Sunday, February 26, 2017

Why did the Federal Reserve start paying interest on reserve balances?

The article begins:

Four decades ago, Milton Friedman recommended that central banks like the Federal Reserve pay interest to depository institutions on the reserves...

Well... if Milton Friedman recommended it that's all we need... he probably worked it all out.

Dr. Econ
Why did the Federal Reserve start paying interest on reserve balances held on deposit at the Fed?
Federal Reserve Bank of San Francisco
March 2013

Spencer gets one correct

Interesting observation and correct use of the word 'libertarianism' with the small "l" here:

Lord Keynes — Bibliography on Post Keynesian Economics (Updated)

For your file.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Bibliography on Post Keynesian Economics (Updated)
Lord Keynes

RAND Corporation's plan for dicing up Syria

The think tank of the Pentagon wants to divide Syria according to the model of Bosnia. The result would be ethnic cleansing and new, massive flood of immigrants.
The RAND Corporation, a leading US think tank close to the Pentagon, has published a report proposing a "Bosnian model" to resolve the Syrian conflict.... 
Fort Russ
RAND Corporation's plan for dicing up Syria
Deutsche Wirtschafts Nachrichten, translated by Tom Winter

Diana Gitig — Darwin’s Unfinished Symphony: How food and culture made the human mind

Short review of Kevin Laland’s Darwin’s Unfinished Symphony.

Ars Technica
Darwin’s Unfinished Symphony: How food and culture made the human mind
Diana Gitig


Transitioning to a Closed System.
Mass immigration from the Third World is crippling workers in the economy, as Breitbart News reported in July. Every single job created from 2000 to 2014 went to foreign-born workers residing in the U.S.

Saturday, February 25, 2017

Gareth Porter — How ‘New Cold Warriors’ Cornered Trump

The U.S. intelligence community’s extraordinary campaign of leaks claiming improper ties between President Trump’s team and Russia seeks to ensure a lucrative New Cold War by blocking detente, reports Gareth Porter.
Recap of events.

Consortium News
How ‘New Cold Warriors’ Cornered Trump
Gareth Porter

Alastair Crooke — Trump’s Embattled ‘Revolution’

Which of these two, reflects America’s likely path, more accurately? Has the Establishment now succeeded in walking-back Trump’s agenda? Who now speaks for the President?
The answer is not hard to fathom: return to Pat Buchanan’s clear explanation of how Trump became President: “He saw the surging power of American nationalism at home, and of ethno-nationalism in Europe. And he embraced Brexit. While our bipartisan establishment worships diversity, Trump saw Middle America recoiling from the demographic change, brought about by Third World invasions. And he promised to curb them.”
Obviously, it is the Trump-Bannon wing. Were Trump to abandon his reading of the nation and of the Europeans that brought him to the Presidency, he might as well throw in the towel now. He will not be re-elected.
Will the Pence-Priebus wing or Trump-Bannon wing win out in setting policy.

Consortium News
Trump’s Embattled ‘Revolution’
Alastair Crooke, former British diplomat who was a senior figure in British intelligence and in European Union diplomacy, and presently the founder and director of the Conflicts Forum

Michael Roberts — Kenneth’s three arrows

So Kenneth Arrow leaves us with three arrows to enrich our understanding of the economic world: 1) markets collectively can never properly deliver every individual’s needs; 2) markets cannot equate supply and demand except under the most unrealistic assumptions and 3) economic growth is not achieved by just meeting the demand of consumers but requires decisions of investors to innovate. Ironically, none of the implications of these economic arrows have been accepted by the owners of capital and their politicians in practical policy. To do so, would be to admit that capitalism does not work for the majority or even much of the time for the capitalists.
Michael Roberts' Blog
Kenneth’s three arrows
Michael Roberts

Diane Coyle — The polarised republic

Review of Cass Sunstein's latest book, #Republic: Divided Democracy in the Age of Social Media: Divided Democracy in the Age of Social Media. Sunstein in the spouse of former UN Ambassador Samantha Power.
DC: It’s clear to me there are some sharp questions about the regulatory framework governing social media and the online world in general, questions regulators have been pretty keen to avoid so far. It’s time for them to do so now.
Call for some form of censorship of social media to reduce social divisiveness by reweaving the social fabric from above?

The Enlightened Economist
The polarised republic
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Here is the publisher's blurb on #Republic:
As the Internet grows more sophisticated, it is creating new threats to democracy. Social media companies such as Facebook can sort us ever more efficiently into groups of the like-minded, creating echo chambers that amplify our views. It's no accident that on some occasions, people of different political views cannot even understand each other. It's also no surprise that terrorist groups have been able to exploit social media to deadly effect. Welcome to the age of #Republic. In this revealing book, Cass Sunstein, the New York Times bestselling author of Nudge and The World According to Star Wars, shows how today's Internet is driving political fragmentation, polarization, and even extremism--and what can be done about it. Thoroughly rethinking the critical relationship between democracy and the Internet, Sunstein describes how the online world creates "cybercascades," exploits "confirmation bias," and assists "polarization entrepreneurs." And he explains why online fragmentation endangers the shared conversations, experiences, and understandings that are the lifeblood of democracy. In response, Sunstein proposes practical and legal changes to make the Internet friendlier to democratic deliberation. These changes would get us out of our information cocoons by increasing the frequency of unchosen, unplanned encounters and exposing us to people, places, things, and ideas that we would never have picked for our Twitter feed. #Republic need not be an ironic term. As Sunstein shows, it can be a rallying cry for the kind of democracy that citizens of diverse societies most need.

Neil Wilson — Why does the UK Import Labour?

With 1,597,000 unemployed, 2,191,000 inactive but want a job, and 1,118,000 part timers wanting full time why do we need any more?
Modern Money Matters
Why does the UK Import Labour?
Neil Wilson

Rate Hike Means $50 Billion

This person gets it backwards as usual but the $50B increase in annual leading USD fiscal flow number is correct.

Trump reduces "debt!"

Trump out with this tweet this morning:

You can see what he is talking about here in Table III from yesterday's DTS:

We have to assume they are following this report.

Friday, February 24, 2017

Chuck Spinney and Pierre Sprey — Sleepwalking Into a Nuclear Arms Race with Russia

The Nuclear Question is becoming increasingly obfuscated by spin and lobbying as the West sleepwalks into Cold War II — a walk made all the more dangerous when the loose lips of the U.S. tweeter-in-chief announced that another nuclear arms race is a great idea (see link, link, link). Two Cold War II issues are central and almost never addressed: What will be the Russians' understanding of all the propaganda surrounding the Nuclear Question and the looming American defense spendup? And how might they act on this understanding?
The Blaster
Sleepwalking Into a Nuclear Arms Race with Russia
Chuck Spinney and Pierre Sprey

Lars P. Syll — Keynes’ devastating critique of econometrics

Longer post than usual, with some good Keynes quotes.

Lars P. Syll’s Blog
Keynes’ devastating critique of econometrics
Lars P. Syll | Professor, Malmo University

Randy Wray — MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?

Randy replies to criticism that some of Minsky's views appear to be at odds with MMT. Randy's answer is nuanced.

New Economic Perspectives
MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?
L. Randall Wray | Professor of Economics, Bard College

SPIEGEL Exclusive — Documents Indicate Germany Spied on Foreign Journalists

Germany's foreign intelligence agency, the BND, apparently spied on large numbers of foreign journalists overseas over the course of several years, including employees of the BBC, Reuters and the New York Times. Critics see a massive violation of press freedoms.
Spiegel Online
SPIEGEL Exclusive: Documents Indicate Germany Spied on Foreign Journalists
Maik Baumgärtner, Martin Knobbe and Jörg Schindler

Rick Sterling — Syrian War Propaganda at the Oscars

The Netflix movie “The White Helmets” may win an Oscar in the “short documentary” category at the Academy Awards on Sunday. It would not be a surprise despite the fact that the group is a fraud and the movie is a contrived infomercial
Awarding “The White Helmets” an Oscar would fit with the desire of Hollywood to appear supportive of “human rights,” even if that means supporting a propaganda operation to justify another bloody “regime change” war in the Middle East.
Much of what people think they know about the White Helmets is untrue. The group is not primarily Syrian; it was initiated by British military contractor James LeMesurier and has been heavily funded (about $100 million) by the U.S., U.K. and other governments. The White Helmets are not volunteers; they are paid, which is confirmed in a Al Jazeera video that shows some White Helmet “volunteers” talking about going on strike if they don’t get paid soon.
Still, most of the group’s heavy funding goes to marketing, which is run by “The Syria Campaign” based in New York. The manager is an Irish-American, Anna Nolan, who has never been to Syria. As an example of its deception, “The Syria Campaign” website features video showing children dancing and playing soccer implying they are part of the opposition demand for a “free and peaceful” Syria. But the video images are taken from a 2010 BBC documentary about education in Syria under the Baath government.
The White Helmets as anti-Assad volunteer heroes helping those repressed and attacked by Assad has been debunked as a propaganda hoax. The echo chamber still shamelessly promotes it.

Consortium News
Syrian War Propaganda at the Oscars
Rick Sterling

Brian Romanchuk — NAIRU (Again)

SWL: Accepting the concept of the NAIRU does not mean you have to agree with their judgements. But if you want to argue that they could be doing something better, you need to use the language of macroeconomics.
As an applied mathematician, Brian showed how macroeconomists don't know what they are talking about with respect to NAIRU when using the language of macroeconomics because the concept is empty.

And no advanced math required to do it. Just basic logic and philosophy of science.
Philosophy is a battle against the bewitchment of our intelligence by means of our language. — Ludwig Wittgenstein, Philosophical Investigations, § 109
There are many parallels between economics and philosophy, one of the most evident is unfounded assumptions presumed to be self-evident. Scientific method was developed to circumvent this.
BR: The whole point of the standard NAIRU definition is that it is easy to observe: you just need to back out the acceleration of inflation (keeping in mind there may be other variables whose influence needs to be isolated). However, in the real world, the observed unemployment rate is affected by institutional factors -- which do not exist in a NAIRU model. Since the end result is that NAIRU estimates are inherently unreliable, the concept is wrong by definition.

This is why most mainstream macro has retreated to discussing output gaps of various types. Output gaps have to be inferred via various statistical techniques, and they are inherently fuzzier. It may be that Professor Wren-Lewis has some of these more recent models in mind when he is referring to NAIRU; but that makes as much sense as referring to post-1990 Fed Policy as monetary base targeting.
If you want to use standard academic terms, NAIRU is falsifiable, and was in fact falsified. The generalised output gaps that popped up to replace NAIRU are pretty much unfalsifiable.
To a philosopher standing outside economics looking in, it appears that many economists are so intellectually committed to finding a solutions that they convince themselves and each other that they have found one when they have not.
We have got on to slippery ice where there is no friction and so in a certain sense the conditions are ideal, but also, just because of that, we are unable to walk. We want to walk: so we need friction. Back to the rough ground! — Ludwig Wittgenstein, Philosophical Investigations, § 107
Bond Economics
NAIRU (Again)
Brian Romanchuk

US factory CEOs to Trump: Jobs exist; skills don't

You could see this coming.

One executive said in discussions with White House officials that his company has 50 participants in a factory apprenticeship program, but could take 500 if enough were qualified.  But he said that in his experience, most students coming out of high school lack the math and English skills to absorb technical manuals.

Thursday, February 23, 2017

BBC News — Steve Bannon's three goals for the Trump presidency

Minute and half video clip.

1. National security and sovereignty.
2. Economic nationalism
3. Deconstruction of the administrative state.

President Trump will fulfill all his campaign promises.

BBC News
Steve Bannon's three goals for the Trump presidency

Here is the entire interview transcript.

Read Steve Bannon and Reince Priebus' Joint Interview at CPAC
Ryan Teague Beckwith

Edward Harrison — Two things you should know about Germany’s budget surplus

So that’s where Europe is headed. First, budgetary discipline will continue to be an anchor principle. Second, getting the budget deficit down or into surplus is a lot easier if you have a trade and current surplus. German Finance Minister Wolfgang Sch√§uble wants Germany to lead the way on both these scores as a matter of ‘leading by example’. Third, the eurozone is indeed following this example. We can see the numbers; the euro currency area now has a surplus with the rest of the world, where just 6 or seven years ago it had a deficit.
I don’t know how long the EU wants this policy framework to continue. It ism’t clear if this is a ‘ride out the storm’ approach or a permanent policy framework. I believe they want the surpluses to continue indefinitely. But if these surpluses do continue indefinitely, Donald Trump will put Europe in his crosshairs. And we’ll have to see whether he’s all bluster or whether he intends to take action.

Credit Writedowns
Two things you should know about Germany’s budget surplus
Edward Harrison

Daniel Little — Divided ...

Or to put the point more simply: we are divided politically because we are divided structurally by inequalities of access, property, opportunity, and outcome; and the mechanisms of electoral politics are mobilized to challenge and defend the systems that maintain these inequalities.
Short summary: social, political and economic asymmetry.

Understanding Society
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor

Edward Harrison — The negotiations over Greece aren’t about Greece

Earlier today, I was listening to an interview with IMF head Christine Lagarde dance around the issue of the unsustainability of Greece’s debt load. And she said something very telling. She said that debt haircuts were not on the table but that maturity extensions and interest rate reductions were, but only AFTER Greece implemented reforms demanded by the Troika.
What’s important to realize when Lagarde says this is that although she’s talking about Greece, the negotiations with Greece are not really about Greece itself per se. They are about the maintaining or imposing an economic paradigm for every country in the EU that Greece was not meeting – and this is a paradigm that the IMF supports as much as the ECB and the EU. Greece is just being used as an abject lessons for other larger EU economies.
Think of it this way: 25 years ago, the EU signed on to the idea of a single currency in Maastricht. The question marks at the time were Belgium and Italy – Italy because of its constant currency devaluations and Belgium because of high government debt loads. The EU figured out how to deal with Belgium and Italy by creating the stability and growth pact which said that all member states had to keep their deficits under 3% and get their debt under 60%, or at least moving in that direction. Underneath these simple rules lies a whole economic ideology though. And that orthodoxy says long-term growth and a stable currency are best maintained by liberalized free markets and fiscal discipline.…
"Liberalized free markets and fiscal discipline" is neoliberalism in a nutshell.

"Liberalized free markets" means minimized government "intrusion" in the form of regulation and oversight, along with privatization of state assets ("asset stripping").

"Fiscal discipline" means government finance based on "sound money" that limits a government's fiscal space in economic policy and thereby constrains its fiscal policy. This is tantamount to operating as if on a gold standard.

Credit Writedowns
The negotiations over Greece aren’t about Greece
Edward Harrison

Glenn Greenwald — The Increasingly Unhinged Russia Rhetoric Comes From a Long-Standing U.S. Playbook

I. F. Stone. If you don't know who he was, you should. Before there were blogs, there was I. F. Stone.

The Intercept
The Increasingly Unhinged Russia Rhetoric Comes From a Long-Standing U.S. Playbook
Glenn Greenwald

See also
Russia’s role in Trump’s election has led to a boom in Putinology. But do all these theories say more about us than Putin?
The Guardian
Killer, kleptocrat, genius, spy: the many myths of Vladimir Putin
Keith Gessen

Philip Pilkington — A New Era of Central Banking?

As I noted in my last post the Bank of England have released an official policy document that concedes that much of Post-Keynesian endoegnous money theory is indeed correct. Interestingly, they have also released some Youtube clips with the authors where they expound on their work in more details. You can watch these videos at the BoE website here.

The videos are fascinating. The language the authors use — which contains references to ‘fiat money creation’ and money as IOUs — is straight out of either David Graeber’s book Debt: The First 5000 Years or MMT. If I were to guess I would say that it is some combination of both.
This is an enormous step forward. But I found it particularly interesting how young the authors in the videos were. One of them must be in his early 30s or so. It seems that the younger folks in the BoE are finally starting to ‘get it’.
Now, the question is where this might take the BoE if it begins to spread. There are two paths that can be taken now that they’ve gotten the basic mechanics of money creation correct.
A New Era of Central Banking?
Philip Pilkington
ht Lambert Strether at Naked Capitalism

John Quiggin — Bastiat anticipates climate science denialism

… on Googling Bastiat + pollution, I came across a remarkable package in which Bastiat anticipates the climate change debate and takes the denialist side in advance.…
What’s striking, though, is [Bastiat's] a priori faith that everything will be OK because of Divine Providence [compare with "spontaneous natural order"], which ensures that human activity tends towards harmony. If that fails, and a laissez-faire economy does in fact produce unsustainable pollution, his whole case collapses.
Of course, it’s possible to salvage a version of laissez-faire in the way suggested by Coase, using newly created property rights. But this requires the admission that property rights are a socially constructed set of rules, enforced by coercion, rather than a category inherent in the natural relationship between people and things. It’s precisely this admission that propertarians have been unwilling/unable to make, and why they still rely on magical thinking like that displayed by Bastiat.
John Quiggin's Blog
Bastiat anticipates climate science denialism
John Quiggin | Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government

Jennifer Mueller — Chinese and American Consumers Have Different Ideas About What Makes a Product Creative

Marketing and consumer preferences. One size does not fit all. Just as there are different body sizes, there are also different mindsets.

Harvard Business Review
Chinese and American Consumers Have Different Ideas About What Makes a Product Creative
Jennifer Mueller | Associate Professor at the University of San Diego

The “Natural” Interest Rate and Secular Stagnation: Loanable Funds Macro Models Don't Fit Today’s Institutions or Data

Can America recover ideal rates of growth through interest-rate policies? This important analysis suggests that most economists misunderstand the issue. Updating Keynes, the analysis suggests that fiscal stimulus, labor union bargaining power, and more progressive income taxes are needed to support growth. (The article includes some algebra, which some readers may choose to skip.)
The main points of this paper are that loanable-funds macroeconomic models with their “natural” interest rate do not fit with modern institutions and data. Before getting into the numbers, it makes sense to describe the models and how to think about macroeconomics in the first place....
Unfortunately, the article cited is behind a paywall. This is a useful short summary however.

Naked Keynesianism
Lance Taylor — The “Natural” Interest Rate and Secular Stagnation: Loanable Funds Macro Models Don't Fit Today’s Institutions or Data
Lance Taylor | Arnhold Professor of International Cooperation and Development and director of the Center for Economic Policy Analysis at the New School for Social Research

David F. Ruccio — “In this interregnum morbid phenomena of the most varied kind come to pass”

In his Prison Notebooks, Antonio Gramsci wrote: “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum morbid phenomena of the most varied kind come to pass.”
The world is once again living an interregnum. It is poised between the failed economic model of recovery from the crash of 2007-08 and the birth of a new model, one that would actually work for the majority of Americans....
Occasional Links & Commentary
“In this interregnum morbid phenomena of the most varied kind come to pass”
David F. Ruccio | Professor of Economics, University of Notre Dame

See also

Fabius Maximus
New research reveals the people guilty of wrecking America!