"It's all about oil and gas."
Dr Michael Hudson interview with RT International
Sustained recovery requires direct investment, not just a rise in consumption income that hopefully might convince capitalists to again reinvest in the US (or not convince). So the problem is not merely a lack of income growth to stimulate investment. US capitalists are investing–just not in real asset investment and not in the US. They are investing in emerging markets, and even more so in financial asset markets globally (which are now more numerous, liquid, and available than ever before due to the creation of an unregulated global shadow banking system).…
The more fundamental problem is that finance capital has changed. Raising incomes of workers and middle class Americans will help somewhat, but not all that much. It will not result in sustained economic recovery any longer. It is therefore not the main solution to the long term economic stagnation that the US has been experiencing since 2009. Capitalist profit opportunities are simply greater offshore in EMs, and in financial asset markets, than they are from making goods and services in the US, even if US workers were able to buy those real goods and services if they had more income.…
To argue simply for wage and income growth as the solution to a chronic stagnant US economic recovery—as Krugman and colleagues do for example—is to assume that capitalist enterprise will redirect itself from more lucrative profit opportunities from financial speculation and in offshore markets, back to less profitable real production of goods and services in the US. They won’t to any significant extent, since rates of return in the latter are significantly less than in the former.
The only real solution to a sustained US recovery is for massive public government investment, that then subsequently creates income. Investment precedes income creation, it does not necessarily follow it any longer in a world of 21sts century global finance capital. Just calling for income growth (via minimum wage hikes, more contingent job creation, tax cuts, or whatever) will not necessarily result in US-based investment if Capitalists continue to shift to more profitable financial speculation offshore; public investment must therefore occur prior to income growth in order to generate a sustained recovery.…
In today’s world of 21st Century Global Finance Capital, don’t expect capitalists to invest in real production and thus jobs and income in the US economy as they did decades ago. They are too busy making greater profits offshore and in financial asset speculation, leveraging the trillions of dollars of free money and credit created for them by the Federal Reserve. If real investment in the US economy is ever to return, it will have to come via major public investment initiatives. And if not, expect chronic economic stagnation to continue, as has been the case since 2010.Counterpunch
Essentially, what Paul Ryan wants to do is create a government bureaucracy to monitor these ‘contracts’ (or, maybe monitor the Social Contract?). Conservatives have spent the last forty years railing against this very thing. Of course, people will disagree about whether they hit these ‘benchmarks’, so we’ll need to hire people to adjudicate that process. More ‘big government.’ It also opens people up to the predations and whims of ‘petty government bureaucrats.’Republican Rep. Paul Ryan Wants to Create Massive Government Bureaucracy
Last week, the Chief economist at the Deutsche Bundesbank, Dr. Jens Ulbrich gave a rather extraordinary interview to the German magazine Der Spiegel. The interview was recorded in the article – Breaking a German Taboo: Bundesbank Prepared to Accept Higher Inflation. The sub-heading said that this marks a “major shift away from the Bundesbank’s hardline approach on price stability” and my profession apparently “hailed the decision as a ‘breakthrough’”. I wouldn’t be so sure. The Bank has a long track record of ignoring the plight of German workers and the workers elsewhere in Europe. The imposition of its ‘culture’ with its disdainful disregard for responsible economic policy on Eurozone political elites has created so much slack in Europe that even it cannot deny the mounting evidence that there is a deflationary problem. But this support for workers’ wage rises won’t last. As soon as the inflation rate exhibits the first uptick – the Bundesbank will be out there berating all and sundry about the dangers of profligacy! Leopards don’t change their spots.
The Bundesbank has a long history of being willing to sacrifice economic growth and live with persistent mass unemployment in return for low inflation.Bill Mitchell – billy blog
As the Fed winds down its asset buying program in the form of QE, it is worth considering this recent comment by economist Michael Woodford at the St Louis Fed:“It’s obviously a very complex situation. In general, I wish the Fed were speaking more about the need for fiscal policy to take on more of the burden of trying to get the economy moving.
I’m afraid that, to some extent, the Fed’s desire to stress the fact that we still have tools, we haven’t used all of our ammunition, has had unfortunate effects. Of course, the intention of that is to reassure the public. The feeling is that letting people be scared that maybe we’re out of ideas would itself create uncertainty about the future that would be undesirable for the economy. And that’s understandable.
But I worry that it’s had the undesirable effect of letting Congress off the hook a little too easily by letting them say, “The Fed still has lots of things they can do to take care of the situation, so we can play other games.”
And I think maybe the Fed would have helped the public debate if it had pushed back a little more on the view that everybody should be assuming the Fed will save everything.”
"A nation’s foreign policy is a reflection of its domestic politics.
Today, it is an undeniable fact that US foreign policy is now, like its domestic politics, a shambles of non-cooperative centers of gravity.
One need only consider Afghanistan, Iraq, Iran, Syria, Palestine, Egypt, Libya, Africa, Yeman, spying on our closest allies (esp. Germany), the perpetual drone war, Ukraine, etc. US leaders flit from one crisis to another in what has become a Whack-a-Mole game. The chaos abroad mirrors the chaos and reactiveness in our broken domestic politics at home, where special interests are running amok.
Lest you think the chaos cannot get worse, think again. Patrick Buchanan's powerfully argued essay will get you started in this direction. Among other things, Pat shows how the foreign policy shambles is directly linked to 2014 election politics via fueling the rise of anti-Russian right-wing militarism (and, while unstated, the 'requirement' to protect the MICC from the mild budgetary implications of the now forgotten Sequester).
Lest you think this desire to protect the MICC during an election is a right-wing Republican phenomenon, President Obama is fighting back in a last minute effort to buy off the defense contractor wing of the MICC with a doubling down of foreign sales of high tech US weapons, as part of a larger Clintonesqe triangulation strategy that includes privatizing infrastructure to keep the senate from going Republican. (H/T Pierre Sprey for this observation).
And of course, looming in the offing, is the inevitable ‘bipartisan' competition to see who can take the most political credit for increasing the weapons and aid flowing to the Israel’s to compensate Israelis using up US-provided weapons to massacre Palestinians in Gaza — an operation that is clearly inimical to the long-term national interest and security, not to mention what little is left of our moral stature in the world."
Iran's supreme leader on Tuesday called on Muslims from around the world to help arm Gaza Palestinians in their fight against Israel.
The call by Ayatollah Ali Khamenei was his latest such message during the ongoing war between Gaza's Hamas rulers and Israel.
Khamenei claims that while Israel and America seek to disarm Hamas, Iran says "the opposite ... the Muslim World has a duty to arm the Palestinian nation by all means."This puts US vassal states in the region at odds with popular sentiment. It's an indirect attack on the Saudi rulership, and it represents a further division of Sunnis and Shi'ites as to who is representative of Islam.
* on the brink of insolvency (it wouldn't have mattered WHAT the report said)
* projected to be exhausted in 2033 (assuming borrowing of more fiat - don't ask how, or why, that occurs either).
* "Imbalanced" over 75 years - to the tune of 2.88 percent of taxable payroll, or 1.02 percent of GDP. (Heck - it's probably out of balance with Ayn Rand and the cosmic background radiation too, and a great many other anomalies, but who's counting?)
* facing a gap between Social Security spending and revenues that will grow from 1.3 percent of payroll (0.45 percent of GDP) this year to 3.9 percent of payroll (1.4 percent of GDP) by 2035 and 4.9 percent of payroll (1.7 percent of GDP) by the end of the 75-year window.Oh ... my ... gosh! Liars & Innocent Frauds and Perma-DTs, Oh My! Can you visualize these dweebs trying to generate some fiat, and then imagine the semantic difficulties they're saddling future generations with?
reporting that Our Corporate Welfare Trust Fund is insolvent?
reporting something equally implausible - that our nation's trusty Public Initiative Fund is insolvent?
reporting on the mythical gap between fiat "revenue" and fiat itself? [If you have to ask where fiat comes from ... you can't afford it? :( ]
explaining how, exactly, a nation generates the revenue that fuels fiat? [Public Initiative?]You'll never hear the Committee for Frozen Fiat (CFF) commenting on any of those basic sanity checks. Actual thinking does not seem to be in their repertoire, so it's no surprise that they display no sign of Logic-101 either. They have one campaign, and a one-track mind.
So why does housing matter?
Can’t spending simply go elsewhere?
The problem is the oldest of all macro constraints-
If any agent spends less than his income, another must spend more than his income for all of the output to get sold.
It’s also been expressed as ‘the paradox of thrift’- decisions to not spend income and to instead ‘save’ cause sales and income to fall with no increase in net savings.…
So housing matters a lot as it looks to be the only available avenue for the economy to spend more than its income in sufficient quantities to overcome the demand leakages [with no one else stepping up].The elegant simplicity of the sectoral balance approach to macro.
Lambert here: Many of us still think of the medical system as a source of health care enabled by MDs, much as many of us still think of the university system as a source of education enabled by professors. That is, both institutions have considerable “good will” on what we might call society’s balance sheet (were society to have such a thing). In health care, as in education, MBAs trained in the ways of neo-liberalism are busy transforming that good will into institutional power for themselves and profits for their masters. Of course, neither institution will be able to function well for long with a degraded product and without “good will” (we might also use the word “trust”) but by the time society comes to that realization “I’ll be gone; you’ll be gone.” This post explains how MBAs are crapifying health care in detail from a physician’s perspective.
By Roy M. Poses, MD. Originally published at Health Care Renewal.
…going from the federal government being 21.1 percent of GDP to 22.6 percent or thereabouts is hardly a sea change. And yet that's, roughly, all it would take to eliminate poverty in America.
So here's my takeaway: a negative income tax or basic income of sufficient size would, by definition, eliminate poverty. We still don't know if there'd be much of a cost in terms of people working and earning less. If there is, the effect is almost certainly small enough that a negative income tax can offset the lost earnings and remain affordable. The worst case scenario is that we eliminate poverty but see a modest decline in employment. The best case scenario is we eliminate poverty at even lower cost and don't see much of an effect on employment. That's a gamble I'm willing to take.VOX
Oh boy. Reihan Salam has a piece riddled with confusions, some conceptual, some technical, and some just downright strange. It is so confused that I will eschew the normal narrative type reaction and just go line-by-line."Confusions" might not be the right word. Inexcusable ignorance or intentional lying?
It is a truism that the origins of the Second World War are to be found in the way the First World War ended. The same is true for the Second Cold War whose beginnings we are witnessing these days. The way the First Cold War ended was sufficiently ambiguous that it gave rise to two narratives which are incompatible and have led to the current impasse. That they would eventually do so was, I think, clear to many people for years although some (like myself) thought that it was bound to happen later, with a post-Putin rise of Russian nationalism.globalinequality
What are the two narratives? …
[Johannsen's] major work, A Neglected Point in the Theory of Crises, (1908) with its clear presentation of the multiplier and of the inability of unlimited saving to find investment has been hailed as one of the earliest successful formulations of what has become known as Keynesian economics.
In economics, there is an unfortunate rift between academics and the economists who actually measure the economy. Which means that academic economists give little attention to the extremely important question how economic concepts relate to actual measurements – one reason why so much of their work is naïve (‘Ricardian’ households which spend more when taxes go up and the like). Fortunately, economic historians, who often have to do the measurements themselves, often bridge part of the gap. Robert Gallman has some highly relevant remarks about different ways to measure (nineteenth century USA) capital – and how these relate to the future, the past, uncertainty, savings, consumption foregone and replacement costs. This still leaves out important parts of the concept of capital like liquidity, ownership and the ‘overlapping generations’ problem – which however does not make these remarks less valuable."Naïve" or BS?
The Law School at the University of Sheffield as come up with an interesting paper about the legalities of QE - primarily in the context of the Eurozone.
Clearly QE is the central bank buying Treasury bonds by proxy. You can wave hands and make arguments as much as you like, but ultimately that is what is happening. The central bank's new money helps replenish Treasury's buffers and reduces the relative amount of interest that Treasury is paying into the wider economy.…3spoken
Karl Polanyi's The Great Transformation is certainly the right place to start in thinking about "neoliberalism" and its global spread. But you are right to notice and do need to keep thinking that Polanyi is talking about pre-World War II classical liberalism, and that modern post-1980 neoliberalism is somewhat different.
First, as I, at least, see it, there are three strands of thought that together make up the current of ideas and policies that people call "neoliberalism":
- The revived and restored classical liberals, via the Mont Pelerin society and so forth—-and they do indeed have an attachment to the gold standard.
- The Milton Friedman neoliberals—-who believe that the gold standard was a disaster and the government needed to guarantee full employment (and low inflation) via activist monetary policy. But, they go on, attempts by the government to do more than simply maintain full employment and price stability would inevitably come to grief. Government policies would be turned to enrich the politically powerful rather than to enhance social welfare, and so almost always do more harm than good. (Why he thought that activist monetary policy was different—-why Milton Friedman believed government could be successful there while it could not be successful anywhere else—-was never something that he could explain very well.)
- The Washington Monthly neoliberals, who argued that 1945-1980 had demonstrated that central planning of all kinds had grave deficiencies, and the governments that wanted to achieve social democratic ends were more often than not better off doing so through market means and market incentives than with bureaucracy.
There are also differences with respect to the value put on democracy and liberty. The classical liberals wanted limited and representative government, which is a very different thing than modern political democracy, and were as likely or not to approve of traditional deference traditional social authority structures. Washington Monthly neoliberals are social liberals, and are democrats first and neoliberals second. Milton Friedman neoliberals tend to be true libertarians--social liberals--and want democracy constrained to preserve both social and economic liberties. Mont Pelerin neoliberals tend to be social conservatives, and to at least play with endorsing fascist and authoritarian dictators like Mussolini and Pinochet.…You probably want to read the rest, too.
I have always thought of myself as a Washington Monthly neoliberal, and I am trying to resist the transformation into a Milton Friedman neoliberal.…Grasping Reality
As it turns out, investor buying does have a massive impact on local real estate. Big money is slowly starting to pull away from the real estate market. We are seeing this in dramatic fashion in Arizona and Nevada. It is also happening here in the sunny Golden State. What is interesting in the last housing correction is that prices and sales fell on the outskirts first and slowly made their way inward. The marginal buyer is pushed out first before making its way up the economic food chain. We are seeing similar action happening in places like the Inland Empire and Central Valley where inventory is certainly up and prices are hitting plateaus. The momentum from 2013 is now running on fumes. We also have certain cities being dominated by investors and in many cases money is coming directly from China. Hot money is finding a home in the oddest of places. Yet one thing is certain and that is SoCal real estate is now entering into an inflection point. As this turn unfolds we are going to find out what areas are truly prime and what other areas are all hat with no cattle.
It is safe to say that the momentum of 2013 has fizzled out in the housing market. Sales are down and prices are reaching a plateau. Part of this has come from the slowdown of investors purchasing homes in the state. An interesting end of the year study by the California Association of Realtors (CAR) found that 82 percent of investors that bought in 2013 had the intention of turning the home into a rental. The other 18 percent were giving the old flipper lottery a try. This helps to explain why inventory continues to remain lowbecause in more typical markets, a person selling the home would usually also buy another home in the ragtime favorite trend of property laddering your way into a bigger home. In other words, two transactions with one move. Today, you have many investors buying foreclosures from banks with a one and done deal (buy the home from bank and then put it on the market for rent). Yet from contacts in the housing industry, the lack of first time home buyers is dramatic. In 2013 the argument was that pent up demand for young buyers was going to give housing another dramatic run higher. In reality, 2013 gave us a massive run from investors and with them slowly pulling back, the market is already entering into a tipping point. Flippers buy for appreciation so what happens when prices stagnant or turn lower which is typical in these boom and bust cycles? In reality, first time buyers are absent because they can’t afford to buy in California.
In a meritocracy, the whole point of having “merit” is that you can run things (“ocracy”), and one of the points of running things is that you can get nice things for your family and friends.
So I think Reich’s argument would be stronger if he would go directly to the social, economic, and political consequences of inherited wealth and skip the bit where he idealizes meritocracy.The Washington Post
The biggest issue is that Russia supplies the energy that powers much of Europe. If this crises gets bad enough so that energy shipments are disrupted, that $5 Billion will soon seem like a rounding error. Worse, because the energy markets are global, everyone will be hurt. As anyone in the Producer Classes can tell you, there is simply no better way to crash the global economy than to raise the price of energy.real economics
This is part 5 in my series on how the financial crisis is relevant for economics (parts 1, 2, 3 & 4 are here). Each part explores an argument economists have made against the charge that the crisis exposed fundamental failings of their discipline. This post explores the possibility that macroeconomics, even if it failed before the crisis, has responded to its critics and is moving forward.
I received two E-mails yesterday informing me that at the upcoming NSW State Labor Conference (this weekend) the delegates would be asked to vote for the inclusion of a Federal Job Guarantee, along the lines that I have been working on since 1978 (more or less), in Labor Party policy. For readers abroad, the Labor Party is the major federal opposition party at present having lost government in 2013. It began life as the political arm of the trade union movement. Anyway, that was a pleasing development I thought. A little later, I received an E-mail and a follow up telephone call telling me that the same conference, the delegates would be asked to vote on a motion put forward by the Australian Manufacturing Workers’ Union, which is the strongest ‘left-wing’ union in Australia, that says that the ALP “should be focused on maintaining government solvency” and maintaining “low and stable Deficit to GDP ratios” and ensure the “tax base is adequate to fund Labor’s priorities”. Then I read a news report from the UK from earlier in the year about the Labour Party’s commitment in the upcoming election to shore up its “fiscal credibility” by eliminating the fiscal deficit with the leader Ed Miliband claiming that “When we come to office … there won’t be lots of real money to spend, things will be difficult”. Bloody hell! This is progressive politics – neo-liberal Groupthink style. At least there are a few truly progressive people who see that a federal Job Guarantee is the way forward as a first step.Bill Mitchell – billy blog