Inflation has been in gradual decline since 1981

Paul Krugman prepared the graph.  This is "headline CPI" inflation which includes energy and food prices, but averaged over 3 years (blue line) or 4 year (red line).  The averaging removes the short spikes which always get people scared.  You get similar smooth curves looking at "core CPI" which excludes energy and food prices, but many people say the "core" numbers are not meaningful.



The reason it is important to debunk the Inflationistas is because they are the ones screaming about government spending which would help lower unemployment.

Such people as Ron Paul screaming that hyperinflation is just around the corner, unless we cut, cut, cut government social programs.

Comparing Postwar boom to Deregulation blip

Krugman shows the above graph (from Piketty and Saez) in a great post entitled "Boom for Whom."

As he points out, the true age of spectacular economic growth in the USA and around the world was the post WWII era.  However, conservative economists and "Very Serious People" continue to maintain the opposite, and claim the deregulatory era has been the era of spectacular growth.  Yes, indeed, spectacular growth in the incomes of the top 1%.  Very Serious People continue to be considered Very Serious precisely because the economic elite likes them, and despited the continued disasters of deregulation, almost too numerous to mention, and so far culminated with the global depression we're in right now.

I don't even think this captures the essence of the failure of the Reagan Revolution.  Much of the growth since 1979 in average family income occurred not under Reagan but under Clinton, and that was largely due to public investments that had been made in computer research during the 1960's and 1970's finally coming to fruition.  Much of the other "growth" has really been losses deferred through bubble economics and chicanery which started catching up with us in 2008.  Deregulation spoiled our true growth seeds, and it's unclear when if ever we will recover.

*****

Deep background: the following is a post I made to Crooked Timber today.  This thread concerns how recently bootlicking European politicians are calling in bootlicking European econonomists and bankers to dole out the deadly austerity medicine.

Krugman alternates between excellent posts on the growth of inequality in the era of market liberalism, like this one:

Boom for Whom

and questionable posts about how inequality doesn’t explain the downturn, like this one:

Secular Stagnation

I was wondering about this today, and keeping #85 (see below) in mind, and it seems obvious to me that the savings glut (if you could call it that, since it’s largely gambling IOU’s) is global, so obviously it isn’t captured by looking at the low savings in the USA.

Big manufacturing countries like Germany and China are the savers. Unlucky countries like Greece and Ireland are flooded by the bursting bubbles that result. Here in Triffin DilemmaUSA we’re lucky that savers continue to throw their money at us. Well it’s a kind of luck, anyway, why complain about free money? The downside is we’ve let our domestic manufacturing atrophy (though Henwood argues it hasn’t nominally shrunk) to the extent it’s way out of balance with FIRE. This is not good for equality, the long run, and increasingly shorter medium runs as well.

****

The #85 I was referring to was this great post on the same thread.




Glen Tomkins 11.11.11 at 10:59 p#85


Checkmate

That this crisis has provoked from the system a turn away from politicans and towards technocrats, is the clarifying final act of that system.

Even if you completely agreed with their diagnosis and treatment plan, you would think that these defenders of the system would see the wisdom of getting politicians in front to implement that treatment plan. It involves unpleasantness for the non-wealthy majority. You would think they would want specialists in getting away with foisting unpleasantness on the majority handling the day to day PR, and be satisfied to have the serious, adult, technocrats call the shots from advisory positions.

Obviously, these people feel that the time for such games is over. Politicians cannot be trusted to maintain the rigid exclusion of demand side considerations. Rigidity wasn’t necessary before we were in a crisis, but now that we are in the crisis created by ignoring the demand side for 40 years, such rigidity is a strict necessity. They feel that they need people in authority who can be trusted. Their diagnosis of the cause of the present difficulty is that demand side considerations weren’t excluded rigidly enough. They think we need people who will not flinch from enforcing the consequences of contraction.

Modern economies are enormously productive. They produce such vast wealth, that unless that wealth is very carefully managed so that too much excess is not allowed to go to people who will not recycle it into consumption and generate demand, a huge imbalance is created as too much unused money accumulates compared to the limited opportunities for actual capital investment. This excess money still imagines that it deserves a sizable RoI, these people who possess it still imagine that they are Galtian overlords and Captains of Industry, etc., so they create bubble markets, and the intrusion of their excess turns even once real and useful markets into bubbles.

The governments of the West messed up. They didn’t hoover up this excess money on the front end. They relented a generation ago on top tax rates in the 90s, and left way too much drone money out there that had no place to go but into economic weapons of mass destruction. The resulting bubbles will have to do this necessary work of destroying what was never real money, because it does not generate demand for goods and services. But leave it to the bubbles and it happens on the back end, after this funny money has gotten entangled with real money, such as the deferred consumption money of pensioners. There is no recourse now but to have those governments that failed to prevent this on the front end take the responsibility for sorting out on this back end the real money of investors who need to be kept whole to keep up demand, from all those trillions in drone money that not only can be allowed to go up in smoke without any real harm to anything but some outsized egos, but must be allowed to go up in smoke if we are ever to have an end to this cycle of bubble crises.

What started in 2008 will go on forever until and unless we stop trying to save all this fake drone money. It never existed. It was always paper profits, gimmicks and chicanery. Until we start to respect the difference between real money and this stuff, we will continue to put real money and our real economies at the mercy of inherently unstable markets in fake assets. We have to stop bailing out the fake money, and instead accept the truth that it never existed.

We actually do need ruthlessness right now. But that ruthlessness has to be directed at wealth that has accumulated in excess of any possible use in consumption, deferred consumption, or capitalization. Directing it at the capacity of workers to generate demand is exactly the wrong strategy. So of course it’s what the system is dong now by putting up these technocratic austerians.

This excess wealth has taken on a life of its own, but all it wants to do with that life is to destroy itself. We can’t let it just kill itself, because it will take us down with it. We have to manage the work of destruction if it is to be done discriminately.

Let Greece default, and Italy follow it if that market insists on offing itself in panic. Don’t bail out the banks, have governments instead take them over under resolution authority when the sovereign default pushes them into insolvency. These governments, and only these governments, have the right and duty to then distinguish between counterparties who must be made whole as the banks fail because they need to be made whole to sustain demand, and that other large set who need to take 100% haircuts because they were gambling with excess money at the dogtracks, and their losses will be no real loss to anyone.

Nonviolence

A most excellent discussion of nonviolence (and not) at Crooked Timber.

Fear of Inflation is a bad thing (and a little inflation is good for us)

Fear of inflation is a bad thing, especially now, because it is the number one justification used by conservative politicians and conservative economists to justify austerity policies, that is cutting back on government spending in the midst of the greatest economic depression since the 1930's.

Right now, because of economic depression, governments should be increasing spending*, and increasing government deficits as necessary (though tax increases on the wealthy and on financial transactions and carbon would all be good things even now, and would help reduce the deficits resulting from increased spending)  in order to increase employment.  And right now, because of the depressed economic condition know technically as a "liquidity trap," there is no danger of such spending, even in the absense of good tax increases, significantly increasing inflation over what it will otherwise be.  But under other circumstances in the past, this has not always been true, and there are many conservative economic theories and theorists that would predict that increased government spending and deficits recommended by liberal economists would increase inflation even now.  Those conservative theories which falsely predict that government deficits always lead to destructive inflation have actually been proven wrong by recent history, but conservative theorists (as well as many populists) continue to believe in them, and often propagate misleading statistics about inflation in order to support their anti-spending views and tight money theories.  Populists, who often see inflation as simply yet another way the system screws them, often fall prey to believing in those misleading statistics and erroneous conservative economic theories, without seeing the connection between them and the anti-spending policies.

(*In the USA, the federal government did, at least temporarily, increase spending in 2009 in a somewhat failed effort to restore economic prosperity.  It failed, because the spending increase was too small and too short.  And also it failed because while the federal government was increasing spending, state and local governments were hit by shortfalls in tax revenue due to huge decline in the value of real estate and depression in taxable sales and income and were forced to cut back on spending.  Combined government spending at all levels has actually declined.  And this has only made the economic situation even worse.)

It will take me some time me to accumulate the actual numbers, and many may find this hard to believe, but the true story is that there has not actually been much overall inflation overall (on average, across all things people buy, not just things people worry most about like groceries and gasoline which have little connection to government spending) since 2008, by recent historical standards.  And liberal economic theorists argue this is a bad thing.  By liberal economic theories, a modest overall inflation of about 3-4% is actually desireable for maintaining full employment and general prosperity, and lower than average overall inflation (around 2%) since 2008 has contributed to a failure to significantly increase employment.

It might be nice to imagine a world with both full employment and zero (or negative) inflation, but the better you understand liberal economics, the more you realize these goals are incompatible in modern capitalist economies.  A sustained period of negative inflation is actually the key sign of a collapsing economy in which more and more ordinary people are losing their jobs and assets.  That is known as a "deflationary spiral" and it is exactly what was seen in the great depression and it similar to what we are seeing today, even though overall prices are not actually declining overall but merely increasing somewhat more slowly than would be expected based on factors such as resource availability.

Krugman explains IS-LM

Now this is what I've been waiting for.  Krugman giving a concise explanation of IS-LM on his blog.

Krugman admits it's not the complete story but still thinks it's a useful model for understanding certain things, like liquidity traps.

Angelic GDP

In the aforementioned threat on Crooked Timer I've been reading, piglet reveals the fallacy that GDP can keep on growing even if the economy switches more and more to services.

This assertion is very dubious. Services do have a somewhat lower environmental impact but not that much lower once all inputs are properly accounted for (Sangwon Suh, Are Services Better for Climate Change? Environ. Sci. Technol., 2006, 40 (21), 6555-6560• DOI: 10.1021/es0609351). But even assuming we manage to reduce the environmental impact per unit of GDP (which to some extent we are), that won’t be enough to make continued growth sustainable. The 3% or so exponential growth that mainstream economists posit as “necessary” for maintaining our level of prosperity (watch the Red Queen principle here: we “need to grow” just to “maintain prosperity”), equivalent to a doubling time of 20-30 years, will swamp any efficiency increase that can realistically be expected. Daly used the term “angelic GDP” to mock this fallacy: unless we manage to convert economic growth into purely angelic GDP, i. e. economic activity without any physical effects, it won’t be sustainable.

I've been wondering about this sort of thing.  There is a lot of activity that could be considered angelic, but much of it is done for free and could hardly be otherwise.  Case in point: blogging.

Such angelic activity is great in my opinion, but it doesn't pay the bills.  In the future there *should* be more and more such angelic activity, but it should also best (or only) continue to be free, that's a major part of how and can and should continue to work.

The heavenly world is not the one where we pay a negotiated price for each and every little pin, but where more and more, and ultimately everything, becomes free.  But then the bills have to go away too.

A big part of that must be reclaiming the commons for everyone.

In such a world, GDP doesn't merely decrease, it vaporizes.


Some recommended readings on the thread:

Well, the very recent book PROSPERITY WITHOUT GROWTH may be just the thing to read for a quandary like that.

One can always recall John Stuart Mill on the Stationary State.

Or the writings of Herman Daly.

Contradictory Beliefs

How do we reconcile the need for more jobs, and the need for reducing environmental impacts?  Chris Bertram started a great thread on this at Crooked Timber, though many of the commenters seem not quite able to grasp the difficulty of it all.

Here's a great post by Bruce Wilder, though i might change a few things:

The weakness of the Keynesian program is its non-specific, open-endedness. People naturally want to ask, spend on what? and when does the deficit-spending end? (and then what?) These are reasonable questions. There’s a sense, within the abstract insights of Keynes’ analysis, in which it doesn’t matter what the money is spent on, as the objective is reflating the economy’s circular flow to a level of full-employment. But, in actual politics, those details cannot be abstracted away; they must be met.

The tragedy of era is that the answers to the question of what do we focus Keynesian spending on, is not difficult or mysterious. The U.S. economy, and the leading European economies, and the Japanese economy for a long time, are severely handicapped by structural problems and dysfunctional financial systems, and face looming challenges from global warming, peak oil and ecological collapse. Our political systems stand around paralyzed by their devotion to rentier interests, and the Left remains largely silent, barely able to rise above a faint endorsement of neo-liberal pablum.

With all due respect to those gentlemen (seriously), if Reagan Administration veteran Paul Krugman and self-proclaimed Eisenhower Republican Brad DeLong are your idea of “left-leaning”, your “left” is seriously palsied. They are preservationists, at a time, when preservation is simply not a viable option. We cannot preserve our dysfunctional financial system side-by-side with a prosperous economy. We cannot preserve our fossil fuel economy. We cannot preserve the global ecology, without radical change.

U.S. politics is dominated by the rentiers of finance and oil. We need to end that. They are the enemy. Bring them low, make them poor. That will be a good beginning.

I wouldn’t worry too much about “job growth”. The abstraction is confusing, in any case. There’s a lot of work to do, if we are to change the energy basis of the developed world’s economy, and to head off a smoky sojurn thru fossil fuels for the developing world. In the U.S. we need to completely replace the systems for powering transportation and structural heating by 2050. Completely. We need to invest in systems that use considerably less energy as well. We need a rail transporation system that reaches 80% of the population, passengers and goods. That means building a lot of rail, and relocating a lot of residential and business structures.

We might, indeed, seriously consider the welfare-enhancing effects of reducing wasted effort in a Red Queen’s race. More than half of Americans are employed in organizations of more than 100 employees, and most of those are engaged in various forms—not of “production”—but of salesmanship. Maybe, we could tax advertising, and dial down on the salesmanship, without reducing actually needed material consumption much at all. Watch less television. Spend more time on caring for our own, over-programmed children.

None of this is going to happen, as long as the U.S. and, by extension, the world, is ruled by greedy, corrupt, near-sighted oilmen and financiers. The economy and institutional system put in place in the American New Deal and the international order of post-WWII have played out to the endpoint of entropic collapse. It’s over. Gone. Post-post-post. Politically, we need a revolution and a vision for the future.

Sandwichman made another great hit:

 The difference between a recession and a steady state, or even “de-growth”, economy is that one is an accident and the other is a design. It’s the difference between skating and slipping on the ice. When I had a car and depended on it to get to work and shop, my life would be disrupted if the car broke down. I haven’t owned a car for two decades now and my life revolves smoothly around walking, biking and transit [plug: my daughter, Amy Walker’s new book On Bicycles has just been published by New World Library].

I have the very odd opinion that what we need is a spurt of a very specific kind of growthfor maybe a decade or two before easing off into a steady state or low growth scenario. This would be transition-to-a-new-economy growth and couldn’t be accomplished by traditional (Krugman, de Long, et. al.) fiscal stimulus or quantitative monetary easing. Since the late 1970s, the rich countries have been “enjoying” what Stefano Bartolini has termed “Negative Externality Growth,” which means that we’ve been spending more fixing the social and environmental messes we’ve been making and making even more messes in the process.

What we haven’t been doing is promoting the arts, culture and education at anything near the level we could afford to. Education has increasingly been yoked to “marketable job skills” training, whatever that means with narrower and narrower career opportunities for graduates.

The reasons for this huge misallocation are what I see as a deficient understanding of things that are commonly known as “market failure” and its complement “government failure”. In Economics of Welfare (1920), Cecil Pigou identified what have come to be known as “externalities” and argued that the resulting market failures constituted aprima facie case for government intervention. Probably due to a lack of comprehension of Latin among subsequent economists, the Pigovian tradition overlooked the fact that the adjective prima facie may have been meant by Pigou as an equivocation not an intensifier.

Forty years later, Ronald Coase presented a counter-argument that, in the absence of transaction costs and with full assignment of property rights, an efficient allocation of resources would be worked out through negotiation. That is to say “there is no market failure”. Of course, the fine print was in the transaction costs. There’s no such thing as “in the absence of transaction costs.” That’s like saying commodities would be free in the absence of labor costs. Whoop de doo!

Coase’s insight, though, brings to light something more important, though: market failure s all about transaction costs. And the term externality is a misnomer. Transaction costs are the very heart and soul of economic production and exchange.

You can’t escape transaction costs. BUT you can reduce them OR you can increase them. Wait a minute! Why would anyone want to increase transaction costs? The short answer is because that’s where the scope for claiming profit and rent resides. The long answer has to engage the political opportunities for shifting transaction costs, so that they are apportioned as “social costs”.

War, for example, is a tremendously effective way to inflate transaction costs and profit opportunities exponentially while fobbing them off as social and environmental costs.

Is Better Growth the answer to Limits to Growth?

This is one of my core contemplation areas, the possibility of continued growth despite Limits to Growth.  It is possible to have "better" economic growth indefinitely?  Perhaps, depending on how you define "better growth."  Anyway, Chris Bertram kicked off a good discussion by asking a good questions, and describing the political dilemma.

http://crookedtimber.org/2011/09/22/contradictory-beliefs/#comments

The Basic Problem with Capitalism

Brad DeLong noted Nouriel Robini's call of the double dip.

In comments, Graydon made these observations with which I strongly concur:

I think it's much more basic than that. The problem is that capitalism's core goal -- wealth concentration -- is not actually a good idea in terms of general prosperity. Climax forests are great if you're a mature redwood; they're lousy if you're anything else, and almost everyone is something else. (and even the mature redwoods have crowding-out issues among themselves.)

What we're seeing now is analogous to climax forest formation; all of a sudden, a whole bunch of organisms that were getting by OK aren't getting any light anymore, and the whole ecology changes. (From the point of view of the seriously wealthy, they're all still a bit panicked that they're not going to have a chair when the music stops/their tree isn't going to be quite tall enough to avoid being crowded out by the neighbors.)

Doing the obvious and nigh-certain-to-work things aren't morally acceptable to the mature redwoods -- they'd stop towering over all those little organisms -- so they won't. Indeed, they can't, unless they adopt a different moral position. (Or until they stop being, as Duncan Black keeps pointing out, incompetent.)

So the only two really plausible outcomes are a general, protracted -- generationally protracted -- slow collapse of prosperity into plutocracy in at least the developed world, with widespread resumption of defacto debt peonage for the working and professional classes, or a general replacement of the "redwoods" with persons interested in securing the general prosperity.

The poverty of economic rationality (as in egoistic agent models)

In another great Crooked Timber thread, John Quiggin criticizes a review of his work, Zombie Economics (truly great, I'm reading it a second time now), by economist Steve Williamson, in order to point out the fallacies of "rational" (purely egoistic) agent models in economics.

And right near the top, he links to a great work by the hugely underappreciated philosopher and essayist William Hazlitt, who more than two centuries ago skewered then (even) then popular notion that self-love was the basis of all desirable human actions, including benevolence.

A pity that William Hazlitt * is now mostly out-of-print.  His posthumously compiled book Sketches and Essays can actually be obtained from several sources, but all merely printed on demand from photographs of one original edition that landed at Harvard, full of typos and blotches, which you can also read free at Google Books (as in the link above).

(* Not to be confused with the 20th century libertarian Henry Hazlitt.)

Neoliberalism uses market mythology to enrich rentiers

There is so much excellent analysis at the Crooked Timber website these days, I never get around to linking to all of it.  But a comment made by Bruce Wilder on a post by Henry about the strange Non-Death of neoliberalism is so well crafted, I'm going to have to quote it here.  And the whole thread is worth reading too.

http://crookedtimber.org/2011/09/26/colin-crouch-the-strange-non-death-of-neo-liberalism/#comment-379361

I do sometimes argue that the static allocative efficiency of markets, which economists traditionally focus their attention on, is less important in practice than the dynamic technical efficiency of adminstrative organization and technology-embedding capital. And, I am wont to point out, for example, that the recent breakdowns in mortgage origination and mortgage-backed securitization were, at their cores, breakdowns in administrative processes and procedures; as such, trying to force these square pegs into the roundholes of the canonical catalog of “market failures” risks misunderstanding the problems and mis-prescribing remedies.

In the comment above, though, I was using a much broader form of this complaint. (I really only have the one opinion; it’s just a very elaborate opinion.) I wasn’t saying that adminstrative organizations have advantages over markets. I was saying that theimplicit neoliberal claim that markets exist, is, itself, objectively false in many cases, where neoliberals advocate “market-friendly” or “market-oriented” policy. There’s no actual market there. We are so used to the market as metaphor, we cease to recognize that it is a metaphor (and not a very good one, in many cases).

Markets—actual markets—exist, but they are rare. There are financial markets, commodity markets and auction markets, but most of us don’t have much contact with these. We go to the supermarket, and that is a definitely a metaphoric use of “market”. In most of our economic interactions, price is not a variable optimally digesting information and resolving conflict, it is a strategic instrument, held fixed as part of a scheme of administrative control and information discovery.

I am not making a claim about the efficacy of central planning. I am making a claim about the Hayekian vision of an economy radically decentralized by markets—I claim that it is a lie. Hayek lied about the feasible set of responses about to the problems of limited knowledge and information. He asserts that markets can overcome these problems, optimally. It is the origin of “the two-step of terrific triviality”, in which claims of weak rationality by individual actors in constrained optimization alternates with claims of super-rationality for “market” players engaged, supposedly, in global optimization.

It is not possible to deductively model the optimal response to incomplete information. The inability to arrive at an optimal solution by deductive means is what defines incomplete information. The insistence on exclusive reliance on deductive methods is what leads back, again and again, to super-rationality. The real world of practical attempts is imperfect, but it will be the real world of imperfect attempts. In that world—the real world—global maximization of profit cannot be defined. All rational maximization is constrained maximization, which is to say, constrained by rules.

The actual, decentralized “market” economy is not coordinated primarily by market prices—it is coordinated by rules. The dominant relationships among actors is not one of market exchange at price, but of contract: implicit or explicit, incomplete and contingent. (Yeah I know incomplete and contingent is contradictory in the abstract, but all actual contracts are both; welcome to the messiness of the real world.) The contingencies are the important incentive feature, not the marginal rate of income. You take a job, and the risk of being fired (or promoted) is what shapes your behavior.

Rules rule, you might say, even in the absence of central planning. The rules of game, whether in actual markets or metaphoric markets, are what constitute the game as a game, and those rules are a public good, whether the state does an adequate job of making and enforcing good rules or not.

The political process has to produce the public good of rules for economic interaction. There’s no option or alternative, where rules are not instituted. The only questions are whether the rules will be fair and the process they institute, dynamically efficient, in resolving conflict and organizing cooperation.

Neoliberalism, it seems to me, uses the myth of the market, to rationalize rule-making, which serves the rentiers (is dynamically inefficient) and which promotes authoritarian, and therefore unfair, resolution of conflict.

Another exposition of IS-LM

Here's the New School version, which I think I like better than Roubini's, however it does get quite mathematical.

The great explosion of inequality

From a great post by Mark Thoma, quoting Uwe E. Reinhardt.

Herbert Hoover, the first New Dealer?

Apparently not, according to Brad Delong.

Or at least he finds some contrary evidence.

Readings for today

Krugman and others deconstructing Barro's anti-Keynesianism (it isn't "regular economics").  But IMO they're all too kind on Barro; though Krugman makes the best case he also defends microeconomics as a useful if limited tool.  Barro is one of the leading freshwater economists of our time.

Psychologists take a look at people who prefer utilitarian solutions and, surprise surpise, they score higher on antisocial personality traits.  But funny, "regular economics" presumes or even preaches that or worse, that we should be out for our own selfish gain (but it's supposed to work out for the best of all, the invisible hand and all, given a whole litany of bad assumptions that Krugman just touches upon).

Healthcare Reform Disingenuity

A bit of history.

Firedoglake reported while Obama was speaking out in favor of public option (in September speech to Congress, I remember that one, it was inspiring) his administration was simultaneously turning the screws on the progressive caucus (including Dennis Kucinich) to kill the public option so the administration could honor a deal with hospitals to fill Democratic campaign coffers for 2010.

There's no business like show business.

New name for human species

Homo Sapiens?   The wise?  I've even heard it said the technical name is even Homo Sapiens Sapiens (the wisest of the wise).  I think a more accurate name would be:

Homo Insapiens Plerumque

Unwise mostly.

Other choice for Insapiens is Insipiens (foolish).

Not really having Latin training, I'm being pretty foolish myself to try to do this.  I'm using:

English-to-Latin Translator.

Latin-to-English Translator.

Chomsky gets it again

Chomsky on America in Decline.

Chomsky video on union busting and economic polarization in USA.

IS-LM model

I don't particularly like the politics of this one, by Nouriel Robini, but it is an excellent description of the IS-LM model by Hicks which even Krugman admires.  (Hicks himself somewhat moved away from it in his later years, and said it didn't really capture the essence of Keynesian economics, which is really about instability rather than equilibrium.)  The Wikipedia dscriptions of LM is terrible, this one gets very detailed.

http://pages.stern.nyu.edu/~nroubini/NOTES/CHAP9.HTM

From a failed growth economy to a Steady-State Economy

This is one great analysis of what we need as our new economic model and why, by Herman Daly.  Packed with interesting analysis, very radical recommendations, politically unimaginable, and yet, maybe not even radical enough (it's still capitalism after all, but very different from our current market liberalism model).

http://www.theoildrum.com/node/5464

Social Democracy Strategies and Realities

This one is very long, about political realities and strategies for social democracy (if we can keep it, and expand on it again).  I'm currently only half way through the comments at #140.  Lots of different and interesting perspectives, including many foes of social democracy.

http://crookedtimber.org/2011/07/25/where-the-money-is/#comments

Here's one comment I found kind interesting (#106)

Ok John Quiggin, I’m going to make a radical suggestion to you for progressive strategy to go after the 1%, if you are up to it, I’ll come back and really make my case with you.

Please give it some real serious thought.

Here it is: ADMIT YOUR TEAM IS JUST THE “C” POWER.

If you are familiar with bipolar theory of during the Cold War, great. If not here it goes:

The A power was the US.
The B power was the USSR.
The C power was China.

Basically as in a two party Democracy, the sides all split up into two teams, and the third power the C power, they go their own way – and the best strategy is to PLAY BOTH SIDESagainst each other.———-

Ok, now for the radical part. Forget Republican / Democrat. Instead, there are three self interested parties in America:

1. The” A” power are all us citizens who during part of their earning life are part of the top 90-99%. This is a GIANT group of citizens. They look like the Tea Party. Lots of SMBowners. Lots of big fish in small ponds. They are all “likely voters.” There are tens of millions of these pretty comfortable people.

2. The “B” power are the top 1%.

3. The “C” power are the folks who never spend anytime in the top 90%. In fact, there are some who get up into just the 80%+ who also identify as A, a smaller amount of 70%+, etc. So it isn’t exact, but the demos hold very well.

This is why we have so many elites in the 1% who skew liberal. Some are born with it. Some are in industries that skew that way (lawyers). And some are Fortune 100 management types who like lawyers get part of their income from the government.———
OK, here’s my point: Your side has no $, and without $, your numbers aren’t great enough to be A or B.

The mistake you’ve been making , and the cause of this economic crisis, AND THE GIANT DISPARITY we now have is that for FAR TOO LONG you have been partnering with a B power the top 1% to get political donations.

To serve your “Big DC” urges the technocracy has partnered with the corporatists, to try and topple those 30-40MILLION republicans who NEVER make it to the top 1%.

And Tea Party, the natural A power, they like the asshole of the body are in shutdown mode.———-

There is a real strategy here. As the C power, what you want to do is CRAFT POLICY that takes directly from the B power (the top 1%) and gives it ALL to the A power.

Keep nothing for yourself.

Think of this as a series of broad tax changes that make SMB owners far richer and more nimble and make investors and Fortune 1000 far less comfortable.

Imagine the kind of tax policy where the best and brightest ALL WANT TO START THEIR OWN BUSINESS. Nobody goes to Wall Street, because investor / bankers pay real taxes, and SMB owners have it easy.

Like a flat tax of 25% on corporations AFTER say $10M in profits with NO EXEMPTIONS.

And it is easily attainable, and you could pull it off immediately. The A power has $ and votes, you have votes – all it takes is you ACTUALLY JUST FUCKING THE TOP 1%.

The problem is you don’t REALLY want to get the 1% if the money doesn’t go directly to you. That’s bad strategy.

This is called distributism.

http://en.wikipedia.org/wiki/Distributism
———-

The truth is, during the past 30 years, the B power (top 1%) have made huge gains.

But the 90-99% haven’t lost a dime. They are powerful because they are far more than than just 9% – they have MORE $ then the B power, and they have 35M+ more votes than the A power.

Meanwhile the C power – they have lost it all to the B power.

Anyway, you asked for a way out. And I’m sure at first blush, this won’t convince you. but rather than write me off, please ask questions – see if I can answer them.

Yes, this will entail a different approach to regulation, but it isn’t nearly what you think it is.

And yes, there are some negatives that comes from a broader swath of well monied SMBowners who are suddenly less afraid of government.

But I do think I can convince you that this strategy WILL net out the C power MORE real gains, not everything you are after, but more than you got now.

Robot Cars

Some of my friends believe that improving technology will solve all our problems, or at least most of them.

One of the technological fixes that many of these friends believe in is automobiles that save energy, and allow greater use of existing transportation infrastructure, by self-driving.

It is true that self-driving technology has improved considerably in recent years.  Though it seemed like one of the tasks that would be solved quickly in the 1950's, and it still seems it has a way to go.  (Basic operations of perception proved far more difficult than computer theorists of the 1950's ever imagined.  We still have a long way to go in understanding language, for example.)

One of my problems with robot cars is what I perceive as a misunderstanding of the problem.  Driving is not merely a technical problem like finding one of the better routes in between points.  Driving is a task that involves constantly judging the assertiveness of of other drivers.  Thus it is more like poker than chess.

Another problem is the liability problem.  I am liable for my own actions, but who is liable for the performance of a robot car?  Well, the robot maker of course, or at least you would think.  But have you ever seen those disclaimers that come with all software?

I suspect that robot cars will only work when all the cars are driven by robots.  And that is pretty hard to imagine.  And when you get there, by the way, what you have is highly computerized segmented train.

Finally, like most technical solutions, robot cars ultimately create the same problems faced with wider roads.  Wider roads don't become less congested, they encourage more people to drive and therefore ultimately cause MORE congestion.

Articles toward a sustainable economy

From this one:

http://www.theoildrum.com/node/8185#more


Steven Balogh and Hannes Kunz
Revisting the Fake Fire Brigade
Joules Burn
American Physical Society Report on Energy Efficiency
Herman Daly
From a Failed Growth Economy to a Steady State Economy
Towards a Steady State Economy
Nate Hagens
A Net Energy Parable: Why is ERoEI Important?
Dear Candidate: What Will You Do if Growth is Over?
Euan Mearns
The energy efficiency of cars
The energy efficiency of energy procurement systems
The financial return on energy invested

Related articles (automatically generated)

• Galactic-scale energy: Part 1 (July 22, 2011)
• Beyond Food Miles (March 11, 2011)
• Can We Redefine Prosperity? - Herman Daly - Towards a Steady State Economy (December 17, 2009)
• Herman Daly: Towards A Steady-State Economy (May 5, 2008)
• From a Failed Growth Economy to a Steady-State Economy (June 6, 2009)

Inequality is the cause, not the effect, of our problems

And it's not new.

“An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” –Plutarch (c. 46 – 120 CE)

Ignore the weasels fed by Wall Street

A friend asks if Krugman has written about the S&P downgrade yet.  Krugman has written a few blog entries on or related to the subject; I'll just like some of the more recent ones.  I'm not sure if he's mentioned the S&P downgrade or the threats to do so (which started a few weeks ago) in any OpEds.

The basic story is that S&P are just some guys paid by Wall Street investment banks to rate their stuff.  So if an investment bank is selling a security, the investment bank pays S&P to give the security a rating, and in spite of the obvious conflict of interest, we're supposed to believe S&P, because they are putting their name on the line.  Well, we saw how well that worked out in the mortgage meltdown, S&P and all the others had given top ratings, sometimes even AAA, to mortgage backed securities which turned into toxic waste and the bonds of firms like Lehman Bros which went poof.

So who should believe these guys anymore?  Answer: Nobody.

Now, who pays S&P to rate US bonds?  Well, certainly not the US government itself, which is not an investment bank.  Largely it's S&P just doing it for their friends in Wall Street, saying what those friends want to be said.  Thus, such ratings are just bogus, and motivated by the desire of S&P to please its friends, and those friends to influence US policy.  Some would call this Political but I'd rather not besmirch the word Political.

Now there's an extra twist that in the last few months the US Securities and Exchange Commission (SEC) has been going after the ratings agencies, including and perhaps especially S&P, for the obviously invalid ratings they were giving to mortgage backed securities before the mortgage meltdown.  The defense of S&P is that it's ratings are simply a matter of "speech".  S&P says they should be free to say whatever they want for whatever reason.  As this was going on, barely reported, S&P started issuing threats about US bonds.  I'm not sure if the correct term for this is extortion, but it's something like that.

Anyway, I think I've read about most of this on other blogs, such as Naked Capitalism and Angry Bear (shown in the sidebar on the right of my blogsite) which are not afraid of angering advertisers.  Krugman, who publishes through the NY Times, hasn't spent as much time on S&P, he's more interested in real stuff like unemployment, but he has written a few posts about it (and be sure to click on his further links for more background).

http://krugman.blogs.nytimes.com/2011/08/05/sp-and-the-usa/

http://krugman.blogs.nytimes.com/2011/08/06/the-best-summary-of-the-sp-downgrade/

http://krugman.blogs.nytimes.com/2011/08/06/the-arithmetic-of-near-term-deficits-and-debt/

http://krugman.blogs.nytimes.com/2011/08/06/things-i-didnt-say-2/

Economy is 77% good will (aka trust), and movement conservatives destroy that

Great post at Naked Capitalism about trust, movement conservatism, and Obama (who is best seen as part of movement conservatism).  One of many great quotations:

"The republicans/blue dogs, and those helping them by lending their "professionalism", think they are only effecting a political strategy. In truth, they are destroying the very basis for the wealth they desire. Their entire campaign for decades to discredit, to instill mistrust in the primary institution we have, the US (We the People) government, has been the primary cause to our economic decline. To increase the level of distrust is to decrease the available “intangible capital” which is 77% of our wealth generating power. "

I added this comment (with a few edits):

This post like all others by DB is brilliant.

Obama the Steamroller gets what he wants, and what he has always wanted is to serve his hedge fund masters by abolishing actual government programs that work for people, replacing them with predatory programs that serve the wealthy.

Two of his tactics are to use only right wing ideas, and the other is to keep the microphone out of the mouths of actual left-of-center types.  Both tactics were on continuous display during the phony deficit ceiling crisis.  And the real coup was making a deal before Bernie or any Democrats could actually speak in the Senate.

Healthcare Reform is not primarily a government program, it's a private insurance mandate with subsidies.
 Yes, the hedge fund pyramids grow ever higher, even as base on which they rest ever rots away to make them grow. 

Salus populi suprema lex esto

Translation: the good of the people is the highest law.

Also, FWIW, on the state seal of the Seal of Missouri.  And as many conservative cranks invoke it as otherwise.  But at least it doesn't say protection of private wealth is the highest law.

Found that tidbit along with much more interesting discussion of restoring social democracy in the USA on this blog post and comments initiated by John Quiggin.

Same commeter (StevenAtewell #37) invoked the latin:

sic utere tuo  (use yours without harming others).

The Best Graph Debunking Movement Conservative Economics

Paul Krugman posted this today to show the Reagan Non-Miracle.

As Krugman says, the highest rates of growth and the most sustained growth occurred under the high taxes and relatively highly unionized post-war era, and since Reagan growth has occurred in brief fits and starts.  (BTW, you see the same pattern in GDP, Productivity, or just about any economic index you choose to look at, except those heavily massaged and cherry picked ones from certain think tanks funded by coal billionaires.)  Since 1980, the highest and most sustained growth occurred just after Bill Clinton raised the top tax rate, and the since the GW Bush tax cuts the result was at first stagnation, and then catastrophe.

Reagan and other Movement Conservatives just know this isn't true, they don't need to check the actual data.  Reagan cut tax rates, therefore it must have made the economy do better, because taxing something (income) makes people do less of what leads to it.  I have never bought into the perverse logic of this with regards to taxing income. If I wish to have the same after-tax income to similarly impress my friends, or simply pay the food and rent bills, why wouldn't higher tax rates make me work harder?  Oh well.  And why wouldn't a CEO get up to work to make 40 times the after-tax income of an average worker, if that's the best he can do, just as much as he would get up to work 400 times the after-tax income of an average worker?  If he makes the larger amount, he might well be able to work much less, or retire at 30.

Here is a particularly good analysis posted today of why lower tax rates on the wealthy lead to worse economic outcomes overall.  I've seen many others.

Honest and well informed movement conservatives (if there are any) actually changed the argument from economics to moral justice.  George W said something like "It's their money, therefore they should get to keep it."  That's wrong on many levels.

1) By definition, "their money" is net income, what's left after taxes.

2) Income and wealth are made possible by a productive society, such a society depends on government for eductation, infrastructure, and many other services that make production efficient and even possible.

3) Income and wealth are protected by government.

4) Free markets are made possible by government regulation.

5) Production is actually done by workers.

6) (wonkish) Capitalist managers only provide some direction over the production (not the production itself), and not necessarily socially desireable direction.  Capital owners and rentiers only provide the capital, which is nothing more than direction at the top level (which enterprises to fund and how much to fund them).  If capital markets were perfectly efficient (as technically defined by economists), all this direction has zero net social benefit, that is, all the net benefits would accrue to the owners.  Therefore, to the degree that capital markets are completely efficient, capitalism deserves no social support, but gets it anyway (see 2).

7) Income is derived from socially created and valued production.  One personal alone on a planet does not create income.  A social process of production creates and then distributes the proceeds of the production.  Greater income simply results from greater power over this social process.  Why do we need to respect such thuggery?

Links for end of July 2011

Obama Fiddles while Debt Ceiling Fires Burn hits hard at Obama.  He has lots of options, but chooses to ignore them and instead offer cuts to Social Security.  He wasn't asked by Boehner or any other politician to do that. Quoting Yves Smith (and this is really making me distrust Obama):

And the Obama appears recklessly unwilling to circumvent the debt ceiling, since it would eliminate his leverage for pushing through entitlement cuts.

A commenter notes that:

 The American people aren’t confused or contradictory, they want these things and polling consistently shows they know how they want to pay for it all: Much higher taxes on the top quintile.

I've heard more and more polls to that effect (and I feel that way too).

And then, while our government representatives are using deception and extortion to take away our hard earned and 99% paid for Social Security benefits (a pocket change tax increase would have the program paying full benefits for the next seventy five years, but nobody wants to tell you that), Standard and Poors is using similar extortion tactics, threatening the rating (or something like that) of US bonds, to get out from their responsibility (major) in the financial collapse of 2008. 

Truth about Federal Spending

Paul Krugman debunks the myth that federal spending has vastly increased under Obama.  He's done this about a dozen times before.

http://krugman.blogs.nytimes.com/2011/07/29/the-truth-about-federal-spending/

His argument is this, as a % of GDP, federal spending has indeed risen from 19.6% in 2007 to 23.8% in 2010.  About 1/3 of that change is from reduced GDP.  About half is a rise in safety net programs, because more people are in need or retired or past 65.  The remaining 1/6 is stimulus programs [which were deeply inadequate] which have now ended, and they were mainly money sent to states to temporarily somewhat maintain spending, not increase spending.

I believe Krugman is correct.  I am not aware of significant new federal programs, other then the temporary stimulus.  But it would be nice to see a clearer argument, such as breaking down the actual spending by dollars.  Here are some numbers provided by one commenter:

2002: $2.0 trillion
2003: $2.2 trillion
2004: $2.3 trillion
2005: $2.5 trillion
2006: $2.7 trillion
2007: $2.7 trillion
2008: $3.0 trillion
2009: $3.5 trillion
2010: $3.5 trillion
2011: $3.8 trillion (budgeted)

FY=Fiscal Year, FY 2008 began October 2007

These are nominal dollars (not adjusted for inflation):

FY 2008 (the last full FY under GWB): 3.0 trillion
FY 2009 (started under GWB): 3.5 trillion
FY 2010: 3.5 trillion
FY 2011: 3.8 trillion (budgeted)

The fairest comparison I can do with these data would be FY 2002-2003 for Bush, and 2010-2011 under Obama.  (Sorry there aren't many years).  In both cases, that starts with the first full fiscal year under each President.

2.2/2.0 = 1.1x increase for GWB
3.8/3.5 = 1.08x increase for Obama

The best comparison would start with 2001 and 2009, the previous fiscal years (largely set by previous president and congress).  Unfortunately, I can't do that comparison with these data, since 2001 was not provided.

I can easily pick years which make Bush look like far bigger spending increaser than Obama.

Anyway, even looking at these raw numbers, it appears that Krugman is correct.  There was a comparatively large jump from FY2008 to FY2009 of $0.5 trillion, but (1) that can't really be nailed on Obama, when he took office that FY was budgeted and 1/3 over, and (2) it includes the inadequate stimulus program, which should have been much bigger, as well as increased unemployment, social security, and medicare spending, which Obama had no control over.

Interesting Links

Time is running out for logging out of my computer, here are some more interesting links I have been looking at:

http://crookedtimber.org/2011/05/22/the-fragmenting-coalition-of-the-left-some-musings/#more-20113

http://jacobinmag.com/summer-2011/how-can-the-left-win/

http://www.thefiscaltimes.com/Columns/2011/07/22/Barack-Obama-The-Democrats-Richard-Nixon.aspx#page1 (This one is all the more important because the writer is a old style conservative.)

http://thinkprogress.org/yglesias/2011/07/26/279266/theres-still-more-to-life-than-the-president/

http://www.versobooks.com/authors/2-slavoj-zizek/?utm_source=jacobin&utm_medium=banner&utm_campaign=SZ

MMT'er says liquidity trap unimportant

Here's an MMT proponent claiming that the liquidity trap we are in now is unimportant.

http://bilbo.economicoutlook.net/blog/?p=15168

Unimportant in that we should always just deficit spend to meet all our needs, or something like that.  So a liquidity trap is, by this interpretation of MMT, not required to justify this.

I'm inclined to think, as Krugman does, that MMT goes a bit too far.  But much bigger deficits are called for now because of liquidity trap, unemployment, and so on.

Chance leads to ever greater inequality

This is something I've long argued, now borne out by a simulation.

http://www.eurekalert.org/pub_releases/2011-07/uom-cft072111.php

Debt Ceiling is Unconstitutional

There is no question in my mind that the Debt Ceiling is unconstitutional.

Congress does have the responsibility for determining how money is spent.  But once it is spent, it is out of their hands.

The 14th Ammendment makes that clear beyond doubt.

If Congress wishes to limit spending, they have the power and the responsibility to do that.  And they would have to make the hard choices too.

But holding the executive hostage over rolling over the debt, that is clearly unconstitutional.

Patents and Copyrights don't work either

I could almost hear those gleefully scriping up my words on a previous post showing that the only path to continued growth is through growth of knowledge, and concluding that "intellectual property" is the property of the future.

Actually, intellectual monopolies (correct term) do not lead to growth of knowledge either, in fact they attempt to restrict knowledge.  There is no path to exponential growth there.  Furthermore, intellectual monopolies do not actually encourage the growth of knowledge, they encourage the growth of ignorance (as when drug companies hide more effective natural or alternative treatments, and that's just one example of the growth of ignorance caused by intellectual monopolies).  Finally, patents only apply to a specific kind of knowledge, one that is actually not much useful in generating future growth in quality.  Most knowledge of that kind is "a is better than b." which is inherently not patentable.  "a is better than b" is the kind of knowledge that free blogs are providing in exponential increase.

Letter to Obama

Nothing will be worse for the economy now than cutting spending. You should not be negotiating with the insane and amnesiac Republican Party. Paul Krugman is correct only he doesn't go far enough. Cutting taxes will only make matters worse. It would actually help to raise taxes on the wealthy to encourage spending, such taxes are now too low and that is part of our problem. Failing to make the government the employer of last resort will ultimately lead to the deflationary collapse of capitalism, leaving government as the only employer left standing. Keynesian economics was about saving capitalism. Now it appears that the Republican Party is committed to the destruction of capitalism, if not the entire country. We need green jobs.

The only path to Quality: Post Capitalism

In previous post I described how there seems to be a way out of the end-of-growth (from peak everything), and that is for quality to take the place of quantity.  I only began to contemplate how difficult, or perhaps even impossible, that would be.

The more I think about it, the more impossible it seems.  Not that we can't get quality (though we probably won't, except as I plan to describe), but that quality could provide continued "economic growth," at least as we've known that under capitalism.

I'm familiar with concepts related to quality from my other blog, Audio Investigations.  I've been an audiophile for more than 40 years.  I've heard quality.  I've also heard what was supposed to be quality, but wasn't, and unfortunately, even among dedicated audio enthusiasts, that is quite common, maybe more the rule than the exception.

Now sometimes quality does require more resources.  For example, the quality from a large speaker system, or a large Class A amplifier, may require LOTS more resources.  THAT kind of quality cannot continue to increase, given peak everything.  A few high wizards, as I'd like to imagine myself, may be able to keep the candle of such quality burning.  But it cannot become more and more widespread.

Similarly the quality that comes from selecting the best things out of many.  Even though any one of these highly selected things may not have required more resources, the many things it was selected from did, so most people cannot have such quality, and therefore it cannot continue to grow.

But there is one kind of quality that can continue to grow endlessly.  And that is the quality that comes from precisely one thing: knowledge.

There is a problem with that wrt economic growth.  And that is that knowledge seeks to be free.  So while out "utility" from knowlege can continue to grow exponentially (and it may be doing that now more than ever, thanks to endless free blogs on the internet which are often much better than this one), that utility cannot pay the rent to rentiers, or pay the wages of people to do miserable work that nobody really wants to do.

This newly endless and free knowledge is already part of Marx's Realm of Freedom.  It is not capitalism any longer, it is post capitalism.  But while our heads may be in the clouds, our mouths are back down on the ground.

And it's back down on the ground where capitalism, now more than ever, seems to be grinding itself (and the planet with it) into burning dust.

Economic Growth or No Economic Growth

I like leftism, which I see as "power for the people", in several different strains including Socialism (both pre-Marxist, Marxist, and post-Marxist), Keynesianism (political economy oriented to minimizing unemployment, and maximizing the common good, through collectivist guidance of a market system), and sustainability eco-leftism (we must preserve nature for itself independent of ourselves and as our common resource, and that means ultimately we decrease our footprint on the planet both by exploiting and polluting less).  Neither Marx nor Keynes (as far as I know) addressed the impossibility of maintaining exponential growth in resource utilization forever.

The System Dynamics thread within eco-leftism emphasizes that we must learn to live without economic growth, because endless economic growth is the driver toward unsustainable misuse of the environment.  I pretty much subscribe to that view (although I believe strongly that right now, especially, we need the right kind of economic growth to put people who want jobs back to work, in fact i would state is simply that as long as there is unemployment, or population increase, we must have economic growth to accomodate it).

However, in this very interesting discussion on the future of the left (which starts with a most excellent post by Chris Bertram) an alternative to the no-future-growth idea (which happens to be nicely argued therein by Sandwichman, one of my favorite posters) an alternative is posited:

Economic growth does not necessarily mean more stuff, it can also mean higher quality stuff (or even similar quality stuff that is simply more sustainably produced, though the poster did not mention that).  As long as the total "value" increases, you have economic growth.

I agree with that sentiment entirely.  I have long been attached to the idea of improving quality rather than quantity.  However, I fear it is hard to get to that point in our kind of economy not because of its logical or macroeconomic impossibility, but because it doesn't work as well for the kinds of capitalists we have now. Basically, it's not as profitable.  For starters, quality is always a hard sell, lower price (often based on greater exploitation of some kind) is an easier sell.

I like this website

Somehow reading one of my usual dismal econoblogs I stumbled upon the link to LeftMathProf, whose own blog is an encyclopedic new age, but deeply political, vision.  I like what he says; I've been thinking basically the same things for a long time, but he brings it all together with links to define everything.  A masterpiece.

http://leftymathprof.wordpress.com/

It's quite long and I've only read bits and pieces.  Although beginning in a very new agey way, toward the end he says this (which happens to describe what I do somewhat):

Join the struggle, in whatever way feels right for you. Put peace symbols on your clothing and your money. Join a small, local political group if you can find one or start one — you’ll feel greatly empowered once you become part of a community, and part of the conversation steering that community. (Here in Nashville, you can choose among many political groups, though I see them all as facets of one larger cause.) Or host screenings of films. If you have the tools and skills, make some films yourself; even short clips on Youtube are helpful in spreading ideas. Or just talk with people, online or off — the solutions to our problems will be developed in the global conversation, if anywhere.