels seen at the end of World War II, adding pressure on governments as they roll over post-crisis debts, the OECD said on March 28.
Gross public debt in OECD countries for which long-term data is available will top the World War II peak of 116 percent of GDP, reaching an estimated 117 percent this year, the Organisation for Economic Cooperation and Development said. 
The OECD’s 34 members include mostly wealthy countries such as the United States and European countries. Some emerging economies such as Mexico and Turkey are members although bigger developing countries such as China and India are not. 
Not only are debt levels high, but a growing share comes due in the next three years with nearly 30 percent of long-term debt needing to be refinanced by the end of 2016, the Paris-based organisation said in its annual sovereign borrowing outlook. 
While such a high level of refinancing is not unprecedented, rolling over debt will be made all the more complicated by uncertainties created by the U.S. Federal Reserve’s unwinding its bond-buying programme, the OECD’s head of public debt management issue, Hans Blommestein, said. 
“If you have to go to the market because you have to refinance, that’s a challenge,” Bloomestein told Reuters. “It’s not impossible, but it’s not a piece of cake.” 
Taking redemptions into account, the combined borrowing need of OECD governments was seen easing slightly to $10.6 trillion this year from $10.8 trillion last year. 
Japan will be the biggest issuer this year with plans to borrow the equivalent of 64.7 percent of its national output. Its borrowing alone would make up 35 percent of the OECD total."

Never have so many, been so indebted ..... to themselves?

This is what happens when mass mania leads a people to try to peg the volatile growth of dynamic public initiative - aka, fiat - to any particular form of static asset.

May as well constrain an expanding universe to a theoretical economic black hole, from which no logic may escape?

How on earth do engineers, PhDs and so many educated people carry on conversations without even stooping to define the terms they're attempting to use? It's a Blommen catastrophe.

This news article fails logic 101 so badly that all involved should be thrown out of class for failing to master even the minimal pre-requisites. Just random data minus context .... yet again.

It's like showing up for work without even having learned how to dress yourself, let alone read, or write, or reason ..... or usefully interact with co-workers.

What does OECD REALLY stand for? Operationally Excised Cerebral Debris? Anyone interested in actually growing a group brain for your country, please contact me. rge (at) OperationsInstitute (dot) com

Friday, March 28, 2014

JW Mason — Liquidity Preference and Solidity Preference in the 19th Century

On the history of interest rates in the 19th century US. Turns out that the natural rate of interest is not natural.

The Slack Wire
Liquidity Preference and Solidity Preference in the 19th Century
JW Mason

Lars P. Syll — Economic models — chameleons and theoretical cherry picking

Lars takes up where Mark Buchanan left off.

For example, neoclassical economics is a just so story of neoliberal capitalism. It assume that neoliberal capitalism is defined by markets free of governmental "intrusion" (without asking where the money comes from) and perfect competition among agents that are essentially equal and act like atoms independently of historical, cultural and institutional context. This is also a model with no friction like transaction costs.

Needless to say, it is simple to derive equilibrium, just deserts, and other neoliberal dogmas from this simple model. However, the model doesn't even remotely represent the actual historical context or any context that is possible in a contemporary society.

Yet, all failures of the model to predict actual outcomes are explained as either owing to governmental intrusion introducing distortion or external shocks that could not be foreseen by the model. The first is used as a policy ploy to promote neoliberal doctrine, and the later to explain away failures of the model that cannot be attributed to government.

That's the basic agenda.

Of course, the reality is far more complex than the model assumes, and the context is historical and institutional rather than natural and atomistic.

Economic models — chameleons and theoretical cherry picking
Lars P. Syll | Professor, Malmo University

Mark Buchanan — Why high alcohol consumption is optimal for humans

Before you pop a cork, this post is about unrealistic assumptions.

An underlying point is that mathematical models are hypothetical-deductive systems that simply articulate what is assumed (postulated). A model cannot deliver on more than initially incorporated. If significant conditions are not included, then it's garbage in, garbage out.

A model is just a way of telling a story. It can be simple or complex but it is a narrative usually offered as an explanation. The formalism adds nothing but logical necessity deriving from formation and transformation rules. 

If the symbolism of the model is not shared topologically with what the model purports to represent, then the model is not realistic no matter how descriptive it looks or how interesting and convincing the story is.

The Physics of Finance

Bank Lobby Still Trying To Kill Credit Unions (blind pursuit of profits over nation and citizens)

   (Commentary posted by Roger Erickson)

Starts out as a local issue raised by one lobby.

Runs amok when that lobby loses sight of all other inter-dependencies, and forgets that there must be tolerance limits on everything. Or else we don't have a culture. Only a mob. 

You want context? Consider the words of Marriner Eccles, 1932:
"The operation of our money world has failed to be our servant and instead is our tyrant and master." 
"We must correct the causes of the depression rather than deal with the effects of it!"
That was 82 years ago!!! Has the US electorate lost sight of Public Purpose? Have we lost sight of national goals?

Smart Companies? What About Smart Electorates? Smart Countries? Smart Governments?

   (Commentary posted by Roger Erickson)

How Investing in Good Jobs Lowers Costs and Boosts Profits

The Good Jobs Strategy ... shows that even in low-cost settings, leaving employees behind with low wages and bad jobs is a choice, not a necessity. On April 4, we’ll discuss how smart companies are turning the Walmart business model on its head by investing in good jobs while earning strong investment returns. Sponsored by UFCW and the AFL-CIO.

These are merely politically correct ways of discussing loyalty in teamwork. 

For Pete's sake! Common sense is no longer allowed to be declared sensible until a photogenic university professor declares to be? And then only for "smart companies" with "strong investment returns."

Unfortunately, the good prof & the AFL-CIO don't define the terms of what constitutes a "strong investment returns." How long will it take until they realize that they don't really agree on the terms of that definition? Yet another generation of stalled labor-capital reforms? Is this the AFL-CIO's way of admitting defeat?

Something subtle is missing here, and it's not clearly apparent until you analyze what they're actually saying. This whole "Good Jobs" approach reminds me of Deficit Doves. They're trying to agree with their masters while also agreeing with the serfs ... at the same time? Doesn't that always turn into groveling?

Smart professors don't miss the point? 

Only clever ones trying to tout the uber-capitalist party line, masquerading as aggregate common sense? Usually in order to get tenure, and maybe a fellowship or endowed chair from an institute set up by some billionaire (non-labor) capitalist.

Can we just skip all the capitalist mumbo jumbo, and get straight to the point? 

Wouldn't a "Resilient Electorate Strategy" represent adaptive reality, and therefore common sense? Can't we just come right out and say that? Apparently not, because ~1% of people hoarding vast amounts of static assets feel that they have too much to lose personally, if they relieve constraints on and control over the rest of the electorate.

Bad move. Always suicidal. It's only a matter of time.

How did supposed capitalists forget that labor-capital is also one of the equal, arbitrary classifications of "capital?" Biasing a system to persistently make some forms of capital more equal in all contexts than other forms of capital is - by definition - constraining aggregate options, draining resiliency and reducing aggregate agility.

Yet that is obvious only if one stops to actually think.

Maybe we need to forget capitalism? And just go back to consistency across biology, anthropology, sociology, democracy and statistical process control? Let the capitalist mysticism go the way of the pythagorean mysticism?

Mark Karlin — The Major Reason There Will Be No War With Russia: They Are Rasputin Capitalists Now

All this talk of a new cold war is just a lot of political blather coming out of DC due to the re-emergence of the neocons.
The reality is that there will be no war with the Russian Federation because Russia is now a raffish capitalist nation. 
Wall Street not on board with President Obama and sanctions.

The Major Reason There Will Be No War With Russia: They Are Rasputin Capitalists Now
Mark Karlin, Editor Of Buzzflash At Truthout
(h/t Yves Smith at Naked Capitalism)

Glenn Greenwald — US takes a break from condemning tyranny to celebrate Obama’s visit to Saudi Arabia

Irony? I guess it is lost on the president.

The Intercept
US takes a break from condemning tyranny to celebrate Obama’s visit to Saudi Arabia
Glenn Greenwald

Diane Ravitch — Public Education: Who Are the Corporate Reformers?

This is a hugely important issue socially, politically and economically and it is not a single issue but rather a web of interconnected issues touching almost every sphere of life beginning with early childhood rearing. Education shapes a society more than anything else.

The great value of public education that is more or less standardized is that it provides the basis for a common culture, which is extremely significant in a pluralistic and multicultural society like the US. Without a "common core," and I don't mean the common core as it is used presently in education, the society can be expected to be become increasingly divergent and divisive, as well as layered.

However, achieving a common core socially is not the same as introducing a common core into the curriculum and teaching methodology as presently proposed. Cookie cutter approaches don't work at that well other than with cookies and other items that can be standardized. Human beings cannot be standardized and it would probably not be optimal even if they could be.

We need maximum diversity compatible with foundational unity. Entering the global age, that foundational unity must be the universality of humanity as a species that is ecologically interdependent with other species and the environment.

Reading, writing and 'rithmetic will not longer cut it. Nor will emphasis on STEM, especially at the expense of a liberal education.

The primary goal of education in a pluralistic multicultural democracy must be oriented to self-governance by the population itself with a view to common purpose. This is stated quite eloquently in the preamble to the US constitution:

We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.

The educational system that America has today is a holdover from the past and it may not be suitable for the new era that the country and world is embarking upon. We need to be asking what the opportunities and challenges are and how to meet them agilely in a time of when the pace of change is accelerating exponentially. New opportunities are bringing new levels of challenge that are orders of magnitude greater than previously experienced.

Is the educational system keeping pace? Would greater privatization increase the opportunities or exacerbate the challenges? Can the present system be reformed from within, or is an overhaul required? What questions do we need to be asking? I don't think we are asking the right questions yet. People seem to be too fixed on providing answers before the problem has been explored sufficiently.

Bill Moyers & Co.
Public Education: Who Are the Corporate Reformers?
Diane Ravitch

Department of Stupid: Congress to consider a bill comparing public and private lending

Via Center on Budget and Policy Priorities: 

The House will consider three bills in the coming weeks that would make the budget process more complicated, less transparent, and less credible. One of these is the Budget and Accounting Transparency Act (H.R. 1872), which would add an extra amount to the recorded budgetary cost of federal credit programs, beyond their actual cost to the government, to reflect what private lenders would charge if they issued the loans and loan guarantees.  By artificially inflating federal lending costs, this change would disadvantage direct loans and loan guarantees relative to other federal programs and expose them to a greater likelihood of cuts.
H.R. 1872 would change the accounting for credit programs such as Federal Housing Administration and veterans’ mortgage guarantees, student loans, small business loans, and rural electric loan guarantees by adding anextra amount to their recorded budgetary cost.  This extra amount would reflect what private lenders would charge if they, rather than the federal government, issued the loans or loan guarantees.  
The proposal is not based on a contention that current estimates of federal credit programs understate their cost to the government.  Therefore, the proposal would distort the budget by making federal credit programs appear more expensive than their actual cost to the government.  It would also undercut one of the key purposes of the budget, which is to provide a meaningful comparison of the cost to the federal Treasury of different programs.  
The bill also would make federal loan programs likelier targets for deficit reduction measures, since they would appear to cost more than unbiased projections show they actually would cost.  In the area of student loans, for example, this could result in higher costs for borrowers or less access to loans.  The size of the student loan program and how much of the cost students should bear are valid policy questions, but policymakers should not distort these issues by artificially inflating the program’s cost.

This idea is dumb enough even for those who don't understand monetary sovereignty...but for those of us that do, its just mind mindbogglingly stupid. CBPP does state that:

The concerns for the federal budget, however, are different from the concerns of private-sector investors.  The federal budget is a straight record of the cash flowing into and out of the Treasury; the deficit or surplus equals the difference between the money actually spent and the money actually collected.  That is what the existing credit rules ask the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) to estimate.  If the estimates are unbiased and take all possible factors into account, including expected defaults and their likelihood, then the overestimates and underestimates should net to zero over the long term.  Adding a penalty because private investors are loss averse should have nothing to do with government budgeting and accounting. 

However, they don't go far enough, and say that the government's risk of default as a currency issuer is zero, and thus should never be compared to any private entity with inherent, nonzero credit risk. If a borrower of a federal loan defaults, this does not affect the federal government's credit/spending ability by one penny. There is therefore no reason to price this risk in any federal budget-scoring mechanism.

Thursday, March 27, 2014

Ian Welsh — The Age of the Obvious: Thomas Piketty’s Capital

But Piketty’s book is still important, because it proves the obvious beyond a reasonable doubt. In this it is similiar to the mountain of evidence of climate change. We can now say that climate change is happening and anyone who denies it is a fool. Likewise we can now say that allowing returns on unearned wealth to be higher than labor income, in a capitalist economy, leads to high inequality and doesn’t improve the economy. We should have known that already; we did know it already; now it has been proved to the point where we can say anyone who denies it is a fool.
Ian Welsh
The Age of the Obvious: Thomas Piketty’s Capital

Stephen S. Roach — The End of Chinese Central Planning

China, [Chinese Finance Minister Lou Jiwei] went on, is in fact moving away from its once single-minded emphasis on growth targeting. The government now stresses three macroeconomic goals – job creation, price stability, and GDP growth. And, as evidenced by the annual “work report” that the premier recently submitted to China’s National People’s Congress, the current emphasis is in that order, with GDP growth at the bottom of the list.
This gives China and its policymakers considerable room for maneuver in coping with the current growth slowdown. Unlike most Western observers, who are fixated on the slightest deviation from the official growth target, Chinese officials are actually far more open-minded. They care less about GDP growth per se and more about the labor content of the gains in output.
This is particularly relevant in light of the important threshold that has now been reached by the structural transformation of the Chinese economy – the long-awaited shift to a services-led growth dynamic. Services, which now account for the largest share of the economy, require close to 30% more jobs per unit of output than the manufacturing and construction sectors combined. In an increasingly services-led, labor-intensive economy, China’s economic managers can afford to be more relaxed about a GDP slowdown....
Zhou Xiaochuan, the head of the People’s Bank of China, was just as emphatic on this point. The PBOC, he argued, does not pursue a single target. Instead, it frames monetary policy in accordance with what he called a “multi-objective function” comprised of goals for price stability, employment, GDP growth, and the external balance-of-payments – the latter factor added to recognize the PBOC’s authority over currency policy....
 Project Syndicate
The End of Chinese Central Planning
Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm's chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management