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Stability is destabilizing: The idea of Minsky moment

News Financial Sector Induced Systemic Instability of Economy Recommended Links  Steve Keen Randall Wray Michael Hudson
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  "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera

The flaw with Capitalism is that it creates its own positive feedback loop, snowballing to the point where the accumulation of wealth and power hurts people — eventually even those at the top of the food chain. ”

Uncle Billy Cunctator
In comment to Economic Donkeys

 
  Banks are a clear case of market failure and their employees at the senior level have basically become the biggest bank robbers of all time. As for basing pay on current revenues and not profits over extended periods of time, then that is a clear case of market failure --  
  The banksters have been able to sell the “talent” myth to justify their outsized pay because they are the only ones able to deliver the type of GDP growth the U.S. economy needs in the short term, even if that kills the U.S. economy in the long term. You’ll be gone, I’ll be gone.  
  Unfortunately, many countries go broke pursuing war, if not financially, then morally (are the two different? – this post suggests otherwise).

I occurs to me that the U.S. is also in that flock; interventions justified by grand cause built on fallacy, the alpha and omega of failure. Is the financial apparatchik (or Nomenklatura, a term I like which, as many from the Soviet era, succinctly describes aspects of our situation today) fated also to the trash heap, despite the best efforts of the Man of the hour, Ben Bernanke?

 

Minsky moment is the synonym of financial crisis -- the moment when excessive leverage that was inevitably created by the financial system during the boom phase of the cycle, starts collapsing and financial system enter the state of deep crisis with many banks becoming insolvent due to the level of leverage they accumulated. 

The  cornerstone of Hyman Minsky's work is the concept of systemic instability. This notions is well researched in the theory of autoregulation in the context of the stability of systems with the positive and negative feedback loop.  Minsky argued that system dynamics inherent to capitalism breed fragility and crisis, as stability stimulate the emergence and success of more risky behaviors of financial players, and such risky behavior eventually leads to the financial crash. In this sense as he put it: "stability is destabilizing" (Minsky 1985).

Instability is typical for any system with the positive feedback loop. And investment banks and other financial institutions provide positive feedback loop for financial system in general and stock market in particular making periodic crashes inevitable, just a side effect of their existence.

But like in any complex system financial system has its share of nuances which general theory of auto regulation does not address and Minsky theory addresses.  The key idea of Minsky theory is that the behavior of key players in the market after the crash gradually changes  from cautious to reckless. He introduced the three stages of this transformation which he called hedge finance, speculative finance, and Ponzi finance. Those stages can be compared to a fully amortizing mortgage, an interest only mortgage, and a negative amortization mortgage. They  indicate the relative difficulties that economic units have in repaying their debt. Minsky defines them as following:

  1. Hedge finance. Sound phase of the cycle,  where “cash flows are expected to exceed the cash flow commitments on liabilities for every period.” Debts can be paid.
  2. Speculative finance. Less sound “speculative finance” - where cash flows, although inadequate to fully service debt in the short-run, are generally sufficient over the longer-term. 
  3. Ponzi finance. “The economics of euphoria”: unsound, manic prize chasing phase with excessive leverage and corresponding inability to pay the debt, immediately preceding the crash.  At this stage as Minsky pointed out  “political leaders and official economists announced that the economic system had entered upon a new era that was to be characterized by the end of the business cycle…"  Importantly, “a ‘Ponzi’ finance unit must increase its outstanding debt in order to meet its financial obligations.” New money and credit are a necessity for perpetuating the game, so the collapse comes due to excessive leverage, when further attempts to increase the debt fail (which for companies often results in margin call):

    “The shift toward speculative and even Ponzi finance is evident in the financial statistics of the United States as collected in the Flow of Funds accounts. The movement to ”bought money” by large multinational banks throughout the world is evidence that there are degrees of speculative finance: all banks engage in speculative finance but some banks are more speculative than others. Only a thorough cash flow analysis of an economy can indicate the extent to which finance is speculative and where the critical point at which the ability to meet contractual commitments can break down is located.”

    “The theory developed here argues that the structural characteristics of the financial system change during periods of prolonged expansion and economic boom and that these changes cumulate to decrease the domain of stability of the system. Thus, after an expansion has been in progress for some time, an event that is not of unusual size or duration can trigger a sharp financial reaction. Displacements may be the result of system behavior or human error. Once the sharp financial reaction occurs, institutional deficiencies will be evident.”

    “Financial institutions are simultaneously demanders in one and suppliers in another set of financial markets. Once euphoria sets in, they accept liability structures – their own and those of borrowers – that, in a more sober expectational climate, they would have rejected…The shift to euphoria increases the willingness of financial institutions to acquire assets by engaging in liquidity-decreasing portfolio transformations…The result is a combination of cash flow commitments inherited from the burst of euphoria and of cash flow receipts based upon lower-than-expected income.”

Minsky suggested that if hedge financing dominates, then the economy may well behave close to an equilibrium-seeking system typical for systems with negative feedback loop. Conversely, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy enters a "deviation-amplifying" mode (which means the system with positive feedback loop). This was a new discovery different from Marx analysis of the sources of instability in capitalist economics, and Minsky deserves full credit for this discovery.

Often bursting of the bubble happens due to the sudden rise of long term interest rates. Quoting Minsky,

“the rise in long term interest rates and the decline in expected profits play particular havoc with Ponzi units, for the present value of the hoped for future bonanza falls sharply.”

“It can be shown that if hedge financing dominates, then the economy may well be an equilibrium seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation amplifying system…Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance.”

At the end financial crisis strikes wiping a lot of capital. Government bailout of financial institutions under neoliberalism follows (because as Senator Durbin noted "banks own the place" -- the Congress) and then overhand of excessive debt depress the economy and it enters the stage of prolonged stagnation.  Which in modern USA was smoothed by the status dollar as the world reserve currency which allow the USA export inflation. Still stagnation is what we have after 2008. And events of 2020-2021 (coronavirus recession and subsequent stock bubble, which reminds dot-com bubble and which might or might not burst in 2021-2022) are just continuation, the second or even the third act of the same drama.

The view developed in this volume identifies both real and financial causes for the Great Recession, including the real income stagnation suffered by households across most of the income distribution on one hand, and deregulation and institutional change in the financial sector on the other.

The interplay of these factors led to massive debt accumulation, particularly by U.S. households seeking to supplement stagnant incomes in their pursuit of increasing consumption aspirations. Household borrowing was spurred on by a financial sector rendered ever freer of inter- and postwar financial regulations. These regulations came to be seen as unnecessary fetters on an inherently self-regulating “free market,” an idealized notion in which financiers and policy makers placed increasing trust and confidence.

Ultimately, the self-reinforcing developments in the real and financial sectors proved deadly.

Minsky should be the most admired economist in the second half of the 21st. Century. His views are now partially accepted even by neoclassical economists with their stochastic equilibrium of supply and demand nonsense. This is mainly because they have no other choice. But Minsky was more than an astute researcher of business cycle and the Great Depression. Perhaps his writings on eradicating poverty will earn the respect that it may deserve with time as well.

Financialization is inherent in capitalism and is the key to its instability. Minsk considered the rising of private debt to GDP ratio an immanent feature of capitalism that lead to financial crisis. The idea of Minsky moment is related to the fact that the fractional reserve banking periodically causes credit collapse when the leveraged credit expansion goes into reverse.

In any case he was one of the first researchers who understood (after Keynes) that financialization is inherent in capitalism and is the key to its instability:

Capitalism is essentially a financial system, and the peculiar behavioral attributes of a capitalist economy center around the impact of finance upon system behavior.” Minsky (1967)

Fifty years ago, Minsky, following Marx, viewed instability as the central flaw of the financial system under capitalism, as its inherent flaw. But unlike Marx, who thought that the periodic crisis of overproduction  is the source of instability (as well as  impoverishment of workers), Minsky assumed that the key source of that instability is continued in the cycles of business borrowing and fractional bank lending, when "good times" lead to excessive borrowing and overproduction as well as rampant and increasing until the financial crash financial speculation, fueled by the stability of the previous period and growing leverage, which such stability makes possible (The Alternative To Neoliberalism )

Minsky on capitalism:

He called his model the "Financial Instability Hypothesis". More boldly we can talk about Minsky model of economic activity. According to Steve Keen, Minsky model boils down to three statements:

  1. The employment rate will rise if economic growth exceeds the sum of population growth and growth in labor productivity;
  2. The wages share of output will rise if money wage demands exceed the sum of inflation and growth in labor productivity; and
  3. The private debt to GDP ratio will rise if the rate of growth of private debt exceeds the sum of inflation plus the rate of economic growth.

He considered the rising of private debt to GDP ratio to be an immanent feature of capitalism that lead to financial crisis. While the ultimate feature of neoliberalism is redistribution of wealth up (rising inequality) it can continue only while private debt can compensate that sliding share of labor wages in GDP.  After that the crisis of neoliberalism became a reality, the reality the US faces today. Which gave rise of Russophobia as a primitive attempt to find a scapegoat for the current problems of the US society and growing delegitimization of the US neoliberal elite. In this sense Minsky was more astute critic of capitalism and by extension of neoliberalism, then Marx.

Several other source of financial instability were pointed out by others:

The idea of Minsky moment is related to the fact that the fractional reserve banking periodically causes credit collapse when the leveraged credit expansion goes into reverse. And mainstream economists do not want to talk about the fact that increasing confidence breeds increased leverage. So financial stability breeds instability and subsequent financial crisis. All actions to guarantee a market rise, ultimately guarantee it's destruction because greed will always take advantage of a "sure thing" and push it beyond reasonable boundaries. 

In other words, market players are not rational and assume that it would be foolish not to maximize leverage in a market which is going up. So the fractional reserve banking mechanisms ultimately and ironically lead to over lending and guarantee the subsequent crisis and the market's destruction. Stability breed instability.

Fractional reserve banking based economic system with private players (aka capitalism) is inherently unstable. It periodically causes credit collapse when the leveraged credit expansion goes into reverse. In other words, market players are not rational and assume that it would be foolish not to maximize leverage in a market which is going up.

That means that fractional reserve banking based economic system with private players (aka capitalism) is inherently unstable. And first of all because  fractional reserve banking is debt based. In order to have growth it must create debt. Eventually the pyramid of debt crushes and crisis hit. When the credit expansion fuels asset price bubbles, the dangers for the financial sector and the real economy are substantial because this way the credit boom bubble is inflated which eventually burst. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.

Blissex said...

«When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial.»

So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

«In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms.»

If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.

Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.

Not very hands-off at all.

Steve Keen clearly understands this mechanism.  See http://www.debtdeflation.com/blogs/manifesto/ John Kay in his January 5 2010 FT column very aptly explained the systemic instability of financial sector hypothesis: 

The credit crunch of 2007-08 was the third phase of a larger and longer financial crisis. The first phase was the emerging market defaults of the 1990s. The second was the new economy boom and bust at the turn of the century. The third was the collapse of markets for structured debt products, which had grown so rapidly in the five years up to 2007.

The manifestation of the problem in each phase was different – first emerging markets, then stock markets, then debt. But the mechanics were essentially the same. Financial institutions identified a genuine economic change – the assimilation of some poor countries into the global economy, the opportunities offered to business by new information technology, and the development of opportunities to manage risk and maturity mismatch more effectively through markets. Competition to sell products led to wild exaggeration of the pace and scope of these trends. The resulting herd enthusiasm led to mispricing – particularly in asset markets, which yielded large, and largely illusory, profits, of which a substantial fraction was paid to employees.

Eventually, at the end of each phase, reality impinged. The activities that once seemed so profitable – funding the financial systems of emerging economies, promoting start-up internet businesses, trading in structured debt products – turned out, in fact, to have been a source of losses. Lenders had to make write-offs, most of the new economy stocks proved valueless and many structured products became unmarketable. Governments, and particularly the US government, reacted on each occasion by pumping money into the financial system in the hope of staving off wider collapse, with some degree of success. At the end of each phase, regulators and financial institutions declared that lessons had been learnt. While measures were implemented which, if they had been introduced five years earlier, might have prevented the most recent crisis from taking the particular form it did, these responses addressed the particular problem that had just occurred, rather than the underlying generic problems of skewed incentives and dysfunctional institutional structures.

The public support of markets provided on each occasion the fuel needed to stoke the next crisis. Each boom and bust is larger than the last. Since the alleviating action is also larger, the pattern is one of cycles of increasing amplitude.

I do not know what the epicenter of the next crisis will be, except that it is unlikely to involve structured debt products. I do know that unless human nature changes or there is fundamental change in the structure of the financial services industry – equally improbable – there will be another manifestation once again based on naive extrapolation and collective magical thinking. The recent crisis taxed to the full – the word tax is used deliberately – the resources of world governments and their citizens. Even if there is will to respond to the next crisis, the capacity to do so may not be there.

The citizens of that most placid of countries, Iceland, now backed by their president, have found a characteristically polite and restrained way of disputing an obligation to stump up large sums of cash to pay for the arrogance and greed of other people. They are right. We should listen to them before the same message is conveyed in much more violent form, in another place and at another time. But it seems unlikely that we will.

We made a mistake in the closing decades of the 20th century. We removed restrictions that had imposed functional separation on financial institutions. This led to businesses riddled with conflicts of interest and culture, controlled by warring groups of their own senior employees. The scale of resources such businesses commanded enabled them to wield influence to create a – for them – virtuous circle of growing economic and political power. That mistake will not be easily remedied, and that is why I view the new decade with great apprehension. In the name of free markets, we created a monster that threatens to destroy the very free markets we extol.

While Hyman Minsky was the first clearly formulate the financial instability hypothesis I think Keynes understood the same dynamic pretty well. He postulated that a world with a large financial sector and an excessive emphasis on the production of investment products creates instability both in terms of output and prices. In other words it automatically tends to generate credit and asset bubbles.  The key driver of taking excessive risk is the fact that financial professionals generally risk other people’s money and due to this fact have asymmetrical incentives:

The key driver of taking excessive risk is the fact that financial professionals generally risk other people’s money and due to this fact have asymmetrical incentives:
  • They get big rewards when bets go right
  • They don’t have to pay when bets go wrong.

This asymmetrical incentives ensure that the financial system is structurally biased toward taking on more risk than what should be taken.

This asymmetry is not a new observation of this systemic problem. Andrew Jackson noted it in much more polemic way long ago:

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

This asymmetrical incentives ensure that the financial system is structurally biased toward taking on more risk than what should be taken. In other words it naturally tend to slide to the casino model, the with omnipresent reckless gambling as the primary and the most profitable mode of operation while an opportunities last.  The only way to counter this is to throw sand into the wheels of financial mechanism:  enforce strict regulations, limit money supplies and periodically jail too enthusiastic bankers. The latter is as important or even more important as the other two because bankers tend to abuse "limited liability" status like no other sector.

Asset inflation over the past 10 years and the subsequent catastrophe incurred is a way classic behavior of dynamic system with strong positive feedback loop.  Such behavior does not depends of personalities of bankers or policymakers, but is an immanent property of this class of dynamic systems. And the main driving force here was deregulation. So its important that new regulation has safety feature which make removal of it more complicated and requiring bigger majority like is the case with constitutional issues.

Another fact was the fact that due to perverted incentives, accounting in the banks was fraudulent from the very beginning and it was fraudulent on purpose.  Essentially accounting in banks automatically become as bad as law enforcement permits. This is a classic case of control fraud and from prevention standpoint is make sense to establish huge penalties for auditors, which might hurt healthy institutions but help to ensure that the most fraudulent institution lose these bank charter before affecting the whole system.  With the anti-regulatory zeal of Bush II administration the level of auditing became too superficial, almost non-existent. I remember perverted dances with Sarbanes–Oxley when it was clear from the very beginning that the real goal is not to strengthen accounting but to earn fees and to create as much profitable red tape as possible, in perfect Soviet bureaucracy style.

Deregulation also increases systemic risk by influencing the real goals of financial organizations. At some point of deregulation process the goal of higher remuneration for the top brass becomes self-sustainable trend  and replaces all other goals of the financial organization. This is the essence of  Martin Taylor’s, the former chief executive of Barclays,  article FT.com - Innumerate bankers were ripe for a reckoning in the Financial Times (Dec 15, 2009), which is worth reading in its entirety:

City people have always been paid well relative to others, but megabonuses are quite new. From my own experience, in the mid-1990s no more than four or five employees of Barclays’ then investment bank were paid more than £1m, and no one got near £2m. Around the turn of the millennium across the market things began to take off, and accelerated rapidly – after a pause in 2001-03 – so that exceptionally high remuneration, not just individually, but in total, was paid out between 2004 and 2007.

Observers of financial services saw unbelievable prosperity and apparently immense value added. Yet two years later the whole industry was bankrupt. A simple reason underlies this: any industry that pays out in cash colossal accounting profits that are largely imaginary will go bust quickly. Not only has the industry – and by extension societies that depend on it – been spending money that is no longer there, it has been giving away money that it only imagined it had in the first place. Worse, it seems to want to do it all again.

What were the sources of this imaginary wealth?

In the last two of these the bank was not receiving any income, merely “booking revenues”. How could they pay this non-existent wealth out in cash to their employees? Because they had no measure of cash flow to tell them they were idiots, and because everyone else was doing it. Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues” did not actually consist of money.

In the next phase instability is amplified by the way governments and central banks respond to crises caused by credit bubble: the state has powerful means to end a recession, but the policies it uses give rise to the next phase of instability, the next bubble…. When money is virtually free – or, at least, at 0.5 per cent – traders feel stupid if they don’t leverage up to the hilt. Thus previous bubble and crash become a dress rehearsal for the next.

Resulting self-sustaining "boom-bust" cycle is very close how electronic systems with positive feedback loop behave and   cannot be explained by neo-classical macroeconomic models. Like with electronic devices the financial institution in this mode are unable to provide the services that are needed.

As Minsky noted long ago (sited from Stephen Mihm  Why capitalism fails Boston Globe):

Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

...our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky’s vision might have been dark, but he was not a fatalist; he believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. But with a growing number of economists eager to declare the recession over, and the crisis itself apparently behind us, these policies may prove as discomforting as the theories that prompted them in the first place. Indeed, as economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

And he understood the roots of the current credit bubble much better that neoclassical economists like Bernanke: 
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what [Minsky] called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further.

As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

 Minsky’s financial instability hypothesis suggests that when optimism is high and ample funds are available for investment, investors tend to migrate from the safe hedge end of the Minsky spectrum to the risky speculative and Ponzi end. Indeed, in the current crisis, investors tried to raise returns by increasing leverage and switching to financing via short-term — sometimes overnight —  borrowing (Too late to learn?):

In the church of Friedman, inflation was the ol' devil tempting the good folk; the 1980s seemed to prove that, let loose, it would cause untold havoc on the populace. But, as Barbera notes:

The last five major global cyclical events were the early 1990s recession - largely occasioned by the US Savings & Loan crisis, the collapse of Japan Inc after the stock market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust cycle at the turn of the millennium, and the unprecedented rise and then collapse for US residential real estate in 2007-2008. All five episodes delivered recessions, either global or regional. In no case was there a significant prior acceleration of wages and general prices. In each case, an investment boom and an associated asset market ran to improbable heights and then collapsed. From 1945 to 1985, there was no recession caused by the instability of investment prompted by financial speculation - and since 1985 there has been no recession that has not been caused by these factors.
Thus, meet the devil in Minsky's paradise - "an investment boom and an associated asset market [that] ran to improbable heights and then collapsed".

According the Barbera, "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

Current economy state can be called following Paul McCulley a "stable disequilibrium" very similar to a state  a sand pile.  All this pile of  stocks, debt instruments, derivatives, credit default swaps and God know corresponds to a  pile of sand that is on the verse of losing stability. Each financial player works hard to maximize their own personal outcome but the "invisible hand" effect in adding sand to the pile that is increasing systemic instability. According to Minsky, the longer such situation continues the more likely and violent an "avalanche".

The late Hunt Taylor wrote, in 2006:

"Let us start with what we know. First, these markets look nothing like anything I've ever encountered before. Their stunning complexity, the staggering number of tradable instruments and their interconnectedness, the light-speed at which information moves, the degree to which the movement of one instrument triggers nonlinear reactions along chains of related derivatives, and the requisite level of mathematics necessary to price them speak to the reality that we are now sailing in uncharted waters.

"... I've had 30-plus years of learning experiences in markets, all of which tell me that technology and telecommunications will not do away with human greed and ignorance. I think we will drive the car faster and faster until something bad happens. And I think it will come, like a comet, from that part of the night sky where we least expect it."

This is a gold age for bankers. As Peter Boone Simon Johnson wrote in New Republic (The Next Financial Crisis ):

Banking was once a dangerous profession. In Britain, for instance, bankers faced “unlimited liability”--that is, if you ran a bank, and the bank couldn’t repay depositors or other creditors, those people had the right to confiscate all your personal assets and income until you repaid. It wasn’t until the second half of the nineteenth century that Britain established limited liability for bank owners. From that point on, British bankers no longer assumed much financial risk themselves.

In the United States, there was great experimentation with banking during the 1800s, but those involved in the enterprise typically made a substantial commitment of their own capital. For example, there was a well-established tradition of “double liability,” in which stockholders were responsible for twice the original value of their shares in a bank. This encouraged stockholders to carefully monitor bank executives and employees. And, in turn, it placed a lot of pressure on those who managed banks. If they fared poorly, they typically faced personal and professional ruin. The idea that a bank executive would retain wealth and social status in the event of a self-induced calamity would have struck everyone--including bank executives themselves--as ludicrous.

Enter, in the early part of the twentieth century, the Federal Reserve. The Fed was founded in 1913, but discussion about whether to create a central bank had swirled for years. “No one can carefully study the experience of the other great commercial nations,” argued Republican Senator Nelson Aldrich in an influential 1909 speech, “without being convinced that disastrous results of recurring financial crises have been successfully prevented by a proper organization of capital and by the adoption of wise methods of banking and of currency”--in other words, a central bank. In November 1910, Aldrich and a small group of top financiers met on an isolated island off the coast of Georgia. There, they hammered out a draft plan to create a strong central bank that would be owned by banks themselves.

What these bankers essentially wanted was a bailout mechanism for the aftermath of speculative crashes--something more durable than J.P. Morgan, who saved the day in the Panic of 1907 but couldn’t be counted on to live forever. While they sought informal government backing and substantial government financial support for their new venture, the bankers also wanted it to remain free of government interference, oversight, or control.

Another destabilizing fact is so called myth of invisible hand which is closely related to the myth about market self-regulation. The misunderstood argument of Adam Smith [1776], the founder of modern economics, that free markets led to efficient outcomes, “as if by an invisible hand” has played a central role in these debates: it suggested that we could, by and large, rely on markets without government intervention. About "invisible hand" deification, see The Invisible Hand, Trumped by Darwin - NYTimes.com. One of the most important counterargument against financial market self-regulation is existence of so called  “Minsky moments”:

“Minsky” was shorthand for Hyman Minsky, an American macroeconomist who died over a decade ago.  He predicted almost exactly the kind of meltdown that recently hammered the global economy. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. As economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

Minsky theory was not well received due to powerful orthodoxy, born in the years after World War II, known as the neoclassical synthesis. The older belief in a self-regulating, self-stabilizing free market had selectively absorbed a few insights from John Maynard Keynes, the great economist of the 1930s who wrote extensively of the ways that capitalism might fail to maintain full employment. Most economists still believed that free-market capitalism was a fundamentally stable basis for an economy, though thanks to Keynes, some now acknowledged that government might under certain circumstances play a role in keeping the economy - and employment - on an even keel.

Economists like Paul Samuelson became the public face of the new establishment; he and others at a handful of top universities became deeply influential in Washington. In theory, Minsky could have been an academic star in this new establishment: Like Samuelson, he earned his doctorate in economics at Harvard University, where he studied with legendary Austrian economist Joseph Schumpeter, as well as future Nobel laureate Wassily Leontief.

But Minsky was cut from different cloth than many of the other big names. The descendent of immigrants from Minsk, in modern-day Belarus, Minsky was a red-diaper baby, the son of Menshevik socialists. While most economists spent the 1950s and 1960s toiling over mathematical models, Minsky pursued research on poverty, hardly the hottest subfield of economics. With long, wild, white hair, Minsky was closer to the counterculture than to mainstream economics. He was, recalls the economist L. Randall Wray, a former student, a “character.”

So while his colleagues from graduate school went on to win Nobel prizes and rise to the top of academia, Minsky languished. He drifted from Brown to Berkeley and eventually to Washington University. Indeed, many economists weren’t even aware of his work. One assessment of Minsky published in 1997 simply noted that his “work has not had a major influence in the macroeconomic discussions of the last thirty years.”

Yet he was busy. In addition to poverty, Minsky began to delve into the field of finance, which despite its seeming importance had no place in the theories formulated by Samuelson and others. He also began to ask a simple, if disturbing question: “Can ‘it’ happen again?” - where “it” was, like Harry Potter’s nemesis Voldemort, the thing that could not be named: the Great Depression.

In his writings, Minsky looked to his intellectual hero, Keynes, arguably the greatest economist of the 20th century. But where most economists drew a single, simplistic lesson from Keynes - that government could step in and micromanage the economy, smooth out the business cycle, and keep things on an even keel - Minsky had no interest in what he and a handful of other dissident economists came to call “bastard Keynesianism.”

Instead, Minsky drew his own, far darker, lessons from Keynes’s landmark writings, which dealt not only with the problem of unemployment, but with money and banking. Although Keynes had never stated this explicitly, Minsky argued that Keynes’s collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff.

This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now famous for documenting capitalism’s ceaseless process of “creative destruction.” But Minsky spent more time thinking about destruction than creation. In doing so, he formulated an intriguing theory: not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability that would set the stage for monumental crises.

Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”

As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system.

From the 1960s onward, Minsky elaborated on this hypothesis. At the time he believed that this shift was already underway: postwar stability, financial innovation, and the receding memory of the Great Depression were gradually setting the stage for a crisis of epic proportions. Most of what he had to say fell on deaf ears. The 1960s were an era of solid growth, and although the economic stagnation of the 1970s was a blow to mainstream neo-Keynesian economics, it did not send policymakers scurrying to Minsky. Instead, a new free market fundamentalism took root: government was the problem, not the solution.

Moreover, the new dogma coincided with a remarkable era of stability. The period from the late 1980s onward has been dubbed the “Great Moderation,” a time of shallow recessions and great resilience among most major industrial economies. Things had never been more stable. The likelihood that “it” could happen again now seemed laughable.

Yet throughout this period, the financial system - not the economy, but finance as an industry - was growing by leaps and bounds. Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers’ and companies’ growing dependence on debt, and the growing use of leverage within the financial system.

By the end of the 20th century, the financial system that Minsky had warned about had materialized, complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning of risk. When storied financial firms started to fall, sending shockwaves through the “real” economy, his predictions started to look a lot like a road map.

“This wasn’t a Minsky moment,” explains Randall Wray. “It was a Minsky half-century.”

Minsky is now all the rage. A year ago, an influential Financial Times columnist confided to readers that rereading Minsky’s 1986 “masterpiece” - “Stabilizing an Unstable Economy” - “helped clear my mind on this crisis.” Others joined the chorus. Earlier this year, two economic heavyweights - Paul Krugman and Brad DeLong - both tipped their hats to him in public forums. Indeed, the Nobel Prize-winning Krugman titled one of the Robbins lectures at the London School of Economics “The Night They Re-read Minsky.”

Today most economists, it’s safe to say, are probably reading Minsky for the first time, trying to fit his unconventional insights into the theoretical scaffolding of their profession. If Minsky were alive today, he would no doubt applaud this belated acknowledgment, even if it has come at a terrible cost. As he once wryly observed, “There is nothing wrong with macroeconomics that another depression [won’t] cure.”

But does Minsky’s work offer us any practical help? If capitalism is inherently self-destructive and unstable - never mind that it produces inequality and unemployment, as Keynes had observed - now what?

After spending his life warning of the perils of the complacency that comes with stability - and having it fall on deaf ears - Minsky was understandably pessimistic about the ability to short-circuit the tragic cycle of boom and bust. But he did believe that much could be done to ameliorate the damage.

To prevent the Minsky moment from becoming a national calamity, part of his solution (which was shared with other economists) was to have the Federal Reserve - what he liked to call the “Big Bank” - step into the breach and act as a lender of last resort to firms under siege. By throwing lines of liquidity to foundering firms, the Federal Reserve could break the cycle and stabilize the financial system. It failed to do so during the Great Depression, when it stood by and let a banking crisis spiral out of control. This time, under the leadership of Ben Bernanke - like Minsky, a scholar of the Depression - it took a very different approach, becoming a lender of last resort to everything from hedge funds to investment banks to money market funds.

Minsky’s other solution, however, was considerably more radical and less palatable politically. The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of “priming the pump” by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.

Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

While economists may be acknowledging some of Minsky’s points on financial instability, it’s safe to say that even liberal policymakers are still a long way from thinking about such an expanded role for the American government. If nothing else, an expensive full-employment program would veer far too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics are apt to misunderstand Minsky. “He saw these ideas as perfectly consistent with capitalism,” says Wray. “They would make capitalism better.”

But not perfect. Indeed, if there’s anything to be drawn from Minsky’s collected work, it’s that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession’s quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into a catchy phrase and carried on banners.”

It’s a sentiment that may limit the extent to which Minsky becomes part of any new orthodoxy. But that’s probably how he would have preferred it, believes liberal economist James Galbraith. “I think he would resist being domesticated,” says Galbraith. “He spent his career in professional isolation.”

Stephen Mihm is a history professor at the University of Georgia and author of “A Nation of Counterfeiters” (Harvard, 2007). © Copyright 2009 Globe Newspaper Company.

Attempts to reinvent Minsky will never stop

Here is one such paper   Leveraged Bubbles (Sep 01, 2015)

The conclusion to "Leveraged bubbles," by Òscar Jordà, Moritz Schularick, and Alan Taylor:

... In this column, we turned to economic history for the first comprehensive assessment of the economic risks of asset price bubbles. We provide evidence about which types of bubbles matter and how their economic costs differ. Our historical analysis shows that not all bubbles are created equal. When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.
In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms. This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles. The findings presented here can inform ongoing efforts to devise better macro-financial theory and real-world applications at a time when policymakers are still searching for new approaches in the aftermath of the Great Recession.
Posted by Mark Thoma on Tuesday, September 1, 2015 at 09:25 AM in Economics, Financial System | Permalink  Comments (8)
Double Capitulation said...

"bursting of credit boom bubbles is significant and long lasting.

In the past decades, central banks typically have taken"
~~Òscar Jordà, Moritz Schularick, and Alan Taylor:~

Did Kurt Vonnegut once quip

"Each fed governor likes to live on the edge, further out on a limb where she can see more then hope against hope that limb will not break until she leaves office." ?

Imprecisely, yet left us with a memorable hint of both his genius and fed governor's stupidity.
 

djb said...

of course if wages kept up with productivity, there would not have been as much of a bubble because people could have paid more, and borrowed less

but I doubt BIS was worried about that particular issue

Peter K. -> djb...

"This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles."

Likewise I don't the believe the BIS is big on tighter regulation of the banks. As Krugman and others have pointed out, the BIS is always for raising rates but switches rationals. Sometimes it's about inflation, sometimes bubbles.
 

mulp -> djb...

We need a Fed that sets as policy buying long term debt that funds new infrastructure projects that are required by Federal regulation to pay prevailing aka higher wages.

If in 2010, the Fed had bought $3 trillion in bonds for such projects as building the NE HSR, for all the cities fixing their century old water and sewer systems, California's HSR, bonds for replacement bridges with tunnels as option, rerouting rail to eliminate grade crossings to speed for freight and truck traffic, then the Fed could have done what Republicans have done up until the Republicans decided to punish all the We the People for electing Obama.

Any debt issued that does not build new capital assets requiring American labor, ie, debt paying labor costs, is totally worthless to the economy.

Other than for some existing constant wealth redistribution purposes - during 2008-2011 savers were protected against having their wealth taken from them and given to the borrowers who had long ago spent it.

Arne said...

Is there some data on the extent to which asset price rises are credit fueled or not. My memory (which does not qualify as a data source) says that the housing bubble was much more so than the dot-com bubble.

Blissex said...

«When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial.»

So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

«In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms.»

If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.

Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.

Not very hands-off at all.

mulp -> Blissex...

Are you questioning creating wealth by price inflation of decaying asset which are churned in pump and dump?

Do you believe selling and reselling the same fixed quantity of assets creates jobs through the wealth effect of workers spending money they don't have to buy things on credit they can't pay back to keep up with the rich?

Wealth. Creating wealth. Wealth effect. Capital gains. Money in your pocket. Signs of free lunch economic smoke and mirrors.

Wealth is created by paid labor or hard labor by the owner of the created wealth. But paying labor costs as a virtue is not something an economist is allowed to say in the post Reagan victory world.


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[Jul 21, 2021] Bubbles, bubbles everywhere- Jeremy Grantham on the bust ahead

Jul 20, 2021 | www.msn.com

NEW YORK (Reuters) - In this manic era of meme stocks, cryptocurrencies and real-estate bidding wars, studying the history of financial markets might seem a little dry and old-fashioned.

Except to Jeremy Grantham.

The chairman of the board of famed asset managers GMO is a certified bubble-ologist, fascinated by how and why bubbles emerge. Grantham studies classic ones like 1929, but - now in his eighties - he has also lived through (and called) numerous modern booms and busts, including the dot-com wreckage in 2000, the bull market peak in 2008 and the bear market low in 2009.

In case you did not know where this is headed: He says we are in a bubble right now.

In January Grantham wrote an investor letter, "Waiting For the Last Dance," about an inflating bubble that "could well be the most important event of your investing lives."

Six months later, the stock market is starting to show some cracks. Grantham spoke with Reuters about this moment of market history.

Q: When your letter of warning came out, what was the response like?

A: I got a lot of pushback. Waves of Bitcoin freaks attacked me in every way possible. They said my ears were too big, and that I needed to be locked up in an old-folks home.

Q: So if we were already in a bubble then, where do things stand right now?

A: Bubbles are unbelievably easy to see; it's knowing when the bust will come that is trickier. You see it when the markets are on the front pages instead of the financial pages, when the news is full of stories of people getting cheated, when new coins are being created every month. The scale of these things is so much bigger than in 1929 or in 2000.

Q: What is your take on equity valuations now?

A: Looking at most measures, the market is more expensive than in 2000, which was more expensive than anything that preceded it.

My favorite metric is price-to-sales: What you find is that even the cheapest parts of the market are way more expensive than in 2000.

Q: What might bring an end to this bubble?

A: Markets peak when you are as happy as you can get, and a near-perfect economy is extrapolated into the indefinite future. But around the corner are lurking serious issues like interest rates, inflation, labor and commodity prices. All of those are beginning to look less optimistic than they did just a week or two ago.

Q: How long until a bust?

A: A bust might take a few more months, and, in fact, I hope it does, because it will give us the opportunity to warn more people. The probabilities are that this will go into the fall: The stimulus, the economic recovery, and vaccinations have all allowed this thing to go on a few months longer than I would have initially guessed.

What pricks the bubble could be a virus problem, it could be an inflation problem, or it could be the most important category of all, which is everything else that is unexpected. One of 20 different things that you haven't even thought of will come out of the woodwork, and you had no idea it was even there.

Q: What might a bust look like?

A: There will be an enormous negative wealth effect, broader than it has ever been, compared to any other previous bubble breaking. It's the first time we have bubbled in so many different areas "" interest rates, stocks, housing, non-energy commodities. On the way up, it gave us all a positive wealth effect, and on the way down it will retract, painfully.

Q: Are there any asset classes which are relatively attractive?

A: You could always own cash, or you could do what the institutions do, which is buy heavily into the asset classes that are least bad. The least overpriced are value stocks and emerging markets. Those are the two arbitrages. With value and emerging, you should make some positive return over the next 10 years.

Q: It is difficult to be bearish right now?

A: Not for me, because I don't have career risk anymore. But every big company has lots of risk: They facilitate a bubble until it bursts, and then they change their tune as fast as they can, and make money on the downside.

But this bubble is the real thing, and everyone can see it. It's as obvious as the nose on your face.

[Jul 20, 2021] Bubbles, bubbles everywhere- Jeremy Grantham on the bust ahead

Jul 20, 2021 | www.msn.com

NEW YORK (Reuters) - In this manic era of meme stocks, cryptocurrencies and real-estate bidding wars, studying the history of financial markets might seem a little dry and old-fashioned.

Except to Jeremy Grantham.

The chairman of the board of famed asset managers GMO is a certified bubble-ologist, fascinated by how and why bubbles emerge. Grantham studies classic ones like 1929, but - now in his eighties - he has also lived through (and called) numerous modern booms and busts, including the dot-com wreckage in 2000, the bull market peak in 2008 and the bear market low in 2009.

In case you did not know where this is headed: He says we are in a bubble right now.

In January Grantham wrote an investor letter, "Waiting For the Last Dance," about an inflating bubble that "could well be the most important event of your investing lives."

Six months later, the stock market is starting to show some cracks. Grantham spoke with Reuters about this moment of market history.

Q: When your letter of warning came out, what was the response like?

A: I got a lot of pushback. Waves of Bitcoin freaks attacked me in every way possible. They said my ears were too big, and that I needed to be locked up in an old-folks home.

Q: So if we were already in a bubble then, where do things stand right now?

A: Bubbles are unbelievably easy to see; it's knowing when the bust will come that is trickier. You see it when the markets are on the front pages instead of the financial pages, when the news is full of stories of people getting cheated, when new coins are being created every month. The scale of these things is so much bigger than in 1929 or in 2000.

Q: What is your take on equity valuations now?

A: Looking at most measures, the market is more expensive than in 2000, which was more expensive than anything that preceded it.

My favorite metric is price-to-sales: What you find is that even the cheapest parts of the market are way more expensive than in 2000.

Q: What might bring an end to this bubble?

A: Markets peak when you are as happy as you can get, and a near-perfect economy is extrapolated into the indefinite future. But around the corner are lurking serious issues like interest rates, inflation, labor and commodity prices. All of those are beginning to look less optimistic than they did just a week or two ago.

Q: How long until a bust?

A: A bust might take a few more months, and, in fact, I hope it does, because it will give us the opportunity to warn more people. The probabilities are that this will go into the fall: The stimulus, the economic recovery, and vaccinations have all allowed this thing to go on a few months longer than I would have initially guessed.

What pricks the bubble could be a virus problem, it could be an inflation problem, or it could be the most important category of all, which is everything else that is unexpected. One of 20 different things that you haven't even thought of will come out of the woodwork, and you had no idea it was even there.

Q: What might a bust look like?

A: There will be an enormous negative wealth effect, broader than it has ever been, compared to any other previous bubble breaking. It's the first time we have bubbled in so many different areas "" interest rates, stocks, housing, non-energy commodities. On the way up, it gave us all a positive wealth effect, and on the way down it will retract, painfully.

Q: Are there any asset classes which are relatively attractive?

A: You could always own cash, or you could do what the institutions do, which is buy heavily into the asset classes that are least bad. The least overpriced are value stocks and emerging markets. Those are the two arbitrages. With value and emerging, you should make some positive return over the next 10 years.

Q: It is difficult to be bearish right now?

A: Not for me, because I don't have career risk anymore. But every big company has lots of risk: They facilitate a bubble until it bursts, and then they change their tune as fast as they can, and make money on the downside.

But this bubble is the real thing, and everyone can see it. It's as obvious as the nose on your face.

[Jul 16, 2021] This one signal says a stock market correction may be on the way by Michael Brush

Notable quotes:
"... Here are the other ominous signs of froth in the IPO market. ..."
"... Tech leads the way: It dominates the IPO market again, just as in 1999. ..."
"... Frothy first-day gains: The average first-day pop for IPOs in the second quarter was 42% ..."
"... Historically high valuations ..."
"... Retail investors in the mix ..."
"... "I think it says more about general liquidity than it does about where the stock market is going next," says Kevin Landis of the Firsthand Technology Opportunities TEFQX, -3.24% , referring to the IPO frenzy. "There is so much money sloshing around. The capital markets look like the rich guy from out of town who just got off the cruise ship, and we are all coming out of the woodwork to sell him stuff," he says. ..."
"... "Things are going up simply because of liquidity, which means eventually there will be a top," says Landis. "But not necessarily an impending top right around the corner." Landis is worth listening to because his fund outperforms his technology category by 9.6 percentage points annualized over the five years, according to Morningstar. ..."
"... Market calls are always a matter of what intelligence spies call "the mosaic." Each bit of information is a piece of an overall mosaic. While the IPO market froth is disturbing, you should consider this cautionary signal as just one among many. ..."
Jul 14, 2021 | www.marketwatch.com
A frothy market for initial public offerings suggests stocks are overvalued

Oatly, which produces oat milk products, went public in May. (Photo Illustration by Scott Olson/Getty Images)

I hear more money managers say it's starting to feel like 1999" the bubble year followed by an epic market crash.

They may be on to something.

The initial public offering (IPO) market now shows the froth that foreshadows big stock market corrections.

Consider these troubling signals from the IPO market.

1. Ominous volume: Second-quarter IPO proceeds were the biggest since" get this" the fourth quarter of 1999. The huge tech selloff that scarred a generation of investors started in March 2000 and then spread to the entire market.

Some details: A total of 115 IPOs raised $40.7 billion in the second quarter. That follows a busy first quarter when 100 IPOs raised $39.1 billion. Both quarters saw the largest amount of capital raised since the fourth quarter of 1999, when IPOs raised $46.5 billion. These numbers come from the IPO experts at Renaissance Capital, which manages the IPO exchange traded fund, Renaissance IPO ETF IPO, -3.43% .

Of course, adjusted for inflation, the 2021 numbers shrink relative to the fourth quarter of 1999. But this doesn't get us off the hook. The 2021 IPO figures, above, exclude the $12.2 billion and $87 billion raised by special purpose acquisition companies (SPACs) in the second and first quarters.

This spike in IPO volume is troubling for a simple reason. Investment bankers and companies know the most opportune time to sell stock is around market highs. They bring companies public at their convenience, not ours. This tells us they may be selling a top now.

Here are the other ominous signs of froth in the IPO market.

2. Tech leads the way: It dominates the IPO market again, just as in 1999. The tech sector raised the majority of second-quarter proceeds and posted its busiest quarter in at least two decades with 42 IPOs, says Renaissance Capital. This included the quarter's largest IPO, DiDi Global DIDI, +1.61% , the Chinese ride-hailing app. The large U.S.-based tech names were Applovin APP, -5.54% in app software, the robotics company UiPath PATH, -3.68% , and the payments platform Marqeta MQ, -4.93% .

3. We can expect more of the same: A robust IPO pipeline sets the stage for a booming third quarter, says Renaissance Capital. The IPO pipeline has over a hundred companies. Tech dominates.

4. Frothy first-day gains: The average first-day pop for IPOs in the second quarter was 42% . That's well above the range of 31%-37% for the prior four quarters.

5. Historically high valuations : Typically, tech companies have come public with enterprise-value-(EV)-to-sales ratios of around 10. Now many are coming public with EV/sales ratios in the 20-30 range or more, points out Avery Spears, an IPO analyst at Renaissance Capital. For example, the cybersecurity company SentinelOne S, -6.14% came public with an EV/sales ratio of 81, says Spears.

6. Retail investors in the mix : They're big participants in IPO trading" often driving IPOs up by crazy amounts in first-day trading. "In the second quarter there were a lot of small deals with low floats and absolutely insane trading, popping well over 100% and in one case over 1,000%," says Spears. Pop Culture Group CPOP, -12.38% rose over 400% on its first day of trading, and E-Home Household Service EJH, -3.67% advanced 1,100%. "This demonstrates presence of retail investors in the market," she says. Both names have since fallen.

Keep in mind that the 2000 selloff was not the only one foreshadowed by IPO froth. The selloffs during mid-2015 to early 2016 and the second half 2018 were both preceded by high-water marks for IPO deal volume.

IPO-froth pushback

"It's different this time" are maybe the most dangerous words in investing. But market experts say several factors suggest the robust IPO market isn't such a negative signal.

First, decent quality companies are coming public. "Because companies stay private longer, you are seeing far more mature companies coming public," says Todd Skacan, equity capital markets manager at T. Rowe Price. These aren't like the speculative Internet companies of 1999. "It would be more of a signal of froth if more borderline companies were coming public like in the fourth quarter of 1999," he says.

We saw some of this with the SPACs, says Skacan, but the SPAC craze has cooled off. Second-quarter SPAC issuance fell 79% compared to the first quarter, muted by "investor fatigue and regulatory scrutiny," says a Renaissance Capital report on the IPO market. In the second quarter, 63 SPACs raised $12.2 billion, compared to the 298 SPACs that raised $87 billion in the first quarter.

Next, the type of company coming public might also calm fears. Alongside all the tech names, there are many industrial and consumer-facing companies" not the kinds of businesses that indicate froth. The latter category includes public national brands like Mister Car Wash MCW, -1.82% and Krispy Kreme DNUT, -2.16% , and the high-growth oat milk brand Oatly OTLY, -2.79% .

Third, IPOs are only floating 10%-15% of their overall value, and many post-IPO valuations are not that much higher than valuations implied by pre-IPO capital raises. That's different, compared to 1999. "It is not like they are selling a high number of shares at inflated prices," says Skacan. This makes sense, because companies that are more mature when they do an IPO don't need as much money.

Liquidity flood

"I think it says more about general liquidity than it does about where the stock market is going next," says Kevin Landis of the Firsthand Technology Opportunities TEFQX, -3.24% , referring to the IPO frenzy. "There is so much money sloshing around. The capital markets look like the rich guy from out of town who just got off the cruise ship, and we are all coming out of the woodwork to sell him stuff," he says.

"Things are going up simply because of liquidity, which means eventually there will be a top," says Landis. "But not necessarily an impending top right around the corner." Landis is worth listening to because his fund outperforms his technology category by 9.6 percentage points annualized over the five years, according to Morningstar.

The bottom line

Market calls are always a matter of what intelligence spies call "the mosaic." Each bit of information is a piece of an overall mosaic. While the IPO market froth is disturbing, you should consider this cautionary signal as just one among many.

Michael Brush is a columnist for MarketWatch. At the time of publication, he owned APP. Brush has suggested APP in his stock newsletter, Brush Up on Stocks . Follow him on Twitter @mbrushstocks,

[Jul 03, 2021] Opinion: The looming stagflationary debt crisis will deliver a one-two punch to markets and economies by Nouriel Roubini

Highly recommended!
Notable quotes:
"... For now, loose monetary and fiscal policies will continue to fuel asset and credit bubbles, propelling a slow-motion train wreck. The warning signs are already apparent in today's high price-to-earnings ratios SPX , low equity risk premiums, inflated housing and tech assets COMP , and the irrational exuberance surrounding special purpose acquisition companies (SPACs), the crypto sector BTCUSD, , high-yield corporate debt , collateralized loan obligations, private equity, meme stocks AMC, and runaway retail day trading. ..."
"... But meanwhile, the same loose policies that are feeding asset bubbles will continue to drive consumer price inflation, creating the conditions for stagflation whenever the next negative supply shocks arrive. Such shocks could follow from renewed protectionism; demographic aging in advanced and emerging economies; immigration restrictions in advanced economies; the reshoring of manufacturing to high-cost regions; or the balkanization of global supply chains. ..."
"... More broadly, the Sino-American decoupling threatens to fragment the global economy at a time when climate change and the COVID-19 pandemic are pushing national governments toward deeper self-reliance. ..."
"... Making matters worse, central banks have effectively lost their independence, because they have been given little choice but to monetize massive fiscal deficits to forestall a debt crisis. With both public and private debts having soared, they are in a debt trap. Central banks will be damned if they do and damned if they don't, and many governments will be semi-insolvent and thus unable to bail out banks, corporations, and households. The doom loop of sovereigns and banks in the eurozone after the global financial crisis will be repeated world-wide ..."
"... When former Fed Chair Paul Volcker hiked rates to tackle inflation in 1980-82, the result was a severe double-dip recession in the United States and a debt crisis and lost decade for Latin America. But now that global debt ratios are almost three times higher than in the early 1970s, any anti-inflationary policy would lead to a depression, rather than a severe recession. The question is not if but when. ..."
Jun 30, 2021 | www.marketwatch.com

Roubini warns: After 'the Minsky Moment' crashes overheated speculative markets, 'the Volcker Moment' will will arrive to crash the debt-burdened global economy

( Project Syndicate ) -- In April, I warned that today's extremely loose monetary and fiscal policies, when combined with a number of negative supply shocks, could result in 1970s-style stagflation (high inflation alongside a recession). In fact, the risk today is even bigger than it was then.

After all, debt ratios in advanced economies and most emerging markets were much lower in the 1970s, which is why stagflation has not been associated with debt crises historically. If anything, unexpected inflation in the 1970s wiped out the real value of nominal debts at fixed rates, thus reducing many advanced economies' public-debt burdens.

The warning signs are already apparent in today's high price-to-earnings ratios, low equity risk premiums, inflated housing and tech assets, and the irrational exuberance surrounding special purpose acquisition companies (SPACs), the crypto sector, high-yield corporate debt, collateralized loan obligations, private equity, meme stocks, and runaway retail day trading.

Conversely, during the 2007-08 financial crisis, high debt ratios (private and public) caused a severe debt crisis -- as housing bubbles burst -- but the ensuing recession led to low inflation, if not outright deflation. Owing to the credit crunch, there was a macro shock to aggregate demand, whereas the risks today are on the supply side.

Worst of both worlds

We are thus left with the worst of both the stagflationary 1970s and the 2007-10 period. Debt ratios are much higher than in the 1970s, and a mix of loose economic policies and negative supply shocks threatens to fuel inflation rather than deflation, setting the stage for the mother of stagflationary debt crises over the next few years.

For now, loose monetary and fiscal policies will continue to fuel asset and credit bubbles, propelling a slow-motion train wreck. The warning signs are already apparent in today's high price-to-earnings ratios SPX , low equity risk premiums, inflated housing and tech assets COMP , and the irrational exuberance surrounding special purpose acquisition companies (SPACs), the crypto sector BTCUSD, , high-yield corporate debt , collateralized loan obligations, private equity, meme stocks AMC, and runaway retail day trading.

But meanwhile, the same loose policies that are feeding asset bubbles will continue to drive consumer price inflation, creating the conditions for stagflation whenever the next negative supply shocks arrive. Such shocks could follow from renewed protectionism; demographic aging in advanced and emerging economies; immigration restrictions in advanced economies; the reshoring of manufacturing to high-cost regions; or the balkanization of global supply chains.

Recipe for macroeconomic disruption

More broadly, the Sino-American decoupling threatens to fragment the global economy at a time when climate change and the COVID-19 pandemic are pushing national governments toward deeper self-reliance. Add to this the impact on production of increasingly frequent cyberattacks on critical infrastructure and the social and political backlash against inequality, and the recipe for macroeconomic disruption is complete.

Making matters worse, central banks have effectively lost their independence, because they have been given little choice but to monetize massive fiscal deficits to forestall a debt crisis. With both public and private debts having soared, they are in a debt trap. Central banks will be damned if they do and damned if they don't, and many governments will be semi-insolvent and thus unable to bail out banks, corporations, and households. The doom loop of sovereigns and banks in the eurozone after the global financial crisis will be repeated world-wide

As inflation rises over the next few years, central banks will face a dilemma. If they start phasing out unconventional policies and raising policy rates to fight inflation, they will risk triggering a massive debt crisis and severe recession; but if they maintain a loose monetary policy, they will risk double-digit inflation -- and deep stagflation when the next negative supply shocks emerge.

But even in the second scenario, policy makers would not be able to prevent a debt crisis. While nominal government fixed-rate debt in advanced economies can be partly wiped out by unexpected inflation (as happened in the 1970s), emerging-market debts denominated in foreign currency would not be. Many of these governments would need to default and restructure their debts.

At the same time, private debts in advanced economies would become unsustainable (as they did after the global financial crisis), and their spreads relative to safer government bonds would spike, triggering a chain reaction of defaults. Highly leveraged corporations and their reckless shadow-bank creditors would be the first to fall, soon followed by indebted households and the banks that financed them.

The Volcker Moment

To be sure, real long-term borrowing costs may initially fall if inflation rises unexpectedly and central banks are still behind the curve. But, over time, these costs will be pushed up by three factors. First, higher public and private debts will widen sovereign and private interest-rate spreads. Second, rising inflation and deepening uncertainty will drive up inflation risk premiums. And, third, a rising misery index -- the sum of the inflation and unemployment rate -- eventually will demand a "Volcker Moment."

When former Fed Chair Paul Volcker hiked rates to tackle inflation in 1980-82, the result was a severe double-dip recession in the United States and a debt crisis and lost decade for Latin America. But now that global debt ratios are almost three times higher than in the early 1970s, any anti-inflationary policy would lead to a depression, rather than a severe recession. The question is not if but when.

Under these conditions, central banks will be damned if they do and damned if they don't, and many governments will be semi-insolvent and thus unable to bail out banks, corporations, and households. The doom loop of sovereigns and banks in the eurozone after the global financial crisis will be repeated world-wide, sucking in households, corporations, and shadow banks as well.

As matters stand, this slow-motion train wreck looks unavoidable. The Fed's recent pivot from an ultra-dovish to a mostly dovish stance changes nothing. The Fed has been in a debt trap at least since December 2018, when a stock- and credit-market crash forced it to reverse its policy tightening a full year before COVID-19 struck. With inflation rising and stagflationary shocks looming, it is now even more ensnared.

So, too, are the European Central Bank, the Bank of Japan, and the Bank of England. The stagflation of the 1970s will soon meet the debt crises of the post-2008 period. The question is not if but when.

Nouriel Roubini is CEO of Roubini Macro Associates and chief economist at Atlas Capital Team.

This commentary was published with permission of Project Syndicate -- The Looming Stagflationary Debt Crisis.

See also:

[Jul 03, 2021] Larry Summers Sees 5% Inflation At The End Of 2021

Notable quotes:
"... This is not the first time Summers has predicted that the firehose of fiscal and monetary stimulus will unleash soaring inflation. While career economists at the White House and Fed - who have peasants doing their purchases for them - urge Americans to ignore the current hyperinflation episode, saying that the recent inflation surge will soon pass, Summers has been unique among his fellow Democrats in predicting that massive monetary and fiscal stimulus alongside the reopening of the economy would spark considerable price pressures. ..."
"... Asked how financial markets may behave in the rest of 2021, Summers said "there will probably be more turbulence" as traders react to faster inflation by pushing up bond yields. "We've got a lot of processing ahead of us in markets," he said. ..."
Jul 03, 2021 | www.zerohedge.com

It may not be quite hyperinflation - loosely defined as pricing rising at a double-digit clip or higher - but if former Treasury Secretary and erstwhile democrat Larry Summers is right, it will be halfway there in about six months.

One day after Bank of America warned that the coming "hyperinflation" will last at least 2 and as much as 4 years - whether or not one defines that as transitory depends on whether one has a Federal Reserve charge card to fund all purchases in the next 4 years - Larry Summers, who is this close from being excommunicated from the Democrat party, predicted inflation will be running "pretty close" to 5% at the end of this year and that bond yields will rise as a result over the rest of 2021.

Considering that consumer prices already jumped 5% in May from the previous year, his forecast is not much of a shock.

Speaking on Bloomberg TV, Summers said that "my guess is that at the end of the year inflation will, for this year, come out pretty close to 5%," adding that "it would surprise me if we had 5% inflation with no effect on inflation expectations." If he is right, the recent reversal in one-year inflation expectations which dipped from 4.6% to 4.2% according to the latest UMich consumer sentiment survey, is about to surge to new secular highs.

This is not the first time Summers has predicted that the firehose of fiscal and monetary stimulus will unleash soaring inflation. While career economists at the White House and Fed - who have peasants doing their purchases for them - urge Americans to ignore the current hyperinflation episode, saying that the recent inflation surge will soon pass, Summers has been unique among his fellow Democrats in predicting that massive monetary and fiscal stimulus alongside the reopening of the economy would spark considerable price pressures.

Asked how financial markets may behave in the rest of 2021, Summers said "there will probably be more turbulence" as traders react to faster inflation by pushing up bond yields. "We've got a lot of processing ahead of us in markets," he said.

Ironically, Summers - who now teaches at Harvard University whose president he was not too long ago when he hung out with his buddy Jeffrey Epstein...


Plus Size Model 5 hours ago (Edited)

Exactly!! Not only that, it's not just the FED that is contributing to inflation. We can also blame the SEC and the DOJ. I've never seen a Zero Hedge article blaming stock price appreciation or buybacks for causing inflation or increasing the money supply. The DOJ never enforces antitrust laws. The FBI never investigates money laundering from overseas that creates artificial real estate appreciation that inflates the money supply when people take out HELOC. There are other oversight bodies that, in a sane world, would not allow foreign investment in real estate. Bitcoin and others are a new tool that is being used to manipulate the money supply. It's comical how coins always go down when the little guys are holding the bag and go up when Coinbase executives want to cash out.

Another thing, this artificial chip shortage, punitive tariffs, and new tax laws are also adding to price increases.

Totally_Disillusioned 1 hour ago

Speculative investments have NEVER been included in the forumulation of CPI that determines inflation rate.

Revolution_starts_now 6 hours ago

Larry Summers is a tool.

gregga777 5 hours ago (Edited) remove link

Banksters in 2010's: We've got to revise how we calculate inflation again to conceal it from the Rubes.

Banksters in 2020: Ho Lee Fuk! Gun the QE engine! Pedal to the metal! Monetize all of the Federal government's debt! Keep those stonks zooming upwards!

Banksters in 2021: Ho Lee Fuk! The Rubes have caught onto our game! Gun the QE engine! Keep that pedal to the metal! Maybe the Rubes won't notice housing prices going up 20% per year?

Summer 2021: Ho Lee Fuk! They are noticing Inflation! We'd better revise how we calculate inflation again to conceal it from the Rubes.

[Jul 03, 2021] Housing Prices Are Going Up. Must They Crash by Kevin Erdmann

When and how another housing bubble will burst? This is the question.
The author forget that the current movement out of the cities into the suburb can lead to the collapse of prices in overpriced areas of big cities like NYC. Also the retain space collapse is evident even to untrained observers. So people moving out of big cities like NYC and cities devastated by riots need to sell their current condos and apartments. To whom?
Jun 29, 2021 | thebusinessnewsindia.com

There are many reports of homebuyers getting into bidding wars and many cities where home prices have appreciated by well more than 10% over the past year. This naturally leads to a concern about market volatility: Must what goes up come down ? Are we repeating the excesses of the early 2000s, when housing prices surged before the market crashed?

Some analysts argue that this time, it's even less likely that prices will fall. Inventories of new homes for sale are very low, and lending standards are much tighter than in 2005. This is true. In fact, the ground is even firmer than it seems.

New home inventories were very high before the Great Recession. Today, they are closer to the level that has been common for decades. The portion of inventory built and ready for move-in is especially low because of supply chain interruptions combined with a sudden boost of demand during the coronavirus pandemic. We shouldn't worry much about a crash when buyers are eagerly snapping up the available homes.

... ... ...

At the June 2006 Federal Reserve meeting, Ben Bernanke said, "It is a good thing that housing is cooling. If we could wave a magic wand and reinstate 2005, we wouldn't want to do that." It's notable that Jerome Powell, who today holds Bernanke's former position as Fed chair, isn't openly pining for a "cooler" housing market.

There is a common belief that before the Great Recession, homebuyers were taken in by the myth that home prices never go down, and they became complacent. Those buyers turned out to be wrong. Yet, even when a concerted effort to kill housing markets succeeded, we had to beat them into submission for three full years before prices relented. Home prices can go down, but we have to work very hard, together, for a long time, to make them fall.

If you are a buyer in a hot market where home prices are 30% higher than they were a year ago, you're getting a 30% worse deal than you could have had back then. Nothing can be done about that. That said, the main things to be concerned with are the factors federal policymakers are in control of. There is little reason to expect housing demand to collapse. If it does, it will require communal intention""federal monetary and credit policies meant to create or accept a sharp drop in demand. And even if federal officials intend for housing construction to collapse, history suggests that a market contraction would push new sales down deeply for an extended period of time before prices relent.

Guest commentaries like this one are written by authors outside the Barron's and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to [email protected] .

Kevin Erdmann is a visiting research fellow with the Mercatus Center at George Mason University and author of Shut Out: How A Housing Shortage Caused the Great Recession and Crippled Our Economy.

[Jun 25, 2021] Meme-based investing 'is a totally nihilistic parody of actual investing,' says Jeremy Grantham, who called 3 stock-market bu

Jun 25, 2021 | www.marketwatch.com

Meme-based investing 'is a totally nihilistic parody of actual investing,' says Jeremy Grantham, who called 3 stock-market bubbles Last Updated: June 24, 2021 at 7:18 p.m. ET First Published: June 24, 2021 at 3:16 p.m. ET By Mark DeCambre 18 'This is it guys, the biggest U.S. fantasy trip of all time,' says Grantham

Jeremy Grantham, founder of GMO, speaks in 2012 in Oxford, England GETTY IMAGES
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"'Meme' investing -- the idea that something is worth investing in, or rather gambling on, simply because it is funny -- has become commonplace. It's a totally nihilistic parody of actual investing. This is it guys, the biggest U.S. fantasy trip of all time."

That's Jeremy Grantham, co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo & Co., in a recent interview with Bloomberg News , lamenting the state of an investment world that has prominently featured the emergence of meme-linked trading in stocks like GameStop Corp. GME, -1.32% , AMC Entertainment Holdings AMC, -4.66% and BlackBerry Ltd. BB, -4.42% , among others.

Deep Dive: We put AMC, GameStop and other meme stocks' numbers to the test -- here's which ones came out on top

Plus: We put 6 more meme stocks' numbers to the test, and the differences are telling

Grantham noted that the meme cryptocurrency dogecoin DOGEUSD, -1.74% is "worth billions in the market and not even pretending to be [a] serious [investment]."

"Dogecoin was created as a joke to make fun of cryptocurrencies being worthless, and, not only has it taken off, but it's such a success that second-level joke cryptocurrencies making fun of dogecoin have gone to multibillion-dollar valuations," he said.

Indeed, AMC Entertainment is up over 2,500% in 2021 thus far; GameStop has gained over 1,000% in the year to date; dogecoin is up by about 5,000%, despite a precipitous drop; and BlackBerry shares are up over 90% so far this year.

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By comparison, traditional assets have seen more mundane returns. The Dow Jones Industrial Average DJIA, +0.69% is up a more than respectable 12% so far in 2021, while the S&P 500 SPX, +0.33% has returned over 13% in the year to date and the Nasdaq Composite COMP, -0.06% has made a powerful comeback in June to achieve a gain of nearly 12% in the first six months of the year.

Grantham views the social-media-driven meme-stock moves as concerning and indicative of bubbles percolating in financial markets that will ultimately need to be contended with.

Grantham is worth paying attention to due to his prescient calls over the years. He said that stocks were overvalued in 2000 and again in 2007, anticipating subsequent market downturns, the Wall Street Journal reports . Grantham also signaled that elements of the financial market had become unmoored from reality leading up to the 2008–09 financial crisis.

However, his bearishness thus far hasn't helped his core investment strategies, amid a relentless run-up in stocks, be they traditional or meme. The Nasdaq Composite has already put in back-to-back record closes this week and was aiming for a 17th record finish on Thursday, while the S&P 500 index was eyeing a record of its own.

What the News Means for You and You

[Jun 21, 2021] Minneapolis Fed President Neel Kashkari Calls DOGE a Ponzi Scheme

Jun 21, 2021 | slashdot.org

(cointelegraph.com) 45 BeauHD on Monday June 21, 2021 @05:20PM from the not-dog-friendly dept. The president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, took a jab at Dogecoin (DOGE) last week by referring to the memecoin as a Ponzi scheme , upping his rhetoric against cryptocurrencies. Cointelegraph reports: Kashkari's comments were in response to a LinkedIn poll by Paul Grewal, the chief legal officer and corporate secretary of Coinbase, who asked his connections about the proper way to pronounce "Doge." "The right pronunciation is pon-zi," Kashkari quipped.

This isn't the first time Kashkari has taken aim at cryptocurrencies. In February 2020, he said digital assets like Bitcoin (BTC) lack the basic tenants of a stable currency and praised the Securities and Exchange Commission for "cracking down" on initial coin offerings. Kashkari is not a member of this year's Federal Open Market Committee, the group responsible for setting United States monetary policy. The Minneapolis branch of the Fed will serve as an alternate FOMC member in 2022 before rotating back onto the committee as a voting member in 2023.

[Jun 20, 2021] Facebook, Alphabet Keep Rising; Apple, Netflix Fade - WSJ

Jun 20, 2021 | www.wsj.com

Big tech stocks are going their own ways in 2021.

It is a far cry from last year, when the so-called FAANG stocks took a commanding role in a market driven by the coronavirus pandemic.

After the swift downturn of early 2020, shares of Facebook Inc., FB -2.04% Apple Inc., AAPL -1.01% Amazon.com Inc., AMZN -0.07% Netflix Inc. NFLX 0.49% and Google parent Alphabet Inc. GOOG -0.64% recovered more quickly than the broad stock market. Then they pushed higher, ultimately powering the S&P 500 to a 16% gain for 2020.

... ... ...

While Alphabet Class A and Facebook shares are up 37% and 21%, respectively, other members of the group have weighed on the market. Amazon shares are up 7.1% in 2021, lagging behind the 11% rise in the benchmark S&P 500. Apple and Netflix have fared even worse, down 1.7% and 7.4% for the year.

... ... ...

For much of 2020, a badly constricted economy pushed investors toward stocks -- like the FAANG names -- whose businesses were less affected and whose future growth became even more alluring with the drop in interest rates. The Russell 1000 Growth Index advanced 37% for the year, while the Russell 1000 Value Index eked out a 0.1% gain -- the largest annual performance gap between the two style benchmarks in FactSet data going back to 1979.

Big tech stocks were among the leaders of that rally. Apple shares climbed 81% in 2020 -- last August becoming the first U.S. public company to surpass $2 trillion in market value -- while Amazon rose 76% and Netflix gained 67%. Facebook added 33% for the year, and Alphabet 31%.

J

James Robertson

These companies are too big and too powerful. I hope for anti-trust legislation that cuts them down to size. The tech oligarchs have too much influence on what Americans think and do. They are a direct threat to our democracy. I hope more Americans will decide to support smaller companies (especially local stores), putting conviction ahead of convenience.
J Pate
Google and Amazon has no near peer competitors. Netflix and Apple do. My family got rid of Netflix last year and now have Hulu. There is a ton of free steaming sites also. We never missed Netflix.
Jay Urbain
"While Alphabet Class A and Facebook shares are up 37% and 21%, respectively, other members of the group have weighed on the market. Amazon shares are up 7.1% in 2021, lagging behind the 11% rise in the benchmark S&P 500. Apple and Netflix have fared even worse, down 1.7% and 7.4% for the year."

Time to take another look at AMZN and AAPL.

Jon Tannen
Gasp! So after breathtaking rises for Apple and Netflix stocks, they're merely flat these days? Not up 30% this month? Uh-oh! Sound the alarms! Someone please tell the writer that stocks are not a straight diagonal to the sky. [She's actually wrong about Apple's valuation being down this year, according to WSJ's very charts! The price is 130 now vs. 129 on Jan 4. But hey, she's obliged to come up with an article this week.]

This all reminds me of analyst Dan Niles coming on CNBC for years and proclaiming he's shorting Apple. Every few months: "I'm shorting Apple." "I'm shorting Apple." Again and again and again. The guy must be broke. [Of course, no one calls him out about it.]

Marshall Dillon
Amazon? Not for me. I have switched most of my online buying to Walmart and local stores. Amazon needs to get out of politics and stop suppressing free speech, much like the WSJ moderators.
SACHIN SHARMA
This entire article is misleading. Choosing 2020 as a base year to compare this group of stocks leaves out the important context of what happened the prior ten years, when FB and GOOGL underperformed vs APPL, NFLX, AMZN. A mean reversion within this group because money managers need to justify their existence could be the simple explanation. Also, how much of the Russel growth fund performance came from AMC and GME, those bell weather companies?

[Jun 12, 2021] Don't dismiss market bubbles" some leave lasting progress behind

Notable quotes:
"... As bubbles peak, they combine objective signs of excess" prices rising much faster than earnings can justify" with subjective signs of mania, such as frenzied trading and borrowing. ..."
"... My research on the 10 biggest bubbles of the past century, from the US stock market in 1929 to Chinese shares in 2015, shows that prices typically rise 100 per cent in the year before the peak, with much of the gain packed into the climactic last months. That finding is closely in line with bubble studies from academics at Harvard and others. ..."
"... By those standards, there are at least five current bubblets. They include the cryptocurrency market for bitcoin and ethereum; clean energy stocks, including some of the biggest names in electric vehicles; small cap stocks, including many of the hottest pandemic stories; a basket of tech stocks that lack earnings, which is also chock-a-block with famous brands; and special purpose acquisition companies (Spacs) , which allow investors a new way to buy into private firms before they go public. ..."
"... The historical bubbles in my study did suffer midcourse setbacks on the way up, but typically those corrections were around 25 per cent and never more than 35 per cent. Beyond that point" a 35 per cent drop" the bubbles in my sample became monophasic, or stuck on a one-way downhill path. ..."
"... It is important to remember that a bubble is often a good idea gone too far. In the early 2000s, the conventional wisdom was that the dotcom bubble had fuelled mainly junk companies with business plans barely worth the napkins they were written on. Later, researchers found that, compared with other bubbles, those in the tech sector produce many start-ups that fail but also help launch major innovations. For every few dozen dotcom flame-outs, there was a giant survivor such as Google or Amazon that would go on to make the economy more productive. ..."
Jun 06, 2021 | investornewsletter.net

As bubbles peak, they combine objective signs of excess" prices rising much faster than earnings can justify" with subjective signs of mania, such as frenzied trading and borrowing.

To some the entire US stock market looks bubbly given its dizzying run-up, but earnings growth has also been extraordinarily strong through the pandemic. Beneath the surface, however, sectors of the market from green tech to cryptocurrency show tell-tale bubble signs.

My research on the 10 biggest bubbles of the past century, from the US stock market in 1929 to Chinese shares in 2015, shows that prices typically rise 100 per cent in the year before the peak, with much of the gain packed into the climactic last months. That finding is closely in line with bubble studies from academics at Harvard and others.

By those standards, there are at least five current bubblets. They include the cryptocurrency market for bitcoin and ethereum; clean energy stocks, including some of the biggest names in electric vehicles; small cap stocks, including many of the hottest pandemic stories; a basket of tech stocks that lack earnings, which is also chock-a-block with famous brands; and special purpose acquisition companies (Spacs) , which allow investors a new way to buy into private firms before they go public.

Each of these bubblets is captured in an index that rose in the last year by around 100 per cent, often much more, to a peak value between $500bn and $2.5tn. Day traders and other newbies rushed in, a common symptom of late stage market manias. Now these bubbles are faltering, as they so often do, in response to increases in long-term interest rates. What's next?

The historical bubbles in my study did suffer midcourse setbacks on the way up, but typically those corrections were around 25 per cent and never more than 35 per cent. Beyond that point" a 35 per cent drop" the bubbles in my sample became monophasic, or stuck on a one-way downhill path.

For the median case, the bottom was found 70 per cent below the peak, and came just over two years after the peak. Except for the index of small-cap pandemic stocks, the other four bubble candidates have all experienced drops of at least 35 per cent, but also of no more than 50 per cent (in the case of ethereum). In other words, they are not likely to resume inflating any time soon, and they are still far from the typical bottom.

There is one new factor that could upset this historical pattern. Despite the rise in long-term interest rates, there is plenty of liquidity sloshing around the markets, with central banks committed to easy money as never before. The risks though are skewed to the downside.

It is important to remember that a bubble is often a good idea gone too far. In the early 2000s, the conventional wisdom was that the dotcom bubble had fuelled mainly junk companies with business plans barely worth the napkins they were written on. Later, researchers found that, compared with other bubbles, those in the tech sector produce many start-ups that fail but also help launch major innovations. For every few dozen dotcom flame-outs, there was a giant survivor such as Google or Amazon that would go on to make the economy more productive.

[Jun 12, 2021] Suze Orman thinks rising stock prices could be a problem for you" here's why

Jun 08, 2021 | finance.yahoo.com

"Over the past five years, the S&P 500 stock index has more than doubled. For the past 10 years, it has nearly quadrupled," says Orman. "If you have left your portfolios on autopilot, that could likely mean that you now own more stock than you intend to, or should."

Left to their own devices, your increasingly valuable stocks may have started to account for an even larger portion of your account

... ... ...

Orman cites a recent analysis from Fidelity Investments on the retirement plans the company handles. Fidelity estimates about 20% of savers own more stock than they'd recommend for someone of their age.


[Jun 12, 2021] Get Ready for $178 Billion of Selling Ahead of the Capital-Gains Tax Hike. These Are the Stocks Most at Risk. - MarketWatch

Jun 07, 2021 | www.marketwatch.com

...Analysts at Goldman Sachs""in October""ran the numbers on the stock market impact of previous capital-gains tax hikes. While there is only a modest impact on the stock market as a whole, momentum stocks usually get socked before they are levied, they found. That makes sense""investors logically are more motivated to sell the stocks where they would save the most by avoiding higher capital-gains taxes.

The last time capital-gains taxes were hiked, in 2013, the wealthiest households sold 1% of their equity assets, the Goldman analysts found. According to the Federal Reserve's distributional financial account data , the top 1% held $17.79 trillion of equities and mutual funds in the fourth quarter of 2020""so a 1% selling of stocks this time would be $178 billion. (The most recent Internal Revenue Service breakdown, from 2018, found that millionaires accounted for just over 500,000 filers or about 0.4% of the total.)

[Jun 07, 2021] As bubbles peak, they combine objective signs of excess prices rising much faster than earnings can justify with subjective signs of mania, such as frenzied trading and excessive leveraging

Jun 06, 2021 | investornewsletter.net

As bubbles peak, they combine objective signs of excess" prices rising much faster than earnings can justify" with subjective signs of mania, such as frenzied trading and borrowing. To some the entire US stock market looks bubbly given its dizzying run-up, but earnings growth has also been extraordinarily strong through the pandemic. Beneath the surface, however, sectors of the market from green tech to cryptocurrency show tell-tale bubble signs.

My research on the 10 biggest bubbles of the past century, from the US stock market in 1929 to Chinese shares in 2015, shows that prices typically rise 100 per cent in the year before the peak, with much of the gain packed into the climactic last months. That finding is closely in line with bubble studies from academics at Harvard and others.

By those standards, there are at least five current bubblets. They include the cryptocurrency market for bitcoin and ethereum; clean energy stocks, including some of the biggest names in electric vehicles; small cap stocks, including many of the hottest pandemic stories; a basket of tech stocks that lack earnings, which is also chock-a-block with famous brands; and special purpose acquisition companies (Spacs) , which allow investors a new way to buy into private firms before they go public.

Each of these bubblets is captured in an index that rose in the last year by around 100 per cent, often much more, to a peak value between $500bn and $2.5tn. Day traders and other newbies rushed in, a common symptom of late stage market manias. Now these bubbles are faltering, as they so often do, in response to increases in long-term interest rates. What's next?

The historical bubbles in my study did suffer midcourse setbacks on the way up, but typically those corrections were around 25 per cent and never more than 35 per cent. Beyond that point" a 35 per cent drop" the bubbles in my sample became monophasic, or stuck on a one-way downhill path.

For the median case, the bottom was found 70 per cent below the peak, and came just over two years after the peak. Except for the index of small-cap pandemic stocks, the other four bubble candidates have all experienced drops of at least 35 per cent, but also of no more than 50 per cent (in the case of ethereum). In other words, they are not likely to resume inflating any time soon, and they are still far from the typical bottom.

There is one new factor that could upset this historical pattern. Despite the rise in long-term interest rates, there is plenty of liquidity sloshing around the markets, with central banks committed to easy money as never before. The risks though are skewed to the downside.

It is important to remember that a bubble is often a good idea gone too far. In the early 2000s, the conventional wisdom was that the dotcom bubble had fuelled mainly junk companies with business plans barely worth the napkins they were written on. Later, researchers found that, compared with other bubbles, those in the tech sector produce many start-ups that fail but also help launch major innovations. For every few dozen dotcom flame-outs, there was a giant survivor such as Google or Amazon that would go on to make the economy more productive.

[Jun 07, 2021] Get Ready for $178 Billion of Selling Ahead of the Capital-Gains Tax Hike. These Are the Stocks Most at Risk. - MarketWatch

Jun 07, 2021 | www.marketwatch.com

...Analysts at Goldman Sachs""in October""ran the numbers on the stock market impact of previous capital-gains tax hikes. While there is only a modest impact on the stock market as a whole, momentum stocks usually get socked before they are levied, they found. That makes sense""investors logically are more motivated to sell the stocks where they would save the most by avoiding higher capital-gains taxes.

The last time capital-gains taxes were hiked, in 2013, the wealthiest households sold 1% of their equity assets, the Goldman analysts found. According to the Federal Reserve's distributional financial account data , the top 1% held $17.79 trillion of equities and mutual funds in the fourth quarter of 2020""so a 1% selling of stocks this time would be $178 billion. (The most recent Internal Revenue Service breakdown, from 2018, found that millionaires accounted for just over 500,000 filers or about 0.4% of the total.)

[Jun 07, 2021] Don't get too optimistic about a stock market rally" they've been fizzling out

Jun 04, 2021 | futurewealthdaily.com
This post was originally published on this site

... ... ...

This quick jumping onto and off of the bullish and bearish bandwagons has become the new normal, as you can see from the table below.

... ... ...

As I argued three weeks ago, this sentiment pattern suggests that the market may remain in a fairly narrow range for the next several months. The contrarian bet is that the market will finally break out of that trading range whenever the market timers stubbornly hold onto their sentiment beliefs in the face of the market moving in the opposite direction. That is, be on the lookout for when the market timers remain bullish in the face of declines, or bearish in the wake of rallies. That will indicate that a bigger decline or rally is in store.

In the meantime, the market timers' behavior suggests both market rallies and declines will be subdued. That's good news to the extent you were worried that a major new bear market is about to begin, but bad news if you were hoping for a more sustained rally.

. .. ... ...

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected] . Continue Reading

[Jun 06, 2021] Morgan Stanley: earnings revisions will not be able to offset that de-rating, leaving the overall market vulnerable to a 10-15 % correction over the next 6 months.

Jun 06, 2021 | www.zerohedge.com

For the past several months, Morgan Stanley's fundamental analysts have been turning increasingly bearish on stocks, with the pessimistic sentiment plateauing earlier this week when chief equity strategist Michael Wilson said that there is far too much optimism in the market, and that while earnings are slowly rising, forward PE multiples are far too high and are set to slide, with "the de-rating about 75% to go or an approximate 15% decline in P/Es from here." As a result, in Wilson's view - which is rapidly emerging as the most bearish on Wall Street - " earnings revisions will not be able to offset that de-rating, leaving the overall market vulnerable to a 10-15 % correction over the next 6 months."

It now appears that Morgan Stanley's fundamental bearishness has spilled over into the bank's technical analyst team and as the bank's chief Euro equity Strategist Matthew Garman writes, for only the fifth time in over 30 years, each of Morgan Stanley's five market timing indicators are giving a sell signal at the same time.

Not only that, but the bank's Combined Market Timing Indicator - which has been in sell territory since March - just hit a new all time high of 1.19, surpassing the previous record high seen in June-2007, right around the time of the first great quant crash and before the market collapsed.

According to Garman, the only time equities have risen after a "Full House" Sell Signal was in Feb 17, shortly after the Shanghai Accord kicked in to prevent a global recession. The other previous occasions where there was a "Full House" Sell Signal were Mar-90, May-92, Jun-07. According to MS, "in the 6M post the initial Full House Sell Signal, MSCI Europe has fallen on average 6% ."

So with every in house risk indicator screaming sell, does that mean that Morgan Stanley will have the balls to tell its clients to sell? Why of course not, because in this market where stuff like the AMC, GameStop and Bed Bath squeezes force analysts to admit they no longer have any idea what's going on...

... Morgan Stanley is keeping the hope and assuming that the current period will be similar to 2017 - the only other time when a massive sell signal did not result in a market plunge.

Back in 2017, we remained constructive despite the signal given i) strong EPS growth, ii) an early cycle environment, iii) EU inflows, iv) low sentiment and v) a rise in M&A. Sentiment metrics may look more elevated than in 2017, but many of those factors remain in place today. While we see a trickier risk-reward for equities globally, we maintain our view that there is a compelling case for Europe to outperform global peers.

Yet even Morgan Stanley is forced to admit that while Defensives may just scrape by after a record sell signal, cyclicals are about to be hammered. The next chart shows the relative performance of Cyclicals versus Defensives after a Full House Sell Signal on. As MS notes, "perhaps unsurprisingly, given the poor performance at the market level, Cyclicals have struggled. In the 6M post the four initial Full House Sell Signals, Cyclicals have underperformed Defensives on average 12%, and this drops to -15% looking at any day
when the MTIs have all said sell at the same time."

This was true even in 2017 when equity markets rose: "we previously cited similarities with the 2017 Full House Sell Signal as reasons to not get overly cautious on equity markets in aggregate at this moment in time. After the February-2017 Full House Sell Signal, MSCI Europe continued to rise pretty consistently through the rest of the year. However, despite strong performance from the market in aggregate, the performance of Cyclicals versus Defensives was much poorer. Between February and June 2017 Cyclicals underperformed Defensives by 6%."

It's not just the bank's sell signal that is prompting concerns about the future returns of cyclicals: Borrowing a page from our own warnings (see " China's Credit Impulse Just Turned Negative, Unleashing Global Deflationary Shockwave "), Morgan Stanley looks at "a number of China data points which are giving warning signs" first and foremost the collapse in China's credit impulse, to wit:

While credit tightening has been front-loaded in 1H21, as outlined here, our economists remain constructive on China's growth recovery. Having said that, a number of Chinese data points do suggest the Cyclical bounce looks overextended. China's credit impulse has just turned negative, and historically this has provided a lead indicator for the year-on-year performance of European Cyclicals (Exhibit 5). Similarly, the relative performance of Cyclicals versus Defensives has closely tracked moves in Chinese 10Y bond yields, which are now at their lowest levels since September 2020, standing in sharp contrast to the performance of Cyclicals.

Putting it all together, readers have to ask themselves if what is coming will be an analog of the one and only episode on history when the market did not plunge after all Morgan Stanley market timing indicators hit a sell (and were at an all time high), or will this case be similar to Mar-90, May-92, Jun-07 when the outcome was anything but a happy ending.

[Jun 06, 2021] Yes, It's Still the Economy, Stupid by Karl Rove

An interesting question how stock market casino will volve. Will the Ponzi collase or will run for a couple more years.
Jun 02, 2021 | www.wsj.com

the OMB expects slower growth in the long run. It projects gross domestic product growth running slightly over 2% on average annually between fiscal 2022 and 2031, while the nonpartisan Congressional Budget Office pegs growth at less than 2% on average over the same window. Either growth rate is anemic, making more "broadly shared prosperity" unlikely as well.

...

It may be that raising federal spending turns out to be a winning formula for Democrats in 2022. Then again, it may not. Especially since Mr. Biden would hike taxes high enough to eat up more GDP than in any 10-year period in American history, according to the American Action Forum's Gordon Gray. The spending binge would also increase the nation's public debt to 117% of GDP""greater than the previous record GDP percentage that Washington clocked in the year after World War II.

Recent polling suggests the Democrats' approach may not help them in the midterms.

... Democrats may be counting on Republicans to emphasize "culture war" issues rather than deliver a focused, principled attack on the president's orgy of spending and tax increases. This isn't to suggest issues like defunding the police, critical race theory and border security are unimportant. But in 2022, as in most years, the economy will likely be the real congressional battleground. The sooner Republicans recognize that, the better.

Mr. Rove helped organize the political-action committee American Crossroads and is author of "The Triumph of William McKinley" (Simon & Schuster, 2015).

M

Maria Stepanova

I don't believe policies matter any more. In 2020, democrats secured a permanent upper hand for themselves which is mail-in ballots.
Kenneth Johnson
WSJ headline---"Yes, It's Still The Economy, Stew ped"

If....by the summer of 2022....inflation is 4%+....we're in a recession....and unemployment is 6%+....the Democrats will lose the midterms....I hope.

If none of those things is true....they may 'dodge a bullet'.
Any other opinions?

Ron Hoelscher
They have lost the culture war and do not seem to realize it.

As far as spending, when an economy evolves to have very few people controlling the 90% of the economy then the governing party must resort to handouts to the 90% to stay in power.

I think the Romans called it "bread and circuses." Trump was the circus, now people want some bread.

[Jun 03, 2021] Will the stock bubble continue to inflate

Jun 03, 2021 | peakoilbarrel.com

HHH IGNORED HOLE IN HEAD IGNORED 05/31/2021 at 2:16 pm

Ovi, refer Iranian oilfields . I have always said that Iran is producing and selling all the oil it wants to sell or can sell . The regime has outlived 10 US administrations and 6 US presidents inspite of sanctions . They are having to sell at a discount but at the end of the day the oil flows . Just some road bumps and a zig zag route . I doubt they have a lot of spare capacity .If and when the sanctions are lifted all what is " unofficial " will become " official " . As to OPEC or OPEC+ that they are close to capacity viewpoint is more prevailing by the day .

05/31/2021 at 12:58 pm

Current around of stimulus has run it's coarse. I look for jobs numbers and inflation numbers to soften over next few months. Which means more QE and lower interest rates for longer. Higher stock prices.

But for the real economy. We pulled 5 years worth of GDP forward. Unless governments are prepared to spend even more on a monthly and yearly basis going forward than they did since March 2020 until now. And put more money into the hands of average people. We roll over first then fall off a cliff economically. Private banks just aren't going to create the money via loan creation in volume needed to offset or match what the government has done over past year. So without further massive stimulus we get massive credit contraction.

With the debt burden not just public debt but private debt hanging over the economy we likely never return to pre-pandemic levels of Global GDP

Price action for oil is still bullish but that can change in a hurry when jobs and inflation data turn soft. HOLE IN HEAD IGNORED 05/31/2021 at 2:00 pm

HHH, " With the debt burden not just public debt but private debt hanging over the economy we likely never return to pre-pandemic levels of Global GDP " . Been parroting this from a long time but few want to admit that
the BAU is over . Life is(was) a party and all parties must end .

[Jun 03, 2021] Bitcoin is a -farce- - Amundi CIO

Jun 03, 2021 | finance.yahoo.com

Thu, June 3, 2021, 7:18 AM AMUN.PA +0.21%

LONDON (Reuters) - Cryptocurrencies such as bitcoin are a "farce" and a symptom of bubbles forming in financial markets, Amundi chief investment officer Pascal Blanque said on Thursday.

Bitcoin, trading at around $39,364, fell 35% last month after China doubled down on efforts to prevent speculative and financial risks by cracking down on mining and trading of the largest cryptocurrency.

Speaking at a news conference, Blanque described the crypto currency as a "farce," adding that it was a symptom of the bubbles forming in markets.

[Jun 01, 2021] ARK Invest Stocks To Buy And Watch- 6 Stocks That Cathie Wood's ARK ETFs Own; Zoom Slides Before Earnings

Skepticism grows, judging from Yahoo comments below.
Jun 01, 2021 | finance.yahoo.com

Scorpion 16 April, 2021 I am not surprised either that ARK bought COIN. She is a gambler not an investor. Most of her investment is in overvalued, overhyped stocks they can't just keep going up.
Lou 18 May, 2021 Until recently she was loaded up with Tesla - as much as 10% of the ARKK portfolio - which accounted for a good part of its stellar performance (note that she had TSLA in some of the other ARK funds. Not sure any of these other choices are going to give her ETFs the ride TSLA gave them. Reply 2 Rene 7 May, 2021 Any one that invest in Bitcoin ,dogecoin, Coin etc, must have his brain fall of pot or must have so much money like the Tesla Ceo, that they can gamble for ever in a Casino, with that kind of money, i too will invest in Tin air, and artificial money because Y cannot invest money sufficient to go broke in 10 life times. that is very easy I don't need to expect any return in my investment.
Theo the Cat 19 May, 2021 I would never buy ARKK's stocks, but I am definitely watching and eating popcorn. Alex 27 April, 2021 ARK is losing steam. People start to realize ARK can't survive in a bear market
Theo the Cat 19 April, 2021 Ark is gonna turn into Titanic.
Rock 25 May, 2021 no one cares what ARK invests in... unless you want to lose money Reply 2 Cybercraig 25 April, 2021 I may end up selling ARK.G for a loss to balance next year's taxes. Yech! Reply 5 4 Mighty Lion 19 May, 2021 Why is the reporting about ARK so sexist? Every single article I've ever seen starts "Cathie Wood's ARK ETFs ... (such and such) ..." If it was managed by a man, they would just say "ARK ETFs ... (etc). Reply 2 FlorinS 4 hours ago How can we trust Cathie Wood ? Only few days ago she predicted that Bitcoin may reach $500,000.

[May 31, 2021] Flywire Hits $3.5 Billion Valuation After First Day Of Trading As Fintech IPO Frenzy Continues

May 31, 2021 | www.forbes.com

Shares of Flywire, a company that helps organizations accept foreign-currency payments, debuted on the Nasdaq on Wednesday at $34 apiece, up from their $24 IPO price. They rose about 4% on their first day of trading, giving the Boston-based fintech a roughly $3.5 billion valuation by day's end. As a private company, Flywire was last valued at $1 billion after a round of funding in early 2020, according to a PitchBook estimate.

Founded in 2009 under the name peerTransfer by Spanish serial entrepreneur Iker Marcaide, Flywire originally aimed to make it easier for international students to pay U.S. tuition without incurring foreign currency fees that could range from 3% to 5%. Flywire has since expanded its services, enabling some 2,250 clients including universities, hospitals, travel providers and businesses to accept payments in more than 130 currencies. It acquired Palo Alto healthcare payments startup Simplee in February 2020. Despite the turmoil of last year, Flywire processed $7.5 billion in payment volume and signed up 400 new customers while retaining 97% of existing customers.

[May 30, 2021] CLOs Join The Everything Bubble - ZeroHedge

May 30, 2021 | www.zerohedge.com

CLOs Join The Everything Bubble BY TYLER DURDEN SUNDAY, MAY 30, 2021 - 01:00 PM

Authored by John Rubino via DollarCollapse.com,

The "Everything Bubble" has jumped from hyperbole to literal truth in just a couple of years, as more and more assets enter "crazy expensive/extremely reckless" territory. The latest addition to the list is collateralized loan obligations (CLOs), which are created when a bank lends money to a less-than-creditworthy company and then bundles that loan with a bunch of similar loans into bonds for sale to yield-starved pension funds and bond funds.

There's a legitimate place in the market for this kind of security, as long as everyone understands the risks. But in financial bubbles, banks' insatiable hunger for fees combines with bond buyers' desperate need for income to cloud everyone's judgment. Lending standards slip, bond quality declines, credit rating agencies look the other way to keep the deals flowing, and buyers keep buying because they have no choice.

Record year

So far this year, issuance of new CLOs is on pace to easily exceed 2018's record.

Part of this surge is, like so much else, catch-up from last year's nationwide lockdown. But most is just your typical out-of-control financing fueled by way too much new currency being dumped into the banking system.

So how can bonds made up of below-investment-grade paper be investment grade? Through the magic of securitization. As the Wall Street Journal recently quoted CitiGroup:

Because CLOs' loan holdings are diversified, the bonds can achieve higher credit ratings than the underlying loans, making them popular among institutions restricted to investment-grade debt, such as banks and insurers.

Meanwhile, the combination of a recovering economy and lots of lenders willing to finance pretty much anything is improving the prospects of financially challenged companies. Fewer of them are defaulting, which increases the confidence of the people buying CLO bonds. Moody's Investors Service now expects the trailing 12-month default rate on CLOs to fall to 3.9% by the year-end, from 7.5% in March. And a growing number of firms are now being reviewed by rating agencies to have their CLOs upgraded.

Meanwhile, spreads relative to risk-free paper are shrinking:

Sounds promising, right? And, alas, also familiar. Here's how CDOs, the previous bubble's version of CLOs, worked just before the bottom fell out in 2008:

https://www.youtube.com/embed/3hG4X5iTK8M

Perpetual motion machine

Once they really get going, asset-backed securities like CDOs and CLOs take on a kind of perpetual-motion-machine vibe in which easy money begets even easier money. To the extremely credulous, such a system looks capable of spinning right along forever. Unfortunately, this perception tends to become widespread just as some crucial cog in the machine is about to break.

Which cog will it be? Candidates abound. Interest rates might rise, stocks might tank, the government might realize its policies are stoking instability and try to "taper." Some crazy geopolitical thing might happen (DO NOT look closely at Palestine, Ukraine, or Taiwan). It doesn't matter which breaks first, as long as one eventually does.

Then the perpetual motion machine shifts into reverse, with rising defaults causing lower CLO bond ratings causing mass sales by panicked institutions. And so on, until whoever had the guts to short this market cashes out with epic gains. 11,429 31 NEVER


Detective Miller 2 hours ago

When there's nothing left there's always war.

Misesmissesme 2 hours ago

The institutions buying these instruments have no risk. They know they'll be bailed out because they're too big to fail. Risk is all on the little guy who'll have to pay for the bailouts.

NotApplicable PREMIUM 36 minutes ago

Powell and his magic checkbook.

Justus D. Barnes 2 hours ago (Edited)

Which war? Biblical or one of the escalating hot spots?

What if the Fed fought inflation my lowering the cost of electricity? Instead of subsidies just increase the supply? They are printing billions why not see to it that we double our energy production with nuclear power plants? If the cost of electricity was halved that would instantly boost everyone's disposable income while making our manufacturing more competitive.

Angelo Misterioso 56 minutes ago remove link

This is about the 5's derivation of this concept - going all the way back through, CDO Squared, CRE CDO's, CDO's and CBO's before that... the hi grade CDO's were 200 to 1 levered...

just pure greed by the street and the regulators were the C students in math class...

radical-extremist 1 hour ago

When homeowners in Stockton California began to discover the magical mystery of Adjustable Rate Mortgages and couldn't afford to pay another $600 a month for their "dream home" - the bottom began to fall out.

When unprofitable ghost companies, of which there are thousands, start defaulting on their cheap loans - that's the sign. Which companies, where? No one's sure.

el_buffer 2 hours ago

I need to get my money out of this country before they rape me for yet another friggin bailout.

Tanner798 1 hour ago

Keep in mind: most of the leveraged loans these CLOs are made up of are all floating rate. If the Fed increases interest rates to combat inflation, the companies borrowing from leveraged loans will no longer be able to afford their interest payments. The only reason why the default rate is so low is due to the originators rolling these companies into larger leveraged loans so they don't default. Rating agencies look the other way and deteriorate the covanents to allow this to happen.

Ajax_USB_Port_Repair_Service_ 1 hour ago

Which state pension funds fare buying CLO's? My guess is the blue states.

Interesting Times In The UK 52 minutes ago

The Big Short is an excellent film, just as pertinent today ... as it was 13 years ago.

Can't wait to watch the sequel ..

Portal 2 hours ago

Rampant speculation always precedes a collapse.

ThanksIwillHaveAnother 41 minutes ago (Edited)

I love how Wall Street constantly invents new words. In this case these are Junk Bonds.

[May 29, 2021] Issuance of Bundles of Risky Loans Jumps to 16-Year High

May 29, 2021 | www.wsj.com

CLOs have become a $760 billion market, accounting for 70% of new leveraged loan purchases last year, according to Citi.

... Just six nonfinancial, junk-rated companies defaulted during the first quarter of this year, according to Moody's Investors Service -- the lowest level since 2018. The ratings agency expects the trailing 12-month default rate to fall to 3.9% by the end of December, from 7.5% in March.

... The combination has analysts and investors expecting a banner year for CLO issuance. Bank of America projects sales to total around $360 billion this year, including refinancings, while Citibank expects around $290 billion. Both figures would surpass 2018's all-time high.

... Critics say CLOs allow companies to borrow more than they can support, exposing investors to losses in a downturn. A wave of leveraged loan downgrades hit CLO managers last year , causing some portfolios to surpass limits on low-rated holdings or breach collateral tests.

... Some CLO tranches haven't traded consistently, wrote KKR analysts in a recent note, a sign that there could be some fragility lurking underneath the market's surface.

"Despite the high volume of activity, we do not believe that liquidity across the [CLO] market has been uniform and as robust as it may seem," they wrote.

[May 28, 2021] DoJ Launches Criminal Investigation Into Archegos Blowup - ZeroHedge

May 27, 2021 | www.zerohedge.com

Archegos' prime brokers initially attempted to try and avoid a market panic by coordinating their sales of the massive blocks of shares their had accumulated on behalf of Archegos via a complicated series of swap arrangements. But when Goldman Sachs and Morgan Stanley broke ranks and opted to be the first out the door, Credit Suisse, which had the biggest exposure to Archegos, was ultimately left with more than half of the $10 billion+ in losses that banks were stuck with (while Hwang reportedly lost his entire 11-figure fortune).

Right now, it's not exactly clear what laws prosecutors suspect Archegos and the prime brokers of breaking.

While authorities haven't accused Archegos or its banks of breaking any laws in their dealings, the episode has drawn public criticism from regulators, as well as some inquiries behind the scenes from watchdogs around the world. The implosion shows Wall Street has grown too complacent about potential threats building up in the economy, Michael Hsu, the new acting chief of the Office of the Comptroller of the Currency, said last week.

But the DoJ isn't the only agency poking around: Investigations are ongoing across the globe.

The Securities and Exchange Commission launched a preliminary investigation into Hwang in March, a person familiar with the matter said at the time. The agency has since explored how to increase transparency for the types of derivative bets that sank the firm.

And in the U.K., the Prudential Regulation Authority has been asking firms including Credit Suisse, Nomura and UBS Group AG to hand over information related to their lending to Archegos, people familiar with the matter have said.

While investigators will undoubtedly focus on what happened, some believe that the real concerns lie in current vulnerabilities in the world of equity finance. The team at Risky Finance recently calculated that some $3 trillion in hidden Archegos-style exposure is out there in the market, just waiting to explode if stocks sell off.

...

It should serve as a warning. 14 years ago, obscure corners of banking businesses became hotbeds of regulatory arbitrage, speculation and leverage. The contagion of US subprime brought the financial system to its knees. Now, after years of low or negative interest rates, equity finance may have become a similar hotbed.


[May 28, 2021] Warren Tears Into Fed on Credit Suisse Oversight Before Archegos

May 26, 2021 | finance.yahoo.com

(Bloomberg) -- Senator Elizabeth Warren ripped the Federal Reserve for its oversight of Credit Suisse Group AG in the run-up to Archegos Capital Management's implosion, arguing the regulator badly blundered when it freed the bank from heightened monitoring.

Warren pointed out at a Tuesday Senate hearing that the Fed knew Credit Suisse had problems estimating its potential trading losses because the agency had flagged the Swiss bank over that issue in its 2019 stress tests. She questioned why Credit Suisse, under the watch of Fed Vice Chairman for Supervision Randal Quarles, was among foreign banks released last year from oversight by the Large Institution Supervision Coordinating Committee, which keeps tabs on lenders that pose the greatest risk to the U.S. financial system.

"So you now agree that you made the wrong decision to weaken supervision?" the Massachusetts Democrat asked Quarles, who was testifying before the Senate Banking Committee.

"We did not weaken supervision," he responded, saying the shrinking U.S. footprint of Credit Suisse and other foreign banks prompted the Fed's decision. Quarles further argued that the billions of dollars in losses that Credit Suisse suffered in relation to Archegos -- trader Bill Hwang's family office -- weren't a result of faulty Fed oversight.

"The losses you are referring to didn't occur in the United States," he said.

Warren scoffed at the idea that missteps involving overseas lenders don't lead to U.S. consequences. She reminded Quarles his term as vice chairman ends in five months, and said, "our financial system will be safer when you are gone."

[May 28, 2021] No More Easy Money for speculators? It's too early to tell

May beyes, but may there is will the Last Hurrah move up...
Even if the S&P 500 stays flat for the rest of 2021, this year would mark its third consecutive year of double-digit gains. The index has only one such three-year period since the dot-com bubble burst in 2000.
May 26, 2021 | finance.yahoo.com

This week, LPL Research analyst Jeff Buchbinder said investors should expect stock market gains to slow significantly in the second half of 2021 as inflationary pressures and rising interest rates weigh on investor sentiment.

[May 28, 2021] Stock Market Leverage Hits WTF High while the Fed hypocritically warn about danger of

Notable quotes:
"... In April, it exploded to a new WTF high of $847 billion, up by $188 billion in six months, having ascended to the zoo-has-gone-nuts level: ..."
"... Leverage creates buying pressure and drives up prices. As prices rise, the collateral can be leveraged up further, and leverage builds with rising asset prices. And then when prices decline, the leveraged bets are sold to pay down the debt, and the selling triggers more price declines, and forced selling sets in. This is when Archegos blew up. ..."
"... It's ironic that the Fed, out of the other side of its mouth, is warning about the results of its policies, including the ballooning leverage that isn't known until it blows up. ..."
"... Greed, I think. For instance, the uber rich have lots of influence over the frothing finance media. The media pumps up a stock and the wealthy play around that pumping, shorting or selling or what have you. Talking heads sell BS to suckers. ..."
"... Capital begets capital and the cycle continues. ..."
"... Who wins? Not you. Who loses? Not them. Motivation behind letting this happen? Byproduct of averting complete collapse. ..."
"... I started looking at market capitalization data yesterday after reading Wolf's post. The Finra data is easy, just have to find a free source for historical market cap. Intuitively, a level use of margin would cause the dollar value to rise with the dollar value of the market, but if margin grows faster it could be a warning. Unless I'm misreading this chart, it suggests they're tracking. ..."
"... Exactly. Adjusted for market cap its not quite as scary although cos market cap is ebbing a little now maybe it would look like its starting to get concerning. ..."
"... Yes. What is different this time is that it is tracking it with no delay since the March 2020 FED hail marys thrown to prevent Mr Market's melt down. He hasen't sobered up since. When the hangover starts, it's going to be a doozy. ..."
"... The leverage is trying to reconcile the big gap between the 10 year paying sub 1.75% and the actuarial expectation of 6-7% annual returns of pretty much any big player out there insurance companies, pension funds etc. ..."
"... All the regulators need to do is to explicitly state stock exposure via derivatives must be included in regulatory reporting requirements/foreign ownership limits. ..."
"... Come on sheeple: you can't willfully inflate share prices WITHOUT willfully inflating sales and earnings to match! ..."
"... we most assuredly had inflation and crap earnings. ..."
May 22, 2021 | www.nakedcapitalism.com

Known Stock Market Leverage Hits WTF High. Out the Other Side of Its Mouth, the Fed Warns About Hidden Leverage that Blew up Archegos Posted on May 19, 2021 by Yves Smith

Yves here. We haven't been too concerned about stock market frothiness because overvalued stock markets, in and of themselves, don't do tons of damage when they fizzle"¦except when the purchases have been fueled by borrowing. That's the key difference between the 1929 crash and the dot-bomb era.

While we are not up to Roaring Twenties style leverage on leverage (trust me, it was widespread), the borrowing is getting into nervous-making territory. The chart below, from Advisor Perspectives, is through April and compares margin debt levels to the S&P 500 (not a perfect comparison, but a consistent proxy over time). The relationship isn't quite as whacked as Wolf's post suggests, but the recent trajectory is worrisome. It has a blowoff look about it.

By Wolf Richter, editor of Wolf Street . Originally published at Wolf Street

Stock market margin debt jumped by another $25 billion in April, to a historic high of $847 billion, according to FINRA data. It has exploded by $188 billion in six months, and by 61% year-over-year, and by 55% from February 2020:

Excess leverage is the precise and predictable result of the policies the Fed is promoting out of one side of its mouth with its interest rate repression and asset purchases.

Out of the other side of its mouth, the Fed "" via its blissfully ignored Financial Stability Report "" is warning about leverage, stock market leverage, and particularly the vast and unknown parts of leverage among hedge funds and insurance companies.

It named names: The family office Archegos, a private hedge fund that has to disclose very little, and that then blew up because none of the brokers providing it with leverage knew about the other brokers also providing leverage, and no one knew how much total leverage the outfit had. The amount of leverage didn't come out until it blew up.

And this form of hidden leverage is not included in the known stock market margin debt reported monthly by FINRA, based on reports by its member brokerage firms.

This known stock market leverage is an indicator of the trend in leverage, the tip of the iceberg. History shows that a big surge in margin balances preceded and perhaps was a precondition for the biggest stock market declines.

In April, it exploded to a new WTF high of $847 billion, up by $188 billion in six months, having ascended to the zoo-has-gone-nuts level:

In this type of chart that covers two decades during which the purchasing power of the dollar has dropped, long-term increases in absolute dollar amounts are not the focal point; but the steep increases in margin debt before the selloffs are.

Leverage creates buying pressure and drives up prices. As prices rise, the collateral can be leveraged up further, and leverage builds with rising asset prices. And then when prices decline, the leveraged bets are sold to pay down the debt, and the selling triggers more price declines, and forced selling sets in. This is when Archegos blew up.

And so the Fed says in its Financial Stability Report that "measures of hedge fund leverage are somewhat above their historical averages, but the data available may not capture important risks from hedge funds or other leveraged funds." And it recounts the Archegos fiasco, in terms of how this hidden leverage works:

"In a separate episode in late March, a few banks took large losses when a highly leveraged family office, Archegos Capital Management, was unable to meet margin calls related to total return swap agreements and other positions financed by prime brokers. Price declines in the concentrated stock positions held by Archegos triggered the margin calls, prompting sales of the stock positions, which led to further declines in the prices of affected stocks and, ultimately, substantial losses for some banks."

"The episode highlights the potential for material distress at NBFIs [Nonbank Financial Institutions such as hedge funds] to affect the broader financial system," the Fed's report said.

It's ironic that the Fed, out of the other side of its mouth, is warning about the results of its policies, including the ballooning leverage that isn't known until it blows up.

Ha, and then says the Fed, still speaking out of the other side of its mouth, if that risk appetite declines "from elevated levels," and outfits want to get out from this leverage, or are forced to get out from under this leverage, "a broad range of asset prices could be vulnerable to large and sudden declines, which can lead to broader stress to the financial system."


Alfred , May 19, 2021 at 10:07 am

I really am puzzled at this point. Who wins, who loses, what is the motivation behind letting this happen again and again? Is there an "economy" that the Fed administers that protects and enables this activity?

cocomaan , May 19, 2021 at 11:12 am

Greed, I think. For instance, the uber rich have lots of influence over the frothing finance media. The media pumps up a stock and the wealthy play around that pumping, shorting or selling or what have you. Talking heads sell BS to suckers.

Capital begets capital and the cycle continues.

Alfred , May 19, 2021 at 11:50 am

That's all true. I don't see how the banks (dark pools), hedge funds and the Fed fit into a legitimate scenario though if leveraging just escalates each time. If all this continuation is dependent on how the Fed reacts? Is the Fed the only thing that stands between the bad actors crapping out or "The House" fronting them more chips?

cocomaan , May 19, 2021 at 12:02 pm

Pretty much my interpretation yeah! The Fed is just a college of banks, they are just there to have a structured, bureaucratic method for providing more liquidity when there's a liquidity crisis. All that stuff about full employment is bull.

They were built to prevent the smoke filled meetings that JP Morgan and his buddies held during the 1907 crash, where they put a gun to Teddy Roosevelt's head and told him to approve mergers or else.

But in reality, the Fed is just a more structured smoke filled room. It's still a group of elites getting together to make decisions on liquidity. Their job is also to smooth out the frequent crashes of the 19th century, but honestly, since I turned working age, it's been one crash after another, so clearly they are failing.

Alfred , May 19, 2021 at 12:47 pm

So reallly what they are doing now has become a way of doing business. And Powell is their PR man.

cocomaan , May 19, 2021 at 12:54 pm

Yeah, to me, it's just a federally sanctioned smoke filled room that has a veneer of academic economics at play in decision making.

I'm not a hotshot economics major or economic reporter, just a dude, but that's what I see. Anyone reading these comments can feel free to correct me.

Duck1 , May 19, 2021 at 6:30 pm

https://admiralcod.blogspot.com/2016/05/my-favorite-day.html

cocomaan , May 20, 2021 at 6:36 am

I found my new profile picture!

Dugless , May 19, 2021 at 10:26 pm

Jerome Powell is an extremely wealthy investment banker with a net worth (via internet search) of between 20 and 55 million dollars. Whose side do you think he is on?

Felix_47 , May 20, 2021 at 1:27 pm

BA from Princeton and Law degree from Georgetown. That is why people try so hard to get their kids into the Ivy League. Schumer"¦"¦Harvard 1970 I think. On and on. It is a special club and you are not in it which george carlin pointed out.

Gulag , May 19, 2021 at 3:32 pm

Jonathan Levy in his new book "Ages of American Capitalism" maintains that what you are talking about is what he call the The Great Repetition.

He characterizes the Fed as an administrative agency outside democratic control, by design and that it is now the most powerful economic policy making institution in the country. He believes that we are now trapped in a recurring economic pattern dependent upon converting leveraged asset price inflation into fresh incomes built out of the credit cycle.

Liquidity is now a product of state power lodged inside the U.S. central bank. However this repetitive stabilizer may have now become a great destabilizer, in the sense of creating an ever accelerating economic inequality through its policies of offering never-ending liquidity for speculative assets.

juno mas , May 19, 2021 at 12:18 pm

"Who wins?" Well, most of these arch-egos playing the financial game ALWAYS believe it will be them. Whether by some cunning short-play or leveraged long-play. In the end, the losers are EVERYONE because of the disruption in the economic system. But if you live close to the bone with little financial cushion, then the blade will feel the sharpest.

Alfred , May 19, 2021 at 12:53 pm

Yes, you are right about the impact. The resources to prepare and recover have really suffered also for those close to the bone.

notabanker , May 19, 2021 at 10:01 pm

Who wins? Not you. Who loses? Not them. Motivation behind letting this happen? Byproduct of averting complete collapse.

21T of QE BEFORE the covid helicopters were released.
FED has been in self preservation mode since 2008. FED = Financial System = Economy. It's all the same thing. Don't mistake it for the term you look up in the dictionary.

Knute Rife , May 20, 2021 at 11:57 am

Who can tie their money up in cash and readily get financing so they can snap up assets on the cheap when the dumping starts? There's your answer.

Socal Rhino , May 19, 2021 at 10:30 am

I started looking at market capitalization data yesterday after reading Wolf's post. The Finra data is easy, just have to find a free source for historical market cap. Intuitively, a level use of margin would cause the dollar value to rise with the dollar value of the market, but if margin grows faster it could be a warning. Unless I'm misreading this chart, it suggests they're tracking.

Harry , May 19, 2021 at 2:14 pm

Exactly. Adjusted for market cap its not quite as scary although cos market cap is ebbing a little now maybe it would look like its starting to get concerning.

cnchal , May 19, 2021 at 3:51 pm

> Unless I'm misreading this chart, it suggests they're tracking.

Yes. What is different this time is that it is tracking it with no delay since the March 2020 FED hail marys thrown to prevent Mr Market's melt down. He hasen't sobered up since. When the hangover starts, it's going to be a doozy.

Also, note how in previous eras margin debt grew at a rate faster than the price Mr Market was selling for, at least some of the time.

Mikel , May 19, 2021 at 11:06 am

When I heard about it, I didn't think Archegos was some kind outlier that had discovered something no one else had thought of. It wasn't an outlier at all"¦it was a clue.

LilD , May 19, 2021 at 1:51 pm

Don't worry, there's only one cockroach

Alfred , May 19, 2021 at 2:42 pm

and only one rat

Tom Stone , May 19, 2021 at 12:55 pm

It does look like a blow off top. doesn't it?
And the Real estate Market sure looks like it's at a top.
I see one heck of a lot of leverage and lots of fraud in all of the markets ( Paper gold is reliable that way) and quite a few threads unraveliing, Greensill and Archegos among them.
There's nothing rational about these markets, it's straight up fear and greed and the suckers are ripe for the plucking.
I will stick by my call of June for the top, with the numbers starting to show up in July.

Taurus , May 20, 2021 at 5:39 am

"The markets can stay irrational longer than [most of us] can stay solvent"

The leverage is trying to reconcile the big gap between the 10 year paying sub 1.75% and the actuarial expectation of 6-7% annual returns of pretty much any big player out there insurance companies, pension funds etc.

Between the dollar depreciating and the interest rates repression by the Fed, there isn't much left. Except real estate but that carries its own "" very substantial- risks.

MD , May 20, 2021 at 9:12 am

As my specialization was investment compliance at one of the larger fund shops (Blackrock level), swaps and CFD exposure is reflected at its mark-to-market exposure in a NAV and can be effectively considered as off-balance sheet exposure. The fund accounting treatment between leverage via derivatives vs loans also lends itself to masking derivatives' leverage issues.

In Europe, regulators require semi-annual risk reporting categorizing derivative notional values but the Archegos issue also involves exchange/country-level aspects.

For instance, legal teams would go through each country's rules and regulations to see whether there was a case to be made that derivatives exposures did not need to be included such that capacity limits can be worked around. All the regulators need to do is to explicitly state stock exposure via derivatives must be included in regulatory reporting requirements/foreign ownership limits.

kiers , May 20, 2021 at 11:34 am

You're forgetting the flip side: You use "funny QE Money" to boost share prices is necessarily correlated with using "funny QE Money" to prop up sales, gross margins, and ebitda, and "¦.earnings!

Who is auditing all the leaders of the S&P 500 with foreign operations? WHo will monitor if loans are taken, say overseas, and disguised as "sales", or "ebitda" flowing eventually to earnings?

Come on sheeple: you can't willfully inflate share prices WITHOUT willfully inflating sales and earnings to match!

We're living through forced price inflation. But yet, total revenues are UP? NO make sense! But some co's are reporting "foreign sales" hugely up that nicely coincide with the shortages and price jack-ups domestically!

Yves Smith , May 20, 2021 at 11:41 am

No, not correct at all. First, you are confusing QE, which is an asset swap, with net spending. So this is what Lambert would call a category error. Second, we most assuredly had inflation and crap earnings. Go look at the 1970s stagflation. Corporate profits were lousy (and not even clear if they meant what they appeared to mean due to the lack of good inflation accounting) and stock prices were in the toilet.

athingtoconsider , May 21, 2021 at 11:41 am

First, you are confusing QE, which is an asset swap, with net spending. Yves

What about the profit (or less loss) the asset "swap" may make for the asset seller? Granted a rich asset owner has less propensity to spend but cash for trash enables them to buy other assets like apartments and houses to grind the poor for rents.

Anyway, fiat creation for other than the general welfare is gross violation of equal protection under the law. Not to mention there are ethical means to increase liquidity such as equal fiat distributions to citizens.

Sound of the Suburbs , May 20, 2021 at 12:58 pm

At the end of the 1920s, the US was a ponzi scheme of inflated asset prices. The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real wealth.

1929 -- Wakey, wakey time. The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real wealth, but it didn't.
It didn't then, and it doesn't now.

Somecallmetim , May 20, 2021 at 1:58 pm

The greed vs fear dynamics bring to mind a mascot for this discussion:

https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcR1BF-5Vf7-24CZVnoDbM9m8ZiOhAN95OyN-A&s

There's a good reason it's wearing a top hat.

McWatt , May 20, 2021 at 4:54 pm

All: I have been getting 8-10% price increase's from my suppliers the last few days. There is some serious inflation going on.

[May 28, 2021] Dedollarization is a serious threat to the US neoliberal empire

May 23, 2021 | www.moonofalabama.org

Max , May 23 2021 15:45 utc | 7

How can one ignore all the noise in the media to focus on the crux of the situation, implications, and the future outcomes?

One can only understand the impact of events better and envision the future by exploring plausible scenarios and identifying signals which over time will enable one to size up the probabilities of outcomes.

INTERNATIONAL -- MONETARY IMPERIALISM

Geopolitical relationships are frosty & flammable. All the narratives can be summed up into a few SCENARIOS:

The probabilities of these scenarios will be defined by the following SIGNALS:

Any new scenarios & signals? What probabilities would one assign to various scenarios? What will be the construct of scenarios and signals at the national level?

The Dollar Empire likes to initiate a conflict during Olympics when they are held in its adversaries:

  1. 2008, Georgia conflict
  2. 2014, Ukraine conflict
  3. 2022, ?

[May 28, 2021] The Fed Is Playing With Fire, by Christian Broda and Stanley Druckenmiller

Notable quotes:
"... With its narrow focus on inflation expectations, the Fed seems to be fighting the last battle. Just because the Fed hasn't faced big trade-offs in recent decades doesn't mean trade-offs aren't coming or that they no longer exist. ..."
"... The long-term risks from asset bubbles and fiscal dominance dwarf the short-term risk of putting the brakes on a booming economy in 2022. ..."
May 11, 2021 | www.wsj.com

Clinging to an emergency policy after the emergency has passed, Chairman Powell courts asset bubbles.

...With its narrow focus on inflation expectations, the Fed seems to be fighting the last battle. Just because the Fed hasn't faced big trade-offs in recent decades doesn't mean trade-offs aren't coming or that they no longer exist.

Chairman Jerome Powell needs to recognize the likelihood of future political pressures on the Fed and stop enabling fiscal and market excesses.

The long-term risks from asset bubbles and fiscal dominance dwarf the short-term risk of putting the brakes on a booming economy in 2022.

Mr. Broda is a partner at Duquesne Family Office LLC, where Mr. Druckenmiller is chairman and CEO.

[May 26, 2021] U.S. stocks are demonstrating most of the characteristics of a bubble, but don't sell yet, says strategist

May 26, 2021 | www.marketwatch.com

... .,. ,,,

Stefan Hofrichter, head of global economics and strategy at German fund management giant Allianz Global Investors, put together a 10-point checklist for bubbles that he says was inspired by Charles Kindleberger, the author of the 1978 classic, "Manias, Panics, and Crashes." In the table below, you can see what that list is, as well as the color-coded rating he assigned to them.

At the end of April, the S&P 500 SPX, 0.20% traded at a cyclically adjusted price-earnings ratio of 37, a level not seen since the dot-com bubble of 1998, and the Nasdaq Composite COMP, 0.59% was at an even more-staggering 55. (European, Japanese and Asian equities, by contrast, are trading at or below their long-term valuation multiples.) And he doesn't agree that the valuations are justified by low bond yields. "Low real yields have historically typically implied rather low multiples, since low yields point to a slow-growth environment and a higher risk of recession," says Hofrichter. "Monetary policy over the decades has lifted investors' risk appetite to extremes, powering the run-up in equities," he says.

Also on the bubble list is that multiple asset classes are overvalued, noting that the term premium for longer-dated sovereign bonds remains around 100 basis points below the long-term average. Another sign of bubbles is that they tend to occur alongside the perception of a new era, which clearly is the case now with artificial intelligence. Ultra-easy monetary policy, the advent of new financial instruments like special-purpose acquisition companies and cryptocurrencies, and what he calls "overtrading" -- exponential price movements and signs of above-average risk taking -- also are illustrative of bubbles.

So with all these bubble signs, isn't it a time to sell? "History has shown that bubbles only burst once central banks start to hike rates or take other steps to rein in their 'easy money' policies." Until the Fed starts tapering its bond purchases, "we think there is a reasonable chance that U.S. equities will continue bubbling up further. As a result, we stay nervously 'risk on' for now, gravitating towards risk assets. And we have a bias for value stocks, which are trading at a multidecade discount to growth stocks," he says.

Subtle shift at the Fed

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Tim Duy, chief U.S. economist at SGH Macro Advisors, analyzed the wave of comments from Federal Reserve officials, including Vice Chair Richard Clarida. "Notice how slowly the Fed is moving in the tapering direction, mixing in talking about tapering with policy still being in a good place and not seeing substantial progress 'just yet.' This is by design. It's enough that if you are watching for it and you know what to look for, you see the subtle shift but not enough to be any kind of game-changer," he said. Duy expects the formal pivot toward tapering to be announced at the Jackson Hole, Wyo. conference in August, with the actual reductions starting in the first quarter of 2022, or possibly the final quarter of 2021.

Fed Vice Chair for Supervision Randal Quarles has two speeches, the first on insurance regulation and the second on the economic outlook.

The chief executives of Wall Street banks -- including Bank of America BAC, 0.37% , Goldman Sachs GS, 1.01% and JPMorgan Chase JPM, 0.35% -- will testify in front of the Senate Banking Committee on the topic of oversight.

Read : Big bank CEOs to be grilled on diversity and woke capitalism.

What the News Means for You and Your Money Understand how today's business practices, market dynamics, tax policies and more impact you with real-time news and analysis from MarketWatch. SUBSCRIBE NOW: 50% OFF 1 YEAR MarketWatch on Multiple devices

Amazon AMZN, 0.48% struck a deal to buy studio MGM for $8.45 billion, with Amazon saying the purchase rationale was the "treasure trove of IP in the deep catalog that we plan to reimagine."

Dick's Sporting Goods DKS, 14.98% jumped 8% after hiking its earnings outlook. Zscaler ZS, 12.18% rose 11%, after the cybersecurity company's quarterly results and higher full-year outlook breezed past Wall Street expectations. Retailer Nordstrom JWN, -5.54% fell 5%, after reporting a wider loss than forecast.

After the close, graphics chip maker Nvidia NVDA, 0.24% , database software maker Snowflake SNOW, 2.21% and identity management company Okta OKTA, 1.07% release their latest numbers.

Bitcoin reclaims $40,000 level

U.S. stock futures ES00, 0.16% NQ00, 0.30% rose, with the yield on the 10-year Treasury TMUBMUSD10Y, 1.578% at 1.56%.

Bitcoin BTCUSD, 3.15% , the volatile cryptocurrency, rose over 7% to reclaim the $40,000 level.

Random reads

How parking requirements ruin cities.

A new reality-television series will offer the chance to become an astronaut .

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Read Next Inflation 'surprises' are 'almost off the chart' as data runs hotter than expected

Federal Reserve officials seem to be having some success in calming investor fears over inflation --- a chart from Deutsche Bank illustrates why that was a tall task. More On MarketWatch

About the Author Steve Goldstein

Steven Goldstein is based in London and responsible for MarketWatch's coverage of financial markets in Europe, with a particular focus on global macro and commodities. Previously, he was Washington bureau chief, directing MarketWatch's economic, political and regulatory coverage. Follow Steve on Twitter: @MKTWgoldstein.

[May 18, 2021] Former WaMu CEO sees a housing bubble forming because the Fed is 'hooked' on low interest rates

May 18, 2021 | finance.yahoo.com

'Everybody wants to have asset prices forever going up and the cost of financing to be next to nothing,' Kerry Killinger says.

Like many other banks, Washington Mutual rode the wave of low-interest rates to grow its mortgage business during the housing boom of the early 2000s. During Kerry Killinger's time as CEO, WaMu grew to have more than $300 billion in assets.

But when the subprime bubble burst, the bank's fortunes quickly turned. In September 2008, at the height of the financial crisis, Killinger was forced out by the company's board, and ultimately the bank was seized by federal regulators. It still stands as the largest bank failure in U.S. history.

In their new book, "Nothing Is Too Big to Fail: How the Last Financial Crisis Informs Today," Kerry Killinger and his wife Linda, who previously served as the vice chair of the Federal Home Loan Bank of Des Moines, explore WaMu's failure, the government's response to the last crisis and where there is growing risk in today's econom

... In the book, the Killingers raise concerns about asset bubbles they believe are forming in a wide range of asset classes, including stocks, art and luxury items -- and housing. MarketWatch spoke with Kerry and Linda Killinger about the book, the Federal Reserve and how to avoid another global financial crisis like the 2008 meltdown.

...

Linda Killinger: I wanted to write a book about this because it was such an unusual, crazy experience. Back in the '80s I was a partner in an international accounting firm, and the regulators would call me in to do plans for banks that were failing in that time. I noticed that the regulators would do everything they could to help a bank get liquidity, or to help save a bank that had not been consumed in crime or problems. But in this crisis of 2008, it just seemed like nobody wanted to help community banks. In fact, they just did the opposite. They really went after them. I thought it was important to write about the difference and how important it is to help community banks in a crisis like this.

Kerry Killinger: My focus was more on public policy -- about being sure we learned all the lessons we possibly can. I've become very concerned that some of the policies currently being adopted by the Federal Reserve and the regulators in government may be leading us to a new financial crisis.

'Some of the policies currently being adopted by the Federal Reserve and the regulators in government may be leading us to a new financial crisis.'

-- Kerry Killinger

MW : In your book, you explain that you see another bubble forming in residential real-estate -- just one of the many asset bubbles you warn about. What do you believe caused the last housing bubble that led to the Great Recession and how does it compare to what's going on now?

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Kerry Killinger: We've lived through a lot of housing cycles in our careers, and including the big bubble that that was created in the early 2000s. The housing bubble was primarily caused in the early 2000s by the Fed keeping the fed funds rate below the rate of inflation for several years. They did that in 2000 through 2003, and that lowered mortgage payments so low and led to housing prices increasing because housing affordability was good with very low mortgage payments. That caused housing prices to rise much more quickly than the rate of inflation.

From 2000 to 2006 nationally housing prices rose about 83%. Over that same period, the rate of inflation was up about 20%. So a huge increase faster than the rate of inflation, and over the long run, housing prices ought to rise at about the rate of inflation, which was about 2% a year or so. Clearly it was a speculative period where prices were rising too quickly, and speculators and investors increasingly jumped on board.

To help fuel it, underwriting standards were reduced by Fannie and Freddie, the FHA, VA, Wall Street, bank portfolio lenders, and all that. Then on top of that we had this growth of subprime lending. Keeping rates so low for so long was the most important driving force in my opinion.

[Today] the similarities are that the Fed has pursued this policy of ultra-low interest rates with the fed funds rates. Increasingly, the Fed is keeping mortgage rates at an artificially low level for 30-year fixed rates by purchasing assets in their own portfolio, including mortgage-backed securities and an increasing array of guarantees that the Fed has done as part of its policies to fight an economic downturn.

Those actions have led to what I'm calling ultra-low mortgage payments, and that naturally led to a surge in housing prices. Since 2015 housing prices nationally were up about 36% -- more than three times the rate of inflation over that period.

Another similarity is we're seeing speculators and investors jumping in. This go-around it's large entities wanting to buy tracts of homes to use as rental housing. So the non-owner-occupied part of the market, which is the investor side, has gone up from 31.9% to 34.4% in the past year. We're getting a repeat of speculation coming in at this stage with investors coming in in a major way.

Now, subprime lending is not the same factor it was the last go-around fortunately, but we do know that there's an increasing amount of subprime lending going on by the FHA, VA and some of the government enterprises. On the good news side, I think underwriting standards have remained better, much better, than they were in the last go-around. But my caution is underwriting standards are all based on housing prices that are, I believe, inflated because of these ultra-low-interest mortgage rates.

MW: You wrote about how, in your view, the Fed's response last time around exacerbated the financial crisis. And just now, you spoke about how the Fed is contributing to the rise in home prices. So what role do you think the Fed should play in addressing the bubble that you argue is forming now?

Kerry Killinger: This go around I think the Fed has learned that it needs to provide plenty of liquidity to keep from having a crisis. My concern is I think the Fed has gotten hooked on these expansive policies of ultra-low interest rates, asset guarantees, asset purchases and flooding the system with liquidity for a long period of time. And those policies are very appropriate for helping get an economy out of a recession in order to get things stabilized, but their use over extended periods of time always leads to an escalation in inflation and the creation of asset bubbles.

'The Fed has gotten hooked on these expansive policies of ultra-low interest rates, asset guarantees, asset purchases and flooding the system with liquidity for a long period of time.'

-- Kerry Killinger

They are caught in a conundrum now. The policies that were appropriate to help get us beyond COVID-19 -- the longer they keep using those same policies, I think they just keep inflating these bubbles. And it will be very difficult to manage them down in an orderly manner. All assets go through these kinds of ups and downs -- the key is how do we manage them in a way that doesn't cause immediate implosion, like they did in 2008? The longer they allow these bubbles to keep growing, the bigger challenge they're going to have at some point in the future.

MW: You're both strong proponents of community banks and have argued that they should play an important role in the mortgage industry. But following the Great Recession, many banks have reduced or eliminated their mortgage businesses, citing the steep cost of regulation, and non-bank mortgage companies have risen up to fill that void. Should the federal government make it easier for community banks to lend mortgages, and how should it go about doing so?

Linda Killinger: Well, it depends. I think, if it looks like a bank, it smells like a bank and does mortgages like a bank, it should be regulated like a bank. Unless there's some incredible service that they provide that banks don't provide -- otherwise, they're doing the same thing as community banks but they're not being regulated.

The problem with that is things are going pretty well right now because they're selling mostly to Fannie and Freddie. Fannie and Freddie's guidelines are pretty good right now, but at any point in time [non-banks] could couple up with unregulated hedge funds or other entities from Wall Street and start securitizing loans themselves, lowering standards and trying to attract more people.

Especially if the Congress and the new president want to have more affordable housing, it depends on what they do when they want to push for more. There needs to be more affordable housing, but it shouldn't be handled in the way that it was last time. Last time they had Fannie Mae in the 90s saying well 33% of your loan should be [low- and middle-income (LMI)] loans, and by 2008 it was 60% should be LMI. So there's a tremendous pressure on Fannie and Freddie from Congress and the other regulators to really crank out more LMI lending. We really have to be careful about how we do that in the future. Community banks should be involved because they know how to do it right.

MW: When the COVID-19 pandemic began, federal lawmakers and regulators were quick to roll out forbearance options to homeowners who suddenly lost income as a result of the economic shock. A year later, many homeowners are still not making their monthly mortgage payments and are in forbearance. With the foreclosure moratorium still in place, homeowners aren't yet at risk of losing their homes, but that possibility lingers. What should we be doing right now to stave off another foreclosure crisis?

Linda Killinger: During the crisis in 2007, when it started to collapse, Kerry put together a $3 billion fund [at WaMu] to help subprime borrowers stay in their homes. He lowered the payments, and he lowered the amount that was owed, so it was manageable and they could stay in their home. I think that's a responsibility of banks to do that. It's going to be hard when the forbearance goes away -- unless banks and organizations are willing to really write down the principal or lower the payments just to help people a little bit more.

Kerry Killinger: Over the long run you are far better off to do everything you can to keep somebody in a home, if they can possibly afford it. And the last route you want to have to go through is foreclosure, because the costs are painful for everybody involved. We always used to try to do anything possible to keep people into the homes as long as we possibly can, and I think that is a very positive thing what the government and everyone did when COVID hit. Some of those solutions are very appropriate for the short term when you've got a crisis going on, but I think over time they need to be brought back to a more normal environment in which you will always have a small percentage of homes that will have to go through foreclosure. They were just the wrong home for the wrong people at the wrong time.

People don't even think about that anymore, but home prices will fall again in some markets for some reason. Given the rapid escalation we have seen in the last five years, especially in the last 12 months, these are unsustainable price increases that will be subject to some kind of correction when interest rates start to return to more normal levels. Probably one of the more controversial things I'll say here is if you assume that we're going to have about a 2% inflation rate and a GDP growing over the long term at about 2% to 2.5%, then mortgage interest rates on 30-year fixed-rate mortgages should be more in the 4.5% to 5% range.

MW: Do you think consumers are willing to stomach mortgage rates at that level, after so many years in which mortgage rates have remained so low?

Kerry Killinger: Look, all of us want to have the good times roll. Everybody wants to have asset prices forever going up and the cost of financing to be next to nothing. That's something that a lot of people wish for. We're just putting the warnings out that seldom do things go up forever. Right now you have borrowing costs substantially below the rate of inflation and way below historic norms, and that's unlikely to last forever.

I don't know if it's a matter of whether the consumers like it or not, but equilibrium would be closer to 4.5% to 5% on long-term mortgages. I just put out there that if that happens, for whatever reason, the affordability of housing will become much more stressed and mortgage payments will grow. That will have a tendency to put downward pressure on home prices. I don't think we're likely to repeat the problems that hit in 2008 because I think the Fed is smart enough now not to pull liquidity to a point that causes a downward spiral. But you could certainly see a period over several years of some downward pressure on prices as affordability becomes more difficult because of rising monthly mortgage payments.

'Right now you have borrowing costs substantially below the rate of inflation and way below historic norms, and that's unlikely to last forever.'

-- Kerry Killinger

MW: What else about the market and the economy right now is a source of concern to you?

Kerry Killinger: I do think that the economy is both stabilized and now back into a strong growth mode, and I think we're going to see very strong economic activity for the balance of this year and into next year. Inflation is picking up and will be higher than what many think at this point. Businesses are telling me that they are having more price increases today than they have had in the last decade. So I think the concern about inflation is real.

And these growing asset bubbles just continue to escalate to the point to where the assets are selling well above reasonable estimates of intrinsic value. That always presents a certain amount of risk. And finally, we're seeing more and more speculative products and speculators in the market -- not necessarily just in housing.

Look at certain parts of the stock market DJIA, -0.36% SPX, -0.40% . Look at bitcoin BTCUSD, -4.31% . Look at SPACs. Look at NFTs. I can just go through a litany of assets that have risen in price very, very dramatically. Whenever you have a combination of rapidly rising price and increasing speculative activity, you have to raise the red flags. Are bubbles being created here?

Linda Killinger: Yes, and are pension plans buying some of those bubble products?

Kerry Killinger: A fair bit of that build-up of buyers for those single-family homes are pension plans doing it directly to have that asset category. Because with the Fed keeping interest rates artificially low, they can't afford to put into riskless assets like Treasury securities. They have to keep searching out yields. One of them is increasingly into residential real estate.

[May 13, 2021] Investors Double Down on Stocks, Pushing Margin Debt to Record

This was in December 2020 but the same was true in March of 2020. Now chicken might come to roost
Dec 29, 2020 | www.wsj.com

Investors Double Down on Stocks, Pushing Margin Debt to Record : Chasing bigger gains, some have exposed themselves to potentially devastating losses through riskier plays, such as concentrated positions and trading options.

[May 12, 2021] The Most Hyped Corners Of The Stock Market Come Unglued - ZeroHedge

May 12, 2021 | www.zerohedge.com

Authored by Wolf Richter via WolfStreet.com,

Once upon a time last year, there was the EV startup hype-boom that found its way to the SPAC hype-boom, and the two combined and generated miraculously swift and spectacular results; and their collapse has been equally swift and spectacular.

And they're joined by the IPO hype-boom stocks, including the spectacularly hyped highflyers that got shot down, such as Zoom (-49% from peak), Coinbase (-29%), or Airbnb (-35%), and they're in turn joined by the ARK Innovation ETF (-34%). This whole thing has come unglued.

The EV SPAC boom-and-bust is reflected in the WOLF STREET EV SPAC Index, which has collapsed by 57% since its peak on February 17. The index tracks seven EV-related companies that have gone public via a merger with a SPAC: Nikola, QuantumScape (batteries for EVs), Canoo, Lordstown Motors, Romeo Power (batteries for EVs), XL Fleet (EV drive systems for fleets), and Lucid Motors. Since February 17, these seven stocks combined have shed $35 billion in value, which they should have never had in the first place. Easy come, easy go, except when it's your money (data via YCharts ):

[May 12, 2021] Cathie Wood's ARK Wasn't Built for a Flood - WSJ

May 12, 2021 | www.wsj.com

...Ms. Wood's "disruptive innovation" jargon may be somewhat novel. What her investors are experiencing isn't. Fund managers like Gerald Tsai in the 1960s who rode Polaroid and Xerox to stardom or various dot-com visionaries in the late 1990s wound up doing poorly for clients who discovered them after they became hotshots. The culprit is unrealistic expectations and reversion to the mean for the bubbly sectors that got them there. Analyst Meb Faber points out that not one of the five Morningstar "fund managers of the decade" through 2010 even managed to beat the market in the next 10 years. The best of the bunch, Bruce Berkowitz's Fairholme Fund, became the worst.

Star managers can be dangerous to your wealth.

Write to Spencer Jakab at [email protected]

[May 11, 2021] If Everyone Sees It, Is It Still A Bubble

May 11, 2021 | www.zerohedge.com

Authored by Lance Roberts via RealInvestmentAdvice.com,

"If everyone sees it, is it still a bubble?" That was a great question I got over the weekend. As a "contrarian" investor, it is usually when "everyone" is talking about an event; it doesn't happen.

As Mark Hulbert noted recently , "everyone" is worrying about a "bubble" in the stock market. To wit:

"To appreciate how widespread current concern about a bubble is, consider the accompanying chart of data from Google Trends. It plots the relative frequency of Google searches based on the term 'stock market bubble.' Notice that this frequency has recently jumped to a far-higher level than at any other point over the last five years."

What Is A Bubble?

"My confidence is rising quite rapidly that this is, in fact, becoming the fourth 'real McCoy' bubble of my investment career. The great bubbles can go on a long time and inflict a lot of pain, but at least I think we know now that we're in one." – Jeremy Grantham

What is the definition of a bubble? According to Investopedia:

"A bubble is a market cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. Typically, what creates a bubble is a surge in asset prices driven by exuberant market behavior. During a bubble, assets typically trade at a price that greatly exceeds the asset's intrinsic value. Rather, the price does not align with the fundamentals of the asset. "

This definition is suitable for our discussion; there are three components of a "bubble." The first two, price and valuation, are readily dismissed during the inflation phase. Jeremy Grantham once produced the following chart of 40-years of price bubbles in the markets. During the inflation phase, each was readily dismissed under the guise "this time is different."

We are interested in the "third" component of "bubbles," which is investor psychology.

A Bubble In Psychology

As Howard Marks previously noted:

"It's the swings of psychology that get people into the biggest trouble. Especially since investors' emotions invariably swing in the wrong direction at the wrong time. When things are going well people become greedy and enthusiastic. When times are troubled, people become fearful and reticent. That's just the wrong thing to do. It's important to control fear and greed."

Currently, it's difficult for investors to become any more enthusiastic about market returns. ( The RIAPro Fear/Greed Index compiles measures of equity allocation and market sentiment. The index level is not a component of the measure that runs from 0 to 100. The current reading is 99.9, which is a historical record.)

Such is an interesting juxtaposition. On the one hand, there is a rising recognition of a "bubble," but investors are unwilling to reduce "equity risk" for "fear of missing out or F.O.M.O." Such was a point noted explicitly by Mark:

"Rather than responding by taking some chips off the table, however, many began freely admitting a bubble formed. They no longer tried to justify higher prices on fundamentals. Rather, they justified it instead in terms of the market's momentum. Prices should keep going up as FOMO seduces more investors to jump on the bandwagon."

In other words, investors have fully adopted the "Greater Fool Theory."

Okay, Boomer!

I know. The discussion of "valuations" is an old-fashioned idea relegated to investors of an older era. Such was evident in the pushback on Charlie Munger's comments about Bitcoin recently:

" While Munger has never been a bitcoin advocate, his dislike crystalized into something close to hatred. Looking back over the past 52 weeks, the reason for Munger's anger becomes apparent with Berkshire rising only 50.5% against bitcoin's more than 500% gain." – Coindesk

In 1999, when Buffett spoke out against "Dot.com" stocks, he got dismissed with a similar ire of "investing with Warren Buffett is like driving 'Dad's old Pontiac.'"

Today, young investors are not interested in the "pearls of wisdom" from experienced investors. Today, they are "out of touch," with the market's "new reality."

"The big benefit of TikTok is it allows users to dole out and obtain information in short, easily digestible video bites, also called TikToks. And that can make unfamiliar, complex topics, such as personal finance and investing, more palatable to a younger audience.

That advice runs the gamut, from general information about home buying or retirement savings to specific stock picks and investment ideas. Rob Shields, a 22-year-old, self-taught options trader who has more than 163,000 followers on TikTok, posts TikToks under the username stock_genius on topics such as popular stocks to watch, how to find good stocks, and basic trading strategies." – WSJ:

Of course, the problem with information doled out by 22-year olds is they were 10-year olds during the last "bear market." Given the lack of experience of investing during such a market, as opposed to Warren Buffett who has survived several, is the eventual destruction of capital.

Plenty Of Analogies

"There is no shortage of current analogies, of course. Take Dogecoin, created as a joke with no fundamental value. As a recent Wall Street Journal article outlined , the Dogecoin 'serves no purpose and, unlike Bitcoin, faces no limit on the number of coins that exist.'

Yet investors flock to it, for no other apparent reason than its sharp rise. Billy Markus, the co-creator of dogecoin, said to the Wall Street Journal, 'This is absurd. I haven't seen anything like it. It's one of those things that once it starts going up, it might keep going up.'" – Mark Hulbert

That exuberance shows up with professionals as well. As of the end of April, the National Association Of Investment Managers asset allocation was 103%.

As Dana Lyons noted previously:

" Regardless of the investment acumen of any group (we think it is very high among NAAIM members), once the collective investment opinion or posture becomes too one-sided, it can be an indication that some market action may be necessary to correct such consensus. "

Give Me More

Of course, margin debt, which is the epitome of " speculative appetite," soared in recent months.

As stated, "bubbles are about psychology," which the annual rate of change of leverage shows.

Another form of leverage that doesn't show up in margin debt is ETF's structured to multiply market returns. These funds have seen record inflows in recent months.

With margin debt reaching levels not seen since the peak of the last cyclical bull market cycle, it should raise some concerns about sustainability. It is NOT the level of leverage that is the problem as leverage increases buying power as markets are rising. The unwinding of this leverage is critically dangerous in the market as the acceleration of "margin calls" leads to a vicious downward spiral.

Importantly, this chart does not mean that a massive market correction is imminent. I t does suggest that leverage, and speculative risk-taking, are likely much further advanced than currently recognized.

Pushing Extremes

Prices are ultimately affected by physics. Moving averages, trend lines, etc., all exert a gravitational pull on prices in both the short and long term. Like a rubber band, when prices get stretched too far in one direction, they have always eventually "reverted to the mean" in the most brutal of manners.

The chart below shows the long-term chart of the S&P 500 broken down by several measures: 2 and 3-standard deviations, valuations, relative strength, and deviations from the 3-year moving average. It is worth noting that both standard deviations and distance from the 3-year moving average are at a record.

During the last 120-years, overvaluation and extreme deviations NEVER got resolved by markets going sideways.

The only missing ingredient for such a correction currently is simply a catalyst to put "fear" into an overly complacent marketplace. Anything from economic disruption, a credit-related crisis, or an unexpected exogenous shock could start the "panic for the exits."

Conclusion

There is more than adequate evidence a "bubble" exists in markets once again. However, as Mark noted in his commentary:

'I have no idea whether the stock market is actually forming a bubble that's about to break. But I do know that many bulls are fooling themselves when they think a bubble can't happen when there is such widespread concern. In fact, one of the distinguishing characteristics of a bubble is just that."

However, he concludes with the most important statement:

"It's important for all of us to be aware of this bubble psychology, but especially if you're a retiree or a near-retiree. That's because, in that case, your investment horizon is far shorter than for those who are younger. Therefore, you are less able to recover from the deflation of a market bubble."

Read that statement again.

Millennials are quick to dismiss the "Boomers" in the financial markets today for "not getting it."

No, we get it. We have just been around long enough to know how these things eventually end.

[May 10, 2021] Many layers of leverage stacked on top of each other increase the probability of dollar collapse

Notable quotes:
"... "It's just unbelievable that central banks are actively encouraging this." ..."
"... Good point. Many times we look at charts and say WTF but once you normalize to inflation, maybe this is not as bad as originally it appeared ..."
"... reminds me of an abusive husband telling his beaten wife, "See what you made me do!" ..."
"... Hussman says the right way to do that is to look at margin debt to GDP ration, which is a record. GDP is doubling rate is about every 20 years now at nominal 3.5% ..."
"... That description applies to most Wall Streeters and banksters, whose titanic egos are amazing given the fact that most are parasites that contribute less than a woodlouse to society. Still, I dread the coming US debt collapse discussed in this website, which I would term a debt explosion as all of the bubbles start to pop and so many debtors and former creditors (like lessors, banks, etc.) become publicly known to be legally insolvent. ..."
"... I have invested carefully but we will all lose much or most of our savings. ..."
"... It is very irritating to think of the trillions that the banksters' deceptively named, "Federal" Reserve has been transferring to its ultra-rich owners for decades. They will probably even avoid most taxation again. ..."
Apr 26, 2021 | wolfstreet.com

YuShan Apr 18, 2021 at 3:13 am

Exactly. It is way more scary than even Wolf's charts suggest because there are so many layers of leverage stacked on top of each other.

People taking out margin debt on stock portfolios that they bought by re-mortgaging their bubbled houses to buy stocks with record corporate debt, collaterised (if at all) with bubble assets, at record valuations driven itself by leverage etc etc

It's just unbelievable that central banks are actively encouraging this.

historicus Apr 18, 2021 at 5:06 am

"It's just unbelievable that central banks are actively encouraging this."

Indeed. It's QUITE believable that the politicians love the free money and would never be bold enough to say .

"Hey Fed. Your mandates say you are to FIGHT inflation (stable prices) NOT PROMOTE inflation."

Moosy Apr 17, 2021 at 6:13 pm

The amount of margin debt is not a WTF amount if you use the prices-double each 11 year rule of thumb.

This 11 year period is strikingly accurate if you take the price of the New York Times since 1900 (I have a booklet with frontpages of each year and discovered this when looking at the selling prices). Having said that, the current 800B is the same as the previous inflation corrected peaks of 2009 and around 1999.

So yes, Wolf is 100% correct with the prediction on what is coming. It is just not a WTF amount but a history-repeats-itself moment

ru82 Apr 17, 2021 at 11:45 pm

Good point. Many times we look at charts and say WTF but once you normalize to inflation, maybe this is not as bad as originally it appeared

cas127 Apr 18, 2021 at 5:06 am

"normalize to inflationary, maybe not as bad as originally it appeared"

I know what you mean, but then the (major) problem is that the inflation itself shouldn't be viewed as "normal". Kinda reminds me of a gvt program defending doubled budget over 8 yrs because of "inflation" when in point of fact it is likely that G printing/policy has *created* the inflation in the first place (to help fund the program now pointing at inflation).

Also, reminds me of an abusive husband telling his beaten wife, "See what you made me do!"

Old School Apr 19, 2021 at 6:08 am

Hussman says the right way to do that is to look at margin debt to GDP ration, which is a record. GDP is doubling rate is about every 20 years now at nominal 3.5%

K Apr 17, 2021 at 9:10 pm

That description applies to most Wall Streeters and banksters, whose titanic egos are amazing given the fact that most are parasites that contribute less than a woodlouse to society. Still, I dread the coming US debt collapse discussed in this website, which I would term a debt explosion as all of the bubbles start to pop and so many debtors and former creditors (like lessors, banks, etc.) become publicly known to be legally insolvent.

It is unfortunate that it may happen at the worst possible time, when we face an adversary worse and more powerful than the Soviet Union or Nazi Germany ever was. I have invested carefully but we will all lose much or most of our savings.

It is very irritating to think of the trillions that the banksters' deceptively named, "Federal" Reserve has been transferring to its ultra-rich owners for decades. They will probably even avoid most taxation again.

I do not like to even think how many Americans will wind up. Remember the saying "There but for the grace of god, go I." Many of us will be saying that a lot in the coming years if we are very fortunate.

[May 10, 2021] Stock Market Leverage in La-La Land, Rises to Historic WTF High

Notable quotes:
"... the popping of the US's bubbles and then the debt-fueled collapse is probably being delayed temporarily by the fear of a certain threat. ..."
"... The loss of the US dollar's reserve status may thus be delayed by the reliability of our current leaders. The smarter, justifiably terrified, wealthy, foreign investors can keep us afloat given the growing nature of the threat, so the hyperinflation and financial collapse that our Wall Streeters and the deceptively named "Federal" Reserve have caused may be kept in abeyance. ..."
Apr 26, 2021 | wolfstreet.com
K Apr 17, 2021 at 9:34 pm

Amen. It is hilarious and I will not elaborate and inadvertently help opponents, but the popping of the US's bubbles and then the debt-fueled collapse is probably being delayed temporarily by the fear of a certain threat. That threat has its own problems, which prevent its taking strong action against our financial markets.

The loss of the US dollar's reserve status may thus be delayed by the reliability of our current leaders. The smarter, justifiably terrified, wealthy, foreign investors can keep us afloat given the growing nature of the threat, so the hyperinflation and financial collapse that our Wall Streeters and the deceptively named "Federal" Reserve have caused may be kept in abeyance.

It is like a video from Africa that I saw in which the attack by one predator is inadvertently foiled by the attack of another predator on a helpless prey. Sadly, we are the prey. :-)

Therefore, I would not short things right now.

Jacklynhunter Apr 18, 2021 at 5:08 am

Accounting fixes this.

[May 10, 2021] Investors are borrowing a record amount on margin to bolster their stock portfolios

Notable quotes:
"... Margin debt saw an annual surge of 49% in February, which was the fastest jump since 2007. Prior to 2007, the fastest jump in margin debt was in 1999. Both instances were just prior to an epic melt-down in the stock market, amid the Great Financial Crisis of 2008 and the dot-com bubble unwind in 2000. ..."
Apr 26, 2021 | markets.businessinsider.com

Matthew Fox Apr. 8, 2021, 04:21 PM


A record surge in margin debt is raising eyebrows as the stock market continues to surge to new all-time-highs.

Investors borrowed $814 billion against their investment portfolios at the end of February, according to data from FINRA cited in a report in the Wall Street Journal on Thursday. That's a record high reading for margin debt, well above January's record of $799 billion.

It's common for margin debt to rise and fall with the stock market, as increased portfolio values afford investors more leverage to take on from their brokers. But the record rise in margin debt is also one of the fastest on record.

Margin debt saw an annual surge of 49% in February, which was the fastest jump since 2007. Prior to 2007, the fastest jump in margin debt was in 1999. Both instances were just prior to an epic melt-down in the stock market, amid the Great Financial Crisis of 2008 and the dot-com bubble unwind in 2000.

Leverage is a double-edged sword for investors, as many take on the debt to buy more stocks. That is a winning strategy in a bull market, but a market correction can spell doom for investors who have too much leverage and need to sell equities or deposit more cash to meet margin calls, which can further exacerbate a downturn in stocks.

That dynamic was on full display last month, after a downturn in ViacomCBS spurred a massive $20 billion liquidation event for family office Archegos Capital, which was long shares of the media company. That epic unwind by a number of prime brokers that serviced Archegos led to billion dollar losses for banks that were slow to unwind the positions, like Nomura and Credit Suisse.

But until a broad market decline materializes, expect margin debt to continue its surge to record highs as it's led by new highs in the stock market.

[May 09, 2021] CPI Is A Lie! We can't trust CPI to tell us the truth about inflation by Peter Schiff

Highly recommended!
Notable quotes:
"... The CPI is calculated by analyzing the price of a "basket of goods." The makeup of that basket has a big impact on the final CPI number. According to WolfStreet , 10.9% of the CPI is based on durable goods (computers, automobiles, appliances, etc.). Nondurable goods (primarily food and energy) make up 26.6% of CPI. Services account for the remaining 62.5% of the basket. This includes rent, healthcare, cellphone service etc.) ..."
"... The things the government includes and excludes from the basket can make a profound difference in that final CPI number. Back in 1998, the government significantly revised the CPI metrics. Even the Bureau of Labor Statistics (BLS) admitted the changes were "sweeping." ..."
"... In 1998, the BLS followed the recommendations of the Boskin Commission. It was appointed by the Senate in 1995. Initially called the "Advisory Commission to Study the Consumer Price Index," its job was to study possible bias in the computation of the CPI. Unsurprisingly, it determined that the index overstated inflation " by about 1.1% per year in 1996 and about 1.3% prior to 1996. The 1998 changes to CPI were meant to address this "issue." ..."
"... As Peter pointed out, there is a lot of geometric weighting, substitution and hedonics built into the calculation. The government can basically create an index that outputs whatever it wants. ..."
"... Peter said there is a bit of irony in government officials and central bankers constantly complaining about "not enough inflation." ..."
"... They're the ones that are cooking the books to pretend that inflation is lower than it really is. Because what they're really trying to do is get the go-ahead to produce more inflation, which is printing money." ..."
"... And there are other things that hide inflation. For instance, shrinking packaging so there is less product sold at the same price, or substituting lower quality ingredients, or requiring consumers to assemble items themselves. ..."
"... They find different ways to lower the quality and not increase the price, and I'm sure that the government is not picking up on any of that. If the quality improves, yeah, yeah, they calculate that. But they probably ignore all the circumstances where the quality is diminished." ..."
"... The bottom line is we can't trust CPI to tell us the truth about inflation. ..."
May 04, 2021 | www.zerohedge.com

Via SchiffGold.com,

We've been talking a lot about the specter of inflation. Despite the Fed's assurances not to worry because any price increases we're seeing are transitory, some people are indeed worried. A former JP Morgan managing director warned about inflation and echoed Peter Schiff's view that the central bank is powerless to fight it.

And we're seeing rising prices all over the place, from the grocery store to the gas station. Even the government numbers flash warning signs . But as Peter Schiff explains in this clip from an interview with Jay Martin, it's probably even worse than we realize because the government cooks the numbers when it calculates CPI.

The monthly rises in CPI through the first quarter show an upward trend. The CPI in January was up 0.3%. It was up 0.4% in February. And now it's up 0.6% in March. That totals a 1.013% increase in Q1 alone. The question is does this really reflect the truth about inflation? Peter doesn't think it does.

The government always makes changes to their methods of measuring things, whether it's GDP, or inflation, or unemployment. And they always tweak the numbers to produce a better result as a report card. "

https://www.youtube.com/embed/lnPrsBzIZsw

Imagine if students in a school had the ability to change the metrics by which they were graded or the methodology the teacher used to calculate their grades.

Would it surprise anybody that all of a sudden they started getting more As and Bs and fewer Cs and Ds? The government always wants to make the good stuff better, like economic growth, and the bad stuff better, like unemployment or inflation. So, they want to find ways to make those numbers little and the good numbers big."

The CPI is calculated by analyzing the price of a "basket of goods." The makeup of that basket has a big impact on the final CPI number. According to WolfStreet , 10.9% of the CPI is based on durable goods (computers, automobiles, appliances, etc.). Nondurable goods (primarily food and energy) make up 26.6% of CPI. Services account for the remaining 62.5% of the basket. This includes rent, healthcare, cellphone service etc.)

The things the government includes and excludes from the basket can make a profound difference in that final CPI number. Back in 1998, the government significantly revised the CPI metrics. Even the Bureau of Labor Statistics (BLS) admitted the changes were "sweeping."

According to the BLS, periodic changes to the CPI calculation are necessary because "consumers change their preferences or new products and services emerge. During these occasions, the Bureau reexamines the CPI item structure, which is the classification scheme of the CPI market basket. The item structure is a central feature of the CPI program and many CPI processes depend on it."

In 1998, the BLS followed the recommendations of the Boskin Commission. It was appointed by the Senate in 1995. Initially called the "Advisory Commission to Study the Consumer Price Index," its job was to study possible bias in the computation of the CPI. Unsurprisingly, it determined that the index overstated inflation " by about 1.1% per year in 1996 and about 1.3% prior to 1996. The 1998 changes to CPI were meant to address this "issue."

As Peter pointed out, there is a lot of geometric weighting, substitution and hedonics built into the calculation. The government can basically create an index that outputs whatever it wants.

I think this period of "˜Oh wow! We have low inflation!' It's not a coincidence that it followed this major revision into how we calculate it."

Peter said there is a bit of irony in government officials and central bankers constantly complaining about "not enough inflation."

They're the ones that are cooking the books to pretend that inflation is lower than it really is. Because what they're really trying to do is get the go-ahead to produce more inflation, which is printing money."

Peter said the CPI will never reveal the true extent of rising prices.

And there are other things that hide inflation. For instance, shrinking packaging so there is less product sold at the same price, or substituting lower quality ingredients, or requiring consumers to assemble items themselves.

They find different ways to lower the quality and not increase the price, and I'm sure that the government is not picking up on any of that. If the quality improves, yeah, yeah, they calculate that. But they probably ignore all the circumstances where the quality is diminished."

The bottom line is we can't trust CPI to tell us the truth about inflation.

[May 03, 2021] This Bull Market Has a Troubling Reliance on Speculation by James Mackintosh

Highly recommended!
See also Investors Big and Small Are Driving Stock Gains With Borrowed Money - WSJ The stock market definitely has gambling problem. Just look at Yahoo Finance coverage. It is insane. They cheerleading reckless behaviour and ignore each and every warning sign.
Notable quotes:
"... In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. ..."
"... The parallel in the stock market is the hunt for the greater fool . Sure, GameStop shares bear no relation to the reality of the company, but I can make money from buying an overpriced stock if I can find someone willing to pay even more because they 'like the stock.' ..."
"... The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back. ..."
Mar 26, 2021 | www.wsj.com

In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less.

The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out.

A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded.

In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example.

The parallel in the stock market is the hunt for the greater fool . Sure, GameStop shares bear no relation to the reality of the company, but I can make money from buying an overpriced stock if I can find someone willing to pay even more because they 'like the stock.'

Wild bets became obvious this year, as newcomers armed with stimulus, or 'stimmy,' checks drove up the price of many tiny stocks, penny shares and those popular on Reddit discussion boards.

The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back.

... ... ...

Write to James Mackintosh at [email protected]

[Apr 26, 2021] When this debt tsunami is over those who went 'all in' might be simply wiped out.

Notable quotes:
"... Bitcoin right now is IMO hyperinflated and gotten ahead of itself, and that is definitely not a good sign for a purported stable 'store of value' asset. ..."
"... Perhaps historically that Weimar hyperinflation event gives us some intriguing evidence of what might transpire here. No, it wasn't the end of the world for the Germans of that era (they bounced back rather quickly as a nation) but a lot of everyday people suffered and a lot of wealth evaporated into thin air. ..."
"... "That description applies to most Wall Streeters and banksters, whose titanic egos are amazing given the fact that most are parasites that contribute less than a woodlouse to society. " ..."
"... The so called "Buffet Indicator" (Market Cap / GDP) now over 200%. I believe -- from memory – in Dot Com bomb bust was around 156% and, at housing crisis around 140% ..."
"... Schiller PE indicator – I believe around 37 again from memory only a few times above 30. ..."
"... I wish my wage growth is like this stock market chart sadly there's never been a WTF moment in my earnings compare to the market. That's what I get for pursuing a normal job that produce something rather than pushing money around to multiple it from nothing.. ..."
Apr 26, 2021 | wolfstreet.com

Heinz Apr 18, 2021 at 9:48 am

"I do not like to even think how many Americans will wind up."

The average clueless American sadly likely will not fare too well as this End Game gets closers to a reversion of means reset state.

When this debt tsunami is over those who went 'all in' on this carnival spectacle of national debt and spendthrifts will be clinging to the flotsam and jetsam of their pitifully reduced 'assets', or will be simply wiped out.

The question is, will non-fiat currency alternatives like cryptos (especially Bitcoin and precious metals) be safe haven life preservers after the deluge? Bitcoin right now is IMO hyperinflated and gotten ahead of itself, and that is definitely not a good sign for a purported stable 'store of value' asset.

Perhaps historically that Weimar hyperinflation event gives us some intriguing evidence of what might transpire here. No, it wasn't the end of the world for the Germans of that era (they bounced back rather quickly as a nation) but a lot of everyday people suffered and a lot of wealth evaporated into thin air.

zr Apr 18, 2021 at 3:14 pm

"No, it wasn't the end of the world for the Germans of that era (they bounced back rather quickly as a nation)". Please think again. What happened after was one of the darkest chapters of mankind.

The Nominalist Apr 18, 2021 at 6:23 pm

"That description applies to most Wall Streeters and banksters, whose titanic egos are amazing given the fact that most are parasites that contribute less than a woodlouse to society. "

Given historical facts, same "Wall Streeters" with their "titanic egos" might ... boosting both cryptocurrency as well as a soon unserviceable US national debt.

Trinacria Apr 18, 2021 at 2:48 pm

Indeed, it takes massive egos that have crossed the line in recklessness to deal in such markets in that manner. Problem, is that they will hurt many people through "osmosis" in due time. In addition to the items pointed out in the article, two additional items that are beyond comprehension:

  1. The so called "Buffet Indicator" (Market Cap / GDP) now over 200%. I believe -- from memory – in Dot Com bomb bust was around 156% and, at housing crisis around 140%
  2. Schiller PE indicator – I believe around 37 again from memory only a few times above 30.

The destruction that has taken place has simply been ignored and, all the "bombs" like Archegos that are under the surface and that won't come to light until a big problem exposes them.

The insanity continues until it doesn't. It is world wide, but our corner of the world does seem a bit more outrageous.

Phoenix_Ikki Apr 17, 2021 at 2:19 pm

I wish my wage growth is like this stock market chart sadly there's never been a WTF moment in my earnings compare to the market. That's what I get for pursuing a normal job that produce something rather than pushing money around to multiple it from nothing..

Mertin Apr 17, 2021 at 3:02 pm

Learned some new things about margin debt. Thank you.

It is unbelievable that firms only know and track their own client margin debt. How so? Try this with a mortgage. Imagine multiple second mortgages no one knows about collectively. Where are the rules and laws.

And now on mortgages in Canada 90% first mortgages are a norm. A few add second mortgages that actually exceed 100% LTV . to have play money for a new SUV.

Headshake.

[Apr 26, 2021] Stock Market Leverage Spikes in Historic Manner- Another WTF Chart of a Zoo that Has Gone Nuts

In March 2021 margin debt exceed 800 billions. Previous max were around 120 billons
Money quote: "> A major correction needs a reason. What is it? Corporate debt". Just remember that "the Market Can Remain Irrational Longer Than You Can Remain Solvent".
On the other hand as Minsky wrote increased leverage increases instability by amplifying small events into systemic ones.
Credit spreads remain historically narrow (the premium charged for junk for example over the risk free treasury rate.) That's another sign of bubble -- too much cash chasing investments leads investors to increase the level of risk to get a decent return. That also could lead to amplified losses when things start going south.
...Margin debt – the amount that individuals and institutions borrow against their stock holdings as tracked by FINRA at its member brokerage firms – is just one indication of stock market leverage. But FINRA reports it monthly. Other types of stock market leverage are not reported at all, or are disclosed only piecemeal in SEC filings by brokers and banks that lend to their clients against their portfolios, such as Securities-Based Loans (SBLs). No one knows how much total stock market leverage there is. But margin debt shows the trend.
In February, margin debt jumped by another $15 billion to $813 billion, according to FINRA. Over the past four months, margin debt has soared by $154 billion, a historic surge to historic highs. Compared to February last year, margin debt has skyrocketed by $269 billion, or by nearly 50%, for another WTF sign that the zoo has gone nuts:
Just imagine at what leverage Softbank and Cathie Wood's Ark are playing the market; I'm going to be just these are at least 10:1 leverage level. The explosion of all these bubble will be so big that makes the crashes of 2000 and 2008 look like a child play.
Apr 26, 2021 | www.nakedcapitalism.com

But margin debt is not cheap, especially smaller amounts. For example, Fidelity charges 8.325% on margin balances of less than $25,000 – in an environment where banks, money market accounts, and Treasury bills pay near 0%. Margin debt gets cheaper for larger balances, an encouragement to borrow more. For margin debt of $1 million or more, the interest rate at Fidelity drops to 4.0%

"Whether you need extra money for a short-term financing need or buying more securities, a margin loan may help you get the money you need," Fidelity says on its website. In other words, take out a margin loan to buy a car or much needed bitcoin or NFTs.

Every broker has its own margin interest rate schedule. Morgan Stanley charges 7.75% for margin balances below $100,000, compared to Fidelity's 6.875% for balances between $50,000 and $99,999. For margin balances over $50 million, Morgan Stanley charges 3.375%.

And it's risky leverage for the borrower. It seems like risk-free leverage when stocks go up, but when your stocks do the unheard-of and tank below a certain level, your broker will ask you to put more cash into your account or sell stocks into the tanking market, whereby you then join the legions of forced sellers.

In the past, a big surge in margin balances tended to precede history-making stock market declines:

Over the two-decade period of the chart, the long-term changes in the dollar amounts are less important since the purchasing power of the dollar with regards to stocks has dropped.

But short-term, the changes show what is happening to margin debt in the run-up before the sell-off, and what is happening during the sell-off when margin requirements turn investors into legions of forced sellers.

Leverage is the great accelerator of stock prices, on the way up, and on the way down. Purchasing stocks with borrowed money creates buying pressure, and prices rise, and rising prices increase the margin balances a portfolio can support, and this encourages more stock-buying on margin.

On the other hand, selling stocks to deal with margin calls adds more selling pressure to an already declining market. The more prices fall, the more selling pressure there is from frazzled forced sellers trying to deal with margin requirements.

Then at some magic point, margin debt has been reduced enough, and its contribution to the selling pressure fades.

The historic surge in margin balances in recent months is another indicator of how hyper-speculative and blindly courageous the mega-bubble has become. All kinds of new theories are being proffered why fundamentals and valuations are meaningless, and why prices of all assets will shoot to the moon, no matter what.

These theories smacked into the bloodletting in Treasury bonds and high-grade corporate bonds with longer maturities, as long-term yields have been marching higher for months, which I discuss in my podcast . THE WOLF STREET REPORT: Market Manias Galore, But Long-Term Interest Rates Smell a Rat

[Apr 15, 2021] The Financial Instability Hypothesis by Hyman P. Minsky -- SSRN

Apr 15, 2021 | papers.ssrn.com

The Financial Instability Hypothesis (FIH) has both empirical and theoretical aspects that challenge the classic precepts of Smith and Walras, who implied that the economy can be best understood by assuming that it is constantly an equilibrium-seeking and sustaining system. The theoretical argument of the FIH emerges from the characterization of the economy as a capitalist economy with extensive capital assets and a sophisticated financial system.

In spite of the complexity of financial relations, the key determinant of system behavior remains the level of profits: the FIH incorporates a view in which aggregate demand determines profits. Hence, aggregate profits equal aggregate investment plus the government deficit. The FIH, therefore, considers the impact of debt on system behavior and also includes the manner in which debt is validated.

Minsky identifies hedge, speculative, and Ponzi finance as distinct income-debt relations for economic units. He asserts that if hedge financing dominates, then the economy may well be an equilibrium-seeking and containing system: conversely, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a "deviation-amplifying" system. Thus, the FIH suggests that over periods of prolonged prosperity, capitalist economies tend to move from a financial structure dominated by hedge finance (stable) to a structure that increasingly emphasizes speculative and Ponzi finance (unstable). The FIH is a model of a capitalist economy that does not rely on exogenous shocks to generate business cycles of varying severity: business cycles of history are compounded out of (i) the internal dynamics of capitalist economies, and (ii) the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds.

[Apr 15, 2021] Anatomy of a Stock Market Bubble by FRANK VENEROSO

Highly recommended!
Notable quotes:
"... much like the dot-com period, there is a broad subset of stocks (mostly in technology) that have become completely untethered, particularly since the summer of 2020, from business fundamentals like earnings and even sales -- driven higher only by euphoric market participants extrapolating from a past extraordinary trajectory of prices. ..."
"... A lot of today's US stock market has become what I call a "pure price-chasing bubble." Examination of the history of comparable pure price-chasing bubbles shows there has been a set of key causal factors that contributed to these rare (I have found nine in total) market events; the presence of most of these factors has usually been necessary for markets to reach the requisite escape velocity. ..."
"... To fuel the bubble further, there was a rapid expansion of bank money beginning three years before the market peak -- but the expansion of credit was even greater, owing to an explosion of margin credit (with implied annuaized interest rates sometimes reaching 100 percent) through an informal system utilizing postdated checks ..."
"... The US market certainly exhibits an exceptional record of price appreciation, with the S&P 500 having risen by almost 500 percent over more than a decade. In contrast to most other bubbles, however, it is notable that US economic growth over this period has been relatively anemic. ..."
"... Due to a sustained high rate of corporate equity purchases financed with debt, this overarching expansion of credit has also made its way into the last decade's bull market and steepened its price trajectory. ..."
"... The role of message boards and chat rooms -- with their millions of participants, all in instant real-time contact -- has created crowd dynamics in speculative stock market favorites at a pace without parallel in other pure price-chasing bubbles. ..."
"... a peak will be reached, a decline will follow, and the psychological dynamics in play on the way up will go into reverse and will accelerate the fall. ..."
"... Moreover, in the context of a grossly underestimated mass of corporate debt, history tells us the consequences of the bursting of the US stock market bubble should be another financial crisis and another recession ..."
Apr 01, 2021 | www.levyinstitute.org

According to Frank Veneroso, a broad subset of today's US stock market has become what he calls a "pure price-chasing bubble." Examination of the history of comparable pure price-chasing bubbles shows there has been a set of key causal factors that contributed to these rare market events.

The most extreme such case was an over-the-counter market in Kuwait called the "Souk al-Manakh." This exemplar of a pure price-chasing phenomenon may shed light -- albeit unflattering -- on the current US equity market, Veneroso contends.

[Apr 02, 2021] But let's be reasonable - how is it possible to have 700K - 800K initial jobless claims every week and create nearly a million new jobs?

Highly recommended!
If we are to believe authorities the USA. added 916K jobs in March, and the official unemployment rate is at 6% (note the word official; the current official U6 unemployment rate as of March 2021 is 10.70%; so the real number is probably much higher than 10%)
Fudging data became as prominent as it was in the USSR. The neoliberal empire can't afford objective stats.
Notable quotes:
"... monthly data is collected over a brief timeframe - just a few days - and that the calculations are seasonally adjusted. ..."
"... Yes, at least half the sheep population think they are real. It's insane how dumb people are today. ..."
Apr 02, 2021 | www.zerohedge.com

variousmarkets

I spent the last 2 weeks digging into the numbers - especially timing of the surveys and data collection. I get the fact that weekly claims don't reflect new hires. I also realize that monthly data is collected over a brief timeframe - just a few days - and that the calculations are seasonally adjusted.

But let's be reasonable - how is it possible to have 700K - 800K initial jobless claims every week and create nearly a million new jobs? Does anyone really believe any of these numbers?

Globalistsaretrash

Yes, at least half the sheep population think they are real. It's insane how dumb people are today.

[Mar 31, 2021] Citadel and friends have shorted the treasury bond market to oblivion using the repo market.

Mar 31, 2021 | www.zerohedge.com

play_arrow


Crash Overide 2 hours ago (Edited)

Speaking of treasuries... and Citadel, I thought it was an interesting read.

TL;DR- Citadel and friends have shorted the treasury bond market to oblivion using the repo market. Citadel owns a company called Palafox Trading and uses them to EXCLUSIVELY short & trade treasury securities. Palafox manages one fund for Citadel - the Citadel Global Fixed Income Master Fund LTD. Total assets over $123 BILLION and 80% are owned by offshore investors in the Cayman Islands. Their reverse repo agreements are ENTIRELY rehypothecated and they CANNOT pay off their own repo agreements until someone pays them, first. The ENTIRE global financial economy is modeled after a fractional reserve system that is beginning to experience THE MOTHER OF ALL MARGIN CALLS.

THIS is why the DTC and FICC are requiring an increase in SLR deposits. The madness has officially come full circle.

tnorth 4 hours ago

another month of completely rigged 'markets'

mtl4 4 hours ago remove link

Music is still playing, make sure you have a chair when it stops

this_circus_is_no_fun 1 hour ago remove link

Consider these two points:

  1. Treasuries are claimed to be backed by the "full faith and credit of the United States".
  2. In Q1, Treasuries suffer their biggest loss in 40 years.
y_arrow
Kreditanstalt 1 hour ago (Edited)

I've always wondered why seemingly contradictory and uncorrelated assets and asset classes alternately "soar" and "plunge" on different days, usually in random conjunction with others...

It seems so counterintuitively...MECHANICAL...or theory-driven, rather than rational "investing".

Almost like random BETTING

[Mar 28, 2021] Bubble Deniers Abound to Dismiss Valuation Metrics One by One by Vildana Hajric , Claire Ballentine , Lu Wang

Notable quotes:
"... How convinced should anyone be when dismissing the message of metrics like these? To be sure, both the market and economy are in uncharted waters. It's possible -- perhaps likely -- that old standards don't apply when something as random as a virus is behind the stress. At the same time, many a portfolio has been squandered through complacency. Market veterans always warn of fortunes lost by investors who became seduced by talk of new rules and paradigms. ..."
"... At 35, the CAPE is at its highest since the early 2000s. ..."
"... Another indicator raising eyebrows is called Tobin's Q. The ratio -- which was developed in 1969 by Nobel Prize-winning economist James Tobin -- compares market value to the adjusted net worth of companies. It's showing a reading just shy of a peak reached in 2000. T ..."
"... the signal sent by the "Buffett Indicator," a ratio of the total market capitalization of U.S. stocks divided by gross domestic product. ..."
"... Still, it's hard to ignore the risks to underlying assumptions. While rock-bottom rates underpin many of the arguments, this year has shown that the Fed still is willing to let longer-term interest rates run higher. And betting on huge upside earnings surprises is risky too -- it's rare to see a 16% beat historically. Before last year, earnings had exceeded estimates by an average 3% a quarter since 2015. ..."
"... "This happens in every bubble," said Bill Callahan, an investment strategist at Schroders. "It's: 'Don't think about the traditional value metrics, we have a new one.' It's: 'Imagine if everyone did XYZ, how big this company could be.'" ..."
"... To Scott Knapp, chief market strategist of CUNA Mutual Group, abandoning standard valuation measures because the environment has changed places investors in "pretty sketchy territory." Talk of watershed moments rendering traditional metric irrelevant as a signal, he says. "That's usually an indication we're trying to justify something," he said. ..."
Mar 287, 2021 | www.bloomberg.com

March 27, 2021

Everywhere you look, there's a valuation lens that makes stocks look frothy. Also everywhere you look is someone saying don't worry about it.

The so-called Buffett Indicator . Tobin's Q. The S&P 500's forward P/E. These and others show the market at stretched levels, sometimes extremely so. Yet many market-watchers argue they can be ignored, because this time really is different. The rationale? Everything from Federal Reserve largesse to vaccines promising a quick recovery.

How convinced should anyone be when dismissing the message of metrics like these? To be sure, both the market and economy are in uncharted waters. It's possible -- perhaps likely -- that old standards don't apply when something as random as a virus is behind the stress. At the same time, many a portfolio has been squandered through complacency. Market veterans always warn of fortunes lost by investors who became seduced by talk of new rules and paradigms.

"Every time markets hit new highs, every time markets get frothy, there are always some talking heads that argue: 'It's different,'" said Don Calcagni, chief investment officer of Mercer Advisors . "We just know from centuries of market history that that can't happen in perpetuity. It's just the delusion of crowds, people get excited. We want to believe."

relates to Bubble Deniers Abound to Dismiss Valuation Metrics One by One

Source: Robert Shiller's website

Robert Shiller is no apologist. The Yale University professor is famous in investing circles for unpopular valuation warnings that came true during the dot-com and housing bubbles. One tool on which he based the calls is his cyclically adjusted price-earnings ratio that includes the last 10 years of earnings.

While it's flashing warnings again, not even Shiller is sure he buys it. At 35, the CAPE is at its highest since the early 2000s. If that period of exuberance is excluded, it clocks in at its highest-ever reading. Yet in a recent post , Shiller wrote that "with interest rates low and likely to stay there, equities will continue to look attractive, particularly when compared to bonds."

Another indicator raising eyebrows is called Tobin's Q. The ratio -- which was developed in 1969 by Nobel Prize-winning economist James Tobin -- compares market value to the adjusted net worth of companies. It's showing a reading just shy of a peak reached in 2000. To Ned Davis, it's a valuation chart worth being wary about. Still, while the indicator is roughly 40% above its long-term trend, "there may be an upward bias on the ratio from technological change in the economy," wrote the Wall Street veteran who founded his namesake firm.

Persuasive arguments also exist for discounting the signal sent by the "Buffett Indicator," a ratio of the total market capitalization of U.S. stocks divided by gross domestic product. While it recently reached its highest-ever reading above its long-term trend, the methodology fails to take into consideration that companies are more profitable than they've ever been, according to Jeff Schulze, investment strategist at ClearBridge Investments.

"It's looked extended really for the past decade, yet you've had one of the best bull markets in U.S. history," he said. "That's going to continue to be a metric that does not adequately capture the market's potential."

At Goldman Sachs Group Inc., strategists argue that however high P/Es are, the absence of significant leverage outside the private sector or a late-cycle economic boom points to low risk of an imminent bubble burst. While people are shoveling money into stocks at rates that have signaled exuberance in the past, risk appetite is rebounding after a prolonged period of aversion, according to the strategists, who also cite low interest rates.

"Today is a very different situation -- I don't think we've got a broad bubble," Peter Oppenheimer, chief global equity strategist at the firm, said in a recent interview on Bloomberg Television. "Given the level of real rates, where they are, it's still likely to be broadly supportive for equities versus bonds."

Another rationale employed to dismiss certain valuation metrics is the earnings cycle. Corporate America is just emerging from a recession, with profits forecast to stage a strong comeback. The strong outlook for profits is why many investors are giving similarly stretched valuations the benefit of the doubt. Trading at 32 times reported earnings, the S&P 500 looks quite expensive, but with income forecast to jump 24% to $173 a share this year, the multiple drops to about 23.

The valuation case becomes more favorable should business leaders continue to blow past expectations. For instance, if this year's earnings come in at 16% above analyst estimates, as they did for the previous quarter, that'd imply a price-earnings ratio of less than 20. While that exceeds the five-year average of 18, Ed Yardeni is not troubled by what he calls "the New Abnormal."

"Valuation multiples are likely to remain elevated around current elevated levels because fiscal and monetary policies continue to flood the financial markets with so much free money," said the founder of Yardeni Research Inc. He predicts the S&P 500 will finish the year at 4,300, about an 8% gain from current levels.

Still, it's hard to ignore the risks to underlying assumptions. While rock-bottom rates underpin many of the arguments, this year has shown that the Fed still is willing to let longer-term interest rates run higher. And betting on huge upside earnings surprises is risky too -- it's rare to see a 16% beat historically. Before last year, earnings had exceeded estimates by an average 3% a quarter since 2015.

"This happens in every bubble," said Bill Callahan, an investment strategist at Schroders. "It's: 'Don't think about the traditional value metrics, we have a new one.' It's: 'Imagine if everyone did XYZ, how big this company could be.'"

Returns of 2%

Valuations are never useful market-timing tools because expensive stocks can get more expensive, as was the case during the Internet bubble. Yet viewed through a long-term lens, valuations do matter. That is, the more over-valued the market is, the lower the future returns. According to a study by Bank of America strategists led by Savita Subramanian, things like price-earnings ratios could explain 80% of the S&P 500's returns during the subsequent 10 years. The current valuation framework implies an increase of just 2% a year over the next decade, their model shows.

To Scott Knapp, chief market strategist of CUNA Mutual Group, abandoning standard valuation measures because the environment has changed places investors in "pretty sketchy territory." Talk of watershed moments rendering traditional metric irrelevant as a signal, he says. "That's usually an indication we're trying to justify something," he said.

[Mar 28, 2021] Willful Blindness - Wash and Rinse in Metals and Stocks

Mar 28, 2021 | jessescrossroadscafe.blogspot.com


"In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves."

John Kenneth Galbraith, The Great Crash of 1929

"Foolishness is a more dangerous enemy of the good than malice. One may protest against evil; it can be exposed and, if need be, prevented by use of force. Evil always carries within itself the germ of its own subversion in that it leaves behind in human beings at least a sense of unease.

In conversation with them, one virtually feels that one is dealing not at all with a person, but with slogans, catchwords and the like that have taken possession of them. They are under a spell, blinded, misused, and abused in their very being."

Dietrich Bonhoeffer, Prisoner for God: Letters and Papers from Prison

"The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated communist, but people for whom the distinction between fact and fiction, true and false, no longer exists."

Hannah Arendt, The Origins of Totalitarianism

"When we trade the effort of doubt and debate for the ease of blind faith, we become gullible and exposed, passive and irresponsible observers of our own lives. Worse still, we leave ourselves wide open to those who profit by influencing our behavior, our thinking, and our choices. At that moment, our agency in our own lives is in jeopardy."

Margaret Heffernan

Today was a general wash and rinse in the markets.

Wax on, wax off.

If you look at the charts you will see the deep plunges in the early trading hours in stocks and the metals, especially silver.

Simply put, it is called running the stops.

This is not 'the government' doing this.

These are the monstrous financial entities that we have allowed lax regulation and years of propagandizing to create, in the biggest Banks and hedge funds.

Most will run back to the familiar sources of their ideological addiction, the so-called 'news sites' that thrive on the internet and alternative radio funded by the oligarchs.

If you are one of those who cannot wait to run back to your familiar ideological watering hole to relieve the tension of thought, you might just be one of the willfully blind and lost.

Truth is more palatable to the sick at heart when it has been twisted out of shape.

The good news perhaps is that a cleaning out like this often proceeds a resumption of a move higher.

First they kick off the riff raff. Oh, certainly that does not include you, but those others, right?

Or not. It is not easy to think like a criminal when you are not privy to the same jealously guarded information and perverse perspective on life.

On the lighter side I have experienced no side effects from the first dose of the Coronavirus vaccine which I had the other day.

Let's see if the second shot has the same results.

The whole experience reminded me of 'Sabin Oral Sunday' back in 1960. I don't recall any anti-vaxxer or ideologically driven whack-a-doodlism back then, but I was too young to care. And polio shots were no fun. But it beat doing time in an iron lung.

And the band played on.

Have a pleasant evening.

[Mar 28, 2021] Real unemployment is double the 'official' unemployment rate

Notable quotes:
"... The Globe and Mail ..."
"... The Globe and Mail ..."
"... The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China ..."
Mar 28, 2021 | systemicdisorder.wordpress.com

How many people are really out of work? The answer is surprisingly difficult to ascertain. For reasons that are likely ideological at least in part, official unemployment figures greatly under-report the true number of people lacking necessary full-time work.

That the "reserve army of labor" is quite large goes a long way toward explaining the persistence of stagnant wages in an era of increasing productivity.

How large? Across North America, Europe and Australia, the real unemployment rate is approximately double the "official" unemployment rate.

The "official" unemployment rate in the United States, for example, was 5.5 percent for February 2015. That is the figure that is widely reported. But the U.S. Bureau of Labor Statistics keeps track of various other unemployment rates, the most pertinent being its "U-6" figure. The U-6 unemployment rate includes all who are counted as unemployed in the "official" rate, plus discouraged workers, the total of those employed part time but not able to secure full-time work and all persons marginally attached to the labor force (those who wish to work but have given up). The actual U.S. unemployment rate for February 2015, therefore, is 11 percent .

Share of wages, 1950-2014 Canada makes it much more difficult to know its real unemployment rate. The official Canadian unemployment rate for February was 6.8 percent, a slight increase from January that Statistics Canada attributes to "more people search[ing] for work." The official measurement in Canada, as in the U.S., European Union and Australia, mirrors the official standard for measuring employment defined by the International Labour Organization -- those not working at all and who are "actively looking for work." (The ILO is an agency of the United Nations.)

Statistics Canada's closest measure toward counting full unemployment is its R8 statistic, but the R8 counts people in part-time work, including those wanting full-time work, as "full-time equivalents," thus underestimating the number of under-employed by hundreds of thousands, according to an analysis by The Globe and Mail . There are further hundreds of thousands not counted because they do not meet the criteria for "looking for work." Thus The Globe and Mail analysis estimates Canada's real unemployment rate for 2012 was 14.2 percent rather than the official 7.2 percent. Thus Canada's true current unemployment rate today is likely about 14 percent.

Everywhere you look, more are out of work

The gap is nearly as large in Europe as in North America. The official European Union unemployment rate was 9.8 percent in January 2015 . The European Union's Eurostat service requires some digging to find out the actual unemployment rate, requiring adding up different parameters. Under-employed workers and discouraged workers comprise four percent of the E.U. workforce each, and if we add the one percent of those seeking work but not immediately available, that pushes the actual unemployment rate to about 19 percent.

The same pattern holds for Australia. The Australia Bureau of Statistics revealed that its measure of "extended labour force under-utilisation" -- this includes "discouraged" jobseekers, the "underemployed" and those who want to start work within a month, but cannot begin immediately -- was 13.1 percent in August 2012 (the latest for which I can find), in contrast to the "official," and far more widely reported, unemployment rate of five percent at the time.

Concomitant with these sobering statistics is the length of time people are out of work. In the European Union, for example, the long-term unemployment rate -- defined as the number of people out of work for at least 12 months -- doubled from 2008 to 2013 . The number of U.S. workers unemployed for six months or longer more than tripled from 2007 to 2013.

Thanks to the specter of chronic high unemployment, and capitalists' ability to transfer jobs overseas as "free trade" rules become more draconian, it comes as little surprise that the share of gross domestic income going to wages has declined steadily. In the U.S., the share has declined from 51.5 percent in 1970 to about 42 percent. But even that decline likely understates the amount of compensation going to working people because almost all gains in recent decades has gone to the top one percent.

Around the world, worker productivity has risen over the past four decades while wages have been nearly flat. Simply put, we'd all be making much more money if wages had merely kept pace with increased productivity.

Insecure work is the global norm

The increased ability of capital to move at will around the world has done much to exacerbate these trends. The desire of capitalists to depress wages to buoy profitability is a driving force behind their push for governments to adopt "free trade" deals that accelerate the movement of production to low-wage, regulation-free countries. On a global basis, those with steady employment are actually a minority of the world's workers.

Using International Labour Organization figures as a starting point, professors John Bellamy Foster and Robert McChesney calculate that the "global reserve army of labor" -- workers who are underemployed, unemployed or "vulnerably employed" (including informal workers) -- totals 2.4 billion. In contrast, the world's wage workers total 1.4 billion -- far less! Writing in their book The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China , they write:

"It is the existence of a reserve army that in its maximum extent is more than 70 percent larger than the active labor army that serves to restrain wages globally, and particularly in poorer countries. Indeed, most of this reserve army is located in the underdeveloped countries of the world, though its growth can be seen today in the rich countries as well." [page 145]

The earliest countries that adopted capitalism could "export" their "excess" population though mass emigration. From 1820 to 1915, Professors Foster and McChesney write, more than 50 million people left Europe for the "new world." But there are no longer such places for developing countries to send the people for whom capitalism at home can not supply employment. Not even a seven percent growth rate for 50 years across the entire global South could absorb more than a third of the peasantry leaving the countryside for cities, they write. Such a sustained growth rate is extremely unlikely.

As with the growing environmental crisis, these mounting economic problems are functions of the need for ceaseless growth. Once again, infinite growth is not possible on a finite planet, especially one that is approaching its limits. Worse, to keep the system functioning at all, the planned obsolescence of consumer products necessary to continually stimulate household spending accelerates the exploitation of natural resources at unsustainable rates and all this unnecessary consumption produces pollution increasingly stressing the environment.

Humanity is currently consuming the equivalent of one and a half earths , according to the non-profit group Global Footprint Network. A separate report by WWF–World Wide Fund For Nature in collaboration with the Zoological Society of London and Global Footprint Network, calculates that the Middle East/Central Asia, Asia-Pacific, North America and European Union regions are each consuming about double their regional biocapacity.

We have only one Earth. And that one Earth is in the grips of a system that takes at a pace that, unless reversed, will leave it a wrecked hulk while throwing ever more people into poverty and immiseration. That this can go on indefinitely is the biggest fantasy.

[Mar 26, 2021] This Bull Market Has a Troubling Reliance on Speculation - WSJ by James Mackintosh March 25, 2021 9:42 am ET Listen to this article 6 minutes 00:00 / 06:06 1x Earnings, valuation and rampant speculation have all played a role in the extraordinary bull market that began a year ago this week. The latest combination of the three has a troubling reliance on the speculative element. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. Earnings, valuation and rampant speculation have all played a role in the extraordinary bull market that began a year ago this week. The latest combination of the three has a troubling reliance on the speculative element. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. A broad framework for thinking about stocks can be derived from the late economist Hyman Minsky's three stages of debt. In the first stage, borrowers take on only what they can afford to repay in full from their earnings by the time the debt matures; a standard mortgage works like this. U.S. 10-year Treasury yield Source: Tullett Prebon As of March 24 % Pre-pandemic peak of S&P 500 2020 '21 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 S&P 500 forward price/earnings ratio Source: Refinitiv Note: Weekly data S&P 500 peak 2020 '21 12 14 16 18 20 22 24 The parallel in the stock market is stocks going up when earnings -- or rather the expectation of earnings, since the market looks ahead -- go up. There is a risk of course, just as there is with debt: The earnings might not appear, and the stock goes back down. But earnings offer the least risky form of gains, and one that we should welcome as obviously justified. From the low in the summer, 2020 earnings forecasts jumped more than 10%, and expectations for this year rose more than 8%. Stocks responded. In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The parallel in the stock market is stocks going up when earnings -- or rather the expectation of earnings, since the market looks ahead -- go up. There is a risk of course, just as there is with debt: The earnings might not appear, and the stock goes back down. But earnings offer the least risky form of gains, and one that we should welcome as obviously justified. From the low in the summer, 2020 earnings forecasts jumped more than 10%, and expectations for this year rose more than 8%. Stocks responded. In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's second stage, borrowers plan only to repay the interest, and refinance when the main debt is due to be repaid; much company debt works like this. It is taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go down when the company needs to refinance, it will pay less. The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The equity parallel is to gains in valuation due to lower long-term rates. As with corporate debt, this is entirely justified and sustainable so long as rates stay low, because future earnings are now more appealing. The danger is that rates rise, in which case the stock might be hit no matter how earnings pan out. A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the A big chunk of the gains in stocks in the past year came from the sharply lower rates in the first response to the pandemic when the Federal Reserve flooded the system with money. Price-to-forward-earnings multiples soared. From the S&P 500's low on March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings 12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the 10-year Treasury, already down sharply from mid-February's high, fell further as stocks rebounded. In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. The parallel in the stock market is the The parallel in the stock market is the The parallel in the stock market is the hunt for the greater fool . Sure, GameStop < shares bear no relation to the reality < of the company, but I can make money from buying an overpriced stock if I can find someone willing to pay even more because they "like the stock." Wild bets became obvious this year, as newcomers armed with stimulus, or "stimmy," checks Wild bets became obvious this year, as newcomers armed with stimulus, or "stimmy," checks Wild bets became obvious this year, as newcomers armed with stimulus, or "stimmy," checks drove up the price of many tiny stocks, penny shares and those popular on Reddit discussion boards. Speculative bets such as the solar and ARK ETFs rallied up until mid-February, long after growth stocks peaked in August Price performance Source: FactSet *Russell 1000 indexes As of March 25, 7:02 p.m. ET % Invesco Solar Value* ARK Innovation Growth* Sept. 2020 '21 -25 0 25 50 75 100 125 The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back. The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back. me title= A look at how stocks moved through the pandemic suggests earnings and bond yields are still much more important than the gambling element for the market as a whole, but is still troubling. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. A look at how stocks moved through the pandemic suggests earnings and bond yields are still much more important than the gambling element for the market as a whole, but is still troubling. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. A look at how stocks moved through the pandemic suggests earnings and bond yields are still much more important than the gambling element for the market as a whole, but is still troubling. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. From the S&P peak in mid-February to the end of June, the story was of cratering earnings partly offset by higher valuations. The S&P was down 8%. Earnings forecasts for 12 months ahead fell 20%, while with 10-year yields down almost a full percentage point, valuations were up from a precrisis high of 19 times forecast earnings (itself the highest since the aftermath of the dot-com bubble) to 21 times. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%. Growth stocks -- based on the Russell 1000 index of larger companies -- were slightly up, because they benefit most from falling bond yields, having more of their earnings far in the future. Cheap value stocks, which benefit less, were down 18%.
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Since June the story has reversed. Earnings forecasts have soared, and this year's earnings predictions are now back up to match where 2020 earnings were expected to be before the recession. The bond yield has leapt almost a full percentage point, and is higher than it was last February.

Yet, since June, the market's overall valuation is slightly up, and growth stocks are up 23%. Sure, cheap value stocks responded as expected, rising almost a third and beating growth stocks. But if a lower bond yield justified the rise in valuations, a higher bond yield ought to mean lower valuations, and probably outright lower prices for growth stocks.

me title=

This is concerning but, directionally at least, is explained by the oddity of August, when bond yields rose alongside valuation multiples and the biggest technology stocks leapt in price . Measure it from the end of August, instead of the end of June, and valuations have dropped a bit as bond yields have risen.

But the fall isn't enough to provide much comfort, and worse is that the highly speculative stocks popular with many individual traders bucked the trend. Notable themes including electric cars, hydrogen, SPACs and wind and solar power went into ludicrous mode until the middle of February this year, when the rise in bond yields accelerated and the speculative stocks fell back some.

Share prices propelled more by earnings expectations than bond yields is healthy, while speculation is -- by its nature -- fickle, and so a poor basis for holding on to a stock for long. My hope is that the contribution of pure gambling to the overall level of the market is relatively small. But it is hard to explain why stocks should be so much higher than before the pandemic panic when the earnings outlook is worse and bond yields are back to where they were.

Write to James Mackintosh at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the March 26, 2021, print edition as 'This Bull Market Has A Gambling Problem.'

[Mar 07, 2021] Newton, Physics, The Market Bubble by Lance Roberts

Notable quotes:
"... Many of these new companies made outrageous, and often fraudulent, claims about their business ventures for the purpose of raising capital and boosting share prices. ..."
"... However, in the midst of the "mania," things like valuation, revenue, or even viable business models didn't matter. It was the "Fear Of Missing Out," which sucked investors into the fray without regard for the underlying risk. ..."
"... Sir Issac Newton, the brilliant mathematician, was an early investor in South Sea Corporation. Newton quickly made a lot of money and recognized the early stages of a speculative mania. Knowing that it would eventually end badly, he liquidated his stake at a large profit. ..."
"... However, after he exited, South Sea stock experienced one of the most legendary rises in history. As the bubble kept inflating, Newton allowed his emotions to overtake his previous logic and he jumped back into the shares. Unfortunately, it was near the peak. ..."
"... The story of Newton's losses in the South Sea Bubble has become one of the most famous in popular finance literature. While surveying his losses, Newton allegedly said that he could "calculate the motions of the heavenly bodies, but not the madness of people." ..."
"... Yes, this time is different. "Like all bubbles, it ends when the money runs out." – Andy Kessler ..."
Sep 19, 2020 | www.zerohedge.com

Authored by Lance Roberts via RealInvestmentAdvice.com,

I have previously discussed the importance of understanding how "physics" plays a crucial role in the stock market. As Sir Issac Newton once discovered, "what goes up, must come down."

Andy Kessler, via the Wall Street Journa l, recently discussed a similar point with respect to the momentum in stock prices. To wit:

"Does this sound familiar: Smart guy owns stock in March at $200, sells it in June at around $600, but then buys it back in July and August for between $900 and $1,000. By September it's back at $200. Ouch. Tesla this year? Yahoo in 2000? Nope. That was Sir Isaac Newton getting pulled into the great momentum trade of the South Sea Co., which cratered 300 years ago this month. He lost the equivalent of more than $3 million today. Newton, whose second law of motion is about the momentum of a body equaling the force acting on it, didn't know that works for stocks too."

To understand what happened to the South Sea Corporation, you need a bit of history.

The South Sea History

In 1720, in return for a loan of £7 million to finance the war against France, the House of Lords passed the South Sea Bill, which allowed the South Sea Company a monopoly in trade with South America.

England was already a financial disaster and was struggling to finance its war with France. As debts mounted, England needed a solution to stay afloat. The scheme was that in exchange for exclusive trading rights, the South Sea Company would underwrite the English National Debt. At that time, the debt stood at £30 million and carried a 5% interest coupon from the Government. The South Sea company converted the Government debt into its own shares. They would collect the interest from the Government and then pass it on to their shareholders.

Interesting Absurdities

At the time, England was in the midst of rampant market speculation. As soon as the South Sea Company concluded its deal with Parliament, the shares surged to more than 10 times their value. As South Sea Company shares bubbled up to incredible new heights, numerous other joint-stock companies IPO'd to take advantage of the booming investor demand for speculative investments.

Many of these new companies made outrageous, and often fraudulent, claims about their business ventures for the purpose of raising capital and boosting share prices. Here are some examples of these companies' business proposals (History House, 1997):

A Speculative Mania

However, in the midst of the "mania," things like valuation, revenue, or even viable business models didn't matter. It was the "Fear Of Missing Out," which sucked investors into the fray without regard for the underlying risk.

Though South Sea Company shares were skyrocketing, the company's profitability was mediocre at best, despite abundant promises of future growth by company directors.

The eventual selloff in Company shares was exacerbated by a previous plan of lending investors money to buy its shares. This "margin loan," meant that many shareholders had to sell their shares to cover the plan's first installment of payments.

As South Sea Company and other "bubble " company share prices imploded, speculators who had purchased shares on credit went bankrupt. The popping of the South Sea Bubble then resulted in a contagion that spread across Europe.

Newton's Folly

Sir Issac Newton, the brilliant mathematician, was an early investor in South Sea Corporation. Newton quickly made a lot of money and recognized the early stages of a speculative mania. Knowing that it would eventually end badly, he liquidated his stake at a large profit.

However, after he exited, South Sea stock experienced one of the most legendary rises in history. As the bubble kept inflating, Newton allowed his emotions to overtake his previous logic and he jumped back into the shares. Unfortunately, it was near the peak.

It is noteworthy that once Newton decided to go back into South Sea stock, he moved essentially all his financial assets into it. In general, Newton was intimately familiar with commodities and finance. As Master of the Mint, his post required him to make many decisions that depended on market prices and conditions. The story of Newton's losses in the South Sea Bubble has become one of the most famous in popular finance literature. While surveying his losses, Newton allegedly said that he could "calculate the motions of the heavenly bodies, but not the madness of people."

For More On The History Of Speculative Bubbles: "Devil Take The Hindmost."

History Never Repeats, But It Rhymes

Throughout financial history, markets have evolved from one speculative "bubble," to bust, to the next with each one being believed "it was different this time." The slides below are from a presentation I made to a large mutual fund company. What we some common denominators between all previous bubbles and now.

The table below shows a listing of assets classes that have experienced bubbles throughout history, with the ones related to the current environment highlighted in yellow. It is not hard to see the similarities between today and the previous market bubbles in history. Investors are currently chasing "new technology" stocks from Zoom to Tesla, piling into speculative call options, and piling into leverage. What could possibly go wrong?

Oh, by the way, the slides above are from a 2008 presentation just one month before the Lehman crisis. The point here is that speculative cycles are always the same.

The Speculative Cycle

Charles Kindleberger suggested that speculative manias typically commence with a "displacement" which excites speculative interest. The displacement may come from either an entirely new object of investment (IPO) or from increased profitability of established investments.

The speculation is then reinforced by a "positive feedback" loop from rising prices. which ultimately induces "inexperienced investors" to enter the market. As the positive feedback loop continues, and the "euphoria" increases, retail investors then begin to "leverage" their risk in the market as "rationality" weakens.

The full cycle is shown below.

During the course of the mania, speculation becomes more diffused and spreads to different asset classes. New companies are floated to take advantage of the euphoria, and investors leverage their gains using derivatives, stock loans, and leveraged instruments.

As the mania leads to complacency, fraud and manipulation enter the market place. Eventually, the market crashes and speculators are wiped out. The Government and Regulators react by passing new laws and legislations to ensure the previous events never happen again.

The Latest Mania

Let's go back to Andy for a moment:

"When bull markets get going, investors come out of the woodwork to pile in. These momentum investors -- I call them momos -- figure if a stock is going up, it will keep going up. But usually, there is some source of hot air inflating stocks: either a structural anomaly that fools investors into thinking ever-rising stock prices are real or a source of capital that buys, buys, buys -- proverbial 'dumb money.' Think of it as a giant fireplace bellows, an accordion-like contraption that pumps in fresh oxygen to keep flames growing." – Andy Kessler

We have seen these manias repeated throughout history.

In 2020?

What about today? Look back at the chart of the South Sea Company above. Now, the one below. See any similarities. Yes, that's Tesla. However, you can't solely blame the Federal Reserve as noted by Andy:

"Most simply blame the Federal Reserve -- especially today, with its zero-interest-rate policy -- for pumping the hot air that gets the momos going. Fair enough, but that's only part of the story. Long market runs have always allured investors who figure they're smart to jump in, even if it's late.

Everyone forgets the adage, 'Don't mistake brains for a bull market.'"

As stated, while no two financial manias are ever alike, the end results are always the same. Are there any similarities in today's market? You decide.

"From SPACs, or special purpose acquisition companies, which are modern-day blind pools that often don't end well. Today's momos also chase stock splits, which mean nothing for a company's actual value. Same for a new listing in indexes like the S&P 500. Isaac Newton could explain the math." – Andy Kessler

You get the idea. But one of the tell-tale indications is the speculative chase of "zombie" companies which are only still alive primarily due to the Federal Reserve's interventions.

Fixing The Cause Of The Crash

Historically, all market crashes have been the result of things unrelated to valuation levels. Issues such as liquidity, government actions, monetary policy mistakes, recessions, or inflationary spikes are the culprits that trigger the "reversion in sentiment." Importantly, the "bubbles" and "busts" are never the same. I previously quoted Bob Bronson on this point:

"It can be most reasonably assumed that markets are efficient enough that every bubble is significantly different than the previous one. A new bubble will always be different from the previous one(s). Such is since investors will only bid prices to extreme overvaluation levels if they are sure it is not repeating what led to the previous bubbles. Comparing the current extreme overvaluation to the dotcom is intellectually silly.

I would argue that when comparisons to previous bubbles become most popular, it's a reliable timing marker of the top in a current bubble. As an analogy, no matter how thoroughly a fatal car crash is studied, there will still be other fatal car crashes. Such is true even if we avoid all previous accident-causing mistakes."

Comparing the current market to any previous period in the market is rather pointless. The current market is not like 1995, 1999, or 2007? Valuations, economics, drivers, etc. are all different from cycle to the next.

Most importantly, however, the financial markets always adapt to the cause of the previous "fatal crash." Unfortunately, that adaptation won't prevent the next one.

Yes, this time is different. "Like all bubbles, it ends when the money runs out." – Andy Kessler

[Mar 07, 2021] SEC Issues Devastating Risk Alert on Private Equity Abuses; Effectively Admits Failure of Last 5+ Years of Enforcement by Yves Smith

Notable quotes:
"... In the Risk Alert below, the itemization of various forms of abuses, such as the many ways private equity firms parcel out interests in the businesses they buy among various funds and insiders to their, as opposed to investors' benefit, alone should give pause. And the lengthy discussion of these conflicts does suggest the SEC has learned something over the years. Experts who dealt with the agency in its early years of examining private equity firms found the examiners allergic to considering, much the less pursuing, complex abuses. ..."
"... Undermining legislative intent of new supervisory authority the SEC never embraced its new responsibilities to ride herd on private equity and hedge funds. ..."
"... The agency is operating in such a cozy manner with private equity firms that as one investor described it: It's like FBI sitting down with the Mafia to tell them each year, "Don't cross these lines because that's what we are focusing on." ..."
"... Advisers charged private fund clients for expenses that were not permitted by the relevant fund operating agreements, such as adviser-related expenses like salaries of adviser personnel, compliance, regulatory filings, and office expenses, thereby causing investors to overpay expenses ..."
"... Current SEC chairman Jay Clayton came from Sullivan & Cromwell, bringing with him Steven Peikin as co-head of enforcement. And the Clayton SEC looks to have accomplished the impressive task of being even weaker on enforcement than Mary Jo White. ..."
"... On the same side though, fraud is a criminal offence, and it's SEC's duty to prosecute. And I believe that a lot of what PE engage in would happily fall under fraud, if SEC really wanted. ..."
"... Crimogenic: Producing or tending to produce crime or criminality. An additional factor is that, in the main, the criminals do not take their money and leave the gaming tables but pour it back in and the crime metastasizes. AKA, Kleptocracy. ..."
"... You might add that the threat of consequences for these crimes makes the criminals extremely motivated to elect officials who will not prosecute them (e.g. Obama). They're not running for office, they're avoiding incarceration. ..."
"... Andrew Levitt, for instance, complained bitterly that Joe Lieberman would regularly threaten to cut the SEC's budget for allegedly being too aggressive about enforcement. Lieberman was the Senator from Hedgistan. ..."
"... More banana republic level grift. What happens when investors figure out they can't believe anything they are told? ..."
"... Can we come up with a better descriptor for "private equity"? I suggest "billionaire looters". ..."
"... Where is the SEC when Bain Capital (Romney) wipes out Toys-R-Us and Dianne Feinstein's husband Richard Blum wipes out Payless Shoes. They gain control of the companies, pile on massive debt and take the proceeds of the loan, and they know the company cannot service the loan and a BK is around the corner. ..."
"... Thousands lose their jobs. And this is legal? And we also lost Glass-Steagal and legalized stock buy-backs. The Elite are screwing the people. It's Socialism for the Rich, the Politicians and Govt Employees and Feudalism for the rest of us. ..."
Jun 26, 2020 | www.nakedcapitalism.com

We've embedded an SEC Risk Alert on private equity abuses at the end of this post. 1 What is remarkable about this document is that it contains a far longer and more detailed list of private abuses than the SEC flagged in its initial round of examinations of private equity firms in 2014 and 2015. Those examinations occurred in parallel with groundbreaking exposes by Gretchen Morgenson at the New York Times and Mark Maremont in the Wall Street Journal.

At least some of the SEC enforcement actions in that era look to have been triggered by the press effectively getting ahead of the SEC. And the SEC even admitted the misconduct was more common at the most prominent firms.

Yet despite front-page articles on private equity abuses, the SEC engaged in wet noodle lashings. Its pattern was to file only one major enforcement action over a particular abuse. Even then, the SEC went to some lengths to spread the filings out among the biggest firms. That meant it was pointedly engaging in selective enforcement, punishing only "poster child" examples and letting other firms who'd engaged in precisely the same abuses get off scot free.

The very fact of this Risk Alert is an admission of failure by the SEC. It indicates that the misconduct it highlighted five years ago continues and if anything is even more pervasive than in the 2014-2015 era. It also confirms that its oft-stated premise then, that the abuses it found then had somehow been made by firms with integrity that would of course clean up their acts, and that now-better-informed investors would also be more vigilant and would crack down on misconduct, was laughably false.

In particular, the second section of the Risk Alert, on Fees and Expenses (starting on page 4) describes how fund managers are charging inflated or unwarranted fees and expenses. In any other line of work, this would be called theft. Yet all the SEC is willing to do is publish a Risk Alert, rather than impose fines as well as require disgorgements?

The SEC's Abject Failure

In the Risk Alert below, the itemization of various forms of abuses, such as the many ways private equity firms parcel out interests in the businesses they buy among various funds and insiders to their, as opposed to investors' benefit, alone should give pause. And the lengthy discussion of these conflicts does suggest the SEC has learned something over the years. Experts who dealt with the agency in its early years of examining private equity firms found the examiners allergic to considering, much the less pursuing, complex abuses.

Undermining legislative intent of new supervisory authority the SEC never embraced its new responsibilities to ride herd on private equity and hedge funds.

The SEC has long maintained a division between the retail investors and so-called "accredited investors" who by virtue of having higher net worths and investment portfolios, are treated by the agency as able to afford to lose more money. The justification is that richer means more sophisticated. But as anyone who is a manager for a top sports professional or entertainer, that is often not the case. And as we've seen, that goes double for public pension funds.

Starting with the era of Clinton appointee Arthur Levitt, the agency has taken the view that it is in the business of defending presumed-to-be-hapless retail investors and has left "accredited investor" and most of all, institutional investors, on their own. This was a policy decision by the agency when deregulation was venerated; there was no statutory basis for this change in priorities.

Congress tasked the SEC with supervising the fund management activities of private equity funds with over $150 million in assets under management. All of their investors are accredited investors. In other words, Congress mandated the SEC to make sure these firms complied with relevant laws as well as making adequate disclosures of what they were going to do with the money entrusted to them. Saying one thing in the investor contracts and doing another is a vastly worse breach than misrepresentations in marketing materials, yet the SEC acted as if slap-on-the-wrist-level enforcement was adequate.

We made fun when thirteen prominent public pension fund trustees wrote the SEC asking for them to force greater transparency of private equity fees and costs. The agency's position effectively was "You are grownups. No one is holding a gun to your head to make these investments. If you don't like the terms, walk away." They might have done better if they could have positioned their demand as consistent with the new Dodd Frank oversight requirements.

Actively covering up for bad conduct . In 2014, the SEC started working at giving malfeasance a free pass. Specifically, the SEC told private equity firms that they could continue their abuses if they 'fessed up in their annual disclosure filings, the so-called Form ADV. The term of art is "enhanced disclosure". Since when are contracts like confession, that if you admit to a breach, all is forgiven? Only in the topsy-turvy world of SEC enforcement.

And the coddling of crookedness continued. From a January post :

The agency is operating in such a cozy manner with private equity firms that as one investor described it: It's like FBI sitting down with the Mafia to tell them each year, "Don't cross these lines because that's what we are focusing on."

Specifically, as we indicated, the SEC was giving advanced warning of the issues it would focus on in its upcoming exams, in order to give investment managers the time to get their stories together and purge files. And rather than view its periodic exams as being designed to make sure private equity firms comply with the law and their representations, the agency views them as "cooperative" exercises! Misconduct is assumed to be the result of misunderstanding and error, and not design.

It's pretty hard to see conduct like this, from the SEC's Risk Alert, as being an accident:

Advisers charged private fund clients for expenses that were not permitted by the relevant fund operating agreements, such as adviser-related expenses like salaries of adviser personnel, compliance, regulatory filings, and office expenses, thereby causing investors to overpay expenses

The staff observed private fund advisers that did not value client assets in accordance with their valuation processes or in accordance with disclosures to clients (such as that the assets would be valued in accordance with GAAP). In some cases, the staff observed that this failure to value a private fund's holdings in accordance with the disclosed valuation process led to overcharging management fees and carried interest because such fees were based on inappropriately overvalued holdings .

Advisers failed to apply or calculate management fee offsets in accordance with disclosures and therefore caused investors to overpay management fees.

We're highlighting this skimming simply because it is easier for laypeople to understand than some of the other types of cheating the SEC described. Even so, industry insiders and investors complained that the description of the misconduct in this Risk Alert was too general to give them enough of a roadmap to look for it at particular funds.

Ignoring how investors continue to be fleeced . The SEC's list includes every abuse it sanctioned or mentioned in the 2014 to 2015 period, including undisclosed termination of monitoring fees, failure to disclose that investors were paying for "senior advisers/operating partners," fraudulent charges, overcharging for services provided by affiliated companies, plus lots of types of bad-faith conduct on fund restructurings and allocations of fees and expenses on transactions allocated across funds.

The SEC assumed institutional investors would insist on better conduct once they were informed that they'd been had. In reality, not only did private equity investors fail to demand better, they accepted new fund agreements that described the sort of objectionable behavior they'd been engaging in. Remember, the big requirement in SEC land is disclosure. So if a fund manager says he might do Bad Things and then proceeds accordingly, the investor can't complain about not having been warned.

Moreover, the SEC's very long list of bad acts says the industry is continuing to misbehave even after it has defined deviancy down via more permissive limited partnership agreements!

Why This Risk Alert Now?

Keep in mind what a Risk Alert is and isn't. The best way to conceptualize it is as a press release from the SEC's Office of Compliance Inspections and Examinations. It does not have any legal or regulatory force. Risk Alerts are not even considered to be SEC official views. They are strictly the product of OCIE staff.

On the first page of this Risk Alert, the OCIE blandly states that:

This Risk Alert is intended to assist private fund advisers in reviewing and enhancing their compliance programs, and also to provide investors with information concerning private fund adviser deficiencies.

Cutely, footnotes point out that not everyone examined got a deficiency letter (!!!), that the SEC has taken enforcement actions on "many" of the abuses described in the Risk Alert, yet "OCIE continues to observe some of these practices during examinations."

Several of our contacts who met in person with the SEC to discuss private equity grifting back in 2014-2015 pressed the agency to issue a Risk Alert as a way of underscoring the seriousness of the issues it was unearthing. The staffers demurred then.

In fairness, the SEC may have regarded a Risk Alert as having the potential to undermine its not-completed enforcement actions. But why not publish one afterwards, particularly since the intent then had clearly been to single out prominent examples of particular types of misconduct, rather than tackle it systematically? 2

So why is the OCIE stepping out a bit now? The most likely reason is as an effort to compensate for the lack of enforcement actions. Recall that all the OCIE can do is refer a case to the Enforcement Division; it's their call as to whether or not to take it up.

The SEC looks to have institutionalized the practice of borrowing lawyers from prominent firms. Mary Jo White of Debevoise brought Andrew Ceresney with her from Debeviose to be her head of enforcement. Both returned to Debevoise.

Current SEC chairman Jay Clayton came from Sullivan & Cromwell, bringing with him Steven Peikin as co-head of enforcement. And the Clayton SEC looks to have accomplished the impressive task of being even weaker on enforcement than Mary Jo White. Clayton made clear his focus was on "mom and pop" investors, meaning he chose to overlook much more consequential abuses by private equity firms and hedgies. The New York Times determined that the average amount of SEC fines against corporate perps fell markedly in 2018 compared to the final 20 months of the Obama Administration. The SEC since then levied $1 billion fine against the Woodbridge Group of Companies and its one-time owner for running a Ponzi scheme that fleeced over 8,400, so that would bring the average penalty up a bit. But it still confirms that Clayton is concerned about small fry, and not deeper but just as pickable pockets.

David Sirota argues that the OCIE was out to embarrass Clayton and sabotage what Sirota depicted as an SEC initiative to let retail investors invest in private equity. Sirota appears to have missed that that horse has left the barn and is in the next county, and the SEC had squat to do with it.

The overwhelming majority of retail funds is not in discretionary accounts but in retirement accounts, overwhelmingly 401(k)s. And it is the Department of Labor, which regulates ERISA plans, and not the SEC, that decides what those go and no go zones are. The DoL has already green-lighted allowing large swathes of 401(k) funds to include private equity holdings. From a post earlier this month :

Until now, regulations have kept private equity out of the retail market by prohibiting managers from accepting capital from individuals who lack significant net worth.

Private equity firms have succeeded in storming that barricade. The Department of Labor published a June 3 information letter that allows private equity funds, or more accurately funds of funds, to be included in certain 401(k) plan offerings, namely, target date funds and balanced funds. This is significant because despite the SEC regularly calling out bad practices with target date funds, they are the strategy used to manage the majority of 401(k) assets .

Moreover, even though Sirota pointed out that Clayton had spoken out in favor of allowing retail investors more access to private equity investments, the proposed regulation on the definition of accredited investors in fact not only does not lower income or net worth requirements (save for allowing spouses to combine their holdings) it in fact solicited comments on the idea of raising the limits. From a K&L Gates write up :

Previously, the Concept Release requested comment on whether the SEC should revise the current individual income ($200,000) and net worth ($1,000,000) thresholds. In the Proposing Release, the SEC further considered these thresholds, noting that the figures have not been adjusted since 1982. The SEC concluded that it does not believe modifications to the thresholds are necessary at this time, but it has requested comments on whether the final should instead make a one-time increase to the thresholds in the account for inflation, or whether the final rule should reflect a figure that is indexed to inflation on a going-forward basis.

It is not clear how many people would be picked up by the proposed change, which was being fleshed out, that of letting some presumed sophisticated but not rich individuals, like junior hedge fund professionals and holders of securities licenses, be treated as accredited investors. In other words, despite Clayton's talk about wanting ordinary investors to have more access to private equity funds, the agency's proposed rule change falls short of that.

Moreover, if the OCIE staff had wanted to undermine even the limited liberalization of the definition of accredited investor so as to stymie more private equity investment, the time to do so would have been immediately before or while the comments period was open. It ended March 16 .

The New York Times reported that Senate Republicans deemed Clayton's odds of confirmation as US Attorney for the Southern District of New York as remote even before the Trump fired Geoffrey Berman to clear a path for Clayton. So the idea that a technical release by the OCIE would derail Clayton's confirmation is a stretch.

So again, why now? One possibility is that the timing is purely a coincidence. For instance, the SEC staffers might have been waiting until Covid-19 news overload died down a bit so their work might get a hearing (and Covid-19 remote work complications may also have delayed its release).

The second possibility is that OCIE is indeed very frustrated with the enforcement chief Peikin's inaction on private equity. The fact that Peikin's boss and protector Clayton has made himself a lame duck meant a salvo against Peikin was now a much lower risk. If any readers have better insight into the internal workings of the SEC these days, please pipe up.

______

1 Formally, as you can see, this Risk Alert addresses both private equity and hedge fund misconduct, but on reading the details, the citing of both types of funds reflects the degree to which hedge funds have been engaging in the buying and selling of stakes in private companies. For instance, Chatham Asset Management, which has become notorious through its ownership of American Media, which in turn owns the National Enquirer, calls itself a hedge fund. Moreover, when the SEC started examining both private equity and hedge funds under new authority granted by Dodd Frank, it described the sort of misconduct described in this Risk Alert as coming out of exams of private equity firms, and its limited round of enforcement actions then were against brand name private equity firms like KKR, Blackstone, Apollo, and TPG. Thus for convenience as well as historical reasons, we refer only to private equity firms as perps.

2 Media stories at the time, including some of our posts, provided substantial evidence that particular abuses, such as undisclosed termination of monitoring fees and failure to disclose that "senior advisers" presented as general partner "team members" were in fact consultants being separately billed to fund investments, were common practices. Yet the SEC chose to lodge only marquee enforcement actions against one prominent firm for each abuse, as if token enforcement would serve as an adequate deterrent. The message was the reverse, that the overwhelming majority of the abuses were able to keep their ill-gotten gains and not even face public embarrassment.


skippy , June 26, 2020 at 4:27 am

Peter Sellers I'll say now – ????

https://www.youtube.com/watch?v=1TtZgs8k8dU

vlade , June 26, 2020 at 4:35 am

TBH, in the view of Calpers ignoring its advisors, I do have a little understanding of the SEC's point "you're grown ups" (the worse problem is that the advisors who leach themselves to the various accredited investors are often not worth the money.

On the same side though, fraud is a criminal offence, and it's SEC's duty to prosecute. And I believe that a lot of what PE engage in would happily fall under fraud, if SEC really wanted.

Susan the other , June 26, 2020 at 11:43 am

Yes, the SEC conveniently claims a conflicted authority – 1. to regulate compliance but without an "enforcement authority", and 2. report egregious behavior to their "enforcement authority". So the SEC is less than a permissive nanny. Sort of like "access" to enforcement authority. Sounds like health care to me.

Yves Smith Post author , June 26, 2020 at 4:06 pm

No, this is false. The SEC has an examination division and an enforcement division. The SEC can and does take enforcement actions that result in fines and disgorgements, see the $1 billion fine mentioned in the post. So the exam division can recommend enforcement to the enforcement division. That does not mean it will get done. Some enforcement actions originate from within the enforcement division, like insider trading cases, and the SEC long has had a tendency to prioritize insider trading cases.

The SEC cannot prosecute. It has to refer cases that it thinks are criminal to the DoJ and try to get them to saddle up.

Maritimer , June 26, 2020 at 5:04 am

Crimogenic: Producing or tending to produce crime or criminality. An additional factor is that, in the main, the criminals do not take their money and leave the gaming tables but pour it back in and the crime metastasizes. AKA, Kleptocracy.

Thus in 2008 and thereafter the criminal damage required 2-3 trillion, now 7-10 trillion.

Any economic expert who does not recognize crime as the number one problem in the criminogenic US economy I disregard. Why read all that analysis when, at the end of the run, it all just boils down to bailing out the criminals and trying to reset the criminogenic system?

(Can I get my economics degree now?)

Adam Eran , June 26, 2020 at 1:33 pm

You might add that the threat of consequences for these crimes makes the criminals extremely motivated to elect officials who will not prosecute them (e.g. Obama). They're not running for office, they're avoiding incarceration.

The Rev Kev , June 26, 2020 at 5:17 am

The SEC has been captured for years now. It was not that long ago that SEC Examination chief Andrew Bowden made a grovelling speech to these players and even asked them to give his son a job which was so wrong-

https://www.rollingstone.com/politics/politics-news/regulatory-capture-captured-on-video-190033/

But there is no point in reforming the SEC as it was the politicians, at the beck and call of these players, that de-fanged the SEC – and it was a bipartisan effort! So it becomes a chicken-or-the-egg problem in the matter of reform. Who do you reform first?

Can't leave this comment without mentioning something about a private equity company. One of the two major internal airlines in Oz went broke due to the virus and a private equity buyer has been found to buy it. A union rep said that they will be good for jobs and that they are a good company. Their name? Bain Capital!

Yves Smith Post author , June 26, 2020 at 5:44 am

We broke the story about Andrew Bowden! Give credit where credit is due!!!! Even though Taibbi points to us in his first line, linking to Rolling Stone says to those who don't bother clicking through that it was their story.

Plus we transcribed his fawning remarks.

https://www.nakedcapitalism.com/2015/03/secs-andrew-bowden-regulator-sale.html

And he resigned three weeks later.

The Rev Kev , June 26, 2020 at 5:56 am

Of course I remember that story. I was going to mention it but thought to let people see it in virtually the opening line of that story where he gives you credit. More of a jolt of recognition seeing it rather than being told about it first.

Jesper , June 26, 2020 at 6:36 am

Of the three branches of government which ones are not captured by big business? If two out of three were to captured then does it matter what the third does?

In my opinion too much power has been centralised, too much of the productivity gains of the past 40 years have been monetised and therefore made possible to hoard and centralise. SEC should (in my opinion) try to enforce more but without more support then I do not believe (it is my opinion, nothing more and nothing less) that they can accomplish much.

Susan the other , June 26, 2020 at 11:57 am

The SEC is a mysterious agency which (?) must fall under the jurisdiction of the Treasury because it is a monetary regulatory agency in the business of regulating securities and exchanges. But it has no authority to do much of anything. The Treasury itself falls under the executive administration but as we have recently seen, Mnuchin himself managed to get a nice skim for his banking pals from the money Congress legislated.

That's because Congress doesn't know how to effectuate a damn thing – they legislate stuff that morphs before our very eyes and goes to the grifters without a hitch. So why don't we demand that consumer protection be made into hard law with no wiggle room; that since investing is complex in this world of embedded funds and glossy prospectuses, we the consumer should not have to wade through all the nonsense to make decisions – that everything be on the table. And if PE can't manage to do that and still steal its billions then PE should be declared to be flat-out illegal.

Yves Smith Post author , June 26, 2020 at 4:08 pm

Please stop spreading disinformation. This is the second time on this post. The SEC has nada to do with the Treasury. It is an independent regulatory agency. It however is the only financial regulator that does not keep what it kills (its own fees and fines) but is instead subject to Congressional appropriations.

Andrew Levitt, for instance, complained bitterly that Joe Lieberman would regularly threaten to cut the SEC's budget for allegedly being too aggressive about enforcement. Lieberman was the Senator from Hedgistan.

Edward , June 26, 2020 at 7:16 am

More banana republic level grift. What happens when investors figure out they can't believe anything they are told?

RJMc, MD , June 26, 2020 at 8:43 am

It should be noted that out here in the countryside of northern Michigan that embezzlement (a winter sport here while the men are out ice fishing), theft and fraud are still considered punishable felonies. Perhaps that is simply a quaint holdover from a bygone time. Dudley set the tone for the C of C with his Green Book on bank deregulation. One of the subsequent heads of C of C was reported as seeing his position as "being the spiritual resource for banks". If bank regulation is treated in a farcical fashion why should be the SEC be any different?

Susan the other , June 26, 2020 at 12:08 pm

I was shocked to just now learn that ERISA/the Dept of Labor is in regulatory control of allowing pension funds to buy PE fund of funds and "balanced PE funds". What VERBIAGE. Are "PE Fund of Balanced Funds" an actual category? And what distinguishes them from good old straightforward Index Funds? And also too – what is happening before our very glazed-over eyes is that PE is high grading not just the stock market but the US Treasury itself. Ordinary investors should be buying US Treasuries directly and retirement funds should too. It will be a big bite but if it knocks PE out of business it would be worth it. PE is in the business of cooking its books, ravaging struggling corporations, and boldly privatizing the goddamned Treasury. WTF?

Kouros , June 26, 2020 at 12:27 pm

I want to bring this to Yves' attention: the recent SCOTUS decision on Thole v. U.S. Bank that opens the doors wide for corporate America to steal with impunity from the pension plans: https://www.unz.com/estriker/corrupt-supreme-court-gives-green-light-to-corporations-to-steal-from-pensioners/

Glen , June 26, 2020 at 12:51 pm

Can we come up with a better descriptor for "private equity"? I suggest "billionaire looters".

Olivier , June 26, 2020 at 2:00 pm

What about the wanton destruction of the purchased companies? If this solely about the harm done to the poor investors? If so, that is seriously wrong.

flora , June 26, 2020 at 3:27 pm

If, you know, the neoliberal "because markets" is the ruling paradigm then of course there is no harm done. The questions then become: is "because markets" a sensible paradigm? What is it a sensible paradigm of? Is "because markets" even sensible for the long term?

flora , June 26, 2020 at 3:19 pm

an aside: farewell, Olympus camera. A sad day. Farewell, OM-1 and OM-2. Film photography is really not replicated by digital photography but the larger market has gone to digital. Speed and cost vs quality. Because markets. Now the vulture swoop.

Stan Sexton , June 26, 2020 at 8:17 pm

Where is the SEC when Bain Capital (Romney) wipes out Toys-R-Us and Dianne Feinstein's husband Richard Blum wipes out Payless Shoes. They gain control of the companies, pile on massive debt and take the proceeds of the loan, and they know the company cannot service the loan and a BK is around the corner.

Thousands lose their jobs. And this is legal? And we also lost Glass-Steagal and legalized stock buy-backs. The Elite are screwing the people. It's Socialism for the Rich, the Politicians and Govt Employees and Feudalism for the rest of us.

[Mar 07, 2021] Bank Regulation Can not Be Heads Banks Win, Tails Taxpayers Lose

Notable quotes:
"... Kane, who coined the term "zombie bank" and who famously raised early alarms about American savings and loans, analyzed European banks and how regulators, including the U.S. Federal Reserve, backstop them. ..."
"... We are only interested observers of the arm wrestling between the various EU countries over the costs of bank rescues, state expenditures, and such. But we do think there is a clear lesson from the long history of how governments have dealt with bank failures . [If] the European Union needs to step in to save banks, there is no reason why they have to do it for free best practice in banking rescues is to save banks, but not bankers. That is, prevent the system from melting down with all the many years of broad economic losses that would bring, but force out those responsible and make sure the public gets paid back for rescuing the financial system. ..."
"... In 2019, another question, alas, is also piercing. In country after country, Social Democratic center-left parties have shrunk, in many instances almost to nothingness. In Germany the SPD gives every sign of following the French Socialist Party into oblivion. Would a government coalition in which the SPD holds the Finance Ministry even consider anything but guaranteeing the public a huge piece of any upside if they rescue two failing institutions? ..."
Mar 31, 2019 | www.nakedcapitalism.com
... ... ...

Running in the background, though, was a new, darker theme: That the post-2008 reforms had gone too far in restricting policymakers' discretion in crises. The trio most responsible for making the post-Lehman bailout revolution -- Ben Bernanke, Timothy Geithner, and Henry Paulson -- expressed their misgivings in a joint op-ed :

But in its post-crisis reforms, Congress also took away some of the most powerful tools used by the FDIC, the Fed and the Treasury the FDIC can no longer issue blanket guarantees of bank debt as it did in the crisis, the Fed's emergency lending powers have been constrained, and the Treasury would not be able to repeat its guarantee of the money market funds.

These powers were critical in stopping the 2008 panic The paradox of any financial crisis is that the policies necessary to stop it are always politically unpopular. But if that unpopularity delays or prevents a strong response, the costs to the economy become greater.

We need to make sure that future generations of financial firefighters have the emergency powers they need to prevent the next fire from becoming a conflagration.

Sotto voce fears of this sort go back to the earliest reform discussions. But the question surfaced dramatically in Timothy Geithner's 2016 Per Jacobsson Lecture, " Are We Safer? The Case for Strengthening the Bagehot Arsenal ." More recently, the Group of Thirty has advanced similar suggestions -- not too surprisingly, since Geithner was co-project manager of the report, along with Guillermo Ortiz, the former Governor of the Mexican Central Bank, who introduced the former Treasury Secretary at the Per Jacobson lecture.

Aside from the financial collapse itself, probably nothing has so shaken public confidence in democratic institutions as the wave of bailouts in the aftermath of the collapse. The redistribution of wealth and opportunity that the bailouts wrought surely helped fuel the populist surges that have swept over Europe and the United States in the last decade. The spectacle of policymakers rubber stamping literally unlimited sums for financial institutions while preaching the importance of austerity for everyone else has been unbearable to millions of people.

Especially in money-driven political systems, affording policymakers unlimited discretion also plainly courts serious risks. Put simply, too big to fail banks enjoy a uniquely splendid situation of "heads I win, tails you lose" when they take risks. Scholars whose research INET has supported, notably Edward Kane , have shown how the certainty of government bailouts advantages large financial institutions, directly affecting prices of their bonds and stocks.

For these reasons INET convened a panel at a G20 preparatory meeting in Berlin on " Moral Hazard Issues in Extended Financial Safety Nets ." The Power Point presentations of the three panelists are presented in the order in which they gave them, since the latter ones sometimes comment on Edward Kane 's analysis of the European banks. Kane, who coined the term "zombie bank" and who famously raised early alarms about American savings and loans, analyzed European banks and how regulators, including the U.S. Federal Reserve, backstop them.

Peter Bofinger , Professor of International and Monetary Economics at the University of Würzburg and an outgoing member of the German Economic Council, followed with a discussion of how the system has changed since 2008. Helene Schuberth , Head of the Foreign Research Division of the Austrian National Bank, analyzed changes in the global financial governance system since the collapse.

The panel took place as public discussion of a proposed merger between two giant German banks, the Deutsche Bank and Commerzbank, reached fever pitch. The panelists explored issues directly relevant to such fusions, without necessarily agreeing among themselves or with anyone at INET.

But the point Robert Johnson, INET's President, and I made some years back , amid an earlier wave of talk about using public money to bail out European banks, remains on target:

We are only interested observers of the arm wrestling between the various EU countries over the costs of bank rescues, state expenditures, and such. But we do think there is a clear lesson from the long history of how governments have dealt with bank failures . [If] the European Union needs to step in to save banks, there is no reason why they have to do it for free best practice in banking rescues is to save banks, but not bankers. That is, prevent the system from melting down with all the many years of broad economic losses that would bring, but force out those responsible and make sure the public gets paid back for rescuing the financial system.

The simplest way to do that is to have the state take equity in the banks it rescues and write down the equity of bank shareholders in proportion. This can be done in several ways -- direct equity as a condition for bailout, requiring warrants that can be exercised later, etc. The key points are for the state to take over the banks, get the bad loans rapidly out of those and into a "bad bank," and hold the junk for a decent interval so the rest of the market does not crater. When the banks come back to profitability, you can cash in the warrants and sell the stock if you don't like state ownership. That way the public gets its money back .at times states have even made a profit.

In 2019, another question, alas, is also piercing. In country after country, Social Democratic center-left parties have shrunk, in many instances almost to nothingness. In Germany the SPD gives every sign of following the French Socialist Party into oblivion. Would a government coalition in which the SPD holds the Finance Ministry even consider anything but guaranteeing the public a huge piece of any upside if they rescue two failing institutions?

The full article of Edward Kane

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WheresOurTeddy , March 29, 2019 at 11:49 am

Enforcement of financial laws is not our thing. Just ask Chuck Schumer of the #Non-Resistance:

https://theintercept.com/2019/03/28/sec-democratic-commissioner-chuck-schumer/

Louis Fyne , March 29, 2019 at 12:17 pm

There needs to be an asset tax on/break up of the megas. End the hyper-agglomeration of deposits at the tail end. Not holding my breath though. (see NY state congressional delegation)

To be generous, tax starts at $300 billion. Even then it affects only a dozen or so US banks. But would be enough to clamp down on the hyper-scale of the largest US/world banks. The world would be better off with lot more mid-sized regional players.

thesaucymugwump , March 29, 2019 at 12:17 pm

Anyone who mentions Timmy Geithner without spitting did not pay attention during the Obama reign of terror. He and Obama crowed about the Making Home Affordable Act, implying that it would save all homeowners in mortgage trouble, but conveniently neglected to mention that less than 100 banks had signed up. The thousands of non-signatories simply continued to foreclose.

Not to mention Eric Holder's intentional non-prosecution of banksters. For these and many other reasons, especially his "Islamic State is only the JV team" crack, Obama was one of our worst presidents.

chuck roast , March 29, 2019 at 12:21 pm

Thank you Yves and Tom Ferguson.

Fergusons graph on DBK's default probabilities coincides with the ECB's ending its asset purchase programme and entering the "reinvestment phase of the asset purchase programme".
https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html
The worst of the euro zombie banks appear to be getting tense and nervous.
https://www.youtube.com/watch?v=dKpzCCuHDVY
Maybe that is why Jerome Powell did his volte-face last month on gradually raising interest rates. Note that the Fed also reduced its automatic asset roll-off. I'm curious if the other euro-zombies in the "peers" return on equity chart are are experiencing volatility also.

Craig H. , March 29, 2019 at 1:04 pm

Apparently the worst fate you can suffer as long as you don't go Madoff is Fuld. According to Wikipedia his company manages a hundred million which must be humiliating. It's not as humiliating as locking the guy up in prison would be by a very long stretch.

Greenspan famously lamented that there isn't anything the regulators can really do except make empty threats. This is dishonest. The regulations are not carved in stone like the ten commandments. In China they execute incorrigible financiers all the time.

John Wright , March 30, 2019 at 10:31 am

Greenspan was never willing to counter any problem that might irritate powerful financial constituencies. For example, during the internet stock bubble of the late 1990's, Greenspan decried the "irrational exuberance" of the stock market. The Greenspan Fed could have raised the margin requirement for stocks to buttress this view, but did not. As I remembered reading, Greenspan was in poor financial shape when he got his Fed job.

His subsequent performance at the Fed apparently left him a wealthy man. Real regulation by Greenspan may have adversely affected his wealth. It may explain why Alan Greenspan would much rather let a financial bubble grow until it pops and then "fix it".

Procopius , March 31, 2019 at 12:30 am

Everybody forgets (or at least does not mention) that Greenspan was a member of the Class of '43, the (mostly Canadian) earliest members of the Objectivist Cult with guru Ayn Rand. Expecting him to act rationally is foolish. It may happen accidentally (we do not know why he chose to let the economy expand unhindered in 1999), but you cannot count on it. In a world with information asymmetry expecting markets to be concerned about reputation is ridiculous. To expect them to police themselves for long term benefit is even more ridiculous.

rd , March 29, 2019 at 3:06 pm

I think Finance is currently about 13% of the S&P 500, down from the peak of about 18% or so in 2007. I think we will have a healthy economy and improved political climate when Finance is about 8-10% of the S&P 500 which is about where I think finance plays a healthy, but not overwhelming rentier role in the economy.

Inode_buddha , March 29, 2019 at 4:51 pm

I think things will be much better when finance is about ~3% of the S&P 500, but no more than that.

[Mar 07, 2021] Regulatory Capture: The Banks and the System That They Have Corrupted

Notable quotes:
"... She soldiered through her painful stomach ailments and secretly tape-recorded 46 hours of conversations between New York Fed officials and Goldman Sachs. After being fired for refusing to soften her examination opinion on Goldman Sachs, Segarra released the tapes to ProPublica and the radio program This American Life and the story went viral from there... ..."
"... In a nutshell, the whoring works like this. There are huge financial incentives to go along, get along, and keep your mouth shut about fraud. The financial incentives encompass both the salary, pension and benefits at the New York Fed as well as the high-paying job waiting for you at a Wall Street bank or Wall Street law firm if you show you are a team player . ..."
Mar 14, 2019 | jessescrossroadscafe.blogspot.com

"But the impotence one feels today -- an impotence we should never consider permanent -- does not excuse one from remaining true to oneself, nor does it excuse capitulation to the enemy, what ever mask he may wear. Not the one facing us across the frontier or the battle lines, which is not so much our enemy as our brothers' enemy, but the one that calls itself our protector and makes us its slaves. The worst betrayal will always be to subordinate ourselves to this Apparatus, and to trample underfoot, in its service, all human values in ourselves and in others."

Simone Weil

"And in some ways, it creates this false illusion that there are people out there looking out for the interest of taxpayers, the checks and balances that are built into the system are operational, when in fact they're not. And what you're going to see and what we are seeing is it'll be a breakdown of those governmental institutions. And you'll see governments that continue to have policies that feed the interests of -- and I don't want to get clichéd, but the one percent or the .1 percent -- to the detriment of everyone else...

If TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car... I think it's inevitable. I mean, I don't think how you can look at all the incentives that were in place going up to 2008 and see that in many ways they've only gotten worse and come to any other conclusion."

Neil Barofsky

"Written by Carmen Segarra, the petite lawyer turned bank examiner turned whistleblower turned one-woman swat team, the 340-page tome takes the reader along on her gut-wrenching workdays for an entire seven months inside one of the most powerful and corrupted watchdogs of the powerful and corrupted players on Wall Street – the Federal Reserve Bank of New York.

The days were literally gut-wrenching. Segarra reports that after months of being alternately gas-lighted and bullied at the New York Fed to whip her into the ranks of the corrupted, she had to go to a gastroenterologist and learned her stomach lining was gone.

She soldiered through her painful stomach ailments and secretly tape-recorded 46 hours of conversations between New York Fed officials and Goldman Sachs. After being fired for refusing to soften her examination opinion on Goldman Sachs, Segarra released the tapes to ProPublica and the radio program This American Life and the story went viral from there...

In a nutshell, the whoring works like this. There are huge financial incentives to go along, get along, and keep your mouth shut about fraud. The financial incentives encompass both the salary, pension and benefits at the New York Fed as well as the high-paying job waiting for you at a Wall Street bank or Wall Street law firm if you show you are a team player .

If the Democratic leadership of the House Financial Services Committee is smart, it will reopen the Senate's aborted inquiry into the New York Fed's labyrinthine conflicts of interest in supervising Wall Street and make removing that supervisory role a core component of the Democrat's 2020 platform. Senator Bernie Sanders' platform can certainly be expected to continue the accurate battle cry that 'the business model of Wall Street is fraud.'"

Pam Martens, Wall Street on Parade

[Sep 20, 2020] The Criminal Prosecution Of Boeing Executives Should Begin by Mike Shedlock

Sep 20, 2020 | www.zerohedge.com

Authored by Mike Shedlock via MishTalk,

Damning details of purposeful malfeasance by Boeing executives emerged in a Congressional investigation.

FAA, Boeing Blasted Over 737 MAX Failures

On Wednesday, the Transportation Committee Blasted FAA, Boeing Over 737 MAX Failures

The 238-page document, written by the majority staff of the House Transportation Committee, calls into question whether the plane maker or the Federal Aviation Administration has fully incorporated essential safety lessons, despite a global grounding of the MAX fleet since March 2019.

After an 18-month investigation, the report, released Wednesday, concludes that Boeing's travails stemmed partly from a reluctance to admit mistakes and "point to a company culture that is in serious need of a safety reset."

The report provides more specifics, in sometimes-blistering language, backing up preliminary findings the panel's Democrats released six months ago , which laid out a pattern of mistakes and missed opportunities to correct them.

In one section, the Democrats' report faults Boeing for what it calls "inconceivable and inexcusable" actions to withhold crucial information from airlines about one cockpit-warning system, related to but not part of MCAS, that didn't operate as required on 80% of MAX jets.

Other portions highlight instances when Boeing officials, acting in their capacity as designated FAA representatives, part of a widely used system of delegating oversight authority to company employees, failed to alert agency managers about various safety matters .

Boeing Purposely Hid Design Flaws

The Financial Times has an even more damning take in its report Boeing Hid Design Flaws in Max Jets from Pilots and Regulators .

Boeing concealed from regulators internal test data showing that if a pilot took longer than 10 seconds to recognise that the system had kicked in erroneously, the consequences would be "catastrophic" .

The report also detailed how an alert, which would have warned pilots of a potential problem with one of their anti-stall sensors, was not working on the vast majority of the Max fleet . It found that the company deliberately concealed this fact from both pilots and regulators as it continued to roll out the new aircraft around the world.

In Bed With the Regulators

Boeing's defense is the FAA signed off on the reviews. Lovely. Boeing coerced or bribed the FAA to sign off on the reviews now tries to hide behind the FAA.

There is only one way to stop executive criminals like those at Boeing. Charge them with manslaughter, convict them, send them to prison for life, then take all of their stock and options and hand the money out for restitution.

adr , 1 hour ago

Remember, Boeing spent enough on stock buybacks in the past ten years to fund the development of at least seven new airframes.

Instead of developing a new and better plane, they strapped engines that didn't belong on the 737 and called it safe.

SDShack , 21 minutes ago

What is really sad is they already had a perfectly functional and safe 737Max. It was the 757. Look at the specs between the 2 planes. Almost same size, capacity, range, etc. Only difference was the 757 requires longer runways, but I would think they could have adjusted the design to improve that and make it very similar to the 737Max without starting from scratch. Instead Boeing bean counters killed the 757 and gave the world this flying coffin. Now the world bean counters will kill Boeing.

Tristan Ludlow , 1 hour ago

Boeing is a critical defense contractor. They will not be held accountable and they will be rewarded with additional bailouts and contract awards.

MFL5591 , 1 hour ago

Can you imagine a congress of Criminals Like Schiff, Pelosi and Schumer prosecuting someone else for fraud? What a joke. Next up will be Bill Clinton testifying against a person on trial for Pedophilia!

RagaMuffin , 1 hour ago

Mish is half right. The FAA should join Boeing in jail. If they are not held responsible for their role, why have an FAA?

Manthong , 1 hour ago

"There is only one way to stop executive criminals like those at Boeing.

Charge them with manslaughter, convict them, send them to prison for life, then take all of their stock and options and hand the money out for restitution."

Correction:

There is only one way to stop regulator criminals like those in government.

Charge them with manslaughter, convict them, send them to prison for life, then take all of their pensions and ill gotten wealth a nd hand the money out for restitution.

Elliott Eldrich , 43 minutes ago

"There is only one way to stop executive criminals like those at Boeing.

Charge them with manslaughter, convict them, send them to prison for life, then take all of their stock and options and hand the money out for restitution."

Ha ha ha HA HA HA HA HA! Silly rabbit, jail is for poors...

Birdbob , 1 hour ago

Accountability of Elite Perps ended under Oblaba's reign of "Wall Street and Technocracy Architects" .White collar criminals were granted immunity from prosecution. This was put into play by Attorney Genital Eric Holder. This was the beginning of having an orificial Attorney Genital that facilitated the District of Criminals organized crime empire ending the 3 letter agencies' interference. https://www.blogger.com/blog/post/edit/8310187817727287761/1843903631072834621

Dash8 , 1 hour ago

You don't seem to understand the basic principle of aircraft design...it must not require an extraordinary response for a KNOWN problem.

Think of it this way; Ford builds a car that works great most of the time, but occasionally a wheel will fall off at highway speeds...no problem, right? ....you just guide the car to the shoulder on the 3 remaining wheels and all good.

Now, put your wife and kids in that car, after a day at work and the kids screaming in the back.

Still feel good about your opinion?

canaanav , 1 hour ago

I wrote software on the 787. You are right. This was not a known problem and the Trim Runaway procedure was already established. The issue was that the MAX needed a larger horizontal stab and MCAS would have never been needed. The FAA doesnt have the knowledge to regulate things like this. Boeing lost talent too, and gets bailouts and tax breaks to the extent that they dont care.

Dash8 , 1 hour ago

But it was a known problem, Boeing admits this.

Argon1 , 41 minutes ago

LGBT & Ethnicity was a more important hiring criteria than Engineering talant.

gutta percha , 1 hour ago

Why is it so difficult to design and maintain reliable Angle Of Attack sensors? The engineers put in layers and layers of complicated tech to sense and react to AOA sensor failures. Why not make the sensors _themselves_ more reliable? They aren't nearly as complex as all the layers of tech BS on top of them.

Dash8 , 1 hour ago

It's not, but it costs $$....and there you have it.

Argon1 , 37 minutes ago

Its the Shuttle Rocketdyne problem, the upper management phones down to the safety committee and complains about the cost of the delay, take off your engineer hat and put on your management hat. All of a sudden your project launches on schedule and the board claps and cheers at their ability to defy physics and save $ millions by just shouting at someone for about 60 seconds..

canaanav , 1 hour ago

Each AOA sensor is already redundant internally. They have multiple channels. I believe they were hit with a maintenance stand and jammed. That said, AOA has never been a control system component. It just runs the low-speed cue on the EFIS and the stick shaker. It's an advisory-level system. Boeing tied it to Flight Controls thru MCAS. The FAA likely dictated to Boeing how they wanted the System Safety Analysis (SSA) to look, Boeing wrote it that way, the FAA bought off on it.

Winston Churchill , 43 minutes ago

More fundamental is why an aerodynamically stable aircraft wasn't designed in the first place,love of money.

HardlyZero , 13 minutes ago

Yes. In reality the changed CG (Center of Gravity) due to the larger fan engine really did setup as a "new" design, so the MAX should have been treated as "new" and completely evaluated and completely tested as a completly new design. As a new design it would probably double the development and test cost and schedule...so be it.

DisorderlyConduct , 1 hour ago

"Lovely. Boeing coerced or bribed the FAA to sign off on the reviews now tries to hide behind the FAA."

No - what a shoddy analysis.

The FAA conceded many of their oversight responsibilities to Boeing - who was basically given the green light to self-monitor. The FAA is the one that is in the wrong here.

Well, how the **** else was that supposed to end up? This is like the IRS letting people self-audit...

Astroboy , 1 hour ago

Just as the Boeing saga is unfolding, we should expect by the end of the year other similar situations, related to drug companies, pandemia and the rest.

https://thenewroads.com/2019/12/09/forecast-for-2020/

https://thenewroads.com/2020/07/21/great-conjunction-jupiter-and-saturn-next-to-the-solstice-of-december-2020/
play_arrow

highwaytoserfdom , 1 hour ago

It is political economy...

8. The internet was invented by the US government, not Silicon Valley

Many people think that the US is ahead in the frontier technology sectors as a result of private sector entrepreneurship. It's not. The US federal government created all these sectors.

The Pentagon financed the development of the computer in the early days and the Internet came out of a Pentagon research project. The semiconductor - the foundation of the information economy - was initially developed with the funding of the US Navy. The US aircraft industry would not have become what it is today had the US Air Force not massively subsidized it indirectly by paying huge prices for its military aircraft, the profit of which was channeled into developing civilian aircraft.

https://www.zerohedge.com/news/2014-06-20/what-piketty-didnt-say-13-facts-they-dont-tell-you-about-economics

LoneStarHog , 1 hour ago

People believe that corporate executives are immune from prosecution and protected by the fact that they are within the corporation. This is false security. If true purposeful and intended criminal activities are conducted by any corporate executive, the courts can do what is called "Piercing The Corporate Veil" . It is looking beyond the corporation as a virtual person and looking at the actual individuals making and conducting the criminal activities.

Jamie Dimon should be first on this list.

[Apr 28, 2020] Hudson gives him the primary credit for providing the foundation for Modern Monetary Theory

Apr 28, 2020 | www.moonofalabama.org

karlof1 , Apr 27 2020 0:25 utc | 53

Some will know who Hyman Minsky was, some won't. Hudson gives him the primary credit for providing the foundation for Modern Monetary Theory, and he gets praise from Keen, Wolfe and many others too. On the occasion of his 100th birthday, here's a long essay that seeks the following:

"But the question still stands: Was Minsky in fact a communist? Of course not. But, a century after his birth, it is useful to clarify often neglected aspects of his intellectual biography."

Since Minsky's referenced so often by Hudson particularly, I think this piece will be helpful for those of us following the serious economic issues now in play. I'd reserve an hour for a critical read.

[Feb 16, 2020] Psychologist Explains Why Economists -- and Liberals -- Get Human Nature Wrong by Lynn Parramore

Feb 12, 2020 | www.nakedcapitalism.com

By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

For a fictional character, homo economicus has had a pretty good run . Since the 1950s, this mono-motivated, self-seeking figure has stalked the pages of economics textbooks, busy deciding each action according to a rational calculus of personal loss and gain. But more recently his territory has shrunk as experts on human nature have demonstrated what any decent novelist could have told them: our real selves are nothing like this.

Unfortunately, many economists still plug this flawed view of people into computer models that determine all kinds of things that impact our lives, from how much workers get paid to how we value life or common goods, such as a clean environment. The results can be disastrous.

Typically, economists aren't that keen on admitting that their work is deeply connected to morality -- never mind that Adam Smith himself was a moral philosopher. But if you ask a question as simple as how to price a used car, you quickly find that moral concerns and economic activity happen together all the time.

In his 2012 book, The Righteous Mind , New York University social psychologist Jonathan Haidt explored why so many perfectly intelligent people have misread human nature– and not just economists, but plenty of psychologists and even (shocker!) people who identify as politically liberal. For him, the key to getting to know ourselves properly lies with moral psychology, a newish strain that pulls together evolutionary, neurological, and social-psychological research on moral emotions and intuitions.

As Haidt sees it, we are creatures driven by moral intuition and attuned to both our personal interests as well as what's good for the groups with which we identify. He points out that in order to thrive, we have to appreciate our complex, interactive natures and see each other more clearly and empathetically – an observation that may be especially useful at a time when threats like climate change and the concentration of money and power threatens all of us, no matter who we are or what groups we belong to. At the moment, we aren't doing such a good job of this.

The Rider and the Elephant

Morality, Haidt argues, doesn't arise from reason, and besides, humans aren't winning any prizes for rationality. Heaps of studies show how factors beyond conscious awareness influence how we think and act, from judges giving out more lenient sentences after lunch to bottles of hand sanitizer making people more feel more conservative .

In Haidt's view, the conscious mind is like a press secretary spewing after-the-fact justifications for decisions already made. Thinkers like David Hume and Sigmund Freud were certainly hip to this idea, but somehow a lot of economists missed the memo, as did psychologists following dominant rationalist models in the 1980s and '90s.

Haidt invites us to consider ourselves as a rider (our analytical, rational part) and an elephant (our emotional, intuitive part). The rider holds the reins, but the beast below is in charge, urged on by the complex interaction of genetic influence, neural wiring, and social conditioning. The rider can advise the elephant, but the elephant calls most of the shots.

Fortunately, the elephant is quite intelligent and equipped with all sorts of intuitions that are good for conscious reasoning. But elephants get very stubborn when threatened and like to stick to what's familiar. The rider, for her part, is not exactly a reliable character. She's not really searching for truth, but mostly for ways to justify what the elephant wants.

That's why a rebel economist challenging conventional thinking about subjects like human nature faces a heavy lift. Experts have to see a lot of evidence accumulating across many studies before they reach a point where they are finally forced to think differently. Scientific studies are even less helpful in persuading the general public.

When I asked Haidt how the mavericks could help their cause, he noted that humans are social creatures more influenced by people than by ideas. So, it matters who says something as much as what they say. It also makes a difference how they say it: elephants don't like to be insulted, and they lean towards arguments made by people they like and admire. Not very rational, perhaps, but likely true.

Homo Duplex

The notion that human beings are social creatures is another strike against homo economicus. We are selfish much of the time, but we are also "groupish," as Haidt puts it, and perhaps better described as "homo duplex" operating on two levels. Here he offers another animal analogy, suggesting that we're 90% chimp and 10% bee, meaning that from an evolutionary perspective, we are selfish primates with a more recently developed a "hivish" overlay that lets us occasionally devote ourselves to helping others, or our groups.

This helps explain why you can't predict how someone is going to vote based on their narrow self-interest. Political opinions are like badges of social membership. We don't just ask what's in it for us, but also what it means to our groups. Having a kid in public school doesn't tell you that a person will support aid to public schools, probably because there are group interests in play. What unifies us in groups, Haidt argues, are certain moral foundations that allow us to share emotionally compelling worldviews that we can easily justify and defend against any attack by outsiders who don't share them. And we can get pretty nasty about those outsiders.

This begins to sound like ugly tribalism, the kind of stuff that leads to war. But Haidt reminds us that this propensity also prepares us to get along within our groups and even to cooperate on a large scale -- our human superpower. We differ from other primates because we exhibit shared intentionality: we're able to plan things together and work together towards a common goal. You never see two chimps carrying a log – they just don't act in concert that way. We do, and in our groups we've developed mechanisms to suppress cheaters and free riders and reap the benefit of division of labor. Groups of early humans may well have triumphed over other hominids not because they smashed them with clubs , but because they out-cooperated them.

To better understand how we operate in political groups, which have lately become more antagonistic, Haidt created a map of our moral landscape called Moral Foundations Theory which delineates multiple "foundations" we presumably use when making moral decisions, including care/harm, fairness/cheating, loyalty/betrayal, authority/subversion, sanctity/degradation, and liberty/oppression. (Some scholars have challenged his system, offering alternative maps). His research indicates that liberals and conservatives differ in the emphasis they place on each of these foundations, with conservatives tending to value all six domains equally and liberals valuing the first two much more than the other three.

Haidt argues that liberals tend to home in on care and fairness when they talk about policy issues, which can put them at a disadvantage vis-à-vis conservatives, who tend to activate the whole range of foundations. Republicans are thus better able to talk to elephants than Democrats because they possess more ways to go for the gut, as it were. If Democrats want to win, Haidt warns, they need to think of morality as more than just care and fairness and to try to better understand that foundations more important to conservatives, like deference to authority or a reverence for sacredness, are not pathological, but aspects human social evolution that have helped us survive in many situations.

When he wrote The Righteous Mind , Haidt noted that Democrats had espoused a moral vision that did not resonate with many working class and rural voters. In the current presidential race, he sees some progress on economic populism from the Bernie Sanders wing, in part because Occupy Wall Street got people attuned to issues of fairness and the oppression of the 1%. When politicians talk about the abuse of political and economic power, they can activate not only care and fairness concerns, but also the liberty/oppression foundation which people respond to across the political spectrum.

But this line is also tricky because, as Haidt pointed out to me, "Americans don't really hate their rich." (One recent study suggested only 25% of Americans have a negative view of the rich, though a majority said they should be taxed more).

Haidt also worries that many Democrats, particularly elites, are currently engaging with cultural issues by embracing a what he called a "common enemy" form of identity politics which "demonizes people at the intersectional point of evil (white men)" rather than focusing on a "common humanity" story which "draws a larger circle around everyone. (Haidt plunged into controversial territory with his 2018 book, The Coddling of the American Mind , which argues that college campuses are shutting down useful debate through "safetyism" that protects students from ideas considered harmful or offensive).

He observed to me that while the polarizing Donald Trump may have turned off the younger generation "for the next few decades," Democrats may be failing "to look seriously at the ways that their social policies -- and their messengers -- alienate many moderates." Newly "woke" white elites, for example, who see racism as the driver of nearly every phenomenon, may be having an unintended negative effect in his view. When they ascribe Trump's victory to racial resentment and ignore the concerns of those who fear sliding down the economic ladder, for example, they may turn off potential allies. Call a person or a group racist and you won't be able to convince them to support your view on anything. Their elephants aren't listening.

Haidt acknowledges that our moral matrices are not written in stone; they can and do evolve, sometimes quite rapidly within a couple of generations. Economic forces surely act to shift attunement to moral foundations, making people more susceptible, for example, to anti-immigration arguments. If you fail to consider the economic influence on this kind of moral activation, you'll be less equipped to address problems like ethnic conflict. Being able to step outside our own moral matrix is essential to persuasion. We not only have to talk to the elephant, but see the beehive.

We also have to remember the truth is not likely to be something held by any one individual, but rather something that emerges as a large number of flawed and limited minds exchange views on a given subject. Our smarts and flexibility are increased by our ability to cooperate and share information. Economists, for example, improve their understanding of human nature by opening up to other social sciences and the humanities for insight.

There is evidence that economists are paying attention to moral psychology. In their book Identity Economics , Nobel laurate George Akerlof and Rachel Kranton argue that people identify with "social categories," and that each category, whether it be Christian, mother, or neighbor, has associated norms or ideals to which people want to aspire. Sam Bowles' The Moral Economy shows that monetary incentives don't work in many situations and that policies targeting our selfish instincts can actually weaken the institutions which depend on our more selfless impulses– including financial markets. At the Institute of New Economic Thinking (INET), the connection between economics and morality has been explored by INET president Rob Johnson and political philosopher Michael Sandel as well as thinkers like economic historian Robert Skidelsky and economist Darrick Hamilton .

All of this rather bad news for homo economicus. But pretty good news for humanity.


Carolinian , February 12, 2020 at 1:37 am

we're 90% chimp and 10% bee, meaning that from an evolutionary perspective, we are selfish primates with a more recently developed a "hivish" overlay that lets us occasionally devote ourselves to helping others, or our groups.

Well if one wants to take an "evolutionary perspective" (works for me) then obviously our instincts are shaped to promote survival of the species and not just the individual. And if that's true then the Randian/economics version of rational isn't rational at all. Perhaps it would be clearer to talk about this problem in terms of rational versus irrational rather than appealing to some "altruism gene" that will supposedly save us. IMO only that rational, intelligent, creative aspect of humans will save us from that irrational side that is indeed totally instinctive. Somehow we've gotten this far–despite everything–"by the skin of our teeth." Here's hoping those minds will find a path.

eg , February 12, 2020 at 2:30 pm

I believe that a huge controversy continues to rage in Biology around "group selection"

erik , February 13, 2020 at 12:53 am

Over what? Carol's point about the sociology of Ayn Rand?

In point of fact, Carol, altruism is always secondary (where it appears) in nature. Selfishness ensures the fittest genes survive to carry on the species. Only in the face of catastrophe does altruism at
the individual level become more valuable than selfishness. So, indeed it is because of our selfishness, because we've struggled by the skin of our teeth, that we as a species have survived and prospered.

Susan the other , February 13, 2020 at 2:41 pm

but, but erik, that leaves out all the energy saving advantage we get from a cohesive group which is also determined to survive and carry on centuries of knowledge on just how to do so .

H. Alexander Ivey , February 12, 2020 at 2:01 am

Just a quick jab: why does Haidt, and others, assume that feelings are inferior to logic and intellect? Seems to me they are inter-twined, separate-able, but equal in value, if not dimension.

It could be a three way set-up instead of a two way (like markets, which are commonly spoken of as two: buyer and seller, but are three: buyer, seller, and banker /money man). Man's consciousness could be 1) feelings, 2) logic /intellect, and 3) the decider (call out to ex-prez W, so got political jab in too!).

But all that rather kicks Haidt's argument

eg , February 12, 2020 at 2:34 pm

In fairness to Haidt, I think he's more nuanced than "rationality good; feelings bad"

I have encountered more of that rather rigid approach among those who have read "Thinking Fast and Slow" perhaps because that book doesn't do as good a job of outlining as crucial the capacity to recognize which situations favor System 1 thinking and those which favor System 2 -- a problem compounded by the emphasis in the book on the rather narrow range of circumstances in which System 2 is clearly superior.

vlade , February 12, 2020 at 3:00 am

Social scientists can't add:
"value all six domains equally [ ] valuing the first two much more than the other three."

More seriously, yes. Years ago, Heinlein wrote "Man is not a rational animal, he is a rationalizing animal".

somecallmetim , February 12, 2020 at 8:56 pm

Jeez – I spent years getting an Econ degree in the homo economus/monetarist era (dark times), when I should've been making my way through my D&D Dungeon Master's sci fi collection!

Dell , February 13, 2020 at 2:53 pm

I always thought that the Professors who thought up homo economus never went with their wives (as it was back then) to the grocery store.

The rational choice, always, was the store brand. DelMonte and all other such brands owed their very existence to non-rational, emotional choices–by tons of people.

But the implications of that never sunk in.

erik , February 13, 2020 at 1:04 am

'Rational' just means 'consistently following an internally sound logic.' A machine does that – following the logic of its mechanics. A computer does that – following the logic of code. An animal does that – following the logic dictated by emotion. And an animal certainly does that better than we humans whose behaviors become muddled by ideas. Truly, by this measure animals are better machines than humans – more mechanical, more emotional, more logical, more rational.

Hayek's Heelbiter , February 12, 2020 at 5:28 am

That's why a rebel economist challenging conventional thinking about subjects like human nature faces a heavy lift. Experts have to see a lot of evidence accumulating across many studies before they reach a point where they are finally forced to think differently.

As an ex-organic chemist, I was astonished to find that more than a few scientists cling to outdated paradigms with a tenacity that would shame the most rigid religious fundamentalist. Cf. heliobacter, continental drift, even the heliocentric solar system.

divadab , February 12, 2020 at 11:02 am

Huh? Heliocentric solar system is an outdated paradigm? Are you talking about this planet or are you coming from another solar system?

vlade , February 12, 2020 at 11:50 am

same for continental drift – pretty much no one in geology challenges plate tectonics, as it explains way more than any other theory on offer.

Anon , February 12, 2020 at 12:06 pm

While "continental" drift was first proposed in about 1600 AD it was not completely wrong. Like many initial geologic theories it was partially correct. It is now known that it is not the "continents" that move across the earth, but tectonic plates, on which the continents are located, that is creating movement. The convection of the earths interior magma is thought to be the movement vector for the plates.

Henry Moon Pie , February 12, 2020 at 6:04 am

"this propensity also prepares us to get along within our groups and even to cooperate on a large scale -- our human superpower"

Yuval Harari's central point revolves around this. Humans, like other primates, engage in "grooming" activities to maintain group cohesion. With the development of language, this "grooming" went from picking lice out of each other's hair (fun!) to gossiping about each other. But this behavior seems to be unable to maintain a group size larger than 150 individuals, not surprising considering the person-to-person contact necessary.

To gather a larger group around common goals requires myth, Harari says. Early myths involved gods, often imagined as living in a separate world with structures parallel to our own. In a polytheistic society, the head god related to the lesser gods as a king related to his human subjects. In the henotheistic Ancient Near East, nations like Babylon, Assyria and even the southern Israelite kingdom of Judah envisioned a parallel war occurring in "heaven" between the national gods when two countries went to war. These days, there are new, completely secular myths like what Harari calls "Money" that orient our world around materialism, competition and power.

eg , February 12, 2020 at 2:46 pm

William H. McNeill also noted the almost universal human behaviours of mass marching/dancing (which requires and reinforces cooperation) as indicative of a social behaviour rooted in a biological need

We also have "mirror neurons" for a reason -- one that baffles the proponents of "homo economicus"

Eric , February 12, 2020 at 7:20 am

I was more interested in this article from the political perspective; i.e. what liberals get wrong.

Like many who read this site, I'm interested in the primary elections and want Bernie to win.

But Bernie's message could be better by being more attuned to some of the "Moral Foundation" issues Haidt raises.

Take Medicare for All which, by most accounts, is the leading issue to most voters:

Talking more about Medicare being a simple and successful 50+ year program appeals to authority. Medicare Advantage plans can be framed as subversion. Or loyalty / betrayal. Also consider sanctity / degradation.

Talking more about the 80/20 aspect of coverage addresses fairness / cheating and "free stuff"

Not talking about eliminating private insurance shows concern for liberty / oppression. I would actually make a joke about people who would still want private insurance after M4A becomes available

Just food for thought in terms of how the ideas contained in the article could be applied.

And the next time some nefarious reporter asks how we will pay for this or that; I wish someone will just say "Mexico will pay for it".

deplorado , February 13, 2020 at 1:20 am

This!
Share it with the campaign on twitter – please!

LowellHighlander , February 12, 2020 at 7:24 am

As an economist (M.A. in Econ), I am elated to see Jonathan Haidt's work receive this kind of attention from serious thinkers. In addition to the reasons cited by Lynn Parramore, I believe Professor Haidt's work validates, by building on, the work of Humanistic Economics by Professor Mark Lutz (Ph.D. UC-Berkeley) and Dr. Kenneth Lux. Moreover, Professor Haidt's work appears, to me, to further validate the astute criticisms of Dean Baker and Mark Weisbrot for neoclassical Marxists' use of "Rational Economic Man" in their paradigm's modls (no "e"). Having obtained my degree about 25 years ago, basically in humanistic economics, I am sure that adoption of such thinking by grad students in economics can help rescue humanity from its current barbaric state. I just hope there's still time left.

Jeremy Grimm , February 12, 2020 at 1:03 pm

But economics without homo economicus? Does that not mess-up a lot of beautiful economic proofs and their beautiful mathematics?

eg , February 12, 2020 at 3:00 pm

Let them have their toys -- just don't let them near anything like policy

Ignacio , February 12, 2020 at 7:30 am

On hate and having negative view on the rich : this article mentions that "only" 25% of Americans have a negative or very negative view of the rich". Only is the proper word? I would say that is a lot of bad feelings. Hate is not a sane feeling and we are inclined to hate in stressful situations. So, if 25% of Americans, have these negative feelings (8% very negative) about the rich this spells quite a lot of despair/stress. It would be interesting a comparison with other countries to evaluate if this is normal by international standards.

Ignacio , February 12, 2020 at 7:52 am

I mention this because stress & despair might explain, at least partially, the relative low turnout in general elections in the US compared with other OECD countries. Does anybody here know the evolution of electoral turnout in the US since 1950? Has turnout declined with time?

Dirk77 , February 12, 2020 at 5:13 pm

There is a Wikipedia article under the title Voter Turnout in the US Presidential Elections fwiw.

John Wright , February 12, 2020 at 9:46 am

I remembered an old David Brooks column mentioning that Americans vote their aspirations.

I'm not a fan of Brooks, but this 20 year old column may explain some USA citizens' current attitudes..

Here is a sample quote (about a proposed Al Gore estate tax):

"The most telling polling result from the 2000 election was from a Time magazine survey that asked people if they are in the top 1 percent of earners. Nineteen percent of Americans say they are in the richest 1 percent and a further 20 percent expect to be someday. So right away you have 39 percent of Americans who thought that when Mr. Gore savaged a plan that favored the top 1 percent, he was taking a direct shot at them."

https://www.nytimes.com/2003/01/12/opinion/the-triumph-of-hope-over-self-interest.html

While it has been 20 years since this was published, one might suspect American "I'll be rich" aspirations have taken a beating during this interval.

The economics profession has ridden the hydrocarbon energy spend of the last 100+ years as hydrocarbon energy has been pulled from the ground and converted into "economic growth".

It will be interesting to see how the profession responds to future events with climate change, peak human population and peak energy inexorably (in my view) arriving.

Susan the other , February 12, 2020 at 10:38 am

Yes, after all corvid-19 only has a mortality rate of 2.5% . are viruses comparable to hate?

Donald , February 12, 2020 at 7:49 am

One thing that has happened is that over the past several decades so- called liberals have agreed with conservatives that the market represents freedom and efficiency and the government represents the opposite. Some younger people are rebelling, but older voters have been hearing this their whole lives without challenge until Sanders came along.

I just read a description of a Trump rally at the NYT and I think it was accurate. The reporters just repeated what ordinary people said there. One guy claimed the Democrats have just swung so far left he can't support them anymore, yet on economics this simply isn't the case. Sanders just represents what Democrats used to be on economic issues.

gsinbe , February 12, 2020 at 7:57 am

I enjoyed the article, and agree with the main ideas, but he was a little rough on our primate cousins. Chimps may not cooperate by "carrying logs", but, like a lot of social animals, they work together when, say, hunting other primates. And most social animals have a pretty well-developed sense of fairness (watch what happens if you give one of your dogs a treat and ignore the other one).

a different chris , February 12, 2020 at 8:59 am

Yes I am trying to think about what chimps would actually need to transport a log for. That famous jocular saying by one of the researchers "we were beginning to think the difference between us was merely cultural".

Carolinian , February 12, 2020 at 9:26 am

Is that a sense of fairness or a sense of competition or perhaps a sense of both? Each dog would prefer being the favorite but will accept being the equal.

Dogs are an interesting analogy because in my observation they are, as social animals, so much like us. Perhaps the main takeaway from the above article is the belief that there is such a thing as "human nature" and that we have a kinship with the other species. Needless to say such a view was once anathema in an intellectual climate dominated by religion and a human centric world view. Even now people like Pence are "dominionists" and believe that humans have been given dominion over the planet and all its other species because of what it says in the Bible. Power always needs to justify itself–perhaps because of that innate sense of fairness/competition that you mention.

Susan the other , February 12, 2020 at 10:54 am

Haidt got me thinking about language too. His thesis could be talking about the evolution of language itself. The evolution of rationalization. Since he seems to premise his insights on human intuition and a certain bedrock of morality that all animals seem to have. Pre language. Can we attribute the morality of animals to a lack of rationalization? They do seem to lack immorality. If we were mute, but very intuitive as we are, what effect would our intuition have on our communication skills and our actions? Raising the question here, Is language the emotional middleman that is always (duplex) less than rational and causing all this confusion? Sort of thinking here about someone giving an over-the-top sermon, like an economics professor claiming that we are all homo-economicus.

Carolinian , February 12, 2020 at 12:00 pm

Morality traditionally implies conscious choice so I'm not sure that's relevant to the animal world. Guess what I'm saying is that we are similar to certain animals in our instincts, not our intelligence.

However the language of economic profs is deceptive since they should be saying "irrational self interest" rather than "rational self interest." Pure selfishness usually ends up being bad even for the selfish.

Susan the other , February 13, 2020 at 2:56 pm

Also on this very subject, last night on Nova, the one about dogs, their domestication (or ours?) and their amazing ability to relate – communicate. They attribute a dog's ability to communicate to oxytocin – because they thrive on love and friendship. I do believe that because I've only had one aloof dog and he was very wolf-like. A throwback. Indicating that evolution tends toward love – not to be too corny. Maybe Oxytocin will save us ;-)

Susan the other , February 12, 2020 at 12:04 pm

Maybe we could develop a more finely-tuned consciousness.

eg , February 12, 2020 at 3:07 pm

Um, pack animals have hierarchies -- period

And we are biologically pack animals, mercifully moderated by culture

Carolinian , February 12, 2020 at 4:25 pm

If by "pack animals" you mean species that live in societies I never said they didn't. But obviously there is also cooperation on some level and social bonding. I do think this is a very complicated subject and not easily reduced to simplifications by yours truly–not a biologist–or the above article. But arguably the above is correct in asserting that economists themselves are ignoring the complications.

Ignacio , February 12, 2020 at 8:16 am

And for those interested, here is a paper published in 2008 that empirically demonstrates that the "Homo economicus" approach in this case disguised in the form of "median-voter model" is bullshit regarding inequality, redistribution and public opinion, though they regard it as intelectually compelling. Economists!

John Wright , February 12, 2020 at 10:19 am

Your link did not work for me.

But this did work (after google searching for "mwm006.pdf") that was buried in your link

https://academic.oup.com/ser/article-pdf/6/1/35/4761357/mwm006.pdf

Ignacio , February 12, 2020 at 11:10 am

Thank you. That was the paper.

a different chris , February 12, 2020 at 8:56 am

>Experts have to see a lot of evidence accumulating across many studies before they reach a point where they are finally forced to think differently.

Ummm, the whole, underlying maybe, point of the rest of the article is that the dominant economic thought of our age has nothing to do with evidence. Yet they overthrew Keynes. "Trust us, We're Experts" or something like that right?

DJG , February 12, 2020 at 8:58 am

I just finished slogging through The Master and His Emissary by Iain McGilchrist, which harmonizes with this article. Instead of the rider on an elephant, McGilchrist writes of the functions of the left and right hemispheres of the brain, which are significantly different. The left brain is verbal, analytical, and task oriented. It likes straight lines. (This strikes me as a description of the pseudo-accuracy and busyness of economics.) The right brain sees a larger picture, is less talky, and is generally better at perceiving the world around us. It is the hemisphere that can attain greater knowledge even if it is not as adept at expressing such knowledge in words. (The "bee" part of the brain–and more than 10 percent.)

McGilchrist's book is good, but way too long, which is an irony given that he asserts that the left brain, the emissary, is trying to subvert the master, the part of the brain less likely to go on and on and on in words.

But this era of too many easy paradigms (economics, "free markets"), too much flimsy analysis (critical studies, queer studies, economics, New York Times op-ed columnists), and too much talk (social media) is very much left-brained. I think that what is wearing all of us out is the endless tsunami of word salad. Economics, with its insistance on rationality rather than reasonableness (left brain rather than right brain), fell into the salad bowl a long time ago.

Mel , February 12, 2020 at 10:12 am

Yes. I, too, think this is a very important book. Being retired, I don't think it's too long. I revel in how much stuff I got for only thirty bucks (or whatever it was -- something like that.)
The neurological case is complete after 94 very dense pages. (535 citations. Pleasantly readable prose, though, and that bizarre experiment that "proves" that porcupines are monkeys.) After that he traces the effects and footprints of the two independent modes of thought through philosophy, art, music, and, generally, the working of our societies from ancient to post-modern.
There's a strong parallel to Daniel Kahneman's Fast and Slow thinking, the right hemisphere being the fast one. The one wrinkle is that language is the province of the left hemisphere, but Kahnemann finds that fast thinking is perfectly adept at small-talk, as long as it doesn't get too abstract.
Worst for me is that now that I've read it, I've got to go back into Heidegger, all the other modern Germans, John Dryden, classical and modern painting, religion

The Rev Kev , February 12, 2020 at 9:27 am

So how would homo economicus work out in anything other than a modern industrial system? In earlier times, I would say that at the least they would be shunned as a danger to the community or maybe even thrown out altogether as being incapable of working in a close-knit community. Want a modern example instead? How about the fact that you cannot have a military based on the idea of homo economicus unless you are talking about a band of mercenaries. This whole stupid idea is why every relationship these days whether for work, employment, government, etc is defined by contracts. In short, it is a cookie-cutter idea that come in only one shape.

Sound of the Suburbs , February 12, 2020 at 9:31 am

"Since the 1950s, this mono-motivated, self-seeking figure has stalked the pages of economics textbooks, busy deciding each action according to a rational calculus of personal loss and gain."

Advertising gave up with that sort of approach years ago.
Advertisers appeal to deep seated wants and desires and this works really well, so they haven't looked back.
Are the wealthy much more rational?
Let's have a look at adverts targeted at wealthy people.
Are they a long list of specifications and comparisons saying why these products are better?
No.
An advert for a Sunseeker luxury yacht conveys luxury, elegance, being able to get away from it all and there is usually a young woman in the back in a bikini; the less said about that the better.

What about PR and propoganda?
How do they work?
The same as advertising really, and it's got nothing to do with appealing to rational human beings.
It works; they are not going to be doing it differently anytime soon.

Economics seems to be the odd man out.

Mel , February 12, 2020 at 11:32 am

A propos of nothing, long, long ago there was an ad during the Superbowl placed by Cadillac. It was all about authority, power, celebrity, and it hardly mentioned cars at all, if it even did. Blog commenters had to work very hard to explain how this was selling Cadillacs. IMHO, it didn't sell Cadillacs. It told the top Cadillac executives all the things about themselves that they most longed to hear. It didn't sell cars to wealthy people, it sold the ad itself to the Cadillac C-suite. It worked like a charm.

Sound of the Suburbs , February 12, 2020 at 9:56 am

Inequality exists on two axes:

Y-axis – top to bottom
X-axis – Across genders, races, etc ..

As long as the Democrats wealthy donors keep them focussed on identity politics and the X-axis, the donors should be able to keep making progress in the reverse direction on the Y-axis.

Rob Chametzky , February 12, 2020 at 11:33 am

Samuel Bowles has examined these issues recently in "The moral
economy":

https://yalebooks.yale.edu/book/9780300163803/moral-economy

and he's MUCH better than Haidt. I recommend this book and lots
of his earlier work, much of it done with Herbert Gintis.

Their 1976 "Schooling in capitalist America" is no less necessary
reading now than it was then, and their 1986 "Democracy & capitalism"
is maybe even more relevant now (Milanovic credits it as a forerunner
to his current "Capitalism, alone", which it is–and much more than that).
More recent stuff is referenced in "The moral economy" and pretty
much always worthwhile.

–Rob Chametzky

Tim , February 12, 2020 at 2:41 pm

Morality is a big part of decision making, but I'll argue that is secondary to our cognitive biases that exist at an even lower level of consciousness to enable us to retain function and decision making in the face of an overwhelming number of variables.

The opposite of cognitive bias or perhaps the antidote is critical thinking, which must be taught/learned, so yeah it is preposterous to assume people use solid reasoning that could only come about with the use of critical thinking, which vasts swaths of society almost never exercise.

flora , February 12, 2020 at 2:53 pm

Thanks for this post. Homo economicus was/is always and only about the 'one'.

Whereas the basis of moral philosophy is about 'the one and the many' in equal importance, imo.

Thanks for this post and to the commentors recommending more writings in this field.

Dirk77 , February 12, 2020 at 6:10 pm

The article to me is all over the place, which builds on Haidt's views that seem all over the place too. Interesting though. Comments too. The experimental data about Haidt's classifications of moral decision making elements, and where self-described liberals and conservatives rank them in importance was interesting. I suppose the liberals regarding only two of the six as important could be due to their college educations. As a math professor I had once observed about a smart student in his class: "he learned his subject too well". Or to paraphrase Othello: "One that learned not wisely but too well".

greensachs , February 12, 2020 at 6:26 pm

Nuff sd

"It's Armageddon Time for the Democratic Party"
https://theintercept.com/2020/02/12/its-armageddon-time-for-the-democratic-party/

TG , February 12, 2020 at 6:43 pm

Hmm yes but

Humans are rational economic agents! Therefore we must ship our industrial base to China so that the rich can make more money.

Humans are rational economic agents! Therefore we must allow big companies to merge and quash competition and raise prices.

Humans are rational economic agents! Therefore we must allow "surprise medical billing" when insured people go to the emergency room.

Humans are rational economic agents! Therefore we must do nothing to stop the use of slave labor in peeling shrimp for export in Southeast Asia.

Humans are rational economic agents! Therefore we must bail out and subsidize Wall Street and big finance with tens of trillions of taxpayer dollars.

Perhaps the "humans are rational economic agents!" argument is not really an argument, as such

deplorado , February 13, 2020 at 2:29 am

The most important takeaway from this is that we should not let economists guide the economy. Not the economists believing in homo economicus anyway (and, while we are at it, believing in equilibrium as well). The reason for existence of such a concept is clearly to replace ethics and morality as a guiding principle of human economic activity with a pseudo- "natural law" (humans by nature are "economicus" – i.e. self-interested and materialistic – phew!), which once entrenched, relieves those in power from moral obligations because it safely explains away almost any economic outcome as result of "natural" forces – i.e. no one to blame (globalization=natural force). It's a great tool for them. Down with it.

Dick Swenson , February 14, 2020 at 4:25 pm

The asumption of rationality has been defeated by many economists, as well as psychologists, sociologists, etc.. Carrying on about this is unncessary. Assuming that humans worry about "care and fairness' is true. The "12" prophets of the Tanakh (Old Testament") raised this concern numerous times, and one can find it as a major issue in the Synoptic Gospels. Smith also worried about this in his first book on economocs, "The Theory of Moral Sentiments." The only reason for any further consideration of "rationality" in economics is due to the attemprt by economists to treat economics as a "science" like physics. There are also numerous misguided attempts to mathemaize economics.

But one insidious reason to pretend that economics is a "science" is to justify the idea of a "Nobel Prize" in economics, or to give a "halo" to economists that win the "Swedish Central Bank Prize in Economic Scholarship in Memory of Alfred Nobel."

Avner Offer and Gabriel Söderberg have written a good book about the creation of this prize, "The Nobel Factor." Please note, the words "Nobel Prize" do not seem to appear on either the certificates or medal awarded.

Daniel Kahneman who won the prize (justifiably, (and John Nash a famous mathematicin who won many real prizes) notd that giving labels often transfers a false aura to those being labeled. Offer and Söderberg noted that this is true of the label "winner of the Nobel Prize." Given that there is no decent encompasssing theory of economics similar to Newton's Laws and how often the prizes are awarded to economists who don't produce anything like such a theory, we should once and for all abandone the pretense that economis is a science. It is an attempt to describe social behaviour in a very restricted context. Leaving it to psychologists, sociologists and others has produce better undertandings of human behaviour.

[Jan 01, 2020] FDA Failed to Police Opioids Makers, Thus Fueling Opioids Crisis

Jan 01, 2020 | www.nakedcapitalism.com

FDA Failed to Police Opioids Makers, Thus Fueling Opioids Crisis Posted on January 1, 2020 by Jerri-Lynn Scofield By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

I had hoped to welcome 2020 with a optimistic post.

Alas, the current news cycle has thrown up little cause for optimism.

Instead, what has caught my eye today: 2019 closes with release of a new study showing the FDA's failure to police opioids manufacturers fueled the opioids crisis.

This is yet another example of a familiar theme: inadequate regulation kills people: e.g. think Boeing. Or, on a longer term, less immediate scale, consider the failure of the Environmental Protection Agency, in so many realms, including the failure to curb emissions so as to slow the pace of climate change.

In the opioids case, we're talking about thousands and thousands of people.

On Monday, Jama Internal Medicine published research concerning the US Food and Drug Administration's (FDA) program to reduce opioids abuse. The FDA launched its risk evaluation and mitigation strategy – REMS – in 2012. Researchers examined nearly 10,000 documents, released in response to a Freedom of Information ACT (FOA) request, to generate the conclusions published by JAMA.

As the Gray Lady tells the story in As Tens of Thousands Died, F.D.A. Failed to Police Opioids :

In 2011, the F.D.A. began asking the makers of OxyContin and other addictive long-acting opioids to pay for safety training for more than half the physicians prescribing the drugs, and to track the effectiveness of the training and other measures in reducing addiction, overdoses and deaths.

But the F.D.A. was never able to determine whether the program worked, researchers at the Johns Hopkins Bloomberg School of Public Health found in a new review, because the manufacturers did not gather the right kind of data. Although the agency's approval of OxyContin in 1995 has long come under fire, its efforts to ensure the safe use of opioids since then have not been scrutinized nearly as much.

The documents show that even when deficiencies in these efforts became obvious through the F.D.A.'s own review process, the agency never insisted on improvements to the program, [called a REMS]. . .

The FDA's regulatory failure had serious public health consequences, according to critics of US opioids policy, as reported by the NYT:

Dr. Andrew Kolodny, the co-director of opioid policy research at the Heller School for Social Policy and Management at Brandeis, said the safety program was a missed opportunity. He is a leader of a group of physicians who had encouraged the F.D.A. to adopt stronger controls, and a frequent critic of the government's response to the epidemic.

Dr. Kolodny, who was not involved in the study, called the program "a really good example of the way F.D.A. has failed to regulate opioid manufacturers. If F.D.A. had really been doing its job properly, I don't believe we'd have an opioid crisis today."

Now, as readers frequently emphasize in comments: pain management is a considerable problem – one I am all too well aware of, as I watched my father succumb to cancer. He ultimately passed away at my parents' home.

That being said, as CNN tells the story in The FDA can't prove its opioid strategy actually worked, study says :

Although these drugs "can be clinically useful among appropriately selected patients, they have also been widely oversupplied, are commonly used nonmedically, and account for a disproportionate number of fatal overdoses," the authors write.

The FDA was unable, more than 5 years after it had instituted its study of the opioids program's effectiveness, to determine whether it had met its objectives, and this may have been because prior assessments were not objective, according to CNN:

Prior analyses had largely been funded by drug companies, and a 2016 FDA advisory committee "noted methodological concerns regarding these studies," according to the authors. An inspector general report also concluded in 2013 that the agency "lacks comprehensive data to determine whether risk evaluation and mitigation strategies improve drug safety."

In addition to failing to evaluate the effective of the limited steps it had taken, the FDA neglected to take more aggressive steps that were within the ambit of its regulatory authority. According to CNN:

"FDA has tools that could mitigate opioid risks more effectively if the agency would be more assertive in using its power to control opioid prescribing, manufacturing, and distribution," said retired FDA senior executive William K. Hubbard in an editorial that accompanied the study. "Instead of bold, effective action, the FDA has implemented the Risk Evaluation and Mitigation Strategy programs that do not even meet the limited criteria set out by the FDA."

One measure the FDA could have taken, according to Hubbard: putting restrictions on opioid distribution.

"Restricting opioid distribution would be a major decision for the FDA, but it is also likely to be the most effective policy for reducing the harm of opioids," said Hubbard, who spent more than three decades at the agency and oversaw initiatives in areas such as regulation, policy and economic evaluation.

The Trump administration has made cleaning up the opioids crisis – which it inherited – a policy priority. To little seeming effect so far. although to be fair, this is not a simple problem to solve. And litigation to apportion various costs of the damages various prescription drugmakers, distributors, and doctors caused it far from over – despite some settlements, and judgements (see Federal Prosecutors Initiate Criminal Probe of Six Opioid Manufacturers and Distributors ; Four Companies Settle Just Before Bellwether Opioids Trial Was to Begin Today in Ohio ; Purdue Files for Bankruptcy, Agrees to Settle Some Pending Opioids Litigation: Sacklers on Hook for Billions? and Judge Issues $572 Million Verdict Against J & J in Oklahoma Opioids Trial: Settlements to Follow? )

Perhaps the Johns Hopkins study will spark moves to reform the broken FDA, so that it can once again serve as an effective regulator. This could perhaps be something we can look forward to achieving in 2020 (although I won't hold my breath).

Or, perhaps if enacting comprehensive reform is too overwhelming, especially with a divided government, as a starting point: can we agree to stop allowing self-interested industries to finance studies meant to assess the effectiveness of programs to regulate that very same industry? Please?

This is a concern in so many areas, with such self-interested considerations shaping not only regulation, but distorting academic research (see Virginia Supreme Court Upholds Ruling that George Mason University Foundation Is Not Subject to State FOIA Statute, Leaving Koch Funding Details Undisclosed ).

What madness!

[Jan 01, 2020] Prolonging the discussion about the bad habit Western Democracies have on falsifying official statistic

Jan 01, 2020 | www.moonofalabama.org

vk , Dec 29 2019 3:42 utc | 55

Prolonging the discussion about the bad habit Western Democracies have on falsifying official statistics:

On Those Questionable US Wage Stats Again

[Dec 06, 2019] Robert Bork Was the Judicial Activist He Warned Us About

Dec 06, 2019 | www.theamericanconservative.com

As the Chicago revolution took hold, Bork's views crept into the judiciary. Eventually in a fit of activism, the courts did away with the prohibition on predatory pricing. In its 1993 decision in Brooke Group Ltd. v. Brown & Williamson Tobacco Corporation , the United States Supreme Court completely re-imagined the Robinson-Patman Act.

The case originally involved the tobacco oligopoly controlled by six firms. Liggett had introduced a cheap generic cigarette and gained market share. When Brown & Williamson saw that generics were undercutting their shares, it undercut Liggett and sold cigarettes at a loss. Liggett sued, alleging that the predatory behavior was designed to pressure it to raise prices on its generics, thus enabling Brown & Williamson to maintain high profits on branded cigarettes.

In its decision, the Court held that in order for there to be a violation of the Clayton Act and the Robinson-Patman Act, a plaintiff must show not only that the alleged predator priced the product below the cost of its production but also that the predator would be likely to recoup the losses in the future. The recoupment test dealt a death blow to predatory pricing lawsuits because it is, of course, impossible to prove a future event.

The Supreme Court parroted Bork, noting that "predatory pricing schemes are rarely tried, and even more rarely successful ." The Court also argued that it was best not to pursue predatory pricing cases because doing so would "chill the very conduct the antitrust laws are designed to protect."

The result has been severe. After 1993, no plaintiff alleging predatory pricing has prevailed at the federal level, and most cases are thrown out in summary judgement. The DOJ and FTC have completely ignored the law and ceased enforcing it.

Through judicial activism and executive neglect, the laws regarding antitrust and predatory pricing have become odd relics, like those on greased pigs and cannibalism.

Predatory pricing is symptomatic of the broader problems when it comes to antitrust. Today, except in extreme circumstances such as outright monopoly, courts are unlikely to block mergers over an increase in market concentration. The Supreme Court has now tilted so far the other way that it prefers to allow too much concentration rather than too little. It made this clear in its Verizon Communications Inc. v. Law Offices of Curtis V. Trinko LLP decision, where it stated its preference for minimizing incorrect merger challenges rather than preventing excessive concentration.

In the Trinko case, for example, Justice Scalia suggested that those who enforce antitrust laws ought to be deferential to firms with monopoly power, which are "an important element of a free market system."

Scalia continued: "Against the slight benefits of antitrust intervention here, we must weigh a realistic assessment of its costs ." The opportunity to acquire monopoly power and charge monopoly prices is "what attracts 'business acumen' in the first place," he said, and "induces risk taking that produces innovation and economic growth." He wrote that the "mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system."

The result of all this has been an increase of monopolies. Professor John Kwoka reviewed decades of merger cases and concluded that "recent merger control has not been sufficiently aggressive in challenging mergers." The overall effect has been "approval of significantly more mergers that prove to be anticompetitive."

The Sherman Act and the Robinson-Patman Act may be deeply misguided; perhaps they should even be repealed. But they haven't been. Passing new legislation is the proper way to change laws one disagrees with. Getting rid of them in practice via judicial activism or an an unwilling executive is not democratic.

The death of antitrust and predatory pricing reflects not only a failure of jurisprudence but of economics. For all the claims of up-to-the-minute economic sophistication that activist judges have used in the field of antitrust, the scholarship on predatory pricing is wildly out of date. Brooke made Robinson-Patman irrelevant by citing "modern" economic scholarship, yet the research the Supreme Court relied on goes back to studies by John McGee and Roland Koller, published in 1958 and 1969 respectively.

Predatory pricing has only become more rational in a world where winner-take-all platforms are happy to sustain short-term losses for the sake of long-term market share gains. What they lose on one side with free shipping or below cost products, they make up for in other parts of their business.

The rationality of predatory pricing is not some new economic finding. Almost 20 years ago, Patrick Bolton , a professor at Columbia Business School, wrote that "several sophisticated empirical case studies have confirmed the use of predatory pricing strategies. But the courts have failed to incorporate the modern writing into judicial decisions, relying instead on earlier theory no longer generally accepted."

According to Bork, predatory pricing didn't work in theory, but does it work in practice? Antitrust experts remember the Brooke case, but none seem to recall what actually happened to the companies involved in the lawsuit.

After the Supreme Court decision left it without any legal remedy, Liggett succumbed to pressure from Brown & Williamson and raised its prices. The entire industry raised prices too. In the end, Liggett was not able to attract enough market share and ended up selling most of its brands to Phillip Morris a few years later. Ever since, the tobacco oligopoly has raised prices in lockstep twice a year with no competition. No company is foolish enough to lower prices for fear of predatory pricing.

The losers from the judicial activism of Brooke are consumers and the rule of law. The winners are the oligopolies and monopolies who protect their markets.

When it comes to enforcing antitrust, it's worth remembering the words of Robert Bork. As he wrote in 1971 in his seminal piece " Neutral Principles and Some First Amendment Problems ," "If the judiciary really is supreme, able to rule when and as it sees fit, the society is not democratic."

Jonathan Tepper is a founder of Variant Perception , a macroeconomic research company, and co-author of The Myth of Capitalism: Monopolies and the Death of Competition . He is also TAC 's senior fellow on economic concentration issues. This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.


polistra24 a day ago

The Supremes have been the Federal legislature since 1803. Recommending restraint is the same thing as ordering one party in a legislature to surrender to the opposite party regardless of majorities.
Kent a day ago
Monopolization is the core of Free Market economics. Free, literally, means free to become a monopoly, free to practice vulture capitalism, free to use superior capitalization to destroy competition, free to move your factory to China.

Free Market is a buzz phrase among bankers and other well-to-do to increase their income at your expense instead of through superior production, design, and advertising methods. If you want to know why we live in such a dysfunctional economy, its because we've abandoned competitive capitalism for a free market economy.

Sid Finster Kent a day ago
Adam Smith (yes, that Adam Smith) noted in Wealth of Nations that if you put two competing businessmen in a room together, not only do they get along just fine, their conversation quickly turns to the subject of how they can work work together to rig markets and screw the consumer for moar profitt.

Adam Smith was a much more interesting and sophisticated thinker than the B-school Cliffs Notes version.

northernobserver a day ago
Libertarian policy corruption, the American Right's original sin.
ElitCommInc. a day ago
I think we could us more purist views of capitalism in conversations about capitalism. The kinds of behaviors engaged designed to put others out of business described in the article is not exemplary of capitalism.

The purpose of capitalism is not explicated with models of destroying competition. And it certainly does not have mechanisms in which the government acts as an arm of business. The notion that the business of "America" (the US) is business is misleading. Because when it comes the government of the US her role is to ensure fair play. And power dynamics used to destroy the ability of another to tap into the available market share is not a capitalist principle. When one reads about the level and kinds of antics that corporate boards and CEO's play to damage competition, to include the use of campaign funds to "buy" or influence unique favors at cost to consumers - then we are talking about kind of faux "law of the jungle". Bailing out business but not the defrauded customers of those same businesses -- mercantilism not capitalism.

And it is these types of behaviors guised as capitalism, that fuels liberal demands for a system of governance that is more akin to communism and socialism. They note the abuses, but apply the wrong remedy.

I would agree that predatory pricing actually undercuts better pricing, improved products or innovation (product creativity).

Liam781 a day ago
Yes he was.
=marco01= 18 hours ago
Conservatives are outraged, still, that Democrats refused to confirm Bork to the Supreme Court.

Never mind the fact the Democrats were fully within their rights not to confirm, advise and consent does not mean rubber stamp, Bork was the guy who actually carried out Nixon's Saturday Night Massacre. Why would conservatives want a corrupt and unethical person like this in the Supreme Court in the first place?

Conservatives' outraged is very ironic considering Reagan still got to nominate another candidate, which the Dems confirmed. Meanwhile in a completely unprecedented and vindictive move, Republicans denied a Democratic president outright his right to a Supreme Court appointment. There is no comparison between these two episodes.

[Nov 28, 2019] Banker suicides go up exponentially prior to a banking collapse.

Nov 28, 2019 | www.moonofalabama.org

dltravers , Nov 28 2019 17:28 utc | 27

Walter @ 25

"Thomas Bowers, a former Deutsche Bank executive and head of the American wealth-management division, killed himself in Malibu, California, on Tuesday, November 19th, according to the Los Angeles county coroner's initial report.

You have to look at the banker suicide index. Banker suicides go up exponentially prior to a banking collapse. I lost count of banker suicides during the 2008 collapse. Bank troubles = suicides of high ranking employees is the algorithm.

[Nov 21, 2019] FED as the inflator of the bubble: It seems the Fed's abundant-reserve regime may carry a new set of risks by supporting increased interconnectedness and overly easy policy (expanding balance sheet during an economic expansion) to maintain funding conditions that may short-circuit the market's ability to accurately price the supply and demand for leverage as asset prices rise.

Nov 21, 2019 | www.moonofalabama.org

psychohistorian , Nov 15 2019 0:42 utc | 137

I don't know how well this will retain format but it is the latest from the US Fed on providing "liquidity" to the private banking system
"
Friday, 11/15/2019- Thursday, 12/12/2019 The Desk plans to conduct overnight repo operations on each business day as well as a series of term repo operations over the specified period.

OVERNIGHT OPERATIONS DATES AGGREGATE OPERATION LIMIT
Friday, 11/15/2019 - Thursday, 12/12/2019 At least $120 billion

TERM OPERATION DATE MATURITY DATE TERM AGGREGATE OPERATION LIMIT
Tuesday, 11/19/2019 Tuesday, 12/3/2019 14-days At least $35 billion
Thursday, 11/21/2019 Thursday, 12/5/2019 14-days At least $35 billion
Monday, 11/25/2019 Monday, 1/6/2020 42-days At least $25 billion
Tuesday, 11/26/2019 Tuesday, 12/10/2019 14-days At least $35 billion
Wednesday, 11/27/2019 Thursday, 12/12/2019 15-days At least $35 billion
Monday, 12/2/2019 Monday, 1/13/2020 42-days At least $15 billion
Tuesday, 12/3/2019 Tuesday, 12/17/2019 14-days At least $35 billion
Thursday, 12/5/2019 Thursday, 12/19/2019 14-days At least $35 billion
Monday, 12/9/2019 Monday, 1/6/2020 28-days At least $15 billion
Tuesday, 12/10/2019 Monday, 12/23/2019 13-days At least $35 billion
Thursday, 12/12/2019 Thursday, 12/26/2019 14-days At least $35 billion
"
Some take away quotes from various ZH postings
"
In short, the Fed's dual mandate has been replaced by a single mandate of promoting financial stability (or as some may say, boosting JPMorgan's stock price) similar to that of the ECB.

Here BofA adds ominously that "by deciding to dynamically assess bank demand for reserves and reduce the risk of air pockets in repo markets, we believe the Fed has entered unchartered territory of monetary policy that may stretch beyond its dual mandate." And the punchline: "By running balance-sheet policy to ensure overnight funding markets remain flush, the Fed is arguably circumventing the most important brake on excess leverage: the price."

So if NOT QE is in fact, QE, and if the Fed is once again in the price manipulation business, what then?

According to BofA's Axel, the most worrying part of the Fed's current asset purchase program is the realization that an ongoing bank footprint in repo markets is required to maintain control of policy rates in the new floor system, or as we put it less politely, banks are now able to hijack the financial system by indicating that they have an overnight funding problem (as JPMorgan very clearly did) and force the Fed to do their (really JPMorgan's) bidding.

And this is where BofA's warning hits a crescendo, because while repo is fully collateralized and therefore contains negligible counterparty credit risk, "there may be a situation in which banks want to deleverage quickly, for example during a money run or a liquidation in some market caused by a sudden reassessment of value as in 2008."

Got that? Going forward please refer to any market crash as a "sudden reassessment of value", something which has become impossible in a world where "value" is whatever the Fed says it is... Well, the Fed or a bunch of self-serving venture capitalists, who pushed the "value" of WeWork to $47 billion just weeks before it was revealed that the company is effectively insolvent the punch bowl of endless free money is taken away.

Therefore, to Bank of America, this new monetary policy regime actually increases systemic financial risk by making repo markets more vulnerable to bank cycles. This, as the bank ominously warns, "increases interconnectedness, which is something regulators widely recognize as making asset bubbles and entity failures more dangerous."

It is, however, BofA's conclusion that we found most alarming: as Axel writes, in his parting words:

"some have argued, including former NY Fed President William Dudley, that the last financial crisis was in part fueled by the Fed's reluctance to tighten financial conditions as housing markets showed early signs of froth. It seems the Fed's abundant-reserve regime may carry a new set of risks by supporting increased interconnectedness and overly easy policy (expanding balance sheet during an economic expansion) to maintain funding conditions that may short-circuit the market's ability to accurately price the supply and demand for leverage as asset prices rise."

"


psychohistorian , Nov 15 2019 0:49 utc | 138

What I didn't include in comment # 137 above but did in the last Weekly Open Thread is the following about the recent NOT SHORT TERM actions of the US Fed:

The POMO is a Permanent Open Market Operation (purchases from the primary private banks of Treasuries & MBS) that bought $20 billion between mid-August to mid-September, another bought $20 billion between mid-September to mid-October and $60 billion between mid-October to mid-November....totaling $100 billion of US taxpayers money, so far, and is expected to continue at the $60 billion/month until, supposedly, the middle of next year. (This is the one that should concern folks the most because the economy has supposedly not crashed yet and here the Fed is "foaming the runway" of the private banking system on the backs of Americans already

MBS = Mortgage Backed Securities

psychohistorian , Nov 15 2019 12:18 utc | 157
@ William Gruff # 156 who wrote
"
There is no increase in the domestic US production of anything but bullshit, which America is cranking out in record quantities, and with delusional fascists leading that productivity surge.
"
I agree and want to summarize my comments # 137, 138 to add that on top of the manufacturing recession that you write of and link to that the US has been in a financial recession since the August/September time frame.

The US Fed has and continues to foam the private banking runway with billions of dollars to prop up and delay price/value assessment. One reason that I can think of for that is the coming IPO of Aramco for Saudi Arabia.

Another reason is likely to be a huge game of musical chairs being played where those in control are arranging a specific set of very few chairs to be available for them when the music stops. It will all be legal of course since all these financial derivative instruments that will be in place will have Super-Priority in bankruptcy which gives those creditors of a bankrupt debtor (America) the right to receive payment before others who would seem to have superior claims to money or assets. The other losers in this case will be Social Security, pension funds, state and municipal bonds to say nothing of the savings of the public that think they are protected with FDIC.

If this event does not incite the pubic to nationalize the private banking system and imprison many then a super-national cult of folk will own what is left of the Western world and be defended by xxxx army.

[Nov 09, 2019] Paying CEOs fat bonuses for stock performance doesn't work -- Cornell study

Notable quotes:
"... There is no strong evidence of a positive impact of TSR plans on firm performance ..."
"... "Despite the fact that just under 50% of S&P 500 firms have this pay metric as part of their executive compensation plans and that this pay metric is designed to align the interest of shareholders and executives," Enayati told Yahoo Finance, "we find that there's no relationship between the pay metric and top-line business outcomes like 1-, 3-, or 5-year total shareholder return, return on equity, earnings per share growth, or revenue growth." ..."
Oct 03, 2015 | finance.yahoo.com

The analysis, done in conjunction with consultants Pearl Meyer & Partners, examined a decade's worth of data from every company in the S&P 500 (^GSPC). It compared companies that offer their top brass a total shareholder return (TSR) plan to those that don't and found the increasingly popular pay plans haven't significantly boosted any of a number of key metrics.

Total shareholder return is how well an investment in a company has done over a given period. It's a combination of the stock's price change and dividends paid. With TSR plans, managers are rewarded with shares, options, or even cash to give them a stake in how well the stock does.

For a growing number of corporate heads, big bonuses based on stock performance is a large part of their pay.

In 2004, just 17% of S&P 500 companies gave CEOs and top executives some form of a TSR plan. A decade later, nearly half of the companies in the index offered it.

As for those S&P 500 CEOs that have TSR plans, it represents on average some 29% of their total direct compensation, though that percentage is a decline from 38% a decade ago. That's because as more companies adopt TSR plans, they are doing so with less weight than companies who took on these kinds of bonuses earlier.

The average CEO of an S&P 500 company made $13.8 million – or 204 times their average employee – in 2014, according to job website Glassdoor.com.

Get the Latest Market Data and News with the Yahoo Finance App

Nonetheless, giving CEOs more for total shareholder return doesn't make a difference, according to the Cornell study.

"There is no strong evidence of a positive impact of TSR plans on firm performance," wrote Hassan Enayati, Kevin Hallock, and Linda Barrington of Cornell University's Institute for Compensation Studies.

"Despite the fact that just under 50% of S&P 500 firms have this pay metric as part of their executive compensation plans and that this pay metric is designed to align the interest of shareholders and executives," Enayati told Yahoo Finance, "we find that there's no relationship between the pay metric and top-line business outcomes like 1-, 3-, or 5-year total shareholder return, return on equity, earnings per share growth, or revenue growth."

Interestingly, the researchers discovered that while the number of companies paying top executives for shareholder return incentives is increasing, the size of those bonuses relative to total compensation is on the decline.

According to Enayati, part of that has to do with companies decreasing the weight of total shareholder return compensation plans. "But then also the new adopters are coming in at lower weights, perhaps just to test the water," he explained.

But Enayati doesn't rule out other performance bonuses. "While there's no evidence that this tool hits the mark, that isn't to say that other metrics shouldn't be pursued as a solid way to align those incentives," he said.

People on Twitter seemed interested in this:
Paying CEOs fat bonuses for stock performance doesn't work, by Lawrence Lewitinn, Yahoo Finance: It turns out offering CEOs huge bonuses to boost shareholder returns doesn't actually work, according to a new study from Cornell University.

The analysis, done in conjunction with consultants Pearl Meyer & Partners, examined a decade's worth of data from every company in the S&P 500. It compared companies that offer their top brass a total shareholder return (TSR) plan to those that don't and found the increasingly popular pay plans haven't significantly boosted any of a number of key metrics. ...

likbez said...

Looks to me like a generic problem of any neoliberal regime that became more acute as secular stagnation of economics became a "new normal".

High compensation (which is just a part of generic redistribution of wealth up -- the goal on neoliberalism) drives up ruthless sociopaths making short term stock performance the priority and displaces engineers who are capable drive the firm into the future.

Short termism and financial machinations to boost the stock price are probably among key reasons of decline of IBM and HP.

Paradoxically Icahn recently provided us with some interesting insights into bizarre world of stock buybacks. See video on http://carlicahn.com/

[Oct 08, 2019] Southwest Pilots Blast Boeing in Suit for Deception and Losses from -Unsafe, Unairworthy- 737 Max -

Notable quotes:
"... The lawsuit also aggressively contests Boeing's spin that competent pilots could have prevented the Lion Air and Ethiopian Air crashes: ..."
"... When asked why Boeing did not alert pilots to the existence of the MCAS, Boeing responded that the company decided against disclosing more details due to concerns about "inundate[ing] average pilots with too much information -- and significantly more technical data -- than [they] needed or could realistically digest." ..."
"... The filing has a detailed explanation of why the addition of heavier, bigger LEAP1-B engines to the 737 airframe made the plane less stable, changed how it handled, and increased the risk of catastrophic stall. It also describes at length how Boeing ignored warning signs during the design and development process, and misrepresented the 737 Max as essentially the same as older 737s to the FAA, potential buyers, and pilots. It also has juicy bits presented in earlier media accounts but bear repeating, like: ..."
"... Then, on November 7, 2018, the FAA issued an "Emergency Airworthiness Directive (AD) 2018-23-51," warning that an unsafe condition likely could exist or develop on 737 MAX aircraft. ..."
"... Moreover, unlike runaway stabilizer, MCAS disables the control column response that 737 pilots have grown accustomed to and relied upon in earlier generations of 737 aircraft. ..."
"... And making the point that to turn off MCAS all you had to do was flip two switches behind everything else on the center condole. Not exactly true, normally those switches were there to shut off power to electrically assisted trim. Ah, it one thing to shut off MCAS it's a whole other thing to shut off power to the planes trim, especially in high speed ✓ and the plane noise up ✓, and not much altitude ✓. ..."
"... Classic addiction behavior. Boeing has a major behavioral problem, the repetitive need for and irrational insistence on profit above safety all else , that is glaringly obvious to everyone except Boeing. ..."
"... In fact, Boeing 737 Chief Technical Pilot, Mark Forkner asked the FAA to delete any mention of MCAS from the pilot manual so as to further hide its existence from the public and pilots " ..."
"... This "MCAS" was always hidden from pilots? The military implemented checks on MCAS to maintain a level of pilot control. The commercial airlines did not. Commercial airlines were in thrall of every little feature that they felt would eliminate the need for pilots at all. Fell right into the automation crapification of everything. ..."
Oct 08, 2019 | www.nakedcapitalism.com

At first blush, the suit filed in Dallas by the Southwest Airlines Pilots Association (SwAPA) against Boeing may seem like a family feud. SWAPA is seeking an estimated $115 million for lost pilots' pay as a result of the grounding of the 34 Boeing 737 Max planes that Southwest owns and the additional 20 that Southwest had planned to add to its fleet by year end 2019. Recall that Southwest was the largest buyer of the 737 Max, followed by American Airlines. However, the damning accusations made by the pilots' union, meaning, erm, pilots, is likely to cause Boeing not just more public relations headaches, but will also give grist to suits by crash victims.

However, one reason that the Max is a sore point with the union was that it was a key leverage point in 2016 contract negotiations:

And Boeing's assurances that the 737 Max was for all practical purposes just a newer 737 factored into the pilots' bargaining stance. Accordingly, one of the causes of action is tortious interference, that Boeing interfered in the contract negotiations to the benefit of Southwest. The filing describes at length how Boeing and Southwest were highly motivated not to have the contract dispute drag on and set back the launch of the 737 Max at Southwest, its showcase buyer. The big point that the suit makes is the plane was unsafe and the pilots never would have agreed to fly it had they known what they know now.

We've embedded the compliant at the end of the post. It's colorful and does a fine job of recapping the sorry history of the development of the airplane. It has damning passages like:

Boeing concealed the fact that the 737 MAX aircraft was not airworthy because, inter alia, it incorporated a single-point failure condition -- a software/flight control logic called the Maneuvering Characteristics Augmentation System ("MCAS") -- that,if fed erroneous data from a single angle-of-attack sensor, would command the aircraft nose-down and into an unrecoverable dive without pilot input or knowledge.

The lawsuit also aggressively contests Boeing's spin that competent pilots could have prevented the Lion Air and Ethiopian Air crashes:

Had SWAPA known the truth about the 737 MAX aircraft in 2016, it never would have approved the inclusion of the 737 MAX aircraft as a term in its CBA [collective bargaining agreement], and agreed to operate the aircraft for Southwest. Worse still, had SWAPA known the truth about the 737 MAX aircraft, it would have demanded that Boeing rectify the aircraft's fatal flaws before agreeing to include the aircraft in its CBA, and to provide its pilots, and all pilots, with the necessary information and training needed to respond to the circumstances that the Lion Air Flight 610 and Ethiopian Airlines Flight 302 pilots encountered nearly three years later.

And (boldface original):

Boeing Set SWAPA Pilots Up to Fail

As SWAPA President Jon Weaks, publicly stated, SWAPA pilots "were kept in the dark" by Boeing.

Boeing did not tell SWAPA pilots that MCAS existed and there was no description or mention of MCAS in the Boeing Flight Crew Operations Manual.

There was therefore no way for commercial airline pilots, including SWAPA pilots, to know that MCAS would work in the background to override pilot inputs.

There was no way for them to know that MCAS drew on only one of two angle of attack sensors on the aircraft.

And there was no way for them to know of the terrifying consequences that would follow from a malfunction.

When asked why Boeing did not alert pilots to the existence of the MCAS, Boeing responded that the company decided against disclosing more details due to concerns about "inundate[ing] average pilots with too much information -- and significantly more technical data -- than [they] needed or could realistically digest."

SWAPA's pilots, like their counterparts all over the world, were set up for failure

The filing has a detailed explanation of why the addition of heavier, bigger LEAP1-B engines to the 737 airframe made the plane less stable, changed how it handled, and increased the risk of catastrophic stall. It also describes at length how Boeing ignored warning signs during the design and development process, and misrepresented the 737 Max as essentially the same as older 737s to the FAA, potential buyers, and pilots. It also has juicy bits presented in earlier media accounts but bear repeating, like:

By March 2016, Boeing settled on a revision of the MCAS flight control logic.

However, Boeing chose to omit key safeguards that had previously been included in earlier iterations of MCAS used on the Boeing KC-46A Pegasus, a military tanker derivative of the Boeing 767 aircraft.

The engineers who created MCAS for the military tanker designed the system to rely on inputs from multiple sensors and with limited power to move the tanker's nose. These deliberate checks sought to ensure that the system could not act erroneously or cause a pilot to lose control. Those familiar with the tanker's design explained that these checks were incorporated because "[y]ou don't want the solution to be worse than the initial problem."

The 737 MAX version of MCAS abandoned the safeguards previously relied upon. As discussed below, the 737 MAX MCAS had greater control authority than its predecessor, activated repeatedly upon activation, and relied on input from just one of the plane's two sensors that measure the angle of the plane's nose.

In other words, Boeing can't credibly say that it didn't know better.

Here is one of the sections describing Boeing's cover-ups:

Yet Boeing's website, press releases, annual reports, public statements and statements to operators and customers, submissions to the FAA and other civil aviation authorities, and 737 MAX flight manuals made no mention of the increased stall hazard or MCAS itself.

In fact, Boeing 737 Chief Technical Pilot, Mark Forkner asked the FAA to delete any mention of MCAS from the pilot manual so as to further hide its existence from the public and pilots.

We urge you to read the complaint in full, since it contains juicy insider details, like the significance of Southwest being Boeing's 737 Max "launch partner" and what that entailed in practice, plus recounting dates and names of Boeing personnel who met with SWAPA pilots and made misrepresentations about the aircraft.

If you are time-pressed, the best MSM account is from the Seattle Times, In scathing lawsuit, Southwest pilots' union says Boeing 737 MAX was unsafe

Even though Southwest Airlines is negotiating a settlement with Boeing over losses resulting from the grounding of the 737 Max and the airline has promised to compensate the pilots, the pilots' union at a minimum apparently feels the need to put the heat on Boeing directly. After all, the union could withdraw the complaint if Southwest were to offer satisfactory compensation for the pilots' lost income. And pilots have incentives not to raise safety concerns about the planes they fly. Don't want to spook the horses, after all.

But Southwest pilots are not only the ones most harmed by Boeing's debacle but they are arguably less exposed to the downside of bad press about the 737 Max. It's business fliers who are most sensitive to the risks of the 737 Max, due to seeing the story regularly covered in the business press plus due to often being road warriors. Even though corporate customers account for only 12% of airline customers, they represent an estimated 75% of profits.

Southwest customers don't pay up for front of the bus seats. And many of them presumably value the combination of cheap travel, point to point routes between cities underserved by the majors, and close-in airports, which cut travel times. In other words, that combination of features will make it hard for business travelers who use Southwest regularly to give the airline up, even if the 737 Max gives them the willies. By contrast, premium seat passengers on American or United might find it not all that costly, in terms of convenience and ticket cost (if they are budget sensitive), to fly 737-Max-free Delta until those passengers regain confidence in the grounded plane.

Note that American Airlines' pilot union, when asked about the Southwest claim, said that it also believes its pilots deserve to be compensated for lost flying time, but they plan to obtain it through American Airlines.

If Boeing were smart, it would settle this suit quickly, but so far, Boeing has relied on bluster and denial. So your guess is as good as mine as to how long the legal arm-wrestling goes on.

Update 5:30 AM EDT : One important point that I neglected to include is that the filing also recounts, in gory detail, how Boeing went into "Blame the pilots" mode after the Lion Air crash, insisting the cause was pilot error and would therefore not happen again. Boeing made that claim on a call to all operators, including SWAPA, and then three days later in a meeting with SWAPA.

However, Boeing's actions were inconsistent with this claim. From the filing:

Then, on November 7, 2018, the FAA issued an "Emergency Airworthiness Directive (AD) 2018-23-51," warning that an unsafe condition likely could exist or develop on 737 MAX aircraft.

Relying on Boeing's description of the problem, the AD directed that in the event of un-commanded nose-down stabilizer trim such as what happened during the Lion Air crash, the flight crew should comply with the Runaway Stabilizer procedure in the Operating Procedures of the 737 MAX manual.

But the AD did not provide a complete description of MCAS or the problem in 737 MAX aircraft that led to the Lion Air crash, and would lead to another crash and the 737 MAX's grounding just months later.

An MCAS failure is not like a runaway stabilizer. A runaway stabilizer has continuous un-commanded movement of the tail, whereas MCAS is not continuous and pilots (theoretically) can counter the nose-down movement, after which MCAS would move the aircraft tail down again.

Moreover, unlike runaway stabilizer, MCAS disables the control column response that 737 pilots have grown accustomed to and relied upon in earlier generations of 737 aircraft.

Even after the Lion Air crash, Boeing's description of MCAS was still insufficient to put correct its lack of disclosure as demonstrated by a second MCAS-caused crash.

We hoisted this detail because insiders were spouting in our comments section, presumably based on Boeing's patter, that the Lion Air pilots were clearly incompetent, had they only executed the well-known "runaway stabilizer," all would have been fine. Needless to say, this assertion has been shown to be incorrect.


Titus , October 8, 2019 at 4:38 am

Excellent, by any standard. Which does remind of of the NYT zine story (William Langewiesche Published Sept. 18, 2019) making the claim that basically the pilots who crashed their planes weren't real "Airman".

And making the point that to turn off MCAS all you had to do was flip two switches behind everything else on the center condole. Not exactly true, normally those switches were there to shut off power to electrically assisted trim. Ah, it one thing to shut off MCAS it's a whole other thing to shut off power to the planes trim, especially in high speed ✓ and the plane noise up ✓, and not much altitude ✓.

And especially if you as a pilot didn't know MCAS was there in the first place. This sort of engineering by Boeing is criminal. And the lying. To everyone. Oh, least we all forget the processing power of the in flight computer is that of a intel 286. There are times I just want to be beamed back to the home planet. Where we care for each other.

Carolinian , October 8, 2019 at 8:32 am

One should also point out that Langewiesche said that Boeing made disastrous mistakes with the MCAS and that the very future of the Max is cloudy. His article was useful both for greater detail about what happened and for offering some pushback to the idea that the pilots had nothing to do with the accidents.

As for the above, it was obvious from the first Seattle Times stories that these two events and the grounding were going to be a lawsuit magnet. But some of us think Boeing deserves at least a little bit of a defense because their side has been totally silent–either for legal reasons or CYA reasons on the part of their board and bad management.

Brooklin Bridge , October 8, 2019 at 8:08 am

Classic addiction behavior. Boeing has a major behavioral problem, the repetitive need for and irrational insistence on profit above safety all else , that is glaringly obvious to everyone except Boeing.

Summer , October 8, 2019 at 9:01 am

"The engineers who created MCAS for the military tanker designed the system to rely on inputs from multiple sensors and with limited power to move the tanker's nose. These deliberate checks sought to ensure that the system could not act erroneously or cause a pilot to lose control "

"Yet Boeing's website, press releases, annual reports, public statements and statements to operators and customers, submissions to the FAA and other civil aviation authorities, and 737 MAX flight manuals made no mention of the increased stall hazard or MCAS itself.

In fact, Boeing 737 Chief Technical Pilot, Mark Forkner asked the FAA to delete any mention of MCAS from the pilot manual so as to further hide its existence from the public and pilots "

This "MCAS" was always hidden from pilots? The military implemented checks on MCAS to maintain a level of pilot control. The commercial airlines did not. Commercial airlines were in thrall of every little feature that they felt would eliminate the need for pilots at all. Fell right into the automation crapification of everything.

[Oct 05, 2019] A Secretive Committee of Wall Street Insiders controls NY FED

Oct 05, 2019 | www.institutionalinvestor.com

A Secretive Committee of Wall Street Insiders Is the Least of the New York Fed's Concerns.

In July 17, Mary Callahan Erdoes, head of JPMorgan Chase & Co.'s $2.2 trillion asset and wealth management division, walked into the wood-paneled tenth-floor conference room at the Federal Reserve Bank of New York to address some fellow Wall Street luminaries -- Bridgewater Associates' Ray Dalio, Dawn Fitzpatrick of Soros Fund Management, short-seller Jim Chanos, and LBO kingpin David Rubenstein among them.

All are members of the Investor Advisory Committee on Financial Markets (IACFM) -- a forum to provide financial insight to the New York Fed. Chairing the meeting was New York Fed president John C. Williams, vice chair of the powerful, rate-setting Federal Open Market Committee, who was a year into his tenure.

Erdoes held forth at the meeting, which included a buffet lunch.

---

And so on.

This is us, we have a unexhaustable desire for these secret meetings to meet, so we vote, every year to convene them. If these secret meeting did not occur then we could never do a deal with the super wealthy and our precious will not be insured.
Reply Saturday, October 05, 2019 at 06:04 PM

[Sep 18, 2019] FAA Hoist on Its Own Boeing 737 Max Petard Multiagency Panel to Issue Report Criticizing Agency Approval Process, Call for Cer

Notable quotes:
"... The aim of the panel, called the Joint Authorities Technical Review, was to expedite getting the 737 Max into the air by creating a vehicle for achieve consensus among foreign regulators who had grounded the 737 Max before the FAA had. But these very regulators had also made clear they needed to be satisfied before they'd let it fly in their airspace. ..."
"... The FAA hopes to give the 737 Max the green light in November, while the other regulators all have said they have issues that are unlikely to be resolved by then. The agency is now in the awkward position of having a body it set up to be authoritative turn on the agency's own procedures. ..."
"... the FAA had moved further and further down the path of relying on aircraft manufactures for critical elements of certification. Not all of this was the result of capture; with the evolution of technology, even the sharpest and best intended engineer in government employ would become stale on the state of the art in a few years. ..."
"... Although all stories paint a broadly similar picture, .the most damning is a detailed piece at the Seattle Times, Engineers say Boeing pushed to limit safety testing in race to certify planes, including 737 MAX ..The article gives an incriminating account of how Boeing got the FAA to delegate more and more certification authority to the airline, and then pressured and abused employees who refused to back down on safety issues . ..."
"... In 2004, the FAA changed its system for front-line supervision of airline certification from having the FAA select airline certification employees who reported directly to the FAA to having airline employees responsible for FAA certification report to airline management and have their reports filtered through them (the FAA attempted to maintain that the certification employees could provide their recommendations directly to the agency, but the Seattle Times obtained policy manuals that stated otherwise). ..."
"... On Monday, the Post and Courier reported about the South Carolina plant that produced 787s found with tools rattling inside that Boeing SC lets mechanics inspect their own work, leading to repeated mistakes, workers say. These mechanic certifications would never have been kosher if the FAA were vigilant. Similarly, Reuters described how Boeing weakened another safety check, that of pilot input. ..."
"... As part of roughly a dozen findings, these government and industry officials said, the task force is poised to call out the Federal Aviation Administration for what it describes as a lack of clarity and transparency in the way the FAA delegated authority to the plane maker to assess the safety of certain flight-control features. The upshot, according to some of these people, is that essential design changes didn't receive adequate FAA attention. ..."
"... But the report could influence changes to traditional engineering principles determining the safety of new aircraft models. Certification of software controlling increasingly interconnected and automated onboard systems "is a whole new ballgame requiring new approaches," according to a senior industry safety expert who has discussed the report with regulators on both sides of the Atlantic. ..."
"... For instance, the Journal reports that Canadian authorities expect to require additional simulator training for 737 Max pilots. Recall that Boeing's biggest 737 Max customer, Southwest Airlines, was so resistant to the cost of additional simulator training that it put a penalty clause into its contract if wound up being necessary. ..."
"... Patrick Ky, head of the European Union Aviation Safety Agency, told the European Parliament earlier this month, "It's very likely that international authorities will want a second opinion" on any FAA decision to lift the grounding. ..."
"... Most prominently, EASA has proposed to eventually add to the MAX a third fully functional angle-of-attack sensor -- which effectively measures how far the plane's nose is pointed up or down -- underscoring the controversy expected to swirl around the plane for the foreseeable future. ..."
"... It's hard to see how Boeing hasn't gotten itself in the position of being at a major competitive disadvantage by virtue of having compromised the FAA so severely as to have undercut safety. ..."
"... has Boeing developed a plan to correct the trim wheel issue on the 787max? i haven't seen a single statement from them on how they plan to fix this problem. is it possible they think they can get the faa to re-certify without addressing it? ..."
"... Don't forget that the smaller trim wheels are in the NG as well. any change to fix the wheels ripples across more planes than just the Max ..."
"... The self-inflicted wound caused by systematic greed and arrogance – corruption, in other words. Boeing is reaping the wages of taking 100% of their profits to support the stock price through stock buybacks and deliberately under-investing in their business. Their brains have been taken over by a parasitic financial system that profits by wrecking healthy businesses. ..."
"... Shareholder Value is indeed the worst idea in the world. That Boeing's biggest stockholder, Vanguard, is unable to cleanup Boeing's operations makes perfect sense. I mean vanguards expertise is making money, not building anything. Those skills are completely different. ..."
"... One maxim we see illustrated here and elsewhere is this: Trust takes years to earn, but can be lost overnight. ..."
Sep 18, 2019 | www.nakedcapitalism.com

The FAA evidently lacked perspective on how much trouble it was in after the two international headline-grabbing crashes of the Boeing 737 Max. It established a "multiagency panel" meaning one that included representatives from foreign aviation regulators, last April. A new Wall Street Journal article reports that the findings of this panel, to be released in a few weeks, are expected to lambaste the FAA 737 Max approval process and urge a major redo of how automated aircraft systems get certified .

The aim of the panel, called the Joint Authorities Technical Review, was to expedite getting the 737 Max into the air by creating a vehicle for achieve consensus among foreign regulators who had grounded the 737 Max before the FAA had. But these very regulators had also made clear they needed to be satisfied before they'd let it fly in their airspace.

The JATR gave them a venue for reaching a consensus, but it wasn't the consensus the FAA sought. The foreign regulators, despite being given a forum in which to hash things out with the FAA, are not following the FAA's timetable. The FAA hopes to give the 737 Max the green light in November, while the other regulators all have said they have issues that are unlikely to be resolved by then. The agency is now in the awkward position of having a body it set up to be authoritative turn on the agency's own procedures.

The Seattle Times, which has broken many important on the Boeing debacle, reported on how the FAA had moved further and further down the path of relying on aircraft manufactures for critical elements of certification. Not all of this was the result of capture; with the evolution of technology, even the sharpest and best intended engineer in government employ would become stale on the state of the art in a few years.

However, one of the critical decisions the FAA took was to change the reporting lines of the manufacturer employees who were assigned to FAA certification. From a May post :

Although all stories paint a broadly similar picture, .the most damning is a detailed piece at the Seattle Times, Engineers say Boeing pushed to limit safety testing in race to certify planes, including 737 MAX ..The article gives an incriminating account of how Boeing got the FAA to delegate more and more certification authority to the airline, and then pressured and abused employees who refused to back down on safety issues .

As the Seattle Times described, the problems extended beyond the 737 Max MCAS software shortcomings; indeed, none of the incidents in the story relate to it.

In 2004, the FAA changed its system for front-line supervision of airline certification from having the FAA select airline certification employees who reported directly to the FAA to having airline employees responsible for FAA certification report to airline management and have their reports filtered through them (the FAA attempted to maintain that the certification employees could provide their recommendations directly to the agency, but the Seattle Times obtained policy manuals that stated otherwise).

Mind you, the Seattle Times was not alone in depicting the FAA as captured by Boeing. On Monday, the Post and Courier reported about the South Carolina plant that produced 787s found with tools rattling inside that Boeing SC lets mechanics inspect their own work, leading to repeated mistakes, workers say. These mechanic certifications would never have been kosher if the FAA were vigilant. Similarly, Reuters described how Boeing weakened another safety check, that of pilot input.

One of the objectives for creating this panel was to restore confidence in Boeing and the FAA, but that was always going to be a tall order, particularly after more bad news about various 737 Max systems and Boeing being less than forthcoming with its customers and regulators emerged. From the Wall Street Journal :

As part of roughly a dozen findings, these government and industry officials said, the task force is poised to call out the Federal Aviation Administration for what it describes as a lack of clarity and transparency in the way the FAA delegated authority to the plane maker to assess the safety of certain flight-control features. The upshot, according to some of these people, is that essential design changes didn't receive adequate FAA attention.

The report, these officials said, also is expected to fault the agency for what it describes as inadequate data sharing with foreign authorities during its original certification of the MAX two years ago, along with relying on mistaken industrywide assumptions about how average pilots would react to certain flight-control emergencies .

The FAA has stressed that the advisory group doesn't have veto power over modifications to MCAS.

But the report could influence changes to traditional engineering principles determining the safety of new aircraft models. Certification of software controlling increasingly interconnected and automated onboard systems "is a whole new ballgame requiring new approaches," according to a senior industry safety expert who has discussed the report with regulators on both sides of the Atlantic.

If the FAA thinks it can keep this genie the bottle, it is naive. The foreign regulators represented on the task force, including from China and the EU, have ready access to the international business press. And there will also be an embarrassing fact on the ground, that the FAA, which was last to ground the 737 Max, will be the first to let it fly again, and potentially by not requiring safety protections that other regulators will insist on. For instance, the Journal reports that Canadian authorities expect to require additional simulator training for 737 Max pilots. Recall that Boeing's biggest 737 Max customer, Southwest Airlines, was so resistant to the cost of additional simulator training that it put a penalty clause into its contract if wound up being necessary.

It's a given that the FAA will be unable to regain its former stature and that all of its certifications of major aircraft will now be second guessed subject to further review by major foreign regulators. That in turn will impose costs on Boeing, of changing its certification process from needing to placate only the FAA to having to appease potentially multiple parties. For instance, the EU regulator is poised to raise the bar on the 737 Max:

Patrick Ky, head of the European Union Aviation Safety Agency, told the European Parliament earlier this month, "It's very likely that international authorities will want a second opinion" on any FAA decision to lift the grounding.

Even after EASA gives the green light, agency officials are expected to push for significant additional safety enhancements to the fleet. Most prominently, EASA has proposed to eventually add to the MAX a third fully functional angle-of-attack sensor -- which effectively measures how far the plane's nose is pointed up or down -- underscoring the controversy expected to swirl around the plane for the foreseeable future.

A monopoly is a precious thing to have. Too bad Boeing failed to appreciate that in its zeal for profits. If the manufacturer winds up facing different demands in different regulatory markets, it will have created more complexity for itself. Can it afford not to manufacture to the highest common denominator, say by making an FAA-only approved bird for Southwest and trying to talk American into buying FAA-only approved versions for domestic use only? It's hard to see how Boeing hasn't gotten itself in the position of being at a major competitive disadvantage by virtue of having compromised the FAA so severely as to have undercut safety.


kimyo , September 17, 2019 at 4:42 am

Boeing Foresees Return Of The 737 MAX In November – But Not Everywhere

Even if Boeing finds solutions that international regulators can finally accept, their implementation will take additional months. The AoA sensor and trim wheel issues will likely require hardware changes to the 600 or so existing MAX airplanes. The demand for simulator training will further delay the ungrounding of the plane. There are only some two dozen 737 MAX simulators in this world and thousands of pilots who will need to pass through them.

has Boeing developed a plan to correct the trim wheel issue on the 787max? i haven't seen a single statement from them on how they plan to fix this problem. is it possible they think they can get the faa to re-certify without addressing it?

marku52 , September 17, 2019 at 1:35 pm

Don't forget that the smaller trim wheels are in the NG as well. any change to fix the wheels ripples across more planes than just the Max

divadab , September 17, 2019 at 8:36 am

The self-inflicted wound caused by systematic greed and arrogance – corruption, in other words. Boeing is reaping the wages of taking 100% of their profits to support the stock price through stock buybacks and deliberately under-investing in their business. Their brains have been taken over by a parasitic financial system that profits by wrecking healthy businesses.

It's not only Boeing – the rot is general and it is terrible to see the destruction of American productive capacity by a parasitic finance sector.

Dirk77 , September 17, 2019 at 9:12 am

+1

Shareholder Value is indeed the worst idea in the world. That Boeing's biggest stockholder, Vanguard, is unable to cleanup Boeing's operations makes perfect sense. I mean vanguards expertise is making money, not building anything. Those skills are completely different.

Noel Nospamington , September 17, 2019 at 10:41 am

Shareholder value does what it intended to do, which is to maximise stock value in the short term, even if it significantly cuts value in the long term.

By that measure allowing Boeing to take over the FAA and self-certify the 737-MAX was a big success, because of short term maximization of stock value that resulted. It is now someone else's problem regarding any long term harm.

Dirk77 , September 17, 2019 at 8:59 am

Having worked at Boeing and the FAA, this report is very welcome. One thing: federal hiring practices in a way lock out good people from working there. Very often the fed managing some project has only a tenuous grasp is what is going on.

But has the job bc they were hired in young and cheap, which is what agencies do with reduced budgets. That and job postings very often stating that they are open only to current feds says it all.

So deferring to the airline to "self-certify" would be a welcome relief to feds in many cases. At this point, I doubt the number of their "sharpest and best intended" engineers is very high.

If you want better oversight, then increase the number and quality of feds by making it easier to hire, and decrease the number of contractors.

Arthur Dent , September 17, 2019 at 10:54 am

I deal with federal and state regulators (not airplane) all the time. Very well meaning people, but in many cases are utterly unqualified to do the technical work. So it works well when they stick to the policy issues and stay out of the technical details.

However, we have Professional Engineers and other licensed professionals signing off on the engineering documents per state law. You can look at the design documents and the construction certification and there is a name and stamp of the responsible individual.

The licensing laws clearly state that the purpose of licensing is to hold public health and safety paramount. This is completely missing in the American industrial sector due to the industrial exemptions in the professional engineering licensing laws. Ultimately, there is nobody technically responsible for a plane or a car who has to certify that they are making the public safe and healthy.

Instead, the FAA and others do that. Federal agencies and the insurance institute test cars and give safety ratings. Lawyers sue companies for defects which also helps enforce safety.

Harry , September 17, 2019 at 1:44 pm

But how can individuals take responsibility? Their pockets arn't deep enough,.

XXYY , September 17, 2019 at 2:57 pm

One maxim we see illustrated here and elsewhere is this: Trust takes years to earn, but can be lost overnight.

Boeing management and the FAA, having lost the trust of most people in the world through their actions lately, seem to nevertheless think it will be a simple matter to return to the former status quo. It seems as likely, or perhaps more likely, that they will never be able to return to the former status quo. They have been revealed as poseurs and imposters, cheerfully risking (and sometimes losing) their customers' lives so they can buy back more stock.

This image will be (rightfully) hard for them to shake.

notabanker , September 17, 2019 at 9:24 pm

So people are going to quit their jobs rather than fly on Boeing planes? Joe and Marge Six-Pack are going to choose flights not based on what they can afford but based on what make of plane they are flying on? As if the airlines will even tell them in advance?

There are close to zero consequences to Boeing and FAA management. Click on the link to the Purdue Sacklers debacle. The biggest inconvenience will be paying the lawyers.

Tomonthebeach , September 17, 2019 at 11:29 am

FAA & Boeing: It's deja vu all over again.

From 1992 to 1999 I worked for the FAA running one of their labs in OKC. My role, among other things, was to provide data to the Administrator on employee attitudes, business practice changes, and policy impact on morale and safety. Back then, likely as now, it was a common complaint heard from FAA execs about the conflict of interest of having to be both an aviation safety regulatory agency and having to promote aviation. Congress seemed fine with that – apparently still is. There is FAA pork in nearly every Congressional district (think airports for example). Boeing is the latest example of how mission conflict is not serving the aviation industry or public safety. With its headquarters within walking distance of Capitol Hill, aviation lobbyists do not even get much exercise shuttling.

The 1996 Valuejet crash into the Florida swamps shows how far back the mission conflict problem has persisted. Valuejet was a startup airline that was touted as more profitable than all the others. It achieved that notoriety by flying through every FAA maintenance loophole they could find to cut maintenance costs. When FAA started clamping down, Senate Majority Leader Daschle scolded FAA for not being on the cutting edge of industry innovation. The message was clear – leave Valuejet alone. That was a hard message to ignore given that Daschle's wife Linda was serving as Deputy FAA Administrator (the #2 position) – a clear conflict of interest with the role of her spouse – a fact not lost on Administrator Hinson (the #1 position). Rather than use the disaster as an opportunity to revisit FAA mission conflict, Clinton tossed Administrator Hinson into the volcano of public outcry and put Daschle in charge. Nothing happened then, and it looks like Boeing might follow Valuejet into the aviation graveyard.

Kevin , September 17, 2019 at 12:34 pm

Boeing subsidies:

Mike , September 17, 2019 at 3:22 pm

Nothin' like regulatory capture. Along with financialized manufacturing, the cheap & profitable will outdo the costly careful every time. Few businesses are run today with the moral outlook of some early industrialists (not enough of them, but still present) who, through zany Protestant guilt, cared for their reputations enough to not make murderous product, knowing how the results would play both here and in Heaven. Today we have PR and government propaganda to smear the doubters, free the toxic, and let loose toxins.

From food to clothing, drugs to hospitals, self-propelled skateboards to aircraft, pesticides to pollution, even services as day care & education, it is time to call the minions of manufactured madness to account. Dare we say "Free government from Murder Inc."?

VietnamVet , September 17, 2019 at 3:57 pm

This is an excellent summary of the untenable situation that Boeing and the Federal Government have gotten themselves into. In their rush to get richer the Elite ignored the fact that monopolies and regulatory capture are always dangerously corrupt. This is not an isolated case. FDA allows importation of uninspected stock pharmaceutical chemicals from China. Insulin is unaffordable for the lower classes. Diseases are spreading through homeless encampments. EPA approved new uses of environmentally toxic nicotinoid insecticide, sulfoxaflor. DOD sold hundreds of billions of dollars of armaments to Saudi Arabia that were useless to protect the oil supply.

The Powers-that-be thought that they would be a hegemon forever. But, Joe Biden's green light for the Ukraine Army's attack against breakaway Donbass region on Russia's border restarted the Cold War allying Russia with China and Iran. This is a multi-polar world again. Brexit and Donald Trump's Presidency are the Empire's death throes.

RBHoughton , September 17, 2019 at 8:40 pm

NC readers know what the problem is as two comments above indicate clearly. Isn't the FAA ashamed to keep conniving with the money and permitting dangerous planes to fly?

Boeing just got a WTO ruling against Airbus. It seems that one rogue produces others. Time to clean the stable and remove the money addiction from safety regulation

The Rev Kev , September 17, 2019 at 11:26 pm

I think that I can see an interesting situation developing next year. So people will be boarding a plane, say with Southwest Airlines, when they will hear the following announcement over the speakers-

"Ladies and gentlemen, this is your Captain speaking. On behalf of myself and the entire crew, welcome aboard Southwest Airlines flight WN 861, non-stop service from Houston to New York. Our flight time will be of 4 hours and 30 minutes. We will be flying at an altitude of 35,000 feet at a ground speed of approximately 590 miles per hour.

We are pleased to announce that you have now boarded the first Boeing 737 MAX that has been cleared to once again fly by the FAA as being completely safe. For those passengers flying on to any other country, we regret to announce that you will have to change planes at New York as no other country in the world has cleared this plane as being safe to fly in their airspace and insurance companies there are unwilling to issue insurance cover for them in any case.

So please sit back and enjoy your trip with us. Cabin Crew, please bolt the cabin doors and prepare for gate departure."

Arizona Slim , September 18, 2019 at 6:32 am

And then there's this -- Southwest is rethinking its 737 strategy:

https://www.youtube.com/watch?v=IoRPhfARWkg

[Sep 09, 2019] What's the True Unemployment Rate in the US? by Jack Rasmus

Highly recommended!
Notable quotes:
"... The real unemployment rate is probably somewhere between 10%-12%. ..."
"... The U-6 also includes what the labor dept. calls involuntary part time employed. It should include the voluntary part time as well, but doesn't (See, they're not actively looking for work even if unemployed). ..."
"... But even the involuntary part time is itself under-estimated. I believe the Labor Dept. counts only those involuntarily part time unemployed whose part time job is their primary job. It doesn't count those who have second and third involuntary part time jobs. That would raise the U-6 unemployment rate significantly. The labor Dept's estimate of the 'discouraged' and 'missing labor force' is grossly underestimated. ..."
"... The labor dept. also misses the 1-2 million workers who went on social security disability (SSDI) after 2008 because it provides better pay, for longer, than does unemployment insurance. That number rose dramatically after 2008 and hasn't come down much (although the government and courts are going after them). ..."
"... The way the government calculates unemployment is by means of 60,000 monthly household surveys but that phone survey method misses a lot of workers who are undocumented and others working in the underground economy in the inner cities (about 10-12% of the economy according to most economists and therefore potentially 10-12% of the reported labor force in size as well). ..."
"... The SSDI, undocumented, underground, underestimation of part timers, etc. are what I call the 'hidden unemployed'. And that brings the unemployed well above the 3.7%. ..."
Sep 09, 2019 | www.counterpunch.org

The real unemployment rate is probably somewhere between 10%-12%. Here's why: the 3.7% is the U-3 rate, per the labor dept. But that's the rate only for full time employed. What the labor dept. calls the U-6 includes what it calls discouraged workers (those who haven't looked for work in the past 4 weeks). Then there's what's called the 'missing labor force'–i.e. those who haven't looked in the past year. They're not calculated in the 3.7% U-3 unemployment rate number either. Why? Because you have to be 'out of work and actively looking for work' to be counted as unemployed and therefore part of the 3.7% rate.

The U-6 also includes what the labor dept. calls involuntary part time employed. It should include the voluntary part time as well, but doesn't (See, they're not actively looking for work even if unemployed).

But even the involuntary part time is itself under-estimated. I believe the Labor Dept. counts only those involuntarily part time unemployed whose part time job is their primary job. It doesn't count those who have second and third involuntary part time jobs. That would raise the U-6 unemployment rate significantly. The labor Dept's estimate of the 'discouraged' and 'missing labor force' is grossly underestimated.

The labor dept. also misses the 1-2 million workers who went on social security disability (SSDI) after 2008 because it provides better pay, for longer, than does unemployment insurance. That number rose dramatically after 2008 and hasn't come down much (although the government and courts are going after them).

The way the government calculates unemployment is by means of 60,000 monthly household surveys but that phone survey method misses a lot of workers who are undocumented and others working in the underground economy in the inner cities (about 10-12% of the economy according to most economists and therefore potentially 10-12% of the reported labor force in size as well). The labor dept. just makes assumptions about that number (conservatively, I may add) and plugs in a number to be added to the unemployment totals. But it has no real idea of how many undocumented or underground economy workers are actually employed or unemployed since these workers do not participate in the labor dept. phone surveys, and who can blame them.

The SSDI, undocumented, underground, underestimation of part timers, etc. are what I call the 'hidden unemployed'. And that brings the unemployed well above the 3.7%.

Finally, there's the corroborating evidence about what's called the labor force participation rate. It has declined by roughly 5% since 2007. That's 6 to 9 million workers who should have entered the labor force but haven't. The labor force should be that much larger, but it isn't. Where have they gone? Did they just not enter the labor force? If not, they're likely a majority unemployed, or in the underground economy, or belong to the labor dept's 'missing labor force' which should be much greater than reported. The government has no adequate explanation why the participation rate has declined so dramatically. Or where have the workers gone. If they had entered the labor force they would have been counted. And their 6 to 9 million would result in an increase in the total labor force number and therefore raise the unemployment rate.

All these reasons–-i.e. only counting full timers in the official 3.7%; under-estimating the size of the part time workforce; under-estimating the size of the discouraged and so-called 'missing labor force'; using methodologies that don't capture the undocumented and underground unemployed accurately; not counting part of the SSI increase as unemployed; and reducing the total labor force because of the declining labor force participation-–together means the true unemployment rate is definitely over 10% and likely closer to 12%. And even that's a conservative estimate perhaps." Join the debate on Facebook More articles by: Jack Rasmus

Jack Rasmus is author of the recently published book, 'Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression', Clarity Press, August 2017. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com .

[Aug 02, 2019] False pretences of knowledge about complicated economic situations have become all too common in public policy debates

Aug 02, 2019 | economistsview.typepad.com

Joe , July 24, 2019 at 08:18 AM

Acknowledging and pricing macroeconomic uncertainties - Hansen and Sargent

False pretences of knowledge about complicated economic situations have become all too common in public policy debates. This column argues that policymakers should take into account what they don't know in their decision making. It describes a tractable approach for acknowledging, characterising, and responding to different forms of uncertainty, by using theories and statistical methods available at any particular moment.

---------

Yes, starting about 10,000 years ago.

After our current MMT, we will get the same false pretence, we will have a bunch of AOC geeks on this blog explaining things have been fixed,'We won't do it again' to quote Ben, among the many thousands of false pretencers. We will hear from the 'Uncle can fix it later' crowd. "This time is different' chants another tribe. Someone will put up a blog, and we will recite talking points absent any evidence.

The delusionals and their preachers do not go away, and neither do their followers. It is like a religion, we know it is BS, but it keeps our hysteria in check.

[Jun 10, 2019] FAA's Boeing-biased Officials: Recuse Yourselves or Resign by Ralph Nader

Notable quotes:
"... The FAA has a clearly established pro-Boeing bias and will likely allow Boeing to unground the 737 MAX. We must demand that the two top FAA officials resign or recuse themselves from taking any more steps that might endanger the flying public. The two Boeing-indentured men are Acting FAA Administrator Daniel Elwell and Associate FAA Administrator for Aviation Safety Ali Bahrami. ..."
"... The FAA has long been known for its non-regulatory, waiver-driven, de-regulatory traditions. It has a hard time saying NO to the aircraft manufacturers and the airlines. After the aircraft hijackings directing flights to Cuba in the 1960s and 1970s, the FAA let the airlines say NO to installing hardened cockpit doors and stronger latches in their planes. These security measures would have prevented the hijackers from invading the cockpits of the aircrafts on September 11, 2001. The airlines did not want to spend the $3000 per plane. Absent the 9/11 hijackings, George W. Bush and Dick Cheney might not have gone to war in Afghanistan. ..."
"... Boeing has about 5,000 orders for the 737 MAX. It has delivered less than 400 to the world's airlines. From its CEO, Dennis Muilenburg to its swarms of Washington lobbyists, law firms, and public relations outfits, Boeing is used to getting its way. ..."
"... Right now, the Boeing/FAA strategy is to make sure Elwell and his FAA quickly decide that the MAX is safe for takeoff by delaying or stonewalling Congressional and other investigations. ..."
"... Time is not on the side of the 737 MAX 8. A comprehensive review of the 737 MAX's problems is a non-starter for Boeing. Boeing's flawed software and instructions that have kept pilots and airlines in the dark have already been exposed. New whistleblowers and more revelations will emerge. More time may also result in the Justice Department's operating grand jury issuing some indictments. More time would let the House Transportation and Infrastructure Committee, led by Chairman Peter DeFazio (D-OR) dig into the failure of accountability and serial criminal negligence of Boeing and its FAA accomplices. Chairman DeFazio knows the history of the FAA's regulatory capture. ..."
"... The FAA and its Boeing pals are using the "trade secret" claims to censor records sought by the House Committee. When it comes to investigating life or death airline hazards and crashes, Congress is capable of handling so-called trade secrets. This is all the more reason why the terminally prejudiced Elwell and Bahrami should step aside and let their successors take a fresh look at the Boeing investigations. That effort would include opening up the certification process for the entire Boeing MAX as a "new plane." ..."
Jun 10, 2019 | www.counterpunch.org

The Boeing-driven FAA is rushing to unground the notorious prone-to-stall Boeing 737 MAX (that killed 346 innocents in two crashes) before several official investigations are completed. Troubling revelations might keep these planes grounded worldwide.

The FAA has a clearly established pro-Boeing bias and will likely allow Boeing to unground the 737 MAX. We must demand that the two top FAA officials resign or recuse themselves from taking any more steps that might endanger the flying public. The two Boeing-indentured men are Acting FAA Administrator Daniel Elwell and Associate FAA Administrator for Aviation Safety Ali Bahrami.

Immediately after the crashes, Elwell resisted grounding and echoed Boeing claims that the Boeing 737 MAX was a safe plane despite the deadly crashes in Indonesia and Ethiopia.

Ali Bahrami is known for aggressively pushing the FAA through 2018 to further abdicate its regulatory duties by delegating more safety inspections to Boeing. Bahrami's actions benefit Boeing and are supported by the company's toadies in the Congress. Elwell and Bahrami have both acquired much experience by going through the well-known revolving door between the industry and the FAA. They are likely to leave the FAA once again for lucrative positions in the aerospace lobbying or business world. With such prospects, they do not have much 'skin in the game' for their pending decision.

The FAA has long been known for its non-regulatory, waiver-driven, de-regulatory traditions. It has a hard time saying NO to the aircraft manufacturers and the airlines. After the aircraft hijackings directing flights to Cuba in the 1960s and 1970s, the FAA let the airlines say NO to installing hardened cockpit doors and stronger latches in their planes. These security measures would have prevented the hijackers from invading the cockpits of the aircrafts on September 11, 2001. The airlines did not want to spend the $3000 per plane. Absent the 9/11 hijackings, George W. Bush and Dick Cheney might not have gone to war in Afghanistan.

The FAA's historic "tombstone" mentality (slowly reacting after the crashes) is well known. For example, in the 1990s the FAA had a delayed reaction to numerous fatal crashes caused by antiquated de-icing rules. The FAA was also slow to act on ground-proximity warning requirements for commuter airlines and flammability reduction rules for aircraft cabin materials.

That's the tradition that Elwell and Bahrami inherited and have worsened. They did not even wait for Boeing to deliver its reworked software before announcing in April that simulator training would not be necessary for the pilots. This judgment was contrary to the experience of seasoned pilots such as Captain Chesley "Sully" Sullenberger. Simulator training would delay ungrounding and cost the profitable airlines money.

Boeing has about 5,000 orders for the 737 MAX. It has delivered less than 400 to the world's airlines. From its CEO, Dennis Muilenburg to its swarms of Washington lobbyists, law firms, and public relations outfits, Boeing is used to getting its way. Its grip on Congress – where 300 members take campaign cash from Boeing – is legendary. Boeing pays little in federal and Washington state taxes. It fumbles contracts with NASA and the Department of Defense but remains the federal government's big vendor for lack of competitive alternatives in a highly concentrated industry.

Right now, the Boeing/FAA strategy is to make sure Elwell and his FAA quickly decide that the MAX is safe for takeoff by delaying or stonewalling Congressional and other investigations.

The compliant Senate Committee on Commerce, Science and Transportation, under Senator Roger Wicker (R-MS), strangely has not scheduled anymore hearings. The Senate confirmation of Stephen Dickson to replace acting chief Elwell is also on a slow track. A new boss at the FAA might wish to take some time to review the whole process.

Time is not on the side of the 737 MAX 8. A comprehensive review of the 737 MAX's problems is a non-starter for Boeing. Boeing's flawed software and instructions that have kept pilots and airlines in the dark have already been exposed. New whistleblowers and more revelations will emerge. More time may also result in the Justice Department's operating grand jury issuing some indictments. More time would let the House Transportation and Infrastructure Committee, led by Chairman Peter DeFazio (D-OR) dig into the failure of accountability and serial criminal negligence of Boeing and its FAA accomplices. Chairman DeFazio knows the history of the FAA's regulatory capture.

Not surprising on June 4, 2019, DeFazio sent a stinging letter to FAA's Elwell and his corporatist superior, Secretary of Transportation Elaine L. Chao, about the FAA's intolerable delays in sending requested documents to the Committee. DeFazio's letter says: "To say we are disappointed and a bit bewildered at the ongoing delays to appropriately respond to our records requests would be an understatement."

The FAA and its Boeing pals are using the "trade secret" claims to censor records sought by the House Committee. When it comes to investigating life or death airline hazards and crashes, Congress is capable of handling so-called trade secrets. This is all the more reason why the terminally prejudiced Elwell and Bahrami should step aside and let their successors take a fresh look at the Boeing investigations. That effort would include opening up the certification process for the entire Boeing MAX as a "new plane."

The Boeing-biased Elwell and Bahrami have refused to even raise in public proceedings the question: "After eight or more Boeing 737 iterations, at what point does the Boeing MAX 8 become a new plane?" Many, including Cong. David Price (D-NC), chair of the House Appropriations Subcommittee, which oversees the FAA's budget, have already questioned the limited certification process.

Heavier engines on the old 737 fuselage changed the MAX's aerodynamics and made it prone-to-stall. It is time for the FAA's leadership to change before the 737 MAX flies with vulnerable, glitch-prone software "fixes".

Notwithstanding the previous Boeing 737 series' record of safety in the U.S. during the past decade – (one fatality), Boeing's bosses, have now disregarded warnings by its own engineers. Boeing executives do not get one, two, three or anymore crashes attributed to their ignoring long-known aerodynamic engineering practices.

The Boeing 737 MAX must never be allowed to fly again, given the structural design defects built deeply into its system.

[May 08, 2019] How Accurate Are the US Jobs Numbers? by Jack Rasmus

Notable quotes:
"... Current Establishment Survey (CES) Report ..."
"... Current Population Survey (CPS ..."
"... The much hyped 3.6% unemployment (U-3) rate for April refers only to full time jobs (35 hrs. or more worked in a week). And these jobs are declining by 191,000 while part time jobs are growing by 155,000. So which report is accurate? How can full time jobs be declining by 191,000, while the U-3 unemployment rate (covering full time only) is falling? The answer: full time jobs disappearing result in an unemployment rate for full time (U-3)jobs falling. A small number of full time jobs as a share of the total labor force appears as a fall in the unemployment rate for full time workers. Looked at another way, employers may be converting full time to part time and temp work, as 191,000 full time jobs disappear and 155,000 part time jobs increase. ..."
"... The April selective numbers of 263,000 jobs and 3.6% unemployment rate is further questionable by yet another statistic by the Labor Dept.: It is contradicted by a surge of 646,000 in April in the category, 'Not in the Labor Force', reported each month. That 646,000 suggests large numbers of workers are dropping out of the labor force (a technicality that actually also lowers the U-3 unemployment rate). 'Not in the Labor Force' for March, the previous month Report, revealed an increase of an additional 350,000 added to 'Not in the Labor Force' totals. In other words, a million–or at least a large percentage of a million–workers have left the labor force. This too is not an indication of a strong labor market and contradicts the 263,000 and U-3 3.6% unemployment rate. ..."
"... Whether jobs, wages or GDP stats, the message here is that official US economic stats, especially labor market stats, should be read critically and not taken for face value, especially when hyped by the media and press. The media pumps selective indicators that make the economy appear better than it actually is. Labor Dept. methods and data used today have not caught up with the various fundamental changes in the labor markets, and are therefore increasingly suspect. It is not a question of outright falsification of stats. It's about failure to evolve data and methodologies to reflect the real changes in the economy. ..."
"... Government stats are as much an 'art' (of obfuscation) as they are a science. They produce often contradictory indication of the true state of the economy, jobs and wages. Readers need to look at the 'whole picture', not just the convenient, selective media reported data like Establishment survey job creation and U-3 unemployment rates. ..."
May 08, 2019 | www.counterpunch.org

The recently released report on April jobs on first appearance, heavily reported by the media, shows a record low 3.6% unemployment rate and another month of 263,000 new jobs created. But there are two official US Labor dept. jobs reports, and the second shows a jobs market much weaker than the selective, 'cherry picked' indicators on unemployment and jobs creation noted above that are typically featured by the press.

Problems with the April Jobs Report

While the Current Establishment Survey (CES) Report (covering large businesses) shows 263,000 jobs created last month, the Current Population Survey (CPS ) second Labor Dept. report (that covers smaller businesses) shows 155,000 of these jobs were involuntary part time. This high proportion (155,000 of 263,000) suggests the job creation number is likely second and third jobs being created. Nor does it reflect actual new workers being newly employed. The number is for new jobs, not newly employed workers. Moreover, it's mostly part time and temp or low paid jobs, likely workers taking on second and third jobs.

Even more contradictory, the second CPS report shows that full time work jobs actually declined last month by 191,000. (And the month before, March, by an even more 228,000 full time jobs decline).

The much hyped 3.6% unemployment (U-3) rate for April refers only to full time jobs (35 hrs. or more worked in a week). And these jobs are declining by 191,000 while part time jobs are growing by 155,000. So which report is accurate? How can full time jobs be declining by 191,000, while the U-3 unemployment rate (covering full time only) is falling? The answer: full time jobs disappearing result in an unemployment rate for full time (U-3)jobs falling. A small number of full time jobs as a share of the total labor force appears as a fall in the unemployment rate for full time workers. Looked at another way, employers may be converting full time to part time and temp work, as 191,000 full time jobs disappear and 155,000 part time jobs increase.

And there's a further problem with the part time jobs being created: It also appears that the 155,000 part time jobs created last month may be heavily weighted with the government hiring part timers to start the work on the 2020 census–typically hiring of which starts in April of the preceding year of the census. (Check out the Labor Dept. numbers preceding the prior 2010 census, for April 2009, for the same development a decade ago).

Another partial explanation is that the 155,000 part time job gains last month (and in prior months in 2019) reflect tens of thousands of workers a month who are being forced onto the labor market now every month, as a result of US courts recent decisions now forcing workers who were formerly receiving social security disability benefits (1 million more since 2010) back into the labor market.

The April selective numbers of 263,000 jobs and 3.6% unemployment rate is further questionable by yet another statistic by the Labor Dept.: It is contradicted by a surge of 646,000 in April in the category, 'Not in the Labor Force', reported each month. That 646,000 suggests large numbers of workers are dropping out of the labor force (a technicality that actually also lowers the U-3 unemployment rate). 'Not in the Labor Force' for March, the previous month Report, revealed an increase of an additional 350,000 added to 'Not in the Labor Force' totals. In other words, a million–or at least a large percentage of a million–workers have left the labor force. This too is not an indication of a strong labor market and contradicts the 263,000 and U-3 3.6% unemployment rate.

Bottom line, the U-3 unemployment rate is basically a worthless indicator of the condition of the US jobs market; and the 263,000 CES (Establishment Survey) jobs is contradicted by the Labor Dept's second CPS survey (Population Survey).

GDP & Rising Wages Revisited

In two previous shows, the limits and contradictions (and thus a deeper explanations) of US government GDP and wage statistics were featured: See the immediate April 26, 2019 Alternative Visions show on preliminary US GDP numbers for the 1st quarter 2019, where it was shown how the Trump trade war with China, soon coming to an end, is largely behind the GDP latest numbers; and that the more fundamental forces underlying the US economy involving household consumption and real business investment are actually slowing and stagnating. Or listen to my prior radio show earlier this year where media claims that US wages are now rising is debunked as well.

Claims of wages rising are similarly misrepresented when a deeper analysis shows the proclaimed wage gains are, once again, skewed to the high end of the wage structure and reflect wages for salaried managers and high end professionals by estimating 'averages' and limiting data analysis to full time workers once again; not covering wages for part time and temp workers; not counting collapse of deferred and social wages (pension and social security payments); and underestimating inflation so that real wages appear larger than otherwise. Independent sources estimate more than half of all US workers received no wage increase whatsoever in 2018–suggesting once again the gains are being driven by the top 10% and assumptions of averages that distort the actual wage gains that are much more modest, if at all.

Ditto for GDP analysis and inflation underestimation using the special price index for GDP (the GDP deflator), and the various re-definitions of GDP categories made in recent years and questionable on-going GDP assumptions, such as including in GDP calculation the questionable inclusion of 50 million homeowners supposedly paying themselves a 'rent equivalent'.

A more accurate 'truth' about jobs, wages, and GDP stats is found in the 'fine print' of definitions and understanding the weak statistical methodologies that change the raw economic data on wages, jobs, and economic output (GDP) into acceptable numbers for media promotion.

Whether jobs, wages or GDP stats, the message here is that official US economic stats, especially labor market stats, should be read critically and not taken for face value, especially when hyped by the media and press. The media pumps selective indicators that make the economy appear better than it actually is. Labor Dept. methods and data used today have not caught up with the various fundamental changes in the labor markets, and are therefore increasingly suspect. It is not a question of outright falsification of stats. It's about failure to evolve data and methodologies to reflect the real changes in the economy.

Government stats are as much an 'art' (of obfuscation) as they are a science. They produce often contradictory indication of the true state of the economy, jobs and wages. Readers need to look at the 'whole picture', not just the convenient, selective media reported data like Establishment survey job creation and U-3 unemployment rates.

When so doing, the bigger picture is an US economy being held up by temporary factors (trade war) soon to dissipate; jobs creation driven by part time work as full time jobs continue structurally to disappear; and wages that are being driven by certain industries (tech, etc.), high end employment (managers, professionals), occasional low end minimum wage hikes in select geographies, and broad categories of 'wages' ignored.

Join the debate on Facebook More articles by: Jack Rasmus

Jack Rasmus is author of the recently published book, 'Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression', Clarity Press, August 2017. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com .

[May 05, 2019] Apres Moi le Deluge by Paul Craig Roberts

The jobs reports are fabrications and that the jobs that do exist are lowly paid domestic service jobs such as waitresses and bartenders and health care and social assistance. What has kept the American economy going is the expansion of consumer debt, not higher pay from higher productivity. The reported low unemployment rate is obtained by not counting discouraged workers who have given up on finding a job.
May 03, 2019 | www.unz.com

I was listening while driving to rightwing talk radio. It is BS just like NPR. It was about the great Trump economy compared to the terrible Obama one. The US hasn't had a great economy since jobs offshoring began in the 1990s, and with robotics about to launch Americans are unlikely ever again to experience a good economy.

The latest jobs report released today claims 236,000 new private sector jobs. Where are the jobs, if they in fact exist?

Manufacturing, that is making things, produced a mere 4,000 jobs.

The jobs are in domestic services. There are 54,800 jobs in "administrative and waste services." This category includes things such as employment services, temporary help services, and building services such as janitor services.

"Health care and social assistance" accounts for 52,600 jobs. This category includes things such as ambulatory health care services and individual and family services.

And there are 25,000 new waiters and bartenders.

Construction, mainly specialty trade contractors, added 33,000.

There are a few other jobs scattered about. Warehousing and storage had 5,400 new jobs.

Real estate rental and leasing hired 7,800.

Legal services laid off 700 people.

Architectural and engineering services lost 1,700 jobs.

There were 6,800 new managers.

The new jobs are not high value-added, high productivity jobs that provide middle class incomes.

In the 21st century the US economy has only served those who own stocks. The liquidity that the Federal Reserve has pumped into the economy has driven up stock prices, and the Trump tax cut has left corporations with more money for stock buybacks and dividend payments. The institute on Taxation and Economic Policy reports that 60 Fortune 500 companies paid no taxes on $79 billion in income, instead receiving a rebate of $4.3 billion. https://itep.org/notadime/

The sign of a good economy is when companies are reinvesting their profits and borrowed money in new plant and equipment to meet rising demand. Instead, US companies are spending more on buybacks and dividends than the total of their profits. In other words, the companies are going into debt in order to drive up their share prices by purchasing their own shares. The executives and shareholders are looting their own companies, leaving the companies less capitalized and deeper in debt. https://systemicdisorder.wordpress.com/2016/10/26/work-harder-for-speculators/

Meanwhile, for the American people the Trump regime's budget for 2020 delivers $845 billion in cuts to Medicare, $1.5 trillion in cuts to Medicaid, and $84 billion in cuts to Social Security disability benefits.

History is repeating itself: Let them eat cake. After me the deluge.

The French Revolution followed.

[Mar 18, 2019] The Boeing debacle is the latest example of regulatory capture by D. Saint Germain

Mar 15, 2019 | medium.com

How the Boeing 737 Max grounding and the Genoa bridge collapse show us that allowing companies to self-certify the safety of their products can be deadly

On Wednesday the United States joined 42 other countries in grounding Boeing's 737 Max 8 jets, days after a crash in Ethiopia of a 737 Max 8 jet left 157 people dead. The United States was a holdout, taking days longer to ground the planes than most of Europe. Our Federal Aviation Administration (FAA) said, in those days between, that they weren't grounding the planes because " the agency's own reviews of the aircraft show no 'systematic performance issues.' "

There were some conflicting accounts of exactly how the US came to ground the 737 Max 8. A statement from Boeing on Wednesday read that "Boeing has determined  --  out of an abundance of caution and in order to reassure the flying public of the aircraft's safety  --  to recommend to the FAA the temporary suspension of operations of the entire global fleet of 371 737 MAX aircraft."

In other words, Boeing claimed it was their idea / recommendation that the FAA ground the aircraft. Meanwhile, Donald Trump declared that he grounded the aircraft by executive order, forcing the FAA's hand.

Which begs the question  --  why did it take a presidential decree and/or the company itself to get the FAA, the main agency responsible for overseeing airplane transit in the United States, to ground potentially dangerous aircraft?

As James Hall, the former National Transportation Safety Board chairman, explained in the Times , in 2005 the FAA turned its safety certification responsibilities over to the manufacturers themselves (if manufacturers met some requirements). In plain speak, this means that Boeing got to decide if Boeing's airplanes were safe enough to fly  --  with no additional third-party checks.

The FAA said the purpose of this change was to save the aviation industry roughly $25 billion between 2006 to 2015.

Given this, it makes you wonder if the statement on Tuesday by Acting FAA Administrator Daniel K. Elwell  --  that the agency had conducted its own review  --  was factual, or if the agency had simply reviewed the safety review that Boeing had conducted on itself. It also clarifies why Boeing came to recommend to the FAA that their planes be grounded, rather than the FAA taking any decisive action on their own.

The term for this maze, where a government safety agency allows an industry to regulate itself so the industry can save some money , and where the industry itself has to be the one to recommend to government that their product shouldn't be in operation pending investigation, is regulatory capture .

From Wikipedia : "Regulatory capture is a form of government failure which occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the industry or sector it is charged with regulating."

The issue, in short, is that it is rarely in a business' self-interest to ensure the absolute safety of their products. Safety testing takes time, money, and if inspections reveal problems that need fixing, more money. Corporations are profit maximizers and pursue whatever method they need to minimize cost (including minimizing fixing flaws in their products) and maximize profit.

Without the threat of outside inspection or serious repercussions, there are few incentives to fix potential problems. Insurance covers accidents, and most mega-corporations have funds set aside in their operating budgets to pay the (generally small, relative to their operating budgets) fines governments may impose if and when a problem is discovered.

This is why it is unlikely that industry will ever sufficiently regulate itself on safety issues. Remember Edward Norton's job in "Fight Club"? "The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A. Multiply it by the probable rate of failure, B. Multiply the result by the average out-of-court settlement, C. A x B x C equals X. If X is less than the cost of a recall, we don't do one."

The United States isn't alone in turning over self-certification of its transportation and infrastructure to industry. The Genoa Bridge Collapse in Italy last year, in which 43 people died, is another case.

The Morandi Bridge is a privately-owned toll bridge, publicly built but later sold off to Autostrade, a company majority owned by the Benetton clothing family. As a private infrastructure company, Autostrade has a profit maximization goal of keeping bridge maintenance costs low and toll profits high. Thanks to further privatization efforts of the Italian government, the safety and inspection of bridges is also conducted by private companies. In the case of the Morandi Bridge, the inspection company responsible for safety checks and certification of the bridge was owned by Autostrade's parent company, leaving the company that owns the bridge to self-certify its safety. The result, as the world saw, was a bridge that collapsed.

As Texas engineer Linwood Howell said in the Times, "the engineers inspecting the bridge would have their own professional liabilities to worry about, including the profits of the company that was paying them," i.e. a clear conflict of interest between maintaining basic safety and ensuring their own jobs.

Meanwhile, as Italian law professor Giuliano Fonderico noted , "the government behaved more like its first priority was cooperating with Autostrade, rather than regulating it."

These current examples of regulatory capture are the latest in a series of examples from recent times; others have pointed to regulatory capture in the Federal Reserve during the economic crisis , and the Mineral Management Service during the BP Oil Spill , to name two. Unfortunately it is only when a tragedy occurs that the public expresses concern.

George Stigler, who received the Nobel Peace Prize in Economics in part for his work around regulatory capture in 1982, believed that it was likely that industry would come to dictate the regulatory issues within their industries because of personal connections, a greater understanding of issues facing industry than the general public, but mostly, a public ignorance around what their regulators are up to.

Perhaps it is time for people to pay a little more attention to what our regulators, who we pay to protect us from bridge collapses and plane crashes, are up to. There are some people with big ideas on fixes for regulatory capture, but public demand will also need to exist for real reform efforts to take place.

[Mar 10, 2019] U.S. SEC to review stock trading rules in big potential shakeup by John McCrank

Mar 10, 2019 | finance.yahoo.com

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission is launching a review of the main set of rules governing stock trading, opening the door to the biggest potential changes in a decade-and-a-half, the head of the agency said on Friday.

The possible changes are aimed at making it easier to trade illiquid stocks, making more trading information available to investors, and improving the speed and quality of public data feeds needed for trading.

The SEC in 2005 adopted a broad framework called Regulation National Market System that was largely aimed at ensuring retail investors get the best price possible and preventing trades from being executed at prices that are inferior to bids and offers displayed on other trading venues.

Since then, faster, more sophisticated technology has put a bigger focus on rapid-fire, high-speed trading. There has also been an influx of new electronic stock exchanges, fragmenting liquidity and increasing costs for brokers around exchange connectivity and market data needed to fuel algorithmic trading.

"It is clear that the market challenges we faced in the early 2000s are not the same as the issues that we confront over a decade later," Jay Clayton, chairman of the SEC, said at an event in New York.

To get a better grasp of current market issues, the SEC held a series of roundtable discussions with industry experts last year that led to potential rule-making recommendations around thinly-traded securities, combating retail fraud, and market data and market access, Clayton said.

Some areas the SEC is looking at include:

The 2019 review follows an active 2018 for the SEC.

The regulator adopted rules to increase transparency around broker-dealer stock order routing and private off-exchange trading venues. It also ordered a pilot program to test banning lucrative rebate payments that exchanges make to brokers for liquidity-adding stock orders.

(Reporting by John McCrank; Editing by Tom Brown)

https://s.yimg.com/rq/darla/3-6-3/html/r-sf.html

Sign in to post a message. 17 viewing1 person reacting

judi 1 hour ago What about Naked Shorting? It is out of control and no one including the SEC is doing anything to stop it??

Tara 41 minutes ago The rules implemented in 2005 did nothing to help retail traders with accounts under 25K.
When are you going to address the real issue of stock price manipulation? Also, bring back the uptick rule. And while you are at it, we need rules to punish dishonest analysts who publish opinions of price that are so far off the charts, they never reflect actual earnings often announced days later.

Rob 38 minutes ago They are going to make it more in favor of big boys aka the banks

[Mar 09, 2019] The USA new class in full glory: rich are shopping differently from the low income families and the routine is like doing drags, but more pleasurable and less harmful. While workers are stuglling with the wages that barely allow to support the family, the pressure to cut hours and introduce two tire system

Notable quotes:
"... Buying beautiful clothes at full retail price was not a part of my childhood and it is not a part of my life now. It felt more illicit and more pleasurable than buying drugs. It was like buying drugs and doing the drugs, simultaneously."" ..."
"... "Erie Locomotive Plant Workers Strike against Two-Tier" [ Labor Notes ]. "UE proposed keeping the terms of the existing collective bargaining agreement in place while negotiating a new contract, but Wabtec rejected that proposal. Instead it said it would impose a two-tier pay system that would pay new hires and recalled employees up to 38 percent less in wages, institute mandatory overtime, reorganize job classifications, and hire temporary workers for up to 20 percent of the plant's jobs. ..."
"... Workers voted on Saturday to authorize the strike." • Good. Two-tier is awful, wherever found (including Social Security). ..."
Mar 09, 2019 | www.nakedcapitalism.com

Guillotine Watch

"My Year of Living Like My Rich Friend" [ New York Magazine ].

"[S]hopping with T was different. When she walked into a store, the employees greeted her by name and began to pull items from the racks for her to try on. Riding her coattails, I was treated with the same consideration, which is how I wound up owning a beautiful cashmere 3.1 Philip Lim sweater that I had no use for and rarely wore, and which was eventually eaten by moths in my closet.

Buying beautiful clothes at full retail price was not a part of my childhood and it is not a part of my life now. It felt more illicit and more pleasurable than buying drugs. It was like buying drugs and doing the drugs, simultaneously.""

Indeed:

https://www.youtube.com/embed/dfO0TgcDUnI

Class Warfare

"Erie Locomotive Plant Workers Strike against Two-Tier" [ Labor Notes ]. "UE proposed keeping the terms of the existing collective bargaining agreement in place while negotiating a new contract, but Wabtec rejected that proposal. Instead it said it would impose a two-tier pay system that would pay new hires and recalled employees up to 38 percent less in wages, institute mandatory overtime, reorganize job classifications, and hire temporary workers for up to 20 percent of the plant's jobs.

Workers voted on Saturday to authorize the strike." • Good. Two-tier is awful, wherever found (including Social Security).

[Feb 26, 2019] THE CRISIS OF NEOLIBERALISM by Julie A. Wilson

Highly recommended!
Notable quotes:
"... While the Tea Party was critical of status-quo neoliberalism -- especially its cosmopolitanism and embrace of globalization and diversity, which was perfectly embodied by Obama's election and presidency -- it was not exactly anti-neoliberal. Rather, it was anti-left neoliberalism-, it represented a more authoritarian, right [wing] version of neoliberalism. ..."
"... Within the context of the 2016 election, Clinton embodied the neoliberal center that could no longer hold. Inequality. Suffering. Collapsing infrastructures. Perpetual war. Anger. Disaffected consent. ..."
"... Both Sanders and Trump were embedded in the emerging left and right responses to neoliberalism's crisis. Specifically, Sanders' energetic campaign -- which was undoubtedly enabled by the rise of the Occupy movement -- proposed a decidedly more "commongood" path. Higher wages for working people. Taxes on the rich, specifically the captains of the creditocracy. ..."
"... In other words, Trump supporters may not have explicitly voted for neoliberalism, but that's what they got. In fact, as Rottenberg argues, they got a version of right neoliberalism "on steroids" -- a mix of blatant plutocracy and authoritarianism that has many concerned about the rise of U.S. fascism. ..."
"... We can't know what would have happened had Sanders run against Trump, but we can think seriously about Trump, right and left neoliberalism, and the crisis of neoliberal hegemony. In other words, we can think about where and how we go from here. As I suggested in the previous chapter, if we want to construct a new world, we are going to have to abandon the entangled politics of both right and left neoliberalism; we have to reject the hegemonic frontiers of both disposability and marketized equality. After all, as political philosopher Nancy Fraser argues, what was rejected in the election of 2016 was progressive, left neoliberalism. ..."
"... While the rise of hyper-right neoliberalism is certainly nothing to celebrate, it does present an opportunity for breaking with neoliberal hegemony. We have to proceed, as Gary Younge reminds us, with the realization that people "have not rejected the chance of a better world. They have not yet been offered one."' ..."
Oct 08, 2017 | www.amazon.com

Quote from the book is courtesy of Amazon preview of the book Neoliberalism (Key Ideas in Media & Cultural Studies)

In Chapter 1, we traced the rise of our neoliberal conjuncture back to the crisis of liberalism during the late nineteenth and early twentieth centuries, culminating in the Great Depression. During this period, huge transformations in capitalism proved impossible to manage with classical laissez-faire approaches. Out of this crisis, two movements emerged, both of which would eventually shape the course of the twentieth century and beyond. The first, and the one that became dominant in the aftermath of the crisis, was the conjuncture of embedded liberalism. The crisis indicated that capitalism wrecked too much damage on the lives of ordinary citizens. People (white workers and families, especially) warranted social protection from the volatilities and brutalities of capitalism. The state's public function was expanded to include the provision of a more substantive social safety net, a web of protections for people and a web of constraints on markets. The second response was the invention of neoliberalism. Deeply skeptical of the common-good principles that undergirded the emerging social welfare state, neoliberals began organizing on the ground to develop a "new" liberal govemmentality, one rooted less in laissez-faire principles and more in the generalization of competition and enterprise. They worked to envision a new society premised on a new social ontology, that is, on new truths about the state, the market, and human beings. Crucially, neoliberals also began building infrastructures and institutions for disseminating their new' knowledges and theories (i.e., the Neoliberal Thought Collective), as well as organizing politically to build mass support for new policies (i.e., working to unite anti-communists, Christian conservatives, and free marketers in common cause against the welfare state). When cracks in embedded liberalism began to surface -- which is bound to happen with any moving political equilibrium -- neoliberals were there with new stories and solutions, ready to make the world anew.

We are currently living through the crisis of neoliberalism. As I write this book, Donald Trump has recently secured the U.S. presidency, prevailing in the national election over his Democratic opponent Hillary Clinton. Throughout the election, I couldn't help but think back to the crisis of liberalism and the two responses that emerged. Similarly, after the Great Recession of 2008, we've saw two responses emerge to challenge our unworkable status quo, which dispossesses so many people of vital resources for individual and collective life. On the one hand, we witnessed the rise of Occupy Wall Street. While many continue to critique the movement for its lack of leadership and a coherent political vision, Occupy was connected to burgeoning movements across the globe, and our current political horizons have been undoubtedly shaped by the movement's success at repositioning class and economic inequality within our political horizon. On the other hand, we saw' the rise of the Tea Party, a right-wing response to the crisis. While the Tea Party was critical of status-quo neoliberalism -- especially its cosmopolitanism and embrace of globalization and diversity, which was perfectly embodied by Obama's election and presidency -- it was not exactly anti-neoliberal. Rather, it was anti-left neoliberalism-, it represented a more authoritarian, right [wing] version of neoliberalism.

Within the context of the 2016 election, Clinton embodied the neoliberal center that could no longer hold. Inequality. Suffering. Collapsing infrastructures. Perpetual war. Anger. Disaffected consent. There were just too many fissures and fault lines in the glossy, cosmopolitan world of left neoliberalism and marketized equality. Indeed, while Clinton ran on status-quo stories of good governance and neoliberal feminism, confident that demographics and diversity would be enough to win the election, Trump effectively tapped into the unfolding conjunctural crisis by exacerbating the cracks in the system of marketized equality, channeling political anger into his celebrity brand that had been built on saying "f*** you" to the culture of left neoliberalism (corporate diversity, political correctness, etc.) In fact, much like Clinton's challenger in the Democratic primary, Benie Sanders, Trump was a crisis candidate.

Both Sanders and Trump were embedded in the emerging left and right responses to neoliberalism's crisis. Specifically, Sanders' energetic campaign -- which was undoubtedly enabled by the rise of the Occupy movement -- proposed a decidedly more "commongood" path. Higher wages for working people. Taxes on the rich, specifically the captains of the creditocracy.

Universal health care. Free higher education. Fair trade. The repeal of Citizens United. Trump offered a different response to the crisis. Like Sanders, he railed against global trade deals like NAFTA and the Trans-Pacific Partnership (TPP). However, Trump's victory was fueled by right neoliberalism's culture of cruelty. While Sanders tapped into and mobilized desires for a more egalitarian and democratic future, Trump's promise was nostalgic, making America "great again" -- putting the nation back on "top of the world," and implying a time when women were "in their place" as male property, and minorities and immigrants were controlled by the state.

Thus, what distinguished Trump's campaign from more traditional Republican campaigns was that it actively and explicitly pitted one group's equality (white men) against everyone else's (immigrants, women, Muslims, minorities, etc.). As Catherine Rottenberg suggests, Trump offered voters a choice between a multiracial society (where folks are increasingly disadvantaged and dispossessed) and white supremacy (where white people would be back on top). However, "[w]hat he neglected to state," Rottenberg writes,

is that neoliberalism flourishes in societies where the playing field is already stacked against various segments of society, and that it needs only a relatively small select group of capital-enhancing subjects, while everyone else is ultimately dispensable. 1

In other words, Trump supporters may not have explicitly voted for neoliberalism, but that's what they got. In fact, as Rottenberg argues, they got a version of right neoliberalism "on steroids" -- a mix of blatant plutocracy and authoritarianism that has many concerned about the rise of U.S. fascism.

We can't know what would have happened had Sanders run against Trump, but we can think seriously about Trump, right and left neoliberalism, and the crisis of neoliberal hegemony. In other words, we can think about where and how we go from here. As I suggested in the previous chapter, if we want to construct a new world, we are going to have to abandon the entangled politics of both right and left neoliberalism; we have to reject the hegemonic frontiers of both disposability and marketized equality. After all, as political philosopher Nancy Fraser argues, what was rejected in the election of 2016 was progressive, left neoliberalism.

While the rise of hyper-right neoliberalism is certainly nothing to celebrate, it does present an opportunity for breaking with neoliberal hegemony. We have to proceed, as Gary Younge reminds us, with the realization that people "have not rejected the chance of a better world. They have not yet been offered one."'

Mark Fisher, the author of Capitalist Realism, put it this way:

The long, dark night of the end of history has to be grasped as an enormous opportunity. The very oppressive pervasiveness of capitalist realism means that even glimmers of alternative political and economic possibilities can have a disproportionately great effect. The tiniest event can tear a hole in the grey curtain of reaction which has marked the horizons of possibility under capitalist realism. From a situation in which nothing can happen, suddenly anything is possible again.4

I think that, for the first time in the history of U.S. capitalism, the vast majority of people might sense the lie of liberal, capitalist democracy. They feel anxious, unfree, disaffected. Fantasies of the good life have been shattered beyond repair for most people. Trump and this hopefully brief triumph of right neoliberalism will soon lay this bare for everyone to see. Now, with Trump, it is absolutely clear: the rich rule the world; we are all disposable; this is no democracy. The question becomes: How will we show up for history? Will there be new stories, ideas, visions, and fantasies to attach to? How can we productively and meaningful intervene in the crisis of neoliberalism? How can we "tear a hole in the grey curtain" and open up better worlds? How can we put what we've learned to use and begin to imagine and build a world beyond living in competition? I hope our critical journey through the neoliberal conjuncture has enabled you to begin to answer these questions.

More specifically, in recent decades, especially since the end of the Cold War, our common-good sensibilities have been channeled into neoliberal platforms for social change and privatized action, funneling our political energies into brand culture and marketized struggles for equality (e.g., charter schools, NGOs and non-profits, neoliberal antiracism and feminism). As a result, despite our collective anger and disaffected consent, we find ourselves stuck in capitalist realism with no real alternative. Like the neoliberal care of the self, we are trapped in a privatized mode of politics that relies on cruel optimism; we are attached, it seems, to politics that inspire and motivate us to action, while keeping us living in competition.

To disrupt the game, we need to construct common political horizons against neoliberal hegemony. We need to use our common stories and common reason to build common movements against precarity -- for within neoliberalism, precarity is what ultimately has the potential to thread all of our lives together. Put differently, the ultimate fault line in the neoliberal conjiuicture is the way it subjects us all to precarity and the biopolitics of disposability, thereby creating conditions of possibility for new coalitions across race, gender, citizenship, sexuality, and class. Recognizing this potential for coalition in the face of precarization is the most pressing task facing those who are yearning for a new world. The question is: How do we get there? How do we realize these coalitional potentialities and materialize common horizons?

HOW WE GET THERE

Ultimately, mapping the neoliberal conjuncture through everyday life in enterprise culture has not only provided some direction in terms of what we need; it has also cultivated concrete and practical intellectual resources for political interv ention and social interconnection -- a critical toolbox for living in common. More specifically, this book has sought to provide resources for thinking and acting against the four Ds: resources for engaging in counter-conduct, modes of living that refuse, on one hand, to conduct one's life according to the norm of enterprise, and on the other, to relate to others through the norm of competition. Indeed, we need new ways of relating, interacting, and living as friends, lovers, workers, vulnerable bodies, and democratic people if we are to write new stories, invent new govemmentalities, and build coalitions for new worlds.

Against Disimagination: Educated Hope and Affirmative Speculation

We need to stop turning inward, retreating into ourselves, and taking personal responsibility for our lives (a task which is ultimately impossible). Enough with the disimagination machine! Let's start looking outward, not inward -- to the broader structures that undergird our lives. Of course, we need to take care of ourselves; we must survive. But I firmly believe that we can do this in ways both big and small, that transform neoliberal culture and its status-quo stories.

Here's the thing I tell my students all the time. You cannot escape neoliberalism. It is the air we breathe, the water in which we swim. No job, practice of social activism, program of self-care, or relationship will be totally free from neoliberal impingements and logics. There is no pure "outside" to get to or work from -- that's just the nature of the neoliberalism's totalizing cultural power. But let's not forget that neoliberalism's totalizing cultural power is also a source of weakness. Potential for resistance is everywhere, scattered throughout our everyday lives in enterprise culture. Our critical toolbox can help us identify these potentialities and navigate and engage our conjuncture in ways that tear open up those new worlds we desire.

In other words, our critical perspective can help us move through the world with what Henry Giroux calls educated hope. Educated hope means holding in tension the material realities of power and the contingency of history. This orientation of educated hope knows very well what we're up against. However, in the face of seemingly totalizing power, it also knows that neoliberalism can never become total because the future is open. Educated hope is what allows us to see the fault lines, fissures, and potentialities of the present and emboldens us to think and work from that sliver of social space where we do have political agency and freedom to construct a new world. Educated hope is what undoes the power of capitalist realism. It enables affirmative speculation (such as discussed in Chapter 5), which does not try to hold the future to neoliberal horizons (that's cruel optimism!), but instead to affirm our commonalities and the potentialities for the new worlds they signal. Affirmative speculation demands a different sort of risk calculation and management. It senses how little we have to lose and how much we have to gain from knocking the hustle of our lives.

Against De-democratization: Organizing and Collective Coverning

We can think of educated hope and affirmative speculation as practices of what Wendy Brown calls "bare democracy" -- the basic idea that ordinary' people like you and me should govern our lives in common, that we should critique and try to change our world, especially the exploitative and oppressive structures of power that maintain social hierarchies and diminish lives. Neoliberal culture works to stomp out capacities for bare democracy by transforming democratic desires and feelings into meritocratic desires and feelings. In neoliberal culture, utopian sensibilities are directed away from the promise of collective utopian sensibilities are directed away from the promise of collective governing to competing for equality.

We have to get back that democractic feeling! As Jeremy Gilbert taught us, disaffected consent is a post-democratic orientation. We don't like our world, but we don't think we can do anything about it. So, how do we get back that democratic feeling? How do we transform our disaffected consent into something new? As I suggested in the last chapter, we organize. Organizing is simply about people coming together around a common horizon and working collectively to materialize it. In this way, organizing is based on the idea of radical democracy, not liberal democracy. While the latter is based on formal and abstract rights guaranteed by the state, radical democracy insists that people should directly make the decisions that impact their lives, security, and well-being. Radical democracy is a practice of collective governing: it is about us hashing out, together in communities, what matters, and working in common to build a world based on these new sensibilities.

The work of organizing is messy, often unsatisfying, and sometimes even scary. Organizing based on affirmative speculation and coalition-building, furthermore, will have to be experimental and uncertain. As Lauren Berlant suggests, it means "embracing the discomfort of affective experience in a truly open social life that no

one has ever experienced." Organizing through and for the common "requires more adaptable infrastructures. Keep forcing the existing infrastructures to do what they don't know how to do. Make new ways to be local together, where local doesn't require a physical neighborhood." 5 What Berlant is saying is that the work of bare democracy requires unlearning, and detaching from, our current stories and infrastructures in order to see and make things work differently. Organizing for a new world is not easy -- and there are no guarantees -- but it is the only way out of capitalist realism.

Against Disposability: Radical Equality

Getting back democratic feeling will at once require and help us lo move beyond the biopolitics of disposability and entrenched systems of inequality. On one hand, organizing will never be enough if it is not animated by bare democracy, a sensibility that each of us is equally important when it comes to the project of determining our lives in common. Our bodies, our hurts, our dreams, and our desires matter regardless of our race, gender, sexuality, or citizenship, and regardless of how r much capital (economic, social, or cultural) we have. Simply put, in a radical democracy, no one is disposable. This bare-democratic sense of equality must be foundational to organizing and coalition-building. Otherwise, we will always and inevitably fall back into a world of inequality.

On the other hand, organizing and collective governing will deepen and enhance our sensibilities and capacities for radical equality. In this context, the kind of self-enclosed individualism that empowers and underwrites the biopolitics of disposability melts away, as we realize the interconnectedness of our lives and just how amazing it feels to

fail, we affirm our capacities for freedom, political intervention, social interconnection, and collective social doing.

Against Dispossession: Shared Security and Common Wealth

Thinking and acting against the biopolitics of disposability goes hand-in-hand with thinking and acting against dispossession. Ultimately, when we really understand and feel ourselves in relationships of interconnection with others, we want for them as we want for ourselves. Our lives and sensibilities of what is good and just are rooted in radical equality, not possessive or self-appreciating individualism. Because we desire social security and protection, we also know others desire and deserve the same.

However, to really think and act against dispossession means not only advocating for shared security and social protection, but also for a new society that is built on the egalitarian production and distribution of social wealth that we all produce. In this sense, we can take Marx's critique of capitalism -- that wealth is produced collectively but appropriated individually -- to heart. Capitalism was built on the idea that one class -- the owners of the means of production -- could exploit and profit from the collective labors of everyone else (those who do not own and thus have to work), albeit in very different ways depending on race, gender, or citizenship. This meant that, for workers of all stripes, their lives existed not for themselves, but for others (the appropriating class), and that regardless of what we own as consumers, we are not really free or equal in that bare-democratic sense of the word.

If we want to be really free, we need to construct new material and affective social infrastructures for our common wealth. In these new infrastructures, wealth must not be reduced to economic value; it must be rooted in social value. Here, the production of wealth does not exist as a separate sphere from the reproduction of our lives. In other words, new infrastructures, based on the idea of common wealth, will not be set up to exploit our labor, dispossess our communities, or to divide our lives. Rather, they will work to provide collective social resources and care so that we may all be free to pursue happiness, create beautiful and/or useful things, and to realize our potential within a social world of living in common. Crucially, to create the conditions for these new, democratic forms of freedom rooted in radical equality, we need to find ways to refuse and exit the financial networks of Empire and the dispossessions of creditocracy, building new systems that invite everyone to participate in the ongoing production of new worlds and the sharing of the wealth that we produce in common.

It's not up to me to tell you exactly where to look, but I assure you that potentialities for these new worlds are everywhere around you.

[Feb 15, 2019] CAPE Fear The Bulls Are Wrong. Shiller's Measure Is the Real Deal

Notable quotes:
"... The CAPE aims to correct for those distortions. It smooths the denominator by using not current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting that when stocks are this expensive, a downturn may be at hand. ..."
"... is 36.1% higher ..."
"... Here's the problem that the CAPE highlights. Earnings in the past two decades have been far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2 points (3.2% versus 2%). That's a reversal of long-term trends. ..."
"... Right now, earnings constitute an unusually higher share of national income. That's because record-low interest rates have restrained cost of borrowing for the past several years, and companies have managed to produce more cars, steel and semiconductors while shedding workers and holding raises to a minimum. ..."
"... t's often overlooked that although profits grow in line with GDP, which by the way, is now expanding a lot more slowly than two decades ago, earnings per share ..."
"... The reason is dilution. Companies are constantly issuing new shares, for everything from expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are also challenging incumbents, raising the number of shares that divide up an industry's profits faster than those profits are increasing. Since total earnings grow with GDP, and the share count grows faster than profits, it's mathematically impossible for EPS growth to consistently rise in double digits, although it does over brief periods––followed by intervals of zero or minuscule increases. ..."
"... The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably high profits are artificially depressing the former. and that profits are bound to stagnate at best, and more likely decline. ..."
"... In an investing world dominated by hype, the CAPE is a rare truth-teller ..."
Feb 15, 2019 | finance.yahoo.com

For the past half-decade, a controversial yardstick called the CAPE has been flashing red, warning that stock prices are extremely rich, and vulnerable to a sharp correction. And over the same period, the Wall Street bulls and a number of academics led by Jeremy Siegel of the Wharton School, have been claiming that CAPE is a kind of fun house mirror that makes reasonable valuations appear grotesquely stretched.

CAPE, an acronym "Cyclically-adjusted price-to-earnings ratio," was developed by economist Robert Shiller of Yale to correct for a flaw in judging where stock prices stand on the continuum from dirt cheap to highly expensive based on the current P/E ratio. The problem: Reported earnings careen from lofty peaks to deep troughs, so that when they're in a funk, multiples jump so high that shares appear overpriced when they're really reasonable, and when profits explode, they can skew the P/E by creating the false signal that they're a great buy.

The CAPE aims to correct for those distortions. It smooths the denominator by using not current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting that when stocks are this expensive, a downturn may be at hand.

The CAPE's critics argue that its adjusted PE is highly inflated, because the past decade includes a portion of the financial crisis that decimated earnings. That period was so unusual, their thinking goes, that it makes the ten-year average denominator much too low, producing what looks like a dangerous number when valuations are actually reasonable by historical norms. They point to the traditional P/E based on 12-month trailing, GAAP profits. By that yardstick today's multiple is 19.7, a touch above the 20-year average of 19, though exceeding the century-long norm of around 16.

I've run some numbers, and my analysis indicates that the CAPE doesn't suffer from those alleged shortcoming, and presents a much truer picture than today's seemingly reassuring P/E. Here's why. Contrary to its opponents' assertions, the CAPE's earnings number is not artificially depressed. I calculated ten year average of real profits for six decade-long periods starting in February of 1959 and ending today, (the last one running from 2/2009 to 2/2019). On average, the adjusted earnings number rose 22% from one period to the next. The biggest leap came from 1999 to 2009, when the 10-year average of real earnings advanced 42%.

So did profits since then languish to the point where the current CAPE figure is unrealistically big? Not at all. The Shiller profit number of $91 per share is 36.1% higher than the reading for the 1999 to 2009 period, when it had surged a record 40%-plus over the preceding decade. If anything, today's denominator looks high, meaning the CAPE of almost 30 is at least reasonable, and if anything overstates what today's investors will reap from each dollar they've invested in stocks.

Indeed, in the latest ten-year span, adjusted profits have waxed at a 3.2% annual pace, slightly below the 3.6% from 1999 to 2009, but far above the average of 1.6% from 1959 to 1999.

Here's the problem that the CAPE highlights. Earnings in the past two decades have been far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2 points (3.2% versus 2%). That's a reversal of long-term trends. Over our entire 60 year period, GDP rose at 3.3% annually, and profits trailed by 1.3 points, advancing at just 2%. So the rationale that P/Es are modest is based on the assumption that today's earnings aren't unusually high at all, and should continue growing from here, on a trajectory that outstrips national income.

It won't happen. It's true that total corporate profits follow GDP over the long term, though they fluctuate above and below that benchmark along the way. Right now, earnings constitute an unusually higher share of national income. That's because record-low interest rates have restrained cost of borrowing for the past several years, and companies have managed to produce more cars, steel and semiconductors while shedding workers and holding raises to a minimum.

Now, rates are rising and so it pay and employment, forces that will crimp profits. I t's often overlooked that although profits grow in line with GDP, which by the way, is now expanding a lot more slowly than two decades ago, earnings per share grow a lot slower, as I've shown, lagging by 1.3 points over the past six decades.

An influential study from 2003 by Rob Arnott, founder of Research Affiliates, and co-author William J. Bernstein, found that EPS typically trails overall profit and economic growth by even more, an estimated 2 points a year.

The reason is dilution. Companies are constantly issuing new shares, for everything from expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are also challenging incumbents, raising the number of shares that divide up an industry's profits faster than those profits are increasing. Since total earnings grow with GDP, and the share count grows faster than profits, it's mathematically impossible for EPS growth to consistently rise in double digits, although it does over brief periods––followed by intervals of zero or minuscule increases.

The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably high profits are artificially depressing the former. and that profits are bound to stagnate at best, and more likely decline. The retreat appears to have already started. The Wall Street "consensus" Wall Street earnings forecast compiled by FactSet calls for an EPS decline of 1.7% for the first quarter of 2017, and zero inflation-adjusted gains for the first nine months of the year.

In an investing world dominated by hype, the CAPE is a rare truth-teller .

[Feb 05, 2019] The bottom line is that this preoccupation with the 'headline number' for the current month as a single datapoint that is promoted by Wall Street and the Government for official economic data is a nasty neoliberal propaganda trick. You need to analise the whole time serioes to get an objective picture

Highly recommended!
Notable quotes:
"... And as for the median wage and income -- it is still too weak to sustain an economic recovery. ..."
Feb 05, 2019 | jessescrossroadscafe.blogspot.com

The bottom line is that this preoccupation with the 'headline number' for the current month as a single datapoint that is promoted by Wall Street and the Government for official economic data is misleading.

The effective method of considering a heavily adjusted and revised data series like this is with a trend analysis of at least seven to twelve observations, and more if you can get them.

But, that makes for a much less interesting and convenient narrative.

And as for the median wage and income -- it is still too weak to sustain an economic recovery.

Stocks were a bit weak today, despite all this fabulous economic data, having exhausted the sugar rush that was spoonfed to them by their friendly neighborhood Federal Reserve.

[Feb 02, 2019] In Fiery Speeches, Francis Excoriates Global Capitalism

The French economist Thomas Piketty argued last year in a surprising best-seller, "Capital in the Twenty-First Century," that rising wealth inequality was a natural result of free-market policies, a direct challenge to the conventional view that economic inequalities shrink over time. The controversial implication drawn by Mr. Piketty is that governments should raise taxes on the wealthy.
Notable quotes:
"... His speeches can blend biblical fury with apocalyptic doom. Pope Francis does not just criticize the excesses of global capitalism. He compares them to the "dung of the devil." He does not simply argue that systemic "greed for money" is a bad thing. He calls it a "subtle dictatorship" that "condemns and enslaves men and women." ..."
"... The Argentine pope seemed to be asking for a social revolution. "This is not theology as usual; this is him shouting from the mountaintop," said Stephen F. Schneck, the director of the Institute for Policy Research and Catholic studies at Catholic University of America in Washington. ..."
"... Left-wing populism is surging in countries immersed in economic turmoil, such as Spain, and, most notably, Greece . But even in the United States, where the economy has rebounded, widespread concern about inequality and corporate power are propelling the rise of liberals like Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts, who, in turn, have pushed the Democratic Party presidential front-runner, Hillary Rodham Clinton, to the left. ..."
"... Even some free-market champions are now reassessing the shortcomings of unfettered capitalism. George Soros, who made billions in the markets, and then spent a good part of it promoting the spread of free markets in Eastern Europe, now argues that the pendulum has swung too far the other way. ..."
"... Many Catholic scholars would argue that Francis is merely continuing a line of Catholic social teaching that has existed for more than a century and was embraced even by his two conservative predecessors, John Paul II and Benedict XVI. Pope Leo XIII first called for economic justice on behalf of workers in 1891, with his encyclical "Rerum Novarum" - or, "On Condition of Labor." ..."
"... Francis has such a strong sense of urgency "because he has been on the front lines with real people, not just numbers and abstract ideas," Mr. Schneck said. "That real-life experience of working with the most marginalized in Argentina has been the source of his inspiration as pontiff." ..."
"... In Bolivia, Francis praised cooperatives and other localized organizations that he said provide productive economies for the poor. "How different this is than the situation that results when those left behind by the formal market are exploited like slaves!" he said on Wednesday night. ..."
"... It is this Old Testament-like rhetoric that some finding jarring, perhaps especially so in the United States, where Francis will visit in September. His environmental encyclical, "Laudato Si'," released last month, drew loud criticism from some American conservatives and from others who found his language deeply pessimistic. His right-leaning critics also argued that he was overreaching and straying dangerously beyond religion - while condemning capitalism with too broad a brush. ..."
"... The French economist Thomas Piketty argued last year in a surprising best-seller, "Capital in the Twenty-First Century," that rising wealth inequality was a natural result of free-market policies, a direct challenge to the conventional view that economic inequalities shrink over time. The controversial implication drawn by Mr. Piketty is that governments should raise taxes on the wealthy. ..."
"... "Working for a just distribution of the fruits of the earth and human labor is not mere philanthropy," he said on Wednesday. "It is a moral obligation. For Christians, the responsibility is even greater: It is a commandment." ..."
"... "I'm a believer in capitalism but it comes in as many flavors as pie, and we have a choice about the kind of capitalist system that we have," said Mr. Hanauer, now an outspoken proponent of redistributive government ..."
"... "What can be done by those students, those young people, those activists, those missionaries who come to my neighborhood with the hearts full of hopes and dreams but without any real solution for my problems?" he asked. "A lot! They can do a lot. ..."
Jul 11, 2015 | msn.com

ASUNCIÓN, Paraguay - His speeches can blend biblical fury with apocalyptic doom. Pope Francis does not just criticize the excesses of global capitalism. He compares them to the "dung of the devil." He does not simply argue that systemic "greed for money" is a bad thing. He calls it a "subtle dictatorship" that "condemns and enslaves men and women."

Having returned to his native Latin America, Francis has renewed his left-leaning critiques on the inequalities of capitalism, describing it as an underlying cause of global injustice, and a prime cause of climate change. Francis escalated that line last week when he made a historic apology for the crimes of the Roman Catholic Church during the period of Spanish colonialism - even as he called for a global movement against a "new colonialism" rooted in an inequitable economic order.

The Argentine pope seemed to be asking for a social revolution. "This is not theology as usual; this is him shouting from the mountaintop," said Stephen F. Schneck, the director of the Institute for Policy Research and Catholic studies at Catholic University of America in Washington.

The last pope who so boldly placed himself at the center of the global moment was John Paul II, who during the 1980s pushed the church to confront what many saw as the challenge of that era, communism. John Paul II's anti-Communist messaging dovetailed with the agenda of political conservatives eager for a tougher line against the Soviets and, in turn, aligned part of the church hierarchy with the political right.

Francis has defined the economic challenge of this era as the failure of global capitalism to create fairness, equity and dignified livelihoods for the poor - a social and religious agenda that coincides with a resurgence of the leftist thinking marginalized in the days of John Paul II. Francis' increasingly sharp critique comes as much of humanity has never been so wealthy or well fed - yet rising inequality and repeated financial crises have unsettled voters, policy makers and economists.

Left-wing populism is surging in countries immersed in economic turmoil, such as Spain, and, most notably, Greece. But even in the United States, where the economy has rebounded, widespread concern about inequality and corporate power are propelling the rise of liberals like Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts, who, in turn, have pushed the Democratic Party presidential front-runner, Hillary Rodham Clinton, to the left.

Even some free-market champions are now reassessing the shortcomings of unfettered capitalism. George Soros, who made billions in the markets, and then spent a good part of it promoting the spread of free markets in Eastern Europe, now argues that the pendulum has swung too far the other way.

"I think the pope is singing to the music that's already in the air," said Robert A. Johnson, executive director of the Institute for New Economic Thinking, which was financed with $50 million from Mr. Soros. "And that's a good thing. That's what artists do, and I think the pope is sensitive to the lack of legitimacy of the system."

Many Catholic scholars would argue that Francis is merely continuing a line of Catholic social teaching that has existed for more than a century and was embraced even by his two conservative predecessors, John Paul II and Benedict XVI. Pope Leo XIII first called for economic justice on behalf of workers in 1891, with his encyclical "Rerum Novarum" - or, "On Condition of Labor."

Mr. Schneck, of Catholic University, said it was as if Francis were saying, "We've been talking about these things for more than one hundred years, and nobody is listening."

Francis has such a strong sense of urgency "because he has been on the front lines with real people, not just numbers and abstract ideas," Mr. Schneck said. "That real-life experience of working with the most marginalized in Argentina has been the source of his inspiration as pontiff."

Francis made his speech on Wednesday night, in Santa Cruz, Bolivia, before nearly 2,000 social advocates, farmers, trash workers and neighborhood activists. Even as he meets regularly with heads of state, Francis has often said that change must come from the grass roots, whether from poor people or the community organizers who work with them. To Francis, the poor have earned knowledge that is useful and redeeming, even as a "throwaway culture" tosses them aside. He sees them as being at the front edge of economic and environmental crises around the world.

In Bolivia, Francis praised cooperatives and other localized organizations that he said provide productive economies for the poor. "How different this is than the situation that results when those left behind by the formal market are exploited like slaves!" he said on Wednesday night.

It is this Old Testament-like rhetoric that some finding jarring, perhaps especially so in the United States, where Francis will visit in September. His environmental encyclical, "Laudato Si'," released last month, drew loud criticism from some American conservatives and from others who found his language deeply pessimistic. His right-leaning critics also argued that he was overreaching and straying dangerously beyond religion - while condemning capitalism with too broad a brush.

"I wish Francis would focus on positives, on how a free-market economy guided by an ethical framework, and the rule of law, can be a part of the solution for the poor - rather than just jumping from the reality of people's misery to the analysis that a market economy is the problem," said the Rev. Robert A. Sirico, president of the Acton Institute for the Study of Religion and Liberty, which advocates free-market economics.

Francis' sharpest critics have accused him of being a Marxist or a Latin American Communist, even as he opposed communism during his time in Argentina. His tour last week of Latin America began in Ecuador and Bolivia, two countries with far-left governments. President Evo Morales of Bolivia, who wore a Che Guevara patch on his jacket during Francis' speech, claimed the pope as a kindred spirit - even as Francis seemed startled and caught off guard when Mr. Morales gave him a wooden crucifix shaped like a hammer and sickle as a gift.

Francis' primary agenda last week was to begin renewing Catholicism in Latin America and reposition it as the church of the poor. His apology for the church's complicity in the colonialist era received an immediate roar from the crowd. In various parts of Latin America, the association between the church and economic power elites remains intact. In Chile, a socially conservative country, some members of the country's corporate elite are also members of Opus Dei, the traditionalist Catholic organization founded in Spain in 1928.

Inevitably, Francis' critique can be read as a broadside against Pax Americana, the period of capitalism regulated by global institutions created largely by the United States. But even pillars of that system are shifting. The World Bank, which long promoted economic growth as an end in itself, is now increasingly focused on the distribution of gains, after the Arab Spring revolts in some countries that the bank had held up as models. The latest generation of international trade agreements includes efforts to increase protections for workers and the environment.

The French economist Thomas Piketty argued last year in a surprising best-seller, "Capital in the Twenty-First Century," that rising wealth inequality was a natural result of free-market policies, a direct challenge to the conventional view that economic inequalities shrink over time. The controversial implication drawn by Mr. Piketty is that governments should raise taxes on the wealthy.

Mr. Piketty roiled the debate among mainstream economists, yet Francis' critique is more unnerving to some because he is not reframing inequality and poverty around a new economic theory but instead defining it in moral terms. "Working for a just distribution of the fruits of the earth and human labor is not mere philanthropy," he said on Wednesday. "It is a moral obligation. For Christians, the responsibility is even greater: It is a commandment."

Nick Hanauer, a Seattle venture capitalist, said that he saw Francis as making a nuanced point about capitalism, embodied by his coinage of a "social mortgage" on accumulated wealth - a debt to the society that made its accumulation possible. Mr. Hanauer said that economic elites should embrace the need for reforms both for moral and pragmatic reasons. "I'm a believer in capitalism but it comes in as many flavors as pie, and we have a choice about the kind of capitalist system that we have," said Mr. Hanauer, now an outspoken proponent of redistributive government policies like a higher minimum wage.

Yet what remains unclear is whether Francis has a clear vision for a systemic alternative to the status quo that he and others criticize. "All these critiques point toward the incoherence of the simple idea of free market economics, but they don't prescribe a remedy," said Mr. Johnson, of the Institute for New Economic Thinking.

Francis acknowledged as much, conceding on Wednesday that he had no new "recipe" to quickly change the world. Instead, he spoke about a "process of change" undertaken at the grass-roots level.

"What can be done by those students, those young people, those activists, those missionaries who come to my neighborhood with the hearts full of hopes and dreams but without any real solution for my problems?" he asked. "A lot! They can do a lot. "You, the lowly, the exploited, the poor and underprivileged, can do, and are doing, a lot. I would even say that the future of humanity is in great measure in your own hands."

[Jan 20, 2019] Bubblicious Disregard for Risks

Notable quotes:
"... Mispricing risk is the new normal, apparently. The assumption is that the stock market is now in hand and will be fine -- unless something startles it. ..."
Jan 20, 2019 | jessescrossroadscafe.blogspot.com

We will be getting more individual company financial results now that we are in the reporting period again. These may help to sway the markets in some direction, or not.

The market seemed to be shrugging off the results being shown by the financials thus far.

Mispricing risk is the new normal, apparently. The assumption is that the stock market is now in hand and will be fine -- unless something startles it.

Have a pleasant evening.

[Jan 20, 2019] Who Could See It Coming - Dead Reckoning the Minsky Moment

Jan 20, 2019 | jessescrossroadscafe.blogspot.com

Stocks and Precious Metals Charts - Who Could See It Coming? - Dead Reckoning the Minsky Moment

"

In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance."

Hyman Minsky, The Financial Instability Hypothesis

"Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen.

Many of Minsky's colleagues regarded his 'financial-instability hypothesis,' which he first developed in the nineteen-sixties, as radical, if not crackpot. Today, with the subprime crisis seemingly on the verge of metamorphosing into a recession, references to it have become commonplace on financial web sites and in the reports of Wall Street analysts. Minsky's hypothesis is well worth revisiting."

John Cassidy, The Minsky Moment , The New Yorker, 4 February 2008.

"The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revival, but finally giving up in the final collapse."

Charles Kindelberger, Manias, Panics, and Crashes: A History of Financial Crises

"The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street [and in the professional and credentialed class] are nearly always silent."

John Kenneth Galbraith, The Great Crash of 1929

"People who lost jobs -- and those are in the millions in 2008, 2009, and 2010 -- have now gotten jobs, that's true, but the jobs they've gotten have lower wages, have less security and fewer benefits than the ones they lost, which means they can't spend money like we might have hoped they would if they had got the kinds of jobs they lost, but they didn't...

The big tax cut last December, 2017, gave an awful lot of money to the richest Americans and to big corporations. They had no incentive to plow that into their businesses, because Americans can't buy any more than they already do. They're up to their necks in debt and all the rest.

So what they did was to take the money they saved from taxes and speculate in the stock market, driving up the shares and so forth. Naive people thought that was a sign of economic health. It wasn't. It was money bidding up the price of stock until the underlying economy was so far out of whack with the stock market that now everybody realizes that and there's a rush to get out and boom, the thing goes down."

Richard Wolff, The Next Economic Crisis Is Coming


Bubbles most often resolve their imbalances irresponsibly and jarringly, with a correction that is sharp and destructive. It is often triggered by some seemingly trivial event, especially if its predatory mispricing of risk has been allowed to fester for an extended period of time.. How can this be?

Credit cycles explain bubbles in modern finance, but the elite protect themselves and their banks from the effects. Hence, only the middle and working class loses. And this has been the case for many years now. Hence the growing unrest abroad, and the decisions by the electorate at home that seem to puzzle and provoke the very comfortable 'credentialed' class.

The reason for this is quite easy to understand. Those who benefit the most from the bubble both actively and passively help sustain it. They are reluctant to surrender any potion of their enormous advantage and personal gains, even if it might be better for them in the long term.

They do not consider the damage that may be done to the underlying social fabric that supports and protects their wealth. Contrary to all of the familiar assumptions, they are not acting rationally or prudently, even for themselves. Their focus is short term and short-sighted. They are drunk on their own success.

The interpreters and creators of the prevailing narrative are themselves beneficiaries of the bubble economy, and will go to great lengths to misdirect the public discussion from any root causes, and often from its very existence. They will distract the public with inflammatory issues, economic fear, stage-managed spectacles, and manufactured complexity. And finally, in the extremes of their shamelessness, they will seek to blame the victims for their lack of sophistication and the government for its efforts to restrain their predatory frauds.

This enables the cycle of boom and bust to repeat and worsen beyond all reasonable expectations.

The lesson from history is that a system based on the ascendant greed of powerful insiders is rarely rational and self-correcting, and is often spectacularly self-destructive. And those with the most power, in their wonderful self-delusion, simply do not care until it is too late. They are blinded by the moment, in their competition with each other, and the insatiable nature of greed itself. 'Enough' is not in their reckoning.

To this end governments are fashioned, and people organize themselves from the damage that can be done to society as a whole by a few. Unfortunately people forget, and it seems that at least once every generation or so the madness slips loose its restraints, and this sad lesson from history repeats.

And so once again the world must face its rendezvous with destiny.

The box scores for today's market action are shown in the graphs below.

Apparently rough weather is heading towards the east coast. The local grocery store was a nuthouse even in the early afternoon. I am making some chicken soup for myself and Dolly. Even if I could coax her out of her fuzzy blanket and pillows, Dolly would offer limited assistance. She is clearly just in it for the chicken.

Have a pleasant evening.

[Jan 20, 2019] Psychologogical prerequisites for the financial bubble: gullibility of most people

Look at financial fraud and smoke and mirrors in the current USA "casino capitalism" as another example of the same. People do believe the insane valuations of tech firms like Apple, Facebook, Google and Amazon despite dot-com bubble. A lot of people put hard earned money in stock of those companies in wane hope to get out before the bubble pops.
Jan 20, 2019 | www.moonofalabama.org
the pair , Jan 18, 2019 1:42:50 PM | 4 ">link

"war is a racket" as the saying goes. it's usually less about actual capability than it is keeping all the usual suspects latched firmly on the "military industrial" teat. it's basically the world's largest welfare program disguised as "national defense" and - coupled with financial fraud/smoke and mirrors - what props up the sad remnants of the US. unless people believe the insane overvaluation of tech firms like facebook and amazon for another generation.

it is also - like you and others have mentioned - an offensive system allowing for first-strike capability and not feasible for many reasons (not the least of which is the sheer amount of "space junk" floating around in orbit.) all it takes is one russian/chinese/belgian/? missile getting through anyway...unless these idiots still agree with bush sr's idea of "acceptable losses of entire cities".

[Jan 07, 2019] The 1920's were marked by a credit expansion, a significant growth in consumer debt, the creation of asset bubbles, and the proliferation of financial instruments and leveraged investments. Now we have exactly the same trends

Highly recommended!
This article published 10 years ago looks like it was written yesterday. The more things change in the USA casino capitalism the more they stay the same
Now Trump tariffs will cause drop in consumption. What will follow it not very clear.
Hypertrophied growth of financial system is cancer. It is a parasitic institution much like cancer cells in human body.
Notable quotes:
"... The Federal Reserve made tragic policy errors most certainly with regard to interest rates. They were hampered by a lack of coordinated effort because of the official US policy focus on liquidation and non-interference, along with mass bank failures which rendered their attempts to reflate the money supply as largely futile. ..."
"... But good policies applied with vigor during a period of economic illness may be like forcing patients seriously ill with pneumonia to swim laps and run in marathons because you think such physical activity is inherently good and beneficial in itself at all times. ..."
"... Today it seems to us that the Fed and Treasury are trying to cure our current problems by filling the banks full of liquidity with the idea that it will eventually trickle down to the real economy through their toll gates. ..."
"... We believe this will not work. The financial system is rotten, and not only in its toxic and fraudulent assets. It is a weakened, rotten timber that will provide scant leverage for the rescue attempts. ..."
Oct 31, 2008 | jessescrossroadscafe.blogspot.com

The 1920's were marked by a credit expansion, a significant growth in consumer debt, the creation of asset bubbles, and the proliferation of financial instruments and leveraged investments. The Federal Reserve expanded the money supply and the Republican government pursued a laissez-faire approach to business.

This helped to create a greater wealth disparity, and saddled a good part of the public with debts on consumables that were vulnerable to an economic contraction.

The bursting of the credit bubble triggered the stock market Crash of 1929. The Hoover administration's response was guided by Secretary of the Treasury Andrew Mellon. As noted by Herbert Hoover in his memoirs, "Mellon had only one formula: 'Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.'"

Indeed, the collapse of consumption and credit, and the ensuing 'do nothing' policy of liquidation by the government crippled the economy and drove unemployment up to the incredible 24% level at the climax of the liquidation and deleveraging.

Although some assets fared better than others, virtually everything was caught up in the cycle of liquidation and everything was sold: stocks, bonds, farms, even long dated US Treasuries, all of them collapsing into the bottom in late 1932.

The Federal Reserve made tragic policy errors most certainly with regard to interest rates. They were hampered by a lack of coordinated effort because of the official US policy focus on liquidation and non-interference, along with mass bank failures which rendered their attempts to reflate the money supply as largely futile.

Thrifty management of the credit and monetary levels when the economy is balanced in the manufacturing, service, export-import, and consumption distribution levels is a good policy to follow.

But good policies applied with vigor during a period of economic illness may be like forcing patients seriously ill with pneumonia to swim laps and run in marathons because you think such physical activity is inherently good and beneficial in itself at all times.

Additionally, monetary expansion alone also does not work, as can be seen in the early attempts by the Fed to expand the monetary base without policy initiatives to support expansion and consumption. Hoover's administration raised the income tax and cut spending for a balanced budget.

A combined monetary and government bias to stimulating consumption while restoring balance and correcting the errors that fostered the credit bubble is the more effective course of action.

Today it seems to us that the Fed and Treasury are trying to cure our current problems by filling the banks full of liquidity with the idea that it will eventually trickle down to the real economy through their toll gates.

We believe this will not work. The financial system is rotten, and not only in its toxic and fraudulent assets. It is a weakened, rotten timber that will provide scant leverage for the rescue attempts.

Better to cauterize the bleeds in the financial system and assume a 'trickle up' approach by reaching the econmy through the individual rather than the individual through the banks.

Provide secure FDIC insurance to everyone to a generous degree , and let those banks who must fail, fail. You will encourage reform and savings, we guarantee it. Stimulate work and wages, and then consumption, and the financial system will follow.

While the financial system as it is constituted today remains the centerpiece of our economy, we cannot sustainably recover since it is a source of recurring infection.

Globalists like to cite the introduction of the Smoot-Hawley tariffs as a major factor in the development of the Great Depression. This appears to be largely unsubstantiated, and attributable to a dogmatic bias to international trade as a panacea for failing domestic demand.

In fact, before Smoot-Hawley both exports and imports were in a steep decline as consumption collapsed around the world. If the US had declared itself open for free trade, to whom would they sell, and who in the US would buy? Consumption was in a general collapse around the world. Smoot Hawley did not help, but it also did not hurt because it was largely irrelevant.

It is a lesser discussed topic, but the US held the majority of the gold in the world in 1930 as the aftermath of their position as an industrial power in World War I and the expansion that followed. Since the majority of the countries were on some version of the gold standard, one could make a case that the US had an undue influence on the 'reserve currency of the world' at that time, and its mistaken policies were transmitted via the gold standard to the rest of the world.

The nations that exited the Great Depression the soonest, those who recovered more quickly and experienced a shallower economic downturn, were those who stimulated domestic consumption via public works and industrial policies: Japan, Germany, Italy, Sweden.

As a final point, we like to show this chart to draw a very strong line under the fact that the liquidationist policy of the Hoover Administration caused most assets to suffer precipitous declines. Certainly some fared better than others, such as gold which was pegged, and silver which declined but not nearly as much as industrial metals and certainly financial instruments like stocks which declined 89% from peak to trough.

FDR devalued the dollar by 40%, but he never followed Britain off the gold standard, maintaining fictitious support by outlawing domestic ownership. As the government stepped away from its liquidationist approach the economy gradually recovered and the money supply reinflated, despite the carnage delivered to the US economy and the world, provoking the rise of militarism and statist regimes in many of the developed nations.

There is a fiction that the economy never really recovered, and FDR's policies failed and only a World War caused the recovery. In fact, if one cares to look at the situation more closely, the recession of 1937 was a result of the aggressive military buildup for war in the world, the diversion of capital and resources to non-productive goods and services, and of course the general reversal of the New Deal by the US Supreme Court and the Republican minority in Congress.

As an aside, it is interesting to read about the efforts of some US industrialists to foster a fascist solution here in the US, as their counterparts and some of them had done in Europe.

What finally put the world on the permanent road to recovery was the savings forced by the lack of consumer goods during World War II and the rebuilding of Europe and Asia, devastated by war, significantly aided by the policies of the Allied powers.

A Depression following a Crash caused by an asset bubble collapse is a terrible thing indeed. But it does not have to be a prolonged ordeal.

Governments can and do make policy errors that prolong the period of adjustment, most notably instituting an industrial policy that discourages domestic consumption and money supply growth in a desire to obtain foreign reserves through exports.

From what we have seen thus far, we believe that the Russian experience in the 1990's is going to be closer to what lies ahead for the US. Unless the US adopts an export driven, low domestic consumption, high savings policy bias, non-productive military buildup and public works, and discourages population growth we don't believe the Japanese experience will be repeated.

Preventing the banking system from collapsing is a worthy objective. Perpetuating the symptom of fraud and abuse and 'overreach' that was becoming pervasive in the system before the collapse is not sustainable, instead leading to more frequent and larger collapses.

Balance will be restored, and a reversion to the means will occur, one way or the other. It would be most practical to accomplish this in a peaceful, sustainable manner, with justice and toleration.

[Jan 07, 2019] The Fed IS the Ugly Truth

Notable quotes:
"... "The entire US economy today is about the quick buck." ..."
"... " When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history giving us a grand total of over $15 trillion." ..."
The Automatic Earth
... ... ...

Central banks are founded for one reason only: to save [private] banks from bankruptcy, invariably at the cost of society at large. They'll bring down markets and societies just to make sure banks don't go under. They'll also, and even, do that when these banks have taken insane risks. It's a battle societies can't possibly win as long as central banks can raise unlimited amounts of 'money' and shove it into private banks. Ergo: societies can't survive the existence of a central bank that serves the interests of its private banks.

Henrich:

Stock-Market Investors, It's Time To Hear The Ugly Truth

For years critics of U.S. central-bank policy have been dismissed as Negative Nellies, but the ugly truth is staring us in the face: Stock-market advances remain a game of artificial liquidity and central-bank jawboning, not organic growth. And now the jig is up. As I've been saying for a long time: There is zero evidence that markets can make or sustain new highs without some sort of intervention on the side of central banks. None. Zero. Zilch. And don't think this is hyperbole on my part. I will, of course, present evidence.

In March 2009 markets bottomed on the expansion of QE1 (quantitative easing, part one), which was introduced following the initial announcement in November 2008. Every major correction since then has been met with major central-bank interventions: QE2, Twist, QE3 and so on. When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history. The sum: More than $5 trillion between 2016 and 2017, giving us a grand total of over $15 trillion, courtesy of the U.S. Federal Reserve, the European Central Bank and the Bank of Japan:

When did global central-bank balance sheets peak? Early 2018. When did global markets peak? January 2018. And don't think the Fed was not still active in the jawboning business despite QE3 ending. After all, their official language remained "accommodative" and their interest-rate increase schedule was the slowest in history, cautious and tinkering so as not to upset the markets.

With tax cuts coming into the U.S. economy in early 2018, along with record buybacks, the markets at first ignored the beginning of QT (quantitative tightening), but then it all changed. And guess what changed? Two things. In September 2018, for the first time in 10 years, the U.S. central bank's Federal Open Market Committee (FOMC) removed one little word from its policy stance: "accommodative." And the Fed increased its QT program. When did U.S. markets peak? September 2018.

[..] don't mistake this rally for anything but for what it really is: Central banks again coming to the rescue of stressed markets. Their action and words matter in heavily oversold markets. But the reality remains, artificial liquidity is coming out of these markets. [..] What's the larger message here? Free-market price discovery would require a full accounting of market bubbles and the realities of structural problems, which remain unresolved. Central banks exist to prevent the consequences of excess to come to fruition and give license to politicians to avoid addressing structural problems.

is it $15 trillion, or is it 20, or 30? How much did China add to the total? And for what? How much of it has been invested in productivity? I bet you it's not even 10%. The rest has just been wasted on a facade of a functioning economy. Those facades tend to get terribly expensive.

Western economies would have shrunk into negative GDP growth if not for the $15-20 trillion their central banks injected over the past decade. And that is seen, or rather presented, as something so terrible you got to do anything to prevent it from happening. As if it's completely natural, and desirable, for an economy to grow forever.

It isn't and it won't happen, but keeping the illusion alive serves to allow the rich to put their riches in a safe place, to increase inequality and to prepare those who need it least to save most to ride out the storm they themselves are creating and deepening. And everyone else can go stuff themselves.

And sure, perhaps a central bank could have some function that benefits society. It's just that none of them ever do, do they? Central banks benefit private banks, and since the latter have for some braindead reason been gifted with the power to issue our money, while we could have just as well done that ourselves, the circle is round and we ain't in it.

No, the Fed doesn't hide the ugly truth. The Fed is that ugly truth. And if we don't get rid of it, it will get a lot uglier still before the entire edifice falls to pieces. This is not complicated stuff, that's just what you're made to believe. Nobody needs the Fed who doesn't want to pervert markets and society, it is that simple.

zerosum #44732

The word your looking for "abyss" definition -- a catastrophic situation seen as likely to occur to the people with wealth that is built upon "leverage."

https://www.investopedia.com/terms/l/leverage.asp

Leverage results from using borrowed capital as a funding source when investing to expand the firm's asset base and generate returns on risk capital. Leverage is an investment strategy of using borrowed money -- specifically, the use of various financial instruments or borrowed capital -- to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets. When one refers to a company, property or investment as "highly leveraged," it means that item has more debt than equity.

... ... ...

Doc Robinson January 7, 2019 at 4:06 am #44737

"The entire US economy today is about the quick buck."

Even the stock market these days seems to be about the quick buck. In the US, the average holding period for stocks has dropped from 8 years (1960), to 5 years (1970), to 2 years (1990), to 4 months (in the past few years).

https://www.politifact.com/virginia/statements/2016/jul/06/mark-warner/mark-warner-says-average-holding-time-stocks-has-f/

The policies of the Fed (as well as the Board of Directors of the companies) are evidently geared towards the short-term benefits of the owners who will be leaving in a few months. The long-term health of the companies, the economy, and the overall society (mostly non-owners) is evidently not so important to the Fed and the CEOs.

" When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history giving us a grand total of over $15 trillion."

Those $15 trillion in assets being held by the central banks propped the global stock market capitalization up to around $75 trillion. Short term thinking that gives short-term benefits. Take away the props and of course that sucker is going to fall.

What were they thinking, the overweight patient with all of those systemic problems is going to be able to walk just fine when the crutches are taken away?

[Dec 16, 2018] Trump Models His War on Bank Regulators on Bill Clinton and W's Disastrous Wars by Bill Black

Notable quotes:
"... By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives ..."
"... Wall Street Journal ..."
"... Wall Street Journal ..."
"... The idea that examiners should not criticize any bank misconduct, predation, or 'unsafe and unsound practice' that does not constitute a felony is obviously insane. ..."
"... The trade association complaint that examiners dare to criticize non-felonious bank conduct – and the WSJ ..."
"... I have more than a passing acquaintance with banking, banking regulation, and banking's rectitude (such an old fashioned word) in the importance for Main Street's survival, and for the country's as a whole survival as a trusted pivot point in world finance , or for the survival of the whole American project. I know this sounds like an over-the-top assertion on my part, however I believe it true. ..."
"... Obama et al confusing "banking" with sound banking is too ironic, imo. ..."
"... It was actually worse than this. The very deliberate strategy was to indoctrinate employees of federal regulatory agencies to see the companies they regulated not as "partners" but as "customers" to be served. This theme is repeated again and again in Bush era agency reports. Elizabeth Warren was viciously attacked early in the Obama Administration for calling for a new "watchdog" agency to protect consumers. The idea that a federal agency would dedicate itself to protecting citizens first was portrayed as dangerously radical by industry. ..."
"... Models on Clinton and Bush. What's not to like? Why isn't msm and dem elites showing him the love when he's following their long term policies? And we might assume these would be hills policies if she had been pushed over the line. A little thought realizes that in spite of the pearl clutching they far prefer him to Bernie. ..."
Dec 14, 2018 | www.nakedcapitalism.com
By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives

The Wall Street Journal published an article on December 12, 2018 that should warn us of coming disaster: "Banks Get Kinder, Gentler Treatment Under Trump." The last time a regulatory head lamented that regulators were not "kinder and gentler" promptly ushered in the Enron-era fraud epidemic. President Bush made Harvey Pitt his Securities and Exchange Commission (SEC) Chair in August 2001 and, in one of his early major addresses, he spoke on October 22, 2001 to a group of accounting leaders.

Pitt, as a private counsel, represented all the top tier audit firms, and they had successfully pushed Bush to appoint him to run the SEC. The second sentence of Pitt's speech bemoaned the fact that the SEC had not been "a kinder and gentler place for accountants." He concluded his first paragraph with the statement that the SEC and the auditors needed to work "in partnership." He soon reiterated that point: "We view the accounting profession as our partner" and amped it up by calling accountants the SEC's "critical partner."

Pitt expanded on that point: "I am committed to the principle that government is and must be a service industry." That, of course, would not be controversial if he meant a service agency (not "industry") for the public. Pitt, however, meant that the SEC should be a "service industry" for the auditors and corporations.

Pitt then turned to pronouncing the SEC to be the guilty party in the "partnership." He claimed that the SEC had terrorized accountants. He then stated that he had ordered the SEC to end this fictional terror campaign.

[A]ccountants became afraid to talk to the SEC, and the SEC appeared to be unwilling to listen to the profession. Those days are ended.

This prompted Pitt to ratchet even higher his "partnership" language.

I speak for the entire Commission when I say that we want to have a continuing dialogue, and partnership, with the accounting profession,

Recall that Pitt spoke on October 22, 2001. Here are the relevant excerpts from the NY Times' Enron timeline :

Oct. 16 – Enron announces $638 million in third-quarter losses and a $1.2 billion reduction in shareholder equity stemming from writeoffs related to failed broadband and water trading ventures as well as unwinding of so-called Raptors, or fragile entities backed by falling Enron stock created to hedge inflated asset values and keep hundreds of millions of dollars in debt off the energy company's books.

Oct. 19 – Securities and Exchange Commission launches inquiry into Enron finances.

Oct. 22 – Enron acknowledges SEC inquiry into a possible conflict of interest related to the company's dealings with Fastow's partnerships.

Oct. 23 – Lay professes confidence in Fastow to analysts.

Oct. 24 – Fastow ousted.

The key fact is that even as Enron was obviously spiraling toward imminent collapse (it filed for bankruptcy on December 2) – and the SEC knew it – Pitt offered no warning in his speech. The auditors and the corporate CEOs and CFOs were not the SEC's 'partners.' Thousands of CEOs and CFOs were filing false financial statements – with 'clean' opinions from the then 'Big 5' auditors. Pitt was blind to the 'accounting control fraud' epidemic that was raging at the time he spoke to the accountants. Thousands of his putative auditor 'partners' were getting rich by blessing fraudulent financial statements and harming the investors that the SEC is actually supposed to serve.

Tom Frank aptly characterized the Bush appointees that completed the destruction of effective financial regulation as "The Wrecking Crew." It is important, however, to understand that Bush largely adopted and intensified Clinton's war against effective regulation. Clinton and Bush led the unremitting bipartisan assault on regulation for 16 years. That produced the criminogenic environment that produced the three largest financial fraud epidemics in history that hyper-inflated the real estate bubble and drove the Great Financial Crisis (GFC). President Trump has renewed the Clinton/Bush war on regulation and he has appointed banking regulatory leaders that have consciously modeled their assault on regulation on Bush and Clinton's 'Wrecking Crews.'

Bill Clinton's euphemism for his war on effective regulation was "Reinventing Government." Clinton appointed VP Al Gore to lead the assault. (Clinton and Gore are "New Democrat" leaders – the Wall Street wing of the Democratic Party.) Gore decided he needed to choose an anti-regulator to conduct the day-to-day leadership. We know from Bob Stone's memoir the sole substantive advice he gave Gore in their first meeting that caused Gore to appoint him as that leader. "Do not 'waste one second going after waste, fraud, and abuse.'" Elite insider fraud is, historically, the leading cause of bank losses and failures, so Stone's advice was sure to lead to devastating financial crises. It is telling that it was the fact that Stone gave obviously idiotic advice to Gore that led him to select Stone as the field commander of Clinton and Gore's war on effective regulation.

Stone convinced the Clinton-Gore administration to embrace the defining element of crony capitalism as its signature mantra for its war on effective regulation. Stone and his troops ordered us to refer to the banks, not the American people, as our "customers." Peters' foreword to Stone's book admits the action, but is clueless about the impact.

Bob Stone's insistence on using the word "customer" was mocked by some -- but made an enormous difference over the course of time. In general, he changed the vocabulary of public service from 'procedure first' to 'service first.'"

That is a lie. We did not 'mock' the demand that we treat the banks rather than the American people as our "customer" – we openly protested the outrageous order that we embrace and encourage crony capitalism. Crony capitalism's core principle – which is unprincipled – is that the government should treat elite CEOs as their 'customers' or 'partners.' A number of us publicly expressed our rage at the corrupt order to treat CEOs as our customers. The corrupt order caused me to leave the government.

Our purpose as regulators is to serve the people of the United States – not bank CEOs. It was disgusting and dishonest for Peters to claim that our objection to crony capitalism represented our (fictional) disdain for serving the public. Many S&L regulators risked their careers by taking on elite S&L frauds and their powerful political fixers. Many of us paid a heavy personal price because we acted to protect the public from these elite frauds. Our efforts prevented the S&L debacle from causing a GFC – precisely because we recognized the critical need to spend most of our time preventing and prosecuting the elite frauds that Stone wanted us to ignore..

Trump's wrecking crew is devoted to recreating Clinton and Bush's disastrous crony capitalism war on regulation that produced the GFC. In a June 8, 2018 article , the Wall Street Journal mocked Trump's appointment of Joseph Otting as Comptroller of the Currency (OCC). The illustration that introduces the article bears the motto: "IN BANKS WE TRUST."

Otting, channeling his inner Pitt, declared his employees guilty of systematic misconduct and embraced crony capitalism through Pitt's favorite phrase – "partnership."

I think it is more of a partnership with the banks as opposed to a dictatorial perspective under the prior administration.

Otting, while he was in the industry, compared the OCC under President Obama to a fictional interstellar terrorist. Obama appointed federal banking regulators that were pale imitation of Ed Gray, Joe Selby, and Mike Patriarca – the leaders of the S&L reregulation. The idea that Obama's banking regulators were akin to 'terrorists' is farcical.

The WSJ's December 12, 2018 article reported that Otting had also used Bob Stone's favorite term to embrace crony capitalism.

Comptroller of the Currency Joseph Otting has also changed the tone from the top at his agency, calling banks his "customers."

There are many terrible role models Trump could copy as his model of how to destroy banking regulation and produce the next GFC, but Otting descended into unintentional self-parody when he channeled word-for-word the most incompetent and dishonest members of Clinton and Bush's wrecking crews.

The same article reported a trade association's statement that demonstrates the type of outrageous reaction that crony capitalism inevitably breeds within industry.

Banks are suffering from "examiner criticisms that do not deal with any violation of law," said Greg Baer, CEO of the Bank Policy Institute ."

The article presented no response to this statement so I will explain why it is absurd. First, "banks" do not "suffer" from "examiner criticism." Banks gain from examiner criticism. Effective regulators (and whistleblowers) are the only people who routinely 'speak truth to power.' Auditors, credit rating agencies, and attorneys routinely 'bless' the worst CEO abuses that harm banks while enriching the CEO. The bank CEO cannot fire the examiner, so the examiners' expert advice is the only truly "independent" advice the bank's board of directors receives. That makes the examiners' criticisms invaluable to the bank. CEOs hate our advice because we are the only 'control' (other than the episodic whistleblower) that is willing and competent to criticize the CEO.

The idea that examiners should not criticize any bank misconduct, predation, or 'unsafe and unsound practice' that does not constitute a felony is obviously insane. While "violations of law" (felonies) are obviously of importance to us in almost all cases, our greatest expertise is in identifying – and stopping – "unsafe and unsound practices" because such practices, like fraud, are leading causes of bank losses and failures.

Third, repeated "unsafe and unsound practices" are a leading indicator of likely elite insider bank fraud and other "violations of law."

The trade association complaint that examiners dare to criticize non-felonious bank conduct – and the WSJ reporters' failure to point out the absurdity of that complaint – demonstrate that the banking industry's goal remains the destruction of effective banking regulation. Trump's wrecking crew is using the Clinton and Bush playbook to restore fully crony capitalism. He has greatly accelerated the onset of the next GFC.


Chauncey Gardiner , December 14, 2018 at 2:01 pm

Thank you for this, Bill Black. IMO the long-term de-regulatory policies under successive administrations cited here, together with their neutering the rule of law by overturning the Glass-Steagall Act; de-funding and failing to enforce antitrust, fraud and securities laws; financial repression of the majority; hidden financial markets subsidies; and other policies are just part of an organized, long-term systemic effort to enable, organize and subsidize massive control and securities fraud; theft of and disinvestment in publicly owned resources and services; environmental damage; and transfers of social costs that enable the organizers to in turn gain a hugely disproportionate share of the nation's wealth and nearly absolute political control under their "Citizens United" political framework.

Not to diminish, but among other things the current president provides nearly daily entertainment, diversion and spectacle in our Brave New World that serves to obfuscate what has occurred and is happening.

RBHoughton , December 14, 2018 at 9:41 pm

I'm with you Chauncey. I believe the rot really got started with creative accounting in early 1970s. That's when accountants of every flavor lost themselves and were soon followed by the lawyers. Sauce for the goose.

Banks and Insurers and many industrial concerns have become too big. We could avoid all the regulatory problems by placing a maximum size on commercial endeavour.

chuck roast , December 14, 2018 at 4:28 pm

Sameo-sameo

A number of years ago I did both the primary capital program and environmental (NEPA) review for major capital projects in a Federal Region. Hundreds of millions of dollars were at stake. A local agency wanted us (the Feds) to approve pushing up many of their projects using a so-called Public Private Partnership (PPP). This required the local agency to borrow many millions from Wall Street while at the same time privatizing many of their here-to-fore public operations. And of course there was an added benefit of instituting a non-union shop.

To this end I was required to sit down with the local agency head (he actually wore white shoes), his staff and several representatives of Goldman-Sachs. After the meeting ended, I opined to the agency staff that Goldman-Sachs was "bullshit" and so were their projects.

Shortly thereafter I was removed to a less high-profile Region with projects that were not all that griftable, and there was no danger of me having to review a PPP.

Oh, and I denied, denied, denied saying "bullshit."

flora , December 14, 2018 at 10:08 pm

Thank you, NC, for featuring these posts by Bill Black.

I have more than a passing acquaintance with banking, banking regulation, and banking's rectitude (such an old fashioned word) in the importance for Main Street's survival, and for the country's as a whole survival as a trusted pivot point in world finance , or for the survival of the whole American project. I know this sounds like an over-the-top assertion on my part, however I believe it true.

Main Street also knows the importance of sound banking. Sound banking is not a 'poker chip' to be used for games. Sound banking is key to the American experiment in self-determination, as it has been called.

Politicians who 'don't get this" have lost touch with the entire American enterprise, imo. And, no, the neoliberal promise that nation-states no longer matter doesn't make this point moot.

flora , December 14, 2018 at 10:47 pm

adding: US founding father Alexander Hambleton did understand the importance of sound banking, and so Obama et al confusing "banking" with sound banking is too ironic, imo.

Tim , December 15, 2018 at 8:29 am

It was actually worse than this. The very deliberate strategy was to indoctrinate employees of federal regulatory agencies to see the companies they regulated not as "partners" but as "customers" to be served. This theme is repeated again and again in Bush era agency reports. Elizabeth Warren was viciously attacked early in the Obama Administration for calling for a new "watchdog" agency to protect consumers. The idea that a federal agency would dedicate itself to protecting citizens first was portrayed as dangerously radical by industry.

John k , December 15, 2018 at 12:14 pm

Models on Clinton and Bush. What's not to like? Why isn't msm and dem elites showing him the love when he's following their long term policies?
And we might assume these would be hills policies if she had been pushed over the line. A little thought realizes that in spite of the pearl clutching they far prefer him to Bernie.

[Dec 08, 2018] Now that the banks are calling in their insurance, the EU has to deliver either by screwing down Italy the same as they did Greece or getting the French and German public (or better the whole EU) to bail out the banks.

Dec 08, 2018 | www.unz.com

Anonymous [295] Disclaimer , says: December 7, 2018 at 12:23 pm GMT

@Miro23

Now that the banks are calling in their insurance, the EU has to deliver either by 1) screwing down Italy the same as they did Greece, or 2) getting the French and German public (or better the whole EU) to bail out the banks.

There is a third option: the banks simply accept their losses, and the bankers make do without their customary bonuses for a few quarters.

[Nov 27, 2018] Warning Contagion is Now Spreading to Corporate Bonds Zero Hedge

Nov 27, 2018 | www.zerohedge.com

by Phoenix Capita Sat, 11/24/2018 - 13:52 19 SHARES

Ignore the day-to-day moves in the markets, in the big picture, some MAJOR is happening namely, that the Everything Bubble is bursting.

By creating a bubble in sovereign bonds, the bedrock of the current financial system, Central Banks created a bubble in EVERYTHING. After all, if the risk-free rate of return is at FAKE level based on Central Bank intervention ALL risk assets will eventually adjust to FAKE levels.

This whole mess starting blowing up in February when we saw the bubble in passive investing/ shorting volatility start to blow up (some investment vehicles based on these strategies lost 85% in just three days).

The media and Wall Street swept that mess under the rug which allowed the contagion to start spreading to other, more senior asset classes like corporate bonds.

The US Corporate bond market took 50 years to reach $3 trillion. It doubled that in the last 9 years, bringing it to its current level of $6 trillion.

This debt issuance was a DIRECT of result of the Fed's intervention in the bond markets. With the weakest recovery on record, US corporations experienced little organic growth. As a result, many of them resorted to financial engineering through which they issued debt and then used the proceeds to buyback shares.

This:

  1. Juiced their Earnings Per Share (the same earnings, spread over fewer shares= better EPS).
  2. Provided the stock market with a steady stream of buyers, which
  3. Lead to higher options-based compensation for executives.

If you think this sounds a lot like a Ponzi scheme that relies on a bubble in corporate debt, you're correct. And that Ponzi scheme is now blowing up. The question now is
how bad will it get?"

VERY bad.

The IMF estimates about 20% of U.S. corporate assets could be at risk of default if rates rise – some are in the energy sector but it also includes companies in real estate and utilities . Exchange-traded funds that buy junk bonds, like iShares iBoxx $ High Yield Corporate Bond Fund (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK), could be among the most vulnerable if credit risks rise. iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) could also suffer.

Source: Barron's

With a $6 trillion market, a 20% default rate would mean some $1.2 trillion in corporate debt blowing up: an amount roughly equal to Spain's GDP .

This process is officially underway.

Credit Markets Are Bracing for Something Bad

Cracks in corporate debt lead market commentary.

the Bloomberg Barclays U.S. Corporate Bond Index losing more than 3.5 percent and on track for its worst year since 2008.

Source: Bloomberg

Indeed, the chart for US corporate junk bonds is downright UGLY.

This is just the beginning. As contagion spreads we expect more and more junior debt instruments to default culminating in full-scale sovereign debt defaults in the developed world (Europe comes to mind).

This will coincide with a stock market crash that will make 2008 look like a picnic.

Again, the markets are going to CRASH. The time to prepare is now BEFORE this happens.

On that note we just published a 21-page investment report titled Stock Market Crash Survival Guide .

In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.

Today is the last day this report will be available to the public. We extended the deadline into the weekend based on last week's action, but this is IT no more extensions.

To pick up yours, swing by:

https://www.phoenixcapitalmarketing.com/stockmarketcrash.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

[Nov 26, 2018] How Low Can This Stock Market Go by JIM COLLINS

In essence this is the largest casino in the world, created by casino capitalism. Previously only wealthy individuals owned stocks. Now everybody owed them via thier 401K (which in recession can easily become 201K ;-). In 2008 S&P500 touched the level of around 700. Does this mean that the it was oversold? And what would happen to him if the government will not pushed trillions to large banks, and some of those money went into S&p500.
Notable quotes:
"... There is no magic valuation level that supports high-flying stocks. They are driven by sentiment in both directions. ..."
"... That gets to the oft-quoted notion of "support." Does it really exist? Is there a level at which assets are just "too cheap" relative to their intrinsic values and therefore must be bought regardless of prevailing market trends? ..."
"... The mistake many market observers often make is to attribute all selloffs to gyrations in sentiment and to misunderstand that stock booms are driven by that exact factor -- in reverse. Sentiment will always rule market pricing in the short-term. ..."
Nov 26, 2018 | realmoney.thestreet.com
Stocks quotes in this article: AAPL , NFLX , FB , AMZN , F , GE , IBM , T , GOOGL There is no magic valuation level that supports high-flying stocks. They are driven by sentiment in both directions.

It's on now. The markets are in full-blown correction mode.

I hope the truncated trading day on Friday did not escape your attention, because it continued a negative price trend for stocks that began in late-September. The question now is: How low can we go?

That gets to the oft-quoted notion of "support." Does it really exist? Is there a level at which assets are just "too cheap" relative to their intrinsic values and therefore must be bought regardless of prevailing market trends?

The mistake many market observers often make is to attribute all selloffs to gyrations in sentiment and to misunderstand that stock booms are driven by that exact factor -- in reverse. Sentiment will always rule market pricing in the short-term. That was just as true with Apple ( AAPL ) at $220 per share as it is with Apple at $172 per share, Netflix ( NFLX ) at $420 and $258 and on and on down the list. Portfolio managers were buying Facebook ( FB ) above $200 per share and Amazon ( AMZN ) above $2,000 because they had to, though, not based on innately unquantifiable, voodoo metrics such as "disruption."

I am basing that statement on my regular conversations with fund managers at very large asset managers, and of course no one can definitively take the pulse of every player in the market. That is the great divide between individuals (my clients at Portfolio Guru LLC) and institutions (pension funds, insurance companies, college endowments, sovereign wealth funds, etc.)

Individuals want their portfolio values to rise. Period. Institutions want their portfolios to outperform their carefully selected benchmarks over specific time periods on a risk-adjusted basis.

So, that's what creates high-flying stocks to begin with. Portfolio managers need to overweight the biggest names in the market -- owning more Apple, for instance, than its weighting in the chosen benchmark would require, not simply owning or not owning Apple. In a rising market that has a beneficial effect on valuations of those names.

If every portfolio manager needs to buy more Apple, Apple's share price will go up, making it a larger component of the S&P 500 and Nasdaq 100. As Apple's weighting increases, those fund managers would have to -- you guessed it -- buy more Apple!

The circularity of that logic is undeniable, but I am telling you that's how the market for big-cap stocks works. Please remember the men and women pulling those levers are responsible for much, much larger asset bases than you are. So they will always move the markets, even if history has proven their timing to be poor more often than it is excellent.

Bottom line: High-flying stocks are driven by sentiment in both directions, thus there is no magic valuation level that supports them.

This is quite apparent in the charts of "fallen angel" stocks such as Ford ( F ) , General Electric ( GE ) , IBM ( IBM ) , and AT&T ( T ) . The market hates those stocks no more the day after Thanksgiving than it did the day after Independence Day, but certainly no less, either. An investor could generate hours of amusement by Googling "this is a bottom for..." and then entering in any of those names. So many pundits, so many bad support level calls.

So, value traps are no way to ride out a market correction, but what about the stocks that brought us into that correction? Are the FAANG names -- Facebook, Amazon, Apple, Netflix, Apple and Alphabet ( GOOGL ) (parent company of Google) -- destined to end up in the "hate pile" with GE and IBM? God, I hope not. That's the difference between a pullback and a crash and, by implication, the difference between a depression and a recession.

My analysis shows that buying Apple at 13x next year's earnings -- which implies a price of $172.55, slightly above Friday's close -- has been a lucrative strategy in the past three years. That said, I am worried that the steady stream of noise about production cuts from Apple's suppliers implies Wall Street's estimates for Apple's fiscal 2019 earnings are inflated. So I am not buying Apple today.

And so it goes. Chicken and egg. Is the stock market telling us the global economy is slowing or is the global economy slowing driving down prices for assets, especially oil, thus creating an economic slowdown? Crude's decline has spooked the market to no end, but so has Apple's decline. And Netflix's and Facebook's.

At the end of the day, all securities are assets on someone's balance sheet. Gold, oil, stocks, bonds, really anything on your screen except crypto, which is very very difficult to clear and hence to accurately value. Anything that can be physically transferred can be sold, and in a downturn that can be a sobering thought. Don't forget it.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

[Nov 24, 2018] Update on the Comparison with Prior Notable Declines

Nov 24, 2018 | jessescrossroadscafe.blogspot.com

[Nov 03, 2018] Crashed How a Decade of Financial Crises Changed the World Adam Tooze 9780670024933 Amazon.com Books

Nov 03, 2018 | www.amazon.com

"An intelligent explanation of the mechanisms that produced the crisis and the response to it...One of the great strengths of Tooze's book is to demonstrate the deeply intertwined nature of the European and American financial systems." -- The New York Times Book Review

wsmrer 5.0 out of 5 stars 2008 Neoliberalism crashes the state rushes back-- just in time August 10, 2018 Format: Kindle Edition Verified Purchase

"Whereas since the 1970s the incessant mantra of the spokespeople of the financial industry had been free markets and light touch regulation, what they were now demanding was the mobilization of all of the resources of the state to save society's financial infrastructure from a threat of systemic implosion, a threat they likened to a military emergency." (Loc. 3172-3174)

Adam Tooze takes the well know Financial Crisis of 2007-08 through its full history of international ramifications and brings it up to the present with the question of whether the large organizations, structures and processes on the one hand; decision, debate, argument and action on the other that managed to fall into place in that crisis period in this and many other countries will develop if needed again. "The political in "political economy" demands to be taken seriously." (Loc. 11694). That he does.

Tooze is an Economic Historian and Crashed: How a Decade of Financial Crises Changed the World is a wonderfully rich enquiry into causes and effects of the Financial Crisis and how the failing of poorly managed greed motivated practices of a few financial institutions, and their subprime mortgagees, tumbled economies in the developed and developing world, causing events that matched the Great Depression's dislocation and could have matched its duration, springing from world wide money markets "interlocking matrix" of corporate balance sheets -- bank to bank."

A warning he is not kind to existing political beings, the Republican Party in particular " to judge by the record of the last ten years, it is incapable of legislating or cooperating effectively in government." (Loc.11704)
His criticism is, in fairness, based on technical management grounds, and he does find fault as well with the inner core of the Obama advisors and their primary concerns for the financial sectors well being, rather than nationwide happenings where homes and incomes disappeared.

This reviewer's favorite (not mentioned by Tooze) is the early 2009 comment of Larry Sumners when Christina D. Romer, the chairwoman of President Obama's Council of Economic Advisers and leading authority on the Great Depression saw a need for $1.8 trillion stimulus package, "What have you been smoking?"
Sumners, Geithner, and Orszag, who favored transferring $700 billion to the banks to offset possible bank failures and such -- became policy. Tooze mentions that by 2012 Sumners was concerned by the slowness of the U.S. economy's recovery taking, as it did, 8 years to reach 2008 levels of employment.

Can an Economic History be an exciting read? Tooze gives us over 700 pages of just that, but much will be familiar as reported news and may be skimmed, and some of the Fed's expanded international roles very dense in content. His strength is the knowledge of what could have happened, had solutions not been found, and how agreements were reached out of public sight.
" the world economy is not run by medium-sized entrepreneurs but by a few thousand massive corporations, with interlocking shareholdings controlled by a tiny group of asset managers. (Loc.418-419).
Add wily politicians and hard driven bankers EU Ukraine and China you have an adventure.

Corporate control is not new -- rich descriptions of its inner connections are.
Adam Tooze does this well a reference work for years to come.
5 stars

David Shulman 5.0 out of 5 stars The World in Crisis August 22, 2018 Format: Kindle Edition Verified Purchase

Columbia history professor Adam Tooze, an authority on the inter-war years, has offered up an authoritative history of the financial crises and their aftermath that have beset the world since 2008. He integrates economics, the plumbing of the interbank financial system and the politics of the major players in how and why the financial crisis of 2008 developed and the course of the very uneven recovery that followed. I must note that Tooze has some very clear biases in that he views the history through a social democratic prism and is very critical of the congressional Republican caucus and the go slow policies of the European Central Bank under Trichet. To him the banks got bailed out while millions of people suffered as collateral damage from a crisis that was largely made by the financial system. His view may very well be correct, but many readers might differ. Simply put, to save the economy policy makers had to stop the bleeding.

He starts off with the hot topic of 2005; the need for fiscal consolidation in the United States. Aside from a few dissidents, most economists saw the need for the U.S. to close its fiscal deficit and did not see the structural crisis that was developing underneath them. Although he does mention Hyman Minsky a few times in the book, he leaves out Minsky's most important insight that "stability leads to instability" as market participants are lulled into a false sense of security. It therefore was against the backdrop of the "great moderation" that the crisis began. And it was the seemingly calm environment that lulled all too many regulators to sleep.

The underbelly of the financial system was and still is in many respects is the wholesale funding system where too many banks are largely funded in repo and commercial paper markets. This mismatch was exacerbated by the use of asset-backed commercial paper to fund long term mortgage securities. It was problems in that market that triggered the crisis in August 2007.

The crisis explodes when Lehman Brothers files for bankruptcy in September 2008. In Tooze's view the decision to let Lehman fail was political, not economic. After that the gates of hell are opened causing the Bush Administration and the Federal Reserve to ask for $750 billion dollar TARP bailout of the major banks. It was in the Congressional fight over this appropriation where Tooze believes the split in the Republican Party between the business conservative and social populist wing hardens. We are living with that through this day. The TARP program passes with Democratic votes. Tooze also notes that there was great continuity between the Bush and early Obama policies with respect to the banks and auto bailout. Recall that in late 2008 and early 2009 nationalization of the banks was on the table. Tooze also correctly notes that the major beneficiary of the TARP program was Citicorp, the most exposed U.S. bank to the wholesale funding system.

Concurrent with TARP the Bernanke Fed embarks on its first quantitative easing program where it buys up not only treasuries, but mortgage backed securities as well. It was with the latter Europe's banks were bailed out. Half of the first QE went to bail out Europe's troubled banks. When combined the dollar swap lines with QE, Europe's central banks essentially became branches of the Fed. Now here is a problem. Where in the Federal Reserve Act does it say that the Fed is the central bank to the world? To some it maybe a stretch.

Tooze applauds Obama's stimulus policy but rightly says it was too small. There should have been more infrastructure in it. To my view there could have been more infrastructure if only Obama was willing to deal with the Republicans by offering to waive environmental reviews and prevailing wage rules. He never tried for fear of offending his labor and environmental constituencies. Tooze also gives great credit to China with it all out monetary and fiscal policies. That triggered a revival in the energy and natural resource economies of Australia and Brazil thereby helping global recovery.

He then turns to the slow responses in Europe and the political wrangling over the tragedy that was to befall Greece. It came down to the power of Angela Merkel and her unwillingness to have the frugal German taxpayer subsidize the profligate Greeks. As they say "all politics is local". The logjam in Europe doesn't really break until Mario Draghi makes an off-the-cuff remark at a London speech in July 2012 by saying the ECB will do "whatever it takes" to engender European recovery.

As a byproduct of bailing out the banks and failing to directly help the average citizen a rash of populism, mostly of the rightwing variety, breaks out all over leading to Brexit, Orban in Hungary, a stronger rightwing in Germany and, of course, Donald Trump. But to me it wasn't only banking policy that created this. The huge surge in immigration into Europe has a lot more to do with it. Tooze under-rates this factor. He also under-rates the risk of having a monetary policy that is too easy and too long. The same type of Minsky risk discussed earlier is now present in the global economy: witness Turkey, for example. Thus it is too early to tell whether or not the all-out monetary policy of the past decade will be judged a success from the vantage point of 2030.

Adam Tooze has written an important book and I view it as must read for a serious lay reader to get a better understanding of the economic and political policies of the past decade.

[Nov 01, 2018] The 2018 Globie Crashed by Joseph Joyce

Notable quotes:
"... Crashed: How a Decade of Financial Crises Changed the World ..."
"... Grave New World: The End of Globalization, the Return of History ..."
"... Global Inequality ..."
"... Currency Power: Understanding Monetary Rivalry ..."
"... The Shifts and the Shocks: What We've Learned–and Have Still to Learn–from the Financial Crisis ..."
Nov 01, 2018 | angrybearblog.com

Each year I choose a book to be the Globalization Book of the Year, i.e., the "Globie". The prize is strictly honorific and does not come with a check. But I do like to single out books that are particularly insightful about some aspect of globalization. Previous winners are listed at the bottom.

This year's choice is Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze of Yale University . Tooze, an historian, traces the events leading up to the crisis and the subsequent ten years. He points out in the introduction that this account is different from one he may have written several years ago. At that time Barak Obama had won re-election in 2012 on the basis of a slow but steady recovery in the U.S. Europe was further behind, but the emerging markets were growing rapidly, due to the demand for their commodities from a steadily-growing China as well as capital inflows searching for higher returns than those available in the advanced economies.

But the economic recovery has brought new challenges, which have swept aside established politicians and parties. Obama was succeeded by Donald Trump, who promised to restore America to some form of past greatness. His policy agenda includes trade disputes with a broad range of countries, and he is particularly eager to impose trade tariffs on China. The current meltdown in stock prices follows a rise in interest rates normal at this stage of the business cycle but also is based on fears of the consequences of the trade measures.

Europe has its own discontents. In the United Kingdom, voters have approved leaving the European Union. The European Commission has expressed its disapproval of the Italian government's fiscal plans. Several east European governments have voiced opposition to the governance norms of the West European nations. Angela Merkel's decision to step down as head of her party leaves Europe without its most respected leader.

All these events are outcomes of the crisis, which Tooze emphasizes was a trans-Atlantic event. European banks had purchased held large amounts of U.S. mortgage-backed securities that they financed with borrowed dollars. When liquidity in the markets disappeared, the European banks faced the challenge of financing their obligations. Tooze explains how the Federal Reserve supported the European banks using swap lines with the European Central Bank and other central banks, as well as including the domestic subsidiaries of the foreign banks in their liquidity support operations in the U.S. As a result, Tooze claims:

"What happened in the fall of 2008 was not the relativization of the dollar, but the reverse, a dramatic reassertion of the pivotal role of America's central bank. Far from withering away, the Fed's response gave an entirely new dimension to the global dollar" (Tooze, p. 219)

The focused policies of U.S. policymakers stood in sharp contrast to those of their European counterparts. Ireland and Spain had to deal with their own banking crises following the collapse of their housing bubbles, and Portugal suffered from anemic growth. But Greece's sovereign debt posed the largest challenge, and exposed the fault line in the Eurozone between those who believed that such crises required a national response and those who looked for a broader European resolution. As a result, Greece lurched from one lending program to another. The IMF was treated as a junior partner by the European governments that sought to evade facing the consequences of Greek insolvency, and the Fund's reputation suffered new blows due to its involvement with the various rescue operations.The ECB only demonstrated a firm commitment to its stabilizing role in July 2012, when its President Mario Draghi announced that "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro."

China followed another route. The government there engaged in a surge of stimulus spending combined with expansionary monetary policies. The result was continued growth that allowed the Chinese government to demonstrate its leadership capabilities at a time when the U.S. was abandoning its obligations. But the ensuing credit boom was accompanied by a rise in private (mainly corporate) lending that has left China with a total debt to GDP ratio of over 250%, a level usually followed by some form of financial collapse. Chinese officials are well aware of the domestic challenge they face at the same time as their dispute with the U.S. intensifies.

Tooze demonstrates that the crisis has let loose a range of responses that continue to play out. He ends the book by pointing to a similarity of recent events and those of 1914. He raises several questions: "How does a great moderation end? How do huge risks build up that are little understood and barely controllable? How do great tectonic shifts in the global world order unload in sudden earthquakes?" Ten years after a truly global crisis, we are still seeking answers to these questions.

Previous Globie Winners:

[Oct 30, 2018] Anyone working at IBM after 1993 should have had no expectation of a lifetime career

Under neoliberlaism the idea of loyalty between a corporation and an employee makes no more sense than loyalty between a motel and its guests.
Notable quotes:
"... Any expectation of "loyalty", that two-way relationship of employee/company from an earlier time, was wishful thinking ..."
"... With all the automation going on around the world, these business leaders better worry about people not having money to buy their goods and services plus what are they going to do with the surplus of labor ..."
"... This is the nail in the coffin. As an IT manager responsible for selecting and purchasing software, I will never again recommend IBM products ..."
"... The way I saw it, every time I received a paycheck from IBM in exchange for two weeks' work, we were (almost) even. I did not owe them anything else and they did not owe me anything. The way I saw it, every time I received a paycheck from IBM in exchange for two weeks' work, we were (almost) even. I did not owe them anything else and they did not owe me anything. The idea of loyalty between a corporation and an at-will employee makes no more sense than loyalty between a motel and its guests. ..."
"... The annual unemployment rate topped 8% in 1975 and would reach nearly 10% in 1982. The economy seemed trapped in the new nightmare of stagflation," so called because it combined low economic growth and high unemployment ("stagnation") with high rates of inflation. And the prime rate hit 20% by 1980. ..."
Oct 30, 2018 | features.propublica.org
Jeff Russell , Thursday, March 22, 2018 4:31 PM
I started at IBM 3 days out of college in 1979 and retired in 2017. I was satisfied with my choice and never felt mistreated because I had no expectation of lifetime employment, especially after the pivotal period in the 1990's when IBM almost went out of business. The company survived that period by dramatically restructuring both manufacturing costs and sales expense including the firing of tens of thousands of employees. These actions were well documented in the business news of the time, the obvious alternative was bankruptcy.

I told the authors that anyone working at IBM after 1993 should have had no expectation of a lifetime career. Downsizing, outsourcing, movement of work around the globe was already commonplace at all such international companies. Any expectation of "loyalty", that two-way relationship of employee/company from an earlier time, was wishful thinking .

I was always prepared to be sent packing, without cause, at any time and always had my resume up-to-date. I stayed because of interesting work, respectful supervisors, and adequate compensation.

The "resource action" that forced my decision to retire was no surprise, the company that hired me had been gone for decades.

DDRLSGC Jeff Russell , in reply to" aria-label="in reply to">
With all the automation going on around the world, these business leaders better worry about people not having money to buy their goods and services plus what are they going to do with the surplus of labor
John Kauai Jeff Russell , in reply to" aria-label="in reply to">
I had, more or less, the same experience at Cisco. They paid me to quit. Luckily, I was ready for it.

The article mentions IBMs 3 failures. So who was it that was responsible for not anticipating the transitions? It is hard enough doing what you already know. Perhaps companies should be spending more on figuring out "what's next" and not continually playing catch-up by dumping the older workers for the new.

MichiganRefugee , Friday, March 23, 2018 9:52 AM
I was laid off by IBM after 29 years and 4 months. I had received a division award in previous year, and my last PBC appraisal was 2+ (high performer.) The company I left was not the company I started with. Top management--starting with Gerstner--has steadily made IBM a less desirable place to work. They now treat employees as interchangeable assets and nothing more. I cannot/would not recommend IBM as an employer to any young programmer.
George Purcell , Friday, March 23, 2018 7:41 AM
Truly awesome work. I do want to add one thing, however--the entire rhetoric about "too many old white guys" that has become so common absolutely contributes to the notion that this sort of behavior is not just acceptable but in some twisted way admirable as well.
Bob Fritz , Thursday, March 22, 2018 7:35 PM
I read the article and all the comments.

Is anyone surprised that so many young people don't think capitalism is a good system any more?

I ran a high technology electronic systems company for years. We ran it "the old way." If you worked hard, and tried, we would bend over backwards to keep you. If technology or business conditions eliminated your job, we would try to train you for a new one. Our people were loyal, not like IBMers today. I honestly think that's the best way to be profitable.

People afraid of being unjustly RIFFed will always lack vitality.

petervonstackelberg , Thursday, March 22, 2018 2:00 PM
I'm glad someone is finally paying attention to age discrimination. IBM apparently is just one of many organizations that discriminate.

I'm in the middle of my own fight with the State University of New York (SUNY) over age discrimination. I was terminated by a one of the technical colleges in the SUNY System. The EEOC/New York State Division of Human Rights (NYDHR) found that "PROBABLE CAUSE (NYDHR's emphasis) exists to believe that the Respondent (Alfred State College - SUNY) has engaged in or is engaging in the unlawful discriminatory practice complained of." Investigators for NYDHR interviewed several witnesses, who testified that representatives of the college made statements such as "we need new faces", "three old men" attending a meeting, an older faculty member described as an "albatross", and "we ought to get rid of the old white guys". Witnesses said these statements were made by the Vice President of Academic Affairs and a dean at the college.

davosil , Sunday, March 25, 2018 5:00 PM
This saga at IBM is simply a microcosm of our overall economy. Older workers get ousted in favor of younger, cheaper workers; way too many jobs get outsourced; and so many workers today [young and old] can barely land a full-time job.
This is the behavior that our system incentivises (and gets away with) in this post Reagan Revolution era where deregulation is lauded and unions have been undermined & demonized. We need to seriously re-work 'work', and in order to do this we need to purge Republicans at every level, as they CLEARLY only serve corporate bottom-lines - not workers - by championing tax codes that reward outsourcing, fight a livable minimum wage, eliminate pensions, bust unions, fight pay equity for women & family leave, stack the Supreme Court with radical ideologues who blatantly rule for corporations over people all the time, etc. etc. ~35 years of basically uninterrupted Conservative economic policy & ideology has proven disastrous for workers and our quality of life. As goes your middle class, so goes your country.
ThinkingAloud , Friday, March 23, 2018 7:18 AM
The last five words are chilling... This is an award-winning piece....
RetiredIBM.manager , Thursday, March 22, 2018 7:39 PM
I am a retired IBM manager having had to execute many of these resource reduction programs.. too many.. as a matter of fact. ProPUBLICA....You nailed it!
David , Thursday, March 22, 2018 3:22 PM
IBM has always treated its customer-facing roles like Disney -- as cast members who need to match a part in a play. In the 60s and 70s, it was the white-shirt, blue-suit white men whom IBM leaders thought looked like mainframe salesmen. Now, rather than actually build a credible cloud to compete with Amazon and Microsoft, IBM changes the cast to look like cloud salespeople. (I work for Microsoft. Commenting for myself alone.)
CRAW David ,

Now IBM still treats their employees like Disney - by replacing them with H-1B workers.

MHV IBMer , Friday, March 23, 2018 10:35 PM
I am a survivor, the rare employee who has been at IBM for over 35 years. I have seen many, many layoff programs over 20 years now. I have seen tens of thousands people let go from the Hudson Valley of N.Y. Those of us who have survived, know and lived through what this article so accurately described. I currently work with 3 laid off/retired and rehired contractors. I have seen age discrimination daily for over 15 years. It is not only limited to layoffs, it is rampant throughout the company. Promotions, bonuses, transfers for opportunities, good reviews, etc... are gone if you are over 45. I have seen people under 30 given promotions to levels that many people worked 25 years for. IBM knows that these younger employees see how they treat us so they think they can buy them off. Come to think of it, I guess they actually are! They are ageist, there is no doubt, it is about time everyone knew. Excellent article.
Goldie Romero , Friday, March 23, 2018 2:31 PM
Nice article, but seriously this is old news. IBM has been at this for ...oh twenty years or more.
I don't really have a problem with it in terms of a corporation trying to make money. But I do have a problem with how IBM also likes to avoid layoffs by giving folks over 40 intentionally poor reviews, essentially trying to drive people out. Just have the guts to tell people, we don't need you anymore, bye. But to string people along as the overseas workers come in...c'mon just be honest with your workers.
High tech over 40 is not easy...I suggest folks prep for a career change before 50. Then you can have the last laugh on a company like IBM.
jblog , Friday, March 23, 2018 10:37 AM
From pages 190-191 of my novel, Ordinary Man (Amazon):

Throughout it all, layoffs became common, impacting mostly older employees with many years of service. These job cuts were dribbled out in small numbers to conceal them from the outside world, but employees could plainly see what was going on.

The laid off employees were supplanted by offshoring work to low-costs countries and hiring younger employees, often only on temporary contracts that offered low pay and no benefits – a process pejoratively referred to by veteran employees as "downsourcing." The recruitment of these younger workers was done under the guise of bringing in fresh skills, but while many of the new hires brought new abilities and vitality, they lacked the knowledge and perspective that comes with experience.

Frequently, an older more experienced worker would be asked to help educate newer employees, only to be terminated shortly after completing the task. And the new hires weren't fooled by what they witnessed and experienced at OpenSwitch, perceiving very quickly that the company had no real interest in investing in them for the long term. To the contrary, the objective was clearly to grind as much work out of them as possible, without offering any hope of increased reward or opportunity.

Most of the young recruits left after only a year or two – which, again, was part of the true agenda at the company. Senior management viewed employees not as talent, but simply as cost, and didn't want anyone sticking around long enough to move up the pay scale.

turquoisewaters , Thursday, March 22, 2018 10:19 PM
This is why you need unions.
Aaron Stackpole , Thursday, March 22, 2018 5:23 PM
This is the nail in the coffin. As an IT manager responsible for selecting and purchasing software, I will never again recommend IBM products. I love AIX and have worked with a lot if IBM products but not anymore. Good luck with the millennials though...
awb22 , Thursday, March 22, 2018 12:14 PM
The same thing has been going on at other companies, since the end of WWII. It's unethical, whether the illegality can be proven or not.

In the RTP area, where I live, I know many, many current and former employees. Times have changed, but the distinction between right and wrong hasn't.

Dave Allen , Thursday, March 22, 2018 1:07 PM
I worked for four major corporations (HP, Intel, Control Data Corporation, and Micron Semiconductor) before I was hired by IBM as a rare (at that time) experienced new hire.

Even though I ended up working for IBM for 21 years, and retired in 2013, because of my experiences at those other companies, I never considered IBM my "family."

The way I saw it, every time I received a paycheck from IBM in exchange for two weeks' work, we were (almost) even. I did not owe them anything else and they did not owe me anything. The way I saw it, every time I received a paycheck from IBM in exchange for two weeks' work, we were (almost) even. I did not owe them anything else and they did not owe me anything. The idea of loyalty between a corporation and an at-will employee makes no more sense than loyalty between a motel and its guests.

It is a business arrangement, not a love affair. Every individual needs to continually assess their skills and their value to their employer. If they are not commensurate, it is the employee's responsibility to either acquire new skills or seek a new employer.

Your employer will not hesitate to lay you off if your skills are no longer needed, or if they can hire someone who can do your job just as well for less pay. That is free enterprise, and it works for people willing to take advantage of it.

sometimestheyaresomewhatright Dave Allen , in reply to" aria-label="in reply to">
I basically agree. But why should it be OK for a company to fire you just to replace you with a younger you? If all that they accomplish is lowering their health care costs (which is what this is really about). If the company is paying about the same for the same work, why is firing older workers for being older OK?
Dave Allen sometimestheyaresomewhatright , in reply to" aria-label="in reply to">
Good question. The point I was trying to make is that people need to watch out for themselves and not expect their employer to do what is "best" for the employee. I think that is true whatever age the employee happens to be.

Whether employers should be able to discriminate against (treat differently) their employees based on age, gender, race, religion, etc. is a political question. Morally, I don't think they should discriminate. Politically, I think it is a slippery slope when the government starts imposing regulations on free enterprise. Government almost always creates more problems than they fix.

DDRLSGC Dave Allen , in reply to" aria-label="in reply to">
Sorry, but when you deregulate the free enterprise, it created more problems than it fixes and that is a fact that has been proven for the last 38 years.
Danllo DDRLSGC , in reply to" aria-label="in reply to">
That's just plain false. Deregulation creates competiiton. Competition for talented and skilled workers creates opportunities for those that wish to be employed and for those that wish to start new ventures. For example, when Ma Bell was regulated and had a monopoly on telecommunications there was no innovation in the telecom inudstry. However, when it was deregulated, cell phones, internet, etc exploded ... creating billionaires and millionaires while also improving the quality of life.
DDRLSGC Danllo , in reply to" aria-label="in reply to">
No, it happens to be true. When Reagan deregulate the economy, a lot of those corporate raiders just took over the companies, sold off the assets, and pocketed the money. What quality of life? Half of American lived near the poverty level and the wages for the workers have been stagnant for the last 38 years compared to a well-regulated economy in places like Germany and the Scandinavian countries where the workers have good wages and a far better standard of living than in the USA. Why do you think the Norwegians told Trump that they will not be immigrating to the USA anytime soon?
NotSure DDRLSGC , in reply to" aria-label="in reply to">
What were the economic conditions before Regan? It was a nightmare before Regan.

The annual unemployment rate topped 8% in 1975 and would reach nearly 10% in 1982. The economy seemed trapped in the new nightmare of stagflation," so called because it combined low economic growth and high unemployment ("stagnation") with high rates of inflation. And the prime rate hit 20% by 1980.
DDRLSGC NotSure , in reply to" aria-label="in reply to">
At least we had a manufacturing base in the USA, strong regulations of corporations, corporate scandals were far and few, businesses did not go under so quickly, prices of goods and services did not go through the roof, people had pensions and could reasonably live off them, and recessions did not last so long or go so deep until Reagan came into office. In Under Reagan, the jobs were allowed to be send overseas, unions were busted up, pensions were reduced or eliminated, wages except those of the CEOs were staganent, and the economic conditions under Bush, Senior and Bush, Jr. were no better except that Bush, Jr, was the first president to have a net minus below zero growth, so every time we get a Republican Administration, the economy really turns into a nightmare. That is a fact.

You have the Republicans in Kansas, Oklahoma, and Wisconsin using Reaganomics and they are economic disaster areas.

DDRLSGC NotSure , in reply to" aria-label="in reply to">
You had an industrial base in the USA, lots of banks and savings and loans to choose from, lots of mom and pop stores, strong government regulation of the economy, able to live off your pensions, strong unions and employment laws along with the court system to back you up against corporate malfeasance. All that was gone when Reagan and the two Bushes came into office.
james Foster , Thursday, March 29, 2018 8:37 PM
Amazingly accurate article. The once great IBM now a dishonest and unscrupulous corporation concerned more about earnings per share than employees, customers, or social responsibility. In Global Services most likely 75% or more jobs are no longer in the US - can't believe a word coming out of Armonk.
Philip Meyer james Foster , in reply to" aria-label="in reply to">
I'm not sure there was ever a paradise in employment. Yeah, you can say there was more job stability 50 or 60 years ago, but that applied to a much smaller workforce than today (mostly white men). It is a drag, but there are also lot more of us old farts than there used to be and we live a lot longer in retirement as well. I don't see any magic bullet fix either.
George A , Tuesday, March 27, 2018 6:12 PM
Warning to Google/Facebook/Apple etc. All you young people will get old. It's inevitable. Do you think those companies will take care of you?
econdataus , Sunday, March 25, 2018 3:01 PM
Great article. What's especially infuriating is that the industry continues to claim that there is a shortage of STEM workers. For example, google "claim of 1.4 million computer science jobs with only 400,000 computer science graduates to fill them". If companies would openly say, "we have plenty of young STEM workers and prefer them to most older STEM workers", we could at least start addressing the problem. But they continue to promote the lie of there being a STEM shortage. They just want as big a labor pool as possible, unemployed workers be damned.
Buzz , Friday, March 23, 2018 12:00 PM
I've worked there 17 years and have worried about being layed off for about 11 of them. Moral is in the toilet. Bonuses for the rank and file are in the under 1% range while the CEO gets millions. Pay raises have been non existent or well under inflation for years. Adjusting for inflation, I make $6K less than I did my first day. My group is a handful of people as at least 1/2 have quit or retired. To support our customers, we used to have several people, now we have one or two and if someone is sick or on vacation, our support structure is to hope nothing breaks. We can't keep millennials because of pay, benefits and the expectation of being available 24/7 because we're shorthanded. As the unemployment rate drops, more leave to find a different job, leaving the old people as they are less willing to start over with pay, vacation, moving, selling a house, pulling kids from school, etc. The younger people are generally less likely to be willing to work as needed on off hours or to pull work from a busier colleague. I honestly have no idea what the plan is when the people who know what they are doing start to retire, we are way top heavy with 30-40 year guys who are on their way out, very few of the 10-20 year guys due to hiring freezes and we can't keep new people past 2-3 years. It's like our support business model is designed to fail.
OrangeGina , Friday, March 23, 2018 11:41 AM
Make no mistake. The three and four letter acronyms and other mushy corporate speak may differ from firm to firm, but this is going on in every large tech company old enough to have a large population of workers over 50. I hope others will now be exposed.
JeffMo , Friday, March 23, 2018 10:23 AM
This article hits the nail right on the head, as I come up on my 1 year anniversary from being....ahem....'retired' from 23 years at IBM....and I'll be damned if I give them the satisfaction of thinking this was like a 'death' to me. It was the greatest thing that could have ever happened. Ginny and the board should be ashamed of themselves, but they won't be.
Frankie , Friday, March 23, 2018 1:00 AM
Starting around age 40 you start to see age discrimination. I think this is largely due to economics, like increased vacation times, higher wages, but most of all the perception that older workers will run up the medical costs. You can pass all the age related discrimination laws you want, but look how ineffective that has been.

If you contrast this with the German workforce, you see that they have more older workers with the skills and younger workers without are having a difficult time getting in. So what's the difference? There are laws about how many vacation weeks that are given and there is a national medical system that everyone pays, so discrimination isn't seen in the same light.

The US is the only hold out maybe with South Africa that doesn't have a good national medical insurance program for everyone. Not only do we pay more than the rest of the world, but we also have discrimination because of it.

Rick Gundlach , Thursday, March 22, 2018 11:38 PM
This is very good, and this is IBM. I know. I was plaintiff in Gundlach v. IBM Japan, 983 F.Supp.2d 389, which involved their violating Japanese labor law when I worked in Japan. The New York federal judge purposely ignored key points of Japanese labor law, and also refused to apply Title VII and Age Discrimination in Employment to the parent company in Westchester County. It is a huge, self-described "global" company with little demonstrated loyalty to America and Americans. Pennsylvania is suing them for $170 million on a botched upgrade of the state's unemployment system.
Jeff , Thursday, March 22, 2018 2:05 PM
In early 2013 I was given a 3 PBC rating for my 2012 performance, the main reason cited by my manager being that my team lead thought I "seemed distracted". Five months later I was included in a "resource action", and was gone by July. I was 20 months shy of 55. Younger coworkers were retained. That was about two years after the product I worked on for over a decade was off-shored.

Through a fluke of someone from the old, disbanded team remembering me, I was rehired two years later - ironically in a customer support position for the very product I helped develop.

While I appreciated my years of service, previous salary, and previous benefits being reinstated, a couple years into it I realized I just wasn't cut out for the demands of the job - especially the significant 24x7 pager duty. Last June I received email describing a "Transition to Retirement" plan I was eligible for, took it, and my last day will be June 30. I still dislike the job, but that plan reclassified me as part time, thus ending pager duty for me. The job still sucks, but at least I no longer have to despair over numerous week long 24x7 stints throughout the year.

A significant disappointment occurred a couple weeks ago. I was discussing healthcare options with another person leaving the company who hadn't been resource-actioned as I had, and learned the hard way I lost over $30,000 in some sort of future medical benefit account the company had established and funded at some point. I'm not sure I was ever even aware of it. That would have funded several years of healthcare insurance during the 8 years until I'm eligible for Medicare. I wouldn't be surprised if their not having to give me that had something to do with my seeming "distracted" to them. <rolls eyes="">

What's really painful is the history of that former account can still be viewed at Fidelity, where it associates my departure date in 2013 with my having "forfeited" that money. Um, no. I did not forfeit that money, nor would I have. I had absolutely no choice in the matter. I find the use of the word 'forfeited' to describe what happened as both disingenuous and offensive. That said, I don't know whether's that's IBM's or Fidelity's terminology, though.

Herb Jeff , in reply to" aria-label="in reply to">
Jeff, You should call Fidelity. I recently received a letter from the US Department of Labor that they discovered that IBM was "holding" funds that belonged to me that I was never told about. This might be similar or same story .

[Oct 14, 2018] Hedge Fund CIO: "Some See Parallels Between Today And The Late-1930s, Which Led To World War II" by Eric Peters

Notable quotes:
"... Virtually every investment portfolio measures risk by utilizing some combination of volatility and correlation, both of which are backward-looking and low. But the present is knowable. The past too. And the multi-decade trends that carried us to today produced levels of inequality rarely seen. ..."
"... To an observer, it's neither right nor wrong, it simply is. Some see parallels between today and the late-1930s, which led to World War II. We also see parallels with the mid-1960s, which led to The Great Inflation. ..."
Oct 14, 2018 | www.zerohedge.com

Submitted by Eric Peters of One River Asset Management

The future is unknowable. Yet never has capital been so concentrated in strategies that depend on the future closely resembling the past. The most dominant of these strategies requires bonds to rally when stocks fall. For decades, both rose inexorably. And a new array of increasingly complex and illiquid strategies depends on a jump in volatility to be followed by a rapid decline of equal magnitude. They appear uncorrelated until they are not.

Virtually every investment portfolio measures risk by utilizing some combination of volatility and correlation, both of which are backward-looking and low. But the present is knowable. The past too. And the multi-decade trends that carried us to today produced levels of inequality rarely seen.

Low levels of inflation, growth, productivity, and volatility are features of this cycle's increasingly unequal distribution. But cycle extremes produce pressures that reverse their direction.

On cue, an anti-establishment political wave washed away the globalists, with promises to turn the tide. Such change is nothing new, just another loop around the sun.

Now signs of a cycle swing abound; shifting trade agreements, global supply chains, military dynamics, immigration, wage pressures, polarization, nationalism, tribalism.

To an observer, it's neither right nor wrong, it simply is. Some see parallels between today and the late-1930s, which led to World War II. We also see parallels with the mid-1960s, which led to The Great Inflation.

What comes next is sure to look different still. But investment strategies that prospered from the past decade's low inflation, growth, productivity and volatility will face headwinds as this cycle turns.

Those strategies that suffered should enjoy tailwinds. That's how cycles work . And we know the 1940s was a strong decade for Trend performance. The 1970s was the best decade for Trend in 150yrs. And following cycle turns in both the 1930s and 1960s, the world became a profoundly volatile place.

* * *

And, as a bonus, here are three observations from Peters on what he calls " Groundhog Day"

"Starting in the mid-1960s several significant policy changes, made in the context of a belief that inflation wasn't a concern, all but caused the outcome that was considered impossible," wrote Lindsay Politi in her latest thought piece. "The first proximate catalyst to the great inflation was the Tax Reduction Act of 1964. At the time, it was the largest tax cut in American history. The Act slashed income taxes, especially on higher income households, by reducing income taxes by 20% across the board in addition to reducing corporate rates . The expectation was that the tax cut would ultimately increase total tax revenue by lowering unemployment, increasing consumption, and increasing the incentive for companies to invest and modernize their capital stock. The tax cut did increase growth, but it also pushed unemployment very low, to one of the only sustained periods of unemployment below 4% in the post war period."

"The 2nd policy change was how employment was considered," continued Lindsay. "In the mid-1960s, there was concern about a cultural divide. The US social critic Michael Harrington spoke about "The Other America": the unskilled Americans in mostly rural areas who had a "culture of poverty" and were being left behind by the post war economic boom of the 1950s. In that context the drop in the unemployment rate after the tax cut was welcome. The belief was that pushing the unemployment rate to very low levels would help transfer wealth from the prosperous urban and suburban areas to "The Other America." They thought that, while very low unemployment might increase inflation, the increase would only be modest, and the social benefits of modestly higher inflation and lower unemployment were desirable. At the time, there wasn't a uniform theory for the relationship between inflation and unemployment, so when inflation started to increase with very low unemployment rates it wasn't a concern."

"A 3rd proximate cause of The Great Inflation was the failure to appreciate a significant, structural productivity decline. Capital deepening for WWII and the Korean War had boosted productivity. However, much lower peacetime capital spending had caused productivity growth to slow. Despite the relative lack of capital spending, productivity declines were generally dismissed . It became clear at the end of the 1960s into the early 1970s that inflation has a self-reinforcing trend. Stability in inflation can reinforce stability, but acceleration also reinforces acceleration. As inflation increases, all else equal, it lowers real interest rates which stimulates growth, creating higher inflation. It 's part of why anchored inflation expectations are so critical to inflation staying low, but also why expectations of higher inflation can be hard to fight."

For the full thought piece: Lessons from the Origins of The Great Inflation for Today – What the mid-1960s Can Teach Us About Trading Current Markets


Paracelsus , 13 minutes ago link

Most people forget that Hitler was elected to power, and then proceeded to make himself a dictator.

Germany escaped much of the 1929 crash effects, but in 1932 a Rothschild bank in Austria failed (Kredit-Anstalt) after being forced to absorb two smaller banks which were insolvent.

Along with the failure of two other German banks around that time period, hyper-inflation of the currency returned to German society. Savers saw their life savings disappear overnight.

During the elections, the Nazi's gained enough seats that they rose to power. Hitler promised to stabilize the currency,reduce unemployment, and stop the running gun battles in the street.He achieved all of these goals. Hitler was a liar and worse, a micro-manager. But so was Churchill, who would keep his staff up until the early hours of the morning on a regular basis.

To avoid the hardship of not having substantial hard currency reserves, Germany engaged in a great deal of barter trade in the late thirties. Because this sidelined the banks, they objected to this economic activity, which desperate countries have used for thousands of years.

Archive_file , 9 minutes ago link

Hitler also rose to power because liberals were discredit and offered nothing but rhetoric.

Davidduke2000 , 28 minutes ago link

the difference is WWIII will finish in few hours with the US-UK completely wiped off the map as well as part of China and Russia.

DocMims , 56 minutes ago link

Tariffs will cause the sky to fall and the oceans to burn.

There. Fixed it for you.

Get back to building child sweat shops and loansharking the 3rd world.

johngaltfla , 58 minutes ago link

One word:

Facepalm.

Enderjedi , 1 hour ago link

Wasn't there another recent globalist agenda article today about parallels between tariffs and the onset of the great depression?

ardent , 1 hour ago link

America will undergo KARMA for perpetuating

the Greatest Injustice of the 20th Century.

markmotive , 1 hour ago link

Unlike WWII we now have nuclear weapons.

https://www.risktopia.com/2018/10/the-nuclear-war-movie-all-should-watch.html

mabuhay1 , 1 hour ago link

The current tariffs are not the same as the ones that brought about the Great Depression, nor were tariffs the cause of World War 2. Your analogies are false and misleading to the extreme.

Handful of Dust , 1 hour ago link

Lots of writers are trying to make Trump look bad. Where were they during the real second depression under Bush and Soweeto bin Bama?

The writer sounds like the wookie, Mooshell Obama and her "feeling of hopelessness" over the Trump election.

I personally have not seen small businessmen so happy after years of Obama's Reign of Terror.

Davidduke2000 , 22 minutes ago link

I want the republicans and trump to stay in power however all his tariffs and sanctions are harming the us more than yo think. of course it takes a couple of years to realize the damage , but the deficit is easy to realize this years it will be over $1.3 trillion next year $ 1.5 trillion in addition to the $22 trillion obama left, in other words you are fucked.

romanmoment , 1 hour ago link

Everyone sees parallels to WW2....and WW1....and the American Civil War....and the Russian Revolution....and The Thirty Years War.....and.....and....and.....

A bunch of broken clocks. One thing I know for sure, nobody knows a ******* thing and there will definitely be another very nasty world war.

Fiscal.Enema , 1 hour ago link

Well, Nuclear winter is one way to solve global warming. It deals with the population crisis too.

JimmyJones , 1 hour ago link

I read "Tragedy and Hope" (great read, highly recommend it) it goes into great detail on the players throughout history, from what's in there I would say it's way more like pre-WW1 then 2.

[Sep 19, 2018] The Minsky Moment Ten Years After by Barkley Rosser

Notable quotes:
"... My take on Minsky moment is that banking introduces positive feedback loop into the system, making it (as any dynamic system with strong positive feedback loop) unstable. ..."
"... To compensate you need to introduce negative feedback loop in a form of regulation and legal system that vigorously prosecute financial oligarchy "transgressions," instilling fear and damping its predatory behavior and parasitic rents instincts. In a way number of bankers who go to jail each year is metric of stability of the system. Which was a feature (subverted and inconsistent from the beginning and decimated in 70th) of New Deal Capitalism. ..."
Sep 18, 2018 | angrybearblog.com

These days are the tenth anniversary of the biggest Minsky Moment since the Great Depression. While when it happened most commentators mentioned Minsky and many even called it a "Minsky Moment," most of the commentary now does not use that term and much does not even mention Minsky, much less Charles Kindleberger or Keynes. Rather much of the discussion has focused now on the failure of Lehman Brothers on September 15, 2017. A new book by Lawrence Ball has argued that the Fed could have bailed LB out as they did with Bear Stearns in February of that year, with Ball at least, and some others, suggesting that would have resolved everything, no big crash, no Great Recession, no angry populist movement more recently, heck, all hunky dory if only the Fed had been more responsible, although Ball especially points his finger at Bush's Treasury Secretary, Hank Paulson, for especially pressuring Bernanke and Geithner at the Fed not to repeat Bear Stearns. And indeed when they decided not to support Lehman, the Fed received widespread praise in much of the media initially, before its fall blew out AIG and brought down most of the pyramid of highly leveraged derivatives of derivatives coming out of the US mortgage market ,which had been declining for over two years.

Indeed, I agree with Dean Baker as I have on so many times regarding all this that while Lehman may have been the straw that broke the camel's back, it was the camel's back breaking that was the problem, and it was almost certainly going to blow big time reasonably soon then. It it was not Lehman, it was going to be something else. Indeed, on July 12, 2008, I posted here on Econospeak a forecast of this, declaring "It looks like we might be finally reaching the big crash in the US mortgage market after a period of distress that started last August (if not earlier)."

I drew on Minsky's argument (backed by Kindleberger in his Manias, Panics, and Crashes ) that the vast majority of major speculative bubbles experience periods of gradual decline after their peaks prior to really seriously crashing during what Minsky labeled the "period of financial distress," a term he adopted from the corporate finance literature. The US housing market had been falling since July, 2006. The bond markets had been declining since August, 2007, the stock market had been declining since October, 2007, and about the time I posted that, the oil market reached an all-time nominal peak of $147 per barrel and began a straight plunge that reached about $30 per barrel in November, 2008. This was a massively accelerating period of distress with the real economy also dropping, led by falling residential consumption. In mid-September the Minsky Moment arrived, and the floor dropped out of not just these US markets, but pretty much all markets around the world, with world economy then falling into the Great Recession.

Let me note something I have seen nobody commenting on in all this outpouring on this anniversary. This is how the immediate Minsky Moment ended. Many might say it was the TARP or the stress tests or the fiscal stimulus, All of these helped to turn around the broader slide that followed by the Minsky Moment. But there was a more immediate crisis that went on for several days following the Lehman collapse, peaking on Sept. 17 and 18, but with obscure reporting about what went down then. This was when nobody at the Board of Governors went home; cots made an appearance. This was the point when those at the Fed scrambled to keep the whole thing from turning into 1931 and largely succeeded. The immediate problem was that the collapse of AIG following the collapse of Lehman was putting massive pressure on top European banks, especially Deutsches Bank and BNP Paribas. Supposedly the European Central Bank (ECB) should have been able to handle this But along with all this the ECB was facing a massive run on the euro as money fled to the "safe haven" of the US dollar, so ironic given that the US markets generated this mess.

Anyway, as Neil Irwinin The Alchemists (especially Chap. 11) documented, the crucial move that halted the collapse of the euro and the threat of a fullout global collapse was a set of swaps the Fed pulled off that led to it taking about $600 billion of Eurojunk from the distressed European banks through the ECB onto the Fed balance sheet. These troubled assets were gradually and very quietly rolled off the Fed balance sheet over the next six months to be replaced by mortgage backed securities. This was the save the Fed pulled off at the worst moment of the Minsky Moment. The Fed policymakers can be criticized for not seeing what was coming (although several people there had spotted it earlier and issued warnings, including Janet Yellen in 2005 and Geithner in a prescient speech in Hong Kong in September, 2006, in which he recognized that the housing related financial markets were highly opaque and fragile). But this particular move was an absolute save, even though it remains today very little known, even to well-informed observers.

Barkley Rosser


run75441 , September 18, 2018 7:07 am

Barkley:

A few days ago, it was just a housing bubble to which a few of us pointed out an abnormal housing bubble created by fraud and greed on Wall Street. The market was riddled with false promises to pay through CDS, countering naked-CDS both of which had little if any reserves in this case to back up each AIG CDS insuring Goldman Sachs securities. When Goldman Sachs made that call to AIG, there were few funds to pay out and AIG was on the verge of collapse.

And today, some of those very same created banks under TARP which were gambling then and some of which had legal issues are free from the stress testing Dodd – Frank imposed upon banks with assets greater than $50 billion. Did the new limit need to be $250 billion? Volcker thought $100 billion was adequate and Frank argued for a slightly higher limit well under $250 billion. The fox is in the chicken coop again with Deutsche Bank, BNP Paribas, UBS, and Credit Suisse not being regulated as closely and 25 of the largest 38 banks under less regulation. These are not community banks and they helped to bring us to our knees. Is it still necessary for American Express to be a bank and have access to low interest rates the Fed offers? I think not; but, others may disagree with me. It is not a bank.

You remember the miracle the Fed pulled off as detailed in The Alchemists which I also read at your recommendation. I remember the fraud and greed on Wall Street for which Main Street paid for with lost equity, jobs, etc. I remember the anger of Wall Street Execs who were denied bonuses and states who had exhausted unemployment funding denying workers unemployment. We were rescued from a worse fate; but, the memory of the cure the nation's citizenry had to take for Wall Street greed and fraud leaves a bitter taste in my mouth.

EMichael , September 18, 2018 8:39 am

This never ending meme about Tarp saving the banks is really starting to aggravate me. The Fed saved the banking system(on both sides of the Atlantic) before Tarp issued one dollar, and they did so with trillions, not billions, of loans and guarantees that stopped the run on the banks and mutual funds on both sides of the Atlantic.

Just look at the amounts. Tarp gave out $250 billion to the banks. Do people seriously think this saved the banking system? Or that Wells goes under without their $25 billion loan?

Tarp was window dressing and pr, not a solution by any stretch of the imagination.

"Bloomberg ran quite a story, yesterday. It stems from a Freedom of Information Act Request that yielded the details of previously secret borrowing from the federal government to the biggest banks.

The bottom line, reports Bloomberg, by March of 2009, the Fed had committed $7.77 trillion "to rescuing the financial system, more than half the value of everything produced in the U.S. that year." The lending began in August of 2007.

The reporting from Bloomberg Markets Magazine is spectacular, so we hope you click over and give the exhaustive piece a read."

https://www.npr.org/sections/thetwo-way/2011/11/28/142854391/report-fed-committed-7-77-trillion-to-rescue-banks

run75441 , September 18, 2018 11:57 am

EM:

If you pick up The Alchemist, I believe you will see all of this ($7 trillion) explained in there. TARP was used to buy up junk MBS from banks by the Treasury and separate from the FED. It was also used to buy up bank stock to give them reserves. It saved two of the three OEMs too.

Ken Houghton , September 18, 2018 11:52 am

The general U.S. mortgage market died on Hallwe'en 2006. By the first quarter of 2007, it was dead even for IBs who owned originators.

There were two IBs who were dependent on MBS for their profits: Bear and Lehmann. Doesn't mean they didn't have other businesses, but their earnings would go from a V-8 to a 3-cylinder.

Bear went first, and ShitforBrains Fuld & Co. had six months after that to shore up capital, find a buyer, or go under.

We all knew that the reason Bear was saved wasn't out of generosity, but because it really would have had a systemic effect had it gone through bankruptcy proceedings. But THAT was because Bear had two core businesses, and the other one was Custodial Services.

Had Bear gone through bankruptcy, those Customer funds would have been inaccessible for at least 30 days.

Lehmann had no similar function; failure of Lehmann was failure of Lehmann.

Fuld knew all of this and still fucked around for six months pretending he was driving a 911 instead of a Geo Metro.

Lawrence Ball is a brain-dead idiot if he thinks saving that firm would have in any way made things better.

likbez , September 18, 2018 12:41 pm

My take on Minsky moment is that banking introduces positive feedback loop into the system, making it (as any dynamic system with strong positive feedback loop) unstable.

To compensate you need to introduce negative feedback loop in a form of regulation and legal system that vigorously prosecute financial oligarchy "transgressions," instilling fear and damping its predatory behavior and parasitic rents instincts. In a way number of bankers who go to jail each year is metric of stability of the system. Which was a feature (subverted and inconsistent from the beginning and decimated in 70th) of New Deal Capitalism.

As neoliberalism is essentially revenge of financial oligarchy which became the ruling class again, this positive feedback loop is an immanent feature of neoliberalism.

Financial oligarchy is not interesting in regulation and legal framework that suppresses its predatory and parasitic "instincts." So this is by definition is an unstable system prone to periodic financial "collapses." In which the government needs to step in and save the system.

So the question about the 2008 financial crisis is when the next one commences and how destructive it will be. Not why it happened.

likbez , September 18, 2018 12:47 pm

In a perverse way the percentage of financial executives who go to jail each year might be viewed as a metric of stability of the financial system ;-)

[Sep 18, 2018] The Minsky Moment Ten Years After

Sep 18, 2018 | angrybearblog.com

Barkley Rosser | September 18, 2018 6:01 am

Taxes/regulation US/Global Economics The Minsky Moment Ten Years After These days are the tenth anniversary of the biggest Minsky Moment since the Great Depression. While when it happened most commentators mentioned Minsky and many even called it a "Minsky Moment," most of the commentary now does not use that term and much does not even mention Minsky, much less Charles Kindleberger or Keynes. Rather much of the discussion has focused now on the failure of Lehman Brothers on September 15, 2017. A new book by Lawrence Ball has argued that the Fed could have bailed LB out as they did with Bear Stearns in February of that year, with Ball at least, and some others, suggesting that would have resolved everything, no big crash, no Great Recession, no angry populist movement more recently, heck, all hunky dory if only the Fed had been more responsible, although Ball especially points his finger at Bush's Treasury Secretary, Hank Paulson, for especially pressuring Bernanke and Geithner at the Fed not to repeat Bear Stearns. And indeed when they decided not to support Lehman, the Fed received widespread praise in much of the media initially, before its fall blew out AIG and brought down most of the pyramid of highly leveraged derivatives of derivatives coming out of the US mortgage market ,which had been declining for over two years.

Indeed, I agree with Dean Baker as I have on so many times regarding all this that while Lehman may have been the straw that broke the camel's back, it was the camel's back breaking that was the problem, and it was almost certainly going to blow big time reasonably soon then. It it was not Lehman, it was going to be something else. Indeed, on July 12, 2008, I posted here on Econospeak a forecast of this, declaring "It looks like we might be finally reaching the big crash in the US mortgage market after a period of distress that started last August (if not earlier)."

I drew on Minsky's argument (backed by Kindleberger in his Manias, Panics, and Crashes ) that the vast majority of major speculative bubbles experience periods of gradual decline after their peaks prior to really seriously crashing during what Minsky labeled the "period of financial distress," a term he adopted from the corporate finance literature. The US housing market had been falling since July, 2006. The bond markets had been declining since August, 2007, the stock market had been declining since October, 2007, and about the time I posted that, the oil market reached an all-time nominal peak of $147 per barrel and began a straight plunge that reached about $30 per barrel in November, 2008. This was a massively accelerating period of distress with the real economy also dropping, led by falling residential consumption. In mid-September the Minsky Moment arrived, and the floor dropped out of not just these US markets, but pretty much all markets around the world, with world economy then falling into the Great Recession.

Let me note something I have seen nobody commenting on in all this outpouring on this anniversary. This is how the immediate Minsky Moment ended. Many might say it was the TARP or the stress tests or the fiscal stimulus, All of these helped to turn around the broader slide that followed by the Minsky Moment. But there was a more immediate crisis that went on for several days following the Lehman collapse, peaking on Sept. 17 and 18, but with obscure reporting about what went down then. This was when nobody at the Board of Governors went home; cots made an appearance. This was the point when those at the Fed scrambled to keep the whole thing from turning into 1931 and largely succeeded. The immediate problem was that the collapse of AIG following the collapse of Lehman was putting massive pressure on top European banks, especially Deutsches Bank and BNP Paribas. Supposedly the European Central Bank (ECB) should have been able to handle this But along with all this the ECB was facing a massive run on the euro as money fled to the "safe haven" of the US dollar, so ironic given that the US markets generated this mess.

Anyway, as Neil Irwinin The Alchemists (especially Chap. 11) documented, the crucial move that halted the collapse of the euro and the threat of a fullout global collapse was a set of swaps the Fed pulled off that led to it taking about $600 billion of Eurojunk from the distressed European banks through the ECB onto the Fed balance sheet. These troubled assets were gradually and very quietly rolled off the Fed balance sheet over the next six months to be replaced by mortgage backed securities. This was the save the Fed pulled off at the worst moment of the Minsky Moment. The Fed policymakers can be criticized for not seeing what was coming (although several people there had spotted it earlier and issued warnings, including Janet Yellen in 2005 and Geithner in a prescient speech in Hong Kong in September, 2006, in which he recognized that the housing related financial markets were highly opaque and fragile). But this particular move was an absolute save, even though it remains today very little known, even to well-informed observers.

Barkley Rosser


run75441 , September 18, 2018 7:07 am

Barkley:

A few days ago, it was just a housing bubble to which a few of us pointed out an abnormal housing bubble created by fraud and greed on Wall Street. The market was riddled with false promises to pay through CDS, countering naked-CDS both of which had little if any reserves in this case to back up each AIG CDS insuring Goldman Sachs securities. When Goldman Sachs made that call to AIG, there were few funds to pay out and AIG was on the verge of collapse.

And today, some of those very same created banks under TARP which were gambling then and some of which had legal issues are free from the stress testing Dodd – Frank imposed upon banks with assets greater than $50 billion. Did the new limit need to be $250 billion? Volcker thought $100 billion was adequate and Frank argued for a slightly higher limit well under $250 billion. The fox is in the chicken coop again with Deutsche Bank, BNP Paribas, UBS, and Credit Suisse not being regulated as closely and 25 of the largest 38 banks under less regulation. These are not community banks and they helped to bring us to our knees. Is it still necessary for American Express to be a bank and have access to low interest rates the Fed offers? I think not; but, others may disagree with me. It is not a bank.

You remember the miracle the Fed pulled off as detailed in The Alchemists which I also read at your recommendation. I remember the fraud and greed on Wall Street for which Main Street paid for with lost equity, jobs, etc. I remember the anger of Wall Street Execs who were denied bonuses and states who had exhausted unemployment funding denying workers unemployment. We were rescued from a worse fate; but, the memory of the cure the nation's citizenry had to take for Wall Street greed and fraud leaves a bitter taste in my mouth.

EMichael , September 18, 2018 8:39 am

This never ending meme about Tarp saving the banks is really starting to aggravate me. The Fed saved the banking system(on both sides of the Atlantic) before Tarp issued one dollar, and they did so with trillions, not billions, of loans and guarantees that stopped the run on the banks and mutual funds on both sides of the Atlantic.

Just look at the amounts. Tarp gave out $250 billion to the banks. Do people seriously think this saved the banking system? Or that Wells goes under without their $25 billion loan?

Tarp was window dressing and pr, not a solution by any stretch of the imagination.

"Bloomberg ran quite a story, yesterday. It stems from a Freedom of Information Act Request that yielded the details of previously secret borrowing from the federal government to the biggest banks.

The bottom line, reports Bloomberg, by March of 2009, the Fed had committed $7.77 trillion "to rescuing the financial system, more than half the value of everything produced in the U.S. that year." The lending began in August of 2007.

The reporting from Bloomberg Markets Magazine is spectacular, so we hope you click over and give the exhaustive piece a read."

https://www.npr.org/sections/thetwo-way/2011/11/28/142854391/report-fed-committed-7-77-trillion-to-rescue-banks

run75441 , September 18, 2018 11:57 am

EM:

If you pick up The Alchemist, I believe you will see all of this ($7 trillion) explained in there. TARP was used to buy up junk MBS from banks by the Treasury and separate from the FED. It was also used to buy up bank stock to give them reserves. It saved two of the three OEMs too.

Ken Houghton , September 18, 2018 11:52 am

The general U.S. mortgage market died on Hallwe'en 2006. By the first quarter of 2007, it was dead even for IBs who owned originators.

There were two IBs who were dependent on MBS for their profits: Bear and Lehmann. Doesn't mean they didn't have other businesses, but their earnings would go from a V-8 to a 3-cylinder.

Bear went first, and ShitforBrains Fuld & Co. had six months after that to shore up capital, find a buyer, or go under.

We all knew that the reason Bear was saved wasn't out of generosity, but because it really would have had a systemic effect had it gone through bankruptcy proceedings. But THAT was because Bear had two core businesses, and the other one was Custodial Services.

Had Bear gone through bankruptcy, those Customer funds would have been inaccessible for at least 30 days.

Lehmann had no similar function; failure of Lehmann was failure of Lehmann.

Fuld knew all of this and still fucked around for six months pretending he was driving a 911 instead of a Geo Metro.

Lawrence Ball is a brain-dead idiot if he thinks saving that firm would have in any way made things better.

likbez , September 18, 2018 12:41 pm

My take on Minsky moment is that banking introduces positive feedback loop into the system, making it (as any dynamic system with strong positive feedback loop) unstable.

To compensate you need to introduce negative feedback loop in a form of regulation and legal system that vigorously prosecute financial oligarchy "transgressions," instilling fear and damping its predatory behavior and parasitic rents instincts. In a way number of bankers who go to jail each year is metric of stability of the system. Which was a feature (subverted and inconsistent from the beginning and decimated in 70th) of New Deal Capitalism.

As neoliberalism is essentially revenge of financial oligarchy which became the ruling class again, this positive feedback loop is an immanent feature of neoliberalism.

Financial oligarchy is not interesting in regulation and legal framework that suppresses its predatory and parasitic "instincts." So this is by definition is an unstable system prone to periodic financial "collapses." In which the government needs to step in and save the system.

So the question about the 2008 financial crisis is when the next one commences and how destructive it will be. Not why it happened.

likbez , September 18, 2018 12:47 pm

In a perverse way the percentage of financial executives who go to jail each year might be viewed as a metric of stability of the financial system ;-)

[Sep 15, 2018] Ten Misconceptions About Financial Crisis on 10-Year Anniversary

Sep 15, 2018 | www.bloomberg.com

One of the most intriguing aspects of the 2007-09 financial crisis is how little understanding there is of what actually occurred. Some of this has to do with the complexities of the event, as well as how hard it is to identify forces lurking below the surface that had built up over the years.

Even a decade later, many people still cling to false ideas about the underlying causes (there wasn't just one, folks!) of the crisis. What follows are my 10 favorite flawed memes, misunderstandings and just outright falsehoods about the financial crisis and its aftermath:

No. 1. Lehman's collapse caused the crisis : "If only we had saved Lehman Brothers, we could have avoided the crisis," goes a popular lament. This reflects a fundamental misunderstanding of the scale of the dislocations. To accept this premise -- former Lehman employees are some of the loudest apostles of this theory -- then one has to pretend an entire universe of other issues didn't exist.

Lehman, like Bear Stearns before it, suffered from many of the same issues that afflicted most of the U.S.'s other big banks and brokers: too much junk paper, too much leverage, too little capital and deficient risk controls. Lehman was simply among the most overleveraged and undercapitalized of the lot.

No. 2. If not for X, we would have been OK: Take your pick of things to insert here, but it's important to understand that this was not a single event , but rather the result of many factors that came together over time. These include: the Federal Reserve's ultralow interest rates, a fundamentally weak recovery from the dot-com collapse, the housing boom and bust, huge amounts of financial leverage, securitization of mortgages, the embrace of derivatives and reckless deregulation of the financial industry that enabled much of the above, and more. I depicted these elements via this graphic in " Bailout Nation ."

No. 3. Repeal of Glass-Steagall : The argument is that in the decades after Glass-Steagall was enacted during the Great Depression, Wall Street crises were confined to Wall Street and didn't spill onto Main Street. See as examples the 1987 stock-market crash or the Mexican peso crisis of 1994. But the causative issue we run into to is the but-for test. Would we have had a crisis if Glass-Steagall were still in place? I don't see how we can make that claim. Perhaps had Glass-Steagall not been repealed, the crisis might have been smaller, but it is very hard to say it wouldn't have occurred anyway.

No. 4. Bailouts were the only option : There were many other options, but they would have been very painful and required considerable foresight. I believed then (and still believe) that the best course of action would have been prepackaged bankruptcies for all the insolvent institutions instead of bailouts. I would have had the federal government provide debtor-in-possession financing, allowed qualified private institutional investors to bid on the assets thereby letting markets set the valuations, with the government picking up the rest. It would have been more difficult in the short term, but the economy would have rebounded much sooner.

No. 5. Taxpayers were repaid in full and even made a profit : There are two major issues with this claim: The first is that the Troubled Asset Relief Program and most other loans and bailouts were all (or almost all) repaid. But to make that happen, the federal government in a move questioned by tax experts allowed failed American International Group to carry forward the net operating losses for use to offset future earnings; this was a stealth bailout worth tens of billions of dollars that didn't appear to "cost" anything. Meanwhile the Federal Reserve kept rates at zero for almost a decade. This resulted in a huge transfer from savers to bailed-out lenders.

The federal government also took a huge amount of risk during a period when financial markets tripled. And that is before we account for all of the collateral losses and moral hazards we created.

https://cdn.iframe.ly/le122fY?app=1

No. 6. No one went to jail because stupidity isn't a crime : This one is laugher, from the behavior of the executives at Lehman Brothers to all of the foreclosure fraud that took place. Jesse Eisinger, author of " The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives ," explained how the white-collar defense bar successfully lobbied and undercut the Department of Justice during the years before the crisis. You can't convict a criminal if you don't have the personnel, intellectual firepower or stomach to prosecute in the first place.

No. 7. Borrowers were as blameworthy as lenders : First, we know that for huge swaths of the banking industry, the basis for lending changed in the run-up to the crisis. For most of financial history, credit was granted based on the borrower's ability to repay . In the years before the crisis, the incentive to lend shifted: It was based not on the likelihood of repayment but on whether a loan could be sold to someone else, often a securities firm, which would repackage the loan with other loans to create a mortgage-backed security. Selling 30-year mortgages with a 90-day warranty changes the calculus for who qualifies: just find a warm body that will make the first three payments; after that it's someone else's problem.

Second, we know that if you offer people free money, they will take it. This is among the reasons we have banking regulations in the first place. We expect the banking professionals to understand risk better than the unwashed masses.

No. 8. Poor people caused the crisis : This is another intellectually dishonest claim. If any U.S. legislation such as the Community Reinvestment Act was the actual cause of the crisis, then the boom and bust wouldn't have been global. Second, if poor people and these policies were the cause, then the crisis would have been centered in South Philadelphia; Harlem, New York; Oakland, California; and Atlanta instead of the burgeoning suburbs of Las Vegas, Southern California, Florida and Arizona. The folks making this argument seem to have questionable motivations.

No. 9. The Fed made a mistake by stepping in when Congress refused: Congress is the governmental entity that should have done more in response to the crisis. But it didn't, and all of those members who opposed efforts to repair the economy and financial system should have been thrown out of office. The Fed gave cover to Congress, creating congressional moral hazard and allowing it to shirk its responsibilities . We don't know how the world would have looked if that hadn't happened, but I imagine it would be significantly different than it does today -- and not necessarily better.

No. 10. Lehman could have been saved : This is perhaps the most delusional of all the claims. Lehman was insolvent . We know this from an accounting sleight-of-hand it performed called Repo 105, in which it which "sold" $50 billion in holdings to an entity it owned, booked a profit just before quarterly earnings, then repurchased the holdings. The sleuthing done by hedge-fund manager David Einhorn reached the same conclusion about Lehman's solvency long before the collapse ; the Fed itself also made clear that it couldn't take on Lehman's losses.

When people stubbornly refuse to acknowledge facts, when they insist on staying married to their own faulty belief system, it becomes very challenging to respond with sound policies. As a society, the sooner we reckon with reality, the sooner we can begin to avoid disasters like the financial crisis.

[Aug 22, 2018] The US financial sector has manifestly failed at allocating capital properly and is filled with rent seeking by Anatoly Karlin

Highly recommended!
Notable quotes:
"... Since the 80s, the stock market capitalization to GDP ratio has been much higher than the historical norm, higher than when the US had higher rates of growth. ..."
"... In financialized economies with inflated asset prices, people have low savings and can't even afford to buy real estate or can only afford it by taking on lots of debt and having to depend on further price inflation so that they don't go underwater. In countries with financial repression, public debt tends to be low and interest rates tend to be low and capital gets directed towards industry ..."
"... Well like I said earlier, this is a matter of one's values and views on political economy. If one prefers asset price inflation and a capital structure of heavily indebted households and young adults, then there's nothing wrong and everything is rosy. ..."
"... Household income overall, not just wages, has stagnated. ..."
Aug 22, 2018 | www.unz.com
Thorfinnsson , says: May 31, 2018 at 8:44 pm GMT
@Anonymous

... ... ...

"Paper pusher" is an irrational criticism of the finance sector. Allocating capital is a very important job.

Anonymous , [400] Disclaimer says: May 31, 2018 at 9:35 pm GMT
@Thorfinnsson

No doubt there are fanboys among asset managers.

Whether it's an irrational criticism or not depends on one's values and views on political economy. To some, the financial sector has manifestly failed at allocating capital properly and is filled with rent seeking. Others will point to its size and the capitalization of financial markets as evidence of its value and importance.

Thorfinnsson , says: May 31, 2018 at 10:12 pm GMT
@Anonymous

What's the evidence that it has failed at allocating capital successfully? No shortage of rent-seeking of course. But if there's one thing I've learned it's that bagholders are gonna bag. This isn't some hypothetical either, look at countries without sophisticated financial markets. People are forced to save by speculating in real estate, and credit is often not available to business unless the state makes it available (perfectly reasonable in such economies to be fair).

Anonymous , [400] Disclaimer says: June 1, 2018 at 3:02 am GMT
@Thorfinnsson

Since the 80s, the stock market capitalization to GDP ratio has been much higher than the historical norm, higher than when the US had higher rates of growth.

There have been several bubbles, and consumer debt has risen significantly while income has stagnated and startup formation is at a 40 year low. Capital allocation has been very unproductive. It's caused lots of asset price inflation and increased debt without producing new assets and income streams. Capital allocation is highly centralized and it has the same problems communist economies have with central planning where capital is centralized in the state. A lot of unproductive activity and rent seeking.

In financialized economies with inflated asset prices, people have low savings and can't even afford to buy real estate or can only afford it by taking on lots of debt and having to depend on further price inflation so that they don't go underwater. In countries with financial repression, public debt tends to be low and interest rates tend to be low and capital gets directed towards industry.

Thorfinnsson , says: June 1, 2018 at 4:04 am GMT
@Anonymous

Real Soon Now.

Since the 80s, the stock market capitalization to GDP ratio has been much higher than the historical norm, higher than when the US had higher rates of growth.

Stock prices were unusually low in the 1970s, as epitomized by BusinessWeek's famous 1979 The Death of Equities cover. In addition to reversion to the mean, several other factors made stocks more valuable since that time.

The collapse of inflation and interest rates increased the net present value of stocks, the rise of emerging markets with poor domestic capital markets increased foreign demand for stocks, America's persistent trade deficit further increased foreign demand for American assets, and the low-cost trading and 401k revolutions.

... ... ...

Anonymous , [400] Disclaimer says: June 1, 2018 at 5:26 am GMT
@Thorfinnsson

Well like I said earlier, this is a matter of one's values and views on political economy. If one prefers asset price inflation and a capital structure of heavily indebted households and young adults, then there's nothing wrong and everything is rosy.

Household income overall, not just wages, has stagnated.

Startup formation is still at a 40 year low, despite all the noise about venture capital and Silicon Valley.

ROC and ROE are based on corporate income, which are at historical highs.

The rest of your comment is just econ 101 and biz school corp finance and accounting 101 hand waving to justify the status quo.

Your whole argument in the original post is that Tesla and SpaceX could not get the capital that they have without Musk committing fraud and violating a bunch of laws. In other words, two new industrial firms with tremendous brand value and advancing decades ahead of the competition ( https://www.nextbigfuture.com/2018/05/every-3-5-years-spacex-is-adding-a-decade-lead-on-competitors.html ) could not have been capitalized otherwise.

[Aug 07, 2018] Ministry of Plenty

Aug 07, 2018 | en.wikipedia.org

The Ministry of Plenty ( Newspeak : Miniplenty ) is in control of Oceania's planned economy .

It oversees rationing of food , supplies , and goods . As told in Goldstein's book, the economy of Oceania is very important, and it's necessary to have the public continually create useless and synthetic supplies or weapons for use in the war, while they have no access to the means of production .

This is the central theme of Oceania's idea that a poor, ignorant populace is easier to rule over than a wealthy, well-informed one. Telescreens often make reports on how Big Brother has been able to increase economic production, even when production has actually gone down (see § Ministry of Truth ).

The Ministry hands out statistics which are "nonsense". When Winston is adjusting some Ministry of Plenty's figures, he explains this:

But actually, he thought as he readjusted the Ministry of Plenty's figures, it was not even forgery. It was merely the substitution of one piece of nonsense for another. Most of the material that you were dealing with had no connection with anything in the real world, not even the kind of connection that is contained in a direct lie. Statistics were just as much a fantasy in their original version as in their rectified version. A great deal of time you were expected to make them up out of your head.

Like the other ministries, the Ministry of Plenty seems to be entirely misnamed, since it is, in fact, responsible for maintaining a state of perpetual poverty , scarcity and financial shortages. However, the name is also apt, because, along with the Ministry of Truth, the Ministry of Plenty's other purpose is to convince the populace that they are living in a state of perpetual prosperity. Orwell made a similar reference to the Ministry of Plenty in his allegorical work Animal Farm when, in the midst of a blight upon the farm, Napoleon the pig orders the silo to be filled with sand, then to place a thin sprinkling of grain on top, which fools human visitors into being dazzled about Napoleon's boasting of the farm's superior economy.

A department of the Ministry of Plenty is charged with organizing state lotteries . These are very popular among the proles, who buy tickets and hope to win the big prizes – a completely vain hope as the big prizes are in fact not awarded at all, the Ministry of Truth participating in the scam and publishing every week the names of non-existent big winners.

In the Michael Radford film adaptation , the ministry is renamed the Ministry of Production, or MiniProd.

[Aug 07, 2018] Bill Black Pre-Crisis 4506-T Studies Showed Massive Fraud in Liar's Loans; Fed Ignored Warning, DoJ Refused to Target Implic

Notable quotes:
"... By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives ..."
"... New Economic Perspectives ..."
"... The Pentagon Wars ..."
"... The Generals ..."
"... The Chickenshit Club ..."
Aug 07, 2018 | www.nakedcapitalism.com

Bill Black: Pre-Crisis "4506-T Studies" Showed Massive Fraud in Liar's Loans; Fed Ignored Warning, DoJ Refused to Target Implicated Banksters Posted on August 7, 2018 by Yves Smith Yves here. With the tsunami of "ten years after the crisis" stories that are already starting to hit the beach, I am endeavoring to focus on ones that contain new or significantly under-reported information or give particularly insightful overviews. Here Black gives a telling example of both how the authorities were warned of massive mortgage fraud and ignored it, and then later failed to use the same evidence to pursue the perps.

By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives

Steven Krystofiak formed the Mortgage Brokers Association for Responsible Lending, a professional association dedicated to fighting mortgage fraud and predation. On August 1, 2006. He tried to save our Nation by issuing one of the most prescient warnings about the epidemic of mortgage fraud and predation and the crisis it would so cause.

The context was Congress' effort to empower and convince the Federal Reserve to take action against what the mortgage lending industry called, behind closed doors, "liar's" loans. A liar's loan is a loan in which the lender does not verify (at least) the borrower's actual income. The industry knew that the failure to verify inherently led to endemic fraud. George Akerlof and Paul Romer's 1993 article on "Looting" by financial CEOs explicitly cited the failure to verify the borrower's income as an example of a lending practice that only fraudulent lenders would use on a widespread basis.

Congress gave the Fed the unique authority to ban all liar's loans in 1994, by passing the Home Ownership and Equity Protection Act (HOEPA). HOEPA gave the Fed the authority to ban liar's loans even by "shadow" sector financial firms that had no federal deposit insurance.

Liar's loans began to become material around 1989 during the savings and loan debacle where all good U.S. financial frauds are born – Orange County, California. In that era, they were called "low documentation" ('low doc') loans. We (the West Region of the Office of Thrift Supervision (OTS), were the federal regulator for these S&Ls, and we were overwhelmed dealing with the "control frauds" driving the debacle, who overwhelmingly used commercial real estate (CRE) as their accounting "weapon" of choice. Our examiners, however, made two critical points. No honest lender would make widespread loans without verifying the borrower's income because it was certain to produce severe "adverse selection" and produce serious losses. The examiners' second warning was that such loans were growing rapidly in Orange County and multiple lenders were involved.

We listened and responded well to our examiners' timely and sound warnings and made it a moderate priority to drive liar's loans out of the industry we regulated. The last of the major fraudulent S&L liar's loan lenders was Long Beach Savings. Long Beach set a common pattern for fraudulent lenders by also engaging in predation primarily against Latinos and blacks. In 1994, the same year HOEPA became law; Long Beach voluntarily gave up federal deposit insurance and its charger as a savings and loan. Long Beach's controlling owner, Roland Arnall, did this for the sole purpose of escaping our regulatory jurisdiction and our ability to examine, sue, and sanction the S&L and its officers. Arnall changed its name to Ameriquest, and converted it to a mortgage bank. Mortgage banks were essentially unregulated. Arnall successfully sought sanctuary in what we now call the "shadow" financial sector. The S&L debacle did not end. It found sanctuary in the Shadow and grew 50% annually for 13 years.

Ameriquest and its leading mortgage bank competitor, run by former S&L officers we (OTS) had "removed and prohibited" from working in any federally insured lender, became the leading "vectors" spreading the epidemic of fraudulent liar's loans through (initially) the shadow sector and later back into federally insured lenders. Many of Arnall's lieutenants eventually left Ameriquest to lead other fraudulent and predatory lenders making predatory liar's loans. Michael W. Hudson's book, The Monster , is a great read that presents this history. Ameriquest and its fraudulent and predatory peers grew at extraordinary rates for over a decade. They hyper-inflated the bubble and drove the financial crisis.

Alan Greenspan and Ben Bernake refused to use HOEPA to stop this surging epidemic of fraudulent and predatory liar's loans. This was the setting when Krystofiak, on his own dime and initiative took advantage of a Fed hearing on predatory lending near his home to warn us all of the coming disaster. Krystofiak was not the first warning. His written testimony cited the appraisers' and the FBI's prior warnings. The appraisers' 2000 petition explaining how lenders and their agents were extorting appraisers to inflate appraisals was superb. Chris Swecker's 2004 warning on behalf of the FBI that the developing "epidemic" of mortgage fraud would cause a financial "crisis" if not stopped was superb.

Krystofiak was also superb. The Fed did not want to conduct hearings on fraudulent and predatory liar's loans – Congress forced it to do so. The Fed's Board members were not interested in stopping fraudulent and predatory liar's loans. The Fed did not invite Krystofiak to testify. The Fed offered only a brief "cattle call" at the end of the hearing allowing (after a top Fed official had left to fly back to DC) the public to make a very brief statement.

The Fed's treatment of Krysofiak stood in sharp contrast to its fawning treatment of the Mortgage Bankers Associations' chosen witness. The MBA chose the leading originator of fraudulent liar's loans in California – IndyMac – to present the MBA's position. The MBA's position was that the Fed should not use its HOEPA authority to ban fraudulent and predatory liar's loans. The Fed officials cracked jokes with and treated the IndyMac officer like an old pal. They treated Krytofiak with cold indifference. The MBA witness presented utter BS. Krystofiak spoke truth to power. Power loved the BS. The truth discomfited the Fed officials.

Krytofiak's written testimony made many vital points, but I refer to only two related points here. First, he warned the Fed that the twin mortgage fraud origination epidemics – appraisal fraud and liar's loans – were so large that they were inflating the housing bubble. Second, his means of quantifying the incidence of liar's loan fraud showed the regulators and the prosecutors that they could use the same method to document reliably, cheaply, and quickly the incidence of liar's loan fraud at every relevant financial firm.

Data Collected by the Mortgage Brokers Association for Responsible Lending

A recent sample of 100 stated income loans which were compared to IRS records (which is allowed through IRS forms 4506, but hardly done) found that 90 % of the income was exaggerated by 5 % or more. MORE DISTURBINGLY, ALMOST 60 % OF THE STATED AMOUNTS WERE EXAGGERATED BY MORE THAN 50%. These results suggest that the stated income loans deserves the nickname used by many in the industry, the "liar's loan" (emphasis in original).

The MBA's anti-fraud experts, MARI, appears to have conducted the study for Krystofiak. They featured the 4506-T (the "T" stands for "transcript") study and its finding of a 90% fraud incidence in liar's loans. In 2006, MARI presented its fraud study at the MBA's annual meeting. The MBA sent MARI's report to every member, which included all the major mortgage players.

Any honest originator, purchaser, or packager of liar's loans was on notice no later than mid-2006 that they could determine quickly, cheaply, and reliably the fraud incidence in those liar's loans by using the 4506-T forms to test a sample of those loans. Krystofiak aptly noted that while lenders typically required borrowers to sign the IRS 4506-T form allowing the lender to access their tax information, it was actually "hardly done." Lenders supposedly require the 4506-T because taxpayers have an obvious interest in not inflating their income to the IRS. The self-employed have to report their income accurately or face potential tax fraud sanctions.

The reason liar's loan mortgage lenders, purchasers, the packagers of toxic collateralized debt obligations (CDOs ) that typically were composed of large amounts of liar's loans, and credit rating agencies, "hardly [ever] used" or required the sellers to use their 4506-T authority is also clear if you understand "accounting control fraud." Any 4506-T study of liar's loans will document their pervasive frauds. Virtually all liar's loan and CDO sales required "reps and warranties" that they were not fraudulent. If a firm making or selling liar's loans conducted a 4506-T study and documented that it knew its reps and warranties were false, and it continued t make, sell, package, or rate those fraudulent loans under false reps and warranties it would be handling its counterparty a dream civil fraud suit. They would be handing DOJ the ability to prosecute them successfully for felonies that caused hundreds of billions of dollars in losses. The fraudulent mortgage money machine relied on the major players following a financial "don't ask; don't tell" policy.

The exceptions prove the rule. I have found public evidence of only two cases in which mortgage players (other than Krystofiak) conducted 4506-T audits of liar's loans. I have never found public evidence that any federal regulator or prosecutor conducted or mandated a 4506-T study. The two known cases of 4506-T audits were Wells Fargo (just disclosed by DOJ) and Countrywide (disclosed by the SEC investigation and complaint). Both audits found massive fraud incidence in the liar's loans. The risk officers presented these audit results to the banks' senior managers.

Bank Whistleblowers United's 4506-T Proposal

Two and-a-half years ago, Bank Whistleblowers United (BWU) discussed the senior officers of Countrywide's response to its 4506-T audit. We noted that BWU co-founder Michael Winston blew the whistle on Countrywide's frauds to the bank's most senior officers to try to prevent these frauds. Mr. Winston eagerly aided potential prosecutors – who failed to prosecute Countrywide's senior officers leading the frauds. BWU then explained the analogous response of Citigroup's senior officers to a different but equally reliable audit conducted by BWU co-founder Richard Bowen. We did so in a January 30, 2016 New Economic Perspectives blog urging presidential candidates in the 2016 election to pledge to implement the 60-day BWU plan to restore the rule of law to Wall Street.

As documented in the SEC complaint, Countrywide's managers conducted a secret internal study of Countrywide's liar's loans that, on June 2, 2006, confirmed Krystofiak's findings of endemic fraud in liar's loans. Fraud was the norm in Countrywide's liar's loans, a fact that it failed to disclose to its stockholders and secondary market purchasers. Instead of stopping such loans, Countrywide's senior officers caused it to adopt what they termed "Extreme Alt-A" loans offered by Bear and Lehman that "layered" this fraud risk on top of a half dozen additional massive risks to create what Countrywide's controlling officer described as loans that were "toxic" and "inherently unsound." "Alt-A" was the euphemism for liar's loans. Countrywide made massive amounts of "Extreme Alt-A" and acted as a vector spreading these "toxic" loans throughout the financial system. A member of our group, Dr. Michael Winston, tried to stop these kinds of abuses, which enriched top management but bankrupted Countrywide.

Similarly, a member of our group, Richard Bowen and his team of expert underwriters, documented that Citigroup knew that it was purchasing tens of billions of dollars of loans annually on the basis of fraudulent "reps and warranties" – and then reselling them to Fannie and Freddie on the basis of fraudulent reps and warranties. Bowen put the highest levels of Citigroup (including Bob Rubin) on personal notice in writing as the incidence of fraud climbed from 40% to 60%. (It eventually reached an astonishing 80% fraud incidence.) Citigroup's leadership's response was to remove his staff. Senior Citigroup officers also responded to the surging fraud by causing Citigroup to become a major purchaser of fraudulently originated liar's loans.

We can now add the senior leaders that determined Wells Fargo's response to its 4506-T audit. We draw on the Department of Justice (DOJ) disclosures in conjunction with its indefensible settlement of civil fraud claims against Wells Fargo's massive mortgage fraud. The DOJ press release revealed that "in 2005, Wells Fargo began an initiative to double its production of subprime and Alt-A loans." DOJ did not explain that this was after the FBI warned there was an emerging "epidemic" of mortgage "fraud" that would cause a financial "crisis" if it were not stopped. The settlement discloses that Wells' risk officers alerted senior managers that the plan to increase greatly the number of liar's loans would greatly increase fraud in 2005 before Wells implemented the plan.

The press release had other bombshells (unintentionally) demonstrating the strength of the criminal cases that DOJ refused to bring against Wells' senior officers. Wells Fargo's 4506-T audit found that its liar's loans were endemically fraudulent, and the amount of inflated income was extraordinary.

The results of Wells Fargo's 4506-T testing were disclosed in internal monthly reports, which were widely distributed among Wells Fargo employees. One Wells Fargo employee in risk management observed that the "4506-T results are astounding" yet "instead of reacting in a way consistent with what is being reported WF [Wells Fargo] is expanding stated [income loan] programs in all business lines."

The press release note some other actions by Wells' senior managers that show what prosecutors term "consciousness of guilt." Such actions make (real) prosecutors salivate. The press release's final substantive revelation is the unbelievable rate of loan defaults on Wells Fargo's fraudulent loans and the exceptional damages those loans and sales caused.

Wells Fargo sold at least 73,539 stated income loans that were included in RMBS between 2005 to 2007, and nearly half of those loans have defaulted, resulting in billions of dollars in losses to investors.

Typical default rates on conventional mortgages averaged, for decades, around 1.5 percent. The Wells Fargo liar's loans defaulted at a rate 30 times greater.

How Corrupt is Wells? Cheating Customers is "Courageous"

The press release does not contain the Wells Fargo gem that proves our family rule that it is impossible to compete with unintentional self-parody. Paragraph H of the settlement reveals that Wells' term for doubling its number of fraudulent liar's loans in 2005 was "Courageous Underwriting." Wells' senior managers changed its compensation system to induce its employees to approve even worse loans. Calling defrauding your customers "courageous" epitomizes Wells Fargo's corrupt culture built on lies and lies about lies.

DOJ's pathetic settlement with Wells Fargo has no admissions by the bank. It does not require a penny in damages from any bank officer. It does not require a bank officer to return a penny of bonuses received through these fraudulent loans. The settlement contains DOJ's statement that its investigation found that Wells' violated four federal criminal statutes. DOJ will continue to grant de facto immunity from prosecution to elite banksters. The Trump administration has again flunked a major test dealing with the swamp banksters.

Section H (b) of the settlement is factually inaccurate in a manner that makes it highly favorable to fraudulent lenders making liar's loans. There is no indication that DOJ ever investigated Wells' fraudulent loan origination practices. It was overwhelmingly lenders and their loan brokers that put the lies in liar's loans. DOJ's settlement documents do not refer to Wells whistleblowers, even though and competent investigation would have identified dozens of whistleblowers. Throughout its Wells documents, DOJ implies that borrowers overstated their income rather than Wells and its loan brokers.

The Jig is Up on DOJ's Pathetic Excuses for Refusing to Jail Elite Bank Frauds

We now know with certainty from the whistleblowers and the internal audits that the response of Citigroup, Countrywide, and Wells Fargo's senior leaders to knowing that most of their liar's loans and the reps and warranties they made about those loans were fraudulent. We know with certainty that Michael Winston and Richard Bowen's disclosures were correct. We know with certainty that each served up to DOJ on a platinum platter dream cases for prosecuting Citigroup and Countrywide's top managers. The senior managers' response to proof that their banks were engaged in endemic fraud makes sense only if the senior managers were leading an "accounting control fraud," which enriches the managers by harming the lender.

When the appraisers' warned of extensive extortion by lenders and their agents to inflate appraisals, when the FBI warned that mortgage fraud was becoming "epidemic" and would cause a financial "crisis" if not halted, and when the MBA publicized Krystofiak and MARI's warnings that liar's loans were endemically fraudulent, the fraudulent CEOs' response was always the same. In each case, they expanded what they knew were endemically fraudulent liar's loans and increased the extortion of appraisers.

Back to BWU's 4506-T Proposal

This brings us back to reminding the public what BWU proposed 32 months ago about 4506-T audits. Point 17 of our 60-day plan began:

Within 60 days, each federal financial regulatory agency directs any bank that it regulates to conduct and publicly report a "Krystofiak" study on a sample of "liar's" loans that they continue to hold. Krystofiak devised a clever study that he presented to the Federal Reserve in an unsuccessful attempt to try to get the Fed to stop the epidemic of fraudulent liar's loans. Lenders and secondary market purchasers routinely required borrowers to authorize the lender and any subsequent purchaser of the loan to obtain a "transcript" (4506-T) of the borrower's tax returns from the IRS to allow the lender to quickly and inexpensively verify the borrower's reported income.

Other parts of our 60-day plan called for DOJ appointees with the courage, integrity, and skills to restore the rule of law to Wall Street. We also explained the needs (and means) for the banking regulators to conduct the investigations (such as 4506-T audits), activate a legion of whistleblowers, and make the criminal referrals to DOJ essential to bring successful prosecutions.

Conclusion

Had the regulators (particularly the Fed through its HOEPA power) required each bank making liar's loans to conduct a 4506-T audit, the senior managers would have faced a dilemma. They could stop the fraudulent lending or provide DOJ with a great opportunity to prosecute them. The bank CEOs' response to the internal audits showing endemic fraud and the retaliation against the whistleblowers combine to offer superb proof of senior managers' 'specific intent' to defraud. The reasons for the failure to prosecute were some combination of cowardice and politics. If Democrats win control of the House they can use their investigative powers to force each bank regulator to cause every relevant financial institution to conduct a 4506-T audit.

Of course, the Republican Senate and House chairs could order those steps today . We are not holding our breath, but BWU's co-founders are eager to aid either, or both, parties restore the rule of law to Wall Street. Instead, we are rapidly creating an intensely criminogenic environment on Wall Street that will eventually cause a severe financial crisis.


Hayek's Heelbiter , August 7, 2018 at 5:35 am

Did John Stumpf (President of Wells Fargo 2007-2016) really say, "If one family loses their home, it is a tragedy. If ten million people lose their homes, it is a statistic?"

Tinky , August 7, 2018 at 6:33 am

Even by Black's lofty standards, this is an outstanding article. The fact that it won't be published in the mainstream media, and that the vast majority of regulators and politicians will ignore it, underscores once again just how broken and corrupted the American political and economic systems are.

Colonel Smithers , August 7, 2018 at 7:54 am

Thank you, Tinky.

It's the same in the UK with regard to mortgage fraud and reporting.

A colleague, brought in from the regulator to clean up our German basket case TBTF's brief and late in the day foray into the mortgage market, said the UK mortgage market was as corrupt / fraudulent. The same US firms were involved in many, if not most, cases. Lehman had an outpost, Ascendant, in my home county, Buckinghamshire, for such activity. Lehman, Merrill and Citi carved out the UK on geographical lines. One (US) firm was given the name of the Germanic tribe that settled in the area 1500 years before.

readerOfTeaLeaves , August 7, 2018 at 11:34 am

Agree about the excellence of this post.

FWIW, the kinds of government errors, cowardice, and confusions that Black relates – on top of having taxpayers foot the bill for it all – was a key factor IMVHO in people voting Trump as a kind of protest vote. He talks about 'fake news' to a huge number of Americans who faked income, or approved fake income.

The rest of us, I assume, continue to seethe and are supporting 'honest money, fair wages/salary' candidates like Warren and Sanders.

flora , August 7, 2018 at 11:54 am

+1

Tom Stone , August 7, 2018 at 7:49 am

In early 2005 I was working as a loan Broker when I met the World Savings rep or the first time.
The first words out of his mouth were a warning not to take more than 3 pints on the back end because it was greedy, the second sentence was "If there's a problem with the income the underwriter will drop the file on my desk, I'll call you and we'll fix it".
He's still in the business, a few rungs further up the corporate ladder, I got out of the business the following week.

Peter Pan , August 7, 2018 at 10:31 am

If Democrats win control of the House they can use their investigative powers to force each bank regulator to cause every relevant financial institution to conduct a 4506-T audit.

The establishment democrats that receive donor dollars from Wall Street banks? I wouldn't hold my breath waiting for them to even investigate much less do anything else to stop this criminal activity.

Otherwise another excellent post by Bill Black.

Tomonthebeach , August 7, 2018 at 3:31 pm

Also, is there a statute of limitations on this fraud? If so, both parties might just be running out the clock.

crittermom , August 7, 2018 at 7:43 pm

+1

Bewildered , August 7, 2018 at 10:41 am

Fabulous piece as usual from Mr. Black. Just makes the tenure of the previous administration all the more complicit in the current state of affairs. As Mr. Black details there was an obvious solution to uncover the fraud and go after senior execs, something that also could have also been done when the 'democrat' party held the House and at least a leverage position in the Senate. What the American public received instead was a giant con job/cover-up advertised as restitution and Obama goes on national TV to pathetically claim that grossly fraudulent behavior was simply unethical. Obviously that maneuver had a higher ROI for post-tenure legacy building and fundraising.

georgieboy , August 7, 2018 at 10:50 am

Wells Fargo -- doing it the Warren Buffet way! For that matter, Goldman Sachs -- doing it the Warren Buffet way!

Superb summary by Mr. Black, thanks Yves.

Bottom Gun , August 7, 2018 at 11:10 am

There is really a simple solution: fire everyone at DOJ and replace them with Air Force officers.

An Air Force officer is brave. He will fly through enemy fire if he has to in order to do his job. He gives no thought to the Taliban career opportunities that he might be forgoing by bombing them.

An Air Force officer is competent. He can fly through thunderstorms in the dead of night and get his bombs when and where the forward air controller down with the infantry needs them. Compare that to the experience of an honest IG official trying to get an indictment from DOJ for anyone at a mega-bank.

An Air Force officer knows how to get funding for his priorities. The Air Force annual budget, at $156 billion, is about 5 times that of DOJ. Enough said.

When you know these facts, the solution is obvious.

Kevbot5000 , August 7, 2018 at 4:36 pm

Go read The Pentagon Wars or Coram's Boyd . Air Force (or other service) officers have no particular claim to virtue. If you pulled mostly captains maybe it'd work, but the bravery and competence needed on the front line is vastly different from that needed from say a Colonel or General running programs/units which is likely the officers you'd be bringing in. Remember you're advocating bringing in people responsible for the boondoggle that is the F35 to shape up an organization. (which is not an isolated instance but emblematic of the upper tiers of the service)

Bottom Gun , August 7, 2018 at 8:00 pm

Thanks for the referrals; let me take a look. (I have read Thomas Ricks' The Generals , which I suspect makes a similar point to those.) The point is acknowledged, although I have not only read The Chickenshit Club but lived through it. There were many DOJ people I had to deal with whom I can only describe using Bundy's pungent phrase for the South Vietnamese political leadership: "the absolute bottom of the barrel." They contrasted starkly with the fellow junior officers I knew in my youth, but as you noted, those were junior officers.

Susan the other , August 7, 2018 at 12:08 pm

The simplicity of the 4506-T audits is as profound as the physics comparison of the diversity of the economy to GDP. These things don't work when all the chaos comes home to roost. In 1989 our economy was on the rocks and our corporations were offshoring as fast as they could; the USSR collapsed and we landed like a murder of crows to pick their bones and loot Russia. OPEC was naming their price; China was exporting massive deflation; our banks were already on the brink. But how to bring home all the loot from not just Russia but all the other illegal sources connected with our once and future imperialism? We were no longer a country of laws; we were looters, thieves and launderers. We were trying to salvage our "investments" or we were hoovering up flight capital or some other thing that had nothing to do with law and order and democracy. You name it. How else did all the banks, all of them, agree to forego their own standards and make all those conveyor belt loans? They prolly all had to become industrial laundromats and get rid of the stuff asap. Which was perhaps only one aspect to the ongoing collapse of "capitalism" as we once knew it – but were unable to protect it. I love Bill Black because he makes me come to uncomfortable explanations who knows how it all fell apart? Somebody does.

templar555510 , August 7, 2018 at 2:34 pm

Superb comment Susan. I make know how ' it all fell apart ' other than recognising that the early capitalists worked with stuff that had to be produced, and so despite vile excesses produced something useful to many , whereas these financial capitalists produce nothing of value to anyone except themselves and take away something from everybody else ( liar's loans being a key example ) . The question is , is there any here beyond here ? Clearly not with ANY of the present political incumbents ( I am in the UK it's the same for you and us ) . So that in two sentences is my answer to your question . My question is ' how on earth do we get beyond here ?'

Chauncey Gardiner , August 7, 2018 at 12:18 pm

Re Bill Black: " Instead, we are rapidly creating an intensely criminogenic environment on Wall Street that will eventually cause a severe financial crisis."

By design and intent with no fear of criminal prosecution for fraud, imprisonment, or even surrender of ill-gotten personal financial gains. All brought to us courtesy of the political donor class and large corporations, those they have corrupted, and the Supreme Court's Orwellian-named Citizens United decision and expanded executive branch powers that make it possible.

Look at any set of issues: Failure to pass and implement policies to address climate change, endless wars, defunding public education and infrastructure, the opioid crisis, manipulation of financial markets, federal government austerity, transfers of public lands and resources into private hands, privatization of public services, healthcare, stagnant real wages, loss of any semblance of economic equality, debt burdens placed on our young people seeking economic opportunity or family formation, lack of legal separation of bank depository and payments system functions from their market speculations, failure to enforce corporate antitrust laws, erosion of privacy and civil liberties, repeated bubbles, concentration of media ownership in the hands of a few, secret international tax havens, etc. and what do you see?

Tim , August 7, 2018 at 12:22 pm

In case you need comedy – George Carlin The Death Penalty from 1996

https://youtu.be/qDO6HV6xTmI

crittermom , August 7, 2018 at 8:02 pm

Thanks, Tim. Comedy was exactly what I needed after Bill Black's excellent article. (One of his best, IMHO)

I saw George Carlin in person at a small theater in Denver long ago. He was great, & still cracks me up.

shinola , August 7, 2018 at 12:49 pm

With the latest disclosures about WF stealing directly from their banking customers on top of their previous frauds, I'm just sure the regulators will come down hard on them this time (NOT!)

I wonder if Mr. Trump, with his involvement in commercial RE, ever "mis-stated" his his income, assets and/or liabilities when obtaining a loan. Nah, couldn't happen.

Tomonthebeach , August 7, 2018 at 3:37 pm

I wonder why anybody still banks with WF. My late mom had about 30K in a WF account under a trust that I could not close out for 24 months (Florida laws – WF had a branch in their eldercare facility.) I was delighted that my closeout check did not bounce.

Karma Fubar , August 7, 2018 at 1:22 pm

A while back I worked at a medical device startup operating within a formal (i.e. written and comprehensive) quality system. A quality system is required for any commercial sales of medical products; previously I had been involved in early stage R+D and had not been bound by such systems. So a lot of it was new to me.

Something that stuck out at the time, and probably ties in to the article above, was the sanctity of corporate internal audit files. The FDA could demand access to almost any company quality system document, except for internal audit files. They could be provided with summaries of these internal audits indicating something like "6 minor deficiencies found, 1 major deficiency found, 0 extreme deficiencies found" , but were not permitted access to the raw internal audits.

I suspect that financial firms have the same level of protection for their internal audits. Had they hired a consulting firm to investigate the accuracy of stated income in the loans they originated, the results of that outside investigation would probably be a document reviewable by government regulators (assuming they were interested in doing their job). But by pursuing this as an internal audit, executives knew that the results would never be reviewable, and give them plausible deniability that they knew of the systemic level of fraud.

There certainly must be other ways of investigating efficiency or compliance within a company, but by pursuing it as an internal audit they could easily bury the results.

Oregoncharles , August 7, 2018 at 1:52 pm

A quibble: comparing stated income to income tax forms may be misleading, although it is the standard. People have an interest in understating their income to the IRS, and in overstating it when seeking a loan. The logic is that they risk prosecution if they understate to the IRS, but there are plenty of situations where they're very unlikely to get caught. It's conceivable the loan application is more honest than the tax return.

perpetualWAR , August 7, 2018 at 7:57 pm

Neither is correct.

Enquiring Mind , August 7, 2018 at 3:09 pm

Loan officers I knew over the decades have changed their views. Asking them if they would lend their own money to the proposed borrower used to be more likely to elicit a Yes. When standards loosened (again) earlier this millennium, some answered No until realizing that they shouldn't care since the money wasn't theirs. What really mattered was getting that commission endorsed and deposited, given the rise of IBGYBG (I'll be gone, you'll be gone) thinking.

Another question I asked was about tracking borrower performance relative to loan officer compensation. Relationship building and longer term interactions declined with the rise of neo-liberalish (the -ish suffix indicates a primitive reaction to immediate perceived incentives without further investigation) mindsets. Portfolio lenders had more at risk but still laid off some of that on the deposit insurance funds. Loan buyers did not fully appreciate that they had to trust everyone preceding them in the value (destruction) cycle, from brokers and investment bankers through ratings agencies.

Internal audits, compliance functions and regulatory exams were often the only temporary inconveniences or obstacles to transactions and related income distribution.

Ron Con Coma , August 7, 2018 at 3:20 pm

Eric Holder for President – NOT!

steelhead23 , August 7, 2018 at 4:02 pm

If Democrats win control of the House they can use their investigative powers to force each bank regulator to cause every relevant financial institution to conduct a 4506-T audit.

Let us, for a moment, imagine this happens. Then what? The results would show widespread fraud and a pathetic lack of adequate vetting by the issuer. Then those fraudulent loans were aggregated into various RMBS and sold to others. I hope you can see that just this disclosure is likely to cause a substantial hiccup in the financial system, perhaps another full-blown crisis. And who would the public blame? The criminals – or the cops? I could see Dems, even Dems with little or no connection to the Street, deciding not to open Pandora's box.

That is one of the problems with the American political system. From defense appropriations to banking regulation, the pols live in fear of being tarred for doing the right thing, if the outcome is temporarily bad or unpopular. Yes, it would obviously be best to cleanse the wound, but doing so would hurt, so the pols decide that it would be best for their popularity to let the wound fester until it becomes too big to ignore or financial Armageddon occurs. Isn't that precisely the thinking of the Obama Administration?

Murgatroy , August 7, 2018 at 6:25 pm

All major Wall St banks and brokerages including Wachovia, Wells, BofA and even Citadel and a few foreign banks (ABN Amro, Deutsche Bank, Credit Suisse, etc) set up an offshore sub called CDS Indexco. This was used as a defacto cartel to control the prices of both Sub-Prime CDO issues and their respective Credit Default Swaps. They created the Markit BBB- index which was used by Paulsen, Ackman and a few other chosen ones to short the MBS sub-prime market. This is the truth.. CDS Indexco dropped that name in Nov. 2008 when the accounting rules forced Marked to Market accounting and also the Consolidation of VIE's (Special Purpose Financial Subs that got an exception to the Enron Rule). So in other words: if banks had been made to follow the "Enron Rule" the financial crisis wouldn't have happened. Goldman's own employee was the Chairman of CDS Indexco, I couldn't make this shit up. And Yves knows it too. Gramm Leach Bliley made it all possible – so banks could hold both the debt and the equity of an entity that they took no responsibility for. This was the precise reason for Glass-Steagall banks were manhandling the ownership of business due to inherent conflicts of interest between debt and equity holders.

steelhead23 , August 7, 2018 at 7:30 pm

My dear Murgatory, Wow. This is the first I have heard of CDS Indexco. You are suggesting that it was much more than a mere market clearinghouse. Where could I read more on this?

perpetualWAR , August 7, 2018 at 7:51 pm

Google it. I just did.
I. Am. Stunned.
Just when I think the shiitake can't get any deeper, it does.

perpetualWAR , August 7, 2018 at 7:34 pm

A former bank/trustee foreclosure attorney is running for a District Court judge position in Seattle. Remember Trott, the Foreclosure King, who Michigan sent to Congress? Yeah, this dude is trying to get on the bench.

crittermom , August 7, 2018 at 8:19 pm

Of course no bankers went to jail.

But does anyone remember this news from 2011, about the homeowner who did?
The lengths they went to 'catch him' once he was in their sites, says it all.
https://www.businessinsider.com/charlie-engle-2011-3

[Jul 04, 2018] Stabilizing an Unstable Economy by Hyman P. Minsky

Jul 04, 2018 | www.amazon.com

Larry R Frank Sr, MBA, CFP 5.0 out of 5 stars | Verified Purchase

Just what have we learned over the years (or not)?

Unfortunately, economists seem to given more attention after they're deceased and it appears Hyman P. Minsky (1919 -1986) is one in this category as well. As I read this book, originally published in 1986, I was amazed at not only one, but the many, parallels to today his synthesis of economic views, a blend of today's camps including the behavioral, had.

More valuable to you are his comments than mine, so I will quote Minsky as much as possible in this review and highly suggest its reading to fill in the gaps he so well articulates on his own. I decided to read this book because I'm not an economist and heard how his theories may better apply today than ever.

Many years later, the preface to this edition provides an excellent summary of Minsky's work. You do not need to be an expert to follow along. In the Introduction (8), Minsky points out that the institutional arrangements we have today in response to the Great Depression were set up pre-Keynes and with a pre-Keynesian understanding of the economy. ¨The evidence from 1975 indicates that, although the simple Keynesian model in which a large government deficit stabilizes and the helps the economy to expand is valid in a rough and ready way, the relevant economic relations are more complicated than the simple model allows. In particular, because what happens in our economy is so largely determined by financial considerations, economic theory can be relevant only if finance is integrated in the structure of the theory.¨

Minsky discusses Big Government and lender-of-last-resort (Federal Reserve or Fed) which is enlightening is and of itself. The balance of Chapters two and three are devoted to how these two interventions may work in theory. ¨To understand how Big Government stopped the economy's free fall, it is necessary to delve into the different impacts of government deficits on our economy ...¨ (24) He proceeds to define and then discuss three impacts: income and employment effect; budget effect; and portfolio effect. The standard view only incorporates one impact while Minsky argues and expanded view must incorporate all three views. ¨As a result of the 1975 experience, the issues in economic theory and policy that we should have to face are not about the ability of prodigious government deficit spending to halt even a very sharp recession but about the relative efficiency of specific measures and the side and after effects associated with particular policy strategies.¨ (24-25) I would suggest this has not been done effectively in response to the 2007 recession (started in Dec 2007 and has not been declared over as of this review writing (google "nber recession dates" for start and finish dates for this recession) which to date has had a more blind application of Keynesian without much thought as Minsky suggested long ago. Of interest is his discussion how Big Government entitlement programs impart an inflationary bias into the economy. (29)

Minsky's lender-of-last-resort includes a discussion on the lack of understanding of the inflationary side effects affects of intervention (51) and explosive growth of speculative liability structures (52) are as applicable today as to then. ¨Unless a theory can define the conditions in which a phenomenon occurs, it offers no guide to the control or elimination of the phenomenon.¨ He discusses the open market and discount window functions of the Fed and is instructive as to how the FOMC loses its power to affect member bank behavior, thus the Fed is not acting on intimate knowledge of banking practices. (54) Wow! Wasn't that also true this time! Minsky points out five causes of concern that the 1974 Chairman of the Federal Reserve System had appear as relevant today as to then as well: ¨first, the attenuation of the banking systems' base of equity capital; second, greater reliance on funds of a potentially volatile character; third, heavy loan commitments in relation to resources; fourth, some deterioration in the quality of assets; fifth, increased exposure to the larger banks to risks entailed in foreign exchange transactions and other foreign operations.¨

Minsky foresees how regulators (and politicians it seems) in imputing ¨...the difficulties he sees to either a laxness of regulatory zeal or, perhaps, some rather trivial mistake in how the regulatory bodies were organized, rather than to a fundamental behavioral characteristic of our economy.¨ (58) Even today, we see more shuffling of regulatory responsibilities and body creation rather than understand the behavior that causes the problems first in order to develop solutions.

He also points out how real estate was a problem back then as well, as result from explosive speculation. ¨The need for lender-of-last-resort intervention follows from an explosive growth in speculative finance and the way in which speculative finance leads to a crisis-prone situation.¨ (59) ¨Inasmuch as the successful execution of lender-of-last-resort functions extends the domain of the Federal Reserve guarantees to new markets and to new instruments there is an inherent inflationary bias to these operations; by validating the past use of an instrument, an implicit guarantee of its future is extended.¨ (58-59)

¨It is important to emphasize that ... any constraint placed on the Federal Reserve flexibility (e.g. by mandating mechanical rules of behavior) attenuates its power to act. Rules cannot substitute for lender-of-last-resort discretion.¨ Recall, the call by many to constrain the Fed? Minsky suggests otherwise. He also states ¨Certainly the bank examination aspects of the FDIC and the Federal Reserve should be integrated, especially if inputs from bank examinations are to become part of an early warning system for problem banks.¨ (64) This ties in with the idea above where the Fed has lost intimate knowledge of the banking practices.

Minsky discusses how the behavior of many actors need to be considered in a cohesive theory when he states ¨The dynamics of the financial system that lead to institutional change result from profit-seeking activities by businesses, financial institutions, and households as they manage their affairs.¨ (77) The problems that exist in the hierarchical financial system between mainstream banks and fringe banks is also noticed by Minsky years ago where a potential domino effect can cause serious disruptions as a result of the lender-of-last-resort guarantee to the mainstream banks as discussed on page 58. (97)

So far Minsky has laid the groundwork for actor interactions and issues. He then proceeds to theory. ¨In all disciplines theory plays a double role: it is both a lens and a blinder.¨ "It is ironic that an economic theory that purports to be based on Keynes fails because it cannot explain instability. ... Identifying a phenomenon is not enough: we need a theory that makes instability a normal result in our economy and gives us handles to control it." (111) "In what lies ahead, we will develop a theory explaining why our economy fluctuates, showing that the instability and incoherence exhibited from time to time is related to the development of fragile financial structures that occur normally within capitalist economies in the course of financing capital asset ownership and investment. We thus start with a bias in favor of using the market mechanism to the fullest extent possible to achieve social goals, but with recognition that market capitalism is both intrinsically unstable and can lead to distasteful distributions of wealth and power." (112) "The elements of Keynes that are ignored in the neoclassical synthesis deal with the pricing of capital assets and the special properties of economies with capitalistic financial institutions." (114) Minsky goes on to deconstruct both pre-Keynesian and and after-Keynesian constructs and synthesis. Minsky's "financial instability hypothesis" (127) addresses weaknesses he views in the neoclassical model. "In the neoclassical view, speculation, financing conditions, inherited financial obligations, and the fluctuating behavior of aggregate demand have nothing whatsoever to do with savings, investment, and the interest rate determination." (123) "In neoclassical theory, money does not have any significant relation to finance and the financing activity." (124) Minsky addresses the point that Keynes thoughts came out after government programs for reform and recovery were put into place, not the other way around and many may think today. (134) Minsky then develops how cause and effect to lay the ground work for his hypothesis throughout chapters 6 through 9 as he discusses in turn price relations allowing for government, foreign trade, consuming out of profits and saving out of wages, supply prices, taxes and government spending, financing of business spending, investment and finance, capital asset prices, investment, cash flows, and three kinds of financing (hedge, speculative and Ponzi: "The mixture of hedge, speculative, and Ponzi finance in an economy is a major determinant of its stability. (232)). "The main reason why our economy behaves in different ways at different times is that financial practices and structure of financial commitments change." (219) He calls the economy existing always in a transitory state.

Minsky then builds a larger model by discussion Institutional dynamics in Part 4. "Business cycles are `natural' in a investing capitalist economy, but to understand why this is so it is necessary to deal with the financing of investment and positions in capital assets explicitly." (249) He also recognized the distinction between commercial banks and investment banks and that the distinction between the two were breaking down even back in the 80's. (249) "In a capitalist economy money is tied up with the process of creating and controlling capital assets." (250) "Money is created as bankers go about their business of arranging for the financing of trade, investment, and positions in capital assets." (250).

Deposit (commercial banks) are emphasized in Chapter 10. Minsky's observation in the 80's rings as true today as it did then when he says "The narrow view that banking affects the economy only through the money supply led economists and policymakers to virtually ignore the composition of bank portfolios." (252) The rest of Chapter 10 explains how bank portfolio composition works and the economic effect this has.

Chapter 11 in about inflation. "My theory emphasizes the composition of financed demand and the spending of incomes that are allocations of profits as the determinants of the prices of consumption goods. It is compatible with the multiplier analysis in orthodox Keynesian theory" (254) "The determination of employment, wages, and prices starts with the profit calculations of businessmen and bankers. This proposition is in sharp contrast to the views of neoclassical monetarist theory." (255) Milton Friedman is a monetarist that he discusses next with this weakness in that theory in mind. Minsky develops his inflation theory by discussing money wages, price-deflated wages, government as an inflation engine, and trade union roles in inflation.

Part 5 is the culmination of his work where he discusses possible policy implications of his theory through the lens of his financial instability hypothesis. "Even if a program of reform is successful, the success will be transitory." (319) He continually reminds us that a dynamic system will need continual monitoring, adjustment and trade offs in the attempt to keep instability within reasonable bounds. An overarching agenda and approach should be developed to do this. An employment strategy should be developed, financial reform should be carefully crafted so as to not make matter worse.

**********
Conclusion:
As I mentioned at the beginning, I am not an economist. Minsky's description of the economy as developed through his instability model appears to describe much of how the interactions work, the inherent instability of a capitalist system, and his proposals to manage the instability appear to have merit for consideration. Especially in light of the 2007 recession.

Minsky appears to be an interesting combination of Keynesians who look to mitigate busts, and Austrians who look to prevent artificial booms.

For an easy read which builds a hypothetical economy, using an example of an island and fish on up, to describe economic history through the lens of the Austrian economic model: How an Economy Grows and Why it Crashes by Peter D Schiff and Andrew J Schiff.

For more on Keynes, this work by Hunter Lewis describes what Keynes said and what he didn't say side by side. Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts

Review by Larry Frank, author of Wealth Odyssey: The Essential Road Map For Your Financial Journey Where Is It You Are Really Trying To Go With Money?

[Jul 04, 2018] Why Minsky Matters An Introduction to the Work of a Maverick Economist L. Wray 9780691178400 Amazon.com Books

www.theatlantic.com
Jul 04, 2018 | www.amazon.com

Amazon.com Das Boot Jürgen Prochnow, Herbert Gronemeyer, Klaus Wennemann, Wolfgang Petersen Amazon Digital Services LLC

[May 30, 2018] How Media Amnesia Has Trapped Us in a Neoliberal Groundhog Day

Highly recommended!
Notable quotes:
"... By Laura Basu, a Marie Curie Research Fellow at Cardiff School of Journalism, Media and Culture. Originally published at openDemocracy ..."
"... This ideology spread through the media from the 1980s ..."
"... Fast-forward to April 2009, barely 6 months after the announcement of a £500 billion bank bailout. A media hysteria was nowraging around Britain's deficit . While greedy bankers were still taking some of the blame, the systemic problems in finance and the problems with the free-market model had been forgotten. Instead, public profligacy had become the dominant explanation for the deficit. The timeline of the crisis was being erased and rewritten. ..."
"... These measures were a ramped-up version of the kinds of reforms that had produced the crisis in the first place. This fact, however, was forgotten. These 'pro-business' moves were enthusiastically embraced by the media, far more so than austerity. Of the 5 outlets analysed (The BBC, Telegraph, Sun, Guardian and Mirror), only the Guardian rejected them more frequently than endorsing them. ..."
"... "One of the saddest lessons of history is this: If we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. We're no longer interested in finding out the truth. The bamboozle has captured us. It's simply too painful to acknowledge, even to ourselves, that we've been taken. Once you give a charlatan power over you, you almost never get it back." ..."
"... This post is disheartening in so many ways. Start with "media hysteria" -- adding yet another glib coinage to hide a lack of explanation behind a simple but innapt analogy like the endless "addictions" from which personifications of various abstract entities suffer. ..."
"... This coinage presupposes a media sufficiently free to be possessed by hysteria. Dancing puppets might with some art appear "hysterical". And the strange non-death of Neoliberalsm isn't so strange or poorly understood in 2018 though the detailed explanation hasn't reached as many as one might have hoped, including the authors of this brief post. Consider their unhappy mashup of thoughts in a key sentence of the first paragraph: "This power has been maintained with the help of a robust ideology centred on free markets (though in reality markets are captured by corporations and are maintained by the state) and the superiority of the private sector over the public sector." The tail of this sentence obviates the rest of the post. And we ought not ignore the detail that Neoliberalism believes in the Market as a solution to all problems -- NOT the 'free market' of neoclassical economics or libertarian ideology. ..."
"... From "media hysteria" the post postulates "amnesia" of a public convinced of "greedy bankers" who need regulation. In the U.S. the propaganda was more subtle -- at least in my opinion. We were fed the "bad apples" theory mocked in a brief series of media clips presented in the documentary film "Inside Job". Those clips suggest a better explanation for the swift media transitions from banking reform to balanced budgets and austerity with more tax cuts for the wealthy than "amnesia" or "hyper-amnesia". The media Corporations are tightly controlled by the same forces that captured Corporations and -- taking the phrase "the superiority of the private sector over the public sector" in the sense that a superior directs an inferior [rather than the intended(?) sense] -- direct and essentially own our governments. ..."
"... The remarkable thing about public discourse and political and economic news reporting is how superficial it has become, so devoid of a foundation of any kind in history or theory. You can not have an effective critique of society or the economy or anything, if you do not see a system with a history and think it matters. Neoliberalism has become what people say when they think none of it really matters; it is all just noise. ..."
"... "Neoliberalism has become what people say when they think none of it really matters; it is all just noise." ..."
"... I also think that the crisis of neoliberalism echos a problem caused by capitalism, itself. I think David Harvey stated that "capitalism doesn't solve problems, it often just moves them around". ..."
"... Matt Stoller tweet from August 2017, as germane now as ever: "The political crisis we are facing is simple. American commerce, law, finance, and politics is organized around cheating people." ..."
"... George Orwell noted that the middle class Left couldn't handle dealing with real working class people, although there isn't the same huge gulf these days, I believe there is still a vestige of it due to the British class system. The Fabians set up shop in the East End around the turn of the last century & directly rubbed shoulders with the likes of Coster Mongers – a combination that led to a strike that was one of the first success stories in the attempt to get a few more crumbs than what was usually allowed to fall from the top table. ..."
"... If Neoliberalism is now being noticed I imagine that it is because of it's success in working it's way up the food chain. After all these same Middle classes for the most part did not care much for the plight of the poor during those Victorian values. Many could not wait to employ maids of all work who slaved for up to fourteen hours a day with only Sunday afternoon's off. The Suffragettes had a real problem with this as their relatively comfortable lives would soon descend into drudgery without their servants. ..."
"... Coincidentally, the NYT article on Austerity Britain is the closest I have read to an accurate picture that I have seen for a good while. ..."
"... It's also not a new thing. British media worship of neoliberalism has been growing since the 1980s, at the same time as newspapers have been closing and media sources of all kinds laying off their staff. 2008 was a temporary blip, and since the average journalist has the attention span of a hamster, it was back to usual a few months later. Once the crash stopped being "news" old patterns reasserted themselves. I wonder, incidentally, how many economics journalists in the UK actually remember the time before neoliberalism? ..."
"... Consuming corporate media is increasingly a bizarro-world experience. Even something like the Trump scandal/constitutional crisis/investigation seems like the arrogant internecine warfare of corrupt factions of the establishment. Meanwhile, Americans are increasingly living out of their cars. ..."
"... 1. Oligarchs having captured thoroughly the media, the legislatures and the judiciary, (as well as large parts of what might be construed as "liberal" political organisations e.g. the Democratic Party of the USA) ..."
May 30, 2018 | www.nakedcapitalism.com

Posted on May 29, 2018 by Yves Smith Yves here. I'm sure readers could write a US version of this timeline despite the fact that we had a second crisis and bailout, that of way more foreclosures than were warranted, thanks to lousy incentives to mortgage servicers and lack of political will to intervene, and foreclosure fraud to cover up for chain of title failures.

By Laura Basu, a Marie Curie Research Fellow at Cardiff School of Journalism, Media and Culture. Originally published at openDemocracy

It hasn't escaped many people's attention that, a decade after the biggest economic crash of a generation, the economic model producing that meltdown has not exactly been laid to rest. The crisis in the NHS and the Carillion and Capital scandals are testament to that. Sociologist Colin Crouch wrote a book in 2011 about the 'strange non-death of neoliberalism', arguing that the neoliberal model is centred on the needs of corporations and that corporate power actually intensified after the 2008 financial meltdown. This power has been maintained with the help of a robust ideology centred on free markets (though in reality markets are captured by corporations and are maintained by the state) and the superiority of the private sector over the public sector. It advocates privatisation, cuts in public spending, deregulation and tax cuts for businesses and high earners.

This ideology spread through the media from the 1980s , and the media have continued to play a key role in its persistence through a decade of political and economic turmoil since the 2008 crash. They have done this largely via an acute amnesia about the causes of the crisis, an amnesia that helped make policies like austerity, privatisation and corporate tax breaks appear as common sense responses to the problems.

This amnesia struck at dizzying speed. My research carried out at Cardiff University shows that in 2008 at the time of the banking collapse, the main explanations given for the problems were financial misconduct ('greedy bankers'), systemic problems with the financial sector, and the faulty free-market model. These explanations were given across the media spectrum, with even the Telegraph and Sun complaining about a lack of regulation . Banking reform was advocated across the board.

Fast-forward to April 2009, barely 6 months after the announcement of a £500 billion bank bailout. A media hysteria was nowraging around Britain's deficit . While greedy bankers were still taking some of the blame, the systemic problems in finance and the problems with the free-market model had been forgotten. Instead, public profligacy had become the dominant explanation for the deficit. The timeline of the crisis was being erased and rewritten.

Correspondingly, financial and corporate regulation were forgotten. Instead, austerity became the star of the show, eclipsing all other possible solutions to the crisis. As a response to the deficit, austerity was mentioned 2.5 as many times as the next most covered policy-response option, which was raising taxes on the wealthy. Austerity was mentioned 18 times more frequently than tackling tax avoidance and evasion. Although coverage of austerity was polarized, no media outlet rejected it outright, and even the left-leaning press implicitly (and sometimes explicitly) backed 'austerity lite'.

In 2010, the Conservative-Lib Dem government announced £99 billion in spending cuts and £29 billion in tax increases per year by 2014-15. Having made these 'tough choices', from 2011 the coalition wanted to focus attention away from austerity and towards growth (which was, oops, being stalled by austerity). To do this, they pursued a zealously 'pro-business' agenda, including privatisation, deregulation, cutting taxes for the highest earners, and cutting corporation tax in 2011, 2012, 2013, and in 2015 and 2016 under a Conservative government.

These measures were a ramped-up version of the kinds of reforms that had produced the crisis in the first place. This fact, however, was forgotten. These 'pro-business' moves were enthusiastically embraced by the media, far more so than austerity. Of the 5 outlets analysed (The BBC, Telegraph, Sun, Guardian and Mirror), only the Guardian rejected them more frequently than endorsing them.

The idea behind these policies is that what's good for business is good for everyone. If businesses are handed more resources, freed from regulation and handed tax breaks, they will be encouraged to invest in the economy, creating jobs and growth. The rich are therefore 'job creators' and 'wealth creators'.

This is despite the fact that these policies have an impressive fail rate. Business investment and productivity growth remain low, as corporations spend the savings not on training and innovation but on share buy-backs and shareholder dividends. According to the Financial Times, in 2014, the top 500 US companies returned 95 per cent of their profits to shareholders in dividends and buybacks. Meanwhile, inequality is spiralling and in the UK more than a million people are using food banks .

Poverty and inequality, meanwhile, attracted surprising little media attention. Of my sample of 1,133 media items, only 53 had a primary focus on living standards, poverty or inequality. This confirms other researchshowing a lack of media attention to these issues . Of these 53 items, the large majority were from the Guardian and Mirror. The coverage correctly identified austerity as a primary cause of these problems. However, deeper explanations were rare. Yet again, the link back to the 2008 bank meltdown wasn't made, let alone the long-term causes of that meltdown. Not only that, the coverage failed even to identify the role of most of the policies pursued since the onset of the crisis in producing inequality – such as the bank bailouts, quantitative easing, and those 'pro-business' measures like corporation tax cuts and privatisation.

And so it seems we are living with a hyper-amnesia , in which it is increasingly difficult to reconstruct timelines and distinguish causes from effects. This amnesia has helped trap us in a neoliberal groundhog day. The political consensus around the free market model finally seems to be breaking. If we are to find a way out, we will need to have a lot more conversations about how to organise both our media systems and our economies.


Summer , May 29, 2018 at 10:31 am

Tick-Tock.
It depends. Do you believe the worst can be avoided or do you believe the world is already knee deep in all the things we're told to be afraid will happen? There is a big difference between organizing for reform and organizing to break capture.

makedoanmend , May 29, 2018 at 10:42 am

" Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Surely some revelation is at hand;
Surely the Second Coming is at hand "

W.B. Yeats

I suppose we can take some succour from the fact that WWI (and the Spanish flu) seemed to be a harbinger of worse to come but we're still here

Doug , May 29, 2018 at 11:21 am

The hyper-amnesia ground hog problem described in the post happens, in part, because the 'centre continues to hold'. It demonstrates the center can, and does, hold. We don't want the centre to hold. We want it to disappear and get replaced by policies and perspectives keen on an economy (and society) that works for all, not just some

makedoanmend , May 29, 2018 at 11:33 am

I know what you're saying and I tend to agree. But the centre to Yeats (my interpretation, anyway) is that there is a cultural centre both apart from but also part of the social centre, and when that centre goes all hell breaks loose. Meaning of events becomes very confused or impossible to understand on many levels.

Then, it's often the little people (and don't go making jokes about leprechauns) that get crushed in the confusion.

Pam of Nantucket , May 29, 2018 at 10:32 am

We should reflect about the root causes of why our information is not informing us. How can decades go by with the meme "smoking has not been conclusively proven to cause cancer" or now "the science of climate change is inconclusive", not to mention countless similar horror stories in pharma. Bullshit about the effectiveness of supply side economics is no different.

Somehow we collectively need to expect and demand more objectivity from our information sources. We fall for the fox guarding hen houses scam over and over, from TARP bailouts, to FDA approvals to WMD claims. Not sure of the answer, but I know from talking with my boomer parents, skepticism about information sources is not in the DNA of many information consumers.

Isotope_C14 , May 29, 2018 at 11:52 am

"One of the saddest lessons of history is this: If we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. We're no longer interested in finding out the truth. The bamboozle has captured us. It's simply too painful to acknowledge, even to ourselves, that we've been taken. Once you give a charlatan power over you, you almost never get it back."

― Carl Sagan, The Demon-Haunted World: Science as a Candle in the Dark

One of Sagan's best, I loaned this out to a not terribly thoughtful acquaintance and I was told it was "too preachy".

I guess Sagan proves himself correct time and time again.

Off The Street , May 29, 2018 at 2:56 pm

Bamboozlers often look to bezzle. That should give anyone pause.

steelhead23 , May 29, 2018 at 12:43 pm

It is also worth noting that a number of newspapers lauded Hitler's rise to power – they overlooked violence against Jews because the trains ran on time. Nor should we ignore disinformation campaigns, led by newspapers (e.g. Hearst and cannabis). In general, each media outlet is a reflection of its owners, most of whom are rich and adverse to any suggestion that we "tax the rich."

sharonsj , May 29, 2018 at 1:59 pm

I've come to the conclusion that we don't have a media anymore. I was watching MSNBC this AM discuss the "missing" 1500 immigrant children. The agency responsible says it calls the people who now have the kids, but most of the people don't call back within the 30-day requirement period.

Now the next logical questions to ask the rep would be: What happens after 30 days? Do you keep calling them? Do send out investigators?" But are these questions asked? No. Instead we get speculation or non-answers. It's the same with every issue.

The internet is not any better. Many articles are just repeating what appears elsewhere with no one checking the facts, even on respected sites. I also got a chain email today regarding petition for a Constitutional Convention. The impetus is a list of grievances ranging from "a congressman can retire after just one term with a full pension" to "children of congressmen don't have to pay back college loans." I already knew most of the claims weren't true but the 131 recipients of the organization I belong to didn't. I did find out that this chain email has been circulating on the internet for five years and it is the work of a conservative groups whose real aim is to stop abortion and make Christianity the law of the land. I was not surprised.

I have said for years that there is no news on the news. And I have repeated this meme for just as long: There is a reason why America is called Planet Stupid.

lewis e , May 29, 2018 at 2:43 pm

On the 1500

https://twitter.com/jduffyrice/status/1000927903759110144

JBird , May 29, 2018 at 3:38 pm

Now the next logical questions to ask the rep would be: What happens after 30 days? Do you keep calling them? Do send out investigators?" But are these questions asked? No. Instead we get speculation or non-answers. It's the same with every issue.

Even competent reporting takes practice, time, and effort, even money sometimes. The same with even half way competent governing. Neither is rewarded, and are often punished, for doing nowadays; asking as a follow-up question "did you call the local police or send over a pair of ICE officers just to politely knock on the door?" Police do people checks all the time. "I haven't see so and so for a week", or "my relative hasn't returned my calls for a month, can you?" It is possible that the paperwork just got lost and asking the guardians/family some questions personally would solve.

But all that is boring bovine excrement, which is just not done.

Jeremy Grimm , May 29, 2018 at 2:41 pm

This post is disheartening in so many ways. Start with "media hysteria" -- adding yet another glib coinage to hide a lack of explanation behind a simple but innapt analogy like the endless "addictions" from which personifications of various abstract entities suffer.

This coinage presupposes a media sufficiently free to be possessed by hysteria. Dancing puppets might with some art appear "hysterical". And the strange non-death of Neoliberalsm isn't so strange or poorly understood in 2018 though the detailed explanation hasn't reached as many as one might have hoped, including the authors of this brief post. Consider their unhappy mashup of thoughts in a key sentence of the first paragraph: "This power has been maintained with the help of a robust ideology centred on free markets (though in reality markets are captured by corporations and are maintained by the state) and the superiority of the private sector over the public sector." The tail of this sentence obviates the rest of the post. And we ought not ignore the detail that Neoliberalism believes in the Market as a solution to all problems -- NOT the 'free market' of neoclassical economics or libertarian ideology.

From "media hysteria" the post postulates "amnesia" of a public convinced of "greedy bankers" who need regulation. In the U.S. the propaganda was more subtle -- at least in my opinion. We were fed the "bad apples" theory mocked in a brief series of media clips presented in the documentary film "Inside Job". Those clips suggest a better explanation for the swift media transitions from banking reform to balanced budgets and austerity with more tax cuts for the wealthy than "amnesia" or "hyper-amnesia". The media Corporations are tightly controlled by the same forces that captured Corporations and -- taking the phrase "the superiority of the private sector over the public sector" in the sense that a superior directs an inferior [rather than the intended(?) sense] -- direct and essentially own our governments.

orangecats , May 29, 2018 at 10:09 pm

"skepticism about information sources is not in the DNA of many information consumers"

This.

bruce wilder , May 29, 2018 at 11:37 am

The essayist complains that poverty and the manifest failures of neoliberalism get little critical attention, but she leads off, "It hasn't escaped many people's attention . . ."

The remarkable thing about public discourse and political and economic news reporting is how superficial it has become, so devoid of a foundation of any kind in history or theory. You can not have an effective critique of society or the economy or anything, if you do not see a system with a history and think it matters. Neoliberalism has become what people say when they think none of it really matters; it is all just noise.

Summer , May 29, 2018 at 4:48 pm

"Neoliberalism has become what people say when they think none of it really matters; it is all just noise."

There is a connection there with movies like Deadpool 2.

JohnnyGL , May 29, 2018 at 1:35 pm

Another thing to recall was how quickly talk of nationalizing banks evaporated. Even Paul Krugman, among others were supporting the idea that "real capitalists nationalize".

Once LIBOR came down, and the lending channels began to reopen, the happy talk ensued and the amnesia kicked in strongly.

I also think that the crisis of neoliberalism echos a problem caused by capitalism, itself. I think David Harvey stated that "capitalism doesn't solve problems, it often just moves them around".

The financial crisis and austerity have now manifested themselves into a media crisis of elites and elite legitimacy (BREXIT, Trump's election, etc). The ability to manufacture consent is running into increased difficulty. I don't think the financial crisis narrative shift helped very much at all. A massive crime requires an equally massive cover-up, naturally.

WheresOurTeddy , May 29, 2018 at 1:41 pm

Why, it's almost as if 90% of all media outlets are owned by 5 multibillion dollar conglomerates, controlled by the top 0.1%, for the purposes of protecting their unearned parasitic power, and the employees making six-to-low-seven figures are on the Upton Sinclair "paycheck demands I not understand it" model.

Or it's amnesia.

Matt Stoller tweet from August 2017, as germane now as ever: "The political crisis we are facing is simple. American commerce, law, finance, and politics is organized around cheating people."

maria gostrey , May 29, 2018 at 2:13 pm

this is why frank sobotka got my vote in the 2016 election:

https://m.youtube.com/watch?v=T-j5XWo1fPI#

KLG , May 29, 2018 at 9:56 pm

A big thumbs up for that! Sobotka was a hero in very dark times.

As my brother-in-law puts it: The American Dream used to be "work hard in a useful job, raise a family of citizens, retire with dignity, and hand the controls to the next generation." Now? It's just "Win the lottery."

Problem is, "The Lottery" is right out of Shirley Jackson.

hemeantwell , May 29, 2018 at 3:12 pm

Or it's amnesia.

Agreed. The author is inclined to interpret at the level of cumulative effect -- apparent forgetting -- and to ignore how fear -- of editors, of owners -- plays any role. Her proposed unveiling of a coercive process becomes yet another veiling of it.

precariat , May 29, 2018 at 3:16 pm

There is not a writer or thinker I agree with more than Matt Stoller.

Avalon Sparks , May 29, 2018 at 5:33 pm

He's one I agree with too. His writings on monopoly activity are excellent.

Pamela More , May 29, 2018 at 9:57 pm

This.

It's a feature, not a bug.

Alex morfesis , May 29, 2018 at 1:54 pm

Sadly the narrative of details is lost to history The German landesbanks who had guaranteed payments in loan pools in the USA were allowed to skirt thru crash and burn by the agencies (moody s&p and your little fitch too) fake and shake ratings process But all things German are magical Having lived thru NYC Mac Corp effective bankruptcy of man hat tan..

it was amusing watching the hand wave given when the city of Berlin actually defaulted .

Ah reality I remember it welll

Eustache De Saint Pierre , May 29, 2018 at 2:23 pm

My own view for what it is worth is that the Guardian pays some lip service to the plight of the UK's " Deplorables ", but like most of it's readership does not really give a damn. A state of being exacerbated by Brexit similar to the situation in the US with Trump. It's much easier to imagine hordes of racist morons who inhabit places that you have no direct experience of, than to actually go & take a look. It's also very easy to be in favour of mass immigration if it does not effect your employment, housing & never likely to spoil your early morning dawn chorus with a call to prayer.

Unfortunately it has been left to the Right to complain about such things as the Rotherham abuse scandal, which involved a couple of thousand young girls, who I suspect are worth less to some than perhaps being mistaken as a racist. There are also various groups made up of Muslim women who protest about Sharia councils behaviour to their sex, but nobody in the media is at all interested.

George Orwell noted that the middle class Left couldn't handle dealing with real working class people, although there isn't the same huge gulf these days, I believe there is still a vestige of it due to the British class system. The Fabians set up shop in the East End around the turn of the last century & directly rubbed shoulders with the likes of Coster Mongers – a combination that led to a strike that was one of the first success stories in the attempt to get a few more crumbs than what was usually allowed to fall from the top table.

As for Mirror readers, I suspect that the majority are either the voiceless or are too busy fighting to avoid the fate of those who find themselves availing of food banks, while being labelled as lazy scroungers all having expensive holidays, twenty kids, about thirty grand a year, while being subjected to a now updated more vicious regime of that which was illustrated by " I, Daniel Blake ".

If Neoliberalism is now being noticed I imagine that it is because of it's success in working it's way up the food chain. After all these same Middle classes for the most part did not care much for the plight of the poor during those Victorian values. Many could not wait to employ maids of all work who slaved for up to fourteen hours a day with only Sunday afternoon's off. The Suffragettes had a real problem with this as their relatively comfortable lives would soon descend into drudgery without their servants.

Coincidentally, the NYT article on Austerity Britain is the closest I have read to an accurate picture that I have seen for a good while.

David , May 29, 2018 at 2:39 pm

It's also not a new thing. British media worship of neoliberalism has been growing since the 1980s, at the same time as newspapers have been closing and media sources of all kinds laying off their staff. 2008 was a temporary blip, and since the average journalist has the attention span of a hamster, it was back to usual a few months later. Once the crash stopped being "news" old patterns reasserted themselves. I wonder, incidentally, how many economics journalists in the UK actually remember the time before neoliberalism?

precariat , May 29, 2018 at 2:54 pm

"And so it seems we are living with a hyper-amnesia"

Consuming corporate media is increasingly a bizarro-world experience. Even something like the Trump scandal/constitutional crisis/investigation seems like the arrogant internecine warfare of corrupt factions of the establishment. Meanwhile, Americans are increasingly living out of their cars.

The corporate media forgets the causes of the worst economic crisis since the Depression, and it put Trump in a position to be elected. Trump was the Republican nominee because he was relentlessly promoted by the media -- because ratings, because neoliberal rigged markets.

Break up the media monopolies, roll back Citizens United, enforce the fairness doctrine.

Pamela More , May 29, 2018 at 9:55 pm

Agree.

Slight edit

" Consuming corporate media is increasingly a bizarro-world experience the Trump scandal/constitutional crisis/investigation is nothing other than internecine warfare between corrupt factions of the establishment."

JBird , May 29, 2018 at 3:24 pm

I think there are several issues here for Americans, which can partially be applied to the Europeans.

First, the American nation as whole only has short term memory. It is our curse.

Second, those with the money spend a lot of money, time and effort the late 19th century covering up, massaging, or sometimes just creating lies about the past. American and British businesses, governments, and even private organizations are masters at advertising and propaganda. Perhaps the best on Earth.

Third, the people and the institutions that would counter this somewhat, independent unions, multiple independent media, tenured professors at functioning schools, even non-neoliberalized churches, and social organizations like bowling, crocheting, or heck, the Masons would all maintain a separate continuing body of memory and knowledge.

Lastly, we are all freaking terrified somewhere inside us. Those relative few who are not are fools, and most people, whatever their faults, truly are not fools. Even if they act like one. Whatever your beliefs, position, or knowledge, the knowing of the oncoming storm is in you. Money or poverty may not save you. The current set of lies, while they are lies, gives everyone a comfortable known position of supporting or opposing in the same old, same old while avoiding thinking about whatever catastrophe(s) and radical changes we all know are coming. The lies are more relaxing than the truth.

Even if you are one of society's homeless losers, who would welcome some changes, would you be comfortable thinking about just how likely it is to be very traumatic? Hiding behind begging for change might be more comfortable.

precariat , May 29, 2018 at 4:25 pm

"Even if you are one of society's homeless losers, who would welcome some changes, would you be comfortable thinking about just how likely it is to be very traumatic? Hiding behind begging for change might be more comfortable."

On the contrary, the upheaval the "losers" have been subjected to will be turned around and used as a just cause for rectification. Trumatic consequences can be unpredictable and this is why society should have socio-economic checks and balances to prevent an economic system running amok. Commonsense that necessitates amnesia for neoliberalism to seem viable.

Peter Phillips , May 29, 2018 at 4:54 pm

Facing the current scenario in which we have:

1. Oligarchs having captured thoroughly the media, the legislatures and the judiciary, (as well as large parts of what might be construed as "liberal" political organisations e.g. the Democratic Party of the USA)

2. the seemingly inexorable trend to wealth concentration in the hands of said oligarchs

..one asks oneself.."What is one to do?"

My own response, (and I acknowledge straight off its limited impact), is to do the following:

1. support financially in the limited ways possible media channels such as Naked Capitalism that do their level best to debunk the lies and deceptions perpetrated by the oligarchs

2. support financially social organisations and structures that are genuinely citizen based and focused on a sustainable future for all

3. Do very very limited monitoring of the oligarch's "lies and deceptions" (one needs to understand one's enemies to have a chance to counter them) and try on a personal level, in one's day to day interactions, to present counter arguments

We cannot throw in the towel. We must direct our limited financial resources and personal efforts to constructive change, as, for the 99%..there are no "bunker" to run to when the "proverbial" hits the fan..as it must in the fullness of time.

Spring Texan , May 29, 2018 at 8:21 pm

Yep. One has to go ahead and do what one can. It all makes a difference. Thanks for your strategy, Peter Phillips. Limited impact is not no impact, and we don't have the luxury of despairing because there is only a bit we can do.

sgt_doom , May 29, 2018 at 8:10 pm

Yet this has been going on forever – – this past Sunday, for the first time I recall, I finally heard an accurate Real News story filed on the Bobby Kennedy assassination (50th anniversary coming this June 6, 2018) by the BBC World Service.
They actually noted that there were multiple shooters, that Sen. Kennedy was shot from behind, not the front where Sirhan was located, etc., etc.
I guess we do occasionally witness Real News – – – just that it takes 50 years or so to be reported . . .

[Apr 24, 2018] Home Prices In 80% Of US Cities Grew 2x Faster Than Wages... And Then There Is San Francisco

Apr 24, 2018 | www.zerohedge.com

In February, 16 of 20 major cities experienced home price growth of 5.4% or higher: double the average wage growth. And then there was San Francisco ...

[Apr 24, 2018] Lyapanov's work on the inherent instability of complex systems which was used as a basis of Chaos Theory, is enough in itself to relegate predictions based on a linear model when applied to the complex to be thrown into the dustbin of history.

Apr 24, 2018 | www.nakedcapitalism.com

Eustache De Saint Pierre , April 21, 2018 at 6:13 am

Lyapanov's work on the inherent instability of complex systems which was used as a basis of Chaos Theory, is enough in itself to relegate predictions based on a linear model when applied to the complex to be thrown into the dustbin of history.

LTCM L.P. Was I believe wiped out due to a combination of the 90's Asian & Russian crisis' ( karma in the case of the latter ? ). It would be impossible to discover which tiny flap of the butterfly's wings initiated the tipping point or to predict it beforehand.

But as long as it works for those driving it.

[Mar 23, 2018] Jim Kunstler Warns An Unspooling Has Begun

"Doom porn" argument aside it was almost 10 years since the last financial crisis. And neoliberalism tend to produce financial crisis with amazing regularity. This is the nature of the beast. So timing might be wrong, but the danger is here.
Mar 23, 2018 | www.zerohedge.com

Tendrils of evidence point to a coordinated campaign that included the Obama White House and the Democratic National Committee starring Hillary Clinton. Robert Mueller even comes into the picture both at the Uranium One end of the story and the other end concerning the activities of his old friend, Mr. Comey. Most tellingly of all, Attorney General Jeff Sessions was not shoved out of office but remains shrouded in silence and mystery as this melodrama plays out, tick, tick, tick.

None of this makes President Trump a more reassuring figure. His lack of decorum remains as awesome as his apparent lack of common sense. But he has labored against the most intense campaign of coordinated calumny ever seen against a chief executive and his fortitude, at least, is impressive. What is unspooling for him, and the body politic, are the nation's finances, and the dog of an economy that gets wagged by finance. Yesterday's 724-point dump in the Dow Jones Industrial Average is liable to not be a fluke event, but the beginning of a cascade into the pitiless maw of reality - the reality that just about everything is grossly mispriced.

There is plenty of dysfunction in plain sight to suggest that the financial markets can't bear the strain of unreality anymore. Between the burgeoning trade wars and the adoption in congress this week of a fiscally suicidal spending bill, you'd want to put your fingers in your ears to not be deafened by the roar of markets tumbling. A 40 to 75 percent drop in the equity markets will leave a lot of one-percent big fish gasping on the beach as the tide rolls out. But the minnows and anchovies will suffer too, as regular economic activity declines in response to tumbling markets. And then the Federal Reserve will ride to the rescue with QE-4, which will very sharply drive the dollar toward worthlessness. The result: a nation with a sucking chest wound, whirling around the drain en route to political pandemonium.

DillyDilly Fri, 03/23/2018 - 14:28 Permalink

Look on the bright side Kuntsler ~ You'll keep selling doom porn articles & newsletters so you can keep playing the $2 exacta & daily double tickets at the Saratoga Springs late summer meet.

Maybe you'll hit the pick 6

FreeShitter -> DillyDilly Fri, 03/23/2018 - 14:29 Permalink

It must be friday, cuz here comes a Kuntser piece.

[Feb 11, 2018] Justice department's No 3 official to take Walmart's top legal job

Feb 11, 2018 | www.theguardian.com

Revolving door in action

Brand attracted interest because of her potential to assume a key role in the Trump-Russia investigation. The official overseeing the special counsel Robert Mueller's investigation, the deputy attorney general Rod Rosenstein, has been repeatedly criticized by Trump. If Rosenstein had been fired or quit, oversight would have fallen to Brand. That job would now fall to the solicitor general, Noel Francisco.

"She felt this was an opportunity she couldn't turn down," her friend and former colleague Jamie Gorelick said. Walmart sought Brand to be head of global corporate governance at the retail giant, a position Gorelick said has legal and policy responsibilities that will cater to her strengths.
"It really seems to have her name on it," Gorelick said.

[Feb 07, 2018] Epochal Stock Market Flash Crash Reconnects Stocks and Bonds, Portends End of Fake Recovery

Notable quotes:
"... Yes, fundamentally, a lot of flaws are built in to how the markets operate in a "financially engineered" manner, but it blew for the simple reason that interest rates nudged upward at the end of January as soon as the Federal Reserve got serious about its quantitative squeezing. That strongly supports my central thesis of this blog that this economy, built on caverns of debt and riddled with market design flaws, is too fragile to absorb any reduction in the Fed's balance sheet. ..."
"... Carl Icahn says he expects stock markets to bounce back after the massive sell-off Friday and Monday, while warning that current market volatility is a harbinger of things to come . The volatility of recent weeks is cause for concern, Icahn said, adding that he doesn't remember a two-week period as turbulent as this one. He said the problem is that too much money is flowing into the index funds, where investors don't know what they're actually investing in. ..."
"... "Passive investing is the bubble right now, and that's a great danger," he said. Eventually, that will implode and could lead to a crisis bigger than in 2009, he added. ..."
"... Risk parity funds. Volatility-targeting programs. Statistical arbitrage. Sometimes the U.S. stock market seems like a giant science project, one that can quickly turn hazardous for its human inhabitants. ..."
"... You didn't need an engineering degree to tell something was amiss Monday. While it's impossible to say for sure what was at work when the Dow Jones Industrial Average fell as much as 1,597 points, the worst part of the downdraft felt to many like the machines run amok. For 15 harrowing minutes just after 3 p.m. in New York a deluge of sell orders came so fast that it seemed like nothing breathing could've been responsible. ..."
"... The result was a gut check of epic proportion for investors . "We are proactively calling up our clients and discussing that a 1,600-point intraday drop is due more to algorithms and high-frequency quant trading than macro events or humans running swiftly to the nearest fire exit ." ..."
"... "What was frightening was the speed at which the market tanked," said Walter "Bucky" Hellwig, Birmingham, Alabama-based senior vice president at BB&T Wealth Management . " The drop in the morning was caused by humans, but the free-fall in the afternoon was caused by the machines. It brought back the same reaction that we had in 2010, which was 'What the heck is going on here?" ..."
"... Particular suspicion landed on trading programs tied to volatility , mathematical measures of which exploded as the day progressed . ( Newsmax ) ..."
"... The machines that now run the stock market are out of control. They do the bidding for us, but their algorithms have been designed by college sprouts who have never seen a falling market. ..."
"... Most dangerous of all, they're self-programming. They rewrite their own algorithms based on their successes and failures so that even their programmers no longer know why the machines are doing what they are doing. Even if one group of programmers does know exactly what its own algorithms are doing, they certainly don't know what is in all the others and, therefore, how they might interact to self-reinforce wrong actions. ..."
"... They don't exist in one room where you can pull a circuit breaker and disconnect them from the market. They exist in office buildings by the hundreds of thousands all over the world. Even the decisions and bids that are made by humans doing their own thinking are placed through the machines, so there is usually no way to know if a single bid coming through is by a human or is machine generated. ..."
"... The fifteen-minute, 900-point drop on Friday was a mere foreshock of that, too. We've already had a few flash-crash foreshocks that none of the experts can understand, but it hasn't slowed us from moving deeper and deeper into the machines' labyrinth. Nor have we even begun to try to work out some of the design flaws that caused those initial flash crashes. ..."
"... If the market technowizards have actually managed to get all the robo-traders unplugged or quickly reprogrammed, maybe the slide will stabilize before it becomes an all-out crash. They attempted that with some success today by stopping all volatility trading before the market opened, which I'll get into below. But, even if they've gotten the ill-programmed robots off to the side or have fixed their sizzling little heads, the market that opens tomorrow will be a whole new market -- no longer one that hyperventilates on the fumes of hope, but one that has relearned how to fear risk. ..."
Feb 07, 2018 | www.zerohedge.com

Yes, fundamentally, a lot of flaws are built in to how the markets operate in a "financially engineered" manner, but it blew for the simple reason that interest rates nudged upward at the end of January as soon as the Federal Reserve got serious about its quantitative squeezing. That strongly supports my central thesis of this blog that this economy, built on caverns of debt and riddled with market design flaws, is too fragile to absorb any reduction in the Fed's balance sheet.

And that's why I was able to time when the first crash would be likely to hit. It's simple: When is the Fed scheduled to start getting serious in its Great Unwind? January. What week did they actually do it in? The last week of January. Kaboom!

The Fed cannot ever unwind. It will try because it believes it can, but kaboom! We'll find ways to recover from this first shock over what happens to interest when they stop rolling over government debt. The government will adapt. It will find other buyers. But the cost will go up. And the kabooms will keep happening. I've always maintained that the failure of the recovery is baked in by design and will show when the Fed's artificial life support is actually withdrawn. (Whether it is there by intentional design or design flaw, I'll leave up to one's conspiratorial imagination, as it doesn't matter to me; both get you to the same place: kaboom!)

Some bigger voices than mine are saying the same thing:

Carl Icahn says he expects stock markets to bounce back after the massive sell-off Friday and Monday, while warning that current market volatility is a harbinger of things to come . The volatility of recent weeks is cause for concern, Icahn said, adding that he doesn't remember a two-week period as turbulent as this one. He said the problem is that too much money is flowing into the index funds, where investors don't know what they're actually investing in.

"Passive investing is the bubble right now, and that's a great danger," he said. Eventually, that will implode and could lead to a crisis bigger than in 2009, he added.

"When you start using the market as a casino, that's a huge mistake," Icahn said. (" Carl Icahn Says Market Turn Is 'Rumbling' of Earthquake Ahead ")

The fact that the market has completed its de-evolution into a casino, rather than a place to buy ownership in a company, is part of the rickety framework I've described for our economy -- part of what makes it easy to shove over with a nudge in interest because the entire economy has been made utterly dependent on low interest.

... ... ...

The mechanized meltdown -- machines rule and drool

"Dow Drops 900 Points in 10 Minutes as Machines Run Amok on Wall Street"

Risk parity funds. Volatility-targeting programs. Statistical arbitrage. Sometimes the U.S. stock market seems like a giant science project, one that can quickly turn hazardous for its human inhabitants.

You didn't need an engineering degree to tell something was amiss Monday. While it's impossible to say for sure what was at work when the Dow Jones Industrial Average fell as much as 1,597 points, the worst part of the downdraft felt to many like the machines run amok. For 15 harrowing minutes just after 3 p.m. in New York a deluge of sell orders came so fast that it seemed like nothing breathing could've been responsible.

The result was a gut check of epic proportion for investors . "We are proactively calling up our clients and discussing that a 1,600-point intraday drop is due more to algorithms and high-frequency quant trading than macro events or humans running swiftly to the nearest fire exit ."

"What was frightening was the speed at which the market tanked," said Walter "Bucky" Hellwig, Birmingham, Alabama-based senior vice president at BB&T Wealth Management . " The drop in the morning was caused by humans, but the free-fall in the afternoon was caused by the machines. It brought back the same reaction that we had in 2010, which was 'What the heck is going on here?"

It may never be clear what accelerated the tumble -- people still aren't sure what caused the flash crash on May 6, 2010. Unlike then, most of the theorizing about today's events centered not on the market's plumbing or infrastructure, but on the automated quant strategies that gained popularity with the advent of electronic markets last decade. Particular suspicion landed on trading programs tied to volatility , mathematical measures of which exploded as the day progressed . ( Newsmax )

There is some basis for saying, "this looks like a technically driven selloff," but this is another problem for which there is no solution, and one I've written about here in the past. No solution because they cannot even identify the problem back in 2010! You cannot solve what you cannot identify.

The machines that now run the stock market are out of control. They do the bidding for us, but their algorithms have been designed by college sprouts who have never seen a falling market. They try to trick each other, and try to bid the market up. They're an accelerant. Most dangerous of all, they're self-programming. They rewrite their own algorithms based on their successes and failures so that even their programmers no longer know why the machines are doing what they are doing. Even if one group of programmers does know exactly what its own algorithms are doing, they certainly don't know what is in all the others and, therefore, how they might interact to self-reinforce wrong actions.

They don't exist in one room where you can pull a circuit breaker and disconnect them from the market. They exist in office buildings by the hundreds of thousands all over the world. Even the decisions and bids that are made by humans doing their own thinking are placed through the machines, so there is usually no way to know if a single bid coming through is by a human or is machine generated. Therefore, there is not really any way to shut the machines entirely off if they get out of control because their disjointed, convoluted, false-bidding, intentionally tricking, interacting and over-reacting zillions of intercommunications per second all around the world add up to a sum that is far more evil than its innumerable mischievously and deviously conceived parts. The system is built from the core out factious parts intended to trick each other upward, but what happens if this amalgamated beast starts tricking itself downward? Who has the authority or the controls to stop the collapse in the microseconds in which it may originate and climax?

So, FUNDAMENTALLY, the market system, itself, is deeply and inexorably flawed by intentional human design. It wasn't designed to destroy the world. It was merely designed with its own sinful machinations because of the flaws of its designers. The whole beastly thing is of a corrupted nature because of all the people who hoped to use their machines to out-game all the other people's machines. It is a network of sparks and tricks. However, because it can multiply its devilish intentions millions of times per nanosecond, we have no idea how much market carnage it might create if all the algos one day just happen to line up in the wrong direction (wrong direction for humans, anyway).

The fifteen-minute, 900-point drop on Friday was a mere foreshock of that, too. We've already had a few flash-crash foreshocks that none of the experts can understand, but it hasn't slowed us from moving deeper and deeper into the machines' labyrinth. Nor have we even begun to try to work out some of the design flaws that caused those initial flash crashes.

Other problems with the machines emerged when trading became so frantic that the sheer volume was frying the brains of many computer networks, causing the financial services of several trading companies to go offline.

Investment firms T. Rowe Price Group Inc. and Vanguard Group apologized to customers for sporadic outages on their websites during the Dow industrials' 1600-point downturn . Online brokerages TD Ameritrade and Charles Schwab also experienced issues. ( Newsmax )

The computers couldn't handle all the other computers.

If the market technowizards have actually managed to get all the robo-traders unplugged or quickly reprogrammed, maybe the slide will stabilize before it becomes an all-out crash. They attempted that with some success today by stopping all volatility trading before the market opened, which I'll get into below. But, even if they've gotten the ill-programmed robots off to the side or have fixed their sizzling little heads, the market that opens tomorrow will be a whole new market -- no longer one that hyperventilates on the fumes of hope, but one that has relearned how to fear risk.


Iconoclast421 Feb 7, 2018 1:26 PM Permalink

All this talk about crashes when the DOW is still up YTD...

Eman Laer -> Iconoclast421 Feb 7, 2018 2:51 PM Permalink

Right. Who would find it interesting or useful to discuss a market crash because the market is up for the year? *wipes drool*

Son of Loki Feb 7, 2018 1:36 PM Permalink

At some point when things actually do correct (or crash as some call it), bond yields will soar.

taketheredpill Feb 7, 2018 2:11 PM Permalink

me feelings on how this ends....

So far haven't seen anything that makes me expect US 10's to break the top of the 30-year yield downtrend channel (driven by 30+ dis-inflationary years of borrowing growth from the future).

So if no break-out on US 10s, then what happened in previous years when US 10s touched the top of the channel?

Equities break down, slowly at first then OMG faster. Bonds rally.

The Fed makes noises about cutting rates but markets ignore.

Fed cuts rates and markets ignore. US 10s test previous yield lows again.

Fed goes "all in" with Helicopter money. End of $ and US Treasury market.

Bye!

Bemused Observer Feb 7, 2018 2:48 PM Permalink

Everything will hit the wall. Try to 'time' it if you must, but just be aware that those last few yards come up on you real quick...that's why people always get nailed by these events. (I'm always amused by the ones who seem to think that they can and will time it right...do they really believe all the folks who got nailed in the past were just stupid?...What kind of over-inflated ego would even entertain that idea?)

If it WERE possible to do that, there would BE no downturns, ever. These things do the damage they do because you CAN'T time them. Predict, yes, but not time.

Haitian Snackout Feb 7, 2018 3:16 PM Permalink

Regardless of what marky is doing, Dave's quite correct. The longtime flooring of interest rates has created a world dependent on it continuing. Maybe if it had something more going for it things would be different. The unwinding of the fed balance sheet was always just a theory. No one knew if or when it would happen. Or more important if it was even possible. But the car has no reverse gear and many people have spoken about this. That we will only hear a grinding noise if they try to shift into reverse. For myself, I'm certainly no expert, but I know enough about the housing market to know that somewhere around 2.80 on the ten year the increase will certainly be felt. And that once margin interest rates reaches parity with dividend yields, or sooner, that one goes pear shaped as well. The engine that has propelled housing prices to several times their real value ( granted, not everywhere ) is now in reverse. And that, as Dave has noted, is only the tip of the iceberg of total debt. And even if they reverse course, the debt saturation is so widespread the patient would only barely limp forward from here. There also are likely pension funds and others in the ICU. We won't know about everything right away.

Wild tree -> Haitian Snackout Feb 7, 2018 4:47 PM Permalink

Yes HS, Dave called it out correctly IMHO. Here is what he wrote in three sentences that is the sum of the whole article, and why the seeds of our destruction as a country, and world have been fervently watered since 2008.

"No, the fundamentals do not provide reason for optimism. They provide reason for grave concern. As I've been writing all along, the greatest fundamental that is exerting pressure right now is the massive debt that the entire global economy is built on."

The steam train is on the track, clickety-clack, clickety-clack,

Picking up speed as it heads down the mountain, clickety-clack, clickety-clack.

People are hanging on for dear life, clickety-clack, clickety-clack,

Won't matter none when the train runs out of track, clickety-clack, clickety-clack.

[Feb 07, 2018] Is the Stock Market Loaded for Bear by Dambisa Moyo

She completely missed the importance of automatic trading algorithms.
Notable quotes:
"... Winner Take All ..."
"... How the West Was Lost ..."
Feb 07, 2018 | www.project-syndicate.org

Market participants could easily be forgiven for their early-year euphoria. After a solid 2017, key macroeconomic data – on unemployment, inflation, and consumer and business sentiment – as well as GDP forecasts all indicated that strong growth would continue in 2018.

The result – in the United States and across most major economies – has been a rare moment of optimism in the context of the last decade. For starters, the macro data are positively synchronized and inflation remains tame. Moreover, the International Monetary Fund's recent upward revision of global growth data came at precisely the point in the cycle when the economy should be showing signs of slowing.

Moreover, stock markets' record highs are no longer relying so much on loose monetary policy for support. Bullishness is underpinned by evidence of a notable uptick in capital investment. In the US, gross domestic private investment rose 5.1% year on year in the fourth quarter of 2017 and is nearly 90% higher than at the trough of the Great Recession, in the third quarter of 2009.

This is emblematic of a deeper resurgence in corporate spending – as witnessed in durable goods orders. New orders for US manufactured durable goods beat expectations, climbing 2.9% month on month to December 2017 and 1.7% in November.

Other data tell a similar story. In 2017, the US Federal Reserve's Industrial Production and Capacity Utilization index recorded its largest calendar year gain since 2010, increasing 3.6%. In addition, US President Donald Trump's reiteration of his pledge to seek $1.5 trillion in spending on infrastructure and public capital programs will further bolster market sentiment.

All of this bullishness will continue to stand in stark contrast to warnings by many world leaders. In just the last few weeks, German Chancellor Angela Merkel cautioned that the current international order is under threat. French President Emmanuel Macron noted that globalization is in the midst of a major crisis, and Canadian Prime Minister Justin Trudeau has stated that the unrest we see around the world is palpable and "isn't going away."

Whether or not the current correction reflects their fears, the politicians ultimately could be proved right. For one thing, geopolitical risk remains considerable. Bridgewater Associates' Developed World Populism index surged to its highest point since the 1930s in 2017, factoring in populist movements in the US, the United Kingdom, Spain, France and Italy. So long as populism lingers as a political threat, the risk of reactionary protectionist trade policies and higher capital controls will remain heightened, and this could derail economic growth.

Meanwhile the market is mispricing perennial structural challenges, in particular mounting and unsustainable global debt and a dim fiscal outlook, particularly in the US, where the price of this recovery is a growing deficit. In other words, short-term economic gain is being supported by policies that threaten to sink the economy in the longer term.

The Congressional Budget Office, for example, has forecast that the US deficit is on course to triple over the next 30 years, from 2.9% of GDP in 2017 to 9.8% in 2047, "The prospect of such large and growing debt," the CBO cautioned, "poses substantial risks for the nation and presents policymakers with significant challenges."

The schism in outlook between business and political leaders is largely rooted in different time horizons. For the most part, CEOs, hemmed in by the short termism of stock markets, are focused on the next 12 months, whereas politicians are focusing on a more medium-term outlook.

As 2018 progresses, business leaders and market participants should – and undoubtedly will – bear in mind that we are moving ever closer to the date when payment for today's recovery will fall due. The capital market gyrations of recent days suggest that awareness of that inevitable reckoning is already beginning to dawn.

Dambisa Moyo, an economist and author, sits on the board of directors of a number of global corporations. She is the author of Dead Aid , Winner Take All , and How the West Was Lost .

[Feb 07, 2018] Steve Keen Why Did It Take So Long For This Crash To Happen

Might be harbinger of things to come. It's 12 years since the financial crash of 2007. And neoliberalism can't exist without stock market crashes.
Notable quotes:
"... Everyone who's asking "why did the stock market crash Monday?" is asking the wrong question; the real question, Keen exclaims, is "why did it take so long for this crash to happen? " ..."
Feb 07, 2018 | www.zerohedge.com
Originally written at RT, outspoken Aussie economist Steve Keen points out

Everyone who's asking "why did the stock market crash Monday?" is asking the wrong question; the real question, Keen exclaims, is "why did it take so long for this crash to happen? "

The crash itself was significant - Donald Trump's favorite index, the Dow Jones Industrial (DJIA) fell 4.6 percent in one day. This is about four times the standard range of the index - and so according to conventional economics, it should almost never happen.

Of course, mainstream economists are wildly wrong about this, as they have been about almost everything else for some time now. In fact, a four percent fall in the market is unusual, but far from rare: there are well over 100 days in the last century that the Dow Jones tumbled by this much.

Crashes this big tend to happen when the market is massively overvalued, and on that front this crash is no different.

It's like a long-overdue earthquake. Though everyone from Donald Trump down (or should that be "up"?) had regarded Monday's level and the previous day's tranquillity as normal, these were in fact the truly unprecedented events. In particular, the ratio of stock prices to corporate earnings is almost higher than it has ever been.

More To Come?

There is only one time that it's been higher: during the DotCom Bubble, when Robert Shiller's "cyclically adjusted price to earnings" ratio hit the all-time record of 44 to one. That means that the average price of a share on the S&P500 was 44 times the average earnings per share over the previous 10 years (Shiller uses this long time-lag to minimize the effect of Ponzi Scheme firms like Enron). The S&P500 fell more than 11 percent that day, so Monday's fall is minor by comparison. And the market remains seriously overvalued: even if shares fell by 50 percent from today's level, they'd still be twice as expensive as they have been, on average, for the last 140 years.

After the 2000 crash, standard market dynamics led to stocks falling by 50 percent over the following two years, until the rise of the Subprime Bubble pushed them up about 25 percent (from 22 times earnings to 28 times). Then the Subprime Bubble burst in 2007, and shares fell another 50 percent, from 28 times earnings to 14 times.

This was when central banks thought The End of the World Is Nigh, and that they'd be blamed for it. But in fact, when the market bottomed in early 2009, it was only just below the pre-1990 average of 14.5 times earnings.

Safe Havens

That valuation level, before central banks (staffed and run by people with PhDs in mainstream economics) decided that they knew how to manage capitalism, is where the market really should be. It implies a dividend yield of about six percent in real terms, which is about twice what you used to get on a safe asset like government bonds -- which are safe, not because the governments and the politicians and the bureaucrats that run them are saints, but because a government issuing bonds in its own currency can always pay whatever interest level it promises. There's no risk that it can't pay, and it can't go bankrupt, whereas a company might not pay dividends, and it can go bankrupt.

Now shares are trading at a valuation that implies a three percent return, as if they're as safe as government bonds issued by a government which owns the bank that pays interest on those bonds. That's nonsense.

And it's a nonsense for which, ironically, central banks are responsible. The smooth rise in stock market prices which led to the levels that preceded Monday's crash began when central banks decided to rescue the economy by "Quantitative Easing (QE)." They promised to do "whatever it takes" to drive shares up from the entirely reasonable values they reached in late 2009, and did so by buying huge amounts of government bonds back from private banks and other financial institutions (pension funds, insurance companies, etc.). In the USA's case, this amounted to $1 trillion per year -- equal to about seven percent of America's annual output of goods and services (GDP or "gross domestic product"). The Bank of England brought about £200 billion worth, which was an even larger percentage of GDP.

With central banks buying that volume of bonds, private financial institutions found themselves awash with money, and spent it buying other assets to get yields - which meant that QE drove up share prices as banks, pension funds and the like bought them with money created by QE.

Blind Oversight

So this is the first central bank-created stock market bubble in history, and central banks have just had the first stock market crash where the blame is entirely theirs.

Were this a standard, private hysteria and leverage driven bubble, we could well be facing a further 50 percent fall in the market -- like what happened after the DotCom crash. This would bring shares back to the long-term average of 17 times earnings.

Instead, what I believe will happen is that central banks, having recently announced that they intend to end QE, will restart it and try to drive shares back to what think are "normal" levels, but which are at least twice what they should be.

As I said in my last book 'Can we avoid another financial crisis ?' QE was like Faust's pact with the Devil: once you signed the contract, you could never get out of it. They'll turn on their infinite money printing machine, buy bonds off financial institutions once more, and give them liquidity to pour back into the markets, pushing them once more to levels that they should never rightly have reached.

This, of course, will help to make the rich richer and the poor poorer by further increasing inequality. Which is arguably the biggest social problem of the modern era. So, as well as being incompetent economists these mainstreamers are today's Marie Antoinette. Let them eat cake, indeed.


DennisR Feb 7, 2018 6:57 PM Permalink

What crash? Every 3% dip is met with money printing, secret QE, etc. You can't expect to have a free market in 2018...

Arrowflinger Feb 7, 2018 6:59 PM Permalink

It is too low on the scale to be a "crash"

Yet.

Dilluminati Feb 7, 2018 7:01 PM Permalink

http://quotes.wsj.com/index/DJIA

What crash?

[Jan 30, 2018] Perfect worker on the cheap by Dan Crawford

Jan 29, 2018 | angrybearblog.com

Via Bloomberg Obsession for the Perfect Worker Fading in Tight U.S. Job Market points to an issue in hiring that has been discussed here at AB:

This is a problem because, at 4.1 percent last month, U.S. unemployment is at the lowest level since 2000 and companies from Dallas to Denver are struggling to find the right workers. In some cases this is constraining growth, the Federal Reserve reported last week.

Corporate America's search for an exact match is "the number-one problem with hiring in our country," said Daniel Morgan, a recruiter in Birmingham, Alabama, who owns an Express Employment Professionals franchise. "Most companies get caught up on precise experience to a specific job," he said, adding: "Companies fail to see a person for their abilities and transferable skills."

U.S. employers got used to abundant and cheap labor following the 2007-2009 recession. Unemployment peaked at 10 percent in October 2009, and didn't return to the lows of the previous business cycle until last year. Firms still remain reluctant to boost pay or train employees with less-than-perfect credentials, though recruiters say that may have to change amid a jobless rate that's set to dip further.


Bill H , January 29, 2018 9:53 am

The way the article is cut off with the wage gains chart makes it seem that the article is on the Dean Baker theme of "pay higher wages and they will come," in which he argues that there is no shortage because you can hire workers away from your competitor, thereby merely moving the deficit from one place to another without eliminating it and unintentionally suggesting that there is actually is a shortage after all.

Immediately after that chart, however, the article segues into a pretty intelligent discussion of employers learning to ascertain "how can your experience be used in my application," making it unclear why the wage chart is even there.

The "lack of trained workers" complaint has long annoyed me, with its implication that it is the public sector's responsibility to train workers for the private sector. Why? If a company needs welders, why should that company not train its own welders?

J.Goodwin , January 29, 2018 11:39 am

Last week we were reviewing a job description we were preparing for a role in Canada. It was basically a super senior description, they wanted everything, specific experience, higher education, what amounts to a black belt project management certification but also accounting and finance background.

At the bottom it says 5 years experience.

I almost fell off my chair. That's an indicator of the pay band they were trying to fill at (let's say 3, and the description was written like a 10-15 years 6).

I tried to explain it to the person who wrote it and I said hey if we put this out there, we will get no hits. There is no one with this experience who will take what you are offering. I'm afraid we're going to end up with another home country expat instead. They're often not up the same standard you could get with a local if you reasonably scoped the job and gave a fair offer.

I think companies have forgotten how to compete for employees, and the recruiters are completely out of touch. Or maybe they are aware of the conditions and HR just won't sign on to fair value.

Mona Williams , January 29, 2018 1:09 pm

Before I retired 12 years ago, on-the-job training was much more common. Borders Books (remember them?) trained me for a week with pay for just a temporary Christmas-season job. Employers have gotten spoiled, and I hope they will figure this out. Some of the training programs I hear about just make me sigh. Nobody can afford to be trained while not being paid.

axt113 , January 29, 2018 1:26 pm

My Wife works as a junior recruiter, the problem she says is with the employers, they want a particular set of traits, and if there is even a slight deviation they balk

She says that one recent employer she worked with wanted so many particulars for not enough pay that even well experienced and well educated candidates she could find were either unwilling to accept the offer, or were missing one or two traits that made them unacceptable to the company.

rps , January 29, 2018 3:58 pm

This is exciting news for many of us who've been waiting for the pendulum to swing in favor of potential employees after a decade of reading employers help wanted Santa wish list criteria for a minimum wage job of 40+ hours. I'd argue the unemployment rate is not 4.1%; rather, I know of many intelligent/educated/experienced versatile people who've been cut out of the job market and/or chose not to work for breadcrumbs.

HR's 6 second resume review rule of potential candidates was a massive failure by eliminating candidates whose skills, experience and critical thinking abilities could've cultivated innovation across many disciplines. Instead companies looked for drone replacement at slave wages. HR's narrow candidate searches often focused on resume typos or perceived grammatical errors (highly unlikely HR recruiters have an English Ph.D), thus trashing the resume. Perhaps, HR will be refitted with critical thinking people who see a candidate's potential beyond the forgotten comma or period.

[Dec 15, 2017] Neoliberalism undermines workers health not only via the financial consequences of un/under employment and low wages, but also through chronic exposure to stress due to insecurity

Neoliberalism as "Die-now economics." "Embodiment into lower class" or "the representation as a member the lower class" if often fatal and upper mobility mobility is artificially limited (despite all MSM hype it is lower then in Europe). So just being a member of lower class noticeably and negatively affects your life expectancy and other social metrics. Job insecurity is the hazard reserved for lower and lower middle classes destructivly effect both physical and mental health. Too much stress is not good for humans. Neoliberalism with its manta of competition uber alles and atomization of the workforce is a real killer. also the fact that such article was published and the comments below is a clear sign that the days of neoliberalism are numbered. It should go.
Notable quotes:
"... In our new book , we draw on an extensive body of scientific literature to assess the health effects of three decades of neoliberal policies. Focusing on the social determinants of health -- the conditions of life and work that make it relatively easy for some people to lead long and healthy lives, while it is all but impossible for others -- we show that there are four interconnected neoliberal epidemics: austerity, obesity, stress, and inequality. They are neoliberal because they are associated with or worsened by neoliberal policies. ..."
"... Neoliberalism operates through labor markets to undermine health not only by way of the financial consequences of unemployment, inadequate employment, or low wages, as important as these are, but also through chronic exposure to stress that 'gets under your skin' by way of multiple mechanisms. Quite simply, the effects of chronic insecurity wear people out over the life course in biologically measurable ways . ..."
"... Oh, and "beyond class" because for social beings embodiment involves "social production; social consumption; and social reproduction." In the most reductive definition of class -- the one I used in my crude 1% + 10% + 90% formulation -- class is determined by wage work (or not), hence is a part of production (of capital), not social consumption (eating, etc.) or social reproduction (children, families, household work ). So, even if class in our political economy is the driver, it's not everything. ..."
"... "Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that "the market" delivers benefits that could never be achieved by planning. ..."
"... Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve." ..."
"... As opposed to being champions of "self-actualization/identity" and "absolute relativism", I always got the impression that they were both offering stark warnings about diving too deeply into the self, vis-a-vis, identity. As if, they both understood the terrifying world that it could/would create, devoid of common cause, community, and ultimately empathy. A world where "we" are not possible because we have all become "I". ..."
"... Wonks like Yglesias love to mock working class concerns as "economic anxiety," which is at once belittling (it's all about f-e-e-e-lings ..."
"... "we have measurable health outcomes from political choices" So True!!! ..."
Dec 12, 2017 | www.nakedcapitalism.com

...Neoliberal epidemics are particular pathways of embodiment. From Ted Schrecker and Clare Bambra in The Conversation :

In our new book , we draw on an extensive body of scientific literature to assess the health effects of three decades of neoliberal policies. Focusing on the social determinants of health -- the conditions of life and work that make it relatively easy for some people to lead long and healthy lives, while it is all but impossible for others -- we show that there are four interconnected neoliberal epidemics: austerity, obesity, stress, and inequality. They are neoliberal because they are associated with or worsened by neoliberal policies. They are epidemics because they are observable on such an international scale and have been transmitted so quickly across time and space that if they were biological contagions they would be seen as of epidemic proportions.

(The Case-Deaton study provides an obvious fifth: Deaths of despair. There are doubtless others.) Case in point for one of the unluckier members of the 90%:

On the morning of 25 August 2014 a young New Jersey woman, Maria Fernandes, died from inhaling gasoline fumes as she slept in her 13-year-old car. She often slept in the car while shuttling between her three, low-wage jobs in food service; she kept a can of gasoline in the car because she often slept with the engine running, and was worried about running out of gasoline. Apparently, the can accidentally tipped over and the vapours from spilled gasoline cost her life. Ms Fernandes was one of the more obvious casualties of the zero-hours culture of stress and insecurity that pervades the contemporary labour market under neoliberalism.

And Schrecker and Bambra conclude:

Neoliberalism operates through labor markets to undermine health not only by way of the financial consequences of unemployment, inadequate employment, or low wages, as important as these are, but also through chronic exposure to stress that 'gets under your skin' by way of multiple mechanisms. Quite simply, the effects of chronic insecurity wear people out over the life course in biologically measurable ways .

... ... ...

Oh, and "beyond class" because for social beings embodiment involves "social production; social consumption; and social reproduction." In the most reductive definition of class -- the one I used in my crude 1% + 10% + 90% formulation -- class is determined by wage work (or not), hence is a part of production (of capital), not social consumption (eating, etc.) or social reproduction (children, families, household work ). So, even if class in our political economy is the driver, it's not everything.

nonclassical , December 11, 2017 at 8:30 pm

L.S. reminiscent of Ernst Becker's, "The Structure of Evil" – "Escape from Evil"? (..not to indicate good vs. evil dichotomy) A great amount of perspective must be agreed upon to achieve "change" intoned. Divide and conquer are complicit, as noted .otherwise (and as indicated by U.S. economic history) change arrives only when all have lost all and can therefore agree begin again.

There is however, Naomi Klein perspective, "Shock Doctrine", whereby influence contributes to destabilization, plan in hand leading to agenda driven ("neoliberal"=market fundamentalism) outcome, not at all spontaneous in nature:

"Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that "the market" delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve."

Amfortas the Hippie , December 11, 2017 at 4:20 pm

Well done, as usual.

On Case-Deason: Sounds like home. I keep the scanner on(local news) ems and fire only since 2006(sheriff got a homeland security grant). The incidence of suicide, overdose and "intoxication psychosis" are markedly increased in the last 10+ years out here in the wilderness(5K folks in whole county, last I looked). Our local economy went into near depression after the late 90's farm bill killed the peanut program then 911 meant no hunting season that year(and it's been noticeably less busy ever since) then drought and the real estate crash(we had 30 some realtors at peak..old family land being sold off, mostly). So the local Bourgeoisie have had less money to spend, which "trickles down" onto the rest of us.:less construction, less eating out even at the cheap places, less buying of gas, and on and on means fewer employees are needed, thus fewer jobs. To boot, there is a habit among many employers out here of not paying attention to labor laws(it is Texas ) the last minwage rise took 2 years to filter out here, and one must scrutinize one's pay stub to ensure that the boss isn't getting squirrelly with overtime and witholding.
Geography plays into all this, too 100 miles to any largish city.

... ... ...

Rosario , December 11, 2017 at 10:55 pm

I'm not well versed in Foucault or Lacan but I've read some of both and in reading between the lines of their writing (the phantom philosophy?) I saw a very different message than that often delivered by post-modern theorists.

As opposed to being champions of "self-actualization/identity" and "absolute relativism", I always got the impression that they were both offering stark warnings about diving too deeply into the self, vis-a-vis, identity. As if, they both understood the terrifying world that it could/would create, devoid of common cause, community, and ultimately empathy. A world where "we" are not possible because we have all become "I".

Considering what both their philosophies claimed, if identity is a lie, and the subject is always generated relative to the other, then how the hell can there be any security or well being in self-actualization? It is like trying to hit a target that does not exist.

All potentially oppressive cultural categorizations are examples of this (black, latino, gay, trans, etc.). If the identity is a moving target, both to the oppressor and the oppressed, then how can it ever be a singular source of political action? You can't hit what isn't there. This is not to say that these groups (in whatever determined category) are not oppressed, just that formulating political action based strictly on the identity (often as an essential category) is impossible because it does not actually exist materially. It is an amalgamation of subjects who's subjectivity is always relative to some other whether ally or oppressor. Only the manifestations of oppression on bodies (as brought up in Lambert's post) can be utilized as metrics for political action.

... ... ...

Lambert Strether Post author , December 11, 2017 at 11:20 pm

I thought of a couple of other advantages of the "embodiment" paradigm:

Better Framing . Wonks like Yglesias love to mock working class concerns as "economic anxiety," which is at once belittling (it's all about f-e-e-e-lings *) and disempowering (solutions are individual, like therapy or drugs). Embodiment by contrast insists that neoliberalism (the neoliberal labor market (class warfare)) has real, material, physiological effects that can be measured and tracked, as with any epidemic.

... ... ...

oaf , December 12, 2017 at 7:11 am

"we have measurable health outcomes from political choices" So True!!!

Thank you for posting this.

[Dec 13, 2017] Stress of long-term unemployment takes a toll on thousands of Jerseyans who are out of work by Leslie Kwoh

Notable quotes:
"... Leslie Kwoh may be reached at [email protected] or (973) 392-4147. ..."
Jun 13, 2010 | www.nj.com

At 5:30 every morning, Tony Gwiazdowski rolls out of bed, brews a pot of coffee and carefully arranges his laptop, cell phone and notepad like silverware across the kitchen table.

And then he waits.

Gwiazdowski, 57, has been waiting for 16 months. Since losing his job as a transportation sales manager in February 2009, he wakes each morning to the sobering reminder that, yes, he is still unemployed. So he pushes aside the fatigue, throws on some clothes and sends out another flurry of resumes and cheery cover letters.

But most days go by without a single phone call. And around sundown, when he hears his neighbors returning home from work, Gwiazdowski -- the former mayor of Hillsborough -- can't help but allow himself one tiny sigh of resignation.

"You sit there and you wonder, 'What am I doing wrong?'" said Gwiazdowski, who finds companionship in his 2-year-old golden retriever, Charlie, until his wife returns from work.

"The worst moment is at the end of the day when it's 4:30 and you did everything you could, and the phone hasn't rung, the e-mails haven't come through."

Gwiazdowski is one of a growing number of chronically unemployed workers in New Jersey and across the country who are struggling to get through what is becoming one long, jobless nightmare -- even as the rest of the economy has begun to show signs of recovery.

Nationwide, 46 percent of the unemployed -- 6.7 million Americans -- have been without work for at least half a year, by far the highest percentage recorded since the U.S. Labor Department began tracking the data in 1948.

In New Jersey, nearly 40 percent of the 416,000 unemployed workers last year fit that profile, up from about 20 percent in previous years, according to the department, which provides only annual breakdowns for individual states. Most of them were unemployed for more than a year.

But the repercussions of chronic unemployment go beyond the loss of a paycheck or the realization that one might never find the same kind of job again. For many, the sinking feeling of joblessness -- with no end in sight -- can take a psychological toll, experts say.

Across the state, mental health crisis units saw a 20 percent increase in demand last year as more residents reported suffering from unemployment-related stress, according to the New Jersey Association of Mental Health Agencies.

"The longer the unemployment continues, the more impact it will have on their personal lives and mental health," said Shauna Moses, the association's associate executive director. "There's stress in the marriage, with the kids, other family members, with friends."

And while a few continue to cling to optimism, even the toughest admit there are moments of despair: Fear of never finding work, envy of employed friends and embarassment at having to tell acquaintances that, nope, still no luck.

"When they say, 'Hi Mayor,' I don't tell a lot of people I'm out of work -- I say I'm semi-retired," said Gwiazdowski, who maxed out on unemployment benefits several months ago.

"They might think, 'Gee, what's wrong with him? Why can't he get a job?' It's a long story and maybe people really don't care and now they want to get away from you."


SECOND TIME AROUND

Lynn Kafalas has been there before, too. After losing her computer training job in 2000, the East Hanover resident took four agonizing years to find new work -- by then, she had refashioned herself into a web designer.

That not-too-distant experience is why Kafalas, 52, who was laid off again eight months ago, grows uneasier with each passing day. Already, some of her old demons have returned, like loneliness, self-doubt and, worst of all, insomnia. At night, her mind races to dissect the latest interview: What went wrong? What else should she be doing? And why won't even Barnes & Noble hire her?

"It's like putting a stopper on my life -- I can't move on," said Kafalas, who has given up karate lessons, vacations and regular outings with friends. "Everything is about the interviews."

And while most of her friends have been supportive, a few have hinted to her that she is doing something wrong, or not doing enough. The remarks always hit Kafalas with a pang.

In a recent study, researchers at Rutgers University found that the chronically unemployed are prone to high levels of stress, anxiety, depression, loneliness and even substance abuse, which take a toll on their self-esteem and personal relationships.

"They're the forgotten group," said Carl Van Horn, director of the John J. Heldrich Center for Workforce Development at Rutgers, and a co-author of the report. "And the longer you are unemployed, the less likely you are to get a job."

Of the 900 unemployed workers first interviewed last August for the study, only one in 10 landed full-time work by March of this year, and only half of those lucky few expressed satisfaction with their new jobs. Another one in 10 simply gave up searching.

Among those who were still unemployed, many struggled to make ends meet by borrowing from friends or family, turning to government food stamps and forgoing health care, according to the study.

More than half said they avoided all social contact, while slightly less than half said they had lost touch with close friends. Six in 10 said they had problems sleeping.

Kafalas says she deals with her chronic insomnia by hitting the gym for two hours almost every evening, lifting weights and pounding the treadmill until she feels tired enough to fall asleep.

"Sometimes I forget what day it is. Is it Tuesday? And then I'll think of what TV show ran the night before," she said. "Waiting is the toughest part."


AGE A FACTOR

Generally, the likelihood of long-term unemployment increases with age, experts say. A report by the National Employment Law Project this month found that nearly half of those who were unemployed for six months or longer were at least 45 years old. Those between 16 and 24 made up just 14 percent.

Tell that to Adam Blank, 24, who has been living with his girlfriend and her parents at their Martinsville home since losing his sales job at Best Buy a year and half ago.

Blank, who graduated from Rutgers with a major in communications, says he feels like a burden sometimes, especially since his girlfriend, Tracy Rosen, 24, works full-time at a local nonprofit. He shows her family gratitude with small chores, like taking out the garbage, washing dishes, sweeping floors and doing laundry.

Still, he often feels inadequate.

"All I'm doing on an almost daily basis is sitting around the house trying to keep myself from going stir-crazy," said Blank, who dreams of starting a social media company.

When he is feeling particularly low, Blank said he turns to a tactic employed by prisoners of war in Vietnam: "They used to build dream houses in their head to help keep their sanity. It's really just imagining a place I can call my own."


LESSONS LEARNED

Meanwhile, Gwiazdowski, ever the optimist, says unemployment has taught him a few things.

He has learned, for example, how to quickly assess an interviewer's age and play up or down his work experience accordingly -- he doesn't want to appear "threatening" to a potential employer who is younger. He has learned that by occasionally deleting and reuploading his resume to job sites, his entry appears fresh.

"It's almost like a game," he said, laughing. "You are desperate, but you can't show it."

But there are days when he just can't find any humor in his predicament -- like when he finishes a great interview but receives no offer, or when he hears a fellow job seeker finally found work and feels a slight twinge of jealousy.

"That's what I'm missing -- putting on that shirt and tie in the morning and going to work," he said.

The memory of getting dressed for work is still so vivid, Gwiazdowski says, that he has to believe another job is just around the corner.

"You always have to hope that that morning when you get up, it's going to be the day," he said.

"Today is going to be the day that something is going to happen."

Leslie Kwoh may be reached at [email protected] or (973) 392-4147.

DrBuzzard Jun 13, 2010

I collect from the state of iowa, was on tier I and when the gov't recessed without passing extension, iowa stopped paying tier I claims that were already open, i was scheduled to be on tier I until july 15th, and its gone now, as a surprise, when i tried to claim my week this week i was notified. SURPRISE, talk about stress.

berganliz Jun 13, 2010

This is terrible....just wait until RIF'd teachers hit the unemployment offices....but then, this is what NJ wanted...fired teachers who are to blame for the worst recession our country has seen in 150 years...thanks GWB.....thanks Donald Rumsfeld......thanks Dick Cheney....thanks Karl "Miss Piggy" Rove...and thank you Mr. Big Boy himself...Gov Krispy Kreame!

rp121 Jun 13, 2010

For readers who care about this nation's unemployed- Call your Senators to pass HR 4213, the "Extenders" bill. Unfortunately, it does not add UI benefits weeks, however it DOES continue the emergency federal tiers of UI. If it does not pass this week many of us are cut off at 26 wks. No tier 1, 2 -nothing.

[Dec 13, 2017] Unemployment health hazard and stress

The longer you are unemployed, the more you are effected by those factors.
Notable quotes:
"... The good news is that only a relatively small number of people are seriously affected by the stress of unemployment to the extent they need medical assistance. Most people don't get to the serious levels of stress, and much as they loathe being unemployed, they suffer few, and minor, ill effects. ..."
"... Worries about income, domestic problems, whatever, the list is as long as humanity. The result of stress is a strain on the nervous system, and these create the physical effects of the situation over time. The chemistry of stress is complex, but it can be rough on the hormonal system. ..."
"... Not at all surprisingly, people under stress experience strong emotions. It's a perfectly natural response to what can be quite intolerable emotional strains. It's fair to say that even normal situations are felt much more severely by people already under stress. Things that wouldn't normally even be issues become problems, and problems become serious problems. Relationships can suffer badly in these circumstances, and that, inevitably, produces further crises. Unfortunately for those affected, these are by now, at this stage, real crises. ..."
"... Some people are stubborn enough and tough enough mentally to control their emotions ruthlessly, and they do better under these conditions. Even that comes at a cost, and although under control, the stress remains a problem. ..."
"... One of the reasons anger management is now a growth industry is because of the growing need for assistance with severe stress over the last decade. This is a common situation, and help is available. ..."
"... Depression is universally hated by anyone who's ever had it. ..."
"... Very important: Do not, under any circumstances, try to use drugs or alcohol as a quick fix. They make it worse, over time, because they actually add stress. Some drugs can make things a lot worse, instantly, too, particularly the modern made-in-a-bathtub variety. They'll also destroy your liver, which doesn't help much, either. ..."
"... You don't have to live in a gym to get enough exercise for basic fitness. A few laps of the pool, a good walk, some basic aerobic exercises, you're talking about 30-45 minutes a day. It's not hard. ..."
Dec 13, 2017 | www.cvtips.com

It's almost impossible to describe the various psychological impacts, because there are so many. There are sometimes serious consequences, including suicide, and, some would say worse, chronic depression.

There's not really a single cause and effect. It's a compound effect, and unemployment, by adding stress, affects people, often badly.

The world doesn't need any more untrained psychologists, and we're not pretending to give medical advice. That's for professionals. Everybody is different, and their problems are different. What we can do is give you an outline of the common problems, and what you can do about them.

The good news is that only a relatively small number of people are seriously affected by the stress of unemployment to the extent they need medical assistance. Most people don't get to the serious levels of stress, and much as they loathe being unemployed, they suffer few, and minor, ill effects.

For others, there are a series of issues, and the big three are:

Stress

Stress is Stage One. It's a natural result of the situation. Worries about income, domestic problems, whatever, the list is as long as humanity. The result of stress is a strain on the nervous system, and these create the physical effects of the situation over time. The chemistry of stress is complex, but it can be rough on the hormonal system.

Over an extended period, the body's natural hormonal balances are affected, and this can lead to problems. These are actually physical issues, but the effects are mental, and the first obvious effects are, naturally, emotional.

Anger, and other negative emotions

Not at all surprisingly, people under stress experience strong emotions. It's a perfectly natural response to what can be quite intolerable emotional strains. It's fair to say that even normal situations are felt much more severely by people already under stress. Things that wouldn't normally even be issues become problems, and problems become serious problems. Relationships can suffer badly in these circumstances, and that, inevitably, produces further crises. Unfortunately for those affected, these are by now, at this stage, real crises.

If the actual situation was already bad, this mental state makes it a lot worse. Constant aggravation doesn't help people to keep a sense of perspective. Clear thinking isn't easy when under constant stress.

Some people are stubborn enough and tough enough mentally to control their emotions ruthlessly, and they do better under these conditions. Even that comes at a cost, and although under control, the stress remains a problem.

One of the reasons anger management is now a growth industry is because of the growing need for assistance with severe stress over the last decade. This is a common situation, and help is available.

If you have reservations about seeking help, bear in mind it can't possibly be any worse than the problem.

Depression

Depression is universally hated by anyone who's ever had it. This is the next stage, and it's caused by hormonal imbalances which affect serotonin. It's actually a physical problem, but it has mental effects which are sometimes devastating, and potentially life threatening.

The common symptoms are:

It's a disgusting experience. No level of obscenity could possibly describe it. Depression is misery on a level people wouldn't conceive in a nightmare. At this stage the patient needs help, and getting it is actually relatively easy. It's convincing the person they need to do something about it that's difficult. Again, the mental state is working against the person. Even admitting there's a problem is hard for many people in this condition.

Generally speaking, a person who is trusted is the best person to tell anyone experiencing the onset of depression to seek help. Important: If you're experiencing any of those symptoms:

Very important: Do not, under any circumstances, try to use drugs or alcohol as a quick fix. They make it worse, over time, because they actually add stress. Some drugs can make things a lot worse, instantly, too, particularly the modern made-in-a-bathtub variety. They'll also destroy your liver, which doesn't help much, either.

Alcohol, in particular, makes depression much worse. Alcohol is a depressant, itself, and it's also a nasty chemical mix with all those stress hormones.

If you've ever had alcohol problems, or seen someone with alcohol wrecking their lives, depression makes things about a million times worse.

Just don't do it. Steer clear of any so-called stimulants, because they don't mix with antidepressants, either.

Unemployment and staying healthy

The above is what you need to know about the risks of unemployment to your health and mental well being.

These situations are avoidable.

Your best defense against the mental stresses and strains of unemployment, and their related problems is staying healthy.

We can promise you that is nothing less than the truth. The healthier you are, the better your defenses against stress, and the more strength you have to cope with situations.

Basic health is actually pretty easy to achieve:

Diet

Eat real food, not junk, and make sure you're getting enough food. Your body can't work with resources it doesn't have. Good food is a real asset, and you'll find you don't get tired as easily. You need the energy reserves.

Give yourself a good selection of food that you like, that's also worth eating.

The good news is that plain food is also reasonably cheap, and you can eat as much as you need. Basic meals are easy enough to prepare, and as long as you're getting all the protein veg and minerals you need, you're pretty much covered.

You can also use a multivitamin cap, or broad spectrum supplements, to make sure you're getting all your trace elements. Also make sure you're getting the benefits of your food by taking acidophilus or eating yogurt regularly.

Exercise

You don't have to live in a gym to get enough exercise for basic fitness. A few laps of the pool, a good walk, some basic aerobic exercises, you're talking about 30-45 minutes a day. It's not hard.

Don't just sit and suffer

If anything's wrong, check it out when it starts, not six months later. Most medical conditions become serious when they're allowed to get worse.

For unemployed people the added risk is also that they may prevent you getting that job, or going for interviews. If something's causing you problems, get rid of it.

Nobody who's been through the blender of unemployment thinks it's fun.

Anyone who's really done it tough will tell you one thing:

Don't be a victim. Beat the problem, and you'll really appreciate the feeling.

[Dec 05, 2017] House Members Tee Up Bipartisan Bill to Kill CFPB Payday Lending Rule

Notable quotes:
"... By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently working on a book about textile artisans. ..."
"... The Unbanking of America: How the New Middle Class Survives ..."
Dec 05, 2017 | www.nakedcapitalism.com

Posted on December 4, 2017 by Jerri-Lynn Scofield By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently working on a book about textile artisans.

Three Democrats and three Republicans have co-sponsored a resolution, under the Congressional Review Act (CRA), to scuttle the Consumer Financial Protection Bureau's payday lending rule.

CRA's procedures to overturn regulations had been invoked, successfully, only once before Trump became president. Congressional Republicans and Trump have used CRA procedures multiple times to kill regulations (as I've previously discussed (see here , here , here and here ). Not only does CRA provide expedited procedures to overturn regulations, but once it's used to kill a regulation, the agency that promulgated the rule is prevented from revisiting the issue unless and until Congress provides new statutory authority to do so.

Payday Lending

As I wrote in an extended October post, CFPB Issues Payday Lending Rule: Will it Hold, as the Empire Will Strike Back, payday lending is an especially sleazy part of the finance sewer, in which private equity swamp creatures, among others, operate. The industry is huge, according to this New York Times report I quoted in my October post, and it preys on the poorest, most financially-stressed Americans:

The payday-lending industry is vast. There are now more payday loan stores in the United States than there are McDonald's restaurants. The operators of those stores make around $46 billion a year in loans, collecting $7 billion in fees. Some 12 million people, many of whom lack other access to credit, take out the short-term loans each year, researchers estimate.

The CFPB's payday lending rule attempted to shut down this area of lucrative lending– where effective interest rates can spike to hundreds of points per annum, including fees (I refer interested readers to my October post, cited above, which discusses at greater length how sleazy this industry is, and also links to the rule; see also this CFPB fact sheet and press release .)

Tactically, as with the ban on mandatory arbitration clauses in consumer financial contracts– an issue I discussed further in RIP, Mandatory Arbitration Ban , (and in previous posts referenced therein), the CFPB under director Richard Cordray made a major tactical mistake in not completing rule-making sufficiently before the change of power to a new administration- 60 "session days" of Congress, thus making these two rules subject to the CRA.

The House Financial Services Committee press release lauding introduction of CRA resolution to overturn the payday lending rule is a classic of its type, so permit me to quote from it at length:

These short-term, small-dollar loans are already regulated by all 50 states, the District of Columbia and Native American tribes. The CFPB's rule would mark the first time the federal government has gotten involved in the regulation of these loans.

.

House Financial Services Committee Chairman Jeb Hensarling (R-TX), a supporter of the bipartisan effort, said the CFPB's rule is an example of how "unelected, unaccountable government bureaucracy hurts working people."

"Once again we see powerful Washington elites using the guise of 'consumer protection' to actually harm consumers and make life harder for lower and moderate income Americans who may need a short-term loan to keep their utilities from being cut off or to keep their car on the road so they can get to work," he said. "Americans should be able to choose the checking account they want, the mortgage they want and the short-term loan they want and no unelected Washington bureaucrat should be able to take that away from them."

[Rep Dennis Ross, a Florida Republican House co-sponsor]. said, "More than 1.2 million Floridians per year rely on Florida's carefully regulated small-dollar lending industry to make ends meet. The CFPB's small dollar lending rule isn't reasonable regulation -- it's a de facto ban on what these Floridians need. I and my colleagues in Congress cannot stand by while an unaccountable federal agency deprives our constituents of a lifeline in times of need, all while usurping state authority. Today, we are taking bipartisan action to stop this harmful bureaucratic overreach dead in its tracks."

As CNBC reports in New House bill would kill consumer watchdog payday loan rule , industry representatives continue to denounce the rule, with a straight face:

"The rule would leave millions of Americans in a real bind at exactly the time need a fast loan to cover an urgent expense," said Daniel Press, a policy analyst with the Competitive Enterprise Institute, in a statement after the bill's introduction.

Consumer advocates think otherwise (also from CNBC):

"Payday lenders put cash-strapped Americans in a crippling cycle of 300 percent-interest loan debt," Yana Miles, senior legislative counsel at the Center for Responsible Lending, said in a statement.

Prospects Under CRA

When I wrote about this topic in October, much commentary assumed that prospects for CRA overturn were weak. I emphasized instead the tactical error of failing to insulate the rule from CRA, which could have been done if the CFPB had pushed the rule through well before Trump took office:

If the payday rule had been promulgated in a timely manner during the previous administration it would not have been as vulnerable to a CRA challenge as it is now. Even if Republicans had then passed a CRA resolution of disapproval, a presidential veto would have stymied that. Trump is an enthusiastic proponent of deregulation, who has happily embraced the CRA– a procedure only used once before he became president to roll back a rule.

Now, the Equifax hack may have changed the political dynamics here and made it more difficult for Congressional Republicans– and finance-friendly Democratic fellow travellers– to use CRA procedures to overturn the payday lending rule.

The New York Times certainly seems to think prospects for a CRA challenge remote:

The odds of reversal are "very low," said Isaac Boltansky, the director of policy research at Compass Point Research & Trading.

"There is already C.R.A. fatigue on the Hill," Mr. Boltansky said, using an acronymn for the act, "and moderate Republicans are hesitant to be painted as anti-consumer.

I'm not so sure I would take either side of that bet. [Jerri-Lynn here: my subsequent emphasis.]

A more telling element than CRA-fatigue in my assessment of the rule's survival prospects was my judgment that Democrats wouldn't muster to defend the payday lending industry– although that assumption has not fully held, as this recent American Banker account makes clear:

After the payday rule was finalized in October , it was widely expected that Republicans would attempt to overturn it. It's notable, though, that the effort has attracted bipartisan support in the House.

.

Passage in the Senate, however, may be a much heavier lift. The chamber's vote to overturn the arbitration rule in late October came down to the wire, forcing Republicans to call in Vice President Mike Pence to cast the tie-breaking vote.

Bottom Line

I continue to think that this rule will survive– as the payday lending industry cannot count on a full court press lobbying effort by financial services interests. Yet as I wrote in October, I still hesitate to take either side of the bet on this issue.

Dpfaef , December 4, 2017 at 10:53 am

I think this whole article is totally disingenuous. There is a serious need for many Americans to have access to small amount, short term loans. While, these lenders may appear predatory, they do serve a large sector of society.

Maybe you need to read: The Unbanking of America: How the New Middle Class Survives by Lisa Servon . It might be worth the read.

GF , December 4, 2017 at 11:02 am

Where's the Post Office Bank when you need it. This overturning of the rule is just an effort to stop the Post Office Bank from gaining traction as the alternative non-predatory source of small loans to the people. Most pay day lender companies are owned by large financial players.

Jerri-Lynn Scofield Post author , December 4, 2017 at 11:11 am

I agree that's a far better approach and indeed, I discussed the Post Office bank in my October post– which is linked to in today's post. Permit me to quote from my earlier post:

The payday lending industry preys on the poorest financial consumers. One factor that has allowed it to flourish is current banking system's inability to provide access to basic financial services to a shocking number of Americans. Approximately 38 million households are un or underbanked– roughly 28% of the population.

Now, a sane and humane political system would long ago have responded with direct measures to address that core problem, such as a Post Office Bank (which Yves previously discussed in this post, Mirabile Dictu! Post Office Bank Concept Gets Big Boost and which have long existed in other countries.)

Regular readers are well aware of who benefits from the current US system, and why the lack of institutions that cater to the basic needs of financial consumers rather than focusing on extracting their pound(s) of flesh is not a bug, but a feature.

So, instead, the United States has a wide-ranging payday lending system. Which charges borrowers up to 400% interest rates for short-term loans, many of which are rolled over so that the borrower becomes a prisoner of the debt incurred.

Wisdom Seeker , December 4, 2017 at 3:23 pm

With phrasing like "unbanked" or "underbanked", I worry that you've bought into the banking-industry framing of this issue, which I'm sure is not your intent.

Ordinary people should not need any bank (not even a government or post office bank) for everyday life, with the possible exception of mortgages. De-financialization of the medium of exchange, and basic payments, is something the public should be fighting for.

lyman alpha blob , December 4, 2017 at 3:30 pm

I would consider myself an ordinary person and I pay in cash when purchasing day to day items the vast majority of the time and yet I'd still prefer to deposit my money in a bank rather than hiding it in my mattress for any number of good reasons.

Banks aren't the problem – their predatory executives are.

Wisdom Seeker , December 4, 2017 at 3:44 pm

But there are, or at least ought to be, safe and secure ways to store money other than by lending it to banks or stuffing it into mattresses. Or carrying wads of cash.

For instance, a debit card (or possibly cell phone) with a secure identity / password can already act as a cashless wallet. The digital cash could be stored directly on the device, and accounted for through something similar to TreasuryDirect, without any intermediaries. But this would require the Federal Government to get serious about having a modern Digital Dollar of some kind (not bitcoin, shudder)

Cary D Berkelhamer , December 4, 2017 at 4:32 pm

Even better would be State Banks. Every state should have one. I believe the State Bank of North Dakota made money in 2008. While the TBTF Banks came hat in hand to our Reps. Of course OUR Reps handed them a blank check and told them to "Make it go Away". However Post Office Banks would be GREAT!!

diptherio , December 4, 2017 at 11:08 am

This is the boilerplate argument that always gets brought up by payday loan defenders, and there is a good bit of truth to it. However, what you are not mentioning is that there are already far superior options available to pretty much any person who needs a small, short term loan. That solution is your friendly neighborhood Credit Union, most of which offer very low interest lines of overdraft coverage. I don't mind saying that it has saved my heiny on more than one occasion. Pay check a little late in arriving? No problem, transfer $200 from your overdraft account into your checking account on-line and you're good to go. Pay it back at your convenience, also on-line, at 7% APR.

Payday lenders are legal loansharks. The problems with their predatory lending model and the damage it does to low-income people are well documented. Simply pointing out that there is a reason that people end up at payday lenders is not a valid justification for the business practices of those lenders, especially when there are much better alternatives readily available.

Vatch , December 4, 2017 at 11:19 am

Payday lenders are legal loansharks.

Very true! There are several web sites that point out how the fees associated with payday loans raise the effective annual percentage rate into the stratosphere, ranging from 300% to over 600%. Here's one:

http://paydayloansonlineresource.org/average-interest-rates-for-payday-loans/

Off The Street , December 4, 2017 at 12:10 pm

One frustration that I have with legislation in general, and finance legislation in particular, is that it does not tell the truth, the whole truth and nothing but the truth.

In my Panglossian world, I envision a financial services bill that lays out the following:

Define the problem
Unserviced people: X percent( for discussion, say 10% to make the math easy) of people are un-serviced (or under-, or rapaciously-serviced) by conventional financial companies, whether banks, credit unions or other, whatever other is conventionally.
Unserviced and don't want: Y percent of that X percent (say, 50% of 10%, so 5%) doesn't want services.
Unserviced and want: 1-Y percent of that X percent (say, 50% of 10%, so 5%) wants services but can not get them. That could be due to various factors, ranging from bad credit (how defined?, say FICO < 600?) to geographic remoteness (no branches within miles, no internet, precious little slow mail service, whatever).

Within that deemed unserved 5% of the population, what are the costs to serve and what are the alternatives?

What would an honest service provider need to provide service, accounting for credit risks and the like, and still make a profit sufficient to induce investment?

If I knew how to make and add a nice graphic, I'd include a waterfall chart here to show the costs and components of the interest and fees paid in regular and default mode. Sorry, please bear with me as I make up numbers.

Regular costs
Interest at 30%
Less: cost of funds at, say, 10%
Less: personnel, overhead, everything else at, say, 5%
Pre-tax profit: 15%

Default mode costs:
Interest at 275%
Plus: Fees at 25%
Less: cost of funds 20%
Less: personnel, overhead, etc 5%
Less: added default cost not in personnel etc line, say 25%
Pre-tax profit: 250%

In that little example, who couldn't make money at those rates?

Extending the notion of APR and Truth-In-Lending to include payday lenders and anyone else without a brick-and-mortar branch who wants to do business in the US, how about mandating some type of honest waterfall chart as dreamt of above?

Then cross-reference and publicize the voting on finance legislation with the campaign contributions from payday people and their ilk, and layer in the borrower costs and credit scores and other metrics in those Congressional districts and zip+4 codes and census tracts and whatever other level of granularity will help provide any amount of disinfecting sunlight to help see the scattering cockroaches.

a different chris , December 4, 2017 at 12:57 pm

The problem I suspect is that your "friendly neighborhood credit union" is actually rarely anywhere near the neighborhoods where people who need these kind of loans live.

They don't have cars and mass transit is non-existent or so slow they couldn't get to the Credit Union during business hours, and back again, anyway. That's the problem with expecting Private Enterprise to be a solution for people at the bottom. They don't set up shop where those people live, or the ones that do are not exactly do-gooders.

lyle , December 4, 2017 at 7:33 pm

I just checked and a lot of credit unions let you apply for a loan online, (earlier you can set up membership online). So the issue of transport and time is lessened assuming folks have some form of net access.

JTMcPhee , December 4, 2017 at 1:04 pm

One might ask why there are millions of people reduced to having to get ripped off by payday and auto-title lenders, to somehow survive from week to week. Maybe because people can't make a living wage? Can't save any money, however prudent and abstemious they may be? Because inter-citizen cruelty and Calvinism are so very strong a force in this rump of an Empire?

Some of the comments here seem to build on the baseline assumption that's part of the liberal-neoliberal mantra, "You get what's coming to you (or the pittance we can't quite squeeze out of you yet)".

diptherio, I am guessing you may mean that there are models of better alternatives readily available, like paying a living wage, a social safety net for the worst off, a postal bank, national health care, stuff like that. I don't see that there are any alternatives actually available to most real people "on the ground."

Wukchumni , December 4, 2017 at 1:08 pm

There is an alternative to excessive payday loans, but only if you're in the military, where it's capped @ 36%.

Why not 36% for everybody?

diptherio , December 4, 2017 at 1:27 pm

You are, of course, correct in that the underlying problem is that so many people are forced to live on so little that they need payday loans in the first place. Thanks for pointing that out.

My point is simply that in the short-term, as a matter of practicality for those of us who don't always make it until payday before running out of money, a CU overdraft account is a very good option.

mpalomar , December 4, 2017 at 1:36 pm

Agree. The AB article from October deadpans a description of the ins and outs governing the hellishness of the company town we're living in.

lyman alpha blob , December 4, 2017 at 1:32 pm

This is a far superior option and thank you for bringing it up. The only problem is most banks and credit unions will not tell you it exists because they make a lot more money if you just keep bouncing checks.

I only learned about it when I worked for WAMU. We were tasked by management with promoting various new products to customers as a condition of being paid a monthly bonus which was the only thing that made the job pay enough to live on. Funny, they never asked us to promote the overdraft line of credit (aka an ODLOC), ever. I do remember one of my managers tell me that circa 2000 or so, WAMUs operating costs for the entire company for the entire year were offset just by the fees they collected off of bounced checks etc.

The fees or interest you pay for using an ODLOC are a small fraction of what you'd pay for bouncing just one check. IIRC, if I overdrew by $200 or so and paid it back on my next payday, the interest was generally less than $1. My local credit union has since added a $5 fee for accessing the ODLOC on top of the interest, but it's still much less than a bounced check fee or interest on a payday loan. I believe that depending on your credit history, you can get an ODLOC of up to $2500 or so which pretty much negates the need for any payday loans.

sd , December 4, 2017 at 11:14 am

A friend of mine was evicted from her apartment because of a payday loan. She failed to pay it off in full quick enough and it spiraled out of control tripling in a very short time. I really fail to see how usury is beneficial to society.

RepubAnon , December 4, 2017 at 11:55 am

Yes, there's a need for high-interest loans that bankrupt borrowers:

Mom-and-Pop Loan Sharks Being Driven Out by Big Credit Card Companies

Frank Pistone is part of the dying breed known as the American Loan Shark. Not so long ago, the loan shark flourished, offering short-term, high-interest loans to desperate people with nowhere else to turn. Today, however, Pistone and countless others like him are being squeezed out by the major credit-card companies, which can offer money to the down-and-out at lower rates of interest and without the threat of bodily harm

FluffytheObeseCat , December 4, 2017 at 12:25 pm

I read Servon's book. It is not a brief on behalf of the payday loan industry. She worked at a couple of payday lenders and explains how they serve the communities they're in, but a few things need to be noted:

The business she was most sympathetic with was a small, local one with only a couple of storefronts, in an east coast inner city. The owner and his help knew the customer base, often by name. Much of her sympathy came from her respect for the women who were dishing out the loans at the windows, not the owners and not the business model. This local joint operated like the most benign of old time pawnbroker/loansharking operation from the early part of the last century.

Most "Cash America" storefront shops (on shabby, midcentury shopping strips in inner ring scuburbs across the US) aren't this decent. They aren't "part of a community" in any sense. And the rates are usurious any way, for all of them.

Thank you to Ms. Scofield for continuing to cover this and related businesses. The upper, cleaner part of our finance industry derives more filthy lucre from these kinds of loan shops than they ever want you to know (sub-prime lending shops, title loans shops . there are a lot of modalities for fleecing the poor and the near-poor nowadays).

JTMcPhee , December 4, 2017 at 12:35 pm

The NC staff must be pleased that it seems like so many subtle apologists for the looters, predators, "intelligence community," and so forth, appear to be turning up here early in the opening of new site posts. I'm guessing the Elite are not exactly quaking in fear that NC's reporting will catalyze some change that might sweep the political economy in the direction of what the mopery would categorize as "fairness," but still

ger , December 4, 2017 at 12:42 pm

Raised the dollar definition of middle class and declared a 'new middle class' or could it be 'new middle class' is actually referring to the 'new middle poor'. The former middle class is desperately trying to avoid a plunge into the pits of the 'poor poor'. Payday Loan predators are greasing the handrails.

Matthew Cunningham-Cook , December 4, 2017 at 3:15 pm

"Where will the money-changers change money if not in the Holy Temple? Aren't we starving the priests of much-needed revenue? This Jesus guy is totally disingenuous."

John , December 4, 2017 at 9:32 pm

In good neo liberal fashion that Jesus dude got exactly what he deserved. The effrontry of that guy to chase those hard working money lenders out of the temple square. Got exactly what was coming to him.

sd , December 4, 2017 at 11:11 am

H.J.Res.122 – Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Bureau of Consumer Financial Protection relating to "Payday, Vehicle Title, and Certain High-Cost Installment Loans".

December 1, 2017

Sponsor Rep. Ross, Dennis A. [R-FL-15] (Introduced 12/01/2017)
Rep. Hastings, Alcee L. [D-FL-20]
Rep. Graves, Tom [R-GA-14]
Rep. Cuellar, Henry [D-TX-28]
Rep. Stivers, Steve [R-OH-15]
Rep. Peterson, Collin C. [D-MN-7]

perpetualWAR , December 4, 2017 at 12:21 pm

Ahhh ..look at this list. TWO Florida lawbreakers introducing this banker bill. And one from Minnesota. Y'all know that Jacksonville, FL and St. Paul, MN are the two places where the forgeries continue to be provided to the financial crooks? So, it goes to figure that the lawbreakers are attempting to protect the financial crooks committing forgery in their prospective states! How appro.

jawbone , December 4, 2017 at 1:44 pm

If any of these House critters are "representing" you, time for lots of calls to them.

And thanks, SD, for listing them. I always wonder why our vaunted free press so seldom lists the sponsors of legislation when it's reported on . Hhmm .
m .

Mike R. , December 4, 2017 at 1:19 pm

I have mixed feelings about this specific issue.
The larger issue of a grossly skewed economic system is what needs to be fixed.
There will always be people that lack common sense and brains regarding money. There will always be people that will take advantage of that.
I don't know how or why you would try and legislate that away.
We need to move in the direction of solving the biggest problems and not get wrapped up in the little problems.
The numbers above sound horrendous, but 7 billion in profit on 46 billion loaned is 14% return. Credit card companies are worse. 7 billion in profit off of 12 million people is $600 per person. Alot for poor folks I recognize, but not necessarily life shattering for all.

The "system" loves to wrangle around with issues like this (trivial in my mind) so the handful of big ones go unattended.

nonclassical , December 4, 2017 at 1:46 pm

some have apparently not felt it necessary to bail out family members for aggressive, egregious and immediate interest rates and escalations charged by these scammers

but there certainly appears concerted effort by (likely) shills to perpetuate scams (and to discredit Consumer Financial Protection Agency and Liz Warren )

Warren-Sanders 2020

Wisdom Seeker , December 4, 2017 at 3:37 pm

I think there's an error in the original article, where it says:

CRA's procedures to overturn legislation had been invoked, successfully, only once before Trump became president. Congressional Republicans and Trump have used CRA procedures multiple times to kill regulations (emphasis added)

My understanding is that CRA gives Congress the power to overturn executive branch regulations , not legislation (which Congress already can overturn anyway). Is that incorrect?

P.S. It's sad that it might not even matter. Nowadays the public can't tell the difference between regulations (written by unaccountable, unelected officials who take the revolving door back to working at the firms they regulated) and legislation (written by unaccountable, only notionally elected politicians who get paid off in various ways by lobbyists for the same firms)

Jerri-Lynn Scofield Post author , December 4, 2017 at 8:07 pm

You're correct– fixed it! Slip of the fingers there that I didn't catch when I proofread the post. As the rest of the paragraph makes clear, CRA procedures are used to overturn regulations.

Thanks for reading my work so carefully and drawing the error to my attention.

John k , December 4, 2017 at 8:26 pm

Finally bipartisan!
Trump loves it
Obomber woulda loved it
She who cannot be named woulda loved it, too.
Time for them all to get over that little spat she did it before trump should appoint her to something useful I bet she'd love secdef

Taras 77 , December 4, 2017 at 10:40 pm

Where is the lovely Debbie Wasserman schultz in all of this? She has not surprisingly been a leading cheerleader for these pay day lender sharks. but hey, what the hey, the lobby money is good!

[Dec 05, 2017] Inside Casino Capitalism by Max Holland

Notable quotes:
"... Barbarians at the Gate: The Fall of RJR Nabisco ..."
"... The Wall Street Journal ..."
"... The triumph of gossip over substance is manifest in many other ways. Wall Street's deft manipulation of the business press is barely touched upon, and the laissez-faire ..."
"... Fulminations about the socially corrosive effects of greed aside, the buyout phenomenon may represent one of the biggest changes in the way American business is conducted since the rise of the public corporation, nothing less than a transformation of managerial into financial capitalism. The ferocious market for corporate control that emerged during the 1980s has few parallels in business history, but there are two: the trusts that formed early in this century and the conglomerate mania that swept corporate America during the 1960s. Both waves resulted in large social and economic costs, and there is little assurance that the corporate infatuation with debt will not exact a similarly heavy toll. ..."
"... the high levels of debt associated with buyouts and other forms of corporate restructuring create fragility in business structures and vulnerability to economic cycles ..."
"... Germany and Japan incur higher levels of debt for expansion and investment, whereas equivalent American indebtedness is linked to the recent market for corporate control. That creates a brittle structure, one that threatens to turn the U.S. government into something of an ultimate guarantor if and when things do fall about. It is too easy to construct a scenario in which corporate indebtedness forces the federal government into the business of business. The savings-and-loan bailout is a painfully obvious harbinger of such a development. ..."
"... The many ramifications of the buyout mania deserve thoughtful treatment. Basic issues of corporate governance and accountability ought to be openly debated and resolved if the American economy is to deliver the maximum benefit to society and not just unconscionable rewards to a handful of bankers, all out of proportion to their social productivity. It is disappointing, but a sign of the times, that the best book about the deal of deals fails to educate as well as it entertains. ..."
Washington DeCoded

Inside Casino Capitalism Barbarians at the Gate: The Fall of RJR Nabisco
By Bryan Burrough and John Helyar
Harper & Row. 528 pp. $22.95

In 1898, Adolphus Green, chairman of the National Biscuit Company, found himself faced with the task of choosing a trademark for his newly formed baking concern. Green was a progressive businessman. He refused to employ child labor, even though it was then a common practice, and he offered his bakery employees the option to buy stock at a discount. Green therefore thought that his trademark should symbolize Nabisco's fundamental business values, "not merely to make dividends for the stockholders of his company, but to enhance the general prosperity and the moral sentiment of the United States." Eventually he decided that a cross with two bars and an oval – a medieval symbol representing the triumph of the moral and spiritual over the base and material – should grace the package of every Nabisco product.

If they had wracked their brains for months, Bryan Burrough and John Helyar could not have come up with a more ironic metaphor for their book. The fall of Nabisco, and its corporate partner R.J. Reynolds, is nothing less than the exact opposite of Green's business credo, a compelling tale of corporate and Wall Street greed featuring RJR Nabisco officers who first steal shareholders blind and then justify their epic displays of avarice by claiming to maximize shareholder value.

The event which made the RJR Nabisco story worth telling was the 1988 leveraged buyout (LBO) of the mammoth tobacco and food conglomerate, then the 19th-largest industrial corporation in America. Battles for corporate control were common during the loosely regulated 1980s, and the LBO was just one method for capturing the equity of a corporation. (In a typical LBO, a small group of top management and investment bankers put 10 percent down and finance the rest of their purchase through high-interest loans or bonds. If the leveraged, privately-owned corporation survives, the investors, which they can re-sell public shares, reach the so-called "pot of gold"; but if the corporation cannot service its debt, everything is at risk, because the collateral is the corporation itself.

The sheer size of RJR Nabisco and the furious bidding war that erupted guaranteed unusual public scrutiny of this particular piece of financial engineering. F. Ross Johnson, the conglomerate's flamboyant, free-spending CEO (RJR had its own corporate airline), put his own company into play with a $75-a-share bid in October. Experienced buyout artists on Wall Street, however, immediately realized that Johnson was trying to play two incompatible games. LBOs typically put corporations such as RJR Nabisco through a ringer in order to pay the mammoth debt incurred after a buyout. But Johnson, desiring to keep corporate perquisites intact, "low-balled" his offer. Other buyout investors stepped forward with competing bids, and after a six-week-long auction the buyout boutique of Kohlberg, Kravis, Roberts & Company (KKR) emerged on top with a $109-a-share bid. The $25-billion buyout took its place as one of the defining business events of the 1980s

Burrough and Helyar, who covered the story for The Wall Street Journal, supply a breezy, colorful, blow-by-blow account of the "deal from hell" (as one businessman characterized a leveraged buyout). The language of Wall Street, full of incongruous "Rambo" jargon from the Vietnam War, is itself arresting. Buyout artists, who presumably never came within 10,000 miles of wartime Saigon, talk about "napalming" corporate perquisites or liken their strategy to "charging through the rice paddies, not stopping for anything and taking no prisoners."

At the time, F. Ross Johnson was widely pilloried in the press as the embodiment of excess; his conflict of interest was obvious. Yet Burrough and Helyar show that Johnson, for all his free-spending ways, was way over his head in the major leagues of greed, otherwise known as Wall Street in the 1980s. What, after all, is more rapacious: the roughly $100 million Johnson stood to gain if his deal worked out over five years, or the $45 million in expenses KKR demanded for waiting 60 minutes while Ross Johnson prepared a final competing bid?

Barbarians is, in the parlance of the publishing world, a good read. At the same time, unfortunately, a disclaimer issued by the authors proves only too true. Anyone looking for a definitive judgment of LBOs will be disappointed. Burrough and Helyar do at least ask the pertinent question: What does all this activity have to do with building and sustaining a business? But authors should not only pose questions; they should answer them, or at least try.

Admittedly, the single most important answer to the RJR puzzle could not be provided by Burrough and Helyar because it is not yet known. The major test of any financial engineering is its effect on the long-term vitality of the leveraged corporation, as measured by such key indicators as market share (and not just whether the corporation survives its debt, as the authors imply). However, a highly-leveraged RJR Nabisco is already selling off numerous profitable parts of its business because they are no longer a "strategic fit": Wall Street code signifying a need for cash in order to service debts and avoid bankruptcy.

If the authors were unable to predict the ultimate outcome, they still had a rare opportunity to explain how and why an LBO is engineered. Unfortunately, their fixation on re-creating events and dialogue – which admittedly produces a fast-moving book – forced them to accept the issues as defined by the participants themselves. There is no other way to explain the book's uncritical stance. When, for example, the RJR Nabisco board of directors tried to decide which bid to accept, Burrough and Helyar report that several directors sided with KKR's offer because the LBO boutique "knew the value of keeping [employees] happy." It is impossible to tell from the book whether the directors knew this to be true or took KKR's word. Even a cursory investigation would have revealed that KKR is notorious for showing no concern for employees below senior management after a leveraged buyout.

The triumph of gossip over substance is manifest in many other ways. Wall Street's deft manipulation of the business press is barely touched upon, and the laissez-faire environment procured by buyout artists via their political contributions is scarcely mentioned, crucial though it is. Nowhere are the authors' priorities more obvious than in the number of words devoted to Henry Kravis's conspicuous consumption compared to those devoted to the details of the RJR deal. In testimony before Congress last year, no less an authority than Treasury Secretary Nicholas Brady – himself an old Wall Street hand – noted that the substitution of tax-deductible debt for taxable income is "the mill in which the grist of takeover premiums is ground."

In the case of RJR Nabisco, 81 percent of the $9.9 billion premium paid to shareholders was derived from tax breaks achievable after the buyout. This singularly important fact cannot be found in the book, however; nor will a reader learn that after the buyout the U.S. Treasury was obligated to refund RJR as much as $1 billion because of its post-buyout debt burden. In Barbarians, more time is spent describing Kravis's ostentatious gifts to his fashion-designer wife than to the tax considerations that make or break these deals.

Fulminations about the socially corrosive effects of greed aside, the buyout phenomenon may represent one of the biggest changes in the way American business is conducted since the rise of the public corporation, nothing less than a transformation of managerial into financial capitalism. The ferocious market for corporate control that emerged during the 1980s has few parallels in business history, but there are two: the trusts that formed early in this century and the conglomerate mania that swept corporate America during the 1960s. Both waves resulted in large social and economic costs, and there is little assurance that the corporate infatuation with debt will not exact a similarly heavy toll.

As the economist Henry Kaufman has written, the high levels of debt associated with buyouts and other forms of corporate restructuring create fragility in business structures and vulnerability to economic cycles. Inexorably, the shift away from equity invites the close, even intrusive involvement of institutional investors (banks, pension funds, and insurance companies) that provide the financing. Superficially, this moves America closer to the system that prevails in Germany and Japan, where historically the relationship between the suppliers and users of capital is close. But Germany and Japan incur higher levels of debt for expansion and investment, whereas equivalent American indebtedness is linked to the recent market for corporate control. That creates a brittle structure, one that threatens to turn the U.S. government into something of an ultimate guarantor if and when things do fall about. It is too easy to construct a scenario in which corporate indebtedness forces the federal government into the business of business. The savings-and-loan bailout is a painfully obvious harbinger of such a development.

The many ramifications of the buyout mania deserve thoughtful treatment. Basic issues of corporate governance and accountability ought to be openly debated and resolved if the American economy is to deliver the maximum benefit to society and not just unconscionable rewards to a handful of bankers, all out of proportion to their social productivity. It is disappointing, but a sign of the times, that the best book about the deal of deals fails to educate as well as it entertains.

[Nov 29, 2017] Positive Feedback Loops, Financial Instability, The Blind Spot Of Policymakers

Highly recommended!
Notable quotes:
"... Primates with about exponentially increasing physical technologies continue to deliberately ignore and misunderstand themselves as much as is humanly possible, due to the history of warfare making and maintaining the currently existing political economy, whose maliciousness is manifesting through runaway vicious feedback loops, whereby the excessively successful control of Civilization through applications of the methods of organized crime are resulting in that Civilization manifesting runaway criminal insanities. Indeed, in that context, where there is almost nothing but the central core of triumphant organized crime, namely bankster dominated governments, surrounded by various layers of controlled "opposition" groups, which stay within the same bullshit-based frames of reference regarding those phenomena, the overall situation is that society becoming about exponentially sicker and insane. ..."
"... In general, "Asset Managers" are stuck inside taking for granted that everything they do has become almost totally based on being able to enforce frauds, despite some of them noticing the increasingly blatant ways that there are accumulating apparent anomalies in those systems, as vicious feedback loops drive those systems to become about exponentially more fraudulent, and therefore increasingly unbalanced. To come to better terms with those apparent anomalies requires going through series of intellectual scientific revolutions and profound paradigm shifts, which overall become ways that human beings better understand themselves as manifestations of general energy systems. However, since doing so requires recognizing how and why governments are necessarily the biggest forms of organized crime, dominated by the best organized gangsters, the banksters, it continues to be politically impossible to accomplish that. ..."
"... At each open, algos compute the increase in their AUM from the prior day and their margin reach. They then begin buying. All algos do this. Buying whenever cash/margin exists; selling whenever profit targets exist. On pullbacks, the algos withdraw, volume evaporates, minimizing the drop. The algos collectively increase equity prices without consideration of the value of the money involved. Not valuations. No fundamentals. Just ones and zeroes. Just a program. ..."
Nov 22, 2017 | www.zerohedge.com

Macro-prudential regulations follow financial crises, rarely do they precede one. Even when evidence is abundant of systemic risks building up, as is today, regulators and policymakers have a marked tendency to turn an institutional blind eye, hoping for imbalances to fizzle out on their own – at least beyond the duration of their mandates. It does not work differently in economics than it does for politics, where short-termism drives the agenda, oftentimes at the expenses of either the next government, the broader population or the next generation.

It does not work differently in the business world either, where corporate actions are selected based on the immediate gratification of shareholders, which means pleasing them at the next round of earnings, often at the expenses of long-term planning and at times exposing the company itself to disruption threats from up-and-comers.

Long-term vision does not pay; it barely shows up in the incentive schemes laid out for most professions . Economics is no exception. Orthodoxy and stillness preserve the status quo, and the advantages hard earned by the few who rose from the ranks of the establishment beforehand.

Yet, when it comes to Central Banking, and more in general policymaking, financial stability should top the priority list. It honorably shows up in the utility function, together with price stability and employment, but is not pursued nearly as actively as them. Central planning and interventionism is no anathema when it comes to target the decimals of unemployment or consumer prices, yet is residual when it comes to master systemic risks, relegated to the camp of ex-post macro-prudential regulation. This is all the more surprising as we know all too well how badly a deep unsettlement of financial markets can reverberate across the real economy, possibly leading into recessions, unemployment, un-anchoring of inflation expectations and durable disruption to consumer patterns. There is no shortage of reminders for that in the history books, looking at the fallout of dee dives in markets in 1929, 2000 and 2007, amongst others.

Intriguingly, the other way round is accepted and even theorized. Manipulating bond and stock prices, directly or indirectly, is mainstream policy theory today. From Ben Bernanke's 'portfolio balance channel theory', to the relentless pursuit of the 'wealth effect' via financial repression under Janet Yellen and Haruhiko Kuroda, to Mario Draghi tackling the fragmentation of credit markets across the EU via direct asset purchases, the practice has become commonplace. To some, like us, the 'wealth effect' may be proving to be more of an 'inequality effect' than much, leading to populism and constantly threatening regime change, but that is beyond the scope of this note today.

What we want to focus on instead is the direct impact that monetary interventionism like Quantitative Easing ('QE') and Negative or Zero Interest Rate Policies ('NIRP' or 'ZIRP') have on the structure of the market itself, how they help create a one-sided investment community, oftentimes long-only, fully invested when not levered up, relying on record-highs for bonds and stocks to perpetuate themselves endlessly - despite a striking disconnect from fundamentals, life-dependent on the lowest levels of volatility ever seen in history . The market structure morphed under the eyes of policymakers over the last few years, to become a pressure cooker at risk of blowing-up, with a small but steadily growing probability as times goes by and the bubble inflates. The positive feedback loops between monetary flooding and the private investment community are culpable for transforming an ever present market risk into a systemic risk, and for masking as peaceful what is instead an unstable equilibrium and market fragility.

Positive Feedback Loops create divergence from general equilibrium, and Systemic Risks

Positive feedback loops , in finance like in biology, chemistry, cybernetics, breed system instability, as they orchestrate a further divergence from equilibrium . An unstable equilibrium is defined as one where a small disturbance is sufficient to trigger a large adjustment.

QE and NIRP have two predominant effects on markets: (i) relentless up-trend in stocks and bonds (the 'Trend Factor') , dominated by the buy-the-dip mentality, which encapsulates the 'moral hazard' of investors knowing Central Banks are prompt to come to their rescue (otherwise known as 'Bernanke/Yellen/Kuroda/Draghi put'), and (ii) the relentless down-trend in volatility the 'Volatility Factor').

Two Factors Explain All: Trend and Volatility

The most fashionable investment strategies these days are directly impacted by either one or both of these drivers. Such strategies make the bulk of the overall market, after leverage or turnover is taken into account : we will refer to them in the following as 'passive' or 'quasi-passive' . The trend impacts the long-only community, crowning it as a sure winner, making the case for low- cost passive investing. The low volatility permeates everything else, making the case for full- investment and leverage.

The vast majority of investors these days are not independent from the QE environment they operate within : ETFs and index funds, Risk Parity funds and Target Volatility vehicles, Low Volatility / Short Volatility vehicles, trend-chasing algos, Machine Learning-inspired funds, behavioral Alternative Risk Premia funds. They are the poster children of the QE world. We estimate combined assets under management of in excess of $8trn across the spectrum. They form a broad category of 'passive' or 'quasi-passive' investors, as are being mechanically driven by two main factors: trend and volatility.

Source: Fasanara Presentations | Market Fragility - How to Position for Twin Bubbles Bust, 16 th October 2017. The slide is described in details in this video recording.

Extraordinary monetary policies have feedback loops with the asset management industry as a whole, reinforcing the effects on markets of such policies in a vicious – or virtuous - cycle . QE and NIRP help a large number of investment strategies to flourish, validating their success and supporting their asset gathering in the process, and are in return helped in boosting bond and stock markets by their flows joining the already monumental public flows.

Private flows so reach singularity with public flows, and the whole market economy morphs into a one big common bet on ever-rising prices, in shallow volatility. Here is the story of how $15trn of money printing by major Central Banks in the last ten years, of which $3.7trn in 2017 alone, is joined by total assets of $8trn managed into buying the same safe and risk assets across, with leverage, indiscriminately.

How Market Risk became Systemic Risk

Let's give a cursory look at the main players involved (a recent presentation we did is recorded here) . As markets trend higher, no matter what happens (ever against the shocked disbeliefs of Brexit, Trump, an Italian failed referendum and nuclear threats in North Korea), investors understand the outperformance that comes from pricing risks out of their portfolios entirely and going long-only and fully-invested. Whoever under-weighs positions in an attempt to be prudent ends up underperforming its benchmarks and is then penalized with redemptions. Passive investors who are long-only and fully invested are the winners, as they are designed to be bold and insensitive to risks. As Central Banks policies reduce the level of interest rates to zero or whereabouts, fees become ever more relevant, making the case for passive investing most compelling. The rise of ETF and passive index funds is then inevitable.

According to JP Morgan, in the last 10 years, $2trn left active managers in equities and $2trn entered passive managers (pag.39 here) . We may be excused for thinking they are the same $ 2trn of underlying investors progressively pricing risk provisions out of books, de facto , while chasing outperformance and lower fees.

To be sure, ETFs are a great financial innovation, helping reducing costs in an expensive industry and giving entry to markets previously un-accessible to most investors. Yet, what matters here is their impact on systemic risks, via positive feedback loops. In circular reference, beyond Central Banks flows, markets are helped rise by such classes of valuations-insensitive passive investors, which are then rewarded with further inflows, with which they can then buy more. The more expensive valuations get, the more they disconnect from fundamentals, the more divergence from equilibrium occurs, the larger fat-tail risks become.

In ever-rising markets, 'buy-and-hold' strategies may only possibly be outsmarted by 'buy-the-dip' strategies. Whatever the outcome of risk events, be ready to buy the dip quickly and blindly. As more investors design themselves up to do so, the dips are shallower over time, leading to an S&P500 that never lost 3% in 2017, an historical milestone. Machine learning is another beautiful market innovation, but what is there to learn from the time series of the last several years, if not that buy- the-dip works, irrespective of what caused the dip. Big Data is yet another great concept, shaping the future of us all. Yet, most data ever generated in humankind dates back three years only, in and by itself a striking limitation. The quality of the deduction cannot exceed the quality of the time series upon which the data science was applied. If the time series is untrustworthy, as is heavily influenced by monumental public flows ($300bn per months), what trust can we put on any model output originating from it? What pattern recognition can we really be hopeful of getting, in the first place? May some of it just be a commercial disguise for going long, selling volatility and leveraging up in various shapes or forms? What is hype and what is real? A short and compromised data series makes it hard, if not possible, to really know. Once public flows abate and price discovery is let free again, then and only then will we be in a position to know the difference.

Low volatility does what trending markets alone cannot. A state of low volatility presents the appearance of stuporous, innocuous, narcotized markets, thus enticing new swathes of unfitting investors in, mostly retail-type 'weak hands'. Weak hands are investors who are brought to like investments by certain characteristics which are uncommon to the specific investment itself, such as featuring a low volatility. It is in this form that we see bond-like investors looking at the stock market for yield pick-up purposes, magnetized by levels of realized volatility similar to what fixed income used to provide with during the Great Moderation. It is in this form that Tech companies out of the US have started filling the coffers of not just Growth ETF, where they should rightfully reside, but also Momentum ETF, and even, incredibly, Low-Volatility ETF.

Low volatility is also a dominant input for Risk Parity funds and Target Volatility vehicles . The lower the volatility, the higher the leverage allowed in such players, mechanically. All of which are long-only players, joining public flows, again helping the market rise to record levels in the process, in circular reference. Rewarded by new inflows, the buying spree gathers momentum, in a virtuous circle. Valuations are no real input in the process, volatility is what matters the most. Volatility is not risk, except for them it is.

It goes further than that. It is not only the level of volatility that count, but its direction too . As volatility implodes, relentlessly, into historical lows never seen before in history, a plethora of investment strategies is launched to capitalize on just that, directly: Short Volatility vehicles . They are the best performing strategy of the last decade, by and large. The problem here is that, due to construction, as volatility got to single-digit territory, relatively small spikes are now enough to trigger wipe-out events on several of these instruments. Our analysis shows that if equity volatility doubles up from current levels (while still being half of what it was as recently as in August 2015), certain Short Vol ETFs may stand to lose up to 75% or more. Moreover, short positions on long-vol ETFs can lose up to 250% of capital. For some, 'termination events' are built into contracts for sudden losses of this magnitude, meaning that the notes would be prematurely withdrawn. It is one thing to expect a spike in volatility to cause losses, it is quite another to know that a minor move is all it takes to trigger a default event.

On such spikes in volatility, Morgan Stanley Quant Derivatives Strategy desk warns further that market makers may be forced to rebalance their exposure non-linearly on a spike in volatility. A drop in the S&P 500 of 5% in one day may trigger approximately $ 400mn of Vega notional of rebalancing (pag.48 here) . We estimate that half a trillion dollars of additional selling on S&P stocks may occur following a correction of between 5% and 10%. That is a lot of selling, pre-set in markets, waiting to strike. Unless you expect the market to not have another 5% sell-off, ever again.

For more details, we describe the role of these different players in a recent video presentation and in our June Investment Outlook and May Investment Outlook.

It's All One Big Position

What do ETFs, Risk Parity and Target Vol vehicles, Low Vol / Short Vol vehicles, trend-chasing algos, Machine Learning, behavioral Alternative Risk Premia, factor investing have in common? Except, of course, being the 'winners take all' of QE-driven markets. They all share one or more of the following risk factors: long-only, fully invested when not leveraged-up, short volatility, short correlation, short gamma Thanks to QE and NIRP, the whole market is becoming one single big position.

The 'Trend Factor' and the 'Volatility Factor' are over-whelming, making it inevitable for a high- beta, long-bias, short-vol proxy to disseminate across. Almost inescapably so, given the time series the asset management industry has to deal with, and derive its signals from.

Several classes of investors may move to sell in lock-steps if and when markets turn. The boost to asset prices and the zero-volatility environment created the conditions for systemic risks in the form of an over-compensation to the downside. Record-low volatility breeds market fragility, it precedes system instability.

Flows Matter, Both Ways!

We will know soon if the fragility of markets is that bad. The undoing of loose monetary policies (NIRP, ZIRP) will create a liquidity withdrawal of over $1 trillion in 2018 alone (pag.61-62 here) . The reaction of the passive and quasi-passive communities will determine the speed of the adjustment in the pricing for both safe and risk assets, and how quickly risk provisions will re- enter portfolios. Such liquidity withdrawal will represent the first real crash-test for markets in 10 years.

As public spending on Wall Street abates, the risk is evident of seeing the whole market turning with it. The shocks of Trump and Brexit did not manage to derail markets for long, as public flows were overwhelming. Flows is what mattered, above all elusive, over-fitting economic narratives justifying price action at the margin. Flows may matter again now as they fade

Systemic Risk is Not Just About Banks: Look at Funds

The role of trending markets is known when it comes to systemic risks: a not sufficient but necessary condition. Most trends do not necessarily lead to systemic risks, but hardly systemic risks ever build up without a prolonged period of uptrend beforehand. Prolonged uptrends in any asset class hold the potential to instill the perception that such asset class will grow forever, irrespective of the fundamentals, and may thus lead to excessive risk taking, excess leverage, the formation of a bubble and, ultimately, systemic risks. The mind goes to the asset class of real estate, its undeterred uptrend into 2006/2007, its perception of perpetuity ("we have never had a decline in house prices on a nationwide basis'' Ben Bernanke) , the credit bubble built on banks hazardous activities on subprime mortgages as a result, and the systemic risks which emanated, with damages spanning well beyond the borders of real estate.

The role of volatility is also well-researched, especially low volatility. Hayman Minsky, in his " Financial Instability Hypothesis '' in 1977, analyses the behavioral changes induced by a reduction of volatility, postulating that economic agents observing a low risk are induced to increase risk taking, which may in turn lead to a crisis: "stability is destabilizing". In a recent study, Jon Danielsson, Director of the Systemic Risk Centre at the LSE, finds unambiguous support for the 'low volatility channel', insofar as prolonged periods of low volatility have a strong predictive power over the incidence of a banking crisis, owing to excess lending and excess leverage . The economic impact is the highest if the economy stays in the low volatility environment for five years : a 1% decrease in volatility below its trend translates in a 1.01% increase in the probability of a crisis. He also finds that, counter-intuitively, high volatility has little predictive power : very interesting, when the whole finance world at large is based on retrospective VAR metrics, and equivocates high volatility for high risk.

Both a persistent trend and prolonged low-volatility can lead banks to take excessive risks. But what about their impact on the asset management industry?

Thinking at the hard economic impact of the Great Depression (1929-1932) and the Great Recession (2007-2009), and the eminent role played by banks in both, it comes as little surprise that the banking sector captures all the attention. However, what remains to be looked into, and perhaps more worrying in today's environment, is the role of prolonged periods of uptrend and low-vol on the asset management industry

In 2014, the Financial Stability Board (FSB), an international body that makes recommendations to G20 nations on financial risks, published a consultation paper asking whether fund managers might need to be designated as " global systemically important financial institution " or G-SIFI, a step that would involve greater regulation and oversight. It did not result in much, as the industry lobbied in protest, emphasizing the difference between the levered balance sheet of a bank and the business of funds.

The reason for asking the question is evident: (i) sheer size , as the AM industry ballooned in the last few years, to now represent over [15trnXX] for just the top 5 US players!, (ii) funds have partially substituted banks in certain market-making activities, as banks dialed back their participation in response to tighter regulation and (iii) , funds can indeed do damage: think of LTCM in 1998, the fatal bailout of two Real Estate funds by Bear Stearns in 2007, the money market funds 'breaking the buck' in 2008 amongst others.

But it is not just sheer size that matters for asset managers. What may worry more is the positive feedback loops discussed above and the resulting concentration of bets in one single global pot , life-dependent on infinite momentum/trend and ever-falling volatility. Positive feedback loops are the link for the sheer size of the AM industry to become systemically relevant. Today more than ever, they morph market risks in systemic risks.

Volatility will not forever be low, the trend will not forever go: how bad a damage when it stops? As macro prudential policy is not the art of "whether or not it will happen" but of "what happens if", it is hard not to see this as a blind spot for policymakers nowadays.

ebworthen , Nov 22, 2017 10:55 AM

In other words, it's a Ponzi scheme.

Let it Go , Nov 22, 2017 11:49 AM

I have never seen it this bad, the numbers are all moutof wack!

It seems many of us are drawn to a good illusion and this proves true for most people in their daily life as well. In some ways, it could be said that our culture has become obsessed with avoiding what is real.

We must remember that politicians and those in power tend to throw people under the bus rather than rise up and take responsibility for the problems they create. The article below looks at how we have grown to believe things are fine.

http://The Allure Of Ilusions-Five Favorite Financial Myths.html

Batman11 , Nov 22, 2017 12:47 PM

The real estate boom features all the unknowns in today's thinking, which is why they are global.

This simple equation is unknown.

Disposable income = wages – (taxes + the cost of living)

You can immediately see how high housing costs have to be covered by wages; business pays the high housing costs for expensive housing adding to costs and reducing profits. The real estate boom raises costs to business and makes your nation uncompetitive in a globalised world.

The unproductive lending involved that leads to financial crises.

The UK:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png

The economy gets loaded up with unproductive lending as future spending power has been taken to inflate the value of the nation's housing stock. Housing is more expensive and the future has been impoverished.

US:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

Unproductive lending is not good for the economy and led directly to 1929 and 2008.

Neoliberalism's underlying economics, neoclassical economics, doesn't look at private debt and so no one really knew what they were doing.

The real estate boom feels good for a reason that is not known to today's thinkers.

Monetary theory has been regressing since 1856, when someone worked out how the system really worked.

Credit creation theory -> fractional reserve theory -> financial intermediation theory

"A lost century in economics: Three theories of banking and the conclusive evidence" Richard A. Werner

http://www.sciencedirect.com/science/article/pii/S1057521915001477

" banks make their profits by taking in deposits and lending the funds out at a higher rate of interest" Paul Krugman, 2015. He wouldn't know, that's financial intermediation theory.

Bank lending creates money, which pours into the economy fuelling the boom; it is this money creation that makes the housing boom feel so good in the general economy. It feels like there is lots of money about because there is.

The housing bust feels so bad because the opposite takes place, and money gets sucked out of the economy as the repayments overtake new lending. It feels like there isn't much money about because there isn't.

They were known unknowns, the people that knew weren't the policymakers to whom these things were unknown.

The global economy told policymakers there was something seriously wrong in 2008, but they ignored it, I didn't.

Batman11 -> Batman11 , Nov 22, 2017 12:51 PM

The most fundamental of all fundamentals was unknown.

The relationship between debt and money.

the money supply = all the debt in the system, public and private

http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg

M3 is going exponential before 2008, a credit bubble is underway (debt = money)

The FED and everyone else doesn't realise.

Batman11 -> Batman11 , Nov 22, 2017 1:25 PM

This is why austerity doesn't work in a balance sheet recession, e.g. Greece.

The IMF predicted Greek GDP would have recovered by 2015 with austerity.

By 2015 it was down 27% and still falling.

Oh dear.

Richard Koo had to explain the problem to the IMF.

https://www.youtube.com/watch?v=8YTyJzmiHGk

They had pushed Greece into debt deflation by cutting Government spending with austerity.

It wasn't just the IMF, the Troika all went along with this fatally flawed policy, this means the ECB and EU Commission also didn't know what they were doing.

Richard Koo had watched as Western "experts" told Japan to cut Government spending and seen the fall in GDP as the economy went downhill. The only way to get things going again was to increase Government spending and he has had decades to work out what was going on.

The Troika's bad economics has been wreaking havoc across the Club-Med.

Mark Blythe looks at the data.

https://www.youtube.com/watch?v=B6vV8_uQmxs&feature=em-subs_digest-vrecs

It comes out of knowledge that is missing from the mainstream.

Batman11 -> Batman11 , Nov 22, 2017 1:31 PM

Balancing the budget ............ be careful you might head into debt deflation.

If the private sector aren't borrowing the Government needs to borrow to keep the money supply stable.

You don't want to end up like Greece do you?

Radical Marijuana , Nov 22, 2017 3:15 PM

Another superficially correct analysis of "Positive Feedback Loops create divergence from general equilibrium, and Systemic Risks." The vicious feedback loops which have the most leverage are all aspects of the funding of the political processes, which have resulted in runaway systems of legalized lies, backed by legalized violence, the most important of which are the ways that the powers of public governments enforce frauds by private banks, the big corporations that have grown up around those big banks.

About exponentially advancing technologies have enabled enforced frauds to become about exponentially more fraudulent. The underlying drivers were the ways that the combined money/murder systems developed, whose social successfulness became more and more based on maximizing maliciousness. From a superficial point of view, those results may appear to be due to incompetence, however, from a deeper point of view those results make sense as due to the excessively successful applications of the methods of organized crime through the political processes, due to the vicious feedback loops of the funding of those political processes.

The only connections between human laws and natural laws are the abilities to back up lies with violence. Natural selection pressures have driven Globalized Neolithic Civilization to develop the most dishonest artificial selection systems possible, while the continuation of the various vicious feedback loops that made and maintained those developments are driving about exponentially increasing dishonesty. Although the laws of nature are not going to stop working, and the laws of nature underpinned the runaway development of excessively successful vicious feedback loops of organized crime, on larger and larger scales, to result in Globalized Neolithic Civilization, the overall results are that Civilization is becoming about exponentially more psychotic. Since Civilization necessarily operates according to the principles and methods of organized crime, while those who became the biggest and best organized forms of organized crime, namely, banker dominated governments, also necessarily became most dishonest about themselves, and yet, their bullshit social stories continue to dominate the public schools, and mainstream mass media, as well as the publicly significant controlled "opposition" groups.

Political economy is INSIDE human ecology, and therefore, the greatest systematic risks are to be found in the tragic trajectory of human ecologies which are almost totally buried under maximized maliciousness. "Public debates" about the human death control systems are based on previously having being as deceitful and treacherous as possible regarding those topics. The most extreme forms of that manifest as the ways that money is measurement backed by murder. Of course, that the debt controls are backed by the death controls are issues which are generally not publicly admitted nor addressed.

Global Neolithic Civilization has become almost totally based on being able to enforce frauds, in ways which have become about exponentially more fraudulent, as the vicious feedback loops which enable that to happen automatically reinforce themselves to get worse, faster. The almost total triumph of enforced frauds has resulted in social "realities" which are becoming exponentially more insane, since the social successfulness of enforced frauds requires the most people do not understand that, because they have been conditioned to not want to understand that. Rather, almost everyone takes for granted deliberately ignoring and misunderstanding the laws of nature in the most absurdly backward ways possible, because of the long history of successful warfare based on deceits and treacheries becoming the more recent history of successful finance based on enforcing frauds, despite that tragic trajectory of vicious feedback loops resulting in about exponentially increasing overall fraudulence.

Various superficially correct analyses, such as the one in the article above, are typical of the content on Zero Hedge , which does not come remotely close to recognizing the degree to which the dominate natural languages and philosophy of science have undergone series of compromises with the biggest bullies' bullshit-based world views, which became the banksters' bullshit about economics. Although it is theoretically possible for human beings to better understand themselves and Civilization, it continues to become more and more politically impossible to do so, due to the ever increasing vicious feedback loops of enforced frauds achieving symbolic robberies ...

Although the laws of nature are never going to stop working, it is barely possible to exaggerate the degree to which Civilization overall is becoming about exponentially more psychotic, due to the social "realities" based on successfully enforcing frauds becoming more and more out of touch with the surrounding, relatively objective, physical and biological facts. The various superficially correct analyses presented on Zero Hedge regarding that kind of runaway collective psychosis, driven by the vicious feedback loops of the funding of all aspects of the funding of the political processes, tend to always grossly understate the seriousness of that situation, especially including the crucial issues of how to operate the human murder systems after the development of weapons of mass destruction, which is unavoidable due to the rapid development of globalized electronic monkey money frauds, backed by the threat of force from apes with atomic weapons.

Those who believe that possessing precious metals, or cryptocurrencies, etc., are viable solutions to those problems are not remotely close to being in the right order of magnitude. Although there is no doubt that exponentially more "money" is being made out of nothing as debts, in order to "pay" for strip-mining the natural resources of a still relatively fresh planet, and so, there is no doubt that the exponentially decreasing value of that "money" is driving the accumulation of apparent anomalies, such as outlined in the article above, the actually crucial issues continue to be the ways that money is measurement backed by murder, as the most abstract ways that private property are claims backed by coercions. Stop-gap individual responses to the runaway fraudulence, such as faith in possessing precious metals or cryptocurrencies, make some relative sense in terms of the public "money" supplies becoming exponentially more fraudulent, but otherwise dismally fail to be in the ball park of the significant issues driven by prodigious progress in physical sciences, WITHOUT any genuine progress in political sciences, other than to continue to be able to better enforce bigger frauds, through the elaborations of oxymoronic scientific dictatorships, which adamantly refuse to become more genuinely scientific about themselves.

Primates with about exponentially increasing physical technologies continue to deliberately ignore and misunderstand themselves as much as is humanly possible, due to the history of warfare making and maintaining the currently existing political economy, whose maliciousness is manifesting through runaway vicious feedback loops, whereby the excessively successful control of Civilization through applications of the methods of organized crime are resulting in that Civilization manifesting runaway criminal insanities. Indeed, in that context, where there is almost nothing but the central core of triumphant organized crime, namely bankster dominated governments, surrounded by various layers of controlled "opposition" groups, which stay within the same bullshit-based frames of reference regarding those phenomena, the overall situation is that society becoming about exponentially sicker and insane.

That Civilization has been driven by natural selection pressures to manifest runaway psychoses is not going to stop the laws of nature from continuing to work through that Civilization. However, that will nevertheless drive the currently dominate artificial selection systems to become increasingly psychotic, in ways whereby their vicious feedback loops are less and less able to be sanely responded to ... Although some human beings have better and better understood some general energy systems, e.g., electric and atomic energy, etc., since warfare was the oldest and best developed forms of social science and engineering, whose successfulness was based on being able to maximize maliciousness, and since those then enabled successful finance to become based on runaway enforced frauds, human beings living within Globalized Neolithic Civilization are so hidebound by adapting to living inside those vicious feedback loops based on being able to enforce frauds that those human beings are mostly unwilling and unable to better understand themselves as also manifestations of general energy systems.

As the report, embedded in the article, begins by quoting Leonardo da Vinci:

"Learn how to see. Realize that everything connects to everything else."

In general, "Asset Managers" are stuck inside taking for granted that everything they do has become almost totally based on being able to enforce frauds, despite some of them noticing the increasingly blatant ways that there are accumulating apparent anomalies in those systems, as vicious feedback loops drive those systems to become about exponentially more fraudulent, and therefore increasingly unbalanced. To come to better terms with those apparent anomalies requires going through series of intellectual scientific revolutions and profound paradigm shifts, which overall become ways that human beings better understand themselves as manifestations of general energy systems. However, since doing so requires recognizing how and why governments are necessarily the biggest forms of organized crime, dominated by the best organized gangsters, the banksters, it continues to be politically impossible to accomplish that.

Muppet , Nov 22, 2017 7:03 PM

At each open, algos compute the increase in their AUM from the prior day and their margin reach. They then begin buying. All algos do this. Buying whenever cash/margin exists; selling whenever profit targets exist. On pullbacks, the algos withdraw, volume evaporates, minimizing the drop. The algos collectively increase equity prices without consideration of the value of the money involved. Not valuations. No fundamentals. Just ones and zeroes. Just a program.

[Nov 22, 2017] Unemployment is Miserable and Doesn't Spawn an Upsurge in Personal Creativity

Notable quotes:
"... By Bill Mitchell, Professor in Economics and Director of the Centre of Full Employment and Equity at the University of Newcastle, NSW, Australia. Originally published at billy blog ..."
"... The overwhelming importance of having a job for happiness is evident throughout the analysis, and holds across all of the world's regions. ..."
"... The pattern of human concerns ..."
"... The pattern of human concerns ..."
"... Journal of Happiness Studies ..."
"... The results show the differences between having a job and being unemployed are "very large indeed" on the three well-being measures (life evaluation, positive and negative affective states). ..."
"... Psychological Bulletin ..."
"... 1. "unemployment tends to make people more emotionally unstable than they were previous to unemployment". ..."
"... 2. The unemployed experience feelings of "personal threat"; "fear"; "sense of proportion is shattered"; loss of "common sense of values"; "prestige lost in own eyes and as he imagines, in the eyes of his fellow men"; "feelings of inferiority"; loss of "self-confidence" and a general loss of "morale". ..."
"... in the light of the structure of our society where the job one holds is the prime indicator of status and prestige. ..."
"... Psychological Bulletin ..."
"... Related studies found that the "unemployed become so apathetic that they rarely read anything". Other activities, such as attending movies etc were seen as being motivated by the need to "kill time" – "a minimal indication of the increased desire for such attendance". ..."
"... In spite of hopeless attempts the unemployed continually look for work, often going back again and again to their last place of work. Other writers reiterate this point. ..."
"... The non-pecuniary effects of not having a job are significant in terms of lost status, social alienation, abandonment of daily structure etc, and that has not changed much over history. ..."
"... I think what is missing from this article is the term "identity." If you meet new people, often the conversation starts with what you do for a living. Your identity, in part, is what you do. You can call yourself a plumber, a writer, a banker, a consultant, a reporter but the point is this is part of your identity. When you lose your job long term, your identity here loses one of its main anchor points. ..."
"... This is a crucial point that UBI advocates often ignore. There is a deeply entrenched cultural bias towards associating our work status with our general status and prestige and feelings of these standings. ..."
"... When unemployed, the stress of worry about money may suppress the creative juices. Speaking from experience. People may well 'keep looking for jobs' because they know ultimately they need a job with steady income. The great experience of some freelancers notwithstanding, not all are cut out for it. ..."
"... When considering the world's population as a whole, people with a job evaluate the quality of their lives much more favorably than those who are unemployed. ..."
"... Data like that provided by Mitchell is important to demolishing the horrid "economic anxiety" frame much beloved by liberals, especially wonkish Democrats.* It's not (a) just feelings , to be solved by scented candles or training (the liberal version of rugged individualism) and (b) the effects are real and measurable. It's not surprising, when you think about it, that the working class is about work . ..."
Nov 22, 2017 | www.nakedcapitalism.com

Posted on November 21, 2017 by Yves Smith Yves here. Reader UserFriendly sent this post with the message, "I can confirm this." I can too. And before you try to attribute our reactions to being Americans, note that the study very clearly points out that its finding have been confirmed in "all of the world's regions".

By Bill Mitchell, Professor in Economics and Director of the Centre of Full Employment and Equity at the University of Newcastle, NSW, Australia. Originally published at billy blog

Here is a summary of another interesting study I read last week (published March 30, 2017) – Happiness at Work – from academic researchers Jan‐Emmanuel De Neve and George Ward. It explores the relationship between happiness and labour force status, including whether an individual is employed or not and the types of jobs they are doing. The results reinforce a long literature, which emphatically concludes that people are devastated when they lose their jobs and do not adapt to unemployment as its duration increases. The unemployed are miserable and remain so even as they become entrenched in long-term unemployment. Further, they do not seem to sense (or exploit) a freedom to release some inner sense of creativity and purpose. The overwhelming proportion continually seek work – and relate their social status and life happiness to gaining a job, rather than living without a job on income support. The overwhelming conclusion is that "work makes up such an important part of our lives" and that result is robust across different countries and cultures. Being employed leads to much higher evaluations of the quality of life relative to being unemployed. And, nothing much has changed in this regard over the last 80 or so years. These results were well-known in the 1930s, for example. They have a strong bearing on the debate between income guarantees versus employment guarantees. The UBI proponents have produced no robust literature to refute these long-held findings.

While the 'Happiness Study' notes that "the relationship between happiness and employment is a complex and dynamic interaction that runs in both directions" the authors are unequivocal:

The overwhelming importance of having a job for happiness is evident throughout the analysis, and holds across all of the world's regions. When considering the world's population as a whole, people with a job evaluate the quality of their lives much more favorably than those who are unemployed. The importance of having a job extends far beyond the salary attached to it, with non-pecuniary aspects of employment such as social status, social relations, daily structure, and goals all exerting a strong influence on people's happiness.

And, the inverse:

The importance of employment for people's subjective wellbeing shines a spotlight on the misery and unhappiness associated with being unemployed.

There is a burgeoning literature on 'happiness', which the authors aim to contribute to.

They define happiness as "subjective well-being", which is "measured along multiple dimensions":

life evaluation (by way of the Cantril "ladder of life"), positive and negative affect to measure respondents' experienced positive and negative wellbeing, as well as the more domain-specific items of job satisfaction and employee engagement. We find that these diverse measures of subjective wellbeing correlate strongly with each other

Cantril's 'Ladder of Life Scale' (or "Cantril Ladder") is used by polling organisations to assess well-being. It was developed by social researcher Hadley Cantril (1965) and documented in his book The pattern of human concerns .

You can learn more about the use of the 'Cantril Ladder' HERE .

As we read, the "Cantril Self-Anchoring Scale consists of the following":

Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time? (ladder-present) On which step do you think you will stand about five years from now? (ladder-future)

[Reference: Cantril, H. (1965) The pattern of human concerns , New Brunswick, Rutgers University Press.]

Christian Bjørnskov's 2010 article – How Comparable are the Gallup World Poll Life Satisfaction Data? – also describes how it works.

[Reference: Bjørnskov, C. (2010) 'How Comparable are the Gallup World Poll Life Satisfaction Data?', Journal of Happiness Studies , 11 (1), 41-60.]

The Cantril scale is usually reported as values between 0 and 10.

The authors in the happiness study use poll data from 150 nations which they say "is representative of 98% of the world's population". This survey data is available on a mostly annual basis since 2006.

The following graph (Figure 1 from the Study) shows "the self-reported wellbeing of individuals around the world according to whether or not they are employed."

The "bars measure the subjective wellbeing of individuals of working age" by employment status .

The results show the differences between having a job and being unemployed are "very large indeed" on the three well-being measures (life evaluation, positive and negative affective states).

People employed "evaluate the quality of their lives around 0.6 points higher on average as compared to the unemployed on a scale from 0 to 10."

The authors also conduct more sophisticated (and searching) statistical analysis (multivariate regression) which control for a range of characteristics (gender, age, education, marital status, composition of household) as well as to "account for the many political, economic, and cultural differences between countries as well as year-to-year variation".

The conclusion they reach is simple:

the unemployed evaluate the overall state of their lives less highly on the Cantril ladder and experience more negative emotions in their day-to-day lives as well as fewer positive ones. These are among the most widely accepted and replicated findings in the science of happiness Here, income is being held constant along with a number of other relevant covariates, showing that these unemployment effects go well beyond the income loss associated with losing one's job.

These results are not surprising. The earliest study of this sort of outcome was from the famous study published by Philip Eisenberg and Paul Lazersfeld in 1938. [Reference: Eisenberg, P. and Lazarsfeld, P. (1938) 'The psychological effects of unemployment', Psychological Bulletin , 35(6), 358-390.]

They explore four dimensions of unemployment:

I. The Effects of Unemployment on Personality.

II. Socio-Political Attitudes Affected by Unemployment.

III. Differing Attitudes Produced by Unemployment and Related Factors.

IV. The Effects of Unemployment on Children and Youth.

On the first dimension, they conclude that:

1. "unemployment tends to make people more emotionally unstable than they were previous to unemployment".

2. The unemployed experience feelings of "personal threat"; "fear"; "sense of proportion is shattered"; loss of "common sense of values"; "prestige lost in own eyes and as he imagines, in the eyes of his fellow men"; "feelings of inferiority"; loss of "self-confidence" and a general loss of "morale".

Devastation, in other words. They were not surprised because they note that:

in the light of the structure of our society where the job one holds is the prime indicator of status and prestige.

This is a crucial point that UBI advocates often ignore. There is a deeply entrenched cultural bias towards associating our work status with our general status and prestige and feelings of these standings. That hasn't changed since Eisenberg and Lazersfeld wrote up the findings of their study in 1938.

It might change over time but that will take a long process of re-education and cultural shift. Trying to dump a set of new cultural values that only a small minority might currently hold to onto a society that clearly still values work is only going to create major social tensions. Eisenberg and Lazarsfeld also considered an earlier 1937 study by Cantril who explored whether "the unemployed tend to evolve more imaginative schemes than the employed".

[Reference: Cantril, H. (1934) 'The Social Psychology of Everyday Life', Psychological Bulletin , 31, 297-330.]

The proposition was (is) that once unemployed, do people then explore new options that were not possible while working, which deliver them with the satisfaction that they lose when they become jobless. The specific question asked in the research was: "Have there been any changes of interests and habits among the unemployed?" Related studies found that the "unemployed become so apathetic that they rarely read anything". Other activities, such as attending movies etc were seen as being motivated by the need to "kill time" – "a minimal indication of the increased desire for such attendance".

On the third dimension, Eisenberg and Lazersfeld examine the questions – "Are there unemployed who don't want to work? Is the relief situation likely to increase this number?", which are still a central issue today – the bludger being subsidized by income support.

They concluded that:

the number is few. In spite of hopeless attempts the unemployed continually look for work, often going back again and again to their last place of work. Other writers reiterate this point.

So for decades, researchers in this area, as opposed to bloggers who wax lyrical on their own opinions, have known that the importance of work in our lives goes well beyond the income we earn. The non-pecuniary effects of not having a job are significant in terms of lost status, social alienation, abandonment of daily structure etc, and that has not changed much over history. The happiness paper did explore "how short-lived is the misery associated with being out of work" in the current cultural settings.

The proposition examined was that:

If the pain is only fleeting and people quickly get used to being unemployed, then we might see joblessness as less of a key public policy priority in terms of happiness.

They conclude that:

a number of studies have demonstrated that people do not adapt much, if at all, to being unemployed there is a large initial shock to becoming unemployed, and then as people stay unemployed over time their levels of life satisfaction remain low . several studies have shown that even once a person becomes re-employed, the prior experience of unemployment leaves a mark on his or her happiness.

So there is no sudden or even medium-term realisation that being jobless endows the individual with a new sense of freedom to become their creative selves, freed from the yoke of work. To bloom into musicians, artists, or whatever.

The reality is that there is an on-going malaise – a deeply entrenched sense of failure is overwhelming, which stifles happiness and creativity, even after the individual is able to return to work.

This negativity, borne heavily by the individual, however, also impacts on society in general.

The paper recognises that:

A further canonical finding in the literature on unemployment and subjective wellbeing is that there are so-called "spillover" effects.

High levels of unemployment "increase fear and heighten the sense of job insecurity". Who will lose their job next type questions?

The researchers found in their data that the higher is the unemployment rate the greater the anxiety among those who remain employed.

Conclusion

The overwhelming conclusion is that "work makes up such an important part of our lives" and that result is robust across different countries and cultures.

Being employed leads to much higher evaluations of the quality of life relative to being unemployed.

The unemployed are miserable and remain so even as they become entrenched in long-term unemployment. They do not seem to sense (or exploit) a freedom to release some inner sense of creativity and purpose.

The overwhelming proportion continually seek work – and relate their social status and life happiness to gaining a job, rather than living without a job on income support.

Modern Monetary Theory (MMT) allows us to understand that it is the government that chooses the unemployment rate – it is a political choice.

For currency-issuing governments it means their deficits are too low relative to the spending and saving decisions of the non-government sector.

For Eurozone-type nations, it means that in surrendering their currencies and adopting a foreign currency, they are unable to guarantee sufficient work in the face of negative shifts in non-government spending. Again, a political choice.

The Job Guarantee can be used as a vehicle to not only ensure their are sufficient jobs available at all times but also to start a process of wiping out the worst jobs in the non-government sector.

That can be done by using the JG wage to ensure low-paid private employers have to restructure their workplaces and pay higher wages and achieve higher productivity in order to attract labour from the Job Guarantee pool.

The Series So Far

This is a further part of a series I am writing as background to my next book with Joan Muysken analysing the Future of Work . More instalments will come as the research process unfolds.

The series so far:

  1. When Austrians ate dogs .
  2. Employment as a human right .
  3. The rise of the "private government .
  4. The evolution of full employment legislation in the US .
  5. Automation and full employment – back to the 1960s .
  6. Countering the march of the robots narrative .
  7. Unemployment is miserable and does not spawn an upsurge in personal creativity .

The blogs in these series should be considered working notes rather than self-contained topics. Ultimately, they will be edited into the final manuscript of my next book due in 2018. The book will likely be published by Edward Elgar (UK).

That is enough for today!

divadab , November 21, 2017 at 6:11 am

Perhaps I'm utterly depressed but I haven't had a job job for over 5 years. Plenty of work, however, more than I can handle and it requires priorisation. But I am deliberately not part of the organized herd. I stay away from big cities – it's scary how managed the herd is in large groups – and I suppose that unemployment for a herd animal is rather distressing as it is effectively being kicked out of the herd.

Anyway my advice, worth what you pay for it but let he who has ears, etc. – is to go local, very local, grow your own food, be part of a community, manage your own work, and renounce the energy feast herd dynamics. "Unemployment", like "recession", is a mechanism of control. Not very practical advice for most, I realize, trapped in the herd as they are in car payments and mortgages, but perhaps aspirational?

The Rev Kev , November 21, 2017 at 6:35 am

I think what is missing from this article is the term "identity." If you meet new people, often the conversation starts with what you do for a living. Your identity, in part, is what you do. You can call yourself a plumber, a writer, a banker, a consultant, a reporter but the point is this is part of your identity. When you lose your job long term, your identity here loses one of its main anchor points.

Worse, there is a deliberate stigma attached with being long term unemployed. In that article you have seen the word bludger being used. In parts of the US I have read of the shame of 'living off the county'. And yes, I have been there, seen that, and got the t-shirt. It's going to be interesting as mechanization and computers turn large portions of the population from workers to 'gig' workers. Expect mass demoralization.

nonclassical , November 21, 2017 at 10:24 am

yes the lives many of us have lived, no longer exist though we appear not notice, as we "can" live in many of same "ways" ..rather well known psychologist defined some 40 years ago, best to "drop through cracks"

jrs , November 21, 2017 at 12:13 pm

Well, you also lose money, maybe you become homeless etc. as you have nowhere else to turn (if there are kids involved to support it gets even scarier though there are some programs). Or maybe you become dependent on another person(s) to support you which is of course degrading as you know you must rely on them to live, whether it's a spouse or lover when you want to work and bring in money, or mom and dads basement, or the kindest friend ever who lets you sleep on their couch. I mean these are the things that really matter.

Privileged people whose main worry in unemployment would be losing identity, wow out of touch much? Who cares about some identity for parties, but the ability to have a stable decent life (gig work hardly counts) is what is needed.

sgt_doom , November 21, 2017 at 2:20 pm

I believe your comment sums up the situation the best -- and most realistically.

jgordon , November 21, 2017 at 7:08 pm

I normally wouldn't comment like this, but you have brought up some extremely important points about identity that I would like to address.

Recently I had the most intense mushroom experience of my entire life–so intense that my identity had been completely stripped and I was left in a formless state, at the level of seeing my bare, unvarnished animal neural circuitry in operation. Suddenly with a flash of inspiration I realized that the identity of everyone, all of us, is inextricably tied up in what we do and what we do for other people.

Following from that, I understood that if we passively rely on others for survival, whether it be relying on friends, family, or government, then we do not have an identity or reason for existing. And the inner self, the animal core of who we are, will realise this lack of identity (even if the concious mind denies it), and will continually generate feelings of profound depression and intense nihilism that will inevitably destroy us if the root cause is not addressed.

Before this experience I was somewhat ambivalent about my politics, but immediately after I knew that the political right was correct on everything important, from attitudes on sex to economic philosophy. People need a core of cultural stability and hard work to grow and become actualized. The alternative is rudderless dissatisfaction and envy that leads nowhere.

On the topic of giving "out of kindnes and goodwill", giving without demanding anything in return is a form of abuse, as it deprives those who receive our feel-good generosity the motivation to form a coherent identity. If the parents of a basement-dweller were truly good people, instead of supporting said dweller they'd drag her out by the ear and make her grow food in the yard or some such. Likewise, those who have supported you without also giving concrete demands and expecations in return have been unkind, and for your own good I hope that you will immediately remove yourself from their support. On the other hand, if you have been thoughtlessly giving because it warms the cockles of your heart, then stop it now. You are ruining other people this way, and if your voting habits are informed by this kind of malevolence I'd encourage you to change those as well.

Anyway the original poster is right about everything. Working and having a purpose in life is an entirely different animal from making money and being "successful" in the government-sponsored commercial economy. Society and government deliberately try to conflate the two for various reasons, primarily graft of labor and genius, but that is only a deliberate mis-framing that needlessly harms people when the mainstream economic system is in catastrophic decline, as ours is today. You should try to clear up this misconception within yourself as a way of getting better.

Well, I hope this message can give you a few different thoughts and help you find your way out of the existential angst you're caught in. Don't wallow in helplessness. Think of something useful to do, anything, whether it earns you money or not, and go out and start doing it. You'll be surprised at how much better you feel about yourself in no time.

skippy , November 22, 2017 at 12:45 am

The problem is you said – I – had an extreme experience [burning bush], the truth was reviled to – I – and I alone during this extreme chemically altered state. Which by the way just happens to conform to a heap of environmental biases I collected. This is why sound methodology demands peer review. disheveled some people think Mister Toads Wild ride at Disneyland on psychotropics is an excellent adventure too.

Jeremy Grimm , November 21, 2017 at 12:33 pm

I think your observation about the importance of work to identity is most perceptive. This post makes too little distinction between work and a job and glosses over the place of work in defining who we are to ourselves and to others. I recall the scene in the movie "About a Boy" when the hero meets someone he cares about and she asks him what he does for a living.

I believe there's another aspect of work -- related to identity -- missing in the analysis of this post. Work can offer a sense of mission -- of acting as part of an effort toward a larger goal no individual could achieve alone. However you may regard the value in putting man on the moon there is no mistaking the sense of mission deeply felt by the engineers and technicians working on the project. What jobs today can claim service to a mission someone might value?

Henry Moon Pie , November 21, 2017 at 7:00 am

Agreed on your points. Wage slavery is nothing to aspire to. Self-determination within a context of an interdependent community is a much better way to live. We do our thing in the city, however.

ambrit , November 21, 2017 at 8:29 am

Finding that "interdependent community" is the hard part. My experience has been that this endeavour is almost chance based; Serendipity if you will.
Here Down South, the churches still seem to have a stranglehold on small and mid scale social organization. One of the big effects of 'churching' is the requirement that the individual gave up personal critical thinking. Thus, the status quo is reinforced. One big happy 'Holy Circlejerk.'

UserFriendly , November 21, 2017 at 10:10 am

from the article

This is a crucial point that UBI advocates often ignore. There is a deeply entrenched cultural bias towards associating our work status with our general status and prestige and feelings of these standings.

That hasn't changed since Eisenberg and Lazersfeld wrote up the findings of their study in 1938. It might change over time but that will take a long process of re-education and cultural shift. Trying to dump a set of new cultural values that only a small minority might currently hold to onto a society that clearly still values work is only going to create major social tensions.

FelicityT , November 21, 2017 at 3:07 pm

I would agree about the entenched cultural norms, etc. But not the pessimism and timeline for change. An individual can communicate a complex idea to millions in seconds, things move fast these days.

For me, it seems that what we (we being UBI/radical change proponents) are lacking is a compelling easily accessible story. Not just regarding UBI (as that is but one part of the trully revolutionary transformations that must occur) but encompassing everything.

We have countless think pieces, bits of academic writing, books, etc that focus on individual pieces and changes in isolation. But we've largely abandoned the all-encompassing narrative, which at their heart is precisely what religion offers and why it can be so seductive, successful, and resilient for so long.

The status quo has this type of story, it's not all that compelling but given the fact that it is the status quo and has inertia and tradition on its side (along with the news media, political, entertainment, etc) it doesn't have to be.

We need to abandon the single narrow issue activism that has become so prominent over the years and get back to engaging with issues as unseparable and intimately interconnected.

Tinkering around the edges will do nothing, a new political religion is what is required.

Yves Smith Post author , November 21, 2017 at 4:23 pm

Sorry, I disagree vehemently. Deeply held cultural attitudes are very slow to change and the study found that work being critical to happiness examined a large number of societies.

Look at feminism. I was a half-generation after the time when women were starting to get a shot at real jobs. IIRC, the first class that accepted women at Harvard Law School was in the 1950 and at Harvard Business School, 1965. And the number of first attendees was puny. The 1965 class at HBS had 10 8 women out of a graduating class of over 800; my class in 1981 had only 11% women.

In the 1980s, you saw a shift from the belief that women could do what men could do to promotion of the idea that women could/should be feminine as well as successful. This looked like seriously mixed messages, in that IMHO the earlier tendency to de-emphasize gender roles in the workplace looked like a positive development.

Women make less than 80% of what men do in the US. Even female doctors in the same specialities make 80% of their male peers.

The Speenhamland in the UK had what amounted to an income guarantee from the 1790s to 1832. Most people didn't want to be on it and preferred to work. Two generations and being on the support of local governments was still seen as carrying a stigma.

More generally, social animals have strongly ingrained tendencies to resent situations they see as unfair. Having someone who is capable of working not work elicits resentment from many, which is why most people don't want to be in that position. You aren't going to change that.

And people need a sense of purpose. There are tons of cases of rich heirs falling into drug addiction or alcoholism and despair because they have no sense of purpose in life. Work provides that, even if it's mundane work to support a family. That is one of the great dissservices the Democrats have done to the citizenry at large: sneering at ordinary work when blue-collar men were the anchors of families and able to take pride in that.

FelicityT , November 21, 2017 at 5:11 pm

So a few points.

Regarding the large number of societies, we often like to think we're more different than we actually are focusing on a few glaringly obvious differences and generalizing from there. Even going back a few hundred years when ideas travelled slower we were still (especially the "west" though the "east" wasn't all that much more different either) quite similar. So I'm less inclined to see the large number of societies as evidence.

Generally on societal changes and movements: The issue here is that the leadership has not changed, they may soften some edges here or there (only to resharpen them again when we're looking elsewhere) but their underlying ideologies are largely unchanged. A good mass of any population will go along to survive, whether they agree or not (and we find increasing evidence that many do not agree, though certainly that they do not agree on a single alternative).

It may be impossible to implement such changes in who controls the levers of power in a democratic fashion but it also may be immoral not implement such changes. Of course this is also clearly a similar path to that walked by many a demonized (in most cases rightfully so) dictator and despot. 'Tread carefully' are wise words to keep in mind.

Today we have a situation which reflects your example re: social animals and resentment of unfairness: the elite (who falls into this category is of course debatable, some individuals moreso than others). But they have intelligently, for their benefit, redirected that resentment towards those that have little. Is there really any logical connection between not engaging in wage labor (note: NOT equivalent to not working) and unfairness? Or is it a myth crafted by those who currently benefit the most?

That resentment is also precisely why it is key that a Basic income be universal with no means testing, everyone gets the same.

I think we should not extrapolate too much from the relatively small segment of the population falling into the the inherited money category. Correlation is not causation and all that.

It also seems that so often individuals jump to the hollywood crafted image of the layabout stoner sitting on the couch giggling at cartoons (or something similarly negative) when the concept of less wage labor is brought up. A reduction of wage labor does not equate to lack of work being done, it simply means doing much of that work for different reasons and rewards and incentives.

As I said in the Links thread today, we produce too much, we consume too much, we grow too much. More wage labor overall as a requirement for survival is certainly not the solution to any real problem that we face, its a massively inefficient use of resources and a massive strain on the ecosystems.

Yves Smith Post author , November 21, 2017 at 8:34 pm

I am really gobsmacked at the sense of entitlement on display here. Why are people entitled to an income with no work? Being an adult means toil: cleaning up after yourself, cleaning up after your kids if you have them, if you are subsistence farmer, tending your crops and livestock, if you are a modern society denizen, paying your bills and your taxes on time. The idea that people are entitled to a life of leisure is bollocks. Yet you promote that.

Society means we have obligations to each other. That means work. In rejecting work you reject society.

And the touting of "creativity" is a top 10% trope that Thomas Frank called out in Listen, Liberal. It's a way of devaluing what the bottom 90% do.

WobblyTelomeres , November 21, 2017 at 8:53 pm

My argument with the article is that, to me, it smacks of Taylorism. A follow-on study would analyze how many hours a laborer must work before the acquired sense of purpose and dignity and associated happiness began to decline. Would it be 30 hours a week of backbreaking labor before dignity found itself eroded? 40? 50? 60? When does the worker break? Just how far can we push the mule before it collapses?

The author alludes to this: "The overwhelming proportion relate their social status and life happiness to gaining a job"

Work equals happiness. Got it.

But, as a former robotics instructor, and as one who watches the industry (and former students), I see an automated future as damn near inevitable. Massive job displacement is coming, life as a minimum wage burger flipper will cease, with no future employment prospects short of government intervention (WPA and CCC for all, I say). I'm not a Luddite, obviously, but there are going to be a lot of people, billions, worldwide, with no prospect of employment. Saying, "You're lazy and entitled" is a bit presumptuous, Yves. Not everyone has your ability, not everyone has my ability. When the burger flipping jobs are gone, where do they go? When roombas mop the floors, where do the floor moppers go?

flora , November 21, 2017 at 9:38 pm

"WPA and CCC for all, I say. "

+1

We could use a new Civilian Conservation Corps and and a Works Progress Administration. There's lots of work that needs doing that isn't getting done by private corporations.

nihil obstet , November 21, 2017 at 10:05 pm

The outrage at non-work wealth and income would be more convincing if it were aimed also at owners of capital. About 30% of national income is passive -- interest, rents, dividends. Why are the owners of capital "entitled to an income with no work?" It's all about the morality that underlies the returns to capital while sugaring over a devaluation of labor. As a moral issue, everyone should share the returns on capital or we should tax away the interest, rents, and dividends. If it's an economic issue, berating people for their beliefs isn't a reason.

WobblyTelomeres , November 21, 2017 at 10:14 pm

Why are the owners of capital "entitled to an income with no work?"

THIS!!!! So much, THIS!!!! But, what else is a Wobbly to say, eh?

Yves Smith Post author , November 22, 2017 at 2:27 am

The overwhelming majority do work. The top 0.1% is almost entirely private equity managers who are able to classify labor income as capital gains through the carried interest loophole. Go look at the Forbes 400.

The 1% are mainly CEOs, plus elite professionals, like partners at top law and consulting firms and specialty surgeons (heart, brain, oncology). The CEOs similarly should be seen as getting labor income but have a lot of stock incentive pay (that is how they get seriously rich) which again gets capital gains treatment.

You are mistaking clever taking advantage of the tax code for where the income actually comes from. Even the kids of rich people are under pressure to act like entrepreneurs from their families and peers. Look at Paris Hilton and Ivanka as examples. They both could have sat back and enjoyed their inheritance, but both went and launched businesses. I'm not saying the kids of the rich succeed, or would have succeed to the extent they do without parental string-pulling, but the point is very few hand their fortune over to a money manager and go sailing or play the cello.

IsotopeC14 , November 22, 2017 at 2:58 am

Isn't the brother of the infamous Koch duo doing exactly that? Actually, if all the .001%ers were like him, we'd all be better off

IsotopeC14 , November 22, 2017 at 1:34 am

What's your take on Rutger Bergman's ted talk? i think most jobs aren't real jobs at all, like marketing and ceo's. why can't we do 20 hour work weeks so we don't have huge amounts of unemployment? Note, I was "unemployed" for years since "markets" decide not to fund science in the US. Yay Germany At least I was fortunate enough to not be forced to work at Walmart or McDonalds like the majority of people with absolutely no life choices. Ah the sweet coercion of capitalism.

flora , November 21, 2017 at 9:09 pm

Your hopes for a UBI are undone by some of the real world observations I've made over many years, with regard to how a guaranteed income increase, of any measure, for a whole population of an area, affects prices. Shorter: income going up means prices are raised by merchants to capture the new income.

Your assumption that any UBI would not be instantly captured by raised prices is naive, at best. It's also naive to assume companies would continue to pay wages at the same level to people still employed, instead of reducing wages and letting UBI fill in the rest. Some corporations already underpay their workers, then encourage the workers to apply for food stamps and other public supports to make up for the reduced wage.

The point of the paper is the importance of paid employment to a person's sense of well being. I agree with the paper.

Andrew Dodds , November 22, 2017 at 2:48 am

For the vast majority, a UBI would be income-neutral – it would have to be, to avoid massive inflation. So people would receive a UBI, but pay more tax to compensate. The effect on prices would be zero.

The advantage of a UBI is mostly felt at the lower end, where insecure/seasonal work does now pay. At the moment, a person who went from farm labourer to Christmas work to summer resort work in the UK would certainly be working hard, but also relentlessly hounded by the DWP over universal credit. A UBI would make this sort of lifestyle possible.

jsn , November 21, 2017 at 11:28 am

Davidab, Good for you, but your perspicacity is not scalable. People are social animals and your attitude toward "the herd", at least as expressed here, is that of a predator, even if your taste doesn't run toward predation. Social solutions will necessarily be scalable or they won't be solutions for long.

Lambert Strether , November 22, 2017 at 1:44 am

> the organized herd a herd animal trapped in the herd

I don't think throwing 80% to 90% of the population into the "prey" bucket is especially perspicacious politically (except, of course, for predators or parasites). I also don't think it's especially perspicacious morally. You write:

Not very practical advice for most, I realize, trapped in the herd as they are in car payments and mortgages, but perhaps aspirational?

Let me translate that: "Trapped in the herd as many are to support spouses and children." In other words, taking the cares of the world on themselves in order to care for others.

BJ , November 21, 2017 at 6:37 am

Unemployed stay at home dad here. My children are now old enough to no longer need a stay at home dad. Things I have done: picked up two musical instruments and last year dug a natural swimming pond by hand. Further, one would need to refute all the increased happiness in retirement (NBER). Why social security but not UBI? I get being part of the precariat is painful and this is a reality for most the unemployed no matter where you live in the world. A UBI is unworkable because it will never be large enough to make people's lives unprecarious. Having said that, I am almost positive if you gave every unemployed person 24 k a year and health benefits, there would be a mass of non working happy creative folks.

divadab , November 21, 2017 at 7:41 am

UBI seems to me to encourage non-virtuous behavior – sloth, irresponsibility, fecklessness, and spendthriftness. I like the Finnish model – unemployment insurance is not limited – except if you refuse work provided by the local job center. Lots of work is not being done all over America – we could guarantee honest work to all with some imagination. Start with not spraying roundup and rather using human labor to control weeds and invasive species.

I do agree that universal health insurance is necessary and sadly Obamacare is not that.

ambrit , November 21, 2017 at 8:34 am

The crux of this problem is the definition used for "non-virtuous behaviour." A new CCC is a good place to start though. (Your Tax Dollars At Work! [For some definition of tax dollars.]) As for BJ above, I would suppose that child rearing was his "employment" for years. good so far, but his follow-up is untypical. The 'Empty Nester' mother is a well known meme.

a different chris , November 21, 2017 at 9:19 am

Spendthriftness on 24K a year? Seriously? If we are disgorging unprofessional opinions, I will add my own: sloth and irresponsibility are more signs of depression rather than freedom from having to work. In fact, I believe (and I think much of the stuff here) supports the idea that people want to be seen as useful in some way. Doesn't include me! :) .. unfortunately, I have the charmingly named "dependents" so there you have it.

BJ , November 21, 2017 at 11:18 am

I lived 6 years as a grad student on 24k a year and would say it was easy. Only thing I would have to had worried about was awful health insurance. A two household each with 24k would be even easier, especially if you could do it in a low cost area. So I am not sure what you mean by spendthrift. But again it will never happen, so we will be stuck with what we have or most likely an even more sinister system. I guess I am advocating for a JG with unlimited number of home makers per household.

roadrider , November 21, 2017 at 9:23 am

except if you refuse work provided by the local job center

And who's to say that the local "job center" has work that would be appropriate for every person's specific talents and interests? This is no better than saying that you should be willing to go work for some minimum-wage retail job with unpredictable scheduling and other forms of employer abuses after you lose a high-paying job requiring special talents. I have to call bullshit on this model. I went through a two-year stretch if unemployment in no small part because the vast majority of the available jobs for my skill set were associated with the MIC, surveillance state or the parasitic FIRE sector. I was able to do this because I had saved up enough FY money and had no debts or family to support.

I can also attest to the negative aspects of unemployment that the post describes. Its all true and I can't really say that I'e recovered even now, 2.5 years after finding another suitable job.

Jesper , November 21, 2017 at 10:55 am

The job center in the neighbouring Sweden had the same function. Had is the important word. My guess is that the last time someone lost their unemployment insurance payout due to not accepting a job was in the early 1980s. Prior to that companies might, maybe, possibly have considered hiring someone assigned to them – full employment forced companies to accept what was offered. Companies did not like the situation and the situation has since changed.

Now, when full employment is a thing of the past, the way to lose unemployment insurance payouts is by not applying to enough jobs. An easily gamed system by people not wanting to work: just apply to completely unsuitable positions and the number of applications will be high. Many companies are therefore overwhelmed by applications and are therefore often forced to hire more people in HR to filter out the unsuitable candidates.
People in HR tend not to know much about qualifications and or personalities for the job so they tend to filter out too many. We're all familiar with the skills-shortage .
Next step of this is that the companies who do want to hire have to use recruitment agencies. Basically outsourcing the HR to another company whose people are working on commission. Recruiters sometimes know how to find 'talent', often they are the same kind of people with the same skills and backgrounds as people working in HR.

To even get to the hiring manager a candidate has to go through two almost identical and often meaningless interviews. Recruiter and then HR. Good for the GDP I suppose, not sure if it is good for anything else.

But back on topic again, there is a second way of losing unemployment insurance payout: Time. Once the period covered has passed there is no more payouts of insurance. After that it it is time to live on savings, then sell all assets, and then once that is done finally go to the welfare office and prove that savings are gone and all assets are sold and maybe welfare might be paid out. People on welfare in Sweden are poor and the indignities they are being put through are many. Forget about hobbies and forget about volunteering as the money for either of those activities simply aren't available. Am I surprised by a report saying unemployed in Sweden are unhappy? Nope.

nonclassical , November 21, 2017 at 10:42 am

meanwhile NYTimes testimonials Friday, show average family of 4 healthprofit costs (tripled, due to trump demise ACA) to be $30,000. per year, with around $10,000. deductible end of any semblance of affordable access, "murKa"

https://www.nytimes.com/2017/11/16/us/politics/obamacare-premiums-middle-class.html

Jeremy Grimm , November 21, 2017 at 1:53 pm

What do you mean by virtuous behavior?

Where does a character like Bertie Wooster in "Jeeves" fit in your notions of virtuous behavior? Would you consider him more virtuous working in the management of a firm, controlling the lives and labor of others -- and humorously helped by his his brilliant valet, Jeeves, getting him out of trouble?

For contrast -- in class and social status -- take a beer-soaked trailer trash gentleman of leisure -- and for sake of argument blessed with less than average intelligence -- where would you put him to work where you'd feel pleased with his product or his service? Would you feel better about this fellow enjoying a six-pack after working 8 hours a day 5 days a week virtuously digging and then filling a hole in the ground while carefully watched and goaded by an overseer? [Actually -- how different is that from "using human labor to control weeds and invasive species"? I take it you're a fan of chain-gangs and making the poor pick up trash on the highways?]

What about some of our engineers and scientists virtuously serving the MIC? Is their behavior virtuous because they're not guilty of sloth, irresponsibility [in executing their work], fecklessness, and spendthriftness? On this last quality how do you feel about our government who pay the salaries for all these jobs building better ways to kill and maim?

Bill Smith , November 21, 2017 at 8:01 am

How big is the swimming pool and how long did it take? Where did you put the dirt?

BJ , November 21, 2017 at 11:07 am

It is a design by David Pagan Butler. It is his plunge pool design, deepend is 14 by 8 by 7 deep. I used the dirt to make swales around some trees. Win win all around.

tegnost , November 21, 2017 at 9:32 am

curious to know whether you are married to someone with a job?

BJ , November 21, 2017 at 11:25 am

The answer is yes my spouse works. So I do have a schedule of waking up to make her lunch everyday, meeting her at lunch to walk, and making dinner when she gets home, but we do all those things on her days off so .

But again we would need to explain away, why people who are retired are happier? Just because they think they payed into social security? Try explaining to someone on the SS dole how the government spends money into existence and is not paid by taxes or that the government never saved their tax money, so there are not entitled to this money.

David Kane Miller , November 21, 2017 at 6:55 am

I hated working for other people and doing what they wanted. I began to feel some happiness when I had a half acre on which I could create my own projects. Things improved even more when I could assure myself of some small guaranteed income by claiming Social Security at age 62. To arise in the morning when I feel rested, with interesting projects like gardens, fences, small buildings ahead and work at my own pace is the essence of delight for me. I've been following your arguments against UBI for years and disagree vehemently.

a different chris , November 21, 2017 at 9:23 am

I feel I would behave the same as you, if I had the chance. *But* no statements about human beings are absolute, and because UBI would work for either of us does not mean it would work for the majority. Nothing devised by man is perfect.

Mel , November 21, 2017 at 9:42 am

It's not you; it's not me. It's those deplorable people.

tegnost , November 21, 2017 at 9:37 am

first you had to buy the half acre in a suitable location, then you had to work many years to qualify for social security, the availability of which you paid for and feel you deserve. You also have to buy stuff for fences gardens and small buildings. At most that rhymes with a ubi but is significantly different in it's make up.

Lambert Strether , November 22, 2017 at 1:56 am

> when I had a half acre on which I could create my own projects

That is, when you acquired the half acre, which not everyone can do. It seems to me there's a good deal of projecting going on with this thread from people who are, in essence, statistical outliers. But Mitchell summarizes the literature:

So for decades, researchers in this area, as opposed to bloggers who wax lyrical on their own opinions, have known that the importance of work in our lives goes well beyond the income we earn.

If the solution that works for you is going to scale, that implies that millions more will have to own land. If UBI depends on that, how does that happen? (Of course, in a post-collapse scenario, the land might be taken , but that same scenario makes the existence of institutions required to convey the UBI highly unlikely. )

Carla , November 21, 2017 at 7:16 am

Very glad to hear that Bill Mitchell is working on the "Future of Work" book, and to have this post, and the links to the other segments. Thank you, Yves!

Andrew , November 21, 2017 at 7:25 am

I don't agree with this statement. Never will. I'm the complete opposite. Give me more leisure time and you'll find me painting, writing, playing instruments and doing things that I enjoy. I recall back to when I was a student, I relished in the free time I got (believe me University gave me a lot of free time) between lectures, meaning I could enjoy this time pursuing creative activities. Sure I might be different than most people but I know countless people who are the same.

My own opinion is that root problem lies in the pathology of the working mentality, that 'work' and having a 'job' is so engrained into our society and mindset that once you give most people the time to enjoy other things, they simply can't. They don't know what to do with themselves and they eventually become unhappy, watching daytime TV sat on the sofa.

I recall back to a conversation with my mother about my father, she said to me, 'I don't know how your father is going to cope once he retires and has nothing to do' and it's that very example of where work for so many people becomes so engrained in their mindset, that they are almost scared of having 'nothing to do' as they say. It's a shame, it's this systemic working mentality that has led to this mindset. I'm glad I'm the opposite of this and proud by mother brought me up to be this way. Work, and job are not in my vocabulary. I work to live, not live to work.

I_Agree , November 21, 2017 at 11:26 am

I agree with Andrew. I think this data on the negative effects says more about how being employed fundamentally breaks the human psyche and turns them into chattel, incapable of thinking for themselves and destroying their natural creativity. The more a human is molded into a "good worker" the less they become a full fledged human being. The happiest people are those that have never placed importance on work, that have always lived by the maxim "work to live, not live to work". From my own experience every assertion in this article is the opposite of reality. It is working that makes me apathethic, uncreative, and miserable. The constant knowing that you're wasting your life, day after day, engaged in an activity merely to build revenue streams for the rich, instead of doing things that help society or that please you on a personal level, is what I find misery inducing.

nycTerrierist , November 21, 2017 at 12:18 pm

I agree. If financial insecurity is removed from the equation -- free time can be used creatively for self-actualization, whatever form that may take: cultivating the arts, hobbies, community activities, worthy causes and projects. The ideology wafting from Mitchell's post smells to me like a rationale for wage slavery (market driven living, neo-liberalism, etc.)

jrs , November 21, 2017 at 12:48 pm

Besides how are people supposed to spend their time "exploring other opportunities" when unemployed anyway? To collect unemployment which isn't exactly paying that much anyway, they have to show they are applying to jobs. To go to the movies the example given costs money, which one may tend to be short on when unemployed. They probably are looking for work regardless (for the income). There may still be some free time. But they could go back to school? Uh in case one just woke up from a rock they were under for 100 years, that costs money, which one may tend to be short on when unemployed, plus there is no guarantee the new career will pan out either, no guarantee someone is just chomping at the bit to hire a newly trained 50 year old or something. I have always taken classes when unemployed, and paid for it and it's not cheap.

Yes to use one's time wisely in unemployment in the existing system requires a kind of deep psychological maturity that few have, a kind of Surrender To Fate, to the uncertainty of whether one will have an income again or not (either that or a sugar daddy or a trust fund). Because it's not easy to deal with that uncertainty. And uncertainty is the name of the game in unemployment, that and not having an income may be the pain in it's entirety.

FelicityT , November 21, 2017 at 3:18 pm

Sadly this breaking down into a "good worker" begins for most shortly after they begin school. This type of education harms society in a myriad of ways including instilling a dislike of learning, deference to authority (no matter how irrational and unjust), and a destruction of a child's natural curiosity.

Yves Smith Post author , November 21, 2017 at 5:21 pm

I don't buy your premise that people are "creative". The overwhelming majority do not have creative projects they'd be pursuing if they had leisure and income. Go look at retirees, ones that have just retired, are healthy, and have money.

Yves Smith Post author , November 21, 2017 at 4:29 pm

You are really misconstruing what the studies have found and misapplied it to your situation. Leisure time when you have a job or a role (being a student) is not at all the same as having time when you are unemployed, with or without a social safety net.

Summer , November 21, 2017 at 6:25 pm
jrs , November 21, 2017 at 6:37 pm

one often has a role when unemployed: finding work. But it's not a very fulfilling one! But if one is trying to find work, it's not exactly the absence of a role either even if it still leaves significantly more free time than otherwise, maybe winning the lottery is the absence of a role.

But then it's also not like we give people a UBI even for a few years (at any time in adult life) to get an education. Only if they take out a student loan approaching the size of a mortgage or have parents willing to pony up are they allowed that (to pay not just for the education but to live because having a roof over one's head etc. is never free, a UBI via debt it might be called).

Lambert Strether , November 22, 2017 at 2:00 am

> Give me more leisure time and you'll find me painting, writing, playing instruments and doing things that I enjoy.
Nothing to breed resentment of "the creative class" here! Blowback from Speenhamland brought on the workhouses, so be careful what you wish for.

Jesper , November 21, 2017 at 7:47 am

Again the UBI vs JG debate .

UBI won't happen and JG has been tried (and failed).

The argument that JG would allow the public sector to hire more people is demeaning to people already employed in the public sector and demonstrably false – people are hired into the public sector without there being a JG. It is most certainly possible to be against a JG while wanting more people working in the public sector.

The way forward is to have a government acting for people instead of for corporations. Increase the amount of paid vacations, reduce the pension age and stop with the Soviet style worship of work: While some people are apparently proud of their friends and relatives who died while at work it is also possible to feel sad about that.

diptherio , November 21, 2017 at 10:00 am

JG has been tried (and failed).

When and where? The NCCC seemed to work pretty good here in the Western US.

Jesper , November 21, 2017 at 10:27 am

The JG was tried in Communist countries in Europe, Asia and Americas. The arguments then and there were the same as here and now, made by the same type of social 'scientists' (economists).

Would a JG be different here and now as the Republicans and Democrats are representing the best interests of the people? Or are they representing the same kind of interests as the Communist parties did?

Yves Smith Post author , November 21, 2017 at 4:39 pm

Data, please. The USSR fell because it was spending on its military to keep up with the US, a much larger economy. Countering your assertion we have this:

tegnost , November 21, 2017 at 10:00 am

As long as people argue that "it's not fair" to fix the inequality issue and employ things like debt jubilee or student loan forgiveness, or if we fix the ridiculous cost of health care what will all those insurance agents do then we will wind up with the real kind of class warfare, rather than the current punching from the top down, the punching will come from the bottom, because the situation is not fair now, it's just TINA according to those who profit from it. In my own life there is a balance of creativity and work, and I find work enables my creativity by putting some pressure on my time, i.e., I get up earlier, I practice at 8:30 am instead of sleeping til 10 and winding up with S.A..D., I go to bed rather than watch tv or drink to excess.. in other words i have some kind of weird schedule, I have days off sort of When I've been unemployed I feel the way s described in the article. I find the arguments in favor of ubi tend to come from people who already have assets, or jobs, or family who they take care of which is actually a job although uncommonly described as such. The only truth I see in real life is that the unemployed I am intimately familiar with first are mentally oppressed by the notion that to repair their situation will require they work every waking hour at substandard wages for the rest of their life and that is a major barrier to getting started, and that is a policy choice the gov't and elite classes purposefully made which created the precariat and will be their undoing if they are unable to see this.

tegnost , November 21, 2017 at 10:15 am

Hey look, even the msm is looking at it
https://www.seattletimes.com/seattle-news/is-uprising-the-only-way-out-of-gross-inequality-maybe-so/

j84ustin , November 21, 2017 at 10:08 am

As someone who works in the public sector I never quite thought of it like that, thanks.

hunkerdown , November 21, 2017 at 7:53 am

Disappointing that there's no analysis in this context of less employment, as in shorter work weeks and/or days, as opposed to merely all or none.

nonclassical , November 21, 2017 at 10:45 am

see – hear

(but no possibility without healthcare access, rather than healthtprofit)

Vatch , November 21, 2017 at 11:31 am

Interesting point. I read a science fiction story in which the protagonist arrives for work at his full time job at 10:00 AM, and he's finished for the day at 4:00 PM. I can't remember the name of the story or novel, unfortunately.

jrs , November 21, 2017 at 1:04 pm

Agreed. And they already have it in places like Denmark. Why don't we talk about that? It actually exists unlike utopian schemes for either total UBI or total work guarantee (government job creation is not utopian, but imagining it will employ everyone is, and I would like the UBI to be more widely tried, but in this country we are nowhere close). Funny how utopia becomes more interesting to people than actual existing arrangements, even though of course those could be improved on too.

The Danish work arrangement is less than a 40 hour week, and mothers especially often work part-time but both sexes can. It's here in this country where work is either impossibly grueling or you are not working. No other choice. In countries with more flexible work arrangements more women actually work, but it's flexible and flexible for men who choose to do the parenting as well. I'm not saying this should be for parents only of course.

Lambert Strether , November 22, 2017 at 2:02 am

Because the JG sets the baseline for employment, which private companies must meet, the JG (unlike the UBI) can do this.

Otis B Driftwood , November 21, 2017 at 7:58 am

My own situation is that I am unhappy in my well-paying job and would like nothing more than to devote myself to other interests. I'm thirty years on in a relationship with someone who grew up in bad financial circumstances and panics whenever I talk about leaving my job. I tell her that we have 2 years of living expenses in the bank but I can't guarantee making the same amount of money if I do leave my job. She has a job that she loves and is important and pays barely 1/2 of my own income. So she worries about her future with me. She worries about losing her home. I suppose that makes me the definition of a wage slave. And it makes for an increasingly unhappy marriage. I admire those who have faced similar circumstances and found a way through this. Sorry to vent, but this topic and the comments hit a nerve with me and I'm still trying to figure this out.

ambrit , November 21, 2017 at 8:38 am

Otis; We are presently going through a period where that "two year cushion" has evaporated, for various reasons. We are seeing our way through this, straight into penury and privation. Take nothing for granted in todays' economy.

jrs , November 21, 2017 at 1:11 pm

yes find the lower paying job that you like more first. If you just quit for nothing in the hopes of finding one it might not happen. Of course unemployment also happens sometimes, whether we want it or not.

bronco , November 21, 2017 at 12:47 pm

The newer generations are worse when it comes to lifestyle. Those of that are older can at least remember a time without cellphones internet streaming services leasing a new car every 2 years etc.

What about the young? My niece and her husband should be all set , his mom sunk money into a home on the condition she moved into a mother in law apartment. So far so good right? 2 years in they are imploding even with the free child care she provides. Combined their wireless bill a month is over $300. The sit on the couch side by side and stream netflix shows to dueling iphones in front of a 65 inch tv that is not even turned on. Wearing headphones in silence.

Both driving new vehicles , both have gym memberships they don't use . They buy lattes 3 or 4 times a day which is probably another 500 a month.

My uncle passed away recently and my niece asked if she was in the will. It was literally her only communication on the subject. They are going under and could easily trim a few thousand a month from the budget but simply won't. No one in the family is going to lift a finger for them at this point they burned every possible bridge already. I have seen people living in cars plenty lately but I think these will be the first I see to living in brand new cars .

Somewhere along the line they got the impression that the american dream was a leased car a starbucks in one hand and an iphone in the other .

Confront them with the concept of living within a paycheck and they react like a patient hearing he has 3 months to live.

Lambert Strether , November 22, 2017 at 2:03 am

Ah. Reagan's "welfare queens" updated. Kids these days!

JBird , November 22, 2017 at 3:00 am

Yeah being poor, never mind growing up poor, just well and truly sucks and it can really @@@@ you up. Gives people all sorts of issues. I'm rather like her, but I have had the joy of multi-hour commutes to unexciting soul crushing work. Happy, happy, joy, joy! However don't forget that with the current political economy things are likely to go bad in all sorts of ways. This whole site is devoted to that. My suggestion is to keep the job unless you have something lined up. Not being able to rent has it own stresses too. Take my word for it.

Thuto , November 21, 2017 at 8:00 am

I may be engaging in semantics but I think conflating work and jobs makes this article a bit of a mixed bag. I know plenty of people who are terribly unhappy in their jobs, but nonetheless extract a sense of wellbeing from having a stable source of INCOME to pay their bills (anecdotally speaking, acute stress from recent job losses is closely linked to uncertainty about how bills are going to be paid, that's why those with a safety net of accumulated savings report less stress than those without). Loss of status, social standing and identity and the chronic stress borne from these become evident much later I.e. when the unemployment is prolonged, accompanied of course by the still unresolved top-of-mind concern of "how to pay the bills".

As such, acute stress for the recently unemployed is driven by financial/income uncertainty (I.e. how am I going to pay the bills) whereas chronic stress from prolonged unemployment brings into play the more identity driven aspects like loss of social standing and status. For policy interventions to have any effects, policy makers would have to delineate the primary drivers of stress (or lack of wellbeing as the author calls it) during the various phases of the unemployment lifecycle. An Unemployment Insurance Fund (UIF) like we have here in South Africa appears to address the early stages of unemployment, and the accompanying acute stress, quite well by providing the income guarantee (for six months) that cushions the shock of losing a job. What's still missing of course are interventions that promote the quick return to employment for those on UIF, so maybe a middle of the road solution between UBI and a jobs guarantee scheme is how policy makers should be framing this, instead of the binary either/or we currently have.

TroyMcClure , November 21, 2017 at 9:19 am

Lots' of people think they're unhappy with their jobs. Let them sit unemployed for 9 months and ask them if they want that job back. The usual parade of anecdata is on display here in the comments. Mitchell's real data and analysis in the article above still stand.

Thuto , November 21, 2017 at 10:06 am

If you'd read through my comment, and not rushed through it with a view of dishing out a flippant response, you'd have seen that nowhere do I question the validity of his data, I merely question how the argument is presented in some areas (NC discourages unquestioning deference to the views of experts no??). By the way, anecdotes do add to richer understanding of a nuanced and layered topic (as this one is) so your dismissal of them in your haste to invalidate people's observations is hardly helpful.

jrs , November 21, 2017 at 1:15 pm

Yes people many not like their jobs but prefer the security of having them to not. Yes even if the boss sexually harasses one (as we are seeing is very common). Yes even if there is other workplace abuse. Yes even when it causes depression or PTSD (but if one stays with such a job long term it ruins the self confidence that is one prerequisite to get another job!). Yes even if one is in therapy because of job stress, sexual harassment or you name it. The job allows the having health insurance, allows the therapy, allows the complaining about the job in therapy to make it through another week.

Lambert Strether , November 22, 2017 at 2:04 am

> The usual parade of anecdata is on display here in the comments. Mitchell's real data and analysis in the article above still stand.

Ding ding ding!

Democrita , November 21, 2017 at 8:13 am

When unemployed, the stress of worry about money may suppress the creative juices. Speaking from experience. People may well 'keep looking for jobs' because they know ultimately they need a job with steady income. The great experience of some freelancers notwithstanding, not all are cut out for it.

I would love to see some more about happiness or its lack in retirement–referenced by stay-at-home dad BJ , above.

I wonder, too, about the impact of *how* one loses one's job. Getting laid off vs fired vs quitting vs involuntary retirement vs voluntary, etc feel very different. Speaking from experience on that, too. I will search on these points and post anything of interest.

jrs , November 21, 2017 at 1:40 pm

There are also other things that are degrading about the very process of being unemployed not mentioned here. What about the constant rejection that it can entail? One is unemployed and looking for work, one sends out resumes, many of them will never be answered, that's rejection. Then if one is lucky they get interviews, many will never lead to jobs, yet more rejection. Does the process of constant rejection itself have a negative effect on a human being whether it's looking for jobs or dates or whatever? Isn't it learned helplessness to if one keeps trying for something and keeps failing. Isn't that itself demoralizing entirely independent of any doubtful innate demoralizing quality of leisure.

freedeomny , November 21, 2017 at 10:23 am

I am not so sure if I agree with this article. I think it really depends on whether or not you have income to support yourself, hate or love your job, and the amount of outside interests you have, among other things. Almost everyone I know who lives in the NYC area and commutes into the city .doesn't like their job and finds the whole situation "soul-crushing".

Those that live in Manhattan proper are (feel) a bit better off. I for one stopped working somewhat voluntarily last year. I write somewhat because I began to dislike my job so much that it was interfering with my state of well being, however, if I had been allowed to work remotely I probably would have stuck it out for another couple of years.

I am close enough to 62 that I can make do before SS kicks in although I have completely changed my lifestyle – i.e. I've given up a materialistic lifestyle and live very frugally.

Additionally I saved for many years once I decided to embark on this path. I do not find myself depressed at all and the path this year has been very enriching and exciting (and scary) as I reflect on what I want for the future. I'm pretty sure I will end up moving and buying a property so that I can become as self sufficient as possible. Also, I probably will get a job down the line – but if I can't get one because I am deemed too old that will be ok as well. The biggest unknown for me is how much health insurance will cost in the future .

Yves Smith Post author , November 21, 2017 at 5:15 pm

The article made clear that the studies included "unemployed but with income" from government support. It is amazing the degree to which readers ignore that and want to make the findings about "unemployed with no income".

JBird , November 22, 2017 at 3:30 am

That's because we Americans all have work=good=worthy=blessed by God while workless=scum=worthless=accursed by God engraved into our collective soul. Our politics, our beliefs, are just overlays to that.

Even when we agree that the whole situation just crushes people into paste, and for which they have no defense regardless of how hard they work, how carefully they plan, or what they do, that underlay makes use feel that this is their/our fault. Any suggestions that at least some support can be decoupled from work, and that maybe work, and how much you earn, should not determine their value, brings the atavistic fear of being the "undeserving poor," parasites and therefore reprobated scum.

So we don't hear what you are saying without extra effort because it's bypassing our conscious thoughts.

Jamie , November 21, 2017 at 10:43 am

Add my voice to those above who feel that forced labor is the bane of existence, not the wellspring. All this study says to me is that refusing to employ someone in capitalist society does not make them happy. It makes them outcasts.

So, I say yes to a JG, because anyone who wants work should be offered work. But at the same time, a proper JG is not forced labor. And the only way to ensure that it is not forced labor, is to decouple basic needs from wage slavery.

Left in Wisconsin , November 21, 2017 at 12:02 pm

I am critical of those who distinguish between the job and the income. Of course the income is critical to the dignity of the job. For many jobs, it is the primary source of that dignity. The notion that all jobs should provide some intrinsic dignity unrelated to the income, or that people whose dignity is primarily based on the income they earn rather than the work they do are deluded, is to buy in to the propaganda of "passion" being a requirement for your work and to really be blind to what is required to make a society function. Someone has to change the diapers, and wipe the butts of old people. (yes, I've done both.) It doesn't require passion and any sense of satisfaction is gone by about the second day. But if you could make a middle class living doing it, there would be a lot fewer unhappy people in the world.

It is well known that auto factory jobs were not perceived as good jobs until the UAW was able to make them middle class jobs. The nature of the actual work itself hasn't changed all that much over the years – mostly it is still very repetitive work that requires little specialized training, even if the machine technology is much improved. Indeed, I would guess that more intrinsic satisfaction came from bashing metal than pushing buttons on a CNC machine, and so the jobs may even be less self-actualizing than they used to be.

The capitalist myth is that the private sector economy generates all the wealth and the public sector is a claim on that wealth. Yet human development proves to us that this is not true – a substantial portion of "human capital" is developed outside the paid economy, government investment in R&D generates productivity growth, etc. And MMT demonstrates that we do not require private sector savings to fund public investment.

We are still a ways from having the math to demonstrate that government investment in caring and nurturing is always socially productive – first we need productivity numbers that reflect more than just private sector "product." But I think we are moving in that direction. Rather than prioritize a minimum wage JG of make-work, we should first simply pay people good wages to raise their own children or look after their elderly and disabled relatives. The MMT JG, as I understand it, would still require people to leave their kids with others to look after them in order to perform some minimum wage task. That is just dumb.

jrs , November 21, 2017 at 1:31 pm

Maybe it's dumb, it's certainly dumb in a system like the U.S. where work is brutal and often low paid and paid childcare is not well remunerated either. But caretakers also working seems to work in countries with greater income equality, good job protections, flexible work arrangements, and a decent amount of paid parental leave – yea Denmark, they think their children should be raised by professionals, but also work-life balance is still pretty good.

Whiskey Bob , November 21, 2017 at 1:34 pm

My take is that capitalism has made the benefits and malus of having a job so ingrained into culture and so reinforced. Having a job is so closely linked to happiness because it gives you the money needed to pursue it.

A job affords you the ability to pursue whatever goals you want within a capitalist framework. "Everything" costs money and so having a job gives you the money to pay for those costs and go on to fulfill your pursuit of happiness.

Analyzing whether people are happy or not under these conditions seem apparent that it is going to lead to results heavily biased towards finding happiness through employment.

The unemployed are often living off someone else's income and feel like an undeserving parasite. Adults are generally ingrained with the culture that they have to grow up and be independent and be able to provide for a new family that they will start up. Becoming unemployed is like being emasculated and infantile, the opposite of what is expected of adults.

There's also that not having a job is increasingly being punished especially in the case of America. American wages have stayed either largely static or have worsened, making being unemployed that much more of a burden on family or friends. Unemployment has been demonized by Reaganism and has become systematically punishable for the long term unemployed. If you are unemployed for too long, you start losing government support. This compounds the frantic rush to get out of unemployment once unemployed.

There is little luxury to enjoy while unemployed. Life while unemployed is a frustrating and often disappointing hell of constant job applications and having many of them lead to nothing. The people providing support often start to become less so over time and become more convinced of laziness or some kind of lack of character or willpower or education or ability or whatever. Any sense of systemic failure is transplanted into a sense of personal failure, especially under neoliberalism.

I am not so sure about the case of Europe and otherwise. I am sure that the third world often has little or no social safety nets so having work (in exploitative conditions in many cases) is a must for survival.

Anyways, I wonder about the exact methodologies of these studies and I think they often take the current feelings about unemployment and then attempt to extrapolate talking points for UBI/JG from them. Yes, UBI wouldn't change culture overnight and it would take a very, very long time for people to let down their guard and adjust if UBI is to be implemented in a manner that would warrant trust. This article seems to understand the potential for that, but decides against it being a significant factor due to the studies emphasizing the malus of unemployment.

I wonder how different the results would be if there were studies that asked people how they would feel if they were unemployed under a UBI system versus the current system. I know a good number of young people (mostly under 30) who would love to drop out and just play video games all day. Though the significance of such a drastic demographic shift would probably lead to great political consequences. It would probably prove the anti-UBI crowd right in that under a capitalist framework, the capitalists and the employed wouldn't tolerate the unemployed and would seek to turn them into an underclass.

Personally I think a combination of UBI and JG should be pursued. JG would work better within the current capitalist framework. I don't think it is without its pitfalls due to similar possible issues (with the similar policy of full employment) either under Keynesianism (e.g. Milton Friedman sees it as inefficient) or in the USSR (e.g. bullshit jobs). There is the possibility of UBI having benefits (not having the unemployed be a burden but a subsidized contributer to the economy) so I personally don't think it should be fully disregarded until it is understood better. I would like it if there were better scientific studies to expand upon the implications of UBI and better measure if it would work or not. The upcoming studies testing an actual UBI system should help to end the debates once and for all.

redleg , November 21, 2017 at 2:28 pm

My $0.02: I have a creative pursuit (no money) and a engineering/physical science technical career (income!). I am proficient in and passionate about both. Over the last few years, the technical career became tenuous due to consolidation of regional consulting firms (endemic to this era)- wages flat to declining, higher work stress, less time off, conversation to contact employment, etc.- which has resulted in two layoffs.

During the time of tenuous employment, my art took on a darker tone. During unemployment the art stopped altogether.

I'm recently re-employed in a field that I'm not proficient. Both the peter principle and imposter syndrome apply. My art has resumed, but the topics are singular about despair and work, to the point that I feel like I'm constantly reworking the same one piece over and over again. And the quality has plummeted too.

In some fields (e.g. engineering), being a wage slave is the only realistic option due to the dominance of a small number of large firms. The big players crowd out independents and free lancers, while pressuring their own employees through just-high-enough wages and limiting time off. Engineering services is a relationship- based field, and the big boys (and they are nearly all boys) have vastly bigger networks to draw work from than a small firm unless that small firm has a big contact to feed them work (until they get gobbled up). The big firms also have more areas of expertise which limits how useful a boutique firm is to a client pool, except under very narrow circumstances. And if you are an introvert like most engineering people, there's no way to compete with big firms and their marketing staff to expand a network enough to compete.

In that way, consulting is a lot like art. To make a living at it you need either contacts or a sponsor. Or an inheritance.

ChrisPacific , November 21, 2017 at 5:30 pm

I would be interested to know what the definition of unemployment was for the purpose of this study (I couldn't find it in the supplied links). If it's simply "people who don't have a job," for example, then it would include the likes of the idle rich, retirees, wards of the state, and so on. Binary statements like this one do make it sound like the broad definition is the one in use:

When considering the world's population as a whole, people with a job evaluate the quality of their lives much more favorably than those who are unemployed.

The conclusion seems at odds with results I've seen for some of those groups – for example, I thought it was fairly well accepted that retirees who are supported by a government plan that is sufficient for them to live on were generally at least as happy as they had been during their working life.

If, on the other hand, the study uses a narrow definition (e.g. people who are of working age, want a job or need one to support themselves financially, but can't find one) then the conclusion seems a lot more reasonable. But that's a heavily loaded definition in economic and cultural terms. In that case, the conclusion (people are happier if they have a job) only holds true in the current prevailing model of society. It doesn't rule out the possibility of structuring society or the economy differently in such a way that people can be non-working and happy. The existence of one such population already (retirees) strongly suggests that outcomes like this are possible. A UBI would be an example of just such a restructuring of society, and therefore I don't think that this study and its result are necessarily a valid argument against it.

nihil obstet , November 21, 2017 at 6:07 pm

Which makes a person happier -- being considered worthless by one's society or valuable? How many studies do we need to answer that question? Apparently, a lot, because studies like this one keep on going. The underlying assumption is that jobs make one valuable. So if you don't have a job you're worthless. Now, who's happier on the whole, people with jobs or the unemployed? That's surely good for a few more studies. Did you know that members of socially devalued groups (minorities, non-heteros, and the like) have higher rates of dysfunction, rather like the unemployed? Hmm, I wonder if there's maybe a similar principle at work. And my solution is not to turn all the people of color white nor to change all the women to men nor to "cure" gays. Well, maybe a few more conclusive studies of this kind will convince me that we must all be the same, toeing the line for those whom it has pleased God to dictate our values to us.

I am convinced that we shouldn't outlaw jobs, because I believe the tons of stories about happy people in their jobs However, I also believe we shouldn't force everyone into jobs, because I know tons of stories about happy people without jobs. You know, the stories that the JG people explain away: parents caring for their children (JG -- "oh, we'll make that a job!"), volunteers working on local planning issues (JG -- "oh, we'll make that a job, too. In fact, we'll make everything worth doing a job. The important thing is to be able to force people to work schedules and bosses, because otherwise, they'll all lie around doing nothing and be miserable"), the retired (JG -- "that's not really the same, but they'd be better off staying in a job"). And this is all before we get to those who can't really hold a job because of disability or geography or other responsibilities.

I support the JG over the current situation, but as to what we should be working for, the more I read the JG arguments, the more paternalistic and just plain narrow minded judgmental they seem.

Summer , November 21, 2017 at 6:52 pm

If someone else gives you a sense of purpose and takes it away what was the purpose?

Lambert Strether , November 22, 2017 at 1:24 am

Data like that provided by Mitchell is important to demolishing the horrid "economic anxiety" frame much beloved by liberals, especially wonkish Democrats.* It's not (a) just feelings , to be solved by scented candles or training (the liberal version of rugged individualism) and (b) the effects are real and measurable. It's not surprising, when you think about it, that the working class is about work .

* To put this another way, anybody who has really suffered the crawling inwardness of anxiety, in the clinical sense, knows that it affects every aspect of one's being. Anxiety is not something deplorables deploy as cover for less than creditable motives.

[Nov 15, 2017] Alex Azar Can There Be Uglier Scenarios than the Revolving Door naked capitalism

Notable quotes:
"... By Lambert Strether ..."
"... So should Mr Azar be confirmed as Secretary of DHHS, the fox guarding the hen house appears to be a reasonable analogy. ..."
"... In this post, I'd like to add two additional factors to our consideration of Azar. The first: Democrat credentialism makes it hard for them to oppose Azar. The second: The real ..."
Nov 15, 2017 | www.nakedcapitalism.com

Alex Azar: Can There Be Uglier Scenarios than the Revolving Door? Posted on November 15, 2017 by Lambert Strether By Lambert Strether

Clearly, Alex Azar, nominated yesterday for the position of Secretary of Health and Human Services by the Trump Administration, exemplifies the case of the "revolving door," through which Flexians slither on their way to (or from) positions of public trust. Roy Poses ( cross-posted at NC ) wrote, when Azar was only Acting Secretary:

Last week we noted that Mr Trump famously promised to &#8220;drain the swamp&#8221; in Washington. Last week, despite his previous pledges to not appoint lobbyists to powerful positions, he appointed a lobbyist to be acting DHHS Secretary. This week he is apparently strongly considering Mr Alex Azar, a pharmaceutical executive to be permanent DHHS Secretary, even though the FDA, part of DHHS, has direct regulatory authority over the pharmaceutical industry, and many other DHHS policies strongly affect the pharmaceutical industry. (By the way, Mr Azar was also in charge of one lobbying effort.)

So should Mr Azar be confirmed as Secretary of DHHS, the fox guarding the hen house appears to be a reasonable analogy.

Moreover, several serious legal cases involving bad behavior by his company, and multiple other instances of apparently unethical behavior occurred on Mr Azar&#8217;s watch at Eli Lilly. So the fox might be not the most reputable member of the species.

So you know the drill&#8230;. The revolving door is a species of conflict of interest . Worse, some experts have suggested that the revolving door is in fact corruption. As we noted here , the experts from the distinguished European anti-corruption group U4 wrote ,

The literature makes clear that the revolving door process is a source of valuable political connections for private firms. But it generates corruption risks and has strong distortionary effects on the economy , especially when this power is concentrated within a few firms.

The ongoing parade of people transiting the revolving door from industry to the Trump administration once again suggests how the revolving door may enable certain of those with private vested interests to have excess influence, way beyond that of ordinary citizens, on how the government works, and that the country is still increasingly being run by a cozy group of insiders with ties to both government and industry. This has been termed crony capitalism.

Poses is, of course, correct. (Personally, I've contained my aghastitude on Azar, because I remember quite well how Liz Fowler transitioned from Wellpoint to being Max Baucus's chief of staff when ObamaCare was being drafted to a job in Big Pharma , and I remember quite well the deal with Big Pharma Obama cut, which eliminated the public option , not that the public option was anything other than a decreasingly gaudy "progressive" bauble in the first place.)

In this post, I'd like to add two additional factors to our consideration of Azar. The first: Democrat credentialism makes it hard for them to oppose Azar. The second: The real damage Azar could do is on the regulatory side.[1]

First, Democrat credentialism. Here is one effusive encomium on Azar. From USA Today, "Who is Alex Azar? Former drugmaker CEO and HHS official nominated to head agency" :

"I am glad to hear that you have worked hard, and brought fair-minded legal analysis to the department," Democratic Sen. Max Baucus said at Azar's last confirmation hearing.

And:

Andy Slavitt, who ran the Affordable Care Act and the Centers for Medicare & Medicaid Services during the Obama administration, said he has reason to hope Azar would be a good secretary.

"He is familiar with the high quality of the HHS staff, has real-world experience enough to be pragmatic, and will hopefully avoid repeating the mistakes of his predecessor," Slavitt said.

So, if Democrats are saying Azar is "fair-minded" and "pragmatic" -- and heaven forfend that the word "corruption"[2] even be mentioned -- how do they oppose him, even he's viscerally opposed to everything Democrats supposedly stand for? (Democrats do this with judicial nominations, too.) Azar may be a fox, alright, but the chickens he's supposedly guarding are all clucking about how impeccable his qualifications are!

Second, let's briefly look at Azar's bio. Let me excerpt salient detail from USA Today :

1. Azar clerked for Supreme Court Justice Antonin Scalia .

2. Azar went to work for his mentor, Ken Starr , who was heading the independent counsel investigation into Bill and Hillary Clinton's Whitewater land deal.

3. Azar had a significant role in another major political controversy when the outcome of the 2000 presidential election hinged on a recount in Florida . Azar was on the Bush team of lawyers whose side ultimately prevailed [3]

For any Democrat with a memory, that bio provokes one of those "You shall know them by the trail of the dead" moments. And then there's this:

When Leavitt replaced Thompson in 2005 and Azar became his deputy, Leavitt delegated a lot of the rule-making process to Azar.

So, a liberal Democrat might classify Azar as a smooth-talking reactionary thug with a terrible record and the most vile mentors imaginable, and on top of it all, he's an effective bureaucratic fixer. What could the Trump Administration possibly see in such a person? Former (Republican) HHS Secretary Mike Leavitt explains:

"Understanding the administrative rule process in the circumstance we're in today could be extraordinarily important because a lot of the change in the health care system, given the fact that they've not succeeded legislatively, could come administratively."

We outlined the administration strategy on health care in "Trump Adminstration Doubles Down on Efforts to Crapify the Entire Health Care System (Unless You're Rich, of Course)" . There are three prongs:

1) Administratively, send ObamaCare into a death spiral by sabotaging it

2) Legislatively, gut Medicaid as part of the "tax refom" package in Congress

3) Through executive order, eliminate "essential health benefits" through "association health plans"

As a sidebar, it's interesting to see that although this do-list is strategically and ideologically coherent -- basically, your ability to access health care will be directly dependent on your ability to pay -- it's institutionally incoherent, a bizarre contraption screwed together out of legislation, regulations, and an Executive order. Of course, this incoherence mirrors to Rube Goldberg structure of ObamaCare itself, itself a bizarre contraption, especially when compared to the simple, rugged, and proven single payer system. ( Everything Obama did with regulations and executive orders, Trump can undo, with new regulations and new executive orders . We might compare ObamaCare to a child born with no immune system, that could only have survived within the liberal bubble within which it was created; in the real world, it's not surprising that it's succumbing to opportunistic infections.[2])

On #1, The administration has, despite its best efforts, not achieved a controlled flight into terrain with ObamaCare; enrollment is up. On #2, the administration and its Congressional allies are still dickering with tax reform. And on #3 . That looks looks like a job for Alex Azar, since both essential health benefits and association health plans are significantly affected by regulation.

So, yes, there are worse scenarios than the revolving door; it's what you leave behind you as the door revolves that matters. It would be lovely if there were a good old-fashioned confirmation battle over Azar, but, as I've pointed out, the Democrats have tied their own hands. Ideally, the Democrats would junk the Rube Goldberg device that is ObamaCare, rendering all of Azar's regulatory expertise null and void, but that doesn't seem likely, given that they seem to be doing everything possible to avoid serious discussion of policy in 2018 and 2020.

NOTES

[1] I'm leaving aside what will no doubt be the 2018 or even 2020 issue of drug prices, since for me that's subsumed under the issue of single payer. If we look only at Azar's history in business, real price decreases seem unlikely. Business Insider :

Over the 10-year period when Azar was at Lilly, the price of insulin notched a three-fold increase. It wasn't just Lilly's insulin product, called Humalog. The price of a rival made by Novo Nordisk has also climbed, with the two rising in such lockstep that you can barely see both trend lines below.

The gains came despite the fact that the insulin, which as a medication has an almost-century-long history, hasn't really changed since it was first approved.

Nice business to be in, eh? Here's that chart:

It's almost like Lilly (Azar's firm) and Novo Nordisk are working together, isn't it?

[2] Anyhow, as of the 2016 Clinton campaign , the Democrat standard -- not that of Poses, nor mine -- is that if there's no quid pro quo, there's no corruption.

[3] And, curiously, "[HHS head Tommy] Thompson said HHS was in the eye of the storm after the 2001 terrorist attacks, and Azar had an important role in responding to the resulting public health challenges, as well as the subsequent anthrax attacks "

MedicalQuack , November 15, 2017 at 10:31 am

Oh please, stop quoting Andy Slavitt, the United Healthcare Ingenix algo man. That guy is the biggest crook that made his money early on with RX discounts with his company that he and Senator Warren's daughter, Amelia sold to United Healthcare. He's out there trying to do his own reputation restore routine. Go back to 2009 and read about the short paying of MDs by Ingenix, which is now Optum Insights, he was the CEO and remember it was just around 3 years ago or so he sat there quarterly with United CEO Hemsley at those quarterly meetings. Look him up, wants 40k to speak and he puts the perception out there he does this for free, not so.

diptherio , November 15, 2017 at 11:25 am

I think you're missing the context. Lambert is quoting him by way of showing that the sleazy establishment types are just fine with him. Thanks for the extra background on that particular swamp-dweller, though.

a different chris , November 15, 2017 at 2:01 pm

Not just the context, it's a quote in a quote. Does make me think Slavitt must be a real piece of work to send MQ so far off his rails

petal , November 15, 2017 at 12:52 pm

Alex Azar is a Dartmouth grad (Gov't & Economics '88) just like Jeff Immelt (Applied Math & Economics '78). So much damage to society from such a small department!

sgt_doom , November 15, 2017 at 1:21 pm

Nice one, petal !!!

Really, all I need to know about the Trumpster Administration:

From Rothschild to . . . .

https://en.wikipedia.org/wiki/Wilbur_Ross

Since 2014, Ross has been the vice-chairman of the board of Bank of Cyprus PCL, the largest bank in Cyprus.

He served under U.S. President Bill Clinton on the board of the U.S.-Russia Investment Fund. Later, under New York City Mayor Rudy Giuliani, Ross served as the Mayor's privatization advisor.

Jen , November 15, 2017 at 7:56 pm

Or from a "small liberal arts college" (which is a university in all but name, because alumni).

Tim Geitner ('82 – Goverment)
Hank Paulson ('68 – English)

jo6pac , November 15, 2017 at 2:13 pm

Well it's never ending game in the beltway and we serfs aren't in it.

https://consortiumnews.com/2017/11/15/trump-adds-to-washingtons-swamp/

Alfred , November 15, 2017 at 2:53 pm

I don't believe that the President's "swamp" ever consisted of crooked officials, lobbyists, and cronies I think it has always consisted of those regulators who tried sincerely to defend public interests.

It was in the sticky work of those good bureaucrats that the projects of capitalists and speculators bogged down. It is against their efforts that the pickup-driving cohort of Trump_vs_deep_state (with their Gadsden flag decals) relentlessly rails.

Trump has made much progress in draining the regulatory swamp (if indeed that is the right way to identify it), and no doubt will make considerably more as time wears on, leaving America high and dry. The kind of prevaricator Trump is may simply be the one who fails to define his terms.

Henry Moon Pie , November 15, 2017 at 4:13 pm

I think we've moved past the revolving door. We hear members of the United States Senate publicly voice their concerns about what will happen if they fail to do their employers' bidding (and I'm not talking about "the public" here). In the bureaucracy, political appointees keep accruing more and more power even as they make it clearer and clearer that they work for "the donors" and not the people. Nowhere is this more true than the locus through which passes most of the money: the Pentagon. The fact that these beribboned heroes are, in fact, setting war policy on their own makes the knowledge that they serve Raytheon and Exxon rather than Americans very, very troubling.

I suspect Azar's perception is that he is just moving from one post to another within the same company.

Watt4Bob , November 15, 2017 at 5:28 pm

Perfect cartoon over at Truthout

I'm amazed there is enough private security available on this planet to keep these guys safe.

Larry , November 15, 2017 at 8:01 pm

Big pharma indeed has so much defense from the supposed left. It combines their faith in technological progress, elite institutions, and tugs on the heart strings with technology that can save people from a fate of ill health or premature death. Of course, the aspect of the laws being written to line the pockets of corrupt executives is glossed over. While drug prices and medical costs spiral ever higher, our overall longevity and national health in the US declines. That speaks volumes about what Democrats really care about.

[Oct 14, 2017] Ilargi The Curious Case of Missing the Market Boom naked capitalism

Notable quotes:
"... Had he bailed out Main Street, the bubble would be smaller, ..."
"... Minsky had it right; capitalism's instability is the power to turn doing good into speculative fervor. ..."
"... Chauncey Gardiner , October 14, 2017 at 4:29 pm ..."
"... Thanks to interest rate suppression below the rate of inflation through central bank QE over the past nine years, suppression of Market Volatility through 'risk parity' funds and futures, trillions of dollars of corporate stock buybacks funded with debt that have so enriched a generation of CEOs, direct purchases of equities by central banks or their agents, a constant barrage of corporate media spin and taunting of market nonparticipants such as Ilargi pointed out here, massive engineered short squeezes, HFT algorithms to prevent price discovery, and other devices, I am once again reminded of the "‪WUN'ERFUL, WUN'ERFUL!" ‬parody of the old Lawrence Welk Show by comedian Stan Freberg when he repeatedly called out, "Turn off the bubble machine!" ..."
"... Funny how the corporate media presents stock prices as being the product of Mom's and Pop's freely made decisions in a "free market" environment. Never a mention of centrally planned policies of financial repression and wealth concentration to benefit a small segment of the population both economically and politically. ..."
"... Appreciated former IMF chief economist Simon Johnson's 2009 article about the three different kinds of bubbles. Believe this one can best be characterized as a "Type 3" political bubble where rising asset prices generate wealth that are fed into the political process. (See: https://baselinescenario.com/2009/07/24/after-peak-finance-larry-summers-bubble/ ) ..."
Oct 14, 2017 | www.nakedcapitalism.com

Look, emerging markets and developed economies have borrowed up the wazoo. Because they could. Often in US dollars. That may cause a -temporary- gain in stock markets, but it casts a dark spell over the reality of these markets. If it's that obvious that a substantial part of your happy news comes from debt, there's very little reason to celebrate.

Technology megacaps occupy all top six spots in the ranks of the world's largest companies by market capitalization for the first time ever. Up 39% this year, the $1 trillion those firms added in value equals the combined worth of the world's six-biggest companies at the bear market bottom in 2009. Apple, priced at $810 billion, is good for the total value of the 400 smallest companies in the S&P 500.

To cast those exact same words in a whole different light, no, Apple is not 'good for the total value of the 400 smallest companies in the S&P 500'. Yes, you can argue that Apple's 'value' has lifted other stocks too, but this has happened in a time of zero price discovery AND near zero interest rates. That means people have no way to figure out if a company is actually doing well, so it's safer to park their cash in Apple.

Ergo: Apple, and the FANGs in general, take valuable money out of the stock market. At the same time that they, companies with P/E earnings ratios to the moon and back, buy back their stocks at blinding speeds. So yeah, Apple may be 'good' for the total value of the 400 smallest companies in the S&P 500 , but at the same time it's not good for that value at all. It's killing companies by sucking up potential productive investment.

And Apple's just an example. Silicon Valley as a whole is a scourge upon America's economy, hoovering away even the cheapest and easiest money and redirecting it to questionable start-up projects with very questionable P/E ratios. But then, that's what you get without price discovery.

Bill Smith , October 14, 2017 at 7:28 am

Misquoting a Keynes misquote: markets can remain irrational for a long time.

So for those that rode the market up, extracted something real from the gains and then end up riding it down are still better off. Oh, yeah: avoid leverage.

esb , October 14, 2017 at 12:33 pm

Bill, who really knows what rational and irrational actually mean in the instant financial environment, an environment in which debt is being allowed to function, in many ways, as an asset rather than as a liability.

I only know two things with certainty first, that every investor I speak with and asset manager I respect is frightened beyond any measure I have experienced before in an rising equity market and second, that approximately half of my contacts fear that we will awaken one morning to the beginning of a war that will not easily be contained (many use the term, miscalculation).

So rather that being a moment or period of extreme euphoria this feels more like the 'mother' of all walls of worry.

Strategist , October 14, 2017 at 7:37 am

Shorter version: "the time to sell is when they start targeting the propaganda to buy at the shoeshine boy"
??

Wukchumni , October 14, 2017 at 10:43 am

Financial bubbles used to work in a fashion where there was oh so much confidence on the way up, and a leper-like quality to whatever was the object of desire once they start on their way down.

When the housing bubble got reignited here after collapse in 2008'ish, I was frankly shocked that it could happen, but I was thinking of the old ways, which used to make sense.

Seeing as there's a bubble in oh so many ways now (fancy a $100 million+ 20th century painting, do ya?) the bust is gonna be epic.

Steven Greenberg , October 14, 2017 at 11:16 am

I am hoping that owning the few remaining undervalued stocks will give me some sort of cover. I am also hoping that the long history of dividend payments from these companies will not drop as precipitously as their prices. I am also hoping that the amount of cash I am holding will take me through the worst of the crash.

Beyond that, I am not going to try to time the market.

Tomonthebeach , October 14, 2017 at 11:35 am

It is difficult not to conclude that globally, central bankers cannot seem to apply what they learned in Econ 101 (which is all most of us ever understood). Markets will always be best explained by Chaos theory , and thus it is best for central banks to head off bubbles rather than lend more inflation to them out of political concern. In 2008, Obama bailed out the wrong sector merely kicking the can down the road. Had he bailed out Main Street, the bubble would be smaller, and there would be more cash chasing after goods instead of the next spin of the stock market wheel of fortune.

Most of us put our coin in ETFs and mutual funds in the hope that we will still have some wealth in whichever sectors survive the impending crash that our governments have brought upon themselves. It's just a damned shame that unlike 1929, the windows of most high rise office buildings no longer open for easy egress. Well, there is always street fentanyl.

Synoia , October 14, 2017 at 4:40 pm

Markets will always be best only explained by Chaos theory

nonclassical , October 14, 2017 at 8:22 pm

not difficult to explain markets read history

Susan the other , October 14, 2017 at 12:12 pm

I've discovered Roger Penrose on YouTube. He just explained cosmological inflation as tubular rather than parabolic. Like one long perpetual piston back-pressured by dark matter barriers when enough entropy builds up – like snake grass sectioned off and growing into eternity and it all works because time=matter=frequency=time. And entropy fills the end stage of an aeon like raindrops in a pond. And then a new aeon begins. The universe just devalues an goes on forever. Mark Blythe might like this. We should just let it rain.

Milton , October 14, 2017 at 12:23 pm

They sure make it tough to get out or stay on the sidelines – case in point, Fidelity's Fixed Income earns exactly 0%. I moved assets from S&P fund in March and feel like a shmuck as I'm not only not earning anything, I get the pleasure of paying fees for my non-participation.

shinola , October 14, 2017 at 1:28 pm

A couple of old cliches: "Buy low & sell high" – Apparently, no longer operational. "There's a sucker born every minute" – seems the "global market analysts" still believe in this one (and probably with good reason)

Burritonomics , October 14, 2017 at 3:01 pm

Evaluating anything and ignoring all save the end product is jaw-dropping foolishness. In poker and gambling, it's called "playing the results". You're gonna up up broke, and will never see it coming. Minsky had it right; capitalism's instability is the power to turn doing good into speculative fervor.

Chauncey Gardiner , October 14, 2017 at 4:29 pm

Thanks to interest rate suppression below the rate of inflation through central bank QE over the past nine years, suppression of Market Volatility through 'risk parity' funds and futures, trillions of dollars of corporate stock buybacks funded with debt that have so enriched a generation of CEOs, direct purchases of equities by central banks or their agents, a constant barrage of corporate media spin and taunting of market nonparticipants such as Ilargi pointed out here, massive engineered short squeezes, HFT algorithms to prevent price discovery, and other devices, I am once again reminded of the "‪WUN'ERFUL, WUN'ERFUL!" ‬parody of the old Lawrence Welk Show by comedian Stan Freberg when he repeatedly called out, "Turn off the bubble machine!"

Funny how the corporate media presents stock prices as being the product of Mom's and Pop's freely made decisions in a "free market" environment. Never a mention of centrally planned policies of financial repression and wealth concentration to benefit a small segment of the population both economically and politically. Where's the SEC? or are we just to blame it all on economist Larry Summers' observation that artificially low interest rates over long time periods cause asset bubbles and high systemic debt leverage, but that repeated asset bubbles are not such a bad thing in an era of "secular stagnation"?

Appreciated former IMF chief economist Simon Johnson's 2009 article about the three different kinds of bubbles. Believe this one can best be characterized as a "Type 3" political bubble where rising asset prices generate wealth that are fed into the political process. (See: https://baselinescenario.com/2009/07/24/after-peak-finance-larry-summers-bubble/ )

[Oct 06, 2017] Prof. Philip Mirowski keynote for Life and Debt conference

Highly recommended!
Among interesting ideas that Mirkowski presented in this lecture are "privatization of science" -- when well paid intellectual prostitutes produce the reuslt which are expected by their handlers. the other is his thought on the difference between neoclassical economics and neoliberalism. Neoliberalism believes in state intervention and this intervention should take the form of enforcing market on all spheres of human society.
Another interesting idea that neoliberalism in many cases doe not need the success of its ideas. The failure can also be exploited for enforcing "more market" on the society.
In other words market fundamentalism has all features of civil religion and like in Middle Ages it is enforced from above. heretics are not burned at the stake but simply ostracized.
Notable quotes:
"... how it is that science came to be subordinate to economics and the very future of nature to be contingent upon the market. ..."
"... As a leading exponent of the Institutional school, he has published formal treatments of financial markets that update Minsky's 'financial instability hypothesis' for the world of computerised derivative trading. ..."
Aug 18, 2013 | www.youtube.com

Life and Debt: Living through the Financialisation of the Biosphere

How can it be that the climate crisis, the biodiversity crisis and the deepest financial crisis since 1930s have done so little to undermine the supremacy of orthodox economics?

The lecture will preview material from Mirowski's new book: Never Lt a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (Verso, 2013).

In this lecture, Professor Mirowski responds to the question of how it is that science came to be subordinate to economics and the very future of nature to be contingent upon the market. Charting the contradictions of the contemporary political landscape, he notes that science denialism, markets for pollution permits and proposals for geo-engineering can all be understood as political strategies designed to neutralize the impact of environmentalism, as they all originated in the network of corporate-sponsored think-tanks that have made neoliberal accounts of society, politics and the economy so prevalent that even the most profound crises are unable to shake their grip on the political imagination.

For those of us who are still paying attention, the task of constructing an alternative politics of science and markets is a vital one.

Philip Mirowski is Carl E. Koch Professor at the University of Notre Dame, Indiana. His most famous book, More Heat Than Light: Economics as Social Physics (1989) established his reputation as a formidable critic of the scientific status of neoclassical economics. His Machine Dreams: Economics becomes a Cyborg Science (2002) presents a history of the Cold War consolidation of American economic orthodoxy in the same intellectual milieu that produced systems theory, the digital computer, the atomic bomb, the strategy of Mutually Assured Destruction, and the 'think tank'. The Road from Mont Pelerin: the Making of the Neoliberal Thought Collective (with Dieter Plewhe, 2009), drawn from the archives of the Mont Pelerin Society and the Chicago School, presents a scholarly history of neoliberalism: the political movement initiated by Friedrich Hayek and Milton Friedman in the 1940s, which has since become the world's dominant philosophy of government.

As a leading exponent of the Institutional school, he has published formal treatments of financial markets that update Minsky's 'financial instability hypothesis' for the world of computerised derivative trading.

This lecture is presented by the UTS Cosmopolitan Civil Societies Research Centre and the Australian Working Group on Financialisation at the University of Sydney.

[Oct 01, 2017] Crisis is the way neoliberalism evolves. It limps from one economic crisis to another

Oct 01, 2017 | www.theguardian.com

The turn to neoliberal politics occurred in the midst of a crisis in the 1970s , and the whole system has been a series of crises ever since. And of course crises produce the conditions of future crises.

In 1982–85 there was a debt crisis in Mexico, Brazil, Ecuador, and basically all the developing countries including Poland. In 1987–88 there was a big crisis in US savings and loan institutions. There was a wide crisis in Sweden in 1990, and all the banks had to be nationalized .

Then of course we have Indonesia and Southeast Asia in 1997–98, then the crisis moves to Russia, then to Brazil, and it hits Argentina in 2001–2.

And there were problems in the United States in 2001 which they got through by taking money out of the stock market and pouring it into the housing market. In 2007–8 the US housing market imploded, so you got a crisis here

[Sep 27, 2017] The architect of supply-side economics is now a professor at Columbia University, former University of Chicago economist Robert Mundell is an academic charlatan

Notable quotes:
"... For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan ..."
"... The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do. ..."
Jan 20, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron :

Thanks to New Deal democrat, who made me curious about yesterday's "comment section in re Summers' piece." Then thanks to Ron Waller for his comment which closed with: (Good read: "Robert Mundell, evil genius of the euro".)

https://www.theguardian.com/commentisfree/2012/jun/26/robert-mundell-evil-genius-euro

Robert Mundell, evil genius of the euro

Greg Palast

For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan

The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do.

That progenitor is former University of Chicago economist Robert Mundell. The architect of "supply-side economics" is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell's research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency.

Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:

"They won't even let me have a toilet. They've got rules that tell me I can't have a toilet in this room! Can you imagine?"

As it happens, I can't. But I don't have an Italian villa, so I can't imagine the frustrations of bylaws governing commode placement.

But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.)

"It's very hard to fire workers in Europe," he complained. His answer: the euro.

The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing.

As another Nobelist, Paul Krugman, notes, the creation of the eurozone violated the basic economic rule known as "optimum currency area". This was a rule devised by Bob Mundell.

That doesn't bother Mundell. For him, the euro wasn't about turning Europe into a powerful, unified economic unit. It was about Reagan and Thatcher.

"Ronald Reagan would not have been elected president without Mundell's influence," once wrote Jude Wanniski in the Wall Street Journal. The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, "voodoo economics": the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher.

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics:

"Monetary discipline forces fiscal discipline on the politicians as well."

And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

Thus, we see that (unelected) Prime Minister Mario Monti is demanding labor law "reform" in Italy to make it easier for employers like Mundell to fire those Tuscan plumbers. Mario Draghi, the (unelected) head of the European Central Bank, is calling for "structural reforms" – a euphemism for worker-crushing schemes. They cite the nebulous theory that this "internal devaluation" of each nation will make them all more competitive.

Monti and Draghi cannot credibly explain how, if every country in the Continent cheapens its workforce, any can gain a competitive advantage.
But they don't have to explain their policies; they just have to let the markets go to work on each nation's bonds. Hence, currency union is class war by other means.

The crisis in Europe and the flames of Greece have produced the warming glow of what the supply-siders' philosopher-king Joseph Schumpeter called "creative destruction". Schumpeter acolyte and free-market apologist Thomas Friedman flew to Athens to visit the "impromptu shrine" of the burnt-out bank where three people died after it was fire-bombed by anarchist protesters, and used the occasion to deliver a homily on globalization and Greek "irresponsibility".

The flames, the mass unemployment, the fire-sale of national assets, would bring about what Friedman called a "regeneration" of Greece and, ultimately, the entire eurozone. So that Mundell and those others with villas can put their toilets wherever they damn well want to.

Far from failing, the euro, which was Mundell's baby, has succeeded probably beyond its progenitor's wildest dreams.

[Needless to say, I am not a fan of Robert Mundell's.]

Peter K. -> RC AKA Darryl, Ron... , January 20, 2017 at 07:19 AM

Excellent article!

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

Reminded me of a point made by J.W. Mason:

http://jwmason.org/slackwire/what-does-crowding-out-even-mean/

"..It's quite reasonable to suppose that, thanks to dependence on imported inputs and/or demand for imported consumption goods, output can't rise without higher imports. And a country may well run out of foreign exchange before it runs out of domestic savings, finance or productive capacity. This is the idea behind multiple gap models in development economics, or balance of payments constrained growth. It also seems like the direction orthodoxy is heading in the eurozone, where competitiveness is bidding to replace inflation as the overriding concern of macro policy."

Peter K. -> RC AKA Darryl, Ron... , January 20, 2017 at 07:30 AM
I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser.

Like would they advise Greece to boost their national savings rate or doesn't it matter since Germany controls monetary policy?

RC AKA Darryl, Ron said in reply to Peter K.... , January 20, 2017 at 08:58 AM
"I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser."

[Don't know and it sounds like way too much work for me to try to figure out. Savings rate is not a problem for us and it is difficult to see how Greece could realistically increase theirs sufficient to change anything without some other intervention being made first to decrease unemployment and increase output.]

pgl -> RC AKA Darryl, Ron... , January 20, 2017 at 09:47 AM
It is also too much work for PeterK. If he can't cherry pick it, he don't bother.

But note our net national savings rate has been less than 2% for a long, long time.

[Sep 11, 2017] The only countervailing force, unions, were deliberately destroyed. Neoliberalism needs to atomize work force to function properly and destroys any solidarity among workers. Unions are anathema for neoliberalism, because they prevent isolation and suppression of workers.

Highly recommended!
Apr 15, 2017 | economistsview.typepad.com
Denis Drew , April 15, 2017 at 06:58 AM
What's missing in each and every case above -- at least in the USA! -- is countervailing power. 6% labor union density in private business is equivalent to 20/10 blood pressure in the human body: it starves every other healthy process.

It is not just labor market bargaining power that has gone missing, it is not only the lost political muscle for the average person (equal campaign financing, almost all the votes), it is also the lack of machinery to deal with day-to-day outrages on a day-to-day basis (that's called lobbying).

Late dean of the Washington press corps David Broder told a young reporter that when he came to DC fifty years ago (then), all the lobbyists were union. Big pharma's biggest rip-offs, for profit school scams, all the stuff you hear about for one day on the news but no action is ever taken -- that's because there is no (LABOR UNION) mechanism to stay on top of all (or any) of it (LOBBYISTS).

cm -> Denis Drew ... , April 15, 2017 at 12:16 PM
It is a chicken and egg problem. Before large scale automation and globalization, unions "negotiated" themselves their power, which was based on employers having much fewer other choices. Any union power that was ever legislated was legislated as a *result* of union leverage, not to enable the latter (and most of what was legislated amounts to limiting employer interference with unions).

It is a basic feature of human individual and group relations that when you are needed you will be treated well, and when you are not needed you will be treated badly (or at best you will be ignored if that's less effort overall). And by needed I mean needed as a specific individual or narrowly described group.

What automation and globalization have done is created a glut of labor - specifically an oversupply of most skill sets relative to all the work that has to be done according to socially mediated decision processes (a different set of work than what "everybody" would like to happen as long as they don't have to pay for it, taking away from other necessary or desired expenditure of money, effort, or other resources).

Maybe when the boomers age out and become physically too old to work, the balance will tip again.

Peter K. -> cm... , April 15, 2017 at 12:18 PM
"What automation and globalization have done is created a glut of labor - "

No it's been policy and politics. Automation and globalization are red herrings. They've been used to enrich the rich and stick it to everyone else.

They don't have to be used that way.

There is nothing natural or inherent about it. It's all politics and class war and the wrong side is winning.

cm -> Peter K.... , April 15, 2017 at 01:32 PM
OK - they have *enabled* it. The agency is always on the human side. But at the same time, you cannot wish or postulate away human greed.
cm -> Peter K.... , April 15, 2017 at 01:44 PM
Same thing with the internet - it has been hailed as a democratizing force, but instead it has mostly (though not wholly) amplified the existing power differentials and motivation structures.

Anecdotally, a lot of companies and institutions are either restricting internal internet access or disconnecting parts of their organizations from the internet altogether, and disabling I/O channels like USB sticks, encrypting disks, locking out "untrusted" boot methods, etc. The official narrative is security and preventing leaks of confidential information, but the latter is clearly also aimed in part at whistleblowers disclosing illegal or unethical practices. Of course that a number of employees illegitimately "steal" data for personal and not to uncover injustices doesn't really help.

Denis Drew -> cm... , April 15, 2017 at 03:19 PM
Surely there is a huge difference between the labor market here and the labor market in continental Europe -- though labor there faces the same squeezing forces it faces here. Think of German auto assembly line workers making $60 an hour counting benefits.

Think Teamster Union UPS drivers -- and pity the poor, lately hired (if they are even hired) Amazon drivers -- maybe renting vans.

The Teamsters have the only example here of what is standard in continental Europe: centralized bargaining (aka sector wide labor agreements): the Master National Freight Agreement: wherein everybody doing the same job in the same locale (entire nation for long distance truckers) works under one common contract (in French Canada too).

Imagine centralized bargaining for airlines. A few years ago Northwest squeezed a billion dollars in give backs out of its pilots -- next year gave a billion dollars in bonuses to a thousand execs. Couldn't happen under centralized bargaining -- wouldn't even give the company any competitive advantage.

libezkova -> Denis Drew ... , April 15, 2017 at 04:14 PM
"What's missing in each and every case above -- at least in the USA! -- is countervailing power."

It was deliberately destroyed. Neoliberalism needs to "atomize" work force to function properly and destroys any solidarity among workers. Unions are anathema for neoliberalism, because they prevent isolation and suppression of workers.

Amazon and Uber are good examples. Both should be prosecuted under RICO act. Wall-Mart in nor far from them.

Rising fatalities from heart disease and stroke, diabetes, drug overdoses, accidents and other conditions caused the lower life expectancy revealed in a report by the National Center for Health Statistics .

http://www.cdc.gov/nchs/products/databriefs/db267.htm

http://economistsview.typepad.com/economistsview/2017/03/paul-krugman-the-scammers-the-scammed-and-americas-fate.html#comment-6a00d83451b33869e201b7c8e3c7c6970b

== quote ==
Anne Case and Angus Deaton garnered national headlines in 2015 when they reported that the death rate of midlife non-Hispanic white Americans had risen steadily since 1999 in contrast with the death rates of blacks, Hispanics and Europeans. Their new study extends the data by two years and shows that whatever is driving the mortality spike is not easing up.
... ... ..

Offering what they call a tentative but "plausible" explanation, they write that less-educated white Americans who struggle in the job market in early adulthood are likely to experience a "cumulative disadvantage" over time, with health and personal problems that often lead to drug overdoses, alcohol-related liver disease and suicide.

== end of quote ==

Greed is toxic. As anger tends to accumulate, and then explode, at some point neoliberals might be up to a huge surprise. Trump was the first swan.

Everybody bet on Hillary victory. And then...

[Jul 12, 2017] Ever more official lies from the US government by Paul Craig Roberts

Notable quotes:
"... John Williams counts the long term discouraged workers (discouraged for more than one year) who formerly (before "reforms") were counted officially. When the long term discouraged are counted, the US unemployment rate is in the 22-23 percent range. This is born out by the clear fact that the labor force participation rate has been falling throughout the alleded "recovery." Normally, labor force participation rates rise during economic recoveries. ..."
"... It is an extraordinary thing that although the US government itself reports that if even a small part of discouraged workers are countered as unemployed the unemployment rate is 8.6%, the presstitute financial media, a collection of professional liars, still reports, in the face of the government's admission, that the unemployment rate as 4.4%. ..."
Jul 12, 2017 | www.unz.com

The "recovery" is more than a mystery. It is a miracle. It exists only on fake news paper.

According to CNN, an unreliable source for sure, Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, reports that about half of Americans report that their living expenses are equal to or exceed their incomes. Among those aged 18 to 25 burdened by student loans, 54% say their debts are equal to or exceed their incomes. This means that half of the US population has ZERO discretionary income. So what is driving the recovery?

Nothing. For half or more of the US population there is no discretionary income there with which to drive the economy.

The older part of the population has no discretionary income either. For a decade there has been essentially zero interest on the savings of the elderly, and if you believe John Williams of shadowstats.com, which I do, the real interest rates have been zero and even negative as inflation is measured in a way designed to prevent Social Security cost of living adjustments.

In other words, the American economy has been living on the shrinkage of the savings and living standards of its population.

Last Friday's employment report is just another lie from the government. The report says that the unemployment rate is 4.4% and that June employment increased by 222,000 jobs. A rosy picture. But as I have just demonstrated, there are no fundamentals to support it. It is just another US government lie like Saddam Hussein's weapons of mass destruction, Assad's use of chemical weapons against his own people, Russian invasion of Ukraine, and so forth and so on.

The rosy unemployment picture is totally contrived. The unemployment rate is 4.4% because discouraged workers who have not searched for a job in the past four weeks are not counted as unemployed.

The BLS has a second measure of unemployment, known as U6, which is seldom reported by the presstitute financial media. According to this official measure the US unemployment rate is about double the reported rate.

Why? the U6 rate counts discouraged workers who have been discouraged for less than one year.

John Williams counts the long term discouraged workers (discouraged for more than one year) who formerly (before "reforms") were counted officially. When the long term discouraged are counted, the US unemployment rate is in the 22-23 percent range. This is born out by the clear fact that the labor force participation rate has been falling throughout the alleded "recovery." Normally, labor force participation rates rise during economic recoveries.

It is very easy for the government to report a low jobless rate when the government studiously avoids counting the unemployed.

It is an extraordinary thing that although the US government itself reports that if even a small part of discouraged workers are countered as unemployed the unemployment rate is 8.6%, the presstitute financial media, a collection of professional liars, still reports, in the face of the government's admission, that the unemployment rate as 4.4%.

Now, let's do what I have done month after month year after year. Let's look at the jobs that the BLS alleges are being created. Remember, most of these alleged jobs are the product of the birth/death model that adds by assumption alone about 100,000 jobs per month. In other words, these jobs come out of a model, not from reality.

Where are these reported jobs? They are where they always are in lowly paid domestic services. Health care and social assistance, about half of which is "ambulatory health care services," provided 59,000 jobs. Leisure and hospitality provided 36,000 jobs of which 29,300 consist of waitresses and bartenders. Local government rose by 35,000. Manufacturing, once the backbone of the US economy, provided a measly 1,000 jobs.

As I have emphasized for a decade or two, the US is devolving into a third world workforce where the only employment available is in lowly paid domestic service jobs that cannot be offshored and that do not pay enough to provide an independent existance. This is why 50% of 25-year olds live at home with their parents and why there are more Americans aged 24-34 living with parents than living indepenently.

This is not the economic profile of a "superpower" that the idiot neoconservatives claim the US to be. The American economy that offshoring corporations and financialization have created is incapable of supporting the enormous US debt burden. It is only a matter of time and circumstance.

I doubt that the United States can continue in the ranks of a first world economy. Americans have sat there sucking their thumbs while their "leaders" destroyed them.

(Republished from PaulCraigRoberts.org by permission of author or representative)

[Jun 30, 2017] Robert Shiller The Index I Invented Is At Levels Last Seen In 1929 And 2000

Jun 30, 2017 | www.zerohedge.com
With the Shiller CAPE index having surpassed the 30x for the first time since September 2001, its creator, Nobel Laureate and Yale School of Management Economics Professor Robert Shiller is warning investors that they should be cautious about investing in such an "unusual" market.

" the CAPE index that John Campbell and I devised 30 years ago is at unusual highs.

The only time in history going back to 1881 when it has been higher are, A: 1929 and B: 2000."

"We are at a high level, and its concerning."

However, the index has risen to these levels before without precipitating an immediate collapse, Shiller said. Indeed, during the history of the stock market, it has only traded at a richer valuation during one period - June 1997 to September 2001 - as the dotcom farce blew and burst. Historical data for the index is available going back to 1881.

Luckily, Shiller says, US investors at least have the option of investing in foreign markets. There are plenty of venues today that allow clients paying in dollars to invest in foreign markets.

"I think people should be cautious now. We have a high market. That doesn't mean I would avoid it all together. One can invest abroad also, the US has an unusually high stock market compared with other countries, or one can invest in low cape sectors."

"The world looks better and cheaper than we do?," CNBC asked.

"Yea – well the world believes in us, I guess. I think everyone should diversify.

"One should have a little of everything if one hasn't diversified this would be a good time to do that."

The market's fragility is becoming increasingly apparent as vol events become more frequent. In Thursday trading, the S&P 500 was off as much as 1.4% - sending the VIX up 50%+ before the panic-vol sellers stepped in. The FANG stocks, which contributed an outsize portion to this year's rally, are facing their worst week in five months.

GUS100CORRINA -> The_Juggernaut , Jun 29, 2017 10:13 PM

Robert Shiller : "The Index I Invented Is At Levels Last Seen In 1929 And 2000"

My response; As long as CBs have control of the global money supply and its creation, the party can continue indefinitely. We live in a world of relativism. His model is based on absolutes which no longer exist.

I do have one observation about the graph. DEBT structures were much different in previous centuries than they are today. As a result, DEBT would most definitely alter the SHILLER CAPE RATIO graph to the point the today's level would approach or exceed the level during the 2000 time frame.

XXX, Jun 29, 2017 9:36 PM

And the only time since the '50s market cap has been higher relative to gdp was 2000...

http://thesoundingline.com/putting-the-us-stock-market-in-perspective/

squid -> Zorba's idea , Jun 29, 2017 10:23 PM

If they had tried QE in the way we do it today, there would have been civil war.

FDR did do QE, but he used gold. He made everyone sell their gold for 20USD and then devalued the USD in terms of gold to 35USD, a loss of 70% for the poor mugs that sold the government their gold. As such, FRD increased the potential USD supply by 70% overnight.

Same thing. Squid

chosen , Jun 29, 2017 10:13 PM

Shiller predicted the collapse of the 2000 bubble. Most economists can't predict shit. So I respect him for that.

hoytmonger -> chosen , Jun 29, 2017 10:28 PM

Shiller is a shill for the state. https://mises.org/blog/robert-shiller-shilling-state

GooseShtepping Moron -> Gab Timov , Jun 29, 2017 10:48 PM

The Shiller P/E uses a 10-year moving average adjusted for inflation, so it captures market behavior from slightly before 2008 and everything since then. To the extent that QE causes inflation, the Shiller index should reflect some of that too. But the answer to your second question is yes, things certainly could go higher, but this time I don't think they will.

All the Fed-bashers and Yellen-haters up-thread seem to be stuck on shitposter autopilot. They're just repeating the same comments they've been making for the last 9 years. Don't you guys realize that the Fed is tightening now? That Yellen does not have the market's back anymore? Haven't you guys heard that she's unwinding the Fed's balance sheet? It's been in a couple of ZH posts, you know. It's time to start changing your tune about the central banks, because Yellen is serious about tightening and this sucker's coming down.

Dewey Cheatum a... , Jun 29, 2017 11:13 PM

Shiller's index is the closest thing out there that has any semblance of reality. And as usual the Fed is out of balance as a washing machine on spin cycle with a load of wet towels on one side and some socks and a few undies on the other.

Yen Cross , Jun 29, 2017 11:14 PM

Chew on these. Investment Grade Bond I've spent the better part of Q-2 '17 looking at[real] GAAP earnings across all sectors, and then looked at bond issuance [debt financing] and found some astounding divergences.

I think we're going to see a cascade event, when investors realize what is actually happening. CAPex isn't happening. The cost of buy-backs is getting very expensive, and the fraud/ mis-reporting is really troublesome.

[Jun 02, 2017] Why International Financial Crises naked capitalism

Notable quotes:
"... By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development and Anis Chowdhury, former Professor of Economics, University of Western Sydney, who held various senior United Nations positions in New York and Bangkok.Originally published at Inter Press Service ..."
"... The author doing political economics, and leaving the politics out. Some big elephant in the room, the Cold War. Peace is war by other means. Finance was weaponized by Bretton-Woods et al. ..."
"... Profit and loss occur together, and neither can occur without instability. Think of balancing feather on the end of your finger and getting paid for it. What matters is who is doing the balancing, the securitizing of everything, the privatizing of profits and the socializing of losses. ..."
"... This is close to what Steve Keen was saying, that finance gets ahead of the real economy and there's no way to get the balance back I like the way this is written. There is no system. So matter-of-fact. What is better, the deflation caused by a gold standard or inflation without one? That's an argument that never gets resolved. Because it's not the real question. The thing we should ask is what is better, a sustainable, healthy planet or capital gains? ..."
"... In addition to debt peonage for the masses, over-financialization and monopolies go hand in hand. ..."
"... Why the "subordination of the real economy to finance"? When debt is used as the monetary base, creation of more debt is incentivized. And they're STILL DOING IT. Since the ECB is running out of German debt to buy, now there's a proposal for eurozone structured sovereign debt, so the ECB can buy EVEN MORE debt. Prepare for MOAB (Mother Of All Bubbles). It ends in a supernova. ..."
Jun 02, 2017 | www.nakedcapitalism.com
Why International Financial Crises? Posted on June 2, 2017 by Yves Smith Yves here. I have some small quibbles with this otherwise fine post.

The first is that, as Keynes stressed, the problem with past international monetary systems like the gold standard was that there was no punishment for countries that engaged in mercantilist strategies and ran trade surpluses. Countries have strong incentives to do so because they effectively steal demand, and thus jobs, from their trade partners. The US has been willing to accommodate this desire because it saw ways to get geopolitical advantage from this situation. Second is that the US has been explicit about trying to make the world safer for US banks and later investment banks. Among other things, it was seen as a way to promote US multinationals. Believe it or not, globalization was supposed to be a force for peace. See this tweetstorm .

Note also that Carmen Reinhart and Ken Rogoff had a simpler explanation: they looked at 800 years of financial crises and concluded that higher levels of international capital flows lead to more frequent and severe financial crises. And before you blame that on trade deals, keep in mind that the Bank of International Settlements found that the ratio of money movements related to securities transactions has exploded. In the runup to the crisis, international capital flows were over 60 times the level of trade.

By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development and Anis Chowdhury, former Professor of Economics, University of Western Sydney, who held various senior United Nations positions in New York and Bangkok.Originally published at Inter Press Service

International currency and financial crises have become more frequent since the 1990s, and with good reason. But the contributory factors are neither simple nor straightforward. Such financial crises have, in turn, contributed to more frequent economic difficulties for the economies affected, as evident following the 2008-2009 financial crisis and the ensuing Great Recession still evident almost a decade later.

Why International Coordination?

Why is global co-ordination so necessary? There are two main reasons. One big problem before the Second World War was the contractionary macroeconomic consequences of the "gold standard."

In 1944, before the end of the Second World War, President Franklin Delano Roosevelt convened the United Nations Conference on Monetary and Financial Affairs – better known as the Bretton Woods Conference – even before the UN itself was set up the following year in San Francisco. After almost a month, the conference established the framework for the post-war international monetary and financial system, including the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), or World Bank.

To be sure, the Bretton Woods system reflected sometimes poor compromises made among the negotiating government representatives. Nevertheless, it served post-war reconstruction and early post-colonial development reasonably well until 1971.

In September of that year, the Nixon Administration in the US – burdened with mounting inflation and unsustainable budget deficits, partly due to the costly Vietnam War – unilaterally withdrew from its core commitment to ensure full US dollar convertibility to gold at the agreed rate. Thus, the unilateral US action did not involve a transition from the Bretton Woods system to any coherent, internationally agreed alternative.

Birth of a "Non-System"

The pre-1971 post-Second World War period has often been referred to as a Golden Age, a period of rapid reconstruction, growth and employment expansion after the devastation of the Second World War. It was also a period of development and structural transformation in many developing countries.

All this came to an end when coordination and multilateralism collapsed following President Nixon's decision to renege on 1944 US commitments at Bretton Woods which became the basis for the post-war international monetary system.

The leading international monetary economist of the post-war period, Robert Triffin, described the post-1971 arrangements as amounting to a "non-system." Now, with the international monetary system essentially the cumulative outcome of various, sometimes contradictory and ad hoc responses to new challenges, the need for coordination is all the more urgent.

A strong case for co-ordination has long been made by the United Nations. For example, soon after the global financial crisis exploded in late 2008, the 2009 mid-year update of the UN's World Economic Situation and Prospects showed how better coordinated and more equitable fiscal stimuli would have benefited all parties – developed countries, developing countries, transition economies and, most of all, the least developed countries.

Anarchy and Fragility

Since the collapse of the Bretton Woods system in 1971, a small handful of currencies – especially the US dollar, the international favourite by far – have been held by others as reserve currencies. This has allowed the issuers of these currencies – especially the US – to run massive trade deficits, contributing to unsustainable global imbalances in savings and consumption.

A second underlying cause of international financial crises has been the ascendance, transformation and hegemony of the financial sector – termed "financialization" – over the past three to four decades. Partly as a consequence, many decision-makers are now often more concerned with short-term financial indicators than other key economic indicators, often presuming that the former reflect the latter despite the lack of such evidence.

A third factor has been growing "financial fragility," partly due to the global financial "non-system" in place since the collapse of the Bretton Woods system. Referring to this "non-system" as an international financial "architecture" is really insulting to architects. The lack of coherence and coordination has been exacerbated by financial deregulation, liberalization and globalization over the past three decades.

Finance Calling the Shots

The growing and spreading subordination of the real economy to finance in recent decades is a fundamental part of the problem. While finance is indeed a very important, if not an essential handmaiden for the functioning of the real economy, the subordination of the real economy to finance has transformed macro-financial dynamics, with unproductive, contractionary, even dangerous consequences.

So, to address the root causes of crises, much better, including more appropriate regulation of the financial system is needed to ensure consistently counter-cyclical macro-financial institutions, instruments and policies, and to subordinate the financial sector to the real economy.

The 2008 financial crisis has catalyzed many debates on these issues – some old, some new – for instance, between Keynesian/Minskyian economists and their opponents; between Anglo-American and continental European worldviews; and between the global North and South. Any sustainable solution will clearly require much better international cooperation and co-ordination.

Hence, almost a decade since the 2008 global financial crisis began, there is no shared political commitment to much needed international financial reforms. It took fifteen years from the beginning of the Great Depression, a world war and Roosevelt's extraordinary leadership before the world was able to reform the international financial system in 1944. But sadly, there is no Roosevelt for our times.

Disturbed Voter , June 2, 2017 at 6:36 am

The author doing political economics, and leaving the politics out. Some big elephant in the room, the Cold War. Peace is war by other means. Finance was weaponized by Bretton-Woods et al.

Coordination is occurring, but only on the Elite level per conspiracy theory. Really important political economic activity has to occur outside of public scrutiny.

epynonymous , June 2, 2017 at 2:36 am

Theoretically, the Paris Climate agreement should be a neutral proposition, with no industrial state standing to lose.

Conservatives always say that money costs jobs, but Keynes says it creates jobs. Like New Jersey demanding full-service gasoline stations. Conservatives are right that they may not be the right jobs, but Keynes says any jobs are better than none. So I suppose Keynes is a liberal.

Of course, your answer to what problem/solution is the re-appearing financial crises. Volatility has obvious winners. The insurance industry is both winner and loser here.

– Should have bought bitcoin

Disturbed Voter , June 2, 2017 at 6:34 am

Profit and loss occur together, and neither can occur without instability. Think of balancing feather on the end of your finger and getting paid for it. What matters is who is doing the balancing, the securitizing of everything, the privatizing of profits and the socializing of losses.

The reason why this is tolerated, is that people don't want to escape wage slavery and debt slavery, they simply want to be successful in the existing system. The alternative is a no-win no-loss system which is called stagnation by economists who are paid to say that.

epynonymous , June 2, 2017 at 1:07 pm

I ultimately concluded that Nixon was actually, unexpectedly, opposing Rockefeller, somehow. I'd say the Trump parallel is obvious, controlled opposition. He's pretty much in Hillary's pocket and if we accept the premise of Kayfabe((it's a story-line for the uninformed, deplorable, etc.)) then maybe he wasn't supposed to win.) Hillary came first, so there's no way she's his alter-ego. Also, there is still no messaging on the Democratic side.

We are off-script. Today, I'm am watching the Whitest Kids You Know sketch group. I'm currently enjoying "Moon Bears"

https://www.youtube.com/watch?v=pvjgIxuVdo4

JCC , June 2, 2017 at 8:52 am

Yves, Your "See this tweetstorm" link above is broken. I assume you meant to put in this link???

http://www.nakedcapitalism.com/2016/06/matt-stoller-how-the-us-saw-multinationals-as-means-to-prevent-war.html (which is an excellent point by Mr. Stoller, by the way)

Susan the other , June 2, 2017 at 9:35 am

This is close to what Steve Keen was saying, that finance gets ahead of the real economy and there's no way to get the balance back I like the way this is written. There is no system. So matter-of-fact. What is better, the deflation caused by a gold standard or inflation without one? That's an argument that never gets resolved. Because it's not the real question. The thing we should ask is what is better, a sustainable, healthy planet or capital gains?

Keen was talking about the folly of the "great moderation" and the levels of debt in the system killing the real economy and so is this article. It indicates we need an overriding theme – like, say, survival? My first thought is always the planet. Financialization has devastated the planet and caused awful inequality and at the same time has allowed sustainability to become a lost cause because it is essentially too expensive so it becomes an "externality". Fixing the planet is our best solution to our global/financial non-system. I don't care how many ratholes money gets poured down as long as it is put into maintaining the proper ecology of the earth – which must include equality. Sustainability and equality will be the countercyclical we need. And money is just cooperation.

LT , June 2, 2017 at 9:55 am

In addition to debt peonage for the masses, over-financialization and monopolies go hand in hand.

epynonymous , June 2, 2017 at 1:49 pm

https://www.youtube.com/watch?v=JnCCJuOPCbI

The Hinkley Move- A La WKUK

Jim Haygood , June 2, 2017 at 5:06 pm

Why the "subordination of the real economy to finance"? When debt is used as the monetary base, creation of more debt is incentivized. And they're STILL DOING IT. Since the ECB is running out of German debt to buy, now there's a proposal for eurozone structured sovereign debt, so the ECB can buy EVEN MORE debt. Prepare for MOAB (Mother Of All Bubbles). It ends in a supernova.

[May 16, 2017] Mohamed El-Erian: We get signals that the system is under enormous stress

Notable quotes:
"... "The minute you to start talking about the inequality of opportunity, you fuel the politics of anger. The politics of anger have a tendency to produce improbable results. The major risk is that we don't know how much we've strained the underlying system. But what we do know is we are getting signals that suggest it's under enormous stress, which means the probability of either a policy mistake or market accident goes up." ..."
"... Third, pockets of extreme indebtedness must be addressed, a lesson he learned working with the IMF in Latin America in the 1980s. "When you have a debt overhang, it's like a black cloud," he argues. "It sucks oxygen out of the system. You cannot grow of it: whether it's Greece or student loans in the US, you need to deal with debt overhangs." The process of debt forgiveness is hard, he concedes, because some people are unfairly rewarded – "but the alternatives are worse." ..."
May 16, 2017 | www.theguardian.com

Leading economist and investor believes world leaders, and global capitalism, have reached fork in road between equality and chaos

This is the nub of El-Erian's analysis of why the developed world is approaching a fork in the road. The inequality generated by the current low-growth climate has three elements: inequality of wealth, income and opportunity. The last of the three – manifested in high youth unemployment in many eurozone countries, for example – is the most explosive element.

"The minute you to start talking about the inequality of opportunity, you fuel the politics of anger. The politics of anger have a tendency to produce improbable results. The major risk is that we don't know how much we've strained the underlying system. But what we do know is we are getting signals that suggest it's under enormous stress, which means the probability of either a policy mistake or market accident goes up."

... ... ...

How do we take the high, benign road? El-Erian has a four-point plan.

First, "we need to get back to investing in things that promote economic growth, infrastructure, a more pro-growth tax system for the US, serious labour retooling ... If you're in Europe, youth employment is an issue you've really got to think about very seriously."

Second, countries that can afford to do so must "exploit the fiscal space," meaning borrowing to invest or cutting taxes. He puts the US and Germany unambiguously in that category "and to a certain extent the UK".

Third, pockets of extreme indebtedness must be addressed, a lesson he learned working with the IMF in Latin America in the 1980s. "When you have a debt overhang, it's like a black cloud," he argues. "It sucks oxygen out of the system. You cannot grow of it: whether it's Greece or student loans in the US, you need to deal with debt overhangs." The process of debt forgiveness is hard, he concedes, because some people are unfairly rewarded – "but the alternatives are worse."

Fourth, regional and global governance needs repair. He compares the eurozone to a stool with one-and-a-half legs instead of four. The complete leg is monetary union, the half is banking union. The missing legs are fiscal integration, meaning a common budget, and political harmonisation. No wonder the eurozone is unstable, he says: "You can do three legs, you can't do one and half."

To return to El-Erian's core T-junction analogy, none of the required manoeuvres sound easy. "You don't need a big bang," he replies. "If you want to take the good turn you have to see some progress on some of these elements. If you don't, then we take the other turn." He ascribes equal probabilities – "it's a political judgment."

What's an investor to do? El-Erian says his own approach, which he admits is hard for the average person to copy, is framed like a bar-bell. At one end, he's invested in high-risk startups where you don't need all to succeed. At the other, he's in cash and cash-like investments. In the middle, he'll invest in public markets only tactically.

The bottom line: "I'm risk off."

[Apr 27, 2017] Elizabeth Warren on Big Banks and Their (Cozy Bedmate) Regulators

Notable quotes:
"... "Regulatory failure has been built into the system," Ms. Warren said in our interview. "The regulators routinely hear from the banks. They hear from those who have billions of dollars at stake. But they don't hear from the millions of people across this country who will be deeply affected by the decisions they make." ..."
"... There was a time when everything that went through Washington got measured by whether it created more opportunities for the middle class," Ms. Warren said. "Now, the people with money and power have figured out how to invest millions of dollars in Washington and get rules that yield billions of dollars for themselves. ..."
"... "Government," she added, "increasingly works for those at the top." ..."
Apr 27, 2017 | www.nytimes.com

Wells Fargo's board and management are scheduled to meet shareholders at the company's annual meeting Tuesday in Ponte Vedra Beach, Fla. With the phony account-opening scandal still making headlines, and the company's stock underperforming its peers, it's a good bet the bank's brass will have some explaining to do.

How could such pernicious practices at the bank be allowed for so long? Why didn't the board do more to stop the scheme or the incentive programs that encouraged it? And where, oh where, were the regulators?

Wells Fargo's management has conceded making multiple mistakes over many years; it also says it has learned from them. In a meeting this week with reporters at The New York Times, Timothy J. Sloan, Wells Fargo's chief executive, said the bank had made substantive changes to its structure and culture to ensure that dubious practices won't take hold again.

But there's a deeper explanation for why Wells Fargo's corrosive sales practices came about and continued for years. And it has everything to do with the bank-friendly regulatory regime in Washington and the immense sway that institutions like Wells Fargo have there. This poisonous combination contributes to a sense among giant banking institutions that they answer to no one.

  • "This Fight Is Our Fight" contains juicy but depressing anecdotes about how our most trusted institutions have let us down. It also shows why, years after the financial crisis, big banks are still large, in charge and, basically, unaccountable for their actions.

    "In too many of these organizations, there are rewards for cheating and punishments for calling out the cheaters," Ms. Warren said in an interview Wednesday. "As long as that's the case, the biggest financial institutions will continue to put their customers and the economy at risk."

    Ms. Warren's no-nonsense views are bracing. But they are also informed by a thorough understanding of how dysfunctional Washington now is. This failure has cost Main Street dearly, she said, but has benefited the powerful.

    Wells Fargo got a lot of criticism from Ms. Warren, both in her book and in my interview - and on live television during the Senate Banking Committee hearing on the account-opening mess in September. She was among the harshest cross-examiners encountered by John G. Stumpf, who was Wells Fargo's chief executive at the time. "You should resign," she told him, "and you should be criminally investigated." (Mr. Stumpf retired the next month.)

    This week, Ms. Warren called for the ouster of the company's directors and a criminal inquiry into the bank.

    "Yes, the board should be removed, but that's not enough," she told me. "There still needs to be a criminal investigation. The expertise is in the regulatory agencies, but the power to prosecute lies mostly with the Justice Department, and if they don't have either the energy or the talent - or the backbone - to go after the big banks, then there will never be any real accountability."

    Banks are not the only targets in Ms. Warren's book. Others include Wal-Mart, for its treatment of employees; for-profit education companies, for the way they pile debt on unsuspecting students; the Chamber of Commerce, for battling Main Street; and prestigious think tanks, for their undisclosed conflicts of interest.

    My favorite moments in the book involve the phenomenon of regulatory capture: the pernicious condition in which institutions that are supposed to police the nation's financial behemoths actually come to view them as clients or pals.

    One telling moment took place in 2005, when Ms. Warren, then a Harvard law professor, was invited to address the staff at the Office of the Comptroller of the Currency, a top regulator charged with monitoring the activities of big banks.

    She was thrilled by the invitation, she recalled in the book. After years of tracking various problems consumers experienced with their banks - predatory lending, sky-high interest rates and dubious fees - Ms. Warren felt that, finally, she'd be able to persuade the regulators to crack down.

    Her host for the meeting was Julie L. Williams, then the acting comptroller of the currency. In a conference room filled with economists and bank supervisors, Ms. Warren presented her findings: Banks were tricking and cheating their consumers.

    After the meeting ended and Ms. Williams was escorting her guest to the elevator, she told Ms. Warren that she had made a "compelling case," Ms. Warren writes. When she pushed Ms. Williams to have her agency do something about the dubious practices, the regulator balked.

    "No, we just can't do that," Ms. Williams said, according to the book. "The banks wouldn't like it."

    Ms. Warren was not invited back.

    Ms. Williams left the agency in 2012 and is a managing director at Promontory, a regulatory-compliance consulting firm specializing in the financial services industry. When I asked about her conversation with Ms. Warren, she said she had a different recollection.

    "I told her I agreed with her concerns," Ms. Williams wrote in an email, "but when I said, 'We just can't do that,' I explained that was because the Comptroller's office did not have jurisdiction to adopt rules to ban the practice. I told her this was the Federal Reserve Board's purview."
    Interestingly, though, Ms. Warren's take on regulatory capture at the agency was substantiated in a damning report on its supervision of Wells Fargo, published by a unit of the Office of the Comptroller of the Currency on Wednesday.

    The report cited a raft of agency oversight breakdowns regarding Wells Fargo. Among them was its failure to follow up on a slew of consumer and employee complaints beginning in early 2010. There was no evidence, the report said, that agency examiners "required the bank to provide an analysis of the risks and controls, or investigated these issues further to identify the root cause and the appropriate supervisory actions needed."

    Neither did the agency document the bank's resolution of whistle-blower complaints, the report said, or conduct in-depth reviews and tests of the bank's controls in this area "at least from 2011 through 2014." (The agency recently removed its top Wells Fargo examiner, Bradley Linskens, from his job running a staff of 60 overseeing the bank.)

    "Regulatory failure has been built into the system," Ms. Warren said in our interview. "The regulators routinely hear from the banks. They hear from those who have billions of dollars at stake. But they don't hear from the millions of people across this country who will be deeply affected by the decisions they make."

    This is why the Consumer Financial Protection Bureau plays such a crucial role, she said. The agency allows consumers to sound off about their financial experiences, and their complaints provide a heat map for regulators to identify and pursue wrongdoing.

    But this setup has also made the bureau a target for evisceration by bank-centric politicians.

    "There was a time when everything that went through Washington got measured by whether it created more opportunities for the middle class," Ms. Warren said. "Now, the people with money and power have figured out how to invest millions of dollars in Washington and get rules that yield billions of dollars for themselves."

    "Government," she added, "increasingly works for those at the top."

  • [Apr 21, 2017] Elizabeth Warren on Big Banks and Their (Cozy Bedmate) Regulators - The New York Times

    Apr 21, 2017 | www.nytimes.com

    Wells Fargo 's board and management are scheduled to meet shareholders at the company's annual meeting Tuesday in Ponte Vedra Beach, Fla. With the phony account-opening scandal still making headlines , and the company's stock underperforming its peers, it's a good bet the bank's brass will have some explaining to do.

    How could such pernicious practices at the bank be allowed for so long? Why didn't the board do more to stop the scheme or the incentive programs that encouraged it? And where, oh where, were the regulators?

    Wells Fargo's management has conceded making multiple mistakes over many years; it also says it has learned from them. In a meeting this week with reporters at The New York Times, Timothy J. Sloan, Wells Fargo's chief executive, said the bank had made substantive changes to its structure and culture to ensure that dubious practices won't take hold again.

    But there's a deeper explanation for why Wells Fargo's corrosive sales practices came about and continued for years. And it has everything to do with the bank-friendly regulatory regime in Washington and the immense sway that institutions like Wells Fargo have there. This poisonous combination contributes to a sense among giant banking institutions that they answer to no one.

    Continue reading the main story Advertisement Continue reading the main story

    The capture of our regulatory and political system by big and powerful corporations is real. And it is a central and disturbing theme in the new book by Senator Elizabeth Warren , Democrat of Massachusetts.

    Advertisement Continue reading the main story

    "This Fight Is Our Fight" contains juicy but depressing anecdotes about how our most trusted institutions have let us down. It also shows why, years after the financial crisis, big banks are still large, in charge and, basically, unaccountable for their actions.

    "In too many of these organizations, there are rewards for cheating and punishments for calling out the cheaters," Ms. Warren said in an interview Wednesday. "As long as that's the case, the biggest financial institutions will continue to put their customers and the economy at risk."

    Ms. Warren's no-nonsense views are bracing. But they are also informed by a thorough understanding of how dysfunctional Washington now is. This failure has cost Main Street dearly, she said, but has benefited the powerful.

    Wells Fargo got a lot of criticism from Ms. Warren, both in her book and in my interview - and on live television during the Senate Banking Committee hearing on the account-opening mess in September. She was among the harshest cross-examiners encountered by John G. Stumpf, who was Wells Fargo's chief executive at the time. "You should resign," she told him , "and you should be criminally investigated." (Mr. Stumpf retired the next month.)

    This week, Ms. Warren called for the ouster of the company's directors and a criminal inquiry into the bank.

    "Yes, the board should be removed, but that's not enough," she told me. "There still needs to be a criminal investigation. The expertise is in the regulatory agencies, but the power to prosecute lies mostly with the Justice Department, and if they don't have either the energy or the talent - or the backbone - to go after the big banks, then there will never be any real accountability."

    Banks are not the only targets in Ms. Warren's book. Others include Wal-Mart, for its treatment of employees; for-profit education companies, for the way they pile debt on unsuspecting students; the Chamber of Commerce, for battling Main Street; and prestigious think tanks, for their undisclosed conflicts of interest.

    My favorite moments in the book involve the phenomenon of regulatory capture: the pernicious condition in which institutions that are supposed to police the nation's financial behemoths actually come to view them as clients or pals.

    Photo

    One telling moment took place in 2005, when Ms. Warren, then a Harvard law professor, was invited to address the staff at the Office of the Comptroller of the Currency, a top regulator charged with monitoring the activities of big banks.

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    She was thrilled by the invitation, she recalled in the book. After years of tracking various problems consumers experienced with their banks - predatory lending, sky-high interest rates and dubious fees - Ms. Warren felt that, finally, she'd be able to persuade the regulators to crack down.

    Her host for the meeting was Julie L. Williams, then the acting comptroller of the currency. In a conference room filled with economists and bank supervisors, Ms. Warren presented her findings: Banks were tricking and cheating their consumers.

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    After the meeting ended and Ms. Williams was escorting her guest to the elevator, she told Ms. Warren that she had made a "compelling case," Ms. Warren writes. When she pushed Ms. Williams to have her agency do something about the dubious practices, the regulator balked.

    "No, we just can't do that," Ms. Williams said, according to the book. "The banks wouldn't like it."

    Ms. Warren was not invited back.

    Ms. Williams left the agency in 2012 and is a managing director at Promontory , a regulatory-compliance consulting firm specializing in the financial services industry. When I asked about her conversation with Ms. Warren, she said she had a different recollection.

    "I told her I agreed with her concerns," Ms. Williams wrote in an email, "but when I said, 'We just can't do that,' I explained that was because the Comptroller's office did not have jurisdiction to adopt rules to ban the practice. I told her this was the Federal Reserve Board's purview."

    Interestingly, though, Ms. Warren's take on regulatory capture at the agency was substantiated in a damning report on its supervision of Wells Fargo, published by a unit of the Office of the Comptroller of the Currency on Wednesday.

    The report cited a raft of agency oversight breakdowns regarding Wells Fargo. Among them was its failure to follow up on a slew of consumer and employee complaints beginning in early 2010. There was no evidence, the report said, that agency examiners "required the bank to provide an analysis of the risks and controls, or investigated these issues further to identify the root cause and the appropriate supervisory actions needed."

    Advertisement Continue reading the main story

    Neither did the agency document the bank's resolution of whistle-blower complaints, the report said, or conduct in-depth reviews and tests of the bank's controls in this area "at least from 2011 through 2014." ( The agency recently removed its top Wells Fargo examiner, Bradley Linskens, from his job running a staff of 60 overseeing the bank.)

    "Regulatory failure has been built into the system," Ms. Warren said in our interview. "The regulators routinely hear from the banks. They hear from those who have billions of dollars at stake. But they don't hear from the millions of people across this country who will be deeply affected by the decisions they make."

    This is why the Consumer Financial Protection Bureau plays such a crucial role, she said. The agency allows consumers to sound off about their financial experiences, and their complaints provide a heat map for regulators to identify and pursue wrongdoing.

    But this setup has also made the bureau a target for evisceration by bank-centric politicians.

    "There was a time when everything that went through Washington got measured by whether it created more opportunities for the middle class," Ms. Warren said. "Now, the people with money and power have figured out how to invest millions of dollars in Washington and get rules that yield billions of dollars for themselves."

    "Government," she added, "increasingly works for those at the top."

    [Apr 19, 2017] Bannons Worldview Dissecting the Message of The Fourth Turning

    This four seasons theory looks to me like some king of amateur dialectics...
    80 years is close to Kondratiev cycles length.
    Notable quotes:
    "... Stephen K. Bannon has great admiration for a provocative but disputed theory of history that argues that the United States is nearing a crisis that could be just as disruptive and catastrophic as the most seminal global turning points of the last 250 years. ..."
    "... This prophecy, which is laid out in a 1997 book, "The Fourth Turning," by two amateur historians, makes the case that world events unfold in predictable cycles of roughly 80 years each that can be divided into four chapters, or turnings: growth, maturation, entropy and destruction. Western societies have experienced the same patterns for centuries, the book argues, and they are as natural and necessary as spring, summer, fall and winter. ..."
    "... In an interview with The Times, Mr. Bannon said, "Everything President Trump is doing - all of it - is to get ahead of or stop any potential crisis." But the magnitude of this crisis - and who is ultimately responsible for it - is an unknown that Mr. Trump can use to his political advantage. This helps explain Mr. Trump's tendency to emphasize crime rates, terrorist attacks and weak border control. ..."
    "... We should shed and simplify the federal government in advance of the Crisis by cutting back sharply on its size and scope but without imperiling its core infrastructure. ..."
    "... One of the authors' major arguments is that Western society - particularly American culture - has denied the significance of cyclical patterns in history in favor of the more palatable and self-serving belief that humans are on an inexorable march toward improvement. They say this allows us to gloss over the flaws in human nature that allow for bad judgment - and bad leaders that drive societies into decline. ..."
    "... The authors envision a return to a more traditional, conservative social order as one outcome of a crisis. They also see the possibility of retribution and punishment for those who resist or refuse to comply with the new expectations for conformity. Mr. Trump's "with us or against us" attitude raises questions about what kind of leader he would be in such a crisis - and what kind of loyalty his administration might demand. ..."
    Apr 19, 2017 | www.nytimes.com

    Stephen K. Bannon has great admiration for a provocative but disputed theory of history that argues that the United States is nearing a crisis that could be just as disruptive and catastrophic as the most seminal global turning points of the last 250 years.

    This prophecy, which is laid out in a 1997 book, "The Fourth Turning," by two amateur historians, makes the case that world events unfold in predictable cycles of roughly 80 years each that can be divided into four chapters, or turnings: growth, maturation, entropy and destruction. Western societies have experienced the same patterns for centuries, the book argues, and they are as natural and necessary as spring, summer, fall and winter.

    Few books have been as central to the worldview of Mr. Bannon, a voracious reader who tends to see politics and policy in terms of their place in the broader arc of history.

    But what does the book tell us about how Mr. Bannon is approaching his job as President Trump's chief strategist and what he sees in the country's future? Here are some excerpts from the book, with explanations from The New York Times.

    'Winter Is Coming,' and We'd Better Be Prepared

    History is seasonal, and winter is coming. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, one commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II. The risk of catastrophe will be high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule.

    The "Fourth Turning" authors, William Strauss and Neil Howe, started using that phrase before it became a pop culture buzzword courtesy of HBO's "Game of Thrones." But, as the authors point out, some winters are mild. And sometimes they arrive late. The best thing to do, they say, is to prepare for what they wrote will be "America's next rendezvous with destiny."

    In an interview with The Times, Mr. Bannon said, "Everything President Trump is doing - all of it - is to get ahead of or stop any potential crisis." But the magnitude of this crisis - and who is ultimately responsible for it - is an unknown that Mr. Trump can use to his political advantage. This helps explain Mr. Trump's tendency to emphasize crime rates, terrorist attacks and weak border control.

    The 'Deconstruction of the Administrative State,' and Much More, Is Inevitable

    The Fourth Turning will trigger a political upheaval beyond anything Americans could today imagine. New civic authority will have to take root, quickly and firmly - which won't be easy if the discredited rules and rituals of the old regime remain fully in place. We should shed and simplify the federal government in advance of the Crisis by cutting back sharply on its size and scope but without imperiling its core infrastructure.

    The rhythmic, seasonal nature of history that the authors identify foresees an inevitable period of decay and destruction that will tear down existing social and political institutions. Mr. Bannon has famously argued that the overreaching and ineffective federal government - "the administrative state," as he calls it - needs to be dismantled. And Mr. Trump, he said, has just begun the process.

    As Mr. Howe said in an interview with The Times: "There has to be a period in which we tear down everything that is no longer functional. And if we don't do that, it's hard to ever renew anything. Forests need fires, and rivers need floods. These happen for a reason."

    'The American Dream Is Dead'

    James Truslow Adams (wrote) of an 'American Dream' to refer to this civic faith in linear advancement. Time, they suggested, was the natural ally of each successive generation. Thus arose the dogma of an American exceptionalism, the belief that this nation and its people had somehow broken loose from any risk of cyclical regress . Yet the great weakness of linear time is that it obliterates time's recurrence and thus cuts people off from the eternal - whether in nature, in each other, or in ourselves.

    One of the authors' major arguments is that Western society - particularly American culture - has denied the significance of cyclical patterns in history in favor of the more palatable and self-serving belief that humans are on an inexorable march toward improvement. They say this allows us to gloss over the flaws in human nature that allow for bad judgment - and bad leaders that drive societies into decline.

    Though he probably did not intentionally invoke Mr. Strauss and Mr. Howe, Mr. Trump was channeling their thesis when he often said during his campaign, "The American dream is dead." One of the scenarios the book puts forward is one in which leaders who emerge during a crisis can revive and rebuild dead institutions. Mr. Trump clearly saw himself as one of these when he said his goal would be to bring back the American dream.

    Conform, or Else

    In a Fourth Turning, the nation's core will matter more than its diversity. Team, brand, and standard will be new catchwords. Anyone and anything not describable in those terms could be shunted aside - or worse. Do not isolate yourself from community affairs . If you don't want to be misjudged, don't act in a way that might provoke Crisis-era authority to deem you guilty. If you belong to a racial or ethnic minority, brace for a nativist backlash from an assertive (and possibly authoritarian) majority.

    The authors envision a return to a more traditional, conservative social order as one outcome of a crisis. They also see the possibility of retribution and punishment for those who resist or refuse to comply with the new expectations for conformity. Mr. Trump's "with us or against us" attitude raises questions about what kind of leader he would be in such a crisis - and what kind of loyalty his administration might demand.

    [Apr 15, 2017] Statistical Significance Is Overrated - Noah Smith

    Apr 15, 2017 | economistsview.typepad.com
    Gerald Scorse , April 14, 2017 at 06:20 AM
    Statistical Significance Is Overrated - Noah Smith

    "[R]emember that statistical significance is only part of what you need to know. How strong an effect is, and how important it is in the real world, might matter even more."

    I try to learn something new every day. This is it for Friday, April 14, 2017. Thanks Noah.

    Chris G -> Gerald Scorse... , April 14, 2017 at 07:29 AM
    I thought Smith's column was quite good. (I don't write that very often.) "We know what the effect accurately and precisely. It's really small and doesn't matter." is important if/when that's the case. You want to know when you can get away with ignoring something when you're creating your (approximate) model of how the world works. Conversely, "We know what the effect is pretty accurately but not super precisely. We know enough that we can say that it's a big deal but we're still figuring out precisely how big a deal." is also critical information. Knowledge re the former effect may be more statistically significant than the latter while at the same time being less materially significant. That can be a fairly subtle point to a non-technical audience. Heck, it can be a subtle point to technically-oriented audience.
    libezkova said in reply to Chris G ... , April 14, 2017 at 04:11 PM
    I think that requirement of the normal (or Gaussian) distribution that is behind most statistical metrics is the weakest part.

    Normal distribution is the distribution with the maximum entropy for a specified mean and variance. As such it is poorly suited as the distribution of the data reflecting economic or social processes (fat tails problems).

    [Apr 14, 2017] DeLong statement Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. is very questionable, but typical for dyed-in-the-wool neoliberals

    With oversized financial system crashes are inevitable; in a way oversize financial system is enough for producing financial crash: swine will always find the dirt.
    Notable quotes:
    "... Major Malinvestments Do Not Have to Produce Large Depressions by Brad DeLong ..."
    "... I asked the typical macro question: who are the twenty biggest suppliers of securitization products, and who are the twenty biggest buyers. I got a paper, and they were both the same set of institutions. When I was at this meeting--and I really should have been at these meetings earlier--I was talking to the banks, and I said: "It looks to me that since the buyers and the sellers are the same institutions, as a system they have not diversified" ..."
    "... That was one of the things that struck me: that the industry was not aware at the time that while its treasury department was reporting that it bought all these products its credit department was reporting that it had sold off all the risk because they had securitized them. ..."
    "... Indeed, John Maynard Keynes had a good deal to say about this in Notes on the Trade Cycle: ..."
    "... "The preceding analysis may appear to be in conformity with the view of those who hold that over-investment is the characteristic of the boom, that the avoidance of this over-investment is the only possible remedy for the ensuing slump, and that, whilst for the reasons given above the slump cannot be prevented by a low rate of interest, nevertheless the boom can be avoided by a high rate of interest. There is, indeed, force in the argument that a high rate of interest is much more effective against a boom than a low rate of interest against a slump. ..."
    "... It's not malinvestment that played decisive role. It's leverage which gradually increased during boom until it reached the level at which it necessarily caused the crash. Dot-com boom crash came at the levels of leverage far less then subprime. Generally financial firms only get appetite for exorbitant leverage at this time. So there were no Lehman Brother event during dot-com crash. ..."
    "... Also subprime bubble was facilitated by the Fed as a remedy for dot-com bubble. From this point of view it was just the second stage of dot-com bubble. ..."
    "... In reality when finance reached Ponzi stage nothing can prevent the crash and the longer the boom is artificially prolonged be deeper will be the crash and subsequent recession. So Fed efforts to mitigate dot-com bubble played a huge role of making the Great Recession as painful as it was. ..."
    Mar 18, 2017 | economistsview.typepad.com
    Peter K. : March 18, 2017 at 09:29 AM
    http://www.bradford-delong.com/2017/02/the-united-states-had-an-immense-boom-in-the-1990s-that-was-in-the-end-financial-disappointing-for-those-who-invested-in-it.html

    Major Malinvestments Do Not Have to Produce Large Depressions by Brad DeLong

    February 22, 2017 at 06:06 AM

    The United States had an immense boom in the 1990s. That was in the end financial disappointing for those who invested in it, but not because the technologies they were investing in did not pan out as technologies, not because the technologies deliver enormous amounts of well-being to humans, but because it turned out to be devil's own task to monetize any portion of the consumer surplus generated by the provision of information goods.

    Huge investments in high tech and communications. Huge amounts of utility generated. Little financial return. $4 trillion of investors' wealth destroyed as assets were revalued. That is something like 8 times the fundamental losses we saw in subprime mortgages and home equity loans made on houses in the desert between Los Angeles and Albuquerque from mid 2006-mid 2008.

    A 1.5%-point rise in the unemployment rate after 2000 is not nothing--it is a bad thing. But it is not a 7%-point rise. And it is not a failure to close any of the gap vis-a-vis the pre-crisis trend of potential thereafter and a dark shadow over economic growth for a generation thereafter. Yet the fundamental shock from dot-com looks to me 8 times as large as the fundamental shock from subprime.

    That tells me that we can deal with such shocks to private sector credit that go wrong: Have them be to equity wealth in the first place, or rapidly transform all the financial asset claims affected into equity on the fly as the crisis hits. Easy to say. Hard to do. We make sure they are diversified. And we do not, not, not, not, not, not let the people in Basle get too clever with their ideas of what reserves and capital structure look like, and allow core reserves to be placed in assets that are not AAA--even if some ratings agency whose revenues depend on pleasing investment banks has labeled them as AAA.

    Axel Weber tells this story:

    "In Davos, I was invited to a group of banks--now Deutsche Bundesbank is frequently mixed up in invitations with Deutsche Bank. I was the only central banker sitting on the panel. It was all banks. It was about securitizations. I asked my people to prepare. I asked the typical macro question: who are the twenty biggest suppliers of securitization products, and who are the twenty biggest buyers. I got a paper, and they were both the same set of institutions. When I was at this meeting--and I really should have been at these meetings earlier--I was talking to the banks, and I said: "It looks to me that since the buyers and the sellers are the same institutions, as a system they have not diversified" .

    That was one of the things that struck me: that the industry was not aware at the time that while its treasury department was reporting that it bought all these products its credit department was reporting that it had sold off all the risk because they had securitized them.

    What was missing--and I think that is important for the view of what could be learned in economics--is that finance and banking was too-much viewed as a microeconomic issue that could be analyzed by writing a lot of books about the details of microeconomic banking. And there was too little systemic views of banking and what the system as a whole would develop like. The whole view of a systemic crisis was just basically locked out of the discussions and textbooks..."

    Eichengreen, Alan Taylor, and Kevin O'Rourke think that, once the run on the shadow banking system was underway, this was the largest shock relative to the size of the market financial markets have ever experienced. We could have avoided this. If we had done our surveillance sufficiently deeper, we would have seen that this might be coming...

    But, even so there was nothing baked in the cake of the housing bubble that in any sense required what the world economy has gone through in the past decade.

    Indeed, John Maynard Keynes had a good deal to say about this in Notes on the Trade Cycle:

    "The preceding analysis may appear to be in conformity with the view of those who hold that over-investment is the characteristic of the boom, that the avoidance of this over-investment is the only possible remedy for the ensuing slump, and that, whilst for the reasons given above the slump cannot be prevented by a low rate of interest, nevertheless the boom can be avoided by a high rate of interest. There is, indeed, force in the argument that a high rate of interest is much more effective against a boom than a low rate of interest against a slump.

    To infer these conclusions from the above would, however, misinterpret my analysis; and would, according to my way of thinking, involve serious error. For the term over-investment is ambiguous. It may refer to investments which are destined to disappoint the expectations which prompted them or for which there is no use in conditions of severe unemployment, or it may indicate a state of affairs where every kind of capital-goods is so abundant that there is no new investment which is expected, even in conditions of full employment, to earn in the course of its life more than its replacement cost. It is only the latter state of affairs which is one of over-investment, strictly speaking, in the sense that any further investment would be a sheer waste of resources.[4] Moreover, even if over-investment in this sense was a normal characteristic of the boom, the remedy would not lie in clapping on a high rate of interest which would probably deter some useful investments and might further diminish the propensity to consume, but in taking drastic steps, by redistributing incomes or otherwise, to stimulate the propensity to consume.

    According to my analysis, however, it is only in the former sense that the boom can be said to be characterised by over-investment. The situation, which I am indicating as typical, is not one in which capital is so abundant that the community as a whole has no reasonable use for any more, but where investment is being made in conditions which are unstable and cannot endure, because it is prompted by expectations which are destined to disappointment.

    It may, of course, be the case - indeed it is likely to be - that the illusions of the boom cause particular types of capital-assets to be produced in such excessive abundance that some part of the output is, on any criterion, a waste of resources; - which sometimes happens, we may add, even when there is no boom. It leads, that is to say, to misdirected investment. But over and above this it is an essential characteristic of the boom that investments which will in fact yield, say, 2 per cent. in conditions of full employment are made in the expectation of a yield of, say, 6 per cent., and are valued accordingly. When the disillusion comes, this expectation is replaced by a contrary "error of pessimism", with the result that the investments, which would in fact yield 2 per cent. in conditions of full employment, are expected to yield less than nothing; and the resulting collapse of new investment then leads to a state of unemployment in which the investments, which would have yielded 2 per cent. in conditions of full employment, in fact yield less than nothing. We reach a condition where there is a shortage of houses, but where nevertheless no one can afford to live in the houses that there are.

    Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom..."

    Peter K. -> Peter K.... , March 18, 2017 at 09:31 AM
    http://jwmason.org/slackwire/links-and-thoughts-for-march-15-2017/

    by J.W. Mason

    Against malinvestment. Brad Delong has, I think, the decisive criticism* of malinvestment theories of the Great Recession and subsequent slow recovery. In terms of the volume of investment based on what turned out to be false expectations, and the subsequent loss of asset value, the dot-com bubble of the late 1990s was much bigger than the housing bubble. So why were the macroeconomic consequences so much milder?..

    * http://www.bradford-delong.com/2017/02/the-united-states-had-an-immense-boom-in-the-1990s-that-was-in-the-end-financial-disappointing-for-those-who-invested-in-it.html

    libezkova -> Peter K.... , March 18, 2017 at 07:11 PM
    It's not malinvestment that played decisive role. It's leverage which gradually increased during boom until it reached the level at which it necessarily caused the crash. Dot-com boom crash came at the levels of leverage far less then subprime. Generally financial firms only get appetite for exorbitant leverage at this time. So there were no Lehman Brother event during dot-com crash.

    Also subprime bubble was facilitated by the Fed as a remedy for dot-com bubble. From this point of view it was just the second stage of dot-com bubble.

    DeLong statement

    "Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last."

    is very questionable, but typical for dyed-in-the-wool neoliberals. They are completely ahistoric.

    He does not understand Minsky because he can't.

    In reality when finance reached Ponzi stage nothing can prevent the crash and the longer the boom is artificially prolonged be deeper will be the crash and subsequent recession. So Fed efforts to mitigate dot-com bubble played a huge role of making the Great Recession as painful as it was.

    zzz:

    The benefit of liquidity insurance, however, is undermined if the option to withdraw funding is triggered en masse by fear instead of fundamentals. Indeed, the notion that psychological factors are responsible for triggering ?nancial crises has a long tradition in the history in economic thought. Diamond and Dybvig (1983) formalize this idea by demonstrating how simple bank deposit contracts can induce a coordination game exhibiting two equi librium outcomes. In the fundamental equilibrium, all depositors represent their liquidity needs truthfully, so that options are exercised for fundamental economic reasons only. In the bank panic equilibrium, depositors not in need of liquidity pretend that they are. In this case, options are exercised out of a fear that little will be left for latecomers if other depositors are similarly misrepresenting themselves. In this way, the mere expectation of widespread redemptions can become a self-ful?lling prophecy.

    While the notion of a panic-induced crisis has certain appeal, the phe- nomenon is di¢ cult to identify empirically. An alternative and equally plausible view asserts that ?nancial instability and its associated emotional trauma is merely symptomatic of deteriorating fundamentals experienced in the broader economy prior to an economic downturn; see Gorton (1988) and Allen and Gale (1998). While there is merit to this view, it is not inconsistent with the possibility that some crises are panic-driven. In particular, not all ?nancial crises are associated with recessions; see Capiro and Klingebiel (1997).

    Because it is difficult to discriminate empirically between panic-based and fundamental-based explanations of crises, policymakers should hedge their bets when designing ?nancial regulation.1 We think that the proper hedge in this case might be usefully informed by theoretical, as well as empirical, plausibility. Given the current state of theory, a case could be made for adjusting posterior odds in favor of fundamentals over panics. The basis for this assessment rests on the apparent di¢ culty of generating bank panics in model economies, at least for economies that permit an empirically plausible degree of contractual ?exibility.

    To explain what we mean by this, note that the seminal model of Dia- mond and Dybvig (1983) does not exhibit bank panics when banks adopt a simple suspension scheme,2 a device that was actually used? sometimes suuccessfully? to halt runs.

    We pose a theory in which bank panics that can arise easily and naturally whenever short-term debt is used to ?nance investments characterized by even a modest degree of increasing returns to scale. And, while our explanation does not require sequential service, it is certainly not compromised if sequential service is imposed. Our idea is based on the notion that many investments entail some ?xed costs. A large commercial development project, for example, requires a signi?cant outlay in capital and labor services, e.g., cranes and crane operators, that must be paid regardless of how much construction activity is actually taking place on site.

    [Apr 06, 2017] Richmond Fed's Jeffrey Lacker Departs Due to Leak Defenestration as Coverup

    Apr 06, 2017 | www.nakedcapitalism.com
    From a trading perspective, the big news was at the top: "The minutes will show it will be unlikely that the labor market improvement will be substantial enough to stave off new Treasury purchases into 2013." And in the sixth paragraph it describes how the Fed was likely to vote as early as December to stop the part of its MBS buying designed to counter the bonds being paid off (due to foreclosures, home sales, refis) and buy roughly $45 billion a month of Treasuries instead.

    The amount of granular detail was stunning. For instance:

    The committee will attach a predictive timetable outlining the duration of these purchases The monthly MBS purchases of around $40 billion will continue along side the new program Tomorrow's minutes will reference a staff paper The minutes will show the dovish majority was ready .[to make] open ended MBS and Treasury purchases as early as last month.

    This is so specific that it comes of as if Medley either got its hands on an advance draft of the FOMC minutes or someone read it to her.

    The report also describes, again in depth, how the decision process prior to the September meeting departed from established norms as well as voyeristic tidbits, such as that finalizing the text of the policy recommendations kept staffers up until after midnight.

    Given how extraordinarily revealing this note was, Lacker's departure is unsatisfactory. Specifically:

    Either Lacker lied or the investigators aren't even close to getting to the bottom of this . Lacker has admitted only to taking a call from the Medley analyst, supposedly having her run insider detail by him, and indirectly confirming it by not getting off the phone. From his resignation letter, which was released by law firm McGuireWoods, not the Richmond Fed:

    During that October 2, 2012 discussion, the [Medley] Analyst introduced into the conversation an important non-public detail about one of the policy options considered by participants prior to the meeting. Due to the highly confidential and sensitive nature of this information, I should have declined to comment and perhaps have ended the phone call. Instead, I did not refuse or express my inability to comment and the interview continued. Additionally, after that phone call, I did not, as required by the Information Security Policy, report to any FOMC personnel that the Analyst was in possession of confidential FOMC information. When Medley published a report by the Analyst the following day, October 3, 2012, it contained this important detail about one of the policy options and I realized that my failure to decline comment on the information could have been taken by the Analyst, in the context of the conversation, as an acknowledgment or confirmation of the information.

    This reads like the equivalent of a plea bargain, that Lacker and his lawyers negotiated him to 'fess up to the most minimal breach possible provided he resign.

    Alternatively, if Lacker is being truthful, it means that one or more additional people provided the information to the Medley analyst, Regina Schleiger.

    [Apr 04, 2017] Lack Hawk Down

    Apr 04, 2017 | jessescrossroadscafe.blogspot.com

    The Richmond Fed's noted rate hawk and serial dissenter Jeffrey Lacker resigned today as a result of an investigation into a leak in 2012 of confidential information to an analyst that sells hard to get information to wealthy subscribers.

    The guest commentators, talking heads, and spokesmodels were attributing this resignation, or faux pas if you will, to an inadvertent slip by one of their own who is burdened with managing the finances of the US.

    They kept mentioning that they do not wish this incident to diminish the public's confidence in the FED. I guess fomenting serial asset bubbles and enabling historic financial inequality through hare-brained policies is not enough. LOL

    [Apr 04, 2017] Richmond Fed president, Jeff Lacker Quits Today After Improper Disclosure of QE to analyst at firm selling research to hedge funds

    Apr 04, 2017 | economistsview.typepad.com
    BenIsNotYoda April 04, 2017 at 10:25 AM
    https://www.bloomberg.com/news/articles/2017-04-04/fed-s-lacker-quits-today-after-improper-disclosure-ny-times

    Fed's Lacker Quits Today After Improper Disclosure: NY Times
    Richmond Fed president, Jeff Lacker, says he is resigning effective today after improperly disclosing confidential Fed information, NY Times said in tweet.

    Fed President involved in disclosing future QE to analyst at firm selling research to hedge funds.

    In other places, this is called insider information. At the Fed? I am shocked there is gambling at this establishment.

    We need to clean house at the Fed. Starting at the top.

    BenIsNotYoda , April 04, 2017 at 10:41 AM
    Statement Of Dr. Jeffrey Lacker

    During the past 13 years it has been my privilege to serve as President of the Federal Reserve Bank of Richmond. It has also been an honor to contribute to the development of our nation's monetary policy as a member of the Federal Reserve's Federal Open Market Committee ("FOMC").

    While transparency of the monetary policy process is important, equally important are the confidentiality policies that protect the internal deliberations of the FOMC and ensure the integrity of our financial markets. The Federal Reserve's confidentiality policies seek to guide participants in maintaining the balance between transparency and confidentiality. The FOMC has had in place for many years two specific policies relating to confidentiality. the FOMC Policy on External Communications of Committee Participants (the "External Communications Policy-) and the Program for Security of FOMC Information (the "Information Security Policy").

    In 2012, my conduct was inconsistent with those important confidentiality policies. Specifically, on October 2, 2012, I spoke by phone with an analyst ("the Analyst") concerning the September 2012 meeting of the FOMC. The Analyst authors reports on Federal Reserve matters on behalf of Medley Global Advisors ("Medley'). Medley publishes macro-economic policy intelligence for institutions such as hedge funds and asset managers and is owned by the Financial Times Limited.

    During that October 2, 2012 discussion, the Analyst introduced into the conversation an important non-public detail about one of the policy options considered by participants prior to the meeting. Due to the highly confidential and sensitive nature of this information, I should have declined to comment and perhaps have ended the phone call. Instead, I did not refuse or express my inability to comment and the interview continued. Additionally, after that phone call I did not, as required by the Information Security Policy, report to any FOMC personnel that the Analyst was in possession of confidential FOMC information. When Medley published a report by the Analyst the following day, October 3, 2012, it contained this important detail about one of the policy options and I realized that my failure to decline comment on the information could have been taken by the Analyst, in the context of the conversation, as an acknowledgment or confirmation of the information.

    I deeply regret the role I may have played in confirming this confidential information and in its dissemination to Medley's subscribers. In this episode, as in all of my communications with analysts, journalists and the public, it was never my intention to reveal confidential information. I further acknowledge that through this and other conversations with the Analyst, I may have contravened the External Communications Policy, which prohibits providing any profit-making person or organization with a prestige advantage over its competitors.

    Following these events, I was interviewed on December 10, 2012, as part of an internal review conducted by the General Counsel of the FOMC. In advance of that interview, on December 6, 2012, I provided written responses to a questionnaire issued by the General Counsel seeking, among other things, all relevant information regarding my communications with the Analyst. Althoug it was my intention to cooperate fully with the internal review, I regret that I did not disclose to the General Counsel, either in my December 6, 2012 questionnaire or the December 10, 2012 interview, that the Analyst was in possession of confidential information during my conversation with her on October 2,2012.

    In 2015, I was interviewed again as part of a separate investigation conducted by the United States Attorney's Office for the Southern District of New York, the Office of the Inspector General of the Federal Reserve Board, the Federal Bureau of Investigation, and the U.S. Commodity Futures Trading Commission. In this subsequent 2015 interview with law enforcement officials, I did disclose that the Analyst was in possession of confidential information during my October 2. 2012 conversation with her.

    I apologize to my colleagues and to the public I have been privileged to serve. I have always strived to maintain the appropriate balance between transparency and confidentiality, but I regret that in this instance I crossed the line to confirming information that should have remained confidential. I previously announced my intention to retire as President of the Federal Reserve Bank of Richmond in October 2017, and in light of these matters I have decided to make my departure from the Federal Reserve effective today.

    libezkova , April 04, 2017 at 11:26 AM
    "Fed President involved in disclosing future QE to analyst at firm selling research to hedge funds."

    "I am shocked there is gambling at this establishment."

    That's good -- Thank you --

    Now let me wear Anne hat :-). The proper quote is "I'm shocked, shocked to find that gambling is going on in here! "

    http://www.imdb.com/title/tt0034583/quotes?ref_=tt_ql_trv_4

    == quote ==
    Rick: How can you close me up? On what grounds?

    Captain Renault:
    I'm shocked, shocked to find that gambling is going on in here!
    [a croupier hands Renault a pile of money]

    Croupier: Your winnings, sir.

    Captain Renault: [sotto voce] Oh, thank you very much.

    [aloud]

    Captain Renault: Everybody out at once!

    [Apr 03, 2017] Why Has Italys Banking Crisis Gone Off the Radar?

    Notable quotes:
    "... By Don Quijones of Spain & Mexico, editor at Wolf Street. Originally published at Wolf Street ..."
    "... across the wire ..."
    "... raised eyebrows ..."
    Apr 03, 2017 | www.nakedcapitalism.com
    Posted on March 31, 2017 by Yves Smith By Don Quijones of Spain & Mexico, editor at Wolf Street. Originally published at Wolf Street

    For a country that is on the brink of a gargantuan public bailout of its toxic-loan riddled banking sector, or failing that, a full-blown financial crisis that could bring down the European financial system, things are eerily quiet in Italy these days. It's almost as if the more serious the crisis gets, the less we hear about it - otherwise, investors and voters might get spooked. And elections are coming up.

    But an article published in the financial section of Italian daily Il Sole lays out just how serious the situation has become. According to new research by Italian investment bank Mediobanca, 114 of the close to 500 banks in Italy have "Texas Ratios" of over 100%. The Texas Ratio, or TR, is calculated by dividing the total value of a bank's non-performing loans by its tangible book value plus reserves - or as American money manager Steve Eisman put it, "all the bad stuff divided by the money you have to pay for all the bad stuff."

    If the TR is over 100%, the bank doesn't have enough money "pay for all the bad stuff." Hence, banks tend to fail when the ratio surpasses 100%. In Italy there are 114 of them. Of them, 24 have ratios of over 200%.

    Granted, many of the banks in question are small local or regional savings banks with tens or hundreds of millions of euros in assets. These are not systemically important institutions and can be resolved without causing disturbances to the broader system. But the list also includes many of Italy's biggest banks which certainly are systemically important to Italy, some of which have Texas Ratios of over 200%. Top of the list, predictably, is Monte dei Paschi di Siena, with €169 billion in assets and a TR of 269%.

    Next up is Veneto Banca, with €33 billion in assets and a TR of 239%. This is the bank that, together with Banco Popolare di Vicenza (assets: €39 billion, TR: 210%), was supposed to have been saved last year by an intervention from government-sponsored, privately funded bank bailout fund Atlante, but which now urgently requires more public funds. Their combined assets place them seventh on the list of Italy's largest banks.

    Some experts, including the U.S. bank hired last year to save MPS, JP Morgan Chase, have warned that Popolare di Vicenza and Veneto Banca will not be eligible for a bailout since they are not regarded as systemically important enough. This prompted investors to remove funds from the banks, further exacerbating their financial woes. According to sources in Rome, the two banks' failure would send shock waves through the wider Italian financial industry.

    There are other major Italian banks with Texas Ratios well in excess of 100%. They include:

    In sum, almost all of Italy's largest banking groups, with the exception of Unicredit, Intesa Sao Paolo and Mediobanca itself, have Texas Ratios well in excess of 100%.

    But, as Eisman recently pointed out, the two largest banks, Unicredit and Intesa Sanpaolo, have TRs of over 90%. As long as the other banks continue to languish in their current zombified state, they will continue to drag down the two bigger banks. And if either Unicredit or Intesa begin to wobble, the bets are off.

    To stay on the right side of the solvency threshold, Unicredit has already had to raise €13 billion of new capital this year and last week it took advantage of the ECB's latest splurge of charitable lending (formally known as TLTRO II) to borrow €24 billion of free money. But as long as the financial health of the banks all around it continues to deteriorate, staying upright is going to be a tough order.

    This is where things get complicated. In order to qualify for public assistance, banks must be solvent. Presumably, that would automatically disqualify any bank with a Texas Ratio of over 150%, which includes MPS, Banco Popolare, Popolare di Vicenza, Veneto Banca, Banca Carige and Unipol Banca. The bailout must also comply with current EU regulations including the Bank Recovery and Resolution Directive of Jan 1, 2016, which specifically mandates that before public funds are injected into a bank, shareholders and creditors must be bailed in for a minimum amount of 8% of total liabilities, as famously happened in the rescue of Cyprus' banking system in 2013.

    The Italian government knows that this approach could end up wiping out retail investors (otherwise known as voters) who were missold, in many cases fraudulently, subordinated bonds by cash-hungry banks in the wake of the last crisis, in turn wiping out the government's votes. To avoid such an outcome, the government has proposed compensating those retail bondholders with public funds, just as the Spanish government did with the holders of preferente bonds. Which, of course, is in direct contravention of EU laws.

    So far, the European Commission has stayed silent on the issue, presumably in the hope that the resolution of Italy's financial sector can be held off until at least after the French elections in late April, if not the German elections in September. Then, if those elections go Brussels' way, a continent-wide taxpayer funded bailout of banks' NPLs can be unleashed, as already requested by ECB Vice President Vitor Constancio and European Banking Authority President Andrea Enria.

    With no guarantee that Italy's NPL-infested banks can hold out that long, it's a dangerous waiting-and-hoping game. In the meantime, shhhhhhhh

    0 0 63 3 1 This entry was posted in Banana republic , Banking industry , Doomsday scenarios , Europe , Guest Post , Politics , Regulations and regulators on March 31, 2017 by Yves Smith .
    Trade now with TradeStation – Highest rated for frequent traders
    Subscribe to Post Comments 28 comments jsn , March 31, 2017 at 10:05 am

    Texas Ratio!

    I love it, hadn't heard that before. Natural outgrowth of the S&L bubble I figure.

    What better state (my home state that I love/hate) to name a Bullshit to Bona Fide ratio for!

    craazyman , March 31, 2017 at 5:49 pm

    I wanna tell you about Texas Ratios and he Big Cheat
    It comes out of the Italian swamps
    cool and slow without any precision
    like a fettuncini marinara recipe that's hard to master

    Some call it heavenly in its brilliance
    others mean and rueful of the Prussian dream
    Don't you love the friends gathered together for this Italian graft
    They have schemed up pyramids in honor of their escaping
    This is the land where the euro died.

    (Haygood knows what we're talkin about . . . )

    AbateMagicThinking but Not money , March 31, 2017 at 10:44 pm

    Seems no one else spotted, or can be bothered to comment on your allusion to The Doors and The Wasp. I for one, cannot let it pass.

    Reminds me that I used to to think it was:

    Cows piss down my window like the waves down on the beach.

    Happy mondegreens!

    Dr Duh , March 31, 2017 at 11:09 am

    Great article. A couple questions

    1. What is the overall Texas Ratio for the Italian banking system?
    2. What is the mechanism connecting a 'bad' Texas Ratio to failure in this case? Are they funding long term liabilities with short term borrowing like Lehman and hence are at risk of being locked out of the market?
    3. How interconnected are the Italian banks? Is there potential for a domino effect? What would be the mechanism, loss of confidence or actual counterparty risk?

    John Tipre , April 2, 2017 at 8:30 pm

    All good questions. Come June, one may expect more EU austerity practices in the form of public bailout, Yes? The "public," the disappeared element of modern western political cultures, is the "backstop," the final insurer. Neoliberalism plays a strong role in the grossly unfair practice of public bailouts.

    craazyman , March 31, 2017 at 11:41 am

    What radar? Italy's last radar stations shut down for lack of money in 2013 and all the operators who could leave the country left for science jobs in Uganda and Brazil. There is no radar in Italy. Germany has radar but it only picks up signals from NATO or Brussels. Italy's scientific minds are busy with financial theory, in New Yawk. I've seen a few of them. Pretty smart dudes! And women! They like stochastic volatility and Wishart distributions but God Forbid you put them in front of a radar machine. They wouldn't know a bird from the Luftwaffe (haha sorry that was a long time ago).

    What radar? Radar is so 20th century! Today we have Twitter and Facebook if you wanna stare at a glass screen and hear beeps. I think there's a Wikipedia page for radar but it's rusting. They use radar on boats and ships though. Maybe one of Italy's banks will go floating by on the ocean of liquidity from the ECB. Then it might show up on a radar someplace out near the Azores. Too bad you'll lose money no matter how you try to trade it. Or at least I would! That's for sure.

    Susan the other , April 1, 2017 at 11:01 am

    a day late and a dollar short here, why do I have all my good ideas on April Fool's day? – but anyway: Schaeuble's "we are overbanked" is now Schaeuble's Paradox because if they let the little ones go they will bring down the big ones because everybody and their dog has a stake in this – much like you explained about China's bubble. So, yes Wolfgang, we are overbanked and no, Wolfgang, we are not overbanked everything is in perfect balance. And all those euros and dollars racing around with nowhere to go? – here's a suggestion: pour them as fast as you can back into the planet. Clean it up. Cool it down.

    DJG , March 31, 2017 at 11:57 am

    A couple of reasons come to mind, but I may be too anecdotal:

    When I was in Italy three weeks back, some friends of mine (and my friends are all pretty much red) mentioned that parties on the left had looted Monte dei Paschi di Siena. So the Partito Democratico, the successor party, is going to end up with a scandal (or with even more scandal).

    A second idea crossed my mind: For many years, the Italians were the champion savers of Europe. (They were nearly as good at savings as the Japanese.) So these banks are filled with Italians' savings accounts and their retirement nest eggs. Weirdly, the Italian regulators may have some idea that the Italians and their savings habits can shift the balance. What's more likely, though, and what's worse is that once these banks start failing in series, you will see Italian families wiped out financially. The social devastation will bring down the government and may even bring down most of the political parties. The irony would be that the newer Movimento Cinque Stelle is less implicated (not that they have a plan either).

    ChrisAtRU , March 31, 2017 at 12:40 pm

    Thanks for this. I follow Bloomberg on Twitter and this came across the wire a day of so ago:

    Italy Finance Minister Says Banking Problems 'Solved'

    Needless to say, raised eyebrows by yours truly given previous material posted here. Just gave a first listen to it, and nothing he (Padoan) says suggests the dire straits outlined in the NC post. I'll follow up later, but perhaps a shorter version of his answers to the interviewer here would have been "Shhhhhhhhh "

    JustAnObserver , March 31, 2017 at 1:46 pm

    All we need now is for some Italian financial official to utter the Words Of Doom:

    "The Fundamentals of the Economy are Sound".

    (H/T J.K. Galbraith (I think))

    dontknowitall , March 31, 2017 at 2:10 pm

    Maybe they are expecting a mysterious cash drop like it happened a number of years ago when two Japanese men were arrested at the Italian-Swiss border at Chiasso with fat briefcases carrying $134 billion in US bearer bonds. Of course since it was undeclared money the Italian State got to keep 50%. Now, since the Italian finance minister thinks the banking problems are resolved I imagine there must be a whole bus of Japanese moneymen on their way to Chiasso

    https://en.wikinews.org/wiki/Italian_border_guards_seize_$134_billion_in_U.S._bonds_at_Swiss_border

    ChrisAtRU , March 31, 2017 at 7:33 pm

    Hahahah! That is too funny – regardless of whether the bonds were real or not. Maybe the Italians are following the Wu Tang Financial paradigm ;-)

    ChrisAtRU , March 31, 2017 at 7:31 pm

    Ha! Yes, it was JKG. And for sure, the Words of Doom will be uttered just before well, Doom.

    John , March 31, 2017 at 9:12 pm

    Well isn't that what most Keynesians think? That the fundamentals are relatively sound, the only problem is a financial crisis caused by asset bubbles? And that if we just increase the deficit (update the nation's infrastructure), things will be fine?

    The reality is that it wasn't just a financial crisis that caused the post 2008 recession. The real economy is not in good shape, nor has been since the 1970's. The industrialization of Europe and Japan, followed by China and India, has caused a crisis of overproduction/under-utilization of capacity that has eaten away profit rates in manufacturing firms around the globe (even with the abundant supply of labor available from the ease of outsourcing). The only growth we've had since then has been from asset bubbles (Japanese real estate in the 80's, the US stock market in the 90's, US real estate in the 00's, EU bubbles in the 00's, etc.).

    Fiscal stimulus can temporarily ease the burden by increasing demand, and monetary stimulus can temporarily reflate the asset bubbles, but there's no light at the end of the tunnel. (Not to mention that US federal deficit spending just boosts Chinese manufacturing sector and pollutes the planet more than anything else.) Earth has a finite amount of space and resources, and the mathematics of compound interest mean that growth rates will have to be low from here on out (there's no way the global economy will double by 2060 and then double again by 2100; not even the Chinese and Indian booms together could get us growing like that, nor do I think Africa alone could, either). That's something that fixing up a few dilapidated subway stations won't change–eventually, the gains will slow as we'll run out of infrastructure to repair.

    The reality is the urbanization and industrialization are the lifeblood of capitalism, and without those two processes happening on a major scale, growth is low (just as it was during the 17th century). The only thing that will get us growing again is a major world war that blows up buildings and infrastructure everywhere, just like World War II did.

    ScottB , April 2, 2017 at 2:13 am

    "Shhhhh ..".

    Followed by, "ittttttt."

    BillC , March 31, 2017 at 1:02 pm

    The article does not emphasize the factor that should (but surely will not) mitigate the extent to which the EU requires bail-ins by depositors and retail bondholders: the Italian banks' problem is non-performing loans substantially attributable to the austerity imposed by the EU's [non]growth and [non]stability pact. (Of course there's also the factor of bank managers' favoritism to political allies and back-scratching among the local elites. While that's a key factor with MPS and some of the four already-partially-rescued smaller regional banks, it's not the main cause of the Italian banking crisis).

    Why should this be significant? Because some Italian political party (5 Stelle? Fratelli d'Italia? Lega Nord?) may be able to clearly and simply enunciate the case that (1) EU austerity is the direct result of other nations' (Spain, UK, Germany, US, ) banks' irresponsible speculation in derivatives and the like but (2) Italian banks did not participate in that speculative orgy; they were just fulfilling their proper mission of financing local, regional, and national enterprises and (3) much of the Italian middle class will be ruined by EU-required bail-ins. If the voting public understands this causal chain, I think Italians' conservative tendency to thus far stick with the EU and the Euro no matter what might be reversed overnight - and high time, too.

    Stein , April 1, 2017 at 7:57 am

    I'm sorry; but for the current problems, the Italians have nobody to blame but themselves.
    1/ Their system did not allow them to fix their banks in time. The financial crisis was in 2008. It's almost TEN years after and they still haven't fixed their non-performing loans. The US did it quite fast (thanks, Obama) and put in a new bail-in rule. The EU took their time, but eventually did it and put in the BRRD, too. THe BRRD took years to negotiate and was not immediately implemented – so Italy could have bailed in its banks in the mean time, too.

    They did not.

    2/ The bail in would have worked like a charm in a non-fraudulent system. But Italian banks sold their subordinated bonds – fraudulently – to mom&pop investors, thus making it ill-adapted.

    3/ Italian banks did not receive non-performing loans out of nowhere. It is the Italian banks themselves that gave or bought such non-performing loans.

    So they did participate in the orgy, did not clean up afterwards for more than 10 years, fraudulently tried to cover everything up (because the subordinated bonds that are bail-in able are supposed to provide more capital to the banks), and are now going to screw the entire European Union because of this.

    I think Italian banks should be bailed in.

    But Italian bankers should be sent to jail.

    sunny129 , March 31, 2017 at 4:03 pm

    What's Shhhhhhhhh?

    They have successfully masked the Banking problems under various CREATIVE accounting with final paint job of Extend & Pretend' No one challenged and the investors have accepted without any skepticism. Besides, they believe in the PUT by Draghi!

    LT , April 1, 2017 at 1:30 pm

    They've also masked it as I've said before:
    They say it's a "populist" (voter) created crisis.
    At root, it's yet anothet gift from the financial sector.

    Gman , March 31, 2017 at 6:02 pm

    Italy as a country, 8th richest in global terms I believe, ain't poor, so somewhere along the line as ever, both within and without, as elsewhere in the EZ and the rest of the world, some are making hay out this debt crisis and have an interest in perpetuating it, whilst the blameless are yet again forced to endure its bitter consequences.

    TheCatSaid , March 31, 2017 at 7:35 pm

    I wonder how Italy would fare if they left the Euro, compared to the problems discussed here in the case of Greece. Specifically, how easily could Italy be self-sufficient in food at medicines? I suspect Italy would be in a stronger position to weather any such storm, and they would have even more tourism Euro revenue in a transition period. (Assuming a messy transition period during which the conventional payment systems would be in disarray.)

    John , March 31, 2017 at 9:19 pm

    I've seen Yves and NC writers argue a few times that Italy is the euro country best suited to ditch the euro. I think it'd be France though; their economy has always been more national and independent than the rest of Europe, which is why in the early years of the crisis, things weren't nearly as bad there as they were in the PIIGS.

    Whichever country decides to do so will end up facing economic ruin as the powers that be will make sure to punish it as much as possible (just as they'll do to the UK with the trade agreements) to make an example of it. Currency speculators will destroy the value of the new currency. And there are all of the crazy logistical and IT challenges that have been well-documented here as well.

    Of course the most interesting scenario, by far, is Germany leaving the euro. But I can't ever seeing them be the first to do so, as they benefit too much from it.

    H. Alexander Ivey , March 31, 2017 at 10:05 pm

    Germany leaving the euro. But I can't ever seeing them be the first to do so, as they benefit too much from it

    That might have been Cameron's thought about Brexit. How well did that work out?

    John , April 1, 2017 at 1:26 pm

    Well, Cameron was an idiot for holding that referendum. And it's also important to remember that Germans hate referendums.

    John , March 31, 2017 at 8:29 pm

    I think that the EU and Italy will come to some sort of compromise on the bail-in law, or they will organize some sort of private sector rescue. And if not, I don't think Italians are quite ready to ditch the euro, even if a lot of folks lose money on the bail-in. Also, Beppe Grillo is not allowed to run for public office because of that manslaughter charge. We'll see more of the status quo, at least for a few more years.

    RBHoughton , March 31, 2017 at 10:03 pm

    " . the more serious the crisis gets, the less we hear about it" Isn't that always the case with our 'keep it under your hat' media – information is money. For the money reporter its "What am I bid for an early chance to avoid loss?" For the politician hoping for a trouble-free life its "Don't excite the natives you know how irritable they can get!"

    Don Quijones, Wolf Street and Naked Capitalism have done us all a great favor yet again. The level of money inflation is accelerating everywhere.

    Stein , April 1, 2017 at 7:58 am

    I was left under the impression that naked capitalism endorses the bail out of Italian banks. Has that changed?

    Ignim Brites , April 1, 2017 at 2:55 pm

    Why are NPLs important in determining the solvency of a bank? Certainly, the bank doesn't have to pay to keep them on their books. So they are neither an asset or a liability. All that is relevant are performing loans, i.e. income, to liabilities. Now, it is certainly probable that banks have taken on liabilities in the expectation that what are now NPLs would be performing. And that is the core of the problem. But the measurement of the extent of the problem is simply income, future and current, based on performing assets vs liabilities, future and current.

    [Apr 02, 2017] Ilargi: Our Economies Run On Housing Bubbles

    Notable quotes:
    "... By Raúl Ilargi Meijer, editor of Automatic Earth. Originally published at Automatic Earth ..."
    "... I tried to make do with what my paycheck would allow and yet I'd see others who I knew made about the same salary as me living much better and I never could figure out how they managed. ..."
    "... What we should do in the short term is lower private debt levels (drastically, jubilee style), and temporarily raise public debt to encourage economic activity, aim for more and better jobs. ..."
    "... The government has announced plans for Britain to issue a £200m Islamic bond in a bid to attract new money to London. The bond will be aimed at institutions, but there are Islamic finance products available to regular savers, investors and homebuyers. Here us a guide to how sharia-compliant funds and mortgages work. ..."
    "... Why aren't regular accounts sharia-compliant? Central to Islamic finance is the fact that money itself has no intrinsic value; it is simply a medium of exchange. Each unit is 100% equal in value to another unit of the same denomination and you are not allowed to make a profit by exchanging cash with another person. A Muslim is not allowed to benefit from lending money or receiving money from someone. This means that earning interest (riba) is not allowed – whether you are an individual or a bank. To comply with these rules, interest is not paid on Islamic savings or current accounts, or charged on Islamic mortgages. How do sharia-complaint banking products work? There are several ways that banks can structure accounts so that they are sharia-compliant. Ijara works as a leasing arrangement: the bank buys something for a customer and then leases it back to them. Different forms of leasing are permissible, including those where part of the instalment payment goes toward the final purchase. This might be used to help you buy a car or other item, or to help a business buy equipment. Murabaha works by the bank supplying goods for resale to the customer at a price that includes a margin above the costs, and allows them to repay in installments. This might be used to provide a mortgage on a property. The property is registered to the buyer from the start. Musharaka is a joint venture in which the customer and bank contribute funding to an investment or purchase and agree to share the returns (as well as the risks) in proportions agreed in advance. Wakala is an agreement that the bank will work as the individual's agent. If a saver enters into this type of agreement, the bank can use their cash to invest in sharia-compliant trading activities to generate a target profit for them. How do the banks make money? Banks can profit [nothing like the "profit" that western banks and banksters extract and extort, of course, but a decent living] from the buying and selling of approved goods and services. The principal means of Islamic finance are based on trading, and it is essential that risk be involved in any trading activity, so banks and financial institutions will trade in sharia-compliant investments with the money deposited by customers, sharing the risks and the profits between them. Islamic banks are structured so that they retain a clearly differentiated status between shareholders' capital and clients' deposits in order to make sure profits are shared correctly. Although they cannot charge interest, the banks can profit from helping customers to purchase a property using a ijara or murabaha scheme. With an ijara scheme the bank makes money by charging the customer rent; with a murabaha scheme, a price is agreed at the outset which is more than the market value. This profit is deemed to be a reward for the risk that is assumed by the bank. ..."
    "... There are firm laws governing the types of businesses with which the banks can trade. There should be absolutely no investment in unsuitable businesses, including those involved with armaments, pork, tobacco, drugs, alcohol or pornography. ..."
    Apr 02, 2017 | www.nakedcapitalism.com
    Posted on April 1, 2017 by Yves Smith By Raúl Ilargi Meijer, editor of Automatic Earth. Originally published at Automatic Earth

    We are witnessing the demise of the world's two largest economic power blocks, the US and EU. Given deteriorating economic conditions on both sides of the Atlantic, which have been playing out for many years but were so far largely kept hidden from view by unprecedented issuance of debt, the demise should come as no surprise.

    The debt levels are not just unprecedented, they would until recently have been unimaginable. When the conditions for today's debt orgasm were first created in the second half of the 20th century, people had yet to wrap their minds around the opportunities and possibilities that were coming on offer. Once they did, they ran with it like so many lemmings.

    The reason why economies are now faltering invites an interesting discussion. Energy availability certainly plays a role, or rather the energy cost of energy, but we might want to reserve a relatively larger role for the idea, and the subsequent practice, of trying to run entire societies on debt (instead of labor and resources).

    It almost looks as if the cost of energy, or of anything at all really, doesn't play a role anymore, if and when you can borrow basically any sum of money at ultra low rates. Sometimes you wonder why people didn't think of that before; how rich could former generations have been, or at least felt?

    The reason why is that there was no need for it; things were already getting better all the time, albeit for a briefer period of time than most assume, and there was less 'want'. Not that people wouldn't have wanted as much as we do today, they just didn't know yet what it was they should want. The things to want were as unimaginable as the debt that could have bought them.

    It's when things ceased getting better that ideas started being floated to create the illusion that they still were, and until recently very few people were not fooled by this. While this will seem incredible in hindsight, it still is not that hard to explain. Because when things happen over a period of decades, step by step, you walk headfirst into the boiling frog analogy: slowly but surely.

    At first, women needed to start working to pay the bills, health care and education costs started rising, taxes began to rise. But everyone was too busy enjoying the nice slowly warming water to notice. A shiny car -or two, three-, a home in the burbs with a white picket fence, the American -and German and British etc.- Dream seemed to continue.

    Nobody bothered to think about the price to pay, because it was far enough away: the frog could pay in installments. In the beginning only for housing, later also for cars, credit card debt and then just about anything.

    Nobody bothered to look at external costs either. Damage to one's own living environment through a huge increase in the number of roads and cars and the demise of town- and city cores, of mom and pop stores, of forest land and meadows, basically anything green, it was all perceived as inevitable and somehow 'natural' (yes, that is ironic).

    Damage to the world beyond one's own town, for instance through the exploitation of domestic natural resources and the wars fought abroad for access to other nations' resources, only a very precious few ever cared to ponder these things, certainly after the Vietnam war was no longer broadcast and government control of -or cooperation with- the media grew exponentially.

    Looking at today's world in a sufficiently superficial fashion -the way most people look at it-, one might be forgiven for thinking that debt, made cheap enough, tapers over all other factors, economic and otherwise, including thermodynamics and physics in general. Except it doesn't, it only looks that way, and for a limited time at that. In the end, thermodynamics always beats 'financial innovation'. In the end, thermodynamics sets the limits, even those of economics.

    That leads us into another discussion. If not for the constraints, whether they emanate from energy and/or finance, would growth have been able to continue at prior levels? Both the energy and the finance/political camps mostly seem to think so.

    The energy crowd -peak oilers- appear to assume that if energy would have been more readily available, economic growth could have continued pretty much unabated. Or they at least seem to assume that it's the limits of energy that are responsible for the limits to economic growth.

    The finance crowd mostly seems to think that if we would have followed different economic models, growth would have been for the taking. They tend to blame the Fed, or politics, loose regulation, the banking system.

    Are either of them right? If they are, that would mean growth can continue de facto indefinitely if only we were smart enough to either make the right economic and political decisions, or to find or invent new sources of energy.

    But what kind of growth do both 'fields' envision? Growth to what end, and growth into what? 4 years ago, I wrote What Do We Want To Grow Into? I have still never seen anyone else ask that question, before or since, let alone answer it.

    We want growth by default, we want growth for growth's sake, without caring much where it will lead us. Maybe we think unconsciously that as long as we can secure growth, we can figure out what to do with it later.

    But it doesn't work that way: growth changes the entire playing field on a constant basis, and we can't keep up with the changes it brings, we're always behind because we don't care to answer that question: what do we want to grow into. Growth leads us, we don't lead it. Next question then: if growth stops, what will lead us?

    Because we don't know where we want growth to lead us, we can't define it. The growth we chase is therefore per definition blind. Which of necessity means that growth is about quantity, not quality. And that in turn means that the -presupposed- link between growth and progress falls apart: we can't know if -the next batch of- growth will make us better off, or make our lives easier, more fulfilling. It could do the exact opposite.

    And that's not the only consequence of our blind growth chase. We have become so obsessed with growth that we have turned to creative accounting, in myriad ways, to produce the illusion of growth where there is none. We have trained ourselves and each other to such an extent to desire growth that we're all, individually and collectively, scared to death of the moment when there might not be any. Blind fear brought on by a blind desire.

    As we've also seen, we've been plunging ourselves into ever higher debt levels to create the illusion of growth. Now, money (debt) is created not by governments, as many people still think, but by -private- banks. Banks therefore need people to borrow. What people borrow most money for is housing. When they sign up for a mortgage, the bank creates a large amount of money out of nothing.

    So if the bank gets itself into trouble, for instance because they lose money speculating, or because people can't pay their mortgages anymore that they never could afford in the first place, the only way out for that bank, other than bailouts, is to sign more people up for mortgages -or car loans-, preferably bigger ones all the time.

    What we have invented to keep big banks afloat for a while longer is ultra low interest rates, NIRP, ZIRP etc. They create the illusion of not only growth, but also of wealth. They make people think a home they couldn't have dreamt of buying not long ago now fits in their 'budget'. That is how we get them to sign up for ever bigger mortgages. And those in turn keep our banks from falling over.

    Record low interest rates have become the only way that private banks can create new money, and stay alive (because at higher rates hardly anybody can afford a mortgage). It's of course not just the banks that are kept alive, it's the entire economy. Without the ZIRP rates, the mortgages they lure people into, and the housing bubbles this creates, the amount of money circulating in our economies would shrink so much and so fast the whole shebang would fall to bits.

    That's right: the survival of our economies today depends one on one on the existence of housing bubbles. No bubble means no money creation means no functioning economy.

    What we should do in the short term is lower private debt levels (drastically, jubilee style), and temporarily raise public debt to encourage economic activity, aim for more and better jobs. But we're doing the exact opposite: austerity measures are geared towards lowering public debt, while they cut the consumer spending power that makes up 60-70% of our economies. Meanwhile, housing bubbles raise private debt through the -grossly overpriced- roof.

    This is today's general economic dynamic. It's exclusively controlled by the price of debt. However, as low interest rates make the price of debt look very low, the real price (there always is one, it's just like thermodynamics) is paid beyond interest rates, beyond the financial markets even, it's paid on Main Street, in the real economy. Where the quality of jobs, if not the quantity, has fallen dramatically, and people can only survive by descending ever deeper into ever more debt.

    Do we need growth? Is that even a question we can answer if we don't know what we would need or use it for? Is there perhaps a point, both from an energy and from a financial point of view, where growth simply levels off no matter what we do, in the same way that our physical bodies stop growing at 6 feet or so? And that after that the demand for economic growth must necessarily lead to The Only Thing That Grows Is Debt ?

    It's perhaps ironic that the US doesn't appear to be either first or most at risk this time around. There are plenty other housing markets today with what at least look to be much bigger bubbles, from London to China and from Sydney to Stockholm. Auckland's bubble already looks to be popping. The potential consequences of such -inevitable- developments are difficult to overestimate. Because, as I said, the various banking systems and indeed entire economies depend on these bubbles.

    The aftermath will be chaotic and it's little use to try and predict it too finely, but it'll be 'interesting' to see what happens to the banks in all these countries where bubbles have been engineered, once prices start dropping. It's not a healthy thing for an economy to depend on blowing bubbles. It's also not healthy to depend on private banks for the creation of a society's money. It's unhealthy, unnecessary and unethical. We're about to see why.

    0 0 81 0 0 This entry was posted in Banking industry , Doomsday scenarios , Economic fundamentals , Free markets and their discontents , Guest Post , Income disparity , Real estate , The destruction of the middle class on April 1, 2017 by Yves Smith .
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    Subscribe to Post Comments 122 comments JEHR , April 1, 2017 at 5:54 am

    This is one of the most succinct analyses of what we are doing and what we are in for. It answers my question about why each new subdivision where I live has bigger and bigger houses built on it. I think it is preposterous that a family of two or maybe four roams around in a three-story house with three bathrooms and four bedrooms in a highly priced home.

    Growth is really destruction when you think about it: destruction of the trees cut down to build homes; destruction of the earth beneath the house that can no longer grow crops; destruction of bird's nests (by the thousands) when the trees are cut down; destruction of the water polluted by runoff; destruction and erosion from other plant removal, etc. And my example is just the building of one house–multiply that by many hundreds of thousands and the destruction becomes world wide. This is mind-boggling!

    Moneta , April 1, 2017 at 7:39 am

    New builds keep on getting bigger here too it gives people the idea that resources and energy are plentiful. Many don't seem to realize that this growth is based on short-termism and externalities.

    It's ironic that houses are getting ever bigger when environmental and infrastructural problems are ballooning.

    Norb , April 1, 2017 at 7:57 am

    On a similar vein, a heavily wooded lot near my home was clearcut about a year ago and an office building was constructed. It sits vacant to this day. I have no idea what the speculative motivation for constructing the building was, but the entire character of the area was irrevocably changed for the worst. Where once a beautiful natural environment soothed the soul and offered habitat for numerous creatures, an unsightly building now stands- unused. Concrete, asphalt, and minimal landscaping. It is really a hole in the world. An unused hole.

    The building is currently maintained though unoccupied, no doubt the investors still hoping to unload the property. With a downturn in the economy, the building is headed for abandonment. The only bright spot is that the forest will eventually reclaim the land- in only a few hundred years.

    Moneta , April 1, 2017 at 8:11 am

    Is it owned by a private equity fund?

    Here in Ottawa, every time a building goes against the welfare of the community, it seems to be owned by a private equity fund.

    Out in the burbs, one building owner charges peanuts for parking just to be annoying? Private equity.

    Gym cutting costs not enough towels with bad ventilation private equity owns building and gym debt financed by private equity firm.

    The list goes on then when I mention that pension plans are destroying our economy all hell breaks loose.

    c , April 2, 2017 at 5:30 am

    Also the sand of waterways and coastal beaches worldwide shrinks fast; to be used in concrete and other building materials.
    The mining of sand, a non-renewable resource

    c , April 2, 2017 at 5:35 am

    SAND MINING

    Teejay , April 2, 2017 at 8:03 am

    Beach sand can not be used for making concrete.
    https://www.quora.com/Why-is-sea-sand-not-used-for-construction-purposes-1

    Bryan Kavanagh , April 1, 2017 at 6:00 am

    Top article! Banks rent-seeking like there's no tomorrow have ensured for many borrowers there will be no tomorrow. But the banks will be OK: they'll be bailed out for their excesses. As Michael Hudson says, the FIRE sector (finance, insurance and real estate) is running rampant at enormous cost to the real economy.

    Carla , April 1, 2017 at 6:21 am

    "We want growth by default, we want growth for growth's sake, without caring much where it will lead us."

    We are cancer.

    http://www.steadystate.org

    "It's also not healthy to depend on private banks for the creation of a society's money. It's unhealthy, unnecessary and unethical."

    Altogether, a great post - Thank you, Ilargi and Yves!

    HBE , April 1, 2017 at 11:56 am

    Extending this line of thought, the article (and your link) makes it very clear why economic growth, especially growth with no goal is unsustainable and damaging.

    The same is true for population. Overpopulation leads to increased exploitation, increased ecological destruction, a decreasing standard of living and increased suffering for billions.

    Population growth for the sake of growth leads to the same unmanageable and unjust state of affairs that we see in unsustainable economic growth.

    Overpopulation is also a driver for that economic instability as resources and energy to keep that keep real-econ growth going become thinner and thinner and more capital is funneled into speculative bubbles, less real resource dependent.

    Population growth can either be managed, stabilized and slowly reduced, just as unfocused and exploitative economic growth should be, or we have 2 other choices.

    The entire world population lives at the same standard in terms of energy and caloric intake as rural Nigeria or we continue to blow a giant population bubble that will pop with truly disastrous effects that we may never come back from.

    nonsense factory , April 1, 2017 at 2:47 pm

    Indeed a great post. The focus on thermodynamics is why.

    When we look at biological systems, "growth" is balanced by "consumption"; or more technically, photosynthesis is balanced by respiration. Hence even though the biosphere is very active, it consumes as much as it creates, so it is in steady state. So the grass grows every year, then is eaten every year, and life goes on at a placid rate. Can humans learn to live like this?

    This society encourages the opposite behavior – accumulate, accumulate, accumulate. One small house? Get a bigger house. Get a vacation home. Get two vacation homes. Put two cars and a truck in each home. Buy a boat and an airplane. Put expensive electronics in every home. Buy food imported from all over the world. Fly all over the world for expensive vacations. That's the dream. Of course everyone can't live like this so there has to be a large servant class to take care of the elite class. But they are encouraged to consume as much as possible, too. One house, maybe, but lots of electronics. Garages stuffed with exercise machines and stuff they bought on sale but never use. Closests full of clothes they never wear, huge racks of shoes. And huge credit bills to pay for all the stuff. Let alone all the addictive substances to blow money on, from alcohol to opiates to tobacco, more money down the rat hole.

    I don't get it. I'd rather have a tiny cottage on a huge lot with a garden and a hedgerow than a huge house covering the whole lot. I could grow a lot of my own food, I'd have space outside, I'd never buy any processed food, I'd rarely eat out, I could invest in solar panels and cut down on energy use and be perfectly happy. And if everyone did this, they'd call it an economic recession because nobody would be buying all the cheap plastic crap imported from China.

    What kind of screwed-up system have we invented? A system that deliberately produces greed, envy, anxiety, depression, misery, so go buy more useless shit to make yourself feel better, that's the essence of this society. It's everywhere, you can't get away from it – everyday interactions with people consumed by this mentality, it's like living with a pack of crazed idiot monkeys high on consumerism. Alienation is a sign of sanity.

    bob , April 1, 2017 at 2:59 pm

    "The focus on thermodynamics is why."

    There is no reason to believe that thermodynamics applies to anything but thermodynamics. Why not apply the "law of gravity" to economics?

    It's just another attempt to apply "science" or sciency sounding words and "laws" to stuff that science has never been able to model, let alone predict in any reliable way. Which, seems very un-sciency.

    Moneta , April 1, 2017 at 3:38 pm

    It does. What goes up must come down.

    PhilM , April 1, 2017 at 10:56 pm

    Congratulations. You just proved his point.

    Jeotsu , April 1, 2017 at 5:20 pm

    Economics is an ecological system by extension. Living organisms (us) are using energy resources from the environment (our food is oil) to generate a "civilizational free energy" that allows us to do things and increase our population.

    This is exactly the kind of system that is bound by laws of thermodynamics (maximum efficiency, inevitable loss, etc).

    We create mighty illusions that humans are somehow divorced from the laws of physics. We print trillions and call ourselves rich.

    Self deception only lasts for so long. People will realize that the perpetual motion machine they have been sold (the economic model of eternal growth as the basis for our entire civilization) only in a time of it's-to-late-now-mega-crisis.

    Carla , April 1, 2017 at 7:30 pm

    My parents were both classical musicians. I am so lucky! In our home there was never money for the latest gizmo, but always enough to pay for piano lessons. My mother cut everybody's hair, but opened bank accounts in my sister's and my names when we were born - our "college accounts." We had very nice home-cooked meals, but never ate out. I remain profoundly grateful to my parents for the example they gave us: that neither money nor material goods could constitute a worthy aim in life.

    Moneta , April 1, 2017 at 7:17 am

    Debt and printing has permitted us to keep on getting the resources and energy to keep the game going.

    Over the last 5 decades, the number of people enjoying developed world creature comforts has gone from maybe 500 million to maybe 2 billion. But those not enjoying this have gone from 3 billion to 5 billion.

    There is a limit to this materialism and this fact has been creeping up on us in developed countries. Most think it's only the 1% not sharing when instead we are probably facing a global redistribution of resources. IMO, most in developed countries are confusing past wealth and future wealth infra and a structure of society that needs mega energy and resources might just be wealth destroying.

    sunny129 , April 2, 2017 at 4:03 pm

    Who needs MONEY when one can have debt to infinity?

    jackiebass , April 1, 2017 at 7:35 am

    Ten years ago I wondered how people could afford the big homes, cars and all of the consumer products they were buying. 45 years ago I bought a home. I thought I got a deal at 7 3/4% interest. At that time a car loan was a good deal at 10% or less. Knowing this I wondered how people could be buying so much stuff when real wages were not any better than when I joined the work force in 1963. Then it hit me like a brick thrown into my face. It was because of so called cheap money. This leads people to borrow more than they really should because as long as they could make the payment everything would be fine. That is as long as they don't experience a crises like becoming unemployed , their job disappearing ,or having to take a job at a lower wage. Also they may become sick or disabled and not able to work. Neoliberal economics created the false economy. Then came the great recession that is still effecting the majority of the population. It happened gradually so most people dind't see it coming. Not mentioned that I believe is important is the creation of the student debt bubble. These college graduates, who were prime candidates to buy homes and consumer goods, found out they had no extra money after they paid their student debt. In fact many were forced to live with their parents. This removed an entire generation from the housing market and excess consumption. Until we have a drastic overhaul of how the economy functions things will only get worse for the majority of people. A major crises is in the making when present day working people reach retirement age. Since the vast majority of them lack enough resources they will retire in poverty or be forced to work until the die. The future looks very grim for the majority of todays working population.

    Moneta , April 1, 2017 at 7:51 am

    Over the last few decades, stats show that something like 40% of 55+ are forced into early retirement due to sickness or restructuring

    Since debt has grown drastically in the older group over over the last few decades, we are definitely facing a crisis.

    JTMcPhee , April 1, 2017 at 1:02 pm

    The old could always just file bankruptcy, and zero out all that unplayable student-loan and consumer-credit and mortgage debt oh wait, I forget a fresh star is only for corporate persons

    Or we olds could do what heedless youngs and the neolibs advise: Just Die!

    HopeLB , April 1, 2017 at 8:29 pm

    Thank Joe Biden for that.

    JTMcPhee , April 1, 2017 at 10:02 pm

    Yah, that jovial bustards name was in mind at the moment.

    Of course, he didn't do it all by himself

    different clue , April 2, 2017 at 1:12 am

    No . . . but he was happy to help. In fact, he was happy to lead and take some of the credit for it.

    lyman alpha blob , April 1, 2017 at 10:13 am

    There was a TV commercial several years ago with a crisply dressed, smiling man mowing the immaculate lawn of his McMansion, with a new SUV in the driveway, seemingly living the American Dream.

    The narration asked 'How do they do it?' with the answer being 'They're up to their eyeballs in debt'. As someone brought up to be extremely debt averse, that commercial really hit home.

    I tried to make do with what my paycheck would allow and yet I'd see others who I knew made about the same salary as me living much better and I never could figure out how they managed. Fast forward several years and my wife is out for a 'ladies night' with 3-4 other moms who all have larger homes, more cars, and go on more expensive vacations than we do. They started talking about pooling some money to start an investment club. As they got to talking about their financial situations, ALL of them except us had declared bankruptcy in recent years to get out from under their debt burdens.

    This seems to be the dirty little secret of life in the US – if you're not in the 1%, the only way to 'keep up with the Joneses' is to take on unsustainable debt.

    JTMcPhee , April 1, 2017 at 10:41 am

    What does "living much better" actually mean, I wonder?

    Rich folks apparently display very pointedly a flaw in human wiring: an infinite capacity to absorb self-pleasing "getting and spending." Hardly a new observation, cf. Wordsworth, 1888: http://www.bartleby.com/145/ww317.html

    "We" have no idea of "enough," not a clue about eating to a reasonably hunger and stopping with the satisfaction of a reasonable thirst. And of course zero agreement on what is "reasonable:" how dare "we" deny the agile and corrupt, or the desperate and oppressed, their shot at yuuuuge consumption and destruction?

    I'm not likely to live to see it, but it sure seems like there's a big die-off coming - and once again, the Few who promote and profit from it, who serve up the cultural corpse that "we" have been trained to recognize as "good," with a heaping helping of Bernays sauce ™

    So some of ":us" recognize the problem. Next question is, what is ?(or is there) a solution?

    lyman alpha blob , April 1, 2017 at 12:56 pm

    That wasn't the best choice of words on my part – living more expensively would have been better.

    But you're right and it does get to the heart of the problem – how much is enough? Running an economy based on financialization is not going to end well.

    And about the die-off, it's already here. It just hasn't affected humans yet so we pretend not to notice. Everything will be OK though – until suddenly it isn't.

    HopeLB , April 1, 2017 at 9:05 pm

    Thank You for the Wordsworth! This one is often running in my mind:

    The Second Coming

    By William Butler Yeats

    Turning and turning in the widening gyre
    The falcon cannot hear the falconer;
    Things fall apart; the centre cannot hold;
    Mere anarchy is loosed upon the world,
    The blood-dimmed tide is loosed, and everywhere
    The ceremony of innocence is drowned;
    The best lack all conviction, while the worst
    Are full of passionate intensity.

    Surely some revelation is at hand;
    Surely the Second Coming is at hand.
    The Second Coming! Hardly are those words out
    When a vast image out of Spiritus Mundi
    Troubles my sight: somewhere in sands of the desert
    A shape with lion body and the head of a man,
    A gaze blank and pitiless as the sun,
    Is moving its slow thighs, while all about it
    Reel shadows of the indignant desert birds.
    The darkness drops again; but now I know
    That twenty centuries of stony sleep
    Were vexed to nightmare by a rocking cradle,
    And what rough beast, its hour come round at last,
    Slouches towards Bethlehem to be born?

    Anti Schmoo , April 2, 2017 at 1:39 am

    Apparently the great "die-off" has already started in the U.S., and white Usian's are leading the way.
    https://www.nytimes.com/2016/06/01/health/american-death-rate-rises-for-first-time-in-a-decade.html?_r=0
    Just 72 myself; so I don't expect to see the worst of it

    Anonymous , April 2, 2017 at 4:10 am

    The 'rich folks' I know are remarkable for their lack of spending. It's not that they make more money than others, though some do. It's that they consume less and invest their savings. Nobody wants to hear that.

    'The Millionaire Next Door' was a popular book with an unpopular message: as far as becoming wealthy goes, playing defense is more important than playing offense. A frugal wife is very helpful. Planning is important. Some of the millionaires in the book never earned more than $75,000 a year.

    Nobody wants to hear those messages of self sacrifice. Too bad. They work.

    Gman , April 2, 2017 at 5:04 am

    A more equitable society isn't just a Lefty's wet dream or a thinly veiled disguise for the politics of envy.

    Constantly striving to aspire to it, which can only be achieved by 'good' government incidentally rather than relying on the largely pointless symbolic acts of often well meaning individuals, actually makes sound economic sense as well as social.

    I've always believed that the sole justification for current warped status quo, for those who make their money largely in their sleep, is that maybe they like to see themselves as closet environmentalists, albeit self-serving eco-warriors, whose very actions effectively amount to the suppression of consumption through controlled impoverishment by debt.

    Moneta , April 2, 2017 at 6:37 am

    I believe we should all be more frugal when it comes to goods and services that are resource and energy intensive.

    However, those millionaires next door getting rich on 70k incomes needed the market returns to get them their million or 2. So their wealth depended on the masses' overconsumption.

    Gman , April 2, 2017 at 7:29 am

    Yes indeed, I agree, and the power that accruing wealth allows them to exercise ever more control of course. The environmental 'upside' is clearly an unintended, if arguably positive, consequence.

    Thanks to the close to tested to destruction debt based money system the 'masses' are merely one component of demand. Their sheer numbers ensure a ready supply of consumers, thus rendering them expendable to those best placed to exploit them.

    They are sustained increasingly at subsistence levels because, as you rightly say, they are vital to sustaining the wealth advantage of those who need them, but in their eyes, to coin a phrase, 'there's one born every minute.'

    Anonymous , April 2, 2017 at 10:04 am

    Moneta: I certainly agree that the Millonaire Next Door who got their on $70K or less probably needed the stock market to get there. However, I think the more typical MND got there by being thrifty while building a business, often a not very sexy business having to do with some obscure service that one would never think of when describing a millionaire.

    We all need each other in some way. What many of the utopians writing on this page miss–I don't consider you among them, I might add–is how many services and goods would stop being produced, and how many jobs would disappear, if income and property were suddenly taxed at the levels they prefer.

    optimader , April 1, 2017 at 12:23 pm

    I tried to make do with what my paycheck would allow and yet I'd see others who I knew made about the same salary as me living much better and I never could figure out how they managed.

    Sounds like you still have dry powder! I think you should put on your Altruism Hat and start buying down your neighbors debts!
    Maybe park your beater on the driveway so there room to fix their fking jetskiis in your garage while you store them??

    different clue , April 2, 2017 at 1:13 am

    Perhaps 'letting the Joneses pull ahead' is a viable behavioral alternative. At least for some.

    johnnygl , April 1, 2017 at 8:31 am

    Housing is really raging again. Who thought it was possible to have a second bubble in a decade? We're looking at a 6% rise in the last six months around here!

    This is a terrible way to run a society.

    Moneta , April 1, 2017 at 8:37 am

    We've got a huge cohort hitting retirement years. According to the pension structure that was determined decades ago, this retirement needs to be financed with either markets and/or real estate.

    Since something like 75% of our leaders are part of that cohort which needs high valuations, can we expect anything different?

    Alejandro , April 1, 2017 at 9:37 am

    We know when and where we're born, but know not when and where we'll die.

    "Contributions" is a euphemism for taxes, implying that the difference between "pre-funding" and "pay-as-you-go" seems one of perception and deception

    Moneta , April 1, 2017 at 9:51 am

    Funding implies using capital markets to exploit the planet.

    Pay as you go would mean taking from the workers' pay to give to retirees nobody wants to pay taxes so markets are used

    Alejandro , April 1, 2017 at 10:43 am

    Huh? Not sure how you got to " exploit the planet" from my comment, but it mostly seems that when using the word "capital", the distinction between the nominal and the real always seems blurred, whether willingly or unwittingly.

    Interesting that you would use a phrase like " taking from the workers' pay" and use the word "retirees" as opposed to retired workers, while never considering a LVT and a TFRT taxes have never been voluntary, and tax-cuts ARE debt write-downs, implying that an ISSUER of a currency CAN write-down a USERS "private" debt much more readily than a USER-as-creditor will

    Moneta , April 1, 2017 at 11:50 am

    Let's say the retiree needs to buy groceries and then you tax the land value of the rich retiree to pay for the poor retiree's grocery bill the rich retiree is still not working. It's the worker who still gets to produce the food and the retiree who gets to eat it. Great the worker gets to work for the benefit of others.

    At the end of the day, the real world trumps the money world. It's the workers who produce the goods and services no matter how many dollars you print. So if you print and tax in a way where the workers stop working or become less productive, you are in trouble.

    Moneta , April 1, 2017 at 12:11 pm

    It's like the Spaniards thinking that coming back with shiploads of gold from the new world will make them rich while their economy has not changed. Just huge inflation or loss of purchasing power.

    Alejandro , April 1, 2017 at 12:42 pm

    Just as a reminder, the constraints on a USER of a currency are not the same constraints on an ISSUER and in this context, taxes do NOT fund spending. However taxes can AND do modify behavior.

    >" Great the worker gets to work for the benefit of others."

    This is a wedge and phatic half-statement "we" "all work for the benefit of others", so why shouldn't "we" also benefit from the work of others via a living wage? In the context of social security, why should age, disability, sickness, unemployment etc. translate into a death sentence?

    In the context of inequality, a TFRT (Too F*cking Rich Tax) would not be needed to "fund" anything but could mitigate the effects of the contempt that the "haves" have with the "have-nots".

    different clue , April 2, 2017 at 1:17 am

    Retirees would be buying food from the foodmaker-worker, which would keep the foodmaker-worker working and buying other things from other thingmakers.

    The retirees' spent money is actively mediating exchanges, not passively storing value.

    Moneta , April 2, 2017 at 6:30 am

    It does not change the fact that there are people producing goods and services and people not producing them.

    For a producer it makes more sense to give part of his labor to someone who can offer something in return.

    When you have a huge boomer cohort trying to get the baby bust to transfer the fruits of their labor, you know you're heading for a problem.

    meme , April 2, 2017 at 11:52 am

    I think that plenty of that boomer cohort, those that haven't saved enough for their retirements, would be happy to have and willing to work at living wage jobs and forgo retirement.

    That problem, lack of living wage jobs, cuts across age demographics.

    Moneta , April 2, 2017 at 6:52 am

    I guess if you believe the economy is a perpetual motion machine and that all we need is redistribution, your argument makes sense.

    But what I see is a planet with physical limits and those retiring in the developed world clinging to a high energy/resource way of life.

    IMO, the vast majority of those about to retire have already consumed more than their fair share of the world's resources and want the young's help to keep it going in retirement.

    I believe our humanity requires us to help the elderly but the question for me is how do we distributes those joules? Everyone focuses on dollars when the treasure is the joules

    justanotherprogressive , April 1, 2017 at 10:13 am

    My house has appreciated 23.5% in price since I bought it three years ago. I was talking with my neighbors about this just last week. We are concerned because what appears to be happening in our sub is that houses are being bought by investment companies and then being put up for rent (there are real estate agents knocking on doors weekly in my sub asking to list our houses). When someone in our area puts up a house for sale, it is rarely on the market for more than a couple of weeks. What scares us even more is that these investment companies are renting them out for extremely low prices – far lower than what someone would pay for a mortgage, even with a 20% + down. It just doesn't make sense

    Mark , April 2, 2017 at 9:51 am

    Out here where I live, homes have appreciated in value ~20% per year for many years now.

    I'm in the process of house hunting now in an area south of Seattle. Crappy starter track homes with zero character or view run for $450-500k, and the national home builders are throwing these places up as fast as they can. There are vast subdivisions of these places under construction now, and many of the empty lots already have "sold" signs out front. Better construction that looks like it will still be in good shape in 10-15 years will run in the $650-700k range, minimum.

    Also, when I drive around and see the people buying these places are they do not strike me as the kinds of people who can afford a half-million dollar starter home – beater pickups parked in the driveways, obese people smoking cigarettes on the porches, etc. They've got to be just on the edge of what they can afford. I predict eventually this is going to end very badly

    craazyboy , April 1, 2017 at 10:57 am

    Quick! Take out a home equity loan before they change their minds!

    optimader , April 1, 2017 at 12:25 pm

    it's a real eye opener to look at the price escalation of Chicago lakefront condos on Zillow

    perpetualWAR , April 2, 2017 at 10:58 am

    House across the street just sold for $649,000. It is 684 sf.

    Seattle Bubble intact, ready for popping.

    Sound of the Suburbs , April 1, 2017 at 8:46 am

    Why do we need growth?

    The monetary system depends on it; the monetary system requires growth to pay off the interest.

    The banks create money through loans but they only create the principal and not the money to pay the interest. There is never enough money in existence to pay off all the debt plus all the interest.

    Government issued money that is not based on debt can be used in a static system, but people who propose this tend to get assassinated, e.g. Lincoln and Kennedy.

    Why did debt explode?

    Debt = money

    When the world came off the gold standard in 1971, there were no hard anchors on the monetary system and debt and money creation were now unlimited.

    One nation couldn't go crazy on its own as their currency would depreciate against everyone elses, the West when crazy together.

    Housing booms create lots of money from new debt, which feeds back into the economy and gives rise to a more general boom throughout the economy.

    House prices peak and the capital gain possibilities disappear, the speculators run and the housing boom turns to bust, usually caused by rising interest rates.

    The repayments start to overtake the new debt and now the opposite effect takes hold, the money supply contracts into debt deflation, money is sucked out of the general economy and a very dangerous doom loop can easily form.

    What is the problem with the explosion of debt?

    It is all money borrowed from an impoverished future.

    Hardly any of the lending has been productive lending into business and industry that generates the money to pay off the debt.

    It has nearly all been lending intro financial speculation of all kinds, including housing.

    Why are Western economies stagnating?

    All the wealth has concentrated at the top subduing demand.

    This is the US .

    http://static5.businessinsider.com/image/557ef766ecad04fe50a257cd-960/screen shot 2015-06-15 at 11.28.56 am.png

    Debt based consumption maxes. out.

    We used neoclassical economics in the 1920s and maintained consumption with debt and allowed debt fuelled speculation in the US stock market. The stock market crashed and the debt deflation of the 1930s Great Depression followed. The impoverished future, set up by the preceding debt binge.

    Keynes realized redistribution was needed to make capitalism sustainable, progressive taxation funding subsidized housing, education and services.

    Income was just as important as profit, income looked after the demand side and profit the supply side.

    We went back to neoclassical economics to find it still has all the old problems.

    Moneta , April 1, 2017 at 9:43 am

    What we humans perceive as wealth is not wealth in Mother Nature's eyes. Rien ne se perd, rien ne se crée. It's a transformation of matter pure and simple.

    This means that most of the wealth we create depreciates and needs to be maintained or replaced for wealth to keep its value over the long term. So most of it is a reflection of past wealth not future wealth.

    Over the last 5 decades, our profitability and productivity has depended on exploiting the investments we made in the decades before. Many of those assets are reaching their end of life and will need to be replaced.

    However our system is mainly set up for growth and exploitation of existing assets/minimal maintenance not for replacing assets.

    And the US with the reserve currency has forced everyone to play the same game.

    I don't see how we can avoid a shock when all at the same time, we all start rebuilding the assets reaching their end of life

    Sound of the Suburbs , April 1, 2017 at 12:36 pm

    We have probably gone back to raw capitalism at the worse possible time, some of those resource limits are already over the horizon and coming towards us.

    The neo-liberal, new world order is disintegrating and it has left many problems behind to keep our minds off what should be the most pressing issues.

    The main pre-occupation of our elites is getting one over on everyone else, not a good place to be.

    When they start squabbling among themselves, this is when wars start, and with the existing order falling apart there is going to be some squabbling, they hate to lose anything.

    craazyboy , April 1, 2017 at 11:13 am

    Not exactly. The problem is you are officially bankrupt when no one will lend you the money to pay off the compounding interest. The secret is to perpetually roll over the principal. This can go on a surprisingly long time – which explains why we have boiling frog syndrome.

    That happens to be almost were we are. Now economists like to believe if you are a government, you can eternally run a 3% deficit. But the math still says someday the interest payment will balloon beyond this. Another popular fix is "inflate the debt away". But this means you need to be able to borrow forever at interest rates below the general inflation level. Some countries have been borrowing at negative interest rates very recently, but that is an anomaly in the history of the world.

    None of these things work for consumer borrowers, so they are the weak point, and need real income growth to get ahead of the game.

    The only thing that fixes this scenario is real growth. So we got our self addicted to growth, at both personal and state and federal guv level, and withdrawal may be fatal. Generally, corporate and bank leverage is also too high to withstand any shocks to the economy.

    Sound of the Suburbs , April 1, 2017 at 12:42 pm

    South America being a good example, they kept rolling over the debt until it eventually got out of control.

    The neo-liberal ideology assumes the trading world will naturally come to a stable equilibrium and the mainstream complain about Trump's protectionism.

    Like you say you can't run a deficit forever and the fault lines in the global economy are just widening not converging.

    The Greek's liked German products until they reached max. debt and collapsed.

    Debt based consumption is only ever a short term solution, it maxes. out.

    JTMcPhee , April 1, 2017 at 10:09 pm

    Time for a Grand Jubilee, maybe? At least for the Mope Class?

    I'm still of a mind that there is no fixing any of it in any survivable way.

    different clue , April 2, 2017 at 1:27 am

    Several million words ago, commenter Guy Fawkes Lives wrote a comment about how those relatively few people who "own" their houses and yards after finishing paying off the mortgage may, in some cases, be able to force the "proof" of ownership down out of the digital Cloud ( MERS) and back to analog Earth ( a legally unassailable Deed or whatever that thing is called) in a County Courthouse Registry of Deeds.

    But that was several million words ago. Who has the time to go back and find it now?
    If it is actually realistically possible for some house-and-yard owners to really do this the way I think I remember Guy Fawkes Lives writing about it in a comment, it would be nice if someone could re-write about it in a way totally understandable to the intelligent layman. If it were written well enough to be a Post, perhaps our Blogmasters might even decide to hoist it up out of Comments and make it a Post of its Own.

    Perhaps it could even be the first Post to begin a new category which could be called Airgapping. As in persons or even communities airgapping themselves against one or another part of the Greater System.

    This is not "setting an assignment". This is "voicing a wishful dream." Perhaps if enough "Airgapping" posts showed up over time, from devoted Commenters doing their best to write Postworthy comments, the accumulating buildup of "Airgap" -categorizable posts might grow big enough to earn itself an Airgap category just as so many Permaculture Posts were posted that it was decided that they had earned the right to the category-title Permaculture.

    perpetualWAR , April 2, 2017 at 11:06 am

    The banks are doing a nice dance called the "Deed of Satisfaction." That way, they get to robosign that you're done paying them. But wait-- don't they still retain the promissory note? Why arent you getting that back when you finish paying? Because the thieves continue to rehypothecate it into eternity. Ask for the promissory note back. It will be a battle you lose.

    I won't ever be playing this debt game again. No loans. No taxes. Nothing to fuel their fake economy. I'm done. It's all a big circle jerk.

    craazyboy , April 2, 2017 at 3:31 am

    "Jubilee" means "party", I think, so that's not a very descriptive plan in my mind. I think about what it may mean in terms of specific actions, then decide I don't wanna think about it anymore. Depending on scope, it can lead to international wars, civil wars, assassin wars, or collapse of all our institutions that make things sorta an intelligent civilization instead of having 7 billion lone wolves roaming the planet and surviving however they can manage.

    But without making too big a deal of things, they really blew it when they decided to go with what we hear described as "Socialism for the Rich and capitalism for the poor". That's just a nice way of saying the government aligned the legal system and other government powers with banks, capitalism, and the rich to protect their paper wealth and become an all powerful predator class aligned against, say, the 90%.

    Allowing the bankruptcy system to function as it should – eliminating bad debt and making holders of bad debt take losses, would have purged the worst cases in the system. If additional safety net programs are required, or maybe you find out you have a surplus of empty houses, then devise equitable solutions once you understand what's needed.

    Then some obviously grossly unfair things like student loans at 8% during 10 years of a ZIRP economy – restructure these w/ new terms, or if that's not legally possible, re-fi at what mortgages go for – 3.5%. That would cut payments nearly in half.

    Then the Fed goes and blows the next bubble economy by blowing assets bubbles in order to fix up everyone's net worth. Except, IIRC, the 3% own 90% of the assets. So home prices never stay affordable relative to incomes, and we are back to the game of taking out home equity loans to finance your cost of living.

    So that's as much thought as I care to give it, then I get tired and give up.

    skippy , April 2, 2017 at 4:43 am

    Jubilee in the biblical sense only means a reversion of contracts to null and void, money and asset evaluations had nothing to do with it because they had no stock exchanges, nor the effects such concentration of trading creates.

    BTW the Fed does not blow bubbles, that distinction is the result of industry leverage applied to the political system, by all and sundry, too include the decades of funding wonky economics to facilitate some quasi religious ideological agenda.

    disheveled . how many years have you been reading this blog – ?????

    craazyboy , April 2, 2017 at 10:53 am

    As long as it's been around, and yes, the Fed does indeed blow bubbles.

    I've been reading financial news, working in biz, investing, and watching the Fed since the 70s, and a few NC bloggers and commenters don't have a monopoly on the Truth in these areas. Often, very much not.

    skippy , April 2, 2017 at 3:42 pm

    Fiddling around with IR does not have distributional vectors, nor does the Fed dictate what ADI's do.

    Industries and their lobbyists [see Hudson] have a much more distributional effect on asset prices [see Gates frictionless capitalism and the Dot.com bubble].

    disheveled . Wall St. is the distribution mechanism imo

    craazyboy , April 2, 2017 at 4:13 pm

    See "Search for yield" when the Fed floods the system with liquidity and drives the Fed Funds Rate to zero. Then also claims they are not a "regulator" in the financial system.

    Ruben , April 2, 2017 at 5:57 am

    "Not exactly. The problem is you are officially bankrupt when no one will lend you the money to pay off the compounding interest. The secret is to perpetually roll over the principal. "

    Or (instead of denying a new loan):

    The new and higher interest rate to lend you money to roll over your debt is beyond your ability to pay.

    sunny129 , April 2, 2017 at 4:07 pm

    'The new and higher interest rate to lend you money to roll over your debt is beyond your ability to pay.

    This what happening in Auto loans in new and used/leased car markets! But who cares?
    the new money is DEBT to perpetuity! CBers will back you up!

    human , April 1, 2017 at 9:15 am

    What is this "The Economy" that has been foisted on us? We treat it as this nebulous, yet fearsome god that must be appeased. Was there an Economy before '71? 1933? 1913? What is a "functioning economy"?

    To re-purpose Arthur Silbers' "The Tale That Might Be Told" (powerofnarrative.blogspot.com/2008/02/tale-that-might-be-told.html): What would happen to ordinary folk if we began to avoid the multi-nationals as best we could and increased our cash spending on Main St? Would we still be at the mercy of The Economy? How long? Is there a tipping point? How do we get the word out?

    How do we demand local, public banking? Not to mention local public health-care and indigent relief, retirement security, and better funded local education.

    Starve the beast.

    PhilM , April 1, 2017 at 11:32 pm

    Please do. All of you, please do what the human tells you to do. The rest of us, who know what happens to prices when the demand curve sinks, promise to cooperate. At first. We promise not to go shopping! Not, at least, until your virtuous self-denial has had its predictable effect on the prices at the Big Box stores, as manifested during this year's inventory clearance sale.

    different clue , April 2, 2017 at 1:38 am

    If just enough grouploads of people do this in a purposeful way, they might build little Lifeboat Fortresses of Conviviality Economics. Here is a groupload of people doing and researching some of that in their own little area of expertise.

    https://slowmoney.org/

    Your suggestion is just as good a theory as anyone else's. Actions based upon it would be Theory-Action. If enough people joined together to do this in the same time and place to be called a Group, then you would have a Theory Action Group . . . a TAG, if you will.

    Someone else who has spent years working out a Theory-Action theory of this approach is named Catherine Austin Fitts. It has been years since I thought about Catherine Austin Fitts. She calls her concept "Solari". Some of it that I read begins to feel ever so slightly cultish, and she keeps referrencing God over and over. But could the concepts be cooled off to a less-than-cultish temperature? Could it be merely secular and not God-invoking? I don't know. Perhaps it is worth study.
    https://solari.com/blog/

    And there is Richard Heinberg with his Power Down, and there is the Transition Town movement, and other such groups.

    BeekeeperRorie , April 1, 2017 at 9:24 am

    Terrific post- you've articulated the current scenario as I see it quite well. I've been saying this verbally for about five years, that the global dominance of capitalism depends upon constant expansion, which we cannot continue with the parameters we have established. I've been deriding capitalism since the mid nineties for the inherent exploitation on which it depends. So you're not alone in this view, you've simply taken the lead in writing it all out.

    "Growth to what end, and growth into what? 4 years ago, I wrote What Do We Want To Grow Into? I have still never seen anyone else ask that question, before or since, let alone answer it."

    I'm comfortable with less, a lot less, and a much more ethically based, spiritual existence. My community, as in the people who share and live my values who I commune with, has shrunk commensurate with my ambitions. My relationships feel more genuine, though, and my quality of life and mental/emotional/spiritual well being has improved considerably.

    Thank you for offering solutions. I fear the likelihood of our collective ability to restructure our economies around production is slim, at best. We'd have to get the banksters to release their strangle hold on the rest of us, and we'd have to get all the bubble participants to wake up and completely re arrange their lives incorporating sustainable models. Convert all those trophy homes into cooperative living arrangements, reduce our environmental footprint to a limited amount per person, etc. It's such a radically different model than what we have here in the US, I'm tempted to look for it elsewhere and emigrate. As if that were an easy option.

    "It's not a healthy thing for an economy to depend on blowing bubbles." –Great line. Sadly, a great line and image for us to savor as we collectively implode.

    justanotherprogressive , April 1, 2017 at 10:53 am

    "And that's not the only consequence of our blind growth chase. We have become so obsessed with growth that we have turned to creative accounting, in myriad ways, to produce the illusion of growth where there is none. We have trained ourselves and each other to such an extent to desire growth that we're all, individually and collectively, scared to death of the moment when there might not be any. Blind fear brought on by a blind desire."

    Wasn't that the story of Enron? Does everyone think it will be "different this time", for them?

    LT , April 1, 2017 at 12:07 pm

    Indeed.
    And as for housing, do people really think the issue about public records of deeds and all the disasters of robo signing were resolved after 08?
    It must be nice living in American Dream sugar plum fairy optimism alt reality.

    meme , April 1, 2017 at 11:50 am

    Not sure I understand the implications of your "solution", a debt jubilee.

    Whose debt, specifically, will be relieved? Owners of debt on multimillion dollar properties and Range Rovers or students?

    What we should do in the short term is lower private debt levels (drastically, jubilee style), and temporarily raise public debt to encourage economic activity, aim for more and better jobs.

    Moneta , April 1, 2017 at 11:58 am

    The developed world wants a debt jubilee so it can keep on consuming at the expense of the 5 billion in the developing world . "but it's no fair, we were promised the American dream!"

    Time will tell us who wins the tug of war

    sunny129 , April 2, 2017 at 4:10 pm

    'Time will tell us who wins the tug of war '

    This has been going on since late 80s but accelerated since 2009 with more credit explosion!

    No one worried about DEFICIT spending, National DEBT or MKTS bubble built on debt on debt with leverage!

    Those who lived or trying to live prudently WITHOUT debt appear FOOLS!

    Moneta , April 2, 2017 at 5:29 pm

    Until you reach 55+, get sick or restructured out of your job.

    It's a game of musical chairs where one chair after the other is taken away.

    fresno dan , April 1, 2017 at 11:55 am

    The funny thing about debt is that if Goldman Sachs loses a trillion dollars, the government lickety split creates a trillion dollars at 0 interest for them (and to add insult to injury, the government pays interest to the banks for holding money that the government just loaned to the banks for free ) If millions of homeowners lose a trillion dollars, they are tossed into the streets .Paying your debts is important when your poor, but not at all when your rich

    And inflation as a cure???? Inflation in health care, inflation in education, inflation in housing ..yet no inflation in wages.

    And the worst thing is that the CARNAGE is not spoken of, lest the fact that the system works for the few and against the many becomes apparent.

    oh , April 1, 2017 at 2:49 pm

    Let's look forward, not back. /s

    different clue , April 2, 2017 at 1:43 am

    If one knows one is going to be unfairly driven out of one's home with nothing to show for it, might there be slow motion ways to sabotage the property so that no-one else can reap any underserved-by-definition gains from it?

    Filling the toilet, bathtub, furnace, water heater and all lines and pipes with cement? Opening small strategically placed holes in the roof so that water can seep in slowly and slo-mo destructively? removing electrical socket plates and hiding small pieces of ultra-stenchy-when-rotted food in the revealed spaces and then carefully replacing the socket plates? Etc. etc. etc.?

    McWatt , April 1, 2017 at 12:37 pm

    It certainly seems as if our country was much better off with 150 million people in it rather than
    the current 330 million.

    craazyboy , April 1, 2017 at 1:24 pm

    Yeah! Almost seems like 180 million aren't doin' anything except borrowing boatloads of money and blowing it on German cars, overpriced houses, and Chinese stuff.

    Weird. hahaha. Pass the bong, please. Just picked up an ounce of pot for $300. For only $200, went to an ophthalmologist who told me I'm going blind and wrote me a 'script. Feel like I beat the system! At least until the OZ is gone and gotta get another. haha.

    Actually I made that up. I'm not an idiot. craazyman wouldn't even do that. He goes for sensible shoes, red wine and xanex.

    animalogic , April 2, 2017 at 12:08 am

    The shoes might be sensible, but the xanax isn't: it's
    vicious addictive.

    different clue , April 2, 2017 at 1:48 am

    Kurt Saxon the survivalist author once wrote an article about how to grow your own marijuana cheaply in money and electricity. I haven't been able to re-find it anywhere.

    It most basically involved getting one of those U-Haul type long-distance-moving garment boxes.
    Paint the inside totally white with flat white latex paint. Hang a fluorescent bulb shop-light from the hanger bar with long small link hardware chains. Adjust the free-hanging chain length so that the lights are about 6 inches above the growing plants. As the plants grow taller, adjust the chains so as to keep the lights always 6 inches above the growing plants. That's your grow chamber.

    And tell nobody. The way he put it was . . . " tell nobody. Don't tell your future ex-boyfriend. Don't tell your future ex-wife. Tell NOOOOO – body."

    JerryDenim , April 1, 2017 at 1:24 pm

    Bravo and amen! Ever since I discovered the true nature of our money supply twenty some years ago in my college-aged youth the realization has plagued me and alienated me from the rest of our consumption based, debt crazed, materialistic society. Just thinking of thirty year mortgage on a unbelievably inflated house just so I can make some idiot, drop-out house flipper a multimillionaire, and prop up the lavish lifestyles and elaborate schemes of Wall Street bankers is enough to make me want to wretch because I know bank money (Federal Reserve Notes) is fake, but the debt and obligation involved with taking a mortgage for hundreds of thousands of dollars, for me as a peon, is extremely real. It's wonderful that places like Naked Capitalism exist, as I remember a time when Monetary reform and even the mere talk of the workings of our monetary system was the domain of gold bugs, right-wing, tin foil hatters and musty old alternative press bookstores. It's amazing though, even post MMT, post derivative meltdown 2008 financial crisis, post Naked Capitalism/left/wing financial blogs, 99% of the populace still thinks you're a tin foil hat fool if you tell them money is created out of thin air when they take a loan from a bank. The eye-roll and the accompanying condescending response is guaranteed to increase proportionally with education and income level. The most vitriolic reactions almost always come from finance guys, but maybe one out of twenty already know the truth, enlighten you with some interesting insider tidbit and admit they just want to loot a little more for themselves and then they will retire to a nice comfortable and simple life far away from the casino.

    "Grow into what?" A fantastic question that every elected official and government economist should be forced to answer for the public record. The next question every citizen/consumer should ask before their next purchase is does this new "x" really make me happy and do I need it? Can I be simpler? What are the impacts of me enjoying this new consumer thing and who really pays the costs associated with creation, transportation and eventual discarding of this thing? Is there a better way or a way for me to go without this? Simple questions that could go a long way towards solving our problems.

    Dead Dog , April 1, 2017 at 3:13 pm

    Good post, mate. Yes, who'd have thought this. The govt has told us they manage the supply of money. They even issue bonds, which they must repay!!!

    Yet, private banks create money when we borrow from them, without much regulation on how much they do it.

    Funny, I thought the supply of money was something that the govt did and should control.

    james wordsworth , April 1, 2017 at 1:48 pm

    The problem is using GDP as a goal. As the old maxim says "What gets measured gets done". If the goal is stupid the result will be as well.

    Consider a simple service economy where everyone is a hair cutter. In order to get growth you have to cut hair more often. You may start with everyone getting a hair cut every 2 months, but if you want a growth in GDP you need to gradually increase the frequency of hair cuts (otherwise you have no growth). Soon you have everyone getting hair cuts every day. So you have gotten growth, but where is the "wealth". It only comes from whether or not you see a daily hair cut as some kind of gain. It definitely is not permanent!

    Our current economy is similar especially as we move to a more and more service based economy. Most new jobs are in restaurants and bars (almost now equal to manufacturing jobs in total) and old aged homes. Basically looking after people. This by its nature limits the kind and amount of growth you can get under the current goals (GDP). I mean once you get to where somebody cooks your three meals a day how much more upside is there.

    The solution is obvious, but hard to get to. A different metric, that is quality based. Change the goal and behaviour will follow. The problem finding a goal that is acceptable and that will not happen until we have a crisis.

    JerryDenim , April 1, 2017 at 8:57 pm

    ++ Bhutan measures "GNH" – Gross National Happiness instead of GDP. Let the thoughtful Buddhists lead the way perhaps?

    John , April 1, 2017 at 2:09 pm

    We haven't had real economic growth since the 1970's. Once the reconstruction of Europe and Japan in the postwar era finished, the global manufacturing sector became stymied in a crisis of overproduction/under-utilization of capacity that only continuously worsens as profit rates continue their decline. The only growth the first world countries have had since then has been from asset bubbles (Japanese real estate in the 80's, US stock market in the 90's, US real estate in the 00's, euro bubbles in the 00's).

    Capitalism cannot provide 3% growth rates ad infinitum. There is a finite amount of space and resources, and because of the math behind compound interest, to grow at 3% per year the economy would need to double by 2060 and double again by 2100 (with the pace only increasing). What drives economic growth is industrialization and urbanization, and after those processes are finished, only asset bubbles or external demand can do the trick (this is the same reason that growth rates during the 17th century were anemic).

    These are structural problems that remodeling a few old train stations will not solve. The Keynesian solution may temporarily boost demand in the short term, but eventually you run out of infrastructure to repair. (And in the US nowadays, more than anything else, fiscal stimulus simply subsidize Chinese manufacturing and pollute the planet). The best case scenario is that we'll be stuck with low growth indefinitely–unless a war destroys most of civilization and we get to rebuild again.

    ExtraT , April 1, 2017 at 2:21 pm

    This article misses the root of the problems we face. Economic growth does not require environmental destruction, or increases of private debt. If you check Michael Hudson's article published earlier this week at NC, you will have much better understanding of how the economy works:
    http://www.nakedcapitalism.com/2017/03/michael-hudson-democracy-collaborative.html

    James McFadden , April 1, 2017 at 2:22 pm

    The author addresses the symptoms, not the disease.

    Growth is demanded by capitalism, which is the root of the problem. Who will invest capital unless there is a reasonable expectation for a return on the investment – i.e. growth of capital? Macro-scale capitalism requires macro-scale growth in the national and/or global real economy. The fake financial economy, which is just rentier extraction for the leisure class, is merely an accelerant to inequality that capitalism creates. Macro-scale real growth requires more physical resources – more people, more energy, more materials, more land – so population growth and expanding resource exploitation are necessary requirements for capitalism to flourish. Capitalism was never going to last. The energy resources were banked over millions of years, but are being used up in mere hundreds of years – therefore not sustainable. Overpopulation is causing wars and migrations – we are running out of land to support an expanding population – therefore not sustainable. CO2 levels in the ocean are killing off ecosystems, and CO2 in the air is changing the climate – a finale to the man-made 6th extinction.

    Since growth is not sustainable, capitalism is not sustainable. As Naomi Klein clearly outlined in "This Changes Everything" – capitalism is the root cause of all the coming crises – economic, climate, migrations, and war. Time to create a sustainable economic system – and it can't be capitalism. Fortunately there are an infinite set of choices. Economies are merely sets of rules governing how goods and wealth are distributed, and how exchanges of goods are made. How do we fix the economy? Easy – change the rules so they penalize unsustainable exploitation and so they are not designed to just benefit the 1% (no more trickle-down economics). How do we solve the debt crisis? Easy – we forgive the debt – after all it is just money owed to ourselves. "the debts that can't be repaid won't be repaid. And all you have to work at is how you're not going to repay them." (Steve Keen partly paraphrasing Michael Hudson). How do we solve overpopulation? Easy – education and birth control, create a global economy where the next generation does not require population growth to survive. How do we solve wars and migrations? Easy – stop manufacturing the crises through corporate resource exploitation and theft, and stop funding the military-industrial complex. How do we solve the climate crisis? Easy – heavily tax fossil fuels and fund clean energy (solar and wind) – it will cost no more than the bank bailout.

    How do we do all this politically? Hard – very hard – because we have a 1% that is more interested in protecting their unearned wealth, protecting their profit margins, then in saving the human race from catastrophe. We won't be able to convince them to change their ways – they believe they are "doing God's work" (Blankfein) – their indoctrination is too complete. "It is difficult to get a man to understand something when his salary depends upon his not understanding it." (Upton Sinclair) That 1% is the most ruthless 1% of the population – they would kill billions of us to protect their wealth – and they are currently killing millions. They use that wealth to manipulate us and to control the political system by buying the politicians. They rely on "the pounding twin impulses that drive modern America: burning hatred of all losers and the poor, and breathless, abject worship of the rich, even the talentless and undeserving rich." (Taibbi) They use a "complex system of public-private bureaucracies that constitutes our modern politics a giant, brainless machine for creating social inequity. It mechanically, automatically keeps the poor poor, devours money from the middle class, and sends it upward. And because it's fueled by the irrepressibly rising vapor of our darkest hidden values, it attacks people without money, particularly nonwhite people, with a weirdly venomous kind of hatred, treating them like they're already guilty of something, which of course they are – namely, being that which we're all afraid of becoming." (Matt Taibbi)

    So what do we do? We look to the past for what worked – movements and unions addressed slavery, suffrage, inequality, child labor, jim crow – they created the progressive long-lasting changes in our social structures. We abandon what doesn't work – the delegating of the struggle to NGOs and advocates who ask for our donations and merely call on small groups of us to mobilize and shout on a warm sunny afternoon. We look at those groups that have the power elite concerned – BLM, DAPL, Occupy, Whistleblowers, minimum wage movement – and consider what they could become if only they had the rest of us onboard. We educate ourselves and each other – and we inoculate ourselves against manipulation by understanding how propaganda and manipulation works. (study Bernays, watch "The Brainwashing of my Dad") We do deep organizing into networks of support groups (Jane McAlevey – "No Shortcuts") and form a movement. We abandon the major political parties and create new ones (the first thing to do is re-register to a 3rd party, preferably the Greens, then take over the party and make it your own. The major parties are too entrenched with corporate money for this inside strategy to work). And we grab the reins of power from the 1% – which will likely cost many lives because the 1% are ruthless – but as with most bullies, they will eventually back down – but our window of opportunity is short.

    Or we do nothing and let the crises continue until the collapse. Do we allow billions of people to suffer and die in the crises because we were too lazy to get off our butts? Was Cornel West correct when he said: "The oppressive effect of the prevailing market moralities leads to a form of sleepwalking from womb to tomb, with the majority of citizens content to focus on private careers and be distracted with stimulating amusements. They have given up any real hope of shaping the collective destiny of the nation. Sour cynicism, political apathy, and cultural escapism become the pervasive options." Will we allow the insanity that Arundhati Roy describes to continue: "While one arm is busy selling off the nation's assets in chunks, the other, to divert attention, is arranging a baying, howling, deranged chorus of cultural nationalism. The inexorable ruthlessness of one process feeds directly into the insanity of the other." Will we be like the Jews and Armenians and wait too long – "And when they came for me, there was no one left to speak out for me." (Martin Niemoller) Or like Chris Hedges, do we believe that some things are worth fighting for: "I do not fight fascists because I will win. I fight fascists because they are fascists."

    craazyboy , April 1, 2017 at 3:08 pm

    "Growth is demanded by capitalism, which is the root of the problem. "

    Actually, this is another half truth created by the neolib folks back in the 60s-70s era.

    Taking the case of publically held corporations whose common stock traded on Wall Street, we used to have two basic types of companies to buy stock in. One was the "growth company" and the other was one which paid out most free cash flow in the form of regular dividends. Electric utilities and telecom stocks were examples of this type, some are still around today, but they are known as being "slow growth". The investor expectation is the stock price will only grow fast enough to keep up with inflation.

    Any kind of company could adopt the high dividend approach to provide a return to investors. But for many reasons, like growth stock actually costing companies nothing, and tax deferment by not taking dividends and getting long term capital gains instead being preferred by most investors, most companies decided to aspire to being growth(stock) companies.

    Where the problem came in was some companies, mostly in emerging growth fields, really could mange 15% growth or more, investors came to expect growth like that from most of the market. Then Wall Street figured out if they could load up upper management with lots of company stock or stock options, this would "align management's interests with the shareholders". Oh man, did that work. Good biz sense was no longer an impediment to looting the company anyway they could think of as long as they could justify it as short term benefit to the shareholders.

    So we got massive mergers, leveraged buyouts financed by junk bonds, disappearing pension plans, off shoring, mega sizing of factories – they ship to the whole world now – my bet is eventually from Bangladesh, H1-Bs and green cards, outsourcing and related consolidation there, and a bunch of stuff I'm probably forgetting. Oh yeah, a "Cloud" and accounting firms in India. And here we are.

    James McFadden , April 1, 2017 at 7:26 pm

    Apparently craazyboy fails to understand the difference between a rentier economy (or feudal system) and capitalism. Such rentier drains on the economy are exactly what the capitalists were trying to end when they attacked the feudal system several centuries ago. A rentier economy is not capitalism – just pure wealth extraction – a parasitical relationship as Michael Hudson so eloquently describes in "Killing the Host." And it appears that the capitalists, now that they own practically everything, want to bring back good old fashioned feudalism using financialization to place us all in their debt - accelerating the process by using their purchased politicians to privatize the profits and socialize the losses. When capitalism fails and the key goal is protecting the unearned wealth of the 1%, I guess feudalism is their next best choice. Perhaps Blankfein's message of "doing God's work" will morph into "Wall Street was ordained by God" to own everything. That way the 1% can justify charging us rents for everything - even the soon-to-be privatized water we drink – the same reason the Nobles and Kings used to justify the theft from the peasants.

    craazyboy , April 1, 2017 at 8:00 pm

    ???

    John , April 2, 2017 at 7:02 am

    I don't think either of you see the problem.

    It's not that the 'rentier economy' is inefficient or that investors are addicted to high returns (although both are true). The problem is the rate of profit in manufacturing (the lifeblood of a modern economy) has been in steady decline since the 1970s because of the crisis of overproduction/under-utilization of capacity that resulted from the rise of European and Japanese competition.

    Yes, space and resources on a planet are finite, but more importantly, at 3% growth the global economy would have to double by 2060 and then double again by the end of the century (and that pace will only increase ad infinitum). I'm sorry but there's just no way that that's going to happen. What drives robust economic growth in a capitalist economy is industrialization and urbanization (this is why growth rates were anemic in the 17th century), and once those processes have been completed, growth can only come from external demand, "urban renewal," or asset bubbles. This has been the case for the developed world since the 70's, and why our future, at best, is looking like post-1990 Japan.

    Unless a big war blows the heck out of everything and we get to rebuild, just like we did in the post-WWII era. But if not, remodeling a few old train stations won't get us out of this crisis, as eventually you run out of infrastructure to repair.

    Moneta , April 2, 2017 at 7:35 am

    It's more like why would the developed world get to write off its debt so as to get a clean slate so it can keep on buying resources to replace its infra when many parts of the world still have not gotten its own share?

    Many here seem to think that the only problem we face is redistribution not realizing that a fair redistribution on a global basis would mean a drastic drop in their material lives.

    John , April 2, 2017 at 8:46 am

    Completely. And of course the dynamics of the global economy benefit the first world countries at the expense of the third world countries. And even Keynesian stimulus is unjust: it subsidizes the wealthy economies in ways that poorer countries cannot enjoy (if they did the same, they'd face a public debt/currency crisis). Although I guess nowadays in the US, Keynesian economics means subsidizing Chinese manufacturing firms–at the expense of US workers and the environment.

    Everyone talks about how we want a more equitable distribution of wealth: tax the rich to provide social programs for the poor, use government spending to create more middle class jobs, etc. But if we actually wanted to redistribute wealth, it'd mean all of us would have to see a huge drop in the standard of living in order to help the poor in other countries live a little more like we do.

    Of course all of this is ecologically unsustainable. A capitalist economy (and especially Keynesian economics) is entirely dependent upon consumption ad infinitum, and that is impossible for our planet. We have a finite amount of space and resources, and our ecological footprint is far greater than what the earth can produce.

    Norb , April 2, 2017 at 9:46 am

    If you define "standard of living" by the current capitalist metric, then yes, all our "living" standards will go down. We will all have less disposable stuff for our individual consumption.

    But what if you imagined society based on the satisfaction of human needs instead of infinite wants- which is the pathology of the extreamely rich and is needed to maintain the current system.

    Society has lost the larger motivating vision. The elite offer a paltry vision that is unsatisfactory to the human soul.

    Thinking about sustaining life, instead of exploiting it, offers new avenues for action. It makes life worth living.

    John , April 2, 2017 at 4:00 pm

    The only way to keep the economy going (reasonable growth rates and reasonable unemployment rates) is through consumption ad infinitum. This is not ecologically, economically, or socially sustainable. We need to transition to an economy that only serves human (and the planet's) needs rather than the need to create "wealth" (assets in the hands of a feel capitalists) until the end of time.

    Of course the only way this will happen is if the people seize the means of production and we move away from the capitalist system. Not exactly something the Keynesians are suggesting (they think that government spending ad infinitum can solve these problems).

    Norb , April 2, 2017 at 9:32 am

    The true problem is changing our thinking from a "growth" economy to a steady state economy. The need is for building a sustainable, self reinforcing system that takes inspiration from life cycles based on nature. Nothing grows forever. An optimal size is reached and then the organism dies of old age, returning all the material elements of itself back into the environment from which it arose, enabling the process to begin again.

    The failed understanding and appreciation of humans place in the world, in the order of life, will be our undoing as a species. We have a choice to be stewards of this world, or to be exploiters, parasites. The reigning ideology is that humans are separate from the natural world. We are natures master. Our rational minds have given us a glimpse into a great potential for molding the natural world to our will. To have influence over our collective futures. The current reigning ideology is one of dominance not of unity.

    The notion of rebuilding society from the ashes of war and conflict, brought about by competition is the root cause of our failure. War and planned obsolescence is the longterm failure of capitalism. The proof of this statement is evident from the slow destruction of the natural environment upon which all life depends. The environment cannot regenerate fast enough to keep up with the greed and avarice of those in power. The few parasites have convinced the many that there is no other way of life. It truly is a death spiral, masked by hubris and shortsightedness. The fate of humanity is in the balance. Will it take mass die offs to drive this point home? Can any other explanation for the degradation visible all around hold sway? If that outcome is welcomed by the power elite, how can they hold legitimacy in the aftermath?. In the end, In evolutionary terms, humans are a blip in the chain of life. This works against positive change. It seems catastrophe is the only motivator on both individual and societal scales- along with positive action being reabsorbed into the competitive, scarcity driven, individualistic, narrow view vision.

    Shortsightedness and willful blindness is the problem. Larger questions of why are we here- and what is our purpose in life need to be redirected. Hedonistic leadership, brought about by the short term success of capitalism as an organizing structure, will one way or another come to an end. People don't choose a life of slavery. They are driven to it.

    JTMcPhee , April 2, 2017 at 10:33 am

    A word about "Sharia Banking and Finance Law:" James McFadden asks "Who will invest capital unless there is a reasonable expectation for a return on the investment – i.e. growth of capital?" "Sharia banking" and "Sharia investment" get shoved in with head-chopping and ethnic cleansing, likely by the "capitalist" PR folks who want to drown the humane elements and wisdom of Muslim economic -relation models in a bathtub of rotting Bernays sauce. But it seems to me that there's wisdom in Islamic finance and banking that ought to inform any efforts to displace the cancers that are riding us westerners.

    Note that I make no claim to deep understanding of either the western mess or Islamic banking and finance. The surface contrasts, though, are absolutely striking, to my understanding.

    Here's a primer on what the BoE started trying in 2013, based on notions that date back maybe a thousand years to a different part of the human-infested biosphere: "Islamic finance - the lowdown on Sharia-compliant money," https://www.theguardian.com/money/2013/oct/29/islamic-finance-sharia-compliant-money-interest ," https://www.theguardian.com/money/2013/oct/29/islamic-finance-sharia-compliant-money-interest Well looking here, no interest on the rent of money; shared risk by bankers and their client-partners; no money for war and stuff (western "banks" and gov'ts and stuff like ISIS's protection rackets and sub rosa oil sales provide all the funding the war asses and gun-men, "theirs" and "ours," need).

    The government has announced plans for Britain to issue a £200m Islamic bond in a bid to attract new money to London. The bond will be aimed at institutions, but there are Islamic finance products available to regular savers, investors and homebuyers. Here us a guide to how sharia-compliant funds and mortgages work.

    Why aren't regular accounts sharia-compliant?

    Central to Islamic finance is the fact that money itself has no intrinsic value; it is simply a medium of exchange. Each unit is 100% equal in value to another unit of the same denomination and you are not allowed to make a profit by exchanging cash with another person. A Muslim is not allowed to benefit from lending money or receiving money from someone.

    This means that earning interest (riba) is not allowed – whether you are an individual or a bank. To comply with these rules, interest is not paid on Islamic savings or current accounts, or charged on Islamic mortgages.

    How do sharia-complaint banking products work?

    There are several ways that banks can structure accounts so that they are sharia-compliant.

    Ijara works as a leasing arrangement: the bank buys something for a customer and then leases it back to them. Different forms of leasing are permissible, including those where part of the instalment payment goes toward the final purchase. This might be used to help you buy a car or other item, or to help a business buy equipment.

    Murabaha works by the bank supplying goods for resale to the customer at a price that includes a margin above the costs, and allows them to repay in installments. This might be used to provide a mortgage on a property. The property is registered to the buyer from the start.

    Musharaka is a joint venture in which the customer and bank contribute funding to an investment or purchase and agree to share the returns (as well as the risks) in proportions agreed in advance.

    Wakala is an agreement that the bank will work as the individual's agent. If a saver enters into this type of agreement, the bank can use their cash to invest in sharia-compliant trading activities to generate a target profit for them.

    How do the banks make money?

    Banks can profit [nothing like the "profit" that western banks and banksters extract and extort, of course, but a decent living] from the buying and selling of approved goods and services. The principal means of Islamic finance are based on trading, and it is essential that risk be involved in any trading activity, so banks and financial institutions will trade in sharia-compliant investments with the money deposited by customers, sharing the risks and the profits between them.

    Islamic banks are structured so that they retain a clearly differentiated status between shareholders' capital and clients' deposits in order to make sure profits are shared correctly.

    Although they cannot charge interest, the banks can profit from helping customers to purchase a property using a ijara or murabaha scheme. With an ijara scheme the bank makes money by charging the customer rent; with a murabaha scheme, a price is agreed at the outset which is more than the market value. This profit is deemed to be a reward for the risk that is assumed by the bank.

    There are firm laws governing the types of businesses with which the banks can trade. There should be absolutely no investment in unsuitable businesses, including those involved with armaments, pork, tobacco, drugs, alcohol or pornography.

    So what is a "reasonable return on investment?" That would justify a prudent, grasping capitalist to put some of that money stuff into?

    Here's a a more scholarly link that will lead into the lots of scholarly articles that frame what, for a western bankster, "capitalist," re-election specialist, or corruption generator, would be complete anathema: http://www.islamic-banking.com/islamic_banking_principle.aspx

    And yes, there's lots of cheating amongst the Sharia financial it's (often fomented by western "banks" and QGOs (:quasi-government organizations, like World Bank and IMF and such) who have found how much pleasure and power can be scammed, with no apparent consequences to themselves, for lying with the enemy.

    It seems clear to me that the flood of "anti-Sharianism" all about the west has a whole lot to do with the long-game need to be sure ideas of such equityable and just and distributionalist and true-risk-based finance and banking don't gain a toe hold. Although interestingly enough, quite a few US banks now offer some forms of sharia accounts to help their growth profiles http://www.kslaw.com/Library/publication/6-09%20New%20Horizon%20Shayesteh.pdf

    craazyboy , April 2, 2017 at 11:24 am

    Looks to me like Sharia means banks charge commissions and fees rather than interest. I don't see where the big magic is. It's the magnitude of money that the bank gets that matters. Like if they are ripping off the economy. Or another way to look at it is if the financial sector consumes too large a percentage of GDP. Tho that seems an incomplete measure after you have a GFC and kill the world economy.

    Altho one thing is if banks can only make money on the front end of a transaction rather than a small steady income like interest or rent from lending, then econ and industry political pressure would be to increase transactions in the economy – for example, banks would embrace supporting real estate flipping rather than refuse to participate. This is how pursuit of industry profit growth gets conflated to transaction growth then to GDP growth. Kinda what is metastasizing the cancer.

    JTMcPhee , April 2, 2017 at 3:47 pm

    Like I said, I do not pretend to understand western or Islamic banking, either theory or practice, well enough to do an Ilargi or Hudson-level exegesis. Yes, fees after a fashion, but what I read is that the banker has to take on a lot more risk in every transaction. And that prohibition on money for armaments, pornography (broadly defined, no doubt, like "not wearing a hijab" and such), pork, alcohol, tobacco and illicit drugs, that kind of resonates. Also all those derivatives and re-insurance scams, And maybe stock buybacks? Those purists would take away all the fun, right?

    No doubt there are endless, slippery workarounds, supported by fatwahs and encyclicals from the many ayatollahs and mullahs who parse the entrails, that's our nature of course. And also, of course, the "ethics" and practice in western banking might make me or you, if we can participate in the grift and casino, richer in money and pleasure-bits. Who will be the first acknowledged TRILLIONAIRE, I wonder" But isn't there some silly sense that maybe that way lies the precipice?

    Of course, living in our "advanced" and "sophisticated" part of the world, a few of us can hope for those 10-baggers, and maybe be smart or lucky enough to buy the next original issue Microsoft or Apple or Berkshire Hathaway, or do a Bezos or something. And then diddle ourselves silly in pursuit of pleasures always just over the horizon, until death finally overtakes us (with nice nurses and doctors to clean our poop and pee, and wipe our drooling chins,) so we "go with dignity and comfort" to where we are beyond retribution or restitution. Yah, "Apres nous le deluge," so foch all you inept mopes!

    I think both of us are oversimplifying and not fully understanding (and what's that bit about a man not understanding if his payday depends on it?) the tenets of Islamic banking, finance and economics, as it comes from the doctrinal source (tho possibly, in this most corrupt and increasingly devastated world,full of rotten, selfish humans, not how it gets applied and perverted).

    Seems to me it is hardly as simple to get around moral hazard under what I perceive as the Islamic fundamentals, as it is in our own charming system

    craazyboy , April 2, 2017 at 4:19 pm

    It's pretty clear that if "good ethics" ruled biz, the world would be more ethical. But in the mean time we search around for a mechanical mechanism that keeps everyone honest – but we always fail to find it.

    John , April 2, 2017 at 4:02 pm

    The problem is that people are addicted to economic growth. The whole system is. If we get 1% growth, everyone complains (while it's only the poor that really have right to). The only way we're going to this "steady-state economy" is if people get so dissatisfied with capitalism that they rebel and somehow manage to beat the right (backed by the military).

    oh , April 1, 2017 at 3:18 pm

    Good comments, all. I agree with you.

    Dead Dog , April 1, 2017 at 3:26 pm

    Good post, mate. Yet, I think the majority feel that protests are a waste of time.

    They see what happened to occupy and DAPL – the return of the Pinkerton boys.

    I don't think the big change (where the govt acts in the working person's interest) can be achieved politically. The only way that money is coming back, for all those commons to be returned, is to use force. It's he only language the rich understand.

    different clue , April 2, 2017 at 1:54 am

    Are you in a position to speak force louder than the upper class can speak force?

    toolate , April 1, 2017 at 8:50 pm

    Beautiful post JM

    HopeLB , April 1, 2017 at 11:19 pm

    Thank You!

    Rexl , April 1, 2017 at 3:06 pm

    The only part of this essay I have a problem with is the recommendation to lower private debt by "Jubilee style" if necessary. Isn't this what bankruptcy is in effect, a jubilee style lowering of debt. I do not think people learn anything from these "gifts". I was in favor of helping the economy after the debacle of 2008, because I did not think an actual depression served any purpose, but now I question if anyone learned a damn thing from all the "quantitative easing"? I am afraid that people have to have their noses rubbed in it to really learn a lesson from their own stupidity.

    animalogic , April 2, 2017 at 12:33 am

    Ah, the Calvinist comes out -- Rub people's noses in it (naughty dog!)
    Incidentally, "people" got damn little benefit from QE - nor were they intended to.
    A debt jubilee is only moral in secondary sense: it's technical – a reset to remove financial blockages (unpayable debt)

    different clue , April 2, 2017 at 1:55 am

    The bankster bailouts did not help the economy. They helped the bankster predasite anticonomy.

    Dead Dog , April 1, 2017 at 3:33 pm

    A debt jubilee would not be undertaken as a gift.

    Debt inflation has led to asset inflation way beyond the fundamentals, the income needed to service the debt. Look at student debt. It should not exist in the first place if a society says we value a highly educated workforce and we will pay for it. All those note holders of your debt own assets which are inflated (regardless of what they paid for it). And in a debt jubilee, they should lose their investment as you don't have the income to service it a live a good life.

    A jubilee would write down or off your debt and every other natural person's debt, AND, the asset prices return to normal levels.

    It's a reset, a realisation, by society, that everyone has borrowed too much

    Moneta , April 1, 2017 at 3:44 pm

    A debt jubilee would also wipe out pensions. Then who would pay the retirees?

    kgw , April 1, 2017 at 5:39 pm

    Boy, are you a dullard or what? (in somewhat of a jest, he said!) Who pays for anything? (rhetorical) ALL OF US!

    Moneta , April 1, 2017 at 6:46 pm

    Sorry, I was not necessarily responding to him. I was just implying that a debt jubilee would create as many problems as it would solve.

    Kind of like when you say something under your breath when someone is talking.

    UnhingedBecauseLucid , April 1, 2017 at 8:14 pm

    Probably one of Ilargi all time best post

    clevinger , April 1, 2017 at 8:15 pm

    Let's see - our economy is built on housing and financial services. One serves the other, and so on.

    How long can this folie a deux go on?

    Gman , April 2, 2017 at 6:06 am

    Property has been the go to economic and political 'strategy' for self-serving financiers and venal, expedient, resolutely unimaginative, lazy careerist politicians the world over. Unfortunately they just can't get enough of it, and it's not difficult to see why.

    A safe and secure home satisfies one of our most primal needs. In pretty much any society people don't just WANT a roof over their heads, they actually NEED one. As luck would have it (for some) property is also one of, if not the greatest and most effective means of debt/money creation, and has consequently come to be seen as the preminent measure and store of wealth.

    I would also argue that in some countries, particularly the UK, the supply of property is deliberately suppressed in the face of ever greater demand in order to stoke price inflation, hence facilitating the greater debt creation that in turn feeds into the money supply and helps to promote the illusion, albeit ephemeral, of growing prosperity.

    For the politicians and money men it's the low maintenance golden goose that just keeps on laying, and when it eventually stops, which it always does of course, and these economic miracle workers are revealed for the snake oil salesmen they are, most of them have long since donned their golden parachutes, grabbed their ill-gotten gains and bailed out.

    *On a positive note, and lest we forget, somewhere at the bottom of this teetering Ponzi economic tower that debt built, there still is a genuine economic foundation underpinning it all, and hopefully there's still time to save what's left of it from these voracious, sociopathic debtmongers hellbent on mortgaging the future to infinity and beyond.

    sunny129 , April 2, 2017 at 4:00 pm

    'It's not a healthy thing for an economy to depend on blowing bubbles. It's also not healthy to depend on private banks for the creation of a society's money. It's unhealthy, unnecessary and unethical.

    We had the HOUSING bubble already in 2007-2008 followed by the burst. Now the bubble is back to the previous level! Who needs MONEY when one can have debt to infinity?

    [Apr 02, 2017] The end – its demands for payment cannot be met. It was fictitious

    Notable quotes:
    "... When Schumpeter said that corporatism would induce the public will to adopt social democracy it seemed like a classic bait and switch to me. ..."
    Apr 02, 2017 | economistsview.typepad.com

    Soul Super Bad -> RGC... , April 02, 2017 at 11:39 AM

    the end – its demands for payment cannot be met. It was fictitious because it consisted
    "

    That is why we have bankruptcy statutes. The exponential expansion of aggregate debt will end when we brighten up enough to begin 6% per annum deflation. With that much deflation bankers would not charge interest. As interest accumulation into the aggregate-debt-compartment stops, exponential expansion of same comes to a bitter end. Tell me something!

    Are some ethnic sectors prohibited from charging interest? How do their bankers survive?

    By support from the Palatial-economy! Prop-up would be unnecessary with ongoing deflation. Tell me something else, Elsie!

    Do our t-bonds pay 3% interest ? Minus 2% inflation? 1% real?

    You bet chore bottom butt pillow, Mad Marx! That means that 6% deflation would be unnecessary for exorcising Marx. 1.04% deflation would be taxation enough, budget-balance enough to ghost-bust the blighter.

    Let the good times roll, and thrill your soul! Got soul?

    Get
    it --

    cm -> RGC... , April 02, 2017 at 11:57 AM
    The mistake or misjudgement of Marx, if one wants to call it that, was constructing a narrative of social progress assuming that people (and specifically the decision makers and influencers in any social hierarchy) would actually be interested in superseding the previous order rather than becoming the new feudal lords (or if not outright working for that, getting comfortable in their role of power that invariably enables liege-vassal relationships).
    RGC -> cm... , April 02, 2017 at 12:23 PM
    I've always thought that Marx's mistake was thinking that industrial capitalists would displace rentiers, thus paving the way for socialism.

    I think Lenin had the thought that the petite bourgeoisie wanted to emulate the haute bourgeoisie and would therefore be a major impediment to dictatorship of the proletariat. Maybe your thought is similar to Lenin's.

    RC AKA Darryl, Ron -> RGC... , April 02, 2017 at 02:29 PM
    When Schumpeter said that corporatism would induce the public will to adopt social democracy it seemed like a classic bait and switch to me. I have not read Marx to know what might have been on his mind, but he was not really a prole himself. So, likely being true to himself was not in the cards.
    RGC -> RC AKA Darryl, Ron... , April 02, 2017 at 02:57 PM
    IIRC, Marx spent most of his time in the British Library, almost like a full-time job, and he was supported by Engels, who owned a factory. I think Marx was broke most of the time.

    So I see Marx as a nerd and a poverty-stricken ivory tower type.

    [Apr 02, 2017] Marx pointed to the tendency of debts to grow exponentially, independently of the economy's ability to pay, and indeed faster than the economy itself.

    Apr 02, 2017 | economistsview.typepad.com
    RGC , April 02, 2017 at 10:24 AM
    Das Kapital - Not just volume 1
    ........................
    More than any other economist of his century, Marx tied together the major kinds of crisis that were occurring.

    His Theories of Surplus Value and volumes 2 and 3 of Das Kapital explained the two main forms of crisis his classical predecessors had pointed to, and which the bourgeois revolutions of 1848 were fought over. These crises were the result of survivals from Europe's feudal epoch of landed aristocracy and banking fortunes.

    Marx pointed to the tendency of debts to grow exponentially, independently of the economy's ability to pay, and indeed faster than the economy itself.

    Marx called finance capital "imaginary" or "fictitious" to the extent that it does not stem from within the industrial economy, and because – in the end – its demands for payment cannot be met. It was fictitious because it consisted of bonds, mortgages, bank loans and other rentier claims on the means of production and the flow of wages, profit and tangible capital investment.


    Most of all, of course, Marx pointed to the form of exploitation of wage labor by its employers in volume 1.

    That did indeed stem from the capitalist production process.

    Marx analyzed economic crisis stemming from the inability of wage labor to buy what it produces. That is the inner contradiction specific to industrial capitalism. As described in Volume I of Das Kapital, employers seek to maximize profits by paying workers as little as possible. This leads to excessive exploitation of wage labor, causing underconsumption and a market glut.


    Marx certainly provided the tools needed to analyze the crises that the industrial capitalist economies have been suffering for the past two hundred years.

    But history has not worked out the way Marx expected. He expected every class to act in its own class interest. That is the only way to reasonably project the future.

    The historical task and destiny of industrial capitalism, Marx wrote in the Communist Manifesto, was to free society from the "excrescences" of interest and rent (mainly land and natural resource rent, along with monopoly rent) that industrial capitalism had inherited from medieval and even ancient society.

    These useless rentier charges on production are faux frais, costs that slow the accumulation of industrial capital. They do not stem from the production process, but are a legacy of the feudal warlords who conquered England and other European realms to found hereditary landed aristocracies.

    Financial overhead in the form of usury-capital is, to Marx, a legacy of the banking families that built up fortunes by war lending and usury.

    The interest of the rising class of industrial capitalists was to free economies from this legacy of feudalism, from the unnecessary faux frais of production – prices in excess of real cost-value.

    The destiny of industrial capitalism, Marx believed, was to rationalize economies by getting rid of the idle landlord and banking class – by socializing land, nationalizing natural resources and basic infrastructure, and industrializing the banking system – to fund industrial expansion instead of unproductive usury.

    If capitalism had achieved this destiny, it would have been left primarily with the crisis between industrial employers and workers discussed in Volume I of Capital: exploiting wage labor to a point where labor could not buy its products.

    But at the same time, industrial capitalism would be preparing the way for socialism, because industrialists needed to conquer the political stranglehold of the landed aristocracy and the financial power of banking. It needed to promote democratic political reform to overcome the vested interests in control of Parliaments and hence the tax system. Labor's organization and voting power would press its own self-interest and turn capitalism into socialism.


    Today's economic crisis in the West is financial and rent extraction, leading to debt deflation. Today's financial crisis is largely independent of the industrial mode of production.

    As Marx noted in Volumes II and III of Capital and Theories of Surplus Value, banking and rent extraction are in many ways adverse to industrial capitalism.

    Every Western economy measures "output" as Gross National Product (GNP). This accounting format includes the Finance, Insurance and Real Estate (FIRE) sector as part of the economy's output. It does this because it treats rent and interest as "earnings," on the same plane as wages and industrial profits – as if privatized finance, insurance and real estate are part of the production process.

    Marx treated them as external to it. Their income was not "earned," but was "unearned." This concept was shared by the Physiocrats, Adam Smith, John Stuart Mill and other major classical economists. Marx was simply pressing classical economics to its logical conclusion.


    All three kinds of crisis that Marx described are occurring. But the West is now in a chronic depression – what has been called Debt Deflation. Instead of banking being industrialized as Marx expected, industry is being financialized.

    Instead of democracy freeing economies from land rent, natural resource rent and monopoly rent, the rentiers have fought back and taken control of Western governments, legal systems and tax policy.

    The result is that we are seeing a lapse back to the pre-capitalist problems that Marx described in Volumes II and III of Capital and Theories of Surplus Value.


    (edited from-)
    http://michael-hudson.com/2015/10/the-paradox-of-financialized-industrialization/

    [Mar 31, 2017] http://www.calculatedriskblog.com/2017/03/weekly-initial-unemployment-claims_30.html

    Mar 31, 2017 | www.calculatedriskblog.com

    "Weekly Initial Unemployment Claims decrease to 258,000"

    by Bill McBride...3/30/2017...08:40:00 AM

    The DOL reported:

    ..... In the week ending March 25, the advance figure for seasonally adjusted initial claims was 258,000, a decrease of 3,000 from the previous week's unrevised level of 261,000. The 4-week moving average was 254,250, an increase of 7,750 from the previous week's unrevised average of 246,500.

    The previous week was revised up.

    ...This was above the consensus forecast.

    The low level of claims suggests relatively few layoffs."
    Reply Thursday, March 30, 2017 at 05:40 PM libezkova said in reply to im1dc... This "seasonally adjusted" magic is more like another flavor of statistical fraud... Because assumptions behind those adjustments are so wrong they are not even discussed.

    Also McJobs and Walmart jobs -- anything paying below subsistence level are not actually jobs.

    It's more like slavery. That's another nail in the coffin of "free market" ideology. What is so free in a person taking job in Wal Mart? Or any other McJob? That's neo-feudalism with Wal Mart as a huge feudal landlord and mass of desperate, hungry peasants.


    Please note that around $100K jobs in the USA are needed just to accommodate growing workforce.

    http://www.economicpopulist.org/content/how-many-jobs-are-needed-keep-population-growth

    == quote ==

    How Many Jobs Are Needed to Keep Up with Population Growth?

    Submitted by Robert Oak on September 8, 2012 - 6:45pm

    The press quotes all sorts of figures for the number of monthly job gains needed to keep up with population growth. We see numbers like 80,000, 100,000, 125,000 and 175,000 thrown around like statistical snow as the number of jobs needed each month just to keep up. What's the right one? How many jobs are needed each month just to keep up with population growth?

    The actual monthly amount can be calculated and the Atlanta Fed even did us a huge favor by publishing an interactive monthly jobs calculator so you can go check for yourself. This month shows we need 104,116 payroll jobs to maintain the same unemployment rate of 8.1% with all of the other same terrible conditions the state of employment is in.
    Reply Thursday, March 30, 2017 at 08:06 PM

    [Mar 31, 2017] S tandard Keynesian liquidity trap analysis was largely correct

    Mar 31, 2017 | economistsview.typepad.com
    Peter K. , March 31, 2017 at 05:53 AM
    I like this blogger Campbell. Stephen Williamson should be excommunicated from the Economics Guild. He should receive a letter of reproach from former CEA Chairs. (I'm thinking about the DeLong-SWL debate.)

    http://douglaslcampbell.blogspot.com/2017/03/raise-rates-to-raise-inflation.html

    Campbell:

    "Thus it's worth peering into [Williamson's] intellectual journey. First, after QE, despite high unemployment and a weak economy, he repeatedly predicted that inflation would rise. When it didn't happen, he changed his mind, which is what one should do. Only, he couldn't concede that standard Keynesian liquidity trap analysis was largely correct. That would be equivalent to surrendering his army to the evil of evils, Paul Krugman. Much easier to venture into the wilderness, and instead conclude, not that inflation wasn't rising despite low interest rates because the economy was still depressed, and banks were just sitting on newly printed cash, but rather that inflation was low because interest rates were low!

    Fortunately, not all of Macro went in this direction, as Larry Christiano, a mainstream economist, discusses the Keynesian Revival* due to the Great Recession."

    * https://www.minneapolisfed.org/~/media/files/pubs/eppapers/17-1/the-great-recession-a-macroeconomic-earthquake.pdf

    The Great Recession: A Macroeconomic Earthquake

    Lawrence J. Christiano Northwestern University Federal Reserve Bank of Minneapolis

    February 2017

    EXECUTIVE SUMMARY

    The Great Recession was particularly severe and has endured far longer than most recessions. Economists now believe it was caused by a perfect storm of declining home prices, a financial system heavily invested in house-related assets and a shadow banking system highly vulnerable to bank runs or rollover risk. It has lasted longer than most recessions because economically damaged households were unwilling or unable to increase spending, thus perpetuating the recession by a mechanism known as the paradox of thrift. Economists believe the Great Recession wasn't foreseen because the size and fragility of the shadow banking system had gone unnoticed.

    The recession has had an inordinate impact on macroeconomics as a discipline, leading economists to reconsider two largely discarded theories: IS-LM and the paradox of thrift. It has also forced theorists to better understand and incorporate the financial sector into their models, the most promising of which focus on mismatch between the maturity periods of assets and liabilities held by banks.

    [Mar 24, 2017] Are Empirical Economists Idiot Savants?

    Notable quotes:
    "... Only the people who understand both the data and its limitations, and not get lost in the illusion of precision ..."
    "... Shiller describes many modern economists and market observers as idiot-savants; truth be told, when using that phrase he is only half right. ..."
    www.ritholtz.com

    By Barry Ritholtz - November 21st, 2010, 8:31AM

    The Economist asks: "Fifty years after the dawn of empirical financial economics, is anyone the wiser?"

    My short answer: "Only the people who understand both the data and its limitations, and not get lost in the illusion of precision."

    Markets are driven by myriad factors, most of which are readily quantifiable. But the small number of inputs that do not lend themselves to easy modeling is how certain empiricists get themselves into trouble. They believe their models accurately account for the real world, when they do not.

    One would imagine that the parade of Black Swan events that keep upending their models would convince these economists otherwise, but you would be surprised at how foolishly stubborn these folks are.

    The EMH proponents, the VAR analysts, the "stocks for the long run" folks - the grim reality of their performance has not dissuaded them from their beliefs. This has Yale Professor Robert Shiller concerned:

    "[Shiller] worries that academic departments are "creating idiot savants, who get a sense of authority from work that contains lots of data". To have seen the financial crisis coming, he argues, it would have been better to "go back to old-fashioned readings of history, studying institutions and laws. We should have talked to grandpa."

    Shiller puts his finger on the right pressure point. The factors ignored by the quants were the underlying changes in laws and regulations. That allowed banks to run wild, something the pure quants were not prepared to detect and act upon. The radical deregulation of the past 3 decades was the equivalent of dark matter, undetectable by Newtonian physics - or quant trading funds.

    Shiller describes many modern economists and market observers as idiot-savants; truth be told, when using that phrase he is only half right.

    Here is the Economist:

    IT ALL began with a phone call, from a banker at Merrill Lynch who wanted to know how investors in shares had performed relative to investors in other assets. I don't know, but if you gave me $50,000 I could find out, replied Jim Lorie, a dean at the University of Chicago's business school, in so many words. The banker, Louis Engel, soon agreed to stump up the cash, and more. The result, in 1960, was the launch of the university's Centre for Research in Security Prices. Half a century later CRSP (pronounced "crisp") data are everywhere. They provide the foundation of at least one-third of all empirical research in finance over the past 40 years, according to a presentation at a symposium held this month. They probably influenced much of the rest. Whether that is an entirely good thing has become a matter of debate among economists since the financial crisis.

    It is an interesting article worth perusing . . .

    Source:
    Data birth
    Economist Nov 18th 2010
    http://www.economist.com/node/17519706?story_id=17519706

    34 Responses to "Are Empirical Economists Idiot Savants?"

    KentWillard: November 21st, 2010 at 8:51 am

    My personal experience has been that most 'quants' in Finance don't have economics degrees. Often a PhD in Physics. Sometimes in Math, sometimes in Finance. Many aren't from the US, or even the West. They don't have an understanding, or often interest in markets. They can sure run a lot of simulations quickly though.

    machinehead : November 21st, 2010 at 8:53 am

    'Shiller puts his finger on the right pressure point. The factors ignored by the quants were the underlying changes in laws and regulations.'

    To these factors, I would add the cyclical analysis described in a Big Picture post about Felix Zulauf a couple of days ago. Quantitative models do a pretty good job of identifying 'late expansion phase' syndrome: bubbly equity markets, loose credit standards, tightening capacity, persistent inflation (properly measured).

    But every time, economists as a group say that the Federal Reserve will achieve a soft landing, and recession will be averted. Many of them are saying this now about China, currently manifesting 'late expansion phase' syndrome with a vengeance.

    Why are economists so poor at reading the business cycle? I'd contend that most of them are conflicted. Their paychecks come from corporate entities who don't want to hear recession forecasts. Federal Reserve economists certainly aren't going to bite the FOMC's guiding hand. Academic economists should be freer, you'd think, but some have corporate research funding. Robert Schiller at Yale was one of the few (with Irrational Exuberance, January 2000) to get a cyclical peak right.

    Behavioral economics says that economists, like every other cohort, will be victims of groupthink at inflection points, always zigging when they should zag. This is the tragedy of the Federal Reserve's interest rate central planners. Never will they succeed at day-trading this vast economy into prosperity. They've spectacularly failed at even the much narrower task of enriching their client banking cartel at the expense of everyone else.

    Here's hoping that B.S. 'Benny Bubbles' Bernanke will be history's last Fed chairman.

    ToNYC: November 21st, 2010 at 9:02 am

    Granpa knew that Moral Authority took care of business and was worth more to effect continuity or change than any manipulation of currency or credit. JP Morgan knew that Lending was all about Character and told Congress that other factors were secondary. Quants know how to manipulate data and the value of nothing.

    Opir: November 21st, 2010 at 9:27 am

    If we accept, for the sake of argument, that economics is really 90% mass psychology, 10% math, then isn't a large part of the issue that many of its professional practitioners have tried to understand problems though a lens where those percentages are reversed? There is perhaps kind of bias that causes many of these people to only see the world using neat models, and discount that what economics is really about trying to understand (once you get beyond the simple cases where said models and standard ideas about incentives work):

    what people do and want to do; how many of them do it; and for how long, modified by:

    1) geopolitical events 2) the zeitgeist 3) culture (and subculture)

    People may go into the field with a love of numbers and an interest in money; what we may really need, however, are people who care about understanding human behavior as it pertains to resources and power within and between societies. A "sociology for money", as it were.

    Go Dog Go: November 21st, 2010 at 9:27 am

    Shiller describes many modern economists and market observers as idiot-savants; truth be told, when using that phrase he is only half right.

    I just got that. Very funny

    Mark E Hoffer: November 21st, 2010 at 9:42 am

    funny, the Argument, ~"over-reliance on imperfect Models/questionable Data", is, no doubt, True..

    though, substitute "AGW/"Climate Change" for "Econometrics/Financial Engineering" and . ~~

    differently, Economists, of course, should be snorting more *Exhaust Fumes, and less Laser Toner..

    billkeep: November 21st, 2010 at 9:42 am

    There are empiricists and then there are empiricists. A quick look at Reinhart and Rogoff's book "This Time Is Different," shows the incestual limitation of quant jocks (whether trained in econ or physics or math - it's all the same because they use the same tired data) and the power that can come from fresh data, fresh thinking, and an absence of self-interest in the outcome (see Folbre's piece on the ethics of economists in the NYT Economix column).

    Bill W: November 21st, 2010 at 9:47 am

    Despite our great triumphs of science and advances in understanding, we still don't know jack about the universe. I believe in the constant advance of knowledge, but I also believe in being realistic.

    We need to be prudent when we apply our theories about the world to the real world. The results can be disappointing.

    What's much worse than a fool? A fool with ambition.

    How the Common Man Sees It Says:

    November 21st, 2010 at 10:08 am The fact is, if you pay people to look the other way, they usually do.

    mhdoc: November 21st, 2010 at 10:14 am

    Many years ago I was a biology graduate student when we got our first computer terminal and I discovered the joys of stepwise regression. I spent hours searching out the last 5% of the variance. Then I went on my first field trip of the season to check on the rainfall collectors I had randomly scattered through the forest. We measured the dissolved elements in the water we collected; parts per million potassium, etc.

    One of the collectors had gotten plugged, filled with water, and a thirsty chipmunk had fallen in and drowned. In addition, the water was covered with pollen. Suddenly the value of stepwise regression for explaining what was going on took a serious hit. I guess my black swan looked like a chipmunk :)

    Bill W: November 21st, 2010 at 10:26 am

    billkeep, I like what you said about fresh thinking and and absence of self-interest. How often do "data driven," "open-minded," scientists become high priests of their own theories. They will put down traditional religious beliefs, without realizing the dogma of their own thinking. There will always be religion of some sort in this world, whether the practitioners realize it or not.

    I think the quants are probably missing a healthy dose of the applied knowledge of experienced investors. You don't have to be able to mathematically formulate why something works to understand that it does. How do you separate the quack theories from the real ones? If I knew that I'd be considerably wealthier.

    farmera1: November 21st, 2010 at 10:34 am

    Misuse of statistics by economist/quants is a root cause of our recent meltdown.

    Seeing the world and economics as a normal/Gaussian/bell curve world (it isn't in most cases) will lead you to a path of unforeseen and destructive events. You end up making all kinds of risk assessments and predictions that are built upon "facts/Gaussian models/bell curve" that just don't reflect the real world. Some big unpredicted event will get you.

    For example thinking (and building an investment house of cards) just because models show you that the real estate market never goes down (nation wide) that it will never happen is a fool's approach, but it built huge bonuses (say a cool $100,000,000/yr for several) for the executives so in that sense it was successful. It also made the Ownership Society possible. It allowed this country to live way beyond its means for years so most benefited. Cut taxes and start wars, no problem, we got this baby humming. Since we were able to predict and control risk so well who needs regulations. Leverage, no problem, we have it under control (aka being fully hedged). RIGHT.

    By the way the social sciences do the same thing, in using things like ANV, standard deviations, risk, relative error (?)etc. This misuse is just as big in its' own way as the quants/economists' errors.

    Petey Wheatstraw: November 21st, 2010 at 11:12 am

    "Markets are driven by myriad factors, most of which are readily quantifiable." _______________

    The least quantifiable of which is direct intervention in, and manipulation by, central bankers. The markets are rigged. Quantify THAT, bitch.

    (sorry for the last sentence, not aimed at anyone.)

    ~~~

    BR: $600 Billion dollars over 6-9 months.

    Mark E Hoffer: November 21st, 2010 at 11:35 am

    though, speaking of 'Empiricists', these cats http://www.gapminder.org/ offer some interesting analytics, esp. here http://www.gapminder.org/labs/

    as per, YMMV, YOMP ..

    louis: November 21st, 2010 at 11:38 am

    There are a myriad of factors that set a point spread.

    Sechel: November 21st, 2010 at 11:55 am

    There's an old joke about the drunk economists looking for his keys by the light post even though they were lost elsewhere, when asked he responded, "because this is where the light is

    The market seems intent on assuming the market operates under the efficient market hypothesis, price distribution is normal and that participants always act rationally. Nothing could be further from the truth. Mandelbrot discussed how observations of Cotton price movements disproved this. We know there is information asymmetry in the marketplace.

    The market knows what models to use, it just chooses not to. It's beyond fat tails, it requires extreme value theory, knowing that risk scales at the extremes and that bad news comes in threes(dependence).

    So why use the failed tools, the answer is simple. If the market gives up on OAS, Black-Scholes and the like, it has to accept being in the dark more than it's used to.

    Sechel: November 21st, 2010 at 12:02 pm

    Barry, the mortgage market learned that VAR does not work, that OAS is a terrible tool. Many have turned to scenario analysis, but a great deal many like the simplicity of the old failed tools.

    daf48: November 21st, 2010 at 12:12 pm

    "most of which are readily quantifiable" Really? I'd be careful if that was my point of view. Economic reality is compiled by using data points from thousands of governments, corporate think tanks, independent agencies, etc'. But little work has been done to look at the system as a whole. Or better yet. is there a global economic system?

    Uchicagoman: November 21st, 2010 at 12:18 pm

    http://en.wikipedia.org/wiki/Dimensional_Fund_Advisors

    Uchicagoman: November 21st, 2010 at 12:22 pm

    $190 billion under management.

    RW: November 21st, 2010 at 12:28 pm

    IMO your "short answer" is spot on BR: The illusion of precision is a major problem not only because the data are limited or much more granular than suspected - e.g., the fact that price can be recorded down to the penny does not mean that is where the significant digit is - but also because increased precision cannot significantly improve predictability of system behavior if nonlinear factors are present.*

    *this was a key insight of the meteorologist Edward Lorenz, one of the first 'chaos' theoreticians (1963), that and the sensitivity of even the best model simulations to minute changes in initial conditions (butterfly effect).

    Uchicagoman: November 21st, 2010 at 12:38 pm

    Here's an old (physics?) saying:

    "You can either dazzle me with data, or butter me with bullshit."

    b_thunder: November 21st, 2010 at 3:16 pm

    "[Shiller] worries that academic departments are "creating idiot savants, who get a sense of authority from work that contains lots of data".

    I wonder who Shiller had in mind? How about that guy who used to go over massive amounts of data while in his bathtub? Remember the Maestro? And another one who says we're under threat of deflation (according to statisticians) and who doesn't see that other than houses and flat-screen TVs, prices for everything else are rising in the real world. The one who thinks that because cost of gasoline and food are not in his data tables and charts, they do not matter. The one who thinks that in times of 17% U6 un/under-employment and massive outsourcing wages will rise and people will get hired if prices go up.

    I also wonder what Barry's buddy "Invictus" thinks about all this. He seems to trust the charts and data more than the real world sentiment.

    Sechel: November 21st, 2010 at 4:01 pm

    Who can believe anything they say. With one breadth they tell us quantitative easing is meant to spur bank lending, then they pay banks on their reserves encouraging them not to lend those same reserves out. As far as the Fed goes, no credibility.

    Julia Chestnut: November 21st, 2010 at 4:02 pm

    You know, BR, the best economics class I had during my graduate studies was econometrics. The thing that was so good about it (and so incredibly annoying at the time) was that the prof made us work the matrix algebra from the ground up in building regression analyses. We were going to be using computers to regress the data - but he was adamant that unless you understood the math, and knew exactly what the math was doing with the data we input, you would have no idea what the limitations of the analysis were. He also insisted that we understand the limitations of the data – how it was collected, what it meant. I've used that course at least weekly since I graduated embarrassingly long ago (unlike "finance," where I at least learned that derivatives are for hedging, not investing).

    I'd say that either a true statistician or an applied mathematician for a quant is the way to go. I meet loads of economists who couldn't figure their way out of a paper bag. Know what's worse, though? The number of MDs with less than a clue about the math underlying normative numbers in lab tests. I'm less likely to get killed by a quant.

    TerryC: November 21st, 2010 at 4:07 pm

    "Only the people who understand both the data and its limitations, and not get lost in the illusion of precision."

    Barry, I think you mean accuracy.

    billkeep: November 21st, 2010 at 4:08 pm

    Bill W

    Actually if you knew that you wouldn't be wealthy. You would only be wealthy if you knew it first and with enough time to act in your own interests. There is a unreconcilable difference of purpose between public and private interests when it comes to understanding markets. As Sechel says We know there is information assymetry in the marketplace. In fact, we bet on it. The problem we seem to now have is that a few analysts who do understand the psychology of investors or not "public" analysts. As a result, the public analysts lag behind because they have been trained too narrowly in terms of the data and lack the understanding of investor behavior. That is the way it appears to me anyway.

    constantnormal: November 21st, 2010 at 5:35 pm

    As in most things, the quality of the question says more than the completeness of the answer.

    Andy T: November 21st, 2010 at 6:35 pm

    [email protected] AM

    Amen to that my friend.

    What many people lose sight of is the fact that we humans tend to move in "excesses." First there is excessive greed which causes asset bubbles, then comes the excessive fear after the bubble bursts.

    This has been going on for several hundred years, regardless of regulatory structure.

    And, you know what?

    That's OK. It is it what it is

    Attempts to "modify" human behavior or attempts to disrupt the natural flow of things will have it's own unintended consequences.

    ezrasfund: November 21st, 2010 at 7:21 pm

    So right. You can build a giant edifice of precise calculations. But so often that edifice is build on a foundation of vague assumptions such as "housing prices won't go down."

    RodgerMitchell: November 21st, 2010 at 7:26 pm

    All the mathematical formulas in the world are trumped by the simple fact that the U.S. is monetarily sovereign.

    1. It does not need to borrow

    2. It can pay for any deficits of any size, without raising taxes

    3. It never should engage in "austerity."

    4. It cannot be forced into bankruptcy, nor can any of its agencies (i.e. Social Security, Medicare et al) be forced into bankruptcy. .

    Spending by the U.S. neither is constrained by taxes and borrowing, nor is it even related to taxes and borrowing. Either can be done or eliminated without affecting the other. That is, taxing does not affect spending, and spending does not affect taxing. They, in fact, are two, unrelated operations. . The sole constraint on federal spending is inflation. We are nowhere near inflation, and it easily can be prevented and cured with interest rate control. . Those who do not understand monetary sovereignty do not understand economics. .

    Rodger Malcolm Mitchell

    Mark E Hoffer: November 21st, 2010 at 7:35 pm

    RMM,

    aren't you overlooking http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Federal+Reserve+Act+of+1913 ?

    and, because of such, it, actually, "does need to borrow", contra to your first assertion..(?)

    soloduff: November 21st, 2010 at 9:50 pm

    The author exhibits an elementary conceptual confusion. Financial economics (of the EMH/Modern Portfolio fame) is not "empirical" economics. Rather, it is based upon analogy with 19th century statistical mechanics; hence its fetish of the bell curve ("normal distribution"), which fails as a benchmark in every crisis. B. Mandlebrot and E. Derman have written extensively on this genre of economics; which differs from mainstream ("neoclassical" a la Samuelson et al.) only inasmuch as neoclassical economics takes its metaphor from an even more antiquated department of 19th century physics, namely, "rational mechanics"–remember your Econ 101 text's proud mention of the "production function" (Cobb-Douglas) and the Lagrangian multiplier? About 15 years ago Philip Mirowski wrote an expose of the neoclassical analogy–"More Heat Than Light"–demonstrating conclusively that the luminaries of economics understood neither the physics that they borrowed nor the economics that they data-fitted to their analogy. (Ditto with financial economics in the critiques provided by Mandlebrot and Derman.) –Oh, well, should we expect scholarly accuracy from a mere financial reporter when the scholars themselves serve up such wanton slop? In a word: All idiots, no savants.

    CitizenWhy: November 21st, 2010 at 10:32 pm

    Empirical economists are idiot savants only in regard to economics. In other things they are probably OK.

    [Mar 23, 2017] Cambell law: The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to

    Mar 23, 2017 | economistsview.typepad.com
    reason : , March 22, 2017 at 07:25 AM
    The most valuable part of Chris Dillow's piece is the link to Campbell's law.

    https://en.wikipedia.org/wiki/Campbell%27s_law

    I have often referenced this without being aware of it.

    My version is that any proxy measure will become less relevant over time as it drifts away from the intended target (the more so if it is used to guide policy).

    anne -> reason ... , March 22, 2017 at 07:36 AM
    https://en.wikipedia.org/wiki/Campbell%27s_law

    Campbell's law is an adage developed by Donald T. Campbell, an example of the cobra effect:

    "The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor."

    Campbell's law was published in 1976 by Campbell, a social psychologist, an experimental social science researcher and the author of many works on research methodology: "When a measure becomes a target, it ceases to be a good measure."

    JF -> anne... , March 22, 2017 at 07:50 AM
    Chris G probably liked this too. I had Campbell's stuff next to my bed for a long long time.
    anne -> JF... , March 22, 2017 at 08:18 AM
    I had Donald Campbell's stuff next to my bed for a long long time.

    [ Do suggest a reading for us. ]

    JF -> anne... , March 22, 2017 at 10:31 AM
    "Experimental and Quasi-Experimental Designs for Research" - copyright 1963, my version was the tenth printing in 1973
    anne -> JF... , March 22, 2017 at 08:23 AM
    http://www.nytimes.com/1996/05/12/us/donald-t-campbell-master-of-many-disciplines-dies-at-79.html

    Donald T. Campbell, Master of Many Disciplines
    By ROBERT MCG. THOMAS JR.

    Donald T. Campbell, a nimble-minded social scientist who left his mark on half a dozen disciplines and helped revolutionize the fundamental principles of scientific inquiry common to them all, died on Monday in a hospital near his home in Bethlehem, Pa....

    Dr. Campbell, who did his major work at Northwestern University, was by training and his Berkeley doctorate a social psychologist, but it was a tribute to his bewildering range as a master methodologist that when he took up his last academic post, at Lehigh University, in 1982 university officials threw up their hands and simply designated him "university professor," with faculty listings in the departments of psychology, sociology and anthropology and the department of education.

    They could easily have thrown in biology, the philosophy of science and market research. For a generation, virtually no respectable researcher this side of the chemistry lab has designed or carried out a reputable scientific study without a thorough grounding in what Dr. Campbell called quasi-experimentation, the highly sophisticated statistics-based approach he invented to replicate the effects of the truly randomized scientific studies that are all but impossible in the slippery and unruly world of human interactions....

    JF -> anne... , March 22, 2017 at 10:34 AM
    Should have added influence in political science and public administration to itemize the influence this should have on public policy making.
    im1dc -> reason ... , March 22, 2017 at 08:59 AM
    It is a valid and reliable adage from a Social Psychologist who Economists should take seriously. His adage explains why Economists are so often wrong, i.e., they fail to take into account the nature and thus behavior of people as individuals, groups, and as both sentient and thinking beings who can and do change behavior routinely sometimes for rational reasons but just as often just to do and be different.

    That's impossible to predict with statistical models although with statistical models scientists can capture WHEN a change is occurring, even where and sometimes why and how but only after the change has occurred, which makes Prediction most difficult.

    libezkova -> im1dc... , March 22, 2017 at 02:08 PM
    Add to this what Marxists used to call "class interest" of financial oligarchy and we get closer to understanding why neo-classical economics is so bad.

    [Mar 23, 2017] http://michael-hudson.com/2017/01/the-land-belongs-to-god/

    Mar 23, 2017 | michael-hudson.com
    Reply Tuesday, March 21, 2017 at 02:32 PM

    [Mar 09, 2017] DrDick

    Mar 09, 2017 | profile.typepad.com
    said... The ProMarket piece is interesting, but really misses the point. "Regulation" in itself is not what matters, but rather what kinds of regulations and how they work. Some regulations, favored by the industries themselves (like taxi licensing in most metropolitan areas) tend to act to reduce competition and enhance company profits. Others, like the background checks mentioned in the article, serve to protect the public interest. Reply Thursday, March 09, 2017 at 07:42 AM Youarecorrect said in reply to DrDick ... You are correct to point out that a catchall phrase like regulation disguises many intentions. But there is a tension between motivations of regulation. A regulation that is supposed to increase reliability (e.g. vetting of entrants), can be essentially a rent seeking tool in disguise. That's the point of the ProMarket article. Reply Thursday, March 09, 2017 at 11:27 AM DrDick said in reply to Youarecorrect... This is really a question of looking at who is proposing or favoring the regulation and how it is structured and thus whose interests are being protected. If it is coming from established businesses, it is about rent seeking. Reply Thursday, March 09, 2017 at 01:53 PM

    [Feb 20, 2017] Problems of asymmetry in regulation: People who especially benefit from a particular regulation will be inclined to lobby or bribe government officials for it

    Feb 20, 2017 | economistsview.typepad.com

    Richard H. Serlin : February 18, 2017 at 07:51 PM

    "Mr. Friedman underscored problems of asymmetry in regulation: People who especially benefit from a particular regulation will be inclined to lobby or bribe government officials for it. On the other hand, members of the general public, who might suffer from such regulations, will not be attentive to the many rules that affect them, each in a small way." -- Shiller article

    This is the same Milton Friedman who assumed people had perfect information and expertise on everything in the market. They were all electrical engineers who knew the exact schematics of every toaster and refrigerator to know if it would burn down their house, but they had no idea what any government regulations or policies were -- Hey, it's ok, and so scientific, to just assume anything you want about human beings, as long as there's lots of math and internal consistency and microfoundations -- And, of course, it makes libertarianism look better.

    [Feb 18, 2017] John Kenneth Galbraith, like John Maynard Keynes, was a giant among midgets both figuratively and literally.

    Notable quotes:
    "... John Kenneth Galbraith laid out the problem of companies with too much market/political power back in the 1950s and 60s. I never read Galbraith in an economics course, only on my own. Economists were not interested...not enough mathematics and marginal this equals marginal that. ..."
    Feb 18, 2017 | economistsview.typepad.com
    RC AKA Darryl, Ron... , February 16, 2017 at 07:35 AM
    John Kenneth Galbraith laid out the problem of companies with too much market/political power back in the 1950s and 60s. I never read Galbraith in an economics course, only on my own. Economists were not interested...not enough mathematics and marginal this equals marginal that.

    Nothing like overlooking the elephant is the room...something that economists are better at doing than trying to do their jobs.

    RC AKA Darryl, Ron -> JohnH... , February 16, 2017 at 08:27 AM
    Totally. John Kenneth Galbraith, like John Maynard Keynes, was a giant among midgets both figuratively and literally.

    [Feb 15, 2017] Contrary to What Robert Samuelson Says We Did Bail Out the Bankers and Did Not Prevent a Second Great Depression

    Notable quotes:
    "... As far as the folks with uninsured loans that would have lost, well, many of these people were hedge-fund types and other financial institutions. They would have paid a price for not being very competent. The bailout ensured that they would not be left to suffer the consequences of their actions. ..."
    "... As far as the top executives of the banks, while some were shown the door, many of these people continue to earn paychecks in the millions or tens of millions as the financial sector remains hugely bloated. We had an opportunity to downsize the financial sector in one fell swoop, eliminating this enormous albatross which sucks money out of the economy and hands it to the very rich. ..."
    "... The narrow securities and commodities trading sector is now close to 2.5 percent of GDP ($470 billion a year). In the seventies, it was around 0.5 percent of GDP. Does anyone believe that capital is being allocated more effectively today than forty years ago or that our savings are safer? ..."
    Feb 15, 2017 | economistsview.typepad.com

    RGC : February 15, 2017 at 10:04 AM

    Contrary to What Robert Samuelson Says We Did Bail Out the Bankers and Did Not Prevent a Second Great Depression

    Dean Baker
    13 February 2017

    Robert Samuelson is unhappy that people continue to believe something that is true - that we bailed out the bankers - and happy that people still believe something that is not true - that we prevented a second Great Depression. In his column Samuelson complains:

    "The real Dodd-Frank scandal is that this misinterpretation of events, widely embraced by both parties, has been allowed to stand. In many bailouts, banks' shareholders suffered huge losses or were wiped out; similarly, top managers lost their jobs. The point was not to protect them but to prevent a collapse of the financial system."

    Okay, let's imagine the counterfactual. We decide to take the free market seriously and let it work its magic on Citigroup, Bank of America, Goldman Sachs and the rest of the high rollers. These huge banks all go into bankruptcy with the commercial banking parts of the operations taken over by the FDIC. All insured deposits are fully protected, with the FDIC and Fed having the option to raise the limits to protect smaller savers.

    The shareholders of these banks are out of luck. They have zero. Samuelson is right that share prices were depressed during the crisis, but that is different than going to zero. Furthermore, operating with the protection of Treasury Secretary Timothy Geithner's promise of "no more Lehmans," the share prices soon bounced back.

    As far as the folks with uninsured loans that would have lost, well, many of these people were hedge-fund types and other financial institutions. They would have paid a price for not being very competent. The bailout ensured that they would not be left to suffer the consequences of their actions.

    As far as the top executives of the banks, while some were shown the door, many of these people continue to earn paychecks in the millions or tens of millions as the financial sector remains hugely bloated. We had an opportunity to downsize the financial sector in one fell swoop, eliminating this enormous albatross which sucks money out of the economy and hands it to the very rich.

    The narrow securities and commodities trading sector is now close to 2.5 percent of GDP ($470 billion a year). In the seventies, it was around 0.5 percent of GDP. Does anyone believe that capital is being allocated more effectively today than forty years ago or that our savings are safer?

    The additional money spent operating this sector is a huge waste from an economic standpoint, which also plays a large role in the upward redistribution of the last four decades.

    In terms of preventing a second Great Depression, this is a nice children's story that the elite like to tell. (And, they get very mad and call people names if they don't agree - we are supposed to take name-calling by the elites very seriously.) We know how to get out of a depression, we learned that lesson in the last one. It's called "spending money."

    The claim that we would have suffered a decade of double-digit unemployment if we had not bailed out the banks is premised on a political claim, not an economic one, that we would never have spent the money needed to boost the economy out of a prolonged slump. This claim is not only that any initial stimulus would have been shot down, but even after two, three, or five years of double-digit unemployment the president and congress would not have agreed to a serious stimulus.

    This is a pretty strong claim since even tax cuts would serve to provide stimulus, albeit less than spending. (Anyone ever meet a Republican that didn't like tax cuts?) Remember, the first stimulus occurred with George W. Bush in the White House and a 4.7 percent unemployment rate. Those making the claim that in the counterfactual the politicians in Washington never would have done anything to boost the economy has a really low opinion of these folks intelligence and/or honesty. That would be a good topic for a column, if someone really believed it.

    http://cepr.net/blogs/beat-the-press/contrary-to-what-robert-samuelson-says-we-did-bail-out-the-bankers-and-did-not-prevent-a-second-great-depression

    [Feb 15, 2017] Lysenkoism in the US economics: Mainstream economists who get paid well for their services are not that diverse

    Notable quotes:
    "... Yes economists are diverse as a group, but the opinions of the majority of that group might be described as having moved to the right since 1970. ..."
    Feb 15, 2017 | economistsview.typepad.com
    sanjait -> Jerry Brown..., February 15, 2017 at 10:38 AM
    Economists are enormously diverse as a group. Any piece that explicitly or implicitly describes them as being homogeneous is being reductionist at best.

    But Noah makes good points. Though it's probably worth emphasizing that if there exists a problem of communication between professionals and the public, there is probably mutual blame to be assigned. Economists should talk better to the general public, but as citizens we don't serve ourselves well when we expect the world to cater to our lack of knowledge and interest in complex but important issues.

    DrDick -> sanjait... , February 15, 2017 at 10:51 AM
    I have to disagree. It is the professionals who need to do a better job of educating the public. It is ridiculous to assume that the general public has the time or resources to discover this for themselves.
    Peter K. -> sanjait... , February 15, 2017 at 11:19 AM
    "Economists are enormously diverse as a group.

    Mainstream economists who get paid well for their services are not that diverse. For one thing, most are white males.

    That was Hillary's one good idea about the Fed. One.

    Peter K. -> sanjait... , February 15, 2017 at 11:20 AM
    "there is probably mutual blame to be assigned."

    What a masochist.

    Stockholm syndrome.

    Jerry Brown -> sanjait... , February 15, 2017 at 11:31 AM
    Yes economists are diverse as a group, but the opinions of the majority of that group might be described as having moved to the right since 1970. And often certain types of economists are described as fringe and there is a reluctance to discuss their ideas. That is somewhat understandable because any one economist has only so much time, but it seems to go deeper than that very often. Trade has been one of those areas, and I am happy to see many economists doing some re-evaluation of the free trade mantra, among other things. I would include Paul Krugman in that group.

    As far as being a knowledge lacking citizen- well we all are. Ain't no economist got it all completely figured out as far as I know. That's how I read Noah Smith's article, as a call to re-examine some previously sacred ideas with maybe a goal of keeping in mind their effects on different segments of society. And economists or anyone else who wants to impact public policy in a democracy certainly should expect to cater somewhat to those who are less knowledgeable about their theories.

    [Feb 13, 2017] John Kenneth Galbraith on Monetary Policy:

    Notable quotes:
    "... The perverse unusefullness of monetary policy and the frustrations and danger from relying on it. This is perhaps the clearest lesson of the recent past. The management of money is no longer a policy but an occupation. Though it rewards those so occupied, its record of achievement in this century has been patently disastrous. ..."
    "... It worsened both the boom and the depression after World War 1. It facilitated the great bull market of the 1920s. It failed as an instrument for expanding the economy during the Great depression. When it was relegated to a minor role during World War 11 and the good years thereafter, economic performance was, by common consent, much better. Its revival as a major instrument of economic management in the late '60s and early '70s served to combine massive inflation with serious recession. ..."
    "... And it operated with discriminatory and punishing effect against, not surprisingly, those industries that depend on borrowed money, of which housing is the leading case. To argue that it was a success may well be beyond even the considerable skills of its defenders. Only the enemies of capitalism will hope that, in the future, this small, perverse and unpredictable lever will be a major instrument in economic management. ..."
    Feb 13, 2017 | economistsview.typepad.com
    RGC : February 13, 2017 at 06:13 AM , 2017 at 06:13 AM
    John Kenneth Galbraith on Monetary Policy:

    "If the near future is an extension of the near and more distant past, there are six imperatives that will shape or control monetary policy and the larger economic policy of which it is now a lesser part. these are:

    (1) The perverse unusefullness of monetary policy and the frustrations and danger from relying on it. This is perhaps the clearest lesson of the recent past. The management of money is no longer a policy but an occupation. Though it rewards those so occupied, its record of achievement in this century has been patently disastrous.

    It worsened both the boom and the depression after World War 1. It facilitated the great bull market of the 1920s. It failed as an instrument for expanding the economy during the Great depression. When it was relegated to a minor role during World War 11 and the good years thereafter, economic performance was, by common consent, much better. Its revival as a major instrument of economic management in the late '60s and early '70s served to combine massive inflation with serious recession.

    And it operated with discriminatory and punishing effect against, not surprisingly, those industries that depend on borrowed money, of which housing is the leading case. To argue that it was a success may well be beyond even the considerable skills of its defenders. Only the enemies of capitalism will hope that, in the future, this small, perverse and unpredictable lever will be a major instrument in economic management.

    The central bank remains important for useful tasks - the clearing of checks, the replacement of worn and dirty banknotes, as a loan source of last resort. These tasks it performs well. With other public agencies in the United States, it also supervises the subordinate commercial banks. This is a job which it can do well and needs to do better. In recent years the regulatory agencies, including the Federal reserve, have relaxed somewhat their vigilence. At the same time numerous of the banks have been involved in another of the age-old spasms of optimism and feckless expansion. The result could be a new round of failures. It is to such matters that the Federal Reserve needs to give its attention.

    These tasks apart, the reputation of central bankers will be the greater, the less responsibility they assume. Perhaps they can lean against the wind - resist a little and increase rates when the demand for loans is persistently great, reverse themselves when the reverse situation holds.

    But, in the main, control must be - as it was in the United States during the war years and the good years following - over the forces which cause firms and persons to seek loans and not over whether they are given or not given the loans.

    -From "Money: Whence it came, Where it went" 1975 - pgs 305,6.

    anne -> RGC... , February 13, 2017 at 08:19 AM
    https://www.amazon.com/Money-Whence-Came-Where-Went/dp/0735100705

    1975

    Money: Whence it came, Where it went
    By John Kenneth Galbraith

    RC AKA Darryl, Ron said in reply to RGC... , -1
    Excellent! THANKS!

    [Feb 13, 2017] Under Maestro Greenspan Fed as an institution became this sense not so dissimilar to such post WWII financial institutions as IMF and World Bank (which became the key instruments for implementing Washington consensus ). It became a very effective enforcer of the neoliberalization of the country.

    Feb 13, 2017 | economistsview.typepad.com
    llisa2u2, February 13, 2017 at 10:34 AM
    Just finished reading a great little book, THE ECONOMIC PINCH, by C.A.Lindbergh, SR. Here's a link to it: https://archive.org/stream/nkooan_yahoo_Lind/Lind#page/n1/mode/2up

    Yes, the writing style is a bit dated, but it gives the bottom-line in really clear, well-written English.

    It's a GREAT little book, should be required reading with proof by some book report written by each economist, before their being allowed any public discussion about the FEDERAL RESERVE.

    It's probably more relevant today for all U.S. citizens than it was back in the early 1900's.

    Sanjait, February 13, 2017 at 11:10 AM
    The Great Moderation era Fed has some good aspects but has fundamentally failed to understand how its obsession with keeping inflation from ever even thinking abut going up has suppressed wages and caused labor hysteresis.

    I think they assume that all those problems just equilibriate away across the cycle but the reality is not that.

    So definitely it could and should be better.

    But .. that doesn't make every proposal to change it a good one, or even a coherent one. Nor does it justify the attitude that we should just blow everything up and hope something better happens. Those bad arguments are what got us Trump, and at no point should reasonable people pander to such bad arguments, or confuse the fact that bad arguments are widely held with the notion that they aren't bad.

    libezkova : February 13, 2017 at 03:07 PM , 2017 at 03:07 PM
    Fed independence was always a convenient fiction. This is an independence limited to implementing neoliberal policies.

    http://www.levyinstitute.org/pubs/wp_625.pdf

    Which was done under "Maestro" Greenspan. This Ann Rand follower and staunch believer in unrestrained "free market" (which means the law of jungles) subverted the institution and pressured the Presidents who deviated from the "Party line" (and one time Bill Clinton tried). This is the extent he was a Maestro. Later, after 2008, Maestro turned into cornered rat, but this is quite another story.

    Under Maestro Greenspan Fed as an institution became not so dissimilar to such post WWII financial institutions as IMF and World Bank (which became the key instruments for implementing "Washington consensus"). It became a very effective enforcer of the neoliberalization of the country.

    http://www.mit.edu/~thistle/v13/2/imf.html

    [Feb 12, 2017] Half of US finance is parasitic

    Approximately nine percent of U.S. GDP is finance of that probably three to five percent is useful for allocating capital and the rest is preying on asymmetric information
    Notable quotes:
    "... asymmetric information, and the recent illuminating example of Wells Fargo's excellence in pushing products that customers did not want nor need. ..."
    "... Approximately 9 percent of U.S. GDP is finance. Some economists argue that probably 3-5 percent is useful for allocating capital, storing value, smoothing consumptions, and creating competition, and the rest is preying on asymmetric information ..."
    "... When vendor expects deflation he dumps inventory, but when he expects inflation he holds on to inventory as he waits for higher profit margins to arrive. He holds onto merchandise by simply raising prices. But why do economists advertise the reverse mechanism? Why does the status quo have a need for distorting truth? ..."
    "... Inflation is offered to the proles as a substitute for tax relief to the impoverished. Do you see how it works? ..."
    Feb 12, 2017 | economistsview.typepad.com

    Choco Bell -> Ed Brown... February 12, 2017 at 07:50 AM , 2017 at 07:50 AM

    asymmetric information, and the recent illuminating example of Wells Fargo's excellence in pushing products that customers did not want nor need.

    BY: Some financial "innovation" is faddish. It does not create value.

    GR: Approximately 9 percent of U.S. GDP is finance. Some economists argue that probably 3-5 percent is useful for allocating capital, storing value, smoothing consumptions, and creating competition, and the rest is preying on asymmetric information
    "
    ~~Guy Roinik~

    Do you see how this asymmetric information plays out?

    It is the retail vendor who keeps better information than the retail customer. It is the vendor's expectations of disinflation vs inflation rather than the customer's expectations that control the change in M2V. Got it?

    When vendor expects deflation he dumps inventory, but when he expects inflation he holds on to inventory as he waits for higher profit margins to arrive. He holds onto merchandise by simply raising prices. But why do economists advertise the reverse mechanism? Why does the status quo have a need for distorting truth?

    Inflation is offered to the proles as a substitute for tax relief to the impoverished. Do you see how it works?

    " Tax relief for the wealthy will give you delicious inflation. Now jump for it! " ~~The Yea Sayers~

    Jump, Fools, Jump

    [Feb 12, 2017] Austerity The History of a Dangerous Idea by Mark Blyth

    See also Mark Blyth--"Liberalisms' great trick has been to naturalize very difficult political contests."
    Feb 12, 2017 | www.amazon.com

    Selected as a Financial Times Best Book of 2013

    Governments today in both Europe and the United States have succeeded in casting government spending as reckless wastefulness that has made the economy worse. In contrast, they have advanced a policy of draconian budget cuts--austerity--to solve the financial crisis. We are told that we have all lived beyond our means and now need to tighten our belts. This view conveniently forgets where all that debt came from. Not from an orgy of government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the broken banking system. Through these actions private debt was rechristened as government debt while those responsible for generating it walked away scot free, placing the blame on the state, and the burden on the taxpayer.

    That burden now takes the form of a global turn to austerity, the policy of reducing domestic wages and prices to restore competitiveness and balance the budget. The problem, according to political economist Mark Blyth, is that austerity is a very dangerous idea. First of all, it doesn't work. As the past four years and countless historical examples from the last 100 years show, while it makes sense for any one state to try and cut its way to growth, it simply cannot work when all states try it simultaneously: all we do is shrink the economy. In the worst case, austerity policies worsened the Great Depression and created the conditions for seizures of power by the forces responsible for the Second World War: the Nazis and the Japanese military establishment. As Blyth amply demonstrates, the arguments for austerity are tenuous and the evidence thin. Rather than expanding growth and opportunity, the repeated revival of this dead economic idea has almost always led to low growth along with increases in wealth and income inequality. Austerity demolishes the conventional wisdom, marshaling an army of facts to demand that we austerity for what it is, and what it costs us.

    Metallurgist TOP 1000 REVIEWER on April 20, 2013 Format: Hardcover Vine Customer Review of Free Product ( What's this? )

    An interesting Keynesian view of the current EU austerity programs

    " I found this to be a very interesting and thought provoking book. The author makes his viewpoint very clear with the book's subtitle "The History of a Dangerous Idea". The essence of the author's argument is that austerity is unfair because it makes workers pay for the mistakes of banks, and even more importantly, dangerous because it does not lead to prosperity, but only to decreased economic growth and increased unemployment. This thesis is backed up by an analysis of the banking crisis of 2008, how it spread from the US to the EU, why the single currency Euro has made the problem worse for the EU and why using austerity to solve the problems will not work. It also discusses the history of the idea of austerity, both in terms of the economic theory that promotes it and the economic history that does not. Conservatives, who find Keynesian economics to be not only wrong, but also the road to economic ruin, will likely be turned off by the book's subtitle and many of the arguments that Professor Blyth utilizes. However, there is a lot of data in this book that they should look at, if only to criticize it. I found this book very enlightening and while I do not agree with all of Professor Blyth's ideas (particularly those of the last chapter), I learned a lot, so for me it was 5-stars.

    What is in the book?
    The book is divided into 7 chapters, which cover the following:

    Chapter 1 - A Primer on Austerity. This is a short chapter that summarizes the main thesis of the book (mentioned above), and sets the stage for the more detailed discussions in subsequent chapters.

    Chapter 2 - America: To Big to Fail? This is an excellent chapter that summarizes the origins and unfolding of the 2008-banking crisis in the US. This is a very complicated story, which Professor Blyth tells in a clear manner. The story revolves around repurchase agreements (Repos), mortgage backed securities (MBS), collateralized debt obligations (CDO), credit default swaps (CDS), and how all these interacted in a climate of deregulation to produce the crisis. Professor Blyth does a good job of explaining these terms and how the interaction worked.

    Chapter 3 - Europe: Too Big to Bail? This is another very illuminating chapter. It shows how Europe, which first believed it was not going to be affected by the US banking crisis, became a major casualty of it and their own internal banking problems. All these factors were compounded by the single currency Euro, which has removed devaluation as a solution to the crisis, instead fostering the idea that governmental austerity was the only way to correct a problem produced by the private banking sector.

    Chapter 4 - Intellectual History of a Dangerous Idea 1692-1942. This chapter goes back to the writings of John Locke, David Hume and Adam Smith to see how the idea of austerity developed. It also covers the idea in the early 20th century and the development of anti-austerity Keynesian economic theory. It is a nice primer on classical economic ideas.

    Chapter 5 - Intellectual History of a Dangerous Idea 1942-2012. This chapter carries the story of the idea of austerity into the present time. It shows how the idea of austerity, discredited by the Great Depression and the success of the Keynesian solution (although conservatives would argue these successes were illusory and set the stage for future economic problems), has been resurrected by economists writing in the latter part of the 20th century and early 21st.

    Chapter 6. Austerity's Natural History 1914-2012. Blyth presents a lot of data that shows that, contrary to the theories presented in the previous chapter, austerity has not worked in practice. Much of the chapter is spent it refuting the writings of several economists that say that the recent historical data does support the idea. Blyth contends that in general it does not and if is does in a few cases it either does not when all the data is considered, or worked only marginally under a very limited set of conditions.

    Chapter 7 - The End of Banking, New Tales and a Taxing Time Ahead. This is a very short eleven-page chapter, but perhaps the most controversial on in the book. Blyth, initially a supporter of bank bailouts as absolutely necessary to prevent a complete collapse of the banking system and with it the whole capitalist economic system and with it democratic society as a whole, now questions whether in might not have been better to let the banks fail. He cites the case of Iceland where the banks were allowed to fail and society has recovered. This was done by making the bank's creditors bear the cost of failure, instead of all of Iceland's citizens. He notes that most of this loss was borne by foreign creditors of a very small country, whose banking system was an immense part of the country's economy, but was small compared to the economies of the US or the EU. Unfortunately, he fails to say how a banking collapse in the US or EU could be handled when the systems are huge compared to Iceland's and where the creditors are largely internal. He does not explain how the failure of these huge banking systems, with their internal creditors, would not result in the scenario he originally envisioned. I found this analysis to be poor and not in keeping with the thoroughness of the rest of the book. Blyth also floats the idea of huge tax increases, either through a one-time tax on assets or a very large increase in higher bracket tax rates. Conservatives, and many not quite so conservative, will likely blanch at these ideas. There is no discussion of the political difficulties of doing this or very much development of the idea, which is contained in only the last four pages of the book.

    David Lindsay on September 25, 2016 Format: Paperback Verified Purchase
    Brilliant Overview

    " Mark Blyth is a professor at Brown University and he explains why austerity doesn't work. He points out that whenever austerity has been tried in the past it has usually proven to be disastrous. What its supporters often seem to forget is that one person's spending is another's income and demand in the economy would collapse if everyone stopped spending. The book is a sobering read because Blyth is not optimistic about the future. However, the book is well written and is often funny.

    Blyth shows that the case for austerity does not add up. The US did not pursue austerity during the recession and its economy has been growing. US GDP is 10% higher than it was in 2007. The EU has pursued austerity with vigor, but GDP in the euro zone is still lower than it was in 2007. Blyth shows that countries that cut the most have had lower rates of growth. Blyth claims that all the countries that cut public spending in response to the financial crises had significantly more debt in 2012 than when they started. For example, Ireland's debt to GDP ratio more than quadrupled, from 24.8% in 2007 to 106.4% in 2012. The other problem is that austerity increased unemployment. Throughout southern Europe, unemployment has been at levels not seen since the Great Depression. It is still over 20% in Spain and Greece. As a result of cutting public expenditure Greece's GDP dropped by 30% in four years. There is no evidence that austerity improves growth.

    Blyth spends a lot of time trashing the pro-austerity thinking that took place in Europe. Germany is driving economic policy for the euro zone and they have never believed in Keynesian economics. Keynes advised that austerity was a bad idea during a recession. German politicians seem to believe that all nations could have trade surpluses if only they tried hard enough, despite the fact that it is impossible for all countries to have a surplus. Only one European country can be Germany. The Germans have often advocated the sort of solutions that failed in the 1930s. They argue that budget deficits and government debt have to be kept under strict control. The Maastricht Treaty, which established the EU, required that national debt should not exceed 60% of GDP and the deficit should not exceed 3.0%. Entry to the euro also requires a budget deficit of 3.0%.

    Blyth points out that when you have a deficit, you can either raise taxes or cut spending to fill the gap. The British government of David Cameron favored the latter in 2010. The British deficit had reached 10% in 2010. However, UK government debt went up, not down, despite the cuts, from 52.3% of GDP in 2009 to 90.7% in 2013. The same pattern was repeated throughout the euro zone. Cutting public expenditure shrank the underlying economy.

    The German argument is that running large deficits increases the risk of high inflation. Blyth points out that the Germans have selective amnesia about their past. It was the Wall Street Crash in 1929 not hyper-inflation in 1924 that led to Hitler. Before the crash, 1.25 million people were unemployed in Germany. Hitler was an accidental Keynesian and by 1937 German unemployment had fallen from six million to one million. Unfortunately, much of his spending involved preparing for war. Blyth argues that Germany's continuing insistence on austerity is the biggest threat to the euro zone.

    According to Blyth, the current version of the austerity argument was created by a group of Italian economists, originating from Bocconi University, in Milan. He explains why their arguments are deeply flawed. Blyth argues that, apart from Greece, public sector debt in the euro zone countries was not out of control before the financial crises. Blyth rubbishes the theory of "expansionary austerity," that cutting spending will lead to higher economic growth. The "austerians" believed that large spending cuts would be followed by expansion rather than contraction. The reason, they suggested, was that decisive fiscal austerity created confidence in the private sector. Keynesians agreed that insufficient private spending was the cause of the problem, but only governments could stimulate demand on the scale needed. Austerity failed to stimulate demand in Europe. Blyth also argues that everybody cannot cut their way to growth at the same time. The IMF once went along with austerity but it has recently concluded that austerity has had major adverse economic effects.

    Blyth is worried that inequality could become a serious problem in the US. The 400 richest Americans own more assets than the poorest 150 million. He argues that both major parties have written off the bottom 30% of society. He claims that the American working class has not had a pay rise since 1979, and globalization has failed them. He believes this explains the anger behind the Trump phenomenon. Blyth points out that rich Americans and the country's biggest companies are reluctant to pay tax, so government borrowing has had to go up. Blyth claims that he pays more tax than GE.

    Blyth is critical of Republicans who advocated austerity. Republicans in the US also favored balancing the budget and cutting taxes. Keynesians, like Paul Krugman, argued that this is what Herbert Hoover tried to do in the early 1930s and the result was a 25% unemployment rate. Obama inherited an 11.4% budget deficit in 2009. The Republicans wanted to cut government expenditure but Blyth argues the reason the US has recovered faster than Europe is because it cut less. He makes it clear that it is poorer people who usually rely on government services to make ends meet that are the hardest hit when public expenditure is cut. He believes that the rich and corporate America need to start paying more tax. He also argues that the US government should probably have let its banks go bankrupt – as the Icelandic government did – rather than bail them out.

    Blyth reminds us that 2008 was a private sector crisis. The debts of the banks landed on the balance sheet of the public sector through bank bailouts and quantitative easing. In other words, taxpayers bailed out the bankers. He calls this the "greatest bait-and-switch in modern history." The EU is imposing austerity on southern Europe and dismantling the welfare state in Greece in order to protect German banks that made stupid decisions.

    Blyth in recent interviews has argued that the EU may have a sinister agenda and it really wants to drag wages in Western Europe down to East European levels so that it can better compete with China. I assumed this must be an exaggeration but it might not be. The Guardian mapped labor costs across the euro zone from 1999 to 2013. What they found is that German workers have barely seen wages rise for that 14-year stretch, despite Germany having massive trade surpluses. We could be in for real trouble.

    Fang on September 27, 2016 Format: Paperback Verified Purchase
    The Richness of Austerity

    " Mark Blyth tries to convey a simple message: austerity simply does not work. Defining austerity as "voluntary deflation in which the economy adjusts through the reduction of wages, prices and public spending to restore competitiveness .best achieved by cutting the state's budget, debts and deficits" (p.2), Blyth argued that austerity's fallacies lies in the impossibility of having everybody to be thrift at the same time and the cyclical nature of debt (pp.7 and 12).

    Blyth also suggests that austerity efforts unevenly hurt the lower strata of societies (p.8), and conflates debt and financialization problems in private sector (primarily referring to bank and financial institutions) into state (sovereign) issues (p.6 and p.23). In the first three chapters, Blyth strives to demonstrate that the financial and economic turmoil since 2008 is largely a crisis of financialization, lack of regulation, slow growth and imbalance between monetary policy and final creditor of printing press (in the case of Europe), not that of austerity (save the marginal case of Greece). Blyth argues that it is a mentality of treating these crises as endogenous and private actors as "rational" that underlay the bad policy choices in America and Europe (pp.91-93).

    In chapters 4 through 6, Blyth provides an intellectual and practical history of austerity. It is suggested that a spirit of thrift and aversion towards state and state spending runs through the vein of economic liberalism, ranging from classical liberalism to neoclassical economics and to the Austrian school. In more contemporary era, it is public choice theory, neoliberalism and Milton Friedman's monetarism that carries this tradition forward to construct a pro-market and private-sector-favoring package that turns public spending into a corporate calculation of costs and benefits. Blyth goes on to illustrate the history of austerity in practice, arguing that it is usually the Keynesian expansionary policies that couple austerity that reinvigorated economy amid crises; austerity, carried out on its own, constitutes massive redistribution consequences.

    Blyth obviously attempts to engage as wide an audience as possible in the public intellectual realm. As much as he is successful in his empirical chapters, Blyth appears to fight a deflationary economic policy with his own inflationary writing strategy. From chapters 4 to 5, he constantly conflates the moral teaching of thrift and financial prudence from Adam Smith to avoidance of debt, the Ordoliberalism's quest for order and proper state function to aversion of democratic politics, the methodological insights of public choice to a general fear of bureaucracy and government, and so on. These inflations, while sometimes credited, are bound to subject to scrutiny and questions.

    Moreover, by glossing over the details of this rich intellectual history, Blyth dodges some key questions that his empirical chapters also fail to articulate: what is the distinction between private and public debt, and personal thrift and public austerity, when we talk about austerity, and how significant is it? How does this distinction play out in more classical economic philosophy?

    And amid crisis, who should be considered the "ultimate creditor" or "final guarantor" of debt (and money)? There questions certainly exceeds the scope and intention of Blyth's book, but they should be instrumental in deepening our understanding of austerity.

    [Feb 12, 2017] It would be an understatement to say that Dems adopted the neoliberal ideology of their opposition

    Notable quotes:
    "... We're hoping for judges' consciences, and loyalty to country over party, and common sense, to save us. ..."
    "... "administration that is unconstrained by conscience and logic", we have had that continuously since 1980. ..."
    "... You get worked up over a travel ban but not Obama's US bombing wedding parties. Or taking out 14 non combatants and losing n MV 22 to get a few smart phones. ..."
    "... Do you have stock in both refugee referral companies and Lockheed? ..."
    "... poor pk has grabbed the alt right's the concession over cognitive bias, false analogy and cherry picked faux facts. ..."
    "... Does anyone take this guy seriously anymore? This is Chicken Little, Sky-Is-Falling nonsense from a PhD Nobelist? Certainly the guy has lost his marbles, and someone needs to put him in a padded room. At least be kind, and retire him. ..."
    "... Electoral college exists until "they" gut/get rid of states rule on amendments in the US constitution. ..."
    "... Why republicans should be focused on voter suppression, if Democrats are working relentlessly to move blue collar workers and lower middle class voters to far right ? ..."
    "... 'dollar democracy' is deeper than that. ..."
    "... Wrong. Progressive neoliberals helped give us Trump. Nobody forced Hillary to give speeches to Goldman Sachs or to give Bush a blank check for war. ..."
    "... Blaming the few who didn't vote Hillary. What about the many who stayed home? You're an example of learned helplessness. Like the wife who won't leave her abusive husband. ..."
    "... If Trump got 37% of votes of people with postgraduate degree that's tell you something about Democratic Party. That only can means that Democratic Party smells so badly that most people can not stand it, not matter what is the alternative. As in "you should burn in hell". ..."
    "... It's kind of reversal of voting for "lesser evil" on which Bill Clinton counted when he betrayed the working class and lower middle class. Worked OK for a while but then it stopped working as he essentially pushed people into embraces of far right. ..."
    "... I doubt that Trump is a political cycle outlier. He is a sign of the crisis of neoliberal political system, which pushes authoritarian figures as "Hail Mary Pass", when Hillarius politicans are proved to be un-electable. ..."
    "... And despite his "bastard liberalism" he is the symbol of rejection of liberalism, especially outsourcing/offshoring and neoliberal globalization. Or more correctly his voters are. ..."
    "... "America as we know it will soon be gone." Don't you think that much of it is already gone? We did not see ourselves as a nation of cowards years ago, but that's what we now appear to be. ..."
    "... "We did not see ourselves as a nation of cowards years ago, but that's what we now appear to be." USAnians have been cowards for generations. The transition from corporatist dyarchy to one-party authoritarianism is and was inevitable. ..."
    "... It seems we live in a system where two parties fight to a draw and then volatility in the system acts as a coin toss and we get new leadership. The people line up approximately half and half for the two. ..."
    "... Where do you see a draw? The republicans control the house, the senate, the executive branch, the majority of state legislatures, the majority of state governorships, and will soon control the supreme court. ..."
    "... The Republicans have embraced the idea that this is a battle, and that their 50% need to win and keep their heels on the neck of the other 50%. The Democrats seem more conflicted about this fight, partly because some of them have bought the neoliberal ideology of their opposition. ..."
    "... "some of them have bought the neoliberal ideology of their opposition." i like the understatement. ..."
    Feb 12, 2017 | economistsview.typepad.com
    yuan -> DeDude... , February 10, 2017 at 09:49 AM
    "The real question is how much support he has a year from now when most of his voters realize that the majority of what he directly or implicitly promised them, turns out to be a lie."


    I'm sure that people in Kansas were telling themselves this 7 years ago.

    DeDude -> yuan... , February 10, 2017 at 12:52 PM
    Yep - and they were right. The democrats lost the next midterm election. The midterm blowback is that of both an energized opposition and of a lot of disappointed followers.
    ilsm -> DeDude... , February 10, 2017 at 04:04 PM
    If the libruls think Obama's multinational collateral damage from senseless bombing by drone and expensive aircraft is not worth protesting, then rallies and faux moral indignation against a travel ban are incongruous to reason.
    sanjait -> Estate Agent - Emily ... , February 10, 2017 at 10:31 AM
    "It's not quite that bad."

    We can only hope.

    But we have an administration that is unconstrained by conscience and logic and a GOP majority in both houses of Congress that shows scant willingness to stand against the administration on anything.

    The only remaining check between now and 2018 is the fear Congresspersons might have of losing their seats, and the judiciary.

    The former is very weak though, because rapid Trump supporters make up the majority of the GOP voting base, so GOP congressmen are going to stay in line to avoid primary challenges. Their party is almost completely captured by the wingnut wing.

    Also, few at-risk GOP Senators are even up for re-election in 2018.

    The latter is our only real hope, and even that is tenuous. Judges can be fickle and peculiar, but most GOP judges were selected for their partisan loyalty. Most will go along with almost anything the GOP wants, and as time passes, Trump is going to add more judges, and he will be damn sure to pick ones that go along with anything he wants.

    We're hoping for judges' consciences, and loyalty to country over party, and common sense, to save us. But when the GOP picks judges they select against those traits.

    ilsm -> sanjait... , February 10, 2017 at 04:08 PM
    "administration that is unconstrained by conscience and logic", we have had that continuously since 1980.

    You get worked up over a travel ban but not Obama's US bombing wedding parties. Or taking out 14 non combatants and losing n MV 22 to get a few smart phones.

    Do you have stock in both refugee referral companies and Lockheed?

    ilsm : , February 10, 2017 at 04:09 AM
    poor pk has grabbed the alt right's the concession over cognitive bias, false analogy and cherry picked faux facts.
    Benedict@large -> ilsm... , February 10, 2017 at 05:04 AM
    Does anyone take this guy seriously anymore? This is Chicken Little, Sky-Is-Falling nonsense from a PhD Nobelist? Certainly the guy has lost his marbles, and someone needs to put him in a padded room. At least be kind, and retire him.
    RC AKA Darryl, Ron -> Benedict@large... , February 10, 2017 at 05:30 AM
    You certainly cannot expect Krugman to criticize the constitutional political system of dollar democracy that gave us a choice between Trump and Hillary through first past the post elections and party caucuses any more than you can expect him to criticize lifetime congressional seats and a SCOTUS unanswerable to the people.

    I believe even Krugman will criticize gerrymandering, which is a safe target since it is implemented at the state rather than federal level.

    pgl -> RC AKA Darryl, Ron... , February 10, 2017 at 05:59 AM
    DeLong is - at least when it comes to the Electoral College. This system is sort of telling the folks in California that they really do not matter.
    ilsm -> pgl... , February 10, 2017 at 06:10 AM
    Electoral college exists until "they" gut/get rid of states rule on amendments in the US constitution.

    Democracy is one thing within toen lesser in states........ the rest is republic the 'burgs' not wanting to be run from Morningside Hts.

    RC AKA Darryl, Ron said in reply to pgl... , February 10, 2017 at 06:12 AM
    The electoral college although problematic is not the best place to start. Campaign finance, gerrymandering, legislative term limits, and an alternative to first past the post voting are all state to state neutral, allowing a large and powerful electoral consensus to form without undue obstacles except for elite authority itself.

    These are all assessable solidarity issues. The fear of reversal for Roe V. Wade makes petition and referendum to overturn SCOTUS decisions more difficult first time around, but not impossible since Citizens United. Liberals on the fence only need consider the polling numbers comparing those two SCOTUS decisions to see that petition and referendum to overturn SCOTUS would not threaten Roe V. Wade, but rather end the threat to Roe V. Wade. OTOH, the electoral college is a state by state issue and small states are not going to give it up. New York and California will need to subdivide into a bunch of small states to ever change that.

    The constitutional ratification procedure can be hijacked by a solidarity electoral movement only so long as the solidarity is large and cohesive.

    yuan -> RC AKA Darryl, Ron... , February 10, 2017 at 08:39 AM
    And, IMO, you are not seeing the forest for the trees. The republican party is laser focused on voter suppression. And they will not waste a crisis or supreme court judge slot.

    http://www.chicagotribune.com/news/nationworld/politics/ct-north-carolina-voter-id-law-20160902-story.html

    "A review of these documents shows that North Carolina GOP leaders launched a meticulous and coordinated effort to deter black voters, who overwhelmingly vote for Democrats."

    When the Supreme court becomes un-deadlocked Jim Crow will destroy opposition to Trump_vs_deep_state.

    RC AKA Darryl, Ron -> yuan... , February 10, 2017 at 09:27 AM
    You are certainly correct in their intent and if the South less Virginia, which was purple enough to go for Hillary in 2016, were the entire country then you would be correct in the impending reality.

    The reality is uncertain though because many of the Trump voters were racists and misogynists, but then many of the Trump voters were just reacting to an opportunity to strike back at the corporatist hegemony in control of the political establishment. The corporatist controlled dollar democracy has dominated the conversation about the advantages of trade regardless of trade deficits for over thirty years now. A rebellion is long overdue. The US Constitution provides sufficient political tools to the electorate to stage a revolution using electoral means, but not by just choosing between establishment political parties without providing an electoral agenda of its own along with solidarity in imposing bipartisan anti-incumbency sanctions for failure to perform.

    yuan -> RC AKA Darryl, Ron... , February 10, 2017 at 09:42 AM
    "The US Constitution provides sufficient political tools to the electorate to stage a revolution using electoral means"

    And I see a mostly corrupt legal system that has already proven willing to overturn the will of the people.

    sanjait -> RC AKA Darryl, Ron... , February 10, 2017 at 10:39 AM
    Great. While Trump tries to tear down democracy, the supposed representatives of "the people" will keep talking about shit like how much they hate NAFTA.
    ilsm -> sanjait... , February 10, 2017 at 04:16 PM
    I won't type much here:

    https://www.youtube.com/watch?v=Sk3sURDS4IA

    The opening rif is cool.

    Monster, Steppenwolf

    I need to play this once a week!

    libezkova said in reply to yuan... , February 10, 2017 at 07:57 PM
    "And, IMO, you are not seeing the forest for the trees. The republican party is laser focused on voter suppression."

    With all due respect, I do not believe that.

    Why republicans should be focused on voter suppression, if Democrats are working relentlessly to move blue collar workers and lower middle class voters to far right ?

    ilsm -> RC AKA Darryl, Ron... , February 10, 2017 at 04:13 PM
    'dollar democracy' is deeper than that.

    it is 99% the system

    but you got to do the right system

    or the left one

    trouble is like tamany

    cannot see the system to fix

    ken melvin : , February 10, 2017 at 05:22 AM
    Paul Krugman didn't give us Trump, the progressives who can't stand dems, demonized Hillary, either didn't vote or voted for Trump gave us Trump. Idee fixe and big picture are not the same.
    Peter K. -> ken melvin... , February 10, 2017 at 05:38 AM
    Wrong. Progressive neoliberals helped give us Trump. Nobody forced Hillary to give speeches to Goldman Sachs or to give Bush a blank check for war.

    "We're re-learning today what we should have learned in the 30s ... economic stagnation breeds reaction and intolerance"

    http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2017/02/lets-not-debate-immigration.html

    Blaming the few who didn't vote Hillary. What about the many who stayed home? You're an example of learned helplessness. Like the wife who won't leave her abusive husband.

    yuan -> Peter K.... , February 10, 2017 at 08:56 AM
    "Wrong. Progressive neoliberals helped give us Trump. Nobody forced Hillary to give speeches to Goldman Sachs or to give Bush a blank check for war."

    How many Goldman Sachs banksters does Trump have in his administration? I lost count.

    The best predictor of a Trump vote was a tendency towards sexism and racism. And Trump voters were generally well-off middle class whites, not the underclass who either stayed home or predominantly voted for Clinton.

    Peter K. -> yuan... , February 10, 2017 at 09:09 AM
    "The best predictor of a Trump vote was a tendency towards sexism and racism. And Trump voters were generally well-off middle class whites, not the underclass who either stayed home or predominantly voted for Clinton."

    Trump won the uneducated vote. Many of those people ain't middle class.

    "How many Goldman Sachs banksters does Trump have in his administration? I lost count."

    Yeah they own both parties. Democrats need to be for the people, not corporations. You are pretty naive for being leftwing. Probably you just get off on being argumentative.

    yuan -> Peter K.... , February 10, 2017 at 09:38 AM
    "Trump won the uneducated vote. Many of those people ain't middle class." I see you are pimping Trump's faux-populist mythology again. Clinton won the majority of votes of those earning less the $50,000 and Trump won the majority of votes for those who earn more than $50,000.

    http://www.cnn.com/election/results/exit-polls

    Peter K. -> yuan... , February 10, 2017 at 11:55 AM

    high school or less [18 percent of total]

    Clinton 46 %
    Trump 51 %

    some college [32% of total]

    Clinton 43%
    Trump 51%

    college graduate [32%]
    Clinton 49%
    Trump 44%

    postgraduate [18%]
    Clinton 58%
    Trump 37%

    yuan -> Peter K.... , February 10, 2017 at 05:49 PM
    has it ever occurred to you that older white voters can be middle/upper class without having a college degree?

    it's ironic that many of these same people oppose unions, social insurance (e.g. pensions), and free education (GI bill) despite having benefited from these socialist programs.
    FYIGM

    libezkova said in reply to Peter K.... , February 10, 2017 at 08:05 PM
    If Trump got 37% of votes of people with postgraduate degree that's tell you something about Democratic Party. That only can means that Democratic Party smells so badly that most people can not stand it, not matter what is the alternative. As in "you should burn in hell".

    It's kind of reversal of voting for "lesser evil" on which Bill Clinton counted when he betrayed the working class and lower middle class. Worked OK for a while but then it stopped working as he essentially pushed people into embraces of far right.

    RC AKA Darryl, Ron said in reply to pgl... , February 10, 2017 at 06:16 AM
    My wife says Liz Warren will run in 2020 and win. I am hoping that it will be someone off radar now that gets elected as the youngest POTUS in history. We need a sea change with full millennial backing.
    Jay -> RC AKA Darryl, Ron... , February 10, 2017 at 06:32 AM
    You're wife's prediction for next president will keep DeVos.

    "A taxpayer-funded voucher that paid the entire cost of educating a child (not just a partial subsidy) would open a range of opportunities to all children. . . . Fully funded vouchers would relieve parents from the terrible choice of leaving their kids in lousy schools or bankrupting themselves to escape those schools.

    the public-versus-private competition misses the central point. The problem is not vouchers; the problem is parental choice. Under current voucher schemes, children who do not use the vouchers are still assigned to public schools based on their zip codes. This means that in the overwhelming majority of cases, a bureaucrat picks the child's school, not a parent. The only way for parents to exercise any choice is to buy a different home-which is exactly how the bidding wars started.

    Under a public school voucher program, parents, not bureaucrats, would have the power to pick schools for their children-and to choose which schools would get their children's vouchers."

    Remember which side of the debate is pro-choice and which side of the debate is pro teacher's union.

    RC AKA Darryl, Ron said in reply to Jay... , February 10, 2017 at 09:38 AM
    I am not for either side. My wife's mother was a teacher as was her older sister. I am not sure what she thinks of the teacher's union.

    The pedagogical system is so oriented to a system of establishment indoctrination that the average private school is just as bad as the average public school and even the worst public schools are no worse than the worst private schools. Only the best private schools stand out along with a few of the charter schools as better than their public school counterparts and even then not by a great margin. The problem is the pedagogical approach itself. It is also a matter of who taught the teachers? We have developed a system that aspires to mold us all into obedient followers and it works very well. It is also self-replicating.

    ilsm -> RC AKA Darryl, Ron... , February 10, 2017 at 04:26 PM
    Putting up "competition" against public education which as evolved since the Northwest Ordinance is a crusade for the tea party.

    But they would trip WW III, war to keep Russia from breaking up the Frankensteins of East Europe!

    The system is: who makes money.

    yuan -> Jay... , February 10, 2017 at 10:02 AM
    "Remember which side of the debate is pro-choice and which side of the debate is pro teacher's union."

    Who needs labor and civil rights when we have capitalist billionaires who will give us "school choice vouchers", "right to work laws", and "deregulation"!

    sanjait -> RC AKA Darryl, Ron... , February 10, 2017 at 10:47 AM
    Complaining about the electoral college being screwed up is like complaining that human nature is screwed up.

    It's true, but almost pointless, because it won't change in the foreseeable future.

    libezkova said in reply to RC AKA Darryl, Ron... , February 10, 2017 at 08:11 PM
    I doubt that Trump is a political cycle outlier. He is a sign of the crisis of neoliberal political system, which pushes authoritarian figures as "Hail Mary Pass", when Hillarius politicans are proved to be un-electable.

    And despite his "bastard liberalism" he is the symbol of rejection of liberalism, especially outsourcing/offshoring and neoliberal globalization. Or more correctly his voters are.

    Peter K. -> The People's Pawn... , February 10, 2017 at 06:19 AM
    Trump said the Iraq war was a disaster. He bragged about being against the war before it started. He used the Iraq war against Jeb Bush and Hillary as an example of the corrupt elite's incompetence.

    This infuriates thoughtless partisans like Krugman to no end.

    The appellate court ruled against Trump's Muslim band even more strongly than the lower court judge.

    sanjait -> Peter K.... , February 10, 2017 at 10:55 AM
    "Trump said the Iraq war was a disaster. He bragged about being against the war before it started."

    That is a very sneaky way of talking around the fact that Trump never said anywhere on record before the war that he was against it.

    wally : , February 10, 2017 at 06:20 AM
    "America as we know it will soon be gone." Don't you think that much of it is already gone? We did not see ourselves as a nation of cowards years ago, but that's what we now appear to be.
    yuan -> wally... , February 10, 2017 at 09:13 AM
    "We did not see ourselves as a nation of cowards years ago, but that's what we now appear to be." USAnians have been cowards for generations. The transition from corporatist dyarchy to one-party authoritarianism is and was inevitable.
    ilsm -> wally... , February 10, 2017 at 04:36 PM
    poor pk's [whatever it is] America is not my [or a lot of peoples'] America. America like freedom is a perspective thing!
    point : , February 10, 2017 at 06:41 AM
    It seems we live in a system where two parties fight to a draw and then volatility in the system acts as a coin toss and we get new leadership. The people line up approximately half and half for the two.

    I'm having a hard time understanding why if half support the new leadership established by the operations of the system, that we should worry this a threat to the system itself.

    For if that's what we think, it seems we have far bigger problems than simple disagreement to worry about. It seems those among us who think that way should be planning as revolutionaries to change this doomed system that except for luck has not yet careened over the edge into whatever.

    yuan -> point... , February 10, 2017 at 09:33 AM
    Where do you see a draw? The republicans control the house, the senate, the executive branch, the majority of state legislatures, the majority of state governorships, and will soon control the supreme court.
    Julio -> point... , February 10, 2017 at 10:41 AM
    The Republicans have embraced the idea that this is a battle, and that their 50% need to win and keep their heels on the neck of the other 50%. The Democrats seem more conflicted about this fight, partly because some of them have bought the neoliberal ideology of their opposition.
    yuan -> Julio ... , February 10, 2017 at 12:23 P
    "some of them have bought the neoliberal ideology of their opposition." i like the understatement.

    [Feb 12, 2017] Classicals vs Neoclassicals views on Tax and Rent

    Feb 12, 2017 | economistsview.typepad.com
    RGC : Reply Sunday, February 12, 2017 at 08:08 AM , February 12, 2017 at 08:08 AM
    Classicals or Neoclassicals - who you got?

    ...................
    Classicals vs Neoclassicals: Tax and Rent

    Posted on 8 January 2011

    At the university I attended, a few of the academics were strongly influenced by Classical Political Economy, especially that of Smith and Ricardo. Prior to my student days, one of them had published a paper in the Cambridge Journal of Economics entitled "On the origins of the term 'neoclassical'" (no free link available), which is quite well known in heterodox circles. In it, he argued that the 'classical' in the term 'neoclassical' is a misnomer and that neoclassical and classical economics actually have little in common, despite attempts by neoclassicals to claim Smith, in particular, as their forefather.

    The classical-influenced economists at my university happened to belong to the Sraffian School. This school attempts to synthesize Classical value and distribution with Keynesian output and employment determination, and is also known for its key role and victory in the Cambridge Capital Controversy. The school is named after Piero Sraffa, whose interpretation of Classical Political Economy, particularly Ricardo's work, has been highly influential.

    Sraffians are not the only modern-day economists influenced by Smith and Ricardo. Another prominent example is Michael Hudson. In a recent interview (h/t to Tom Hickey), Hudson discusses one big difference between the Classical economists and the neoclassicals: their analysis of taxation as applied to economic rent.

    Hudson touches on a number of noteworthy points during the interview. He draws attention to a historical correspondence that would probably surprise many, between high top tax rates and strong economic growth, and observes that the top rates were high in the period prior to WWII. Importantly, the focus of taxation in Classical Political Economy, which Hudson argues influenced US government policy in the late 1800s and much of the first half of the 1900s, was on confiscating economic rents. These rents include income that derives from ownership of assets that appreciate in value merely because of the growth in national income and/or improved public infrastructure, and not due to any participation in the production process (they arise especially in the real estate and financial sectors).

    It is not mentioned in the interview, but profit, of course, is also income that derives from the mere ownership of assets – the means of production. However, the classical economists were engaged in a class war with rentiers, not capitalists. It was Marx who drew this reasoning out to its logical conclusion, and this probably goes a long way to explaining why neoclassical theory, rather than being a continuation of classical economics (as was often claimed once it was established), was an escape into a different conceptualization of a capitalist economy that sought to reframe the distribution of income as the result of marginal contributions (an attempt that failed and was the chief target and theoretical casualty of the Cambridge Capital Controversy). Even so, there does remain a significant distinction between profit, which relates to assets employed in the production process, and economic rents. For this reason, Marx also distinguished between these two categories of income and spent a great deal of space in volume 3 of Capital analyzing the various forms of surplus value, including different types of rent.

    Hudson goes on to stress that the taxation imposed in the late 1800s and first half of the 1900s was highly progressive. Initially only the top 1 percent of income earners were required to submit tax returns. The purpose of this was to keep taxes on wages and profit low to promote price competitiveness against lower wage countries. This can be contrasted with neo-liberal policies of today which seem to be designed almost with the opposite intent: to tax wage and profit income (and also consumption) but provide loopholes or tax breaks for the recipients of economic rents.

    Above all, Hudson distinguishes between what the classical economists meant by the term "free market" and what that term has come to mean in the neo-liberal period. Hudson emphasizes that, for the classical economists, "free market" meant a market unencumbered by rent-based claims on income that would draw economic activity away from income production and toward speculation. The aim of the classical economists was to incentivize production. This is a very different notion than the neo-liberal one of labor-market "deregulation" (meaning regulation in favor of employers over employees), which is really just code for union smashing and an attack on real wages, or the neo-liberal deregulation of financial markets, which is a euphemism for enabling financial parasitism.

    Hudson makes another observation in passing. The observation is not central to his argument in the interview, but is relevant to current debates over deficits and public debt, and consistent with MMT. He notes that immediately prior to the commencement of the only extended period of high capitalist growth (WWII until the late 1960s), the US population was not in debt, and in fact had pent up savings from the war that it was waiting to spend.

    By little or no debt, Hudson clarifies that he means little or no private debt. There was, of course, a large public debt – larger as a percentage of GDP than the current US government "debt". This public debt did not matter, in spite of the familiar opposition to deficits and public debt, the echoes of which can be heard today, simply because the budget deficit shrinks endogenously once private-sector activity and income growth resume. This is precisely what happened in the immediate postwar period.

    Today, with the US government the monopoly issuer of its own flexible exchange-rate fiat currency, public "debt" is – or rather should be – even less of an issue. Unlike in the immediate postwar period, the government is not subject to the constraints of Bretton Woods or a similar commodity-backed money system. It is free to utilize its fiscal capacity to the extent necessary to restore full employment.

    Government "debt" is nothing other than the accumulated net financial wealth of the non-government. Once the non-government is ready to spend, income growth will deliver stronger revenues, reducing the deficit. But the private sector needs to have its debt under control before it will resume spending at levels sufficient to sustain strong economic growth.

    In addition to the absence of significant private debt at the end of WWII, there were other factors that contributed to the strong growth of the immediate postwar period, including Keynesian demand-management policies, a progressive tax system, and significant financial regulation. All these beneficial features of the economy were gradually undermined, and then exposed to outright attack from the 1970s onwards.

    Hudson discusses how, over time, much of the progressivity in the tax system was removed, paving the way for the construction of the inequitable and anti-productive monster of today. Keynesian demand-management policies were also largely eschewed throughout the neo-liberal era on the basis of an opportunistic misinterpretation of the stagflation of the 1970s. All this took place alongside deregulation of the financial sector and an aggressive dismantling of worker employment protections.

    The result of this neo-liberal policy mix was an increasing financialization and "rentification" of the economy, widening income inequality, and an adherence to fiscal austerity that directly corresponded, as a matter of accounting, to an unsustainable build up in the only US debt that matters – private debt – and culminated in the Global Financial Crisis and Great Recession.

    If the aim is to restore sustainable growth under capitalism (which is not my preferred social system, but presumably the one commanding the allegience of policymakers), the insights obtained from the classical economists in conjunction with the lessons of the postwar period would seem to suggest some combination of the following policy responses: tighter regulations of speculative activities; a more steeply progressive tax system targeted at the confiscation of economic rents and the incentivization of production and consumption; stronger worker protections; and the abandonment of the faulty construct of a 'government budget constraint' and a return to deficit expenditure sufficient to underpin non-government net saving and full employment.

    But the actual policy response has instead been to manipulate financial markets to engineer a massive transfer of wealth to the rentiers and exacerbate income and wealth inequality; to continue with the approach of taxing wage and profit income along with consumption rather than economic rents; and possibly even to revert foolishly to austerity while the private sector remains deeply indebted.

    http://heteconomist.com/classical-vs-neoclassical-economics-tax-and-rent/

    RGC -> RGC... , February 12, 2017 at 08:55 AM
    If you favor the neoclassicals, you also favor Paul Samuelson and the neo/new Keynesians- and today's mainstream economists.

    [Feb 12, 2017] Neoliberal economists themselves were largely responsible for the unpleasant political consequences typified by Trump and Brexit due to their efforts to promote globalization as stooges of financial oligarchy, who pays them

    Feb 12, 2017 | economistsview.typepad.com
    Floxo : February 11, 2017 at 01:11 PM

    , 2017 at 01:11 PM
    I originally tried to post this comment on Mainly Macro. It is in reply to some critical comments I received when I posted a comment suggesting economists themselves were largely responsible for the unpleasant political consequences typified by Trump and Brexit. I argued there has been a failure to properly communicate the serious distributional implications of trade and globalization. This has led people to become disillusioned with stagnant living standards and growing inequality. For some reason, my reply was disallowed, making it appear as though I had no answer to my critics. As my reply addresses issues of concern here I am hoping it will be published .

    Thankyou for your replies to my comment.

    Stéphane, I did not say trade gain arises from price convergence; neither do trade gains arise from differences in opportunity costs (I think that is what you meant). Trade gain can arise from several sources, these include relative differences in productive efficiency (Ricardian comparative advantage), differences in relative factor abundance (HO theory), from tradeable goods where production exhibits increasing returns to scale and from monopolistic competition (Krugman).

    When trade gain is exhausted it is possible to derive further gains from factor mobility. For example, shifting capital from a capital abundant region to a capital poor region will typically result in further gains. An example of this process is off-shoring, where a firm shifts production to another country where wages are lower and rent (the return on capital invested) is higher.

    So why are potential gains from globalization a problem? The challenge is the sheer size of the population industrializing from a very low capital base. Economically big regions with abundant labour and scarce capital mean low wages and high rents extending into the long term. For a developed economy, adopting a policy of free trade without capital controls with these regions will have two significant consequences:

    1. There is a trade induced shift to more capital intensive production driven by the factor advantage of having a relative abundance of capital. This lowers the domestic labour share of GDP.

    2. Capital abundance implies a capital drain as domestic saving is increasingly used to finance foreign investment in productive capacity, driven by the higher foreign return. This correspondingly lowers domestic investment which also slows growth. Labour now has less capital applied to it, reducing labour productivity and also wages.

    What are called "magnification effects" virtually guarantee wage earners are big losers in these scenarios, whereas, capital owners are big winners; hence the rise in inequality.

    The theoretical support for this view is very robust. I became interested in the debate when such effects showed up strongly in the numerical trade models I develop. Economists, generally, have not supported this basic theoretical perspective, preferring a grab bag of miscellaneous empirically based models. Rapid technological change, too little technological change, skills biased technological change, union demise, banks unwilling to lend, demographics, austerity, labour hoarding, financialization, shift in consumer preference to services and on and on. Personally, I prefer basic economic theory and regard all of these thought bubbles as garbage.

    In answer to Anonymous, it is true; many economists assert automation is the principle cause of our economic woes. This is theoretically baseless. I cannot describe a model of how technological improvement is supposed to give rise to the above effects, because no such model exists. Improved technology means we get more goods and services from the same resources of capital and labour, boosting growth and wages and rents.


    anne -> Floxo... , February 11, 2017 at 01:23 PM
    Where is the precise reference? Mainlymacro must however be separate as "mainly" and Macro" in posting the link.
    Floxo -> anne... , February 11, 2017 at 05:09 PM
    Thankyou Anne, here is the reference you requested.

    https://mainlymacro.blogspot.com.au/2017/01/why-voting-for-article-50-may-ruin-mps.html


    anne -> Floxo... , February 12, 2017 at 04:59 AM
    https://mainlymacro.blogspot.com.au/2017/01/why-voting-for-article-50-may-ruin-mps.html

    January 29, 2017

    Why voting for Article 50 * may ruin an MP's career

    The last time I did something like this was to urge Labour party members to vote for Smith rather than Corbyn, knowing full well that Corbyn was almost certain to win. Being proved right on that occasion is no consolation, because I would rather have been wrong. This is even more futile, but now as then I feel a decision is about to be made that is both disastrous and irreversible. I also want to say something about the longer term interests of MPs that I have not seen said elsewhere.

    There are so many principled reasons for MPs to vote against triggering Article 50. Let me summarise what I see as the main ones here, but this is far from comprehensive....

    * https://en.wikipedia.org/wiki/Article_50_of_the_Treaty_on_European_Union

    Article 50 of the Treaty on European Union is a part of European Union law that sets out the process by which member states may withdraw from the European Union.

    -- Simon Wren-Lewis

    anne -> anne... , February 12, 2017 at 05:01 AM
    Correcting:

    Mainlymacro can now be linked to directly. There is no need to separate "mainly" and "macro" in posting a link.

    anne -> Floxo... , -1
    Interesting response to an interesting argument. I am grateful for this post.
    libezkova -> anne... , February 12, 2017 at 10:34 AM
    I do not share your enthusiasm.

    A couple of points

    1. Neoliberal economists are stooges of financial oligarchy (much like Soviet economists were stooges of Communist Party) and if they do not promote Washington consensus on trade and globalization they would be ostracized and replaced by other no less talented puppets. They all are replaceable and they understand that perfectly well and behave accordingly. Being puppets they have no degrees of freedom to express the discontent with neoliberalism.

    2. The author himself is still in completely under the spell of neoclassical economic framework. that's why his critique is so superficial. As in "There is a trade induced shift to more capital intensive production driven by the factor advantage of having a relative abundance of capital. This lowers the domestic labour share of GDP. " What a "neoliberal speak." Reminds me 1984 Newspeak. That was a political decision to shift capital to developing countries in order to destroy union power and decimate "trade unionism" as political force opposing to neoliberalism. As simple as that.

    [Feb 11, 2017] As a result of 36 years of brainwashing large swathes of US society accept without questioning the core tenets of neoliberalism much like Soviet population accepted the key postulates of Bolshevism

    Obama was not a progressive he was a Neo liberal puppet who just spoke the language of progressives at the same time selling out the public
    Notable quotes:
    "... Still as a result of 36 years of brainwashing large swathes of US society accept without questioning the core tenets of neoliberalism much like Soviet population accepted the key postulates of Bolshevism. They believe that "the market" trumps all other forms of organization of activities of the society, that everything works better that way, that markets are virtuous. As a result, they believe in the false notion that the government is always and ever getting in the way of markets and therefore needs to be made as small and weak as possible. ..."
    "... Ideological Power derives from the human need to find ultimate meaning in life, to share norms and values, and to participate in aesthetic and ritual practices with others. ..."
    "... The main tenets of neoliberalism are still very powerfully embedded in people minds. But ideology is dead and that spells troubles the same way as death of Bolshevism spelled troubles for the USSR. ..."
    Feb 11, 2017 | economistsview.typepad.com

    libezkova -> Trump February 11, 2017 at 05:04 AM

    What has happened to "hope and change" is very straightforward: it buried Democratic Party with its lies and militarism and there is no way back.

    That's why Trump. Obama said all the right things and did the opposite. He has gutted the country and obliterated the middle class while continuing fighting wars of neoliberal expansion and conquest.

    Dismissing Trump and Trump's voters as "deplorables" gives Democrats like Krugman an excuse to avoid any self examination about how the neoliberal policies they advocated failed the majority of population of the country and have alienated electorate.

    The last two democrat presidents destroyed as much of the New Deal as their Republican counterparts and couldn't wait to gut the remnants such as SS. That's undeniable.

    As a result the key tenets of neoliberal ideology are now as dead as the key postulates of Bolshevism were in 1945. The rule of financial oligarchy disguised as "Liberal democracy", globalization and free trade, free markets as a substitute for government, deregulation, de-industrialization, letting market forces determine the characteristics of employment, etc.

    Does anybody here believes this sh*t? I doubt it. Even those who advocate it, have doubts.

    Still as a result of 36 years of brainwashing large swathes of US society accept without questioning the core tenets of neoliberalism much like Soviet population accepted the key postulates of Bolshevism. They believe that "the market" trumps all other forms of organization of activities of the society, that everything works better that way, that markets are virtuous. As a result, they believe in the false notion that the government is always and ever getting in the way of markets and therefore needs to be made as small and weak as possible.

    If you read Michael Mann's, The Sources of Social Power you will notice that he places Ideological Power first in his four component model of social power: ideological, economic, military, and political.

    Each of them create different but complementary sources of power within a given society:

    The main tenets of neoliberalism are still very powerfully embedded in people minds. But ideology is dead and that spells troubles the same way as death of Bolshevism spelled troubles for the USSR.

    See also series of Mark Blyth interviews such as

    [Feb 10, 2017] Neoliberal globalization makes it difficult to sustain the postwar social bargain of labor peace in exchange for steadily improving worker pay and benefits

    Notable quotes:
    "... And I am not sure that it was neoliberal globalization as the only factor in rasining the standards of living in case of China. They have also industrialization process going on, give or take. Chinese maquiladoras were allowed under strict conditions of transferring technology. That's what distinguishes China from India or Mexico, where neoliberal administrations were much less protective of interest of their nations and allowed Western monopolies more freedom. ..."
    "... On the basis of careful empirical work, Rodrik concluded that "globalization makes it difficult to sustain the postwar social bargain" of labor peace in exchange for "steadily improving worker pay and benefits." ..."
    "... It's not globalization, it's "neoliberal globalization" and neoliberalism in general which killed the New Deal capitalism. As soon as the US elite realized the cookies are not enough for everybody they start withdrawing them from the table. Stagnation and the subsequent collapse of the USSR also played an important role, allowing neoliberal propagandists to claim the victory. ..."
    Feb 10, 2017 | economistsview.typepad.com
    Gibbon1 : February 10, 2017 at 01:47 AM
    ""seem unimpressed by the fact that globalization has lifted hundreds of millions of desperately poor people in China and India into the global middle class. ""

    Ergo enabling the savaging of working class people in the US was worth it.

    libezkova -> Gibbon1... , February 10, 2017 at 02:08 AM
    And I am not sure that it was neoliberal globalization as the only factor in rasining the standards of living in case of China. They have also industrialization process going on, give or take. Chinese maquiladoras were allowed under strict conditions of transferring technology. That's what distinguishes China from India or Mexico, where neoliberal administrations were much less protective of interest of their nations and allowed Western monopolies more freedom.

    After all the Communist Party is still a ruling Party of China. With a neoliberal twist yes, but they still adhere to the ideas of Marx.

    pgl : , February 10, 2017 at 01:47 AM
    Kuttner really captures the contributions of Dani Rodrik. If I had to pick one sentence to capture this review - it would be this:

    On the basis of careful empirical work, Rodrik concluded that "globalization makes it difficult to sustain the postwar social bargain" of labor peace in exchange for "steadily improving worker pay and benefits."

    libezkova -> pgl... , -1
    It's not globalization, it's "neoliberal globalization" and neoliberalism in general which killed the New Deal capitalism. As soon as the US elite realized the cookies are not enough for everybody they start withdrawing them from the table. Stagnation and the subsequent collapse of the USSR also played an important role, allowing neoliberal propagandists to claim the victory.

    [Feb 09, 2017] How lies work

    Feb 09, 2017 | stumblingandmumbling.typepad.com

    Nick Cohen makes a good point : it is not congenital liars that should worry us, but congenital believers – those who fall for the lies of charlatans. We know that many do so: almost half of voters believed the lie that leaving the EU would allow us to spend an extra £350m a week on the NHS.

    This poses the question: why do people fall for lies? Here, we can learn from behavioural economics and research (pdf) into criminal fraud. I reckon there are several factors that liars exploit in politics.

    One is wishful thinking. People want to believe there's a simple solution to NHS underfunding (leave the EU!) or to low wages (cut immigration!) just as they want to believe they can get rich quick or make money by taking no risk: Ponzi schemers like Bernie Madoff play upon that last one. The wish is often the father to the belief.

    Relatedly, perhaps, there are lottery-type preferences. People like long-odds bets and pay too much for them: this is why they back longshots (pdf) too much and pay over the odds for speculative shares . To such people, the fact that an offer seems too good to be true is therefore, paradoxically, tempting. A study of fraud by the OFT found :

    Some people viewed responding to a scam as taking a long-odds gamble: they recognised that there was something wrong with the offer, but the size of the possible prize or reward (relative to the initial outlay) induced them to give it a try on the off-chance that it might be genuine.

    There's a particular type that is especially likely to take a long-odds bet: the desperate. Lonely people are vulnerable to the romance scam; gamblers who have lost take big bets to get even; losing teams try "hail Mary" tactics. In like fashion, people who feel like they have lost out in the era of globalization were tempted to vote for Trump and Brexit.

    There's another mechanism here: people are likely to turn to con-men if the alternatives have failed. Werner Troesken shows (pdf) how snake-oil sellers exploited this. They invested a lot in advertising and in product differentiation and so when other products failed they could claim that theirs would work when the others hadn't. I suspect that fund managers use a similar trick: the failure of many to beat the market leads investors simply to trust others rather than tracker funds. The fact that previous policies had failed working people thus encouraged them to try something different – be it Brexit or Trump.

    Yet another trick here is the affinity fraud. We tend to trust people like ourselves, or who at least who look like ourselves. Farage's endless posturing as a "man of the people" – fag and pint in hand, not caring about "political correctness" – laid the basis for people to trust him, just as Bernie Madoff joined all the right clubs to encourage wealthy (often Jewish) folk to trust him. By contrast, the claims from the Treasury and various think-tanks that Brexit would make us poorer came from metropolitan elites who were so different from poorer working class people that they weren't trusted. And in fact the very talk of "liberal elites" carried the subtext: "don't trust them: they're not like you".

    All of these tendencies have been reinforced by another – the fact that, as David Leiser and Zeev Kril have shown , people are bad at making connections in economics. The idea that Brexit would hurt us rested upon tricky connections: between the terms of Brexit and trade rules; from trade rules to actual trade; and from trade to productivity. By contrast, the idea that leaving the EU would save us money was simple and easy to believe.

    Now, I don't say all this merely to be a Remoaner; complaining about liars is like a fish complaining that the water is wet. Instead, I want to point out that it is not sufficient to blame the BBC for not calling out Brexiters' lies. Yes, the BBC disgraced itself during the plebiscite campaign. But we must also understand how voters fall for such mendacity. As Akerlof and Shiller write:

    Voters are phishable in two major ways. First, they are not fully informed; they are information phools. Second, voters are also psychological phools; for example, because they respond to appeals such as lawnmower ads [a candidate seen mowing his own lawn is regarded as a man of the people] ( Phishing for Phools , p 75)

    All this raises a challenge for liberals. Many used to believe the truth would win out over lies in the marketplace for ideas. This is no longer true, if it ever were. Instead, the questions now are: what can we do about this? And what should we do? The two questions might well have different answers. But we can make a start by understanding how lies are sometimes believed. Keith | February 07, 2017 at 04:47 PM

    The marketplace of ideas assumes that the consumers are able and willing to inform themselves and be rational rather than emotional. Clearly this is not true of a lot of voters when confronted by a manipulative press and Tories like Jim with their right wing agenda slyly hidden for the time being.

    Equally as in other areas such as health care shopping around is impossible to do as the consumers lack expert knowledge. Allowing the profit motive to apply to many areas is sure to be a disaster for human welfare as the profit incentive stops the experts using their knowledge for good. Finance is a classic example of the uninformed being repeatedly duped into unsound investments decade after decade. Benjamin Graham describes how in his first job selling Bonds to grannies he came to realise that he was being asked to steal the life savings of pensioners via commissions designed to get a sale of junk paper. Which is why he moved elsewhere to a more ethical line of work. But I am sure leaving the biggest most integrated market in the world where lots of foreigners have helpfully learned our language will surely increase our prosperity....Nigel says so.

    Matthew Moore | February 07, 2017 at 05:37 PM
    There will always be gullible people (/ people constrained by high opportunity cost of information search, as I prefer to think of them)

    And there will always be liars looking to take advantage of them. Like 99% of politicians ever.

    It's very Marxist to wonder how we might change this basic fact of humanity, when the real solution is clear. Don't set up powerful central institutions that rely on coercion: it attracts liars, rewards them, and makes new liars out of honest people.

    Dipper | February 07, 2017 at 07:47 PM
    Oh, we Leavers are being lectured again by our Remainer betters on our stupidity.

    If the statements of the amount we pay to the EU were lies, how come we owe them €50 billion?

    how come no-one ever asks why we have to implement the four freedoms when Germany gets a free pass on the Free market in Services?

    the government announced house building plans today, and no-one asks whether a cause of high house prices and a housing shortage is too much immigration?

    It's not the lies, it's the questions never asked that stand out.

    Dipper | February 07, 2017 at 08:09 PM
    @ Keith - "Tories like Jim"

    I don't read Jim as a Tory. I read him as someone who was a Labour supporter but now just stares in amazement at a group of people who have become EU Federalist fanatics spouting delusional slogans who can never answer a straight question and refuse to acknowledge the obvious problems of democratic accountability.

    How on earth did that happen? How did apparently intelligent people completely lose their critical faculties and join a quasi-religious cult that chants empty slogans and denounces anyone who questions them?

    But I'm sure Jim can speak for himself.

    Ralph Musgrave | February 07, 2017 at 09:45 PM
    Chris missed out the fact that people tend to give others the benefit of the doubt. I.e. if X tells a monster lie, peoples' immediate reaction is: "X is is a bastard". But then on second thoughts they feel ashamed at accusing someone else of being a bastard, and assume it's they themselves that must be wrong.

    Sotto Voce | February 07, 2017 at 10:45 PM
    There is a bit of a danger here of another comment thread being derailed with Brexit mud-slinging. Chris's post isn't really about the pros and cons of Brexit, it just offers a vivid example of the phenomenon under discussion.

    The point Chris makes in the last paragraph is more general and profound. If any and all data/information/evidence/argument is interpreted in partisan fashion and subject to massive confirmation bias so that debates increasingly polarise - or if different sides in debates proffer their own favoured but incompatible versions of the truth - then meaningful dialogue, deliberation and compromise become near impossible. All we get is intolerance, mistrust and greater partisanship. Clearly these are not entirely new issues, but it seems undeniable that there has been a qualitative shift in 'quality' of public debate.

    We appear to be witnessing the US political system at great risk of imploding, as enlightenment values are abandoned and key tenets of liberal democratic practice are wilfully rejected. This is the route to chaos.

    The questions Chris poses are, to my mind at least, the right ones. The very nature of the problem means that the old/favoured remedies are unlikely to be effective. But what can replace them? Is a violent conflagration the only way of shocking the system out of hyper-partisanship and the rejection of the foundational belief that we live in a shared reality (i.e. for people to 'come to their senses')? Or can we back out of this particular cul-de-sac peacefully? You've got to hope so. But, if so, how?

    e | February 07, 2017 at 10:57 PM
    Our upper echelon, i.e. our long-standing middle of the road Labour MPs and commentators, have long been successful in fighting off calls for left leaning policy/talk of how things work (because who knows where this will end) under a guise of fighting off racism/ a closed shop mentality; the routes of least resistance 50s – 00s which should alert us to the ability of the English working class to embrace immigration and avoid base philosophies. But it seems not. Seems to me our shared interest beyond race creed colour and gender continues to be deliberately and systematically no-platformed. What I fail to understand, given the rise of UKIP, is why this is not glaringly obvious; because if you're one of the majority who live life as best you might with as much consideration and tolerance as you can muster where does credence go when an ordinary workers tendency to sound 'populist' is marked up to racism no matter known history...

    aragon | February 07, 2017 at 11:53 PM
    Not again!
    Phishing for Phools. The Political Brain...

    http://www.nytimes.com/2007/08/26/books/review/Brooks-t.html

    "Serious thinkers set to work, and produced a long shelf of books answering this question. Their answers tended to rely on similar themes. First, Democrats lose because they are too intelligent. Their arguments are too complicated for American voters. Second, Democrats lose because they are too tolerant. They refuse to cater to racism and hatred. Finally, Democrats lose because they are not good at the dark art of politics. Republicans, though they are knuckle-dragging simpletons when it comes to policy, are devilishly clever when it comes to electioneering. They have brilliant political consultants like Lee Atwater and Karl Rove, who frame issues so fiendishly, they can fool the American people into voting against their own best interests."

    And immigration is about economics. This is Sweden an immigration superpower.

    http://www.express.co.uk/news/world/755997/Sweden-Malmo-military-intervention-no-go-zone-crime-surge

    "Swedish police last year issued a report where it detailed incidents from more than 55 areas which it branded as "no-go zones" as it detailed brutal attacks on police, sexual assaults, children carrying weapons and general turmoil sweeping across the country."

    http://www.independent.co.uk/news/world/europe/most-europeans-want-muslim-ban-immigration-control-middle-east-countries-syria-iran-iraq-poll-a7567301.html

    "A ban was supported by 71 per cent of people in Poland, 65 per cent in Austria, 53 per cent in Germany and 51 per cent in Italy.
    In the UK, 47 per cent supported a ban.
    In no country did more than 32 per cent disagree with a ban."

    aragon | February 08, 2017 at 12:29 AM
    Phishing for Phools

    "It thereby explains a paradox: why, at a time when we are better off than ever before in history, all too many of us are leading lives of quiet desperation."

    http://nfs.sparknotes.com/macbeth/page_162.html

    "Pour the sweet milk of concord into hell,
    Uproar the universal peace, confound
    All unity on earth."

    Human Nature has not changed.

    Guano | February 08, 2017 at 12:42 AM
    The truth is complicated.

    The truth is challenging.

    Tony Holmes | February 08, 2017 at 09:13 AM
    Chris, a bit off the point, but if everyone followed your advice and put money in tracker funds and active funds disappeared, what would happen to the stock market ? Instinct tells me it would become extremely volatile, but instinct is a bad guide...

    gastro george | February 08, 2017 at 09:35 AM
    FFS aragon, that "report" from Sweden is from the Express quoting directly a Swedish fascist.

    reason | February 08, 2017 at 11:29 AM
    Isn't the key point here prospect theory (I've just finished reading Kahneman). People with no good options gamble.

    reason | February 08, 2017 at 11:30 AM
    P.S. The no good options bit is a very good reason for opposing first past the post and the limited options consequence.

    aragon | February 08, 2017 at 11:47 AM
    gasto george

    It is not an extreme story, I don't speak Swedish or have any contact with Sweden. I only read the main stream media which includes the Daily Express.

    As you would expect most of the media does not report on Sweden, unless it has a British angle.
    e.g. Birmingham Boy killed by a hand grenade.
    (I don't know how you can spin Hand Grenade)

    The report originates with the Swedish Police the situation in Malmo is serious and individual police officers like Peter Springare's Facebook post.

    Here is a report from the thelocal.se
    http://www.thelocal.se/20170127/malmo-police-chief-help-us

    "After a wave of violence in Sweden's third city, police boss Stefan Sintéus has appealed to residents in Malmö: "Help us. Help us to tackle the problems. Cooperate with us.""

    Dipper | February 08, 2017 at 12:03 PM
    @ gastro george

    This isn't the first time facists have made inflammatory comments about muslims. Nick Griffin did this and was prosecuted for inciting racial hatred in 2006. The summary of what he said is some way down this article.

    http://www.independent.co.uk/news/uk/crime/tougher-race-laws-likely-after-bnp-pair-cleared-423820.html

    Eleven years later we have this http://www.bbc.co.uk/news/uk-england-south-yorkshire-38845332

    And that, in a nutshell, is the problem with banning "fake news". You have to be really open, transparent and clear and be absolutely sure you are right, otherwise you end up making heroes of facists and stoking the notion that its all a plot to hide the truth from the people. And that is a really bad outcome.

    MPs wrestling with their consciences, loud debates, arguments about the truth ... this is the sound of a properly functioning parliamentary democracy and long may that noise continue.

    Guano | February 08, 2017 at 02:06 PM
    The first two words of the article: Nick Cohen.

    Nick Cohen does make some good points but he himself has a complicated relationship with the truth in some areas. When he isn't talking about congenital liars and congenital believers, he continues to get into a rage about people who opposed the invasion of Iraq. As far as I can see, the invasion of Iraq has been the disaster that some of us feared (because regime change involves putting in place a new regime change, which is very difficult and for which the USA and UK do not have the skills). And, as far as I can see, some of the assumptions made by Nick Cohen in 2002 and 2003 in supporting the invasion (such as the ability of the Iraqi National Congress to create a new regime) were very dubious and their weakness of these assumptions is why the invasion was a failure and has had created an array of other problems.

    In his campaign to avoid a post-truth future, Nick Cohen claims that people like him "are on their own" and he explicitly rejects working with the kind of people who opposed the invasion of Iraq. That's a pity, really, because many people appear to have started their opposition to the invasion because the information provided and the logic used appeared to be dodgy. The period from August 2002 to March 2003 prefigured the Trump/Brexit era for post-truth information and arguments. Nick Cohen would be on stronger ground if he admitted that the invasion of Iraq has not necessarily worked to anyone's advantage.

    I guess that what is going on in Nick Cohen's mind (and I can only guess) is that he has built up a negative image of the type of person who opposed the invasion of Iraq and he has difficulty getting past that image and come to terms with what those people were saying and what has actually happened in Iraq. Thus in between writing articles about the need for truth, Nick Cohen writes expressions of outrage about opponents of the invasion of Iraq as if they had been found to be wrong.

    It seems to be a very extreme example of seeing the messenger and not the message, which is one of the issues with failing to recognise lies.

    gastro george | February 08, 2017 at 02:24 PM
    @aragon

    OK, well I've worked most of my life with Swedes and Norwegians, and have regularly visited Malmo three or four times a year recently, although the last was a bit over a year ago.

    So, yes, immigration is an issue, and the Sweden Democrats (fascists) have been rising in the polls. Malmo itself has some problems in the suburbs.

    But there are no no-go areas. Armed violence has more traditionally been associated with biker-gang turf-related drug wars - otherwise with the far right (see Breivik in Norway) and then, as your last link discusses, lone serial killers.

    Reading anything the Sweden Democrats have to say is the equivalent of believing Wilders in the Netherlands - they are loons.

    Barbara Konstant | February 08, 2017 at 05:36 PM
    Despairing as it seems, our humanity has not reached the necessary level of awareness needed to function peacefully in our world.

    [Feb 07, 2017] Short-Run Effects of Lower Productivity Growth A Twist on the Secular Stagnation Hypothesis

    Notable quotes:
    "... There are two major forces behind secular stagnation: ..."
    "... 1. Neoliberalism which undermines the purchasing power of lower 80% of population due to redistribution of wealth up. Like in the "classic Marxism" theory of the absolute impoverishment of the working class under capitalism. ..."
    "... 2. End of cheap oil, which undermines both productivity growth and, simultaneously, neoliberal globalization, which was the source of (fake) productivity growth in GDP statistics (which by itself is very suspect). ..."
    Feb 07, 2017 | economistsview.typepad.com

    Short-Run Effects of Lower Productivity Growth : A Twist on the Secular Stagnation Hypothesis: Despite interest rates being very close to zero, US GDP growth has been anemic in the last four years largely due to lower optimism about the future, more specifically to downward revisions in growth forecasts, rather than legacies of the past. Put simply, demand is temporarily weak because people are adjusting to a less bright future.

    anne -> anne... , February 06, 2017 at 04:30 PM
    Having read the paper again, the work still reads as parody. I find no coherence.
    libezkova -> anne... , February 06, 2017 at 06:44 PM
    Anne,
    > Having read the paper again, the work still reads as parody. I find no coherence.

    I agree. Looks like

    There are two major forces behind secular stagnation:

    1. Neoliberalism which undermines the purchasing power of lower 80% of population due to redistribution of wealth up. Like in the "classic Marxism" theory of the absolute impoverishment of the working class under capitalism.

    2. End of cheap oil, which undermines both productivity growth and, simultaneously, neoliberal globalization, which was the source of (fake) productivity growth in GDP statistics (which by itself is very suspect).

    [Feb 04, 2017] In a System with Dominance, There is Built-In Resistance to Change

    Notable quotes:
    "... This is really good stuff. And I think it gets to the central core of what is wrong with traditional macroeconomic models: bargaining power. ..."
    "... Technology is not driving consolidation. It only enables it, by enabling larger economies of scale. Without IT, managing operations in a large and complex company would require much higher personnel overhead just to handle all the data, information, coordination, conveying orders, etc. This overhead is not a linear function of size. ..."
    Feb 03, 2017 | economistsview.typepad.com
    ProMarket's Guy Rolnik interviews Bernie Yeung: "In a System with Dominance, There is Built-In Resistance to Change": ProMarket Interviews Bernie Yeung, Part 2 :

    Last week, we published the first part of an extensive three-part interview with Bernard (Bernie) Yeung, Dean of National University of Singapore's business school. This is the second part. The third and final part will be published next week. In the first part of our interview with Bernard Yeung, we talked about his seminal papers on power concentration, on which he collaborated mainly with Randall Morck. The discussion there focused on dominant players and their ability to shape their own markets, the capital market, and even the economy. In this installment, we talk about how free trade may have backfired, how wealth and power are connected, how big corporations can control and distort the market for ideas, and why governments may actually prefer markets that are controlled by dominant players rather than by many competitors. ...

    ... GR: Can you elaborate on what you call economic conditioning, mainly the part in which you say it may not be vicious?
    BY: Let's imagine I got rich and now own and control a bank. I'm saying to myself that I know what's right and what's wrong. I cannot allow new people to set up new banks and compete with me in an unruly manner. That will create chaos. They will cause people to lose their jobs. I help to set up barriers to entry in the financial sector. I myself lend money to my rich friends and they will create many jobs. I think I'm right-and I am righteous.
    I overlook the positive effects that competition will generate for the economy. I overlook the contributions of new ideas and innovations which leads to strong future growth and good future jobs. I focus on my lending to the established, which preserves current jobs and creates interest earnings for me. I am not [attuned] to the counterfactuals. I'm conditioned to believe that all I've done is good for my bank, for the financial sector, and for the country. That's economic conditioning. I'm not being sinful. I'm not being vicious. I only see what's good for me, and I believe that's good for the whole society.
    GR: This was the case for the Robber Barons in the U.S. more then a century ago.
    BY: Oh yes, and I believe it's very much how Donald Trump is thinking.
    GR: Do you think they genuinely believe that the country should be run by the incumbent oligarchs?
    BY: If it ain't broken don't fix it, right? 'Look at all the good things I have done. If I'm so rich and keep so many people employed, I cannot be so bad. I will never see people who cannot get into the market because of my behavior. I never see them. Indeed, I am always thinking that, in helping my established friends and using business judgment that brings me profits, I help society, create jobs and wealth, and my donations help society further. I see myself and my friends as pillars of our country.' ...
    ... In a system with dominance, and I've already put that in paper, I think there is built-in resistance to change. Rich people don't like change and competition. And they themselves don't invest too much in innovations that displace their own business; that is, no creative self-destruction.
    I believe that a vibrant and robust capital market that gives people with good ideas a chance is very important. The problem is failed capital markets, lack of transparency and alternatives and dominant players in control who don't encourage entrepreneurship. ...
    ... GR: Is there empirical data that shows that, when we take out economic concentration, we get better growth, better distribution of income, and a better quality of life?
    BY: Yes. Once, Randall, his student, and I looked at a current list of top firms, compared it to a similar list of 20 years earlier, and asked ourselves how many survived. We showed that high stability is correlated with lower growth, lower productivity, and poorer Gini. ...

    New Deal democrat , February 03, 2017 at 02:11 PM

    This is really good stuff. And I think it gets to the central core of what is wrong with traditional macroeconomic models: bargaining power.

    Traditional models assume a supply curve and a demand curve, but do not ask *why* particular players might have a particullar supply or demand curve. If there is market power, and sooner or later just via random chance the number of players in any given area will shrink down to a small numbe rthat have bargaining power, the ultimate rule is, "Thims that has, gits."

    "thims that has, gits" is why libertarianism -- and neoclassical economic theory -- are ultimately nonsense.

    kthomas -> New Deal democrat... , February 03, 2017 at 03:04 PM
    It's interesting. More sociology than economics. There is some wisdom in this.
    sanjait -> kthomas... , February 03, 2017 at 04:29 PM
    It's especially important for labor markets.

    An individual worker typically has undiversified skills, constraints on liquidity, constraints on mobility, limited information on local market wages, few options of potential employers and a short time horizon to consider.

    Labor markets behave in very unideal fashion and generally disadvantage the worker in negotiations with employers. Employers, these days, can set up offices anywhere, outsource, hire from large numbers of candidates, and they usually know what they can get away with paying. They can also survive without a position filled for an extended time, while employees can only go limited time without a job.

    kthomas -> sanjait... , February 03, 2017 at 04:47 PM
    Thank you. What I find especially odd is that our normal cast of bloggers have yet to yield any thoughts. This one begs opinion.
    Half Mast Tailgate Streamlining : , February 03, 2017 at 04:20 PM
    think of each corporation as encapsulated by a circle! Each circle encapsulates the corporate directors, the company's workers, customers, suppliers, creditors, part time consultants, institutional share holders, private shareholders and foreign share holders. Such overlapping circles constitute a Venn-diagram which provides a view of innumerable distinct classes of folks.

    ... ... ...

    kthomas -> Half Mast Tailgate Streamlining... , February 03, 2017 at 04:53 PM
    Was the author's post about Corp structures? This is more high-level, but you are free to continue beating your straw man.
    Justin Cidertrades -> sanjait... , February 03, 2017 at 08:06 PM
    https://en.wikipedia.org/wiki/Porter's_five_forces_analysis#/media/File:Elements_of_Industry_Structure.svg

    For anyone interested in tinkering with this :

    As I understand it, scalable vector graphics is a file that can be easily modified using programs like inkscape.

    cm -> sanjait... , February 04, 2017 at 12:35 PM
    Technology is not driving consolidation. It only enables it, by enabling larger economies of scale. Without IT, managing operations in a large and complex company would require much higher personnel overhead just to handle all the data, information, coordination, conveying orders, etc. This overhead is not a linear function of size.

    Fundamentally with IT this overhead doesn't go away, but the maximal size at which a company still remains manageable increases.

    There is one "driving" aspect of technology - as having technology becomes mandatory, the technology overhead costs for smaller businesses tend to be larger, again because of economies of scale and differentials in variable cost being low compared to fixed cost, i.e. having an IT installation that has twice the capacity doesn't cost nearly twice as much (because it doesn't need twice the equipment and staff).

    cm -> sanjait... , February 04, 2017 at 12:39 PM
    Actually you did mention the latter aspect. But in the case you cite it is not only about the equipment and operating cost of technology, but (by law or de facto) high fixed costs to manage all kinds of processes and bureaucracy. Again, the technology is only there to enable or execute the processes and the complexity.

    [Feb 01, 2017] Is Global Equality the Enemy of National Equality?

    Feb 01, 2017 | economistsview.typepad.com
    Dani Rodrik:

    Is Global Equality the Enemy of National Equality? : The question in the title is perhaps the most important question we confront, and will continue to confront in the years ahead. I discuss my take in this paper .
    Many economists tend to be global-egalitarians and believe borders have little significance in evaluations of justice and equity. From this perspective, policies must focus on enhancing income opportunities for the global poor. Political systems, however, are organized around nation states, and create a bias towards domestic-egalitarianism.
    How significant is the tension between these two perspectives? Consider the China "trade shock." Expanding trade with China has aggravated inequality in the United States, while ameliorating global inequality. This is the consequence of the fact that the bulk of global inequality is accounted for by income differences across countries rather than within countries.
    But the China shock is receding and other low-income countries are unlikely to replicate China's export-oriented industrialization experience. So perhaps the tension is going away?
    Not so fast. The tension is even greater somewhere else: Relaxing restrictions on cross-border labor mobility would have an even stronger positive effect on global inequality, at the cost of adverse effects at the lower end of labor markets in rich economies. On the other hand, international labor mobility has some advantages compared to further liberalizing international trade in goods.
    I discuss these issues and more here .


    Mr. Bill : , January 22, 2017 at 12:39 PM

    Well said, Dani.

    Adam Smith never sited poverty, environmental intransigents, and malliable governments as a desireable " comparative advantage". Quite the opposite.

    TrumpisaJew : , January 22, 2017 at 12:43 PM
    The export model was a credit bubble illusion. It just wasn't sustainable, it was a lie. Now China has massive capital flight.
    anne : , January 22, 2017 at 01:56 PM
    http://rodrik.typepad.com/Is%20Global%20Equality%20the%20Enemy%20of%20National%20Equality.pdf

    January, 2017

    Is Global Equality the Enemy of National Equality?
    By Dani Rodrik

    Abstract

    The bulk of global inequality is accounted for by income differences across countries rather than within countries. Expanding trade with China has aggravated inequality in some advanced economies, while ameliorating global inequality. But the "China shock" is receding and other low-income countries are unlikely to replicate China's export-oriented industrialization experience. Relaxing restrictions on cross-border labor mobility might have an even stronger positive effect on global inequality. However it also raises a similar tension. While there would likely be adverse effects on low-skill workers in the advanced economies, international labor mobility has some advantages compared to further liberalizing international trade in goods. I argue that none of the contending perspectives -- national-egalitarian, cosmopolitan, utilitarian -- provides on its own an adequate frame for evaluating the consequences.

    [ An excellent and necessary paper for which I am grateful. Now for another reading. ]

    Mr. Bill -> anne... , January 22, 2017 at 03:56 PM
    What is excellent about it ? Please explain.
    anne -> Mr. Bill... , January 22, 2017 at 04:09 PM
    http://rodrik.typepad.com/Is%20Global%20Equality%20the%20Enemy%20of%20National%20Equality.pdf

    January, 2017

    Is Global Equality the Enemy of National Equality?
    By Dani Rodrik

    Whether one thinks the last quarter century has been good or bad for equity depends critically on whether one takes a national or global perspective. Within nations, inequality has typically risen in rich and poor nations alike. (Latin American countries, where we observe the highest levels of inequality in the world, were the only ones that significantly bucked the trend.) When commentators talk about inequality, this is usually what they have in mind. But there is another way of looking at inequality, which is to disregard national borders and focus on the distribution of income across all households in the world. Analyzed in this way global inequality actually fell sharply over the same period, thanks in large part to the very rapid growth of China and India, the world's two largest developing economies. In fact, this transformation has been so momentous that the contours of the global distribution of income have changed drastically. The two humps in the distribution – reflecting the all-too recent reality of a world divided into two clear segments, one small and rich, the other large and poor – have disappeared, with an emergent global "middle class" filling out the valley between the two humps (Figure 1).

    The bulk of global income equality today is accounted for by income gaps between countries, rather than within them. This explains why economic growth in countries like China and India has a significant positive effect on global equality, even when inequality rises domestically in those countries, as it has done substantially in China's case.

    To drive home the importance of between-country gaps, I sometimes ask my audience the following question: would you rather be rich in a poor country, or poor in a rich country? I tell them to assume they care only about their own income and purchasing power....

    anne -> Mr. Bill... , January 22, 2017 at 04:22 PM
    Among the excellent aspects, the question is raised as to what development means for relatively poor countries in which growth even when significant for a time shuts out much of a population; what has to be sacrificed by the fortunate for growth to be inclusive and as such sustainable; after all among the poorer countries growth has been decidedly subject to disruption for decades now; supposing trade is to be limited as a driver of growth, what then?

    Add then to these questions in reading.

    Think -> anne... , January 22, 2017 at 05:21 PM
    Thank you, Anne. You seem to adhere to a reality that says that the US is an illegitimate society.
    Think -> Think... , January 22, 2017 at 05:32 PM
    Personally, I love the USA. Especially being able to shoot my mouth off.

    Hell. i don't know if its right or wrong.

    JohnH -> anne... , January 22, 2017 at 06:32 PM
    Eight billionaires have as much wealth as half the world's population.
    http://events.tbo.com/news/world/these-8-billionaires-are-as-rich-as-half-the-worlds-population-oxfam-says/2309727

    I would have to conclude that the bulk of global inequality is accounted for by income differences between the 0.1% and the bottom 95%.

    Ashok Hegde -> JohnH... , January 24, 2017 at 07:59 PM
    Ridiculous.

    If people with no wealth continue to procreate at high rates, of course inequality will only grow. The real issue here is population growth. The poor are replicating at high rates, and the wealthy do not. This accounts for the growth of so much of this 'natural' inequality.

    DrDick : , January 22, 2017 at 04:31 PM
    There is a major problem with Rodrik's piece. Between country inequality has been declining steadily since the 1990s, while within country inequality has been increasing since the 1980s. As I keep saying, the only real beneficiaries of globalization have been the wealthy of the world.

    http://www.un.org/en/development/desa/policy/wess/wess_bg_papers/bp_wess2013_svieira1.pdf

    https://www.postkeynesian.net/downloads/working-papers/PKWP1303.pdf

    https://unu.edu/media-relations/releases/global-income-inequality-unu-wider-press-release.html#info

    Think -> DrDick... , January 22, 2017 at 04:40 PM
    Well, I agree with you, singing to the choir. My Dad raised seven on the union wage. How can I convince the folks of this simple fact ?
    anne -> Think... , January 22, 2017 at 06:06 PM
    My Dad raised seven on the union wage. How can I convince the folks of this simple fact?

    [ By carefully explaining how this came to pass, the history of family told in context of the times is important. ]

    Think -> anne... , January 23, 2017 at 01:23 AM
    Well, my dear, the truth is so simple that it eludes us. If American families have enough money, they will succeed.

    My Dad was part of the cohort from WW2. They came back and were not about to succumb to those who did so little.I remember, during a strike, him going out with a bat to put an end to the company running scabs. They beat the hell out of them.

    Some things are worth fighting for.

    DrDick -> Think... , January 23, 2017 at 07:25 AM
    Bull. We are of the same generation and the 1950s was a period of almost unprecedented prosperity and upward mobility. Several factors drove this. First was the GI Bill, with free college and low cost home loans for vets. Second was the emergence or expansion of several industries which created a high demand for skilled labor and technical professionals (electronics, aerospace, petrochemicals, etc.). Third was massive government infrastructure investment, like the interstate highway system. Finally, strong unions fighting for the interests of the workers. Violence and bigotry help no one and the Tangerine Turd in the White House will do nothing good for working people.
    Kaleberg : , January 22, 2017 at 05:00 PM
    The problem is that every nation that has ever developed in terms of productive capacity and increased living standards on this here earth of ours has done so by erecting some type of barrier. There really is no other way, at least not one that has been demonstrated to work. The barriers may take different forms and be more or less penetrable, but they remain. Before the turbine and diesel engines, transportation could be considered a barrier, but it is not much of a barrier today.

    One of the big problems we have nowadays is trying to solve problems that are basically too big to be solved, let alone solved simplistically. The nation state, for all its myriad faults, was a driving force for development and our current level of wealth. It was a powerful counter to the multi-nationalism of the feudal era which had an international upper class that was favored over the actually productive urban and trading classes. Encouraging multi-national corporations and coddling world-wide elites by trying to provide them the benefits of development without its political costs has been a formula for disaster.

    realpc : , January 22, 2017 at 06:39 PM
    Nationalism is natural. You either have nations or you have one big all-powerful world government.

    Caring about your own nation first is common sense. Incredible that Trump even has to say it. But in this crazy political environment, it has to be said.

    If you don't put yourself first, you will stop existing. If you don't put your nation first, it will stop existing.

    All software developers understand modular design. Nature is designed modularly, and human society is part of nature.

    We have nations because we are part of nature.

    Sure you can love the whole world if you want. But if you care more about the rest of the world than your own nation, you are nuts. And yes, it is normal to be nuts these days.

    DrDick -> realpc... , January 23, 2017 at 07:27 AM
    "Nationalism is natural"

    Proving once again that you are an idiot who knows nothing. Nationalism is an artificial construct which only emerges in the late 18th-early 19th centuries, and does not spread widely until the late 19th-early 20th centuries.

    river -> DrDick... , January 23, 2017 at 12:34 PM
    I don't know the history between you two, and realpc may in fact be an idiot, but what he said above hardly proves that he is an idiot.

    "nationalism is an artificial construct?" What does that even mean? I presume it means something like what is talked about here: http://ostrovletania.blogspot.com/2010/01/are-nations-artificial-or-natural.html

    http://www.nebraskastudies.org/0500/frameset_reset.html?http://www.nebraskastudies.org/0500/stories/0503_0106.html

    So here is some quick google information about native american tribes who fought over limited resources. I wonder if that was an artificial construct as well? Or if one tribe fought other tribes to help their own families out. I wonder if a starving neanderthal would share the meat off of a recent kill with a neanderthal not part of his tribe? Would that be an artificial construct? Surely Germany came into existence in the late 18th and early 19th centuries, but before that, the groups that became Germany were just as nationalistic as they were after they became Germany . . . they just defined their nation in more limited terms.

    DrDick -> river... , January 23, 2017 at 01:02 PM
    *sigh*
    People pay me good money to teach them about this stuff, but I do not think either of you could pass the entrance exam. Read Benedict Anderson, "Imagined Communities", or the works of E. J. Hobsbawm and T. O. Ranger on nationalism to start with. The truth is that mobile foragers(what all humans were until about 20,000 years ago) are not really very territorial. See the work of Brian Ferguson on the anthropology of warfare.

    https://books.google.com/books?id=CDAWBQAAQBAJ&pg=PA152&lpg=PA152&dq=hunter+gatherers+not+very+territorial&source=bl&ots=uqmsMIK3Jb&sig=HlrZ1Wr6nPGzsGId__be2XfR9Z4&hl=en&sa=X&ved=0ahUKEwj_j625k9nRAhUY0mMKHU0cDggQ6AEIGjAA#v=onepage&q=hunter%20gatherers%20not%20very%20territorial&f=false

    river -> DrDick... , January 23, 2017 at 01:41 PM
    Sorry, I am just a stupid engineer, and make sure that the building that you live and work in will stand up in an earthquake, yet, I am probably too stupid to ever know what you know. But that said, I didn't know that I am stupid, so I will probably ask a question that will make a genius like yourself roll their eyes in disgust that I was ever awarded a degree from an american university . . . but I don't have time to read four different authors on the subject of a simple blog post, so I am going to ask it anyways . . . you said that nationalism is an artificial construct that only came around about 200 years ago, and I came back with some ideas about, if that were the case, then why did different indian tribes battle over scarce resources (and also simply assumed that ancient humans behaved very similar to native american tribes). You rebutted that by insulting my intelligence, pointing me to four obscure academic authors (if I was as cool and as smart as Good Will Hunting, I am sure I would have read and remembered all the authors that you are pointing me to already, but alas, I am not), and then said that up until 20,000 years ago, there was surprisingly little conflict among people. So, what is it, was nationalism something that came about 20,000 years ago, or was it something that came about 200 years ago. And did indian tribes wage wars against each other? If they did, is that a form of nationalism, or is it different? If it is different, explain how.

    IF you are not smart enough to be able to answer these simple questions that support what you have asserted, then I would suggest that you don't go on message boards and insult the intelligence of others!

    anne : , January 22, 2017 at 08:09 PM
    http://econospeak.blogspot.com/2017/01/auerbachs-tax-and-clone-wars.html

    January 22, 2017

    Auerbach's Tax and the Clone Wars

    Menzie Chinn * introduces a new asset to economist blogging. Joel Trachtman ** provides an excellent discussion of whether the Destination-Based Cash Flow Tax violates WTO rules concluding that it does. He adds:

    "If enacted, the plan would likely lead to lengthy litigation at the World Trade Organization. A (likely) ruling that the tax is an income tax, and is applied in a discriminatory manner, would mean that exempting exports would be considered an illegal subsidy and taxes on imports an illegal tariff. This could lead to trade sanctions against the U.S. and open the door to counter sanctions and the start of a trade war."

    President Trump strikes me as someone who could care less about WTO rules. And starting a trade war fits his grand design of governance. As Yoda noted:

    "Begun the clone war has"

    President Trump is Lord Palpatine.

    * http://econbrowser.com/archives/2017/01/econofact-bringing-facts-and-data-to-policy-debates

    ** http://econofact.org/house-gop-tax-plan-aims-to-boost-competitiveness-might-also-violate-trade-law

    -- PGL

    anne -> anne... , January 22, 2017 at 08:10 PM
    Nicely done.
    Tom aka Rusty : , January 23, 2017 at 07:09 AM
    Rodrik seems to spend less time with math models and more time engaging with reality.

    Perhaps a model for other economists?

    Robert C Shelburne : , January 23, 2017 at 09:10 AM
    Another good article by Rodrik but a weakness of his analysis is that welfare is assumed to be based upon real income and not relative income with ones "group". Most analyses of welfare find that relative income is quite important. Obviously if one assumes that one's reference group is the world, then the problem goes away; but empirically this is not the case. Assuming that welfare is strongly affected by relative income with a group which is smaller than the world, then global equality is no longer welfare maximizing. Those interested in these issues might be interested in Robert Shelburne, A Utilitarian Analysis of Trade Liberalization, available as a UN working paper.
    river : , January 23, 2017 at 11:05 AM
    Much like how the biggest environmentalist is the one who already has her house built, the economists safely in their ivory tower and comfortable with their tenured positions in academia were more than happy to volunteer the American working class to give up some of their wealth so that people living in extreme property in the developing world could have slightly better positions. I am glad to see that this is what you guys argued for with all of your "free trade" agreements that you pushed for over the last several decades. Sadly, this is exactly what led us to Trump as president.
    reason -> river... , January 24, 2017 at 01:48 AM
    Their models told them precisely that some people would suffer and others gain, but also that with appropriate redistribution everybody could gain. But appropriate redistribution was never forthcoming. Time for a national dividend.
    river -> reason ... , January 24, 2017 at 01:20 PM
    Appropriate redistribution will NEVER be forthcoming. It is so easily demonized, and people don't want redistributed income. They want jobs!

    This is why the Democrats lost. And frankly, this is the whole point of democracy.

    [Feb 01, 2017] The economists safely in their ivory tower and comfortable with their tenured positions in academia were more than happy to volunteer the American working class to give up some of their wealth so that people living in extreme property in the developing world could have slightly better positions

    Notable quotes:
    "... I am glad to see that this is what you guys argued for with all of your "free trade" agreements that you pushed for over the last several decades. Sadly, this is exactly what led us to Trump as president. ..."
    "... Their models told them precisely that some people would suffer and others gain, but also that with appropriate redistribution everybody could gain. But appropriate redistribution was never forthcoming. Time for a national dividend. ..."
    "... Appropriate redistribution will NEVER be forthcoming. It is so easily demonized, and people don't want redistributed income. They want jobs! ..."
    Feb 01, 2017 | economistsview.typepad.com
    river : January 23, 2017 at 11:05 AM
    Much like how the biggest environmentalist is the one who already has her house built, the economists safely in their ivory tower and comfortable with their tenured positions in academia were more than happy to volunteer the American working class to give up some of their wealth so that people living in extreme property in the developing world could have slightly better positions.

    I am glad to see that this is what you guys argued for with all of your "free trade" agreements that you pushed for over the last several decades. Sadly, this is exactly what led us to Trump as president.

    reason -> river... , January 24, 2017 at 01:48 AM
    Their models told them precisely that some people would suffer and others gain, but also that with appropriate redistribution everybody could gain. But appropriate redistribution was never forthcoming. Time for a national dividend.
    river -> reason ... , January 24, 2017 at 01:20 PM
    Appropriate redistribution will NEVER be forthcoming. It is so easily demonized, and people don't want redistributed income. They want jobs!

    This is why the Democrats lost. And frankly, this is the whole point of democracy.

    [Feb 01, 2017] There has not been free trade or free market for a long long time if ever.

    Feb 01, 2017 | economistsview.typepad.com
    Tom aka Rusty : January 30, 2017 at 12:02 PM , 2017 at 12:02 PM
    There has not been "free trade" for a long long time if ever.

    There is "negotiated trade" with rules set by governments.

    Yuuuuge difference.

    Peter K. -> Tom aka Rusty... , January 30, 2017 at 12:29 PM
    Exactly. And the rules have been set by U.S. multinational corporate negotiators. Just look at TPP.

    There is also dollar policy which is again set by corporate interests.

    Paul Samuelson also praised Australia's Tariffs & US became ultra rich under Lincoln's protectionism : , -1
    In case anyone cared, Samuelson also argued cogently for Australia's high tariff regime in a famous 1981 article.

    In case economists want to bother learning history (why would they?) - you can also consider the funny example of Abraham Lincoln who "took away property rights" and raised tariffs sky high.

    Did the US become a poor third world country because it took away plantation owners' property rights and jacked up tariffs? Hmm. Reason to pause and reflect economists?

    [Feb 01, 2017] Disingenuous talk about loss on manliness from neoliberals who destroyed the US jobs in seeking redistribution of profits up

    Feb 01, 2017 | economistsview.typepad.com
    Fred C. Dobbs : January 29, 2017 at 06:13 AM , 2017 at 06:13 AM
    The end of manly labor
    http://www.bostonglobe.com/ideas/2017/01/29/the-end-manly-labor/WjzhrUhDCFnWGN1NcR0clL/story.html?event=event25
    via @BostonGlobe - Rob Walker - January 29, 2017

    It may be simplistic, or even wrongheaded, but the working-class man has become a political obsession. President Trump won this voting bloc with promises of resurrecting the "good jobs" of America's industrial heyday, ostensibly by toughening trade rules and jawboning individual companies. Democrats agree on the need to appeal to working-class men, but the party's strategy for doing so hasn't changed much since Nov. 8: Mostly we hear about addressing income inequality by raising the minimum wage, improving family leave, and making college more affordable.

    But it's not clear that those issues resonate with the archetypal Rust Belt factory worker displaced by globalism, technology, or both. For starters, there's no grand-gesture proposal - no modern heir to the job-creating Works Progress Administration, let's say - to capture the imagination. The minimum wage doesn't mean much to this group, and family leave is more of a "new working class" issue, says Lance Compa, who teaches US labor law and international labor rights at Cornell University. After all, we're talking about a theoretical voter who once earned up to $30 an hour and could support a family without advanced skills or education beyond high school - and basically wants that life back.

    And maybe there's another factor lurking in the background: This guy - you pictured a guy, right? - frames his concerns more bluntly. "Manly dignity is a big deal for most men," argued Joan C. Williams, founding director of the Center for WorkLife Law at the University of California, Hastings College of the Law, in a November essay for Harvard Business Review. "So is breadwinner status: Many still measure masculinity by the size of a paycheck. White working-class men's wages hit the skids in the 1970s and took another body blow during the Great Recession. . . . For many blue-collar men, all they're asking for is basic human dignity (male varietal)."

    Let's acknowledge the obvious: The collision between 21st-century economic realities and the male ego makes an odd topic for think tank symposiums or congressional hearings. To consider "manly dignity" in the context of economic policy is no excuse to bring back a "when men were men" vision of Manhood 1.0 - much less to embrace the alt-right tweeters raining hatred upon women.

    But just because an issue is awkward for scholars and politicians to address doesn't mean it isn't shaping our economy and our politics. "Look," Williams wrote, "I wish manliness worked differently."

    Ultimately, men who are truly stuck in the past are going to find out that sloganeering and braggadocio won't revive it. Economist Betsey Stevenson has a point when she argues that "Manly Men Need to Do More Girly Jobs," as the title of her recent Bloomberg View column put it.

    Still, as a straightforward matter of both policy and rhetoric, courting any group involves understanding, not belittling, its core concerns and addressing them in ways that make sense specifically to members of that group. Boosting an industrial policy that speaks to this class of men on its own terms "has just not been on the radar of the Democratic Party or progressives in general," Williams said in an interview.

    After all, the wave of post-election attention notwithstanding, blue-collar men have been or felt under assault for decades. Writing in The Baffler, author Susan Faludi recently revisited some of her reporting for her 1999 book, "Stiffed: The Betrayal of the American Man." Her subjects, bitter about lost jobs, declining status, shifting gender values, and untrustworthy elite power structures, seem remarkably familiar.

    It's not quite right to suggest that no one before Trump paid attention to these men. One popular and pragmatic-sounding solution is retraining: taking workers from sectors that economic change has destroyed and equipping them with the skills to participate in those it is creating. The problem is that men often don't seem to want those newer jobs. "These are working-class people," Ohio congressman Tim Ryan told NPR not long after the election, when he was challenging Nancy Pelosi for the Democratic House leadership role. "They don't want to get retrained, you know, to run a computer. They want to run a backhoe. They want to build things."

    Moreover, newer job categories often involve work that has been dominated by women. Janette Dill, an assistant professor of sociology at the University of Akron, has researched lower-level jobs in the health care industry - a fast-growing category, according to government statistics - such as medical and nursing assistants. Very few men pursue such work. "There's some stigma around doing these kind of feminized job tasks," Dill says, such as helping a patient get out of bed or use the bathroom. While it's often physically demanding, it's "seen as women's work," she adds.

    At the same time, Dill has seen some evidence of an uptick in younger male workers embracing health care positions with "more of a technical dimension." A gig as a surgical technician, respiratory therapist, or occupational therapist can pay $40,000. The proliferation of jobs like these may not sound as exciting as lightning-bolt gestures toward new car plants. But these new health care jobs generally require a two-year degree, not a four-year baccalaureate, and they "seem more masculine," as Dill carefully puts it.

    Meanwhile, manufacturing itself isn't a lost cause, even if its golden age is unlikely to return, argues Timothy Bartik, a senior economist at the Upjohn Institute for Employment Research in Kalamazoo, Mich. Bartik advocates several ideas that could appeal to the working-man crowd: a more demand-driven approach to retraining; manufacturing extension services designed to help existing smaller manufacturers grow; and economic "empowerment zones" - a Bill Clinton-era policy that provided block grants to regions that devised plans to deploy them according to strategic local needs. These involve federal help but, importantly, play out at regional levels.

    This could be more effective than doling out company-specific tax breaks or deploying the blunt instrument of tariffs on the one hand and a more macro-oriented, top-down approach on the other. Empowerment zones are an unlikely successor to the Works Progress Administration - the Depression-era federal agency that put unemployed men to work on public building projects - but could be positioned as a WPA-like expression of tangible government action.

    Bartik notes the importance of "rhetorical emphasis" - selling these ideas as specifically beneficial to communities built on old-school working-class economics. Hillary Clinton did propose policies (including some that overlap with these ideas) to help US manufacturing, but for whatever reason, he says, "that didn't seem to get much attention."

    What's missing is a more sweeping vision that gives alienated men - and others - a sense that the economy has a use for the kind of work they want to do.

    Williams, of UC Hastings, says this is where progressives have been misguided and failed to think big and advocate a comprehensive industrial and educational policy. She points to the Markle Foundation's Rework America initiative, which calls for better matching of skills and training with real job demand. Germany's approach, involving apprenticeship programs and educational structures that also produce middle-skill workers that industry actually needs, offers an example. The point is to think beyond a one-size-fits-all advocacy of the four-year college degree - a "delusory" solution, as Williams puts it, that leaves some workers cold. "The kind of work that college grads do doesn't appeal to them," she says. "That's not their skill set."

    Clearly this shift would take time, but Compa, the Cornell labor scholar, adds a couple of practical suggestions that could speak directly and immediately to displaced manufacturing workers. One is an effort to reinvigorate workers' compensation laws, which have withered in many states. Another is to improve COBRA policies, which allow laid-off workers to hang onto health benefits, by extending their duration and forcing companies to pay for them. "I don't want to stereotype," he says, "but men want to feel that they're providing for their family, and one way to provide for your family is to make sure they have health insurance." (Bartik further suggests considering ways of bridging later-career manufacturing layoff victims to retirement if retraining isn't a realistic possibility.)

    Finally, Compa thinks we should embrace another facet of America's industrial peak: unions. Building bonds among working-class people as they take their own interests into their own hands, unions can still help provide the sense of dignity that some feel is lost. "The idea that we're going to stand together against this powerful force on the other side," he says, "I think that gives a sense of meaning and purpose."

    That basic idea speaks to lost manliness, but also transcends it. Compa mentions that he was surprised to learn how little the sorts of low-level health care workers that Dill studies earn - maybe $12 an hour. "I understand they didn't go to college," he says. "But their work is so important, and requires the same skill and care and attention that a machinist job requires. They should get those kind of wages." Since the market's not making that happen, maybe organizing could.

    Dill herself points out that these low wages are symptomatic of a direct link between the "stigma" of feminized labor that those manly men avoid and its direct economic consequences: "The kind of work that women do is often not as valued, by society." So more broadly, maybe this suggests that policy could speak to "the working man" in a way that's also heard by the broader and more diverse working class.

    For all her frustration with the way she feels Democrats have ignored or misunderstood seekers of "dignity (male varietal)," Williams thinks so, too. "I don't think this is a zero-sum game," she says. Aggressively advocating for ways to create more and better middle-skill jobs will benefit workers of any race or gender.

    But doing that will require progressive policy thinkers to dream bigger and push harder - to man up, you might say.


    jonny bakho -> Fred C. Dobbs... , January 29, 2017 at 09:02 AM
    Not helpful
    Our media relentlessly markets "culture" to males
    Sports culture, car culture, gun culture &c are supported by Big$
    It is difficult to change the culture when Ad$$ are creating headwinds.
    It is all a BigLie, but very appealing
    Cultural change is slow, one funeral at a time
    libezkova -> Fred C. Dobbs... , January 29, 2017 at 02:56 PM
    This talk about "manliness" is disingenuous.

    Loss of work is a loss of social status in any industrial society.

    And often involves real hardships, such as loss of home, breakup of family, etc.

    libezkova -> libezkova... , January 29, 2017 at 02:59 PM
    Neoliberals seek to redistribute profits up and for this noble goal all means are good. Including decimation of lower 80% of their compatriots. Who cares. They are all cosmopolitans now.

    [Feb 01, 2017] A corollary of neoliberalism with it s hyper-economism was the corruption of the elites who engaged in enrichment by all means

    Notable quotes:
    "... In economics, liberalism espoused "neo-liberalism" which was the replacement economic ideology for social-democracy. It championed, especially under the Clinton-Blair duo, financial liberalization, much smaller welfare state, and so-called "meritocracy" which essentially meant the ability of the rich to place their kids into the best schools out of which 90% would graduate and thus "meritocratically" claim later in life huge wage premiums. Free trade agreement privileged, as Dean Baker has written, the interests of the rich in advanced economies through protection of patents and intellectual property rights and with scant or no attention to labor rights. In the international arena, through the World Bank and the IMF, Clintonite neo-liberalism was associated with Washington consensus policies. They are in many respects reasonable policies, but were applied dogmatically and mindlessly especially with respect to privatization and often with the principal objective of ensuring that the debts be collected regardless of the social effects on the population. Greece is the best known example of such policies because it sits in the middle of Europe and the results of "debt collections" are easiest to see. But the same principles were applied across the world. ..."
    "... Underpinning such policies was an ideology that saw economic success as the only dimension (in addition to the acceptance of certain liberal tropes which I will mention below) in which worth of an individual is expressed or measured. ..."
    "... Corruption. A corollary of this hyper-economicism in ordinary life was the corruption of the elites who espoused the same yardstick of success as everybody else: enrichment by all means. Avner Offer documents this shift in his analysis of where social-democracy went astray with "New Labour" and "New Democrats". The corruption of the political class, not only in the West but in the entire world, had a deeply corrosive and demoralizing effect on the electorates everywhere. Being politician became increasingly seen as a way to acquire personal riches, a career like any other, divorced from any real desire either to do "public service" or to try to promote own values and provide leadership. "Electoralism", that is doing anything to be elected, was liberalism's political credo. In that it presaged the populists. ..."
    Feb 01, 2017 | economistsview.typepad.com
    Peter K. : January 30, 2017 at 12:37 PM , 2017 at 12:37 PM
    Branko Milanovic had the best link in today's links. Of course PGL passed it over as unworthy of comment. kthomas called him a Russian.

    Is there a rise in hate crime against Russian businesses and people with Eastern European sounding names? Wouldn't be surprised.

    http://glineq.blogspot.com/2017/01/is-liberalism-to-blame.html

    Sunday, January 29, 2017

    Is liberalism to blame? by Branko Milanovic

    By "liberalism" I mean what is considered under this term in the US. By "to blame" I mean "for the rise of Trump and similar nationalist-populists".

    What are the arguments for seeing liberal triumphalism which began with the collapse of Communism in the 1990s as having produced the backlash we are witnessing today? I think they can be divided into three parts: economics, personal integrity, and ideology.

    In economics, liberalism espoused "neo-liberalism" which was the replacement economic ideology for social-democracy. It championed, especially under the Clinton-Blair duo, financial liberalization, much smaller welfare state, and so-called "meritocracy" which essentially meant the ability of the rich to place their kids into the best schools out of which 90% would graduate and thus "meritocratically" claim later in life huge wage premiums. Free trade agreement privileged, as Dean Baker has written, the interests of the rich in advanced economies through protection of patents and intellectual property rights and with scant or no attention to labor rights. In the international arena, through the World Bank and the IMF, Clintonite neo-liberalism was associated with Washington consensus policies. They are in many respects reasonable policies, but were applied dogmatically and mindlessly especially with respect to privatization and often with the principal objective of ensuring that the debts be collected regardless of the social effects on the population. Greece is the best known example of such policies because it sits in the middle of Europe and the results of "debt collections" are easiest to see. But the same principles were applied across the world.

    Underpinning such policies was an ideology that saw economic success as the only dimension (in addition to the acceptance of certain liberal tropes which I will mention below) in which worth of an individual is expressed or measured. That ideology found broad acceptance across the world, fanned by globalization and by what that ideology has pleasing to the human psyche which craves acquisition of more. It was thus consistent with human nature and probably helped increase world output several-fold and reduce world poverty. But it might have been pushed too hard to the exclusion of other human characteristics and helped create especially among those who were economically less successful resentment and estrangement from the values promoted by liberals.

    Corruption. A corollary of this hyper-economicism in ordinary life was the corruption of the elites who espoused the same yardstick of success as everybody else: enrichment by all means. Avner Offer documents this shift in his analysis of where social-democracy went astray with "New Labour" and "New Democrats". The corruption of the political class, not only in the West but in the entire world, had a deeply corrosive and demoralizing effect on the electorates everywhere. Being politician became increasingly seen as a way to acquire personal riches, a career like any other, divorced from any real desire either to do "public service" or to try to promote own values and provide leadership. "Electoralism", that is doing anything to be elected, was liberalism's political credo. In that it presaged the populists.

    It is, I think, important to see the link between the economic ideology of "commercialism" which informed economic policies since the early 1980s in the West and China, and since the 1990s in the formerly Communist countries, and systemic and all-pervasive corruption of the elites. Since being successful meant amassing most money, politicians could not operate in a different dimension (for example in "ideals") nor could they get elected without being corrupt because campaigns could not be fought without money. It is an illusion that the political space may operate according to different rules from the rest of society.

    Pensée unique. Liberalism introduced a dogmatic set of principles, "the only politically correct way of thinking" characterized by identity politics and "horizontal equality" (no differences, on average, in wages between men and women, different races or religions) which left actual inequality go unchecked. A tacit hierarchy was introduced, where the acceptance of these watered-down principles of equality combined with economic success, was the requirement to be "non-deplorable". Others, those who did not do well economically or did not adhere to all the tenets of the mainstream thinking, were not only failures but morally inferior.

    The high priests of liberalism, ruling the media, loved to hold, at the same time, logically contradictory beliefs which somehow were both "good". Thus they created terminological or behavioral contortions that were either direct attacks on common sense or examples of hypocrisy as "supporting the troops" while being "against the war" or giving enormous donations to private schools (in order to get their names emblazoned in classrooms) while "supporting public education". They were not embarrassed by contradictions, nor accepted trade-offs: you could support soldiers killing civilians "because soldiers protect us" and be against the war and killing of civilians at the same time; you could send kids to private schools and be in favor of public education; you could fret about climate change, berate others who do not, and emit more CO2 than 99% of the mankind. It was ideologically an extremely comfortable position. It required very little mental effort to accept five or six essential tenets (you could just read a couple of writers who repeated ad nauseum the same ideas in the main liberal publications), and it allowed you to do wherever you liked while claiming that every such action was ethically unimpeachable. Everybody was a paragon of virtue and indulged all their preferences.

    Others who failed to appreciate the advantages of such a position were ignored until their dissatisfaction exploded. No one among liberals seemed to think it odd (much less to do something about it) that the best educated country in the world with one of the highest world per capita GDPs, could have a third of the population who believed in creationism or in aliens running our lives. It really did not matter to the elite so long as these people existed in the Netherworld.

    Those who trusted in Fukuyama, and to whom the 1990s seemed like a triumph that would keep them at the pinnacle of human evolution forever, see today's events as a catastrophe not only because they could indeed lead to a catastrophe but because their carefully nurtured ersatz ideology and place in society have collapsed.

    I am writing this in Vienna, in Prater, overlooking a giant Ferris Wheel which inevitably makes one think of Harry Lime. One can see liberalism as having set the Ferris Wheel in motion, with each car moving at first slowly and then faster and faster. The ride brought immense joy at first, but eventually, it seems, somebody turned on the switch to super-fast, locked the control room, and most of us are now in these cars that no one controls and no one can stop, running at break-neck speed, and wondering how and when the crash will come.

    Peter K. -> Peter K.... , January 30, 2017 at 12:38 PM
    "A corollary of this hyper-economicism in ordinary life was the corruption of the elites who espoused the same yardstick of success as everybody else: enrichment by all means. Avner Offer documents this shift in his analysis of where social-democracy went astray with "New Labour" and "New Democrats". The corruption of the political class, not only in the West but in the entire world, had a deeply corrosive and demoralizing effect on the electorates everywhere. Being politician became increasingly seen as a way to acquire personal riches, a career like any other, divorced from any real desire either to do "public service" or to try to promote own values and provide leadership. "Electoralism", that is doing anything to be elected, was liberalism's political credo. In that it presaged the populists."

    Think of Hillary's speeches to Goldman Sachs, etc, and Obama's failure to throw bankers in jail.

    [Feb 01, 2017] Are the neoliberals all riled up because the immigrant ban might reduce terror shootings in US

    Notable quotes:
    "... I happen to think the heartlessness of this Order was a feature, not a bug, in order to garner maximum attention. I just read Mish's comment section, and Trump's base is cheering. ..."
    "... silent on ethnic racism and the rest of US so much more guilty ..... on drone assassination and militarist nation building gone awry, tilting with nuclear war to keep NATO less recondite, etc, etc....... ..."
    "... Before the Nazi had the power to go after the Jews they had effect the party's police state, before which ordinary Germans [and whatever police there were after the depression shuttered everything] permitted the party to do organized violence on their opponents: the social democrats, socialists, bolshevists, et al. ..."
    "... The ban on returning residents is utterly against the law. ..."
    Feb 01, 2017 | economistsview.typepad.com

    pgl : , January 29, 2017 at 01:45 AM
    Bill McBride on Trump's Muslim ban:

    'Mr. Trump's executive order is un-American, not Christian, and hopefully unconstitutional. This is a shameful act and no good person can remain silent.'

    Thanks for saying this Bill. JFK International had a demonstration against this ban that featured the detention of a brave Iraqi who helped US troops. This ban is also incredibly stupid.

    Jerry Brown -> pgl... , January 29, 2017 at 02:10 AM
    I add my thanks to yours. Very important post from Bill McBride.
    pgl -> Jerry Brown... , January 29, 2017 at 03:04 AM
    A temporary victory from the courts:

    http://thehill.com/blogs/blog-briefing-room/news/316714-federal-judge-blocks-trump-immigration-ban-nationwide

    New Deal democrat -> pgl... , January 29, 2017 at 05:24 AM
    Agreed in full.

    I happen to think the heartlessness of this Order was a feature, not a bug, in order to garner maximum attention. I just read Mish's comment section, and Trump's base is cheering.

    But on a longer term scale, heartlessness towards Muslim immigrants and DREAMers is going to turn persuadables against Trump. That and the next recession.

    EMichael -> New Deal democrat... , January 29, 2017 at 05:29 AM
    We'll differ on this one part, people that voted for Trump are not persuadables. They have always voted the same way in every single election they have voted in.

    Amazes me that even now people keep thinking that Trump voters are anything but loyal GOP voters. And I think the best argument against this (besides common sense) is the reaction of Rep leaders to this obviously illegal action.

    They're silent.

    They cannot afford to speak out against this racist policy, as their own voters are for this racist policy.

    ilsm -> EMichael... , January 29, 2017 at 05:45 AM
    silent on ethnic racism and the rest of US so much more guilty ..... on drone assassination and militarist nation building gone awry, tilting with nuclear war to keep NATO less recondite, etc, etc.......

    Are the libruls all riled up because the immigrant ban might reduce terror shootings in US to reduce screaming for techno-murder?

    New Deal democrat -> EMichael... , January 29, 2017 at 06:11 AM
    There were a fair amount of voters who "came home" to the GOP before the election, even though they found Trump himself distasteful. At least some of those nouveau-Reagan democrats also voted for him because of his economic agenda. They believed that his racism was all for show.
    New Deal democrat -> EMichael... , January 29, 2017 at 06:57 AM
    A further historical analogy ....

    Once upon a time, for academic reasons I read the same book that Trump was rumored to have by his bedside in NYC: the english translation of the full text of Adolf Hitler's speeches. Hitler's argument for getting ordinary Germans to go along with his extreme anti-Semitic agenda was masterful. It went in essence like this: "I know that there are a very few good Jews, and you may know a few of them. But the vast majority of Jews, who you don't know, are evil. But in order to get to the mass of bad apples, we might have to inflict some hardship on a few good people." By getting people to overlook their own experience with Jews they knew, he prevailed.

    In contrast - for example - gay rights triumphed when enough people knew gays in their ordinary lives, and realized that they were no different from anybody else. So they were unable to see any valid reason to discriminate against them.

    This ban is much more like the second situation than the first. It is inflicting a lot of pain on a lot of good people, in order to get to (allegedly) a few bad apples, and people can see that. It is not going to be popular.

    anon -> New Deal democrat... , January 29, 2017 at 08:24 AM
    " for academic reasons I read the same book that Trump was rumored to have by his bedside in NYC"

    unsubstantiated nonsense. other wise known as fake news

    New Deal democrat -> anon... , January 29, 2017 at 08:36 AM
    Unsubstantiated = It may or may not be nonsense, since we don't know if it is true or not. Hence, as I said, "rumor."

    Have a nice day.

    ilsm -> New Deal democrat... , January 29, 2017 at 01:24 PM
    Before the Nazi had the power to go after the Jews they had effect the party's police state, before which ordinary Germans [and whatever police there were after the depression shuttered everything] permitted the party to do organized violence on their opponents: the social democrats, socialists, bolshevists, et al.

    It was way too late when the pogrom started.

    Peter K. -> EMichael... , January 29, 2017 at 08:05 AM

    "We'll differ on this one part, people that voted for Trump are not persuadables. They have always voted the same way in every single election they have voted in."

    Reminds me of the obstinate, closed-mindedness which Trump voters direct at immigrants and Muslims.

    BenIsNotYoda -> Peter K.... , January 29, 2017 at 08:26 AM
    The ban on returning residents is utterly against the law.

    However, I agree on PeterK. The closed mindedness of neoliberals to their own follies has brought this state of affairs upon us. Wake up.

    Peter K. -> BenIsNotYoda... , January 29, 2017 at 08:34 AM
    Neoliberals have not delivered a growing, healthy economy despite Krugman's claims that everything is great, crime is down, etc.

    Obama's record for 8 years is an average of 1.7 percent growth. NGDP is even worse which is why I support an NGDP target for the Fed. It would show how poorly they have done.

    This after decades of corporate trade deals and a shrinking middle class.

    People are angry. They want scapegoats. Trump provided them with scapegoats and the uneducated white working class took the bait.

    Gibbon1 -> Peter K.... , January 29, 2017 at 11:48 AM
    Peter K shows an understanding of politics.
    ilsm -> pgl... , January 29, 2017 at 05:33 AM
    I agree!

    but..... there are a lot more for all parties in starting with funding and training jihadis to do Assad like US did Qaddafi and Libya......

    Bill pastes:

    "Republicans in Congress who remain quiet or tacitly supportive of the ban should recognize that history will remember them as cowards."

    http://www.calculatedriskblog.com/2017/01/these-are-not-normal-times.html#cGvlOOcKIMa08xzJ.99

    Most of the 95% rest of the world see the US like the NYT says history see GOP congress.

    point -> pgl... , January 29, 2017 at 05:36 AM
    I appreciate Bill's judgement that Trump's acts are odious, but "un-American, not Christian, and hopefully unconstitutional" seems to be going too far.

    It only takes a quick tour of historical US acts on immigration to find plenty of precedent.

    1870-1943, Chinese.
    1882, lunatics.
    1907, Japanese
    1921, everybody.
    1923, Indians.
    1932, everybody, especially Mexicans.

    This according to the useful article:
    https://en.wikipedia.org/wiki/History_of_laws_concerning_immigration_and_naturalization_in_the_United_States


    New Deal democrat -> point... , January 29, 2017 at 06:04 AM
    Small historical anecdote.

    Mme. Chiang Kai Shek (recently deceased at age 106 on Long Island) has much to answer for before the bar of history, but she had one shining moment.

    Supposedly at one point during WW2 both she and Winston Churchill were living at the White House (must have made for interesting dinner conversation). Anyway, during that time she gave a speech to Congress. In that speech she pointed out that Japanese militarist propaganda, that America's myth of liberty and equality before the law was hypocritical, had one inconvenient feature: given the Chinese and Japanese Exclusion Acts, it was true.

    This speech was so shaming that Congress changed the law to allow Asian immigation - in a trickle at first, but thereafter a river.

    kthomas -> New Deal democrat... , January 29, 2017 at 06:23 AM
    Thank you for sharing.
    ilsm -> New Deal democrat... , January 29, 2017 at 06:48 AM
    Mme Chiang was Christian, spent part of youth in Georgia.

    Japanese militarist propaganda used 'Asian co-prosperity' propaganda to point out imperialism..... too!

    Java was Dutch, etc.

    New Deal democrat -> ilsm... , January 29, 2017 at 07:15 AM
    Yes, and her teenage voyage to San Francisco ended with her being treated exactly like the people being detained at airports this weekend. It made a lifelong impression on her.
    ilsm -> New Deal democrat... , January 29, 2017 at 01:27 PM
    She married Chiang to give him a link to the west....

    Aside I am no fan of Chiang and Mme C.

    BenIsNotYoda -> point... , January 29, 2017 at 08:27 AM
    whenever bans were by democrat presidents, people here will never criticize.
    Tom aka Rusty -> pgl... , January 29, 2017 at 05:51 AM
    Given at least 16 years of intentional presidential failure to fully enforce immigration laws, this seems pretty small change.

    But enough to make lefty heads explode.

    Have a nice day.

    PS: Did the State Department intentionally avoid Christian Arabs for refugee status? Not certain.

    EMichael -> Tom aka Rusty... , January 29, 2017 at 05:57 AM
    Wow.

    Five feet over your head.

    kthomas -> EMichael... , January 29, 2017 at 06:23 AM
    What head? Brain by accident.
    ilsm -> EMichael... , January 29, 2017 at 06:49 AM
    ad hom when you ate wrog the best tool.
    kt too!
    Observer -> Tom aka Rusty... , January 29, 2017 at 06:49 AM
    Yes, its pretty unremarkable. And you are correct the that Christian Arab refugees from Syria have been accepted at 5% of the rate their population would suggest:

    "But the numbers tell a different story: The United States has accepted 10,801 Syrian refugees, of whom 56 are Christian. Not 56 percent; 56 total, out of 10,801. That is to say, one-half of 1 percent.

    The BBC says that 10 percent of all Syrians are Christian, which would mean 2.2 million Christians. It is quite obvious, and President Barack Obama and Secretary John Kerry have acknowledged it, that Middle Eastern Christians are an especially persecuted group."


    Here's a quite detailed discussion of the background around the EO and its implementation ... including the 2015 law limiting visas from those countries, and the reference for the above quote. It also contrasts the headlines in much of the press. As they say, read the whole thing.

    "There is a postponement of entry from 7 countries (Iraq, Syria, Iran, Libya, Somalia, Sudan and Yemen) previously identified by the Obama administration as posing extraordinary risks.

    That they are 7 majority Muslim countries does not mean there is a Muslim ban, as most of the countries with the largest Muslim populations are not on the list (e.g., Egypt, Indonesia, Malaysia, India, Pakistan, Bangladesh, Turkey, Nigeria and more).

    Thus, the overwhelming majority of the Muslim world is not affected.

    Moreover, the "ban" is only for four months while procedures are reviewed, with the exception of Syria for which there is no time limit.

    There is a logic to the 7 countries. Six are failed states known to have large ISIS activity, and one, Iran, is a sworn enemy of the U.S. and worldwide sponsor of terrorism.

    And, the 7 countries on the list were not even so-designated by Trump. Rather, they were selected last year by the Obama administration as posing special risks for visa entry ..."

    I believe they don't mention that IIRC we were bombing 5 of the 7 counties on the list last month.

    http://legalinsurrection.com/2017/01/most-claims-about-trumps-visa-executive-order-are-false-or-misleading/

    BenIsNotYoda -> Tom aka Rusty... , January 29, 2017 at 08:31 AM
    The current system relies on referrals from the United Nations High Commissioner for Refugees. Syria's population in 2011 was 90 percent Muslim and 10 percent Christian, CNS said. Less than 3% admitted as refugees are Christian. But not the state dept's doing.
    Peter K. -> Tom aka Rusty... , January 29, 2017 at 09:48 AM
    why was Obama called "Deporter in chief?"

    Too bad your empathy for those in the Rust Belt doesn't extend to honest, innocent immigrants trying to make a better life for their families.

    DrDick -> pgl... , January 29, 2017 at 07:37 AM
    Yep! But we need to get used to it, because this is just the beginning.
    pgl : , January 29, 2017 at 01:52 AM
    I've seen some farmers of late complaining about Trump's protectionism hurting their business. Yes they are smart enough to realize that the dollar appreciation will reduce their exports. Too bad these rural Americans were not smart enough on election day not to vote Trump in as President.
    kthomas -> pgl... , January 29, 2017 at 04:04 AM
    Stupid is as stupid does. Stupid is the new Smart.
    ken melvin -> kthomas... , January 29, 2017 at 04:42 AM
    The man knows only what he's seen on cable TV most of which he doesn't understand. Knows nothing about: economics, trade, foreign affairs, government, law, ... He epitomizes the know nothings of the world, and, the fact that he doesn't know doesn't bother him in the least. A narcissists-grandiose type with neither regard nor interest for the probable consequences.
    ken melvin -> ken melvin... , January 29, 2017 at 04:45 AM
    I think it's wrong to even hope Trump turns out well. I think the country needs act to save democracy, to save itself from traveling down the road of despots and tyrants, from the likes of Trump who can be manipulated by the likes of Bannon.
    ilsm -> ken melvin... , January 29, 2017 at 05:36 AM
    We need a Dr. King, America's Gandhi!
    RC AKA Darryl, Ron -> ilsm... , January 29, 2017 at 07:57 AM
    We have needed one ever since the last one we had was murdered.
    im1dc -> kthomas... , January 29, 2017 at 07:37 AM
    'Stupid is as stupid does. Stupid is the new Smart."

    LOL, loved that.

    It will make a great Bumper Sticker coupled with the GOP logo of its Red, White, and Blue elephant

    BenIsNotYoda -> kthomas... , January 29, 2017 at 08:33 AM
    stupid is one who ignores that Obama presidency growth averaged 1.7% and failed to lift millions while wall street prospered and corporate market power increased both in goods and labor markets.
    kthomas -> BenIsNotYoda... , January 29, 2017 at 09:25 AM
    He's not President anymore. Now go f yourself, Vlad.


    BenIsNotYoda -> kthomas... , January 29, 2017 at 09:38 AM
    awwww. did I hurt your fragile sensibility?
    ilsm -> pgl... , January 29, 2017 at 05:35 AM
    I will dig out that best seller about Jackson and review the chapter on Nullification in Charleston,. SC........

    [Jan 29, 2017] There are no referees in the world of alternative facts. Might makes right.

    Notable quotes:
    "... The last time I subsidized the NYT a Clinton was president. ..."
    Jan 29, 2017 | economistsview.typepad.com
    anne : January 28, 2017 at 05:12 AM , 2017 at 05:12 AM
    http://krugman.blogs.nytimes.com/2017/01/27/border-tax-two-step-wonkish/

    January 27, 2017

    Border Tax Two-Step (Wonkish) By Paul Krugman

    Trump tantrums aside, you may be finding the whole border tax adjustment discussion confusing. If so, you're not alone; I've worked in this area my whole life, I co-wrote a widely cited paper * (with Martin Feldstein) on why a Value Added Tax isn't an export subsidy, and I have still had a hard time wrapping my mind around the Destination-Based Cash Flow Tax border adjustment that sort-of-kind-of constituted the basis for the Mexico incident.

    But I have what I think may be a (relatively) easy way to think about it, which starts with the competitive effects of a VAT, then analyzes the DBCFT as a change from a VAT.

    So, first things first: a VAT does not give a nation any kind of competitive advantage, period.

    Think about two firms, one domestic and one foreign, selling into two markets, domestic and foreign. Ask how the VAT affects competition in each market.

    In the domestic market, imports pay the border adjustment; but domestic firms pay the VAT, so the playing field is still level.

    In the foreign market, domestic firms don't pay the VAT, but neither do foreign firms. Again, the playing field is still level.

    So a VAT is just a sales tax, with no competitive impact.

    But a DBCFT isn't quite the same as a VAT.

    With a VAT, a firm pays tax on the value of its sales, minus the cost of intermediate inputs – the goods it buys from other companies. With a DBCFT, firms similarly get to deduct the cost of intermediate inputs. But they also get to deduct the cost of factors of production, mostly labor but also land.

    So one way to think of a DBCFT is as a VAT combined with a subsidy for employment of domestic factors of production. The VAT part has no competitive effect, but the subsidy part would lead to expanded domestic production if wages and exchange rates didn't change.

    But of course wages and/or the exchange rate would, in fact, change. If the US went to a DBCFT, we should expect the dollar to rise by enough to wipe out any competitive advantage. After the currency adjustment, the trade effect should once again be nil. But there might be a lot of short-to-medium term financial consequences from a stronger dollar.

    I think this is right, and I hope it clarifies matters. Oh, and no, none of this helps pay for the wall.

    * http://www.nber.org/chapters/c7211.pdf

    ilsm -> anne... , January 28, 2017 at 05:19 AM
    ad hominem, then I appeal to my authority let my shark out and think like me....poor pk

    dubious equivalence

    appeal to cognitive biases.

    I suggest a referee!

    Peter K. -> ilsm... , January 28, 2017 at 05:36 AM
    There are no referees in the world of alternative facts. Might makes right.
    ilsm -> Peter K.... , January 28, 2017 at 09:55 AM
    The last time I subsidized the NYT a Clinton was president.
    Peter K. -> ilsm... , January 28, 2017 at 10:17 AM
    I stopped when Krugman and the NYT became so rude and unfair about Bernie Sanders and his supporters.

    Finally an authentic left alternative appears on the scene and they lose their minds.

    ilsm -> Peter K.... , January 28, 2017 at 01:01 PM
    DNC = RNC!

    The odd man is Trump!

    Peter K. -> anne... , January 28, 2017 at 05:35 AM
    " If the US went to a DBCFT, we should expect the dollar to rise by enough to wipe out any competitive advantage. After the currency adjustment, the trade effect should once again be nil. "

    This is the big lie the progressive neoliberals like Krugman and PGL are pushing. Why? To combat Trump's economic nationalism.

    Trump told his advisers the tax is too complicates so it probably won't see the light of day.

    He'll do the 20 percent import tax on Mexico to pay for the wall. Then he'll do something with China.

    [Jan 28, 2017] Putin said for over two centuries Russia has supported the United States, was its ally during the two world wars, and now sees the United States as a major partner in fighting international terrorism.

    Notable quotes:
    "... "Both sides demonstrated a mood for active, joint work on stabilizing and developing Russian-American cooperation," the Kremlin said in a statement, saying Putin and Trump had agreed to work on finding a possible time and place for a meeting. ..."
    "... The Kremlin said the US President asked his Russian counterpart "to wish the Russian people happiness and prosperity" on his behalf, adding Americans "have warm feelings towards Russia and its citizens." Putin said the feeling was "mutual," stressing that historically, the Russians and the Americans were close allies on more than one occasion. ..."
    "... Putin said "for over two centuries Russia has supported the United States, was its ally during the two world wars, and now sees the United States as a major partner in fighting international terrorism." ..."
    "... Moscow, for its part, has repeatedly suggested fostering closer cooperation between the Russian and US Air Forces in Syria, but blamed the previous Obama administration for failing to adequately respond to its entreaties. Relations between the two countries have been marred in recent years over various issues, including divisions on the Syrian crisis and allegations of Russian meddling into the US elections in November of 2016. US sanctions against Russia - imposed over the crisis in Ukraine - was one of the issues expected to be on the agenda of the Trump-Putin exchange. However, the issue was not mentioned in the Kremlin's statement summarizing the conversation. ..."
    "... Russia has been cautious about the prospects for a potential "reset" with the US under the new administration. Russian Foreign Minister Lavrov said the country has no "naive expectations" and is under no "illusions." ..."
    Jan 28, 2017 | economistsview.typepad.com
    Fred C. Dobbs January 28, 2017 at 01:06 PM

    Putin, Trump, in 'Positive' Call, Say Want to Cooperate in Syria: Kremlin https://nyti.ms/2jIzuKa
    NYT - REUTERS - January 28, 2017

    MOSCOW - Russian President Vladimir Putin and U.S. President Donald Trump said in a "positive" phone call on Saturday they favored their two countries cooperating in Syria to defeat Islamic State, the Kremlin said in a statement.

    In an eagerly awaited phone call, the first since Trump's inauguration, the two men stressed the importance of restoring economic ties between the two countries and of stabilizing relations, the Kremlin said.

    U.S.-Russia relations had hit a post-Cold War low under Barack Obama and Trump has made clear he wants a rapprochement with Moscow if he can get along with Putin.

    "Both sides demonstrated a mood for active, joint work on stabilizing and developing Russian-American cooperation," the Kremlin said in a statement, saying Putin and Trump had agreed to work on finding a possible time and place for a meeting.

    There was no mention in the statement that the possibility of Trump easing sanctions on Moscow imposed over the Ukraine conflict had been mentioned, a subject widely expected to be raised.

    The Kremlin said Trump and Putin had agreed to establish "partner-like cooperation" when it came to global issues such as Ukraine, Iran's nuclear program, tensions on the Korean peninsula and the Israeli-Arab conflict.

    Trump's stance on Russia has been under intense scrutiny from critics who say he was elected with help from Russian intelligence, an allegation he denies. His detractors have also accused him of being too eager to make an ally of Putin.

    For Putin, an easing of Western sanctions would be a major coup ahead of next year's presidential election as it would help the economy recover.

    libezkova -> Fred C. Dobbs... , January 28, 2017 at 03:58 PM

    Compare the coverage with

    https://www.rt.com/news/375416-putin-trump-telephone-call/

    == quote ==

    In their first phone conversation that lasted nearly an hour, Russian President Vladimir Putin and the new US President Donald Trump have outlined their intent to cooperate on issues ranging from defeating Islamic State to mending bilateral economic ties.

    "Both sides expressed their readiness to make active joint efforts to stabilize and develop Russia-US cooperation on a constructive, equitable and mutually beneficial basis," as well as "build up partner cooperation" on a wide range of international issues, according to a Kremlin statement following their discussion.

    The White House said that the "positive" conversation was "a significant start to improving the relationship between the United States and Russia that is in need of repair."

    "Both President Trump and President Putin are hopeful that after today's call the two sides can move quickly to tackle terrorism and other important issues of mutual concern," the White House statement added.

    After speaking with Chancellor Merkel for 45 minutes @POTUS is now onto his 3rd of 5 head of government calls, speaking w Russian Pres Putin pic.twitter.com/RPAWIgcO2C
    - Sean Spicer (@PressSec) January 28, 2017Q

    "The Presidents have spoken in favor of establishing a real coordination between the US and Russian actions in order to defeat ISIS and other terrorist organizations in Syria," the Kremlin statement said.

    The two leaders also discussed the Israeli-Palestinian conflict as well as Iran's nuclear program. "Major aspects of the Ukrainian crisis have been also touched upon," the Kremlin announced.

    The leaders of Russia and the US have noted a need to restore economic ties "to stimulate" further development of the relationship between the nations. Putin and Trump also agreed to initiate a process to "work out possible dates and venue of their personal meeting."

    Telephone conversation with US President Donald Trump https://t.co/mjp9Tta1sE
    - President of Russia (@KremlinRussia_E) 28 января 2017 г.Q
    During the conversation the Presidents also expressed their desire to "maintain regular personal contacts," the Kremlin statement said.

    The Kremlin said the US President asked his Russian counterpart "to wish the Russian people happiness and prosperity" on his behalf, adding Americans "have warm feelings towards Russia and its citizens." Putin said the feeling was "mutual," stressing that historically, the Russians and the Americans were close allies on more than one occasion.

    Putin said "for over two centuries Russia has supported the United States, was its ally during the two world wars, and now sees the United States as a major partner in fighting international terrorism."

    U.S. President Donald Trump © Mark MakelaTrump hopes to get along with Russia, 'knock the hell out of ISIS together'

    On Friday, speaking at a joint briefing with British Prime Minister Theresa May, Trump said he hoped he would have a "fantastic relationship" with Russia's president, but understands that might not happen. Trump has said previously that he would welcome Moscow's involvement in a joint effort to battle Islamic State (IS, formerly ISIS/ISIL).

    "I don't know Putin, but if we can get along with Russia that's a great thing. It's good for Russia; it's good for us; we go out together and knock the hell out of ISIS, because that's a real sickness," he said in an interview with Fox News.

    Moscow, for its part, has repeatedly suggested fostering closer cooperation between the Russian and US Air Forces in Syria, but blamed the previous Obama administration for failing to adequately respond to its entreaties. Relations between the two countries have been marred in recent years over various issues, including divisions on the Syrian crisis and allegations of Russian meddling into the US elections in November of 2016. US sanctions against Russia - imposed over the crisis in Ukraine - was one of the issues expected to be on the agenda of the Trump-Putin exchange. However, the issue was not mentioned in the Kremlin's statement summarizing the conversation.

    Citing an unnamed source in the White House, a researcher at the Atlantic Council analytical center, Fabrice Pothier, wrote in a Twitter post on Thursday that the Trump administration "has an executive order ready" to lift the restrictions on Moscow, but Trump said on Friday that it is "very early to be talking about that."

    U.S. House of Representatives in Washington © Gary Cameron Top Dem to propose bill to hamstring Trump in relaxing sanctions on Russia with GOP wingmen

    However, earlier in January, Trump said that he would consider lifting restrictions if Moscow cooperates with Washington on certain issues, such as nuclear arms reduction.

    "They have sanctions on Russia - let's see if we can make some good deals with Russia. For one thing, I think nuclear weapons should be way down and reduced very substantially, that's part of it," Trump was quoted as saying by the Times.

    Trump also said in one of his Tweets that "having a good relationship with Russia is a good thing, not a bad thing," warning only "fools" would think otherwise. However, several US Senators proposed a bill last week that would make it impossible for the US President to lift restrictions without congressional approval.

    Russia has been cautious about the prospects for a potential "reset" with the US under the new administration. Russian Foreign Minister Lavrov said the country has no "naive expectations" and is under no "illusions."

    [Jan 28, 2017] Classic GOPsters try to hide trickle down economics under a layer of Doublespeak

    Notable quotes:
    "... Yes the interesting difference between Trump and classic GOPsters is that they always have been careful with the language they use. They will say something that (to the average american) sounds like a promise of one thing but in reality doesn't actually promise that thing. ..."
    "... So classic GOPsters try to hide "trickle down economics" under a layer of Doublespeak... ..."
    Jan 28, 2017 | economistsview.typepad.com
    DeDude -> Fred C. Dobbs... , January 28, 2017 at 07:08 AM
    Yes the interesting difference between Trump and classic GOPsters is that they always have been careful with the language they use. They will say something that (to the average american) sounds like a promise of one thing but in reality doesn't actually promise that thing. When they fail to deliver, they can defend themselves as having not lied (or failed on their promises). Trump is a condo salesman, he will say whatever it takes to get the contract signed, the fact that he lied is no big deal because by the time the marks find out, he has gotten all their money.
    Peter K. -> DeDude... , January 28, 2017 at 09:59 AM
    Well if Trump is just a plain ole Republican then the Republicans have nothing to worry about.

    Republicans have been about trickle down economics. No government involvement. In fact deregulation. Tax cuts for the rich period.

    Trump is talking about the government involved. In currency policy. In infrastructure. In his rhetoric. We'll see what happens when the tire hits the road.

    libezkova -> DeDude... , January 28, 2017 at 01:25 PM
    "Yes the interesting difference between Trump and classic GOPsters is that they always have been careful with the language they use."

    An interesting observation. Thank you --

    So classic GOPsters try to hide "trickle down economics" under a layer of Doublespeak...

    [Jan 26, 2017] Clinton's bad economics - which is neoliberal economics - was also bad politics.

    Jan 26, 2017 | economistsview.typepad.com
    Peter K. : January 26, 2017 at 07:28 AM

    Sanjait -> Peter K....

    Hillary proposed around $1.8 trillion / 10 years in total new spending programs as of early last year, then added more throughout the campaign season.

    We've talked about this a number of times before and yet you insist on pretending that infrastructural spending is the only spending because your whole backward ideology is predicated on lying about what Hillary Clinton actually proposed. Seek mental help and stop being such a mendacious twat.

    Reply Wednesday, January 25, 2017 at 07:35 PM

    Seems like Sanjait is the mendacious twat who gets really angry when proven wrong. He can't argue the facts, like other centrists, so they try to shout you down.

    Clinton's bad economics - which is neoliberal economics - is bad politics. If you google Hillary infrastructure spending you get:

    https://www.hillaryclinton.com/issues/fixing-americas-infrastructure/

    "That's why Hillary Clinton has announced a $275 billion, five-year plan to rebuild our infrastructure-and put Americans to work in the process"

    Trump won the election partly on his promises to rebuild the infrastructure bigly. The Senate Democrats have upped the ante with a trillion dollar 10 year plan. That's twice as much as Hillary's plan.

    https://www.washingtonpost.com/politics/democrats-set-to-unveil-a-trump-style-infrastructure-plan/2017/01/23/332be2dc-e1b3-11e6-a547-5fb9411d332c_story.html

    They know its good politics. The Post article says Trump was thinking a trillion (via tax incentives and private-public partnerships) but his friend is quoted as saying more like $500 billion over ten years - Hillary sized.

    Why wasn't Hillary's plan larger? Read Krugman's blog post from yesterday.

    http://krugman.blogs.nytimes.com/2017/01/25/reagan-trump-and-manufacturing/

    Too much fiscal expansion causes the Fed to raise rates and the dollar to appreciate. Did Hillary or her economics surrogates ever explain this? No. Alan Blinder did say that Hillary's fiscal plan wouldn't be large enough to cause the Fed to alter it's rate hike path.

    Krugman says fiscal deficits near full employment causes interest rates to rise, like it's an economic law.

    He's missing the middle factor, inflation. Fiscal deficits cause inflation which cause the Fed to raise raise rates.

    Oh yeah he left out the Fed also.

    I repeated the story about Clinton dropping his middle class spending bill in favor of deficit reduction but of course the neoliberals ignore it.

    J.W. Mason:

    http://jwmason.org/slackwire/what-does-crowding-out-even-mean/

    "The master parable for this story is the 1990s, when the Clinton administration came in with big plans for stimulus, only to be slapped down by Alan Greenspan, who warned that any increase in public spending would be offset by a contractionary shift by the federal reserve. But once Clinton made the walk to Canossa and embraced deficit reduction, Greenspan's fed rewarded him with low rates, substituting private investment in equal measure for the foregone public spending. In the current contest, this means: Any increase in federal borrowing will be offset one for one by a fall in private investment - because the Fed will raise rates enough to make it happen."

    Sanjait wasn't even aware that the Fed has switched over to the corridor system and will use IOER to help control inflation as it raises rates. He assumed Dani Rodrik was a woman.

    And he presumes to go around and call people names about technical issues that can be debated rationally with reference to the facts?

    Peter K. -> pgl... , January 26, 2017 at 08:37 AM

    ... ... ...

    https://www.dissentmagazine.org/article/the-legacy-of-the-clinton-bubble

    "In 1992, Bill Clinton campaigned on the promise of a short-term stimulus package. But soon after being elected, he met privately with Alan Greenspan, chair of the Federal Reserve Board, and soon accepted what became known as "the financial markets strategy." It was a strategy of placating financial markets. The stimulus package was sacrificed, taxes were raised, spending was cut-all in a futile effort to keep long-term interest rates from rising, and all of which helped the Democrats lose their majority in the House. In fact, the defeat of the stimulus package set off a sharp decline in Clinton's public approval ratings from which his presidency would never recover.

    It is easy to forget that Clinton had other alternatives. In 1993, Democrats in Congress were attempting to rein in the Federal Reserve by making it more accountable and transparent. Those efforts were led by the chair of the House Banking Committee, the late Henry B. Gonzalez, who warned that the Fed was creating a giant casino economy, a house of cards, a "monstrous bubble." But such calls for regulation and transparency fell on deaf ears in the Clinton White House and Treasury.

    The pattern was set early. The Federal Reserve became increasingly independent of elected branches and more captive of private financial interests. This was seen as "sound economics" and necessary to keep inflation low. Yet the Federal Reserve's autonomy left it a captive of a financial constituency it could no longer control or regulate. Instead, the Fed would rely on one very blunt policy instrument, its authority to set short-term interest rates. As a result of such an active monetary policy, the nation's fiscal policy was constrained, public investment declined, critical infrastructure needs were ignored. Moreover, the Fed's stop-and-go interest-rate policy encouraged the growth of a bubble economy in housing, credit, and currency markets.

    Perhaps the biggest of these bubbles was the inflated U.S. dollar, one of several troubling consequences of the Clinton administration's free-trade policies. Although Clinton spoke from the left on trade issues, he governed from the right and ignored the need for any minimum floor on labor, human rights, or environmental standards in trade agreements. After pushing the North American Free Trade Agreement (NAFTA) through Congress on the strength of Republican votes, Clinton paved the way for China's entry into the World Trade Organization (WTO) only a few years after China's bloody crackdown on pro-democracy demonstrators at Tiananmen Square in Beijing.

    During Clinton's eight years in office, the U.S. current account deficit, the broadest measure of trade competitiveness, increased fivefold, from $84 billion to $415 billion. The trade deficit increased most dramatically at the end of the Clinton years. In 1999, the U.S. merchandise trade deficit surpassed $338 billion, a 53 percent increase from $220 billion in 1998.

    In early March 2000, Greenspan warned that the current account deficit could only be financed by "ever-larger portfolio and direct foreign investments in the United States, an outcome that cannot continue without limit." The needed capital inflows did continue for nearly eight Bush years. But it was inevitable that the inflows would not be sustained and the dollar would drop. Perhaps the singular success of Bill Clinton was to hand the hot potato to another president before the asset price bubble went bust."

    Peter K. -> Peter K.... , January 26, 2017 at 08:39 AM
    http://articles.latimes.com/1994-10-30/opinion/op-56424_1_deficit-reduction

    "The downward spiral began with Clinton's 1993 abandonment of his original threefold economic program--deficit reduction, economic stimulus and government investment in the nation's physical and human infrastructure. Facing opposition to the last two, Clinton abandoned them and focused on deficit reduction. This painted him into a corner that makes it near impossible to achieve any programmatic progress in this term--and so makes unlikely any hope of a second.

    The 1993 story has been cast as the victory of the "deficit hawks," sober economists intent on reducing the gap between federal spending and tax revenues, over the purely political advocates of spending on the investment programs. But the common perception--that the "hawks" represented the responsible economic community, as against the irresponsible politicians--is not true.

    Almost every one of the economists in the Clinton Administration had earlier espoused economic policies where stimulus took priority over deficit control. Rightly frightened by the mounting deficits of the Reagan-Bush years, however, by the 1990s they had abandoned their roots for Federal Reserve Chairman Alan Greenspan's "responsible" economics--where reduction of the deficit and fear of inflation were the operative factors."

    Peter K. -> Peter K.... , January 26, 2017 at 08:44 AM
    http://www.pbs.org/wgbh/americanexperience/features/interview/clinton-reich/

    "Now, the irony is that Wall Street had never squawked when the first George Bush was spending like gangbusters or when Ronald Reagan was spending like mad. But the thought was that a Democratic administration has to sort of prove its chops, prove itself capable of being much more fiscally responsible than its Republican predecessors because it's a Democratic administration. Well, to us, to me, to those on my side of the debate, that sounded absurd. I mean, yes, let's satisfy the bond traders to some extent. Obviously, we have to get the deficit down somewhat. But let's not sacrifice the Clinton agenda.

    ....

    Reich: The desire to do it all, to have the Clinton priorities and yet satisfy Wall Street led to this extraordinary effort to go line by line by line through the budget and to try to extract enough. And then the question was, "Well, how much is enough?" Do you bring the budget deficit down from five percent of the gross domestic product down to two and a half percent? Which is, basically, cutting the deficit by half. That's what many of us said we're perfectly fine to do.

    Others, who were the deficit hawks, said, "No, no, no, no. You actually have to reduce the absolute amount of the deficit by half. That was your campaign promise, that's what we need to do. That's the only way we're going to satisfy Wall Street."

    And in the background, Alan Greenspan, as head of the Fed, was whispering in ears -- Lloyd Bentsen's ear, and I think also the President's ear, "If you don't get this budget deficit down, I am not going to cut short-term interest rates. And if I don't cut short-term interest rates, by the time you face the next election in 1996, this economy is not going to be growing buoyantly, and you may not be re-elected." That's called extortion."

    Peter K. -> Peter K.... , January 26, 2017 at 08:47 AM
    https://www.jacobinmag.com/2011/08/the-waning-of-the-bond-market-vigilantes/

    The Waning of the Bond Market Vigilantes

    by Peter Frase

    It wasn't so long ago that American politicians lived in fear of the bond market. During the Clinton administration, James Carville famously said that "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody." That phenomenon gave rise to the concept of the "bond market vigilantes," which Krugman loves to employ.

    But today, the bond market vigilantes are not much in evidence. Or rather, they are in evidence, but they suddenly seem unable to have much of an impact on US fiscal policy. Bill Gross, of the ludicrously enormous bond fund PIMCO, is running around screaming about the need for more borrowing and more stimulus. But he has no effect, because it turns out that while bond investors have powerful ways of constraining US government borrowing, they have only indirect and weak means of expanding it.

    The United States has a large debt that is routinely rolled over, and it generally runs a budget deficit (Clinton interregnum aside). If bond investors start demanding higher interest rates on government debts, this immediately raises the cost of borrowing for the US government. This, in turn, has knock-on effects throughout the economy, as interest rates rise for everyone and economic activity is thereby constrained. For these reasons, the US government has powerful incentives to avoid doing things that cause the interest rate on treasuries to rise.

    Today, however, we find ourselves in the opposite situation: what the bond market seems to want most of all is for the US to borrow more money and stimulate the economy. That's the best explanation for the incredibly low yield on Treasury bonds, which is negative in real terms over some time periods. And yet the US is not borrowing more; instead both parties are demanding insane policies that will cause a second recession, ostensibly based on fallacious notions about the magical effects of budget cutting and a nonsensical conception of the relationship between government and household finances.

    The problem here is that the power of the bond market is asymmetrical. When the interest rate on Treasuries go up, this immediately makes all of the government's activities more expensive, and hence forces changes in fiscal planning. But when the interest rate falls to near zero, this only presents an opportunity for expanded borrowing, an opportunity that can easily be thrown away if the political system is too insane and dysfunctional to take advantage of it.

    Hence the bond vigilantes sit on the sidelines, impotent and hopeless. Just like the rest of us.

    ...

    [Jan 26, 2017] Dean Baker has some interesting Free Market proposals that will make elitist libertarians sputter

    Jan 26, 2017 | economistsview.typepad.com
    jonny bakho : , January 26, 2017 at 05:15 AM
    Dean Baker has some interesting "Free Market" proposals that will make elitist libertarians sputter.
    He suggests a vacant property tax, which I see is a good idea, especially in dense urban areas. It takes our city years to get abandoned houses condemned or landlord compliance through the legal system.
    I would take it one step further and drastically raise taxes on parking lots. I would not allow religious organizations to exempt their parking lots from this tax. Other buildings, ok, but churches should not be allowed to destroy the tax base and neighborhoods by replacing buildings with parking lots.
    jonny bakho -> jonny bakho... , January 26, 2017 at 05:18 AM
    I would say that Dean Bakers proposals fit with DeLong's call for better economic policy:

    From his comments

    "I would note that the "trade deals" did not create international trade. If you want to say that we should have no international trade, be my guest--but Donald Trump will not agree with you. The problem is that he is saying that getting rid of NAFTA and getting tough with China will bring all those good manufacturing jobs back. And that is completely false.

    As I say, technology has carried us down from 30% to 12%--and we do not want to hinder that--lousy macro policies have gotten us down from 12% to 9%, and "trade deals" have maybe gotten us down from 9% to 8.6%. If you don't want to hear that, I can't make you..."

    I would note that the "trade deals" did not create international trade. If you want to say that we should have no international trade, be my guest--but Donald Trump will not agree with you. The problem is that he is saying that getting rid of NAFTA and getting tough with China will bring all those good manufacturing jobs back. And that is completely false.

    http://www.bradford-delong.com/2017/01/nafta-and-other-trade-deals-have-not-gutted-american-manufacturingperiod-live-at-voxcom.html#comments

    DrDick -> jonny bakho... , January 26, 2017 at 07:17 AM
    Meh. I generally really like Baker, but these are pretty weak tea. I do agree with him that the AMA monopoly needs to be broken.
    RC AKA Darryl, Ron -> DrDick... , January 26, 2017 at 07:40 AM
    Dean Baker writing about market based reforms for publication by AEI is not the pro-labor Dean Baker that we have come to love and honor. It gets him exposure that he would otherwise not have though.
    -->

    [Jan 26, 2017] Neoliberals hate unions and destroyed upward mobility, rasing inequality to the highers level in the US history

    Notable quotes:
    "... Late last year (December 2016), an interesting academic research paper was released by the National Bureau of Economic Research – The Fading American Dream: Trends in Absolute Income Mobility Since 1940 – which provides stark evidence of the way in which this neo-liberal era is panning out and suppressing the opportunities for the least advantaged. ..."
    "... Recently released research is now showing that around 50 per cent of American children born in 1980 have incomes higher than their parents compared to 90 per cent born in 1940. The so-called 'American Dream' is looking like a nightmare. ..."
    "... The message from Pen was that the damage was done by the time the child reached their teenage years. While the later stages of Capitalism has found new ways to reinforce the elites which support the continuation of its exploitation and surplus labour appropriation (for example, deregulation, suppression of trade unions, real wage suppression, fiscal austerity), it remains that class differentials, which have always restricted upward mobility. ..."
    Jan 26, 2017 | economistsview.typepad.com
    RGC : Reply Thursday, January 26, 2017 at 04:45 AM Upward mobility declines sharply as the rich make off with the growth

    Posted on Thursday, January 26, 2017 by bill mitchell

    Late last year (December 2016), an interesting academic research paper was released by the National Bureau of Economic Research – The Fading American Dream: Trends in Absolute Income Mobility Since 1940 – which provides stark evidence of the way in which this neo-liberal era is panning out and suppressing the opportunities for the least advantaged.

    One of the constantly repeating claims made by conservatives is that if governments run deficits they are really undermining the future for their children and their children. The claim is that while the current generation is living it up (deficits are tantamount in this narrative to living a profligate existence), the next generations will have to pay for it via higher taxes and reduced services. It is a bizarre argument given that each generation chooses its own tax burden and we cannot transfer real resources through time. There is truth in the argument that if the current generation imposes terminal damage to our natural environment then we are diminishing the prospects for the future. But that is not the point that the neo-liberals make. Indeed, there is a strong positive relationship between conservative views of fiscal policy (deficits) and the propensity to engage in climate change denial.

    Recently released research is now showing that around 50 per cent of American children born in 1980 have incomes higher than their parents compared to 90 per cent born in 1940. The so-called 'American Dream' is looking like a nightmare. Other research has shown that the bottom 50 per cent of the US income distribution have not enjoyed any of the growth since 1980 and that the top-end-of-town has increased its share of income from 12 per cent in 1980s to 20 per cent in 2014.

    These shifts are the result of deliberate policy changes and inaction by governments, increasingly co-opted by the rich to serve their interests at the expense of the broader societal well-being. Revolutions have occurred for less.

    It was considered the norm of human progress that each generation would leave the next generation better off. As parents we would ensure our children were (collectively) better off.

    In his 2012 study of cultural history, The American Dream, Lawrence Samuel reprised the term introduced in 1931 by James Truslow Adams (in his The Epic of America). The two books should be read together to understand the evolution of the thinking about an American identity.

    Samuel reflected on the fact that "that the term 'American Dream' was created in the darkest days of the Great Depression was all the more interesting given that many feared it no longer existed".

    Times were so bad for many during that period.

    Samuel published his book during the GFC, the worst downturn since the Great Depression. He considers there were six eras since the Great Depression marked by different characteristics and circumstance.

    But binding the social progress that defines the 'American Dream' was, in the words of the NBER authors the "ideal that children have a higher standard of living than their parents".

    We think of our own progress relative to that of our parents.

    In recent history, the parents of the baby boomers had endured the Great Depression with it mass unemployment and rising poverty rates, then the Second World War and its aftermath.

    Reflecting on that experience, this generation worked through government to ensure there was full employment, broad rights of citizenship with respect to income support, improved public services and reduced income inequality through income redistribution.

    Wages growth was strong and proportional with productivity growth and mass education and public health improvements made obvious positive contributions to the growing well-being.

    The 1950s and 1960s were not nirvana, but they were a damn site better than the two decades before that and the many before those.

    Full employment combined with mass education, in particular, were considered an essential part of the quest for upward mobility

    Previous research has shown that US children (a result that transfers across most nations) are pretty much doomed from the start as a result of who their parents are and the resources the parents have at their disposal.

    I have written about this before. Please see – Parents are advance secret agents for the class society.

    The title of that blog came from the work of Dutch economist Jan Pen, who wrote in his 1971 book – Income Distribution – that public policy had to target disadvantaged children in low-income neighbourhoods at an early age if governments wanted to change the patterns of social and income mobility.

    The message from Pen was that the damage was done by the time the child reached their teenage years. While the later stages of Capitalism has found new ways to reinforce the elites which support the continuation of its exploitation and surplus labour appropriation (for example, deregulation, suppression of trade unions, real wage suppression, fiscal austerity), it remains that class differentials, which have always restricted upward mobility.

    This also means that as fiscal austerity has further pushed people towards to the bottom of the income distribution that increasing numbers of children will inherit the disadvantage of their parents and this inheritance becomes a vicious circle of poverty and alienation.

    In America, research has clearly shown that it is socioeconomic status rather than race which "largely explains gaps that appear to be due to race" (see cited blog for sources).

    It is very obvious now that the bias towards fiscal austerity, which has been the hallmark of the neo-liberal era has increased inequality and suppressed dynamic forces in labour markets that promote upward mobility.

    By failing to quickly end the most recent downturn (GFC) governments have allowed dynamic forces to multiply which reinforce disadvantage and suppress upward mobility.
    While unemployment has been high (and remains high in most nations), the great American economist Arthur Okun considered it to be the 'Tip of the Iceberg'.

    The point is that the costs of recession and the resulting persistent unemployment extend well beyond the loss of jobs. Productivity is lower, participation rates are lower, the quality of work suffers and real wages typically fall.

    The facts associated with the current downturn are consistent with this general model.

    Within this context, Okun outlined his upgrading hypothesis (in the 1960s and 1970s) and the related high-pressure economy model, which provided a coherent rationale for Keynesian demand-stimulus policy positions.

    Two references of relevance are Okun, A.M. (1973) 'Upward Mobility in a High-Pressure Economy', Brookings Papers on Economic Activity, 1: 207-252 and Okun, A.M. (1983) Economics for Policymaking, Cambridge, MIT Press.

    Arthur Okun (1983: 171) believed that:

    unemployment was merely the tip of the iceberg that forms in a cold economy. The difference between unemployment rates of 5 percent and 4 percent extends far beyond the creation of jobs for 1 percent of the labor force. The submerged part of the iceberg includes (a) additional jobs for people who do not actively seek work in a slack labor market but nonetheless take jobs when they become available; (b) a longer workweek reflecting less part-time and more overtime employment; and (c) extra productivity – more output per man-hour – from fuller and more efficient use of labor and capital.

    The positive side of this thinking is that disadvantaged groups in the economy were considered to achieve upward mobility as a result of higher economic activity. The saying that was attached to this line of reasoning was "all boats (large or small) rise on the high tide".

    Okun's (1973) results are summarised as follows:

    The most cyclically sensitive industries have large employment gaps, and were dominated by prime-age males, offered high-paying jobs, offered other remuneration characteristics (fringes) which encouraged long-term attachments between employers and employees, and displayed above-average output per person hour.

    In demographic terms, when the employment gap is closed in aggregate, prime-age males exit low-paying industries and take jobs in other higher paying sectors and their jobs are taken mainly by young people.

    In the advantaged industries, adult males gain large numbers of jobs but less than would occur if the demographic composition of industry employment remained unchanged following the gap closure. As a consequence, other demographic groups enter these 'good' jobs.

    The demographic composition of industry employment is cyclically sensitive. The shift effects are in total estimated (in 1970) to be of the same magnitude as the scale effects (the proportional increases in employment across demographic groups assuming constant shares).

    This indicates that a large number of labour market changes (the shifts) are generally of the ladder climbing type within demographic groups from low-pay to higher-pay industries.

    So prior to the neo-liberal onslaught and during the period that governments were cogniscant of their responsibilities to maintain full employment (and actively used fiscal and monetary policy to attack high unemployment relatively quickly), a recovery reversed the damage caused by the recession.

    The evidence supported the proposition that when the economy is maintained at high levels of employment, workers in low paying sectors (or occupations) also receive income boosts because employers seeking to meet their strong labour demand offer employment and training opportunities to the most disadvantaged in the population. If the economy falters, these groups are the most severely hit in terms of lost income opportunities.

    The full employment era (roughly 1945 to the late 1970s) to some extent, therefore, eroded the worst effects of the class differences that we discussed earlier.

    Which is one reason why the conservatives had to take control of the state, which had been acting as a mediator in the class struggle – to encourage upward mobility.
    The onslaught against full employment and the Welfare State (the hallmark of the social democratic era) began in the early 1970s as well-funded right-wing (so-called 'free market') think tanks started to publish a barrage of propaganda, infiltrated academic institutions, took over the mainstream media, and, even compromised judicial processes (for example, the appointment of Lewis Powell to the US Supreme Court).

    The upshot has been that once full employment was abandoned and governments adopted a chronic bias towards fiscal austerity (the belief that fiscal deficits are intrinsically bad), the upgrading benefits that used to accompany growth have been hijacked by the rich and the vast majority of the population now miss out.

    In part, this is due to the increased casualisation of the labour market, the suppression of real wages growth, the attack on trade unions, and the shift away from high productivity job creation towards the FIRE sector, which is a largely unproductive sector.

    The neo-liberal attack on the role of government in ensuring policy advances the well-being of all has changed the way the distributional system operates – with workers now finding it harder to gain access to real income growth despite contributing more per hour (productivity growth stronger).
    Under these circumstances, the old class screening and channelling that the schooling system has provided for the Capitalist system is intensified and inequality accelerates.

    We are now starting to see the empirical results of this as cohort studies permit generational comparisons. Shedding light on what has been happening between generations is the task of the NBER paper cited in the Introduction.

    The paper by a host of US academics (Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren. Robert Manduca and Jimmy Narang) asks two questions:
    First, what fraction of children earn more than their parents today? Second, how have rates of absolute mobility changed over time?

    Absolute income mobility is defined as the:

    the fraction of children earning or consuming more than their parents.

    They seek to answer these questions using "historical data from the Census and CPS cross-sections with panel data for recent birth cohorts from de-identified tax records" that allows them to uniquely bind parent and children incomes.

    I will leave it to your interest to explore the techniques they employed. They are very innovative.

    Basically they:

    1. "measure income in pre-tax dollars at the household level when parents and children are approximately thirty years old, adjusting for inflation "
    2. "estimate the fraction of children who earn more than their parents in each birth cohort "

    The headline findings are:

    1. "we find that rates of absolute upward income mobility in the United States have fallen sharply since 1940".
    2. "the fraction of children earning more than their parents fell from 92% in the 1940 birth cohort to 50% in the 1984 birth cohort."
    3. "Rates of absolute mobility fell the most for children with parents in the middle class."
    4. The finding of a decline in absolute majority is robust across different dimensions (pre-tax, post-transfer; age of child when measured; regions, gender, impacts of immigration, etc).
    5. "Absolute mobility fell in all 50 states between the 1940 and 1980 cohorts, although the rate of decline varied, with the largest declines concentrated in states in the industrial Midwest states such as Michigan and Illinois."

    These are Trump's 'rust belts' that he appealed to during the Presidential election.

    The following graph is one of many they produce (each offering a different dimension, for example, wage income, family income etc) and "plots the fraction of children earning more than their parents ('absolute mobility') by average by child birth cohort."

    So you interpret it as saying that 90 per cent of children born in 1940 will on average have incomes higher than their parents, whereas, only 50 per cent of children born in 1980 will on average have incomes higher than their parents, and so on.

    The authors ask: "Why have rates of upward income mobility fallen so sharply over the past half century?"

    They offer the following possible reasons:

    There have been two important macroeconomic trends that have affected the incomes of children born in the 1980s relative to those born in the 1940s: lower Gross Domestic Product (GDP) growth rates and greater inequality in the distribution of growth

    They reject the first, saying that "the slowdown in aggregate economic growth in recent decades, although important, does not explain most of the observed decline in absolute mobility."

    Their counterfactual analysis shows that:

    increasing GDP growth without changing the current distribution of growth would have modest effects on rates of absolute mobility.

    The problem is that:

    a large fraction of GDP goes to a small number of high income earners today, higher GDP growth does not substantially increase the number of children who earn more than their parents.

    The key takeaway of their research is this:

    The key point is that reviving the "American Dream" of high rates of absolute mobility would require more broadly shared economic growth rather than just higher GDP growth rates.

    This research is consistent with studies in other nations. For example, see the analysis in my blog – Policy changes needed to arrest decline in fortunes for low-pay British workers.

    The point is that the neo-liberal era with widening income inequality, entrenched labour underutilisation, suppressed wages growth and continued attacks on income support systems is producing an unsustainable society.

    Eventually, there will be a counterattack as the middle class prospects continue to be eroded. While it might not come from the current generation, the children who are no coming into adulthood have been dealt a very poor hand by their parents.

    If the NBER research is correct, then 50 per cent of Americans born in 1980 (now in their mid-1930) are enjoying absolute mobility (relative to their parents), which brings into question the concept of the 'American Dream', a cultural device to maintain social stability and endeavour.

    It should not be forgotten that the parents themselves are under attack from this dysfunctional system and the prospects of growing intergenerational wealth through inheritance is becoming a faded reality for many families.

    Another perspective is offered in this paper also released in December 2016 by French economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman – : Distributional National Accounts: Methods and Estimates for the United States.

    The paper examines the "growth rates for each quantile of the income distribution consistent with macroeconomic growth" in the US since 1913.

    I will look at it more closely another day but its major findings are that:

    1. "a sharp divergence in the growth experienced by the bottom 50% versus the rest of the economy."
    2. "The average pre-tax income of the bottom 50% of adults has stagnated since 1980 at about $16,000 per adult (in constant 2014 dollars, using the national income deflator), while average national income per adult has grown by 60% to $64,500 in 2014."
    3. "As a result, the bottom 50% income share has collapsed from about 20% in 1980 to 12% in 2014."
    4. "In the meantime, the average pre-tax income of top 1% adults rose from $420,000 to about $1.3 million, and their income share increased from about 12% in the early 1980s to 20% in 2014."
    5. "The two groups have essentially switched their income shares, with 8 points of national income transferred from the bottom 50% to the top 1%. The top 1% income share is now almost twice as large as the bottom 50% share, a group that is by definition 50 times more numerous. In 1980, top 1% adults earned on average 27 times more than bottom 50% adults before tax while today they earn 81 times more."
    6. "government redistribution has offset only a small fraction of the increase in pre-tax inequality."
    7. "the upsurge of top incomes has mostly been a capital-driven phenomenon since the late 1990s. There is a widespread view that rising income inequality mostly owes to booming wages at the top end, i.e., a rise of the "working rich." Our results confirm that this view is correct from the 1970s to the 1990s. But in contrast to earlier decades, the increase in income concentration over the last fifteen years owes to a boom in the income from equity and bonds at the top. The working rich are either turning into or being replaced by rentiers. Top earners became younger in the 1980s and 1990s but have been growing older since then."

    So beware the middle-class. Your children are already losing out but neo-liberal is eating into the parental well-being as well as the financial capitalists prosper.

    Conclusion

    This situation is obviously unsustainable.

    It is time for the Left to stand up and lead the way out of this mess.

    Growth and redistribution is needed. Governments have to take on the top-end-of-town. They can start by introducing employment guarantees that provide decent pay (with social wage additions) to anyone, thus eliminating the income insecurity.

    Then some serious regulation is required to rein in the financial sector (I would basically eliminate much of it).

    The Left are scared to say anything because, in part, their leadership is compromised by relationships with the financial capitalists (for example, the revelations about Hillary Clinton in the leaked E-mails), and, also, because they have a massive inferiority complex when discussing macroeconomics.

    They think if they argue that fiscal deficits are usually desirable and should be continuous they will look irresponsible. Well that is because they have allowed the public to be indoctrinated into these erroneous views.

    The Left has to launch a massive educational onslaught to redress this knowledge gap as they set about reversing the ravages of neo-liberalism.

    My blog is just a little pixel in the phalanx!

    That is enough for today!

    http://bilbo.economicoutlook.net/blog/?p=35255#more-35255

    New Deal democrat -> RGC... , January 26, 2017 at 05:19 AM
    Nice article, thanks for posting this.

    A brief comment. First, Okun was one smart cookie.

    Shorter and nerdier Okun:

    1. Wage growth increases as the U6 underemployment rate falls under 10%.

    2. As the economy heats up, U6 falls faster than U3, meaning an increasing share of marginal workers get jobs. These marginal workers are disproportionately minority groups.

    3. Therefore, full employment tends to increase equality.

    4. Unions were good vehicles to keep the labor share high enough that full or nearly full employment happened far more often.

    reason -> New Deal democrat... , January 26, 2017 at 06:48 AM
    "Unions were good vehicles to keep the labor share high enough that full or nearly full employment happened far more often."

    If this is true, isn't a bit of a paradox, since unions are a monopoly and in theory monopolies increase price by restricting supply? It could be true however, that the POLITICAL power of unions meant that full employment was regarded as a higher priority than inflation. (Note unions very much prioritize the interests of workers, even to some extent to the detriment of other poorer sections of the community. Could it have been that this caused a backlash in a western world that has been steadily getting older?)

    General note, I'm perhaps an oddity on the left in that I'm not convinced that more union power is necessarily the way forward, no matter how effective it was in the past. I don't see the requirements of the future world as being the same as the requirements of the past.

    New Deal democrat -> reason ... , January 26, 2017 at 06:55 AM
    I agree that more union power might not be the primary way forward, but in the absence of other effective proposals, it certainly should be one lever.

    And yes, it is a paradox. On a micro scale, unions may act to the detriment of other potential workers, but on the macro scale, the effects on full employment may well outweigh that drawback.

    DrDick -> reason ... , January 26, 2017 at 07:13 AM
    Union power has been the key to worker power and increasing worker share for everyone, even nonunion workers, for a century. I see no reason why that should not be true now. Indeed, we need to expand union protections to a lot of workers who have not traditionally been covered (IT workers, low level professionals, etc.).
    RC AKA Darryl, Ron -> reason ... , January 26, 2017 at 07:14 AM
    Unions gave us higher wages for labor. Higher wages for labor gave us more spending. More spending gave us more jobs and lower unemployment. More jobs and lower unemployment AND unions gave us higher wages for labor. It is that old virtuous cycle thing until capital and management start pulling at a thread.
    Peter K. -> reason ... , January 26, 2017 at 07:43 AM
    "General note, I'm perhaps an oddity on the left in that I'm not convinced that more union power is necessarily the way forward, no matter how effective it was in the past. I don't see the requirements of the future world as being the same as the requirements of the past."

    I completely disagree and the acceptance of liberals of the destruction of the union movement is a primary reason why things have gone so badly.

    Does Krugman ever talk about unions? No.

    Does DeLong? No.

    What did Obama do for unions?

    Denis Drew is right. Maybe it's true that unions are never coming back but then if so we're in big trouble. It will take some sort of calamity to set things right.

    Look at Senate Republicans blocking Supreme Court nominations.

    If the democratic socialist ever got significant power you could expect a revolt by finance and big business and the one percent.

    I've always imagined it would take a general strike to overcome such a capital strike.

    My god, look at Canada. They still have unions. Same with Germany.

    This fatalism regarding unions is one reason why things are so bad. Unions helped get out the vote among many other things.

    One just needs to study labor history. Of course the neoliberals may be right that unions are of the past, but I suspect they're engaged in motivated reasoning.

    You can unionize all jobs that can't be offshored.

    Peter K. -> Peter K.... , January 26, 2017 at 07:44 AM
    I suspect the anti-union sentiment as expressed by reason - and many other well-meaning types - is the result of decades of pro-business anti-union propaganda.

    [Jan 26, 2017] Financialization is a key feature of neoliberalism. It refers to the capturing impact of financial markets, institutions, actors, instruments and logics on the real economy, households and daily life

    Notable quotes:
    "... "Financialization is a key feature of neoliberalism. It refers to the capturing impact of financial markets, institutions, actors, instruments and logics on the real economy, households and daily life. Essentially it has significant implications for the broader patterns and functioning of a (inter)national economy, transforming its fabrics and modificating the mutual embeddedness of state-economy-society." ..."
    "... That's why neoliberalism is often called "casino capitalism" ..."
    "... Johnson wishes that the wealthy would adopt a greater "spirit of stewardship," an openness to policy change that could include, for instance, a more aggressive tax on inheritance. "Twenty-five hedge-fund managers make more money than all of the kindergarten teachers in America combined," he said. ..."
    Jan 26, 2017 | economistsview.typepad.com
    ken melvin : , January 25, 2017 at 01:27 PM
    Financialization from Wiki:

    Greta Krippner of the University of Michigan writes that financialization refers to a "pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production." In the introduction to the 2005 book Financialization and the World Economy, editor Gerald A. Epstein wrote that some scholars have insisted on a much narrower use of the term: the ascendancy of shareholder value as a mode of corporate governance, or the growing dominance of capital market financial systems over bank-based financial systems. Pierre-Yves Gomez and Harry Korine, in their 2008 book Entrepreneurs and Democracy: A Political Theory of Corporate Governance, have identified a long-term trend in the evolution of corporate governance of large corporations and have shown that financialization is one step in this process.

    Oleg Komlik asserts that financialization is a state project, stressing that:[2]

    "Financialization is a key feature of neoliberalism. It refers to the capturing impact of financial markets, institutions, actors, instruments and logics on the real economy, households and daily life. Essentially it has significant implications for the broader patterns and functioning of a (inter)national economy, transforming its fabrics and modificating the mutual embeddedness of state-economy-society."

    Michael Hudson described financialization as "a lapse back into the pre-industrial usury and rent economy of European feudalism" in a 2003 interview:[3]

    "only debts grew exponentially, year after year, and they do so inexorably, even when–indeed, especially when–the economy slows down and its companies and people fall below break-even levels. As their debts grow, they siphon off the economic surplus for debt service (...) The problem is that the financial sector's receipts are not turned into fixed capital formation to increase output. They build up increasingly on the opposite side of the balance sheet, as new loans, that is, debts and new claims on society's output and income.

    [Companies] are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt. Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding "forced saving" for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending away from goods and services.

    ....

    libezkova -> ken melvin... , January 25, 2017 at 09:35 PM
    "Financialization is a key feature of neoliberalism. It refers to the capturing impact of financial markets, institutions, actors, instruments and logics on the real economy, households and daily life."

    That's why neoliberalism is often called "casino capitalism"

    libezkova : , January 25, 2017 at 05:00 PM
    Meanwhile neoliberal "masters of the universe" are buying private jets and create plans to evacuate families to NZ in case pitchforks arrive to their residencies

    http://www.newyorker.com/magazine/2017/01/30/doomsday-prep-for-the-super-rich

    == quote ==

    By January, 2015, Johnson was sounding the alarm: the tensions produced by acute income inequality were becoming so pronounced that some of the world's wealthiest people were taking steps to protect themselves. At the World Economic Forum in Davos, Switzerland, Johnson told the audience, "I know hedge-fund managers all over the world who are buying airstrips and farms in places like New Zealand because they think they need a getaway."

    Johnson wishes that the wealthy would adopt a greater "spirit of stewardship," an openness to policy change that could include, for instance, a more aggressive tax on inheritance. "Twenty-five hedge-fund managers make more money than all of the kindergarten teachers in America combined," he said.

    "Being one of those twenty-five doesn't feel good. I think they've developed a heightened sensitivity." The gap is widening further. In December, the National Bureau of Economic Research published a new analysis, by the economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, which found that half of American adults have been "completely shut off from economic growth since the 1970s."

    Approximately a hundred and seventeen million people earn, on average, the same income that they did in 1980, while the typical income for the top one per cent has nearly tripled. That gap is comparable to the gap between average incomes in the U.S. and the Democratic Republic of Congo, the authors wrote.

    [Jan 26, 2017] But Clintons negative effects were also related to the weakening the only countervailing force remaining on the way of the neoliberalism -- trade unionism. So he played the role of subversive agent in the Democratic Party. His betrayal of trade union political interests and his demoralizing role should be underestimated.

    Notable quotes:
    "... Most of the major changes he mentions are clearly and explicitly the consequence of policy changes, mostly by Republicans, starting with Reagan: deregulation, lower taxes on the wealthy, a lack of antitrust enforcement, and the like. ..."
    Jan 26, 2017 | economistsview.typepad.com
    DrDick, January 25, 2017 at 11:07 AM
    This is frankly rather disingenuous. Most of the major changes he mentions are clearly and explicitly the consequence of policy changes, mostly by Republicans, starting with Reagan: deregulation, lower taxes on the wealthy, a lack of antitrust enforcement, and the like.

    libezkova -> DrDick... January 25, 2017 at 09:29 PM

    The first POTUS who cut tax rates was JFK.

    sanjait -> DrDick... , January 25, 2017 at 11:20 AM
    Read through the link and it's not nearly that simple, especially when you consider the fact that some trends, though plausibly or certainly reinforced through policy, aren't entirely or even primarily caused by policy.
    DrDick -> sanjait... , January 25, 2017 at 01:45 PM
    I did not say they were the *only* factors, but they are the primary causes. If you look at the timelines and data trends it is pretty clear. Reagan broke the power of the Unions and started deregulation (financialization is a consequence of this), which is the period when the big increases began. Automation plays a secondary role in this. what has happened is that the few industries which are most conducive to automation have remained here (like final assembly of automobiles), while the many, more labor intensive industries (automobile components manufacturing) have been offshored to low wage, not labor or environmental protections countries.
    libezkova -> DrDick... , January 25, 2017 at 05:39 PM
    Both parties participated in the conversion of the USA into neoliberal society. So it was a bipartisan move.

    Clinton did a lot of dirty work in this direction and was later royally remunerated for his betrayal of the former constituency of the Democratic Party and conversion it into "yet another neoliberal party"

    Obama actually continued Bush and Clinton work. He talked about 'change we can believe in' while saving Wall street and real estate speculators from jail they fully deserved.

    DrDick -> libezkova... , January 25, 2017 at 07:40 PM
    Clinton contributed, but the Republicans did all the real heavy lifting. I was in my late 20s and early 30s during Reagan.
    libezkova -> DrDick... , January 25, 2017 at 09:25 PM
    Very true. Republicans were in the vanguard and did most heavy lifting. That's undeniable.

    But Clinton's negative effects were also related to the weakening the only countervailing force remaining on the way of the neoliberalism -- trade unionism. So he played the role of "subversive agent" in the Democratic Party. His betrayal of trade union political interests and his demoralizing role should be underestimated.

    [Jan 25, 2017] Reagan, Trump, and Manufacturing

    Notable quotes:
    "... Krugman dislikes Trump (as do I). He seems motivated to find fault with Trump's policies. In fuzzy things like economics and their intersection with politics it is challenging, and perhaps actually impossible, for most of us to remain balanced. If someone as smart and knowledgeable as Paul Krugman subconsciously decides to dislike a policy, his brain is more than clever enough to invent reasonable economic arguments against the policy. ..."
    "... Cognitive bias. Using % of jobs that are manufacturing is relative to what was happening in other job areas: like Reagan building up the military and civil service to buy weapons a tiny part of the growth in that sector was manufacturing. ..."
    "... I understand the textbook story is the Fed raises rates when the budget deficit increases. I am not sure if the empirical data supports that though. Perhaps the Fed cares more about inflation than budget deficits and perhaps budget deficits do not directly result in inflation? But if that is correct, what is the basis for Professor Krugman's assertion that Trump's budget will push up interest rates? ..."
    "... It's like how Greenspan and Rubin told Clinton he had to drop his middle class spending bill in order to focus on deficit reduction. Greenspan was threatening to raise rates and Clinton bent the knee to the "independent" Fed. ..."
    "... Krugman should remember that "Integrity, once sold, is difficult to repurchase - even at 10x the original sales price." ..."
    Jan 25, 2017 | economistsview.typepad.com

    Reagan, Trump, and Manufacturing : It's hard to focus on ordinary economic analysis amidst this political apocalypse. But ... like it or not the progress of CASE NIGHTMARE ORANGE may depend on how the economy does. So, what is actually likely to happen to trade and manufacturing over the next few years?

    As it happens, we have what looks like an unusually good model in the Reagan years... - it's not part of the Reagan legend, but the import quota on Japanese automobiles was one of the biggest protectionist moves of the postwar era.

    I'm a bit uncertain about the actual fiscal stance of Trumponomics: deficits will surely blow up, but I won't believe in the infrastructure push until I see it, and given savage cuts in aid to the poor it's not entirely clear that there will be net stimulus . But suppose there is. Then what?

    Well, what happened in the Reagan years was "twin deficits": the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.) This led to an accelerated decline in the industrial orientation of the U.S. economy:

    012717krugman2-tmagArticle

    And people did notice. ...

    Again, this happened despite substantial protectionism.

    So Trump_vs_deep_state will probably follow a similar course; it will actually shrink manufacturing despite the big noise made about saving a few hundred jobs here and there.

    On the other hand, by then the BLS may be thoroughly politicized, commanded to report good news whatever happens.

    El Pato de Muerte -> EMichael... , January 25, 2017 at 03:28 PM
    See here:
    https://object.cato.org/sites/cato.org/files/pubs/pdf/pa107.pdf

    Forced Japan to accept restraints on auto exports. The agreement set total Japanese auto exports at 1.68 million
    vehicles in 1981-82, 8 percent below 1980 exports. Two years later the level was permitted to rise to 1.85 million.(33)
    Clifford Winston of the Brookings Institution found that the import limits have actually cost jobs in the U.S. auto
    industry by making it possible for the sheltered American automakers to raise prices and limit production. In 1984,
    Winston writes in Blind Intersection? Policy and the Automobile Industry, 32,000 jobs were lost, U.S. production fell
    by 300,000 units, and profits for U.S. firms increased $8.9 billion. The quotas have also made the Japanese firms
    potentially more formidable rivals because they have begun building assembly plants in the United States.(34) They
    also shifted production to larger cars, introducing to American firms competition they did not have before the quotas
    were created. In 1984, it was estimated that higher prices for domestic and imported cars cost consumers $2.2 billion a
    year.(35) At the height of the dollar's exchange rate with the yen in 1984-85, the quotas were costing American
    consumers the equivalent of $11 billion a year

    anne -> El Pato de Muerte... , January 25, 2017 at 03:49 PM
    https://object.cato.org/sites/cato.org/files/pubs/pdf/pa107.pdf

    May 30, 1988

    The Reagan Record on Trade: Rhetoric vs. Reality
    By Sheldon L. Richman

    Executive Summary

    When President Reagan imposed a 100 percent tariff on selected Japanese electronics in 1987, he and the press gave the impression that this was an act of desperation. Pictured was a long-forbearing president whose patience was exhausted by the recalcitrant and conniving Japanese. After trying for years to elicit some fairness out of them, went the story, the usually good-natured president had finally had enough.

    When newspapers and television networks announced the tariffs, the media reminded the public that such restraints were imposed by a staunch free trader. The less-than-subtle message was that if "Free Trader" Ronald Reagan thought the tariff necessary, then Japan surely deserved it. After more than seven years in office, Ronald Reagan is still widely regarded as a devoted free trader. A typical reference is that of Mark Shields, a Washington Post columnist, to Reagan's "blind devotion to the doctrine of free trade."

    If President Reagan has a devotion to free trade, it surely must be blind, because he has been off the mark most of the time. Only short memories and a refusal to believe one's own eyes would account for the view that President Reagan is a free trader. Calling oneself a free trader is not the same thing as being a free trader. Nor does a free-trade position mean that the president, but not Congress, should have the power to impose trade sanctions. Instead, a president deserves the title of free trader only if his efforts demonstrate an attempt to remove trade barriers at home and prevent the imposition of new ones.

    By this standard, the Reagan administration has failed to promote free trade. Ronald Reagan by his actions has become the most protectionist president since Herbert Hoover, the heavyweight champion of protectionists.

    [ I appreciate this reference, which is in turn extensively referenced. ]

    Ed Brown -> EMichael... , January 25, 2017 at 03:29 PM
    This is simple. It means instead of shipping low end Toyota Corolla's that were small, manual transmission, no A/C, etc., the Japanese started to make larger, more expensive cars, even luxury cars like Lexis, etc.

    If this helps, think of Volkswagen being limited to shipping 1,000 cars to the US. They would probably send us only the top-end Porsches (VW owns that brand) and none of the more middle class cars.

    To Anne's point on whether this is an accurate portrayal of what happened: I have no recollection and no knowledge about this.

    pgl -> Ed Brown... , January 25, 2017 at 03:53 PM
    What really happened is simple. The Japanese car companies got that quota rents (Menzie Chinn documented this recently) from what was effectively a quota on the imports of Japanese cars. American consumers instead imported European cars. Any benefits to US car manufacturing was trivial and totally undo for the aggregate US economy by the massive dollar appreciation. All one has to do is to look at the exchange rate back then and one gets why net exports fell dramatically.
    Fred C. Dobbs -> anne... , January 25, 2017 at 04:29 PM
    (As in Acura, Lexus, Infinitiluxury brands.)

    Japanese manufacturers exported more expensive models in the 1980s due to voluntary export restraints, negotiated by the Japanese government and U.S. trade representatives, that restricted mainstream car sales. ...

    https://en.wikipedia.org/wiki/Lexus

    Acura holds the distinction of being the first Japanese automotive luxury brand. ... In its first few years of existence, Acura was among the best-selling luxury marques in the US. ...

    In the late 1980s, the success of the company's first flagship vehicle, the Legend, inspired fellow Japanese automakers Toyota and Nissan to launch their own luxury brands, Lexus and Infiniti, respectively. ...

    https://en.wikipedia.org/wiki/Acura

    Ed Brown : , January 25, 2017 at 01:52 PM
    I am reluctant to disagree with Paul Krugman, as he has forgotten more economics than I'll ever know. But my first thought as I read this was: motivated reasoning. It is quite interesting, and affects all of us, and the brilliant folks seem to be more susceptible to it than the average folks.

    Krugman dislikes Trump (as do I). He seems motivated to find fault with Trump's policies. In fuzzy things like economics and their intersection with politics it is challenging, and perhaps actually impossible, for most of us to remain balanced. If someone as smart and knowledgeable as Paul Krugman subconsciously decides to dislike a policy, his brain is more than clever enough to invent reasonable economic arguments against the policy.

    Of course, none of this implies that Krugman is actually wrong in this case.

    One question for folks. Krugman says "the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.)" I am wondering why a budget deficit has to push up interest rates?

    In 2009 we ran a large budget deficit at low interest rates. In WW 2 we did as well (I think, not really sure about this). Is it well established that budget deficits push up interest rates?

    Thanks in advance.

    ilsm -> Ed Brown... , January 25, 2017 at 02:09 PM
    Cognitive bias. Using % of jobs that are manufacturing is relative to what was happening in other job areas: like Reagan building up the military and civil service to buy weapons a tiny part of the growth in that sector was manufacturing.

    What else was going on in late 70's early 80's... a lot of growth on service sector.

    It is called cherry picking the chart to make a point with non thinkers.

    My appropriate post for Krugman follows.

    ilsm -> Ed Brown... , January 25, 2017 at 02:28 PM
    poor pk decided that correlation is causation.

    The answer at the time: US was offshoring bc 'they' made good things and that was their advantage, not Reagan and Volcker!

    Labor participation rate exploded after that!

    https://fred.stlouisfed.org/series/CIVPART

    Interest rates steadily declined from the '83 recovery........... deficits may not have so much?

    He might argue against 'protection'...... with logic.

    Dan Kervick -> Ed Brown... , January 25, 2017 at 02:49 PM
    Right, I think the answer is that budget deficits only push up interest rates if the Fed allows that to happen. The Fed could keep rates low if they wanted by signaling a willingness to buy up as much federal debt as is needed to hit some low target rate. So I think Krugman is, in effect, predicting that they will not do that, and that they will instead counteract the fiscal expansion with tighter monetary policy on the theory that this is needed to counteract potential "overheating".

    It's all a racket.

    ilsm -> Dan Kervick... , January 25, 2017 at 03:14 PM
    I bought a house in 1985, I bet interest rates would go down by taking a 1 year ARM. I did quite well each year it adjusted! I sold it in 1990 and rates were low enough to go fixed conventional on the "trade up".

    It is reputed the high rates helped cause the "Volcker" recession in the gray around 82.

    Ed Brown -> Dan Kervick... , January 25, 2017 at 03:20 PM
    Dan, thank you.

    Thinking about it some more. If I understand this correctly, the thought is that deficit spending is stimulative, and the economy is already at full employment, so the Fed will raise interest rates to prevent the economy from "overheating." The increase in rates slows the economy down by two mechanisms:

    (1) when the cost of capital is higher, fewer investments get made than when it is lower (say, a business needs to see a higher ROI when interest rates are high than when they are low). (As an aside, outside of the housing market, I don't think this effect is very strong. Real businesses don't change their approach to investment if rates change by, say, 100%; from 2% to 4%. At least, not the ones I have been exposed to, which are generally looking for ~ 15% IRR on investments.)

    (2) People globally may be more inclined to hold dollars when the risk-free rate is higher, which increases demand for the currency, which means the currency gets stronger, and exports are less competitive and imports more competitive, counter-acting the stimulus.

    The thing I don't like about this line of thought is that it is fatalist. It suggests that fiscal policy really does not matter, it will all be offset by monetary policy. There is no real impact to the economy whether we run huge budget deficits or surpluses. Me not liking it does not mean it is wrong, obviously, but I just don't buy it. When I run into things like this in economics I really start to wonder how much of macro is based on empirical observations and correlations versus 'models.'

    I think I ought to take an intro econ course and actually learn something. Or read an introductory macro text book...

    anne -> Ed Brown... , January 25, 2017 at 02:49 PM
    Krugman says "the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.)" I am wondering why a budget deficit has to push up interest rates?

    In 2009 we ran a large budget deficit at low interest rates.... Is it well established that budget deficits push up interest rates?

    [ Here then is the relevant matter to be analyzed. ]

    anne -> anne... , January 25, 2017 at 03:04 PM
    https://fred.stlouisfed.org/graph/?g=cuno

    January 15, 2017

    Federal Surplus or Deficit [-] as Percent of Gross Domestic Product and Rates on 10-Year Treasury Bond, 1980-2015

    Ed Brown -> anne... , January 25, 2017 at 05:43 PM
    Anne, thank you. From this plot I see that during Clinton's presidency we went from a budget deficit to a surplus. And interest rates dropped. During the George W. Bush presidency we went from a surplus to a deficit. And interest rates dropped.

    There does not appear to be any obvious correlation between the budget deficit and interest rates.

    I understand the textbook story is the Fed raises rates when the budget deficit increases. I am not sure if the empirical data supports that though. Perhaps the Fed cares more about inflation than budget deficits and perhaps budget deficits do not directly result in inflation? But if that is correct, what is the basis for Professor Krugman's assertion that Trump's budget will push up interest rates?

    anne -> Ed Brown... , January 25, 2017 at 06:11 PM
    http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wreck.html

    March 11, 2003

    A Fiscal Train Wreck
    By PAUL KRUGMAN

    With war looming, it's time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

    From a fiscal point of view the impending war is a lose-lose proposition. If it goes badly, the resulting mess will be a disaster for the budget. If it goes well, administration officials have made it clear that they will use any bump in the polls to ram through more big tax cuts, which will also be a disaster for the budget. Either way, the tide of red ink will keep on rising.

    Last week the Congressional Budget Office marked down its estimates yet again. Just two years ago, you may remember, the C.B.O. was projecting a 10-year surplus of $5.6 trillion. Now it projects a 10-year deficit of $1.8 trillion.

    And that's way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses. If you take into account - as the C.B.O. cannot - the effects of likely changes in the alternative minimum tax, include realistic estimates of future spending and allow for the cost of war and reconstruction, it's clear that the 10-year deficit will be at least $3 trillion.

    So what? Two years ago the administration promised to run large surpluses. A year ago it said the deficit was only temporary. Now it says deficits don't matter. But we're looking at a fiscal crisis that will drive interest rates sky-high.

    A leading economist recently summed up one reason why: "When the government reduces saving by running a budget deficit, the interest rate rises." Yes, that's from a textbook by the chief administration economist, Gregory Mankiw.

    But what's really scary - what makes a fixed-rate mortgage seem like such a good idea - is the looming threat to the federal government's solvency.... ]

    anne -> Ed Brown... , January 25, 2017 at 06:12 PM
    Why was Krugman wrong in 2003, and what about the 1980s and all through from there? I am thinking.
    Ed Brown -> anne... , January 25, 2017 at 06:20 PM
    Yes, thank you for that column from 2003. Yes, Prof. K was correct about the future trend in deficits back then, but incorrect about the future trend in interest rates.

    It is certainly conceivable that he is wrong now as well.

    anne -> anne... , January 25, 2017 at 03:05 PM
    https://fred.stlouisfed.org/graph/?g=cunt

    January 15, 2017

    Federal Surplus or Deficit [-] as Percent of Gross Domestic Product and Rates on 10-Year Treasury Bond, 1970-2015

    pgl -> Ed Brown... , January 25, 2017 at 03:55 PM
    Krugman captures very well what happened in the 1980's. He went to work for the CEA hoping to undo this disaster. Of course the political hacks in the Reagan White House did not listen to the CEA. Now he watches people in the Trump White House that are even more insane than these political hacks. You draw whatever conclusion you want but his concerns strike me as real from someone who has been there.
    Ed Brown -> pgl... , January 25, 2017 at 04:16 PM
    pgl - thank you. I am not drawing any hard and fast conclusions, just trying to learn. I appreciate your comment that is based on both education and experience.

    I am still thinking about this Buffett proposal on trade with import certificates. http://fortune.com/2016/04/29/warren-buffett-foreign-trade/ Jared Bernstein mentioned it in passing in an opinion piece in the NY Times yesterday. I put a comment on his website asking him to share more of his thoughts on it, and he said that he will if/when he has time. I hope he does.

    anne -> pgl... , January 25, 2017 at 06:14 PM
    Krugman captures very well what happened in the 1980's....

    [ I am not sure:

    https://fred.stlouisfed.org/graph/?g=cupw

    January 15, 2017

    Real Trade Weighted Price of an American Dollar, * 1980-1988

    (Indexed to 1980)

    * Major and Broad Currencies

    Peter K. -> Ed Brown... , January 25, 2017 at 05:19 PM
    A lot of people here who agree with Krugman about everything do "motivated reasoning" as well.
    Ed Brown -> Peter K.... , January 25, 2017 at 05:45 PM
    We all do it. It is completely unavoidable. I am trying to do it less but I suspect I am not very successful.
    Jerry Brown -> Ed Brown... , January 25, 2017 at 06:26 PM
    No. Budget deficits for a country such as the US do not push up interest rates. They would in fact lower the interbank rate if not countered by Federal Reserve actions.

    If budget deficits added to aggregate demand to the point that the Fed thought its inflation target was in jeopardy, the Fed might raise its target rate of interest in the hopes of quelling demand.

    The Fed has almost complete control over the interest rate paid by the Federal government when it decides to issue new debt. WWII is a great example of this. So is our most recent depression.

    Ed Brown -> Jerry Brown... , January 25, 2017 at 06:58 PM
    If what you say is correct, then what is Krugman's talking about? i am confusEd now.
    ilsm : , January 25, 2017 at 02:10 PM
    despicable pk who is dealing with?
    pgl -> ilsm... , January 25, 2017 at 03:56 PM
    So you want a massive increase in our trade deficit. Good to know.
    anne : , January 25, 2017 at 02:14 PM
    https://fred.stlouisfed.org/graph/?g=culd

    January 15, 2017

    Percent of Employment in Manufacturing for United States, 1970-2012


    https://fred.stlouisfed.org/graph/?g=cul1

    January 15, 2017

    Percent of Employment in Manufacturing for United States, 1970-2012

    (Indexed to 1970)

    anne -> anne... , January 25, 2017 at 02:17 PM
    https://fred.stlouisfed.org/graph/?g=cul5

    January 15, 2017

    Percent of Employment in Manufacturing for United States and Germany, 1970-2012


    https://fred.stlouisfed.org/graph/?g=cul3

    January 15, 2017

    Percent of Employment in Manufacturing for United States and Germany, 1970-2012

    (Indexed to 1970)

    anne -> anne... , January 25, 2017 at 02:24 PM
    https://books.google.com/ngrams/graph?content=deindustrialization&year_start=1970&year_end=2000&corpus=15&smoothing=3&share=&direct_url=t1%3B%2Cdeindustrialization%3B%2Cc0

    January 25, 2017

    Deindustrialization


    https://books.google.com/ngrams/graph?content=rust+belt&year_start=1970&year_end=2000&corpus=15&smoothing=3&share=&direct_url=t1%3B%2Crust%20belt%3B%2Cc0

    January 25, 2017

    Rust belt

    anne : , January 25, 2017 at 02:29 PM
    http://krugman.blogs.nytimes.com/2016/12/18/will-fiscal-policy-really-be-expansionary/

    December 18, 2016

    Will Fiscal Policy Really Be Expansionary?
    By Paul Krugman

    It's now generally accepted that Trump_vs_deep_state will finally involve the kind of fiscal stimulus progressive economists have been pleading for ever since the financial crisis. After all, Republicans are deeply worried about budget deficits when a Democrat is in the White House, but suddenly become fiscal doves when in control. And there really is no question that the deficit will go up.

    But will this actually amount to fiscal stimulus? Right now it looks as if Republicans are going to ram through their whole agenda, including an end to Obamacare, privatizing Medicare and block-granting Medicaid, sharp cuts to food stamps, and so on. These are spending cuts, which will reduce the disposable income of lower- and middle-class Americans even as tax cuts raise the income of the wealthy. Given the sharp distributional changes, looking just at the budget deficit may be a poor guide to the macroeconomic impact.

    Given the extent to which things are in flux, I can't put numbers on what's likely to happen. But I was able to find matching analyses by the good folks at Center on Budget and Policy Priorities of tax * and spending ** cuts in Paul Ryan's 2014 budget, which may be a useful model of things to come.

    If you leave out the magic asterisks - closing of unspecified tax loopholes - that budget was a deficit-hiker: $5.7 trillion in tax cuts over 10 years, versus $5 trillion in spending cuts. The spending cuts involved cuts in discretionary spending plus huge cuts in programs that serve the poor and middle class; the tax cuts were, of course, very targeted on high incomes.

    The pluses and minuses here would have quite different effects on demand. Cutting taxes on high incomes probably has a low multiplier: the wealthy are unlikely to be cash-constrained, and will save a large part of their windfall. Cutting discretionary spending has a large multiplier, because it directly cuts government purchases of goods and services; cutting programs for the poor probably has a pretty high multiplier too, because it reduces the income of many people who are living more or less hand to mouth.

    Taking all this into account, that old Ryan plan would almost surely have been contractionary, not expansionary.

    Will Trumponomics be any different? It would matter if there really were a large infrastructure push, but that's becoming ever less plausible. There will be big tax cuts at the top, but as I said, the push to dismantle the safety net definitely seems to be on. Put it all together, and it's extremely doubtful whether we're talking about net fiscal stimulus.

    Now, you might think that someone will explain this to Trump, and that he'll demand a more Keynesian plan. But I have two words for you: Larry Kudlow.

    * http://www.cbpp.org/research/the-ryan-budgets-tax-cuts-nearly-6-trillion-in-cost-and-no-plausible-way-to-pay-for-it

    ** http://www.cbpp.org/research/chairman-ryan-gets-66-percent-of-his-budget-cuts-from-programs-for-people-with-low-or

    anne -> anne... , January 25, 2017 at 02:30 PM
    December 18, 2016

    Bill Black
    Kansas City, MO

    In looking at economic trends, the other issue to take into account is private lending. Individual debt (credit cards, etc.) is already back up to the levels before the financial crisis and Trump's appointees are determined to deregulate financial institutions, which may contribute to a return to the predatory lending that created the last set of booms and busts. *

    * http://krugman.blogs.nytimes.com/2016/12/18/will-fiscal-policy-really-be-expansionary/

    anne -> anne... , January 25, 2017 at 06:21 PM
    http://krugman.blogs.nytimes.com/2017/01/25/reagan-trump-and-manufacturing/

    January 25, 2017

    Reagan, Trump, and Manufacturing
    By Paul Krugman

    It's hard to focus on ordinary economic analysis amidst this political apocalypse. But getting and spending will still consume most of peoples' energy and time; furthermore, like it or not the progress of CASE NIGHTMARE ORANGE may depend on how the economy does. So, what is actually likely to happen to trade and manufacturing over the next few years?

    As it happens, we have what looks like an unusually good model in the Reagan years - minus the severe recession and conveniently timed recovery, which somewhat overshadowed the trade story. Leave aside the Volcker recession and recovery, and what you had was a large move toward budget deficits via tax cuts and military buildup, coupled with quite a lot of protectionism - it's not part of the Reagan legend, but the import quota on Japanese automobiles was one of the biggest protectionist moves of the postwar era.

    I'm a bit uncertain about the actual fiscal stance of Trumponomics: deficits will surely blow up, but I won't believe in the infrastructure push until I see it, and given savage cuts in aid to the poor it's not entirely clear that there will be net stimulus. * But suppose there is. Then what?

    Well, what happened in the Reagan years was "twin deficits": the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.) This led to an accelerated decline in the industrial orientation of the U.S. economy:

    [Graph]

    And people did notice. Using Google Ngram, we can watch the spread of terms for industrial decline, e.g. here:

    [Graph]

    And here:

    [Graph]

    Again, this happened despite substantial protectionism.

    So Trump_vs_deep_state will probably follow a similar course; it will actually shrink manufacturing despite the big noise made about saving a few hundred jobs here and there.

    On the other hand, by then the Bureau of Labor Statistics may be thoroughly politicized, commanded to report good news whatever happens.

    * http://krugman.blogs.nytimes.com/2016/12/18/will-fiscal-policy-really-be-expansionary/

    anne -> anne... , January 25, 2017 at 06:24 PM
    Whether the analysis is challenged or or accepted, considerable further development is necessary. This is an important essay by Paul Krugman.
    Paul Mathis : , January 25, 2017 at 02:56 PM
    Real Manufacturing Output for the U.S. is far above its level at the end of the Reagan administration. https://fred.stlouisfed.org/series/OUTMS#0

    RMO declines sharply during recessions and the worse the downturn, the harder manufacturing gets hit. Ergo, avoiding recessions is the absolute best policy for manufacturing. Trade and the dollar's value don't have nearly as strong correlations.

    Likewise, Real Median Weekly Wages have been rising sharply since 2Q2014 and are now at an all time record high. https://fred.stlouisfed.org/series/OUTMS#0

    RMWW rise strongly during sustained expansions of private industry employment. https://fred.stlouisfed.org/series/USPRIV
    Trade deficits have little correlation but the correlation with private industry employment growth is strong: 16 million new jobs since 1Q2010.

    All of this should be obvious, as Keynes said: "The ideas (about economics) . . . are extremely simple and should be obvious."

    point : , January 25, 2017 at 03:09 PM
    Paul says:

    "Well, what happened in the Reagan years was "twin deficits": the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.)"

    which is to say,

    "Watch out for the bond vigilantes."

    Et tu, Paul?

    jonny bakho : , January 25, 2017 at 03:53 PM
    Deficit spending would always stimulate an economy except the Fed controls the brakes.
    The Fed is especially worried about wage price inflation spirals
    When inflation pops its head above target, the Fed slams on the brakes.

    At the ZLB, inflation is far below target so the Fed has its foot off the brakes.
    Deficit spending is stimulatory because the Fed does not apply the brakes by raising interest rates.
    This is textbook economics

    pgl -> jonny bakho... , January 25, 2017 at 03:59 PM
    The first intelligent comment here. Yes Volcker kept real interest rate very high for a while which led to a dramatic appreciation of the dollar. But even as Volcker took off the monetary brakes to let the economy get back to full employment, real interest rates stayed elevated and the real appreciation was not entirely reversed. So we got a sustained trade deficit even in the face of trade protection. That is the simple point that some here wish to duck.
    point -> pgl... , January 25, 2017 at 06:29 PM
    "Yes Volcker kept real interest rate very high...".

    Except that's not quite Paul's story: "...the budget deficit pushed up interest rates...".

    Ed Brown -> jonny bakho... , January 25, 2017 at 06:06 PM
    Yes but historically it does not seem like it has worked that way. There does not appear to be an obvious correlation between budget deficits and either (a) interest rates themselves, or (b) the change in interest rates.

    It seems like the Fed is acting on inflation signals. It is not so clear that (changes in) budget deficits necessarily result in (changes in) inflation. Unless there is a direct link between budget deficits and inflation it is hard to credibly argue that increasing the budget deficit results in increased inflation results in Federal Reserve raising rates to choke off inflation.

    The history of budget deficits and interest rates that Anne showed above don't provide much support for Prof. Krugman's point.

    Carol : , January 25, 2017 at 04:24 PM
    Potemkin BLS
    and jobs

    How to run a country a la Putin

    Peter K. : , January 25, 2017 at 05:18 PM
    Krugman is predicting that the Fed will raise rates to counter Trump's fiscal expansion and will appreciate the dollar. That's what happened with Volcker jacking rates to fight inflation.

    He doesn't spell this out exactly.

    It's like how Greenspan and Rubin told Clinton he had to drop his middle class spending bill in order to focus on deficit reduction. Greenspan was threatening to raise rates and Clinton bent the knee to the "independent" Fed.

    That's when Clinton threw a tantrum about being an "Eisenhower Republican."

    The Senate Democrats like Schumer get what the populist backlash is about. That's why they're promising $1 trillion over 10 years in government spending rather than Hillary's $275 over 5 years.

    They can do the math. They know what happened in the election. It wasn't just about Comey or the DNC hack. The election shouldn't have been that close.

    Peter K. -> Peter K.... , January 25, 2017 at 05:24 PM
    "the budget deficit pushed up interest rates" We had large budget deficits during the Great Recession and they didn't push up interest rates. In fact Obama focused too much on deficit reduction.
    libezkova : , January 25, 2017 at 07:14 PM
    Krugman should remember that "Integrity, once sold, is difficult to repurchase - even at 10x the original sales price."

    [Jan 21, 2017] Yellen has changed her colors overnight. Her ugly partisan side is showing

    Notable quotes:
    "... I do not share your view of Yellen at all. She has changed her colors overnight. Her ugly partisan side is showing. There are less painful ways to stop Trump's policies that she does not agree with than sacrificing the working class. ..."
    "... Clear indication that she will revert to a Taylor rule type approach so she can justify raising rates fast to kill the Trump economy. ..."
    Jan 21, 2017 | economistsview.typepad.com
    Peter K. : January 20, 2017 at 04:28 AM

    Hopefully Yellen won't raise interest rates as high as Volcker did in the early 1980s when he was fighting inflation.

    There are better less painful ways to fight inflation but the prog neolibs don't want to explore those options. Take it out on the working class with high unemployment.

    BenIsNotYoda -> Peter K.... January 20, 2017 at 04:46 AM

    I do not share your view of Yellen at all. She has changed her colors overnight. Her ugly partisan side is showing. There are less painful ways to stop Trump's policies that she does not agree with than sacrificing the working class.
    BenIsNotYoda -> BenIsNotYoda... , -1
    Yellen said last night - "I believe in systematic approach to monetary policy."

    Clear indication that she will revert to a Taylor rule type approach so she can justify raising rates fast to kill the Trump economy.

    [Jan 21, 2017] The other benefit of Kimball's plan - from a prog neolib viewpoint - is that it would weaken Social Security.

    Notable quotes:
    "... Wasn't there a recent discussion about how 401(k)s are a sham? ..."
    "... Hillary should have campaigned on this policy of diverting savings to Wall Street in order to help exports. This would have gotten more voters to the polls.... Call it a private Wall St. tax on savers. ..."
    "... from Miles Kimball the supply-sider ..."
    "... how would Brad Setser think about an 8 percent tax on Chinese consumers that the Communist sovereign wealth fund could invest abroad for their retirement? That would boost Wall Street some more. ..."
    Jan 21, 2017 | economistsview.typepad.com
    Peter K. : , January 20, 2017 at 04:26 AM
    "As I explained in my May 14, 2015 column "How Increasing Retirement Saving Could Give America More Balanced Trade":

    I talked to Madrian and David Laibson, the incoming chair of Harvard's Economics Department (who has worked with her on studying the effects of automatic enrollment) on the sidelines of a Consumer Financial Protection Bureau research conference last week. Using back-of-the-envelope calculations based on the effects estimated in this research, they agreed that requiring all firms to automatically enroll all employees in a 401(k) with a default contribution rate of 8% could increase the national saving rate on the order of 2 or 3 percent of GDP."

    Wasn't there a recent discussion about how 401(k)s are a sham?

    Progressive neoliberals....

    Hillary should have campaigned on this policy of diverting savings to Wall Street in order to help exports. This would have gotten more voters to the polls.... Call it a private Wall St. tax on savers.

    Peter K. -> Peter K.... , January 20, 2017 at 04:26 AM
    from Miles Kimball the supply-sider
    Peter K. -> Peter K.... , January 20, 2017 at 04:41 AM
    how would Brad Setser think about an 8 percent tax on Chinese consumers that the Communist sovereign wealth fund could invest abroad for their retirement? That would boost Wall Street some more.
    Peter K. -> Peter K.... , -1
    The other benefit of Kimball's plan - from a prog neolib viewpoint - is that it would weaken Social Security.

    [Jan 21, 2017] If we look at the numbers for involuntary part-time workers, it dropped from 6.8 million in December of 2014 to 5.6 million in December of 2016.

    Jan 21, 2017 | economistsview.typepad.com
    anne : January 20, 2017 at 07:53 AM , 2017 at 07:53 AM
    http://cepr.net/blogs/beat-the-press/people-are-choosing-to-work-part-time-why-is-that-so-hard-for-economic-reporters-to-understand

    January 20, 2017

    People are Choosing to Work Part-Time, Why Is that So Hard for Economic Reporters to Understand?

    It is really amazing how major news outlets can't seem to find reporters who understand the most basic things about the economy. I guess this is evidence of the skills shortage.

    Bloomberg takes the hit today in a piece * discussing areas where the economy is likely to make progress in a Trump administration and areas where it is not. In a middle "muddle through" category, we find "Full-Time Work Is Likely to Stay Elusive for Part-Timers." The story is:

    "Trump has highlighted the number of part-time workers in the U.S. economy, saying 'far too many people' are working in positions for which they are overqualified and underpaid. While the proportion of full-time workers in the labor force remains below its pre-recession high, it's made up most of the ground lost during the downturn. But it hasn't budged much in the last two years, even as the job market has gotten tighter. Some economists point to the gig economy as the driving force (pun intended) behind part-timers. Others see a broader shift in the labor market that's left many workers stuck with shorter hours, lower wages and weaker benefits."

    Okay, wrong, wrong, and wrong. In its monthly employment survey (the Current Population Survey - CPS), the Bureau of Labor Statistics asks people whether they are working more or less than 35 hours a week. If they are working less than 35 hours they are classified as part-time. The survey then asks the people who are working part-time why they are working part-time. It divides these workers into two categories, people who work part-time for economic reasons (i.e. they could not find full-time jobs) and people who work part-time for non-economic reasons. In other words the second group has chosen to work part-time.

    If we look at the numbers for involuntary part-time workers, it dropped from 6.8 million in December of 2014 to 5.6 million in December of 2016. That is a drop of 1.2 million, or almost 18 percent. That would not seem to fit the description of not budging much. Of course Bloomberg may have been adding in the number of people who chose to work part, which grew by 1.4 million over this two year period, leaving little net change in total part-time employment.

    Of course there is a world of difference between a situation where people need full-time jobs, but work part-time, because that is the only work they can find and a situation in which people work part-time because they don't want to spend 40 hours a week on the job. Most of us would probably consider it a good thing if people who wanted to spend time with their kids, or did not want to full time for some other reason, had the option to work part-time. This is what in fact has been happening and it has been going on for three years, not two.

    Come on Bloomberg folks -- did you ever hear of the Affordable Care Act (a.k.a. "Obamacare")? As a result of Obamacare workers are no longer dependent on employers for health care insurance. This means that many people have opted to work part rather than full time. This has opened up full time jobs ** for people who need them, even though it has left total part-time employment little changed.

    In total, the number of people involuntarily working part-time has fallen by 2.2 million since the ACA has been in effect, while the number choosing to work part-time has risen by 2.4 million. The sharpest increase in voluntary part-time employment has been among young mothers *** and older workers **** just below Medicare age.

    It is really incredible that this shift from involuntary part-time to voluntary part-time is not more widely known. It is a very important outcome from the ACA.

    * https://www.bloomberg.com/graphics/2017-how-well-know-if-trump-is-making-america-great-again/

    ** http://cepr.net/blogs/cepr-blog/obamacare-and-part-time-work-part-2-involuntary-part-time-employment

    *** http://cepr.net/blogs/cepr-blog/the-affordable-care-act-still-family-friendly

    **** http://cepr.net/blogs/cepr-blog/obamacare-is-good-for-older-workers-too

    -- Dean Baker

    libezkova -> anne... , January 20, 2017 at 10:34 AM
    My impression here is that in this particular issue Dean Baker is out of touch with reality.

    Question: how many people in this 1.2 million drop because they retired at 62 forced to take a half of their SS pension, or left workforce?

    Also, can you consider Wal-Mart or Shop Right cashier working 36 hours for $7.5 an hour and without any benefits (as he/she can't afford them) fully employed.

    Single mothers are probably the most important category to analyze here.

    sanjait -> anne... , January 20, 2017 at 01:33 PM
    This is an example of how the libertarian and Republican conceptions of liberty and freedom are so off the mark.

    When people can afford to work part time instead of full time to do things like raise children, attain higher education or start companies, that is freedom. When the inaccessibility of health insurance forces them to work full time when they would otherwise prefer not, that is not enhanced freedom.

    [Jan 21, 2017] I seriously question the assumption of FOREX adjustments perfectly offsetting policy changes such that the balance of trade remains unchanged

    Notable quotes:
    "... I seriously question the assumption of FOREX adjustments perfectly offsetting policy changes such that the balance of trade remains unchanged. It seems like an article of faith that things work this way, based on logic, intelligence, and economic analysis based on various models of how the world works. ..."
    "... Do economists have solid models that accurately predict the movement of FOREX rates in the first place? I mean, all else being equal, and given no policy changes at all, can economists accurately forecast the exchange rates between, say, Canada and the US over the next 10 years? And, if so, why do these economists have to work for a living? Shouldn't they be enormously wealthy people by now if they possess this level of predictive capabilities? ..."
    "... My personal thinking on the matter is to take a more humble approach. Given some solid reasons to believe the proposed border adjustment tax will increase the value of the dollar, but lacking a way to accurately predict FOREX, I would guess that exchange rates would adjust to cancel out only half the policy change. I'll assume trade flows adjust a bit and FOREX rates adjust a bit. And since it is just a guess, I'd be quite cautious in drawing any strong conclusions. ..."
    Jan 21, 2017 | economistsview.typepad.com

    pgl, Friday, January 20, 2017 at 01:37 AM

    Team Trump needs to listen to Miles Kimball:

    "border adjustability. In the eurozone, where there is a fixed exchange rate of 1 between the member countries, relying more heavily on a value-added tax-for which international rules allow taxing imports while exempting exports from the tax-and less on other taxes, is understood as a way to get the same effect as devaluing to an exchange rate that makes foreign goods more expensive to people in a country and domestic goods cheaper to foreigners. But in a floating exchange rate setup as the US has, most of the effects of border adjustment can be canceled out by an explicit appreciation in the dollar that cancels out the implicit devaluation from the tax shift. And indeed, such an appreciation of the dollar is exactly what one should expect."

    The architect of this Destination Based Cash Flow Tax with "Border Adjustments" (is that like sprinkles on top) is Alan Auerbach and even he admits this. Miles moves onto something else I have been saying:

    "A way to push down the value of the dollar and stimulate net exports for a much longer time is to increase saving rates in the US As greater saving pushed down US rates of return, some of that extra saving would wind up in foreign assets, putting extra US dollars in the hands of folks abroad, so they would have US dollars to buy US goods. This effect can be enhanced if the regulations for automatic enrollment are favorable to a substantial portion (say 30%) of the default investment option being in foreign assets. Note that an increase in US saving would tend to push down the natural interest rate, and so needs to be accompanied by the elimination of the zero lower bound in order to avoid making it hard for monetary policy to respond to recessions."

    OK – it might not be so easy to lower the natural rate now but back in 1981, real interest rates soared as the Reagan tax cuts lowered national savings. This led to a massive dollar appreciation and a large drop in net exports.

    Ed Brown -> pgl... , January 20, 2017 at 07:31 AM
    I seriously question the assumption of FOREX adjustments perfectly offsetting policy changes such that the balance of trade remains unchanged. It seems like an article of faith that things work this way, based on logic, intelligence, and economic analysis based on various models of how the world works.

    But while this view seems to be held by intelligent people with far more economic education that I will ever have, I am wondering if there is any empirical evidence that supports this reasoning? I am sceptical.

    Do economists have solid models that accurately predict the movement of FOREX rates in the first place? I mean, all else being equal, and given no policy changes at all, can economists accurately forecast the exchange rates between, say, Canada and the US over the next 10 years? And, if so, why do these economists have to work for a living? Shouldn't they be enormously wealthy people by now if they possess this level of predictive capabilities?

    My personal thinking on the matter is to take a more humble approach. Given some solid reasons to believe the proposed border adjustment tax will increase the value of the dollar, but lacking a way to accurately predict FOREX, I would guess that exchange rates would adjust to cancel out only half the policy change. I'll assume trade flows adjust a bit and FOREX rates adjust a bit. And since it is just a guess, I'd be quite cautious in drawing any strong conclusions.

    I welcome comments that would help educate me on this subject. Best wishes to all.

    Peter K. -> Ed Brown... , January 20, 2017 at 07:46 AM
    As I understand it Peter Dorman agrees with you here:

    http://econospeak.blogspot.com/2016/12/paul-krugman-on-protectionism-and-trade.html

    As does economics superstar Dean Baker.

    PGL replied to Dorman twice, but Dorman ignored him.

    JohnH -> Peter K.... , January 20, 2017 at 08:17 AM
    I love PK's summary: ".... trade deficits are always a temporary phenomenon, to be followed eventually by surpluses, and vice versa."

    After 30 years of trade deficits, I wonder about PK's definition of temporary...

    Oh well, in the long run, we're all dead...and the trade deficit will swing to a surplus...

    Ed Brown -> JohnH... , January 20, 2017 at 08:28 AM
    :-)
    Old Opossum's Practical Cat -> Ed Brown... , January 20, 2017 at 08:39 AM
    As The Clock Ticks Down

    Stand by your data
    "
    ~~Country & Western Song~

    Before the opportunity-window slams shut, harvest your data from the market! You need to record a baseline from the last moments of the O'Bummer World. Sure!

    You will wish him back, but that is beside the point. We are scientists not wishers.

    I wish you
    well --

    Ed Brown -> Peter K.... , January 20, 2017 at 08:26 AM
    Hello. Thank you for this link. I found this comment by Peter Dornman to be interesting: "And also, yes, any theory that implies a known relationship between macro variables and forex rates is *very* counter-empirical."

    If his comment is correct, it makes me wonder about the reliability of Miles Kimball's analysis.

    There are certain types of problems we just can't reliably analyze, as they are too complicated, or the underlying physics is subject to extreme sensitivity to accuracy of the inputs (chaos theory, basically). For instance, our ability to make meaningful forecasts of the weather is limited to a few days. Maybe FOREX predictions are like that? If so, we should be cautious about making any strong statements about FOREX adjustments precisely offsetting policy changes.

    I mean, doesn't it seem like hubris when you can't predict what a variable will do given no changes to current conditions, but you decide that you can predict *precisely* what it will do if we make changes to current conditions?

    JohnH -> Ed Brown... , January 20, 2017 at 07:54 AM
    "Do economists have solid models that accurately predict the movement of FOREX rates in the first place?"

    Meese-Rogoff showed that exchange rates are disconnected from fundamentals. It's called the 'foreign exchange puzzle.'

    Yet pgl keeps insisting on an 'if x then y' approach to most problems. His key variable is interest rates, which are at the root of most every change in pglian universe.

    I'm actually surprised that he departs from his rate-centric universe to suggest that Trump might be responsible for something like the fall of the peso, though he stridently rejects the idea that Trump's bully pulpit might shame American companies into keeping more jobs at home.

    JohnH -> JohnH... , January 20, 2017 at 07:58 AM
    Meese-Rogoff found that f-x rates are a random walk.

    [Jan 21, 2017] Disillusioned in Davos

    Jan 21, 2017 | economistsview.typepad.com
    Larry Summers:
    Disillusioned in Davos : Edmund Burke famously cautioned that "the only thing necessary for the triumph of evil is for good men to do nothing." I have been reminded of Burke's words as I have observed the behavior of US business leaders in Davos over the last few days. They know better but in their public rhetoric they have embraced and enabled our new President and his policies.

    I understand and sympathize with the pressures they feel. ... Businesses who get on the wrong side of the new President have lost billions of dollars of value in sixty seconds because of a tweet. ...

    Yet I am disturbed by (i) the spectacle of financiers who three months ago were telling anyone who would listen that they would never do business with a Trump company rushing to praise the new Administration (ii) the unwillingness of business leaders who rightly take pride in their corporate efforts to promote women and minorities to say anything about Presidentially sanctioned intolerance (iii) the failure of the leaders of global companies to say a critical word about US efforts to encourage the breakup of European unity and more generally to step away from underwriting an open global system (iv) the reluctance of business leaders who have a huge stake in the current global order to criticize provocative rhetoric with regard to China, Mexico or the Middle East (v) the willingness of too many to praise Trump nominees who advocate blatant protection merely because they have a business background.

    I have my differences with the new Administration's economic policies and suspect the recent market rally and run of economic statistics is a sugar high. Reasonable people who I respect differ and time will tell. My objection is not to disagreements over economic policy. It is to enabling if not encouraging immoral and reckless policies in other spheres that ultimately bear on our prosperity. Burke was right. It is a lesson of human experience whether the issue is playground bullying, Enron or Europe in the 1930s that the worst outcomes occur when good people find reasons to accommodate themselves to what they know is wrong. That is what I think happened much too often in Davos this week.

    JohnH -> Peter K.... , January 20, 2017 at 03:24 PM
    Larry Summers lecturing us about bullies! Precious!

    "Larry Summers Is An Unrepentant Bully"
    http://www.huffingtonpost.com/peter-s-goodman/larry-summers-bully-fed_b_3653387.html

    Like so much of the tit-for-tat between Democrats and Republicans, what's OK for to do is NOT OK for you to do!!!

    anne : , January 20, 2017 at 12:24 PM
    https://books.google.com/books?id=SFNADAAAQBAJ&pg=PT951&lpg=PT951&dq=%22No+man,+who+is+not+inflamed+by+vainglory+into+enthusiasm%22&source=bl&ots=ufx9GiMtls&sig=jJgSGfaCuCQFzBa9KiNBKCoaYgQ&hl=en&sa=X&ved=0ahUKEwjE7YCOxtHRAhWjLMAKHVmSDFAQ6AEIHDAB#v=onepage&q=%22No%20man%2C%20who%20is%20not%20inflamed%20by%20vainglory%20into%20enthusiasm%22&f=false

    1770

    Thoughts on the Cause of the Present Discontents

    No man, who is not inflamed by vainglory into enthusiasm, can flatter himself that his single, unsupported, desultory, unsystematic endeavours are of power to defeat the subtle designs and united Cabals of ambitious citizens. When bad men combine, the good must associate; else they will fall, one by one, an unpitied sacrifice in a contemptible struggle.

    -- Edmund Burke

    anne -> anne... , -1
    Edmund Burke famously cautioned that "the only thing necessary for the triumph of evil is for good men to do nothing."

    -- Lawrence Summers

    [ Edmund Burke never cautioned this. ]

    anne -> Chris G ... , January 20, 2017 at 06:42 PM
    Notice the fear of association or community of Milton Friedman:

    http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

    September 13, 1970

    The Social Responsibility of Business is to Increase its Profits
    By Milton Friedman - New York Times

    When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are–or would be if they or anyone else took them seriously–preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades....

    Gibbon1 -> anne... , January 20, 2017 at 07:37 PM
    When I used to read Delong's blog before Delong went off on Sanders because Delong thought that Hillary Clinton would give Delongs son a job...

    There was economics student that penned a response where he mentioned that the economics profession generally dislikes models with negative externalities. But truly loath models that incorporate positive externalities.

    A positive externality is where some action on your part benefits you _and_ benefits some third party.

    One can assume Milton Friedman and his followers find that concept revolting indeed.

    anne -> anne... , January 20, 2017 at 12:52 PM
    While I was not in Davos, I read about the proceedings and meeting in the Western European and Chinese press and was impressed by the community emphasis placed on social justice. Possibly there was considerable individual resistance to the public theme, and Lawrence Summers would readily sense such resistance, but the public theme from the speech by Xi Jinping on was encouraging and portrayed in Western Europe and China as encouraging.
    kthomas -> anne... , January 20, 2017 at 02:19 PM
    The headline of his post is somewhat misleading. He was not really talking about Davos.
    Chris G -> kthomas... , January 20, 2017 at 05:53 PM
    Let me rephrase: Name me some Fortune 500 companies who consider potential societal impacts of their actions and, as a result, sometimes make decisions which don't maximize their profits but are the "right" thing to do for the community/their workers/the environment/etc.? What Fortune 500 companies are motivated by things beyond maximizing profits for shareholders?

    My point is that corporate leaders who are charged to act to maximize profits will always be cowards when it comes to moral and ethical issues. If their job is to maximize profits. If they don't want to lose their job then that's what they'll do - act to maximize profits. Where would Summers get the idea that they would act any differently? Do the people he's referring to have a track record of choosing the moral high ground over profits? If they do then I could understand surprise and disappointment that they're folding. But they've never had to face that choice before let alone chosen moral high ground over money, have they?

    anne -> Chris G ... , January 20, 2017 at 05:55 PM
    My point is that corporate leaders who are charged to act to maximize profits will always be cowards when it comes to moral and ethical issues. If their job is to maximize profits. If they don't want to lose their job then that's what they'll do - act to maximize profits. Where would Summers get the idea that they would act any differently? Do the people he's referring to have a track record of choosing the moral high ground over profits? ...

    [ Properly argued, sadly. ]

    Winslow R. : , January 20, 2017 at 02:02 PM
    I recall Summers/Romer with both houses and Obama blowing their chances to do something for the middle/working class.

    Summers/Delong said if the stimulus was too small we could always get another later, yet that chance to do something never came and he did nothing.....

    I'd like Larry to ponder whether it was he who did nothing.

    [Jan 21, 2017] US neocons try to enforce the continuation of neocon foriegh policy with Trump administration

    Notable quotes:
    "... Running up the flag in Estonia is a Kagan Clinton affair. ..."
    "... No Putin is not the Tsar incarnate nor is the US inheriting England and France 1856 protection of Turks in the Balkans. ..."
    "... Making a neocon moral point and tripping with WW III over Estonia is neocon war mongering insane. ..."
    Jan 21, 2017 | economistsview.typepad.com
    ilsm -> im1dc... , January 20, 2017 at 04:41 PM
    After the new AG does what should have been done with HRC.

    Then Trump can fire the CIA for the muck up in the middle east.

    And pull the Mech brigade out of the Balts.

    ilsm -> pgl... , January 20, 2017 at 04:43 PM
    you are transferring the neocon enterprise on Trump.

    Running up the flag in Estonia is a Kagan Clinton affair.

    No Putin is not the Tsar incarnate nor is the US inheriting England and France 1856 protection of Turks in the Balkans.

    ilsm -> sanjait... , January 20, 2017 at 03:16 PM
    Making a neocon moral point and tripping with WW III over Estonia is neocon war mongering insane.

    Who are Balts?

    Why would US put a brigade of to defend Estonia? What is the strategic significance of Estonia?

    There are as few people in Estonia as in New Hampshire and a large number are Russian speaking.

    [Jan 21, 2017] Non-interventionism and as such it is the opposing theory to neoconservatism, especially its Allbright-Kagan-Nuland troika flavor, which actually does not deviate much from so called liberal interventionists (Vishy left) such as Hillary-Samantha Power-Susan Rice troika

    Notable quotes:
    "... Trump may end their expert preparedness for unending war. ..."
    "... Neolib/neocon conartists call their truthful detractors unready or ignorant of unpatriotic or Russian tools. Sore losers. Does not make war mongers right! ..."
    Jan 21, 2017 | economistsview.typepad.com
    ilsm -> Fred C. Dobbs... January 20, 2017 at 03:34 PM
    What sense does it make to tilt with thermonuclear war over a half million Balts' whim?

    Outside of the war mongering corporatists who take huge plunder off the US taxpayer.

    How about an end to the one worlders?

    Fred C. Dobbs said in reply to ilsm... January 20, 2017 at 04:04 PM

    Can you come up with a theory of neoisolationism?
    libezkova -> Fred C. Dobbs... , January 20, 2017 at 09:44 PM
    Let me try. First of all, it is properly called non-interventionism and as such it is the opposing theory to neoconservatism, especially its Allbright-Kagan-Nuland troika flavor, which actually does not deviate much from so called liberal interventionists (Vishy left) such as Hillary-Samantha Power-Susan Rice troika.

    It would be nice to put them on trial, because all of then fall under Nuremberg statute for war crimes. But this is a pipe dream in the current USA political climate with it unhinged militarism and jingoism.

    Here is something that more or less resembles the definition

    http://www.theamericanconservative.com/articles/noninterventionism-a-primer/

    == quote ==

    Americans have grown understandably weary of foreign entanglements over the last 12 years of open-ended warfare, and they are now more receptive to a noninterventionist message than they have been in decades. According to a recent Pew survey, 52 percent of Americans now prefer that the U.S. "mind its own business in international affairs," which represents the most support for a restrained and modest foreign policy in the last 50 years. That presents a challenge and an opportunity for noninterventionists to articulate a coherent and positive case for what a foreign policy of peace and prudence would mean in practice. As useful and necessary as critiquing dangerous ideas may be, noninterventionism will remain a marginal, dissenting position in policymaking unless its advocates explain in detail how their alternative foreign policy would be conducted.

    A noninterventionist foreign policy would first of all require a moratorium on new foreign entanglements and commitments for the foreseeable future. A careful reevaluation of where the U.S. has vital interests at stake would follow. There are relatively few places where the U.S. has truly vital concerns that directly affect our security and prosperity, and the ambition and scale of our foreign policy should reflect that.

    A noninterventionist U.S. would conduct itself like a normal country without pretensions to global "leadership" or the temptation of a proselytizing mission. This is a foreign policy more in line with what the American people will accept and less likely to provoke violent resentment from overseas, and it is therefore more sustainable and affordable over the long term.

    When a conflict or dispute erupts somewhere, unless it directly threatens the security of America or our treaty allies, the assumption should be that it is not the business of the U.S. government to take a leading role in resolving it.

    If a government requests aid in the event of a natural disaster or humanitarian crisis (e.g., famine, disease), as Haiti did following its devastating earthquake in 2010, the U.S. can and should lend assistance - but as a general rule the U.S. should not seek to interfere in other nations' domestic circumstances.

    libezkova -> libezkova... , January 20, 2017 at 09:48 PM
    Note the female chickenhawks are the most bloodthirsty, overdoing even such chauvinists as McCain.

    That actually has its analogy in animal kingdom were female predators are more vicious killers then male, hunting the prey even if they do not feel the hunger (noted especially for lions)

    point : , January 20, 2017 at 03:25 PM
    Cross-posted from links earlier:

    "So there you have it: ... completely unprepared to govern."

    Paul means to imply the Obama boys and girls were better prepared? Judging by how well they did, maneuvering us into Larry's secular stagnation, for instance, some may be forgiven to think perhaps that kind of expertise we could do without.

    Lost in all the discourse is that this government of ours was designed to be operated by amateurs.

    ilsm -> point... , January 20, 2017 at 03:35 PM
    Trump may end their expert preparedness for unending war.
    ilsm -> point... , January 20, 2017 at 03:39 PM
    Neolib/neocon conartists call their truthful detractors unready or ignorant of unpatriotic or Russian tools. Sore losers. Does not make war mongers right!

    [Jan 20, 2017] It's too bad it took getting Donald Trump in the White House to get WaPo to do some serious budget reporting.

    Jan 20, 2017 | economistsview.typepad.com
    anne : , January 20, 2017 at 05:42 AM
    http://cepr.net/blogs/beat-the-press/stop-the-presses-stop-the-presses-washington-post-decides-to-put-numbers-in-context

    January 19, 2017

    Stop the Presses! Stop the Presses! Washington Post Decides to Put Numbers in Context

    They said it couldn't be done. It would be like the Pope converting to Islam, but the Washington Post did the impossible. It headlined an article * on reports that Donald Trump wants to privatize the Corporation for Public Broadcasting and eliminate altogether the National Endowments for the Arts and Humanities:

    "Trump reportedly wants to cut cultural programs that make up 0.02 percent of federal spending."

    This is an incredible breakthrough. The Post has religiously followed a policy of reporting on the budget by using really big numbers that are virtually meaningless to the vast majority of their readers. One result is that people, including well-educated and liberal people, tend to grossly over-estimate the portion of the budget that goes to things like Temporary Assistance for Needy Families (@ 0.4 percent), foreign aid (@ 0.7 percent), and food stamps (@1.8 percent).

    The fact that it uses really big numbers rather than express these items in some context feeds the claims of right-wingers that we are being overtaxed to support these programs. It also contributes to the absurd belief that large numbers of people are not working but rather surviving comfortably on relatively meager benefits.

    It's too bad it took getting Donald Trump in the White House to get the paper to do some serious budget reporting.

    * https://www.washingtonpost.com/news/the-fix/wp/2017/01/19/trump-reportedly-wants-to-cut-cultural-programs-that-make-up-0-02-percent-of-federal-spending/?utm_term=.f151c67ef7fe

    -- Dean Baker

    [Jan 19, 2017] W ith Trump election the train just left the station .

    Notable quotes:
    "... What is called "Secular Stagnation" should be properly named "Secular Stagnation of societies which accepted neoliberalism as a polito-economical model". Very similar to what happened with Marxism: broken promised, impoverishment of the majority of population, filthy enrichment, corruption and all forms of degradation at the top. ..."
    "... In the USA the level of elite degradation became really visible despite attempt to mask it with jingoism as a smoke screen (look at the candidates of the last Presidential race - the choice was between horrible and terrible) ..."
    "... Speaking about the level of demoralization I understand why somebody might hate Trump, but Hillary as alternative ? Give me a break. In this sense wining about Trump inauguration just signify the inability to connect the dots and understand that the last election was what in chess was called Zugzwang. ..."
    "... The fact is that neoliberalism as a social system no longer is viewed favorably by the majority of the US population (like Bolshevism before them in the USSR ). In this sense I think that with Trump election "the train just left the station". ..."
    Jan 19, 2017 | economistsview.typepad.com

    libezkova : January 19, 2017 at 07:27 PM , 2017 at 07:27 PM

    Summers is a card carrying neoliberal and a Rubin's boy,. And Rubin was former "Deregulator in chief". Actually Summers performed the role of hired gun for Wall Street ( http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Corruption_of_regulators/silencing_brooksley_born.shtml ).

    So he organically can't state the main point: neoliberal ideology is bankrupt and neoliberalism as a social system is close, or may be entered the decline stage.

    That's why neoliberal MSM lost large part of their influence. Much like Soviet MSM during Brezhnev's rule.

    What is called "Secular Stagnation" should be properly named "Secular Stagnation of societies which accepted neoliberalism as a polito-economical model". Very similar to what happened with Marxism: broken promised, impoverishment of the majority of population, filthy enrichment, corruption and all forms of degradation at the top.

    Neoliberal elite ("masters of the universe") is split. The majority is still supporting "change we can believe in" (the slogan courtesy of master of "bait and switch") which means "kick the can down the road". While the other part is flirting with far right movements.

    In the USA the level of elite degradation became really visible despite attempt to mask it with jingoism as a smoke screen (look at the candidates of the last Presidential race - the choice was between horrible and terrible)

    Trump is just a symptom of a much larger problem. Look what happened when Marxist ideology was discredited and everybody understood that Marxism can't deliver its social promises. And look at the level of degradation of Soviet Politburo before the collapse which resulted is the election of this naïve, "not so bright", deeply provincial, inexperienced politician (Gorbachov). who was also determined "to make the USSR great again". The level of demoralization of the society was pretty acute. Nobody believed the government, the MSM, the Party.

    The system was unable to produce leaders of the caliber that can save it. That was one of the reasons why it was doomed (bankruptcy of ideology means among other things that there is nobody to defend it and nationalism works both ways). I think we see a very similar processes in the USA now.

    With CIA performing the role of KGB in their efforts to prevent or at least slow down the inevitable changes is the system (although at the end of the day KGB brass was simply bought and stepped aside allowing the Triumph of neoliberalism in the xUSSR space).

    Speaking about the level of demoralization I understand why somebody might hate Trump, but Hillary as alternative ? Give me a break. In this sense wining about Trump inauguration just signify the inability to connect the dots and understand that the last election was what in chess was called Zugzwang.

    The fact is that neoliberalism as a social system no longer is viewed favorably by the majority of the US population (like Bolshevism before them in the USSR ). In this sense I think that with Trump election "the train just left the station".

    [Jan 19, 2017] Fake Economics and the media

    Jan 19, 2017 | mainlymacro.blogspot.com
    If there is Fake News, is there such a thing as Fake Economics? I thought about this as a result of two studies that have received considerable publicity in the press and broadcast media over the last few weeks. Both, needless to say, involve Brexit. The first are two bits of analysis by 'Change Britain', saying Brexit would generate 400,000 new jobs and "boost the UK by £450 million a week". The second is a more substantial piece of work by economists at the Centre for Business Research (CBR) in Cambridge, which was both very critical of the Treasury's own analysis of the long term costs of Brexit and came up with much smaller estimates of its own for these costs.
    Defining exactly what Fake News is can be difficult , although we can point to examples which undoubtedly are fake, in the sense of reporting things to be true when it is clear they are not. Fake News often constitutes made up facts that are designed for a political purpose. You could define Fake economics in a similar way: economic analysis or research that is obviously flawed but whose purpose is to support a particular policy. (Cue left wing heterodox economists to say the whole of mainstream economics is fake economics.) We can equally talk about evidence based policy and its fake version, policy based evidence.

    [Jan 18, 2017] FRBSF The Current Economy and the Outlook

    Jan 18, 2017 | economistsview.typepad.com
    libezkova :
    Mathiness and "number racket" are two feature of neoliberalism that are especially damaging.

    I like how neoclassical economics works: bought economists operate with fake models that use fake data.

    It probably would be more interesting to discuss how US government measures unemployment those days. And all those "not in labor force" tricks.

    Just seasonal adjustment make winter figures highly suspect.

    Only U6 still has some connections to reality and if this measure shows "close to full employment", you can call any half empty glass "full".

    http://unemploymentdata.com/current-u6-unemployment-rate/

    == quote ==

    Current U-6 Unemployment Rate is 9.1% (BLS) or 13.7% (Gallup)

    Current U-6 Unemployment Rate:

    Unemployment U6 vs U3 For December 2016 the official Current U-6 unemployment rate was 9.1% up from last month's 9.0% but still below the recent low of 9.3% in April and September and October's 9.2%.

    On the other hand the independently produced Gallup equivalent called the "Underemployment Rate" was up to 13.7 in December from 13.0% in November nearing the 13.8% of April. The current differential between Gallup and BLS on supposedly the same data is 4.6%!

    jonny bakho : , January 18, 2017 at 05:07 AM
    "The labor market remains near its sustainable, full employment level."

    This is a hope not a fact
    There is plenty of slack if the underemployed move into jobs and we return the 20-50 yr olds to pre-recession participation rates.

    pgl -> jonny bakho... , January 18, 2017 at 07:28 AM
    Yep. Which is why I focus on the employment to population ratio. We are far from full employment.
    John San Vant -> pgl... , January 18, 2017 at 09:54 AM
    nope,nope,nope. you don't get how employment to population ratio is calculated. it can't rise and should not rise unless the calculations are adjusted.
    John San Vant -> jonny bakho... , January 18, 2017 at 09:52 AM
    Sorry, but it is a fact. Capital is at full employment.

    Underemployed is cost savings adjustment made 30+ years ago and the pre-recession trend is always the end of the expansion.

    urban legend -> John San Vant... , January 18, 2017 at 11:09 AM
    Let's see:
    SUPPORTING the belief that we are "close" to full employment is the U-3 measure of unemployment, a measure with an arbitrary cut-off that excludes from the official labor force as many people as possible who are not employed but do want jobs -- by requiring (1) an "active" search effort only within the last four weeks, based on (2) a definition of "active" that probably does not fit rational behavior by the unemployed who now have access to comprehensive Internet jobs databases that did not exist 20 years ago. (It is not terribly hard to surmise the institutional interests that are served by keeping the size of the labor force for purposes of determining the official unemployment rate as small as possible.)

    NOT SUPPORTING the belief that we are close to full employment:

    (1) the lowest employment-to-population ratio in almost half a century;
    (2) negating the intellectually-lazy demographic excuse that invariably gets raised to point No. 1, the lowest employment-to-population ratio in 30 years in the prime working age group (25-54), a group that is 99.99% unaffected by the phenomenon of voluntary retirement;
    (3) a U-6 (that counts many more of the unemployed in the labor force) that is still three percentage points higher than the low point reached in 2000 (three percentage points is a lot, representing about 7.5 million people who want jobs but are not counted in the labor force for calculating the U-3);
    (4) an aggregate growth in full-time jobs of only 9% since the relative high point in 2000 even though the working age population has grown by 20%;
    (5) average weeks unemployed among those who are counted as part of the labor force (26 weeks) that is still more than twice as high as it was in 2000 (under 13 weeks) and is still 10 weeks higher than it was before the Great Recession;
    (6) involuntary part-time employment still 75% higher than it was in 2000, 33% higher than before the Great Recession;
    (7) whereas in 2000, the U.S. was near the top in employment rate among the OECD countries, in 2017 it is close to the bottom; most OECD countries have recovered in their employment rates since the depths of the Great Recession, and many have moved to new levels (even supposedly sick France has a higher employment rate in the 25-54 prime working age group than te U.S.).

    With this array of negative date to overcome, it takes a lot of wise monkeys who neither speak, hear nor see any evil to expound a belief that we are close to full employment.

    RW said... January 18, 2017 at 07:05 AM

    Inflation for the 4th quarter of 2016 is zero -- no change Oct through Dec -- and real interest rates remain near the zero boundary. Republican history WRT governing particularly as it pertains to the economy is sufficiently poor that optimism appears entirely unwarranted. I hear a lot of investors are adjusting their portfolio allocations to favor equities over bonds. Two years ago that was a smart move; now, not so much.

    mulp said...

    "All else equal, tax cuts boost household and business income."

    In 2001, I was rif'd from my 100K++ job and got a $20,000 tax cut.

    That tax cut did not boost my household income.

    That economists have been bamboozled into thinking this way is beyond my comprehension.

    Economies are zero sum. For every action, there is a reaction. Tax cuts mean revenue cuts which means spending cuts and spending cuts mean lower household income.

    Very few sectors of the economy are subject to demand price elasticity that results in higher revenue from price reduction due to the quantity increasing explosively from a small reduction in price.

    For example, cutting the profit tax by 30% on $100 oil so gasoline falls from $4.05 to $4.00 and thus doubles the quantity of gasoline sold to boost profit taxes is an impossibility.

    And cutting the tax on economic profits from restricting oil production to drive up prices and profits can only increase tax revenue if oil production is cut further by cutting jobs so gasoline prices can be increased from $4 to $5 to $6 per gallon.

    Since Reagan, economists seem to have self lobotomized so they spout totally illogical nonsense like "All else equal, tax cuts boost household and business income."

    Might as well say "if you believe, you can fly when tinker bell hits you with pixie dust."


    Reply Wednesday, January 18, 2017 at 11:07 AM

    [Jan 18, 2017] The idea of equilibrium is a neoclassical fallacy as financial sector introduces the positive feedback loop leading to system instability

    Jan 18, 2017 | economistsview.typepad.com
    reason : , January 16, 2017 at 02:03 AM
    I know I will completely offside with my view on this, but I think the behavioural/rational expectations debate is rather besides the point. The much bigger issues are uncertainty and disequilibrium.

    http://noahpinionblog.blogspot.de/2017/01/cracks-in-anti-behavioral-dam.html

    pgl -> reason ... , January 16, 2017 at 02:06 AM
    Not offside. Spot on.
    reason -> reason ... , January 16, 2017 at 02:09 AM
    The fundamental problem is in trying to model an evolutionary system as though it was a quasi stationary system (with exactly proportional growth).
    New Deal democrat -> reason ... , January 16, 2017 at 05:31 AM
    As I noted the other day, and Johnnny Bakho refers to below, the essence of this problem is that the thing being observed, observes back and adapts.

    The only kind of model that might work in the long run, is a model that works even after everybody becomes aware of it and adapts their behavior to it.

    As to the issue of uncertainty, if we assume that most people operate with formal or informal budgets, anything that causes them to think that their budget is about to increase or decrease is going to change their consumption. And since people *hate* to sustain and realise losses, the change is going to be disproportionately intense if the uncertainty include an possible increase to the downside.

    reason -> New Deal democrat... , January 16, 2017 at 07:14 AM
    No that isn't enough. Sure people might change their behavior as their understanding changes. But other things are changing as well as the behavior. In particular, technology and available resources change.

    As I said the system is evolutionary (which means an adaptive system - which includes behavior changes), and evolution is never easy to anticipate, which implies uncertainty. And the existence of uncertainty leads to persistent disequilibrium (as people adopt defensive contingent strategies to cope with uncertainty). The big errors in macro are all associated with the general equilibrium paradigm and the assumptions that come with it.

    New Deal democrat -> reason ... , January 16, 2017 at 07:38 AM
    Point taken re technology and resources, although behavioral adaptation is a big part of why models fail.

    I had a big long response worked out re the biggest endemic problem with "the assumptions that come with" macro's paradigm. Then my iPad decided to randomly pop up a keyboard screen and when I touched to get rid of it, deleted the entire comment!

    The screaming at crapified Apple has passed now. I am zen again.

    reason -> New Deal democrat... , January 16, 2017 at 08:40 AM
    P.S. Rational expectations IS an attempt to build in behavioral adaptation. It is just that it turns out not very useful (it is empirically a complete flop).
    JohnH -> New Deal democrat... , January 16, 2017 at 07:36 AM
    I thought we were in a time of uncertainty right now due to Trump.

    Anybody see any slowing of the economy? Markets are up.

    New Deal democrat -> JohnH... , January 16, 2017 at 07:39 AM
    Well-to-do GOPers foreseeing unfettered capitalist nirvana. It will pass.
    JohnH -> New Deal democrat... , January 16, 2017 at 08:11 AM
    So there is 'uncertainty' and 'uncertainty.' Which kind of uncertainty leads to a slower economy? Why wouldn't unknown after-shocks from repealing Obamacare have current economic repercussions?

    Republicans used to claim that the roll-out of Obamacare was causing economic uncertainty and hurting the economy.

    Seems to me that the whole foundation of 'economic uncertainty' is rather shaky, particularly if the promised, disruptive actions of Trump don't cause economic repercussions.

    reason -> JohnH... , January 16, 2017 at 08:45 AM
    Uncertainty (as for instance PK pointed out) can work in different ways in the short and long terms. In the short term it can result in hedging behavior which might actually promote some investment. In the longer term it will push up risk margins which will probably push growth rates down.
    ilsm -> reason ... , January 16, 2017 at 04:39 AM
    football
    jonny bakho -> reason ... , January 16, 2017 at 04:49 AM
    Humans evolved as social animals.
    If rational expectations focuses on the individual and ignores that humans act as members of groups, not individuals, then it will not accurately predict human behavior or outcomes.
    point -> reason ... , January 16, 2017 at 06:07 AM
    Perhaps your comment is similar to supposing that perhaps "equilibrium" is a not always useful concept when the modeled surface may have multiple local maxima, minima and saddles.
    reason -> point... , January 16, 2017 at 07:18 AM
    Nope. I think we are trying to model a system converging to an equilibrium that is changing faster than the system can possibly adapt. We should forget all about equilibrium in macro-economics. It only misdirects.

    I once tried to explain this with an analogy to flying a plane - the plane is always sinking and rising and net path the outcome of the sum of different (constantly varying) forces. This is quite distinct for instance, from the way that a boat floats on the ocean (which is much closer to how we are trying to model things today). The stochastic shocks in economic models are like waves on the sea - where the net effect in the end is that the average position remains the same. I don't think the economy is like that.

    libezkova -> reason ... , -1
    The idea of equilibrium is a neoclassical fallacy. financial sector introduced in the system systemic instability, the positive feedback loop.

    Cassidy called it "Utopian economics".

    As you wrote in 2015

    reason :

    The problem in thinking here is the equilibrium paradigm. Equilibrium NEVER exists. If there is a glut the price falls below the marginal cost/revenue point, if the seller is desperate enough it falls to zero!

    Ignoring disequilibrium dynamics means this obvious (it should be obvious) point is simply ignored. The assumption of general equilibrium leads to the assumption of marginal productivity driving wages. You are not worth what you produce, you are worth precisely what somewhat else would accept to do your job.

    See also

    "The Virtues and Vices of Equilibrium, and the Future of Financial Economics"
    J. Doyne Farmer and John Geanakoplos (2008)
    http://cowles.econ.yale.edu/~gean/art/p1274.pdf

    [Jan 18, 2017] The main argument Ive heard/read against UBI is that getting money without working is immoral and it should be to everyone according to his work .

    Jan 18, 2017 | economistsview.typepad.com
    Julio -> Peter K.... The main argument I've heard/read against UBI is that getting money without working is immoral and it should be "to everyone according to his work".

    Aside from the obvious contradictions here (we accept heirs getting money without working; and how do you measure anyone's work anyway?), I think this makes an assumption that everything we have is what we produce.

    The fact is that most of what we have is inherited collectively. Even the most successful "job creator" types like Steve Jobs inherit a gigantic cart that they move a few inches forward.

    This is not just concrete material wealth, but institutional wealth also, which we all contribute to continually. Every person that wakes up in the morning and accepts that problems with his neighbor should be resolved in court and not with a gun, is contributing to maintaining that inheritance.

    From this perspective, a UBI that reflects your country's wealth is an inherited right.

    This unstated assumption underlies many of our current debates. E.g. why does an American worker have the right to a Us-standard wage?

    Reply Monday, January 16, 2017 at 11:15 AM RC AKA Darryl, Ron said in reply to Julio ... , January 16, 2017 at 12:01 PM
    Well said.
    anne -> Julio ... , January 16, 2017 at 12:26 PM
    Nicely presented.

    [Jan 18, 2017] Trump's (and Putin's) Plan to Dissolve the EU and NATO.

    Jan 18, 2017 | economistsview.typepad.com
    im1dc : January 15, 2017 at 06:05 PM , 2017 at 06:05 PM
    Everyone will want to read this:

    "Trump's (and Putin's) Plan to Dissolve the EU and NATO."

    http://talkingpointsmemo.com/edblog/trump-s-and-putin-s-plan-to-dissolve-the-eu-and-nato

    "Trump's (and Putin's) Plan to Dissolve the EU and NATO."

    By Josh Marshall...January 15, 2017...8:12 PM EDT

    "Most people in this country, certainly most members of the political class and especially its expression in Washington, don't realize what Donald Trump is trying to do in Europe and Russia. Back in December I explained that Trump has a plan to break up the European Union. Trump and his key advisor Steve Bannon (former Breitbart chief) believe they can promise an advantageous trade agreement with the United Kingdom, thus strengthening the UK's position in its negotiations over exiting the EU. With such a deal in place with the UK, they believe they can slice apart the EU by offering the same model deal to individual EU states. Steve Bannon discussed all of this at length with Business Week's Josh Green and Josh and I discussed it in great detail in this episode of my podcast from mid-December.

    Now we have a rush of new evidence that Trump is moving ahead with these plans.

    One point that was clear in Green's discussions with Bannon and Nigel Farage is that Trump wants to empower Farage as its interlocutor with the United Kingdom. Given Farage's fringe status in the UK, on its face that seems crazy. But that is the plan. And it is a sign of how potent Farage's guidance and advice has become for Trump's view of Europe, the EU and Russia.

    Two days ago, the United States out-going Ambassador to the EU gave a press conference in which he opened up about Farage's apparently guiding role in the Trump world and what he's hearing from EU Member states.

    From the The Financial Times (sub.req.) ...

    ... Donald Trump's transition team have called EU leaders to ask "what country is to leave next" with a tone suggesting the union "is falling apart" this year, according to the outgoing US ambassador to the bloc.

    ... In a pugnacious parting press conference, Anthony Gardner warned of "fringe" voices such as Nigel Farage, the former UK Independence party leader, holding influence in Washington over Mr Trump's team.

    ... Speaking days before leaving office, Mr Gardner said it would be "lunacy" and "the height of folly" for the US to ditch half a century of foreign policy in order to support further EU fragmentation or become a "Brexit cheerleader" in Brussels.

    ... "I was struck in various calls that were going on between the incoming administration and the EU that the first question is: what country is about to leave next after the UK?" he said.

    ... "The perceived sense is that 2017 is the year in which the EU is going to fall apart. And I hope that Nigel Farage is not the only voice being listened to because that is a fringe voice."

    Today in a new interview with the Germany's Bild and the Times of London Trump expanded on these goals dramatically. Trump leveled a series of attacks on German Chancellor Angela Merkel, suggesting he'd like to see her defeated for reelection and saying she'd hurt Germany by letting "all these illegals" into the country. Trump also called NATO "obsolete", predicted other countries would soon leave the EU, and characterized the EU itself as "basically a vehicle for Germany."

    Trump and Bannon are extremely hostile to Merkel and eager to see her lose. But what is increasingly clear is that Trump will make the break up of the EU a central administration policy and appears to want the same for NATO.

    My own view is that Trump and Bannon greatly overestimate America's relative economic power in the world. Their view appears to be that no European country will feel it is able to be locked out of trade with a US-UK trade pact. An America eager to break up the EU seems more likely to inject new life into the union. However that may be, Trump and Bannon clearly want to create a nativist world order based on the US, Russia and states that want to align with them. The EU and NATO are only obstacles to that goal."

    [Jan 18, 2017] U.K. Set to Choose Sharp Break From European Union

    Jan 18, 2017 | economistsview.typepad.com
    anne : , January 15, 2017 at 09:43 AM
    https://www.nytimes.com/2017/01/15/world/europe/uk-set-to-choose-sharp-break-from-european-union.html

    January 15, 2017

    U.K. Set to Choose Sharp Break From European Union
    By STEVEN ERLANGER

    Prime Minister Theresa May is said to be opting for a "hard Brexit," taking Britain out of the European single market and the customs union.

    [ This prospect makes no sense to me at all. How can the United Kingdom possibly gain economically from completely leaving the European Union? ]

    Fred C. Dobbs -> anne... , January 15, 2017 at 10:04 AM
    'Hard Brexit greatest job-killing act in Welsh history'
    http://www.bbc.com/news/uk-wales-politics-38628234
    BBC News - January 15

    Taking the UK out of the EU single market would be "the greatest job-killing act in Welsh economic history", Plaid Cymru has said.

    Several of Sunday's newspapers claim Prime Minister Theresa May will signal the move in a speech on Tuesday.

    Plaid's treasury spokesman Jonathan Edwards told the BBC's Sunday Politics Wales programme the impact on Wales would be "devastating".

    Downing Street has described the reports as "speculation".

    The Carmarthen East and Dinefwr MP said pulling out of the single market and customs union would have a "huge impact on jobs and wages in Wales".

    "The reality of what we're going to hear from [Theresa May] on Tuesday, it's going to be the greatest job-killing act in Welsh economic history, probably in British economic history," he added. ...

    (Previously: EU referendum: Welsh voters back Brexit
    http://www.bbc.com/news/uk-politics-eu-referendum-36612308
    BBC News - June 24)

    Nine things you need to know about a 'Hard Brexit'
    https://www.bloomberg.com/news/articles/2016-10-17/what-makes-a-hard-brexit-harder-than-a-soft-one-quicktake-q-a via @Bloomberg - October 17

    1. What's a 'hard Brexit?'

    It's a shorthand reference to one possible outcome of negotiations between the U.K. and the EU -- the U.K. giving up its membership in Europe's single market for goods and services in return for gaining full control over its own budget, its own law-making, and most importantly, its own immigration. If that happens, British leaders will be under pressure to quickly land a new trade pact or individual industry-by-industry deals with the EU. Otherwise, companies will be subjected to standard World Trade Organization rules, which would impose tariffs on them. Banks would lose the easy access they now enjoy to the bloc.

    2. How would that differ from a softer Brexit?

    A softer form would see the U.K. maintain some tariff-free access to the single market of some 450 million consumers. The U.K. would likely still have to contribute to the EU budget, allow some freedom of labor movement and follow some EU rules. That's what Norway does, as a member of the European Economic Area but not of the EU. ...

    (And seven more things.)

    Fred C. Dobbs -> Fred C. Dobbs... , January 15, 2017 at 10:07 AM
    Plaid Cymru: the Party of Wales, often referred to simply as Plaid) is a social-democratic political party in Wales advocating for Welsh independence from the United Kingdom within the European Union. ... (Wikipedia)
    anne -> Fred C. Dobbs... , January 15, 2017 at 11:39 AM
    I appreciate these additions.
    Fred C. Dobbs -> anne... , January 15, 2017 at 10:30 AM
    'How can the United Kingdom possibly gain economically from completely leaving the
    European Union?'

    Voters decided that the UK was paying
    more to be 'in the EU' than they were
    receiving (in subsidies, etc.) for
    *being* members. That and they were
    expected by Way Too European, welcome
    foreign workers, obey crazy regulations
    imposed by foreigners, yada yada yada.

    (Wales, BTW, gets/got lots of aid from the EU.)

    Or, is the key word 'completely'?

    It was said months ago by the other major
    EU members that they want Britain *out*, so
    that alone should be a reason for PM May
    to demand a very Soft Brexit.

    anne -> Fred C. Dobbs... , January 15, 2017 at 10:40 AM
    After these months since the vote to leave the European Union, where the United Kingdom had special privileges to begin with, I still find no coherent rationale to the decision. There is no reason to think the cost of being an EU member was anywhere near the benefits to the UK, and evidence to the contrary that was repeatedly promised has never been produced.

    Simon Wren-Lewis has written often on Brexit and seems as puzzled as I am by the seeming toughness as well as the determination of Teresa May on the leaving.

    anne -> anne... , January 15, 2017 at 10:42 AM
    https://mainly macro.blogspot.com/

    Simon Wren-Lewis, whose excellent blog can only be linked to by separating "mainly" and "macro."

    Fred C. Dobbs -> anne... , January 15, 2017 at 12:48 PM
    It would seem UK voters were bamboozled about
    the finances. They do pay a lot *in* to be
    EU members, as do other large/wealthy
    members, but they also got a lot back.
    They were told it was costing too much.

    'they were
    expected (to be) Way Too European, welcome
    foreign workers, obey crazy regulations
    imposed by foreigners, etc.'

    Britain has always had mixed feelings
    about being 'European' it seems, since
    the end of their empire.

    Fred C. Dobbs -> Fred C. Dobbs... , January 15, 2017 at 01:07 PM
    'End of Empire'...

    No worries. There will
    still be The Five Eyes,
    the 'Special Relationship'.

    An exclusive club: The 5 countries that don't spy on each other http://to.pbs.org/2iv8mNk
    via @PBS NewsHour - October 25, 2013

    It was born out of American and British intelligence collaboration in World War II, a long-private club nicknamed the "Five Eyes." The members are five English-speaking countries who share virtually all intelligence - and pledge not to practice their craft on one another. A former top U.S. counter-terrorism official called it "the inner circle of our very closest allies, who don't need to spy on each other."

    This is the club that German chancellor Angela Merkel and French President Francois Hollande say they want to join - or at least, win a similar "no-spying" pact with the U.S. themselves.

    It all began with a secret 7-page agreement struck in 1946 between the U.S. and the U.K., the "British-US Communication Agreement," later renamed UKUSA. At first their focus was the Soviet Union and its Eastern European satellites. But after Canada joined in 1948, and Australia and New Zealand in 1956, the "Five Eyes" was born, and it had global reach. They pledged to share intelligence - especially the results of electronic surveillance of communications - and not to conduct such surveillance on each other. Whiffs of the club's existence appeared occasionally in the press, but it wasn't officially acknowledged and declassified until 2010, when Britain's General Communications Headquarters, or GCHQ, released some of the founding documents. The benefits of membership are immense, say intelligence experts. While the U.S. has worldwide satellite surveillance abilities, the club benefits from each member's regional specialty, like Australia and New Zealand's in the Far East. "We practice intelligence burden sharing," said one former U.S. official. "We can say, 'that's hard for us cover, so can you?'" The ease and rapidity of information-sharing among the five "makes it quicker to connect the dots," said another intelligence veteran. "You can't underestimate the importance of the common language, legal system and culture," said another. "Above all, there is total trust." ...

    anne -> Fred C. Dobbs... , January 15, 2017 at 10:58 AM
    Real per capita Gross Domestic Product for the United States had by 2014 recovered from the international recession to the level of 2007. Recovery for the United Kingdom came in 2015. The recession and recovery obviously were socially difficult and took an extended time.

    Then too, there had been a time of war from the US and UK extending from 2001.

    An extended period of social turmoil that is difficult to grasp or shut out.

    im1dc -> anne... , January 15, 2017 at 11:39 AM
    PM May is in way over her head and does not know what she is doing. Nor does she know what she says has meaning and effects. She's not long for office, imo of course.

    [Jan 18, 2017] Brexit: The Story on Tariffs and Currency Fluctuations

    Jan 18, 2017 | economistsview.typepad.com
    anne : , January 16, 2017 at 09:04 AM
    http://cepr.net/blogs/beat-the-press/brexit-the-story-on-tariffs-and-currency-fluctuations

    January 16, 2017

    Brexit: The Story on Tariffs and Currency Fluctuations

    The New York Times decided to tout the risks * that higher tariffs could cause serious damage to industry in the UK following Brexit:

    For Mr. Magal [the CEO of an engineering company that makes parts for the car industry], the threat of trade tariffs is forcing him to rethink the structure of his business. The company assembles thermostatic control units for car manufacturers, including Jaguar Land Rover in Britain and Daimler in Germany.

    "Tariffs could add anything up to 10 percent to the price of some of his products, an increase he can neither afford to absorb nor pass on. 'We don't make 10 percent profit - that's for sure,' he said, adding, 'We won't be able to increase the price, because the customer will say, "We will buy from the competition."' "

    The problem with this story, as conveyed by Mr. Magal, is that the British pound has already fallen by close to 10 percent against the euro since Brexit. This means that even if the European Union places a 10 percent tariff on goods from the UK (the highest allowable under the World Trade Organization), his company will be in roughly the same position as it was before Brexit. It is also worth noting that the pound rose by roughly 10 percent against the euro over the course of 2015. This should have seriously hurt Mr. Magal's business in the UK if it is as sensitive to relative prices as he claims.

    [Graph]

    It is likely that Brexit will be harmful to the UK economy if it does occur, but many of the claims made before the vote were wrong, most notably there was not an immediate recession. It seems many of the claims being made now are also false.

    * https://www.nytimes.com/2017/01/15/world/europe/brexit-firms-business-relocate.html

    -- Dean Baker

    anne -> anne... , -1
    https://fred.stlouisfed.org/graph/?g=cov6

    January 15, 2017

    Real Broad Effective Exchange Rate for United Kingdom, 2000-2016

    (Indexed to 2000)

    [Jan 17, 2017] Clinton administration tried to destroy Russian economics

    Notable quotes:
    "... U.S. assistance to Chubais continued even after he was dismissed by Yeltsin as First Deputy Prime Minister in January 1996. Chubais was placed on the HIID payroll, a show of loyalty that USAID Assistant Administrator Thomas A. Dine said he supported. ..."
    "... Bill Clinton was all out after Russia, Talbot and his neocon advisors! ..."
    "... The look the other way when the united Germany sent a brigade size armored set to Croatia to do Serbs. ..."
    "... In Jul 1997 Poland, Hungary and Czech republic were entered in to NATO. ..."
    "... Regarding Russia, Clinton was more interested in domination that development...a consistent theme in US history since its beginning. ..."
    "... Instead of promoting democracy, the US rigged the 1996 election in favor of the drunkard Yeltsin. ..."
    "... To hear the all the whining of Democrats and of the security state, the chickens may have come home to roost. ..."
    Jan 17, 2017 | economistsview.typepad.com
    RC AKA Darryl, Ron : January 17, 2017 at 03:53 AM
    RE: Trump and Gorbachev

    http://glineq.blogspot.com/2017/01/trump-and-gorbachev.html

    "...Many people (myself included) have regretted that the Clinton administration has failed to seize the moment at the end of the Cold War to create a more just international order that would be based on the rules of law, would not be dichotomic or even Manichean one with its origin in the Cold War, and would include Russia rather than leave it out in the cold..."

    [Was "Clinton administration has failed" a typo or a subtle semantic choice? Whereas "Clinton administration HAD failed" would have past perfect tense, "has failed" is present perfect tense, suggesting the subject "Clinton administration" is the continuum of compassionate conservatism beginning with Bill Clinton and ending with Barrack Obama. Semantics is why spelling is important. It is also why reading is important.]

    reason -> RC AKA Darryl, Ron... , January 17, 2017 at 05:28 AM
    I personally have no idea what Branko Milanovic is going on about there. As far as I can tell Russia chose to be "out in the cold", it wasn't excluded.
    RC AKA Darryl, Ron -> reason ... , January 17, 2017 at 06:21 AM
    [Not exactly. Sherman, set the wayback machine for 1998, near the end of the Bill Clinton administration's second term.]

    http://fpif.org/aid_to_russia/

    Aid to Russia

    When the Soviet Union abruptly ceased to exist on December 25, 1991, it seemed that the West, particularly the U.S., finally had what it had always wanted–the opportunity to introduce quick, all-encompassing economic reform that would remake Russia in the West's own image.

    By Janine Wedel, September 1, 1998.

    Key Points

    When the Soviet Union abruptly ceased to exist on December 25, 1991, it seemed that the West, particularly the U.S., finally had what it had always wanted–the opportunity to introduce quick, all-encompassing economic reform that would remake Russia in the West's own image. To this end, the U.S., over the past seven years, has embarked upon a fairly consistent course of economic relations with Russia. Three interrelated policies characterize this course: 1) the urging of radical economic "reforms," defined largely as the privatization of state-owned assets, to restructure the economy; 2) the backing of a particular political-economic group, or "clan," to do so; and 3) the provision of billions of dollars in U.S. and other Western aid, subsidized loans, and rescheduled debt.

    The United States has consistently supported President Boris Yeltsin and a Russian cadre of self-styled economic "reformers" to conduct Western aid-funded economic reforms and negotiate economic relations with the West. U.S. support for Anatoly Chubais, Yegor Gaidar, and the so-called "Chubais Clan" (a group of savvy operators dominated by a clique from St. Petersburg) has bolstered the Clan's standing as Russia's chief brokers with the West and the international financial institutions. This support continues to the present. And, the Chubais Clan–not the Russian economy as a whole–has been the chief beneficiary of economic restructuring funding from the U.S. Agency for International Development (USAID).

    Throughout the 1990s, Chubais has been a useful figure for Russian president Boris Yeltsin: beginning in November 1991 as head of Russia's new privatization agency, the State Property Committee (GKI), then additionally as first deputy prime minister in January 1994, and later as the lightning rod for complaints about economic policies after the communists won the Russian parliament (Duma) election in December 1995. Chubais made a comeback in 1996 as head of Yeltsin's successful reelection campaign and was named chief of staff for the president. In March 1997, Western support and political maneuvering catapulted him to first deputy prime minister and minister of finance. Although fired by Yeltsin in March 1998, Chubais was reappointed in June 1998 to be Yeltsin's special envoy in charge of Russia's relations with international lending institutions.

    Working closely with Harvard University's Institute for International Development (HIID), the Chubais Clan controlled, directly and indirectly, millions of dollars in U.S. aid through a variety of institutions and organizations set up to perform privatization, economic-restructuring, and related activities. Between 1992 and 1997, HIID received $40.4 million from USAID in noncompetitive grants for work in Russia and was slated to receive another $17.4 million until USAID suspended HIID's funding in May 1997, citing evidence that HIID principals were engaged in "activities for personal gain." In addition to receiving millions in direct funding, HIID and the Clan helped steer and coordinate USAID's $300 million economic reform portfolio, which encompassed privatization, legal reform, development of capital markets, and the creation of a Russian securities and exchange commission.

    The preferred method of economic reform was top-down presidential decree orchestrated by Chubais. Shortly after Yeltsin became the elected president of the Russian Federation in June 1991, the Federation's Supreme Soviet passed a law mandating privatization. After several schemes were floated, the Supreme Soviet passed a program in 1992 intended to prevent corruption, but the one Chubais eventually implemented contained none of the safeguards and was designed to encourage the accumulation of property in a few hands. This program opened the door to widespread corruption and was so controversial that Chubais ultimately had to rely largely on presidential decrees, not parliamentary approval, for implementation.

    Instead of encouraging market reform, this rule by decree frustrated many market reforms as well as democratic decisionmaking. Some reforms, such as lifting price controls, could be achieved by decree. But many other reforms advocated by USAID, the World Bank, and the International Monetary Fund (IMF), including privatization and economic restructuring, depended on changes in law, public administration, or mindsets, and required working with the full spectrum of legislative and market participants-not just one group. The "reformers" set up still other means of bypassing democratic processes, including a network of aid-funded "private" organizations controlled by the Chubais Clan and HIID. These organizations enabled reformers to bypass legitimate bodies of government, such as ministries and branch ministries, and to circumvent the Duma.

    Problems with Current U.S. Policy

    Key Problems

    The privatization drive that was supposed to reap the fruits of the free market instead helped to create a system of tycoon capitalism run for the benefit of a corrupt political oligarchy that has appropriated hundreds of millions of dollars of Western aid and plundered Russia's wealth.

    Despite evidence of corruption and lack of popular support, many Western investors and U.S. officials embraced the "reformers" dictatorial modus operandi and viewed Chubais as the only man capable of keeping the nation heading along the troublesome road to economic reform. As Walter Coles, a senior adviser in USAID's Office of Privatization and Economic Restructuring program, said, "If we needed a decree, Chubais didn't have to go through the bureaucracy," adding, "There was no way that reformers could go to the Duma for large amounts of money to move along reform."

    While this approach sounds good in principle, it is less convincing in practice because it is an inherently political decision disguised as a technical matter. As Chubais Clan member Maxim Boycko himself acknowledged in a 1995 co-authored book on privatization, "Aid can change the political equilibrium by explicitly helping free-market reformers to defeat their opponents . Aid helps reform not because it directly helps the economy–it is simply too small for that–but because it helps the reformers in their political battles."

    In a 1997 interview, U.S. aid coordinator to the former Soviet Union, Ambassador Richard L. Morningstar, stood by this approach: "If we hadn't been there to provide funding to Chubais, could we have won the battle to carry out privatization? Probably not. When you're talking about a few hundred million dollars, you're not going to change the country, but you can provide targeted assistance to help Chubais."

    U.S. assistance to Chubais continued even after he was dismissed by Yeltsin as First Deputy Prime Minister in January 1996. Chubais was placed on the HIID payroll, a show of loyalty that USAID Assistant Administrator Thomas A. Dine said he supported.

    Much of this feels familiar to Russians raised in the Communist practice of political control over economic decisions–the quintessence of the discredited Communist system. While professing simply to support reform, U.S. policies afforded one group a comparative advantage and allowed much aid to be used as the tool of this group. Ironically, far from helping to separate the political and economic spheres, U.S. economic aid has instead reinforced the interdependency of these spheres. Indeed, the activities of HIID in Russia provide some cautionary lessons on abuse of trust by supposedly disinterested foreign advisers, on U.S. arrogance, and on the entire policy of support for a single Russian group of so-called reformers.

    The July 1998 IMF bailout of Russia represents an intensification of the very policies that have produced such abuses. The $11.2 billion aid package for 1998, (with another $7.8 billion funds over three years pledged if Russia "stays on track"), is supposed to put an end to Russia's financial crisis. Yet only a very few certain political-economic players–not the population at large, including workers who have gone without wages for months–stand to reap any benefits.

    Among those who spoke out against the bailout was Veniamin Sokolov, head of the Chamber of Accounts of the Russian Federation, Russia's equivalent of the U.S. General Accounting Office. Sokolov, who has investigated the destination of some previous monies from international lending institutions and aid organizations, argued, "All loans made to Russia go to speculative financial markets and have no effect whatsoever on the national economy." And it is the Russian people who are responsible for repaying those loans.

    The very call for an IMF bailout is a commentary on the failure of previous economic aid to Russia: If aid had been effective, why were billions in IMF loans needed to prevent the country from falling into crisis? The IMF loan and accompanying hype were intended to revive confidence in Russia's plummeting markets and give the government time to get its financial markets under control. However, just weeks after the IMF deal was approved, investor confidence hit a new low and the Russian government was forced to devalue the ruble.

    For its part, USAID, which provided Russia with $95.7 million in economic aid in 1997 and another $129.1 million estimated for 1998, is requesting from Congress $225.4 million in economic aid for Russia in 1999.

    Toward a New Foreign Policy

    Key Recommendations

    Given the continuing socioeconomic deterioration of Russia, what should the United States do? If the U.S. government wants to adhere to its own declared objectives and help promote in Russia sound economic development and equitable growth as well as viable and transparent democratic institutions, it has no option than to reverse its current policies and practices.

    The U.S. role in creating a system of tycoon capitalism and the current economic meltdown, coupled with military policies such as NATO expansion, have fueled anti-American sentiment in Russia. The first thing we should do, as Joseph Stiglitz, a leading World Bank economist, correctly suggests, is to adopt "a greater degree of humility . (and) acknowledgement of the fact that we do not have all of the answers." Washington must also accept that the future shape of Russia society will and must be determined by the Russian people. U.S. policy should at least try to adhere to some of the principles that it preaches, such as participatory democracy and the rule of law or even "no taxation without representation." In line this with, the U.S. must stop its policy of support-at-all-costs for Yeltsin and the Chubais Clan, not only in USAID targets but also in U.S. influence in IMF and World Bank lending.

    Second, the U.S. government should recognize that a healthy banking and financial system cannot arise without a revival of production and distribution in the "real" economy. Measures which emphasize increases in tax collections and reductions in government expenditures under the current extremely depressed conditions simply guarantee accelerated decline of the real economy and social-political chaos. The United States should use its great influence on the IMF andWorld Bank to reduce their pressure on Russia to pursue such suicidal policies. Not only did the IMF bailout fail to restore confidence, but the business of international aid has been fundamentally ill-conceived. As Veniamin Sokolov warned: "Giving more loans to the Yeltsin government is comparable to giving a drug addict a fresh supply of narcotics. Any new loans will only go to the realm of financial speculation and to prop up support for Boris Yeltsin. Russia does not need any further such lending." In sum, further aid will go to the same corrupt niches and is likely to make the situation worse, not better.

    Third, the U.S. should embark on a broad-based policy to encourage governance and the rule of law. It is essential that the United States discontinue support of non-inclusive organizations and the bypassing of democratic process through decree. Some U.S. aid funds have gone for "democracy building," including strengthening and revamping the judiciary. However, these efforts have been a low priority and have been compromised and undermined by the practice of U.S. economic advisers encouraging the Chubais Clan to enact swift economic reforms without approval of the Duma, Russia's popularly elected legislature.

    The U.S. needs to adopt a pro-democracy stance that encourages institution-building and as broad a range of democratic positions as possible. We must cease to select specific groups or individuals as the recipients of uncritical support, which both corrupts our "favorites" and delegitimizes them in the eyes of their fellow citizens.

    Fourth, President Clinton himself, other U.S. officials, and economic advisers need to establish contact and ties with a wide cross-section of the Russian leadership–politicians, economists, and social and political activists–and not only with Yeltsin and his allies. How Russian elites perceive the efficacy of U.S. aid programs and policies should be a source of concern, especially because many Russians have questioned American intentions. Although a reversal of policy will require a long and resolute process of diplomacy, Clinton administration officials can take steps by, for example, making efforts to meet with members of the Duma and a diversity of Russian elites.


    [What the US largely did at that point was disengage aid to Russia and set them adrift.]

    ilsm -> RC AKA Darryl, Ron... , January 17, 2017 at 02:00 PM
    This is a jr high social studies homework assignment from a pro neocon teacher.

    Bill Clinton was all out after Russia, Talbot and his neocon advisors!

    The look the other way when the united Germany sent a brigade size armored set to Croatia to do Serbs.

    In Jul 1997 Poland, Hungary and Czech republic were entered in to NATO.

    Several undeclared wars against Serbia under Clinton. The Russians looked on helpless to aid the historic Tsarist protectorate.

    The Crimean War in 1857 was fought over the same issues.

    End of cold war was back to the historic west Europe versus Russia.

    Milanovic is out of his element.

    ilsm -> ilsm... , January 17, 2017 at 02:02 PM
    Then there was Harvard's economic advisors' pillaging Russian evolution.

    Documented by David Warsh.

    RC AKA Darryl, Ron -> ilsm... , January 17, 2017 at 02:37 PM
    It is not clear what Milanovic was trying to get at, but what Janine Wedel wrote about was how I came to understand the story. Your writing makes Milanovic seem cogent. I am talking about your organization of ideas and your semantics, as well as his. Neither of you get much across for the effort. Wedel can actually write. Whether she is right or not, I cannot say, but it is how I have heard the story told from the beginning.
    ilsm -> RC AKA Darryl, Ron... , January 17, 2017 at 03:29 PM
    I typed too much!

    no more six word lines

    libezkova -> ilsm... , January 17, 2017 at 05:55 PM
    Here is a web page about Harvard mafia did Russia in 90th

    http://www.softpanorama.org/Skeptics/Pseudoscience/harvard_mafia.shtml

    libezkova -> libezkova... , January 17, 2017 at 06:43 PM
    Looks like there was a desire to completely destroy Russian economics and turn Russia into vassal state by the USA ruling elite. So the policy was not to help, but help to destroy.

    Huge profits were made by devouring Russia and all xUSSR region and plunging the population into abject poverty. But eventually it backfired.

    Chris G -> RC AKA Darryl, Ron... , January 17, 2017 at 02:15 PM
    Yeah, hard to argue that the U.S. did the Russian people a solid after the Soviet Union collapsed.
    RC AKA Darryl, Ron said in reply to Chris G ... , January 17, 2017 at 02:38 PM
    Yep. The US is good about intervening, screwing it up, and then leaving the scene of the crime.
    JohnH -> RC AKA Darryl, Ron... , January 17, 2017 at 07:31 AM
    Regarding Russia, Clinton was more interested in domination that development...a consistent theme in US history since its beginning.

    Instead of promoting democracy, the US rigged the 1996 election in favor of the drunkard Yeltsin.
    http://www.newsmax.com/Newsmax-Tv/bill-clinton-advise-boris-yeltsin-dick-morris/2016/09/08/id/747327/

    To hear the all the whining of Democrats and of the security state, the chickens may have come home to roost.

    pgl -> JohnH... , January 17, 2017 at 08:04 AM
    Wow - Anne is not going to like this suggestion that Yeltsin was a drunkard. Of course you missed the real problem - his regime of crony capitalism was incredibly corrupt. Stiglitz covered the damage that was done in a chapter entitled "Who Lost Russia". Something else you never bothered to read.
    pgl -> pgl... , January 17, 2017 at 08:05 AM
    Chapter 5 of Globalization and its Discontents (2002)

    https://www.princeton.edu/wwac/academic-review/files/561/8.3c_StiglitzCh5.doc

    JohnH -> pgl... , January 17, 2017 at 09:54 AM
    Yeltsin's "regime of crony capitalism was incredibly corrupt"...Clinton's regime on a grander scale...which was why Clinton wanted to rig the Russian election for Yeltsin?
    ilsm -> RC AKA Darryl, Ron... , January 17, 2017 at 02:16 PM
    Having been is Strategic Air Command, as well as a long time in the technical side of NORAD's mission I find Milanovic's concluding statement utterly misguided.

    "But note that the Cold War had one good feature: it was "Cold".

    "Civilization"* could have ended in less than the time to watch an NFL football game.

    My experiences in the cold war were really great!! The nuclear forces I supported were on 'immediate' launch alert, several rumors abide about close calls from 'sensor errors and communication black out". Any of SAC's bomb wings could have its alert Buffs in the air in single digit minutes!

    It is safer to move NATO right up to Moscow! Neocon hyperbole from Milanovic selling the US military industrial complex' marketing plans. Look how secure and prosperous the 'west' has been under the umbrella of $28T in US war spending.

    It don't cause any concerns that NATO has organized former Warsaw pact against Russia.

    It will be deceptively "Cold" until it goes thermonuclear over that brigade level trip wire.

    ilsm -> RC AKA Darryl, Ron... , -1
    Obama on cornering Russia is an extension of Wm Clinton.

    [Jan 17, 2017] The Housing Bubble Was Not Hard to See (Except for Economists)

    Jan 17, 2017 | economistsview.typepad.com
    anne : , January 17, 2017 at 05:56 AM
    http://cepr.net/blogs/beat-the-press/the-housing-bubble-was-not-hard-to-see-except-for-economists

    January 17, 2017

    The Housing Bubble Was Not Hard to See (Except for Economists)

    Max Ehrenfreund features * a rather silly debate among economists about explanations for the housing bubble (wrongly described as the "financial crisis) in a Washington Post piece. The debate is over whether subprime mortgages were central to the bubble. Of course subprime played an important role, but the focus of the piece is on new research showing that most of the bad debt was on prime mortgages taken out by people with good credit records.

    I sort of thought everyone knew this, but whatever. The more important point is that economists continue to treat the housing bubble as something that snuck up on us in the dark and only someone with an incredibly keen sense of the housing market would have seen it. (I focus on the bubble and not the financial crisis, because the latter was very much secondary and really a distraction. By 2011 our financial system had been pretty much fully mended, yet the weak economy persisted. This was due to the fact that we had no source of demand in the economy to replace the demand generated by the housing bubble.)

    Anyhow, there was nothing mysterious about the housing bubble. We had an unprecedented run-up in real house prices with no remotely plausible explanation in the fundamentals of the housing market. This could be clearly seen by the fact that rents were just following in step with the overall rate of inflation, as they have generally for as long as we have data. (This is nationwide, rents have outpaced inflation in many local markets, as have house prices.) The bubble should also have been apparent as we had record vacancy rates as early as 2002. The vacancy rate eventually rose much higher by the peak of the market in 2006.

    It should also have been clear that the collapse of the bubble would be bad news for the economy. Residential construction reached a peak of 6.5 percent of GDP, about 2.5 percentage points more than normal. (When the bubble burst it fell to less than 2.0 percent of GDP due to massive overbuilding.) Also, the housing wealth effect led to an enormous consumption boom as people spent based on $8 trillion in ephemeral housing wealth.

    In short, there was really no excuse for economists missing the bubble or not recognizing the fact that its collapse would lead to a severe recession. The signs were very visible to any competent observer.

    * https://www.washingtonpost.com/news/wonk/wp/2017/01/16/why-these-economists-say-the-usual-explanation-for-the-financial-crisis-is-wrong/

    -- Dean Baker

    RC AKA Darryl, Ron -> anne... , January 17, 2017 at 06:43 AM
    Precisely. THANKS!
    Chris Lowery -> anne... , January 17, 2017 at 07:29 AM
    Mortgage payments as a percentage of personal disposable income --

    https://fred.stlouisfed.org/graph/fredgraph.png?g=cp0S

    Median home price versus median family income --

    https://fred.stlouisfed.org/graph/fredgraph.png?g=cp0W

    Stan Dupcomic -> anne... , January 17, 2017 at 08:00 AM
    unprecedented run-up in real house prices with no remotely plausible explanation in the fundamentals of the housing market. This could be clearly seen by the fact that rents
    "
    ~~dB~

    During that run-up would have been the perfect time to shift into full reserve banking thus cutting off the deluge of cash looking for a home, looking for homes to buy, flip, and inflate.

    Now it's too
    late --


    ilsm -> anne... , January 17, 2017 at 03:24 PM
    Res Re getting bubbly up here in parts of the Boston MRSA.

    [Jan 17, 2017] Is Krugman another economic charlatan like Mankiw?

    Jan 17, 2017 | economistsview.typepad.com
    All those notions like "full employment" (when employment metrics are completely screwed) are very questionable indeed. And role of federal reserve in enforcing neoliberal policies is often underestimated. Greenspan was a neoliberal stooge. A servant of Wall Street.

    Peter K. : , January 17, 2017 at 08:02 AM

    JW Mason remembers a famous episode that the progressive neoliberals would have us forget:

    http://jwmason.org/slackwire/what-does-crowding-out-even-mean/

    What Does Crowding Out Even Mean?
    by J.W. Mason
    Posted on January 16, 2017

    Paul Krugman is taking some guff for this column where he argues that the US economy is now at potential, or full employment, so any shift in the federal budget toward deficit will just crowd out private demand.

    ...

    ...In the more sophisticated textbooks, this becomes a central bank reaction function - the central bank's actions change from being policy choices, to a fundamental law of the economic universe. The master parable for this story is the 1990s, when the Clinton administration came in with big plans for stimulus, only to be slapped down by Alan Greenspan, who warned that any increase in public spending would be offset by a contractionary shift by the federal reserve. But once Clinton made the walk to Canossa and embraced deficit reduction, Greenspan's fed rewarded him with low rates, substituting private investment in equal measure for the foregone public spending. In the current contest, this means: Any increase in federal borrowing will be offset one for one by a fall in private investment - because the Fed will raise rates enough to make it happen."

    ...

    [Jan 17, 2017] Obama was rising to power with remarkable backing from Wall Street and K Street election investors

    Jan 17, 2017 | economistsview.typepad.com
    JohnH -> Fred C. Dobbs...

    From the man who studied Obama before he started rising:

    "the early Obama phenomenon (dating back to his campaign for an open U.S. Senate seat in Illinois in 2003-04) was intimately tied in with the United States' corporate and financial ruling class. Obama was rising to power with remarkable backing from Wall Street and K Street election investors who were not in the business of promoting politicians who sought to challenge the nation's dominant domestic and imperial hierarchies and doctrines."
    http://www.truthdig.com/report/item/we_were_warned_about_barack_obama_--_by_obama_20170114

    Now 'liberal' commentators are celebrating Obama because he did his job...behaving like a Bush41 Republican and normalizing the damage that Bush43 did. Reply Tuesday, January 17, 2017 at 07:39 AM Peter K. -> Fred C. Dobbs... , January 17, 2017 at 07:53 AM

    "John F. Kennedy, though popular in retrospect, had his agenda stalled in Congress when he was killed. "

    That will tend to stall your agenda.

    Peter K. -> Peter K.... , January 17, 2017 at 08:41 AM
    Kennedy's wanted to cut taxes on the rich and corporations and increase inequality.

    "President John F. Kennedy brought up the issue of tax reduction in his 1963 State of the Union address. His initial plan called for a $13.5 billion tax cut through a reduction of the top income tax rate from 91% to 65%, reduction of the bottom rate from 20% to 14%, and a reduction in the corporate tax rate from 52% to 47%. The first attempt at passing the tax cuts was rejected by Congress in 1963. Conservatives revolted at giving Kennedy a key legislative victory before the election of 1964."

    LBJ helped pass his agenda. Neoliberal!

    "The Office of Tax Analysis of the United States Department of the Treasury summarized the tax changes as follows:[2]

    reduced top marginal rate (on income over $100,000, roughly $770,000 in 2015 dollars, for individuals; and over $180,000; roughly $1,380,000 in 2015 dollars, for heads of households) from 91% to 70%

    reduced corporate tax rate from 52% to 48%

    phased-in acceleration of corporate estimated tax payments (through 1970)

    created minimum standard deduction of $300 + $100/exemption (total $1,000 max)

    Peter K. -> Peter K.... , January 17, 2017 at 08:42 AM
    starve the beast!

    [Jan 17, 2017] In Defense Of Populism

    Notable quotes:
    "... Davos elite faces evaporating trust in "post-trith" era ..."
    "... "The most shocking statistic of this whole study is that half the people who are high-income, college-educated and well-informed also believe the system doesn't work." ..."
    "... Even wealthy, well educated people understand things aren't working, which begs the question. Who does think the system is working? Well, the people attending Davos, of course. These are the folks who cheer on a world in which eight people own as much as the bottom 50%. ..."
    "... The mere fact that billionaire-owned media is so hostile to populism tells you everything you need to know. Behind the idea of populism is the notion of self-government, and Davos-type elitists hate this. They believe in a technocracy in which they make all the important decisions. Populism is dangerous because populism is empowering. It implies that the people ultimately have the power. ..."
    "... The global financial crisis of 2008/9 and the migrant crisis of 2015/16 exposed the impotence of politicians, deepening public disillusion and pushing people towards populists who offered simple explanations and solutions. ..."
    "... Populism can be dangerous, and it's certainly messy, but it's a crucial pressure release valve for any functioning free society. If you don't allow populist movements to do their thing in the short-term, you'll get far worse outcomes in the long-term. ..."
    "... Those who make peaceful revolution impossible will make violent revolution inevitable. ..."
    Jan 17, 2017 | www.zerohedge.com

    DAVOS MAN : "A soulless man, technocratic, nationless and cultureless, severed from reality. The modern economics that undergirded Davos capitalism is equally soulless, a managerial capitalism that reduces economics to mathematics and separates it from human action and human creativity."

    – From the post: "For the Sake of Capitalism, Pepper Spray Davos"

    One thing I've been very careful about not doing over the years is self-identifying under any particular political ideology. I articulated my reasoning in the post, Thank You and Welcome New Readers – A Liberty Blitzkrieg Mission Statement :

    I am not a Democrat or a Republican. I do not consider myself a libertarian, progressive, socialist, anarchist, conservative, neoconservative or neoliberal. I'm just a 38 year old guy trying to figure it all out. Naturally, this doesn't imply that there aren't things which I hold dear. I have a strong belief system based on key principles. It's just that I don't think it makes sense for me to self-label and become part of a tribe. The moment you self-label, is the moment you stop thinking for yourself. It's also the moment you stop listening. When you think you have all the answers, anyone who doesn't think exactly as you do on all topics is either stupid or "paid opposition." I don't subscribe to this way of thinking.

    Despite my refusal to self-identify, I am comfortable stating that I'm a firm supporter of populist movements and appreciate the instrumental role they've played historically in free societies. The reason I like this term is because it carries very little baggage. It doesn't mean you adhere to a specific set of policies or solutions, but that you believe above all else that the concerns of average citizens matter and must be reflected in government policy.

    Populism reaches its political potential once such concerns become so acute they translate into popular movements, which in turn influence the levers of power. Populism is not a bug, but is a key feature in any democratic society. It functions as a sort of pressure relief valve for free societies. Indeed, it allows for an adjustment and recalibration of the existing order at the exact point in the cycle when it is needed most. In our current corrupt, unethical and depraved oligarchy, populism is exactly what is needed to restore some balance to society. Irrespective of what you think of Donald Trump or Bernie Sanders, both political movements were undoubtably populist in nature. This doesn't mean that Trump govern as populist once he is sworn into power, but there's little doubt that the energy which propelled him to the Presidency was part of a populist wave.

    Trump understands this, and despite having surrounded himself with an endless stream of slimy ex-Goldman Sachs bankers and other assorted billionaires, his campaign took the following position with regard to Davos according to Bloomberg :

    Donald Trump won't send an official representative to the annual gathering of the world's economic elite in Davos, taking place next week in the days leading up to his inauguration, although one of the president-elect's advisers is slated to attend.

    Former Goldman Sachs President Gary Cohn, a regular attendee in the past, told the group he would skip 2017 after being named in December to head the National Economic Council, said people familiar with the conference. Other top Trump appointees will also pass up the forum.

    A senior member of Trump's transition team said the president-elect thought it would betray his populist-fueled movement to have a presence at the high-powered annual gathering in the Swiss Alps. The gathering of millionaires, billionaires, political leaders and celebrities represents the power structure that fueled the populist anger that helped Trump win the election, said the person, who asked for anonymity to discuss the matter.

    While all of this sounds great, it's not entirely true. For example:

    Hedge fund manager Anthony Scaramucci is planning to travel to Davos, though. The founder of SkyBridge Capital and an early backer of Trump's campaign, Scaramucci was named on Thursday as an assistant to the president.

    Not that Scaramucci's presence should surprise anyone, he's the consummate banker apologist, anti-populist. Recall what he said last month :

    "I think the cabal against the bankers is over."

    This guy shouldn't be allowed within ten feet of any populist President, but Trump unfortunately seems to have a thing for ex-Goldman Sachs bankers.

    While we're on then subject, let's discuss Davos for a moment. You know, the idyllic Swiss town where the world's most dastardly politicians, oligarchs and their fawning media servants will gather in a technocratic orgy of panels and cocktail parties to discuss how best to manage the world's affairs in the year ahead. Yes, that Davos.

    To get a sense of the maniacal mindset of these people, I want to turn your attention to a couple of Reuters articles published earlier today. First, from Davos Elites Struggle for Answers as Trump Era Dawns :

    DAVOS, Switzerland – The global economy is in better shape than it's been in years. Stock markets are booming, oil prices are on the rise again and the risks of a rapid economic slowdown in China, a major source of concern a year ago, have eased.

    First report from Davos is in. Everything's fine.

    And yet, as political leaders, CEOs and top bankers make their annual trek up the Swiss Alps to the World Economic Forum in Davos, the mood is anything but celebratory.

    Last year, the consensus here was that Trump had no chance of being elected. His victory, less than half a year after Britain voted to leave the European Union, was a slap at the principles that elites in Davos have long held dear, from globalization and free trade to multilateralism.

    Moises Naim of the Carnegie Endowment for International Peace was even more blunt: "There is a consensus that something huge is going on, global and in many respects unprecedented. But we don't know what the causes are, nor how to deal with it."

    Thank you for your invaluable insight, Moises.

    The titles of the discussion panels at the WEF, which runs from Jan. 17-20, evoke the unsettling new landscape. Among them are "Squeezed and Angry: How to Fix the Middle Class Crisis" , "Politics of Fear or Rebellion of the Forgotten?", "Tolerance at the Tipping Point?" and "The Post-EU Era".

    Ah, a panel on how to fix the middle class. Sounds interesting until you find out who some of the speakers are.

    You really can't make this stuff up. Now back to Reuters .

    Perhaps the central question in Davos, a four-day affair of panel discussions, lunches and cocktail parties that delve into subjects as diverse as terrorism, artificial intelligence and wellness, is whether leaders can agree on the root causes of public anger and begin to articulate a response.

    This has to be a joke. The public has been yelling and screaming about all sorts of issues they care about from both sides of the political spectrum for a while now. Whether people identify as on the "right" or the "left" there's general consensus (at least in U.S. populist movements) of the following: oligarchs must be reined in, rule of law must be restored, unnecessary military adventures overseas must be stopped, and lobbyist written phony "free trade" deals must be scrapped and reversed. There's no secret about how strongly the various domestic populist movements feel on those topics, but the Davos set likes to pretends that these issues don't exist. They'd rather focus on Russia or identify politics, that way they can control the narrative and then propose their own anti-populist, technocratic solutions.

    A WEF report on global risks released before Davos highlighted "diminishing public trust in institutions" and noted that rebuilding faith in the political process and leaders would be a "difficult task".

    It's not difficult at all, what we need are new leaders with new ideas, but the people at Davos don't want to admit that either. After all, these are the types who unanimously and enthusiastically supported the ultimate discredited insider for U.S. President, Hillary Clinton.

    Moving along, let's take a look at a separate Reuters article previewing Davos, starting with the title.

    Davos elite faces evaporating trust in "post-trith" era

    Did you see what they did there? The evaporating trust in globalist elites has nothing to do with "post-truth," but as usual, the media insists on making excuses for the rich and powerful. The above title implies that elites lost the public truth as a result of a post-truth world, not because they are a bunch of disconnected, lying, corrupt thieves. Like Hillary and the Democrats, they are never to blame for anything that happens.

    With that out of the way, let's take a look at some of the text:

    Trust in governments, companies and the media plunged last year as ballots from the United States to Britain to the Philippines rocked political establishments and scandals hit business.

    The majority of people now believe the economic and political system is failing them, according to the annual Edelman Trust Barometer, released on Monday ahead of the Jan. 17-20 World Economic Forum (WEF).

    "There's a sense that the system is broken," Richard Edelman, head of the communications marketing firm that commissioned the research, told Reuters.

    "The most shocking statistic of this whole study is that half the people who are high-income, college-educated and well-informed also believe the system doesn't work."

    Even wealthy, well educated people understand things aren't working, which begs the question. Who does think the system is working? Well, the people attending Davos, of course. These are the folks who cheer on a world in which eight people own as much as the bottom 50%.

    As can be seen fro the above excerpts, one thing that's abundantly clear to almost everyone is that the system is broken. This is exactly where populism comes in to perform its crucial function. This is not an endorsement of Trump, but rather an endorsement of mass popular movements generally, and a recognition that such movements are the only way true change is ever achieved. As Frederick Douglass noted in 1857:

    This struggle may be a moral one, or it may be a physical one, and it may be both moral and physical, but it must be a struggle. Power concedes nothing without a demand. It never did and it never will. Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them, and these will continue till they are resisted with either words or blows, or with both. The limits of tyrants are prescribed by the endurance of those whom they oppress. In the light of these ideas, Negroes will be hunted at the North and held and flogged at the South so long as they submit to those devilish outrages and make no resistance, either moral or physical. Men may not get all they pay for in this world, but they must certainly pay for all they get. If we ever get free from the oppressions and wrongs heaped upon us, we must pay for their removal. We must do this by labor, by suffering, by sacrifice, and if needs be, by our lives and the lives of others .

    The above is an eternal truth when it comes to human struggle. The idea that the most wealthy and powerful individuals on earth are going to get together in a Swiss chalet and figure out how to help the world's most vulnerable and suffering is on its face preposterous. Again, this is why popular movements are so important. They represent the only method we know of that historically yields tangible results. This is also why the elitists and their media minions hate populism and demonize it every chance they get. Which is really telling, particularly when you look at the various definitions of the word. First, here's what comes up when you type the word into Google:

    pop·u·lism

    /ˈpäpyəˌlizəm/

    noun

    support for the concerns of ordinary people.

    "it is clear that your populism identifies with the folks on the bottom of the ladder"

    •the quality of appealing to or being aimed at ordinary people.

    "art museums did not gain bigger audiences through a new populism"

    Or how about the following from Merriam-Webster:


    Definition of populist

    1 :
    a member of a political party claiming to represent the common people; especially, often capitalized
    :
    a member of a U.S. political party formed in 1891 primarily to represent agrarian interests and to advocate the free coinage of silver and government control of monopolies


    2:
    a believer in the rights, wisdom, or virtues of the common people

    -
    populism
    play \-ˌli-zəm\ noun

    -
    populistic
    play \ˌpä-pyə-ˈlis-tik\ adjective

    Aside from the 19th century historical reference, what's not to like about any of the above? The mere fact that billionaire-owned media is so hostile to populism tells you everything you need to know. Behind the idea of populism is the notion of self-government, and Davos-type elitists hate this. They believe in a technocracy in which they make all the important decisions. Populism is dangerous because populism is empowering. It implies that the people ultimately have the power.

    I think a useful exercise for readers during this Davos circus laden week is to note whenever the word "populism" is used within mainstream media articles. From my experience, it's almost always portrayed in an overwhelmingly negative manner. Here's just one example from the first of the two Reuters articles mentioned above.

    The global financial crisis of 2008/9 and the migrant crisis of 2015/16 exposed the impotence of politicians, deepening public disillusion and pushing people towards populists who offered simple explanations and solutions.

    The key phrase in the above is, " populists who offered simple explanations and solutions." This betrays an incredible sense of arrogance and contempt for regular citizens. Note that it didn't offer a critique of a specific populist leader and his or her polices, but rather presented a sweeping dismissal of all popular movements as "simplistic." In other words, despite the fact that the people mingling at Davos are the exact same people who set the world on fire, they somehow remain the only ones capable enough to fix the world. How utterly ridiculous.

    The good news is that most people now plainly see the absurdity of such a worldview, and understand that the people at Davos represent a roadblock to progress, as opposed to any sort of solution. While I don't endorse any particular populist movement at moment, I fully recognize the need for increased populism as a facet of American political life, particularly at this moment in time.

    Populism can be dangerous, and it's certainly messy, but it's a crucial pressure release valve for any functioning free society. If you don't allow populist movements to do their thing in the short-term, you'll get far worse outcomes in the long-term.

    In the timeless words of JFK:

    Those who make peaceful revolution impossible will make violent revolution inevitable.

    Nobody wants that.

    [Jan 16, 2017] Better dead than bad: Status competition among German fighter pilots during World War II

    Jan 16, 2017 | economistsview.typepad.com
    anne : , January 15, 2017 at 12:16 PM
    http://voxeu.org/article/how-status-competition-killed-german-wwii-fighter-pilots

    January 14, 2017

    Better dead than bad: Status competition among German fighter pilots during World War II
    By Philipp Ager, Leonardo Bursztyn, and Joachim Voth

    During World War II, the German military publicly celebrated the performance of its flying aces to incentivise their peers. This column uses newly collected data to show that, when a former colleague got recognition, flying aces performed much better without taking more risks, while average pilots did only slightly better but got themselves killed much more often. Overall the incentives may have been detrimental, which serves as a caution to those offering incentives to today's financial risk-takers.

    anne -> anne... , January 15, 2017 at 01:48 PM
    Conceptually alone, this essay on the effects of competition is intriguing and possibly quite important and surely worth following up.

    [Jan 16, 2017] Paul Krugman With All Due Disrespect

    Notable quotes:
    "... What do you call dumping a Ukraine president? And Qaddafi, blowing up the middle east, and funding al Qaeda? Fraud/treason, both Clinton neocon connections same as Reagan, shruBush and Obama. ..."
    "... "In Yugoslavia, the U.S. and NATO had long sought to cut off Serbian nationalist and Yugoslav leader Slobodan Milosevic from the international system through economic sanctions and military action. In 2000, the U.S. spent millions of dollars in aid for political parties, campaign costs and independent media. Funding and broadcast equipment provided to the media arms of the opposition were a decisive factor in electing opposition candidate Vojislav Kostunica as Yugoslav president, according to Levin. "If it wouldn't have been for overt intervention Milosevic would have been very likely to have won another term," he said." ..."
    "... Google Camp Bonesteel. A large NATO base funded mostly by you to keep Serbia under wraps. Enforcing the Clinton neocon "just peace". With threat of US' brand of expensive high tech mass murder. ..."
    "... Democrats voting against legalizing drug imports from Canada (Hall of Shame:) Bennett, Cory Booker, Cantwell, Carper, Casey, Coons, Donnelly, Heinrich, Heitkamp, Menendez, Murray, Tester, and Warner. ..."
    "... progressive neoliberals are libertarians and market idolators' lackies that want gays to get their wedding cakes from Christian bakeries. ..."
    "... 30000 destroyed e-mails, denying the public access to records. How many felony counts is 30000? Read the Federal Records Act. ..."
    Jan 16, 2017 | economistsview.typepad.com
    ilsm -> DrDick... , January 16, 2017 at 05:44 PM
    What do you call dumping a Ukraine president? And Qaddafi, blowing up the middle east, and funding al Qaeda? Fraud/treason, both Clinton neocon connections same as Reagan, shruBush and Obama.

    The recondite democrat bar for traitor is very high. As arcane as the demo-neolib definition of progressive!

    ilsm -> New Deal democrat... , January 16, 2017 at 05:48 PM
    The center has moved to the Reagan republican side except for its abhorrence of any judeo-christian sexual code.

    Neutrality is shameful when the time is siding with the immoral.

    llisa2u2 : , January 16, 2017 at 12:05 PM
    The old saying what's good for the goose is good for the gander. Well considering all that the Republican party and leadership has dissed out for 8 years or so. Hey, they need to be dissed right back. Trump has set the "TONE" that all is fair as he set the rules, established the rule-book way below the belt, loves playing in the swamp and slinging mud. He deserves any and all that gets slung back from in and out of the swamp, in all global directions! Unfortunately everyone else will be the only citizens to suffer. He's just way above the maddening crowd, and protected by all his cronies!
    ilsm -> llisa2u2... , January 16, 2017 at 04:14 PM
    yup, only difference between the neocons of Kagan and Bush and progressive neolibs is gay rights.
    Jay : , January 16, 2017 at 12:54 PM
    US is a master of manipulating foreign elections.

    http://www.latimes.com/nation/la-na-us-intervention-foreign-elections-20161213-story.html

    "In Yugoslavia, the U.S. and NATO had long sought to cut off Serbian nationalist and Yugoslav leader Slobodan Milosevic from the international system through economic sanctions and military action. In 2000, the U.S. spent millions of dollars in aid for political parties, campaign costs and independent media. Funding and broadcast equipment provided to the media arms of the opposition were a decisive factor in electing opposition candidate Vojislav Kostunica as Yugoslav president, according to Levin. "If it wouldn't have been for overt intervention Milosevic would have been very likely to have won another term," he said."

    ilsm -> Jay... , January 16, 2017 at 03:38 PM
    Google Camp Bonesteel. A large NATO base funded mostly by you to keep Serbia under wraps. Enforcing the Clinton neocon "just peace". With threat of US' brand of expensive high tech mass murder.

    MLK's memory is defiled by the fake liberals grabbing it for revolting political gain.

    JohnH : , January 16, 2017 at 01:28 PM
    Democrats voting against legalizing drug imports from Canada (Hall of Shame:) Bennett, Cory Booker, Cantwell, Carper, Casey, Coons, Donnelly, Heinrich, Heitkamp, Menendez, Murray, Tester, and Warner.

    Presumably many, like Cantwell, are avid supporters of 'free' trade--trade that is rigged in favor of certain special interests. Legalizing drug imports from Canada would have hurt the special interests that fund their campaigns.

    Only a prelude to Democrats caving to Trump...

    ilsm -> JohnH... , January 16, 2017 at 03:35 PM
    progressive neoliberals are libertarians and market idolators' lackies that want gays to get their wedding cakes from Christian bakeries.
    ilsm -> ken melvin... , January 16, 2017 at 03:34 PM
    30000 destroyed e-mails, denying the public access to records. How many felony counts is 30000? Read the Federal Records Act.
    B.T. -> ken melvin... , January 16, 2017 at 04:40 PM
    What drove the assassination of Bernie Sanders campaign?

    People who ask if Trump is illegitimate need to ask if Hillary was as well.

    After all, we aren't talking about literal rigging right? Just leaks with bad timing?

    DeDude : , January 16, 2017 at 02:14 PM
    Considering that Trump and the GOP majority got millions less votes than their democratic counterparts, one can question the legitimacy (but not the legality) of the laws they pass - since they would not represent the will of the people.
    ilsm -> DeDude... , January 16, 2017 at 03:32 PM
    poor dud
    libezkova -> DeDude... , January 16, 2017 at 06:09 PM
    Yes that's true. But all those votes belong to just two places: NYC and California.

    You have a problem here my democratic friend.

    ilsm : , January 16, 2017 at 03:27 PM
    por pk!

    I start this sermon with poor pk, and those who of unsound logic who think he is not jumped the shark poor pk.

    John Lewis.......

    From Dr King's Vietnam Sermon Apr 1967:

    "Now, I've chosen to preach about the war in Vietnam because I agree with Dante, that the hottest places in hell are reserved for those who in a period of moral crisis maintain their neutrality. There comes a time when silence becomes betrayal."

    The liberals' silence is betrayal! All the democrat sponsored fake liberal agendas around this holiday remain damnably silent about the evil that is Clinton/Obama war to end "unjust peace".

    Here is my comment for poor pk, Lewis and the whining do-over tools:

    Last week US drones killed 3 supposed terrorists in Yemen, they were supposed to be al Qaeda in Arabian Peninsula (AQAP). No charges, no jury, no judge.

    AQAP is related to the guys Obama is funding to take down Assad and put Syria in ruinous hate filled group of jihadis like run amok in Libya.

    So silent on deadly evil; but so boisterous about affronts to gay people wanting nice cakes!

    Lewis and his crooked neoliberal ilk have been milking Dr. King for 50 years!


    Chris Herbert : , January 16, 2017 at 04:17 PM
    Hey, if it's politics every pathology from torture to assassination to bombing civilians is approved. If you did it as a person, you would be immediately incarcerated. This nation state worship, or religious worship in many parts of the world, is infused with pathology. It's in our DNA apparently. We are over killers par excellence. Only rats are as good. I'm betting on the rats.
    ilsm -> Chris Herbert... , January 16, 2017 at 06:01 PM
    why we have Dr King and Gandhi.

    I like the rat metaphor for neolibs and GOP.

    Jesse : , January 16, 2017 at 05:35 PM

    "Politicians were mostly people who'd had too little morals and ethics to stay lawyers."

    George R. R. Martin

    ilsm : , -1
    poor democrats!

    Cannot reconcile your corporatist, neoliberal, war monger losing to a TV star who suggests we should not tilt with a nuclear power with insane doctrine defining when peace should be breeched; you say the winner is 'illegitimate' or make up relations with a nationalist leader who does not toe the 'one worlder' line.

    US should be Denmark!

    [Jan 08, 2017] We have a Second Gilded Age

    Notable quotes:
    "... But it is not just what people call "the Great Recession" and should call "the Longer Depression". It is the long, steady decline in safe interest rates at all maturities since 1990: the decline in short-term safe real interest rates from 4% to -1.5%, and the decline in long-term safe real interest rates from 5% to 1%." ..."
    "... "We're just barely over the border into normality, which is why I think the Fed should hold and we could still use some fiscal stimulus for insurance, and very low rates still make the case for lots of infrastructure spending. But it's not the same as it was.'" ..."
    Jan 08, 2017 | economistsview.typepad.com
    Peter K. : January 07, 2017 at 01:25 PM , 2017 at 01:25 PM
    DeLong:

    "The Wheel Has Turned Again

    The Longer Depression: But now the wheel of history has turned once again. We have a Second Gilded Age. We have had what looks to have been either the second-largest or the largest adverse financial business-cycle shock in history. We have had an economic downturn followed by a very slow recovery that has produced and will produce a cumulative output gap vis-a-vis potential that will rival and may well exceed the Great Depression itself as a multiple of the economy's productive potential.

    But it is not just what people call "the Great Recession" and should call "the Longer Depression". It is the long, steady decline in safe interest rates at all maturities since 1990: the decline in short-term safe real interest rates from 4% to -1.5%, and the decline in long-term safe real interest rates from 5% to 1%."

    Krugman insists things are basically the same. We're almost back to normal. Progressive Neoliberalism. Really, these people need to be sidelined.

    Bernie Sanders was completely right.

    "We're just barely over the border into normality, which is why I think the Fed should hold and we could still use some fiscal stimulus for insurance, and very low rates still make the case for lots of infrastructure spending. But it's not the same as it was.'"

    No it's not the same as it was, as DeLong points out.

    im1dc : , January 07, 2017 at 04:32 PM
    I don't recall these points being discussed

    1. Jason Furman Obama's chief economist, says, 'Aging workforce and declining productivity are driving slower growth' & "Furman noted that productivity is declining all around the world"

    2. "Former Obama chief economist Alan Krueger told the panel that the administration might have accepted a lower growth rate in order to foster a "no-drama" economy so that the financial sector could heal from the financial crisis."

    3. "Hubbard and John Taylor, a Stanford University professor, argued that new policies could make a difference. Sluggish growth "is due to policy," Taylor said. "What you need is a whole set of policies" to address the problem"

    I am drawn to Krueger and Furman's views b/c they are based on the past 8 years experience but shocked by Hubbard and Taylor's since their views are solely based on Trump Economic Team Hype without reference to specific concrete Policy or even a known proposal by Trump's team

    http://www.marketwatch.com/story/suggesting-trumps-economic-plans-can-spark-growth-closer-to-3-is-wishful-thinking-obama-adviser-says-2017-01-07

    "Suggesting Trump's economic plans can spark growth closer to 3% is 'wishful thinking,' Obama adviser says"

    'Aging workforce and declining productivity are driving slower growth, Furman says'

    By Greg Robb, Senior economics reporter...Jan 7, 2017...4:42 p.m. ET

    "CHICAGO (MarketWatch) - Republican economists were upbeat Saturday that President-elect Donald Trump's economic policies could get the economy growing closer to a sustainable 3% annual rate, but the suggestion was greeted with skepticism by a senior member President Obama's economic team.

    At the moment, the Congressional Budget Office estimates the economy's sustainable growth rate is 1.8%, down from a historical rate above 3%.

    During a bipartisan panel discussion at the American Economic Association meeting, Glenn Hubbard, dean of the Columbia University Business School, said Trump's plans could get GDP growth "up to 2.75% or so."

    While the details of Trump's policies remain unknown, the combination of broad-based tax reform, regulatory reform, infrastructure and military spending could boost the economy, Hubbard said.

    However, Jason Furman, Obama's chief economist, shot back that Republicans were ignoring the "massive" depressing impact on growth from an aging workforce.

    "This is going to matter a lot. If you forecast something like 2%-2.2% [growth], it is going to take your budget in one direction, if you forecast 2.75% or higher, it is going to take your budget in a different direction, he said.

    Furman said of growth rates of 2.75% or higher would be further away from the forecast of mainstream economists "than any budget in the last 24 years."

    "Part of how you get higher is wishful thinking," Furman said. Details of any tax cut will matter, he said.

    However, Hubbard and John Taylor, a Stanford University professor, argued that new policies could make a difference.

    Sluggish growth "is due to policy," Taylor said. "What you need is a whole set of policies" to address the problem, he added.

    "Where we are now in this economy...is that some structural reforms have the potential for not only a long-term benefit which as economists we emphasize but also short-run," Taylor said.

    Taylor said poor U.S. economic policies "had a huge influence" on productivity growth, which has been weakening since 2005.

    "There is an opportunity for reversal," he said.

    But Furman noted that productivity is declining all around the world, which suggests that Obamacare and other U.S. regulations might not be the cause of the decline.

    Former Obama chief economist Alan Krueger told the panel that the administration might have accepted a lower growth rate in order to foster a "no-drama" economy so that the financial sector could heal from the financial crisis.

    "Part of that was by design, part of that was...an attempt to make the financial system safer to ensure that banks raised more capital as a buffer against shocks. It probably has come at the cost of some growth," Krueger said.

    "Going forward...I think we may go from a no-drama economy to something very different," he added."

    ilsm : , January 07, 2017 at 05:22 PM
    They work for the guy who chooses to blame the Russians and ignore the crooked party he led. Who borrowed $1422B and his mouthpieces said the deficit was <$600B......

    They say the same things to John Lennon about Peace!

    Who knows what happens in the future?

    Someone should have heard the guy who said 'it makes no sense to run Qaddafi's weapons from Benghazi to the jihadis', and 'don't send the ambassador over there late in the day'.

    I am reminded of what the losers, the naysayers said about Bernie's ideas.

    Too much opinion, and not enough let's try it rather than saying "it cannot be done".

    Answer to the point about aging workforce: EPR for under 54 year olds has plenty of slack. As to productivity that is a "on the one hand" proposition.

    I would have a tarot reading before I listened to the Obama guys.

    [Jan 08, 2017] Contingent labor as in being on call for positions such as retail clerk. A person who must be available for uncertain hours loses the opportunity to find a second job.

    Jan 08, 2017 | economistsview.typepad.com
    point -> pgl... , January 07, 2017 at 05:37 AM
    It seems the lightning speed spread of contingent labor in the 2010s should be evidence of this. Contingent labor as in being "on call" for positions such as retail clerk. A person who must be available for uncertain hours loses the opportunity to find a second job. The employer demanding contingent labor is essentially demanding uncompensated work hours.

    In any event, the practice seems to have become near universal by a couple years ago, suggesting a level of employer market power far in excess of what one would think by looking at numbers like the official unemployment rate. It may also suggest that labor market monopsony may exist at quite small employer size.

    cm -> point... , January 07, 2017 at 08:39 AM
    What you describe is in general not due to monopsony. There is still a substantial number of independent retail and other companies that are not (explicitly) coordinating their actions and job function designs.

    It is just regular supply and demand dynamics, in combination with social feedback (actors observing what "peers" are getting away with and trying the same, and after a while it works its ways into a new normal).

    In corporate lingo it is known as "best practices" - don't innovate process, just copy what has worked elsewhere.

    RC AKA Darryl, Ron -> cm... , January 07, 2017 at 09:46 AM
    Unfortunately, in the contemporary corporate Zeitgeist "best" usually means "worst", at least from the POV of employees.
    Zeppelin Hindenburg Delivery -> cm... , January 07, 2017 at 09:58 AM

    retail and other companies that are not (explicitly) coordinating
    "

    Although they have an app for coordinating plus incentive to coordinate, they fully understand that by the time they begin coordinating the game is over. The game for brick and mortar retail is now hanging by a tread.

    16% of retail is now intertube orders being shipped out by USPS, Fedex, Amazon airship drone & UPS. For the next 2 years the 16% will double each year then slowly expand toward the 99% asymptote. Sure!

    When you ski at Aspen you will see old-time-y shops for retail, shops that only the wealthy will use for more than window-shop. Plenty time for best practices but

    no time to
    innovate --

    Libezkova -> cm... , January 07, 2017 at 10:53 AM
    cm,
    "companies that are not (explicitly) coordinating their actions and job function designs."

    That happens by default.

    Wall-Mart dominates retail (5K stores I think out of over 11,593 stores and clubs in 28 countries) and it is a very cruel company. Other companies copy Wall-Mart practices.

    They have no "social conscience" at all and try to drive their labor as hard as possible paying as little as possible. In other words, they can be viewed as a corporate psychopath.

    [Jan 08, 2017] Samuelson bastard Keynesianism

    Jan 08, 2017 | economistsview.typepad.com
    RGC : January 07, 2017 at 11:45 AM , 2017 at 11:45 AM
    By Asad Zaman
    January 7, 2017

    P8 Keynesian Complexity
    ................
    "But no one appears to have understood the fundamental insights of Keynesian complexity: the system as whole does not act as a simple aggregate of the actions of the individual agents within the system. Pre-Keynesian macroeconomics was based centrally on the misunderstanding that the macroeconomy can be understood by scaling up the microeconomic behaviors of individual agents. While Keynes forcefully rejected this thesis, and created a complex system view of the macroeconomy, simple-minded followers failed to understand complexity, and went back to the pre-Keynesian views."
    ........................
    https://weapedagogy.wordpress.com/2017/01/07/p8-keynesian-complexity/

    RGC -> RGC... , -1
    Paul Samuelson on Keynes (same link):

    Ironically, failure to understand Keynes led to dismissal and contempt "Paul Samuelson felt he could say that "it is remarkable that so active a brain would have failed to make any contribution to economic theory . .." (cited in John Foster 2006).

    Because Samuelson could not understand the complexity of Keynesian theory, he wrote that: "[The General Theory] is a badly written book, poorly organized; any layman who, beguiled by the author's previous reputation, bought the book was cheated of his 5 shillings. It is not well suited for classroom use. It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements. It abounds with mares' nests and confusions: involuntary unemployment, wage units, the equality of savings and investment, the timing of the multiplier, interactions of marginal efficiency upon the rate of interest, forced savings, own rates of interest, and many others. In it the Keynesian system stands out indistinctly, as if the author were hardly aware of its existence or cognizant of its properties; and certainly he is at his worst when expounding its relations to its predecessors."

    Samuelson's arrogance in believing that he understood the Keynesian system better than Keynes created the biggest barrier to understanding Keynes for 20th Century economists. Because of his stature, he became the authorized interpreter of Keynes, and very few went back to original writings to try to understand them. Those who did also failed to come to grips with complexity, and as a result, it is impossible to count the variety of interpretations of Keynes - see for example, Backhouse and Bateman. The Keynesian elephant has a huge number of parts, it seems.

    Libezkova -> RGC... , January 07, 2017 at 01:39 PM
    Thank you for this link and quote.

    That was my problems with Samuelson too, but I never was able to express is with such a clarity,

    RGC -> RGC... , January 07, 2017 at 02:24 PM
    This blogger is discussing The General Theory chapter by chapter. This post is chapter 2 of 24.
    anne -> anne... , January 07, 2017 at 10:26 AM
    http://krugman.blogs.nytimes.com/2013/08/20/coalmines-and-aliens-again/

    August 20, 2013

    Coalmines and Aliens, Again
    By Paul Krugman

    Brad DeLong * catches John Cochrane ** being remarkably dense:

    "Paul Krugman recommended, with refreshing clarity, that the US government fake an alien invasion so we could spend trillions of dollars building useless defenses. (I'm not exactly sure why he does not call for real defense spending. After all, if building aircraft carriers saved the economy in 1941, and defenses against imaginary aliens would save the economy in 2013, it's not clear why real aircraft carriers have the opposite effect. But I'm still working on the nuances of new-Keynesianism, so I'll let him explain the difference. I'm not a big fan of huge defense spending anyway.)"

    As I've explained before, *** the alien thing was a modern riff on Keynes's coalmine thought experiment. **** It's worth quoting that one in full:

    "It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly 'wasteful' forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict 'business' principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.

    "If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."

    In a way, I'm amazed by economists who find this sort of thing absurd on its face. Leave macroeconomics on one side: what about the theory of the second best? This theory - which is just basic micro - says that when some markets are distorted, for whatever reason, social costs and benefits across the economy don't correspond to private costs, so that unprofitable, even seemingly wasteful activities can sometimes be beneficial. And an economy in which millions of willing workers can't find work is surely one with massive distortions of some kind.

    Oh, and let's always remember that Keyensians like me don't believe that thing like the paradox of thrift and the paradox of flexibility are the way the economy normally works. They're very much exceptional, applying only when interest rates are up against the zero lower bound. Unfortunately, that happens to be the world we're currently living in.

    * http://delong.typepad.com/sdj/2013/08/paul-krugman-prepare-for-alien-invasion-and-spend-our-way-to-economic-recovery.html

    ** http://johnhcochrane.blogspot.com/2013/01/more-new-keynesian-paradoxes.html

    *** http://krugman.blogs.nytimes.com/2011/08/24/coalmines-and-aliens/

    **** https://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter10.html

    anne -> anne... , -1
    A series of superb short essays by Paul Krugman.

    [Jan 07, 2017] Larry Summer, secular stagnation and John A. Hobson.

    Jan 07, 2017 | economistsview.typepad.com
    Peter K. : January 07, 2017 at 08:08 AM , 2017 at 08:08 AM
    DeLong has a lengthy thought-provoking blogpost about Larry Summer, secular stagnation and John A. Hobson.

    He disagrees with Yellen and Krugman about fiscal stimulus.

    http://www.bradford-delong.com/2017/01/three-four-many-secular-stagnations.html#more

    Three, Four... Many Secular Stagnations!
    by Brad DeLong
    January 07, 2017 at 05:25 AM

    ...

    C. Seeking Not a Cure But Palliatives: For Summers, secular stagnation does not have one simple cause but is the concatenation of a number of different structural shocks un- or only loosely-connected with each other in their origin that have reinforced each other in their effects pushing the short-term safe nominal Wicksellian "neutral" rate down below zero. But even though there is no one root cause, there are two effective palliatives to neutralize or moderate the effects.

    Thus Summers calls for two major policy initiatives:

    1. Larger and much more aggressive progressive tax and transfer (and predistribution?) policies to end the Second Gilded Age.

    2. A major shift to an investment-centered expansionary fiscal policy as the major component of what somebody or other once called "a somewhat comprehensive socialisation of investment [as] the only means of securing an approximation to full employment not exclud[ing] all manner of compromises and of devices by which public authority will cooperate with private initiative "

    I think he has a very, very strong case here.

    ..."

    Be more like Denmark.

    Although technocratic, these are more socialist than progressive neoliberal solutions. Progressive neoliberalism with its emphasis on private sector "solutions" helped to bring about our so-called secular stagnation.

    Peter K. -> Peter K.... , January 07, 2017 at 08:10 AM
    Why didn't Summers back Bernie Sanders over Clinton?
    Peter K. -> Peter K.... , -1
    Krugman in today's links:

    "Now deficits are fine at precisely the moment when the economy seems to be fairly close to full employment, the Federal Reserve is starting to hike rates, and the case for fiscal expansion, while not completely absent, is fairly subtle, resting mainly on the precautionary motive. "

    The "center-left." Progressive neoliberalism.

    [Jan 07, 2017] Contingent labor as in being on call for positions such as retail clerk. A person who must be available for uncertain hours loses the opportunity to find a second job.

    Jan 07, 2017 | economistsview.typepad.com
    point -> pgl... , January 07, 2017 at 05:37 AM
    It seems the lightning speed spread of contingent labor in the 2010s should be evidence of this. Contingent labor as in being "on call" for positions such as retail clerk. A person who must be available for uncertain hours loses the opportunity to find a second job. The employer demanding contingent labor is essentially demanding uncompensated work hours.

    In any event, the practice seems to have become near universal by a couple years ago, suggesting a level of employer market power far in excess of what one would think by looking at numbers like the official unemployment rate. It may also suggest that labor market monopsony may exist at quite small employer size.

    cm -> point... , January 07, 2017 at 08:39 AM
    What you describe is in general not due to monopsony. There is still a substantial number of independent retail and other companies that are not (explicitly) coordinating their actions and job function designs.

    It is just regular supply and demand dynamics, in combination with social feedback (actors observing what "peers" are getting away with and trying the same, and after a while it works its ways into a new normal).

    In corporate lingo it is known as "best practices" - don't innovate process, just copy what has worked elsewhere.

    RC AKA Darryl, Ron -> cm... , January 07, 2017 at 09:46 AM
    Unfortunately, in the contemporary corporate Zeitgeist "best" usually means "worst", at least from the POV of employees.
    Zeppelin Hindenburg Delivery -> cm... , January 07, 2017 at 09:58 AM

    retail and other companies that are not (explicitly) coordinating
    "

    Although they have an app for coordinating plus incentive to coordinate, they fully understand that by the time they begin coordinating the game is over. The game for brick and mortar retail is now hanging by a tread.

    16% of retail is now intertube orders being shipped out by USPS, Fedex, Amazon airship drone & UPS. For the next 2 years the 16% will double each year then slowly expand toward the 99% asymptote. Sure!

    When you ski at Aspen you will see old-time-y shops for retail, shops that only the wealthy will use for more than window-shop. Plenty time for best practices but

    no time to
    innovate --

    Libezkova -> cm... , January 07, 2017 at 10:53 AM
    cm,
    "companies that are not (explicitly) coordinating their actions and job function designs."

    That happens by default.

    Wall-Mart dominates retail (5K stores I think out of over 11,593 stores and clubs in 28 countries) and it is a very cruel company. Other companies copy Wall-Mart practices.

    They have no "social conscience" at all and try to drive their labor as hard as possible paying as little as possible. In other words, they can be viewed as a corporate psychopath.

    [Jan 07, 2017] Neoliberals are really Latter Date Trotskyites in most of their ideological postulates.

    Jan 07, 2017 | economistsview.typepad.com
    Libezkova -> ilsm... January 07, 2017 at 12:43 PM , 2017 at 12:43 PM
    ilsm,

    "The MSM is building a case to do Putin like the one to do Assad."

    I am not sure about that. I think this anti-Russian hysteria is mainly for internal consumption and designed to put a smoke screen of the problem of the US neoliberal society and increase the cohesion of population, which essentially rejected neoliberal elite during the recent elections.

    The bout of McCarthyism that we observe now might also be an attempt to de-legitimize Trump presidency and to tie his hands. This Machiavellian trick with expulsion of diplomats that Nobel Peace Price winner played with Russians recently suggests the latter. Deep state that controls the US foreign policy feels the threat and reacts accordingly.

    Too many people in Washington are "national security parasites" and are dependent of continuation of wars for the expansion of the US led global neoliberal empire.

    Trump promised to drain the swamp, but he probably underestimated the level of resistance he will encounter.

    Just look at hissy fits that WaPo and NYT is still engaged it. They really behave like Putin agent ascending into position of POTUS :-). The same is true of some commenters here.

    They feel threatened by the rejection of their ideology and are ready to do purges in best Trotskyites tradition. As I mentioned before they are really "Latter Date Trotskyites" in most of their ideological postulates.

    - Use of violence for the spread of the ideology. A totalitarian vision for a world-encompassing monolithic global state (US led neoliberal empire) governed by an ideologically charged "vanguard".

    - Creation and maintenance of the illusion of "immanent threat" from powerful enemies for brainwashing the population (National Security State instead of "Dictatorship of proletariat").
    - Purges of dissent via neo-McCarthyism tactics.

    - The mantle of inevitability (famous TINA statement of Margaret Thatcher)

    - The study of neoclassical economics as the key method of indoctrination of people with economists as a class of well paid priests of neoliberal ideology.

    - War on, and brutal suppression of organized labor. While in Soviet Russia organized labor was emasculated and trade unions became part of government apparatus, under neoliberalism they are simply decimated. It "atomize" individual workers presenting them as goods on the "labor market" controlled by large corporations ( via the myth of human capital ). Economic fetishism. Neoliberals see the market as a semi-sacred element of human civilization. They want to create global labor market that favors transnational corporations. The idea of "employability" is characteristically neoliberal. It means that neoliberals see it as a moral duty of human beings, to arrange their lives to maximize their value on the labor market. Paying for plastic surgery to improve employability (almost entirely by women) is a typical neoliberal phenomenon -- one that would surprise Adam Smith.

    - The pseudoscientific (or quasi-religious) myth of "free-market" (why not "fair"?). with neoclassical economy instead of "Marxist political economy" which provides a pseudo-scientific justification for the greed and poverty endemic to the system. Set of powerful myths, which like in Marxism create a "secular religion". Such as on "Free Trade", "Invisible Hand Hypothesis", "Rational expectations" scam, "Shareholder value" scam, etc. Fake promises of prosperity, which are not unlike the rhetoric of the Communist Party of the USSR about "proletariat" as the ruling class to which all benefits belongs.

    - Scapegoating and victimization of poor as new Untermensch. This is a part of Randism and is closely related to glorification of the "creative class".

    - Rejection of the normal interpretation of the rule of the law and the idea of "neoliberal justice" (tough justice for Untermensch only).

    - Cult of GDP. Like Marxism, neoliberalism on the one hand this reduces individuals to statistics contained within aggregate economic performance. It professes that GDP growth is the ultimate goal of any society. This is very similar to the USSR cult of gross national product.

    [Jan 07, 2017] The fake image is what the neocons want us to believe about the dire threat from Putin!

    Jan 07, 2017 | economistsview.typepad.com
    ilsm : January 07, 2017 at 06:40 AM , 2017 at 06:40 AM
    Barry Ritholtz does a service linking us to a propaganda piece in politico:

    http://www.politico.com/magazine/story/2017/01/putins-real-long-game-214589

    The service is an example of propaganda using "deductive reasoning"; a journalist interviewing lots of propagandists and using their spin to support an hypothesis that is Clinton Mrs Kagan/Nuland neocon bat crazy!

    The fake image is what the neocons want us to believe about the dire threat from Putin!

    At least once a year Barry posts the cheat sheet, then he sets out hundreds of examples in his reads.

    [Jan 07, 2017] A neolib victory, with participation rate for 24 to 54 still in the dumps

    Notable quotes:
    "... A neolib victory, with participation rate for 24 to 54 still in the dumps. ..."
    "... Krugman is an arrogant elitist who is good at math but has no real grasp of the real world (much like Trump has no grasp of reality). ..."
    Jan 07, 2017 | economistsview.typepad.com
    Fred C. Dobbs :

    As observed, Dems don't like deficits when GOPsters do them, and the GOP doesn't like them unless they do them.

    PK: 'And meanwhile I and other Keynesians are getting mail accusing us of being the hypocrites: "You were for deficits when Obama was in, now they're bad!"

    But as I just said, the situation has changed.' ...

    As even I have noted, deficits are *useful* when employment is down and infrastructure needs building. We haven't done enough of that lately, for sure.

    Like with that wall, maybe.

    Reply Friday, January 06, 2017 at 12:54 PM Fred C. Dobbs said in reply to Fred C. Dobbs... , January 06, 2017 at 01:24 PM
    Paul Krugman ‏@paulkrugman · 4 hours ago

    Labor markets are much closer to normal than they were in 2010-2012. So giving different policy advice is rational, not hypocritical

    https://twitter.com/paulkrugman/status/817415994700402688

    ilsm -> Fred C. Dobbs... , January 06, 2017 at 01:41 PM
    A neolib victory, with participation rate for 24 to 54 still in the dumps.
    anne -> Fred C. Dobbs... , January 06, 2017 at 01:55 PM
    https://fred.stlouisfed.org/graph/?g=cirl

    January 4, 2017

    Average Hourly Earnings of All Private Workers and Quits Rate, 2007-2016

    (Percent change)

    Jesse : , January 06, 2017 at 12:59 PM

    It may not be overwhelming in its effect, but he did DO something, and had an effect, made an example.

    Gee, what a terrible thing to do.

    What the Wall Street Dems have done is feel the average worker's pain, hand out some questionably progressive programs like the Heritage Foundation's ACA, and explain why it was all necessary in the name of free trade and globalization.

    And the rubes like it. What a bunch of dopes.

    Uh huh.

    ilsm -> Jesse... , January 06, 2017 at 01:40 PM
    Trump is neither neolib nor neocon enough for the non-deplorables.
    sanjait -> Jesse... , January 06, 2017 at 03:47 PM
    Hey, Rube:

    Remember when the "Wall Street Dems" saved the ENTIRE US-branded auto manufacturing industry?

    Trump hands out crumbs and the rubes think he's a leader.

    Libezkova -> sanjait... , January 06, 2017 at 04:51 PM
    >" Remember when the "Wall Street Dems" saved the ENTIRE US-branded auto manufacturing industry?"

    Did not they save their friends investment portfolios (and some saved their own). Collapse of auto sector means plunge of S&P500, because of interconnection with other sectors. the lowest point of S&P 500 during this period was around 670. I think they have no other options.

    Tom aka Rusty : , January 06, 2017 at 01:27 PM
    a show intended to impress the rubes,

    At least now we know what Krugman thinks of working people, as in people who do honest work.

    Krugman is an arrogant elitist who is good at math but has no real grasp of the real world (much like Trump has no grasp of reality).

    ilsm -> Tom aka Rusty... , January 06, 2017 at 01:39 PM
    it ain't deplorables who Trump attracted it is us whom the crooks and neolibs [like poor pk of the] DNC drive away in disgust.
    sanjait -> Tom aka Rusty... , -1
    Krugman didn't call working people rubes, you lying sack.

    [Jan 07, 2017] Wall Street Dems duped the average worker, throw a bone in a form of like the Heritage Foundations ACA, and explained to deplorable rubes why it is nesseary for them to be unemployed in the name of free trade and globalization.

    Notable quotes:
    "... What the Wall Street Dems have done is feel the average worker's pain, hand out some questionably progressive programs like the Heritage Foundation's ACA, and explain why it was all necessary in the name of free trade and globalization. ..."
    "... And the rubes like it. What a bunch of dopes. ..."
    Jan 07, 2017 | economistsview.typepad.com
    Jesse :


    It may not be overwhelming in its effect, but he did DO something, and had an effect, made an example. Gee, what a terrible thing to do.

    What the Wall Street Dems have done is feel the average worker's pain, hand out some questionably progressive programs like the Heritage Foundation's ACA, and explain why it was all necessary in the name of free trade and globalization.

    And the rubes like it. What a bunch of dopes.

    Uh huh.

    Reply Friday, January 06, 2017 at 12:59 PM ilsm -> Jesse... , January 06, 2017 at 01:40 PM
    Trump is neither neolib nor neocon enough for the non-deplorables.
    pgl -> ilsm... , January 06, 2017 at 05:09 PM
    That's right - Trump is Putin's poodle aka Comrade Donald.
    Libezkova -> pgl... , -1
    Why you don't just buy m16, some ammunition and go to Syria to prove your point and take revenge for Hillary fiasco.

    Chickenhawks like you should better be careful what they wish for. With the election of Hillary we would be on the brink of not "cold", but "hot" war, starting in Syria. But chickenhawks like you prefer other people to die to their imperial complex of inferiority.

    In other words, all you funny "Putin Poodle", "Putin is a kleptocrat", etc noises is just a testament of the inferiority complex of a typical neoliberal chickenhawk. Much like was the case with Hillary.

    War conflict is not a chess game.

    [Jan 07, 2017] Thatcherism represented a systematic, decisive rejection and reversal of the post-war consensus, whereby the major political parties largely agreed on the central themes of Keynesianism, the welfare state, nationalised industry, and close regulation of the economy

    Notable quotes:
    "... Not quite, they belong to different flavors of neoliberalism. As a politician Clinton was a "soft neoliberal", or "Third way" neoliberal. Not quite the same as Reagan who was closer to "hard neoliberalism", or Thatcherism -- "in your face" neoliberalism. They do not hide their principles and attitudes. ..."
    "... Wikipedia: "Thatcherism represented a systematic, decisive rejection and reversal of the post-war consensus, whereby the major political parties largely agreed on the central themes of Keynesianism, the welfare state, nationalised industry, and close regulation of the economy" ..."
    "... Clinton (like later Tony Blair) basically accepted the central postulates of neoliberalism such as globalization, deregulation, privatization, maintaining a flexible labor market by high unemployment, marginalizing the trade unions, but made his intentions hidden under the smoke screen ("I feel you pain"). Essentially he created the second major flavor of neoliberalism "soft neoliberalism", or neoliberal "wolf in sheep's clothing". ..."
    Jan 07, 2017 | economistsview.typepad.com
    Libezkova -> kurt... , -1

    "Krugman a neolib?"

    that's true statement. He is. With penchant for mathiness and globalization. Although like any talented person sometimes he transcends this limitation and writes really good articles.

    "Clinton a Reagan copy?"

    Not quite, they belong to different flavors of neoliberalism. As a politician Clinton was a "soft neoliberal", or "Third way" neoliberal. Not quite the same as Reagan who was closer to "hard neoliberalism", or Thatcherism -- "in your face" neoliberalism. They do not hide their principles and attitudes.

    Wikipedia: "Thatcherism represented a systematic, decisive rejection and reversal of the post-war consensus, whereby the major political parties largely agreed on the central themes of Keynesianism, the welfare state, nationalised industry, and close regulation of the economy"

    Clinton (like later Tony Blair) basically accepted the central postulates of neoliberalism such as globalization, deregulation, privatization, maintaining a flexible labor market by high unemployment, marginalizing the trade unions, but made his intentions hidden under the smoke screen ("I feel you pain"). Essentially he created the second major flavor of neoliberalism "soft neoliberalism", or neoliberal "wolf in sheep's clothing".

    That's the difference. Peter K. -> kurt... , -1

    Krugman is center-left and doesn't like the left.

    Haven't you been paying attention?

    http://krugman.blogs.nytimes.com/2016/05/09/the-facts-have-a-well-known-center-left-bias/

    The Facts Have A Well-Known Center-Left Bias
    by Krugman
    MAY 9, 2016 8:01 AM

    Yesterday I tweeted a response to Donald Trump's claim that America is the highest-taxed nation in the world. Actually, he's been busted on that claim repeatedly, which makes it even more shameful that TV interviewers just let it slide. But I'm also interested in the responses I've been getting, which I think tell you something about the broader situation – maybe call it the politics of epistemology.

    As you might guess, I'm getting a lot of denial, with quite a few people "explaining" that the international comparisons don't include state and local government. Um, guys, maybe you shouldn't make confident pronouncements about stuff you've never looked at.

    And I do wonder about right-wingers weighing in here. After all, isn't it a (false) right-wing trope that the economic troubles of European nations are caused by their excessive welfare states? Doesn't that suggest that they have bigger government and higher taxes than we do? Oh, never mind.

    But I'm also hearing from Berniebros, insisting that anything I say must be wrong, because I criticized their hero. And this suggests to me that we may need a clarification of the doctrine that facts have a well-known liberal bias. More specifically, they seem to have a center-left bias: conservatives are big on empirical denial, but so is some of the U.S. left.

    This has become especially obvious in the waning days of the Democratic primary: you can watch data journalists like the two Nates (Cohn and Silver) growing increasingly exasperated with Sanders supporters who keep insisting that Hillary is stealing the nomination with superdelegates, when it's actually the Sanders campaign talking about getting supers to overturn the pledged delegate count and the popular vote.

    Of course, campaigns can't be held responsible for everything their supporters say, although it's a bit worse when some of those supporters are actual campaign surrogates. Still, we can ask whether Sanders himself is inclined to dismiss inconvenient facts. Well, as you know, I think the answer is yes, on issues ranging from economic projections to the sources of Clinton primary victories.

    I was therefore primed to notice when Sanders declared that Democrats need their own version of Fox News. What does he mean, exactly? Should the proposed network engage in similar factual distortions and outright falsehoods, except this time in the service of progressive goals?

    By the way, it wouldn't work. Fox caters to an audience of angry old white men; the angry young white guys who would want a left-wing version of this message are fewer in number, have less purchasing power, and anyway don't get their news from TV. But that's a side point.

    The main point, instead, is that what we're seeing is that the sort of people who really care about getting facts right – who see facing up to inconvenient truths as an important value – are largely on the center-left. Care with evidence appears to matter if you are, say, the 11th most liberal senator; this is in contrast not just with the right, but also with some of the left.

    The good news is that this general election will be a contest between the center-left and the ignorant right, so political values and intellectual values will be in perfect accord.

    [Jan 06, 2017] Market Failure and Income Distribution

    Jan 06, 2017 | economistsview.typepad.com
    yuan -> anne... , January 05, 2017 at 04:07 PM
    "but over time these prices have always increased"

    except for japan:

    https://www.advisorperspectives.com/dshort/updates/2014/10/12/japan-s-amazing-25-year-post-bubble-drama

    is the usa immune to this kind of stagnation? if so, why?

    Libezkova -> yuan... , -1
    > "is the usa immune to this kind of stagnation? if so, why?"


    Impoverishment of population under neoliberalism pushes the economy into recession. Not enough demand so unless exports compensate for this you are cooked. To make the situation much worse Japan is net oil importer.

    Oil prices above, say, $60 per barrel (inflation adjusted, the last column below) facilitate the slide into recession.
    (average per year)
    2004 $37.66 $47.98
    2005 $50.04 $61.65
    2006 $58.30 $69.64
    2007 $64.20 $74.44
    2008 $91.48 $102.00 <= !!!
    2009 $53.48 $59.93
    2010 $71.21 $78.65
    2011 $87.04 $93.21 <= !!!
    2012 $86.46 $90.72 <= !!!
    2013 $91.17 $94.25 <= !!!
    2014 $85.60 $87.05 <= !!!
    2015 $41.85 $42.53
    2016 $34.39 $34.13 (partial)


    The USA like Japan is importer too (actually the largest one) but it has large domestic production: forth largest (data below are for 2015):
    == quote ==
    Country | Production (bbl/day) | Share of World's output (Percentage)

    1 Russia 10,107,000 14.05%
    2 Saudi Arabia 9,735,200 13.09%
    3 United States 9,373,000 12.23%
    4 China 4,189,000 5.15%
    5 Canada 3,603,000 4.54%
    6 Iraq 3,368,000 4.45%
    7 Iran 3,113,000 4.14%
    == end of quote ==

    Simultaneously the USA is the owner of world reserve currency (in which oil is predominantly traded). That also helps.

    Those two factors as well as the fact that the Fed put the economy on life support in 2011 again might be one reason why the USA still (formally) is not in perma-recession (secular stagnation), but it might be in the pipeline with oil prices reverting or exceeding the previous maximum. Which might be a matter of the next three-five years. Trump still might be lucky but "after Trump" might be not.

    If we measure income of the lower 80% of the US population I am not that sure the USA is doing that well and the economics is out of the wood. Real GDP per capita has increased since 2009 while the real median income per household has not, indicating a trend toward greater income inequality (and/or smaller households). Extreme poverty ( households living on less than $2 per day before government benefits), doubled from 636,000 to 1.46 million households (including 2.8 million children) between 1996 and 2011, with most of increase occurring between late 2008 and early 2011

    Most jobs created since 2008 are McJobs in service sector, but a lot of jobs eliminated were permanent reasonably paying jobs. So domestic demand is dropping and with the credit lines already overextended there is no light at the end of the tunnel.

    Of course, neoliberal "cult of GDP" (aka "pro-growth") crowd will deny this, but now GDP includes everything including such activities as gambling (and in GB prostitution). In other words, it is probably slightly fudged, much like inflation numbers.

    This is my hypothesis, anyway... My impression is that markets got ahead of themselves in the current rally.

    mulp -> rayward... , January 05, 2017 at 01:25 PM
    Real capitalism, the policies that place a priority on building more capital, solve most income inequality, because you can't build capital without paying a lot of workers, and when lots of workers are being paid, they can demand more pay, and at the same time, more capital means more production, and to sell all the increased production, prices must equal the wages paid for both operations and for building all the capital.

    Economies are zero sum, at least in the long run. Since conservatives have adopted free lunch economics, the idea that economies are not zero sum, the idea that prices can far exceed wages paid, profits come out of ever increasing debt, which is basically paying for current production using labor from the future.

    Since Reagan and the conservative embrace of free lunch economics, private and public debt has exploded, committing trillions in future wages to paying for past consumption.

    A sign of the past consumption is in the decaying value of infrastructure. Flint water is a case of bipartisan free lunch economics. Can't charge higher rates for water starting in 1950 and keep hiking water rates because paying workers cost too much, and the unemployed, or underemployed workers being paid too little because low prices require not paying workers, can not afford higher water rates to pay workers which would lift all wages in Flint. By not paying workers for the past 75 years, the water system capital has been consumed, thus creating billions in debt for the continued supply of clean water.

    Multiply Flint water by the hundred thousand communities who made similar bipartisan free lunch economic policy decisions on water, sewer, energy, transportation, education, housing, communications, and the US has trillions in debt to be the leader in national economic power globally that the US was in the 60s.

    Even in health, the US has run up trillions in debt by failing to pay more for better health capital over the past half century. Better health in human capital is costly because humans would need to work more every hour of the day for free. Like walking or biking instead of driving. People hate public transit because it can be provided only by having central nodes to use it, requiring human power to get to and from those nodes.

    But having placed a priority on using cars to move more than the distance to where the car is parked, paying to use cars has not been high enough, so the roads are trillions in debt in carrying capacity.

    But hey, we can't charge higher prices to use cars because the low wage food workers stuck in that job because they lost their road construction job, can not afford to pay more for using a car to pay more road construction workers.

    pgl -> rayward... , January 05, 2017 at 01:53 PM
    "markets will correct excessive inequality".

    Even hard core conservatives know this is not true in general. Per financial markets, Milton Friedman would tell you how backwards this claim really is. Of course he grew up during the Great Depression so he saw even as a kid how destructive financial crises can be. Maybe you should read some of what he wrote about that period.

    David -> rayward... , January 05, 2017 at 03:36 PM
    People like Warren Buffet make their bread and butter on market crashes - they have lots of reserve cash and can buy up equities at bargain basement prices. Personally I missed the boat by a year because I'm small potatoes but I got in by 2010 and did very well indeed.

    I think one of the biggest distortions is in big Pharma, where the government pays for a lot of the research and gets nigh on none of the return, and excessive patent and patent manipulation allow pharma to rip off consumers.

    This is essentially medical care, which really should be a public good. It's not, it's a distorted market.

    [Jan 04, 2017] The Machiavellian humanism of Us neocons

    Jan 04, 2017 | economistsview.typepad.com
    im1dc -> JF... , January 03, 2017 at 11:35 AM
    It is obvious to me at least that PE Trump will force immediate detente with Russia, weaken NATO, and substitute China as the bogey man to prepare to battle, economically, politically, and militarily.

    Watch for it.

    Of course, that also entails tossing US Allies in Europe under the bus b/c Putin wants more influence and control over nations on his borders than the USA and NATO have allowed following the break up of the USSR both economically and militarily.

    Not so sure how the experienced foreign policy Hawks, mostly retired Generals, will go along with letting Putin's Russia out of NATO's cage.

    Should be interesting if Trump gets them to go along with is plans to free Putin and make him and Russia friends with the US again.

    sanjait -> im1dc... , January 03, 2017 at 12:11 PM
    Pork for defense contractors and WWC workers with little or no legitimate defense value ... sounds like the kind of thing Trump will support enthusiastically.
    ilsm -> sanjait... , January 03, 2017 at 06:27 PM
    Did you lose any sleep the past week?

    There was not one US navy carrier on 'patrol' anywhere for the past week.

    Littoral Combat Ships are useless too small too little keel, and no good in open water.

    The CVN 78 is a dinosaur...........

    Look how those CV/CVN's did off Vietnam for 7 years!

    ilsm -> ilsm... , -1
    The faux 'threats' must have decided to be nice to the empire:

    "For the next week, not only will there be no U.S. Navy aircraft
    carrier in the Middle East, but there will be no American aircraft
    carriers deployed at sea anywhere else in the world, despite a host

    http://www.foxnews.com/us/2016/12/30/no-us-carrier-at-sea-leaves-gap-in-middle-east.html

    [Jan 02, 2017] Milton Friedman, Unperson

    Notable quotes:
    "... If the Fed were to buy treasuries directly, then Wall Street would be losing a big fat paycheck for the horrendous work of two keystrokes. That is why Wall Streets little sock puppets in Congress has not done anything. ..."
    "... Academics at least theoretically seek to discourage group think while politicians seek to cultivate group think. Nonetheless, peer review processes instill group think in academics regardless of intentions. Elite groups only think that they are better when in fact they are hardly any different in essential and existential ways, just in customs, habits, and aesthetics. Individual results may vary though in the general population and among elites. ..."
    "... In a democratically electoral republic if the mainstream or status quo is the result of majority opinion then how can the opposition be characterized as populist? ..."
    "... When we pursue technocrats, elitists, and oligarchs to advance the cause of socialism we do not get social democracy, but we may get liberal policy aimed at quelling discontent when necessary to prevent a popular uprising. That was the catch-22 omitted from Schumpeter's "Capitalism, Socialism and Democracy". Corporatism does not naturally lead to socialism in republican governments as Joseph Schumpeter said that it would. If we want social democracy then we must start by pursuing the electorate to advance the cause of democracy first. ..."
    "... But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. ..."
    "... Still, nothing regarding the monopoly over the money supply. Not addressed. Ignored. That the Treasury can inject debt free money into the money supply, is ignored! That we could have a job guaranteed program is ignored. That we never needed to produce debt for deficit financing is ignored. What the hell! ..."
    Jan 02, 2017 | economistsview.typepad.com
    anne : January 01, 2017 at 01:54 AM
    http://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/

    August 8, 2013

    Milton Friedman, Unperson
    By Paul Krugman

    David Glasner * has been making a series of posts on the legacy of Milton Friedman, some of them in response to Scott Sumner; they're interesting if you want to delve into the intellectual history. I'm not personally big on such things - in general, what people thought Keynes or Friedman meant ends up being more important than what they turn out, on close reading, to (maybe, possibly) actually have meant. For what it's worth, I think Glasner makes a good case that Friedman was indeed more or less a Keynesian, or maybe Hicksian - certainly that was the message everyone took from his "Monetary Framework," which was disappointingly conventional. And Friedman's attempts to claim that Keynes added little that wasn't already in a Chicago oral tradition don't hold up well either.

    But never mind. What I think is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back, even if that fact drives some economists crazy; Hayek is back in some sense, even if one has the suspicion that many self-proclaimed Austrians bring little to the table but the notion that fiat money is the root of all evil - a deeply anti-Friedmanian position. But Friedman is pretty much absent.

    This is hardly what you would have expected not that long ago, when Friedman's reputation bestrode the economic world like a colossus, when Greg Mankiw ** declared Friedman, not Keynes, the greatest economist of the 20th century, when Ben Bernanke concluded a speech praising Friedman *** with the famous line,

    "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

    "Best wishes for your next ninety years."

    So what happened to Milton Friedman?

    Part of the answer is that at this point both of Friedman's key contributions to macroeconomics look hard to defend.

    First, on monetary policy: Even if you give him a pass on the 3 percent growth in M2 thing, which was abandoned by almost everyone long ago, Friedman was still very much associated with the notion that the Fed can control the money supply, and controlling the money supply is all you need to stabilize the economy. In the wake of the 2008 crisis, this looks wrong from soup to nuts: the Fed can't even control broad money, because it can add to bank reserves and they just sit there; and money in turn bears little relationship to GDP. And in retrospect the same was true in the 1930s, so that Friedman's claim that the Fed could easily have prevented the Great Depression now looks highly dubious.

    Second, on inflation and unemployment: Friedman's success, with Phelps, in predicting stagflation was what really pushed his influence over the top; his notion of a natural rate of unemployment, of a vertical Phillips curve in the long run, became part of every textbook exposition. But it's now very clear that at low rates of inflation the Phillips curve isn't vertical at all, that there's an underlying downward nominal rigidity to wages and perhaps many prices too that makes the natural rate hypothesis a very bad guide under depression conditions.

    So Friedman's economic analysis has taken a serious hit. But that's not the whole story behind his disappearance; after all, all those economists who have been predicting runaway inflation still have a constituency after being wrong year after year.

    Friedman's larger problem, I'd argue, is that he was, when all is said and done, a man trying to straddle two competing world views - and our political environment no longer has room for that kind of straddle.

    Think of it this way: Friedman was an avid free-market advocate, who insisted that the market, left to itself, could solve almost any problem. Yet he was also a macroeconomic realist, who recognized that the market definitely did not solve the problem of recessions and depressions. So he tried to wall off macroeconomics from everything else, and make it as inoffensive to laissez-faire sensibilities as possible. Yes, he in effect admitted, we do need stabilization policy - but we can minimize the government's role by relying only on monetary policy, none of that nasty fiscal stuff, and then not even allowing the monetary authority any discretion.

    At a fundamental level, however, this was an inconsistent position: if markets can go so wrong that they cause Great Depressions, how can you be a free-market true believer on everything except macro? And as American conservatism moved ever further right, it had no room for any kind of interventionism, not even the sterilized, clean-room interventionism of Friedman's monetarism.

    So Friedman has vanished from the policy scene - so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.

    * http://uneasy money.com/2013/08/05/second-thoughts-on-friedman/

    ** http://gregmankiw.blogspot.com/2006/11/milton-friedman.html

    *** http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/

    anne -> anne... , January 01, 2017 at 01:56 AM
    "Uneasymoney" can only be linked to directly by separating "uneasy" and "money."
    anne :
    http://krugman.blogs.nytimes.com/2013/08/09/more-on-the-disappearance-of-milton-friedman/

    August 9, 2013

    More On the Disappearance Of Milton Friedman

    By Paul Krugman

    It seems that many people misunderstood my post * on Milton Friedman. It was not intended as Friedman-bashing, as a claim that MF was a bad economist; in fact, I'm on record ** declaring Friedman a "great economists' economist". His work aimed primarily at a professional audience - the permanent income theory of consumption, the case for flexible exchange rates, the natural rate (even if it does break down at low inflation), the optimum quantity of money - was often, maybe even usually, brilliant, and will live on.

    What isn't living on, however, is Friedman's role as a guiding light for conservative economic policy.

    Think about Paul Ryan, who is, like it or not, the leading economic intellectual of the modern GOP. Ryan sometimes drops Friedman's name - but when he does, it's to cite "Capitalism and Freedom," not "A Monetary History of the United States." When it comes to monetary policy, Ryan has said that his views are based on fictional characters in "Atlas Shrugged." No, really.

    Or think about the economics rap video of "Keynes versus Hayek" everyone had fun with. Never mind that back in the 30s nobody except Hayek would have considered his views a serious rival to those of Keynes; the real shock should be, what happened to Friedman?

    Partly this disappearance reflects real problems with Friedman's analysis. His views on the omnipotence of monetary policy,let alone the adequacy of a simple quantity-of-money rule, haven't withstood the test of time. As far as stabilization policy is concerned, he was indeed, as Brad DeLong archly puts it, a minor post-Hicksian. ***

    But the bigger issue, I'd argue, is that modern conservatives can't accept the things Friedman was right about. Take, in particular, his essay on flexible exchange rates, in which he argued that a country that finds its wages and prices out of line should devalue its currency rather than rely on unemployment to push wages down, "until the deflation has run its sorry course." Contrast this with Ryan's declaration that "There is nothing more insidious that a country can do to its citizens than debase its currency."

    The point is that Friedman was, when all is said and done, a pragmatist; he leaned right ideologically, but was willing to make room for awkward realities. And these days reality has a well-known liberal bias. Hence, Friedman has become an unperson.

    * http://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/

    ** http://www.nybooks.com/articles/archives/2007/feb/15/who-was-milton-friedman/?pagination=false

    *** http://delong.typepad.com/sdj/2013/08/paul-krugman-milton-friedman-as-a-minor-post-hicksian-noted-for-august-9-2013.html

    Jay : , January 01, 2017 at 08:31 AM
    "What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint."

    What's ironic is if you read Krugman pre-2000 his work as an economist was actually a model of restraint. Then BDS (Bush Derangement Syndrome) kicked in and he turned into a political "science" crank.

    pgl -> Jay... , January 01, 2017 at 12:21 PM
    2000 was when George W. Bush lied his way into office. Krugman called out Bush's lies and was tagged as the Shrill One. Over time - a lot of progressives began to wear being shrill as a badge of honor.
    Jay -> pgl... , January 01, 2017 at 02:52 PM
    Kind of like Obama, Clinton and the likes lied to intervene in Libya? They hate us for our freedom? No they hate us because we fight proxy wars in their territory and kill innocent civilians. As long as Assad is around Obama can drone bomb innocent people in Yemen and Proggers hail him as a saint.
    Chris Herbert : , January 01, 2017 at 08:31 AM
    Does anyone have any comments about the constitutional monopoly over the money supply awarded to the Treasury? I don't understand what an economist means when he uses the word 'monetarist' to describe a set of ideas, but I do understand what it would mean if the Treasury (or a national Central Bank) stopped issuing debt for net government spending. Why we do issue this debt is beyond my comprehension. It's incredibly expensive, and there are no guidelines that make any sense to me when it comes to what is paid for by deficit spending. That we have piled up $17 trillion or whatever amount of debt when most of it was unnecessary is astonishing.
    Paul Mathis -> Chris Herbert... , January 01, 2017 at 09:01 AM
    "the constitutional monopoly over the money supply awarded to the Treasury"

    You have heard of bitcoin, right?

    RGC -> Chris Herbert... , January 01, 2017 at 09:04 AM
    Why doesn't the Federal Reserve just buy Treasury securities directly from the U.S. Treasury?

    The Federal Reserve Act specifies that the Federal Reserve may buy and sell Treasury securities only in the "open market."

    https://www.federalreserve.gov/faqs/money_12851.htm
    .................
    Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks

    Kenneth D. Garbade Federal Reserve Bank of New York

    Abstract

    Until 1935, Federal Reserve Banks from time to time purchased short-term securities directly from the United States Treasury to facilitate Treasury cash management operations. The authority to undertake such purchases provided a robust safety net that ensured Treasury could meet its obligations even in the event of an unforeseen depletion of its cash balances. Congress prohibited direct purchases in 1935, but subsequently provided a limited wartime exemption in 1942. The exemption was renewed from time to time following the conclusion of the war but ultimately was allowed to expire in 1981. This paper addresses three questions: 1) Why did Congress prohibit direct purchases in 1935 after they had been utilized without incident for eighteen years, 2) why did Congress provide a limited exemption in 1942 instead of simply removing the prohibition, and 3) why did Congress allow the exemption to expire in 1981?

    https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr684.pdf

    RGC -> RGC... , January 01, 2017 at 09:24 AM
    Paul Krugman
    Be Ready To Mint That Coin
    January 7, 2013 9:05 am
    .....................
    For those new to this, here's the story. First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit - tax and spending bills the president is legally required to implement - and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.

    And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can't pass through normal constitutional processes.

    Enter the platinum coin. There's a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector's items - but that's not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling - while doing no economic harm at all.

    So why not?

    http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/?_r=1

    DeDude -> RGC... , January 01, 2017 at 12:17 PM
    If the Fed were to buy treasuries directly, then Wall Street would be losing a big fat paycheck for the horrendous work of two keystrokes. That is why Wall Streets little sock puppets in Congress has not done anything.
    anne -> RGC... , January 01, 2017 at 05:05 PM
    By the way, I have been wondering about "demonetization" in India and what that might mean but I have read no convincing analysis so far:

    https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation

    DeDude : , January 01, 2017 at 09:38 AM
    Rule number one for a populist (popular) communicator of complicated issues is that you lose any and all doubt or granularity. The peeps will immediately lose interest in you and think you know nothing, if you fail to say things with great certainty and great simplicity.

    This is the exact opposite of how you communicate in an academic environment. If a scientist give a talk and fail to acknowledge the weaknesses in the narrative they present; the scientists listening will dismiss him/her as ignorant or a BS artist (and confront them with those weaknesses).

    RC AKA Darryl, Ron -> DeDude... , January 01, 2017 at 10:28 AM
    Academics at least theoretically seek to discourage group think while politicians seek to cultivate group think. Nonetheless, peer review processes instill group think in academics regardless of intentions. Elite groups only think that they are better when in fact they are hardly any different in essential and existential ways, just in customs, habits, and aesthetics. Individual results may vary though in the general population and among elites.
    RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 10:34 AM
    In a democratically electoral republic if the mainstream or status quo is the result of majority opinion then how can the opposition be characterized as populist?
    DeDude -> RC AKA Darryl, Ron... , January 01, 2017 at 12:06 PM
    "Elite groups only think that they are better when in fact they are hardly any different"

    A case of false equivalency. There is a huge difference between a process that is constructed to reach a correct conclusion (but fails when inappropriately applied) and a process that has less of a chance of reaching the correct conclusion than a random number pick. Yes there are many examples where the scientific process has failed to reach the correct conclusion (and we know that because eventually it cleansed itself of those conclusions). However there are many more times when the scientific process got things right. That is in contrast to the FoxBot blowhards who seems almost incapable of getting anything right.

    RC AKA Darryl, Ron -> DeDude... , January 01, 2017 at 01:08 PM
    Intellectual conclusions only matter when they influence real world policy decisions. Real world policy decisions are not governed by science regardless of political control and economics is not deterministic science and often is not even probabilistic science. Of course that is why real world policy decisions are not governed by science. The political influence of wealth, custom and habit, heuristic guidelines obtained from the random walk of history, and popular memes all have more influence over public policy decisions than science.

    Quasi-science makes for fun social clubs though.

    RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 02:50 PM
    When we pursue technocrats, elitists, and oligarchs to advance the cause of socialism we do not get social democracy, but we may get liberal policy aimed at quelling discontent when necessary to prevent a popular uprising. That was the catch-22 omitted from Schumpeter's "Capitalism, Socialism and Democracy". Corporatism does not naturally lead to socialism in republican governments as Joseph Schumpeter said that it would. If we want social democracy then we must start by pursuing the electorate to advance the cause of democracy first.
    DeDude -> RC AKA Darryl, Ron... , -1
    "Real world policy decisions are not governed by science regardless of political control"

    Another false equivalency...

    The real world is not yes/no, black/white. Just because science sometimes get corrupted doesn't mean it always is corrupted. Just because one of our main parties have become addicted to refusing facts and evidence against their narratives doesn't mean that everybody all the time refuse to listen to facts and evidence. I know that the corruption narrative is what keeps you alive and thinking you got it all figured out, but it also is what leads you astray on a regular basis.

    pgl -> DeDude... , January 01, 2017 at 12:24 PM
    Milton Friedman once tried to explain to doctors why their precious cartel known as the AMA was a bad idea. One would have thought the doctors would have shot him on the spot. But no - Friedman pitched this as a way to keep away "socialism" aka things like Medicare. The doctors loved it. Of course I thought this was one of his lower moments. BTW - never tell a doctor we should have Medicare for all unless you want to endure a tirade of why they don't make all that much.
    DeDude -> pgl... , January 01, 2017 at 06:51 PM
    Yes, you got to give Friedman that he was a good salesman. Scientist and economists: mediocre - just to easily addicted to his own narratives. But he was a brilliant salesman.
    jonny bakho : , January 01, 2017 at 11:15 AM
    MF proposal to manage economies with monetary policy only and to sideline fiscal and regulatory policy found favors with free market conservatives.

    Free market rules mean that the greedy are free to market their get rich quick scams to the harm of the rest of us and their own personal enrichment.

    Monetary policies such as Volcker's job killing interest rates in 1980 are praised. Fiscal and regulatory policies such as the CAFE standards and subsidies to move away from oil created the Great Moderation, yet are dismissed or worse vilified.

    Monetary policy is not saving us from climate change. Fiscal incentives for clean energy and regulation of carbon emissions are the tools that can be applied effectively.

    The reformation we need is Post-Monetary with a strong emphasis on the fiscal and regulatory...

    pgl -> jonny bakho... , January 01, 2017 at 12:26 PM
    The free markets do hate fiscal policy or almost anything else that is sensible policy. But if they ever really understood what Friedman was saying about monetary policy - they would turn on him as being some of sort of communist.
    RC AKA Darryl, Ron -> pgl... , January 01, 2017 at 01:12 PM
    Then the free markets (sic) do not really understand some of sort of communist either.
    RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 01:16 PM
    [If pgl would learn to type then I could copy from his comments without getting sic.]

    CORRECTION: "...they would turn on him as being some of [sic] sort of communist."

    Larry : , January 01, 2017 at 04:27 PM
    "But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications."

    Marvelous irony how well this applies to its author.

    Chris Herbert : , January 01, 2017 at 06:12 PM
    Still, nothing regarding the monopoly over the money supply. Not addressed. Ignored. That the Treasury can inject debt free money into the money supply, is ignored! That we could have a job guaranteed program is ignored. That we never needed to produce debt for deficit financing is ignored. What the hell!
    anne -> Chris Herbert... , -1
    Monopolization of the money supply: I have been wondering about "demonetization" in India and what that might mean but I have read no convincing analysis so far:

    https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation

    [Jan 02, 2017] Neoliberals hate government policies, unless they increase thier ability to make profits

    Free market is a neoliberal myth, the cornerstone of neoliberal secular region.
    Notable quotes:
    "... Well, duh. "Policy" and "Capitalism" don't go together and never have. When you enact policy, you destroy the ability to make profit and you get the 1970's. ..."
    economistsview.typepad.com
    Gibbon1 -> anne... , December 31, 2016 at 10:21 PM
    Two of my criticisms about Krugman/Friedman, etc is that is 'free markets' are supposed to substitute for policy in the government sphere. Except very telling except when we're talking about funding the security state.

    The other is that the real power of markets is that in a real free market (not a Potemkin one) decisions are made often at the point where needs, information, incentives, and economic power come together. But the large scale decisions the governments have to make, markets fail. Policy though doesn't.

    But Neoliberals hate policy.

    AngloSaxon -> Gibbon1...
    Well, duh. "Policy" and "Capitalism" don't go together and never have. When you enact policy, you destroy the ability to make profit and you get the 1970's.
    likbez -> Gibbon1... January 01, 2017 at 10:15 PM
    Free market is a neoliberal myth, the cornerstone of neoliberalism as a secular religion. Somewhat similar to "Immaculate Conception" in Catholicism.

    In reality market almost by definition is controlled by government, who enforces the rules and punish for the transgressions.

    Also note interesting Orwellian "corruption of the language" trick neoliberals use: neoliberals talk about "free market, not "fair market".

    After 2008 few are buying this fairy tale about how markets can operate and can solve society problems independently of political power, and state's instruments of violence (the police and the military). This myths is essentially dead.

    But like Adventists did not disappear when the second coming of Christ did not occurred in predicted timeframe, neoliberals did not did not disappeared after 2008 either. And neither did neoliberalism, it just entered into zombie, more bloodthirsty stage. the fact that even the term "neoliberalism" is prohibited in the US MSM also helped. It is kind of stealth ideology, unlike say, Marxists, neoliberals do not like to identify themselves as such. The behave more like members of some secret society, free market masons.

    Friedmanism is a flavor of economic Lysenkoism. Note that Lysenko like Friedman was not a complete charlatan. Some of his ideas were pretty sound and withstood the test of time. But that does not make his less evil.

    And for those who try to embellish this person, I would remind his role in 1973 Chilean coup d'état ( https://en.wikipedia.org/wiki/1973_Chilean_coup_d%27%C3%A9tat ) and bringing Pinochet to power. His "Chicago boys" played a vital role in the events. This man did has blood on his hands.

    http://www.bidstrup.com/economics.htm

    === quote ===
    Of course, bringing a reign of terror to Chile was not why the CIA had sponsored him. The reason he was there was to reverse the gains of the Allende social democracy and return control of the country's economic and political assets to the oligarchy. Pinochet was convinced, through supporters among the academics in the elite Chilean universities, to try a new series of economic policies, called "neoliberal" by their founders, the economists of the University of Chicago, led by an economist by the name of Milton Friedman, who three years later would go on to win a Nobel Prize in Economics for what he was about to unleash upon Chile.

    Friedman and his colleagues were referred to by the Chileans as "the Chicago Boys." The term originally meant the economists from the University of Chicago, but as time went on, as their policies began to disliquidate the middle class and poor, it took on a perjorative meaning. That was because as the reforms were implemented, and began to take hold, the results were not what Friedman and company had been predicting. But what were the reforms?

    The reforms were what has come to be called "neoliberalism." To understand what "neoliberal" economics is, one must first understand what "liberal" economics are, and so we'll digress briefly from our look at Chile for a quick...
    === end of quote ===

    [Dec 31, 2016] Milton Friedman was intellectual prostitute of financial oligarchy most of his long life, starting from his days in Mont Pelerin Society

    Dec 31, 2016 | economistsview.typepad.com
    JohnH : December 31, 2016 at 04:38 PM
    Ironic isn't it? "Why didn't ... exhibit the same restraint in his role as a public intellectual?

    The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy."

    Krugman should have stuck to economics...

    likbez -> JohnH...
    Yes, this is pretty nasty verdict for Krugman too.

    But, in reality, Milton Friedman was an intellectual prostitute of financial oligarchy most of his long life, starting from his days in Mont Pelerin Society ( https://en.wikipedia.org/wiki/Mont_Pelerin_Society) , where he was one of the founders.

    So, if the period when he was a good econometrician exists it is limited to pre-war and war years. As he was born in 1912, he was just 33 in 1945. His "A Theory of the Consumption Function" was published in 1957. And "A Monetary History of the United States, 1867–1960" in 1963, when he was already completely crooked.

    Mont Pelerin Society was founded in 1947 with the explicit political goal of being hatching place for neoliberal ideology as alternative to communist ideology. He served as a President of this Society from 1970 to 1972.

    Capitalism and Freedom that many consider to be neoliberal manifesto similar to Marx and Engels "Manifesto of the Communist Party" was published in 1962.

    So what Krugnam is saying is a myth. And he is not an impartial observer. He is a neoliberal himself. I still remember Krugman despicable attacks on John Kenneth Galbraith and his unhealthy fascination with the usage of differential equations in economic modeling, the epitome of mathiness.

    [Dec 31, 2016] Problems with Krugman as an economist is that he, as a neoliberal, believes that profit motive is superior to the mutual benefit motive all the time.

    Notable quotes:
    "... My criticism of Krugman is far more fundamental. I do not believe the profit motive is superior to the mutual benefit motive when it comes to organizing economies. ..."
    Dec 31, 2016 | economistsview.typepad.com
    Paul Mathis -> anne... , December 31, 2016 at 06:48 PM
    I have two problems with Prof. K:

    1. His refusal to acknowledge the central role of consumption in our economy. As Keynes said, ""Consumption - to repeat the obvious - is the sole end and object of all economic activity." The General Theory, p. 104.

    And Adam Smith agreed: "Consumption is the sole end and purpose of all production." The Wealth of Nations, Book IV Chapter VIII, v. ii, p. 660, para. 49.

    2. Krugman's refusal to endorse fiscal stimulus unless the economy is at ZLB. That is not only anti-Keynesian, it plays directly into the hands of the debt fear mongers. (Krugman is also worried about the debt.)

    yuan -> Paul Mathis... , December 31, 2016 at 06:56 PM
    "Krugman's refusal to endorse fiscal stimulus unless the economy is at ZLB."

    That is a strawman, and a bad one.

    PS: My criticism of Krugman is far more fundamental. I do not believe the profit motive is superior to the mutual benefit motive when it comes to organizing economies.

    anne -> Paul Mathis... , December 31, 2016 at 06:57 PM
    Important criticisms.
    anne -> Paul Mathis... , December 31, 2016 at 07:00 PM
    https://www.marxists.org/reference/archive/smith-adam/works/wealth-of-nations/book04/ch08.htm

    1776

    An Inquiry into the Nature and Causes of The Wealth of Nations
    By Adam Smith

    On Systems of Political Economy

    Conclusion of the Mercantile System

    Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

    anne -> Paul Mathis... , December 31, 2016 at 07:07 PM
    https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch08.htm

    1935

    The General Theory of Employment, Interest and Money
    By John Maynard Keynes

    The Propensity to Consume: The Objective Factors

    Consumption - to repeat the obvious - is the sole end and object of all economic activity. Opportunities for employment are necessarily limited by the extent of aggregate demand. Aggregate demand can be derived only from present consumption or from present provision for future consumption. The consumption for which we can profitably provide in advance cannot be pushed indefinitely into the future. We cannot, as a community, provide for future consumption by financial expedients but only by current physical output. In so far as our social and business organisation separates financial provision for the future from physical provision for the future so that efforts to secure the former do not necessarily carry the latter with them, financial prudence will be liable to diminish aggregate demand and thus impair well-being, as there are many examples to testify. The greater, moreover, the consumption for which we have provided in advance, the more difficult it is to find something further to provide for in advance, and the greater our dependence on present consumption as a source of demand. Yet the larger our incomes, the greater, unfortunately, is the margin between our incomes and our consumption. So, failing some novel expedient, there is, as we shall see, no answer to the riddle, except that there must be sufficient unemployment to keep us so poor that our consumption falls short of our income by no more than the equivalent of the physical provision for future consumption which it pays to produce to-day.

    anne -> Paul Mathis... , -1
    Krugman's refusal to endorse fiscal stimulus unless the economy is at zero lower bound. That is not only anti-Keynesian, it plays directly into the hands of the debt fear mongers. (Krugman is also worried about the debt.)

    [ Only correct to a degree, economic weakness is recognized. ]

    [Dec 31, 2016] Economists View 2007 Krugman on Milton Friedman

    Dec 31, 2016 | economistsview.typepad.com
    Mathew Kahn:
    2007 Krugman on Milton Friedman : As you read this direct Paul Krugman quote, do y ou hear this song in the background.

    "What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint. As I pointed out earlier, he made great contributions to economic theory by emphasizing the role of individual rationality-but unlike some of his colleagues, he knew where to stop. Why didn't he exhibit the same restraint in his role as a public intellectual?

    The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy.

    In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed-a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I'd argue, is a counter-counterreformation."

    Paul Mathis : , December 31, 2016 at 02:26 PM

    Counter-reformation? Not exactly.

    In an interview with Public Broadcasting System on Oct. 1, 2000, Dr. Milton Friedman said, "Let me emphasize [that] I think Keynes was a great economist. I think his particular theory in The General Theory of Employment, Interest, and Money is a fascinating theory. It's a right kind of a theory. It's one which says a lot by using only a little. So it's a theory that has great potentiality."

    Brilliant economist? Not exactly. For monetarists who believe as Dr. Friedman did that "inflation is always and everywhere a monetary phenomenon," the nearly $4 trillion added to the money supply by the Fed since 2008 should have produced raging hyper-inflation. For Friedman, the answer was not debatable: "A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth." The Counter-Revolution in Monetary Theory (1970).

    Dan Berg -> Paul Mathis... , December 31, 2016 at 02:38 PM
    $4 T was not "added to the money supply"

    https://fred.stlouisfed.org/graph/?g=2VX3

    For Krugman, this is called being hoisted by one's own petard.

    anne -> Dan Berg ... , December 31, 2016 at 03:35 PM
    https://fred.stlouisfed.org/graph/?g=2VX3 :

    this graph, which should have been labelled but was not, depicts the monetary base from October 2012 to December 2015 for reasons that are a mystery to me.

    anne -> Paul Mathis... , December 31, 2016 at 02:44 PM
    https://fred.stlouisfed.org/graph/?g=cfmn

    January 15, 2016

    Adjusted Monetary Base, 2000-2016


    https://fred.stlouisfed.org/graph/?g=cfmq

    January 15, 2016

    Adjusted Monetary Base, 2008-2016

    anne -> anne... , December 31, 2016 at 02:47 PM
    About $3 trillion was added to the monetary base between 2008 and the beginning of 2015.
    Dan Berg -> anne... , December 31, 2016 at 05:05 PM
    so why are you depicting the monetary base if they are such a mystery; and without labels?
    anne -> anne... , December 31, 2016 at 05:18 PM
    Perfectly described and drawn graphs depicting more than a $3 trillion increase in the monetary base between 2008 and 2015. Nice and simple as that:

    https://fred.stlouisfed.org/graph/?g=cfmn

    January 15, 2016

    Adjusted Monetary Base, 2000-2016

    https://fred.stlouisfed.org/graph/?g=cfmq

    January 15, 2016

    Adjusted Monetary Base, 2008-2016

    Tra la, tra la.

    anne -> Paul Mathis... , December 31, 2016 at 03:44 PM
    http://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/

    August 8, 2013

    Milton Friedman, Unperson
    By Paul Krugman

    So Friedman has vanished from the policy scene - so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.

    anne -> Paul Mathis... , December 31, 2016 at 05:26 PM
    Do write further on this matter when possible.
    anne : , December 31, 2016 at 02:39 PM
    http://www.nybooks.com/articles/19857

    February 15, 2007

    Who Was Milton Friedman?
    By Paul Krugman - New York Review of Books

    1.

    The history of economic thought in the twentieth century is a bit like the history of Christianity in the sixteenth century. Until John Maynard Keynes published The General Theory of Employment, Interest, and Money in 1936, economics-at least in the English-speaking world-was completely dominated by free-market orthodoxy. Heresies would occasionally pop up, but they were always suppressed. Classical economics, wrote Keynes in 1936, "conquered England as completely as the Holy Inquisition conquered Spain." And classical economics said that the answer to almost all problems was to let the forces of supply and demand do their job.

    But classical economics offered neither explanations nor solutions for the Great Depression. By the middle of the 1930s, the challenges to orthodoxy could no longer be contained. Keynes played the role of Martin Luther, providing the intellectual rigor needed to make heresy respectable. Although Keynes was by no means a leftist-he came to save capitalism, not to bury it-his theory said that free markets could not be counted on to provide full employment, creating a new rationale for large-scale government intervention in the economy.

    Keynesianism was a great reformation of economic thought. It was followed, inevitably, by a counter-reformation. A number of economists played important roles in the great revival of classical economics between 1950 and 2000, but none was as influential as Milton Friedman. If Keynes was Luther, Friedman was Ignatius of Loyola, founder of the Jesuits. And like the Jesuits, Friedman's followers have acted as a sort of disciplined army of the faithful, spearheading a broad, but incomplete, rollback of Keynesian heresy. By the century's end, classical economics had regained much though by no means all of its former dominion, and Friedman deserves much of the credit.

    I don't want to push the religious analogy too far. Economic theory at least aspires to be science, not theology; it is concerned with earth, not heaven. Keynesian theory initially prevailed because it did a far better job than classical orthodoxy of making sense of the world around us, and Friedman's critique of Keynes became so influential largely because he correctly identified Keynesianism's weak points. And just to be clear: although this essay argues that Friedman was wrong on some issues, and sometimes seemed less than honest with his readers, I regard him as a great economist and a great man....

    anne -> anne... , December 31, 2016 at 03:00 PM
    http://krugman.blogs.nytimes.com/2009/03/02/friedman-and-schwartz-were-wrong/

    March 2, 2009

    Friedman and Schwartz Were Wrong
    By Paul Krugman

    It's one of Ben Bernanke's most memorable quotes: at a conference honoring Milton Friedman on his 90th birthday, he said: *

    "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

    He was referring to the Friedman-Schwartz argument that the Fed could have prevented the Great Depression if only it has been more aggressive in countering the fall in the money supply. This argument later mutated into the claim that the Fed caused the Depression, but its original version still packed a strong punch. Basically, it implied that no fundamental reforms of the economy were necessary; all it takes to avoid depressions is for central banks to do their job.

    But can we say that recent events appear to disprove that claim? (So did Japan's experience in the 1990s, but that lesson failed to sink in.) What we have now is a Fed that is determined not to "do it again." It has been very aggressive about monetary expansion. Here's one measure of that aggressiveness, banks' excess reserves:

    [Bank excess reserves, 1990-2009]

    And yet the world economy is still falling off a cliff.

    Preventing depressions, it turns out, is a lot harder than we were taught.

    * http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm

    anne -> anne... , December 31, 2016 at 03:17 PM
    https://fred.stlouisfed.org/graph/?g=cfmx

    January 30, 2016

    Excess Reserves of Depository Institutions, 1990-2009

    [Dec 31, 2016] Greed Springs Eternal

    Notable quotes:
    "... You can't go all Ayn Rand/Gordon Gekko on the importance of greed as a motivator while claiming that wealth insulates ... from temptation. ... ..."
    "... And this is telling us something significant: namely, that supply-side economic theory is and always was a sham. It was never about the incentives; it was just another excuse to make the rich richer. ..."
    "... "The modern conservative is engaged in one of man's oldest exercises in moral philosophy: that is, the search for a superior moral justification for selfishness." ..."
    "... choosing a cabinet of billionaires, because rich men are incorruptible"...kind of like showering ZIRP on the Wall Street banking cartel and letting them how to ration credit to the rest of economy...mostly their wealthy clientele, who use it for stock buy-backs and asset speculation. ..."
    "... Of course, 'liberal' economists see nothing wrong with trickle down, supply side economics, as long as it's the Wall Street banking cartel who's in charge of it... ..."
    "... Stiglitz: "I've always said that current monetary policy is not going to work because quantitative easing is based on a variant of trickle-down economics. The lower interest rates have led to a stock-market bubble – to increases in stock-market prices and huge increases in wealth. But relatively little of that's been translated into increased and broad consumer spending." ..."
    "... But pgl and many other '[neo[liberal' economists just can't get enough of the trickle down monetary policy...all the while they vehemently condemn trickle down tax policy. ..."
    "... You all think Trump can do worse than the sitting cabal adding $660B from Sep 2015 to the federal debt quietly keeping the economy going for the incumbent party? ..."
    "... The losers think the winners are as crooked as they! ..."
    Dec 31, 2016 | economistsview.typepad.com

    To belabor what should be obvious: either the wealthy care about having more money or they don't. If lower marginal tax rates are an incentive to produce more, the prospect of personal gain is an incentive to engage in corrupt practices. You can't go all Ayn Rand/Gordon Gekko on the importance of greed as a motivator while claiming that wealth insulates ... from temptation. ...

    And this is telling us something significant: namely, that supply-side economic theory is and always was a sham. It was never about the incentives; it was just another excuse to make the rich richer.

    Anomalous Cowherd : December 29, 2016 at 11:35 AM
    In one sentence, you still can't beat John Kenneth Galbraith's assessment: "The modern conservative is engaged in one of man's oldest exercises in moral philosophy: that is, the search for a superior moral justification for selfishness."

    Nothing is more admirable than the fortitude with which millionaires tolerate the disadvantages of their wealth. -- Nero Wolfe

    DrDick -> Anomalous Cowherd... , December 29, 2016 at 12:31 PM
    You need to know nothing else to understand the entirety of the conservative edifice.
    JohnH :
    "choosing a cabinet of billionaires, because rich men are incorruptible"...kind of like showering ZIRP on the Wall Street banking cartel and letting them how to ration credit to the rest of economy...mostly their wealthy clientele, who use it for stock buy-backs and asset speculation.

    Of course, 'liberal' economists see nothing wrong with trickle down, supply side economics, as long as it's the Wall Street banking cartel who's in charge of it...

    Gibbon1 : , December 29, 2016 at 12:29 PM
    Why do we need Krugman to tell us this?
    DrDick -> Gibbon1... , -1
    *We* do not, but our pandering press does and I think that is Krugman's intended target.
    JohnH -> pgl...
    Stiglitz: "I've always said that current monetary policy is not going to work because quantitative easing is based on a variant of trickle-down economics. The lower interest rates have led to a stock-market bubble – to increases in stock-market prices and huge increases in wealth. But relatively little of that's been translated into increased and broad consumer spending."
    http://www.theglobeandmail.com/opinion/munk-debates/joseph-stiglitz-current-monetary-policy-is-not-going-to-work/article24346548/

    But pgl and many other '[neo[liberal' economists just can't get enough of the trickle down monetary policy...all the while they vehemently condemn trickle down tax policy.

    yuan -> JohnH...
    and few liberal economists have been more skeptical of QE's economic impact than Krugman.

    http://www.marketwatch.com/story/krugman-meh-is-grade-fed-gets-on-qe-2015-11-09

    PS: bernie, please save me from your bros.

    ilsm :
    You all think Trump can do worse than the sitting cabal adding $660B from Sep 2015 to the federal debt quietly keeping the economy going for the incumbent party?

    The losers think the winners are as crooked as they!

    yuan -> ilsm...
    when we can borrow over the long-term at 3% and have truly massive infrastructure and clean energy needs we should be borrowing like military Keynesian republicans...

    [Dec 29, 2016] Krugman was clearly a neoliberal propagandist on payroll. His columns are clearly partisan.

    Dec 29, 2016 | economistsview.typepad.com
    Peter K. :

    All of the Democratic primary voters somehow believed Hillary Clinton would make a better candidate against Trump than Sanders would.

    And now we're stuck with Trump for at least 4 years.

    Good job.

    As Saul Bellow once said, "a great deal of intelligence can be invested in ignorance when the need for illusion is strong". Reply Wednesday, December 28, 2016 at 07:09 PM Peter K. -> Peter K.... , December 28, 2016 at 07:11 PM

    Seriously why should we ever believe these neoliberal centrist Democrats again?

    Why when they were so very, very wrong!

    Krugman ASSURED us Clinton was a great candidate who would easily win.

    likbez -> Peter K.... , December 28, 2016 at 10:09 PM
    Krugman was clearly a neoliberal propagandist on payroll. He should not be even discussed in this context because his columns were so clearly partisan.

    As for "Centrist Democrats" (aka Clinton wing of the party) their power is that you have nowhere to go: they rule the Democratic Party and the two party system guarantees that any third party will be either squashed or assimilated.

    In no way they need that you believe them: being nowhere to go is enough.

    Remember what happened with Sanders supporters during the convention? They were silenced. And then eliminated. That's how this system works.

    Cal -> likbez... , -1
    Krugman is a polarizing agent here in RiverCity...to our collective loss IMHO...as you know I don't have the Nobel.
    But you might be giving him some hope with that "was"? Clearly he does not need $.

    He is writing for our....yes, American, maybe even Global citizenship, which he thinks is in peril. It is. Otherwise I'd be out fishing.

    And you? What's in it for you? Are you familiar with the history of political party systems that transition in and out of 2 parties? Is this little forum an example of the 2 party system: pro/con Krugman?

    Egmont Kakarot-Handtke : , -1
    Americans believe crazy things, yet they are outdone by economists
    Comment on Catherine Rampell on 'Americans - especially but not exclusively Trump voters - believe crazy, wrong things'#1

    Americans are NOT special. Since more than 5000 years people believe things JUST BECAUSE they are absurd - in accordance with Tertullian's famous dictum "credo quia absurdum".#2

    As a matter of principle, almost everybody has the right to his own opinion no matter how stupid, crazy, wrong, or absurd; the only exception are scientists. The ancient Greeks started science with the distinction between doxa (= opinion) and episteme (= knowledge). Scientific knowledge is well-defined by material and formal consistency. Knowledge is established by proof, belief or opinion counts for nothing.

    Opinion is the currency in the political sphere, knowledge is the currency is the scientific sphere. It is extremely important to keep both spheres separate. Since the founding fathers, though, economists have not emancipated themselves from politics. They claim to do science but they have never risen above the level of opinion, belief, wish-wash, storytelling, soap box propaganda, and sitcom gossip.

    The orthodox majority still believes in these Walrasian hard core absurdities: "HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states." (Weintraub)

    To be clear: HC2, HC4, HC5 are NONENTITIES like angels, Spiderman, or the Easter Bunny.

    The heterodox minority still believes in these ill-defined Keynesian relationships: "Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment."

    Until this day, Walrasians, Keynesians, Marxians, Austrians hold to their provable false beliefs and claim to do science. This is absurdity on stilts but it is swallowed hook, line and sinker by every new generation of economics students. Compared to the representative economist the average political sucker is a genius.

    Egmont Kakarot-Handtke

    #1 The Washington Post
    https://www.washingtonpost.com/news/rampage/wp/2016/12/28/americans-especially-but-not-exclusively-trump-voters-believe-crazy-wrong-things/?utm_term=.3b8eabe9eb3d
    #2 Wikipedia
    https://en.wikipedia.org/wiki/Credo_quia_absurdum

    [Dec 23, 2016] The Case for Protecting Infant Industries

    Notable quotes:
    "... The fact remains, however, that every single developed country got there by using protectionist policies to nurture the develop local industries. Protectionism in developed countries does have strongly negative consequences, but it is beneficial for developing economies. ..."
    "... You are exactly right about Japan and I lived through that period. Please name one advanced economy which did not rely on protectionist laws to support domestic industries. All of the European industrial countries did it. The US did it. Japan and Korea did it. China is currently doing it and India has done it. ..."
    "... Nobody cared about US labor or about hollowing out the US economy. Krugman frequently noted that the benefits to investors and 'strategic' considerations for free trade were more important that job losses. ..."
    "... This extra demand for dollars as a commodity is what drives the price of the dollar higher, leading to the strategic benefits and economic hollowing out that I noted above. ..."
    "... There really is no "post-industrialization era", no matter what fantasies the FIRE sector wants to sell. To the extent there is, the existing global trade agreements (including the WTO, World Bank, IMF, and related organization) accomplish that as well by privileging the position of first world capital. ..."
    "... "Over the long haul, clearly automation's been much more important - it's not even close," said Lawrence Katz, an economics professor at Harvard who studies labor and technological change. No candidate talked much about automation on the campaign trail. Technology is not as convenient a villain as China or Mexico, there is no clear way to stop it, and many of the technology companies are in the United States and benefit the country in many ways. ..."
    "... Globalization is clearly responsible for some of the job losses, particularly trade with China during the 2000s, which led to the rapid loss of 2 million to 2.4 million net jobs, according to research by economists including Daron Acemoglu and David Autor of M.I.T. ..."
    "... People who work in parts of the country most affected by imports generally have greater unemployment and reduced income for the rest of their lives, Mr. Autor found in a paper published in January. Still, over time, automation has had a far bigger effect than globalization, and would have eventually eliminated those jobs anyway, he said in an interview. "Some of it is globalization, but a lot of it is we require many fewer workers to do the same amount of work," he said. "Workers are basically supervisors of machines." ..."
    "... Clarification of 3: that is, infant industry protection as traditionally done, i.e. "picking winners", won't help. What would help is structural changes that make things relatively easier for small enterprises and relatively harder for large ones. ..."
    "... Making direct lobbying of state and federal politicians by industry groups and companies a crime punishable by 110% taxation of net income on all the participants would be a start. ..."
    "... "Over time, automation has generally had a happy ending: As it has displaced jobs, it has created new ones. But some experts are beginning to worry that this time could be different. Even as the economy has improved, jobs and wages for a large segment of workers - particularly men without college degrees doing manual labor - have not recovered." ..."
    "... So why have manufacturing jobs plummeted since 2000? One answer is that the current account deficit is the wrong figure, since it also includes our surplus in trade in services. If you just look at goods, the deficit is closer to 4.2% of GDP. ..."
    "... trade interacts with automation. Not only do we lose jobs in manufacturing to automation, but trade leads us to re-orient our production toward goods that use relatively less labor (tech, aircraft, chemicals, farm produces, etc.), while we import goods like clothing, furniture and autos. ..."
    "... There are industries that are closely connected with the sovereignty of the country. That's what neoliberals tend to ignore as they, being closet Trotskyites ("Financial oligarchy of all countries unite!" instead of "Proletarian of all countries unite!" ;-) do not value sovereignty and are hell bent on the Permanent Neoliberal Revolution to bring other countries into neoliberal fold (in the form of color revolutions, or for smaller countries, direct invasions like in Iraq and Libya ). ..."
    "... Neoliberal commenters here demonstrate complete detachment from the fact that like war is an extension of politics, while politics is an extension of economics. For example, denying imports can and is often used for political pressure. ..."
    "... Now Trump want to play this game selectively designating China as "evil empire" and providing a carrot for Russia. Will it works, or Russia can be wiser then donkeys, I do not know. ..."
    "... The US propagandists usually call counties on which they impose sanction authoritarian dictatorships to make such actions more politically correct, but the fact remains: The USA as a global hegemon enjoys using economic pressure to crush dissidents and put vassals in line. ..."
    "... Neoliberalism as a social system is past it pinnacle and that creates some problems for the USA as the central player in the neoliberal world. The triumphal march of neoliberalism over the globe ended almost a decade ago. ..."
    Dec 23, 2016 | economistsview.typepad.com
    Noah Smith:
    The Case for Protecting Infant Industries : I must say, it's been almost breathtaking to see how fast the acceptable terms of debate have shifted on the subject of trade. Thanks partly to President-elect Donald Trump's populism and partly to academic research showing that the costs of free trade could be higher than anyone predicted, economics commentators are now happy to lambast the entire idea of trade. I don't want to do that -- I think a nuanced middle ground is best. But I do think it's worth reevaluating one idea that the era of economic dogmatism had seemingly consigned to the junk pile -- the notion of infant-industry protectionism. ...
    DrDick -> pgl...

    The fact remains, however, that every single developed country got there by using protectionist policies to nurture the develop local industries. Protectionism in developed countries does have strongly negative consequences, but it is beneficial for developing economies.

    DrDick -> sanjait... , December 22, 2016 at 04:52 PM
    You are exactly right about Japan and I lived through that period. Please name one advanced economy which did not rely on protectionist laws to support domestic industries. All of the European industrial countries did it. The US did it. Japan and Korea did it. China is currently doing it and India has done it.
    JohnH -> pgl... , -1
    Japan and other developed countries took advantage of the strong dollar/reserve currency, which provided their industries de facto protection from US exports along with a price umbrella that allowed them export by undercutting prices on US domestic products. The strong dollar was viewed as a strategic benefit to the US, since it allowed former rivals to develop their economies while making them dependent on the US consumer market, the largest in the world. The strong dollar also allowed the US to establish bases and fight foreign wars on the cheap, while allowing Wall Street to buy foreign economies' crown jewels on the cheap.

    Nobody cared about US labor or about hollowing out the US economy. Krugman frequently noted that the benefits to investors and 'strategic' considerations for free trade were more important that job losses.

    JohnH -> anne... , December 22, 2016 at 05:06 PM
    Even pgl's guy, Milton Friedman, recognized that "overseas demand for dollars allows the United States to maintain persistent trade deficits without causing the value of the currency to depreciate or the flow of trade to re-adjust."
    https://en.wikipedia.org/wiki/International_use_of_the_U.S._dollar

    This extra demand for dollars as a commodity is what drives the price of the dollar higher, leading to the strategic benefits and economic hollowing out that I noted above.

    John San Vant -> JohnH... , -1
    That is because you get a persistent trade surplus in services, which offsets the "Goods" trade deficit. The currency depreciated in the 2000's because said surplus in services began to decline creating a real trade deficit.
    DrDick -> Mike Sparrow... , December 22, 2016 at 04:57 PM
    "What about the post-industrialization era?"

    There really is no "post-industrialization era", no matter what fantasies the FIRE sector wants to sell. To the extent there is, the existing global trade agreements (including the WTO, World Bank, IMF, and related organization) accomplish that as well by privileging the position of first world capital.

    anne -> DrDick... , -1
    There really is no "post-industrialization era", no matter what fantasies the Finance, Insurance, and Real Estate sectors want to sell....

    [ Interesting assertion. Do develop this further. ]

    Greg : , -1
    The Long-Term Jobs Killer Is Not China. It's Automation.
    ( http://www.nytimes.com/2016/12/21/upshot/the-long-term-jobs-killer-is-not-china-its-automation.html?ref=economy&_r=0 )

    1. I'm moderately surprised that this piece hasn't shown up in Links.

    2. The Lump of Labor Fallacy is exposed as a fallacy - Sandwichman has been right all along.

    3. Infant industry protection won't help in this environment

    anne -> Greg... , December 22, 2016 at 01:08 PM
    http://www.nytimes.com/2016/12/21/upshot/the-long-term-jobs-killer-is-not-china-its-automation.html

    December 21, 2016

    The Long-Term Jobs Killer Is Not China. It's Automation.

    By Claire Cain Miller

    The first job that Sherry Johnson, 56, lost to automation was at the local newspaper in Marietta, Ga., where she fed paper into the printing machines and laid out pages. Later, she watched machines learn to do her jobs on a factory floor making breathing machines, and in inventory and filing.

    "It actually kind of ticked me off because it's like, How are we supposed to make a living?" she said. She took a computer class at Goodwill, but it was too little too late. "The 20- and 30-year-olds are more up to date on that stuff than we are because we didn't have that when we were growing up," said Ms. Johnson, who is now on disability and lives in a housing project in Jefferson City, Tenn.

    Donald J. Trump told workers like Ms. Johnson that he would bring back their jobs by clamping down on trade, offshoring and immigration. But economists say the bigger threat to their jobs has been something else: automation.

    "Over the long haul, clearly automation's been much more important - it's not even close," said Lawrence Katz, an economics professor at Harvard who studies labor and technological change. No candidate talked much about automation on the campaign trail. Technology is not as convenient a villain as China or Mexico, there is no clear way to stop it, and many of the technology companies are in the United States and benefit the country in many ways.

    Mr. Trump told a group of tech company leaders last Wednesday: "We want you to keep going with the incredible innovation. Anything we can do to help this go along, we're going to be there for you."

    Andrew F. Puzder, Mr. Trump's pick for labor secretary and chief executive of CKE Restaurants, extolled the virtues of robot employees over the human kind in an interview with Business Insider in March. "They're always polite, they always upsell, they never take a vacation, they never show up late, there's never a slip-and-fall, or an age, sex or race discrimination case," he said.

    Globalization is clearly responsible for some of the job losses, particularly trade with China during the 2000s, which led to the rapid loss of 2 million to 2.4 million net jobs, according to research by economists including Daron Acemoglu and David Autor of M.I.T.

    People who work in parts of the country most affected by imports generally have greater unemployment and reduced income for the rest of their lives, Mr. Autor found in a paper published in January. Still, over time, automation has had a far bigger effect than globalization, and would have eventually eliminated those jobs anyway, he said in an interview. "Some of it is globalization, but a lot of it is we require many fewer workers to do the same amount of work," he said. "Workers are basically supervisors of machines."

    When Greg Hayes, the chief executive of United Technologies, agreed to invest $16 million in one of its Carrier factories as part of a Trump deal to keep some jobs in Indiana instead of moving them to Mexico, he said the money would go toward automation.

    "What that ultimately means is there will be fewer jobs," he said on CNBC....

    Greg -> Greg... , December 22, 2016 at 01:08 PM
    Clarification of 3: that is, infant industry protection as traditionally done, i.e. "picking winners", won't help. What would help is structural changes that make things relatively easier for small enterprises and relatively harder for large ones.

    Making direct lobbying of state and federal politicians by industry groups and companies a crime punishable by 110% taxation of net income on all the participants would be a start.

    anne -> Greg... , December 22, 2016 at 01:09 PM
    http://cepr.net/blogs/beat-the-press/what-s-different-about-stagnating-wages-for-workers-without-college-degrees

    December 21, 2016

    What's Different About Stagnating Wages for Workers Without College Degrees

    There seems to be a great effort to convince people that the displacement due to the trade deficit over the last fifteen years didn't really happen. The New York Times contributed to this effort with a piece * telling readers that over the long-run job loss has been primarily due to automation not trade.

    While the impact of automation over a long enough period of time certainly swamps the impact of trade, over the last 20 years there is little doubt that the impact of the exploding trade deficit has had more of an impact on employment. To make this one as simple as possible, we currently have a trade deficit of roughly $460 billion (@ 2.6 percent of GDP). Suppose we had balanced trade instead, making up this gap with increased manufacturing output.

    Does the NYT want to tell us that we could increase our output of manufactured goods by $460 billion, or just under 30 percent, without employing more workers in manufacturing? That would be pretty impressive. We currently employ more than 12 million workers in manufacturing, if moving to balanced trade increase employment by just 15 percent we would be talking about 1.8 million jobs. That is not trivial.

    But this is not the only part of the story that is strange. We are getting hyped up fears over automation even at a time when productivity growth (i.e. automation) has slowed to a crawl, averaging just 1.0 percent annually over the last decade. The NYT tells readers:

    "Over time, automation has generally had a happy ending: As it has displaced jobs, it has created new ones. But some experts are beginning to worry that this time could be different. Even as the economy has improved, jobs and wages for a large segment of workers - particularly men without college degrees doing manual labor - have not recovered."

    Hmmm, this time could be different? How so? The average hourly wage of men with just a high school degree was 13 percent less in 2000 than in 1973. ** For workers with some college it was down by more than 2.0 percent. In fact, stagnating wages for men without college degrees is not something new and different, it has been going on for more than forty years. Hasn't this news gotten to the NYT yet?

    * http://www.nytimes.com/2016/12/21/upshot/the-long-term-jobs-killer-is-not-china-its-automation.html

    ** http://www.stateofworkingamerica.org/chart/swa-wages-table-4-15-hourly-wages-men-education/

    -- Dean Baker

    Peter K. : , -1
    http://jaredbernsteinblog.com/inequality-technology-globalization-and-the-false-assumptions-that-sustain-current-inequities/

    Inequality, technology, globalization, and the false assumptions that sustain current inequities

    by Jared Bernstein

    December 22nd, 2016 at 3:24 pm

    Here's a great interview* with inequality scholar Branko Milanovic wherein he brings a much-needed historical and international perspective to the debate (h/t: C. Marr). Many of Branko's points are familiar to my readers: yes, increased trade has upsides, for both advanced and emerging economies. But it's not hard to find significant swaths hurt by globalization, particularly workers in rich economies who've been placed into competition with those in poorer countries. The fact that little has been done to help them is one reason for president-elect Trump.

    As Milanovic puts it:

    "The problems with globalization arise from the fact that gains from it are not (and can never be) evenly distributed. There would be always those who gain less than some others, or those who lose even in absolute terms. But to whom can they "appeal" for redress? Only to their national governments because this is how the world is politically organized. Thus national governments have to engage in "mop up" operations to fix the negative effects of globalization. And this they have not done well, led as they were by the belief that the trickle-down economics will take care of it. We know it did not."

    But I'd like to focus on a related point from Branko's interview, one that gets less attention: the question of whether it was really exposure to global trade or to labor-saving technology that is most responsible for displacing workers. What's the real problem here: is it the trade deficit or the robots?

    Branko cogently argues that "both technological change and economic polices responded to globalization. The nature of recent technological progress would have been different if you could not employ labor 10,000 miles away from your home base." Their interaction makes their relative contributions hard to pull apart.

    I'd argue that the rise of trade with China, from the 1990s to the 2007 crash, played a significant role in moving US manufacturing employment from its steady average of around 17 million factory jobs from around 1970 to 2000, to an average today that's about 5 million less (see figure below; of course, manufacturing employment was falling as a share of total jobs over this entire period).

    ....

    * https://newrepublic.com/article/139432/understand-2016s-politics-look-winners-losers-globalization

    Peter K. : , -1
    market monetarist Scott Sumner makes a good point about the post-war years.

    http://www.themoneyillusion.com/?p=32214

    Do current account deficits cost jobs

    Over at Econlog I have a post that suggests the answer is no, CA deficits do not cost jobs.

    But suppose I'm wrong, and suppose they do cost jobs. In that case, trade has been a major net contributor to American jobs during the 21st century, as our deficit was about 4% of GDP during the 2000 tech boom, and as large as 6% of GDP during the 2006 housing boom. Today it is only 2.6% of GDP. So if you really believe that rising trade deficits cost jobs, you'd be forced to believe that the shrinking deficits since 2000 have created jobs.

    So why have manufacturing jobs plummeted since 2000? One answer is that the current account deficit is the wrong figure, since it also includes our surplus in trade in services. If you just look at goods, the deficit is closer to 4.2% of GDP.

    But even that doesn't really explain very much, because it's slightly lower than the 4.35% of GDP trade deficit in goods back in 2000. So again, the big loss of manufacturing jobs is something of a mystery. Yes, we import more goods than we used to, but exports of goods have risen at about the same rate since 2000. So why does it seem like trade has devastated our manufacturing sector?

    Perhaps because trade interacts with automation. Not only do we lose jobs in manufacturing to automation, but trade leads us to re-orient our production toward goods that use relatively less labor (tech, aircraft, chemicals, farm produces, etc.), while we import goods like clothing, furniture and autos.

    So trade and automation are both parts of a bigger trend, Schumpeterian creative destruction, which is transforming big areas of our economy. It's especially painful as during the earlier period of automation (say 1950-2000) the physical output of goods was still rising fast. So the blow of automation was partly cushioned by a rise in output. (Although not in the coal and steel industries!) Since 2000, however, we've seen slower growth in physical output for a number of reasons, including slower workforce growth, a shift to a service economy, and a home building recession (which normally absorbs manufactured goods like home appliances, carpet, etc.) We are producing more goods than ever, but with dramatically fewer workers.

    Update: Steve Cicala sent me a very interesting piece on coal that he had published in Forbes. Ironically, environmental regulations actually helped West Virginia miners, by forcing utilities to install scrubbers that cleaned up emissions from the dirtier West Virginia coal. (Wyoming coal has less sulfur.) He also discusses the issue of competition from natural gas.

    If Economists hadn't ignored US and World Economic History they would have had a clue : , December 22, 2016 at 07:53 PM
    The historical record is totally unambiguous. Protectionism always leads to wealth and industrial development. Free trade leads you to the third world. This was true four hundred years ago with mercantilist England and the navigation acts; it was true with Lincoln's tariffs in the 1860's, it was true of East Asia post 1945.

    Economists better abandon silly free trade if they want to have any credibility and not be seen as quacks.

    Peter K. : , -1
    http://www.cnn.com/2016/12/21/politics/donald-trump-tariffs/

    Trump team floats a 10% tariff on imports

    By John King and Jeremy Diamond, CNN

    Updated 3:57 PM ET, Thu December 22, 2016

    Washington (CNN)President-elect Donald Trump's transition team is discussing a proposal to impose tariffs as high as 10% on imports, according to multiple sources.

    A senior Trump transition official said Thursday the team is mulling up to a 10% tariff aimed at spurring US manufacturing, which could be implemented via executive action or as part of a sweeping tax reform package they would push through Congress.

    Incoming White House Chief of Staff Reince Priebus floated a 5% tariff on imports in meetings with key Washington players last week, according to two sources who represent business interests in Washington. But the senior transition official who spoke to CNN Thursday on the condition of anonymity said the higher figure is now in play.

    Such a move would deliver on Trump's "America First" campaign theme, but risks drawing the US into a trade war with other countries and driving up the cost of consumer goods in the US. And it's causing alarm among business interests and the pro-trade Republican establishment.

    The senior transition official said the transition team is beginning to find "common ground" with House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady, pointing in particular to the border adjustment tax measure included in House Republicans' "Better Way" tax reform proposal, which would disincentivize imports through tax policy.

    Aides to Ryan and Brady declined to say they had "common ground" with Trump, but acknowledged they are in deep discussions with transition staffers on the issue.

    Curbing free trade was a central element of Trump's campaign. He promised to rip up the North American Free Trade Agreement with Mexico and Canada. He also vowed to take a tougher line against other international trading partners, almost always speaking harshly of China but often including traditional US allies such as Japan in his complaint that American workers get the short end of the stick under current trade practices.

    Gulf with GOP establishment

    It is an area where there is a huge gulf between Trump's stated positions and traditional GOP orthodoxy. Business groups and GOP establishment figures -- including Ryan and Senate Majority Leader Mitch McConnell -- have been hoping the transition from the campaign to governing would bring a different approach.

    Ryan did signal in a CNBC interview earlier this month that Trump's goals of spurring US manufacturing could be accomplished through "comprehensive tax reform."

    "I'll tell him what I've been saying all along, which is we can get at what he's trying to get at better through comprehensive tax reform," Ryan said.

    The pro-business GOP establishment says the new Trump administration could make clear it would withdraw from NAFTA unless Canada and Mexico entered new talks to modernize the agreement to reflect today's economy. That would allow Trump to say he kept a promise to make the agreement fairer to American workers without starting a trade war and exacerbating tensions with America's neighbors and vital economic partners.

    But there remain establishment jitters that Trump, who views his tough trade message as critical to his election victory, will look for ways to make an early statement that he is serious about reshaping the trade playing field.

    And when Priebus told key Washington players that the transition is mulling a 5% tariff on imports, the reaction was one of fierce opposition, according to two sources who represent business interests in Washington and spoke on condition of anonymity because the conversations with the Trump team were confidential.

    Priebus, the sources said, was warned such a move could start trade wars, anger allies, and also hurt the new administration's effort to boost the rate of economic growth right out of the gate.

    Role of Wilbur Ross

    One of the sources said he viewed the idea as a trial balloon when first raised, and considered it dead on arrival given the strong reaction in the business community -- and the known opposition to such protectionist ideas among the GOP congressional leadership.

    But this source voiced new alarm Tuesday after being told by allies within the Trump transition that defending new tariffs was part of the confirmation "murder board" practice of Wilbur Ross, the President-elect's choice for commerce secretary.

    At least one business community organization is worried enough about the prospect of the tariff it already has prepared talking points, obtained by CNN Wednesday night.

    "This $100 billion tax on American consumers and industry would impose heavy costs on the US economy, particularly for the manufacturing sector and American workers, with highly negative political repercussions," according to the talking points. "Rather than using a trade policy sledgehammer that would inflict serious collateral damage, the Trump administration should use the scalpel of US trade remedy law to achieve its goals."

    The talking points also claim the tariffs would lead to American job loss and result in a tax to consumers, both of which would harm the US economy.

    Trump aides have signaled that Ross is likely to be a more influential player in trade negotiations than recent Commerce secretaries. Given that, the aides know his confirmation hearings are likely to include tough questioning -- from both Democrats and Republicans -- about Trump's trade-related campaign promises.

    "The way it was cast to me was that (Trump) and Ross are all over it," said one source. "It is serious."

    The second source was less certain about whether the tariff idea was serious or just part of a vigorous debate about policy options. But this source said the unpredictability of Trump and his team had the business interests nervous.

    The business lobbying community is confident the GOP leadership would push back on any legislative effort to impose tariffs, which organizations like the Chamber of Commerce, the Business Roundtable, the National Association of Manufactures and others, including groups representing farmers, believe would lead to retaliation against US industries heavily dependent on exports.

    But the sources aligned with those interests told CNN the conversation within the Trump transition includes using executive authority allowed under existing trade laws. Different trade laws enacted over the course of the past century allow the president to impose tariffs if he issues a determination the United States is being subjected to unfair trade practices or faces an economic or national security threat because of trade practices.

    likbez : , December 23, 2016 at 08:25 AM
    There are industries that are closely connected with the sovereignty of the country. That's what neoliberals tend to ignore as they, being closet Trotskyites ("Financial oligarchy of all countries unite!" instead of "Proletarian of all countries unite!" ;-) do not value sovereignty and are hell bent on the Permanent Neoliberal Revolution to bring other countries into neoliberal fold (in the form of color revolutions, or for smaller countries, direct invasions like in Iraq and Libya ).

    For example, if you depends of chips produced outside the country for your military or space exploration, then sabotage is possible (or just pure fraud -- selling regular ships instead of special tolerant to cosmic radiation or harsh conditions variant; actually can be done with the support of internal neoliberal fifth column).

    The same is probably true for cars and auto engines. If you do not produce domestically a variety at least some domestic brans of cars and trucks, your military trucks and engines will be foreign and that will cost you tremendous amount of money and you might depend for spare parts on you future adversary. Also such goods are overprices to the heaven. KAS is a clear example of this as they burn their money in the war with Yemen as there is no tomorrow making the US MIC really happy.

    So large countries with say over 100 million people probably need to think twice before jumping into neoliberal globalization bandwagon and relying in imports for strategically important industries.

    Neoliberal commenters here demonstrate complete detachment from the fact that like war is an extension of politics, while politics is an extension of economics. For example, denying imports can and is often used for political pressure.

    That was one of factors that doomed the USSR. Not that the system has any chance -- it was doomed after 1945 as did not provide for higher productivity then advanced capitalist economies.

    But this just demonstrates the power of the US sanctions mechanism. Economic sanctions works and works really well. The target country is essentially put against the ropes and if you unprepared you can be knocked down.

    For example now there are sanctions against Russia that deny them advanced oil exploration equipment. And oil is an important source of Russia export revenue. So the effect of those narrow prohibitions multiples by factor of ten by denying Russia export revenue.

    That's how an alliance between Russia and China was forged by Obama administration. because China does produce some of this equipment now. And Russia paid dearly for that signing huge multi-year deals with China on favorable for China terms.

    Now Trump want to play this game selectively designating China as "evil empire" and providing a carrot for Russia. Will it works, or Russia can be wiser then donkeys, I do not know.

    And look what countries are on the USA economic sanctions list: many entries are countries that are somewhat less excited about the creation of the global neoliberal empire led by the USA. KAS and Gulf monarchies are not on the list. So much about "spreading democracy".

    The US propagandists usually call counties on which they impose sanction authoritarian dictatorships to make such actions more politically correct, but the fact remains: The USA as a global hegemon enjoys using economic pressure to crush dissidents and put vassals in line.

    The problem with tariffs on China is an interesting reversion of the trend: manufacturing is already in China and to reverse this process now is an expensive proposition. So alienating Chinese theoretically means that some of USA imports might became endangered, despite huge geopolitical weight of the USA. They denied export of rare metals to Japan in the past. They can do this for Apple and without batteries Apple can just fold.

    Also it is very easy to prohibit Apple sales in China of national security grounds (any US manufacturer by definition needs to cooperate with NSA and other agencies). I think some countries already prohibit the use of the USA companies produced cell phones for government officials.

    So if Trump administration does something really damaging, for Chinese there are multiple ways to skin the cat. Neoliberalism as a social system is past it pinnacle and that creates some problems for the USA as the central player in the neoliberal world. The triumphal march of neoliberalism over the globe ended almost a decade ago.

    [Dec 22, 2016] Regulatory Capture 101

    It's not regulation per se is deficient, it is regulation under neoliberal regime, were government is captured by financial oligarchy ;-). But that understanding is foreign to WSJ with its neoliberal agenda :-(.
    Notable quotes:
    "... Impressionable journalists finally meet George Stigler. ..."
    "... The secret recordings were made by Carmen Segarra, who went to work as an examiner at the New York Fed in 2011 but was fired less than seven months later in 2012. She has filed a wrongful termination lawsuit against the regulator and says Fed officials sought to bury her claim that Goldman had no firm-wide policy on conflicts-of-interest. Goldman says it has had such policies for years, though on the same day Ms. Segarra's revelations were broadcast, the firm added new restrictions on employees trading for their own accounts. ..."
    "... On the recordings, regulators can be heard doing what regulators do-revealing the limits of their knowledge and demonstrating their reluctance to challenge the firms they regulate. At one point Fed officials suspect a Goldman deal with Banco Santander may have been "legal but shady" in the words of one regulator, and should have required Fed approval. But the regulators basically accept Goldman's explanations without a fight. ..."
    "... The journalists have also found evidence in Ms. Segarra's recordings that even after the financial crisis and the supposed reforms of the Dodd-Frank law, the New York Fed remained a bureaucratic agency resistant to new ideas and hostile to strong-willed, independent-minded employees. In government? ..."
    "... "as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit." ..."
    "... Once one understands the inevitability of regulatory capture, the logical policy response is to enact simple laws that can't be gamed by the biggest firms and their captive bureaucrats. ..."
    "... And it means considering economist Charles Calomiris's plan to automatically convert a portion of a bank's debt into equity if the bank's market value falls below a healthy level. ..."
    Oct 05, 2014 | Casino Capitalism and Crapshoot Politics
    Regulatory Capture 101

    Impressionable journalists finally meet George Stigler.

    The financial scandal du jour involves leaked audio recordings that purport to show that regulators at the Federal Reserve Bank of New York were soft on Goldman Sachs . Say it ain't so.

    ... ... ...

    The secret recordings were made by Carmen Segarra, who went to work as an examiner at the New York Fed in 2011 but was fired less than seven months later in 2012. She has filed a wrongful termination lawsuit against the regulator and says Fed officials sought to bury her claim that Goldman had no firm-wide policy on conflicts-of-interest. Goldman says it has had such policies for years, though on the same day Ms. Segarra's revelations were broadcast, the firm added new restrictions on employees trading for their own accounts.

    The New York Fed won against Ms. Segarra in district court, though the case is on appeal. The regulator also notes that Ms. Segarra "demanded $7 million to settle her complaint." And last week New York Fed President William Dudley said, "We are going to keep striving to improve, but I don't think anyone should question our motives or what we are trying to accomplish."

    On the recordings, regulators can be heard doing what regulators do-revealing the limits of their knowledge and demonstrating their reluctance to challenge the firms they regulate. At one point Fed officials suspect a Goldman deal with Banco Santander may have been "legal but shady" in the words of one regulator, and should have required Fed approval. But the regulators basically accept Goldman's explanations without a fight.

    The sleuths at the ProPublica website, working with a crack team of investigators from public radio, also seem to think they have another smoking gun in one of Ms. Segarra's conversations that was not recorded but was confirmed by another regulator. Ms. Seest means. For example, a company offering securities is exempt from some registration requirements if it is only selling to accredited investors, such as people with more than $1 million in net worth, excluding the value of primary residences.

    The journalists have also found evidence in Ms. Segarra's recordings that even after the financial crisis and the supposed reforms of the Dodd-Frank law, the New York Fed remained a bureaucratic agency resistant to new ideas and hostile to strong-willed, independent-minded employees. In government?

    ***

    Enter George Stigler, who published his famous essay "The Theory of Economic Regulation" in the spring 1971 issue of the Bell Journal of Economics and Management Science. The University of Chicago economist reported empirical data from various markets and concluded that "as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit."

    Stigler knew he was fighting an uphill battle trying to persuade his fellow academics. "The idealistic view of public regulation is deeply imbedded in professional economic thought," he wrote. But thanks to Stigler, who would go on to win a Nobel prize, many economists have studied the operation and effects of regulation and found similar results.

    A classic example was the New York Fed's decision to let Citigroup stash $1.2 trillion of assets-including more than $600 billion of mortgage-related securities-in off-balance-sheet vehicles before the financial crisis. That's when Tim Geithner ran the New York Fed and Jack Lew was at Citigroup.

    Once one understands the inevitability of regulatory capture, the logical policy response is to enact simple laws that can't be gamed by the biggest firms and their captive bureaucrats. This means repealing most of Dodd-Frank and the so-called Basel rules and replacing them with a simple requirement for more bank capital-an equity-to-asset ratio of perhaps 15%. It means bringing back bankruptcy for giant firms instead of resolution at the discretion of political appointees. And it means considering economist Charles Calomiris's plan to automatically convert a portion of a bank's debt into equity if the bank's market value falls below a healthy level.

    GS4

    [Dec 21, 2016] The widespread belief of neoliberals that they are entitled to a good hand in the market economy casino. This is reflected in the more or less universal belief of the affluent that

    Krugman is a neoliberal stooge. Since when Social Security is an entitlement program. If you start contributing at 25 and retire at 67 (40 years of monthly contributions), you actually get less then you contribute, unless you live more then 80 years. It just protects you from "free market casino".
    Notable quotes:
    "... A "contribution" theory of what a proper distribution of income might be can only be made coherent if there are constant returns to scale in the scarce, priced, owned factors of production. Only then can you divide the pile of resources by giving to each the marginal societal product of their work and of the resources that they own. ..."
    "... n a world--like the one we live in--of mammoth increasing returns to unowned knowledge and to networks, no individual and no community is especially valuable. Those who receive good livings are those who are lucky -- as Carrier's workers in Indiana have been lucky in living near Carrier's initial location. It's not that their contribution to society is large or that their luck is replicable: if it were, they would not care (much) about the departure of Carrier because there would be another productive network that they could fit into a slot in. ..."
    "... If not about people, what is an economy about? ..."
    "... I hadn't realized that Democrats now view Social Security and Medicare as "government handouts". ..."
    "... Some Democrats like Krugman are Social Darwinists. ..."
    "... PK is an ignorant vicious SOB. Many of those "dependent hillbillies" PK despises paid SS and Medicare taxes for many decades, most I know have never been on foos stamps, and if they are on disability it is because they did honest hard work, something PK knows nothing about. What an ignorant jerk. ..."
    "... What is a very highly subsidized industry that benefits Delong and Krugman? Higher education. Damn welfare queens! :) ..."
    "... No Krugman is echoing the tribalism of Johnny Bakho. These people won't move or educate themselves or "skill up" so they deserve what they get. Social darwinism. ..."
    "... People like Bakho are probably anti-union as well. They're seen as relics of an earlier age and economically "uncompetitve." See Fred Dobbs below. That's the dog whistle about the "rust belt." ..."
    "... Paul Krugman's reputation, formerly that of a a noted economic, succumbed after a brief struggle to Trump Derangement Syndrome. Friends said Mr Krugman's condition had been further aggravated by cognitive dissonance from a severely challenged worldview. ..."
    "... He is survived by the New York Times, also said to be in failing health. ..."
    "... For a long time DeLong was mocking the notion of "economic anxiety" amongst the voters. Does this blog post mean he's rethinking that idea? ..."
    "... The GOP has a long history of benefitting from the disconnect where a lot of their voters are convinced that when government money goes to others (sometimes even within their own white congregations), then it is not deserved. ..."
    Dec 21, 2016 | economistsview.typepad.com

    anne : December 18, 2016 at 05:13 AM , 2016 at 05:13 AM

    http://krugman.blogs.nytimes.com/2016/12/17/what-do-trump-voters-want/

    December 17, 2016

    What Do Trump Voters Want?
    By Paul Krugman

    Brad DeLong has an interesting meditation * on markets and political demands - inspired by a note from Noah Smith ** - that offers food for thought. I wonder, however, if Brad's discussion is too abstract; and I also wonder whether it fully recognizes the disconnect between what Trump voters think they want and reality. So, an entry of my own.

    What Brad is getting at is the widespread belief by, well, almost everyone that they are entitled to - have earned - whatever good hand they have been dealt by the market economy. This is reflected in the more or less universal belief of the affluent that they deserve what they have; you could see this in the rage of rentiers at low interest rates, because it's the Federal Reserve's job to reward savers, right? In this terrible political year, the story was in part one of people in Appalachia angrily demanding a return of the good jobs they used to have mining coal - even though the world doesn't want more coal given fracking, and it can get the coal it still wants from strip mines and mountaintop removal, which don't employ many people.

    And what Brad is saying, I think, is that what those longing for the return to coal want is those jobs they deserve, where they earn their money - not government handouts, no sir.

    A fact-constrained candidate wouldn't have been able to promise such people what they want; Trump, of course, had no problem.

    But is that really all there is? Working-class Trump voters do, in fact, receive a lot of government handouts - they're almost totally dependent on Social Security for retirement, Medicare for health care when old, are quite dependent on food stamps, and many have recently received coverage from Obamacare. Quite a few receive disability payments too. They don't want those benefits to go away. But they managed to convince themselves (with a lot of help from Fox News etc) that they aren't really beneficiaries of government programs, or that they're not getting the "good welfare", which only goes to Those People.

    And you can really see this in the regional patterns. California is an affluent state, a heavy net contributor to the federal budget; it went 2-1 Clinton. West Virginia is poor and a huge net recipient of federal aid; it went 2 1/2-1 Trump.

    I don't think any kind of economic analysis can explain this. It has to be about culture and, as always, race.

    * http://www.bradford-delong.com/2016/12/is-the-problem-one-of-insufficient-market-wages-inadequate-social-insurance-polanyian-disruption-of-patterns-of-life-.html

    ** https://www.bloomberg.com/view/articles/2016-12-16/four-ways-to-help-the-midwest

    anne -> anne... , December 18, 2016 at 05:18 AM
    http://www.bradford-delong.com/2016/12/is-the-problem-one-of-insufficient-market-wages-inadequate-social-insurance-polanyian-disruption-of-patterns-of-life-.html

    December 17, 2016

    Regional Policy and Distributional Policy in a World Where People Want to Ignore the Value and Contribution of Knowledge- and Network-Based Increasing Returns

    Pascal Lamy: "When the wise man points at the moon, the fool looks at the finger..."

    Perhaps in the end the problem is that people want to pretend that they are filling a valuable role in the societal division of labor, and are receiving no more than they earn--than they contribute.

    But that is not the case. The value--the societal dividend--is in the accumulated knowledge of humanity and in the painfully constructed networks that make up our value chains.

    A "contribution" theory of what a proper distribution of income might be can only be made coherent if there are constant returns to scale in the scarce, priced, owned factors of production. Only then can you divide the pile of resources by giving to each the marginal societal product of their work and of the resources that they own.

    That, however, is not the world we live in.

    In a world--like the one we live in--of mammoth increasing returns to unowned knowledge and to networks, no individual and no community is especially valuable. Those who receive good livings are those who are lucky -- as Carrier's workers in Indiana have been lucky in living near Carrier's initial location. It's not that their contribution to society is large or that their luck is replicable: if it were, they would not care (much) about the departure of Carrier because there would be another productive network that they could fit into a slot in.

    All of this "what you deserve" language is tied up with some vague idea that you deserve what you contribute--that what your work adds to the pool of society's resources is what you deserve.

    This illusion is punctured by any recognition that there is a large societal dividend to be distributed, and that the government can distribute it by supplementing (inadequate) market wages determined by your (low) societal marginal product, or by explicitly providing income support or services unconnected with work via social insurance. Instead, the government is supposed to, somehow, via clever redistribution, rearrange the pattern of market power in the economy so that the increasing-returns knowledge- and network-based societal dividend is predistributed in a relatively egalitarian way so that everybody can pretend that their income is just "to each according to his work", and that they are not heirs and heiresses coupon clipping off of the societal capital of our predecessors' accumulated knowledge and networks.

    On top of this we add: Polanyian disruption of patterns of life--local communities, income levels, industrial specialization--that you believed you had a right to obtain or maintain, and a right to believe that you deserve. But in a market capitalist society, nobody has a right to the preservation of their local communities, to their income levels, or to an occupation in their industrial specialization. In a market capitalist society, those survive only if they pass a market profitability test. And so the only rights that matter are those property rights that at the moment carry with them market power--the combination of the (almost inevitably low) marginal societal products of your skills and the resources you own, plus the (sometimes high) market power that those resources grant to you.

    This wish to believe that you are not a moocher is what keeps people from seeing issues of distribution and allocation clearly--and generates hostility to social insurance and to wage supplement policies, for they rip the veil off of the idea that you deserve to be highly paid because you are worth it. You aren't.

    And this ties itself up with regional issues: regional decline can come very quickly whenever a region finds that its key industries have, for whatever reason, lost the market power that diverted its previously substantial share of the knowledge- and network-based societal dividend into the coffers of its firms. The resources cannot be simply redeployed in other industries unless those two have market power to control the direction of a share of the knowledge- and network-based societal dividend. And so communities decline and die. And the social contract--which was supposed to have given you a right to a healthy community--is broken.

    As I have said before, humans are, at a very deep and basic level, gift-exchange animals. We create and reinforce our social bonds by establishing patterns of "owing" other people and by "being owed". We want to enter into reciprocal gift-exchange relationships. We create and reinforce social bonds by giving each other presents. We like to give. We like to receive. We like neither to feel like cheaters nor to feel cheated. We like, instead, to feel embedded in networks of mutual reciprocal obligation. We don't like being too much on the downside of the gift exchange: to have received much more than we have given in return makes us feel very small. We don't like being too much on the upside of the gift exchange either: to give and give and give and never receive makes us feel like suckers.

    We want to be neither cheaters nor saps....

    ken melvin -> anne... , December 18, 2016 at 05:32 AM
    If not about people, what is an economy about?
    Observer -> anne... , December 18, 2016 at 05:59 AM
    I hadn't realized that Democrats now view Social Security and Medicare as "government handouts".
    Peter K. -> Observer... , December 18, 2016 at 09:25 AM
    Some Democrats like Krugman are Social Darwinists. They're the "center-left" versus Bernie Sanders's leftwing supporters.
    Tom aka Rusty -> anne... , December 18, 2016 at 06:06 AM
    PK is an ignorant vicious SOB. Many of those "dependent hillbillies" PK despises paid SS and Medicare taxes for many decades, most I know have never been on foos stamps, and if they are on disability it is because they did honest hard work, something PK knows nothing about. What an ignorant jerk.
    Tom aka Rusty -> Tom aka Rusty... , December 18, 2016 at 06:31 AM
    What is a very highly subsidized industry that benefits Delong and Krugman? Higher education. Damn welfare queens! :)
    RC AKA Darryl, Ron -> Tom aka Rusty... , December 18, 2016 at 06:37 AM
    Not LOL worthy, but still a good solid :<)
    anne -> Tom aka Rusty... , December 18, 2016 at 06:53 AM

    Education from elementary through college and professional levels is of course publicly supported in every reasonably advanced country in the world.

    EMichael -> Tom aka Rusty... , December 18, 2016 at 07:18 AM
    What is a very highly subsidized industry that benefits Rusty?

    Healthcare.

    Damn welfare queen!

    Peter K. -> EMichael... , December 18, 2016 at 09:33 AM
    Or Krugman's textbook industry.
    BenIsNotYoda -> Tom aka Rusty... , December 18, 2016 at 10:49 AM
    PK's rhetoric, together with shills like pgl and emichael, has deteriorated quite a bit. Nicely done Rusty.
    anne -> Tom aka Rusty... , December 18, 2016 at 06:34 AM
    "dependent hillbillies"

    [ This is a false quote. A writer should never be falsely quoted. There is no such expression used in this or any other essay by Paul Krugman. ]

    pgl -> anne... , December 18, 2016 at 09:34 AM
    It must be really cold where Rusty lives and he woke up in one foul mood.
    DeDude -> Tom aka Rusty... , December 18, 2016 at 08:58 AM
    Exactly the same could be said about many of those inner city minorities that the "dependent hillbillies" look down on as "welfare queens". That may be one of the reasons they take special issues with "food stamps", because in contrast to the hillbillies, inner city poor people cannot grow their own food. What Krugman is pointing out is the hypocrisy of their tribalism - and also the idiocy, because the dismantling of society would ultimately hurt the morons that voted GOP into power this round.
    Peter K. -> DeDude... , December 18, 2016 at 09:31 AM
    "What Krugman is pointing out is the hypocrisy of their tribalism "

    No Krugman is echoing the tribalism of Johnny Bakho. These people won't move or educate themselves or "skill up" so they deserve what they get. Social darwinism.

    Peter K. -> Peter K.... , December 18, 2016 at 09:58 AM
    People like Bakho are probably anti-union as well. They're seen as relics of an earlier age and economically "uncompetitve." See Fred Dobbs below. That's the dog whistle about the "rust belt."
    Julio -> Tom aka Rusty... , December 18, 2016 at 10:53 AM
    His tone is supercilious and offensive. But your argument is that they are not "dependent" because they earned every benefit they get from the government. I think his point is that "dependent" is not offensive -- the term jus reflects how we all depend on government services. DeLong makes the point much better in the article quoted by anne above.
    Observer -> anne... , December 18, 2016 at 06:07 AM
    In Memorium

    Paul Krugman's reputation, formerly that of a a noted economic, succumbed after a brief struggle to Trump Derangement Syndrome. Friends said Mr Krugman's condition had been further aggravated by cognitive dissonance from a severely challenged worldview.

    He is survived by the New York Times, also said to be in failing health.

    RC AKA Darryl, Ron -> Observer... , December 18, 2016 at 06:38 AM
    :<)
    kthomas -> anne... , December 18, 2016 at 06:52 AM
    Judith Miller. Dowd. Doh!at. Broder. Brooks.

    BS

    anne -> anne... , December 18, 2016 at 06:55 AM
    The New York Times is easily the finest newspaper in the world, is broadly recognized as such and is of course flourishing. Such an institution will always have sections or editors and writers of relative strength but these relative strengths change over time as the newspaper continually changes.
    Observer -> anne... , December 18, 2016 at 07:36 AM
    Flourishing?

    NYT Co. to revamp HQ, vacate eight floors in consolidation

    "In an SEC filing, New York Times Co. discloses a staff communication it provided today to employees about a revamp of its headquarters -- including consolidating floors.

    The company will vacate at least eight floors, consolidating workspaces and allowing for "significant" rental income, the memo says."

    http://seekingalpha.com/news/3231232-nyt-co-revamp-hq-vacate-eight-floors-consolidation

    anne -> Dan Kervick... , December 18, 2016 at 07:17 AM
    Brad DeLong's piece was thoughtful.

    [ Importantly so, worth a couple of close readings. ]

    Peter K. -> Dan Kervick... , December 18, 2016 at 09:30 AM
    For a long time DeLong was mocking the notion of "economic anxiety" amongst the voters. Does this blog post mean he's rethinking that idea?
    Peter K. -> Peter K.... , December 18, 2016 at 09:57 AM
    Technocratic Democrats like DeLong and Krugman (or neoliberal centrists) are notoriously against economic democracy and unions and the like.

    Maybe that's a factor here.

    Dan Kervick -> Peter K.... , December 18, 2016 at 01:13 PM
    I think he and others have finally reached a point where denial is not an option.
    DeDude -> anne... , December 18, 2016 at 08:37 AM
    The GOP has a long history of benefitting from the disconnect where a lot of their voters are convinced that when government money goes to others (sometimes even within their own white congregations), then it is not deserved. But if that same government money goes to themselves (or their real close relatives), then it is a hard earned and well-deserved payback for their sacrifices and tax payments. So the GOP leadership has always called it "saving social security" and "cracking down on fraud" rather than admitting to their attempts to dismantle those programs. The Dems better be on the ball and call it what it is. If you want to save those programs you just have to prevent rich people from wiggling out of paying for them (don't repeal the Obamacare medicare taxes on the rich).
    rjs -> anne... , December 18, 2016 at 10:12 AM
    What Do Trump Voters Want? for starters, they'd probably want people like Krugman to stop looking down their noses at them like they're lepers..
    DeDude -> rjs ... , December 18, 2016 at 01:49 PM
    Can we at least call those with the pointy white hats, despicable?
    rjs -> DeDude... , December 18, 2016 at 02:29 PM

    depends on how many of those people who voted for Obama in 2012 you figure to have joined the pointy white hat club since...


    http://peakwatch.typepad.com/.a/6a00d83452403c69e201bb0960723f970d-pi

    DeDude -> rjs ... , December 18, 2016 at 03:45 PM
    Would they not be despicable regardless of what kind of wood they previously enjoyed burning?
    RC AKA Darryl, Ron : , December 18, 2016 at 06:15 AM
    Excellent post election commentary from Bloom County (comic).

    http://www.gocomics.com/bloom-county/2016/11/27

    David : , December 18, 2016 at 07:16 AM
    On the Pk piece. I think it is really about human dignity, and the need for it. There were a lot of factors in this horrific election, but just as urban blacks need to be spared police brutality, rural whites need a dignified path in their lives. Everyone, united, deserves such a path.

    This is a real challenge for economists; how do we rebuild the rust belt (which applies to areas beyond the literal rust belt).

    If we do not, we risk Trump 2.0, which could be very scary indeed.

    EMichael -> David... , December 18, 2016 at 07:36 AM
    I agree to a point, but what the piece is about is that in search of a solution to the problems of the rustbelt (whatever the definition is),people voted for Trump who had absolutely no plan to solve such a problem, other than going back to the future and redoing Nafta and getting rid of regulations.

    Meanwhile, that vote also meant that the safety net that helps all Americans in trouble was being placed in severe risk.

    Those voters were fixed on his rhetoric and right arm extended while his left hand was grabbing them by the (in deference to Anne I will not say the words, but Trump himself has said one of them and the other is the male version).

    Peter K. -> EMichael... , December 18, 2016 at 08:48 AM
    "I agree to a point,"

    Really? You didn't seem to before. You'd say what Duy or Noah Smith or DeLong were mulling about was off-limits. You'd ban them from the comment section if you could. "This is a real challenge for economists; how do we rebuild the rust belt (which applies to areas beyond the literal rust belt).

    If we do not, we risk Trump 2.0, which could be very scary indeed." I don't see why this is such a controversial point for centrist like Krugman. How do we appeal to the white working class without contradicting our principles?

    By promoting policies that raise living standards. By delivering, which mean left-wing policies not centrist tinkering. It's the Clinton vs. Sanders primary. Hillary could have nominated Elizabeth Warren as her VP candidate but her corporate masters wouldn't let her.

    sglover -> EMichael... , December 18, 2016 at 06:08 PM
    "Meanwhile, that vote also meant that the safety net that helps all Americans in trouble was being placed in severe risk."

    That safety net is an improvement over 1930. But it's been fraying so badly over the last 20-30 years that it's almost lost all meaning. It's something people turn to before total destitution, but for rebuilding a life? A sick joke, filled with petty hassles and frustrations.

    And the fraying has been a solidly bipartisan project. Who can forget welfare "reform"?

    So maybe the yokels you're blaming for the 10,000-th time might not buy your logic or your intentions.

    Fred C. Dobbs -> David... , December 18, 2016 at 08:07 AM
    In the rustbelt, Dems are accustomed to
    dealing with their supporters who are
    union members. (Why the auto industry
    was bailed out, dontchaknow.)

    That obviously doesn't work so well
    any more. In that region, recovery
    was 'less than robust', no?

    In New England, where unions are much
    less of a factor, recovery has been
    relatively successful. Dems remain
    pretty strong here.

    Why can't the rustbelt be more
    like the northeast?

    The ongoing new industrial revolution
    would seem to have much to do
    with such matters.

    Peter K. -> Fred C. Dobbs... , December 18, 2016 at 08:49 AM
    "In New England, where unions are much less of a factor, recovery has been relatively successful. Dems remain pretty strong here."

    Is that accurate?

    Fred C. Dobbs -> Peter K.... , December 18, 2016 at 09:30 AM
    unions don't have much to celebrate (in MA) http://www.bostonglobe.com/metro/2014/08/29/labor-day-but-there-little-for-labor-celebrate/e4MOhMsc5lf6rJkZdCPbKM/story.html?event=event25
    via @BostonGlobe - August 2014

    ... At the height of their influence in the 1950s, labor unions could claim to represent about 1 of every 3 American workers. Today, it's 1 in 9 - and falling.

    Some have seen the shrinking size and waning influence of labor unions as a sign that the US economy is growing more flexible and dynamic, but there's mounting evidence that it is also contributing to slow wage growth and the rise in inequality. ...


    (Union membership) NY 24.7%, MA 12.4%, SC 2.1%

    ... Are unions faring any better here in Massachusetts?

    While Massachusetts's unions are stronger than average, it's not among the most heavily unionized states. That honor goes to New York, where 1 in every 4 workers belongs to a union. After New York, there are 11 other states with higher union membership rates then Massachusetts.

    Here too, though, the decline in union membership over time has been steep.

    (From 1983 to 2013) US -42%, MA -44%

    Fred C. Dobbs -> Peter K.... , December 18, 2016 at 09:44 AM
    Union Members Summary - BLS - Jan 2016 https://www.bls.gov/news.release/union2.nr0.htm

    ... In 2015, 30 states and the District of Columbia had union membership rates below
    that of the U.S. average, 11.1 percent, and 20 states had rates above it. All states
    in the East South Central and West South Central divisions had union membership rates
    below the national average, and all states in the Middle Atlantic and Pacific divisions
    had rates above it. Union membership rates increased over the year in 24 states and
    the District of Columbia, declined in 23 states, and were unchanged in 3 states.
    (See table 5.)

    Five states had union membership rates below 5.0 percent in 2015: South Carolina
    (2.1 percent), North Carolina (3.0 percent), Utah (3.9 percent), Georgia (4.0 percent),
    and Texas (4.5 percent).

    Two states had union membership rates over 20.0 percent in
    2015: New York (24.7 percent) and Hawaii (20.4 percent).

    State union membership levels depend on both the employment level and the union
    membership rate. The largest numbers of union members lived in California (2.5 million)
    and New York (2.0 million).

    Roughly half of the 14.8 million union members in the
    U.S. lived in just seven states (California, 2.5 million; New York, 2.0 million;
    Illinois, 0.8 million; Pennsylvania, 0.7 million; and Michigan, Ohio, and New Jersey,
    0.6 million each), though these states accounted for only about one-third of wage and
    salary employment nationally.

    (It appears that New England union participation
    lags in the northeast, and also in the rest of
    the US not in the Red Zone.)

    Table 5. Union affiliation of employed wage and salary workers by state https://www.bls.gov/news.release/union2.t05.htm

    Peter K. -> Fred C. Dobbs... , December 18, 2016 at 09:56 AM
    "In New England, where unions are much
    less of a factor, recovery has been
    relatively successful. Dems remain
    pretty strong here."

    I'm questionning the causation. B/c New England has fewer unions, they're doing better?

    My bet is that most of these centrists like Krugman don't like unions and think they're ancient relics which hurt the economies "competitiveness."

    Fred C. Dobbs -> Peter K.... , December 18, 2016 at 10:12 AM
    I have noted before that New England
    is doing better 'than average' (IMO)
    because of high-tech industry & education.

    Not necessarily because of a lack of
    unionization, which is prevalent here
    in public education & among service
    workers. Note that in higher ed,
    much here is private.

    Private industry here traditionally
    is not heavily unionized, although
    that is probably not the case
    among defense corps.

    Fred C. Dobbs -> Peter K.... , December 18, 2016 at 10:21 AM
    As to causation, I think the
    implication is that 'Dems dealing
    with unions' has not been working
    all that well, recovery-wise,
    particularly in the rust belt.

    That must have as much to do with
    industrial management as it does
    with labor, and the ubiquitous
    on-going industrial revolution.

    Fred C. Dobbs -> Fred C. Dobbs... , December 18, 2016 at 10:24 AM
    It may well be that in the
    rust belt, corps are doing
    reasonably well, but not as
    much with labor. That is an
    industrial revolution problem.
    sglover -> Fred C. Dobbs... , December 18, 2016 at 06:10 PM
    "In the rustbelt, Dems are accustomed to dealing with their supporters who are union members. (Why the auto industry was bailed out, dontchaknow.)"

    Uh huh. Sure.

    Know how many times HRC visited UAW groups during her "campaign" in Michigan?

    Zero.

    Those autoworkers are real ingrates.

    DeDude -> David... , December 18, 2016 at 09:35 AM
    Everybody needs, and desperately crave, self-confidence and dignity. In white rural culture that has always been connected to the old settler mentality and values of personal "freedom" and "independence". It is unfortunate that this freedom/independence mythology has been what attracted all the immigrants from Europe over here. So it is as strongly engrained (both in culture and individual values) as it is outdated and counterproductive in the world of the future. I am not sure that society can help a community where people find themselves humiliated by being helped (especially by bad government). Maybe somehow try to get them to think of the government help as an earned benefit?
    Fred C. Dobbs -> DeDude... , December 18, 2016 at 10:22 AM
    Ok, that seems very quaint.

    [Dec 10, 2016] On Missing Minsky

    Notable quotes:
    "... existing official models do not sufficiently explain the Minsky period, the runup, how things got so fragile that they could collapse so badly. ..."
    "... in effect Minsky provided a model and discussion of all three stages, although his model of the Keynes stage is not really all that distinctive and is really just Keynes. ..."
    "... he probably did a better job of discussing the Bagehot stage than did Bagehot, and more detailed, if less formal, than Diamond and Dybvig. ..."
    "... But the essentials of what go on in a panic and crash were well understood and discussed prior to 1873, with Minsky, and Kindlegerger drawing on Minsky in his 1978 Manias, Panics, and Crashes, quoting in particular a completely modern discussion from 1848 by John Stuart Mill ..."
    "... Keep in mind, there are an infinite number of models that fit the data. Science requires more that a fit. It requires that the model correspond with reality in a way that it can fill in observable data before it is observed. ..."
    "... Here's a theory (not a model): the true and revolutionary insights of Veblen, Keynes, and Minsky have all failed to significantly alter the trajectory of economic thought because the discipline expects "the truth" to do the impossible. ..."
    Jun 02, 2015 | econospeak.blogspot.com

    Yes, we miss the late Hy Minsky, especially those of us who knew him, although I cannot claim to be one who knew him very well. But I knew him well enough to have experienced his wry wit and unique perspective. Quite aside from that, it would have been great to have had him around these last few years to comment on what has gone on, with so many invoking his name, even as they have in the end largely ended up studiously ignoring him and relegating him back into an intellectual dustbin of history, or tried to.

    So, Paul Krugman has a post entitled "The Case of the Missing Minsky," which in turn comments on comments by Mark Thoma on comments by Gavyn Davis on discussions at a recent IMF conference on macroeconomic policy in light of the events of recent years, with Mark link http://economistsview.typepad.com/economistsview/2015/06/the-case-of-the-missing-minsky.htmling to Krugman's post.

    He notes that there seem to be three periods of note:

    Krugman argues that, despite a lot of floundering by the IMF economists, we supposedly understand the second two, with his preferred neo-ISLM approach properly explaining the final Keynes period of insufficiently strong recovery due to insufficiently strong aggregate demand stimulus, especially relying on fiscal policy (and while I do not fully buy his neo-ISLM approach, I think he is mostly right about the policy bottom line on this, as would the missing Minsky, I think).

    He also says that looking at 1960s Diamond-Dybvig models of bank panics sufficiently explain the Bagehot period, and they probably do, given the application to the shadow banking system. However, he grants that existing official models do not sufficiently explain the Minsky period, the runup, how things got so fragile that they could collapse so badly.

    Now I do not strongly disagree with most of this, but I shall make a few further points. The first is that in effect Minsky provided a model and discussion of all three stages, although his model of the Keynes stage is not really all that distinctive and is really just Keynes.

    But he probably did a better job of discussing the Bagehot stage than did Bagehot, and more detailed, if less formal, than Diamond and Dybvig. I suspect that Bagehot got dragged in by the IMF people because he is so respectable and influential regarding central bank policymaking, given his important 1873 Lombard Street, and I am certainly not going to dismiss the importance of that work.

    But the essentials of what go on in a panic and crash were well understood and discussed prior to 1873, with Minsky, and Kindlegerger drawing on Minsky in his 1978 Manias, Panics, and Crashes, quoting in particular a completely modern discussion from 1848 by John Stuart Mill (I am tempted to produce the quotation here, but it is rather long; I do so on p. 59 of my 1991 From Catastrophe to Chaos: A General Theory of Economic Discontinuities), which clearly delineates the mechanics and patterns of the crash, using the colorful language of "panic" and "revulsion" along the way. Others preceding Bagehot include the inimitable MacKay in 1852 in his Madness of Crowds book and Marx in Vol. III of Capital, although admittedly that was not published until well after Bagehot's book.

    One can even find such discussions in Cantillon early in the 1700s discussing what went on in the Mississippi and South Sea bubbles, from which he made a lot of money, and then, good old Adam Smith in 1776 in WoN (pp. 703-704), who in regard to the South Sea bubble and the managers of the South Sea company declared, "They had an immense capital dividend among an immense number of proprietors. It was naturally to be expected, therefore, that folly, negligence, and profusion should prevail in the whole management of their affairs. The knavery and extravagance of their stock-jobbing operations are sufficiently known [as are] the negligence, profusion and malversation of the servants of the company."

    It must be admitted that this quote from Smith does not have the sort of detailed analysis of the crash itself that one finds in Mill or Bagehot, much less Minsky or Diamond and Dybvig. But there is another reason of interest now to note these inflammatory remarks by Smith. David Warsh in his Economic Principals has posted in the last few days on "Just before the lights went up," also linked to by the inimitable Mark Thoma. Warsh discusses recent work on Smith's role in the bailout of the Ayr Bank of Scotland, whose crash in 1772 created macroeconomic instability and layoffs, with Smith apparently playing a role in getting the British parliament to bail out the bank, with its main owners, Lord Buccleuch and the Duke of Queensbury, paying Smith off with a job as Commissioner of Customs afterwards. I had always thought that it was ironic that free trader Smith ended his career in this position, but had not previously known how he got it. As it is, Warsh points out that the debate over bubbles and what the role of government should be in dealing with them was a difference between Smith and his fellow Scottish rival, Sir James Steuart, whose earlier book provided an alternative overview of political economy, now largely forgotten by most (An Inquiry into the Principles of Political Oeconomy, 1767).

    I conclude this by noting that part of the problem for Krugman and also the IMF crowd with Minsky is that it is indeed hard to fit his view into a nice formal model, with various folks (including Mark Thoma) wishing it were to be done and noting that it probably involves invoking the dread behavioral economics that does not provide nice neat models. I also suspect that some of these folks, including Krugman, do not like some of the purveyors of formal models based on Minsky, notably Steve Keen, who has been very noisy in his criticism of these folks, leading even such observers as Noah Smith, who might be open to such things, to denounce Keen for his general naughtiness and to dismiss his work while slapping his hands. But, aside from what Keen has done, I note that there are other ways to model the missing Minsky more formally, including using agent-based models, if one really wants to, these do not involve putting financial frictions into DSGE models, which indeed do not successfully model the missing Minsky.

    Barkley Rosser

    Update: Correction from comments is that the Ayr Bank was not bailed out. It failed. However, the two dukes who were its main owners were effectively bailed out, see comments or the original Warsh piece for details. It remains the case that Adam Smith helped out with that and was rewarded with the post of Commissioner of Customs in Scotland.

    Thornton Hall said... June 2, 2015 at 6:21 PM

    What, exactly, is the value added of formal (or even informal) "models" in all this? That is to say, if a historian were to describe the events and responses outlined above, what would he leave out that an economist would put in?

    Keep in mind, there are an infinite number of models that fit the data. Science requires more that a fit. It requires that the model correspond with reality in a way that it can fill in observable data before it is observed.

    Meanwhile, Simon Wren-Lewis dismisses the policy-maker who listens to the historian as using mere "intelligent guess work", strongly suggesting that economists clearly do better. But if trying to figure out whether the current moments is Minsky, Keynes or even Keen, isn't "guesswork" then I don't know what is. Put "intelligent guess work" policy next to model guided policy in your history above. Where's the value added from modeling? It has to be useful AND the policy maker must have a scientific reason for knowing it will be useful IN REAL TIME.

    Krugman frequently defends "textbook" modeling with a "nobody else has come up with anything better" response. But that's a classic "when did you stop beating your wife".

    What if the economy can't be modeled? Claiming to do the impossible is deluded, even if you can correctly say: "no one has ever improved upon my method of doing the impossible."

    "But we have learned so much!" People say that, but what, exactly, are they talking about?

    Thornton Hall said... June 2, 2015 at 6:42 PM

    Here's a theory (not a model): the true and revolutionary insights of Veblen, Keynes, and Minsky have all failed to significantly alter the trajectory of economic thought because the discipline expects "the truth" to do the impossible.

    Newton faced this when his theory of universal Gravity was criticized for failing to explain the distance of the planets from the sun. The Aristotelian tradition said that a proper theory of the heavens would do this.

    And so Keynes has his Aristotelian interpreter Hicks and Minsky has his Keen. Requiring the revolution to succeed in doing the impossible means that the truth gets misinterpreted or ignored. Either way, no revolution despite every generation producing a revolutionary that sees the truth.

    What is the value of this theory? If true, it explains how economics can be filled with smart people seeking the truth and yet make zero progress in more than a century.

    chrismealy June 2, 2015 at 8:27 PM

    I get the impression that mainstream economists are generally resistant to any kind of boom-and-bust models (at least while getting a BA in econ I was never taught any). Is this the case? It's too bad, because models like Lotka–Volterra are not that hard. Just from messing around with agent-based models it seems like anything with a lag or learning generates cycles. Is it because economists are fixated on optimization and equilibrium? Are they worried about models that are too sensitive to initial conditions?

    [email protected] said... June 2, 2015 at 11:24 PM

    Thornton,

    Maybe they should not be, but the discussion among IMF economists, Davis, Thoma, and Krugman has involved models, and in particular, conventional models. So, Krugman declares that there are conventional models as noted above to cover two of the stages, the latter two, but not the first one identified with Minsky. I think there are better models for all this, but they are not the conventional ones.

    chrismealy,

    The DSGE and other conventional models are able to model booms and busts, although they generally do not use the Lotka-Volterra models that such people as the late Richard Goodwin (and even Paul Samuelson) have used for modeling business cycle dynamics. The big difference is that the conventional models involve exogenous shocks to set off their busts, with cyclical reverberations that decay then following the exogenous shock, with some of the lag mechanisms operating for that.

    It is not really surprising that this sort of thing does not model Minsky or the Minsky moment, which involve endogenous dynamics, the very success of the boom as during the Great Moderation itself undermining the stability and even resilience of the system as essentially endogenous psychological (and hence behavioral) factors operate to loosen requirements for lending and to use Minksy language, lending and borrowing increasingly involves highly leveraged Ponzi schemes (and I note that some more conventional economists have emphasized leverage cycles, notably John Geanakoplis, although avoiding Minsky per se in doing so).

    New Deal democrat said... June 3, 2015 at 10:52 AM

    This is a good post and discussion so far. So here's my $.02:

    1. Maybe the behaviorists like Thaler have already explored this, but it seems to me that economists still need to learn learning theory from psychologists. Most importantly, "bservational learning," { http://psychology.about.com/od/oindex/fl/What-Is-Observational-Learning.htm ), or more simply "monkey see, monkey do." We constantly learn by observing behavior in others: our parents, our older siblings, the cool kids at school, our favorite pop icons, our professors, our business mentors, and so on. As to which,

    2. Some people are better at learning than others (duh!). Some learn right away, some more slowly, some never at all. And further,

    3. Some people are more persceptive than others, recognizing the importance of something earlier or later. If you recognized how important the trend change was when Volcker broke the back of inflation in the early 1980s, and simply bought 30 year treasuries and held them to maturity, you made a killing. If you discovered that in the early 1990s, you made less. And so on.

    All we need, to pick up on chrismealy's comment, are time periods and learning. Incorporate variations in skill and persceptiveness into the population, and you can get a nice boom and bust model. As more and more people, with various levels of skill, learn an economic behavior (flipping houses, using leverage), they will "push the edge of the envelope" more and more -- does 2x leverage work? Yes, then how about 4x? Yes, then how about 20x? -- until the system is overwhelmed.

    4. But if you don't want to incorporate imitative learning models from psychology, how about just using appraisals of short term vs. long term risk and reward. Suppose it is the 1980s, and I think treasury yields are on a securlar downtrend. But this book called "Bankruptcy 1995" just came out, based on a blue ribbon panel Reagan created to look at budget deficits. That best selling book forecasts a "hockey stick" of exploding interest rates by the mid-1990s due to ever increasing US debt. So let's say I am 50% sure of my belief that treasury yields will continue to decline for another 20 years, and I can make 10% a year if I am right. But if I am wrong .....

    Meanwhile, I calculate that there is an 80% chance I can make 10% a year for the next few years by investing in this new publicly traded company named "Microsoft."

    Even leaving aside behavioral finance theories about loss aversion, it's pretty clear that most investors will plump for Microsoft over treasuries, given their relative confidence in short term outcomes.

    Historically, once interest rates went close to zero at the outset of the Great Depression, they stayed there for 20 years, and then gradually rose for another 30. How confident are investors that the same scenario will play out this time?

    Either or both of the learning theory or the short term-long term risk reward scenario are good explanations for why backwards induction ad absurdum isn't an accurate description of behavior.

    ----

    BTW, a nice example of a failed "backwards induction" is the "taper tantrum" of 2013. Since investors knew that the Fed was going to be raising interest rates sooner or later, they piled on and raised interest rates immediately -- and made a nice intermediate term top at 3%.

    reason said... June 3, 2015 at 11:19 AM

    Barkley,

    I think New Deal Democrat has it here. This surely, can be covered with a simple model of asynchronous adaptive expectations with stochastic (Taleb type - big tail) risks. I wouldn't think you would even need a sophisticated agent based model. There must be plenty of ratchet type models out there to chose from.

    Sandwichman said... June 3, 2015 at 11:47 AM

    Thornton,

    "...the true and revolutionary insights of Veblen, Keynes, and Minsky have all failed to significantly alter the trajectory of economic thought because the discipline..." sacrifices to the God, Equilibrium.

    New Deal Democrat,

    WRT "monkey see, monkey do" see Andred Orlean's The Empire of Value which articulates his mimetic theory of value.

    [email protected] said... June 3, 2015 at 2:14 PM

    To New Deal Dem and reason,

    Sorry, I am not on board with this at all. Sure, I am all for incorporating learning and lags. No problem. This is good old adaptive expectations, which I have no problem with.

    The problem is back to what I said earlier, that Minsky's apparatus operates endogenously without any need for exogenous shocks, although it can certainly operate within those, as his quoting of Mill shows, although I did not provide that quote, but Mill starts his story of how bubbles happen with some exogenous initial supply/demand shock in a market.

    Why is what you guys talk about an exogenous shock model? Look at the example: Volcker does something and then different people figure it out at different rates. But Volcker is the exogenous shocker. If he does nothing, nothing happens.

    In Minsky world, there does not need to be an exogenous shock. The system may be in a total anf full equilibrium,, but that equilibrium will disequilibrate itself as psychological attitudes and expectations endogenously change due to it. This is what the standard modelers have sush a problem with and do not like. They have no problem wiht adaptive expectations models. This is all old hat stuff for them, with only the fact that one does not know for sure what all those lags are being the problem, and what opened the door to the victory of ratex because it said there are no lags and thus no problem. Agents now what will be on average.

    csissoko said... June 3, 2015 at 3:14 PM

    Warsh's history of the Ayr Bank has errors. The Bank of England offered it a "bailout" in 1772 but required the personal guarantees of the two Dukes which were not forthcoming. The Ayr Bank struggled on without lender of last resort support until August 1773, when it closed for good. (This is all in Clapham's history of the Bank of England.)

    What Warsh is calling a "bailout" was not a bailout of the bank, but of its proprietors who had unlimited liability and were facing the possibility of putting their estates on the market (which would have affected land prices in Scotland).

    As I understand Warsh's description, Parliament granted the two Dukes a charter for a limited liability company that would sell annuities. It is entirely possible that contemporary sources would describe such an action as "indemnifying" the promoters of the company. But what is meant by this use of the term is only that Parliament authorized the formation of corporation. The actual indemnity is provided in the event the corporation fails by the members of the public who are creditors of the corporation.

    In short, it is an error to claim that there was a "bailout" of the Ayr Bank.

    [email protected] said... June 3, 2015 at 3:30 PM

    Point taken, csissoko. I accept your corrected version. Parliament bailed out the dukes, not the Ayr Bank, which indeed failed.

    Thornton Hall said... June 3, 2015 at 4:42 PM

    I still don't understand what information is added by "models". Krugman has a job he has created for himself where everything he does is with an eye toward policy.

    So I'm a policy maker. Explain why I need a model. in the 1930s austerity caused recessions and WWII ended the Depression. A little history of Japan's lost decade and some thinking about the implications of fiat currency, and, voilia, Krugman's policy suggestions, with no models and therefore no need to listen to economists like Mankiw or the Germans currently destroying Europe (third times a charm).

    Thornton Hall said... June 3, 2015 at 4:51 PM

    By the by, I have thought this thru. The head of Duke's Philosophy Department agrees: Krugman's method for using models is empty hand-waving. However he comes to his conclusions, it is not logically possible that ISLM, or any other model, has anything to do with it.
    http://thorntonhalldesign.com/philosophy/2014/7/1/credentialed-person-repeats-my-critique-of-krugman

    AXEC / E.K-H said... June 3, 2015 at 5:04 PM

    Sitcom economics

    Comment on 'On Missing Minsky'

    Since Adam Smith economists have told rather enthralling stories about speculations, manias, follies, frauds, and breakdowns. The audience likes this kind of stuff. However, when it comes to how all this fits into economic theory things become a bit awkward. Of course, we have some modls -- Minsky, Diamond-Dybvig, Keynes come to mind -- but we could also think of other modls -- more agent-based or equilibrium with friction perhaps. On closer inspection, though, economists have no clue at all.

    Keynes messed up the basics of macro with this faulty syllogism: "Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment." (1973, p. 63)

    From I=S all variants of IS-LM models are derived including Krugman's neo-ISLM which allegedly explains the post-crash Keynes period. Let there be no ambiguity, all these models have always been conceptually and formally defective (2011).

    Minsky built upon Keynes but not on I=S.

    "The simple equation 'profit equals investment' is the fundamental relation for a macroeconomics that aims to determine the behavior through time of a capitalist economy with a sophisticated, complex financial structure." (Minsky, 2008, p. 161)

    Here profit comes in but neither Minsky, nor Keynes, nor Krugmann, nor Keen, nor the rest of the profession can tell the fundamental difference between income and profit (2014).

    The fact of the matter is that the representative economist fails to capture the essence of the market economy. This does not matter much as long as he has models and stories about crashing Ponzi schemes and bank panics. Yes, eventually we will miss them all -- these inimitable proto-scientific storytellers.

    To have any number of incoherent models is not such a good thing as most economists tend to think. What is needed is the true theory.

    "In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion." (Stigum, 1991, p. 30)

    The true theory of financial crises presupposes the correct profit theory which is missing since Adam Smith. After this disqualifying performance nobody should expect that some Walrasian or Keynesian bearer of hope will come up with the correct modl any time soon.

    Egmont Kakarot-Handtke

    References

    • Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL http://ssrn.com/abstract=1966438.
    • Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792.
    • Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
    • Minsky, H. P. (2008). Stabilizing an Unstable Economy. New York, NY, Chicago, IL, San Francisco, CA: McGraw Hill, 2nd edition.
    • Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.

    New Deal democrat said... June 3, 2015 at 5:28 PM

    Prof. Rosser:

    In addition to my hypo re Volcker and interest rates, I also mention flipping houses and leverage.

    Person A flips a house, makes $100k. Person B learns of it, figures s/he can do just as well, and flips a house. Eventually enough people are doing it that news stories are written about it. By now 1000s of people are figuring, "if they can do it, I can do it.":

    So long as the trend continues, the person using financial leverage to flip houses makes even more profit. Person B uses more leverage, and so on. And since 2x leverage worked, why not 4x leverage. And if that works, why not 10x leverage?

    Both the number of people engaging in the behavior, and the financial leveraging of the behavior, are endogenous, unless you are going to hang your hat on existing trend (note, not necessarily a shock - of rising house prices0.

    All you need is more and more people of various skill sets at various entry points of time engaging in the behavior, and testing increasing leverage the more the behavior works.

    Secondly, as to stability breeding instability, stability itself is the existing trend. Increasingly over time, more and more leverage will be used to profit off the existing trend. All it takes is learning + risk-takers successfully testing the existing limits. The more stable the system, the more risk-takers can apply leverage without rupturing it -- for a while.

    New Deal democrat said... June 3, 2015 at 5:59 PM,

    Let me try to express my position as a series of axioms:
    1. Assume that no system, no matter how stable, can withstand infinite leverage.
    2. Assume that there is a certain non-zero percentage of risk-taking individuals.
    3. Assume that risk-takers will use some amount of leverage to attempt to profit within a stable system.
    4. Assume that risk-takers will use increasing leverage once any given lesser percentage of leverage succeeds in rendering a profit, in order to increase profits.
    5. Assume that others will learn, over various time periods, at varying levels of skill, to imitate the successful behavior of risk-takers.

    Under those circumstances, it is certain that any system, no matter how stable, will ultimately succumb to leverage. And the more stable, the more leverage will have been applied to reach that breaking point. I.e., stability breeds instability.

    Bruce Wilder said... June 3, 2015 at 6:50 PM

    Even using history as an analogy is implicitly introducing a model. You're saying, here's my model of this history and I crank my little model to show the behavior of the model simulates the historical record, then I adapt the model to present circumstances, and crank again arguing, again by analogy.

    What I would object to is the reliance on "analytic models" as opposed to operational models of the actual institutions. Economists love their analytic models, particularly axiomatic deductive "nomological machines", DSGE being the current orthodox approach. Not that there is anything wrong about analysis. My objection would be to basing policy advice on a study of analytic models to the exclusion of all else -- Krugman's approach -- rather than an empirical study of institutions in operation (which would still involve models, because that's how people think, but they might be, for example, simulation models calibrated to observed operational mechanisms).

    There are reasons why economists prefer analytic models, but few of those reasons are sound. In the end, it is a matter of bad judgment fostered by a defective education and corruption or weakmindedness. Among other things, reliance on analytic models give economics an esoteric quality that privileges its elite practitioners. Ordinary people can barely understand what Krugman is talking about in the referenced piece, and that's by design. He does his bit to protect the reputations of folks like Bernanke and Blanchard, obscuring their viewpoints and the consequences of their policies.

    I am not sure what can be done about it. Economists like Krugman are as arrogant as they are ignorant -- there's not enough intellectual integrity to even acknowledge fundamental errors, and that lack of integrity keeps the "orthodoxy" going in the face of manifest failures. For the conservatives on some payroll, the problem is even worse.

    I am not confident that shooing economists from the policy room and encouraging politicians to discuss these matters among themselves improves the situation. In doubt, people fall back on a moral fundamentalism of the kind that gets us to "austerity" and "sacrifice" and blames the victims -- pretty much what we have now.

    Re-doing Minsky as an analytic model is an impossible task almost by definition. Minsky's approach was fundamentally about abstracting from careful observation of what financial firms did, operationally. It made him a hero with many financial sector denizens, who recognized themselves in his narratives, even when he cast them in the role of bad guys. (No one is ever going to recognize himself as a representative agent in a DSGE model.)

    Perhaps the hardest thing to digest from Minsky is the insight that business cycles can not be entirely mastered. The economy is fundamentally a set of disequilibrium phenomena, the instability built-in (endogenous, as they say). The New Keynesian idea is that the economy is fundamentally an equilibrium phenomenon, that occasionally needs a helping hand to recover from exogenous disturbance. These are antagonistic world views, which cannot be reconciled with each other, and the New Keynesian view can be reconciled only minimally with the observable facts of the world, by a lot of ad hoc fuzzy thinking ("frictions").

    It's very ugly.

    Thornton Hall said... June 3, 2015 at 7:35 PM
    Bruce, I disagree with your view of politicians. The current GOP crop are essentially following the moral philosophy that, in the end, is the only content generated by economics. But it was not always thus.

    I once watched Senator Kit Bond of Missouri (very-R) try to round up a quorum in the Small Business Committee. It was quite clear that the man enjoyed people. He liked the company of just about everybody. Without the strong interference from economists, that's who ends up in politics. People like that are pragmatic. They try things. They aren't there for the purpose (contra Ted Cruz) of breaking things.

    You're right, my problem really is with analytic "models" which aren't really models but rather metaphors or analogies. But I don't think that's the only way reasoning from history can work.

    There are lots of areas of policy, some of which continue to resist conversion to economic religion. In education policy we try interventions and see what happens. It's inductive and mostly correlation, but thru trial and error we do progress toward better policy (although schools of education are only slowly moving away from their notoriously anti-scientific past).

    Politicians don't have to think about the budget like a household and tighten belts. They know that business borrow money all the time. It's actually the language of the academy that leads to "tightening belts" instead of investing in the future. Economics is the science of claiming that if you need something, and you can afford that something, you still must consider "multipliers" or "the philosophers stone" or some other nonsense before you can decide to buy what you need.

    Thornton Hall said... June 3, 2015 at 7:36 PM

    Mark Buchanan's book "Forecast" describes just this process.

    Thornton Hall said... June 3, 2015 at 7:44 PM

    What I mean to say about history: don't confuse theories with models. I have a theory about what caused what in the Great Depression. But I don't model the economy.

    reason said... June 4, 2015 at 9:36 AM

    Barkley,

    I think I should clarify, I think endogenous and exogenous are a little bit besides the point here. I think the exact trigger that starts a "state change" in the system has a stochastic component. But the increasing vulnerability of the system is endogenous, in a very Minsky sense. What I am saying is that increasing vulnerability could be modelled without using agent based modelling (a bit like modelling landslides or earthquakes if you like). I'm not saying that the model is just being driven by exogenous shocks.

    Bruce,

    I think there is a bit of tendency to mischaracterise what Paul Krugman is saying. He is the last person you should be accusing of mistaking the map for the territory. He is saying that EVEN relatively simple models can make sensible suggestions about policy in some circumstances.

    Yes, though I tend to agree with you that general equilibrium is the original sin in macro-economic modelling and that the system is in fact a disequilibrium system. But that doesn't imply to me at all that you can't use analytical approaches.

    Thornton Hall said... June 4, 2015 at 1:57 PM

    Krugman has no map. My link above demonstrates this quite conclusively.

    [Nov 06, 2016] Michael Hudson on Meet the Renegades

    Notable quotes:
    "... In fact, I would posit that the Ivy League, especially Yale, Princeton, Harvard and MIT, are the principal crime factories in America today. ..."
    "... Brownback is in Kansas; UMKC is in Missouri. There is a Kansas City in Kansas, and another Kansas City in Missouri. Missouri is not as red as KS, but it's still a red state. ..."
    "... UMKC is part of the state system and most likely receives no funding from the city. It was home to New Letters, a respected literary magazine edited by poet John Ciardi. I hail from Kanasa City and always thought of UMKC as a decent commuter school, mostly catering to the educational needs of adult city dwellers. But the evolution of both the Econ and jazz studies departments lead me to suspect things have changed. Whether that's by design or through organic happenstance I don't know. ..."
    "... Couldn't a Marxian analysis of capitalism as a whole also shed some light on this issue? I think Hudson is pretty much right but I think, like Sanders, he's offering a reformist option as opposed to a full on critique of the entire system. ..."
    "... Not that a revolution is the option you necessarily want to go with, I just think that Marx's criticism of capitalism has useful information that could help with shaping the perspective here. ..."
    Nov 05, 2016 | www.nakedcapitalism.com
    Michael Hudson spends a half hour with Meet the Renegades explaining his views on money, finance, economic training, rentier capitalism, and how debt overhangs operate. Hudson fans will recognize his regular themes. This is a good segment for introducing people you know to Hudson and to heterodox economic ideas.

    EndOfTheWorld November 5, 2016 at 5:52 am

    I've always found it interesting that both Hudson and Bill Black are on the faculty of UMKC, which is a state university in a pretty conservative state. It's possible that some of the funding for UMKC comes from the municipality of Kansas City, MO, but that town has never been known as a hotbed of radical intellectuality either.

    Distrubed Voter November 5, 2016 at 6:21 am

    Joseph Campbell didn't teach at an Ivy League either. Conformity starts with the faculty in your own department … and the Ivy League is as status quo and status conscious as it gets.

    craazyboy November 5, 2016 at 8:43 am

    The Ivy League are not much different than privately held corporations when you consider who their alma materi are, how much money the alma materi have, and where Ivy League endowments come from.

    sgt_doom November 5, 2016 at 1:31 pm

    In fact, I would posit that the Ivy League, especially Yale, Princeton, Harvard and MIT, are the principal crime factories in America today.

    Please recall that the dood who financed Liberty Lobby and other white supremacist nonsense was Koch family patriarch, Fred Koch, who was a trustee at MIT. (Ever hear Noam Chomsky complain about that????? Of course not!)

    a different chris November 5, 2016 at 8:40 am

    Ah but is it really an inherently conservative state fiscally, or just socially? That is, are the people like Brownback appealing to one sort of conservatism and using that to do a "trust me" on the other sort?

    I would say it's not unreasonable for anybody to delegate something they are not so sure of to somebody they trust for other reasons.

    EndOfTheWorld November 5, 2016 at 11:11 am

    Brownback is in Kansas; UMKC is in Missouri. There is a Kansas City in Kansas, and another Kansas City in Missouri. Missouri is not as red as KS, but it's still a red state.

    Randy November 5, 2016 at 8:53 am

    UMKC is part of the state system and most likely receives no funding from the city. It was home to New Letters, a respected literary magazine edited by poet John Ciardi. I hail from Kanasa City and always thought of UMKC as a decent commuter school, mostly catering to the educational needs of adult city dwellers. But the evolution of both the Econ and jazz studies departments lead me to suspect things have changed. Whether that's by design or through organic happenstance I don't know.

    Moneta November 5, 2016 at 8:59 am

    If you are not on the money makers' distribution list, it would make sense to find other ways to get some of that loot if you can't the traditional way…

    You can be conservative in your social values but want change, i.e. liberalism, in the way the monetary system distributes the money.

    Steve H. November 5, 2016 at 10:47 am

    Thank Warren Mosler, wouldn't be there without his direct support.

    EndOfTheWorld November 5, 2016 at 7:32 am

    Well, little UMKC can claim to be pretty much "cutting edge" in economics with these two stalwarts on their faculty.

    Benedict@Large November 5, 2016 at 9:32 am

    The UMKC is also the home of the Kansas City School of Economics, more commonly known as the MMT School. Neither Hudson nor Black are MMTers per se, but both have grown by their affiliation with the school.

    Amateur Socialist November 5, 2016 at 9:14 am

    Thanks for sharing this excellent interview. Watching it I realized the people I actually admire more than Hudson are his students. They must care more about learning the truth than securing wealth and job prospects on wall street.

    susan the other November 5, 2016 at 11:04 am

    fun to learn how Hudson fired Greenspan way back when

    EndOfTheWorld November 5, 2016 at 11:08 am

    lol "Free trade" is Orwellian word usage.

    King Arthur November 5, 2016 at 11:49 am

    Couldn't a Marxian analysis of capitalism as a whole also shed some light on this issue? I think Hudson is pretty much right but I think, like Sanders, he's offering a reformist option as opposed to a full on critique of the entire system.

    Not that a revolution is the option you necessarily want to go with, I just think that Marx's criticism of capitalism has useful information that could help with shaping the perspective here.

    BecauseTradition November 5, 2016 at 12:29 pm

    The solution is write down the debt. Michael Hudson

    Why not Steve Keen's "A Modern Jubilee" since non-debtors have been cheated by the system too?

    Steve in Dallas November 5, 2016 at 12:46 pm

    I asked Yves Smith at the Dallas meetup last week (paraphrasing) "Do you meet with Michael Hudson and Bill Black… is the independent media community, or any community, organizing around Michael Hudson and Bill Black… to not only support and promote Hudson's and Black's perspectives but to help develop their concepts and 'fine tune' their messaging?" I said to Yves "Hudson and Black are clearly the leaders we desperately need to rally behind and push into Washington… they clearly know what needs to be done… a PR machine needs to be developed… to get their messages out to our families, friends, and acquaintances… unfortunately, the current messaging is not good enough… I can't get my family, friends, and others to engage and echo the messaging to their family, friends, etc."

    Michael Hudson has been good at repeating his central message… 'by increasing land, monopoly, and finance rent costs… the 1% are a highly organized mafia methodically looting our economy… effectively raping, pillaging and consequently destroying every component of our social structures'.

    Very unfortunately, Bill Blacks central message seems to have been lost for years now… he doesn't repeat his central message… 'the crimes must be stopped… there is no alternative… looting criminals MUST be publicly exposed, investigated, indicted, prosecuted, convicted, punished and their loot returned to society… by letting cheaters prosper, organized white-collar crime, perpetrated by the top-most leaders of our public and private institutions, has become an epidemic… the very fabric of civil society is being destroyed… we have no choice… the criminals must be stopped… and the only way to do that is to publicly expose, investigate, indict, prosecute, punish, and take back what is ours'.

    In 2008, when I tuned out of the mainstream media and tuned into the independent media, I thought the messages from Michael Hudson ("they are organized criminals… this is what they're doing…") and Bill Black ("the criminals must be stopped… here's how we stopped the Savings & Loan criminals…) would resonate and become common knowledge. I quickly discovered that it didn't even resonate with close family and friends. Why???

    I will send out this video… Michael Hudson at his best, speaking-wise. I don't expect to get any reaction… why?… very frustrated…

    Ivy November 5, 2016 at 1:35 pm

    Amen. Once you start noticing, it becomes hard to stop. In looking hard for a silver lining to the current election storm clouds, public awareness of the MSM seems to have nudged a few toward slightly more objectivity, although I may just be wishing for that after media fatigue ;)

    [Oct 28, 2016] Stately mating of dinosaurs:

    Oct 28, 2016 | www.nakedcapitalism.com

    Jim Haygood October 27, 2016 at 3:29 pm

    Stately mating of dinosaurs:

    CenturyLink Inc. is in advanced talks to merge with Level 3 Communications Inc., a deal that would give the telecommunications companies greater heft in a brutally competitive industry.

    Terms of the deal couldn't be learned. As of Thursday afternoon before the Journal's report of the talks, Level 3, based in Broomfield, Colo., had a market value of $16.8 billion. CenturyLink, based in Monroe, La., was worth $15.2 billion.

    http://www.marketwatch.com/story/centurylink-in-advanced-merger-talks-with-level-3-communications-2016-10-27

    CenturyLink is a former rural telephone exchange operator which bought former Baby Bell, Qwest (U S West) in 2011.

    CenturyLink is a miserable, crappy telco - so spectacularly bad it makes the cable company look like a paragon of customer friendliness by comparison. CTL's share price has declined by about a third since its acquisition of Qwest, reflecting CTL's braindead managerial incompetence.

    If this merger goes through, we'll have a Big Three of dinosaur telcos: AT&T, Verizon, and CenturyLink.

    Arizona Slim October 27, 2016 at 5:00 pm

    CenturyLink is the landline carrier/ISP wannabe for my part of AZ. Around here, they make Cox Communications look like an excellent cable/ISP company.

    EnonZ October 27, 2016 at 5:52 pm

    My experience has been just the opposite. I have had excellent, reliable DSL service from CenturyLink and good technical support. Perhaps it's because I live somewhere there is still some competition – a duopoly with Comcast. I do have to call them every 6 or 12 months and talk to a retention service rep to keep the charges down.

    CenturyLink does seem slow in getting fiber to the end of the block everywhere in my city. I know lots of people who have been stuck for years down at 5Mbps, which is not enough these days. The routers they provide for customers (which most people call modems even though they're not) are crap. I tried getting a router from CenturyLink that supports 802.11n so I could use 5GHz (2.4GHz is very crowded in my neighborhood) – that's when I found out that 5GHz support is OPTIONAL under the 802.11n standard. Of course CenturyLink went with the cheaper model. Returning the router was no problem and the refund appeared promptly and correctly on my bill.

    The return of monopolization is traced by Barry C. Lynn in his 2010 book, Cornered: The New Monopoly Capitalism and the Economics of Destruction . It goes back to the decision of the Reagan administration to reinterpret antitrust regulation to emphasize efficiency over competition. No previous 20th century administration would have allowed the A&P chain to become a behemoth like Walmart.

    [Oct 25, 2016] Mergers Raise Prices, Not Efficiency

    Oct 25, 2016 | economistsview.typepad.com

    RC AKA Darryl, Ron : October 25, 2016 at 04:56 AM RE: Mergers Raise Prices, Not Efficiency

    https://www.bloomberg.com/view/articles/2016-10-24/mergers-raise-prices-not-efficiency

    [IMO, Noah muddles the message, but it is a important topic that gets muddled by everyone else too. Economists with a financial bent had no problem apparently with the bank mergers that started in the seventies and everyone loved the auto maker mergers of the first half of the 2oth century.

    Efficiency itself is an amorphous term. Mergers can be an efficient use of capital since they deliver lower competition and higher profits. JP Morgan did not want to be in a industry that he could not dominate. Efficiency is different for a fish than a capital owner. Mergers are good for regulatory capture and ineffishient for fish. Mergers are inefficient for workers that want higher wages or the unemployed that want jobs. Market power and regulatory capture can be efficient vehicles for taking advantage of trade agreements to offshore production and increase returns to capital all while lowering both prices and quality as well as reducing domestic wages. Efficiency is in the eyeballs of the beholder especially if they make good soup.] Reply Tuesday, reason -> RC AKA Darryl, Ron... , October 25, 2016 at 06:58 AM

    But Keynes was saying something quite different - he wasn't actually talking about policy but about economics (the task of economists). He was saying that understanding short term fluctuations was as important as predicting the long term. Still relevant in this age of irrelevant general equilibrium models.
    RC AKA Darryl, Ron -> reason ... , October 25, 2016 at 09:56 AM
    Sorry, I thought that the whole purpose of the study of macroeconomics was to guide policy decisions. I stand corrected.
    RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , October 25, 2016 at 10:02 AM
    I always looked at Keynes as a fellow traveler, one who wrote obtusely at times for the express purpose of couching his meaning in sweetened platitudes that at a second glance were drenched in cynicism and sarcasm, at least when it came to his opinions of economists and politicians and the capital owning class that they both served.
    RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , October 25, 2016 at 10:39 AM
    OK, "obtusely" was a poor choice of words, at least with regards to Keynes. Keynes realized WWI was a big mistake, the Treaty at Versailles was an abomination with regards to German restitution, and he was accused of anti-Semitism just for being honest about Jewish elites in the Weimar Republic. It was not that Keynes was insensitive, unpatriotic, or anti-Semitic, but that Keynes was just correct on all counts.
    JohnH -> RC AKA Darryl, Ron... , -1
    This is a good example of economists working in lock step with investors: "Economists with a financial bent had no problem apparently with the bank mergers that started in the seventies and everyone loved the auto maker mergers of the first half of the 2oth century."

    I think it has been questioned for decades whether increased efficiency in banking actually materialized in the wake of industry consolidation. Local market oligopolies may well have generated higher profits and the appearance of more efficiency. And concentration certainly facilitated collusion as we have seen in many markets, including LIBOR.

    What concentration indisputably caused was a dramatic increase in the political power of the Wall Street banking cartel, which owns not only the Federal Reserve but also a lot of powerful politicians...a subject on which 'liberal' economists are generally agnostic, since politics is outside their silo.

    point -> RC AKA Darryl, Ron... , October 25, 2016 at 10:26 AM
    The article ignored the effect of mergers on supplier relationships, often one of near monopsony (oligopsony?). DOJ seems to be focused on unit pricing to consumers(though perhaps not with cable) to the point that most managements understand that they have free rein to squeeze suppliers. And so they merge to do so.

    It may be that more contribution to increasing margins is from purchase prices than selling prices.

    RC AKA Darryl, Ron -> point... , October 25, 2016 at 10:41 AM
    Doubly so with global supply chaining.

    [Oct 20, 2016] This is the smoking gun behind the corruption of the Fed during the 2008 crisis

    Oct 20, 2016 | www.moonofalabama.org

    psychohistorian | Oct 19, 2016 8:29:29 PM | 99

    I just read this posting at ZH and believe that this information when fully grokked will take the market down.

    http://www.zerohedge.com/news/2016-10-19/never-seen-secret-memo-aig-bailout-feds-tarullo-obama-revealed-podesta-emails

    This is the smoking gun behind the corruption of the Fed during the 2008 crisis. I want to see how they tell the world that this was all legal.

    END PRIVATE FINANCE! The folks that own private finance also own the US and many other governments.....with or without vote rigging as one of their tools.

    [Oct 19, 2016] October 19, 2016 at 12:17 PM

    Oct 19, 2016 | economistsview.typepad.com

    Anon : , 2016 at 12:17 PM

    so when people criticize the big deflation in computer/electronics hardware using baseless measures like "if the computer has a processor twice as fast then it has fallen by half in price" they are wackos. but now the real growth that is artificially generated by this way (quality improvements) to keep inflation down is being criticized by Fox. Of course it is completely made up growth. the absurdity of the economists deal with price inflation. now years later, everyone realizes we have all taken a big fall in living standards no matter how many gigahertz my stupid computer is.
    Ben Groves -> Anon... , October 19, 2016 at 01:10 PM
    Oh please, when RFK was talking about the massive poverty in eastern kentucky in 1968, where was the huge increase in living standards?

    Government data is flawed right now, to a extent in needs a total reworking. There is no artificial growth. Just lost growth by outdated models.

    pgl -> Ben Groves... , October 19, 2016 at 02:19 PM
    Do you have some weird need to spew nonsense completely unrelated to the post every time you comment? Geesh.
    DrDick : , October 19, 2016 at 12:20 PM
    Color me shocked by this revelation./s
    anne : , October 19, 2016 at 12:28 PM
    https://fred.stlouisfed.org/graph/?g=7yCj

    January 15, 2016

    Manufacturing Production Index, 1992-2016

    (Indexed to 1992)


    https://fred.stlouisfed.org/graph/?g=7OvR

    January 15, 2016

    Manufacturing Production and Manufacturing Durable Computer and Electronic Indexes, 1992-2016

    (Indexed to 1992)

    anne -> anne... , October 19, 2016 at 02:03 PM
    Using separate axes for clarity:

    https://fred.stlouisfed.org/graph/?g=7OBH

    January 15, 2016

    Manufacturing Production and Manufacturing Durable Computer and Electronic Indexes, 1992-2016

    (Indexed to 1992)

    anne -> anne... , October 19, 2016 at 02:40 PM
    What is the share of manufacturing production of durable computer and electronic manufacturing? I do not know how to graph this.
    anne -> anne... , October 19, 2016 at 03:32 PM
    Getting closer:

    https://fred.stlouisfed.org/graph/?g=7OFU

    January 15, 2016

    Relative Importance Weight (Contribution to the total industrial production index): Durable manufacturing: Computer and electronic product, 1992-2016

    (Indexed to 1992)

    anne -> anne... , October 19, 2016 at 03:37 PM
    https://fred.stlouisfed.org/graph/?g=7OG5

    January 15, 2016

    Relative Importance Weight (Contribution to the total industrial production index): Durable manufacturing: Computer and electronic product, 1992-2016

    8.8% in 1992
    to 11.4% in 1999
    to 5.2% in 2014
    to 6.1% in 2016.

    Ben Groves : , October 19, 2016 at 01:08 PM
    Manufacturing hasn't boomed since the 60's. The FRED graphs are garbage and useless in general. They are improperly calculated and they have out right admitted they may have "problems".

    Manufacturing is dying out and becoming automated over the decades. There is no such thing as artificial growth either. Demand based on consumption is just as valid as industrial production shipped to other countries.

    pgl -> Ben Groves... , October 19, 2016 at 02:21 PM
    "The FRED graphs are garbage and useless in general."

    No - your comments are garbage and useless. Actually READ the post. He did not get his graphs or data from FRED. Seriously - you need professional help.

    Ben Groves -> pgl... , October 19, 2016 at 02:48 PM
    poppycock. the garbage on their industrial production chart in the 90's and 00's was stupid bad. The US hasn't had a industrial boom since the 60's when our consumption was surging while we still made most of our products. No wonder inflation surged by the late 60's. The war against communism was having a painful bad side effects to rentiers and bankers, which spread to capital by the late 60's.
    pgl -> Ben Groves... , October 19, 2016 at 04:07 PM
    "the garbage on their industrial production chart in the 90's and 00's was stupid bad."

    Can we focus on the single word "their". You think he used FRED. No jackass, he made his own charts from the source data - BLS. But noooooooo - you are too stupid to get even this simple point. So the rest of your ramblings is nothing more than your usual intellectual garbage.

    likbez : , October 19, 2016 at 02:02 PM
    Quality adjustments = number racket
    jonny bakho : , October 19, 2016 at 03:28 PM
    Auto mfg dropped by half post 2008.
    It is now back but has nowhere to grow.
    Urbanization makes cars less necessary and less desirable
    There is not enough room to park them all now.
    People who earn MinWage cannot afford them
    sanjait : , October 19, 2016 at 03:53 PM
    Interesting point but many will overinterpret this. Leave in the expansion of computer and electronics manufacturing value add, and we have manufacturing output slightly expanding. Take it out entirely and we have manufacturing output basically steady.

    The difference isn't telling an important macro story.

    The important macro story is the major decline in manufacturing employment, and that has two big and one smaller causes.

    The two big factors are the increased productivity of manufacturing globally and the declining share of manufactured products as a % of GDP globally. The smaller factor is the US's declining share of global manufacturing output, which itself is only fractionally attributable to trade policy.

    This one graph tells most of the story:

    http://1.bp.blogspot.com/-JEZXR9XK7vc/Tbr46ReInRI/AAAAAAAAPQ0/HlLXeVin_g0/s1600/worldmfg.jpg

    I don't know anyone who says US manufacturing is "booming." It certainly isn't. It's treading water. It's growing slowly as the economy grows, but we can predict with high confidence that it will continue to contract as a share of total output over time, because that has been the secular trend for decades and there's no reason to expect that to change.

    The only big question is how we adapt to the world as it actually is.

    anne -> sanjait... , October 19, 2016 at 04:23 PM
    Nicely done.

    Also, I did not realize I was being presented with an argument about Chinese growth and sustainability. I foolishly stopped reading and I am entirely sorry. I have set down data and begun to answer the argument below on Links:

    http://economistsview.typepad.com/economistsview/2016/10/links-for-10-19-16.html#comment-6a00d83451b33869e201bb09479d0e970d

    October 19, 2016

    anne -> sanjait... , October 19, 2016 at 04:26 PM
    What is significant though is how China insists on holding to growth targets that are very likely not sustainable. Stability is a worthy aim but when growth is achieved through pushing bad private sector loans, that is ultimately the enemy of stability.

    [ For these 39 past years China has been holding to and achieving growth targets that were repeatedly considered unsustainable so I prefer to figure out why Chinese growth targets have been and from my perspective are now sustainable. ]

    the forgotten spirit of American protectionism : , -1
    YES! Of course US manufacturing isn't booming - how could it? We have horrible economic policies that are focused almost entirely on destroying our industrial base. High overvalued currency, combined with 0% tariffs and we have no VAT, so foreign imports from countries with a VAT receive export subsidies but are not taxed on the US side. That we have even one factory left is amazing and testament to the quality of American workers. Under Clinton, we'll lose what's left. Trump is our only hope. If we don't get Trump's protectionism we will quickly become a country as poor as Armenia or Moldova - stripped of industry and wealth, dependent on remittances from our migrant workers in Asia and Europe.

    [Oct 19, 2016] No, U.S. Manufacturing Isnt Really Booming

    Notable quotes:
    "... Of course it is completely made up growth. the absurdity of the economists deal with price inflation. now years later, everyone realizes we have all taken a big fall in living standards no matter how many gigahertz my stupid computer is. ..."
    "... The important macro story is the major decline in manufacturing employment, and that has two big and one smaller causes. ..."
    "... I don't know anyone who says US manufacturing is "booming." It certainly isn't. It's treading water. It's growing slowly as the economy grows, but we can predict with high confidence that it will continue to contract as a share of total output over time, because that has been the secular trend for decades and there's no reason to expect that to change. ..."
    Oct 19, 2016 | economistsview.typepad.com
    Justin Fox:

    No, U.S. Manufacturing Isn't Really Booming :...[Is]American manufacturing .. in decline? An answer frequently offered by wonky economics journalists is that, no, U.S. manufacturing output has actually kept growing. ...

    There's a catch, though. As economist Susan N. Houseman of the W.E. Upjohn Institute for Employment Research ... points out , about half of the growth in U.S. manufacturing output since 1997 has been in just one sector: computer and electronics manufacturing.

    If it weren't for computers and electronics (which includes semiconductors), manufacturing output would still be well below its 2008 peak and only 21 percent higher than in 1997...

    The ... way those computers-and-electronics numbers are arrived at is worthy of a closer look. ... Without adjusting for deflation, value added in computer and electronics manufacturing is up 45 percent since 1997. With the adjustments, it's up 699 percent! What's happening here is that the Bureau of Economic Analysis has been trying to account for vast improvements in ... quality... Writes Houseman:

    Such quality adjustment ... can make the numbers difficult to interpret..., figures that exclude this industry ... arguably provide a clearer picture of trends in manufacturing output.

    As it stands now, those trends don't look impressive. U.S. manufacturing output has held up a lot better than manufacturing employment. But it definitely isn't booming.

    Anon : October 19, 2016 at 12:17 PM

    so when people criticize the big deflation in computer/electronics hardware using baseless measures like "if the computer has a processor twice as fast then it has fallen by half in price" they are wackos. but now the real growth that is artificially generated by this way (quality improvements) to keep inflation down is being criticized by Fox.

    Of course it is completely made up growth. the absurdity of the economists deal with price inflation. now years later, everyone realizes we have all taken a big fall in living standards no matter how many gigahertz my stupid computer is.

    anne -> anne... , October 19, 2016 at 03:37 PM
    https://fred.stlouisfed.org/graph/?g=7OG5

    January 15, 2016

    Relative Importance Weight (Contribution to the total industrial production index): Durable manufacturing: Computer and electronic product, 1992-2016

    8.8% in 1992
    to 11.4% in 1999
    to 5.2% in 2014
    to 6.1% in 2016.

    likbez : , October 19, 2016 at 02:02 PM
    Quality adjustments = number racket
    jonny bakho : , October 19, 2016 at 03:28 PM
    Auto mfg dropped by half post 2008. It is now back but has nowhere to grow. Urbanization makes cars less necessary and less desirable
    There is not enough room to park them all now. People who earn MinWage cannot afford them
    sanjait : , October 19, 2016 at 03:53 PM
    Interesting point but many will overinterpret this. Leave in the expansion of computer and electronics manufacturing value add, and we have manufacturing output slightly expanding. Take it out entirely and we have manufacturing output basically steady.

    The difference isn't telling an important macro story.

    The important macro story is the major decline in manufacturing employment, and that has two big and one smaller causes.

    The two big factors are the increased productivity of manufacturing globally and the declining share of manufactured products as a % of GDP globally. The smaller factor is the US's declining share of global manufacturing output, which itself is only fractionally attributable to trade policy.

    This one graph tells most of the story:

    http://1.bp.blogspot.com/-JEZXR9XK7vc/Tbr46ReInRI/AAAAAAAAPQ0/HlLXeVin_g0/s1600/worldmfg.jpg

    I don't know anyone who says US manufacturing is "booming." It certainly isn't. It's treading water. It's growing slowly as the economy grows, but we can predict with high confidence that it will continue to contract as a share of total output over time, because that has been the secular trend for decades and there's no reason to expect that to change.

    The only big question is how we adapt to the world as it actually is.

    anne -> sanjait... , October 19, 2016 at 04:23 PM
    Nicely done.

    Also, I did not realize I was being presented with an argument about Chinese growth and sustainability. I foolishly stopped reading and I am entirely sorry. I have set down data and begun to answer the argument below on Links:

    http://economistsview.typepad.com/economistsview/2016/10/links-for-10-19-16.html#comment-6a00d83451b33869e201bb09479d0e970d

    October 19, 2016

    anne -> sanjait... , October 19, 2016 at 04:26 PM
    What is significant though is how China insists on holding to growth targets that are very likely not sustainable. Stability is a worthy aim but when growth is achieved through pushing bad private sector loans, that is ultimately the enemy of stability.

    [ For these 39 past years China has been holding to and achieving growth targets that were repeatedly considered unsustainable so I prefer to figure out why Chinese growth targets have been and from my perspective are now sustainable. ]

    the forgotten spirit of American protectionism : , -1
    YES! Of course US manufacturing isn't booming - how could it? We have horrible economic policies that are focused almost entirely on destroying our industrial base. High overvalued currency, combined with 0% tariffs and we have no VAT, so foreign imports from countries with a VAT receive export subsidies but are not taxed on the US side. That we have even one factory left is amazing and testament to the quality of American workers. Under Clinton, we'll lose what's left. Trump is our only hope. If we don't get Trump's protectionism we will quickly become a country as poor as Armenia or Moldova - stripped of industry and wealth, dependent on remittances from our migrant workers in Asia and Europe.

    [Oct 19, 2016] Why distrust data

    Notable quotes:
    "... **Opinions here are mine and should not to be attributed to anyone with whom I work.** ..."
    Oct 19, 2016 | claudiasahm.postagon.com
    48% of Trump supporters "completely distrust the economic data reported by the federal government" including unemployment, spending, jobs. https://t.co/5l9GhucBFI
    - Justin Wolfers (@JustinWolfers) October 15, 2016

    That tweet and the linked article got my attention (no trust of data by 25% of adults!) ... Still why reflect on this? ... so much else to get stuck on these days. First, I use official statistics in my work A LOT; second, I am always on the look out for new survey insights; and finally, I am a bit obsessed lately with models in which people are not acting on the same information. This level of distrust is troubling ... even though I doubt it's new or entirely about the data ... I want us to think about WHY.

    I study consumer behavior as an economist, which in 2016 still means reading lots of research with dynamic optimization and Euler equations. This is a typical early morning ritual for me, that quiet time before my kids wake up when I can still imagine a world in which we know everything about everything, including ourselves, and we choose calmly and appropriately. BUT I balance out my openness to such models with a determination to also understand what people ACTUALLY do and think.

    Nevertheless, I am picky about the survey insights that I absorb, pass on, and try to understand. My cognate in grad school was survey methodology and I still write survey questions in my research ... thus I understand how much responses can be manipulated, or even carelessly biased by poor methods and human nature. Also I want to know what people think, not what someone writing up the survey results wants me as a reader to think. (I'm not a fan of the tweet, by the way.) So I googled and found the survey's homepage , a Marketplace-Edison Research poll designed to measure economic anxiety. And, I found a description of the methods AND the full survey too (see page 30 for this question). It's not the micro data online, so I can't replicate the statistic in the tweet, but I could see that the "data trust" question was asked before voting intentions or political affiliation. I have learned from pollsters that asking about politics conjures up an identity that can be hard to shake in the rest of the survey. The main roadblock I see in interpreting the data distrust is this survey's short time series; it only began last fall as a quarterly survey. My hunch is that distrust of economic data is nothing new but I can't prove that here. Plus changes in attitudes are often more informative than a snapshot, since subjective questions are tricky to interpret. What does it mean to "trust data" anyway? Do you trust data?

    To be clear, I am not justifying anyone's views, but I am also trying not to be judgmental. A key principle of surveying is not to make people feel bad or shameful about their views. Because, guess what, if you do, they are less likely to tell you what they think or did ... then you are fighting blind and may miss the chance to learn why we sometimes see the world differently. I am not in the 25% of adults who have "no trust at all" in economic statistics from the government. In fact, I am in a rare set of adults who spends more time on the Bureau of Economic Analysis ' website sorting through spending data than on Amazon adding to it. So what's up with all this distrust? I have a few hypotheses to take to the data.

    Hypothesis 1: government economic data don't match people's life

    Sometimes I think the Representative Agent is a frenemy of economists. (Oh, not the Twitter persona , he's great, but the concept.) How can a simplifying assumption ... a focus on the typical or aggregate household ... be an enemy in disguise? Well, sometimes it gives theoretical models the focus they need and other times, especially in empirical work, it glosses over important details. Details, also known as people . So maybe distrust of economic data comes from not seeing your life experience in the numbers that roll across the screen. National aggregates get a lot of attention, so maybe it is minorities that end of distrusting data more, data that doesn't tell their story as loudly.

    Not so, at least in terms of data about the economy, minorities are more trusting than whites. Only 15 percent of African-American have no trust at all in economic data almost half the fraction of whites. And among Hispanics, only12 percent have complete distrust of data. With whites comprising over 70 percent of all adults, they are well represented in both aggregate statistics and the distrust of them. Of course, this is just one cut of the data and not seeing your life experience in the data may raise other issues (more below). Government agencies have made a push to improve regional statistics and even make neighborhood data more readily accessible and help improve local decision making. And of course, lots of household level surveys exist too. Another reason to take distrust (or even disinterest) in government economic data seriously is that the quality of the data we have depends on people's participation in our surveys. Response rates on numerous surveys have been falling and research suggests that non response could impact official statistics, making them a less accurate reflection of life experiences.

    Hypothesis 2: distrust stems from people being "hurt" by data

    One the first Friday of the every month, my Twitter feed is overflowing with chatter about the latest employment report from the Bureau of Labor Statistics . That makes me weird. I firmly believe that few people absorb the government statistics in the way that I and my fellow econos do. Why should they? People confront economic data when it affects them. One example I can think of is the cost-of-living adjustment, such as for Social Security benefits. That came to mind when I looked at data distrust by age.

    no cost-of-living adjustment to benefits had led some seniors to "distrust" government data, like the CPI-W? Again, this hypothesis would be a lot better to test with a time series of data, comparing years with benefit increases and without. But feeling shortchanged by the data may be understandable given wide variation relative price changes , few of us exactly consume the representative basket. Alternatively, as risk aversion appears to rise with age, maybe so too does distrust? I wrote earlier that age is more than just a number , the impact of demographic change deserves more study.

    Hypothesis 3: it's not the data, it is the way we use them ... the spin

    I don't trust data, I trust people. And even then, trust but verify, right? Perfectly measured data (dream, dream), can be still be suspect. In fact, data can codify a lot of the biases and mistakes we have made together in the past. Maybe we should also be concerned for the people who "completely trust" government economic data? (Do read Cathy O'Neil's book on Big Data and algorithms.) Yet, I suspect the distrust in the survey is not about data construction (I've never seen a protest at the ever-interesting BEA advisory committee meetings ) ... or even about the government employees who construct the statistics in excruciating detail, and in line with international standards . I bet the distrust is more about how the numbers are interpreted and how they are used in policy making. Drawing conclusions from data is hard and reasonable disagreement is to be expected. As just one example, the seasonally-adjusted unemployment rate for African Americans was 8.3 in September , which is below its average of 10.8 percent over the past 20 years but is almost double the 4.4 percent unemployment rate of whites. Should we call that 8.3 (or 4.4, for that matter) victory or 'full employment'? And is the unemployment rate even the right statistic to assess? Relative to the past it may well be but the past can be an imperfect guide for the future. Every data point has its shortcoming, especially where there is no clear counterfactual or agreed upon target. My "moderate" growth could easily be your "weaker-than-expected" growth. And, of course, on top of honest disagreements about data, plenty of motivated reasoning is done with numbers. BUT when we start with the same data, there are at least some bounds on the disagreement. In contrast, when government data are wholesale rejected one quarter of adults, it's no surprise that we aren't living in the same world. And we stop trying to understand each other. I would be lost (and bored out of my mind) in my work on consumer behavior without data. You don't want me extrapolating from my tiny circle of experience ... and frankly no one should make decisions with that little information. We can learn a lot from the data, including these attitudinal surveys. And data adds accountability, including in how its collected. Even so, no one likes to feel manipulated or, worse, written off, especially with numbers.

    Data can't solve problems but maybe it holds clues to a path forward ... to rebuild trust.

    **Opinions here are mine and should not to be attributed to anyone with whom I work.**

    Is it just not done to ask people why they distrust Government figures ?
    2016-10-17, Stuart Gibson The same thing happened here in Italy with Silvio Berlusconi. He got a lot of reforms but a lot of people ignored facts.
    2016-10-17, pietro No one 'trusts' data. We all have confidence intervals.
    This combined with your point number 3 is the main issue I suspect.
    Point number 1 is also in play, I think point 2 is essentially irrelevant, it might be true for some data, but not for data.
    As far as economics goes, people intuitively understand that economics attempts to push the envelope and use data to draw conclusions that are not really addressable with the data. Economists don't even have agreement on how data is used - thinking mostly of macro. I see no reason to puzzle on this until you can get economists to all agree. I don't mean this as a challenge, just a description of the situation.
    2016-10-17, Dan The headline unemployment number is obviously false, and this affects confidence in the other numbers.
    There is no particular mystery about what is going on.
    2016-10-17, Dave Chapman Because your aggregated statistics does not reflect the experience of the individuals:
    "But several underlying factors also appear to have contributed to the closeness of the race. For starters, many Americans are economically worse off than they were a quarter-century ago. The median income of full-time male employees is lower than it was 42 years ago, and it is increasingly difficult for those with limited education to get a full-time job that pays decent wages.
    Indeed, real (inflation-adjusted) wages at the bottom of the income distribution are roughly where they were 60 years ago. So it is no surprise that Trump finds a large, receptive audience when he says the state of the economy is rotten. But Trump is wrong both about the diagnosis and the prescription. The US economy as a whole has done well for the last six decades: GDP has increased nearly six-fold. But the fruits of that growth have gone to a relatively few at the top – people like Trump, owing partly to massive tax cuts that he would extend and deepen. "
    https://www.project-syndicate.org/commentary/trump-candidacy-message-to-political-leaders-by-joseph-e--stiglitz-2016-10
    2016-10-17, PSteele

    [Sep 14, 2016] Its not hard to see the thinking behind BIG from the Silicon Valley, elite perspective

    Notable quotes:
    "... A growing body of research indicates that the financial and psychological damage from a period of joblessness can be significant and long-lasting, especially for people who remain out of work for an extended period. ..."
    "... Friedman is just doing his job. The Saddam's WMDs paper endorsed Hillary on Jan 31st, and is part of the campaign of lies, deceptions and cover-ups. ..."
    "... As with television, it's healthier not to pollute one's mind with NYT propaganda. Reading the idiotic headlines is enough to realize that the "content" is crap. ..."
    "... Predictably, the comments on the NYT op-ed (by the "Suck on this, Iraq!" Friedman) are more thoughtful and reality-based than the author's column. ..."
    "... Libya and Syria and Ukraine were NOT just bad judgment calls. However, they were three consecutive bad judgment calls, with no good ones to offset. That still matters. ..."
    "... Libya and Syria and Ukraine were also lies, coming from the mouth of Hillary, and harming the country by tossing us into more wars. ..."
    "... I really wonder how Friedman and the other NYT Iraq war cheerleaders can look at themselves in the mirror each morning. And excellent point about Snowden, of course. ..."
    Jun 01, 2016 | www.nakedcapitalism.com
    diptherio , June 1, 2016 at 2:40 pm

    It's not hard to see the thinking behind BIG from the Silicon Valley, elite perspective. They understand that putting everybody out of work from robotics or out-sourcing is a sure-fire way to create massive discontent. They think this is a clever way of keeping the losers contented (enough to not revolt) while maintaining their elevated position within the system. They don't care what the system looks like, really, just so long as they get to sit on top. They think this is a way to avert the revolution that they know, from reading Marx and thinking about it a little, their actions are sure to lead to, ceteris paribus .

    However, I think they underestimate the extent to which our continual trade deficits are predicated on the US dollar being the world's reserve currency. That status may not be in danger in the short term, but I think it's doomed to extinction over the medium term, as the BRICS and other countries maneuver their way out from under the thumb of the petro-dollar.

    But the up-side is that they're mainstreaming an MMT understanding of macroeconomics and, as old John used to say, "ideas have a way of taking on a life of their own." Also, some poor people might actually end up being benefited as a side-effect of the elites trying to keep the lower orders manageable. I mean, that's really what the New Deal was about, no? FDR wasn't fighting for the working man, he just realized that exploiting them too much could crash the whole system and be much worse for his class, the elites, than a little Social Security was. FDR wasn't looking to overturn class relations, but maintain them. He just had a more nuanced understanding of self-interest than many of his class peers (that oughta get some people fuming). Still, whatever the motivation, the programs had the practical effect of making a lot of people's lives better. Why shouldn't it be the same in this situation?

    Lambert Strether Post author , June 1, 2016 at 2:53 pm

    Not that I'm foily, but if you combine the abolition of cash, BIG in the form of a digital deposit, retail tracking everywhere, and the precedent (from ObamaCare) of a mandate to participate in certain markets, you can concoct quite a dystopia….

    diptherio , June 1, 2016 at 4:00 pm

    Yeah, the "BIG Brother" jokes are just too easy.

    I think we need to have a movement to defend cash. Small business owners should lead the charge, since card fees hit them the hardest. I see a possible coalition…anti-surveillance activists and guys like the owner of the pizza joint I frequent whose register bears a sign that reads "Cards accepted, Cash preferred."

    diptherio , June 1, 2016 at 4:04 pm

    Also, a BIG would be a great excuse to start-up the Postal Bank. Everybody will get an account tied to their SSN that their BIG gets deposited in, accessible (in cash) at any post office. It might just be sell-able…at least to the public, if not to Wall Street.

    Romancing the Loan , June 1, 2016 at 4:18 pm

    Take it another step and have "consumer choice" in lieu of voting. I like it; a good sci-fi writer needs to get on this.

    ChiGal , June 1, 2016 at 4:51 pm

    Whenever I hear about TPTB doing away with cash I am reminded of Margaret Atwood's prescient (from the 80s I think!) novel about a patriarchal dystopian future, The Handmaid's Tale – freezing the bank accounts is how it all started.

    aletheia33 , June 1, 2016 at 2:51 pm

    "A growing body of research indicates that the financial and psychological damage from a period of joblessness can be significant and long-lasting, especially for people who remain out of work for an extended period."

    quelle surprise! are poor, working, and middle-class people's well-being actually closely tied to how many days in their lives they can work? hoocoodanode?

    jrs , June 1, 2016 at 3:11 pm

    I hear they have really low well being in Europe with their 6 weeks vacations and way more holidays and stuff. They throw themselves off bridges at the start of every vacation season. Nah it's tied to having an income or not, not how many days they work.

    aletheia33 , June 1, 2016 at 3:24 pm

    right, thanks!

    i always forget about that because i've always worked as in independent contractor, staying sane by pretending benefits and paid holidays and vacations are not all that important in life. and i must say, lately i do see TPTB cashing in on my idea, bigtime. i should have placed some bets on that happening…

    polecat , June 1, 2016 at 9:50 pm

    I haven't worked a paying job for about 14 years….the wife works the day gig, while I maintain the abode, do household repairs, garden, tend to the bees & chickens…..etc. …… I'm 'working' my way on the downslope of collapse…'avoiding the rush' as John M Greer is fond of saying…..

    ….still sane!

    MyLessThanPrimeBeef , June 1, 2016 at 3:26 pm

    That only happens to Sapiens humans.

    A cat's well-being is rarely tied to how many days it is out of work.

    Thus, I suspect either 1. we are not that superior or 2. we have been brainwashed.

    Or both.

    aletheia33 , June 1, 2016 at 3:35 pm

    i meant, in our current industrialized, work-ethic-based western society. which not coincidentally has had a lousy mental and physical health outcome for millions of people over time.
    but never mind. a rising water floats all boats.
    until it doesn't.

    C , June 1, 2016 at 3:01 pm

    'Hillary's fibs or lack of candor are all about bad judgments she made on issues that will not impact the future of either my family or my country. Private email servers? Cattle futures? Goldman Sachs lectures? All really stupid, but my kids will not be harmed by those poor calls. Debate where she came out on Iraq and Libya, if you will, but those were considered judgment calls, and if you disagree don't vote for her" [The Moustache of Understanding, New York Times]. You tell 'em, Tommy! Who cares about corruption? Corruption had nothing to do with Iraq!

    Of course they won't. You are well-off, well-connected, and work for a virtual organ of the state that has backed her every move. You and your framily are on the inside track and will of course be protected.

    It is everyone else that will be screwed.

    Jim Haygood , June 1, 2016 at 3:13 pm

    Friedman is just doing his job. The Saddam's WMDs paper endorsed Hillary on Jan 31st, and is part of the campaign of lies, deceptions and cover-ups.

    Journo-hos … the only surprise is that you can buy them so cheap.

    As with television, it's healthier not to pollute one's mind with NYT propaganda. Reading the idiotic headlines is enough to realize that the "content" is crap.

    MyLessThanPrimeBeef , June 1, 2016 at 3:44 pm

    Sounds like everyone should work for an organ (or a virtual organ, either way) of the state. Just make sure you're well-connected (the importance of being social – don't just bury yourself in books).

    Pavel , June 1, 2016 at 4:16 pm

    Predictably, the comments on the NYT op-ed (by the "Suck on this, Iraq!" Friedman) are more thoughtful and reality-based than the author's column. Here is a sample:

    Thomas Friedman on lies that hurt the country? Let's start that with the Iraq War.

    I agree that the emails probably didn't hurt the country, even if they were illegal and even if she does lie about them. However, Snowden did not hurt the country either, he told the truth, and Hillary goes after him with a vengeance for doing that in ways that benefited the country, that the NYT of Pentagon Papers days should support. She does that even while she lies about her emails, and that is a relevant character issue for the power she seeks.

    Libya and Syria and Ukraine were NOT just bad judgment calls. However, they were three consecutive bad judgment calls, with no good ones to offset. That still matters.

    Libya and Syria and Ukraine were also lies, coming from the mouth of Hillary, and harming the country by tossing us into more wars.

    –NYT comment by Mark Thomason

    I really wonder how Friedman and the other NYT Iraq war cheerleaders can look at themselves in the mirror each morning. And excellent point about Snowden, of course.

    [Sep 12, 2016] Future Economists Will Probably Call This Decade the 'Longest Depression'

    Sep 12, 2016 | economistsview.typepad.com
    Brad DeLong:
    Future Economists Will Probably Call This Decade the 'Longest Depression' : ... Back before 2008, I used to teach my students that during a disturbance in the business cycle, we'd be 40 percent of the way back to normal in a year. The long-run trend of economic growth, I would say, was barely affected by short-run business cycle disturbances. There would always be short-run bubbles and panics and inflations and recessions. They would press production and employment away from its long-run trend -- perhaps by as much as 5 percent. But they would be transitory.
    After the shock hit, the economy would rapidly head back to normal. The equilibrium-restoring logic and magic of supply and demand would push the economy to close two-fifths of the gap to normal each year. After four years, only a seventh of the peak disturbance would remain.
    In the aftermath of 2008, Stiglitz was indeed one of those warning that I and economists like me were wrong. Without extraordinary, sustained and aggressive policies to rebalance the economy, he said, we would never get back to what before 2008 we had thought was normal.
    I was wrong. He was right. ...

    [Sep 11, 2016] Trump is afraid the neoliberal imperial global order presided by the US is about to crash and thinks he will be able to steer the country into a soft landing by accepting that other world powers have interests, by disengaging from costly and humiliating military interventions, by re-negotiating trade deals, and by stopping the mass immigration of poor people. Plus a few well-placed bombs.

    Notable quotes:
    "... I think Trump is afraid the imperial global order presided by the US is about to crash and thinks he will be able to steer the country into a soft landing by accepting that other world powers have interests, by disengaging from costly and humiliating military interventions, by re-negotiating trade deals, and by stopping the mass immigration of poor people. Plus a few well-placed bombs ..."
    "... Much has been written about the internet revolution, about the impact of people having access to much more information than before. The elite does not recognize this and is still organizing political and media campaigns as if it were 1990, relying on elder statesmen like Blair, Bush, Mitterrand, Clinton, and Obama to influence public opinion. They are failing miserably, to the point of being counterproductive. ..."
    "... I don't think something as parochial as racism is sustaining Trump, but rather the fear of the loss of empire by a population with several orders of magnitude more information and communication than in 2008, even 2012. ..."
    "... No one has literally argued that people should be glad to lose employment: that part was hyperbole. But the basic argument is often made quite seriously. See e.g. outsource Brad DeLong . ..."
    "... The same thing has happened in Mexico with neoliberal government after neoliberal government being elected. There are many democratically elected neoliberal governments around the world. ..."
    "... In the case of Mexico, because Peña Nieto's wife is a telenovela star. How cool is that? It places Mexico in the same league as 1st world countries, such as France, with Carla Bruni. ..."
    "... To the guy who asked- poor white people keep voting Republican even though it screws them because they genuinely believe that the country is best off when it encourages a culture of "by the bootstraps" self improvement, hard work, and personal responsibility. They view taxing people in order to give the money to the supposedly less fortunate as the anti thesis of this, because it gives people an easy out that let's them avoid having to engage in the hard work needed to live independently. ..."
    "... The extent to which "poor white people" vote against their alleged economic interests is overblown. To a large extent, they do not vote at all nor is anyone or anything on the ballot to represent their interests. And, yes, they are misinformed systematically by elites out to screw them and they know this, but cannot do much to either clear up their own confusion or fight back. ..."
    "... The mirror image problem - of elites manipulating the system to screw the poor and merely middle-class - is daily in the news. Both Presidential candidates have been implicated. So, who do you recommend they vote for? ..."
    "... I think you're missing Patrick's point. These voters are switching from one Republican to another. They've jettisoned Bush et. al. for Trump. These guys despise Bush. ..."
    "... They've figured out that the mainstream party is basically 30 years of affinity fraud. ..."
    "... My understanding is trumps support disproportionately comes from the small business owning classes, Ie a demographic similar to the petite bourgeoisie who have often been heavily involved in reactionary movements. This gets oversold as "working class" when class is defined by education level rather than income. ..."
    "... Layman - Why are these voters switching from Bush et al to Trump? Once again, Corey's whole point is that there is very little difference between the racism of Trump and the mainstream party since Nixon. Is Trump just more racist? Or are the policies of Trump resonating differently than Bush for reasons other than race? ..."
    "... Eric Berne, in The Structures and Dynamics of Organizations and Groups, proposed that among the defining characteristics of a coherent group is an explicit boundary which determines whether an individual is a member of the group or not. (If there is no boundary, nothing binds the assemblage together; it is a crowd.) The boundary helps provide social cohesion and is so important that groups will create one if necessary. Clearly, boundaries exclude as well as include, and someone must play the role of outsider. ..."
    "... For a time, the balkanization of American political communities by race, religion and ethnicity was an effective means to the dominance of an tiny elite with ties to an hegemonic community, but it backfired. Dismantling that balkanization has left the country with a very low level of social affiliation and thus a low capacity to organize resistance to elite depredations. ..."
    Aug 04, 2016 | crookedtimber.org

    Lupita 08.04.16 at 4:23 am 167

    I think Trump is afraid the imperial global order presided by the US is about to crash and thinks he will be able to steer the country into a soft landing by accepting that other world powers have interests, by disengaging from costly and humiliating military interventions, by re-negotiating trade deals, and by stopping the mass immigration of poor people. Plus a few well-placed bombs .

    Much has been written about the internet revolution, about the impact of people having access to much more information than before. The elite does not recognize this and is still organizing political and media campaigns as if it were 1990, relying on elder statesmen like Blair, Bush, Mitterrand, Clinton, and Obama to influence public opinion. They are failing miserably, to the point of being counterproductive.

    I don't think something as parochial as racism is sustaining Trump, but rather the fear of the loss of empire by a population with several orders of magnitude more information and communication than in 2008, even 2012.

    Layman 08.04.16 at 11:59 am

    Rich P: "Neoliberals often argue that people should be glad to lose employment at 50 so that people from other countries can have higher incomes "

    I doubt this most sincerely. While this may be the effect of some neoliberal policies, I can't recall any particular instance where someone made this argument.

    Rich Puchalsky 08.04.16 at 12:03 pm

    "I can't recall any particular instance where someone made this argument."

    No one has literally argued that people should be glad to lose employment: that part was hyperbole. But the basic argument is often made quite seriously. See e.g. outsource Brad DeLong .

    engels 08.04.16 at 12:25 pm

    While this may be the effect of some neoliberal policies, I can't recall any particular instance where someone made this argument

    Maybe this kind of thing rom Henry Farrell? (There may well be better examples.)

    Is some dilution of the traditional European welfare state acceptable, if it substantially increases the wellbeing of current outsiders (i.e. for example, by bringing Turkey into the club). My answer is yes, if European leftwingers are to stick to their core principles on justice, fairness, egalitarianism etc

    http://crookedtimber.org/2005/05/31/talking-turkey-over-welfare/

    Lupita 08.04.16 at 2:42 pm

    Large numbers of low-income white southern Americans consistently vote against their own economic interests. They vote to award tax breaks to wealthy people and corporations, to cut unemployment benefits, to bust unions, to reward companies for outsourcing jobs, to resist wage increases, to cut funding for health care for the poor, to cut Social Security and Medicare, etc.

    The same thing has happened in Mexico with neoliberal government after neoliberal government being elected. There are many democratically elected neoliberal governments around the world.

    Why might this be?

    In the case of Mexico, because Peña Nieto's wife is a telenovela star. How cool is that? It places Mexico in the same league as 1st world countries, such as France, with Carla Bruni.

    Patrick 08.04.16 at 4:32 pm

    To the guy who asked- poor white people keep voting Republican even though it screws them because they genuinely believe that the country is best off when it encourages a culture of "by the bootstraps" self improvement, hard work, and personal responsibility. They view taxing people in order to give the money to the supposedly less fortunate as the anti thesis of this, because it gives people an easy out that let's them avoid having to engage in the hard work needed to live independently.

    They see it as little different from letting your kid move back on after college and smoke weed in your basement. They don't generally mind people being on unemployment transitionally, but they're supposed to be a little embarrassed about it and get it over with as soon as possible. They not only worry that increased government social spending will incentivize bad behavior, they worry it will destroy the cultural values they see as vital to Americas past prosperity. They tend to view claims about historic or systemic injustice necessitating collective remedy because they view the world as one in which the vagaries of fate decree that some are born rich or poor, and that success is in improving ones station relative to where one starts. Attempts at repairing historical racial inequity read as cheating in that paradigm, and even as hostile since they can easily observe white people who are just as poor or poorer than those who racial politics focuses upon. Left wing insistence on borrowing the nastiest rhetoric of libertarians ("this guy is poor because his ancestors couldn't get ahead because of historical racial injustice so we must help him; your family couldn't get ahead either but that must have been your fault so you deserve it") comes across as both antithetical to their values and as downright hostile within the values they see around them.

    All of this can be easily learned by just talking to them.

    It's not a great world view. It fails to explain quite a lot. For example, they have literally no way of explaining increased unemployment without positing either that everyone is getting too lazy to work, or that the government screwed up the system somehow, possibly by making it too expensive to do business in the US relative to other countries. and given their faith in the power of hard work, they don't even blame sweatshops- they blame taxes and foreign subsidies.

    I don't know exactly how to reach out to them, except that I can point to some things people do that repulse them and say "stop doing that."

    bruce wilder 08.04.16 at 5:50 pm

    The extent to which "poor white people" vote against their alleged economic interests is overblown. To a large extent, they do not vote at all nor is anyone or anything on the ballot to represent their interests. And, yes, they are misinformed systematically by elites out to screw them and they know this, but cannot do much to either clear up their own confusion or fight back.

    The mirror image problem - of elites manipulating the system to screw the poor and merely middle-class - is daily in the news. Both Presidential candidates have been implicated. So, who do you recommend they vote for?

    There is serious deficit of both trust and information among the poor. Poor whites hardly have a monopoly; black misleadership is epidemic in our era of Cory Booker socialism.


    bruce wilder 08.04.16 at 7:05 pm

    Politics is founded on the complex social psychology of humans as social animals. We elevate it from its irrational base in emotion to rationalized calculation or philosophy at our peril.


    T 08.04.16 at 9:17 pm

    @Layman

    I think you're missing Patrick's point. These voters are switching from one Republican to another. They've jettisoned Bush et. al. for Trump. These guys despise Bush.

    They've figured out that the mainstream party is basically 30 years of affinity fraud.

    So, is your argument is that Trump even more racist? That kind of goes against the whole point of the OP. Not saying that race doesn't matter. Of course it does. But Trump has a 34% advantage in non-college educated white men. It just isn't the South. Why does it have to be just race or just class?


    Ronan(rf) 08.04.16 at 10:35 pm

    "I generally don't give a shit about polls so I have no "data" to evidence this claim, but my guess is the majority of Trump's support comes from this broad middle"

    My understanding is trumps support disproportionately comes from the small business owning classes, Ie a demographic similar to the petite bourgeoisie who have often been heavily involved in reactionary movements. This gets oversold as "working class" when class is defined by education level rather than income.

    This would make some sense as they are generally in economically unstable jobs, they tend to be hostile to both big govt (regulations, freeloaders) and big business (unfair competition), and while they (rhetorically at least) tend to value personal autonomy and self sufficiency , they generally sell into smaller, local markets, and so are particularly affected by local demographic and cultural change , and decline. That's my speculation anyway.

    T 08.05.16 at 3:12 pm

    @patrick @layman

    Patrick, you're right about the Trump demographic. https://fivethirtyeight.com/features/the-mythology-of-trumps-working-class-support/

    Layman - Why are these voters switching from Bush et al to Trump? Once again, Corey's whole point is that there is very little difference between the racism of Trump and the mainstream party since Nixon. Is Trump just more racist? Or are the policies of Trump resonating differently than Bush for reasons other than race?

    Are the folks that voted for the other candidates in the primary less racist so Trump supporters are just the most racist among Republicans? Cruz less racist? You have to explain the shift within the Republican party because that's what happened.

    Anarcissie 08.06.16 at 3:00 pm

    Faustusnotes 08.06.16 at 1:50 pm @ 270 -

    Eric Berne, in The Structures and Dynamics of Organizations and Groups, proposed that among the defining characteristics of a coherent group is an explicit boundary which determines whether an individual is a member of the group or not. (If there is no boundary, nothing binds the assemblage together; it is a crowd.) The boundary helps provide social cohesion and is so important that groups will create one if necessary. Clearly, boundaries exclude as well as include, and someone must play the role of outsider. While Berne's theories are a bit too nifty for me to love them, I have observed a lot of the behaviors he predicts. If one wanted to be sociobiological, it is not hard to hypothesize evolutionary pressures which could lead to this sort of behavior being genetically programmed. If a group of humans, a notably combative primate, does not have strong social cohesion, the war of all against all ensues and everybody dies. Common affections alone do not seem to provide enough cohesion.

    In an earlier but related theory, in the United States, immigrants from diverse European communities which fought each other for centuries in Europe arrived and managed to now get along because they had a major Other, the Negro, against whom to define themselves (as the White Race) and thus to cohere sufficiently to get on with business. The Negro had the additional advantage of being at first a powerless slave and later, although theoretically freed, was legally, politically, and economically disabled - an outsider who could not fight back very effectively, nor run away. Even so, the US almost split apart and there continue to be important class, ethnic, religious, and regional conflicts. You can see how these two theories resonate.

    It may be that we can't have communities without this dark side, although we might be able to mitigate some of its destructive effects.

    bruce wilde r 08.06.16 at 4:28 pm

    I am somewhat suspicious of leaving dominating elites out of these stories of racism as an organizing principle for political economy or (cultural) community.

    Racism served the purposes of a slaveholding elite that organized political communities to serve their own interests. (Or, vis a vis the Indians a land-grab or genocide.)

    Racism serves as an organizing principle. Politically, in an oppressive and stultifying hierarchy like the plantation South, racism not incidentally buys the loyalty of subalterns with ersatz status. The ugly prejudices and resentful arrogance of working class whites is thus a component of how racism works to organize a political community to serve a hegemonic master class. The business end of racism, though, is the autarkic poverty imposed on the working communities: slaves, sharecroppers, poor blacks, poor whites - bad schools, bad roads, politically disabled communities, predatory institutions and authoritarian governments.

    For a time, the balkanization of American political communities by race, religion and ethnicity was an effective means to the dominance of an tiny elite with ties to an hegemonic community, but it backfired. Dismantling that balkanization has left the country with a very low level of social affiliation and thus a low capacity to organize resistance to elite depredations.

    engels 08.07.16 at 1:02 am

    But how did that slavery happen

    Possible short answer: the level of technological development made slavery an efficient way of exploiting labour. At a certain point those conditions changed and slavery became a drag on further development and it was abolished, along with much of the racist ideology that legitimated it.

    Lupita 08.07.16 at 3:40 am

    But how did that slavery happen

    In Mesoamerica, all the natives were enslaved because they were conquered by the Spaniards. Then, Fray Bartolomé de las Casas successfully argued before the Crown that the natives had souls and, therefore, should be Christianized rather than enslaved. As Bruce Wilder states, this did not serve the interests of the slaveholding elite, so the African slave trade began and there was no Fray Bartolomé to argue their case.

    It is interesting that while natives were enslaved, the Aztec aristocracy was shipped to Spain to be presented in court and study Latin. This would not have happened if the Mesoamericans were considered inferior (soulless) as a race. Furthermore, the Spaniards needed the local elite to help them out with their empire and the Aztecs were used to slavery and worse. This whole story can be understood without recurring to racism. The logic of empire suffices.

    [Sep 11, 2016] "Equity," an intelligent and enthralling thriller set in a shark tank of New York investment bankers, hedge-fund executives and tech entrepreneurs,

    Notable quotes:
    "... The film, directed by Meera Menon and written by Amy Fox , is as ruthless and hypnotic a study of a cutthroat species as the documentary I saw about the carnivorous fish. Maybe it is even more so, as it is a story of alpha females, as well as males. ..."
    "... a movie implicitly critical of Wall Street and explicitly damning of hedge funds. ..."
    truthdig.com

    Not long ago, I saw a documentary about sharks in the wild. The male bites the frisky female on her flank, both to show his interest and to subdue her as he attempts penetration. Initially the female resists; one was filmed wriggling free of a series of circling males until she becomes exhausted and an alpha male has his way with her.

    According to the narrator, shark reproduction favors the most powerful males and strongest females. Over time, the female evolves tougher skin to endure, or perhaps elude, the male love bite.

    If that's what happens in the open sea, what must it be like in tighter quarters?

    "Equity," an intelligent and enthralling thriller set in a shark tank of New York investment bankers, hedge-fund executives and tech entrepreneurs, imagines just that.

    The film, directed by Meera Menon and written by Amy Fox, is as ruthless and hypnotic a study of a cutthroat species as the documentary I saw about the carnivorous fish. Maybe it is even more so, as it is a story of alpha females, as well as males.

    This female-driven production about driven females stars Anna Gunn ("Breaking Bad") as banker Naomi Bishop, the firm rainmaker lately experiencing a drought. Sarah Megan Thomas is Erin Manning, her assistant, and Alysia Reiner ("Orange is the New Black") plays Samantha, an assistant U.S. attorney investigating Gunn's firm. That storyline provides one of the plot's conflicts. Another is that banker and assistant each want promotions and are denied.

    At the outset, it's hard to like Naomi. She announces herself as the female Gordon Gekko (the character Michael Douglas played in "Wall Street"). While he exhorted that "greed is good," she forthrightly admits that she "likes money." She likes the numbers, likes the adrenaline rush of risking it on a new venture and, most of all, she likes the power it represents.

    She makes few concessions to femininity and none to glamor. Her body is womanly, rather than girlish, her clothes purely functional. Naomi lets off steam by slipping into boxing gloves and taking the stuffing out of the punching bag. She is in control of her emotions.

    At the outset, it's easy to like Erin and Samantha, both model-slim and flirty (even though both are married). From Erin's perspective, Naomi is the boss from hell. From Samantha's, the banker is insufficiently idealistic. "Equity" asks us at first to align with the younger women because, well, they look like the sexy creatures of most Hollywood films. But as it continues, the movie asks us to question our first impressions. It's a film about not making snap judgments, in business, in love or in life.

    Is there a difference when women are behind both the camera and the story? In this case, yes and no. It's no surprise that this movie features a trio of three-dimensional women at its center. For the most part, though, its male characters are generic and cardboard-flat. There's entitled hedge-fund guy Michael (James Purefoy), Naomi's mentor and boyfriend, all about the money and the game. There's the entitled tech entrepreneur Ed (Samuel Roukin), who is all about the money and the sex. The one good guy is a warm and supportive U.S. attorney who steers Samantha toward remaining in her ethical lane. Here is a movie implicitly critical of Wall Street and explicitly damning of hedge funds.

    Despite the one-dimensional men, I was surprised by the film's deceptions and detours. The greatest asset of "Equity" is Gunn, whose face is a Kabuki mask and whose skin is impenetrable as that of a female shark. While watching her I thought once or twice that hers was a one-note performance. But by movie's end, I realized it was a symphony of invincibility and vulnerability.

    [Sep 10, 2016] Removing a governments control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession

    Notable quotes:
    "... The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession. ..."
    "... He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace ..."
    "... Mundell was also the driving force for Reagan's supply side economics. ..."
    Jun 28, 2016 | www.nakedcapitalism.com
    Pookah Harvey , June 26, 2016 at 10:21 pm

    According to investigative journalist Greg Palast; Nobel winning economist Robert Mundell, who is thought to be the father of the Euro, designed the EU to take macroeconomics away from elected politicians and forcing deregulation were part of the plan .

    The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

    "It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

    He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace

    Mundell was also the driving force for Reagan's supply side economics.

    [Sep 05, 2016] Trump predicts landslide support from black voters if he gets to seek a second term as president

    [Dec 05, 2016] | latimes.com

    "You're living in poverty, your schools are no good, you have no jobs, 58% of your youth is unemployed. What the hell do you have to lose" by voting for Trump? the candidate asked. "At the end of four years, I guarantee I will get over 95% of the African American vote."

    The statement – highly unlikely given how poorly Republicans fare among black voters – continues a theme the GOP presidential nominee has pounded this week as he courted African American voters. He said Democrats take black voters for granted and have ignored their needs while governing cities with large African American populations.

    "America must reject the bigotry of Hillary Clinton, who sees communities of color only as votes, not as human beings worthy of a better future," he said of his Democratic opponent.

    ... ... ...

    Trump argued that Democratic presidential nominee Hillary Clinton's policies on issues such as immigration and refugee resettlement harm African Americans.

    [Sep 02, 2016] The same morons that gave us "lean manufacturing" have also given us "lean logistics".

    Sep 02, 2016 | www.nakedcapitalism.com
    Paid Minion , September 2, 2016 at 3:04 pm

    The same morons that gave us "lean manufacturing" have also given us "lean logistics".

    Redundancy is "money left on the table". Excess capacity in case of Black Swans and "Plan Bs"are a big waste of money. Any law that forces you to incorporate some redundancy (in spite of yourself) is "excess regulation"

    Of course, costs must be reduced and corners must be cut, when you are competing against bankster returns of 5-6%, with any losses made good by Uncle Sugar

    GF , September 2, 2016 at 4:12 pm

    Hanjin Shipping fiasco

    Since each modern container ship holds between 3,000 and 14,000 shipping containers, 98 ships stranded with cargo is a lot of freight. S. Korea should probably think twice about not bailing them out (unless all the cargo is from China and they want to do some damage??)

    geoff , September 2, 2016 at 4:58 pm

    Re the Hanjin bankruptcy, the "2.9% of world shipping trade" figure understates Hanjin's overall share in the market that matters most to US retailers and consumers: the transpacific trade, where Hanjin handles 7.8% of the volume per Forbes.

    http://fortune.com/2016/09/02/hanjin-shipping-ports-us-firms/

    So at the very least, we're looking at a significant reduction in already falling (US) intermodal rail traffic, and quite possibly a small reduction in the trade deficit as imports are reduced. Hanjin's bankruptcy also could not possibly have come at a worse time, as Sept./ Oct. is traditionally "peak season" for US imports ahead of the holiday retail season, which will probably also take a hit.

    Personally, I'm shocked that a carrier as large and dominant as Hanjin could go under.

    [Sep 01, 2016] What will come out of neoliberalism destruction of the world economies

    Sep 01, 2016 | www.nakedcapitalism.com

    Ulysses , August 31, 2016 at 6:02 pm

    "I am the spirit that negates.
    And rightly so, for all that comes to be
    Deserves to perish wretchedly;
    'Twere better nothing would begin.
    Thus everything that that your terms, sin,
    Destruction, evil represent-
    That is my proper element."

    Johann Wolfgang von Goethe

    diptherio , August 31, 2016 at 2:17 pm

    Switzerland to vote on "circular economy strategy"

    Reason enough for the Green Party of Switzerland to call for a fundamental change in the country's economic system. Its initiative gathered about 110,000 signatures within the required 18 months and was handed in to the authorities in 2012.

    It calls for a "circular economy strategy", including measures to adopt new product regulations, encourage recycling, and promote research and innovation, thereby reducing the country's ecological footprint by two-thirds.

    The proponents want Switzerland to play a pioneering role, promoting a sustainable model for the economy, including a tax policy tied to the use of natural resources. The government is asked to define sustainability targets both for a short and medium term and present a progress report every four years.

    What a Caring Organization Looks Like

    A Facebook friend (we're barely acquaintances really) asked this question on Friday:

    "What do you think are the most critical things (I'm talking specific processes, policies, and structures rather than values) that make up non-competitive and more collaborative and caring workplaces? Spaces where people are encouraged to really praise and acknowledge someone else's work rather than hide someone else's contribution, where people want to spend time on the collective good rather than next personal gain, and where the often invisible and gendered work of caring and 'organisation culture' is prioritised and publicly valued as critically important? What are some practical things you can implement, aside from the destruction of capitalism? Ideas, you wise group of souls?"

    I've spent the last couple of years working with an incredible bunch of people to build an organisation that is exactly like that: caring, collaborative, and non-competitive, a space where we praise and acknowledge each other, where the work of caring is shared equally, regardless of gender.

    Cripes I am a lucky dude, it rules. It is a total privilege, so I'm trying to figure out if there's something about our organisation that we can share with others.

    It's a subtle thing, so I'm not sure if I can totally nail it down with words. Let's try something…

    [Aug 20, 2016] It is a perplexing and sorry phenomenon that deserves the attention of a first rate pundit like Frank

    Amazon review of Thomas Frank's The Wrecking Crew... the word "conservative" was replaced by "neoliberal" as it more correctly reflect the concept behind this social process.
    Notable quotes:
    "... Neoliberal ideology is championed on behalf of corporate elites who have now secured total control, even ownership, of the federal government. ..."
    "... Elites need federal government revenue transferred to their realm via fat government contracts and juicy subsidies. They want government without regulation, and they want taxation imposed on the masses without real representation, but not on them. ..."
    "... Neoliberals drew up a long term strategy to sabotage and disrupt the liberal apparatus. There ensued a vast selling-off of government assets (and favors) to those willing to fund the neoliberal movement. The strategy was concocted as a long term plan - the master blueprint for a wholesale transfer of government responsibilities to private-sector contractors unaccountable to Congress or anyone else. An entire industry sprung up to support conservatism - the great god market (corporate globalism) replaced anti-communism as the new inspiration. (page 93) ..."
    "... But capitalism is not loyal to people or anything once having lost its usefulness, not even the nation state or the flag ..."
    "... According to Frank, what makes a place a free-market paradise is not the absence of governments; it is the capture of government by business interests. ..."
    "... Neoliberals don't want efficient government, they want less competition and more profits - especially for defense contractors. Under Reagan, civil servants were out, loyalists were in. ..."
    "... Contractors are now a fourth branch of government with more people working under contracts than are directly employed by government - making it difficult to determine where government stops and the contractors start in a system of privatized government where private contractors are shielded from oversight or accountability ..."
    "... The first general rule of neoliberal administration: cronies in, experts out. ..."
    "... Under Reagan, a philosophy of government blossomed that regarded business as its only constituent. ..."
    "... Watergate poisoned attitudes toward government - helping sweep in Ronald Reagan with his anti-government cynicism. Lobbying and influence peddling proliferated in a privatized government. Lobbying is how money casts its vote. It is the signature activity of neoliberal governance - the mechanism that translates market forces into political action. ..."
    "... Neoliberalism speaks of not compromise but of removing adversaries from the field altogether. ..."
    "... One should never forget that it was Roosevelt's New Deal that saved capitalism from itself. Also, one should not forget that capitalism came out of the classical liberal tradition. Capitalists had to wrest power away from the landowning nobility, the arch neoliberal tradition of its time. ..."
    www.amazon.com
    Russell Ferrell

    Format: Paperback

    Thomas Frank's The Wrecking Crew is another classic. This work, along with his more notable What's The Matter With Kansas?, is another ground breaking examination into a major phenomenon of American politics by one of America's foremost social analysts and critics. While What's The Matter With Kansas? looked more at cultural behavior in explaining why Red State Americans have embraced corporate elitist ideology and ballot casting that militates against their own economic self-interest, even their very survival, this title deals more with structural changes in the government, economy, and society that have come about as a result of a Republican right wing agenda. It is a perplexing and sorry phenomenon that deserves the attention of a first rate pundit like Frank.

    Neoliberal ideology is championed on behalf of corporate elites who have now secured total control, even ownership, of the federal government. The Wrecking Crew is about a Republican agenda to totally eliminate the last vestiges of the New Deal and Great Society, which have provided social safety nets for ordinary working class Americans through programs such as Social Security and Medicare. Corporate elites want to demolish only that part of government that doesn't benefit the corporation. Thus, a huge military budget and intrusive national security and police apparatus is revered, while education, health, welfare, infrastructure, etc. are of less utility for the corporate state. High taxes on the corporations and wealthy are abhorred, while the middle class is expected to shoulder a huge tax burden. Although Republicans rail against federal deficits, when in office they balloon the federal deficits in a plan for government-by-sabotage. (Page 261)

    Elites need federal government revenue transferred to their realm via fat government contracts and juicy subsidies. They want government without regulation, and they want taxation imposed on the masses without real representation, but not on them. The big government they rail at is the same government they own and benefit from. They certainly do not want the national security state (the largest part of government) or the national police system to go away, not even the IRS. How can they fight wars without a revenue collection system? The wellspring of conservatism in America today -- preserving connections between the present and past -- is a destroyer of tradition, not a preserver. (Page 267)

    Neoliberals drew up a long term strategy to sabotage and disrupt the liberal apparatus. There ensued a vast selling-off of government assets (and favors) to those willing to fund the neoliberal movement. The strategy was concocted as a long term plan - the master blueprint for a wholesale transfer of government responsibilities to private-sector contractors unaccountable to Congress or anyone else. An entire industry sprung up to support conservatism - the great god market (corporate globalism) replaced anti-communism as the new inspiration. (page 93)

    Market populism arose as business was supposed to empower the noble common people. But capitalism is not loyal to people or anything once having lost its usefulness, not even the nation state or the flag. (page 100) While the New Deal replaced rule by wealthy with its brain trust, conservatism, at war with intellectuals, fills the bureaucracy with cronies, hacks, partisans, and creationists. The democracy, or what existed of it, was to be gradually made over into a plutocracy - rule by the wealthy. (Page 252) Starting with Reagan and Thatcher, the program was to hack open the liberal state in order to reward business with the loot. (Page 258) The ultimate neoliberal goal is to marketize the nation's politics so that financial markets can be elevated over vague liberalisms like the common good and the public interest. (Page 260)

    According to Frank, what makes a place a free-market paradise is not the absence of governments; it is the capture of government by business interests. The game of corporatism is to see how much public resources the private interest can seize for itself before public government can stop them. A proper slogan for this mentality would be: more business in government, less government in business. And, there are market based solutions to every problem. Government should be market based. George W. Bush grabbed more power for the executive branch than anyone since Nixon. The ultra-rights' fortunes depend on public cynicism toward government. With the U.S. having been set up as a merchant state, the idea of small government is now a canard - mass privatization and outsourcing is preferred. Building cynicism toward government is the objective. Neoliberals don't want efficient government, they want less competition and more profits - especially for defense contractors. Under Reagan, civil servants were out, loyalists were in.

    While the Clinton team spoke of entrepreneurial government - of reinventing government - the wrecking crew under Republicans has made the state the tool of money as a market-based system replaced civil service by a government-by-contractor (outsourcing). Page 137 This has been an enduring trend, many of the great robber barons got their start as crooked contractors during the Civil War. Contractors are now a fourth branch of government with more people working under contracts than are directly employed by government - making it difficult to determine where government stops and the contractors start in a system of privatized government where private contractors are shielded from oversight or accountability. (Page 138)

    The first general rule of neoliberal administration: cronies in, experts out. The Bush team did away with EPA's office of enforcement - turning enforcement power over to the states. (Page 159) In an effort to demolish the regulatory state, Reagan, immediately after taking office, suspended hundreds of regulations that federal agencies had developed during the Carter Administration. Under Reagan, a philosophy of government blossomed that regarded business as its only constituent. In recent years, neoliberals have deliberately piled up debt to force government into crisis.

    Watergate poisoned attitudes toward government - helping sweep in Ronald Reagan with his anti-government cynicism. Lobbying and influence peddling proliferated in a privatized government. Lobbying is how money casts its vote. It is the signature activity of neoliberal governance - the mechanism that translates market forces into political action. (Page 175)

    It is the goal of the neoliberal agenda to smash the liberal state. Deficits are one means to accomplish that end.- to persuade voters to part with programs like Social Security and Medicare so these funds can be transferred to corporate contractors or used to finance wars or deficit reduction.. Uncle Sam can raise money by selling off public assets.

    Since liberalism depends on fair play by its sworn enemies, it is vulnerable to sabotage by those not playing by liberalism's rules/ (Page 265) The Liberal State, a vast machinery built for our protection has been reengineered into a device for our exploitation. (Page 8) Liberalism arose out of a long-ago compromise between left-wing social movements and business interests. (Page 266) Neoliberalism speaks of not compromise but of removing adversaries from the field altogether. (Page 266) No one dreams of eliminating the branches of state that protect Neoliberalism's constituents such as the military, police, or legal privileges granted to corporations, neoliberals openly scheme to do away with liberal bits of big government. (Page 266)

    Liberalism is a philosophy of compromise, without a force on the Left to neutralize the magneticism exerted by money, liberalism will be drawn to the right. (Page 274)

    Through corporate media and right wing talk show, liberalism has become a dirty word. However, liberalism may not be dead yet. It will have to be resurrected from the trash bin of history when the next capitalist crisis hits. One should never forget that it was Roosevelt's New Deal that saved capitalism from itself. Also, one should not forget that capitalism came out of the classical liberal tradition. Capitalists had to wrest power away from the landowning nobility, the arch neoliberal tradition of its time.

    [Aug 16, 2016] Thomas Frank One Market Under God-- Extreme Capitalism

    Notable quotes:
    "... This extreme form of market capitalism, also called neo-liberalism in economics and neo-conservatism in foreign policy, has worked its way into the mindset of the ruling elites of many of the developed nations, and has taken a place in the public consciousness through steady repetition. I has become the modern orthodoxy of the fortunate few, who have been initiated into its rites, and served and been blessed by their god. ..."
    "... The adherents become blind by their devotion to their gods. ..."
    "... This is not something new. It is a madness that has appeared again and again throughout history in the form of Mammon, the golden idol of the markets. It is a way of looking at people and the world that is as old as Babylon, and as evil as sin. ..."
    jessescrossroadscafe.blogspot.com
    There is a lack of critical assessment of the past. But you have to understand that the current ruling elite is actually the old ruling elite. So they are incapable of a self-critical approach to the past."

    Ryszard Kapuscinski

    But they maintain a firm grasp on information and power, for their own sake, and sidetrack and stifle any meaningful reform.

    In October 2000 Thomas Frank published a prescient critical social analysis titled, One Market Under God: Extreme Capitalism, Market Populism, and the End of Economic Democracy .

    In the video below from 2015, Thomas Frank looks back over the past 15 years to when he wrote this insightful book, and ends with this observation.

    "I want to end with the idea that the market is capable of resolving all of our social conflict, fairly and justly. That is the great idea of the 1990's. And we all know now what a crock that is. I think what we need in order to restore some kind of sense of fairness is not the final triumph of markets over the body and soul of humanity, but something that confronts markets, and that refuses to think of itself as a brand ."
    The book was not received well at the time in the waning days of the Clinton revolution and the birth of the era of the neo-cons in foreign policy and neo-liberals in economics.

    This religion of the markets had yet to suffer the serial failures and decimation of the real economy which it would see over the next sixteen years.

    This is an ideology, a mindset, and as Frank calls it a religion, of taking market capitalism to such an extreme that it dispenses with the notion of restraints by human or policy consideration. It comes to consider the market as a god, with its orthodoxy crafted in think tanks, its temples in the exchanges and the banks, and its oracles on their media and the academy.

    This extreme form of market capitalism, also called neo-liberalism in economics and neo-conservatism in foreign policy, has worked its way into the mindset of the ruling elites of many of the developed nations, and has taken a place in the public consciousness through steady repetition. I has become the modern orthodoxy of the fortunate few, who have been initiated into its rites, and served and been blessed by their god.

    It is the taking of an idea, of a way of looking at things, that may be substantially practical when used as a tool to help to achieve certain outcomes, and placing it in such an extreme and inappropriate place as an end in itself, as the very definition and arbiter of what is good and what is not, that it becomes a kind of anti-human force that is itself considered beyond all good and evil, like a natural law.

    It is born of and brings with it an extreme tendency that kills thought, and stifles the ability to make distinctions between things. If not unfettered capitalism then what, communism ? The adherents become blind by their devotion to their gods.

    This is not something new. It is a madness that has appeared again and again throughout history in the form of Mammon, the golden idol of the markets. It is a way of looking at people and the world that is as old as Babylon, and as evil as sin.

    youtube.com

    [Aug 03, 2016] Financialization and its Discontents

    Notable quotes:
    "... We are all "banks", but we don't have the capacity to socialise costs and privatise benefits. The problem is thereby, a problem of the power structure and accountability. Of institutional decay and corruption. ..."
    "... Capitalism has always favored the few at the expense of the many. Yet there have been places and moments, like in post-WWII U.S., where effort has gone into making the financial system at least appear somewhat transparent and predictable. Today we simply suffer the unrestrained looting of kleptocrats who laugh in our faces if we dare to complain. They violate "rules" that are already tilted in their favor with impunity. Meanwhile, if you are a poor person, unable to pay a traffic ticket in a timely fashion, you may well lose your liberty, or even your life. ..."
    "... The problem we have is that the system is rigged. Bad actors in the upper class can destroy their bank for fun and profit. Individuals father down the scale cannot discharge student loans under any circumstances. This is the largest source of discontent and a problem elites refuse to address. ..."
    "... And the elites won't address it until they are jailed or guillotined. Why should they? ..."
    "... The article starts off well enough, but then loses track of the critical standpoints it initially sets out. For example, within the above idea, the author can't talk about dimensions of life that are not monetizable because they are a capitalist prerogative. For instance, if someone is forced to work mandatory overtime because their employer doesn't want to hire enough workers to cover demand without overtime, you either do the overtime or you exit. You can't buy your time off. Etc. ..."
    "... I'm not sure what point this article is attempting to make. The distinction between money and debt becomes moot if money is a debt - which if I understand his arguments correctly is what Michael Hudson argues in "Killing the Host". I do like the reading list at the bottom. I'm behind many of the rest of the commenters in not having read any of these oft cited books. ..."
    "... I agree with other comments the formula "we are each of us banks" is lame. I think it matches nicely with the oft repeated analogy between government finance and a family business. ..."
    "... Financialization is about middlemen and looters skimming off money as it flows through; whether this is good or bad in a particular case depends upon whether those middlemen add value or simply act as rentiers. ..."
    "... money is the mental construct, the idea, by which we value human labor and transport that value across spacetime. ..."
    "... Other People's Money ..."
    naked capitalism
    TomDority , August 3, 2016 at 6:55 am

    Not sure the bank thing is a good analogy. Seams when a financial system raises the cost of an asset like land through speculation to the point where a debtor has not enough income to cover outflow to provide basics of survival….. food, water, shelter, community etc……..then does the crrditor/speculator thus owe society because, it was through speculation and Mal-investment that society was damaged.

    Thomas Jefferson….I think, said something along the lines…… if banks get a hold of credit creation then, by inflation and deflation the citizens of this country will be left homeless upon the land their fathers established.

    IDG , August 3, 2016 at 7:30 am

    We are all "banks", but we don't have the capacity to socialise costs and privatise benefits. The problem is thereby, a problem of the power structure and accountability. Of institutional decay and corruption.

    Ulysses , August 3, 2016 at 9:41 am

    Very well said!

    Capitalism has always favored the few at the expense of the many. Yet there have been places and moments, like in post-WWII U.S., where effort has gone into making the financial system at least appear somewhat transparent and predictable. Today we simply suffer the unrestrained looting of kleptocrats who laugh in our faces if we dare to complain. They violate "rules" that are already tilted in their favor with impunity. Meanwhile, if you are a poor person, unable to pay a traffic ticket in a timely fashion, you may well lose your liberty, or even your life.

    washunate , August 3, 2016 at 10:55 am

    Capitalism has always favored the few at the expense of the many.

    I'm curious what makes capitalism unique for you in that regard? I agree that there are problems with market-based economics, but you seem to be suggesting that other forms of political economy don't have problems of concentration of wealth and power?

    Capitalism without democracy and individual rights absolutely favors the few at the expense of the many. That's why our intellectual enablers have spent so much energy trying to separate economics from politics: to camouflage political choices as if they are natural economic outcomes.

    Left in Wisconsin , August 3, 2016 at 11:52 am

    I'm not sure what "other forms" you have in mind for comparison. But I would suggest it is a huge failure of imagination to suggest humans have exhausted all possible forms of economic organization and are stuck with contemporary global capitalism. Time for some innovation!

    readerOfTeaLeaves , August 3, 2016 at 11:04 am

    Agreed.

    And as Mehring points out: "Focusing on what money really is – whether gold or state fiat – shifts attention away from what credit really is, which is to say away from the center of discontent." It's the quality of that debt, what it is and why, that needs far more examination. At present, it is at the root of much discontent: why should I and mine be expected to salvage bank balance sheets that are essentially fraudulent in terms of crap mortgages?

    The institutional decay is really some kind of measure of the quality of crappy debt, which is making many of us seriously discontent at being expected to cover crap bets.

    Larry , August 3, 2016 at 7:36 am

    The problem we have is that the system is rigged. Bad actors in the upper class can destroy their bank for fun and profit. Individuals father down the scale cannot discharge student loans under any circumstances. This is the largest source of discontent and a problem elites refuse to address.

    Benedict@Large , August 3, 2016 at 8:22 am

    And the elites won't address it until they are jailed or guillotined. Why should they?

    hemeantwell , August 3, 2016 at 8:42 am

    From a money view perspective, the origin of discontent seems to lie in the fact that each of us, in our interface with the essentially financial system that is modern capitalism, operates essentially as a bank, meaning a cash inflow, cash outflow entity.

    The article starts off well enough, but then loses track of the critical standpoints it initially sets out. For example, within the above idea, the author can't talk about dimensions of life that are not monetizable because they are a capitalist prerogative. For instance, if someone is forced to work mandatory overtime because their employer doesn't want to hire enough workers to cover demand without overtime, you either do the overtime or you exit. You can't buy your time off. Etc.

    Jeremy Grimm , August 3, 2016 at 9:34 am

    I'm not sure what point this article is attempting to make. The distinction between money and debt becomes moot if money is a debt - which if I understand his arguments correctly is what Michael Hudson argues in "Killing the Host". I do like the reading list at the bottom. I'm behind many of the rest of the commenters in not having read any of these oft cited books.

    I agree with other comments the formula "we are each of us banks" is lame. I think it matches nicely with the oft repeated analogy between government finance and a family business.

    The close: "fundamental misunderstanding of the nature of the system" leaves me hanging. Where is the explanation which clarifies things and repairs my misunderstanding? I missed it in the presentation above and the concluding absurdity - "… we are each of us banks, managing our daily cash inflow and cash outflow relative to the larger system which is society." - hardly serves as clarification of anything. It just makes me annoyed that I bothered to read down that far.

    JEHR , August 3, 2016 at 11:38 am

    Bad analogy: If each of us were our own bank, then we would be able to create money like banks and loan out with interest and make billions each quarter because sometimes we could speculate or gamble and make billions more while our fellow citizens become poorer because of our efforts.

    washunate , August 3, 2016 at 10:25 am

    Unlike some commenters, I do happen to like the imagery of all of us being banks. That's what we all do: our labor flows out, other people's labor flows in. Imbalances can (and in fact, almost by definition have to) occur over arbitrarily short time frames, but over longer timeframes, these inflows and outflows do have to roughly balance. It also helps lay bare the fallacy of bailing out individual banks (TBTF) as some kind of means of saving the banking system rather than those specific banks bailed out. If the USFG gave Wash a trillion buck bailout, Wash Banking Inc would be very grateful and fix lots of things in Wash Town USA and make lots of jawbs and groaf and all dat. Does that make it good policy, either for the residents of Wash Town or the residents of Dry Town across the valley?

    Where I don't quite follow the author's point is in distinguishing money/credit/financialization/etc. The easiest way to understand money at a macro level is that money is labor. Or a bit more complexly, money is the mental construct, the idea, by which we value human labor and transport that value across spacetime.

    The issue of financialization isn't market vs. non-market or money vs. non-money or something like that. Financialization is about the subset of money called currency, particularly currency units issued by a sovereign government, being used to allocate resources in areas where currency units are poor allocators of resources. Financialization is about middlemen and looters skimming off money as it flows through; whether this is good or bad in a particular case depends upon whether those middlemen add value or simply act as rentiers.

    The biggest areas of financialization in contemporary western culture, especially in the heart of the free world in DC, are not markets at all. They are government sponsored enterprises carrying out that age old quest of the Will to Power. Remove USFG policy choices to run a global empire abroad and create massive inequality at home, and our supposedly market-based financial system would shrink to a much smaller size overnight.

    JEHR , August 3, 2016 at 11:39 am

    If money were true labour then bankers would be broke!

    Robert Dannin , August 3, 2016 at 11:51 am

    "Financialization is about middlemen and looters skimming off money as it flows through; whether this is good or bad in a particular case depends upon whether those middlemen add value or simply act as rentiers."

    You hit the nail on the head here. Profits from financial transactions differ from those derived in trading commodities and services. The former are occult whereas the latter originate in the value of labor power. The claim that financial profits track interest rates doesn't work because they remain linked to credit and ultimately commodity exchange. If you listen to the Blankfeins and Dimons, they will say they are compensated for some special managerial skills that add values to the financial transaction. This is only nonsense to justify their mega-salaries, themselves only a fraction of the huge profits in finance. According to Hilferding's Finance Capital, the source of profit in finance is "sui generis" and derives from what we now call transaction fees. Whether legitimate or not, we need to understand how those rates are determined relative to the other variables.

    Left in Wisconsin , August 3, 2016 at 11:58 am

    money is the mental construct, the idea, by which we value human labor and transport that value across spacetime.

    But even this has to be qualified by tradition, power relations, etc. as there are many, many forms of human labor (often those forms traditionally performed by women) that we value but do not compensate with money. Also, who is "we?" And when did "we" decide that 2 and 20 was appropriate compensation for the "value" provided by hedge funders?

    Alejandro , August 3, 2016 at 11:10 am

    This "economist" alludes to, but fails to make the connection of the "asymmetrical" AND disproportionate power between creditors and debtors, that has been legislated, ratified and codified into the creditor castle (institution) of banking, currently run by banksters and moated with pols, judges, story-tellers masquerading as "journos"/"economists" etc….e.g.-assuming it were possible to make a sharp distinction between speculating and investing, by what reasonable definition of creditor can vultures be classified as creditors?

    Also doesn't seem to challenge the presupposition of "self-regulation" in the abstract "logic"(and language) of "markets", which is innate in thinking of "money" as a commodity. This abstract "logic"(and language) has "supplied" the fodder for neoliberal zealots to rationalize de-regulation, which many have concluded has been a major driver of the "defining issue of our time" and the disdainful polarization between the "haves" and "have-nots".

    Also seems to fail to recognize the conflict when thinking about money as a commodity and the effects of compounding interest…

    Sluggeaux , August 3, 2016 at 12:23 pm

    Thanks for this. I followed the link and have started reading Louis Brandeis' Other People's Money , which I've never read before. We've learned little in the ensuing 100 years…

    [Jun 18, 2016] Greenspan Shocked Disbelief by Robert Borosage

    Greenspan phony "Shocked disbelief" reminds classic "...I am shocked - shocked, there is gambling going on in this establishment...." "...here are your winnings..." exchange between Humphrey Bogart & Claude Rains in Casablanca. Compare with "... "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," he said. ..."
    Notable quotes:
    "... "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," ..."
    "... Greenspan spurned the Republican acolytes trying desperately to defend the faith and blame the crisis on the Community Reinvestment Act and the powerful lobby of poor people who forced powerless banks to do reckless things. ..."
    "... Private greed, not public good, caused this catastrophe: "The evidence now suggests, but only in retrospect, that this market evolved in a manner which if there were no securitization, it would have been a much smaller problem and, indeed, very unlikely to have taken on the dimensions that it did. It wasn't until the securitization became a significant factor, which doesn't occur until 2005, that you got this huge increase in demand for subprime loans, because remember that without securitization, there would not have been a single subprime mortgage held outside of the United States, that it's the opening up of this market which created a huge demand from abroad for subprime mortgages as embodied in mortgage-backed securities. ..."
    "... But having admitted the failure of his faith, Greenspan could not abandon it. Credit default swaps had to be "restrained," he admitted. Those who create mortgages should be mandated to retain a piece of them to insure responsible lending. Otherwise, the old faith still applied. No new regulations were needed, because the markets "for the indefinite future will be far more restrained than would any currently contemplated new regulatory regime." ..."
    "... The only Guantanamo that the United States has any business running is a concentration camp for the hundreds of wall street executives and their cronies in Bushland that conspired to defraud the American people from their hard earned dollar. ..."
    "... There are no free markets in America, any more than there is free lunch. ..."
    "... So it wasn't the military-industrial complex that did us in after all . . . ..."
    "... It's clear from comments on this contribution that few readers of Truthout believe Alan Greenspan's sorry testimony before Congress. What has faith in something to do with enforcing the policies of fiduciary responsibility already on the books? All these so-called "experts" on capitalism are now coming out to say "I'm sorry." Well, I won't be sorry for them until they are held monetarily and criminally responsible for their actions, inept or not. ..."
    "... If it looks like class warfare, as David Harvey, author of Neoliberalism, has stated, call it class warfare and act accordingly. ..."
    "... it doesn't take a genius to understand that when financial instruments are created based on crap (subprime mortgages), that eventually problems will occur with those instruments. In fact, Greenspan and his cronies knew that, which is why they resisted these instruments being regulated by the SEC or even the CFTC. ..."
    "... Sounds like the "maestro" hit a flat note in his orchestra of greed and deregulation. ..."
    "... Did anybody even bother to consult the Math PhDs who created these instruments to run possible scenarios -- just in case? why bother when you know you can scare congress, the president and the treasury and ultimately the people into bailing your ass out of worldwide collapse? ..."
    "... Shocked Disbelief is a ploy. When they were all riding high, they didn't give a crap. They were going to come out richer than hell anyway. ..."
    "... Where's Ayn Rand when you need her? Give me a break Mr Greenspan. Never let history and reality get in the way of the big unregulated celebration of greed like we have had since "Saint Ronald Wilson Reagan", and the other "Free Market" "government is the problem" ideologues ..."
    "... What about the 1994 Act of Congress that required the Fed to monitor and regulate derivatives? The Act Greenspan ignored? ..."
    "... "...I am shocked - shocked, there is gambling going on in this establishment...." "...here are your winnings..." exchange between Humphrey Bogart & Claude Rains in Casablanca ..."
    Oct 24, 2008 | truthout.org

    by: Robert Borosage, The Campaign for America's Future

    On October 23, former Federal Reserve Chairman Alan Greenspan testified before a House Oversight and Government Reform Committee hearing on the role of federal regulators in the current financial crisis.

    It marks the end of an era. Alan Greenspan, the maestro, defender of the market fundamentalist faith, champion of deregulation, celebrator of exotic banking inventions, admitted Thursday in a hearing before Rep. Henry Waxman's House Committee and Oversight and Government Reform that he got it wrong.

    "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," he said.

    As to the fantasy that banks could regulate themselves, that markets self-correct, that modern risk management enforced prudence: "The whole intellectual edifice, however, collapsed in the summer of last year."

    Greenspan spurned the Republican acolytes trying desperately to defend the faith and blame the crisis on the Community Reinvestment Act and the powerful lobby of poor people who forced powerless banks to do reckless things. Greenspan dismissed that goofiness in response to a question from one of its right-wing purveyors, Rep. Todd Platts, R-Pa., noting that subprime loans grew to a crisis only as the unregulated shadow financial system securitized mortgages, marketed them across the world, and pressured brokers to lower standards to generate a larger supply to meet the demand. Private greed, not public good, caused this catastrophe:

    "The evidence now suggests, but only in retrospect, that this market evolved in a manner which if there were no securitization, it would have been a much smaller problem and, indeed, very unlikely to have taken on the dimensions that it did. It wasn't until the securitization became a significant factor, which doesn't occur until 2005, that you got this huge increase in demand for subprime loans, because remember that without securitization, there would not have been a single subprime mortgage held outside of the United States, that it's the opening up of this market which created a huge demand from abroad for subprime mortgages as embodied in mortgage-backed securities.

    But having admitted the failure of his faith, Greenspan could not abandon it. Credit default swaps had to be "restrained," he admitted. Those who create mortgages should be mandated to retain a piece of them to insure responsible lending. Otherwise, the old faith still applied. No new regulations were needed, because the markets "for the indefinite future will be far more restrained than would any currently contemplated new regulatory regime."

    Now hung over from their bender, the banks could be depended upon to remain sober "for the indefinite future." Or until taxpayers' money relieves their headaches, and they are free to party once more.


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    Comments

    This is a moderated forum. It may take a little while for comments to go live.

    The only Guantanamo that the

    Sun, 10/26/2008 - 23:37 - Captain America (not verified)

    The only Guantanamo that the United States has any business running is a concentration camp for the hundreds of wall street executives and their cronies in Bushland that conspired to defraud the American people from their hard earned dollar.

    What they did dwarfs the damage caused to this country by 911, (no disrespect for the many innocents who died). However, here, every single citizen is a victim of fraud and corruption on a scale that was heretofore inconceivable. Greenspan, Bush and now Paulson have done more than Bin Laden and his hordes could do in a 100 years.

    By the way, if you protest YOU wind up locked up for being un-American. What happened America ?

    There are no free markets in

    Sun, 10/26/2008 - 19:27 - pink elephant (not verified)

    There are no free markets in America, any more than there is free lunch. The game was always fixed and Greenspan was the ultimate shill for the fixers. The past thirty years have been an orgy of greed with common sense shoved aside for the sake of uncommon expediency. Americans became infatuated by arcane formulas and dense incomprehensible mathematics to the point that they forget simple arithmetic. America wake up it was only a dream, and a bad one at that.

    So it wasn't the

    Sun, 10/26/2008 - 19:07 - Anonymous (not verified)

    So it wasn't the military-industrial complex that did us in after all . . .

    It's clear from comments on

    Sun, 10/26/2008 - 15:40 - afrothethics (not verified)

    It's clear from comments on this contribution that few readers of Truthout believe Alan Greenspan's sorry testimony before Congress. What has faith in something to do with enforcing the policies of fiduciary responsibility already on the books? All these so-called "experts" on capitalism are now coming out to say "I'm sorry." Well, I won't be sorry for them until they are held monetarily and criminally responsible for their actions, inept or not. The truth is as plain as the nose on your face: Greenspan, the Federal Reserve, the investment banks, the Bush administration and several members of Congress unobtrusively acted to consciously and knowingly to rob the national treasury for the sake of capitalism's sacred cow: capital accumulation on behalf of the nation's political and economic elite. If it looks like class warfare, as David Harvey, author of Neoliberalism, has stated, call it class warfare and act accordingly.

    We have heard statements

    Sun, 10/26/2008 - 10:11 - DJK (not verified)

    We have heard statements like "the mathematical models used for knowing the behavior of derivatives based on subprime mortgages were too difficult to understand", etc. But it doesn't take a genius to understand that when financial instruments are created based on crap (subprime mortgages), that eventually problems will occur with those instruments. In fact, Greenspan and his cronies knew that, which is why they resisted these instruments being regulated by the SEC or even the CFTC. And this is why they turned a blind eye to many of the rating agencies giving many of these instruments AAA ratings. I am sure that a real investigation will reveal numerous instances of fraudulent activity in conjunction with this debacle. Those perpetrators must be identified and brought to justice. While this will not fix our current problem, it hopefully should serve as a deterrent to those who would in the future attempt to again engage in such activities.

    Well here you have it a

    Sun, 10/26/2008 - 08:13 - Robert Iserbyt (not verified)

    Well here you have it a confessional lie from the biggest fraud perpetrator in the history of American finance Why the markets ever listened to this criminal in the first place is evidence that our entire nation should be required to take a full year of real unfettered economics just in case they don't understand what is going on now. All the pundits on MSNBC and all the talking heads should be removed from the airwaves. The Bailout what will that do? the answer lies before you.

    Sounds like the "maestro"

    Sun, 10/26/2008 - 02:02 - Anonymous (not verified)

    Sounds like the "maestro" hit a flat note in his orchestra of greed and deregulation. Come on, do you really think we are all so stupid to buy into the story that you couldn't predict a melt down knowing that those writing the subprimes held no responsibility for their actions? That's like giving a "get out of jail card" to someone who just created a felony! Did anybody even bother to consult the Math PhDs who created these instruments to run possible scenarios -- just in case? why bother when you know you can scare congress, the president and the treasury and ultimately the people into bailing your ass out of worldwide collapse?

    I'm a former real estate

    Sun, 10/26/2008 - 00:24 - two7five7one (not verified)

    I'm a former real estate broker and my son is a mortgage broker. From about 2004 through the beginning of this "greatest financial crisis since '29", we frequently talked on the phone about the disaster which would ensue when the real estate value appreciation stopped, and people were no longer fueling the economy with money borrowed against their equity, and the sub-prime loan fiasco would end. We knew it would be disastrous, and both of us were astonished that neither the FED nor congress was willing to say or do anything about it. Anyone who has witnessed over the years the cycle of boom/bust/boom/bust in the real estate market knew that after eleven years of unprecedented "boom" -- '96 through '2007 -- the "bust" would be like an earthquake. Paulson and Greenspan and their ilk now denying that they suspected this is just is just their lying to protect the GOP which was benefitting from the booming economy. They should both end up in prison, with all of the GOP members of congress who have had their hands in the cash register.

    Dance clown, dance. First

    Sat, 10/25/2008 - 23:48 - mysterioso (not verified)

    Dance clown, dance. First you were against the FED until you became head of the FED. Then you were for trickle down economics and letting the "system" regulate itself until you saw the inevitable destruction it caused. Dance clown, dance. You should be the first one sent to prison under the "Un-American activities act". The arrogance of your testimony before the committee was appalling. You honestly couldn't believe you were wrong !!!

    Shocked disbelief, my foot.

    Sat, 10/25/2008 - 23:35 - slw (not verified)

    Shocked disbelief, my foot. Many of us predicted EXACTLY this outcome.

    This is like telling the Fox

    Sat, 10/25/2008 - 22:43 - topview (not verified)

    This is like telling the Fox to watch the Hens and then walking away and trusting him to do the right thing. Government has to return to regulation and see that there is no hanky, Banky going on anymore. Monopolies have to be busted up, like the Communication industry's, the Drug industries and any other Corporations that control to much of the way the Country operates. No more Outsourcing any Government duties.

    Shocked Disbelief is a ploy.

    Sat, 10/25/2008 - 22:00 - radline9 (not verified)

    Shocked Disbelief is a ploy. When they were all riding high, they didn't give a crap. They were going to come out richer than hell anyway.

    Where's Ayn Rand when you

    Sat, 10/25/2008 - 20:53 - anglohistorian (not verified)

    Where's Ayn Rand when you need her? Give me a break Mr Greenspan. Never let history and reality get in the way of the big unregulated celebration of greed like we have had since "Saint Ronald Wilson Reagan", and the other "Free Market" "government is the problem" ideologues. We can spend trillions on war and corporate bailouts, but we can't have a single payer health system? We can't rebuild our infrastructure? Say it again- give me a break!

    What about the 1994 Act of

    Sat, 10/25/2008 - 20:41 - Jtmonrow (not verified)

    What about the 1994 Act of Congress that required the Fed to monitor and regulate derivatives? The Act Greenspan ignored?

    "...I am shocked - shocked,

    Sat, 10/25/2008 - 20:29 - Anonymous (not verified)

    "...I am shocked - shocked, there is gambling going on in this establishment...." "...here are your winnings..." exchange between Humphrey Bogart & Claude Rains in Casablanca

    This would be the same

    Sat, 10/25/2008 - 19:50 - dtroutma (not verified)

    This would be the same "shocked disbelief" expressed by Willie Sutton's mother?

    shouldn't Greenspan give his

    Sat, 10/25/2008 - 18:06 - Anonymous (not verified)

    shouldn't Greenspan give his salary and bonus back to taxpayers?

    [May 29, 2016] Goldman raised their price target (causing a rally in the stock) hours before underwriting a capital raise that cause a decline in Tesla's stock

    peakoilbarrel.com
    Brian Rose, 05/18/2016 at 6:34 pm
    Toolpush,

    I found it amusing that Goldman raised their price target (causing a rally in the stock) hours before underwriting a capital raise that cause a decline in Tesla's stock.

    Although, to be fair there are SEC rules that are very explicit, with severe consequences, if Goldman Sachs' underwriting dept talked or leaked anything to their analysts.

    Goldman Sachs does plenty of shady things to make a profit – like selling Mortgage Backed Securities as AAA investments, and simultaneously, knowing they're crap, betting on them going bad (covered in the critically acclaimed documentary "Inside Job"), or helping Greece hide their budget deficit with accounting magic… so they can sell them debt… that they know will go bad.

    However, as odd as it is, none of those actions were illegal. THIS would actually be illegal, and Goldman Sachs is smarter than that. I'd guess it is a genuine coincidence.

    On a separate note, I find it important to note that Tesla FIRST scouted out battery suppliers to supplement their battery supply 1 DAY before announcing the amount of their capital raise.

    My hypothesis, Tesla's accelerated Model 3 ramp-up meant that they will need a large supply of additional batteries as the Gigafactory will not be able to accelerate it's schedule enough to match the accelerated vehicle production ramp.

    This also tells me that Tesla is confident enough in their accelerated Model 3 production schedule that they needed to arrange a multi-million dollar contract with battery suppliers to supplement their capacity until the Gigafactory can meet demand.

    likbez, 05/18/2016 at 11:00 pm
    Although, to be fair there are SEC rules that are very explicit, with severe consequences, if Goldman Sachs' underwriting dept talked or leaked anything to their analysts.

    This is all about corruption of regulators and impunity of TBTF financial institutions under neoliberalism - which is an immanent feature of neoliberalism aka "casino capitalism"…

    Goldman's role in the growth of casino capitalism in the USA is similar to that of other players, except for one thing: Goldman didn't believe its own hype. The now famous Rolling Stone magazine article in 2009 by Matt Taibbi unforgettably referred to Goldman Sachs, the world's most powerful investment bank, as a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." ( http://www.forbes.com/sites/jakezamansky/2013/08/08/the-great-vampire-squid-keeps-on-sucking/ )

    https://www.bostonglobe.com/opinion/2016/05/12/the-age-impunity/LHBxamqFENCs3W6lvWnCIJ/story.html

    Impunity is epidemic in America. The rich and powerful get away with their heists in broad daylight. When a politician like Bernie Sanders calls out the corruption, the New York Times and Wall Street Journal double down with their mockery over such a foolish "dreamer." The Journal recently opposed the corruption sentence of former Virginia governor Bob McDonnell for taking large gifts and bestowing official favors - because everybody does it. And one of its columnists praised Panama for facilitating the ability of wealthy individuals to hide their income from "predatory governments" trying to collect taxes. No kidding.

    Our major institutions, the ones that should know better, are often gross enablers of impunity. Consider my alma mater, Harvard University, and its recent nuptial with hedge-fund manager John Paulson. Paulson was the co-conspirator with Goldman Sachs of one of the most notorious scams of the recent financial bubble.

    http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Systemic_instability_of_financial_sector/TBTF/Goldman_Sachs/index.shtml

    Professional financial hackers have a lot of common with the organized crime. And not only in respect to common addictions to cocaine and prostitutes. But there is a subtle difference: financial hackers make it daily (and very lucrative) business to figure out ways to abide by the letter of the law while violating its spirit. Although the claim that they do not break the law has very little credibility. They do break the law, but at the same time their political influence is big enough to keep them out of jail. In 2012 Lanny Breuer, then the head of the Justice Department's criminal division openly admitted that. In a speech at the New York City Bar Association he said that he felt that it was his duty to consider the health of the company, the industry, and the markets in deciding whether or not to file charges. Which in case of Goldman represents insurmountable obstacle to criminal prosecution.
    In any case GS converted itself into a special type of TBTF company, the company that specialized in hacking financial system. And in a large company internal politic can turn really destructive both to the firm and society at large. In fact, in large companies there are people with very high IQ at the top with personal traits that makes them more dangerous in comparison with bosses of Mexican gangs. It also makes internal political battles more vicious. BTW, a lot of psychopaths have above average IQ.

    In a way the USA never had a subprime crisis. What we had was systemic, neoliberalism-induced crisis that involves FED, government, congress, banking, ratings, insurance, investment and financial industries (the banks were at the center of this crime syndicate and they were the largest beneficiaries of the crimes committed), one manifestation of which was 2008 subprime crisis. Large banks became huge, dominant political force and based on their political weight, they hacked the financial system in the same way computer hackers hack computers systems to suit their short term needs and first of all for enrichment of the brass (appetite for "make money fast" schemes was greatly raised during dot-com crisis).
    As Simon Johnson wrote in May 2009 the USA had a The Quiet Coup with banks becoming the most favored and the most protected industry of the Congress. Financial system is essentially a system of rules. If a rich and powerful organization is directed toward hacking the rules: finding weaknesses and exploiting them it is undistinguishable from mafia in a very precise meaning of the term (organize crime syndicate with strong ethnic component), only more sophisticated. Again they are not gangsters in traditional meaning of this word, they are of a hackers, and as such they are much more difficult to prosecute. As a comment to blog post at EconomistView by "Eric" (Paul Krugman The Unwisdom of Elites) aptly stated:
    Villains….who exactly? The principle reason that there have been few prosecutions of high level bankers is that not so much that got done was illegal. Reckless, maybe. But even here is it really reckless behavior if you have a belief - which turns out to be true - that public finances will bear the downside risks on your behalf?
    In hindsight it feels like these things should have been illegal, but the available serious punishments, such as not bailing out AIG, not allowing various investment firms to become bank holding entites, not backstopping the GSEs (read their debt issues and you'll see that nowhere is a claim made for public backing), not taking first loss positions on Bear Stearn assets, etc., etc., were foregone by voluntary actions by public officials.
    Make peace with the truth that there will be no sweeping prosecutions, least of all by the federal government of the USA.

    [May 24, 2016] The CEO of Goldman Sachs accidentally explained why everyone hates Wall Street

    Notable quotes:
    "... want to follow the rules ..."
    "... The only thing you can trust is that Goldman Sach's values don't include giving a damned about average Americans even if in Blankfein's delusional mind he is doing "Gods work. It would go a way toward restoring trust in the system if these rip off artists would consent to paying more taxes on their ill deserved gains in order to help bring down some of the nations debt and relieve the misery their unethical behavior created. But that will never happen voluntarily. Basically they are immoral creeps killing the golden goose that is our country. ..."
    "... Run corruption out of DC and there will be much more trust of big business. Do not buy the garbage that politicians are critical of the Wall Street crowd. Has Hillary released her speeches yet? NO. Don't expect she ever will. (aside: I do not find this article informative, and I'm dismayed by the comments I've read here.) ..."
    "... "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. …corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed." ..."
    "... The mass of Americans are too powerless to fight back against the reign of the money powers. As Lincoln predicted, our Republic is destroyed. What awaits us now is dictatorship or even worse ... theocracy. ..."
    finance.yahoo.com

    Brilliance is often accidental, and so it was at Goldman Sachs' annual meeting on Friday.

    In an attempt to pinpoint exactly what's wrong with the global economy - why demand is weak, why growth is anemic, why jitters on one side of the planet can turn into panic all over - CEO Lloyd Blankfein happened upon why Wall Street is so hated.

    It was, as I said, an accident.

    Blankfein said that what the world needs now is confidence. In investment banking, when people are confident t here are "more financings, more equity raises, because people invest more money in their own businesses when they're confident," he said, according to Business Insider's Portia Crowe , who was on the scene.

    This explanation sounds right. When people think they can make money they put their money to work.

    The problem is that "confidence" doesn't go far enough. More than confidence, for people to invest in the world they have to trust in it - in the systems and people that make it work.

    The fact that Blankfein missed that mark, though, explains exactly why people hate Wall Street.

    The financial crisis, the scandals and the fraud and the dark headlines, have all helped erode that trust. And that lack of trust is what is holding the world back right now.

    This is not a drill

    Think of a simple trust-building exercise, the fall game. When you're the fall guy, you can be confident that everyone is going to catch you. That, after all, is how the game is completed. You have to believe that everyone understands the rules.

    What's better than knowing that everyone understands the rules, though? Trusting that everyone around you is going to catch you - believing beyond a shadow of a doubt that they want to follow the rules .

    That's the difference between trust and conviction. Trust is something you can rely on, beyond certainty.

    Now one can operate in markets without trust, with only conviction.

    Conviction doesn't demand that you, or anyone else, play by the rules, though. It just demands that you understand what's going on (and what motivates everyone around you) at all times. It's a daunting task that neither the common person nor Wall Street's all-seeing CEOs were able to accomplish before the financial crisis. It is, however, part of the latter's full-time job - mitigating risk, seeing the unforeseen.

    Of course, some of that burden would be lifted if we operated on more trust and less conviction.

    Your correspondent is hardly the only person thinking this way. This week, Andrew G. Haldane, chief economist of the Bank of England, gave an incredibly compelling speech on what's wrong with global economy. Unlike Blankfein, though, he got it right. The speech was called The Great Divide, and he argued that the only way to close that divide is with trust.

    "Evidence has emerged, both micro and macro, to suggest trust may play a crucial role in value creation. At the micro level, there is now ample evidence the degree of trust or social capital within a company contributes positively to its value creation capacity," said Haldane.

    "At the macro level, there is now a strong body of evidence, looking across a large range of countries and over long periods of time, that high levels of trust and co-operation are associated with higher economic growth. Put differently, a lack of trust jeopardizes one of finance's key societal functions - higher growth."

    Watchers on the wall

    Back in 2014, when the market was roaring and everyone thought we were on the road to recovery, Dylan Grice, a portfolio manager at Aeris Capital, put forth the same idea. He saw in declining relations between the US and China, between Russia and the world, and between citizens and corporations what could only be perceived as our descent into the trough of a cycle of trust.

    And, as he pointed out, credit - one of the main forces for moving money from place to place - comes from the Latin word for trust.

    Over at HSBC, economist Stephen King wrote a note called Unhappy Families: The Case for International Policy Coordination in which he argued that the global economy could actually be saved quite easily if we trusted each other. If the countries that could save us - the US, China, and Germany - acted unselfishly and in coordination and simply did.

    But they won't, because there is no trust.

    "Yet it would be easy, too easy, to point the finger at finance alone," Haldane said in his speech. "For this Great Divide exists not just between the financial elites, but between elites generally and wider society. It is not just bankers who have suffered a loss of public trust. In varying degrees, this is also true of big business, government and, yes, politicians and central banks."

    Man, see this mirror

    This brings us back to Goldman Sachs, which happened to have had a very embarrassing little incident last week when one of its analysts recommended buying Tesla just before the bank announced that it would be helping the automaker with an equity offering.

    Business Insider's Myles Udland described why that looks shady:

    The stock upgrade is a detailed argument for why you, the investors, should buy the shares. As a result, investors buy.

    This report is delivered just as Goldman's sales force is about to hit the phones to push $1.4 billion of those very shares for a nice fat fee for Goldman and a dilutive hit to the shareholders.

    So then there are investors who, based on Archambault's note, bought the shares in the morning only to learn by that afternoon that Goldman would have a hand in diluting their newly acquired ownership stake.

    And the popular view says Goldman knew this was going to happen the whole time.

    If you're thinking the worst, this snafu was a breach of Wall Street's famous Chinese Wall between research and investment banking. What's more, because of this trust deficit, most people were thinking the worst because that's what they do when they think of Goldman Sachs.

    View gallery

    . Goldman Vampire Squid
    Lloyd on a vampire squid. Sorry bro, too easy.

    And because of that some people don't trust, or put their money in, the market.

    And because of that the market doesn't move.

    Haldane sees this fear as a loss of social capital arising from the crisis.

    "Social capital is inextricably linked to trust," he said in his speech. "And banking is quintessentially a trust business. At root, it involves swapping promises to pay. These promises rely on trust."

    It's the belief that these promises will be kept that the market is lacking, not necessarily that they can be kept. This is the difference between trust and confidence. And with every scandal and fraud, every dark headline telling of financial ruin that comes from the financial sector, some of that trust is lost.

    Haldane thinks that recreating the local bank, a bank with the kind of accountability that comes from knowing someone by name and looking them in the eye, is part of the solution. But banking isn't moving that way. Every day we hear about how it's becoming more automated.

    He acknowledges this, recognizing that banking must "seek new ways to nurture generalized, or anonymous, trust on the part of the public. Technology may be a great enabler here."

    But in the end it doesn't matter how we fix this. We just have to fix it.

    "Whatever business model is adopted, success will hinge on whether the public have faith in banks pursuing a purpose aligned with their needs, that they are fulfilling their fiduciary function. There is a mountain to climb on this front, not just for banking but for business generally," he said.

    "If not at an all-time low, public trust in big business is plumbing the depths. And the chorus of criticism of business is not confined to the general public. It is shared by politicians, academics, investors and indeed sometimes by companies themselves."

    Everyone is holding on to their money. Everyone is trying to look someone the eye and finding their counterparties' gaze shifting to wherever self-interest guides them. The counterparties are confident they'll find money there, sure, but the trust that makes the market go around is being lost in the process.

    It takes so much more to build it up than to break it down.

    NOW WATCH: THE STORY OF GOLDMAN SACHS: From foot peddlers to a powerhouse

    rey Q 25 minutes ago
    GS, Chase ,BofA,Wells Fargo.....,and some others big banks created the crisis past 2008-09.

    Any one of the executives pass a day in prison, they pay cents on the dollars and happy cumballa until the next scam. Gov it's corrupt with a "revolving door" infiltrating the key position, every official working in White House or with the executive branch did work for a big bank first or going to work after!!!

    They want trust, trust they themselves self smash, hundreds of case in courts from US citizens right now vs Government Why?

    Because Gov. trying to steal ,expropriating private property without compensation and ignoring constitution. The rest of the population are worring about what wearing Kardashian!!! Our next election will be a show top level globally!!! Our founding fathers will be revolting in their tombs for now

    PhilOSophocle

    What the world needs now --- is love, sweet love. It's the only thing that there's just too little of, or so Burt Bacharach, Hal David & Jackie DeShannon said. But seriously folks . . . people hate Wall Street because of the unbridled greed everywhere. The Great Recession wasn't caused by real estate speculation --- it was caused by easy money from Wall Street when they packaged together risky mortgages & investment bankers sold them to banks as great investments, and then betting on them to fail on the side using Credit Default Swaps. It's very similar to what Joe Kennedy and his cronies did in the 1920's using market manipulation by cornering stocks & then doing a bear raid on it, which is illegal now. What the Wall Streeters did in 2000-2007 is still not illegal.

    ey02kdv98

    I agree. Trust needs to be restored. This requires Wall Street firms to be honest, and to weed out the greedy, psychopathic and sociopathic brokers, bankers, CEOs and chiefs, and assorted other criminals. By running firms honestly to a fault, investors would at first shy away because they'd think it was some kind of trick. Over a short period, good experiences will increase business to the point that it would exceed current sales many times over, even beyond your wildest imagination. There is a lot of $$$$$$$$$$$$ to be made in honestly run business. It's never to late to start.

    Mark14

    The only thing you can trust is that Goldman Sach's values don't include giving a damned about average Americans even if in Blankfein's delusional mind he is doing "Gods work. It would go a way toward restoring trust in the system if these rip off artists would consent to paying more taxes on their ill deserved gains in order to help bring down some of the nations debt and relieve the misery their unethical behavior created. But that will never happen voluntarily. Basically they are immoral creeps killing the golden goose that is our country.

    DavBG

    The repeal of Glass Stegal (which Roosevelt put in place after the last great depression) which prevented banks from investing depositors money in the stock market, is the root cause here. Banks were only allowed to make loans on real property, like businesses and mortgages. This put the money in savings back to work. Money placed in the house of cards, ponzi scheme, stock market, just sits there. Like a giant sponge sucking up the spare capital so that a 1% few can reap the benefit. Then insiders can cause booms and busts which slowly siphon the life out of a country and enslave it. The mortgage rate is now the lowest it has ever been in the US. Now with everyone's money in the stock market the next crash will bankrupt us since all the banks will have is worthless paper stock certificates.

    Rp

    Trust is not created through slick marketing and strategic press releases about speeches made by banking insiders, to other insiders, intended to convince those outside their cozy system, that they get it now, no more underhanded dealings, really this time, partners 50-50. We promise, no fingers crossed, everything above board from now on, you can trust us, really this time. That bs is played out, to ask for trust, is to confirm the fact that they should not, can not, be trusted. Trust, if it ever returns, to any degree, in any form, will be created by the numbers. The real numbers. The ones written under our names. The ones that stick. Trust is not a marketing concept, it can't be put where it doesn't belong, it can't grow where it isn't planted, protected, and nurtured.

    Pat

    Wall Street manipulators could not succeed without the complicity of Government. STOP REGULATING WALL STREET AND START DEMANDING THAT POLITICIANS CANNOT BE CONTROLLED BY LOBBYISTS. There should be a law that politicians bought by lobbyists WILL be prosecuted. It is Government that is guilty of capitulation. GOVERNMENT WRITES THE LAWS AND THE TAX CODES.

    Run corruption out of DC and there will be much more trust of big business. Do not buy the garbage that politicians are critical of the Wall Street crowd. Has Hillary released her speeches yet? NO. Don't expect she ever will. (aside: I do not find this article informative, and I'm dismayed by the comments I've read here.)

    Freethinker

    It's so simple: the bank robbers have been given (or have taken) the combination to the bank vault and looted it. Then they were given raises and bonuses for this heist.

    Doubt me? That canny corporate lawyer Abraham Lincoln anticipate our modern condition as far back as 1864, when he wrote:

    "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. …corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."

    The mass of Americans are too powerless to fight back against the reign of the money powers. As Lincoln predicted, our Republic is destroyed. What awaits us now is dictatorship or even worse ... theocracy.


    [Feb 21, 2016] Guest Contribution Monetary Policy and Asset Bubbles in 2010

    Econbrowser
    The true cost of the extraordinarily low fed funds rate is the misallocation of resources, as 2003-2006 showed. The Fed held short-term interest rate (and through their promise of keeping it low for "considerable" time, longer-term rates and mortgage rates) at distortingly low levels, which was at least an important ingredient of the housing bubble. A lot of real resources were wasted on building a huge housing stock, not to mention too much consumption and not enough savings -- the last 18 months show how costly this distortion is, and what we have experienced so far is only part of the full cost.

    pat at January 4, 2010 01:15 PM

    Bernanke (March 2, 2007):

    "Monetary policy works in the first instance by affecting financial conditions, including the levels of interest rates and asset prices. Changes in financial conditions in turn influence a variety of decisions by households and firms, including choices about how much to consume, to produce, and to invest."

    "...monetary policy could influence economic activity to some degree even if its control were limited to the short end of the yield curve. Moreover, the pricing of some putatively long-term financial assets may be strongly influenced by shorter-term rates. Thirty-year fixed-rate mortgages provide one example."

    "...the ability to influence longer-term interest rates and the prices of longer-term assets is an important component of the Fed's toolkit for managing aggregate demand."

    I am not asking Fed to lean against bubbles, only that they show some restraints in making bubbles.

    pat at January 4, 2010 01:42 PM
    Bernanke's statement about the effect of monetary policy on the housing bubble and resulting crisis is highly selective, and should be viewed as a defensive political move that has little to do with economics, or even with policy making. Economists will debate and do regressions on funds rates and housing starts for a long time. Whatever the result, the Fed, and Bernanke in particular have other tools that clearly were not used during the build up of the housing bubble. The Fed has some regulatory powers. They were not used to reduce risky mortgage lending. In fact, the Fed did not eliminate the use of "no-doc" mortgages / "liars loans" until mid 2009. Bernanke also has a bully pulpit, and he did not use it with Congress or the public to warn strongly about: the risks of high leverage in banks, off-balance sheet maneuverings in banks, risky semi-fraudulent origination by many mortgage lenders, and low capital ratios at major banks and GSEs. With that record for Bernanke and the Fed, it becomes very clear that his recent statements are not about economics, but are part of some political strategy. The American taxpayer deserves better results from the Fed. One step in that direction is an audit of all Fed transactions, and a short schedule for making all the data public for review. It will then become clear which sectors and companies are benefiting from Fed transactions, and which are losing. Taxpayers can then better decide what these political statements are really aimed at.
    Mike Laird at January 4, 2010 02:37 PM
    The dollar index dropped a half penny today after Ben's really nifty speech. In fact this has been happening the past few speeches by Ben, even tho the buck was in an uptrend the day before.

    So I guess the Fed stimulating aggregate demand, even tho everyone except Ben seems to know we are in a liquidity trap, most likely because the consumer is tapped out (due to low rates pulling demand forward in housing, autos and everything besides lettuce for the entire decade), and needs to both deleverage and increase savings rate.

    So we can add increasing aggregate demand to the Fed's list of things it isn't doing. Since they did already have considerable regulatory authority and chose not to exercise it this decade, that would be another thing they don't do.

    Good idea about decreasing leverage. They say they will do that someday when the economy and financial system gets better. They will still have to ask Congress and bank lobbyists if that's ok or not.

    I've been reading "The Sellout" by Charles Gasparino, so I don't think taking leverage away from Wall Street will be a slam dunk.

    But they could make leverage more expensive and at the same time let small savers get a few puny percentage points of interest for the use of their money.

    Of course the problem is the Fed doesn't raise real interest rates. We've barely had real interest rates this decade.

    So I'm at a loss trying to figure out what the Fed does?

    Oh yes, they make speeches! And bail out banks!

    Cedric Regula at January 4, 2010 04:01 PM
    "For example, the technology bubble of 2000 burst with no apparent ill effects because it was not leveraged to any significant extent and there were no government bailouts."

    Is that meant to be a serious statement? What he seems to be saying is, if you can clean up a post-bubble mess by creating a larger bubble that hides the ill effects, all is well. I can't believe someone is espousing this attitude in 2010. At least not on the planet earth.

    Bob_in_MA at January 4, 2010 04:20 PM
    Also, in case anyone has forgotten, during the Bush years quite often we would hear from the admin, usually from the admin's official economic spokesman, the Secretary of the Treasury, that we would grow the economy and that would balance the federal deficit, which was very large at the time. Until we made it look like small change lately, of course.

    They latched on to this popular economic concept as the means to justify having at least one war going and simultaneous tax cuts.

    I know the Fed is independent from rhetoric like that, but indulge me while I say that was music to Greenspan's and Bernanke's ears.

    I was also wondering if anyone knows how many multi-trillion dollar boo-boos we are allowed, before someone says that costs too much? In spite of all the good we are doing stimulating aggregate demand, that is.

    Cedric Regula at January 4, 2010 04:31 PM
    "The bottom line is that regulators need to be vigilant in maintaining the process of deleveraging and preventing any new buildup of leveraged asset purchases, including for commodities. In the long run, we need to greatly reduce the degree of leverage in our financial system and it may be a good idea to make leverage respond inversely to asset prices and to put stabilizing mechanisms in the tax system."

    Forgive me, this is a wussy concluding paragraph. Yes or no, should the Fed have intervened to burst the housing bubble or not? Did it act appropriately? Should someone else have acted? If so, who and what should they have done?

    Or should the Fed have bit the bullet and raised interest rates even when there was no meaningful inflation? Should the Fed have induced deflation and possibly a pre-emptive recession to prevent a greater bubble if it perceived that the other regulators were failing to act? Or is Bernanke arguing that the Fed got it right, and that from the Fed's perspective, this recession was the optimal outcome?

    Here's what I would like to hear Bernanke say:

    "We failed in managing housing debt and we failed in winding in up Lehman, and that means unemployment is probably 2-3% higher than it needed to be, even if we allow that a recession was due and unavoidable. But we have not failed in pulling the economy back from the brink. We have succeeded.

    We can talk about the crisis originating in the lack of regulation, but this was a broad-based problem, affecting many countries, and not just the US. The fundamental issue was the degree of liquidity in the market. It was the steam pressure in the pipe, not the strength of the pipe or the fittings.

    The pressure in the pipe comes from the phenomenal savings of China. The country is a true marvel of industry and development. China has elevated more people out of poverty in a shorter time than ever before, and probably than we will ever see again.

    But China is not Korea. It is not even Japan. China has ten times the population of Japan, and its export-led model contains critical risks. By keeping the yuan weak, China accumulates reserves. These reserves are then recycled as loans to help the consuming countries--key among them the United States--consume. This is export-led growth.

    But China can increase production at a rate that the US can no longer absorb in real time. China is simply too big, and if we don't insulate ourselves, China's liquidity will swamp us. We are, today, too small a boat. We are making a transition from being a large open economy to being a small open economy, at least with respect to the rate of change in the global economy.

    This influences the Fed's mission. We can no longer afford to focus purely on inflation and employment. To the extent the yuan remains under-valued, we must also prepare to insulate ourselves against excess Chinese liquidity. And this means proactively deflating asset bubbles wherever they appear.

    In the last ten years, we have experienced Bubble 1.0 in tech stocks and Bubble 2.0 in housing. We must consider the possibility that, instead of a prolonged downturn, we may proceed directly to Bubble 3.0--perhaps in widely-held equities. Let me make plain now that we will not tolerate such a bubble. We will burst it, and do so remorselessly. Many of you will blame us, accuse us of hubris and playing God, of seeking to destroy investors and retirees. So let me put you on notice now. We will not countenance the serial destruction of the US economy. We will act if necessary, though all but a handful may later loathe us for our actions--and possibly for getting it wrong. So be it. Alan Greenspan was blessed to be Chairman during the Great Moderation. We may not have that luxury. We will do what is necessary--with reflection, analysis, discussion and prudence, but most of all, with determination--to protect the country from greater harm. That is our responsibility as the nation's central bankers."

    That's the speech I'd like to hear.

    Steve Kopits at January 4, 2010 05:14 PM
    Germany had no housing bubble. Why?

    1) ARMs are virtually unheard of.
    2) 20% minimum downpayments are de rigueur.
    3) There is no mortgage interest deduction.

    Even if they had a housing bubble it wouldn't have led to insolvancy on the scale in the US because of #2.

    This is obviously a regulatory and tax policy issue, not a monetary issue.

    Mark A. Sadowski at January 4, 2010 05:30 PM
    Nice speech Steve. Rest assured you will never get appointed Fed Chairman, unfortunately.

    I would like to add that all this bubble talk is old hat at this point. We did the "Big One" already. At this point it's like talking about how to diffuse dynamite, in a post WW3 environment.

    I did read some stuff written back in the mid 2000s by Bubbleogists, whom are specialists in the fledgling branch of economics know as Bubbleology. They did say, like Bernanke belatedly, that equity bubbles are less damaging due to much more stringent margin requirements(I only get 40% margin, so I can't mess up the world that bad) and there is limited chance for contagion with the financial system and the real economy. Other than messing up one's wealth effect on the economy, of course. However, I do wonder if that is really the correct view anymore, now that I know hedge funds and IBs use 30:1 margin(maybe 12:1 now since they converted to commercial banks) and can do it with equities or debt, whichever they think is hot. But the total size of the market is a little smaller, so it makes a smaller bang when it goes off. Unless we get to DOW 40,000 before going kaboom.

    Similar limitations exist with commodities, tho I'm still waiting for someone to write a paper on how $140 oil in 2008 may have been deflationary. And that maybe oil traders should be charged with treason, since we do have a war going on in the Middle East.

    So like Japan, we did the really bad one already.

    Maybe. They also talk about sovereign debt bubbles, and those are the only kind that can eclipse real estate bubbles.

    So if we want to call government debt a bubble, then we have these growing all around the world.

    Cedric Regula at January 4, 2010 06:20 PM
    Mark A. Sadowski

    You are absolutely right about that, but that's not the way we do it here. But if we run that scenario in the Germarica parallel universe, demand for mortgage money would have been much lower. The consumer wouldn't have had the home ATM machine providing an extra $600B a year in "income" (per the Kennedy-Greenspan study) and perhaps we wouldn't have grown China into a manufacturing superpower, at least quite as quickly.

    We also wouldn't know what Germanica's Fed would have done under those circumstances.

    But I agree Germarica is probably in pretty good shape right now.

    Cedric Regula at January 4, 2010 06:39 PM
    Mark A. Sadowski,

    One more thing on the crazy mortgage situation in this America. To give some credit to Greenspan, so I don't sound like a perma-basher, is around the 2004 timeframe I do remember him going into Congress and strongly suggesting that they limit the size of the mortgage volume that the GSEs were doing. Congress basically ignored him and went on to keep voting up the conforming limits to keep up with housing prices(what would old Milt say about that?), and then somehow F&F decided they needed to get into subprime lending and compete with the likes of New Century and Countrywide.

    But what's a mild mannered Fed to do?

    Cedric Regula at January 4, 2010 07:04 PM
    How can macroeconomists be so blind to the importance of market prices? A market derived interest rate is an incredibly fundamental price. It is central to co-ordinating the demands of consumers for goods now versus goods in the future & the supply of resources available to produce goods of different production lengths.

    A political board like the Fed couldn't produce such an interest rate if it tried. When it gives us negative interest rates, as under Greenspan & Bernanke, it is risible to suggest they aren't distorting the hell out of the entire economy. & yes, creating bubbles.

    Our macroeconomists are telling us that the Fed can screw savers, forcing them into riskier & riskier assets to get any return at all, & that this is beneficial to the economy.

    Are they really smart & just pulling our legs...or are they imbeciles?

    bryce at January 4, 2010 08:59 PM

    On experimentations:
    It is proved that a fly loses its auditive functions when the legs of the fly are fastened, since the same fly was flying on command when the legs were free.

    Series: LLRNPT5, Assets at Banks whose ALLL exceeds their Nonperforming Loans, Banks with Total Assets over $20B
    http://research.stlouisfed.org/fred2/series/LLRNPT5

    Series: FPIA, Private Fixed Investment
    http://research.stlouisfed.org/fred2/series/FPIA

    Series: MORTG, 30-Year Conventional Mortgage Rate
    http://research.stlouisfed.org/fred2/series/MORTG

    ppcm at January 5, 2010 12:14 AM

    Mark

    One may wonder why the German Banks were purchasing the US sub prime hybrid real estates financial products, when these loans were out of line with their own domestic real estates guidance?
    Starving for yields? Too much cash chasing too few return on capital? too much Money supply ? Too low interest rates?

    ppcm at January 5, 2010 04:39 AM
    Barney Frank was on CNBC this morning, and he was beeming in response to Bernake's comments.

    Now, keep in mind that Frank was schtuping a Fannie exec, and is one of the forces behind allowing the GSEs into subprime. He is one of the forces behind low money or no money down motrgages, and he's currently behind all the anti-forclosure measures that are keeping the housing market from contracting to its true level of worth.

    And, of course, the CNBC talking heads let him get away with all this. Unbelievable.

    I too would like to see us move to phase out Fannie, Freddie, etc. phase out the mortgage interest deduction, the deduction of state and local taxes, etc.

    Buzzcut at January 5, 2010 09:24 AM
    Steve Kopits, that was an awesome post. Perhaps Menzie could address it as a more articulate example of the "Blame it on Beijing" wing? Why is Steve wrong?
    Buzzcut at January 5, 2010 09:25 AM
    This would suggest that the optimum policy would be to deleverage before increasing short term rates, that is, requiring financial institutions to carry more capital before the Fed begins to raise rates.

    Makes sense to me.

    Bill at January 5, 2010 10:12 AM
    Buzzcut

    No one is ever right or wrong about economics, they are just off by plus or minus a few trillion. But that's the beauty of the science.

    But to put an order of magnitude on Beijing's financial influence on the US, the following numbers are useful.

    China holdings:
    GSEs $500B
    Treasuries $800B

    US Market size:

    Residential mortgages $11T (this is a number I read about a year ago, but it's probably still close)

    US national debt ceiling $12.4T (we hit this in February)

    Of course there is the impact on US manufacturing and jobs. Here I'm more worried about where China is going in the future, rather than where they've been in past.

    Cedric Regula at January 5, 2010 10:24 AM
    Keynes, Keynes, Keynes: short term and long term expectations are the fundamental ingredients of any economic recovery. This means jobs, jobs, jobs. There aren't going to be any jobs in 2010 and so there isn't going to be any recovery. Very simple, very bad, very revolutionary. The winter of 1932 -33 again except not a small number of farmers with guns but a great many angry, urban poor who aren't getting enough to eat. Let's hope I'm wrong on this one.
    kit horton at January 5, 2010 09:04 PM
    The biased policy towards lower rather than higher interest rates, which is clearly the case for american monegtary policy for decades now, creates a major distortion on the behaviour on individuals that consistently saves and thus is forced to acquired new assets with a given frequency whatever its price. By promoting consistently higher prices, lower income, asset markets the ordinary consistent investor has only two choices: either leverage its investments or raise its own level of savings in order to accumulate adequate levels of capital when it will be needed. The decision between leverage or higher savings probably depends on the perceived trends of productivity growth than anything else. This is certainly the case for the last twenty years, on which we experienced tremendous productivity growth followed by tremendous widespread usage of leverage. If the investor does not leverage explicitly, ge is implicitly beeing leveraged. Take for example the now almost universal practice of stocks buybacks. Corporate executives in america looks nowadays much more like stock market speculators than real entrepenuers. The culmination of all this is the disaster faced by the ordinary individual, who having constentlly saved and invested its capital on the stock market for the last thirty years is hardly in good shape even though he began his investing carer on one of the biggest bull markets and one of the most pronounced productivity gains in human history. The failure to regognize that the agonizing fate of the poor fellow is directly linked to a certain style of monetary policy will prolong the problem for another generation. We are clearly seeing the seeds of another wave of potential injury. Dismayed by the performance of corporate america the ordinary investor is clearly trying to fill the gap with riskier investment vehicles (EM equity, the bizarre concept of commodities as an asset class, lower credit quality corporate debt, and so on and on).
    Ruben Damiao at January 5, 2010 11:22 PM
    In the 1980s and much of the 1990s, the bias in the Fed's monetary policy was to higher interest rates, not lower rates until the Long-term Capital Management Crisis.

    At that time Alan Greenspan apparently shifted to a strategy of lowering interest rates to support asset prices, in particular the stock market.

    The individuals making money in a rise on asset prices are likely to lobby the authorities to follow policies that would make them more money. And it is leverage that is the real booster to asset prices. A Dutchman might have hard time acquiring a 1,000 guilder of cash to purchase a tulip bulb, but he can take the 100 guilder he does have, borrow 900 guilder, and buy the bulb on the belief that tulip bulb prices only go up. Even if he sells it for only 1100 guilder he doubles his money after he pays off the loan. And if the tulip bulb goes up to 2000 guilder, he has increased his profit to a 1,000 per cent. That is a very heady feeling. And the madness of 2,000 guilder prices for tulip bulbs is only seen after the crash.

    rickstersherpa at January 6, 2010 08:05 AM
    It is not what Gagnon says but what he leaves out that is a problem.

    Can you tell me who this omnicient regulator is? There is no doubt that the housing and credit crisis was building from at least the Presidency of Jimmy Carter and every president, representative, and senator since then contributed to the problem. As we moved into the Bush era the whole government went crazy as demonstrated in the absurdity of Fannie and Freddie. Suddenly we were in 2008 and all hell broke lose.

    OK, the word is that Bernanke and Paulson were meeting every morning trying to figure out what to do but they had absolutely no idea what they were doing (see http://www.econbrowser.com/archives/2009/04/phillip_swagel_1.html for details of confusion within Treasury).

    So if our "experts" did not foresee the dot.com problem, and they missed the biggest credit and real estate crisis since the Great Depression, just who is this omnicient regulator? Gagnon can seriously believe that Bernanke has proven himself worthy, can he?

    From the NYTimes (http://economix.blogs.nytimes.com/2009/06/09/a-failure-of-regulation-not-capitalism/) to Investor's Business Daily (http://www.investors.com/NewsAndAnalysis/Article.aspx?id=517022) to the SEC's failure to discover Bernnie Madoff to the massive failue of the Office of Federal Housing Enterprise Oversight regulating Fannie and Freddie, there is massive documentation of the inability of regulators to actually make a difference, often exacerbating the problem. When will we ever recognize that the government regulators are the biggest part of the problem.

    RicardoZ at January 6, 2010 08:54 AM
    All demand drafts (INCLUDING ALL HOUSING TRANSACTIONS), drawn on the member banks, clear through DDs � except those drawn on MSBs, interbank and the U.S. Government. And the non-banks are the customers of the member banks. I.e, financial transactions, historically, are not random.

    It is impossible to miss any bubble.

    flow5 at January 6, 2010 10:30 AM
    ppcm,
    you wrote:
    "One may wonder why the German Banks were purchasing the US sub prime hybrid real estates financial products, when these loans were out of line with their own domestic real estates guidance?"

    How about they were suckers for the slick high yield low risk pitch on what in the end turned out to be crappy American mortgage backed securities. They'll know better next time.

    There's no such thing as a free lunch.

    The bottom line is Germany's highly regulated mortgage market prevented a housing bubble from occuring there despite low interest rates. No ifs, ands or buts.

    Mark A. Sadowski at January 6, 2010 12:17 PM
    ppcm,
    you wrote:
    "One may wonder why the German Banks were purchasing the US sub prime hybrid real estates financial products, when these loans were out of line with their own domestic real estates guidance?"

    How about they were suckers for the slick high yield low risk pitch on what in the end turned out to be crappy American mortgage backed securities. They'll know better next time.

    There's no such thing as a free lunch.

    The bottom line is Germany's highly regulated mortgage market prevented a housing bubble from occuring there despite low interest rates. No ifs, ands or buts.

    Mark A. Sadowski at January 6, 2010 12:20 PM

    Wolf packs of speculators By Jan Krege

    Kregel/Parenteau: No Sidestepping the Eurozone Implosion? - 05/17/2010 - Yves Smith
    German Households Owe More Than Greece's Do - 05/16/2010 - Yves Smith
    European Interbank Markets Stress Rises Over Counterparty Fears - 05/16/2010 - Yves Smith
    Even Fewer Deepwater Horizon Inspections Than MMS Claimed Earlier - 05/16/2010 - Yves Smith
    Monday, May 17, 2010
    Kregel/Parenteau: No Sidestepping the Eurozone Implosion?

    By Jan Kregel, former professor of economics at Università degli Studi di Bologna and Johns Hopkins,m and currently a senior scholar at The Levy Economics Institute and Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute

    A week ago eurocrats launched their campaign of overwhelming force designed to shock and awe the "wolf pack" of professional speculators and institutional investors (hedge funds and pension fund managers) into a more docile, subservient position. In the currency market, the shock and awe wore off after the first 48 hours, while by the end of the week, it also appeared to be wearing off from the equity markets.

    Some of this is undoubtedly just the innate brazenness of the wolf pack being expressed. As a general rule, they do not take kindly to being cowed or constrained in any fashion. It is simply is not in their genetic make up. Consequently, they have no choice but to follow their instincts to call the bluff of the eurocrats, and that is part of the reason we are seeing, for example, the wolf pack dragging the euro exchange rate down to the ground in recent trading sessions.

    But this is about more than just testosterone counts. Some wing of the professional investing world is beginning to see the design flaws built into the eurozone from day one. And once the spy these flaws, they begin to realize the nature of the solution is something utterly different than what they are witnessing being rolled out before their very eyes. In the following 11 points, we highlight some of the key aspects of the eurozone predicament using the financial balance approach developed by the late Wynne Godley which we have explored in previous blog submissions, papers, and book chapters. Until more investors and policy makers can understand the true nature of the various predicaments facing the eurozone, and the inherent design flaws exhibited in the European Monetary Union and the (In)Stability and (Lack of) Growth Pact, odds are precious time will simply be wasted trying to make believe the shock and awe fix is already in.

    1. Underlying the eurozone predicament is a missing adjustment mechanism. There is neither a price nor a policy mechanism that encourages the current account surplus nations to recycle their surpluses in a win/win, pro-growth fashion. Keynes tried to design such a mechanism into the Bretton Woods agreement, but the American negotiators scotched it. This same pro-growth adjustment mechanism is missing at the global level with regard to China (although they did report a trade deficit in March).

    2. An ostensibly moral stance advocating balanced government budgets is revealing a profound ignorance of the simple accounting of sector financial balances. Those preferring to impose a "fiscally correct" policy on the peripheral nations should best recognize these accounting realities, and soon. If we are correct that domestic income deflation will be the end result of fiscal retrenchment colliding with private sector attempts to net save, then surely more desperate citizens will turn to even more desperate acts. Rather perversely, the combined effects of fiscal retrenchment, private income deflation, and rising private debt distress are likely to make moral considerations a second or third order concern for many eurozone citizens.

    3. Ultimately, current account surpluses need to be recycled into chronic deficit nations in a sustainable fashion. Such a mechanism could be set up under the auspices of the European Investment Bank very quickly. Effective incentives to recycle current account surpluses via foreign direct investment or equity flows should be crafted at once.

    4. Such an approach is likely to prove superior to funneling financial assistance through the IMF or other multinational arrangements. The IMF will undoubtedly insure that fiscal retrenchment gets imposed across the region. Any fiscal assistance is likely to be imposed with conditionality – a conditionality that fails to recognize sector financial balances are interlinked, both within and between nations. IMF conditionality is bound to set off the twin contagion vectors of falling trade surpluses and rising bank loan losses in the core nations. Surely this is not what Dutch and German policymakers intended, nor is it any way to hold the eurozone together.

    5. Rapidly cutting fiscal deficits without considering the impact of such moves on private sector financial balances is a shortsighted, if not dangerous policy direction. Sector financial balances – the difference between saving and investment, or income and expenditures – are interconnected, and cannot be treated in isolation.

    6. Hiking taxes and slashing government expenditures will suck cash flow out of the private sectors of the peripheral eurozone nations. These private sectors have been rebuilding their net saving positions in the wake of sharp and prolonged recessions. Companies have been conserving cash by slicing investment spending, inventories, and employment. Households have already drastically reduced home purchases and consumer spending.

    7. It is an elementary fact of accounting that the private sector as a whole can only spend less than it earns if some other sector spends more than it earns. That sector has tended to be the government, usually as automatic stabilizers kicked in while recessions deepened. Indeed, most of the dramatic widening of government deficits is due to a collapse in tax revenues, not to discretionary stimulus. Pursuing fiscal retrenchment in order to reduce government debt default risk will merely raise the odds of private sector debt defaults. Cash flow will be taken from households and firms attempting to rebuild their net saving positions, and private debt servicing will falter.

    8. The only way to avoid this outcome is if the nations undertaking fiscal retrenchment can swing their trade deficits around in a fully offsetting fashion. Otherwise, domestic income deflation is the likely result, Indeed, this is the madness behind the method of "internal devaluation" so evident in Latvia's economic implosion. There is no guarantee that trade swings will be large enough to overcome fiscal drag. A return to debt deflation dynamics like those engaged after the Lehman debacle is not out of the question.

    9. Furthermore, since the current account surplus of the eurozone has remained between +1 and -1 percent of GDP for quite some time, there is every reason to believe that attempts by the periphery to achieve trade surpluses will undermine the export led growth of Germany and the Netherlands.

    10. It would therefore appear that fiscal retrenchment is about to set off two related contagion effects. First, the loans on the books of German, Dutch and French banks are likely to sour as private sector cash flows are squeezed in the periphery. Bank holdings of government debt issued by the periphery may not default, but the mortgages and corporate loans these banks have outstanding to the periphery will experience rising loan losses.

    11. Second, the export sales of German and Dutch companies will fade with the falling import demand of the periphery. As their domestic incomes fall, they will import less. In other words, the fiscal retrenchment the core nations are insisting upon is highly likely to boomerang right back on them.

    As it stands, investors have started to recognize that bank in the region are at risk. CDS for Spanish and Portuguese debt have started to widen more dramatically over the past two weeks, although investors still appear overly focused on government debt CDS. Policy makers have also begun to realize Greece is unlikely to be the last country requiring a bail out, while they at the same time sign on for rapid fiscal "consolidation" (read retrenchment) in order to ostensibly avoid becoming the next Greece.

    Yet we continue to find many of the points detailed above are not yet recognized by professional investors or policy decision makers. Absent this coherent framework, it will indeed prove very difficult to sidestep an economic and financial implosion in the eurozone, following on the heels of an already historically deep recession, and burst property bubbles in a number of eurozone nations. May wiser heads prevail.

    More on this topic (What's this?)
    The Ramifications of Bailouts in Europe (Trends I'm Watching, 5/16/10)
    What the Greek Bailout Means for the Eurozone… And How You Can Play It (Investment U, 5/4/10)
    Eurozone slowdown coming; can the Euro survive? (Credit Writedowns, 5/12/10)
    Read more on European Union at Wikinvest
    Topics: Credit markets, Currencies, Doomsday scenarios, Economic fundamentals, Guest Post, Macroeconomic policy, Politics, Regulations and regulators

    Email This Post Posted by Yves Smith at 3:41 am

    37 Comments " Links to this post


    37 Comments:
    Kevin de Bruxelles says:
    May 17, 2010 at 4:28 am
    I'm not even an economist but it seems obvious that the mistake you are making is to see the Eurozone as an isolated unit instead of an economic entity that exists within a global system. From the global system point of view it is obvious that most of Europe's' recent problems will be resolved as the Euro declines in value. The one main exception is the problem of economic and political integration at the EU level which seems to be moving forward but which paradoxically gets more impetus as the crisis continues. In other words in order to profit from the crisis they have to push the speed of this integration before the falling Euro ends the crisis for Europe.

    As the Euro declines, the current account deficits will become surpluses in the southern countries, with the exception of Greece. The Greek economic model, which by the way is very similar the the American one, is unsustainable within the European context and must be brought into balance. But luckily it is small enough to be dealt with. Even progress is being made there on reducing military spending if we are to believe the rhetoric coming out of the latest Greek – Turkish summit.

    And so as the price of Chinese, Japanese, and American goods and services rise, Europeans will switch to buying European goods. So Germany and The Netherlands will not only be increasing their exports outside the Eurozone but the losses brought on by public fiscal retrenchment will more than be made up for by the increase in demand for European products. In other words the deflationary effects of the decrease in government spending will be matched by the increase in manufacturing brought on by the decline in the euro's value – both in terms of exporting more out of the Eurozone and switching from imported goods to European manufactured goods within the Eurozone.

    Yes energy costs will rise as the Euro falls but European energy policies are well designed to deal with this problem. The taxes make up a large percentage of most of the cost of many forms of energy in Europe. As prices rise these taxes can be reduced and be recuperated by the increase in manufacturing activity.

    It is no surprise that Europe will be the first major bloc to come out of the current economic mess since their economy has been the least dysfunctional. How are China and America ever going to resolve their Chimerica imbalances? And how will the UK's SWINEs (Scotland, Wales, northern Ireland, and the North East) deal with the austerity measures to be implemented by the new Tory government?

    Reply
    renting_is_evil says:
    May 17, 2010 at 5:15 am
    'to see the Eurozone as an isolated unit'

    It goes deeper than that – Americans simply are unable to recognize the concrete economic benefits of the euro WITHIN the eurozone. The arguments about design flaws remain, not that any of them are original to English language economists or analysts, regardless of how often they assume no one actually living in Europe was aware of these flaws. Or more importantly, how those flaws could be used as leverage to create a system which would not have those flaws, ie, greater integration.

    And the idea that a falling euro is harmful to Europe is almost laughable – I don't think any executive at Nokia ('anyone need some more cell phone infrastructure?'), or ABB ('anyone need the hydroelectric facility to power it?'), or Airbus ('anyone need more efficient planes'?), or Siemens ('maybe nuclear is better than hydroelectric? – especially with high speed rail') or … well, at least some people get the idea. OK, most of them are in charge of European industrial exporters, but unlike the U.S., those people still count in how their nations are guided.

    And even the idea that exporters require consumers is peculiarly Anglo-Saxon these days. The idea that a country which improve its road network can pay for the equipment and expertise necessary to build it can thus increase its exports is simply ignored – accounting entities may require zero sum thinking, but really, building a dam which allows for increased food production through providing both better irrigation and the power to process the food which is then sold to the country which provided the equipment is not a zero sum game.

    I am not aware of anyone where I live in Germany that has any problem with a falling euro – of course, the 10% gain in German exports just might have be an explanation for that relative calm. And I'll grant, especially for an American with some awareness of how world markets work, that a falling euro is a reason to panic. Unfortunately, the reason for panic has little to do with Europe.

    As a side note – Bloomberg had an interesting euro summary, where it was written, apparently as straightforward truth, that the euro was designed to last forever. Hilarious – no one in Europe expects a currency to last a couple of generations, much less for eternity. After all, Europeans didn't just wake up to the magic 'fiat' idea in just the last couple of years. Ask an East German, or a Slovakian, or a Czech, or …

    Reply
    charcad says:
    May 17, 2010 at 2:09 pm
    It goes deeper than that – Americans simply are unable to recognize the concrete economic benefits of the euro WITHIN the eurozone.

    The source of this failure to see arises with a great many Europeans. They also don't see "the concrete economic benefits WITHIN the eurozone."

    Or more importantly, how those flaws could be used as leverage to create a system which would not have those flaws, ie, greater integration.

    This is closer to the mark. For example, the Frankfurter Allgemeine Zeitung has proposed a northern European "hard" currency zone consisting of Germany, Austria, Poland, Finland and the Benelux countries. Such a revived Hanseatic League would exert a strong attraction on Norway, Sweden and even Russia. This system would certainly have far more economic coherence, cultural unity and political stability minus the Latin countries. Cultural, political and economic factors are all far more closely aligned.

    Someone who has the best interests of the inhabitants of these regions at heart will gladly greet such a project. otoh someone with a hidden true agenda that amounts to looting and pillaging northern Europe under a false guise of idealism will be less than happy.

    Reply
    Diego Méndez says:
    May 17, 2010 at 2:30 pm
    "This system would certainly have far more economic coherence, cultural unity and political stability"

    Don't shy away. Say the right word: "racial" affinity.

    You know nothing about Europe if you think Poland or Russia are more similar (politically, economically or otherwise) to Germany than France or Spain are.

    Reply
    charcad says:
    May 17, 2010 at 5:20 pm
    Dear Diego,

    It was perfectly predictable you'd be less than happy. Your agenda of one way North-South transfer payments has been perfectly clear for many months.

    Well, now that my money is committed to EU bailouts via the IMF, let me join my President in calling on you, a Spaniard, for "resolute action" on your economy. I only do this in the same helpful spirit as Obama's recent telephone call with Zapatero.

    How much will you personally be belt tightening under the new austerity regime? Can we put you down for, say, a 20% reduction? I'm sure you want to set a strong leadership example for your family and neighbors.

    Best Wishes,

    Charcad

    Diego Méndez says:
    May 17, 2010 at 10:51 am
    My dear European fellows,

    I would have agreed with you some weeks ago. Not any longer.

    Europe is blind to the conditions it faces. Solidarity is an empty word, as US commentarists suspected all along.

    The only answer to the North-South euro assymetry in this crisis was an Economic Union. The North should have supported inflationary, Keynesian policies at a eurozone level. They didn't; domestic politics proved far more important than Continental monetary stability.

    As I was told repeatedly by NC posters and commentarists, Spain just can't make up for a deficit reduction via higher exports, barring an intra-euro devaluation.

    Kevin, it is just wishful thinking if you think Spain will increase its exports to China and the US 30-fold in a single year, which is what's needed to prevent an economic collapse.

    In other words: since its eurozone partners don't want to help (via inflation, higher deficits, etc.) Spain just can't prevent a decade-long depression unless it gets out of the euro.

    Now, of course, millions and millions of Spanish unemployed simply won't wait 10 years living in misery so that the French and the Germans keep on misbelieving there is some kind of European solidarity when there is absolutely *none*, as proved once, and again, and again.

    If you just don't want to give us solidarity, we'll take it. Forget about some mild inflation in your countries. We'll just get out of the euro, cause a pan-European banking crisis, and devalue our way to full employment.

    Kind regards,

    Diego

    Reply
    kevin de bruxelles says:
    May 17, 2010 at 12:32 pm
    Diego,

    The only sustainable long-term condition both politically and economically in the eurozone is for a nation's consumption to roughly matches its production. The reason there is unemployment in Spain is that there is more consumption than production. This is an economic model that only the United States can get away with (but for how long?).

    So you do not have to export to China or the US to bring your current account balance to a surplus. You can also do it by either consuming less or producing more for domestic production. In other words stop exporting jobs to China, France, or Germany by buying their consumer goods.

    The EU has shown Spain billions of euros of solidarity over the years. Long-term free cash is obviously not the answer. If German and French companies want to continue having market share in Spain then they will have to transfer production there. More production in Spain is the answer.

    Switching currencies is always tempting but there are no magic bullets that will ever allow you to consume more than you produce over the long term. The US model is tempting but I wouldn't advise you follow that path unless you are sure that Spain will be able to find some third world country to work for you like fiends in order to ship you high quality consumer products and be happy to just receive Pesetas in return.

    Reply
    Diego Méndez says:
    May 17, 2010 at 12:59 pm
    "The reason there is unemployment in Spain is that there is more consumption than production."

    I disagree. The reason there is unemployment in Spain is high inflation over the last decade, which rendered it an expensive country for production vs. Germany.

    That inflation was the consequence of the euro and its one-size-fits-all interest rate. Unemployment in Spain would disappear in a second if our salaries and prices were 15% down in relative terms; if we had our independent currency, we could devalue 15% vs. Germany.

    This wouldn't mean a 15% fall in GDP, only a 15% fall in nominal salaries, around 10% in additional long-term inflation and a 10% growth in employment. So real GDP (real wealth) would remain stable, unemployment would disappear and the economy could grow again.

    On the other hand, if European solidarity really was there, there would be no need to leave the euro. We could count on high inflation in Germany and other countries. Thus, in 3-4 years of 4% inflation in Germany, we would be competitive again.

    What are Germans telling us? "Dream on, your problems are yours, we want 0 inflation over here." Moreover, they are telling us to cut our budget deficits (despite our public debt being lower than theirs!) and let our economy implode.

    The rise of economic xenophobia (mainly directed to Greeks, but also to Spain, etc.) in Germany over the last two months have been really shocking, but also revealing: European solidarity is only there for the easy things and the good times.

    Don't get it wrong, Kevin. Germany has shown 0 solidarity this time. All those loans for Greece only saved their own banks. Greece has been directed towards a controlled default in 2 years' time, and an economic implosion in the meantime.

    Reply
    MacroStrategy Edge says:
    May 17, 2010 at 3:09 pm
    Diego -

    Yes, it is absurd that the posters to this blogsite for the most part choose to ignore that I and others using this framework a) called this mess in advance, b) called it right, and c) called it for the right reasons.

    Go back and take a look at what I submitted to this website overr the past few months. You listened Diego. You engaged. Hopefully you benefitted from doing so.

    But it would appear many others find that too daunting a task. Changing your mind doesn't have to be that difficult, but first you have to let go of your one note wonders, and open up to alternative, and sometimes controversial points of view.

    Glad you got there Diego, hope others can as well, but really, the hour is getting late, and the wind begins to howl.

    Lose your delusions folks, before the locust cloud of finanzkapital starts dicktating its terms in your backyard. You can see just how pretty the outcome is when they get the upper hand in places like Hungary, Latvia, Ireland, Greece, and Spain should be next.

    Let's jackboot the humanity out of each and every freakin European culture in the name of accumulation for finanzkapital uber alles.

    And really now, who do you want for a neighbor, Zorba the Greek, or Mannheim the masochistic mittelstand mechanic? Maybe we in fact need both, but maybe some of the most beautiful stuff humanity can create comes out of the former more often than the latter.

    cheers,

    Rob Parenteau, CFA
    MacroStrategy Edge, sole proprietor
    The Richebacher Letter, editor
    The Levy Economics Institute, research associate

    Reply
    maff says:
    May 17, 2010 at 4:30 am
    …and the solution is?

    Reply
    avrymann says:
    May 17, 2010 at 1:26 pm
    If the people of the PIIGS nations are forced to take a cut in pay, so should the Bankers. The debt should be written down proportional to what the people are being forced to accept. It is not only fair, but it might just work. The clincher would be to loan more money to these nations at the same rate that the Federal Reserve now loans to the international banks who are also creditors to the PIIGS – .25%. It is one thing to say "I feel your pain" and quite another to voluntarily "share your pain".

    Since the US Supreme Court has now declared that corporations are persons, then they should be treated as such. They should have to make the same sacrifices as everyone else. Moreover, they should be subject to the same laws as the populace and their decision makers should be imprisoned when they commit fraud, or any other crime.

    I know this is wishful thinking, but it is the solution, along with a reasonable rebalancing of expenditures in the debtor nations and criminal prosecution of corruption in business and politics.

    Reply
    john haskell says:
    May 17, 2010 at 4:40 am
    1. The fall in the euro is explained by the psychopathic behavior of genetically defective portfolio managers who are irrationally selling;
    2. Here are 11 reasons why a reasonable person would be cutting exposure to the Euro.

    Well okay then!

    Reply
    michel says:
    May 17, 2010 at 5:06 am
    Once again, one fails to grasp exactly what the policy recommendation is. It seems to be that Greece should continue to run deficits. To do which it should continue to borrow, as it must. Into the indefinite future? Or is the recommendation that there should be income transfers to Greece by the rest of the Euro zone on the basis that these transfers are subsidies from taxpayers in the North?

    I really do not get the argument. Surely what has happened is really simple, its about debt. Governments have attempted to spend more than the countries produced, on 'public services', which in fact were nothing more than people sitting around in Government offices doing nothing. Of course, if people can do this rather than harvest lettuces or work in production, they will. The average wage level rises, investment falls, debt rises to unsustainable levels, the economy becomes uncompetitive, and people invoke the ghost of an economist from a different era to justify this idiocy.

    The solution the authors seem to envisage, it seems to be simply more of the same, same level of spending, same level of state emloyment on unproductive activities, well, its unclear, but whatever, there is surely only one solution to this underlying problem, close down all those offices and have people do something productive? And not retire at 55 after a working life spent doing nothing, on inflation linked pensions?

    Reply
    dearieme says:
    May 17, 2010 at 6:53 am
    D'ye mean that my tin of Belgian Francs is going to be worth something again?

    Reply
    joebhed says:
    May 17, 2010 at 7:12 am
    Jan and Rob:
    "Some wing of the professional investing world is beginning to see the design flaws built into the eurozone from day one".
    Unfortunately, but obviously, not so for a bunch of NC readers.
    So, another 11 points, please, in reply to Matt above.
    Thanks.

    Reply
    Ramanan says:
    May 17, 2010 at 7:48 am
    There is a nicely written biography and obituary of the late Wynne Godley here. http://www.timesonline.co.uk/tol/comment/obituaries/article7128100.ece

    Reply
    alex black says:
    May 17, 2010 at 7:50 am
    Most of the articles I've been reading on the EU seem to be making the same 4-point presentation:

    1 – There is a big problem.

    2 – Here is a possible solution

    3 – There is no coordinated political will to adopt the solution.

    4 – Oooo, that's gonna leave a mark……

    Reply
    anon says:
    May 17, 2010 at 8:13 am
    "Ultimately, current account surpluses need to be recycled into chronic deficit nations in a sustainable fashion. Such a mechanism could be set up under the auspices of the European Investment Bank very quickly. Effective incentives to recycle current account surpluses via foreign direct investment or equity flows should be crafted at once."

    Doesn't seem MMT'ish at all. That's just changing financial capital structure

    Reply
    dearieme says:
    May 17, 2010 at 8:57 am
    @Ramanan: "Godley (who loved publicity and was something of a tease) acquired a reputation for contradicting other forecasters, usually by being more pessimistic…" – that's why he was known as "Whinge Awfully".

    Reply
    chsw says:
    May 17, 2010 at 9:03 am
    [fill here the blanks] are again the global evildoers:
    "Greece, Spain and Portugal took the first steps last week toward enacting austerity measures that would reduce their budget deficits….were not enough to prevent a flare-up in money market funds, a crucial but little-noticed corner of the financial system in which American investors provide more than $500 billion in short-term loans to help European banks finance their daily operations.
    The cash comes from conservative funds that hold the savings of big American corporations and individual American consumers. So far, the proposed rescue package has failed to ease worries at these funds, which have cut back on loans to European banks and are demanding higher rates and quicker repayment. ….
    Because of the pullback by American lenders, the rate banks charge one another for overnight loans, known as Libor for the London Interbank Offered Rate, has been steadily climbing. ….
    "We didn't do so out of any special love for Europe" …"We're American policy makers,…liquidity problems in European markets were showing signs of creating dangerous illiquidity problems in our own country's financial markets."
    American banks are also big owners of Spanish bank debt, holding nearly $200 billion."
    http://www.nytimes.com/2010/05/17/business/global/17fear.html

    Reply
    sherparick says:
    May 17, 2010 at 9:39 am
    Secretary Geithner, channeling Bob Rubin's and Larry Summers's infatuation with a "strong dollar" and indifference to the industrial/agriculutural economy west of the Hudson and east of Malibu apparently gave an interview where he stated that Europe's problems were "not likely to disrupt America's recovery." Well, I hope he is right because otherwise we we will get the "Tea Party" in control of the House and first item will be the President's impeachment for failing to produce a satisfactory (satisfactory as defined by the Tea Partiers) birth certificate, plus a variety of other outrages upon the Constitution that they claim to love so much.

    Reply
    NotTimothyGeithner says:
    May 17, 2010 at 12:49 pm
    Wow, you really have a high opinion of the Teabaggers. If they took the House of Representatives, they would get rid of the pretense of the birth certificate and impeach the President for his two great sins. One is being a Democrat. The other is on the President's nose. The Teabaggers don't care where the President is from. They would fall all over themselves to vote for the Governator.

    Reply
    RagingDebate says:
    May 17, 2010 at 5:10 pm
    I would think that those that think three levels deep would love the Tea Party. They are advocating exteme austerity measures on themselves.

    The global investor should love them too. Once the country finishes its collapse and the entitlements and beaurocrats are gone, it will be the investment opportunity of a lifetime. Plus, it will be the John Gault's that feel the public wrath.

    Either way, the U.S.A. economic model has gone off the rails and the empire portion crumbling. There is no solution as a species to mass consolidation and corruption from there except breaking apart into smaller sections and once again beginning the consolidation process. That is called evolution folks. Somdeay, the world will reconsolidate into a supply chain the people themselves will run towards, then a global government that survives will emerge. I see that happening in perhaps another seven decades to two hundred years, in other words long after I am dead.

    Reply
    /L says:
    May 17, 2010 at 12:54 pm
    "… otherwise we we will get the "Tea Party" in control of the House …"

    We in the rest of the world look anxious forward to a "great" American show when the one term president is replaced by Sahara Palin and (why not) Glen Beck as vice president accompanied by a Tea Party administration.

    Reply
    S says:
    May 17, 2010 at 11:37 am
    The only thing missing from the clever by half accounting argument is debt and interest rates retrospective and prosepctive. How does that fit into the model?

    Reply
    michel says:
    May 17, 2010 at 12:01 pm
    "Ultimately, current account surpluses need to be recycled into chronic deficit nations in a sustainable fashion"

    Like what? Any ideas? Do we maybe just give them the money? I really, really, do not understand what the proposal is.

    Reply
    Karen says:
    May 17, 2010 at 12:30 pm
    Maff, this seems to be the policy recommendation:

    "3. Ultimately, current account surpluses need to be recycled into chronic deficit nations in a sustainable fashion. Such a mechanism could be set up under the auspices of the European Investment Bank very quickly. Effective incentives to recycle current account surpluses via foreign direct investment or equity flows should be crafted at once."

    But I for one have no idea what they mean. They need to spell out – in concrete, implementable terms – just what it is they think should be done.

    Reply
    /L says:
    May 17, 2010 at 12:47 pm
    This blog post should get a sub title – Euro Crisis for Dummies – and that is an acclamation of making things understandable for us dummies.

    Reply
    Smells Like Chapter 11 says:
    May 17, 2010 at 12:55 pm
    After reading these posts, is there any doubt as to why economics is referred to as the "dismal" science?

    Reply
    charcad says:
    May 17, 2010 at 1:16 pm
    But I for one have no idea what they mean. They need to spell out – in concrete, implementable terms – just what it is they think should be done.

    They intend for you not to understand. What they mean is they want dictatorial powers to transfer wealth around Europe with a wave of their hand, similar to the way they fantasize that Stalin, Hitler, the Politburo, the Paris Commune, Louis XIV and Caesar Augustus did things back in their days.

    Stating this claim too baldly would catalyze instant opposition. Hence the need to wrap everything in tendentious mendacity.

    Reply
    MacroStrategy Edge says:
    May 17, 2010 at 5:01 pm
    Charcad

    The solutions have been spelled out elsewhere, in Richebacher Letters, in TV interviews, in blog posts, in newspaper interviews, in conferences at the Ford Foundation – I could go on, but hopefully you catch my drift.

    Go look for them, then let's talk further.

    Sorry, I'm not hear to spoon feed y'all.

    Let your fingers do the walking.

    Reply
    Hugh says:
    May 17, 2010 at 1:34 pm
    Some of us have been saying this stuff for some time now. What European leaders were doing was a defense, not a fix, for the euro, and as happens with these policy pronouncements, it was unclear how much was real and how much was words. Never a good sign. It is astonishing though that it took 48 hours and longer for markets to begin to pay attention to the obvious.

    Similarly, we have pointed out that the problem is not just with the debt of the PIIGS but with the export surpluses and banks of Northern Europe.

    Northern Europe needs not only to buy from Southern Europe it needs to invest there in a sustainable long term fashion, not the various mortgage and debt bubbles we have seen.

    kevin de bruxelles' view that countries should live within their means is mistaken. It goes to the schizophrenic nature of the construction of Europe. Europe is neither an assemblage of nations nor is it a real union. And that's the problem. Where do Greece's real responsibilites end and those of Europe begin? The North knew about the PIIGS' economic weakness going into the euro. But those were better economic times, the North profited from them, and they didn't care about any potential downsides. Now bad times have come and suddenly, Europe doesn't have a problem, the PIIGS do. As many have said, Europe either needs to go forward or go back. In our country, we have many states, especially in the West that do not pull their full weight. They do not live within their means. They chronically receive more from Washington than they send to it. We do not talk of forcing them to leave. Political union trumps economic disparity. This is the real question that Europe has to answer for itself. If Europeans are European only when it is easy and convenient, then Europe will remain a fiction, a geographic accident.

    Reply
    Karen says:
    May 17, 2010 at 3:02 pm
    Anyone who thought the Eurozone was even remotely close to a real union was dreaming. It should be obvious that sovereignty still resides almost entirely with the individual nations of Europe. I've yet to read that the EU contributed forces to the efforts in Iraq or Afghanistan.

    The "no-bailouts" clause in the EU founding documents should have made it clear that Greek sovereign debt is NOT backed by the full faith and credit of the rest of Europe but only by the Greek taxing authority.

    There is a lot of opinion that countries need to deficit-spend their way back to a healthy economy, but as far as I can tell that opinion is not backed by any historical examples of success, only by the negative example of our NOT having done that in the 1930s.

    So we are in an experiment, and what is happening to Greece seems to me a warning sign that maybe some people should be a little less sure of themselves in their advice-giving.

    Reply
    Kievite says:
    May 17, 2010 at 4:59 pm
    Karen,

    The USA is also an experiment and with rise of Republican Taliban it might be that this particular experiment also went wrong . Kind of irreparable mental damage cold war inflicted… And it would be nice to isolate crazy states from more sane states in the USA as well. For example what in common has NY with backward places like Kansas where people cannot even understand that they are voting against their own economic interests .

    Jokes aside, this is a financial chess game with huge stakes, fog of war and such. In three-or move moves deep combinations the first move might be very deceptively looking. it looks like this wave of negative press about Eurozone while having some elements of truth is just a tactical move which is partially:

    1. A natural reaction of speculators with "burned finders" as well as "wolfs packs" that were deprived of what looked like a legit meal… It's especially funny to read stories about Eurozone in FT which for all practical purposes should be called "Voice of the City".
    2. Anglo-American financial attack on the continent (divide and conquer, you know) that have a competing reserve currency. BTW It's pretty interesting that I do not hear mad cries about the USA industry competiveness problems due to strong dollar for some reason now. This is very suspicious.

    3. The USA has an ecological Chernobyl in this backyard right now and GB has recurrent problem with ash affecting air travel. Translated into economical terms both are huge losses which probably make the financial situation in the USA and GB less sustainable.

    Games that were played against Eurozone by financial hackers (aka wolfpacks of speculators) should became part of broad investigation of financial sector in the USA and GB (with possibly some European partners).

    I think European intelligence agencies should work overtime hand-in-hand with FBI to discover the extent of "CDS -> rumor spreading/short selling -> profit" criminal schemes of those financial hackers. Some call them terrorists, but this is probably incorrect generalization; they are more similar to mafia structures with profit as the main motivation. It would be only natural to discover hedge funds controlled by Sicilian mafia .

    Hacking of financial system that they are engaged in should be a crime like hacking of a computer and carry some years of isolation from the society

    Reply
    anon says:
    May 17, 2010 at 5:16 pm
    "In our country, we have many states, especially in the West that do not pull their full weight."

    If you are in the USA, why do you say "especially in the West"? From the stats I've seen, the east and midwest have as many states who are net federal tax receivers as the west does. The biggest tax winner, by a huge margin, is DC. (They get over $5 for every dollar paid in. And those tax dollars obviously benefit parts of Maryland and Virginia as well, both of whom are also large net tax winners without including any spillover effects from DC.) Last time I looked at a map, DC was on the east coast (although I think it would be an excellent idea if they moved it to somewhere – almost anywhere – not on the east coast). MS, WV, AL, and VA were in the top 10 tax receivers, as was LA and KY. NM, AK, ND, and SD were also in the top 10 (though, as a Californian, I consider the Dakotas to be in the midwest along with LA and KY). However, all these states have high percentages of indigenous peoples and I suspect that a large part of the reason that the states are "tax winners". If so, I'd say that the people there still got a very bad deal and so should not be seen as "not pulling their full weight." IMO they've been outright screwed by DC and are still owed much, much more than they'll ever see from the USA.

    NV, CA, and CO are among the biggest tax losers, as are NJ, CN, NH, MN, IL, DL, and NY. In general, the populous states – regardless of where they are located – are much more likely to be tax losers.

    Unfortunately, the latest link I can find is from 1981 – 2005. In the past, I've found more recent data (though it was only through 2007 or 2008 IIRC) that was pretty much the same as this data. http://www.taxfoundation.org/research/show/22685.html

    Reply
    anon says:
    May 17, 2010 at 5:20 pm
    clarification: However, (unlike the "tax winners" in other parts of the US) all these "western" states that are big tax winners (NM, AK, ND, and SD) have high percentages of indigenous peoples and I suspect that is a large part of the reason that the states are "tax winners".

    Reply
    kievite says:
    May 17, 2010 at 5:01 pm
    typo:

    3. The USA has an ecological Chernobyl…

    should be

    3. Smokescreen. The USA has an ecological Chernobyl…

    [Nov 22, 2015] The Political Aftermath of Financial Crises Going to Extremes

    Notable quotes:
    "... The typical political reaction to financial crises is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalisation of parliaments rises and the overall number of parties represented in parliament jumps. ..."
    "... In the light of modern history, political radicalization, declining government majorities and increasing street protests appear to be the hallmark of financial crises. As a consequence, regulators and central bankers carry a big responsibility for political stability when overseeing financial markets. Preventing financial crises also means reducing the probability of a political disaster. ..."
    "... If you look at the Republican Party and, especially, Republican candidates, now it is not the question of radicalization, but the question of sanity that arises. They are so completely detached from reality that Marxists look like "hard core" realists in comparison with them. ..."
    "... The whole party looks like an extreme and bizarre cult that intends to take over the country: another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second as farce. ..."
    "... Democrats are not that different either. With Sanders representing probably the only candidates which can be classified as "center-left" in European terms. For all practical reasons Hillary is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right) candidate. ..."
    "... So the key question is about sanity of the US society under neoliberalism, not some form of "radicalization". ..."
    Nov 22, 2015 | Economist's View

    mrrunangun:

    Given that honesty in politics and government is relative, I wonder if relatively honest politics and relatively honest regulation of financial systems prevents financial crises.

    pgl

    Hillary Clinton hedges on a key issue:

    http://talkingpointsmemo.com/news/hillary-clinton-break-up-big-banks

    She says she would break up the mega banks ... if needed. It is needed - so no hedging on this issue.

    JohnH -> pgl...

    Once again pgl shows how gullible he is...believing what Hillary says not what she has done. What has she done? Well, Wall Street made her a millionaire.

    http://money.cnn.com/2015/10/13/investing/hillary-clinton-wall-street/

    Second, she announced her run for Senator from New York (Wall Street) immediately after Bill did Wall Street the mother of all favors...ending Glass-Steagall. In his naivete, pgl certainly believes that there was no quid pro quo!!!

    Third, lots of people doubt whether she can be trusted to rein in Wall Street.
    http://www.nytimes.com/2015/11/22/us/politics/wall-st-ties-linger-as-image-issue-for-hillary-clinton.html?_r=0

    Of course, pgl believes lots of silly things...like his claim that Obama never proposed and signed off on austerity in 2011...or that he has proposed cutting Social Security...or that trickle down monetary policy hasn't overwhelmingly benefited the 1%.

    I wonder when somebody will finally get to sell him the Brooklyn Bridge [better act now, pgl, get a really cheap loan while you still can!!!]

    JohnH -> JohnH...

    pgl thinks that Obama NEVER proposed cutting Social Security's! What a rube!

    anne:

    http://www.voxeu.org/article/political-aftermath-financial-crises-going-extremes

    November 21, 2015

    The political aftermath of financial crises: Going to extremes
    By Manuel Funke, Moritz Schularick, and Christoph Trebesch

    Implications

    The typical political reaction to financial crises is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalisation of parliaments rises and the overall number of parties represented in parliament jumps. These developments likely hinder crisis resolution and contribute to political gridlock. The resulting policy uncertainty may contribute to the much-debated slow economic recoveries from financial crises.

    In the light of modern history, political radicalization, declining government majorities and increasing street protests appear to be the hallmark of financial crises. As a consequence, regulators and central bankers carry a big responsibility for political stability when overseeing financial markets. Preventing financial crises also means reducing the probability of a political disaster.

    anne -> anne...

    What strikes me, is that the political response to the short-lived international financial crisis but longer lived recession was quite restrained in developed countries. Leadership changes struck me as moderate, even moderate in beset Greece as the political stance of Syriza which looked to be confrontational with regard to the other eurozone countries quickly became accepting.

    European developed country governments have been and are remarkably stable. Japan has been stable. There is political division in the United States, but I do not attribute that to the financial crisis or recession but rather to social divisions.

    The essay is just not convincing.

    likbez said...

    "What strikes me, is that the political response to the short-lived international financial crisis but longer lived recession was quite restrained in developed countries"

    If you mean that the goal of the state is providing unconditional welfare for financial oligarchy (which actually is true for neoliberalism), then I would agree.

    But if you use any common sense definition of "restrained" this is a joke. Instead of sending criminals to jail they were awarded with oversized bonuses.

    I think the authors are way too late to the show. There is no much left of the New Deal anyway, so radicalization of the US society was a fait accompli long before crisis of 2008.

    If you look at the Republican Party and, especially, Republican candidates, now it is not the question of radicalization, but the question of sanity that arises. They are so completely detached from reality that Marxists look like "hard core" realists in comparison with them.

    The whole party looks like an extreme and bizarre cult that intends to take over the country: another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second as farce.

    Democrats are not that different either. With Sanders representing probably the only candidates which can be classified as "center-left" in European terms. For all practical reasons Hillary is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right) candidate.

    So the key question is about sanity of the US society under neoliberalism, not some form of "radicalization".

    [Jul 29, 2015] Using Math to Obfuscate - Observations from Finance

    Notable quotes:
    "... then from Romer's assumptions the rival inputs cannot be earning their marginal product. ..."
    "... The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ... ..."
    "... Four-fifths of the "Economy" is a Complete Waste of Time ..."
    "... I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output. ..."
    "... The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output. ..."
    "... "In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness." ..."
    "... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models." ..."
    "... why do economies grow vulnerable over time ..."
    "... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. ..."
    "... Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment ..."
    economistsview.typepad.com
    More from Paul Romer on "mathiness" -- this time the use of math in finance to obfuscate communication with regulators:
    Using Math to Obfuscate - Observations from Finance: The usual narrative suggests that the new mathematical tools of modern finance were like the wings that Daedalus gave Icarus. The people who put these tools to work soared too high and crashed.

    In two posts, here and here, Tim Johnson notes that two government investigations (one in the UK, the other in the US) tell a different tale. People in finance used math to hide what they were doing.

    One of the premises I used to take for granted was that an argument presented using math would be more precise than the corresponding argument presented using words. Under this model, words from natural language are more flexible than math. They let us refer to concepts we do not yet fully understand. They are like rough prototypes. Then as our understanding grows, we use math to give words more precise definitions and meanings. ...

    I assumed that because I was trying to use math to reason more precisely and to communicate more clearly, everyone would use it the same way. I knew that math, like words, could be used to confuse a reader, but I assumed that all of us who used math operated in a reputational equilibrium where obfuscating would be costly. I expected that in this equilibrium, we would see only the use of math to clarify and lend precision.

    Unfortunately, I was wrong even about the equilibrium in the academic world, where mathiness is in fact used to obfuscate. In the world of for-profit finance, the return to obfuscation in communication with regulators is much higher, so there is every reason to expect that mathiness would be used liberally, particularly in mandated disclosures. ...

    We should expect that there will be mistakes in math, just as there are mistakes in computer code. We should also expect some inaccuracies in the verbal claims about what the math says. A small number of errors of either type should not be a cause for alarm, particularly if the math is presented transparently so that readers can check the math itself and check whether it aligns with the words. In contrast, either opaque math or ambiguous verbal statements about the math should be grounds for suspicion. ...

    Mathiness–exposition characterized by a systematic divergence between what the words say and what the math implies–should be rejected outright.

    Posted by Mark Thoma on Wednesday, July 29, 2015 at 10:52 AM in Economics, Financial System, Methodology | Permalink Comments (2)

    [Jul 20, 2015] The Rivals (Samuelson and Friedman)
    Jul 19, 2015 | Economist's View

    pete said...

    I always loved Boulding's somewhat critical review of Samuelson, discussing the limits of the mathematicization of economic theory. Of course Samuelson was the tip of the iceberg, and since then many overconfident economic mathematicians have led to very serious financial problems. I had one stats professor who called a complex theory on the blackboard "graffiti."

    http://www.jstor.org/stable/1825768?seq=1#page_scan_tab_contents

    pgl -> pete...
    Samuelson did not do math for math's sake. He figured out first what the real world issue was and then used math to help explain his insights.
    likbez -> pgl...
    You need to distinguish "math" from "mathematical masturbation", or as they are now more politically correctly called "mathiness".

    Many economic works that use differential equations belong to the latter category ;-). A lot of pitiful clowns pretending to be mathematicians do not even bother to understand what is the precision and error bounds of the input data. As in "garbage in, garbage out".

    This is probably a unique case when mathematic equations are used to support particular political ideology. Support via "scietification" (as in Church of Scientology) of essentially political statements. Especially about unemployment and poverty.

    anne -> anne...

    All in all, the past 7 years have been a very good time for old-fashioned macroeconomics. But of course nothing will make the Germans, or the U.S. right, concede that Keynesian ideas have worked.

    [ Keynesian ideas have worked? Influential among policy makers in general or not, Keynesian ideas have worked. ]

    pgl -> anne...

    Keynesian theory explains what happened. But what happened was the our policy makers failed to do the right thing. Had they listened to Keynes - the recoveries would have been much faster.

    likbez -> pgl...

    "Had they listened to Keynes - the recoveries would have been much faster."

    This was impossible. There is such thing as "Intellectual capture". As Keyes noted

    "The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."

    [Jun 15, 2015] What Assumptions Matter for Growth Theory
    Jun 15, 2015 | Economist's View
    Dietz Vollrath explains the "mathiness" debate (and also Euler's theorem in a part of the post I left out). Glad he's interpreting Romer -- it's very helpful:
    What Assumptions Matter for Growth Theory?: The whole "mathiness" debate that Paul Romer started tumbled onwards this week... I was able to get a little clarity in this whole "price-taking" versus "market power" part of the debate. I'll circle back to the actual "mathiness" issue at the end of the post.
    There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? We can answer the first without having to answer the second.
    Just to refresh, a production function tells us that output is determined by some combination of non-rival inputs and rival inputs.
    • Non-rival inputs are things like ideas that can be used by many firms or people at once without limiting the use by others. Think of blueprints.
    • Rival inputs are things that can only be used by one person or firm at a time. Think of nails.
    • The income earned by both rival and non-rival inputs has to add up to total output.
    Okay, given all that setup, here are three statements that could be true.
    1. Output is constant returns to scale in rival inputs
    2. Non-rival inputs receive some portion of output
    3. Rival inputs receive output equal to their marginal product
    Pick two.
    Romer's argument is that (1) and (2) are true. (1) he asserts through replication arguments, like my example of replicating Earth. (2) he takes as an empirical fact. Therefore, (3) cannot be true. If the owners of non-rival inputs are compensated in any way, then it is necessarily true that rival inputs earn less than their marginal product.

    Notice that I don't need to say anything about how the non-rival inputs are compensated here. But if they earn anything, then from Romer's assumptions the rival inputs cannot be earning their marginal product.

    Different authors have made different choices than Romer. McGrattan and Prescott abandoned (1) in favor of (2) and (3). Boldrin and Levine dropped (2) and accepted (1) and (3). Romer's issue with these papers is that (1) and (2) are clearly true, so writing down a model that abandons one of these assumptions gives you a model that makes no sense in describing growth. ...
    The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ...

    [There's a lot more in the full post. Also, Romer comments on Vollrath here.]

    Paine

    Excellent

    Lots of conclusions are per determined by simple assumptions like constant returns to scale

    If by scale we mean replication of the existing production system on a larger scale

    Where say we triple every plant and highway etc

    The model nicely captures the reality of a static production system
    Where all factors are expandable even if at a cost

    This is a very narrow notion of scale effects

    If for example markets for oust expand and a different technique is optimal
    Then there's a dynamic transition
    Where residuals emerge.

    anne -> Paine ...

    I assume this is the reference which the writer is too inconsiderate to mention:

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/06/are-ideas-really-non-rival.html

    June 13, 2015

    Are ideas really non-rival?
    By Nick Rowe

    Paine -> anne...

    Rowe thinks he is making a great joke

    But in actuality there is nothing but assertion of various hypothetical entities behind the entire neo classical construct

    No matter how carefully these atoms are defined they remain figments

    That one can conjure like epicycles

    Example

    Advertising Is a production factor -- Once we move away from he material basis of production lots of spirits dance in the air around us

    Once a non rival good has been discovered or invented or created etc it's cost to replicate is nearly zero

    To lay the bulk of profits at its feet is ridiculous of course. But intellectual property none the less is a growing means of exploitation...

    Paine -> Paine ...

    My definition of non rival is wrong of course. The meaning of non rival is castlessly inexhaustible

    Nothing fits this description exactly. And almost is as bad as not at all.

    Non rival -- Example of belief in the divinity of Jesus. I can believe as much whether you believe or not

    anne -> Paine ...

    All exchange value flows from labor time. Even if in complex patterns easily mystified by simple definitions. Of imaginary objects like non-rival production factors

    [ I understand and am pleased. ]

    Sandwichman said...

    Four-fifths of the "Economy" is a Complete Waste of Time

    "There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not?" -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"

    "Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory." -- Paul Romer, "The Assumptions in Growth Theory"

    Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.

    "As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'"

    Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.

    Name one.

    Carry on, growth theorists.


    anne -> Sandwichman...

    http://econospeak.blogspot.com/2015/06/the-chimerical-analogies-of-growth-and.html

    June 6, 2015

    The Chimerical Analogies of Growth and Distribution


    http://econospeak.blogspot.com/2015/06/four-fifths-of-economy-is-complete.html

    June 14, 2015

    Four-fifths of the "Economy" is a Complete Waste of Time

    -- Sandwichman

    Sandwichman -> Sandwichman...

    1. "growth is a concept whose proper domicile is the study of organic units..."

    2. "The belief that society is an organism is an old but fanciful notion."

    3. ?

    4. Growth!

    Sandwichman -> anne...

    "the meaning of per capita growth in China over these last 38 years of 8.6% yearly"

    It means, literally, that if you ate one bowl of rice for dinner in 1977, in 2015 you would eat 23 bowls of rice for dinner. Of course it doesn't *really* mean that. The "measurement" is actually a figure of speech.

    Figuratively, it means something more like: many more Chinese own cars today than 38 years ago and those cars are worth hundreds of times what the old bicycle was worth. Never mind that the car is used to commute to work, that it takes as long to drive to work through congested traffic as it once did to ride a bike to work and that the air is unbreathable so it would be suicide to go back to riding a bike.

    Still, growing 8.6% per year for 38 years is a prodigious achievement even if we don't know what it means.

    Sandwichman -> anne...

    A large part of that gain in life expectancy is attributable to an enormous decline in infant mortality. Expenditures on improved infant health care would be only a miniscule portion of the total economic growth.

    When I say "prodigious" I mean remarkable or immense without attaching any value judgement about whether it is a good or a bad thing. There have obviously been some good things associated with that growth -- see infant mortality. There has also been an explosion of GHG emissions. If 2/3 of that growth was good things (reduced infant mortality, improved nutrition etc.) and 1/3 bad things (police surveillance, cost of commuting to work, etc.) then China would have been better off with a 6% growth rate.

    Can't we just forget about the confounded aggregate and get on with promoting the good? No, apparently not. Two pieces of pie is better than one if it's cherry pie but not if it's "dirt" pie.

    anne -> Sandwichman...

    Can't we just forget about the confounded aggregate and get on with promoting the good?

    [ Surely so, but if a part of the good is life span, well, that of India is 66 years which shows how far China has come and I really do know of the problems. ]

    anne -> Sandwichman...

    Again, I am waiting for an explanation of or a description showing what the past 38 years of per capita growth in China represent. What does the past 38 years of astonishing gains in Chinese productivity represent and how to depict these gains?

    Paine -> anne...

    We need a welfare index. And that greatly increases the degree of difficulty over a simple output index

    Sandwichman -> Paine ...

    "If the GDP is Up, Why is America Down?" Clifford Cobb, Ted Halstead, and Jonathan Rowe, The Atlantic, 1995.

    http://www.theatlantic.com/past/politics/ecbig/gdp.htm

    And do you know what the overwhelming response of economists was to that article? "Nothing new here." "We know GDP is not a measure of welfare. But it's useful because it tells us about the capacity to produce goods that could enhance welfare."

    Or to paraphrase Orwell, "If this boot wasn't stamping on your face, you could put it on your foot and it would keep your toes warm -- FOREVER!" Paul Samuelson's version, "Evaluation of Real National Income":

    "Production possibilities as such have no normative connotations. We are interested in them for the light they throw on utility-possibilities. This is why economists have wanted to include such wasteful output as war goods in their calculations of national product; presumably they serve as some kind of an index of the useful things that might be produced in better times."

    I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output.

    The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output.

    anne -> Sandwichman...

    http://econospeak.blogspot.com/2015/06/some-kind-of-index-no-normative.html

    June 14, 2015

    Some Kind of an Index -- No Normative Connotations

    -- Sandwichman

    Julio -> Sandwichman...

    A question for you folks in this subthread:

    "In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness."

    Proposition: That myth underlies our world.

    Conclusion: In our world, "GDP is not correlated to happiness" is, therefore, a subversive statement.

    Is this sensible, and if so, does it make alternative measures of economic well-being difficult to construct?

    Julio -> Sandwichman...

    Aggregate is not the same as average.

    The "prices as the driver" argument is that you will buy a yellow car and I a green one, and Detroit will make just enough of each, and that's the closest we'll ever come to an economy that reflects our wishes, and that's in turn the closest we'll ever come to (economic) happiness.

    But this may be an aside: is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?

    We could measure economic decisions by using economics as far as it takes us to evaluate their consequences, and then using our moral compass to do the measuring.

    A more ad-hoc method which, for our collective decisions, has political pitfalls; but politics is the appropriate forum for those fights. We would no longer know (or care) what "progress" is, as a national aggregate.

    Sandwichman -> Julio...

    "is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?"

    No, it's not entirely unrealistic and irrelevant but it IS very limited and, like GDP subject to misinterpretation as more substantive than it is.

    The thing about GDP that won't be gotten away from is that it does provide information that is useful for projecting revenues for business and for government.

    A welfare index wouldn't do that. You can tax income but you can't tax happiness -- at least not literally.

    anne -> Sandwichman...

    The measurement of economic well-being is inherently difficult (impossible) because it involves the aggregation of subjective judgments....

    [ Agreed. ]

    anne -> Sandwichman...

    The sort of growth-happiness surveying referred to is to my mind no more than pseudo research. As empirical as bumble bees.

    Sandwichman -> anne...

    anne, I tend to agree with your skepticism about happiness surveying. However, I have also worked on so-called real survey research -- Canadian census. If you saw how the sausage was made...

    The Case of the Missing Minsky by Paul Krugman
    "...On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models."

    NYTimes.com

    Gavyn Davis has a good summary of the recent IMF conference on rethinking macro; Mark Thoma has further thoughts. Thoma in particular is disappointed that there hasn't been more of a change, decrying

    the arrogance that asserts that we have little to learn about theory or policy from the economists who wrote during and after the Great Depression.

    Maybe surprisingly, I'm a bit more upbeat than either. Of course there are economists, and whole departments, that have learned nothing, and remain wholly dominated by mathiness. But it seems to be that economists have done OK on two of the big three questions raised by the economic crisis. What are these three questions? I'm glad you asked.

    As I see it, it makes sense to think of what happened in terms of three phases.

    The questions then are how and why each of these things can/did happen. I think of these as the Minsky question - why do economies grow vulnerable over time ; the Bagehot question - why does all hell break loose now and then; and the Keynes question - how economies can stay depressed, and how such depressed economies work.

    On the Keynes question, it's true that we haven't had a radical change in thinking, but that's mainly because the old thinking still works pretty well. That is, the answer for people asking who would be the new Keynes turns out to be that Keynes is the new Keynes. Or maybe that's Hicks - anyway, IS-LMish analysis worked well, and the economists who made fools of themselves were those who rejected the time-tested approaches.

    What is new is that we have had a flowering of empirical work, and have much more econometric evidence on monetary and especially fiscal policy, price behavior, and more than we used to. Look, for example, at Nakamura/Steinsson's survey, or at the Blanchard work on multipliers in the euro area. So this is a happy story: the existing framework worked fairly well, and is now buttressed by a lot of really good empirical evidence.

    On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. But it wasn't very hard to fix these problems, or at least apply workable patches. Once you realized that repo was the new bank deposits, the basic crisis framework was already there; and there was already enough existing analysis of balance-sheet constraints and all that to make creation of a somewhat messy, inelegant, but usable set of models quite easy.

    And here too we have seen a flowering of empirical work, e.g. Mian and Sufi on household debt.

    Where we have not, as far as I can tell, made much progress is the Minsky question. Why did the system become so vulnerable? Was it deregulation (or failure of regulation to keep up with institutional change)? Simple forgetting, as memories of past crises faded? Excessively loose policy? I have views, but I have to admit that there isn't a lot of either fresh thinking or hard evidence here.

    Why is Minsky still mostly missing? Partly because asking how we got here may be less urgent than the question of what we do now. But also, I'd guess, because it's hard. Bubbles, excessive leverage, and all that probably have a lot to do with the limits of rationality, and behavioral economics doesn't provide anything like as much guidance as it should.

    Still, I'm relatively positive in my assessment of the state of macroeconomics. Against mathiness and political ideology, the gods themselves contend in vain, but that's not a problem with the models


    kbaa, The Irate Plutokrat

    It is good to see Krugman write in opposition to 'mathiness', economists' misuse of mathematics to justify their pet theories. And his suggestion that 'behavioral economics doesn't provide anything like as much guidance as it should' is probably as close to an admission as we are ever likely to get from an academic economist that it's human psychology that drives the economy after all, and that all of the various high minded macroeconomics theories are nothing more than propaganda to be used by lobbyists who present them as scholarship.

    Economics is a subject that is driven by data, i.e. numbers. Wherever there are numbers there is always the possibility of misusing mathematics to intimidate. Any paper that cites game theory or the Euler consumption equation to promote public policy should be regarded as fraudulent until shown to be otherwise. Mathematics serves the same function for academic economists as Latin theology did for medieval clerics: both provide an aura of erudite wisdom where there is no wisdom at all to be found.

    NB For those who have never studied Calculus, "Euler" is pronounced "oiler", but there's no connection with the price of oil or any other commodity, and don't let any academic economist try to tell you otherwise.

    Book Review "Keynes The Return of the Master"
    WSJ.com

    Yet Mr. Skidelsky chooses to make Mr. Lucas sound like some kind of idiot savant, more interested in playing with mathematical models than in trying to understand how the world actually works. Mr. Lucas, we are told, is following in the tradition of the "French mathematician Leon Walras [who] pictured the economy as a system of simultaneous equations." The very idea is made to sound slightly crazed.

    This brings us to the biggest problem with "Keynes." Mr. Skidelsky admits to being poorly trained in the tools that economists use: "I find mathematics and statistics 'challenging,' as they say, and it is too late to improve. This has, I believe, saved me from important errors of thinking."

    Has it, really? Mr. Skidelsky would like to think that his math-aversion allows him to focus on the big ideas rather than being distracted by mere analytic details. But mathematics is, fundamentally, the language of logic. Modern research into Keynes's theories-I have conducted such research myself-tries to put his ideas into mathematical form precisely to figure out whether they logically cohere. It turns out that the task is not easy.

    Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment. But if recessions and depressions are as costly as they seem to be, why don't firms have sufficient incentive to adjust wages and prices quickly, to restore equilibrium? This is a classic question of macroeconomics that, despite much hard work, is yet to be fully resolved.

    Which brings us to a third group of macroeconomists: those who fall into neither the pro- nor the anti-Keynes camp. I count myself among the ambivalent. We credit both sides with making legitimate points, yet we watch with incredulity as the combatants take their enthusiasm or detestation too far. Keynes was a creative thinker and keen observer of economic events, but he left us with more hard questions than compelling answers.

    Why capitalism fails: The man who saw the meltdown coming had another troubling insight: it will happen again

    By Stephen Mihm, Globe Correspondent | September 13, 2009

    Since the global financial system started unraveling in dramatic fashion two years ago, distinguished economists have suffered a crisis of their own. Ivy League professors who had trumpeted the dawn of a new era of stability have scrambled to explain how, exactly, the worst financial crisis since the Great Depression had ambushed their entire profession.

    Amid the hand-wringing and the self-flagellation, a few more cerebral commentators started to speak about the arrival of a "Minsky moment," and a growing number of insiders began to warn of a coming "Minsky meltdown."

    "Minsky" was shorthand for Hyman Minsky, a hitherto obscure macroeconomist who died over a decade ago. Many economists had never heard of him when the crisis struck, and he remains a shadowy figure in the profession. But lately he has begun emerging as perhaps the most prescient big-picture thinker about what, exactly, we are going through. A contrarian amid the conformity of postwar America, an expert in the then-unfashionable subfields of finance and crisis, Minsky was one economist who saw what was coming. He predicted, decades ago, almost exactly the kind of meltdown that recently hammered the global economy.

    In recent months Minsky's star has only risen. Nobel Prize-winning economists talk about incorporating his insights, and copies of his books are back in print and selling well. He's gone from being a nearly forgotten figure to a key player in the debate over how to fix the financial system.

    But if Minsky was as right as he seems to have been, the news is not exactly encouraging. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

    In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. "Instability," he wrote, "is an inherent and inescapable flaw of capitalism."

    Minsky's vision might have been dark, but he was not a fatalist; he believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. But with a growing number of economists eager to declare the recession over, and the crisis itself apparently behind us, these policies may prove as discomforting as the theories that prompted them in the first place. Indeed, as economists re-embrace Minsky's prophetic insights, it is far from clear that they're ready to reckon with the full implications of what he saw.

    In an ideal world, a profession dedicated to the study of capitalism would be as freewheeling and innovative as its ostensible subject. But economics has often been subject to powerful orthodoxies, and never more so than when Minsky arrived on the scene.

    That orthodoxy, born in the years after World War II, was known as the neoclassical synthesis. The older belief in a self-regulating, self-stabilizing free market had selectively absorbed a few insights from John Maynard Keynes, the great economist of the 1930s who wrote extensively of the ways that capitalism might fail to maintain full employment. Most economists still believed that free-market capitalism was a fundamentally stable basis for an economy, though thanks to Keynes, some now acknowledged that government might under certain circumstances play a role in keeping the economy - and employment - on an even keel.

    Economists like Paul Samuelson became the public face of the new establishment; he and others at a handful of top universities became deeply influential in Washington. In theory, Minsky could have been an academic star in this new establishment: Like Samuelson, he earned his doctorate in economics at Harvard University, where he studied with legendary Austrian economist Joseph Schumpeter, as well as future Nobel laureate Wassily Leontief.

    But Minsky was cut from different cloth than many of the other big names. The descendent of immigrants from Minsk, in modern-day Belarus, Minsky was a red-diaper baby, the son of Menshevik socialists. While most economists spent the 1950s and 1960s toiling over mathematical models, Minsky pursued research on poverty, hardly the hottest subfield of economics. With long, wild, white hair, Minsky was closer to the counterculture than to mainstream economics. He was, recalls the economist L. Randall Wray, a former student, a "character."

    So while his colleagues from graduate school went on to win Nobel prizes and rise to the top of academia, Minsky languished. He drifted from Brown to Berkeley and eventually to Washington University. Indeed, many economists weren't even aware of his work. One assessment of Minsky published in 1997 simply noted that his "work has not had a major influence in the macroeconomic discussions of the last thirty years."

    Yet he was busy. In addition to poverty, Minsky began to delve into the field of finance, which despite its seeming importance had no place in the theories formulated by Samuelson and others. He also began to ask a simple, if disturbing question: "Can 'it' happen again?" - where "it" was, like Harry Potter's nemesis Voldemort, the thing that could not be named: the Great Depression.

    In his writings, Minsky looked to his intellectual hero, Keynes, arguably the greatest economist of the 20th century. But where most economists drew a single, simplistic lesson from Keynes - that government could step in and micromanage the economy, smooth out the business cycle, and keep things on an even keel - Minsky had no interest in what he and a handful of other dissident economists came to call "bastard Keynesianism."

    Instead, Minsky drew his own, far darker, lessons from Keynes's landmark writings, which dealt not only with the problem of unemployment, but with money and banking. Although Keynes had never stated this explicitly, Minsky argued that Keynes's collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff.

    This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now famous for documenting capitalism's ceaseless process of "creative destruction." But Minsky spent more time thinking about destruction than creation. In doing so, he formulated an intriguing theory: not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability that would set the stage for monumental crises.

    Minsky called his idea the "Financial Instability Hypothesis." In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, "Success breeds a disregard of the possibility of failure."

    As people forget that failure is a possibility, a "euphoric economy" eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called "Ponzi borrowers," those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

    Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the "Minsky moment" - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the "real" economy that depended on the now-collapsing financial system.

    From the 1960s onward, Minsky elaborated on this hypothesis. At the time he believed that this shift was already underway: postwar stability, financial innovation, and the receding memory of the Great Depression were gradually setting the stage for a crisis of epic proportions. Most of what he had to say fell on deaf ears. The 1960s were an era of solid growth, and although the economic stagnation of the 1970s was a blow to mainstream neo-Keynesian economics, it did not send policymakers scurrying to Minsky. Instead, a new free market fundamentalism took root: government was the problem, not the solution.

    Moreover, the new dogma coincided with a remarkable era of stability. The period from the late 1980s onward has been dubbed the "Great Moderation," a time of shallow recessions and great resilience among most major industrial economies. Things had never been more stable. The likelihood that "it" could happen again now seemed laughable.

    Yet throughout this period, the financial system - not the economy, but finance as an industry - was growing by leaps and bounds. Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers' and companies' growing dependence on debt, and the growing use of leverage within the financial system.

    By the end of the 20th century, the financial system that Minsky had warned about had materialized, complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning of risk. When storied financial firms started to fall, sending shockwaves through the "real" economy, his predictions started to look a lot like a road map.

    "This wasn't a Minsky moment," explains Randall Wray. "It was a Minsky half-century."

    Minsky is now all the rage. A year ago, an influential Financial Times columnist confided to readers that rereading Minsky's 1986 "masterpiece" - "Stabilizing an Unstable Economy" - "helped clear my mind on this crisis." Others joined the chorus. Earlier this year, two economic heavyweights - Paul Krugman and Brad DeLong - both tipped their hats to him in public forums. Indeed, the Nobel Prize-winning Krugman titled one of the Robbins lectures at the London School of Economics "The Night They Re-read Minsky."

    Today most economists, it's safe to say, are probably reading Minsky for the first time, trying to fit his unconventional insights into the theoretical scaffolding of their profession. If Minsky were alive today, he would no doubt applaud this belated acknowledgment, even if it has come at a terrible cost. As he once wryly observed, "There is nothing wrong with macroeconomics that another depression [won't] cure."

    But does Minsky's work offer us any practical help? If capitalism is inherently self-destructive and unstable - never mind that it produces inequality and unemployment, as Keynes had observed - now what?

    After spending his life warning of the perils of the complacency that comes with stability - and having it fall on deaf ears - Minsky was understandably pessimistic about the ability to short-circuit the tragic cycle of boom and bust. But he did believe that much could be done to ameliorate the damage.

    To prevent the Minsky moment from becoming a national calamity, part of his solution (which was shared with other economists) was to have the Federal Reserve - what he liked to call the "Big Bank" - step into the breach and act as a lender of last resort to firms under siege. By throwing lines of liquidity to foundering firms, the Federal Reserve could break the cycle and stabilize the financial system. It failed to do so during the Great Depression, when it stood by and let a banking crisis spiral out of control. This time, under the leadership of Ben Bernanke - like Minsky, a scholar of the Depression - it took a very different approach, becoming a lender of last resort to everything from hedge funds to investment banks to money market funds.

    Minsky's other solution, however, was considerably more radical and less palatable politically. The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of "priming the pump" by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.

    Minsky, however, argued for a "bubble-up" approach, sending money to the poor and unskilled first. The government - or what he liked to call "Big Government" - should become the "employer of last resort," he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else's wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

    While economists may be acknowledging some of Minsky's points on financial instability, it's safe to say that even liberal policymakers are still a long way from thinking about such an expanded role for the American government. If nothing else, an expensive full-employment program would veer far too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics are apt to misunderstand Minsky. "He saw these ideas as perfectly consistent with capitalism," says Wray. "They would make capitalism better."

    But not perfect. Indeed, if there's anything to be drawn from Minsky's collected work, it's that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession's quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. "There is no simple answer to the problems of our capitalism," wrote Minsky. "There is no solution that can be transformed into a catchy phrase and carried on banners."

    It's a sentiment that may limit the extent to which Minsky becomes part of any new orthodoxy. But that's probably how he would have preferred it, believes liberal economist James Galbraith. "I think he would resist being domesticated," says Galbraith. "He spent his career in professional isolation."

    Stephen Mihm is a history professor at the University of Georgia and author of "A Nation of Counterfeiters" (Harvard, 2007).

    Leader In praise of ... Hyman Minsky Comment is free The Guardian

    Markets are ruled by fear and greed, they say, but those two ingredients are not the whole recipe: ideas play a part, too.

    And, as all bankers worth their Blackberry know, the current big idea is the "Minsky moment". Named after the economist Hyman Minsky, the phrase describes a situation where investors who have borrowed too much are forced to sell even good assets to pay back their loans. Bathwater; baby; even the bathtub: all appear expendable in crisis-hit markets where credit is scarce, and central banks have to intervene. That scenario applies right now, prompting a craze among investors for quoting the American economist.

    Minsky has himself missed his big moment, since he died in 1996 - which just goes to prove that, however good their ideas, economists are terrible at timing. A Chicagoan, Minsky was none the less an enemy of the "Chicago School" of economists, who typically believe in the efficiency of markets.

    Taking his cue instead from Keynes, Minsky argued that crises were integral to financial markets: the longer a good time lasts, the more risks borrowers will take. And while some debtors are perfectly sound, others can only pay off their interest by renewing their loans. A third group sounds dangerously familiar: its members depend on assets rising in value to pay off their borrowing. Not just academic taxonomy, this is also prophetic warning: after a Minsky moment comes a Minsky meltdown - and you don't need economics to grasp what that means.

    The Minsky Moment Comment The New Yorker by John Cassidy

    February 4, 2008

    Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen.

    Many of Minsky's colleagues regarded his "financial-instability hypothesis," which he first developed in the nineteen-sixties, as radical, if not crackpot. Today, with the subprime crisis seemingly on the verge of metamorphosing into a recession, references to it have become commonplace on financial Web sites and in the reports of Wall Street analysts. Minsky's hypothesis is well worth revisiting. In trying to revive the economy, President Bush and the House have already agreed on the outlines of a "stimulus package," but the first stage in curing any malady is making a correct diagnosis.

    Minsky, who died in 1996, at the age of seventy-seven, earned a Ph.D. from Harvard and taught at Brown, Berkeley, and Washington University. He didn't have anything against financial institutions-for many years, he served as a director of the Mark Twain Bank, in St. Louis-but he knew more about how they worked than most deskbound economists. There are basically five stages in Minsky's model of the credit cycle: displacement, boom, euphoria, profit taking, and panic. A displacement occurs when investors get excited about something-an invention, such as the Internet, or a war, or an abrupt change of economic policy. The current cycle began in 2003, with the Fed chief Alan Greenspan's decision to reduce short-term interest rates to one per cent, and an unexpected influx of foreign money, particularly Chinese money, into U.S. Treasury bonds. With the cost of borrowing-mortgage rates, in particular-at historic lows, a speculative real-estate boom quickly developed that was much bigger, in terms of over-all valuation, than the previous bubble in technology stocks.

    As a boom leads to euphoria, Minsky said, banks and other commercial lenders extend credit to ever more dubious borrowers, often creating new financial instruments to do the job. During the nineteen-eighties, junk bonds played that role. More recently, it was the securitization of mortgages, which enabled banks to provide home loans without worrying if they would ever be repaid. (Investors who bought the newfangled securities would be left to deal with any defaults.) Then, at the top of the market (in this case, mid-2006), some smart traders start to cash in their profits.

    The onset of panic is usually heralded by a dramatic effect: in July, two Bear Stearns hedge funds that had invested heavily in mortgage securities collapsed. Six months and four interest-rate cuts later, Ben Bernanke and his colleagues at the Fed are struggling to contain the bust. Despite last week's rebound, the outlook remains grim. According to Dean Baker, the co-director of the Center for Economic and Policy Research, average house prices are falling nationwide at an annual rate of more than ten per cent, something not seen since before the Second World War. This means that American households are getting poorer at a rate of more than two trillion dollars a year.

    It's hard to say exactly how falling house prices will affect the economy, but recent computer simulations carried out by Frederic Mishkin, a governor at the Fed, suggest that, for every dollar the typical American family's housing wealth drops in a year, that family may cut its spending by up to seven cents. Nationwide, that adds up to roughly a hundred and fifty-five billion dollars, which is bigger than President Bush's stimulus package. And it doesn't take into account plunging stock prices, collapsing confidence, and the belated imposition of tighter lending practices-all of which will further restrict economic activity.

    In an election year, politicians can't be expected to acknowledge their powerlessness. Nonetheless, it was disheartening to see the Republicans exploiting the current crisis to try to make the President's tax cuts permanent, and the Democrats attempting to pin the economic downturn on the White House. For once, Bush is not to blame. His tax cuts were irresponsible and callously regressive, but they didn't play a significant role in the housing bubble.

    If anybody is at fault it is Greenspan, who kept interest rates too low for too long and ignored warnings, some from his own colleagues, about what was happening in the mortgage market. But he wasn't the only one. Between 2003 and 2007, most Americans didn't want to hear about the downside of funds that invest in mortgage-backed securities, or of mortgages that allow lenders to make monthly payments so low that their loan balances sometimes increase. They were busy wondering how much their neighbors had made selling their apartment, scouting real-estate Web sites and going to open houses, and calling up Washington Mutual or Countrywide to see if they could get another home-equity loan. That's the nature of speculative manias: eventually, they draw in almost all of us.

    You might think that the best solution is to prevent manias from developing at all, but that requires vigilance. Since the nineteen-eighties, Congress and the executive branch have been conspiring to weaken federal supervision of Wall Street. Perhaps the most fateful step came when, during the Clinton Administration, Greenspan and Robert Rubin, then the Treasury Secretary, championed the abolition of the Glass-Steagall Act of 1933, which was meant to prevent a recurrence of the rampant speculation that preceded the Depression.

    The greatest need is for intellectual reappraisal, and a good place to begin is with a statement from a paper co-authored by Minsky that "apt intervention and institutional structures are necessary for market economies to be successful." Rather than waging old debates about tax cuts versus spending increases, policymakers ought to be discussing how to reform the financial system so that it serves the rest of the economy, instead of feeding off it and destabilizing it. Among the problems at hand: how to restructure Wall Street remuneration packages that encourage excessive risk-taking; restrict irresponsible lending without shutting out creditworthy borrowers; help victims of predatory practices without bailing out irresponsible lenders; and hold ratings agencies accountable for their assessments. These are complex issues, with few easy solutions, but that's what makes them interesting. As Minsky believed, "Economies evolve, and so, too, must economic policy."

    H. P. Minsky, 77, Economist Who Decoded Lending Trends - The New York Times

    Hyman P. Minsky, an economist and professor who explained, in path-breaking research, how lending patterns and mood swings can push an economy into speculative booms or steep declines, died on Thursday at Northern Dutchess Hospital in Rhinebeck, N.Y. He was 77 and lived in Rhinebeck.

    He died of pancreatic cancer, his family said.

    For the last six years, Professor Minsky was Distinguished Scholar at the Jerome Levy Economics Institute of Bard College, an independent institute on the Annandale-on-Hudson, N.Y., campus, where he had continued his research on debt and the economy.

    One of his final papers argued that big industrial economies like that of the United States need $2 trillion or $3 trillion in national debt so cautious lenders who want guarantees of repayment can achieve this by buying the Government's very safe Treasury bills and bonds. Without such opportunity, he said, the Social Security Administration would lack a safe place to invest the payroll taxes of working Americans until they are paid out in pensions.

    Mr. Minsky was sometimes described as a radical Keynesian whose research nevertheless endeared him to Wall Street.

    ''He offered very good insights in the 60's and 70's when linkages between the financial markets and the economy were not as well understood as they are now,'' said Henry Kaufman, a Wall Street money manager and economist. ''He showed us that financial markets could move frequently to excess. And he underscored the importance of the Federal Reserve as a lender of last resort.''

    Mr. Minsky's best-known work came in the late 1960's and early 1970's while he was a professor at the University of California at Berkeley and then Washington University in St. Louis. John Maynard Keynes, the British economist, had written about unstable financial markets, but Mr. Minsky was the first to explain how this instability developed and interacted with the economy. In doing so he incorporated findings of Irving Fisher and other earlier economists.

    Basically, Mr. Minsky found that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops and soon lending gets beyond what the borrowers can pay off from their incoming revenues. That produces a crisis. There is a pull-back in lending, even to companies that can afford the loans, and the economy contracts.

    ''A fundamental characteristic of our economy,'' Mr. Minsky wrote in 1974, ''is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.''

    Disagreeing with many mainstream economists, he argued that these swings, and the booms and busts that can accompany them, are inevitable in a free market economy, unless Government steps in to control them, through regulation, central bank action and other tools that in fact came into existence in response to the Depression. He opposed the deregulation that characterized the 1980's.

    It was at Berkeley that seminars attended by Bank of America executives helped him to develop his theories about lending and economic activity, views he laid out in two books: ''John Maynard Keynes'' (Columbia University Press, 1975) and ''Stabilizing an Unstable Economy'' (Yale University Press, 1986).

    Hyman Philip Minsky, who was born in Chicago, graduated from George Washington High School in upper Manhattan. He received a bachelor's degree in mathematics at the University of Chicago in 1941, but influenced by Henry Simon, a revered economist, he shifted fields and received a doctorate in economics at Harvard in 1954, specializing in finance.

    Mr. Minsky is survived by his wife, Esther, a son, Alan, and a daughter, Diana, all of Rhinebeck.

    President's Speech A Minsky Meltdown Lessons for Central Bankers (04-16-2009)

    Minsky and the current crisis

    One of the critical features of Minsky's world view is that borrowers, lenders, and regulators are lulled into complacency as asset prices rise. 3 It was not so long ago-though it seems like a lifetime-that many of us were trying to figure out why investors were demanding so little compensation for risk. For example, long-term interest rates were well below what appeared consistent with the expected future path of short-term rates. This phenomenon, which ended abruptly in mid-2007, was famously characterized by then-Chairman Greenspan as a "conundrum." 4 Credit spreads too were razor thin. But for Minsky, this behavior of interest rates and loan pricing might not have been so puzzling. He might have pointed out that such a sense of safety on the part of investors is characteristic of financial booms. The incaution that reigned by the middle of this decade had been fed by roughly twenty years of the so-called "great moderation," when most industrialized economies experienced steady growth and low and stable inflation. Moreover, the world economy had shaken off the effects of the bursting of an earlier asset price bubble-the technology stock boom-with comparatively little damage.

    Chairman Bernanke has argued that other factors besides complacency were responsible for low interest rates in this period. 5 A glut of foreign saving mainly generated in developing countries such as China and India fueled demand for dollar-denominated assets. This ample supply of foreign savings combined with a low U.S. personal saving rate, large U.S. government deficits, and high productivity gains to produce a huge current account deficit. As a result, vast quantities of funds began "sloshing around" in our economy seeking investment projects.

    Fed monetary policy may also have contributed to the U.S. credit boom and the associated house price bubble by maintaining a highly accommodative stance from 2002 to 2004. 6 This accommodative stance was motivated by what Greenspan called "risk management policy," in which, to reduce the possibility of deflation, the funds rate was held below the level that would otherwise have been chosen to promote a return to full employment. 7 In effect, the Fed took a calculated risk. It took out some insurance to lower the chances of a potentially devastating deflationary episode. The cost of that insurance was an increased possibility of overheating the economy. These policy actions arguably played some role in our house price bubble. But they clearly were not the only factor, since such bubbles appeared in many countries that did not have highly accommodative monetary policies.

    As Minsky's financial instability hypothesis suggests, when optimism is high and ample funds are available for investment, investors tend to migrate from the safe hedge end of the Minsky spectrum to the risky speculative and Ponzi end. Indeed, in the current episode, investors tried to raise returns by increasing leverage and sacrificing liquidity through short-term-sometimes overnight-debt financing. Simultaneously, new and fancy methods of financial engineering allowed widespread and complex securitization of many types of assets, most famously in subprime lending. In addition, exotic derivatives, such as credit default swaps, were thought to dilute risk by spreading it widely. These new financial products provided the basis for an illusion of low risk, a misconception that was amplified by the inaccurate analyses of the rating agencies. This created a new wrinkle that even Minsky may not have imagined. Some of the investors who put money into highly risky assets were blithely unaware of how far out on a limb they had gone.

    Many of those who thought they were in the hedge category were shocked to discover that, in fact, they were speculative or Ponzi units.

    At the same time, securitization added distance between borrowers and lenders. As a result, underwriting standards were significantly relaxed. Much of this financing was done in the "shadow banking system," consisting of entities that acted a lot like banks-albeit very highly leveraged and illiquid banks-but were outside the bank regulatory net. Although these developments reached an extreme state in the U.S. subprime mortgage market, risky practices were employed broadly in the U.S. financial system. And this activity extended far beyond our borders as players throughout the global financial system eagerly participated. As banks and their large, nonbank competitors became involved in ever more complicated securitizations, they began to employ sophisticated "new tools" to measure and manage the credit risks flowing from these transactions. But those tools-which I described in my speech 13 years ago-proved insufficient for the task.

    This cult of risky behavior was not limited to financial institutions. U.S. households enthusiastically leveraged themselves to the hilt. The personal saving rate, which had been falling for over a decade, hovered only slightly above zero from mid-2005 to mid-2007. A good deal of this leverage came in the form of mortgage debt. The vast use of exotic mortgages-such as subprime, interest-only, low-doc and no-doc, and option-ARMs-offers an example of Minsky's Ponzi finance, in which a loan can only be refinanced if the price of the underlying asset increases. In fact, many subprime loans were explicitly designed to be good for the borrower only if they could be refinanced at a lower rate, a benefit limited to those who established a pattern of regular payments and built reasonable equity in their homes.

    In retrospect, it's not surprising that these developments led to unsustainable increases in bond prices and house prices. Once those prices started to go down, we were quickly in the midst of a Minsky meltdown. The financial engineering that was thought to hedge risks probably would have worked beautifully if individual investors had faced shocks that were uncorrelated with those of their counterparties. But declines in bond and house prices hit everyone in the same way, inflicting actual and expected credit losses broadly across the financial system. Moreover, the complexity of securitized credit instruments meant that it was difficult to identify who the actual loan holders might be. Meanwhile, asset write-downs reduced equity cushions of financial firms and increased their leverage just when growing risks made those firms seek less leverage, not more. When they tried to sell assets into illiquid markets, prices fell further, generating yet more selling pressure in a loss spiral that kept intensifying. We experienced a "perfect storm" in financial markets: runs on highly vulnerable and systemically important financial institutions; dysfunction in most securitized credit markets; a reduction in interbank lending; higher interest rates for all but the safest borrowers, matched by near-zero yields on Treasury bills; lower equity values; and a restricted supply of credit from financial institutions.

    Once this massive credit crunch hit, it didn't take long before we were in a recession. The recession, in turn, deepened the credit crunch as demand and employment fell, and credit losses of financial institutions surged. Indeed, we have been in the grips of precisely this adverse feedback loop for more than a year. A process of balance sheet deleveraging has spread to nearly every corner of the economy. Consumers are pulling back on purchases, especially on durable goods, to build their savings. Businesses are cancelling planned investments and laying off workers to preserve cash. And, financial institutions are shrinking assets to bolster capital and improve their chances of weathering the current storm. Once again, Minsky understood this dynamic. He spoke of the paradox of deleveraging, in which precautions that may be smart for individuals and firms-and indeed essential to return the economy to a normal state-nevertheless magnify the distress of the economy as a whole.

    The U.S. economy just entered the sixth quarter of recession. Economic activity and employment are contracting sharply, with weakness evident in every major sector aside from the federal government. Financial markets and institutions remain highly stressed, notwithstanding a few welcome signs of stability due mainly to Federal Reserve and federal government credit policies. The negative dynamics between the real and financial sides of the economy have created severe downside risks. While we've seen some tentative signs of improvement in the economic data very recently, it's still impossible to know how deep the contraction will ultimately be.

    As I mentioned earlier, the Minsky meltdown is global in nature, reflecting the ever-increasing interconnectedness of financial markets and institutions around the world. The recession is the first during the postwar period to see simultaneous contractions in output in Europe, Japan, and North America. Economic growth in these areas has weakened sharply as the financial pain has spread and the U.S. recession has spilled over to our trading partners. Forecasts for growth in Europe and Japan in 2009 are now even weaker than for the United States. What's more, many developing nations face stark challenges as markets for their products have dried up and capital inflows have abruptly halted, making debt refinancing-if necessary-difficult, if not impossible. The global nature of the downturn raises the odds that the recession will be prolonged, since neither we nor our trade partners can look to a boost from foreign demand.

    Bubbles and monetary policy

    The severity of these financial and economic problems creates a very strong case for government and central bank action. I'm encouraged that we are seeing an almost unprecedented outpouring of innovative fiscal and monetary policies aimed at resolving the crisis. Of course, fiscal stimulus played a central role in Minsky's policy prescriptions for combating economic cycles. Minsky also emphasized the importance of lender-of-last-resort interventions by the Federal Reserve, and this is a tool we have relied on heavily. I believe that Minsky would also approve of the Fed's current "credit easing" policies. Since the intensification of the financial crisis last fall, the Fed has expanded its balance sheet from around $850 billion to just over $2 trillion and has announced programs that are likely to take it yet higher. In effect, the government is easing the financial fallout resulting from virulent deleveraging throughout the private sector by increasing its own leverage in a partial and temporary offset. 8

    However, as I said at the beginning of my talk, this evening I want to address another question that has been the subject of much debate for many years: Should central banks attempt to deflate asset price bubbles before they get big enough to cause big problems? Until recently, most central bankers would have said no. They would have argued that policy should focus solely on inflation, employment, and output goals-even in the midst of an apparent asset-price bubble. 9 That was the view that prevailed during the tech stock bubble and I myself have supported this approach in the past. However, now that we face the tangible and tragic consequences of the bursting of the house price bubble, I think it is time to take another look.

    Let me briefly review the arguments for and against policies aimed at counteracting bubbles. The conventional wisdom generally followed by the Fed and central banks in most inflation-targeting countries is that monetary policy should respond to an asset price only to the extent that it will affect the future path of output and inflation, which are the proper concerns of monetary policy. 10 For example, a surging stock market can be expected to lead to stronger demand for goods and services by raising the wealth of households and reducing the cost of capital for businesses. As a result, higher stock prices mean that the stance of monetary policy needs to be tighter, but only enough to offset the macroeconomic consequences on aggregate demand created by a larger stock of wealth. In other words, policy would not respond to the stock market boom itself, but only to the consequences of the boom on the macroeconomy.

    However, other observers argue that monetary authorities must consider responding directly to an asset price bubble when one is detected. This is because-as we are witnessing-bursting bubbles can seriously harm economic performance, and monetary policy is hard-pressed to respond effectively after the fact. Therefore, central banks may prefer to try to eliminate, or at least reduce the size of, this threat directly. Under this approach, policymakers would push interest rates higher than would be indicated under conventional policy. The result, of course, would be that output and employment would be reduced in the near-term, which is the price of mitigating the risk of serious financial and economic turmoil later on.

    What are the issues that separate the anti-bubble monetary policy activists from the skeptics? First, some of those who oppose such policy question whether bubbles even exist. They maintain that asset prices reflect the collective information and wisdom of traders in organized markets. Trying to deflate an apparent bubble would go against precisely those "experts" who best understand the fundamental factors underlying asset prices. It seems to me though that this argument is particularly difficult to defend in light of the poor decisions and widespread dysfunction we have seen in many markets during the current turmoil.

    Second, even if bubbles do occur, it's an open question whether policymakers can identify them in time to act effectively. Bubbles are not easy to detect because estimates of the underlying fundamentals are imprecise. For example, in the case of house prices, it is common to estimate fundamental values by looking at the ratio of house prices to rents, which can be thought of as equivalent to a dividend-price ratio for the stock market. 11 If this ratio rises significantly above its fundamental, or long-run, value, the possibility of a bubble should be considered. Indeed, from 2002 to early 2006, this ratio zoomed to about 90 percent above its long-run value, far outstripping any previous level. Nonetheless, even when house prices were soaring, some experts doubted that a bubble existed. That said, by 2005 I think most people understood that-at a minimum-there was a substantial risk that houses had become overvalued. Even at that point though, many thought the correction in house prices would be slow, not the rapid adjustment that did occur. 12

    Now, even if we accept that we can identify bubbles as they happen, another question arises: Is the threat so serious that a monetary response is imperative? It would make sense for monetary policy makers to intervene only if the fallout were likely to be quite severe and difficult to deal with after the fact. We know that the effects of booms and busts in asset prices sometimes show themselves with significant lags. In those cases, conventional policy approaches can be effective. For example, fluctuations in equity prices generally affect wealth and consumer demand quite gradually. A central bank may prefer to adjust short-term interest rates after the bubble bursts to counter the depressing effects on demand. The tech stock bubble seems to fit this mold. The price-dividend ratio for these stocks reached dizzying heights and many observers were convinced that a crash was inevitable. But monetary policy makers did not try to stop the relentless climb of tech stock prices, although they raised interest rates toward the end of the period to dampen emerging inflationary pressures. Instead, it was only after tech stocks collapsed that policy eased to offset the negative wealth effect and, as unemployment rose, to help return the economy to full employment. The recession at the beginning of the decade was fairly mild and did not involve pervasive financial market disruptions.

    Still, just like infections, some bursting asset price bubbles are more virulent than others. The current recession is a case in point. As house prices have plunged, the turmoil has been transmitted to the economy much more quickly and violently than interest rate policy has been able to offset.

    You'll recognize right away that the assets at risk in the tech stock bubble were equities, while the volatile assets in the current crisis involve debt instruments held widely by global financial institutions. It may be that credit booms, such as the one that spurred house price and bond price increases, hold more dangerous systemic risks than other asset bubbles. By their nature, credit booms are especially prone to generating powerful adverse feedback loops between financial markets and real economic activity. It follows then, that if all asset bubbles are not created equal, policymakers could decide to intervene only in those cases that seem especially dangerous.

    That brings up a fourth point: even if a dangerous asset price bubble is detected and action to rein it in is warranted, conventional monetary policy may not be the best approach. It's true that moderate increases in the policy interest rate might constrain the bubble and reduce the risk of severe macroeconomic dislocation. In the current episode, higher short-term interest rates probably would have restrained the demand for housing by raising mortgage interest rates, and this might have slowed the pace of house price increases. In addition, as Hyun Song Shin and his coauthors have noted in important work related to Minsky's, tighter monetary policy may be associated with reduced leverage and slower credit growth, especially in securitized markets.13 Thus, monetary policy that leans against bubble expansion may also enhance financial stability by slowing credit booms and lowering overall leverage.

    Nonetheless, these linkages remain controversial and bubbles may not be predictably susceptible to interest rate policy actions. And there's a question of collateral damage. Even if higher interest rates take some air out of a bubble, such a strategy may have an unacceptably depressing effect on the economy as a whole. There is also the harm that can result from "type 2 errors," when policymakers respond to asset price developments that, with the benefit of hindsight, turn out not to have been bubbles at all. For both of these reasons, central bankers may be better off avoiding monetary strategies and instead relying on more targeted and lower-cost alternative approaches to manage bubbles, such as financial regulatory and supervisory tools. I will turn to that topic in just a minute.

    In summary, when it comes to using monetary policy to deflate asset bubbles, we must acknowledge the difficulty of identifying bubbles, and uncertainties in the relationship between monetary policy and financial stability. At the same time though, policymakers often must act on the basis of incomplete knowledge. What has become patently obvious is that not dealing with certain kinds of bubbles before they get big can have grave consequences. This lends more weight to arguments in favor of attempting to mitigate bubbles, especially when a credit boom is the driving factor. I would not advocate making it a regular practice to use monetary policy to lean against asset price bubbles. However recent experience has made me more open to action. I can now imagine circumstances that would justify leaning against a bubble with tighter monetary policy. Clearly further research may help clarify these issues. 14

    Another important tool for financial stability

    Regardless of one's views on using monetary policy to reduce bubbles, it seems plain that supervisory and regulatory policies could help prevent the kinds of problems we now face. Indeed, this was one of Minsky's major prescriptions for mitigating financial instability. I am heartened that there is now widespread agreement among policymakers and in Congress on the need to overhaul our supervisory and regulatory system, and broad agreement on the basic elements of reform. 15

    Many of the proposals under discussion are intended to strengthen micro-prudential supervision. Micro-prudential supervision aims to insure that individual financial institutions, including any firm with access to the safety net, but particularly those that are systemically important, are well managed and avoid excessive risk. The current system of supervision is characterized by uneven and fragmented supervision, and it's riddled with gaps that enhance the opportunity for regulatory arbitrage. Such arbitrage was a central component in the excessive risk-taking that led to our current problems. It is now widely agreed that such gaps and overlaps must be eliminated, and systemically important institutions-whether banks, insurance firms, investment firms, or hedge funds-should be subject to consolidated supervision by a single agency. Systemic institutions would be defined by key characteristics, such as size, leverage, reliance on short-term funding, importance as sources of credit or liquidity, and interconnectedness in the financial system-not by the kinds of charters they have. Another critical shortcoming of the current system is that it lacks any legal process to enable supervisors of financial conglomerates and nonbanks to wind down the activities of failed firms in an orderly fashion. The need for a resolution framework that would permit such wind-downs of systemically important firms is also widely accepted.

    The current crisis has afforded plentiful opportunities for supervisors to reflect on the effectiveness of our current system of micro-prudential supervision. The "lessons learned" will undoubtedly enhance its conduct going forward. 16 But, regardless of how well micro-prudential supervision is executed, on its own it will never be adequate to safeguard the economy from the destructive boom and bust cycles that Minsky considered endemic in capitalistic systems. Analogous to Keynes' paradox of thrift, the assumption that safe institutions automatically result in a safe system reflects a fallacy of composition. Thus, macro-prudential supervision-to protect the system as a whole-is needed to mitigate financial crises.

    The roles of micro- and macro-prudential supervision are fundamentally different. In principle, many individual institutions could be managing risk reasonably well, while the system as a whole remained vulnerable due to interconnections among financial institutions that could lead to contagious cycles of loss and illiquidity. For example, it is prudent for institutions to sell risky assets and pay off debt when a decline in asset prices depletes capital. But the simultaneous behavior of many institutions to protect themselves in this way only intensifies the decline in prices. Moreover, when many institutions try to de-lever simultaneously, market liquidity can instantly evaporate. Systemic risk is endogenous to the working of the financial system.

    Capital requirements could serve as a key tool of macro-prudential supervision. Most proposals for regulatory reform would impose higher capital requirements on systemically important institutions and also design them to vary in a procyclical manner. In other words, capital requirements would rise in economic upswings, so that institutions would build strength in good times, and they would fall in recessions. This pattern would counteract the natural tendency of leverage to amplify business cycle swings-serving as a kind of "automatic stabilizer" for the financial system. Financial stability might also be enhanced by reforming the accounting rules governing loan loss reserves. A more forward-looking system for reserving against such losses could make regulatory capital less sensitive to economic fluctuations. 17 In addition, most proposals for financial reform emphasize the need for stronger liquidity standards. The funding of long-term assets with short-term, often overnight liabilities, is a source of systemic vulnerability. One interesting recent proposal would disincent overreliance on short-term funding by relating an institution's capital charges to the degree of maturity mismatch between its assets and liabilities. 18 There has been considerable discussion recently of the need for a new macro-prudential or "financial stability" supervisor-whether the Fed or some other agency-with responsibility to monitor, assess, and mitigate systemic risks in the financial system as a whole.

    At this stage, the proposed reforms involve broad principles. The translation of those principles into a detailed supervisory program will be challenging, to say the least. But I am hopeful that the lessons we have learned will help us build a more effective system to head off financial crises. If we are successful, then we will have gone a long way toward preventing another Minsky meltdown.

    SSRN-The Financial Instability Hypothesis by Hyman Minsky

    The Financial Instability Hypothesis


    Hyman P. Minsky
    Bard College - The Levy Economics Institute


    May 1992

    The Jerome Levy Economics Institute Working Paper No. 74


    Abstract:
    The Financial Instability Hypothesis (FIH) has both empirical and theoretical aspects that challenge the classic precepts of Smith and Walras, who implied that the economy can be best understood by assuming that it is constantly an equilibrium-seeking and sustaining system. The theoretical argument of the FIH emerges from the characterization of the economy as a capitalist economy with extensive capital assets and a sophisticated financial system. r>In spite of the complexity of financial relations, the key determinant of system behavior remains the level of profits: the FIH incorporates a view in which aggregate demand determines profits. Hence, aggregate profits equal aggregate investment plus the government deficit. The FIH, therefore, considers the impact of debt on system behavior and also includes the manner in which debt is validated.

    Minsky identifies hedge, speculative, and Ponzi finance as distinct income-debt relations for economic units. He asserts that if hedge financing dominates, then the economy may well be an equilibrium-seeking and containing system: conversely, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a "deviation-amplifying" system. Thus, the FIH suggests that over periods of prolonged prosperity, capitalist economies tend to move from a financial structure dominated by hedge finance (stable) to a structure that increasingly emphasizes speculative and Ponzi finance (unstable). The FIH is a model of a capitalist economy that does not rely on exogenous shocks to generate business cycles of varying severity: business cycles of history are compounded out of (i) the internal dynamics of capitalist economies, and (ii) the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds.

    JEL Classifications: E32

    Working Paper Series

    Date posted: July 30, 1999 ; Last revised: July 30, 1999

    Leader In praise of ... Hyman Minsky Comment is free The Guardian

    Markets are ruled by fear and greed, they say, but those two ingredients are not the whole recipe: ideas play a part, too. And, as all bankers worth their Blackberry know, the current big idea is the "Minsky moment". Named after the economist Hyman Minsky, the phrase describes a situation where investors who have borrowed too much are forced to sell even good assets to pay back their loans. Bathwater; baby; even the bathtub: all appear expendable in crisis-hit markets where credit is scarce, and central banks have to intervene. That scenario applies right now, prompting a craze among investors for quoting the American economist. Minsky has himself missed his big moment, since he died in 1996 - which just goes to prove that, however good their ideas, economists are terrible at timing. A Chicagoan, Minsky was none the less an enemy of the "Chicago School" of economists, who typically believe in the efficiency of markets. Taking his cue instead from Keynes, Minsky argued that crises were integral to financial markets: the longer a good time lasts, the more risks borrowers will take. And while some debtors are perfectly sound, others can only pay off their interest by renewing their loans. A third group sounds dangerously familiar: its members depend on assets rising in value to pay off their borrowing. Not just academic taxonomy, this is also prophetic warning: after a Minsky moment comes a Minsky meltdown - and you don't need economics to grasp what that means.

    The Minsky Moment Comment The New Yorker by John Cassidy

    February 4, 2008

    Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen.

    Many of Minsky's colleagues regarded his "financial-instability hypothesis," which he first developed in the nineteen-sixties, as radical, if not crackpot. Today, with the subprime crisis seemingly on the verge of metamorphosing into a recession, references to it have become commonplace on financial Web sites and in the reports of Wall Street analysts. Minsky's hypothesis is well worth revisiting. In trying to revive the economy, President Bush and the House have already agreed on the outlines of a "stimulus package," but the first stage in curing any malady is making a correct diagnosis.

    Minsky, who died in 1996, at the age of seventy-seven, earned a Ph.D. from Harvard and taught at Brown, Berkeley, and Washington University. He didn't have anything against financial institutions-for many years, he served as a director of the Mark Twain Bank, in St. Louis-but he knew more about how they worked than most deskbound economists. There are basically five stages in Minsky's model of the credit cycle: displacement, boom, euphoria, profit taking, and panic. A displacement occurs when investors get excited about something-an invention, such as the Internet, or a war, or an abrupt change of economic policy. The current cycle began in 2003, with the Fed chief Alan Greenspan's decision to reduce short-term interest rates to one per cent, and an unexpected influx of foreign money, particularly Chinese money, into U.S. Treasury bonds. With the cost of borrowing-mortgage rates, in particular-at historic lows, a speculative real-estate boom quickly developed that was much bigger, in terms of over-all valuation, than the previous bubble in technology stocks.

    As a boom leads to euphoria, Minsky said, banks and other commercial lenders extend credit to ever more dubious borrowers, often creating new financial instruments to do the job. During the nineteen-eighties, junk bonds played that role. More recently, it was the securitization of mortgages, which enabled banks to provide home loans without worrying if they would ever be repaid. (Investors who bought the newfangled securities would be left to deal with any defaults.) Then, at the top of the market (in this case, mid-2006), some smart traders start to cash in their profits.

    The onset of panic is usually heralded by a dramatic effect: in July, two Bear Stearns hedge funds that had invested heavily in mortgage securities collapsed. Six months and four interest-rate cuts later, Ben Bernanke and his colleagues at the Fed are struggling to contain the bust. Despite last week's rebound, the outlook remains grim. According to Dean Baker, the co-director of the Center for Economic and Policy Research, average house prices are falling nationwide at an annual rate of more than ten per cent, something not seen since before the Second World War. This means that American households are getting poorer at a rate of more than two trillion dollars a year.

    It's hard to say exactly how falling house prices will affect the economy, but recent computer simulations carried out by Frederic Mishkin, a governor at the Fed, suggest that, for every dollar the typical American family's housing wealth drops in a year, that family may cut its spending by up to seven cents. Nationwide, that adds up to roughly a hundred and fifty-five billion dollars, which is bigger than President Bush's stimulus package. And it doesn't take into account plunging stock prices, collapsing confidence, and the belated imposition of tighter lending practices-all of which will further restrict economic activity.

    In an election year, politicians can't be expected to acknowledge their powerlessness. Nonetheless, it was disheartening to see the Republicans exploiting the current crisis to try to make the President's tax cuts permanent, and the Democrats attempting to pin the economic downturn on the White House. For once, Bush is not to blame. His tax cuts were irresponsible and callously regressive, but they didn't play a significant role in the housing bubble.

    If anybody is at fault it is Greenspan, who kept interest rates too low for too long and ignored warnings, some from his own colleagues, about what was happening in the mortgage market. But he wasn't the only one. Between 2003 and 2007, most Americans didn't want to hear about the downside of funds that invest in mortgage-backed securities, or of mortgages that allow lenders to make monthly payments so low that their loan balances sometimes increase. They were busy wondering how much their neighbors had made selling their apartment, scouting real-estate Web sites and going to open houses, and calling up Washington Mutual or Countrywide to see if they could get another home-equity loan. That's the nature of speculative manias: eventually, they draw in almost all of us.

    You might think that the best solution is to prevent manias from developing at all, but that requires vigilance. Since the nineteen-eighties, Congress and the executive branch have been conspiring to weaken federal supervision of Wall Street. Perhaps the most fateful step came when, during the Clinton Administration, Greenspan and Robert Rubin, then the Treasury Secretary, championed the abolition of the Glass-Steagall Act of 1933, which was meant to prevent a recurrence of the rampant speculation that preceded the Depression.

    The greatest need is for intellectual reappraisal, and a good place to begin is with a statement from a paper co-authored by Minsky that "apt intervention and institutional structures are necessary for market economies to be successful." Rather than waging old debates about tax cuts versus spending increases, policymakers ought to be discussing how to reform the financial system so that it serves the rest of the economy, instead of feeding off it and destabilizing it. Among the problems at hand: how to restructure Wall Street remuneration packages that encourage excessive risk-taking; restrict irresponsible lending without shutting out creditworthy borrowers; help victims of predatory practices without bailing out irresponsible lenders; and hold ratings agencies accountable for their assessments. These are complex issues, with few easy solutions, but that's what makes them interesting. As Minsky believed, "Economies evolve, and so, too, must economic policy."

    [Jun 23, 2015] Bill Black: A Harvard Don is Enraged that Pope Francis is Opposed to the World Economic Order

    Notable quotes:
    "... By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with http://neweconomicperspectives.org " rel="nofollow">New Economic Perspectives ..."
    "... New York Times ..."
    "... New York Times ..."
    "... laissez faire. ..."
    "... The Gospel According to St. Lloyd Blankfein ..."
    Jun 23, 2015 | www.nakedcapitalism.com
    Posted on June 23, 2015 by Yves Smith

    By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with http://neweconomicperspectives.org" rel="nofollow">New Economic Perspectives

    A New York Times article entitled "Championing Environment, Francis Takes Aim at Global Capitalism" quotes a conventional Harvard economist, Robert N. Stavins. Stavins is enraged by Pope Francis' position on the environment because the Pope is "opposed to the world economic order." The rage, unintentionally, reveals why conventional economics is the most dangerous ideology pretending to be a "science."

    Stavins' attacks on the Pope quickly became personal and dismissive. This is odd, for Pope Francis' positions on the environment are the same as Stavins' most important positions. Stavins' natural response to the Pope's views on the environment – had Stavin not been an economist – would have been along the lines of "Pope Francis is right, and we urgently need to make his vision a reality."

    Stavins' fundamental position is that there is an urgent need for a "radical restructuring" of the markets to prevent them from causing a global catastrophe. That is Pope Francis' fundamental position. But Stavins ends up mocking and trying to discredit the Pope.

    I was struck by the similarity of Stavins response to Pope Francis to the rich man's response to Jesus. The episode is reported in Matthew, Mark, and Luke in similar terms. I'll use Matthew's version (KJAV), which begins at 19:16 with the verse:

    And, behold, one came and said unto him, Good Master, what good thing shall I do, that I may have eternal life?

    Jesus responds:

    And he said unto him, Why callest thou me good? there is none good but one, that is, God: but if thou wilt enter into life, keep the commandments.

    The young rich man wants to know which commandments he needs to follow to gain eternal life.

    He saith unto him, Which? Jesus said, Thou shalt do no murder, Thou shalt not commit adultery, Thou shalt not steal, Thou shalt not bear false witness,

    Honour thy father and thy mother: and, Thou shalt love thy neighbour as thyself.

    The young man saith unto him, All these things have I kept from my youth up: what lack I yet?

    The young, wealthy man is enthused. The Rabbi that he believes has the secret of eternal life has agreed to personally answer his question as to how to obtain it. He passes the requirements the Rabbi lists, indeed, he has met those requirements since he was a child.

    But then Jesus lowers the boom in response to the young man's question on what he "lacks."

    Jesus said unto him, If thou wilt be perfect, go and sell that thou hast, and give to the poor, and thou shalt have treasure in heaven: and come and follow me.

    We need to "review the bidding" at this juncture. The young man is wealthy. He believes that Jesus knows the secret to obtaining eternal life. His quest was to discover – and comply – with the requirement to achieve eternal life. The Rabbi has told him the secret – and then gone well beyond the young man's greatest hopes by offering to make him a disciple. The door to eternal life is within the young man's power to open. All he needs to do is give all that he owns to the poor. The Rabbi goes further and offers to make the young man his disciple. In exchange, the young man will secure "treasure in heaven" – eternal life and a place of particular honor for his sacrifice and his faith in Jesus.

    Jesus' answer – the answer the young man thought he wished to receive more than anything in the world – the secret of eternal life, causes the young man great distress.

    But when the young man heard that saying, he went away sorrowful: for he had great possessions.

    The young man rejects eternal life because he cannot bear the thought of giving his "great possessions" to "the poor." Notice that the young man is not evil. He keeps the commandments. He is eager to do a "good thing" to gain eternal life. He has "great possessions" and is eager to trade a generous portion of his wealth as a good deed to achieve eternal life. In essence, he is seeking to purchase an indulgence from Jesus.

    But Jesus' response causes the young, wealthy man to realize that he must make a choice. He must decide which he loves more – eternal life or his great possessions. He is "sorrowful" for Jesus' response causes him to realize that he loves having his great possessions for his remaining span of life on earth more than eternal life itself.

    Jesus offers him not only the means to open the door to eternal life but the honor of joining him as a disciple. The young man is forced by Jesus' offer to realize that his wealth has so fundamentally changed him that he will voluntarily give up his entry into eternal life. He is not simply "sorrowful" that he will not enter heaven – he is "sorrowful" to realize that heaven is open to him – but he will refuse to enter it because of his greed. His wealth has become a golden trap of his own creation that will damn him. The golden bars of his cell are invisible and he can remove them at any time and enter heaven, but the young man realizes that his greed for his "great possessions" has become so powerful that his self-created jail cell has become inescapable. It is only when Jesus opens the door to heaven that the young man realizes for the first time in his life how completely his great possessions have corrupted and doomed him. He knows he is committing the suicide of his soul – and that he is powerless to change because he has been taught to value his own worth as a person by the extent of his great possessions.

    Jesus then makes his famous saying that captures the corrupting effects of great wealth.

    Then said Jesus unto his disciples, Verily I say unto you, That a rich man shall hardly enter into the kingdom of heaven.

    And again I say unto you, It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.

    The remainder of the passage is of great importance to Luther's doctrine of "justification by faith alone" and leads to Jesus' famous discussion of why "the last shall be first," (in which his anti-market views are made even more explicit) but the portions I have quoted are adequate to my purpose.

    Pope Francis' positions on the environment and climate are the greatest boon that Stavin has received in decades. The Pope, like Stavins, tells us that climate change is a disaster that requires urgent governmental action to fix. Stavins could receive no more joyous news. Instead of being joyous, however, Stavins is sorrowful. Indeed, unlike the wealthy man who simply leaves after hearing the Rabbi's views, Stavins rages at and heaps scorn on the prelate, Pope Francis. Stavins' email to the New York Times about the Pope's position on climate change contains this double ideological smear.

    The approach by the pope, an Argentine who is the first pontiff from the developing world, is similar to that of a "small set of socialist Latin American countries that are opposed to the world economic order, fearful of free markets, and have been utterly dismissive and uncooperative in the international climate negotiations," Dr. Stavins said.

    Stavins' work explicitly states that the "free markets" he worships are causing "mass extinction" and a range of other disasters. Stavins' work explicitly states that the same "free markets" are incapable of change – they cause incentives so perverse that they are literally suicidal – and the markets are incapable of reform even when they are committing suicide by laissez faire. That French term is what Stavins uses to describe our current markets. Pope Francis agrees with each of these points.

    Pope Francis says, as did Jesus, that this means that we must not worship "free markets," that we must think first of the poor, and that justice and fairness should be our guides to proper conduct. Stavins, like the wealthy young man, is forced to make a choice. He chooses "great possessions." Unlike the wealthy young man, however, Stavins is enraged rather than "sorrowful" and Stavins lashes out at the religious leader. He is appalled that an Argentine was made Pope, for Pope Francis holds views "that are opposed to the world economic order [and] fearful of free markets." Well, yes. A very large portion of the world's people oppose "the Washington Consensus" and want a very different "world economic order." Most of the world's top religious leaders are strong critics of the "world economic order."

    As to being "fearful of free markets," Stavins' own work shows that his use of the word "free" in that phrase is not simply meaningless, but false. Stavins explains that the people, animals, and plants that are the imminent victims of "mass extinction" have no ability in the "markets" to protect themselves from mass murder. They are "free" only to become extinct, which makes a mockery of the word "free."

    Similarly, Stavins' work shows that any sentient species would be "fearful" of markets that Stavins proclaims are literally suicidal and incapable of self-reform. Stavins writes that only urgent government intervention that forces a "radical restructuring" of the markets can save our planet from "mass extinction." When I read that I believed that he was "fearful of free markets."

    We have all had the experience of seeing the "free markets" blow up the global economy as recently as 2008. We saw there, as well, that only massive government intervention could save the markets from a global meltdown. Broad aspects of the financial markets became dominated by our three epidemics of "accounting control fraud."

    Stavins is appalled that a religious leader could oppose a system based on the pursuit and glorification of "great possessions." He is appalled that a religious leader is living out the Church's mission to provide a "preferential option for the poor." Stavins hates the Church's mission because it is "socialist" – and therefore so obviously awful that it does not require refutation by Stavins. This cavalier dismissal of religious beliefs held by most humans is revealing coming from a field that proudly boasts the twin lies that it is a "positive" "science." Theoclassical economists embrace an ideology that is antithetical to nearly every major religion.

    Stavins, therefore, refuses to enter the door that Pope Francis has opened. Stavins worships a system based on the desire to accumulate "great possessions" – even though he knows that the markets pose an existential threat to most species on this planet and even though he knows that his dogmas increasingly aid the worst, most fraudulent members of our society to become wealthy through forms of "looting" (Akerlof and Romer 1993) that make other people poorer. The result is that Stavins denounces Pope Francis rather than embracing him as his most valuable ally.

    Conclusion: Greed and Markets Kill: Suicide by Laissez Faire

    The old truths remain. The worship of "great possessions" wreaks such damage on our humanity that we come to love them more than life itself and act in a suicidal fashion toward our species and as mass destroyers of other species. Jesus' insight was that this self-corruption is so common, so subtle, and so powerful that "It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God." Today, he would probably use "economist" rather than "camel."

    Theoclassical economists are the high priests of this celebration of greed that Stavins admits poses the greatest threat to life on our planet. When Pope Francis posed a choice to Stavins, he chose to maintain his dogmatic belief in a system that he admits is suicidal and incapable of self-reform. The reason that the mythical and mystical "free markets" that Stavins worships are suicidal and incapable of self-reform even when they are producing "mass extinction" is that the markets are a system based on greed and the desire to obtain "great possessions" even if the result is to damn us and life on our planet.

    Adam Smith propounded the paradox that greed could lead the butcher and baker (in a village where everyone could judge reputation and quality) to reliably produce goods of high quality at the lowest price. The butcher and baker, therefore, would act (regardless of their actual motivations) as if they cared about their customers. Smith observed that the customer of small village merchant's products would find the merchant's self-interest a more reliable assurance of high quality than the merchant's altruism.

    But Stavins makes clear in his writing that this is not how markets function in the context of "external" costs to the environment. In the modern context, the energy markets routinely function in a manner that Stavins rightly depicts as leading to mass murder. Stavins so loves the worship of the quest for "great possessions" that he is eager to try to discredit Pope Francis as a leader in the effort to prevent "mass extinction" (Stavins' term) – suicide by laissez faire.

    (No, I am not now and never was or will be a Catholic.)

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    Clive June 23, 2015 at 6:04 am

    The Pope's recent comments stirred an old memory from when I was a child, for some reason. Growing up in England in the 1980's, it didn't escape even my childish notice that the series "Dr. Who" was often a vehicle for what would now been deemed outrageously left wing thinking and ideas.

    One such episode was The Pirate Planet. The plot's premise was that a race had created a mechanism for consuming entire planets at a time, extracting mineral wealth from the doomed planet being destroyed in the process and using energy and resources for the benefit of a tiny ruling elite with the remnants being offered as trinkets for the masses.

    A small subset of the evil race was subliminally aware of what was happening. One of the lines spoken by a character really stuck in my mind, when he said after the reality of their existence was explained to him "so people die to make us rich?"

    At the time, it was intended I think more as an allegory on the exploitation of South African gold miners under apartheid than as a general critique of capitalism by the prevailing socialist thinking in Britain in that era (it seems impossible now for me to believe how left wing Britain was in the late 1970s and even into the very early 1980s, but that is indeed the case; it feels like it was a completely different country. Perhaps it was ). No wonder the Thatcher government aggressively targeted the BBC (who produced the show), seeing it, probably rightly, as a hotbed of Trotskyite ideology.

    But the point the show was trying to make is as valid now as it was then and is the same point the Pope Francis is making. A great deal of our material wealth and affluence is built on others' suffering. It is wrong. And the system which both perpetrates the suffering and the people who benefit from it needs to change. Us turkeys are going to have to vote for Christmas.

    Disturbed Voter June 23, 2015 at 6:43 am

    Nice post, Clive. But I thought Brits ate goose at Christmas, and Americans eat turkey at Thanksgiving ;-)

    Yes, where have all the leftists gone? Is Cornel West the only one "left" in America? Forty years ago I was moving to the Right, in reaction to the Left. The Cold War was still on, patriotism et al.

    The current paradigm is insane so nature will not allow it to continue much longer. G-d not so much. The US today is qualitatively different than it was in the 70s.

    Trotsky was one of the first people to understand Hitler. Stalin not so much. Our current crop of elder pundits of Neoliberalism originally were Jewish trotskyites back in the 60s. Neoliberalism was perhaps pragmatic back then, but has outlived its usefulness.

    vidimi June 23, 2015 at 7:59 am

    old queen vic introduced the turkey to britain and it has supplanted the goose as a christmas special. i prefer goose, though.

    James Levy June 23, 2015 at 10:36 am

    My friend Tracey and her family still had "joint of beef" for Christmas.

    James Levy June 23, 2015 at 6:47 am

    The overweening arrogance of the Thatcherites and the neoclassical ideologues that are in evidence at Harvard is their insistence that what they peddle is not a set of values, but a "science", and that their set of values is the only set of values even worth considering (TINA). The Pope's job is to remind us all of another possible set of values and organizing principles. No one said you have to believe in them. But they have a right to be on the table when we collectively chose what kind of world we want to live in.

    John Smith June 23, 2015 at 6:13 am

    "All he needs to do is give all that he owns to the poor." Bill Black

    No. He is to sell all he owns but Jesus does not say that he is to then give away ALL the money. The rich guy's problem is his possessions, not money. Note that Matthew, another rich guy, did not give away all his money yet he was a disciple of Jesus.

    As for "free markets", what is free market about government-subsidized/privileged banks?

    Patricia June 23, 2015 at 6:35 am

    Don't know if this has been linked at NC; it is another righteous rant on the subject:

    http://www.counterpunch.org/2015/06/19/in-the-usa-i-cannot-write/

    Disturbed Voter June 23, 2015 at 7:18 am

    Nice. Takeaway? "no true feelings" insightful description of the people around me. The West in a state of nervous breakdown.

    vidimi June 23, 2015 at 11:11 am

    something didn't read right about this piece to me. hard to put my finger on it, but it came across as a bit hypocritical and a lot bitter. apart from that, the style is eclectic and the thoughts are scrambled all over the place. more a rant than a coherent argument.

    It all began when I arrived. After travelling some 48 hours from South Africa to Southern California, carrying films and books for the conference, I was not even met at the airport. So I took a taxi. But nobody met me at the place where I was supposed to stay. I stood on the street for more than one hour.

    in this passage he sounds like he suffers from affluenza. in those poor but righteous third world countries, he is treated like a rockstar. in the rotten US, he is dismayed at the lack of attention. although no doubt he has a point, it smacks a bit of entitlement.

    not vltchek's best work, but then again, he did admit to writing most of it on the plane.

    Synoia June 23, 2015 at 6:42 am

    it seems impossible now for me to believe how left wing Britain was in the late 1970s and even into the very early 1980s, but that is indeed the case; it feels like it was a completely different country.

    True. And greed, as described by Bill Black. has no limits.

    Moneta June 23, 2015 at 6:56 am

    Free markets and world economic order in the same sentence?

    Disturbed Voter June 23, 2015 at 7:10 am

    Irony perhaps? But then actual free markets are only in the imagination of Adam Smith.

    William C June 23, 2015 at 7:28 am

    I seem to remember plenty in WoN about businessmen conspiring against the public.

    Eric Patton June 23, 2015 at 8:22 am

    Very awesome essay.

    Ulysses June 23, 2015 at 8:52 am

    "Theoclassical economists are the high priests of this celebration of greed that Stavins admits poses the greatest threat to life on our planet. When Pope Francis posed a choice to Stavins, he chose to maintain his dogmatic belief in a system that he admits is suicidal and incapable of self-reform. The reason that the mythical and mystical "free markets" that Stavins worships are suicidal and incapable of self-reform even when they are producing "mass extinction" is that the markets are a system based on greed and the desire to obtain "great possessions" even if the result is to damn us and life on our planet."

    This is an extremely important point. We cannot combat neoliberal ideology as if it were simply a set of rational assumptions, albeit flowing from flawed premises. No, it is a religious dogma of greed, set up to combat all of the more communitarian and gentle schools of religious thought– including the Christianity of Pope Francis, or the environmentalism of St. Francis, the patron saint of ecologists.

    diptherio June 23, 2015 at 9:39 am

    Good to see that someone else pulls out the "rich young man" bit occasionally. Not many Christians I've talked to seem to be aware of it, much less of the implications. Good on ya'.

    vidimi June 23, 2015 at 10:46 am

    fundamentalists like to take things in the bible literally, but they know that jesus didn't mean it when he said that "It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God"

    Garrett Pace June 23, 2015 at 10:05 am

    Maybe he didn't realize that his possessions owned him, but the rich young man knew that *something* was wrong. For all his virtue and good works, he could feel things weren't right inside himself.

    Vatch June 23, 2015 at 10:30 am

    Pope Francis probably hasn't read The Gospel According to St. Lloyd Blankfein. If he had read it, he would know that investment bankers are doing God's work.

    [Jun 18, 2015] Pope Blames Markets for Environments Ills

    Notable quotes:
    "... "Humanity is called to recognize the need for changes of lifestyle, production and consumption, in order to combat this warming or at least the human causes which produce or aggravate it," he adds. ..."
    June 18, 2015 WSJ

    Pope Blames Markets for Environment's Ills. Pontiff condemns global warming as outgrowth of global consumerism. Pope Francis said human activity is the cause of climate change, which threatens the poor and future generations.

    ROME- Pope Francis in his much-awaited encyclical on the environment offered a broad and uncompromising indictment of the global market economy, accusing it of plundering the Earth at the expense of the poor and of future generations.

    In passionate language, the pontiff attributed global warming to human activity, blamed special interests for holding back policy responses and said the global North owes the South "an ecological debt."

    The 183-page document, which Pope Francis addresses to "every person living on this planet," includes pointed critiques of globalization and consumerism, which he says lead to environmental degradation.

    "The Earth, our home, is beginning to look more and more like an immense pile of filth," he writes.

    The encyclical's severe language stirred immediate controversy, signaling the weight the pontiff's stance could have on the pitched debate over how to respond to climate change.

    "Economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain," he writes. "As a result, whatever is fragile, like the environment, is defenseless before the interests of the deified market, which become the only rule."

    The Vatican published the document, titled "Laudato Si" ("Be praised"), on Thursday. The official release came three days after the online publication of a leaked version by an Italian magazine.

    The Vatican spokesman, the Rev. Federico Lombardi, had described the leaked Italian text as a draft, but the final document, published in eight languages, differed only in minor ways, while the pope's main points were identical. An encyclical is considered one of the most authoritative forms of papal writing.

    In the encyclical, Pope Francis wades into the debate over the cause of global warming, lending high-profile support to those who attribute it to human activity.

    A "very solid scientific consensus indicates that we are presently witnessing a disturbing warming of the climactic system," contributing to a "constant rise in the sea level" and an "increase of extreme weather events," he writes.

    "Humanity is called to recognize the need for changes of lifestyle, production and consumption, in order to combat this warming or at least the human causes which produce or aggravate it," he adds.

    While acknowledging natural causes for climate change, including volcanic activity and the solar cycle, Pope Francis writes that a "number of scientific studies indicate that most global warming in recent decades is due to the great concentration of greenhouse gases (carbon dioxide, methane, nitrogen oxides and others) released mainly as a result of human activity."

    The pontiff goes on to argue that there is "an urgent need" for policies to drastically cut the emission of carbon dioxide and other gases and promote the switch to renewable sources of energy.

    Related Coverage

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