Hoover Economics – Czech Style

Is Czech prime minister Mirek Topolánek looking to write for the National Review? While he acknowledges the global recession, he also writes:

Even high-quality medicine, if administered in excessive doses, can be harmful or, if used permanently, cause unhealthy addiction. That's why I have been repeatedly calling on countries, within as well as outside the EU, to be prudent. I used the rather hyperbolic simile of the “road to hell” in my speech to the European Parliament last week to warn against the danger of temporary measures - such as excessively increasing public borrowing, nationalising or subsidising banks and industries, putting up protectionist barriers or enforcing “buy American” clauses - becoming permanent. It was in this context that I referred to the adverse experience of protectionism and state intervention in the US in the 1930s ... I do not need to explain that the welfare states of Europe act as “automatic stabilisers”, sustaining consumer spending even in a slump. This means that Europe does not need such a large fiscal stimulus compared with the US, which does not have such a system of social support. I also believe that as the President of the European Council I do not need to explain that the situation in the EU is different from that in the US in a further way - the EU cannot choose to apply a wide-scale financial stimulus. Even though the Czech Republic is not a member of the eurozone, I do not need to explain the vital importance of the rules of the Stability and Growth Pact that restrict the size of a country's budget deficit and national debt. Or do I?

While I am not in favor of using trade protection to bolster U.S. net exports (something about the prospect beggar thy neighbor retaliation), Smoot Hartley was not the cause of the Great Depression. Nor was the New Deal. As far as a potential defense of the Buy American provisions that Topolánek criticizes, let’s turn the microphone over to Paul Krugman:

And one part of the problem facing the world is that there are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt. As I explained a while back, this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole. And this in turn means that if macro policy isn’t coordinated internationally — and it isn’t — we’ll tend to end up with too little fiscal stimulus, everywhere.

Topolánek now advocates the lack of fiscal stimulus that worried Paul. If the European economy were currently facing excess aggregate demand, this call to adhere to the Stability and Growth Pact would make sense. Otherwise, it is the kind of Hoover economics that Republicans in Washington are also advocating.

Update: Paul Krugman has more:

Like many other economists, I’ve been revisiting the Great Depression, looking for lessons that might help us avoid a repeat performance. And one thing that stands out from the history of the early 1930s is the extent to which the world’s response to crisis was crippled by the inability of the world’s major economies to cooperate. The details of our current crisis are very different, but the need for cooperation is no less. President Obama got it exactly right last week when he declared: “All of us are going to have to take steps in order to lift the economy. We don’t want a situation in which some countries are making extraordinary efforts and other countries aren’t.” Yet that is exactly the situation we’re in. I don’t believe that even America’s economic efforts are adequate, but they’re far more than most other wealthy countries have been willing to undertake. And by rights this week’s G-20 summit ought to be an occasion for Mr. Obama to chide and chivy European leaders, in particular, into pulling their weight. But these days foreign leaders are in no mood to be lectured by American officials, even when — as in this case — the Americans are right.

Ian Traynor reports that the European leaders are likely not going to listen to President Obama:

The case pushed by Merkel repeatedly in recent weeks, and echoed by France and the European commission, is that there is no point now in more tax cuts and deficit spending to boost demand since it is not yet clear whether the huge fiscal stimuli packages already launched are actually going to work … the European leaders are indeed worried that Obama's huge public spending programmes could fuel hyper-inflation and leave Europe struggling to refinance colossal levels of state debt if they followed suit.

Work Time Regulation as Sustainable Full Employment Strategy

by the Sandwichman

Bob LaJeunesse's book, Work Time Regulation as Sustainable Full Employment Strategy has been published by Routledge. A 30-page preview is available online. I tried to paste the widget for the preview on EconoSpeak but couldn't figure out how it worked.

Table of Contents: Introduction 1. The Origins of the Work and Growth Fetish 2. Rethinking the Work Fetish and the Growth Consensus 3. Work Time Regulation as a Macroeconomic Policy Tool 4. The Ecological and Social Sustainability of Work Time Regulation 5. The Employment Effects of Work Time Reduction 6. A Proposal for Reform 7. Conclusion

A Sign of the Times

New York Times "Room for Debate" blog: Europe’s Solution: Take More Time Off

While many European companies have long turned to shorter workweeks and mandatory time off in economic downturns, the idea has never really caught on in the United States. Despite reports of unpaid furloughs and wage cuts, American companies continue to rely heavily on layoffs to control labor costs...

Is Economic Man Parsimonious?

by the Sandwichman

"Of course we know that this is not so... but we assume it for simplicity’s sake, as an hypothesis."

But of course... For simplicity's sake...

In Narrative Policy Analysis, Emery Roe argued that a counter-narrative must be "as parsimonious" as the policy narrative that it challenges. That word, parsimonious, appeared also in Joseph Persky's 1995 JEP retrospective on "The Ethology of Homo Economicus": "to compete successfully against Economic Man, a new ethology must be parsimonious..." (Nemo contra deum nisi deus ipse!)

Roe and Persky were, of course, referring to Occam's Razor -- the principle that the fewest possible assumptions should be made when explaining a thing. Such theoretical economizing by economists is not to be confused with the economizing done by Economic Man. Or is it? Could there be a strange, self-referential loop that fancies itself parsimonious about parsimony?

There's one way to find out. Build the equally parsimonious counter-narrative that, so to speak, unmans Economic Man.

Doctor Frankenstein's got nothing on the Sandwichman, who has been disposing of his spare time for several weeks constructing the definitive counter-narrative to Economic Man. In an earlier post, I proposed the name Hesci for my creature. Another possibility would be Persona Parsimoniae. Or how about both: "HESCI, Persona Parsimoniae"?

Heschi is a spreadsheet that summarizes the characteristics of an implied economic subject from (so far) 19 texts from the working time literature, spanning 237 years. The idea is to relate those characteristics to the presumed characteristics of Economic Man, i.e., utility maximization, rationality and independent preferences. Inevitably, there is overlap between the working time literature and the 'classics' of political economy and economics with, for example, Adam Smith, J.S. Mill, Marx, Lionel Robbins and J.M. Keynes being represented in both.

Some of the statements don't so much contradict the assumptions of Economic Man as complicate them. Others do contradict them flatly. What I believe the exercise shows is that not only are the assumptions about Economic Man, in the words of Walter Bagehot, trivially "not so" but they are also, more importantly, not so simple. Assuming them "for simplicity's sake" is thus disingenuous, a strategy for deferring, deflecting or evading reasoned analysis rather than for facilitating it.

Reveal Rejects?

Over on Overcoming Bias, Robin Hanson has proposed that journals report the papers that they reject, including names of authors and dates of rejections, possibly even with the referee letters. He argues that this might improve the efficiency of the economics journal publishing process by "raising the bar" so that people will not send papers to journals that they are unlikely to get their papers accepted in.

As a journal editor I disagreed, noting that this would be very humiliating for many would-be authors, with some I know having a hard enough time submitting papers given their fears and unhappiness about rejections and nasty comments by refererees. I also noted that there are other proposals out there along similar "efficiency" lines, but that they go against practices and trends in the hard sciences. Thus one says that lengthening the times to first responses from journals (which has been a trend) would achieve this result also, and there are journals that charge very high submission fees, but then return them if papers are accepted (last time I checked, $650 at the Journal of Financial Economics, with the Journal of Monetary Economics not far behind). As it is, in the hard sciences, very rapid turnaround and publishing times are emphasized, and rather than punishing submitters who get rejected and rewarding those who are accepted, many hard science journals have no submission fees, but make authors pay for pages of papers that are being published, something I am unaware of any economics journal doing, whatever one thinks of that. But it is certainly the opposite of the practice of the J. Fin. Econ. and the J. Mon. Econ.

The Dithering Society

LBJ gave the US the Great Society. He also gave us Vietnam, but let's put that aside for the moment. A lot of the Great Society was really meant to co-opt radicalism, but some of what he did looks almost miraculous compared to what we have today. I would suggest we have today is the Dithering Society, except for the rapidity with which the administration responds the unmerited demands of finance.

Obama began with some vague ideas, sometimes even suggesting bold measures. Once in office, we got Clinton retreads, with a handful Goldman Sachs alumni placed in strategic positions.

So far we see few breaks with the loathsome Bush administration, either on the international or on the national front. Every time some Obama initiative seems to inconvenience them rich and powerful interest group, it is modified mostly to their satisfaction. All the while, the hammer falls on ordinary people.

One might at least expect competence, but even here disappointment awaits us. So far the bailout seems to suggest little improvement over the Paulson plan.

Even conservative economists recognize why bankrupt financial institutions should be allowed to go bankrupt. Instead, the Obama boys want to bail out the financial market by virtually guarantying hedge speculators who buy the bad debt.

There is one bailout bill waiting for some action. The Los Vegas casinos are hurting. I know: boo hoo. How could the government bail them out? They could lend me money to gamble. I will be obligated to share my winnings with the government, but they agree that I do not have to repay the loans if I lose. So, I would stand to gain a great deal with little risk.

How is my casino plan different from the present plan of creating a market for "legacy" [Isn't that nicer than saying toxic] assets, other than that financial firms will have to put up a wee bit of their investment.

The best we can hope for from Obama would be to continue to embarrass himself with the obsequiousness toward rich and powerful in such a way as to spark a massive protest comparable to the 1960s. Let's stop dithering. Any takers?

Intelligent Design and Evolution

Econospeakers may be interested in my mini-review of Michael Behe's effort to open the door to "Intelligent Design" in his book The Edge of Evolution: The Search for the Limits of Darwinism. (This was originally a letter to a friend.)

Reading Michael Behe's book, I came to the conclusion that even though he's a very clear writer and knows a lot (especially about malaria), it's no accident that none of the blurbs on the covers are from biologists. He doesn't know evolutionary theory very well. There's nothing wrong with chemists such as Behe "doing" doing biology (just as there's nothing wrong with economists such as myself doing it), but they should heed that profession's knowledge.

In his section "the importance of the pathway" (pp. 4-7) of the evolution of beasts and species over time, he wonders about the likelihood of a random process of mutation getting creatures from "biological point A to biological point B." If "you had to walk blindfolded from one side of an unfamiliar city to the top of a skyscraper on the other side -- across busy streets, bypassing hazards, through doorways -- you would have enormous trouble." He adds that this blindness would be "in the spirit of Darwinism, blind drunk."

I agree: there's little possibility of getting to the top of the skyscraper. It's very unlikely that a bunch of amoebae existing billions of years ago would take a random walk through Darwinian natural selection and end up typing these words into Econospeak.

The problem is that Behe looks at evolution backwards from the end result, implying that Darwinism is teleological, working toward a predetermined goal. Darwinism is not that way, as the late Steven J. Gould emphasized again and again. Just because many such as Herbert Spenser have tried to make Darwinism teleological does not make it so.

Behe assumes that creatures such as humans are currently on top of a skyscraper (with very complex organisms, etc.) and then asks how we could have gotten here blindly. But the exact nature of this point B was not predetermined; evolution is an historical, not a teleological, process. We might have ended up with completely different creatures, perhaps even with our planet lacking complex organisms. The amoebae may have evolved to write for Rush Limbaugh's site instead. Or for the Huffington Post. Or wherever -- or not at all. The current end-point wasn't known ahead of time.

It's more as if we stagger starting at one point in the unfamiliar city and we could end up anywhere. We might end up at the top of a skyscraper, but which skyscraper it was not predetermined. Once we get to the top of whatever building we end up, it make look like that was the only option, but it wasn't. History is contingent. It only looks like it was a predetermined process after the fact, just as winning a war seems inevitable only after you've won. Looking back at the process, the alternative paths that could have been taken are easy to forget because they did not actually happen.

After that, Behe misinterprets the randomness in Darwinian theory. It is not the randomness of flipping coins or of the blind drunk. Randomness in Darwinian theory refers to processes that are not explained by common descent or natural selection. (It's randomness relative to these.)

For example, we see that a parasite and its host can actually learn to live with each other, like a lot of the bacteria in our guts. Sometimes the parasite becomes part of the host, the way that organelles in our bodies' cells seem to have done. There's also the case where a large number of almost exactly the same kind of cell can form a "colony" (as with yeast), which turns out to give them all some adaptive advantage. Next, there's the principle of specialization: a hydra is a lot like a colony, but some cells specialize in doing some tasks, so that the entire creature can get an adaptive advantage. Then there are entire organs (such as our lungs) inside more complex bodies; each of these is like a colony which specializes in one or more of the body's function. Etc.

All of this is totally unexplained by selection, and therefore "random" relative to natural selection. But it is not random by other criteria. It is not a drunkard's walk.

On page 15, Behe seems amazed that the malaria microbes haven't figured out a way to get around sickle-cell anemia. But it's not like all types of germs have to be successful in the sense of killing off all of the people, etc. (There's no inherent imperative to kill people.) In fact, if the malaria microbe killed off all of the mammals it infects, it might kill the geese that laid the golden eggs for them: parasites that kill their hosts do not survive to propagate their species.

It's quite possible that malaria and sickle cells have reached a rough equilibrium where malaria continues to be reproduced generation after generation, along with its hosts, and the sickle cells have attained a similar status. It might be somewhat like the continuing relationship between predator and prey.

On page 16, Behe refers to E. coli as devolving: it's becoming simpler over time, so that nothing "of remotely similar elegance has been built." He assumes that one of Darwinism's ideological overlays -- i.e., that evolution produces more and more complex and elegant creatures as part of a unilinear "upward" path toward more and more "improvement" -- is part and parcel of Darwinism. But this is not true: point B might be a cheap motel rather than a skyscraper; it might be a cheaper motel than at point A. (As mentioned, the amoebae might have devolved to writing for Limbaugh.)

It's notable that this increasing complexity is not one of his three components of Darwinism that Behe defines at the beginning of his introductory chapter (mutation, selection, common descent). He sneaks it in after introducing those three pillars. In fact, it's quite possible that the increased complexity we see is only in the eye of the beholder: as Gould stressed, the dominant species on Earth are simple bacteria, not complex humans. We see complexity as so important because we're flattering ourselves.

Also on page 16, Behe wonders why malaria hasn't gone beyond the tropics. Again, what matters in the evolutionary process is survival to propagate, not expansion. It's not a matter of "survival of the fittest," which is often interpreted in terms of "better" species winning over others. Rather, it's survival of those species that are most able to pass their genes on to offspring that can pass them on to their offspring, ad infinitum. In order for this to happen, the species has to fit with its environment, but that does not mean that a species gets "better and better" or spreads to the entire world. It can be like those anaerobic bacteria that persist in volcanic vents. Isolated yes, but they survive for generations and generations. It's the latter that counts in evolution.

Though human beings have altered our ecological niche, the environment in which we live (especially once cultural evolution took over), that isn't true for all species. The expansion of malaria is blocked by other species which compete to use the same resources. We should not expect such a disease to spread all over.

I'm not an expert on malaria, so the details of my criticisms may be wrong. But I decided that it was not worth my while to continue to Behe's chapter 2. He has created his scare-crow figure of Darwin and has started the pre-determined process of knocking it down. In addition to advocating the use of "intelligent design" as an after-the-fact rationalization to fill gaps not yet explained by Darwinism, he has misrepresented the subject of his book.

I am not saying that Darwinian evolution does not have some holes. Rather, it is that trying to fill those holes by reference to intelligent design get us nowhere, adds nothing to our understanding. Standard biology is a much more useful tool.
--
Jim Devine

The Geithner Plan: Time Is Not on Our Side

Here is the short version of what Simon Johnson, Paul Krugman, Brad DeLong and Mark Thoma said in their discussion of Geithner’s PPIP: no one thinks it is likely to be adequate, Johnson/DeLong/Thoma express varying degrees of optimism that it can lay the political groundwork for more decisive action down the road, and Krugman fears the Obama administration is using up what remains of its political capital and will be unable to take any further action.

I was not asked, but that doesn’t mean I don’t have an opinion. I think these four worthies have all missed the main point: there is a hard limit to the financial resources we will be able to throw at economic recovery. At some point the apparently boundless desire of the world’s portfolios to engorge themselves on T-bills will come to a halt in the form of an interest rate spike and plunge in the dollar. Can I look you in the eye and tell you when this will be? No, at least not if I’m not wearing shades, but I am quite confident the limit is out there. We may hit it in a few weeks or another year or two, or maybe we will be lucky and some how apply a fix before reaching it, but the US is not exempt from the general principle that there is a limit to how much money can be borrowed or quantitatively eased into existence.

The problem with the Geithner plan, as with all other varieties of bailout largesse, is that it depletes our limited resources with no particular likelihood of success. I would ask everyone to consider what our situation will be if the dollar spigot is exhausted before the financial system is back in approximate working order. My candidate adjective: dire.

The alternative continues to be the same: invest public money in a good, new public bank. Make sure the economy has a working, well-capitalized, unencumbered financial infrastructure; then, if you want, sort through the legacy institutions and assets.

A Slight Gap in the Analysis

I finally got around to reading the proposal by Lucian Bebchuk that informed the latest incarnation of the Geithner plan. Recall that a central problem is pricing toxic assets for which no current market exists. The old approach (Paulson) was to have the government simply dictate prices in the course of buying up a few hundred billion dollars of them, presumably to overpay and surreptitiously subsidize the sellers. The new plan is to encourage a multiplicity of private funds, stuffed with mostly public dollars, to bid for the assets. The key paragraph reads:

The existence of such a significant number of private buyers armed with substantial capital will produce a well-functioning market for troubled assets. This will be a market in which many potential sellers (banks) face a significant number of potential buyers (the funds). The profit share captured by the funds’ private managers will provide these managers with powerful incentive to avoid overpaying for troubled assets. At the same time, the profit motive of the selling banks, coupled with the presence of competition among the private funds, will make it difficult for funds to underpay for troubled assets. As a result, we can expect the market for troubled assets to function well, with prices set around the fundamental economic value of purchased troubled assets.

Remember that old Gary Larson cartoon in which two scientists are standing before a blackboard crammed with math? One furrows his brows and says he has doubts about Step 3. Standing apart from all the Greek letters and operators above and below it, Step 3 says, “And then a miracle occurs....”

This paragraph is Bebchuk’s Step 3. With so much tweaking of fund managers’ incentives needed to get them to participate in the program, it is not at all a given that they will maximize expected profits by bidding to the expected value of the assets on offer. In fact, it is easy to show that, the more dispersion there is in their subjective probability distributions around the assets’ expected values, the more distortion there is in price discovery. Paul Krugman picks a maximally dispersed example (all the density at the two extremes) to demonstrate the problem his post from three days ago.

It’s funny how “competition” can take on magical properties for some people. It seems that Bebchuk was so pleased to have found a way to inject competition into the “bad bank” strategy that he didn’t inquire into how well it would perform.

Open for Questions: Workweek

by the Sandwichman

Here are questions submitted to the White House website asking about a shorter work week. Sandwichman is intrigued that 60% of the viewers who voted on these questions, "didn't like the question." The numbers in parentheses are the tallies of "like"-"don't like" votes.

"Any way to encourage a temporary 36 hour workweek (except for you and your staff), A 10% cut in regular hours would help deal with 10% unemployment."
RJK, NC - Jobs (361-566)

"Is a 35 hour work week not a solution for the lack of jobs?"
Yoyo, Paris, France - Jobs (199-283)

"What do you think of shortening the work week and job sharing as a solution to systemic unemployment? I would be happy to work fewer hours as long as I could get access to health care."
Kaller, Portland, OR - Jobs (82-75)

"I would like to know if the administration has considered as a possibility to improving our economy by reducing the fulltime work week frrom 40 hours to 30 hours or asking congress to look into revisiting the Black-connery bill of 1932?"
Justasking, Atlanta, GA - Jobs (125-184)

"Have you considered allowing the economy to contract? It seems to me that a lot of our current economic activity (cars, fossil fuel, defense, etc.) is wasteful. Why not make a 3-day work week and stop the wealthy from taking such a big cut?"
Thomas, New York - Jobs (79-136)

Cochrane is Wrong About Fiscal Policy Even if Ricardian Equivalence Holds

John Cochrane continues to show his ignorance of what the Barro reformulation of Ricardian Equivalence suggests:

Robert Barro's Ricardian equivalence theorem was one nail in the coffin. This theorem says that stimulus cannot work because people know their taxes must rise in the future … We cannot return to mechanically adding up today's consumption, investment and export demands, and prescribe the government demand necessary to attain some desired level of output. Every economist now knows that to get stimulus to work, at a minimum, government must fool people into forgetting about future taxes, an issue Keynes and Keynesians never thought of.

Franco Modigliani was generally thought to be a Keynesian and Barro’s theorem is in part a reformulation of the Ando-Modigliani life-cycle theory of consumption. Barro added the sensible proposition that the present value of future taxes must cover the sum of the current government debt and the present value of government spending – but this proposition does NOT lead to the conclusion that any increase in government purchases will be completely offset by a reduction in consumption as Kevin Quinn notes:

Ricardian equivalence, it is true, implies that deficit-financed tax cuts cannot affect demand. Deficit-financed temporary increases in Government spending, on the other hand, can. Consumption falls today, because the present value of future taxes is higher by the amount of the spending increase, but not by as much as G rises. The reduction in the present value of life-time income implies that the [present value of the] sum of reductions in current and future consumption will be equal to the increase in G, so the reduction today will be small.

Kevin’s point has also been recently made by Paul Krugman and yours truly. And yet – Cochrane ignores this aspect of what Brad DeLong rightfully refers to as “Ricardian Consumers and Fiscal Policy Once Again”.

Mark Thoma has a thoughtful post on why the Barro-Ricardian proposition about the ineffectiveness of tax cuts might fail, that is, why giving a tax cut to a borrowing-constrained households might still lead to an increase in aggregate demand. My only misgiving with Mark’s post was his lead:

This discussion at Brad DeLong's makes the point that Ricardian equivalence fails for deficit financed temporary changes in government spending. But what's not clear from the discussion is that there's no reason to expect Ricardian equivalence to hold in any case in practice, even for deficit financed tax cuts where it can be true in theory.

Even if the Ricardian model did fit the real world, Cochrane’s proposition that increases in government purchases did not impact aggregate demand is wrong, that is, simply a failure of his ability to understand the implications of this particular theory.

Price Discovery on the Big Rock Candy Mountain

Willem Buiter nails the latest Treas/Fed PPIP proposal with his usual acuity. His analysis is spot on regarding the relevance of Akerlof’s lemons, the unwholesome mixing of bad and toxic assets, the shabbiness of the measures taken to obscure the true costs to the public, and the colossal waste of the whole enterprise in light of the far superior alternative of establishing a good, new (public) bank. I would differ only with his final sentence, which calls for tax increases and spending cuts in the teeth of an effective demand crisis.

Now three additional observations:


1. The one genuinely beneficial potential of Geithner’s public-private partnership plan is that it can generate price discovery: the market process it jumpstarts will price the toxic assets that are purchased. Buiter and other critics note that this will be a biased subset of the total—this is where Akerlof comes in. I would add one more complication. The subsidy scheme Geithner is putting in place is asymmetric: capping losses on the downside but not earnings on the up. If the subjective probability functions of investors regarding the true value of these assets is normal and reasonably compact, the subsidies will result in minimal pricing distortion. I haven’t looked at Lucian Bebchuk’s analysis (he is the intellectual godfather of this price discovery scheme), so I don’t know if he took a position on subjective probability form, but the proposal makes the most sense this way. My suspicion, however, is that fundamental uncertainty clouds the perception of what complex, toxic derivatives will ultimately be worth. If so, the distribution is neither compact nor normal. With long, fat tails the asymmetry in the payoff structure becomes crucial, and exerts strong upward bias to the resulting bids. If this is true, the prices “discovered” in this arrangement will be a poor guide to what private sector buyers are willing to offer in the absence of subsidies.

2. Much of the evasiveness of the sequential bailout schemes can be traced to a simple political-economic fact: unlike European countries, such as Sweden, whose resolute responses to earlier financial crises are held up as models for the present, the US has a legislative-executive, not a parliamentary, system. Obama’s crew does not possess a guaranteed legislative majority; it has to charm or obfuscate to win support for each new measure. This alone can explain why decisive action, like nationalization, is off the table. (Even worse, of course, is the fragmented authority of the EU, which shows us what the US would be like if we had stuck with the Articles of Confederation.)

3. In the end, even the most comprehensive, expensive program of bailouts will not put the US or global economy back on its feet. We are not building a bridge back to 2006. Financial systems everywhere and households in many countries (including ours) are massively overleveraged and will be consolidating their balance sheets for years to come. There was real misinvestment on a grand scale, encompassing not only housing (and not only in the US), but also a distribution of manufacturing capacity that depended on global imbalances persisting to eternity. The process of writing all this off will be protracted and painful. Finally, a destructive feedback loop has taken hold, in which weak economic prospects dampen investment demand, and weak investment depresses incomes. Even unfrozen banks no longer stuffed with junk will lend gingerly at best.

This is why I think a rapid shift in policy toward public banking is essential. How it can be reconciled with (2) is unclear, however. How can we get from here to there?

Private global corporations. Public and national bailouts.

Questions: How is it that national governments are organising for the protection of deeply-malfunctioning transnational corporations and their global conglomerates? Are these institutions being asked to give their rather considerable (domestic and international) assets to the national taxpayers who are funding them?

Why have the large troubled banks continued to purchase huge overseas enterprises even in the context of their obvious financial vulnerability? Who in the world is responsible for proper oversight of their contemporary acquisitorial dealings?

2001 - Citi became the owner of 23.2% of the Mexican loan market through its acquisition of Banamex. This came about because of the conditions imposed by the IMF and the US on the 1994 Mexican bailout package.[1]


2006 – June. Explaining premiums in restricted DR (depository Receipt) markets and their implications: the case of Infosys. Morgan Stanley has significant investments in this [Indian] firm.

2007 – October 4th. Citigroup lends to KKR to buy Citigroup’s Loans. (snake eating its tail).

2007 - October 9th. Chinese Corporations owned by Goldman Sachs

"...The consortium - CDH Investments has a takeover vehicle called Rotary Vortex in which Goldman holds a 46% stake (2007). Rotary Vortex acquired full control of Shineway Group, owner of China’s largest meat processor, from state-backed interests in China following a year of regulatory scrutiny...[2]

2007 – October 10th. A consortium made up of a fund advised by JP Morgan Asset Management and Australia’s Challenger Infrastructure fund as well as the merchant bank UBS buys Southern Water which is the 7th largest water and sewage company in England and Wales which provides water for 2.3 million people and waste water services to 4.3 million customers. This acquisition involves the taking on of 2.8billion pounds of debt. The consortium is called ‘The Greensands consortium of infrastructure investors and pension funds’. The balance will be held by a series of Australian pension funds, Hermes, which is owned by the BT pension scheme and infrastructure investor Paceweald (linked to Vincent Tchenguiz’s Consensus Business Group which, in turn, has a stake in Challenger). [3]

2007 – October 17th. JP Morgan “has gobbled up Chase Manhatten, Manufacturers Hanover, Chemical Bank, Bank One and more over the past two decades….”

2008 – October 3rd. Mitsubishi UFJ Financial Group Inc.'s $9 billion investment in Morgan Stanley

2009 – January 16th. Carlyle, TPG, KKR Bid for AIG Aircraft-Leasing Unit. The world’s buyout firms are looking for ways to put their estimated $400 billion of committed capital to work after the global credit crisis restricted leveraged lending and reduced LBOs by about 70 percent last year. Forced sales by financial companies may provide some of the best opportunities. “You have a situation where there’s a distressed seller and these are the times when private-equity funds get their best returns.”

2009 – February 5th. Executives at Goldman Sachs Group Inc., JPMorgan Chase & Co. and hundreds of financial institutions receiving federal aid aren’t likely to be affected by pay restrictions announced yesterday by President Barack Obama.[4]

[1] Excerpt from "Wall Street and Immigration: Financial Services Giants Have Profited from the Beginning," Peter Cervantes-Gautschi, December 4, 2007, Americas Policy Program, Center for International Policy (CIP)

[2] By Sundeep Tucker in Hong Kong
Published: October 9 2007 22:18 | Last updated: October 10 2007 05:40
http://www.ft.com/cms/s/0/edff5102-768d-11dc-ad83-0000779fd2ac.html

[3] JP Morgan consortium buys Southern Water
· £4bn paid for Kent, Sussex and Hampshire utility
· New owners refuse to rule out job cuts
http://www.guardian.co.uk/business/2007/oct/10/2
Mark Milner, industrial editor. * The Guardian * Wednesday October 10 2007

[4] Goldman, JPMorgan Exempt From Exec Salary Caps
Published on 02-05-2009 Source: Bloomberg
http://www.blacklistednews.com/news-3215-0-13-13--.html

Austrian Banks, Yesterday and Today

The government of the Czech Republic has just fallen as a result of the economic crisis that is hitting many countries in Eastern Europe hard, such as Hungary, Romania, and Ukraine. In and several of these, many people borrowed Swiss francs or other foreign currencies at low interest rates and are now hurting for repaying as their currencies have collapsed. Many of the banks that have been doing this lending and are now in serious trouble are located in Austria, with Raffeisen, Erste, and Bank of Austria reportedly getting emergency loans from the Austrian government, which is viewed as not able to handle a much worse crisis involving them. At least the Creditanstalt is not reported to be among those getting these loans, which was reconstituted after major problems earlier in its history.

It was the Creditanstalt that failed on May 11, 1931, triggering the worst financial crisis in world history. Founded in 1855, it had become the biggest bank in Central and Eastern Europe by then. Its failure set off a cascade of falling dominos among banks that then also failed, starting in countries formerly a part of the old Austro-Hungarian Empire to the east, many of them in trouble now, including Hungary, Czechoslovakia, and Poland. The next to go was Germany, where the unemployment rate would reach a world high of 30% by the time Adolf Hitler came to power in 1933. Many banks there had links to the Creditanstalt, and many failed in the months thereafter, with ones in France and Britain following suit. US banks were also linked to the ones in Germany because of the many loans made by them to the German ones under the Dawes Plan of the 1920s, worked out to help Germany deal with its debts arising from its reparations payments made under the Versailles Treaty. But the pressure on the US would peak after Britain went off gold in August, 1931. In the US, bank deposits fell by over 10%, and unemployment soared from a bit below 9% in 1930 to over 15% in 1931, higher than anytime since the Great Depression. Indeed, it was this wave of bank failures across the globe that more than anything else made an unpleasant recession into the Great Depression, as described well in such works as A Financial History of Western Europe, by Charles Kindleberger.



Hidden conclusion here.

Correction to 'Outside of the Vortex' article

On the left is an image of current logging in the upper Florentine valley in southern Tasmania. It is termed 'low impact selective harvesting' by the 'forest' industry here.

Please accept my apologies for an error I made in the 'Outside of the Vortex' article earlier this month. I referred to the very large Kinglake-Marysville (Murrindindi) fire complexes converging with the huge Churchill plantation-based fire further South East. These fires did not, in fact, converge. However the arc of fires between them were the most intense and concentrated in the state. (see the list of references below)

The corrected text:
"But the truth is that the Black Saturday fires entailed the convergence of two huge fire balls that erupted in a tree plantation estate at East Kilmore and joined with another fire front that appeared to begin at a timber mill in the Murrindindi complex of heavily logged native forest and extensive industrial tree plantations further east [18], [19].....An ominous line of closely spaced fire fronts stretched all the way from very large East Kilmore/Murrindindi merged inferno through the Bunyip State Forest down to Druoin and Warragul; to within approximately 40 kilometres of the other very large fire complexes around Churchill."


REFERENCES
Radar reflectivity image from the Melbourne radar (Laverton) at 1pm EDT on
7th February 2009:
http://www.bom.gov.au/weather/vic/sevwx/fire/20090207/20090207_bushfire.shtml

Radar reflectivity image from the Melbourne radar (Laverton) at 8pm EDT on
7th February 2009
http://www.bom.gov.au/weather/vic/sevwx/fire/20090207/20090207_bushfire.shtml

Fire map. Overview. 13th February 2009
http://www.cfa.vic.gov.au/incidents/images/news_image/state_overview_20090213_0500_21449.pdf

Noojee-Mount Toorong fire complex (13th February 2009)
http://www.cfa.vic.gov.au/incidents/images/news_image/state_overview_20090213_0500_going_21451.pdf

Delburn (near Morwell/Churchill. 13th February 2009)
http://www.cfa.vic.gov.au/incidents/images/news_image/state_overview_20090213_0500_21449.pdf

Map of the fires on 23rd February 2009:

http://www.rms.com/ClientResources/Catupdates/Resources/WF_Australia_%20AffectedAreas.jpg
http://www.rms.com/ClientResources/Catupdates/CatUpdatePublic.asp?event_id=2770&update_number=1

There were fires at the following places:

Drouin:

Victoria's bushfires: Fire at Druion.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=74

Pakenham:

Victoria's bushfires: Jason Adams, Keith Adams and Elizabeth Adams watch
their livestock, and sought shelter near a dam at Pekenham.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP
Glenvale (near Lilydale):

Victoria's bushfires: A grader heads up the hill cutting a firebreak in the
Glenvale area in Victoria.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=87

Christmas Hills/Yarra Glen

A koala emerges from the fire at Christmas Hills. Photo: Tina McCarthy
http://www.theage.com.au/news/photogallery/national/reader-pictures/2009/02/07/1233423551136.html

Yarra Valley fire (as seen from Tarrawarra)

A bushfire in the Yarra Valley, as seen from Tarrawarra. Photo: Brent Lukey
http://www.theage.com.au/news/photogallery/national/reader-pictures/2009/02/07/1233423551136.html

Bunyip State Park

Smoke from the Bunyip State Forest fire seen from Warragul. Photo: Debbie
Lyons
http://www.theage.com.au/news/photogallery/national/reader-pictures/2009/02/07/1233423551136.html

Warragul (Camp Hill)

Victoria's bushfires: Camp Hill in Warragul
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Ben Swinnerton, Stephen
Harman, Fiona Hamilton, Jon Hargest, Mark Smith, Reuters, AFP
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=31

Healesville (Long Gully Road)

Victoria's bushfires: Aftermath of bushfires in Healesville. CFA media
liaison officer Mark Sacco walking along Long Gully Road, at the far end
which is State Forrest.
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=20

Photo taken by Cara Frankish from McIntyre Lane, Healesville (Healesville is
east of Yarra Glen and South of Marysville). Taken at 10.15pm on 9/2/09.
http://www.news.com.au/heraldsun/gallery/0,22010,5037340-5006020-16,00.html

Labertouche
"Victoria's bushfires: A fire truck retreats fromthe massive fire front at
Labertouche near Pakenham, east of Melbourne.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP

Victoria's bushfires: The fire front close to Labertouche near Pakenham,
east of Melbourne.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=84

http://www.myenvironment.net.au/index.php/me/content/download/1316/7713/file/media_map_kilmoreEast_murrindindi_20090303_0421_a4.pdf