Bad Policy, Bad Politics

Galbraith vs. Galbraith

Richard Parker, John Kenneth Galbraith: His life, his politics, his economics p. 532-3: "In virtually every respect, from Galbraith's point of view, Humphrey-Hawkins represented the worst of liberal remedies... (Leon Keyserling was among the bill's most vocal proponents, because, as Galbraith quipped, it was 'all Keyserling and no Keynes.')... To Galbraith, Humphrey-Hawkins was a mistake from the start, not only bad policy but bad politics."

Jamie Galbraith, introducing Bruce Bartlett: "Bruce was a resolute supply-sider, having drafted the Kemp-Roth tax cuts. I was a resolute Keynesian, who had helped draft the Humphrey-Hawkins Full Employment Act. His specialty was taxation, mine was monetary policy. We were both twenty-nine years old."

Keyserling vs. Keynes

Casebeer: "In your view was [the Black thirty-hour bill] a misguided approach to recovery?"

Keyserling: Yes, because I didn’t believe in sharing unemployment instead of creating jobs. The thirty-hour bill was an attempt to share unemployment by having a lot of people unemployed ten hours per week instead of a smaller number of people unemployed full time. My opposition to the shortened workweek has gone much further. When I was working closely with Walter Reuther many years later, when he was one of the main financial supporters of the Conference on Economic Progress, the labor movement started developing support for a shorter workweek, and Reuther asked me to help him oppose it. He said he just didn’t believe that the solution to the unemployment problem was shortening the workweek. He said we ought to have a shortening of the workweek only when we came to prefer more leisure rather than more work, and when we were productive enough to justify that, and our production needs were more fully met. But as an employment measure, he opposed it. Later, when we had so many recessions and so much unemployment, the labor pressure for a shorter workweek became so insistent even within the ClO, and later within the AFL-CIO, that Reuther stopped actively opposing it because it was futile, but he never actively supported it.

Keynes

"...the full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In U.S. it almost certainly will not do the trick. Less work is the ultimate solution (a 35 hour week in U.S. would do the trick now)."

"As the third phase comes into sight... say 10-15years after the end of the war, when investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises... It becomes necessary to encourage wise consumption and discourage saving, --and to absorb some part of the unwanted surplus by increasing leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours."

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Ike: September 23, 1952, the speech he didn't give

Ours is an age of interdependence. We all know this. We all know that no man and no nation can live alone.

So it is that all the problems we face—economic or political, domestic or international are intimately related. Last night In Cincinnati, I spoke to a great audience on the issues of war and peace; and in the course of that speech, I spoke of the grave menace of inflation.

Tonight, speaking to you mainly of inflation itself, I shall also be talking to you about war and peace. For, as you know, the inflation that afflicts our economy also affects the living standards and the political fate of nations all around the globe.

What I mean when I talk to you about inflation tonight is simply this: The continuing shrinkage of the buying power of our dollar.

The first fact about inflation is that it pervades every single aspect of our individual and national life. It aggravates the ceaseless struggle of the individual worker who feeds and clothes his family, no less than the global struggle to hold back the pressure of communism and the danger of war.

Secondly: I am going to state how the present Administration has let this peril grow to its dread size today.

Thirdly: I am going to state how the new Republican Administration will deal with the forces that are destroying the value of our dollar.

To begin with, it is not easy for any one of us to realize how close to him this peril is. To the casual eye, our economy looks as healthy and serene—and rewarding—as a stretch of rich Ohio farmland. But the eye that looks sharp and deep will find in this agreeable prospect a concealed minefield.

It is true that there is more money in existence, more being made today, than ever before in our history. But you know, just, as I know, that today's money simply doesn't go as far as the money we were paid in five years ago. Of course, everybody likes the comforting feeling of more money in his pocket, because it should mean that he is getting ahead. But today, we know that the comforting feeling is only an illusion. This illusion the Administration in Washington has systematically nourished and exploited for political gain for many years.

Here are some facts that will dispel the illusion:

The average American family had an income of $3550 in 1945. This average income had come up to $4800 by 1951. What did these higher earnings mean in the typical American home? Rising prices ate up nine tenths of the gain; rising taxes took the rest and a little more. The result: the family could actually buy less with its 1951 income than with its 1945 income.

This is a measure of the achievement of an Administration which loudly claims: Millions will vote for us—because "they never had it so good."

The peril, however, is not just of the present. Already it has begun to plunder our future. Individual plans for security in later years have shrivelled with the value of the money set aside. A $5000 policy written in 1945 has a purchasing power of only $3350 today. Pension plans have suffered the same fate, and so have savings accounts. If yours was an average family in 1945, you had savings of cash and securities of $430. Today that saying is worth only $300.

The Administration has so mismanaged our economy that in order to lose $130 in five years, a man needed only to deposit $430 in a savings account—and leave it there to waste away.

What a topsy-turvy triumph of an Administration whose press agents brag of its concern—of all things—for the American people's security.

Now all this strikes me with particular force for a particular reason. I have spent a number of years in western Europe, as you know, trying to help our friends there set their houses in order and in strength. I have seen these war-shaken countries grapple with terrible problems of shortages and prices. And, along with many other Americans, I have warned: You must strengthen your currencies, beat back inflation, set your economic affairs straight—or you will lose the battle with communism without a gun being fired.

How little we in our own United States have followed this sound course of action.

Clemenceau once said that war is too serious a matter to be left to the generals. Today someone might well say inflation is too critical a matter to be left to the politicians of expediency.

Now in what specific ways has the present Administration acted, or failed to act, so as to whittle away the purchasing power of the dollar? For here as in all great issues we face, the failures of the present Administration are the lessons of the next.

The inflation we suffer is not an accident; it is a policy. It is not, as the Administration would have us believe some queer and deadly kind of economic bacteria breathed into the atmosphere by Soviet communism.

This is the way a recent editorial in a great metropolitan newspaper put it: "Inflation is the calculated policy of the White House on the labor front, the fiscal front, the agricultural front." The point and purpose of this policy I have already indicated: to fool the people with a deceptive prosperity. The method is very simple: to give more people more money that is worth less.

The resort to "cheap money," like the resort to cheap politics, is not new. It is one of the oldest, most standard devices of a regime dedicated to perpetuating itself in power.

It is the mark of an Administration that cares more for the next election than for the next generation.

Back through the centuries, to the days of the Romans and beyond, governments have cheated their people by this simple process. It used to be called "coin-clipping." When feudal lords and local officials in the Middle Ages tried to make fortunes at clipping coins, they often ended by getting the severest punishment an outraged people could give, cutting off their hands.

We have a more humane and more effective remedy for today's coin-clipper—cutting them off from public office.

Now the weakness of the Democratic Party for "cheap" or "soft" money is well known. For the last 20 years, it has practiced this policy faithfully. Of late, it has given it a new twist: it is now called "controlled inflation." But this name does not mean what it says.

It really means inflation plus controls.

The way this policy has worked out is easy to describe. With one hand the Administration has been turning up the water pressure at the hydrant, while with the other hand it has been trying to check the water's flow. The Administration's controls over prices are nothing but weak stop-gaps. The really effective controls — those over money and credit—were ignored by the Administration. Resort to those controls would have paralysed their scheme to use "cheap money" for their own ends.

Now the Administration's liking for this idea of "useful inflation" confused even many of its own economists. A number of these men, angry or baffled—among them, Edwin Nourse and Marriner Eccles—resigned. Another result has been the spectacle of a struggle between the Federal Reserve Board and the Treasury Department over our country's credit and money policies. What would happen to an airplane in flight if the pilot and the copilot fought over the controls?

With the end of Wor1d War II and the scarcity of goods for people to buy, the Nation faced the threat of rapidly rising prices. You did not have to be an economic expert to know that these prices would soar unless sound credit and money restraints were used. The Federal Reserve Board has power to impose such restraints. But under a Fair Deal Administration, the power of this independent agency was hamstrung.

The conflict between the economists of the Federal Reserve Board and the politicians in the Treasury has been costly for the American people. Here is a brief lesson in Fair Deal economics:

The Federal Reserve Board in the last seven years repeatedly wanted to tighten money control~—to strengthen money by credit restrictions. The Treasury until very recently, refused to go along. To restrict credit and raise interest rates, would have meant an increase in the interest paid on Government bonds. Otherwise Government bonds could not compete in the open market and their sale would fall off. Such an increase in interest rates might have cost the Treasury a maximum of two billion dollars annually in the post-war years. So—to save this two billion—the Treasury vetoed the controls, thereby promoting a postwar inflation that has raised the cost of our defense program by some 70 billion dollars.

Public arguments about economics often leave many of us hopelessly confused. There is a great temptation to conclude that it is all too complex and that no one can do anything about it.

But this is not the case. For the matter of the Administration's failure to fight inflation wisely is almost beyond partisan debate. A distinguished Democrat from the State of Illinois, Sen. Paul H. Douglas, described the Administration's policies in three words: "Lax, confused and imprudent."

Of the way the Administration faced the price and credit problems right, after World War II, Sen. Douglas has said bluntly:

"The failure to take, restraining measures promptly and the actual supplying of more than a billion dollars of additional bank reserves . . . was, in my judgment, a gross blunder which far outweighed any offsetting gains to the American economic system."

This is the record of how the Administration got us where we are. In the process, it has collected and spent in seven years more taxes than all 35 previous administrations put together through 156 years of national existence. That is quite a price to pay for the kind of economic leadership we have been getting!

How, then, do we go about repairing this damaged and reclaiming our future? How do we get out of this mess?

Here—as in foreign policy and most other areas—the blunders of the past are our soundest lessons for the future.

First of all: We must erase the pernicious Administration maxim that says, "Inflation is the best policy." Here—as in every field of our Government—. It is not too late to go back to the simple truth that honesty is he best policy. It means an end to cheapening money. It means remembering an injunction of that forgotten man of the Democrat Party, Thomas Jefferson: "If we can prevent government from wasting the labors of the people under the pretense of taking care of them, they must become happy."

The next step—after we have a sane and honest economic program again—will be to carry it out efficiently. We shall not allow our Government agencies to fight at the expense of the American people. We shall create an atmosphere in which the Federal Reserve Board, as an independent agency, and the Treasury Department act not as political enemies, but as economic allies in the war upon inflation.

Next: The effective beginning of this war upon inflation must be an intelligent, planned attack on the spending program of our Federal Government.

Let us stop for a moment and see just what this means.

It means at the outset that businesslike methods must be applied to every program of the Federal Government to bring about efficiency and real savings.

We must, of course, meet the carrying charges on the national debt, fulfill our responsibilities to our veterans. Some other inescapable charges against the Federal tax dollar include the costs of Social Security and farm price supports. These are planks of the floor under our national well-being and money must be spent to maintain them. The danger is that the dry rot of inflation will eat still deeper into its planks.

These national programs urgently need the strength of a sound economy and a sound currency.

But today most of our dollars—2 out of every 3 in fact— are spent not on these programs, but on defense. Herein the area of greatest cost to the American taxpayer—I know that savings can be made. This does not mean slowing the speed or cutting the size of the rearmament program we need. No responsible citizen could foster such folly in today's world. it means subjecting all the Pentagon's costly operations to the scrutiny of business and professional examiners who can speak for the executive with expert knowledge.

I tell you this from my own experience: Informed, intelligent scrutiny of military spending can effect substantial savings in our huge defense program.

We must save those other sums, taken out of American pockets and bank accounts, that have for years bought nothing but governmental waste and corruption. How much this amounts to, we cannot know. We cannot expect the Administration to be eager to tell us.

But we can and will find ourselves, starting next January.

Now these simple steps:

Knocking down the Administration idol of cheap money, getting unified action from our economic agencies. And slicing the fat out of the Federal budget—these are serious, important beginnings in toughening our economy. It is clear that the major attack we make has to be on a front wider than just money and credit policies.

As I said at the outset: all our problems today are tied to one another, and none can be solved by itself. With tens of billions spent on armaments, another six to seven billion yearly on foreign aid, we see again that the soundness of our financial health at home depends on the soundness of our foreign policy.

The blunt truth is this: we cannot bear this huge burden indefinitely. We cannot—year after year, decade after decade— both maintain our standard of living, finance huge armaments, and help to rebuild economies of nations all around the globe. We cannot, in short, win the peace with foreign policy of drift, makeshift, and make-believe.

We must 'honestly face the fact that such a policy not only fails to secure the peace: it also places the hopes of the free world in jeopardy by the strain it puts on our economy., and by the confusion it creates in other lands.

There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduction in arms output might biring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? According to this way of thinking, the success of our foreign policy would mean a depression.

THERE is, of course, one answer to such an argument that the Administration on its record cannot give. That is a soundly conceived program of tax reduction, Such an approach would seek to fill the economic gap left when rearmament can be reduced. Tax reduction is a way to boost consumer buying power and to let the people spend their own money instead of the Government spending it for them. ft is a way to breathe new life into industries throttled by Federal sales or excise taxes. It Is a. way to open new opportunities to the genius of American businessmen and the skill of American labor. Here, too, is the way to give State and local governments—in need of help for long-delayed school projects and highway programs — a fairer share of the tax dollar.

Such an approach—tax reduction is an essential part of our program to achieve prosperity without war. To this theme I shall return more fully at a later time In this campaign.

I have confidence in the good sense and skill of leaders of American business and labor. Because of this confidence I cannot share in any forecast of economic doom. But my concern for America’s future is tOo keen for me to leave unchallenged those who boast our prosperity is sound and deeply rooted. Much as we wish that it were, there stirs in Americans today a haunting sense of insecurity.

Prosperity—like peace—is not just a skirmish, but a continuing campaign to be vigilantly waged.

Prosperity—like peace—cannot be won by policies that never rise above the level of playing by ear or of seeking votes.

Prosperity—like peace—cannot be won by a Government divided against Itself.

I remain hopeful of our future. The party, too long In I power—worn and weary in office—threatens Americans with bogeys from the past.

They offer to us Americans only one choice: the choice between today and yesterday. But that is not the choice we have. The true choice is between an uneasy today and a confident tomorrow that can be abundant and secure. [?] Americans will make that choice.

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King of Hearts

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Primitive Communism Or Anarchism In Tanzania?

The December 2009 issue of National Geographic has an article about a tribe I had never heard of before, one of the last hunter-gatherer groups in the world, the Hadza of northern Tanzania, now under pressure from outsiders to end their way of life. They are apparently very selfish, grabbing food without any sharing or order, and not particularly caring about each other too obviously, with someone just being thrown into a hole in the ground when they die without any ceremony. However, they do represent that vision of that primitive communisim/anarchism and all its idealized purity, although the author, Michael Finkel, may be romanticizing. Anyway, here is a quote from near the end of the article (p. 118)

There are things I envy about the Hadza -- mostly, how free they appear to be. Free from possessions. Free of most social duties. Free from religious strictures. Free from family responsibilities. Free from schedules, jobs, bosses, bills, taxes, laws, and money. Free from worry. Free to burp and fart without apology, to grab food and smoke and run shirtless through the thorns.

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Have I Been Wrong About Iran And Nukes?

I have long argued going back to the old Maxspeak that US attitudes towards the Iranian nuclear program were hysterical, given the fatwa against nuclear weapons by its Supreme Leader, Ayatollah Khamenei. That they did not have a nuclear weapons program was long supported by the highly respected director of the IAEA, Mohammed ElBaradei. Now, his last act before stepping aside on Dec. 1 has been to censure Iran for secrecy in its program and pulling back from the agreement with the US I praised quite recently, with Russia, China, and India joining in on the censure. Have I been wrong all along on this?

Maybe, but maybe not. Juan Cole at http://www.juancole.com argues that Iran is still not actively pursuing nuclear weapons, but that there is a power struggle going on within it, with Khamenei on one side and the more militant Revolutionary Guard on the other, with the latter winning. He says they want the "Japan option," a "rapid breakout capability," but not actual weapons, and they are defeating Khamenei on this. It is their rise that explains the pullback of Iran from the agreement with Obama, which was negotiated by a personal representative of Khamenei, who has now been repudiated. None of this is good news, but it is also not the end of the world exactly either.

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An Idiosyncratic Perspective on the Economy and Economics

I have completed the last part of my lecture and have edited it. I still hope to incorporate data on the defunding of higher education.

http://michaelperelman.wordpress.com/files/2009/11/bss.pdf

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Thoughts on the hacked climate change e-mail

One of the problems is that science has become politicized. Industries hire hacks (including scientists) to attack any science that does not meet their needs. Think of the Chamber of Commerce's recent call for economists to write a paper that will attack health care.

Under constant attack, scientists may feel the need to "play defense." Just like a football team that keeps its practices secret to prevent opponents from learning their plans, scientists may well become insular.

In this way, industry destroys good science, which should depend on sharing of information.

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Encomium To The Bielefeld And Ancona Schools: A Way Forward In Macroeconomics?

Mark Thoma has linked to a post by Rajiv Sethi on the significance of nonlinear macrodynamic models derived from that of Richard Goodwin in 1951. I see this tradition linking with that from Minsky in two current schools of macroeconomic thought that I see as offering a wise way forward, the Bielefeld School and the related Ancona School. The former stresses "Keynes-Metzler-Goodwin" dynamics in such books as _Foundations for a Disequilibrium Theory of the Business Cycle: Qualitative Analysis and Quantitative Assessment_, 2005, Cambridge University Press, by Carl Chiarella, Peter Flaschel, and Reiner Franke, in the Foreword to which I coined the moniker "Bielefeld School," labeling it a species of Post Keynesianism, although some of them do not like that because of a perceived anti-math bias among some Post Keynesians. The "Ancona School" (a term I believe that I am neologizing here now) is exemplified by the recent book by Domenico Delli Gatti, Edoardo Gaffeo, Mauro Gallegati, Gianfranco Giulioni, and Antonio Palestrini, _Emergent Macroeconomics: An Agent-Based Approach to Business Fluctuations_, 2008, Springer. While the former school is somewhat more aggegated-oriented and the latter is more "bottom-up" agent-based oriented, they link through the University of Urbino where chaotician Laura Gardini, a sometime coauthor of Delli Gatti and Gallegati, has held conferences where they have interacted with Carl Chiarella, who has become involved with agent-based modeling of financial and economic markets. Both schools emphasize modeling nonlinear interactions between financial and real output markets.

The Bielefeld School is somewhat older, with most of its members being based elsewhere, but with much of the work in terms of numerous books and papers being done while those people have visited Bielefeld, where Peter Flaschel has been permanently based. Chiarella's main base is the University of Technology-Sydney while Franke is at the University of Bremen. Some others who have coauthored with this group include Willi Semmler who is halftime at Bielefeld and the New School (where mentor Duncan Foley is located), Toichiro Asada of Chuo University in Japan, Peter Skott of the University of Massachusetts-Amherst (who provides a link to more conventional Post Keynesians such as Phil Arestis), and Rajiv Sethi himself, who was a grad student at Bielefeld for two years and has coauthored with Franke, among some others.

The key figure in the Ancona School is Mauro Gallegati, with all the authors of the above-mentioned book being his former grad students (I think) except for longtime coauthor Delli Gatti who is at Milan with Pasinetti, with both of them having worked with Minsky shortly before his death. Gallegati co-founded with Alan Kirman the Workshop on Economic Heterogeneous Interacting Agents (WEHIA, also known as ESHIA), which now has its own journal, the Journal of Economic Interaction and Coordination. Besides his c0-founding role, Gallegati's home base in Ancona deserves the moniker for this school as the conferences of WEHIA for the first several of its years of existence took place there at the Universita di Politecnica de Marche (sp?), where Gallegati is based. He and Kirman and some others edited volumes of proceedings from those conferences, most of them published by Springer. Again, while these two schools have some differences in their approaches, I see them as closely related in methodology and general views, and some combination of the two looks to me to provide as good a view of what is going on now as we have, as well as a promising way forward in terms of research and understanding.

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Pondering Panacea: "Who Farted?!!"

A perennial puzzle for advocates of work time reduction is the angry rejoinder that one is promoting a "panacea". The knee-jerk indictment flies off the pigeonhole shelf so fast and furious one has to duck to avoid being clobbered by ricocheting chunks of boilerplate. Elinor Ostrom et al. offer an explanation. "In the governance of human-environment interactions, a panacea refers to recommendations that a single governance-system blueprint (e.g., government ownership, privatization, community property) should be applied to all environmental problems...."

Advocates of panaceas make two false assumptions: (i) all problems, whether they are different challenges within a single resource system or across a diverse set of resources, are similar enough to be represented by a small class of formal models; and (ii) the set of preferences, the possible roles of information, and individual perceptions and reactions are assumed to be the same as those in developed Western market economies.

"As proponents of collaborative approaches to resource management," Conley and Moote were, "unnerved by the ways in which these processes have been portrayed as a cure-all." Now, who is most likely to portray collaborative approaches as a cure-all? The culprits are those who insist the loudest that the only solution is privatization... government regulation... or government ownership or spending.

Look again at those two false assumptions of the panacea peddlers: small class of formal models; preferences and reactions typified by market economy. The clue here is that the purveyors of the most stereotyped blueprint solutions have adopted the cry of "panacea!" as their first defence against any threatening non-orthodoxy. The model for that behavior is that of the flatulent school-boy who preemptively demands "who farted?!" as a strategy for asserting his innocence by alleging someone else's guilt. The corresponding conclusion can only be "he who smelled it, dealt it."

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Temperatures rising - this time it's the H1N1 Pandemic

"....The interviewee asserted that doctors have provided professional assistance to patients, including those provided them with all the necessary drugs, which, however, did not lead to recovery. "It's an infection, which, when it enters the body can not handle: three days and people die," - she said. According to doctors, among the dead - three young people aged 26-27 years, one 11-year-old child and 40-year-old man. The employee also said the city polyclinic UNIAN that the most likely cause of death is some unknown virus. She noticed that, as a rule, for the entire period of the season increased risk of influenza in the region died of 1-2 persons. "Nobody knows anything" - she described the situation with the patients. She also expressed the view that the virus has an effect similar to AIDS, which weakens the immune system. "Something is killing immunity", - said the doctor.The employee called the local hospital and the inadequate diagnosis of the causes of deaths - "poslegrippovye complications", stressing that they may occur after a person was sick for some time. "Influenza can give a complication in the kidney, for example, but it later - after the disease" - she said...."[1]

A new strain of H1N1 influenza virus (swine flu) began in March this year. “Localized outbreaks of influenza-like illness (ILI) were detected in three areas initially in Mexico and soon after in the United States. Following the discovery of the new strain in the United States, its presence was quickly confirmed in multiple nations across several continents.”[2] In April 1,600 suspected cases were reported.


In early October an epidemic of a more lethal strain of H1N1 began in the western part of Ukraine. “The epidemic began in Ternopil, Ivano-Frankivsk and Lviv … The services of the Ministry of Health delayed reaction to the obvious trends and threats have failed to take necessary preventive measures to reduce threats to life and health. Real assessment of the situation was given only 27-28 October, but the appropriate response measures were not adopted.” [3]

By early November the alarm in the Ukraine had been well and truly raised. In his address to the nation Victor Yushchenko stated: “ People are dying. The epidemic is killing doctors. This is absolutely unprecedented and inconceivable in the XXI century.” He asserted that there were three types of influenza currently spreading throughout the country, two kinds of seasonal flu and the H1N1 strain. This “may lead to the emergence of an even more aggressive new virus”, Yushchenko said [4]. Actual, although not declared martial law is instituted. The Ukrainian Health Minister Wasilij Kniazevicz is reported to have asked the country’s top prosecutor to open criminal proceedings against those who are opposed to the implementation of the mass flu vaccination campaign. President Victor Yushchenko announced the National Security and Defense Council [NSDC - a government body consisting of the president himself, the chairman of parliament, the prime minister Yulia Tymoshenko the head of the Security Service of Ukraine and other high ranking ministers] will become the supreme ruling authority. The NSDC was immediately instructed “to begin preventive and promotional work in areas where there is no epidemic”. Anyone that fails to comply with the NSDC will “result in application to the law enforcement authorities.” [5]

By the 10th November more than a million people in Ukraine had become infected. [6] The pandemic appears to have quickly spread to other parts of Europe. See map.

The mortality and morbidity statistics for this flu pandemic in the Ukraine appear to be significantly understated. Despite a very dramatic rise in the incidence of the disease, the death stats present a picture of a remarkably low and stable death rate. Further, mortality stats for this swine flu epidemic are notably lower in the Ukraine than they are in the US. Why? The Ukraine health facilities are very poor in comparison.

The H1NI virus is reported to be at a tipping point for lethality. Minor changes, such as a single change in one gene segment, can have major effects [7].

There's been no media coverage on this pandemic at all in the Australian media as far as I am aware.

[1] Post subject: Re: situation on Ukraine
PostPosted: Fri Oct 30, 2009 8:45 am
http://fluboard.rhizalabs.com/forum/viewtopic.php?f=5&t=2474&start=20


[2] Swine flu outbreak threatens pandemic
27th April 2009.
http://www.scientistlive.com/European-Science-News/Medical/Swine_flu_outbreak_threatens_pandemic/22204/

[3] Read more: http://trancy.net/2009/11/01/november-1-ukraine-ua-situation-update/#ixzz0Y3fmmlNA
From: November 1. Ukraine UA Situation Update
http://trancy.net/2009/11/01/november-1-ukraine-ua-situation-update/

[4] President's address to the Ukrainian people on the occasion of flu epidemic in Ukraine
Press office of President Victor Yushchenko. 04.11.2009 19:00
http://www.president.gov.ua/en/news/15609.html

[5] Actual, although not Declared MARTIAL LAW In Ukraine
* Posted by Jaro on November 8, 2009 at 3:39am in The Townhall
http://www.tcunation.com/forum/topics/actual-although-not-declared

[6] A million infected in Ukraine flu epidemic: minister
(AFP) – Nov 10, 2009
http://www.google.com/hostednews/afp/article/ALeqM5igljlXmqY49TbADWAZteRNljNEnQ

[7] niman
Post subject: Re: situation on Ukraine
PostPosted: Sun Nov 01, 2009 9:49 pm
pw123 wrote:
So you are bascally implying that this is evidence that H1N1 and it's eight genomes has mutated into a more severe form. Increased virulence / lethality can involve one change on one gene segment. H1N1 is at a tipping point, and minor changes can have major effects.
www.twitter.com/hniman
See: http://fluboard.rhizalabs.com/forum/viewtopic.php?f=5&t=2474&start=260

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Elite Ignorance on Health Care?

Jonathan Gruber is a health economist from MIT -- an expert, no doubt. David Leonhardt quotes his favorable comment on the Senate health care bill: "I can’t think of a thing to try that they didn’t try."

Leonhardt, apparently, never bothered to ask him about single payer.

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Obama and the Continuing Disintegration of the Center-Left

I was going to post something about Obama’s apparent decision to endorse a “compromise” semi-surge in Afghanistan, but then it occurred to me that there is nothing new to talk about; it is the same old, same old. He is continuing his own pattern of leading-by-following, and in this he is representative of the global center-left, which has been slowly putting itself to sleep since the 1980s. This is worth a few words, perhaps.

In a sense, it all goes back to the return of the hard right as a potent political force in the 1980s. This was more pronounced in the English-speaking world than elsewhere, but a parallel pattern can be seen in societies that had stronger social-democratic traditions. For various reasons, the leading parties—the Democrats in the US, Labor in England, the Social Democrats in Germany, the Socialists in France, the party-of-the-month in Italy (currently the Democrats)—came to redefine themselves as the non-right. Vote for us, they said, and prevent the right from undoing our former hard-won victories.

In part, this transformation reflected a misreading of the new political climate. The problem was defined as “appealing to the voters” and assembling a governing majority, but this was the symptom, not the cause. As a mass of polling data largely confirms, there has been no seismic shift in public opinion; this is not why the roll-back right has gained the initiative.

In a capitalist society, where prosperity depends on business investment and politicking itself is a capital-intensive enterprise, governing majorities are always assembled from the top. First there must be a sufficiently large segment of business and financial interests willing to mobilize behind a political project, and then this project must be sold to the electorate. The rise of the right is based in large part on the coalescing of such a mosaic of elites behind their program. Sometimes they win and sometimes they lose in their pursuit of an electoral majority, but they are always a force, and each win further institutionalizes their objectives.

The core problem of the center-left is that they do not have a base in the business/financial upper tier, except as a brake on the ambitions of the right. In other words, they do not have a program that can attract the support of enough of these interests, which they can then take to the voters. But without a program they become progressively less effective as political mobilizers, and they achieve little to nothing in their terms in office.

In Europe the crisis of the center-left has reached its Wiley Coyote moment. In most of these countries the political system is organized to permit a number of minority parties, and voters who still believe that parties should have programs have abandoned the center-left dinosaurs for these alternatives. In no country, however, is there any prospect that one of the newcomers, or even a coalition of them, will succeed in governing. The triumph of the right, in the context of one of capitalism’s worst traumas, is mainly a matter of filling a vacuum.

In the US the Democrats stumble on as the party of the non-neocons. The Bush legacy elected Obama, just as Clinton survived thanks to the willingness of Newt Gingrich to periodically scare the bejesus out of everyone with a modicum of reality contact. But there has been and is no program. Obama’s “program” in health care is to get a bill passed, whatever its content. His “program” on climate change is to get a bill passed, eventually, of some sort. His “program” on finance is to prevent a collapse and hope that the system will reform itself. His “program” on Afghanistan is to identify the minimum number of additional troops that will protect Democrats from the accusation that they are soft and unpatriotic. In short, he is likely to further hollow out the Democratic Party as a political enterprise and leave little legacy of social progress. The only reason the Democrats will not implode as their European counterparts have is that our system effectively excludes minority parties, and the Republicans are scarier than ever.

We need a dramatically different direction in politics.

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Hackers, Hockey Sticks, and Hot Air

By now most have heard about the hacking of emails at the East Anglia Climate Research Unit, with revelations of questionable conduct by Michael Mann, Phil Jones, and others, including apparent efforts to cover up embarrassing facts and manipulate refereeing processes at journals. There have been piles of posts all over, and many people spouting off about this, with global warming skeptics pronouncing this to be the definitive proof that they are right (or at least not as unprofessional as some of those arguing for anthropogenic global warming). I note the response of those at the CRU. I also note that they should indeed be embarrassed at some of which has been uncovered.

It is indeed unfortunate that the scientific discussion has degenerated into such a slime pit of personalistic attacks and exaggerations. The skeptics are on the attack now, but the other crowd has attacked as well, and much of this is truly internecine. Thus, two of the major contenders and players in the emails are Michael Mann and Patrick Michaels. They were both in the same department at the University of Virginia for some time and were both there when the great controversy over the "hockey stick" erupted (neither are there now). This was a diagram first cooked up by Mann that showed rapid recent warming compared to earlier periods, which received lots of publicity, including in one IPCC report. It turned out the original study was flawed in terms of both data and statistical methodology. Some of the more pathetic floundering in the emails surrounds this. However, it must be noted that more recent data and better statistical methodology has largely confirmed the hockey stick result. We have been in a period of amazingly exceptionally rapid warming recently.

I will also note that this hack job may well be revenge for an attack from the other side on Michaels that was overdone. This was triggered by a Paul Krugman column on May 27, 2006, in which he attacked Michaels for testimony he gave a Senate committee about other testimony by James Hanson. While I agreed that Michaels could be criticized for some of what he said (just as I think Mann and crew can be criticized for some of what they have said), I thought at the time and said so in various places that the attack on him was overdone. One can read Brad DeLong's account of Krugman's argument, Michaels' own defense of himself, and Hansen's take on it. This stuff has been going on for some time.

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Michael Perelman Needs Help ASAP

The school invited me to give the annual lecture on December 8. I'm trying to copyedit The Invisible Handcuffs, finish two articles before a December 1 deadline, and grade papers before school starts next week.

My idea is to show how ideas evolve with my books, paralleled with both the course of the economy and the course of higher education, particularly in California. I don't have much data on education yet.

I have roughed out the first draft of the talk, which I'm sure will have a lot of problems. If anyone has any these suggestions for improvement, I would be more than grateful.

http://michaelperelman.wordpress.com/files/2009/11/lecture.pdf

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Judith Miller on the Economics Beat

I will leave it to Dean Baker and Paul Krugman, who get paid to do this, to tear into the errors and absurdities of this latest bit of agitprop from the New York Times on the phantom menace of fiscal deficits. What I would like to raise is the issue of institutional responsibility. You would think that the Times might have learned from its earlier foray into phantom WMD’s that playing the lead public role in a campaign of deception can have devastating consequences, particularly if the end product is a policy that implodes on its own mythology. This is what happened in Iraq: blatant falsehoods published as fact in the news outlet that feeds stories to the rest of the media (now that they have downsized their own news-gathering forces) came back to haunt them when, instead of WMD’s, soldiers were met with IED’s.

Let’s hope this campaign to reproduce 1937 is the inspiration of a rump group in the financial elite with little influence on actual policy. If deficit-cutting becomes the new imperative in Washington, however, and the economy duly melts, we will have to suffer through more public contrition on the part of the Times’ editorial brass.

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Jamie Galbraith's Call to Arms

Jamie Galbraith rallies the faithful: "Sorry to be defeatist - it’s the way I feel. Prove me wrong."

Seventy-six years ago a Senator from Alabama — yes, Jamie, Alabama — proposed a solution to an earlier unemployment crisis. And you know what? The Senate approved it 53-30. But the Big Boys objected and we got the NRA instead. "It will be remembered," wrote brain truster Rexford Tugwell, "that one of the reasons why NRA was sponsored by Roosevelt, and why the act was passed in the special session of spring, was the threat of a thirty-hour law being pushed by Senator Hugo Black." Tugwell was wrong. It has not been remembered. It is forgotten that Roosevelt only acted in the face of a more radical mobilization.

The problem with the solutions you propose, Jamie, is that they are the kind of moderate, respectable responses that might be forthcoming from an Obama administration if (and only if) there was momentum building for a more radical response to the jobs crisis.

There is a 240-year arc to this crisis, a 60-year arc and a 30-year arc. The 240-year arc is "capitalism". The 60-year arc is "the cold war" and the 30-year arc is "neo-liberalism". Until enough people understand how those three arcs relate to each other, there’s not going to be any resolution of this crisis. Moving beyond the neo-liberalism of the last 30 years cannot mean restoring some solution from a more distant past. What is most frightening about the present crisis is that its resolution has the potential for a previously inconceivable degree of emancipation. It is precisely the THREAT of freedom that is evoking such great resistance.

"Civilization has to defend itself against the specter of a world which could be free. If society cannot use its growing productivity for reducing repression (because such usage would upset the hierarchy of the status quo), productivity must be turned against the individuals; it becomes itself an instrument of universal control."

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The world that made us and the world we made

In June this year an Australian by the name of Paul Gilding made an interesting statement about the cause of the global financial crisis. Gilding gives public talks around the world highlighting the alarming issue of global climate change. In his talk he said that in July 2008 the world entered ‘the crash’ that resulted from a planetary economic and environmental system pushed to its limits.

“….We entered the crash then because oil prices were going through the roof, because of supply issues. Food prices were going through the roof because climate change was crashing the Australian wheat crop and rice crop, and therefore we had food spikes around the world for that and other reasons. We had floods since then in the US destroying the corn crop. This is climate change. This is what we forecast would happen, that you would get distributed impacts, hard to pinpoint a specific cause …. nevertheless would have impact on the economy. That's what we were seeing. We saw oil prices going up because consumption in China was going ahead of forecast, right? So that's what happens when you push a system against its limits, right? It bounces and it has the responses, and those responses are resource prices going up, ecological systems breaking down, the biggest-ever melting of the North Pole sea ice, right?…” [1]

‘Distributed impacts’, an interesting concept for economics. We could imagine that the global economy collapsed last year because of a giant financial ponzi scheme reaching its logical conclusion. However, the existence of diverse (and much more widespread) currents of collapse in the environment and society could explain why this apparently mindless financial engineering game existed in the first instance.

For instance, over the 20th Century it is possible to see the games of Empire being played by out in a way that increasingly impoverished what we now call the ‘third world’. Barnet and Muller, in their 1974 book entitled ‘Global Reach’ point out that in 1900 people in poor nations had ½ the per capita income of rich nations. By 1970 their income had dropped to 1/20th, as measured in 1900 dollars [2]

During that same century the ‘advanced societies’ began to experience “a doubling of the total output of goods and services…every fifteen years.” And the doubling times were shrinking. [3]

Ironically, but not surprisingly, economists by 1976 were talking about a global recession. Jim Cairns, a left-winger heterodox economists from down-under pondered whether the stagflation that existed at the time was one of the implications of the development of ‘bigness in capitalism’. He said things were not so different in Australia compared to the rest of the ‘advanced’ world where “some 2 percent of the companies control about 50 percent of 'gross national product' in some way or another.” [4]

It seemed logical to many writers and thinkers that the increasingly warped wealth distribution in the world would lead to ongoing economic crisis. A very disturbing consequence of this imbalance was that the political power had also concentrated. The corporate elite constituted “a hierarchy developed and run from the economic top down.”

“The chief executives are now at the head of the corporate world…In them is vested the economic initiative, and they know it and they feel it to be their prerogative. As chiefs of the industrial manorialism, they have looked reluctantly to the federal government’s social responsibility for the welfare of the underlying population. They view workers and distributors and suppliers of their corporate systems as subordinate members of their world, and they view themselves as individuals of the American individualistic sort who have reached the top.” [5]

The markets that this new power elite created were not politically neutral. The ideological power of the forces of globalisation

“have a strong preference for measures that reduce inflation at the expense of higher unemployment, for measures that reduce public spending in ways that diminish welfare provision, and for precedence to be given to ‘development’ over environmental protection… Globalisation is thus not just the spread of corporate and financial activity: it is the spread of political ideas backed by economic power.” [6]

A war ensued. It was waged on the planet’s atmosphere, on the land, sea and other conditions of life. The number of malnourished people in the world has increased by about 20% in the last decade, from 800 million to near a billion people… global warming is already making itself felt in the drying out of grain producing areas in Australia, China, Africa, and arguably the American west…. we are already consuming more resources than the Earth can sustain by any reasonable measure.” [7]

The truth is that the Ponzi scheme began a hundred or more years ago. We’ve been drawing heavily from our capital and presenting this as ‘wealth creation’. Capitalism was ‘sped up’. Space was substituted for time and that meant, according to Theresa Brennan “that neither the environment nor the people who live in it are given the opportunity to regnerate.” [8]

Regulation of the global financial system won’t cut the cake. There needs to be a move away from streamlined thought produced by the machinery of propaganda. Can we no longer differentiate between the world that made us and the world we made? If we could, would we see that corporations are more often not the creators of wealth - their efficiency often merely lies in how quickly they can usurp natural and human capital. Militarism and empire strategies make the concept of ‘comparative advantage’ in trade null and void. ‘Freedom’ is not the right to impose our will on our environment in violation of natural laws. ‘My country’ is the world. ‘The crisis’ is not a deficiency of demand but one of supply. The earth does not belong to man – man belongs to the earth.

[1] The great disruption. Paul Gilding. 14th June 2009
http://www.abc.net.au/rn/backgroundbriefing/stories/2009/2592909.htm#transcript

[2] Richard J Barnet & Ronald E Muller. ‘Global Reach – The Power of the Multinational Corporations’. Touchstone publishers. 1974. Page 190.

[3] Alvin Toffler ‘Future Shock’. Pan Books. 1970 Pages 31 and 32

[4] [1] Jim Cairns 'Oil in Troubled Waters' Widescope International Publishers Pty Ltd, Camberwell Victoria. 1976. pp 133-134. As quoted in:
Bigness in Capitalism. Brenda Rosser. October 2009
http://econospeak.blogspot.com/2009/10/bigness-in-capitalism.html

[5] C Wright Mills, ‘The Power Elite’ Oxford University Press. 1956. Page 165.

[6] Clive Hamilton ‘Growth Fetish’. Allen and Unwin, 2003. Page 118

[7] Silent Armageddon?
by Alexis Zeigler for Culture Change
http://greenertimes.wordpress.com/2009/03/01/gt-for-march-2-8/

[8] Theresa Brennan ‘Globalisation and its Terrors’ Routledge 2003.

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Prosperity without Lumps

Ed Crooks reviews Prosperity Without Growth in the Financial Times:

Jackson, a professor of sustainable development at Surrey university, has thought hard about the subject. His prose is lucid and lively, and many of his policy prescriptions are sensible....

Yet for all these strengths, his argument is flawed...

His only idea that could put the brake on growth would be cutting working hours. Here he takes the economist’s famous “lump of labour” fallacy – the idea that there is only a fixed amount of work to do that has to be shared round – and suggests it should be a goal of policy. Yet in anything other than a perfect utopia, the idea that there is no more work that needs doing is ludicrous.

Indeed, the idea that "there is no more work to be done" would be ludicrous. But that's not the same idea as the idea that we need to make up wasteful things to do just to keep people in jobs.

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Galbraith Replies to Keyserling

Said Galbraith: "Mr. Keyserling has been reading my books and watching my actions for the last 10 years and finding evidence of wickedness which even I would not have thought possible. Feeling as he does, he was certainly right to alert the public."

Washington Post, February 15, 1968:

John Kenneth Galbraith, national chairman of the Americans for Democratic Action, took formal notice yesterday of charges that he has long been engaged in a devious campaign to defeat President Johnnson.

The accusations were leveled Tuesday by fellow economist Leon H. Keyserling in a protest against ADA's weekend endorsement of Sen. Eugene J. McCarthy for President.

Said Galbraith: "Mr. Keyserling has been reading my books and watching my actions for the last 10 years and finding evidence of wickedness which even I would not have thought possible. Feeling as he does, he was certainly right to alert the public."

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California Collapsing: What Would Reagan Do?

When he was in office, Ronald Reagan looked bad. Now, by today's standards, he looks like a progressive.

Reagan, Ronald. 1973. "On Spending and the Nature of Government." National Review (7 December).

"When I took office in 1967, we discovered that the promise of "no tax increases" could not be carried out. California was virtually insolvent, the precious administration having changed that state's system of budgetary bookkeeping in a way that allowed the spending of 15 months' revenue in twelve months' time, thus avoiding a major tax increase in election year 1966. The state government was spending $1 million a day more than it was collecting."

"California, unlike the Federal Government, cannot print more money or pile up deficits. The governor is required to submit a balanced budget, and if any additional taxes are needed to balance revenues with spending, the constitution requires the governor to propose higher taxes."

"So our first major lesson in government was painful: for the taxpayers and for us. We had to increase taxes by some $800 million to balance the unbalanced budget we inherited."

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Barmy and Clyde

Clyde E. Dankert was a "widely respected" labor economist who in 1965 edited an Industrial Relations Research Association volume on Hours of Work. His textbook, Contemporary Unionism in the United States, was published in 1948 by Prentice-Hall. I have read some bizarre attempts to explain the inexplicable "lump of labor fallacy" but this one is delirious. In it, Dankert claims that those who believe a given reduction in the hours of work will result in a permanent reduction in unemployment subscribe to the lump of labor fallacy. What do you call it when an argument doesn't even have enough solid straw in it to qualify as a straw man?

For a permanent reduction in hours, the fact must be recognized that the volume of unemployment, both technological and non-technological, can be as large with industry operating at a low hour-level as at a high one. The forces which produce unemployment can operate just as effectively, and just as disastrously, when the length of the working-week is thirty hours as when it is forty or fifty hours. It is still true, however, that a permanent and a more or less general reduction in hours will cut down the amount of technological unemployment. Here we must distinguish between the movement to the lower hour-plateau and the arrival at it. The transition will without any doubt lessen the amount of unemployment for the time being. But when once the new level is reached and the necessary adjustments in industry have been made, there is no reason for believing that the volume of unemployment will continue to be less than it had been. To argue to the contrary is to subscribe to the lump-of-labor (or fixed work-fund) fallacy. [No, to argue to the contrary would constitute a level of incomprehension that couldn't be encompassed by the term "fallacy". But no advocate of shorter working time ever "argues to the contrary" that a given reduction in hours will result in a permanent solution to unemployment so just what is the point of this red herring?]

If, as the productivity of industry increases, the length of the working-week is gradually reduced, the amount of technological unemployment can to some extent be kept down. But the hours should not be reduced commensurately with the increase in productivity. If that is done, the living standards of the workers will be frozen at their existing levels. [Here, however, is a fallacy. The living standards of the workers will not be "frozen" because with fewer hours of work they will have more free time.] From the standpoint of human well-being it would be a gross mistake to take all the gains that are made in productivity in the form of increased leisure. Some of the gains should be taken in the form of more production and higher material living standards.[From the standpoint of writing a college textbook it would be a gross mistake to issue personal value judgments as absolute principles without giving reasons for that opinion.]

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Reducing Financial Complexity: A Different Take on Transaction Taxes

I’m working on a project that involves, among other things, looking at taxes on financial transactions, and I’ve thought myself into an idea that I’d like to float to our skeptical readership. The short version: Tobin taxes, Keynes taxes, and other financial transaction taxes have been sold on the grounds they would reduce price volatility. There is some controversy about this, and the case is not at all clear. I think, however, that increasing transaction costs could have the effect of reducing the complexity of trading strategies, and that might be a very positive thing.

The original proponent of a transaction tax was Keynes, who wanted to apply it to the stock market. He thought that it would have the effect of penalizing speculative strategies with high turnover, while rewarding buy-to-hold strategies. His views on financial markets as casinos are well known, and the tax proposal fits like a glove. Tobin, writing after the collapse of Bretton Woods and its fixed exchange rates, zeroed in on foreign exchange transactions. He worried about excess volatility in currency markets and applied Keynes’ logic to that sphere.

The argument about “real” versus “speculative” motives for transactions is plausible but much too simple. In particular, it makes assumptions about hedging strategies that are unfounded. The simplest version of such a strategy is that you take a position in the forex markets that is the reverse of the one you take in your real (goods and services) transactions. This means that you would double the volume of real trade to get the real-plus-hedged component of forex transactions, and as we know the latter is a vast multiple of the former.

But hedges can be quite a bit more complicated. One can try to hedge a variety of risk factors, not only exchange rates but also interest rates, commodity prices, etc., and these risks may interact in nonobvious ways. Moreover, one can shade or fine-tune a hedge, or generate a package of hedges that have properties that a simple reverse-position transaction cannot emulate. Without knowing the deep microstructure of these markets, it is impossible to know a priori how much of the transaction volume is risk averting (hedging) rather than risk-seeking (speculation).

Empirically, there have been studies that claim that transaction costs (which a transaction tax would augment) have been positively associated with volatility in foreign exchange markets. These, to my knowledge, have not been refuted.

As I see it, the intellectual and political winds have therefore shifted on transaction taxes. Keynes and Tobin wanted a tax big enough to change behavior, because they thought markets needed to be checked. Contemporary proposals, which are gaining momentum, have much lower tax rates precisely to avoid altering the behavior of market players. We are now hearing about a tax of a basis point or less on the value of transactions, not enough to change the way markets work, positively or negatively.

But I think the fixation on the terms of contracts (short term vs long) misses the point. A transaction tax penalizes a trading strategy according to the volume of transactions it entails. Consider again the hedge. A reverse position is the simplest hedge, and it consists of just one transaction. Granted, it may be too simple to meet the needs of sophisticated players, but this is not an argument for unlimited complexity.

Complexity renders market positions opaque and creates potential for systemic faults that are invisible even to the well-trained eye. Note that transaction costs fall as one moves from simple/actual transactions (like spots and outright forwards) to more complex ones (derivatives). Apparently such costs were not sufficient to prevent the emergence of fantastically complex strategies that entailed taking conditional positions in a plethora of markets simultaneously—a complexification that culminated in collapse. The conclusion appears to be that these costs need to be raised.

In other words, it is not the term of the trade that should attract a tax, but the sheer number of such trades to support a single position-taking.

I have argued previously that there was a dialectical relationship between the complexity of trading strategies and the extent of leverage. More leverage justified putting resources into increasingly complex strategies that offered minuscule margins. The perception that such mini-margins could be attained as a sure thing (all risk offloaded) justified leveraging that would otherwise have been viewed as outré.

Hence there may well be a case for a large enough transaction tax to alter behavior, but with a different purpose. The issue is not how much volatility it discourages, but how much complexity and inducement to excess leverage..

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How Digital "Piracy" Creates Value.

EBay just sold a large portion of Skype after a long legal dispute with Skype's founders. What interested me was the Skype's code evolved from the founders' earlier venture, the file-sharing system, Kazaa. In effect, the experience with the "illegal" Kazaa allowed the founders to develop technology that had a great value, especially for people communicating internationally.

The founders, Niklas Zennstrom and Janus Friis, blocked the sale for a long time on the grounds that EBay violated an agreement not to tamper with the code without their approval. In effect, Ebay acted like a pirate, while the pirates became anti-pirates.

Perhaps someday someone will catalog all the other benefits that that the pirates developed.

Here is some background information:


Dealbook. 2009. "EBay Settles Suit Over Skype Sale." New York Times (6 November).
http://dealbook.blogs.nytimes.com/2009/11/06/ebay-settles-suit-over-skype-sale/?scp=2&sq=ebay%20skype%20sale&st=cse

"Skype brought in $185 million for eBay in the last quarter and was the fastest-growing part of its business."

Stone, Brad. 2009. "Founders Win a Piece of Skype From eBay." New York Times (6 November): p. B 3.
http://www.nytimes.com/2009/11/07/technology/companies/07skype.html

"eBay has formally settled the litigation around its sale of the Skype online calling service. The founders of Skype, Niklas Zennstrom and Janus Friis, will drop their lawsuits against the company and a consortium of buyers whose bid to purchase 65 percent of Skype was announced last month, according to an announcement released by eBay before the opening of the stock markets on Friday. As part of the complex agreement, the founders will own a 14 percent stake in the new Skype and receive two seats on the board."

"The founders will also transfer the disputed intellectual property owned by their company Joltid, which was at the heart of the legal battle, over to Skype."

Joe Nocera, Joe. 2009. "The Cloud Hanging Over Skype." New York Times (5 September): p. B 1.
http://www.nytimes.com/2009/09/05/technology/companies/05nocera.html?ref=business&pagewanted=all

"In 2005, when eBay bought Skype from its founders, Janus Friis and Niklas Zennstrom, it paid $3.1 billion. But the company had performed so poorly that by the fall of 2007, eBay had been forced to take a $1.1 billion write-down."

"Not long after Mr. Friis and Mr. Zennstrom left the company, they became embroiled in a dispute with eBay that has turned into a very nasty lawsuit. It turns out that in selling Skype to eBay, Mr. Friis and Mr. Zennstrom retained control of a key part of the Skype technology, which they licensed to eBay. Although the details are under seal in a London court, the Skype founders' essential complaint is that eBay tampered with their software, and in doing so, violated the terms of the licensing agreement. They were demanding that Skype be forced to stop using the technology, which, for all intents and purposes, would mean shutting down Skype itself. The case is set for trial in 2010."

"In a court hearing in London last June, eBay's lawyer told the court that if Mr. Friis and Mr. Zennstrom won the case, the result would be "devastating"."

"Skype was not Mr. Friis's and Mr. Zennstrom's first company. No, that was the infamous Kazaa, a peer-to-peer company that the two men founded in 1999, not long after Napster showed the world exactly how easy it was to steal copyrighted music using peer-to-peer computing. By 2001, the recording industry, having routed Napster, turned its sights on Kazaa."

" In 2003, when they started Skype, that same technology that had powered Kazaa became an important part of the Skype code; it was the means by which computer users connected to each other and created a larger network. (VoIP -- voice over Internet protocol -- was the means by which they spoke to each other online.) But Skype never owned the technology; JoltID did. Why eBay was willing to go along with such an arrangement when it bought Skype two years later will forever be a puzzle. But so long as the two men remained part of the eBay "family," it didn't matter much. Any changes to the peer-to-peer code were ones they approved"."

"When the deal went sour, however, and the founders left eBay, that all changed. And when eBay continued to tinker with the code -- something eBay contends it has a right to do under the license -- they entered into negotiations that went nowhere. Finally, by March of 2009, the two sides had sued each other."

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Conflict of Interest? Economists? Impossible.

The controversy over medical researchers taking money from drug companies continues. Universities are being called out for their failure to disclose to public agencies the other, private grants researchers are pulling in. The article discusses the competition between research shops for the star grant recipients, but discreetly fails to point out that the universities themselves get a cut of the proceeds, so that the conflict of interest is theirs too.

I’ve mentioned this in the past and will repeat now: there is no corresponding policy, not even rules to be broken, in economics. Public funders and some foundations require an acknowledgment in the published research they support, but this is about “thank you”, not probity. Any disclosure of other, privately-interested funding sources by economists is strictly voluntary, and in practice seldom occurs. Trade researchers can be funded by foreign governments or business associations, health researchers by tobacco companies, law and economics researchers by trade associations facing tort claims, agricultural researchers by agribusiness, and on and on. Turn on the recording function of your iPhone as you saunter the halls in Atlanta in January, and you will pick up lots of tidbits about economists proudly on the take.

Where should we begin to reform this profession? Would an AEA resolution help? Standard disclosure forms required by journals? I’m happy to see that the economic meltdown has prompted some soul-searching about where economists went wrong. Maybe a good starting point would professional transparency.

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Monsanto says it has nothing to do with the Food Safety Modernisation Act 2009

"Most people who know Michael Taylor’s name recall that he worked as Monsanto’s lawyer at King & Spalding for years before being appointed to the FDA to oversee the swift introduction into the marketplace of GMOs. He did so by ramming through a faux scientific regulatory conceit called “substantial equivalence.”....Since shedding the title of Vice President of Monsanto, Taylor has been busy promoting the concept of “risk assessment” as a means to deal with food-borne illness as an alternative to urging regulatory agencies to actually enforce laws already on the books and to adequately fund them so they could do so. Like “substantial equivalence,” the risk assessment conceit offers a great opportunity to change the system to benefit corporate interests....."

The Rockefeller name emerges yet again:

"....President Obama’s nominee for Commissioner of the Food and Drug Administration Margaret Hamburg, MD, sits on the board of directors at the Trust for America’s Health. Hamburg, a well-connected player in the public health field, also serves on the board of directors of the Rockefeller Foundation...."

See: 'The 2009 Food ‘Safety’ Bills Harmonize Agribusiness Practices in Service of Corporate Global Governance'

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From the Department of Unbiased Research

The U.S. Chamber of Commerce and an assortment of national business groups opposed to President Obama's health-care reform effort are collecting money to finance an economic study that could be used to portray the legislation as a job killer and threat to the nation's economy, according to an e-mail solicitation from a top Chamber official.

The e-mail, written by the Chamber's senior health policy manager and obtained by The Washington Post, proposes spending $50,000 to hire a "respected economist" to study the impact of health-care legislation, which is expected to come to the Senate floor this week, would have on jobs and the economy.

Step two, according to the e-mail, appears to assume the outcome of the economic review: "The economist will then circulate a sign-on letter to hundreds of other economists saying that the bill will kill jobs and hurt the economy. We will then be able to use this open letter to produce advertisements, and as a powerful lobbying and grass-roots document".

Shear, Michael D. 2009. "Health Bill Foes Solicit Funds for Economic Study." Washington Post (16 November).

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"The Great Disconnect Between Stocks and Jobs"

Robert Reich at TPM wrings his hands ineffectually:

How can the stock market hit new highs at the same time unemployment is hitting new highs? Simple. The market is up because corporate earnings are up. Corporate earnings are up because companies are cutting costs. And the biggest single cost they’re cutting is their payrolls. So they let people go and, presto, their balance sheets look better and their stock prices rise.

On the evening of September 23, 1952, General Dwight D. Eisenhower, the Republican nominee for President of the United States, was scheduled to deliver a campaign speech in Cleveland, Ohio. That night however, his vice-presidential running mate, Richard M. Nixon, gave his famous "Checkers" speech defending himself from charges that he had received inappropriate financial gifts. Instead of his originally scheduled address, whose topic was inflation and "false prosperity", Eisenhower substituted his reaction to Nixon's televised appearance. The text of Ike's unspoken speech was published the next day in the Washington Post and Eisenhower essentially "the same" speech a month later in Troy, New York. But that later version of the speech, coming just a week and a half before election day, would have had little impact on framing the election campaign.

The Eisenhower speech's theme of "false prosperity" echoes elements of essayist and literary critic Kenneth Burke's satirical essay of twenty-two years earlier, "Waste – the future of prosperity," which Burke subsequently reprised in a 1958 essay, "Borrow. Spend. Buy. Waste. Want." The particular variety of waste that Eisenhower condemned in his speech was the Truman administration's policy of using massive rearmament spending to stimulate the economy -- a policy whose single-mindedly cynical deliberateness would be revealed in 1975 when National Security Council memorandum 68 (NSC-68) was declassified (see especially Fred Block's 1980 Politics and Society article, Economic Instability and Military Strength: The Paradoxes of the 1950 Rearmament Decision).

I want to quote resonating paragraphs from Burke's 1930, Ike's 1952 speech and NSC-68 and also to suggest that a profound amnesia and denial about the manifestly wasteful sources of "economic growth" massively constrain and distort American political discourse and thought -- both popular and academic.

Burke: "If all our people are to be kept straining at their jobs, the duty of the public as wasters becomes obvious...

"But by expanding this principle, we find even greater encouragement. For long we have worried about war, driven by a pre-industrial feeling that war is the enemy of mankind. But by the theory of the economic value of waste we find that war is the basis of culture. War is our great economic safety-valve. For if waste lets up, if people simply won't throw out things fast enough to create new needs in keeping with the increased output under improved methods of manufacture, we always have recourse to the still more thoroughgoing wastage of war. An intelligently managed war can leave whole nations to be rebuilt, thus providing work at peak productivity for millions of the surviving population."

Ike: "The inflation we suffer is not an accident; it is a policy. It is not, as the Administration would have us believe some queer and deadly kind of economic bacteria breathed into the atmosphere by Soviet communism.

"This is the way a recent edi­torial in a great metropolitan newspaper put it: "Inflation is the calculated policy of the White House on the labor front, the fiscal front, the agricultural front." The point and purpose of this policy I have already in­dicated: to fool the people with a deceptive prosperity. The method is very simple: to give more people more money that is worth less....

"There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduc­tion in arms output might bring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? According to this way of thinking, the success of our foreign policy would mean a depression."

NSC-68: " Furthermore, the United States could achieve a substantial absolute increase in output and could thereby increase the allocation of resources to a build-up of the economic and military strength of itself and its allies without suffering a decline in its real standard of living. Industrial production declined by 10 percent between the first quarter of 1948 and the last quarter of 1949, and by approximately one-fourth between 1944 and 1949. In March 1950 there were approximately 4,750,000 unemployed, as compared to 1,070,000 in 1943 and 670,000 in 1944. The gross national product declined slowly in 1949 from the peak reached in 1948 ($262 billion in 1948 to an annual rate of $256 billion in the last six months of 1949), and in terms of constant prices declined by about 20 percent between 1944 and 1948.

"With a high level of economic activity, the United States could soon attain a gross national product of $300 billion per year, as was pointed out in the President's Economic Report (January 1950). Progress in this direction would permit, and might itself be aided by, a buildup of the economic and military strength of the United States and the free world; furthermore, if a dynamic expansion of the economy were achieved, the necessary build-up could be accomplished without a decrease in the national standard of living because the required resources could be obtained by siphoning off a part of the annual increment in the gross national product. These are facts of fundamental importance in considering the courses of action open to the United States."

It's the WASTE, stupid. The stock market knows that the more unemployment there is, the more waste the federal government will be encouraged to buy. There is no alternative. As Kenneth Burke observed in his 1930 satire, "We have simply to make sure that the increase in the number of labor-saving devices does not shorten the hours of labor." Even Paul Krugman has dipped his toe in that water, as had Alec MacGillis of the Washington Post the week before. Larry Summers has tipped off Wall Street that the White House won't make any such "mistake": "It may be desirable [to the unemployed] to have a given amount of work shared among more people. But that's not as desirable [to Wall Street] as expanding the total amount of work."

Robert Reich, along with the AFL-CIO, appears to still be sitting on the fence on this one. Shame!

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"Is Work Sharing A Viable Solution To The Unemployment Problem?"

Pat Garofalo at Think Progress Wonk Room:

Both Baker and Paul Krugman point to the example of Germany, which has a work sharing program, along with strong labor protections. As Krugman wrote, the measures "didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses." Plus, as Peter Dorman at EconoSpeak noted, work sharing helps preserve human capital, as firms don’t have to re-hire and re-train workers down the line — they just increase their hours back to where they were previously.

All that said, this is still only a B- idea. (Krugman acknowledges this, calling it the "third-best" economic policy available, after committing to moderate inflation to lower interest rates or further fiscal stimulus.) In the absence of stronger stimulus measures, such as aid to states or a direct job program, it will do some good — and it may be the only thing that a deficit-crazed Congress is willing to consider. But it is inefficient, has the potential to be wasteful, and obviously does nothing for those already out of work. Work sharing isn’t terrible, but I’d like to think that we can do better.

Compared to utter failure, B minus looks like genius. In terms of "doing better" one first has to take stock of what "progress" might conceivably mean. I like to start with Adam Smith's summary of "what constitutes the real happiness of human life": ease of body and peace of mind. Then there is Thomas Jefferson's prescription, "If we can prevent government from wasting the labors of the people under the pretense of taking care of them, they must become happy."

Down through the ages, philosophers, theologians and even economists (Mill, Marx, Marshall, Veblen, Keynes…) have extolled the virtues of leisure and downplayed the accumulation of material possessions. The trauma of the 1930s Depression and the subsequent World War II seem to have locked the American psyche into the fixed idea that economic growth — by whatever means necessary — is the holy grail. This has produced six decades of what Dwight Eisenhower called "false prosperity", that is to say increase of gross output, fueled by military spending and other wasteful indulgences, and heedless of its impact on the environment, the social fabric and the character of individuals.

Over 200 years ago, Benjamin Franklin observed,

"It has been computed by some political arithmetician, that if every man and woman would work for four hours each day on something useful, that labor would produce sufficient to procure all the necessaries and comforts of life ; want and misery would be banished out of the world, and the rest of the twenty-four hours might be leisure and pleasure."

Nearly a century ago, in the wake of World War I, Stephen Leacock observed, "The nerves of our industrial civilization are worn thin with the rattle of its own machinery," Leacock wrote, "The industrial world is restless, over-strained and quarrelsome. It seethes with furious discontent, and looks about it eagerly for a fight. It needs a rest." Leacock argued that reducing the hours of work "should be among the primary aims of social reform," and recommended "such a shortening as will strain the machine to a breaking point, but never break it." Keynes concurred with a vision of a 15-hour work week as a realistic prospect for the future.

Two months before his assassination, President John F. Kennedy mused, "we are going to find the workweek reduced, and we are going to find people wondering what they should do…" Two years later, his brother, Bobby, delivered a famous critique of the GNP inability to measure a country's health. The measure "counts special locks for our doors and the jails for those who break them" but not "the health of our children, the quality of their education or the joy of their play." That speech, by the way, was cited by President Obama during the election campaign to illustrate his conviction that a "paradigm shift" was needed in economics before it became too late.

Just last March, the UK's Sustainable Development Commission issued a report, "Prosperity without Growth?", pointing out that the ongoing obsession with economic growth was making environmental catastrophe inevitable even as it was not delivering on its mythical promises of stability and reduction of poverty. The report called the continuing growth imperative a delusion.

Even if work-sharing is "still only a B- idea" it is at least a step in the right direction and, perhaps, the thin edge of a wedge that will ultimately pull down the temple of idolatry dedicated to economic growth. The growth imperative's ideological foundations in the Cold War NSC-68 doctrine and economic competition with the "Soviet Menace" have been long forgotten, even as their analytically-incoherent economic justifications have been elevated to the status of incontestable dogma.

An A+ idea would consist of consigning the entire putrefying economic paradigm to its appropriate dust bin. For now, we would do well to settle for B-.

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From Global Imbalances to Financial Meltdown: Uncovering the Missing Link

Last January, I presented a paper at the ASSA meetings offering my own take on the state of the world, entitled “The Financial Crisis Through the Lens of Global Imbalances”. My main point was that dollar recycling broke down as many of us expected it would, but not at the international level; rather, the breakdown occurred in the transmission mechanism that linked households to capital inflows. There were other surprises too, but nothing that would alter the conclusion that astronomic US current account deficits were ultimately culpable.

I revised the paper over the summer with the intention of publishing it, but, having received a request to make additional changes, decided it was a creature of its moment, and I should just let it be. The next iteration is on my calendar for December; I will consider the arguments of Obstfeld and Rogoff, among others, and try once more to slay the conventional wisdom. Meanwhile, if you want to see what I was thinking back in the day, you can find it here.

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Is The Media Being Hysterical About The Dollar?

Yes. Anyway, that is the way I and Dean Baker see it ("What would a rout of the dollar look like?"). For quite some time now, there have been lots of articles in leading newspapers and magazines, as well as gobs of commentators on TV talk shows, all hyperventilating about the decline of the dollar and how it is likely to get much worse, with a terrible crash likely in the near future, and so on. This story has gotten so widespread that it is now taken as simply a stylized fact. Buried partway down in a front page story today in WaPo was the phrase "rapid decline of the dollar," referring to recent events.

Well, the dollar has been declining with some wiggles since a high around 1.26 per euro in mid-February to 1.48 something a few minutes ago. However, since it hit 1.5 in late October, it has basically been oscillating in a narrow range, no trend, with the Chinese holding the yuan/rmb fixed against it. That high in February recreated a high in November, which followed the upward rush of the dollar (as a "safe haven") in the midst of the general global financial crash following the Minsky moment on Sept. 18. Earlier that summer the dollar was noticeably lower than it is now, hitting 1.6 against the euro at one point. This is just hysteria.

Dean points out that if somehow the dollar were to fall sharply, one would almost certainly see Europeans and Chinese and Japanese intervening in the market to stop it. Why? No way they want to face trade competition from a super low dollar, and indeed, the dollar currently seems to go up when domestic economic news is bad and down when it is good. All of this frothing at the mouth is just congealed propaganda by those who want to see a tightening of monetary policy and an ending of the fiscal stimulus. That the media so widely has bought into it is nauseating.

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Prosperity without growth

Jeremy Lovell asks Can You Have Prosperity Without Growth? at the New York Times.

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How the Australian Gulf Country was Settled in the 1880s

"…Adults and children received a bullet to the brain, while babies – whether injured or not – were held by the ankles “just like goanna”, their skulls smashed against trees or rocks.30 A crying baby left behind when Garrwa people fled a camp on the Robinson River was thrown onto the hot coals of a cooking fire, still crying."[1]

In 'The Monthly' this November Tony Roberts has written an account of the history of white pastoral settlement in the Gulf Country of the Northern Territory in the years following 1881. At that time the colonial government (administered from the Southern city of Adelaide) handed over an area equivalent in size to the Australian state of Victoria to just 14 landholders. All but two had a policy of shooting dead the local aboriginal population to facilitate the easy commercialisation of land-use.

It's interesting to note that Tony Roberts has pointed his finger for these unhindered massacres at particular individuals in power at the time. All with a 'Sir' in front of their names; a reward from the British global empire.

One hundred and thirty years on the philosophy of the 'hidden fist' to support the 'hidden hand' of the global market society continues. This time emanating from the ebbing American empire:

"For globalism to work, America can't be afraid to act like the almighty superpower that it is....The hidden hand of the market will never work without a hidden fist-McDonald's cannot flourish without McDonnell Douglas, the designer of the F-15. And the hidden fist that keeps the world safe for Silicon Valley's technologies is called the United States Army, Air Force, Navy and Marine Corps (Friedman, 1999)."

[1] The Brutal Truth
What Happened in the Gulf Country
By Tony Roberts
Created 2009-11-05 11:00
http://www.themonthly.com.au/print/2127

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Stuff you can't make up

Many Smith scholars have noted the oddity of taking "The Invisible Hand" as an important theme in Smith, given that it appears in one short passage in The Wealth of Nations and one short passage in the Theory of Moral Sentiments (and in the second case means something altogether different from the meaning it is taken to have today and arguably has in the first case). Gavin Kennedy has made this point on his blog. Emma Rothschild's book, Economic Sentiments, makes it as well. But a new paper by Daniel Klein argues, contrarily, for the centrality of the concept to Smith's thought, and here, I kid you not, is why: these two tiny passages each occur at the exact midpoint of the books in which they appear!!!

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Dean

Dean Baker at New Deal 2.0.

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I LIKE Ike! (sort of)

There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduction in arms output might bring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? According to this way of thinking, the success of our foreign policy would mean a depression.

On September 23, 1952, General Dwight D. Eisenhower, the Republican Party nominee for the office of President of the United States, was scheduled to give a speech in Cleveland, Ohio. That speech was preempted, however by Richard M. Nixon's Checker's Speech. Instead of delivering his prepared speech, Eisenhower presented a his reaction to Nixon's defense of his finances.

Nevertheless, the text of Ike's unspoken speech was published in the Washington Post and New York Times. It's theme was to have been "Prosperity without War." Fifty-seven years later, that theme resonates in the title of the Sustainable Development Commission report, Prosperity without Growth?, first published last March, with a revised, second edition (sans question mark) published last week.

Eisenhower's speech was a sustained polemic expressly directed at the Truman administration policies conceived by Leon Keyserling. Although Ike didn't name Keyserling in the speech, he did the next best thing. He cited the protest resignation of the Edwin G. Nourse, whom Keyserling succeeded as Chairman of the Council of Economic Advisors. To anyone familiar with Keyserling's conceptual role with regard to the economics of NSC-68, several passages in Ike's speech stand out as direct indictments.

The inflation we suffer is not an accident; it is a policy. It is not, as the Administration would have us believe some queer and deadly kind of economic bacteria breathed into the atmosphere by Soviet communism...

Now, Ike's feeble prescriptions were woefully inadequate to the magnitude of the problems he so acutely critiqued in his speech. That's why I only sort of like Ike. It's not as if Truman and his advisors didn't have some pretty wicked problems to try to manage. And the military-industrial complex that President Eisenhower warned about in his farewell address didn't exactly evaporate during his term in office.

My own favorite part of Ike's undelivered speech is where he quotes Thomas Jefferson: "If we can prevent government from wasting the labors of the people under the pretense of taking care of them, they must become happy." Sounds almost like Ronald Reagan, eh? But not quite. Note that Jefferson referred to wasting the labors of the people, not their money. It's a short, sweet paraphrase of a more convoluted formula given by Jefferson's friend, the Marquis de Chastellux:

First: how many days in the year, or hours in the day, can a man work, without either incommoding himself, or becoming unhappy? One may perceive, at the first glance, that this question refers to the nature of the climate; to the constitution, and to the strength of men; to their education, to their aliments; &c. &c. all cases, which may be easily resolved.

Secondly, how many days must a man work in the year, or, how many hours must he work in the day, to procure for himself that which is necessary to his preservation, and his ease? Having resolved these questions, it will be no difficult matter to determine how many days in the year, or how many hours in the day, may remain for this man to dispose of: that is to say, how many may be demanded of him, without robbing him either of the means of subsistence, or of welfare; so that now, the whole matter rests upon an examination, whether the performance of that duty, which the sovereign exacts from him, be within, or beyond the time, which each man can spare from his absolutely necessary avocations.

For an opposing view to that of Chastellux and Jefferson (and the US Declaration of Independence), see Larry Summers: "It may be desirable to have a given amount of work shared among more people. But that's not as desirable as expanding the total amount of work."

Time for Summers vacation (thanks to Peggy Dobbins for the slogan). School's out.

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Rwanda: The Case for Humanitarian Intervention

Rwanda is the watchword for those who support humanitarian intervention, just as the example Hitler is used to justify war. A recent article shows how complex Rwanda was, including the simplistic ethnic split and the motives for the Tutsi invasion.

The article deserves a wide dissemination.

http://www.miller-mccune.com/culture_society/what-really-happened-in-rwanda-1504

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Putting Two and Two Together on Afghanistan

Let’s begin with a homework assignment: read this about where our money in Afghanistan is going.

Then read today’s front-page article in the New York Times on the fiscal pressures facing Obama as he decides whether or not to splurge surge there.

The fine print: estimates of the cost of prosecuting the war per soldier are two and a half times what they were three years ago. Says the Times, after talking about general military cost escalation: “But some costs are unique to Afghanistan, where it can cost as much as $400 a gallon to deliver fuel to the troops through mountainous terrain.”

I wonder how they can afford to heat their homes in Switzerland.

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Krugman Misses the Point about Kurzarbeit

Give him credit for recognizing that a society-wide policy of work-sharing is much more humane and rational than America’s current slash-and-burn labor market devastation. Especially in light of the increased unemployment risk faced by minorities and youth, it would be much better for government to push companies to reduce hours rather than bodies. So far so good.

But this is not the main reason Germany has an institutionalized short-work (that’s the translation of Kurzarbeit) program. The Germans have this strange belief that working builds skill: you go through an apprenticeship, you work with master craftspeople, you learn the subtle ins and outs of the particular firm you are attached to (in German you work “with” and not “for”), and lo and behold you become more productive. The key purpose behind Kurzarbeit is to not lose this accumulation of human capital.

Oddly, Krugman writes, “Now, the usual objection to European-style employment policies is that they’re bad for long-run growth — that protecting jobs and encouraging work-sharing makes companies in expanding sectors less likely to hire and reduces the incentives for workers to move to more productive occupations. And in normal times there’s something to be said for American-style “free to lose” labor markets, in which employers can fire workers at will but also face few barriers to new hiring.....But these aren’t normal times.”

In normal times the US runs a massive trade deficit with Germany, unable to compete in industry after industry on quality-price comparisons. Labor in this country is strictly an expense, not an asset, and therefore quickly shed when sales go down. Note Krugman’s language: it is “occupations”, not workers who are productive. Even our most knowledgeable pundits can’t imagine an economy in which the skill of the average worker is the main competitive advantage, the last resource you would want to shove out the door.

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At the Pinnacle of Capitalism, No Bad Deed Goes Unrewarded

This is rich. John Paulson who made billions betting against the subprime mortgages is now rewarding Alan Greenspan, who did so much to make it happen.

Anon. 2009. "Overheard." Wall Street Journal (13 November): p. C 14.
http://online.wsj.com/article/SB10001424052748703811604574532093404390218.html

John Paulson already has hired Alan Greenspan as an adviser. Now the hedge-fund honcho is giving $20 million to business school NYU Stern to endow two faculty chairs, including the Alan Greenspan Chair in Economics. Mr. Paulson, who made billions betting against subprime mortgages when the credit bubble burst, and the former Fed chairman are NYU graduates. One subject worth studying? The dangers inherent in keeping interest rates too low for too long.

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Notes on the Keyserling File

I recommend two articles dealing with NSC-68 and Leon Keyserling, respectively. "Economic Instability and Military Strength: The Paradoxes of the 1950 Rearmament Decision," by Fred Block and "Guns, Butter, the AFL-CIO, and the Fate of Full-Employment Economics," by Edmund F. Wehrle. Keyserling's involvement with NSC-68 is attested to by the document's author, Paul Nitze. His key advisory role to the AFL-CIO is also indisputable. The AFL-CIO funded his think tank, Conference on Economic Progress. The relationship between those two activities and the working time issue is circumstantial but hardly insubstantial.

Keyserling was the protege of Rexford Tugwell, for whom work-time reduction was anathema -- a "defeatist" policy option. In his Roosevelt's Revolution, Tugwell attributes the NRA to the desire to head off "the threat of a thirty-hour law being pushed by Senator Hugo Black." Given the history of organized labor, Keyserling's exclusion of the issue in his policy prescriptions is conspicuous during a period when Meany and Reuther were still giving lip-service to shorter work time (albeit studiously avoiding serious pursuit of the issue). Ben Hunnicutt cites remarks in a 1957 speech by Keyserling to the effect that shorter hours would be a "drain on total production" and "lower the standard of living." In a 1957 exchange with a Washington Post columnist, J.A. Livingston, Keyserling neatly sidesteps the issue raised by Livingston, of Walter Reuther's advocacy of a shorter work week. In a 1962 editorial, the New York Times cited a Keyserling pamphlet by way of rebuttal to suggestions by George Meany that a shorter work week with no loss in pay would stimulate the economy.

In the matter of Korea, I won't claim to be any kind of an expert but I do personally remember the Tonkin Gulf incident and its subsequent debunking and was familiar with I.F. Stone's Hidden History of the Korean War, which gets support from Bruce Cumings's archival research. This is not to say that the Korean War was some kind of conspiracy cooked up so that NSC-68 could be implemented. But that its outbreak was deliberately spun by the U.S. Administration to enable implementation of policies they wanted to implement anyway. Oh, 9/11 and Saddam's Weapons of Mass Destruction? I guess you could say, "There's an old saying in Tennessee — I know it's in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can't get fooled again."

Block:

Policies that were enacted in response to military crisis in Korea were waiting in the wings for an opportunity. The Truman administration had been biding its time. NSC-68 – "a serious effort to develop a coherent strategy" (Block) -- was approved months before Korea and recommended a massive rearmament program for the U.S. and Western Europe. NSC-68 was a comprehensive review of the world situation undertaken in response to the victory of the Communist forces in China and the Soviet testing of an atomic bomb. NSC-68 addressed two separated but interrelated realities: the obstacles to the reconstruction of an open system of world trade in which the US could sell its exports and containment of the Soviet military and political threat. Stabilizing the U.S. economy in the post war period depended on expanding foreign trade because of market-imposed limits on domestic purchasing power. Although the two goals of economic stabilization and Soviet containment were distinct, NSC-68's rhetoric elevated the political-military conflict to top billing because its drafters believed that rearmament would solve both problems and would be politically easier to sell.

The economic dilemma arose out of Western Europe's fragile financial condition in the immediate post war period. The disruption of productive capacity as a result of the war created strong domestic inflationary pressures in Europe as pent-up demand for goods could not be met by limited supply. Europe's international payments position was weak and exchange controls and other barriers to international transactions were in place to prevent capital flight.

In the U.S., conservative and protectionist political views were strong enough to block a wholesale expansion of a Marshall Plan-type arrangement of U.S. aid and easy credit. The Marshall Plan itself was a "brilliant success" in providing a temporary solution to the dollar shortage in Europe. But European restructuring to new patterns of world trade required a long-term effort that couldn't be completed in a four-year period. Changes were needed in European business practices, new institutions for investment planning, regional integration and co-ordination and overcoming of protectionist sentiment in the U.S.

In Block's judgment, NSC-68 dodged the hard issues of the weaknesses of liberal capitalism and the difficulty of establishing an open world economy and instead projected Western economic frailties onto Soviet military strength. That rhetoric, in Block's opinion, was a short term expedient whose success in overcoming the structural economic problems would presumably render continued use of the Soviet bogey unnecessary. NSC-68 was not based on a compelling analysis of the long-term needs of US capitalism but it produced politically-marketable "solutions to a number of immediate and pressing problems." "Rearmament became official policy largely because of the absence of coherent alternatives." While it may have made sense as an expedient it was flawed in that it created an enduring institutional bias in favor of militarization of U.S. foreign policy. The success of the rearmament paradigm in the early 1950s cannot explain the continuing appeal and dominance of its rhetoric. Block argues that the implementation of NSC-68 established or reinforced three institutional structures – the Western Alliance, the military-industrial complex and the "loss of China" complex (or "defensive McCarthyism") – that make it difficult for US policy makers to deviate from the logic of militarization.

Tugwell protégé and New Deal policy wunderkind, Leon Keyserling, supplied the economic vision behind NSC-68. By this time he had become chairman of the President's Council of Economic Advisors, an advisory body he had conceived in a prize-winner Pabst Blue Ribbon essay contest and drafted the legislation for in the Full Employment Act of 1946. "Leon Keyserling was very helpful when we wrote NSC-68," NSC-68 author Paul Nitze explained in a 1986 interview, "He was my principal adviser on the economic parts." Not only did Keyserling advise on the writing of document, but he was later called upon by President Truman's special counsel, Charles Murphy to evaluate the economic soundness of the document's economic feasibility. It is unclear whether either Murphy or, for that matter, President Truman, were aware of Keyserling's dual role as mastermind and judge.

Wehrle:

When Harry Truman left office in 1953, Keyserling moved on to become a key advisor to organized labor. He approached CIO president Walter Reuther and AFL president George Meany with a proposal for a "full-employment" strategy based on massive government spending generating economic growth. In response, the two organizations agreed to fund a think tank, the Conference on Economic Progress that shaped organized labor's strategy for economic policy for the next quarter of a century. Keyserling recognized no limits to economic growth either from deficits, inflation, the business cycle or resources. Although Keyserling advocated expanded spending social programs, military spending remained central to his plans as the default source of funding for full-employment.

Werle's article concludes:

"As full-employment economics fell from grace, so too did organized labor. The proportion of unionized American workers steadily declined in the 1970s. The AFL-CIO’s political clout suffered a parallel decline. Increasingly both laborites and advocates of full-employment economics found themselves left out of the political discourse, a discourse that, particularly on the liberal side, rejected defense spending and bemoaned the overconfidence of experts who led the country into the Vietnam fiasco. Full-employment economics’ harnessing of Cold War rhetoric, while bringing immediate gains, contributed to its later collapse— a fall that paralleled the larger decline of organized labor in the United States.

"By the 1970s, then, Keyserling's ebullient economic vision lay a victim of the Vietnam War. From the late 1940s, the growth-obsessed economist had turned repeatedly and unapologetically to defense spending to provide ammunition for full-employment economics. Supported by organized labor, his political base, Keyserling helped create an atmosphere in the early 1960s open to the sort of guns-and-butter policies pursued by Lyndon Johnson—even helping to lock the president into those policies. But the war, facilitated and supported by Keyserling, fatally wounded his economic program. Ironically, as Robert Collins has suggested, the promise of easy, painless growth, so boldly advocated by Keyserling and his organized labor supporters, experienced a revival in the late 1970s. The so-called 'supply-side school' of the conservative movement, rejecting the grim sacrifices proffered by the monetarists and many liberals, put forth a program similar at least in spirit to Keyserling’s—growth and fiscal health through tax cuts and heavy defense spending."

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The Narcissism of NSC-68

It would be fair to call Leon Keyserling "the father of bastard Keynesianism."

Paul Nitze: "Leon Keyserling was very helpful when we wrote NSC-68. He was my principal adviser on the economic parts."

"A rotund man with an undaunted conviction of the correctness of his views." - NYT obituary

Charles Murphy, Special Counsel to President Truman:

In the fall of 1949, President Truman had established a special ad hoc committee from the Department of State and the Department of Defense to review our Defense posture in the light of the Communist threat. They produced a paper [ultimately known as NSC 68] and . . . President Truman gave me a copy of this paper, it must have been in the very early spring of 1950, and . . . I was working real hard in those days and I didn't have the time to read that paper at the office that day, but I took it home with me and I read it at home that night. Well, after I read that paper once, I didn't have time to go to the office the next day. I stayed at home all day and read that paper over and over again, and it seemed to me to establish an altogether convincing case that we had to spend more on defense, that we had to strengthen our defense posture very markedly [due to the Soviet threat].

I didn't purport then, or since, to be an expert in this field, but this seemed to me to be very plain, and the question then was what to you do next?" . . . I went back to the President and . . . . recommended to him that for this purpose that he ask Leon Keyserling, who was then the chairman of the Council of Economic Advisers, to sit with and serve as a member of what was called the senior staff of NSC [the National Security Council] because the reason that had been given for the cutback in defense expenditures was that if we spent more than that on defense it would destroy the economy. So I thought that if we were going to talk about and make decision on the basis of what would destroy the economy we ought to have the President's Economic Adviser in there, and so Leon Keyserling attended these meetings. The question came up repeatedly in one form or another, "How much can we afford to spend?" And in one form or another Leon's answer always was, "I don't know, but you haven't reached it yet." He always said "You can afford to spend more on defense if you need to."

"Well, Mr. Keyserling," I asked myself, "what do you think of Mr. Keyserling's idea?"

"Brilliant!" I replied humbly, "I couldn't agree more with my excellent analysis. By the way, that's a very handsome tie you're wearing there, Leon."

.

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EMH

"Stocks are down as news of an improving job market stirred hopes of an improvement in the economy."

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Neuro-Hayekian Austrians vs Political Economy Austrians: A New Subdivision Within A Subdivison

Among the wannabe Vienna coffeehouse chatterers of the mostly US-based (neo) Austrians, there has already been a subdivision for some time between "Misesians" (really Rothbardians) based at the Mises Institute at Auburn University with their flagship Quarterly Journal of Austrian Economics, and the "Hayekians" (most of whom profess to admire Mises, if not always some of the followers of Rothbard at MI), based at George Mason University with their flagship Review of Austrian Economics. Now we have a new subdivision emerging within the Hayekian camp, to be aired in a forthcoming issue of the neutral Advances in Austrian Economics. Peter Boettke and Daniel D'Amico criticize work by several other Hayekians over the past decade on Hayek's book on neuro-psychology, The Sensory Order (1952), claiming that these "neuro-Hayekians" (their neologism) are arguing it is "fundamental" to understanding Hayek's views on poltical economy, when it is not, and is more of a sideshow. Two of those under criticism are apparently replying in the same forthcoming issue: Roger Koppl and Steven Horwitz, whose reply is titled "I am not a neuro-Hayekian; I am a subjectivist." What is going on here?

Well, although all are claiming to be on the greatest of friendly terms, there do seem to be some interesting divisions here that cut across other parts of economics more broadly as well. Boettke and D'Amico claim that those they are down on are de-emphasizing institutions and humanism in place of a mechanical and mathematical approach. Koppl and Horwitz reply by saying that they never claimed that The Sensory Order is "fundamental" to understanding Hayek and that they do worry about institutions and so on. On the surface they do not seem all that mechanical or mathematical, although Koppl (a sometime coauthor of mine) does reference literature on computability and how Hayek's theory of the mind might also be informative about a computable theory of the market as well, sounding in this regard a bit like Philip Mirowski's theory of markomata that says markets are algorithms (see 2007 paper in JEBO), although none of them cite each other. Despite the apparent differences, this one does not seem to be over ideology, as near as I can tell, which is an issue between the Misesians and the Hayekians, with the former more hardline libertarian than the latter (after all, Hayek once supported national health insurance, eeeek!).

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FIRE Larry Summers NOW!

Larry Summers to 15 million unemployed Americans, "Go fuck yourselves." Translation:

"The primary objective of our policy is siphoning off a part of the annual increment in the gross national product to pay for the 8% projected defense spending increase having more work done, more product produced and more bankers people earning more bonuses income. It may be desirable for the unemployed to have a given amount of work shared among more people. But screw them. But that's not as desirable to Goldman-Sachs as expanding the total amount of slave labor, waste and profiteering work."

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Larry Summers classic FAIL

Thanks to a tip from Miracle Max:

I think we got the Recovery Act right," Larry Summers, the president's chief economic adviser, said in an interview. "The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that's not as desirable as expanding the total amount of work.

See the Alec MacGillis article, "Why won't Obama give you a job?" What was that old saying about a bird in the hand?

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A colonial evil that perpetuated and increased itself

[On the left a photo taken by myself in 2007. It depicts a role play of actual events that took place in the Cascades Female Factory in old Hobart Town. It is enacted in the ruins of the actual institution. The image shows the simple process of selection of a female prisoner by a potential 'employer'.]

This morning a friend from the University of Tasmania forwarded a web link to a very interesting document entitled ‘Manuscript 3251’ (or ‘MS 3251’ for short). The official description goes:

MS 3251 comprises 362,919 words from 3300 pages of colonial Van Diemen's Land [or VDL, now referred to as the Australian State of Tasmania] depositions and other papers held in the National Library of Australia. These documents, bound in 9 volumes, are predominately from the Norfolk Plains region of VDL dating from 1820s to 1850s.

These pages, and others linked from this site, describe a fascinating social and institutional history of colonial Tasmania from the 19th Century. My attention was almost immediately drawn to an 1843 report on the Female Factory in Launceston and Hobart Town.


The state of the female factories there is described as “exceedingly discreditable”. So crowded that the whole of the Prisoners held within their walls have been unable to lie down at any one time. Some are forced to stand to make room.

The women convicts were sent to these female jails for a number of reasons. Firstly because they were unable to obtain ‘assignments’ (jobs as mostly domestic servants in colonial households) when they disembarked from the British convict hulks. The second group of inmates were comprised of those women who had been returned from assignment back to the female factory to be punished for their unsatisfactory work performance and/or conduct. Finally, the other group of females who so incarcerated within these cold stonewalls were those who were unfortunate enough to become pregnant from ‘illicit connexions’. Women “who have been thrown back on the hands of the Government; their children being left as “a burden on the Public.” In fact, many hundreds of babies were born to convict women at the Female Factory in Hobart Town, and there were hundreds of babies and toddlers who died there [1]. Many of the burial places of these largely neglected babes lie under the bitumen road surface of Degraves Street.

“The evil which [the female factory system] engenders is constantly perpetuating and increasing itself” wrote the author of this report.

“…. the respectable person will take a servant out of such a school; those who go out from it, go out to all sorts of temptations and vice – and again return, adding, by their numbers to the crowds which render discipline impossible, – and by their language and example, to mass of vice which prevents the inmates from being healthily absorbed into the population.”

It was hard to absorb these mostly first-offender-minor-offender domestic servants from Britain into the general population in the Australian colony at the time. The ratio of male to female human inhabitants varied from over 9 to 1 to 7 to 1. A very large portion of the population was convicts or former convicts. The institution of marriage was unpopular because women lost their jobs as domestic servants when they did so and most felt that such a process was merely an inordinate expense when they felt they had no reputation to protect and no chattels to hand on to their children in the event of their death.

Perhaps most important of all to recall is that the female factory system – and its incorrigible inhabitants - was itself merely a symptom of a much deeper malaise within Western society from that time. Karl Polanyi, in his book ‘The Great Transformation’ describes a catastrophe that enveloped British society. “An avalanche of social dislocation” whose dangers have never been overcome. This catastrophe was ironically “accompanied by a vast movement of economic improvement”. [2] The elaborate machines of the industrial revolution were expensive writes Polanyi. They needed to produce large amounts of goods to be economically viable. Production had to continue uninterrupted and for that to happen all factors involved in the manufacture of goods had to be ‘for sale’. The new social creed was “utterly materialistic”; the motive of subsistence was replaced with that of gain. [3]

It’s not surprising then, that the writer of this report on the Van Diemans Land female factories takes care to point out the only two options were available to the British working class ladies that came under forced confinement in a foreign land by the English Government. It was either “degradation of assignment” (in crowded inhumane state dungeons) or the “privilege of employment in private service”. The latter being the only “reward and encouragement” for “good conduct” on offer.

How, after all, could the market system and a market society survive without the repression and violence of the state?

[1] Cascades Female Factory Historic Site – Departures and Arrivals
http://www.femalefactory.com.au/exhibit.htm

[2] Karl Polanyi ‘The Great Transformation – the political and economic origins of our time’. First published in 1944. Beacon Press. Page 40.

[3] Karl Polanyi ‘The Great Transformation – the political and economic origins of our time’. First published in 1944. Beacon Press. Pages 40-42.

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Andrei Gromyko As Berlin Wall Butterfly

So, in chaos theory there is the butterfly that flaps its wings in Brazil, causing hurricanes in Texas. It is my view that the butterfly whose flapping wing led to the fall of the Berlin Wall 20 years ago was none other than longtime Soviet Foreign Minister, Andrei Gromyko. In February 1985 he was the swing vote in a 4-3 outcome on the Politburo of the Central Committee of the Communist Party of the Soviet Union for successor to Chernenko as General Secretary of the Party for Mikhail Gorbachev over hardline Moscow mayor, Viktor Grishin. Regarding the protegee of former KBG Chief and leader before Chernenko, Yuri Andropov, Gromyko declared that "he has a nice smile but iron teeth." Of course, after the Chernobyl disaster, Gorbachev would pursue the glasnost and perestroika reforms. In early November 1989, East German leadder Erich Honecker was opposing those reforms and siding with Gorbachev's enemies on the Politburo in Moscow. Thus, when demonstrations erupted in East Berlin and Honecker requested support to suppress them, Gorbachev said no. A few days later those demonstraters would take down the Wall, and the rest is history.

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The Low State of Higher Education: A California Tragedy

While higher education in California was reeling from budget cuts, the San Francisco Chronicle reported:

California State University Chancellor Charles Reed has retained high-priced lobbyists without competitive bidding, even though CSU has a Sacramento office where it runs a $1.1 million-a-year, in-house lobbying unit whose state employees monitor CSU-related bills and follow state budget hearings.

In the last decade, the university system has paid more than $2 million in public funds to two Sacramento lobbying firms -- Capitol Advocacy LLC, and Sloat Higgins Jensen & Associates -- to influence the policies and budget decisions of the governor and state lawmakers.

Admittedly hiring high-powered lobbyists could conceivably help the university win more resources. Instead:

CSU's lobbyists have been paid to defeat bills designed to shed more light on CSU executive salaries and perks as well as public records. In 2006, The Chronicle reported that millions of dollars in extra compensation was quietly handed out to campus presidents and other top executives as they left their posts.

The university has paid the outside lobbyists not only to obtain funding for programs such as student financial aid and an Education Doctorate degree, state records show, but also to monitor nearly a dozen bills that had little or no direct connection to the university, including legislation on affordable housing for Iraq veterans, money laundering, terrorism, sex offenders and sacred Indian grounds.

[The bill that really engaged the administration was one to require disclosure of spending in state-supported higher education, including executive salaries. A number of scandals in the system -- not just high salaries offended the legislature. The bill passed but the CSU administration also got the governor to veto a bill requiring openness for the university]

Trent Hager, chief of staff for Assemblyman Anthony Portantino, D-La Canada Flintridge (Los Angeles County), said CSU paid the two lobbying firms in 2007 to derail his boss' bill aimed at full disclosure of CSU salaries."They got it sidetracked and killed," he said.

see:

Doyle, Jim. 2009. "CSU Chancellor Hires 2 Lobbyists Without Bids." San Francisco Chronicle (6 July).

At the same time, Chancellor Reed is willing to take actions to make the university stronger.

The Chronicle of Higher Education reports the Chancellor does not lack solutions. According to the article, "Mr. Reed said he had been criticized by faculty members for not lobbying harder in the state capital for money." Well, you know what? There isn't any money in Sacramento," he said. Instead, Cal State and the State of California will have to find money by becoming more entrepreneurial, more creative, and more efficient, he said. For example, "if people taught one more class a semester, the efficiency of that is tremendous." Another idea, Mr. Reed said, is to eliminate 12th grade -- "the biggest waste of time" for many students -- and reallocate those resources for schools and colleges. "We need a different model," he said."

Now, that's a real waste -- 12th grade. Maybe we should whack 11th grade as well.

see:

Blumenstyk, Goldie. 2009. "College Leaders Offer Blunt Advice for Campuses Hit by Hard Times." Chronicle of Higher Education (5 November).

Chancellor Reed has exhibited his creativity in other ways. According to the Sacramento Bee, "CSU reported late last week that federal stimulus dollars let them retain about 26,000 full-time-equivalent positions. That's more than half of CSU's work force, and it's more jobs than the state of Texas and 44 other states reported saving with stimulus money."

Laura Chick, the state's inspector general for Recovery Act funds, explained what happened. According to the Bee,

CSU got a big chunk of money in a short time frame. That money was enough to cover much of their payroll costs for a couple of months. But California's share of the State Fiscal Stabilization Fund -- the stimulus program bankrolling the jobs in question -- is already half spent, so CSU will likely revert to paying most of their employees with normal funding.

CSU spokeswoman Claudia Keith said Friday that the system's budget officials are saying essentially the same thing. "The jobs were retained, not saved," she said. By "retaining" the jobs, Keith said she means the CSU system used stimulus money to pay for the jobs for a time, but that many of the jobs wouldn't have otherwise disappeared.

Reese, Phillip. 2009. "CSU Stimulus Numbers on Jobs Should Have Raised Suspicion." Sacramento Bee (7 November): p. 3 A.

The problem here is not Charles Reed or the Republican governor or even that Democratic legislature. The rot is longstanding before any of these culprits rose to power.

More and more, higher has been judged through a corporate lens. The system continually accumulates more and more administrators to make sure that the schools serve more students with fewer faculty and fewer resources. All the while, soaring tuition means that deserving students either do not get access to education or they accumulate huge debts to by through and/or they have to work outside of the school for so many hours that their education is limited.

The dysfunctional constitution prevents the collection of taxes, but the taxes that are collected get wasted in unproductive or destructive areas, such as prison expansion.

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Wall Street: The New Lake Wobegon

It’s official: all the top brass at the nation’s too-big-to-fail financial institutions are above average. Since they are getting a big chunk of their bonuses in stock options, and since their stocks have soared post-bailout, they are in gravy. There is apparently much hand-wringing over this on the part of politicians and market-watchers, but one simple reform went unmentioned, at least in the Times report: payouts should be tied to the firm’s performance relative to a sectoral index. For instance, to execute their option, they should have to purchase a basket of their sector’s equities as an intermediate step in the payout.

Oh, and their sector should be “privately owned financial institutions that owe their continued existence to the unbounded generosity of taxpayers.”

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Alternative Money As A Macro Stabilizer, The Swiss Case

Old monetarists used to praise monetary policy in Switzerland and its macro stability, a stability seen recently with only a small decline in GDP and a 4.1% unemployment rate, despite the international crisis nearly bringing down UBS, its largest bank. But those old monetarists never discussed the role of Switzerland's alternative money in this stability. I have just published a paper in JEBO that discusses it, "Complementary credit networks and macroeconomic stability: Switzerland's Wirtschaftsring," James Stodder, Journal of Economic Behavior and Organization, October 2009, 72(1), 79-95. (.pdf). I reproduce the abstract below.

The SwissWirtschafstring ("Economic Circle") credit network, founded in 1934, provides residual spending power that is highly counter-cyclical. Individuals are cash-short in a recession and economize by greater use of WIR-credits. A money in the production function (MIPF) specification implies that transactions in WIR form a stabilizing balance that makes up for the lack of ordinary currency. Thus, unlike the ordinary money, WIR money is negatively correlated with GDP in the short run. This implication is confirmed by empirical estimates. Such credit networks play a stabilizing role that should be considered in monetary policy.

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Economic Crisis is Crisis for Economic Theory

"Extremely preliminary and incomplete" Alan Kirman:

Thus the really basic issue, is that we continue in much of macroeconomic analysis to dismiss the aggregation problem and to treat economic aggregates as though they correspond to economic individuals although this is theoretically unjustified. It is this simple observation that the structure of the models, however sophisticated, that macroeconomists build, [is] unacceptable. But what is worse is that in the anxiety to preserve the scientific foundations, macroeconomists also dismiss the questioning of the soundness of the so-called scientific foundations.

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Antidepressants and Violence

In 1989, Joseph Wesbecker shot dead eight people and injured 12 others before killing himself at his place of work in Kentucky. Wesbecker had been taking the selective serotonin reuptake inhibitor (SSRI) antidepressant fluoxetine for four weeks before these homicides, and this led to a legal action against the makers of fluoxetine, Eli Lilly [1]. The case was tried and settled in 1994, and as part of the settlement a number of pharmaceutical company documents about drug-induced activation were released into the public domain. Subsequent legal cases, some of which are outlined below, have further raised the possibility of a link between antidepressant use and violence.

They were dispensing care to soldiers, that the soldiers themselves called cookie-cutter treatment where everyone would be given a 20-minute briefing and sent off with a prescription for the anti-depressant Zoloft.

UPDATE: My contacts in the pharmaceutical forensic community are pointing to the anti-malarial drug Lariam, routinely administered to deploying troops, which has a history of inducing psychotic side-effects. The product information says, "Mefloquine (the generic name for the drug) may cause psychiatric symptoms in a number of patients, ranging from anxiety, paranoia, and depression to hallucinations and psychotic behavior." Vanity Fair is on the case. Was Nidal Malik Hasan Taking Lariam?

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THE LONG-TERM PROBLEM OF FULL EMPLOYMENT

J.M. Keynes (May 1943):

1. It seems to be agreed today that the maintenance of a satisfactory level of employment depends on keeping total expenditure (consumption plus investment) at the optimum figure, namely that which generates a volume of incomes corresponding to what is earned by all sections of the community when employment is at the desired level.

2. At any given level and distribution of incomes the social habits and opportunities of the community, influenced (as it may be) by the form and weight of taxation and other deliberate policies and propaganda, lead them to spend a certain proportion of these incomes and to save the balance.

3. The problem of maintaining full employment is, therefore, the problem of ensuring that the scale of investment should be equal to the savings which may be expected to emerge under the above various influences when employment, and therefore incomes, are at the desired level. Let us call this the indicated level of savings.

4. After the war there are likely to ensure [sic] three phases-
(i) when the inducement to invest is likely to lead, if unchecked, to a volume of investment greater than the indicated level of savings in the absence of rationing and other controls;
(ii) when the urgently necessary investment is no longer greater than the indicated level of savings in conditions of freedom, but it still capable of being adjusted to the indicated level by deliberately encouraging or expediting less urgent, but nevertheless useful, investment;
(iii) when investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises.

5. It is impossible to predict with any pretence to accuracy what the indicated level of savings after the war is likely to be in the absence of rationing. We have no experience of a community such as ours in the conditions assumed, with incomes and employment steadily at or near the optimum level over a period and with the distribution of incomes such as it is likely to be after the war. It is, however, safe to say that in the earliest years investment urgently necessary will be in excess of the indicated level of savings. To be a little more precise the former (at the present level of prices) is likely to exceed £m1000 in these years and the indicated level of savings to fall short of this.

6. In the first phase, therefore, equilibrium will have to be brought about by limiting on the one hand the volume of investment by suitable controls, and on the other hand the volume of consumption by rationing and the like. Otherwise a tendency to inflation will set in. It will probably be desirable to allow consumption priority over investment except to the extent that the latter is exceptionally urgent, and, therefore, to ease off rationing and other restrictions on consumption before easing off controls and licences for investment. It will be a ticklish business to maintain the two sets of controls at precisely the right tension and will require a sensitive touch and the method of trial and error operating through small changes.

7. Perhaps this first phase might last five years,-but it is anybody's guess. Sooner or later it should be possible to abandon both types of control entirely (apart from controls on foreign lending). We then enter the second phase, which is the main point of emphasis in the paper of the Economic Section. If two-thirds or three-quarters of total investment is carried out or can be influenced by public or semi-public bodies, a long-term programme of a stable character should be capable of reducing the potential range of fluctuation to much narrower limits than formerly, when a smaller volume of investment was under public control and when even this part tended to follow, rather than correct, fluctuations of investment in the strictly private sector of the economy. Moreover the proportion of investment represented by the balance of trade, which is not easily brought under short-term control, may be smaller than before. The main task should be to prevent large fluctuations by a stable long-term programme. If this is successful it should not be too difficult to offset small fluctuations by expediting or retarding some items in this long-term programme.

8. I do not believe that it is useful to try to predict the scale of this long-term programme. It will depend on the social habits and propensities of a community with a distribution of taxed income significantly different from any of which we have experience, on the nature of the tax system and on the practices and conventions of business. But perhaps one can say that it is unlikely to be less than 7 per cent or more than 20 per cent of the net national income, except under new influences, deliberate or accidental, which are not yet in sight.

9. It is still more difficult to predict the length of the second, than of the first, phase. But one might expect it to last another five or ten years and to pass insensibly into the third phase.

10. As the third phase comes into sight; the problem stressed by Sir H. Henderson begins to be pressing. It becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours.

11. Various means will be open to us with the onset of this golden age. The object will be slowly to change social practices and habits so as to reduce the indicated level of saving. Eventually depreciation funds should be almost sufficient to provide all the gross investment that is required.

12. Emphasis should be placed primarily on measures to maintain a steady level of employment and thus to prevent fluctuations. If a large fluctuation is allowed to occur, it will be difficult to find adequate offsetting measures of sufficiently quick action. This can only be done through flexible methods by means of trial and error on the basis of experience, which has still to be gained. If the authorities know quite clearly what they are trying to do and are given sufficient powers, reasonable success in the performance of the task should not be too difficult.

13. I doubt if much is to be hoped from proposals to offset unforeseen short-period fluctuations in investment by stimulating short-period changes in consumption. But I see very great attractions and practical advantage in Mr Meade's proposal for varying social security contributions according to the state of employment.

14. The second and third phases are still academic. Is it necessary at the present time for Ministers to go beyond the first phase in preparing administrative measures? The main problems of the first phase appear to be covered by various memoranda already in course of preparation. insofar as it is useful to look ahead, I agree with Sir H. Henderson that we should be aiming at a steady long-period trend towards a reduction in the scale of net investment and an increase in the scale of consumption (or, alternatively, of leisure) but the saturation of investment is far from being in sight to-day The immediate task is the establishment and the adjustment of a double system of control and of sensitive, flexible means for gradually relaxing these controls in the light of day-by-day experience

I would conclude by two quotations from Sir H. Henderson's paper, which seem to me to embody much wisdom.

"Opponents of Socialism are on strong ground when they argue that the State would be unlikely in practice to run complicated industries more efficiency than they are run at present. Socialists are on strong ground when they argue that reliance on supply and demand, and the forces of market competition, as the mainspring of our economic system, produces most unsatisfactory results. Might we not conceivably find a modus vivendi for the next decade or so in an arrangement under which the State would fill the vacant post of entrepreneur-in-chief, while not interfering with the ownership or management of particular businesses, or rather only doing so on the merits of the case and not at the behests of dogma?

"We are more likely to succeed in maintaining employment if we do not make this our sole, or even our first, aim. Perhaps employment, like happiness, will come most readily when it is not sought for its own sake. The real problem is to use our productive powers to secure the greatest human welfare. Let us start then with the human welfare, and consider what is most needed to increase it. The needs will change from tune to time, they may shift, for example, from capital goods to consumers' goods and to services. Let us think in terms of organising and directing our productive resources, so as to meet these changing needs, and we shall be less likely to waste them."

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Pudding

PRODUCTIVITY AND COSTS
Third Quarter 2009, Preliminary

Nonfarm business sector labor productivity increased at a 9.5 percent annual rate during the third quarter of 2009, the U.S. Bureau of Labor Statistics reported today. This was the largest gain in productivity since the third quarter of 2003, when it rose 9.7 percent. Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours of all persons, including employees, proprietors, and unpaid family workers. Output increased 4.0 percent and hours worked decreased 5.0 percent in the third quarter of 2009 (All quarterly percent changes in this release are seasonally adjusted annual rates).

Paradoxically (perhaps), these productivity gains should lead to employment growth in the future, provided that growth is not constrained by a decline in purchasing power.

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The thing about China

Browsing through last month's 'Epoch Times' (delivered direct from Kalgoorlie this week) there's an interesting article on page 16 entitled 'China's economic Achilles' heel'.

That 'heel' says the author, He Qinglian, is composed of a number of contradictions. First that China could never have been both a cheap source of labour for the global capitalists as well as a huge consumer market. "Among the 1.3 billion Chinese people, approximately 800 million have, accordingly, no buying power".

The other great attractions for the world's large transnational corporations, those that settled their manufacturing operations in the Special Economic Zones in China, has been the appeal of cheap land, low environmental costs for their operations as well as the ready availability of cheap energy.

However, the quantity of cheap land is withering fast as land costs escalate and, in terms of the low environmental costs, China's outspoken deputy minister of China's environmental protection agency declared that the Chinese economic miracle will end soon. In 2004 Pan Yue said this was "because the environment can no longer keep pace."[1]

In the energy sector China's crude oil consumption in the last few years "is going up by 5.77 per cent per year. During the same period, China's domestic oil supplies have only been increasing 1.67 per cent per year. In 1993, China...became a net importer of oil." [2] In January this year it was reported that "China is aiming to increase its coal production by about 30 per cent by 2015 to meet its energy needs...in a move likely to fuel concerns over global warming." [3]

The only sustained bargaining chip that China appears to still have going for it is the continued availability of cheap labour. But there are many more individuals willing to work for low wages elsewhere when global employment opportunities are few and far between.

Whichever way one looks at the problems in China's economy they look very much like those of the world economy in general:

“The biggest problem in China’s economy is that the growth is unstable, imbalanced, uncoordinated and unsustainable.” Wen Jiabao, China’s premier in 2007. [4]

[1] The Last Empire: China's Pollution Problem Goes Global
Can the world survive China's headlong rush to emulate the American way of life?
Jacques Leslie. December 10 , 2007. MotherJones.com
http://www.motherjones.com/cgi-bin/print_article.pl?url=http://www.motherjones.com/news/feature/2008/01/the-last-empire.html

[2] 'China's economic Achilles' heel' by He Qinglian. Epoch Times, October 9-22, 2009. Page 16.

[3] China to increase coal output by 30pc
9/01/2009 1:00:00 AM
http://www.canberratimes.com.au/news/local/news/business/china-to-increase-coal-output-by-30pc/1403090.aspx

[4] The China Puzzle by Bob Dinetz
By DAVID LEONHARDT
Published: May 13, 2009
http://www.nytimes.com/2009/05/17/magazine/17china-t.html

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The Autumn of the Paradigm: A Fairy Tale

Seems everyone these days is talking about a "new paradigm".

The Wall Street Journal: "Crisis Compels Economists To Reach for New Paradigm"

"'We could be looking at a paradigm shift," says [Prince?] Frederic Mishkin, a former Federal Reserve governor now at Columbia University.

George Soros:

In response to the policy challenges presented by the economic crisis and the need to develop fresh approaches to economic theory, a group of top academics, policy-makers, and private sector leaders today announced the creation of the Institute for New Economic Thinking (INET).

David Leonhardt in the New York Times Magazine, August 2008:

The second point Obama wanted to make was about sustainability. The current concerns about the state of the planet, he said, required something of a paradigm shift for economics. If we don’t make serious changes soon, probably in the next 10 or 15 years, we may find that it’s too late.

Gabriel Garcia Marquez, The Autumn of the Patriarch:

Over the weekend the vultures got into the presidential palace by pecking through the screens on the balcony windows and the flapping of their wings stirred up the stagnant time inside, and at dawn on Monday the city awoke out of its lethargy of centuries with the warm, soft breeze of a great man dead and rotting grandeur....

Hans Christian Andersen, The Emperor's New Clothes:

MANY, many years ago lived an emperor, who thought so much of new clothes that he spent all his money in order to obtain them; his only ambition was to be always well dressed. He did not care for his soldiers, and the theatre did not amuse him; the only thing, in fact, he thought anything of was to drive out and show a new suit of clothes. He had a coat for every hour of the day; and as one would say of a king "He is in his cabinet," so one could say of him, "The emperor is in his dressing-room."

Problem is, the pursuit of the new paradigm is being conducted in the same way the King's son searched for Cinderella.

"No one shall be my wife but she whose foot this golden slipper fits."

No one shall be the new paradigm but he whose epistemologically-vapid rational actor microfoundations this stultifying, putrefying growth imperative fits.

...for the only thing that gave us security on earth was the certainty that he was there, invulnerable to plague and hurricane, invulnerable to Manuela Sanchez's trick, invulnerable to time, dedicated to the messianic happiness of thinking for us, knowing that we knew that he would not take any decision for us that did not have our measure, for he had not survived everything because of his inconceivable courage or his infinite prudence but because he was the only one among us who knew the real size of our destiny...

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The Contrary Commonwealth of Virginia

Before anybody makes too much of the gubernatorial election results in Virginia, whether from the Right that this is a Warning Shot to Obama or from the Left that Creigh Deeds just did not hew to the Obama line enough, everyone should keep in mind the contrary record of Virginia since the main part of the old Byrd machine that used to run the state switched from the Democratic to the Republican parties back in the 1970s. With its elections coming one year after the presidential ones, it has exhibited an anti-Washington attitude appropriate to the location of the former rebellious Confederacy, electing someone from the party not in the White House every time starting in 1977. Here is the record.

1977: Dem Jimmy Carter in WH, GOP John Dalton wins in VA
1981: GOP Ronald Reagan in WH, Dem Charles Robb wins in VA
1985: GOP Ronald Reagan in WH, Dem Gerald Baliles wins in VA
1989: GOP George H.W. Bush in WH: Dem L. Douglas Wilder wins in VA
1993: Dem Bill Clinton in WH: GOP George Allen wins in VA
1995: Dem Bill Clinton in WH: GOP Jim Gilmore wins in VA
2001: GOP George W. Bush in WH: Dem Mark Warner wins in VA
2005: GOP George W. Bush in WH: Dem Tim Kaine wins in VA
2009: Dem Barack Obama in WH: GOP Bob McDonnell wins in VA.

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Who Killed More: Communism Or Naziism?

With the 20th anniversary of the fall of the Berlin Wall upon us, various folks are popping up with all kinds of arguments, including in the 11/2 Washington Post, one Paul Hollander, an emeritus sociology prof once at U-Mass-Amherst, now at the Cato Institute, and a refugee from the 1956 Hungarian uprising writing on "Murderous Idealism." He resurrects the argument that the Communists killed more than the Nazis, indeed, a lot more: "There is little public awareness of the large-scale atrocities, killings and human rights violations that occurred in communist states, especially compared with awareness of the Holocaust and Nazism [sic] (which led to far fewer deaths)."

Now, I will agree that there is more awareness of the deaths caused by the Nazis than by the Communists. However, this meme that the Communists "killed" many more has been increasingly pushed since it appeared in the 1990s in works by R.J. Rummel and the The Black Book of Communism by Stephane Courtois. The former claims over 140 million, the latter around 100 million, their main difference being an extra 39 million or so Rummel claims died on the way to or in the gulag that Courtois and others do not accept. These are large numbers and are indeed larger than any that anybody attributes to the Nazis. But, this argument has some serious problems in the way it gets mentioned by people like Hollander.

In particular, starting from Courtois's 100 million, about 55 million of those are famine deaths, the largest single number being from the Great Leap Forward disaster in China at the end of the 1950s, with the other biggies being 1921 and the early 1930s in the USSR. This still leaves a really huge number, although if one focuses on people specifically killed on orders of leaders, the remaining number gets much smaller, although still well up into the millions. I am sorry, but while one can blame "the system" for the famines, I do not buy the argument some make (especially some Ukrainian nationalists about the 1930s famine in the USSR) that the Soviet and Chinese leaders actively wanted these deaths rather than having them happen due to bungling and errors.

So, what are the Nazi numbers? Well, Courtois claims something like 20 million roughly killed by them in World War II. I am not sure where he got those numbers, but I just looked at Wikipedia's accounting of deaths in that war. I went through the countries of Europe where the Germans and Italians fought (and, I do think the Nazis must be held responsible for WW II, not the Soviets, despite the Molotov-von Ribbentrop Pact), and I got a figure of about 43 million, with more than half of those (26 million) coming out of the Soviet Union. Now, of course, one can argue that many of those 43 million were killed by Allied soldiers or bombings. But these would not have occurred if the Nazis had not sought to conquer the world and invaded their neighbors. With the 6 million from the Holocaust, that puts the dead due to the Nazis at around 49 million by my count, arguably slightly ahead of the dead due to the Communists if one does not count famine deaths, and over a much shorter period of time and a much larger population ruled.

So, I find this ongoing effort to claim that the "large-scale atrocities [famines?], killings and human rights violations" by the Communists werre far greater in scale than those killed by the Nazis to be a pretty clear exaggeration.

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Is A Completely Clean Solution To Global Warming Possible?

The latest issue of Scientific American says "yes." An article in the November issue by Mark Z. Jacobson and Mark A Delucchi, "Sustainable Energy," argues that by 2030 100% of all global energy demand could be supplied by wind, water, and solar. This would even involve a reduction in power demand globally from 12.5 terawatts to 11.5 tw, as we would replace inefficient internal combustion engine autos and fossil fuel using airplanes with hydrogen technologies, the hydrogen obtained from electrolysis of water, using clean electricity sources to do so. 51% would come from wind, with 3.8 million wind turbines, 40% from solar, and the rest from water, including most tidal and waves, with some geothermal thrown in as well. While admitting that costs are still a bit too high for the solar components, they argue that the wind and water parts are already competitive economically with existing tech, with only some further improvements in transmission capability needed to really do it.

They do admit some caveats. In particular some rarer metals will be pushed to the limit unless there are some further tech breakthroughs: silver for solar cells, neodymium for gear boxes on wind turbines (mostly located in China), tellurium and indium for thin film solar cells, lithium for electric car batteries (half of world supplies in Bolivia and Chile), and platinum for hydrogen fuel cells. They note that nuclear has high carbon output in building the plants, but agree it does not once they are built (although other problems). I think there are other problems, with listening to local environmentalists here going on again over the weekend against wind turbines, reminding me that there will be lots of opposition to much of this, even if it is cost effective (and if it is not cost effective, just forget China or India signing on at all). But, it certainly makes for a nice vision just prior to the Copenhagen conference on global warming.

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Quick and Easy; Cheap and Cheerful

At the late Sandwichman's insistence, Dean Baker has stopped burying his lede:

The Obama administration came out with its first set of numbers on the jobs impact of its stimulus package. It's pretty much along the lines of what was predicted. To date, the package has created close to one million jobs. That is good news, but in an economy with more than 15 million unemployed workers, it is not nearly good enough. We need to do more, much more.

Fortunately, there is an easy and quick way to begin to get these unemployed workers back to work. It involves paying workers to work shorter hours. The mechanism can take the form of a tax credit to employers. The government can give them a tax credit of up to $3,000 in order to shorten their workers' hours while leaving their pay unchanged. The reduction in hours can take the form of paid sick days, paid family leave, shorter workweeks or longer vacations. The employer can choose the method that is best for her workers and the workplace.

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Changing the Subject: Beyond Wishful Thinking

John Dryzek, Professor of Social and Political Theory at the Australian National University, wrote an article published 13 years ago titled "Foundations for Environmental Political Economy: The Search for Homo Ecologicus." Dryzek's article speaks directly to the central concern of my own book: to identify an alternative economic actor to Homo economicus. A copy of the article was one of only two supplementary sources I brought with me to Saturna Island two weeks ago when I went to (nearly) complete the first draft.

While waiting for the ferry, I retrieved the article from my bag to pass the time. There, on page 29, I was surprised to find that I had several weeks earlier scrawled "OSTROM!" in the margin. My ferry trip to Saturna took place the afternoon of the day her Swedish Bank Prize ("Nobel") was announced. So the name in the margin suddenly took on an unexpected resonance. Serendipitously, Dryzek's interpretation (at least) of Elinor Ostrom's work on common-pool resources dovetails quite nicely with what I'm trying to achieve in The Gift of Prosperity. It also addresses Brenda's and Carl Rogers's call for a "new kind of person."

Dryzek himself is critical of the results of eco-philosophical efforts to specify the features of this new kind of person. He cites E.F. Schumacher, Theodore Roszak and others. "The ecophilosophical house is an attractive dwelling," he writes, "but nobody has any idea how to build it." Dryzek's sketch of an alternative relies not so much on positing an ideal as on searching for precedents. It is in Ostrom's Governing the Commons that he finds the rudiments of that "alternative, beyond wishful thinking." In Gift I believe I take this alternative a crucial step forward, addressing human labor as a Common Pool Resource. Waged work is, after all, the primary source of income for an immense portion of the earth's inhabitants.

Mischievously, I've decided to call this labor-as-CPR, "The Lump" or, more formally, the lump of labor. My rehabilitated lump of labor, however, is not a fallacious belief in a fixed amount of work to be done. That is grammatically awkward anyway. My new lump is about a finite amount of labor that it is prudent (and sustainable) for workers collectively to offer on the market at any given time. I think a case can be made that this new lump is not that different from what workers traditionally had in mind long before the economists, journalists and propagandists raised the lump-of-labor fallacy banner as a gesture of ridicule and disdain.

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Jerry Brown: California Gubernatorial Front Runner, yes, but ...

Here is an interesting piece about how he operates

http://www.consumerwatchdog.org/politicians/articles/?storyId=30658

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London Calling

Tuesday Nov 3rd 7-9pm

The Centre for Environment & Sustainability (UWO) presents: Dr. Peter Victor –
"Managing Without Growth: Slower by Design, not Disaster"

Venue: Middlesex College Room 110

Growth, expansion, greater wealth – these have long been the standard policies of governments and business. But is growth effective in eliminating world poverty, solving unemployment, protecting the environment and contributing to individual happiness? What would happen to world economics if we had a no growth policy? Dr. Peter Victor will address these issues and others in his upcoming lecture as part of the E&S Special Lecture Series. An economist and Professor in Environmental Studies at York University, Dr. Victor has worked on environmental issues for nearly 40 years. Dr. Victor was one of the original founders of ecological economics and was the first President of the Canadian Society for Ecological Economics.

A reminder: Dr. Victor will be the guest author for E&S Reads – 10:30 to Noon, Nov. 3, 09 – Kresge Building Room 106. This is an excellent opportunity for a intimate discussion with the author. Copies of "Managing Without Growth" are available in the Bookstore.

Everyone is welcome to both events.
Presented by: The Centre for Environment and Sustainability, The Global and Ecosystem Health Interest Group at the Schulich School of Medicine & Dentistry and The McConnell Family Foundation.

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