Wednesday, April 23, 2014

Currency = How Dynamic Nations Denominate All The Credit That Citizens Of Growing Populations & Economies Continuously Extend To One Another.

   (Commentary posted by Roger Erickson)

For decades & centuries, people have been repeatedly asking: "Is there any limit to how much currency a nation can create?"

The answer seems intuitively obvious. Why doesn't everyone know it? Maybe some don't WANT this answer to be widely accepted? Or are entire populations really this timid and lazy about considering such a simple yet fundamental topic?

Whatever teamwork can produce, then the cooperative credits which team members extend to one another already exist. 

The only question is how accurately to denominate and track those distributed credits, so that all team members can use their credits, when and as needed - to rapidly explore even more team options.

The goal is to expand future team options, NOT to hoard current fiat (aka, the distributed inter-citizen credits that drive & sum to aggregate growth).

Amazingly, those bastions of the modern G7, the policy bureaucracies of the USA, Canada, Europe & Australia, all seem to be ignoring that self-evident answer. Hence, they have to be constantly reminded - even today - by people like Bill Mitchell, Warren Mosler & Randy Wray.

'You will note that:  
[Nations] do not spend by “printing money”. They spend by creating deposits in the private banking system. Clearly, some currency is in circulation which is ‘printed’ but that is a separate process from the daily spending and taxing flows; 
There has been no mention of where the government gets the ‘credits’ and ‘debits’ from! Central banks create bank reserves (money) out of thin air; and 
Any coincident issuing of government debt (bonds) has nothing to do with ‘financing’ the government spending – a point that is explained further on in this chapter.'

Tuesday, April 22, 2014

The Whole World Runs A Capitalism & Macro-Economic "Barro" Experiment, And The Results Come Out Opposite To Theory

(Commentary posted by Roger Erickson)

This is just astounding. Was there ever another peep from Barro?
Bill Mitchell Unearths Yet More Options [not taken] for Europe
If this occurred in the field of physics - or any other science/engineering field - they'd IMMEDIATELY change the theory ... to fit experimental facts.

But not us!!! We just pretend it never happened, and try twice as hard to make the failed experiment-on-ourselves work "right" - right?

There are a number of astounding findings Bill Mitchell is dredging up about the Monetarist backlash against reality. I'll only mention one, for the sheer lack of imagination it shows.
“[Imaginary] multipliers and marginal propensities to consume ordinary goods and services would be relatively larger under [imaginary settings] than under quantitative easing/new bond financing of budget deficits.”
Wow! We’re trying to let ad hoc accounting rules dictate to unpredictable reality? What would Maxwell, Boltzmann, Einstein & Planck say? Or Alfred Nobel? Is there an Ignoble Prize in Economics?

What to do about the "banking reserves" which our fiat currency accounting methods throws off as a nominal side effect of any economic growth? How about some imagination? If we can run Carbon Credit Markets which trade Carbon Credits for reducing greenhouse gases, why not a Public Purpose Market that trades PublicPurpose Credits for draining nominal banking “reserves” as well?

If you listen carefully, you can actually hear the sound of reality re-entering the faint minds of double-entry accounting gnomes. Despite all odds, they haven't made an entry for net national growth on their ledgers, opposite the entry for net banking reserves.

Stay tuned for the next episode of the hit tragecomedy:
or One Class Flown Upside Down Over The Cuckoo's Fully Amortized Nest
Starring: Du Bell 'entry, as Big Purse

The moral? When capitalists come to a fork in the road .... they stick it to themselves? (With apologies to Robert Frost.)

Perhaps we need to consider some paths less taken?

Bloomberg: Wall Street Bond Dealers Whipsawed on Bearish Treasuries Bet

Via Bloomberg: 

"The surprising resilience of Treasuries has investors re-calibrating forecasts for higher borrowing costs as lackluster job growth and emerging-market turmoil push yields toward 2014 lows. That’s also made the business of trading bonds, once more predictable for dealers when the Fed was buying trillions of dollars of debt to spur the economy, less profitable as new rules limit the risks they can take with their own money."
Shouldn't be "surprising" unless you don't understand the operations. Didn't anyone learn from Japan?

"While they’ve ratcheted down their forecasts this year, they predict 10-year yields will increase to 3.36 percent by the end of December. That’s more than 0.6 percentage point higher than where yields are today."“My forecast is 4 percent,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank AG, a primary dealer. “It may seem like it’s really aggressive but it’s really not.” 
4%? Uh, ok good luck with that one. 

Seems like Matt Franko's prior analysis, that bond dealers hate the low rates and want to push for higher ones, is correct.  

"The biggest dealers are seeing their earnings suffer. In the first quarter, five of the six biggest Wall Street firms reported declines in fixed-income trading revenue.New York-based JPMorgan, the biggest U.S. bond underwriter, had a 21 percent decrease from its fixed-income trading business, more than estimates from Moshe Orenbuch, an analyst at Credit Suisse, and Matt Burnell of Wells Fargo & Co. Citigroup, whose bond-trading results marred the New York-based bank’s two prior quarterly earnings, reported a 18 percent decrease in revenue from that business. Credit Suisse, the second-largest Swiss bank, had a 25 percent drop as income from rates and emerging-markets businesses fell. "
Sadly the article makes no distinction between the nature of US government paper and corporate paper. Any further thoughts?

Why Isn't Aggregate Policy A Science?

   (Commentary posted by Roger Erickson)

A very useful review article has been posted at NEP, by Randy Wray, about JF Foster
The Reality of the Present and the Challenge of the Future: Fagg Foster for the 21st Century

Reading the Foster quotes drives home that enough Americans understood aggregate economics ... but never managed to convey their insights to enough Americans to consistently leverage those insights.

One in particular stands, out, a conclusion that is stated differently in system science. Namely, that most people get no practice discerning the difference between current fiat and future options. Foster clearly did, 50 years ago, rather like Beardsly Ruml, Michael Kalecki, Abba Lerner, Marriner Eccles, and a few others, on to the present flowering of the miniature MMT community.

So how many people must understand MMT, before it matters? How many Americans must know what some Americans know - to reinstitute operations allowing political economy?  

If we're lucky, even 50 Key People in Key Positions in Key Institutions can make a dramatic difference, as FDR's Brain Trust did. 

However they obviously couldn't ensure that our electorate could MAINTAIN that level of success. To RETAIN aggregate success, many have estimated that 10% of the electorate must grasp the emerging operations that made success possible.  Today that would mean at least 16 million citizens!

It's ironic that the legions of Keynes' followers & opponents alike largely misunderstood the messages of Lerner, Kalecki, Ruml & Keynes.

Worse, it's doubly ironic that the legions of Americans, in both policy positions, universities & electorate, didn't understand the operational functions that Marriner Eccles & the rest of FDR's Brain Trust introduced ... who themselves DID NOT READ Lerner, Kalecki, Ruml or Keynes, or acted largely before most of their summary articles were published.

Finally, it's triply ironic that pundits throughout the ages were right. Humans - and human aggregates too - often stumble over new truths, then pick themselves up and go on in their old ways - for astoundingly long periods of stagnation - as though nothing new had happened.

Yet does that seem to happen MORE often in disciplines not yet favored with the audacity and openness of a science? Other professions glom onto every new advance like a dog on a bone, using the basic, questioning methods of the "scientific method" - aka, to question EVERYTHING, and answer every operational RESULT relentlessly, with yet more questions.

This sums to a simple but profound question. Why isn't aggregate policy dealt with as a science? 

It's not that difficult for aggregates to determine the best course of aggregate action. We mobilize to do it well, in times of crisis or war, but during peacetime we go right back to purposely maintaining a significant, completely unnecessary Output Gap

Is it only the frictions of politics that makes us treat the operations of functional democracy (always changing, uniquely scale-dependent) as a fearful taboo? Is that what FDR meant when he said that the only thing we have to fear is fear itself? We're afraid to play as an aggregate team? We're terrified of the return-on-coordination? 

Maybe we should let sports coaches, choreographers and band-leaders run the country? They'd remind us that there's no "I" in team, and also nothing taboo about teamwork.

Monday, April 21, 2014

Sunday, April 20, 2014

Clive Crook — The Most Important Book Ever Is All Wrong

A rebuttal of Piketty from the right. First, there's a "measurement problem," and secondly, the empirical data doesn't support the normative conclusion, which is too narrow anyway.
Piketty's terror at rising inequality is an important data point for the reader. It has perhaps influenced his judgment and his tendentious reading of his own evidence. It could also explain why the book has been greeted with such erotic intensity: It meets the need for a work of deep research and scholarly respectability which affirms that inequality, as Cassidy remarked, is "a defining issue of our era."
Maybe. But nobody should think it's the only issue. For Piketty, it is.
Aside from its other flaws, "Capital in the 21st Century" invites readers to believe not just that inequality is important but that nothing else matters.
Then he concludes with an argument out of Mises:

Over the course of history, capital accumulation has yielded growth in living standards that people in earlier centuries could not have imagined, let alone predicted -- and it wasn't just the owners of capital who benefited. Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that's a bad thing, and governments should act. But even if it does, it won't matter as much as whether and how quickly wages and living standards rise.

That is, or ought to be, the defining issue of our era, and it's one on which "Capital in the 21st Century" has almost nothing to say.

The Most Important Book Ever Is All Wrong
Clive Crook

Peter Dorman — Piketty’s Unlikely Path

Here’s a guy who was a natural for cranking out theoretical models in economics. His career was jet-propelled, and at an age when most econ grad students are sweating out their prelims he was already on the tenure track at MIT. He could spend the rest of his life among the elite of the elite, playing cleverly with algebraic puzzles for a living. Instead, he quit, returned to France, and spent the next decade digging through archives, laboriously piecing together datasets on income and wealth distribution.
Piketty with everything to look forward to, essentially dropped out and pursued what he thought was actually important with no assurance of success. As Barkley Rosser points out in a comment, so did Karl Marx. Surely the influence of Marx exceeded his wildest dreams, even though he did not live to see it. Well, have to wait to find out what Piketty's influence on economics, politics and society will be.


David Graeber on a Basic Income Guarantee

David Graeber in favor of a basic income guarantee (BIG).

PBS Newshour
Why America’s favorite anarchist thinks most American workers are slaves
David Graeber

George Soros and Gregor Peter Schmitz — The Future of Europe: An Interview with George Soros

George Soros: If you mean that the euro is here to stay, you are right. That was confirmed by the German elections, where the subject was hardly discussed, and by the coalition negotiations, where it was relegated to Subcommittee 2A. Chancellor Angela Merkel is satisfied with the way she handled the crisis and so is the German public. They reelected her with an increased majority. She has always done the absolute minimum necessary to preserve the euro. This has earned her the allegiance of both the pro- Europeans and those who count on her to protect German national interests. That is no mean feat.
So the euro is here to stay, and the arrangements that evolved in response to the crisis have become established as the new order governing the eurozone. This confirms my worst fears. It’s the nightmare I’ve been talking about. I’m hopeful that the Russian invasion of Crimea may serve as a wake-up call. Germany is the only country in a position to change the prevailing order. No debtor country can challenge it; any that might try would be immediately punished by the financial markets and the European authorities.The 
New York Review of Books
The Future of Europe: An Interview with George Soros
George Soros and Gregor Peter Schmitz

RSA Animate - Drive: The surprising truth about what motivates us

RSA Animate - Drive: The surprising truth about what motivates us
(h/t Marc Chandler)

Barkley Rosser — More On Owning Unowned Land

Economics, law, and the origin of property rights.
Merrill cites John Locke on this who wrote, amazingly enough, that we should think of the world as originally "being America," that is a giant commons. For Locke it was mixing one's labor with the land that established ownership, a labor theory of ownership as it were. The matter of "accession" is posed as an alternative, but this simply involves a modification of this labor mixing principle, altering it to the first owner is the one who establishes effective control over the land. Once that is recognized, then a chain is established that simply continues, which is why we have this matter of the code holding when land first becomes clearly owned being the relevant one for later property transfers, particularly real estate ones.
Now in fact this does not really answer our question, although it does highlight important details to some extent, particularly when we consider Locke's view of "America." Why is it that the Indians did not "own" the land, or were not considered to be the owners by the British (and Spanish and French)? Needless to say, certain areas were used regularly by certain tribes, arguably enough that Locke should have granted them property rights, unless he wanted to argue that they could not due to being subhuman or something like that (am not aware of Locke ever making such arguments).
No, obviously what is involved is recognizing that behind property rights, certainly in land, there is assumed to be some sort of government or state with an organized legal code and system of courts to enforce it, even if it is one that has evolved "spontaneously" a la the common law of Britain, in contrast to the continental codes derived from Roman law, although the argument of Shleifer and his allies about the differences between these has been way overblown and often full of errors, the famous "Legal Origins" QJE paper by Glaeser and him being notorious for its myriad mistakes, even as it is one of the most heavily cited economics papers of all time.
So, private property comes into play when a government with a legal system recognizes that somebody has "mixed their labor" or otherwise assumed some recognized degree of control over some land with, very importantly, that person recognized as someone with legal rights to do so within the law code of the state involved, with that state itself ultimately having some degree of control or claim to control the land in question.
More On Owning Unowned Land
J. Barkley Rosser | Professor of Economics at James Madison University in Harrisonburg, Virginia

Suresh Naidu — Notes from Capital in the 21st Century Panel

While I have a long piece on Piketty's book coming out in Jacobin, I was lucky enough to be a discussant on a panel with Thomas last Thursday, where I got a chance to lay out some second-order reactions to the book as well as talk with him a bit. Here are my notes from that, tidied up a bit and including some things I didn’t get to say.
Perhaps a useful analogy is that this is the "Free to Choose" or “Capitalism and Freedom” for our time, from the left. I can’t think of a book that emerged from economics for a mass audience with as much reception since then. And what good news this is for economics! For 50 years Milton Friedman was the public face of partisan economics, and stamped it with a conservative public face that persisted. Maybe now Piketty’s book will give my discipline another public face.

But let me push back against the book a bit. I think there is a "domesticated" version of the argument that economists and people that love economists will take away. Then there is a less domesticated one, one that is more challenging to economics as it is currently done. I'm curious which one Thomas believes more. I worry that the impact of the book will be blunted because it becomes a “Bastard Piketty-ism” and allows macroeconomics to continue in its modelling conventions, which are particularly ill-suited to questions of inequality.
The domesticated version is a story about technology and the world market making capital and labor more and more substitutable over time, and this is why r does not fall very much as wealth accumulates. It is fundamentally a story about market forces, technology and trade making the demand for capital extremely elastic. We continue to understand r as the marginal contribution of capital to the production of the economy. I think this is story that is told to academic economists, and it is plausible, at least on the surface.

There is another story about this, one that goes back to Keynes. And the idea here is that the rate of return on capital is set much more by institutions, norms and expectations than by supply and demand of the capital market. Keynes writes that "But the most stable, and the least easily shifted, element in our contemporary economy has been hitherto, and may prove to be in future, the minimum rate of interest acceptable to the generality of wealth-owners." Keynes footnotes it with the 19th century saying that “John Bull can stand many things, but he cannot stand 2 percent.”

The book doesn't quite take a stand on whether it is brute market forces and a production function with a high elasticity of substitution or instead relatively rigid organization of firms and financial institutions that lies behind the stability of r.
I think the production approach is less plausible, partly because housing plays such a large role in the data, partly because average wages would have increased along with K/Y, partly because the required elasticity of substitution is too big for net quantities, and partly because of the differences between book and market capital. The (really great) sections from the book on corporate governance actually suggest something quite different, that there is a gap between cash-flow rights and control rights, and this is why Germany has lower market relative to book values. This political dimension of capital, the difference between the valuation written down in the balance sheet and the real power to dispose of the asset, is something that the institutional view of capital can capture better than the marginal product view. This is, I think, also a fruitful interpretation of what was at stake behind the old capital controversies....
Suresh puts his finger on the nub of it.
We live in a world where much more of everyday life occurs on markets, large swaths of extended family and government services have disintegrated, and we are procuring much more of everything on markets. And this is particularly bad in the US. From health care to schooling to philanthropy to politicians, we have put up everything for sale. Inequality in this world is potentially much more menacing than inequality in a less commodified world, simply because money buys so much more. This nasty complementarity of market society and income inequality maybe means that the social power of rich people is higher today than in the 1920s, and one response to increasing inequality of market income is to take more things off the market and allocate them by other means.
Along with this is the condition in which privatization, commodification, and capitalization of all resources threatens the very subsistence of marginal populations in developed regions in addition to emerging and still undeveloped, resulting in mass immiseration and social dysfunction characteristic of failed states.

The Slack Wire
Notes from Capital in the 21st Century Panel
Suresh Naidu

Chris Dillow — 12 alternative principles

An old speech by Tom Sargent has had some praise andsome criticism. But what would a more heterodox list of 12 economic principles look like? Here's my effort, observing Sargent's constraints of concision and relevance for young people starting out in life:
Stumbling and Mumbling
12 alternative principlesChris Dillow | Investors Chronicle

See also Lars Syll, Self-righteous Chicago drivel — far from everything you need to know about economics, for more on Sargent's speech.

Jeffrey Madrick — An Indictment of the Invisible Hand (via Moyers & Company)

An Indictment of the Invisible Hand (via Moyers & Company)
Thomas Piketty’s 700-page book, Capital in the Twenty-First Century, has stunned both the economic profession and most political observers. But the economic mainstream is not truly dealing with its most serious implications even as they widely praise…

Seems We Can't Blindly Trust Either Political Party - Bill Clinton Was As Bought As They Come (Bush & Obama ... & us too?)

   (Commentary posted by Roger Erickson)

Maybe even more bought than Dubya? And what does that portend about who
REALLY owns Obama?

What'd Mark Twain supposedly say? "It is easier to fool people than to convince them that they have been fooled."

Picking up an theme once discussed in comments at Warren Mosler's blog, do we have a simple class war between two industry segments?
DNP - bought by the banking (& entire F.I.R.E.) industry? 
GOP - bought by the oil & F500 & MICC & general mfg industry?
While the MiddleClass is kept divided & conquered, bickering over which serf-master to capitulate to? Worse, are these two lobbies now colluding, to permanently own the US Middle Class?

Can we at least get a 3rd party (software industry? Labor/MiddleClass?) or no parties at all? Instead, just distributed democracy, like during George Washington's 2 original terms?

Seems we can't blindly trust either political party, and need to set our sights on trusting our distributed electorate ... and what's left of our democracy.

If this concept resonates with you, then read on. The following is posted, with permission from Chuck Spinney. It may appear later on his personal blog.


---------- Forwarded message ----------
From: Chuck Spinney

Attached herewith is an important report in the Guardian. It places the deregulation of Wall Street during the Clinton Administration into a particularly smarmy perspective by examining documents just released by the Clinton library. Note the connections to players now in the Obama Administration.

This report paints a revealing albeit depressingly familiar portrait of how the iron triangle of individuals and money moving between government executive positions, and private sector, together with friendly legislators in Congress encourages corruption that leads ultimately to taxpayer bailouts. Consider please the following:
1. Note how the memos make it look like President Clinton was being rushed, implying a certain degree of passivity and manipulation by advisors. But before taking this at face value, bear in mind, Clinton was never a passive actor; quite the opposite, he was a highly energetic president. He set the tone, and he picked these advisors; he stayed with them; and he passed many of them on to President Obama.

2. Note that the repeal of Glass Steagall -- Clinton’s signature deregulation of the financial markets and perhaps the major contributor to the rise of speculation that culminated in 2008 crash -- was not a last minute affair. In fact, the memos show effort to repeal reaches bat to at least in February 1995 and May 1997 and the reference to eating the paper after you read it suggests a degree of malevolent cynicism.

3. Note the tight connection between the repeal Glass-Steagall and the pending Citigroup merger with Travelers Group, and particularly, the central the role played by Secretary of the Treasury Robert Rubin in the promotion of the of that repeal. Rubin was Secretary of the Treasury from 11 January 1995 to 2 July 1999 -- the period covered by the memos contained in the Guardian report.

4. Finally, the reader should note that four months after leaving the Treasury Department, in Oct 1999, Rubin joined Citigroup. Here is a contemporary portrait painted by a 27 October 1999 report in the New York Times,

“Mr. Rubin, 61, a former top official of Goldman, Sachs & Company, said yesterday that he had joined Sanford I. Weill and John S. Reed, the chairmen and chief executives Citigroup, in what Mr. Reed described as a ''three-person office of the chairman'' that will oversee what has become the first true American financial conglomerate since the Depression.
The appointment came less than a week after the Clinton Administration and Congress agreed on a compromise bill that would overhaul the laws that regulate the financial industry, a measure that removes many of the restrictions preventing banks, securities firms and insurance companies from buying one another or engaging in one another's businesses. Both Mr. Rubin and Citigroup strongly supported the bill, which would greatly benefit the company. Mr. Rubin said he played a role in arranging the final compromise that will probably lead to the repeal of the so-called Glass-Steagall legislation. But he said that had nothing to do with his decision to join the company.”

By 2007 Rubin was Chairman of Citigroup. And in 2008, nine years after the repeal of Glass Steagall, the worst financial crisis since the Great Depression hit Wall Street to trigger the worst and longest recession since the Great Depression. That crisis, among other things, collapsed the stock markets, destroyed retirement nest eggs, wrecked the housing markets, and put millions of people out of work — and our nation has still not recovered. Then the “best government money can buy” added insult to injury by bailing out of the banks that created the mess, while ducking the issue of re-regulating their behaviour with anything close to proven power of defunct Glass-Steagall Act. Some observers are now warning the government’s failure to reign in speculative behaviour is setting the stage for yet another crash (e.g., here and here)

And what about Rubin’s role? According to information in Wikipedia, on 3 December 2008, shortly after the financial collapse, the Wall Street Journal characterized Rubin’s mix of oversight and management responsibilities at Citigroup "murky." In an interview with the Journal, Rubin defended himself, saying: "I think I've been a very constructive part of the Citigroup environment." But, the Journal reported that Citigroup shareholders suffered losses of more than 70 percent since Rubin joined the firm and that he encouraged changes that led the firm to the brink of collapse.[23] Investors filed a lawsuit in December contending that Citigroup executives, including Rubin, sold shares at inflated prices while concealing the firm’s risks. A Citigroup spokesman said the lawsuit was without merit.[24].

But what happened to Rubin personally? According to a 20 September 2012 report in Bloomberg, Rubin received a total compensation of $126,000,000 from Citigroup between 1999 and 2009. Among other things, the former eagle scout is now co-chairman of the prestigious Council on Foreign Relations.

Chuck Sp
inney   The Blaster


Previously restricted papers reveal attempts to rush president to support act, later blamed for deepening banking crisis

Saturday, April 19, 2014

Emily Eakin — Capital Man

The Economist declared that Piketty’s book may "revolutionize the way people think about the economic history of the past two centuries" and started an online reading group to discuss it chapter by chapter. The British magazine Prospect added Piketty to its annual list of the most influential world thinkers, and his book was said to be making the rounds in the office of Ed Milliband, the British Labour Party leader. Documentary filmmakers were vying for the chance to turn the book into a movie; a composer was seeking Piketty’s blessing to make it an opera.
Now the 42-year-old Frenchman had come, like a wonkish heir to de Tocqueville, to tell Americans how to salvage what he called their "egalitarian pioneer ideal" from a potentially devastating "drift toward oligarchy." His anointment was all the more remarkable in that he intended his book not just as a novel argument about inequality but as a pointed rebuke to his field—in particular its American wing.
On Monday, Piketty’s stops included the White House Council of Economic Advisers, the Government Accountability Office, and the office of the Treasury secretary, Jacob Lew, who summoned him for a private sit-down to discuss his proposal for a progressive tax on wealth. On Tuesday, he appeared in the company of Nobelists: George Akerlof, who, introducing Piketty to a group at the International Monetary Fund, declared that he had "entered rock stardom—economist-style"; and Robert Solow, who, at the Economic Policy Institute, where a crowd of several hundred had braved a freezing downpour to hear Piketty talk, praised the originality of his argument and the "sheer collection, presentation, and analysis" of his data, predicting that "we’re going to be digesting that for a long time."
The Chronicle of Higher Education
Capital Man
Emily Eakin
(h/t Brad DeLong)

Tim Fernholz — Ten questions for Thomas Piketty, the economist who exposed capitalism’s fatal flaw

Tim Fernholz interviews Thomas Piketty.

Ten questions for Thomas Piketty, the economist who exposed capitalism’s fatal flaw
Tim Fernholz

Scott Kaufman — Oklahoma students know less about evolution after Biology I than they did before taking it (via Raw Story )

Oklahoma students know less about evolution after Biology I than they did before taking it (via Raw Story )
A study published in the latest edition of Evolution: Education and Outreach demonstrated “the average student…completed the Biology I course with increased confidence in their biological evolution knowledge yet with a greater number of biological…

Dan McMillan — Charles Darwin’s tragic error: Hitler, evolution, racism and the Holocaust

Darwin gets the rap for a specious theory similar to his propounded by Herbert Spencer, who has been largely forgotten today but in his time his writings were as famous as Darwin and Spencer made his living from book sales. "Social Darwinism" is actually Herbert Spencer's creation, through the influence of Malthus, Galton, and Lamarck as much as Darwin, although the term was not applied to Spencer until much later. Spencer published his evolutionary theory three years prior to the publication of Darwin's The Origin of the Species.
... propagandists who are opposed to evolution often try to blame Darwin for the policies later known as social Darwinism. However, these views were primarily associated with the English sociologist Herbert Spencer. In his 1851 bestseller Social Statics, Spencer developed most of the ideas attributed to social Darwinism when he argued that the poor should not be helped through government programs, but should be allowed to die for the betterment of society: — Deconstructing Social Darwinism (for an alternative view see Damon Root, The Unfortunate Case of Herbert Spencer: How a libertarian individualist was recast as a social Darwinist)
It was Spencer for example that connected evolution with social progress, not Darwin, and his notion is different from Darwin's natural selection. Moreover, the idea that evolution toward progress is driven by "survival of the fittest" is Spencer's, and Spencer coined that phrase, not Darwin. Spencer's use of the notion is a misstatement of Darwin's theory of natural selection. Darwin did use "survival of the fittest" in the fifth edition of On the Origin of Species after it had become well-known after Spencer, but he gives a different meaning there from Spencer's usage with respect to social progress. 

Darwin did not connect his theory of natural selection with social progress. That idea was Herbert Spencer's.

But the claim that Spencer's notion of evolution and social progress bastardized Darwin's theory of natural selection and that Spencer was the progenitor of "social Darwinism" does't fully capture the story either, since there is much more to the history. See Deconstructing Social Darwinism, parts 1-4.

It's important to understand this since what developed into "social Darwinism" from the POV of the left lies at the foundation of much social, political and economic thinking on the right, as well as underlying neoliberalism as a social and political ideology. Moreover, Libertarians claim Spencer as a forerunner and early Libertarian:  "Murray Rothbard, on the other hand, praised Social Statics as 'the greatest single work of libertarian political philosophy ever written'.” — Matt Zwolinski, A Bleeding Heart History of Libertarian Thought – Herbert Spencer.

Lionized on the right, and demonized on the left. Given the shift of the universe of discourse to inequality, we are probably going to be hearing a lot about this, at least implicit in the discussion if not explicitly.

Jared Bernstein — Dude, Where’s Your Piketty Review??!!

I’m way late in weighing in on Thomas Piketty’s great book “Capital in the 21st Century,” (note the lack of subtitle–I like that–gives the title that much more weight!). That’s because I’m reading it really slowly but I’m almost done.
Why so slow? In part, because I’m savoring it–it’s a wonderful read, with trenchant insights every few pages, and there are lots of pages. Also, the damn thing is dense, and often after reading a few pages I realize I haven’t absorbed the last few paragraphs, so I need to take a break. Probably my own absorptive capacity ain’t what it used to be.
And, of course, there’s been no shortage of insightful economists weighing in. Anyway, a very few insights off of top of head, with the caveat that I’m still processing all of this:... 
Jared Bernstein | On the Economy
Dude, Where’s Your Piketty Review??!!
Jared Bernstein

The book out how long? And people are already feeling they have to apologize for being late to review it. Wow. This is one hot item for a dense tome on economics and economic history.

Best line: "As [Piketty] says in the NYT today: “…capitalism and markets should be the slave of democracy and not the opposite.”

Noteworthy: "This cosmology observation is far from a critique–it’s what Krugman means when he says the book will change the way we think about the economy. I certainly hope Paul’s right about that. It’s been interesting to see the lack of response from the right, though I’m sure it’s coming."

This could actually be the Copernican Revolution in economics rather than the Newtonian as Bernstein suggests. Previously, economic both Keyensian and Neoclassical have focused on the business cycle. Piketty shifts that focus to the centrality of systems comprised of people and institutional arrangements that generate social and political results as well as economic ones.

The issue is not so much inequality, which is a symptom. The issue is the asymmetrical power that great wealth bestows and how that power adds to great wealth unless it is distributed politically through functioning democracy.

Of course, this is not unique to capitalism but rather it is the history of surplus societies where deciding who gets what share of the surplus is the overriding concern socially, politically and economically. This has almost invariably resulted in highly asymmetrical social status, political power, and economic wealth in terms of class structure and institutional arrangements.

Why do I think this is likely to be a Copernican Revolution in economics?
Just a note re his fame (see NYT link above re that). So I get a typical call from a reporter the other day, asking me what I thought about some developments around poverty policy. He then asks, “And how do you think Thomas Piketty would answer these questions?” And, having intellectually “lived with” TP for a few weeks now, I actually think I gave a pretty good answer!
Not Keynes, not Hayek, not Friedman, not ..., but Piketty. The universe of discourse is changing not only in econ but also in the media.

On the other hand...
It’s been interesting to see the lack of response from the right, though I’m sure it’s coming.
I expect that a withering attack is in preparation and they are now putting together the talking points, probably in consultation with Frank Luntz.


Steve Roth — Lane Kenworthy, Prosperity, and the Infinite Forms of “Redistribution”

Which brings me to another recent paper (prominently citing the previous one), that questions the Left’s rhetorical emphasis on (in)equality:
I fear the American left’s recent move to put income inequality reduction front and centre might be harmful rather than helpful. It may foster a conviction that the key to addressing America’s social, economic and political problems is to reduce the top 1 per cent’s share or the Gini coefficient. That could distract attention from more direct and effective efforts to address those problems.
Such efforts include fully universal health insurance; improvements in eligibility, duration and benefit level for various social-insurance and social-assistance programmes; wage insurance; early education; enhanced financial support for college; a minimum wage indexed to prices; an expanded earned-income tax credit indexed to average compensation; and monetary policy less tilted towards inflation avoidance.
Policy changes like these would go a long way towards improving economic security, enhancing opportunity (and mobility) and ensuring shared prosperity in the US. Inequality of political influence could be lessened via direct reforms, such as reversal of the Citizens United decision, introduction of a strong transparency rule and public funding for congressional election campaigns.

Another approach to reducing inequality rather than the global wealth tax proposed by Piketty, which everyone already agrees is going nowhere.

AFP — Obama signs ‘terrorist activity’ law aimed at barring Iranian U.N. envoy

The beginning of the end of the United Nations as US increasingly asserts global hegemony.

The Huffington Post
Obama signs ‘terrorist activity’ law aimed at barring Iranian U.N. envoy
Agence France-Presse

Geoff Davies — More effective remedies for inequality than Piketty’s

I have read only reviews of Thomas Piketty’s Capital in the Twenty-First Century, but clearly it is valuable for documenting the nature and history of inequality over the past century or three, and for highlighting the excessive political power that flows from super-wealth. Yet he frames it in terms of capital and capitalism and, for all the quality of his diagnosis, his main prescription evidently is just to tax the wealthy, through income and inheritance taxes.
The trouble is, capital and capitalism are very ill-defined. To speak of capitalism is to invite an un-constructive shouting match. Capitalism has caused great harm to people and the world! Yes but capitalism is what has made us rich!
A more useful framing is that there have been, and can be, many ways to structure a market economy. When one looks into the mechanisms that have operated in market economies, one can readily identify mechanisms that pump wealth from the 99% to the 1%. One can then think of ways to stop or reverse these flows, so wealth flows more fairly to everyone involved in its generation. It will be much more effective to fix the problems at the source than just to apply traditional retro-active bandaids like taxes.
In my own book Sack the Economists, I identified seven fairly obvious such mechanisms. Below is an edited excerpt that summarises mechanisms identified in the course of the book’s analyses. (Dean Baker has also made lists, short and longer, which are a little more detailed and only partly overlapping with mine.)
Real-World Economics Review Blog
More effective remedies for inequality than Piketty’s
Geoff Davies

Sack the Economists is available for $4.99 at Amazon Kindle.

Ben Dyson — Economics textbooks teach a “mythological” story about what banks do, claims former bank regulator Lord Adair Turner (Full transcript)

Video and transcript of Adair Turner's INET presentation.

Positive Money
Economics textbooks teach a “mythological” story about what banks do, claims former bank regulator Lord Adair Turner (Full transcript)
Ben Dyson

Daniel Little — The near future

There is a lot going on in America and the world today: climate change, increasing separation between the rich and the non-rich, entrenched poverty in cities, continuing effects of racism in American life, and a rising level of political extremism in this country and elsewhere, for starters. Add to this politico-military instability in Europe, continuing social conflict over austerity in many countries, and a rising number of extreme-right movements in a number of countries, and you have a pretty grim set of indications of what tomorrow may look like for our children and grandchildren.
How should we think about what our country will look like in twenty or thirty years? And how can we find ways of acting today that make the prospects for tomorrow as good as they can be?
The near future
Daniel Little

Market liberalization together with technological innovation have resulted in many of the challenges humanity faces, in that the pursuit of efficiency leads to consolidation and elimination of redundancy, as well as negative externalites, that ignore rising risk to vital systems. The only way to address the risk that this engenders seems to be through government action, since markets are apparently not self-correcting in this respect, and there are political obstacles to that happening in the current neoliberal environment.

John Pilger — The Strangelove Effect - or How We Are Hoodwinked Into Fighting a New Cold War

While President Obama seeks more money for nuclear weapons than at the peak of the Cold War, the era of the comedy movie, Dr. Strangelove, it's no joke that the United States is seeking to dominate the Eurasian landmass, stretching from China to Europe.

The Strangelove Effect - or How We Are Hoodwinked Into Fighting a New Cold War
John Pilger

Friday, April 18, 2014

YouGov Poll Results: Poverty

The public is not buying into the conservative line of blame the victim.
These are the topline results of a YouGov/Huffington Post survey of 1000 US adults interviewed April 15 - 16, 2014 on poverty. The results show that people tend not to blame poverty on individual failings. The margin of error is 4.3%.
YouGov Poll Results: Poverty

Michael McAuliff — Elizabeth Warren Book Is A Liberal Call To Arms That Rips Tea Party 'Magical Thinking'

Elizabeth Warren's new book isn't just a memoir -- it's a full-throated endorsement of modern, populist liberalism and a scathing indictment of anti-government "magical thinking" by the tea party.
While the Democratic Massachusetts senator structures her new volume, A Fighting Chance, as a chronological tale of her life, she also uses her experiences to make strategic points and arguments about her political philosophy, which embraces government and the labor movement as forces for good.
"We can't bury our heads in the sand and pretend that if 'big government' disappears, so will society's toughest problems. That's just magical thinking -- and it's also dangerous thinking," Warren writes. "Our problems are getting bigger by the day and we need to develop some hardheaded, realistic responses. Instead of trying to starve the government or drown it in the bathtub, we need to tackle our problems head-on, and that will require better government."
She's off to a good start. Small government versus good government. What a novel idea.

The small government argument is based on the assumption that good government is impossible or at least highly improbable, as well as the assumption that democracy doesn't work.

The good government argument is based on the assumption that government is of the people, by the people and for the people and democracy works. You know, like it says in the preamble to the US Constitution.

The Huffington Post
Elizabeth Warren Book Is A Liberal Call To Arms That Rips Tea Party 'Magical Thinking'
Michael McAuliff

Also McAuliff's Elizabeth Warren's New Book Skewers The White House Boys Club
She doesn't always say it directly and she usually cuts the sting with some praise, but Warren seems particularly disappointed with two of the lions of Obama's economic team: former Treasury Secretary Tim Geithner and former National Economic Council boss Larry Summers....
Learning how the inside game works.
"[Summers] teed it up this way: I had a choice," Warren writes. "I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don't listen to them. Insiders, however, get lots of access and a chance to push their ideas. People -- powerful people -- listen to what they have to say. But insiders also understand one unbreakable rule: They don't criticize other insiders."...
... Geithner brought home to her that "[d]espite the way it was sold, TARP was about saving banks, pure and simple."
"There it was," Warren writes. "The Treasury foreclosure program was intended to foam the runway to protect against a crash landing by the banks. Millions of people were getting tossed out on the street, but the secretary of the Treasury believed the government's most important job was to provide a soft landing for the tender fannies of the banks...."
"The president chose his team, and when there was only so much time and so much money to go around, the president's team chose Wall Street," she writes.

Mises on the four classes of people and the basis of the market society

"Saving—capital accumulation—is the agency that has transformed step by step the awkward search for food on the part of savage cave dwellers into the modern ways of industry. The pacemakers of this evolution were the ideas that created the institutional framework within which capital accumulation was rendered safe by the principle of private ownership of the means of production. Every step forward on the way toward prosperity is the effect of saving. The most ingenious technological inventions would be practically useless if the capital goods required for their utilization had not been accumulated by saving.

"The entrepreneurs employ the capital goods made available by the savers for the most economical satisfaction of the most urgent among the not-yet-satisfied wants of the consumers. Together with the technologists, intent upon perfecting the methods of processing, they play, next to the savers themselves, an active part in the course of events that is called economic progress. The rest of mankind profit from the activities of these three classes of pioneers. But whatever their own doings may be, they are only beneficiaries of changes to the emergence of which they did not contribute anything.

"The characteristic feature of the market economy is the fact that it allots the greater part of the improvements brought about by the endeavors of the three progressive classes—those saving, those investing the capital goods, and those elaborating new methods for the employment of capital goods—to the nonprogressive majority of people. Capital accumulation exceeding the increase in population raises, on the one hand, the marginal productivity of labor and, on the other hand, cheapens the products. The market process provides the common man with the opportunity to enjoy the fruits of other peoples's achievements. It forces the three progressive classes to serve the nonprogressive majority in the best possible way.

"Everybody is free to join the ranks of the three progressive classes of a capitalist society. These classes are not closed castes. Membership in them is not a privilege conferred on the individual by a higher authority or inherited from one's ancestors. These classes are not clubs, and the "ins" have no power to keep out any newcomer. What is needed to become a capitalist, an entrepreneur, or a deviser of new technological methods is brains and will power. The heir of a wealthy man enjoys a certain advantage as he starts under more favorable conditions than others. But his task in the rivalry of the market is not easier, but sometimes even more wearisome and less remunerative than that of a newcomer. He has to reorganize his inheritance in order to adjust it to the changes in market conditions. Thus, for instance, the problems that the heir of a railroad "empire" had to face were, in the last decades, certainly knottier than those encountered by the man who started from scratch in trucking or in air transportation.

"The popular philosophy of the common man misrepresents all these facts in the most lamentable way. As John Doe sees it, all those new industries that are supplying him with amenities unknown to his father came into being by some mythical agency called progress. Capital accumulation, entrepreneurship and technological ingenuity did not contribute anything to the spontaneous generation of prosperity. If any man has to be credited with what John Doe considers as the rise in the productivity of labor, then it is the man on the assembly line. Unfortunately, in this sinful world there is exploitation of man by man. Business skims the cream and leaves, as the Communist Manifesto points out, to the creator of all good things, to the manual worker, not more than "he requires for his maintenance and for the propagation of his race." Consequently, "the modern worker, instead of rising with the progress of industry, sinks deeper and deeper.... He becomes a pauper, and pauperism develops more rapidly than population and wealth." The authors of this description of capitalistic industry are praised at universities as the greatest philosophers and benefactors of mankind and their teachings are accepted with reverential awe by the millions whose homes, besides other gadgets, are equipped with radio and television sets."

Ludwig von Mises
Grove City, PA: Libertarian Press, originally published 1956, p. 31-33
(h/t Sandwichman at EconoSpeak)

Emily Tess Katz — Jack Abramoff: Supreme Court Justices 'Just Don't Get' How Money Influences Politics

Former lobbyist Jack Abramoff disagrees with the Supreme Court's April 2 ruling on campaign finance limits, which knocked down the overall limits on what a donor can give to all federal candidates, political parties and PACs combined.
"I don’t believe the [Supreme Court] justices understand the connection between political money and corruption," he told HuffPost Live's Josh Zepps. "It seems that none of them were politicians and none of them were elected officials, so maybe they just don’t get it. To think that the conveying of money is not going to create a corrupt relationship, I think is naive at best."