Sunday, June 30, 2013

Sandwichman — Glenn Greenwald Shout Out to Dean Baker

"So the last point I want to make is that one of the things I set out to do and I think that Mr. Snowden set out to do and that I know the people at The Guardian set out to do was not simply to publish some stories about the NSA. It was to really shake up the foundations of the corrupted and rotted roots of America’s political and media culture. And the reason I say that is that there is an economist Dean Baker, who yesterday on Twitter wrote that he thinks the stories that we’re doing are shining as much light on the corruption of American journalism as they are on the corruption of the National Security Agency.

"I think that is true for several different reasons. Number one is if you look at the 'debate' over—the charming, very endearing debate over whether or not I should be arrested, prosecuted and then imprisoned under Espionage Act statutes for doing journalism—What you find is that debate is being led by other people who are TV actors who play the role of journalists on TV. They’re ones who are actually leading the debate and the reason they are doing that is they purport to be adversaries of political power or watchdogs of political power but what they really are servants to political power. They’re appendages to political power."
Video at link

Glenn Greenwald Shout Out to Dean Baker

Simon Wren-Lewis — Money as Credit

Some of this will be familiar, although what was new for me (but perhaps not to followers of Minsky or MMT) - and quite challenging - was the idea that this could all be traced back historically to a misconceived view of money itself. (According to Martin, the 17th century philosopher John Locke has a lot to answer for.) The threads developed from the historical account of the origins of money are numerous. For example money as credit is inevitably social, and so its value is bound to be politically determined. In a financial crisis, when the size of debts begin to encumber the economy, it is therefore quite logical and natural to adjust the value of money to redistribute between creditors and debtors.
mainly macro
Money as Credit
Simon Wren-Lewis | Professor of Economics, Oxford University

This is really quite fascinating. According to his CV, Professor Wren-Lewis "began his career as an economist in H.M.Treasury.... His current research focuses on the analysis of monetary and fiscal policy in small calibrated macromodels, and on equilibrium exchange rates....  In 2002 he wrote one of the background papers for the Treasury's 2003 assessment of its five economic tests for joining EMU. He was also the principal external advisor to the Bank of England on the development of its current and previous core macroeconomic models. A long time advocate of Fiscal Councils, his 2007 proposal was influential in the formation of the UK‘s Office of Budget Responsibility."

And he did not really understand the basics of money and credit? I don't fault him for this. This entire institutional system, from education to government to finance and economics is blindsided.

A crash course in MMT for economists is sorely needed.

Julian di Giovanni and Andrei Levchenko — A global view of cross-border migration

There is growing interest in understanding and quantifying the costs and benefits of migration. This column presents new research suggesting that migration benefits practically all origin and destination countries. OECD countries benefit because of greater domestic product variety and, in turn, most countries that are the source of migration countries benefit because the remittances sent by migrants more than offset the costs associated with smaller market size.
A global view of cross-border migration
Julian di Giovanni, Economist in the Research Department at the International Monetary Fund, and Andrei Levchenko, Assistant Professor of Economics at the University of Michigan

Nothing about wage suppression in the host country and the global wage leveling that benefits the developing world at the expense of the workers of the developed world. How would this play politically in developed nations where workers dominate the electorate. I'm all for free flow of people and open borders, but there are political realities to face, too, as well as power relationship that will influence the way this would carried out to the benefit of capital. Initially, high skilled workers will flow toward the highest paying areas, reducing incomes of similar workers there, resulting in a "brain drain" in less developed areas and lower wages due to increased competition in more highly developed ones.

All models are assumption-dependent and this one is arguably unrealistic in what it assumes. Moreover, it works "in the long run." Short-run? Not so much.

Dirk Ehnts and Miguel Carrion Alvarez — The Theory of Reflexivity – A Non-Stochastic Randomness Theory for Business Schools Only?

According to George Soros (1987) – the author of “The Alchemy of Finance”, a book on the workings of financial markets -
“has found a place in the reading lists of business schools as distinct from economics departments. (2003, 4)"
The theory of reflexivity, which is at the center of the book, states that interdependence exists between the cognitive and manipulative functions of market participants. While Soros claims that imperfect knowledge rules on financial markets, academic orthodoxy assumes perfect knowledge and hence displays – in the absence of external shocks – financial markets as efficient.
Reviewing the published work of George Soros on both reflexivity and the Great Financial Crisis (GFC) we find that his theory can be interpreted as a rough theoretical edifice not too different from the (Post-)Keynesian perspective. Using the GFC as a background we explore the explanatory power of the theory of reflexivity. In our conclusion we make the argument that economic theories build on non-stochastic randomness should form the basis of a new discipline that should be taught at both business schools and economics departments.
Global Economic Intersection
The Theory of Reflexivity – A Non-Stochastic Randomness Theory for Business Schools Only?
Dirk Ehnts, Berlin School of Economics and Law, and Miguel Carrion Alvarez, Miguel Carrion Alvarez, Senior Risk Analyst, Grupo Santander (Math PhD)

Important. Basically, perfect knowledge that is time-dependent is impossible when feedback influences the future. Open complex systems are non-ergodic. Conventional economists pretend (assume) this is not the case in creating ergodic models as a methodological convenience. Alvarez is an expert in complex systems. This article is not wonkish however.

Elizabeth Limbach — New Documentary Captures Existential Crisis of Burning Man, Annual Artistic Bacchanal in Nevada Desert

Amazing that they haven't yet figured out that the solution to their über-success is neither to ration entry nor to grow the event, but rather to multiply venues. I thought Burning Man was about being creative, not exclusive.

New Documentary Captures Existential Crisis of Burning Man, Annual Artistic Bacchanal in Nevada Desert
Elizabeth Limbach

Toby Barlow — Emergency Manager Wants to Sell Off City's Precious Art, While Banks Get Fatter

Here's a modest proposal: let the banks auction their art to cover damages from blighted, foreclosed properties.
Emergency Manager Wants to Sell Off City's Precious Art, While Banks Get Fatter
Toby Barlow | The Weeklings

Why not just sell some of the people chronically on the dole into slavery? That's were this is headed, except slaves get a subsistence wage high enough to feed their offspring. The way this is headed that would be luxury.

Edward Fullbrook — Doctor X, “pure shit” and the Royal Society’s motto

I then listened to an explanation of Doctor X’s predicament that went roughly like this.
One naturally feels loyalty to one’s immediate colleagues. The amount of funding Doctor X’s department receives depends not on how many papers or their quality its members publish, but instead on in which journals they are published. The journals in Doctor X’s field in which publication results in substantial funding will not publish “serious papers” but instead only “pure shit” papers, meaning ones that merely elaborate old theories that nearly everyone knows are false. Moreover, even to publish a “serious paper” in addition to the “pure shit” ones could taint the department’s reputation, resulting in a reduction of its funding. In any case, no one at a top university would read a “serious paper” because they only read “top journals.”...
When I asked if perhaps there were other privileged practitioners in the field who also found the situation lamentable and who if the institutional setup, meaning funding and promotion procedures, were changed, might have a go at writing “serious papers”, “Oh yes, loads!” replied Doctor X.
Real-World Economics Review Blog
Doctor X, “pure shit” and the Royal Society’s motto
Edward Fullbrook

Critical mass waiting to happen, but held in thrall by the power structure based on funding.

See also Michael Perelman, The Power of Economics vs. The Economics of Power:

That this discussion would not be possible in most North American venues brings us to another dimension of power. As an economist, I am sensitive to the fact that radical analysis has been virtually banned from the discipline. The systematic exclusion of economists, who might have any curiosity about matters of the exercise of power, is in itself, an inexcusable exercise of power.

Jared Bernstein — When the Results Look Weird, Check the Methods…Carefully!

Once you see these results—and in one appendix table, real income falls for every income group, 1989-2007 (so…um…where did the economy’s growth go?)—your best move is to say, “we have proved that given data constraints, we are unable to reliably impute income including yearly changes in asset valuations.” That’s actually a helpful finding. To plough ahead without that introspection, and to claim your findings reveal “dramatic” reductions in inequality suggests either methodological carelessness or an ideological thumb on the scale.
On the Economy
When the Results Look Weird, Check the Methods…Carefully!
Jared Bernstein | Senior Fellow, Center on Budget and Policy Priorities
(h/t Mark Thoma at Economist's View)

Another biased study, where the outcome is fixed by choice of assumptions and method, like the arithmetic not adding up.

Daniel Kahneman on correlation, causation and mean regression

It took Francis Galton several years to figure out that correlation and regression are not two concepts – they are different perspectives on the same concept: whenever the correlation between two scores is imperfect, there will be regression to the mean …
Causal explanations will be evoked when regression is detected, but they will be wrong because the truth is that regression to the mean has an explanation but does not have a cause.
Lars P. Syll
Regression to the mean – when causes trump statistics
quoting Daniel Kahneman | Professor Emeritus of Psychology and Public Affairs at Princeton University's Woodrow Wilson School and Nobel Laureate in Economics (2002)

Federal Consumption Components of GDP

Graph below of part of the "G" component of U.S. Gross Domestic Product.

This is the contribution from U.S. Federal Government consumption expenditures and gross investment.

This is broken down into 'Defense' and 'Non-defense' components.

The total is running at about $1.2T.  The 'Non-Defense' component is running at about a $400B annual rate while the 'Defense' component is at about $800B.

Since the 'Non-defense' component is only $400B, we can examine the U.S. Treasury statement to identify the expenditures that this 'Non-defense' component does NOT include.

We know generally that the G component of GDP does not include "Transfer Payments" so that rules out Social Security and Interest on US Treasury Securities, and based on the statement , we can also rule out two other categories of 'automatic appropriation', Medicare and Medicaid.

Here is a link to the FY2012 year end Treasury Statement.

For year end FY 2012, these two line items are $246B for Medicaid and $542B for Medicare; totaling well in excess of the $400B of Non-defense consumption and investment expenditures so logically they cannot be part of this $400B Non-defense component.

So for U.S. GDP, the direct contribution to this form of measurement of economic activity from the Federal Government does NOT include at least that from:   Social Security $658B, Interest on US Treasury Securities $215B, Medicare $542B and Medicaid $246B for a total of $1.661T Federal Expenditures that simply are not included in the widely followed GDP measure and/or monitored by economists.

Indeed if we look at the total Federal spending computed by subtracting total Federal securities redemptions from total withdrawals from the TGA for year end 2012 we can see they withdrew a total of $11T while $6.8T of that was to simply redeem US Treasury securities so that leaves $4.2T of net total Treasury account withdrawals for the year, while the Federal contribution to G is reported at $1.2T.  So the remaining $3T of withdrawals is directly ignored by this popular GDP economic measure.

I guess economists wait until these $Trillions of Federal expenditures eventually show up in Consumption expenditures or something and add it up at the cash registers well after the fact ex post and come up with GDP a few months later.

Is this a good idea or helpful?

We just had a "GDP disappointment" this past week for 1Q (hey, better late than never...) and everybody acted as if surprised, could this have been predicted (or god forbid prevented...) with better real-time economic surveillance?

Good thing airlines don't operate this way as far as how much fuel they put in before a flight:  "Hey Joe, do we have enough fuel"?... "I don't know, I'll tell you after we get there or not"....

Pretty sad situation.

Our current crop of economic policymakers both in the government and the academe that advises them are simply not qualified for their positions. We need to get people in there who have the cognitive abilities to be able to understand what is really going on.

Saturday, June 29, 2013

April M. Short — Facing 13 Years in Prison for Denouncing the Bank Bailouts—Using Kids' Chalk?

The ruling judge has stripped the defendant of his First Amendment rights.
Facing 13 Years in Prison for Denouncing the Bank Bailouts—Using Kids' Chalk?
April M. Short

Welcome to Amerika. Teaching a lesson in intimidation.
San Diego’s mayor, Bob Filner, called the trial “a misuse and waste of taxpayer money” in a June 20 memo to City Attorney Jan Goldsmith.
He wrote: “It could also be characterized as an abuse of power that infringes on First Amendment, particularly when it is arbitrarily applied to some, but not all, similar speech."
Exactly, selective prosecution is abuse of power, that is, use of power largely or solely to the advantage of the power elite.

Wake up, America. It's getting late in the game. Neoliberalism is fascism and the enemy of democracy. Economic liberalism is the enemy of political freedom.

See also, Digby, This Really Is Big Brother: The Leak Nobody's Noticed, at Hullaballo, cross-posted at AlterNet.
Government documents reviewed by McClatchy [Newspapers] illustrate how some agencies are using that latitude to pursue unauthorized disclosures of any information, not just classified material. They also show how millions of federal employees and contractors must watch for “high-risk persons or behaviors” among co-workers and could face penalties, including criminal charges, for failing to report them. Leaks to the media are equated with espionage.
“Hammer this fact home . . . leaking is tantamount to aiding the enemies of the United States,” says a June 1, 2012, Defense Department strategy for the program that was obtained by McClatchy.

Washington's Blog — The Government’s Mass Spying Is An Affront To Democratic Values

Pretty incriminating. Has the US already slipped into fascism? At minimum, Bush-Obama have set the stage and provided the props.

The alternative explanation is stupidity and cowardice.

Then, the kicker: "If big data leads to more false correlations, then mass surveillance may lead to more false accusations of terrorism."

Washington's Blog — The Government’s Mass Spying Is An Affront To Democratic Values. Let’s Also Not Pretend It’s An Effective And Efficient Way Of Keeping Us Safe

Redacted FBI Documents Show Plot to Kill Occupy Leaders If ‘Deemed Necessary’

Paranoid nation. Anyone wonder why "conspiracy theories" abound when evidence like this surfaces. So many questions out there about things that we know. As I tell my conspiracy theory friends, no need to make stuff up to get hot about.

Redacted FBI Documents Show Plot to Kill Occupy Leaders If ‘Deemed Necessary’
Alexander Reed Kelly

What if the target were right wing groups like the Tea Party? Would the FBI just brush that off like this?

See also, The Wonderful American World of Informers and Agents Provocateurs by Todd Gitlin, TomDispatch

Mike Mariathasan and Ouarda Merrouche — Capital adequacy and hidden risk

The regulation of bank capital has recently come under renewed scrutiny. This column argues that the way we implement capital regulation needs to be reconsidered because banks under-report risk, thereby escaping government intervention and maintaining market access. One possible way forward, something already implemented under Basel III, is to ask banks to satisfy a capital requirement relative to total (rather than risk-weighted) assets. Overall, simple, transparent, workable rules are what we should be aiming for.
Capital adequacy and hidden risk
Mike Mariathasan, Postdoctoral Research Fellow, University of Oxford, and Ouarda Merrouche, Senior Economist, ESMA; and External Advisor, World Bank

Enrico Grazzini — Democracy or the Euro?

According to the German Constitutional Court it is not acceptable that “the most important decisions at European level be negotiated in anonymous corridors of the Brussels bureaucracy.” In Italy too, we should ask ourselves whether it is right that economic policy is torn from popular sovereignty and dictated by foreign countries and international financial oligarchies.
We hope that finally there is a judgement in Berlin so that the euro, led by Angela Merkel’s Germany and Mario Draghi’s European Central Bank, does not totally prevail over democracy. We hope that the German Constitutional Court decides on the de facto withdrawal of Germany from the euro: this is possible, although not very likely. The President of the German Federal Constitutional Court Andreas Vosskuhle has expressed his opposition to the idea ‘that the most important decisions at European level are negotiated in anonymous corridors of the Brussels bureaucracy, or at any meeting of the European Council, or somewhere else without adequate public discussion and without European citizens having the power to influence these decisions”.
According Vosskuhle budget decisions must remain in the hands of the legitimate representatives elected by the people and Parliament: “It would be tragic if we lose democracy to solve the problems of the euro or to achieve greater European integration.”
Revolting Europe
Democracy or the Euro?
Enrico Grazzini
(h/t Andy Blatchford at FB)

David Ruccio — CEO-to-worker compensation ratio 1965-2012

Occasional Links & Commentary
David Ruccio | Professor of Economics, University of Notre Dame

Friday, June 28, 2013

Andrew Gavin Marshall — Global Power Project, Part 3: The Influence of Individuals and Family Dynasties

The Global Power Project, an investigative series produced by, aims to identify and connect the worldwide institutions and individuals who comprise today's global power oligarchy. In Part 2, which appeared last week, I discussed some of the dominant institutions that have facilitated and have in turn been supported by the development of this oligarchic class. In this third part, I examine the dynastic influence wielded by prominent corporate and financial families. This is not a study of wealth, but a study of power.
Truthout | News Analysis
Global Power Project, Part 3: The Influence of Individuals and Family Dynasties
Andrew Gavin Marshall,

Meet and greet the power elite.

Signal to repeat über-historian Carroll Quigley:

"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank... sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."     
Carroll Quigley (1910-1977) | Professor of History at Georgetown University, member of the Council on Foreign Relations (CFR), mentor to Bill Clinton, in Tragedy and Hope, 1966., ch. 20

Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (PDF)
Volumes 1-8
New York: The Macmillan Company, 1966

Mike Lofgren — The Authoritarian Seduction

[Authoritarianism] is a psychology at once absolutist and schizophrenic. That is why health insurance and restrictions on carrying loaded weapons in public are intolerable tyrannies, while all-encompassing surveillance, life in prison for growing marijuana, or assassination without judicial process are praiseworthy. Paradoxically, the authoritarian personality embodies anarchic rebellion and craven submission at the same time. It is, as Richard Hofstadter said, a disordered relationship to authority, "characterized by an inability to find other modes for human relationship than those of more or less complete domination or submission."...
The seductive power of authoritarianism is particularly strong during times of economic and social stress. Seemingly, the reptilian brain becomes dominant in a crisis; for every government that instituted a New Deal or something like it in the wake of the Great Depression, a half dozen fell into fascism, military rule or some other authoritarian form of "national unity."...
The virus of authoritarianism is a flight from reason, a goose-stepping reflex and a search for simplistic, usually conspiratorial, explanations for complex events. It is no wonder this mindset esteems institutions that are based on hierarchy and various forms of coercion, regardless of those institutions' success or failure. That this mindset derides institutions of self-government and enlightenment and fails to see its own responsibility for those institutions' serious shortcomings is equally significant and bears watching.
Truthout | Op-Ed
The Authoritarian Seduction
Mike Lofgren

R. V. Markov — Fund raising for organization of the first MMT conference in Bulgaria

Fund raising for organization of the first MMT conference in Bulgaria.
Набиране на средства за организирането на първата ММТ конференция в България
Submitted by R. V. Markov

Please help out to the degree you are able. Social protest is underway in Bulgaria, and Bulgarians need a solution to pick up. Help make it MMT.

Steve Roth — What Caused the (Next) Housing Bubble? (Six Graphs)

If that’s true, that scary runup in the upper-right corner of the first graph is the top .1% — having extracted everything they can from the 90% who have no money, really — finally going all Willy Sutton on us and going where the real money is: the top 10%. I wonder: how will those ten-percenters will feel about the glory and wonder of “free markets” a few years from now?
What Caused the (Next) Housing Bubble? (Six Graphs)
Steve Roth

Philip Pilkington — False Profit: How Paul Krugman’s Comments on Monopoly Distract From the Important Issues

So, what then is Krugman avoiding by positing what seems to be an emotionally appealing narrative? Simple: class power. Those two words neoclassical economists cannot stand to hear. The fact is that the idea of neoclassical competition is, at best, a relic of the 19th century, at worst, a fantasy pure and simple and income distribution has far more to do with class power than anything else. Class power is, of course, a political issue first and an economic issue second – one of the reasons that neoclassicals, who claim to practice “pure economics”, tend to avoid it. But it is class power that underlies the manner in which income is distributed today – especially when we are considering the role of finance.
Fixing the Economists
False Profit: How Paul Krugman’s Comments on Monopoly Distract From the Important Issues
Philip Pilkington

The plot (wrt rents) thickens. This single paragraphs sums it up.

For elaboration, see Michael Perelman, The Power of Economics vs. The Economics of Power (pdf) and C. Wright Mills, The Power Elite (pdf).

Bill Mitchell – Case Study – British IMF loan 1976 – 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.

Previous parts:
▪ Case Study – British IMF loan 1976 – Part 1
▪ Case Study – British IMF loan 1976 – Part 2
▪ Case Study – British IMF loan 1976 – Part 3 
Case Study – The British IMF loan in 1976
Bill Mitchell – billy blog

Case Study – British IMF loan 1976 – Part 4
Bill Mitchell

Thursday, June 27, 2013

David Ferguson — Former East German secret police captain says NSA spying ‘a dream come true’

Former East German secret police captain says NSA spying ‘a dream come true’ (via Raw Story )
A former agent of the Stasi, the much-feared East German communist secret police, has said that the recently revealed NSA spying program would have been his agency’s “dream come true” because it has collected “so much information, on so many…

Ann Pettifor — Dear Mr Carney: Memo to the new Bank of England governor

Given Britain’s huge private debt, coordination between monetary and fiscal authorities is essential if the UK is to avoid decades of stagnation – or, worse, an Irving Fisher-style debt-deflationary spiral.
So your first task, I suggest, is to persuade the chancellor that financial stability depends on this coordination.
Dear Mr Carney: Memo to the new Bank of England governor
Ann Pettifor

George Soros: Why We Need To Rethink Economics

In this short interview, Institute for New Economic Thinking co-founder George Soros tackles the question at the heart of the Institute’s mission: What’s wrong with economics and what can we do to change it?
“Economic theory needs to be rethought from the ground-up,” Soros says. He specifically criticizes economists who are trying to produce theories that behave like laws in Newtonian physics, which Soros has long believed is impossible.
To change this, Soros says economics needs to reexamine its own behavior. “You need a new approach with different methods and also different criteria of what is acceptable,” he says. And he says that economic thinking needs to begin addressing real-world policy questions rather than simply creating more mathematical equations.
George Soros: Why We Need To Rethink Economics

Dirk Bezemer - Debt: The Good, the Bad, and the Ugly

The last five years after the financial crisis have made clear that the workings of money, credit, and debt have profound consequences for the functioning of our economic system. But for many, the fundamental principles that make money work remain opaque.
Is it possible to create an economic system that does not produce bubbles and crises? And is it possible to solve our current debt crisis?
In this four-part series of short videos, Institute for New Economic Thinking grantee Dirk Bezemer tackles these important questions and offers a straightforward explanation of how money works.
He describes money as a means by which members of a society can settle their debts to one another. He then uses this understanding of money to explain the mechanics of the housing market and how bubbles grow and lead to economic crises. And he explains what can be done after the 2008 crisis to build a more effective and stable financial system that can once again serve the real economy.
Dirk Bezemer - Debt: The Good, the Bad, and the Ugly
Dirk Bezemer | Associate Professor, University of Groningen

Lars P. Syll — Economics and probability

This importantly also means that if you cannot show that data satisfies all the conditions of the probabilistic nomological machine, then the statistical inferences used – and a fortiori neoclassical economics – lack sound foundations!
Economics and probability
Lars P. Syll | Professor of Social Studies and Associate Professor of Economics, Malmo University

How the magician does the trick.

Jerry Khachoyan — Did The Fiscalists Just Win?

So, does this mean the fiscalists won? I would say that the evidence now sways in their (our?) favor. Of course, one can argue that the economy didn’t really slow down because GDI (Gross Domestic Income) had a higher reading than GDP (or that GDP is wrong). Also, one can argue that without the Fed policies, the contraction would have been worse. However I’ve learned that In macroeconomics, there is always a way to twist the data/story/question around to support your view. If you are doing that, make sure you have some evidence to back it up.
The Armo Trader
Did The Fiscalists Just Win?
Jerry Khachoyan

Wednesday, June 26, 2013

Joe Firestone — Lavoie's Critical Look at Modern Money Theory: A Reply

In October 2011 Marc Lavoie, a post-keynesian economist, very friendly to Modern Money Theory (MMT) wrote a paper presenting a friendly critical look at MMT. In his conclusion, Lavoie states that “. . . the neo-chartalist analysis is essentially correct . . . “ affirming his substantial agreement with MMT's analysis of banking operations and fiscal realities in nations with non-convertible fiat currencies, with floating exchange rates and no debts in currencies they do not issue, as well as MMT's analysis of Eurozone viability. But he goes on to say (p. 25):
“There is nothing or very little to be gained in arguing that government can spend by simply crediting a bank account; That government expenditures must precede tax collection; that the creation of high powered money requires government deficits in the long run; that central bank advances can be assimilated to a government expenditure; or that taxes and issues of securities do not finance government expenditures.”
So, Lavoie questions the wisdom of MMT economists and writers making certain counter-intuitive statements he perceives as certainly questionable, perhaps untrue, and also confusing to people, economists and decision makers trying to understand MMT writings. He considers these statements an important barrier to understanding, and he wants this 'baggage' to be discarded because he thinks it hurts MMT and post-keynesian efforts to get important new approaches to economics accepted.

Recently, Lavoie's work was used in a very vigorous and important discussion at Rodger Malcolm Mitchell's Monetary Sovereignty web site by a commenter named “Tom,” questioning some of Rodger's formulations and the statements of other commenters who defended theMMT and MS positions. I participated in the discussion, but also concluded that it would be more useful to write a more formal reply to answer Lavoie's question of what is gained by taking some of the positions MMT and MS writers often take. This is my reply.
Lavoie's Critical Look at Modern Money Theory: A Reply
Joe Firestone

Cross-posted at New Economic Perspectives here.

Graph of U.S. Corporate Profits and Dividends

Graph below of current US corporate profits, corporate profits net of taxes, and dividends for the last couple of years which I made at the BEA site here.

Currently running a bit over $1.5T equivalent annually after taxes.  That's a lot of "money" corporations are getting from somewhere...

Nathan Tankus: Krugman von Hayek

More on the "natural rate" of interest.

Jörg Bibow — Euro Crisis Sees Reloading Of Germany’s Current Account Surplus

Who is running the largest current account surplus in the world? China? Saudi Arabia? Both wrong! These are only the number two and three countries. China had a record $420bn surplus in 2008, but that imbalance has more than halved since. As a share of GDP China’s external imbalance is down from ten to two-and-a-half percent since the global crisis — evidence of a remarkable rebalancing. The oil price would need to be significantly higher still to make Saudi Arabia the number one.
So for 2012 the number one prize actually goes to: Germany!
Multiplier Effect
Euro Crisis Sees Reloading Of Germany’s Current Account Surplus
Jörg Bibow

Warren Mosler — Chinese liquidity drill

Warren explains what's happening in Chinese banking.

The Center of the Universe
Chinese liquidity drill
Warren Mosler

Bill Mitchell – Since when did the BIS become the Neo-liberal Ministry of Misinformation?

One despairs when a sober institution gets ahead of itself, usually because they make hiring mistakes, and start to think they know stuff. This is an organisation that is steeped in statistical analysis and should have a very good idea of empirical regularities. They know that interest rates have been “essentially zero” in Japan since the 1990s and they know that what hasn’t happened as a consequence. They know that central banks have been “expanding their balance sheets” (now “collectively at … three times their pre-crisis level”) and what hasn’t happened as a consequence (inflation). But as the neo-liberal paradigm has concentrated its control of the policy debate, this organisation has morphed from playing a useful role as a coordinator of central banking into a propaganda unit pumping out misinformation and outright lies and distorting the public debate. Welcome to the Bank of International Settlements, which is now firmly ensconced with the likes of the IMF, the OECD, the ECB, the EU, the World Bank, and others as being part of the problem the World economy faces.
Bill Mitchell – billy blog
Since when did the BIS become the Neo-liberal Ministry of Misinformation?
Bill Mitchell

The BIS is another agency in the Department of Propaganda.

Bill provides a good summary of monetary versus fiscal policy in stimulating aggregate demand.
Claiming monetary policy was highly effective (despite no serious evidence to support that proposition) and fiscal policy was ineffective (again in denial of the facts) was an important strategic plank for the conservatives.
It allowed them to limit the discretion of the elected representatives of the people and transfer economic management to central bankers who are unelected and largely unaccountable. They tightened the straitjacket on democratic choice by imposing so-called fiscal rules, which are nothing more than arbitrary ideological constraints on the capacity of government to adopt flexible policy choices to changing circumstances.
Part of the straitjacket and shifting of economic policy management was also evidenced by the rise of so-called fiscal commissions – faceless, unelected people who think we are so stupid that their ideological diatribes on fiscal consolidation should be taken seriously. But the intent is clear – these commissions are used to place political pressure on the elected government to adopt austerity measures and transfer real income to the top-end-of-town at the expense of the disadvantaged, fragile and poor citizens.
Two key MMT points that set straight the BIS misinformation and disinformation — yes, they lied in addition to being ignorant.
Basic macroeconomic theory tells us that spending equals income. If there are leakages from the spending cycle via saving, imports, or taxes then there have to be equal injections into spending stream (via government spending, investment spending or export revenue) if the current level of economic activity is to persist.
A sovereign government can always buy anything that is for sale in the currency it issues including all the unemployed labour. In fact, it has a duty to purchase all that unemployed labour if there is zero bid for its services from the non-government sector. 

Tuesday, June 25, 2013

Jonathan Chait — Republican Harvard Economist Writes Terrible Defense of the One Percent

Gregory Mankiw plays a small but important role in the political ecology: an accomplished Harvard professor who validates Republican economic policies. It’s almost impossible to find empirical support for debt-financed tax cuts, but when George W. Bush proposed them, Mankiw and his Harvard pedigree were there to reassure that they were “fiscally responsible” and would surely lead to higher growth. The failure of these reassurances to come true has not prompted Mankiw to reassess his thinking. That’s because the fundamental basis for his beliefs about such matters has nothing to do with economics. Mankiw believes rich people deserve to keep their money, regardless of economic consequences.
Now, many conservatives share this belief, but since it is unpopular, they instead argue that higher taxes on the rich hurt the non-rich. Mankiw, to his enormous credit, does not conceal his agenda. He lays his agenda on the table in the form of a paper, “Defending the One Percent,” explicating his beliefs. In so doing, Mankiw — perhaps admirably, or at least bravely — ventures completely outside his area of expertise, economics, into moral philosophy. The result is — well, there’s no other way to put it. It’s an embarrassing piece of ignorant tripe.
New York Magazine
Republican Harvard Economist Writes Terrible Defense of the One Percent
Jonathan Chait

Professor Mankiw is at least up front about his conservative rationale: "Some people are better than others" and therefore deserve more. That they have more is sufficient proof that they are better than those that have less. Yeah, he actually uses this as the basis of his argument.

Corey Robin — The Hayek-Pinochet Connection: A Second Reply to My Critics

In my last post, I responded to three objections to my article “Nietzsche’s Marginal Children.” In this post I respond to a fourth regarding the connection between Friedrich von Hayek and Chilean dictator Augusto Pinochet.
The Hayek-Pinochet Connection: A Second Reply to My Critics
Corey Robin

The road to socialism troubled Hayek as political philosopher. The road to fascism, not so much as long as economic liberalism was maintained institutional. BTW, essential to economic liberalism for Hayek was zero collective bargaining power for labor, that is, no trade unions. If it took a dictator to do away with them, that was a feature of progress, in which all innovation is the result of intervention by great men.

If you don't already know the details, here they are.

BTW, Hayek's ideas were not very different from those of Mises:
It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error.
Ludwig von Mises, Liberalism

Quoted in Mises and the “Merit” of Fascism by Jeet Heer at sans everything (December 15, 2007), which is also worth a read.
 Mises styled himself a classical liberal, a position which after the First World War lost its political salience in Central Europe. Amid the strife of the era, Mises hated above all else any form of working class militancy, not just in the manifestation of Bolshevism but also moderate social democracy. This led him to look with favour on some authoritarian regimes. In his 1927 book Liberalism, Mises expressed great ambivalence about Mussolini’s new political doctrine of fascism. He recognized that, of course, that fascism was illiberal and was even farsighted in seeing that it would lead to another European war. Still, Mises thought that as a reaction to communism, fascism was understandable and even admirable. 
The approval that Mises gave to Dollfuss was a precursor to the squirmy support Friedrich August von Hayek and Milton Friedman gave to the Pinochet regime in Chile. All three men were in some ways acting in consistency with the doctrines of classical liberalism, which prizes private property while being fearful of democracy. What they failed to realize is that under modern dictatorships, neither property nor any other right is secure. I like classical liberals and libertarians well enough but I don’t think they can be depended upon to defend liberty.

John Carney — Financial Stress Index Hits Scary Level

Assuming this [previous Fed action] isn't a completely spurious correlation, the recent rise in financial stress may mean that we should expect something new from the Federal Reserve soon.

Financial Stress Index Hits Scary Level
John Carney | Senior Editor

How's that monetary policy working for ya?

Howard Fineman — Supreme Court Voting Rights Decision: The Civil War Is Over, And A New War Begins

A new civil war begins with Congress gridlocked. Potentially a step backward for democracy and civil rights in the US in this poisonous environment, especially when minority voters heavily favor one party and the other party can at least forestall fixes if not legislate in their favor. Outlook: poor.

The Huffington Post
Supreme Court Voting Rights Decision: The Civil War Is Over, And A New War Begins
Howard Fineman | Editorial Director of the Huffington Post Media Group

Lars P. Syll — Listen to Larry, Greg!

Even though the interest may not be reciprocated, it would obviously be a good idea for Greg Mankiw to listen to his Harvard colleague Lawrence Summers, instead of trivializing the problems created by increasing inequality! Summers has some interesting thoughts on why income inequality is on the rise and what to do about it...
Listen to Larry, Greg!
Lars P. Syll | Professor of Social Studies and Associate Professor of Economics, Malmo University

Larry is OK on diagnosis, certainly a lot better than Greg. But solutions? Pretty thin stuff that ignores the fundamental issue in the rise of inequality, which is the relationship of political power to economic policy. The wealthy are rising in fortune since, as Senator Durbin famously said of Congress, "The banks run the place."

Summers: "With smaller families and ever more bifurcation in the investment opportunities open to those with wealth, there is a real risk that the old notion of “shirtsleeves to shirtsleeves in three generations” will become obsolete, and those with wealth will endow dynasties."

The major thrust of the wealthy and power is to create dynasties. That's the bottom line. The direction of power is toward control by the powerful and in a pluralistic environment that results in feudalism of sort or another and feudalism needs an environment of fascism to survive and prosper. It is now accident that the US is deeply enmeshed in corporatism and is becoming a corporate state, with political authority supporting it due to state capture.

Jerry Khachoyan — Is The Consumer Getting Squeezed?

Some light glimmering in the tunnel of wage darkness?

The Armo Trader
Is The Consumer Getting Squeezed?
Jerry Khachoyan

Monday, June 24, 2013

Randy Wray —Are More Jobs The Answer? The “BIG” Bait and Switch

More on the basic income guarantee (BIG) versus the job guarantee (JG).

Economonitor — Great Leap Forward
Are More Jobs The Answer? The “BIG” Bait and Switch
L. Randall Wray | Professor of Economics, UMKC

Ajit Sinha - Piero Sraffa's Price Theory Without Equilibrium

Piero Sraffa's classic work Production of Commodities by Means of Commodities has been variously interpreted as a special case of modern neoclassical general equilibrium or a foundation stone for the revival of the classical tradition of Smith and Ricardo.
Ajit Sinha breaks new ground by viewing the book through the eyes of Sraffa himself, using archival resources to uncover the philosophical underpinnings of the book in the work of Wittgenstein and others.
Sinha argues that Sraffa's framework doesn't require equilibrium conditions to work - while most other theories of price do - allowing for an empirical understanding to economics that is closer to the real-world situation of market disequilibrium
According to Sraffa, the prices we observe in the world are simply the way the economic system achieves a given distribution of income at a given moment in time. This new interpretation opens up the revolutionary possibility of a microeconomic foundation in price theory that's compatible with the macroeconomics of Keynes.
Ajit Sinha - Piero Sraffa's Price Theory Without Equilibrium
(h/t Tschäff Reisberg on FB)

Peter Radford — Human capital – The knowledge dimension

People like Tyler Cowan, for example, predict a diminished trajectory for GDP growth because our economy is not innovating as well as it once did. According to Cowan, our latest inventions have a far smaller impact on future wealth creation than did those of a century ago. This conclusion feeds into his standard right wing cry for freeing up enterprise and the reduction of social entitlement programs. He says we cannot afford those programs because of the diminished future, and if we want to move the growth curve back upwards we need to reduce government controls.
But my narrative produces a different interpretation: the cause of our diminished future resides in the private sector’s single minded pursuit of profit being extracted from efficiency rather than from innovation. We have succeeded mightily in squeezing profits from our current set of ideas. But at the cost of thinking about and finding the innovations that build the future.
We have become overly bureaucratic, technocratic, and reliant on primary knowledge.
I think the Golden Age of Human Capital is yet to come. The age of problem solving, that is. Not the age of rote learning.
Real-World Economics Review Blog
Human capital – The knowledge dimension
Peter Radford

Peter Radford's analysis is interesting to compare with Joseph Schumpeter in Capitalism, Socialism and Democracy. Schumpeter saw the failure of capitalism based on economic liberalism and its replacement by social democracy as coming from the decline of entrepreneurship and innovation. His work is dated in that the context and changed greatly so the path that Schumpeter predicted based on then current trend has shifted considerably.

The path that Peter Radford describes is characterized by a push for efficiency and cost-cutting over innovation and entrepreneurship. This has become the driving force in US business. While Radford foresees a resurgence of innovation and entrepreneurship, the evidence is thin. Instead what we are seeing is the social reaction that Schumpter foresaw, but for different reasons. 

It is not government responding to popular desire that is causing the shift away from innovation and entrepreneurship, but rather it is the current business model based on efficiency that is resulting in social unrest and a call for greater social democracy to deal with the effects of inequality, which the wealthy and powerful brush off as class envy if they are even aware of it, being isolated in a bubble.

Nathan Mattise — California sends a cease and desist order to the Bitcoin Foundation

Licensing is required for money transmissions in-state; Bitcoin denies such activity.
California sends a cease and desist order to the Bitcoin Foundation
Nathan Mattise
(h/t Yves Smith at Naked Capitalism)

Collison course.

Valerie Plame Wilson and Joe Wilson — The NSA's metastasised intelligence-industrial complex is ripe for abuse

Where oversight and accountability have failed, Snowden's leaks have opened up a vital public debate on our rights and privacy
The Guardian (UK)
The NSA's metastasised intelligence-industrial complex is ripe for abuse
Valerie Plame Wilson and Ambassador Joe Wilson
(h/t Yves Smith at Naked Capitalism)

Valerie Plame was the CIA agent that Dick Cheney had outed when US Vice President in retaliation for her husband's contradicting then Secretary of State Colin Powell's statements about Iraq's supposed having obtained yellow cake uranium from Nigeria. No one was prosecuted for the actual crime, but Scooter Libby was convicted of perjury for giving false testimony in the investigation. Ironically, Dick Cheney recently called Edward Snowden a traitor.

Yves Smith — The BIS Loses Its Mind, Advocates Kicking Citizens and the Bond Markets Even Harder

Lots of good stuff, including Fed policy and its consequences.

Naked Capitalism

The BIS Loses Its Mind, Advocates Kicking Citizens and the Bond Markets Even Harder
Yves Smith

Mark Thoma — 'The Intellectual Bankruptcy of the Austerians'

Some comments on the latest report from the BIS
Economist's View
'The Intellectual Bankruptcy of the Austerians'
Mark Thoma | Professor of Economics, University of Oregon

BIS or BS? The title to this post should be "Calling BS."

Eric Falkenstein — Models aren't Optional

Of course models are logically necessary since humans express thought in terms of logical constructs that serve to abstract and approximate the design problem to be solved in a model that other can understand and one can critique and test oneself.

As Ludwig Wittgenstein showed in the Tractatus Logico-Philosophicus, descriptive propositions are models representative what they describe. The truth value of descriptive propositions that represent states of affairs and assert their existence as facts can in principle be ascertained empirically. Formulating testable hypotheses is fundamental to scientific method.

 Although descriptive propositions are constructed in "logical space" rather than physical space, the logical aspects of modeling remain the same. As Wittgenstein went on to show in his later work — Philosophical Investigations being the only work other than the Tractatus that he released for publication — that ordinary language use is not limited to the descriptive. Hence, it cannot be approached as scientific in the way that the Tractatus did. Because ordinary language is richer and less precise than formal expression, its underlying logic is more difficult to discern and requires a different kind of logical analysis.

Rigorous thinking, especially, is model-dependent, but not all models are the same, nor are the assumptions and methods of modeling. Formalized and quantitative models are not the only kind of valid or worthwhile modeling, as some seem to assume. A great deal of work has been done on this in logic and philosophy of science, for example.

This is what methodology is about, and conventional economics rules out methodological debate other than on its framing. Other methods and their modeling are not considered, being rejected as "heterodox."

Models aren't Optional
Eric Falkenstein

Nick Rowe — Rates, rents, shares, and capital theory

NIck Rowe jumps into the fray on rents with a model. He also thinks that Cambridge Post Keynesians wrong in the capital debate.

Worthwhile Canadian Initiative
Rates, rents, shares, and capital theory
Nick Rowe | Associate Professor of Economics, Carleton University

Sunday, June 23, 2013

Eric W. Dolan  — Liberals and conservatives approach moral judgments in fundamentally different ways

Research published June in Social Psychological and Personality Science suggests that religious individuals and political conservatives think about moral issues in a fundamentally different way than liberals.
The study by Jared Piazza of the University of Pennsylvania and Paulo Sousa of Queen’s University Belfast, which included a total of 688 participants, found religious individuals and political conservatives consistently invoked deontological ethics. In other words, they judged the morality of actions based on a universal rule such as, “You should not kill.” Political liberals, on the other hand, consistently invoked consequentialist ethics, meaning they judged the morality of actions based on their positive or negative outcomes.
Liberals and conservatives approach moral judgments in fundamentally different ways
Eric W. Dolan 

Bears out George Lakoff.

Joe Weisenthal — GOLDMAN [Jan Hatzius]: Here's How The Fed Can Still Nail The Landing

Says Hatzius....
Business Insider
GOLDMAN: Here's How The Fed Can Still Nail The Landing
Joe Weisenthal

Peak Prosperity — Neil Howe: The Fourth Turning Has Arrived

Neil Howe of Strauss and Howe thinks that the Fourth Turning started in 2008 with the global financial crisis and the election of President Obama.

He is completely off his rocker about the economics of it though. Sociologists should stick with sociology and not do pop economics.
We cannot possibly afford the government we have promised ourselves. And, that will be a painful process of deleveraging, and it is not just deleveraging the explicit debt that we have already actually formally borrowed, it is all the implicit debt. And, I think we will deal with it, because we have no other choice.
I don't disagree with this analysis factually, however. Even though it doesn't have to happen, as a proper understanding of economics shows, the likelihood of it coming to pass is high due to ignorance, vested interests, and systemic hysteresis due to persistence of failed ideology and institutional arrangements. Neil Howe is unknowingly trapped in it himself.

Peak Prosperity
Neil Howe: The Fourth Turning Has Arrived
Interview with Neil Howe
(h/t Zero Hedge)

ProGrowthLiberal — Border Security as Militarized Keynesianism – Outsourced

I think we have found a proposal to increase government purchases that Republicans like....
Border Security as Militarized Keynesianism – Outsourced

Dennis J Bernstein — Bush's Foiled NSA Blackmail Scheme

More than a decade ago, President George W. Bush enlisted the National Security Agency in a blackmail scheme to dig up dirt to coerce UN Security Council members to approve his aggressive war against Iraq. But the plot was foiled by a brave British intelligence officer, Katharine Gun, as Dennis J. Bernstein reports.
Bush's Foiled NSA Blackmail Scheme
Dennis J Bernstein, Consortium News | Interview

Surprise. Intelligence is used for more than intelligence.

J. Edgar Hoover reputedly had a file on "everyone." Whether he did or not, remains uncertain, but "everyone" knew he had files and no one was sure whether he didn't have a file on them. Result. Intimidation.

Total information awareness is fascism and leads to totalitarianism, where everyone feels watched all the time. This is an unacceptable tradeoff for false security.

See also Are They Allowed to Do That? A Breakdown of Selected Government Surveillance Programs by Staff, Brennan Center for Justice | News Analysis

Whistleblowing 2.0: From the Pentagon Papers to Bradley Manning to PRISM by Patrick McCurdy, Waging Nonviolence | Op-Ed

Bill Black — The Heritage Foundation: Where 7.8% Growth is “Moderate” and 4.4% is “Spectacular” [Where? Ecuador]

Heritage Foundation is run by Jim DeMint, the former Tea Party legislator. Heritage promptly demonstrated the impact of its new leadership with its purported study of the benefits and costs of immigration that ignored the benefits and inflated the costs. Even other conservative groups were appalled – and that was before one of the co-authors of its studies’ past writings on the inferiority of certain minorities that purportedly made assimilation fail became public. Heritage is one of many anti-think tanks where anyone with a progressive thought is shown the door.
I wondered how the new Heritage was handling Ecuador. Ecuador is a particular problem for entities like Heritage. Heritage has an “economic freedom index.” “Freedom” has a specialized meaning to Heritage – financial regulation and regulation to protect workers’ health and safety tends to be treated as a decline in freedom. Simply having the government spend money – even if the spending dramatically increases health, safety, and education – can be treated by the index as making a nation less “free.” Like the competitiveness indices created by the World Economic Forum, the Heritage indices represent faux empiricism in the service of ideological dogmas.
New Economic Perspectives
The Heritage Foundation: Where 7.8% Growth is “Moderate” and 4.4% is “Spectacular”
William K. Black, Associate Professor of Economics, UMKC

P.W. — The Sermon from Basel

The Sermon from Basel
The Economist
I'm a central banker, get me out of hereP.W.

The BIS is off its meds.

See also BIS Says Party Over for Quantitative Easing by Robert Oak at The Economic Populist
The Bank for International Settlements has demanded Central Banks stop their quantitative easing in hopes of a global economic recovery.  All that has happened is a stock market love affair while the real economy languishes.  BIS has issued their annual report demanding nationsdeleverage, which is codespeak for austerity.  The Bank fo International Settlements is the bank of the central banks, so these ultimatums to their 58 Central Bank members are significant.   The BIS demand is clear, quit quantitative easing, adding to balance sheets and issuing zero interest rates and get back to layoffs, downsizing and austerity.  Those are the BIS marching orders to their members as their annual report implies Central Banks are simply staving off the inevitable with unforeseen financial consequences.
The gnomes at the BIS have learned nothing. They need to get out of the vault more.

Oak sums it up. "The report is quite offensive."

Tania Branigan, Miriam Elder and Nick Hopkins — Edward Snowden Seeks Asylum in Ecuador, Via Moscow, Amid Diplomatic Storm

The plot thickens as resistance to American power heightens.

Edward Snowden Seeks Asylum in Ecuador, Via Moscow, Amid Diplomatic Storm
Tania Branigan, Miriam Elder and Nick Hopkins | The Guardian

See also Obama's Transformation from National Security Dove to Hawk Is the Norm: Presidents Are Captive to America's Imperial Power by    Gary Younge | The Guardian and The Subjects of American Empire Are Joining in Solidarity by Kevin Zeese, Margaret Flowers
We are all subjects of the American Empire.  Whether we live in North America, South America, Asia, Europe, the Middle East . . .  we are all under the thumb of neo-liberal capitalism that puts concentrated corporate power in control of our lives. For decades, American Empire and wealthy elite have forced privatization of resources in developing countries and austerity measures on public programs. Now, we are also experiencing these same policies in wealthier nations like the US and Europe.
All but the wealthiest are now members of the “Global South.” And, more and more people realize this. People from all over the world recognize that we must stand together in solidarity to challenge the tiny minority that dominates us.  The revolts in Turkey, Brazil, Europe, the Middle East and Asia – as well as in the United States – are all connected.
These struggles share common messages that people are more important than profit, that human rights must be respected and that we want to live in peace with dignity. We see that capitalism is failing and that the people must take control to create the kind of world in which we want to live. The Afghan Peace Volunteers said this clearly in their recent open letter: “accomplishing these actions hinges on us, on climate change citizens, Arab Spring citizens, Occupy citizens and the ‘awakening’ citizens of every country to free ourselves from the unequal dominance of corporate governments with their laws and weapons of self-interest.” ...
And it’s happening. People from around the world are working in solidarity and protesting on behalf of others....
More people understand that the extraction economy must end....
This article is produced by in conjunction with AlterNet.  It is based on’s weekly newsletter reviewing the activities of the resistance movement. 
The revolt is on. Strauss & Howe and Ravi Batra seem to have called it.

"The extraction economy must end." Now that is a demand. Who said that Occupy doesn't have demands?

John Pilger — There's a New Fascism on the Rise, and the NSA Leaks Show Us What It Looks Like

The power of truth-tellers like Edward Snowden is that they dispel a whole mythology carefully constructed by the corporate cinema, the corporate academy and the corporate media.
There's a New Fascism on the Rise, and the NSA Leaks Show Us What It Looks Like
John Pilger

Constructing the American myth and myth machine.

Miles Corak — Income Inequality, Equality of Opportunity, and Intergenerational Mobility

The summer issue of the Journal of Economic Perspectives will feature a collection of articles on inequality and the top 1%, some of which are now being circulated by the authors.
The paper by Tony Atkinson and his coauthors, “The top 1 percent in international and historical perspective,” is available in this post, and Greg Mankiw has posted a copy of his paper, “Defending the One Percent“, on his blog.
My contribution to the collection is based on the notion that the inequality literature has paid little attention to the intergenerational consequences of increasing top income shares, and it can be read as a counterpoint to Mankiw’s piece, or at least to his claim that inequality of opportunity is not a reason to worry about the top 1%.
Here is the close to final draft: Income Inequality, Equality of Opportunity, and Intergenerational Mobility. But if you just want a quick read, an excerpt from the conclusion follows. Either way, feedback is—as always—welcomed.
Economics for Public Policy
Income Inequality, Equality of Opportunity, and Intergenerational Mobility
Miles Corak | Professor of Public and International Affairs, University of Ottawa
(h/t Paul Krugman at The Conscience of a Liberal)

“Laws and government may be considered in every case as a combination of the rich to oppress the poor and preserve for themselves the inequality of the goods which would otherwise be soon destroyed by the attacks of the poor, who if not hindered by the government would soon reduce the others to an equality with themselves by open violence”
—Adam Smith, Lectures On Jurisprudence, 1762-3; iv, 21-2, p. 208

This is what democracy is supposed to correct according to the myth. However, reading the Founding Fathers leads to the opposite viewpoint, which is why the US and other "liberal democracies" are actually republics. The result for the most part has been continuation of inequality due to the power and class structure. While some conventional economists are finally willing to talk about inequality, almost none of them are willing yet to talk about power.

Yanis Varoufakis — EUROPE UNHINGED – Article in the European Financial Review

The following article was commission by the European Financial Review which just published it online – a hard copy version of the periodical is also out soon. It is based largely on the ideas in my Global Minotaur.
Yanis Varoufakis
EUROPE UNHINGED – Article in the European Financial Review

Kasey Dufresne — Pathologies of Power

In the Forward to Paul Farmer’s Pathologies of Power, Amartya Sen writes on the importance of power in the developing world,
For example, if inequality of power, in different forms, is central to deprivation and destitution, then little sense can be made of the frequently aired and increasingly popular slogan, “I am against poverty, but I am really not bothered by inequality.” xvi.
Recognizing that power determines who will struggle to find adequate health, education, and dignity requires realizing that inequality matters. Inequality is of utmost importance to issues of development. Yet astonishingly, development economists ignore inequality.
Open Economics
Pathologies of Power
Kasey Dufresne

Lord Keynes — Vaughn on the Early History of the Austrian School

Karen I. Vaughn’s book Austrian Economics in America: The Migration of a Tradition(Cambridge and New York, 1994) provides an accessible history of the early Austrian school.

I summarise that early history in what follows. Carl Menger (1840–1921) was the founder of the school, and Eugen von Böhm-Bawerk (1851–1914) and Friedrich von Wieser (1851–1926) were the two most important followers of Menger, although they were not Menger’s students, but colleagues.
Social Democracy For The 21St Century: A Post Keynesian Perspective
Vaughn on the Early History of the Austrian School
Lord Keynes

Frances Coppola — QE myths and the Expectations Fairy

There are perhaps more myths about QE than almost any other monetary policy instrument. Here are five of the most pernicious QE myths:...
The Expectations Fairy is no more real than the Confidence Fairy, the Inflation Monster or the Bond Vigilantes. It is time for all of them to be consigned to the realm of mythology, and for monetary and fiscal policy to be grounded firmly in reality and redirected towards achieving the best quality of life for ordinary people. 
Coppola Comment
QE myths and the Expectations Fairy
Frances Coppola

Warren Mosler — Warren Mosler: Consumer Borrowing Has Kept Economy Afloat, but for How Much Longer?

Yves here. Warren Mosler, who is one of the leading writers on Modern Monetary Theory, circulated an e-mail with his assessment of the state of the economy and the impact of quantitative easing and agreed to letting me publish it.
I’ve only got one area of difference with his assessment. He thinks thathaving ended QE will be more positive economically than some might believe because savers will have more interest income. However, like many, I have my doubts about the adjustment process. The Fed and the Administration have relied heavily on the confidence fairy (supported by a recovery in wealth levels due to super low interest rates) and as he details, deficit spending and consumer borrowing. Past tightenings have always been gradual and on the short end of the yield curve, which means the effect on long-term bond yields has similarly gradual. Here, we’ve had a sharp move in a month. ZIRP and negative real yields gave investors incentives to go for riskier assets (indeed, some argued that was the point of QE). 
And even though Mosler speaks of eventual benefits for investors in terms of income (ie, assets will be priced to provide decent income), they are going to suffer mark-to-market losses getting there. The wealth effect isn’t as strong for stocks as for housing, but there has to be a wealth effect for bonds as well. How will retail investors react in a world where Vanguard and Schwab give them intraday prices to bond losses (many investment advisors recommend a 50/50 or 60/40 stock/bond allocation, although Mandelbrot would have told you that was way too high)? Even if they hated the lost income under the ZIRP and QE regimes, I find it hard to believe they did not see themselves as having more wealth when their computer screen and monthly statements told them so. How will they react to Uncle Ben’s bond market whackage, particularly since the stock market should also pricein higher required returns (ie, start assigning lower multiples to earnings)?
Mind you, I’m not arguing against a QE exit; I was never a fan in the first place. It’s the idea of exiting when the impact of deficit-cutting is grinding through a not-so-hot economy that gives me pause. While Mosler argues that investors have reacted to QE incorrectly, their reaction to its reversal can’t help the underlying dynamic he describes.
Wall Street acted irrationally to QE — work of the "confidence fairy" and "expectations imp" —  so it's likely that it will react to QE ending in either a similarly irrational way as the artificially stoked confidence fades and inflated expectations are deflated, or else it will wake up and realize that asset appreciation was really asset inflation without basis in fundamentals. In both cases, there is the possibility of a Wiley Coyote moment in a rush for the door and a reversal in the "wealth effect."

But I miscalculated the degree of euphoria on the way up, and hopefully I will be wrong about a Wiley Coyote moment as the way down. Maybe markets will stabilize quickly as the Fed begins to take away the punch bowl or hints at doing it, but given consumer reluctance to borrow on the previous scale, the political dysfunction that persists in the US, and the precarious global context, caution seems warranted.

Naked Capitalism
Warren Mosler: Consumer Borrowing Has Kept Economy Afloat, but for How Much Longer?
Warren Moser

Rodger Malcolm Mitchell — What the heck is a “meme” and why should you care?

I would add that "meme" was proposed by evolutionary biologist Richard Dawkins in The Selfish Gene (1976) as an explanation for "cultural heredity," where certain ideas and behaviors replicate across time and even generations, mimicking genes in individual evolution, as it were. And like genes, memes result in traits that have evolutionary advantages and disadvantages for groups and therefore individuals that comprise them. This may be the difference affecting whether a group is one the right or wrong side of history.

Religious beliefs are an example of the kind of ideas that can result in behavior effects lasting for centuries, and also affecting other cultures. Capitalism is another, and some have argued that conventional economics is the new secular religion underlying capitalism and the major economists are its high priests. See Robert H. Nelson, Economics As Religion: From Samuelson to Chicago and Beyond (2002).
Memes are propagated through language and behavior. Meaning is context-dependent, so memes become norms that shape the context. This context includes cultural rituals and social institutions and dominant memes also shape these.

A cultural worldview is shaped by a complex of frames and chief among these frames are the dominant memes of the culture. Memes gather into "memplexes" that in which memes reinforce each other in constructing a rationale for behavior, the "philosophy" that is evinced as the foundation for cultural rituals and social institutions. 
In the West of the Middle Ages it was religion, today it is "capitalism," which is based on beliefs (assumptions) and myths (models) become memes — like the government as big household analogy that underlies austerianism, as Rodger points out. See, for instance, Ha-Joon Change, 23 Things They Don't Tell You About Capitalism (2012).
Monetary Sovereignty
What the heck is a “meme” and why should you care?
Rodger Malcolm Mitchell

Yahoo News: Who makes money off your student loans? You might be surprised

Story at Yahoo examining some of the current financial arrangements our government has put in place for students to be able to go to post-secondary schools, excerpt:

But today, nearly three years after the government cut commercial banks out of the federal student loan market, banks aren’t the only ones profiting from people seeking a degree.
Now that the Department of Education is responsible for lending to students directly, the government is making big money off the nation’s scholars. Current students and recent graduates currently carry $1.1 trillion in outstanding debt—more than the nation's combined credit card debt.
The Congressional Budget Office in February estimated that the Department of Education will make $35.5 billion in profit in 2013 from student loan programs. But that number was just revised this month to $50.6 billion in profits—a 43 percent increase for the year.
"Who's making the most money right now is the federal government," Tobin Van Ostern, deputy director of the student advocacy group Campus Progress, told Yahoo News.
It's worth noting that the $50.6 billion is just an estimate—loans are unlikely to be repaid at the estimated rate, and other factors are likely to change, like the cost of servicing loans. And profits are expected to decrease in coming years—in 2019, the government's profit is projected by CBO to be about $4.85 billion.
But the 2013 projection puts the Department of Education's student loan profits above those of last year's most profitable company, Exxon Mobil, which made $41 billion, according to Forbes' rankings.

Current policy continues to place a big additional  fiscal yoke on our young ones in this regard, only now it is DIRECT.

More "banker hate" will not lead to an effective remedy to this continuing mistaken fiscal policy.

Saturday, June 22, 2013

Peter Beaumont — Global protest grows as citizens lose faith in politics and the state

The myriad protests from Istanbul to São Paulo have one thing in common - growing dissent among the young, educated and better-off protesting against the very system that once enriched them. And therein lies the danger for governments....
If the "new protest" can be summed up, it is not in specifics of the complaints but in a wider idea about organisation encapsulated on a banner spotted in Brazil last week: "We are the social network." ...
So what's going on? An examination of the global Edelman Trust Barometer reveals a loose correlation between the ranking of a country on the trust scale and the likelihood of protests. The trust barometer is a measure of public confidence in institutions compiled by the US firm Edelman, the world's largest privately owned PR company.
In 2011, at the time the Occupy movement was being born in Zuccoti Park on Wall Street, the UK and the US were both firmly placed at the bottom of the "distrusters" while Brazil topped the "trusters". By this year Brazil had dropped 30 points on the table, while Spain and Turkey, which have both seen protests this year, were both in the distrusted category.
And as usual the pundits speculating about this global phenomenon are clueless.

The Guardian | The Observer (UK)
Global protest grows as citizens lose faith in politics and the state
Peter Beaumont | The Observer

Steve Keen — Explaining Richard Koo To Paul Krugman: Loanable Funds (video)

Explaining Richard Koo To Paul Krugman: Loanable Funds

Ralph Nader — Corporatizing National Security: What It Means

With this in mind, let us not mince words. “Privatization” is a soft term. Let us call the practice what it really is—corporatization.
There’s big money to be made in moving government-owned functions and assets into corporate hands. Public highways, prisons, drinking water systems, school management, trash collection, libraries, the military and now even national security matters are all being outsourced to corporations. But what happens when such vital government functions are performed for big profit rather than the public good?
Look to the many reports of waste, fraud, and abuse that arose out of the over-use of corporate contractors in Iraq. At one point, there were more contractors in Iraq and Afghanistan than U.S. soldiers. Look to the private prisons, which make their money by incarcerating as many people as they can for as long as they can. Look to privatized water systems, the majority of which deliver poorer service at higher costs than public utility alternatives. for many more examples of the perils, pitfalls and excesses of rampant, unaccountable corporatization.
In short, corporatizing public functions does not work well for the public, consumers and taxpayers who are paying through the nose.
Some right-wing critics might view government providing essential public services as “socialism,” but as it now stands, we live in a nation increasingly comprised of corporate socialism.
Corporatizing National Security: What It Means
Ralph Nader

John Robb: Every Person Must be Considered a Potential Terrorist (Satire)

Positive versus negative control. Where positive is not positive.

Public Intelligence Blog — The truth at any cost lowers all other costs
John Robb: Every Person Must be Considered a Potential Terrorist — Local to Global Education, News, and Social Media Must be Controlled (Satire)

Daniel Little — Institutional designs for progressive reform

One place where Jon Elster's philosophical thinking intersects with empirical social science is in the field of institutional design. This involves an important question: What features of institutional design can be identified as having beneficent features of operation when exercised by normal groups of individuals?
This topic has cropped up several times in Elster's career. One important instance is the work he highlighted about alternatives to market society in Alternatives to Capitalism (Jon Elster and Karl Ove Moene, eds., 1989)....
This is a very interesting volume, for several reasons. The individual essays are very good, by experts like G. A. Cohen, Alec Nove, and John Roemer as well as Elster and Moene. But even more interesting is the shock value of its topic in the neo-liberal environment in which we have found ourselves for the past twenty years or so. To have serious scholars making careful, rigorous efforts to explore and evaluate "alternatives to capitalism" is very surprising in today's environment; and yet the essays were written as recently as the late 1980s. Plainly there was practical and political interest in the topic of alternatives to capitalism in those years that has largely disappeared in today's discourse. This suggests that somehow serious progressive thought has been muffled for the past twenty years. It is time to resurrect it. 

Understanding Society

Institutional designs for progressive reform
Daniel Little | Chancellor, University of Michigan at Dearborn

Huff Po — Yahoo News Calls Kenya 'The Country Of Obama's Birth'

Yahoo "News"?

The Huffington Post
Yahoo News Calls Kenya 'The Country Of Obama's Birth'

Eric Dolan — Research finds wealth warps your perspective and makes you less ethical

Research finds wealth warps your perspective and makes you less ethical (via Raw Story )
Across multiple studies, researchers at the University of California at Berkeley have found that being in the upper-class predisposes individuals to acting unethically. Studies conducted by psychology professor Paul Piff found those who drive luxury cars were less likely to stop for pedestrians, those…

Dirk Ehnts — M2 developments in the euro area (2003-2011)

The big question in Europe: is the collapse of the economies of Greece, Spain and Ireland caused by a decline in the monetary aggregate M2, or is the economic decline causing M2 to fall? I would argue the latter, as lenders frantically try to pay off existing back and new borrowing is very low. Not everybody agrees with that. Here is Milton Friedman and Anna Schwartz....
M2 developments in the euro area (2003-2011)
Dirk Ehnts | Berlin School of Economics and Law

New Blog On Monetary Economics by Wynne Godley student

This blog is intended to allow me to record and share occasional ideas, principally in the realm of monetary economics.
My main inspiration comes from the work of Wynne Godley, my supervisor at Cambridge in the 1980s. I was privileged to spend many hours with him working on the development of prototype data-driven stock-flow models of the UK economy.  My own input was perhaps limited to inputting data, but in return I learned enormous amounts about theoretical and empirical modelling.  I had been interested in the long-run dynamics of models before, but Wynne's ideas were a revelation to me and have shaped the way I have thought about macroeconomic issues ever since.
For most of the time since then, I have worked in commercial fields, paying little attention to academic economics.  This has given me a much deeper understanding of the way things really work, but has meant that I have not been exposed to more recent developments in economic thinking.  Coming back to the subject now, I'm not sure that I've missed anything important.
Nick Edmonds
Reflections on Monetary Economics
(h/t Ramanan at The Case for Concerted Action)