The Arthurian — Antonio Fatas and the Chain of Causality

Another howler from Ken Rogoff, the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University and one of the Very Serious People of the economics profession (rolling eyes).

Fatas says Rogoff "argues that the world economy is suffering from a debt hangover rather than deficient demand." I had to check that. When I read Fatas, I thought he might be misinterpreting Rogoff. He's not. He's right. Rogoff sees secular stagnation as one possibility, and crushing debt as "another possibility".

Rogoff sees the excessive debt explanation as an alternative to the deficient demand explanation.

That's just plain silly. Excessive debt is not an alternative to the "deficient demand" explanation. Excessive debt is the cause of deficient demand. First, the growing cost of growing debt consumes a growing portion of income. So demand atrophies gradually at first. Then, people suddenly come to think of their debt as excessive, and they suddenly cut their borrowing and spending. Demand falls suddenly -- economists call that a "shock" -- and we have "deficient demand".

The New Arthurian Economics
Antonio Fatas and the Chain of Causality
The Arthurian

Joseph E. Stiglitz — The Politics of Economic Stupidity

In 1992, Bill Clinton based his successful campaign for the US presidency on a simple slogan: “It’s the economy, stupid.” From today’s perspective, things then do not seem so bad; the typical American household’s income is now lower. But we can take inspiration from Clinton’s effort. The malaise afflicting today’s global economy might be best reflected in two simple slogans: “It’s the politics, stupid” and “Demand, demand, demand.” 

The near-global stagnation witnessed in 2014 is man-made. It is the result of politics and policies in several major economies – politics and policies that choked off demand. In the absence of demand, investment and jobs will fail to materialize. It is that simple.…

The big problem facing the world in 2015 is not economic. We know how to escape our current malaise. The problem is our stupid politics.

Hits the high points.

Project Syndicate
The Politics of Economic Stupidity
Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, was Chairman of President Bill Clinton’s Council of Economic Advisers and served as Senior Vice President and Chief Economist of the World Bank

John Bellamy Foster, and Michael D. Yates — Piketty and the Crisis of Neoclassical Economics

Not since the Great Depression of the 1930s has it been so apparent that the core capitalist economies are experiencing secular stagnation, characterized by slow growth, rising unemployment and underemployment, and idle productive capacity. Consequently, mainstream economics is finally beginning to recognize the economic stagnation tendency that has long been a focus in these pages, although it has yet to develop a coherent analysis of the phenomenon.1 Accompanying the long-term decline in the growth trend has been an extraordinary increase in economic inequality, which one of us labeled “The Great Inequality,” and which has recently been dramatized by the publication of French economist Thomas Piketty’s Capital in the Twenty-First Century.2 Taken together, these two realities of deepening stagnation and growing inequality have created a severe crisis for orthodox (or neoclassical) economics. 

To understand the nature of this crisis of received economics it is necessary to look at the two principal bulwarks of neoclassical theory, which were originally erected in response to socialist critics. The first is the notion that a freely competitive capitalist economy left to itself generates full employment, indicating that unemployment is the product of various frictions, imperfections, or government interference. The second is the related proposition that income and wealth inequality are determined by the “marginal productivity” (or relative contributions to output) of the various factors of production, chiefly capital and labor—a logic that is extended to the contributions of individuals themselves. The renowned post-Second World War national income statistician, Simon Kuznets, in his famous Kuznets Curve, even argued that there was a tendency in developed capitalist economies towards a decrease in inequality, due to the effects of modernization, including enhanced educational opportunities.3

Contrast these propositions to the reality of the mature capitalist economies today. Far from a full-employment equilibrium, what we see rather is a long-term tendency to economic stagnation. Moreover, this reality describes all of the developed capitalist economies and can be seen in a trend going back forty years, or indeed longer.4 Over roughly the same period, income and wealth levels, rather than converging, have diverged sharply—a divergence that cannot be attributed to differences in education and skill, nor to the contributions of capital relative to labor.5 In short, both of the principal justifications for the system provided by neoclassical economics have collapsed before our eyes.6

Monthly Review

Piketty and the Crisis of Neoclassical Economics

John Bellamy Foster, editor of Monthly Review and professor of sociology at the University of Oregon, and Michael D. Yates, associate editor of Monthly Review and editorial director of Monthly Review Press

h/t Jan Milch

IMF Now Insists on Insanity As Proof of Credibility - Call it the International InsaniTea Party?

   (commentary posted by Roger Erickson)

Our AusteriTea Party is just a regional branch office in the insane network.

Jamaica teeters on an economic precipice after years of stagnation

"Virtually every Jamaican is feeling the impact of a protracted economic stagnation, now exacerbated by the austerity mandated by an International Monetary Fund bailout signed earlier this year." 

“To ensure Jamaica’s compliance the IMF has required that most of the austerity measures and economic reforms be implemented almost immediately. ... 'Given the scale of the problem and the history of programmes that went off-track establishing credibility is paramount, and for this reason the programme is very front-loaded,' said Gian Maria Milesi-Ferretti, a senior IMF official."

Meanwhile, it's pretty much the same story across the whole Caribbean.

Caribbean blown by winds of financial crisis

And the situation in Puerto Rico may be even worse, for reasons including purely voluntary fiscal stupidity. Puerto Rico may be eligible for a Fiscal Darwin Award, granted permanently to those jurisdictions who show exceptional resolve in managing to commit fiscal suicide.

US Hegemony and Puerto Rico’s Economic Crisis

See also: Greece of the Caribbean, and who's the latest island nation competing for that title.

The scale of fiat stupidity is truly mind boggling.

Anyone beginning to think that we may not survive this?

The InsaniTea party is becoming a TsunamiTea Catastrophe far worse than the infamous South Sea Mania. This time, the speculators ARE our governments, of the looters, by the looters and for the looters. Yet the 1% can't starve the 99%, if the 99% simply refuse to go hungry.

Ashwin Parameshwaran — Creation, Destruction and Stagnation

First, creation [of the new] implies destruction [of the old].

Second, the opposite of creative destruction is stagnation.

macroresilience
Creation, Destruction and Stagnation
Ashwin Parameshwaran

Jeremy Grantham's long term pessimism

Business Insider
Jeremy Grantham's US Economic Growth Forecast Through 2050 Is The Most Depressing Forecast You'll Ever See
Sam Ro

GMO Quarterly Letter November 2012
via Zero Hedge

Robert Skidelsky — Down with Debt Weight

Nearly four years after the start of the global financial crisis, many are wondering why economic recovery is taking so long. Indeed, its sluggishness has confounded even the experts.& According to the International Monetary Fund, the world economy should have grown by 4.4% in 2011, and should grow by 4.5% in 2012. In fact, the latest figures from the World Bank indicate that growth reached just 2.7% in 2011, and will slow this year to 2.5% – a figure that may well need to be revised downwards. 

There are two possible reasons for the discrepancy between forecast and outcome. Either the damage caused by the financial crisis was more serious than people realized, or the economic medicine prescribed was less efficacious than policymakers believed.

In fact, the gravity of the banking crisis was quickly grasped....

Read the rest at Project Syndicate
Down with Debt Weight
by Robert Skidelsky | Professor Emeritus of Political Economy, Warwick University

Favorite line: "...the eurozone itself is a mini-gold standard, with heavily indebted members unable to devalue their currencies, because they have no currencies to devalue."

From Financial Crisis to Stagnation: An Interview with Thomas Palley

Philip Pilkington interviews Thomas Palley.

Read it at Naked Capitalism
From Financial Crisis to Stagnation: An Interview with Thomas Palley

by Yves Smith

Barefoot Economics

AMY GOODMAN: Today we begin with acclaimed Chilean economist Manfred Max-Neef. He won the Right Livelihood Award in 1983, two years after the publication of his book Outside Looking In: Experiences in Barefoot Economics. I sat down with Manfred Max-Neef in Bonn, Germany, at the 30th anniversary of the Right Livelihood Awards. I began by asking him to explain just what "barefoot economics" is.

MANFRED MAX-NEEF: Well, it’s a metaphor, but a metaphor that originated in a concrete experience. I worked for about ten years of my life in areas of extreme poverty in the Sierras, in the jungle, in urban areas in different parts of Latin America. And at the beginning of that period, I was one day in an Indian village in the Sierra in Peru. It was an ugly day. It had been raining all the time. And I was standing in the slum. And across me, another guy also standing in the mud — not in the slum, in the mud. And, well, we looked at each other, and this was a short guy, thin, hungry, jobless, five kids, a wife and a grandmother. And I was the fine economist from Berkeley, teaching in Berkeley, having taught in Berkeley and so on. And we were looking at each other, and then suddenly I realized that I had nothing coherent to say to that man in those circumstances, that my whole language as an economist, you know, was absolutely useless. Should I tell him that he should be happy because the GDP had grown five percent or something? Everything was absurd.

So I discovered that I had no language in that environment and that we had to invent a new language. And that’s the origin of the metaphor of barefoot economics, which concretely means that is the economics that an economist who dares to step into the mud must practice. The point is, you know, that economists study and analyze poverty in their nice offices, have all the statistics, make all the models, and are convinced that they know everything that you can know about poverty. But they don’t understand poverty. And that’s the big problem. And that’s why poverty is still there. And that changed my life as an economist completely. I invented a language that is coherent with those situations and conditions....

The rest at Chilean Economist Manfred Max-Neef on Barefoot Economics, Poverty and Why The U.S. is Becoming an "Underdeveloping Nation" (Video and transcript at Democracy Now).