|Contents||Bulletin||Scripting in shell and Perl||Network troubleshooting||History||Humor|
|News||Casino Capitalism||Recommended Links||Stability is destabilizing: The idea of Minsky moment||Corruption of Regulators||Quiet coup|
|Neoliberalism as a New Form of Corporatism||Principal-agent problem||Numbers racket||Criminal negligence in financial regulation||Corruption of FED||Invisible Hand Hypothesis|
|The “Too Big To Fail” Problem||In Goldman Sachs we trust||Citi - The bank that couldn’t shoot straight||JPMorgan||AIG collapse||Lehman|
|Free Markets Newspeak as Opium for regulators||Derivatives Lobby Corrupts Congress||Lobbying and the Financial Crisis||Control Fraud
(crisis of corporate governance)
|Stock Market with buybacks as a Ponzi scheme||Derivatives|
|Small government smoke screen||Financial Bonuses as Money Laundering||Corporatist Corruption: Systemic Fraud under Clinton-Bush-Obama Regime||Corporatism||Financial obesity|
|Webliography of heterodox economists||HFT||Aleynikov vs. Goldman Sachs||Casino Capitalism Dictionary||Financial Humor||Etc|
|"Minsky's financial instability hypothesis depends critically on what amounts to a sociological
insight. People change their minds about taking risks. They don't make a one-time rational
judgment about debt use and stock market exposure and stick to it. Instead, they change their
minds over time. And history is quite clear about how they change their minds. The
longer the good times endure, the more people begin to see wisdom in risky strategies."
The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera
The flaw with Capitalism is that it creates its own positive feedback loop, snowballing to the point where the accumulation of wealth and power hurts people — eventually even those at the top of the food chain. ”
|Banks are a clear case of market failure and their employees at the senior level have basically become the biggest bank robbers of all time. As for basing pay on current revenues and not profits over extended periods of time, then that is a clear case of market failure !|
|The banksters have been able to sell the “talent” myth to justify their outsized pay because they are the only ones able to deliver the type of GDP growth the U.S. economy needs in the short term, even if that kills the U.S. economy in the long term. You’ll be gone, I’ll be gone.|
|Unfortunately, many countries go broke pursuing war, if not financially, then morally (are
the two different? – this post suggests otherwise).
I occurs to me that the U.S. is also in that flock; interventions justified by grand cause built on fallacy, the alpha and omega of failure. Is the financial apparatchik (or Nomenklatura, a term I like which, as many from the Soviet era, succinctly describes aspects of our situation today) fated also to the trash heap, despite the best efforts of the Man of the hour, Ben Bernanke?
While I believe in usefulness of capital markets, it is clear that they are double edge sword and that banks "in a long run" tend to behave like sociopathic individuals. Mr. Capone may have something to say about danger of banks :-).That means that growth of financial sector represents a direct threat to the stability of the society (Keynesianism and the Great Recession )
Without adult supervision, as it were, a financial sector that was already inherently unstable went wild. When the subprime assets were found to be toxic since they were based on mortgages on which borrowers had defaulted, highly indebted or leveraged banks that had bought these now valueless securities had little equity to repay their creditors or depositors who now came after them. This quickly led to their bankruptcy, as in the case of Lehman Brothers, or to their being bailed out by government, as was the case with most of the biggest banks. The finance sector froze up, resulting in a recession—a big one—in the real economy.
Neoliberal revolution, or, as Simon Johnson called it after "quite coup" (Atlantic), brought political power to the financial oligarchy deposed after the New Deal. Deregulation naturally followed, with especially big role played by corrupt Clinton administration. Positive feedback loops creates one financial crisis after another with the increasing magnitude. "Saving and loans" crisis followed by dot-com crisis of 2000, which in turn followed by the collapse of financial system in 2008, which looks somewhat similar to what happened in 1927. No prominent financial honcho, who was instrumental in creating "subprime crisis" was jailed. Most remained filthy rich.
Unless the society puts severe limits on their actions like was done during New Deal, financial firms successfully subvert the regulation mechanisms and take the society hostage. But periodic purges with relocation of the most active promoters of "freedom for banks" (aka free market fundamentalism) under the smoke screen of "free market" promotion does not solve the problem of positive feedback loops that banks create by mere existence. That's difficult to do while neoliberal ideology and related neoclassical economy dominates the society thinking (via brainwashing), with universities playing especially negative role -- most of economics departments are captured by neoliberals who censor any heretics. So year after year brainwashing students enter the society without understanding real dangers that neoliberalism brought for them. Including lack of meaningful employment opportunities.
Of course, most of high level officers of leading finance institutions which caused the crisis of 2008-2009 as a psychological type are as close to gangsters as one can get. But there is something in their actions that does not depend on individual traits (although many of them definitely can be classified as psychopaths), and is more related to their social position. This situation is somewhat similar to Bolsheviks coup d'état of 1917 which resulted in capturing Russia by this ideological sect. And in this sense quite coupe of 1980 is also irreversible in the same sense as Bolsheviks revolution was irreversible: the "occupation" of the country by a fanatical sect lasts until the population rejects the ideology with its (now apparent) utopian claims.
Bolshevism which lasted 75 years, spend in such zombie state the last two decades (if we assume 1991 as the year of death of Bolshevism, its ideology was dead much earlier -- the grave flaws in it were visible from late 60th, if not after the WWII). But only when their ideology was destroyed both by inability to raise the standard of living of the population and by the growing neoliberal ideology as an alternative (and a new, more powerful then Marxism high-demand cult) Bolsheviks started to lose the grip on their power in the country. As a result Bolsheviks lost the power only in 1991, or more correctly switched camps and privatized the country. If not inaptness of their last General Secretary, they probably could last more. In any case after the ideology collapsed, the USSR disintegrated (or more correctly turn by national elites, each of which wanted their peace of the pie).
The sad truth is that the mere growth of financial sector creates additional positive feedback loops and increases structural instability within both the financial sector itself and the society at large. Dynamic systems with strong positive feedback loops not compensated by negative feedback loops are unstable. As a result banks and other financial institution periodically generate a deep, devastating crisis. This is the meaning of famous Hyman Minsky phrase "stability is destabilizing".
In other words, financial apparatchiks (or Financial Nomenklatura, a term from the Soviet era, which succinctly describes aspects of our situation today) drive the country off the cliff because they do not have any countervailing forces, by the strength of their political influence and unsaturable greed. Although the following analogy in weaker then analogy with dynamic systems with positive feedback loops, outsized financial sector can be viewed in biological terms as cancer.
Cancer, known medically as a malignant neoplasm, is a broad group of diseases involving unregulated cell growth. In cancer, cells divide and grow uncontrollably, forming malignant tumors, and invading nearby parts of the body. The cancer may also spread to more distant parts of the body through the lymphatic system or bloodstream. Not all tumors are cancerous; benign tumors do not invade neighboring tissues and do not spread throughout the body. There are over 200 different known cancers that affect humans.
Like certain types of cancer they depend of weakening "tumor suppressor genes" (via "Quiet coup" mechanism of acquiring dominant political power) which allow then to engage in uncontrolled growth, destroying healthy cells (and first of all local manufacturing).The other suspicion is the unchecked financialization always goes too far and the last N percent of financial activity absorbs much more resources (especially intellectual resources) and creates more potential instability than its additional efficiency-benefits (often zero or negative) can justify. It is hard to imagine that a Hedge Fund Operator of the Year does anything that is even remotely socially useful to justify his enormous (and lightly taxed) compensation. It is pure wealth redistribution up based on political domination of financial oligarchy. Significant vulnerabilities within the shadow banking system and derivatives are plain vanilla socially destructive. Yet they persist due to inevitable political power grab by financial oligarchy (Quiet coup).
Again, I would like to stress that this problem of the oversized financial sector which produces one devastating crisis after another is closely related to the problem of a positive feedback loops. And the society in which banks are given free hand inevitably degrades into "socialism for banks" or "casino capitalism" -- a type of neoliberalism with huge inequality and huge criminality of top banking officers.
Whether we can do without private banks is unclear, but there is sound evidence that unlike growth of manufacturing, private financial sector growth is dangerous for the society health and perverts society goals. Like cult groups the financial world does a terrific job of "shunning" the principled individuals and suppressing dissent (by capturing and cultivating neoliberal stooges in all major university departments and press), so self-destructing tendencies after they arise can't be stopped within the framework of neoliberalism. In a way financial firm is like sociopath inevitable produces its trail of victims (and sociopaths might be useful in battles exactly due to the qualities such as ability to remain cool in dangerous situation, that make them dangerous in the normal course of events).
This tendency of society with unregulated or lightly regulated financial sector toward self-destruction was first formulated as "Minsky instability hypothesis" -- and outstanding intellectual achievement of American economic Hyman Minsky (September 23, 1919 – October 24, 1996). Who BTW was pretty much underappreciated (if not suppressed) during his lifetime because his views were different from orthodox (and false) neoclassic economic theory which dominates US universities, Like flat Earth theory was enforce by Catholic church before, it is fiercely enforced by an army of well paid neoliberal economics, those Jesuits of modern era. Who prosecute heretics who question flat Earth theory even more efficiently then their medieval counterparts; the only difference is that they do not burn the literally, only figuratively ;-)
Former Washington University in St. Louis economics professor Hyman P. Minsky had predicted the Great Recession decades before it happened. Hyman Minsky was a real student of the Great Depression, while Bernanke who widely is viewed as a scholar who studied the Great Depression, in reality was a charlatan, who just tried to explain the Great Depression from the positions of neo-classical economy. That's a big difference.
Minsky instability hypothesis ("stability is destabilizing" under capitalism) that emerged from his analysis of the Great Depression was based on intellectual heritage of three great thinkers in economics (my presentation is partially based on an outstanding lecture by Steve Keen Lecture 6 on Minsky, Financial Instability, the Great Depression & the Global Financial Crisis). We can talk about three source of influence, there authors writing of which touched the same subject from similar positions and were the base of Hyman Minsky great advance in understanding of mechanics of development of financial crisis under capitalism and the critical role of financial system in it (neoclassical economics ignores the existence of financial system in its analysis):
Minsky didn't follow the conventional version of Marxism . And it was dangerous for him to do so due to McCarthysm. Even mentioning of Marx might lead to strakism fromthe academy those years. McCarthy and his followers in academy did not understand the difference between Marx great analysis of capitalism and his utopian vision of the future. Impliedly this witch hunt helped to establish hegemony of neoclassical economy in economic departments in the USA.
While Minsky did not cited Marx in his writings and did use Marx's Labor Theory of Value his thinking was definitely influenced by Marx’s critique of finance. We now know that he read and admired the Capital. And that not accidental due to the fact that his parents were Mensheviks -- a suppressed after Bolshevik revolution more moderate wing of Russian Social Democratic Party that rejected the idea of launching the socialist revolution in Russia -- in their opinion Russia needed first to became a capitalist country and get rid of remnants of feudalism. They escaped from Soviet Russia when Mensheviks started to be prosecuted by Bolsheviks.
And probably the main influence on Minsky was not Marx's discussion of finance in Volume I of Capital with a "commodity" model of money, but critical remarks scattered in Volumes II & III (which were not edited by Marx by compiled posthumously by Engels), where he was really critical of big banks as well as Marx's earlier works (Grundrisse, Theories of Surplus Value) where Marx was scathing about finance:
"A high rate of interest can also indicate, as it did in 1857, that the country is undermined by the roving cavaliers of credit who can afford to pay a high interest because they pay it out of other people's pocket* (whereby, however, they help to determine the rate of interest for all) and meanwhile they live in grand style on anticipated profits.
The second source on which Minsky based his insights was Irving Fisher. Irving Fisher’s reputation destroyed by wrong predictions on stock market prices. In aftermath, developed theory to explain the crash and published it in his book "The Debt Deflation Theory of Great Depressions". His main points are:
According to Fisher two key disequilibrium forces that push economic into the next economic crisis are debt and subsequent deflation
Joseph Schumpeter was Joseph Schumpeter has more positive view of capitalism than the other two. He authored the theory of creative destruction as a path by which capitalism achieves higher and higher productivity. He capitalism as necessarily unstable, but for him this was a positive feature -- instability of capitalism the source of its creativity. His view of capitalism was highly dynamic and somewhat resembles the view of Marx (who also thought that capitalism destroys all previous order and create a new one):
Unlike Marx, who thought that the periodic crisis of overproduction is the source of instability (as well as gradual absolute impoverishment of workers), Minsky assumed that the key source of that instability of capitalist system is connected with the cycles of business borrowing and fractional bank lending, when "good times" lead to excessive borrowing leading to high leverage and overproduction and thus to eventual debt crisis (The Alternative To Neoliberalism ):
Minsky on capitalism:
- He followed Marx stating that "capitalism is inherently flawed, being prone to booms, crises and depressions.
- This instability is due to characteristics the financial system must possess and will inevitably acquire, if it is to be consistent with full-blown capitalism.
- Such a financial system will be capable of both generating signals that induce an accelerating desire to invest and of financing that accelerating investment." (Minsky 1969b: 224)
- “The natural starting place for analyzing the relation between debt and income is to take an economy with a cyclical past that is now doing well.
- The inherited debt reflects the history of the economy, which includes a period in the not too distant past in which the economy did not do well.
- Acceptable liability structures are based upon some margin of safety so that expected cash flows, even in periods when the economy is not doing well, will cover contractual debt payments.
- As the period over which the economy does well lengthens, two things become evident in board rooms. Existing debts are easily validated and units that were heavily in debt prospered; it paid to lever." (65)
- It becomes apparent that the margins of safety built into debt structures were too great. ans should be reduced...
- As a result, over a period in which the economy does well, views about acceptable debt structure change. In the dealmaking that goes on between banks, investment bankers, and businessmen, the acceptable amount of debt to use in financing various types of activity and positions increases.
- This increase in the weight of debt financing raises the market pnce of capital assets and increases investment. As this continues the economy is transformed into a boom economy... ” (65)
- This transforms a period of tranquil growth into a period of speculative excess
- “Stable growth is inconsistent with the manner in which investment is determined in an economy in which debt-financed ownership of capital assets exists, and the extent to which such debt financing can be carried is market determined.
- It follows that the fundamental instability of a capitalist economy is upward.
- The tendency to transform doing well into a speculative investment boom is the basic instability in a capitalist economy." (65)
The idea of Minsky moment is related to the fact that the fractional reserve banking periodically causes credit collapse when the leveraged credit expansion goes into reverse. And mainstream economists do not want to talk about the fact that increasing confidence breeds increased leverage. So financial stability breeds instability and subsequent financial crisis. All actions to guarantee a market rise, ultimately guarantee it's destruction because greed will always take advantage of a "sure thing" and push it beyond reasonable boundaries. In other words, marker players are no rational and assume that it would be foolish not to maximize leverage in a market which is going up. So the fractional reserve banking mechanisms ultimately and ironically lead to over lending and guarantee the subsequent crisis and the market's destruction. Stability breed instability.
That means that fractional reserve banking based economic system with private players (aka capitalism) is inherently unstable. And first of all because fractional reserve banking is debt based. In order to have growth it must create debt. Eventually the pyramid of debt crushes and crisis hit. When the credit expansion fuels asset price bubbles, the dangers for the financial sector and the real economy are substantial because this way the credit boom bubble is inflated which eventually burst. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.
«When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial.»
So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)
«In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms.»
If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.
Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.
Not very hands-off at all.
Steve Keen is probably the most well know researcher who tried to creates model of capitalist economy based on Minsky work ( http://www.debtdeflation.com/blogs/manifesto/ )
John Kay in his January 5 2010 FT column very aptly explained the systemic instability of financial sector hypothesis:
The credit crunch of 2007-08 was the third phase of a larger and longer financial crisis. The first phase was the emerging market defaults of the 1990s. The second was the new economy boom and bust at the turn of the century. The third was the collapse of markets for structured debt products, which had grown so rapidly in the five years up to 2007.
The manifestation of the problem in each phase was different – first emerging markets, then stock markets, then debt. But the mechanics were essentially the same. Financial institutions identified a genuine economic change – the assimilation of some poor countries into the global economy, the opportunities offered to business by new information technology, and the development of opportunities to manage risk and maturity mismatch more effectively through markets. Competition to sell products led to wild exaggeration of the pace and scope of these trends. The resulting herd enthusiasm led to mispricing – particularly in asset markets, which yielded large, and largely illusory, profits, of which a substantial fraction was paid to employees.
Eventually, at the end of each phase, reality impinged. The activities that once seemed so profitable – funding the financial systems of emerging economies, promoting start-up internet businesses, trading in structured debt products – turned out, in fact, to have been a source of losses. Lenders had to make write-offs, most of the new economy stocks proved valueless and many structured products became unmarketable. Governments, and particularly the US government, reacted on each occasion by pumping money into the financial system in the hope of staving off wider collapse, with some degree of success. At the end of each phase, regulators and financial institutions declared that lessons had been learnt. While measures were implemented which, if they had been introduced five years earlier, might have prevented the most recent crisis from taking the particular form it did, these responses addressed the particular problem that had just occurred, rather than the underlying generic problems of skewed incentives and dysfunctional institutional structures.
The public support of markets provided on each occasion the fuel needed to stoke the next crisis. Each boom and bust is larger than the last. Since the alleviating action is also larger, the pattern is one of cycles of increasing amplitude.
I do not know what the epicenter of the next crisis will be, except that it is unlikely to involve structured debt products. I do know that unless human nature changes or there is fundamental change in the structure of the financial services industry – equally improbable – there will be another manifestation once again based on naive extrapolation and collective magical thinking. The recent crisis taxed to the full – the word tax is used deliberately – the resources of world governments and their citizens. Even if there is will to respond to the next crisis, the capacity to do so may not be there.
The citizens of that most placid of countries, Iceland, now backed by their president, have found a characteristically polite and restrained way of disputing an obligation to stump up large sums of cash to pay for the arrogance and greed of other people. They are right. We should listen to them before the same message is conveyed in much more violent form, in another place and at another time. But it seems unlikely that we will.
We made a mistake in the closing decades of the 20th century. We removed restrictions that had imposed functional separation on financial institutions. This led to businesses riddled with conflicts of interest and culture, controlled by warring groups of their own senior employees. The scale of resources such businesses commanded enabled them to wield influence to create a – for them – virtuous circle of growing economic and political power. That mistake will not be easily remedied, and that is why I view the new decade with great apprehension. In the name of free markets, we created a monster that threatens to destroy the very free markets we extol.
While Hyman Minsky was the first clearly formulate the financial instability hypothesis, Keynes also understood this dynamic pretty well. He postulated that a world with a large financial sector and an excessive emphasis on the production of investment products creates instability both in terms of output and prices. In other words it automatically tends to generate credit and asset bubbles. The key driver is the fact that financial professionals generally risk other people’s money and due to this fact have asymmetrical incentives:
This asymmetry is not a new observation of this systemic problem. Andrew Jackson noted it in much more polemic way long ago:
“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”
This asymmetrical incentives ensure that the financial system is structurally biased toward taking on more risk than what should be taken. In other words it naturally tend to slide to the casino model, the with omnipresent reckless gambling as the primary and the most profitable mode of operation while an opportunities last. The only way to counter this is to throw sand into the wheels of financial mechanism: enforce strict regulations, limit money supplies and periodically jail too enthusiastic bankers. The latter is as important or even more important as the other two because bankers tend to abuse "limited liability" status like no other sector.
Asset inflation over the past 10 years and the subsequent catastrophe incurred is a way classic behavior of dynamic system with strong positive feedback loop. Such behavior does not depends of personalities of bankers or policymakers, but is an immanent property of this class of dynamic systems. And the main driving force here was deregulation. So its important that new regulation has safety feature which make removal of it more complicated and requiring bigger majority like is the case with constitutional issues.
Another fact was the fact that due to perverted incentives, accounting in the banks was fraudulent from the very beginning and it was fraudulent on purpose. Essentially accounting in banks automatically become as bad as law enforcement permits. This is a classic case of control fraud and from prevention standpoint is make sense to establish huge penalties for auditors, which might hurt healthy institutions but help to ensure that the most fraudulent institution lose these bank charter before affecting the whole system. With the anti-regulatory zeal of Bush II administration the level of auditing became too superficial, almost non-existent. I remember perverted dances with Sarbanes–Oxley when it was clear from the very beginning that the real goal is not to strengthen accounting but to earn fees and to create as much profitable red tape as possible, in perfect Soviet bureaucracy style.
Deregulation also increases systemic risk by influencing the real goals of financial organizations. At some point of deregulation process the goal of higher remuneration for the top brass becomes self-sustainable trend and replaces all other goals of the financial organization. This is the essence of Martin Taylor’s, the former chief executive of Barclays, article FT.com - Innumerate bankers were ripe for a reckoning in the Financial Times (Dec 15, 2009), which is worth reading in its entirety:
City people have always been paid well relative to others, but megabonuses are quite new. From my own experience, in the mid-1990s no more than four or five employees of Barclays’ then investment bank were paid more than £1m, and no one got near £2m. Around the turn of the millennium across the market things began to take off, and accelerated rapidly – after a pause in 2001-03 – so that exceptionally high remuneration, not just individually, but in total, was paid out between 2004 and 2007.
Observers of financial services saw unbelievable prosperity and apparently immense value added. Yet two years later the whole industry was bankrupt. A simple reason underlies this: any industry that pays out in cash colossal accounting profits that are largely imaginary will go bust quickly. Not only has the industry – and by extension societies that depend on it – been spending money that is no longer there, it has been giving away money that it only imagined it had in the first place. Worse, it seems to want to do it all again.
What were the sources of this imaginary wealth?
- First, spreads on credit that took no account of default probabilities (bankers have been doing this for centuries, but not on this scale).
- Second, unrealised mark-to-market profits on the trading book, especially in illiquid instruments.
- Third, profits conjured up by taking the net present value of streams of income stretching into the future, on derivative issuance for example.
In the last two of these the bank was not receiving any income, merely “booking revenues”. How could they pay this non-existent wealth out in cash to their employees? Because they had no measure of cash flow to tell them they were idiots, and because everyone else was doing it. Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues” did not actually consist of money.
In the next phase instability is amplified by the way governments and central banks respond to crises caused by credit bubble: the state has powerful means to end a recession, but the policies it uses give rise to the next phase of instability, the next bubble…. When money is virtually free – or, at least, at 0.5 per cent – traders feel stupid if they don’t leverage up to the hilt. Thus previous bubble and crash become a dress rehearsal for the next.
Resulting self-sustaining "boom-bust" cycle is very close how electronic systems with positive feedback loop behave and cannot be explained by neo-classical macroeconomic models. Like with electronic devices the financial institution in this mode are unable to provide the services that are needed.
As Minsky noted long ago (sited from Stephen Mihm Why capitalism fails Boston Globe):
Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.And he understood the roots of the current credit bubble much better that neoclassical economists like Bernanke:
...our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”
Minsky’s vision might have been dark, but he was not a fatalist; he believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. But with a growing number of economists eager to declare the recession over, and the crisis itself apparently behind us, these policies may prove as discomforting as the theories that prompted them in the first place. Indeed, as economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what [Minsky] called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further.
As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.
Minsky’s financial instability hypothesis suggests that when optimism is high and ample funds are available for investment, investors tend to migrate from the safe hedge end of the Minsky spectrum to the risky speculative and Ponzi end. Indeed, in the current crisis, investors tried to raise returns by increasing leverage and switching to financing via short-term—sometimes overnight— borrowing (Too late to learn?):
In the church of Friedman, inflation was the ol' devil tempting the good folk; the 1980s seemed to prove that, let loose, it would cause untold havoc on the populace. But, as Barbera notes:The last five major global cyclical events were the early 1990s recession - largely occasioned by the US Savings & Loan crisis, the collapse of Japan Inc after the stock market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust cycle at the turn of the millennium, and the unprecedented rise and then collapse for US residential real estate in 2007-2008. All five episodes delivered recessions, either global or regional. In no case was there a significant prior acceleration of wages and general prices. In each case, an investment boom and an associated asset market ran to improbable heights and then collapsed. From 1945 to 1985, there was no recession caused by the instability of investment prompted by financial speculation - and since 1985 there has been no recession that has not been caused by these factors.Thus, meet the devil in Minsky's paradise - "an investment boom and an associated asset market [that] ran to improbable heights and then collapsed".
According the Barbera, "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."
Current economy state can be called following Paul McCulley a "stable disequilibrium" very similar to a state a sand pile. All this pile of stocks, debt instruments, derivatives, credit default swaps and God know corresponds to a pile of sand that is on the verse of losing stability. Each financial player works hard to maximize their own personal outcome but the "invisible hand" effect in adding sand to the pile that is increasing systemic instability. According to Minsky, the longer such situation continues the more likely and violent an "avalanche".
The late Hunt Taylor wrote, in 2006:
This is a gold age for bankers as Simon Johnson wrote in New Republic (The Next Financial Crisis ):
"Let us start with what we know. First, these markets look nothing like anything I've ever encountered before. Their stunning complexity, the staggering number of tradable instruments and their interconnectedness, the light-speed at which information moves, the degree to which the movement of one instrument triggers nonlinear reactions along chains of related derivatives, and the requisite level of mathematics necessary to price them speak to the reality that we are now sailing in uncharted waters.
"... I've had 30-plus years of learning experiences in markets, all of which tell me that technology and telecommunications will not do away with human greed and ignorance. I think we will drive the car faster and faster until something bad happens. And I think it will come, like a comet, from that part of the night sky where we least expect it."
Banking was once a dangerous profession. In Britain, for instance, bankers faced “unlimited liability”--that is, if you ran a bank, and the bank couldn’t repay depositors or other creditors, those people had the right to confiscate all your personal assets and income until you repaid. It wasn’t until the second half of the nineteenth century that Britain established limited liability for bank owners. From that point on, British bankers no longer assumed much financial risk themselves.
In the United States, there was great experimentation with banking during the 1800s, but those involved in the enterprise typically made a substantial commitment of their own capital. For example, there was a well-established tradition of “double liability,” in which stockholders were responsible for twice the original value of their shares in a bank. This encouraged stockholders to carefully monitor bank executives and employees. And, in turn, it placed a lot of pressure on those who managed banks. If they fared poorly, they typically faced personal and professional ruin. The idea that a bank executive would retain wealth and social status in the event of a self-induced calamity would have struck everyone--including bank executives themselves--as ludicrous.
Enter, in the early part of the twentieth century, the Federal Reserve. The Fed was founded in 1913, but discussion about whether to create a central bank had swirled for years. “No one can carefully study the experience of the other great commercial nations,” argued Republican Senator Nelson Aldrich in an influential 1909 speech, “without being convinced that disastrous results of recurring financial crises have been successfully prevented by a proper organization of capital and by the adoption of wise methods of banking and of currency”--in other words, a central bank. In November 1910, Aldrich and a small group of top financiers met on an isolated island off the coast of Georgia. There, they hammered out a draft plan to create a strong central bank that would be owned by banks themselves.
What these bankers essentially wanted was a bailout mechanism for the aftermath of speculative crashes -- something more durable than J.P. Morgan, who saved the day in the Panic of 1907 but couldn’t be counted on to live forever. While they sought informal government backing and substantial government financial support for their new venture, the bankers also wanted it to remain free of government interference, oversight, or control.
Another destabilizing fact is so called myth of invisible hand which is closely related to the myth about market self-regulation. The misunderstood argument of Adam Smith , the founder of modern economics, that free markets led to efficient outcomes, “as if by an invisible hand” has played a central role in these debates: it suggested that we could, by and large, rely on markets without government intervention. About "invisible hand" deification, see The Invisible Hand, Trumped by Darwin - NYTimes.com.
The moment in the financial system when the quantity of debt turns into quality and produces yet another financial crisis is called Minsky moment. In other words the “Minsky moment” is the time when an unsustainable financial boom turns into uncontrollable collapse of financial markets (aka financial crash). The existence of Minsky moments is one of the most important counterargument against financial market self-regulation. It also expose free market fundamentalists such as "former Maestro" Greenspan as charlatans. Greenspan actually implicitly admitted that he is and that it was he, who was the "machinist" who helped to bring the USA economic train off the rails in 2008 via deregulation and dismantling the New Deal installed safeguards.
Here how it is explained by Stephen Mihm in Boston Globe in 2009 in the after math of 2008 financial crisis:
“Minsky” was shorthand for Hyman Minsky, an American macroeconomist who died over a decade ago. He predicted almost exactly the kind of meltdown that recently hammered the global economy. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.
In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”
Minsky believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. As economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.
Minsky theory was not well received due to powerful orthodoxy, born in the years after World War II, known as the neoclassical synthesis. The older belief in a self-regulating, self-stabilizing free market had selectively absorbed a few insights from John Maynard Keynes, the great economist of the 1930s who wrote extensively of the ways that capitalism might fail to maintain full employment. Most economists still believed that free-market capitalism was a fundamentally stable basis for an economy, though thanks to Keynes, some now acknowledged that government might under certain circumstances play a role in keeping the economy - and employment - on an even keel.
Economists like Paul Samuelson became the public face of the new establishment; he and others at a handful of top universities became deeply influential in Washington. In theory, Minsky could have been an academic star in this new establishment: Like Samuelson, he earned his doctorate in economics at Harvard University, where he studied with legendary Austrian economist Joseph Schumpeter, as well as future Nobel laureate Wassily Leontief.
But Minsky was cut from different cloth than many of the other big names. The descendent of immigrants from Minsk, in modern-day Belarus, Minsky was a red-diaper baby, the son of Menshevik socialists. While most economists spent the 1950s and 1960s toiling over mathematical models, Minsky pursued research on poverty, hardly the hottest subfield of economics. With long, wild, white hair, Minsky was closer to the counterculture than to mainstream economics. He was, recalls the economist L. Randall Wray, a former student, a “character.”
So while his colleagues from graduate school went on to win Nobel prizes and rise to the top of academia, Minsky languished. He drifted from Brown to Berkeley and eventually to Washington University. Indeed, many economists weren’t even aware of his work. One assessment of Minsky published in 1997 simply noted that his “work has not had a major influence in the macroeconomic discussions of the last thirty years.”
Yet he was busy. In addition to poverty, Minsky began to delve into the field of finance, which despite its seeming importance had no place in the theories formulated by Samuelson and others. He also began to ask a simple, if disturbing question: “Can ‘it’ happen again?” - where “it” was, like Harry Potter’s nemesis Voldemort, the thing that could not be named: the Great Depression.
In his writings, Minsky looked to his intellectual hero, Keynes, arguably the greatest economist of the 20th century. But where most economists drew a single, simplistic lesson from Keynes - that government could step in and micromanage the economy, smooth out the business cycle, and keep things on an even keel - Minsky had no interest in what he and a handful of other dissident economists came to call “bastard Keynesianism.”
Instead, Minsky drew his own, far darker, lessons from Keynes’s landmark writings, which dealt not only with the problem of unemployment, but with money and banking. Although Keynes had never stated this explicitly, Minsky argued that Keynes’s collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff.
This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now famous for documenting capitalism’s ceaseless process of “creative destruction.” But Minsky spent more time thinking about destruction than creation. In doing so, he formulated an intriguing theory: not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability that would set the stage for monumental crises.
Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.
Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system.
From the 1960s onward, Minsky elaborated on this hypothesis. At the time he believed that this shift was already underway: postwar stability, financial innovation, and the receding memory of the Great Depression were gradually setting the stage for a crisis of epic proportions. Most of what he had to say fell on deaf ears. The 1960s were an era of solid growth, and although the economic stagnation of the 1970s was a blow to mainstream neo-Keynesian economics, it did not send policymakers scurrying to Minsky. Instead, a new free market fundamentalism took root: government was the problem, not the solution.
Moreover, the new dogma coincided with a remarkable era of stability. The period from the late 1980s onward has been dubbed the “Great Moderation,” a time of shallow recessions and great resilience among most major industrial economies. Things had never been more stable. The likelihood that “it” could happen again now seemed laughable.
Yet throughout this period, the financial system - not the economy, but finance as an industry - was growing by leaps and bounds. Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers’ and companies’ growing dependence on debt, and the growing use of leverage within the financial system.
By the end of the 20th century, the financial system that Minsky had warned about had materialized, complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning of risk. When storied financial firms started to fall, sending shockwaves through the “real” economy, his predictions started to look a lot like a road map.
“This wasn’t a Minsky moment,” explains Randall Wray. “It was a Minsky half-century.”
Minsky is now all the rage. A year ago, an influential Financial Times columnist confided to readers that rereading Minsky’s 1986 “masterpiece” - “Stabilizing an Unstable Economy” - “helped clear my mind on this crisis.” Others joined the chorus. Earlier this year, two economic heavyweights - Paul Krugman and Brad DeLong - both tipped their hats to him in public forums. Indeed, the Nobel Prize-winning Krugman titled one of the Robbins lectures at the London School of Economics “The Night They Re-read Minsky.”
Today most economists, it’s safe to say, are probably reading Minsky for the first time, trying to fit his unconventional insights into the theoretical scaffolding of their profession. If Minsky were alive today, he would no doubt applaud this belated acknowledgment, even if it has come at a terrible cost. As he once wryly observed, “There is nothing wrong with macroeconomics that another depression [won’t] cure.”
But does Minsky’s work offer us any practical help? If capitalism is inherently self-destructive and unstable - never mind that it produces inequality and unemployment, as Keynes had observed - now what?
After spending his life warning of the perils of the complacency that comes with stability - and having it fall on deaf ears - Minsky was understandably pessimistic about the ability to short-circuit the tragic cycle of boom and bust. But he did believe that much could be done to ameliorate the damage.
To prevent the Minsky moment from becoming a national calamity, part of his solution (which was shared with other economists) was to have the Federal Reserve - what he liked to call the “Big Bank” - step into the breach and act as a lender of last resort to firms under siege. By throwing lines of liquidity to foundering firms, the Federal Reserve could break the cycle and stabilize the financial system. It failed to do so during the Great Depression, when it stood by and let a banking crisis spiral out of control. This time, under the leadership of Ben Bernanke - like Minsky, a scholar of the Depression - it took a very different approach, becoming a lender of last resort to everything from hedge funds to investment banks to money market funds.
Minsky’s other solution, however, was considerably more radical and less palatable politically. The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of “priming the pump” by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.
Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.
While economists may be acknowledging some of Minsky’s points on financial instability, it’s safe to say that even liberal policymakers are still a long way from thinking about such an expanded role for the American government. If nothing else, an expensive full-employment program would veer far too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics are apt to misunderstand Minsky. “He saw these ideas as perfectly consistent with capitalism,” says Wray. “They would make capitalism better.”
But not perfect. Indeed, if there’s anything to be drawn from Minsky’s collected work, it’s that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession’s quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into a catchy phrase and carried on banners.”
It’s a sentiment that may limit the extent to which Minsky becomes part of any new orthodoxy. But that’s probably how he would have preferred it, believes liberal economist James Galbraith. “I think he would resist being domesticated,” says Galbraith. “He spent his career in professional isolation.”
Stephen Mihm is a history professor at the University of Georgia and author of “A Nation of Counterfeiters” (Harvard, 2007). © Copyright 2009 Globe Newspaper Company.
Wall Street execs have been whining for two years that to reduce pay incentives and bonuses would cost the firms their best talent. The government’s response should be YES! That’s precisely the idea. Finance was once a means to an end: the growth of the real economy. Banking once served industry and services. Now finance has become the end, and the real economy is subservient to financial services (it’s no surprise that after the crisis, over-the-counter derivatives trading quickly climbed back up to more than $600 trillion). “At some point in our recent past, finance lost contact with its raison d’être,” European Central Bank chief Jean Claude Trichet said earlier this year. “Finance developed a life of its own…Finance became self-referential.”
And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place.
That compensates their inefficiency in internal market. Investment banks understand pretty well that the best investment with highest return is an investment in political capital.
Saving oversized banks, however, may ruin a country’s public finances (Gros and Micossi 2008). Take the example of Ireland; this country provided extensive financial support to its large banks and subsequently had to seek financial assistance from the EU and the IMF in 2010. The public finance risks posed by systemically large banks suggest that such banks should be reduced in size.
Further evidence against big banks can be found from studies on banking technologies. Berger and Mester (1997) estimate the returns to scale in US banking using data from the 1990s, to find that a bank’s optimal size, consistent with lowest average costs, would be for a bank with around $25 billion in assets. Amel et al. (2004) similarly report that commercial banks in North America with assets in excess of $50 billion have higher operating costs than smaller banks. These findings together suggest that today’s large banks, with assets in some instances exceeding $ 1 trillion, are well beyond the technologically optimal scale.
"These two functions that financial markets perform work in opposite directions. In the passive or cognitive function, the fundamentals are supposed to determine market prices. In the active or manipulative function market, prices find ways of influencing the fundamentals. When both functions operate at the same time, they interfere with each other. The supposedly independent variable of one function is the dependent variable of the other, so that neither function has a truly independent variable. As a result, neither market prices nor the underlying reality is fully determined. Both suffer from an element of uncertainty that cannot be quantified.
I call the interaction between the two functions reflexivity. Frank Knight recognized and explicated this element of unquantifiable uncertainty in a book published in 1921, but the Efficient Market Hypothesis and Rational Expectation Theory have deliberately ignored it. That is what made them so misleading."
Leading Bush administration officials used to talk of the US current-account deficit being a “gift” to the outside world. But, honestly, the US has been overconsuming – living far beyond its means – for the past decade. The idea that tax cuts would lead to productivity gains and would pay for themselves (and fix the budget) has proved entirely illusory. ...
[T]he net flow of capital is from emerging markets to the US – this is what it means to have current-account surpluses in emerging markets and a deficit in the US. But the gross flow of capital is from emerging market to emerging market, through big banks now implicitly backed by the state in both the US and Europe. From the perspective of international investors, banks that are “too big to fail” are the perfect places to park their reserves – as long as the sovereign in question remains solvent. But what will these banks do with the funds?
When a similar issued emerged in the 1970’s – the so-called “recycling of oil surpluses” – banks in Western financial centers extended loans to Latin America, communist Poland, and communist Romania. That was not a good idea, as it led to a massive (for the time) debt crisis in 1982.
We are now heading for something similar, but on a larger scale. The banks and other financial players have every incentive to load up on risk as we head into the cycle; they get the upside (Wall Street compensation this year is set to break records again) and the downside goes to taxpayers.
“In a world of businessmen and financial intermediaries who aggressively seek profit, innovators will always outpace regulators; the authorities cannot prevent changes in the structure of portfolios from occurring. What they can do is keep the asset-equity ratio of banks within bounds by setting equity-absorption ratios for various types of assets. If the authorities constrain banks and are aware of the activities of fringe banks and other financial institutions, they are in a better position to attenuate the disruptive expansionary tendencies of our economy.”
-- Hyman Minsky, 1986
The share of US national income going to the top 1 per cent of the income distribution has risen from 15 to 25 per cent over the past decade, mostly because of the growth in size and profitability of the financial sector. This payments to the top percentile is a tax paid by the population (similar to what population paid to royalty and church in middle ages) as a whole for the questionable benefits of living in the casino capitalism economy. While the key to growth of inequality was financial sector it also complemented by several additional trends:
But there has been another thread mixed in with this: resentment at the Fed salvaging the banking industry, with contingent and real costs, in the form of higher inflation, per Alford’s and Leijonhufvud’s analysis. Now that many of those actions may indeed have been the best among a set of bad choices (although I suspect economic historians will conclude the Fed cut rates too far too fast). However, the big issue is that they involved consequences of such magnitude that they should not have been left to the Fed. I was amazed, and was not alone, when Congress did not dress down the Fed in its hearings on the Bear rescue for the central bank’s unauthorized encroachment into fiscal action (ie., if any of the $29 billion in liabilities assumed by the Fed in that rescue comes a cropper, the cost comes from the public purse). So the frustration isn’t merely about outcomes, it’s about process, about the sense of disenfranchisement. And that will only get worse as this crisis grinds along.
"To a surprising degree, economic misfortune has correlated with low top marginal tax rates. The
top marginal tax rate at the time of the 1929 crash was 24%. After his election, Roosevelt promptly
raised it to 63% and then to 94%, and one could easily make the case that it was this rise, rather
than financial regulation, that played the primary — though certainly not the only — role in curbing
abuses by attacking greed at its source, without, by the way, damaging the economy. Roosevelt essentially
taxed away big money."
Disincentivizing greed - Page 3 - Los Angeles Times
Weakly regulated banks tend to become classic cases of market failure and their employees
at the senior level have basically become the biggest bank robbers of all time. This tremendous
transfer of wealth is inherent in growth of financial sector. The best way to rob bank is to own
Wall Street’s seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. Myron Scholes and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the end of the decade. But many others beat similar paths. This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.
In other words it’s unclear who and how can prevents the capture of regulators as financial sector by definition has means to undermine any such efforts. One way this influence work is via lobbing for appointment of pro-financial sector people in key positions. If such "finance-sector-selected" Fed chairman does not like part of Fed mandate related to regulation it can simply ignore it as long as he is sure that he will be reappointed. That happened with Greenspan. After such process started it became irreversible and only after a significant, dramatic shock to the system any meaningful changes can be instituted and as soon as the lessons are forgotten work on undermining them resumes.
In essence, the Fed is a political organization and Fed Chairman is as close to a real vice-president of the USA as one can get. As such Fed Chairman serves the elite which rules that country, whether you call them financial oligarchy or some other name. Actually Fed Chairman is the most powerful unelected official in the USA. If you compare this position to the role of the Chairman of the Politburo in the USSR you’ll might find some interesting similarities.
In other words it is impossible to prevent appointment of another Greenspan by another Reagan without changes in political power balance. And the transition to banana republic that follows such appointment is irreversible even if the next administration water boards former Fed Chairman to help him to write his memoirs. That means that you need to far-reaching reform of political system to be able to regulate financial industry and you need to understand that the measures adopted need vigilant protection as soon as the current crisis is a distant history.
Several other source of financial instability were pointed out by others:
There are some outstanding lectures and presentation on YouTube on this topic. Among them:
See an expended list at Webliography of heterodox economists
Dr. Nikolai Bezroukov
|[In casino capitalism] financial institutions make a living screwing over their customers so their biggest concern is how to avoid losing lawsuits when they get sued|
Mar 22, 2017 | economistsview.typepad.comHow Money Made Us Modern Patrick Kiger at National Geographic:How Money Made Us Modern : About 9,500 years ago in the Mesopotamian region of Sumer, ancient accountants kept track of farmers' crops and livestock by stacking small pieces of baked clay, almost like the tokens used in board games today. One piece might signify a bushel of grain, while another with a different shape might represent a farm animal or a jar of olive oil.
Those humble little ceramic shapes might not seem have much in common with today's $100 bill, whose high-tech anti-counterfeiting features include a special security thread designed to turn pink when illuminated by ultraviolet light, let alone with credit-card swipes and online transactions that for many Americans are rapidly taking the place of cash.But the roots of those modern modes of payment may lie in the Sumerians' tokens. ...
Posted by Mark Thoma on Tuesday, March 21, 2017 at 10:06 AM in Economics | Permalink Comments (10)
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Comments You can follow this conversation by subscribing to the comment feed for this post. Shah of Bratpuhr : , March 21, 2017 at 11:08 AMArticle ended with Bitcoin... otherwise, great story.Shah of Bratpuhr -> Shah of Bratpuhr... , March 21, 2017 at 11:09 AMBitcoin is quite volatile vs USD.tjfxh : , March 21, 2017 at 12:34 PM
https://btcvol.info/The article is poorly researched. The author needs to read Innes, Graeber, Ingham, Wray and Hudson on the history of money from the perspective of credit instead of relying on Davies, who emphasizes commodity money and doesn't distinguish between bullion and chartal.kthomas -> tjfxh ... , March 21, 2017 at 01:03 PM....coffee. Was there nothing you agreed with?tjfxh : , March 21, 2017 at 02:09 PMI was speaking specifically of the early history in my comment, but the entire article was rather one-sided. The debated on the history and nature of money is nuanced and the author made it seem as through the article presents a definitive version. The audience to which it is addressed would not glean that from the article and would likely come away with a one-sided and simplistic perspective on the history and nature of money.anne -> tjfxh ... , March 21, 2017 at 02:32 PMDo set down any specific references when possible.JohnH : , March 21, 2017 at 02:32 PMMichael Hudson offers a wonderful piece on the ancient middle east, how they handled oppressive debt, and how, in the Anglo-Saxon word, the biblical word for debt got translated into 'sin.'pgl -> JohnH... , March 21, 2017 at 03:26 PM
"From the actual people who study cuneiform records, 90% of which are economic, what we have surviving from Sumer and Babylonia, from about 2500 BC to the time of Jesus, are mainly marriage contracts, dowries, legal contracts, economic contracts, and loan contracts. Above all, loans....
The rulers had what we would call an economic model. They realized that every economy tended to become unstable as a result of compound interest. We have the training tablets that they trained scribal students with, around 1800 or 1900 BC. They had to calculate: How long does it take debt to double its size, at what we'd call 20% interest? The answer is 5 years. How does long it take to multiply four-fold? The answer is 10 years. How much to multiply 64 times? The answer is 30 years. Well you can imagine how fast the debts grew.
So they knew how the tendency of every society was that people would run up debts. Now when they ran up debts in Sumer and Babylonia, and even in in Judea in Jesus' time, they didn't borrow money from money lenders. People owed debts because they were in arrears: They couldn't pay the fees owed to the palace. We might call them taxes, but they actually were fees for public services. And for beer, for instance. The palace would supply beer and you would run up a tab over the year, to be paid at harvest time on the threshing floor. You also would pay for the boatmen, if you needed to get your harvest delivered by boat. You would pay for draught cattle if you needed them. You'd pay for water. Cornelia Wunsch did one study and found that 75% of the debts, even in neo-Babylonian times around the 5th or 4th century BC, were arrears.
Sometimes the harvest failed. And when the harvest failed, obviously they couldn't pay their fees and other debts. Hammurabi canceled debts four or five times during his reign. He did this because either the harvest failed or there was a war and people couldn't pay.
What do you do if you're a ruler and people can't pay? One reason they would cancel debts is that most debts were owed to the palace or to the temples, which were under the control of the palace. So you're canceling debts that are owed to yourself.
Rulers had a good reason for doing this. If they didn't cancel the debts, then people who owed money would become bondservants to the tax collector or the wealthy creditors, or whoever they owed money to. If they were bondservants, they couldn't serve in the army. They couldn't provide the corvée labor duties – the kind of tax that people had to pay in the form of labor. Or they would defect. If you wanted to win a war you had to have a citizenry that had its own land, its own means of support."
http://michael-hudson.com/2017/01/the-land-belongs-to-god/"The focus of my talk today will be Jesus' first sermon and the long background behind it that helps explain what he was talking about and what he sought to bring about."tjfxh : , March 21, 2017 at 04:15 PM
Glad you are researching the ancient history of monetary regimes. Especially since your research into monetary history over the past 150 years is so incredibly wrong.David Graeber, Debt: The First 5000 Years. Melville House; Updated Expanded edition (2014).anne -> tjfxh ... , March 21, 2017 at 04:34 PM
Michael Hudson and Marc Van De Mieroop, Debt and Economic Renewal in the Ancient Near East. Capital Decisions Ltd (2002).
Geoffrey Ingham, The Nature of Money. Polity (2004).
A. Mitchell Innes, "The Credit Theory of Money," The Banking Law Journal, Vol. 31 (1914), Dec./Jan., 151-168.
_____________, "What is Money?," The Banking Law Journal, Vol. 30 (1913), May. 377-409
L. Randall Wray, Theories of Money and Banking. Edward Elgar (2012)
______________, Understanding Modern Money:The Key to Full Employment and Price Stability. Edward Elgar (1998)https://www.community-exchange.org/docs/The%20Credit%20Theoriy%20of%20Money.htm
The Credit Theory of Money
By A. Mitchell Innes
What Is Money?
By A. MITCHELL INNES
[ I do appreciate these references. ]
Mar 21, 2017 | economistsview.typepad.comPeter K. -> pgl... March 20, 2017 at 06:37 AM , 2017 at 06:37 AM"It means less in income taxes on the rich and more in sales taxes for the rest of us."pgl -> Peter K.... , March 20, 2017 at 09:45 AM
Nah glibertarians are against the sales tax because they see how it has increased in Europe and led to bigger government. That's why they're opposing Paul Ryan's tax reform which includes progressive wage subsidies.You must not get Paul Ryan. He wants a smaller government paid for exclusively by sales taxes. His agenda is to eliminate all taxes on capital income. FYI - Europe still has rather high profits taxes. Ryan's latest would end that for the US.ken melvin -> anne... , -1Congress critters from red states are demanding that people must have a job bin order to qualify for medicaid. In red states, most jobs don't pay enough to afford health care.Peter K. -> anne... , March 20, 2017 at 09:01 AM
Explained to an environmental class the other day how it was that before EPA people knowingly (and unknowingly) took hazardous jobs in order to make a living -- a trade off. This is where these guys are headed.http://cepr.net/blogs/beat-the-press/paul-krugman-and-the-republican-corporate-income-tax-proposalPeter K. -> anne... , March 20, 2017 at 09:01 AM
Paul Krugman and the Republican Corporate Income Tax Proposal
by Dean Baker
Published: 28 January 2017
The current corporate income tax is a massive cesspool. There are so many routes for avoidance that it is almost becoming voluntary. This matters not only because we don't get the revenue we should from the tax, but also because it has created a massive tax avoidance industry.
The tax avoidance industry is a big deal. This is an industry that contributes nothing to the economy. It involves people designing clever tricks to allow corporations to avoid paying their share of taxes.
The tax avoidance industry is also an important source of inequality since it is possible to get very rich designing clever ways to avoid taxes. My colleague Eileen Appelbaum (along with Rose Batt) show how the private equity industry is largely a tax avoidance industry in their recent book Private Equity at Work. Many of the very richest people in the country got their wealth as private equity fund partners.
In his movie, Capitalism: A Love Story, Michael Moore highlighted "dead peasant" insurance policies. This is when a major company like Walmart buys life insurance policies on tens of thousands of front line workers, like checkout clerks. Usually the insuree doesn't even know of the existence of the policy, but if they die, the company collects.
Moore emphasized the morbid nature of this game, but missed the real story. The point of these policies is to smooth profits, partly to manipulate share prices, but also for tax purposes. The real highlight of this story is that there is someone who likely got very rich by developing dead peasant insurance policies, rather than contributing anything productive to the economy.
I mention this as background to the corporate income tax discussion since to my view a major goal of corporate tax reform is to eliminate the enormous opportunities for gaming that currently exist. These opportunities are making some people very rich and are a complete waste from an economic standpoint.
For this reason, I am sympathetic to the plan the Republicans are debating. In its conception it would be enormous simplification relative to the current system. Of course, that is the conception, we will have to see the plan as it is drafted in legislation to reach any final judgement.
In this vein, I have been unhappy to see some of the attacks leveled by people for whom I have considerable respect, notably Paul Krugman. In a post yesterday, Krugman makes the case that the basic tax proposal would be a subsidy for domestic production and therefore inconsistent with free trade principles.
While I don't disagree with the logic, I question its importance. He contrasts the border adjustment with the Republican tax proposal with the border adjustment with a traditional value-added tax (VAT), pointing out that the latter doesn't give a domestic production subsidy in the same way. There are two important points left out of Krugman's discussion.
The first is the issue of size. VATs in our trading partners typically raise well over ten percent of GDP in revenue and sometimes more than 20 percent. By contrast, the corporate income tax has raised less than 1.7 percent of GDP in recent years. The Republicans are undoubtedly looking to reduce this amount further in their tax reform (hopefully they will not succeed), but the imposition of a tax equal to 15 percent of GDP matters much more for trade than a tax equal to 1.7 percent of GDP. (Suppose the dollar falls or rises by 1.7 percent in a week, as it often does. This has the same impact.)
The second issue is the point of reference. We don't currently have a VAT in the United States. We have various taxes that are assessed in the production process, including the income tax workers pay on their wages, that get passed on in the price of the product. If we snapped our fingers and replaced the income tax with a value added tax, we would then refund this tax on exported products. That would look like an export subsidy, relative to our current system. Similarly, we would slap the VAT on all items that are imported. That would look like an import tariff, relative to our current system.
Conventionally, economists urge us not to worry about this issue, since changes in currency values will even things out. This is probably true, at least over the long-run, if not immediately in a transition process. This is a situation where we should accept the economists' conventional wisdom on the net effect on trade, remembering that the amount at stake as an export subsidy or import tariff is just not that large in any case.
The Republican tax proposal, when it is actually put on the table, should be evaluated based on the extent to which it eliminates the waste associated with the tax avoidance industry and also for the amount of revenue it raises. Arguing for its rejection based on it being an unfair subsidy for domestic production is just silly.
There are plenty of very real reasons not to like the things Republicans are putting forward in the Trump administration. We don't have to invent fake ones.http://cepr.net/blogs/beat-the-press/washington-post-pushed-fear-on-corporate-tax-reform
Washington Post Pushed Fear on Corporate Tax Reform
by Dean Baker
Published: 29 January 2017
The headline warned readers that the Republican's proposal for reforming the corporate income tax is coming for your toys, literally:
"Trump-era tax reform could come for your toys."
Okay, we get it. The Washington Post doesn't like the tax reform and is not content to keep its views to the opinion pages. (This article ran at the top of the Sunday business section.)
The basic story is almost Trumpian in its unreality. The tax reform includes a border adjustment tax on imports. This is similar (not identical) to what countries with value-added taxes do, which is almost every other wealthy country. The conventional wisdom among economists is that currencies adjust so that the net effect on the price of imports, including toys, is minimal.
While this piece notes this argument, it implies that consumers and retailers have great cause for concern over the tax. In this respect, it is worth pointing out that currencies fluctuate by large amounts all the time, in ways that are likely to have far more impact on the price of imported toys than this tax. The figure below shows the inflation-adjusted value of the dollar measured against the currencies of our major trading partners.
Note that the dollar fell by more than 25 percent against the currencies of our major trading partners in the years between its peak in 2002 and its trough in 2008. This would have sent the price of imported toys up by far more than the new tax possibly could, even though it never prompted an article in the Post warning readers that a falling dollar was coming for their toys.
As a practical matter, a currency adjustment will take time and may not be complete, but in the technical language of economists, so what? If the price of imported toys rises by 3–4 percent as a result of the tax, what would be the big deal. This change is swamped by movements in currency values that never even get mentioned. (I discuss the tax reform proposal, which could get rid of the tax avoidance industry, at more length here.)
It is also worth pointing out that incredible hypocrisy and/or ignorance underlying these discussions. If the United States is to get back to something closer to balanced trade, as opposed to having a trade deficit of more than $500 billion (around 2.7 percent of GDP), it is likely to require a lower valued dollar and higher import prices.
We can count on news outlets like the Post pointing out that the higher import prices mean that lower income people will have to pay more for imported goods at Walmart. This is true, but they are also more likely to be able to get relatively good paying jobs in manufacturing. Also, the availability of these jobs is likely to put upward pressure on the wages of less-educated workers more generally. The net effect for these people is almost certain to be positive.
If this is hard to understand, suppose we remove the protectionist barriers that allow our doctors to earn twice as much as doctors in other wealthy countries. This would likely cause the pay of our doctors to be more in line with pay in Europe and Canada (@ $150,000 a year, as opposed to an average of more than $250,000 a year now). The doctors would all benefit because they and their families would now pay less for their health care, or at least this is how it would be covered using the Washington Post standard.
Mar 21, 2017 | economistsview.typepad.comanne : March 20, 2017 at 05:50 AM , 2017 at 05:50 AMhttp://cepr.net/blogs/beat-the-press/why-no-one-is-taking-robert-samuelson-s-medicaid-deal-seriouslypgl -> anne... , March 20, 2017 at 06:04 AM
March 20, 2017
Why No One Is Taking Robert Samuelson's Medicaid Deal Seriously
Robert Samuelson put forward what would ordinarily be a very reasonable proposal on Medicaid and Medicare in his column * today. He suggested that the federal government take over the portion of Medicaid that deals with low-income elderly and fold it into the Medicare program, while leaving states with full responsibility for dealing with the part of Medicaid that deals with low-income families below retirement age.
While he is right that this sort of consolidation could likely reduce costs and prevent seniors from falling between the cracks in the two systems, there is a basic problem with turning Medicaid over to the states. There are a number of states controlled by Republicans where there is little or no interest in providing health care for low income families.
This means that if Medicaid were turned completely over to the states, millions of low income families would lose access to health care. For this reason, people who want to see low income families get health care, which is the purpose of Medicaid, want to see the program remain partly under the federal government's control.
-- Dean Baker"There are a number of states controlled by Republicans where there is little or no interest in providing health care for low income families. This means that if Medicaid were turned completely over to the states, millions of low income families would lose access to health care."Anachronism said in reply to pgl... , March 20, 2017 at 06:56 AM
Dean Baker is right to go after this idea from Robert (no relationship to Paul) Samuelson but two additional comments.
(1) This is really the Paul Ryan agenda.
(2) For states like mine that will take care of these low income families, this Ryan agenda does not mean less in taxes. It means less in income taxes on the rich and more in sales taxes for the rest of us. The ultimate Paul Ryan agenda.There are 2 theories about how to argue with a republican. Neither one works.RC AKA Darryl, Ron said in reply to Anachronism ... , March 20, 2017 at 07:16 AM
What they care about is "lessez faire", which means low income families should die off from lack of healthcare. If they deserved healthcare, they should have been able to afford it themselves.If God had wanted poor people to have healthcare then he would have made them be born rich :<)pgl -> Anachronism ... , March 20, 2017 at 09:43 AMI might ask what those two theories are but I suspect you are right about neither one of them working.
Mar 21, 2017 | economistsview.typepad.comDouglas Campbell:Robots and Inequality: A Skeptic's Take : Paul Krugman presents " Robot Geometry " based on Ryan Avent 's "Productivity Paradox". It's more-or-less the skill-biased technological change hypothesis, repackaged. Technology makes workers more productive, which reduces demand for workers, as their effective supply increases. Workers still need to work, with a bad safety net, so they end up moving to low-productivity sectors with lower wages. Meanwhile, the low wages in these sectors makes it inefficient to invest in new technology.My question: Are Reagan-Thatcher countries the only ones with robots? My image, perhaps it is wrong, is that plenty of robots operate in Japan and Germany too, and both countries are roughly just as technologically advanced as the US. But Japan and Germany haven't seen the same increase in inequality as the US and other Anglo countries after 1980 (graphs below). What can explain the dramatic differences in inequality across countries? Fairly blunt changes in labor market institutions, that's what. This goes back to Peter Temin's " Treaty of Detroit " paper and the oddly ignored series of papers by Piketty, Saez and coauthors which argues that changes in top marginal tax rates can largely explain the evolution of the Top 1% share of income across countries. (Actually, it goes back further -- people who work in Public Economics had "always" known that pre-tax income is sensitive to tax rates...) They also show that the story of inequality is really a story of incomes at the very top -- changes in other parts of the income distribution are far less dramatic. This evidence also is not suggestive of a story in which inequality is about the returns to skills, or computer usage, or the rise of trade with China. ...
mulp : , March 21, 2017 at 01:54 AMYet another economist bamboozled by free lunch economics.reason -> mulp... , March 21, 2017 at 03:47 AM
In free lunch economics, you never consider demand impacted by labor cost changed.
TANSTAAFL so, cut labor costs and consumption must be cut.
Funny things can be done if money is printed and helicopter dropped unequally.
Printed money can accumulate in the hands of the rentier cutting labor costs and pocketing the savings without cutting prices.
Free lunch economics invented the idea price equals cost, but that is grossly distorting.
And all costs are labor costs. It it isn't labor cost, it's rents and economic profit which mean economic inefficiency. An inefficient economy is unstable. Likely to crash or drive revolution.
Free lunch economics seeks to make labor unnecessary or irrelevant. Labor cost is pure liability.
Yet all the cash for consumption is labor cost, so if labor cost is a liability, then demand is a liability.
Replace workers with robots, then robots must become consumers."Replace workers with robots, then robots must become consumers." Well no - the OWNERS of robots must become consumers.reason : , March 21, 2017 at 03:35 AMI am old enough to remember the days of good public libraries, free university education, free bus passes for seniors and low land prices. Is the income side of the equation all that counts?anne : , March 21, 2017 at 06:37 AMhttps://medium.com/@ryanavent_93844/the-productivity-paradox-aaf05e5e4aad#.brb0426mtanne -> anne... , March 21, 2017 at 06:38 AM
March 16, 2017
The productivity paradox
By Ryan Avent
People are worried about robots taking jobs. Driverless cars are around the corner. Restaurants and shops increasingly carry the option to order by touchscreen. Google's clever algorithms provide instant translations that are remarkably good.
But the economy does not feel like one undergoing a technology-driven productivity boom. In the late 1990s, tech optimism was everywhere. At the same time, wages and productivity were rocketing upward. The situation now is completely different. The most recent jobs reports in America and Britain tell the tale. Employment is growing, month after month after month. But wage growth is abysmal. So is productivity growth: not surprising in economies where there are lots of people on the job working for low pay.
The obvious conclusion, the one lots of people are drawing, is that the robot threat is totally overblown: the fantasy, perhaps, of a bubble-mad Silicon Valley - or an effort to distract from workers' real problems, trade and excessive corporate power. Generally speaking, the problem is not that we've got too much amazing new technology but too little.
This is not a strawman of my own invention. Robert Gordon makes this case. You can see Matt Yglesias make it here. * Duncan Weldon, for his part, writes: **
"We are debating a problem we don't have, rather than facing a real crisis that is the polar opposite. Productivity growth has slowed to a crawl over the last 15 or so years, business investment has fallen and wage growth has been weak. If the robot revolution truly was under way, we would see surging capital expenditure and soaring productivity. Right now, that would be a nice 'problem' to have. Instead we have the reality of weak growth and stagnant pay. The real and pressing concern when it comes to the jobs market and automation is that the robots aren't taking our jobs fast enough."
And in a recent blog post Paul Krugman concluded: *
"I'd note, however, that it remains peculiar how we're simultaneously worrying that robots will take all our jobs and bemoaning the stalling out of productivity growth. What is the story, really?"
What is the story, indeed. Let me see if I can tell one. Last fall I published a book: "The Wealth of Humans". In it I set out how rapid technological progress can coincide with lousy growth in pay and productivity. Start with this:
"Low labour costs discourage investments in labour-saving technology, potentially reducing productivity growth."
*** https://krugman.blogs.nytimes.com/2017/02/24/maid-in-america/https://twitter.com/paulkrugman/status/843167658577182725anne -> anne... , March 21, 2017 at 07:00 AM
Paul Krugman @paulkrugman
But is Ryan Avent saying something different * from the assertion that recent technological progress is capital-biased? **
If so, what?
11:30 AM - 18 Mar 2017This is an old concern in economics; it's "capital-biased technological change," which tends to shift the distribution of income away from workers to the owners of capital....anne -> anne... , March 21, 2017 at 06:40 AM
-- Paul Krugmanhttp://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/anne -> anne... , March 21, 2017 at 06:43 AM
December 8, 2012
Rise of the Robots
By Paul Krugman
Catherine Rampell and Nick Wingfield write about the growing evidence * for "reshoring" of manufacturing to the United States. * They cite several reasons: rising wages in Asia; lower energy costs here; higher transportation costs. In a followup piece, ** however, Rampell cites another factor: robots.
"The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.
"As more robots are built, largely by other robots, 'assembly can be done here as well as anywhere else,' said Rob Enderle, an analyst based in San Jose, California, who has been following the computer electronics industry for a quarter-century. 'That will replace most of the workers, though you will need a few people to manage the robots.' "
Robots mean that labor costs don't matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that's another issue). On the other hand, it's not good news for workers!
This is an old concern in economics; it's "capital-biased technological change," which tends to shift the distribution of income away from workers to the owners of capital.
Twenty years ago, when I was writing about globalization and inequality, capital bias didn't look like a big issue; the major changes in income distribution had been among workers (when you include hedge fund managers and CEOs among the workers), rather than between labor and capital. So the academic literature focused almost exclusively on "skill bias", supposedly explaining the rising college premium.
But the college premium hasn't risen for a while. What has happened, on the other hand, is a notable shift in income away from labor:
If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won't do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an "opportunity society," or whatever it is the likes of Paul Ryan etc. are selling this week, won't do much if the most important asset you can have in life is, well, lots of assets inherited from your parents. And so on.
I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn't seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism - which shouldn't be a reason to ignore facts, but too often is. And it has really uncomfortable implications.
But I think we'd better start paying attention to those implications.
** http://economix.blogs.nytimes.com/2012/12/07/when-cheap-foreign-labor-gets-less-cheap/https://fred.stlouisfed.org/graph/?g=d4ZYsupersaurus -> anne... , March 21, 2017 at 01:23 PM
January 30, 2017
Compensation of employees as a share of Gross Domestic Income, 1948-2015
January 30, 2017
Compensation of employees as a share of Gross Domestic Income, 1948-2015
(Indexed to 1948)"The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.anne : , March 21, 2017 at 06:37 AM
"...already largely made..."? already? circuit boards were almost entirely populated by machines by 1985, and after the rise of surface mount technology you could drop the "almost". in 1990 a single machine could place 40k+/hour parts small enough they were hard to pick up with fingers.https://krugman.blogs.nytimes.com/2017/03/20/robot-geometry-very-wonkish/Shah of Bratpuhr : , March 21, 2017 at 07:27 AM
March 20, 2017
Robot Geometry (Very Wonkish)
By Paul Krugman
And now for something completely different. Ryan Avent has a nice summary * of the argument in his recent book, trying to explain how dramatic technological change can go along with stagnant real wages and slowish productivity growth. As I understand it, he's arguing that the big tech changes are happening in a limited sector of the economy, and are driving workers into lower-wage and lower-productivity occupations.
But I have to admit that I was having a bit of a hard time wrapping my mind around exactly what he's saying, or how to picture this in terms of standard economic frameworks. So I found myself wanting to see how much of his story could be captured in a small general equilibrium model - basically the kind of model I learned many years ago when studying the old trade theory.
Actually, my sense is that this kind of analysis is a bit of a lost art. There was a time when most of trade theory revolved around diagrams illustrating two-country, two-good, two-factor models; these days, not so much. And it's true that little models can be misleading, and geometric reasoning can suck you in way too much. It's also true, however, that this style of modeling can help a lot in thinking through how the pieces of an economy fit together, in ways that algebra or verbal storytelling can't.
So, an exercise in either clarification or nostalgia - not sure which - using a framework that is basically the Lerner diagram, ** adapted to a different issue.
Imagine an economy that produces only one good, but can do so using two techniques, A and B, one capital-intensive, one labor-intensive. I represent these techniques in Figure 1 by showing their unit input coefficients:
Here AB is the economy's unit isoquant, the various combinations of K and L it can use to produce one unit of output. E is the economy's factor endowment; as long as the aggregate ratio of K to L is between the factor intensities of the two techniques, both will be used. In that case, the wage-rental ratio will be the slope of the line AB.
Wait, there's more. Since any point on the line passing through A and B has the same value, the place where it hits the horizontal axis is the amount of labor it takes to buy one unit of output, the inverse of the real wage rate. And total output is the ratio of the distance along the ray to E divided by the distance to AB, so that distance is 1/GDP.
You can also derive the allocation of resources between A and B; not to clutter up the diagram even further, I show this in Figure 2, which uses the K/L ratios of the two techniques and the overall endowment E:
Now, Avent's story. I think it can be represented as technical progress in A, perhaps also making A even more capital-intensive. So this would amount to a movement southwest to a point like A' in Figure 3:
We can see right away that this will lead to a fall in the real wage, because 1/w must rise. GDP and hence productivity does rise, but maybe not by much if the economy was mostly using the labor-intensive technique.
And what about allocation of labor between sectors? We can see this in Figure 4, where capital-using technical progress in A actually leads to a higher share of the work force being employed in labor-intensive B:
So yes, it is possible for a simple general equilibrium analysis to capture a lot of what Avent is saying. That does not, of course, mean that he's empirically right. And there are other things in his argument, such as hypothesized effects on the direction of innovation, that aren't in here.
But I, at least, find this way of looking at it somewhat clarifying - which, to be honest, may say more about my weirdness and intellectual age than it does about the subject.
** http://www-personal.umich.edu/~alandear/writings/Lerner.pdfMedian Wealth per adult (table ends at $40k)reason -> Shah of Bratpuhr... , March 21, 2017 at 08:17 AM
1. Switzerland $244,002
2. Iceland $188,088
3. Australia $162,815
4. Belgium $154,815
5. New Zealand $135,755
6. Norway $135,012
7. Luxembourg $125,452
8. Japan $120,493
9. United Kingdom $107,865
10. Italy $104,105
11. Singapore $101,386
12. France $ 99,923
13. Canada $ 96,664
14. Netherlands $ 81,118
15. Ireland $ 80,668
16. Qatar $ 74,820
17. Korea $ 64,686
18. Taiwan $ 63,134
19. United Arab Emirates $ 62,332
20. Spain $ 56,500
21. Malta $ 54,562
22. Israel $ 54,384
23. Greece $ 53,266
24. Austria $ 52,519
25. Finland $ 52,427
26. Denmark $ 52,279
27. United States $ 44,977
28. Germany $ 42,833
29. Kuwait $ 40,803
http://www.middleclasspoliticaleconomist.com/2017/03/us-has-worst-wealth-inequality-of-any.htmlI think this illustrates my point very clearly. If you had charts of wealth by age it would be even clearer. Without a knowledge of the discounted expected value of public pensions it is hard to draw any conclusions from this list.Shah of Bratpuhr : , March 21, 2017 at 07:28 AM
I know very definitely that in Australia and the UK people are very reliant on superannuation and housing assets. In both Australia and the UK it is common to sell expensive housing in the capital and move to cheaper coastal locations upon retirement, investing the capital to provide retirement income. Hence a larger median wealth is NEEDED.
It is hard otherwise to explain the much higher median wealth in Australia and the UK.Median Wealth Average Wealthspencer : , March 21, 2017 at 08:06 AM
1. United States $ 44,977 $344,692 7.66
2. Denmark $ 52,279 $259,816 4.97
3. Germany $ 42,833 $185,175 4.32
4. Austria $ 52,519 $206,002 3.92
5. Israel $ 54,384 $176,263 3.24
6. Kuwait $ 40,803 $119,038 2.92
7. Finland $ 52,427 $146,733 2.80
8. Canada $ 96,664 $270,179 2.80
9. Taiwan $ 63,134 $172,847 2.74
10. Singapore $101,386 $276,885 2.73
11. United Kingdom $107,865 $288,808 2.68
12. Ireland $ 80,668 $214,589 2.66
13. Luxembourg $125,452 $316,466 2.52
14. Korea $ 64,686 $159,914 2.47
15. France $ 99,923 $244,365 2.45
16. United Arab Emirates $ 62,332 $151,098 2.42
17. Norway $135,012 $312,339 2.31
18. Australia $162,815 $375,573 2.31
19. Switzerland $244,002 $561,854 2.30
20. Netherlands $ 81,118 $184,378 2.27
21. New Zealand $135,755 $298,930 2.20
22. Iceland $188,088 $408,595 2.17
23. Qatar $ 74,820 $161,666 2.16
24. Malta $ 54,562 $116,185 2.13
25. Spain $ 56,500 $116,320 2.06
26. Greece $ 53,266 $103,569 1.94
27. Italy $104,105 $202,288 1.94
28. Japan $120,493 $230,946 1.92
29. Belgium $154,815 $270,613 1.75
Ryan Avent's analysis demonstrates what is wrong with the libertarian, right wing belief that cheap labor is the answer to every problem when in truth cheap labor is the source of many of our problems.reason -> spencer... , March 21, 2017 at 08:22 AMSpencer,Sanjait : , March 21, 2017 at 09:32 AM
as I have said before, I don't really care to much what wages are - I care about income. It is low income that is the problem. I'm a UBI guy, if money is spread around, and workers can say no to exploitation, low wages will not be a problem.This looks good, but also reductive.reason -> Sanjait... , March 21, 2017 at 09:40 AM
Have we not seen a massive shift in pretax income distribution? Yes ... which tells me that changes in tax rate structures are not the only culprit. Though they are an important culprit.
Maybe - butLongtooth : , March 21, 2017 at 12:28 PM
1. changes in taxes can affect incentives (especially think of real investment and corporate taxes and also personal income taxes and executive remuneration);
2. changes in the distribution of purchasing power can effect the way growth in the economy occurs;
3. changes in taxes also affect government spending and government spending tends to be more progressively distributed than private income.
Remember the rule: ceteris is NEVER paribus.Word to the wise:Longtooth -> Longtooth... , March 21, 2017 at 12:42 PM
Think: Services and Goods
Composite Services labor hours increase with poor productivity growth - output per hour of labor input. Composite measure of service industry output is notoriously problematic (per BLS BEA).
Goods labor hours decrease with increasing productivity growth. Goods output per hour easy to measure and with the greatest experience and knowledge.
Put this together and composite national productivity growth rate can't grow as fast as services consume more of labor hours.
Elaboration on Services productivity measures:
- How do you measure a retail clerks unit output?
- How do you measure an engineer's unit output?
- How do equilibrate retail clerk output with engineer's outuput for a composite output?
Now add the composite retail clerk labor hours to engineering labor hours... which dominates in composite labor hours? Duh! So even in services the productivity is weighted heavily to the lowest productivity job market.
Substitute Hospitality services for Retail Clerk services. Substitute truck drivers services for Hospitality Services, etc., etc., etc.
I have spent years tracking productivity in goods production of various types ... mining, non-tech hardware production, high tech hardware production in various sectors of high tech. The present rates of productivity growth continue to climb (never decline) relative to the past rates in each goods production sector measured by themselves.
But the proportion of hours in goods production in U.S. is and has been in continual decline even while value of output has increased in each sector of goods production.
Here's an interesting way to start thinking about Services productivity.
There used to be reasonably large services sector in leisure and business travel agents. Now there is nearly none... this has been replaced by on-line computer based booking. So travel agent or equivalent labor hours is now near zippo. Productivity of travel agents went through the roof in the 1990's & 2000's as the number of people / labor hours dropped like a rock. Where did those labor hours end up? They went to lower paying services or left the labor market entirely. So lower paying lower productivity services increased as a proportion of all services, which in composite reduced total serviced productivity.
You can do the same analysis for hundreds of service jobs that no longer even exist at all --- switch board operators for example when the way of buggy whip makers and horse-shoe services).
Now take a little ride into the future... not to distant future. When autonomous vehicles become the norm or even a large proportion of vehicles, and commercial drivers (taxi's, trucking, delivery services) go the way of horse-shoe services the labor hours for those services (land transportation of goods & people) will drop precipitously, even as unit deliveries increase, productivity goes through the roof, but since there's almost no labor hours in that service the composite effect on productivity in services will drop because the displaced labor hours will end up in a lower productivity services sector or out of the elabor market entirely.Economists are having problems reconciling composite productivity growth rates with increasing rates of automation. So they end up saying "no evidence" of automation taking jobs or something to the effect "not to fear, robotics isn't evident as a problem we have to worry about".Longtooth -> Longtooth... , March 21, 2017 at 12:48 PM
But they know by observation all around them that automation is increasing productivity in the goods sector, so they can't really discount automation as an issue without shutting their eyes to everything they see with their "lying eyes". Thus they know deep down that they will have to be reconcile this with BLS and BEA measures.
Ten years aog this wasn't even on economist's radars. Today it's at least being looked into with more serious effort.
Ten years ago politicians weren't even aware of the possibility of any issues with increasing rates of automation... they thought it's always increased with increasing labor demand and growth, so why would that ever change? Ten years ago they concluded it couldn't without even thinking about it for a moment. Today it's on their radar at least as something that bears perhaps a little more thought.
Not to worry though... in ten more years they'll either have real reason to worry staring them in the face, or they'll have figured out why they were so blind before.
Reminds me of not recognizing the "shadow banking" enterprises that they didn't see either until after the fact.Or that they thought the risk rating agencies were providing independent and valid risk analysis so the economists couldn't reconcile the "low level" of market risks risk with everything else so they just assumed "everything" else was really ok too... must be "irrational exuberance" that's to blame.Longtooth : , March 21, 2017 at 01:04 PMLet me add that the term "robotics" is a subset of automation. The major distinction is only that a form of automation that includes some type of 'articulation' and/or some type of dynamic decision making on the fly (computational branching decision making in nano second speeds) is termed 'robotics' because articulation and dynamic decision making are associated with human capabilities rather then automatic machines.Longtooth -> Longtooth... , March 21, 2017 at 01:18 PM
It makes no difference whether productivity gains occur by an articulated machine or one that isn't... automation just means replacing people's labor with something that improves humans capacity to produce an output.
When mechanical leverage was invented 3000 or more years ago it was a form of automation, enabling humans to lift, move heavier objects with less human effort (less human energy).I meant 3000 years BC.... 5000 years ago or more.
Mar 21, 2017 | economistsview.typepad.comanne : March 20, 2017 at 05:43 AM http://cepr.net/blogs/beat-the-press/the-united-states-has-been-for-selective-protectionism-not-free-trade
March 20, 2017
The United States Has Been for Selective Protectionism, Not Free Trade
The New York Times might have wrongly lead readers to believe that presidents prior to Donald Trump supported free trade in an article * noting his refusal to go along with a G-20 statement proclaiming the importance of free trade. This is not true.
Past administrations of both parties have been vigorous supporters of longer and stronger patent and copyright protections. These protections can raise the price of protected items by factors of ten or even a hundred, making them equivalent to tariffs of 1000 and 10,000 percent. These protections lead to the same sorts of economic distortion and corruption that economists would predict from tariffs of this size.
Past administrations have also supported barriers that protect our most highly paid professionals, such as doctors and dentists, from foreign competition. They apparently believed that these professionals lack the skills necessary to compete in the global economy and therefore must be protected from the international competition. The result is that the rest of us pay close to $100 billion more each year for our medical bills ($700 per family).
-- Dean Bakeranne -> anne... , March 20, 2017 at 05:45 AMhttps://www.nytimes.com/2017/03/18/business/group-of-20-summit-us-trade.htmlanne -> anne... , March 20, 2017 at 05:47 AM
March 18, 2017
U.S. Breaks With Allies Over Trade Issues Amid Trump's 'America First' Vows
By JACK EWING
Trump administration officials at a Group of 20 summit rejected concerns about spreading protectionism and made clear that the new administration would seek different approaches to global commerce.https://twitter.com/BenjaminNorton/status/843565279359766529anne -> anne... , March 20, 2017 at 05:49 AM
Ben Norton @BenjaminNorton
US forced G20 nations in joint statement to drop any mention of climate change, which threatens life on Earth
Financial officials from the world's biggest economies have dropped from a joint statement any mention of financing action on climate change, reportedly following pressure from the US and Saudi Arabia....
1:50 PM - 19 Mar 2017The United States influence over the Group of 20 nations, even when the US is supposedly taking generally unpopular stances is striking and makes me wonder why there is no open dissent. What is supposed to be unpopular may be less so among G20 governments than commonly assumed.JohnH -> anne... , March 20, 2017 at 07:43 AMIt has long been a mystery to me why European nations adopt policies that hurt their economies just to pander to the whims of US geopolitics. Cases in point: sanctions on Iran and Russia and support for Israel.
Mar 21, 2017 | economistsview.typepad.compgl : Monday, March 20, 2017 at 01:28 AM , March 20, 2017 at 01:28 AMProMarket: "Q: In your opinion, what are the main reasons for the rise in concentration?RC AKA Darryl, Ron -> pgl... , March 20, 2017 at 03:38 AM
There is no single over-riding cause, but rather several factors that have contributed to the reduction in competition. I would divide the list into factors that are "natural," "strategic," and "policy."
Natural factors include such fundamental economic forces as network sectors which do not favor fragmented industries and have taken on greater importance in the economy. Strategic forces are efforts by incumbents to insulate themselves against entry by creating barriers (controlling distribution systems, patents, etc.) and by using the regulatory process to handicap entrants (Tesla, Uber, the professions, etc.). Policy factors include the shift in antitrust enforcement away from challenges to "rising-concentration" mergers, the considerable deference being paid to dominant firms (Google, Amazon), weaknesses of remedy policy, and the inability to prevent the development of many strategic barriers."
In other words - the strategy has been to limit competition because the policy makers have been asleep at the wheel.For a very long time. I consider "There Is Convincing Evidence That Concentration Has Been Rising" to be the understatement of the year and in the running for understatement of the century. I first noticed an excessive rate of M&A while still in high school in the mid-sixties. This is not even a case of better late than never. This is closing the barn door after we get a letter from the horse vacationing half way around the world.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , March 20, 2017 at 03:40 AMCorrection: "...This is JUST TALKING ABOUT closing the barn door after we get a letter from the horse vacationing half way around the world."JohnH -> pgl... , March 20, 2017 at 07:33 AM"policy makers have been asleep at the wheel"DrDick -> pgl... , March 20, 2017 at 08:14 AM
The closest that pgl can ever come to acknowledging that Obama was responsible...You are far too generous. Policy makers have not been asleep, they have deliberately shut their eyes and turned away under Republicans for almost 40 years and, sadly, the Obama administration was not much better.point -> DrDick... , March 20, 2017 at 08:23 AMIf we could lift the sheets, we might find an underlying policy of *promoting* concentration, to be even less generous.yuan -> pgl... , March 20, 2017 at 08:19 AM
In any event, it appears the scholar in the article is ignorant of supplier markets or chooses to not mention them. But buyer power seems to be the best route to excess margins in a low ROI world."In other words - the strategy has been to limit competition because the policy makers have been asleep at the wheel."Peter K. -> pgl... , March 20, 2017 at 08:53 AM
Is "sleeping at the wheel" a euphemism for being captured by concentrated wealth?
"Autor and co-authors have developed and tested a "superstar" model in which markets are increasingly dominated by heterogeneous firms and a winner-take-all competitive process that favors those using lower labor."
Maybe, just maybe, winner-take-all economics (e.g. capitalism) is *the* problem.
==The life of a single human being is worth a million times more than all the property of the richest man on earth.==
"the policy makers have been asleep at the wheel."
And PGL was for Hillary who only made the most minimal noises about market concentration and anti-trust. No doubt she'd continue Obama's policy of being "asleep at the wheel."
No doubt that's what their campaign contributors wanted. And then PGL can write blog posts complaining about it while he attacked Bernie Bros during the primary.
Mar 20, 2017 | economistsview.typepad.comFred C. Dobbs : March 19, 2017 at 06:07 AM , 2017 at 06:07 AM'If you really want to free Americans and unburden
American employers, why not try, or at least seriously consider, some form of government-managed health care,
like almost every other capitalist democracy? There
are many ways of giving people choice and excellent
care under government management. Universal publicly
managed health coverage would even free America's corporations and businesses to streamline their
operations, releasing them from bureaucratic
obligations that ... look weirdly socialist.
Would this mean they would have to pay
more in taxes? Possibly.'
(Not 'Possibly'. Inevitably. So be it.)
The Fake Freedom of American
Health Care https://nyti.ms/2nDNgAm
NYT - ANU PARTANEN - MARCH 18, 2017
Last week the nonpartisan Congressional Budget Office estimated that the new Republican health plan would increase the number of uninsured Americans by 24 million people within a decade, mostly because changes in regulations, subsidies and Medicaid coverage would make insurance too expensive for them.
Republican leaders seem unfazed by this, perhaps because, in their minds, deciding not to have health care because it's too expensive is an exercise of individual free will. As Representative Jason Chaffetz, Republican of Utah, put it: "Americans have choices. And they've got to make a choice. And so maybe, rather than getting that new iPhone that they just love, and they want to go spend hundreds of dollars on that, maybe they should invest in their own health care."
There is an appealing logic to such thinking. The idea is that buying health care is like buying anything else. The United States is home to some of the world's best medical schools, doctors, research institutes and hospitals, and if you have the money for the coverage and procedures you want, you absolutely can get top-notch care. This approach might result in extreme inequalities and it might be expensive, but it definitely buys you the best medical treatment anywhere. Such is the cost of freedom. As House Speaker Paul Ryan put it in a tweet: "Freedom is the ability to buy what you want to fit what you need." Vice President Mike Pence picked up that baton: "Obamacare will be replaced with something that actually works - bringing freedom and individual responsibility back to American health care."
In practice, though, this Republican notion is an awfully peculiar kind of freedom. It requires most Americans to spend not just money, but also time and energy agonizing over the bewildering logistics of coverage and treatment - confusing plans, exorbitant premiums and deductibles, exclusive networks, mysterious tests, outrageous drug prices. And more often than not, individual choices are severely restricted by decisions made by employers, insurers, doctors, pharmaceutical companies and other private players. Those interest groups, not the consumer, decide which plans are available, what those plans cover, which doctors patients can see and how much it will cost.
And I haven't even mentioned the millions of Americans who don't earn enough to pay for insurance or a lifesaving treatment. If you can't afford it, not buying it is hardly a choice.
Eight years ago I moved to the United States from Finland, which like all the Nordic nations is a wealthy capitalist economy, despite the stereotypes you may have heard. And like all those countries, Finland has invested in a universal, taxpayer-funded and publicly managed health care system. Finns constantly debate the shortcomings of their system and are working to improve it, but in Finland I never worried about where my medical care came from or whether I could afford it. I paid my income taxes - which, again despite the stereotypes, were about the same as what I pay in federal, state and local income taxes in New York City - and if I needed to see a doctor, I had several options.
For minor medical matters, I could visit a private physician who was provided as a perk by my employer. Or I could call the public clinic closest to my home. If I saw the private doctor, my employer picked up the tab, with the help of public subsidies. If I went to the public clinic, it might cost me a small co-payment, usually around $20. Had I been pregnant, most care would have been free.
If I had wanted to, I also could have easily paid to see a private doctor on my own, again with the help of public subsidies. All of this works without anyone ever having to sign up for or buy health insurance unless he wants additional coverage. I never had to worry whether I was covered. All Finns are covered for all essential medical care automatically, regardless of employment or income.
Republicans are fond of criticizing this sort of European-style health care. President Trump has called Canada's national health care system "catastrophic." On CNN recently, Senator Ted Cruz gave multiple examples of how patients in countries with universal, government-managed health care get less care than Americans.
In Europe, he said, elderly people facing life-threatening diseases are often placed in palliative care and essentially told it's their time to go. According to the Republican orthodoxy, government always takes away not only people's freedom to choose their doctor, but also their doctor's ability to choose the correct care for patients. People are at the mercy of bureaucrats. Waiting times are long. Quality of care is dismal.
But are Republicans right about this? Practically every wealthy capitalist democracy in the world has decided that some form of government-managed universal health care is the most sensible and effective option. According to the latest report of the O.E.C.D. - an organization of mostly wealthy nations - the United States as a whole does not actually outshine other countries in the quality of care.
In fact, the United States has shorter life expectancy, higher infant mortality and fewer doctors per capita than most other developed countries. When it comes to outcomes in some illnesses, including cancer, the United States does have some of the best survival rates in the world - but that's barely ahead of, or even slightly behind, the equivalent survival rates in other developed countries. In breast cancer survival, for example, the United States comes in second, after Sweden. Third-best is Norway, then Finland. All three countries have universal, government-run health care systems.
For colorectal cancer, the five-year survival rate after diagnosis in the United States brings it to a not very impressive ninth place in the O.E.C.D. statistics. Ahead of the United States are South Korea, Israel, Australia, Sweden and Finland, all with some form of government-managed universal health care. And when it comes to cervical cancer, American women are at a significant disadvantage: The United States comes in only 22nd. Meanwhile, life expectancy at age 65 is higher in 24 other developed nations, including Canada, Britain and most European nations.
Americans might still assume that long waits for care are inevitable in a health care system run by the government. But that's not necessarily the case either. A report in 2014 by the Commonwealth Fund, a private foundation specializing in health care research, ranked the United States third in the world in access to specialists. That's a great achievement. But the Netherlands and Switzerland did better. When it comes to nonemergency and elective surgery, patients in several countries, including the Netherlands, Germany and Switzerland, all of which have universal, government-guided health care systems, have faster access than the United States.
It's not just American patients who endure endless bureaucratic hassles. American doctors were also significantly more likely to report as major problems the amount of time they spent on dealing with administrative burdens related to insurance and claims, as well as on getting patients medications or treatment because of restrictions imposed by insurance companies, compared with doctors in most of the other 10 countries studied - including Sweden and Britain.
Overall, Americans spend far more of their hard-earned money on health care than citizens of any other country, by a very wide margin. This means that it is in fact Americans who are getting a raw deal. Americans pay much more than people in other countries but do not get significantly better results.
The trouble with a free-market approach is that health care is an immensely complicated and expensive industry, in which the individual rarely has much actual market power. It is not like buying a consumer product, where choosing not to buy will not endanger one's life. It's also not like buying some other service tailored to individual demands, because for the most part we can't predict our future health care needs.
The point of universal coverage is to pool risk, for the maximum benefit of the individual when he or she needs care. And the point of having the government manage this complicated service is not to take freedom away from the individual. The point is the opposite: to give people more freedom. Arranging health care is an overwhelming task, and having a specialized entity do the negotiating, regulating and perhaps even much of the providing is just vastly more efficient than forcing everyone to go it alone.
What passes for an American health care system today certainly has not made me feel freer. Having to arrange so many aspects of care myself, while also having to navigate the ever-changing maze of plans, prices and the scarcity of appointments available with good doctors in my network, has thrown me, along with huge numbers of Americans, into a state of constant stress. And I haven't even been seriously sick or injured yet.
As a United States citizen now, I wish Americans could experience the freedom of knowing that the health care system will always be there for us regardless of our employment status. I wish we were free to assume that our doctors get paid a salary to look after our best interests, not to profit by generating billable tests and procedures. I want the freedom to know that the system will automatically take me and my family in, without my having to battle for care in my moment of weakness and need. That is real freedom.
So is the freedom of knowing that none of it will bankrupt us. That is the freedom I had back in Finland.
Here is my appeal to Republicans: If you really want to free Americans and unburden American employers, why not try, or at least seriously consider, some form of government-managed health care, like almost every other capitalist democracy? There are many ways of giving people choice and excellent care under government management. Universal publicly managed health coverage would even free America's corporations and businesses to streamline their operations, releasing them from bureaucratic obligations that to me, coming from Finland, I have to say look weirdly socialist. Would this mean they would have to pay more in taxes? Possibly.
Many countries require employers and employees to contribute to the health care system through payroll taxes, more than the United States does. But again, Americans are paying far more for health care than anyone else, and America's businesses are stuck managing this mess. It's true that in countries with universal health care the cost of hiring a new employee can be significant, especially for a small employer. Yet these countries still have plenty of thriving businesses, with lower administrative burdens. It can be done.
In wealthy capitalist democracies all around the world the government itself also has an essential kind of freedom. It's a freedom that enables the government to do work on behalf of the citizens who elect it, including negotiating the prices of health care with providers and pharmaceutical companies - a policy that has led to lower drug prices in those countries.
Americans today are paying vastly more in money, worry and hassle for the same, and sometimes worse, care than people in other wealthy capitalist democracies. Some Americans have coverage that serves them well, but judging by the current mood, the number of Americans who think the system needs to change is growing. No health care system is perfect. But in a nation that purports to champion freedom, the outdated disaster that is the United States health care system is taking that freedom away.
Mar 20, 2017 | finance.yahoo.com
Yellen's exit may prompt the Fed to pare its balance sheet sooner rather than later, Goldman says
Javier E. David
CNBCMarch 19, 2017
Yellen's exit may prompt the Fed to pare its balance sheet sooner rather than later, Goldman says
Yuri Gripas | Reuters
It's often said that good things come to those who wait - but a bloated $4.5 trillion balance sheet might be a notable exception to that rule.
With the Federal Reserve facing a Herculean conundrum in unwinding its crisis-era monetary policy - and a likely leadership transition on the horizon - Goldman Sachs (GS) suggested on Saturday the central bank could move early to reduce the vast sums of government and mortgage-backed securities (MBS) it holds on its books.
In a research note to clients, the bank pointed to the likelihood that President Donald Trump may "reshape the leadership" of the Federal Open Market Committee (FOMC), the Fed's powerful policy-making body, as the terms of Fed Chair Janet Yellen and Vice Chair Stanley Fischer expire in early 2018.
"This could be important for balance sheet policy because many Republican-leaning economists have criticized quantitative easing (QE) and have expressed a preference for rapid balance sheet rundown, perhaps even through asset sales," wrote Daan Struyven, a Goldman economist.
If the new appointments-especially the new chair-are thought to favor aggressive balance sheet normalization, perhaps even including asset sales, and if all decisions are left up to the incoming team, financial markets might experience heightened uncertainty during the transition."
Goldman suggested there was a "strong 'risk management' case for an announcement of very gradual balance sheet runoff later this year," because of the political risk associated with new leadership at the Fed.
"Our forecast is that the discussion around reinvestment continues for most of this year and the plan is formally announced in December 2017," Struyven said. "At that meeting, we expect the committee to hold the funds rate steady after hiking in both June and September. We expect the quarterly hikes to resume in March 2018."
The economist harked back to 2013's "taper tantrum," in which markets reacted the Fed's suggestions of tighter monetary policy by sending bond yields surging and stocks reeling - albeit temporarily.
A potential fire sale of Treasurys and mortgage-backed securities by the Fed "could have significantly more adverse effects on financial conditions than gradual runoff, and the mere risk of such an outcome might set up another 'taper tantrum,' " Struyven added.
'The uncertainty is substantial'
As the central bank begins a campaign to tighten benchmark interest rates - making a quarter-point hike just last week - it's renewed a debate over how to unwind the Fed's massive bond buying program.
Some market observers have long argued that the Fed has distorted financial conditions with QE, and the central bank faces a huge task trying to pare down its bloated balance sheet.
"The bigger the Fed's credit footprint, the more it interferes with the efficient employment and pricing of credit," wrote George Selgin, a senior fellow and director of the Center for Monetary and Financial Alternatives at the libertarian-leaning Cato Institute, in a blog post last month.
"By directing a large share of savings to purchases of longer-term MBS and Treasury securities, for example, the Fed has artificially raised both the prices of those securities, and the importance of the housing market and the federal government relative to the rest of the U.S. economy," Selgin wrote. "It has also dramatically increased its portfolio's duration gap and, by so doing, the risk that it will suffer losses should it sell assets before they mature."
On Friday, Minneapolis Federal Reserve Bank President Neel Kashkari, the lone dissenter against the U.S. central bank's decision last week to raise interest rates, the U.S. economy is still falling short on employment and inflation.
Kashkari, an alumnus of both Goldman Sachs and the U.S. Treasury who oversaw the government's Temporary Asset Relief Program (TARP) during the financial crisis, believes the Fed should wait on raising interest rates until it publishes a detailed plan for how and when it will reduce its $4.5 trillion balance sheet.
Goldman set forth two scenarios under which the Fed could begin trimming its balance sheet. Under an "early start, passive runoff" scenario, the bank said the Fed "gradually tapers reinvestment in December 2017 over 10 months but does not sell assets."
Conversely, under a "late start, active sales" scenario, Goldman said the Fed could cease reinvesting in bonds in July 2018 "without tapering and actively sells $40bn of assets per month."
Under the latter, the Fed could shrink its balance sheet by about $250 billion per quarter starting in the second half of next year, "with similar contributions from maturing assets and active sales," the bank added.
However, neither scenario is without its risks, Goldman's economist wrote: "While our baseline estimate suggests relatively little tightening from balance sheet rundown, the uncertainty is substantial. The 2013 'taper tantrum' also provides a reminder that the impact of balance sheet policy on financial conditions is uncertain and could be larger than our baseline estimate." Reply Monday, March 20, 2017 at 06:53 AM JF said in reply to Anachronism ... Every time the Fed deals wuth the financial asset trading marketplaces the private parties wish to make a profit, no wonder Goldman is shilling to get the more valuable Fed holdings 'sold' to these parties.
No article on reserves or Fed asset holdings is legitimate unless it also discusses the use of administrative offset with Treasury (whether the bonds are mature and as a result, redeemable at that time, or not, they could all be offset with Treasury now).
The Fed has a lot it can do with the assets they bought with newly created money, but subsidizing the money center banks once again ought to be low on the list (moral hazard rewarded again?). The asset-handling plans should be pursued only after Treasury coordination talks are settled and according to well discussed, publicly known plans.
It is not clear to me who the public should trust here, so open public programming should be expected and press involvement sought after by the Fed. Look at the magnitudes here, no one should be looking the other way on this. Reply Monday, March 20, 2017 at 07:39 AM RGC said in reply to JF... 1. The Fed does QE, buying bonds and MBS and thus raising asset prices.
2. Bond traders sell.
3. The Fed raises interest rates, thus lowering bond prices.
4. The Fed reduces QE, selling bonds and MBS and thus lowering prices.
5. Bond traders buy.
6. The Fed reverses course and lowers interest rates, thus raising bond prices.
7. Bond traders sell.
The Fed trades with public money, the bond traders trade with private money.
Reply Monday, March 20, 2017 at 07:55 AM JF said in reply to RGC... RGC what is your point except to note that private interests sweep monies out of private positions in order to create the cash to buy the bond being offered by the Fed should they sell some. It is a way to sweep excess monies out of the economic system, though that is not a completed end-game nless the Fed destroys the money or it is remitted to Treasury where it covers other claims for payment (reducing the need to borrow anew) turnstiling the monies back into the economy.
It is simpler with regard to Treasury to have both sides agree to osset their position.
But offsets means that Treasury offers none or fewer bonds for sale to outsude interests, including China and other govts or within the banks or elsewhere.
Is the Fed ready to do all of these approaches, and is it coordinated with the oublic's govt via Treasury agreement?
The Fed has instruments with 8 percent coupons, I just don't like the idea of them selling these to the banking segment, at a price that allows them to profit, with little risk, especially when you consider that they were the ones who caused the financial crisis in the first place.
It will be interesting to see what the Feds do, what they do with the cash they get, and what Treasury and the Trump Administration does as more cash remittances come in (and why was this not done to help the Obama Admin look good fiscally before?). Reply Monday, March 20, 2017 at 09:30 AM RGC said in reply to JF... I was trying to demonstrate the synergy between Wall Street and the Fed.
You can look at the Fed as an economy-regulating institution, but you can also look at it as a pipeline from public wealth to private wealth. Reply Monday, March 20, 2017 at 10:06 AM
Mar 20, 2017 | economistsview.typepad.comPeter K. : March 20, 2017 at 09:23 AMhttps://www.nytimes.com/2017/03/19/world/europe/french-election-marine-le-pen-national-front.htmllibezkova -> Peter K.... March 20, 2017 at 11:05 AM
As French Election Nears, Le Pen Targets Voters Her Party Once Repelled
By ADAM NOSSITER
MARCH 19, 2017
SANARY-SUR-MER, France - The National Front's leafleteers are no longer spat upon. Its local candidate's headquarters sit defiantly in a fraying Muslim neighborhood. And last week, Marine Le Pen, the party's leader, packed thousands into a steamy meeting hall nearby for a pugnacious speech mocking "the system" and vowing victory in this spring's French presidential election.
"There's been a real evolution," Philippe Renault-Guillemet, the retired head of a small manufacturing company, said as he handed out National Front leaflets in the market on a recent day. "A few years ago, they would insult us. It's changed."
It has long been accepted wisdom that Ms. Le Pen and her far-right party can make it through the first round of the presidential voting on April 23, when she and four other candidates will be on the ballot, but that she will never capture the majority needed to win in a runoff in May.
But a visit to this southeastern National Front stronghold suggests that Ms. Le Pen may be succeeding in broadening her appeal to the point where a victory is more plausible, even if the odds are still stacked against her.
With a month to go, the signs are mixed. Many voters, particularly affluent ones, at markets here and farther up the coast betray a traditional distaste for the far-right party. Yet others once repelled by a party with a heritage rooted in France's darkest political traditions - anti-Semitism, xenophobia and a penchant for the fist - are considering it.
"I've said several times I would do it, but I've never had the courage," Christian Pignol, a vendor of plants and vegetables at the Bandol market, said about voting for the National Front. "This time may be the good one."
"It's the fear of the unknown," he continued, as several fellow vendors nodded. "People would like to try it, but they are afraid. But maybe it's the solution. We've tried everything for 30, 40 years. We'd like to try it, but we're also afraid."
French politics are particularly volatile this election season. Traditional power centers - the governing Socialists and the center-right Republicans - are in turmoil. Ms. Le Pen's chief rival, Emmanuel Macron, is a youthful and untested politician running at the head of a new party.
Those uncertainties - and a nagging sense that mainstream parties have failed to offer solutions to France's economic anemia - have left the National Front better positioned than at any time in its 45-year history.
But if it is to win nationally, the party must do much better than even the 49 percent support it won in this conservative Var department, home to three National Front mayors, in elections in 2015. More critically, it must turn once-hostile areas of the country in Ms. Le Pen's favor and attract new kinds of voters - professionals and the upper and middle classes. Political analysts are skeptical.
Frédéric Boccaletti, the party's leader in the Var, knows exactly what needs to be done. Last week, he and his fellow National Front activists gathered for an evening planning session in La Seyne-Sur-Mer, a working-class port town devastated by the closing of centuries-old naval shipyards nearly 20 years ago. Mr. Boccaletti, who is running for Parliament, keeps his headquarters here.
"I'm telling you, you've got to go to the difficult neighborhoods - it's not what you think," Mr. Boccaletti told them, laughing slyly. "Our work has got to be in the areas that have resisted us most" - meaning the coast's more affluent areas.
It is not unlike the strategy that President Trump applied in the United States by campaigning in blue-collar, Democratic strongholds in rust-belt Ohio. No one thought he stood a chance there. Yet he won.
"Now, we've got doctors, lawyers, the liberal professions with us," Mr. Boccaletti said. "Since the election of Marine" to the party's presidency in 2011, "it's all changed."
The backlash against neoliberal globalization creates very strange alliances indeed. That was already visible during the last Presidential elections. When a considerable part of lower middle class professionals (including women) voted against Hillary.
As Fred noted today (Why did so many white women vote for Donald Trump http://for.tn/2f51y7s ) there were many Trump supporters among white women with the college degree, for which Democrats identity politics prescribed voting for Hillary.
I think this tendency might only became stronger in the next elections: neoliberal globalization is now viewed as something detrimental to the country future and current economic prosperity by many, usually not allied, segments of population.
Mar 20, 2017 | economistsview.typepad.comAnachronism -> RC AKA Darryl, Ron... March 20, 2017 at 09:59 AM , 2017 at 09:59 AMI posted this a few days ago. Another promise Trump reneged on.
Does Immigration Help The Economy? Trump Administration To Reopen H-1B Visa Program
By Lydia O'Neal @LydsONeal On 03/15/17 AT 4:30 PM
U.S. Citizenship and Immigration Services (USCIS) announced Wednesday that it would not draw down the number of H-1B visas doled out to foreign workers for fiscal year 2018, leaving the total cap at 85,000, and would begin accepting applications April 3.
The decision came less than two weeks after USCIS alarmed proponents of freer immigration for skilled workers when it suspended the premium processing route for H-1B visas, which allows companies to import workers quickly with just 15 waiting days and a $1,225 fee, for a period of at least six months.
The agency attributed the decision to its need to "process long-pending petitions, which we have currently been unable to process due to the high volume of incoming petitions and the significant surge in premium processing requests over the past few years," according to a USCIS press release. USCIS also kept its expedited processing route, which is reserved for emergency situations, in place.
H-1B visas are reserved for foreign nationals with a clear relationship with the American company seeking to hire them, as well as a bachelor's degree or higher in a "specialty occupation," defined by USCIS as "in fields such as engineering, math and business, as well as many technology fields."
H-1B Visa Petitions Approved in 2014 by Level of Education
Showing petitions approved in the 2014 fiscal year by level of education. Approved petitions exceed the number of individual H-1B workers sponsored because multiple types of petitions can be filed for a single worker. The U.S. caps the number of H-1B workers that can be given a visa at 65,000 per fiscal year.
The tech industry often cites the program, which primarily benefits Indian workers and companies, as a necessary tool to compensate for labor shortages, but the existence of that shortage has long been disputed.
A recent study found that, had the program not been in place between 1994 and 2001, tech workers' salaries would've been up to 5 percent higher, while their employment would've grown by up to 11 percent. The paper, by researchers at the University of Michigan and the University of California, San Diego, also pointed out that productivity in the sector rose by as much as 2.5 percent, while consumer prices fell, ultimately benefitting information technology firms.
Mar 19, 2017 | economistsview.typepad.comim1dc : March 19, 2017 at 12:41 PM , 2017 at 12:41 PMGood video discussion on Crude Oil production over the next 6 months from CNNlibezkova -> im1dc... , -1
"Is OPEC headed for a showdown with U.S. shale?"
by Ivana Kottasova...March 14, 2017...11:52 AM ET
"Is this the start of OPEC vs. American shale, round two?...""Is this the start of OPEC vs. American shale, round two?..."
It is not.
Mar 19, 2017 | economistsview.typepad.comim1dc : March 18, 2017 at 01:34 PM , 2017 at 01:34 PMThe who behind Trump's Obama wire tapping claim is now known
The why appears to be that he's an anti- Hillary Clintonista
"How the U.K. spying claim traveled from an ex-CIA blogger to Trump's White House"
'Former intelligence analyst Larry Johnson, who has long attacked the U.S. intel community, is standing by his allegation that triggered a feud with America's closest ally'
By Matthew Nussbaum...03/18/17...02:38 PM EDT
"...Larry Johnson, a former CIA analyst and blogger, acknowledges he was one of the sources for Fox News commentator Andrew Napolitano's claim - later repeated by the White House..."
Mar 19, 2017 | economistsview.typepad.comanne -> geoff ... March 18, 2017 at 12:31 PM , 2017 at 12:31 PMhttps://twitter.com/ggreenwald/status/843162708975538177im1dc -> anne... , March 18, 2017 at 02:42 PM
Glenn Greenwald @ggreenwald
In Yemen, where US/UK/Saudi have waged savage war: 7 million one step away from famine, 17 million with food insecurity
Yemen at 'point of no return' as conflict leaves almost 7 million close to famine
Governments have been warned they face enduring shame should famine take hold in Yemen, where two-thirds of the population face severe food shortages
11:10 AM - 18 Mar 2017Yes, the blog understands that YOU and Glenn Greenwald believe the British, Americans, and Saudi's are brutal terrorizing thugs that shoot people for absolutely no reason whatsoever even if those people are shooting at, killing, and terrorizing us or our Allies living peacefully outside Yemen.ilsm -> im1dc... , March 18, 2017 at 05:04 PM
The Yemeni's have every right according to you and Glen Greenwald to shoot, kill, and terrorize their neighbors and the British, Americans and Saudi's have absolutely no right to protect themselves or their Allies.
A human tragedy indeed.AK 47's get them bombed by F-15's and F-16's like they were Gaza!im1dc -> ilsm... , March 18, 2017 at 05:45 PM
How many millions have to suffer.......... because the protector of Mecca decides so?It is not AK47s vs F16s as you portray the battle, it is al Qaeda and Daesh Terrorists plus friendly Warlords vs the Modern Western World and you know it.anne -> anne... , March 18, 2017 at 05:33 PMhttps://twitter.com/ggreenwald/status/843162708975538177anne -> anne... , March 18, 2017 at 05:36 PM
Glenn Greenwald @ggreenwald
In Yemen, where US/UK/Saudi have waged savage war: 7 million one step away from famine, 17 million with food insecurity
Yemen at 'point of no return' as conflict leaves almost 7 million close to famine
Governments have been warned they face enduring shame should famine take hold in Yemen, where two-thirds of the population face severe food shortages
11:10 AM - 18 Mar 2017https://www.theguardian.com/global-development/2017/mar/16/yemen-conflict-7-million-close-to-famineanne -> anne... , March 18, 2017 at 05:52 PM
March 16, 2017
Yemen at 'point of no return' as conflict leaves almost 7 million close to famine
Governments have been warned they face enduring shame should famine take hold in Yemen, where two-thirds of the population face severe food shortages
By Les Roopanarine, Patrick Wintour, Saeed Kamali Dehghan, and Ahmad Algohbary - Guardian
Aid agencies have warned that Yemen is "at the point of no return" after new figures released by the UN indicated 17 million people are facing severe food insecurity and will fall prey to famine without urgent humanitarian assistance.
A total of 6.8 million people are deemed to be in a state of emergency – one step from famine on the five-point integrated food security phase classification (IPC), the standard international measure – with a further 10.2 million in crisis. The numbers reflect a 21% increase in hunger levels in the Arab world's poorest state since June 2016.
Taiz and Hodeidah governorates, home to almost 25% of Yemen's 28 million-strong population and the scene of intense conflict since the outbreak of civil war in 2015, are at particularly heightened risk of famine.
"The numbers affected are absolutely extraordinary," said Mark Kaye, Save the Children's Yemen spokesperson.
"We keep on talking about a country that's on the brink of famine, but for me these numbers highlight that we're at the point of no return. If things are not done now we are going to be looking back on this and millions of children will have starved to death, and we'll all have been aware of this for some time. That will shame us as an international community for years to come.
"The problem is that you see the numbers but you don't see the people behind it," he said. "I'm always concerned when we're waiting for a tick-box to happen before we say, 'This is famine.'
Emphasising the role of conflict in the escalation of the crisis, Kaye said funding for Yemen – subject of a Disasters Emergency Committee appeal that has raised more than £20m as well as a call for $2.1bn (£1.6bn) by the UN – was only part of the solution.
"This crisis is happening because food and supplies can't get into the country. Yemen was completely dependent on imports of food, medicine and fuel prior to this crisis. You have one party delaying and significantly preventing food from getting into the country, and another on the ground who are detaining aid workers or preventing aid and food from getting to areas they don't want it to go to.
"As much as funding – and obviously we do need money to do all the work that needs to be done in Yemen – the political track is the one that really needs working on. There needs to be a significant game change from the UK government, the US government, who have influence over the Saudi-led coalition and can say, 'You need to open up the ports, you need to ensure that enough food and aid is getting in.'
"Also, those on the ground – the Houthis, for example – need to ensure that aid can get to hard-to-reach areas, because you can throw money at this all day but ultimately it's about people being able to access what we are trying to provide."
Saudi sources said Houthi rebel fighters were using the Yemeni port of Hodeidah to import munitions and other goods for its war effort, and for raising cash through extortion from traders. They also claimed Houthis have destroyed key infrastructure at the port, worsening the food shortages.
"They are using the port as a military base to import guns, and rockets," one Saudi source said.
Aid groups and senior UN figures have repeatedly urged the Gulf States to acknowledge that any attack on the port would have devastating consequences for Yemen's food crisis. Before the conflict began, 80% of imports to Yemen came through the port, and 90% of food was imported....http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/weorept.aspx?sy=2007&ey=2016&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=60&pr1.y=13&c=456%2C474&s=PPPPC&grp=0&a=anne -> anne... , March 18, 2017 at 05:57 PM
October 15, 2016
Gross Domestic Product per capita based on purchasing-power-parity (PPP) * for Saudi Arabia and Yemen, 2007-2016
* Data are expressed in US dollars adjusted for purchasing power parities (PPPs), which provide a means of comparing spending between countries on a common base. PPPs are the rates of currency conversion that equalise the cost of a given "basket" of goods and services in different countries.http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/weorept.aspx?sy=2007&ey=2016&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=60&pr1.y=13&c=456%2C474&s=PPPPC&grp=0&a=anne -> anne... , March 18, 2017 at 06:14 PM
October 15, 2016
Gross Domestic Product per capita based on purchasing-power-parity (PPP) * for Saudi Arabia and Yemen, 2007-2016
Yemen / Saudi Arabia
2,521 / 54,078
* Data are expressed in US dollars adjusted for purchasing power parities (PPPs), which provide a means of comparing spending between countries on a common base. PPPs are the rates of currency conversion that equalise the cost of a given "basket" of goods and services in different countries.http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/weorept.aspx?sy=2007&ey=2016&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=60&pr1.y=13&c=456%2C474&s=PPPPC&grp=0&a=anne -> anne... , March 18, 2017 at 05:54 PM
October 15, 2016
Gross Domestic Product per capita based on purchasing-power-parity (PPP) for Saudi Arabia and Yemen, 2007-2016
Yemen / Saudi Arabia
2,521 / 54,078
[ Imagine Saudi Arabia, the United States and United Kingdom tearing through the fabric of life of a desperately poor country with which we are not even at war. ]https://fred.stlouisfed.org/graph/?g=d3Olilsm -> geoff ... , March 18, 2017 at 05:01 PM
August 4, 2014
Real per capita Gross Domestic Product for Saudi Arabia and Yemen, 2007-2015
August 4, 2014
Real per capita Gross Domestic Product for Saudi Arabia and Yemen, 2007-2015
(Indexed to 2007)Saudi Arabia is the target of many 10's of billions in future arms sales. US needs to keep them burning jet fuel and jettisoning bombs so they buy planes, and other big ticket stuff from US.
Trump must be listening to the pentagon guys saying we could have won in Vietnam if we had more time and bombs...........
Maybe the Saudis can 'kill enough of them'!
US never held back cluster bombs!
Mar 19, 2017 | economistsview.typepad.comRGC : March 17, 2017 at 06:57 AM , 2017 at 06:57 AMKrugman is a hypocrite.RGC -> RGC... , March 17, 2017 at 07:05 AM
He spent the primary railing against Bernie Sanders, who polled much better against Trump than Hillary and who had much better policy proposals than Hillary. Now he complains about what he himself promoted.
So now the Republicans and Democrats can go back to playing Good Cop/Bad Cop - just like the last 30 or so years. And Krugman can go back to pretending to fight the right wing while at the same time guarding against any success of the left wing.And now the talk is about Obamacare versus Ryancare, instead of Obamacare versus Medicare for all - just the way PK and his plutocrat sponsors wanted.Rune Lagman -> kurt... , March 17, 2017 at 03:29 PMNeoliberal Democrats seem impervious about killing jobs (or driving down wages) with "free" trade agreements. But now you want us to bleed for the health-insurance industry.Pinkybum -> Rune Lagman... , March 17, 2017 at 02:43 PM
Why should the average American family pay $10,000/year (your 5% of GDP) to support a completely useless industry (health-care insurance)? And you wonder why Hillary lost the election.
If you're concerned about jobs, there are plenty more useful things to do, like renewable energy, energy-conservation, refurbishing the electrical grid to support renewable energy, not to mention traditional infrastructure; then there's water conservation, scientific research etc.
You can advocate all you want. There is going to be another four years of Republican majorities in the house and they are not going to go for Medicare For All. There are plenty of issues where the majority of people want things:Rune Lagman -> Pinkybum... , March 17, 2017 at 04:22 PM
1. Taxing the rich
2. Not increasing the military budget
3. Keeping abortion legal
4. Medicare for all
Politically not so much.Failing to advocate for MFA just blatantly demonstrates, to the Average American, that the Democratic Party is beholden to Wall Street (and keep people away from the voting-booth.kurt -> Rune Lagman... , March 17, 2017 at 03:10 PM
Until Pk (and the Democratic party-establishment) understands this simple truth, they will keep flounder in the desert. And the more "Bernie-bashing" they do (especially quoting MFA), the more they will alienate the average American.He NEVER advocated against single payer. You sir are a liar.Rune Lagman -> kurt... , March 17, 2017 at 03:46 PMYou're mincing words. Paul Krugman says he is for Medicare-For-All, but then he comes up with all these nonsensical excuses against Medicare-For-All.Rune Lagman -> sanjait... , March 17, 2017 at 10:42 AM
Just like Donald trump's health-plan will provide better and cheaper health-insurance for everybody. Just because he says so, doesn't make it so.
".. calls for single-payer in America at this point are basically a distraction."
"This is a guy who has a prestigious academic record and a huge international reader base. He could do or go pretty much anywhere he wants."pgl -> Rune Lagman... , March 17, 2017 at 11:17 AM
You're absolutely correct, Paul, and many other "prominent" people (some I know personally) that I used to respect, went "all in" on Hillary Clinton (and what she represents, i.e. neoliberal wisdom).
All of them are very well off, and seem to be isolated from us "workin' stiffs". They seem to all get their information from the corporate media.
Only Paul can explain his decision to crusade against (in spite of earlier writings) Medicare-For-All and anything else proposed by Bernie.
"Only Paul can explain his decision to crusade against (in spite of earlier writings) Medicare-For-All and anything else proposed by Bernie."Rune Lagman -> pgl... , March 17, 2017 at 11:26 AM
This is another baseless smear. Simply because he voted for one candidate or another does not justify such garbage.No one cares who Paul actually voted for. We're debating Paul's recent (last year or two) writings. I.e. Paul's (very) public opinions.yuan -> pgl... , March 17, 2017 at 11:55 AM
Krugman mocked Sanders for promoting the idea of medicare-for-all in the primary debates. This was unadulterated partisan hippy bashing that contradicted his earlier columns.RGC -> sanjait... , March 17, 2017 at 10:59 AMI would if you promise to pay attention instead of blocking it out.pgl -> RGC... , March 17, 2017 at 11:18 AM
You should already understand it if you paid attention.He is paying attention. He is not blocking it out. Show us one article from Krugman where he said single payer was bad policy. Just one. It does not exist.Rune Lagman -> pgl... , March 17, 2017 at 11:29 AMhttp://economistsview.typepad.com/economistsview/2016/01/paul-krugman-bernie-sanders-and-medicare-for-all.htmlanne -> Rune Lagman... , March 17, 2017 at 01:53 PM
(link courtesy of EMichael above)
"Krugman ..., arguing that it is implausible that we could get the sort of political force necessary to implement a universal Medicare system."
http://econospeak.blogspot.com/2016/01/paul-krugman-bernie-sanders-and.htmlRune Lagman -> pgl... , March 17, 2017 at 11:38 AM
January 18, 2016
Paul Krugman, Bernie Sanders, and Medicare for All
By DEAN BAKER
Paul Krugman weighs in * this morning on the debate between Bernie Sanders and Hillary Clinton as to whether we should be trying to get universal Medicare or whether the best route forward is to try to extend and improve the Affordable Care Act. Krugman comes down clearly on the side of Hillary Clinton, arguing that it is implausible that we could get the sort of political force necessary to implement a universal Medicare system.
Getting universal Medicare would require overcoming opposition not only from insurers and drug companies, but doctors and hospital administrators, both of whom are paid at levels two to three times higher than their counterparts in other wealthy countries. There would also be opposition from a massive web of health-related industries, including everything from manufacturers of medical equipment and diagnostic tools to pharmacy benefit managers who survive by intermediating between insurers and drug companies.
Krugman is largely right, but I would make two major qualifications to his argument. The first is that it is necessary to keep reminding the public that we are getting ripped off by the health care industry in order to make any progress at all. The lobbyists for the industry are always there. Money is at stake if they can get higher prices for their drugs, larger compensation packages for doctors or hospitals, or weaker regulation on insurers.
The public doesn't have lobbyists to work the other side. The best we can hope is that groups that have a general interest in lower health care costs, like AARP, labor unions, and various consumer groups can put some pressure on politicians to counter the industry groups. In this context, Bernie Sanders' push for universal Medicare can play an important role in energizing the public and keeping the pressure on.
Those who think this sounds like stardust and fairy tales should read the column by Krugman's fellow New York Times columnist, health economist Austin Frakt. Frakt reports ** on a new study that finds evidence that public debate on drug prices and measures to constrain the industry had the effect of slowing the growth of drug prices. In short getting out the pitchforks has a real impact on the industry's behavior.
The implication is that we need people like Senator Sanders to constantly push the envelope. Even if this may not get us to universal Medicare in one big leap, it will create a political environment in which we can move forward rather than backward.
The other point has to do with an issue that Krugman raises in his blogpost *** on the topic. He argues that part of the story of lower health care costs in Canada and other countries involves saying "no," by which he means refusing to pay for various drugs and treatments that are considered too expensive for the benefit they provide.
While there is some truth to this story, it is important to step back for a moment. In the vast majority of cases, the drugs in question are not actually expensive to manufacture. The way the drug industry justifies high prices is that they must recover their research costs. While the industry does in fact spend a considerable amount of money on research (although they likely exaggerate this figure), at the point the drug is being administered this is a sunk cost. In other words, the resources devoted to this research have already been used; the economy doesn't somehow get back the researchers' time and the capital expended if fewer people take a drug that is developed from their work.
Ordinarily economists treat it as an absolute article of faith that we want all goods and services to sell at their marginal cost without interference from the government, like a trade tariff or quota. However in the case of prescription drugs, economists seem content to ignore the patent monopolies granted to the industry, which allow it to charge prices that are often ten or even a hundred times the free market price. (The hepatitis C drug Sovaldi has a list price in the United States of $84,000. High quality generic versions are available in India for a few hundred dollars per treatment.) In this case, we are effectively looking at a tariff that is not the 10-20 percent that we might see in trade policy, but rather 1,000 percent or even 10,000 percent.
This sort of gap between price and marginal cost leads to exactly the sort of distortions that economists predict when the government intervenes in a market with trade tariffs, except the distortions are hugely larger with drugs. Companies have incentive to engage in massive marketing efforts, they push their drugs for conditions for which they may not be appropriate, and they conceal evidence suggesting their drugs may be less effective than advertised, or possibly even harmful. They also lobby politicians for ever longer and stronger patent protection, and they use the legal system to harass potential competitors, both generic and brand. Even research is distorted by this incentive structure, with large portions of the industry's budget being devoted to developing copycat drugs to gain a share of a competitor's patent rents.
Perhaps the worst part of this story is that the patent monopolies put us in a situation where we might have to say no. The industry's monopoly allows it to say that it will not turn over a life-saving drug for less than $100,000, $200,000, or whatever price tag it chooses. However, if there was no patent monopoly, we would be looking at buying this drug at its cost of production. That will rarely be more than $1,000 and generally much less. At those prices, it will rarely make sense to say no. (The same issue arises with most medical equipment – once we have the technology, producing a magnetic resonance imaging scanner is relatively cheap, as would be the cost of an individual screening.)
We do have to pay for the research, but the way we are now doing it is incredibly backward. It is like paying the firefighters when they show up at the burning house with our family inside. Of course we would pay them millions to save our family (if we had the money), but it is nutty to design a system that puts us in this situation.
We should be looking for a system that pays for the research upfront. There are various mechanisms to accomplish this goal. (Here's **** my plan for a system of publicly funded clinical trials.) Obviously overhauling our system for financing drug research is not something that is done overnight, but it is an issue that needs attention. The current system is incredibly wasteful and it needlessly puts in a situation where we have to say no in contexts where the costs to society of administering treatment are actually very low.
This doesn't mean that we would pay for everything for everybody. There are some procedures that actually are very expensive, for example surgeries requiring many hours of the time of highly skilled surgeons. But we should be trying to design a system that minimizes these sorts of situations, rather than making them an everyday occurrence.
**** https://cepr.net/documents/publications/clinicaltrials_2008_03.pdfhttps://krugman.blogs.nytimes.com/2016/01/18/health-reform-is-hard/yuan -> Rune Lagman... , March 17, 2017 at 11:58 AM
".. calls for single-payer in America at this point are basically a distraction."
".. calls for single-payer in America at this point are basically a distraction."Rune Lagman -> yuan... , March 17, 2017 at 12:26 PM
stop quoting this "baseless smear". ;)LOLanne -> Rune Lagman... , March 17, 2017 at 01:06 PM
http://krugman.blogs.nytimes.com/2016/01/18/health-reform-is-hard/RGC -> sanjait... , March 17, 2017 at 12:09 PM
January 18, 2016
Health Reform Is Hard
By Paul Krugman
My column * and Bernie Sanders' plan crossed in the mail. But the Sanders plan in a way reinforces my point that calls for single-payer in America at this point are basically a distraction. Again, I say this as someone who favors single-payer - but it's just not going to happen anytime soon.
Put it this way: for all the talk about being honest and upfront, even Sanders ended up delivering mostly smoke and mirrors - or as Ezra Klein says, puppies and rainbows. ** Despite imposing large middle-class taxes, his "gesture toward a future plan", as Ezra puts it, relies on the assumption of huge cost savings. If you like, it involves a huge magic asterisk.
Now, it's true that single-payer systems in other advanced countries are much cheaper than our health care system. And some of that could be replicated via lower administrative costs and the generally lower prices Medicare pays. But to get costs down to, say, Canadian levels, we'd need to do what they do: say no to patients, telling them that they can't always have the treatment they want.
Saying no has two cost-saving effects: it saves money directly, and it also greatly enhances the government's bargaining power, because it can say, for example, to drug producers that if they charge too much they won't be in the formulary.
But it's not something most Americans want to hear about; foreign single-payer systems are actually more like Medicaid than they are like Medicare.
And Sanders isn't coming clean on that - he's promising Medicaid-like costs while also promising no rationing. The reason, of course, is that being realistic either about the costs or about what the system would really be like would make it a political loser. But that's the point: single-payer just isn't a political possibility starting from here. It's just a distraction from the real issues.
** http://www.vox.com/2016/1/17/10784528/bernie-sanders-single-payer-health-careYou're too antagonistic. If you want to be duped by plutocrats and their toadies I won't bother to set you straight.Peter K. -> RGC... , March 17, 2017 at 01:18 PMSanjait is a brainwashed technocrat.
A sycophant and suck-up.
Mar 19, 2017 | economistsview.typepad.comFred C. Dobbs : March 18, 2017 at 03:02 AM , 2017 at 03:02 AMWhat if Sociologists Had as Much Influence asilsm -> Fred C. Dobbs... , March 18, 2017 at 03:43 AM
Economists? https://nyti.ms/2m9yDHL via @UpshotNYT
NYT - NEIL IRWIN - MARCH 17, 2017
Walk half a city block in downtown Washington, and there is a good chance that you will pass an economist; people with advanced training in the field shape policy on subjects as varied as how health care is provided, broadcast licenses auctioned, or air pollution regulated.
Turn on cable news, and the guests who opine on the weighty public policy questions of the day quite often have some title like "chief economist" underneath their name. And there are economists sprinkled throughout the government - there is an entire council of them advising the president in most administrations, if not yet in this one.
But as much as we love economics here - this column is named Economic View, after all - there just may be a downside to this one academic discipline having such primacy in shaping public policy.
They say when all you have is a hammer, every problem looks like a nail. And the risk is that when every policy adviser is an economist, every problem looks like inadequate per-capita gross domestic product.
Another academic discipline may not have the ear of presidents but may actually do a better job of explaining what has gone wrong in large swaths of the United States and other advanced nations in recent years.
Sociologists spend their careers trying to understand how societies work. And some of the most pressing problems in big chunks of the United States may show up in economic data as low employment levels and stagnant wages but are also evident in elevated rates of depression, drug addiction and premature death. In other words, economics is only a piece of a broader, societal problem. So maybe the people who study just that could be worth listening to.
"Once economists have the ears of people in Washington, they convince them that the only questions worth asking are the questions that economists are equipped to answer," said Michèle Lamont, a Harvard sociologist and president of the American Sociological Association. "That's not to take anything away from what they do. It's just that many of the answers they give are very partial."
As a small corrective, I took a dive into some sociological research with particular relevance to the biggest problems facing communities in advanced countries today to understand what kinds of lessons the field can offer. In 1967, Senator Walter Mondale actually proposed a White House Council of Social Advisers that he envisioned as a counterpart to the well-entrenched Council of Economic Advisers. It was never created, but if it had been, this is the sort of advice it might have been giving recent presidents.
For starters, while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity.
"Wages are very important because of course they help people live and provide for their families," said Herbert Gans, an emeritus professor of sociology at Columbia. "But what social values can do is say that unemployment isn't just losing wages, it's losing dignity and self-respect and a feeling of usefulness and all the things that make human beings happy and able to function.
That seems to be doubly true in the United States. For example, Ofer Sharone, a sociologist at the University of Massachusetts, Amherst, studied unemployed white-collar workers and found that in the United States, his subjects viewed their ability to land a job as a personal reflection of their self-worth rather than a matter of arbitrary luck. They therefore took rejection hard, blaming themselves and in many cases giving up looking for work. In contrast, in Israel similar unemployed workers viewed getting a job as more like winning a lottery, and were less discouraged by rejection.
(When the job search becomes a blame game
http://phy.so/310028844 via @physorg_com)
It seems plausible that this helps explain why so many Americans who lost jobs in the 2008 recession have never returned to the labor force despite an improved job market. Mr. Sharone is working with career counselors to explore how to put this finding to work to help the long-term unemployed. ...
I thought they did, and they stay on one side of the shark.JohnH -> Fred C. Dobbs... , March 18, 2017 at 07:54 AMBy and large, 'librul' economists ignore distribution...preferring to concentrate on growth from policies like corporate-negotiated 'free' trade and trickle down monetary policy that favors the Wall Street banking cartel.ilsm : , March 18, 2017 at 03:41 AM
BTW what happened to Krugman's perfunctory twice a year column on inequality?Tobacco survived buying politicians and better lawyers. And Madison Ave.
Inference (what Harford call "fact") may be truth in the confidence band.
The nicotine addict cares about as much about 'risk under uncertainty' as Harford.
Climate change action (the idea that US should park the SUV and move in to the city) is denied in the same way.
"Facts" about the study populations are inferences to one making a 'decision'. If the decision maker is an addict....
Same for Obamacare idolatry.
Mar 19, 2017 | economistsview.typepad.comRGC -> RGC... March 18, 2017 at 08:53 AM , 2017 at 08:53 AMWhy don't mainstream economists understand banking?RGC -> RGC... , March 18, 2017 at 10:15 AM
Why Mainstream Economists' Theory of Finance is Useless
by Ismael Hossein-Zadeh
"A major reason for these economists' bewilderment in the face of financial bubbles and bursts is that, according to their theoretical shibboleth, expansion of finance/fictitious capital on a macro or national level is not supposed to deviate much from that of industrial/real capital, as the magnitude of the former is essentially determined or limited by the requirements of the real sector of the economy.
The theory maintains that there is an auspicious synergy between the financial and real sectors of an economy: finance capital tends to shadow industrial capital as if its main function is to grease the wheels of the real sector, that is, of manufacturing and commercial undertakings -just as it was more or less the case in the early stages of capitalism, when there was not yet a large, independent financial sector.
What are the major causes of instability and inequality in an economy? - Land and Debt.paine -> RGC... , March 18, 2017 at 10:28 AM
Which topics does mainstream economics ignore? - Land and debt.Private land and debtpaine -> paine... , March 18, 2017 at 10:30 AM
Plus job fluxInstablity that isRGC -> paine... , March 18, 2017 at 10:50 AM
Firm spending is the wild goose
Inequality is a bourgeois metricThe more extreme inequality is, the less bourgeois.RGC -> paine... , March 18, 2017 at 10:46 AMJob flux is proximate, land and debt are ultimate.paine -> RGC... , March 18, 2017 at 10:26 AMCompared to total domestic payroll compensation
A tear drop
Mar 19, 2017 | economistsview.typepad.comlibezkova : March 16, 2017 at 09:51 PM , 2017 at 09:51 PM"the U.S. middle class - with household incomes ranging from two-thirds to double the national median"reason -> libezkova... , March 17, 2017 at 04:24 AM
Median household income in the US in 2015 was less the $60K. Two-thirds is $40K. That's almost poverty not middle class.
Sociologically the middle class is a quasi-elite of professionals and managers, who are largely immune to economic downturns and trends such as out-sourcing.The definition game? Define something to something else as is being talked about and then claim, claims based on a completely different definition are false?Lyle -> libezkova... , March 17, 2017 at 12:47 PMActually with the change in ratio professionals and managers now tend to upper middle class, (29% of us is upper middle now, 32% middle).cm -> libezkova... , March 17, 2017 at 10:48 PM
One of the influences is that post WWII it was possible to be middle class and work on an assembly line in a job that was described as check your brain at the door. Automation and process changes have wiped the high pay of such jobs out. Steel makers for example thru mainly process changes (electric furnaces using scrap, continuous casting and the like) mean that it takes 1/5 the hours to produce a ton of steel in did in the 1970s.
The movement of assembly line jobs to the middle class occured because there was a period where the US was much less involved with the rest of the world economically, because their industries had all been destroyed. The change started during the Johnson admin, and showed up in the high inflation of the Nixon admin.Most "professionals and managers" are nowhere near being immune to downturns and outsourcing, in aggregate.D. C. Sessions -> libezkova... , March 18, 2017 at 10:16 AM
You could likewise claim that "low skilled" or any other occupations are "immune" as somewhere around 70-80% of their members continue being employed through tough times, in aggregate.
If you take "tech", companies laying off around 5-10% or even more of their staff in busts is a frequent enough occurrence. And that's in addition to the "regular" age discrimination and cycling of workers justified with "outdated skills". Being young and (supposedly) impressionable is a skill!
"the U.S. middle class - with household incomes ranging from two-thirds to double the national median"
That's almost tautological. By definition, there can't be a whole lot of change in the population of groups defined relative to median. Income and wealth of those groups, though, can be enlightening.
Substitute "mean" for "median" and watch what happens. When inequality is driven by extremes at the tail, using "median" means that you don't see much change in the demographics. (Hint: if "middle class" is defined as half to twice the average income, there are damned few in that bracket.)
Mar 19, 2017 | economistsview.typepad.com
Typical MSM stance -- low prices forever as high prices strangulate Western economies. Nature might help OPEC to achieve their goals :-)
im1dc : March 17, 2017 at 08:01 PMOPEC's friends struggling to cut their production in line with their pledges
"Non-OPEC oil producers keep on pumping, deliver just 64% of pledged output cuts in Feb, source says"
Reuters...3-17-2017...7 Hours Ago
"Eleven non-OPEC oil producers that joined a global deal to reduce output to boost prices delivered 64 percent of promised cuts in February, an industry source said on Friday, still lagging the higher levels of OPEC itself.
The Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers agreed to cut production by 1.8 million barrels per day (bpd) from Jan. 1 to boost prices and reduce a supply glut.
On Thursday, Saudi Energy Minister Khalid Al-Falih urged better delivery from exporters that have vowed to reduce their oil supply.
"It's a learning process for some countries and we want them to accelerate that learning and get on board fully," he told CNBC.
Compliance numbers were reviewed at a meeting in Vienna on Friday comprised of officials from countries monitoring adherence to agreed output levels - OPEC members Kuwait, Venezuela, Algeria plus non-OPEC Russia and Oman.
Russia plans to step up its adherence, saying on Friday that it will cut output by the full amount it had pledged - 300,000 bpd - by the end of April and will maintain that level until the deal expires at the end of June.
Last week, Al-Falih told CNBC that Russia had cut more slowly than he would have liked in the first two months of the deal, but confirmed Moscow was accelerating reductions in March. Saudi Arabia has provided the lion's share of output curbs to date.
The meeting on Friday also discussed OPEC's own compliance, which it put at 106 percent..."
Mar 19, 2017 | economistsview.typepad.comanne : March 18, 2017 at 10:06 AM , 2017 at 10:06 AMhttps://twitter.com/ggreenwald/status/843114192081211394ilsm -> anne... , March 18, 2017 at 04:56 PM
Glenn Greenwald @ggreenwald
The benefit of state-media propaganda: government claims shape headlines, no dissent, opposing views included
UK troops in Estonia to deter 'Russian aggression'
7:57 AM - 18 Mar 2017Maybe if NATO said "we will never close the sea lanes to St Petersburg...'ilsm -> geoff ... , March 18, 2017 at 05:01 PM
US troops in Estonia to keep the Russian minority down........
Estonia, like Iraq and Turkey, cannot be partitioned like US did Serbia!
Estonia has land where artillery can shut down St Petersburg shipping........Saudi Arabia is the target of many 10's of billions in future arms sales. US needs to keep them burning jet fuel and jettisoning bombs so they buy planes, and other big ticket stuff from US.
Trump must be listening to the pentagon guys saying we could have won in Vietnam if we had more time and bombs...........
Maybe the Saudis can 'kill enough of them'!
US never held back cluster bombs!
Mar 19, 2017 | economistsview.typepad.comsanjait : March 17, 2017 at 10:01 AM , 2017 at 10:01 AM"Malevolence tempered by incompetence."pgl -> sanjait... , March 17, 2017 at 10:44 AM
That's the *optimists'* take on the Trump administration.
It's clear they are incompetent, but I don't think we can be sanguine.
Mainly because, if something isn't outright unconstitutional, we are reliant on massive numbers of citizens noticing the malevolence and becoming outraged enough to scare the few squishy members of the GOP caucus into backing off.
But that's a fairly high bar.
On healthcare the GOP stepped on a rake, but that's an issue where many people are VERY significantly affected in visible, immediate ways. It's funny that even Trump seems to recognize this, so his admin is bravely leading from behind on the push to pass the American Health Carnage Act.
But contrast healthcare with something like climate change. Trump proposes to erase not only rules on immediate issues, but also very forward looking stuff like basic energy technology research and the people and satellites used *just to study the climate*.
Is there a natural constituency of GOP base voters that is going to become activated enough to stop this? If not, what might?
I don't see any barriers to a good portion of the malevolence, even if it is incompetent. The Trump admin and the GOP have turned incompetence like a badge of honor and their base voters love it.Bat shit insanity on health care preceded Trump. The truly incompetent one is the Speaker of the House. And he is considered the policy wonk for the House Republicans. Trump is beyond awful but he is no worse than your modern Republican Party.sanjait -> pgl... , March 17, 2017 at 11:47 AMTrue, and it has been a mild surprise to me how poorly the GOP (ex-Trump) has executed on its agenda.
I always thought they were *pretending* not to understand how healthcare economics worked to cynically gin up anti-ACA talking points.
But it turns out, they really have no clue what they are talking about. They drank their own kool aid. They are what Stephen Colbert used to describe as "batshit serious."
Mar 19, 2017 | economistsview.typepad.comPeter K. -> Peter K.... March 17, 2017 at 09:32 AM , 2017 at 09:32 AMhttps://www.pastemagazine.com/articles/2017/01/trump-is-not-a-fluke-why-trumpism-is-a-global-phen.htmlsanjait -> Peter K.... , March 17, 2017 at 09:54 AM
Trump Is Not a Fluke: Why "Trumpism" Is a Global Phenomenon
By Ben Gran | January 31, 2017 | 4:25pm
Where did Trump come from? Is the rise of Trump a fluke, a problem unique to America, born of American reality TV culture, combining 20th century American xenophobia with the worst aspects of 21st century social media into an ominous new post-truth world? Are American Trump voters uniquely racist and stupid and self-sabotaging? Or is Trump part of a broader global trend in politics, where voters throughout the industrialized world are revolting against the established political, economic and social order?
There was a great lecture (from before the election) by Mark Blyth, Brown University professor of international political economy, about global Trumpism where he discusses how the same factors that are playing out in America are also happening in lots of other Western democracies, driven by populism (both right-wing and left-wing), racism, xenophobia, and authoritarianism. For example, various European countries have seen a significant rise in votes for populist parties (on the right and left) and a decline in center-left "mainstream" parties. One particularly powerful example was the unexpected success of the Brexit vote for the UK to leave the European Union; despite the pleas of the political establishment and most members of the media, a small majority of UK voters decided to leave the EU even though it was widely described as an economically damaging, self-sabotaging, xenophobia-driven, unthinkable decision. Sound familiar?
Blyth explores the economic factors and argues that Trump's victory should not be seen as an isolated, local "America-only" event; instead, Trump's victory is part of a broader trend where the post-World War II neoliberal global order is breaking down. What will replace it? No one knows. But it's worth listening to Mark Blyth for perspectives on how we ended up with Trump, and how to understand the broader political and economic forces that made Trump possible.
Here are a few of Mark Blyth's key points on what "global Trumpism" means and how it happened:
A Brief History of the Post World War II Economic Order
Ever since World War II, the governments and financial institutions of "the West" (U.S., UK, Europe) have focused their national economic policy on two broad targets-from 1945 to 1975, broadly speaking, the goal was to achieve "full employment." This is part of why the 1950s-60s are looked back upon as a kind of Golden Age for the middle class, especially for people who worked in manufacturing at union jobs with good wages and benefits. And broadly speaking, this policy was successful! But full employment led to inflation-and by 1975, inflation had gotten so bad that creditor classes within these countries (investors, banks, wealthy people) started to revolt, and put in politicians like Reagan and Thatcher who focused on strong anti-inflation policies, and who changed the way that everyday people thought about the economy by appealing to voters' interests as consumers ("low-priced products from China are good! High-paid union labor is bad!") instead of their interests as workers or union members. All of this was good for creditors and consumers, even if it was bad for borrowers and workers. That's where we've been ever since 1975: central banks have fought inflation, interest rates have been low, labor unions have been weak-to-nonexistent, and life has gotten better for creditors and worse for debtors.
As a result, most Americans are in debt, most Americans' wages have not increased above inflation, and most of the gains of the past 30 years of America's economic growth have gone to the top 1% of income earners. (And the same trends are true for other Western democracies.)
Meanwhile, during that time, the center-left parties (Clinton's New Democrats, Tony Blair's New Labour, and Germany's Social Democratic Party) have moved away from their traditional working-class base and have become more comfortable hob-nobbing with bankers and tech CEOs and other corporate interests. So where are working class voters supposed to go? This is where left-wing populists like Bernie Sanders and right-wing nationalists like Trump are filling the void in the political marketplace.
The Elephant Chart
Blyth points out the famous Elephant Chart by economist Branko Milanovic, which shows the change in real income between 1988 and 2008 for all people in the world: basically, during the past 30 years, everyone in the world has seen a real increase in their income except for the Western world's middle class.
This is why so many former factory workers in the Midwest are upset about globalization: they haven't seen their lives get better from it; if anything, globalization has made their lives worse. So when Trump promises to "bring jobs back" and raise taxes on companies that export products to the U.S., that message resonates in the Rust Belt states in a way that "the wife of the guy who passed NAFTA" just never would.
Gary, from Gary
Mark Blyth poses the example of a hypothetical man named Gary who lives in Gary, Indiana, who is emblematic of a typical Midwestern white working-class Trump voter. In 1989, Gary had 10 years in the union at age 30 and was a line supervisor making $30 an hour (real dollars, adjusted for inflation). In 1993, after a few years of losing factory jobs to Southern states, the U.S. passed NAFTA and his town lost a lot of jobs. The town took a huge economic hit. Tax base declines, schools get worse. Gary wound up getting a job in a call center for $15 an hour. 5 years later, the call center moved from Indiana to India. Now at age 58, Gary works for $11.67 per hour at Walmart.
As Blyth describes in his lecture, speaking from the point of view of "Gary:" " The only person who actually seems to articulate anything that Gary gives a shit about is Trump. And Gary knows that Trump's a buffoon, he knows he's a reality TV star. But Gary has seen politician after politician every four years saying 'vote for me, better jobs! vote for me, more security!' and Gary's life has gotten crappier and crappier. So he has no reason whatsoever to believe a word that they say. So he has a liar on one side, and a bullshit artist on the other. Which one gives you more possibilities?"
Trump's Victory was an Anti-Elite Vote
Yes, Trump's a racist and a misogynist. Yes, he's horrible. Yes, lots of people voted for him out of racist or sexist hostility and wanting to raise a middle finger at Muslims and black people and Mexican immigrants.
However: a sizable portion of Trump's vote-just like Brexit and just like the rise of other populist parties in the UK and Europe-was more of a despairing protest vote, a way to send a message to the political establishment and mainstream media: we don't like what you're doing, this system you've built is not working for us, we don't like the way you talk down to us, and we're gonna throw a brick through your window.
But Trump Voters are all Racist ... Right?
By all means, condemn Trump's racism and sexism. Resist his retrograde agenda every step of the way. But liberals need to be open to the possibility that Trump won not just because of racism and sexism (those voters weren't turning out for the Democrats anyway), but because-especially in a few key Upper Midwest states-Trump was offering a message of aggressive economic populism that the Democrats were not delivering, that was embraced by just enough voters in just the right states (who otherwise might have voted for the Democrat) to give him a victory.
Trump didn't just happen in America; the political forces he represents are happening all over the Western democratic world. Other countries like Greece and Spain have elected left-wing "Trumpists" but America didn't have one of those choices on the ballot in November.
If the only lesson that liberals take away from this election is: "48% of America's voters are irredeemably racist and sexist," they're not really understanding the nature of Trump's appeal within this broader context of "global Trumpism." And they'll lose to him again in 2020.
Mark Blyth is oddly optimistic about America in the age of Trumpism, especially compared to Europe. He says that America has an advantage over Europe because Europe is bound by the Euro currency, which Blyth says is a "disaster" because individual countries within the Eurozone (such as Greece vs. Germany) have different conflicting political agendas that cannot be addressed by monetary policy. Trump might turn out to be a flash in the pan, a Black Swan event brought on by a one-time bizarre confluence of events and a bad matchup with the Democratic nominee.
Trump might even have some positive effects, in Blyth's view, because the U.S. would benefit from a more isolationist foreign policy with fewer costly, unending military interventions in other countries. As Blyth says in this discussion on the 2016 election results, if Europe is left to pay more for their own national defense and find their own accommodation with Russia, without relying on American military power, that would not be a bad thing for the U.S. Blyth is skeptical that Trump will actually enact any of his trade protectionist promises, since U.S. voters won't want to see higher prices for their iPhones (imported from China). It's possible that Trump's presidency will be less frighteningly radical than many liberals have feared.
Aside from Trump's immediate outrages, the broader challenge for America, and the world, is that the neoliberal political order of the past 30 years in the Western democracies is breaking down. We've elected a president who campaigned as a populist, but who's likely going to govern as a traditional Reagan-style "trickle-down economics" Republican. Those Upper Midwest swing voters who voted based on economic populism and "bringing jobs back" are not remotely going to get the populist politics that Trump promised; so the question is, can the Democrats deliver a real populist alternative instead? Will the American Left be defeated by Trumpism, or can they co-opt Trump's appeal to the middle-class and working-class, and create a new politics that truly speaks to the concerns of the people who have been left behind by globalization and our new era of wealth inequality?
tl:dr.Peter K. -> sanjait... , March 17, 2017 at 01:03 PMthe short version is that the failure of neoliberalists such as yourself to provide an economy with shared prosperity has led to the rise of the populist right across the globe.
You really need to go back and study the 1920s and 1930s. History is repeating itself.
Mar 19, 2017 | economistsview.typepad.comPeter K. : March 18, 2017 at 06:49 AM , 2017 at 06:49 AMSanjait says it was social media.
March 15, 2017
The Great Recession clearly gave rise to right-wing populism
by Ryan Cooper
at's to blame for the resurgence of racist right-wing populism? Since the election of President Trump, the American left has been consumed with this question, with leftists blaming the failures of neoliberal economic policy and liberals leaning more on cultural explanations.
Over at Vox, Zack Beauchamp has an entry in this debate on the latter side. He argues that left-wing economic policy actually causes people to be more racist, largely because welfare states tend to disproportionately benefit poor minorities and immigrants, and hence raise resentment among whites. But his account of economics is jarringly incomplete - in particular, skipping almost entirely over the financial collapse of 2008, the ensuing plague of austerity, and the ongoing eurozone currency crisis. And this provides by far the strongest evidence for the leftist case.
Let's review. In 2008, the whole world was convulsed by a financial crisis, leading to mass unemployment in the United States and Europe. The initial response was fairly similar in both places, featuring immense public bailouts of ailing banks. But after that, there was a sharp divergence: America generally tried large fiscal and monetary stimulus, while Europe did the opposite with spending cuts and tax increases - that is, austerity - and tight money.
Though the U.S. stimulus was inadequate, the worst was avoided, and economic conditions improved slowly, surpassing its pre-crisis GDP by 2011. In Europe - and especially within the eurozone, where the common currency became a gold standard-esque economic straitjacket - the result was disaster. So much austerity was forced on debtor nations that they fell into full-blown depression. Greece's economy is worse than that of America in the 1930s - and the eurozone as a whole only matched its pre-crisis GDP in April of last year.
Mass unemployment is electoral poison, and about every party that happened to be holding power during the worst of it - generally either center-right (Fianna Fáil in Ireland, People of Freedom in Italy) or center-left (the Socialist Party in France, the Democrats in America) - suffered serious setbacks in subsequent elections. Radical parties on both the left and right gained as establishment parties were badly discredited. New fascist parties (Golden Dawn in Greece) sprung to prominence, and older fascist-lite ones (National Front in France) gained strength.
But Beauchamp barely even references this history, restricting his argument almost entirely to welfare policy. He assembles reasonably convincing evidence and expert testimony to the effect that welfare states increase racist resentment in both the United States and Europe. But he does not mention mass unemployment, austerity, or the eurozone. These are yawning absences in an article purporting to deal with the social effects of economic policy.
Welfare is one chapter of leftist economic policy, but the first and most important one is full employment. That is the major route by which leftist economic policy can deflate right-wing nativism. Center-left parties often claim to support full employment, but they have manifestly failed to do so over the last eight years, and arguably long before that. (President Obama was plumping for austerity in February of 2010, with unemployment at 9.8 percent.) Fascists organize best in the chaos and misery of depression, as people lose faith in traditional solutions and root around for scapegoats. Is it really a coincidence that the Nazi electoral high tide came at a time of nearly 30 percent unemployment?
Now, politics is a chaotic process. It takes a lot of ideological spadework to convince people that austerity is the problem, and a lot of time and effort to build a political coalition dedicated to an anti-austerity platform. And sometimes it doesn't work well, as Beauchamp's detailed discussion of the U.K. Labour Party's difficulties since losing the elections of 2015 (on a pro-austerity platform, mind you). But savage infighting within the party is likely just as much to blame for Labour's collapse as leader Jeremy Corbyn's left-wing views. Sometimes political coalitions fracture over personality and internal struggles for dominance.
What's more, Beauchamp doesn't mention other cases where organizing has been more successful, such as Greece or Spain, where parties that didn't even exist before the crisis have leaped to the front rank of politics. In Greece, the center-left PASOK has all but ceased to exist, while the left-wing Syriza actually won in 2015 very obviously because of their anti-austerity platform (the fact that they later were prevented from implementing it at economic knifepoint by eurozone elites notwithstanding). Now, the fascists are the only credible anti-austerity party left in that beleaguered country.
It's perfectly plausible - obvious even - to say that immigration or more welfare can lead to a racist backlash, especially if you means-test benefit policy to restrict it to disproportionately minority poor people only, as American liberals tend to do. But it simply beggars belief to argue that running on full employment and an end to austerity in a time of depression is a guaranteed loser.
Mar 18, 2017 | economistsview.typepad.comim1dc -> Peter K.... March 18, 2017 at 09:52 AM , 2017 at 09:52 AMWell, pgl is an ECONOMIST and you play on on this Blog so why not:pgl -> im1dc... , March 18, 2017 at 09:54 AM
"Ask five economists and you'll get five different answers - six if one went to Harvard."
Edgar FiedlerOh that is my sin. I'm an economist and PeterK hates people who can actually do analysis. That explains a lot.libezkova -> pgl... , -1The real question is: can quasi religious analysis from the positions of neoclassical economics be called analysis. Or is this a new type of Lysenkoism?
Mar 18, 2017 | economistsview.typepad.comdjb : March 18, 2017 at 07:31 AM"What if Sociologists Had as Much Influence as Economists? - NYTimes"
it is only because mean spirited supply side economists show up on tv and in the media all the time
this is because these are the people the billionairs want to see quoted all the time as they think it serves their bottom line
however I do not believe they portray the truth about economics and in a just society they wouldn't even get through their courses
so there is no conflict between economics and sociology
the one mistake this article makes is assuming that the ones it identifies as economists are representatives of the true science of economics
if economics is involved in maximizing "utility" for everyone, how can so called "economists" justify policies that harm large portions of the population, harm the environment, deplete natural resources, keep people in poverty, deny healthcare, propagate wars, advance demagoguery
those economists who do so need to be ashamed of themselves
its the people not the science
Mar 18, 2017 | economistsview.typepad.com
Lee A. Arnold : March 18, 2017 at 04:22 AMMaking a combined comment on the links about sociological explanation (NYTimes, Understanding Society, and Tim Harford):Lee A. Arnold -> Lee A. Arnold ... , March 18, 2017 at 04:23 AM
I want to point out that monocausal explanation in society is fairly useless, especially in a society-in-crisis, for at least two very DIFFERENT reasons: 1. complexities, which are analytical things about lots of specifics, and 2. common emergence of agreement, a central moral thing about trust.
These sound high-falutin', but they are just shorthand for two different things which keep coming up in our conversations everywhere:
- there are so many connections and relationships, that people can find ways to get around certain policies, and
- the real determiner of decisions is what everybody AGREES to be true, -- or has voted upon under majority rules -- even though what everybody agrees to be true, may be false.
So therefore, the vested interests of the status quo, at any moment, are engaged in two very different efforts:
- providing so much complicated information and false information that most people stay confused, and
- buying votes, buying elections, buying lobbyists.
Any operating political hack knows this, will tell you this is his/her job.
This has been going on since the middle of the 18th Century, perhaps longer. And of course, we see where all this has led us.
My point in making the distinction, the distinction about finding 2. common agreement to get anything done under 1. conditions of complexity & uncertainty, is to get it out of the way, to clear the floor, to make a very different point:
A majority of the people don't ever have the analytical skills to sort it out. As follows:A majority of the people don't have the analytical skills to sort out the lies. How do we deal with this?Julio -> Lee A. Arnold ... , March 18, 2017 at 08:32 AM
First, realize has little to do with the level of intelligence or education.
It appears to be a difference in HOW people take "information" into themselves. There is a big difference between "orality" and "literacy" cultures. Trump's speeches give a very good illustration of this, perhaps a perfect example.
The distinction was first emphasized by Walter Ong in his perennial book Orality and Literacy (1982). Here is an adaptation of his list of some traits of "oral" culture:
1. Sounded word is itself power, an action-event. Words are not taken in as mere signs.
2. Your knowledge is limited to what you can personally recall: To retain & retrieve information, without reading & writing, you must think in mnemonic patters shaped for ready oral recurrence. Thus, heavily rhythmic, balanced, repetitious. Use of antitheses, alliterations & assonances, epithetic or other formulary expressions, standard thematic settings ("the assembly, the meal, the duel, the hero's helper", etc.) proverbs, etc. This even determines syntax.
3. The logic of argument is additive rather than subordinative. Use of the conjunction "and", instead of dependent clauses.
4. The discourse is aggregative rather than analytic: Elements of thought are clusters, parallel terms, antithetic terms, recurrent epithets such as "brave" soldier, "beautiful" princess, etc., and these couplings are rarely dismantled.
5. Redundant or "copious": Heavy use of repetition because spoken words evaporate, which would prevent the continuity that is required for thinking. It also helps overcome the problem that members of the same audience have different comprehension levels; and helps overcome acoustical lapses in the assembly hall.
6. The resulting culture tends to conservative or traditionalist: Use of repetition accentuates the learning of ages, to the detriment of new discoveries and innovations.
7. Close to the human lifeworld.
8. Agonistically toned: Knowledge is situated within a context of STRUGGLE in the lifeworld. Use of challenges, riddles, proverbs, struggles, descriptions of violence. The flip-side of this is heavy use of extreme praise: "fantastic, beautiful", etc.
9. Empathetic & participatory, rather than objectively, scientifically distanced.
10. Homeostatic: Oral societies live in a present which keeps itself in equilibrium by sloughing off memories which no longer have present relevance.
11. Situational rather than abstract.
12. Verbomotor lifestyle: In oral society, courses of action and attitudes toward issues depend significantly more on effective use of words and thus on human interaction, and significantly less on non-verbal, often largely visual input from the "objective" world of print or things. In addition, oral folk commonly manifest their schizoid tendencies by extreme external confusion, leading often to violent action, including mutilation of self and others: going "berserk, amok".
13. Noetic role of heroic "heavy" figures, and of the fantastic & bizarre.
14. Orality, community and the sacred: it is all combined.
Note that Ong's brilliant list describes the cognitive style of Trump's speeches, of Fox News reportage, and describes the thought processes and speech-styles of many voters.Wonderfully thought provoking post.
Mar 18, 2017 | economistsview.typepad.comanne : March 18, 2017 at 10:08 AM , 2017 at 10:08 AMhttps://twitter.com/ggreenwald/status/843109953422483458anne -> anne... , March 18, 2017 at 10:09 AM
Glenn Greenwald @ggreenwald
Trump Administration Ousts UN Official to Protect Israel From Criticism: a move his own DoD Chief recognizes is dangerous
7:40 AM - 18 Mar 2017https://www.unescwa.org/sites/www.unescwa.org/files/publications/files/israeli-practices-palestinian-people-apartheid-occupation-english.pdfgeoff : , March 18, 2017 at 10:25 AM
Israeli Practices towards the Palestinian People and the Question of Apartheid: Palestine and the Israeli Occupation
By United Nations Economic and Social Commission for Western Asia
This report concludes that Israel has established an apartheid regime that dominates the Palestinian people as a whole. Aware of the seriousness of this allegation, the authors of the report conclude that available evidence establishes beyond a reasonable doubt that Israel is guilty of policies and practices that constitute the crime of apartheid as legally defined in instruments of international law.
The analysis in this report rests on the same body of international human rights law and principles that reject anti-Semitism and other racially discriminatory ideologies, including: the Charter of the United Nations (1945), the Universal Declaration of Human Rights (1948), and the International Convention on the Elimination of All Forms of Racial Discrimination (1965). The report relies for its definition of apartheid primarily on article II of the International Convention on the Suppression and Punishment of the Crime of Apartheid (1973, hereinafter the Apartheid Convention):
The term "the crime of apartheid", which shall include similar policies and practices of racial segregation and discrimination as practiced in southern Africa, shall apply to inhuman acts committed for the purpose of establishing and maintaining domination by one racial group of persons over any other racial group of persons and systematically oppressing them.
Although the term "apartheid" was originally associated with the specific instance of South Africa, it now represents a species of crime against humanity under customary international law and the Rome Statute of the International Criminal Court, according to which:
"The crime of apartheid" means inhumane acts committed in the context of an institutionalized regime of systematic oppression and domination by one racial group over any other racial group or groups and committed with the intention of maintaining that regime.
Against that background, this report reflects the expert consensus that the prohibition of apartheid is universally applicable and was not rendered moot by the collapse of apartheid in South Africa and South West Africa (Namibia).
The legal approach to the matter of apartheid adopted by this report should not be confused with usage of the term in popular discourse as an expression of opprobrium. Seeing apartheid as discrete acts and practices (such as the "apartheid wall"), a phenomenon generated by anonymous structural conditions like capitalism ("economic apartheid"), or private social behaviour on the part of certain racial groups towards others (social racism) may have its place in certain contexts. However, this report anchors its definition of apartheid in international law, which carries with it responsibilities for States, as specified in international instruments.
The choice of evidence is guided by the Apartheid Convention, which sets forth that the crime of apartheid consists of discrete inhuman acts, but that such acts acquire the status of crimes against humanity only if they intentionally serve the core purpose of racial domination. The Rome Statute specifies in its definition the presence of an "institutionalized regime" serving the "intention" of racial domination. Since "purpose" and "intention" lie at the core of both definitions, this report examines factors ostensibly separate from the Palestinian dimension - especially, the doctrine of Jewish statehood as expressed in law and the design of Israeli State institutions - to establish beyond doubt the presence of such a core purpose.
That the Israeli regime is designed for this core purpose was found to be evident in the body of laws, only some of which are discussed in the report for reasons of scope. One prominent example is land policy. The Israeli Basic Law (Constitution) mandates that land held by the State of Israel, the Israeli Development Authority or the Jewish National Fund shall not be transferred in any manner, placing its management permanently under their authority. The State Property Law of 1951 provides for the reversion of property (including land) to the State in any area "in which the law of the State of Israel applies". The Israel Lands Authority (ILA) manages State land, which accounts for 93 per cent of the land within the internationally recognized borders of Israel and is by law closed to use, development or ownership by non-Jews. Those laws reflect the concept of "public purpose" as expressed in the Basic Law. Such laws may be changed by Knesset vote, but the Basic Law: Knesset prohibits any political party from challenging that public purpose. Effectively, Israeli law renders opposition to racial domination illegal.
Demographic engineering is another area of policy serving the purpose of maintaining Israel as a Jewish State. Most well known is Israeli law conferring on Jews worldwide the right to enter Israel and obtain Israeli citizenship regardless of their countries of origin and whether or not they can show links to Israel-Palestine, while withholding any comparable right from Palestinians, including those with documented ancestral homes in the country. The World Zionist Organization and Jewish Agency are vested with legal authority as agencies of the State of Israel to facilitate Jewish immigration and preferentially serve the interests of Jewish citizens in matters ranging from land use to public development planning and other matters deemed vital to Jewish statehood. Some laws involving demographic engineering are expressed in coded language, such as those that allow Jewish councils to reject applications for residence from Palestinian citizens. Israeli law normally allows spouses of Israeli citizens to relocate to Israel but uniquely prohibits this option in the case of Palestinians from the occupied territory or beyond. On a far larger scale, it is a matter of Israeli policy to reject the return of any Palestinian refugees and exiles (totalling some six million people) to territory under Israeli control.
Two additional attributes of a systematic regime of racial domination must be present to qualify the regime as an instance of apartheid. The first involves the identification of the oppressed persons as belonging to a specific "racial group". This report accepts the definition of the International Convention on the Elimination of All Forms of Racial Discrimination of "racial discrimination" as "any distinction, exclusion, restriction or preference based on race, colour, descent, or national or ethnic origin which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise, on an equal footing, of human rights and fundamental freedoms in the political, economic, social, cultural or any other field of public life". On that basis, this report argues that in the geopolitical context of Palestine, Jews and Palestinians can be considered "racial groups". Furthermore, the International Convention on the Elimination of All Forms of Racial Discrimination is cited expressly in the Apartheid Convention.
The second attribute is the boundary and character of the group or groups involved. The status of the Palestinians as a people entitled to exercise the right of self-determination has been legally settled, most authoritatively by the International Court of Justice (ICJ) in its 2004 advisory opinion on Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory. On that basis, the report examines the treatment by Israel of the Palestinian people as a whole, considering the distinct circumstances of geographic and juridical fragmentation of the Palestinian people as a condition imposed by Israel. (Annex II addresses the issue of a proper identification of the "country" responsible for the denial of Palestinian rights under international law.)
This report finds that the strategic fragmentation of the Palestinian people is the principal method by which Israel imposes an apartheid regime. It first examines how the history of war, partition, de jure and de facto annexation and prolonged occupation in Palestine has led to the Palestinian people being divided into different geographic regions administered by distinct sets of law. This fragmentation operates to stabilize the Israeli regime of racial domination over the Palestinians and to weaken the will and capacity of the Palestinian people to mount a unified and effective resistance. Different methods are deployed depending on where Palestinians live. This is the core means by which Israel enforces apartheid and at the same time impedes international recognition of how the system works as a complementary whole to comprise an apartheid regime.
Since 1967, Palestinians as a people have lived in what the report refers to as four "domains", in which the fragments of the Palestinian population are ostensibly treated differently but share in common the racial oppression that results from the apartheid regime. Those domains are:
1. Civil law, with special restrictions, governing Palestinians who live as citizens of Israel;
2. Permanent residency law governing Palestinians living in the city of Jerusalem;
3. Military law governing Palestinians, including those in refugee camps, living since 1967 under conditions of belligerent occupation in the West Bank and Gaza Strip;
4. Policy to preclude the return of Palestinians, whether refugees or exiles, living outside territory under Israel's control...."America (Bombs) First"
The proposal from the State Department would reverse a decision made late in the Obama administration to suspend the sale of precision guided munitions to Riyadh, which leads a mostly Arab coalition conducting air strikes against Iran-backed Al Houthi rebels in Yemen.
Secretary of State Rex Tillerson's approval this week of the measure, which officials say needs White House backing to go into effect, provides an early indication of the new administration's more Saudi-friendly approach to the conflict in Yemen, and a sign of its more hawkish stance on Iran.
It also signals a break with the more conservative approach of Obama's administration about US involvement in the conflict.
The move takes place as the Trump administration considers its approach to the Yemeni war, which has pitted US and Saudi-backed Yemeni President Abd Rabbo Mansour Hadi against an alliance of ousted Yemeni president Ali Abdullah Saleh and Al Houthi rebels.
...a winning strategy so far. 15 years into the GWOT, the only light at the end of the tunnel is generated by IEDs.
Mar 18, 2017 | economistsview.typepad.comanne : March 18, 2017 at 10:01 AM , 2017 at 10:01 AMhttp://cepr.net/blogs/beat-the-press/the-public-is-clueless-about-the-federal-budget-and-it-s-the-new-york-times-fault
March 17, 2017
The Public is Clueless About the Federal Budget and It's the New York Times' Fault
Paul Krugman criticized * the Trump administration for its budget, which would cut or eliminate many programs that benefit low and moderate income people. In his piece, Krugman points out that the public is incredibly ignorant on the budget, with most people having virtually no idea of where most spending goes.
In particular, he referenced an analysis that found people on average believed we spend more than 30 percent of the budget on foreign aid. The actual figure is less than one percent.
This is the sort of item that inevitably leads people to deplore the ignorance of the masses. While ignorance is deplorable, instead of blaming the masses, we might more appropriately look at the elites.
The overwhelming majority of people are never going to look at a budget document. Insofar as they get any information on the budget, it is from reporters who tell them how much we spend in various areas of the budget. (They may get this information indirectly from their friends who read the newspaper or listen to news.)
When they hear about spending, they will invariably hear things like we spend $40 billion a year on foreign aid or $17.3 billion on Temporary Assistance for Needy Families (TANF). Most people will think these figures are large sums, since they dwarf the sums that people see in their daily lives. In fact, the former is less than one percent of the $4.1 trillion that we will spend in 2017, while the latter is just over 0.4 percent of total spending.
The media could do a much better job of informing the public about spending (i.e. doing their job) if they made a point of putting these figures in context. As it is, giving people these really huge numbers without context is essentially telling them nothing. As an alternative, they could make a point of always referring to these numbers as a share of the budget and/or expressing them on a per person basis (e.g. the spending on TANF comes to a bit more than $50 per person per year from every person in the country).
I have harangued reporters on this point for decades. No reporter has ever tried to argue that any significant share of their audience had any idea of what these large budget numbers mean. Yet, the practice persists.
I thought I had scored a big victory in this effort a few years back when Margaret Sullivan, who was then public editor of the New York Times, wrote a strong piece * completely agreeing with the need to express budget numbers in context. She got David Leonhardt, the NYT's Washington editor at the time, to agree as well.
This seemed to indicate that the paper would change its policy on budget reporting. Given the enormous importance of the NYT, as the nation's preeminent newspaper, such a change would have a substantial impact on reporting elsewhere. This was a huge deal, which I celebrated *** at the time.
But no, the NYT did not change its practice. It continued to report really big numbers, without any context, which everyone knows are meaningless to the vast majority of even its well-educated readership.
Okay, so the masses are ignorant about the budget. I and other economist nerd types would like the public to have more knowledge about our area of expertise. But the child care worker who spent her day dealing with out of control three year olds, or the bus driver who was tied up in traffic for eight hours, is not going to come home and start looking at budget documents from the Congressional Budget Office.
At most, these people will spend a few minutes reading the article about the budget in their local paper or listening to a short story on the evening news. If these sources just give them really big numbers, without any context, how is the public supposed to know about the budget?
Look, I understand that we have racists who want to believe that all their tax dollars are going to good for nothing dark-skinned people and that many of them would believe this regardless of what facts they are presented with. However we have plenty of non-racists who also believe something like this because they hear that we spend really big numbers on TANF, food stamps, and other programs that help low-income people.
We can point fingers at the racists and denounce their racism and stupidity if that makes us feel good. But a more productive path would be to change what we should be able to change. We should be able to get reporters to do their jobs and report budget numbers in a way that mean something to their audience. What's the problem here?
-- Dean Baker
Mar 18, 2017 | economistsview.typepad.comGerard MacDonell : March 18, 2017 at 07:40 AM , 2017 at 07:40 AMGreat piece on the trouble with facts. The Problem With Facts - Tim Harford Very informative.cm -> Gerard MacDonell... , March 18, 2017 at 09:05 AM
The journalist flattered journalists somewhat when he identified them as among two specific groups interested in truth. I found that funny. In the next paragraph he mentions that journalists have RECENTLY decided that highlighting lies as lies might be a good idea. Gee, such a uniquely abiding passion for truth.
If we are going to generalize, which I am fine with FWIW, then I would say "journalists" generally enabled the lying last year. It is probably not right to generalize that journalists are particularly interested in truth. To generalize, what they seek -- or have until recently sought -- is "balance." Barf.By "balance", you must mean "controversy".
Mar 17, 2017 | economistsview.typepad.comim1dc -> Fred C. Dobbs... March 17, 2017 at 08:11 AM , 2017 at 08:11 AMI need to hear the apology from Trump himself rather than Spicer who was obviously told to go out to the press room and say that lie.libezkova -> im1dc... , March 17, 2017 at 08:04 PM
Otherwise this is just more Trumpian Misdirection to take eyes off their arrogant mismanagement and incompetence.And what about alternative hypothesis that British hypocrisy has no bounds:
== quote ==
The campaign to link Trump to Russia also increased in intensity, including statements by multiple former and current intelligence agency heads regarding the reality of the Russian threat and the danger of electing a president who would ignore that reality. It culminated in ex-CIA Acting Director Michael Morell's claim that Trump was "an unwitting agent of the Russian Federation."
British and Dutch intelligence were apparently discreetly queried regarding possible derogatory intelligence on the Trump campaign's links to Russia and they responded by providing information detailing meetings in Europe.
Hundreds of self-described GOP foreign policy "experts" signed letters stating that they opposed Trump's candidacy and the mainstream media was unrelentingly hostile.
Leading Republicans refused to endorse Trump and some, like Senators John McCain, Marco Rubio and Lindsey Graham, cited his connections to Russia.
Mar 17, 2017 | economistsview.typepad.comFred C. Dobbs -> Fred C. Dobbs... March 17, 2017 at 07:58 PMBritain Livid on Spying Claim, but Trump Isn't Apologizinglibezkova -> Fred C. Dobbs..., March 17, 2017 at 07:59 PM
White House aides scrambled to deal with an unusual rupture after suggesting that former President Barack Obama used a British spy agency to wiretap Donald J. Trump during the campaign.
At a news conference with German Chancellor Angela Merkel, Mr. Trump made clear that he felt the White House had nothing to retract.
Trump Offers No Apology for Claim on British Spying https://nyti.ms/2nzpTHO
NYT - PETER BAKER and STEVEN ERLANGER - March 17
WASHINGTON - President Trump provoked a rare public dispute with America's closest ally on Friday after his White House aired an explosive and unsubstantiated claim that Britain's spy agency had secretly eavesdropped on him at the behest of President Barack Obama during last year's campaign.
Livid British officials adamantly denied the allegation and secured promises from senior White House officials never to repeat it. But a defiant Mr. Trump refused to back down, making clear that the White House had nothing to retract or apologize for because his spokesman had simply repeated an assertion made by a Fox News commentator. Fox itself later disavowed the report. ...Repeating myself:
== quote ==
libezkova -> DeDude...
"He really is a moron."
this equally applied to those with the virulent fixation on Russia completely out of control.
== end of quote ==
Neoliberal DemoRats might pay dearly for this "poisoning of the well" trick -- McCarthyism witch hunt.
We need to remember that corruption of politician is sine qua non of neoliberalism. "Greed is good" completely replaced 10 Commandments.
But the first rule of living in a glass house that modern Internet provides (in cooperation with intelligence agencies, Google, Microsoft and Facebook) is not to throw stones.
Russia is not Serra Leon with rockets. I am afraid that Russia might have a lot of info about corruption of major Democratic politicians as most of them took bribes from Russian and Ukrainian oligarchs (whom they essentially created) and some (old Clinton "associates" like Summers) closely participated in "great economic rape of Russia" of 1991-2000. All neatly recorded and waiting their hour for release.
At some point Putin's nerves might break and he can order to release this information. Then what ?
Jan 28, 2017 | economistsview.typepad.comPeter K. -> yuan... January 28, 2017 at 09:25 AM"Where have I heard this belief, that the all-powerful-fed if the source of all evil?"
Straw man much?
"PS: What is your zero hedge handle?"
Zero Hedge is a sad joke.
The left under-appreciates the power of the Fed. Hillary said discussion of the Fed was off limits during election season. It's too important to be debated about by us plebes.
Bernie Sanders wrote a good New York Times editorial about the Fed.
"The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system. Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time. Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages. As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort - not to fight phantom inflation."
And from Matt Taibbi of Rolling Stone magazine:
"Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the "other" budget.
It is as though someone sat down and made a list of every individual on earth who actually did not need emergency financial assistance from the United States government, and then handed them the keys to the public treasure. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses.
"Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous.""
Mar 11, 2017 | economistsview.typepad.com
djb : March 11, 2017 at 06:42 AM
Why hurting the poor will hurt the economy - The Washington Post
that this topic even needs a special article about it is proof of the sad state of affairs of economics today
Why trying to help poor countries might actually hurt them - The Washington Post
Nobel-winning economist Angus Deaton argues against giving aid to poor countries
It sounds kind of crazy to say that foreign aid often hurts, rather than helps, poor people in poor countries. Yet that is what Angus Deaton, the newest winner of the Nobel Prize in economics , has argued.
Deaton, an economist at Princeton University who studied poverty in India and South Africa and spent decades working at the World Bank, won his prize for studying how the poor decide to save or spend money. But his ideas about foreign aid are particularly provocative. Deaton argues that, by trying to help poor people in developing countries, the rich world may actually be corrupting those nations' governments and slowing their growth. According to Deaton, and the economists who agree with him, much of the $135 billion that the world's most developed countries spent on official aid in 2014 may not have ended up helping the poor.Angus Deaton (LARRY LEVANTI/AFP/Getty Images)
The idea of wealthier countries giving away aid blossomed in the late 1960s, as the first humanitarian crises reached mass audiences on television. Americans watched through their TV sets as children starved to death in Biafra, an oil-rich area that had seceded from Nigeria and was now being blockaded by the Nigerian government, as Philip Gourevitch recalled in a 2010 story in the New Yorker. Protesters called on the Nixon administration for action so loudly that they ended up galvanizing the largest nonmilitary airlift the world had ever seen. Only a quarter-century after Auschwitz, humanitarian aid seemed to offer the world a new hope for fighting evil without fighting a war.
There was a strong economic and political argument for helping poor countries, too. In the mid-20th century, economists widely believed that the key to triggering growth -- whether in an already well-off country or one hoping to get richer -- was pumping money into a country's factories, roads and other infrastructure. So in the hopes of spreading the Western model of democracy and market-based economies, the United States and Western European powers encouraged foreign aid to smaller and poorer countries that could fall under the influence of the Soviet Union and China.
The level of foreign aid distributed around the world soared from the 1960s , peaking at the end of the Cold War, then dipping before rising again. Live Aid music concerts raised public awareness about challenges like starvation in Africa, while the United States launched major, multibillion-dollar aid initiatives . And the World Bank and advocates of aid aggressively seized on research that claimed that foreign aid led to economic development.
Deaton wasn't the first economist to challenge these assumptions, but over the past two decades his arguments began to receive a great deal of attention. And he made them with perhaps a better understanding of the data than anyone had before. Deaton's skepticism about the benefits of foreign aid grew out of his research, which involved looking in detail at households in the developing world, where he could see the effects of foreign aid intervention.
"I think his understanding of how the world worked at the micro level made him extremely suspicious of these get-rich-quick schemes that some people peddled at the development level," says Daron Acemoglu, an economist at MIT.
The data suggested that the claims of the aid community were sometimes not borne out. Even as the level of foreign aid into Africa soared through the 1980s and 1990s, African economies were doing worse than ever, as the chart below, from a paper by economist Bill Easterly of New York University, shows.
William Easterly, "Can Foreign Aid Buy Growth?"
The effect wasn't limited to Africa. Many economists were noticing that an influx of foreign aid did not seem to produce economic growth in countries around the world. Rather, lots of foreign aid flowing into a country tended to be correlated with lower economic growth, as this chart from a paper by Arvind Subramanian and Raghuram Rajan shows.
The countries that receive less aid, those on the left-hand side of the chart, tend to have higher growth -- while those that receive more aid, on the right-hand side, have lower growth.
Raghuram G. Rajan and Arvind Subramanian, "Aid and Growth: What Does the Cross-Country Evidence Really Show?"
Why was this happening? The answer wasn't immediately clear, but Deaton and other economists argued that it had to do with how foreign money changed the relationship between a government and its people.
Think of it this way: In order to have the funding to run a country, a government needs to collect taxes from its people. Since the people ultimately hold the purse strings, they have a certain amount of control over their government. If leaders don't deliver the basic services they promise, the people have the power to cut them off.
Deaton argued that foreign aid can weaken this relationship, leaving a government less accountable to its people, the congress or parliament, and the courts.
"My critique of aid has been more to do with countries where they get an enormous amount of aid relative to everything else that goes on in that country," Deaton said in an interview with Wonkblog. "For instance, most governments depend on their people for taxes in order to run themselves and provide services to their people. Governments that get all their money from aid don't have that at all, and I think of that as very corrosive."
It might seem odd that having more money would not help a poor country. Yet economists have long observed that countries that have an abundance of wealth from natural resources, like oil or diamonds, tend to be more unequal, less developed and more impoverished, as the chart below shows. Countries at the left-hand side of the chart have fewer fuels, ores and metals and higher growth, while those at the right-hand side have more natural resource wealth, yet slower growth. Economists postulate that this "natural resource curse" happens for a variety of reasons, but one is that such wealth can strengthen and corrupt a government.
Like revenue from oil or diamonds, wealth from foreign aid can be a corrupting influence on weak governments, "turning what should be beneficial political institutions into toxic ones," Deaton writes in his book "The Great Escape: Health, Wealth, and the Origins of Inequality." This wealth can make governments more despotic, and it can also increase the risk of civil war, since there is less power sharing, as well as a lucrative prize worth fighting for.
Deaton and his supporters offer dozens of examples of humanitarian aid being used to support despotic regimes and compounding misery, including in Zaire, Rwanda, Ethiopia, Somalia, Biafra, and the Khmer Rouge on the border of Cambodia and Thailand. Citing Africa researcher Alex de Waal, Deaton writes that "aid can only reach the victims of war by paying off the warlords, and sometimes extending the war."
He also gives plenty of examples in which the United States gives aid "for 'us,' not for 'them'" – to support our strategic allies, our commercial interests or our moral or political beliefs, rather than the interests of the local people.
The United States gave aid to Ethiopia for decades under then-President Meles Zenawi Asres, because he opposed Islamic fundamentalism and Ethiopia was so poor. Never mind that Asres was "one of the most repressive and autocratic dictators in Africa," Deaton writes. According to Deaton, "the award for sheer creativity" goes to Maaouya Ould Sid'Ahmed Taya, president of Mauritania from 1984 to 2005. Western countries stopped giving aid to Taya after his government became too politically repressive, but he managed to get the taps turned on again by becoming one of the few Arab nations to recognize Israel.
Some might argue for bypassing corrupt governments altogether and distributing food or funding directly among the people. Deaton acknowledges that, in some cases, this might be worth it to save lives. But one problem with this approach is that it's difficult: To get to the powerless, you often have to go through the powerful. Another issue, is that it undermines what people in developing countries need most -- "an effective government that works with them for today and tomorrow," he writes .
The old calculus of foreign aid was that poor countries were merely suffering from a lack of money. But these days, many economists question this assumption, arguing that development has more to do with the strength of a country's institutions – political and social systems that are developed through the interplay of a government and its people.
There are lot of places around the world that lack good roads, clean water and good hospitals, says MIT's Acemoglu: "Why do these places exist? If you look at it, you quickly disabuse yourself of the notion that they exist because it's impossible for the state to provide services there." What these countries need even more than money is effective governance, something that foreign aid can undermine, the thinking goes.
Some people believe that Deaton's critique of foreign aid goes too far. There are better and worse ways to distribute foreign aid, they say. Some project-based approaches -- such as financing a local business, building a well, or providing uniforms so that girls can go to school -- have been very successful in helping local communities. In the last decade, researchers have tried to integrate these lessons from economists and argue for more effective aid practices.
Many people believe that the aid community needs more scrutiny to determine which practices have been effective and which have not. Economists such as Abhijit Banerjee and Esther Duflo, for example, argue for creating randomized control trials that allow researchers to carefully examine the development effects of different types of projects -- for example, following microcredit as it is extended to people in poor countries.
These methods have again led to a swell in optimism in professional circles about foreign aid efforts. And again, Deaton is playing the skeptic.
While Deaton agrees that many development projects are successful, he's critical of claims that these projects can be replicated elsewhere or on a larger scale. "The trouble is that 'what works' is a highly contingent concept," he said in an interview. "If it works in the highlands of Kenya, there's no reason to believe it will work in India, or that it will work in Princeton, New Jersey."
The success of a local project, like microfinancing, also depends on numerous other local factors, which are harder for researchers to isolate. Saying that these randomized control trials prove that certain projects cause growth or development is like saying that flour causes cake, Deaton writes in his book. "Flour 'causes' cakes, in the sense that cakes made without flour do worse than cakes made with flour – and we can do any number of experiments to demonstrate it – but flour will not work without a rising agent, eggs, and butter – the helping factors that are needed for the flour to 'cause' the cake."
Deaton's critiques of foreign aid stem from his natural skepticism of how people use -- and abuse -- economic data to advance their arguments. The science of measuring economic effects is much more important, much harder and more controversial than we usually think, he told The Post.
Acemoglu said of Deaton: "He's challenging, and he's sharp, and he's extremely critical of things he thinks are shoddy and things that are over-claiming. And I think the foreign aid area, that policy arena, really riled him up because it was so lacking in rigor but also so grandiose in its claims."
Deaton doesn't argue against all types of foreign aid. In particular, he believes that certain types of health aid – offering vaccinations, or developing cheap and effective drugs to treat malaria, for example -- have been hugely beneficial to developing countries.
But mostly, he said, the rich world needs to think about "what can we do that would make lives better for millions of poor people around the world without getting into their economies in the way that we're doing by giving huge sums of money to their governments." Overall, he argues that we should focus on doing less harm in the developing world, like selling fewer weapons to despots, or ensuring that developing countries get a fair deal in trade agreements, and aren't harmed by U.S. foreign policy decisions.
Deaton also believes that our attitude toward foreign aid – that developed countries ought to swoop in and save everyone else – is condescending and suspiciously similar to the ideas of colonialism. The rhetoric of colonialism, too, "was all about helping people, albeit about bringing civilization and enlightenment to people whose humanity was far from fully recognized," he has written.
Instead, many of the positive things that are happening in Africa – the huge adoption in cell phones over the past decade, for example – are totally homegrown. He points out that, while the world has made huge strides in reducing poverty in recent decades, almost none of this has been due to aid. Most has been due to development in countries like China, which have received very little aid as a proportion of gross domestic product and have "had to work it out for themselves."
Ultimately, Deaton argues that we should stand aside and let poorer countries develop in their own ways. "Who put us in charge?" he asks.
Mar 17, 2017 | economistsview.typepad.com
im1dc : March 17, 2017 at 02:45 PMInteresting factoid from the CBO today
Those Americans earning below 450% of federal poverty level pay an average of 31% Federal Taxes
Donald Trump paid 25% in 2005 and thinks he paid a lot
This is THE problem in America today, the deadbeat rich who refuse to pay their fair share in Federal taxes and force working Americans to pay more
"How Taxes and Transfers Affect the Work Incentives of People With Low and Moderate Income"
Last month, Members of Congress asked CBO a number of questions about how federal taxes and benefits affect people's incentive to work. This blog post provides additional information on that topic.
Posted by Shannon Mok...March 17, 2017
"What Marginal Tax Rates Do Low- and Moderate-Income Workers Face?"
In a 2015 report, CBO found that low- and moderate-income workers-those with income below 450 percent of federal poverty guidelines (commonly known as the federal poverty level, or FPL)-would face, on average, a marginal tax rate of 31 percent in 2016..."
Mar 17, 2017 | economistsview.typepad.comDenis Drew : March 17, 2017 at 08:29 AM , 2017 at 08:29 AMRe: America's employment problem - Lane Kenworthyanne -> Denis Drew ... , March 17, 2017 at 08:45 AM
"It can do so by increasing the federal minimum wage to $10 per hour and indexing it to inflation. The best existing research suggests that modest increases such as this have had little or no employment-reducing impact. And the government should also increase the Earned Income Tax Credit, a refundable tax credit for workers, for people who don't have children (a strategy Brooks endorses)."
Here we go again. First, I thought we had left EITC behind as any kind of substantial answer to underpaid Americans: redistributing all of 1/2 of one percent of overall income when 45% of our workforce is earning less than what we think the minimum wage should be, $15 an hour.
$15 may be the most fast food can pay. Sometimes in McDonald's there are more people behind the counter than in front (most customers come through the drive through). If fast food (33% labor costs) can pay $15, then maybe Target (10%-15%) can pay $20, and maybe super efficient WalMart (7%) can pay $25.
Always keeping in mind that labor bought and sold sort of on margin. Doubling Walmart's pay could add only 7% to prices.
Bottom 45% of workforce now takes 10% share of overall income -- used to be 20%. Top 1% now 20% instead of 10%. How to get that 10% back -- how to supply the economic and political muscle to TAKE IT BACK: just put some teeth in the (federal) law that already says union busting is illegal.
States can do this without any fear of confronting federal preemption. States can make it a crime for wholesalers for instance to pressure individual retailers from combining their bargaining power -- same such law can overlap federal labor area; especially since fed left blank for 80 years. Blank or not: may overlap as with min wage.
No need for complicated policy researches; no need to spend a dime: states just make union busting a felony and let people organize if they wish to -- and get out of their way. :-)
Back to min wage. If you sell fewer labor hours for more dollars that works out better for labor than for potatoes -- because in the labor market the potatoes get the money to spend -- and they are more likely to spend it more on other potatoes than more upscale. Why min wage raises often followed by higher min wage employment. (Higher wage jobs lost -- everybody looking in wrong place.)
My minimum wage worksheet
10-11-12-13-14-15-16-17 *https://fred.stlouisfed.org/graph/?g=d30RDenis Drew -> Denis Drew ... , March 17, 2017 at 09:05 AM
January 4, 2017
Real Federal Minimum Hourly Wage for Nonfarm Workers, 1964-2016
(Indexed to 2016)Re: The Man Who Made Us See That Trade Isn't Always Free - Noah Smithanne -> Denis Drew ... , March 17, 2017 at 09:10 AM
"Instead, he and his co-authors found that trade with China in the 2000s left huge swathes of the U.S. workforce permanently without good jobs -- or, in many cases, jobs at all.
"This sort of concentrated economic devastation sounds like it would hurt not just people's pocketbooks, but the social fabric. In a series of follow-up papers, Autor and his team link Chinese import competition to declining marriage rates and political polarization. Autor told me that these social ills make the need for new thinking about trade policy even more urgent."
Here we go again. US manufacturing going from 16% of employment from 2000 to 12% in 2016 (half due automation) nowhere near as sucking-all-the-oxygen-out-of-life as the the bottom 45% of earners taking 10% of overall income, down from 20% over two generations -- more and more being recognized due to the loss of collective bargaining power ...
... for which loss the usual litany of causatives NEVER seem to include one mention of the complete lack of teeth protecting union organizing from market power in US labor law.
Simple answer: no studies or research needed, not a dollar appropriated: simply make union busting a felony at state level -- and get out of people's way.
States can do this without conflict with federal preemption. States can make it a crime for wholesalers for instance to pressure individual retailers from combining their bargaining power -- same such law can overlap federal labor area; especially since fed left blank for 80 years. Blank or not: may overlap as with min wage.
Don't do this and you'll never bring back collective bargaining power -- and all the genuine populist politics that goes with it!http://www.bls.gov/webapps/legacy/cpslutab3.htm
January 15, 2017
United States Union Membership Rates, 1992-2016
Private wage and salary workers
1992 ( 11.5)
1993 ( 11.2) Clinton
1994 ( 10.9)
1995 ( 10.4)
1996 ( 10.2)
1997 ( 9.8)
1998 ( 9.6)
1999 ( 9.5)
2000 ( 9.0)
2001 ( 8.9) Bush
2002 ( 8.6)
2003 ( 8.2)
2004 ( 7.9)
2005 ( 7.8)
2006 ( 7.4)
2007 ( 7.5)
2008 ( 7.6)
2009 ( 7.2) Obama
2010 ( 6.9)
2011 ( 6.9)
2012 ( 6.6)
2013 ( 6.7)
2014 ( 6.6)
2015 ( 6.7)
2016 ( 6.4)
Mar 17, 2017 | economistsview.typepad.comim1dc : March 16, 2017 at 11:16 AM , 2017 at 11:16 AMOMG, to give himself and his $Billionaire buddies a big tax break Trump's Budget cuts Meals on Wheels programs that feed the elderly and disabled...
How cold and cruel is this man?
"This is how much it costs 'Meals on Wheels' to feed one elderly person for a year"
By Quentin Fottrell, Personal Finance Editor...Mar 16, 2017...1:01 p.m. ET
"Among the services that could be impacted under President Trump's budget proposals: Meals on Wheels.
The administration's cuts target the Department of Housing and Urban Development and call for the elimination of the $3 billion Community Development Block Grant, which helps fund programs including Meals on Wheels services, which deliver food (and human interaction) to elderly, disabled and poor recipients. "The federal government has spent over $150 billion on this block grant since its inception in 1974, but the program is not well-targeted to the poorest populations and has not demonstrated results," the budget proposal states. "The budget devolves community and economic development activities to the state and local level, and redirects federal resources to other activities."
"Meals on Wheels America," one such national meal delivery program, says the organization can provide meals for senior citizens for one year for roughly the same cost as just one day in a hospital. The annual meal cost is $2,765 for 250 days, while the cost of one day in the hospital is around $2,271, according to the Henry J. Kaiser Family Foundation, a nonprofit, private operating foundation based in Menlo Park, Calif. For "Meals on Wheels People," a Portland, Ore.-based service and one of the largest in the country, says it costs us around $2,500 annually to provide daily meals to a homebound senior, while cost of institutional care for a year in Oregon is around $60,000."...
Mar 17, 2017 | economistsview.typepad.comim1dc : March 16, 2017 at 09:55 AM , 2017 at 09:55 AM"Ultra-rich protect wealth with spread of 'family offices'"
Not really a new idea. The Rockefeller Family and one or two others had these from early days of American Dynastic Wealth, however, what is new is the number of wealthy and the amount of wealth they control, not only within a nation but Globally which makes them a new threat to global prosperity and equality - iow, they won't share theirs willingly and must be forced to pay up, the Anti-Trump way.
"Ultra-rich protect wealth with spread of 'family offices'"
By Sean Coughlan, Education correspondent...BBC...16 March 2017
"The ultra-rich in London are increasingly protecting their wealth through the use of "family offices", says research from the London School of Economics.
These are teams of professionals - such as lawyers, financiers and psychologists - employed to ensure the "dynastic wealth" of the super-rich.
These offices work for families worth at least £200m, says the study.
Researcher Luna Glucksberg says their role "demands scrutiny".
The study, from the LSE's International Inequalities Institute, says more attention should be paid to the rise of such "shadowy" family offices, which are employed full-time to protect the interests of their "elite families".
The study describes how they support a "bunkered" and "fortified" way of life of the "global super-rich".
Family offices have grown alongside the concentrations of the ultra-rich in cities such as London - and researchers say they have moved on a step from buying in specialist advisers.
These are full-time professional staff, which could include investment experts, property advisers, economists, trust fund advisers and lawyers, who work for a single family, in the way that a corporation might have its own dedicated staff.
The study quotes a US report from 2010 that found that 50 of the wealthiest such family offices were looking after $500bn (£407bn).
Rather than getting external advice from bankers and financiers, these family offices will keep such information private and in-house.
Their role "goes far beyond that of private bankers", says Dr Glucksberg.
"They are about creating dynasties, ensuring generational transfers of wealth," she says.
As well as maximising financial interests and investments, such family offices can look after every aspect of the private lives of their employers.
This can be everything from buying clothes and organising holidays to arranging divorces and making financial arrangements to prevent money being lost to in-laws.
The study says that for an individual family to have a family office, they would need to be worth at least £200m and probably much more.
But there are cases of "multi-family offices" - where families worth from £80m upwards could share such services.
The growth of extreme wealth, alongside poverty and low-income families, means that there needs to be more analysis of how such wealth is perpetuated, the study suggests.
These family offices "play a crucial role" in how advantages are handed on between generations, with full-time staff able to make long-term, strategic planning, says the study.
"The rise of elite dynasties, economic inequality, and the vast concentrations of global wealth in recent times means that the role of the 'family office' in our society demands scrutiny," says Dr Glucksberg."
Mar 17, 2017 | economistsview.typepad.comJesse : March 16, 2017 at 05:36 PM , 2017 at 05:36 PManne -> Jesse... , March 16, 2017 at 05:55 PM
Bernie Sanders Goes To West Virginia To Speak With Trump Supporters
"Certainly there are some people in the Democratic Party who want to maintain the status quo. They would rather go down with the Titanic so long as they have first-class seats." Bernie Sanders to NY Times Magazine's Charlie Homans
March 13, 2017
The New Party of No
How a president and a protest movement transformed the Democrats.
By CHARLES HOMANS
I asked [Bernie Sanders] if he thought the Democratic Party knew what it stood for. "You're asking a good question, and I can't give you a definitive answer," he said. "Certainly there are some people in the Democratic Party who want to maintain the status quo. They would rather go down with the Titanic so long as they have first-class seats." ...
Mar 17, 2017 | economistsview.typepad.comanne : March 17, 2017 at 08:24 AM , 2017 at 08:24 AMhttps://www.theguardian.com/commentisfree/2017/mar/17/everyone-loves-bernie-sanders-except-democratic-partyPeter K. -> anne... , March 17, 2017 at 09:08 AM
March 17, 2017
Everyone loves Bernie Sanders. Except, it seems, the Democratic party
A new poll found he is the most popular politician in America. But instead of embracing his message, establishment Democrats continue to resist him
By Trevor Timm - Guardian
If you look at the numbers, Bernie Sanders is the most popular politician in America – and it's not even close. Yet bizarrely, the Democratic party – out of power across the country and increasingly irrelevant – still refuses to embrace him and his message. It's increasingly clear they do so at their own peril.
A new Fox News poll out this week shows Sanders has a +28 net favorability rating among the US population, dwarfing all other elected politicians on both ends of the political spectrum. And he's even more popular among the vaunted "independents", where he is at a mind boggling +41.
This poll is not just an aberration. Look at this Huffington Post chart that has tracked Sanders' favorability rating over time, ever since he gained national prominence in 2015 when he started running for the Democratic nomination. The more people got to know him, they more they liked him – the exact opposite of what his critics said would happen when he was running against Clinton.
One would think with numbers like that, Democratic politicians would be falling all over themselves to be associated with Sanders, especially considering the party as a whole is more unpopular than the Republicans and even Donald Trump right now. Yet instead of embracing his message, the establishment wing of the party continues to resist him at almost every turn, and they seem insistent that they don't have to change their ways to gain back the support of huge swaths of the country.
Politico ran a story just this week featuring Democratic officials fretting over the fact that Sanders supporters may upend their efforts to retake governorships in southern states by insisting those candidates adopt Sanders' populist policies – seemingly oblivious to the fact that Sanders plays well in some of those states too.
Sanders' effect on Trump voters can be seen in a gripping town hall this week that MSNBC's Chris Hayes hosted with him in West Virginia – often referred to as "Trump country" – where the crowd ended up giving him a rousing ovation after he talked about healthcare being a right of all people and that we are the only industrialized nation in the world who doesn't provide healthcare as a right to all its people.
But hand wringing by Democratic officials over 2018 candidates is really just the latest example: the establishment wing of the party aggressively ran another opponent against Keith Ellison, Sanders' choice to run the Democratic National Committee, seemingly with the primary motivation to keep the party away from Sanders' influence.
They've steadfastly refused to take giant corporations head on in the public sphere and wouldn't even return to an Obama-era rule that banned lobbyist money from funding the DNC that was rescinded last year. And despite the broad popularity of the government guaranteeing health care for everyone, they still have not made any push for a Medicare-for-all plan that Sanders has long called for as a rebuttal to Republicans' attempt to dismantle Obamacare.
Democrats seem more than happy to put all the blame of the 2016 election on a combination of Russia and James Comey and have engaged in almost zero introspection on the root causes of the larger reality: they are also out of power in not the presidency, but both also houses of Congress, governorships and state houses across the country as well.
As Politico reported on the Democrats' post-Trump strategy in February, "Democratic aides say they will eventually shift to a positive economic message that Rust Belt Democrats can run on". However: "For now, aides say, the focus is on slaying the giant and proving to the voters who sent Trump into the White House why his policies will fail."
In other words, they're doubling down on the exact same failing strategy that Clinton used in the final months of the campaign. Sanders himself put it this wayin his usual blunt style in an interview with New York magazine this week – when asked about whether the Democrats can adapt to the political reality, he said: "There are some people in the Democratic Party who want to maintain the status quo. They would rather go down with the Titanic so long as they have first-class seats." ...Krugman and Vox have been attacking Sanders regularly on behalf of the establishment Democrats.
I thought it was interesting that PGL and Sanjait said they don't agree with Krugman's latest blog post, but they refuse to discuss exactly why Krugman is wrong.
"This ties in with an important recent piece by Zack Beauchamp on the striking degree to which left-wing economics fails, in practice, to counter right-wing populism; basically, Sandersism has failed everywhere it has been tried. Why?
The answer, presumably, is that what we call populism is really in large degree white identity politics, which can't be addressed by promising universal benefits. Among other things, these "populist" voters now live in a media bubble, getting their news from sources that play to their identity-politics desires, which means that even if you offer them a better deal, they won't hear about it or believe it if told. For sure many if not most of those who gained health coverage thanks to Obamacare have no idea that's what happened.
That said, taking the benefits away would probably get their attention, and maybe even open their eyes to the extent to which they are suffering to provide tax cuts to the rich.
In Europe, right-wing parties probably don't face the same dilemma; they're preaching herrenvolk social democracy, a welfare state but only for people who look like you. In America, however, Trumpism is faux populism that appeals to white identity but actually serves plutocrats. That fundamental contradiction is now out in the open."
Mar 17, 2017 | economistsview.typepad.comanne -> anne... March 17, 2017 at 06:41 AM , 2017 at 06:41 AMhttp://deanbaker.net/images/stories/documents/Rigged.pdf
Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer
By Dean Baker
The Old Technology and Inequality Scam: The Story of Patents and Copyrights
One of the amazing lines often repeated by people in policy debates is that, as a result of technology, we are seeing income redistributed from people who work for a living to the people who own the technology. While the redistribution part of the story may be mostly true, the problem is that the technology does not determine who "owns" the technology. The people who write the laws determine who owns the technology.
Specifically, patents and copyrights give their holders monopolies on technology or creative work for their duration. If we are concerned that money is going from ordinary workers to people who hold patents and copyrights, then one policy we may want to consider is shortening and weakening these monopolies. But policy has gone sharply in the opposite direction over the last four decades, as a wide variety of measures have been put into law that make these protections longer and stronger. Thus, the redistribution from people who work to people who own the technology should not be surprising - that was the purpose of the policy.
If stronger rules on patents and copyrights produced economic dividends in the form of more innovation and more creative output, then this upward redistribution might be justified. But the evidence doesn't indicate there has been any noticeable growth dividend associated with this upward redistribution. In fact, stronger patent protection seems to be associated with slower growth.
Before directly considering the case, it is worth thinking for a minute about what the world might look like if we had alternative mechanisms to patents and copyrights, so that the items now subject to these monopolies could be sold in a free market just like paper cups and shovels.
The biggest impact would be in prescription drugs. The breakthrough drugs for cancer, hepatitis C, and other diseases, which now sell for tens or hundreds of thousands of dollars annually, would instead sell for a few hundred dollars. No one would have to struggle to get their insurer to pay for drugs or scrape together the money from friends and family. Almost every drug would be well within an affordable price range for a middle-class family, and covering the cost for poorer families could be easily managed by governments and aid agencies.
The same would be the case with various medical tests and treatments. Doctors would not have to struggle with a decision about whether to prescribe an expensive scan, which might be the best way to detect a cancerous growth or other health issue, or to rely on cheaper but less reliable technology. In the absence of patent protection even the most cutting edge scans would be reasonably priced.
Health care is not the only area that would be transformed by a free market in technology and creative work. Imagine that all the textbooks needed by college students could be downloaded at no cost over the web and printed out for the price of the paper. Suppose that a vast amount of new books, recorded music, and movies was freely available on the web.
People or companies who create and innovate deserve to be compensated, but there is little reason to believe that the current system of patent and copyright monopolies is the best way to support their work. It's not surprising that the people who benefit from the current system are reluctant to have the efficiency of patents and copyrights become a topic for public debate, but those who are serious about inequality have no choice. These forms of property claims have been important drivers of inequality in the last four decades.
The explicit assumption behind the steps over the last four decades to increase the strength and duration of patent and copyright protection is that the higher prices resulting from increased protection will be more than offset by an increased incentive for innovation and creative work. Patent and copyright protection should be understood as being like very large tariffs. These protections can often the raise the price of protected items by several multiples of the free market price, making them comparable to tariffs of several hundred or even several thousand percent. The resulting economic distortions are comparable to what they would be if we imposed tariffs of this magnitude.
The justification for granting these monopoly protections is that the increased innovation and creative work that is produced as a result of these incentives exceeds the economic costs from patent and copyright monopolies. However, there is remarkably little evidence to support this assumption. While the cost of patent and copyright protection in higher prices is apparent, even if not well-measured, there is little evidence of a substantial payoff in the form of a more rapid pace of innovation or more and better creative work....
Mar 17, 2017 | economistsview.typepad.comRGC : March 17, 2017 at 07:26 AM , 2017 at 07:26 AMThe Fed has worked out perfectly for the private banks. They can be private when they make a profit and they can be bailed-out when they take a loss.RGC -> RGC... , March 17, 2017 at 11:49 AM
And in the meantime they can decide which of their buddies get sweetheart loans and send them a kick-back. And they can decide the future of the US economy according to what works best for them - screw the 90%.4 Wall Street Bonus Charts That May Make You Scream
Mar 17, 2017 | economistsview.typepad.comlibezkova : March 17, 2017 at 07:09 PM , 2017 at 07:09 PMLooks like pendulum started to move in opposite direction from market liberalization even if we count Trump administration as "bastard neolibertarians".
So the last full cycle from peak to peak would be 1928 to 2008 -- 80 years. Or from 1928 to 2000 -- 72 years. Extension from 1990 looks artificial and based on one time historic event. so it might be around 60 years which is closer to Kondratiev supercycles -- the theory that Western capitalist economies have long term (50 to 60 years) cycles of boom followed by depression.
As Edward Tilley observed "opportunity wains near the end of a long wave cycle, deep recessions and depressions are created which in history have resulted in either a war or revolution in approximately 20% of cases; 80% of the time, however, depressions were ended when inequity was reset by government policy and wealth [re]distributions. "
== quote ==
The Soviet economist Nikolai Kondratiev (also written Kondratieff) was the first to bring these observations to international attention in his book The Major Economic Cycles (1925) alongside other works written in the same decade. In 1939, Joseph Schumpeter suggested naming the cycles "Kondratieff waves" in his honor.
Two Dutch economists, Jacob van Gelderen and Salomon de Wolff, had previously argued for the existence of 50- to 60-year cycles in 1913 and 1924, respectively.
Since the inception of the theory, various studies have expanded the range of possible cycles, finding longer or shorter cycles in the data. The Marxist scholar Ernest Mandel revived interest in long-wave theory with his 1964 essay predicting the end of the long boom after five years, and in his Alfred Marshall lectures in 1979. However, in Mandel's theory, there are no long "cycles", only distinct epochs of faster and slower growth spanning 20–25 years.
In 1990, William Thompson at Indiana University has published influential papers and books documenting eighteen K-Waves dating back to 930 AD in China's Song Province; and Michael Snyder wrote "It should be noted that economic cycle theories have enabled some analysts to correctly predict the timing