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Neoliberalism Bulletin 2015

Neoliberalism as a New Form of Corporatism

Neoliberalism Bulletin, 2017

Neoliberalism Bulletin, 2016 Neoliberalism Bulletin, 2015 Neoliberalism Bulletin, 2014 Neoliberalism Bulletin, 2013 Neoliberalism Bulletin, 2011 Neoliberalism Bulletin, 2010 Neoliberalism Bulletin 2009 Neoliberalism Bulletin 2008

2015 was the year when Catholic church extended its attack on neoliberalism.

See Full text of Pope Francis speech before Congress


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Old News ;-)

[Dec 05, 2016] The Trans-Pacific Partnership Permanent Lock In The Obama Agenda For 40% Of The Global Economy

Oct 06, 2015 | Zero Hedge
We have just witnessed one of the most significant steps toward a one world economic system that we have ever seen. Negotiations for the Trans-Pacific Partnership have been completed, and if approved it will create the largest trading bloc on the planet. But this is not just a trade agreement. In this treaty, Barack Obama has thrown in all sorts of things that he never would have been able to get through Congress otherwise. And once this treaty is approved, it will be exceedingly difficult to ever make changes to it. So essentially what is happening is that the Obama agenda is being permanently locked in for 40 percent of the global economy.

The United States, Canada, Japan, Mexico, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam all intend to sign on to this insidious plan. Collectively, these nations have a total population of about 800 million people and a combined GDP of approximately 28 trillion dollars.

Of course Barack Obama is assuring all of us that this treaty is going to be wonderful for everyone

In hailing the agreement, Obama said, "Congress and the American people will have months to read every word" before he signs the deal that he described as a win for all sides.

"If we can get this agreement to my desk, then we can help our businesses sell more Made in America goods and services around the world, and we can help more American workers compete and win," Obama said.

Sadly, just like with every other "free trade" agreement that the U.S. has entered into since World War II, the exact opposite is what will actually happen. Our trade deficit will get even larger, and we will see even more jobs and even more businesses go overseas.

But the mainstream media will never tell you this. Instead, they are just falling all over themselves as they heap praise on this new trade pact. Just check out a couple of the headlines that we saw on Monday…

Overseas it is a different story. Many journalists over there fully recognize that this treaty greatly benefits many of the big corporations that played a key role in drafting it. For example, the following comes from a newspaper in Thailand

You will hear much about the importance of the TPP for "free trade".

The reality is that this is an agreement to manage its members' trade and investment relations - and to do so on behalf of each country's most powerful business lobbies.

These sentiments were echoed in a piece that Zero Hedge posted on Monday

Packaged as a gift to the American people that will renew industry and make us more competitive, the Trans-Pacific Partnership is a Trojan horse. It's a coup by multinational corporations who want global subservience to their agenda. Buyer beware. Citizens beware.

The gigantic corporations that dominate our economy don't care about the little guy. If they can save a few cents on the manufacturing of an item by moving production to Timbuktu they will do it.

Over the past couple of decades, the United States has lost tens of thousands of manufacturing facilities and millions of good paying jobs due to these "free trade agreements". As we merge our economy with the economies of nations where it is legal to pay slave labor wages, it is inevitable that corporations will shift jobs to places where labor is much cheaper. Our economic infrastructure is being absolutely eviscerated in the process, and very few of our politicians seem to care.

Once upon a time, the city of Detroit was the greatest manufacturing city on the planet and it had the highest per capita income in the entire nation. But today it is a rotting, decaying hellhole that the rest of the world laughs at. What has happened to the city of Detroit is happening to the entire nation as a whole, but our politicians just keep pushing us even farther down the road to oblivion.

Just consider what has happened since NAFTA was implemented. In the year before NAFTA was approved, the United States actually had a trade surplus with Mexico and our trade deficit with Canada was only 29.6 billion dollars. But now things are very different. In one recent year, the U.S. had a combined trade deficit with Mexico and Canada of 177 billion dollars.

And these trade deficits are not just numbers. They represent real jobs that are being lost. It has been estimated that the U.S. economy loses approximately 9,000 jobs for every 1 billion dollars of goods that are imported from overseas, and one professor has estimated that cutting our trade deficit in half would create 5 million more jobs in the United States.

Just yesterday, I wrote about how there are 102.6 million working age Americans that do not have a job right now. Once upon a time, if you were honest, dependable and hard working it was easy to get a good paying job in this country. But now things are completely different.

Back in 1950, more than 80 percent of all men in the United States had jobs. Today, only about 65 percent of all men in the United States have jobs.

Why aren't more people alarmed by numbers like this?

And of course the Trans-Pacific Partnership is not just about "free trade". In one of my previous articles, I explained that Obama is using this as an opportunity to permanently impose much of his agenda on a large portion of the globe…

It is basically a gigantic end run around Congress. Thanks to leaks, we have learned that so many of the things that Obama has deeply wanted for years are in this treaty. If adopted, this treaty will fundamentally change our laws regarding Internet freedom, healthcare, copyright and patent protection, food safety, environmental standards, civil liberties and so much more. This treaty includes many of the rules that alarmed Internet activists so much when SOPA was being debated, it would essentially ban all "Buy American" laws, it would give Wall Street banks much more freedom to trade risky derivatives and it would force even more domestic manufacturing offshore.

The Republicans in Congress foolishly gave Obama fast track negotiating authority, and so Congress will not be able to change this treaty in any way. They will only have the opportunity for an up or down vote.

I would love to see Congress reject this deal, but we all know that is extremely unlikely to happen. When big votes like this come up, immense pressure is put on key politicians. Yes, there are a few members of Congress that still have backbones, but most of them are absolutely spineless. When push comes to shove, the globalist agenda always seems to advance.

Meanwhile, the mainstream media will be telling the American people about all of the wonderful things that this new treaty will do for them. You would think that after how badly past "free trade" treaties have turned out that we would learn something, but somehow that never seems to happen.

The agenda of the globalists is moving forward, and very few Americans seem to care.

HedgeAccordingly

CIA Insider: China is About to End the Dollar

two hoots

Bill Clinton on signing NAFTA:

First of all, because NAFTA means jobs. American jobs, and good-paying American jobs. If I didn't believe that, I wouldn't support this agreement.

Freddie

Many of those NeoCon Bibi lovers and Jonathan Pollard conservatives love TPP and H1B Ted Cruz. Ted is also a Goldman Sachs boy.

Squids_In

That giant sucking sound just got gianter.

MrTouchdown

Probably, but here's a thought:

It might be a blowing sound of all things USA deflating down (in USD terms) to what they are actually worth when compared to the rest of the world. For example, a GM assembly line worker will make what an assembly line worker in Vietnam makes.

This will, of course, panic Old Yellen, who will promptly fill her diaper and begin subsidizing wages with Quantitative Pleasing (QP1).

Buckaroo Banzai

If this gets through congress, the Republican Party better not bother asking for my vote ever again.

Chupacabra-322

Vote? You seem to think "voting" will actually influence actions / Globalists plans which have been decades in the making amoungst thse Criminal Pure Evil Lucerferian Psychopaths hell bent on Total Complete Full Spectrum World Domination.

Yea, keep voting. I'll be out hunting down these Evil doers like the dogs that they are.

Buckaroo Banzai

I have no illusions regarding the efficacy of voting. It is indeed a waste of time.

What I said was, they better not dare even ASK for my vote.

Ignatius

Doesn't matter. Diebold is so good at counting that you don't even need to show up at the polls anymore. It's like a miracle of modern technology.

Peter Pan

Did the article say 40%?

I imagine they meant 40% of whatever is left after we all go to hell in a hand basket.

Great day for the multinationals and in particular the pharmaceutical companies.

[Dec 30, 2015] On Pareto Optimality

Notable quotes:
"... the ideal markets that would produce Pareto Optimal allocations dont actually exist ..."
"... moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isnt. ..."
"... In short, Pareto Optiimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit. ..."
"... The next step in graduate students indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a principle of compensation. The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest. Funny how that happens. ..."
Dec 30, 2015 | Economist's View
Sandwichman, December 30, 2015 at 10:06 AM
"Graduate students of economics learn, early in their careers, that markets allocations are Pareto Optimal."

What they don't learn is that

1. the ideal markets that would produce Pareto Optimal allocations don't actually exist and

2. moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isn't.

In short, Pareto Optimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit.

The next step in graduate students' indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a "principle of compensation." The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest. Funny how that happens.

anne said in reply to Sandwichman

Pareto Optimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bull----.

[ Agreed completely and I think this an important conclusion. ]

Paine said in reply to anne

Yes

Sandy gets the guts of it

Though

The compensation principle is precisely what Pareto rule is all about

Yes we can scramble the goods all we want so long as in the end everyone is at least as well off as before the scramble

In a pure exchange model this is less exciting then in a one period production model

Going on to an inter temporal model with an infinite horizon gets into real juicy Wonderlands

The academy makes it's living as much by distracting fine minds as training them

anne said in reply to Sandwichman

The next step in graduate students' indoctrination is to teach them that although Pareto Optimal reallocations are implausible, you can get around that with a "principle of compensation." The principle, too is based on a same yardstick fallacy. But never mind the Pareto Optimality smokescreen and the compensation smokescreen have constrained economists to think in terms of doing what is best for the wealthiest....

http://www.nytimes.com/2015/12/30/business/economy/for-the-wealthiest-private-tax-system-saves-them-billions.html

December 29, 2015

Richest in U.S. Shape Private Tax System to Save Billions
By NOAM SCHEIBER and PATRICIA COHEN

The very wealthiest families are able to quietly shape tax policy that will allow them to shield millions, if not billions, of their income using maneuvers available only to several thousand Americans.

anne said in reply to Sandwichman...

Supposing I understand the essay, Roger Farmer is just writing the logical justification to Herbert Spencer's (never Charles Darwin's) "survival of the fittest" rationale that Spencer made wildly popular after Darwin published "On the Origin of Species."

Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire" capitalism. Spencer sold a biological justification, Farmer is selling a logical justification of Empire.

Sandwichman said in reply to anne

No, I think Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it in a way that opens up space for countless side arguments that leave Pareto Optimality unscathed.

The bottom line is that NO ONE would have ever paid any attention to the not just "weak" but nonsensical concept if it didn't serve the function of justifying and ultimately glorifying great inequalities of wealth and income.
;

anne said in reply to Sandwichman

I understand the argument and I am entirely right:

Roger Farmer is just writing the logical justification to Herbert Spencer's (never Charles Darwin's) "survival of the fittest" rationale that Spencer made wildly popular after Darwin published "On the Origin of Species."

Spencer was the successful ultimate justifier of British "sun-never-setting-on-the-Empire" capitalism. Spencer sold a biological justification, Farmer is selling a logical justification of Empire capitalism.

anne said in reply to Sandwichman

I needed to be sure the argument was as empty morally as I supposed initially, but I supposed correctly. The Roger Farmer essay is an amoral logical justification of imperial capitalism. Plato's "Republic" conceived amorally. ;

anne said in reply to Sandwichman

A mean little essay, carefully subtle and mean.

Paine said in reply to anne

But Anne as sandy points out Roger blows up the use of Pareto by his future generations argument

Those unable to establish their preferences are unaccounted for in the scrum

He uses this to draw a bold distinction between securities markets and fish catch of the day markets

Paine said in reply to Paine

It's not the way I'd make his point

But his distinction is important

Some are impacted that are not participating

Third party effects that can not be resolved even with repeated " games "
Because the players are not yet present

anne said in reply to Sandwichman

Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it in a way that opens up space for countless side arguments that leave Pareto Optimality unscathed.

The bottom line is that NO ONE would have ever paid any attention to the not just "weak" but nonsensical concept if it didn't serve the function of justifying and ultimately glorifying great inequalities of wealth and income.

[ Agreed completely, but this argument runs with mine. ]

anne said in reply to Sandwichman

Farmer is dissing Pareto Optimality and using "sunspots" as sarcasm. He seems to do it in a way that opens up space for countless side arguments that leave Pareto Optimality unscathed....

[ The issue is that Roger Farmer leaves Pareto Optimality unscathed, and this is an essential point. The essay is beyond the morality of now, but there is no beyond. ]

[Dec 29, 2015] The Fed and Financial Reform – Reflections on Sen. Sanders op-Ed

Notable quotes:
"... The obvious candidate for this dark force [correlation between (rising) inequality and (low) growth] is crony capitalism. When a country succumbs to cronyism, friends of the rulers are able to appropriate large amounts of wealth for themselves -- for example, by being awarded government-protected monopolies over certain markets, as in Russia after the fall of communism. That will obviously lead to inequality of income and wealth. It will also make the economy inefficient, since money is flowing to unproductive cronies. Cronyism may also reduce growth by allowing the wealthy to exert greater influence on political policy, creating inefficient subsidies for themselves and unfair penalties for their rivals. ..."
"... The real problem is that money does not go to where it should go, as we see for example in the United States. The money does not flow into the real economy, because the transmission mechanism is broken. That is why we have a bubble in the financial system. The answer is not to tighten monetary policy, but to reform monetary policy so as to ensure that the money gets to the right place... ..."
"... As Stiglitz notes, the transmission mechanisms are broken. Economists trickle down monetary policy might work in theory, but not in practice, as we have seen for the last seven years, when low rates dont trickle down and were wasted instead on asset speculation by the 1%. ..."
"... Reform of the Fed, and the end of cronyism are essential to making sure that the stimulus of low rates gets to Main Street, to ordinary people, and not primarily to asset speculators. ..."
"... The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system. Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time. Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages. As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort - not to fight phantom inflation. ..."
"... And in one sentence Summers illustrates exactly why we dodged a bullet in not appointing Summers to be Fed Chair. Preserving the power of the Fed is not the most important policy. Changing the Fed composition so that it is more consumer friendly and not dominated by Wall Street interests is the most important policy change needed. ..."
"... the Balkanized character of US banking regulation is indefensible and would be ended. The worst regulatory idea of the 20th century-the dual banking system-persists into the 21st. The idea is that we have two systems one regulated by the States and the Fed and the other regulated by the OCC so banks have choice. With ambitious regulators eager to expand their reach, the inevitable result is a race to the bottom. ..."
"... Summers is also calling for higher capital requirements. Excellent stuff! ..."
Dec 29, 2015 | Economist's View

'The Fed and Financial Reform – Reflections on Sen. Sanders op-Ed'

This is the beginning of a long response from Larry Summers to an op-ed by Bernie Sanders:
The Fed and Financial Reform – Reflections on Sen. Sanders op-Ed : Bernie Sanders had an op Ed in the New York Times on Fed reform last week that provides an opportunity to reflect on the Fed and financial reform more generally. I think that Sanders is right in his central point that financial policy is overly influenced by financial interests to its detriment and that it is essential that this be repaired.

At the same time, reform requires careful reflection if it is not to be counterproductive. And it is important in approaching issues of reform not to give ammunition to right wing critics of the Fed who would deny it the capacity to engage in the kind of crisis responses that have judged in their totality been successful in responding to the financial crisis.

The most important policy priority with respect to the Fed is protecting it from stone age monetary ideas like a return to the gold standard, or turning policymaking over to a formula, or removing the dual mandate commanding the Fed to worry about unemployment as well as inflation. ...

JohnH said...
Disagree!!! There is more to this than just interest rates. There is the matter of how the policy gets implemented--who gets low rates. Currently the low rates serve mostly the 1%, who profit enormously from them. Case in point: Mort Zuckerberg's 1% mortgage!

"The obvious candidate for this dark force [correlation between (rising) inequality and (low) growth] is crony capitalism. When a country succumbs to cronyism, friends of the rulers are able to appropriate large amounts of wealth for themselves -- for example, by being awarded government-protected monopolies over certain markets, as in Russia after the fall of communism. That will obviously lead to inequality of income and wealth. It will also make the economy inefficient, since money is flowing to unproductive cronies. Cronyism may also reduce growth by allowing the wealthy to exert greater influence on political policy, creating inefficient subsidies for themselves and unfair penalties for their rivals."

http://www.bloombergview.com/articles/2015-12-24/cronyism-causes-the-worst-kind-of-inequality

As we know (although most here steadfastly ignore it) the Fed is rife with crony capitalism. As Bernie pointed out, 4 of the regional governors are from Goldman Sachs. Other examples are abundant. Quite simply, the system is rigged to benefit the few, minimizing any potential trickle down.

If a broad economic recovery is the goal, ending cronyism at the Fed is likely to be far more effective that low interest rates channeled only to the 1%.

JohnH said in reply to JohnH...
Stiglitz:

The real problem is that money does not go to where it should go, as we see for example in the United States. The money does not flow into the real economy, because the transmission mechanism is broken. That is why we have a bubble in the financial system. The answer is not to tighten monetary policy, but to reform monetary policy so as to ensure that the money gets to the right place...

Small and medium enterprises cannot borrow money at zero interest rates - not even a private person, I wish I could do that (laughs). I'm more worried about the loan interest rates, which are still too high. Access for small and medium enterprises to credit is too expensive. That's why it is so important that the transmission mechanism work..."
http://www.cash.ch/news/alle/stiglitz-billiggeld-lost-kein-problem-3393853-448

And let's not forget consumer credit rates, which barely dropped during the Great Recession and are still well above 10%. Even mortgage lending, which primarily benefits the affluent, have been stagnant for years despite historically low rates.

As Stiglitz notes, the transmission mechanisms are broken. Economists' trickle down monetary policy might work in theory, but not in practice, as we have seen for the last seven years, when low rates don't trickle down and were wasted instead on asset speculation by the 1%.

Reform of the Fed, and the end of cronyism are essential to making sure that the stimulus of low rates gets to Main Street, to ordinary people, and not primarily to asset speculators.

Peter K. said in reply to JohnH...

Bernie Sanders:

"The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system. Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time. Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages. As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort - not to fight phantom inflation. "

http://www.nytimes.com/2015/12/23/opinion/bernie-sanders-to-rein-in-wall-street-fix-the-fed.html

EMichael said in reply to Peter K....

It is hilarious.

"He's right! But his policies are wrong!"

You couldn't make this up......

JF said...
The financial system reform legislation in 2017 will also need to include these matters:

1. Licensure fees and higher and more differential income taxation rates based on the type of financial trading ratios the entities have (in order to direct more emphasis to real-economy lending and away from speculative and leveraged positions used in the financial asset trading marketplaces, so hedge funds probably would face the highest rates in income taxation). For a certain period after enactment these added taxes would be payable by the banks using their excess reserves, which will simply be eliminated until the reserve accounts return to the historically normal period when excess reserves were very small (there would no longer be a need for IOER, as the excess would be eliminated by operation of the taxation statutes). Attaching added ways & means statutes to all the financial service entities also serves to 'cover' some more of huge financial risk held by society and produced by them while the success of this huge sector actually contributes to the financing of self-government - which is also an indirect way to attach high Net Worth being used).

2. New statutory provisions need to reach any and all entities in the financial community regardless of definitions based on the functions they serve or provide (or the way they are named - so yes, the prior separation for deposit-management banking from investing activities can still happen, but this only helps to define which of the differential provisions apply, not help the entity escape them). Perhaps as a result Bank Holding Companies and other large entities won't use a complex network of hundreds of subsidiaries as these would not then serve as a way to avoid taxation, regulatory standards on what are prudent expectations, or supervision; or be used simply to obfuscate -- so investors and regulators can't see the truth of matters.

3. The newly named central bank needs to hold the discretion to buy Treasury bonds directly from the Treasury. This would discipline these fundamental asset-trading marketplaces and the huge primary dealer group of entities, and weaken the fox-and-hen-house influence on public finance.

4. New accounting approaches for the central bank would clarify what happens should the Congress direct redemption amounts or asset sales for the public's purposes. A good portion of the current FRB's book of owned assets can be redeemed or sold without affecting the 'power' of the central bank, and the proceeds used then, for example, to lower payroll taxes via a direct transfer to the social security trust fund's set of accounts).

Senator Sanders, good stuff. Bring out the vote, let us get others in Congress with whom you can work.

BillB said...
Summers: "The most important policy priority with respect to the Fed is protecting it from stone age monetary ideas like a return to the gold standard, or turning policymaking over to a formula, or removing the dual mandate commanding the Fed to worry about unemployment as well as inflation."

And in one sentence Summers illustrates exactly why we dodged a bullet in not appointing Summers to be Fed Chair. Preserving the power of the Fed is not the most important policy. Changing the Fed composition so that it is more consumer friendly and not dominated by Wall Street interests is the most important policy change needed.

Summers argument is the same we always hear from so-called "centrists." "You hippies should shut up because you are helping the opposition."

You hear the same sort of argument with respect to Black Lives Matter.

pgl said in reply to pgl...

On financial regulation - Summers is spot on here:

"the Balkanized character of US banking regulation is indefensible and would be ended. The worst regulatory idea of the 20th century-the dual banking system-persists into the 21st. The idea is that we have two systems one regulated by the States and the Fed and the other regulated by the OCC so banks have choice. With ambitious regulators eager to expand their reach, the inevitable result is a race to the bottom."

It is called regulatory capture.

Summers is also calling for higher capital requirements. Excellent stuff!

[Dec 27, 2015] Summer Rerun Why America Will Need Some Elements of a Welfare State

Notable quotes:
"... Wolf concludes that America cannot do without some form of a welfare state, specifically improved training, education, and universal health care. ..."
"... Our problem is that we are asking for concessions that are beyond the acceptable limit for elites in any historical epoch. We're asking the powerful and the rich to give up their money and power for the greater good of all mankind. This is not likely to happen unless a powerful enough segment of the elite comes to the inescapable conclusion that they're literally dead meat if they don't and therefore opts for survival over position. ..."
"... Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire ..."
Dec 27, 2015 | naked capitalism

An excellent column by Martin Wolf in the Financial Times, where he is the lead economics editor. Starting with principles put forward by Ben Bernanke in his recent speech on income inequality, Wolf concludes that America cannot do without some form of a welfare state, specifically improved training, education, and universal health care.

James Levy, December 26, 2015 at 4:32 pm

I have no idea if Marx was right, in the long run, or wrong–the verdict is still out on the long-term viability of industrial capitalism, which is less than 250 years old and creaking mightily as I write this. It may be that when Rosa Luxemburg said that the choice was between Socialism and Barbarism, she underestimated how likely barbarism was. What I do know is that capitalism today isn't just too ugly to tolerate, it is downright murderous. Its imperatives are driving the despoliation of the planet. It's love of profit over all else is cutting corners and creating externalities that are lethal. But it has made a few percent of the global population comfortable and powerful, and they are holding onto that comfort and that power come hell or high water (and, ironically, if things continue apace both are on the menu).

Our problem is that we are asking for concessions that are beyond the acceptable limit for elites in any historical epoch. We're asking the powerful and the rich to give up their money and power for the greater good of all mankind. This is not likely to happen unless a powerful enough segment of the elite comes to the inescapable conclusion that they're literally dead meat if they don't and therefore opts for survival over position. I am not enthusiastic that this will happen before it is way too late to save more than a fraction of the current world population, and send those people back to the lifestyles and thought patterns of 30 Year's War Europe.

    1. digi_owl

      Its a generational thing. Right after WW2, many of the elite had just that epiphany that unless they have the common people behind them, they are toast. But now they are dead or dying, and their grandkids are basically once more thinking that they can go it alone. This because they have not had the required experiences that help develop the wisdom.

      Reply
  1. Paul Tioxon

    What Marx saw long ago, we can see today, and without relegating ourselves to his analysis, come to our own conclusions. Contradictions, summed up well by Lincoln as a house divided against itself cannot stand is just as true today. Millions of guns to protect the citizenry from tyranny have only resulted in a 1/4 million murders and 5 times as many shootings since Jan 1, 2000, some placing people in wheel chairs and other crippling gunshot afflictions, and more and more institutionalized state oppression, economic exploitation and miserable lives propped up in an alcoholic haze until the liver or brain gives out. We have more food than we know what to do with so we throw away almost as much as we eat. And we have eaten ourselves into morbid obesity, diabetes and heart disease. The contradictions abound from the kitchen table to the kitchen cabinet of the White House where there seems to be nothing passed so freely as bad advice.

    The Welfare State arose from the sacrifices of the population in giving their sweat, blood and tears to defend their nation during war, to be rewarded for their sacrifices, rewards which were demands for power sharing and more in the paycheck, more benefits and more time to enjoy the life spent in a more prosperous world. It seems to me that Obamacare is not simply in death spiral all of its own making, but even more so, because it is the best attempt capitalism can produce in an America that is the most capitalist of societies down to the marrow its bones. Little competition from the Church or the social relations between nobles and subjects set for in the laws that were disestablished to free markets for commodification and money making. Money making enterprises structured the laws from slavery, to the voting franchise with little from the state to cushion any of the hardships of life in America.

    Health care is the largest industry we have. It is approaching 20% of the GNP. I remember the great national freak out in the late 1970s when congress realized it was approaching 10%. Nothing seems to be stopping the costs from spiraling upward and onward. No risk of deflation here where nothing is spared to save a life, operate on some poor little afflicted child, or buy a piece of equipment the size of an office building that shoots a proton beam at cancer, one cancer cell at a time.

    When Obama Care becomes a clear burden to even the democrats who can point to it now as some sort of accomplishment, and it is an accomplishment for the people who finally get to see a doctor, get into a hospital, get that operation or diagnosis that saves their lives, when even those accomplishments number in the millions, it will be part of a health care industry for which $Trillions of dollars can no longer be justified or even funded. As that financial collapse approaches, it would be better for politicians to declare the defeat of a program better rolled into one universal single payer system currently operating as Medicare, than try to reform, shore up or the old tried and true public lie, get rid of its waste and corruption.

    Declare victory with Medicare as the solution and put everyone into it. The only paper work left should be each person's medical history with diagnosis and healing as the happy ending to the story.

    Reply
  2. jgordon

    There is a fundamental error in perception in the Western world that is so pervasive that people can't even see it. As a most basic component of a healthy society people need to be able to survive at a local community level without outside support. Only after that is taken care of should people concern themselves with luxuries, inter-community and international relations.

    Welfare–not to mention other government services–can appear to have positive impacts if one only looks at their effects in isolation, however I think there is a devastating and pernicious impact on people's ability to form community bonds and have local resilience with things like welfare.

    Also, let's also not forget that Americans consume far more of the earth's precious resources than any other group in the world. Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire. Do these recipients of empire benefits have a moral right to share in the loot of empire? Perhaps instead of domestic welfare it would be more ethical for the American empire to provide social benefits for the indigenous peoples who are forced from their lands to work like slaves for the empire's benefit. Although admittedly if the American empire used it's loot for the benefit of the foreign peoples whose lives it destroyed then there'd probably be nothing left to spread around to the military, or to pacify and police the domestic population. So I suppose that's not a serious proposal.

    Reply
    1. Left in Wisconsin

      Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire

      This is obviously not true. Unless every social democratic country in the world is considered as a piece of the American empire. And even then, I would argue that we can easily afford a generous welfare state with a small shift in priorities away from (globally destabilizing) defense spending to social productive spending on human development.

      Reply
      1. jgordon

        Obvious to who? America lavishes so much money on its military not only because of corruption, but also because it has the world reserve currency and is a guarantor of the safety of international shipping. These facts are inextricably linked to the America's status as the world hegemon. The empire provides order and structure, and enforces the extraction of resources from the periphery to the center. The bread and circuses are inextricably linked to the empire's military activities and trying to tease them apart will only lead to collapse of the entire system sooner than it will otherwise happen.

        "Social Democratic"–now that's an interesting phrase. Did you know that Syria is a democracy, and was an extremely prosperous and well-education nation prior to 2011?

        Reply
        1. Vatch

          "Did you know that Syria is a democracy"

          Here's a telling paragraph from the Wikipedia article about Syria:

          Hafez al-Assad died on 10 June 2000. His son, Bashar al-Assad, was elected President in an election in which he ran unopposed.[68] His election saw the birth of the Damascus Spring and hopes of reform, but by autumn 2001 the authorities had suppressed the movement, imprisoning some of its leading intellectuals.[84] Instead, reforms have been limited to some market reforms.

          [Dec 27, 2015] The Sneaky Way Austerity Got Sold to the Public Like Snake Oil

          Notable quotes:
          "... When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in. ..."
          "... Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution. ..."
          "... the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do. ..."
          "... The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things. ..."
          Dec 27, 2015 | naked capitalism
          LP: You indicate that this approach to budgeting was invented as a way of making the New Deal acceptable to the business community. How did that work? Over time, who has benefitted from it? Who has lost?

          OC: Back in the 1940s, workers were fighting for their rights, class struggle was heating up, and soldiers would soon be returning from the fronts. At that point, a new business organization, the Committee for Economic Development (CED), came together. Led by Beardsley Ruml and other influential business figures, the CED played a crucial role in developing a conservative approach to Keynesian economics that helped make policies that would help put all Americans to work acceptable to the business community.

          The idea was that more consumers would translate into more profits - which is good for business. After all, the economic experts and budget technicians said so, not just the politicians. And the business leaders were told that economic growth and price stability would go along with this, which they liked.

          But things changed progressively over the 1970s and early 1980s. Firms went global. They became financialized. The balance of power between workers and owners started to shift more towards the owners, the capitalists. People were told they needed to sacrifice, to accept cuts to social spending and fewer rights and benefits on the job - all in the name of economic science and capitalism. The CAB was turned into a tool for preventing excessive spending - or justifying selected cuts.

          Middle class folks were afraid that inflation would erode their savings, so they were more keen to approve draconian measures to cut wages and reduce public budgets. People on the lower rungs of the economic ladder felt the pain first. But eventually the middle class fell on the wrong side of the fence, too. Most of them became relatively poorer.

          I suppose this shows the limits of democracy when information, knowledge, and ultimately power are unequally distributed.

          LP: You're really talking about birth of austerity and the way lies about public spending and budgets have been sold to the public. Why is austerity such a powerful idea and why do politicians still win elections promoting it?

          OC: Austerity is so powerful today because it feeds off of itself. It makes people uncertain about their lives, their debts, and their jobs. They become afraid. It's a strong disciplinary mechanism. People stop joining forces and the political status quo gets locked down.

          Even the
          name of this tool, the "cyclically adjusted budget," carries an aura of respect. It diverts our attention. We don't question it. It creates a barrier between the individual and the political realm: it undermines democratic participation itself. This obscure theory validates, with its authority, a big economic mistake that sounds like common sense but is actually snake oil - the notion that the federal government budget is like a household budget. Actually, it isn't. Your household doesn't collect taxes. It doesn't print money. It works very differently, yet the nonsense that it should behave exactly like a household budget gets repeated by politicians and policymakers who really just want to squeeze ordinary people.

          LP: How does all this play out in the U.S. and in Europe?

          OC: The European Union requires its members to comply with something called a cyclically adjusted budget constraint. Each country has to review its economic and fiscal plans with the European Commission and prove that those are compatible with the Pact. It's a ceiling on a country's deficit, but it's also much more than that.

          Thanks to the estimate, the governments of Italy or Spain, for example, are supposed to force the economy toward some ideal economic condition, the definition of which is obviously quite controversial and has so far rewarded those countries that have implemented labor market deregulation, cut pensions, and even changed the way elections happen. Again, it's a control mechanism.

          In the U.S. this scenario plays out, too, although less strictly. Talk about the budget often relies on the same shifty and politically-shaded statistical tools to support one argument or the other. Usually we hear arguments that suggest we have to cut social programs and workers' rights and benefits or face economic doom. Tune in to the presidential debates and you'll hear this played out - and it isn't strictly limited to one party.

          LP: How do we stop powerful players from co-opting economics and budgets for their own purposes?

          OC: Our education system is increasingly unequal and deprived of public resources. This is true in the U.S. but also in Europe, where the crisis accelerated a process that was already underway. When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in.

          In the economic field, we need to engage different points of view and keep challenging dominant narratives and frameworks. One day, human curiosity will save us from intellectual prostitution.

          craazyboy, December 25, 2015 at 10:10 am

          Most people don't eat, go to college, use healthcare, rent or buy housing on the east or west coast, or purchase military equipment (except perhaps small time stuff like assault rifles), so the BLS greatly underweights(or hedonics prices, or just pulls rent data outta their butts) these things in the inflation data they create. The Fed then goes into a tizzy if the data comes in a few tenths of a percent below 2%, even if the data spent years above 2%, and floods the country in liquidity so our job creators – banks and large corporations – will hire us and give us raises, and once they finish doing that, the BLS will signal that inflation is 2% and the Fed will then know all our problems are solved. It just takes time.

          See the book "Treasure Island" for how things are going on the revenue side. But more tax breaks for large corporations and the wealthy are needed so we don't force them to do any illegal tax avoidance stuff and they will then happily pay whatever they think their fair should be. Might be zero. They will then have money to buy stuff too, which is a big plus as well, when you think about it.

          So clearly, you can see why deficit spending almost seems inevitable.

          Then the next problem is we still have unemployment, and something needs to be done about that. For instance, lots of room for more government contracts for social purposes. Take Obamacare. Place a single source contract, now estimated between $1 and $2 billion, with a Canadian systems company that employs independent contractor Indian programmers. Eventually, we have Obamacare!

          We can do this if we just get serious about this and say "No More Austerity In America!"

          likbez, December 27, 2015 at 9:31 pm

          Emperor Severus is famously said to have given the advice to his sons: "Be harmonious, enrich the soldiers, and scorn all other men"

          Brooklin Bridge

          Can education provide the solution?

          I suspect that the educational bias occurs at all levels in the sense that much the same misinformation is provided regardless of neighborhood but progressively wrapped in more elegant pedagogical flim-flam-ery for the owner class. Basically, the bias changes, but not the message, as one goes from poor (austerity – this is your lot in life) to wealthy (austerity – you were born to make the tough decisions, it's in your genes – and you'll just have to accept the rewards, man up to your destiny and toss em a quarter on Sundays). The upper class does get a far better education, but the bias is or becomes unconscious over time.

          Basically, aristocracy is a nasty brutish cycle that keeps upping the ante of consequences.

          washunate, December 26, 2015 at 8:09 am

          Yves, INET and NEP and others have been lecturing that topic for years. How many trillions of dollars do we have to deficit spend before the failure of things to improve indicts the hypothesis itself?

          Maybe what matters is not the amount of the spending, but rather, the distribution.

          And what is so bad about deflation? The attachment of moral judgment to inflation and deflation is rather bizarre outside of establishment monetary economics. The basic monetary problem confronting the bottom 80% or so of American households is inflation, not deflation.


          Dan Lynch, December 25, 2015 at 11:27 am

          I don't buy the article's historical narrative.

          Conservatives have ALWAYS opposed spending on social programs and ALWAYS used the deficit as an excuse (unless the deficit was due to war or tax cuts for the rich). This was true during the New Deal; FDR himself was a deficit hawk.

          Nonetheless for years the public supported social programs and no politician dared to cut them. Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution.

          What changed? I would say the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do.

          The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things.

          Vatch, December 25, 2015 at 12:40 pm

          History teaches us that peacetime austerity can be horribly disastrous. Some examples:

          British austerity during the 19th century included the Great Irish Famine of 1845-1849: The Irish population was about 8 million people in 1841, and the death toll of the famine was at least a million. This is a huge percentage loss of life. Due to the combination of deaths with emigration and births that did not occur, the 1851 population of 6.5 million was estimated to be about 2.5 million lower than expected. Since food was exported during the famine, this was definitely an extreme case of austerity.

          Soviet austerity during the 1930s: Millions died, and food was exported during the famine period of 1931-1933. Austerity is often associate with conservatives, so I guess conservative austerity enthusiasts must be pleased with the performance of the eminent conservative Josef Stalin.

          Chinese austerity during the Great Leap Forward of 1958-1962: Tens of millions died - perhaps as many as 45 million. The same irony about conservatives and Stalin is true about conservatives and Mao, but on a far greater scale.

          Merry Christmas.

          ben chifley

          july 24 2015: Krugman:Ignore the 'MIT gang' at US economy's peril Paul Krugman says while economists of the '70s discarded Keynes, he never went away at MIT.‏
          http://www.chron.com/opinion/outlook/article/Krugman-Ignore-the-MIT-gang-at-US-economy-s-6404243.php

          MIT: Libertarian Haven | Independent Political Report‏
          http://www.independentpoliticalreport.com/2011/01/mit-libertarian-haven/

          Soros | MIT Global Education & Career Development‏
          https://gecd.mit.edu/go-abroad/distinguished-fellowships/explore-fellowships/soros

          washunate

          This is a pretty remarkable piece of rambling drivel. To the extent coherent points can be taken away from this, it appears there are at least two major flaws:

          1) There is absolutely no link between public opinion and CAB. Germany chooses to have national healthcare, passenger rail, and renewable energy. The US chooses to have national security, predatory medicine, and car-dependent sprawl.

          2) There is absolutely no link between austerity and concentration of wealth and power. France has a much more equal distribution of wealth than the US. Yet the US has run enormous deficits while France is supposedly constrained by the techno mumbo jumbo nonsense of the EU.

          The notion that 'austerity' is sold to the public is just a blatant falsehood. Americans don't support the budget priorities in Washington. It's a collective action problem, not a public opinion problem.

        2. [Dec 24, 2015] The Fed Has Created A Monster And Just Made A Dangerous Mistake, Stephen Roach Warns

          Zero Hedge
          Stephen Roach is worried that the Fed has set the world up for another financial market meltdown.

          Lower for longer rates and the proliferation of unconventional monetary policy have created "a breeding ground for asset bubbles, credit bubbles, and all-too frequent crises, so the Fed is really a part of the problem of financial instability rather than trying to provide a sense of calm in an otherwise unstable world," Roach told Bloomberg TV in an interview conducted a little over a week ago.

          To be sure, Roach's sentiments have become par for the proverbial course. That is, it may have taken everyone a while (as in five years or so) to come to the conclusion we reached long ago, namely that central banks are setting the world up for a crisis that will make 2008 look like a walk in the park, but most of the "very serious" people are now getting concerned. Take BofAML for instance, who, in a note we outlined on Wednesday, demonstrated the prevailing dynamic with the following useful graphic:

          Perhaps Jeremy Grantham put it best: "..in the Greenspan/ Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006."

          Indeed. It's with that in mind that we bring you the following excerpts from a new piece by Roach in which the former Morgan Stanley chief economist and Yale fellow recounts the evolution of the Fed and how the FOMC ultimately became "beholden to the monster it had created".

          * * *

          From "The Perils of Fed Gradualism" as posted at Project Syndicate

          By now, it's an all-too-familiar drill. After an extended period of extraordinary monetary accommodation, the US Federal Reserve has begun the long march back to normalization.

          A majority of financial market participants applaud this strategy. In fact, it is a dangerous mistake. The Fed is borrowing a page from the script of its last normalization campaign – the incremental rate hikes of 2004-2006 that followed the extraordinary accommodation of 2001-2003. Just as that earlier gradualism set the stage for a devastating financial crisis and a horrific recession in 2008-2009, there is mounting risk of yet another accident on what promises to be an even longer road to normalization.

          The problem arises because the Fed, like other major central banks, has now become a creature of financial markets rather than a steward of the real economy. This transformation has been under way since the late 1980s, when monetary discipline broke the back of inflation and the Fed was faced with new challenges.

          The challenges of the post-inflation era came to a head during Alan Greenspan's 18-and-a-half-year tenure as Fed Chair. The stock-market crash of October 19, 1987 – occurring only 69 days after Greenspan had been sworn in – provided a hint of what was to come. In response to a one-day 23% plunge in US equity prices, the Fed moved aggressively to support the brokerage system and purchase government securities.

          In retrospect, this was the template for what became known as the "Greenspan put" – massive Fed liquidity injections aimed at stemming financial-market disruptions in the aftermath of a crisis. As the markets were battered repeatedly in the years to follow – from the savings-and-loan crisis (late 1980s) and the Gulf War (1990-1991) to the Asian Financial Crisis (1997-1998) and terrorist attacks (September 11, 2001) – the Greenspan put became an essential element of the Fed's market-driven tactics.

          The Fed had, in effect, become beholden to the monster it had created. The corollary was that it had also become steadfast in protecting the financial-market-based underpinnings of the US economy.

          Largely for that reason, and fearful of "Japan Syndrome" in the aftermath of the collapse of the US equity bubble, the Fed remained overly accommodative during the 2003-2006 period. The federal funds rate was held at a 46-year low of 1% through June 2004, before being raised 17 times in small increments of 25 basis points per move over the two-year period from mid-2004 to mid-2006. Yet it was precisely during this period of gradual normalization and prolonged accommodation that unbridled risk-taking sowed the seeds of the Great Crisis that was soon to come.

          Today's Fed inherits the deeply entrenched moral hazard of the Asset Economy. The longer the Fed remains trapped in this mindset, the tougher its dilemma becomes – and the greater the systemic risks in financial markets and the asset-dependent US economy.

          Full post here

          * * *

          Roach goes on to say that we're already seeing the beginnings of what may very well turn out to be a dramatic unwind as high yield rolls over and the emerging world struggles to cope with a soaring dollar (remember, even though EM has largely avoided "original sin" i.e. borrowing in dollars, at the sovereign level, corporates are another story).

          As an aside, those interested in a comprehensive account of what Roach covers in the article cited above are encouraged to reach David Stockman's "The Great Deformation."

          [Dec 24, 2015] A big hint about why so many people support Donald Trump might come from Germany

          An interesting and plausible hypothesis: Trump as a candidate who answers voters frustration with neoliberalism.
          Notable quotes:
          "... The data suggest theres some kind of connection. According to polls, whites with a high school degree or less disproportionately favor Trump. These are the same people who have seen their economic opportunities decline the most in recent years. This group also disproportionately favors tough restrictions on immigration. ..."
          "... A new study released this week showed that in Germany, the economic frustrations of trade nudged many people into becoming right-wing extremists over the past two decades - throwing their support behind the country's neo-Nazi parties. ..."
          "... Still, these far-right parties have consistently earned a percentage point or two of the German national vote. And the economists found that they have been particularly popular with people who have been negatively impacted by trade. ..."
          "... using German data on elections, employment, and commerce, they showed that places where trade caused the most pain also had the largest increases in support for far-right parties. Over the past 20 years, Germanys exports and imports have both skyrocketed, first thanks to the fall of the Iron Curtain, then due to Chinas rise as a major manufacturer. ..."
          "... Workers whose industries were hurt by trade were were more likely to say they would start voting for one of the extreme right parties. Even workers whose own industries were unaffected by trade were more likely to support a neo-Nazi political party if they lived in a region hurt by trade. ..."
          "... Christian Dippel, one of the authors of the study, says it's also important to look at the context in each country. The neo-Nazi parties happen to be the voice of anti-globalization in Germany. But in Spain, for instance, these views are the trademark of Podemos, a far-left party "known for its rants against globalization and the tyranny of markets," according to Foreign Affairs. ..."
          "... The larger lesson, Dippel says, is that globalization creates a class of angry voters who will reward whoever can tap into their frustrations. These are usually extremist parties, because the mainstream tends to recognize the overall benefits of trade. "When the mainstream parties are all, in a loose sense, pro-globalization, there's room for fringe groups to latch onto this anti-globalization sentiment and profit from it," he says. ..."
          "... Author has shown that in America, recent trends in trade have hurt low-wage workers the most. With his co-authors David Dorn, Gordon Hanson and Jae Song, he published a widely-cited 2014 paper measuring the negative impacts of manufacturing imports from China, America's largest trading partner. Most of those ill-effects - like unemployment and lower earnings - were borne by the workers with the lowest wages. ..."
          "... "Immigration always seems to be the most tangible evidence of the impingement of others on your economic turf," Author adds. ..."
          "... "In Germany, these three things get bundled up in these far-right platforms in a way that's very difficult to unpack," he says. "It could be that you're bundling these ideas together for a reason. It could be that you're bundling together what's really happening with an idea that's more tangible, that you could sell more easily to angry voters." ..."
          The Washington Post

          A popular theory for Donald Trump's success emphasizes the economic anxiety of less-educated whites, who have struggled badly over the past few decades.

          Hit hard by factory closings and jobs moving abroad to China and other places, the story goes, blue-collar voters are channeling their anger at immigrants, who have out-competed them for what jobs remain. Trump, with his remarks about Mexicans being rapists, has ridden this discontent to the top of the polls.

          The data suggest there's some kind of connection. According to polls, whites with a high school degree or less disproportionately favor Trump. These are the same people who have seen their economic opportunities decline the most in recent years. This group also disproportionately favors tough restrictions on immigration.

          But just because there appears to be a connection doesn't mean there is one. Has globalization pushed working-class voters to the right? Nobody has proven that globalization has in fact pushed working-class voters to the right or made them more extreme, at least not in the United States, where the right kind of data aren't being collected. But unique records from Germany have allowed economists to show how free trade trade changes people's political opinions.

          A new study released this week showed that in Germany, the economic frustrations of trade nudged many people into becoming right-wing extremists over the past two decades - throwing their support behind the country's neo-Nazi parties. Written by economists Christian Dippel, of University of California, Los Angeles, Stephan Heblich, of the University of Bristol, and Robert Gold of the Kiel Institute for the World Economy, the paper was released by the National Bureau of Economic Research.

          Germany's far-right politicians, it should be noted, are not garden-variety nationalists. German intelligence keeps tabs on these people, who frequently use racist and anti-Semitic language. They say things like: "Europe is the continent of white people and it should remain that way." Many believe in a global Jewish conspiracy. They are much more radical than, say, Marine Le Pen's National Front party in France.

          Still, these far-right parties have consistently earned a percentage point or two of the German national vote. And the economists found that they have been particularly popular with people who have been negatively impacted by trade.

          How they measured the radicalizing power of trade

          The economists took two different approaches to measure the connection between globalization and right-wing extremism.

          First, using German data on elections, employment, and commerce, they showed that places where trade caused the most pain also had the largest increases in support for far-right parties. Over the past 20 years, Germany's exports and imports have both skyrocketed, first thanks to the fall of the Iron Curtain, then due to China's rise as a major manufacturer.

          The researchers looked individually at Germany's 408 local districts, which are roughly equivalent to counties in the United States. Each of these places was affected by increasing trade in different ways. Areas that specialized in high-end cars, for instance, saw a happy boost from expanded exports. Areas that specialized in, say, textiles, were stomped on by cheap Chinese and Eastern European imports.

          This map shows changes in imports (bad!) compared to exports (good!). The dark blue regions are places where imports increased a lot more than exports. These are the places where trade made things worse, where people lost jobs and factories were shuttered.

          These also happen to be the places where far-right parties made the most gains, on average. This is true after controlling for demographics in each county, the size of the manufacturing sector, and what part of the country the county was in.

          The researchers argue that this relationship is more than just a correlation. To prove that trade caused far-right radicalization, they only look at changes to the German economy inflicted by external forces - say, a sudden increase in Chinese manufacturing capacity.

          (Also, to get around the problem of German reunification, which happened in 1990, the researchers split up the analysis into two time periods. From 1987 to 1998, they only looked at West Germany. From 1998 to 2009, they looked at both regions.)

          This evidence from patterns of trade and voting records is convincing, but there is one major hole. The turmoil from trade caused certain counties to become friendlier to extremist parties - but was it because the people living there became radicalized? Or did all the moderate voters flee those places, leaving behind only the crusty xenophobes?

          So, to follow up, the researchers used a special German survey that has been interviewing some of the same people every year since the 1980s. This is a massively expensive project - the U.S. doesn't have anything quite like it - and it allowed the researchers to actually observe people changing their minds.

          Workers whose industries were hurt by trade were were more likely to say they would start voting for one of the extreme right parties. Even workers whose own industries were unaffected by trade were more likely to support a neo-Nazi political party if they lived in a region hurt by trade.

          In part this is because trade affects more than just the people who lose their jobs when the shoe factory closes. Those assembly line workers need to find new jobs, and they put pressure on people in similar occupations, say, at the garment factory or the tweezer factory.

          What this means for the U.S.

          All in all, the power of trade to radicalize people was rather small, measured in changes of a fraction of a percent. This makes makes sense, because, again, Germany's far-right parties are way out there. It takes a lot of economic suffering to cause someone to start voting with these neo-Nazis.

          Christian Dippel, one of the authors of the study, says it's also important to look at the context in each country. The neo-Nazi parties happen to be the voice of anti-globalization in Germany. But in Spain, for instance, these views are the trademark of Podemos, a far-left party "known for its rants against globalization and the tyranny of markets," according to Foreign Affairs.

          The larger lesson, Dippel says, is that globalization creates a class of angry voters who will reward whoever can tap into their frustrations. These are usually extremist parties, because the mainstream tends to recognize the overall benefits of trade. "When the mainstream parties are all, in a loose sense, pro-globalization, there's room for fringe groups to latch onto this anti-globalization sentiment and profit from it," he says.


          But is there an analogy between the far-right radicals in Germany and the wider group of disaffected working class Americans who, say, support Donald Trump or the tea party? Certainly leaders on the left also capitalize on anti-trade sentiment, but they usually use less harsh rhetoric or seldom attack immigration.

          David Autor, a labor economist at MIT, has been working to address the question of whether the same dynamics are at play in the U.S. But it's a tough one, he says.

          "What [Dippel and his colleagues] are doing is totally sensible, and I think the results are plausible as well - that these trade shocks lead to activity on the extreme right, that they bring about ultranationalism," Autor says.

          "We actually started on this hypothesis years ago for the U.S. to see if it could help to explain the rise of angry white non-college males," he said. "But so far, we just don't have the right kind of data."

          Author has shown that in America, recent trends in trade have hurt low-wage workers the most. With his co-authors David Dorn, Gordon Hanson and Jae Song, he published a widely-cited 2014 paper measuring the negative impacts of manufacturing imports from China, America's largest trading partner. Most of those ill-effects - like unemployment and lower earnings - were borne by the workers with the lowest wages.

          The higher-paid (and probably higher-skilled workers) were able to find new jobs when their companies went bust. Often, they found jobs outside of the manufacturing industry. (An accountant, for instance, can work anywhere.) But the lower-paid workers were trapped, doomed to fight over the ever-dwindling supply of stateside manufacturing jobs.

          China, of course, has been in Trump's crosshairs. He accuses the country of being a "currency manipulator," which may have once been true, but not any more. He has threatened to impose a 25 percent tax on Chinese imports to punish China.

          But Trump has attracted the most attention for his disparaging remarks about immigrants - which is something of puzzle. While it's true that non-college workers are increasingly competing with immigrants for the same construction or manufacturing jobs, Author points out that there's little evidence that immigrants are responsible for the woes of the working class.

          "There's an amazing discrepancy between the data and the perception that I still find very hard to reconcile," he says. "The data do not strongly support the view that immigration has had big effects [on non-college workers], but I don't think that's how people perceive it."

          "Immigration always seems to be the most tangible evidence of the impingement of others on your economic turf," Author adds.

          Dippel says that conflating these ideas could be a political strategy. He makes a distinction between three different kinds of globalization - there's the worldwide movement of capital, goods, and people.

          "In Germany, these three things get bundled up in these far-right platforms in a way that's very difficult to unpack," he says. "It could be that you're bundling these ideas together for a reason. It could be that you're bundling together what's really happening with an idea that's more tangible, that you could sell more easily to angry voters."

          Jeff Guo is a reporter covering economics, domestic policy, and everything empirical. He's from Maryland, but outside the Beltway. Follow him on Twitter: @_jeffguo.

          [Dec 24, 2015] Obama's foreign policy goals get a boost from plunging oil prices

          Notable quotes:
          "... At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration's foreign policy goals: pressuring Russian President Vladimir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States. ..."
          The Washington Post

          Plunging crude oil prices are diverting hundreds of billions of dollars away from the treasure chests of oil-exporting nations, putting some of the United States' adversaries under greater stress.

          After two years of falling prices, the effects have reverberated across the globe, fueling economic discontent in Venezuela, changing Russia's economic and political calculations, and dampening Iranian leaders' hopes of a financial windfall when sanctions linked to its nuclear program will be lifted next year.

          At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration's foreign policy goals: pressuring Russian President Vladimir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States.

          "Cheap oil hurts revenues for some of our foes and helps some of our friends. The Europeans, South Koreans and Japanese - they're all winners," said Robert McNally, director for energy in President George W. Bush's National Security Council and now head of the Rapidan Group, a consulting firm. "It's not good for Russia, that's for sure, and it's not good for Iran."

          ... ... ...

          In Iran, cheap oil is forcing the government to ratchet down expectations.

          The much-anticipated lifting of sanctions as a result of the deal to limit Iran's nuclear program is expected to result in an additional half-million barrels a day of oil exports by the middle of 2016.

          But at current prices, Iran's income from those sales will still fall short of revenue earned from constrained oil exports a year ago.

          Moreover, low prices are making it difficult for Iran to persuade international oil companies to develop Iran's long-neglected oil and gas fields, which have been off limits since sanctions were broadened in 2012.

          "Should Iran come out of sanctions, they will face a very different market than the one they had left in 2012," Amos Hochstein, the State Department's special envoy and coordinator for international energy affairs, said in an interview. "They were forced to recede in a world of over $100 oil, and sanctions will be lifted at $36 oil. They will have to work harder to convince companies to come in and take the risk for supporting their energy infrastructure and their energy production."

          Meanwhile, in Russia, low oil prices have compounded damage done by U.S. and European sanctions that were designed to target Russia's energy and financial sectors. And when Iran increases output, its grade of crude oil will most likely go to Europe, where it will compete directly with Russia's Urals oil, McNally said.

          Steven Mufson covers the White House. Since joining The Post, he has covered economics, China, foreign policy and energy.

          [Dec 23, 2015] The Big Short Every American Should See This Movie

          Notable quotes:
          "... Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once. ..."
          Zero Hedge
          The Big Short opens nationwide today. But it happened to have one showing last night at a theater near me. My youngest son and I hopped in the car and went to see it. I loved the book by Michael Lewis. The cast assembled for the movie was top notch, but having the director of Anchorman and Talledaga Nights handle a subject matter like high finance seemed odd.

          The choice of Adam McKay as director turned out to be brilliant. The question was how do you make a movie about the housing market, mortgage backed securities, collateralized debt obligations, collateralized debt swaps, and synthetic CDOs interesting for the average person. He succeeded beyond all expectations.

          Interweaving pop culture icons, music, symbols of materialism, and unforgettable characters, McKay has created a masterpiece about the greed, stupidity, hubris, and arrogance of Wall Street bankers gone wild. He captures the idiocy and complete capture of the rating agencies (S&P, Moodys). He reveals the ineptitude and dysfunction of the SEC, where the goal of these regulators was to get a high paying job with banks they were supposed to regulate. He skewers the faux financial journalists at the Wall Street Journal who didn't want to rock the boat with the truth about the greatest fraud ever committed.

          ...Ultimately, it is a highly entertaining movie with the right moral overtone, despite non-stop profanity that captures the true nature of Wall Street traders. This is a dangerous movie for Wall Street, the government, and the establishment in general. They count on the complexity of Wall Street to confuse the average person and make their eyes glaze over. That makes it easier for them to keep committing fraud and harvesting the nation's wealth.

          This movie cuts through the crap and reveals those in power to be corrupt, greedy weasels who aren't really as smart as they want you to think they are. The finale of the movie is sobering and infuriating. After unequivocally proving that Wall Street bankers, aided and abetted by the Federal Reserve, Congress, the SEC, and the mainstream media, destroyed the global financial system, put tens of millions out of work, got six million people tossed from their homes, and created the worst crisis since the Great Depression, the filmmakers are left to provide the depressing conclusion.

          No bankers went to jail. The Too Big To Fail banks were not broken up – they were bailed out by the American taxpayers. They actually got bigger. Their profits have reached new heights, while the average family has seen their income fall. Wall Street is paying out record bonuses, while 46 million people are on food stamps. Wall Street and their lackeys at the Federal Reserve call the shots in this country. They don't give a fuck about you. And they're doing it again.

          Every American should see this movie and get fucking pissed off. The theater was deathly silent at the end of the movie. The audience was stunned by the fact that the criminals on Wall Street got away with the crime of the century, and they're still on the loose. I had a great discussion with my 16 year old son on the way home. At least there is one millennial who understand how bad his generation is getting screwed.

          wee-weed up

          I read the book last year... It is outstanding! Highest recommendation. If you have not read this book, you cannot understand how today's market really works.

          JRobby

          This subject matter has to be put in a form that can be understood by the masses. Hopefully the popular actors and this director is a step in that direction.

          Main stream Hollywood as an informer? Hmmmmm? This adds to the current assumptions and rumors of fractures among the elite groups.

          We are reasonable people. If the banking elite is sacrificed and the other corporate oligarchs come into a more socially acceptable line, we may be satisfied. However, the banking elite must be sacrificed. There is no negotiation on that point.

          Of course some will say I am over optimistic, they are throwing it in our faces to make $$$ and it ends up a total police state so enjoy your "entertainment" for now.

          Time goes on. Time will tell.

          chunga

          First you'd have to believe that politicians give a fuck about any damn thing but themselves. REAL concern for minorities or communities LOL! Then you'd have to believe banks were forced to do *anything* they don't want.

          Then, you'd have to fall right to sleep and miss the part where all this crap was sold on Wall Street while at the same time betting against all the "shitty deals" they made, then the whole thing getting bailed out @ par. With par being at the absurd fraudulent property appraisals that were made by the lenders or their agents. It's just nuts.

          This was all planned, beginning with Greenspan. AIG's Greenberg KNEW their CDS paper was no damn good, but didn't care because the also KNEW there would be a bailout. The only problem for him was Paulson and Blankfein conspired to steal the bailout money...and they did!

          That's why all this money went looking for people...it was all planned.

          chunga

          Hundreds of scandals have gone by since then, thoroughly unpunished, so I wonder why this movie is coming out now. I looked into some of the cronies calling the shots at the GSE's back then and saved it. A lot is outdated by now. Seems like a fairly bi-partisan effort.

          FRANKLIN RAINES [D] – FNMA CEO (1999 – 2004) Raines accepted "early retirement" from his CEO position while the SEC pretended to investigate accounting irregularities. Fannie's own OHFHEO also accused him of abetting widespread accounting errors, including the shifting of losses, so he and his fellow execs could "earn" large bonuses. The WSJ reported back in 2008 that Raines was one of several cronies that received below market rates for mortgages from Countrywide. Raines alone receive loans for over $3 million while CEO of FNMA. Raines' compensation for his "work" at FNMA - $90 million.

          RAINES GRADE – F

          DANIEL MUDD [R] – FNMA CEO (2005 – 2008) Before becoming CEO of FNMA, Mudd worked at the Office of the Secretary of Defense, was an advisor to Asia-Pacific Economic Corp., "served" on the board of the Council of Foreign Relations, "consulted" at the World Bank, and held many positions at GE Capital including president and CEO. Mudd was dismissed as CEO of FNMA when FHFA became conservator in 2008. In 2011 Mudd and other GSE execs were charged by SEC with securities fraud. After his career at FNMA Mudd became CEO of a NYC hedge fund named "Fortress". Fortress invested in purchasing tax liens on delinquent property taxes from local governments under many benign corporate names such as "Pleasant Valley Capital" and "Travis Farm Investments". Cozy. Mudd's compensation for his "work" at FNMA - $80 million.

          MUDD GRADE – F

          NEEL KASHKARI [R] – FNMA CEO (Tenure is murky) Kashkari was a former investment banker for Goldman Sachs, was tapped by Hank "The Shank" Paulson to lend his skills over at TARP HQ, and now rather ironically, continues God's work as a Managing Director at PIMCO. Kashkari's compensation for his "work" at FNMA is also murky; I'll just assume it was too much.

          KASHKARI GRADE - F

          HERB ALLISON [D] – FNMA CEO (2008 – 2009) The esteemed Mr. Allison was quickly whisked off to oversee the wildly successful TARP program. I didn't find much on his compensation during his brief stint as FNMA CEO. Allison served in various positions at Merrill Lynch and became a member of the board in 1997. He was a director of the NYSE from 2003 – 2005.

          ALLISON GRADE – F

          MICHAEL WILLIAMS [?] – FNMA CEO (2009 – Jan 1, 2012) Mr. Williams is a 20 year veteran at FNMA. While "serving" as FNMA CEO, Williams managed to scrape by on less than $6 million in 2011 alone. This could and should be considered a hardship, given the complexities involved in purloining ~ $60 billion of Fed bailout money.

          WILLIAMS GRADE – F

          FANNIE'S MAJOR DANCE PARTNER, FREDDIE MAC, HAS ALSO PERFORMED VERY POORLY.

          Charles (my friends call me "Ed") Haldeman has announced his retirement plans but intends to be a good sport and stay on with insolvent FHLMC until another crony can be found to fill his wing-tips.

          That might take a while. "Serving" as CEO of the ultimate backstops for the lion's share of the MBS Ponzi is very stressful.

          We'll have to accept former Freddie exec David Kellermann's testimony posthumously. Mr. Kellermann was found hanging by the neck in the basement of his posh Vienna, VA home in the affluent suburb of Washington. D.C. way back in April of 2009. It is presumed he had no help and local police have stated there was no evidence of foul play.

          Urban Redneck

          GREED is non-partisan. And all sides agreed MOAR "home ownership" was desirable. The left got its SJW colorblind automation, while the underwriters were able to increase volumes by thousands of percent while reducing overall headcount. Securitization wasn't actually "automated" since the fuckwits were using MS-Excel, but it was commoditized with Blackrock's pricing model.

          These were the days of the original algorithms of mass financial destruction, which were primitive and largely FICO-centric, but everyone wanted to minimize the cost (of logic coding and external data sources) so they coding decisioning based solely on information contained in the mortgage application and the applicant's electronic credit report.

          khakuda

          Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once.

          Keynesians

          Wall Street is laughing at all the clowns who think this movie will "wake up America". It would have never came out if it was any kind of danger to Wall Street, the FED, or the establishment.

          Agent P

          Directed by Adam McKay (Anchorman, Step Brothers, The Other Guys....), so ... yeah I'm going to go see it. Remember the end credits for The Other Guys? He hates Wall Street....

          GoldenDonuts

          Perhaps you should read the book. These are real characters from a non fiction book. They may have changed a name or two but these are real people. I will lend you my copy if you can't afford one.

          conraddobler

          Yeah I can't imagine a commercially successful movie out of this that would actually tell the truth and make it to the screens.

          What someone should do is write one of those fantastical novels where everything is a symbol for something else and jazz it up, put some romance, danger, intrigue and of course big boobs in it.

          The real message ala the olden days usually had to be hidden to avoid the wrath of those it was really aimed at.

          [Dec 23, 2015] The Neocons - Masters of Chaos

          Notable quotes:
          "... It's now clear that if Obama had ordered a major bombing campaign against Assad's military in early September 2013, he might have opened the gates of Damascus to a hellish victory by al-Qaeda-affiliated extremists or the even more brutal Islamic State, since these terrorist groups have emerged as the only effective fighters against Assad. ..."
          "... By late September 2013, the disappointed neocons were acting out their anger by taking aim at Putin. They recognized that a particular vulnerability for the Russian president was Ukraine and the possibility that it could be pulled out of Russia's sphere of influence and into the West's orbit. ..."
          "... But Gershman added that Ukraine was really only an interim step to an even bigger prize, the removal of the strong-willed and independent-minded Putin, who, Gershman added, "may find himself on the losing end not just in the near abroad [i.e. Ukraine] but within Russia itself." In other words, the new neocon hope was for "regime change" in Kiev and Moscow. [See Consortiumnews.com's " Neocons' Ukraine/Syria/Iran Gambit. "] ..."
          "... Putin also had sidetracked that possible war with Iran by helping to forge an interim agreement constraining but not eliminating Iran's nuclear program. So, he became the latest target of neocon demonization, a process in which the New York Times and the Washington Post eagerly took the lead. ..."
          "... As the political violence in Kiev escalated – with the uprising's muscle supplied by neo-Nazi militias from western Ukraine – neocons within the Obama administration discussed how to "midwife" a coup against Yanukovych. Central to this planning was Victoria Nuland, who had been promoted to assistant secretary of state for European affairs and was urging on the protesters, even passing out cookies to protesters at Kiev's Maidan square. ..."
          "... When the coup went down on Feb. 22 – spearheaded by neo-Nazi militias who seized government buildings and forced Yanukovych and his officials to flee for their lives – the U.S. State Department quickly deemed the new regime "legitimate" and the mainstream U.S. media dutifully stepped up the demonization of Yanukovych and Putin. ..."
          "... Although Putin's position had been in support of Ukraine's status quo – i.e., retaining the elected president and the country's constitutional process – the crisis was pitched to the American people as a case of "Russian aggression" with dire comparisons made between Putin and Hitler, especially after ethnic Russians in the east and south resisted the coup regime in Kiev and Crimea seceded to rejoin Russia. ..."
          "... Pressured by the Obama administration, the EU agreed to sanction Russia for its "aggression," touching off a tit-for-tat trade war with Moscow which reduced Europe's sale of farming and manufacturing goods to Russia and threatened to disrupt Russia's natural gas supplies to Europe. ..."
          "... While the most serious consequences were to Ukraine's economy which went into freefall because of the civil war, some of Europe's most endangered economies in the south also were hit hard by the lost trade with Russia. Europe began to stagger toward the third dip in a triple-dip recession with European markets experiencing major stock sell-offs. ..."
          Oct 17, 2014 | consortiumnews.com

          If you're nervously watching the stock market gyrations and worrying about your declining portfolio or pension fund, part of the blame should go to America's neocons who continue to be masters of chaos, endangering the world's economy by instigating geopolitical confrontations in the Middle East and Eastern Europe.

          Of course, there are other factors pushing Europe's economy to the brink of a triple-dip recession and threatening to stop America's fragile recovery, too. But the neocons' "regime change" strategies, which have unleashed violence and confrontations across Iraq, Syria, Libya, Iran and most recently Ukraine, have added to the economic uncertainty.

          This neocon destabilization of the world economy began with the U.S.-led invasion of Iraq in 2003 under President George W. Bush who squandered some $1 trillion on the bloody folly. But the neocons' strategies have continued through their still-pervasive influence in Official Washington during President Barack Obama's administration.

          The neocons and their "liberal interventionist" junior partners have kept the "regime change" pot boiling with the Western-orchestrated overthrow and killing of Libya's Muammar Gaddafi in 2011, the proxy civil war in Syria to oust Bashar al-Assad, the costly economic embargoes against Iran, and the U.S.-backed coup that ousted Ukraine's elected President Viktor Yanukovych last February.

          All these targeted governments were first ostracized by the neocons and the major U.S. news organizations, such as the Washington Post and the New York Times, which have become what amounts to neocon mouthpieces. Whenever the neocons decide that it's time for another "regime change," the mainstream U.S. media enlists in the propaganda wars.

          The consequence of this cascading disorder has been damaging and cumulative. The costs of the Iraq War strapped the U.S. Treasury and left less government maneuvering room when Wall Street crashed in 2008. If Bush still had the surplus that he inherited from President Bill Clinton – rather than a yawning deficit – there might have been enough public money to stimulate a much-faster recovery.

          President Obama also wouldn't have been left to cope with the living hell that the U.S. occupation brought to the people of Iraq, violent chaos that gave birth to what was then called "Al-Qaeda in Iraq" and has since rebranded itself "the Islamic State."

          But Obama didn't do himself (or the world) any favors when he put much of his foreign policy in the hands of Democratic neocon-lites, such as Secretary of State Hillary Clinton, and Bush holdovers, including Defense Secretary Robert Gates and Gen. David Petraeus. At State, Clinton promoted the likes of neocon Victoria Nuland, the wife of arch-neocon Robert Kagan, and Obama brought in "liberal interventionists" like Samantha Power, now the U.S. ambassador to the United Nations.

          In recent years, the neocons and "liberal interventionists" have become almost indistinguishable, so much so that Robert Kagan has opted to discard the discredited neocon label and call himself a "liberal interventionist." [See Consortiumnews.com's "Obama's True Foreign Policy 'Weakness.'"]

          Manipulating Obama

          Obama, in his nearly six years as president, also has shied away from imposing his more "realistic" views about world affairs on the neocon/liberal-interventionist ideologues inside the U.S. pundit class and his own administration. He has been outmaneuvered by clever insiders (as happened in 2009 on the Afghan "surge") or overwhelmed by some Official Washington "group think" (as was the case in Libya, Syria, Iran and Ukraine).

          Once all the "smart people" reach some collective decision that a foreign leader "must go," Obama usually joins the chorus and has shown only rare moments of toughness in standing up to misguided conventional wisdoms.

          The one notable case was his decision in summer 2013 to resist pressure to destroy Syria's military after a Sarin gas attack outside Damascus sparked a dubious rush to judgment blaming Assad's regime. Since then, more evidence has pointed to a provocation by anti-Assad extremists who may have thought that the incident would draw in the U.S. military on their side. [See Consortiumnews.com's "Was Turkey Behind Syrian Sarin Attack?"]

          It's now clear that if Obama had ordered a major bombing campaign against Assad's military in early September 2013, he might have opened the gates of Damascus to a hellish victory by al-Qaeda-affiliated extremists or the even more brutal Islamic State, since these terrorist groups have emerged as the only effective fighters against Assad.

          But the neocons and the "liberal interventionists" seemed oblivious to that danger. They had their hearts set on Syrian "regime change," so were furious when their dreams were dashed by Obama's supposed "weakness," i.e. his failure to do what they wanted. They also blamed Russian President Vladimir Putin who brokered a compromise with Assad in which he agreed to surrender all of Syria's chemical weapons while still denying a role in the Sarin attack.

          By late September 2013, the disappointed neocons were acting out their anger by taking aim at Putin. They recognized that a particular vulnerability for the Russian president was Ukraine and the possibility that it could be pulled out of Russia's sphere of influence and into the West's orbit.

          So, Carl Gershman, the neocon president of the U.S.-funded National Endowment for Democracy, took to the op-ed page of the neocon-flagship Washington Post to sound the trumpet about Ukraine, which he called "the biggest prize."

          But Gershman added that Ukraine was really only an interim step to an even bigger prize, the removal of the strong-willed and independent-minded Putin, who, Gershman added, "may find himself on the losing end not just in the near abroad [i.e. Ukraine] but within Russia itself." In other words, the new neocon hope was for "regime change" in Kiev and Moscow. [See Consortiumnews.com's "Neocons' Ukraine/Syria/Iran Gambit."]

          Destabilizing the World

          Beyond the recklessness of plotting to destabilize nuclear-armed Russia, the neocon strategy threatened to shake Europe's fragile economic recovery from a painful recession, six years of jobless stress that had strained the cohesion of the European Union and the euro zone.

          Across the Continent, populist parties from the Right and Left have been challenging establishment politicians over their inability to reverse the widespread unemployment and the growing poverty. Important to Europe's economy was its relationship with Russia, a major market for agriculture and manufactured goods and a key source of natural gas to keep Europe's industries humming and its houses warm.

          The last thing Europe needed was more chaos, but that's what the neocons do best and they were determined to punish Putin for disrupting their plans for Syrian "regime change," an item long near the top of their agenda along with their desire to "bomb, bomb, bomb Iran," which Israel has cited as an "existential threat."

          Putin also had sidetracked that possible war with Iran by helping to forge an interim agreement constraining but not eliminating Iran's nuclear program. So, he became the latest target of neocon demonization, a process in which the New York Times and the Washington Post eagerly took the lead.

          To get at Putin, however, the first step was Ukraine where Gershman's NED was funding scores of programs for political activists and media operatives. These efforts fed into mass protests against Ukrainian President Yanukovych for balking at an EU association agreement that included a harsh austerity plan designed by the International Monetary Fund. Yanukovych opted instead for a more generous $15 billion loan deal from Putin.

          As the political violence in Kiev escalated – with the uprising's muscle supplied by neo-Nazi militias from western Ukraine – neocons within the Obama administration discussed how to "midwife" a coup against Yanukovych. Central to this planning was Victoria Nuland, who had been promoted to assistant secretary of state for European affairs and was urging on the protesters, even passing out cookies to protesters at Kiev's Maidan square.

          According to an intercepted phone call with U.S. Ambassador to Ukraine Geoffrey Pyatt, Nuland didn't think EU officials were being aggressive enough. "Fuck the EU," she said as she brainstormed how "to help glue this thing." She literally handpicked who should be in the post-coup government – "Yats is the guy," a reference to Arseniy Yatsenyuk who would indeed become prime minister.

          When the coup went down on Feb. 22 – spearheaded by neo-Nazi militias who seized government buildings and forced Yanukovych and his officials to flee for their lives – the U.S. State Department quickly deemed the new regime "legitimate" and the mainstream U.S. media dutifully stepped up the demonization of Yanukovych and Putin.

          Although Putin's position had been in support of Ukraine's status quo – i.e., retaining the elected president and the country's constitutional process – the crisis was pitched to the American people as a case of "Russian aggression" with dire comparisons made between Putin and Hitler, especially after ethnic Russians in the east and south resisted the coup regime in Kiev and Crimea seceded to rejoin Russia.

          Starting a Trade War

          Pressured by the Obama administration, the EU agreed to sanction Russia for its "aggression," touching off a tit-for-tat trade war with Moscow which reduced Europe's sale of farming and manufacturing goods to Russia and threatened to disrupt Russia's natural gas supplies to Europe.

          While the most serious consequences were to Ukraine's economy which went into freefall because of the civil war, some of Europe's most endangered economies in the south also were hit hard by the lost trade with Russia. Europe began to stagger toward the third dip in a triple-dip recession with European markets experiencing major stock sell-offs.

          The dominoes soon toppled across the Atlantic as major U.S. stock indices dropped, creating anguish among many Americans just when it seemed the hangover from Bush's 2008 market crash was finally wearing off.

          Obviously, there are other reasons for the recent stock market declines, including fears about the Islamic State's victories in Syria and Iraq, continued chaos in Libya, and exclusion of Iran from the global economic system – all partly the result of neocon ideology. There have been unrelated troubles, too, such as the Ebola epidemic in western Africa and various weather disasters.

          But the world's economy usually can withstand some natural and manmade challenges. The real problem comes when a combination of catastrophes pushes the international financial system to a tipping point. Then, even a single event can dump the world into economic chaos, like what happened when Lehman Brothers collapsed in 2008.

          It's not clear whether the world is at such a tipping point today, but the stock market volatility suggests that we may be on the verge of another worldwide recession. Meanwhile, the neocon masters of chaos seem determined to keep putting their ideological obsessions ahead of the risks to Americans and people everywhere.

          Investigative reporter Robert Parry broke many of the Iran-Contra stories for The Associated Press and Newsweek in the 1980s. You can buy his new book, America's Stolen Narrative, either in print here or as an e-book (from Amazon and barnesandnoble.com). For a limited time, you also can order Robert Parry's trilogy on the Bush Family and its connections to various right-wing operatives for only $34. The trilogy includes America's Stolen Narrative. For details on this offer, click here.

          [Dec 21, 2015] Weak president, neoliberal Obama and housing bubble

          Notable quotes:
          "... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
          "... That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/ ..."
          "... You think a rise in stock prices created by a fall in the cost of capital is a bubble. ..."
          "... keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this? ..."
          "... Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesnt favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didnt cost a dime. ..."
          "... It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors cant understand what the Fed is doing, even though they tell you. ..."
          "... Thats it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and its the governments fault. ..."
          "... Here is how they evaluate models: Good model; one that reaches the right good conclusions. Bad model; one that ends up saying stuff nobody should believe in. ..."
          "... Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest. ..."
          "... Democrats filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. ..."
          "... Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior. ..."
          economistsview.typepad.com
          reason said... December 18, 2015 at 02:20 AM
          I wish Krugman would attack the view that is being propagated at the moment that low nominal interest rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make the slightest bit of sense - leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates.)

          The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects.

          JF said in reply to reason... December 18, 2015 at 05:19 AM

          Great comment. I especially liked this point: "The distribution of the use of credit between pure financial speculation and productive investment is not a function of" ....

          Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what we've called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature.

          There may be an opportunity in 2017 to revise the statutes so the public plainly says what the rules of Commerce are in these financial 'inter-mediation' areas - society is better served if more of such credit offerings go to investments in the real economy where inputs are real things like employees, supplies, equipment/technologies. The public's law can effect this change.

          david said in reply to JF...

          except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure

          sanjait said in reply to david... December 18, 2015 at 02:47 PM

          Are there enough of those to dominate securities prices?

          I don't see how there possibly could be. For everyone trying to reach for yield there are a lot of people happy to arbitrage or otherwise exploit those inefficiencies.

          pgl said in reply to reason... December 18, 2015 at 05:53 AM

          Nice comment. I think Krugman is letting others take out the bubble brains. But if he's reading your excellent comment - maybe he will go the fray.

          BenIsNotYoda said in reply to reason... December 18, 2015 at 06:35 AM

          "The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects."

          The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected returns. when this dynamic gets out of control, it is a bubble.

          Sanjait said in reply to BenIsNotYoda... December 18, 2015 at 07:35 AM

          It's hard to see how to your claim that expected returns are high when earnings yields across the board are historically low.

          BenIsNotYoda said in reply to Sanjait... December 18, 2015 at 07:38 AM

          That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/

          BenIsNotYoda said in reply to BenIsNotYoda... December 18, 2015 at 07:38 AM

          I mean earnings yields not earnings growth.

          Sanjait said in reply to BenIsNotYoda... December 18, 2015 at 07:48 AM

          So you say. And yet, stock values today conform very well with the standard model Williams says doesn't historically fit the data. While you are talking bubbles, the equity risk premium is parked in the normal range.

          How do you explain that?

          BenIsNotYoda said in reply to Sanjait... December 18, 2015 at 07:54 AM

          so says Williams. dividend yields, earnings yields and risk premiums are not necessarily weighted heavily in investors' formation of expected returns. past returns do, to a great extent. that is what Williams shows.

          BenIsNotYoda said in reply to BenIsNotYoda... December 18, 2015 at 07:56 AM

          our prehistoric brains are wired to trend follow patterns.

          pgl said in reply to BenIsNotYoda... December 18, 2015 at 09:13 AM

          Williams actually tries to model the rise in stock prices and defines any increase the model cannot explain a bubble. Of course maybe his modeling is not entirely spot on and fundamentals can explain the rise stock prices.

          But this is not what you do as you see any asset price increase as a bubble. Which is beyond stupid. Of course it would help if you ever bothered to do what Williams attempted - use a basic model of financial economics. Then again my guess is that is beyond your understanding of basic financial economics. So troll on!

          BenIsNotYoda said in reply to pgl... December 18, 2015 at 10:40 AM

          You think a rise in stock prices created by a fall in the cost of capital is a bubble. But no - it is a change in fundamentals.

          keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this?

          JohnH said in reply to pgl... December 18, 2015 at 04:22 PM

          The first thing pgl did when stocks corrected this summer was to call for QE4...he panicked because his portfolio was threatened...but claimed that he was only worried about workers!

          Fred C. Dobbs said in reply to reason... December 18, 2015 at 10:57 AM

          It does not seem reasonable or
          fair to pay practically no interest
          on savings, which is a consequence
          of Fed policy.

          A consequence of this is that people
          go into risky investments that lead
          to catastrophe, sometimes widespread.

          If the goal was to get people to spend
          (i.e. consume) more, it seems that they
          are persistently & stubbornly frugal.

          Chris Herbert said in reply to Fred C. Dobbs... December 18, 2015 at 02:31 PM

          Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesn't favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didn't cost a dime.

          sanjait said in reply to reason...

          Let me be the fourth person to compliment that comment.

          "leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates."

          QFT!

          The one hypothetical caveat (as BINY alluded to, knowingly or not) is that expectations often get out of whack based on momentum trading. So hypothetically, lowering rates could possibly feed that.

          But guess what? Rates are already at zero. They can't go lower. It's not even a question of lowering rates, but rather whether to keep them where they are. So a bubbles-from-monetary-fed-momentum argument falls completely flat. We've been at zero for 7 years now!

          reason said...

          It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors can't understand what the Fed is doing, even though they tell you.

          Sanjait said in reply to reason...

          That's it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and it's the government's fault.

          And somehow the RW economists see no problem with this model

          DeDude said in reply to Sanjait...

          Here is how they evaluate models: Good model; one that reaches the "right" good conclusions. Bad model; one that ends up saying stuff nobody should believe in.
          likbez said in reply to Sanjait...
          "Markets are efficient, unless the government does anything"

          This is a dangerous neoliberal dogma. Total lie.

          === quote ===
          The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became popular for the last 30 years in the USA. It is a pseudo scientific theory or, in more politically correct terms, unrealistic idealization of market behavior. Like classic Lysenkoism in the past was supported by Stalin's totalitarian state, it was supported by the power of neoliberal state, which is the state captured by financial oligarchy (see Casino Capitalism and Quiet coup for more details).

          Among the factors ignored by EMH is the positive feedback loop inherent in any system based on factional reserve banking, the level of market players ignorance, unequal access to the real information about the markets, the level of brainwashing performed on "lemmings" by controlled by elite MSM and market manipulation by the largest players and the state.

          Economics, it is said, is the study of scarcity. There is, however, one thing that certainly isn't scarce, but which deserves the attention of economists - ignorance.
          ...Conventional economics analyses how individuals choose - maybe rationally, maybe not - from a range of options. But this raises the question: how do they know what these options are? Many feasible - even optimum - options might not occur to them. This fact has some important implications. ...
          Slightly simplifying, we can say that (financial) markets are mainly efficient in separation of fools and their money... And efficient market hypothesis mostly bypasses important question about how the inequity of resources which inevitably affects the outcomes of market participants. For example, the level of education of market players is one aspect of the inequity of resources. Herd behavior is another important, but overlooked in EMH factor.

          http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Pseudo_theories/Permanent_equilibrium_fallacy/Efficient_market_hypothesys/index.shtml

          Peter K. said in reply to reason...

          And/or the markets are telling the Fed something, like they don't believe the Fed's forecasts about growth and inflation and are betting otherwise, but the hawks at the Fed dismiss the markets and say we need to raise rates now.

          It's all very convenient reasoning about markets.

          Vile Content said...

          "
          constant repetition, especially in captive media, keeps this imaginary history in circulation no matter how often it is shown to be false.
          "
          ~~pK~

          ... ... ...

          anne said...

          http://krugman.blogs.nytimes.com/2015/11/23/shorts-subject/

          November 23, 2015

          Shorts Subject
          By Paul Krugman

          Last night I was invited to a screening of "The Big Short," which I thought was terrific; who knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat narrative (with great acting)?

          But there was one shortcut the narrative took, which was understandable and possibly necessary, but still worth noting.

          In the film, various eccentrics and oddballs make the discovery that subprime-backed securities are garbage, which is pretty much what happened; but this is wrapped together with their realization that there was a massive housing bubble, which is presented as equally contrary to anything anyone respectable was saying. And that's not quite right.

          It's true that Greenspan and others were busy denying the very possibility of a housing bubble. And it's also true that anyone suggesting that such a bubble existed was attacked furiously - "You're only saying that because you hate Bush!" Still, there were a number of economic analysts making the case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk) was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and making my big statement about the analytics in 2005, ** that is, if anything a bit earlier than most of the events in the film. I'm still fairly proud of that piece, by the way, because I think I got it very right by emphasizing the importance of breaking apart regional trends.

          So the bubble itself was something number crunchers could see without delving into the details of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the film. In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic illustration of motivated reasoning at work.

          The financial superstructure built on the bubble was something else; I was clueless about that, and didn't see the financial crisis coming at all.

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          ** http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          anne said in reply to anne...

          http://www.nytimes.com/2002/08/16/opinion/mind-the-gap.html

          August 16, 2002

          Mind the Gap
          By PAUL KRUGMAN

          More and more people are using the B-word about the housing market. A recent analysis * by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.

          If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          anne said in reply to anne...

          http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          August 8, 2005

          That Hissing Sound
          By PAUL KRUGMAN

          This is the way the bubble ends: not with a pop, but with a hiss.

          Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

          So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

          Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

          One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

          Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

          In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

          But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

          And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble....

          EMichael said in reply to anne...

          Yeah, the only thing he missed was the timing of the collapse.

          The day he wrote this the Fed had already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.

          Yet prices accelerated until the top was reached a year after the column.

          anne said in reply to EMichael...

          http://www.nytimes.com/2006/08/25/opinion/25krugman.html

          August 25, 2006

          Housing Gets Ugly
          By PAUL KRUGMAN

          Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.

          Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.

          A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: "We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New York Times profile of his company published last October, he dismissed worries about a possible bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to have a bubble and then a pop?"

          The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop! ...

          EMichael said in reply to anne...

          "Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition""

          You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates across the board on supposedly safe investments that caused mortgage money supply to totally disappear.

          One day people will understand that payments are the key to all finance.

          JohnH said...

          "and it is an outrage that basically nobody ended up being punished ."

          Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities prevent him from stating the obvious.

          I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e. Congress prevented him from implementing the law, even though Congress has nothing to do with it.

          Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obama's hollow presidency that they'll even support a racist demagogue to avoid another empty White House.

          JohnH said in reply to anne...

          Oh, please...Krugman could barely criticize Obama, even when Obama introduced an austerity budget back in 2011.

          The tendency of people like Krugman to overlook Democrats' bad behavior only encourages more bad behavior. If Krugman really cared about the policies he champions, he would let the chips fall wherever...and not let empty suits like Obama get away with austerity and failure to enforce the law when Wall Street willfully violates it.

          pgl said in reply to JohnH...

          Did you forgot to read the post before firing off your usual hate filled fact free rant? Here - let me help you out:

          "some members of the new commission had a different goal. George Santayana famously remarked that "those who cannot remember the past are condemned to repeat it." What he didn't point out was that some people want to repeat the past - and that such people have an interest in making sure that we don't remember what happened, or that we remember it wrong. Sure enough, some commission members sought to block consideration of any historical account that might support efforts to rein in runaway bankers."

          It seems Krugman indeed bashed how the government sort of let this crooks off the hook. We know you have an insane hatred for President Obama. But do you also hate your poor mom? Why else would you continue to write such incredibly stupid things?

          JohnH said in reply to pgl...

          As I expected, rationalizations for Obama's refusal to enforce the law...since when does the buck no longer stop at the White House? And what's with trying to defend people who refuse to do their job and uphold the rule of law?

          pgl said in reply to JohnH...

          Krugman did not rationalize that. Neither have I.

          Either you know you are lying or you flunked preK reading.

          JohnH said in reply to pgl...

          Of course pgl rationalizs Obama's failures...he spent a lot of time denying that Obama introduced and signed off on austerity...and that he proposed cutting Social Security. And now he can't admit that Obama and Holder have refused to defend the rule of law by not prosecuting...or even seriously investigating...Wall Street criminality.

          RGC said in reply to William...

          Prosecutions don't require congressional action.

          Most of the New Deal was accomplished in 100 days.

          Promotion by a president can galvanize action.

          pgl said in reply to EMichael...

          The lack of prosecutions was a bad thing. Of course any prosecutor would tell you putting rich people in jail for anything is often difficult. Rich people get to hire expensive, talented, and otherwise slimy defense attorneys. I have to laugh at the idea that JohnH thinks he could have pulled this off. The slimy defense attorneys would have had his lunch before the judge's gavel could come down.

          JohnH said in reply to pgl...

          Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest.

          pgl is intent on explaining away Obama's failure to enforce the law...thereby encouraging more lawlessness.

          JohnH said in reply to William...

          Democrats' filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. Even Lieberman had a good record on many issues. Except for ACA, it turned out to be a do-nothing Congress, reflecting an abject lack of leadership...which is why many are so desperate for leadership. Having lacked it for seven years, many are willing to turn to anybody, even Trump, to provide it. Pathetic!

          RGC said in reply to William...

          No vitriol, just facts. And Obama had the example of FDR to follow - why didn't he follow it? I have been deeply disappointed in Obama.

          JohnH said in reply to pgl...

          pgl conveniently forgets my choice words about Bill Clinton, Harry Reid and Nancy Pelosi. What I object to is Democrats who position themselves to sound like FDR and then prosecute a neo-liberal agenda.

          Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior.

          [Dec 21, 2015] Monetalism is dead but remains of monetarist thinking are still lingering

          Notable quotes:
          "... Summers is right that bubbles are usually accompanied by some kind of financial euphoria. ..."
          "... There will be massive pushback because so many have wasted many years and resources building mathematically elegant but fatally flawed models that do not make accurate predictions on even represent the fundamentals of any economy. ..."
          economistsview.typepad.com
          Peter K. said in reply to pgl... December 16, 2015 at 10:07 AM
          "It seems to me looking at a year when the stock market has gone down a bit, credit spreads have widened substantially and the dollar has been very strong it is hard to say that now is the time to fire a shot across the bow of financial euphoria. Looking especially at emerging markets I would judge that under-confidence and excessive risk aversion are a greater threat over the next several years than some kind of financial euphoria."

          Summers is right that bubbles are usually accompanied by some kind of financial euphoria.

          ... ... ...

          Peter K. said in reply to Benedict@Large...

          I disagree with your assessment. People (elite?) are talking about unusual solutions because fiscal policy is being blocked politically.

          MMT doesn't seem that different from Keynesianism, except proponents have very big chips on their shoulders for some reason.

          Right now the Keynesians are arguing that the Fed shouldn't raise rates. Are the MMTers arguing any differently? Or are they merely giving us the blue prints for utopia. Blue prints don't help much if the politics are against you.

          Syaloch said in reply to Peter K....

          Great question.

          If I have two black boxes that always produce exactly the same outputs, does it matter whether their internal mechanisms are different?

          Dan Kervick said in reply to Syaloch...
          "Or maybe they would be effective because people believe they ought to be effective."

          Possibly. I think back in the 80's when monetarism was the super-sexy new view, there were a lot of people who thought inflation was mainly a function of the monetary base, so if the Fed made a big public stink about pumping up the monetary base, that could be counted on the boost inflation expectations, at least in some quarters, and the high expectations would in turn help to boost actual inflation. That doesn't seem to be the case any longer.

          Dan Kervick said in reply to pgl...
          The heyday of monetarism was the late 70's and early 80's. That's when Friedman's monetary theory of inflation caught the public imagination, and it's the only time the Fed ever attempted (briefly) to target the money supply.

          Conservative spear-carrier Niall Ferguson knows how important monetarism was to the neoliberal movement, and how big a deal it was during the Thatcher-Reagan era.

          http://www.niallferguson.com/journalism/finance-economics/friedman-is-dead-monetarism-is-dead-but-what-about-inflation

          Other references to the heyday of monetarism abound:

          http://www.voxeu.org/article/nominal-gdp-targeting-developing-nations

          Dan Kervick said in reply to pgl...
          The heyday of monetarism was the late 70's and early 80's. That's when Friedman's monetary theory of inflation caught the public imagination, and it's the only time the Fed ever attempted (briefly) to target the money supply.

          Conservative spear-carrier Niall Ferguson knows how important monetarism was to the neoliberal movement, and how big a deal it was during the Thatcher-Reagan era.

          http://www.niallferguson.com/journalism/finance-economics/friedman-is-dead-monetarism-is-dead-but-what-about-inflation

          Other references to the heyday of monetarism abound:

          http://www.voxeu.org/article/nominal-gdp-targeting-developing-nations

          bakho said... December 16, 2015 at 05:45 AM
          Kevin Hoover, The emperor has no clothes!

          "Given what we know about representative-agent models…there is not the slightest reason for us to think that the conditions under which they should work are fulfilled. The claim that representative-agent models provide microfundations succeeds only when we steadfastly avoid the fact that representative-agent models are just as aggregative as old-fashioned Keynesian macroeconometric models. They do not solve the problem of aggregation; rather they assume that it can be ignored."

          This the reason Macro needs to move into more data driven empirics.

          There will be massive pushback because so many have wasted many years and resources building mathematically elegant but fatally flawed models that do not make accurate predictions on even represent the fundamentals of any economy.

          Syaloch said... December 16, 2015 at 05:50 AM

          The Advantages of Higher Inflation - The New York Times

          From the article:

          "A critical problem with aiming for higher inflation is how to get from here to there. The Fed has spent enormous effort anchoring people's expectations to 2 percent. Even economists sympathetic to a higher target are wary of what such a shift might do to its credibility.

          "'A perfect world, where you could commit to 4 percent and everybody believed it, would be great,' Mr. Mishkin told me. 'We are not in a perfect world. Moving much higher than 2 percent raises the risk that expectations become unanchored.'

          "So here is an alternative proposal. If the Fed is too cautious to risk unhinging inflationary expectations, how about just delivering what it has promised? Among economists and investors, the problem with the Fed's 2 percent target is that just about everybody believes it is really a ceiling. That makes it even harder for inflation to rise to that level. The market expects the Fed to act pre-emptively to ensure it never goes over that line - which is what it seems to be doing now.

          "If the Fed is not going to aim for higher inflation, the least it could do is re-anchor expectations to the goal it established, allowing inflation to fluctuate above and below a 2 percent average. That alone might help deal with the next economic crisis.

          "'We haven't fully tested whether we can deal with this kind of crisis with a 2 percent inflation target,' said David H. Romer of the University of California, Berkeley. 'Central banks have lots of tools. If they say they are willing to keep using them until they get where they want, they can eventually do it.'"

          This highlights a confusing aspect of inflation targets. If the Fed simply announces a higher inflation target without taking any other action, have they really done anything? What's more, they not only need to announce the new target, they need to convince markets that they are willing to do whatever it takes to hit that target -- it's all about credibility and re-anchoring expectations. And while engaging in QE to push down longer-term rates might help make that statement more convincing, it doesn't seem to be strictly necessary for the new target to be effective.

          Thus inflation targets seem in at least some cases to operate purely through psychological manipulation, as a sort of placebo effect: inflation rises not because the Fed has injected money into the economy today or changed the cost of lending today, but rather because the Fed is able to "trick" markets into believing it will rise in the future.

          Peter K. said in reply to Syaloch...

          And the reverse is true. The markets are skeptical that the Fed will hit its 2 percent ceiling target any time soon.

          Inflation expectations are becoming un-anchored on the downside but nobody cares because .... oil.

          Dan Kervick said in reply to Peter K....
          I guess we'll all have to wait for Yellen's future memoirs to know the thinking that was going on inside the Fed during 2015. But it's interesting that both Yellen and Stanley Fischer, both formerly held in gigantic respect by the more prominent liberal economists, are now the targets of ire for apparently not seeing eye-to-eye with their opinionated friends on the outside. Despite the fact that BoG members have access to mountains of internal research and policy input that people on the outside can only guess at, the default position of the outsiders is that the insiders have been corrupted by power and fast-talking bankers or something.

          Here's my conjecture about what the Fed's thinking is: The Fed recognizes that keeping policy interest rates down at an unprecedentedly low basement level for years on end sends this message to the global economy: the US economy is a sick basket case. It needs the permanent life support of extraordinary monetary policy intervention to be kept from flat-lining.

          I think the people who actually work inside the Fed think that is total bunk, and that as they gradually wean the financial sector off of the monetary ventilator, nothing bad is going to happen at all. The patient is going to get up, walk around and breathe normally. And when that happens, it will say, "Wow, maybe I should have tried that earlier!" Business confidence will spurt; people will think, "Hey, I guess we're not in that gloomy post-2008 depression any more!", and the country will get on with its business more cheerfully.

          The Fed has had a devil of a time getting back to normal, because despite its best intentions it has inadvertently re-defined a condition of zero rates and excess reserves bleeding from bankers's ears as the new normal, and created an out-of-control public fixation on monetary policy intervention. Fed communications strategies aimed at guiding the market have turned back on them in a reflexive and self-defeating cycle. They got themselves into a terrible pattern for a while where every time there was good economic news, the markets would respond negatively because they interpreted the good news as evidence that the Fed would "taper" - which they regarded as bad news! And if there was bad news, the markets would respond favorably because they saw the bad news as evidence that the fed would "remain aggressive" - which is good news! Obviously that's a pretty pathological cycle to be in: it's a mechanism fro economic self-stultification. Indicating a move toward normalization too suddenly in 2013 caused the irrational "taper tantrum", so they have had to go more slowly this time around with the hand-holding and by building a longer "guidance" runway.

          Their chief need now is to push back against the monetary maniacs and hyperventilators who keep trying to convince impressionable business people and consumers that the Fed has somehow been "keeping the economy" afloat, and that when interest rates go up - from 1/4 to 1/2 of a percent! - we're all going to drown. If you have enough ambulance chasers convincing people they are sick and damaged, they will act sick and damaged.

          [Dec 20, 2015] Paul Krugman: The Big Short, Housing Bubbles and Retold Lies

          Notable quotes:
          "... I get the feeling that if doing a film review of The Force Awakens , most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. ..."
          "... In market fundamentalist world, markets dont fail. They can only be failed. Though its still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs. ..."
          "... The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects. ..."
          "... ....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what weve called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature. ..."
          "... except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure ..."
          "... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."
          "... Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJs lowest priority. Krugmans Democratic proclivities prevent him from stating the obvious. ..."
          "... Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obamas hollow presidency that theyll even support a racist demagogue to avoid another empty White House. ..."
          "... Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with teaser rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself Greenspan. ..."
          "... When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do. ..."
          economistsview.typepad.com

          Why are Murdoch-controlled newspapers attacking "The Big Short?"

          'The Big Short,' Housing Bubbles and Retold Lies, by Paul krugman, Commentary, NY Times: In May 2009 Congress created a special commission to examine the causes of the financial crisis. The idea was to emulate the celebrated Pecora Commission of the 1930s, which used careful historical analysis to help craft regulations that gave America two generations of financial stability.

          But some members of the new commission had a different goal. ... Peter Wallison of the American Enterprise Institute, wrote to a fellow Republican on the commission ... it was important that what they said "not undermine the ability of the new House G.O.P. to modify or repeal Dodd-Frank"...; the party line, literally, required telling stories that would help Wall Street do it all over again.

          Which brings me to a new movie the enemies of financial regulation really, really don't want you to see.

          "The Big Short" ... does a terrific job of making Wall Street skulduggery entertaining, of exploiting the inherent black humor of how it went down. ... But you don't want me to play film critic; you want to know whether the movie got the underlying ... story right. And the answer is yes, in all the ways that matter. ...

          The ...housing ... bubble ... was inflated largely via opaque financial schemes that in many cases amounted to outright fraud - and it is an outrage that basically nobody ended up being punished ... aside from innocent bystanders, namely the millions of workers who lost their jobs and the millions of families that lost their homes.

          While the movie gets the essentials of the financial crisis right, the true story ... is deeply inconvenient to some very rich and powerful people. They and their intellectual hired guns have therefore spent years disseminating an alternative view ... that places all the blame ... on ... too much government, especially government-sponsored agencies supposedly pushing too many loans on the poor.

          Never mind that the supposed evidence for this view has been thoroughly debunked..., constant repetition, especially in captive media, keeps this imaginary history in circulation no matter how often it is shown to be false.

          Sure enough, "The Big Short" has already been the subject of vitriolic attacks in Murdoch-controlled newspapers...

          The ... people who made "The Big Short" should consider the attacks a kind of compliment: The attackers obviously worry that the film is entertaining enough that it will expose a large audience to the truth. Let's hope that their fears are justified.

          btg said in reply to pgl...

          I get the feeling that if doing a film review of "The Force Awakens", most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. Krugman would not, however.

          Sanjait said...

          In market fundamentalist world, markets don't fail. They can only be failed. Though it's still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs.

          Are markets efficient or not? I feel like the fundiesndont really have a coherent explanation for what happened, other than insisting the government somehow did it.

          reason said...

          I wish Krugman would attack the view that is being propagated at the moment that low nominal interest rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make the slightest bit of sense - leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates.)

          The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects.

          reason said... December 18, 2015 at 02:32 AM

          It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors can't understand what the Fed is doing, even though they tell you.

          Sanjait said in reply to reason... December 18, 2015 at 08:06 AM

          That's it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and it's the government's fault.

          And somehow the RW economists see no problem with this model

          DeDude said in reply to Sanjait... December 18, 2015 at 08:18 AM

          Here is how they evaluate models:

          Good model; one that reaches the "right" good conclusions. Bad model; one that ends up saying stuff nobody should believe in.

          likbez said in reply to Sanjait...

          "Markets are efficient, unless the government does anything"

          This is a dangerous neoliberal dogma. Total lie.

          === quote ===
          The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became popular for the last 30 years in the USA. It is a pseudo scientific theory or, in more politically correct terms, unrealistic idealization of market behavior. Like classic Lysenkoism in the past was supported by Stalin's totalitarian state, it was supported by the power of neoliberal state, which is the state captured by financial oligarchy (see Casino Capitalism and Quiet coup for more details).

          Among the factors ignored by EMH is the positive feedback loop inherent in any system based on factional reserve banking, the level of market players ignorance, unequal access to the real information about the markets, the level of brainwashing performed on "lemmings" by controlled by elite MSM and market manipulation by the largest players and the state.

          Economics, it is said, is the study of scarcity. There is, however, one thing that certainly isn't scarce, but which deserves the attention of economists - ignorance.
          ...Conventional economics analyses how individuals choose - maybe rationally, maybe not - from a range of options. But this raises the question: how do they know what these options are? Many feasible - even optimum - options might not occur to them. This fact has some important implications. ...
          Slightly simplifying, we can say that (financial) markets are mainly efficient in separation of fools and their money... And efficient market hypothesis mostly bypasses important question about how the inequity of resources which inevitably affects the outcomes of market participants. For example, the level of education of market players is one aspect of the inequity of resources. Herd behavior is another important, but overlooked in EMH factor.

          http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Pseudo_theories/Permanent_equilibrium_fallacy/Efficient_market_hypothesys/index.shtml

          JF said in reply to reason...

          Great comment. I especially liked this point: "The distribution of the use of credit between pure financial speculation and productive investment is not a function of"

          ....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what we've called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature.

          There may be an opportunity in 2017 to revise the statutes so the public plainly says what the rules of Commerce are in these financial 'inter-mediation' areas - society is better served if more of such credit offerings go to investments in the real economy where inputs are real things like employees, supplies, equipment/technologies. The public's law can effect this change.

          david said in reply to JF...

          except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure

          BenIsNotYoda said in reply to reason...

          "The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects."

          The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected returns. when this dynamic gets out of control, it is a bubble.

          Sanjait said in reply to BenIsNotYoda...

          It's hard to see how to your claim that expected returns are high when earnings yields across the board are historically low.

          BenIsNotYoda said in reply to Sanjait...

          That is exactly the point. Expected returns in stocks have nothing to do with earnings growth.

          http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/

          Fred C. Dobbs said in reply to reason...

          It does not seem reasonable or fair to pay practically no interest on savings, which is a consequence of Fed policy. A consequence of this is that people go into risky investments that lead to catastrophe, sometimes widespread. If the goal was to get people to spend (i.e. consume) more, it seems that they are persistently & stubbornly frugal.

          anne, December 18, 2015 at 06:37 AM

          http://krugman.blogs.nytimes.com/2015/11/23/shorts-subject/

          November 23, 2015

          Shorts Subject
          By Paul Krugman

          Last night I was invited to a screening of "The Big Short," which I thought was terrific; who knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat narrative (with great acting)?

          But there was one shortcut the narrative took, which was understandable and possibly necessary, but still worth noting.

          In the film, various eccentrics and oddballs make the discovery that subprime-backed securities are garbage, which is pretty much what happened; but this is wrapped together with their realization that there was a massive housing bubble, which is presented as equally contrary to anything anyone respectable was saying. And that's not quite right.

          It's true that Greenspan and others were busy denying the very possibility of a housing bubble. And it's also true that anyone suggesting that such a bubble existed was attacked furiously - "You're only saying that because you hate Bush!" Still, there were a number of economic analysts making the case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk) was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and making my big statement about the analytics in 2005, ** that is, if anything a bit earlier than most of the events in the film. I'm still fairly proud of that piece, by the way, because I think I got it very right by emphasizing the importance of breaking apart regional trends.

          So the bubble itself was something number crunchers could see without delving into the details of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the film. In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic illustration of motivated reasoning at work.

          The financial superstructure built on the bubble was something else; I was clueless about that, and didn't see the financial crisis coming at all.

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          ** http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          anne said in reply to anne... December 18, 2015 at 06:43 AM

          http://www.nytimes.com/2002/08/16/opinion/mind-the-gap.html

          August 16, 2002

          Mind the Gap
          By PAUL KRUGMAN

          More and more people are using the B-word about the housing market. A recent analysis * by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.

          If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....

          * http://www.cepr.net/documents/publications/housing_2002_08.pdf

          anne said in reply to anne... December 18, 2015 at 06:44 AM

          http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

          August 8, 2005

          That Hissing Sound
          By PAUL KRUGMAN

          This is the way the bubble ends: not with a pop, but with a hiss.

          Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

          So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

          Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

          One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

          Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

          In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

          But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

          And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble....

          EMichael said in reply to anne... December 18, 2015 at 06:59 AM

          Yeah, the only thing he missed was the timing of the collapse. The day he wrote this the Fed had already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.

          Yet prices accelerated until the top was reached a year after the column.

          anne said in reply to EMichael... December 18, 2015 at 07:43 AM

          http://www.nytimes.com/2006/08/25/opinion/25krugman.html

          August 25, 2006

          Housing Gets Ugly
          By PAUL KRUGMAN

          Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.

          Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.

          A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: "We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New York Times profile of his company published last October, he dismissed worries about a possible bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to have a bubble and then a pop?"

          The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop! ...

          EMichael said in reply to anne... December 18, 2015 at 07:52 AM

          "Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition""

          You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates across the board on supposedly safe investments that caused mortgage money supply to totally disappear.

          One day people will understand that payments are the key to all finance.

          JohnH said...

          "and it is an outrage that basically nobody ended up being punished ."

          Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities prevent him from stating the obvious.

          I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e. Congress prevented him from implementing the law, even though Congress has nothing to do with it.

          Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obama's hollow presidency that they'll even support a racist demagogue to avoid another empty White House.

          run75441 said in reply to JohnH...

          Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with "teaser" rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself "Greenspan."

          When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do.

          What was the SEC doing during this time period? What was the administration doing with Enron in 2002? Didn't Cheney get sued by the GAO to find out who he was talking to at Enron?

          Yes there is the matter of not prosecuting banking execs after 2008; however, the issue was allowed to grow during the prior administration and left on the next administration's doorstep. Closing the barn door after the perps have escaped is a bit late and it should have been stopped dead in its tracks during the prior 8 years.

          So keep going down that path and we can also talk about fraud with tranching, CDS, Naked CDs, reserves, etc.

          So, where was the administration during this time period?

          DeDude said...

          Subprime loans in poor communities represented a very small fraction of the total subprime volume and defaulted loans. I mean talk about the mouse and the elephant. Yet the FoxBots are being convinced to look at those scary mice and all that thundering noise they are making.

          Alex H said in reply to Peter K....
          In the book, one of the supposed villains went to the division of AIG that was selling CDSes (i.e. "insuring" the toxic crap) and explained to a direct subordinate of the division exactly how his bank and the other companies of Wall Street were suckering them into taking on absurd risks. In *2005*.

          Because he was massively short in this market, and AIG pulling the plug would have popped the bubble. Nobody else was selling CDSes (then), and Wall Street couldn't have pretended that their risks were covered without them. That doesn't make him a hero, but seriously, if AIG had listened, no collapse.

          Several of the characters effectively called up the ratings agencies to shout at them. Others called NYT and WSJ reporters, who ignored them. Then they called the SEC's enforcement division, who ignored them.

          Besides, if the other side in all of those bets were foreign "widows and orphans", then it wouldn't have wrecked the financial system. If Bear Stearns had been sitting as the middleman between a Korean pension fund and Steve Eisman, they'd have just taken their cut and moved on.

          [Dec 19, 2015] The Enduring Relevance of "Manias, Panics, and Crashes"

          Notable quotes:
          "... Manias, Panics, and Crashes ..."
          "... The New International Money Game ..."
          "... Manias, Panics and Crashes ..."
          "... Why Minsky Matters ..."
          "... Manias, Panics and Crashes ..."
          "... Manias, Panics and Crashes ..."
          December 17, 2015 | Angry Bear

          by Joseph Joyce

          The Enduring Relevance of "Manias, Panics, and Crashes"

          The seventh edition of Manias, Panics, and Crashes has recently been published by Palgrave Macmillan. Charles Kindleberger of MIT wrote the first edition, which appeared in 1978, and followed it with three more editions. Robert Aliber of the Booth School of Business at the University of Chicago took over the editing and rewriting of the fifth edition, which came out in 2005. (Aliber is also the author of another well-known book on international finance, The New International Money Game.) The continuing popularity of Manias, Panics and Crashes shows that financial crises continue to be a matter of widespread concern.

          Kindleberger built upon the work of Hyman Minsky, a faculty member at Washington University in St. Louis. Minsky was a proponent of what he called the "financial instability hypothesis," which posited that financial markets are inherently unstable. Periods of financial booms are followed by busts, and governmental intervention can delay but not eliminate crises. Minsky's work received a great deal of attention during the global financial crisis (see here and here; for a summary of Minksy's work, see Why Minsky Matters by L. Randall Wray of the University of Missouri-Kansas City and the Levy Economics Institute).

          Kindleberger provided a more detailed description of the stages of a financial crisis. The period preceding a crisis begins with a "displacement," a shock to the system. When a displacement improves the profitability of at least one sector of an economy, firms and individuals will seek to take advantage of this opportunity. The resulting demand for financial assets leads to an increase in their prices. Positive feedback in asset markets lead to more investments and financial speculation, and a period of "euphoria," or mania develops.

          At some point, however, insiders begin to take profits and withdraw from the markets. Once market participants realize that prices have peaked, flight from the markets becomes widespread. As prices plummet, a period of "revulsion" or panic ensues. Those who had financed their positions in the market by borrowing on the promise of profits on the purchased assets become insolvent. The panic ends when prices fall so far that some traders are tempted to come back into the market, or trading is limited by the authorities, or a lender of last resort intervenes to halt the decline.

          In addition to elaborating on the stages of a financial crisis, Kindleberger also placed them in an international context. He wrote about the propagation of crises through the arbitrage of divergences in the prices of assets across markets or their substitutes. Capital flows and the spread of euphoria also contribute to the simultaneous rises in asset prices in different countries. (Piero Pasotti and Alessandro Vercelli of the University of Siena provide an analysis of Kindleberger's contributions.)

          Aliber has continued to update the book, and the new edition has a chapter on the European sovereign debt crisis. (The prior edition covered the events of 2008-09.) But he has also made his own contributions to the Minsky-Kindleberger (and now –Aliber) framework. Aliber characterizes the decades since the early 1980s as "…the most tumultuous in monetary history in terms of the number, scope and severity of banking crises." To date, there have been four waves of such crises, which are almost always accompanied by currency crises. The first wave was the debt crisis of developing nations during the 1980s, and it was followed by a second wave of crises in Japan and the Nordic countries in the early 1990s. The third wave was the Asian financial crisis of 1997-98, and the fourth is the global financial crisis.

          Aliber emphasizes the role of cross-border investment flows in precipitating the crises. Their volatility has risen under flexible exchange rates, which allow central banks more freedom in formulating monetary policies that influence capital allocation. He also draws attention to the increases in household wealth due to rising asset prices and currency appreciation that contribute to consumption expenditures and amplify the boom periods. The reversal in wealth once investors revise their expectations and capital begins to flow out makes the resulting downturn more acute.

          These views are consistent in many ways with those of Claudio Borio of the Bank for International Settlements (see also here). He has written that the international monetary and financial system amplifies the "excess financial elasticity," i.e., the buildup of financial imbalances that characterizes domestic financial markets. He identifies two channels of transmission. First, capital inflows contribute to the rise in domestic credit during a financial boom. The impact of global conditions on domestic financial markets exacerbates this development (see here). Second, monetary regimes may facilitate the expansion of monetary conditions from one country to others. Central bankers concerned about currency appreciation and a loss of competitiveness keep interest rates lower than they would otherwise, which furthers a domestic boom. In addition, the actions of central banks with international currencies such as the dollar has international ramifications, as the current widespread concern about the impending rise in the Federal Funds rate shows.

          Aliber ends the current edition of Manias, Panics and Crashes with an appendix on China's financial situation. He compares the surge in China's housing markets with the Japanese boom of the 1980s and subsequent bust that initiated decades of slow economic growth. An oversupply of new housing in China has resulted in a decline in prices that threatens the solvency of property developers and the banks and shadow banks that financed them. Aliber is dubious of the claim that the Chinese government will support the banks, pointing out that such support will only worsen China's indebtedness. The need for an eighth edition of Manias, Panics and Crashes may soon be apparent.

          cross posted with Capital Ebbs and Flows

          [Dec 19, 2015] The Washington Post's Non-Political Fed Looks a Lot Like Wall Street's Fed

          Notable quotes:
          "... Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. ..."
          Dec 19, 2015 | Beat the Press

          ... ... ...

          But what is even more striking is the Post's ability to treat the Fed a neutral party when the evidence is so overwhelming in the opposite direction. The majority of the Fed's 12 district bank presidents have long been pushing for a rate hike. While there are some doves among this group, most notably Charles Evans, the Chicago bank president, and Narayana Kocherlakota, the departing president of the Minneapolis bank, most of this group has publicly pushed for higher rate hikes for some time. By contrast, the governors who are appointed through the democratic process, have been far more cautious about raising rates.

          It should raise serious concerns that the bank presidents, who are appointed through a process dominated by the banking industry, has such a different perspective on the best path forward for monetary policy. With only five of the seven governor slots currently filled, there are as many presidents with voting seats on the Fed's Open Market Committee as governors. In total, the governors are outnumbered at meetings by a ratio of twelve to five.

          Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. Furthermore, it seems determined to use that influence to push the Fed on a path that slows growth and reduces the rate of job creation. The Post somehow missed this story or at least would prefer that the rest of us not take notice.

          * https://www.washingtonpost.com/opinions/the-federal-reserve-makes-a-good-judgment-call-in-raising-interest-rates/2015/12/18/7954e1c6-a4f8-11e5-ad3f-991ce3374e23_story.html

          -- Dean Baker

          [Dec 18, 2015] The Upward Redistribution of Income: Are Rents the Story?

          Looks like growth of financial sector represents direct threat to the society
          Notable quotes:
          "... Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low. ..."
          "... Growth of the non-financial-sector == growth in productivity ..."
          "... In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers. ..."
          December 18, 2015 | cepr.netDean Baker:
          Working Paper: : In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period.

          This paper argues that the bulk of this upward redistribution comes from the growth of rents in the economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals. The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality, as for example argued by Thomas Piketty.

          Flash | PDF

          RC AKA Darryl, Ron said in reply to Fair Economist, December 18, 2015 at 11:34 AM

          "...the growth of finance capitalism was what would kill capitalism off..."

          "Financialization" is a short-cut terminology that in full is term either "financialization of non-financial firms" or "financialization of the means of production." In either case it leads to consolidation of firms, outsourcing, downsizing, and offshoring to reduce work force and wages and increase rents.

          Consolidation, the alpha and omega of financialization can only be executed with very liquid financial markets, big investment banks to back necessary leverage to make the proffers, and an acute capital gains tax preference relative to dividends and interest earnings, the grease to liquidity.

          It takes big finance to do "financialization" and it takes "financialization" to extract big rents while maintaining low wages.

          RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:42 AM
          [THANKS to djb just down thread who supplied this link:]

          http://www.democraticunderground.com/10021305040

          Finance sector as percent of US GDP, 1860-present: the growth of the rentier economy

          [graph]

          Financialization is a term sometimes used in discussions of financial capitalism which developed over recent decades, in which financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics.

          Financialization is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work-product or service to an exchangeable financial instrument... Financialization also makes economic rents possible...financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics...

          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.

          In the United States, probably more money has been made through the appreciation of real estate than in any other way. What are the long-term consequences if an increasing percentage of savings and wealth, as it now seems, is used to inflate the prices of already existing assets - real estate and stocks - instead of to create new production and innovation?

          http://en.wikipedia.org/wiki/Financialization

          pgl said in reply to RC AKA Darryl, Ron, December 18, 2015 at 03:25 PM
          Your graph shows something I've been meaning to suggest for a while. Take a look at the last time that the financial sector share of GDP rose. The late 1920's. Which was followed by the Great Depression which has similar causes as our Great Recession. Here is my observation.

          Give that Wall Street clowns a huge increase in our national income and we don't get more services from them. What we get is screwed on the grandest of scales.

          BTW - there is a simple causal relationship that explains both the rise in the share of financial sector income/GDP and the massive collapses of the economy (1929 and 2007). It is called stupid financial deregulation. First we see the megabanks and Wall Street milking the system for all its worth and when their unhanded and often secretive risk taking falls apart - the rest of bear the brunt of the damage.

          Which is why this election is crucial. Elect a Republican and we repeat this mistake again. Elect a real progressive and we can put in place the types of financial reforms FDR was known for.

          Peter K. said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:50 AM

          " and it takes "financialization" to extract big rents while maintaining low wages."

          It takes governmental macro policy to maintain loose labor markets and low wages. Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low.

          djb said...

          http://www.democraticunderground.com/10021305040

          I don't know about the last couple years but this chart indicates a large growth in financials as a share of gdp over the years since the 40's

          RC AKA Darryl, Ron said in reply to djb, December 18, 2015 at 12:03 PM
          [Anne gave you FIRE sector profits as a share of GDP while this gives FIRE sector profits as a share of total corporate profits.]

          *

          [Smoking gun excerpt:]

          "...The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent...

          [Ouch!]

          [Now the whole enchilada:]

          http://www.washingtonmonthly.com/magazine/novemberdecember_2014/features/frenzied_financialization052714.php?page=all

          If you want to know what happened to economic equality in this country, one word will explain a lot of it: financialization. That term refers to an increase in the size, scope, and power of the financial sector-the people and firms that manage money and underwrite stocks, bonds, derivatives, and other securities-relative to the rest of the economy.

          The financialization revolution over the past thirty-five years has moved us toward greater inequality in three distinct ways. The first involves moving a larger share of the total national wealth into the hands of the financial sector. The second involves concentrating on activities that are of questionable value, or even detrimental to the economy as a whole. And finally, finance has increased inequality by convincing corporate executives and asset managers that corporations must be judged not by the quality of their products and workforce but by one thing only: immediate income paid to shareholders.

          The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent. This isn't just the decline of profits in other industries, either. Between 1980 and 2006, while GDP increased five times, financial-sector profits increased sixteen times over. While financial and nonfinancial profits grew at roughly the same rate before 1980, between 1980 and 2006 nonfinancial profits grew seven times while financial profits grew sixteen times.

          This trend has continued even after the financial crisis of 2008 and subsequent financial reforms, including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Financial profits in 2012 were 24 percent of total profits, while the financial sector's share of GDP was 6.8 percent. These numbers are lower than the high points of the mid-2000s; but, compared to the years before 1980, they are remarkably high.

          This explosion of finance has generated greater inequality. To begin with, the share of the total workforce employed in the financial sector has barely budged, much less grown at a rate equivalent to the size and profitability of the sector as a whole. That means that these swollen profits are flowing to a small sliver of the population: those employed in finance. And financiers, in turn, have become substantially more prominent among the top 1 percent. Recent work by the economists Jon Bakija, Adam Cole, and Bradley T. Heim found that the percentage of those in the top 1 percent of income working in finance nearly doubled between 1979 and 2005, from 7.7 percent to 13.9 percent.

          If the economy had become far more productive as a result of these changes, they could have been worthwhile. But the evidence shows it did not. Economist Thomas Philippon found that financial services themselves have become less, not more, efficient over this time period. The unit cost of financial services, or the percentage of assets it costs to produce all financial issuances, was relatively high at the dawn of the twentieth century, but declined to below 2 percent between 1901 and 1960. However, it has increased since the 1960s, and is back to levels seen at the early twentieth century. Whatever finance is doing, it isn't doing it more cheaply.

          In fact, the second damaging trend is that financial institutions began to concentrate more and more on activities that are worrisome at best and destructive at worst. Harvard Business School professors Robin Greenwood and David Scharfstein argue that between 1980 and 2007 the growth in financial-industry revenues came from two things: asset management and loan origination. Fees associated either with asset management or with household credit in particular were responsible for 74 percent of the growth in financial-sector output over that period.

          The asset management portion reflects the explosion of mutual funds, which increased from $134 billion in assets in 1980 to $12 trillion in 2007. Much of it also comes from "alternative investment vehicles" like hedge funds and private equity. Over this time, the fee rate for mutual funds fell, but fees associated with alternative investment vehicles exploded. This is, in essence, money for nothing-there is little evidence that hedge funds actually perform better than the market over time. And, unlike mutual funds, alternative investment funds do not fully disclose their practices and fees publicly.

          Beginning in 1980 and continuing today, banks generate less and less of their income from interest on loans. Instead, they rely on fees, from either consumers or borrowers. Fees associated with household credit grew from 1.1 percent of GDP in 1980 to 3.4 percent in 2007. As part of the unregulated shadow banking sector that took over the financial sector, banks are less and less in the business of holding loans and more and more concerned with packaging them and selling them off. Instead of holding loans on their books, banks originate loans to sell off and distribute into this new type of banking sector.

          Again, if this "originate-to-distribute" model created value for society, it could be a worthwhile practice. But, in fact, this model introduced huge opportunities for fraud throughout the lending process. Loans-such as "securitized mortgages" made up of pledges of the income stream from subprime mortgage loans-were passed along a chain of buyers until someone far away held the ultimate risk. Bankers who originated the mortgages received significant commissions, with virtually no accountability or oversight. The incentive, in fact, was perverse: find the worst loans with the biggest fees instead of properly screening for whether the loans would be any good for investors.

          The same model made it difficult, if not impossible, to renegotiate bad mortgages when the system collapsed. Those tasked with tackling bad mortgages on behalf of investors had their own conflicts of interests, and found themselves profiting while loans struggled. This process created bad debts that could never be paid, and blocked attempts to try and rework them after the fact. The resulting pool of bad debt has been a drag on the economy ever since, giving us the fall in median wages of the Great Recession and the sluggish recovery we still live with.

          And of course it's been an epic disaster for the borrowers themselves. Many of them, we now know, were moderate- and lower-income families who were in no financial position to borrow as much as they did, especially under such predatory terms and with such high fees. Collapsing home prices and the inability to renegotiate their underwater mortgages stripped these folks of whatever savings they had and left them in deep debt, widening even further the gulf of inequality in this country.

          Moreover, financialization isn't just confined to the financial sector itself. It's also ultimately about who controls, guides, and benefits from our economy as a whole. And here's the last big change: the "shareholder revolution," started in the 1980s and continuing to this very day, has fundamentally transformed the way our economy functions in favor of wealth owners.

          To understand this change, compare two eras at General Electric. This is how business professor Gerald Davis describes the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: "[S]tockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer." Davis contrasts that ethos with that of Jack Welch, CEO from 1981 to 2001; Welch, Davis says, believed in "the shareholder as king-the residual claimant, entitled to the [whole] pot of earnings."

          This change had dramatic consequences. Economist J. W. Mason found that, before the 1980s, firms tended to borrow funds in order to fuel investment. Since 1980, that link has been broken. Now when firms borrow, they tend to use the money to fund dividends or buy back stocks. Indeed, even during the height of the housing boom, Mason notes, "corporations were paying out more than 100 percent of their cash flow to shareholders."

          This lack of investment is obviously holding back our recovery. Productive investment remains low, and even extraordinary action by the Federal Reserve to make investments more profitable by keeping interest rates low has not been able to counteract the general corporate presumption that this money should go to shareholders. There is thus less innovation, less risk taking, and ultimately less growth. One of the reasons this revolution was engineered in the 1980s was to put a check on what kinds of investments CEOs could make, and one of those investments was wage growth. Finance has now won the battle against wage earners: corporations today are reluctant to raise wages even as the economy slowly starts to recover. This keeps the economy perpetually sluggish by retarding consumer demand, while also increasing inequality.

          How can these changes be challenged? The first thing we must understand is the scope of the change. As Mason writes, the changes have been intellectual, legal, and institutional. At the intellectual level, academic research and conventional wisdom among economists and policymakers coalesced around the ideas that maximizing returns to shareholders is the only goal of a corporation, and that the financial markets were always right. At the legal level, laws regulating finance at the state level were overturned by the Supreme Court or preempted by federal regulators, and antitrust regulations were gutted by the Reagan administration and not taken up again.

          At the institutional level, deregulation over several administrations led to a massive concentration of the financial sector into fewer, richer firms. As financial expertise became more prestigious than industry-specific knowledge, CEOs no longer came from within the firms they represented but instead from other firms or from Wall Street; their pay was aligned through stock options, which naturally turned their focus toward maximizing stock prices. The intellectual and institutional transformation was part of an overwhelming ideological change: the health and strength of the economy became identified solely with the profitability of the financial markets.

          This was a bold revolution, and any program that seeks to change it has to be just as bold intellectually. Such a program will also require legal and institutional changes, ones that go beyond making sure that financial firms can fail without destroying the economy. Dodd-Frank can be thought of as a reaction against the worst excesses of the financial sector at the height of the housing bubble, and as a line of defense against future financial panics. Many parts of it are doing yeoman's work in curtailing the financial sector's abuses, especially in terms of protecting consumers from fraud and bringing some transparency to the Wild West of the derivatives markets. But the scope of the law is too limited to roll back these larger changes.

          One provision of Dodd-Frank, however, suggests a way forward. At the urging of the AFL-CIO, Dodd-Frank empowered the Securities and Exchange Commission to examine the activities of private equity firms on behalf of their investors. At around $3.5 trillion, private equity is a massive market with serious consequences for the economy as a whole. On its first pass, the SEC found extensive abuses. Andrew Bowden, the director of the SEC's examinations office, stated that the agency found "what we believe are violations of law or material weaknesses in controls over 50 percent of the time."

          Lawmakers could require private equity and hedge funds to standardize their disclosures of fees and holdings, as is currently the case for mutual funds. The decline in fees for mutual funds noted above didn't just happen by itself; it happened because the law structured the market for actual transparency and price competition. This will need to happen again for the broader financial sector.

          But the most important change will be intellectual: we must come to understand our economy not as simply a vehicle for capital owners, but rather as the creation of all of us, a common endeavor that creates space for innovation, risk taking, and a stronger workforce. This change will be difficult, as we will have to alter how we approach the economy as a whole. Our wealth and companies can't just be strip-mined for a small sliver of capital holders; we'll need to bring the corporation back to the public realm. But without it, we will remain trapped inside an economy that only works for a select few.

          [Whew!]

          Puerto Barato said in reply to RC AKA Darryl, Ron,
          "3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5"
          ~~RC AKA Darryl, Ron ~

          Growth of the non-financial-sector == growth in productivity

          Growth of the financial-sector == growth in upward transfer of wealth

          Ostensibly financial-sector is there to protect your money from being eaten up by inflation. Closer inspection shows that the prevention of *eaten up* is by the method of rent collection.

          Accountants handle this analysis poorly, but you can see what is happening. Boiling it down to the bottom line you can easily see that wiping out the financial sector is the remedy to the Piketty.

          Hell! Financial sector wiped itself out in 008. Problem was that the GSE and administration brought the zombie back to life then put the vampire back at our throats. What was the precipitating factor that snagged the financial sector without warning?

          Unexpected
          deflation
          !

          Gimme some
          of that

          pgl said in reply to djb...

          People like Brad DeLong have noted this for a while. Twice as many people making twice as much money per person. And their true value to us - not a bit more than it was back in the 1940's.

          Rock O Sock O Choco said in reply to djb... December 18, 2015 at 06:26 PM

          JEC - MeanSquaredErrors said...

          Wait, what?

          Piketty looks at centuries of data from all over the world and concludes that capitalism has a long-run bias towards income concentration. Baker looks at 35 years of data in one country and concludes that Piketty is wrong. Um...?

          A little more generously, what Baker actually writes is:

          "The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to **this** rapid rise in inequality, as for example argued by Thomas Piketty." (emphasis added)

          But Piketty has always been very explicit that the recent rise in US income inequality is anomalous -- driven primarily by rising inequality in the distribution of labor income, and only secondarily by any shift from labor to capital income.

          So perhaps Baker is "correctly" refuting Straw Thomas Piketty. Which I suppose is better than just being obviously wrong. Maybe.

          tew said...

          Some simple math shows that this assertion is false "As a result of this upward redistribution, most workers have seen little improvement in living standards" unless you think an apprx. 60% in per-capita real income (expressed as GDP) among the 99% is "little improvement".

          Real GDP 2015 / Real GDP 1980 = 2.57 (Source: FRED)
          If the income share of the 1% shifted from 10% to 20% then The 1%' real GDP component went up 410% while that of The 99% went up 130%. Accounting for a population increase of about 41% brings those numbers to a 265% increase and a 62% increase.

          Certainly a very unequal distribution of the productivity gains but hard to call "little".

          I believe the truth of the statement is revealed when you look at the Top 5% vs. the other 95%.

          cm said in reply to tew...

          For most "working people", their raises are quickly eaten up by increases in housing/rental, food, local services, and other nondiscretionary costs. Sure, you can buy more and better imported consumer electronics per dollar, but you have to pay the rent/mortgage every months, how often do you buy a new flat screen TV? In a high-cost metro, a big ass TV will easily cost less than a single monthly rent (and probably less than your annual cable bill that you need to actually watch TV).

          pgl said in reply to tew...

          Are you trying to be the champion of the 1%? Sorry dude but Greg Mankiw beat you to this.

          anne said...

          In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period....

          -- Dean Baker

          anne said in reply to anne...

          http://www.census.gov/hhes/www/income/data/historical/household/

          September 16, 2015

          Real Median Household Income, 1980 & 2014


          1980 ( 48,462)

          2014 ( 53,657)


          53,657 - 48,462 = 5,195

          5,195 / 48,462 = 10.7%


          Between 1980 and 2014 real median household income increased by a mere 10.7%.

          anne said in reply to don...

          I would be curious to know what has happened to the number of members per household....

          http://www.census.gov/hhes/www/income/data/historical/household/

          September 16, 2015

          Household Size

          2014 ( 2.54)
          1980 ( 2.73)

          [ The difference in household size to real median household incomes is not statistically significant. ]

          anne said in reply to anne...

          http://www.census.gov/hhes/www/income/data/historical/families/index.html

          September 16, 2015

          Real Median Family Income, 1948-1980-2014


          1948 ( 27,369)

          1980 ( 57,528)

          2014 ( 66,632)


          57,528 - 27,369 = 30,159

          30,159 / 27,369 = 110.2%


          66,632 - 57,528 = 9,104

          9,104 / 57,528 = 15.8%


          Between 1948 and 1980, real median family income increased by 110.2%, while between 1980 and 2014 real median family income increased by a mere 15.8%.

          cm said...

          "protectionist measures that have boosted the pay of doctors and other highly educated professionals"

          Protectionist measures (largely of the variety that foreign credentials are not recognized) apply to doctors and similar accredited occupations considered to be of some importance, but certainly much less so to "highly educated professionals" in tech, where the protectionism is limited to annual quotas for some categories of new workers imported into the country and requiring companies to pay above a certain wage rate for work visa holders in jobs claimed to have high skills requirements.

          A little mentioned but significant factor for growing wages in "highly skilled" jobs is that the level of foundational and generic domain skills is a necessity, but is not all the value the individual brings to the company. In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers.

          This applies less so e.g. in medicine. There are of course many heavily specialized disciplines, but a top flight brain or internal organ surgeon can essentially work on any person. The variation in the subject matter is large and complex, but much more static than in technology.

          That's not to knock down the skill of medical staff in any way (or anybody else who does a job that is not trivial, and that's true for many jobs). But specialization vs. genericity follow a different pattern than in tech.

          Another example, the legal profession. There are similar principles that carry across, with a lot of the specialization happening along different legislation, case law, etc., specific to the jurisdiction and/or domain being litigated.

          [Dec 18, 2015] How low can oil prices go? Opec and El Niño take a bite out of crudes cost

          Oil is a valuable chemical resource that is now wasted because of low prices... "The obvious follow-up question is, how long will the sane people of the world continue to allow so much fossil-fuel combustion to continue? An exercise for readers."
          Notable quotes:
          "... Iran wont flood the market in 2016. Right now Iran is losing production. It takes time to reverse decline and make a difference. ..."
          "... Those who predict very low prices dont understand the industry (I do). The low price environment reduces capital investment, which has to be there just to keep production flat (the decline is 3 to 5 million barrels of oil per day per year). At this time capacity is dropping everywhere except for a few select countries. The USA is losing capacity, and will never again reach this years peak unless prices double. Other countries are hopeless. From Norway to Indonesia to Colombia to Nigeria and Azerbaijan, peak oil has already taken place. ..."
          "... If oil prices remain very low until 2025 itll either be because you are right or because the world went to hell. ..."
          "... But Im with Carambaman - prices will go up again. Demand is and will still be there. The excess output will eventually end, and the prices stabilises. And then move up again. ..."
          "... Time to examine the real question: how long can the Saudis maintain their current production rates? Theyre currently producing more than 10 Mbarrels/day, but lets take the latter figure as a lower bound. They apparently have (per US consulate via WikiLeaks--time for a followup?) at least 260 Gbarrels (though it seems no one outside Saudi really knows). You do the math: 260 Gbarrels / (10 Mbarrels/day) = 26 kdays ~= 70 years. @ 15 Mbarrels/day - 47.5 years. @ 20 Mbarrels/day - 35 years. ..."
          "... The obvious follow-up question is, how long will the sane people of the world continue to allow so much fossil-fuel combustion to continue? An exercise for readers. ..."
          "... Saudi Arabia, a US ally, using oil production and pricing to crush US oil shale industry? Did I read that correctly? ..."
          "... Yeah, but I suspect it was *written* incorrectly. Im betting the Saudis real target is the Russians. ..."
          "... In 1975 dollars, thats $8.31 / bbl (with a cumulative inflation factor of 342% over 40 years), or $.45 / gal for gas (assuming a current price of $2.00 / gal). ..."
          "... I spent 30 years in the oil industry and experienced many cycles. When it is up people cannot believe it will go down and when it is down people cannot believe it will go up. It is all a matter of time ..."
          Dec 16, 2015 | The Guardian

          Fernando Leza -> jah5446 15 Dec 2015 06:12

          Iran won't flood the market in 2016. Right now Iran is losing production. It takes time to reverse decline and make a difference.

          Those who predict very low prices don't understand the industry (I do). The low price environment reduces capital investment, which has to be there just to keep production flat (the decline is 3 to 5 million barrels of oil per day per year). At this time capacity is dropping everywhere except for a few select countries. The USA is losing capacity, and will never again reach this year's peak unless prices double. Other countries are hopeless. From Norway to Indonesia to Colombia to Nigeria and Azerbaijan, peak oil has already taken place.

          Fernando Leza -> SonOfFredTheBadman 15 Dec 2015 06:05

          If oil prices remain very low until 2025 it'll either be because you are right or because the world went to hell. I prefer your vision, of course. But I'm afraid most of your talk is wishful thinking. Those of us who do know how to put watts on the table can't figure out any viable solutions. Hopefully something like cheap fusion power will rise. Otherwise you may be eating human flesh in 2060.

          Fernando Leza -> p26677 15 Dec 2015 06:00

          Keep assuming. I'll keep buying Shell stock.

          MatCendana -> UnevenSurface 14 Dec 2015 03:36

          Regardless of the breakeven price, producers with the wells already running or about to will keep pumping. Better to have some income, even if the operation is at a loss, than no income. This will go on and on right until the end, which is either prices eventually go up or they run out of oil and can't drill new wells.

          But I'm with Carambaman - prices will go up again. Demand is and will still be there. The excess output will eventually end, and the prices stabilises. And then move up again.

          Billy Carnes 13 Dec 2015 19:52

          Also this hurts the states...Louisiana is now in the hole over 1.5 Billion or more

          TomRoche 13 Dec 2015 12:31

          @Guardian: Time to examine the real question: how long can the Saudis maintain their current production rates? They're currently producing more than 10 Mbarrels/day, but let's take the latter figure as a lower bound. They apparently have (per US consulate via WikiLeaks--time for a followup?) at least 260 Gbarrels (though it seems no one outside Saudi really knows). You do the math: 260 Gbarrels / (10 Mbarrels/day) = 26 kdays ~= 70 years. @ 15 Mbarrels/day -> 47.5 years. @ 20 Mbarrels/day -> 35 years.

          That's just Saudi (allegedly) proven reserves. But it's plenty long enough to push atmospheric GHG levels, and associated radiative forcing, to ridiculously destructive excess.

          The obvious follow-up question is, how long will the sane people of the world continue to allow so much fossil-fuel combustion to continue? An exercise for readers.

          TomRoche -> GueroElEnfermero 13 Dec 2015 12:14

          @GueroElEnfermero: 'Saudi Arabia, a US ally, using oil production and pricing to crush US oil shale industry? Did I read that correctly?'

          Yeah, but I suspect it was *written* incorrectly. I'm betting the Saudis' real target is the Russians.

          Sieggy 13 Dec 2015 11:49

          In 1975 dollars, that's $8.31 / bbl (with a cumulative inflation factor of 342% over 40 years), or $.45 / gal for gas (assuming a current price of $2.00 / gal).

          Carambaman 13 Dec 2015 10:25

          I spent 30 years in the oil industry and experienced many cycles. When it is up people cannot believe it will go down and when it is down people cannot believe it will go up. It is all a matter of time

          [Dec 17, 2015] Neocon Influence on Angela Merkel

          February 21, 2007 | Dialog International
          Is Angela Merkel getting bad advice from Washington neocons through their representative in Berlin? Now we read that Jeff Gedmin - the head of the Aspen Institute in Berlin - is meeting on a regular basis with the Chancellor to instruct her on the Bush administration's line:

          Angela Merkel relies on the advice of Jeffrey Gedmin, specially dispatched to Berlin to assist her by the Bush clan. This lobbyist first worked at the American Enterprise Institute (AEI) [2] under Richard Perle and Mrs. Dick Cheney. He enthusiastically encouraged the creation of a Euro with Dollar parity exchange rate. Within the AEI, he led the New Atlantic Initiative (NAI), which brought together all the America-friendly generals and politicians in Europe. He was then involved in the Project for a New American Century (PNAC) and wrote the chapter on Europe in the neocon programme. He argued that the European Union should remain under NATO authority and that this would only be possible by "discouraging European calls for emancipation." [3] Finally he became the administrator of the Council of the Community of Democracies (CCD), which argues in favour of a two-speed UN, and became director of the Aspen Institute in Berlin [4]. Subsequently he turned down the offer from his friend John Bolton [5] of the post of deputy US ambassador to the UN so as to be able to devote himself exclusively to Angela Merkel.

          Elsewhere we read that Chancellor Merkel receives daily briefings from the neocon stalwart Gedmin:

          Gedmin "brieft" die Kanzlerin täglich: Er hat damit die Rolle inne, die bei der Stasi die Führungsoffiziere hatten. Wenn wir uns noch Demokratie nennen wollen, dann muss Merkel gezwungen werden, die Inhalte dieser täglichen "Briefings" dem Land offenzulegen. In anderen Ländern gibt es dafür Gesetze, die "Freedom of Information Act" heissen.

          Could this be true? I hope not. Gedmin is known for his columns in the conservative daily Die Welt where he reports on the marvelous successes the Iraq War. And who can forget Gedmin's column during last summer' s Israel/Lebanon War where he wrote about how Hezbollah fighters drank the blood of their victims in Lebanon? If Angela Merkel is looking for good advice, there are much more honest and intelligent resources than Jeff Gedmin.

          [Dec 17, 2015] Why Merkel betrays Europe and Germany

          Note that the quality of translation from German of this article is low.
          Notable quotes:
          "... Frankfurter Allgemeine Zeitung ..."
          "... Bild and Die Welt ..."
          "... In 2003, Chancellor Gerhard Schröder opposed the Anglo-American intervention in Ira q. Angela Merkel then published a courageous article in the Washington Post ..."
          "... As Stanley Payne, the famous American historian said about Spain (or any western democracy) that now politicians are not elected but chosen by apparatus, agencies and visible hands of the markets ..."
          "... Merkel is publicly supported by Friede Springer , widow of West German press baron, Axel Springer , whos publishing conglomerate, the Springer Group secretly received around $7 million from the CIA in the early 1950s. ..."
          "... She is counseled by Jeffrey Gedmin. Gedmin is a regular columnist in Die Welt , a publication of the Springer Group. After becoming administrator of the Council of the Community of Democracies and director of the Aspen Institute in Berlin in 2001, Gedmin devoted himself exclusively to Merkel . Gedmin was too involved in the infamous Project for a New American Century (PNAC) and wrote the chapter on Europe in the neocon programme. He argued that the European Union should remain under NATO authority and that this would only be possible by discouraging European calls for emancipation . ..."
          "... In a few years, Merkel has destroyed European solidarity, annihilated the German nuclear power plants (an old American obsession too), impoverished Germans and their once efficient Rheinisch and solitary economy, backed the mad dog American diplomacy and created along with an irresponsible American administration (irresponsible because America will never win this kind of conflict) a dangerous crisis against Russia than can end on a war or a scandalous European partition. ..."
          Mar 06, 2015 | PravdaReport

          One must understand the reasons of Angela Merkel's behaviour. She obeys America and her Israeli mentor ('Israel is Germany's raison d'être'???), she threatens and mistreats Europe; she attacks Russia and now she builds a new sanitary cordon (like in 1919) in order to deconstruct Eurasia and reinforce American agenda in our unlucky continent. Now Merkel advocates for the rapid adoption on the most infamous and perilous treaty of commerce in history, the TPP (Trans-Pacific Partnership). Dr Roberts has recently explained the meaning of 'Fast Track' expression and a courageous Guardian, last 27th may, has exposed the corruption of American Congress on this incredible yet terrible matter.

          Why is Merkel so pro-American and anti-European?

          Let us explain with the data we know the reasons of such nihilist and erratic behaviour.

          • Angela Merkel is not from East Germany (east-Germans are pro-Russian indeed, see lately the declaration of generals). She was born in Hamburg in 1954 (Federal Republic of Germany). Shortly after her birth, her family made the unusual choice of moving to the East. Her father, a pastor in the Lutheran church, founded a seminary in the German Democratic Republic and became director of a home for handicapped persons. He enjoyed a privileged social status, making frequent trips to the West.
          • She became politically involved in the Freie Deutsche Jugend (Free German Youth), the state organisation for young people. She rose within the organisation to the post of Secretary of the Agitprop department, becoming one of the main experts in political communication in the communist system. She enjoys selling her convictions.
          • In November 1989 The CIA attempted to take over by recruiting senior individuals. One month later, Merkel changed sides and joined the Demokratischer Aufbruch (Democratic Revival), a movement inspired by the West German Christian Democrat party. As we know from history, these political parties in Europe are neither Christian nor democratic. They just serve American and business agendas. In order to avoid a mass exodus from the East to the West, Merkel argued strongly in favour of getting the GDR to join the market economy and the Deutschmark zone. Ultraliberal but never popular in Germany, her thesis finally imposed itself in Germany, like that of Sarkozy, her fellow neocon in France who definitely ousted any rest of Gaullism in this country.
          • Her second husband, Joachim Sauer, was recruited by the US Company Biosym Technology, spending a year at San Diego at the laboratory of this Pentagon contractor. He then joined Accelrys, another San Diego company carrying out contracts for the Pentagon. Of course Accelrys is traded on NASDAQ...
          • Helmut Kohl and his closest associates had apparently accepted money from obscure sources for the CDU. Angela Merkel then published a heroic-comical article in the Foreign Frankfurter Allgemeine Zeitung in which she distanced herself from her mentor. One can check that she repeatedly betrays her protectors... and electors (whose median age is of sixty).

          Angela Merkel was then publicly supported by two press groups. Firstly, she was able to count on the support of Friede Springer, who had inherited the Axel Springer group (180 newspapers and magazines, including Bild and Die Welt). The group's journalists are required to sign an editorial agreement which lies down that they must work towards developing transatlantic links and defending the state of Israel. The other group is Bertelsmann.

          Angela Merkel radically rejects European independence

          In 2003, Chancellor Gerhard Schröder opposed the Anglo-American intervention in Iraq. Angela Merkel then published a 'courageous' article in the Washington Post in which she rejected the Chirac-Schröder doctrine of European independence, affirmed her gratitude and friendship for "America" and supported this scandalous and ridiculous war. I quote some lines of this interesting act of submission to her American lords:

          • Because of decisive events, Europe and the United States now must redefine the nucleus of their domestic, foreign and security policy principles.

          • Aid to Turkey, our partner in the alliance, is blocked for days in the NATO Council by France, Belgium and Germany, a situation that undermines the very basis of NATO's legitimacy.

          • The Eastern European candidate countries for membership in the European Union were attacked by the French government because they have declared their commitment to the transatlantic partnership between Europe and the United States. She then threatens France, then a free country run by Chirac and Villepin, and advocates for what Gore Vidal quoted 'the perpetual war'... involving a 'perpetual peace':

          • Anyone who rejects military action as a last resort weakens the pressure that needs to be maintained on dictators and consequently makes a war not less but more likely.

          • Germany needs its friendship with France, but the benefits of that friendship can be realized only in close association with our old and new European partners, and within the transatlantic alliance with the United States.

          Yet Merkel won the elections in 2007. She announced the abolition of graduated income tax, proposing that the rate should be the same for those who only just have what is necessary and those who live in luxury: maybe this is the a result of her Christian education?

          The outgoing Chancellor, Gerhard Schröder, severely criticized this proposal in a televised debate. The CDU's lead was decimated, and in the actual election, the CDU polled 35% of the votes and the SPD 34%, the remainder being spread amongst a number of small parties. The Germans didn't want Schröder any longer, but nor did they want Merkel. I repeat that she was imposed more than elected. As Stanley Payne, the famous American historian said about Spain (or any western democracy) that now politicians are 'not elected but chosen' by apparatus, agencies and 'visible hands' of the markets

          These last weeks, "Mother" Merkel tries to re-launch the proposed merger of the North American Free Trade Area and the European Free Trade Area, thereby creating a "great transatlantic market" to use the words once pronounced by Sir Leon Brittan, a famous paedophile involved in scandals and bribes since, and mysteriously found dead a couple of months ago.

          Let us se now some of their connections:

          • Merkel is publicly supported by Friede Springer, widow of West German press baron, Axel Springer, who's publishing conglomerate, the Springer Group secretly received around $7 million from the CIA in the early 1950's.
          • She is counseled by Jeffrey Gedmin. Gedmin is a regular columnist in Die Welt, a publication of the Springer Group. After becoming administrator of the Council of the Community of Democracies and director of the Aspen Institute in Berlin in 2001, Gedmin devoted himself exclusively to Merkel. Gedmin was too involved in the infamous Project for a New American Century (PNAC) and wrote the chapter on Europe in the neocon programme. He argued that the European Union should remain under NATO authority and that this would only be possible by "discouraging European calls for emancipation".

          We have never been so far from 'emancipation' now in Europe, and never been so near to a war with Russia and maybe (in order to satisfy American gruesome appetite) with Central Asia and China. In France, 61% of the people who had witnessed the war asserted in 1945 that we were saved by the Russian Army. Now, thanks to American propaganda backed by European collaborators, we are hardly 10% to know that fact. The rest is misled by propaganda, media, TV and films. Daniel Estulin speaks of a remade, of a re-fabricated past by US television and media agencies.

          In a few years, Merkel has destroyed European solidarity, annihilated the German nuclear power plants (an old American obsession too), impoverished Germans and their once efficient Rheinisch and solitary economy, backed the 'mad dog' American diplomacy and created along with an irresponsible American administration (irresponsible because America will never win this kind of conflict) a dangerous crisis against Russia than can end on a war or a scandalous European partition.

          See also: Germany Americanizes Europe

          [Dec 13, 2015] Deregulation of exotic financial instruments like derivatives and credit-default swaps and corruption of Congress and government

          Notable quotes:
          "... Can you list all of the pro- or anti- Wall Street reforms and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspans record? ..."
          "... Its actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question What is a realistic alternative? Thats where differences and policy debate starts. ..."
          "... Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over objection by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). ..."
          "... It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I dont have time to hunt them up now. Besides, no one would read them anyway. ..."
          "... GS was one of several actions taken by the New Deal. That it wasnt sufficient by itself doesnt equate to it wasnt beneficial. ..."
          "... "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy." ..."
          "... The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail ..."
          "... Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. ..."
          "... It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats. ..."
          "... We had a financial dereg craze back in the late 1970s and early 1980s which led to the S L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse. ..."
          "... This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling. ..."
          "... According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. ..."
          "... The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry. ..."
          "... Great to see Bakers acknowledgement that an updated Glass-Steagall is just one component of the progressive wings plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types dont think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much. ..."
          "... Yes thats a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. ..."
          "... Slippery slope. Ya gotta find me a business of any type that does not protest any kind of regulation on their business. ..."
          "... Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clintons plan? Ive heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/ ..."
          "... Hillary Clinton unveiled her big plan to curb the worst of Wall Streets excesses on Thursday. The reaction from the banking community was a shrug, if not relief. ..."
          "... Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland". ..."
          economistsview.typepad.com

          RGC said...

          Hillary Clinton Is Whitewashing the Financial Catastrophe

          She has a plan that she claims will reform Wall Street-but she's deflecting responsibility from old friends and donors in the industry.

          By William Greider
          Yesterday 3:11 pm

          Hillary Clinton's recent op-ed in The New York Times, "How I'd Rein In Wall Street," was intended to reassure nervous Democrats who fear she is still in thrall to those mega-bankers of New York who crashed the American economy. Clinton's brisk recital of plausible reform ideas might convince wishful thinkers who are not familiar with the complexities of banking. But informed skeptics, myself included, see a disturbing message in her argument that ought to alarm innocent supporters.

          Candidate Clinton is essentially whitewashing the financial catastrophe. She has produced a clumsy rewrite of what caused the 2008 collapse, one that conveniently leaves her husband out of the story. He was the president who legislated the predicate for Wall Street's meltdown. Hillary Clinton's redefinition of the reform problem deflects the blame from Wall Street's most powerful institutions, like JPMorgan Chase and Goldman Sachs, and instead fingers less celebrated players that failed. In roundabout fashion, Hillary Clinton sounds like she is assuring old friends and donors in the financial sector that, if she becomes president, she will not come after them.

          The seminal event that sowed financial disaster was the repeal of the New Deal's Glass-Steagall Act of 1933, which had separated banking into different realms: investment banks, which organize capital investors for risk-taking ventures; and deposit-holding banks, which serve people as borrowers and lenders. That law's repeal, a great victory for Wall Street, was delivered by Bill Clinton in 1999, assisted by the Federal Reserve and the financial sector's armies of lobbyists. The "universal banking model" was saluted as a modernizing reform that liberated traditional banks to participate directly and indirectly in long-prohibited and vastly more profitable risk-taking.

          Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale. The banks invented "guarantees" against loss and sold them to both companies and market players. The fast-expanding financial sector claimed a larger and larger share of the economy (and still does) at the expense of the real economy of producers and consumers. The interconnectedness across market sectors created the illusion of safety. When illusions failed, these connected guarantees became the dragnet that drove panic in every direction. Ultimately, the federal government had to rescue everyone, foreign and domestic, to stop the bleeding.

          Yet Hillary Clinton asserts in her Times op-ed that repeal of Glass-Steagall had nothing to do with it. She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks. Her argument amounts to facile evasion that ignores the interconnected exposures. The Federal Reserve spent $180 billion bailing out AIG so AIG could pay back Goldman Sachs and other banks. If the Fed hadn't acted and had allowed AIG to fail, the banks would have gone down too.

          These sound like esoteric questions of bank regulation (and they are), but the consequences of pretending they do not matter are enormous. The federal government and Federal Reserve would remain on the hook for rescuing losers in a future crisis. The largest and most adventurous banks would remain free to experiment, inventing fictitious guarantees and selling them to eager suckers. If things go wrong, Uncle Sam cleans up the mess.

          Senator Elizabeth Warren and other reformers are pushing a simpler remedy-restore the Glass-Steagall principles and give citizens a safe, government-insured place to store their money. "Banking should be boring," Warren explains (her co-sponsor is GOP Senator John McCain).
          That's a hard sell in politics, given the banking sector's bear hug of Congress and the White House, its callous manipulation of both political parties. Of course, it is more complicated than that. But recreating a safe, stable banking system-a place where ordinary people can keep their money-ought to be the first benchmark for Democrats who claim to be reformers.

          Actually, the most compelling witnesses for Senator Warren's argument are the two bankers who introduced this adventure in "universal banking" back in the 1990s. They used their political savvy and relentless muscle to seduce Bill Clinton and his so-called New Democrats. John Reed was CEO of Citicorp and led the charge. He has since apologized to the nation. Sandy Weill was chairman of the board and a brilliant financier who envisioned the possibilities of a single, all-purpose financial house, freed of government's narrow-minded regulations. They won politically, but at staggering cost to the country.

          Weill confessed error back in 2012: "What we should probably do is go and split up investment banking from banking. Have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail."

          John Reed's confession explained explicitly why their modernizing crusade failed for two fundamental business reasons. "One was the belief that combining all types of finance into one institution would drive costs down-and the larger institution the more efficient it would be," Reed wrote in the Financial Times in November. Reed said, "We now know that there are very few cost efficiencies that come from the merger of functions-indeed, there may be none at all. It is possible that combining so much in a single bank makes services more expensive than if they were instead offered by smaller, specialised players."

          The second grave error, Reed said, was trying to mix the two conflicting cultures in banking-bankers who are pulling in opposite directions. That tension helps explain the competitive greed displayed by the modernized banking system. This disorder speaks to the current political crisis in ways that neither Dems nor Republicans wish to confront. It would require the politicians to critique the bankers (often their funders) in terms of human failure.

          "Mixing incompatible cultures is a problem all by itself," Reed wrote. "It makes the entire finance industry more fragile…. As is now clear, traditional banking attracts one kind of talent, which is entirely different from the kinds drawn towards investment banking and trading. Traditional bankers tend to be extroverts, sociable people who are focused on longer term relationships. They are, in many important respects, risk averse. Investment bankers and their traders are more short termist. They are comfortable with, and many even seek out, risk and are more focused on immediate reward."

          Reed concludes, "As I have reflected about the years since 1999, I think the lessons of Glass-Steagall and its repeal suggest that the universal banking model is inherently unstable and unworkable. No amount of restructuring, management change or regulation is ever likely to change that."

          This might sound hopelessly naive, but the Democratic Party might do better in politics if it told more of the truth more often: what they tried do and why it failed, and what they think they may have gotten wrong. People already know they haven't gotten a straight story from politicians. They might be favorably impressed by a little more candor in the plain-spoken manner of John Reed.

          Of course it's unfair to pick on the Dems. Republicans have been lying about their big stuff for so long and so relentlessly that their voters are now staging a wrathful rebellion. Who knows, maybe a little honest talk might lead to honest debate. Think about it. Do the people want to hear the truth about our national condition? Could they stand it?

          http://www.thenation.com/article/hillary-clinton-is-whitewashing-the-financial-catastrophe/

          EMichael -> RGC...
          "She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks."

          Of course this claim is absolutely true. Just like GS would not have affected the other investment banks, whatever their name was. And just like we would have had to bail out those other banks whatever their name was.

          Peter K. -> EMichael...
          Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspan's record?

          Yes Hillary isn't Bill but she hasn't criticized her husband specifically about his record and seems to want to have her cake and eat it too.

          Of course Hillary is much better than the Republicans, pace Rustbucket and the Green Lantern Lefty club. Still, critics have a point.

          I won't be surprised if she doesn't do much to rein in Wall Street besides some window dressing.

          sanjait -> Peter K....
          "Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed..."

          That, right there, is what's wrong with Bernie and his fans. They measure everything by whether it is "pro- or anti- Wall Street". Glass Steagall is anti-Wall Street. A financial transactions tax is anti-Wall Street. But neither has any hope of controlling systemic financial risk in this country. None.

          You guys want to punish Wall Street but not even bother trying to think of how to achieve useful policy goals. Some people, like Paine here, are actually open about this vacuity, as if the only thing that were important were winning a power struggle.

          Hillary's plan is flat out better. It's more comprehensive and more effective at reining in the financial system to limit systemic risk. Period.

          You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it.

          likbez -> sanjait...

          "You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it."

          You are misrepresenting the positions. It's actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question "What is a realistic alternative?" That's where differences and policy debate starts.

          RGC -> EMichael...
          "Her argument amounts to facile evasion"

          Fred C. Dobbs -> RGC...

          'The majority favors policies to the left of Hillary.'

          Nah. I don't think so.

          No, Liberals Don't Control the Democratic Party http://www.theatlantic.com/politics/archive/2014/02/no-liberals-dont-control-the-democratic-party/283653/
          The Atlantic - Feb 7, 2014

          ... The Democrats' liberal faction has been greatly overestimated by pundits who mistake noisiness for clout or assume that the left functions like the right. In fact, liberals hold nowhere near the power in the Democratic Party that conservatives hold in the Republican Party. And while they may well be gaining, they're still far from being in charge. ...

          Paine -> RGC...

          What's not confronted ? Suggest what a System like the pre repeal system would have done in the 00's. My guess we'd have ended in a crisis anyway. Yes we can segregate the depository system. But credit is elastic enough to build bubbles without the depository system involved

          EMichael -> Paine ...

          Exactly.

          Most people think of lending like the Bailey Brothers Savings and Loan still exists.

          RC AKA Darryl, Ron -> EMichael...

          Don't be such a whistle dick. Just because you cannot figure out why GLBA made such an impact that in no way means that people that do understand are stupid. See my posted comment to RGC on GLBA just down thread for an more detailed explanation including a linked web article. No, GS alone would not have prevented the mortgage bubble, but it would have lessened TBTF and GS stood as icon, a symbol of financial regulation. Hell, if we don't need GS then why don't we just allow unregulated derivatives trading? Who cares, right? Senators Byron Dorgan, Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders all voted against GLBA to repeal GS for some strange reason and Dorgan made a really big deal out of it at the time. I doubt everyone on that list of Senators was just stupid because they did not see it your way.

          RC AKA Darryl, Ron -> EMichael...
          I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over "objection" by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). We have had a Republican majority in the House since the 2010 election and now they have the Senate as well. If you are that sure that voters just choose divided government, then aren't we better off to have a Republican POTUS and Democratic Congress?

          sanjait -> RC AKA Darryl, Ron...

          "I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. "

          I know you think this is a really meaningful string that evidences causation, but it just looks like you are reaching, reaching, reaching ...

          RC AKA Darryl, Ron -> sanjait...

          Maybe. No way to say for sure. It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I don't have time to hunt them up now. Besides, no one would read them anyway.

          I am voting for whoever wins the Democratic nomination for POTUS. Bernie without a like-minded Congress would not do much good. But when we shoot each other down here at EV without offering any agreement or consideration that we might not be 100% correct, then that goes against Doc Thoma's idea of an open forum. Granted, with my great big pair then I am willing to state my opinion with no consideration for validation or acceptance, but not everyone has that degree of a comfort zone. Besides, I am so old an cynical that shooting down the overdogs that go after the underdogs is one of the few things that I still care about.

          RGC -> Paine ...

          GS was one of several actions taken by the New Deal. That it wasn't sufficient by itself doesn't equate to it wasn't beneficial.

          RC AKA Darryl, Ron -> RGC...

          [Lock and load.]

          http://www.occasionalplanet.org/2015/05/13/glass-steagall-one-democratic-senator-who-got-it-right/

          Glass-Steagall: Warren and Sanders bring it back into focus

          Madonna Gauding / May 13, 2015

          Senators Bernie Sanders and Elizabeth Warren are putting a new focus on the Glass-Steagall Act, which was, unfortunately, repealed in 1999 and led directly to the financial crises we have faced ever since. Here's a bit of history of this legislative debacle from an older post on Occasional Planet published several years ago :

          On November 4, 1999, Senator Byron Dorgan (D-ND) took to the floor of the senate to make an impassioned speech against the repeal of the Glass-Steagall Act, (alternately known as Gramm Leach Biley, or the "Financial Modernization Act") Repeal of Glass-Steagall would allow banks to merge with insurance companies and investments houses. He said "I want to sound a warning call today about this legislation, I think this legislation is just fundamentally terrible."

          According to Sam Stein, writing in 2009 in the Huffington Post, only eight senators voted against the repeal. Senior staff in the Clinton administration and many now in the Obama administration praised the repeal as the "most important breakthrough in the world of finance and politics in decades"

          According to Stein, Dorgan warned that banks would become "too big to fail" and claimed that Congress would "look back in a decade and say we should not have done this." The repeal of Glass Steagall, of course, was one of several bad policies that helped lead to the current economic crisis we are in now.

          Dorgan wasn't entirely alone. Sens. Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders also cast nay votes. The late Sen. Paul Wellstone opposed the bill, and warned at the time that Congress was "about to repeal the economic stabilizer without putting any comparable safeguard in its place."

          Democratic Senators had sufficient knowledge about the dangers of the repeal of Glass Steagall, but chose to ignore it. Plenty of experts warned that it would be impossible to "discipline" banks once the legislation was passed, and that they would get too big and complex to regulate. Editorials against repeal appeared in the New York Times and other mainstream venues, suggesting that if the new megabanks were to falter, they could take down the entire global economy, which is exactly what happened. Stein quotes Ralph Nader who said at the time, "We will look back at this and wonder how the country was so asleep. It's just a nightmare."

          According to Stein:

          "The Senate voted to pass Gramm-Leach-Bliley by a vote of 90-8 and reversed what was, for more than six decades, a framework that had governed the functions and reach of the nation's largest banks. No longer limited by laws and regulations commercial and investment banks could now merge. Many had already begun the process, including, among others, J.P. Morgan and Citicorp. The new law allowed it to be permanent. The updated ground rules were low on oversight and heavy on risky ventures. Historically in the business of mortgages and credit cards, banks now would sell insurance and stock.

          Nevertheless, the bill did not lack champions, many of whom declared that the original legislation - forged during the Great Depression - was both antiquated and cumbersome for the banking industry. Congress had tried 11 times to repeal Glass-Steagall. The twelfth was the charm.

          "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy."

          "I welcome this day as a day of success and triumph," said Sen. Christopher Dodd, (D-Conn.).

          "The concerns that we will have a meltdown like 1929 are dramatically overblown," said Sen. Bob Kerrey, (D-Neb.).

          "If we don't pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world," said Sen. Chuck Schumer, D-N.Y. "There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive."

          Unfortunately, the statement by Chuck Schumer sounds very much like it was prepared by a lobbyist. This vote underscores the way in which our elected officials are so heavily swayed by corporate and banking money that our voices and needs become irrelevant. It is why we need publicly funded elections. Democratic senators, the so-called representatives of the people, fell over themselves to please their Wall Street donors knowing full well there were dangers for the country at large, for ordinary Americans, in repealing Glass-Steagall.

          It is important to hold Democratic senators (along with current members of the Obama administration) accountable for the significant role they have played in the current economic crisis that has caused so much suffering for ordinary Americans. In case you were wondering, the current Democratic Senators who voted yes to repeal the Glass-Steagall act are the following:

          Daniel Akaka – Max Baucus – Evan Bayh – Jeff Bingaman – Kent Conrad – Chris Dodd – Dick Durbin – Dianne Feinstein – Daniel Inouye – Tim Johnson – John Kerry – Herb Kohl – Mary Landrieu – Frank Lautenberg – Patrick Leahy – Carl Levin – Joseph Lieberman – Blanche Lincoln – Patty Murray – Jack Reed – Harry Reid – Jay Rockefeller – Chuck Schumer – Ron Wyden

          Former House members who voted for repeal who are current Senators.

          Mark Udall [as of 2010] – Debbie Stabenow – Bob Menendez – Tom Udall -Sherrod Brown

          No longer in the Senate, or passed away, but who voted for repeal:

          Joe Biden -Ted Kennedy -Robert Byrd

          These Democratic senators would like to forget or make excuses for their enthusiastic vote on the repeal of Glass Steagall, but it is important to hold them accountable for helping their bank donors realize obscene profits while their constituents lost jobs, savings and homes. And it is important to demand that they serve the interests of the American people.

          *

          [The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail.]

          pgl -> RC AKA Darryl, Ron...

          Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. I think that is what Hillary Clinton is saying.

          RC AKA Darryl, Ron -> pgl...

          It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats.

          pgl -> RC AKA Darryl, Ron...

          We had a financial dereg craze back in the late 1970's and early 1980's which led to the S&L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse.

          I don't care whether Hillary says 1999 was a mistake or not. I do care what the regulations of financial institutions will be like going forward.

          RC AKA Darryl, Ron -> pgl...

          I cannot disagree with any of that.

          sanjait -> RC AKA Darryl, Ron...

          "Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus"

          Yeah, it is kind of bizarre to blame one bill for a crisis that occurred largely because another bill was passed, based on some some vague assertion about how the first bill made everyone think crazy.

          RC AKA Darryl, Ron -> sanjait...
          Democrats did not vote for GLBA until after reconciliation between the House and Senate bills. Democrats were tossed a bone in the Community Reinvestment Act financing provisions and given that Bill Clinton was going to sign anyway and that Republicans were able to pass the bill without a single vote from Democrats then all but a few Democrats bought in. They could not stop it, so they just bought into it. I thought there was supposed to be an understanding of behaviorism devoted to understanding the political economy. For that matter Republicans did not need Democrats to vote for the CFMA either, but they did. That gave Republicans political cover for whatever went wrong later on. No one with a clue believed things would go well from the passage of either of these bills. It was pure Wall Street driven kleptocracy.
          likbez -> sanjait...
          It was not one bill or another. It was a government policy to get traders what they want.

          See

          Bruce E. Woych | August 6, 2013 at 5:45 pm |

          http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry-summers-the-truth-about-unlimited-risk-potential/

          The Untold Story: Brooksley Born, Larry Summers & the Truth …
          http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry...
          Oct 5, 2012 … Larry Summers is attempting to re-write history at the expense of … and they might just find one critical point revealed in Mr. Cohan's article.
          [PERTINENT EXCERPT]: Oct 5, 2012

          "As the western world wakes to the fact it is in the middle of a debt crisis spiral, intelligent voices are wondering how this manifested itself? As we speak, those close to the situation could be engaging in historical revisionism to obfuscate their role in the design of faulty leverage structures that were identified in the derivatives markets in 1998 and 2008. These same design flaws, first identified in 1998, are persistent today and could become graphically evident in the very near future under the weight of a European debt crisis.

          Author and Bloomberg columnist William Cohan chronicles the fascinating start of this historic leverage implosion in his recent article Rethinking Robert Rubin. Readers may recall it was Mr. Cohan who, in 2004, noted leverage issues that ultimately imploded in 2007-08.

          At some point, market watchers will realize the debt crisis story will literally change the world. They will look to the root cause of the problem, and they might just find one critical point revealed in Mr. Cohan's article.

          This point occurs in 1998 when then Commodity Futures Trading Commission (CFTC) ChairwomanBrooksley Born identified what now might be recognized as core design flaws in leverage structure used in Over the Counter (OTC) transactions. Ms. Born brought her concerns public, by first asking just to study the issue, as appropriate action was not being taken. She issued a concept release paper that simply asked for more information. "The Commission is not entering into this process with preconceived results in mind," the document reads.

          Ms. Born later noted in, the PBS Frontline documentary on the topic speculation at the CFTC was the unregulated OTC derivatives were opaque, the risk to the global economy could not be determined and the risk was potentially catastrophic. As a result of this inquiry, Ms. Born was ultimately forced from office.

          This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling.

          According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. "

          RC AKA Darryl, Ron -> Paine ...

          TBTF on steroids, might as well CFMA - why not?

          Bubbles with less TBTF and a lot less credit default swaps would have been a lot less messy going in. Without TARP, then Congress might have still had the guts for making a lesser New Deal.

          EMichael -> RC AKA Darryl, Ron...

          TARP was window dressing. The curtain that covered up the FED's actions.

          pgl -> RGC...

          Where have I heard about William Greider? Oh yea - this critique of something stupid he wrote about a Supreme Court decision:

          www.washingtonpost.com/news/volokh-conspiracy/wp/2014/06/06/how-many-errors-can-william-greider-make-in-two-sentences-describing-lochner-v-new-york/

          pgl -> RGC...

          "Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale."

          These would have flourished even if Glass-Steagall remained on the books. Leave it to RGC to find some critic of HRC who knows nothing about financial markets.

          RGC -> pgl...

          Derivatives flourished because of the other deregulation under Clinton, the CFMA. The repeal of GS helped commercial banks participate.

          RGC -> pgl...

          The repeal of GS helped commercial banks participate.

          Fred C. Dobbs -> pgl...

          Warren Buffet used to rail about how risky derivative investing is, until he realized they are *extremely* important in the re-insurance biz, which is a
          big part of Berkshire Hathaway.

          Peter K. said...

          http://cepr.net/blogs/beat-the-press/hillary-clinton-bernie-sanders-and-cracking-down-on-wall-street

          Hillary Clinton, Bernie Sanders, and Cracking Down on Wall Street
          by Dean Baker

          Published: 12 December 2015

          The New Yorker ran a rather confused piece on Gary Sernovitz, a managing director at the investment firm Lime Rock Partners, on whether Bernie Sanders or Hillary Clinton would be more effective in reining in Wall Street. The piece assures us that Secretary Clinton has a better understanding of Wall Street and that her plan would be more effective in cracking down on the industry. The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry.

          The piece assures us that too big to fail banks are no longer a problem, noting their drop in profitability from bubble peaks and telling readers:

          "not only are Sanders's bogeybanks just one part of Wall Street but they are getting less powerful and less problematic by the year."

          This argument is strange for a couple of reasons. First, the peak of the subprime bubble frenzy is hardly a good base of comparison. The real question is should we anticipate declining profits going forward. That hardly seems clear. For example, Citigroup recently reported surging profits, while Wells Fargo's third quarter profits were up 8 percent from 2014 levels.

          If Sernovitz is predicting that the big banks are about to shrivel up to nothingness, the market does not agree with him. Citigroup has a market capitalization of $152 billion, JPMorgan has a market cap of $236 billion, and Bank of America has a market cap of $174 billion. Clearly investors agree with Sanders in thinking that these huge banks will have sizable profits for some time to come.

          The real question on too big to fail is whether the government would sit by and let a Goldman Sachs or Citigroup go bankrupt. Perhaps some people think that it is now the case, but I've never met anyone in that group.

          Sernovitz is also dismissive on Sanders call for bringing back the Glass-Steagall separation between commercial banking and investment banking. He makes the comparison to the battle over the Keystone XL pipeline, which is actually quite appropriate. The Keystone battle did take on exaggerated importance in the climate debate. There was never a zero/one proposition in which no tar sands oil would be pumped without the pipeline, while all of it would be pumped if the pipeline was constructed. Nonetheless, if the Obama administration was committed to restricting greenhouse gas emissions, it is difficult to see why it would support the building of a pipeline that would facilitate bringing some of the world's dirtiest oil to market.

          In the same vein, Sernovitz is right that it is difficult to see how anything about the growth of the housing bubble and its subsequent collapse would have been very different if Glass-Steagall were still in place. And, it is possible in principle to regulate bank's risky practices without Glass-Steagall, as the Volcker rule is doing. However, enforcement tends to weaken over time under industry pressure, which is a reason why the clear lines of Glass-Steagall can be beneficial. Furthermore, as with Keystone, if we want to restrict banks' power, what is the advantage of letting them get bigger and more complex?

          The repeal of Glass-Steagall was sold in large part by boasting of the potential synergies from combining investment and commercial banking under one roof. But if the operations are kept completely separate, as is supposed to be the case, where are the synergies?

          But the strangest part of Sernovitz's story is that he leaves out Sanders' financial transactions tax (FTT) altogether. This is bizarre, because the FTT is essentially a hatchet blow to the waste and exorbitant salaries in the industry.

          Most research shows that trading volume is very responsive to the cost of trading, with most estimates putting the elasticity close to one. This means that if trading costs rise by 50 percent, then trading volume declines by 50 percent. (In its recent analysis of FTTs, the Tax Policy Center assumed that the elasticity was 1.5, meaning that trading volume decline by 150 percent of the increase in trading costs.) The implication of this finding is that the financial industry would pay the full cost of a financial transactions tax in the form of reduced trading revenue.

          The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry.

          It is incredible that Sernovitz would ignore a policy with such enormous consequences for the financial sector in his assessment of which candidate would be tougher on Wall Street. Sanders FTT would almost certainly do more to change behavior on Wall Street then everything that Clinton has proposed taken together by a rather large margin. It's sort of like evaluating the New England Patriots' Super Bowl prospects without discussing their quarterback.

          Syaloch -> Peter K....

          Great to see Baker's acknowledgement that an updated Glass-Steagall is just one component of the progressive wing's plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much.

          Peter K. -> Syaloch...

          Yes that's a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. If they want it done, it's probably not a good idea.

          EMichael -> Syaloch...

          Slippery slope. Ya' gotta find me a business of any type that does not protest any kind of regulation on their business.

          Syaloch -> EMichael...

          Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clinton's plan? I've heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/

          "Hillary Clinton unveiled her big plan to curb the worst of Wall Street's excesses on Thursday. The reaction from the banking community was a shrug, if not relief."

          pgl -> Syaloch...

          Two excellent points!!!

          sanjait -> Syaloch...

          "Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much."

          It has an effect of shrinking the size of a few firms, and that has a detrimental effect on the top managers of those firms, who get paid more money if they have larger firms to manage. But it has little to no meaningful effect on systemic risk.

          So if your main policy goal is to shrink the compensation for a small number of powerful Wall Street managers, G-S is great. But if you actually want to accomplish something useful to the American people, like limiting systemic risk in the financial sector, then a plan like Hillary's is much much better. She explained this fairly well in her recent NYT piece.

          Paine -> Peter K....

          There is absolutely NO question Bernie is for real. Wall Street does not want Bernie. So they'll let Hillary talk as big as she needs to . Why should we believe her when an honest guy like Barry caved once in power

          Paine -> Paine ...

          Bernie has been anti Wall Street his whole career . He's on a crusade. Hillary is pulling a sham bola

          Paine -> Paine ...

          Perhaps too often we look at Wall Street as monolithic whether consciously or not. Obviously we know it's no monolithic: there are serious differences

          When the street is riding high especially. Right now the street is probably not united but too cautious to display profound differences in public. They're sitting on their hands waiting to see how high the anti Wall Street tide runs this election cycle. Trump gives them cover and I really fear secretly Hillary gives them comfort

          This all coiled change if Bernie surges. How that happens depends crucially on New Hampshire. Not Iowa

          EMichael -> Paine ...

          If Bernie surges and wins the nomination, we will all get to watch the death of the Progressive movement for a decade or two. Congress will become more GOP dominated, and we will have a President in office who will make Hoover look like a Socialist.

          Syaloch -> EMichael...

          Of course. In politics, as they say in the service, one must always choose the lesser of two evils. https://www.youtube.com/watch?v=e4PzpxOj5Cc

          pgl -> EMichael...

          You should like the moderate Democrats after George McGovern ran in 1972. I'm hoping we have another 1964 with Bernie leading a united Democratic Congress.

          EMichael -> pgl...

          Not a chance in the world. And I like Sanders much more than anyone else. It just simply cannot, and will not, happen. He is a communist. Not to me, not to you, but to the vast majority of American voters.

          pgl -> EMichael...

          He is not a communist. But I agree - Hillary is winning the Democratic nomination. I have only one vote and in New York, I'm badly outnumbered.

          ilsm -> Paine ...

          I believe Hillary will be to liberal causes after she is elected as LBJ was to peace in Vietnam. Like Bill and Obomber.

          pgl -> ilsm...

          By 1968, LBJ finally realized it was time to end that stupid war. But it seems certain members in the State Department undermined his efforts in a cynical ploy to get Nixon to be President. The Republican Party has had more slime than substance of most of my life time.

          pgl -> Peter K....

          Gary Sernovitz, a managing director at the investment firm Lime Rock Partners? Why are we listening to this guy too. It's like letting the fox guard the hen house.

          sanjait -> Peter K....

          "The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry."

          This is just wrong. Is financial system risk in any way correlated with the frequency of transactions? Except for market volatility from HFT ... no. The financial crisis wasn't caused by a high volume of trades. It was caused by bad investments into highly illiquid assets. Again, great example of wanting to punish Wall Street but not bothering to think about what actually works.

          Peter K. said...

          Robert Reich to the Fed: this is not the time to raise rates.

          https://www.facebook.com/video.php?v=1116088268403768

          RGC said...

          Iceland's Radical Money Plan

          Iceland, too, is looking at a radical transformation of its money system, after suffering the crushing boom/bust cycle of the private banking model that bankrupted its largest banks in 2008. According to a March 2015 article in the UK Telegraph:

          Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland".

          "The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy," Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

          Under this "Sovereign Money" proposal, the country's central bank would become the only creator of money. Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders. The proposal is a variant of the Chicago Plan promoted by Kumhof and Benes of the IMF and the Positive Money group in the UK.

          Public Banking Initiatives in Iceland, Ireland and the UK

          A major concern with stripping private banks of the power to create money as deposits when they make loans is that it will seriously reduce the availability of credit in an already sluggish economy. One solution is to make the banks, or some of them, public institutions. They would still be creating money when they made loans, but it would be as agents of the government; and the profits would be available for public use, on the model of the US Bank of North Dakota and the German Sparkassen (public savings banks).

          In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) - are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of Scotland be transformed into a network of public interest banks on that model. And in Iceland, public banking is part of the platform of a new political party called the Dawn Party.

          December 11, 2015
          Reinventing Banking: From Russia to Iceland to Ecuador

          by Ellen Brown

          http://www.counterpunch.org/2015/12/11/reinventing-banking-from-russia-to-iceland-to-ecuador/

          pgl -> RGC...

          "Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders."

          OK but that means they issue bank accounts which of course we call deposits. So is this just semantics? People want checking accounts. People want savings accounts. Otherwise they would not exist. Iceland plans to do what to stop the private sector from getting what it wants?

          I like the idea of public banks. Let's nationalize JPMorganChase so we don't have to listen to Jamie Dimon anymore!

          sanjait -> pgl...

          I don't know for sure (not bothering to search and read the referenced proposals), but I assumed the described proposal was for an end to fractional reserve banking. Banks would have to have full reserves to make loans. Or something. I could be wrong about that.

          Syaloch said...

          Sorry, but Your Favorite Company Can't Be Your Friend

          http://www.nytimes.com/2015/12/13/upshot/sorry-but-your-favorite-company-cant-be-your-friend.html?partner=rss&emc=rss&_r=0

          To think that an artificial person, whether corporeal or corporate, can ever be your friend requires a remarkable level of self-delusion.

          A commenter on the Times site aptly quotes Marx in response:

          "The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors", and has left remaining no other nexus between man and man than naked self-interest, than callous "cash payment". It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom - Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.

          "The bourgeoisie has stripped of its halo every occupation hitherto honoured and looked up to with reverent awe. It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage labourers."

          https://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch01.htm

          [Dec 12, 2015] Guyenot Who are the Neocons

          Notable quotes:
          "... The American Neocons are Zionists (Their goal is expanding political / military power. Initially this is focused on the state of Israel.) ..."
          "... Obviously , if Zionism is synonymous with patriotism in Israel, it cannot be an acceptable label in American politics, where it would mean loyalty to a foreign power. This is why the neoconservatives do not represent themselves as Zionists on the American scene. Yet they do not hide it all together either. ..."
          "... He points out dual-citizen (Israel / USA) members and self proclaimed Zionists throughout cabinet level positions in the US government, international banking and controlling the US military. In private writings and occasionally in public, Neocons admit that America's war policies are actually Israel's war goals. (Examples provided.) ..."
          "... American Jewish Committee ..."
          "... Contemporary Jewish Record ..."
          "... If there is an intellectual movement in America to whose invention Jews can lay sole claim, neoconservatism is it. It's a thought one imagines most American Jews, overwhelmingly liberal, will find horrifying . And yet it is a fact that as a political philosophy, neoconservatism was born among the children of Jewish immigrants and is now largely the intellectual domain of those immigrants' grandchildren ..."
          "... Goyenot traces the Neocon's origins through its influential writers and thinkers. Highest on the list is Leo Strauss. (Neocons are sometimes called "the Straussians.") Leo Strauss is a great admirer of Machiavelli with his utter contempt for restraining moral principles making him "uniquely effective," and, "the ideal patriot." He gushes over Machiavelli praising the intrepidity of his thought, the grandeur of his vision, and the graceful subtlety of his speech. ..."
          "... believes that Truth is harmful to the common man and the social order and should be reserved for superior minds. ..."
          "... nations derive their strength from their myths , which are necessary for government and governance. ..."
          "... national myths have no necessary relationship with historical reality: they are socio-cultural constructions that the State has a duty to disseminate . ..."
          "... to be effective, any national myth must be based on a clear distinction between good and evil ; it derives its cohesive strength from the hatred of an enemy nation. ..."
          "... deception is the norm in political life ..."
          "... Office of Special Plans ..."
          "... The Zionist/Neocons are piggy-backing onto, or utilizing, the religious myths of both the Jewish and Christian world to consolidate power. This is brilliant Machiavellian strategy. ..."
          "... the "chosen people" myth (God likes us best, we are better than you) ..."
          "... the Holy Land myth (one area of real estate is more holy than another) ..."
          "... General Wesley Clark testified on numerous occasions before the cameras, that one month after September 11th, 2001 a general from the Pentagon showed him a memo from neoconservative strategists "that describes how we're gonna take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia and Sudan and finishing off with Iran". ..."
          "... Among them are brilliant strategists ..."
          "... They operate unrestrained by the most basic moral principles upon which civilization is founded. They are undisturbed by compassion for the suffering of others. ..."
          "... They use consciously and skillfully use deception and "myth-making" to shape policy ..."
          "... They have infiltrated the highest levels of banking, US military, NATO and US government. ..."
          Peak Prosperity

          Mememonkey pointed my to a 2013 essay by Laurent Guyenot, a French historian and writer on the deep state, that addresses the question of "Who Are The Neoconservatives." If you would like to know about that group that sends the US military into battle and tortures prisoners of war in out name, you need to know about these guys.

          First, if you are Jewish, or are a GREEN Meme, please stop and take a deep breath. Please put on your thinking cap and don't react. We are NOT disrespecting a religion, spiritual practice or a culture. We are talking about a radical and very destructive group hidden within a culture and using that culture. Christianity has similar groups and movements--the Crusades, the KKK, the Spanish Inquisition, the Salem witch trials, etc.

          My personal investment: This question has been a subject of intense interest for me since I became convinced that 9/11 was an inside job, that the Iraq war was waged for reasons entirely different from those publically stated. I have been horrified to see such a shadowy, powerful group operating from a profoundly "pre-moral" developmental level-i.e., not based in even the most rudimentary principles of morality foundational to civilization.

          Who the hell are these people?!

          Goyenot's main points (with a touch of personal editorializing):

          1. The American Neocons are Zionists (Their goal is expanding political / military power. Initially this is focused on the state of Israel.)

          Neoconservativism is essentially a modern right wing Jewish version of Machiavelli's political strategy. What characterizes the neoconservative movement is therefore not as much Judaism as a religious tradition, but rather Judiasm as a political project, i.e. Zionism, by Machiavellian means.

          This is not a religious movement though it may use religions words and vocabulary. It is a political and military movement. They are not concerned with being close to God. This is a movement to expand political and military power. Some are Christian and Mormon, culturally.

          Obviously , if Zionism is synonymous with patriotism in Israel, it cannot be an acceptable label in American politics, where it would mean loyalty to a foreign power. This is why the neoconservatives do not represent themselves as Zionists on the American scene. Yet they do not hide it all together either.

          He points out dual-citizen (Israel / USA) members and self proclaimed Zionists throughout cabinet level positions in the US government, international banking and controlling the US military. In private writings and occasionally in public, Neocons admit that America's war policies are actually Israel's war goals. (Examples provided.)

          2. Most American Jews are overwhelmingly liberal and do NOT share the perspective of the radical Zionists.

          The neoconservative movement, which is generally perceived as a radical (rather than "conservative") Republican right, is, in reality, an intellectual movement born in the late 1960s in the pages of the monthly magazine Commentary, a media arm of the American Jewish Committee, which had replaced the Contemporary Jewish Record in 1945. The Forward, the oldest American Jewish weekly, wrote in a January 6th, 2006 article signed Gal Beckerman: "If there is an intellectual movement in America to whose invention Jews can lay sole claim, neoconservatism is it. It's a thought one imagines most American Jews, overwhelmingly liberal, will find horrifying. And yet it is a fact that as a political philosophy, neoconservatism was born among the children of Jewish immigrants and is now largely the intellectual domain of those immigrants' grandchildren".

          3. Intellectual Basis and Moral developmental level

          Goyenot traces the Neocon's origins through its influential writers and thinkers. Highest on the list is Leo Strauss. (Neocons are sometimes called "the Straussians.") Leo Strauss is a great admirer of Machiavelli with his utter contempt for restraining moral principles making him "uniquely effective," and, "the ideal patriot." He gushes over Machiavelli praising the intrepidity of his thought, the grandeur of his vision, and the graceful subtlety of his speech.

          Other major points:

          • believes that Truth is harmful to the common man and the social order and should be reserved for superior minds.
          • nations derive their strength from their myths, which are necessary for government and governance.
          • national myths have no necessary relationship with historical reality: they are socio-cultural constructions that the State has a duty to disseminate.
          • to be effective, any national myth must be based on a clear distinction between good and evil; it derives its cohesive strength from the hatred of an enemy nation.
          • As recognized by Abram Shulsky and Gary Schmitt in an article "Leo Strauss and the World of Intelligence" (1999), for Strauss, "deception is the norm in political life" – the rule they [the Neocons] applied to fabricating the lie of weapons of mass destruction by Saddam Hussein when working inside the Office of Special Plans.
          • George Bushes speech from the national cathedral after 9/11 exemplifies myth-making at its finest: "Our responsibility to history is already clear: to answer these attacks and rid the world of Evil. War has been waged against us by stealth and deceit and murder. This nation is peaceful, but fierce when stirred to anger. . . .[W]e ask almighty God to watch over our nation, and grant us patience and resolve in all that is to come. . . . And may He always guide our country. God bless America.

          4. The Zionist/Neocons are piggy-backing onto, or utilizing, the religious myths of both the Jewish and Christian world to consolidate power. This is brilliant Machiavellian strategy.

          • the "chosen people" myth (God likes us best, we are better than you)
          • the Holy Land myth (one area of real estate is more holy than another)
          • the second coming of Christ myth
          • the establishment of God's Kingdom on Earth through global destruction/war (nuclear war for the Glory of God)

          [The]Pax Judaica will come only when "all the nations shall flow" to the Jerusalem temple, from where "shall go forth the law" (Isaiah 2:1-3). This vision of a new world order with Jerusalem at its center resonates within the Likudnik and neoconservative circles. At the Jerusalem Summit, held from October 12th to 14th, 2003 in the symbolically significant King David Hotel, an alliance was forged between Zionist Jews and Evangelical Christians around a "theopolitical" project, one that would consider Israel… "the key to the harmony of civilizations", replacing the United Nations that's become a "a tribalized confederation hijacked by Third World dictatorships": "Jerusalem's spiritual and historical importance endows it with a special authority to become a center of world's unity. [...] We believe that one of the objectives of Israel's divinely-inspired rebirth is to make it the center of the new unity of the nations, which will lead to an era of peace and prosperity, foretold by the Prophets". Three acting Israeli ministers spoke at the summit, including Benjamin Netanyahu, and Richard Perle.

          Jerusalem's dream empire is expected to come through the nightmare of world war. The prophet Zechariah, often cited on Zionist forums, predicted that the Lord will fight "all nations" allied against Israel. In a single day, the whole earth will become a desert, with the exception of Jerusalem, who "shall remain aloft upon its site" (14:10).

          With more than 50 millions members, Christians United for Israel is a major political force in the U.S.. Its Chairman, pastor John Haggee, declared: "The United States must join Israel in a pre-emptive military strike against Iran to fulfill God's plan for both Israel and the West, [...] a biblically prophesied end-time confrontation with Iran, which will lead to the Rapture, Tribulation, and Second Coming of Christ".

          And Guyenot concludes:

          Is it possible that this biblical dream, mixed with the neo-Machiavellianism of Leo Strauss and the militarism of Likud, is what is quietly animating an exceptionally determined and organized ultra-Zionist clan? General Wesley Clark testified on numerous occasions before the cameras, that one month after September 11th, 2001 a general from the Pentagon showed him a memo from neoconservative strategists "that describes how we're gonna take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia and Sudan and finishing off with Iran".

          Is it just a coincidence that the "seven nations" doomed to be destroyed by Israel form part of the biblical myths? …[W]hen Yahweh will deliver Israel "seven nations greater and mightier than yourself […] you must utterly destroy them; you shall make no covenant with them, and show no mercy to them."

          My summary:

          • We have a group that wishes greatly expanded power (to rule the world??)
          • Among them are brilliant strategists
          • They operate unrestrained by the most basic moral principles upon which civilization is founded. They are undisturbed by compassion for the suffering of others.
          • They use consciously and skillfully use deception and "myth-making" to shape policy
          • This is not a spiritual movement in any sense
          • They are utilizing religious myths and language to influence public thinking
          • They envision "winning" in the aftermath world war.
          • They have infiltrated the highest levels of banking, US military, NATO and US government.

          [Dec 11, 2015] Why Its Tricky for Fed Officials to Talk Politically

          "There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not." Economic and politics are like Siamese twins (which actually . If somebody trying to separate them it is a clear sign that the guy is either neoliberal propagandists or outright crook.
          Notable quotes:
          "... I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of purely economic (like many other things are camouflaged under neoliberalism.) ..."
          "... I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times. ..."
          "... This kind of debate seems to be a by-product of the contemporary obsession with having an independent central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy. ..."
          "... A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it. ..."
          "... The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries. ..."
          "... Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack. ..."
          "... As to why risk a political backlash in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all. ..."
          Dec 11, 2015 | Economist's View
          anne said...
          Fine column, with which I agree. Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate.

          As for the use of the word "hack" in referring to Janet Yellen, that needlessly insulting use was by a Washington Post editor and not by columnist Michael Strain.

          anne -> RW (the other)...

          As Brad notes, many Fed Chairs before Yellen have opined on matters outside monetary policy so why is Yellen subject to a different standard?

          [ Fine, I have reconsidered and agree. No matter how the headline was written, the headline was meant to be intimidating and was willfully mean and that could and should have been made clear immediately by the writer of the column. ]

          likbez -> anne...

          "Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate."

          Anne,

          I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

          That's why Greenspan got it, while being despised by his Wall-Street colleagues...

          He got it because he was perfect for promoting deregulation political agenda from the position of FED chair.

          pgl -> likbez...

          Greenspan was despised on Wall Street? Wow as he tried so hard to serve their interests. I guess the Wall Street crowd is never happy no matter how much income we feed these blow hards.

          anne -> likbez...

          So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

          [ I understand, and am convinced. ]

          Peter K. said...

          I respectfully disagree. Republicans are always working the refs and despite what the writer from AEI said, they're okay with conservative Fed chairs talking politics. They have double standards.

          Greenspan testified to Congress on behalf of Bush's tax cuts for the rich. Something about how since Clinton balanced the budget, the financial markets had too little safe debt to work with. (maybe that's why they dove into mortgaged-backed securities). But tax cuts versus more government spending? He and Rubin advised Clinton to drop his middle class spending bill and trade deficit reduction for lower interest rates. That's economics which have political outcomes.

          So if the rightwing is going to work the the refs, so should the left. We shouldn't unilaterally disarm over fears Congress will gun for the Fed. There should be more groups like Fed Up protesting.

          The good thing about Yellen's speech is that it's a signal to progressives that inequality is problem for her even as she is raising rates in a political dance with hawks and Congress.

          The Fed is constantly accused of increasing inequality so it's good Yellen is saying she thinks it's a bad thing and not American.

          Bernie Sanders is right that for change to happen we'll need more political involvement from regular citizens. We'll need a popular movement with many leaders.

          The Fed should be square in the sights of a progressive movement. A high-pressured economy with full employment should be a top priority.

          Instead I saw Nancy Pelosi being interviewed by Al Hunt on Charlie Rose the other night. Hunt asked her about Yellen raising rates.

          Pelosi said no comment as she wasn't looking at the data Yellen was and didn't want to interfere. The Fed should be independent, etc. Perhaps like Thoma she has the best of motives and doesn't want to motivate the Republicans to go after the Fed and oppose what she wants.

          Still I felt the Democratic leadership should be committed to a high-pressure economy. Her staff should know what Krugman, Summers etc are saying. What the IMF and World Bank are sayings.

          She should have said "they shouldn't raise rates until they see the whites of inflation's eyes" as Krugman memorably put it. She should have said that emphatically.

          We need a Democratic Party like that.

          Instead Peter Diamond is blocked from becoming a Fed governor by Republicans and Pelosi is afraid to comment on monetary policy.

          Peter K. -> Peter K....

          A longer reply from DeLong:

          http://www.bradford-delong.com/2015/12/must-read-i-would-beg-the-highly-esteemed-mark-thoma-to-draw-a-distinction-here-between-inappropriate-and-unwise-in-m.html

          Must-Read: I would beg the highly-esteemed Mark Thoma to draw a distinction here between "inappropriate" and unwise. In my view, it is not at all inappropriate for Fed Chair Janet Yellen to express her concern about excessive inequality. Previous Fed Chairs, after all, have expressed their liking for inequality as an essential engine of economic growth over and over again over the past half century--with exactly zero critical snarking from the American Enterprise Institute for trespassing beyond the boundaries of their role.

          But that it is not inappropriate for Janet Yellen to do so does not mean that it is wise. Mark's argument is, I think, that given the current political situation it is unwise for Janet to further incite the ire of the nutboys in the way that even the mildest expression of concern about rising inequality will do.

          That may or may not be true. I think it is not.

          But I do not think that bears on my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous, inattentive to precedent, shoddy, expired, expired, gone to meet their maker, bereft of life, resting in peace, pushing up the daisies, kicked the bucket, shuffled off their mortal coil, run down the curtain, and joined the bleeding choir invisible:

          Mark Thoma: Why It's Tricky for Fed Officials to Talk Politically: "I think I disagree with Brad DeLong...

          pgl -> Peter K....

          "my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous..."

          DeLong is exactly right here. Strain's argument has its own share of partisan lies whereas Yellen is telling the truth. Brad will not be intimidated by this AEI weasel.

          sanjait said...

          Why would Yellen not talk about inequality? It's an important macroeconomic topic and one that is relevant for her job. It's both an input and an output variable that is related to monetary policy.

          And, arguably I think, median wage growth should be regarded as a policy goal for the Fed, related to its explicit mandate of "maximum employment."

          But even if you think inequality is unrelated to the Fed's policy goals, that doesn't stop them from talking about other topics. Do people accuse the Fed of playing politics when they talk about desiring reduced financial market volatility? That has little to do with growth, employment and general price stability.

          likbez -> sanjait...

          I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times.

          Sandwichman said...

          I think I disagree with Mark Thoma's disagreement with Brad DeLong. Actually, ALL economic discourse is political and efforts to restrain the politics are inevitably efforts to keep the politics one-sided

          Dan Kervick said...

          This kind of debate seems to be a by-product of the contemporary obsession with having an "independent" central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy.

          But there really isn't. Different kinds of social, economic and political values and policy agendas are going to call for different kinds monetary and credit policies. It might be better for our political health if the Fed were administratively re-located as an executive branch agency that is in turn part of a broader Department of Money and Banking - no different from the Departments of Agriculture, Labor, Education, etc. In that case everybody would then view Fed governors as ordinary executive branch appointees who report to the President, and whose policies are naturally an extension of the administration's broader agenda. Then if people don't like the monetary policies that are carried out, that would be one factor in their decision about whom to vote for.

          There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not. Decisions in that latter area should be no more politics-free than decisions about taxing and spending. If we fold the central bank more completely into the regular processes of representative government, then if a candidate wants to run on a platform of keeping interest rates low, small business credit easy, bank profits small, etc., they could do so without all of the doubletalk about the protecting the independence of the sacrosanct bankers' temple.

          We could also then avoid unproductive wheel-spinning about that impossibly vague and hedged Fed mandate that can be stretched to mean almost anything people want it to mean. The Fed's mandate under the political solution would just be whatever monetary policy the President ran on.

          likbez -> Dan Kervick...

          "The Fed's mandate under the political solution would just be whatever monetary policy the President ran on"

          Perfect !

          Actually sanjait in his post made a good point why this illusive goal is desirable (providing "electoral advantage") although Greenspan probably violated this rule. A couple of hikes of interest rates from now till election probably will doom Democrats.

          Also the idea of FEB independence went into overdrive since 80th not accidentally. It has its value in enhancing the level of deregulation.

          Among other things it helps to protect large financial institutions from outright nationalization in cases like 2008.

          Does somebody in this forum really think that Bernanke has an option of putting a couple of Wall-Street most violent and destructive behemoths into receivership (in other words nationalize them) in 2008 without Congress approval ?

          Dan Kervick -> Sanjait ...

          Sanjait, with due respect, you are not really responding to the reform proposal, but only affirming the differences between that proposal and the current system.

          Yes, of course fiscal policy is "constrained" by Congress. Indeed, it is not just constrained by Congress but actually made by Congress, subject only to an overridable executive branch veto. The executive branch is responsible primarily for carrying out the legislature's fiscal directives. That's the point. In a democratic system decisions about all forms of taxation and government spending are supposed to be made by the elected legislative branch, and then executed by agencies of the executive branch. My proposal is that monetary policy should be handled in the same way: by the elected political branches of the government.

          You point out that under current arrangements, central banks can, if they choose, effect large monetary offsets to fiscal policy (or at least to some of the aggregate macroeconomic effects of those policies). I don't understand why any non-elected and politically unaccountable branch of our government should have the power to offset the policies of the elected branches in this way. Fiscal and monetary policy need to be yoked together to achieve policy ends effectively. Those policy ends should be the ones people vote for, not the ones a handful of men and women happen to think are appropriate.

          JF -> Dan Kervick...

          "In a democratic system" is what you wrote.

          It is more proper to refer to it as republicanism. The separation of powers doctrine, underlying the US constitution, is a reflection of James Madison's characterization in the 51st The Federalist Paper, and it is a US-defined republicanism that is almost unique:

          "the republican form, wherein the legislative authority necessarily predominates."

          - or something like that is the quote.

          In the US framers' view, at least those who constructed the re-write in 1787 and were the leaders - I'd say the most important word in Madison's explanation is the word "necessarily" - this philosophy has all law and policy stemming from the public, it presumes that you can't have stability and dynamic change of benefit to society without this.

          Arguably, aristocracies, fascists, totalitarians, and all the other isms, just don't see it that way, they see things as top-down ordering of society.

          The mythology of the monetary theorizing and the notions about a central bank being independently delphic has some of this top-down ordering view to it (austerianism, comes to mind). Well, I don't believe in a religious sense that this is how it should be, nor do you it seems.

          It will be an interesting Congress in 2017 when new legislative authorities are enacted to establish clearer framing of the ministerial duties now held by the FRB.

          Are FED officials scared that this will happen, and as a result they circle the wagons with their associates in the financial community now to fend off the public????

          I hope this is not true. They can allay their own fears by leading not back toward 1907, in my opinion.

          Of course, I could say where I'd like economic policies to go, and do here often, but this thread is about Yellin and other FED officials.

          I recognize that FRB officials can say things too, and should, as leaders of this nation (with a whole lot of research power and evidence available to them their commentary on political economics should have merit and be influential).

          Thanks for continuing to remind people that we govern ourselves in the US in a US-defined republican-form. But I think the people still respect and listen to leadership - so speak out FED officials.

          JF -> Dan Kervick...

          But Dan K, then you'd de-mythologize an entire wing of macroeconomics in a wing referred to as monetary theory based on a separate Central Bank, or some non-political theory of money.

          Don't mind the theory as it is an analytic framework that questions and sometimes informs - but it is good to step back and realize some of the religious-like framing.

          It is political-economy.

          Peter K. -> pgl...

          Yellen really lays it out in her speech.

          "The extent of and continuing increase in inequality in the United States greatly concern me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.2 It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity."

          And even links to Piketty in footnote 42.

          "Along with other economic advantages, it is likely that large inheritances play a role in the fairly limited intergenerational mobility that I described earlier.42"

          42. This topic is discussed extensively in Thomas Piketty (2014), Capital in the 21st Century, trans. Arthur Goldhammer (Cambridge, Mass.: Belknap Press). Return to text

          Sanjait said...

          A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it.

          The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries.

          Do I believe this theory? Increasingly, yes I do. And seeing the Fed right now decide to raise rates, citing accelerating wage growth as one of the main reasons, has reinforced my belief.

          A Boy Named Sue said...

          Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack.

          A Boy Named Sue -> A Boy Named Sue...

          I do admit, Delong is my favorite conservative economist. He is witty and educational, unlike most RW hacks.

          Jeff said...

          As to "why risk a political backlash" in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all.

          [Dec 10, 2015] Special Report Buybacks enrich the bosses even when business sags

          Notable quotes:
          "... Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price. ..."
          "... But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers. ..."
          "... Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking." ..."
          "... As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending. ..."
          "... "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets. ..."
          "... The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar. ..."
          "... At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit. ..."
          finance.yahoo.com

          NEW YORK(Reuters) - When health insurer Humana Inc reported worse-than-expected quarterly earnings in late 2014 – including a 21 percent drop in net income – it softened the blow by immediately telling investors it would make a $500 million share repurchase.

          In addition to soothing shareholders, the surprise buyback benefited the company's senior executives. It added around two cents to the company's annual earnings per share, allowing Humana to surpass its $7.50 EPS target by a single cent and unlocking higher pay for top managers under terms of the company's compensation agreement.

          Thanks to Humana hitting that target, Chief Executive Officer Bruce Broussard earned a $1.68 million bonus for 2014.

          Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price.

          But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers.

          As corporate America engages in an unprecedented buyback binge, soaring CEO pay tied to short-term performance measures like EPS is prompting criticism that executives are using stock repurchases to enrich themselves at the expense of long-term corporate health, capital investment and employment.

          "We've accepted a definition of performance that is narrow and quite possibly inappropriate," said Rosanna Landis Weaver, program manager of the executive compensation initiative at As You Sow, a Washington, D.C., nonprofit that promotes corporate responsibility. Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking."

          A Reuters analysis of the companies in the Standard & Poor's 500 Index found that 255 of those companies reward executives in part by using EPS, while another 28 use other per-share metrics that can be influenced by share buybacks.

          In addition, 303 also use total shareholder return, essentially a company's share price appreciation plus dividends, and 169 companies use both EPS and total shareholder return to help determine pay.

          STANDARD PRACTICE

          EPS and share-price metrics underpin much of the compensation of some of the highest-paid CEOs, including those at Walt Disney Co, Viacom Inc, 21st Century Fox Inc, Target Corp and Cisco Systems Inc.

          ... ... ...

          As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending.

          Companies buy back their shares for various reasons. They do it when they believe their shares are undervalued, or to make use of cash or cheap debt financing when business conditions don't justify capital or R&D spending. They also do it to meet the expectations of increasingly demanding investors.

          Lately, the sheer volume of buybacks has prompted complaints among academics, politicians and investors that massive stock repurchases are stifling innovation and hurting U.S. competitiveness - and contributing to widening income inequality by rewarding executives with ever higher pay, often divorced from a company's underlying performance.

          "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets.

          The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S&P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar.

          At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit.

          SALARY AND A LOT MORE

          Today, the bulk of CEO compensation comes from cash and stock awards, much of it tied to performance metrics. Last year, base salary accounted for just 8 percent of CEO pay for S&P 500 companies, while cash and stock incentives made up more than 45 percent, according to proxy advisory firm Institutional Shareholder Services.

          ...In 1992, Congress changed the tax code to curb rising executive pay and encourage performance-based compensation. It didn't work. Instead, the shift is widely blamed for soaring executive pay and a heavier emphasis on short-term results.

          Companies started tying performance pay to "short-term metrics, and suddenly all the things we don't want to happen start happening," said Lynn Stout, a professor of corporate and business law at Cornell Law School in Ithaca, New York. "Despite 20 years of trying, we have still failed to come up with an objective performance metric that can't be gamed."

          Shareholder expectations have changed, too. The individuals and other smaller, mostly passive investors who dominated equity markets during the postwar decades have given way to large institutional investors. These institutions tend to want higher returns, sooner, than their predecessors. Consider that the average time investors held a particular share has fallen from around eight years in 1960 to a year and a half now, according to New York Stock Exchange data.

          "TOO EASY TO MANIPULATE"

          Companies like to use EPS as a performance metric because it is the primary focus of financial analysts when assessing the value of a stock and of investors when evaluating their return on investment.

          But "it is not an appropriate target, it's too easy to manipulate," said Almeida, the University of Illinois finance professor.

          ...By providing a lift to a stock's price, buybacks can increase total shareholder return to target levels, resulting in more stock awards for executives. And of course, the higher stock price lifts the value of company stock they already own.

          "It can goose the price at time when the high price means they earn performance shares … even if the stock price later goes back down, they got their shares," said Michael Dorff, a law professor at the Southwestern Law School in Los Angeles.

          Exxon Corp, the largest repurchaser of shares over the past decade, has rejected shareholder proposals that it add three-year targets based on shareholder return to its compensation program. In its most recent proxy, the energy company said doing so could increase risk-taking and encourage underinvestment to achieve short-term results.

          The energy giant makes half of its annual executive bonus payments contingent on meeting longer-term EPS thresholds. Since 2005, the company has spent more than $200 billion on buybacks.

          ADDITIONAL TWEAKS

          While performance targets are specific, they aren't necessarily fixed. Corporate boards often adjust them or how they are calculated in ways that lift executive pay.

          [Dec 07, 2015] The key prerequisite of casino capitalism is corruption of regulators

          Economist's View

          likbez said...

          When capital became unable of reaping large and fairly secure profits from manufacturing it like water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal ways of maintaining the rate of profits.

          The key prerequisite here is corruption of regulators. So laws on the book does not matter much if regulators do not enforce them.

          As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system in which population constantly experience and then try to overcome one crisis after another. Joseph Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction". But what we observe now it "uncreative destruction". In other words casino capitalism is devouring the host, the US society.

          So all those Hillary statements are for plebs consumption only (another attempt to play "change we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket of financial oligarchy and will never be able to get out of it alive.

          GeorgeK said...

          I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.

          Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.

          The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then her husband was convicted of fraud and they divorced.

          This speech is an attempt to pry people away from Bernie, it won't work with primary voters but might with what's left of rational Republicans in the general election.

          [Dec 07, 2015] Hillary Clinton How I'd Rein In Wall Street

          Economist's View

          likbez said...

          When capital became unable of reaping large and fairly secure profits from manufacturing it like water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal ways of maintaining the rate of profits.

          The key prerequisite here is corruption of regulators. So laws on the book does not matter much if regulators do not enforce them.

          As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system in which population constantly experience and then try to overcome one crisis after another. Joseph Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction". But what we observe now it "uncreative destruction". In other words casino capitalism is devouring the host, the US society.

          So all those Hillary statements are for plebs consumption only (another attempt to play "change we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket of financial oligarchy and will never be able to get out of it alive.

          GeorgeK said...

          I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.

          Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.

          The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then her husband was convicted of fraud and they divorced.

          This speech is an attempt to pry people away from Bernie, it won't work with primary voters but might with what's left of rational Republicans in the general election.

          [Dec 07, 2015] Academic Nightmares Where Everybody Majors in Money

          The key idea of neoliberal university if to view students as customers and the degree as a product to sell.
          Notable quotes:
          "... The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents " widespread and long-lasting academic fraud at the university ." ..."
          "... Students are increasingly perceived as customers ..."
          "... the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class. ..."
          "... Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. ..."
          www.counterpunch.org
          ... ... ...

          The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents "widespread and long-lasting academic fraud at the university." For years, employees of the university "knowingly steered about 1,5000 athletes toward no-show courses that never met and were not taught by any faculty members, and in which the only work required was a single research paper that received a high grade no matter what the content."

          It isn't only athletes who get the benefit of such "no-show" courses. Small academic programs and departments struggling to survive occasionally come up with such courses as a way of boosting their numbers of majors. Even Harvard is now having to grapple with the question of whether their "General Education" program has had the effect of encouraging students to take easy courses.

          Universities will bend over backwards not to fail a student–so long as he or she is actually paying tuition. I know of a case of a professor who was told by the director of the program in which the professor teaches to "take some responsibility" for the fact that some of this professor's students were failing a course. Apparently, the professor was expected to find a way to ensure that all the students passed the course. Fortunately, the professor is tenured, and hence had to freedom to refuse to do more than to try to help the students actually LEARN the material. Would an adjunct have felt free to do the same thing?

          Students are increasingly perceived as customers and some administrators, and even some faculty, appear to conceive the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class.

          Failing to pay tuition, however, is a different matter. Faculty are sometimes instructed not to allow students to attend courses if they have not paid their tuition by the beginning of the term (which, because of the glacial slowness of some financial aid programs, is frequently a problem).

          There's been a lot of discussion recently about how all students need to be taught ethics in college. Of course you can't require everyone to take the standard ethics class that is taught in the philosophy department. That would be too much work. If you suddenly are going to require that everyone at your university take ethics, well, you'd better dumb it down, so students won't object.

          Keep it rigorous, or dumb it down, requiring students to take an ethics course is unlikely to make them more ethical. The thing is, you rarely make people ethical by teaching them ethics. You can help them to better understand the complexities of some ethical dilemmas and you can arm them with theoretical language they can use to defend choices they probably would have made anyway, but that doesn't make them better people so much as it makes them happier people.

          Moral character is largely formed by the time students enter college. It isn't entirely formed, of course, so what happens to students in college can affect their moral development. People are so profoundly social that they continue to develop their conceptions of what is acceptable behavior throughout their entire lives. Aristotle recognized that. That's why he asserted that ethics was a subset of politics. If you want people to behave well, you have to organize your society in such a way that it sends a clear message concerning the behavior it approves of and the behavior it condemns. If the leaders of a given society want people to be honest and responsible, then they have to exemplify these character traits themselves, and then reward citizens who emulate their example.

          Universities would do a much better job of shaping students' characters in positive ways if instead of requiring students to take dumbed-down ethics classes, they gave a damn about ethics themselves, if they cared more about actually delivering the product they purport to be selling, rather than giving mere lip service to it. Many universities are now delivering degrees that are effectively equivalent to the indulgences sold by the Catholic church in the middle ages: expensive, but otherwise meaningless, pieces of paper.

          Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. The message that, sadly, is all too often driven home to students today is that none of the traditional human values that educational institutions purport to preserve and foster, including learning in the broadest sense, really matter. The message they all to often receive now is that nothing really matters but money.

          Now THAT is a nightmare!

          M.G. Piety teaches philosophy at Drexel University. She is the editor and translator of Soren Kierkegaard's Repetition and Philosophical Crumbs. Her latest book is: Ways of Knowing: Kierkegaard's Pluralist Epistemology. She can be reached at: mgpiety@drexel.edu

          [Dec 06, 2015] CIA personnel and assets had the strongest motives to murder Kennedy

          www.nakedcapitalism.com
          Vatch

          JKF? I didn't know that the historian John King Fairbank was assassinated.

          roadrider

          Then I guess you have solid evidence to account for the actions of Allen Dulles, David Atlee Phillips, William Harvey, David Morales, E. Howard Hunt, Richard Helms, James Angleton and other CIA personnel and assets who had

          1) perhaps the strongest motives to murder Kennedy

          2) the means to carry out the crime, namely, their executive action (assassination) capability and blackmail the government into aiding their cover up and

          3) the opportunity to carry out such a plan given their complete lack of accountability to the rest of the government and their unmatched expertise in lying, deceit, secrecy, fraud.

          Because if you actually took the time to research or at least read about their actions in this matter instead of just spouting bald assertions that you decline to back up with any facts you would find their behavior nearly impossible to explain other than having at, the very least, guilty knowledge of the crime.

          skk

          Ruby claimed he was injected with cancer in jail, which ultimately rendered his second trial (after winning appeal overturning his death sentence) moot. It sounded crazy, but so did the motive proffered at his first trial-- that he wanted to save Mrs. Kennedy the anguish...

          that is such an amazing story.. i've yet to watch the video of Lyndon Johnson's swearing in - where Marr states he's seen to be winking and smiling etc -

          Jim Marrs - Kennedy Assassination Lecture

          those who wish - Pick it up at around 12 minutes. actually in that lecture he may well be showing videos of it - I wdn't know cos just listen to the audio.

          skk

          JFK is the one 'safe' conspiracy to talk about without getting the extreme whacko label.

          fascinating "lectures" - British Humanist Society and all - still you gotta listen to everything especially the other side:

          https://www.youtube.com/embed/V6s_Jw3RU9g?feature=oembed&wmode=opaque&list=PL44BEE83ED9D841A8

          Make a note of the names - rising stars in the I'm "left" but I'm not a conspiracist gaggle - ist a standard gaggle - Chomsky, Monbiot are in it ( to win it of course - their fabled "socialist" kingdom" ) - yeah yeah its BritLand so yeah why I care I suppose.

          [Dec 06, 2015] Beware Economics 101 -- this is a neoclassical junk

          Notable quotes:
          "... "The problem for early would ­- be neoclassical macroeconomists was that, strictly speaking, there was no microeconomic model of macroeconomics when they began their campaign. So they developed a neoclassical macro model from the foundation of the neoclassical growth model developed by Nobel laureate Robert Solow (Solow 1956) and Trevor Swan (Swan 2002). They interpreted the equilibrium growth path of the economy as being determined by the consumption and leisure preferences of a representative consumer, and explained deviations from equilibrium – which the rest of us know as the business cycle – by unpredictable 'shocks' to technology and consumer preferences. ..."
          "... This resulted in a model of the macroeconomy as consisting of a single consumer, who lives for ever, consuming the output of the economy. Which is a single good produced in a single firm, which he owns and in which he is the only employee, which pays him both profits equivalent to the marginal product of capital and a wage equivalent to the marginal product of labor. To which he decides how much labor to supply by solving a utility function that maximizes his utility over an infinite time horizon, which he rationally expects and therefore correctly predicts. ..."
          "... Paul Krugman is a quintessential neoclassical economist. Neoclassical economists threw the notion that economics should deal with empirical or factual reality overboard quite some time ago. ..."
          "... Economists often invoke a strange argument by Milton Friedman that states that models do not have to have realistic assumptions to be acceptable - giving them license to produce severely defective mathematical representations of reality. ..."
          "... Economists as a rule do not deny that their assumptions about human nature are highly unrealistic, but instead claim, following Friedman (1962, 1982), that the absence of realism does not diminish the value of their theory because it "works," in the sense that it generates valid predictions…. ..."
          "... Most important, philosophers of science have almost universally rejected Friedman's position (Boland, 1979). It is very widely agreed that the purpose of a theory is to explain. Otherwise, [predictions] are unable to foretell under what conditions they will continue to hold or fail. ..."
          "... With the advent of the Great Financial Crisis, which began in 2007 and continues to this day, the neoclassical models did fail. And they failed in the most spectacular way. ..."
          "... Nevertheless, for those like Krugman who are in love with orthodox economic theory, when facts don't conform to theory, so much worse for the facts. ..."
          "... It should be added that not everyone who rejects the orthodox, neoclassical theory of exogenous money creation and its "available funds" theory of banking, as Keen calls it, believes that debt matters. ..."
          "... A very good example of this is the MMT school, which even though it rejects the orthodox theory of money creation, nevertheless discounts the importance of debt, or at least public debt. ..."
          "... The distinction between private debt and public debt, however, is not a clear one. We all saw, for instance, the ease with which private debt was converted into public debt in the cases of Ireland and Spain in the wake of the GFC. ..."
          "... The piece that VK posted by Keen was essentially a rejection of the macroeconomic theory that was formulated to replace Keynesian theory. ..."
          "... The debate between these two economists on the role of banking and specifically the creation of credit is of fundamental importance in understanding the shortcomings of orthodox economic thinking – and why it was so ill-equipped to handle, let alone predict, the crash of 2008. ..."
          "... However, because he has such an important platform, it matters more to many monetary economists (including the editor of this series) that he appears to lack a proper understanding of the nature of credit, and the role of banks in the economy. ..."
          "... So yes debt is a big problem with a poorly regulated banking industry (financial industry really because of shadow banking). ..."
          peakoilbarrel.com
          VK, 12/04/2015 at 2:57 pm
          Beware Economics 101. The peer review mechanism has horribly failed.

          When you read Krugman, this is what he and our central bankers believe.

          "The problem for early would ­- be neoclassical macroeconomists was that, strictly speaking, there was no microeconomic model of macroeconomics when they began their campaign. So they developed a neoclassical macro model from the foundation of the neoclassical growth model developed by Nobel laureate Robert Solow (Solow 1956) and Trevor Swan (Swan 2002). They interpreted the equilibrium growth path of the economy as being determined by the consumption and leisure preferences of a representative consumer, and explained deviations from equilibrium – which the rest of us know as the business cycle – by unpredictable 'shocks' to technology and consumer preferences.

          This resulted in a model of the macroeconomy as consisting of a single consumer, who lives for ever, consuming the output of the economy. Which is a single good produced in a single firm, which he owns and in which he is the only employee, which pays him both profits equivalent to the marginal product of capital and a wage equivalent to the marginal product of labor. To which he decides how much labor to supply by solving a utility function that maximizes his utility over an infinite time horizon, which he rationally expects and therefore correctly predicts.

          The economy would always be in equilibrium except for the impact of unexpected 'technology shocks' that change the firm's productive capabilities (or his consumption preferences) and thus temporarily cause the single capitalist/worker/consumer to alter his working hours.

          Any reduction in working hours is a voluntary act, so the representative agent is never involuntarily unemployed, he's just taking more leisure. And there are no banks, no debt, and indeed no money in this model."

          Prof. Steve Keen, Debunking Economics.

          Dennis Coyne, 12/04/2015 at 6:11 pm
          Hi VK,

          No this is not what Krugman believes at all. There are some economists that think in these terms, in the US it is primarily in the interior of the country, the economists on the east and west coast, (this includes Krugman and many others) would not think in these terms at all.

          Have you ever read anything by Krugman?

          VK, 12/05/2015 at 1:41 am
          Read Krugman for years. The basic neoclassical models are founded on the representative agent model with the above assumptions as core. Look up the PhD text book on economics – http://www.amazon.com/Microeconomic-Theory-Andreu-Mas-Colell/dp/0195073401

          Krugman gives assessments based on the representative agent models, with its no money, no debt, no banks assumptions. Very linear models, no dynamic modeling.

          Economic theory and modeling is stuck in the 19th century. Rest of the hard sciences, physics, chemistry, atmospherics moved on with Poincare and later Lorenz to dynamic simulations.

          VK, 12/04/2015 at 3:04 pm
          To Dennis Coyne, debt levels matter because "loans create deposits" and not vice versa. Bank of England published a paper last year on modern money creation http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

          The fractional reserve banking model taught in economics is absolutely empirically wrong. Because banks have the power to create credit money, they can issue in excess.

          Under the empirically correct credit money creation model, there can be an excessive build up of debt. Hence the more than 250 sovereign and domestic govt debt crises since 1850.

          Dennis Coyne, 12/04/2015 at 6:24 pm
          Hi VK,

          Rune Likvern posted the link and I read the paper. US textbooks through 1990 covered this exactly as in that paper, so it was a good refresher, but not different from what I had learned in the past.

          There can be excessive debt and banks can fail due to poor lending practices combined with a severe recession. Nations can also default. The question is how much debt is too much debt. In economics there are different opinions on this question. When I was studying economics the focus was on public debt crowding out private debt when an economy was close to full employment.

          Now there seems to be more focus on private debt, which nobody in economics used to worry about.

          It may be that the lack of banking regulation and the rise of shadow banking has made this more of a problem, I am out of date on the latest research.

          http://www.economist.com/blogs/freeexchange/2015/06/public-debt

          The article at the link above suggests up to about a 150% debt to GDP ratio is a safe level for public debt.

          VK, 12/05/2015 at 1:56 am
          U.S. Textbooks don't cover this at all. The assumption that Paul Samuelson used in his seminal undergraduate textbook that millions have studied was the fractional reserve lending model which is empirically false.

          The whole of economics is empirically false, it would be a laughing stock if people looked under the hood with its assumptions that are meant to preserve straight line thinking rather than dealing with reality, which is highly non-linear and dynamic.

          Private debt wasn't a concern in economics because they assumed away the role of banks to preserve the equilibrium models. Once you incorporate reality into the models, which is what a true science would do, you find that private debt levels matter.

          What economists think: Saver lends to borrower. Saver loses purchasing power, borrower gains purchasing power. Purchasing power hasn't changed in the economy. Just a shift

          What really happens: Saver puts money in a bank, has access to his money anytime. Borrower wants money, bank issues a credit and writes loan amount as asset. Purchasing power as a whole increases across the economy as both saver and borrower now have money to buy goods and services with.
          That's how the economy grows – bank issuance of credit. And it can easily be in excess.

          https://unlearningeconomics.wordpress.com/2012/04/03/the-keenkrugman-debate-a-summary/

          Jef, 12/05/2015 at 9:12 am
          Thanks for hanging in there VK.

          I tried to explain this to my father in law who is an attorney specializing in finance and accounting. He simply could not accept it or even wrap his head around it even after reading the Bank of England piece.

          It is fraud plain and simple and the cost to humanity in both financial terms and lives lost is huge.

          Glenn Stehle, 12/05/2015 at 9:34 am
          Paul Krugman is a quintessential neoclassical economist. Neoclassical economists threw the notion that economics should deal with empirical or factual reality overboard quite some time ago.

          Perhaps no one was more explicit in articulating this notion that science should discard factual reality than Milton Friedman.

          Any number of critics have pointed this out. For instance,

          Economists often invoke a strange argument by Milton Friedman that states that models do not have to have realistic assumptions to be acceptable - giving them license to produce severely defective mathematical representations of reality.

          –NASSIM NICHOLAS TALEB, The Black Swan

          and

          Economists as a rule do not deny that their assumptions about human nature are highly unrealistic, but instead claim, following Friedman (1962, 1982), that the absence of realism does not diminish the value of their theory because it "works," in the sense that it generates valid predictions….

          Most important, philosophers of science have almost universally rejected Friedman's position (Boland, 1979). It is very widely agreed that the purpose of a theory is to explain. Otherwise, [predictions] are unable to foretell under what conditions they will continue to hold or fail.

          AMITAI ETZIONI, The Moral Dimension

          With the advent of the Great Financial Crisis, which began in 2007 and continues to this day, the neoclassical models did fail. And they failed in the most spectacular way.

          Nevertheless, for those like Krugman who are in love with orthodox economic theory, when facts don't conform to theory, so much worse for the facts.

          Glenn Stehle, 12/05/2015 at 9:55 am
          It should be added that not everyone who rejects the orthodox, neoclassical theory of exogenous money creation and its "available funds" theory of banking, as Keen calls it, believes that debt matters.

          A very good example of this is the MMT school, which even though it rejects the orthodox theory of money creation, nevertheless discounts the importance of debt, or at least public debt.

          The distinction between private debt and public debt, however, is not a clear one. We all saw, for instance, the ease with which private debt was converted into public debt in the cases of Ireland and Spain in the wake of the GFC.

          Dennis Coyne, 12/05/2015 at 12:38 pm
          Hi Glenn,

          Krugman does hold relatively mainstream views, but there are significant differences of opinion within economics. Many economists reject Keynesian theory, Krugman does not. The piece that VK posted by Keen was essentially a rejection of the macroeconomic theory that was formulated to replace Keynesian theory. Krugman would make many of the exact same criticisms.

          The "debt doesn't matter" theme is carried a little too far, nobody really argues this. The argument is that when the economy is doing poorly due to low aggregate demand (during a severe recession) and monetary policy is not effective because interest rates are near zero (so that the federal funds rate cannot be lowered any further), cutting fiscal deficits is poor public policy.

          Perhaps you disagree?

          Glenn Stehle, 12/05/2015 at 1:57 pm
          Dennis,

          Are you unaware of the famous debate between Krugman and Keen, and what it is all about?

          Perhaps this article by Ann Pettifor will help:

          The debate between these two economists on the role of banking and specifically the creation of credit is of fundamental importance in understanding the shortcomings of orthodox economic thinking – and why it was so ill-equipped to handle, let alone predict, the crash of 2008.

          Many rightly applaud Paul Krugman for using his platform at the New York Times to defend further fiscal stimulus in the US–against a hostile political crowd, not to mention the downright opposition of neo-liberal economists –- and we commend him for that.

          However, because he has such an important platform, it matters more to many monetary economists (including the editor of this series) that he appears to lack a proper understanding of the nature of credit, and the role of banks in the economy.

          https://www.opendemocracy.net/ourkingdom/steve-keen/keen-krugman-debate

          I very much recommend reading the entire article, and much more can be found by Googling "Keen vs Krugman debate."

          Dennis Coyne, 12/05/2015 at 12:15 pm
          Hi Vk,

          There are many of us who have studied beyond the introductory level. In my introductory courses, I believe we were taught this correctly, but that was long ago, I know when I instructed the introductory students as a grad student what I was teaching was essentially what I read in the paper you cited. Perhaps the "textbooks" have improved over time, I haven't read an economics textbook for many years.

          Have you read any economics papers lately, perhaps there has been more progress than you think. A fundamental problem with economics is that how we understand the workings of the economy can affect the way people behave. People will always try to game the system and this then effects the system. It is a difficult modelling problem not faced by chemists and physicists.

          If you solve it you should publish a paper.

          Dennis Coyne, 12/05/2015 at 1:41 pm
          Hi VK,

          You said:

          What economists think: Saver lends to borrower. Saver loses purchasing power, borrower gains purchasing power. Purchasing power hasn't changed in the economy. Just a shift

          Economists don't think this way at all. These kinds of lessons are often presented in introductory economics courses to show how economists once thought things worked in 1803 when Say introduced "Say's Law".

          Then the economics professor goes on to explain how a modern economy actually works (which we don't understand all that well.)

          Generally speaking economic growth is considered a good thing, and banks lending to borrowers that are likely to be able to repay the loan (not true leading up to the financial crisis due to poor regulation and lending practices), is not a problem in a well regulated banking sector (in the US this went away in the 1980s).

          So yes debt is a big problem with a poorly regulated banking industry (financial industry really because of shadow banking).

          Debt is like a lot of things in life, too much or too little can be a bad thing.

          The central bank can certainly influence the amount of lending by raising interest rates, as long as inflation is moderate, there is not much reason to do so.

          Rune Likvern, 12/05/2015 at 1:43 pm
          "US textbooks through 1990 covered this exactly as in that paper, so it was a good refresher, but not different from what I had learned in the past."

          And what is the title of those textbooks?

          "Now there seems to be more focus on private debt, which nobody in economics used to worry about."

          Was it US public or private debt that started the GFC in 2007/2008?

          [Dec 04, 2015] German Financialization and the Eurozone Crisis

          Notable quotes:
          "... Bundenstalt für Finanzdienstleistungsaufsicht ..."
          naked capitalism
          Many studies of the Eurozone crisis focus on peripheral European states' current account deficits, or German neo-mercantilist policies that promoted export surpluses. However, German financialization and input on the eurozone's financial architecture promoted deficits, increased systemic risk, and facilitated the onset of Europe's subsequent crises.

          Increasing German financial sector competition encouraged German banks' increasing securitization and participation in global capital markets. Regional liberalization created new marketplaces for German finance and increased crisis risk as current accounts diverged between Europe's core and periphery. After the global financial crisis of 2008, German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis. Rethinking how financial liberalization facilitated German and European financial crises may prevent the eurozone from repeating these performances in the future.

          After the 1970s, German banks' trading activity came to surpass lending as the largest share of assets, while German firms increasingly borrowed in international capital markets rather than from domestic banks. Private banks alleged that political subsidies and higher credit ratings for Landesbanks, public banks that insured household, small enterprise, and local banks' access to capital, were unfair, and, in response, German lawmakers eliminated state guarantees for public banks. Landesbanks, despite their historic role as stable, non-profit, providers of credit, consequently had to compete with Germany's largest private banks for business. Changes in competition restructured the German financial system. Mergers and takeovers occurred, especially in commercial banks and Landesbanks. German financial intermediation ratios-total financial assets of financial corporations divided by the total financial assets of the economy-increased. Greater securitization and shadow banking relative to long-term lending increased German propensity for financial crisis, as securities, shares, and securitized debt constituted increasing percentages of German banks' assets and liabilities.

          Throughout this period, Germany lacked a centralized financial regulatory apparatus. Only in 2002 did the country's central bank, the Bundesbank, establish the Bundenstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority, known as BaFin), which consolidated the responsibilities of three agencies to oversee the whole financial sector. However, neither institution could keep pace with new sources of financial and economic instability. German banking changes continued apace and destabilizing trends in banking grew.

          German desire for financial liberalization at the European level, meanwhile, helped increase potential systemic risk of European finance. Despite some European opposition to removing barriers to capital and trade flows, Germany prevailed in setting these preconditions for membership in the European economic union. Germany's negotiating power stemmed from its strong currency, as well as French, Italian, and smaller European economies' desire for currency stability. Germany demanded an independent central bank for the union, removal of capital controls, and an expansion of the tasks banks could perform within the Economic and Monetary Union (EMU). The Second Banking Coordination Directive (SBCD) mandated that banks perform commercial and investment intermediation to be certified within the EMU; the Single Market Passport (SMP) required free trade and capital flows throughout the EMU. The SMP and SBCD increased the scope of activity that financial institutions throughout the union were expected to provide, and opened banks up to markets, instruments, and activities they could neither monitor nor regulate, and hence to destabilizing shocks.

          Intra-EMU lending and borrowing subsequently increased, and total lending and borrowing grew relative to European countries' GDP from the early 1990s onward. Asymmetries emerged in capital flows between Europe's core, particularly the UK, Germany, and the Netherlands, to Europe's newly liberalized periphery. German banks lent increasing volumes to EMU member states, especially peripheral states. Though this lending on a country-by-country basis was a small percentage of Germany's GDP, it constituted larger percentages of borrowers' GDPs. In 2007, Germany lent 1.23% of its GDP to Portugal; this represented 17.68% of Portugal's GDP; in 2008, Germany lent 6% of its GDP to Ireland; this was 84% of Irish GDP. Germany, the largest European economy, lent larger percentages of its GDP to peripheral EMU nations relative to its lending to richer European economies. These flows, more potentially disruptive for borrowers than for the lender, reflected lack of oversight in asset management. German lending helped destabilize European financial systems more vulnerable to rapid capital inflows, and created conditions for large-scale capital flight in a crisis.

          Financial competition increased in Europe over this period. Financial merger activity first accelerated within national borders, and later grew at supra-national levels. These movements increased eurozone access to capital, but increased pressure for banks to widen the scope of the services and lending that they provided. Rising European securitization in this period increased systemic risk for the EMU financial system. European holdings of U.S.-originated asset-backed securities increased by billions of dollars from the early 2000s until shortly before 2008. German banks were among the EMU's top issuers and acquirers of such assets. As banks' holdings of these assets increased, European systemic risk increased as well.

          European total debt as a percentage of GDP rose in this period. Financial debt relative to GDP grew particularly sharply in core economies; Ireland was the only peripheral EMU economy with comparable levels of financial debt. Though government debt relative to GDP fell or held constant for most EMU nations, cross-border acquisition of sovereign debt increased until 2007. German banks acquired substantially larger portfolios of sovereign debt issued by other European states, which would not decrease until 2010. Only in 2009 did government debt relative to GDP increase throughout the eurozone, as governments guaranteed their financial systems to minimize the costs of the ensuing financial crisis.

          The newly liberalized financial architecture of the eurozone increased both the market for German financial services and overall systemic risk of the European financial system; these dynamics helped destabilize the German financial system and economy at large. Rising German exports of goods, services, and capital to the rest of Europe grew the German economy, but divergence of current account balances within the EMU exposed it to sovereign debt risk in peripheral states. Potential systemic risk changed into systemic risk after the subprime mortgage crisis began. EMU economies would not have subsequently experienced such pressure to backstop national financial systems or to repay sovereign loans had German banks not lent so much or purchased so many sovereign bonds within the union. Narratives that fail to acknowledge Germany's role in promoting the circumstances that underlay the eurozone crisis ignore the destabilizing power of financial liberalization, even for a global financial center like Germany.

          susan the other, December 3, 2015 at 1:06 pm

          This is very interesting. It describes just how the EU mess unfolded beginning in 1970 with deregulation of the financial industry in the core. Big fish eat little fish. It is as if for 4 decades the banks in Germany compensated their losses to the bigger international lenders by taking on the riskier borrowers and were able to do so because of German mercantilism and financial deregulation. Like the German domestic banks loaned the periphery money with abandon, and effectively borrowed their own profits by speculating on bad customers. As German corporations did business with big international banksters, who lent at lower rates, other German banks resorted to buying the sovereign bonds of the periphery and selling CDOs, etc. The German banks were as over-extended looking for profit as consumers living on their credit cards. Deregulation enriched only the biggest international banks. We could call this behavior a form of digging your own grave. In 2009 the periphery saw their borrowing costs threatened and guaranteed their own financial institutions creating the "sovereign debt" that the core then refused to touch. Hypocrisy ruled. Generosity was in short supply. The whole thing fell apart. Deregulation was just another form of looting.

          washunate, December 3, 2015 at 1:28 pm

          German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis.

          I agree with the general conclusion at the end that German financialization is part of the overall narrative of EMU, but I don't follow this specific link in the chain of events as described. The eurozone has a sovereign debt crisis because those sovereign governments privatized the profits and socialized the losses of a global system of fraud. And if we're assigning national blame, it's a system run out of DC, NY, and London a lot more than Berlin, Frankfurt, and Brussels.

          Current and capital account imbalances cancel each other out in the overall balance of payments. As bank lending decreases (capital account surplus shrinks) then the current account deficit shrinks as well (the 'trade deficit'). The problem is when governments step in and haphazardly backstop some of the losses – at least, when they do so without imposing taxes on the wealthy to a sufficient degree to pay for these bailouts.

          [Dec 04, 2015] Congressional Aid to Multinationals Avoiding Taxes

          EconoSpeak

          The OECD's Base Erosion and Profit Shifting (BEPS) initiative is an effort by the G20 to curb the abuse of transfer pricing by multinationals. Senator Hatch is not a fan:

          Throughout this process we have heard concerns from large sectors of the business community that the BEPS project could be used to further undermine our nation's competitiveness and to unfairly subject U.S. companies to greater tax liabilities abroad. Companies have also been concerned about various reporting requirements that could impose significant compliance costs on American businesses and force them to share highly sensitive proprietary information with foreign governments. I expect that we'll hear about these concerns from the business community and others during today's hearing.
          Indeed we heard from some lawyer representing The Software Coalition who was there to mansplain to us how BEPS is evil. I learned two startling things. First – Bermuda must be part of the US tax base. Secondly, if Google is expected to pay taxes in the UK, it will take all those 53,600 jobs which are mainly in California and move them to Bermuda:
          in particular how the changes to the international tax rules as developed under BEPS will significantly reduce the U.S. tax base and create disincentives for U.S. multinational corporations (MNCs) to create R&D jobs in the United States
          Yes – I find his testimony absurd at so many levels. Let's take Google as an example. When they say foreign subsidiaries – think Bermuda. Over the past three year, Google's income has average $15.876 billion per year but its income taxes have only average $2.933 billion for an effective tax rate of only 18.5%. How did that happen? Well – 55% of its income is sourced to these foreign subsidiaries and the average tax rate on this income is only 6.5%. Nice deal! Google's tax model is not only easy to explain but is also a very common one for those in the Software Coalition. While all of the R&D is done in the U.S. and 45% of its sales are in the U.S. – U.S. source income is only 45% of worldwide income. Very little of the foreign sourced income ends up in places like the UK even 11% of Google's sales are to UK customers. Only problem is that income ends up on Ireland's books with the UK getting a very modest amount of the profits. Now you might be wondering how Google got to the foreign taxes to be only 6.5% of foreign sourced income since Ireland's tax rate is 12.5%. But think Double Irish Dutch Sandwich and you'll get how the profits ended up in Bermuda as well as perhaps a good lunch! But what about that repatriation tax you ask. Google's most recent 10-K proudly notes:
          "We have not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries".
          In other words, they are not paying that repatriation tax. Besides the Republicans want to eliminate. Let's be honest – Congress has hamstringed the IRS efforts to enforce transfer pricing. The BEPS initiative arose out of this failure. And now the Republicans in Congress are objecting to even these efforts. And if Europe has the temerity of expecting its fair share of taxes, U.S. multinationals will leave California and relocate in Bermuda? Who is this lawyer kidding? Myrtle Blackwood
          The development model in nation after nation is dependent upon global corporations. What is happening is simply a byproduct of this.
          Jack
          Would the problem of transfer mythical corporate location and the resulting lost taxes be resolved if taxes were based on point of revenue? Tax gross income where it is earned instead of taxing profits where they are not earned.

          [Dec 04, 2015] The Neoconservative Movement is Trotskyism

          "... Kristol argues in his book The Neoconservative Persuasion that those Jewish intellectuals did not forsake their heritage (revolutionary ideology) when they gave up Communism and other revolutionary movements, but had to make some changes in their thinking. America is filled with such former Trotskyists who unleashed an unprecedented foreign policy that led to the collapse of the American economy. ..."
          "... Noted Australian economist John Quiggin declares in his recent work Zombie Economics that "Ideas are long lived, often outliving their originators and taking new and different forms. Some ideas live on because they are useful. Others die and are forgotten. But even when they have proved themselves wrong and dangerous, ideas are very hard to kill. Even after the evidence seems to have killed them, they keep on coming back. ..."
          "... These ideas are neither alive nor dead; rather…they are undead, or zombie, ideas." Bolshevism or Trotskyism is one of those zombie ideas that keeps coming back in different forms. It has ideologically reincarnated in the political disputations of the neoconservative movement. ..."
          "... As soon as the Israel Lobby came along, as soon as the neoconservative movement began to shape U.S. foreign policy, as soon as Israel began to dictate to the U.S. what ought to be done in the Middle East, America was universally hated by the Muslim world. ..."
          "... In that sense, the neoconservative movement as a political and intellectual movement represents a fifth column in the United States in that it subtly and deceptively seeks to undermine what the Founding Fathers have stood for and replace it with what the Founding Fathers would have considered horrible foreign policies-policies which have contributed to the demise of the respect America once had. ..."
          "... For example, when two top AIPAC officials-Steven Rosen and Keith Weissman-were caught passing classified documents from the Pentagon to Israel, Gabriel Schoenfeld defended them. ..."
          "... Israel has been spying on the United States for years using various Israeli or Jewish individuals, including key Jewish neoconservative figures such as Paul Wolfowitz and Douglas Feith, who were under investigation for passing classified documents to Israel. ..."
          January 22, 2013 | Veterans Today

          Kristol argues in his book The Neoconservative Persuasion that those Jewish intellectuals did not forsake their heritage (revolutionary ideology) when they gave up Communism and other revolutionary movements, but had to make some changes in their thinking. America is filled with such former Trotskyists who unleashed an unprecedented foreign policy that led to the collapse of the American economy.

          We have to keep in mind that America and much of the Western world were scared to death of Bolshevism and Trotskyism in the 1920s and early 30s because of its subversive activity.

          Noted Australian economist John Quiggin declares in his recent work Zombie Economics that "Ideas are long lived, often outliving their originators and taking new and different forms. Some ideas live on because they are useful. Others die and are forgotten. But even when they have proved themselves wrong and dangerous, ideas are very hard to kill. Even after the evidence seems to have killed them, they keep on coming back.

          These ideas are neither alive nor dead; rather…they are undead, or zombie, ideas." Bolshevism or Trotskyism is one of those zombie ideas that keeps coming back in different forms. It has ideologically reincarnated in the political disputations of the neoconservative movement.

          ... ... ...

          As it turns out, neoconservative think tanks such as the American Enterprise Institute are largely extensions of Trotskyism with respect to foreign policy. Other think tanks such as the Bradley Foundation were overtaken by the neoconservative machine back in 1984.

          Some of those double agents have been known to have worked with Likud-supporting Jewish groups such as the Jewish Institute for National Security Affairs, an organization which has been known to have "co-opted" several "non-Jewish defense experts by sending them on trips to Israel. It flew out the retired general Jay Garner, now slated by Bush to be proconsul of occupied Iraq."

          Philo-Semitic scholars Stephen Halper of Cambridge University and Jonathan Clarke of the CATO Institute agree that the neoconservative agendas "have taken American international relations on an unfortunate detour," which is another way of saying that this revolutionary movement is not what the Founding Fathers signed up for, who all maintained that the United States would serve the American people best by not entangling herself in alliances with foreign entities.

          As soon as the Israel Lobby came along, as soon as the neoconservative movement began to shape U.S. foreign policy, as soon as Israel began to dictate to the U.S. what ought to be done in the Middle East, America was universally hated by the Muslim world.

          Moreover, former secretary of defense Robert Gates made it clear to the United States that the Israelis do not and should not have a monopoly on the American interests in the Middle East. For that, he was chastised by neoconservative Elliott Abrams.

          In that sense, the neoconservative movement as a political and intellectual movement represents a fifth column in the United States in that it subtly and deceptively seeks to undermine what the Founding Fathers have stood for and replace it with what the Founding Fathers would have considered horrible foreign policies-policies which have contributed to the demise of the respect America once had.

          ... ... ...

          Israel has been spying on the United States for years using various Israeli or Jewish individuals, including key Jewish neoconservative figures such as Paul Wolfowitz and Douglas Feith, who were under investigation for passing classified documents to Israel.

          The FBI has numerous documents tracing Israel's espionage in the U.S., but no one has come forward and declared it explicitly in the media because most political pundits value mammon over truth.

          For example, when two top AIPAC officials-Steven Rosen and Keith Weissman-were caught passing classified documents from the Pentagon to Israel, Gabriel Schoenfeld defended them.

          In the annual FBI report called "Foreign Economic Collection and Industrial Espionage," Israel is a major country that pops up quite often. This is widely known among CIA and FBI agents and U.S. officials for years.

          One former U.S. intelligence official declared, "There is a huge, aggressive, ongoing set of Israeli activities directed against the United States. Anybody who worked in counterintelligence in a professional capacity will tell you the Israelis are among the most aggressive and active countries targeting the United States.

          They undertake a wide range of technical operations and human operations. People here as liaisons… aggressively pursue classified intelligence from people. The denials are laughable."

          [Dec 03, 2015] MOOCs and similar approaches to online learning can exacerbate rather than reduce disparities in educational outcomes related to socioeconomic status

          www.nakedcapitalism.com
          allan

          Another disruptive innovation turns out not to work out as advertised.

          Democratizing education? Examining access and usage patterns in massive open online courses [Science]

          Massive open online courses (MOOCs) are often characterized as remedies to educational disparities related to social class. Using data from 68 MOOCs offered by Harvard and MIT between 2012 and 2014, we found that course participants from the United States tended to live in more-affluent and better-educated neighborhoods than the average U.S. resident. Among those who did register for courses, students with greater socioeconomic resources were more likely to earn a certificate. Furthermore, these differences in MOOC access and completion were larger for adolescents and young adults, the traditional ages where people find on-ramps into science, technology, engineering, and mathematics (STEM) coursework and careers. Our findings raise concerns that MOOCs and similar approaches to online learning can exacerbate rather than reduce disparities in educational outcomes related to socioeconomic status.

          Lambert Strether, December 3, 2015 at 3:17 pm

          That's not a bug. It's a feature.

          jrs, December 3, 2015 at 5:40 pm

          Well that's pretty much the same charge that could be leveled against most higher education. It makes disparities worse, maybe less so community colleges, I don't know.

          cwaltz, December 3, 2015 at 6:16 pm

          I wonder how much of that is due to inability to access the web in neighborhoods that are less affluent?

          An online course isn't going to help me if mom or dad can't afford to pay for internet.

          Bob Haugen, December 3, 2015 at 8:06 pm

          Most education in the world now, whether in classrooms or MOOCs, is oriented toward improving the personal capital of the upwardly striving. There is no "make yourself a better citizen" or "improve your community" curriculum.

          likbez, December 3, 2015 at 10:47 pm

          "Most education in the world now, whether in classrooms or MOOCs, is oriented toward improving the personal capital of the upwardly striving."

          Very true. Thank you !

          This is the essence of neoliberal transformation of the university education.

          [Dec 03, 2015] On That Video Where Some Egyptians Allegedly Say Obama Is Insane And On Drugs And Should Be Removed From Office

          EconoSpeak

          An old and close, but very conservative and increasingly out of touch with reality friend of mine posted a video some days ago on Facebook. He indicated that he thought it was both funny and also insightful. It seemed highly suspicious to me, so I googled it and found that the person who uploaded it onto you tube stated in the comments on it that it is a spoof. Here is a link that discusses why it is known it is a spoof as well as linking to the video itself and its comments. It has reportedly been widely distributed on the internet by many conservatives who think it is for real, and when I pointed out it is a spoof, my friend defriended me from Facebook. I am frustrated.

          So, for those who do not view it, it purports to show a talk show in Egypt where a brief clip of Obama speaking last May to graduating military officers about how climate change is and will be a serious national security issue, something the Pentagon has claimed. He did not say it was the most serious such issue, and at least in the clip he said nothing about Daesh/ISIS/ISIL, although of course he has said a lot about it and not only has US drones attacking it but reportedly we have "boots on the ground" now against them in the form of some Special Ops.

          So, the video then goes back to the supposed talk show where they are speaking in Arabic with English subtitles. According to these subtitels, which are partly accurate translations but also wildly inaccurate in many places (my Arabic is good enough that I have parsed out what is what there) the host asks, "Is he insane?" A guest suggests he is on drugs. Another claims he just does what Michelle says and that his biceps are small. Finally a supposed retired general pounds the table and denounces him over Libya policy (that part is for real, although his name is never mentioned) and suggests that Americans should act to remove him from office. Again, conservative commentators have found hilarious and very insightful, with this even holding among commenters to the video aware that it is a mistranslated spoof. Bring these guys on more. Obviously they would be big hits on Fox News.

          So, I would like to simply comment further on why Egyptians would be especially upset about Libya, but that them being so against the US is somewhat hypocritical (I also note that there is reason to believe that the supposed general is not a general). Of course Libya is just to the west of Egypt with its eastern portion (Cyrenaica under Rome) often ruled by whomever was ruling Egypt at various times in the past. So there is a strong cultural-historical connection. It is understandable that they would take Libyan matters seriously, and indeed things in Libya have turned into a big mess.

          However, the move to bring in outside powers to intervene against Qaddafi in 2011 was instigated by an Egyptian, Abu Moussa. This was right after Mubarak had fallen in the face of massive demonstrations in Egypt. Moussa was both leader of the Arab League and wanting to run for President of Egypt. He got nowhere with the latter, but he did get somewhere with getting
          the rest of the world to intervene in Libya. He got the Arab League to support such an intervention, with that move going to the UN Security Council and convincing Russia and China to abstain on the anti-Qaddafi measure. Putin has since complained that those who intervened, UK and France most vigorously with US "leading from behind" on the effort.went beyond the UN mandate. But in any case, Qaddafi was overthrown, not to be replaced by any stable or central power, with Libya an ongoing mess that has remained fragmented since, especially between its historically separate eastern and western parts, something I have posted on here previously.

          So, that went badly, but Egyptians blaming the US for this seems to me to be a bit much, pretty hypocritical. It happens to be a fact that the US and Obama are now very unpopular in Egypt. I looked at a poll from a few months ago, and the only nations where the US and Obama were viewed less favorably (although a few not polled such as North Korea) were in order: Russia, Palestinian Territories, Belarus, Lebanon, Iran, and Pakistan, with me suspecting there is now a more favorable view in Iran since the culmination of the nuclear deal. I can appreciate that many Egyptians are frustrated that the US supported an election process that did not give them Moussa or El-Baradei, but the Muslim Brotherhood, who proceeded to behave badly, leading to them being overthrown by an new military dictatorship with a democratic veneer, basically a new improved version of the Mubarak regime, with the US supporting it, if somewhat reluctantly.

          Yes, this is all pretty depressing, but I must say that ultimately the Egyptians are responsible for what has gone down in their own nation. And even if those Egyptian commentators, whoever they actually are, are as angry about Obama as they are depicted as being, the fact is that Obama is still more popular there than was George W. Bush at the same time in his presidency, something all these US conservatives so enamored of this bizarre video seem to conveniently forget.

          Addenda, 5:10 PM:

          1) The people on that video come across almost like The Three Stooges, which highlights the comedic aspect that even fans of Obama are supposed to appreciate, although it does not add to the credibility of the remarks of those so carrying on like a bunch of clowns.

          2) Another reason Egyptians may be especially upset about the situation in Libya is that indeed Daesh has a foothold in a port city not too far from the Egyptian border in Surt, as reported as the top story today in the NY Times.

          3) Arguably once the rest of the world got in, the big problem was a failure to follow through with aiding establishing a central unified government, although that was always going to be a problem, something not recognized by all too many involved, including Abu Moussa. As it was once his proposal got going, it was then Sec. of State Hillary Clinton who was the main person leading the charge for the US to get in over the reluctance of Obama. This was probably her biggest mistake in all this, even though most Republicans think the irrelevant sideshow of the unfortunate incident in Benghazi is the big deal.

          4) Needless to say, Republican views at the time of the intervention were just completely incoherent, as symbolized at one point by Senator Lindsey Graham, who within the space of a single sentence simultaneously argued for the US to do nothing and also to go in full force with the proverbial "boots on the ground."

          Further Addendum, 7:10 PM:

          One of the pieces of evidence given that supposedly shows that the video is a spoof is that the supposed retired Brigadier General Mahmoud Mansour cannot be found if one googles his name, except in connection with this video. There are some other Egyptians named Mansour who show up, but this guy does not. However, it occurs to me that he might be for real, but simply obscure. After all, Brigadier is the lowest rank of General, one star, with Majors being two star, Lieutenants being three star (even though Majors are above Lieutenants), and with four and five star not having any other rank assigned to them. Furthermore, Egypt has a large military that has run the country for decades, so there may well be a lot of these Brigadier Generals, with many of them amounting to nothing. So, if he is for real, his claim to fame will be from jumping up and down, pounding on a table and calling for the overthrow of the POTUS.

          Barkley Rosser

          [Dec 02, 2015] An introduction to the geography of student debt

          Equitable Growth

          The geography of student debt is very different than the geography of delinquency. Take the Washington, D.C. metro region. In zip codes with high average loan balances (western and central Washington, D.C.), delinquency rates are lower. Within the District of Columbia, median income is highest in these parts of the city. Similar results–low delinquency rates in high-debt areas–can be seen for Chicago, as well. (See Figure 1.)

          ...What explains this relationship? There appear to be two possible, and mutually consistent, theories. First, although graduate students take out the largest student loans, they are able to carry large debt burdens thanks to their higher salaries post-graduation. Second, the rise in the number of students borrowing relatively small amounts for for-profit colleges has augmented the cumulative debt load, but because these borrowers face poor labor market outcomes and lower earnings upon graduation (if they do in fact graduate), their delinquency rates are much higher. This is further complicated by the fact that these for-profit college attendees generally come from lower-income families who may not be able to help with loan repayments.

          The inverse relationship between delinquency and income is not surprising, especially when considering that problems of credit access have disproportionately affected poor and minority populations in the past.

          ...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets.

          ...For user-friendliness, we assign each of these student debt scale variables a qualitative category. If average loan balance on the map is "somewhat high," for example, then it means that a zip code's average loan balance is between 25 and 35 percent higher than the national average of $24,271. Similarly, if the delinquency reads "very low," it corresponds to a scale level between 0.067 and 0.091. Figure 6 summarizes the relationship between each of the scale variables' levels and their qualitative description.

          [Dec 02, 2015] The False Promise of Meritocracy

          Dec 02, 2015 | The Atlantic
          Americans are, compared with populations of other countries, particularly enthusiastic about the idea of meritocracy, a system that rewards merit (ability + effort) with success. Americans are more likely to believe that people are rewarded for their intelligence and skills and are less likely to believe that family wealth plays a key role in getting ahead. And Americans' support for meritocratic principles has remained stable over the last two decades despite growing economic inequality, recessions, and the fact that there is less mobility in the United States than in most other industrialized countries.

          This strong commitment to meritocratic ideals can lead to suspicion of efforts that aim to support particular demographic groups. For example, initiatives designed to recruit or provide development opportunities to under-represented groups often come under attack as "reverse discrimination." Some companies even justify not having diversity policies by highlighting their commitment to meritocracy. If a company evaluates people on their skills, abilities, and merit, without consideration of their gender, race, sexuality etc., and managers are objective in their assessments then there is no need for diversity policies, the thinking goes.

          But is this true? Do commitments to meritocracy and objectivity lead to more fair workplaces?

          Emilio J. Castilla, a professor at MIT's Sloan School of Management, has explored how meritocratic ideals and HR practices like pay-for-performance play out in organizations, and he's come to some unexpected conclusions.

          In one company study, Castilla examined almost 9,000 employees who worked as support-staff at a large service-sector company. The company was committed to diversity and had implemented a merit-driven compensation system intended to reward high-level performance and to reward all employees equitably.

          But Castilla's analysis revealed some very non-meritocratic outcomes. Women, ethnic minorities, and non-U.S.-born employees received a smaller increase in compensation compared with white men, despite holding the same jobs, working in the same units, having the same supervisors, the same human capital, and importantly, receiving the same performance score. Despite stating that "performance is the primary bases for all salary increases," the reality was that women, minorities, and those born outside the U.S. needed "to work harder and obtain higher performance scores in order to receive similar salary increases to white men."

          [Dec 02, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

          All this neoliberal talk about "maximizing shareholder value" is designed to hide a redistribution mechanism of wealth up. Which is the essence of neoliberalism. It's all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Stock buybacks is a form of asset-stripping, similar to one practiced by buyout sharks, but practiced by internal management team. Who cares if the company will be destroyed if you have a golden parachute ?
          Notable quotes:
          "... By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street . ..."
          "... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
          "... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
          "... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
          "... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
          "... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
          "... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
          "... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
          "... Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse? ..."
          "... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
          "... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
          "... buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities. ..."
          "... Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad. ..."
          "... One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock? ..."
          "... Dumping money into R D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R D cash is hidden inside M A. M A is up 2-3 years in a row. ..."
          November 21, 2015 | naked capitalism

          By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

          Magic trick turns into toxic mix.

          Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

          And there's a reason.

          IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

          Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

          "Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

          In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

          DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

          In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

          And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

          CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

          "None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

          Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

          This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

          Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

          Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

          "Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

          But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

          Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

          Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned:

          Mbuna, November 21, 2015 at 7:31 am

          Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

          ng, November 21, 2015 at 8:58 am

          probably, in some or most cases, but the effect on the stock is the same.

          Alejandro, November 21, 2015 at 9:19 am

          Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).

          On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

          Jim, November 21, 2015 at 10:42 am

          More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.

          "Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."

          Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.

          Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?

          John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.

          Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

          NeqNeq, November 21, 2015 at 11:44 am

          One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r&d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock?

          Dumping cash into plants only makes sense in the places where the market is growing. For many years that has meant Asia (China). For example, Apple gets 66% (iirc) of revenue from Asia, and that is where they have continued investing in growth. If demand is slowing and costs are rising, and it looks like both are true, why would you put even more money in?

          Dumping money into R&D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R&D cash is hidden inside M&A. M&A is up 2-3 years in a row.

          [Dec 02, 2015] Larry Summers and the Subversion of Economics

          Notable quotes:
          "... As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws. ..."
          "... Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.) ..."
          "... In 2005, at the annual Jackson Hole, Wyo., conference of the worlds leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other peoples money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a full-blown financial crisis and a catastrophic meltdown. When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a Luddite, dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.) ..."
          "... Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And its due not just to ideology; its also about straightforward, old-fashioned money. ..."
          "... Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Departments Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates. ..."
          "... I think it is interesting that Summers led the financial deregulation efforts of the Clinton administration and then made a bundle on Wall Street. I think that should be taken into account when evaluating his discussions of economics. ..."
          "... It is difficult to get a man to understand something when his salary depends upon his not understanding it. ..."
          economistsview.typepad.com

          RGC, December 02, 2015 at 06:09 AM

          Larry Summers and the Subversion of Economics

          By Charles Ferguson October 03, 2010

          The Obama administration recently announced that Larry Summers is resigning as director of the National Economic Council and will return to Harvard early next year. His imminent departure raises several questions: Who will replace him? What will he do next? But more important, it's a chance to consider the hugely damaging conflicts of interest of the senior academic economists who move among universities, government, and banking.

          Summers is unquestionably brilliant, as all who have dealt with him, including myself, quickly realize. And yet rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy. For the past two years, I have immersed myself in those worlds in order to make a film, Inside Job, that takes a sweeping look at the financial crisis. And I found Summers everywhere I turned.

          Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws.

          After Summers left the Clinton administration, his candidacy for president of Harvard was championed by his mentor Robert Rubin, a former CEO of Goldman Sachs, who was his boss and predecessor as treasury secretary. Rubin, after leaving the Treasury Department-where he championed the law that made Citigroup's creation legal-became both vice chairman of Citigroup and a powerful member of Harvard's governing board.

          Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.)

          Summers remained close to Rubin and to Alan Greenspan, a former chairman of the Federal Reserve. When other economists began warning of abuses and systemic risk in the financial system deriving from the environment that Summers, Greenspan, and Rubin had created, Summers mocked and dismissed those warnings. In 2005, at the annual Jackson Hole, Wyo., conference of the world's leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people's money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a "full-blown financial crisis" and a "catastrophic meltdown."

          When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a "Luddite," dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.)

          Soon after that, Summers lost his job as president of Harvard after suggesting that women might be innately inferior to men at scientific work. In another part of the same speech, he had used laissez-faire economic theory to argue that discrimination was unlikely to be a major cause of women's underrepresentation in either science or business. After all, he argued, if discrimination existed, then others, seeking a competitive advantage, would have access to a superior work force, causing those who discriminate to fail in the marketplace. It appeared that Summers had denied even the possibility of decades, indeed centuries, of racial, gender, and other discrimination in America and other societies. After the resulting outcry forced him to resign, Summers remained at Harvard as a faculty member, and he accelerated his financial-sector activities, receiving $135,000 for one speech at Goldman Sachs.

          Then, after the 2008 financial crisis and its consequent recession, Summers was placed in charge of coordinating U.S. economic policy, deftly marginalizing others who challenged him. Under the stewardship of Summers, Geithner, and Bernanke, the Obama administration adopted policies as favorable toward the financial sector as those of the Clinton and Bush administrations-quite a feat. Never once has Summers publicly apologized or admitted any responsibility for causing the crisis. And now Harvard is welcoming him back.

          Summers is unique but not alone. By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government. What few Americans realize is that the revolving door is now a three-way intersection. Summers's career is the result of an extraordinary and underappreciated scandal in American society: the convergence of academic economics, Wall Street, and political power.

          Starting in the 1980s, and heavily influenced by laissez-faire economics, the United States began deregulating financial services. Shortly thereafter, America began to experience financial crises for the first time since the Great Depression. The first one arose from the savings-and-loan and junk-bond scandals of the 1980s; then came the dot-com bubble of the late 1990s, the Asian financial crisis; the collapse of Long Term Capital Management, in 1998; Enron; and then the housing bubble, which led to the global financial crisis. Yet through the entire period, the U.S. financial sector grew larger, more powerful, and enormously more profitable. By 2006, financial services accounted for 40 percent of total American corporate profits. In large part, this was because the financial sector was corrupting the political system. But it was also subverting economics.

          Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money.

          Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Department's Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates.

          In my film you will see many famous economists looking very uncomfortable when confronted with their financial-sector activities; others appear only on archival video, because they declined to be interviewed. You'll hear from:

          • Martin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration, president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation.
          • Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration, dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender, from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives as improving the stability of both financial markets and the wider economy.
          • Frederic Mishkin, a professor at the Columbia Business School, and a member of the Federal Reserve Board from 2006 to 2008. He was paid $124,000 by the Icelandic Chamber of Commerce to write a paper praising its regulatory and banking systems, two years before the Icelandic banks' Ponzi scheme collapsed, causing $100-billion in losses. His 2006 federal financial-disclosure form listed his net worth as $6-million to $17-million.
          • Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000 per year.
          • Richard Portes, a professor at London Business School and founding director of the British Centre for Economic Policy Research, paid by the Icelandic Chamber of Commerce to write a report praising Iceland's financial system in 2007, only one year before it collapsed.
          • And John Campbell, chairman of Harvard's economics department, who finds it very difficult to explain why conflicts of interest in economics should not concern us.

          But could he be right? Are these professors simply being paid to say what they would otherwise say anyway? Unlikely. Mishkin and Portes showed no interest whatever in Iceland until they were paid to do so, and they got it totally wrong. Nor do all these professors seem to make policy statements contrary to the financial interests of their clients. Even more telling, they uniformly oppose disclosure of their financial relationships.

          The universities avert their eyes and deliberately don't require faculty members either to disclose their conflicts of interest or to report their outside income. As you can imagine, when Larry Summers was president of Harvard, he didn't work too hard to change this.

          Now, however, as the national recovery is faltering, Summers is being eased out while Harvard is welcoming him back. How will the academic world receive him? The simple answer: Better than he deserves.

          While making my film, we wrote to the presidents and provosts of Harvard, Columbia, and other universities with detailed questions about their conflict-of-interest policies, requesting interviews about the subject. None of them replied, except to refer us to their Web sites.

          Academe, heal thyself.

          http://chronicle.com/article/Larry-Summersthe/124790/

          EMichael said in reply to RGC...
          Yeah, after an economist has had one job in the government; one job in the banking system; and one teaching job he should be required to stop working as an economist.
          RGC said in reply to EMichael...
          I think it is interesting that Summers led the financial deregulation efforts of the Clinton administration and then made a bundle on Wall Street. I think that should be taken into account when evaluating his discussions of economics.
          EMichael said in reply to RGC...
          Of course it should.

          At the same time this is not taking anything into account, this is about "subverting" economics.

          Can you make a case that the only reason Summers made a "bundle" working on Wall Street is because of the financial deregulation efforts he made? Last time I looked he did not have a vote on the legislation.

          RGC said in reply to EMichael...
          I think this is especially troubling for the economics profession:

          "Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money."

          EMichael said in reply to RGC...
          Cause no economists actually believed in any of the policies that caused all of those things nor did any economist fail to vote for the policies adopted.
          RGC said in reply to EMichael...
          Upton Sinclair:

          "It is difficult to get a man to understand something when his salary depends upon his not understanding it."

          Tom aka Rusty said in reply to RGC...

          As Hemingway and F. SCott Fitzgerald exchanged in their writings (the reputed face-to-face conversation may not have happened):

          The rich are different.

          Yes, they have more money.

          Combine elite and rich and you get a toxic combination.

          [Dec 01, 2015] US Intervention Before And After

          Zero Hedge
          WhackoWarner

          Before death in Libya....Ghadaffi's crime was in "not playing along and selling out". Kinda like Iraq and all. They all should just hand over everything and say thanks...but they did not . There is disinfo on both sides, But the "madman" and people who actually live there never seem to make the NYTimes.

          "For 40 years, or was it longer, I can't remember, I did all I could to give people houses, hospitals, schools, and when they were hungry, I gave them food. I even made Benghazi into farmland from the desert, I stood up to attacks from that cowboy Reagan, when he killed my adopted orphaned daughter, he was trying to kill me, instead he killed that poor innocent child. Then I helped my brothers and sisters from Africa with money for the African Union.

          I did all I could to help people understand the concept of real democracy, where people's committees ran our country. But that was never enough, as some told me, even people who had 10 room homes, new suits and furniture, were never satisfied, as selfish as they were they wanted more. They told Americans and other visitors, that they needed "democracy" and "freedom" never realizing it was a cut throat system, where the biggest dog eats the rest, but they were enchanted with those words, never realizing that in America, there was no free medicine, no free hospitals, no free housing, no free education and no free food, except when people had to beg or go to long lines to get soup.

          No, no matter what I did, it was never enough for some, but for others, they knew I was the son of Gamal Abdel Nasser, the only true Arab and Muslim leader we've had since Salah-al-Deen, when he claimed the Suez Canal for his people, as I claimed Libya, for my people, it was his footsteps I tried to follow, to keep my people free from colonial domination - from thieves who would steal from us.

          Now, I am under attack by the biggest force in military history, my little African son, Obama wants to kill me, to take away the freedom of our country, to take away our free housing, our free medicine, our free education, our free food, and replace it with American style thievery, called "capitalism," but all of us in the Third World know what that means, it means corporations run the countries, run the world, and the people suffer. So, there is no alternative for me, I must make my stand, and if Allah wishes, I shall die by following His path, the path that has made our country rich with farmland, with food and health, and even allowed us to help our African and Arab brothers and sisters to work here with us, in the Libyan Jamahiriya.

          I do not wish to die, but if it comes to that, to save this land, my people, all the thousands who are all my children, then so be it.

          Let this testament be my voice to the world, that I stood up to crusader attacks of NATO, stood up to cruelty, stood up to betrayal, stood up to the West and its colonialist ambitions, and that I stood with my African brothers, my true Arab and Muslim brothers, as a beacon of light. When others were building castles, I lived in a modest house, and in a tent. I never forgot my youth in Sirte, I did not spend our national treasury foolishly, and like Salah-al-Deen, our great Muslim leader, who rescued Jerusalem for Islam, I took little for myself...

          In the West, some have called me "mad", "crazy", but they know the truth yet continue to lie, they know that our land is independent and free, not in the colonial grip, that my vision, my path, is, and has been clear and for my people and that I will fight to my last breath to keep us free, may Allah almighty help us to remain faithful and free.

          Kirk2NCC1701
          "they hate us for our freedoms"

          No, "They hate us for our freebombs" that we keep delivering.

          Suppose you lived in a town that was run by a ruthless Mafioso boss. Sure he was ruthless to troublemakers and dissenters, but if you went about your business (and paid your taxes/respects to him), life was simple but livable, and crime was negligible.

          Now imagine that a crime Overlord came from another country and decided to wreck the town, just to remove your Mafioso Don. In the process, your neighborhood and house were destroyed, and you lost friends and family.

          Now tell me that YOU would not make it YOUR life's mission to bring these War Criminals to justice -- by any and all means necessary. And tell me that these same Criminals could not have foreseen all this. Now say it again - but with a straight face. I dare you. I fucking double-dare you!

          Max Cynical
          US exceptionalism!
          GhostOfDiogenes
          The worst one, besides Iraq, is Libya.

          The infrastructure we destroyed there is unimaginable.

          Sure Iraq was hit the worst, and much has been lost there....but Libya was a modern arab oasis of a country in the middle of nothing.

          We destroyed in a few days what took decades to build.

          This is why I am not proud of my country, nor my military.

          In fact, I would like to see Nuremberg type trials for 'merican military leaders and concentration gulags for the rest of enlisted. Just like they did to Germany.

          Its only proper.

          GhostOfDiogenes
          The USA did this murder of Libya and giving ownership to the people who did '911'? What a joke. http://youtu.be/aJURNC0e6Ek
          Bastiat
          Libya under Ghadaffi: universal free college education, free healthcare, free electricity. interest free loans. A very bad example of how a nation's wealth is to be distributed!
          CHoward
          The average American has NO idea how much damage is being done in this world - all in the name of Democracy. Unbelivable and truly pathetic. Yet - most sheeple still believe ISIS and others hate us because of our "freedoms" and i-pods. What bullshit.
          Bioscale
          Czech public tv published a long interview in English with Asad, it was filmed in Damascus some days ago.Very unusual thing, actually. Terrorism being transported by US, Turkey and France to Syria is being openly debated. http://www.ceskatelevize.cz/ct24/svet/1628712-asad-pro-ct-rebelove-jsou-...

          Overfed

          Compare and contrast Assad, giving an interview very well in a second language, with O'bomb-a, who can't even speak to school children without a teleprompter. Sad.

          Razor_Edge

          Along with President Putin, Dr al Assad is consistently the most sane, rational and clearly honest speaker on the tragedy of Syria. By contrast, our satanic western leaders simply lie outrageously at all times. How do we know? Their lips are moving. They also say the most absurd things.

          We in the west may think that at the end of the day, it's not going to harm us, so why discomfort ourselves by taking on our own elites and bringing them down. But I believe that an horrific future awaits us, one we richly deserve, because we did not shout stop at this ocean of evil bloodshed being spilt in our names. We pay the taxes that pay for it, or at least in my countrys case, (traditional policy of military neutrality), we facilitate the slaughter (troop transports through Shannon airport), or fail to speak out for fear it may impact FDI into Ireland, (largest recipient of US FDI in the world).

          We are our brothers keepers, and we are all one. It is those who seek to separate us to facilitate their evil and psychopathic lust for power and money, who would have us beieve that "the other" is evil. Are we really so simple minded or riven by fear that we cannot see through the curtain of the real Axis of Evil?

          Demdere

          Israeli-neocon strategy is to have the world's economy collapse at the point of maximum war and political chaos.

          Then they can escape to Paraguay. Sure as hell, if they stay here, we are going to hang them all. Treasonous criminals for the 9/11 false flag operation.

          By 2015, every military and intelligence service and all the think tanks have looked at 9/11 carefully. Anyone who looks at the evidence sees that it was a false flag operation, the buildings were destroyed via explosives, the planes and evil Arab Muslims were show. Those agencies reported to their civilian leaders, and their civilian leaders spread the information through their societies.

          So all of the politically aware people in the world, including here at home, KNOW that 9/11 was a false flag operation, or know that they must not look at the evidence. Currently, anyone who disagrees in MSM is treated as invisible, and I know of no prominent bloggers who have even done the bits of extention of 'what it must mean' that I have done.

          But it certainly means high levels of distrust for the US and for Israel. It seems to me that World Domination is not possible, because the world won't let you, and the means of opposition are only limited by the imaginations of the most creative, intelligent and knowledgable people. We don't have any of those on our side any more.

          L Bean

          In their farcical quest to emulate the Roman empire...

          Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant - Tacitus

          They plunder, they slaughter, and they steal: this they falsely name Empire, and where they make a wasteland, they call it peace.

          [Dec 01, 2015] The New Supply-Side Economics

          Economist's View
          reason: December 01, 2015 at 07:27 AM

          Sanjait

          I think it is perfectly clear that a secular policy of increasing private indebtedness is not indefinitely extendable. Sure, if we had printed money in the past and kept monetary policy relatively tight (or otherwise managed the international financial system so that large persistent balance of payments deficits were not tolerated) we wouldn't have got in the mess we are in. But once we are there just trying to get over-indebted people to take on more debt doesn't seem like a winning strategy.

          http://crookedtimber.org/2015/11/29/secular-stagnation-and-the-financial-sector/comment-page-3/#comment-650710

          EMichael said in reply to reason... December 01, 2015 at 07:34 AM

          I see no real increase in private indebtedness.

          The problem with the financial system is what lies behind lending.

          reason: December 01, 2015 at 07:36 AM

          Avraam Jack Dectis
          Not bad.
          But

          1. asset taxes are tricky things to run (many assets aren't traded and the prices of other assets are very volatile). And there is the problem of offshore ownership and offshore assets, so it requires international co-operation.

          2. This takes a very closed economy view of things - the trade deficit might end up affecting the trade balance and hence the flow of assets into and out of the country, and eventually also the terms of trade. You should think through how such a policy would work in say - Luxembourg.

          reason:

          EMichael

          You see no increase in private indebtedness - when do you mean? If you mean now - then yes - that is exactly why the economy is so sluggish. Where is the increase in demand going to come from if the country is running a trade deficit, is not increasing its borrowing and is committed to reducing its government deficit?

          [Nov 30, 2015] Is Balanced Growth Really the Answer

          Notable quotes:
          "... I can only add, that our economic system already redistributes income upward to capital and management, whose contribution to productivity is far below what they are paid. ..."
          "... That's the idea of neoliberal transformation of society that happened since 80th or even earlier. Like John Kenneth Galbraith noted "Trickle-down theory is the less than elegant metaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows" ..."
          "... "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." John Kenneth Galbraith, The Great Crash of 1929 ..."
          "... Just as was the case with his work on financial instability, Hyman Minsky's analysis of the problems of poverty and inequality in a capitalist economy, as well as his understanding of the political dysfunctions that would result from treating these problems in the wrong way, were prophetic. See this piece by Minksy's student L. Randall Wray, especially Section 2: http://www.levyinstitute.org/pubs/wp_515.pdf ..."
          "... it is unjust to tell the poor that they must change before they will be entitled to work-whether it is their skills set or their character that is the barrier to work... Minsky always argued that it is preferable to "take workers as they are," providing jobs tailored to the characteristics of workers, rather than trying to tailor workers to the jobs available before they are allowed to work ..."
          "... Further, NIT (and other welfare programs) would create a dependent class, which is not conducive to social cohesion (Minsky 1968). Most importantly, Minsky argued that any antipoverty program must be consistent with the underlying behavioral rules of a capitalist economy (Minsky no date, 1968, 1975a). One of those rules is that earned income is in some sense deserved. ..."
          "... This misreads the politics. People who are disconnected from the job market very easily get disconnected from the political process. They don't vote. ..."
          "... 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. ..."
          "... Never say never. There some stationary points at which equilibrium probably exists for a short period of time. But as the whole system has positive feedback loop built-in and is unstable by definition. So you are right in a sense that disequilibrium is the "normal" state of such a system and equilibrium is an exception. ..."
          "... And the problem is more growth, is more growth is a trick we cannot always do in a finite resource technologically sophisticated world. (At least not growth as it is currently seen.) We need to start thinking in much longer term time scales. Saying that we have enough oil for 30 years, is not optimistic - it is an imminent crisis - or do we want our grandchildren to see the end of the world? ..."
          Nov 30, 2015 | Economist's View

          DrDick said...

          "then more growth will simply lead to even more inequality."

          Which is exactly what we have seen for the past 40 years, Great analysis here. I can only add, that our economic system already redistributes income upward to capital and management, whose contribution to productivity is far below what they are paid.

          ikbez -> DrDick...

          "then more growth will simply lead to even more inequality."

          That's the idea of neoliberal transformation of society that happened since 80th or even earlier. Like John Kenneth Galbraith noted "Trickle-down theory is the less than elegant metaphor that if one feeds the horse enough oats, some will pass through to the road for the sparrows"

          And another relevant quote:

          "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." John Kenneth Galbraith, The Great Crash of 1929

          anne -> likbez...

          "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." John Kenneth Galbraith, The Great Crash of 1929

          [ Perfect. ]

          Dan Kervick, November 30, 2015 at 11:12 AM

          Just as was the case with his work on financial instability, Hyman Minsky's analysis of the problems of poverty and inequality in a capitalist economy, as well as his understanding of the political dysfunctions that would result from treating these problems in the wrong way, were prophetic. See this piece by Minksy's student L. Randall Wray, especially Section 2: http://www.levyinstitute.org/pubs/wp_515.pdf

          The centerpiece of Minsky's preferred approach was based on a government commitment to "tight full employment". He believed that neither human capital investment, economic growth, nor redistribution would be sufficient on their own to address the problem.

          As part of the critique of the human capital approach, Minsky argued that:

          "it is unjust to tell the poor that they must change before they will be entitled to work-whether it is their skills set or their character that is the barrier to work... Minsky always argued that it is preferable to "take workers as they are," providing jobs tailored to the characteristics of workers, rather than trying to tailor workers to the jobs available before they are allowed to work (Minsky 1965, 1968, 1973)."

          Minsky accurately foresaw the way in which a welfare approach to poverty, as opposed to a full employment approach, would politically divide working people among themselves:

          "Further, NIT (and other welfare programs) would create a dependent class, which is not conducive to social cohesion (Minsky 1968). Most importantly, Minsky argued that any antipoverty program must be consistent with the underlying behavioral rules of a capitalist economy (Minsky no date, 1968, 1975a). One of those rules is that earned income is in some sense deserved."

          "With the perspective of the 1980s and 1990s now behind us, it is hard to deny Minsky's arguments-President Reagan successfully turned most Americans against welfare programs and President Clinton finally "eliminated welfare as we know it." According to Minsky, a successful antipoverty program will need to provide visible benefits to the average taxpayer."

          We can note that this political problem has only gotten worse, as can be seen from the deepening ugliness of our domestic politics, and the poll results that MacGillis cites.

          Minsky also understood the unhealthy political and economic dynamics of an undirected aggregate demand approach to poverty, and promoted, following ideas of Keynes, a measure of socialized investment and direct job creation:

          "Minsky feared that using demand stimulus to reduce poverty would necessarily lead to "stop-go" policy. Expansion would fuel inflation, causing policy makers to reverse course to slow growth in order to fight inflation (Minsky 1965, 1968). Because wages (and prices) in leading sectors would rise in expansion, but could resist deflationary pressures in recession, there would be an upward bias to rising wages in those sectors. However, in the lagging sectors, wage increases would come slowly-only with adequate tightening of labor markets -- and could be reversed in recession. Hence, Minsky argued that a directed demand policy would be required-to raise demand in the lagging sectors and for low wage and unemployed workers. For this reason, he concluded that a direct job creation program would be required."

          All this adds up to a more activist role for the government sector.

          likbez -> Dan Kervick...

          My impression is that "human capital" is one of the most fundamental neoliberal myths. See, for example What Exactly Is Neoliberalism by Wendy Brown https://www.dissentmagazine.org/blog/booked-3-what-exactly-is-neoliberalism-wendy-brown-undoing-the-demos

          As for people betraying their own economic interests, this phenomenon was aptly described in "What's the matter with Kansas" which can actually be reformulated as "What's the matter with the USA?". And the answer he gave is that neoliberalism converted the USA into a bizarre high demand cult. There are several characteristics of a high demand cult that are applicable. Among them:

          • "The group is preoccupied with making money."
          • "Questioning, doubt, and dissent are discouraged or even punished."
          • "Mind-numbing techniques (for example: meditation, chanting, speaking in tongues, debilitating work routines) are used to suppress doubts about the group or its leader(s)." Entertainment and, especially sport events in the US society serves the same role.
          • "The group's leadership dictates – sometimes in great detail – how members should think, act, and feel." Looks like this part of brainwashing is outsourced to economy departments ;-)
          • "The group is elitist, claiming a special, exalted status for itself, its leader(s), and members (for example the group and/or the leader has a special mission to save humanity)."
          • "The group has a polarized, "we-they" mentality that causes conflict with the wider society."
          • "The group's leader is not accountable to any authorities (as are, for example, clergy with mainstream denominations)."
          • "The group teaches or implies that its supposedly exalted ends justify means (for example: collecting money for bogus charities) that members would have considered unethical before joining."
          • "The group's leadership induces guilt feelings in lower members for the lack of achievement in order to control them."
          • "Members are expected to devote inordinate amounts of time to the group."
          • "Members are encouraged or required to live and/or socialize only with other group members."

          It is very difficult to get rid of this neoliberal sect mentality like is the case with other high demand cults.

          cm -> likbez...

          What has any of this to do with human capital? "Capital" is basically a synonym for productive capacity, with regard to what "productive" means in the socioeconomic system or otherwise the context that is being discussed.

          E.g. social or political capital designates the ability (i.e. capacity) to exert influence in social networks or societal decision making at the respective scales (organization, city, regional, national etc.), where "productive" means "achieving desired or favored outcomes for the person(s) possessing the capital or for those on whose behalf it is used".

          Human capital, in the economic domain, is then the combined capacity of the human population in the domain under consideration that is available for productive endeavors of any kind. This includes BTW e.g. housewives and other household workers whose work is generally not paid, but you better believe it is socially productive.

          likbez -> cm...

          "Human capital, in the economic domain, is then the combined capacity of the human population in the domain under consideration that is available for productive endeavors of any kind. This includes BTW e.g. housewives and other household workers whose work is generally not paid, but you better believe it is socially productive."

          This is not true. The term "human capital" under neoliberalism has different semantic meaning: it presuppose viewing a person as a market actor.

          See the discussion of the term in http://www.jceps.com/wp-content/uploads/PDFs/10-1-07.pdf

          kthomas

          "...it's driven be resentment..."

          No, its driven by racism. White trash will take with one hand, then walk right into a voting both and screw themselves because they think they sticking it to blacks, mexicans, gays, etc.

          Syaloch -> kthomas...

          Racism is certainly part of it, but it's really more fundamental than that.

          "This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages."

          Adam Smith, The Theory of Moral Sentiments

          http://knarf.english.upenn.edu/Smith/tms133.html

          cm -> kthomas...

          What is racism if not an expression of resentment?

          bakho said...

          This misreads the politics. People who are disconnected from the job market very easily get disconnected from the political process. They don't vote. The people who do have jobs and are worried about keeping them and being paid too little are voting against the "losers" who they see as parasites. Never mind that the Malefactors of Great Wealth are the true parasites. Elections in the US are won or lost on voter turnout.

          The Rage said...

          I guess it depends on what kind of economy you want.

          Growth of all kinds is not good. The 2001-2007 "growth" was badly constructed. I think America itself is in a bad rut....and has been since 1974. That itself will not be popular. The consensus belief was everything was rosy up until 2001. That is lie. They used to have a saying "nothing really happens on the X-files anymore". It really applies to America since 1974. It goes beyond "inequality".

          I mean, we could have 3% wage growth in 2016 and 4% wage growth in 2017. That doesn't mean a damn thing for a economy's health. The infrastructure is bad. It shows up in pop culture apathy.

          pgl -> The Rage...

          "The 2001-2007 "growth" was badly constructed."

          Glenn Hubbard might quarrel with this. He was well constructed for George W. Bush's base - rich people.

          On the whole - great comment!!!

          cm -> The Rage...

          The Y2K/dotcom boom unraveled in 2000, but not all at once. It is difficult to impossible to disentagle the boundary between dotcom bust, 9/11 and the prolonged reaction to it, and the start of the Bush presidency (and the top policymaking figures that came with that, I don't want to necessarily tie it to Bush himself).

          At the same time, the global rollout of the internet, telecommunication, (start of) commodity videoconferencing, broadband and realtime data exchange, etc. enabled the outsourcing and offshoring of large and growing segments of blue and white collar jobs, and much increased fungibility of variously skilled labor altogether.

          On that foundation, a lot of things will appear as badly constructed. Or from a different angle, given that foundation, how would you arrange for things to be well constructed?

          likbez -> cm...

          I would view 9/11 as a perfect cure for dot-com bust. Soon after invasion of Iraq stock market returned to almost precrash levels. War is the health of stock market. And since probably 1998 nobody cared about real economy anyway.

          Also housing boom started around this period as conscious, deliberate effort of Fed to blow the bubble to cure the consequences of the crash at all costs and face the day of reckoning later (without Mr. Greenspan at the helm)

          reason said...

          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.

          Lafayette -> reason...

          I could not agree more. A Market-Economy is a dynamic in constant disequilibrium, changing positively and negatively around a mean. The mean is very rarely an "equilibrium".

          likbez -> reason...

          Never say never. There some stationary points at which equilibrium probably exists for a short period of time. But as the whole system has positive feedback loop built-in and is unstable by definition. So you are right in a sense that disequilibrium is the "normal" state of such a system and equilibrium is an exception.

          reason said...

          And the problem is more growth, is more growth is a trick we cannot always do in a finite resource technologically sophisticated world. (At least not growth as it is currently seen.) We need to start thinking in much longer term time scales. Saying that we have enough oil for 30 years, is not optimistic - it is an imminent crisis - or do we want our grandchildren to see the end of the world?

          [Nov 30, 2015] Secular stagnation and the financial sector

          Notable quotes:
          "... Surely the answer is "risk transfer" ..."
          "... Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree. ..."
          "... the FIRE sector in particular, are parasitic on the economy. ..."
          "... Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth? ..."
          "... As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts." ..."
          "... Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)? ..."
          "... The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary. ..."
          "... "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision." ..."
          "... My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it. ..."
          November 29, 2015 | Crooked Timber

          In my last post on private infrastructure finance and secular stagnation, I suggested a bigger argument that

          The financialization of the global economy has produced a hugely costly financial sector, extracting returns that must, in the end, be taken out of the returns to investment of all kinds. The costs were hidden during the pre-crisis bubble era, but are now evident to everyone, including potential investors. So, even massively expansionary monetary policy doesn't produce much in the way of new private investment.
          This isn't an original idea. The Bank of International Settlements put out a paper earlier this year arguing that financial sector growth crowds out real growth. But how does this work and what can be done about it? I'm still organizing my thoughts on this, so what I have are some ideas rather than a fully formed argument.

          First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?

          There are a few possible explanations

          (a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

          (b) Tax evasion: the global financial sector allows corporations to greatly reduce their tax liabilities. Most of the savings in tax is captured in the financial sector itself, but the amount flowing to corporations is sufficient to offset the high costs of the modern financial sector, relative to (for example) old-style bank finance and simple corporate structures financed by debt and equity

          (c) Volatility: the financialization of the economy has produced greatly increased volatility (in exchange rates, asset prices and so on). The financial sector amplifies and profits from this volatility, partly through regulatory arbitrage, and partly through entrenched and systematic fraud as in the LIBOR and Forex scandals.

          (d) Political capture: The financial sector controls political outcomes in both traditional ways (political donations, highly revolving door jobs for future and former politicians) and through the ideology of market liberalism, which is perfectly designed to support policies supporting the financial sector, while discrediting policies traditionally sought by other parts of the corporate sector, such as protection for manufacturing industry. The shift to private finance for infrastructure, discussed in the previous post is part of this. The construction part of the infrastructure sector (which was always private) has suffered from the reduced flow of projects, but the finance part (previously managed through government bonds) has benefited massively.

          The result of all this is that the financial sector benefits from an evolutionary strategy similar to that of an Australian eucalypt forest. Eucalypts are both highly flammable (they generate lots of combustible oil) and highly fire resistant. So eucalypt forests are subject to frequent fires which kill competing species, and allow the eucalypts to extend their range.

          dsquared 11.29.15 at 1:24 pm

          Surely the answer is "risk transfer". The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision. Their role is to provide insurance to the rest of society and this is what they did – in fact, they provided too much of it, with too little capital which is why they went bust, and why their bankruptcy was so disastrous (there's nothing worse than an insurer bankruptcy, because it hits you with a big loss at exactly the worst time). I think c) above is particularly unconvincing, as the biggest stylised feature of the period of financialisation was the Great Moderation – in fact, the financial sector stored up volatility that would otherwise have been experienced by other people, including the intermediation of some genuinely historically massive imbalances associated with the industrialisation of China, and stored it up until it couldn't hold any more and exploded.

          I also don't think LIBOR and FX fit into that pattern at all very well either. Financial systems have two kinds of problem, which is why they often have two kinds of regulators. They have prudential problems and conduct problems. Both LIBOR and FX were old-fashioned profiteering and cartel arrangements, which could happen in any industry (hey let's talk about drug pricing and indeed university tuition some time). In actual fact, as I wrote a while ago, it's only LIBOR that can really be considered a scandal – FX was very much more a case of customers who wanted the benefits of tight regulation but didn't want to pay for them, and were lucky enough to find a political moment in which the time was right for an otherwise very unpromising case.

          In other words, the answer to all your questions is "leverage". That's why financial systems grew so fast, that's why they're associated with poor economic performance, and that's why they tend to show up in periods of secular stagnation – a secular stagnation is almost defined as a period during which people try to maintain their standard of living by borrowing. Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment.

          [1] I am never going to shut up about this. The real estate bubble was a policy-created bubble. It was blown up in real time and intentionally, by a Federal Reserve which wanted to cushion the blow of the tech bust. If the financial sector had refused to finance it, the financial sector would have been trying to run a monetary policy directly opposed to that of the central bank.

          John Quiggin 11.29.15 at 1:55 pm 2

          I agree that risk transfer is a big deal. On the other hand, it's not obvious that the financial sector did a lot to insure households against most of the additional risk, or that the Great Moderation corresponded to a reduction in the volatility faced by households. On the first point, despite massive financial innovation since 1980, the set of financial instruments easily available to households hasn't changed all that much. Most obviously, there's no insurance against bad employment and wage outcomes and home equity insurance hasn't really happened either.

          Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree.

          The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

          Eggplant 11.29.15 at 2:04 pm, 3

          (e) Principle-agent problem.
          (f) Implicit government backing allowing the underpricing of risk.

          dsquared 11.29.15 at 2:32 pm. 4

          Yeah, that's my point – the massive extension of credit to households was the financial sector's role in the big policy shift. At the end of the day, although we might with the benefit of hindsight agree that "subprime mortgages with no income verification at teaser rates" were a pretty stupid product that should never have been offered, they were a brand new financial product that had never been offered to households before! Even the example you mention – "insurance against bad employment and wage outcomes" – was sort of sold, albeit that what I'm referring to here is Payment Protection Insurance in the UK, which sort of underlines that it wasn't done well or responsibly.

          I guess my argument here is that it's the combination of deregulation and stagnation that was necessary to create the 2000s policy disaster. But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector. Because the high debt levels were a policy goal (or at least, were the inevitable and forseeable consequence of trying to do demand management without fiscal policy), and as I keep saying in different contexts, you can't get to a stupid debt ratio by only doing sensible things.

          The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

          Isn't the answer to this just the definition of a Keynesian recession? Investment hasn't responded to monetary policy because there's no interest rate at which it makes sense to produce goods that can't be sold.

          DrDick 11.29.15 at 2:32 pm 5

          Capital generally, and the FIRE sector in particular, are parasitic on the economy. They provide some minimal benefits if kept strongly in check, but quickly become destructive if allowed to grow unchecked, as they have now.

          Eggplant 11.29.15 at 2:37 pm 6

          (g) Rising inequality leading to an ever increasing savings glut, providing the financial industry with a target-rich environment.

          yastreblyansky 11.29.15 at 3:22 pm, 7

          Dumb outsider thought, turning Eggplant @6 upside down: What about r > g? Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth?

          T 11.29.15 at 3:31 pm, 8

          "But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector."

          A more sophisticated version of the widely debunked theory that Fannie and Freddie blew up the housing sector by giving loans to poor people. Rule 1: It's never ever the bankers' fault. Rule 2: see Rule 1. At least d-squared has been consistent…

          Or maybe there has been a systematic continuous effort to use political influence to garner rents by gutting both the regulatory and judicial constraints on their behavior. http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

          yastreblyansky 11.29.15 at 3:35 pm, 9

          Or rather through which rent-claimers concentrate wealth (@t) bringing long-term low growth.

          bjk 11.29.15 at 3:43 pm, 10

          Which direction is financialization heading? It looks to be decreasing. The mutual fund industry is in terminal decline, losing market share to ETFs. There are fewer financial advisors today than in 2008, yet the number of millionaires has increased. Stock trading has broken a 40 year trend of increasing volumes. Electronic and exchange trading of bonds and derivatives is increasing, driving down margins. Bots have driven human traders out of jobs (Dark Pools has a good account of this). Banks are earnings low single digit returns in their trading divisions, which suggests they will be shut down if things don't improve. It looks like finance is doing a good job of shrinking itself, with a little help from Elizabeth Warren.

          T 11.29.15 at 4:50 pm, 16

          There were several issues and arguments posed in the OP. I'm addressing this:

          "First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?
          There are a few possible explanations

          (a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts."

          D-squared response is of course it's the risk transfer. That flat out contradicts JQ, but d-squared is a master of the straight face. And then he proceeds - "there has been a decision to desocilaize"; "the financial sector was obviously the conduit for this policy decision"; and "the real estate bubble was a policy-created bubble."

          So JQ, here's your answer of FIRE's ascendancy from an insider: You know me and my friends were standing around just doing nothin' and then these policy guys come around. Next thing ya know, we've doubled our share of GDP and put our bosses in the top 0.01%. Who woulda known? Crazy shit, huh? Hey and if anyone asks, tell 'um "risk transfer." And if they press, tell 'um "secular stagnation." In fact, tell 'um frickin' anything. It just wasn't our fault.

          Rakesh Bhandari 11.29.15 at 4:51 pm, 17

          I know that I shall have to read John Kay's Other People's Money at some point. I am wondering what people make of the old the then Marxist Hilferding's concept of promoters' profit as a way to understand some financial sector activity. I posted this here a few years back.

          Here's his example, and I am trying to figure out to the extent that it throws light on the recent activity of Wall Street.

          Start with an industrial firm with a capital of 1,000,000 marks that makes a profit of 150,000 marks with the average profit of 15 percent.

          With an interest rate of 5% straight capitalization of income of 150,000 marks will have an estimated price of 3,000,000 marks (150,000/.05=3,000,000 marks)

          A deduction of 20,000 marks for the various administration costs and directors fees would make the actual payment to shareholders 130,000 rather 150,000 marks

          A risk premium of, say, 2% would be added to a fixed safe rate of interest of 5% in estimating the actual stock price

          So what, then, is the stock price (130,000/.07)? 1,857,143 or roughly 1,900.000 marks

          This 900,000 is free after deducting the initial investment of 1,000,000 marks

          The balance of 900, 000 marks appears as promoters' profit which arises from the conversion of profit-bearing capital into interest bearing capital.

          In 1910, Hilferding called this promoters profit, an economic category sui generis; it is earned by the promoter by selling of stocks or the securitizing of income on the capital market.

          For Hilferding the investment bank, which promotes the conversion of profit-bearing to interest-bearing capital, claims the promoters profit.

          The analysis seems pertinent to the securitization process today, and I would love to hear Henwood's and others' thoughts about this.

          As Roubini and Mihm have pointed out, we have seen the securitization of mortgages, consumer loans, student loans, auto loans, airplane leases, revenues from forests and mines, delinquent tax liens, radio tower loans, boat loans, state revenues, the royalties of rock bands!

          We have seen, in their words, an explosion in the selling of future income of dependable projected revenue streams such as rents or interest payments on mortgage payments as securities.

          That securitization been driven by investors' quest for yield lift given the low rate of interest, itself the result of the global savings glut and Fed policy.

          And it seems that Wall Street, with the connivance of the credit agencies, was able to appropriate value from the purchasers of securities by understating the risk premia.

          The risk premium and promoters' profit are inversely correlated so there is a strong incentive to understate the former. This is what Hilferding did not say, but seems worth emphasizing today.

          Aaron Brown 11.29.15 at 5:43 pm. 18
          I sincerely do not understand your point here. I'm not arguing, just asking for clarification:

          (a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

          For one thing, I don't see that the two bubbles and one bust of 1996 – 2015 are self-evidently worse than the more numerous bubbles and busts of 1976 – 1995. You might say the 2008 brush with Great Depression outweighs the hyperinflation and multiple deep recessions of the earlier era, but certainly the Internet and housing bubbles were more productive and less threatening than the commodity, Japan, emerging debt and other bubbles. Anyway, it's a close enough comparison that someone could certainly keep a straight face while saying that in the last 20 years financial volatility inflicted less real economic damage than in the preceding 20 years.

          But the bigger issue is no one claims the financial system encourages steady growth. Creative (bubble) destruction (bust) is the rule. It is command economies that outlaw bubbles and busts–and inflation and unemployment–at the cost of unproductive employment, empty shelves, stifled innovation, loss of freedom and other consequences.

          If you want to argue that the financial system did not earn its profits in the last 20 years, it seems to me you have to argue that economic growth was slow, or that more people in the world are in poverty today, or that there was not enough innovation; not that the ride was too volatile. Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)?

          It is certainly possible to argue that we could have had more growth and innovation and poverty reduction; and less volatility; with some third way that's better than both our current financial system and the alternatives practiced in the world today. But that point is not so obvious that any defender of the global financial system must be joking.

          Why do you think the booms and busts of the last 20 years are such a clear and damning indictment of the financial system that the point needs no further elaboration?

          Bruce Wilder 11.29.15 at 6:11 pm, 19

          The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary.

          There are really complicated ways of doing this: derivatives, for example, which blow up (and as an added bonus, undermine the informational efficiency of financial markets).

          I keep thinking of Piketty's r > g: the ever-accumulating pile of money rising like a slow, but unstoppable tide. It has to be invested or "invested" - that is, it can buy the assembly of resources into productive capital assets that represent financial claims on the additional income generated by business innovation and expansion . . . OR . . . it can be used to finance the parasitic and predatory manipulations of an emergent neo-feudalism.

          Where the secular stagnation thesis is not pure apologetic fraud, I would interpret it as saying, there are currently few opportunities to invest in additional productive "real" capital stock. For technological reasons, the new systems require much less capital than the old systems, so when an old telephone company replaces its expensive copper wire with fiber optics and cellphone towers, it may be able to fund a large part of the transition out of current cash-flow, even while maintaining the value of the bonds that once represented investment in a mountain of copper, but are now just rentier claims on an obsolete world.

          In the brave new world, a handful of companies, who have lucked into commercial positions with high rents, throw off a lot of cash. So, the Apples and Intels do not need to be allocated new capital, but their distribution of cash to people who don't need it, is generating a lot of demand for "financial product". The rest of the business world is just trying to manage a slow decline, able to throw off modest amounts of cash, desperate to find sources of political power that might yield reliable rents, but without opportunities to innovate that would actually require net investment in excess of current cashflows from operations.

          So, the financial system is just responding to this enlarged demand for non-productive investment in financial products that generate return from parasitic extraction.

          In the interest of parasitic extraction, the financial system pursues the politics of neoliberal privatization as a means of generating financial products to satisfy demand.

          Does that sound like a plausible narrative?

          Dipper 11.29.15 at 6:30 pm, 20

          re volatility, the thing you really want to worry about is liquidity. Pre-crash banks could warehouse risk and so provide liquidity. One consequence was volatility was recorded because liquid markets allowed prices to be observed.

          Regulators have observed the conflict of interest caused by banks providing a financial service but also participating in the markets with their own money, and have acted to restrict banks from holding risk for proprietary trading (the Volcker rule). This is fine, but there has been a noticeable decrease in liquidity in what were once deep markets. The EURCHF un-pegging in Jan this year is a good example of reduced liquidity resulting in a massive move. There may well be more of this to come.

          Sebastian H 11.29.15 at 6:34 pm, 21
          "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision."

          I can't tell if you are arguing with John or agreeing with him. Is this agreement with his d) [the political capture explanation]? I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns. Is it possible that the financial sector was the obvious conduit because they were among the important authors of the ideas?

          MisterMr 11.29.15 at 6:50 pm, 22

          Previously commented here as Random Lurker.

          In my opinion, finance had a passive role in the build up of the crisis.
          Others have said similar things uptread, however this is my opinion:

          1) the wage share of GDP depends largely on political choices; since the late seventies there has been a trend of a falling wage share more or less everywhere, as countries with a lower wage share are more competitive on the world market.
          2) a falling wage share means a rising profit share, and "capitalists" tend to reinvest part of their profits, so a falling wage share caused a worldwide saving glut.
          3) this worldwide saving glut caused an increased financialisation and a bubbling up of the price of some assets, particularly those assets whose supply is inelastic (for example, the value of distribution chains or of famous consumer brands).
          4) this in turn causes an increased volatility of financial markets, and worse financial crises.

          This situation is what we perceive as a secular stagnation, and IMHO depends mostly on a low worldwide wage share.
          Unfortunately, I have no idea of how to reach an higher wage share, and I don't think "the market" has any mechanism to push up said wage share.

          Rakesh Bhandari 11.29.15 at 7:08 pm, 23

          Bruce,
          What you are saying makes sense to me. Steven Pressman has also raised the question of how r is to be maintained with "an abundance of capital and its need for high rates of return." (Understanding Piketty's Capital in the Twenty First Century).

          It's almost as if Piketty in his criticism of the rentier has a rentier's disregard for how the returns are actually to be made. To the extent that he considers production it is through marginal productivity theory. Piketty claims that marginal rate of substitution of capital for labor will remain above unity (and too bad Piketty dismissed the Cambridge Capital critique because Ian Steedman has used Sraffian theory to show the possibilities of high profits in even a fully automated economy).

          Of course as Pressman implies, this "technical" view may blind us to the higher exploitation that may be necessary for returns to continue to remain high as capital becomes more abundant. Pressman also implies that Piketty also does not consider how finance can make higher rates of return by making higher-interest loans to weaker parties while having them absorb most of the risk (this would be your second kind of investment).

          Search for the several paragraphs on the rentier in this section. It is remarkable that no one has yet compared Piketty's criticism of the rentier to this.
          https://www.marxists.org/archive/bukharin/works/1927/leisure-economics/introduction.htm

          felwith 11.29.15 at 8:31 pm, 24

          " I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns."

          Of course not, but there are actors here other than "the public" and "the banks". In this case, I'm pretty sure Daniel is referring to the destruction of unionized middle class jobs with pensions and cheap-to-the-worker health insurance, which was carried out by their employers. While I doubt I could pick a bank owner out of a lineup filled out with captains of industry, they aren't actually interchangeable.

          Peter K. 11.29.15 at 9:43 pm, 25

          @1 Dsquared:

          "Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment."

          Secular stagnation to me just means not enough macro (monetary/fiscal) policy to keep up aggregate demand for full employment and target inflation.

          Monetary and fiscal policy is being blocked by politics partly because filthy rich financiers are buying their way into politics:

          http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html

          The question about Dsquare's alternate history I would have is: what is the response of fiscal and monetary policy to the "domestication" of the financial sector via higher capital requirements and leverage regulations, etc.?

          If fiscal and monetary policy keeps the economy at a high-pressure level with full employment and rising wages, I don't see why secular stagnation is a problem.

          But politics is blocking fiscal and monetary policy. Professor Quiggin talks of "massive" monetary policy, but it wasn't massive given the need. (It was massive compared to past recoveries.) It was big enough to avoid deflation despite unprecedented fiscal austerity. It wasn't big enough to hit their inflation target in a timely matter.

          Ze K 11.29.15 at 9:53 pm, 27

          My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it.

          [Nov 29, 2015] neoclassical economics is involved in circular reasoning, and without a meaningful concept of capital, the rest of the system collapses.

          Notable quotes:
          "... neoclassical economics cannot establish the definition/measurement of "capital" without first knowing marginal productivity of capital; but they cannot establish the definition/measurement of marginal productivity of capital without first establishing "capital". ..."
          "... ironically, it is conceivable that the entire neoclassical case for invisible hand can be reconstructed based on labor theory of value; after all, Ricardo did that ..."
          "... But since then there has been lots of development among the more enlightened mainstream economists that have basically established that market failures are both devastating and universal. This is serious, because this means, in fact, in their heart, they know the invisible hand argument is invalid. Stiglitz came close to admit it in some interviews. ..."
          "... Whatever is/was their internal system, both the Soviet Union and China are a part of the capitalist world system and therefore both of them are obligated to pursue economic growth. ..."
          "... What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are. ..."
          "... Such systems cannot be in a permanent thermodynamic equilibrium – controlled plateau, or "sustainability" if we will (which you seem to be wishing/suggesting). They are utterly and totally dependent on ever-expanding energy/resource "consumption" and they ALWAYS and without exception collapse (hint: A.Bartlet)! Indeed, if physics and mathematics is to be trusted, they must collapse! ..."
          peakoilbarrel.com
          Political Economist, 11/13/2015 at 3:55 pm
          Hi Dennis, I wrote a long reply to your question on labor theory of value. But somehow after I posted it, it appears to have disappeared. I am trying to re-post it here

          Dennis:

          Hi Dennis, thanks for bringing this up. This is definitely not about energy. But since you mentioned this here, let me give you some of my thought.

          First, regarding neoclassical economics, the debate between two Cambridges pretty much destroyed the logical foundation of neoclassical economics. Because neoclassical economics cannot establish the definition/measurement of "capital" without first knowing marginal productivity of capital; but they cannot establish the definition/measurement of marginal productivity of capital without first establishing "capital".

          So neoclassical economics is involved in circular reasoning, and without a meaningful concept of capital, the rest of the system collapses.

          The above is mostly theoretical. It does not necessarily undermine one's faith in the efficiency of a market economy (ironically, it is conceivable that the entire neoclassical case for invisible hand can be reconstructed based on labor theory of value; after all, Ricardo did that)

          But since then there has been lots of development among the more enlightened mainstream economists that have basically established that market failures are both devastating and universal. This is serious, because this means, in fact, in their heart, they know the invisible hand argument is invalid. Stiglitz came close to admit it in some interviews.

          Why does it matter? Consider the current environmental crisis. It is conceivable that we will fail to stop climate change and the emerging climate catastrophes will bring down human civilization. From the neoclassical perspective, this is because the market prices for fossil fuels are wrong. Can this be corrected by government intervention? From the neoclassical perspective, to do this, the government needs to know the correct prices and even if the government does know the correct prices, there is still the implementation problem (principal-agent problem, people will find ways to outmaneuver government, etc). If the government does not know the correct prices or cannot implement, then we cannot correct market failures. If, on the other hand, the government does know the correct prices and can implement, why not have socialist planning?

          Compare this to socialism. Of course one needs to be reminded of the Soviet environmental disasters. But the Soviet environmental failures were almost nothing compared to the contemporary Chinese environmental crisis (and I need to remind people that China's current environmental crisis has happened after China's capitalist transition). Whatever is/was their internal system, both the Soviet Union and China are a part of the capitalist world system and therefore both of them are obligated to pursue economic growth.

          Although this has not happened in history, but it is definitely conceivable that a socialist economy can be structured to be based on zero or negative growth. But this cannot be said of capitalism.

          In fact the strongest economic argument against socialism is that the socialist economies did not grow rapidly enough (even though Cuba succeeded in delivering higher life expectancy than the United States and for some years Cuba was considered the only country that met the principle of sustainable development by the living planet report). Therefore, the question is, if it turns out that capitalism cannot provide sustainability for human civilization, what social system can deliver sustainability while meeting population's basic needs?

          Now, about labor theory of value. There are two different questions here. One has to do with the labor theory of value as a theory to explain the long-term equilibrium prices in a competitive market economy and the other has to do with what Marx called the theory of surplus value.

          About the theory of surplus value, it needs to be reminded that Marx's theory of surplus value or exploitation is not moralistic but based on observed economic facts (although it could be used for moralistic purposes). All it says is no more than this: in a capitalist economy, a workers has to work longer than the social labor time embodied in the commodities consumed by the worker himself (or the worker's family) and in this sense, the capitalist profit (surplus value) derives from the worker's surplus labor. This is factually true.

          Of course, as you said, a similar quantitative relationship can be established for other production inputs. Say, the total energy consumed in a society will have to be greater than the energy input used for energy production (people here are of course familiar with EROEI, which has to be greater than 1 for society to function). Based on this, one could argue that not only the workers are exploited but energy is also "exploited".

          But if one really wants to extend the concept of "exploitation" here (which I don't think makes sense), what is being "exploited" is energy BUT NOT energy owners (even less the owners of capital goods consuming energy).

          In any case, the concept of "exploitation" or surplus value has to be used in a context of social relations. It makes sense that the workers can take over the means of production and appropriate their own surplus value (or products of their surplus labor). But it is obviously nonsense to say that the energy input can somehow appropriate the "surplus energy" consumed in other energy consumption processes.

          Finally, about the long-term equilibrium prices. It can be easily established that in "simple commodity production" (pre-capitalist market economy, where the producers own their means of production), market prices tend to fluctuate around ratios that are in proportion to the total labor embodied in commodities (including both direct labor and indirect labor embodied in means of production).

          The problem has to do with "prices of production" or the equilibrium prices in capitalism (you are probably aware that this is known as the "transformation problem" in the Marxist literature). All the difficulty comes from the fact that in capitalism, the direct labor time ("live labor") is further divided into necessary labor (the labor time it takes for the worker to replace his value of labor power) and surplus labor. In fact, knowing the production coefficients, a unique set of equilibrium prices and the equilibrium profit rate can be solved from a set of past labor (indirect labor), necessary labor, and surplus labor for each commodity. Thus, a definite set of mathematical relations can be established between the prices and the labor variables (although it's no longer simple proportionality; but I think it does not matter)

          Of course the Neo-Sraffians would like to emphasize that you can take any other important input (say, energy) and establish a similar set of relationship between prices and say, past energy, necessary energy, and surplus energy. But, as I said, energy cannot be a player in social relations.

          In any case, labor theory of value plays an insignificant role in modern Marxist economics (I personally still think labor theory of value is valid but it no longer provides important insights).

          You will not find labor theory of value in my book. But I hope you will still find it intellectually interesting (and a little provocative).

          Minqi Li, 11/13/2015 at 4:02 pm
          Hi Ron, I prepared a long reply to Dennis's question. But each time when I posted it, it was marked as SPAM.

          I saved the response to Dennis here:

          http://redchinacn.net/portal.php?mod=view&aid=28599#comment

          Can you help me to post it? Thank you

          Fred Magyar, 11/13/2015 at 5:24 pm
          Hi Minqi Li,
          I read your reply to Dennis and found it cogent, however I do have a problem with the standard neoclassical economic viewpoint and as I have stated many times I find the standard capitalist and communist economic models to be less than useful systems with which to address our current global dilemmas. I am of the school of thought that we have to invent completely new ways of thinking and acting. There are some people who have embarked on this journey. I think this group best embodies my current thinking about what kinds of systems we need to develop. Some of these ideas are already taking hold in China too.

          循环经济

          http://www.ellenmacarthurfoundation.org/

          Cheers!

          Political Economist, 11/13/2015 at 8:07 pm
          Fred, thanks for commenting.

          The concept of 循环经济 or recycling economy is actually what China borrowed from the West. Chinese economists started talking about it in the 1990s. The practice is not as radical as it sounds. The primary intention has not been so much about saving the environment as accelerating capital accumulation by saving costs.

          Although in some cases it has had some beneficial "side effects"

          I agree that we need completely new thinking and practice that go beyond the 20th century. I am of the school that zero (if not negative) economic growth is necessary for sustainability. The question is what kind of economic system can deliver it.

          Petro, 11/14/2015 at 1:15 am
          "…I am of the school that zero (if not negative) economic growth is necessary for sustainability. The question is what kind of economic system can deliver it…."

          What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are.

          Such systems cannot be in a permanent thermodynamic equilibrium – controlled plateau, or "sustainability" if we will (which you seem to be wishing/suggesting).
          They are utterly and totally dependent on ever-expanding energy/resource "consumption" and they ALWAYS and without exception collapse (hint: A.Bartlet)!
          Indeed, if physics and mathematics is to be trusted, they must collapse!

          -So, when you say:
          "…The question is what kind of economic system can deliver it…", you are looking for the wrong, non-existing thing.

          Consider that before your book is published…

          Be well,

          Petro

          Political Economist, 11/14/2015 at 2:56 am
          Unfortuantely, the book is already published.

          Keynes said: "In the long run, we are all dead"

          Petro, 11/14/2015 at 9:17 pm
          "Unfortunately, the book is already published"

          Unfortunately indeed!

          Be well.

          Petro

          Javier, 11/14/2015 at 10:36 am
          Hi Petro,

          I agree in principle, but it is clear that societies can be built that are stable for hundreds to thousands of years until conditions diverge too much from those that allowed their formation. Hunter-gatherer societies were economically and socially stable in many parts of the world for most of the Holocene, so in principle it is theoretically possible to build a stable society that takes from the environment not much more than what can be renewed or recycled or last for a very long time. Animals and plants do it all the time, but of course their numbers are checked by the environment. And of course it would have little to do with current industrial civilization that is completely unsustainable.

          Petro, 11/14/2015 at 9:24 pm
          Hunter-Gatherers were stable ONLY for nature kept a "big stick" over their head every time they multiplied more than they should have…but as Ron has said multiple times: we are clever and have bypassed that (or so we think…).

          Theoretically- as you say- yes!
          Practically: NO!

          "…We will kill them all…"
          ~ Ron Patterson

          -And lastly, all this is mute for we ALREADY have passed the tipping point, or the point of no return- if you will.

          Be well,

          Petro

          Fred Magyar, 11/14/2015 at 4:23 am
          I agree with the idea that trying to achieve a zero growth economy is the only path towards sustainability.

          Two points:

          First the concept of the 'Circular Economy' goes far beyond simple recycling.

          It incorporates systems and design thinking at a fundamental level in all aspects of the economy, government,and social systems. It thinks of the economy as an ecosystem. It borrows heavily from how nature builds sustainable systems. It is also very important to understand that it is not just a greenwashing. It is about a deep and fundamental process change.

          Second: At our current juncture 'Perfect' is the enemy of good enough!
          We need to move forward with all aspects of the 'Circular Economy' We don't have time to design and build a perfect system, We are in a situation where we know that our current ways of doing things are not sustainable so we have to push ahead with imperfect solutions and learn as we go.

          Best Hopes!

          BTW, Petro is only technically correct here:

          -What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are.

          Without throwing the baby of ecosystem thermodynamics 101 out with the bath water, I repeat my point 'Perfect' is the enemy of good enough. Ecosystems are relatively speaking stable and have been for long periods of time. Nature has been tweaking them for 3.8 billion years. We on the other hand have managed to really screw things up in just a few thousand years.

          We need to go back and learn how nature does design
          https://goo.gl/tu3kPj

          Ron Patterson, 11/14/2015 at 5:57 am
          We need to go back and learn how nature does design

          If we went back to when nature was in balance, to the point to where we were no longer destroying the ecosystem, then we would be back to only a few million Homo sapiens on earth.

          While it is true that humans are a part of nature, it is also true that cancer is a part of nature.

          Fred Magyar, 11/14/2015 at 7:30 am
          We need to go back and learn how nature does design

          If we went back to when nature was in balance,

          Ron, that totally misses the point!

          Yes, the ultimate goal would be to have sustainable systems in place. However, we are not in a position to go back to anything. We need to go forward. The point I was making is that we can learn from the way nature creates sustainable ecosystems and apply those lessons to our own systems. This is why I wanted to make crystal clear that I'm not talking about greenwashing or anything 'Green' in the old hippie commune model.

          Basically nature uses multiple interconnected circular systems simultaneously on various scales from the microscopic to gigantic. Think of the multiple ecosystems on a single tree in a rainforest. The mosses and lichens fungi living on the bark of the tree. All the insect communities, ants, beetles, arachnids, etc, that depend on that. The tree itself using sunlight through photosynthesis, breathing, producing O2,transporting water and recycling nutrients, the carbon and nitrogen cycles and so on. The top of the tree is colonized with with completely different specialized ecosystems covered with epiphytes. Tree frogs and lizards living in the water filled pools created in the base of bromeliads. The birds and snakes living in the canopy. The large and small mammals living in various niches within all those ecosystems, the detrivores and bacteria and fungi that recycle all the nutrients from the organisms that die, etc… etc… and we are talking just one tree in a forest. This is the kind of integrated systems design that we need to emulate in our cities and businesses.

          We humans, on the other hand, have built linear consumptive nonintegrated systems. These systems are extremely wasteful. Linear systems only work when resources limits are nonexistent. We no longer have the luxury of continuing with such systems. We need to learn how nature practically eliminates waste by emulating a model where waste streams are resource inputs and everything is reused there is practically no waste in a functioning stable ecosystem.

          Ron Patterson, 11/14/2015 at 8:00 am
          We need to learn how nature practically eliminates waste by emulating a model where waste streams are resource inputs and everything is reused there is practically no waste in a functioning stable ecosystem.

          I totally understand your point Fred, but you are simply missing the big picture. When you say "we" just who are you talking about? Obviously if you are talking about fixing the terrible mess we find ourselves in, then "we" has to mean "we humans", all of us. And when you do that you are talking absolute nonsense.

          Individuals can change but human nature cannot change. "We" will go on behaving in the future exactly as we have behaved in the past. The mass of humanity is consuming the natural resources like a drunken sailor going through his rich uncle's inheritance. And I don't mean just fossil resources, I mean all resources, all nature's bounty. And we are taking it from all the other creatures who are less clever than we are.

          And "we" will continue to do so until it is gone, and all the other creatures are gone also.

          wimbi, 11/13/2015 at 10:50 pm

          A simple engineer's suggestion for basis of new economics, based on conversation with wiser ones elsewhere.

          Proper economic structure is that which maximizes the number of options available for future choices.

          Same as, minimize irreversibility; same as second law of thermo. Or, don't mess things up for the next guy.

          Examples of violations of basic rule- kill the coral, next guy has less fish ; burn the oil, next guy has a smaller hunk of planet at bearable temps.

          Example of application of basic rule – go to solar for energy, and stick within bounds of activity thereby set.

          NB- another fundamental flaw of capitalism– like stars growing in a dust cloud where more massive ones grab mass faster than littler ones, ending up with big one gobbling it all. Bigger capitalists grab more resources faster than smaller ones, ending up with big ones getting it all.
          And, very serious consequence – gross maldistribution of resource relative to individual ability to use resource wisely.

          Above observations not to be attributed to me.

          [Nov 27, 2015] Student Debt in America: Lend With a Smile, Collect With a Fist

          Notable quotes:
          "... 8% insurance policy, ..."
          "... The explosion in administrative employment and the resulting bureaucratic bloat and costs is ridiculous and unsustainable, including the promised pension and benefit payouts in the years to come. ..."
          "... Young people borrowing tens of thousands of dollars to attend private, for-profit colleges (???) or to study the humanities, social sciences, or business is a waste of time and money for the vast majority. ..."
          economistsview.typepad.com
          On student loans:
          Student Debt in America: Lend With a Smile, Collect With a Fist: ... Borrowing is risky, financial decisions are not always rational, and people often do a poor job of properly weighing the interests of their present and future selves.

          The private enterprise system is built to limit overborrowing by sharing risk between lenders and borrowers. ... They charge more interest when they take on more risk. Because most loans can be discharged in bankruptcy, lenders share the cost of default. ...

          But the federal student loan program doesn't work that way. Those ads that run on bus stop signs and on late-night television - "No Cash? No Credit? No Problem!" - are essentially the Department of Education's official policy on student loans.

          On the front end, the department is the world's nicest, most accommodating lender. Interest rates ... are lower than banks charge... Borrowing for college is essentially an entitlement...

          When the loan bill finally comes due, the federal government transforms into a heartless loan collector. You don't need burly men with brass knuckles to enforce debts when you have the Internal Revenue Service..., which can and will follow you as long as you live.

          The government acts this way because the federal student loan program has been removed from the norms and values of prudent lending. Because the Department of Education doesn't consider risk, it takes no responsibility. If life, luck and bad choices leave you ... in the hole, it's all on you. ...

          Most college students ... pay back their loans and enjoy the fruits of their degrees. But most pack-a-day smokers don't die of lung cancer. And most people who bought cars with Takata airbags from 2002 to 2008 weren't killed by shrapnel from explosions. Nevertheless, we still regard small risks of catastrophic outcomes as problems to be solved. ...

          Just one quick comment. We need to solve the student loan problem for existing loans, but I wish talk about how to address this problem going forward was more about how to provide adequate funding for colleges so that large loans aren't needed in the first place rather than focusing on how to change the loan program itself.

          Posted by on Friday, November 27, 2015 at 11:28 AM in Economics, Education, Universities | Permalink Comments (10)

          likbez said...

          === quote ===

          run75441 said in reply to Sanjait...

          The cost containment of colleges is the same as what is needed for healthcare. The government should intervene since it is the principal financier in more ways than one.

          === end of quote ===

          Very true. May be even the idea of the net of eligible providers (in network vs out of network) can be borrowed form healthcare.

          As this is a public good, it should be severe punishment including jail terms for inflating the cost of education. For example I think Mankiw should be at investigated using RICO act for the cost of his textbook. But I think that students who enroll into Mankiw class are already second rate students because at this point they should do some research about who Mankiw really is and avoid his classes like a plague.

          Still this is a clear and provable case of racket. Academic racket but still a racket.

          But even minor prosecution of those academic rentiers is impossible under neoliberalism as regulators are captured and corrupted.

          And students mostly are too badly informed and too naïve to shop around and find a better price. Which is still possible. For example using community college for the first two years and then transferring credits to a state university. And if student is talented enough he always can get masters at Ivy League school later and it will cost less.

          Please note that quality of university education is already very problematic. Switching to preparing "ready for jobmarket" graduates backfired. I would say that quality now is dismal as student lacks fundamentals. They are now kind of "bug of tricks" degree holders.

          So the idea of cost control of college education can't be refuted with the hypothesis that it will lower the quality of education. Essentially what Ivy league college degree buys is the first place in a heap of resumes to major companies (some companies simply discard resumes from applicant who do not have Ivy League education).

          Now about subsidies. Neoliberal colleges are for profit business with academic sharks no different that sharks in chemical or pharmaceutical companies. They do not care about education, only about lining this own pockets. As simple as that.

          That means that in a current environment any "broad" subsidies will result in raising of the cost of education. I would make subsidies more focused, subject to means test as well as passing a qualifying exam similar to GED. After all at this point the society invests some money into student.

          djb said...

          so is he saying that we shouldn't give student loans unless a bank would loan the money

          that's means many people who can now afford college wont be able to

          and this:

          "Most college students don't end up like Ms. Kelley. They pay back their loans and enjoy the fruits of their degrees. But most pack-a-day smokers don't die of lung cancer. And most people who bought cars with Takata airbags from 2002 to 2008 weren't killed by shrapnel from explosions. Nevertheless, we still regard small risks of catastrophic outcomes as problems to be solved."

          is he kidding me??? My student loans required an 8% insurance policy, money I didn't even get to use, came out before I could pay tuition room and board, but I still owed it. The fact that most people pay their student loans means the government doesn't lose anything from student loans

          Dan Berg said...

          Rather than "provide adequate (more) funding (taxes)for colleges" - how about ways to reduce cost? Beginning with the absurd costs of textbooks; administrative bloat; disparities between tenured and part-time teachers; etc


          Lilly said in reply to Dan Berg...

          ...and I will add sports in here. A good analysis was published by HP: How College Students Are Bankrolling The Athletics Arms Race
          http://projects.huffingtonpost.com/ncaa/sports-at-any-cost

          pgl said in reply to Dan Berg...

          "Beginning with the absurd costs of textbooks"

          Here is where Greg Mankiw will tell you he needs to charge $300 a book for his text because he wants his kids to be rich.

          A Thomas said...

          And how does anyone propose to remedy monies being deducted from Social Security for delinquent student loans when the person (victim) cannot make timely payments because of AGE DISCRIMINATION IN EMPLOYMENT. While illegal, it is practiced by a majority of employers. Often the Soc Sec recipient is reduced to living at poverty level - even though they want to work and would if they could find paying employment.

          Or does anyone want to remedy this? Just let the "old folks" starve and become homeless!!!!!!

          RGC said...

          "As a senator from Delaware -- a corporate tax haven where the financial industry is one of the state's largest employers -- Biden was one of the key proponents of the 2005 legislation that is now bearing down on students like Ryan. That bill effectively prevents the $150 billion worth of private student debt from being discharged, rescheduled or renegotiated as other debt can be in bankruptcy court.

          Biden's efforts in 2005 were no anomaly. Though the vice president has long portrayed himself as a champion of the struggling middle class -- a man who famously commutes on Amtrak and mixes enthusiastically with blue-collar workers -- the Delaware lawmaker has played a consistent and pivotal role in the financial industry's four-decade campaign to make it harder for students to shield themselves and their families from creditors, according to an IBT review of bankruptcy legislation going back to the 1970s."

          http://readersupportednews.org/news-section2/318-66/32426-joe-biden-backed-bills-to-make-it-harder-for-americans-to-reduce-their-student-debt

          BC said...

          80-85% of jobs today and in the future will not require post-secondary training or a university credential. If accelerating automation and elimination of service employment (retail, health care, education, gov't, legal, etc.) continues apace as anticipated, including middle- and upper-income employment, there will be still fewer jobs requiring post-secondary "education" that pay what was once perceived as breadwinner compensation.

          Universities all over the US have since the 1970s-80s become costly public jobs programs primarily for females at low or no productivity and increasing cost to the private sector (as in the case of "health" care). The explosion in administrative employment and the resulting bureaucratic bloat and costs is ridiculous and unsustainable, including the promised pension and benefit payouts in the years to come.

          Young people borrowing tens of thousands of dollars to attend private, for-profit colleges (???) or to study the humanities, social sciences, or business is a waste of time and money for the vast majority.

          Most urban/suburban high schools have evolved into what might be described as college preparatory girls schools where a large majority of males are marginalized as necessary nuisances and the vast majority of kids learn little that is practical to participating as gainfully employed and self-supporting adults.

          But that is not an accident, of course. Feminization and infantilization of the society and economy has been underway coincident with deindustrialization and financialization since the 1970s-80s.

          Sanjait said... November 27, 2015 at 11:39 PM

          there should be a subsidy for college, because otherwise people tend to underinvest in education. Individuals are often liquidity constrained or just short sighted.

          But IMO we are doing the subsidies all wrong. We are offering subsidized loans and tax deductions. We should instead be using plain old grants more often. That's how you ensure access to people who would otherwise lack it.

          But the grants should be relatively small. They should just be sufficient to coverage get of a public university education, without a little t of extra amenities. The critics of higher ed who say that subsidies are driving up the costs are half right. It's really consumer preferences, for the most part. But that doesn't mean government should contribute to that problem, of that taxpayers should pay limitless amounts. Some price pressure should still be left to exist.

          run75441 said in reply to Sanjait... November 28, 2015 at 05:51 AM

          The cost containment of colleges is the same as what is needed for healthcare. The government should intervene since it is the principal financier in more ways than one.

          run75441 said...

          Mark:

          I am not sure of what you know; but, this might be a good place to start. http://www.deltacostproject.org/ "The Delta Cost Project" http://www.deltacostproject.org/

          There is a movement afoot from the Jason Delisles, Matt Chingos, and the Beth Akers of both the New America Foundation and Brookings who advocate interest rates do not matter, higher interest rates make sense for advanced degrees, and student loans should be risk sensitive using Fair Market Valuation techniques.

          Getting a student loan is like checking into a Roach Motel. You can sign in via your signature; but, you can never check out without paying it off. If you default, it gets worst for you as stated in the story. So the risk to the Federal Gov and taxpayers is minimal. Indeed some would tell you, the Gov makes more money in default than in payoff. I also think there is more to the story than being revealed.

          Fix interest rates and keep them low at http://angrybearblog.com/2015/11/for-profit-college-student-loan-default-and-the-economic-impact-of-student-loans.html . Indeed households without student loans are buying at a higher rate than those households with student loans. In some cases, it is worsening.

          The highest default rate is with those who have student loans of < $10,000 [~39% of them have loans of less than $10,000 (NY Fed)] and are the result of Community Colleges. Potentially these are people attempting to improve their status in life. Student loan borrowers with $100,000 of debt had a default rate of 18% and are also the higher earners after graduation.

          To my knowledge and experience with Federal Direct Loans, students can go into forbearance at any time. There is also a 3 year window of no interest accumulation. After the 3 years, interest accumulates. The 3 year window of no interest accumulation needs to be expanded to cover what we experienced since 2008 and perhaps go as long as 10 years. The 20-25 life time of IBR should be shortened to 10 - 15 years. This is not like students ordered up a 2008 recession, they were penalized unknowingly and were encouraged to seek a college education of sorts. The same holds true for those returning to college to better themselves.

          Not only does student debt hurt the student, it is also playing out in the overall economy as I reported using NY Fed information at AB. Households with Student Loan Debt are a higher risk than those without Student Loan Debt. They are buying fewer homes and autos than households without Student Loan debt.

          State financing has decreased. In Michigan it has gone from ~60% to ~30% with families picking up the load through various sources. Perhaps expanding the public service to erase college debt after 10 years would make more sense than doing so with strings attached.

          Colleges do not appear to be cost sensitive to what the market may bear. There has always been a need for them and like healthcare colleges are allowed to increase as needed in cost without question. If you can not pay it upfront, you can always borrow it seems to rule. The new programs was supposed to hold colleges accountable for default rates. From the get-go, the administration let some of them off the hook.

          My $.02

          [Nov 26, 2015] Incorporating the Rentier Sectors into a Financial Model

          Notable quotes:
          "... Finance is not The economy ..."
          "... In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. ..."
          "... Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. ..."
          "... even government tax revenue is diverted to pay debt service ..."
          "... Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy. ..."
          economistsview.typepad.com

          RGC said in reply to JF... November 25, 2015 at 08:34 AM

          Incorporating the Rentier Sectors into a Financial Model

          Wednesday, September 12, 2012

          by Dirk Bezemer and Michael Hudson

          As published in the World Economic Association's World Economic Review Vol #1.

          .......

          2. Finance is not The economy

          In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. Banks lend to buyers of real estate, corporate raiders, ambitious financial empire-builders, and to management for debt-leveraged buyouts. A first approximation of this trend is to chart the share of bank lending that goes to the 'Fire, Insurance and Real Estate' sector, aka the nonbank financial sector. Graph 1 shows that its ratio to GDP has quadrupled since the 1950s. The contrast is with lending to the real sector, which has remained about constant relative to GDP. This is how our debt burden has grown.

          Graph 1: Private debt growth is due to lending to the FIRE sector: the US, 1952-2007

          Source: Bezemer (2012) based on US flow of fund data, BEA 'Z' tables.

          What is true for America is true for many other countries: mortgage lending and other household debt have been 'the final stage in an artificially extended Ponzi Bubble' as Keen (2009) shows for Australia. Extending credit to purchase assets already in place bids up their price. Prospective homebuyers need to take on larger mortgages to obtain a home. The effect is to turn property rents into a flow of mortgage interest. These payments divert the revenue of consumers and businesses from being spent on consumption or new capital investment. The effect is deflationary for the economy's product markets, and hence consumer prices and employment, and therefore wages. This is why we had a long period of low cpi inflation but skyrocketing asset price inflation. The two trends are linked.

          Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. As creditors recycle their receipts of interest and amortization (and capital gains) into new lending to buyers of real estate, stocks and bonds, a rising share of employee income, real estate rent, business revenue and even government tax revenue is diverted to pay debt service. By leaving less to spend on goods and services, the effect is to reduce new investment and employment.

          Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy.

          It is especially the case since 1991 in the post-Soviet economies, where neoliberal (that is, pro-financial) policy makers have had a free hand to shape tax and financial policy in favor of banks (mainly foreign bank branches). Latvia is cited as a neoliberal success story, but it would be hard to find an example where rentier income and prices have diverged more sharply from wages and the "real" production economy.

          The more credit creation takes the form of inflating asset prices – rather than financing purchases of goods and services or direct investment employing labor – the more deflationary its effects are on the "real" economy of production and consumption. Housing and other asset prices crash, causing negative equity. Yet homeowners and businesses still have to pay off their debts. The national income accounts classify this pay-down as "saving," although the revenue is not available to the debtors doing the "saving" by "deleveraging."

          The moral is that using homes as what Alan Greenspan referred to as "piggy banks", to take out home-equity loans, was not really like drawing down a bank account at all. When a bank account is drawn down there is less money available, but no residual obligation to pay. New income can be spent at the discretion of its recipient. But borrowing against a home implies an obligation to set aside future income to pay the banker – and hence a loss of future discretionary spending.

          3. Towards a model of financialized economies

          Creating a more realistic model of today's financialized economies to trace this phenomenon requires a breakdown of the national income and product accounts (NIPA) to see the economy as a set of distinct sectors interacting with each other. These accounts juxtapose the private and public sectors as far as current spending, saving and taxation is concerned. But the implication is that government budget deficits inflate the private-sector economy as a whole.

          http://michael-hudson.com/2012/09/incorporating-the-rentier-sectors-into-a-financial-model-3/

          pgl said in reply to anne...

          Peter Dorman's excellent rebuttal of John Harwood:

          http://econospeak.blogspot.com/2015/11/tax-policy-and-magic-investment-channel.html

          [Nov 23, 2015] Neoliberal Education Restructuring

          Notable quotes:
          "... Despite somewhat different tactics, both the Republicans and the Democrats, as parties of Wall Street, aim to impose austerity on the working class in order to deal with the fiscal crisis of the state. The aim is to cut domestic programs and public services, and teacher unions are a prime target. Merit pay for teachers and union "flexibility" is a part of the Obama administration's education program. From this perspective, compliant union officials are a means to instruct teachers and other public employees to make concessions "voluntarily." This approach was articulated by a Wisconsin public official who defended teacher and other public unions' right to exist because unions have been a means to negotiate concessions in wages and benefits peacefully. But some ideologically driven Republican legislators want to go further to make deep cuts in the education budget and break teacher unions and organized labor entirely. This would eliminate the remaining organized working-class resistance against the attempt to make workers pay for the crisis, and would undermine a key support for the Democratic Party. ..."
          monthlyreview.org

          2011 Volume 63, Issue 03 (July-August)

          Dangers and Opportunities of the Present Crisis

          Education , Political Economy

          Jammed into a thundering crowd of thousands of chanting people in Madison, Wisconsin, it looks like a dam has broken. The new Wisconsin Tea Party governor brazenly accelerated what has been a bipartisan agenda to undermine public education and weaken teacher and other public employee unions. His "budget repair bill"-an assault on public employee unions, schools, and low-income health care-was met with immediate, massive, determined resistance that began with a walkout by Madison public school teachers.

          Over three weeks, thousands of teachers, social workers, firefighters, and public and private sector workers of every stripe have demonstrated in communities across the state and piled into busses headed to the state capital. Protesters occupied the capital building for more than two weeks. Two of the rallies were estimated at over one hundred thousand people. There were many signs, such as "Recall Walker," "If you can read this, thank a teacher," and "Stop the War on Workers," but also something more: handmade signs saying "This is Class War" and "End Corporate Greed." A young woman at the rally on March 11 after the state legislature passed the governor's union-busting bill, held up a placard proclaiming, "Teacher by Day, Freedom Fighter by Night."

          As I write this, in March 2011, a sleeping giant is stirring. The broad U.S. working class has absorbed blow after blow, concessions and job losses one after the other, stagnating wages for thirty years, and two wars costing trillions of dollars. The greatest capitalist crisis since the Great Depression brought a trillion-dollar bailout of the biggest banks and investment houses, the loss of ten million homes to foreclosure by the banks, and 10 percent official unemployment. A broad process of structural adjustment is under way to make the working and middle classes pay for the crisis created by Wall Street. But recent attempts at the state level to impose austerity measures may be just too much for people to take. The attack on public workers and sell-off of public assets-from schools, to municipal utilities, to bridges and roads-may go too far. This is a watershed moment.

          Despite somewhat different tactics, both the Republicans and the Democrats, as parties of Wall Street, aim to impose austerity on the working class in order to deal with the fiscal crisis of the state. The aim is to cut domestic programs and public services, and teacher unions are a prime target. Merit pay for teachers and union "flexibility" is a part of the Obama administration's education program. From this perspective, compliant union officials are a means to instruct teachers and other public employees to make concessions "voluntarily." This approach was articulated by a Wisconsin public official who defended teacher and other public unions' right to exist because unions have been a means to negotiate concessions in wages and benefits peacefully. But some ideologically driven Republican legislators want to go further to make deep cuts in the education budget and break teacher unions and organized labor entirely. This would eliminate the remaining organized working-class resistance against the attempt to make workers pay for the crisis, and would undermine a key support for the Democratic Party.

          In Wisconsin, union responses to the Tea Party agenda were mixed. Despite the fact that their own data show real earnings for Wisconsin teachers declined by 2.3 percent over the last decade,1 the leadership of the Wisconsin Education Association Council and some other unions gave in to Walker's demand for financial concessions early on. They drew the line, however, at automatic union dues collection and the right to bargain collectively over working conditions such as class size, that affect children's learning. Their slogan was "It's not about the money, it's about our rights [to bargain collectively]." Other labor organizations, notably the South Central Federation of Labor in Wisconsin and the National Nurses United, put the blame on Wall Street and called for closing corporate tax loopholes. The nurses union said, "Working people did not create the recession or the budgetary crisis facing federal, state and local governments-and there can be NO more concessions, period."2

          There is a long and complex road ahead with no clear outcome. But education is the frontline in class warfare by the rich against the working class. The assault on public education, teachers, and their unions has been evolving over the past thirty years as part of the neoliberal restructuring of the global capitalist economy, but the current crisis of capitalism has accelerated this assault.3 Education has been a key sector in the neoliberalization of social policy and the neoliberal political economy of cities. The resistance to these policies has been broad at classroom and school levels and in a growing movement of education activists allied with parents and students. Education, for those in power, plays a key role in social reproduction of the labor force and in ideological legitimation of the social order. Those who, conversely, have seen education as a way to strengthen democratic participation in society and human liberation have always contested these goals. There is a rich history of people of color, women, workers, educators, and social movements fighting for democratic, inclusive, liberatory education. The crisis and the accelerated assault on teachers and public education are sharpening the contest over the right to public education and the role of education in society.

          In this article, I review the neoliberal project to restructure education, particularly its relationship to neoliberal urban development, and responses to it. I discuss implications of privatization and austerity measures for public education and its function in social reproduction. I argue that this crisis is a moment of danger but also opportunity, not only to defend public education, but also to reshape it as part of the struggle for a new social order based on human liberation.

          Neoliberal Restructuring of Public Education

          When President Obama appointed Arne Duncan, former-CEO of Chicago Public Schools, to head the U.S. Department of Education in 2008, he signaled an intention to accelerate a neoliberal education program that has been unfolding over the past two decades. This agenda calls for expanding education markets and employing market principles across school systems. It features mayoral control of school districts, closing "failing" public schools or handing them over to corporate-style "turnaround" organizations, expanding school "choice" and privately run but publicly funded charter schools, weakening teacher unions, and enforcing top-down accountability and incentivized performance targets on schools, classrooms, and teachers (e.g., merit pay based on students' standardized test scores). To spur this agenda, the Obama administration offered cash-strapped states $4.35 billion in federal stimulus dollars to "reform" their school systems. Competition for these "Race to the Top" funds favored states that passed legislation to enable education markets.

          Race to the Top, although originating in U.S. government, is actually part of a global neoliberal thrust toward the commodification of all realms of existence. In a new round of accumulation by dispossession, liberalization of trade has opened up education, along with other public sectors, to capital accumulation, and particularly to penetration of the education sectors of the periphery (e.g., Latin America, parts of Asia, Africa). Under the Global Agreement on Trade in Services, all aspects of education and education services are subject to global trade.4 The result is the global marketing of schooling from primary school through higher education. Schools, education management organizations, tutoring services, teacher training, tests, curricula online classes, and franchises of branded universities are now part of a global education market. Education markets are one facet of the neoliberal strategy to manage the structural crisis of capitalism by opening the public sector to capital accumulation. The roughly $2.5 trillion global market in education is a rich new arena for capital investment.5

          In the United States, charter schools are a vehicle to commodify and marketize education. Charter schools are publicly funded but privately operated. They eliminate democratic governance, and, although they may be run by nonprofit community organizations or groups of teachers or parents, the market favors scaling up franchises of charter school management organizations or contracting out to for-profit education management organizations that get management fees to run schools and education programs.6 For example, EdisonLearning, a transnational for-profit management organization, claims it serves nearly one-half million students in twenty-five states in the United States, the United Kingdom, and Dubai.7

          The market mechanisms and business management discourses and practices that are saturating public education in the United States are all too familiar to teachers and students worldwide. Globally, nations are restructuring their education systems for "human capital" development to prepare students for new types of work and labor relations.8 This policy agenda has been aggressively pushed by transnational organizations such as the World Bank, International Monetary Fund, and Organization for Economic Cooperation and Development. Objectives and performance targets are the order of the day, and testing is a prominent mechanism to steer curriculum and instruction to meet these goals efficiently and effectively.

          In the United States, the neoliberal restructuring of education is deeply racialized. It is centered particularly on urban African American, Latino, and other communities of color, where public schools, subject to being closed or privatized, are driven by a minimalist curriculum of preparing for standardized tests. The cultural politics of race is also central to constructing consent for this agenda. As Stephen Haymes argues, the "concepts 'public' and 'private' are racialized metaphors. Private is equated with being 'good' and 'white' and public with being 'bad' and 'Black.'"9 Disinvesting in public schools, closing them, and opening privately operated charter schools in African-American and Latino communities is facilitated by a racist discourse that pathologizes these communities and their public institutions. But "failing" schools are the product of a legacy of educational, economic, and social inequities experienced by African Americans, Latinos/as, and Native Americans.10 Schools serving these communities continue to face deeply inequitable opportunities to learn, including unequal funding, curriculum, educational resources, facilities, and teacher experience. High stakes accountability has often compounded these inequities by narrowing the curriculum to test preparation-producing an exodus of some of the strongest teachers from schools in low-income communities of color.11

          Neoliberalization of public education is also an ideological project, as Margaret Thatcher famously said, to "change the soul," redefining the purpose of education and what it means to teach, learn, and participate in schooling. Tensions between democratic purposes of education and education to serve the needs of the workforce are longstanding. But in the neoliberal framework, teaching is driven by standardized tests and performance outcomes; principals are managers, and school superintendents are CEOs; and learning equals performance on the tests with teachers, students, and parents held responsible for "failure." Education, which is properly seen as a public good, is being converted into a private good, an investment one makes in one's child or oneself to "add value" in order better to compete in the labor market. It is no longer seen as part of the larger end of promoting individual and social development, but is merely the means to rise above others. Democratic participation in local schools is rearticulated to individual "empowerment" of education consumers-as parents compete for slots in an array of charter and specialty schools. In Chicago, twelve thousand parents and students attended the 2010 "High School Fair" sponsored by Chicago Public Schools, and six thousand attended the "New Schools Expo" of charter and school choice options. The political significance of this neoliberal shift stretches beyond schools to legitimize marketing the public sector, particularly in cities, and to infuse market ideologies into everyday life.

          New Orleans–Feasting on Tragedy 12

          Nowhere did the rollback of social welfare policies and public institutions occur with greater force than in hurricane-devastated New Orleans. In the words of George Lipsitz, the aftermath of hurricane Katrina ushered in an orgy of "legalized looting to enable corporations to profit from the misfortunes of poor people."13 Education was at the leading edge. The state at all levels, in alliance with local and national capital and neoliberal think tanks, took advantage of the chaos wreaked by Katrina and the exodus of low-income working-class African Americans from the city to dismantle their public schools. This was a strategic move to exclude low-income African Americans from the city altogether. They not only had no homes to return to, they had no schools. Before Katrina hit in August 2005, there were sixty-three thousand students in New Orleans public schools; about twenty-four thousand began classes there in the fall of 2008.14

          Just weeks after the hurricane, the state of Louisiana took over one hundred public schools and began turning over millions of dollars of taxpayer money to private organizations to run them. The state dismissed all forty-five hundred public school teachers, broke the city's powerful black-led teachers' union, and dismantled the school system's administrative infrastructure.15 Right-wing foundations quickly issued reports calling for vouchers, and President Bush proposed $1.9 billion for K-12 students with $488 million targeted for vouchers to be used in schools anywhere in the country. An influential report by the Urban Institute hailed New Orleans as an opportunity for a grand experiment to decentralize and privatize the public school system through vouchers and charter schools.16 Less than a month after the hurricane devastated the city, the U.S. Department of Education gave the state of Louisiana $20.9 million to reopen existing charter schools and open new ones, and nine months later, the department gave the state an additional $23.9 million for new charter schools, most in New Orleans. Prior to Katrina, there were five charter schools in the city. After the hurricane, the state took over most of the schools and established the Recovery School District, an open arena for charter schools. Of the fifty-five schools opened in New Orleans in 2006-2007, thirty-one were public charter schools.17 In 2010, out of eighty-eight public schools in New Orleans, sixty-one were charters run by a variety of operators.18 The pro-market Fordham Foundation judged New Orleans the best city in the United States for charter school expansion.19 All this was done by government fiat guided by think tanks such as the Urban Institute, and backed by corporate foundations such as the Gates Foundation. Excluded were the working-class African American and Latino/a parents, students, teachers, and community members, many of whom had been literally excluded from the city itself by redevelopment policies that made it impossible to return.20

          It would be hard to deny that New Orleans's schools were in bad shape before the hurricane. In 1997 per-pupil school funding was 16 percent lower than the average of poorly funded urban districts nationally.21 The New Orleans situation reflects a long-term pattern of disinvestment in inner-city areas, beginning with cuts in federal funding to cities in the 1980s, followed by the shift to an entrepreneurial model of urban governance that prioritizes attracting private investment, tourism, and real estate investment.22 Today charter schools in New Orleans are part of creating a "good business climate" in a "revitalized" (gentrified) whiter New Orleans.

          Chicago–Disinvestment, Privatization, and Gentrification

          Chicago is another exemplar of the logic of disinvestment and privatization that is playing out in urban school districts.23 Chicago's Renaissance 2010 education plan was carried out in partnership with the state and the Commercial Club of Chicago, an organization of the powerful corporate and financial interests in the city. The object was to close public schools and expand charter schools. It has become a national model enshrined in the propagandistic claim of "the Chicago Miracle." Across African-American communities, the mayoral-appointed school board has closed schools on the grounds of low achievement. Others, particularly in gentrifying Latino/a communities, have been closed for low enrollment, despite evidence to the contrary. The board has replaced neighborhood schools with charter schools or selective enrollment schools that most neighborhood children are unable to attend. School closings have resulted in increased mobility, spikes in violence, and neighborhood instability as children are transferred to schools out of their neighborhoods.24 Moreover, Renaissance 2010 has not increased educational opportunities for most students, with 80 percent of displaced students attending schools no better than the ones that were closed.25

          This policy eliminates schools that are anchors in their communities, contributing to further disinvestment. In gentrifying areas, closing neighborhood schools and replacing them with schools branded for the middle class facilitates the displacement of working-class families. Chicago, like New Orleans, is an example of the intertwining of education policy and neoliberal urban development. Real estate development is a pivotal sector in urban economies, and closing neighborhood public schools in disinvested areas to open up elite, selective-enrollment public schools or prestigious charter schools is part of the neoliberal restructuring of urban space.26 This nexus of education policy and real estate development is located in the spatial logics of capital-the physical location of production facilities, the built environment of cities, and places of consumption are devalued and selectively rebuilt in order to establish a "new locational grid" for capital accumulation.27 In other disinvested, low-income neighborhoods, students attending under-resourced and struggling public schools are a ready consumer base for the proliferation of charter schools, particularly large charter school chains that target these areas.

          In response, parents, teachers, and students are challenging school closings and market solutions, and are demanding democratic participation and community-driven processes to improve public schools and increase resources. In fall 2010, parents at an elementary school in a Mexican immigrant community in Chicago occupied a school field house for forty-three days to force the school board to agree to construct a school library. In 2001 parents in another working-class Mexican neighborhood were compelled to conduct a nineteen-day hunger strike to get a new high school in their community, after the school board had used funds allocated for their school to build two state-of-the-art, selective-enrollment high schools in gentrifying areas of the city. Both of these actions followed years of petitioning the mayor-appointed board of education with no results. Organized resistance to neoliberal policies has prevented some school closings and, most significantly, also spawned a progressive caucus that won the leadership of the Chicago Teachers Union, the third largest teachers' union local in the country.

          The "Good Sense" in Neoliberal Education Policy

          Yet some measures to reign in teacher unions have support on the ground, as teachers and parents have gravitated to privately run charter schools and vouchers. Certainly venture philanthropists (such as the Gates and Fordham Foundations), charter school operators, business federations (such as Chicago's Commercial Club), and politicians of both parties have deployed enormous economic, political, and symbolic resources to promote education markets and performance pay for teachers as the only alternative to struggling neighborhood public schools and "bad" teaching.28 They have raised the cap on charter school expansion, funded charter school ventures, and established policies like those in New Orleans and Chicago to expand education markets. However, neoliberal policies are not simply imposed from above. They also materialize through the actions of parents and teachers navigating a disinvested, degraded, and often racist public school system. Looked at this way, neoliberalism is a process that works its way into the discourses and practices of schools, through the actions of not only elites, but also marginalized and oppressed people acting in conditions not of their own making.

          Tom Pedroni demonstrates this in his study of African-American parents' participation in the Milwaukee voucher movement.29 Pedroni interprets the participation of African-American parents in the voucher program against a background of prolonged struggles and failures to win a modicum of educational equity and respect for their children and themselves as public school parents. Pedroni argues that, for these parents, the identity of educational consumer offers greater dignity and agency than that of citizen-supplicant to an unresponsive and racist public school system that has never fully included African-American children. Like charter school parents and teachers I interviewed in Chicago, Pedroni proposes that parents see themselves as education consumers in the face of a post-welfare state that offers no real alternative.30 Drawing on Gramsci's theory of "good sense" in the ideological construction of hegemonic social alliances, this insight is an opening to reframe the struggle to defend public education by drawing on the real concerns of parents who ally themselves with education markets.

          There is no point in romanticizing public schools (or other welfare state institutions). While they have provided free universal education and spaces where people can make claims for justice, and are sometimes empowering and liberating, they have historically been saturated with inequalities and exclusions.31 The benefits the white middle class has had from public schools have often been allowed it to ignore a thoroughly inequitable public school system. Critical education scholars have long criticized public schools for reproducing a stratified labor force and the dispositions and ideologies that support capitalism, racism, and gender oppression. Exclusionary, paternalistic, disrespectful, even brutal treatment of African American, Latino/a, and other people of color and women at the hands of public housing authorities, public hospitals, the police and judicial systems, public welfare agencies, elected officials, city agencies, and schools make existing public institutions deeply problematic places. And teacher union leaders have too often failed to take up progressive causes and ally themselves with working-class parents and communities of color.32

          Understanding the appeal of charter schools, choice, and teacher accountability is essential to build alliances not only to defend public education in this period but to develop a program for democratic and just public schools, as well. Resisting predatory neoliberal policies requires acknowledging and grappling with the exclusions and inequities of public institutions.33 This raises the questions: What of public education do we wish to defend; what must be reconstructed, and how can it fulfill its democratic potential?34

          Structural Adjustment and Education

          As the Great Financial Crisis of 2007-08 hit, the Bush and Obama administrations, in league with Wall Street, moved swiftly to socialize the losses of investors through massive taxpayer funded bailouts. This was followed by furloughs (wages cuts) for public workers and worker concessions in the bailed-out private sector (e.g., auto) under the rationale that "there is no alternative" and "we all have to sacrifice."

          As the crisis continues to reverberate, states and municipalities face fiscal crises of monumental proportions. The loss of tax revenues combined with government losses in the financial markets have thrown state budgets across the country into massive debt. Public worker pension funds, health insurance benefits, and funding for public services are in real trouble. At the time of this writing, California has a projected budget deficit of $28 billion over the next eighteen months.35 Instead of raising taxes on the rich and corporations, state governments are selling off public assets and imposing austerity measures on the poor, workers, and the middle class, with public-sector workers an immediate target. The state of California is instituting draconian cuts in education, health, and programs for youth and the elderly. This scenario is repeated in state legislatures and city halls across the country. In Wisconsin, Walker pushed through $100 million in tax cuts to corporations, while his bill would cut over $800 million for education alone.36 The broad working class is expected to endure repeated reductions in wages, pensions, and hard-won benefits, drastic cuts in public services, and further loss of personal assets, particularly homes, while municipal services and infrastructure such as bridges and roads are sold off to investors.

          City governments are particularly hard hit by the crisis because of their reliance on real estate taxes, housing markets, and investments in financial markets. Urban school districts have already laid off thousands of teachers, increased class sizes, pushed to reduce teacher pensions, and cut out music, gym, kindergarten, bilingual programs, after-school and youth programs, and more. These austerity measures are certain to hit hardest those least able to bear them, low-income schools of color, where these are the very programs that offer some hope.37

          Dangers and Opportunities of the Present Moment

          Social austerity ultimately creates contradictions for capital as well. As capital continues to flow into the inflated financial sector at the expense of the productive sector, and as the state pays for the crisis with cuts in education and general social welfare, there is an unfolding crisis of social reproduction.38 Public education plays an important role in the reproduction of the labor force, political legitimation, and social stability. The problem with franchising and contracting out schools to an assortment of private operators is that the state has less control over these functions of schools. Inflated class sizes, cuts in education programs, and teachers' eroding salaries and working conditions can only degrade public education, particularly in low-income schools. This will exacerbate an already two-tiered education system. Detroit's Emergency Financial Manager Robert Bobb (a graduate of the Broad Foundation's Superintendent Academy) has proposed closing half the district's schools and putting up to sixty students in a classroom.39

          Under Governor Walker's plan, two thousand Wisconsin teachers and school staff would lose their jobs, and the average teacher would lose $5500 to $7000 in net compensation. The average 2011 teacher salary in Wisconsin is $50,627.40 According to a new report by the OECD (Paine & Schleicher, 2011), the pay, working conditions, and qualifications of U.S. teachers are already low in comparison with those of teachers in other advanced economies.41 From the standpoint of capital, serious disinvestment in public education has consequences for the preparation of its workforce. It also has implications for social stability, with more students in affected schools dropping out. The security state is a looming presence in this scenario.

          Wisconsin foreshadows the political cost of undermining the living standards and expectations of those who have come to be defined as "middle class," such as teachers. The Tea Party agenda is laying bare the capitalist offensive against the working class. A twenty-foot long banner proclaiming, "Tax the Rich" hung from the third floor of the Wisconsin State Capitol rotunda throughout the people's occupation. With leaflets and treatises plastering the walls of the capitol, rallies filled with home-made placards, and hours of conversation between unlikely allies, the three-week-long Wisconsin occupation and rallies were a giant democratic political forum. And this was replicated in town squares throughout the state. For many, this was their first political protest.

          The results of this politicization are yet to be seen, but the budget bills themselves are making connections for people between cuts in education and the assault on teacher unions with those of other public- and private-sector workers and farmers. Legions of firefighters and their families from towns around the state marched militantly through the capitol building, fists pumping the air as they chanted, "The workers united will never be defeated."

          In addition to slashing state aid to public schools by nearly $834 million, Walker has proposed sweeping changes to Medicaid-funded programs including BadgerCare, which provides health coverage to low-income Wisconsin families, and a $96 million cut in aid to local governments, including cities, towns, and counties. At the rally of over one hundred thousand on March 12, farmers, in a show of "Farm Labor Unity," drove their tractors to Madison for a "tractorcade" around the capitol building. Roughly eleven thousand farmers receive BadgerCare. This is a compelling moment to connect attacks on education to the capitalist crisis, particularly the parasitic financialization, war spending, and tax cuts for the rich that have looted the public coffers, bankrupted states, and threaten our schools. This is, moreover, an opportunity to expose the crisis-ridden logic of capitalism itself and to engage in serious discussion about the world we wish to see.

          The Potential of an Education Movement

          In the past few years, a multifaceted education movement in and outside classrooms has emerged against neoliberal education restructuring and in resistance to racism, gender and heterosexist oppression, and militarization of schools. Liberatory education projects and social-justice-oriented schools have sprouted up in cracks in the public system. There are freedom schools and popular education projects outside public schools, and community-based youth activist organizations across the country. The immigrant rights movement and organized opposition to the criminalization of youth through the "school to prison pipeline" have begun to link political and educational issues. Organizations of activist teachers and community educators in a number of cities have joined together to form national networks. (The Education for Liberation Network and Teacher Activist Groups are examples.) These groups have joined parents and students in community coalitions to stop school closings and privatization, prevent mayoral takeovers of urban school districts, defend undocumented students, and challenge high-stakes testing. With the victory of a progressive caucus to lead the Chicago Teachers Union, there is also a significant progressive force in the heart of the American Federation of Teachers. Although there is some overlap, these various streams are not yet organized around a coherent program or analysis of the problem.42

          The outpouring of teachers and other workers against union busting and austerity budgets has changed the terrain. Thousands of people who have never attended a protest before are in the streets and engaged politically. So far, this motion is mainly defensive, and some are willing to make concessions to help capitalism extricate itself from the crisis.43 On the one hand, there is the possibility that the protests will be subsumed by the electoral politics of the Democratic Party, much like the current focus in Wisconsin on recalling Republican legislators, or diverted to scapegoating people of color and immigrants. On the other hand, the challenge to taken-for-granted living standards opens a space to see social arrangements differently. This is a moment that can reveal the systemic connections between the bailout of Wall Street and social privations, a moment to connect attacks on workers with other social struggles-particularly to see the common threads between wars for domination, oppression of people of color, and the unfolding austerity regime.44

          Buried in Governor Walker's proposed 2012-2013 budget is a measure to repeal access to in-state tuition for undocumented students and eliminate Food Share benefits (food stamps) for documented ("legal")immigrants.45 How Wisconsin's majority white teachers, union members, and farmers will respond will be important. Bridging deep divisions along lines of race, ethnicity, and immigrant status, and challenging racial oppression are central to building a counter-hegemonic alliance with the power to defeat austerity measures and move toward a proactive politics that challenges capitalism itself. Although it is only now coalescing, a movement that links education with immigrant rights and other social struggles can play an important role in teacher unions and in student community, and parent organizations.

          In classrooms, critical educators are positioned to help young people understand why their schools are under attack and to "connect the dots" to the structural crisis of capitalism. Revitalized teacher unions are in a strategic position to insist that Wall Street pay for the crisis. Although the U.S. context is different, there is much to learn from social movement teacher unionism outside the United States (e.g., in Oaxaca, Honduras, and South Africa) and its central role in social struggles for democracy, against neoliberalism, and for social liberation.46 This is a moment not simply to defend the public education we have, but to advocate for a just, inclusive, democratic, humanizing education that prefigures the society we wish to have-one premised not on exploitation but on the full development of human beings in social solidarity.

          Pauline Lipman (plipman [at] uic.edu) is an education activist and professor of educational policy studies at University of Illinois at Chicago. Her latest book is The New Political Economy of Urban Education: Neoliberalism, Race, and the Right to the City (2011).

          [Nov 23, 2015] An Unforgiving Musical-Chairs Economy

          Notable quotes:
          "... Every year, in the backwaters of America, that economy seems to put out fewer and fewer chairs. ..."
          "... Not pull the wool over our eyes. But they both do defend and rely on a mainstream neoliberal, New Keynesian models of the economy which I think paint a very inadequate picture of the way our economy actually functions and is woefully inadequate as a guide for policy action - especially of the kinds that are urgently needed in 2015. ..."
          "... I dont think Krugman and DeLong are the forces of evil. I just think the United States is in much worse shape then they seem prepared to come to grips with, and is in need of much more radical social and economic change then they seem willing to propose or entertain. They are stuck in the past and weighed down by defunct orthodoxies and theoretical abstractions. ..."
          "... Most of my general criticisms of economists, by the way, are aimed at macroeconomists. I listened to a lecture by Robert Schiller the other day about his new book, and thought it sounded like great stuff. I think there is lots of great empirical work going on based on nuanced and up-to-date theories of human behavior. The macro guys often claim - on the basis of some kind of anti-reductionist credo - that their grand uniform economic theories of everything can float free of any foundation in theories of the actual behavior of actual human beings. But the theories are in practice based on analogies from individual or firm behavior to macro behavior, and the behavioral models on which they are based are extremely crude. ..."
          "... But basically, I think my main axe to grind is that these economists are just not sufficiently appalled by the moral horrors of the social world we live in. There is a general lack of zeal. ..."
          "... Sadly, it is also the case that the Democrats have backed way off economic issues since the late 1970s. At the time they suffered a massive fundraising disadvantage and wanted to attract big money donors (still Hillarys position). ..."
          November 22, 2015 | Economist's View '

          Harold Pollack (the beginning of the post talks about a recent column in the NY Times noting that "The people who most rely on the safety-net programs secured by Democrats are, by and large, not voting against their own interests by electing Republicans. Rather, they are not voting, period," and how that has turned blues states red):

          What's the matter with Kentucky?: ...Viewed from afar, one might think that categories such as "deserving poor" or "disabled" are reasonably clear-cut. Viewed up-close, things seem much more fuzzy. Many people who rely on public aid straddle the boundaries between deserving and undeserving, disabled and able-bodied. Many of us know people who receive various public benefits, and who might not need to rely on these programs if they made better choices, if they learned how to not talk back at work, if they had a better handle on various self-destructive behaviors, if they were more willing to take that crappy job and forego disability benefits, etc.

          It's easy, even viewing our own friends and relatives, to confuse cause and effect regarding more intimate barriers. A sad reality of psychiatric disorders is that the very symptoms which inflict mental pain on the sufferer can make themselves felt to others in ways that undermine empathy and personal relationships.

          Across the Thanksgiving dinner table, you see these human frailties and failures more intensely and with greater granularity than the labor economist could possibly see running cold data at the Census Bureau. But operating at high altitude, the labor economist sees structural issues you can't see from eye level.

          There have always been vulnerable people, whose troubles arise from an impossible-to-untangle mixture of bad luck, destructive behaviors, and difficult personal circumstance. That economist can't see why your imperfect cousin can't seem to get it together to hold a basic job. She can see that your cousin is being squeezed out by an unforgiving musical-chairs economy. Every year, in the backwaters of America, that economy seems to put out fewer and fewer chairs.

          Posted by Mark Thoma on Sunday, November 22, 2015 at 12:10 PM in Economics | Permalink Comments (26)

          pgl said...

          "Supporters of expanded social provision must find better ways to engage poor people, to get out their votes."

          Of course Republicans are doing everything they can to keep poor people from voting.

          cm -> pgl...
          Also in the US, elections seem to always (?) take place on work days, whereas e.g. in Germany the happen on Sundays as a rule. Of course one can vote by mail, but that requires a pretty stable and reliable mailing address ...
          pgl -> cm...
          In the South the Republicans loathe the idea that voting might occur on Sundays. Seems they fear those black mega churches turning out the vote.
          cm -> pgl...
          I was thinking more of people being unable to (or "preferring" not to) miss work, and not being able to show up for work as well as vote on the same day.

          Do you think that people don't have enough willpower to sustain their decision to vote from Sunday to Tuesday? Or that they would vote only under the social pressure from the church group?

          pgl -> cm...

          I'm just saying let them vote when they can. As in your first sentence here.

          Number 6 said...

          The US is a militarist-imperialist, rentier-socialist, friendly fascist (for now) corporate-state for the top 0.001-1% to ~10% (the best gov't the money of the top 0.001-1% can buy) and a moronocracy for the rest of us, i.e., "no representation without taxation".

          What is needed is 'Merikans for Moronocracy (or Morons for a New 'Merika) for us morons in red AND blue states to write in our own names for CEO of the fascist corporate-state. Imagine tens of millions of us unaffiliated morons writing in Joe Moron for POTUS and Jane Moron for Veep (or switch for your gender-specific or non-specific preference, or not).

          Surely, none of us could do any worse for the bottom 90%+ than the Establishmet top 0.001%'s "choices" over the past 30-40+ years, or the current lot of Dame Hilbillary, The Donald, Crazy Carson, et al. (Of course, Bernie Sanders speaks to the values and objectives of the vast majority of 'Merikans who are actually democratic socialists but have been propagandized for at least a century or more not to know it.)

          Morons of the world unite!!!

          anne said...

          http://krugman.blogs.nytimes.com/2015/11/22/thinking-about-the-trumpthinkable/

          November 22, 2015

          Thinking About the Trumpthinkable
          By Paul Krugman

          Alan Abramowitz * reads the latest Washington Post poll and emails:

          "Read these results ** and tell me how Trump doesn't win the Republican nomination? I've been very skeptical about this all along, but I'm starting to change my mind. I think there's at least a pretty decent chance that Trump will be the nominee.

          "Here's why I think Trump could very well end up as the nominee:

          "1. He's way ahead of every other candidate now and has been in the lead or tied for the lead for a long time.

          "2. The only one even giving him any competition right now is Carson who is even less plausible and whose support is heavily concentrated among one (large) segment of the base-evangelicals.

          "3. Rubio, the great establishment hope now, is deep in third place, barely in double digits and nowhere close to Trump or Carson.

          "4. By far the most important thing GOP voters are looking for in a candidate is someone to 'bring needed change to Washington.'

          "5. He is favored on almost every major issue by Republican voters including immigration and terrorism by wide margins. The current terrorism scare only helps him with Republicans. They want someone who will "bomb the shit" out of the Muslim terrorists.

          "6. There is clearly strong support among Republicans for deporting 11 million illegal immigrants. They don't provide party breakdown here, but support for this is at about 40 percent among all voters so it's got to be a lot higher than that, maybe 60 percent, among Republicans.

          "7. If none of the totally crazy things he's said up until now have hurt him among Republican voters, why would any crazy things he says in the next few months hurt him?

          "8. He's very strong in several of the early states right now including NH, NV and SC. And he could do very well on 'Super Tuesday' with all those southern states voting. I can't see anyone but Trump or Carson winning in Georgia right now, for example, most likely Trump.

          "9. And as for the idea of the GOP establishment ganging up on him and/or uniting behind another candidate like Rubio, that's at least as likely to backfire as to work. And even if it works, what's to stop Trump from then running as an independent?"

          Indeed. You have a party whose domestic policy agenda consists of shouting "death panels!," whose foreign policy agenda consists of shouting "Benghazi!," and which now expects its base to realize that Trump isn't serious. Or to put it a bit differently, the definition of a GOP establishment candidate these days is someone who is in on the con, and knows that his colleagues have been talking nonsense. Primary voters are expected to respect that?

          * http://polisci.emory.edu/home/people/faculty/abramowitz-alan.html

          ** http://apps.washingtonpost.com/g/page/politics/washington-post-abc-news-poll-nov-15-19-2015/1880/

          gunste -> anne...
          The reason may well be that there is a vast group of voters who consistently vote against their better interests, because their mindset is conservative, though they are actually middle class or lower. - Kansas appears to be a great example. These people do not think things through but vote on their gut (conservative they think) instincts. Education has a great deal to do with that voting decision. Thus we seem to see a blue collar worker with a median income take positions similar to that of the 1%. Curious but educational level is the likely answer. Such voters are also much more susceptible to propaganda based on tainted or false information which is circulated freely by many of the talking heads on radio and TV. Note that the Republicans work assiduously to discourage and restrict voting by gerrymandering, rules, voting days and sometimes requiting ID. - Democracy in America is a theoretical concept now.
          cm said...
          The Musical Chairs happens not only in the backwaters. It happens in and around the major job centers too. Nor is it only a matter of no job vs. some job, also how well the job is paid, working conditions, full time vs. part time, predictable work hours or on call (and only on-premises hours paid), etc.

          It also doesn't just affect people with various "problems". There is the meme that when you are good you will always find a job, but that only works when employers are actually hiring. And the unstated part is that the job will be at your level of skill/ability. In "tech", and probably most "high skilled" fields, employers have a rather strong preference for an unbroken career in the field, you are basically defined by the "lowest" work you have done recently.

          Dan Kervick -> Peter K....
          "Kervick on the other hand tells us everyday that Krugman and DeLong are trying to pull the wool over our eyes on behalf of an evil neoliberal consensus."

          Not pull the wool over our eyes. But they both do defend and rely on a mainstream neoliberal, New Keynesian models of the economy which I think paint a very inadequate picture of the way our economy actually functions and is woefully inadequate as a guide for policy action - especially of the kinds that are urgently needed in 2015.

          I don't think Krugman and DeLong are the forces of evil. I just think the United States is in much worse shape then they seem prepared to come to grips with, and is in need of much more radical social and economic change then they seem willing to propose or entertain. They are stuck in the past and weighed down by defunct orthodoxies and theoretical abstractions.

          Maybe in their hearts they really do grasp the magnitude of the problems, but just think the political environment is not hospitable to an honest airing of the alternatives. Maybe they are scared like everyone else.

          But until prominent, established intellectuals with high profiles begin to come forward with bolder alternatives to late 20th century thinking, the America that is being crushed underfoot by an out-of-control capitalist leviathan is going to have to face a lot of unwelcome headwinds in their drive for liberating progressive change.

          Syaloc -> Dan Kervick...
          So basically you're calling for a return to a more institutional form of economics led by figures like John Kenneth Galbraith?
          Dan Kervick -> Syaloc...
          Yes, a more concrete, detailed, institution-based picture of the economic world, with more attention to history, other branches of social science, moral philosophy, cultural criticism, etc. - as well as just a bit more street smarts. Macroeconomists seem to have siloed themselves in self-contained theoretical world, where engagement with the human sciences of power and control, and the moral implications of those fields of study, are ignored.

          Most of my general criticisms of economists, by the way, are aimed at macroeconomists. I listened to a lecture by Robert Schiller the other day about his new book, and thought it sounded like great stuff. I think there is lot's of great empirical work going on based on nuanced and up-to-date theories of human behavior. The macro guys often claim - on the basis of some kind of anti-reductionist credo - that their grand uniform economic theories of everything can float free of any foundation in theories of the actual behavior of actual human beings. But the theories are in practice based on analogies from individual or firm behavior to macro behavior, and the behavioral models on which they are based are extremely crude.

          But basically, I think my main axe to grind is that these economists are just not sufficiently appalled by the moral horrors of the social world we live in. There is a general lack of zeal.

          djb said...
          a lot of it , I am sure, has to do with the "there is no difference between democrats and republicans" constant brainwashing

          which helps the republicans big time

          DrDick -> djb...
          Sadly, it is also the case that the Democrats have backed way off economic issues since the late 1970s. At the time they suffered a massive fundraising disadvantage and wanted to attract big money donors (still Hillary's position).
          djb -> DrDick...
          still republicans are way worse especially now

          DrDick said in reply to djb...

          True, but for the poor, it is quite obvious that no one really gives a damn about them. Why should they vote when all they get is bailouts for banksters and the TPP? Right now, Sanders is the only one talking about programs that would really help them and he is a long shot (and I am a Sanders supporter).

          Avraam Jack Dectis said...
          .
          A good economy compensates for much social dysfunction.

          A bad economy moves people toward the margins, afflicts those near the margins and kills those at the margins.

          This is what policy makers should consider as they pursue policies that do not put the citizen above all else.

          cm -> Avraam Jack Dectis...
          "A good economy compensates for much social dysfunction."

          More than that, it prevents the worst of behaviors that are considered an expression of dysfunction from occurring, as people across all social strata have other things to worry about or keep them busy. Happy people don't bear grudges, or at least they are not on top of their consciousness as long as things are going well.

          This could be seen time and again in societies with deep and sometimes violent divisions between ethnic groups where in times of relative prosperity (or at least a broadly shared vision for a better future) the conflicts are not removed but put on a backburner, or there is even "finally" reconciliation, and then when the economy turns south, the old grudges and conflicts come back (often not on their own, but fanned by groups who stand to gain from the divisions, or as a way of scapegoating).

          [Nov 23, 2015] The Crisis of World Order

          It's the same PNAC propaganda all over again.
          Notable quotes:
          "... From the man who brought you the Iraq war and the rise of ISIS--how to solve the ISIS crisis. ..."
          "... Youd think ppl who brought the Iraq war, the best recruiters of ISIS, would be nowhere to be seen; but no, are telling how to deal w/ISIS. ..."
          "... Narrative is the foundation of their skewed analysis. Their object is to sell perpetual war using super high tech, exquisitely expensive, contractor maintained versions of WW II formations to expired resources eternally for the profits they deliver. They starve the safety net to pay for their income security. ..."
          "... ... In July of last year, the New York Times ran two pieces tying Clinton to the neoconservative movement. In "The Next Act of the Neocons," (*) Jacob Heilbrunn argued that neocons like historian Robert Kagan are putting their lot in with Clinton in an effort to stay relevant while the GOP shies away from its past interventionism and embraces politicians like Senator Rand Paul: ..."
          "... And the thing is, these neocons have a point. Mrs. Clinton voted for the Iraq war; supported sending arms to Syrian rebels; likened Russia's president, Vladimir V. Putin, to Adolf Hitler; wholeheartedly backs Israel; and stresses the importance of promoting democracy. ..."
          "... It's easy to imagine Mrs. Clinton's making room for the neocons in her administration. No one could charge her with being weak on national security with the likes of Robert Kagan on board ..."
          "... Kagan served on Clinton's bipartisan foreign policy advisory board when she was Secretary of State, has deep neocon roots. ..."
          "... A month before the Heilbrunn piece, the Times profiled Kagan ( ..."
          "... ), who was critical of Obama's foreign policy, but supported Clinton. "I feel comfortable with her on foreign policy," Kagan told the Times. "If she pursues a policy which we think she will pursue … it's something that might have been called neocon, but clearly her supporters are not going to call it that." ... ..."
          "... Are Neocons Getting Ready to Ally With Hillary Clinton? http://nyti.ms/1qJ4eLN ..."
          "... Robert Kagan Strikes a Nerve With Article on Obama Policy http://nyti.ms/UEuqtB ..."
          "... doublethink has become synonymous with relieving cognitive dissonance by ignoring the contradiction between two world views – or even of deliberately seeking to relieve cognitive dissonance. (Wikipedia) ..."
          Nov. 20, 2015 | WSJ

          ...Europe was not in great shape before the refugee crisis and the terrorist attacks. The prolonged Eurozone crisis eroded the legitimacy of European political institutions and the centrist parties that run them, while weakening the economies of key European powers. The old troika-Britain, France and Germany-that used to provide leadership on the continent and with whom the U.S. worked most closely to set the global agenda is no more. Britain is a pale shadow of its former self. Once the indispensable partner for the U.S., influential in both Washington and Brussels, the mediator between America and Europe, Britain is now unmoored, drifting away from both. The Labor Party, once led by Tony Blair, is now headed by an anti-American pacifist, while the ruling Conservative government boasts of its "very special relationship" with China.

          ... ... ...

          There is a Russian angle, too. Many of these parties, and even some mainstream political movements across the continent, are funded by Russia and make little secret of their affinity for Moscow. Thus Prime Minister Viktor Orban of Hungary has praised "illiberalism" and made common ideological cause with Russian President Vladimir Putin. In Germany, a whole class of businesspeople, politicians, and current and former government officials, led by former Chancellor Gerhard Schröder, presses constantly for normalized relations with Moscow. It sometimes seems, in Germany and perhaps in all of Europe, as if the only person standing in the way of full alliance with Russia is German Chancellor Angela Merkel.

          Now the Syrian crisis has further bolstered Russia's position. Although Europeans generally share Washington's discomfort with Moscow's support for Mr. Assad and Russia's bombing of moderate Syrian rebels, in the wake of the Paris attacks, any plausible partner in the fight against Islamic State seems worth enlisting. In France, former President Nicolas Sarkozy has long been an advocate for Russia, but now his calls for partnership with Moscow are echoed by President François Hollande, who seeks a "grand coalition" with Russia to fight Islamic State.

          Where does the U.S. fit into all this? The Europeans no longer know, any more than American allies in the Middle East do. Most Europeans still like Mr. Obama. After President George W. Bush and the Iraq war, Europeans have gotten the kind of American president they wanted. But in the current crisis, this new, more restrained and intensely cautious post-Iraq America has less to offer than the old superpower, with all its arrogance and belligerence.

          The flip side of European pleasure at America's newfound Venusian outlook is the perception, widely shared around the world, that the U.S. is a declining superpower, and that even if it is not objectively weaker than it once was, its leaders' willingness to deploy power on behalf of its interests, and on behalf of the West, has greatly diminished. As former German Foreign Minister Joschka Fischer recently put it, the U.S. "quite obviously, is no longer willing-or able-to play its old role."

          Mr. Fischer was referring specifically to America's role as the dominant power in the Middle East, but since the refugee crisis and the attacks in Paris, America's unwillingness to play that role has reverberations and implications well beyond the Middle East. What the U.S. now does or doesn't do in Syria will affect the future stability of Europe, the strength of trans-Atlantic relations and therefore the well-being of the liberal world order.

          This is no doubt the last thing that Mr. Obama wants to hear, and possibly to believe. Certainly he would not deny that the stakes have gone up since the refugee crisis and especially since Paris. At the very least, Islamic State has proven both its desire and its ability to carry out massive, coordinated attacks in a major European city. It is not unthinkable that it could carry out a similar attack in an American city. This is new.

          ... ... ...

          In 2002, a British statesman-scholar issued a quiet warning. "The challenge to the postmodern world," the diplomat Robert Cooper argued, was that while Europeans might operate within their borders as if power no longer mattered, in the world outside Europe, they needed to be prepared to use force just as in earlier eras. "Among ourselves, we keep the law, but when we are operating in the jungle, we must also use the laws of the jungle," he wrote. Europeans didn't heed this warning, or at least didn't heed it sufficiently. They failed to arm themselves for the jungle, materially and spiritually, and now that the jungle has entered the European garden, they are at a loss.

          With the exercise of power barely an option, despite what Mr. Hollande promises, Europeans are likely to feel their only choice is to build fences, both within Europe and along its periphery-even if in the process they destroy the very essence of the European project. It is this sentiment that has the Le Pens of Europe soaring in the polls.

          What would such an effort look like? First, it would require establishing a safe zone in Syria, providing the millions of would-be refugees still in the country a place to stay and the hundreds of thousands who have fled to Europe a place to which to return. To establish such a zone, American military officials estimate, would require not only U.S. air power but ground forces numbering up to 30,000. Once the safe zone was established, many of those troops could be replaced by forces from Europe, Turkey, Saudi Arabia and other Arab states, but the initial force would have to be largely American.

          In addition, a further 10,000 to 20,000 U.S. troops would be required to uproot Islamic State from the haven it has created in Syria and to help local forces uproot it in Iraq. Many of those troops could then be replaced by NATO and other international forces to hold the territory and provide a safe zone for rebuilding the areas shattered by Islamic State rule.

          At the same time, an internationally negotiated and blessed process of transition in Syria should take place, ushering the bloodstained Mr. Assad from power and establishing a new provisional government to hold nationwide elections. The heretofore immovable Mr. Assad would face an entirely new set of military facts on the ground, with the Syrian opposition now backed by U.S. forces and air power, the Syrian air force grounded and Russian bombing halted. Throughout the transition period, and probably beyond even the first rounds of elections, an international peacekeeping force-made up of French, Turkish, American and other NATO forces as well as Arab troops-would have to remain in Syria until a reasonable level of stability, security and inter-sectarian trust was achieved.

          Is such a plan so unthinkable? In recent years, the mere mention of U.S. ground troops has been enough to stop any conversation. Americans, or at least the intelligentsia and political class, remain traumatized by Iraq, and all calculations about what to do in Syria have been driven by that trauma. Mr. Obama's advisers have been reluctant to present him with options that include even smaller numbers of ground forces, assuming that he would reject them. And Mr. Obama has, in turn, rejected his advisers' less ambitious proposals on the reasonable grounds that they would probably be insufficient.

          This dynamic has kept the president sneering at those who have wanted to do more but have been reluctant to be honest about how much more. But it has also allowed him to be comfortable settling for minimal, pressure-relieving approaches that he must know cannot succeed but which at least have the virtue of avoiding the much larger commitment that he has so far refused to make.

          The president has also been inclined to reject options that don't promise to "solve" the problems of Syria, Iraq and the Middle East. He doesn't want to send troops only to put "a lid on things."

          In this respect, he is entranced, like most Americans, by the image of the decisive engagement followed by the victorious return home. But that happy picture is a myth. Even after the iconic American victory in World War II, the U.S. didn't come home. Keeping a lid on things is exactly what the U.S. has done these past 70 years. That is how the U.S. created this liberal world order.

          In Asia, American forces have kept a lid on what had been, and would likely be again, a dangerous multisided conflict involving China, Japan, Korea, India and who knows who else. In Europe, American forces put a lid on what had been a chronic state of insecurity and war, making it possible to lay the foundations of the European Union. In the Balkans, the presence of U.S. and European troops has kept a lid on what had been an escalating cycle of ethnic conflict. In Libya, a similar international force, with even a small American contingent, could have kept the lid on that country's boiling caldron, perhaps long enough to give a new, more inclusive government a chance.

          Preserving a liberal world order and international security is all about placing lids on regions of turmoil. In any case, as my Brookings Institution colleague Thomas Wright observes, whether or not you want to keep a lid on something really ought to depend on what's under the lid.

          At practically any other time in the last 70 years, the idea of dispatching even 50,000 troops to fight an organization of Islamic State's description would not have seemed too risky or too costly to most Americans. In 1990-91, President George H.W. Bush, now revered as a judicious and prudent leader, sent half a million troops across the globe to drive Iraq out of Kuwait, a country that not one American in a million could find on a map and which the U.S. had no obligation to defend. In 1989, he sent 30,000 troops to invade Panama to topple an illegitimate, drug-peddling dictator. During the Cold War, when presidents sent more than 300,000 troops to Korea and more than 500,000 troops to Vietnam, the idea of sending 50,000 troops to fight a large and virulently anti-American terrorist organization that had seized territory in the Middle East, and from that territory had already launched a murderous attack on a major Western city, would have seemed barely worth an argument.

          Not today. Americans remain paralyzed by Iraq, Republicans almost as much as Democrats, and Mr. Obama is both the political beneficiary and the living symbol of this paralysis. Whether he has the desire or capacity to adjust to changing circumstances is an open question. Other presidents have-from Woodrow Wilson to Franklin Roosevelt to Bill Clinton-each of whom was forced to recalibrate what the loss or fracturing of Europe would mean to American interests. In Mr. Obama's case, however, such a late-in-the-game recalculation seems less likely. He may be the first president since the end of World War II who simply doesn't care what happens to Europe.

          If so, it is, again, a great irony for Europe, and perhaps a tragic one. Having excoriated the U.S. for invading Iraq, Europeans played no small part in bringing on the crisis of confidence and conscience that today prevents Americans from doing what may be necessary to meet the Middle Eastern crisis that has Europe reeling. Perhaps there are Europeans today wishing that the U.S. will not compound its error of commission in Iraq by making an equally unfortunate error of omission in Syria. They can certainly hope.

          Mr. Kagan is a senior fellow at the Brookings Institution and the author of "Of Paradise and Power: America and Europe in the New World Order" and, most recently, "The World America Made."

          Selected Skeptical Comments
          anne said... , November 22, 2015 at 05:50 AM
          https://twitter.com/BrankoMilan

          Branko Milanovic ‏@BrankoMilan

          From the man who brought you the Iraq war and the rise of ISIS--how to solve the ISIS crisis.

          Strobe Talbott @strobetalbott

          A clarion call by @BrookingsFP's Bob Kagan. Hope (& bet) POTUS has read it. Would-be successors should as well. http://www.wsj.com/articles/the-crisis-of-world-order-1448052095

          9:03 AM - 21 Nov 2015

          anne said in reply to anne... , November 22, 2015 at 05:50 AM

          https://twitter.com/BrankoMilan/status/668114578866221056

          Branko Milanovic‏ @BrankoMilan

          You'd think ppl who brought the Iraq war, the best recruiters of ISIS, would be nowhere to be seen; but no, are telling how to deal w/ISIS.

          ilsm said in reply to anne...

          Narrative is the foundation of their skewed analysis. Their object is to sell perpetual war using super high tech, exquisitely expensive, contractor maintained versions of WW II formations to expired resources eternally for the profits they deliver. They starve the safety net to pay for their income security.


          Fred C. Dobbs said in reply to anne...

          Neoconservativism Is Down But Not Out of the 2016 Race

          http://bloom.bg/1EpwSou
          via @Bloomberg - February 18, 2015

          ... In July of last year, the New York Times ran two pieces tying Clinton to the neoconservative movement. In "The Next Act of the Neocons," (*) Jacob Heilbrunn argued that neocons like historian Robert Kagan are putting their lot in with Clinton in an effort to stay relevant while the GOP shies away from its past interventionism and embraces politicians like Senator Rand Paul:

          'Other neocons have followed Mr. Kagan's careful centrism and respect for Mrs. Clinton. Max Boot, a senior fellow at the Council on Foreign Relations, noted in the New Republic this year that "it is clear that in administration councils she was a principled voice for a strong stand on controversial issues, whether supporting the Afghan surge or the intervention in Libya."

          And the thing is, these neocons have a point. Mrs. Clinton voted for the Iraq war; supported sending arms to Syrian rebels; likened Russia's president, Vladimir V. Putin, to Adolf Hitler; wholeheartedly backs Israel; and stresses the importance of promoting democracy.

          It's easy to imagine Mrs. Clinton's making room for the neocons in her administration. No one could charge her with being weak on national security with the likes of Robert Kagan on board.'

          (The story also notes, prematurely, that the careers of older neocons like Wolfowitz are "permanently buried in the sands of Iraq.")

          Kagan served on Clinton's bipartisan foreign policy advisory board when she was Secretary of State, has deep neocon roots. He was part of the Project for a New American Century, a now-defunct think tank that spanned much of the second Bush presidency and supported a "Reaganite policy of military strength and moral clarity." PNAC counted Kagan, Wolfowitz, Donald Rumsfeld, William Kristol, and Jeb Bush among its members. In 1998, some of its members-including Wolfowitz, Kagan, and Rumsfeld-signed an open letter to President Bill Clinton asking him to remove Saddam Hussein from power.

          A month before the Heilbrunn piece, the Times profiled Kagan (#), who was critical of Obama's foreign policy, but supported Clinton. "I feel comfortable with her on foreign policy," Kagan told the Times. "If she pursues a policy which we think she will pursue … it's something that might have been called neocon, but clearly her supporters are not going to call it that." ...

          *- Are Neocons Getting Ready to Ally With Hillary Clinton? http://nyti.ms/1qJ4eLN

          #- Robert Kagan Strikes a Nerve With Article on Obama Policy http://nyti.ms/UEuqtB

          Fred C. Dobbs said in reply to Fred C. Dobbs...

          (I may be a HRC supporter but Neocons still make me anxious.)

          'doublethink has become synonymous with relieving cognitive dissonance by ignoring the contradiction between two world views – or even of deliberately seeking to relieve cognitive dissonance.' (Wikipedia)


          [Nov 21, 2015] O'Malley best debate line: I think it may be time for us to quit taking advice from economists

          Notable quotes:
          "... I loved that Bernie Sanders was willing to drop the "F-bomb" (fraud) on Wall Street but he needs to swing much harder at Clinton. Clinton was quick to zing O'Malley as a hypocrite by noting he appointed a former hedge-fund manager to some state regulatory position when given the chance, but yet neither Sanders or O'Malley hit back with the fact that her only child and Clinton Foundation board member, Chelsea Clinton, worked for the hedge fund of a Clinton family pal and mega-donor in 2006. ..."
          "... I thought O'Malley had one of the best lines of the night when he said "I think it may be time for us to quit taking advice from economists" but it seemed to go mostly unnoticed and unappreciated. ..."
          "... Sanders did a relatively good job of deflecting and not getting zinged by the 'gotcha' question but a full-frontal assault would have been much better. Stronger, more Presidential and with the added bonus of giving neo-liberal economists under the pay of plutocrats a black eye. Another missed opportunity. The questioner set it up perfectly for him. I would have loved to see the expression on her corn-fed face when Bernie turned her 'gotcha' question that she had spent so much time and thought crafting into the home-run answer of the evening. Perhaps it could happen in a debate in the near future. ..."
          November 16, 2015 | naked capitalism

          Hillary Clinton Appeal to 9-11 to Defend Wall Street Donations Was Bad, But This Was Worse

          Jerry Denim, November 16, 2015 at 11:46 am

          I couldn't believe my eyes and ears during the debate when Sanders impugned Clinton's integrity for taking Wall Street super PAC money and she seemed to successfully deflect the accusation by going full-bore star-spangled sparkle eagle. She played the vagina card then quickly blurted out "9/11 New York" for applause while attempting conflate aiding and abetting Wall Street with the 9/11 attacks and patriotism. I couldn't believe people were clapping and I couldn't believe Clinton had the audacity to pull such a illogical and juvenile stunt on live television, but yet CBS reported her highest approval scores of the debate were registered during her confusing but emotionally rousing (for some people apparently) "vagina, 9/11" defense.

          I loved that Bernie Sanders was willing to drop the "F-bomb" (fraud) on Wall Street but he needs to swing much harder at Clinton. Clinton was quick to zing O'Malley as a hypocrite by noting he appointed a former hedge-fund manager to some state regulatory position when given the chance, but yet neither Sanders or O'Malley hit back with the fact that her only child and Clinton Foundation board member, Chelsea Clinton, worked for the hedge fund of a Clinton family pal and mega-donor in 2006. Neither candidate mentioned that her son-in-law and the father of her grandchild who she is so fond of mentioning, just so happens to be an extremely rich hedge fund manager who benefits handsomely from the Clinton's political connections and prestige. This isn't mud, this is extremely germane, factual material already on the public record. It gets to the core of who Hillary is and where her loyalties lie. Hillary herself chose to identify unregulated derivatives and the repeal of Glass-Steagall as the primary causes of the financial crisis. She either claimed directly or insinuated that she would address these issues as President, but surprisingly no one pointed out that it was her husband's administration that blocked Brooksley Born from regulating derivatives in the 1990's and it was her husband's administration that effectively repealed Glass-Steagal with the signing of Gramm-Leach-Billey act in 1999. It's not a stretch to say the Clinton's deregulation of Wall Street paved the way for the crisis of 2008 and the extreme income inequality of today. Wall Street is deeply unpopular and Bernie Sanders has built a candidacy on two main issues: attacking Wall Street and addressing income inequality. These are punches he can't afford not to throw at his rival when she holds a commanding lead in the polls plus the support of the DNC and media establishment. Clinton is deeply corrupt and beholden to Wall Street. She needs to be beaten with this stick hard and often. Attempting to deflect this very accurate, very damaging criticism by wrapping herself in the flag and invoking feminism is a cheap stunt that will only work so many times before people notice what she is doing. Bernie needs to swing harder and keep at it, he already has the right message and Clinton is highly vulnerable on his pet topics.

          I thought O'Malley had one of the best lines of the night when he said "I think it may be time for us to quit taking advice from economists" but it seemed to go mostly unnoticed and unappreciated. I would have loved a frontal assault on the validity and integrity of economists when the bespectacled lady in blue attempted to nail down Sanders with a 'gotcha' question implying raising the minimum wage would be catastrophic for the economy because "such-and-such economist" said so. There is so much disdain for science and academic credentials in the heartland right now, it seems crazy not to harness this anti-academic populist energy and redirect it to a deserving target like neo-liberal economists instead of climate scientists. " How's that Laffer curve working out for ya Iowa? Are you feeling the prosperity 'trickle down' yet?" Sanders did a relatively good job of deflecting and not getting zinged by the 'gotcha' question but a full-frontal assault would have been much better. Stronger, more Presidential and with the added bonus of giving neo-liberal economists under the pay of plutocrats a black eye. Another missed opportunity. The questioner set it up perfectly for him. I would have loved to see the expression on her corn-fed face when Bernie turned her 'gotcha' question that she had spent so much time and thought crafting into the home-run answer of the evening. Perhaps it could happen in a debate in the near future.

          [Nov 21, 2015] US Congresswoman Introduces Bill To Stop Illegal War On Assad; Says CIA Ops Must Stop

          "Any candidate who supports a safe no-fly zone in Syria, must admit that US/Coalition ground/air troops are need to enforce [it]
          Nov 21, 2015 | Zero Hedge
          Last month, US Congresswoman Tulsi Gabbard went on CNN and laid bare Washington's Syria strategy.

          In a remarkably candid interview with Wolf Blitzer, Gabbard calls Washington's effort to oust Assad "counterproductive" and "illegal" before taking it a step further and accusing the CIA of arming the very same terrorists who The White House insists are "sworn enemies."

          In short, Gabbard all but tells the American public that the government is lying to them and may end up inadvertently starting "World War III."

          For those who missed it, here's the clip:

          https://www.youtube.com/watch?v=IHkher6ceaA

          [Nov 21, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

          All this neoliberal talk about "maximizing shareholder value" and hidden redistribution mechanism of wealth up. It;s all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Who cares if the company will be destroyed if you have a golden parachute ?
          Notable quotes:
          "... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."
          "... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."
          "... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."
          "... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."
          "... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."
          "... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."
          "... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."
          "... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."
          "... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."
          "... "Results of all this financial engineering? Revenues of the S P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis." ..."
          November 21, 2015 | naked capitalism

          By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

          Magic trick turns into toxic mix.

          Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

          And there's a reason.

          IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

          Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

          "Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

          In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

          DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

          In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

          And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

          CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

          "None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

          Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

          This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

          Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

          Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

          "Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

          But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

          Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

          Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned...

          ... ... ...

          Selected Skeptical Comments

          Mbuna, November 21, 2015 at 7:31 am

          Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

          ng, November 21, 2015 at 8:58 am

          probably, in some or most cases, but the effect on the stock is the same.

          Alejandro, November 21, 2015 at 9:19 am

          Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).

          On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

          Jim, November 21, 2015 at 10:42 am

          More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.

          "Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."

          Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.

          Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?

          John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.

          Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

          [Nov 21, 2015] On the Lack of Courage in Regulators

          Notable quotes:
          "... Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along. ..."
          "... It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment. ..."
          Nov 21, 2015 | naked capitalism
          I'm embedding the text of a short but must-read speech by Robert Jenkins, a former banker, hedge fund manager, and regulator (Bank of England) who is now a Senior Fellow at Better Markets. If nothing else, be sure to look at the partial list of bank misconduct and activities currently under investigation.

          Jenkins points out that regulatory reform has fallen short on multiple fronts, and perhaps the most important is courage. Readers may understandably object to him giving lip service to the idea that Bernanke acted courageously during the crisis (serving the needs of banks via unconventional means is not tantamount to courage), but he is a Serious Person, and making a case against Bernanke would detract from his bigger message about the lack of guts post-crisis.

          Now there have been exceptions, like Benjamin Lawsky, Sheila Bair, Gary Gensler, Kara Stein, and in a more insider capacity, Danny Tarullo. Contrast their examples with the typical cronyism and lame rationalizations for inaction, particularly by the Department of Justice and the SEC. It's not obvious how to reverse the corrosion of our collective values. But it is important to remember than norms can shift much faster than most people think possible, with, for instance, the 1950s followed by the radicalism and shifts in social values of the 1960s, which conservative elements are still fighting to roll back.

          Michael G

          A link to a text version of the speech for those with uncooperative computers
          http://www.ianfraser.org/why-well-all-end-up-paying-for-the-feeble-response-to-the-banking-crisis/
          Worth reading

          James Levy

          We do not live in an economy or a polity that breeds or rewards the kind of public-mindedness and civic virtue that gives you courage. The author thinks the system needs courageous people, but posits no conception of where they would come from and how they would thrive in the current system (news flash: they won't). So this is a classic "I see the problem clearly but can't see that the solution is impossible under the current system" piece.

          TMock

          Agreed.

          For those who desire real solutions, try this…

          The Universal Principles of Sustainable Development

          http://www.triplepundit.com/2011/02/universal-principles-sustainable-development/

          Norb

          In Tavis Smiley's book, My Journey with Maya Angelou, he recounts an ongoing discussion the two of them entertained throughout the years concerning which trait, Love or Courage, was more important in realizing a full life. Angelou argued that acting courageously was the most important. Smiley saw love as the moving force. While important and moving, the discussion has the dead-end quality of not being able to move past the current system of injustice. I say this because in the end, both support incremental change to the existing system as the means to bring about social justice. The powerful elite have perfected the manipulation of incremental change to render it powerless.

          When trying to change a social system, courage is needed. Courage to form a vision of the future that is based on public-mindedness and civic virtues that bring justice into the world. Our current leaders are delivering the exact opposite of civic justice. Its time to call them out on their duplicity, and ignore their vision of the future.

          The courage that is needed today is not the courage to stand up to the criminals running things and somehow make them change. It is the courage to make them irrelevant. Change will come from the bottom up, one person at a time.

          cnchal

          And when one shows up, look what happens.

          The disturbing fact is that laws have been broken but law breaking has not touched senior management.

          If they knew, then they were complicit. If they did not, then they were incompetent. Alternatively, if the deserving dozens have indeed been banned from the field let the list be known – that we might see some of that "professional ostracism" of which Governor Carney speaks. One person who did lose his position and quite publicly at that was Martin Wheatley, the UK's courageous conduct enforcer.

          Meanwhile the chairman of Europe's largest bank, Douglas Flint at HSBC, remains in situ – despite having been on the board since 1995; despite having signed off on the acquisition of Household Finance; and despite having had oversight of tax entangled subsidiaries in Switzerland and money laundering units in Mexico. Oh, and you'll love this: the recently retired CEO of Standard Chartered is reportedly an advisor to Her Majesty's Government. Standard Chartered was among the first to be investigated for violations of rogue regime sanctions. The bank was fined heavily and may be so again.

          Courageous people get fired, which leads to no courageous people left.

          GlassHammer

          Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along.

          susan the other