The government of the Czech Republic has just fallen as a result of the economic crisis that is hitting many countries in Eastern Europe hard, such as Hungary, Romania, and Ukraine. In and several of these, many people borrowed Swiss francs or other foreign currencies at low interest rates and are now hurting for repaying as their currencies have collapsed. Many of the banks that have been doing this lending and are now in serious trouble are located in Austria, with Raffeisen, Erste, and Bank of Austria reportedly getting emergency loans from the Austrian government, which is viewed as not able to handle a much worse crisis involving them. At least the Creditanstalt is not reported to be among those getting these loans, which was reconstituted after major problems earlier in its history.
It was the Creditanstalt that failed on May 11, 1931, triggering the worst financial crisis in world history. Founded in 1855, it had become the biggest bank in Central and Eastern Europe by then. Its failure set off a cascade of falling dominos among banks that then also failed, starting in countries formerly a part of the old Austro-Hungarian Empire to the east, many of them in trouble now, including Hungary, Czechoslovakia, and Poland. The next to go was Germany, where the unemployment rate would reach a world high of 30% by the time Adolf Hitler came to power in 1933. Many banks there had links to the Creditanstalt, and many failed in the months thereafter, with ones in France and Britain following suit. US banks were also linked to the ones in Germany because of the many loans made by them to the German ones under the Dawes Plan of the 1920s, worked out to help Germany deal with its debts arising from its reparations payments made under the Versailles Treaty. But the pressure on the US would peak after Britain went off gold in August, 1931. In the US, bank deposits fell by over 10%, and unemployment soared from a bit below 9% in 1930 to over 15% in 1931, higher than anytime since the Great Depression. Indeed, it was this wave of bank failures across the globe that more than anything else made an unpleasant recession into the Great Depression, as described well in such works as A Financial History of Western Europe, by Charles Kindleberger.
Hidden conclusion here.
Tuesday, March 24, 2009
Correction to 'Outside of the Vortex' article
On the left is an image of current logging in the upper Florentine valley in southern Tasmania. It is termed 'low impact selective harvesting' by the 'forest' industry here.Please accept my apologies for an error I made in the 'Outside of the Vortex' article earlier this month. I referred to the very large Kinglake-Marysville (Murrindindi) fire complexes converging with the huge Churchill plantation-based fire further South East. These fires did not, in fact, converge. However the arc of fires between them were the most intense and concentrated in the state. (see the list of references below)
The corrected text:
"But the truth is that the Black Saturday fires entailed the convergence of two huge fire balls that erupted in a tree plantation estate at East Kilmore and joined with another fire front that appeared to begin at a timber mill in the Murrindindi complex of heavily logged native forest and extensive industrial tree plantations further east [18], [19].....An ominous line of closely spaced fire fronts stretched all the way from very large East Kilmore/Murrindindi merged inferno through the Bunyip State Forest down to Druoin and Warragul; to within approximately 40 kilometres of the other very large fire complexes around Churchill."
REFERENCES
Radar reflectivity image from the Melbourne radar (Laverton) at 1pm EDT on
7th February 2009:
http://www.bom.gov.au/weather/vic/sevwx/fire/20090207/20090207_bushfire.shtml
Radar reflectivity image from the Melbourne radar (Laverton) at 8pm EDT on
7th February 2009
http://www.bom.gov.au/weather/vic/sevwx/fire/20090207/20090207_bushfire.shtml
Fire map. Overview. 13th February 2009
http://www.cfa.vic.gov.au/incidents/images/news_image/state_overview_20090213_0500_21449.pdf
Noojee-Mount Toorong fire complex (13th February 2009)
http://www.cfa.vic.gov.au/incidents/images/news_image/state_overview_20090213_0500_going_21451.pdf
Delburn (near Morwell/Churchill. 13th February 2009)
http://www.cfa.vic.gov.au/incidents/images/news_image/state_overview_20090213_0500_21449.pdf
Map of the fires on 23rd February 2009:
http://www.rms.com/ClientResources/Catupdates/Resources/WF_Australia_%20AffectedAreas.jpg
http://www.rms.com/ClientResources/Catupdates/CatUpdatePublic.asp?event_id=2770&update_number=1
There were fires at the following places:
Drouin:
Victoria's bushfires: Fire at Druion.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=74
Pakenham:
Victoria's bushfires: Jason Adams, Keith Adams and Elizabeth Adams watch
their livestock, and sought shelter near a dam at Pekenham.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP
Glenvale (near Lilydale):
Victoria's bushfires: A grader heads up the hill cutting a firebreak in the
Glenvale area in Victoria.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=87
Christmas Hills/Yarra Glen
A koala emerges from the fire at Christmas Hills. Photo: Tina McCarthy
http://www.theage.com.au/news/photogallery/national/reader-pictures/2009/02/07/1233423551136.html
Yarra Valley fire (as seen from Tarrawarra)
A bushfire in the Yarra Valley, as seen from Tarrawarra. Photo: Brent Lukey
http://www.theage.com.au/news/photogallery/national/reader-pictures/2009/02/07/1233423551136.html
Bunyip State Park
Smoke from the Bunyip State Forest fire seen from Warragul. Photo: Debbie
Lyons
http://www.theage.com.au/news/photogallery/national/reader-pictures/2009/02/07/1233423551136.html
Warragul (Camp Hill)
Victoria's bushfires: Camp Hill in Warragul
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Ben Swinnerton, Stephen
Harman, Fiona Hamilton, Jon Hargest, Mark Smith, Reuters, AFP
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=31
Healesville (Long Gully Road)
Victoria's bushfires: Aftermath of bushfires in Healesville. CFA media
liaison officer Mark Sacco walking along Long Gully Road, at the far end
which is State Forrest.
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=20
Photo taken by Cara Frankish from McIntyre Lane, Healesville (Healesville is
east of Yarra Glen and South of Marysville). Taken at 10.15pm on 9/2/09.
http://www.news.com.au/heraldsun/gallery/0,22010,5037340-5006020-16,00.html
Labertouche
"Victoria's bushfires: A fire truck retreats fromthe massive fire front at
Labertouche near Pakenham, east of Melbourne.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP
Victoria's bushfires: The fire front close to Labertouche near Pakenham,
east of Melbourne.
Photographer: Alex Coppel, Tim Carrafa, Ian Currie, Reuters, AFP
http://tools.themercury.com.au/photo-gallery/photo_gallery_popup.php?category_id=2455&offset=84
http://www.myenvironment.net.au/index.php/me/content/download/1316/7713/file/media_map_kilmoreEast_murrindindi_20090303_0421_a4.pdf
"Nationalization" Or Buying Toxic Assets: A False Dichotomy
Furious debate has broken out over the Geithner Plan to use public-private entities to buy toxic assets from troubled banks. Advocates of "nationalization" say the plan is a payoff from taxpayers to the rich, and pose the Swedish plan as superior. But Sweden only nationalized one bank that had totally failed, and then only briefly, with another already state-owned bank getting recapitalization. Otherwise, the government simply guaranteed all deposits in banks. We have effectively already done the Swedish plan, with Indymac and AIG effectively nationalized, and guarantees on deposits increased. This sort of plan just helps the rich using taxpayer funds, just as does the Geithner Plan. These are both ways of using taxpayer money to pay off the rich, who have largely already taken a hit due to the collapse of bank stock prices.
So, the real alternatives would be a true nationalization that would keep ownership and take over management of the banks. This will not happen in the US. The alternative, which is sort of what we did with the S&L crisis, is to liquidate the troubled banks and pay off the depositers. However, the FDIC is not remotely able to do this, even with the $500 billion loan it received in the stimpack. The S&L thing "only" cost the taxpayers $175 billion 20 years ago, and while we think of depositers as "regular folks," the people with the really big deposits tend to be (hack, cough) rich people. Anyway, this is not likely to happen either.
So, the real alternatives would be a true nationalization that would keep ownership and take over management of the banks. This will not happen in the US. The alternative, which is sort of what we did with the S&L crisis, is to liquidate the troubled banks and pay off the depositers. However, the FDIC is not remotely able to do this, even with the $500 billion loan it received in the stimpack. The S&L thing "only" cost the taxpayers $175 billion 20 years ago, and while we think of depositers as "regular folks," the people with the really big deposits tend to be (hack, cough) rich people. Anyway, this is not likely to happen either.
Monday, March 23, 2009
False Scare on “Green Protectionism”
Nothing gets the New York Times into an ideological frenzy like threats to “free trade”. This obsession is worth a study in itself, but we’ll let it pass. For now, let’s just insert a modest correction into the record: there is nothing protectionist about border taxes designed to offset the difference in production costs due to differences in carbon regulation. First of all, the issue is pragmatic: unless such taxes are introduced, no country will unilaterally introduce a carbon cap or any other measure that increases the costs of carbon-intensive goods. And if they did, it is quite possible that the effect could be perverse—with production migrating from more regulated regions to unregulated ones, leading to more emissions overall. So there simply have to be border taxes based on carbon content.
But there is also no friction between practicality and principle. Look at it this way: considering the global emergency posed by climate change, any country that doesn’t begin to restrict its use of fossil fuels is actually subsidizing its producers. And we have the Times to tell us what a monumental threat subsidies pose to the world economy.
But there is also no friction between practicality and principle. Look at it this way: considering the global emergency posed by climate change, any country that doesn’t begin to restrict its use of fossil fuels is actually subsidizing its producers. And we have the Times to tell us what a monumental threat subsidies pose to the world economy.
Sunday, March 22, 2009
Judd Gregg Predicts That Federal Government Will Go Bankrupt
CNN claims that Judd Gregg is “known as one of the keenest fiscal minds on Capitol Hill”. Known by whom? After the following, one has to wonder how anyone can think he is fiscally keen:
Admittedly, the President’s own budget predicts that the debt held by the public will rise to around 67% of GDP by 2019, which is the same level it was in 1951. Of course, the U.S. Federal government did not go bankrupt back then either as financial markets saw U.S. fiscal policy as committed to eventually reduce Federal debt. As we eventually exit the current economic crisis, this Administration at least makes the claim that there are also committed to long-run fiscal sanity. What would Senator Gregg suggest – a return to fiscal sanity now ala Hebert Hoover economics.
Of course, the past Administration allowed the debt/GDP ratio to rise each year even when we were near full employment. Funny thing – I did not hear such dire predictions from Senator Gregg when U.S. fiscal policy was clearly irresponsible.
The practical implications of this is bankruptcy for the United States,” Gregg said of the Obama’s administration’s recently released budget blueprint. “There’s no other way around it. If we maintain the proposals that are in this budget over the ten-year period that this budget covers, this country will go bankrupt. People will not buy our debt, our dollar will become devalued. It is a very severe situation.
Admittedly, the President’s own budget predicts that the debt held by the public will rise to around 67% of GDP by 2019, which is the same level it was in 1951. Of course, the U.S. Federal government did not go bankrupt back then either as financial markets saw U.S. fiscal policy as committed to eventually reduce Federal debt. As we eventually exit the current economic crisis, this Administration at least makes the claim that there are also committed to long-run fiscal sanity. What would Senator Gregg suggest – a return to fiscal sanity now ala Hebert Hoover economics.
Of course, the past Administration allowed the debt/GDP ratio to rise each year even when we were near full employment. Funny thing – I did not hear such dire predictions from Senator Gregg when U.S. fiscal policy was clearly irresponsible.
Saturday, March 21, 2009
The AIG Bailout: Preventing a Resolution of Offsetting Claims?
James Kwak admonishes us to move from the nano-picture of bonuses to the big picture of counterparty bailouts in the AIG mess. I agree. Along those lines, I have a thought: perhaps the credit default swaps we the taxpayers are making good on are part of a larger, interconnected network of transactions, whose aggregate value, if you netted them out, would be a lot less than the sum of their individual values. My understanding is that this is true in a general way for the derivatives tangle; I don’t know if the CDS’s link to this in some way. Part of cleaning up the financial gridlock is resolving these offsetting claims, of course. But an arbitrary guarantee to pay out some subset would interfere with that process and virtually require that all obligations be carried out. It is in the individual interest of AIG’s counterparties to put the clamps on the US government to get every penny they can, but it is not remotely in the public interest to do anything that requires each individual claim to be settled separately.
I admit I don’t know the detail here. If any EconoListeners have a better handle on this, can they tell me if my worries are well placed?
I admit I don’t know the detail here. If any EconoListeners have a better handle on this, can they tell me if my worries are well placed?
Dean Baker's "Third Round"
by the Sandwichman,
Along with Jamie Galbraith, Dean Baker also believes "the economic crisis, and its solution, are bigger than you think." In a report issued Tuesday, Baker "makes the case for a third stimulus package to in the face of economic indicators signaling that the economy is in a deeper downturn than was expected based on previous projections."
Along with Jamie Galbraith, Dean Baker also believes "the economic crisis, and its solution, are bigger than you think." In a report issued Tuesday, Baker "makes the case for a third stimulus package to in the face of economic indicators signaling that the economy is in a deeper downturn than was expected based on previous projections."
To get money into the economy effectively and quickly, the report proposes a stimulus package consisting, in part, of two tax credits: an employer tax credit that would extend health care coverage and another per worker credit for employers increasing the amount of paid time off.Excerpt from The Housing Crash Recession and the Case for a Third Stimulus after the jump.
The other obvious mechanism for quickly boosting demand is employer tax credits for giving workers paid time off. The paid time off can take a variety of forms, such as paid family leave, paid sick days, paid vacation days or a shorter workweek. The idea is that the government would give an employer a tax credit of up to $2,500 per worker per year to cover the cost of a reduction in work hours of up to 10 percent of their work time.
This tax credit, like the health care tax credit, could be implemented with very little lead time and little bureaucracy. To qualify, an employer would need to post on a public website the reduction in paid work time that they have put in place. Since workers could see the work-time reduction claimed by their employer, they would be able to verify that the policy has in fact been put into place. The arithmetic on this is straightforward. Suppose that employers of 60 million workers reduce their work time through family leave, sick days, or shorter hours by an average of 5 percent, at an average cost of $2,000 per worker. Since demand will not have changed (workers are getting paid just as much as they had previously), employers will in principle want to hire an additional 3 million workers to make up for the lost labor hours. This would imply 3 million new jobs, or jobs saved (in many cases, it may prevent layoffs that would have taken place otherwise), for an expenditure of $120 billion.
The great virtue of this sort of tax credit is that it is both boosting GDP and also increasing the number of jobs for every level of GDP. If everyone in the economy worked 5 percent fewer hours, and we had the same level of output, then we would have 5 percent more people working. For this reason, it is the most efficient mechanism for bringing the economy back to full employment.
Friday, March 20, 2009
Republicans Tag Cap&Trade a Tax but That’s a Good Thing
Elana Schor presents us with a letter from the Senate Republicans on the environment committee:
While Elana appears to be critical of how these Republicans have tagged this to be a tax, the Senate Republicans are correct. But as conservative Greg Mankiw has often noted, we should place a Pigovian tax on items such as gasoline.
Specifically, the President's 2010 Budget proposal asks to collect $646 billion dollars in new "Climate Revenues" from the American people. The government will collect these new revenues through a cap and trade scheme in which " allowances" are sold to the highest bidder. The government won't tax consumers directly, but it will impose new costs on energy producers and users who will in turn pass those higher costs on to consumers, which will result in higher electricity bills, gasoline prices, grocery bills, and anything else made from conventional energy sources. In short, consumers will feel as if they are paying a new tax on energy.
While Elana appears to be critical of how these Republicans have tagged this to be a tax, the Senate Republicans are correct. But as conservative Greg Mankiw has often noted, we should place a Pigovian tax on items such as gasoline.
A Major Statement from Jamie Galbraith
If you haven’t read his sobering analysis in The Washington Monthly yet, read it now, and then come back here. Jamie absolutely nails the limited vision of the Obama economic team, and the lessons he draws from the Great Depression are urgently needed. On the policy front, however, I think there are pieces that need to be shored up.
The most important policy directive is to stop thinking “stimulus” and start thinking about a much larger role for public investment in the long term. The analogy is not stepping off a bus and running to catch up and hop on again, but what to do when the bus breaks down. We are in this for the long haul and have to fashion programs that can employ people who will otherwise have no economic prospects for years to come. Fortunately (in the strange calculus of demand-driven economics) we have crying needs to address, especially in rebuilding our industrial civilization along the lines of sustainability. Galbraith is superb on this.
He also has the measure of our “entitlement” situation: with the collapse of private pension systems (and perhaps even many state and local public pension funds), we need Social Security more than ever. Let’s make it bigger and stronger. Jamie’s take on the housing market is also dead-on.
I would have been in reader heaven if two additional elements had been added:
1. This is a crisis of the global economy. AIG’s counterparty list should remove any doubt, and global imbalances were a critical component of what got us into this mess in the first place. Vast sums were invested in a capital stock whose profitability depended on the ability of consumers in the US to borrow without limit to finance their imports; much of this investment will have to be written off. In other words, the collapse of the US credit bubble is having worldwide ramifications, which will ricochet back, and back again, via the mechanism of global financial integration. If we let this process run its course we are in for a long, tough ride.
2. On the domestic front, there is a shortcut to the decades-long rebuilding of private assets that Jamie envisions: public banking. There is an excellent theoretical case, in my opinion, for a financial system dominated by profit-making public intermediaries, and I’m convinced that the German experience (the Sparkassen especially) confirms it. Moving quickly to establish such a system offers the hope that financial impetus can be revived over a much shorter period, and it rescues us from the odious program of bailouts that now poisons both our economy and our democracy.
Incidentally, there are two routes to public banking. The most direct, which I have advocated in this blog since last September, is to simply set up the system from scratch right now and capitalize it with funds redirected from bailouts. I admit there are loose ends to be dealt with, especially having to do with resolving the international obligations of the existing system, but that’s to be expected with any program. The second route is to hang onto the existing banks after nationalizing them. I have argued against this idea, since it would put the liabilities of these institutions on the public ledger. Perhaps this downside could be reduced by giving the banks’ creditors and counterparties a Paulson-style haircut, but this strikes me as very difficult to pull off, and, at the limit, it simply converges with the “good new (public) bank” proposal I have been pushing.
So: (1) This is a fantastic article by Jamie. I hope it is widely read and discussed. (2) I think we need to be willing to go a little further on the financial front and to take more account of how economically interwoven our world has become.
The most important policy directive is to stop thinking “stimulus” and start thinking about a much larger role for public investment in the long term. The analogy is not stepping off a bus and running to catch up and hop on again, but what to do when the bus breaks down. We are in this for the long haul and have to fashion programs that can employ people who will otherwise have no economic prospects for years to come. Fortunately (in the strange calculus of demand-driven economics) we have crying needs to address, especially in rebuilding our industrial civilization along the lines of sustainability. Galbraith is superb on this.
He also has the measure of our “entitlement” situation: with the collapse of private pension systems (and perhaps even many state and local public pension funds), we need Social Security more than ever. Let’s make it bigger and stronger. Jamie’s take on the housing market is also dead-on.
I would have been in reader heaven if two additional elements had been added:
1. This is a crisis of the global economy. AIG’s counterparty list should remove any doubt, and global imbalances were a critical component of what got us into this mess in the first place. Vast sums were invested in a capital stock whose profitability depended on the ability of consumers in the US to borrow without limit to finance their imports; much of this investment will have to be written off. In other words, the collapse of the US credit bubble is having worldwide ramifications, which will ricochet back, and back again, via the mechanism of global financial integration. If we let this process run its course we are in for a long, tough ride.
2. On the domestic front, there is a shortcut to the decades-long rebuilding of private assets that Jamie envisions: public banking. There is an excellent theoretical case, in my opinion, for a financial system dominated by profit-making public intermediaries, and I’m convinced that the German experience (the Sparkassen especially) confirms it. Moving quickly to establish such a system offers the hope that financial impetus can be revived over a much shorter period, and it rescues us from the odious program of bailouts that now poisons both our economy and our democracy.
Incidentally, there are two routes to public banking. The most direct, which I have advocated in this blog since last September, is to simply set up the system from scratch right now and capitalize it with funds redirected from bailouts. I admit there are loose ends to be dealt with, especially having to do with resolving the international obligations of the existing system, but that’s to be expected with any program. The second route is to hang onto the existing banks after nationalizing them. I have argued against this idea, since it would put the liabilities of these institutions on the public ledger. Perhaps this downside could be reduced by giving the banks’ creditors and counterparties a Paulson-style haircut, but this strikes me as very difficult to pull off, and, at the limit, it simply converges with the “good new (public) bank” proposal I have been pushing.
So: (1) This is a fantastic article by Jamie. I hope it is widely read and discussed. (2) I think we need to be willing to go a little further on the financial front and to take more account of how economically interwoven our world has become.
Kudlow on TALF and Inflation
MediaMatters shows Lawrence Kudlow setting a dollar bill on fire during a CNBC show. Let’s see why he decided to do this:
Kudlow is suggesting that the Federal Reserve is running a very inflationary monetary policy, but what does the evidence say? While it is true that the monetary base was 89% higher as of February 2009 than it was a year earlier, the money supply (as measured by Kudlow’s cherished MZM measure) rose by only 12%. I would trust that Kudlow is aware that the money multiplier has declined.
But how has this translated into increases in the consumer price index? Well, it seems that the CPI in February 2009 was a mere 0.7% higher than it was in February 2008. The Federal Reserve has been trying to increase the money supply to offset a drop in aggregate demand and a deflationary spiral. And yet Lawrence Kudlow is worried about hyperinflation. Go figure.
[Sidenote and thanks to the reader who caught my error made in the wee hours of the morning when I was also listening to the March madness coverage. The rise in the CPI was for the latest 12 months and I have editted the text to make the reported increases in the monetary base and MZM measure of the money supply for the same period. Note to self - wake-up and don't watch basketball highlights when looking over FRED data for a simple blog post. DUH]
KUDLOW: The Fed is kicking off its highly anticipated TALF program later today. They're just going to throw more money at the economy. This is a day after announcing it will buy long-term treasuries and mortgage-backed securities. Nobody better to report on this one than our great friend, senior economics reporter Steve Liesman. More on the TALF. Are we going to do this in unison? You get your dollar bill? ... This is the value of our money. This is the value of our money.
Kudlow is suggesting that the Federal Reserve is running a very inflationary monetary policy, but what does the evidence say? While it is true that the monetary base was 89% higher as of February 2009 than it was a year earlier, the money supply (as measured by Kudlow’s cherished MZM measure) rose by only 12%. I would trust that Kudlow is aware that the money multiplier has declined.
But how has this translated into increases in the consumer price index? Well, it seems that the CPI in February 2009 was a mere 0.7% higher than it was in February 2008. The Federal Reserve has been trying to increase the money supply to offset a drop in aggregate demand and a deflationary spiral. And yet Lawrence Kudlow is worried about hyperinflation. Go figure.
[Sidenote and thanks to the reader who caught my error made in the wee hours of the morning when I was also listening to the March madness coverage. The rise in the CPI was for the latest 12 months and I have editted the text to make the reported increases in the monetary base and MZM measure of the money supply for the same period. Note to self - wake-up and don't watch basketball highlights when looking over FRED data for a simple blog post. DUH]
Thursday, March 19, 2009
Not Working is Another Subject
by the Sandwichman
The point where the human individual doesn't quite gel is the Subject itself. "[W]hat we know as reality is, in Lacan's view, simply the set of fantasies with which we fill in this constitutive hole at the heart of being."
Wrapping the former enigma in the latter riddle, the Subject of economics, homo economicus, 'works' only in the sense of foregoing leisure at some exogenously-determined opportunity cost whose variation studiously disregards the disproportion between productive inputs and outputs.
Clearly this homo economicus cypher is a some sort of bad joke. Political economy, Walter Bagehot argued,
Fantasies perform a kind of magic. They authorize a sort of amnesia about matters so fearful and chaotic they would otherwise paralyze us from taking action. But...
I stumbled across another Subject a few weeks ago while drafting a short essay for a guest post on another blog. In making "the case for shorter hours," it became obvious to me that the case for shorter hours had been made many, many times before but that it wasn't a single case. The key to understanding the case for shorter working time is to step back from the multitude of objective claims and consider the nature of the Subject implied or constituted by the totality of those claims.
That Subject -- who I will call the historical economic social colllective individual, or Hesci (pronounced he-she, the -sci as in Gramsci) is not the utility-maximizing, extrinsically-motivated rational actor of economic textbook lore. The subject posed by the case is human, acting, as circumstances require and/or permit, either collectively or as a social individual. Hesci is both producer and consumer wrapped into one, not exclusively one or the other. And Hesci simultaneously performs various reproductive roles as citizen, family member, etc.
What I will provisionally call the "working time literature" is an enduring counterstory to political economy and economics. Sometimes it appears within economic analysis but when it does it gets banished because, as a counterstory, it resists and thus cannot be subsumed by the dominant story.
Every signifying system, so Zizek claims, contains a kind of super-signifier whose function is just to point to the fact that the system can't be totalized. It is that system's point of internal fracture, marking the point where it doesn't quite gel. -- Terry EagletonThe point where economics doesn't quite gel is work. Attempts to quantify work fall back inevitably on the mysterious category of hours of labor, an input whose variation is demonstrably not proportional to the resulting output of goods or services.
The point where the human individual doesn't quite gel is the Subject itself. "[W]hat we know as reality is, in Lacan's view, simply the set of fantasies with which we fill in this constitutive hole at the heart of being."
Wrapping the former enigma in the latter riddle, the Subject of economics, homo economicus, 'works' only in the sense of foregoing leisure at some exogenously-determined opportunity cost whose variation studiously disregards the disproportion between productive inputs and outputs.
Clearly this homo economicus cypher is a some sort of bad joke. Political economy, Walter Bagehot argued,
...assumes a sort of human nature such as we see everywhere around us, and again it simplifies that human nature; it looks at one part of it only. Dealing with matters of 'business,' it assumes that man is actuated only by motives of business. It assumes that every man who makes anything, makes it for money, that he always makes that which brings him in most at least cost, and that he will make it in the way that will produce most and spend least; it assumes that every man who buys, buys with his whole heart, and that he who sells, sells with his whole heart, each wanting to gain all possible advantage. Of course we know that this is not so, that men are not like this; but we assume it for simplicity’s sake, as an hypothesis.The knowledge that "this is not so" has long ago been concealed behind the technical screen of mathematical models. Rather than a "hypothesis," assumed for "simplicity's sake," homo economicus, along with the rest of those fellows -- like Descartes's cogito, Marx's proletariat or the 19th century anthropologists' primitive man -- would be better appreciated as fantasies in the Lacanian sense. They are fantasies because the Real there is unnameable -- it doesn't quite gel -- not merely because the Real is too complex.
Fantasies perform a kind of magic. They authorize a sort of amnesia about matters so fearful and chaotic they would otherwise paralyze us from taking action. But...
The effects of magic must be to weaken intellectual inquisitiveness, to encourage the indulgence in vain procedures for controlling the universe, instead of the profitable application of developing a technique for specific ends; to substitute unreal for real achievement, imagination for action, and to breed an easy fatalism which will prevent the building of fences to keep off crocodiles, or the taking of suitable measures to prevent disease. . . . Magic is indeed a parasitic adjunct to technique which sometimes completely immobilizes it.Which is to say that sometimes we have to free ourselves from the very same magic that previously may have set us free. So how do we do that if it was the magic of a fantasy that enabled us to overcome the paralyzing void in the first place? The not-so of economic man is hardly a revelation. But one cannot oppose something with nothing, even if that something is somewhat of a nullity. Nemo contra deum nisi deus ipse. No one can stand against a universal Subject unless it is a universal Subject itself.
I stumbled across another Subject a few weeks ago while drafting a short essay for a guest post on another blog. In making "the case for shorter hours," it became obvious to me that the case for shorter hours had been made many, many times before but that it wasn't a single case. The key to understanding the case for shorter working time is to step back from the multitude of objective claims and consider the nature of the Subject implied or constituted by the totality of those claims.
That Subject -- who I will call the historical economic social colllective individual, or Hesci (pronounced he-she, the -sci as in Gramsci) is not the utility-maximizing, extrinsically-motivated rational actor of economic textbook lore. The subject posed by the case is human, acting, as circumstances require and/or permit, either collectively or as a social individual. Hesci is both producer and consumer wrapped into one, not exclusively one or the other. And Hesci simultaneously performs various reproductive roles as citizen, family member, etc.
What I will provisionally call the "working time literature" is an enduring counterstory to political economy and economics. Sometimes it appears within economic analysis but when it does it gets banished because, as a counterstory, it resists and thus cannot be subsumed by the dominant story.
AIG
by the Sandwichman
From The Source and Remedy: "Oh, if I dared venture to anticipate the last paragraph of the historian that generations hence shall trace the character of this age and country, it should run thus.—"
From The Source and Remedy: "Oh, if I dared venture to anticipate the last paragraph of the historian that generations hence shall trace the character of this age and country, it should run thus.—"
The increase of trade and commerce opened a boundless extent to luxury:—the splendour of luxurious enjoyment in a few excited a worthless, and debasing, and selfish emulation in all:—The attainment of wealth became the ultimate purpose of life:—the selfishness of nature was pampered up by trickery and art:—pride and ambition were made subservient to this vicious purpose:—their appetite was corrupted in their infancy, that it might leave its natural and wholesome nutriment, to feed on the garbage of Change Alley:—instead of the quiet, the enjoyment, the happiness, and the moral energy of the people, they read in their horn-book of nothing but the wealth, the commerce, the manufactures, the revenue, and the pecuniary resources of the country; the extent of its navy and the muster-roll of its hireling army:—in honour of this beastly Belial they made a sacrifice of the high energies of their nature:—they hailed his progress with hosannahs, though on his right hand sat Despotism, and on his left Misery:– they made a welcome sacrifice to him of their virtues and their liberties:—to satisfy his cravings they forewent their natural desires:—honour and truth were offered up on his altars:—and the consummation of their hopes was characterised by misery and ignorance; the dissolution of all social virtue and common sympathy among individuals; and by a disunited, feeble, despotic, and despised government!
Magic
by the Sandwichman
Helicopter Ben finally hauls out the helicopter: "So there are limits to the Fed's magical powers, and they already began showing up in currency markets this afternoon, with the dollar falling sharply against the euro and other foreign currencies. The adventure continues."
Helicopter Ben finally hauls out the helicopter: "So there are limits to the Fed's magical powers, and they already began showing up in currency markets this afternoon, with the dollar falling sharply against the euro and other foreign currencies. The adventure continues."
The effects of magic must be to weaken intellectual inquisitiveness, to encourage the indulgence in vain procedures for controlling the universe, instead of the profitable application of developing a technique for specific ends; to substitute unreal for real achievement, imagination for action, and to breed an easy fatalism which will prevent the building of fences to keep off crocodiles, or the taking of suitable measures to prevent disease. . . . Magic is indeed a parasitic adjunct to technique which sometimes completely immobilizes it.
The Unique EconoSpeak
What other blog garners simultaneous advertisements from The Monthly Review AND The Independent Institute?
China is Right about Who Should Pay for Carbon Emissions
In the runup to a new round of negotiations on a global climate agreement, China is calling for a “consumer pays” principle: those who import goods from China should pay for their embedded carbon emissions. According to this Reuters Report, Gao Li, the top Chinese official for climate change policy says, “About 15 percent to 25 percent of China's emissions come from the products which we make for the world....this share of emission should be taken by the consumers, not the producers.”
This is not only correct, it is the natural outcome of a rational climate policy regime.
Suppose China requires anyone introducing a carbon fuel into its economy, such as an oil, gas or coal company, to have a permit, and that it caps these permits to curb emissions. Prices of the fuels rise, and these prices are passed along to direct consumers including manufacturers who use these fuels as inputs. This in turn means that prices rise for the manufactured products, paid by the ultimate consumers—in this case, often US and European importers.
If all the permits are auctioned, their combined value will approximately equal the extra revenues derived from consumers. The government could then rebate this money back to its citizens. Since China is a net exporter (even during the current crisis), the money received by its households will exceed the money they pay in higher prices. This means China could, if it wished, rebate somewhat less than the total auction proceeds, use its cut to finance investments in energy efficiency and non-carbon alternatives, and still protect the real income of its population.
This process, which meets the conditions laid down by Li, can be set in motion by the Chinese themselves, unilaterally. The only need for international coordination concerns the problem of leakage, i.e. how to prevent Chinese domestic and export markets from being captured by producers in countries that don’t require carbon permits. The first-best solution would a global agreement to require permits everywhere with a single, global cap. Such permits would be universally tradeable, which means that artificial barriers to their efficient allocation would be removed. Since there would be a single global price, the leakage problem would be eliminated too.
A second-best approach would be to institute a system of border taxes calibrated to the differences in production costs stemming from different national carbon regimes. Establishing a common set of procedures for calculating and applying this tax should be a high priority for negotiators.
Developing countries with trade surpluses, and particularly China, should be eager to enter a system of carbon emission controls. The rest of the developing world will need other inducements.
This is not only correct, it is the natural outcome of a rational climate policy regime.
Suppose China requires anyone introducing a carbon fuel into its economy, such as an oil, gas or coal company, to have a permit, and that it caps these permits to curb emissions. Prices of the fuels rise, and these prices are passed along to direct consumers including manufacturers who use these fuels as inputs. This in turn means that prices rise for the manufactured products, paid by the ultimate consumers—in this case, often US and European importers.
If all the permits are auctioned, their combined value will approximately equal the extra revenues derived from consumers. The government could then rebate this money back to its citizens. Since China is a net exporter (even during the current crisis), the money received by its households will exceed the money they pay in higher prices. This means China could, if it wished, rebate somewhat less than the total auction proceeds, use its cut to finance investments in energy efficiency and non-carbon alternatives, and still protect the real income of its population.
This process, which meets the conditions laid down by Li, can be set in motion by the Chinese themselves, unilaterally. The only need for international coordination concerns the problem of leakage, i.e. how to prevent Chinese domestic and export markets from being captured by producers in countries that don’t require carbon permits. The first-best solution would a global agreement to require permits everywhere with a single, global cap. Such permits would be universally tradeable, which means that artificial barriers to their efficient allocation would be removed. Since there would be a single global price, the leakage problem would be eliminated too.
A second-best approach would be to institute a system of border taxes calibrated to the differences in production costs stemming from different national carbon regimes. Establishing a common set of procedures for calculating and applying this tax should be a high priority for negotiators.
Developing countries with trade surpluses, and particularly China, should be eager to enter a system of carbon emission controls. The rest of the developing world will need other inducements.
Leftist Econophysics
There is a branch of econophysics that has attracted serious attention from some Marxist and other leftist economists. This is the series of studies of income and wealth distributions. Traditionally income has been thought to reflect lognormal distributions, which can arise endogenously from random processes from an initially equal distribution. In fact, labor income appears to follow such a pattern. However, wealth appears to follow the power law distributions of financial asset returns, unsurprisingly, that have fatter tails than lognormal distributions, that is, greater inquality with more people far off into the upper end of the distribution. Econophysics studies of this began around a decade ago, appearing in places like Physica A and European Physical Journal B by people like Levy and Solomon and also Dragulescu and Yakovenko, although John Angle showed some of the things in the early 1990s in the Journal of Mathematical Sociology.
Then it was figured out by people like Yakovenko and some others that income distribution looks lognormal for most of its lower portion, where it is determined by labor outcomes, but that its upper portion looks more like a more unequal power law, a la wealth and financial market returns. The class nature of this then began attracting the attention of some leftist economists such as Allin Cottrill and Paul Cockshott, who have now coauthored a book, Classical Econophysics, with Gregory John Michaelson, Ian P. Wright, and Victor Yakovenko. More of these studies, some done by economists such as Mauro Gallegati and some of his coauthors, including some physicists, have appeared in the 2005 book, Econophysics of Wealth Distributions, ed. by Chatterjee, Yagarladda, and Chakrabarti, Milan: Springer.
Then it was figured out by people like Yakovenko and some others that income distribution looks lognormal for most of its lower portion, where it is determined by labor outcomes, but that its upper portion looks more like a more unequal power law, a la wealth and financial market returns. The class nature of this then began attracting the attention of some leftist economists such as Allin Cottrill and Paul Cockshott, who have now coauthored a book, Classical Econophysics, with Gregory John Michaelson, Ian P. Wright, and Victor Yakovenko. More of these studies, some done by economists such as Mauro Gallegati and some of his coauthors, including some physicists, have appeared in the 2005 book, Econophysics of Wealth Distributions, ed. by Chatterjee, Yagarladda, and Chakrabarti, Milan: Springer.
Wednesday, March 18, 2009
Outside of the Vortex
Parts of Australia are experiencing unprecedented changes in temperature and rainfall patterns. These changes are associated with an unexpected phenomenon emerging in the Indian Ocean and also in the behaviour of the Antarctic Vortex combined with steadily increasing temperatures from rising greenhouse gases and the depletion of the ozone layer. Observed together they suggest the very strong possibility that Australians are now facing abrupt climate change.[1] This is bringing very prolonged drought and extraordinary heat to the most heavily peopled and treed (mostly Eucalypt) regions of the country. As if this prospect is not frightening enough, it can be seen that climate is not the only threshold that is being crossed. The flashpoint for eucalypt vapour is also being breached by high daytime temperatures. This appears to guarantee the setting off of huge fire infernos in these semi-urban ‘forests’ on a scale that many would simply not be able to imagine.Southeast Australia has been suffering from a drought over the last 15 years that is of an intensity that has not (as far as we are aware) been experienced before. This has left the landscape very dry. Climatologist Caroline Ummenhofer, a research fellow with the University of New South Wales says that “normally drought conditions over eastern Australia are associated with El Nino, La Nina cycles in the Pacific Ocean (temperature changes that affect the rainfall and circulation over the whole Pacific Ocean and the surrounding areas).” [2]
However, “El Nino is not able to explain this latest drought” says Ummenhofer. “Instead what we found is actually that the cause lies in Indian Ocean temperatures.” “The Indian Ocean has a similar phenomenon to the El Nino, La Nina cycle. It's called the Indian Ocean Dipole, and it's a naturally occurring phenomenon and has been known for some time to influence Australian climate and Australian weather. The dipole oscillates between positive and negative phases and has neutral years in between as well, so the negative and the positive are the two extremes. And the normal wet conditions that you experience over south-east Australia are linked to the negative Indian Ocean dipole event which we haven't seen over the last seventeen years…..the last India Ocean Dipole event of the negative phase occurred in 1992. That is unusual. We haven't anywhere in the record over the last 120 years that we've investigated seen a similarly prolonged period without a single negative event”
Ummenhofer observes that most of the world’s oceans are getting warmer, but particularly the Indian Ocean. “There might be indications that this could lead to changes in the characteristics of Indian Ocean dipole events.” [3]
The Antarctic Vortex near the South Pole is, like its equivalent in the Arctic pole region, a persistent, large-scale cyclone in the middle and upper troposphere and the stratosphere. Polar vortexes are most powerful in the hemisphere's winter, when the temperature gradient is steepest, and diminishes or can disappear in the summer. [4]
The Intergovernmental Panel on Climate Change Third Assessment Report incorporated a chapter [5] on ‘radiative forcing’[6] which noted “several … anthropogenic [man-made] causes for global climate change” These factors, that could be interacting with each other, including rising concentrations of greenhouse gases, the effects of man-made particulates in the atmosphere, and ozone depletion in the stratosphere.
The IPCC noted that scientific studies on these ‘forcings’ observed that the radiative effects of aerosols circulating in the atmosphere, whilst being largely confined to the Northern Hemisphere, may “propagate into the Southern Hemisphere via atmospheric dynamics”. In addition to this, the polar vortex in both the north and south hemispheres were strengthened and the westerly winds in the mid latitudes were contracting and thus moving closer to the poles. These changes, the report noted, may be arising from the rising greenhouse gas concentrations as well as from ozone depletion in the stratosphere.
The implications behind the fact that the westerly winds are moving closer to Antarctica are quite frightening for Australians. “it appears the vortex is shifting gear, and is spinning faster and faster, and getting tighter. As it does it’s pulling the climate bands further south dragging rain away from the continent out into the southern ocean.” [7]. In short, it means that Australia’s unprecedented and horrific drought may not go away!
Climate (like other complex systems) does not behave in a simple linear fashion. That is, simple linear extrapolation is not always possible. Sudden changes in a regime (such as rainfall) can occur over wide areas. This is what’s happened over Australia, even before the 1992 Indian Ocean dipole shift and the contraction of the southern vortex. Around 1945 Australia’s summer half-year rainfall increased over large areas in the eastern part of the continent. However, in 1967-72 there was a sudden decrease in rainfall in south-west of Western Australia which has not reversed since. [8] “Now the same thing is happening to Melbourne.” In 2003 rainfall there had fallen by nearly 20% in the previous 7 years. [7] This dangerous pattern has continued and, at present, almost every mainland capital city is on increasingly severe water restrictions.
Similar examples of sudden changes in system behaviour often arise from an element of the system reaching a limit or threshold at which instability sets in, and the system moves into a new stable state. When the system is close to a threshold even quite small random events or trends can force the system into a different state. Distance from a threshold of this sort is a measure of system resilience or ability to cope with small variations in conditions (Scheffer et al., 2001). [9]
So, indeed it does look like Australia is going through abrupt and dangerous climate change right now.
One very important question comes immediately to mind. How resilient is Australia’s society and infrastructure now? Are they ready to deal with the biggest challenge in the nation’s history? After the most horrific fires ever recorded? After 15 years of intense heat and drought?
What other thresholds, apart from climate-related ones, are Australians dealing with? One critical and almost entirely overlooked threshold is the flashpoint for eucalyptus oil. “The flash point of a flammable liquid is the lowest temperature at which there can be enough flammable vapour to ignite, when an ignition source is applied.” [10] The ‘flash point’for the vapours that rise from Australia’s ubiquitous native trees is a mere 49 degrees Celsius. On Black Saturday this year [11] the temperatures, in the shade, were around 47 degrees Celsius. In the full sun, however, temperatures are about 5-6 Celsius degrees hotter!
Another threshold associated with industrial tree plantations is the level of fuel loads that are amenable to control by our fire departments. The Canberra fire chief reported, soon after that city’s plantation fires encroached and burnt out hundreds of houses in this urban environment, that the fuel load in tree plantations 3-7 years of age was the limit reached before the fires could be brought under control. [12]
Those individuals living in southern Australia have every reason – whether they know it or not - to feel horrified by their prospects for next summer and for many summers after that. After all, “the past decade has recorded the largest expansion ever in [Eucalypt niten and Radiata pine tree] plantation cover in this country” with an average annual planting of 76,000 hectares per year since 1997. [13],[14]. “The majority…is concentrated along the southern and eastern coasts, Tasmania and Western Australia.” [15].
Up until ‘Black Saturday’ Australians had been lulled into a false sense of security. Many families had no knowledge of the need for fire plans or of local geography as “ the hottest day on record on top of the driest start to a year on record on top of the longest driest drought on record on top of the hottest drought on record” approached. [16] Residents are largely oblivious to the enormous hazards the intense and ubiquitous plantings of Eucalypt and Radiata pine monocultures pose to their safety. Residents of the burnt out Victorian township of Marysville saw “what looked like an atomic bomb”[17] coming over the top of the town but had no idea as to the nature of its genesis.
But the truth is that the Black Saturday fires entailed the convergence of two huge fire balls that erupted in a tree plantation estate at East Kilmore and joined with another fire front that appeared to begin at a timber mill in the Murrindindi complex of heavily logged native forest and extensive industrial tree plantations further east [18] [19]. “A two-kilometre stretch of power line in Kilmore East … snapped during strong winds and record heat about 11am last Saturday [7th February 2009]. Within minutes a nearby pine forest was ablaze. Within six hours the fire had destroyed nearly every building in the towns in its path….”[20] . Around 4pm the Victorian Country Fire Authority (CFA) had advised the public that “the fire [was] gaining strength as it head[ed] towards pine plantations near Wandong” [21]where a large bluegum plantation lay within a kilometer of the town. [22] Within 12 hours an ominous line of closely spaced fire fronts stretched all the way from very large East Kilmore/Murrindindi merged inferno through the Bunyip State Forest down to Druoin and Warragul; to within approximately 40 kilometres of the other very large fire complexes around Churchill. The Churchill fire, in turn, began one kilometre south-east of the town in a pine plantation. The flames, out of control, spread rapidly, threatening communities in Hazelwood South and the Jeeralangs. Traralgon South, Callignee, Woodside, Yarram, Carrjung, Gormandale and many more communities came under threat….”[23].
“We have seen the future” says Clive Hamilton. [24]. Some people ask whether Australians will continue to survive living within our tall Eucalypt forest digs. Perhaps the real forests will survive, though the trees may change; become stunted and sparse. With a few more fires the ugly industrial tree plantations will surely disappear. The surviving human residents will learn from the wombat and go underground.
[1] “…A working definition of 'abrupt climate change' is given in Alley et al. (2002): ‘technically, an abrupt climate change occurs when the climate system is forced to cross some threshold, triggering a transition to a new state at a rate determined by the climate system itself and faster than the cause’.
From: IPCC, AR4, WGI, Chapter 10 Global Climate Projections, Future Abrupt Climate Change, ‘Climate Surprises’, and Irreversible Changes.
As quoted in:
Abrupt Climate Change
http://www.global-greenhouse-warming.com/abrupt-climate-change.html
[2] The El Nino Southern Oscillation (ENSO) is a particular pattern of disruption in the interaction between the ocean and the atmosphere that occurs every two to seven years when strong westward-blowing trade winds over the Pacific ocean subside and warm western Pacific water slowly moves back eastward. The upwelling of the cool, nutrient rich, eastern Pacific water (that supports large fish populations) is interrupted. When this happens fish die and climatic changes kick in that affect many parts of the planet. The possible interrelationship between El Nino and the simultaneous droughts on the Australian and other continents was first realized in 1972-73. See:
El Niño - Southern Oscillation (ENSO). Learning Module.
http://ess.geology.ufl.edu/usra_esse/el_nino.html
[3] Behind the big dry
Air Date: Week of February 13, 2009
http://www.loe.org/shows/segments.htm?programID=09-P13-00007&segmentID=1
[4] Polar vortex
From Wikipedia, accessed on 12th March 2009
http://en.wikipedia.org/wiki/Polar_vortex
[5] Houghton et al., 2001, Chapter 6. IPCC Third Assessment Report.
[6] “In climate science, radiative forcing is (loosely) defined as the change in net irradiance at the tropopause. "Net irradiance" is the difference between the incoming radiation energy and the outgoing radiation energy in a given climate system and is thus measured in Watts per square meter. The change is computed based on "unperturbed" values, as defined by the Intergovernmental Panel on Climate Change (IPCC) as the measured difference relative to the year 1750, the defined starting point of the industrial era. A positive forcing (more incoming energy) tends to warm the system, while a negative forcing (more outgoing energy) tends to cool it. Possible sources of radiative forcing are changes in insolation (incident solar radiation), or the effects of variations in the amount of radiatively active gases and aerosols present. Because the IPCC regularly assesses the radiative forcing, it also has a more specific technical definition - see "IPCC usage" section….”
Radiative forcing
From Wikipedia. Accessed on 18th March 2009
http://en.wikipedia.org/wiki/Radiative_forcing
[7] Drought Vortex
18th September 2003
* Reporter: Karina Kelly * Producer: Andrew Holland * Researcher: Mark Horstman
http://www.abc.net.au/catalyst/stories/s948858.htm
[7] Drought Vortex
18th September 2003
* Reporter: Karina Kelly * Producer: Andrew Holland * Researcher: Mark Horstman
http://www.abc.net.au/catalyst/stories/s948858.htm
[8] (e.g., Deacon, 1953; Kraus, 1954; Gentilli, 1971; Pittock, 1975; Allan and Haylock, 1993). As quoted in ‘Climate Change: An Australian Guide to the Science and Potential Impacts’ Edited by Barrie Pittock. 2003. http://www.climatechange.gov.au/science/guide/pubs/science-guide.pdf
[9] ‘Climate Change: An Australian Guide to the Science and Potential Impacts’ Edited by Barrie Pittock. 2003. http://www.climatechange.gov.au/science/guide/pubs/science-guide.pdf
[10] What is the difference between <
http://answers.yahoo.com/question/index?qid=20070508041915AAXk4XT
[11] Black Saturday: the day the worst bushfires in Australian recorded history broke out was on 7th February 2009.
[12] Interview ABC TV: ‘7:30 Report. Kerry O’Brien and Phil Koperberg, NSW Fire Chief. After the Canberra Megafire and its later inquiry, it was reported that to have any hope of ‘managing’ such a fire, fuel build up would need to be as low as 4-5 tonnes per hectare or less. This degree of fuel loading is apparently reached in plantations by 3-7 years.
[13] “The major funding channel funding the elevated planting program is via managed investment schemes” (MIS) which is a widely unpopular financial lurk comprised of billions of dollars of taxpayer subsidies, exemption from land planning and environmental laws. Exemption from landtax, lower local rates payments and extraordinary grants, taxpayer funded infrastructure and other extraordinary subsidies. All for a handful of chosen private corporations. See, for instance:
(i) The MIS anomaly is in land tax law’ by John Lawrence. Tas Country. Page 12. 16th January 2009. [John Lawrence is an economist working as an accountant in public practice.]
(ii) “The Weekly Times asked the tax office in the past why it allowed MIS companies to charge more than $9000 a hectare to establish blue gum plantations, when it cost the non-MIS sector $3000/ha...”
End MIS Excesses of the Past
January 7, 2009
http://www.weeklytimesnow.com.au/article/2009/01/07/39675_opinion-news.html
(iii) MIS raises hackles by Matilda Abey. January 9, 2009
http://www.weeklytimesnow.com.au/article/2009/01/09/39711_latest-news.html
(iv) for a more complete list see the archives of the Tasmanian Times: www.tasmaniantimes.com
[14] “The schemes raised more than $1.01 billion in 2004-5 [alone] despite wide spread drought conditions.”
Growing the Forestry Enterprise in Australia
Gary Bacon, Centre for Forestry and Horticultural Research, Griffith University. 18th April 2007
http://www.forestry.org.au/pdf/pdf-public/conference2007/papers/Bacon%20paper%20april%2018.pdf
[15] Australian forest plantations – a review of ‘Plantations for Australia: the 2020 vision’. Rural and Regional Affairs and Transport Reference Committee. Senate Committee Report. Page 5. September 2004.
[16] http://bravenewclimate.com/2009/02/10/heatwave-update-and-open-letter-to-the-pm/
the heatwave in Australia on 7th February 2009:
http://bravenewclimate.files.wordpress.com/2009/02/heatwavemap.jpg
[17] ‘Blithe Oblivion’ by Kate Legge. The Weekend Australian Magazine. 7-8th March 2009. Page 20.
[18] Kilmore East Murrindindi Complex fire map. 3rd March 2009
http://www.myenvironment.net.au/index.php/me/content/download/1316/7713/file/media_map_kilmoreEast_murrindindi_20090303_0421_a4.pdf
[19] Fire/land tenure map of the Murrindindi fire that burnt through Marysville overlaid onto the latest NASA satellite Infrared Image.25/02/2009 8:46 am
http://www.myenvironment.net.au/index.php/me/resources/bush_fire/research/fire_land_tenure_map_of_the_murrindindi_fire_that_burnt_through_marysville_overlaid_onto_the_latest_nasa_satellite_infrared_image
[20] Huge fire class action launched
* Cameron Houston and Michael Bachelard
· February 15, 2009
| http://www.theage.com.au/national/huge-fire-class-action-launched-20090214-87pg.html?page=-1
[21] Townships under ember attack as fires rage
ABC - February 7, 2009, 4:18 pm
http://au.news.yahoo.com/a/-/mp/5306005/townships-ember-attack-fires-rage/
[22] Bluegums within a 1 km of Wandong.
Google Earth Image Circa April 2005 of Midway Wandong Plantations. Sunday Creek, Pine Creek and Dry Creek catchments.
http://www.baddevelopers.green.net.au/Docs/Midway3Wandong.htm
[23] Churchill and District News. February 2007
http://www.cdnews.com.au/
[24] Bushfires: Don’t mention the c word. Clive Hamilton
http://www.crikey.com.au/Politics/20090209-Dont-talk-about-the-warming-.html
Tuesday, March 17, 2009
WaPo Still Hoping to Mess With Social Security
Fred Hiatt is the editorial page editor of the Washington Post. In the March 16 issue he actually has a signed column praising the Obama approach to transportation policy. In the midst of this he also writes, "maybe we can hope for reform of social security and health care too." While we need reform of health care, we do not need it for social security, and the WaPo editorial page, and just about all its regular columnists, have been among the most consistent trumpeters of the "social security is in crisis!" baloney that just persists and persists in Washington, with them also pushing the theme of "entitlements crisis," viewing social security as in the same league as health care.
Fortunately, after worries that Obama was buying into this baloney with his "Entitlements Summit," it increasingly appears that he is reverting to his campaign position of not wanting to do anything to social security, or at least not wanting to do anything to the benefits side, with the key player on this being probably Peter Orszag, OMB Chief, who has made it clear that the real problem is indeed health care. As for social security, what I have said umpteen gazillion times still holds: it ain't broke and it don't need no fixin'.
Fortunately, after worries that Obama was buying into this baloney with his "Entitlements Summit," it increasingly appears that he is reverting to his campaign position of not wanting to do anything to social security, or at least not wanting to do anything to the benefits side, with the key player on this being probably Peter Orszag, OMB Chief, who has made it clear that the real problem is indeed health care. As for social security, what I have said umpteen gazillion times still holds: it ain't broke and it don't need no fixin'.
Monday, March 16, 2009
Physics and Economics
Jim Devine posted an article on Benoit Mandelbrot on my pen-l list condemning economists' appropriation of physics. I covered some of the humorous history of the economists' machinations at becoming physics like in The Invisible Handcuffs. You will especially appreciate the exchange between Macleod and James Clerk Maxwell.
Mandelbrot:
http://www.sciam.com/blog/60-second-science/post.cfm?id=benoit-mandelbrot-and-the-wildness-2009-03-13
The extract from my book:
http://michaelperelman.wordpress.com/2009/03/16/physics-and-economics/
Mandelbrot:
http://www.sciam.com/blog/60-second-science/post.cfm?id=benoit-mandelbrot-and-the-wildness-2009-03-13
The extract from my book:
http://michaelperelman.wordpress.com/2009/03/16/physics-and-economics/
Sunday, March 15, 2009
Obama Budget: Mankiw Rehashes Old Spin
Greg Mankiw calls President Obama a deficit dove who loves to spend. Mankiw also accuses the White House of economic optimism:
OK – if one expects the recession to be deeper and more prolonged than the White House, why would one be upset that the White House is pursuing fiscal stimulus? Mankiw’s economic pessimism and his call for a more deficit hawk position strikes me as inconsistent.
Mankiw also repeats this line:
Didn’t we already address this claim with:
Update: The deficit hawks at the Concord Coalition does not agree with Mankiw’s deficit dove characterization:
While the Concord Coalition goes onto to note several factors that might work against President’s goal of long-term fiscal restraint, it is much more informative and balanced than Mankiw’s spin.
they expect their policies to bring the recession to a swift conclusion. For the next four years, they forecast an average growth rate of 4 percent. The unemployment rate is projected to fall to 5.2 percent in 2013.Not everyone is so sanguine. The administration forecast is “way too optimistic,” said Nariman Behravesh, chief economist at IHS Global Insight and author of the excellent primer “Spin-Free Economics.”
OK – if one expects the recession to be deeper and more prolonged than the White House, why would one be upset that the White House is pursuing fiscal stimulus? Mankiw’s economic pessimism and his call for a more deficit hawk position strikes me as inconsistent.
Mankiw also repeats this line:
In a second term for Mr. Obama, with the economy recovered and unemployment stabilized at 5 percent, federal outlays would be 22.2 percent of G.D.P. — well above the average of 20.2 percent over the last 50 years.
Didn’t we already address this claim with:
A New Era of Responsibility - Renewing America’s Promise does show that the projected Federal outlay to GDP ratio for 2019 under President Obama’s proposed changed in the budget will be 22.6% as Greg claims but what Greg did not tell us is that the baseline budget projected Federal outlays to be 23.2% of GDP by 2019.
Update: The deficit hawks at the Concord Coalition does not agree with Mankiw’s deficit dove characterization:
A further complication is that many of the budget’s main components are linked in an effort to control the net effect on the deficit. Maintaining this linkage is critical for fiscal responsibility. However, it will prove to be a formidable political hurtle because it challenges the free lunch mentality that has taken root in Washington. New initiatives, popular with many Congressional leaders, are paired with tax increases and spending cuts that are not as popular ... Nothing in the budget directly alters the drift toward fiscal unsustainability, which is primarily driven by the projected growth of the three largest entitlement programs -- Medicare, Medicaid and Social Security. Under the budget, spending on these programs declines by just $32 billion relative to baseline assumptions through 2019 ... As the president acknowledges, any effort to permanently improve the fiscal outlook beyond the 10-year budget window will require more fundamentally addressing the structural causes of the long-term imbalance -- demographic changes and rising health care costs. While there is plenty of room to debate the priorities, assumptions, and details, it cannot be said that the Obama administration has taken a timid approach in its first budget. It confronts a broad array of challenges and does not pretend that we can have something for nothing.
While the Concord Coalition goes onto to note several factors that might work against President’s goal of long-term fiscal restraint, it is much more informative and balanced than Mankiw’s spin.
Grasping Reality with Both Hands Bound to the Standard Model
by the Sandwichman
Brad DeLong meanders out to the edge of the abyss of knowing but at the last minute pulls back in horror, clutching his standard model teddy bear to his breast...
A second anomaly in Brad's historical interpretation that Americans decided to take increased wealth as leisure is that this choice mysteriously stopped occurring after the 1950s even though wealth continued to increase vigorously. Funny (peculiar) Americans somehow choose to take more of their "increased wealth" as leisure precisely at the time their wealth is decreasing precipitously and then choose not to take it as leisure when their wealth is actually increasing.
Wait a minute! Did I say Americans chose to take their increased wealth as leisure when their wealth was actually decreasing? But the standard model says... Can somebody help me out here? If wealth is decreasing, in what sense is it "increasing"? Brad?
"...Americans had decided to take a substantial part of their increased technological wealth and use it to buy increased leisure..."
I'm sure the math explains it double-plus good, though.
I do agree with Brad, however, that the sharp decline in the workweek, 1929-1950 was a good thing, at least in retrospect. Sometimes bad circumstances can impose necessities that turn out to be blessings. In this case, I would like to see an economist take on the proposition that the sharp decline in the workweek during the 1929-1950 period established a strong foundation upon which the post-war economy was built. I would love to see Brad DeLong or Paul Krugman take it on.
That hypothesis, by the way, is consistent with Keynes's view of the long-term problem of full employment and with Chapman's theory of the hours of labour.
If a sharp decline in the workweek can be (part of) the foundation of one exceptional period of prosperity, who is to say that another sharp decline in the workweek couldn't be part of the solution to the current crisis? For example, see Dean Baker's proposal for work time reduction as stimulus.
Please discuss.
Brad DeLong meanders out to the edge of the abyss of knowing but at the last minute pulls back in horror, clutching his standard model teddy bear to his breast...
The 1929-1950 period saw the last sharp decline in the American workweek--a decline that does not mean that the economy was depressed and performing poorly in 1959 or 1949 (or 1939) relative to 1929, but instead that Americans had decided to take a substantial part of their increased technological wealth and use it to buy increased leisure.Can you say A-N-A-C-H-R-O-N-I-S-M? The 1929-1950 period did indeed see the last sharp decline in the American workweek. But in what sense did Americans choose to buy increased leisure? They were, first of all, compelled by hardship to reduce their hours of work. They only chose shorter hours through work-sharing as an alternative to even greater unemployment. Secondly, Americans chose to legislatively impose shorter hours through the Fair Labor Standards Act. And if it wasn't for the strident objection of business they would have chosen the even shorter 30-hour workweek of the Black Connery bill. But the income/leisure choice standard model that Brad invokes doesn't approve of the imposition of shorter hours by legislation.
A second anomaly in Brad's historical interpretation that Americans decided to take increased wealth as leisure is that this choice mysteriously stopped occurring after the 1950s even though wealth continued to increase vigorously. Funny (peculiar) Americans somehow choose to take more of their "increased wealth" as leisure precisely at the time their wealth is decreasing precipitously and then choose not to take it as leisure when their wealth is actually increasing.
Wait a minute! Did I say Americans chose to take their increased wealth as leisure when their wealth was actually decreasing? But the standard model says... Can somebody help me out here? If wealth is decreasing, in what sense is it "increasing"? Brad?
"...Americans had decided to take a substantial part of their increased technological wealth and use it to buy increased leisure..."
I'm sure the math explains it double-plus good, though.
I do agree with Brad, however, that the sharp decline in the workweek, 1929-1950 was a good thing, at least in retrospect. Sometimes bad circumstances can impose necessities that turn out to be blessings. In this case, I would like to see an economist take on the proposition that the sharp decline in the workweek during the 1929-1950 period established a strong foundation upon which the post-war economy was built. I would love to see Brad DeLong or Paul Krugman take it on.
That hypothesis, by the way, is consistent with Keynes's view of the long-term problem of full employment and with Chapman's theory of the hours of labour.
If a sharp decline in the workweek can be (part of) the foundation of one exceptional period of prosperity, who is to say that another sharp decline in the workweek couldn't be part of the solution to the current crisis? For example, see Dean Baker's proposal for work time reduction as stimulus.
Please discuss.
Nice Blogs
Blogroll has been updated and expanded. If you have suggestions for good BLOGS with a concentration on economics, post them in the comments. They don't have to be on the left.
Friday, March 13, 2009
X-Efficiency and Economic Dogma
I just added a draft -- quickly composed today -- of section to put in my new book. It will go into a section showing the lengths to which economists would go to avoid dealing with work, workers, and working conditions. This is one of the episodes where economists risked dealing with the subject. Any comments would be very much appreciated.
Thank you very much
I cannot load pdf files here. Maybe someone can figure out how I can do so. I have to point you to another site.
http://michaelperelman.wordpress.com/2009/03/14/x-efficiency-and-economic-dogma/
Thank you very much
I cannot load pdf files here. Maybe someone can figure out how I can do so. I have to point you to another site.
http://michaelperelman.wordpress.com/2009/03/14/x-efficiency-and-economic-dogma/
Thursday, March 12, 2009
The Evil Asians and their Savings Glut
Alan Greenspan has a self-serving piece in the Wall Street Journal.
Those evil Asians with their savings glut did us in & poor Alan was powerless.
He should read
Auerbach, Robert D. 2008. Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank (Austin, TX: University of Texas Press).
Some very interesting stuff there, Alan.
Those evil Asians with their savings glut did us in & poor Alan was powerless.
He should read
Auerbach, Robert D. 2008. Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank (Austin, TX: University of Texas Press).
Some very interesting stuff there, Alan.
Washington Times on Long-term Growth Rates
The Washington Times tries to ridicule Paul Krugman:
I’m not sure why one would be waging a bet against the US economy in the first place but I don’t blame Professor Krugman for ignoring this silliness. Speaking of silliness, the Washington Times lead this pathetic op-ed with:
So for the first five years, the Obama administration is forecasting a growth rate less than 3 percent – which would mean that its forecast for a 9-year interval would have average annual growth that is less than 3.5 percent. Did the author of this op-ed not realize that the average annual growth rate for the last half of the 20th century was about 3.5 percent?
Harvard economics Professor Greg Mankiw thinks that Mr. Obama's growth forecasts are overly optimistic and that the federal deficit will be a lot larger than Mr. Obama thinks. He was chastised by Princeton's Paul Krugman, a Nobel Prize winner in economics, who on his New York Times blog claims that Mankiw can only make the predictions that he does because of "more than a bit of deliberate obtuseness." He titled his post on Mankiw, "Roots of Evil." Last Wednesday, Mankiw responded to Krugman's attacks by suggesting: "Well, Paul, if you are so confident in this forecast, would you like to place a wager on it and take advantage of my wickedness?" Krugman has still not responded. It seems even a Nobel Prize winner isn't willing to lay money on Mr. Obama's rosy projections.
I’m not sure why one would be waging a bet against the US economy in the first place but I don’t blame Professor Krugman for ignoring this silliness. Speaking of silliness, the Washington Times lead this pathetic op-ed with:
The Obama administration is basing its budget forecasts on the economy growing an eyebrow-raising 15.6 percent above inflation between 2008 and 2013 - a drop of 1.2 percent this year followed by an average of 4 percent growth over the following four years. That's very impressive growth for any period of time.
So for the first five years, the Obama administration is forecasting a growth rate less than 3 percent – which would mean that its forecast for a 9-year interval would have average annual growth that is less than 3.5 percent. Did the author of this op-ed not realize that the average annual growth rate for the last half of the 20th century was about 3.5 percent?
Finish the Sentence
by the Sandwichman
What a delusion, to think that by spending twenty-six years digging, with a sliver of broken reason, a tunnel whose starting point is your mattress you would finally…Louis Aragon, Paris Peasant, p. 47
Wednesday, March 11, 2009
Health Care Costs for Employers: Amity Shlaes v. Greg Mankiw
Steve Benen has a little fun with the latest nonsense from Amity Shlaes:
But it was this claim that caught my eye:
Didn’t Greg Mankiw and Doug Elmendorf suggest that this cost is fully passed onto workers in the form of lower wages? While I suggested that this may be an extreme assumption as to the lack of elasticity of the labor supply curve (see this post), Shlaes is arguing that none of these costs are passed onto workers in the form of lower wages. Maybe she should have read her own source:
I'm a big science-fiction fan, so when I heard that conservative writer and FDR critic Amity Shlaes had compared contemporary politics to "The Matrix," I was anxious to see what she'd come up with.
But it was this claim that caught my eye:
Take one of the biggest problems in the U.S. economy today: jobs. Long before “subprime” or “cram down” became routine components of our language, we understood that employers need incentives to create new jobs to replace ones that are disappearing. We knew too that health-care costs are a growing deterrent to hiring or rehiring. Between 1996 and 2005 health care costs for employers rose by 34 percent relative to payrolls.
Didn’t Greg Mankiw and Doug Elmendorf suggest that this cost is fully passed onto workers in the form of lower wages? While I suggested that this may be an extreme assumption as to the lack of elasticity of the labor supply curve (see this post), Shlaes is arguing that none of these costs are passed onto workers in the form of lower wages. Maybe she should have read her own source:
Most economists believe that health insurance premium costs are ultimately passed back to employees in the form of reduced wages, so long-run compensation costs for employers are not affected by rising health care prices.
What is the Crisis About? Fictitious Capital or the Destruction of Wealth?
This short essay briefly describes the financial side of my interpretation that the crash reflected a disconnect between the underlying investment in the economy and its financial representation -- what Marx called fictitious capital. The stock market people call this realignment, "destruction of wealth," even though what is destroyed is the illusion of wealth. The illusion may have been capable of purchasing valuable things so long as other people accept that illusion.
Long ago people accepted the illusion as an illusion and went on with their business. Here is what a former governor of Illinois wrote:
Ford, Thomas. 1854. History of Illinois (Chicago: S. C. Griggs and Co.).
227: "Our Whig friends contended that the continual and violent opposition of the democrats to the banks destroyed confidence; which, by-the-bye, could only exist when the bulk of the people were under a delusion. According to their views, if the banks owed five times as much as they were able to pay and yet if the whole people could be persuaded to believe this incredible falsehood that all were able to pay, this was 'confidence'."
Ordinary people understood what was happening. Here is an incident from Chicago about the same time:
Peyton, John L. 1869. Over the Alleghenies; extracted in Warren S. Tryon, ed. A Mirror for Americans, 3 vols. (Chicago: University of Chicago Press, 1952): III, pp. 589-607.
605: Visiting Chicago in 1848, Peyton objects to taking wildcat notes from an obscure Atlanta bank [meaning that the unregulated bank probably had little or nothing backing up its money]. The hotelkeeper responds, is discussing notes:
"Why, sir, ... this hotel was built with that kind of stuff .... I will take "wild cats" for your bill, my butcher takes them of me, and the farmer from him, and so we go, making it pleasant all around. I only take care ... to invest what I may have at the end of a given time in corner lots .... On this kind of worthless currency, based on Mr. Smith's [the issuer's] supposed wealth and our wants, we are creating a great city, building up all kind of industrial establishments, and covering the lake with vessels -- so that suffer who may when the inevitable hour of reckoning arrives, the country will be the gainer, Jack Rossiter [the speaker] will try, when this day of reckoning comes, to have "clean hands" and a fair record .... A man who meddles, my dear sir, with wild-cat banks is on a slippery spot, and that spot the edge of a precipice."
A few years earlier, a Philadelphia banker wrote about this arrangement to the famous economist, David Ricardo:
Raguet, Condy. 1821. "Letter to David Ricardo, 19 April." In David Ricardo. Minor Papers on the Currency Question, 1809-1823, Jacob Harry Hollander, ed. (Baltimore: The Johns Hopkins Press, 1932): pp. 201-3.
202: "The circulating medium is there [in interior of the country] principally depreciated and inconvertible paper, and so far is the delusion still kept up, that in Kentucky and Tennessee new banks without a specie capital or [any] obligation to pay their notes and gold or silver, have lately been established."
202: "You state in your letter that you find it difficult to comprehend why persons who have a right to demand coin from the Banks in payment of their notes, so long forbore to exercise it. This no doubt appears paradoxical to one who resides in the country were an act of Parliament was necessary to protect a bank, but the difficulty is easily solved. The whole of our populations are either stockholders of banks, or in debt to them. It was not in the interest of the first to press the banks and the rest were afraid. This is the whole secret. Any independent man who is neither a stockholder nor a debtor, who would have ventured to compel the banks to justice, would have been persecuted as an enemy of society, and during the whole period of suspension of specie payments, not an instance occurred in this City of a suit being brought before a court of Justice. A friend of mine in New York was however bold enough to attempt it toward the close of the scene ... The Banks became alarmed, and began to call in their loans -- the local currency of New York became 5 percent better than it was -- millions of dollars worth of goods ordered from Europe were countermanded."
Here is the way a modern capitalist sees the same situation. Steve Palmer posted this on Lou Proyect's Marxism list:
Davies, Megan and Walden Siew. 2009. "45 Percent of World's Wealth Destroyed: Blackstone CEO." Reuters (10 March).
http://www.reuters.com/article/wtUSInvestingNews/idUSTRE52966Z20090310
Private equity company Blackstone Group LP (BX.N) CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis. "Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime"."
Long ago people accepted the illusion as an illusion and went on with their business. Here is what a former governor of Illinois wrote:
Ford, Thomas. 1854. History of Illinois (Chicago: S. C. Griggs and Co.).
227: "Our Whig friends contended that the continual and violent opposition of the democrats to the banks destroyed confidence; which, by-the-bye, could only exist when the bulk of the people were under a delusion. According to their views, if the banks owed five times as much as they were able to pay and yet if the whole people could be persuaded to believe this incredible falsehood that all were able to pay, this was 'confidence'."
Ordinary people understood what was happening. Here is an incident from Chicago about the same time:
Peyton, John L. 1869. Over the Alleghenies; extracted in Warren S. Tryon, ed. A Mirror for Americans, 3 vols. (Chicago: University of Chicago Press, 1952): III, pp. 589-607.
605: Visiting Chicago in 1848, Peyton objects to taking wildcat notes from an obscure Atlanta bank [meaning that the unregulated bank probably had little or nothing backing up its money]. The hotelkeeper responds, is discussing notes:
"Why, sir, ... this hotel was built with that kind of stuff .... I will take "wild cats" for your bill, my butcher takes them of me, and the farmer from him, and so we go, making it pleasant all around. I only take care ... to invest what I may have at the end of a given time in corner lots .... On this kind of worthless currency, based on Mr. Smith's [the issuer's] supposed wealth and our wants, we are creating a great city, building up all kind of industrial establishments, and covering the lake with vessels -- so that suffer who may when the inevitable hour of reckoning arrives, the country will be the gainer, Jack Rossiter [the speaker] will try, when this day of reckoning comes, to have "clean hands" and a fair record .... A man who meddles, my dear sir, with wild-cat banks is on a slippery spot, and that spot the edge of a precipice."
A few years earlier, a Philadelphia banker wrote about this arrangement to the famous economist, David Ricardo:
Raguet, Condy. 1821. "Letter to David Ricardo, 19 April." In David Ricardo. Minor Papers on the Currency Question, 1809-1823, Jacob Harry Hollander, ed. (Baltimore: The Johns Hopkins Press, 1932): pp. 201-3.
202: "The circulating medium is there [in interior of the country] principally depreciated and inconvertible paper, and so far is the delusion still kept up, that in Kentucky and Tennessee new banks without a specie capital or [any] obligation to pay their notes and gold or silver, have lately been established."
202: "You state in your letter that you find it difficult to comprehend why persons who have a right to demand coin from the Banks in payment of their notes, so long forbore to exercise it. This no doubt appears paradoxical to one who resides in the country were an act of Parliament was necessary to protect a bank, but the difficulty is easily solved. The whole of our populations are either stockholders of banks, or in debt to them. It was not in the interest of the first to press the banks and the rest were afraid. This is the whole secret. Any independent man who is neither a stockholder nor a debtor, who would have ventured to compel the banks to justice, would have been persecuted as an enemy of society, and during the whole period of suspension of specie payments, not an instance occurred in this City of a suit being brought before a court of Justice. A friend of mine in New York was however bold enough to attempt it toward the close of the scene ... The Banks became alarmed, and began to call in their loans -- the local currency of New York became 5 percent better than it was -- millions of dollars worth of goods ordered from Europe were countermanded."
Here is the way a modern capitalist sees the same situation. Steve Palmer posted this on Lou Proyect's Marxism list:
Davies, Megan and Walden Siew. 2009. "45 Percent of World's Wealth Destroyed: Blackstone CEO." Reuters (10 March).
http://www.reuters.com/article/wtUSInvestingNews/idUSTRE52966Z20090310
Private equity company Blackstone Group LP (BX.N) CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis. "Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime"."
Tuesday, March 10, 2009
Even Sam Malone Has Been Laid Off
While Sam Malone and the Boston bar called Cheers were only make believe, Eddie Doyle tended bar at the Bull & Finch since 1974. One has to love the tag “Senior Liquor Dispersement Engineer”. Alas, Eddie has been laid off:
a few weeks ago he was told by Tom Kershaw, owner of the Cheers bar, that the recession had hit his industry and he was being laid off. Doyle, who is in his late 60s, said he's surprised but not bitter. "I'm a casualty of the economic situation that we're in," said Doyle, who spent part of this week cleaning out his office. Kershaw acknowledged that it was a difficult decision. "Business is way off," he said, adding that he would continue to send Doyle a weekly paycheck until the end of the year. "It was very tough. Personally, for me, it was a disaster. Eddie and I have been friends for 40 years."
Monday, March 9, 2009
Defending The Fed
Now that everybody is all over the Fed for all of our problems, I guess I shall be idiosyncratic and defend the institution. I think that they are struggling mightily, as well as the can, against an overwhelming tide that is now engulfing the entire world economy. They saw it coming, and at an early point engaged in very innovative wave of policymaking, including taking on the role of world central banker this past fall after the Minsky Moment of mid-September. It is easy to say, "well look how bad things are," but I think this is one of those situations where things would be far worse if they had not done what they had, and I am hard pressed to think of an alternative set of policies they could have done that would have made things better.
Now, I am not defending the Fed under Greenspan. Clearly there was an overly loose policy in 2003-2004 that aggravated the housing bubble. While Bernanke and others justified this on "complexity" grounds of worrying about asymmetries associated with a possible Japanese-style deflation (which we are now facing much more seriously), my cynical side says it was Greenspan wanting to help W. get reelected so that he, Greenspan, would not be on the receiving end of the sort of whining he got from W.'s dad after he supposedly was responsible for Clinton beating him in 1992 on an "It's the economy, stupid!" campaign. However, I think that in the last two and a half years, the leaders of the Fed have been aware that trouble was coming and were preparing for it, with their immediately rolling out alternative lending bodies and policy approaches immediately upon the eruption of troubles in the subprime markets in August, 2007.
A further piece of evidence is the speech that then New York Fed president, Timothy Geithner, gave in Hong Kong on September 15, 2006, "Hedge funds and derivatives and their implications for the financial system". While the opening part of the speech was pretty pollyannaish, the latter half of it was pretty scary, given the nature of Fedspeak, never wanting to spook the markets and trigger a crash that might be avoided. I shall close by simply quoting from it.
Yes, folks, the Fed knew.
Now, I am not defending the Fed under Greenspan. Clearly there was an overly loose policy in 2003-2004 that aggravated the housing bubble. While Bernanke and others justified this on "complexity" grounds of worrying about asymmetries associated with a possible Japanese-style deflation (which we are now facing much more seriously), my cynical side says it was Greenspan wanting to help W. get reelected so that he, Greenspan, would not be on the receiving end of the sort of whining he got from W.'s dad after he supposedly was responsible for Clinton beating him in 1992 on an "It's the economy, stupid!" campaign. However, I think that in the last two and a half years, the leaders of the Fed have been aware that trouble was coming and were preparing for it, with their immediately rolling out alternative lending bodies and policy approaches immediately upon the eruption of troubles in the subprime markets in August, 2007.
A further piece of evidence is the speech that then New York Fed president, Timothy Geithner, gave in Hong Kong on September 15, 2006, "Hedge funds and derivatives and their implications for the financial system". While the opening part of the speech was pretty pollyannaish, the latter half of it was pretty scary, given the nature of Fedspeak, never wanting to spook the markets and trigger a crash that might be avoided. I shall close by simply quoting from it.
Understanding and evaluating “tail events”—low probability, high severity instances of stress—is a principal, and extraordinarily difficult, aspect of risk management. These challenges have likely increased with the complexity of financial instruments, the opacity of some counterparties, the rapidity with which large positions can change, and the potential feedback effects associated with leveraged positions.
Yes, folks, the Fed knew.
Laurence S. Moss Dies
The History of Economics Society has announced that Larry Moss died on February 24, cause unknown, although he had suffered from various illnesses for several years. Larry had served as editor of the American Journal of Economics and Sociology (AJES) for a number of years, and did an admirable job in my view, even though I did not see eye to eye with him on a variety of topics. That journal has long had a link with "Georgist" economics, although Larry's own interestes tended towards the libertarian and Austrian, having written books on both Joseph Schumpeter and Ludwig von Mises, and having coauthored with Israel Kirzner more than once.
Nevertheless, Larry always was open-minded and published papers that he clearly disagreed with. Thus, he was the editor who accepted the paper, "Keynesian Comparative Economics: The Iconoclastic Vision of Lynn Turgeon (1920-1999)," published in AJES in 2003 62(3), 491-508, Tim Canova, Ric Holt, Bob Horn, me, and Marina Rosser as coauthors. Turgeon, who died a decade ago tomorrow (and Canova has just issued a revised version of the paper on SSRN) held dramatically idiosyncratic views, but there is no way that they could be described as either libertarian, Austrian, or conservative. In any case, I guess this post is in memory and respect for both of these individuals, neither with us anymore.
Nevertheless, Larry always was open-minded and published papers that he clearly disagreed with. Thus, he was the editor who accepted the paper, "Keynesian Comparative Economics: The Iconoclastic Vision of Lynn Turgeon (1920-1999)," published in AJES in 2003 62(3), 491-508, Tim Canova, Ric Holt, Bob Horn, me, and Marina Rosser as coauthors. Turgeon, who died a decade ago tomorrow (and Canova has just issued a revised version of the paper on SSRN) held dramatically idiosyncratic views, but there is no way that they could be described as either libertarian, Austrian, or conservative. In any case, I guess this post is in memory and respect for both of these individuals, neither with us anymore.
Making Government Efficient
The Sacramento Bee reports that California's Employment Development Department spent $1.1 million to Verizon, which played a recorded message for jobless people who couldn't reach operators at the organization's call center, charging five cents for each call. The brain-dead assembly decided something has to be done. Naïvely I expected that they would recognize that the call centers were understaffed. Instead, they offered three options: reducing the number of hours that the message is available; offering other targeted toll-free numbers for specific inquiries; or just using a standard busy message.
Rogoff on Government Deficits and Interest Rates
Kenneth Rogoff is worried about how rising government debt will lead to higher interest rates:
No one yet has any real idea about when the global financial crisis will end, but one thing is certain: Government budget deficits are headed into the stratosphere. In the coming years, investors will need to be persuaded to hold mountains of new debt. Although governments may try to cram public debt down the throats of local savers (by using, for example, rising influence over banks to force them to hold a disproportionate quantity of government paper), they eventually will find themselves having to pay much higher interest rates as well. Within a couple of years, interest rates on long-term U.S. Treasury notes could easily rise 3 per cent to 4 per cent, with interest rates on other governments' paper rising as much, or more ... In research that Carmen Reinhart and I have done on the history of financial crises, we find that public debt typically doubles, even adjusting for inflation, in the three years following a crisis. Many nations, large and small, now are well on the way to meeting this projection.
As of March 5, the interest rate on 30-year Treasury notes was only 3.5%. Unless the market is unaware of this fiscal forecast, one would think that the market has priced in its view on these matters and apparently does not share Rogoff’s pessimism.
Mark Thoma is not so full of “gloom and doom”:
So I want to emphasize one more time that stabilization policy does not have to change the size of government in the long-run (and see pgl for a debunking of some of the claims about the size of government. i.e. he notess that "Federal spending as a share of GDP was about as high in 1985 as it is projected to be for 2019"). Fiscal policy can increase the size of government, but it can also shrink the size of government (lower taxes in the downturn, then cut spending when things are better to eliminate the deficit and government will shrink). So the criticism is not about the use of stabilization policy to help people during the downturn and to give the economy a boost, instead it's a claim about the long-term political aims of the administration with respect to the size of government. However, according to pgl's calculations, the projections are that the size won't exceed what we had under that well known socialist sympathizer Ronald Reagan.
While Mark was kind enough to mention this post, all I noted was the White House’s own projections of Federal spending, which do not indicate that President Obama has some big government agenda (as Greg Mankiw tried to suggest).
Rogoff is worried that Federal debt may double. It will certainly rise relative to GDP over the next few years. We have seen a doubling of the Federal debt to GDP ratio before. This chart shows the gross Federal debt to GDP ratio from 1792 to today and projected through the end of 2010. From 1913 to 1921, the ratio rose from less than 7.5% to more than 32.5% - but then fell to 16.3% by 1929. Then we had the Great Depression followed by World War II and this ratio skyrocketed to more than 120% by 1946. U.S. fiscal policy had a period of long-run fiscal responsibility, which lowered this ratio to less than 32% by 1981. Alas, we had an era of fiscal irresponsibility that saw this ratio to more than double by 1995. The Clinton era fortunately was a return to fiscal responsibility which allowed this ratio to decline to 57.34%. Alas, this was short-lived as the fiscal irresponsibility of George W. Bush tenure in office allowed this ratio to rise to almost 70%.
Our chart shows the interest rate on AAA long-term corporate bonds from January 1919 to February 2009. Interest rates did not skyrocket after World War I or World War II. One reason is that long-term fiscal policy turned to retiring the Federal debts generated by these two wars. It is true that the Reagan fiscal fiasco led to higher real interest rates – even as supply-side worshipers of St. Ronnie love to talk about what happened to nominal rates. Long-term interest rates have been relatively low in recent years even in the face of Bush43’s fiscal irresponsibility. I would suspect that if the Obama Administration delivers on its promise of long-term fiscal responsibility, we can avoid Rogoff’s pessimistic forecast.
Sunday, March 8, 2009
The Case for Working Less
by the Sandwichman
The Sandwichman steps out and guest posts at the Relentlessly Progressive Economics Blog.
The Sandwichman steps out and guest posts at the Relentlessly Progressive Economics Blog.
Health Care Reform and Supply-side Arguments
Greg Mankiw and Sally Pipes note what CBO director Doug Elmendorf said about the use of a supply-side argument by Democratic proponents of health care reform:
If one assumes that the labor supply curve was perfectly inelastic, then any increase (decrease) in the amount of employee health care cost borne by the employer would be fully passed onto employees in the form of lower (higher) wages. The analysis is similar to an analysis of the effect of reducing the payroll tax - a proposal that Greg Mankiw has made. If the labor supply curve is perfectly inelastic, reducing either the payroll tax or the amount of employee health care cost borne by the employer would have no effect on the cost of employment to employers or the amount of workers hired.
But wait a second - I thought moderate supply-siders such as Greg Mankiw (Dr. Mankiw is not one of those lunatic supply-siders like Art Laffer) argue for reductions in the payroll tax in order to induce an increase in employment as if the labor supply curve were not perfectly inelastic. So why wouldn’t a reduction in the amount of employee health care cost borne by the employer have at least modest benefits for the US economy?
Update: CBO provides Elmendorf’s testimony on February 25, 2009. On the last two pages of this 31 page document, there is a brief discussion entitled “Effects on the Economy”. While Elmendorf did make the sensible statement that any cost of employer provided health care would at least be borne in the form of lower wages, this section also begins with:
The point is that for employers, health care is merely a part of total compensation: It reduces cash compensation for employees but it does not increase costs of employment. To argue otherwise is to argue for lower total U.S. compensation -- that is, lower wages for U.S. workers. Said Mr. Elmendorf, "the costs of providing health insurance to their workers are not a competitive disadvantage to U.S.-based firms."
If one assumes that the labor supply curve was perfectly inelastic, then any increase (decrease) in the amount of employee health care cost borne by the employer would be fully passed onto employees in the form of lower (higher) wages. The analysis is similar to an analysis of the effect of reducing the payroll tax - a proposal that Greg Mankiw has made. If the labor supply curve is perfectly inelastic, reducing either the payroll tax or the amount of employee health care cost borne by the employer would have no effect on the cost of employment to employers or the amount of workers hired.
But wait a second - I thought moderate supply-siders such as Greg Mankiw (Dr. Mankiw is not one of those lunatic supply-siders like Art Laffer) argue for reductions in the payroll tax in order to induce an increase in employment as if the labor supply curve were not perfectly inelastic. So why wouldn’t a reduction in the amount of employee health care cost borne by the employer have at least modest benefits for the US economy?
Update: CBO provides Elmendorf’s testimony on February 25, 2009. On the last two pages of this 31 page document, there is a brief discussion entitled “Effects on the Economy”. While Elmendorf did make the sensible statement that any cost of employer provided health care would at least be borne in the form of lower wages, this section also begins with:
Proposals that made large-scale changes affecting the provision and financing of health insurance could also have an impact on the broader economy. Because most health insurance is currently provided through employers, proposals could affect labor markets by changing individuals’ decisions about whether and how much to work and employers’ decisions to hire workers.
Saturday, March 7, 2009
Glass Houses Alert
by the Sandwichman
Paul Krugman groans about the news media's penchant for one-sided debate
Meanwhile, Dean Baker has offered a policy proposal for reducing working time as part of an economic recovery package. Just listen to the spirited discussion among economists of Dean’s proposal! What’s that you say? Silence? Oh.
Paul Krugman groans about the news media's penchant for one-sided debate
One major sin of news coverage, especially on TV, is the way certain points of view just get excluded from consideration — even if many of the best-informed people hold those views. Most famously and disastrously, the case against invading Iraq was just not heard in the months before the war.And one major sin of economics education and the public discourse of economics is the way certain points of view just get excluded from consideration. The perspective that work time reduction might be a key part of a progressive economic recovery strategy — as Keynes pointed out, one of three ingredients of a cure and the ultimate solution — is not only excluded, it is ridiculed by economists as a lump of labor fallacy. I’ve researched the alleged fallacy and I’ve found the claim to be fraudulent. The results of my research have been published in the Review of Social Economy as “Why Economists Dislike a Lump of Labor”. I’ve even offered a $10,000 prize if someone could refute my rebuttal and get it published in a leading economics journal. No takers of course.
Meanwhile, Dean Baker has offered a policy proposal for reducing working time as part of an economic recovery package. Just listen to the spirited discussion among economists of Dean’s proposal! What’s that you say? Silence? Oh.
What Would James Tobin Say About Today’s GOP Fiscal Stance?
AP reports:
Josh Marshall calls this proposal a joke:
As the recession during the early 1980’s worsened, one of the calls from certain supply-side types was that we could increase aggregate demand by cutting government spending. In a speech echoing this insane theme by one of the practitioners of a large econometric model of the US economy, James Tobin asked the speaker a simple question. He asks the practitioner to tell the audience the sign of his fiscal policy multiplier. In other words – as Dr. Tobin explained – what would be the predicted effect on output if the model entertained an increase in government spending? The practitioner thought about the question for a moment and replied that the predicted impact on output from an increase in government spending would be positive. To which – Dr. Tobin politely noted that the entire speech made no sense.
Now if Congressman Boehner can point to a credible econometric model of the US economy where the fiscal policy is negative, maybe he can defend his spending freeze proposal. Otherwise, as Josh notes:
The top Republican in the House is seizing on the latest spike in unemployment to call for a freeze on government spending and to urge President Barack Obama to veto a $410 billion spending bill. Rep. John Boehner, R-Ohio, said the jump in unemployment to 8.1 percent and the loss of 651,000 jobs in February is a sign of a worsening recession that demands better solutions from both parties. Boehner criticized the spending bill as chocked full of wasteful, pork-barrel projects. The Senate postponed a vote on the bill until Monday amid the criticism. Boehner said he hoped Obama would veto the bill. He urged the president to work with House Republicans to impose a spending freeze until the end of this fiscal year.
Josh Marshall calls this proposal a joke:
I'm not even sure it's fair to say that this is a replay of the disastrous decisions the magnified the Great Depression between 1929 and 1933. It's more a parody of it. When the crisis is a rapid and catastrophic drop off in demand, you handcuff the one force that can create demand (i.e., the federal government) in the throes of the contraction. That's insane.
As the recession during the early 1980’s worsened, one of the calls from certain supply-side types was that we could increase aggregate demand by cutting government spending. In a speech echoing this insane theme by one of the practitioners of a large econometric model of the US economy, James Tobin asked the speaker a simple question. He asks the practitioner to tell the audience the sign of his fiscal policy multiplier. In other words – as Dr. Tobin explained – what would be the predicted effect on output if the model entertained an increase in government spending? The practitioner thought about the question for a moment and replied that the predicted impact on output from an increase in government spending would be positive. To which – Dr. Tobin politely noted that the entire speech made no sense.
Now if Congressman Boehner can point to a credible econometric model of the US economy where the fiscal policy is negative, maybe he can defend his spending freeze proposal. Otherwise, as Josh notes:
DC Republicans are simply not part of the discussion when it comes to repairing the US economy or arresting our slide into deep economic misery. And any reporters who aren't clear about this are just lying to their readers or viewers.
Request for comments on the new intro for my book
I just completed a nearly final version of The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers. I have put earlier versions here, but this one is very different. The second half is totally new.
I would very much appreciate any comments.
This site would not let me upload the file for some reason. I put here:
http://michaelperelman.wordpress.com/2009/03/07/request-for-comments-on-new-introduction-for-my-new-book/
Thanks in advance.
I would very much appreciate any comments.
This site would not let me upload the file for some reason. I put here:
http://michaelperelman.wordpress.com/2009/03/07/request-for-comments-on-new-introduction-for-my-new-book/
Thanks in advance.
Friday, March 6, 2009
First the "Good" News...
by the Sandwichman
According to the BLS, nonfarm payrolls fell by "only" 651,000 last month. This was "not as horrific as many traders feared."
Meanwhile, back on earth,
According to the BLS, nonfarm payrolls fell by "only" 651,000 last month. This was "not as horrific as many traders feared."
Meanwhile, back on earth,
The change in total nonfarm employment for December was revised from -577,000 to -681,000 and the change for January was revised from -598,000 to -655,000. Monthly revisions result from additional sample reports and the monthly recalculation of seasonal factors.Let's do the math. 651,000 + 161,000 = 812,000 (not counting next month's likely upward revision of this month's 651,000). Not as horrific as many traders feared?
Thursday, March 5, 2009
Quote of the week
A monetary crisis rapped inside a liquidity crisis; all rapped inside a quality crisis;
All rapped inside a fiscal crisis rapped inside a financial crisis;
All rapped inside a confidence crisis rapped inside a crisis in the dominant growth paradigm;
All rapped inside a contradiction rapped inside an enigma.
Travis Fast
All rapped inside a fiscal crisis rapped inside a financial crisis;
All rapped inside a confidence crisis rapped inside a crisis in the dominant growth paradigm;
All rapped inside a contradiction rapped inside an enigma.
Travis Fast
Fujita on Krugman
I have suggested here that Masahisa Fujita deserved to share the Nobel Prize with Paul Krugman. Fujita has coauthored with Krugman in the late 1990s, after Krugman published his 1991 paper that was cited in his prize. However, Fujita has now published a paper with Jaques-Francois Thisse in Regional Science and Urban Economics (RSUE), "New economic geography: An appraisal on the occasion of Paul Krugman's 2008 Nobel prize in economic sciences," March 2009, 39(2), 109-119. The abstract is as follows:
The paper provides quite a list of these predecessors, and although the paper does not highlight them too much, they include his paper in 1988 in RSUE that pretty much fully covered what is in the 1991 paper by Krugman, "A monopolistic competition model of spatial agglomeration: a differentiated product approach." The extensive literature he cites includes two important papers in 1980 and 1982 by him with H. Ogawa, as well as highlighting the foundational work in the 1940s and 1950s by the "Father of Regional Science," the still-living at 90 years old, Walter Isard, also one of the founders of "Peace Economics."
Paul Krugman has clarified the microeconomic underpinnings of both spatial economic agglomerations and regional imbalances at national and international levels. He has achieved this with a series of remarkably original papers and books that succeed in combining imperfect competition, increasing returns, and transportation costs in new and powerful ways. Yet, not everything was brand new in New Economic Geography. To be precise, several disparate pieces of high-quality work were available in urban economics and location theory. Our purpose in this paper is to shed new light on economic geography through the lenses of these two fields of economics and regional science.
The paper provides quite a list of these predecessors, and although the paper does not highlight them too much, they include his paper in 1988 in RSUE that pretty much fully covered what is in the 1991 paper by Krugman, "A monopolistic competition model of spatial agglomeration: a differentiated product approach." The extensive literature he cites includes two important papers in 1980 and 1982 by him with H. Ogawa, as well as highlighting the foundational work in the 1940s and 1950s by the "Father of Regional Science," the still-living at 90 years old, Walter Isard, also one of the founders of "Peace Economics."
Is Brad DeLong Going To The US Treasury?
If one visits Brad DeLong's blog, one will find photos he took on Monday while visiting the US Treasury in Washington, including one of his nose, :-). Brad was a Deputy Assistant Secretary of the Treasury in the early years of the Clinton administration. He was also a student of Larry Summers at Harvard and his most famous papers were coauthored with Summers. Summers was reportedly the person who brought him to Treasury under Clinton, and is now reportedly the top adviser to Obama, with Geithner as Treasury Secretary also a protege and presumably knowing DeLong quite well. All of the positions just below the Secretary level are unfilled, with no public reports of who the candidates are: Deputy plus the Undersecretary and Assistant Secretary positions. All this rather looks to me like Brad may well be a candidate for one of these. Of course, if he takes one, that will probably mean at least a temporary end to his widely read blog.
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