Andrea Terzi on understanding the EZ dynamic in terms of Germany and France

Under the EMS, French fiscal policy was constrained by the policy of fixing the value of the French franc to the German mark. To make this problem particularly acute, France was pegging its currency to the anchor of a trade surplus country. Pegging your own currency is always a constraint on your fiscal policy. Pegging your currency to an important trading partner, whose growth model is export-driven, can make things particularly bad. Your partner is redirecting demand from your citizens to its firms by taking advantage of a fixed exchange rate, and you need to create demand through net government spending, but this is prevented by the exchange rate peg. It’s a catch-22.

So went the France-Germany asymmetry during the EMS.

France and Germany must have genuinely thought that a common currency would address the asymmetry. Germany, on its turn, was facing the problem of periodic realignment (revaluations) of the peg that made its export industry losing profits. And indeed a solution to the asymmetry could have been an EMU with federal net government spending. This would have spared France the need of creating demand internally, as demand would have been created instead at the ‘federal’ level.
Nothing like this, however, was ever seriously designed. And the bottom line is that France got trapped into the same situation: pegging its money, this time ‘hard’ pegging its money, with an export-led trading partner.

 Mecpoc
A narrow path ahead for Europe: And it’s France and Germany, again
Andrea Terzi

Peter F. Drucker — Profit is not the purpose of business and the concept of profit maximization is not only meaningless, but dangerous

I heard Peter say a lot of strange things when I was his student, but this has got to be one of the most unusual that I’d heard up to that time. I think most of my Drucker classmates agreed. Indeed, until Drucker came along most everyone believed the basic “fact” that the purpose of a business was to make money. That is, to make a profit. This belief leads to a corollary, another myth, believed by all—that is, that the goal of any business is profit maximization. Another words, whatever your business, your goal should be to make as much profit as possible. If you accept making a profit as a business’s purpose, the second part just follows naturally. This might even seem worthy to many. To quote Michael Douglas’s famous (or infamous) statement in his role as Gordon Gekko in the 1987 movieWall Street: “Greed is good.” Even today many “know” greed, or profit maximization to be the correct prescription for business success, even if it is amoral or shouldn’t be “good” from a moral perspective. Not so fast, Gordon. As Drucker so often said, whatever everyone knows is usually wrong, Hollywood films not excepted. Drucker told us first that profit is not the purpose of business and that the concept of profit maximization is not only meaningless, but dangerous.

Lessons from Peter F. Drucker
The Purpose of Business Is Not To Make A Profit
William Cohen, Ph.D. | Peter Drucker’s first executive Ph.D. graduate at what is now the Peter F. Drucker and Masatoshi Ito Graduate School of Management. His latest books are Drucker on Leadership (Jossey-Bass, 2010) and Heroic Leadership: Leading with Integrity and Honor (Jossey-Bass, 2010). Cohen is the president of The Institute of Leader Arts and a vice president of the 26 Peter F. Drucker Academies of China and Hong Kong. He is also a retired Air Force general.

Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by cost-constrained firms employing available information and factors of production, in accordance with rational choice theory. — Wikipedia

Neoclassical economics is at odds with the foremost figure in business management has to say, and which most business people know from experience. "The business of business is business." that is, attracting and retaining customers in a marketplace that is ever-changing. Profit is a by-product of business success, which is the result of efficient and effective management. "Efficiency is doing things right, and effectiveness is doing the right things," is the message of Peter F. Drucker's The Effective Executive.

Chris Cook — The Myth of Debt

This was reposted at New Economic Perspectives and Clonal called attention to it here n the comments. Appended here are comments on FaceBook.

Herald Scotland
The Myth of Debt
Chris Cook | senior research fellow at University College London and a former director at the International Petroleum Exchange

From FB — MMT, Heterodox and Dissident Economics



Umkc Economists: I really like this piece, Chris. Confused as to the reference to the currency board arrangement in HK. It may leave readers with the impression that fixed exchange rates are the preferred arrangement for ensuring discipline wrt money creation.






Chris Cook: That would have been better taken out.


*********************





Warren Mosler: good article thanks!!! you might add that 'paying it back' is just a matter of debiting one account at the boe and crediting another, both denominated in pounds. so both are 'the money' the difference being a time deposit vs an overnight deposit.






Warren Mosler: the mainstream implies that when you 'buy the debt' the state is 'taking your money' as if you come home and tell your wife you had a very bad day, you moved 1 million from checking to savings and so lost 1 million.


Recorded Tape Loop Needed: "Public-Spend More, Public-Spend Less"

Commentary by Roger Erickson

Effects of Automatic Stabilizers on the Federal Budget

Old hat, since this is what MMT basically began with, pre 1996. Seventeen years on, we are still exhaustively RE-belaboring simple policy decisions first inaugerated ~1933 - and we're STILL just beginning to make the public aware of what was originally obvious circa 1933? Is the dent in public mis-awareness even noticeable yet? Sometimes it takes ~87 years of 2x4s before the information starts to sink in for the mule?

If this is ground zero in public understanding of currency operations, we're in trouble. It's like the captain of the Titannic not knowing there's this thing called a rudder?

Did anyone ever consider that this is what "Automatic Stabilizer" MEANS in a fiat currency system? The people that enacted various Automatic Stabilizer policies knew this. What's happened to everyone since? Any general knows they must resupply any army after EVERY engagement, win or lose. Every sports coach knows to feed the team after EVERY game, win or lose. Every business has to restock after every season, whether sales were up or down. Every fiat currency issuer has to restock national liquidity after every business cycle, whether up or down. Yada, yada.

How on earth can this be a surprise to anyone? Marriner Eccles must be turning over in his grave! :(

More than anything else, this reminds me of jokes with tape recorded messages telling dumb blondes that they must breathe out after breathing in. Except we're talking about our Congress AND the US electorate here, not just metaphorical dumb blondes! AND - our Congress, press and electorate is busy laboring over every ripple and subtone in every breath!!! BMHOTK! If this isn't as natural, and automatic, as "breathe in, breathe out," then lord help us!

Don't tell me it's really that bad! ? Do we have to send "Fiat Spend More, Fiat Spend Less" tapes to every Congressperson and voter, reminding them to automatically "public-spend more" when private spending dips, and "public-spend less" when private spending goes wild?

If that's the need, wouldn't it be simpler to bypass Congress and institute Automatic Policy Stabilizers that replace ignorant policy staff with intelligent ones, whenever policy agility drops below survival thresholds?

Even better, bypass our broken education system that's obviously failing our nation, and institute Automatic Policy Stabilizers that replace voters ignorant of Situational Awareness, with a more informed crop of citizens, whenever policy agility drops below survival thresholds.

If we can't do something so simple, Nature is simply going to let her Automatic Stabilizer - the one called Evolution - automatically replace the USA.

Then of course, there are people actively lowering the median IQ.

Witness: "An Infinite Amount of Money" and especially note the steady descent in idiocy from Bloomberg to Mauldin to the one comment. (TRIPLE face palm!)

Weepin' Buddha on a decline! Are we doomed?

Christopher Joye — Cyber-attackers penetrate Reserve Bank networks

The Reserve Bank of Australia’s computer networks have been repeatedly and successfully hacked in a series of cyber-attacks to infiltrate sensitive internal information, including by ­Chinese-developed malicious software.

The RBA is sufficiently concerned about these risks that it has had a private security firm carry out “penetration testing”, or authorised hacking, of its computer networks to assess the integrity of its digital defences.

After investigations by The Australian Financial Review, RBA officials disclosed that the central bank had been infiltrated by a Chinese-developed malicious software, or “malware”spy program that was seeking intelligence on sensitive G20 negotiations.Multiple computers within the RBA’s network were compromised. The RBA would not comment on what information was stolen, which executives within the bank were targeted, or over what period the assailants had access to its systems.

Financial Review
Cyber-attackers penetrate Reserve Bank networks
Christopher Joye

Chris Dillow — The Need For Supply-Side Socialism

Policy-making, then, requires more than (very mild) stimulus and the hope of return to business as normal. We must think about ways of increasing trend growth.

It should be obvious to anyone not blinded by ideology that the right's ideas here - of reducing the power of the working class - no longer work. Instead, Duncan Weldon, Stewart Wood and Ha-Joon Chang are right; the left must think about supply-side socialism.

Stumbling and Mumbling
The Need For Supply-Side Socialism
Chris Dillow | Investors Chronicle (UK)

Short translation: Injecting stimulus to increase effective demand is insufficient given the economic conditions and state of crisis in the UK. Business is not investing to expand and create jobs and is unlikely to with demand side stimulus alone. Therefore, stimulus must be injected from the supply side in order to promote non-financial or "real" growth.

Government needs to increase spending on public investment — infrastructure, R&D, education and other public goods that will increase economic effectiveness and efficiency and promote innovation and productivity gains.

Actually, the British economy is way to dependent on its financial sector's contribution to GDP, especially when finance contributes nothing productive itself and its expansion has not resulted in non-financial real growth, which is the actual economic function of finance, rather than merely increasing savings.

Itay Goldstein and Assaf Razin — Theories of financial crises

Broadly speaking, there are three types of economic crisis: banking crises and panics, credit frictions and market freezes, and currency crises. This column argues that features from these types of crises have been at work and interacted with each other to shape the events of the last few years. From an extensive review of literature on these issues, it’s clear that the biggest challenge policymakers and economists face is in developing integrative models that better describing contemporary economic realities.

VOX.eu
Theories of financial crises
Itay Goldstein, Professor of Finance at the Wharton School of the University of Pennsylvania, and Assaf Razin, Barbara and Steven Friedman Professor of International Economics, Cornell University; Bernard Schwartz Professor (Emeritus), Tel Aviv University

Unlearning Economics — A Unifying Principle for Economics?

Commenter Dan thinks economics has not yet found its watershed moment:

Think about Biology before DNA was discovered or Geology before plate tectonics was understood, both disciplines had learned a lot but they still lacked a comprehensive model that made everything fit into place.

I am sympathetic with this viewpoint. Heterodox criticisms come at economists thick and fast – personally, I think most of these criticisms are valid and very little of neoclassical economics should be left. Yet neoclassical economics persists.

However, in my opinion this isn’t because economics lacks a unifying theory; it’s the exact opposite. Economists already think they have found a unifying concept: namely, the optimising agent. Consumers maximise utility; producers maximise profits; politicians maximise their own interests/their ability to get reelected. Sure, there are a few constraints on this behaviour, but overall it is the best starting point. It all blends together into a coherent theory that can tell a plausible story about the economy. I find economists are resistant to any theory that doesn’t follow this methodology.

I have gone over my problems with this approach many times, so I shan’t repeat myself. The important question is what an alternative theory would look like.

The typical definition of economics is the study of how resources are allocated. Hence, a unifying theory should empirically and logically do a satisfactory job of explaining prices, production and distribution. Such a theory would be able to underlie virtually any economic model in some form, whether being the wider context of a microeconomic phenomenon, or the basis of macroeconomic phenomenon. No easy task, then, but luckily many approaches of this nature already exist....

Interesting analysis of the state of art and the challenges in moving forward — unless you are one of the people that thinks we are already there and there only a few loose ends to clean up. But that's difficult to maintain based on reasons and evidence to the contrary

A Unifying Principle for Economics?
Unlearning Economics

Mark Thoma — Crude Sachsism

Economist's View
Crude Sachsism
Mark Thoma | Professor of Economics, University of Oregon

Why Paul Krugman is not going to espouse MMT anytime soon. Jeff Sachs has already attacked him for asserting that deficits don't matter, even though Krugman had qualified that with "in a liquidity trap."

I'll reassert what I've said many time before. Jeff Sachs's heart may be in the right place, but he pulls his economics from where the sun don't shine.

Beppe Grillo about money - stand up show 1998 - English / Deutsch Titles

(h/t Ramanan in the comments)

The George Carlin of Italy!

Michael Snyder — Corporatism: A System Of Control Designed By The Monopoly Men Of The Global Elite

In early America, most states had strict laws governing the size and scope of corporations. Individuals and small businesses thrived in such an environment, and the United States experienced a period of explosive economic growth. We showed the rest of the world that capitalism really works, and we eventually built the largest middle class that the world had ever seen.

But now we have replaced capitalism with something that I like to call "corporatism". In many ways, it shares a lot of characteristics with communism, and that is why nations such as communist China have embraced it so readily. Under "corporatism", monolithic predator corporations run around sucking up as much wealth and economic power as they possibly can. Most individuals and small businesses cannot compete and end up getting absorbed by the corporations. These mammoth collectivist institutions are in private hands rather than in government hands (as would be the case under a pure form of communism), but the results are pretty much the same either way. A tiny elite at the top gets almost all of the economic rewards.

There are some out there that would suggest that the answer to our problems is to move more in the direction of "socialism", but to be honest that wouldn't be the solution to anything. It would just change how the table scraps that the rest of us are getting are distributed.

If we truly wanted a return to prosperity, we need to dramatically shift the rules of the game so that they are tilted back in favor of individuals and small businesses. A much more pure form of capitalism would mean more wealth, less poverty and a more equitable distribution of the economic rewards in this country

The Economic Collapse
Corporatism: A System Of Control Designed By The Monopoly Men Of The Global Elite
Michael Snyder
(h/t Zero Hedge)

Zero Hedge — The Demographics Of Bitcoin

Interesting demographics when broken out. Mostly young males, as would be expected, but a lot of surprises, too.

Zero Hedge
The Demographics Of Bitcoin
Tyler Durden

Marshall Auerback — Who’s afraid of the big, bad deficit wolf? Not China.

… it’s nice to see that at least one major economy is not succumbing to the screams of the fiscal deficit fetishists. Far from being a burden, the deficits and the corresponding government bonds constitute the foundation of private financial wealth in any nation that creates its own sovereign currency for use by its citizens. Debt owed by the government yields net income to the private sector, unlike all purely private debts, which merely transfer income from one part of the private sector to another. In basic national accounting terms, government deficits equal non-government savings surpluses.

Notwithstanding the obvious reality that sovereign governments have no solvency risk because they create their own currency, most financial commentators (and economists) still waste their time talking about sovereign default risks. Unfortunately, we implicitly legitimize this sort of talk when we use the analogy of the household and the alleged need for government to embrace budgeting like a household does. Remember, firms, households and even state and local governments require income or borrowings in order to spend. But a sovereign government’s spending is not constrained by revenues or borrowing. It is constrained only by what its population chooses as national goals.

Fortunately, Beijing appears to understand this. Would that similar wisdom were shown in Washington, Ottawa, Brussels or Berlin.

Macrobits
Who’s afraid of the big, bad deficit wolf? Not China.
Marshall Auerback
(h/t Kevin Fathi via email)

Marshall Auerback — Another Rubinite to the White House?

First, we had Treasury Secretary Jack Lew (whom Rubin made a very wealthy man at Citigroup). And now we find out that President Obama has nominated Walmart’s philanthropic head Sylvia Mathews Burwell to become director of the White House budget office. She touches all of the right bases: a McKinsey alumnus, and served as Rubin’s chief of staff from 1995 to 1997, when she moved back to the White House to serve as one of Clinton’s two deputy chief of staffs, the other being future Center for American Progress founder John Podesta. Podesta and Burwell worked under chief of staff Erskine Bowles, he of Bowles-Simpson fame.

So what’s wrong with having people in the White House who are familiar with the way the capital markets work? Well, yes, they are all “markets people”, who just happened to be around during the time of one of the greatest private sector debt bubbles in history and still fail to recognize the destructive dynamics unleashed by that. It’s as if I went a surgeon who amputates the wrong limb. Should I therefore go back to him for a 2nd procedure on the grounds that he might be more familiar with my body than other doctors?

Macrobits
Another Rubinite to the White House?
Marshall Auerback

(h/t Kevin Fathi via emial)

Ha-Joon Chang — Britain: a nation in decay [or the race to the bottom]

Ha-Joon Chang nails it. The UK problem is Thatcherism aka Neoliberalism, in which the goal is to run permanent trade surpluses by running financial repression domestically, i.e., suppressing worker compensation and benefits by eliminating the welfare state, in order to become more competitive in the global economy. Just like Germany is doing.

In reality, though, the coalition government isn't as stupid or stubborn as it appears. It is sticking to its plan A because spending cuts are not about deficits but about rolling back the welfare state. So no amount of evidence is going to change its position on cuts.
Lost in this cross-wired debate is the issue of the long-term future of the economy. Britain has been finding it difficult to recover from the financial crisis not just because of its austerity policy but also because of its eroding ability to engage in high-productivity activities. This problem is most tellingly manifested in the country's inability to generate a trade surplus despite the huge devaluation of sterling since 2008.

The Guardian
Britain: a nation in decay
Ha-Joon Chang | Professor Economics, Cambridge University
(h/t Kevin Fathi via email)

Unfortunately, Prof. Chang perpetuates the myth about Keynes and the long term when he writes,

John Maynard Keynes once famously said that in the long run we are all dead. But a lot of us have to live for a while yet. A series of short-run policies, whether based on the coalition policy of spending cuts and loose monetary policy or on the opposition policy of increased government spending, isn't going to address the challenges facing the British economy. It is time to think for the long term.

Keynes was actually criticizing the assumption of economic equilibrium being automatically achieved in neoclassical mechanics by the working of the invisible hand absent interventions. Keynes knew, of course, that the neoclassical model is time-independent, and the adjustment could come quickly — or not. Even presuming the correctness of the model, why wait when policy tools are readily available to bring about a return to full employment and optimize output by acting now.

Colin Horgan — Will Rand and Ron Paul transform the GOP?

Republicans face two likely paths for their party’s future: Ron Paul’s libertarianism or a more moderate base

The Raw Story
Will Rand and Ron Paul transform the GOP?
Colin Horgan | The Guardian

Paul Krugman — "Your facts are false and non-facts."

Krugman to Ron Johnson: ‘Your facts are false’ and ‘non-facts’ (via Raw Story )

Nobel Prize-winning economist Paul Krugman on Sunday accused tea party-backed Sen. Ron Johnson (R-WI) of using “non-facts” to argue that earned benefits programs like Social Security and Medicare needed to be cut in order to be saved. “Unless we do something, these programs are going broke,”…

Anita Kumar — Report: Obama still secretive despite transparency vow

President Barack Obama has relied on state secrets and secret laws to make national security decisions with little congressional or public oversight much as his predecessor did, according to a report being released Sunday by a liberal government watchdog group.

The Center for Effective Government’s study on transparency finds that Obama has issued important open government policy reforms in his first term, but that implementation is inconsistent across federal agencies despite his claim of being the most open president in history….

The 50-page study says the area most in need of improvement is national security. The White House has withheld decisions and documents that have the force of law, labeled documents as classified even if they do not need to be and aggressively prosecuted whistleblowers, bringing six cases against employees for leaks compared to only three known previous cases since 1917.

And the administration, like the George W. Bush administration before it, has sought the dismissal of cases against the U.S. government claiming entire topics are privileged, not just specific records. For example, it invoked the privilege to dismiss a case challenging the targeting of U.S. citizen and alleged terrorist Anwar al Awlaki, killed by a drone in Yemen in 2011.

Bush was criticized for authorizing a secret domestic spying program and military tribunals without court involvement after the 2001 terrorist attacks. Obama has been questioned for authorizing the military’s use of drones to kill suspected terrorists overseas, including Americans. After pressure, the White House recently released to lawmakers justifications for the killings.McClatchy

Report: Obama still secretive despite transparency vow
Anita Kumar | McClatchy Newspapers

Guess where this is driving younger voters.

David Becker — Trans Pacific Partnership: A new Constitution

Neoliberalism on steroids. This is what your president has planned for you and your children, those that survive the drones anyway. Creepy stuff being thought up and implemented by creeps.

I have excerpted the most salient points.

What struck me in Public Citizens review was that the system being setup as the arbiter of the trade agreement is following the US' fascination with "extra judicial" proceedings as a viable means of following the ideals of our Constitution. It's those same thought processes that gave us rendition, enhanced interrogation, military tribunals, unitary executive. You can't help but see our past 35 years of leadership in the realm of pioneering new concepts in equality, fairness, justice, and processes to achieve such.

Concepts of "free market", "invisible hand", and process of deregulation, economies of scale, etc. How else do you explain the use of rotating corporate tied lawyers as judges? Where is the separation of the judge and the plaintiff? This is right out of the current US play book on how to better your nation with the social institution known as "revolving door"?

You can see in this document the culmination of work performed over the last 40 years (yes Carter started the deregulation) by the conservative (internationally known as neoliberal) ideology merged with Milton Friedman's economics and Ayn Rand's objectivism. Dare I say, the TPP is to capitalism what our Constitution was to democracy?....

This document is the constitution of a new world order. It is an order that has been the dream of many for ages upon ages that until this time in humanity was not possible do to the limits of the technology of the time. This is the document of what I coined a few years ago as The United Corporations of Global. It is this aspect of the document that the people of the world should be most fearful of. It is not a trade agreement as I believe the common man (as in the court concept of the "common man") would think of the phrase "trade agreement". This is a constitution that is coming prepackaged with the rules and regulations already written. Only, there is no need for ratification to be a part of the creative process. This document comes pre-ratified in that all a nation has to do is say "I'm in"....

The documents greatest power is what I alluded to when I mentioned rendition, unitary executive, enhanced interrogation, military tribunals. Rationalization. This document codifies the use of rationalization as a viable thought process for achieving the advancement of humanity. It reinstates the fallibility of human thinking, turning on it's head the enlightenment age because this document believes it is of enlightened thought. It rationalizes as enlightenment the freeing of people to trade to the greatest level of monetary efficiency. Such a thought is putting a human creation ahead of humanity....

This is a document written by people who envision the world structured far differently than how we are taught to view our social organization based on the US Constitution and it's meaning to the world.... 

This document is not just about how nations will relate to each other, it also gives the same rights and privileges to individual investor entities as representative of a nation. Thus, keep in mind that anything you read here also means a rich person or a business entity is treated as if they are the nation. However, citizens are not at anytime mentioned as being a "party" of any type other than when it comes to citizens potentially creating a loss for a "party" or it's investor representative. In other words, "citizens" are at all times considered to have lesser status such that citizens have no claim to inalienable rights and the resultant rule of law. It is less than slavery for in this document, the only recognized covered entities are "party" which means a nation of signature and it's participants in the sector of said parties social interaction referred to as "investment".... 

...what we have here is an agreement that the investing entity is protected via insurance in the form of the host nation's taxing ability that becomes a mechanism for "encouraging" shall we say, a host nation to take measures to assure it's citizens remain compliant. This is the new social order.

This is the corporate model of relationships...

The further we go with implementing these types of agreements the further removed we are from the enlightenment concepts that resulted in a group of people writing prose such as our Constitution. You can forget about the ideal bound in our Declaration of Independence. And, the further we are moved toward the model of business organization as the dominate model for structuring a society. It is too accepted that the purpose of business is to make money. There is no longer any talk of "social responsibility" within today's business model. Business no longer is a means for creating wealth that society then puts to work in reducing life's risks. Business is simply about making money...stop. The declaration for the TTP would simply read: We hold this truth to be self-evident, the purpose of business is to make money.

Angry Bear
Trans Pacific Partnership: A new Constitution
Daniel Becker

Robert Vienneau — G. C. Harcourt On The Intellectual Dishonesty Of Mainstream Economists

On target. Another smack down of the mainstream today. feels like the energy is building.

Plus Peter Cooper gets a shout out.

Thoughts on Economics
G. C. Harcourt On The Intellectual Dishonesty Of Mainstream Economists
Robert Vienneau

Lord Keynes — Kaldor on Economics without Equilibrium

If one were state the difference between Post Keynesianism and mainstream neoclassical theory, it might be summed up with the idea that Post Keynesian theory is “economics without (Walrasian) equilibrium.”

Social Democracy For The 21st Century
Kaldor on Economics without Equilibrium
Lord Keynes

Kaldor understood how business works and how firms actually respond to signals rather in the highly idealized way of price being the equilibrium between perfectly elastic supply and demand "curves" (behavior) that economics generally assumes as intuitively true. That behavior of firms is just not factual, as every business person knows from experience, much along the lines that Kaldor describes.

Ramanan elaborates with an extended Kaldor quote:

The Case for Concerted Action
The Heavenly Walrasian Auctioneer

Dr; Housing Bubble — Will there be a steady supply of homes for sale from aging baby boomers in this decade? Who will they sell to and at what price?

From 2010 to 2020 we are going to have a large number of baby boomers entering into their retirement years. Many will look to downsize and the projections have been, that this would add a steady supply of housing. Issues like negative equity have kept many potential homeowners from actually listing their homes on the market for sale. It is also the case that a younger and less affluent generation is going to struggle to pay top dollar for many of the properties hitting the market. Many are resorting to using loans that are insured by theFHA that allow 30x leverage just to get their foot in the door. It is interesting to see this trend unfold because there is nothing that can be done to stop the momentum of age. Banks can alter accounting rules and hold off inventory to create artificially low supply but there is nothing that can stop our inherent biological aging process. Some interesting data is coming to the surface regarding baby boomers and the demographic changes that will impact housing. Will baby boomers add a significant number of homes to the market in this decade?

Dr. Housing Bubble
Will there be a steady supply of homes for sale from aging baby boomers in this decade? Who will they sell to and at what price?

David Bollier — The Logic of Collective Action: The Fall of an Iconic Theory?

Mancur Olson's neoliberal theory of public choice and Garrett Hardin's “tragedy of the commons" parable wrong? Harvard Business Professor Gunnar Trumbull says yes in his new book, Strength in Numbers: The Political Power of Weak Interests, especially in the digital age.

David Bollier' — news and perspectives on the commons
The Logic of Collective Action: The Fall of an Iconic Theory?
David Bollier

Lars Schall — Who saw the economic crisis coming and why?

Oh my, the debate over who saw the crisis coming spills over to Asia Times Online. Probably not much you haven't seen already.

But the story is getting legs rather than going away as the elites of the world hope it will and are doing their best to bury it, because it shows that their brand of "capitalism" (neoliberalism) isn't working and some people have shown why.

Being the journalist he is, Schall is digging in. Which is supposed to be what journalism is about, isn't it? In the US we have propagandists rather than journalists. Unfortunately, however, Schall is associated with the bonkers school of economic otherwise.

Asia Times Online
Who saw the economic crisis coming and why?
Lars Schall | German financial journalist

Here is the "rebuttal." Bank critics miss relative value by Friedrich Hansen. ROFLMAO.

Dada Maheshvarananda — Evaluating the Legacy of President Hugo Chávez Using the Progressive Utilization Theory (Prout)

A post-capitalistic view of Hugo Chavez and his accomplishments.

PROUT — Dada Maheshvarananda's Blog concerning PROUT, the Progressive Utilisation Theory
Evaluating the Legacy of President Hugo Chávez Using the Progressive Utilization Theory (Prout)
Dada Maheshvarananda

Lars Syll — Macroeconomics and the microfoundationalist programme

This is an extremely important point and even though the post is long it well worth the read.

Short translation: Neoclassical and New Keynesian models are built on the atomistic assumption of a representative agent (atom) that pursues maximum utility (Bentham's "calculus") based on rational expectation (perfect knowledge). Then the invisible hand of the perfect market in which there is no friction (field) operates completely efficiently in the same way as the law of least action in (ergodic) physical systems, based on perfect competition (single force) of equal participants.

Of course, this is a ludicrous assumption. Social scientists in other fields that aim at explanation with microfoundations use agent-based modeling. Neoclassical and New Keynesian economists are reluctant to accept this, however, since 1) abandoning present economic assumptions undermines key neoliberal assumptions, thereby throwing the entire ideology into question if not into the trash can, and 2) admission of complexity makes econometric modeling difficult if not intractable.

Lars P. Syll's Blog
Macroeconomics and the microfoundationalist programme
Lars P. Syll | Professor, Malmo University

Lars Syll — Is employment all a question of incentives?

A couple of years ago – in connection with being awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2011 – Thomas Sargent, in an interview with Swedish Television, declared that workers ought to be prepared for having low unemployment compensations in order to get the right incentives to search for jobs.This old mercantilist idea has very little support in research, since it has turned out to be exceedingly difficult to really get clear cut results of causality on the issue....

What is needed more than anything else in these times is stimulus and economic policies that increase effective demand.

On a societal level wage cuts only increase the risk of more people getting unemployed. To think that that one can solve economic crisis in this way is a turning back to those faulty economic theories and policies that John Maynard Keynes conlusively showed to be wrong already in the 1930s. It was theories and policies that made millions of people all over the world unemployed.

Lars P. Syll's Blog
Is employment all a question of incentives?
Lars P. Syll | Profess, Malmo University

Distribution of 'Surplus Value' in the Roman Empire, c. 30 AD

Some previous posts back Tom, Peter and Magpie and myself got into the concept of  Marx's of 'Surplus Value' in the comments here.  This got me thinking about Marx's observation of this concept, I don't think I have this down 100% but here goes anyway..

Taking from the Wiki on 'Surplus Value':

Surplus value is a concept written about by Karl Marx. Although Marx did not himself invent the term, he developed the concept.[1] It refers roughly to the new value created by workers that is in excess of their own labour-cost and which is therefore available to be appropriated by the capitalist, according to Marx; it allows then for profit and in so doing is the basis of capital accumulation.

So this gets into the portion of the economic "surplus" that is distributed between "labor" and "capital" I guess which becomes a major area of contention between "Marxists" and "Capitalists" that you often witness, etc... lots of "lamentation and gnashing of teeth" on this topic over the years for sure...

We can examine the Greek Scriptures for revelation as to how the economic "surplus" was arranged to be distributed by the Roman government at that time of our history that the scriptures document.

Matthew 20 begins:

1 "For like is the kingdom of the heavens to a man, a householder, who came out at the same time with the morning to hire workers for his vineyard. 2 Now, agreeing with the workers for a denarius a day, he dispatches them into his vineyard.  Mat 20:1 

So it is apparent that a day wage of one denarius for farm work was at least sometime agreed upon if not prevailing due to the Roman fiscal and economic policies.

In Mark 6 there is the story sometimes called "the loaves and the fishes".  Whatever you call it, the scripture depicts events where there is a vast group of people who have been out in the countryside all day being taught by Jesus, and haven't eaten so His disciples become concerned for them in this regard:

35 And already the hour coming to be much advanced, His disciples, coming to Him, said that "This place is a wilderness, and already the hour is much advanced. 36 Dismiss them that, coming away into the fields and villages around, they should buy themselves bread. For they have nothing that they may be eating."   37 Yet He, answering, said to them, "You give them to eat." And they are saying to Him, "Coming away, should we buy two hundred denarii worth of bread and give them to eat?" Mk 6:35-37

So there was a vast throng and the disciples estimated that they would have to spend 200 denarii to be able to go away and purchase enough bread to provide a simple meal to those in attendance.

If we assume that all 12 of the disciples were with Him on this day, this 200 denarii amount of nomisma would breakdown to about 18 denarii per disciple, so, they would have been traveling at this time with at least an average of 18 days worth of wages per person.

The scripture goes on to reveal that those in attendance that day numbered 5,000 men:

44 And those eating the cakes of bread were five thousand men. Mk 6:44

So, we can see that 200 denarii was an amount that could be used to purchase a simple meal on-the-go for 5,000 men.  Do the math and that comes out to one denarius could purchase 25 of these simple such "take-away" meals.

So based on the fact that an agricultural worker could earn one denarius per day as wages which we learned above, if we assume that a worker could be sustained by perhaps 4 of these equivalent meals per day, then the "minimum wage" or "prevailing wage" at this time of our history would provide a "surplus value" (in real terms) of 21 simple "take-away" meals to the worker.

If we were to estimate a productivity adjusted equivalent price for such a simple take-away meal today of perhaps $10.00, this would result in a contemporary day wage of $250.00, if one worked 200 days per year this would result in a $50,000 annual income.  If one worked 250 days, it would result in an $62,500 annual income.

With "Surplus Value" distributed to the worker of  the 21 "meals" or $210 per day.

At our current "minimum wage" of (I don't even know what it is but know it is absurd) say $9.00 per hour and a 2080 hour work year (only weekends off), that comes to $18,720 annual income.  And then income taxes and payroll taxes are taken out by our morons who think our government is "out of money" so that doesn't leave much net to the worker.

So based on these estimates computed from facts that we can glean from the Greek Scriptures, we can see that the contemporary disgraced blind morons occupying positions of authority in our government are delivering economic results to our nation at relative pathetically low levels of economic justice as measured by this Marxian concept of "Surplus Value".

The current delivered "Surplus Value" that is being distributed to our workers pales in comparison to that which was delivered by our more just and non-moron Roman ancestors by a large factor.

Marx was able to focus on this concept of "surplus value" and apparently it was a key data point in observing economic results for him; I look at Marx as a true Israelite in this regard.

At the end of the Book of Acts, standing on the steps of his rented house in Rome while awaiting his appeal before Caesar, Paul reveals this ability of the Israelites to be able to "observe" things by quoting the Prophet Isaiah:

"And observing, you will be observing, and may by no means be perceiving,"  Acts 28:26

So accordingly, Marx could "observe" what was going on during his time, "you WILL be observing", and perhaps knew that at some level, the results he was observing were unjust, or perhaps just "wrong" in some way to him.  In any case, the scripture reveals that Israelites, let's assume like Marx, WILL be able to observe accurately.

The words of the Prophet Isaiah through Paul here, while indicating that the Israelites will not be able to perhaps understand or truly "perceive" what they "observe", indicate that they WILL be able to "observe" nonetheless.

Perhaps this focal point of the Israelite Marx's economic "observation" should be of greater interest to Christendom today, who may be given to in addition "perceive" it, and then, hopefully, be given to know what to do about it.

John T. Harvey — Why gas prices are rising…again!

...the short story is this: the above law, because it allowed financial market participants to treat oil futures as just another investment like Wal-Mart or Exxon stock, caused gas prices to become tightly linked to stock market prices. This means that every time the stock market rises, oil and gas prices get pulled up, too, and vice versa. There is no logical reason for this! Gas prices should adjust because of a change in the forces driving the underlying supply of or demand for oil, not because stock prices are at a historic high....

This needs to be fixed! The prices of goods and services should be determined by the actual forces of supply and demand in their market. This allows consumers and producers to make rational, informed decisions. But linking gas prices so directly to stock market prices makes no more sense than linking the prices of hamburgers or movie theater tickets to the Dow Jones Industrial Average. Until this link is broken, we will all see significant changes in our cost of living every time financial markets revalue stocks.  

Forbes — Pragmatic Economics
Why gas prices are rising…again!
John T. Harvey | Professor of Economics, Texas Christian University

The price of oil and gas is directly related to price level through supply side inflation, i.e., price rise of vital resources due to shortage, real or artificial. See Federal deficit spending doesn’t cause inflation; oil does by Rodger Malcolm Mitchell at Monetary Sovereignty.

Bill Mitchell — Unemployment and Inflation – Part 7

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

This is the continuation of the Chapter on unemployment and inflation – the series so far is:

Unemployment and inflation – Part 1Unemployment and inflation – Part 2Unemployment and inflation – Part 3Unemployment and inflation – Part 4Unemployment and inflation – Part 5Unemployment and Inflation – Part 6

I am now continuing Section 12.6 on the Phillips Curve …

Chapter 12 – Unemployment and Inflation

Bill Mitchell — billy blog
Unemployment and Inflation – Part 7
Bill Mitchell