I did an interview on a Korean FM program 1013 Main Street regarding Manufacturing Discontent: The Trap of Individualism in Corporate Society, which is available in Korean. The interviewer has a remarkable command of language as well as the understanding of the book
http://www.archive.org/download/Michael.perelmansKoreanInterview/MPerelman110708_3.mp3
Monday, July 11, 2011
Saturday, July 9, 2011
Prepare To Declare The Debt Ceiling Unconstitutional
On April 19 I called here for an abolition of the debt ceiling, http://econospeak.blogspot.com/2011/04/abolish-debt-ceiling.html , a call noted on May 23 on a NY Times blog, with my arguments since repeated by former Reagan-Bush Treasury official, Bruce Bartelett (although without citing me), http://www.stlbeacon.org/voices/in-the-news/11523-what-happens-if-we-dont-raise-the-debt-ceiling . The furor has been intensified by major public discussions of the possible unconstitutionality of the debt ceiling based on part d of the 14th Amendment, with even such heavies as Harvard Law Professor Laurence Tribe weighing in that it is unconstitutional. On Wednesday, President Obama was asked about this, but declined to comment. Yesterday, George Madison, Chief Counsel of the Treasury Department wrote to the NY Times saying that it is a legal limit, but that Congress must raise it. However, some are noting that the constitutionality issue has not been directly addressed and that Obama and Geither may be leaving the door open just a crack for a declaration of its unconstitutionaity if it comes down to it, but avoiding doing so now out of fear of weakening the negotiations with Congress, http://m.gawker.com581953/obama-nixes-the-lets-just-call-the-debt-ceiling-unconstitutional .
Well, the rumors of what they are willing to give (cuts in social security?), along with the prospect that this game will be played again in the future (talk about moral hazard), suggests to me that the administration had better be prepared to play the game fully now. Indeed, the debt ceiling has been ignored since its imposition in 1917 precisely because it has always been nearly routinely raised (including ten times since 2001, most recently in Feb. 2010). It is completely incoherent to have budgets passed mandating spending and taxes that breach the debt ceiling and then demand that it be enforced by somebody other than Congress that did the mandating. The administraion should prepare to declare the debt ceiling unconstitutional and do so in order to save the world economy, not to mention Obama's own reelection.
Well, the rumors of what they are willing to give (cuts in social security?), along with the prospect that this game will be played again in the future (talk about moral hazard), suggests to me that the administration had better be prepared to play the game fully now. Indeed, the debt ceiling has been ignored since its imposition in 1917 precisely because it has always been nearly routinely raised (including ten times since 2001, most recently in Feb. 2010). It is completely incoherent to have budgets passed mandating spending and taxes that breach the debt ceiling and then demand that it be enforced by somebody other than Congress that did the mandating. The administraion should prepare to declare the debt ceiling unconstitutional and do so in order to save the world economy, not to mention Obama's own reelection.
How does a fiscal stimulus work these days?
It seems logical in this time of high unemployment and increasing poverty to be talking about stimulating the economy; for the federal government to throw money into the general economy and let businesses and consumers take up the slack.
In my hometown in the 1950s a bit of extra money received by families would have improved the lives of many people. There were - at this time - plenty of resources from which to draw to expand the production of food and other commodities and services. (An energy shortage was a concept we didn't give a moments thought to.)
In the middle of the 20th century a large range of economic activity was locally based. The milkman three miles down the road (and the father of a family friend) delivered his product to the back door as did the local baker (my aunty and uncle). The wheat was grown in the paddocks surrounding the town and bread was baked in a small central shop in the main street and so were the pies and cakes we gobbled up for school lunch. The local butcher obtained his meat from grazing farmers just outside of the town boundary. Cuts of meat were prepared onsite, usually only few hours before the townsfolk purchased their weekly supply. My mother preserved many jars of fruit for the winter from fresh supplies of pears and peaches obtained from orchards in a nearby town. As I walked home from school I passed the local cordial factory and the enterprising neighbourhood bottle recycler. At the local picture theatre my sisters and I spent money in the intermission between the two movies at the owner-operated fish and chip shop.
At home, eggs were often purchased from a neighbour across the street.
Today, all but one of those small local businesses have disappeared. The bakery remains. The milkman, butcher, many farming graziers and local orchards have been replaced by the provision of pre-packaged food in a supermarket owned by investors that probably live in a different country. The products we buy are not made locally and their origin and quality is often impossible to trace. A fish and chip shop was replaced a few years ago by a McDonalds restaurant and the last picture show in the Sanger Street 'flicks' happened sometime in the late 1960s.
More money spent at one of Australia's oligopoly supermarket chains and at McDonalds would mostly flow straight out of the town and go to absentee investors somewhere else.
So how does a stimulus work these days?
In my hometown in the 1950s a bit of extra money received by families would have improved the lives of many people. There were - at this time - plenty of resources from which to draw to expand the production of food and other commodities and services. (An energy shortage was a concept we didn't give a moments thought to.)
In the middle of the 20th century a large range of economic activity was locally based. The milkman three miles down the road (and the father of a family friend) delivered his product to the back door as did the local baker (my aunty and uncle). The wheat was grown in the paddocks surrounding the town and bread was baked in a small central shop in the main street and so were the pies and cakes we gobbled up for school lunch. The local butcher obtained his meat from grazing farmers just outside of the town boundary. Cuts of meat were prepared onsite, usually only few hours before the townsfolk purchased their weekly supply. My mother preserved many jars of fruit for the winter from fresh supplies of pears and peaches obtained from orchards in a nearby town. As I walked home from school I passed the local cordial factory and the enterprising neighbourhood bottle recycler. At the local picture theatre my sisters and I spent money in the intermission between the two movies at the owner-operated fish and chip shop.
At home, eggs were often purchased from a neighbour across the street.
Today, all but one of those small local businesses have disappeared. The bakery remains. The milkman, butcher, many farming graziers and local orchards have been replaced by the provision of pre-packaged food in a supermarket owned by investors that probably live in a different country. The products we buy are not made locally and their origin and quality is often impossible to trace. A fish and chip shop was replaced a few years ago by a McDonalds restaurant and the last picture show in the Sanger Street 'flicks' happened sometime in the late 1960s.
More money spent at one of Australia's oligopoly supermarket chains and at McDonalds would mostly flow straight out of the town and go to absentee investors somewhere else.
So how does a stimulus work these days?
What More to Say?
I feel guilty in not upholding my turf here at EconoSpeak; I should be issuing thunderbolts about the debt ceiling negotiations, the sagging economy, the slo-mo Eurozone meltdown, and similar perils. But I can’t seem to do it. The whole bloody mess is just too stupid.
The US economy is clearly floundering, and elementary macroeconomics says we need fiscal stimulus, yet both Obama and the Republicans are debating how to strangle the public sector in order to raise a debt limit that makes no sense in the first place. Eurozone politicians crow over their success in imposing yet another austerity-cum-bailout package on Greece, one that no independent economic observer, much less the financial markets, have the slightest faith in. (As if rounding up the rating agencies and sending them to some Euro-Guantanamo will keep peripheral sovereign rates from marching ever upward.)
There are lots of interesting, complex issues in political economy. None of that matters now: the world is in the hands of politicians governed by expediency calculations whose time horizon can be measured in weeks. As far as I can tell, the gross illogic of their policies is simply beside the point.
The US economy is clearly floundering, and elementary macroeconomics says we need fiscal stimulus, yet both Obama and the Republicans are debating how to strangle the public sector in order to raise a debt limit that makes no sense in the first place. Eurozone politicians crow over their success in imposing yet another austerity-cum-bailout package on Greece, one that no independent economic observer, much less the financial markets, have the slightest faith in. (As if rounding up the rating agencies and sending them to some Euro-Guantanamo will keep peripheral sovereign rates from marching ever upward.)
There are lots of interesting, complex issues in political economy. None of that matters now: the world is in the hands of politicians governed by expediency calculations whose time horizon can be measured in weeks. As far as I can tell, the gross illogic of their policies is simply beside the point.
Friday, July 8, 2011
Happiness and miscellaneous
Richard Easterlin et. al. have a new working paper, "The Happiness-Income Paradox Revisited." Note first the rare scholarly modesty here: it is of course "The Easterlin paradox" that we are talking about : the paradox that consists in the fact that happiness increases with income in the cross-section while it is unaffected by income over the long run (see below) in the time series. It presents new support for the paradox as well as a response to some of the recent self-styled refutations from the likes especially of Stevenson and Wolpers. Some of the criticism, they claim, presents the cross-sectional positive association (across countries) as a refutation, which it is nothing of the sort, since that relationship is one plank of the paradox itself! Wolpers and Stevenson, they claim, are looking at short time series and picking up - what has been known for some time - the short run positive association over the business cycle between the two. I liked the paper and found it pretty convincing.
There is no theory in the piece, but they pithily sum up the most plausible explanations of the paradox: " the escalation of material aspirations with economic growth, reflecting the impact of social comparison and hedonic adaptation."
Readers of The Theory of Moral Sentiments will know that Adam Smith would not have been at all surprised by the paradox. On the contrary - remember his description of the poor man striving all his life to become rich who, when he finally succeeds, finds he is no happier than he began? But for Smith - and I agree - the paradox is in itself no critique of economic growth, as it has been wielded in contemporary debate: Smith thinks it a good thing (I'm paraphrasing, my TMS is in the office 20 miles down the road) that we Nature (I think it's capital N Nature, or it may be capital P Providence) deludes us in to thinking that more income will make us happier, because all this striving under this delusion has produced, well, Civilization! "Turned mighty ocean into a broad highway" and such - you know the passage. The larger point, though is this: why should happiness or utility be the desideratum of economic growth? Just as they had an objective, rather than a subjective, theory of value, The Classical economists generally, I suggest, had an objective rather than a subjective theory of well-being. In Senian terms, economic growth increases our capabilities. What we do with them is another thing.
By the way, in this last point I am echoing to some extent Deirdre McCloskey, whose latest book, Bourgeois Dignity, may well be her best. I was not a fan of its predecessor, Bourgeois Virtue, but any economist concerned with explaining the explosive nature of modern growth ( the famous hockey-stick) need to read this book. It is mostly an attack on all the explanations that have been offered so far. Later work will make her positive case that it was a change in ideology, not in itself explicable by material conditions, to wit, the change in the valuation of innovation and the bourgeoisie generally, the giving of dignity to such activity that occurs in the Netherlands and England 1650-1800 that explains the industrial revolution and the break-out form the Malthusian trap. The take-down of Gregory Clark's "eugenic materialism" is alone worth the price of the book. If you've read any of her work, you know that she is a wonderful and astonishingly erudite writer - even when you disagree with her. Highly Recommended!
Finally, along with all of you I am sure, I am confident that the medicine The Republicans and - say it isn't so - Obama, are preparing for the sick Economy, LEECHES, will work as it always has. Sad beyond words -
.
There is no theory in the piece, but they pithily sum up the most plausible explanations of the paradox: " the escalation of material aspirations with economic growth, reflecting the impact of social comparison and hedonic adaptation."
Readers of The Theory of Moral Sentiments will know that Adam Smith would not have been at all surprised by the paradox. On the contrary - remember his description of the poor man striving all his life to become rich who, when he finally succeeds, finds he is no happier than he began? But for Smith - and I agree - the paradox is in itself no critique of economic growth, as it has been wielded in contemporary debate: Smith thinks it a good thing (I'm paraphrasing, my TMS is in the office 20 miles down the road) that we Nature (I think it's capital N Nature, or it may be capital P Providence) deludes us in to thinking that more income will make us happier, because all this striving under this delusion has produced, well, Civilization! "Turned mighty ocean into a broad highway" and such - you know the passage. The larger point, though is this: why should happiness or utility be the desideratum of economic growth? Just as they had an objective, rather than a subjective, theory of value, The Classical economists generally, I suggest, had an objective rather than a subjective theory of well-being. In Senian terms, economic growth increases our capabilities. What we do with them is another thing.
By the way, in this last point I am echoing to some extent Deirdre McCloskey, whose latest book, Bourgeois Dignity, may well be her best. I was not a fan of its predecessor, Bourgeois Virtue, but any economist concerned with explaining the explosive nature of modern growth ( the famous hockey-stick) need to read this book. It is mostly an attack on all the explanations that have been offered so far. Later work will make her positive case that it was a change in ideology, not in itself explicable by material conditions, to wit, the change in the valuation of innovation and the bourgeoisie generally, the giving of dignity to such activity that occurs in the Netherlands and England 1650-1800 that explains the industrial revolution and the break-out form the Malthusian trap. The take-down of Gregory Clark's "eugenic materialism" is alone worth the price of the book. If you've read any of her work, you know that she is a wonderful and astonishingly erudite writer - even when you disagree with her. Highly Recommended!
Finally, along with all of you I am sure, I am confident that the medicine The Republicans and - say it isn't so - Obama, are preparing for the sick Economy, LEECHES, will work as it always has. Sad beyond words -
.
Monday, July 4, 2011
My former student on the front page of the New York Times
I have been virtually incommunicado for a while, giving papers at conferences, having my electronics from my suitcase after I checked it in at the South Bend airport, and now trying to catch up with the backlog of deadlines.
I briefly awoke from my slumber with today's New York Times article regarding Congressman Mike Thompson, who was a outstanding student of mine. He also used to keep my tractor repaired and his wife would sometimes babysit for us. Both were very, very nice people.
Mike earned an internship with a powerful representative in the state legislature, who taught him the ropes. Later, he ran for state Sen. in our district against the Republican who should have been a shoe-in. Republican, however, got caught up in a scandal and Mike won the office. He later switched districts in order to be closer to his home in the Napa Valley. The congressional seat had switched back and forth between parties, ever since a long standing representative, Don Claussen, was defeated. Mike won and has held the office ever since.
He only contacted me a couple times many years ago and I have not heard from him since. He and Darrell Issa were the two representatives, who met with Saddam Hussein prior to the war, to see if hostilities could be prevented. I should have mentioned that he was also a Vietnam veteran.
I can't tell if the article is attacking him for being overly supportive of the wine industry or if he is self interested as a small wine grower. In reality, he was interested in the wine industry as a student. Consequently, nothing he says seems particularly scandalous.
I understand that Mike is a favorite of Nancy Pelosi. I recall that he identified himself as a blue dog. Our politics are obviously far apart, but I do remember him fondly as an excellent student and a friend, even though I'm not aware of any courageous stands he has taken, with the exception of the trip to Iraq.
Wednesday, June 29, 2011
The Most Irresponsible President
The debate over the probably unconstitutional debt ceiling limit that no other country has ever had with almost no commentators in this country realizing this has made me think about some other matters tied to this that are also essentially unprecedented but that are rarely pointed out. I am thinking about the fact that George W. Bush did something that certainly no other US president has ever done and that as near as I can tell no other national leader in any nation in history has ever done. That is, to start major wars while cutting taxes at the same time. Numerous studies have made it clear that along with the recession the main reasons we went from budget surpluses under Clinton to massive deficits under Bush were this combination of starting wars and cutting taxes.
I suspect that he had a model, or thought he did, the late Ronald Reagan. Now it is true that Reagan supported increasing defense spending and cutting taxes, and did so, although he also supported some tax increases, particularly the whopping one for social security that largely offset his income tax cuts. One might argue that he had a war, the Cold War. But it was cold, and he had a habit of avoiding letting it get hot, including pulling troops out of Lebanon when they were attacked, something that led Osama bin Laden to view the US as weak, although he did invade Grenada, a one day affair. So, indeed, the image of Reagan, who was more politically popular than W's dad, the more fiscally responsible Bush Sr. who coined the term "voodoo economics" to describe the policies of Reagan, may well be what W and his followers and much of the media are thinking of. After all, Reagan is a divine being, and he sort of did it, so what is the fuss?
I suspect that he had a model, or thought he did, the late Ronald Reagan. Now it is true that Reagan supported increasing defense spending and cutting taxes, and did so, although he also supported some tax increases, particularly the whopping one for social security that largely offset his income tax cuts. One might argue that he had a war, the Cold War. But it was cold, and he had a habit of avoiding letting it get hot, including pulling troops out of Lebanon when they were attacked, something that led Osama bin Laden to view the US as weak, although he did invade Grenada, a one day affair. So, indeed, the image of Reagan, who was more politically popular than W's dad, the more fiscally responsible Bush Sr. who coined the term "voodoo economics" to describe the policies of Reagan, may well be what W and his followers and much of the media are thinking of. After all, Reagan is a divine being, and he sort of did it, so what is the fuss?
Jon Kyl’s Objection to the Payroll Tax Cut Gets Everything Wrong
Brian Beutler has a very good post on the hypocrisy of the Republican Party when it comes to one of President Obama’s proposals to stimulate the economy:
Brian notes (surprise) that Republicans are opposing this particular tax cut. Senator Kyl explains:
Of course, tax cuts for the very wealthy do not require offsets according to Senator Kyl. Brian earlier mentioned an argument from Douglas Holtz-Eakin that temporary tax cuts are ineffectual. Tax cuts for the wealthy might indeed be entirely save as the premises of the Barro-Ricardian equivalence proposition likely hold in this case. Payroll tax reductions, however, benefit households that may be borrowing constrained. So even if there would be future offsets, payroll tax relief could still increase aggregate demand in the short-run. Which is exactly the kind of Keynesian fiscal policy that would help.
I don’t think Senator Kyl is as stupid as this comes off. I do think, however, he is hoping voters are this stupid.
Let's assume Democrats and Republicans team up in the next few weeks to pass a very GOP friendly debt reduction bill. And let's stipulate, too, that, as in Britain and elsewhere, the spending-cut magic doesn't do anything to help the unemployment crisis, leaving President Obama and the Democrats a huge political liability -- and national problem -- they won't be able to resolve by election time in November. This is why they're trying to squeeze something -- anything -- into the debt ceiling package that will provide near-term stimulus, to improve the jobs situation or at least counteract the austerity measures. Unfortunately, Republicans have foreclosed on the highest-impact ideas economists have recommended -- aid to states, infrastructure investment, and other direct spending projects. So they've settled on a fourth- or fifth-best option: a plan to provide employees deeper, temporary relief from the payroll tax, and extend that relief to employers as well. It's not the most stimulative thing in the world -- but it is a tax cut for business owners, so at the very least it should have some buy-in on the right, no?
Brian notes (surprise) that Republicans are opposing this particular tax cut. Senator Kyl explains:
My view generally is that if you can leave more money in the private sector it'll be easier for a recovery to occur," he said. "Now -- if you -- there's been talk about matching the one that was given to employees with one for employers, that would leave more money for the employer to hire and invest. So it could well help businesses be in a financial position to hire more people and begin to expand. The problem is that a payroll tax is supposed to fund couple of our entitlement programs, and since it wouldn't be able to do that we'd have to get that money from general revenues, so that puts more pressure on general revenues and makes it more difficult for all the other things we're trying to fund. So, the answer to your question is yes it might help business, but I'm not sure that its overall impact might not be as positive as we think given the pressures on all the other programs that rely on general revenues.
Of course, tax cuts for the very wealthy do not require offsets according to Senator Kyl. Brian earlier mentioned an argument from Douglas Holtz-Eakin that temporary tax cuts are ineffectual. Tax cuts for the wealthy might indeed be entirely save as the premises of the Barro-Ricardian equivalence proposition likely hold in this case. Payroll tax reductions, however, benefit households that may be borrowing constrained. So even if there would be future offsets, payroll tax relief could still increase aggregate demand in the short-run. Which is exactly the kind of Keynesian fiscal policy that would help.
I don’t think Senator Kyl is as stupid as this comes off. I do think, however, he is hoping voters are this stupid.
Monday, June 27, 2011
HIgh Taxes Kill Growth? Those Darned Swedes!
In the Business section of yesterday's Washington Post, Neil Irwin brings us "five lessons" from the Swedish economy, which grew at 5.5% during 2010, the highest rate in Europe and certainly higher than the US, with the Swedish unemployment rate now down to 7% and falling noticeably. Lesson #1 is to "Keep your fiscal house in order in good times, so you will have room to maneuver when things are bad." Just before the 2008 crisis Sweden was running a 3.6% fiscal surplus, with one of the highest average tax rates in the world, far in excess of what we had (and have) here in the US. They did run a stimulative fiscal policy during the recession, including a small tax cut, but had "the room" to do it, now recovering with little deficit problem and booming growth. We all know that it was the unprecedented policy during the last decade of fighting fresh wars while cutting taxes that made ended the surpluses in the US of the late 90s and put this out of reach. In any case, Sweden's taxes are far higher now than those in the US, now lower than since the 1950s, but they are booming away.
Other parts of the Swedish story may be less applicable to the US. So, #2 is to have the fiscal policy be more automatic. Probably a good idea and long in place in Sweden, but probably not up to the taste of the US political system. #3 is to use monetary policy more aggressively, with Sweden actually having made one target interest rate negative for a short period of time. On this one, Bernanke did do that at crucial moments, and may have to do more of it if the end of QE2 and ongoing events leave us too stagnant. #4 is "keep the value of your currency flexible." Well, the US dollar already floats, but this is easier for a smaller country not tied up in a large currency union to pull off. And #5 is "Bankers will always make blunders, just make sure they don't doom the economy." The Swedish bank crisis of the early 90s led them to avoid getting deep into the real estate bubble. The unwillingness to put Elizabeth Warren into the position she is suited for and the pushback from US bankers against Dodd-Frank is not encouraging on this one.
Other parts of the Swedish story may be less applicable to the US. So, #2 is to have the fiscal policy be more automatic. Probably a good idea and long in place in Sweden, but probably not up to the taste of the US political system. #3 is to use monetary policy more aggressively, with Sweden actually having made one target interest rate negative for a short period of time. On this one, Bernanke did do that at crucial moments, and may have to do more of it if the end of QE2 and ongoing events leave us too stagnant. #4 is "keep the value of your currency flexible." Well, the US dollar already floats, but this is easier for a smaller country not tied up in a large currency union to pull off. And #5 is "Bankers will always make blunders, just make sure they don't doom the economy." The Swedish bank crisis of the early 90s led them to avoid getting deep into the real estate bubble. The unwillingness to put Elizabeth Warren into the position she is suited for and the pushback from US bankers against Dodd-Frank is not encouraging on this one.
Thursday, June 23, 2011
What Was the Carter Economic Policy That Reagan Reversed?
Paul Krugman has to remind Greg Mankiw why we use business cycle peaks when trying to remove the effect of the business cycle:
But there was something else Greg said that caught my eye:
Perhaps but the most significant long-run macroeconomic change was the transition from the fiscal sanity exhibited throughout most of the 1950’s, 1960’s, and 1970’s to the fiscal irresponsibility of the 1980’s. During the earlier period, net national savings averaged approximately 10% of net national product whereas the national savings rate was about half of that during the 1980’s. I seem to recall in the first edition of Greg Mankiw’s macroeconomics text a very good discussion of how this reduction in the national savings rate increased real interest rates and crowded out investment. Which is one reason why average annual output growth fell from around 3.5% during the earlier period to around 3% during the period of fiscal irresponsibility. Which is of course the whole point when we discuss this Laugher curve insanity that somehow fiscal irresponsibility increases economic growth even though good economic logic says just the opposite.
So what you want is to somehow abstract from the business cycle. And the easiest way to do that is to compare business cycle peaks, times when the economy is at more or less full employment. True, employment is fuller at some peaks than at others, but those differences are small, whereas the depth of the slump at recession troughs is much more variable.
But there was something else Greg said that caught my eye:
Weren't the policies of those years precisely what Reagan was trying to reverse?
Perhaps but the most significant long-run macroeconomic change was the transition from the fiscal sanity exhibited throughout most of the 1950’s, 1960’s, and 1970’s to the fiscal irresponsibility of the 1980’s. During the earlier period, net national savings averaged approximately 10% of net national product whereas the national savings rate was about half of that during the 1980’s. I seem to recall in the first edition of Greg Mankiw’s macroeconomics text a very good discussion of how this reduction in the national savings rate increased real interest rates and crowded out investment. Which is one reason why average annual output growth fell from around 3.5% during the earlier period to around 3% during the period of fiscal irresponsibility. Which is of course the whole point when we discuss this Laugher curve insanity that somehow fiscal irresponsibility increases economic growth even though good economic logic says just the opposite.
The Lehman Family
A prominent argument among those who want to avoid a Greek restructuring/workout/default at all costs is that it would trigger a new financial panic, otherwise known as Son-of-Lehman. If contagion spreads to Ireland or Portugal, Greece becomes Number One Son-of-Lehman, while the next in line becomes the Number Two Son-of-Lehman, and so on. If all hell breaks loose, and Spain or even Italy is forced to walk the plank, we could be looking at the Mother of all Lehmans.
And why is this?
It isn’t just the direct exposures of thinly capitalized banks that has Trichet et al. so spooked, it’s all the credit default swaps written against them. We don’t know how concentrated the counterparty positions are, nor how vulnerable the issuers would be in the event of a default. Even worse, we don’t know the volume, structure or anything else about the likely mountain of derivatives piled on top of all those CDS’s. This stuff is unrecorded and, at a system level, entirely unsupervised.
So the question is, have we run through a full Minsky cycle in only three years, or are we seeing another phase in the disorderly unwinding of the great financial pyramid of the 00's?
And why is this?
It isn’t just the direct exposures of thinly capitalized banks that has Trichet et al. so spooked, it’s all the credit default swaps written against them. We don’t know how concentrated the counterparty positions are, nor how vulnerable the issuers would be in the event of a default. Even worse, we don’t know the volume, structure or anything else about the likely mountain of derivatives piled on top of all those CDS’s. This stuff is unrecorded and, at a system level, entirely unsupervised.
So the question is, have we run through a full Minsky cycle in only three years, or are we seeing another phase in the disorderly unwinding of the great financial pyramid of the 00's?
Wednesday, June 22, 2011
Payroll Taxes as Stimulus: Speaker Boehner Versus Professor Feldstein
Republicans oppose extending the payroll tax break. John Boehner calls this tax break a “gimmick”. Republican economist Martin Feldstein disagrees.
Tuesday, June 21, 2011
What really happened in the 1980s and where are we now?
From a personal perspective, the 1980s was an alarming decade. It was that time when our family sought to buy a small rural block of land in the North West of Tasmania, Australia. It was our first major purchase. Within the space of two years however we felt the awful financial consequences of the doubling of land prices combined with extraordinarily high real interest rates on our mortgage. There were few jobs at the time - and low-paid at that - to cushion this dramatic decline in our standard of living and the debt burden that went with it. [1]
So what happened?
Why have we gradually moved into a world where it's taken for granted that both parents go out to work, that a normal household lives under the burden of (often) unprecedented levels of debt and where Fukushima logic in the industrial sphere has left many people with a dreaded fear of humanity's extinction event in the short run? The following economic and social narrative may partly explain what I see as our frightening historical evolution into multiple and ubiquitous tipping points.
World oil production per capita peaked in 1979 [2]. It could be argued that this change occurred - not necessarily as a function of resource depletion - but in direct relation to structural shifts in the national and the global economy that evolved in the previous decades. Consumerism, for instance, "proliferated in the US in the 1920s and 1930s, spread to other industrialised nations after the Second World War, particularly in the 1950s." [3] In addition, the US dollar, as the global reserve currency, became unhinged from gold as the Bretton Woods international trading system gradually collapsed. This currency then morphed into a 'petro-dollar' that sustained US global economic hegemony. Nations that purchased oil were forced to find a way to purchase US dollars.
The nine-fold increase in global oil prices in the 1970s heralded new economic norms around the world. For example, the same material quantity in transactions simply involved greater cash flow. GDP rose whilst economies stagnated. No interest rate policy - including the abandonment of usury limits on interest rates by President Carter - was found to contain inflation from the higher energy prices [4]. Economic bubbles formed.[5]
Profit was shifted to different sectors of the national and global economies. Finance became a big 'winner' as family farms declined dramatically [6].
High energy prices, in turn, translated into reduced consumption. In the corporate sector increased productivity derived from the steady abandonment of environmental controls (including the almost totally unsupervised employment of nuclear energy). Global labour and interest-rate arbitrage by multinationals also produced more profit per unit of labour (productivity again). Workers around the world often simply worked longer hours, if they could find jobs at all. A world 'jobs crisis' steadily gained momentum from the 1970s onwards to present day. [7]
Income inequality began to explode under Reagan and by the end of the 1980s the lax environmental regulation began to translate into poorer health outcomes for citizens [8]. So did the steady global depletion of water and cropland.[9] Ronald Reagan gutted the federal anti-trust authorities in America. "Mergers in finance, communications, entertainment, oil, retailing, and on led to the consolidation of economic power in America." [10] The continuing cultural notion that consumption was an indicator of social achievement also participated concentrating economic and political might into fewer hands.
US Government and its leading allies engaged in rigging the value of major global currencies in an unpredictable fashion in order to counter one financial or corporate profit crisis after another [11] Businesses responded by trying to hedge their bets in this uncertain international trading environment. Asset-backed securities (ABS) became popular in the world of structured finance (derivatives).
In the US major cities and public corporations were being kept from bankruptcy by the tax dollars of ordinary citizens. Meanwhilst most leading international banks were insolvent by every standard except by nomenclature [12]. This was largely due to their improvident long-term loans to Third World countries. These loans were often forced on many US banks by the pressure from government to solve the oil-price-currency overhang in the first instance [13]. "Petro-dollar recycling programs allowed lesser developed nations to purchase oil even as its price skyrocketed, and was actively promoted by the United States." [14] Unsustainable third world debt led to US banks lending further funds to these troubled nations to avoid catastrophic debt default.
By the 1990s the primary contradictions of the global economy were evident: " (i) a contradiction between economic mode of organization and national states, (ii) progressive expansion of fictitious capital, (iii) greater class, ethnic, international and subnational tensions were generated. [15] Neoliberalism had failed to deliver the goods. It was clear that the US, as the world leader in economic growth was doing so by reducing everyone else's.
Capitalism is now in crisis. It's no surprise, after all. Vulnerable nations around the world have been prompted to build up their reserves. Massive trade imbalances ensued as a result. This excessive liquidity from 'emerging' nations and debt-dependent consumption in industrial countries (lower wages/workers using rising asset values on their homes as income) has come to the inevitable bust.
Despite all the rhetoric of 'free markets' that sustained the global neoliberalst agenda, the big corporations of the world's 'military-industrial complex' were bailed out (yet again) by taxpayers. Alarmingly, however, the accumulated debts gathered in the previous 45 years of ponzi capitalism have proved to be beyond the ability of sovereign states to sustain. (But at last, it is no longer possible for the mainstream media to continue to compute the virtues of purely competitive markets to monopoly and oligopoly!)
This month the world's biggest central bank, the US Federal Reserve, is levered 50 to 1. Another bout of quantitative easing seems inevitable as the era of unprecedented monetary expansion goes on and on. The traditional assumption to date has been that "economic growth will return and facilitate the repayment of sovereign loans and mop up the excessive liquidity." [16] This time, however, the reduced energy flows around the world are real! We are in an oil plateau that began in 2004 [17]. In the latter half of this year world oil production has been predicted to go into decline.[18] We have not been blessed with a form of governance that would prepare the world for such a crisis. But that's not the only one.
"Now we have entered an age of growing crisis, of shock piled upon shock: vertiginous food price spikes and oil price hikes, devastating weather events, financial meltdowns and global contagion." Says an Oxfam report published this year [19]. A similar sentiment is repeated in many thousands of forums across the internet.
“The system has reached the stage that a bankrupt sovereign state is issuing debt to buy bonds in a vehicle that is tasked with buying debt from a bankrupt Sovereign state that is no longer able to go to market. Folks this is reaching the level of a Monty Python skit.” [20]
“Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”[21]
The situation is evolving very fast. As 30% of people in the US rely on loans taken out against their retirment pensions [22] a list of US President Obama's leading economists are stepping down. [23] As the global food system fails [24] it appears that the student loan crisis could be a bigger financial failure than the housing crisis [25].
Here in Australia the economy is reported to have suffered its worst fall since 1991 as record floods, other natural catastrophe's and obvious government mismanagement of finances and resources devastate the economic base of the nation. [26]
Whilst crowds of people riot in the streets of Greece and many other nations the home in the valley gives me a degree of refuge from the hidden fist of the market.... for the time being. There is also some kind of personal reassurance in having found a rough narrative to help me clarify some of the reasons as to how we may have got to this 'place' we're in now, together. But I don't have the answers. Today's predicament poses demands for great and immediate change. Most immediately I see the demand for a quick evolution of a sustainable indigenous economy.
But what we do on our own probably won't get us very far.
Through others, we become ourselves.[27]
REFERENCES:
[1] In the late 1970s and the early 1980s US households experienced a major debt peak relative to personal income and this phenomenon repeated in other nations.
http://www.doctorhousingbubble.com/wp-content/uploads/2009/06/debt-and-income.png
The rise in debt in the US corresponded with the rise in the price of oil and money.See: https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicF1KsjxYLQyBofMeJcuhrIvlCODyJ_Wqp0plO1htyB2K6hBVLQlBqAQWaXACx2zojveNE5wPAVevdsHSu90JtDxFHIBNjxHyOhyphenhyphenMN4QS9ORQra6-7lq_I7zJ8AUFPBTtjDeb-LQbMaqY/s1600/FRED-FEDFUNDS.png
and
Why Growth is Dead
Thursday, May 12, 2011, 1:47 pm, by cmartenson
http://www.chrismartenson.com/blog/why-growth-dead/57764?
[2] The Peak of World Oil Production and the Road to the Olduvai Gorge
Richard C. Duncan, Ph.D.
Pardee Keynote Symposia, Geological Society of America. Summit 2000.Reno, Nevada
November 13, 2000. …World Energy Production per Capita: 1920-1999
http://www.hubbertpeak.com/duncan/olduvai2000.htm
[3] Stewart Lansley, After the Gold Rush: The Trouble with Affluence: 'Consumer Capitalism' and the Way Forward (London: Century Business Books, 1994), p. 85.
[4] Inflation in the US (according to CPI measures) declined between 1981 and 1983 then began a long-term rise.
The True Meaning Of Inflation
John Tamny, 01.25.10. Forbes magazine.
http://www.forbes.com/2010/01/24/inflation-prices-gold-standard-opinions-columnists-john-tamny.html
[5] Drawing on the observations from Henry CK Liu's article:'The real problems with $50 oil' May 26, 2005
http://www.atimes.com/atimes/Global_Economy/GE26Dj02.html
[6] The Economy in the 1980s
http://countrystudies.us/united-states/history-137.htm
Source: US Department of STate
[7] Duration of unemployment in the US, Bureau of Labor Statistics as found at:
IMF fears 'social explosion' from world jobs crisis
By Ambrose Evans-Pritchard
Published: 11:00PM BST 13 Sep 2010
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8000561/IMF-fears-social-explosion-from-world-jobs-crisis.html
"America and Europe face the worst jobs crisis since the 1930s and risk "an explosion of social unrest" unless they tread carefully, the International Monetary Fund has warned."
[8] A Perfect Storm of GMOs, Chemicals and Cancer.The Peoples Voice.
By Rady Ananda
http://saladin-avoiceinthewilderness.blogspot.com/2011/03/perfect-storm-of-gmos-chemicals-and.html
+
Cancer From the Kitchen?
By NICHOLAS D. KRISTOF Op-Ed Columnist
Published: December 5, 2009
http://www.nytimes.com/2009/12/06/opinion/06kristof.html?_r=4
[9] In 1999 it was reported that "For the first time since China's great famine claimed 30 million lives in 1959-61, rising death rates are slowing world population growth." The World Watch Institute wrote that the AIDS epidemic and water and cropland shortages problems largely ignored by the international community for years are the major cause. See:
Lester R. Brown, coauthor with Gary Gardner and Brian Halweil of Beyond Malthus: Nineteen Dimensions of the Population Challenge. [1999]
via the World Watch Institute
Can be downloaded at: http://www.worldwatch.org/system/files/EWB110_0.pdf
[10] On Reagan's Birthday We Still Celebrate His Policies That Broke the Middle Class. Jeff Madrick, Senior Fellow, Roosevelt Institute. Posted: February 11, 2011 11:03 AM
http://www.huffingtonpost.com/jeff-madrick/on-reagans-birthday-we-st_b_821893.html
[11] Fed, ECB Risk 1987 Rerun With Policy Drift: Michael R. Sesit
Commentary by Michael R. Sesit, June 13 2008
http://www.bloomberg.com/apps/news?pid=20601039&sid=a8xmvHTtLx18&refer=home
[12] Tappan On Survival. by Mel Tappan.Copyright 1981
http://www.giltweasel.com/stuff/Tappan%20on%20Survival.pdf
[13] See William Greider's 'Secrets of the Temple - How the Federal Reserve Runs the Country'
[14] Cardoso, Eliana and Helwege, Ann. Latin America’s Economy. p.116 and Pastor, Robert A. ed. Latin American Debt
Crisis: Adjusting to the Past or Planning for the Future. p.54 and U.S. Senate Joint Economic Committee Website. As quoted in:
The Latin American Debt Crisis of the 1980s and its Historical Precursors
Alexander Theberge. April 8, 1999
[15] Reader Juan – ‘Hoisted From Comments: Has Neo-Liberalism Failed to Deliver the Goods?’
Naked Capitalism. Saturday, July 5, 2008
http://www.nakedcapitalism.com/2008/07/hoisted-from-comments-has-neo.html
[16] Tipping Point- Near-Term Systemic Implications of a Peak in Global Oil Production. An Outline Review. By David Korowicz
Feasta & The Risk/Resilience Network. 15th March 2010. Reviewed April 1.
http://www.feasta.org/documents/risk_resilience/Tipping_Point.pdf
[17] 'Peak Oil’ : Jimmy Carter’s Secretary of Energy sounds the alarm
Interview with Robert L. Hirsch (1/2)
http://petrole.blog.lemonde.fr/2010/09/16/interview-with-robert-l-hirsch-12
[18] OPEC says oil supply gap looms later this year. 10th June 2011
http://www.reuters.com/article/2011/06/10/us-opec-idUSTRE75924U20110610
[19] Oxfam said in a report entitled "Growing a Better Future: Food Justice in a Resource-Constrained World”
Hunger crisis worsens, food system broken - Oxfam
Reuters, Tuesday May 31 2011
http://www.guardian.co.uk/business/feedarticle/9672289
Report at: http://www.oxfam.org.uk/resources/papers/downloads/growing-a-better-future-010611-en.pdf
[20] Jack Barnes. 2011
http://jackhbarnes.com/2011/01/13/european-rescue-fund-needs-rescuing/
[21] Mobius Says Another Financial Crisis ‘Around The Corner’
By Kana Nishizawa - May 30, 2011 9:10 PM GMT+1000
http://www.bloomberg.com/news/2011-05-30/mobius-says-fresh-financial-crisis-around-corner-amid-volatile-derivatives.html
[22] 30% Of People With A 401(k) Have Taken Out A Loan Against It: New All Time Record
Tyler Durden's picture
Submitted by Tyler Durden on 06/09/2011 18:47 –0400
http://www.zerohedge.com/article/record-number-people-have-taken-out-loan-out-against-their-401k
[23] Top White House economist Goolsbee steps down
6th June 2011
http://www.reuters.com/article/2011/06/07/us-usa-obama-goolsbee-idUSTRE75603120110607
[24] How The Global Food System Is Failing
Free Internet Press.Intellpuke
Wednesday, June 1, 2011
http://weeklyintercept.blogspot.com/2011/06/free-internet-press-intellpuke-domingo.html
[25] The Next Bubble Is About to Burst: College Grads Face Dwindling Jobs and Mounting Loans
By: ActivistPost
http://www.activistpost.com/2011/06/next-bubble-is-about-to-burst-college.html
[26] Economy suffers worst fall since 1991
By online business reporter Michael Janda
1st June 2011
http://www.abc.net.au/news/stories/2011/06/01/3232602.htm
[27] L. S. Vygotsky, The History of the Development of Higher Mental Functions
So what happened?
Why have we gradually moved into a world where it's taken for granted that both parents go out to work, that a normal household lives under the burden of (often) unprecedented levels of debt and where Fukushima logic in the industrial sphere has left many people with a dreaded fear of humanity's extinction event in the short run? The following economic and social narrative may partly explain what I see as our frightening historical evolution into multiple and ubiquitous tipping points.
World oil production per capita peaked in 1979 [2]. It could be argued that this change occurred - not necessarily as a function of resource depletion - but in direct relation to structural shifts in the national and the global economy that evolved in the previous decades. Consumerism, for instance, "proliferated in the US in the 1920s and 1930s, spread to other industrialised nations after the Second World War, particularly in the 1950s." [3] In addition, the US dollar, as the global reserve currency, became unhinged from gold as the Bretton Woods international trading system gradually collapsed. This currency then morphed into a 'petro-dollar' that sustained US global economic hegemony. Nations that purchased oil were forced to find a way to purchase US dollars.
The nine-fold increase in global oil prices in the 1970s heralded new economic norms around the world. For example, the same material quantity in transactions simply involved greater cash flow. GDP rose whilst economies stagnated. No interest rate policy - including the abandonment of usury limits on interest rates by President Carter - was found to contain inflation from the higher energy prices [4]. Economic bubbles formed.[5]
Profit was shifted to different sectors of the national and global economies. Finance became a big 'winner' as family farms declined dramatically [6].
High energy prices, in turn, translated into reduced consumption. In the corporate sector increased productivity derived from the steady abandonment of environmental controls (including the almost totally unsupervised employment of nuclear energy). Global labour and interest-rate arbitrage by multinationals also produced more profit per unit of labour (productivity again). Workers around the world often simply worked longer hours, if they could find jobs at all. A world 'jobs crisis' steadily gained momentum from the 1970s onwards to present day. [7]
Income inequality began to explode under Reagan and by the end of the 1980s the lax environmental regulation began to translate into poorer health outcomes for citizens [8]. So did the steady global depletion of water and cropland.[9] Ronald Reagan gutted the federal anti-trust authorities in America. "Mergers in finance, communications, entertainment, oil, retailing, and on led to the consolidation of economic power in America." [10] The continuing cultural notion that consumption was an indicator of social achievement also participated concentrating economic and political might into fewer hands.
US Government and its leading allies engaged in rigging the value of major global currencies in an unpredictable fashion in order to counter one financial or corporate profit crisis after another [11] Businesses responded by trying to hedge their bets in this uncertain international trading environment. Asset-backed securities (ABS) became popular in the world of structured finance (derivatives).
In the US major cities and public corporations were being kept from bankruptcy by the tax dollars of ordinary citizens. Meanwhilst most leading international banks were insolvent by every standard except by nomenclature [12]. This was largely due to their improvident long-term loans to Third World countries. These loans were often forced on many US banks by the pressure from government to solve the oil-price-currency overhang in the first instance [13]. "Petro-dollar recycling programs allowed lesser developed nations to purchase oil even as its price skyrocketed, and was actively promoted by the United States." [14] Unsustainable third world debt led to US banks lending further funds to these troubled nations to avoid catastrophic debt default.
By the 1990s the primary contradictions of the global economy were evident: " (i) a contradiction between economic mode of organization and national states, (ii) progressive expansion of fictitious capital, (iii) greater class, ethnic, international and subnational tensions were generated. [15] Neoliberalism had failed to deliver the goods. It was clear that the US, as the world leader in economic growth was doing so by reducing everyone else's.
Capitalism is now in crisis. It's no surprise, after all. Vulnerable nations around the world have been prompted to build up their reserves. Massive trade imbalances ensued as a result. This excessive liquidity from 'emerging' nations and debt-dependent consumption in industrial countries (lower wages/workers using rising asset values on their homes as income) has come to the inevitable bust.
Despite all the rhetoric of 'free markets' that sustained the global neoliberalst agenda, the big corporations of the world's 'military-industrial complex' were bailed out (yet again) by taxpayers. Alarmingly, however, the accumulated debts gathered in the previous 45 years of ponzi capitalism have proved to be beyond the ability of sovereign states to sustain. (But at last, it is no longer possible for the mainstream media to continue to compute the virtues of purely competitive markets to monopoly and oligopoly!)
This month the world's biggest central bank, the US Federal Reserve, is levered 50 to 1. Another bout of quantitative easing seems inevitable as the era of unprecedented monetary expansion goes on and on. The traditional assumption to date has been that "economic growth will return and facilitate the repayment of sovereign loans and mop up the excessive liquidity." [16] This time, however, the reduced energy flows around the world are real! We are in an oil plateau that began in 2004 [17]. In the latter half of this year world oil production has been predicted to go into decline.[18] We have not been blessed with a form of governance that would prepare the world for such a crisis. But that's not the only one.
"Now we have entered an age of growing crisis, of shock piled upon shock: vertiginous food price spikes and oil price hikes, devastating weather events, financial meltdowns and global contagion." Says an Oxfam report published this year [19]. A similar sentiment is repeated in many thousands of forums across the internet.
“The system has reached the stage that a bankrupt sovereign state is issuing debt to buy bonds in a vehicle that is tasked with buying debt from a bankrupt Sovereign state that is no longer able to go to market. Folks this is reaching the level of a Monty Python skit.” [20]
“Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”[21]
The situation is evolving very fast. As 30% of people in the US rely on loans taken out against their retirment pensions [22] a list of US President Obama's leading economists are stepping down. [23] As the global food system fails [24] it appears that the student loan crisis could be a bigger financial failure than the housing crisis [25].
Here in Australia the economy is reported to have suffered its worst fall since 1991 as record floods, other natural catastrophe's and obvious government mismanagement of finances and resources devastate the economic base of the nation. [26]
Whilst crowds of people riot in the streets of Greece and many other nations the home in the valley gives me a degree of refuge from the hidden fist of the market.... for the time being. There is also some kind of personal reassurance in having found a rough narrative to help me clarify some of the reasons as to how we may have got to this 'place' we're in now, together. But I don't have the answers. Today's predicament poses demands for great and immediate change. Most immediately I see the demand for a quick evolution of a sustainable indigenous economy.
But what we do on our own probably won't get us very far.
Through others, we become ourselves.[27]
REFERENCES:
[1] In the late 1970s and the early 1980s US households experienced a major debt peak relative to personal income and this phenomenon repeated in other nations.
http://www.doctorhousingbubble.com/wp-content/uploads/2009/06/debt-and-income.png
The rise in debt in the US corresponded with the rise in the price of oil and money.See: https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEicF1KsjxYLQyBofMeJcuhrIvlCODyJ_Wqp0plO1htyB2K6hBVLQlBqAQWaXACx2zojveNE5wPAVevdsHSu90JtDxFHIBNjxHyOhyphenhyphenMN4QS9ORQra6-7lq_I7zJ8AUFPBTtjDeb-LQbMaqY/s1600/FRED-FEDFUNDS.png
and
Why Growth is Dead
Thursday, May 12, 2011, 1:47 pm, by cmartenson
http://www.chrismartenson.com/blog/why-growth-dead/57764?
[2] The Peak of World Oil Production and the Road to the Olduvai Gorge
Richard C. Duncan, Ph.D.
Pardee Keynote Symposia, Geological Society of America. Summit 2000.Reno, Nevada
November 13, 2000. …World Energy Production per Capita: 1920-1999
http://www.hubbertpeak.com/duncan/olduvai2000.htm
[3] Stewart Lansley, After the Gold Rush: The Trouble with Affluence: 'Consumer Capitalism' and the Way Forward (London: Century Business Books, 1994), p. 85.
[4] Inflation in the US (according to CPI measures) declined between 1981 and 1983 then began a long-term rise.
The True Meaning Of Inflation
John Tamny, 01.25.10. Forbes magazine.
http://www.forbes.com/2010/01/24/inflation-prices-gold-standard-opinions-columnists-john-tamny.html
[5] Drawing on the observations from Henry CK Liu's article:'The real problems with $50 oil' May 26, 2005
http://www.atimes.com/atimes/Global_Economy/GE26Dj02.html
[6] The Economy in the 1980s
http://countrystudies.us/united-states/history-137.htm
Source: US Department of STate
[7] Duration of unemployment in the US, Bureau of Labor Statistics as found at:
IMF fears 'social explosion' from world jobs crisis
By Ambrose Evans-Pritchard
Published: 11:00PM BST 13 Sep 2010
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8000561/IMF-fears-social-explosion-from-world-jobs-crisis.html
"America and Europe face the worst jobs crisis since the 1930s and risk "an explosion of social unrest" unless they tread carefully, the International Monetary Fund has warned."
[8] A Perfect Storm of GMOs, Chemicals and Cancer.The Peoples Voice.
By Rady Ananda
http://saladin-avoiceinthewilderness.blogspot.com/2011/03/perfect-storm-of-gmos-chemicals-and.html
+
Cancer From the Kitchen?
By NICHOLAS D. KRISTOF Op-Ed Columnist
Published: December 5, 2009
http://www.nytimes.com/2009/12/06/opinion/06kristof.html?_r=4
[9] In 1999 it was reported that "For the first time since China's great famine claimed 30 million lives in 1959-61, rising death rates are slowing world population growth." The World Watch Institute wrote that the AIDS epidemic and water and cropland shortages problems largely ignored by the international community for years are the major cause. See:
Lester R. Brown, coauthor with Gary Gardner and Brian Halweil of Beyond Malthus: Nineteen Dimensions of the Population Challenge. [1999]
via the World Watch Institute
Can be downloaded at: http://www.worldwatch.org/system/files/EWB110_0.pdf
[10] On Reagan's Birthday We Still Celebrate His Policies That Broke the Middle Class. Jeff Madrick, Senior Fellow, Roosevelt Institute. Posted: February 11, 2011 11:03 AM
http://www.huffingtonpost.com/jeff-madrick/on-reagans-birthday-we-st_b_821893.html
[11] Fed, ECB Risk 1987 Rerun With Policy Drift: Michael R. Sesit
Commentary by Michael R. Sesit, June 13 2008
http://www.bloomberg.com/apps/news?pid=20601039&sid=a8xmvHTtLx18&refer=home
[12] Tappan On Survival. by Mel Tappan.Copyright 1981
http://www.giltweasel.com/stuff/Tappan%20on%20Survival.pdf
[13] See William Greider's 'Secrets of the Temple - How the Federal Reserve Runs the Country'
[14] Cardoso, Eliana and Helwege, Ann. Latin America’s Economy. p.116 and Pastor, Robert A. ed. Latin American Debt
Crisis: Adjusting to the Past or Planning for the Future. p.54 and U.S. Senate Joint Economic Committee Website. As quoted in:
The Latin American Debt Crisis of the 1980s and its Historical Precursors
Alexander Theberge. April 8, 1999
[15] Reader Juan – ‘Hoisted From Comments: Has Neo-Liberalism Failed to Deliver the Goods?’
Naked Capitalism. Saturday, July 5, 2008
http://www.nakedcapitalism.com/2008/07/hoisted-from-comments-has-neo.html
[16] Tipping Point- Near-Term Systemic Implications of a Peak in Global Oil Production. An Outline Review. By David Korowicz
Feasta & The Risk/Resilience Network. 15th March 2010. Reviewed April 1.
http://www.feasta.org/documents/risk_resilience/Tipping_Point.pdf
[17] 'Peak Oil’ : Jimmy Carter’s Secretary of Energy sounds the alarm
Interview with Robert L. Hirsch (1/2)
http://petrole.blog.lemonde.fr/2010/09/16/interview-with-robert-l-hirsch-12
[18] OPEC says oil supply gap looms later this year. 10th June 2011
http://www.reuters.com/article/2011/06/10/us-opec-idUSTRE75924U20110610
[19] Oxfam said in a report entitled "Growing a Better Future: Food Justice in a Resource-Constrained World”
Hunger crisis worsens, food system broken - Oxfam
Reuters, Tuesday May 31 2011
http://www.guardian.co.uk/business/feedarticle/9672289
Report at: http://www.oxfam.org.uk/resources/papers/downloads/growing-a-better-future-010611-en.pdf
[20] Jack Barnes. 2011
http://jackhbarnes.com/2011/01/13/european-rescue-fund-needs-rescuing/
[21] Mobius Says Another Financial Crisis ‘Around The Corner’
By Kana Nishizawa - May 30, 2011 9:10 PM GMT+1000
http://www.bloomberg.com/news/2011-05-30/mobius-says-fresh-financial-crisis-around-corner-amid-volatile-derivatives.html
[22] 30% Of People With A 401(k) Have Taken Out A Loan Against It: New All Time Record
Tyler Durden's picture
Submitted by Tyler Durden on 06/09/2011 18:47 –0400
http://www.zerohedge.com/article/record-number-people-have-taken-out-loan-out-against-their-401k
[23] Top White House economist Goolsbee steps down
6th June 2011
http://www.reuters.com/article/2011/06/07/us-usa-obama-goolsbee-idUSTRE75603120110607
[24] How The Global Food System Is Failing
Free Internet Press.Intellpuke
Wednesday, June 1, 2011
http://weeklyintercept.blogspot.com/2011/06/free-internet-press-intellpuke-domingo.html
[25] The Next Bubble Is About to Burst: College Grads Face Dwindling Jobs and Mounting Loans
By: ActivistPost
http://www.activistpost.com/2011/06/next-bubble-is-about-to-burst-college.html
[26] Economy suffers worst fall since 1991
By online business reporter Michael Janda
1st June 2011
http://www.abc.net.au/news/stories/2011/06/01/3232602.htm
[27] L. S. Vygotsky, The History of the Development of Higher Mental Functions
Tim Pawlenty on Tax Revenues During the 1980’s
Lawrence O’Donnell featured Bruce Bartlett to have an intelligent and honest discussion of tax rates and tax revenues. This feature starts with Tim Pawlenty repeating a very discredited claim – that the 1981 tax cuts led to tremendous economic growth almost doubling Federal tax revenues during the 1980’s. We’ve gone over this so many times but let’s do this again.
Table 2.1 from this source does show that total Federal receipts rose from around $517 billion in 1980 to around $1031 billion in 1990, which is what Pawlenty is talking about. But note that this includes payroll taxes which rose from around $158 billion in 1980 to $380 billion in 1990 – a 141% nominal increase. Other Federal taxes (mainly individual income and corporate profits) taxes rose from $359 billion in 1980 to $652 billion in 1990, which represents a 81% increase. A little reminder for Governor Pawlenty – we increased payroll tax rates during the 1980’s.
Bruce Bartlett reminded us that prices rose during the 1980’s – in fact the GDP deflator was over 51% higher in 1990 than it was in 1980. In 1980 dollars, other Federal revenues were only $431 billion. So in real terms, revenues rose only by 20%. Had we left tax rates alone and had we enjoyed the 3.5% average annual growth rates that we had for the period from 1951 to 1980, real revenue growth should have exceeded 40%. But we not only had lower tax rates but we also enjoyed lower real GDP growth during this period. Any serious student of fiscal policy knows this. The next President should know this. And maybe Tim Pawlenty knows all of this – which would mean that he hopes you don’t so he can continue lying to you!
Table 2.1 from this source does show that total Federal receipts rose from around $517 billion in 1980 to around $1031 billion in 1990, which is what Pawlenty is talking about. But note that this includes payroll taxes which rose from around $158 billion in 1980 to $380 billion in 1990 – a 141% nominal increase. Other Federal taxes (mainly individual income and corporate profits) taxes rose from $359 billion in 1980 to $652 billion in 1990, which represents a 81% increase. A little reminder for Governor Pawlenty – we increased payroll tax rates during the 1980’s.
Bruce Bartlett reminded us that prices rose during the 1980’s – in fact the GDP deflator was over 51% higher in 1990 than it was in 1980. In 1980 dollars, other Federal revenues were only $431 billion. So in real terms, revenues rose only by 20%. Had we left tax rates alone and had we enjoyed the 3.5% average annual growth rates that we had for the period from 1951 to 1980, real revenue growth should have exceeded 40%. But we not only had lower tax rates but we also enjoyed lower real GDP growth during this period. Any serious student of fiscal policy knows this. The next President should know this. And maybe Tim Pawlenty knows all of this – which would mean that he hopes you don’t so he can continue lying to you!
Are We Heading For Banana Republicanization?
Just back from Ecuador, which just happens to have been the world's largest exporter of bananas since the late 1940s, although oil has been ahead of that popular fruit since the late 60s in export earnings (mangoes, shrimp, flowers, and Panama hats [originally from Ecuador] are other biggies). Since full independence in 1830, the country has had 22 constitutions, the most recent apopted in 2006, and numerous military coups. Between 1997 and 2006, the place had seven presidents and a major financial crash that led to dollarization of the economy (although the coins continue to have Ecuadorian figures on them, except for the popular use of the Sacajewea US dollar coin).
In 2006, charismatic economist, Rafael Correa, was elected president and has been reelected since. He has recently been having referenda on allowing him greater control over the media and judiciary and had Hugo Chavez in the week prior to my being there. He claims to chart a course between Chavez and Brazil's Lula, but has made no moves to de-dollarize and is reportedly close to the Catholic Church.
However, the military remains the most powerful entity in the country, reputedly owning many businesses and prior to 1995 receiving half the oil revenues directly. On this past September 30, police were demonstrating against budget cuts proposed by Correa. He went to speak with them, but ended up confined in a hospital by demonstrating police. The military came in and fought with the police, resulting in nine dead and many more injured. The military is now more openly calling the shots.
Many have commented that the US has two paths it can go: more in a European direction or more in a Latin American direction. With our accelerating inequality, our increasing partisanship leading to a breakdown of the ability of established institutions to make decisions (will the Congress really raise the debt ceiling while cutting $2 trillion in spending without raising taxes or will we just default as many seem to want?), the longer term trends in the US may well be leading us to a point where many may despair of democratic decisionmaking processes and long for a "strong hand" to fix up our messes for us. This was the sort of thing that went on in the 30s, and if things do not pick up reasonably soon, the more unpleasant voices may gain strength.
In 2006, charismatic economist, Rafael Correa, was elected president and has been reelected since. He has recently been having referenda on allowing him greater control over the media and judiciary and had Hugo Chavez in the week prior to my being there. He claims to chart a course between Chavez and Brazil's Lula, but has made no moves to de-dollarize and is reportedly close to the Catholic Church.
However, the military remains the most powerful entity in the country, reputedly owning many businesses and prior to 1995 receiving half the oil revenues directly. On this past September 30, police were demonstrating against budget cuts proposed by Correa. He went to speak with them, but ended up confined in a hospital by demonstrating police. The military came in and fought with the police, resulting in nine dead and many more injured. The military is now more openly calling the shots.
Many have commented that the US has two paths it can go: more in a European direction or more in a Latin American direction. With our accelerating inequality, our increasing partisanship leading to a breakdown of the ability of established institutions to make decisions (will the Congress really raise the debt ceiling while cutting $2 trillion in spending without raising taxes or will we just default as many seem to want?), the longer term trends in the US may well be leading us to a point where many may despair of democratic decisionmaking processes and long for a "strong hand" to fix up our messes for us. This was the sort of thing that went on in the 30s, and if things do not pick up reasonably soon, the more unpleasant voices may gain strength.
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