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Alternatives aplenty

by Cyrille Wed Nov 2nd, 2011 at 06:52:26 AM EST

It's now out in the open: Paul Krugman is flirting with Tara.

However, Robin Wells (Paul Krugman's partner) need not worry. Tara is actually the impersonation of our rallying cry, There Are Real Alternatives, and of course the arch-nemesis of Margaret Thatcher's frightening offspring, TINA (There Is No Alternative).

front-paged by afew


This may not come as a surprise to regular readers of his blog, but it is now the sole topic of his New York Times' column, The path not taken. Read the whole thing, but let me take you through a few excerpts.

Financial markets are cheering the deal that emerged from Brussels early Thursday morning. Indeed, relative to what could have happened -- an acrimonious failure to agree on anything -- the fact that European leaders agreed on something, however vague the details and however inadequate it may prove, is a positive development.

At the time of writing, Krugman could not know how quickly it would become obvious that it was inadequate. On the day that his column was published, Italy had a bond auctions, that ended in the highest 10 years bond rates since joining the Euro. Some cheers.

But it's worth stepping back to look at the larger picture, namely the abject failure of an economic doctrine -- a doctrine that has inflicted huge damage both in Europe and in the United States.

The doctrine in question amounts to the assertion that, in the aftermath of a financial crisis, banks must be bailed out but the general public must pay the price. So a crisis brought on by deregulation becomes a reason to move even further to the right.

Well, using the full name would (in Washington's demented opinion making environment) somewhat lower the impact of his writing, but choosing to call it "doctrine" may well be a hint about Naomi Klein. True, there is more to the shock doctrine than this banks before public principle, but using any crisis to move further to the right is bread and butter for the shock doctrinaires.

This doctrine was sold both with claims that there was no alternative -- that both bailouts and spending cuts were necessary to satisfy financial markets -- and with claims that fiscal austerity would actually create jobs.

Hey, TINA was there! Hello TINA. Nevermind that she brought misery to everyone who ever danced with her (this is a family blog and I shall watch my metaphors), she never seems short of partners.

Now, however, the results are in, and the picture isn't pretty. [...] So bailing out the banks while punishing workers is not, in fact, a recipe for prosperity. But was there any alternative? Well, that's why I'm in Iceland, attending a conference about the country that did something different.

So how's it going? Iceland hasn't avoided major economic damage or a significant drop in living standards. But it has managed to limit both the rise in unemployment and the suffering of the most vulnerable; the social safety net has survived intact, as has the basic decency of its society.
[...]

And there's a lesson here for the rest of us: The suffering that so many of our citizens are facing is unnecessary. If this is a time of incredible pain and a much harsher society, that was a choice. It didn't and doesn't have to be this way.

Though she is not named, Tara's presence cannot be clearer. It cannot be said enough that there was an alternative, that there still is an alternative.

Of course, it will be trotted out (and was immediately in the comments to Krugman's column) that Iceland is a tiny country, that the failure of its banks did not lead to the systemic mayhem that the failure of most US banks would bring.
Fine. There is a systemic case for not letting huge banks fail. But that does not prevent making full nationalisation a precondition for the bailout, with total wiping of the shareholders (why should the state have to pay to become the owner of a bankrupt business?), and probably an over the board opening of opportunities for top management positions, unless they'd agree to work for the median salary until the banks are profitable again. Or something of the sort.

There was and is no economic case for preserving the wealth of wealthy stock market gamblers and boards of directors at whatever expense to the destitute.

There is a political one of course, in that wealthy people line up the pockets of powerful ones. Which makes the whole thing more of a political than an economic crisis (at least as far as the root cause is concerned). But economically, Tara beats Tina hands down everytime.

There is a future economic crisis lurking in the future of course, as scarcity hits us hard, but this is not what is hampering us now. And when it does hit, once again Tina would send us much faster down the drain when Tara could actually mean an improvement in the life of the greater numbers, crisis notwithstanding.

Never forget that when you see Tina being paraded. She is always the sexy face for a very vile advertising campaign.

Oh and, I forgot, but while Krugman pointed it out politely it need not stay that way:

Display:
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Oct 29th, 2011 at 11:32:44 AM EST
Is that a young Maggie Thatcher?

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Wed Nov 2nd, 2011 at 07:26:49 AM EST
[ Parent ]
Please correct me if I am wrong, as I have had a limited appetite for conservative "thought", but I do not recall any one making a case for "expansionary austerity" based on the details of ANY known school of economics, even "mainstream economics", flawed and feeble as it is. The whole case was one of conservatives asserting the necessity of doing what the wealthy wanted on political grounds, accompanied by baseless assertions that it would produce recovery, absent any real argument on economic grounds.

I do recall Krugman's columns trumpeting the renewed relevance of Keynes, who was exhumed from the shallow grave in which Friedman and the libertarian think tanks had buried him. But only a tiny minority of economists have even rigorously challenged the "mainstream" of economic orthodoxy, most notably and publicly Steve Keen, Michael Hudson, Jamie Gailbraith and Nouriel Roubini, but also including fund managers such as Paul McCulley, formerly of PIMCO, who had coined the term Minsky Moment in 1998, along with his contemporary advocates.

So far it seems it has been sufficient for the advocates of "mainstream economics" to simply ignore critics and intensify efforts to vilify Keynes based on critiques of Samuelson's synthesis, but not identified as such. Even now Krugman is not so bold as to assert alternative economic approaches or endorse non-mainstream economists. Part of the problem was illustrated by a talk Steve Keen recently gave to a generally sympathetic  audience of British economists, (Keen refers to it as the "George Monbiot Seminar" as Monbiot "got it"), still were unable to accept the role that debt has played in bringing on the current debacle, so strong is the spell cast by their academic training. This is particularly discouraging, as the best critiques for a general audience of the problems with the current approach have been in the Financial Times.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Oct 29th, 2011 at 11:48:10 AM EST
"I do not recall any one making a case for "expansionary austerity" based on the details of ANY known school of economics"

Well, it seems to be quite consistent with the Real Business Cycle drivel.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Oct 30th, 2011 at 02:19:12 AM EST
[ Parent ]
True. They do keep insisting that what we are experiencing was a "recession" and is now a "recovery" in a normal business cycle.  Almost all of the gains since 2009Q1 have gone to the financial sector. But that is a result of ZIRP and QE, not of "expansionary consolidation", and we - at ET at least - know that what we have been experiencing is not a recession. It is the beginning of a decade(s?) long unwind of debt built up since 1970. But "mainstream" economics has never accepted that debt matters and rejected Fisher's Debt Deflation Theory of Great Depressions. Worse, we have learned how to "extend and pretend" and have largely avoided writing down debt that cannot be paid, at least from the proceeds of the investments that were the objects of that debt.

If only the holders of wealth agreed with mainstream economics that debt doesn't matter we could write down the bad debt and be one step closer to actual recovery. But to them it is the only thing that matters. They just don't want it in their economic theories.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 30th, 2011 at 01:01:39 PM EST
[ Parent ]
My understanding is if the banks and other financial institutions wrote down their debt, marked to market, they'd be bankrupt.  Which would collapse the $822 billion a day US bond market, which would, IMHO, collapse major US corporations who depend on the Money and Bond markets for short and long term financing.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Oct 30th, 2011 at 01:10:25 PM EST
[ Parent ]
If you want to save the corporations that do something productive, take the banks in receivership, seperate into good abnk and bad bank, recapitalise good bank. Good bank then provides banking services. It is what Sweden, Finland and Norway did in the 90ies. It worked.

I even think the US did that in the 80ies, with the savings and loans crash. But I know less about that.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Oct 30th, 2011 at 02:43:08 PM EST
[ Parent ]
US banks haven't made direct investment in corporations in decades.  Now they are a leveraged Ponzi schemes waiting for the various bubbles to burst.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Oct 30th, 2011 at 02:54:58 PM EST
[ Parent ]
That is certainly not all the US banks, just the TBTFs and some of the next tier down. Simon Johnson recently wrote that Bill Hoenig of the Federal Reserve Bank of Kansas City is being brought to Washington as a top officer of the FDIC because he believes even a bank such as BOA can and should be put through a resolution process. If there is a reasonable chance of this being done with integrity and working, and I suspect there is, it should be attempted with BOA, Citi and Wells Fargo.

My fear is more that the process will be subverted politically and that wealthy malefactors will get to keep their money and power more than that it will be impossible to resolve a "TBTF". If you don't want to do something it is always nice if it is impossible.

But, even if a resolution fails and the whole system crashes, I believe that would be better than continuing as we are going. The longer this runs the greater the damage. And no real recovery is possible until the current bad debt is written down, and, probably, until the current financial incumbents are removed from power.

The only reason for temporizing is to spread awareness of the nature of the existing system and the need for fundamental change. The occupy movement is doing that and I suspect that the current effort to wall paper the Euro elephant will fail massively the first time the elephant moves -- which will be soon.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 30th, 2011 at 05:13:01 PM EST
[ Parent ]
As I said the other day, I think the various global TPTB and the TBTF (including them there Chinese ones) can wiggle and squiggle all they want, when the hammer comes down they are going to be sucking eggs along with the rest of us.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Oct 30th, 2011 at 05:20:32 PM EST
[ Parent ]
I was really responding to this comment, which seemed to caution against writing down the bad debt.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 30th, 2011 at 06:03:17 PM EST
[ Parent ]
Link for Simon Johnson article about Bill Hoenig.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 30th, 2011 at 05:55:41 PM EST
[ Parent ]
Actually, no, they would not be bankrupt in most cases, but their capital would be severely impaired (because each loan written down reduces the bank's capital by a small amount as well. Regulations (Basel II and other regulatory frameworks) require a certain amount of capital to be allocated to each loan made, based on various measures of default risk of loans. So if capital is impaired too much, banks are not permitted by regulatory authorities or best practices to make new loans.

Bankruptcy means unable to pay one's bills, and writing down loans (assets) in most cases also means writing down liabilities (the loans banks themselves take out from others to leverage their own capital while making loans to others).  So profitability would be reduced and in many cases losses would also be experienced by shareholders of banks, but bankruptcy would only occur in some cases.  Even in those cases, however, as the US TARP program showed, it is both easy and relatively costless to prevent those banks from failing if they are deemed too large to be allowed to do so.  Central banks, as lenders of last resort, can just print money, for free, and lend it to banks for the purpose of just keeping capital high enough on balance sheets to stay in business while the bank raises its own capital through retained earnings and other investments.  As long as the money isn't lent, it cannot produce inflation, so it is essentially just a waiver from the government which allows banks to continue operating outside of normal regulatory or best practice standards.

Why do things seem to work differently for banks than for other businesses? Because banks aren't in the business of making any real things, just arranging social commitments between people.  They are in the same business that government is -- organizing people to do things in common projects.  Just like in government, it really doesn't matter if banks run profits or deficits if their stakeholders are willing to let it pass -- willing to let some of their own commitments be relaxed and worked out later.

by santiago on Thu Nov 3rd, 2011 at 05:27:22 AM EST
[ Parent ]
Bankruptcy means unable to pay one's bills, and writing down loans (assets) in most cases also means writing down liabilities

That is a bold assertion. Are you really sure most of the loans due to be written off contain an automatic put option in their refinancing?

In any event, writing off a loan means that someone, somewhere will not have the money he thought he had. That buck can stop in four places: With the government, with the private bondholders, with the private shareholders, or with the depositors of depository institutions.

The FDIC means that the first and last options are essentially equivalent. So the question is whether the government wants to make good on the claims of shareholders and bondholders to insolvent institutions, or not.

I vote for "not," and if that causes bank runs, well then there's nothing wrong with a bank run that won't be solved by confiscating the bank, decapitating its management (metaphorically or literally, depending on whether it's done by the government or an angry mob), and repudiating every liability not held by an industrial firm or as an insured deposit.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 06:11:42 AM EST
[ Parent ]
Yes, I agree.  TARP worked in the US for what it was supposed to do -- avoid a bigger headache of rebuilding a system of credit from the ground up using people who've never worked in the field before (because you've fired the existing bankers). But given the low level of lending that society has by now adjusted itself to, another TARP would not be as necessary for that. The economy is already of such low performance that another "credit crisis" brought on by banks being taken over by the government (and thereby reducing their lending activities for a time while the new managers learn the ropes) cannot possibly affect things as much as they could in 2008.  People are already so risk averse that our consumption and investment behavior is largely immune to the effects of another bank meltdown.
by santiago on Thu Nov 3rd, 2011 at 09:44:25 AM EST
[ Parent ]
our consumption and investment behavior is largely immune to the effects of another bank meltdown.

Ah.

As optimistic about the effects of Capitalism as ever.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Nov 3rd, 2011 at 10:33:17 AM EST
[ Parent ]
It's actually a pessimistic outlook, if that's not what you meant.  Things are so bad now because of the banking shenanigans that those of us who could  be helped by credit are pretty much denied it already, individuals as well as businesses, and we have gone to other non-bank sources of credit or adjusted our spending to accommodate less access.  So if the banks reduce lending now for whatever reason, its affect on us will be less because new lending is so low already.  There really has never been a more painless time to jettison the present banking system altogether if there were ever enough support for doing it.
by santiago on Thu Nov 3rd, 2011 at 11:39:02 AM EST
[ Parent ]
There is nothing wrong with a collapse of private sector credit creation that would not be solved by a sufficiently large government investment outlay.

And given the present decrepit state of the infrastructure of nominally first-world countries, you would run out of unemployed before you ran out of useful government projects. Possibly quite a long time before, depending on how aggressively you repudiate private sector debts.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 11:53:53 AM EST
[ Parent ]
Yes, that's essentially my point.  When times are good, doing so could cause a severe global recession because of the uncertainty about future institutions and conditions for doing business that such a takeover would create.  But if you're already in a severe recession, like we are now, there's not really much harm that could come of it.  Banking is functionally a form a governance as much as government is, and government is as much an arbitrator of credit (trust and commitments) as banking is, so one can largely do the work of the other with the difference being in terms of distributions of benefits and efficiency questions stemming from the principal agent-problem.
by santiago on Thu Nov 3rd, 2011 at 12:09:35 PM EST
[ Parent ]
No, that's a general statement, not one specific to the current situation:

If you have a Treasury with a drawer full of shovel-ready, useful infrastructure projects, then the Treasury can shoot the private banking sector in the back of the head, dump the corpse in a shallow grave and nothing excessively bad will happen (except maybe a coup d'etat), irrespective of where you are in the business cycle.

Because with sufficiently activist fiscal policy, you get to abolish the business cycle.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 12:17:05 PM EST
[ Parent ]
Not without replacing it in some form. Attempting to make all financing decisions to be made throughout a modern monetary production economy at the level of national fiscal policy quickly runs into information overload.

We need a banking system so that the fiscal authority can concentrate their attention on those tasks that a banking system cannot or should not be doing.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:52:52 PM EST
[ Parent ]
Obviously you'll need to recreate it. My point was that you can paper over any temporary disruption for a potentially indefinite period with fiscal policy.

Not that you would want to do it unless your banks needed a lead pill delivered intercranially for other reasons.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 08:38:50 PM EST
[ Parent ]
Then you aren't shooting the whole private banking sector in the back of the head and burying it out back.

Obviously we could shoot all the TBTF banks in the back of the head, and so long as we did it by taking them into receivership long enough for people to shift their accounts to small community banks and credit unions, there wouldn't be any massive calamity in the short term, and in the long term we'd be better off.

But shooting the entire private banking sector in the back of the head and having to recreate the entire sector from scratch ~ that seems likely to deepen the current depression.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 4th, 2011 at 01:10:26 PM EST
[ Parent ]
True, I'm not shooting the whole private banking sector. Only as much as is required. The point I was trying to make is that there is no magical upper limit to how large a share of the function of the private banking system the state can take over if it needs and wants to. How much you want to take over depends on how corrupt the different sorts of banking are in your country. And how corrupt the civil service is, obviously.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 5th, 2011 at 06:28:13 AM EST
[ Parent ]
Debt is a distributional issue. It nets down to zero as for each debtor there must be a creditor.

The rot is that we have had 40 years of propaganda to the extent that you cannot tax rich people because you would be stealing "their" dollars. Which makes it kind of tough to solve the distributional issue.

Another problem is that we have left money creation in the hands of debt. This therefore makes it necessary to maintain a high level of debt, and therefore a skewed distribution (technically two people could owe each other the same amount, and therefore you'd have debt without any inequality, but of course in practice it just does not happen).
We would need to reclaim control of the money supply in order to reduce debt levels.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Oct 30th, 2011 at 02:12:46 PM EST
[ Parent ]
Debt is a distributional issue. It nets down to zero as for each debtor there must be a creditor.

That's the NCE view.  

Looking at it Dynamically, debt has Opportunity Cost(s) for the debtor since they have to make the interest payments.  This reduces the amount of money they could spend on other things.  Compound interest really socks it to the debtor as the stream-of-payments amounts to as much as 300% of the initial borrowing.  

It wouldn't be so bad if this was recycled and circulated in the micro-economy.  What happens is the lender takes the payments and loans it out again, creating compounding on compounding, creating a parasite/host predatory economic environmental relationship.  

If the predation is not restricted the economy wanders to the right side of this:

graph and Things Fall Apart.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Oct 30th, 2011 at 02:24:28 PM EST
[ Parent ]
Well, distributional effects are more than capable of creating a catastrophe. My point is just that the world (or the EU) as a whole does not need to repay any debt, if only it could re-allocate the existing assets better.

There need not be any drain from the debt at societal level. Of course, there will be plenty of "repayments" at societal level in the coming decades, mostly because we will have to divert huge resources into making our economies sustainable.

But with regards to the immediate situation (I know climate change has already wrecked many communities, but it is yet to have a major economics impact. Similarly, even at 100$ a barrel, oil remains pretty cheap), it did not have to be that way. It is a matter of choice. A choice that was clearly not made by, or at least in favour of (there is far too much support for crazy policies, after so much propaganda), the 99%.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Oct 30th, 2011 at 03:48:26 PM EST
[ Parent ]
It is a Choice, no doubt about it.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Oct 30th, 2011 at 05:40:43 PM EST
[ Parent ]
It's not about the money - it's about who makes policy decisions, and who benefits from them.

Money is just the wrapper. You have to peel it off to reveal the naked predation underneath.

Some people enjoy risk. They enjoy being passionate about projects. They enjoy working 16 hour days trying to make something.

I think they're kind of insane, but it's obvious they exist, and they're not necessarily a bad thing.

But all that happens with lending is that someone decides to invest in a project because they think it's viable.

In practice this means believing they won't lose their stake, that they'll get more out than they put in, and that the social, cultural, domestic, and political environment will support the project.

But what profit means is that personal benefit outweighs social calculation. 'Investment' happens because it's personally profitable even though it's socially and culturally ruinous.

So the key idea that has to change is the concept of getting something for nothing. 'Risk' is just a bit of PR that dresses up the concept of investment as public decision-making performed with a view to getting more out than individuals put in.

What's missing is useful accounting of personal and social benefit and loss. Current terminology is biased towards the idea that individual returns are the only outcomes that matter. Reality-based economics would have to include wider social outcomes in its definitions of wealth.

In fact the most productive systems are likely to be ones where there's room for personal enterprise, but also enough control to make sure that political and financial power can never become so personally concentrated that they lock out other stakeholders from policy.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Nov 3rd, 2011 at 10:43:22 AM EST
[ Parent ]
Debt is a distributional issue. It nets down to zero as for each debtor there must be a creditor.

So Debt Deflation can't happen?

George Monbiot Seminar | Steve Keen's Debtwatch

I tried to point out that since the rate of change of debt contributes to aggregate demand (for both newly produced goods & services, and existing assets), then the change in debt matters, but I made no headway at all with the argument.

by generic on Sun Oct 30th, 2011 at 02:40:56 PM EST
[ Parent ]
I'm not saying that. I'm saying that if (yes, a completely unrealistic if in the current climate) we were to decide to tax the creditor and credit the debtor it could be repaid. You could still then have the same rate of change of debt -but you'd be starting from a level of 0.

Of course, it would be far better to couple that with a fairer distribution going forward (which probably requires taxation as you'll find it very hard to prevent the commercial roles from taking a big bite). In effect, you'd be replacing change in the debt level by redistribution in order to get money in the hands of those likely to spend it.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Oct 30th, 2011 at 03:18:56 PM EST
[ Parent ]
Basically a jubilee? Sounds good.
by generic on Sun Oct 30th, 2011 at 04:09:44 PM EST
[ Parent ]
Debt nets down to zero but what matters is the size of the balance sheets which comes from gross debt.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Carrie (migeru at eurotrib dot com) on Thu Nov 3rd, 2011 at 05:02:36 AM EST
[ Parent ]
Finance is based on investments producing streams of revenue sufficient to pay back the investment with interest. If a given investment doesn't work out, it has to be written down to a level that can work, either by negotiation or as the result of a bankruptcy proceeding. Making sure this process will work properly is called underwriting. That is what banks are supposed to do. It is what Jerome does do.

What happened is Greenspan asserted that banks were self regulating and proceeded to let them perform the regulation. This policy was reinforced by appointing anti-regulators to other regulatory bodies. With the repeal of Glass-Steagall higher risk/higher return opportunities were available and the Fed was there when things went wrong, with the Greenspan Put.

Investment banks, such as Goldman's, wanted more and more mortgages to package and sell on and didn't care about the quality. There was a rush to oblige this interest and the price of real estate in large markets soared beyond the conceivable ability of the economy to sustain over time. So we got, say, $10 trillion in mortgages packaged into MBSs that, at current real estate prices, are only worth, say, $5 trillion, and that is only if the banks do not try to sell the non-performing loans. If they did the property underlying the mortgages would be found to be worth substantially less. So, everyone is just holding the bad mortgages on their books and are being allowed to pretend they are still worth face value - extend and pretend.

Worse, the depression that has resulted is making even prime mortgages worth only half or less of face value, as mortgagees lose jobs and become unable to pay. The same dynamic has played out in other areas and other countries. Recently Cyprus has emerged as a new Euro-zone problem with a massive title fraud problem.

ALL of these problems have to be resolved and the unsustainable debt has to be written down in order for a new cycle to begin, regardless of what may change in that new cycle. But those who issued and those who hold the bad MBSs, etc. are politically powerful and refuse to allow THEIR assets to be appropriately written down. The lawbreakers are in control. As any healthy economy relies on rule of law, we have another reason why the current system must change before recovery is possible.

Properly and lawfully resolving these problems, including prosecuting lawbreakers, would both eliminate unpayable debt and restore the rule of law. Otherwise it will be worse than Groundhog day, as the whole situation will just keep repeating, but each iteration will get worse.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 30th, 2011 at 05:58:56 PM EST
[ Parent ]
Debt is a distributional issue. It nets down to zero as for each debtor there must be a creditor.

Yes and no.

Debt also allows you to invest more than you save, or to save more than you invest (in real terms).

When you work for me, and I pay you in an IOU rather than in the products of your labour, then I have invested your labour, but you have not accumulated any real stuff - only a claim on me. If you exercise that claim, then I have to give you money whether or not you intend to invest it in real stuff.

Debt therefore means that you can have periods in which everybody wants to save more than they want to invest in real stuff, which is what creates mass unemployment. It also means that you can have periods where people want to invest more than they want to save, which is a precondition for the growth rates we have come to associate with industrial society.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 05:09:05 AM EST
[ Parent ]
Debt is a distributional issue because it arises when people don't have enough wealth or income to support their needs. In the immortal Adam Smith quote:
By necessaries I understand, not only the commodities which are indispensibly necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, nobody can well fall into without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England. The poorest creditable person, of either sex, would be ashamed to appear in public without them. In Scotland, custom has rendered them a necessary of life to the lowest order of men; but not to the same order of women, who may, without any discredit, walk about barefooted. In France, they are necessaries neither to men nor to women; the lowest rank of both sexes appearing there publicly, without any discredit, sometimes in wooden shoes, and sometimes barefooted. Under necessaries, therefore, I comprehend, not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people. All other things I call luxuries, without meaning, by this appellation, to throw the smallest degree of reproach upon the temperate use of them. Beer and ale, for example, in Great Britain, and wine, even in the wine countries, I call luxuries. A man of any rank may, without any reproach, abstain totally from tasting such liquors. Nature does not render them necessary for the support of life; and custom nowhere renders it indecent to live without them.
In another order of things, debt arises when people don't have the resources to carry out their projects and somebody else does. The ability to mobilize idle resources has been condensed into money (this is not entirely a bad thing). In the old days of metallic money the money stock was limited by what precious metals could be dug out of the ground. Today, with fiat money, we are fortunate that the money to mobilize resources for worthy purposes can be created ex nihilo. This highlights that money and credit are not just distributional issues, they're about power (the socially recognised power to mobilize resources) and therefore they're deeply political.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Carrie (migeru at eurotrib dot com) on Thu Nov 3rd, 2011 at 05:19:56 AM EST
[ Parent ]
Well said. Although in pre-modern times, money, even metallic money, was not the major means of organizing people or resources for projects because exchange was not the principal social institution for obtaining cooperation of others. Family loyalty, faith, military allegiance, and other institutions were as or more powerful means of compelling others to engage in commitments with each other.  Fealty to a prince was as much a form of debt as a loan based on monetary notions is today because it resulted in the same kinds of distributions of real resources among stakeholders, just without using markets to do it.
by santiago on Thu Nov 3rd, 2011 at 05:41:23 AM EST
[ Parent ]
And conversely, insisting that all debts be honoured in real rather than nominal terms is an attempt to grant the creditors the same feudal privileges enjoyed by the petty princelings of the premodern era.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 06:14:53 AM EST
[ Parent ]
Even the neoclassicals realise that the real business cycle hypothesis (and I use the term loosely) is drivel.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 04:44:27 AM EST
[ Parent ]
There are a lot of people out there who are still trying to get DGSE models to work, or even make sense. I wish them luck. They'll need it.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 09:12:05 AM EST
[ Parent ]
DSGE is the only econometric model for which US Government backed research grants are available. So the efforts are likely to continue until/unless the policy changes.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 01:27:43 PM EST
[ Parent ]
"Expansionary Austerity" is roughly in line with all mainstream approaches, which close their models by assuming that over the long run, if left to its own devices, the economy tends toward a full employment equilibrium.

In that view, "austerity" is just a scary term for leaving the economy to its own devices.

The point of contention is how quickly this entirely fictitious long run, which never appears in any real world long term trends, takes to make its appearance. The New Keynesians can see the short run stretching out for multiple years, and so while their approach points to expansionary austerity "in the long term", it points to actual expansion "in the short term".

Purer mainstream macroeconomic approaches, even more radically divorced from reality than New Keynesian economics, see the long run kicking in more quickly. If it is supposed to kick in on the order of six months or less, that is inside the normal lags for discretionary fiscal policy, and so the thing that discretionary fiscal policy should always be doing is acting as if we were already at that full employment equilibrium.

Sensible real world economic policy advisors, of course, only ever pay attention to the mainstream dogm... errh, approaches when they are useful for rationalizing something that you want to do for some other reason that is less convenient to say than "support employment".

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Nov 2nd, 2011 at 02:40:02 PM EST
[ Parent ]
I think you're mixing apples and oranges here. Claiming that the market will move towards a full employment equilibrium in the long run if left alone (which Keynesians think, they just also think that in the long run we're all dead), is not the same thing as saying that you'll get there quicker (via expansion) if you launch an austerity program.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Nov 2nd, 2011 at 03:11:49 PM EST
[ Parent ]
Yes, its only in the majority of mainstream approaches that you'll get there faster by "removing government distortions" in the marketplace ~ in the mildly dissenting New Keynesian approach, its necessarily to push the economy back close enough to the long run growth track first.

That does not, of course, mean that all of the economists that ascribe to the majority of the mainstream approaches would support all of the austerity programs in every details ~ but certainly if the austerity programs were replaced by their preferred policy, it would still be an austerity policy stance, even if different in the details.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Nov 2nd, 2011 at 10:20:19 PM EST
[ Parent ]
Claiming that the market will move towards a full employment equilibrium in the long run if left alone (which Keynesians think

Ahem.

There is no good reason to think that "the market," if left to its own devices, will ever trend towards a full employment equilibrium - or indeed any general equilibrium at all.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 05:02:13 AM EST
[ Parent ]
Oh, it will.* Through grinding deflation and nominal wage cuts. Eventually. But why wait?

* Unless it gets stuck in a non-full employment equilibrium.


Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Nov 3rd, 2011 at 09:14:23 AM EST
[ Parent ]
With "the market" here, I'm refering to the labour market. If you let the deregulated financial markets keep imposing shocks on the labour market, you'll likely to be in a constant state of flux and uncertainty, which is not good for investment.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 09:16:18 AM EST
[ Parent ]
In other words, if you enforce clearing in the money and product markets, you get clearing in the labour market.

Yes, that's Walras' Postulate. It also works the other way around: If you enforce clearing in the labour and goods market through a determined full-employment policy, then you make financial market clearing easier (because then all you have to do is prevent large discontinuities, and Walras' Postulate will take care of the rest).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 12:05:38 PM EST
[ Parent ]
I rather meant that if you keep whacking the economy with constant shocks and (more or less political) crises, there will be no business confidence. And if you refuse to contracyclically stimulate the economy in the short term, and instead want the market forces to resolve the problem via wage deflation, you need the good graces of the confidence fairy. And the fairy hates instability and unpredictability.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 05:25:59 PM EST
[ Parent ]
Total collapse to subsistence level agriculture and foraging could be a new equilibrium at a much lower level of population.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 01:32:02 PM EST
[ Parent ]
I have trouble imagining that Keynes or any of his followers would ever have advocated "expansionary austerity" when confronted by the prospects of a collapsing debt bubble that had been building for 40 years. Did Keynes ever buy into the idea that "debt doesn't matter" that is so popular with the NCE crowd? Did Keynes ever repudiate Fisher's Debt Defaltion Theory of Great Depressions?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Nov 2nd, 2011 at 04:36:08 PM EST
[ Parent ]
All mainstream approaches have thoroughly rejected Keynes in the long run ~ the difference is whether it is admitted that Keynes has some relevance in the short run, which the majority denies but a large group of mild neoclassical dissenters under the banner of New Keynesian supports.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Nov 2nd, 2011 at 10:22:02 PM EST
[ Parent ]
All mainstream approaches have thoroughly rejected Keynes in the long run

Please elaborate. What has been rejected? And did Keynes ever reject Fisher's argument or deny the significance of debt build-up?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 12:37:45 AM EST
[ Parent ]
Did Keynes himself even say anything about the long run? The contracyclical stimulus case advocated by Keynes is in its nature a way to deal with the business cycle, ie deal with short term unemployment. In the long run, Keynes thought the market forces would fix the problem, he just didn't fancy waiting.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 04:27:59 AM EST
[ Parent ]
Keynes understood, as the neoclassicals pretend not to, that unemployment in the short run meant that we would be poorer in the long run.

Neoclassical theology pretends that being poorer in the short run will make us richer in the long run, because (a) short-run unemployment has no long-run costs and (b) short-run unemployment will reduce wage demands, which raises long-run return to capital investment (remember point (a)), thus incentivising capital accumulation, which is the driver of long-run growth.

The central fallacy, of course, is the assumption that capitalists will produce in order to warehouse their goods. That works - sort of - in a barter economy. Not so much in an industrial one.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 05:00:33 AM EST
[ Parent ]
Nothing of what you say here, is in opposition to what I said above.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 09:17:55 AM EST
[ Parent ]
The idea that we will be poorer in the long term because we did not increase employment during a cyclical economic downturn contradicts the mainstream assumption that an economic downturn represents a departure from a growth track, but if we allow market forces to function, they will return us to that growth track.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 10:28:01 AM EST
[ Parent ]
I disagree. Even when you look at the short term view Keynes had, there are very clear losses in waiting for the market to return to equilibrium. Having an economy operating under potential capacity will result in less output than if it ran at full capacity. It's perfectly straightforward - idle labour will just sit around instead of creating value. This is mainstream, at least if you consider Krugman mainstream.

The thing you refer to as mainstream seems like nothing but Austrian morality play ("we've spent more than we have - now we must face the painful but healthy catharsis").

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Nov 3rd, 2011 at 12:24:20 PM EST
[ Parent ]
You know, I remember wandering around the spa town on the German/Austrian border that we stayed near for a week on our honeymoon and being somewhat disturbed by the number of businesses offering things like enemas and colonic irrigation and whatnot.
by Colman (colman at eurotrib.com) on Thu Nov 3rd, 2011 at 12:27:31 PM EST
[ Parent ]
Cleanliness is next to godliness. Your body is a temple. Scourge the money-changers, purify the temple gates. Retain within the gold refined by fire.

From a lost essay by Freud on anal Austerianism.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 3rd, 2011 at 12:59:45 PM EST
[ Parent ]
Yes, but it the central tradition pretends that this cost only imposes itself during the recession itself, and has no influence on, say, GDP ten years from now (assuming the depression does not last ten years, which theoclassicals are swift to assure us that it will not, based on historical data from back when we were actually doing something about industrial depressions).

Yes, they really do believe this. I'd quote you chapter and verse, but I don't have my textbooks at hand.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 12:33:42 PM EST
[ Parent ]
But those are only short term losses. Once we get to the "long run" growth path, there is no further losses under the mainstream models, no matter how much short term costs were imposed.

Whereas, in the real world, there is no distinct long-run growth path, and we are living inside a permanently smaller opportunity frontier if we pursue austerity policies.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:47:19 PM EST
[ Parent ]
Even if you return to the growth track in the long run, there will still have been a shortfall of value created in the mean-time. Please observe my beautiful graph. :p



Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Nov 3rd, 2011 at 12:43:50 PM EST
[ Parent ]
Yes, but the neoclassicals assume that doing something about the short-run loss of output comes with the cost of lowering the slope and/or offset of the long-run growth path. And since the long-run path continues indefinitely, there exists a discount rate at which it makes sense to accept the short-run cost.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 12:58:37 PM EST
[ Parent ]
Yes, but I'm not defending the neclassical view of the short term... Both me and Keynes and all saltwater economists believe in contracyclical actions to manage the business cycle!

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 01:24:55 PM EST
[ Parent ]
However, unlike most "saltwater" economists today, Keynes did not believe in the existence of the long run growth track independent of the short term actual utilization of productive resources, including labor.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:57:04 PM EST
[ Parent ]
Yes, but I still haven't claimed that you automatically return to the trend! I said that even if you believe in that idea, there will be lost output if you don't act contracyclically. And returning to a full employment equilibrium in the long run by doing nothing (through wage deflation and without stimulus), does not necessarilly mean you catch up to the trend. You might fall behind the trend permanently, but still reach an equilibrium, just one where GDP is lower, lagging timewise, compared to if you had intervened in the short term.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 3rd, 2011 at 05:19:50 PM EST
[ Parent ]
That is the assumption of the mainstream theory, that the original growth trajectory is still there to return to.

If you don't buy that assumption ~ good.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 4th, 2011 at 01:16:17 PM EST
[ Parent ]
Seems the chairman of the Bank of Sweden, Stefan Ingves, doesn't belive that. And he's not even the most Keynesian guy on the board, that would be Lars E. O. Svensson.
   
   
   
Vi vet att finansiella kriser har permanenta effekter på tillväxten. Det stora BNP- tapp som blir följden av en djup finansiell kris går oftast inte att ta igen under perioden efter krisen. Normalt får vi ett skift nedåt i BNP-nivåtrend även om goda tider sedan kan innebära en återgång till samma takt för tillväxten.We know financial crises have permanent effects on growth. The large fall in GDP which results from a deep financial crisis is not usually possible to regain in the period after the crisis. Normally we get a downward shift in the GDP-level trend even if good times later can result in a return to the old pace of growth.


Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Nov 11th, 2011 at 07:30:33 AM EST
[ Parent ]
The quote is from today, as is this graph. I suppose translation is superfluous.



Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Nov 11th, 2011 at 07:37:12 AM EST
[ Parent ]
"However, unlike most "saltwater" economists today"

This would not include Krugman, DeLong, Stiglitz, Yves Smith or Thomas, for a start.

I don't really have time to read many more. But really, you can't say "no-one in the mainstream" is saying something that Krugman, co-author of one of the main university manuals, is banging the drums about day and night.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 4th, 2011 at 05:27:36 AM EST
[ Parent ]
Saying it casually, or publishing work developing a model that does not contain that assumption?

Its been a while since I've read Krugman's work, as opposed to his op-eds ~ I'd thought I would have heard it if he had abandoned New Keynesian economics for some other approach, but I'd be happy to have the citation to a paper where he does so.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 4th, 2011 at 01:24:20 PM EST
[ Parent ]
Visually, that's pretty much everything you need to know about economics right there.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Nov 3rd, 2011 at 01:48:09 PM EST
[ Parent ]
... economists attach more weight to the fictional "long run growth track" line than to the "Actual GDP" line?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:58:01 PM EST
[ Parent ]
In fact, as Richard Koo demonstrated WRT Japan since 1990, the slope of the line can drastically change and the starting point of any new growth can be at or below the maximum level reached before the contraction began. That is how you get "lost decades". The foregone production, if considered as the integral of the volume between a projection of the original growth line and the actual rate experienced, may never even close and may expand indefinitely.

I think that is almost certain to be the case for decades in the USA, whether the slope is taken from the growth rate prior to 1970, 1990, 2000 or 2007. I guess the "mainstream" can just keep redefining the slope forever in preference to admitting their assumptions are fallacious.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 5th, 2011 at 11:02:45 AM EST
[ Parent ]
Since the dawn of time people have known that if you destroy something you will have to spend time and resources to repair it before you can start using it again. Apparently this was lost on modern economics.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Nov 5th, 2011 at 11:11:51 AM EST
[ Parent ]
An axiomatic-deductive system of thought needs no firm connection to physical reality. Elegance of form and the appeal of the axioms will do nicely.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 5th, 2011 at 11:16:35 AM EST
[ Parent ]
And thus the amount of angels on the pinhead can continue to increase according to the longterm growth path after the pin has been tipped over and then return to an upright position.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Nov 5th, 2011 at 11:50:44 AM EST
[ Parent ]
funniest comment of the week!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Sat Nov 5th, 2011 at 07:34:00 PM EST
[ Parent ]
... in a nutshell, with requires, among other things, the rejection of the General Theory in order to maintain ...

... that after the short term costs, the assumption that the same long term growth path still exists for the economy to return to.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:49:39 PM EST
[ Parent ]
... after having burned the city to the ground and ploughed it with salt.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Nov 3rd, 2011 at 05:26:31 PM EST
[ Parent ]
It is an answer to your question: Keynes did, implicitly, say something about the long run. Namely that in the long run we will be better off if we do not waste resources (man-hours, industrial capacity) in the short run.

This may not seem like a particularly profound piece of advice, but it runs directly counter to the long-run assumptions of central tradition macro.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 12:05:48 PM EST
[ Parent ]
Well, that is the direct conclusion from a statement of Keynes that I do remember to the effect that labor that is left idle when there is socially useful work needed to be done is production that is lost forever.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 01:01:48 PM EST
[ Parent ]
I have also a vague memory of him noting that it also destroys the productivity of that labor.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Nov 3rd, 2011 at 04:41:58 PM EST
[ Parent ]
I do recall from somewhere that leaving labor unemployed sufficiently long will do that. Could well be from the General Theory.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 10:29:50 PM EST
[ Parent ]
Hysteresis is a solidly mainstream concept.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Nov 4th, 2011 at 10:41:22 AM EST
[ Parent ]
Of course, physical hysteresis works in the opposite manner ~ leave the metal unstressed, and it maintains its strength, subject it to repeated stress and strain, it weakens.

Our employment is more akin to physical fitness ~ leaving workers unstressed reduces our immediate capacity for work, if we are put to work and subjected to the regular stresses and strains of working, our immediate capacity for work increases.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 4th, 2011 at 01:29:23 PM EST
[ Parent ]
Yes, he said in the long run we're all dead.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Carrie (migeru at eurotrib dot com) on Thu Nov 3rd, 2011 at 05:05:39 AM EST
[ Parent ]
Which was more a flippant dismissal of the question than a real answer. But then Keynes did not have children.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 08:42:47 AM EST
[ Parent ]
The expression was flippant, but the answer was quite serious: the neoclassical long run is incompatible with life as we live it, so inside the neoclassical long run, we are all dead.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 10:24:43 AM EST
[ Parent ]
No, Keynes certainly did not think that market forces would fix the problem "in the long run" ~ in the General Theory, macroeconomic position of unemployment is not seen as a short term departure from a long run equilibrium ~ it is a possible macroeconomic equilibrium in its own right. And Keynes is quite explicit that market forces may make it worse rather than better.

In the General Theory, the neoclassical long run does not exist, since uncertainty in the General Theory is not restricted to stochastic risk, but extends to true uncertainty, in the face of which the information required for a neoclassical long run equilibrium does not exist.

Note that true uncertainty is not just an absence of information ~ it is actively created by our actions, since the interactions of decisions not yet arrived at will affect the future in ways that we cannot at present anticipate.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 10:22:53 AM EST
[ Parent ]
What has been rejected is Keynes conclusion that it is possible for there to be a macroeconomic equilibrium including substantial, genuine, unemployment, in favor of a neoclassical "long run tendency" to full-employment.

Accepting that long run tendency in "New Keynesian" economics follows from building the theory on the foundation of the long since falsified neoclassical utilitarian theory of Microeconomic behavior. Samuelson's project to create a hybrid of Keynes' theory and neoclassical micro ~ the project that Joan Robinson famously labeled "Bastard Keynesian" economics ~ didn't work, after all, and so the New Keynesian project is to create space for a simulcra of a Keynesian system in the neoclassical short run out of a set of impediments to the rapid achievement of the neoclassical long-run equilibrium.

Now, a neoclassical long-run equilibrium is the equilibrium which occurs if we project all knowable aspects of today into the future and allow market forces to fully work themselves out. No sensible person with real world experience would imagine that this projection will bear any resemblance to what will actually happen, nor that the long-term experience of economic history corresponds to some approximation of the long run projections of the economic state of previous periods, since crucial decisions will be made in the future that will dominate the "long run tendency" of today's economic state.

The long run could only play out if, in contradiction to all historical experience, we stop making crucial decisions and both economic institutions and technology stop evolving. Hence, as per Keynes witty quip, "in the long run, we are all dead" ~ which is to say, the only certainty is mortality, and also to say, in an economy with living people in it, the people themselves keep erasing old long runs with their actions.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 10:47:24 AM EST
[ Parent ]
Did Keynes ever buy into the idea that "debt doesn't matter" that is so popular with the NCE crowd? Did Keynes ever repudiate Fisher's Debt Defaltion Theory of Great Depressions?

Does anyone recall anything from Keynes on these questions?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 01:36:03 PM EST
[ Parent ]
I don't, but I haven't read Minsky's John Maynard Keynes". One would expect that Minsky would pay particular attention to Keynes views on debt, given his own research interests.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 03:02:07 PM EST
[ Parent ]
Slavoj Zizek: 'Now the field is open' - Talk to Al Jazeera - Al Jazeera English

"I think today the world is asking for a real alternative. Would you like to live in a world where the only alternative is either anglo-saxon neoliberalism or Chinese-Singaporean capitalism with Asian values?

I claim if we do nothing we will gradually approach a kind of a new type of authoritarian society. Here I see the world historical importance of what is happening today in China. Until now there was one good argument for capitalism: sooner or later it brought a demand for democracy...

What I'm afraid of is with this capitalism with Asian values, we get a capitalism much more efficient and dynamic than our western capitalism. But I don't share the hope of my liberal friends - give them ten years, [and there will be] another Tiananmen Square demonstration - no, the marriage between capitalism and democracy is over." Slavoj Zizek

video, 25 min.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Oct 29th, 2011 at 03:54:21 PM EST
As they say on GOS, wish I could recommend this a dozen times...so I linked to it on my facebook page.

One of the other commentators notes that the "marriage" between capitalism and democracy has ended....except it never was a marriage. More like MicroSoft's "embrace and extend", or rather a starfish's stomach which embraces and then dissolves: dissolves in the sense of "melts into air".

by PIGL (stevec@boreal.gmail@com) on Sun Oct 30th, 2011 at 06:49:34 AM EST
The (Verboten) Argentine Success Story and Its Implications (pdf)


The Argentine economy has grown 94 percent for the years 2002-2011, using International Monetary Fund (IMF) projections for the end of this year. This is the fastest growth in the Western Hemisphere for this period, and among the highest growth rates in the world. It also compares favorably to neighboring economies that are commonly seen as quite successful, such as Brazil, which has had less than half as much growth over the same period.

Argentina was trapped in a severe recession from mid-1998 to the end of 2001. Attempts to stabilize the economy and maintain the currency peg to the U.S. dollar, through monetary and fiscal tightening, led by the IMF and backed by tens of billions of dollars in lending, failed to arrest the economy's downward spiral.

In December of 2001, the government defaulted on its debt, and a few weeks later it abandoned the currency peg to the dollar. The default and devaluation contributed to a severe financial crisis and a sharp economic contraction, with GDP shrinking by about 5 percent in the first quarter of 2002. However, recovery began after that one quarter of contraction, and continued until the world economic slowdown and recession of 2008-2009. The economy then rebounded, and the IMF now projects growth of 8 percent for 2011. Argentina's real GDP reached its pre-recession level after three years of growth, in the first quarter of 2005. Looking at twenty-year trend growth, it reached its trend GDP in the first quarter of 2007.

The country experienced this remarkable economic growth despite the default and difficulties borrowing from international financial markets over the past nine years, and relatively little Foreign Direct Investment (FDI). This should give pause to those who argue, as is quite common in the business press, that pursuing policies that please bond markets and international investors, as well as attracting FDI should be the most important policy priorities for any developing country government.



Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Oct 30th, 2011 at 06:57:28 AM EST
Note that this would not have worked if they had been in the Eurozone, or if their central bank had been staffed by Stark raving lunatics, as this strategy relies on (a) being able to depress your currency rate rather than your economy and (b) unrestricted fiscal intervention to promote industrial expansion.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 05:16:07 AM EST
[ Parent ]
One of the policies to cope with the stress created by the economic downturn was a limited form of job guarantee for "Heads of Households".

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 11:05:12 AM EST
[ Parent ]
TINA is a morality play.

 "But our governments have to balance our books, like a household"

"we've lived above our means for too long, and now have to cut down"

"the Greeks lived the high life on our credit card"

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Oct 30th, 2011 at 07:08:29 AM EST
We economists have a plan B that will work, Mr Osborne | letters | From the Observer | The Observer

It is now clear that plan A isn't working. Wave after wave of economic figures from HM Treasury, national and international economic institutions such as the OECD, the IFS and the IMF have all concluded that the British economy is faltering. The UK jobless total is now at its highest for more than 17 years, while growth has all but stalled.

We urge the government to adopt emergency and commonsense measures for a Plan B that can quickly save jobs and create new ones. A recovery plan could include reversing cuts to protect jobs in the public sector, directing quantitative easing to a green new deal to create thousands of new jobs, increasing benefits to put money into the pockets of those on lower and middle incomes and thus increase aggregate demand.

This could in part be paid for by the introduction of a financial transactions tax. The government could do far more to create the space for new and innovative industries and companies to flourish. One idea is a British investment bank, to leverage and back investment in low-carbon sectors such as housing, transport and renewable energy.

Doing nothing is not an option. We therefore call on the government to put the national interest first and hold an emergency budget that would instigate a Plan B for jobs, fairness and sustainability to rapidly get the economy moving again.

Signed by a hundred leading economists!

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Sun Oct 30th, 2011 at 07:47:13 AM EST
"One idea is a British investment bank"

There should always be at least one state investment bank (for a start, it would allow for some projects to be prioritized on different grounds than usual, aka short term returns). That is a nice side-effect of the likelihood of some banks being put into receivership and nationalised for a penny: you may not even need to create it.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Oct 30th, 2011 at 01:00:02 PM EST
[ Parent ]
Yes, as long as the country has a Creative and Innovative Class capable of generating new products or services in a macro-economic environment capable of purchasing, absorbing, those products or services. "Investing money" in "new product development" when nobody can buy the goddamn things due a macro-economic Austerity collapsing the micro-economy is Neo-Classical Brain Rot© in all its wondrousness.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Oct 30th, 2011 at 01:20:57 PM EST
[ Parent ]
Did I talk about product development?

With a state investment bank, there is not even the need for feed-in tariffs to finance clean energy projects.

Neither did I say that a state investment bank would solve all problems. But leaving such an important thing as investment purely in the hand of short-term bonanza seekers is crazy.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Oct 30th, 2011 at 02:06:12 PM EST
[ Parent ]
I see I didn't make it clear the "Neo-Classical Brain Rot" was directed at the British Government, not you.  I inadvertently insulted you and I apologize.

But .... look

IS electric infrastructure invest by the UK government a Good Idea?  Of course.  And I doubt I have to 'splain why.

Will it kick-start a round of economic vitality.  Almost certainly no.

We know this from the affects on the economy from the history of the Rural Electrification Program carried out in FDR's administration.  Yes it brought electric power to the rural areas.  It did not promote a wave of use because the farmers couldn't afford to purchase products, e.g., milking machines, that could take advantage of it.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Oct 30th, 2011 at 02:36:26 PM EST
[ Parent ]
Yes it brought electric power to the rural areas.  It did not promote a wave of use because the farmers couldn't afford to purchase products, e.g., milking machines, that could take advantage of it.

Not initially, but the REA did bring the countryside into the market for electric appliances once they had the income to purchase them.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 12:43:04 AM EST
[ Parent ]
However, if the there are no results "initially," then, in the present political environment, Her Majesty's Government may well find itself ruling something markedly less United than the present Kingdoms.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 3rd, 2011 at 05:24:13 AM EST
[ Parent ]
But the difference is that UK citizens already has electric appliances. So if investment in clean energy (and a decent market structure) gives lower costs for the electricity bill they have today, should that not free up some space for new consumption or investment?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Nov 3rd, 2011 at 08:54:10 AM EST
[ Parent ]
But we would of course still wish to have the feed-in tariffs ~ no sense deliberately tilting the playing field against sustainable power in favor of unsustainable power with government policy creating a totally margin-priced market for electricity.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 11:07:39 AM EST
[ Parent ]
no sense deliberately tilting the playing field against sustainable power in favor of unsustainable power

Not from the point of view of fossil fuel energy incumbents! :-)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 3rd, 2011 at 01:11:41 PM EST
[ Parent ]
I ruled out taking the wishes of Big Oil into account ~ I said, "No sense ...". Taking the wishes of an industry physically doomed to collapse into account when deciding whether or not the economy should be sustainable would not be sensible behavior.

Its like taking long term investment advice from someone who's doctor said they have three months to live.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Nov 3rd, 2011 at 02:42:55 PM EST
[ Parent ]
François Fillon has announced that the budget (to be presented on Monday, 7th November) will include some new restrictions in spending.
And added apparently that "there is no alternative" to spending reduction.

You see, the previous round of spending reduction had failed to bring enough growth so we should obviously reduce more.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Nov 6th, 2011 at 11:35:37 AM EST
The difference between "austerity didn't bring growth, let's have more of it" and "stimulus didn't bring growth, let's have more of it" is that the latter is based on actual science, as we knew the (US) stimulus was too small, before it was launched.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Nov 6th, 2011 at 11:48:31 AM EST
[ Parent ]
Absolutely -actually there was no US stimulus, merely some federal spending that just about compensated local cuts. And targetted at entirely the wrong actors.

Besides, whatever the second round effects (and I for one believe that in a liquidity trap they are better for stimulus than for austerity), austerity clearly starts with a negative first round whereas stimulus' is always positive (hence the name "stimulus").
Pretty hard not to notice that when Government buys a service, a service must be produced.

So the burden of the proof has to be for austerity. And well, we're not even in "results seem positive but there is not enough evidence for statistical siginificance" territory there... Actually, we're even beyond "results appear negative but no statistical significance can emerge yet".

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Nov 6th, 2011 at 01:04:25 PM EST
[ Parent ]
Earnest journalists explain that France needs to raise VAT in order to "bring us into line with Germany". There is no alternative to depressing domestic demand in order to...

Never mind.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Nov 6th, 2011 at 11:51:20 AM EST
[ Parent ]


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