I just got this from Stewart Brand, who organizes lectures at San Francisco's Fort Mason. Romer is suggesting that less developed countries contract with capitalist nations to set up Hong Kong's for them. What about the alternative, having capitalist nations let us set up little socialist republics to demonstrate an alternative system.
This talk was the first public launch of an idea that Romer has been working on for two years.
His economic theory of history explains phenomena such as the constant improvement of the human standard of living by looking primarily at just two forms of innovative ideas: technology and rules.
Technologies rearrange materials with ingenious recipes and formulas. More people create more technologies, which in turn generates more people. In recent decades technology has enabled the "demographic transition" which lowers birthrates and raises income per person even higher as population levels off.
.
Rules structure the interactions between people. As population density increased, the idea of ownership became an important rule. A supporting rule for managing violations replaced the old idea of deadly vengeance with awarding damages instead: simply shifting value replaced destroying value. For the idea of open science, recognition replaced ownership as the main event, which means that whoever publishes first is most rewarded, and that accelerates science.
Rules can amplify or stifle technological progress. China was the world leader in inventing new technologies until about a thousand years ago, when centralized dynastic rules slowed innovation almost to a stop.
Romer notes that business keeps evolving as new companies introduce new rule sets. The good ideas are copied, and workers migrate from failing companies to the new and old ones where the new rules are working well. The same goes for countries. Starting about 1970, China took some of the effective rules of Hong Kong (which was managed from afar by England) and set up four special economic zones along the coast operating as imitation Hong Kongs. They worked so well that China rolled out the scheme for the whole country, and its Gross Domestic Product took off. "Hong Kong was the most successful economic development program in history."
Romer suggests that we rethink sovereignty (respect borders, but maybe import administrative control); rethink citizenship (support residency, but maybe import voice in political affairs); and rethink scale (instead of focusing on nations, focus on cities---on city states like Hong Kong and Singapore.)
Paul Romer proposes that developing countries could invite instant Hong Kongs---new cities in new locations run by experienced governments such as Canada or Finland. They would enrich the country where they are built as special economic zones while also rewarding the distant government that makes the investment of building the new city state and installing a set of fair and productive rules. Over time, as with Hong Kong, the new city is turned over to the host country.
The idea is getting some traction in the developing world. This summer Romer is going public with a Bridge Cities Institute website for further exploration and eventual application of the idea.
One miracle of cities is that they sometimes renew themselves brilliantly. This could be a whole new form of that.
Tuesday, May 19, 2009
Political Aspects of Full Employment V, 1.
by Michal Kalecki
Should a progressive be satisfied with a regime of the political business cycle as described in the preceding section? I think he should oppose it on two grounds: (i) that it does not assure lasting full employment; (ii) that government intervention is tied to public investment and does not embrace subsidizing consumption. What the masses now ask for is not the mitigation of slumps but their total abolition. Nor should the resulting fuller utilization of resources be applied to unwanted public investment merely in order to provide work. The government spending programme should be devoted to public investment only to the extent to which such investment is actually needed. The rest of government spending necessary to maintain full employment should be used to subsidize consumption (through family allowances, old-age pensions, reduction in indirect taxation, and subsidizing necessities). Opponents of such government spending say that the government will then have nothing to show for their money. The reply is that the counterpart of this spending will be the higher standard of living of the masses. Is not this the purpose of all economic activity?
next
Should a progressive be satisfied with a regime of the political business cycle as described in the preceding section? I think he should oppose it on two grounds: (i) that it does not assure lasting full employment; (ii) that government intervention is tied to public investment and does not embrace subsidizing consumption. What the masses now ask for is not the mitigation of slumps but their total abolition. Nor should the resulting fuller utilization of resources be applied to unwanted public investment merely in order to provide work. The government spending programme should be devoted to public investment only to the extent to which such investment is actually needed. The rest of government spending necessary to maintain full employment should be used to subsidize consumption (through family allowances, old-age pensions, reduction in indirect taxation, and subsidizing necessities). Opponents of such government spending say that the government will then have nothing to show for their money. The reply is that the counterpart of this spending will be the higher standard of living of the masses. Is not this the purpose of all economic activity?
next
Climate Code Red. The case against carbon trading
The global warming crisis is far worse than officially indicated says David Spratt the author of 'Climate Code Red' and Ted Nordhaus author of 'The Emerging Climate Consesnsus' and 'The Death of Environmentalism'.
David Spratt: "We face a climate EMERGENCY. At times of emergency you don't put a price in the market. 2 degrees celsius is enough for 5-10 metres of sea level rise. Enough to melt Greenland."
Ted Nordhause from the Breakthrough Institute in California agrees. "We need to directly invest in employing the technologies we need. The cap and trade is indirect. We are not going to achieve this by making dirty sources of energy more expensive. We need to make clean energy cheap." Nordhaus added that we need massive public investment in research and deployment; massive new infrastructure. Public monies should be employed due to the existence of what is termed the "Gordian Knot' - Because of the huge price gap between dirty and clean energy, if you raise the price of fossil fuels you get almost an immediate public reaction. . But if you don't raise the price enough you don't get the public converting to clean energy.
Norhaus says that solar thermal technology will be competitive with coal by 2013 and he claims that this development has been actively suppressed by Government.
David Spratt: "We can come up with money to save the banking system, but will we come up with money to save the planet?" "I do a lot of opinion research work. What Americans want is long, large investments in the health of the US economy, for example renewable technologies."
Thirty to fifty percent of GDP was spent on the Second World War. Why not employ a similar percent on this climate emergency? Historically the environment movement has focussed on regulating and restricting. This new requirement is to build a fundamentally new economy, says Nordhaus.
We cannot leave aside our own personal responsibilities in terms of growing food, using bicycles, conserving energy in the home.
The research I've done confirms Spratt's and Nordhaus' warnings. See references below.
Global warming: has the meltdown has begun?
Norm Dixon. Green Left Weekly. 9th June 2004
http://www.greenleft.org.au/2004/585/32365
Harvard Prof. John Holdren on “Global Climate Disruption: What do we know, what should we do?"”
Posted on Sunday, February 24, 2008
http://www.climatesciencewatch.org/index.php/csw/details/holdren_global_climate_disruption/
GLOBAL WARMING Reason for Alarm?
Article – June 29, 2006
Posted/Updated: 2008-04-17 10:39:04
http://www.realtruth.org/articles/443-gwrfa-print.html
Arctic Sea Ice Gone in Summer Within Five Years?
Seth Borenstein in Washington
Associated Press
December 12, 2007
Greenhouse gas 4 times higher than thought
Published October 24, 2008 09:04 AM
http://www.enn.com/top_stories/article/38482
Globalization Is Fueling Global Warming
By Les Leopold, AlterNet
Posted on December 28, 2007, Printed on February 6, 2009
http://www.alternet.org/story/71873/
4,500 year old ice shelf breaks away. 3rd September 2008
http://www.cnn.com/2008/TECH/science/09/03/arctic.ice.shelf.ap/
The Collapse of the Arctic Ice Shelf Could Mean the End of Life As We Know It
June 4, 2008 ·
http://earthfirst.com/the-collapse-of-the-arctic-ice-shelf-could-mean-the-end-of-life-as-we-know-it/
And many more articles
David Spratt: "We face a climate EMERGENCY. At times of emergency you don't put a price in the market. 2 degrees celsius is enough for 5-10 metres of sea level rise. Enough to melt Greenland."
Ted Nordhause from the Breakthrough Institute in California agrees. "We need to directly invest in employing the technologies we need. The cap and trade is indirect. We are not going to achieve this by making dirty sources of energy more expensive. We need to make clean energy cheap." Nordhaus added that we need massive public investment in research and deployment; massive new infrastructure. Public monies should be employed due to the existence of what is termed the "Gordian Knot' - Because of the huge price gap between dirty and clean energy, if you raise the price of fossil fuels you get almost an immediate public reaction. . But if you don't raise the price enough you don't get the public converting to clean energy.
Norhaus says that solar thermal technology will be competitive with coal by 2013 and he claims that this development has been actively suppressed by Government.
David Spratt: "We can come up with money to save the banking system, but will we come up with money to save the planet?" "I do a lot of opinion research work. What Americans want is long, large investments in the health of the US economy, for example renewable technologies."
Thirty to fifty percent of GDP was spent on the Second World War. Why not employ a similar percent on this climate emergency? Historically the environment movement has focussed on regulating and restricting. This new requirement is to build a fundamentally new economy, says Nordhaus.
We cannot leave aside our own personal responsibilities in terms of growing food, using bicycles, conserving energy in the home.
The research I've done confirms Spratt's and Nordhaus' warnings. See references below.
Global warming: has the meltdown has begun?
Norm Dixon. Green Left Weekly. 9th June 2004
http://www.greenleft.org.au/2004/585/32365
Harvard Prof. John Holdren on “Global Climate Disruption: What do we know, what should we do?"”
Posted on Sunday, February 24, 2008
http://www.climatesciencewatch.org/index.php/csw/details/holdren_global_climate_disruption/
GLOBAL WARMING Reason for Alarm?
Article – June 29, 2006
Posted/Updated: 2008-04-17 10:39:04
http://www.realtruth.org/articles/443-gwrfa-print.html
Arctic Sea Ice Gone in Summer Within Five Years?
Seth Borenstein in Washington
Associated Press
December 12, 2007
Greenhouse gas 4 times higher than thought
Published October 24, 2008 09:04 AM
http://www.enn.com/top_stories/article/38482
Globalization Is Fueling Global Warming
By Les Leopold, AlterNet
Posted on December 28, 2007, Printed on February 6, 2009
http://www.alternet.org/story/71873/
4,500 year old ice shelf breaks away. 3rd September 2008
http://www.cnn.com/2008/TECH/science/09/03/arctic.ice.shelf.ap/
The Collapse of the Arctic Ice Shelf Could Mean the End of Life As We Know It
June 4, 2008 ·
http://earthfirst.com/the-collapse-of-the-arctic-ice-shelf-could-mean-the-end-of-life-as-we-know-it/
And many more articles
Monday, May 18, 2009
A Tasteless Reference
Janet Maslin has a review today in the New York Times of Lost in the Meritocracy: The Undereducation of an Overachiever, by Walter Kirn. According to the review, Kirn bluffed his way through college, substituting clever words for actually knowing something:
I guess the irony is lost on Maslin; by appealing to her prejudices, Kirn can also pretend to know something about cooking.
I have two words for Maslin, and for Kirn as well if he now pretends his days of pretending are behind him: gypsy soup.
Once he had decided to major in English, “since it sounded like something I might already know,” he learned to enjoy tossing the vocabulary of deconstructionism back at his teachers. He brought his SAT whiz’s skill to the deployment of “liminal,” “valuational,” “heuristic” and “praxis.” He felt empowered to attack a Western canon that he had never really read, skipping “straight from ignorance to revisionism.” These academic madeleines are as nostalgia inducing as the well-chosen pop culture references (the “Moosewood Cookbook”: “a best-selling guide to taste-free dining”) found throughout the book.
I guess the irony is lost on Maslin; by appealing to her prejudices, Kirn can also pretend to know something about cooking.
I have two words for Maslin, and for Kirn as well if he now pretends his days of pretending are behind him: gypsy soup.
Private Clarity, Public Confusion - 19th May 2009
Every week I discover new things about the world that I didn't know before. I thought it might be useful to share them with you in a format that's quick and easy to pass on. Bullet format is good for me ;-)
(i) Henry "Kissinger was the "most frequent visitor" to the George W. Bush White House as an unofficial political advisor on Israel and the Middle East—including the invasion and occupation of Iraq." [1] (The Australian Labor Prime Minister, Kevin Rudd, continues to meet regularly with him).
(ii) Walmart is China's fifth-largest export market, ahead of Germany and Britain. [2] “Wal-Mart is responsible for approximately 10 percent of the United States' trade deficit with China.... Hillary Clinton, whose husband championed "free trade" deals like NAFTA, sat on the Board of Wal-Mart between 1985-1992….[The US] deficit with China has ballooned ...contrary to the promises made by politicos of both parties at the time….According to a study by the Economic Policy Institute [3], America's balance-of-payments deficit with China (of which approximately $18 billion dollars is created by Wal-Mart) was responsible for the loss of 1.5 million manufacturing jobs [in the US] between 1989 and 2003.”[4]
(iii) The huge trade imbalance between the US and China is a relatively recent phenomenon and began to make itself alarmingly apparent the year China joined the WTO (in 2001) [5]
(iv) A recent New York Times article, that describes the emergence of the above huge trade imbalance, fails to point out the very significant role of US and other transnational corporations in this global dilemma. [6] With one single company representing 10% of trade between the US and China this is a very significant omission.
(v) China "and other exporters"(large TNCs exporting from China I presume) kept the value of the Chinese currency low by sending much of their profits back to the US buying investments in Fannie, Freddie, and U.S. Treasury debt. These funds helped to keep interest rates low, which stimulated both consumption and speculation....Bloomberg later reported "A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank. 'If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,' Yu said in e-mailed answers to questions yesterday. 'If it is not the end of the world, it is the end of the current international financial system'." [7]
(vi) A board member of the Reserve Bank of Australia - Roger Corbett - is a Member of the Board of Directors of Wal-Mart Stores, Inc as well as Fairfax Media Limited (one of Australia's oligopoly media empires). He is also Deputy Chairman, Non-Executive Director of PrimeAg, a corporation established in December 2007 and that has set its sights on a massive land and water grab in Australia using a lot of investor money from overseas. [8]
(vii) "Between 1986 and 1989, U.S. Treasury Secretary .. Timothy Geithner was employed at Henry Kissinger, Brent Scowcroft, and Lawrence Eagleburger's Kissinger Associates influence-peddling firm." [9]
"It may be discovered that the Human Race possesses an ignorance which is far superior to any intelligent life form in the Universe." So said 'jN Hodges'. (Who is jN Hodges?)
[1] Henry Kissinger From Wikipedia on 19th May 2009
Many Australians are alarmed with the far right leanings of the new Labor Government under Kevin Rudd. Both the current Rudd and the former Howard administrations have used billions of dollars of taxpayer funds to transfer vast amounts of land to a selected handful of transnational corporations and to subsidise their corporate agribusiness operations. The latter include native forest destruction of a vast scale.) Now a company called PrimeAg whose Deputy Chairman is Roger Corbett (see below) is set to buy up these failed and heavily-subsidised landholders. One of these is Futuris. It owns a major stake in Forest Enterprises, my tormenting neighbour! Futuris has grabbed 1.4% of Australia's land mass. This could represent around 10% of Australia's agricultural land!
See: Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html
[2] The Economic Crisis: A Wal-Mart Economy Dimension. Michael Perelman. Econospeak 18th October 2008
[3] U.S.-China Trade, 1989-2003 - Impact on jobs and industries, nationally and state-by-state
A Research Report Prepared for the U.S.-China Economic and Security Review Commission
By Dr. Robert E. Scott, Director of International Programs, Economic Policy Institute. January 2005
EPI Working Paper #270
http://epi.3cdn.net/c523ff01bec5bc1c25_7nm6i278j.pdf
..\..\..\Economics\China\China-US\China-US-trade-1989-2003.PDF
[4] Wal-Mart's 'China Price' By Joshua Holland, AlterNet. Posted November 7, 2005.
http://www.alternet.org/workplace/27829
[5] The China Puzzle by Bob Dinetz
By DAVID LEONHARDT
Published: May 13, 2009
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
[6] The China Puzzle by Bob Dinetz
By DAVID LEONHARDT
Published: May 13, 2009
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
[7] The Economic Crisis: A Wal-Mart Economy Dimension
Posted October 17, 2008
http://michaelperelman.wordpress.com/2008/10/17/the-economic-crisis-the-wal-mart-economy-dimension/
[8] Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html
[9] http://www.dollarsandsense.org/blog/2008/11/geithner-and-kissinger-associates-pt-1.html
(i) Henry "Kissinger was the "most frequent visitor" to the George W. Bush White House as an unofficial political advisor on Israel and the Middle East—including the invasion and occupation of Iraq." [1] (The Australian Labor Prime Minister, Kevin Rudd, continues to meet regularly with him).
(ii) Walmart is China's fifth-largest export market, ahead of Germany and Britain. [2] “Wal-Mart is responsible for approximately 10 percent of the United States' trade deficit with China.... Hillary Clinton, whose husband championed "free trade" deals like NAFTA, sat on the Board of Wal-Mart between 1985-1992….[The US] deficit with China has ballooned ...contrary to the promises made by politicos of both parties at the time….According to a study by the Economic Policy Institute [3], America's balance-of-payments deficit with China (of which approximately $18 billion dollars is created by Wal-Mart) was responsible for the loss of 1.5 million manufacturing jobs [in the US] between 1989 and 2003.”[4]
(iii) The huge trade imbalance between the US and China is a relatively recent phenomenon and began to make itself alarmingly apparent the year China joined the WTO (in 2001) [5]
(iv) A recent New York Times article, that describes the emergence of the above huge trade imbalance, fails to point out the very significant role of US and other transnational corporations in this global dilemma. [6] With one single company representing 10% of trade between the US and China this is a very significant omission.
(v) China "and other exporters"(large TNCs exporting from China I presume) kept the value of the Chinese currency low by sending much of their profits back to the US buying investments in Fannie, Freddie, and U.S. Treasury debt. These funds helped to keep interest rates low, which stimulated both consumption and speculation....Bloomberg later reported "A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank. 'If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,' Yu said in e-mailed answers to questions yesterday. 'If it is not the end of the world, it is the end of the current international financial system'." [7]
(vi) A board member of the Reserve Bank of Australia - Roger Corbett - is a Member of the Board of Directors of Wal-Mart Stores, Inc as well as Fairfax Media Limited (one of Australia's oligopoly media empires). He is also Deputy Chairman, Non-Executive Director of PrimeAg, a corporation established in December 2007 and that has set its sights on a massive land and water grab in Australia using a lot of investor money from overseas. [8]
(vii) "Between 1986 and 1989, U.S. Treasury Secretary .. Timothy Geithner was employed at Henry Kissinger, Brent Scowcroft, and Lawrence Eagleburger's Kissinger Associates influence-peddling firm." [9]
"It may be discovered that the Human Race possesses an ignorance which is far superior to any intelligent life form in the Universe." So said 'jN Hodges'. (Who is jN Hodges?)
[1] Henry Kissinger From Wikipedia on 19th May 2009
Many Australians are alarmed with the far right leanings of the new Labor Government under Kevin Rudd. Both the current Rudd and the former Howard administrations have used billions of dollars of taxpayer funds to transfer vast amounts of land to a selected handful of transnational corporations and to subsidise their corporate agribusiness operations. The latter include native forest destruction of a vast scale.) Now a company called PrimeAg whose Deputy Chairman is Roger Corbett (see below) is set to buy up these failed and heavily-subsidised landholders. One of these is Futuris. It owns a major stake in Forest Enterprises, my tormenting neighbour! Futuris has grabbed 1.4% of Australia's land mass. This could represent around 10% of Australia's agricultural land!
See: Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html
[2] The Economic Crisis: A Wal-Mart Economy Dimension. Michael Perelman. Econospeak 18th October 2008
[3] U.S.-China Trade, 1989-2003 - Impact on jobs and industries, nationally and state-by-state
A Research Report Prepared for the U.S.-China Economic and Security Review Commission
By Dr. Robert E. Scott, Director of International Programs, Economic Policy Institute. January 2005
EPI Working Paper #270
http://epi.3cdn.net/c523ff01bec5bc1c25_7nm6i278j.pdf
..\..\..\Economics\China\China-US\China-US-trade-1989-2003.PDF
[4] Wal-Mart's 'China Price' By Joshua Holland, AlterNet. Posted November 7, 2005.
http://www.alternet.org/workplace/27829
[5] The China Puzzle by Bob Dinetz
By DAVID LEONHARDT
Published: May 13, 2009
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
[6] The China Puzzle by Bob Dinetz
By DAVID LEONHARDT
Published: May 13, 2009
http://www.nytimes.com/2009/05/17/magazine/17china-t.html
[7] The Economic Crisis: A Wal-Mart Economy Dimension
Posted October 17, 2008
http://michaelperelman.wordpress.com/2008/10/17/the-economic-crisis-the-wal-mart-economy-dimension/
[8] Sowing the seeds of a northern farm stampede
Matthew Stevens | October 27, 2007
Article from: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22655071-5001641,00.html
[9] http://www.dollarsandsense.org/blog/2008/11/geithner-and-kissinger-associates-pt-1.html
Krugman Misses the Point on Waxman-Markey
A careful reading of the latest column by Paul Krugman shows that he doesn’t see what the problem is with the climate change bill now on its way to the House floor. He defends the concept of a cap relative to a tax, which is fine with me. (Jim Hansen, who is a hero in climate science but not a specialist on the economics front, has only muddied the waters by raising this complaint.) He laments the giveaways in Waxman-Markey, but agrees with me that they can be remedied by moving toward full auction in the future. What never makes an appearance, however, is the problem that Waxman-Markey caps individual uses of carbon fuels one sector at a time, and this is not fixable without overhauling the whole approach. What’s wrong with the W-M model? Let me count the ways:
1. The ability to achieve carbon targets depends on the coverage of the program. W-M starts with limited coverage (few sectors capped) and then sets up a protracted battle for extending cap-and-trade to more sectors in the years to come. In spite of timetables written into the bill, you can be sure that each extension will be fought over; there will always be a reason (amplified by lobbying largesse) to postpone bringing in new parts of the economy.
2. Once you have agreed to a sectoral approach, and once you start handing out carbon permits to everyone on the receiving line, you get to haggle over each sector’s carbon budget. There is always a reason to make your sector’s emission reduction target a little lower than the next guy’s.
3. Contrary to what Krugman claims, verifying the actual carbon emissions of each sector is herculean and quite likely to fail.
4. The experience of the European Trading System, which W-M emulates, confirms all these predictions; it has been a disaster. Fixing it, and fixing a future system along the same lines in the US, will mean scrapping it and starting over.
The irony is that there is a much simpler, much more effective alternative: put a limit on the amount of carbon fuels available to the economy by requiring a permit to extract or import them. Coverage is complete, there is a single, economy-wide target, and verification is a snap. There is little opportunity under such a system for businesses to offer or politicians to demand favors for loopholes and special-interest tweaks. Maybe that’s why it’s not on the table.
1. The ability to achieve carbon targets depends on the coverage of the program. W-M starts with limited coverage (few sectors capped) and then sets up a protracted battle for extending cap-and-trade to more sectors in the years to come. In spite of timetables written into the bill, you can be sure that each extension will be fought over; there will always be a reason (amplified by lobbying largesse) to postpone bringing in new parts of the economy.
2. Once you have agreed to a sectoral approach, and once you start handing out carbon permits to everyone on the receiving line, you get to haggle over each sector’s carbon budget. There is always a reason to make your sector’s emission reduction target a little lower than the next guy’s.
3. Contrary to what Krugman claims, verifying the actual carbon emissions of each sector is herculean and quite likely to fail.
4. The experience of the European Trading System, which W-M emulates, confirms all these predictions; it has been a disaster. Fixing it, and fixing a future system along the same lines in the US, will mean scrapping it and starting over.
The irony is that there is a much simpler, much more effective alternative: put a limit on the amount of carbon fuels available to the economy by requiring a permit to extract or import them. Coverage is complete, there is a single, economy-wide target, and verification is a snap. There is little opportunity under such a system for businesses to offer or politicians to demand favors for loopholes and special-interest tweaks. Maybe that’s why it’s not on the table.
Political Aspects of Full Employment IV, 3.
by Michal Kalecki
Even those who advocate stimulating private investment to counteract the slump frequently do not rely on it exclusively, but envisage that it should be associated with public investment. It looks at present as if business leaders and their experts (at least some of them) would tend to accept as a pis aller public investment financed by borrowing as a means of alleviating slumps. They seem, however, still to be consistently opposed to creating employment by subsidizing consumption and to maintaining full employment.
This state of affairs is perhaps symptomatic of the future economic regime of capitalist democracies. In the slump, either under the pressure of the masses, or even without it, public investment financed by borrowing will be undertaken to prevent large-scale unemployment. But if attempts are made to apply this method in order to maintain the high level of employment reached in the subsequent boom, strong opposition by business leaders is likely to be encountered. As has already been argued, lasting full employment is not at all to their liking. The workers would 'get out of hand' and the 'captains of industry' would be anxious to 'teach them a lesson. Moreover, the price increase in the upswing is to the disadvantage of small and big rentiers, and makes them 'boom-tired.'
In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business-as a rule influential in government departments-would most probably induce the government to return to the orthodox policy of cutting down the budget deficit. A slump would follow in which government spending policy would again come into its own.
This pattern of a political business cycle is not entirely conjectural; something very similar happened in the USA in 1937-8. The breakdown of the boom in the second half of 1937 was actually due to the drastic reduction of the budget deficit. On the other hand, in the acute slump that followed the government promptly reverted to a spending policy.
The regime of the political business cycle would be an artificial restoration of the position as it existed in nineteenth-century capitalism. Full employment would be reached only at the top of the boom, but slumps would be relatively mild and short-lived.
next
Even those who advocate stimulating private investment to counteract the slump frequently do not rely on it exclusively, but envisage that it should be associated with public investment. It looks at present as if business leaders and their experts (at least some of them) would tend to accept as a pis aller public investment financed by borrowing as a means of alleviating slumps. They seem, however, still to be consistently opposed to creating employment by subsidizing consumption and to maintaining full employment.
This state of affairs is perhaps symptomatic of the future economic regime of capitalist democracies. In the slump, either under the pressure of the masses, or even without it, public investment financed by borrowing will be undertaken to prevent large-scale unemployment. But if attempts are made to apply this method in order to maintain the high level of employment reached in the subsequent boom, strong opposition by business leaders is likely to be encountered. As has already been argued, lasting full employment is not at all to their liking. The workers would 'get out of hand' and the 'captains of industry' would be anxious to 'teach them a lesson. Moreover, the price increase in the upswing is to the disadvantage of small and big rentiers, and makes them 'boom-tired.'
In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business-as a rule influential in government departments-would most probably induce the government to return to the orthodox policy of cutting down the budget deficit. A slump would follow in which government spending policy would again come into its own.
This pattern of a political business cycle is not entirely conjectural; something very similar happened in the USA in 1937-8. The breakdown of the boom in the second half of 1937 was actually due to the drastic reduction of the budget deficit. On the other hand, in the acute slump that followed the government promptly reverted to a spending policy.
The regime of the political business cycle would be an artificial restoration of the position as it existed in nineteenth-century capitalism. Full employment would be reached only at the top of the boom, but slumps would be relatively mild and short-lived.
next
Sunday, May 17, 2009
Political Aspects of Full Employment IV, 2.
by Michal Kalecki
In current discussions of these problems there emerges time and again the conception of counteracting the slump by stimulating private investment. This may be done by lowering the rate of interest, by the reduction of income tax, or by subsidizing private investment directly in this or another form. That such a scheme should be attractive to business is not surprising. The entrepreneur remains the medium through which the intervention is conducted. If he does not feel confidence in the political situation, he will not be bribed into investment. And the intervention does not involve the government either in 'playing with' (public) investment or 'wasting money' on subsidizing consumption.
It may be shown, however, that the stimulation of private investment does not provide an adequate method for preventing mass unemployment. There are two alternatives to be considered here. (i) The rate of interest or income tax (or both) is reduced sharply in the slump and increased in the boom. In this case, both the period and the amplitude of the business cycle will be reduced, but employment not only in the slump but even in the boom may be far from full, i.e. the average unemployment may be considerable, although its fluctuations will be less marked. (ii) The rate of interest or income tax is reduced in a slump but not increased in the subsequent boom. In this case the boom will last longer, but it must end in a new slump: one reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy. In the new slump it will be necessary to reduce the rate of interest or income tax again and so on. Thus in the not too remote future, the rate of interest would have to be negative and income tax would have to be replaced by an income subsidy. The same would arise if it were attempted to maintain full employment by stimulating private investment: the rate of interest and income tax would have to be reduced continuously.
In addition to this fundamental weakness of combating unemployment by stimulating private investment, there is a practical difficulty. The reaction of the entrepreneurs to the measures described is uncertain. If the downswing is sharp, they may take a very pessimistic view of the future, and the reduction of the rate of interest or income tax may then for a long time have little or no effect upon investment, and thus upon the level of output and employment.
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In current discussions of these problems there emerges time and again the conception of counteracting the slump by stimulating private investment. This may be done by lowering the rate of interest, by the reduction of income tax, or by subsidizing private investment directly in this or another form. That such a scheme should be attractive to business is not surprising. The entrepreneur remains the medium through which the intervention is conducted. If he does not feel confidence in the political situation, he will not be bribed into investment. And the intervention does not involve the government either in 'playing with' (public) investment or 'wasting money' on subsidizing consumption.
It may be shown, however, that the stimulation of private investment does not provide an adequate method for preventing mass unemployment. There are two alternatives to be considered here. (i) The rate of interest or income tax (or both) is reduced sharply in the slump and increased in the boom. In this case, both the period and the amplitude of the business cycle will be reduced, but employment not only in the slump but even in the boom may be far from full, i.e. the average unemployment may be considerable, although its fluctuations will be less marked. (ii) The rate of interest or income tax is reduced in a slump but not increased in the subsequent boom. In this case the boom will last longer, but it must end in a new slump: one reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy. In the new slump it will be necessary to reduce the rate of interest or income tax again and so on. Thus in the not too remote future, the rate of interest would have to be negative and income tax would have to be replaced by an income subsidy. The same would arise if it were attempted to maintain full employment by stimulating private investment: the rate of interest and income tax would have to be reduced continuously.
In addition to this fundamental weakness of combating unemployment by stimulating private investment, there is a practical difficulty. The reaction of the entrepreneurs to the measures described is uncertain. If the downswing is sharp, they may take a very pessimistic view of the future, and the reduction of the rate of interest or income tax may then for a long time have little or no effect upon investment, and thus upon the level of output and employment.
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Saturday, May 16, 2009
Political Aspects of Full Employment IV, 1.
by Michal Kalecki
What will be the practical outcome of the opposition to a policy of full employment by government spending in a capitalist democracy? We shall try to answer this question on the basis of the analysis of the reasons for this opposition given in section II. We argued there that we may expect the opposition of the leaders of industry on three planes: (i) opposition on principle to government spending based on a budget deficit; (ii) opposition to this spending being directed either towards public investment-which may foreshadow the intrusion of the state into the new spheres of economic activity-or towards subsidizing mass consumption; (iii) opposition to maintaining full employment and not merely preventing deep and prolonged slumps.
Now it must be recognized that the stage at which 'business leaders' could afford to be opposed to any kind of government intervention to alleviate a slump is more or less past. Three factors have contributed to this: (i) very full employment during the present war; (ii) development of the economic doctrine of full employment; (iii) partly as a result of these two factors, the slogan 'Unemployment never again' is now deeply rooted in the consciousness of the masses. This position is reflected in the recent pronouncements of the 'captains of industry' and their experts.5 The necessity that 'something must be done in the slump' is agreed; but the fight continues, firstly, as to what should be done in the slump (i.e. what should be the direction of government intervention) and secondly, that it should be done only in the slump (i.e. merely to alleviate slumps rather than to secure permanent full employment).
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What will be the practical outcome of the opposition to a policy of full employment by government spending in a capitalist democracy? We shall try to answer this question on the basis of the analysis of the reasons for this opposition given in section II. We argued there that we may expect the opposition of the leaders of industry on three planes: (i) opposition on principle to government spending based on a budget deficit; (ii) opposition to this spending being directed either towards public investment-which may foreshadow the intrusion of the state into the new spheres of economic activity-or towards subsidizing mass consumption; (iii) opposition to maintaining full employment and not merely preventing deep and prolonged slumps.
Now it must be recognized that the stage at which 'business leaders' could afford to be opposed to any kind of government intervention to alleviate a slump is more or less past. Three factors have contributed to this: (i) very full employment during the present war; (ii) development of the economic doctrine of full employment; (iii) partly as a result of these two factors, the slogan 'Unemployment never again' is now deeply rooted in the consciousness of the masses. This position is reflected in the recent pronouncements of the 'captains of industry' and their experts.5 The necessity that 'something must be done in the slump' is agreed; but the fight continues, firstly, as to what should be done in the slump (i.e. what should be the direction of government intervention) and secondly, that it should be done only in the slump (i.e. merely to alleviate slumps rather than to secure permanent full employment).
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The Point About Inflection Points
My unsystematic survey of the mass media tells me that the term “inflection point” has entered the popular lexicon in the last week or two, probably because of the discussion of whether a reversal in the second derivative of changes in GDP or unemployment constitutes a “green shoot”. Now we have usages like this:
If you remember your calculus, you’ll probably think, as I did, this guy is confusing first and second derivatives. But the larger point, I suspect, is that we are going through a long period in which, as more of the population acquires basic technical training, math and science language is going to enter the general discourse. This means that people without this training will be using the tech-talk too, and often getting it wrong. The division of society between people who have these skills and those who don’t will become more obvious. It becomes another form of “distinction”, in Bourdieu’s sense.
What does this have to do with the issue of military commissions and Guantanamo detainees? Nothing – it’s orthogonal.
In a testy exchange with reporters, Mr. Obama’s press secretary, Robert Gibbs, argued that on Monday, before the decisions were announced, he was being asked why the president insisted on being “so opposite of George Bush in all these questions, and on Friday I’m answering questions about why are we so much like George Bush on all these questions.”
“I’ll let you guys discern what inflection point, what period of day, that all changed,” Mr. Gibbs continued.
If you remember your calculus, you’ll probably think, as I did, this guy is confusing first and second derivatives. But the larger point, I suspect, is that we are going through a long period in which, as more of the population acquires basic technical training, math and science language is going to enter the general discourse. This means that people without this training will be using the tech-talk too, and often getting it wrong. The division of society between people who have these skills and those who don’t will become more obvious. It becomes another form of “distinction”, in Bourdieu’s sense.
What does this have to do with the issue of military commissions and Guantanamo detainees? Nothing – it’s orthogonal.
Friday, May 15, 2009
Political Aspects of Full Employment III, 2.
by Michal Kalecki
The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy's economic character. Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest. They also induce competitive rearmament of other countries. This causes the main aim of spending to shift gradually from full employment to securing the maximum effect of rearmament. As a result, employment becomes 'over-full'. not only is unemployment abolished, but an acute scarcity of labour prevails. Bottlenecks arise in every sphere, and these must be dealt with by the creation of a number of controls. Such an economy has many features of a planned economy, and is sometimes compared, rather ignorantly, with socialism. However, this type of planning is bound to appear whenever an economy sets itself a certain high target of production in a particular sphere, when it becomes a target economy of which the armament economy is a special case. An armament economy involves in particular the curtailment of consumption as compared with that which it could have been under full employment.
The fascist system starts from the overcoming of unemployment, develops into an armament economy of scarcity, and ends inevitably in war.
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The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy's economic character. Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest. They also induce competitive rearmament of other countries. This causes the main aim of spending to shift gradually from full employment to securing the maximum effect of rearmament. As a result, employment becomes 'over-full'. not only is unemployment abolished, but an acute scarcity of labour prevails. Bottlenecks arise in every sphere, and these must be dealt with by the creation of a number of controls. Such an economy has many features of a planned economy, and is sometimes compared, rather ignorantly, with socialism. However, this type of planning is bound to appear whenever an economy sets itself a certain high target of production in a particular sphere, when it becomes a target economy of which the armament economy is a special case. An armament economy involves in particular the curtailment of consumption as compared with that which it could have been under full employment.
The fascist system starts from the overcoming of unemployment, develops into an armament economy of scarcity, and ends inevitably in war.
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Thursday, May 14, 2009
Undercover in Burma
My former student, Ryan Libre, snuck into Burma to meet with the Kachin Independence Army.
He is one of my favorite students, even though he has a long-standing incomplete in one of my classes.
Our local weekly has a short story about his work.
http://www.newsreview.com/chico/content?oid=980928
He is one of my favorite students, even though he has a long-standing incomplete in one of my classes.
Our local weekly has a short story about his work.
http://www.newsreview.com/chico/content?oid=980928
Why Environmentalists Should Oppose the Waxman-Markey Bill
Media coverage has been predictably confused about the compromises loaded onto the Waxman-Markey climate change bill. The headlines obsess on targets for 2020 (relaxed) and 2050 (maintained), as if decisions made today somehow preempt our choices over the next 10 or 40 years. They don't, of course, and reasonable people should pay no attention to them. Targets for the first year or two matter; beyond that it’s all rhetoric.
So forget the targets. What really matters is the architecture. If we put the wrong system into place, our job will only get harder, since it is much more difficult to dismantle and rebuild a regulatory structure than to set one up from scratch — sort of like the difference between brownfield and greenfield. To see this truth in action, just look at the struggle of the EU to get out from under their disastrous European Trading System.
So how does Waxman-Markey rate on architecture? It’s a loser. The single biggest flaw, one which is fundamentally not fixable, is the decision to issue permits on an industry-by-industry basis — to cap the uses of carbon fuels rather than their sources. This is an invitation to never-ending bickering over who is allowed to emit how much. Every little tweak of the system — whether to include freight transportation or agriculture (which crops!) — has to be hammered out separately. Reductions are calculated from a baseline, but there are acres of wriggle room about how to measure who emitted how much in the base year and therefore how much should be reduced tomorrow. Enforcement is complex, expensive and full of loopholes. Only lawyers (and politicians with extortionary campaign finance strategies) could love this.
There needs to be a single comprehensive cap on the sources, not the uses, of carbon fuels. Require permits for the extraction of these fuels from the ground or importing them from abroad. Limit the number of permits to achieve an emissions target, then leave it to the normal workings of the market to determine which industries will get which share of the stuff.
Auctioning the permits is also extremely important, but this is fixable in future iterations if the architecture is right. It is not fixable under Waxman-Markey, because the percentage has to be set for each industry separately, and cranking each one up to 100 is an impossible political task.
Mainstream environmental groups are not blind to these problems, but they see them as second-order. Above all, they are soooooo happy that climate deniers are not in command of politics any more. They are fighting yesterday’s battle, to get general agreement on the principle that climate change is caused by people, and people need to do something about it. They like the nice feeling that comes from all of us raising our hands and pledging, scout’s honor, to achieve sustainability by 2050. But they are losing today’s battle to put into place a viable means to get from here to there, and judging from their public statements they don’t even know it.
So forget the targets. What really matters is the architecture. If we put the wrong system into place, our job will only get harder, since it is much more difficult to dismantle and rebuild a regulatory structure than to set one up from scratch — sort of like the difference between brownfield and greenfield. To see this truth in action, just look at the struggle of the EU to get out from under their disastrous European Trading System.
So how does Waxman-Markey rate on architecture? It’s a loser. The single biggest flaw, one which is fundamentally not fixable, is the decision to issue permits on an industry-by-industry basis — to cap the uses of carbon fuels rather than their sources. This is an invitation to never-ending bickering over who is allowed to emit how much. Every little tweak of the system — whether to include freight transportation or agriculture (which crops!) — has to be hammered out separately. Reductions are calculated from a baseline, but there are acres of wriggle room about how to measure who emitted how much in the base year and therefore how much should be reduced tomorrow. Enforcement is complex, expensive and full of loopholes. Only lawyers (and politicians with extortionary campaign finance strategies) could love this.
There needs to be a single comprehensive cap on the sources, not the uses, of carbon fuels. Require permits for the extraction of these fuels from the ground or importing them from abroad. Limit the number of permits to achieve an emissions target, then leave it to the normal workings of the market to determine which industries will get which share of the stuff.
Auctioning the permits is also extremely important, but this is fixable in future iterations if the architecture is right. It is not fixable under Waxman-Markey, because the percentage has to be set for each industry separately, and cranking each one up to 100 is an impossible political task.
Mainstream environmental groups are not blind to these problems, but they see them as second-order. Above all, they are soooooo happy that climate deniers are not in command of politics any more. They are fighting yesterday’s battle, to get general agreement on the principle that climate change is caused by people, and people need to do something about it. They like the nice feeling that comes from all of us raising our hands and pledging, scout’s honor, to achieve sustainability by 2050. But they are losing today’s battle to put into place a viable means to get from here to there, and judging from their public statements they don’t even know it.
Political Aspects of Full Employment III, 1.
by Michal Kalecki
One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.
The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism. The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed. In a democracy, one does not know what the next government will be like. Under fascism there is no next government.
The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.
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One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.
The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism. The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed. In a democracy, one does not know what the next government will be like. Under fascism there is no next government.
The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.
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Wednesday, May 13, 2009
Political Aspects of Full Employment II, 4.
by Michal Kalecki
We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome--as it may well be under the pressure of the masses-the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.
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We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome--as it may well be under the pressure of the masses-the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.
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Social Security in Crisis: Act Now!
Like many of you, I am deeply troubled by the latest news about the Social Security trust fund. Until this morning, I was mired in complacent ignorance, soothed by the belief that it would be sufficient to pay all benefits until 2041. Now I know the awful truth: because of the current economic downturn, the fund will be exhausted in 2037, a mere 28 years from now.
Unwilling to face reality, my first reaction was denial. Aha! I thought, the prognosticators have overlooked the effects of the Great Boom of 2021-24. This will add almost a decade to the fund’s lifespan and forestall the need for painful reforms. But then I remembered that there will be a terrible slump in the early 30s, and that this would drain the fund once and for all.
Fellow citizens, wake up! There is no escaping the inevitable. We must begin to make major sacrifices now, and I mean today, in order to avert this impending debacle. Cut benefits! Raise taxes! This is your last chance to save Social Security!
Unwilling to face reality, my first reaction was denial. Aha! I thought, the prognosticators have overlooked the effects of the Great Boom of 2021-24. This will add almost a decade to the fund’s lifespan and forestall the need for painful reforms. But then I remembered that there will be a terrible slump in the early 30s, and that this would drain the fund once and for all.
Fellow citizens, wake up! There is no escaping the inevitable. We must begin to make major sacrifices now, and I mean today, in order to avert this impending debacle. Cut benefits! Raise taxes! This is your last chance to save Social Security!
The Yanks - Over-subsidised, Over-paid and Over here
A former Central Intelligence Agency economic analyst has helped to set up a Cayman Island registered partnership to take advantage of what is referred to by the directors and partners as "climate related market drivers" and "vigorous demand" for water in Australia.
Matt Dickerson is a former international economic analyst at the CIA. He is now Summit Global Management's CEO, portfolio manager and chief marketing officer. Summit has a $500 million dollar water-purchasing strategy for Australia which is to buy water entitlements from farmers hit by prolonged drought and then sell the water back to them. Where this half a billion dollar purchasing fund is coming from is anyone's guess. "We're not ready to publicise anything....It's a private fund" says the chairman of Summit's registered company in Australia. [1]
When I think CIA I tend to think of Henry Kissinger who was the trusted aid of Nelson Rockefeller. It so happens that a related Robert Rockefeller (President of the Property Council of Australia) has been heavily involved in pushing for water market reform in Tasmania for the past decade. The latter Rockefeller has successfully persuaded the State Government to seize the water assets of my local municipality without providing adequate compensation for the ongoing loss of revenue that this action entails.
When I think of Henry Kissinger I think of his close admirer - the Prime Minister of Australia, Mr Kevin Rudd. Mr Rudd has a habit of flying over to Washington on a regular basis and having "productive talks" with Mr Kissinger [2].
How strange. An Australian Labor Prime Minister meets regularly with the man who was head of an organisation responsible for overseeing the CIA. When the CIA was, in turn, involved in a coup against a former Labor Government here when that administration tried to avoid the Wall Street banking cartel and attempted to fund a national energy industry. [3]
Speaking of coups, this must be one for the creation of a perfect neoliberal 'market'. Captured buyers - we all have to consume the stuff - and there's no substitute product available. "The absence of alternatives clears the mind marvelously", as Kissinger has said.
The price of this water is indexed to inflation. It seems to me that there's nothing like water scarcity and water charges (the latter being a tax on food producers) to cause a general rise in prices within the economy. Higher prices, higher water charges --> higher prices --> higher water charges. And round and round it goes.
In today's new market there is no need for 'entrepreneurs' to produce anything. Nifty ways of generating revenue are found for the lucky few who have money today (the recipients of taxpayer-funded bailouts?)
Well, what can one expect these days. After all, quoting Henry K again: "foreign policy is not missionary work."
[1] Graham Dooley, Chairman of the Adelaide registered 'Summit Water Holdings' which is a subsidiary of Summit Water Development (part of Summit Global Management Incorporated). As per the article: 'US enters Aussie Market - Yanks Raid Water'. Weekly Times, 1st April 2009. Pages 1,4, 15, 16.
[2] Kevin Rudd and Henry Kissinger in 'productive' talks
Article from: Herald Sun
http://www.news.com.au/heraldsun/story/0,21985,24403752-661,00.html
And Rudd met Kissinger again in last week of March this year.
[3]
A Coup in Australia and the CIA
Brenda Rosser. Saturday, July 5, 2008
http://econospeak.blogspot.com/2008/07/coup-in-australia-and-cia.html
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A conversation with the US ambassador
Brenda Rosser. Wednesday, April 15, 2009
http://econospeak.blogspot.com/2009/04/conversation-with-us-ambassador.html
Matt Dickerson is a former international economic analyst at the CIA. He is now Summit Global Management's CEO, portfolio manager and chief marketing officer. Summit has a $500 million dollar water-purchasing strategy for Australia which is to buy water entitlements from farmers hit by prolonged drought and then sell the water back to them. Where this half a billion dollar purchasing fund is coming from is anyone's guess. "We're not ready to publicise anything....It's a private fund" says the chairman of Summit's registered company in Australia. [1]
When I think CIA I tend to think of Henry Kissinger who was the trusted aid of Nelson Rockefeller. It so happens that a related Robert Rockefeller (President of the Property Council of Australia) has been heavily involved in pushing for water market reform in Tasmania for the past decade. The latter Rockefeller has successfully persuaded the State Government to seize the water assets of my local municipality without providing adequate compensation for the ongoing loss of revenue that this action entails.
When I think of Henry Kissinger I think of his close admirer - the Prime Minister of Australia, Mr Kevin Rudd. Mr Rudd has a habit of flying over to Washington on a regular basis and having "productive talks" with Mr Kissinger [2].
How strange. An Australian Labor Prime Minister meets regularly with the man who was head of an organisation responsible for overseeing the CIA. When the CIA was, in turn, involved in a coup against a former Labor Government here when that administration tried to avoid the Wall Street banking cartel and attempted to fund a national energy industry. [3]
Speaking of coups, this must be one for the creation of a perfect neoliberal 'market'. Captured buyers - we all have to consume the stuff - and there's no substitute product available. "The absence of alternatives clears the mind marvelously", as Kissinger has said.
The price of this water is indexed to inflation. It seems to me that there's nothing like water scarcity and water charges (the latter being a tax on food producers) to cause a general rise in prices within the economy. Higher prices, higher water charges --> higher prices --> higher water charges. And round and round it goes.
In today's new market there is no need for 'entrepreneurs' to produce anything. Nifty ways of generating revenue are found for the lucky few who have money today (the recipients of taxpayer-funded bailouts?)
Well, what can one expect these days. After all, quoting Henry K again: "foreign policy is not missionary work."
[1] Graham Dooley, Chairman of the Adelaide registered 'Summit Water Holdings' which is a subsidiary of Summit Water Development (part of Summit Global Management Incorporated). As per the article: 'US enters Aussie Market - Yanks Raid Water'. Weekly Times, 1st April 2009. Pages 1,4, 15, 16.
[2] Kevin Rudd and Henry Kissinger in 'productive' talks
Article from: Herald Sun
http://www.news.com.au/heraldsun/story/0,21985,24403752-661,00.html
And Rudd met Kissinger again in last week of March this year.
[3]
A Coup in Australia and the CIA
Brenda Rosser. Saturday, July 5, 2008
http://econospeak.blogspot.com/2008/07/coup-in-australia-and-cia.html
+
A conversation with the US ambassador
Brenda Rosser. Wednesday, April 15, 2009
http://econospeak.blogspot.com/2009/04/conversation-with-us-ambassador.html
Tuesday, May 12, 2009
Political Aspects of Full Employment II, 3.
by Michal Kalecki
The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent: public investment and subsidizing mass consumption.
The economic principles of government intervention require that public investment should be confined to objects which do not compete with the equipment of private business (e.g. hospitals, schools, highways). Otherwise the profitability of private investment might be impaired, and the positive effect of public investment upon employment offset, by the negative effect of the decline in private investment. This conception suits the businessmen very well. But the scope for public investment of this type is rather narrow, and there is a danger that the government, in pursuing this policy, may eventually be tempted to nationalize transport or public utilities so as to gain a new sphere for investment.[*]
One might therefore expect business leaders and their experts to be more in favour of subsidising mass consumption (by means of family allowances, subsidies to keep down the prices of necessities, etc.) than of public investment; for by subsidizing consumption the government would not be embarking on any sort of enterprise. In practice, however, this is not the case. Indeed, subsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that 'you shall earn your bread in sweat'-unless you happen to have private means.
[*]It should be noted here that investment in a nationalized industry can contribute to the solution of the problem of unemployment only if it is undertaken on principles different from those of private enterprise. The government must be satisfied with a lower net rate of return than private enterprise, or it must deliberately time its investment so as to mitigate slumps.
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The dislike of business leaders for a government spending policy grows even more acute when they come to consider the objects on which the money would be spent: public investment and subsidizing mass consumption.
The economic principles of government intervention require that public investment should be confined to objects which do not compete with the equipment of private business (e.g. hospitals, schools, highways). Otherwise the profitability of private investment might be impaired, and the positive effect of public investment upon employment offset, by the negative effect of the decline in private investment. This conception suits the businessmen very well. But the scope for public investment of this type is rather narrow, and there is a danger that the government, in pursuing this policy, may eventually be tempted to nationalize transport or public utilities so as to gain a new sphere for investment.[*]
One might therefore expect business leaders and their experts to be more in favour of subsidising mass consumption (by means of family allowances, subsidies to keep down the prices of necessities, etc.) than of public investment; for by subsidizing consumption the government would not be embarking on any sort of enterprise. In practice, however, this is not the case. Indeed, subsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that 'you shall earn your bread in sweat'-unless you happen to have private means.
[*]It should be noted here that investment in a nationalized industry can contribute to the solution of the problem of unemployment only if it is undertaken on principles different from those of private enterprise. The government must be satisfied with a lower net rate of return than private enterprise, or it must deliberately time its investment so as to mitigate slumps.
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Monday, May 11, 2009
Political Aspects of Full Employment II, 2.
by Michal Kalecki
We shall deal first with the reluctance of the 'captains of industry' to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence.
next
We shall deal first with the reluctance of the 'captains of industry' to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of 'sound finance' is to make the level of employment dependent on the state of confidence.
next
Wanda Sykes on Torture
I watched the comedienne Wanda Sykes' remarks at the White House Correspondent's Dinner on You Tube. Commenting on Cheney, she said, in paraphrase, 'Cheney talks about all the valuable information the torture produced. It's just as if I were to rob a bank and then tell the judge, yes I did rob the bank, but look at all the bills I payed with the money.'
This is exactly right. The reason we don't torture is not or shouldn't be that it doesn't yield reliable information, or that it protects our own captive soldiers in the future, whether or not these things are in fact true. Cheney's claim that the former is false, even if it were so, is irrelevant. The logic of our moral reasoning is not a consequentialist logic. Obama has spelled out this non-consequentialist logic explicitly. The reason not to torture, he has said, is that it corrupts our character.
This is exactly right. The reason we don't torture is not or shouldn't be that it doesn't yield reliable information, or that it protects our own captive soldiers in the future, whether or not these things are in fact true. Cheney's claim that the former is false, even if it were so, is irrelevant. The logic of our moral reasoning is not a consequentialist logic. Obama has spelled out this non-consequentialist logic explicitly. The reason not to torture, he has said, is that it corrupts our character.
Sunday, May 10, 2009
Economics Was OK, It Was Only the Economists who Failed (Disputed)
There has been a lot of discussion of this recent article by Barry Eichengreen in The National Interest. In a nutshell, Eichengreen’s argument is we should not blame economic theory for the failure to anticipate and avoid the financial crisis. Theory had the tools—agency theory, asymmetric information, behavioral economics—to do the job. The problem was that some academic economists were seduced by extramural income opportunities to ignore these subfields, while the others followed along to avoid the costs of nonconformism. Fortunately, he concludes, economics is becoming more empirical, so embarrassing episodes like this will be less common in the future.
Some parts of this are unarguable. There were important theoretical developments during the past 20 years that can be drawn on to understand what went wrong. To a considerable extent, the economics profession has been suborned; it has bent itself, heliotropically, to the sources of its enrichment. Nevertheless, I would take issue with Eichengreen on two main points.
First, economic theory, taken as a whole, is culpable. The core problem is that each theoretical departure, whether it is a knotty agency problem or a behavioral kink, is inserted into an otherwise pristine general equilibrium framework. The only way you can get an article published in a mainstream economics journal (and therefore reproduce the conditions of your existence as an academic economist) is to present your departure piecemeal, showing that it exerts its effects even in an otherwise pristine universe. According to the standards that rule the profession, a GE model with one twist is theory’s version of the controlled experiment. This is why the picture Eichengreen paints for us, in which multiple unorthodox insights come together and interact synergistically, is never seen in a peer-reviewed economics journal. As a result, even though every organ of 1960's-era orthodoxy is mortally wounded, the entire body strides vigorously forward. That is a prime reason why, despite the labors of so many clever and right-thinking economic theorists, we are in this mess.
Second, the shift toward empiricism is not an unalloyed gain. Yes, much of this work is refreshingly open-minded, allowing the data to lead. An honest tally of the published literature, however, particularly in the top journals, will show that a majority of quantitative articles are concerned to calibrate existing theoretical models. Unless a model is so out of step or inflexible that it cannot be calibrated at all, it passes the empiricist’s “test”. Economics, as I have argued before here and elsewhere, has no culture of what in real sciences is known as a critical test, a confrontation with data that can be survived only if the hypothesis in question is highly likely to be correct. In other words, empirical work in economics, whatever sophisticated estimators it employs and stringent p-values it seeks, has little to do with the minimization of Type I error, properly understood. For this reason, bad theory (like the mind-numbing onslaught of DSGE models in macro) prosper even in the midst of the “empirical turn”. With enough tweaking, I can calibrate an equilibrium model of the US economy as of 2006, and again as of 2009. It won’t be exactly the same model, but it will use a standard set of baseline assumptions, so who cares?
The bottom line is that economics in both its theoretical and empirical modes is implicated in the current debacle. Making the funding of economists more transparent would help, and attention should be given to the institutional structures that favor conformism within the profession, but economics itself needs to be reformed.
Some parts of this are unarguable. There were important theoretical developments during the past 20 years that can be drawn on to understand what went wrong. To a considerable extent, the economics profession has been suborned; it has bent itself, heliotropically, to the sources of its enrichment. Nevertheless, I would take issue with Eichengreen on two main points.
First, economic theory, taken as a whole, is culpable. The core problem is that each theoretical departure, whether it is a knotty agency problem or a behavioral kink, is inserted into an otherwise pristine general equilibrium framework. The only way you can get an article published in a mainstream economics journal (and therefore reproduce the conditions of your existence as an academic economist) is to present your departure piecemeal, showing that it exerts its effects even in an otherwise pristine universe. According to the standards that rule the profession, a GE model with one twist is theory’s version of the controlled experiment. This is why the picture Eichengreen paints for us, in which multiple unorthodox insights come together and interact synergistically, is never seen in a peer-reviewed economics journal. As a result, even though every organ of 1960's-era orthodoxy is mortally wounded, the entire body strides vigorously forward. That is a prime reason why, despite the labors of so many clever and right-thinking economic theorists, we are in this mess.
Second, the shift toward empiricism is not an unalloyed gain. Yes, much of this work is refreshingly open-minded, allowing the data to lead. An honest tally of the published literature, however, particularly in the top journals, will show that a majority of quantitative articles are concerned to calibrate existing theoretical models. Unless a model is so out of step or inflexible that it cannot be calibrated at all, it passes the empiricist’s “test”. Economics, as I have argued before here and elsewhere, has no culture of what in real sciences is known as a critical test, a confrontation with data that can be survived only if the hypothesis in question is highly likely to be correct. In other words, empirical work in economics, whatever sophisticated estimators it employs and stringent p-values it seeks, has little to do with the minimization of Type I error, properly understood. For this reason, bad theory (like the mind-numbing onslaught of DSGE models in macro) prosper even in the midst of the “empirical turn”. With enough tweaking, I can calibrate an equilibrium model of the US economy as of 2006, and again as of 2009. It won’t be exactly the same model, but it will use a standard set of baseline assumptions, so who cares?
The bottom line is that economics in both its theoretical and empirical modes is implicated in the current debacle. Making the funding of economists more transparent would help, and attention should be given to the institutional structures that favor conformism within the profession, but economics itself needs to be reformed.
Prediction
by the Sandwichman
May BLS Non-farm payroll employment decline: -775,000 to -835,000 jobs lost.
One of the things I noticed mucking around with the BLS birth/death model is that the Business Employment Dynamics data upon which the model is based doesn't quite seasonally adjust. That is to say the 'seasonally-adjusted' series of business openings and closings still displays a noticeable seasonal fluctuation. Thus when the imputed birth/death adjustment is added back into raw employment data and then seasonally-adjusted, the birth/death adjustment might be partly undoing the seasonal adjustment of the employment totals.
Another thing I noticed is that seasonally unadjusted January to June employment numbers consistently display a steady slope, with the seasonally-adjusted employment figures intersecting that line at April. So far this year, the January to April segment of that line has been flat, with a minor dip down in February and March followed by a small bounce in April. That small bounce might reflect the 62,000 census workers plus the residual unadjusted seasonal variation from the birth/death model.
Assuming that the flat-line slope of the unadjusted employment figure follows the usual pattern and applying a rough seasonal adjustment formula to the result produces a trend projection loss of between 775,000 and 835,000 jobs in May, depending on whether one discounts the one-time-only 2010 census jobs. The reported number could be less because of upward revision of the April job loss figure.
May BLS Non-farm payroll employment decline: -775,000 to -835,000 jobs lost.
One of the things I noticed mucking around with the BLS birth/death model is that the Business Employment Dynamics data upon which the model is based doesn't quite seasonally adjust. That is to say the 'seasonally-adjusted' series of business openings and closings still displays a noticeable seasonal fluctuation. Thus when the imputed birth/death adjustment is added back into raw employment data and then seasonally-adjusted, the birth/death adjustment might be partly undoing the seasonal adjustment of the employment totals.
Another thing I noticed is that seasonally unadjusted January to June employment numbers consistently display a steady slope, with the seasonally-adjusted employment figures intersecting that line at April. So far this year, the January to April segment of that line has been flat, with a minor dip down in February and March followed by a small bounce in April. That small bounce might reflect the 62,000 census workers plus the residual unadjusted seasonal variation from the birth/death model.
Assuming that the flat-line slope of the unadjusted employment figure follows the usual pattern and applying a rough seasonal adjustment formula to the result produces a trend projection loss of between 775,000 and 835,000 jobs in May, depending on whether one discounts the one-time-only 2010 census jobs. The reported number could be less because of upward revision of the April job loss figure.
Mexico: Not a Model State (Yet)
In today’s New York Times, Larry Rohter writes this in the middle of an article about how Mexico is a much better place than it used to be:
Just before President Obama visited here on April 16, in contrast, the Mexican Senate approved a request by the government of President Felipe Calderón to allow the Mexican Navy to participate, for the first time, in annual exercises with the United States and other nearby countries. During Mr. Obama’s trip, Mr. Calderón even briefly addressed Mr. Obama in English in public at the Mexican White House; that was something that Mexican presidents always avoided in my day, for reasons of sovereignty, self-image and the very complicated history of American-Mexican relations.
None of this suggests that Mexico has become a model state.
Political Aspects of Full Employment II, 1.
by Michal Kalecki
The above is a very crude and incomplete statement of the economic doctrine of full employment. But it is, I think, sufficient to acquaint the reader with the essence of the doctrine and so enable him to follow the subsequent discussion of the political problems involved in the achievement of full employment.
In should be first stated that, although most economists are now agreed that full employment may be achieved by government spending, this was by no means the case even in the recent past. Among the opposers of this doctrine there were (and still are) prominent so-called 'economic experts' closely connected with banking and industry. This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic. That is not to say that people who advance them do not believe in their economics, poor though this is. But obstinate ignorance is usually a manifestation of underlying political motives.
There are, however, even more direct indications that a first-class political issue is at stake here. in the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany. This was to be clearly seen in the USA (opposition to the New Deal), in France (the Blum experiment), and in Germany before Hitler. The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter's profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question with which we intend to deal in this article.
The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. We shall examine each of these three categories of objections to the government expansion policy in detail.
next
The above is a very crude and incomplete statement of the economic doctrine of full employment. But it is, I think, sufficient to acquaint the reader with the essence of the doctrine and so enable him to follow the subsequent discussion of the political problems involved in the achievement of full employment.
In should be first stated that, although most economists are now agreed that full employment may be achieved by government spending, this was by no means the case even in the recent past. Among the opposers of this doctrine there were (and still are) prominent so-called 'economic experts' closely connected with banking and industry. This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic. That is not to say that people who advance them do not believe in their economics, poor though this is. But obstinate ignorance is usually a manifestation of underlying political motives.
There are, however, even more direct indications that a first-class political issue is at stake here. in the great depression in the 1930s, big business consistently opposed experiments for increasing employment by government spending in all countries, except Nazi Germany. This was to be clearly seen in the USA (opposition to the New Deal), in France (the Blum experiment), and in Germany before Hitler. The attitude is not easy to explain. Clearly, higher output and employment benefit not only workers but entrepreneurs as well, because the latter's profits rise. And the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation. The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question with which we intend to deal in this article.
The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. We shall examine each of these three categories of objections to the government expansion policy in detail.
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Saturday, May 9, 2009
Scientific Integrity for Economists
The federal Office of Science and Technology Policy is taking comments on its draft principles of scientific integrity. Here's what I wrote:
UPDATE: The rules for biomedical researchers may be tightening. Why can't we do this for economists?
I am writing to offer a comment on scientific integrity. As we know, it is important that those whose work is used to provide a scientific basis for policy decisions reveal the sources of their funding so as to avoid conflicts of interest or undisclosed potential bias. This stipulation has made gradual progress in the medical sciences in particular -- something for which we should all be grateful. Unfortunately, in my own field of economics no one makes or enforces such a rule. Economic analysis often plays a central role in decision-making, and economists are often funded by interested parties, but disclosure is nonexistent. It is unlikely that the economics profession will take the lead in remedying this situation, so we have to look to our clients. If OSTP would take a clear stand on this matter it would improve the credibility of analysis entering the regulatory process and would also have a salutary effect on the profession itself.
UPDATE: The rules for biomedical researchers may be tightening. Why can't we do this for economists?
Statisical Aspects of Fool Employment
by the Sandwichman
Dean Baker points out that among the discrepancies in the "better than expected" April employment number from BLS is the fact that the "birth/death" adjustment for April 2009 is 50,000 jobs higher than it was for April 2008 -- an unlikely eventuality.
The explanation for this is mind boggling. For the most part, the BLS simply assumes that the more firms go out of business, the more new firms start up...
More egregious than the questionable BLS imputation is the tendency in media commentary to interpret the result as some kind of turning point. 539,000 job losses is huge, but it's an improvement over the 699,000 jobs lost in March or the 681,000 in February... right? No. It's a further deterioration of the job market at a decelerating rate.
But wait, minus the birth/death imputation the trend is: February 815,000, March 813,000, April 765,000 . And, net of the extraordinary, one-time-only hiring of 62,000 people for the 2010 census, the April figure would be 827,000. It's also worth mentioning that these losses are from a progressively shrinking base, so a given number of job losses represents a larger percentage loss.
[Correction: the birth/death model imputation is not seasonally adjusted, so, strictly speaking, it's not cricket to subtract it from the monthly unemployment numbers, which are seasonally adjusted. But since my point is mainly that the 539,000 figure is no cause for celebration, these numbers will do as 'ballpark estimates'. The BDM is, after all, itself a sort of ballpark estimate of an unknown number.]
Discounting for statistical anomalies, the trend appears to be one of accelerating job losses. The best that can be said for the April situation is that the acceleration of job loss is within the margin of error. Whoop-de-doo!
Dean Baker points out that among the discrepancies in the "better than expected" April employment number from BLS is the fact that the "birth/death" adjustment for April 2009 is 50,000 jobs higher than it was for April 2008 -- an unlikely eventuality.
The explanation for this is mind boggling. For the most part, the BLS simply assumes that the more firms go out of business, the more new firms start up...
To account for this net birth/death portion of total employment, BLS uses an estimation procedure with two components: the first component excludes employment losses from business deaths from sample-based estimation in order to offset the missing employment gains from business births. This is incorporated into the sample-based estimate procedure by simply not reflecting sample units going out of business, but imputing to them the same trend as the other firms in the sample. This step accounts for most of the net birth/death employment.So, for example, if 227,000 jobs were lost at firms that went out of business in April but other firms shed only about .5% of their employees that month, then the BLS pretends (roughly) that new firms created 226,000 new jobs (with some minor adjustment to take into account the historical trend over the last five years). This actually might make some kind of sense in normal times, because the BLS survey systematically misses employment at firms that are starting-up. But there's a recession on. And a credit crunch.
More egregious than the questionable BLS imputation is the tendency in media commentary to interpret the result as some kind of turning point. 539,000 job losses is huge, but it's an improvement over the 699,000 jobs lost in March or the 681,000 in February... right? No. It's a further deterioration of the job market at a decelerating rate.
But wait, minus the birth/death imputation the trend is: February 815,000, March 813,000, April 765,000 . And, net of the extraordinary, one-time-only hiring of 62,000 people for the 2010 census, the April figure would be 827,000. It's also worth mentioning that these losses are from a progressively shrinking base, so a given number of job losses represents a larger percentage loss.
[Correction: the birth/death model imputation is not seasonally adjusted, so, strictly speaking, it's not cricket to subtract it from the monthly unemployment numbers, which are seasonally adjusted. But since my point is mainly that the 539,000 figure is no cause for celebration, these numbers will do as 'ballpark estimates'. The BDM is, after all, itself a sort of ballpark estimate of an unknown number.]
Discounting for statistical anomalies, the trend appears to be one of accelerating job losses. The best that can be said for the April situation is that the acceleration of job loss is within the margin of error. Whoop-de-doo!
Political Aspects of Full Employment I, 3.
by Michal Kalecki
It may be objected that government expenditure financed by borrowing will cause inflation. To this it may be replied that the effective demand created by the government acts like any other increase in demand. If labour, plants, and foreign raw materials are in ample supply, the increase in demand is met by an increase in production. But if the point of full employment of resources is reached and effective demand continues to increase, prices will rise so as to equilibrate the demand for and the supply of goods and services. (In the state of over-employment of resources such as we witness at present in the war economy, an inflationary rise in prices has been avoided only to the extent to which effective demand for consumer goods has been curtailed by rationing and direct taxation.) It follows that if the government intervention aims at achieving full employment but stops short of increasing effective demand over the full employment mark, there is no need to be afraid of inflation.[*]
[*]Another problem of a more technical nature is that of the national debt. If full employment is maintained by government spending financed by borrowing, the national debt will continuously increase. This need not, however, involve any disturbances in output and employment, if interest on the debt is financed by an annual capital tax. The current income, after payment of capital tax, of some capitalists will be lower and of some higher than if the national debt had not increased, but their aggregate income will remain unaltered and their aggregate consumption will not be likely to change significantly. Further, the inducement to invest in fixed capital is not affected by a capital tax because it is paid on any type of wealth. Whether an amount is held in cash or government securities or invested in building a factory, the same capital tax is paid on it and thus the comparative advantage is unchanged. And if investment is financed by loans it is clearly not affected by a capital tax because if does not mean an increase in wealth of the investing entrepreneur. Thus neither capitalist consumption nor investment is affected by the rise in the national debt if interest on it is financed by an annual capital tax.
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It may be objected that government expenditure financed by borrowing will cause inflation. To this it may be replied that the effective demand created by the government acts like any other increase in demand. If labour, plants, and foreign raw materials are in ample supply, the increase in demand is met by an increase in production. But if the point of full employment of resources is reached and effective demand continues to increase, prices will rise so as to equilibrate the demand for and the supply of goods and services. (In the state of over-employment of resources such as we witness at present in the war economy, an inflationary rise in prices has been avoided only to the extent to which effective demand for consumer goods has been curtailed by rationing and direct taxation.) It follows that if the government intervention aims at achieving full employment but stops short of increasing effective demand over the full employment mark, there is no need to be afraid of inflation.[*]
[*]Another problem of a more technical nature is that of the national debt. If full employment is maintained by government spending financed by borrowing, the national debt will continuously increase. This need not, however, involve any disturbances in output and employment, if interest on the debt is financed by an annual capital tax. The current income, after payment of capital tax, of some capitalists will be lower and of some higher than if the national debt had not increased, but their aggregate income will remain unaltered and their aggregate consumption will not be likely to change significantly. Further, the inducement to invest in fixed capital is not affected by a capital tax because it is paid on any type of wealth. Whether an amount is held in cash or government securities or invested in building a factory, the same capital tax is paid on it and thus the comparative advantage is unchanged. And if investment is financed by loans it is clearly not affected by a capital tax because if does not mean an increase in wealth of the investing entrepreneur. Thus neither capitalist consumption nor investment is affected by the rise in the national debt if interest on it is financed by an annual capital tax.
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Friday, May 8, 2009
The UK and Australia block urgently-needed forestry reform
Australia and the UK blocked reforms in the global forest industry this week. At the third design meeting of the World Bank Forest Investment Program (FIP) that took place in Washington in the last few days the UK took the lead in blocking consensus for safeguard criterion on the “integrity of natural forests”. The UK supported the conversion of native forests to plantations as well as the destructive process of clearfelling. The UK insisted upon the definition of ‘forest’ as one that includes industrial tree monocultures. If the UK successfully gets its way on the latter point “the replacement of the Amazon (rainforest) by oil palm plantations, as currently being planned by the Brazilian government, would not be regarded ' deforestation" under these definitions."
“The Australian government, which was not represented at the meeting itself, made a quite scandalous move by passing the message that they could not accept any text recognizing the right to free prior and informed consent of Indigenous peoples regarding FIP funded activities. This is particularly remarkable as the Australian government just adopted the UN Declaration on the Rights of Indigenous peoples, which clearly recognizes this right. And to our surprise, almost all other countries were willing to accept this principle.” [1]
[1] From the plantationsaustralia yahoogroup
terra nullius and plantations
Posted by: "james jones" jj_371@hotmail.com amisanthony
Date: Wed May 6, 2009 10:43 pm ((PDT))
“The Australian government, which was not represented at the meeting itself, made a quite scandalous move by passing the message that they could not accept any text recognizing the right to free prior and informed consent of Indigenous peoples regarding FIP funded activities. This is particularly remarkable as the Australian government just adopted the UN Declaration on the Rights of Indigenous peoples, which clearly recognizes this right. And to our surprise, almost all other countries were willing to accept this principle.” [1]
[1] From the plantationsaustralia yahoogroup
terra nullius and plantations
Posted by: "james jones" jj_371@hotmail.com amisanthony
Date: Wed May 6, 2009 10:43 pm ((PDT))
Link to Perimeter Institute Lectures on Economic Crisis
PERIMETER INSTITUTE RECORDED SEMINAR ARCHIVE is where one can find most of the lectures that were given May 1-3 at the conference on "The Economic Crisis and its Implications for the Science of Economics" at the Perimeter Institute for Theoretical Physics. The following ones can be accessed there.
Eric Weinstein, "A science less dismal: welcome to the Economic Manhattan Project"
Nouriel Roubini, "Interpreting the failure to predict financial crises and recession"
Nassim Taleb, untitled
Panel with Weinstein, Roubini, Taleb, and Richard Freeman
Emanuel Derman, "Scientists, scienster, anti-scientists and economists"
Andrew Lo, "The adaptive market hypothesis and financial crisis"
Richard Alexander, untitled
Panel with Derman, Lo, Alexander, Bill Janeway, Zoe-Vonna Palmrose
Doyne Farmer, untitled
Leigh Tesfatsion, "Introduction to agent based models"
Pia Malaney, untitled (Eric Weinstein also, this one on gauge theory)
Barkley Rosser, "A transdisciplinary perspective" (says it is on micro and macro, but not)
Alexander Outkin, Mike Brown, Jim Herriot, "A look at some models"
Samuel Vasquez, Kelly Rose (others listed, but not speaking), "Group work"
Eric Weinstein, "A science less dismal: welcome to the Economic Manhattan Project"
Nouriel Roubini, "Interpreting the failure to predict financial crises and recession"
Nassim Taleb, untitled
Panel with Weinstein, Roubini, Taleb, and Richard Freeman
Emanuel Derman, "Scientists, scienster, anti-scientists and economists"
Andrew Lo, "The adaptive market hypothesis and financial crisis"
Richard Alexander, untitled
Panel with Derman, Lo, Alexander, Bill Janeway, Zoe-Vonna Palmrose
Doyne Farmer, untitled
Leigh Tesfatsion, "Introduction to agent based models"
Pia Malaney, untitled (Eric Weinstein also, this one on gauge theory)
Barkley Rosser, "A transdisciplinary perspective" (says it is on micro and macro, but not)
Alexander Outkin, Mike Brown, Jim Herriot, "A look at some models"
Samuel Vasquez, Kelly Rose (others listed, but not speaking), "Group work"
Political Aspects of Full Employment I, 2.
by Michal Kalecki
It may be asked where the public will get the money to lend to the government if they do not curtail their investment and consumption. To understand this process it is best, I think, to imagine for a moment that the government pays its suppliers in government securities. The suppliers will, in general, not retain these securities but put them into circulation while buying other goods and services, and so on, until finally these securities will reach persons or firms which retain them as interest-yielding assets. In any period of time the total increase in government securities in the possession (transitory or final) of persons and firms will be equal to the goods and services sold to the government. Thus what the economy lends to the government are goods and services whose production is 'financed' by government securities. In reality the government pays for the services, not in securities, but in cash, but it simultaneously issues securities and so drains the cash off; and this is equivalent to the imaginary process described above.
What happens, however, if the public is unwilling to absorb all the increase in government securities? It will offer them finally to banks to get cash (notes or deposits) in exchange. If the banks accept these offers, the rate of interest will be maintained. If not, the prices of securities will fall, which means a rise in the rate of interest, and this will encourage the public to hold more securities in relation to deposits. It follows that the rate of interest depends on banking policy, in particular on that of the central bank. If this policy aims at maintaining the rate of interest at a certain level, that may be easily achieved, however large the amount of government borrowing. Such was and is the position in the present war. In spite of astronomical budget deficits, the rate of interest has shown no rise since the beginning of 1940.
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It may be asked where the public will get the money to lend to the government if they do not curtail their investment and consumption. To understand this process it is best, I think, to imagine for a moment that the government pays its suppliers in government securities. The suppliers will, in general, not retain these securities but put them into circulation while buying other goods and services, and so on, until finally these securities will reach persons or firms which retain them as interest-yielding assets. In any period of time the total increase in government securities in the possession (transitory or final) of persons and firms will be equal to the goods and services sold to the government. Thus what the economy lends to the government are goods and services whose production is 'financed' by government securities. In reality the government pays for the services, not in securities, but in cash, but it simultaneously issues securities and so drains the cash off; and this is equivalent to the imaginary process described above.
What happens, however, if the public is unwilling to absorb all the increase in government securities? It will offer them finally to banks to get cash (notes or deposits) in exchange. If the banks accept these offers, the rate of interest will be maintained. If not, the prices of securities will fall, which means a rise in the rate of interest, and this will encourage the public to hold more securities in relation to deposits. It follows that the rate of interest depends on banking policy, in particular on that of the central bank. If this policy aims at maintaining the rate of interest at a certain level, that may be easily achieved, however large the amount of government borrowing. Such was and is the position in the present war. In spite of astronomical budget deficits, the rate of interest has shown no rise since the beginning of 1940.
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Thursday, May 7, 2009
Those Wacky Europeans!
by the Sandwichman
EU recommends shorter working hours to prevent layoffs
Don't they know it's a lump-of-labor fallacy to think that you can fight unemployment by cutting hours? Why, it says right here in this introductory textbook...
EU recommends shorter working hours to prevent layoffs
Don't they know it's a lump-of-labor fallacy to think that you can fight unemployment by cutting hours? Why, it says right here in this introductory textbook...
Actions by Member States and social partners must aim at maintaining as many people as possible in jobs. To this end, a temporary adjustment of working hours can be an effective policy option for firms of all sizes, with the support of public funding including the European Social Fund (ESF); it can be an opportunity for re-training to facilitate internal job transfers or transitions to other companies and/or sectors in line with flexicurity.
Do We Need an "Economic Manhattan Project"?
Following a suggestion by mathematician Eric Weinstein of the Natron Group for an Economic Manhattan Project," back in December, Mike Brown, Stuart Kauffman, Zoe-Vonna Palmrose, and Lee Smolin posted "Can Science Help Solve the Economic Crisis?" weighing in favorably on Weinstein's proposal at on the edge. They criticized various assumptions of neoclassical theory and called for complexity science, agent-based models, evolutionary modles, and gauge invariance models to be used for non-equilibrium dynamics modeling, as well as analysis of policy alternatives. Criticism by Nassim Taleb, Michael Shermer, Emanual Derman, Paul Romer, and others can be found under "The Reality Club" at that link. Ronald Bailey of reason weighed in with further critiques, calling the whole thing "inane", with others commenting there as well.
On March 2, Tyler Cowen posted on "Lee Smolin on General Equilibrium Theory". This dealt with some of the related issues and dragged in me making some critical remarks, with replies by both Eric Weinstein and Lee Smolin, who is a quantum gravity theorist at the Perimeter Institute of Theoretical Physics in Waterloo, Ontario. As a result of that, I was invited to participate (and did) in a conference held May 1-4 at the Perimeter Institute on "The Economic Crisis and its Implications for the Science of Economics." The participants included some of the original critics, such as Taleb and Derman, along with a variety of people from physics, math, computer science, evolutionary biology, accounting, finance, and economics, with some of the better known others including Nouriel Roubini, Andrew Lo, Doyne Farmer, Leigh Tesfatsion, Richard Alexander, and Richard Freeman. To the best of my knowledge, no overall summary of what happened there has been posted anywhere, but it was very intense with many ideas and tough arguments going back and forth (the institute has blackboards for walls in much of it, which get a lot of use). So, attempting to go below the fold, I shall try to summarize some of it.
The conference was in two parts, a much larger public conference on May Day (for which Freeman wore a red shirt), and a much smaller workshop the next three days, with some of those speaking on the first day not participating in that ("Dr. Doom" Roubini and "Black Swan" Taleb had to go scare some finance ministers in Singapore, and Lo and Derman also departed). Also, I left after only a bit of the last day, when those still standing were trying to summarize and put forward a way to go forward (something will come out of this, but I am not sure that "Manhattan Project" will describe it). I note that the workshop included some lectures (including one by me on May 3), along with some breakout group sesssions.
Anyway, rather than a blow by blow of who said what when, let me note some major issues and positions. So, one big thing that there was a lot of agreement on was the likely superiority of agent-based modeling in some form or other for modeling non-equilibrium economic systems. A leader there for this was Leigh Tesfatsion, who maintains the main website for collecting agent-based models in economics. She called for this being done in macroeconomics to at least supplement the current DSGE models that dominate the basements of the central banks. Doyne Farmer also seconded this strongly, and is apparently building one with Robert Axtell. A curious aspect of this debate was that I learned later from Leigh that someone in attendance for part of the time was the computable general equilibrium modeler, John Whalley. However, for whatever reason, he chose not to make any comments at all on anything, and did not wear a name tag either.
A related issue, which may well be a major focus of more immediate efforts coming out of this conference, was what to do about the fact that most agent-based models are written in different languages and that it is not easy to link up between them. This is related to broader issues that had some of the computer scientists there worked up, as well as the estimable Leigh Tesfatsion, about interfacing between different computer languages in general. Also brought up in this discussion was the problem of data availabilty, with some saying that crucial data really is publicly available, but unknown by most, while others disputed this. There may be some push in these areas coming out of this.
I would note that there were several presentations of specific agent-based models in the workshop. One that was rather nice was by Alexander Outkin from before the decimalization of the stock exchanges showing that this would not necessarily stabilize things as forecast.
There were a lot of discussions of econophysics, with Doyne Farmer of the Santa Fe Institute providing a good summary of the state of play in that controversial arena. More cogent to this conference is the argument advocated by Lee Smolin, drawing on more specific work by Eric Weinstein and Pia Malaney, along with some post-docs at the Perimeter Institute, about applying gauge invariance theory to economics. Gauge invariance is an idea that floats around in some of the efforts to obtain a general unified theory of cosmology, particularly putting together general relativity with quantum mechanics, with the Perimeter Institute being a center of those who question string theory for achieving this, and Smolin a leader of this group.
Anyway, this was the matter that I had criticized, initially quite strongly, over on marginal revolution. I still hold to some of my criticisms, but also feel that I have not seen or fully understood all that there is to this argument. So, part of it seems to be a rediscovery of the wheel, in this case, the theoretical superiority of Divisia indexes for measuring values over time when relative prices and quantities are changing, with the claim being made further that this can also apply to a world of changing preferences, with the ability to chart cardinal utility over time, assuming that it is meaningful to talk about that. My problem with the former is that most economists know this, but that it is applying Divisia indexes in practice that is the problem as they assume continuous time, whereas empirical reality for actual indexes comes to us in discrete chunks not always all that close to each other. I am unsure about the utility argument.
An application was also made to financial markets by Simon Vasquez. He and Simone Severini also presented what was supposed to be a model of non-equilibrium dynamics. I would not say that this achieved something that Weinstein says can be done, which is to use gauge theory methods for measuring the curvature of fiber bundles to measure the degree of out-of-equilibriumness of a system. I think this latter would be really useful, and maybe it can be done, but I did not see this being fully achieved yet from what was presented there.
A rather looser end that I did not see the end of, as the summary from the relevant out-session was not presented before I left, was the application of biological or evolutionary ideas to all this. One disappointment was that co-organizer Stuart Kauffman did not attend, who is a biologist associated with the Santa Fe Institute, and whose work has been applied at times in economics. One presentation in the main workshop was by Kelly John Rose of PI on interpreting input-output matrices from an ecological perspective due to Robert Ulanowicz, that of ecological ascendancy, with looking at economic sectors as ecological trophic levels. He also said that gauge invariance was relevant to this, although that was not shown clearly. However, more generally, the ecological or biological arguments tended to be more on the side of this workshop.
There was more discussion of them in the main presentations the first day. So, Andrew Lo spoke of the adaptive market and how investors change their views over time in a market so as to lead to instabilities, arguably a fancier updating with neuroeconomics arguments of Minsky and Shiller. Also, the noted evolutionary biologist, Richard Alexander, spoke about various issues in the evoution of human beings and relations between kinship and sexual selection. However, he added little to the main workshop discussions, and in my private conversations with him he expressed reservations about people inappropriately using the "language of evolution" outside of more strictly biological evolution. So, while he is fine with discussing how moral systems evolved with humans over long periods of time, he was not particularly happy with people talking about firms or technologies or market forms evolving.
I am going to close this by saying that it was one of the most stimulating conferences I have been to, real clashes of serious ideas while people were willing to speak with mutual respect. I am perhaps sorry that Whalley did not speak up to defend more orthodox approaches, but, well, I do not blame him for keeping his head down. I do hope that it does lead to some further developments, and I think the critics who think this is all going to lead to proposals for central planning or whatever are barking up the wrong tree (see the discussions by Bailey and others).
On March 2, Tyler Cowen posted on "Lee Smolin on General Equilibrium Theory". This dealt with some of the related issues and dragged in me making some critical remarks, with replies by both Eric Weinstein and Lee Smolin, who is a quantum gravity theorist at the Perimeter Institute of Theoretical Physics in Waterloo, Ontario. As a result of that, I was invited to participate (and did) in a conference held May 1-4 at the Perimeter Institute on "The Economic Crisis and its Implications for the Science of Economics." The participants included some of the original critics, such as Taleb and Derman, along with a variety of people from physics, math, computer science, evolutionary biology, accounting, finance, and economics, with some of the better known others including Nouriel Roubini, Andrew Lo, Doyne Farmer, Leigh Tesfatsion, Richard Alexander, and Richard Freeman. To the best of my knowledge, no overall summary of what happened there has been posted anywhere, but it was very intense with many ideas and tough arguments going back and forth (the institute has blackboards for walls in much of it, which get a lot of use). So, attempting to go below the fold, I shall try to summarize some of it.
The conference was in two parts, a much larger public conference on May Day (for which Freeman wore a red shirt), and a much smaller workshop the next three days, with some of those speaking on the first day not participating in that ("Dr. Doom" Roubini and "Black Swan" Taleb had to go scare some finance ministers in Singapore, and Lo and Derman also departed). Also, I left after only a bit of the last day, when those still standing were trying to summarize and put forward a way to go forward (something will come out of this, but I am not sure that "Manhattan Project" will describe it). I note that the workshop included some lectures (including one by me on May 3), along with some breakout group sesssions.
Anyway, rather than a blow by blow of who said what when, let me note some major issues and positions. So, one big thing that there was a lot of agreement on was the likely superiority of agent-based modeling in some form or other for modeling non-equilibrium economic systems. A leader there for this was Leigh Tesfatsion, who maintains the main website for collecting agent-based models in economics. She called for this being done in macroeconomics to at least supplement the current DSGE models that dominate the basements of the central banks. Doyne Farmer also seconded this strongly, and is apparently building one with Robert Axtell. A curious aspect of this debate was that I learned later from Leigh that someone in attendance for part of the time was the computable general equilibrium modeler, John Whalley. However, for whatever reason, he chose not to make any comments at all on anything, and did not wear a name tag either.
A related issue, which may well be a major focus of more immediate efforts coming out of this conference, was what to do about the fact that most agent-based models are written in different languages and that it is not easy to link up between them. This is related to broader issues that had some of the computer scientists there worked up, as well as the estimable Leigh Tesfatsion, about interfacing between different computer languages in general. Also brought up in this discussion was the problem of data availabilty, with some saying that crucial data really is publicly available, but unknown by most, while others disputed this. There may be some push in these areas coming out of this.
I would note that there were several presentations of specific agent-based models in the workshop. One that was rather nice was by Alexander Outkin from before the decimalization of the stock exchanges showing that this would not necessarily stabilize things as forecast.
There were a lot of discussions of econophysics, with Doyne Farmer of the Santa Fe Institute providing a good summary of the state of play in that controversial arena. More cogent to this conference is the argument advocated by Lee Smolin, drawing on more specific work by Eric Weinstein and Pia Malaney, along with some post-docs at the Perimeter Institute, about applying gauge invariance theory to economics. Gauge invariance is an idea that floats around in some of the efforts to obtain a general unified theory of cosmology, particularly putting together general relativity with quantum mechanics, with the Perimeter Institute being a center of those who question string theory for achieving this, and Smolin a leader of this group.
Anyway, this was the matter that I had criticized, initially quite strongly, over on marginal revolution. I still hold to some of my criticisms, but also feel that I have not seen or fully understood all that there is to this argument. So, part of it seems to be a rediscovery of the wheel, in this case, the theoretical superiority of Divisia indexes for measuring values over time when relative prices and quantities are changing, with the claim being made further that this can also apply to a world of changing preferences, with the ability to chart cardinal utility over time, assuming that it is meaningful to talk about that. My problem with the former is that most economists know this, but that it is applying Divisia indexes in practice that is the problem as they assume continuous time, whereas empirical reality for actual indexes comes to us in discrete chunks not always all that close to each other. I am unsure about the utility argument.
An application was also made to financial markets by Simon Vasquez. He and Simone Severini also presented what was supposed to be a model of non-equilibrium dynamics. I would not say that this achieved something that Weinstein says can be done, which is to use gauge theory methods for measuring the curvature of fiber bundles to measure the degree of out-of-equilibriumness of a system. I think this latter would be really useful, and maybe it can be done, but I did not see this being fully achieved yet from what was presented there.
A rather looser end that I did not see the end of, as the summary from the relevant out-session was not presented before I left, was the application of biological or evolutionary ideas to all this. One disappointment was that co-organizer Stuart Kauffman did not attend, who is a biologist associated with the Santa Fe Institute, and whose work has been applied at times in economics. One presentation in the main workshop was by Kelly John Rose of PI on interpreting input-output matrices from an ecological perspective due to Robert Ulanowicz, that of ecological ascendancy, with looking at economic sectors as ecological trophic levels. He also said that gauge invariance was relevant to this, although that was not shown clearly. However, more generally, the ecological or biological arguments tended to be more on the side of this workshop.
There was more discussion of them in the main presentations the first day. So, Andrew Lo spoke of the adaptive market and how investors change their views over time in a market so as to lead to instabilities, arguably a fancier updating with neuroeconomics arguments of Minsky and Shiller. Also, the noted evolutionary biologist, Richard Alexander, spoke about various issues in the evoution of human beings and relations between kinship and sexual selection. However, he added little to the main workshop discussions, and in my private conversations with him he expressed reservations about people inappropriately using the "language of evolution" outside of more strictly biological evolution. So, while he is fine with discussing how moral systems evolved with humans over long periods of time, he was not particularly happy with people talking about firms or technologies or market forms evolving.
I am going to close this by saying that it was one of the most stimulating conferences I have been to, real clashes of serious ideas while people were willing to speak with mutual respect. I am perhaps sorry that Whalley did not speak up to defend more orthodox approaches, but, well, I do not blame him for keeping his head down. I do hope that it does lead to some further developments, and I think the critics who think this is all going to lead to proposals for central planning or whatever are barking up the wrong tree (see the discussions by Bailey and others).
Political Aspects of Full Employment I, 1.
by Michal Kalecki
A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme, provided there is in existence adequate plan to employ all existing labour power, and provided adequate supplies of necessary foreign raw-materials may be obtained in exchange for exports.
If the government undertakes public investment (e.g. builds schools, hospitals, and highways) or subsidizes mass consumption (by family allowances, reduction of indirect taxation, or subsidies to keep down the prices of necessities), and if, moreover, this expenditure is financed by borrowing and not by taxation (which could affect adversely private investment and consumption), the effective demand for goods and services may be increased up to a point where full employment is achieved. Such government expenditure increases employment, be it noted, not only directly but indirectly as well, since the higher incomes caused by it result in a secondary increase in demand for consumer and investment goods.
next
A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme, provided there is in existence adequate plan to employ all existing labour power, and provided adequate supplies of necessary foreign raw-materials may be obtained in exchange for exports.
If the government undertakes public investment (e.g. builds schools, hospitals, and highways) or subsidizes mass consumption (by family allowances, reduction of indirect taxation, or subsidies to keep down the prices of necessities), and if, moreover, this expenditure is financed by borrowing and not by taxation (which could affect adversely private investment and consumption), the effective demand for goods and services may be increased up to a point where full employment is achieved. Such government expenditure increases employment, be it noted, not only directly but indirectly as well, since the higher incomes caused by it result in a secondary increase in demand for consumer and investment goods.
next
Political Aspects of Full Employment -- Introduction
by the Sandwichman
Sixty-seven years ago, Michal Kalecki nailed it. The economics of full employment is not rocket science. It's the politics, stupid.
"That is not to say that people who advance them [politically-motivated doctrine advanced as economic arguments] do not believe in their economics, poor though this is. But obstinate ignorance is usually a manifestation of underlying political motives."
"Political Aspects of Full Employment" was published in The Political Quarterly (!) in 1943 and was based on a lecture delivered at Cambridge in the spring of 1942. Sandwichman will post it to EconoSpeak in 14 installments.
Next
Sixty-seven years ago, Michal Kalecki nailed it. The economics of full employment is not rocket science. It's the politics, stupid.
"That is not to say that people who advance them [politically-motivated doctrine advanced as economic arguments] do not believe in their economics, poor though this is. But obstinate ignorance is usually a manifestation of underlying political motives."
"Political Aspects of Full Employment" was published in The Political Quarterly (!) in 1943 and was based on a lecture delivered at Cambridge in the spring of 1942. Sandwichman will post it to EconoSpeak in 14 installments.
Next
Monday, May 4, 2009
Meltzer: Fire Keynes, Replace Him with Friedman
Readers of today’s New York Times Op-Ed page can enjoy the spectacle of two economists side-by-side, one warning of deflation, the other of inflation. The Cassandra of inflation is Allan Meltzer, a monetarist of the fundamentalist variety and founding father of the Shadow Open Market Committee, a Fed watchdog group that barks at the first glimmer of monetary loosening. On the face of it, railing against inflation in the midst of incipient debt deflation is madness, but I happen to think that Meltzer has a point, just not for the reasons given.
Meltzer goes on a long detour about the rise and fall of US inflation during the 1970s that ignores the actual economic record (growth was pretty good) and dismisses the disastrous consequences of the ensuing disinflation (especially the developing country debt debacle) in a few flippant words:
But let’s get to the point: are we setting the stage today for a massive resurgence of inflation down the road? Meltzer says yes, for three reasons: too much money creation, too much deficit spending, too little investment in productivity. None of these is actually documented; it is all anecdote and assertion, but let’s give him the benefit of the doubt.
Money creation? Well, it depends on what definition of the money supply you want to use. M1, the monetary base beloved of paleo-Friedmanites, is through the roof, but this is because of the massive buildup of excess reserves held by member banks at the Fed. A more meaningful measure is M2, which includes checkable deposits, and here the growth is in the high single-digits. Is that a lot? Apparently the velocity of money (how rapidly it turns over), which is cyclically volatile, is depressed, since nominal GDP (the value of output at current prices) is falling—which it seldom does. The Fed is leaning against this monetary friction by pushing a bit harder on the supply side. As long as its policy is reversible, it is not inflationary.
Deficit spending? The US is on track to boost its public debt to about 80% of GDP by the outer years of the (first) Obama presidency. This is in the middle of the peleton as far as industrialized countries are concerned, and well below the level reached in 1945 after fifteen years of depression and war. There is no reason to believe this debt is not sustainable. Nearly all economists agree that the US has the fiscal space to run the deficits it is programming, a luxury available to relatively few other nations.
Productivity? To begin with, it is odd for an arch conservative like Meltzer to look to the government for investments in productivity growth, but let’s follow his line of argument: is the stimulus being spent in ways that will boost future productivity? Not surprisingly, the answer is yes and no, but more yes than Meltzer is willing to acknowledge. He makes a couple of major errors:
Aside from the throw-away tone of the opening phrase, his dismissal of the productivity effects of health care investments is contradicted by a mountain of research. At both the individual and social levels, health is a significant determinant of productivity; add to this the fact that the US has a notoriously inefficient health care sector whose cost trajectory is unsustainable, and you have a clear case for productivity-enhancing investment. Meanwhile, Meltzer’s comments about energy demonstrate he is unaware of the energy efficiency gap, whose closing would be a big contribution in both economic and ecological terms.
In the end, however, I think an inflationary surge is entirely possible, for reasons that Meltzer doesn’t address. The first is the potential for a future run on the dollar once the private demand for Treasuries eases up. The low inflation environment of the last two decades was founded on an over-strong dollar; a rapid depreciation would turn this around. The second risk has to do with the unprecedented role of unconventional assets in the Fed’s balance sheet. Traditionally, the Fed conducted open market operations by buying and selling Treasury obligations—the “bonds” in your macro textbook. It could expand the money supply by buying bonds and, if it wanted to disinflate, reverse course by selling them. Under the banner of bailing out the financial system, the Fed is now injecting money by buying toxic assets, but what happens if the Fed wants to soak up money instead? It has unloaded all its stash of public debt, and the assets it holds are not marketable. This asymmetry in Fed policy should be a real source of worry for the Meltzers of this world, and even irresponsible economic populists like myself.
In a nutshell, the fiscal and monetary initiatives undertaken to support the bailout present significant inflationary risks. True, resisting deflation is the immediate task, but there are better and worse ways to do this. Using the US central bank to trade cash for trash is a dangerous path.
Meltzer goes on a long detour about the rise and fall of US inflation during the 1970s that ignores the actual economic record (growth was pretty good) and dismisses the disastrous consequences of the ensuing disinflation (especially the developing country debt debacle) in a few flippant words:
And the anti-inflation policy continued until the unemployment rate rose above 10 percent, many savings and loan institutions faced bankruptcy, and most Latin American countries defaulted on their debt. These were the unavoidable side effects of the public’s gradual adjustment to the new economic environment.
But let’s get to the point: are we setting the stage today for a massive resurgence of inflation down the road? Meltzer says yes, for three reasons: too much money creation, too much deficit spending, too little investment in productivity. None of these is actually documented; it is all anecdote and assertion, but let’s give him the benefit of the doubt.
Money creation? Well, it depends on what definition of the money supply you want to use. M1, the monetary base beloved of paleo-Friedmanites, is through the roof, but this is because of the massive buildup of excess reserves held by member banks at the Fed. A more meaningful measure is M2, which includes checkable deposits, and here the growth is in the high single-digits. Is that a lot? Apparently the velocity of money (how rapidly it turns over), which is cyclically volatile, is depressed, since nominal GDP (the value of output at current prices) is falling—which it seldom does. The Fed is leaning against this monetary friction by pushing a bit harder on the supply side. As long as its policy is reversible, it is not inflationary.
Deficit spending? The US is on track to boost its public debt to about 80% of GDP by the outer years of the (first) Obama presidency. This is in the middle of the peleton as far as industrialized countries are concerned, and well below the level reached in 1945 after fifteen years of depression and war. There is no reason to believe this debt is not sustainable. Nearly all economists agree that the US has the fiscal space to run the deficits it is programming, a luxury available to relatively few other nations.
Productivity? To begin with, it is odd for an arch conservative like Meltzer to look to the government for investments in productivity growth, but let’s follow his line of argument: is the stimulus being spent in ways that will boost future productivity? Not surprisingly, the answer is yes and no, but more yes than Meltzer is willing to acknowledge. He makes a couple of major errors:
Better health care adds to the public’s sense of well-being, but it adds only a little to productivity. Subsidizing cleaner energy projects can produce jobs, but it doesn’t add much to national productivity.
Aside from the throw-away tone of the opening phrase, his dismissal of the productivity effects of health care investments is contradicted by a mountain of research. At both the individual and social levels, health is a significant determinant of productivity; add to this the fact that the US has a notoriously inefficient health care sector whose cost trajectory is unsustainable, and you have a clear case for productivity-enhancing investment. Meanwhile, Meltzer’s comments about energy demonstrate he is unaware of the energy efficiency gap, whose closing would be a big contribution in both economic and ecological terms.
In the end, however, I think an inflationary surge is entirely possible, for reasons that Meltzer doesn’t address. The first is the potential for a future run on the dollar once the private demand for Treasuries eases up. The low inflation environment of the last two decades was founded on an over-strong dollar; a rapid depreciation would turn this around. The second risk has to do with the unprecedented role of unconventional assets in the Fed’s balance sheet. Traditionally, the Fed conducted open market operations by buying and selling Treasury obligations—the “bonds” in your macro textbook. It could expand the money supply by buying bonds and, if it wanted to disinflate, reverse course by selling them. Under the banner of bailing out the financial system, the Fed is now injecting money by buying toxic assets, but what happens if the Fed wants to soak up money instead? It has unloaded all its stash of public debt, and the assets it holds are not marketable. This asymmetry in Fed policy should be a real source of worry for the Meltzers of this world, and even irresponsible economic populists like myself.
In a nutshell, the fiscal and monetary initiatives undertaken to support the bailout present significant inflationary risks. True, resisting deflation is the immediate task, but there are better and worse ways to do this. Using the US central bank to trade cash for trash is a dangerous path.
California Fiscal Bait and Switch
I'm not an expert in fiscal policy. I don't even play one on television. With that caveat, I would like to comment on the upcoming California special election.
Prior to the ratification of Proposition 13 in 1978, Gov. Jerry Brown was building up a rainy day fund to prepare for fiscal emergencies. Republicans argued that the state had no right to hoard "the people's money."
A number of other factors are used to explain why Californians ratified Proposition 13. The most common culprit was the Serrano decision that was supposed to break the link between local property taxes and school funding, which was intended to reduce inequalities between school districts. Many people resented having to pay property taxes to support poor or minority kids. Also, there were some scandals with County tax assessors, but my recollection was that the rainy day fund rhetoric was the loudest.
Proposition 13 changed the political landscape of California. Besides limiting increases in property taxes over and above a fixed formula, this constitutional amendment required a two thirds majority of both houses of the legislature, meaning either party would be unlikely to muster enough votes to raise taxes. After a marathon of political wrangling to finally pass a very late budget, a literal handful of Republicans agreed to vote for the budget on the condition that the state put a number of awful amendments on the ballot.
Bait and switch number one: Today, California's preparing to constitutionally limit spending in order to build up a rainy day fund, which I assume will be a juicy target for future tax cutters.
Bait and switch number two: Another amendment will securitize the lottery, which was initially passed as a way to help fund education, given the constraints of Proposition 13. To make the lottery money more attractive to prospective bondholders, the link between the lottery and education will be broken.
Prior to the ratification of Proposition 13 in 1978, Gov. Jerry Brown was building up a rainy day fund to prepare for fiscal emergencies. Republicans argued that the state had no right to hoard "the people's money."
A number of other factors are used to explain why Californians ratified Proposition 13. The most common culprit was the Serrano decision that was supposed to break the link between local property taxes and school funding, which was intended to reduce inequalities between school districts. Many people resented having to pay property taxes to support poor or minority kids. Also, there were some scandals with County tax assessors, but my recollection was that the rainy day fund rhetoric was the loudest.
Proposition 13 changed the political landscape of California. Besides limiting increases in property taxes over and above a fixed formula, this constitutional amendment required a two thirds majority of both houses of the legislature, meaning either party would be unlikely to muster enough votes to raise taxes. After a marathon of political wrangling to finally pass a very late budget, a literal handful of Republicans agreed to vote for the budget on the condition that the state put a number of awful amendments on the ballot.
Bait and switch number one: Today, California's preparing to constitutionally limit spending in order to build up a rainy day fund, which I assume will be a juicy target for future tax cutters.
Bait and switch number two: Another amendment will securitize the lottery, which was initially passed as a way to help fund education, given the constraints of Proposition 13. To make the lottery money more attractive to prospective bondholders, the link between the lottery and education will be broken.
Saturday, May 2, 2009
GROAT! (it rhymes with bloat)
by the Sandwichman
The "concept of growth" concedes too much emotional appeal to a notion that is actually more about delusions of grandeur and bloating than it is about the kinds of organic processes we associate with children, grass, trees and gardens.
Economic growth becomes an oxymoron when it is orchestrated by elected officials for the sake of their incumbency with the rules of the game dictated by career investment bankers serving out their revolving-door appointments. Such a concept doesn't deserve to be called growth with all of that term's positive connotations. What's growth got to do with it, anyway?
After pondering for several days about a substitute for the word growth, I stumbled across "groat". It sounds like how growth might be pronounced in some dialects. A groat, though, is an English four-penny coin, introduced in the 13th century. Similarly named coins had been introduced earlier in the same century in Venice (grosso, meaning large or thick), Holland (groot, meaning great or large) and France (gros tournois).
The names of the coins referred to the fact that they were thick silver coins in contrast to the thin pennies or deniers already in circulation. A higher denomination coin is a response to debasement of the currency. To the extent that coins were the currency in the 13th century, economic growth became the public policy "coin of the realm" in the second half of the 20th century. And successive governments globally have predictably debased that currency by parlaying the GDP into Gross Domestic Ponzi-schemes in which debt-fueled economic growth is supposed to generate the tax revenues to perpetually service the accumulated debt.
Debasing coinage is what governments do. Gresham's law: bad money drives out good. Grass grows. Trees grow. Children grow. Governments debase money.
Another feature recommending groat as a critical terminological substitute for growth is the fact that the coin evolved into an exclusively ceremonial token, given out by the sovereign as symbolic alms to the poor each year on Maundy Thursday (and, of course, groat rhymes with bloat and with gloat).
Peter Victor's chapter on the history of the idea of economic growth relies heavily on H.W. Arndt's Rise and Fall of Economic Growth: a study in contemporary thought. A pivotal element in the evolution of thinking about economic policy was the argument put forward by R. Harrod in 1939 and E. Domar in 1946 that economic growth, defined as annual increase in national income, was indispensable to maintaining full employment.
Although Harrod's and Domar's argument is commonly misrepresented as "Keynesian", Keynes himself viewed government growth stimulus policies as only one of the possible strategies for addressing with the problem full employment and one that was only applicable for a limited period of time (Keynes estimated a best-by date on the growth stimulus policy of about 15 years after the end of the World War II). The "ultimate solution", Keynes stated in a 1943 Treasury Department memorandum and again in a 1945 letter to T.S. Eliot was "working less".
John R. Hicks – whose 1937 mathematical 'interpretation' of Keynes (featuring his famous "IS/LM curve") was crucial to Harrod's and Domar's efforts – subsequently (1975) repudiated that earlier contribution as too static and unhistorical. Similarly, Simon Kuznets, who developed the national income accounts relied on to measure economic growth, warned "The welfare of a nation can scarcely be inferred from a measurement of national income... Goals for 'more' growth should specify of what and for what."
Economic growth is thus today thoroughly debased and effaced from its original conception. To continue to call it growth is to circulate a counterfeit. Let's call it economic groat.
The "concept of growth" concedes too much emotional appeal to a notion that is actually more about delusions of grandeur and bloating than it is about the kinds of organic processes we associate with children, grass, trees and gardens.
Economic growth becomes an oxymoron when it is orchestrated by elected officials for the sake of their incumbency with the rules of the game dictated by career investment bankers serving out their revolving-door appointments. Such a concept doesn't deserve to be called growth with all of that term's positive connotations. What's growth got to do with it, anyway?
After pondering for several days about a substitute for the word growth, I stumbled across "groat". It sounds like how growth might be pronounced in some dialects. A groat, though, is an English four-penny coin, introduced in the 13th century. Similarly named coins had been introduced earlier in the same century in Venice (grosso, meaning large or thick), Holland (groot, meaning great or large) and France (gros tournois).
The names of the coins referred to the fact that they were thick silver coins in contrast to the thin pennies or deniers already in circulation. A higher denomination coin is a response to debasement of the currency. To the extent that coins were the currency in the 13th century, economic growth became the public policy "coin of the realm" in the second half of the 20th century. And successive governments globally have predictably debased that currency by parlaying the GDP into Gross Domestic Ponzi-schemes in which debt-fueled economic growth is supposed to generate the tax revenues to perpetually service the accumulated debt.
Debasing coinage is what governments do. Gresham's law: bad money drives out good. Grass grows. Trees grow. Children grow. Governments debase money.
Another feature recommending groat as a critical terminological substitute for growth is the fact that the coin evolved into an exclusively ceremonial token, given out by the sovereign as symbolic alms to the poor each year on Maundy Thursday (and, of course, groat rhymes with bloat and with gloat).
Peter Victor's chapter on the history of the idea of economic growth relies heavily on H.W. Arndt's Rise and Fall of Economic Growth: a study in contemporary thought. A pivotal element in the evolution of thinking about economic policy was the argument put forward by R. Harrod in 1939 and E. Domar in 1946 that economic growth, defined as annual increase in national income, was indispensable to maintaining full employment.
Although Harrod's and Domar's argument is commonly misrepresented as "Keynesian", Keynes himself viewed government growth stimulus policies as only one of the possible strategies for addressing with the problem full employment and one that was only applicable for a limited period of time (Keynes estimated a best-by date on the growth stimulus policy of about 15 years after the end of the World War II). The "ultimate solution", Keynes stated in a 1943 Treasury Department memorandum and again in a 1945 letter to T.S. Eliot was "working less".
John R. Hicks – whose 1937 mathematical 'interpretation' of Keynes (featuring his famous "IS/LM curve") was crucial to Harrod's and Domar's efforts – subsequently (1975) repudiated that earlier contribution as too static and unhistorical. Similarly, Simon Kuznets, who developed the national income accounts relied on to measure economic growth, warned "The welfare of a nation can scarcely be inferred from a measurement of national income... Goals for 'more' growth should specify of what and for what."
Economic growth is thus today thoroughly debased and effaced from its original conception. To continue to call it growth is to circulate a counterfeit. Let's call it economic groat.
Friday, May 1, 2009
A Krugman Contradiction on Carbon Caps
As the vast army of loyal readers of this blog knows, I’m a strong proponent of capping carbon emissions. But I also think it is extremely important to be honest and accurate about the economic burdens a cap would generate so we can minimize, accommodate and distribute them fairly. Along those lines, I am happy to see that Paul Krugman is relaying the important research message that the income effects of a carbon cap would be minimal for at least the next several decades. Opponents of forceful measures to slow down climate change want us to confuse the transfers induced by a cap (which would be large) with the economic costs (small), so we need to get the message out at every opportunity that action is affordable.
On the capital stock front, though, Krugman is missing half the story. He says
Yes but: the flip side of this new investment demand is accelerated depreciation (i.e. devaluation) of existing capital. This is not a minor matter. The capital stock we have in the present is the result of decades of systematic mispricing of scarce environmental goods, including the capacity of the global carbon cycle. If we correct those prices, many existing assets will have to be written down. The new-technology story is disingenuous: technological breakthroughs typically spur net investment because they create far more opportunities than they destroy, but the purpose of a carbon cap is above all to reduce the use of many existing technologies, and innovation is a (hopefully) mitigating byproduct. If you want a better analogy, think of what happened to the capital stock of eastern European countries in the years immediately following 1989. Suddenly their economies were open to international trade, and they were loaded with production facilities that cranked out goods that no one would buy any more. The result was a massive writeoff that plunged millions into unemployment.
It doesn’t have to be this way here. Certainly less of our capital stock is at risk from a carbon cap than in the eastern European case. Even more important is the fact that we are in a position to anticipate the problem; 1989 was a big unexpected shock. But we can’t plan ahead if we don’t see what’s coming. This is why it isn’t helpful to highlight the capital-replacing side of climate mitigation without taking note of the likely hit to existing investments. And to return to the current crisis, we should know by now that there are significant feedbacks from asset values to incomes, employment and even system stability.
On the capital stock front, though, Krugman is missing half the story. He says
Right now, the biggest problem facing our economy is plunging business investment. Businesses see no reason to invest, since they’re awash in excess capacity, thanks to the housing bust and weak consumer demand.
But suppose that Congress were to mandate gradually tightening emission limits, starting two or three years from now. This would have no immediate effect on prices. It would, however, create major incentives for new investment — investment in low-emission power plants, in energy-efficient factories and more.
To put it another way, a commitment to greenhouse gas reduction would, in the short-to-medium run, have the same economic effects as a major technological innovation: It would give businesses a reason to invest in new equipment and facilities even in the face of excess capacity. And given the current state of the economy, that’s just what the doctor ordered.
Yes but: the flip side of this new investment demand is accelerated depreciation (i.e. devaluation) of existing capital. This is not a minor matter. The capital stock we have in the present is the result of decades of systematic mispricing of scarce environmental goods, including the capacity of the global carbon cycle. If we correct those prices, many existing assets will have to be written down. The new-technology story is disingenuous: technological breakthroughs typically spur net investment because they create far more opportunities than they destroy, but the purpose of a carbon cap is above all to reduce the use of many existing technologies, and innovation is a (hopefully) mitigating byproduct. If you want a better analogy, think of what happened to the capital stock of eastern European countries in the years immediately following 1989. Suddenly their economies were open to international trade, and they were loaded with production facilities that cranked out goods that no one would buy any more. The result was a massive writeoff that plunged millions into unemployment.
It doesn’t have to be this way here. Certainly less of our capital stock is at risk from a carbon cap than in the eastern European case. Even more important is the fact that we are in a position to anticipate the problem; 1989 was a big unexpected shock. But we can’t plan ahead if we don’t see what’s coming. This is why it isn’t helpful to highlight the capital-replacing side of climate mitigation without taking note of the likely hit to existing investments. And to return to the current crisis, we should know by now that there are significant feedbacks from asset values to incomes, employment and even system stability.
Thursday, April 30, 2009
If There’s a Difference in Means Among White v. Black – Byron York Thinks the White Mean is the Actual Number
Byron York offended a lot of us with the following:
Goldberg himself was offended by the criticism noting:
No Byron – we were not offended by your noting that there is a difference between the mean responses of blacks v. whites. Let me turn the microphone over to Brad DeLong for an explanation of what offended us:
He later decides to qualify what he was trying to say with this “actually”. Maybe Mr. York should take remedial writing lessons before he is allowed to pen another op-ed.
the president and some of his policies are significantly less popular with white Americans than with black Americans, and his sky-high ratings among African-Americans make some of his positions appear a bit more popular overall than they actually are. Asked whether their opinion of the president is favorable or unfavorable, 49 percent of whites in the Times poll say they have a favorable opinion of Obama. Among blacks the number is 80 percent.
Goldberg himself was offended by the criticism noting:
It seems worthwhile to point that out that there are differences within the group -- something that is done all the time with political polls.
No Byron – we were not offended by your noting that there is a difference between the mean responses of blacks v. whites. Let me turn the microphone over to Brad DeLong for an explanation of what offended us:
For York, "actually" means "what white people think."
He later decides to qualify what he was trying to say with this “actually”. Maybe Mr. York should take remedial writing lessons before he is allowed to pen another op-ed.
Wednesday, April 29, 2009
Hail Fellow, Well Met
Oh this is more braggadocio, but what the heck. I have been invited by James Galbraith, Chair of the Board of Directors of Economists for Peace and Security to be one of their Fellows. I have accepted the invitation. They were founded in 1989 originally as Economists Against the Arms Race, with Kenneth Arrow and Lawrence Klein as their original chairs.
While I am blathering about such stuff, one of the founders and still much involved with the group is the Father of Regional Science, Walter Isard. He served on the thesis committee of my major professor, Eugene Smolensky, at Penn. The chair of that committees was the Father of Happiness Studies, Richard Easterlin. He and I have discussed our common "intellectual ancestry." So, his major prof was Simon Kuznets, whose major prof was Wesley Clair Mitchell, whose major prof was Thorstein Veblen, whom I do not mind being intellectually descended from at all. It was only quite recently that he and I sorted this out.
While I am blathering about such stuff, one of the founders and still much involved with the group is the Father of Regional Science, Walter Isard. He served on the thesis committee of my major professor, Eugene Smolensky, at Penn. The chair of that committees was the Father of Happiness Studies, Richard Easterlin. He and I have discussed our common "intellectual ancestry." So, his major prof was Simon Kuznets, whose major prof was Wesley Clair Mitchell, whose major prof was Thorstein Veblen, whom I do not mind being intellectually descended from at all. It was only quite recently that he and I sorted this out.
Final Sales of Domestic Products Fell Dramatically Too
Via Brad DeLong, CNBC gives us a bad news, good news story on the economy:
Brad similarly notes:
To their credit, Brad and CNBC also noted that BEA reported that real final sales of domestic product ,that is GDP less change in private inventories, fell by only 3.4 percent on an annualized basis during the first quarter. The decline during the previous quarter, however, was 6.2 percent. Pardon me – but I don’t see much of a silver lining or a bright sign.
The U.S. economy contracted at a surprisingly sharp 6.1 percent rate in the first quarter as exports and business inventories plummeted. The drop in gross domestic product, reported by the Commerce Department on Wednesday, was much steeper than the 4.9 percent annual rate expected by economists and followed a 6.3 percent decline in the fourth quarter … But the sharp drawdown in inventories is good news as it suggests that manufacturers and retailers have reduced the stock of unsold merchandise to manageable levels and could be instrumental in pulling the economy out of recession.
Brad similarly notes:
That means that production this spring will be a full 3.5% below what it was in the second quarter of last year, when it ought to be 3.0% above. The only bright sign is that so much of the decline was a fall in inventories.
To their credit, Brad and CNBC also noted that BEA reported that real final sales of domestic product ,that is GDP less change in private inventories, fell by only 3.4 percent on an annualized basis during the first quarter. The decline during the previous quarter, however, was 6.2 percent. Pardon me – but I don’t see much of a silver lining or a bright sign.
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