President Bush Demands Banks Stop Hoarding Money

And I thought George W. Bush was a free market kind of guy:

An impatient White House prodded banks and other financial companies Tuesday to quit hoarding billions of dollars flowing into their vaults from Washington and start making more loans ... "What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said. While there are limits to Washington's power to affect banks' behavior, the White House decided it was time to use its bully pulpit.

So what does the evidence show? David Beckworth has some insights:

When thinking about the credit crisis question, I think it is useful to look at the money multiplier for the monetary base. The monetary base is a measure of money that includes currency in circulation and bank reserves. It is also a measure of money that the Fed controls and uses to alter liquidity in the banking system. In normal times, the Fed can increase the monetary base by injecting reserves into the banking system. Banks, in turn, lend out a portion of these reserves to borrowers who then spend the funds ... Banks' balance sheets are hemorrhaging and the economy is in a recession. Banks are not eager to make loans in this environment and are more likely to sit on the new reserves coming from the Fed. This development means less credit and if pronounced enough a credit crunch. One implication is that if, in fact, there is a credit crunch then the money multiplier should be sharply falling. Thus, it makes sense to look at the money multiplier. The figure below provides the money multiplier using MZM as the broad measure of money and the St. Louis Fed's monetary base measure ... This figure shows the money multiplier peaked the week of 6/4/08 and begin a sharp descent in late August. Compared to the credit crisis of 1990-1991, Y2K, and 911, this drop is huge.

It does seem that there is an increase in excess reserve demand. Why banks desire to hold more reserves might be an interesting question but I seriously doubt that this Administration are about to mandate maximum reserve holdings.

Economic and Social Importance of the Eight-Hour Movement

"By the increased aggregate production, the laborer can get more wealth through his higher wages, the general consumer can obtain more through lower prices, and the manufacturer while receiving a smaller per cent. of the total products actually obtains a greater quantity of wealth through the larger productions and extended business."

The idea that an increase of wages involves a diminution of profits is a part of the same heresy which teaches that a fall of wages produces a rise of prices. To begin with, the capitalist is not concerned so much about the rate as he is the aggregate amount of profits he will receive. What he really wants is not so much a large proportion as a large actual amount of wealth; nor has the laborer, or the community so much interest in reducing the actual income of the manufacturer as they have in increasing their own. This can only be economically accomplished by increasing the aggregate consumption. Low wages make small consumption and a limited use of capital with slow methods of production inevitable, which, even at a high rate of profits, makes a large aggregate income impossible. For example: Suppose a manufacturer of shoes in order to live according to the accepted standard of his class was forced to charge a profit of ten cents a pair; and if by investing a large amount of capital and using improved machinery he could make the same shoes for one-third less, and be able to sell twice as many, he could reduce the price of the shoes to the consumer, and increase the wages of the laborer, and actually obtain more wealth per day for himself at five cents a pair than he has previously done With his small production at a profit of ten cents a pair. This, however, can only be possible when the aggregate demand for the shoes is increased. That is why the cotton manufacturer of today is actually richer with a profit of two cents a pound on cotton cloth than he was fifty years ago with a profit of more Than double that amount. Thus it is that the large production consequent upon the increased consumption of wealth by the masses makes all classes actually richer. By the increased aggregate production, the laborer can get more wealth through his higher wages, the general consumer can obtain more through lower prices, and the manufacturer while receiving a smaller per cent. of the total products actually obtains a greater quantity of wealth through the larger productions and extended business. This is exactly what has taken place throughout all the stages of industrial progress. It is a natural result of all the influences which tend to increase the market for products and make the concentration of capital in production possible.

We are therefore warranted in saying that the economic effects of a general reduction of the hours of labor would be to raise the standard of living and increase real wages; promote the concentration of capital; and the use of improved machinery; will cheapen production, lower prices, and while diminishing the rate, will increase the aggregate amounts of profits. Obviously, therefore, it would tend to improve the economic and social condition of the laborer and the consumer without injuring that of any other class.

Obama at JMU in Harrisonburg, Virginia!

Almost an hour ago I just finished watching live on the internet Barack Obama speaking at the Convocation Center at James Madison University here in Harrisonburg, Virginia, in the heart of the "red" Republican Shenandoah Valley, although Harrisonburg tracks the state as a whole pretty accurately, meaning Obama is currently leading in the city as in the state as a whole. Many continue to say that Virginia is the marginal state, the one more than any other that will determine the final outcome, and Harrisonburg tracks it. So, he may be the first major party presidential candidate to visit here since Douglas in 1860. His speech was mostly standard stump, with some soaring rhetoric at the end, but the crowd was enthusiastic and way over the 7500 capacity in the center. It started at 5:15, but one of my colleagues gave up trying to get in after getting in line at 12:30!

Obama has gone to Norfolk in the Tidewater for a speech later this evening. This is the region that may really explain Obama's apparent lead in Virginia. Of course, population increases in "unreal" Northern Virginia is part of the pattern, but the ironic key according to Bob Roberts, a poli sci prof at JMU who is a frequent commentator on local TV is that McCain is not very far ahead in the Tidewater. The irony here is that this is the area that is most chock full of military, with Hampton Roads being the world's largest naval base. According to Roberts, McCain does lead among the military themselves, but their families have turned against him, sick of the long Iraq war. So, if McCain loses Virginia, and thus the election, it may be the ultimate blowback from his support of the awful Iraq war, finally coming home to roost.

Economic and Social Importance of the Eight-Hour Movement

"Whatever tends to raise wages through increasing the aggregate consumption of wealth, necessarily tends to reduce the cost of production and lower prices."

It is commonly assumed that every increase of wages must be accompanied by a rise, of prices. This is a fundamental mistake that is demonstrated by all the facts of industrial history. The last fifty years which have witnessed a greater rise of wages than all the rest of the world's history have shown, has also seen the greatest fall of prices ever known. Whether a rise of wages will involve an increase of prices depends entirely upon how the advance of wages is brought about. If wages were arbitrarily increased without any change in the standard of the laborer's living, and the consequent increase in his general consumption, of course an advance of wages would increase the cost of what he produced. But this is entirely different when the rise of wages comes from the natural consequence of a higher standard of living, and a larger general consumption. The larger the market the lower the price, is one of the best established principles in political economy as well as one of the best attested facts in industrial history.

The successful use of improved machinery, which is the only means of permanently reducing the cost of production and lowering prices, is impossible without the use of large capital and extensive production. It is equally true that the concentration of capital and extensive production are compatible only with large aggregate consumption of wealth, which nothing but a high standard of living can sustain. Therefore, whatever tends to raise wages through increasing the aggregate consumption of wealth, necessarily tends to reduce the cost of production and lower prices. This explains why the comfort and luxuries of life are cheaper in England now, with labor at five shillings a day, than they were in the middle ages with labor at less than six pence a day, and why wealth can be produced cheaper in America at two dollars a day than in China at ten cents.

Fudging Data to Prove Markets Are Fair

In The Confiscation of American Prosperity, I looked at the career of Martin Feldstein, until recently longtime director of the National Bureau of Economic Research, chief economic advisor during the Reagan administration, and inveterate foe of Social Security.

In the recent issue of the NBER digest, you can read a short discussion of Martin Feldstein's "proof" that wages have kept pace with productivity.

http://www.nber.org/digest/oct08/w13953.html

In case you do not want to purchase the article, you can read an earlier version here

http://www.aeaweb.org/annual_mtg_papers/2008/2008_111.pdf

The result is a display of incredible virtuosity. By selecting the appropriate deflators [a measure of inflation], including benefits as part of wages, and comparing wages with National Income rather than the Gross Domestic Product, voila, Feldstein manages to get a relatively constant wage share of national income.




Using a different deflator is a common tactic for arguing that wages have kept pace with productivity. At the same time, many fees that ordinary people face are not included in any of the deflators. Also keep in mind that wages include multimillion dollar executive salaries as well as those of minimum-wage workers.

National Income differs from Gross Domestic Product because it includes the depreciation. By subtracting depreciation, the wage share increases.

The nature of depreciation is changed greatly over the. The Feldstein covers, 1970-2006. During this period, the nature of investment changed, with less long-term investment in fixed capital goods at the same time that software, which has a very rapid depreciation, became counted as part of capital expenditure. If a $1000 were invested in a factory building in 1970 and an equivalent thousand dollars were invested software in 2006, a relatively small part of the 1970s investment would be counted as depreciation. In contrast, a large part of the 2006 investment would represent depreciation. So, between 1970, depreciation rose from about 10% of GDP to 13%. Since National Income rose more slowly, that kept the wage share from declining as much.

In so far as benefits are concerned, the two most important are pensions and medical care. Since medical care has experienced rapid inflation over the period covered, a careful study would deflate medical care costs to account for inflation -- especially in a paper that is supposedly paying special attention to the appropriate way to account for inflation. In other words, the value of a dollar's worth of medical care in 2006 was much less than comparable expenditure in 1970.

So, by carefully selecting measures of production, inflation, and wages, Feldstein made the case that wages have kept up with productivity and growth of income. This exercise shows more about the degree to which committed ideologues will go to prove that markets are both efficient and just.

Ben Stein on the Financial Crisis: Liquidity v. Solvency

Dean Baker has one problem with the latest from Ben Stein:

Ben Stein is back, telling people that it is important to save money in order to protect themselves against the sort of downturn that the economy is now seeing. While few would argue with the view that people should try to put some money aside, most people get paid less than Mr. Stein and do much better work.

Imagine that – during a period where the concern is a lack of aggregate demand, Ben Stein advocates that we consume less!

I have another problem with Stein’s musings:

Months ago, one of the greatest of American economists, Anna Jacobson Schwartz, who was co-author with the late Milton Friedman of “A Monetary History of the United States,” accurately said that American banks did not face a liquidity crisis, but that they might soon urgently face a solvency crisis. In other words, banks would have ample reserves to lend but might lack assurances that they could meet all their financial obligations if those loans went bad. She was right. In fact, bankers have had so many losses and faced so much uncertainty that they dared not lend, for fear of killing their banks with bad loans — so we have actually had a solvency crisis.

Time to turn the microphone over to Brad DeLong:

So she has become a Mellonist. Back in her (and Milton Friedman's) Monetary History of the United States, she argued that Treasury Secretary Andrew Mellon and company were wrong when they told Hoover, as Hoover put it, to liquidate the economy: “The 'leave-it-alone liquidationists' headed by Secretary of the Treasury Mellon felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: 'Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate'. He held that even panic was not altogether a bad thing. He said: 'It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people'...” But today she says that Andrew Mellon's policy is the right one.

Stein continues:

The solvency crisis exploded when, in mid-September, Mr. Paulson allowed Lehman Brothers to die a sudden death. I would never have believed that it could happen, which shows one of my many limitations as an economist and a human being. I assume that the future will be much like the past, but sometimes it isn’t. After Lehman, I felt sure that the government would realize its mistake and issue blanket solvency guarantees to banks.

Huh? The Mellonist policy that Stein and Schwartz advocates was to let Lehman Brothers fail. We did and that started the crisis? So Stein recommends we continue with this policy? Ben Stein – Confused R Us!

Update: Felix Salmon notes that Ben Stein does not even understand the concept of insolvency!

Economic and Social Importance of the Eight-Hour Movement

The adoption of an eight-hour system would tend to increase wages in two ways: first, by reducing enforced idleness; second, by creating new wants, and raising the standard of living.

The adoption of an eight-hour system would tend to increase wages in two ways: first, by reducing enforced idleness; second, by creating new wants, and raising the standard of living. The immediate effect of the general adoption of an eight-hour work day would be to reduce the working time of over eight million adult laborers about two hours a day. This would withdraw about sixteen million hours labor a day from the market without discharging a single laborer. The industrial vacuum thus created would be equal to increasing the present demand for labor nearly twenty per cent. In other words, without increasing either our home or foreign market, but simply to supply the present normal consumption, it would create employment for two million laborers, which is nearly equal to seventy per cent, of the total number of able-bodied paupers and unemployed laborers in America, England, France and Germany. In thus eliminating enforced idleness it would remove the first great Obstacle to industrial reform and social progress

Again, the employment of two million of new laborers would necessarily tend to increase the number of consumers, and thereby enlarge the market for commodities to that extent. That such a result would tend to increase wages is very clear. Although wages would not necessarily rise in the same proportion that enforced idleness is reduced, all the influences would be in that direction. It is a law in all nature that the power of primary forces increases directly as the opposing forces are reduced. Since enforced idleness is the most powerful obstruction to a rise of wages by removing the unemployed, the direct influence of the social forces which tend to promote the rise of real wages would be increased.

Manifestly, therefore, the immediate effect of the adoption of this measure would be to remove the greatest obstacle to industrial peace and progress, and prepare the way for increasing the natural influences which tend to enlarge the general consumption of wealth and raise wages.

The second effect, which would be more gradual, permanent and far-reaching in its nature than the first, would be the result of the increased leisure and social opportunity upon the social character and consumption of the masses. With the removal of enforced idleness, and its degrading influences, over eight million laborers would leave their work each day less exhausted, mentally and physically, and have two hours more leisure. This would mean so much positive opportunity for family life and for general social intercourse, and in a much fresher and more cheerful mood. With increased leisure and less exhaustion, the laborer will be continually forced or attracted into new and more complex social relations, which is the first step toward education and culture in the broadest and deepest sense of the term. In short, it means his gradual introduction into a new social environment, the unconscious influence of which would necessarily awaken and develop new tastes and desires for more social comforts. He would naturally begin to desire more wholesome and better appointed homes, more literature, entertainment, and a greater amount of general social intercourse, not to speak of the intellectual, moral and social improvement that would necessarily result from such conditions. The purely economic effect of this would be little short of revolution. In proportion to the frequency and extent with which the new desires were gratified, the development of which no power on earth could prevent, would they crystallize into urgent wants and necessities. The satisfaction of these would soon become an essential part of the standard of living demanded by the social character and habits of the people, and therefore would make a general rise of real wages inevitable. In fact, these are the only kind of influences which ever did, or ever can, permanently increase the general rate of real wages. This increased consumption and rise of wages means enlargement of the home market, and thereby making a greater concentration of capital and the use of wealth-cheapening machinery possible.

The Elephant's Room

by the Sandwichman

My colleague, Peter Dorman wonders:

And where is the left? They rail against the bailout and the evils of finance capital, but when it comes time for them to put forward a constructive, functional alternative they change the subject.

To answer Peter's question requires a brief detour to consider the images of the elephant in the room, the emperor's new clothes and the three monkeys: see-no-evil, hear-no-evil and speak-no-evil. In short, what is not said is no coincidence. There is a conspiracy of silence. One has to learn to listen very carefully for the conspicuous absences.

Here is what the elephant looks like (I paraphrase from an abstract of Moishe Postone's Time, Labor and Social Domination): the core of the capitalist system is an impersonal form of social domination generated by labor itself and not simply by market mechanisms and private property. The industrial production process itself is an expression of this social domination and therefore cannot be a means of human emancipation.

Social domination in capitalism is something that largely occurs impersonally in the labor process. One sells one's time to make a living. That is to say, the employee accepts payment in return for agreeing to do what he or she is told to do during those hours of the day that one is employed.

Reducing the hours of work simply reduces the proportion of time during which individuals are under this impersonal form of domination. However, substantially reducing the hours of work not only reduces this period of domination proportionately, it also diminishes it's importance and displaces it from the center of life. That is what Herbert Marcuse meant when he said, "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 status quo), productivity must be turned against the individuals; it becomes itself an instrument of universal control."

Has anyone other than the Sandwichman noticed that, aside from the Sandwichman's unrelenting obsession with the issue, NO ONE talks about reducing the hours of work as part of a policy response to the financial crisis. IT'S NOT IN THE CONVERSATION, FOLKS! It's what we've somehow tacitly agreed not to talk about. Why? Because it's the elephant in the room.

It's the unspeakable solution to "the unsolved riddle of social justice." It's the unmentionable "ultimate solution" to the problem of full employment. It's the unutterable "preliminary condition without which all further attempts at improvement and emancipation must prove abortive."

Rather than just passing on to some other topic without acknowledging what I'm trying to say here, can someone please explain to me why I'm wrong? Is there no elephant in the room? Is the emperor clothed in robes woven from silver and gold thread?

GOP Describes Alleged Perils of a Democratic Win

David Frum argues that Republican money should be focused on the Senate races as the McCain candidacy is a lost cause:

the Senate will have to play the same role after this defeat. That's especially true because of two unique dangers posed by the impending Democratic victory. First, with the financial meltdown, the federal government is now acquiring a huge ownership stake in the nation's financial system. It will be immensely tempting to officeholders in Washington to use that stake for political ends -- to reward friends and punish enemies. One-party government, of course, will intensify those temptations. And as the federal government succumbs, officeholders will become more and more comfortable holding that stake. The current urgency to liquidate the government's position will subside. The United States needs Republicans and conservatives to monitor the way Democrats wield this extraordinary and dangerous new power -- and to pressure them to surrender it as rapidly as feasible. Second, the political culture of the Democratic Party has changed over the past decade. There's a fierce new anger among many liberal Democrats, a more militant style and an angry intolerance of dissent and criticism. This is the culture of the left-wing blogosphere and MSNBC’s evening line-up -- and soon, it will be the culture of important political institutions in Washington.

Steve Benen suggests Frum has an “overactive imagination”. Steve also notes that McCain has another divided government message that assumes the Democrats get to 60 in the Senate and makes this economic prediction:

McCain said having Democrats in control of the White House, the U.S. House of Representatives under Speaker Nancy Pelosi of California and the Senate under Majority Leader Harry Reid of Nevada, would give Democrats unfettered power. The Democrats are expected to increase their majorities in both houses of Congress on election day. "Senator Obama's tax increase would put even more people out of work," McCain said. "We've seen this before in other countries. It doesn't work. The answer to a strong economy is not higher taxes.

McCain keeps telling middle class voters that Obama plans to raise their taxes, which of course, is a lie. It’s interesting to note that McCain failed to identify those other countries that raised taxes only to see a rise in the unemployment rate. Why don’t we talk about the United States the last time we had a Democratic White House and Democratic majorities in both the House and the Senate. We did have a tax increase in 1993 and Republicans back then predicted a recession. But it seems the Clinton years witnessed strong economic growth with large increases in employment.

Mankiw's Contradiction

Today's New York Times column by Greg Mankiw again shows the limits of orthodox economists' thinking. See my comments below.

October 26, 2008 / Economic View / New York Times

But Have We Learned Enough?
By N. GREGORY MANKIW

Like most economists, those at the International Monetary Fund are lowering their growth forecasts. The financial turmoil gripping Wall Street will probably spill over onto every other street in America. Most likely, current job losses are only the tip of an ugly iceberg.

But when Olivier Blanchard, the I.M.F.'s chief economist, was asked about the possibility of the world sinking into another Great Depression, he reassuringly replied that the chance was "nearly nil." He added, "We've learned a few things in 80years."

Yes, we have. But have we learned what caused the Depression of the 1930s? Most important, have we learned enough to avoid doing the same thing again?

The Depression began, to a large extent, as a garden-variety downturn. [a big ellipsis here, where Mankiw scetches a conventional story about the onset of the Depression]

The banking panics put downward pressure on economic activity in two ways. First, they put fear into the hearts of depositors. Many people concluded that cash in their mattresses was wiser than accounts at local banks.

As they withdrew their funds, the banking system's normal lending and money creation went into reverse. The money supply collapsed, resulting in a 24 percent drop in the consumer price index from 1929 to 1933. This deflation pushed up the real burden of households' debts.

Second, the disappearance of so many banks made credit hard to come by. Small businesses often rely on established relationships with local bankers when they need loans, either to tide them over in tough times or for business expansion. With so many of those relationships interrupted at the same time, the economy's ability to channel financial resources toward their best use was seriously impaired....

Less successful were various market interventions. According to a study by the economists Harold L. Cole and Lee E. Ohanian, both of the University of California, Los Angeles, and the Federal Reserve Bank of Minneapolis, President Roosevelt made things worse when he encouraged the formation of cartels through the National Industrial Recovery Act of 1933. Similarly, they argue, the National Labor Relations Act of 1935 strengthened organized labor but weakened the recovery by impeding market forces....<

Here we see a big contradiction! Above, Mankiw first blames deflation (steadily falling prices) for being a major force pushing the US economy into Depression. Then, he blames FDR for fighting deflation! Note that at the time, many policy-oriented economists were explicitly in favor of preventing deflation (and instead in favor of "reflation"). Though they were often often unorthodox, their reasons were very similar to those of Irving Fisher, a famous and very orthodox economist of the time: to quote Mankiw, "deflation pushe[s] up the real burden of households' debts."

Now, it may be that if we looked deeper into this question, there's no contradiction here, but he doesn't address the issue at all. He instead seems to be assuming the standard economics BS about falling prices being a good thing at the macro level. This should be called "knee-jerk economics."

He continues:... three researchers show that the leading economists at the time, at competing forecasting services run by Harvard and Yale, were caught completely by surprise by the severity and length of the Great Depression. What's worse, despite many advances in the tools of economic analysis, modern economists armed with the data from the time would not have forecast much better. In other words, even if another Depression were around the corner, you shouldn't expect much advance warning from the economics profession.

Let me be clear: Like Mr. Blanchard at the I.M.F., I am not predicting another Great Depression. We have indeed learned a lot over the last 80 years. But you should take that economic forecast, like all others, with more than a single grain of salt.

It's about time! This Harvard elite economist is actually expressing modesty, something he's never been good at. So the financial melt-down has had at least positive effect.

Jim Devine

Economic and Social Importance of the Eight-Hour Movement

The first condition for social opportunity which consists of frequent contact with an increasing variety of social influences is LEISURE. So long as one's time is all occupied in the mere getting of a living, the chance for social influences to operate upon him, which creates new desires, is impossible.

The first condition for social opportunity which consists of frequent contact with an increasing variety of social influences is LEISURE. So long as one's time is all occupied in the mere getting of a living, the chance for social influences to operate upon him, which creates new desires, is impossible. Whatever increases the draft upon the physical and nervous energies of man make him less susceptible to the refining, and more disposed to the stimulating and vulgarizing influences. It is one of the characteristic features of modern industrial life that by its division and specialization of labor, it tends to increase the intensity of the strain upon the nervous energies of the laborer. In no country in the world is this fact more prevalent than in America. The persistency with which industrial energies are intensified in this country have come to be almost regarded as a national characteristic. It has become a recognized fact by medical science that the first step toward remedying this condition is more leisure, more physical and mental repose, more and longer periods of relief, from the strain which the specialized industrial life imposes. This has become absolutely necessary for both physical and social reasons. For physical reasons, because it makes wholesome living and normal physical health possible, and socially because without it frequent social contact is prevented or the susceptibility to the socializing influences is destroyed. The great mass of laborers are compelled to work all the year round under the same monotonous condition. This is made indispensable by the very nature of modern methods in industry. Under the factory system the laborers become mere wheels in a colossal machine, in which the presence of all is necessary to the efficient labor of any. Since the conditions under which any considerable number of the laborers work, must necessarily be those of all, nothing can increase the leisure and enlarge the social opportunities of the laboring classes which does not make a general reduction of the hours of labor.

Bailing Out the Banks but Not the Economy

One of the best pieces of reporting to emerge from the bailout insanity is this gem from Joe Nocera of the New York Times. You must read it: doctor’s orders. It makes it crystal clear that Paulson has a plan for his friends in the financial world, but there is no plan for the economy. You can lead a bank to liquidity but you can’t make it loan. For his chutzpah in listening in on a conference call intended only for JP Morgan staff, Nocera deserves a Pulitzer, a Nobel or something.

My first thought on reading this exposé was that we just need to hang on for three more months, when the real cavalry will come to push aside this bunch of imposters. But then I realized that there is no guarantee that Rubin, Summers et al. will have the courage or freshness of vision to do what needs to be done. They too have been shouting “Capitalization, Capitalization”, which may rescue them but falls far short of rescuing us.

I reiterate: we need to put a public financial alternative on the table. Bailing out the financial institutions (a) may not succeed on its own terms and (b) does not deal with the fact that the real economy is plunging. A public entity can step up and provide the credit we need to avoid a suffocating slump, so we are not held hostage to the Jamie Dimons of this world.

And where is the left? They rail against the bailout and the evils of finance capital, but when it comes time for them to put forward a constructive, functional alternative they change the subject. As far as I can see, it comes down to this: either we bail out the existing institutions and somehow browbeat them into countercyclical lending behavior, which they will resist with all their fiber, or we let them go to their fate and put our marbles into a public institution that can do the job. The first is an ethical swamp, reeking of moral hazard, and may well fail. The second is the straightest, fairest, most reliable route to recovery. Please raise your voice for a public alternative. If the bailout fails to prevent a full-bore economic collapse, by the time we find out it will be too late.

New Scientist: The Folly of Growth

Kate Soper: Nothing to fear from curbing growth

It doesn't help that virtually all representations of pleasure and the life we should aspire to come from advertising, with its incessant message that our happiness is dependent on consuming ever more "stuff". We hear little about the joys of escaping the stress, congestion, ill-health, noise and waste that come with our "high" standard of living.

In fact, there is plenty of evidence that the work-dominated and materially encumbered affluence of today is not giving us enjoyable lives, and that switching to a more sustainable society in which we work and produce less would actually make us happier. For example, rates of occupational ill-health and depression have been shown to be linked to the number of hours we work, and once a certain level of income is reached further wealth does not correlate with increased happiness.

The absurdity of our situation is illustrated by the way our economy profits from selling back to us the pleasures that we have lost through overwork: the leisure and tourist companies that sell us "quality time"; the catering services that provide "home cooking"; the dating and care agencies that see to personal relations; the gyms where people pay to walk on treadmills because the car culture has made it unsafe or unpleasant to walk outside. As the economy continues to expand, consumer culture becomes ever more reliant on our willingness to accept this.

A growing number of people are starting to realise that there may be more to life than working to spend. Troubled by the negative impacts of a high-stress lifestyle, they are simplifying their lives and rethinking their values and desires. If we were to shift en masse to a less work-intensive economy, it would reduce the rate at which people, goods and information had to be delivered, cutting both resource use and carbon emissions.

Rather than entailing any sacrifice to our lifestyles, this would bring huge benefits. People would reclaim time for personal and family life. They would commute less and enjoy healthier modes of travelling such as walking, cycling and boating. Supermarket shopping would cede to a resurgence in local stores, making town centres more individual and boosting local communities. All this would transform urban and rural living, and provide more tranquil space for reflection, as well as opportunities for sensual experience now denied by harried travel and work routines. These revised ideas of the "good life" might also inspire less-developed countries to reconsider the conventions and goals of development, enabling them to avoid some of the less desirable consequences of the current model.

My one reservation regarding the above is that Kate Soper finesses the political economy of working less -- that is to say the trade-off between reduced hours of work and unemployment that growth-obsessed economists would rather not acknowledge but rather would actively suppress because it undermines their admittedly flawed "model of how the world works".

It's co-existence or no existence

What prospect is there for national forms of economic prudence when we're drowning in a giant global liquid pool of finance capital of which only a tiny fraction derives from the production of real goods and services? [1]

Doug Nolan this week:

"....Think in terms of the surge of inflation that forced thoughtful policymakers in economies such as Australia, New Zealand and elsewhere to significantly tighten monetary policy. Rising rates, however, only enticed more disruptive speculative finance flowing loosely from (low-yielding) Credit systems including the U.S., Japan, and Switzerland. Speculation could have been as simple as shorting a low-yielding security anyplace to finance a higher-returning asset anywhere. Or, why not structure a complex leveraged derivative transaction that, say, borrowed in a cheap currency (i.e. yen or swissy), played the upside of rising emerging equities markets, and at the same time had triggers to hedge underlying currency and/or market exposure. And the counterparty exposure for a lot hedges could be wrapped up in collateralized debt obligations (CDOs). And the more loose global finance inflated the world, the more the leveraged speculating community inundated “commodity” economies such as Australia, Canada, Brazil, South Africa and Russia. Of course, speculative inflows ignited domestic asset market and Credit systems, in the process fostering dangerous Bubbles...." [2]

And some comments from Naked Capitalism in the last few days:
"a lot of the depression we're all going to get now is because Japan expanded its money supply but held interest rates low for those 15 years in a attempt to duck recession. With low domestic rates, there was no place for the money domestically so it went abroad via the carry trade and blew bubbles all over the planet...

"...I never saw [Japan's] zero [interest rate] policy as anything but a long-term disaster; one can't get any kind of velocity or domestic economy at long term zero or neg rates, it's madness. The destabilizing impact of dollar debt expansion has mattered far more in this global bubble than the cheap yen, but the irrationality of the Japanese yen bloat backstoped their standard of living for fifteen years at the coast of their _next_ fifteen years, yes, and they have their share of irresponsibility in the global bust. Why didn't Japan, really, take a knock and move on? Hard times would have socially knocked their crony capitalist one-party regime out of authority for something rather more leftish. This wasn't so much about saving the banks but about saving the 'Power System.' Which is why US public authorities are trying the same bad approach: it's all about saving the One Party Capitalist system... [3]




[1] The title is a quote from Dr Martin Luther King.

[2] History's Biggest Margin Call
by Doug Noland October 23, 2008
http://www.prudentbear.com/index.php/commentary/creditbubblebulletin?art_id=10142

[3] Richard Kline.

Economic and Social Importance of the Eight-Hour Movement

The wants of mankind are everywhere simple or complex according to the quality of the habits and Customs of the society in which he moves. Habit not only governs our social wants, but it exercises an important influence over our physical wants also.

As wages are governed by the standard of living, and the standard of living is governed by the social wants of the laborer, how then are the social wants determined? A little observation will show that the wants of mankind are everywhere simple or complex according to the quality of the habits and Customs of the society in which he moves. Habit not only governs our social wants, but it exercises an important influence over our physical wants also. While it does not determine whether or not we shall eat, it does decide how and what we shall eat, the clothes we shall wear, the kind of house we shall live in; nay, more, the very language we speak, the morals we adopt, and the religion we profess, are all determined by the habits and customs of those among whom we live. Whether we are Christians, Mohammedans or Buddhists; whether we eat with chop-sticks, or use knives and forks; whether we live upon rice, wear wooden shoes and a cotton frock, or eat black bread and dress in sheep-skins, or enjoy the comforts and luxuries of modern civilization, mainly depends upon the prevailing social habits and customs of the country we happen to live in. In fact, habit is the strongest force in human affairs. It is more powerful than governments, armies or absolute despotism. It is at once the motor force and ratchet wheel of human progress. Wants push the car of civilization forward, the habits and customs prevent it from slipping backward. In short, the habits and customs of a people constitute its real social character.