Fiscal Stimulus and Fast Acting Excedrin

While the latest nonsense from Eric Cantor gives me a headache, it is typical of what our Republican “leaders” have been saying:

Americans now agree that the stimulus package signed into law earlier this year has not achieved its intended effects, House Minority Whip Eric Cantor (R-Va.) claimed Monday.Pushing back against a possible second stimulus bill, Cantor asserted that the Obama administration-backed first $787 billion stimulus has not worked, and insisted that characterization has now become consensus.

The fact is that Federal purchases have yet to show any significant increase while state and local purchases have declined. Suppose I just took two Excedrin for my headache and haven’t even swallowed the water designed to chase them down and I noticed my headache is getting worse. Should I immediately conclude that the Excedrin will not work and it’s time to take some voodoo medicine? Our course not – but Cantor just might:

House Minority Whip Eric Cantor (R-Va.) said that Republicans would work with President Obama on a second stimulus bill, as long as it's like the tax cut-heavy package the GOP proposed earlier.

I thought we tried that in 2008 – and it hasn’t provided much stimulus even to date.

Save 3kg!

one ecosystem
in diversity
under the sun

- Gary Snyder

How Bureaucracy prepares for Social Collapse

1. Formulate comprehensive plan
2. Generate community enthusiasm
3. Get 'buy in' from industry/government/UN/Vatican etc
4. Use mass media to create public awareness
5. Form action committees and grant structures
6. Develop legislation and lobby parliaments
7. Secure corporate sponsorships
8. Execute pilot programs
9. Publish papers, present results at conferences
10.WATCH THE COLLAPSE!

Speaking of conferences, here's a talk from one entitled 'The New Emergency' in Dublin held a few weeks ago (June 11, 2009) Dimitry Orlov gave his presentation: 'Definancialisation, Deglobalisation, Relocalisation'. (html document).

"What I want to say" says Mr Orlove "can be summed up in simpler words: we all have to prepare for life without much money, where imported goods are scarce, and where people have to provide for their own needs, and those of their immediate neighbours."

"Many of the problems the world faces today are the eventual result of short-term measures taken last century."

-- Jay Forrester

Half a Million Green Chutes?

By the Sandwichman

Oh, you thought it was spelled s-h-o-o-t-s?

"We were on the road of things getting less bad in the jobs market, and that has been temporarily waylaid," said economist Ken Mayland, president of ClearView Economics."

Although employment was not as less bad in June as it was in May or April it was still much less bad than it was in January to March. On a year-to-year basis, even January to March was less bad than November, which was hideous.

Actually, things got worse.

Cutting through the statistical noise and economystical public relations spin, the June employment numbers were pretty much in line with the average monthly job loss since September 2008. About a half a million jobs have disappeared per month. The month-to-month fluctuations don't really mean much because the raw changes are overwhelmed by seasonal and birth/death model adjustments. Those adjustments are reasonable but far from ideal. And sometimes they inject noise in an effort to counter other noise.

Here's a raw number: employment fell by 295,000 in June, not seasonally adjusted and without the birth/death model adjustment. Even adding in the birth/death factor, employment fell by 110,000. The contrast with April and May is that in those months non-seasonally adjusted employment actually increased, albeit not as much as it usually would have at that time of the year.

Some History of Debt Colonialism

"Were I a Third World Leader in the dock, accused of getting my country hopelessly ensnared in debt, my defence would be that money was too cheap in the 1970s not to take advantage of the windfall...How was I, a debtor government, to foresee - much less control - the unprecedented upward swing of interest rates, due largely to demented military spending by the capitalist world super-power? I would further tell the jury: 'Every single Western expert who ever came to our country, especially those from the development banks, told us that to develop we had to industrialise. Was our country to remain for ever in peonage, exporting raw materials North so that others could transform them into finished goods and make all the money? Where were we supposed to get the capital for energy and for industrialisation if not by borrowing?" [1]

"...a large part of the cost of controlling inflation and introducing structural change in the North was borne by the South. Developing countries had to pay out more and more to service their debt whild receiving less and less for their exports. As these contrasting movements aggravated their financial difficulties, commercial banks decided to stop lending them new money, and the result was the international debt crisis of the 1980s." [2]

"Underdevelopment, far from constituting a state of backwardness prior to capitalism, is rather a consequence and a particular form of capitalist development known as dependent capitalism." [3]



[1] Susan George (1988) 'A Fate Worse than Debt', Pelican.

[2] The South Commission, The Challenge to the South, Oxford University Press

[3] Political Scientist Theotonio Dos Santos, 1969

Update on the Period of Financial Distress and a Bubble Mystery

Nearly a year ago (7/12/08) I posted here on "Falling from the Period of Financial Distress into Panic and Crash". In that I noted my own work on this concept, which Charles Kindleberger claimed in his Manias, Panics, and Crashes has been the most common pattern of speculative bubbles and crashes (37 out of 47 bubbles listed in Appendix B of his 2000 4th edition). What is involved is for there to be a gradual decline in prices initially after the peak of a bubble, with the crash coming sometime later. The paper I cited then on this by Mauro Gallegati, Antonio Palestrini, and me ("The period of financial distress in speculative markets: interacting heterogeneous agents and financial constraints," available on my website), has now been accepted for publication and is forthcoming in Macroeconomic Dynamics.

The three patterns that Kindleberger, drawing on the work of Hyman Minsky, argued we have generally seen are ones with such a period of distress as described above, ones that go up to a peak and then crash hard (which are what most theoretical models of crashes predict), and ones that go up to a peak and then decline gradually without a crash, but usually a bit faster than they went up. In the last few years I would argue we have seen all three patterns. The peak-followed-by-crash pattern looks like the oil market last year, which hit $147 per barrel last July only to fall hard to $32 per barrel by November. The more or less symmetric up-then-down-without a crash pattern looks like the US housing market, which, according to the Case-Shiller index, began rising in 1998, peaked in mid-2006, and has been going down since about the way it went up, with quite a ways to go.



Last year I had it in my mind that the global financial derivatives market smelled like a period of financial distress pattern, and now I think that it was indeed. The peak was in August 2007, when the problems in those markets first began to appear. The crash was the dramatic "Minsky moment" in mid-September 2008.

Which brings me to a fourth pattern that is somewhat mysterious, a variation on the pattern that does not have a crash. Whereas most such bubbles go down more rapidly than they went up, and some go down at about the same rate, there is one that has gone down at a much slower rate, indeed may still be in its decline. I am referring to housing in Japan. A graph of the pattern up to 2005 can be seen at http://en.wikipedia.org/wiki/File:EconomistHomePrices20050615.jpg. Around 2006 there was a brief cessation of the decline, but it has since resumed. In any case, that figure shows that the index rose in three years from 150 to its peak around 200, but took ten years thereafter to get back to 150, and it took 15 years from the peak in 1991 to get back down to the level it was in 1986, a clear asymmetry in the direction of going up much faster than it has gone down.

Now, according to private communication from Kindlebeger to me, this is the only major bubble in world history to exhibit such a pattern, and why it has done so remains a mystery. I saw a paper (still unpublished) some years ago that argued that it was Japanese banks manipulating the real estate market to keep the value of their most important collateral from declining too rapidly in the face of broader financial pressure that have been behind this pattern, but I have not seen that confirmed. That would suggest that the pattern has had deep implications for the broader Japanese economy. In any case, this curious decline in Japan remains a mystery (and some say that US housing prices could go down for a much longer time than many think, pointing to this strange case), but it may ultimately have to do with the Japanese wishing to preserve their broader economic system in the face of pressures to more deeply transform it.

Krugman Does Right In His Published Nobel Address

I have complained a lot here about the Nobel for Paul Krugman, both that others did not share it with him, and that he seemed not to mention those others (especially Avinash Dixit and Masahisa Fujita) in the Nobel address that he gave in Stockholm. However, the published version of the address has just appeared in the June issue of the AER. He does properly cite the relevant, key work by both of those individuals, so I note here that has done right in this case.

It's going to get very ugly, very soon

“Everything we measure is at the upper end of that range of uncertainty. So everything is worse than we were expecting it to be, and that's not surprising, because, science by its nature, is conservative. I think most of us know that, and it's going to get very ugly, very soon, and I want to say to you tonight, it's not the problem, it's actually just a symptom of the problem. We’re operating at 120% of the world’s capacity and planning to growth that a lot more."[1]

Paul Gilding's talk can be downloaded here. (mp3)

Mind the Aussie accent!


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

Fiscal Restraint from Those 50 Little Herbert Hoovers

I just checked with this source to see how state&local government purchases during 2009QI compared to where they were in 2008QIII and they declined by $78.8 billion in real terms over this 6 month period (while nominal spending fell from $1848.1 billion per year to $1784.0 billion per year, the GDP deflator rose by 0.83%). A post from Stephanie Kelton was my motivation.

But it isn't their fault. Tax revenues have fallen off a cliff, leaving states with a cumulative budget gap of more than $100 billion for fiscal '09. To deal with these shortfalls, states have laid off or furloughed thousands of employees, raised taxes and fees, and slashed spending on education and other social programs - some, many times over. It was supposed to balance their '09 budgets. But it wasn't nearly enough. As it turns out, state officials were far too optimistic about the '09 revenue picture, and they are scrambling to deal with widening shortfalls before the end of the fiscal year (which, by the way, is tomorrow for all but a few states). At this stage in the game, there are only a couple of ways for states to balance their '09 budgets (it's too late for more tax hikes and spending cuts). Most are expected to do one of two things: (1) tap rainy day funds or (2) use federal stimulus money.

Dr. Kelton argues for even a greater commitment to Federal revenue sharing or “state and local fiscal relief”. She has a point.

The Overkill Emergency

Two years after the Cuban Missile Crisis a former Professor of American Civilisation at Brandeis University, Max Lerner, published his book entitled ‘The Age of Overkill’.

Mr Lerner – whose column for the New York Post earned him a place on the master list of Nixon political opponents [1] - noted that the early 1960s represented an historical epoch when, for the first time, at least two great powers have sufficient strength to obliterate each other – to overkill any and all enemy nations.


Lerner went on to describe what was then, and now, “the core of ‘classical politics’” [2]. He wrote that the crucial difference between classical economics and classical politics was that:

“the core of classical economics was wealth, while the core of classical politics was power. In the case of economics, with the acquisition of wealth at its heart, once could cling to a self-regulating system, but only so long as the naïve cult of self-interest could still sustain an economic order. In the case of classical politics, with power at its heart, there could be no question of laissez faire and self-regulation unless the balance-of-power principle is viewed as an automatic self-regulatory mechanism; power was the arbiter as well as the prize, and there was nothing to replace unless it was power itself.”

The animus of classical politics, Lerner explained is prescriptive, competitive and hostile. “The aim of each state is not only to acquire more power for itself, but to prevent enemies and competitors from acquiring more – or any.” [3]

The world, under this system of thought and action, becomes a world of enemies, potential enemies, allies and potential allies. The way to have peace, on the other hand, is to have bigger and better arms than the enemy. “The trouble is that the history to which [the followers of classical politics] point for confirmation is one that confirms the wrong thing. True, the world has always organized for war, but then the world has always got to war it organized for, and has had to pay for it. The payment this time will be intolerably high, which is why overkill has transformed the power problem.” [4]

“The fact is that the nation-state has ceased to be a viable unit of world order exactly because it cannot get along without at some point using its showdown war power, which it dare not do under overkill conditions; yet, when faced with a threat to its identity and survival as a nation, it dare not refrain from invoking its war power, however powerless it be.” [5]

Lerner didn’t suggest that the ‘power principle’, which he also refers to as ‘the principle of evil’ would be discarded in the then, near future. But he does point out that the ruling elites know that the dominance of this principle is a “short range perspective”.

“I suppose that relatively sane men still play with the idea of getting universal peace through universal empire….But, unilateralism aside, the road to world empire is unlikely to be achieved except by a world nuclear war – which might mean that there would not be very much of a world to enjoy the blessings of universal peace.” [6]

Today, forty five years after the publication of Max Lerner’s book, global citizens urgently need to use a much broader definition of ‘overkill’ and to treat the issue as the planetary emergency that it is. "Overkill is the use of excessive force or action that goes further than is necessary to achieve its goal.” [7] A glaring example of this, in the environmental and industrial context, would be the widespread use of residual and very toxic chemicals that are applied in a manner GUARANTEED to drift into drinking water catchments. This abuse is happening even when there are no long term economic justifications for the use these toxic chemicals.

In Siberia “the new rich Russians are hunting Siberian wolves from helicopters.” In Venezuela corporations interested in oil extraction and soya cropping send menacing guards to stop the Indians tribe of Guarani from “trying to protect the remnants of the forest in which they find all their needs for building their huts, natural medicine for health and food.” [8] In Australia – in our time of desperate climate emergency [9], [10], [11] - the world’s most carbon dense native forests are continuing to being intensely logged and converted to woodchip for sale to Japan and China. [12]

It turns out that overkill in classical politics has its equally threatening counterpart in economics. Max Lerner wrote that the historical concern in the classical form of economics was “largely with cyclical and fiscal theory, and with the controls needed to set the malfunctioning right.” In the postclassical stage of economics this disclipline “cuts across capitalist and socialist systems, and focuses on economic growth.” [13] “These growth ideas are being introduced largely into cultural systems where they are not at home” It turns out that economic growth is also “not at home” on a finite planet.

Economics, though, has always served the political agenda.

“The Government is not now and never has been an independent engine operating in a vacuum under its own momentum”; rather, it had ties to the profit economy by the common ideas and connections among people in influential positions. Men in government could not escape a philosophy of private advancement inherent in an economy characterized by intense competition for advantage, for raw materials, and for markets. “In short domestic politics and economics enter into foreign policy and influence its course.” [14]

Today we have, not one, but six global crises as a result of the long term use by Governments of the ‘power principle’ in both economics and politics. They are: the prospect of nuclear overkill; climate change; peak oil; global resource depletion; alarming species extinction rates and global economic collapse. They're all related to each other.

Activist Paul Gilding tries to give a picture of what just one aspect of one of our global crises may look like. Taking the example of sea level rise from climate change:

“We thought maybe 0.3 to 0.5 metres by 2100 was the average sea level rise forecast, a few years ago. It's now gone from 0.3 to 0.5 to 0.8 to 2 or more. Right? So 0.8 to 2 metres by 2100 is a, technically speaking, a shitload of sea level rise. This is a lot of ocean increase, remembering especially that storm surge, in a storm goes in obviously according to geology, around 50 times the level of sea level rise, so a metre of sea level rise takes a storm surge 50 metres more inland, right? So the impacts of this are very, very severe, and very, very significant, and actually not the most important issue in climate change but the one we understand the most because it makes for good graphics.” [15]

We need to find a way to deny every nation its war-making power. We need to also coexist with diverse other life forms on the planet. Quickly. Our form of ‘civilization’ is killing the planet. Our predicament is that we cannot save ourselves with our own will power alone, for to do so “will only make the evil in us stronger than ever.” [16]

"The instinct to command others, in its primitive essence, is a carnivorous, altogether bestial and savage instinct. Under the influence of the mental development of man, it takes on a somewhat more ideal form and becomes somewhat ennobled, presenting itself as the instrument of reason and the devoted servant of that abstraction, or political fiction, which is called the public good. But in its essence it remains just as baneful, and it becomes even more so when, with the application of science, it extends its scope and intensifies the power of its action. If there is a devil in history, it is this power principle. "

Mikhail Aleksandrovich Bakunin


[1] Max Lerner
http://en.wikipedia.org/wiki/Max_Lerner
on 1st July 2009

[2] ‘The Age of Overkill – a Preface to World Politics’ by Max Lerner. 1964. Publisher William Heinemann Ltd, Great Britain. Page 20.

[3] Ibid. Page 21

[4] Ibid. Pages 253 and 254

[5] Lerner qualifies this statement by pointing out that in actual fact the nation-state no longer exists in any sovereign sense “except in diplomatic abracadabra and in its formal voting in the Un and other international bodies. The working power units have become the power systems, which operate from power centers.” They hold “ a moving power equilibrium in the world…” Ibid. Page 254

[6] Ibid. Pages 254 and 255

[7] http://www.absoluteastronomy.com/topics/Overkill

[8] Overkill in Conservation and in the Pristine Forests.
http://www.en.articlesgratuits.com/overkill-in-conservation-and-in-the-pristine-forests-id2597.php

[9] Outside of the Vortex. Brenda Rosser. Wednesday, March 18, 2009
http://econospeak.blogspot.com/2009/03/outside-of-vortex.html

[10] Australia’s catastrophic Summer of 2009. Brenda Rosser. Friday, February 6, 2009
http://econospeak.blogspot.com/2009/02/australias-catastrophic-summer-of-2009.html

[11] Climate Code Red. The case against carbon trading
Brenda Rosser. Tuesday, May 19, 2009
http://econospeak.blogspot.com/.../climate-code-red-case-against-carbon.html

[12] Preserving old-growth forests is vital to saving the planet
GAVAN McFADZEAN. June 2009
http://tasmaniantimes.com/index.php?/weblog/article/preserving-old-growth-forests-is-vital-to-saving-the-planet/

[13] ‘The Age of Overkill – a Preface to World Politics’ by Max Lerner. 1964. Publisher William Heinemann Ltd, Great Britain. Page 153.

[14] American historian Charles Beard from his “Idea of National Interest” pages 89 – 120 as quoted in ‘The American Century – the rise and decline of the United States as a world power’ by Donald W White. Yale University Press. 1996. ISBN: 0-300-05721-0. Page 6.

[15] ‘The great disruption’ 14 June 2009
http://www.abc.net.au/rn/backgroundbriefing/stories/2009/2592909.htm#transcript

[16] Heini Arnold.

Waxman-Markey Passes the House of Representatives, 219-212 (sigh... )

So, here it is, this big disappointment for many, the great global warming bill passes the House by this 7 vote margin (which means it needed the 8 Republicans who voted for it to pass), a bill criticized by many here for many reasons (Peter Dorman especially), and by all reports loaded down with even more giveaways, loopholes, breaks for farmers and corporations, with a tariff trigger mechanism for 2020 that Obama does not like, but given how far out it is may not matter anyway, and the darned thing is so long (1300 pages?) that it will be a long time before we figure out what is in it really, although at least we know that it involves some sort of cap and trade mechanism, maybe, although with something like 85% of the permits given away rather than auctioned off, and emissions limits to go down so slowly that they will be considered a joke by the rest of the world in Copenhagen in December. What is a body to do or think of this?



Well, actually, the more I think about it, the more I think it is a genuine achievement, at least potentially. That the vote was so close is a reminder of how much opposition to doing anything about global warming there is in the Congress, and when it gets down to it, the public at large, despite all the polls showing people for doing something in the abstract. After all, 44 House Democrats voted against this. While there are Republicans who are lunatics and goofballs following wacko theories and listening to Rush Limbaugh, I suspect the solid majority of those 44 Dems believe that global warming is happening. But they do not see it as any near term threat to their districts, while they see serious potential costs to businesses and employment in their districts, something they are not keen on during a recession at all. After all, for much of the country, global warming is actually economically beneficial in the near term (lower winter heating bills). And in 1995, the Senate unanimously passed the Byrd-Hagel amendment, which said the US should sign no agreement that did not have China and India agreeing to emissions controls, which pretty much put the kibbosh on the US ever ratifying the Kyoto Protocol.

So, keep in mind, folks, cap and trade has been working pretty well for SO2. If warming clearly continues, there is now a mechanism in place that can be used to tighten up and enforce CO2 emissions reductions, if there is sufficient political will (if things cool down, as some predict, well, the whole thing will just be off anyway). So, now we have to get it through the Senate, even if most of the rest of the world thinks it is a pathetic joke. It will still be better than doing the big fat nothing that has been done so far.

Bondage in the Bond Age: A California View

In the midst of the Bush-Obama balance sheet bailout, one group stands out in its importance -- bondholders. I know -- a couple of times some bondholders have had to take a haircut to protect other investors.

Here in California, with our $24 billion deficit, it seems like nothing -- absolutely nothing -- and threaten bondholders. Yes, some bondholders are pension funds or charitable organizations. A minority of Republicans along with a movie star governor have adamantly refused to raise taxes, especially those taxes that might affect the class of people who are bondholders.

Education and healthcare are being slashed beyond recognition. My God, even prisons might be cut a bit. The state is also raiding the treasuries of cities and counties for funds. Their response will be the same as the state's: cut back on anything that might help the poor and if necessary extend the cuts to the middle class. All this so that California can payback its bondholders. No haircut here. They must be paid back in full.

And the children, deprived of adequate education and health care, of course, they must make a modest sacrifice to protect the interests of bondholders.

The Public Option Debate – is the Private Health Insurance Sector Competitive?

Greg Mankiw assumes it is:

IN the debate over health care reform, one issue looms large: whether to have a public option. Should all Americans have the opportunity to sign up for government-run health insurance? President Obama has made his own preferences clear. In a letter to Senators Edward M. Kennedy of Massachusetts and Max Baucus of Montana, the chairmen of two key Senate committees, he wrote: “I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.” Even if one accepts the president’s broader goals of wider access to health care and cost containment, his economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices.

But what if you lived in an area where there was only one grocery store? Zachary Roth explains my query:

But the notion that most American consumers enjoy anything like a competitive marketplace for health care is flatly false. And a study issued last month by a pro-reform group makes that strikingly clear. The report, released by Health Care for America Now (HCAN), uses data compiled by the American Medical Association to show that 94 percent of the country's insurance markets are defined as "highly concentrated," according to Justice Department guidelines. Predictably, that's led to skyrocketing costs for patients, and monster profits for the big health insurers. Premiums have gone up over the past six years by more than 87 percent, on average, while profits at ten of the largest publicly traded health insurance companies rose 428 percent from 2000 to 2007. Far from healthy market competition, HCAN describes the situation as "a market failure where a small number of large companies use their concentrated power to control premium levels, benefit packages, and provider payments in the markets they dominate." So extreme is the level of consolidation, in fact, that one former top Federal Trade Commission official working with HCAN has sent a letter to the Justice Department's Antitrust Division, asking for an investigation into the health insurance marketplace.

Wendy Long Needs Remedial Spelling and Counting Lessons

We know Wendy Long is opposed to President Obama’s nominee for the Supreme Court but couldn’t she please get the spelling of the last name correct: Sotomayor! Incidentally, the Supreme Court vote was not 9-0 as 4 justices dissented from the majority opinion. The dissents came from Ginsburg, Stevens, Souter, and Breyer. By process of elimination, you are left to guess who the Usual Suspects were who thought that New Haven went too far in its scrapping a promotion exam because no African-Americans and only two Hispanic firefighters were likely to be made lieutenants or captains based on the results.

Poverty

Dear God
Please, please send clothes for all those poor ladies in Dad’s computer.
Amen

[Well, there aren't that many economists jokes here and I liked this one.]