Robert Vienneau — Dean Baker's *Rigged* And Robert Reich's *Saving Capitalism*

Synopsis review.

Thoughts On Economics
Dean Baker's Rigged And Robert Reich's Saving Capitalism
Robert Vienneau

Economic Growth And Private Sector Debt Levels: Lessons (Not Yet?) Learned — Investment Cycle Engine, Inc

Summary

• High private sector debt/GDP ratios will continue to hamper US economic growth.
• Mainstream macroeconomic models by design ignore the financial cycle and do not provide any insights about the financial cycle.
• Macroeconomic models should have macroeconomic foundations and incorporate financial stability considerations.

Good post based on a Post Keynesian analysis. But doesn't mention either Hyman Minsky, whose financial instability hypothesis explains the financial cycle, or MMT, which would bolster his argument. However, I understand the scope of posts at blogs is limited, so he had to make choices, and overall the post is well done the way he sets it up.

Seeking Alpha
Economic Growth And Private Sector Debt Levels: Lessons (Not Yet?) Learned
Investment Cycle Engine, Inc

Lara Merling — Rigged: How Mainstream Economics Failed Us All [Book Review]

Review of Dean Baker's Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.

The Minskys
Rigged: How Mainstream Economics Failed Us All
Lara Merling

Dean Baker — Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer

Download an ebook of Rigged free, or purchase a printed copy.

Dean Baker
Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer

Dean Baker — Trade Deficits and Secular Stagnation

Lagging aggregate demand and sectoral balances, sort of. Dean Baker responds to Alan Blinder.

Beat the Press
Trade Deficits and Secular Stagnation
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C

Brad DeLong — Must-Read: Dean Baker: The Upward Redistribution of Income: Are Rents the Story?

Brad DeLong apparently agrees with Piketty that rent is intrinsic to capitalism. Marx had held that rent is not only intrinsic to capitalism but also the driving force behind it in distributing the surplus in favor of non-producers through capitalistic distributional institutions.

Baker: 

The bulk of this upward redistribution comes from the growth of rents in the economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals. The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality, as for example argued by Thomas Piketty.

Dan Kervick went on to point out in the comments that for Piketty this is rent extraction and it's endemic to capitalism.

Matt Rognlie argued that most of the differential was owing to housing. That would be land rent.

It's difficult to see how anything accrues to capital from production rather than from ownership and institutional arrangements privileging ownership.  Historically, all ownership resulted from the commons as a result of exercise of power, either through raw force or the force of law. Since governance has always been class-based, institutional arrangements have been class-based, either through a ruling class governing by force, or by a republic chiefly representative of class interests.

WCEG — The Equitablog
Must-Read: Dean Baker: The Upward Redistribution of Income: Are Rents the Story?
Brad DeLong

Dean Baker...perfect example of why the Progressive movement goes nowhere.

I'm having this crazy Twitter argument with Dean Baker. (See thread below.)

The guy is supposedly a progressive and I know he means well, but this is why the movement goes nowhere. These guys contradict themselves and end up arguing in support of the interests of the other side.

Baker wants to create jobs by boosting exports. Fine. Very admirable, but to do that you have to create demand for those exports. Lots of demand. How do you do that? Typically through currency devaluation or, wage suppression.

There's another way, too, and that is to literally "give" foreigners dollars so they can buy the goods that we produce. That's done by massive amounts of deficit spending targeted to the foreign sector. (Maybe we can rebuild all the infrastructure of the entire foreign sector, using their labor and resources.)

In the first approach, when you devalue your currency or, suppress wages, it's like a tax. You end getting less for more. You lose in real terms. So, yeah, you  might create demand for exports and jobs, however, those jobs leave people with the ability to afford less, not more, at least in the aggregate.

And Baker admits that. He says a weaker dollar is "negative for real wages." (So why is he pushing it?)

In the second approach, where you literally give money to foreigners via deficit spending isn't it jsut a better idea to deficit spend for the benefit of your country's own residents? Isn't it better  if they have the means to consume the fruits of their own labor? I think so.

So what, really, is Baker's plan? Create jobs by boosting exports, by creating demand, by weakening the currency, which is negative for real wages. Did we gain anything? NO.

There  you  have it: a leading figure of the Progressive movement giving really stupid advice. No wonder why the movement goes nowhere. Ironically he's probably against the TPP and other trade deals, yet in essense that's exactly what he's arguing FOR. We'd be outsourcing to cheap labor, but our own CHEAP LABOR. The standard of living of the worker goes down.

The best part of my Twitter discussion with him is when he gets testy and says this:

@mikenorman that' s fine that there are better ways, but it doesn't mean S**t, because we're not doing them.

— Dean Baker (@DeanBaker13) May 9, 2015

He's crying now. Like a baby. "No one is listening to me and they're not doiong anything. Whaaaa...whaaaaa." So what does he do? Like all liberal-progressives he proposes inadequate or flawed ideas. Capitulates, basically. Grand bargains. And he ADMITS IT!

Conservatives would never do that.

When you have reasonable sounding people  like Dean Baker advocating for the very same things that big corporate advocates for every day, don't expect a lot of change. The other side must be laughing their asses off..

It is difficult to see how we get back to full employment and wage growth, without a lower trade deficit http://t.co/4iodfQQPTG

— Dean Baker (@DeanBaker13) May 8, 2015

Higher dollar and resulting trade deficit slows job growth in April http://t.co/4iodfQQPTG

— Dean Baker (@DeanBaker13) May 8, 2015

Randy Wray — The Answer to the Unemployment Problem Is More Jobs

Amazing that this needs to be pointed out but the monetarists think that either the real interest rate is too high and the neoclassicals think that wages are too sticky. Ten dogs and only nine bones is too much for them to see with the ideological blinders they wear. But progressives? Why don't they get it? Actually, some do. But many of them think that the country is not ready for a public works program politically and propose expanding the safety net instead. But isn't giving money away a harder sell than providing money in exchange for work? And what about the waste of real resources and human potential?

New Economic Perspectives
The Answer to the Unemployment Problem Is More Jobs
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City
cross posted at Economonitor — Great Leap Forward

Jeff Madrick — Is the Piketty Enthusiasm Bubble Subsiding?

The Piketty bubble may be coming to an end. Economists are starting to criticize the heart of his argument. That is not to diminish important aspects of his book. But the most profound of his claims simply may not hold....

I have compiled links to all these reviews on the Bernard L. Schwartz Rediscovering Government web site of the Century Foundation.

I hope this doesn’t sound too harsh. Piketty has done a more than admirable job to trace high capital ratios. He lays the groundwork for more analysis and a true attack on general equilibrium theory and its relevance in the real world. But in interviews I’ve read, he defends himself by saying he’s talked about market imperfections and political institutions in the book. But making many broad general comments is not analysis. His central assertion depends on faith in a general equilibrium model. As he has done in some interviews, arguing that people haven’t read a book as large as his fully is not a defense. It could be equally fairly charged that writing such a large book led him to too many inconsistencies.

In the long run, I think Piketty’s work will indeed prove seminal. It will force economists to deal with the remarkably wide range of issues he raises. But he hasn’t replaced Marx with a more well-founded model of capitalism’s unfairness. For me it is not capital that is power alone. Piketty’s persistently high r, a wonderful discovery, is likely a reflection of the power of wealth not of natural economic forces. With his empirical work we can begin to find solutions about how to constrain the power. But let’s follow his example in regard to income inequality and understand more fully the market failures in capital markets. A global tax would be a wonderful addition to the list of potential tools to bring down r. So let the arguments begin.

TripleCrisis
Is the Piketty Enthusiasm Bubble Subsiding?
Jeff Madrick

Warren Mosler — Comments on Baker/Bernstein book

Warren is pissed.

The Center of the Universe
Comments on Baker/Bernstein book

Warren Mosler

Dean Baker — "Savings Glut" Means Much of Economics Is WRONG

Dean Baker presents an account of saving and demand leakage that is in agreement with MMT.

CEPR — Beat the Press
"Savings Glut" Means Much of Economics Is WRONG
Dean Baker

Stephanie comments:

written by Stephanie Kelton, August 03, 2013 10:09 
Hi Dean, 

Saving is just another way of saying "demand leakage". Only those with a loanable funds/Say's Law view of the world see it as anything else. Unfortunately, Krugman appears to be stuck in the latter camp. He gets insufficient AD only under exceptional (short-run) conditions, currently his zero lower bound Liquidity Trap argument. This is why he can write a piece titled "The Price is Wrong" and assert that the lack of insufficient aggregate demand is due to the failure of a single price -- the real interest rate -- to adjust to its market clearing level. 

Absent the ZLB problem, you end up in a Say's Law world, which Krugman is committed to defending: 

"So why do AS-AD? First, you do want a quick introduction to the notion that supply shocks and demand shocks are different, that 1979-80 and 2008-2009 are different kinds of slump, and AS-AD gets you to that notion in a quick and dirty, back of the envelope way. 

Second — and this plays a surprisingly big role in my own pedagogical thinking — we do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility." 

http://krugman.blogs.nytimes.com/2013/06/02/a-sad-story-i-mean-as-ad-story-wonkish

Dean Baker replies:

Krugman still believes that the economy tends to full employment
written by Dean, August 03, 2013 1:52 
Stephanie, 

i think you're right that Krugman considers the current downturn an exception because of the ZLB. In more normal times he would say that we can count on declines in the interest rate to move the economy quickly (fast enough not to need fiscal policy) to full employment.

Dean Baker — Reconciling Modern Monetary Theory with the Wisdom of Mark Thoma

The NYT had a brief discussion of Modern Monetary Theory (MMT) today in the context of a profile of Warren Mosler, one of its major proponents. The profile includes a dismissive comment from Mark Thoma, a professor at the University of Oregon and the creator of the blog, The Economist's View....

CEPR
Reconciling Modern Monetary Theory with the Wisdom of Mark Thoma
Dean Baker
(h/t Andy Blatchford on FB)

Stephanie Kelton comments:

Thanks, Dean. It is possible that Mark was taken out of context. The quote attributed to me wasn't remotely close to anything I actually said. The notion that MMT has no academic footprint is laughable. There are literally hundreds of articles in peer-reviewed journals, books, chapters in edited volumes, etc. This was a(nother) deliberate attempt to cast MMT as a kooky Internet phenomenon. Anyone else wonder why the NYT would send a reporter and a photographer all the way to St. Croix (yes, they physically went there) for a story about a silly little Internet theory? I suspect they know it's much more than that.
On a different point: MMT supports tax increases and/or spending cuts to address demand-pull inflation. No different from, say, Abba Lerner or Marriner Eccles.
The real point of departure for MMTers and textbook Keynesians is, I think, very much bound up in the loanable funds theory of the interest rate (the former rejecting and the latter accepting it). From that follow all sorts of differences re: fiscal sustainability. Scott Fullwiler has written brilliantly on this.

In other words, they just made shit up.

"First they ignore you, then they attack you, then you win." — paraphrase of M. K. Gandhi. Gandhi actually said, "First they ignore you. Then they ridicule you. And then they attack you and want to burn you. And then they build monuments to you." Wikiquote

Steve Roth — Asset Reflux Disease: Explaining Koo to Krugman

Steve Roth:

Dean Baker told me once in person that Paul “doesn’t believe in loanable funds.” I’m finally feeling confident enough to respectfully disagree. IS/LM is all about the logic of loanable funds, even while acknowledging that banks create new money for lending. Schizo?

I think that schizo is the likely answer. First, Krugman probably doesn't believe in loanable funds. I assume Dean Baker has some way of verifying that.

Secondly, my reading of Krugman is that he knows that ISLM is simplistic but is convinced that ISLM is useful to account for events in terms of a model, which he considers to be a requirement for doing economics the right way.

Krugman then seems to go on and conflate explanation as accounting for events with explanation in the scientific sense of enabling prediction of events. So he draws policy conclusions from ISLM that the model doesn't actually warrant. And he doesn't seem to be aware of this.

This seems to result from his flawed understanding of money and banking, and finance, and how they relate to the non-financial economy.

Krugman seems to be under the impression that the interest rate is the interface between finance and economics through its effect on borrowers and savers. He often states that for every borrower there is a saver, thinking that banks borrow to lend. But this is not how banking and finance actually work in the context of the non-financial economy. It's an idealized model.

For example, when banks lend that lend money into existence. As loans are paid down that flow draws down credit money bought into existence by lending. While loan repayment is considered increased saving, this saving is neither needs nor used by banks in future lending. This the point that Koo and Steve make that Krugman seems to miss. He seems to think that banks just turn money around when they don't.

What this shows is that Krugman believes in an equilibrium-based economics that entails natural rates of interest and employment. Everything will correct itself if the central bank can find the natural rate.

Krugman also believes that an explanation must involves a model, even if somewhat simplistic as long as it accounts for the data. So he uses ISLM to account for past events and then make an illicit jump to the future, presuming that the model is ergodic, when it is not, and the context of the future is different from that of the past.

And when the emergence of a "liquidity trap" suggests that it is not. When the model breaks down at the lower bound, why, exactly, would it work by lowering rates further, other than confidence (belief) if the assumptions on which the model is based?

(Where we do see a balance, however, is in the graphs of the sectoral balances, a model that applies across countries in all contexts, which the Krugman Cross gets essentially correct. Hint, hint, Professor Krugman.)

Different situations call forth different responses based on context. Krugman presumes that negative rates will force holders of "money" as cash, deposits and, in the case of banks, reserve balances, to consume or invest, not only out of holding money byt also into new spending.

What is more likely is that holders of money that are not faced with having to delever will instead be driven into speculative assets, including commodities, which will drive up cost of materials, energy and food. The result will be lower economic activity and more risky financial activity, possibly spilling over into higher prices for necessities, leading to stagflation.

n addition, why would lenders be induced to extend credit at negative rates?  It might incentivize borrowers but savers don't lend to borrowers as Krugman's model assumes. Banks and brokerages do, and they don't intermediate between borrowers and savers, e.g., in supplying margin. Banks with access to the central bank create credit money denominated in the currency due to their special relationship with the monetary authority, and they are not limited or encouraged by savers in doing risk management in lending, or taking on risk for themselves in hedging.

Aysmptosis
Asset Reflux Disease: Explaining Koo to Krugman — Or: Why Banks Aren’t Like People
Steve Roth

Tim Duy — More Reinhart and Rogoff

I first saw the Mike Konczal's post. More excellent commentary came from Tyler Cowen, Dean Baker, Jared Berstein, and FT Alphaville. Joe Weisenthal reminded us on Twitter that he was never an RR fan. While some like Cowen argue that the case for austerity did not rest on Reinhart and Rogoff themselves, Tim Fernholtz has an impressive list of policymakers who use the paper as what they see as clear and convincing evidence for austerity now.

For their part Reinhart and Rogoff responded, concluding that the new results are very similar to their own....

One thing's for sure - this isn't the end of this debate. Back to Coy:

"This isn’t an obscure academic debate. As Krugman points out, the Reinhart-Rogoff research is one of the two main threads in the pro-austerity argument, the other being Harvard’s Alberto Alesina on the macroeconomic effects of austerity. With so much at stake, the argument that caught fire in one afternoon is likely to keep burning for months."

There will definitely be more to come.

Tim Duy's Fed Watch
More Reinhart and Rogoff
Tim Duy

The Truthseeker: Looting Of America (E12) with Bill Black, Stephanie Kelton and more

The man who jailed a thousand bankers [Bill Black] tells us how to do it; Twice the size of the US economy exposed offshore; and Wall Street circles the nation's last assets. Seek truth from facts with former senior financial regulator Bill Black, The Price of Offshore Revisited author James Henry, former Wall Street executive Richard Eskow, Econned author Yves Smith, economists Stephanie Kelton and Dean Baker, and chief vampire squid Lloyd Blankfein.

The Truthseeker: Looting Of America (E12)

Bill Keller — Boomers and Entitlements: The Next Round

Jim Kessler makes the case for the Third Way New Democrat approach to entitlements against Jamie Galbraith. The president, like President Clinton, is a Third Way New Democrat. Revealing.

Read it at The New York Times | Opinion
Boomers and Entitlements: The Next Round
Jim Kessler | Senior Vice President for Policy, Third Way
(h/t Kevin Fathi via email)

Dean Baker responds.

Read it at FDL
Fun With Bill Keller and Jim Kessler about Baby Boomers Abusing Their Kids
Dean Baker

Dylan Matthews joins the fray.

Read it at The New York Times
No, Social Security and Medicare aren’t crowding out R&D and education
Posted by Dylan Matthews

Dean Baker — More Musing on Modern Monetary Theory

I had several people ask me in comments or e-mails whether I agreed with MMT that the government need to raise taxes to pay for spending or whether I agreed with Paul Krugman that it does. I won’t claim to know exactly Paul Krugman’s view on the topic, but let me reframe the issue somewhat in a way that may cause people to see differently what is in dispute.

I think that all MMTers believe that the government cannot literally spend without limits. In other words, we can push the economy to the point where inflation is a real problem. The MMT answer is to raise taxes to prevent inflation from getting out of control.

Now suppose we are in the world where we have pushed the economy to the point where inflation is a problem and we decide we want the government to spend more money on some great project. At that point, it would seem that MMTers would have to agree that we need tax increases to offset the impact of government spending in boosting the economy

We don’t literally need the tax increases to pay for the spending. The Fed could simply create more money to finance the spending. However if we don’t want the spending to be inflationary, then it must be offset by a tax increase.

I think the difference between the MMTers and Krugman is largely on the frequency with which they believe that the economy is up against its capacity constraints so that inflation is a real issue. I don’t want to put words in Krugman’s blog, but my guess is that he believes that the U.S. economy is typically operating near its capacity, so that the story of needing tax increases to offset spending would in general apply.

Read it at the Center for Economic And Policy Research More Musing on Modern Monetary Theory by Dean Baker (h/t Clonal Antibody via email) Getting there.

Dean Baker — Quick Thoughts on Modern Monetary Theory

Since there were many thoughtful comments on my earlier post, it seemed worth saying a bit more by way of response. As I noted at the onset, I did not see a difference between MMT and the Keynes that I first studied more than 30 years ago. I guess I still don’t see the difference.

Read it at CEPR
Quick Thoughts on Modern Monetary Theory

by Dean Baker

Joe Firestone on Dean Baker 2 on Dylan Matthews on MMT

Read it at Daily Kos | Money and Public Purpose
The WaPo MMT Post Explosion: Dean Baker's Second Try (1)

The WaPo MMT Post Explosion: Dean Baker's Second Try On MMT (2)


The WaPo MMT Post Explosion: Dean Baker's Second Try On MMT (3)

by Joe (Letsgetitdone) Firestone

Joe Firestone on Dean Baker on Dylan Matthews on MMT

Read it at Daily Kos | Money and Public Purpose
The WaPo MMT Post Explosion: Dean Baker Weighs In on MMT

by Joe (Letsgetitdone) Firestone