I just got this from Stewart Brand, who organizes lectures at San Francisco's Fort Mason. Romer is suggesting that less developed countries contract with capitalist nations to set up Hong Kong's for them. What about the alternative, having capitalist nations let us set up little socialist republics to demonstrate an alternative system.
This talk was the first public launch of an idea that Romer has been working on for two years.
His economic theory of history explains phenomena such as the constant improvement of the human standard of living by looking primarily at just two forms of innovative ideas: technology and rules.
Technologies rearrange materials with ingenious recipes and formulas. More people create more technologies, which in turn generates more people. In recent decades technology has enabled the "demographic transition" which lowers birthrates and raises income per person even higher as population levels off.
.
Rules structure the interactions between people. As population density increased, the idea of ownership became an important rule. A supporting rule for managing violations replaced the old idea of deadly vengeance with awarding damages instead: simply shifting value replaced destroying value. For the idea of open science, recognition replaced ownership as the main event, which means that whoever publishes first is most rewarded, and that accelerates science.
Rules can amplify or stifle technological progress. China was the world leader in inventing new technologies until about a thousand years ago, when centralized dynastic rules slowed innovation almost to a stop.
Romer notes that business keeps evolving as new companies introduce new rule sets. The good ideas are copied, and workers migrate from failing companies to the new and old ones where the new rules are working well. The same goes for countries. Starting about 1970, China took some of the effective rules of Hong Kong (which was managed from afar by England) and set up four special economic zones along the coast operating as imitation Hong Kongs. They worked so well that China rolled out the scheme for the whole country, and its Gross Domestic Product took off. "Hong Kong was the most successful economic development program in history."
Romer suggests that we rethink sovereignty (respect borders, but maybe import administrative control); rethink citizenship (support residency, but maybe import voice in political affairs); and rethink scale (instead of focusing on nations, focus on cities---on city states like Hong Kong and Singapore.)
Paul Romer proposes that developing countries could invite instant Hong Kongs---new cities in new locations run by experienced governments such as Canada or Finland. They would enrich the country where they are built as special economic zones while also rewarding the distant government that makes the investment of building the new city state and installing a set of fair and productive rules. Over time, as with Hong Kong, the new city is turned over to the host country.
The idea is getting some traction in the developing world. This summer Romer is going public with a Bridge Cities Institute website for further exploration and eventual application of the idea.
One miracle of cities is that they sometimes renew themselves brilliantly. This could be a whole new form of that.
Tuesday, May 19, 2009
Political Aspects of Full Employment V, 1.
by Michal Kalecki
Should a progressive be satisfied with a regime of the political business cycle as described in the preceding section? I think he should oppose it on two grounds: (i) that it does not assure lasting full employment; (ii) that government intervention is tied to public investment and does not embrace subsidizing consumption. What the masses now ask for is not the mitigation of slumps but their total abolition. Nor should the resulting fuller utilization of resources be applied to unwanted public investment merely in order to provide work. The government spending programme should be devoted to public investment only to the extent to which such investment is actually needed. The rest of government spending necessary to maintain full employment should be used to subsidize consumption (through family allowances, old-age pensions, reduction in indirect taxation, and subsidizing necessities). Opponents of such government spending say that the government will then have nothing to show for their money. The reply is that the counterpart of this spending will be the higher standard of living of the masses. Is not this the purpose of all economic activity?
next
Should a progressive be satisfied with a regime of the political business cycle as described in the preceding section? I think he should oppose it on two grounds: (i) that it does not assure lasting full employment; (ii) that government intervention is tied to public investment and does not embrace subsidizing consumption. What the masses now ask for is not the mitigation of slumps but their total abolition. Nor should the resulting fuller utilization of resources be applied to unwanted public investment merely in order to provide work. The government spending programme should be devoted to public investment only to the extent to which such investment is actually needed. The rest of government spending necessary to maintain full employment should be used to subsidize consumption (through family allowances, old-age pensions, reduction in indirect taxation, and subsidizing necessities). Opponents of such government spending say that the government will then have nothing to show for their money. The reply is that the counterpart of this spending will be the higher standard of living of the masses. Is not this the purpose of all economic activity?
next
Climate Code Red. The case against carbon trading
The global warming crisis is far worse than officially indicated says David Spratt the author of 'Climate Code Red' and Ted Nordhaus author of 'The Emerging Climate Consesnsus' and 'The Death of Environmentalism'.
David Spratt: "We face a climate EMERGENCY. At times of emergency you don't put a price in the market. 2 degrees celsius is enough for 5-10 metres of sea level rise. Enough to melt Greenland."
Ted Nordhause from the Breakthrough Institute in California agrees. "We need to directly invest in employing the technologies we need. The cap and trade is indirect. We are not going to achieve this by making dirty sources of energy more expensive. We need to make clean energy cheap." Nordhaus added that we need massive public investment in research and deployment; massive new infrastructure. Public monies should be employed due to the existence of what is termed the "Gordian Knot' - Because of the huge price gap between dirty and clean energy, if you raise the price of fossil fuels you get almost an immediate public reaction. . But if you don't raise the price enough you don't get the public converting to clean energy.
Norhaus says that solar thermal technology will be competitive with coal by 2013 and he claims that this development has been actively suppressed by Government.
David Spratt: "We can come up with money to save the banking system, but will we come up with money to save the planet?" "I do a lot of opinion research work. What Americans want is long, large investments in the health of the US economy, for example renewable technologies."
Thirty to fifty percent of GDP was spent on the Second World War. Why not employ a similar percent on this climate emergency? Historically the environment movement has focussed on regulating and restricting. This new requirement is to build a fundamentally new economy, says Nordhaus.
We cannot leave aside our own personal responsibilities in terms of growing food, using bicycles, conserving energy in the home.
The research I've done confirms Spratt's and Nordhaus' warnings. See references below.
Global warming: has the meltdown has begun?
Norm Dixon. Green Left Weekly. 9th June 2004
http://www.greenleft.org.au/2004/585/32365
Harvard Prof. John Holdren on “Global Climate Disruption: What do we know, what should we do?"”
Posted on Sunday, February 24, 2008
http://www.climatesciencewatch.org/index.php/csw/details/holdren_global_climate_disruption/
GLOBAL WARMING Reason for Alarm?
Article – June 29, 2006
Posted/Updated: 2008-04-17 10:39:04
http://www.realtruth.org/articles/443-gwrfa-print.html
Arctic Sea Ice Gone in Summer Within Five Years?
Seth Borenstein in Washington
Associated Press
December 12, 2007
Greenhouse gas 4 times higher than thought
Published October 24, 2008 09:04 AM
http://www.enn.com/top_stories/article/38482
Globalization Is Fueling Global Warming
By Les Leopold, AlterNet
Posted on December 28, 2007, Printed on February 6, 2009
http://www.alternet.org/story/71873/
4,500 year old ice shelf breaks away. 3rd September 2008
http://www.cnn.com/2008/TECH/science/09/03/arctic.ice.shelf.ap/
The Collapse of the Arctic Ice Shelf Could Mean the End of Life As We Know It
June 4, 2008 ·
http://earthfirst.com/the-collapse-of-the-arctic-ice-shelf-could-mean-the-end-of-life-as-we-know-it/
And many more articles
David Spratt: "We face a climate EMERGENCY. At times of emergency you don't put a price in the market. 2 degrees celsius is enough for 5-10 metres of sea level rise. Enough to melt Greenland."
Ted Nordhause from the Breakthrough Institute in California agrees. "We need to directly invest in employing the technologies we need. The cap and trade is indirect. We are not going to achieve this by making dirty sources of energy more expensive. We need to make clean energy cheap." Nordhaus added that we need massive public investment in research and deployment; massive new infrastructure. Public monies should be employed due to the existence of what is termed the "Gordian Knot' - Because of the huge price gap between dirty and clean energy, if you raise the price of fossil fuels you get almost an immediate public reaction. . But if you don't raise the price enough you don't get the public converting to clean energy.
Norhaus says that solar thermal technology will be competitive with coal by 2013 and he claims that this development has been actively suppressed by Government.
David Spratt: "We can come up with money to save the banking system, but will we come up with money to save the planet?" "I do a lot of opinion research work. What Americans want is long, large investments in the health of the US economy, for example renewable technologies."
Thirty to fifty percent of GDP was spent on the Second World War. Why not employ a similar percent on this climate emergency? Historically the environment movement has focussed on regulating and restricting. This new requirement is to build a fundamentally new economy, says Nordhaus.
We cannot leave aside our own personal responsibilities in terms of growing food, using bicycles, conserving energy in the home.
The research I've done confirms Spratt's and Nordhaus' warnings. See references below.
Global warming: has the meltdown has begun?
Norm Dixon. Green Left Weekly. 9th June 2004
http://www.greenleft.org.au/2004/585/32365
Harvard Prof. John Holdren on “Global Climate Disruption: What do we know, what should we do?"”
Posted on Sunday, February 24, 2008
http://www.climatesciencewatch.org/index.php/csw/details/holdren_global_climate_disruption/
GLOBAL WARMING Reason for Alarm?
Article – June 29, 2006
Posted/Updated: 2008-04-17 10:39:04
http://www.realtruth.org/articles/443-gwrfa-print.html
Arctic Sea Ice Gone in Summer Within Five Years?
Seth Borenstein in Washington
Associated Press
December 12, 2007
Greenhouse gas 4 times higher than thought
Published October 24, 2008 09:04 AM
http://www.enn.com/top_stories/article/38482
Globalization Is Fueling Global Warming
By Les Leopold, AlterNet
Posted on December 28, 2007, Printed on February 6, 2009
http://www.alternet.org/story/71873/
4,500 year old ice shelf breaks away. 3rd September 2008
http://www.cnn.com/2008/TECH/science/09/03/arctic.ice.shelf.ap/
The Collapse of the Arctic Ice Shelf Could Mean the End of Life As We Know It
June 4, 2008 ·
http://earthfirst.com/the-collapse-of-the-arctic-ice-shelf-could-mean-the-end-of-life-as-we-know-it/
And many more articles
Monday, May 18, 2009
A Tasteless Reference
Janet Maslin has a review today in the New York Times of Lost in the Meritocracy: The Undereducation of an Overachiever, by Walter Kirn. According to the review, Kirn bluffed his way through college, substituting clever words for actually knowing something:
I guess the irony is lost on Maslin; by appealing to her prejudices, Kirn can also pretend to know something about cooking.
I have two words for Maslin, and for Kirn as well if he now pretends his days of pretending are behind him: gypsy soup.
Once he had decided to major in English, “since it sounded like something I might already know,” he learned to enjoy tossing the vocabulary of deconstructionism back at his teachers. He brought his SAT whiz’s skill to the deployment of “liminal,” “valuational,” “heuristic” and “praxis.” He felt empowered to attack a Western canon that he had never really read, skipping “straight from ignorance to revisionism.” These academic madeleines are as nostalgia inducing as the well-chosen pop culture references (the “Moosewood Cookbook”: “a best-selling guide to taste-free dining”) found throughout the book.
I guess the irony is lost on Maslin; by appealing to her prejudices, Kirn can also pretend to know something about cooking.
I have two words for Maslin, and for Kirn as well if he now pretends his days of pretending are behind him: gypsy soup.
Private Clarity, Public Confusion - 19th May 2009
Every week I discover new things about the world that I didn't know before. I thought it might be useful to share them with you in a format that's quick and easy to pass on. Bullet format is good for me ;-)
(i) Henry "Kissinger was the "most frequent visitor" to the George W. Bush White House as an unofficial political advisor on Israel and the Middle East—including the invasion and occupation of Iraq." [1] (The Australian Labor Prime Minister, Kevin Rudd, continues to meet regularly with him).
(ii) Walmart is China's fifth-largest export market, ahead of Germany and Britain. [2] “Wal-Mart is responsible for approximately 10 percent of the United States' trade deficit with China.... Hillary Clinton, whose husband championed "free trade" deals like NAFTA, sat on the Board of Wal-Mart between 1985-1992….[The US] deficit with China has ballooned ...contrary to the promises made by politicos of both parties at the time….According to a study by the Economic Policy Institute [3], America's balance-of-payments deficit with China (of which approximately $18 billion dollars is created by Wal-Mart) was responsible for the loss of 1.5 million manufacturing jobs [in the US] between 1989 and 2003.”[4]
(iii) The huge trade imbalance between the US and China is a relatively recent phenomenon and began to make itself alarmingly apparent the year China joined the WTO (in 2001) [5]
(iv) A recent New York Times article, that describes the emergence of the above huge trade imbalance, fails to point out the very significant role of US and other transnational corporations in this global dilemma. [6] With one single company representing 10% of trade between the US and China this is a very significant omission.
(v) China "and other exporters"(large TNCs exporting from China I presume) kept the value of the Chinese currency low by sending much of their profits back to the US buying investments in Fannie, Freddie, and U.S. Treasury debt. These funds helped to keep interest rates low, which stimulated both consumption and speculation....Bloomberg later reported "A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank. 'If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,' Yu said in e-mailed answers to questions yesterday. 'If it is not the end of the world, it is the end of the current international financial system'." [7]
(vi) A board member of the Reserve Bank of Australia - Roger Corbett - is a Member of the Board of Directors of Wal-Mart Stores, Inc as well as Fairfax Media Limited (one of Australia's oligopoly media empires). He is also Deputy Chairman, Non-Executive Director of PrimeAg, a corporation established in December 2007 and that has set its sights on a massive land and water grab in Australia using a lot of investor money from overseas. [8]
(vii) "Between 1986 and 1989, U.S. Treasury Secretary .. Timothy Geithner was employed at Henry Kissinger, Brent Scowcroft, and Lawrence Eagleburger's Kissinger Associates influence-peddling firm." [9]
"It may be discovered that the Human Race possesses an ignorance which is far superior to any intelligent life form in the Universe." So said 'jN Hodges'. (Who is jN Hodges?)
[1] Henry Kissinger From Wikipedia on 19th May 2009
Many Australians are alarmed with the far right leanings of the new Labor Government under Kevin Rudd. Both the current Rudd and the former Howard administrations have used billions of dollars of taxpayer funds to transfer vast amounts of land to a selected handful of transnational corporations and to subsidise their corporate agribusiness operations. The latter include native forest destruction of a vast scale.) Now a company called PrimeAg whose Deputy Chairman is Roger Corbett (see below) is set to buy up these failed and heavily-subsidised landholders. One of these is Futuris. It owns a major stake in Forest Enterprises, my tormenting neighbour! Futuris has grabbed 1.4% of Australia's land mass. This could represent around 10% of Australia's agricultural land!
See: Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html
[2] The Economic Crisis: A Wal-Mart Economy Dimension. Michael Perelman. Econospeak 18th October 2008
[3] U.S.-China Trade, 1989-2003 - Impact on jobs and industries, nationally and state-by-state
A Research Report Prepared for the U.S.-China Economic and Security Review Commission
By Dr. Robert E. Scott, Director of International Programs, Economic Policy Institute. January 2005
EPI Working Paper #270
http://epi.3cdn.net/c523ff01bec5bc1c25_7nm6i278j.pdf
..\..\..\Economics\China\China-US\China-US-trade-1989-2003.PDF
[4] Wal-Mart's 'China Price' By Joshua Holland, AlterNet. Posted November 7, 2005.
http://www.alternet.org/workplace/27829
[5] The China Puzzle by Bob Dinetz
By DAVID LEONHARDT
Published: May 13, 2009
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
[6] The China Puzzle by Bob Dinetz
By DAVID LEONHARDT
Published: May 13, 2009
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
[7] The Economic Crisis: A Wal-Mart Economy Dimension
Posted October 17, 2008
http://michaelperelman.wordpress.com/2008/10/17/the-economic-crisis-the-wal-mart-economy-dimension/
[8] Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html
[9] http://www.dollarsandsense.org/blog/2008/11/geithner-and-kissinger-associates-pt-1.html
(i) Henry "Kissinger was the "most frequent visitor" to the George W. Bush White House as an unofficial political advisor on Israel and the Middle East—including the invasion and occupation of Iraq." [1] (The Australian Labor Prime Minister, Kevin Rudd, continues to meet regularly with him).
(ii) Walmart is China's fifth-largest export market, ahead of Germany and Britain. [2] “Wal-Mart is responsible for approximately 10 percent of the United States' trade deficit with China.... Hillary Clinton, whose husband championed "free trade" deals like NAFTA, sat on the Board of Wal-Mart between 1985-1992….[The US] deficit with China has ballooned ...contrary to the promises made by politicos of both parties at the time….According to a study by the Economic Policy Institute [3], America's balance-of-payments deficit with China (of which approximately $18 billion dollars is created by Wal-Mart) was responsible for the loss of 1.5 million manufacturing jobs [in the US] between 1989 and 2003.”[4]
(iii) The huge trade imbalance between the US and China is a relatively recent phenomenon and began to make itself alarmingly apparent the year China joined the WTO (in 2001) [5]
(iv) A recent New York Times article, that describes the emergence of the above huge trade imbalance, fails to point out the very significant role of US and other transnational corporations in this global dilemma. [6] With one single company representing 10% of trade between the US and China this is a very significant omission.
(v) China "and other exporters"(large TNCs exporting from China I presume) kept the value of the Chinese currency low by sending much of their profits back to the US buying investments in Fannie, Freddie, and U.S. Treasury debt. These funds helped to keep interest rates low, which stimulated both consumption and speculation....Bloomberg later reported "A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank. 'If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,' Yu said in e-mailed answers to questions yesterday. 'If it is not the end of the world, it is the end of the current international financial system'." [7]
(vi) A board member of the Reserve Bank of Australia - Roger Corbett - is a Member of the Board of Directors of Wal-Mart Stores, Inc as well as Fairfax Media Limited (one of Australia's oligopoly media empires). He is also Deputy Chairman, Non-Executive Director of PrimeAg, a corporation established in December 2007 and that has set its sights on a massive land and water grab in Australia using a lot of investor money from overseas. [8]
(vii) "Between 1986 and 1989, U.S. Treasury Secretary .. Timothy Geithner was employed at Henry Kissinger, Brent Scowcroft, and Lawrence Eagleburger's Kissinger Associates influence-peddling firm." [9]
"It may be discovered that the Human Race possesses an ignorance which is far superior to any intelligent life form in the Universe." So said 'jN Hodges'. (Who is jN Hodges?)
[1] Henry Kissinger From Wikipedia on 19th May 2009
Many Australians are alarmed with the far right leanings of the new Labor Government under Kevin Rudd. Both the current Rudd and the former Howard administrations have used billions of dollars of taxpayer funds to transfer vast amounts of land to a selected handful of transnational corporations and to subsidise their corporate agribusiness operations. The latter include native forest destruction of a vast scale.) Now a company called PrimeAg whose Deputy Chairman is Roger Corbett (see below) is set to buy up these failed and heavily-subsidised landholders. One of these is Futuris. It owns a major stake in Forest Enterprises, my tormenting neighbour! Futuris has grabbed 1.4% of Australia's land mass. This could represent around 10% of Australia's agricultural land!
See: Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html
[2] The Economic Crisis: A Wal-Mart Economy Dimension. Michael Perelman. Econospeak 18th October 2008
[3] U.S.-China Trade, 1989-2003 - Impact on jobs and industries, nationally and state-by-state
A Research Report Prepared for the U.S.-China Economic and Security Review Commission
By Dr. Robert E. Scott, Director of International Programs, Economic Policy Institute. January 2005
EPI Working Paper #270
http://epi.3cdn.net/c523ff01bec5bc1c25_7nm6i278j.pdf
..\..\..\Economics\China\China-US\China-US-trade-1989-2003.PDF
[4] Wal-Mart's 'China Price' By Joshua Holland, AlterNet. Posted November 7, 2005.
http://www.alternet.org/workplace/27829
[5] The China Puzzle by Bob Dinetz
By DAVID LEONHARDT
Published: May 13, 2009
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
[6] The China Puzzle by Bob Dinetz
By DAVID LEONHARDT
Published: May 13, 2009
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
[7] The Economic Crisis: A Wal-Mart Economy Dimension
Posted October 17, 2008
http://michaelperelman.wordpress.com/2008/10/17/the-economic-crisis-the-wal-mart-economy-dimension/
[8] Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html
[9] http://www.dollarsandsense.org/blog/2008/11/geithner-and-kissinger-associates-pt-1.html
Krugman Misses the Point on Waxman-Markey
A careful reading of the latest column by Paul Krugman shows that he doesn’t see what the problem is with the climate change bill now on its way to the House floor. He defends the concept of a cap relative to a tax, which is fine with me. (Jim Hansen, who is a hero in climate science but not a specialist on the economics front, has only muddied the waters by raising this complaint.) He laments the giveaways in Waxman-Markey, but agrees with me that they can be remedied by moving toward full auction in the future. What never makes an appearance, however, is the problem that Waxman-Markey caps individual uses of carbon fuels one sector at a time, and this is not fixable without overhauling the whole approach. What’s wrong with the W-M model? Let me count the ways:
1. The ability to achieve carbon targets depends on the coverage of the program. W-M starts with limited coverage (few sectors capped) and then sets up a protracted battle for extending cap-and-trade to more sectors in the years to come. In spite of timetables written into the bill, you can be sure that each extension will be fought over; there will always be a reason (amplified by lobbying largesse) to postpone bringing in new parts of the economy.
2. Once you have agreed to a sectoral approach, and once you start handing out carbon permits to everyone on the receiving line, you get to haggle over each sector’s carbon budget. There is always a reason to make your sector’s emission reduction target a little lower than the next guy’s.
3. Contrary to what Krugman claims, verifying the actual carbon emissions of each sector is herculean and quite likely to fail.
4. The experience of the European Trading System, which W-M emulates, confirms all these predictions; it has been a disaster. Fixing it, and fixing a future system along the same lines in the US, will mean scrapping it and starting over.
The irony is that there is a much simpler, much more effective alternative: put a limit on the amount of carbon fuels available to the economy by requiring a permit to extract or import them. Coverage is complete, there is a single, economy-wide target, and verification is a snap. There is little opportunity under such a system for businesses to offer or politicians to demand favors for loopholes and special-interest tweaks. Maybe that’s why it’s not on the table.
1. The ability to achieve carbon targets depends on the coverage of the program. W-M starts with limited coverage (few sectors capped) and then sets up a protracted battle for extending cap-and-trade to more sectors in the years to come. In spite of timetables written into the bill, you can be sure that each extension will be fought over; there will always be a reason (amplified by lobbying largesse) to postpone bringing in new parts of the economy.
2. Once you have agreed to a sectoral approach, and once you start handing out carbon permits to everyone on the receiving line, you get to haggle over each sector’s carbon budget. There is always a reason to make your sector’s emission reduction target a little lower than the next guy’s.
3. Contrary to what Krugman claims, verifying the actual carbon emissions of each sector is herculean and quite likely to fail.
4. The experience of the European Trading System, which W-M emulates, confirms all these predictions; it has been a disaster. Fixing it, and fixing a future system along the same lines in the US, will mean scrapping it and starting over.
The irony is that there is a much simpler, much more effective alternative: put a limit on the amount of carbon fuels available to the economy by requiring a permit to extract or import them. Coverage is complete, there is a single, economy-wide target, and verification is a snap. There is little opportunity under such a system for businesses to offer or politicians to demand favors for loopholes and special-interest tweaks. Maybe that’s why it’s not on the table.
Political Aspects of Full Employment IV, 3.
by Michal Kalecki
Even those who advocate stimulating private investment to counteract the slump frequently do not rely on it exclusively, but envisage that it should be associated with public investment. It looks at present as if business leaders and their experts (at least some of them) would tend to accept as a pis aller public investment financed by borrowing as a means of alleviating slumps. They seem, however, still to be consistently opposed to creating employment by subsidizing consumption and to maintaining full employment.
This state of affairs is perhaps symptomatic of the future economic regime of capitalist democracies. In the slump, either under the pressure of the masses, or even without it, public investment financed by borrowing will be undertaken to prevent large-scale unemployment. But if attempts are made to apply this method in order to maintain the high level of employment reached in the subsequent boom, strong opposition by business leaders is likely to be encountered. As has already been argued, lasting full employment is not at all to their liking. The workers would 'get out of hand' and the 'captains of industry' would be anxious to 'teach them a lesson. Moreover, the price increase in the upswing is to the disadvantage of small and big rentiers, and makes them 'boom-tired.'
In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business-as a rule influential in government departments-would most probably induce the government to return to the orthodox policy of cutting down the budget deficit. A slump would follow in which government spending policy would again come into its own.
This pattern of a political business cycle is not entirely conjectural; something very similar happened in the USA in 1937-8. The breakdown of the boom in the second half of 1937 was actually due to the drastic reduction of the budget deficit. On the other hand, in the acute slump that followed the government promptly reverted to a spending policy.
The regime of the political business cycle would be an artificial restoration of the position as it existed in nineteenth-century capitalism. Full employment would be reached only at the top of the boom, but slumps would be relatively mild and short-lived.
next
Even those who advocate stimulating private investment to counteract the slump frequently do not rely on it exclusively, but envisage that it should be associated with public investment. It looks at present as if business leaders and their experts (at least some of them) would tend to accept as a pis aller public investment financed by borrowing as a means of alleviating slumps. They seem, however, still to be consistently opposed to creating employment by subsidizing consumption and to maintaining full employment.
This state of affairs is perhaps symptomatic of the future economic regime of capitalist democracies. In the slump, either under the pressure of the masses, or even without it, public investment financed by borrowing will be undertaken to prevent large-scale unemployment. But if attempts are made to apply this method in order to maintain the high level of employment reached in the subsequent boom, strong opposition by business leaders is likely to be encountered. As has already been argued, lasting full employment is not at all to their liking. The workers would 'get out of hand' and the 'captains of industry' would be anxious to 'teach them a lesson. Moreover, the price increase in the upswing is to the disadvantage of small and big rentiers, and makes them 'boom-tired.'
In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business-as a rule influential in government departments-would most probably induce the government to return to the orthodox policy of cutting down the budget deficit. A slump would follow in which government spending policy would again come into its own.
This pattern of a political business cycle is not entirely conjectural; something very similar happened in the USA in 1937-8. The breakdown of the boom in the second half of 1937 was actually due to the drastic reduction of the budget deficit. On the other hand, in the acute slump that followed the government promptly reverted to a spending policy.
The regime of the political business cycle would be an artificial restoration of the position as it existed in nineteenth-century capitalism. Full employment would be reached only at the top of the boom, but slumps would be relatively mild and short-lived.
next
Sunday, May 17, 2009
Political Aspects of Full Employment IV, 2.
by Michal Kalecki
In current discussions of these problems there emerges time and again the conception of counteracting the slump by stimulating private investment. This may be done by lowering the rate of interest, by the reduction of income tax, or by subsidizing private investment directly in this or another form. That such a scheme should be attractive to business is not surprising. The entrepreneur remains the medium through which the intervention is conducted. If he does not feel confidence in the political situation, he will not be bribed into investment. And the intervention does not involve the government either in 'playing with' (public) investment or 'wasting money' on subsidizing consumption.
It may be shown, however, that the stimulation of private investment does not provide an adequate method for preventing mass unemployment. There are two alternatives to be considered here. (i) The rate of interest or income tax (or both) is reduced sharply in the slump and increased in the boom. In this case, both the period and the amplitude of the business cycle will be reduced, but employment not only in the slump but even in the boom may be far from full, i.e. the average unemployment may be considerable, although its fluctuations will be less marked. (ii) The rate of interest or income tax is reduced in a slump but not increased in the subsequent boom. In this case the boom will last longer, but it must end in a new slump: one reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy. In the new slump it will be necessary to reduce the rate of interest or income tax again and so on. Thus in the not too remote future, the rate of interest would have to be negative and income tax would have to be replaced by an income subsidy. The same would arise if it were attempted to maintain full employment by stimulating private investment: the rate of interest and income tax would have to be reduced continuously.
In addition to this fundamental weakness of combating unemployment by stimulating private investment, there is a practical difficulty. The reaction of the entrepreneurs to the measures described is uncertain. If the downswing is sharp, they may take a very pessimistic view of the future, and the reduction of the rate of interest or income tax may then for a long time have little or no effect upon investment, and thus upon the level of output and employment.
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In current discussions of these problems there emerges time and again the conception of counteracting the slump by stimulating private investment. This may be done by lowering the rate of interest, by the reduction of income tax, or by subsidizing private investment directly in this or another form. That such a scheme should be attractive to business is not surprising. The entrepreneur remains the medium through which the intervention is conducted. If he does not feel confidence in the political situation, he will not be bribed into investment. And the intervention does not involve the government either in 'playing with' (public) investment or 'wasting money' on subsidizing consumption.
It may be shown, however, that the stimulation of private investment does not provide an adequate method for preventing mass unemployment. There are two alternatives to be considered here. (i) The rate of interest or income tax (or both) is reduced sharply in the slump and increased in the boom. In this case, both the period and the amplitude of the business cycle will be reduced, but employment not only in the slump but even in the boom may be far from full, i.e. the average unemployment may be considerable, although its fluctuations will be less marked. (ii) The rate of interest or income tax is reduced in a slump but not increased in the subsequent boom. In this case the boom will last longer, but it must end in a new slump: one reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy. In the new slump it will be necessary to reduce the rate of interest or income tax again and so on. Thus in the not too remote future, the rate of interest would have to be negative and income tax would have to be replaced by an income subsidy. The same would arise if it were attempted to maintain full employment by stimulating private investment: the rate of interest and income tax would have to be reduced continuously.
In addition to this fundamental weakness of combating unemployment by stimulating private investment, there is a practical difficulty. The reaction of the entrepreneurs to the measures described is uncertain. If the downswing is sharp, they may take a very pessimistic view of the future, and the reduction of the rate of interest or income tax may then for a long time have little or no effect upon investment, and thus upon the level of output and employment.
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Saturday, May 16, 2009
Political Aspects of Full Employment IV, 1.
by Michal Kalecki
What will be the practical outcome of the opposition to a policy of full employment by government spending in a capitalist democracy? We shall try to answer this question on the basis of the analysis of the reasons for this opposition given in section II. We argued there that we may expect the opposition of the leaders of industry on three planes: (i) opposition on principle to government spending based on a budget deficit; (ii) opposition to this spending being directed either towards public investment-which may foreshadow the intrusion of the state into the new spheres of economic activity-or towards subsidizing mass consumption; (iii) opposition to maintaining full employment and not merely preventing deep and prolonged slumps.
Now it must be recognized that the stage at which 'business leaders' could afford to be opposed to any kind of government intervention to alleviate a slump is more or less past. Three factors have contributed to this: (i) very full employment during the present war; (ii) development of the economic doctrine of full employment; (iii) partly as a result of these two factors, the slogan 'Unemployment never again' is now deeply rooted in the consciousness of the masses. This position is reflected in the recent pronouncements of the 'captains of industry' and their experts.5 The necessity that 'something must be done in the slump' is agreed; but the fight continues, firstly, as to what should be done in the slump (i.e. what should be the direction of government intervention) and secondly, that it should be done only in the slump (i.e. merely to alleviate slumps rather than to secure permanent full employment).
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What will be the practical outcome of the opposition to a policy of full employment by government spending in a capitalist democracy? We shall try to answer this question on the basis of the analysis of the reasons for this opposition given in section II. We argued there that we may expect the opposition of the leaders of industry on three planes: (i) opposition on principle to government spending based on a budget deficit; (ii) opposition to this spending being directed either towards public investment-which may foreshadow the intrusion of the state into the new spheres of economic activity-or towards subsidizing mass consumption; (iii) opposition to maintaining full employment and not merely preventing deep and prolonged slumps.
Now it must be recognized that the stage at which 'business leaders' could afford to be opposed to any kind of government intervention to alleviate a slump is more or less past. Three factors have contributed to this: (i) very full employment during the present war; (ii) development of the economic doctrine of full employment; (iii) partly as a result of these two factors, the slogan 'Unemployment never again' is now deeply rooted in the consciousness of the masses. This position is reflected in the recent pronouncements of the 'captains of industry' and their experts.5 The necessity that 'something must be done in the slump' is agreed; but the fight continues, firstly, as to what should be done in the slump (i.e. what should be the direction of government intervention) and secondly, that it should be done only in the slump (i.e. merely to alleviate slumps rather than to secure permanent full employment).
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The Point About Inflection Points
My unsystematic survey of the mass media tells me that the term “inflection point” has entered the popular lexicon in the last week or two, probably because of the discussion of whether a reversal in the second derivative of changes in GDP or unemployment constitutes a “green shoot”. Now we have usages like this:
If you remember your calculus, you’ll probably think, as I did, this guy is confusing first and second derivatives. But the larger point, I suspect, is that we are going through a long period in which, as more of the population acquires basic technical training, math and science language is going to enter the general discourse. This means that people without this training will be using the tech-talk too, and often getting it wrong. The division of society between people who have these skills and those who don’t will become more obvious. It becomes another form of “distinction”, in Bourdieu’s sense.
What does this have to do with the issue of military commissions and Guantanamo detainees? Nothing – it’s orthogonal.
In a testy exchange with reporters, Mr. Obama’s press secretary, Robert Gibbs, argued that on Monday, before the decisions were announced, he was being asked why the president insisted on being “so opposite of George Bush in all these questions, and on Friday I’m answering questions about why are we so much like George Bush on all these questions.”
“I’ll let you guys discern what inflection point, what period of day, that all changed,” Mr. Gibbs continued.
If you remember your calculus, you’ll probably think, as I did, this guy is confusing first and second derivatives. But the larger point, I suspect, is that we are going through a long period in which, as more of the population acquires basic technical training, math and science language is going to enter the general discourse. This means that people without this training will be using the tech-talk too, and often getting it wrong. The division of society between people who have these skills and those who don’t will become more obvious. It becomes another form of “distinction”, in Bourdieu’s sense.
What does this have to do with the issue of military commissions and Guantanamo detainees? Nothing – it’s orthogonal.
Friday, May 15, 2009
Political Aspects of Full Employment III, 2.
by Michal Kalecki
The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy's economic character. Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest. They also induce competitive rearmament of other countries. This causes the main aim of spending to shift gradually from full employment to securing the maximum effect of rearmament. As a result, employment becomes 'over-full'. not only is unemployment abolished, but an acute scarcity of labour prevails. Bottlenecks arise in every sphere, and these must be dealt with by the creation of a number of controls. Such an economy has many features of a planned economy, and is sometimes compared, rather ignorantly, with socialism. However, this type of planning is bound to appear whenever an economy sets itself a certain high target of production in a particular sphere, when it becomes a target economy of which the armament economy is a special case. An armament economy involves in particular the curtailment of consumption as compared with that which it could have been under full employment.
The fascist system starts from the overcoming of unemployment, develops into an armament economy of scarcity, and ends inevitably in war.
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The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy's economic character. Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest. They also induce competitive rearmament of other countries. This causes the main aim of spending to shift gradually from full employment to securing the maximum effect of rearmament. As a result, employment becomes 'over-full'. not only is unemployment abolished, but an acute scarcity of labour prevails. Bottlenecks arise in every sphere, and these must be dealt with by the creation of a number of controls. Such an economy has many features of a planned economy, and is sometimes compared, rather ignorantly, with socialism. However, this type of planning is bound to appear whenever an economy sets itself a certain high target of production in a particular sphere, when it becomes a target economy of which the armament economy is a special case. An armament economy involves in particular the curtailment of consumption as compared with that which it could have been under full employment.
The fascist system starts from the overcoming of unemployment, develops into an armament economy of scarcity, and ends inevitably in war.
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Thursday, May 14, 2009
Undercover in Burma
My former student, Ryan Libre, snuck into Burma to meet with the Kachin Independence Army.
He is one of my favorite students, even though he has a long-standing incomplete in one of my classes.
Our local weekly has a short story about his work.
http://www.newsreview.com/chico/content?oid=980928
He is one of my favorite students, even though he has a long-standing incomplete in one of my classes.
Our local weekly has a short story about his work.
http://www.newsreview.com/chico/content?oid=980928
Why Environmentalists Should Oppose the Waxman-Markey Bill
Media coverage has been predictably confused about the compromises loaded onto the Waxman-Markey climate change bill. The headlines obsess on targets for 2020 (relaxed) and 2050 (maintained), as if decisions made today somehow preempt our choices over the next 10 or 40 years. They don't, of course, and reasonable people should pay no attention to them. Targets for the first year or two matter; beyond that it’s all rhetoric.
So forget the targets. What really matters is the architecture. If we put the wrong system into place, our job will only get harder, since it is much more difficult to dismantle and rebuild a regulatory structure than to set one up from scratch — sort of like the difference between brownfield and greenfield. To see this truth in action, just look at the struggle of the EU to get out from under their disastrous European Trading System.
So how does Waxman-Markey rate on architecture? It’s a loser. The single biggest flaw, one which is fundamentally not fixable, is the decision to issue permits on an industry-by-industry basis — to cap the uses of carbon fuels rather than their sources. This is an invitation to never-ending bickering over who is allowed to emit how much. Every little tweak of the system — whether to include freight transportation or agriculture (which crops!) — has to be hammered out separately. Reductions are calculated from a baseline, but there are acres of wriggle room about how to measure who emitted how much in the base year and therefore how much should be reduced tomorrow. Enforcement is complex, expensive and full of loopholes. Only lawyers (and politicians with extortionary campaign finance strategies) could love this.
There needs to be a single comprehensive cap on the sources, not the uses, of carbon fuels. Require permits for the extraction of these fuels from the ground or importing them from abroad. Limit the number of permits to achieve an emissions target, then leave it to the normal workings of the market to determine which industries will get which share of the stuff.
Auctioning the permits is also extremely important, but this is fixable in future iterations if the architecture is right. It is not fixable under Waxman-Markey, because the percentage has to be set for each industry separately, and cranking each one up to 100 is an impossible political task.
Mainstream environmental groups are not blind to these problems, but they see them as second-order. Above all, they are soooooo happy that climate deniers are not in command of politics any more. They are fighting yesterday’s battle, to get general agreement on the principle that climate change is caused by people, and people need to do something about it. They like the nice feeling that comes from all of us raising our hands and pledging, scout’s honor, to achieve sustainability by 2050. But they are losing today’s battle to put into place a viable means to get from here to there, and judging from their public statements they don’t even know it.
So forget the targets. What really matters is the architecture. If we put the wrong system into place, our job will only get harder, since it is much more difficult to dismantle and rebuild a regulatory structure than to set one up from scratch — sort of like the difference between brownfield and greenfield. To see this truth in action, just look at the struggle of the EU to get out from under their disastrous European Trading System.
So how does Waxman-Markey rate on architecture? It’s a loser. The single biggest flaw, one which is fundamentally not fixable, is the decision to issue permits on an industry-by-industry basis — to cap the uses of carbon fuels rather than their sources. This is an invitation to never-ending bickering over who is allowed to emit how much. Every little tweak of the system — whether to include freight transportation or agriculture (which crops!) — has to be hammered out separately. Reductions are calculated from a baseline, but there are acres of wriggle room about how to measure who emitted how much in the base year and therefore how much should be reduced tomorrow. Enforcement is complex, expensive and full of loopholes. Only lawyers (and politicians with extortionary campaign finance strategies) could love this.
There needs to be a single comprehensive cap on the sources, not the uses, of carbon fuels. Require permits for the extraction of these fuels from the ground or importing them from abroad. Limit the number of permits to achieve an emissions target, then leave it to the normal workings of the market to determine which industries will get which share of the stuff.
Auctioning the permits is also extremely important, but this is fixable in future iterations if the architecture is right. It is not fixable under Waxman-Markey, because the percentage has to be set for each industry separately, and cranking each one up to 100 is an impossible political task.
Mainstream environmental groups are not blind to these problems, but they see them as second-order. Above all, they are soooooo happy that climate deniers are not in command of politics any more. They are fighting yesterday’s battle, to get general agreement on the principle that climate change is caused by people, and people need to do something about it. They like the nice feeling that comes from all of us raising our hands and pledging, scout’s honor, to achieve sustainability by 2050. But they are losing today’s battle to put into place a viable means to get from here to there, and judging from their public statements they don’t even know it.
Political Aspects of Full Employment III, 1.
by Michal Kalecki
One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.
The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism. The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed. In a democracy, one does not know what the next government will be like. Under fascism there is no next government.
The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.
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One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.
The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism. The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed. In a democracy, one does not know what the next government will be like. Under fascism there is no next government.
The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.
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Wednesday, May 13, 2009
Political Aspects of Full Employment II, 4.
by Michal Kalecki
We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome--as it may well be under the pressure of the masses-the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.
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We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome--as it may well be under the pressure of the masses-the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.
next
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