Friday, May 31, 2013

Dave Jamieson and Saki Knafo — One Walmart's Low Wages Could Cost Taxpayers $900,000 Per Year, House Dems Find

Walmart wages are so low that many of its workers rely on food stamps and other government aid programs to fulfill their basic needs, a reality that could cost taxpayers as much as $900,000 at just one Walmart Supercenter in Wisconsin, according to a study released by Congressional Democrats on Thursday.
Though the study assumes that most workers who qualify for the public assistance programs do take advantage of them, it injects a potent data point into a national debate about the minimum wage at a time when many Walmart and fast food workers are mounting strikes in pursuit of higher wages.
The study uses Medicaid data released in Wisconsin to piece together the annual cost to taxpayers for providing a host of social safety net programs, including food stamps and publicly subsidized health care, to workers at one Supercenter in the state.
According to the report, Walmart had more workers enrolled in the state’s public health care program in the last quarter of last year than any other employer, with 3,216 people enrolled. When the dependents of those workers were factored in, the number of enrollees came to 9,207.
"When low wages leave Walmart workers unable to afford the necessities of life, taxpayers pick up the tab," the report says.
The Huffington Post
One Walmart's Low Wages Could Cost Taxpayers $900,000 Per Year, House Dems Find
Dave Jamieson and Saki Knafo

John Aziz — The Trouble With Shadowstats

Shadowstats is built on the belief that the Bureau of Labor Statistics changed their methodology in the 1980s and 1990s, and that if we were using their original methodology the level of inflation would be much higher. Shadowstats presents what they claim to be the original methodology. But Shadowstats is not calculating inflation any differently.They are not using the 1980s or 1990s methodology that they believe would be higher. All Shadowstats is doing is taking the CPI data and adding on an arbitrary constant to make it look like inflation is higher!
azizonomics — Economics for the jilted generation…
The Trouble With Shadowstats
John Aziz

David Graeber — They’re Enslaving You With Debt

Debt has been weaponized “pretty much continually” for the last four or five millennia by “people who have access to the ability to make credit,” anthropologist, Occupy activist and anarchist David Graeber said on the “Keiser Report” TV show in late April.
“This is the great social crisis of antiquity,” he continued. “If you go back to people like Aristotle, Hammurabi, Confucius—when they imagined the great social crisis, weaponized debt was what they had in mind. That this tiny percentage of the population would essentially enslave everybody else. They would start losing their flocks, their fields, eventually they would have to start selling members of their family or even themselves into slavery. And the way I always put it—if Aristotle were alive today, he would probably see the distinction between being so deeply in debt that you have to sell yourself to work for others and being so deeply in debt that you have to rent yourself to work for others as something of a legalistic distinction.”
David Graeber: They’re Enslaving You With Debt
Max Keiser interview

Alexander Reed Kelly — Three Economic Myths Busted

As a share of national income, federal spending peaked during the Reagan administration; spending has increased only half as fast under President Obama as under President Bush; and declining revenues, not rising spending, accounts for the swelling federal deficit overseen by the Bush and Obama administrations.
Those three points, provided by University of Massachusetts-Amherst economics professor Gerald Friedman, run in direct contradiction to stories heard from conservatives and the economic fear mongers who speak to them from media and Congress. Namely, that Obama is a spendthrift and that spending is the cause of the government’s budget problems.
Three Economic Myths Busted
Alexander Reed Kelly

Lord Keynes — Minsky versus ABCT

While both were concerned with the destabilising role of endogenous credit money, I remain sceptical about the attempts to link them.
Social Democracy For The 21St Century: A Post Keynesian Perspective
Minsky versus ABCT
Lord Keynes

Robert J. Shiller — Austerity and Demoralization

The high unemployment that we have today in Europe, the United States, and elsewhere is a tragedy, not just because of the aggregate output loss that it entails, but also because of the personal and emotional cost to the unemployed of not being a part of working society.

Austerity, according to some of its promoters, is supposed to improve morale. British Prime Minister David Cameron, an austerity advocate, says he believes that his program reduces “welfare dependency,” restores “rigor,” and encourages the “the doers, the creators, the life-affirmers.” Likewise, US Congressman Paul Ryan says that his program is part of a plan to promote “creativity and entrepreneurial spirit.”
Some kinds of austerity programs may indeed boost morale. Monks find their life’s meaning in a most austere environment, and military boot camps are thought to build character. But the kind of fiscal austerity that is being practiced now has the immediate effect of rendering people jobless and filling their lives with nothing but a sense of rejection and exclusion....
Project Syndicate
Austerity and Demoralization
Robert J. Shiller is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices.

Yu Yongding — China’s Flawed Balance-of-Payments Position

The balance-of-payments figures that China’s State Administration of Foreign Exchange (SAFE) released in April should have triggered serious concern, if not alarm. The data adjusted China’s investment-income deficit for 2011 from $26.8 billion to $85.3 billion – a massive revision that casts doubt on the reliability of China’s balance-of-payments statistics and exposes a flaw in the economy’s growth path. But few people seem to care.
According to SAFE, as of February 2012, China had accumulated $4.7 trillion in foreign assets through purchases of United States government securities and other investments, and more than $2.9 trillion in foreign liabilities through foreign direct investment (FDI) and borrowing. This puts China’s net foreign assets at roughly $1.8 trillion.
But, despite China’s position as one of the world’s largest creditors, its net investment-income balance is deeply negative. In fact, China has run investment-account deficits for six of the last nine years, with preliminary statistics suggesting a deficit of $57.4 billion in 2012.
Project Syndicate
China’s Flawed Balance-of-Payments Position
Yu Yongding was President of the China Society of World Economics and Director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.

Stephen S. Roach — The American Consumer is Not Okay

The spin-doctors are hard at work talking up America’s subpar economic recovery. All eyes are on households. Thanks to falling unemployment, rising home values, and record stock prices, an emerging consensus of forecasters, market participants, and policymakers has now concluded that the American consumer is finally back.
Don’t believe it. First, consider the facts: Over the 21 quarters since the beginning of 2008, real (inflation-adjusted) personal consumption has risen at an average annual rate of just 0.9%. That is by far the most protracted period of weakness in real US consumer demand since the end of World War II – and a massive slowdown from the pre-crisis pace of 3.6% annual real consumption growth from 1996 to 2007.
With household consumption accounting for about 70% of the US economy, that 2.7-percentage-point gap between pre-crisis and post-crisis trends has been enough to knock 1.9 percentage points off the post-crisis trend in real GDP growth. Look no further for the cause of unacceptably high US unemployment....
Project Syndicate

The American Consumer is Not Okay

Stephen S. Roach was Chairman of Morgan Stanley Asia and the firm's Chief Economist, and currently is a senior fellow at Yale University’s Jackson Institute of Global Affairs.

Kay Steiger — Indiana Rep. on doubling student loan rates: ‘Personal responsibility is pretty cool’

Indiana Rep. on doubling student loan rates: ‘Personal responsibility is pretty cool’ (via Raw Story )
Rep. Luke Messer (R-IN) told MSNBC’s Luke Russet that young people should support the Republicans’ plan to tie student loan interest rates to market rates because “I think personal responsibility is pretty cool.” Messer came on to discuss competing proposals from Democrats and Republicans,…

Dmytri Kleiner — Against the Quantity Theory of Money

Joan Robinson frequently recounts that the great Michal Kalecki once exclaimed to her “I have found out what economics is; it is the science of confusing stocks with flows!” The trouble with the flat earth economists, is that they confuse the dynamic flows of production and consumption that make up an economy with static piles of stuff. Robinson further reasoned that “it is this confusion that has kept the Quantity Theory of Money alive until today.”
P2P Foundation Blog
Dmytri Kleiner: Against the Quantity Theory of Money

OccupyWallStreet — This Weekend: Reclaim Zuccotti Park

Starting Saturday June 1st, 2013, Occupy will be holding a homecoming celebration in Zuccotti Park, NYC to occupy the space where our movement began. By day we will celebrate and reconnect with old friends to plan the future of this movement, and by night we will take a militant stand against the NYPD to assert our right to exist in public spaces (nonviolently of course).
This Weekend: Reclaim Zuccotti Park

David Fields — Marx's monetary analysis and post-Keynesian economics

This paper by Eckhard Hein is, in my opinion, an invaluable guide for assessing the degree to which a synthesis can be constructed between the insights of Marxian political economy, Keynes' (long period) theory of effective demand, and Sraffa's price model, in which the conventional rate of interest is exogenous. Hein provides an articulate framework for how to conceive the foundations for a Classical-Keynesian political economy research program.
Naked Keynesianism
Marx's monetary analysis and post-Keynesian economics
David Fields

Bill Mitchell – Buffer stocks and price stability – Part 5

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

Previous parts to this Chapter:
▪ Buffer stocks and price stability – Part 1
▪ Buffer stocks and price stability – Part 2
▪ Buffer stocks and price stability – Part 3
▪ Buffer stocks and price stability – Part 4
Chapter 13 – Buffer Stocks and Price Stability

Would the NAIBER will be higher than the NAIRU?
Bill Mitchell – billy blog
Buffer stocks and price stability – Part 5
Bill Mitchell

Marshall Auerback — Andy Haldane: The Counter-Reformation in Banking Has Just Begun

“Too big to fail” banks create three disastrous problems, any one of which should have been sufficient decades ago to convince our politicians to get rid of them.
1. They make a mockery of the phrase “free markets.”

2. TBTF bank failures risk causing global financial crises.
3. TBTF banks create so much economic power that it inherently translates into dominant political power and cripples our democracy by creating crony capitalism and the corresponding problem of “too big to jail.”
To judge from Haldane’s message, we still have a long way to go. For one thing, perhaps for reasons of time, his speech didn’t once mention the so-called “shadow banking system,” even though almost three-quarters of today’s credit intermediation in the U.S. takes place outside the conventional banking system. The big conclusion that one inevitably draws from Haldane’s analysis is that the structure of banking should be reorganized to promote both economic stability and economic development. Banking used to be a simple boring job; it needs to go back there.
The Council of Trent took place over a period of 40 years. If one is to interpret the underlying message of Haldane’s speech in Trento, we’ll be lucky if we can deal with today’s counter-reformation in banking in less than half that time.
Andy Haldane: The Counter-Reformation in Banking Has Just Begun
Marshall Auerback

John Upton — Japan and other nations say no to U.S. wheat, worried about GMOs

Japan cancelled a bid on 27,500 tons of Pacific Northwest wheat on Thursday....
Other international buyers also reacted negatively to the news, with South Korea suspending its tenders to import U.S. wheat and European Union countries being urged to step up genetic testing of American imports. Taiwan said it may seek assurances that all imported wheat from the U.S. is GMO-free, the Wall Street Journal‘s MarketWatch reports.
Japan and other nations say no to U.S. wheat, worried about GMOs
John Upton

Joshua Sperber — Krugman’s Austerity Blinders

Yet what is critical here is Krugman and other liberals’ understanding of precisely what “work” in fact means. 
Liberals are of course correct that European austerity, as well as the US version, has not generated an immediate economic expansion. But to get a clearer idea of the actual purpose of austerity, it is far more useful to listen not to liberal economists but to the politicians who actually decide to implement it. Greek European Commissioner Maria Damanaki recently noted, “‘The strategy of the European Commission over the past year and a half or two has been to reduce the labour costs in all European countries in order to improve the competitiveness of European companies over the rivals from Eastern Europe and Asia.’”
Similarly, in her recent keynote speech at the World Economic Forum, Angela Merkel was admirably frank in asserting that high unemployment is, according to the Guardian, the “price Europe had to pay to become more competitive.” Merkel’s statement that austerity is intended to “ensure the prosperity of our people” is an oxymoron only to those liberal economists who do not see capitalism as a class-based system. For, Krugman’s contention that recessions are merely “technical malfunctions” ignores what both politicians and capitalists have long asserted: recessions are “correctives” that reduce the cost of the one commodity that is more adjustable and often more expensive than any other: labor. 
Austerity, via slashing social spending and expanding a surplus labor pool that is ever more desperate, achieves its aim via making labor cheap enough so that it can again be profitably exploited by capitalists. That is, our recession will come to an end, and the standard of living will be ever-lower, once business can again make a profit off of an ample number of workers, which of course is wage labor’s raison d’etre in capitalism in the first place. While the consequences of further impoverishing millions of people in order to more effectively profit off of them might engender political instability, this is not part of the economic equation. After all, political instability is what police states are for.
Krugman’s Austerity Blinders
Joshua Sperber
(h/t Kevin Fathi via email

Austerity was never about "fixing the debt" or reducing the deficit. Just another tool for wage suppression and reduction of worker benefits and protections in a race to the bottom with emerging markets and the undeveloped world. This race will occupy the better part of this century unless something intervenes.

Thursday, May 30, 2013

Michael Klare — The Cold War Redux?

The Cold War Redux? Are Washington, Moscow, and Beijing Using the Global Arms Trade to Create a New Cold War? 
Tom Dispatch
Tomgram: Michael Klare, A Future in Arms
Michael Klare

Lesley Clark — China’s moves in Western Hemisphere have U.S. stepping up its game

China’s courting of Latin America and the Caribbean – signaled anew this week by a visit by its president – is prodding the United States to step up its outreach to the rapidly emerging economies, which are showing greater global clout....

China has eclipsed the United States as Brazil and Chile’s largest trading partner, purchasing soybeans, iron ore and oil to fuel its rapidly expanding economy. Latin American exports to China accounted for just $5 billion in 2000; by 2012, they topped $104 billion....

China has eclipsed the United States as Brazil and Chile’s largest trading partner, purchasing soybeans, iron ore and oil to fuel its rapidly expanding economy. Latin American exports to China accounted for just $5 billion in 2000; by 2012, they topped $104 billion....

“The honeymoon is over and it’s a good time for us to reassert a presence, but we have to come up with something a little more creative without the U.S. having deep pockets,” Gallagher said. China, by contrast, has built sports stadiums in the region and is rumored to be interested in building an industrial park in Costa Rica.
McClatchy Newspapers
China’s moves in Western Hemisphere have U.S. stepping up its game
Lesley Clark | McClatchy Washington Bureau
Miami Herald reporter Jacqueline Charles contributed to this report from Miami

Sara Gates — Firefighters Clash With Riot Police In Spain During Austerity Protest (PHOTOS)

The Huffington Post
Firefighters Clash With Riot Police In Spain During Austerity Protest (PHOTOS)
Sara Gates

Doesn't take much imagination to see where this is headed.

Mark Gongloff — Reinhart And Rogoff's Pro-Austerity Research Now Even More Thoroughly Debunked By Studies

In a post at Quartz, University of Michigan economics professor Miles Kimball and University of Michigan undergraduate student Yichuan Wang write that they have crunched Reinhart and Rogoff's data and found "not even a shred of evidence" that high debt levels lead to slower economic growth.
And a new paper by University of Massachusetts professor Arindrajit Dube finds evidence that Reinhart and Rogoff had the relationship between growth and debt backwards: Slow growth appears to cause higher debt, if anything.
The Huffington Post
Reinhart And Rogoff's Pro-Austerity Research Now Even More Thoroughly Debunked By Studies
Mark Gongloff

An undergrad? Ouch.

Eric W. Dolan — Fox contributor: Liberals who reject that men should dominate women are anti-science

Fox contributor: Liberals who reject that men should dominate women are anti-science (via Raw Story )
Fox Business personalities had a collective freak out on Wednesday night after learning that mothers were now the primary source of income in 40 percent of U.S. households. Fox Business host Lou Dobbs asserted women earning more than their husbands was an indication of the dissolution of American society…

Andrew Lainton — No, the Negro DGSE model does not Predict the Great Recession

A great deal of chatter on the blogosphere on a paper by Negro, Giannoni and Schorfheide of the NY Fed that DGSE can predict the great recession. Noahopinion discusses it the day after he musedabout what use was DGSE.
What they do is take the most well known New Keynsian model Smets-Wouters (2007) New Keynesian model and add on the the “financial accelerator” model of Bernanke, Gertler, and Gilchrist (1999). In the Financial Accelerator model credit shocks transmit through the real economy through amongst other reasons undermining the value of collatoral.
Both Noah and Mark Thoma’s reaction is ‘pah’ we could have predicted the Great Recession all along, we knew how we just didnt put two and two together’. But the Negro et al. is not a ‘forecast’ had they had the model in 2007 they would not have predicted the Great Recession. This quite apart from the criticism made by some commentators that they have engaged in post-hoc calibration of parameters to fit the result. I don’t make that accusation simply that the result forecasts nothing because their baseline data....
Decisions, Decisions, Decisions,
No, the Negro DGSE model does not Predict the Great Recession
Andrew Lainton

Steven Hsieh — Black 14-year-old Carrying a Puppy Tackled and Choked by Police for Giving Them a "Dehumanizing Stare"

Back to Jim Crow intimidation, or maybe we never left it behind in the first place.

Black 14-year-old Carrying a Puppy Tackled and Choked by Police for Giving Them a "Dehumanizing Stare"
Steven Hsieh

Nor do I think that it can be shrugged off as just "the South."
From the war on drugs to the war on terror, law enforcement's battle against minorities serves as pacification.
1 Black Man Is Killed Every 28 Hours by Police or Vigilantes: America Is Perpetually at War with Its Own People
Adam Hudson

Oh, and then there's the women.


Dartmouth Quick to Punish Rape Protestors Instead of Actual Rapists
Katie J.M. Baker

And this is just one day's posting at AlterNet!

Ralph Musgrave — European Commission tells the UK what do about youth unemployment.

That’s “European Commission” as in “we lot who have managed to create 50% youth unemployment in Greece, 50% in Spain and 36% in Portugal, so we obviously know what we’re talking about”. 
See: Council Recommendation on the United Kingdom’s 2013 national reform programme

The European Commission’s – er – “advice” then descends from the ridiculous to the totally ridiculous: it tries to tell the UK what do about it’s deficit. Here it follows the standard IMF / OECD / Pete Peterson / Bowles and Simpson / Rogoff and Reinhart line, namely that a country should have a PLAN for deficit reduction.
The whole notion of a PLAN for reducing the debt or deficit is nonsense because it fails to get a point made by Keynes: “Look after unemployment and the budget will look after itself”.
In other words, a monetarily sovereign government should pitch it’s deficit (or surplus) at a level that reduces unemployment as far as is possible without exacerbating inflation too much. If the private sector happens to be in a fit of irrational exuberance, government may well need to run a surplus in order to confiscate financial assets from the private sector and quieten things down. Conversely, if the private sector is in subdued mood, government will need to run a deficit so as to boost demand and feed financial assets into private sector pockets.
And since it is impossible to predict what mood the private sector will be in in twelve months time (never mind three years time), it’s impossible to say what size deficit (or surplus) will be suitable in twelve months’ time or three year’s time.
European Commission tells the UK what do about youth unemployment.
Ralph Musgrave

Thom Hartmann — Why Is Obama Taking Orders From A Secretive Billionaire?

Peter Peterson, founder and chairman of Peter G. Peterson Foundation. (Photo: Lingjing Bao / Talk Radio News)

Why Is Obama Taking Orders From A Secretive Billionaire?
Thom Hartmann, The Thom Hartmann Show | Op-Ed

Wednesday, May 29, 2013

Chris Dillow — Taxes, Norms & Belief Equilibria

Here's another recent finding in experimental economics:
We analyze how tax evasion is affected when the same income is earned without any effort, or with a moderate or high level of effort.We find that subjects who have invested high levels of time and effort evade significantly more taxes.
"In other words, people who feel more entitled to their income, by virtue of sweating for it, are more likely to try to keep it.
You might think this unsurprising."
But I think it highlights something I've said before - that neoliberalism is performative; it doesn't just describe the world, but creates it. 
One claim of neoliberalism is that individuals are entitled to their incomes, as these are the result of work and contribution to society rather than to, say, luck or accidents of history. If people believe this, then they will have lower tax morale, and so will try to dodge taxes either legally or not. The neoliberal claim that higher tax rates reduce revenues will therefore be true. But this will be only so by virtue of people believing they are entitled to their incomes. Neoliberalism then becomes a self-fulfilling belief equilibrium....
This poses the questions: is it possible to shift the belief equilibrium away from the neoliberal to the social democratic one, and if so how? 
Stumbling and Mumbling
Taxes, Norms & Belief Equilibria
Chris Dillow | Investors Chronicle (UK)

Michael S. Wilson — Noam Chomsky — ‘Everyday Anarchist’: The Modern Success Interview

Basic Chomsky.

Modern Success
Noam Chomsky — ‘Everyday Anarchist’: The Modern Success Interview
Michael S. Wilson

Peter Z. Scheer — Prosecutors Use Patriot Act to Shut Down Virtual Currency Operator

The U.S. Treasury Department’s anti-money laundering unit, the Financial Crimes Enforcement Network (FinCEN), issued guidance in March that labeled digital currency firms as money transmitters, thereby obliging them to put in place anti-money laundering programs and register with FinCEN.
Tokyo-based Mt. Gox, a top exchange for Bitcoin, the best known virtual currency, failed to register with FinCEN earlier this month and had its U.S. dollar accounts seized by authorities.
Prosecutors Use Patriot Act to Shut Down Virtual Currency Operator
Peter Z. Scheer

Tuesday, May 28, 2013

Neil Wilson — Making banks work

I think it is probably time to outline how I would reconfigure the banking sector in the UK.
To do that first you have to understand what a bank is and what the point of them are from the perspective of an economic system. For this I refer to Minsky's work on What Banks Should Do.
Making banks work
Neil Wilson

Bill Mitchell – The last eruption of Mount Fuji was 305 years ago

The Report obviously doesn’t comprehend what it means for a central bank to be the monopoly supplier of bank reserves in this case denominated in Yen.

There was a reference to this capacity in a 2004 paper written by Ben Bernanke, Vincent Reinhart, and Brian Sack – "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment."

The authors examine the future of monetary policy when short-term interest rates, the principle tool of monetary policy get close to zero (as they are now).

They discuss various strategies that a central bank can take to alter the composition of its balance sheet “in order to affect the relative supplies of securities held by the public.”

That is, the amount of bonds held by the non-government sector.

The authors noted that:

Perhaps the most extreme example of a policy keyed to the composition of the central bank’s balance sheet is the announcement of a ceiling on some longer-term yield, below the rate initially prevailing in the market. Such a policy would entail an essentially unlimited commitment to purchase the targeted security at the announced price.

And would completely control longer maturity yields – which means end of scary future a la the neo-liberal economists who seek public attention but cannot tell the same public the truth.

The above authors (Bernanke et al) also state (in a footnote on page 25) that:

In carrying out such a policy, the Fed would need to coordinate with the Treasury, to ensure that Treasury debt issuance policies did not offset the Fed’s actions.

Which means that the two arms of government operate as a consolidated policy sector and target the same aim – maximisation of public purpose.....
The authors also suggest that it is possible that:
… even if large purchases of, say, a long-dated Treasury security were able to affect the yield on that security, the possibility exists that the yield on that security might become “disconnected” from the rest of the term structure and from private rates, thus reducing the economic impact of the policy.
That is possible. The corporate rates which reflect risk as well as inflationary expectations might deviate.
The overall point is that when there are transaction costs and “financial markets are incomplete in important ways”, the central bank can influence “term, risk, and liquidity premiums — and thus overall yields.”
The authors note that historically the strategy has been successful in a number of countries and give examples. Among the examples, they consider the “historical episode” that became known as “Operation Twist”.
I considered the issue of how the central bank can control the bond yield curve at all maturities in this blog – Operation twist – then and now.
So there is never a situation where the bond markets can destroy a nation which has currency sovereignty. Never means NEVER.
Bill Mitchell – billy blog
The last eruption of Mount Fuji was 305 years ago
Bill Mitchell

Reuters — Germany fears revolution if Europe scraps welfare model

German Finance Minister Wolfgang Schaeuble warned on Tuesday that failure to win the battle against youth unemployment could tear Europe apart, and dropping the continent's welfare model in favor of tougher U.S. standards would spark a revolution.
Germany, along with France, Spain and Italy, backed urgent action to rescue a generation of young Europeans who fear they will not find jobs, with youth unemployment in the EU standing at nearly one in four, more than twice the adult rate.
"We need to be more successful in our fight against youth unemployment, otherwise we will lose the battle for Europe's unity," Germany's Schaeuble said.
While Germany insists on the importance of budget consolidation, Schaeuble spoke of the need to preserve Europe's welfare model.
If U.S. welfare standards were introduced in Europe, "we would have revolution, not tomorrow, but on the very same day," Schaeuble told a conference in Paris.
Germany fears revolution if Europe scraps welfare model
(h/t Zero Hedge)

Even eurocrat neoliberals are not dumb enough to think that Europeans will accept imposition the market state, pace Hayek. That's only for the US (Reagan, Clinton) and UK (Thatcher, Blair).

Zeus Yiamouyiannis — “I Give A Damn”: A Capitalist Manifesto for the Productive Class

This essay is a call to citizens to put real work, ingenuity, and community above false promises and disgraced authority. 

Empowerment, in this essay, is not about pumping up self-esteem but rather equipping citizens to take control of the global economy. When political and economic leaders fail to act effectively, we will have to be the ones to succeed.

Capitalism stands and falls upon care, not the superficial “I-feel-your-pain” type, but the deep, committed “I-give-a-damn” type.
What does it mean to give a damn?
Of Two MInds | Charles Hugh-Smith
Guest Post: “I Give A Damn”: A Capitalist Manifesto for the Productive Class
Zeus Yiamouyiannis
(h/t Zero Hedge)
This essay is from the newly released book, Transforming Economy: From Corrupted Capitalism to Connected Communities by Zeus Yiamouyiannis, Copyright 2013.

Special Seminar

 — Macroeconomic Policymaking For Small, Open Economies: An Australian Perspective

Modern Money And Public Purpose

The Sydney University Political Economy Society Proudly Presents



featuring William (Bill) Mitchell, Sean Carmody, and Peter Kriesler, and moderated by Geoff Harcourt

12.00pm (Eastern Australia Standard Time), Friday May 31st, 2013.

Livestream: TBA

Mario Soares — Europe on the Edge of the Abyss

In this column, Mário Soares, former president and prime minister of Portugal, writes that the economic policies being enforced in the so-called “periphery” of the eurozone threaten to destablise the entire Union. Fuelled by a neoliberal ideology that puts usurious markets before citizens, the austerity regime could result in a regression of civilization.
Inter Press Service
Europe on the Edge of the Abyss
Mario Soares

Sven Böll and Christian Reiermann — Austerity About-Face: German Government to Gamble on Stimulus

But a new way of thinking has recently taken hold in the German capital. In light of record new unemployment figures among young people, even the intransigent Germans now realize that action is needed....

The government's change of heart isn't just a sign of selflessness and compassion. More than ever, the chancellor and the finance minister are worried that Berlin's tightfisted, heartless, austerity-obsessed image could solidify throughout Europe and do irreparable political damage. An exporting nation that sells two-thirds of its exports to other European countries cannot be unconcerned about its image abroad, they reason, especially when its government fears that constant criticism from the center-left Social Democratic Party (SPD) and the Green Party, claiming that it is acting as the gravedigger of the euro and dividing the EU, could hurt it in the upcoming election campaign....

The fact that the finance minister and the chancellor are suddenly willing to do things that have been off-limits until now also has something to do with an internal Chancellery dossier from mid-May. The government headquarters had asked the ministries to take stock of the EU growth pact that was approved in June 2012 to support the austerity programs. The results were, in fact, supposed to demonstrate how well the German bailout strategy was working. But the officials' conclusions shocked even calculated optimists. In their report, they painstakingly documented that debt-ridden countries, especially those that have not taken advantage of EU bailout programs, have hardly made any progress in terms of needed reforms.... 
With her administration facing pressure from the anti-euro party Alternative for Germany, and despite her offers to help Southern European countries, Merkel doesn't want to be accused of throwing even more good German money after bad. To avoid this, the goal in Berlin is to achieve the greatest possible results while spending as little as possible....

But the economic stimulus program threatens to fall flat. So far, the EIB has shown little inclination to distribute the billions exclusively where they are more urgently needed: in Southern Europe. And, as EIB President Werner Hoyer has implied at every opportunity, the bank is determined to keep its top rating so that it can continue to finance itself at low rates.
Ironically, the Finance Ministry in Berlin backs Hoyer's stance. An internal Finance Ministry memo reads: "To preserve the portfolio quality and the AAA rating, the federal government is in favor of having the EIB continue to promote projects in AAA countries while implementing the anti-crisis program."

Likewise, even if there are well-meaning decisions and sufficient funds for programs, implementation remains a problem. Government administrations in Southern Europe are still too slow, the EU bureaucracy in Brussels is still slowing things down, and governments are still dragging their feet on promised reforms.
Spiegel Online International
Austerity About-Face: German Government to Gamble on Stimulus
Sven Böll and Christian Reiermann
Translated from the German by Christopher Sultan

This is all completely crazy. The cause of the crisis is basically the saving of the export nations internally in the EZ that is resulting in the indebtedness of the debtor nations. One solution is for the net exporters is to reduce saving and spend in the debtor nations on consumption and investment. Lacking this, there must be fiscal transfers. Otherwise, the euro is unsustainable.

THE AUSTRIAN SCHOOL — Warren Mosler versus Robert P. Murphy

Modern Money and Public Purpose



Warren Mosler versus Robert Murphy
Moderated by John Carney

June 3 | Columbia Law School | 6:15pm

The debate will be livestreamed.

Measuring National IQ With a Simple Policy Agility Test?

Commentary by Roger Erickson

Jerrit Erickson writes ... [we're] skeptical of the practicality of IQ tests, but there's something very profound in here.

Predicting [Personal] IQ With a Simple Visual Test
"The results of a visual test where people were told to quickly detect movements showed similar IQ results as a classic intelligence test. 'The relationship between IQ and motion suppression points to the fundamental cognitive processes that underlie intelligence, the authors write. The brain is bombarded by an overwhelming amount of sensory information, and its efficiency is built not only on how quickly our neural networks process these signals, but also on how good they are at suppressing less meaningful information."

Let's make some useful connections:

IQ and Visual Signal Suppression?  How about National IQ and Policy Agility?
Intelligence and jobs? How about national intelligence and job markets?
Unqualified application, vs quiet review of options?
Automatic visual "mapping?  How about auto-representation of emerging options?
Sensory Gating?  How about Policy Gating?
Schizophrenia?  How about national-schizophrenia?
Economics? How about context relevance?
Adaptation? How about national-self-tuning?
Self tuning?  Without distributed resources?
Policy Agility? How about methods for connecting distributed decision-making?
Policy Gating? Without adequate student training?
Data stuffing?  How about Map Making?

Discussing these in an economics blog gives citizens a chance to also perceive a national culture as an entity able to develop ... with or without national-schizophrenia-like attributes. As you'll see below, it's absolutely criminal that ecology, biology and systems theory are not absolute prerequisites for opening what passes for economics and policy textbooks! Our present national policy process could easily be described as "national schizophrenia."

Jerrit: "How good they are at suppressing less meaningful information?" This sounds like the strongest published confirmation yet of why many famously smart people didn't do well at school or couldn't hold down a 9 to 5 job. In some expressions, intelligence is indistinguishable from laziness or apathy.

Indeed. What's that old saying? "When you come across a group of people digging themselves into a hole, they'll always ask you to jump in and help them dig." Those who immediately question where the whole process is going ... are less able to muster the initiative to participate. They may even appear to be uncooperative or unemployable, while those most motivated to participate feverishly are motivated primarily by rank ignorance and stupidity!

Before we begin relating this to economic policy, note that the range of comments at Slashdot isn't auto-arranged so that all readers can parse the commentary "at a glance". Nor is it easy for a given reader to rapidly and automatically parse the spectrum of commentary on their own! :)  So much for technology.

For every bit of information, it is more important to have a "map" of "options space" to fit the data into. Without context, data is meaningless. [Also, it's assumed - based on past feedback - that readers who have never perceived anything past the end of their own nose will stop reading here. Hopefully that will cut down on some of the previous, irrelevant feedback. There are only a few ways to recode the statement "I'm clueless. Therefore I'm angry."]

For those readers who are less perceptually myopic, there's a 3rd confluence as well.

Those humans whom we call schizophrenics have long been known to have a deficit in sensory input suppression - often called sensory gating. The condition seems obvious in retrospect, given their inability to suppress randomly triggered neural patterns, such as hallucinations and unexpected associations. Initial evidence suggests that the population incidence of schizophrenia has been stable for centuries, suggesting that the syndrome represents peak assembly skill applied to the pinnacle of human development - already perfected over 200K years ago.

It's not yet known if only a few or multiple molecular-catalyst failures during development are responsible for the behavioral pattern we call schizophrenia. The subtleties of human neural development may have been largely solved over 200K years ago, but that doesn't mean we can ignore the basics when it comes to our diet and environmental quality. More importantly, schizophrenia as we term it is observed ONLY in homo sapiens. Using these observations as an analogy, it seems obvious that the unique features of distributed organization that are seen ONLY in large-scale human cultures are susceptible to subtleties seen in no other system whatsoever!  Our most compelling need is to continue to have MOST OF US sort out what few things are relevant for further national evolution, while promptly ignoring everything that isn't.  Ya think? It's called methods for getting everyone on the same page.

However, that primal issue ISN'T EVEN MENTIONED in economics textbooks!

Nor is it taught as the prime issue for every pre-teen or later student, regardless of the discipline being studied.

Individual sensory gating? That's passe. Surely we need new catalysts to help us accelerate national Policy Gating? Ya Think?

Jerrit's email was also quite correct in surmising that every system - "biological" or not - has to include distributed methods for self-tuning, based on any and all available sensory feedback.

Without a self-tuning infrastructure, you don't have an adaptive system.

Adaptive systems are able to seemingly pump information upstream against the gradient of entropy - leading many to label the accelerating resource capture as "reverse-entropy," even though that conflicts with the exact, narrow meaning originally defined by physicists. [Later on, oddly, Heisenberg's uncertainty principle didn't even mention degenerate semantics! :) ]

The very term "auto-catalysis" itself assumes accumulation of sub-processes that tilt the system at play into additional resource trapping. After all, what is acting as the catalyst, and what is acting as a substrate for the catalysts to act upon? Can a lock and a key "auto-catalyze" one another? Only if they remain oiled, and if something has machined them to fit - or selected from enough options to find two that DO fit. There are always preconditions, plus expanding options that are only explorable through diversity, recombination, and enough resources to drive the break-neck exploration.

It's immediately a given that what we call life itself - or even a deity - is a statistically inevitable and unending consequence of our preceding context. If there's a resource gradient, any given ensemble will settle into forms that accumulate and trap more and more of the available resources - at a RATE that depends upon available diversity of both substrates and sub-catalysts.

We cannot achieve a recombinant culture without maintaining highly distributed resources. That part is trivial. A vibrant middle class is a matter of national security.

Finally, what does all this quite obviously imply about economic policy?

At our latest level of social-auto-catalysis, we're still awaiting the latest, greatest method that will actually allow us to parse our current volumes of available feedback.  Only then can we subsequently improve the auto-catalytic quality of our distributed decision-making.

Don't hold your breath, but it IS inevitable.

Ok, maybe not BY the graduates of our current school system, but somewhere, somehow, it'll happen. It's inexorable statistics. All we can affect is the rate, and whether those involved are our descendants, or not.

Our job should be to get out of the way and LET it happen sooner? Ya think? But how?

By training young students to ALWAYS and QUICKLY zero in on "where is this going?" Again, YA THINK? That way even economic policy teams might see through the clutter and actually regain interest in national, not just personal, outcomes.

Could we actually do that with our school systems, instead of forcing citizens to hoard largely irrelevant data - lacking any meaningful context? Easily! Overnight. We'd just have to re-purpose every existing K-12 teacher in the country, but we could turn this country upside down, within a year.

Why not? The only good bureaucracy is an adaptive bureaucracy - in which case it's no longer a bureaucracy. [At least by our current use of the word. :) ]

As they say in India, or at least in their Parliament, "Can u Babu?" Wall St. was even worse than that, so we'd better not. Our very survival depends on accelerating our intrinsic ability and practiced skill at treating EVERY goal, policy, strategy, tactic and tool as something to instantly weed through. What should we be looking for? Signs of relevance or irrelevance to the new outcomes we're capable of imagining every day? You would think, but few of our politicians or voters appear to have much practice at that anymore.

The only thing keeping the USA from exploring insanely exciting options is our own STUPID austerity. What on earth are we saving up our fiat for? It's only as good as what we apply it to, and we can apply it optimally only if we regain our lost ability to screen out irrelevant cultural bullshit FASTER every year, not slower.

Ralph Musgrave — Carmen Reinhart is clueless on fiat

In this letter to Paul Krugman, Reinhart asks, “What is the foundation for your certainty that as peacetime debt hits new records in coming years, the United States will be able to engage in forceful countercyclical fiscal policy if hit by a large unexpected shock?” (Letter to Krugman)

What Reinhart clearly doesn’t understand is that “debt” is completely irrelevant: that is, a monetarily sovereign country, regardless of what amount of national debt it happens to have, always has the option of simply printing money and spending it (and/or cutting taxes) – as pointed out by Keynes and Milton Friedman.

As to “unexpected shocks”, Reinhart is not clear on what those might be. But in the paragraphs just prior to the above quote she rambles on (as you’d expect) about what happens when foreign creditors cease wanting to buy or hold a country’s debt.

Well to repeat, if the US government finds that no one wants to lend it dollars, it can just print them! Doh! As long as it doesn't print so many as to cause excess inflation, the US government do whatever amount of "countercyclical fiscal policy" it wants.

Ralph Musgrave
Carmen Reinhart is clueless on fiat

AFP — U.S. targets Costa Rica-based digital currency operator for money laundering

The United States on Tuesday unveiled what it said was the world’s “largest” money laundering probe against the digital currency operator Liberty Reserve....
The probe involved law enforcement in 17 countries “and is believed to be the largest money laundering prosecution in history,” the prosecutor’s office said.
The Raw Story
U.S. targets Costa Rica-based digital currency operator for money laundering
Agence France-Presse

Randy Wray — WSJ Warning on Japan’s Fiscal Sphincter

Oh My Goodness: debt financing by the central bank! Could cause bond yields to rise! Vigilantes on strike.
No, you morons. Government deficits always increase reserves in the banking system. That places downward pressure on the overnight interbank lending rate. Selling bonds normally relieves that pressure. But if you’ve already achieved ZIRP (zero rate target) then you don’t need to sell them.
WSJ Warning on Japan’s Fiscal Sphincter
L. Randall Wray | Professor of Economics, UMKC

Please sign Warren Mosler's petition

Please sign this Petition, it’s important!

Monday, May 27, 2013

Robert Reich — Beware Capitalist Tools

Forbes Magazine likes to call itself a “capitalist tool,” and routinely offers tool-like justifications for whatever it is that profit-seeking corporations want to do. Recently it has deployed its small army of corporate defenders and apologists in the multi-billion dollar fight to keep the effective tax rates of global corporations low.

One of its contributors, Tim Worstall, recently took me to task for suggesting that a way for citizens to gain some countervailing power over large global corporations is for governments to threaten denial of market access unless corporations act responsibly.
He argues that the benefits to consumers of global corporations are so large that denial of market access would hurt citizens more than it would help them. The “value to U.S. consumers of Apple is they can buy Apple products,” Worstall writes. “Why would you want to punish U.S. consumers, by banning them from buying Apple products, just because Apple obeys the current tax laws?”

Wortstall thereby begs the central question. If global corporations obeyed all national laws — the spirit of the laws as well as the letter of them – and didn’t use their inordinate power to dictate the laws in the first place by otherwise threatening to take their jobs and investments elsewhere, there’d be no issue.

It’s the fact of their power to manipulate laws by playing nations off against one another – determining how much they pay in taxes, as well as how much they get in corporate welfare subsidies, how much regulation they’re subject to, and so on – that raises the question of how citizens can countermand this power.
Beware Capitalist Tools
Robert Reich | Chancellor’s Professor of Public Policy at the University of California at Berkeley and Secretary of Labor in the Clinton administration

system failure — Middle class civil war in Greece: latest update and conclusions

More evidence that neoliberal capitalism is incompatible with democracy. Democracy must be controlled for neoliberal capitalism to function across the cycle of booms and busts that modern capitalism inevitably creates due to inherent financial instability.

the unbalanced evolution of homo sapiens
Middle class civil war in Greece: latest update and conclusions
system failure
(promoted from the comments)

Steve Keen — Is Capitalism Inherently Unstable? (3)

But it does seem to decide the case in favour of the classicals for the real world: prices must be set by a mark-up on costs, rather than by the ‘twin blades’ supply and demand.
That’s the opinion I held, until a crucial step in generalising my model of Minsky’s Financial Instability Hypothesis implied that, at a macro level, the two models are identical. I’ll get on to that – and the role of prices in economic instability – in the next post in this series.

Steve Keen's Debtwatch

Is Capitalism Inherently Unstable? (3)
Steve Keen | Associate Professor of Economics & Finance at the University of Western Sydney

Chris Dillow — On Within-Class Envy

Of course, there are countless real world analogies to this behaviour. Old money sneering at new money, the richcomplaining about the super-rich, "white trash" being racist and "strivers" attacking "shirkers" are all examples of within-class conflict. What's striking about this experiment is that such behaviour emerges so easily, without the aid of ideology or media manipulation.This suggests that the lack of development of class solidarity has some deeper-rooted causes than ideology alone.
For a Marxist, this is depressing stuff. But it should also concern any liberal or democrat.It suggests that people might support policies that hurt other poor people - for example, welfare cuts or immigration controls - even if they themselves are harmed by such policies. In this sense, people's preferences aren't necessarily the same as their narrow material interests.
Stumbling and Mumbling
On Within-Class Envy
Chris Dillow | Investors Chronicle (UK)

The basis of interest politics and wedge issues?

Jonathan Stacke — Mapping Bitcoin Adoption: A Global Perspective In 11 Graphs

The notion of international collaboration across disparate individuals has never before been achieved at this scale, outside of the internet itself.
The Genesis Block
Mapping Bitcoin Adoption: A Global Perspective In 11 Graphs
Jonathan Stacke
(h/t Zero Hedge)

Merijn Knibbe — Another note on Reinhart and Rogoff (and Reinhart): Great Stagnations do exist. Like great expansions.

The discussion about the Reinhart (and Reinhart) and Rogoff (RRR) articles is flaring up again: they (in fact: probably Carmen Reinhart – the style is much more evenhanded, understanding and mature than what I’ve read of Rogoff) have finally written a coherent, systematic defence. Look here. It is important to discuss this because of the importance of their main finding:

monetary economies have been inherently unstable during (at least) the last 200 years, because of endogenous forces related to, among other things, money and debt.

This clearly shows that the ’General Equilibrium’ characteristics of modern economies, assumed by main stream economists and a cornerstone of the main economic models, are not general at all. Debts and credit are totally endogenous to our economies and they are dangerous – surely when the main creditors and money creators, the banks, are unbridled. Alas, the whole discussion does not focus on such emergent properties of monetary economies but on the relation between growth and (public) debt. And RRR do not do a good job when it comes to this relation.
Real-World Economics Review Blog
Another note on Reinhart and Rogoff (and Reinhart): Great Stagnations do exist. Like great expansions.
Merijn Knibbe

Robert Waldmann — The Letter to Paul Krugman

Robert Waldmann fisks R & R's letter to PK.

First off, RW:
"Yes their debts are not denominated in a currency of their own.  The pattern is clear – borrowing in Euros is risky as is borrowing in dollars for countries other than the USA.  Following DeGrauwe (and I’m sure countless others) Krugman has repeatedly stressed the difference between debts in a currency the debtor can print at will and debts in other currencies.  Let’s see if R&R ever mention the fact that debts in the eurozone are denominated in Euros."
Robert's Stochastic thoughts
The Letter to Paul Krugman
Robert Waldmann

At Angry Bear, What Reinhart and Rogoff should do now
Reinhart and Rogoff could and should have said “Paul Ryan, you know nothing of our work” (obligatory Annie Hall reference).  They did not.  They still can.  I think they should.  His claims have no basis in the evidence and all reality based people should say so.

Frances Coppola — Inflation, deflation and QE

From where I stand, QE looks like a very bad bet indeed. The benefits are uncertain and the downside risks huge. In my view it should be stopped. But you may not agree - and I know that many people are much more positive about QE. If you believe that overall its effects are beneficial to the economy, please do comment. Or even submit a post of your own arguing the opposite case.

And here is a final thought. It's all very well criticising QE, but what should we do instead? After all, we have stagnant economies, damaged banks, risk-averse corporates, highly-indebted households, high unemployment, under-employment, low productivity and falling real incomes. Doing nothing is not an option. If QE is a disaster, what is the alternative?
Warren Mosler said from the get-go that QE had a deflationary bias through the interest income channel, and MMT as a macro theory that resolves the trifecta of growth (production and productivity), employment, and price stability provides a complete solution to the crisis, chiefly through fiscal policy using the sectoral balance approach, functional finance, and the MMT JG, as well as proposals for reforming the financial system and economic policy that the led to the crisis.

Coppola Comment
Inflation, deflation and QE
Frances Coppola

Thomas Jefferson on popular sovereignty and democracy

"I am not among those who fear the people. They, and not the rich, are our dependence for continued freedom."

Thomas Jefferson

Letter to Samuel Kercheval | June 12, 1816

Sunday, May 26, 2013

David Rosnick — Reinhart and Rogoff Trip Over Data While Attacking Krugman


Reinhart and Rogoff Trip Over Data While Attacking Krugman
David Rosnick

My talk at Columbia Law School symposium, "Modern Money and the Public Purpose"

James Madison on democracy

[1:422; Madison, 26 June]
[Mr. Madison.] In all civilized Countries the people fall into different classes havg. a real or supposed difference of interests. There will be creditors & debtors, farmers, merchts. & manufacturers. There will be particularly the distinction of rich & poor. It was true as had been observd. (by Mr Pinkney) we had not among us those hereditary distinctions, of rank which were a great source of the contests in the ancient Govts. as well as the modern States of Europe, nor those extremes of wealth or poverty which characterize the latter. We cannot however be regarded even at this time, as one homogeneous mass, in which every thing that affects a part will affect in the same manner the whole. In framing a system which we wish to last for ages, we shd. not lose sight of the changes which ages will produce. An increase of population will of necessity increase the proportion of those who will labour under all the hardships of life, & secretly sigh for a more equal distribution of its blessings. These may in time outnumber those who are placed above the feelings of indigence. According to the equal laws of suffrage, the power will slide into the hands of the former. No agrarian attempts have yet been made in this Country, but symptoms of a leveling spirit, as we have understood, have sufficiently appeared in a certain quarters to give notice of the future danger. How is this danger to be guarded agst. on republican principles? How is the danger in all cases of interested coalitions to oppress the minority to be guarded agst.?

The Founders Constitution

Carmen Reinhart — Letter to Paul Krugman

The saga continues.

Carmen M. Reinhart
Letter to Paul Krugman
Carmen Reinhart | Minos A. Zombanakis Professor of the International Financial System, John F. Kennedy School of Government, Harvard University

Bill McBride — States: Mo Money Mo Problems

Now some states are adding to the problem of demand leakage by saving (running surpluses).

Calculated Risk

States: Mo Money Mo Problems
Bill McBride

Thomas Mc Donagh — How Corporations Are Subverting Attempts to Rein in Their Power

The proliferation of these investor-state cases has three major impacts. First, in cases where the corporations win (as they often do) the result is a massive transfer of scarce public resources to wealthy private corporations. Second, even if governments are successful in mounting a legal defense, doing that comes at a cost of potentially millions of dollars in legal fees paid to one of the handful of high-priced law firms that specialise in such cases. Third, the net impact is a dangerous chilling effect on the willingness of policy makers to implement policies in the public interest for fear of costly international arbitration cases.
How Corporations Are Subverting Attempts to Rein in Their Power
Thomas Mc Donagh

More neoliberalism at work. 

"It's the power, stupid."

Joshua Holland — How America's Retirement Crisis Is Crushing the Hopes of a Generation of Young People

...we're just at the beginning of this crisis, and with each cohort of Americans reaching retirement age, fewer will have pensions and more will have experienced the great middle-class squeeze than the cohort before it. So it will get worse before it gets better, but eventually our elites will have no choice but to finally recognize the severity of the crisis their neoliberal clap-trap has created.
How America's Retirement Crisis Is Crushing the Hopes of a Generation of Young People
Joshua Holland | Editor-at Large

Saturday, May 25, 2013

Alexander Hamilton on democracy

All communities divide themselves into the few and the many. The first are the rich and well-born, the other the mass of the people. The voice of the people has been said to be the voice of God; and, however generally this maxim has been quoted and believed, it is not true in fact. The people are turbulent and changing; they seldom judge or determine right. Give, therefore, to the first class a distinct, permanent share in the government. They will check the unsteadiness of the second, and, as they cannot receive any advantage by a change, they therefore will ever maintain good government. Can a democratic Assembly, who annually revolve in the mass of the people, be supposed steadily to pursue the public good? Nothing but a permanent body can check the imprudence of a democracy. Their turbulent and uncontrolling disposition requires checks.
Alexander Hamilton
Speeches in the Federal Convention, p. 401

You know, because some people are better than others.

Lance Roberts — Guest Post: The Fed's Real Worry - A Pick Up In Deflation

Good analysis showing that deflation is the looming threat rather than inflation.

Needless to say, the comments over there are a never-ending source of amusement, and this post was guaranteed to set a lot of people off who are expecting hyperinflation any minute now or are already seeing signs of it.

Zero Hedge
Guest Post: The Fed's Real Worry - A Pick Up In Deflation
Submitted by Lance Roberts of Street Talk Live blog

Adam Taggart — Bill Black: Our System Is So Flawed That Fraud Is Mathematically Guaranteed

Bill Black as bridge?

Zero Hedge
Bill Black: Our System Is So Flawed That Fraud Is Mathematically Guaranteed
Submitted by Adam Taggart via Peak Prosperity blog

Fabius Maximus — Update about one of the seldom-discussed trends shaping our world: 4GW

Summary: One of the great stories of 21st century looks to be the conflict between nations using conventional military methods (2GW and 3GW), and forces using 4GW. So far the latter are winning almost every time. America’s inability to adapt to this new world, part of our larger #FailureToLearn, is another strike against the Second Republic (that built on the Constitution). Here’s a brief status report on the war, concluding with a new article by William Lind, our Thucydides.
Update about one of the seldom-discussed trends shaping our world: 4GW
Fabius Maximus

Mark Thoma — 'The Hangover Theory' [Paul Krugman]

Moralizing versus math. Paul Krugman did the math at the time of the Asian crisis and got it right. So why is he resistant to MMT now?

Economist's View

'The Hangover Theory'
Mark Thoma

Lars P. Syll — Are economists rational?

Lars quotes über-statistician Nate Silver suggesting NOT! Just when the market was suffering from "irrational exuberance" (Robert Shiller), most economists were "overconfident" even though they were in the favorable position of being able to acquire relevant data and presumably knowing how to use it. Prediction success? Abysmal.

Lars P. Syll's Blog
Are economists rational?
Lars P. Syll | Professor of Social Studies and Associate Professor of Economics, Malmo University

Lord Keynes — Wieser Advocated Fiat Money

Austrian factoid about Friedrich von Wieser preference for paper over commodity money in the interest of greater stability.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Lord Keynes

Poor Richard — Building a dictionary for an economics of the commons

This is a proposal in response to “Help us build a dictionary on commons economics!”, an article recently posted at The Economics of the Commons Conference (ECC 2013) Communications Platform website (
P2P Foundation
Building a dictionary for an economics of the commons
Poor Richard

Francesco Saraceno — Living in Terror of Dead Economists

Contra the latest from Ken Rogoff, in which he feels compelled to bash "Keynesianism." Of course, the other dead economist that provokes terror is Karl Marx. There is actually a connection between Keynes and Marx in neoliberals minds, which are dominated by the ideal of "the market state," which in today's world is tantamount to the corporate state. "Keynesianism" is a cognate of "socialism" for them, and they are doing their best to esstablish that identity in everyone else's mind too.
The question remains of why we keep observing eminent economists that bash Keynesian policies even when this is inconsistent with (or irrelevant to) their general argument . Barring bad faith, I can’t find any other explanation than an ancestral aversion to Keynes and to its policy prescriptions (a couple of years ago Paul Krugman coined the term of Keynesophobia): whatever argument you are making , just find a way to slip into it a couple of paragraphs claiming that Keynesian policies would not work.
Sparse Thoughts of a Gloomy European Economist
Living in Terror of Dead Economists
Francesco Saraceno
(h/t Mark Thoma at Economist's View)

Joe Romm — Trenberth: Global Warming Is Here To Stay, Whichever Way You Look At It

Climate Progress

Trenberth: Global Warming Is Here To Stay, Whichever Way You Look At It
Joe Romm

James S. White — Abundance And The Inevitability Of Deflation, Bubbles And Panics

My last post was designed to offer historical precedent for the rise of China. It might have achieved that. But it raises more important questions. The most important is: how do financial systems cope with a world of deflation (created by both China and technology)?
The solution has resulted in a bi-polar personality for financial markets: capital destruction and capital accumulation all in the context of low interest rates. Indeed, deflation and its consequences is the key lesson global financial markets must adapt to. This offers substantial challenges.
An Abundant World
Abundance And The Inevitability Of Deflation, Bubbles And Panics
James S. White
(h/t Andy Blatchford via FB)

Kevin Zeese and Margaret Flowers — Progressive Activism Is Bubbling Up Across the Country -- Here's What's Happening That the Corporate Media Can't Be Bothered to Report

Mike Lux, who authored a history of the movements of the 1960s, wrote this week that when he researched his book he “was struck by the fact that so many big things happened so close together.” Comparing that moment to today he writes, “We are living in such a moment in history right now, that organizers and activists are sparking off each other and inspiring each other, that there is something building out there that will bring bigger change down the road.”
Progressive Activism Is Bubbling Up Across the Country -- Here's What's Happening That the Corporate Media Can't Be Bothered to Report
Kevin Zeese and Margaret Flowers

Now if they can get the economics right....

Friday, May 24, 2013

Kishore Mahbubani — America’s Blinders

Americans need to be told a simple, mathematical truth. With 3% of the world’s population, the US can no longer dominate the rest of the world, because Asians, with 60% of the world’s population, are no longer underperforming....
This deep social and intellectual transformation underway in Asia promises to catapult it from economic power to global leadership. China, which remains a closed society in many ways, has an open mind, whereas the US is an open society with a closed mind.
Project Syndicate
America’s Blinders
Kishore Mahbubani | Dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore

Steve Bannister — Big news, maybe very big, in alternative energy sources

Why am I so interested in other energy sources? The obvious reason is a quest for zero carbon intensity, so getting rid of the big greenhouse gas. The other one is that the correlation between energy consumption and economic output, no matter how you measure it, and probably no matter when in history you look, is so tight that you could hang wallpaper by it.
Naked Keynesianism
Big news, maybe very big, in alternative energy sources
Steve Bannister
(h/t Clonal Antibody via email)

David Fields — United States: A No Vacation Nation

Naked Keynesianism
United States: A No Vacation Nation
David Fields

Of course, this doesn't mean that no one gets a vacation in the US. Just that there are no statutory requirements as there are elsewhere in the developed world. In the US, it's a benefit that employers voluntarily provide — or not.

Matias Vernengo — Currie and the 1937-38 recession

Someone please send this message to the people in charge now.

Naked Keynesianism
Currie and the 1937-38 recession
Matias Vernengo | Associate Professor of Economics, University of Utah

Rick Ungar — Unexpected Health Insurance Rate Shock-California Obamacare Insurance Exchange Announces Premium Rates

Premiums come in lower than expected.

Michael Stephens — This Time Is Indifferent

Yet, revealingly, there are some deficit hawks who are treating the rapid shrinking of the deficit as bad news — and not for the Keynesian reason that this indicates the government is failing to do its part in supporting the economy, as Bernanke stressed in his remarks yesterday, but because the disappearing deficit is easing congressional pressure to pass “entitlement reform” (which, as we’ll see below, does belong in scare quotes)....
For the fauxsterian, the question of whether austerity can be expansionary, or whether economic growth falls off a cliff when countries’ public debt ratios surpass 90 percent of GDP, is really all beside the point. Deficit and debt hysteria have simply been a useful tool for pushing specific legislative changes that may or may or may not be related to the budget balance — changes that might be difficult to pass outside an atmosphere of imminent crisis.
A recent Washington Post column by Steven Pearlstein, “The Case for Austerity Isn’t Dead Yet,” more or less endorses this line. The problem with fiscal stimulus, the column tells us, is that it works: it boosts short-term economic growth, thus easing the pressure to pass “structural reform.”
Multiplier Effect
This Time Is Indifferent
Michael Stephens

Mr. Blue — Bad Deficit vs. Good Deficits

A bad deficit is one where despite fiscal policy there remains significant unemployment and weak economic growth. Bad deficits are typically a result of poor policy choices such as tax cuts for top income earners, an over-reliance on automatic stabilizers such has unemployment insurance, long and costly wars, or even in the rare circumstance bail out of corporations (ie. Wall Street).
A good deficit is when fiscal policy achieves high employment and strong economic growth. This means investment in public infrastructure and education and yes even tax cuts to middle income families. We know what works - it was done before but our policy makers in DC chose to ignore history and embrace a dangerously flawed economic philosophy that means deficit hawk hysteria and more pain for the rest of us.
Rebel Capitalist
Bad Deficit vs. Good Deficits
Jun 01, 2010 | Mr. Blue

Winterspeak — Ask a banker, and listen to what they say!

Nice post on Planet Money which actually gets many of the facts right! Unfortunately, they do not see how these facts actually pull together, and so do not quite capture the core insight into bank operations. But overall, it's a nice piece.
Ask a banker, and listen to what they say!

Robert Skidelsky — Creative destruction: our economic crisis was wholly predictable

Keynes, Hobson, Marx - and the crisis of capitalism
Is it to the wrong ideas of economists or to the interests of the power-holders that we should turn to explain the “Great Contraction” of 2008-2009? John Maynard Keynes believed that the Great Depression of 1929-32 was caused by the wrong theory of how the economy worked in the minds of policymakers – the remedy for which was to equip them with the right theory.
But this ignored one thing: that the reigning ideas are, more often than not, the product of the dominant power structures.
Economics, therefore, needs to be supplemented by political economy – the study of how power affects the choice of ideas and policies and the distribution of income; in short, Keynes plus J A Hobson and Karl Marx.
New Statesman
Creative destruction: our economic crisis was wholly predictable
Robert Skidelsky
(h/t Philip Pilkington via FB)

Bill Mitchell – Buffer stocks and price stability – Part 4

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

Progress Report
We are now in the process of final integration of all materials so far written. Not all of that material has appeared in these Friday pages. By the end of June we will have a first draft available and it will be trialled at two universities in second semester.
We will also be developing detailed databases and analytical exercises for the on-line support site from July to December 2013. The final publication is planned for later 2013. We hope to launch it at the – CofFEE Conference – in December 2013 in Newcastle, Australia.
Previous parts to this Chapter:
▪ Buffer stocks and price stability – Part 1
▪ Buffer stocks and price stability – Part 2
▪ Buffer stocks and price stability – Part 3
Chapter 13 – Buffer Stocks and Price Stability
[Continuing from Part 3]
Inflation control and the JG
Bill Mitchell – billy blog
Buffer stocks and price stability – Part 4
Bill Mitchell

Thursday, May 23, 2013

David Ferguson — Scientists: Frog and toad declines signal of ‘collapse of the world’s ecosystems’

Scientists: Frog and toad declines signal of ‘collapse of the world’s ecosystems’ (via Raw Story )
A study released Wednesday said that North American frogs, toads and other amphibious animals are disappearing so quickly that they are on track to be extinct from their natural habitats by 2033. According to the Denver Post, the study — which was conducted by the U.S. Geological Survey — said…

Zero Hedge — Richard Koo Warns Of "Beginning Of The End" For Japanese Economy

More on inflation targeting.

Seems that no one realizes that the central bank can control the yield curve by announcing price rather than quantity.

Zero Hedge
Richard Koo Warns Of "Beginning Of The End" For Japanese Economy
Submitted by Tyler Durden

Simon Johnson — Boards on Their Backs

The big banks are too big to govern, to big to manage, too big to regulare and too big to fail, creating "systemically dangerous institutions" (Bill Black) and huge moral hazard.

Project Syndicate
Boards on Their Backs
Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics

Kenneth Rogoff — Europe’s Lost Keynesians

Rogoff calls for debt writedowns.

Project Syndicate
Europe’s Lost Keynesians
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University

Parag Khanna — The Human City

The tangled web of international organizations that constitutes global governance has become so remote and ineffective that few count on it to deliver results anymore. Now, after decades of turf wars and self-marginalization, international organizations must rally around an increasingly pressing global priority: sustainable urbanization.
The world is undergoing an unprecedented and irreversible wave of urbanization, with the share of the global population living in cities set to reach 60% by 2030. But rapid urbanization is driving up industrial fossil-fuel consumption and household water consumption, and is increasing demand for food in areas where arable land is scarce. In short, the current urbanization trajectory is not sustainable.
Project Syndicate
The Human City
Parag Khanna | Senior Fellow at the New America Foundation and Director of the Hybrid Reality Institute

Khanna cites Singapore as an example of better management. Does this argue for a more planned approach?

Gene Frieda — Europe’s Clash of Generations

EU leaders are under pressure from a new generation of voters, for whom the original purpose of European integration – preventing war – holds little significance today. If EU leaders do not respond effectively, emerging political parties will seek to restore the protective national barriers that their predecessors demolished.
Project Syndicate
Europe’s Clash of Generations
Gene Frieda | global strategist for Moore Europe Capital Management

Ashoka Mody — Misreading the Global Economy

In April 2010, the International Monetary Fund’s World Economic Outlook offered an optimistic assessment of the global economy, describing a multi-speed recovery strong enough to support roughly 4.5% annual GDP growth for the foreseeable future – a higher pace than during the bubble years of 2000-2007. But, since then, the IMF has steadily pared its economic projections. Indeed, this year’s expected GDP growth rate of 3.3% – which was revised downward in the most recent WEO – will probably not be met.
Persistent optimism reflects a serious misdiagnosis of the global economy’s troubles. Most notably, economic projections have vastly underestimated the severity of the eurozone crisis, as well as its impact on the rest of the world. And recovery prospects continue to depend on the emerging economies, even as they experience a sharp slowdown. The WEO’s prediction of a strengthening recovery this year continues the misdiagnosis....
Economic forecasts rest on the assumption that economies ultimately heal themselves. But economies’ powerful self-healing capabilities work slowly. More problematic, a misdiagnosis can lead to treatments that impair the healing process. Overly optimistic economic projections based on mistaken assessments of the global economy’s ailments thus threaten recovery prospects – with potentially far-reaching consequences.
In Europe, the banks’ wounds must be closed – weak banks must be shut down or merged with stronger banks – before recovery can begin. This will require an extensive swap of private debts for equity. For the global economy, the malaise reflected in anemic trade growth calls for coordinated fiscal stimulus by the world’s major economies. Otherwise, the risk of another global recession will continue to rise.
Project Syndicate
Misreading the Global Economy
Ashoka Mody | former mission chief for Germany and Ireland at the International Monetary Fund and currently Visiting Professor of International Economic Policy at the Woodrow Wilson School of Public and International Affairs, Princeton University

Simon Wren-Lewis — The Liquidity Trap and Macro Textbooks

A standard objection to the money hypothesis is that nominal interest rates did (after a time) fall to their lower bound. The counterargument – which the textbook also suggests - is that, if the money supply had not contracted, long run neutrality would imply that eventually inflation would have to have been higher, and therefore real interest rates on average would be lower. So in one way the story about how higher inflation could avoid a slump is there.
What is missing is the link with inflation targeting. Because textbooks focus on the fiction of money supply targeting when giving their basic account of how monetary policy works, and then mention inflation targeting as a kind of add-on without relating it to the basic model, they fail to point out how a fixed inflation target cuts off this inflation expectations route to recovery. Quantitative Easing (QE) does not change this, because without higher inflation targets any increase in the money supply will not be allowed to be sustained enough to raise inflation. In this way inflation targeting institutionalises the failure of monetary policy that Friedman complained about in the 1930s. Where most of our textbooks fail is in making this clear.  
mainly macro
Simon Wren-Lewis | Professor of Economics, Oxford University

Would someone tell these folks that the "M" in MV=PT is M1 and not MB. Inflation targeting is not a transmission mechanism from MB to M1 to spending. To target something implies the ability to hit the target. The cb has not means to do this other than in targeting its desired interest rate through monetary policy. Moreover, no one actually believes that a cb will just sit by as inflation increases in spite of its having promised to do so in announcing an inflation target.