Stop Me Before I Vote Again

Where to after capitalism?

Immanuel Wallerstein

"FIRST, how did we get to where we are today? Let's retrace our steps several decades backwards.

The period 1945 to 1970 saw the height of US power in the world system and also the moment of the most expansive economic upturn that the capitalist world economy had known.

So what are practical steps that we can and should take? I would put at the head of the list actions that can minimise the pain that arises from the breakdown of the existing system.

The second thing that we can do is engage in serious debate about the kind of world system we want, and the strategy of transition.

The third thing we can do is to construct alternative decommodified modes of production.

The gaunt Aunt Sadie of a gent diddling his second penis above, one Mark Thoma, has an aggregator-type econ-con web site I've frequented like a barfly for many many moons, with great profit.

Alas, now he's gone and taken up a second gig as a penny-a-word pundit over at CBS's money watch, and in no time at all, through a self-indulgent beaverish flood of pompous high-minded idiotically conventional postings worthy of Woodrow Wilson himself, Mark has shown a side I doubt even his own shaving mirror could stand.

Here's a recent specimen, on a topic that invariably zaps a real raw nerve in my neck: the independence of the Fed from our great and terrible Congress. In this piece of foolishness, a quote from Barney Frank to the effect that Fed regional presidents "too often vote in favor of higher interest rates", triggers this magisterial response from the brand-new bigfoot:

"That... sentence means he believes the Fed has favored low inflation over low unemployment as it has set interest rate policy. That may or may not be true, but do we really want members of the House setting interest rate policy or changing the structure of the Fed whenever they disagree? I don’t."

The House -- the only organ of American governement with any resemblance to a democratic institution -- setting interest rates? God forbid! Imagine if the people out there in their benighted millions, those ignorant TV-watching log-bumps, actually got a crack every two years at hiring or firing the folks that control the headwaters of our credit system?!?!

Mark is not alone, of course. There's a chorus out there bellowing the same sort of thing every day. Here's famed Princeton academe and former Fed board member, the bulb-like Alan Blinder....

... in the Washpost the other day:

"An independent monetary policy, designed and executed by the Federal Reserve, is one of the great and enduring achievements of the Progressive Era. It has enabled the long time-horizons of technocrats to triumph over the short-term perspectives of politicians, bringing us low inflation over the decades. Because of this, and because technocratic monetary policy seems to be more skillful than political monetary policy, the Fed's independence has been admired and imitated by country after country."

From Krugman's blog.

Put "liquidity trap" under it as a caption, and you'd have a great New Yorker cartoon... for any Reagan era issue prior to last year. Before that, no one -- since the darkest days of the great depression -- could have seen such a projection as anything but the vicious fantasy of a wild-eyed loon.

Remember this chap, Gauti B. Eggertsson?

Gyro here has cranked his model machine and concluded: Anything but a payroll tax cut! That would cause a rise in job supply and reduce money wages!

"Tax cuts can deepen a recession if the short-term nominal interest rate is zero."

Imagine a model that loathes tax cuts! What a weird new Kansas we're in, that can turn tax cuts -- the Reagan-era panacea -- into a "growth" disaster.

The payroll tax cut would defeat itself by causing a massive rise in "job seekers" (supply), and of course this could only reduce money wages for the select legion to get actually hired, given the a priori self-evident demand-side constraint on employment, eternally decreed from before all time and forever.

And hey, the blade cuts both ways: "a cut in capital taxes [also] deepens a recession because it encourages people to save instead of spend at a time when more spending is needed."

Paul Krugman has a crush on this guy... is he only interested in him for his results? Maybe so, since they "confirm" his own anti-tax-cut remedy for our slumpfest.

See, what does work in this model-train economy, we're told, is "Fiscal policies aimed directly at stimulating aggregate demand... These policies include... a temporary increase in government spending."

Great! Sez googoo Klug: more parks, more campus museums, more cultural infrstructure of all kinds; or "... tax cuts aimed directly at stimulating aggregate demand rather than aggregate supply."

Better "an investment tax credit or a cut in sales taxes." Ugh! Job creation and machine purchases as sold to us by Obama's Austen Ghoul's-bee, eh? Or uncle-sponsored "take an additional x% off", or cash for clunkers, or anything but money in people's pockets.

It's a calculation only an uber-nerd like Krug could fancy. My favorite part (this is the Krugster):

"The general point is that we’re really through the looking glass."

Oh, here's the paper's caveat:

"The results are specific to an environment in which the interest rate is close to zero, as observed in large parts of the world today. "

Here's Paul Krugman explaining a mystical concept, "core inflation":

"Some prices in the economy fluctuate all the time in the face of supply and demand; food and fuel are the obvious examples. Many prices, however, don’t fluctuate this way — they’re set by oligopolistic firms, or negotiated in long-term contracts, so they’re only revised at intervals ranging from months to years....

[B]ecause they aren’t revised very often, they’re set with future inflation in mind...

[W]e’d like to keep track of this sort of inflation inertia, both on the upside and on the downside — because just as embedded inflation is hard to get rid of, so is embedded deflation (ask the Japanese)."

"[O]nce expectations of, say, persistent 10 percent inflation have become “embedded” in the economy, it will take a major period of slack — years of high unemployment — to get that rate down."

Fortunately, we don't need a model of how the system works, nor even face the pain of adjustment -- not if we sieze power and superimpose a system our Gosplan can easily construct and enforce. Enter the Lerner-Vickrey-Colander solution.

Say we wanted to control the prices of the health sector -- maybe keep 'em on track with the overall movement of the price level.

Simple: you cap the markup over non-sector inputs for all sector firms, by creating a sector-wide markup warrant market.

This essentially limits depreciation charges, wages, salaries, as well as profits -- i.e. the same value that is taxed by a value added tax. The two would work well together in a whole-system application of markup caps (MUC) if, say, the corporate income tax (CIT) was modified into a value added tax (VAT).

Prolly firms would get issued a flow of warrant "credits". If a firm wants to increase mark up above warranted levels, the firm has buy the warrants with cash on the warrant market.

All this formally parallels the carbon warrant notions, of course -- I hope without the wild croaks of dismay from the pwog pond.

By the way, you could use a Pigou tax here too -- that was also devised in the roaring 70's by Weintraub et al. I favor the cap and trade mechanism because it sets the inflation rate, leaving the markup cost to the vagaries of the market, whereas the Pigou tax sets the mark up cost, leaving the ultimate inflation rate uncertain.

Health care, of course, is quite a different application than carbon, where I reluctantly prefer the Pigou tax method.

Either approach would be a lot better than being bondservants of the anarchy of corporate-administered pricing -- especially as we face.up ahead, looming at us through the windshield, the dark side of price-expectational inertia -- DEFLATION!

As Paul K puts it:

"what these measures show [i.e. various metrics of "core inflation"] is an ongoing process of disinflation that could, in not too long, turn into outright deflation"

Welcome the Institute for New Economic Thinking.

The advisory board is worth a look: what a criminal-looking bunch, every man jack of 'em wearing an expression that's either brittlely brazen or shifty-eyed and hang-dog. These are the motley Merlins that George Attaturk Soros has assembled to redesign the global economic system; and here is a quote from his highness, lord Soros, that serves as well as any might to seed the ground with dragon's teeth:

"The entire edifice of global financial markets has been erected on the false premise that markets can be left to their own devices, we must find a new paradigm to rebuild from the ground up."

You always like to find an edge where the fabric holding us all in our "one big world" rips apart easily, revealing the scam under the blanket-toss, so to speak. Here's one deluded soul not quite breaking all the way through:

"To be honest, sometimes I feel that I’ve spent most of my adult life knocking down the same misunderstanding, over and over again. I wrote about more or less the same issue more than 20 years ago:

There is a widespread view that world payments imbalances can be remedied through increased demand in surplus countries and reduced demand in deficit countries, without any need for real exchange rate changes. In fact shifts in demand and real exchange rate adjustment are necessary complements, not substitutes."

Intended result: the bilateral trade gap doesn't explode again, leading to -- what else -- pleb cries to uncle for some "goddam protection, fer chrissake, they're killin' us here, killin' us!"

Dr Roach is really just pulling the old Bretton Woods remedy bottles down off the shelf. Way back when -- despite their obvious brutality -- they were at least plausibly "appropriate". In a fixed exchange regime like the globe had for the first 26 years after WWII, if you want to keep the fix in fixed exchange you try absolutely everything before you adjust your rate. Almost "euro zone for everyone," you might say. (Why Bretton Woods blew up is another story, one with Yankee gold in its lining, in fact.)

Why that old paradigm now? Haven't we escaped that confounded booby trap of a system, with all it's expansion- and prosperity-choking bits and bridles? Why act as if the harness is still in place? We got a flexible system today, and have had it for over 35 years, and we know that forex flex is great for macro jobs management.

Look what a good strategic devaluation did for Sweden in the 90's, after a wickedly deep financial crisis threatened to derail the prized Swedish social model. Instead of swallowing hard, like Ireland is doing, Sweden devalued -- massively. Result: a fast robust recovery:

"... the Swedish share of exports in gross domestic product rose from about 27 per cent to 52 per cent today. Previously, that share moved in the range of 20 to 30 per cent. In the past four years alone, this ratio went up by almost 10 percentage points.

The reason for this tectonic structural shift lies almost entirely in the real devaluation of the krona.... After Sweden abandoned the peg against the ecu, the former European basket currency, in 1992, the krona’s effective real exchange rate depreciated by 30.7 per cent compared with today. The real devaluation of the krona provided Swedish export industries – electronics, heavy engineering, cars and trucks, forestry products, among others – with an invaluable boost to their competitiveness. The renaissance of Swedish manufacturing industry is not a tribute to the quality of Swedish management, as it is sometimes claimed in Sweden. It is a real devaluation story first and foremost."

... so then why inflict needless punishment on the millions out there just like her -- well, maybe not quite like her -- if a simple Swedish adjustment would set the whole ball o' wax back on the prosperity track?

Let 'cui bono' be your guide. There are folks that just happen to like the present pseudo-fixed setup just fine.

Take a look at what are called purchasing power parity(PPP) tables to lay it all out in numbers. These tables compare, at existing exchange rates, one universal basket of products across currencies. After a little grouping and comparing you realize there's an astonishingly clear pattern here, a systematic inter-hemispheric forex tilt; not just a few anomalies, but a full set of exchange rates permanently off kilter in the same way.

Using PPP comparisons, you find -- and this persists through time -- north currencies buy more of the indexed products at existing exchange rates. That is: the dollar at the moment exchanges for 12.5 Mexican pesos. So you's expect that 12.5 pesos would buy about as much rice, or electricity, or soap, as one dollar, right?

Wrong. In fact 12.5 pesos buy a Mexican less soap or whatever than a dollar buys an Amurrican. And this is not a fluky, transitory affair, a matter of hysteresis or stickiness. It's permanent and institutionalized.

The great political economist David Ricardo -- father of us all, in some respects -- long ago was forced to assume no tilt could exist, in order to convince his countrymen to open their harbors to unrestricted foreign trade. Any tilt would automatically disappear. If 12.5 pesos today buys less soap than a dollar, then the exchange rate has to change tomorrow and the peso has to drop relative to the dollar.

If Ricardo faced today's world market he'd have to assume reality away. So what keeps these anomalies in place?

Back to our cui bono: what if that systematic north/south tilt produces vast profits for cross hemisphere traders -- profits that come in and apparently keep on coming in and coming in so long as the tilt shall last. The correction Ricardo made instantaneous is here postponed indefinitely.

Mr PAINE, for The People: At this point, your honor, may I call the cross border corporations to the stand?

[The DEFENDANTS are sworn]

Mr PAINE: Gentlemen, I draw your attention to the present reality outside this courtroom. Is it not true that out there, humble smurf-like Americans today face a brutal bonesnapping nightmare, an endless season of misery where job dearth and debt are mocked by a willful credit drought? And sirs, is it not also true that for you clever grasping souls this present utterly contrived stagnation is well... you know... from where you sit... a most necessary and indeed salutary part of the best of all possible games on the planet?

The DEFENDANTS: You don't understand... it's not that simple --

Mr PAINE: A simple yes or no will suffice.

The DEFENDANTS: Err... ummm... yes.

Crowd grows restless, there is the sound of the gavel as we fade to black....

"There is a widespread view that world payments imbalances can be remedied through increased demand in surplus countries and reduced demand in deficit countries, without any need for real exchange rate changes. In fact shifts in demand and real exchange rate adjustment are necessary complements, not substitutes."

"Sometimes I feel that I’ve spent most of my adult life knocking down the same misunderstanding, over and over again."

Krug never wonders whether this might be a mask Roach wears. With all his brightness and probing self-confident merit-badge boy wonder's curiosity, Krugman just can't quite poke his finger all the way through the seam here, and ask, Cui bono?

So he can't figure out why this nonsense persists: Why don't they grasp what's at stake? Why this persistent stubborn -- willful almost -- inability to see the need for currency devaluation and revaluation? Why, how else can you restore global trade balance? Why do those overpaid monkeys, those goddam PTB quack Merlins, even after all the formal models we've built to the contrary these last 35 years -- why why why do they still crave a more or less Bretton Woods-y straitjacket(*)?

Unlike Paul, we dumbclucks here at SMBIVA -- some of us at least -- know why they persist in their know-nothingness. O Paul! Behold the secret motor of globalization, the gigantic hypergizmological global money market casino. Behold the forex rigs imperious that sustain the fabulous transoceanic profit slurry, as it runsmiraculously and perpetually uphill from the economic south to the economic north.

It's been operating in one way or another ever since Clement Attlee had his family jewels removed in '46, and give or take a few easy topological contortions, it still looks today pretty much as it did back then.

Oh there's more ways than this to peel the world, of course; many, many more ways; and the MNCs use 'em all. But this gimmick here, the big tilt at the main tables, is the deepest chamber in the soul of market earth.

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(*) Without, of course, the dollar tie to gold, Nixon the Great and Terrible be praised.

Who is this ear-ringed Aussie? It's my second-favorite Billy Mitchell. Like my top favorite Billy Mitchell, shown below --

... this Billy Mitchell also lords it over an obscure subculture that has recently caught the attention of the mainstream.

A few months back I noticed that many of the better commenters had disappeared from my favorite economics blogs. Why did my stomping grounds suddenly feel like Studio 54 circa 1985?

As it turns out, everyone was on to the new new thing: Modern Monetary Theory, or MMT for short. MMT is a neo-chartalist economic theory promoted by Bill Mitchell and a few other eccentric characters. The main insight of MMT is that money is a creature of the state and under a fiat, floating exchange rate currency regime, a sovereign government has no nominal spending constraint.

What does this mean in English? Any country that prints its own currency and borrows in its own currency can never go bankrupt against its will. It can always print more currency to pay off its debts. A second key aspect of MMT is an emphasis on full employment as the appropriate goal for monetary and fiscal policy.

Who are its enemies? The deficit terrorists like Pete Peterson, the IMF, the EU leadership and the rest of the neo-liberal establishment.

Sounds good, right? As much as I am with Bill & co. in spirit, I do find his underlying economic arguments a bit off -- but that's a subject for another post. Nonetheless, I have to applaud the success he and his allies have had in popularizing a strong anti-austerity position, despite the prevailing deficit hysteria.

Just a few weeks ago I turned on BNN, my beloved closet-leftist Canadian business network, and saw one of his allies, Marshall Auerback, eloquently bashing the deficit hawks. Music to my ears!

The next step in the MMTers' publicity campaign is being organized by some of our friends over at Corrente: a teach-in and shadow conference taking place on April 28th in Mordor-on-Potomac. The idea is to provide a counter-narrative to Pete Peterson's deficit terrorist conference that is happening at the same time. I encourage everyone to do what they can to help out with this laudable initiative.

Not to prod, but in particular I think they could use a bit of high quality agitprop, *cough* Fluggenock *cough*.

I have to thank Owen for turning me on to the work of William Vickrey, a Nobel prize-winning Canuck who died just days after receiving his prize, leaving much promising work unfinished. Vickrey's Fifteen Fatal Fallacies of Financial Fundamentalism is a great little document that helped awaken me from my dogmatic slumbers. Since then I've found it useful as a means of disturbing those who are still benighted by the conventional economic wisdom.

One of the reasons that I found the spread of MMT exciting is that it seemed to be doing a remarkable job of popularizing many of the points made Vickrey in that article. Unfortunately for us, Vickrey didn't leave behind a large-scale macroeconomic model that might challenge the mainstream paradigm and provide a platform for collaborative work amongst left-leaning economists. At first, I thought that the MMTers also lacked anything of the sort. I assumed the lack of solid models to be the reason why Billy Mitchell seemed to commit errors such mischaracterizing the role of chartered banks in a modern economy and misapplying concepts that only work in closed economies to open ones.

When pressed on the economic underpinnings of their economic arguments, the MMTers invoke yet another three-letter acronym: SFC, or Stock-Flow Consistent modeling. The humorous thing about this situation is that I doubt that many of the MMTers have actually read the book on the SFC system invented by one Wynne Godley, shown below:

Godley was at various times in his life a Parisian oboist, a Professor of Economics at Cambridge, an econometrician at the UK Treasury, a legendary bon vivant, ladies' man, and reputedly the inspiration for A.A. Milne's Tigger character. As of 2007, after two decades of quiet monastic toil, he and his Quebecois partner, Marc Lavoie, claim to have discovered, or come close to discovering, the Holy Grail of Post-Keynesian economics. A number of people who have examined their work, including James Galbraith and Jan Hatzius of Goldman Sachs have found it to be, at least tentatively, very promising.

I was initially turned on to his stuff by discovering a series of economic prognoses which I found quite similar to the arguments made by our own Owen Paine. In particular, I recommend checking out this article from 1999, and this article from 2008.

What is remarkable about Godley, and what separates him from the vulgar leftist economists like Owen's favorite punching bag, Doug Henwood, is that Godley's analysis is actually based on a fully articulated, mathematically rigorous, operational model. His work is an attempt to correct, synthesize, and provide micro foundations for the theories of a number of economic thinkers in the Keynesian vein. Amongst his main sources are Keynes, Kalecki, Sraffa, Lerner, Minsky, Kaldor and Tobin. The system takes the form of a Tobinesque set of interlocking balance sheets and cashflow statements for every entity in a modern economy -- from households right up to the central bank.

Could this be a blueprint for the consolidated balance sheet of a Gosplan 2.0? I don't know, but I'm sure that Owen stands ready to point out exactly where it falls short.

One of my favorite economists, Wynne Godley (right) has died. Obituaries are here and here. An extremely candid article on his upbringing is available here here, and an extensive video interview can be found here.

What I find most impressive about Godley was the drive that he exhibited in the last two decades of life. After having his funding cut off by the Thatcherites, whose economics he had called "a giant con trick", Godley was undeterred. He spent over twenty years working on his macroeconomic theory, living to see his magnum opus published in 2007 and his ideas proven right during the financial crisis.

I think that the Times was right to characterize his theories as "major, though as yet not fully recognised, contributions to macroeconomic theory."

In the hopes of increasing his recognition around these parts, here's a section in Jamie Galbraith's article on economists who predicted the crisis that provides a fairly accessible introduction to Godley's economic theory:

KEYNESLINESS IS NEXT TO GODLEYNESS

The work of John Maynard Keynes is linked closely to the accounting framework that we call the National Income and Product Accounts. Total product is the flow of expenditures in the economy; the change in that flow is what we call economic growth.

The flow of expenditures is broken into major components: consumption, investment, government and net exports, each of them subject to somewhat separable theories about what exactly determines their behavior. Accounting relationships state definite facts about the world in relational terms. In particular, the national income identity (which simply states that total expenditure is the sum of its components) implies, without need for further proof, that there is a reciprocal, offsetting relationship between public deficits and private savings.

To be precise, the financial balance of the private sector (the excess of domestic saving over domestic investment) must always just equal the sum of the government budget deficit and the net export surplus. Thus increasing the public budget deficit increases net private savings (for an unchanged trade balance), and conversely: increasing net private savings increases the budget deficit.

The Cambridge (UK) economist Wynne Godley and a team at the Levy Economics Institute have built a series of strategic analyses of the U.S. economy on this insight, warning repeatedly of unsustainable trends in the current account and (most of all) in the deterioration of the private financial balance. They showed that the budget surpluses of the late 1990s (and relatively small deficits in the late 2000s) corresponded to debt accumulation (investment greater than savings) in the private sector. They argued that the eventual cost of servicing those liabilities would force private households into financial retrenchment, which would in turn drive down activity, collapse the corresponding asset prices, and cut tax revenues. The result would drive the public budget deficits through the roof. And thus—so far as the economics are concerned—more or less precisely these events came to pass.

Godley’s method is similar to [Dean] Baker’s: an unsustainable condition probably exists when an indicative difference (or ratio) deviates far from prior values. The difference is that Godley’s approach is embedded explicitly in a framework of accounts, so that there is a structured approach to figuring out what is and what is not tolerable. This is a definite advance.

For example: public sector surpluses were (not long ago) driven by private-sector debt accumulation. This raises the question, how can such accumulation be sustained and what happens when it stops? Conversely in a downturn: very large public-sector deficits are made inevitable by the private-sector’s return to net saving.

But how long will public policymakers, unaccustomed to thinking about these relationships, tolerate those deficits? The question is important, since if for political reasons they do not, the economy may collapse.

Over at Corrente, Lambert recently took Paul Krugman to the woodshed over his use of "passive constructions and flaccid verbs … designed to obfuscate" in Monday's column on the emergence of the need for austerity as a central tenet of the economic conventional wisdom.

Why does Krugman avoid naming the culprits behind the spread of monetary and fiscal hawkishness? Krugman has responded with more evasive manoeuvres. He claims that "it’s not so easy to identify the culprits, and … vested interests aren’t as clearly the villains as one might imagine."

Let's take a closer look at the evasive language being used here: "It's not easy to identify the culprits" is not to say that one cannot identify the culprits, and that "vested interests aren't as clearly the villains as one might imagine" is not to say that vested interests are not the villains.

Is it really so difficult to identify a group of culprits or the links to the vested interests? The relationship between the propaganda, the agents that disseminate it and interests that benefit from it may not be immediately clear those unaccustomed to asking "cui bono?" and following the paper trail, but that hardly applies to us here at SMBIVA, does it?

For culprits, how about the mercenary economists: both high-end academic economists like Ken Rogoff (shown above, explaining his theory about what happens when debt exceeds 90% of GDP to a member of Obama's Fiscal Commission), and their down-market cousins at the think tanks? I'd say that easily takes care of the proximate source, but what of the vested interests that ultimately set the agenda and determine the payscale of said economists? Larry Summers, mercenary economist extraordinaire, has always had a sharp eye for scouting out his next meal ticket, and scoped out the primo patrons a long time ago: the "stateless elite".

Obviously such an elite is a bit amorphous, but it still has one dominant, highly visible social institution through which it seeks its interest: the multi-national corporation. The multi-national corporation enables them to freely move around money and goods, allowing them to exploit the differences in regulations, price levels, tax rates, etc. and scoop up arbitrage profits along the way.

What does this have to do with promoting austerity in the developed nations? If we were to fully stimulate the economy, the huge trade deficit generated in the US (mainly with China) would lead for calls to reinstate tariffs and capital controls, or for harmonization of labour and environmental standards, or for reform of the forex system. That would mean hampering the ability of the stateless elite to move money and goods around the world, and/or eliminating the most lucrative sources of profit (the high dollar, in particular). The stateless elite would rather have the developed countries stagnate than have their perpetual profit machine shut down.

So why the hysteria? No citizen in their right mind would accept policies that are likely to result in their own unemployment, and no politician can campaign on increasing unemployment, but the stateless elite needs to make such policies acceptable as "necessary" evils. Solution: send forth the dismalians.

The course of recent trade shows a stall has set in for Ohbummer's cargo-cult project to close the national trade gap. Things look a bit better if we strip out oil -- recently running at about 350-370 million barrels a month.

But even that really doesn't improve the trend line much. Fast rising exports as a source of macro thrust is just not happening. Add in the state and local offset to Uncle's deficit and you haven't got enough thrust to restart corporate domestic spending and, through that, household job hours, wages, and to complete the loop, spending.

Bottom line: job stag continues.

Now of course that is eactly what corporate types want and job class folks oughta be thunderin' about. Read my imaginary friend Greg Mankiw:

"...economists should be cautious when recommending exchange-rate policy, because it is far from obvious what is best. In fact, Americans’ embrace of floating exchange rates is relatively recent. From World War II to the early 1970s, the United States participated in the Bretton Woods system, which fixed exchange rates among the major currencies. Moreover, in 1998, as much of Asia was engulfed in a financial crisis, Robert E. Rubin, then the Treasury secretary, praised China’s exchange-rate policy as an “island of stability” in a turbulent world. "

"Last week I attended a conference with global business executives. When I asked them where they expected to find new customers to replace Americans who are pulling back, they all said China and India and quoted me the same number: 800 million new middle-class consumers from these and other fast-developing countries over the next decade."

We know we want to substitute local sources of energy, and we can, of course. if we can beat or bribe our energy guys. We just install equipment that harnesses the local shit, whatever it is...right? Big cut in imports, bingo!

But trying to evoke new local sources of industrial "products" gets more complex, and in any event -- if it's at a high level of productivity, as it should be -- not likely to provide many long run operative and maintence jobs even if we get a nice closing of the trade gap, with attendant full employment fiscal gap reduction.

So what is to be done now?

In the trade area, nothing spectacular; but of keen long-run impact, we need now to attack the relatively small, relatively skill-intensive service sector of our trading system: knock off our imports over the wires of the services of those Chindian cheaply-built skill types, by adjusting at the border with a tax that not only wipes out any forex manipulation, but also any "national differences" in "the production cost" of these human skillheads

Oh no, Paine! Once back behind a wall of protection, how then can we curb the runaway wage demands and education costs of our own home-grown skillheads?(*)

Just allow those foreign-built skillheads to come here and compete, no holds barred... errr, so long as they pay an adjustment for any remittances they make while here, and leave their savings here too, at least for a decent interval... if they choose to permanently return to their native heaths, or maidans, or paddies, or whatever the native topography may have been.

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(*) Why would we want to? -- Ed.

Over at Thomatose Central, I catch Paul Krugman, terrier for equity, once again chewing up a stage rug over those scarey guys from Elephant Town. Heeere's Kruggie:

http://www.nytimes.com/2010/07/16/opinion/16krugman.html?_r=1

Republicans are feeling good about the midterms — so good that they’ve started saying what they really think. This week the party’s Senate leadership stopped pretending that it cares about deficits, stating explicitly that while we can’t afford to aid the unemployed or prevent mass layoffs of schoolteachers, cost is literally no object when it comes to tax cuts for the affluent.

And that’s one reason — there are others — why you should fear the consequences if the G.O.P. actually does as well in November as it hopes.

PK, the donks deserve to get turned out. Sweeping away pure cover and brand perception management -- all the handwringing on one side and the kill-the-wolf crying on the other -- can you say objectively that Ohbummer & Co. have made life signifigantly better for the median voting souls than a prez McCain would have?

Go down the list of policy areas one by one. Don't notice how it would be packaged, but just what it really would probably amount to. If the difference, the real difference, is second-order, then Ohbummer and his congo pals deserve to get turfed out, for passing up a once-in-a-generation opportunity to try at least to be qualitatively better then that fleabitten gimped-up mean-spirited flight-deck pappy would have been.

I can understand the temptation to pull the lever for a lesser evil. Do it, pal, do it. Even if it only makes a second-order difference, it's still a difference. The logic is fine -- as far as it goes. Pull the jackass lever in November then. I guess that's okay -- even if I think rewarding them only perpetuates a symbiotic evil. Maybe that takes more "evidence" than you find in the record. You certainly seem to have a higher opinion of the Clinton years than I do.

But still: why this absurd ballyhoo -- "The wild things are coming! The wild things are coming!" The guts of your argument becomes this:

"Good people, we have to admit to ourselves that Ohbummer rather pusillanimously has protected the big boys from our righteous pitch forks, and let a lot of us down, but that's only half the story.

"At least he's trying -- you know, trying to protect us from... ahhhh... their evil pitchforks. Right? Eh? Right about that at least... err, if you look at it kinda sideways, maybe, and at least now and then.

"Um... come on... I mean, he's got a good heart... don't he? That oughta count for somethin', I think... no?"

Don't know why Paul Krugman seems always under my tack hammer. But here we go again:

"... The Paris-based OECD is Conventional Wisdom Central; and in May, it dutifully relayed the conventional wisdom that advanced nations should start cutting spending and, even more remarkably, raising interest rates right away...this made no sense even in terms of the OECD’s own forecasts, which said that unemployment would remain very high and inflation very low for years to come...Now the OECD has climbed down, sort of. Maybe hold off on those interest hikes, it says, and if things get really bad, maybe delay the fiscal austerity."

"1. This new document is presented as a response to a change in forecasts. But as I pointed out in May, even given the forecasts the OECD was making back then, its call for near-term austerity made no sense."

Yup!

"When you’re expecting 8.4 percent unemployment and 1 percent inflation at the end of 2011, raising interest rates this year would be a violation of everything we know about sensible monetary policy."

Yup again.

"The OECD never explained why fiscal contraction should take place while the economy was still deeply depressed, except by vague appeals to confidence, i.e., the invisible bond vigilantes."

Wow! Yup-cubed! And three points in one!

"2. The slowdown we’re seeing now isn’t a surprise."

"Everyone who took a Keynesian approach seriously was very worried about the second half of 2010, long in advance."

That borders on a tautology -- in fact, it's precisely this retrofitted antique schlock Keynesianism that received the bulk of the sneers from most highbrow anti-activist " ratex-model stunted parrots.

But here is the vision of the Nassau Merlin hizzseff:

"What we’re really seeing here is a sort of intellectual Wile E. Coyote moment... a bit of bad economic news has led the organization to look down, and realize that there’s nothing supporting its position. But there never was."

"Back in May, the OECD was responding to social pressure, not economic logic. All the right people wanted austerity now now now, because, well, because, and the OECD went along."

I haven't seen, in all Paul's endless monsoonlike downpourings since the crisis of fall 08, any answers to those obvious questions.

No doubt all us SMBIVAers have our own ideas about the "right people" and the "because", and I bet a lot of our answers would coincide. And yet, despite its Gibraltar-like obviousness at the narrowest strait of the present policy bottleneck, and despite his tenured position over at the Times Square Bombers' op-ed page, it seems to be a stretch of ground that this endlessly feisty, often agile bigfoot fears to tread.

Dd, in a comment some days back, pasted up a link to, who else, Paul Kludgeman:

http://www.nytimes.com/2010/09/13/opinion/13krugman.html?_r=1

Seems Paul wants to stick his nose under the MNC tent. Or does he? First he goes over the side into a ditch:

"U.S. officials have tried to reason with their Chinese counterparts, arguing that a stronger currency would be in China’s own interest."

"They’re right about that: an undervalued currency promotes inflation, erodes the real wages of Chinese workers and squanders Chinese resources."

Just saying no, barking "currency manipulation is bad for China as a whole" -- it's simply wrong.

Isn't it long since established that such a fixed, forex-rigged industrial development policy "works" nationally? Hell, it gave us Japan, Korea, Taiwan, Singapore, postwar Germany. Forex fiddle is the WTO loophole for blatant import blocking and export dumping.

Now that that's out of the way...

Our dear terrier of Times Square goes bold and divides China into...Marxian classes! Not only is the current strategy bad for Chinese "real wages", why... it’s lo and behold good for "politically influential Chinese companies, many of them state-owned."

That compound line is delightful, ain't it? Notice the nuanced choice of "influential", and by God that menacing "state-owned"! Imagine that! State-owned!

Watch, children, as this angelic pwog toils cleverly for the MNC devils' brigade. But here's the point of Dd's link -- I think: "There’s a more sinister cause of U.S. passivity: business fear of Chinese retaliation."

That's "business" as in US-based MNC outfits.

"Consider a related issue: the clearly illegal subsidies China provides to its clean-energy industry. These subsidies should have led to a formal complaint from American businesses; in fact, the only organization willing to file a complaint was the steelworkers union. Why? As The Times reported, “multinational companies and trade associations in the clean energy business, as in many other industries, have been wary of filing trade cases, fearing Chinese officials’ reputation for retaliating against joint ventures in their country and potentially denying market access to any company that takes sides against China.”

Talk about a framing frame-up.

Yes it tiptoes into the MNC "interest" territory, but utterly whitewashes the MNC role while doing so. At the worst the MNCs are venal pliable greedy accomplices, maybe even excessively co-operative hostages. The compradors are us. The influence runs from there to her, from the Celestial capital to Wall Street. Our MNCs are but squalid little toys of the sinister Red juggernaut. The Chicoms are playing on our MNCs' craving for a chance to play for profit and progress inside the Red marketplace.

Frankly this demogogic upside-down cake deserves nothing but scorn. It proves either PK is so deeply preformed as to misperceive reality completely, reverse causation, reverse master and servant, make up down, down up, see the tail wagging the dog, the dog's ears back following the tail; or he's a shrewd corporate deep embed.

More likely he's some degree of both, in (one hopes) some only semi-stable one Chalmers Johnsonish risky combination.

Whatever fate awaits this conflicted brain beast I'll finish the analogy: "Similar intimidation has surely helped discourage action on the currency front."

Intimidation!

Yet, to be fair, out of context this reads fine:

"[It's] a good time to remember that what’s good for multinational companies is often bad for America, especially its workers.... So here’s the question: Will U.S. policy makers let themselves be spooked by financial phantoms and bullied by business intimidation?"

"Will they continue to do nothing in the face of policies that benefit Chinese special interests at the expense of both Chinese and American workers? Or will they finally, finally act? Stay tuned."

Is this to be the apex of his assault, implicating our MNC's as mere accessories to the swindle? Or can he push on to the capital of Capitalworld and sieze the boardroom trolls at the center of it all, manning the highest dashboards of the global mix and match game?

According the Bloomsberry Bugle, ole Sawmill Bob predicts that

"Between 2007 and 2027, gross domestic product per capita will grow at the slowest pace of any 20-year period in U.S. history, going back to George Washington's presidency....

His prediction is based on several strands of existing research on workforce demographics, educational attainment, and technological change. His contribution has been to pull the strands together and draw the logical conclusion...

Based on research he published earlier this year, GDP per capita in the U.S. grew at a robust 2.44 percent annual rate from 1928 to 1972. That slowed to 1.93 percent from 1972 to 2007 and is likely to slow further, to 1.5 percent from 2007 to 2027. At that rate, GDP per capita would increase by a total of 35 percent by 2027. That's far short of the 62 percent that it would grow if the 1928-1972 pace of growth had continued, or the 47 percent increase if the 1972-2007 pace had continued."

What must lesser-evil social dembots like Henwood Doug make of this? A new depth to dismal-science eschatology -- not a roaring cataclysmic convulsion, not a final conflict, just a slow dimming of the fires of enterprise, a bathetic anti-Byronic time-lapse swoon, a heat death.

----------------

(*)The robustly self-promoting Gordons are the Newman family of econ-cons, not in any even remotely plausible sense the Bernoulli family.

A recent forecast:

"The U.S. is in the midst of another “jobless recovery” ....employment gains have been meager relative to enormous job losses that occurred during 2008 and 2009. We anticipate that job gains will continue at a moderate rate... the pre-recession peak in private nonfarm payroll employment won’t be reached until 2013, nearly 4 years after the recession ended....approximately four times as l after the recessions in 1970, 1973–75, and 1981–82."

Now embedded in that prediction, is a very interesting expectation: next year, according to this "well respected" tanker model, we will reverse the recent slow net job formation.

How much of a diff in rates are we talking here?

Well, let's say we finish this year up a million private sector jobs from the trough of '09. Next year these Merlins expect the private sector to generate about 2.7 million net new jobs, i.e. a pace two and a half times faster than this year.

Here's the oddly disquieting rub, however: first we'll slow down even more! Yup, the forecasted pace for the rest of this year is a dramatic slowdown -- seasonally adjusted -- from the pace of the first 9 months of the year, from about 100 thousand new jobs a month to 30 thousand.

But then supposedly we're to expect a a jump up to over 200 thousand net new jobs per month next year.

Where in hell is this surge expected to come from? We can count out the obvious policy impactable sources -- gub, Fed, and trade. So how? Spontaneous household spending binge? A sudden revival of house building? Or maybe a surge of.office building, plant building, commercial building... In other words, an apparently completely unmotivated acceleration of new facilities investment by corporate America and landlord America.

Sound likely to you? Well, it's all a matter of millions of interacting agencies, so in truth who the fuck knows.

These models we get oracular predictions from are like talking parrots; they have no comprehension of what they are saying. The models mimic the motions of the economy in a purely mechanical fashion. They attempt to foresee the future based on extrapolations of equations derived from past patterns -- mostly recent patterns, by the way.

They're like weather forecasts before attempts at actual physical modeling were pioneered in the 50's, largely thanks to computers. It's all closer to the Farmer's Almanac than we ought to feel comfortable about.

Guys who run these operations of course use "hand variables" to add a certain slant of plausibility into the raw outputs, and of course they are constantly jiggering their parameters, regearing on the run, to better mimic what history has recently revealed to be her latest style of locomotion, but as Rudy Dornbush, a great old reactionary econ-con, used to say, "These fuckers work fine... till something new and important happens."

Maybe something new and important has just happened, eh?

All indications are clear on one point: overt interventionist macro policy worldwide or at least throughout the advanced half of the world, is uniformly inadequate, as much by design as by blind pigheadedness -- much like parallel policies during the third act of the great depression of the 30's.

Yes, the grim outcomes of the period '37 through '39 may have an echo in the next few years.

These model forecasts, grim reading as they seem, are actually meant -- believe it or not -- to put a rosy hue on the prospects.

Agitprop requirements, as any SMBIVAer knows, makes these scientific estimations of tommorrow and tommorrow and tomorrow plain and simply irrelevent, especially if, as I suspect we really really aren't in the gimcrack Kansas of Ronnie Reagan anymore.

More notes in a bottle from the Krugman watch: our Paul sez folks ask him all the time "Okay then, what would you do if you ran the Fed?"

Good question worth asking an econ-con bigfoot operating his mouth at any volume and speed. Our man of course has an answer.

"Announce a fairly high inflation target over an extended period, and commit to meeting that target [e.g.] achieve 5 percent annual inflation over the next 5 years — or, perhaps better, to hit a price level 28 percent higher at the end of 2015 than the level today.... Crucially, this target would have to be non-contingent — not something you’ll call off if the economy recovers. Why? Because the point is to move expectations, and that means locking in the price rise whatever happens."

I doubt the Krugman fed could make it happen since it lacks any for-sure driving mechanism. Lowering the interest rate would really trigger substantial increases in spending? No one has a clue how this works, even in the simpler mode of quantitative easing. No one really knows what would happen if the Fed bought say $3 trillion of outstanding debt in the next coupla quarters; and even if it went off as hoped by its boosters and reduced nominal rates, it's still unquestionably vastly inferior in effectiveness to a good old-fashioned Keynesian fiscal blowout.

But this fantasy wish of PK's does highlight one thing I like very very much indeed: price level management.

We really do need a way to manage the "price level" and of course the real way to do that -- the never-discussed way -- is the direct way, the Colander-Lerner-Vickrey way -- setting up a markup market that could easily enforce precisely the 28% price level increase in five years that PK suggests, or any other higher or lower price level, and get there in easy to swallow quarterly hops

A markup market operates just like any warrant system: the beauty of this one you can lift prices as well as restrain them, without guessing quarter to quarter what the target price level move requires in either a Pigou tax or subsidy to make happen. The trading market for warrants needed to legalize any specific violation of the target change in markup produces spontaneously the "correct" tax or subsidy

But any price level targeting -- even voodoo-style, a la PK -- has pathetic chances; as PK suggests, "no better than those of getting an adequate fiscal stimulus." Imagine the chance for the totalitarian Gosmart notion of a markup market hovering over the heads of corporate Amerika!

Above, a retrieve from before the crisis of fall '08.

Sometimes you see more of a soul than you want or decency should permit. I find after viewing this ponderous cloud of a mind, I can take away only a shapeless emotion, a Rousseau-like pity for tubby little Brad the smart swaddled boy of Ivy privilege who has has maturated into this gas-leaking tethered ideological blimp, a slightly chilly, mildly unpleasant but harmlessly sluggish university mammal, more the three-toed sloth than the orangutan of neoliberalism. Let us trouble him no more.

"I was one of the people who got all excited about the possibility of getting somewhere with very detailed agent-based models — but that was 20 years ago. And after all this time, it’s all still manifestos and promises of great things one of these days."

Worth a read, Greek and all? Prolly not. Worth noticing? Well, yes, since the model incoporates credit rationing constraints, and certainly something of that sort is now crimping and may continue to crimp our global "spontaneous" recovery. Right now credit blocks in place on our jobbler households have entered into the policy mix needed to insure we remain in the Great Worldwide Advanced Economy Stagno.

But why this quote? Why this nerd post in general? Recall the explanation of canine ball licking.

At any rate the quote brings into focus a key part of macro as a holy grail quest. Our best policy models (think Samuelson et al.) are completely without "realistic" micro foundations. The basis of these models is a batch of ill fitting labels, assumptions, and applications. So when these models faced the high 70's wage-price spiral, bingo, time for a change -- and for more then 35 years now that has meant the sovereign community of econ-cons of both major flavors have chased after a unification of the small agents and the whole ball of wax, as if that might produce better policy guidance.

It didn't. Especially not after the theoricists had carved out a model which hung its hat on one gruesomely bald and bad assumption -- there is only one private agent! Get that, and its tie-in with micro was completed by in effect destroying the entire practice of state intervention. It became yet another edition of what amounts to Christian Science for the economy. "Touch nothing," as Hercule Poirot was wont to say. And then of course comes '08.

But Cio's dialectic never produces just one development. During this same period another approach emerged, and by its bold universalizing promise -- much like string theory -- attracted ambitious outsiders and marginalii. These models, unlike their rivals were nicely based on the assumption of multiple private agents. In fact they quickly became frightful monstrosities.

These are the models PK alludes to above -- these wonderful "literal" projects to build up from the agent units to an emergent set of macro behaviours. A road to conspiracy-free laws of economic motion.

And the results... what hath emoiged?

Lots of digital ant farms gobbling up lots of computing power.

Have we arrived at a new realism? Nope. Most full-figure interconnected Euclidianly resolved econ-con models are still at best metaphors -- either simple, tractable, and therefore dangerously misleading magic trick models, or the aforementioned ant farm models that feet-on-the-ground folks can only laugh at.

As a practical matter, PK needs to dump his own awful micro foundations -- all that "expectations" voodoo -- and stick to a few obviously paramount features produced by the very architecture of any vast credit-based corporate-dominated economy.

He also oughta confine his policy advice to one maxim: "Try something that intuitively suggests itself. If it doesn't work then double down. If that fails... try something else."

You don't need a full-fledged analytic model if you venture forth to do good by your fellow jobbler masses, at least macro-wise and at the national level, like the cream of the New Dealers. What you do, if you do anything, is rely on feedback. Try it out. Twist the dial, measure the outcome as best you can, then adjust the dial accordingly.

The theory Keynes cooked up, around the same time as FDR improvised us through the 30's, was really just a nice bedtime story that may have let a few advanced New Dealers sleep a bit better through that long night's journey into war.

In these brutish days, on lovely rare occasions, our Merlin bigfoots clash like mud wrestlers, thank God.

Take this recent piece at gossip rag New York magazine. The topic could not be more moribund: the harrows of being a major pwog econ-con these days.

The setup is an in-camera White House meeting, this past December, between our POTUS and a delegation of six of our best "lefty" poli-econ-cons:

• Brightest of all sheeple, Joseph Stiglitz;
• The pwog's own winnie-the-pooh, Bobby Reich;
• The horrendous Jeffrey Sachs;
• Human bulb head Alan Blinder;
• Rubber ball union maid Larry Mishel;
• and last but not least, Paul "yip yip" Krugman.

"The economists sat ringing Obama -- two Nobelists, a former Labor secretary, and a former vice-chairman of the Fed. Not a Gentile among them, Krugman noticed, but an amazingly high proportion of beards. To begin the meeting, Obama asked each of his guests to identify the most pressing economic issue. Five of the economists emphasized the same problem. Unemployment, they said, was so high that the recovery might never get out of first gear. It was not the time for austerity; the president should focus on short-term job creation and turn to the deficit later."

But the best is yet to come. The piece then settles down to a profiler on the terrier of Nassau Hall, punky Paul Krugman. And there is a nice little bark-off nestled inside, between Nobel Paul and the porcine paragon, Lawrence triple-X Summers.

"In the early eighties, when the two worked together in the Reagan administration, Krugman realized that Summers had a talent for effectiveness -- winning meetings, organizing subordinates, convincing economic novices of his point of view that he himself could not hope to match. Summers became the insider and Krugman the outsider..."

I think we get the ahh-hahh moment when this writer realized he might provoke a scrap:

"There were moments in conversation with Krugman that I began to suspect he viewed Summers as a one-man control group for his study of himself."

"When things go crazy, my instinct is to go radical on policy, and Larry’s is to be a little more cautious... Larry’s extremely smart. Ask him -- he’ll tell you."

When these quotes were taken to Larry for "comment" -- well, here's why I love Larry. Forget the hedged "little more" bullshit. Forget the academic's mushed-up understatement. Forget Paul's fencing around. Killshot Larry takes his opponent out -- all the way out:

"[Paul] always gravitates to opposition and dramatic policy because it’s much more interesting than agreement... [imagine a nice pause here, perhaps punctuated with a little lipless grin] when you’re involved in commenting on rather than making policy."

"[Paul] savaged the early Clinton administration from the right, blistering Laura Tyson and Bob Reich, and then moved to savage the more liberal Obama administration from the left.... The only politician I remember him praising in the last sixteen years is John Edwards."

"There is some element of Paul that is like the guy in the bleachers who always demands the fake kick, the triple-reverse, the long bomb, or the big trade."

My beloved butch Beltway brawler and Wall Street flack Laura Tyson wants us trade-gap Chicken Littles to cool our jets about unfixing the Asian dollar block. It's no time for a forex rectification, sez our Laura, even as a powwow nears between Uncle and jobster America's main enemy, the import death star China.

"The United States and China will hold their annual strategic and economic dialogue discussions next week in Washington, and the exchange rate between the dollar and the renminbi, China’s currency, is again likely to top the agenda ...Added to the mix this year is some offensive, sophomoric and embarrassing name-calling of the Chinese by Donald Trump...."

"The demand for tough action by American policy makers fails to recognize that the renminbi has already appreciated significantly relative to the dollar, exaggerates the benefits of a stronger renminbi for the United States and overlooks the benefits of a stronger renminbi for China itself."

"It is likely that Morgan Stanley would benefit from having the dollar remain high against the Chinese yuan,since this means that its dollar assets will go further in China. In other words, the position being advocated by Ms. Tyson in this piece happens to coincide with the interests of the company on whose board she sits."

Complexity and contradiction is rife; but through it all, through the ups downs and sideways, the flips and flops, the unders and overs, the key question remains the same, and so does the answer:

Who's the first decider here? Who designs and redesigns the global forex structure and its dynamics through the system of central banks?

No answer necessary, eh? It's Wall Street, and every central bank on earth knows that, and has known since Ike crossed the Rhine.

So what's Wall Street's view today? Tyson's view: hold the forex structure in place; no big adjustments. Seems that reflects our cross-border corporate types' bottom-line best interests here and now.

By the way, two popularly written papers by Stanford's own Ronald Macdonald McKinnon might throw light on the whys of this:

http://www.stanford.edu/~mckinnon/papers/TransferProblem.pdf

http://www.stanford.edu/~mckinnon/papers/OptimumMundellN.pdf

Ron's another friend of Wall Street. Paper one sez trade gaps should be closed by variable rates of import absorption, i.e. by a policy of stagnating the north deficit traders' domestic economies and booming the emerger surplus traders' home markets.

Okay, so he makes his argument in Wonderland, of course. He doesn't try to model anything like a stylized real world system. We're to accept the analogy between these two worlds -- the real one and the impossible one -- because they are twins aspectually speaking, that is, with respect to trade dynamics.

What is absorption? Its the ability to buy imports. Get it? Reduce that ability, you reduce imports. Since income is the basis of everything dynamic, you clip disposable income, or goose it, depending on the direction you want to move the old exim -- the export-import gap.

In Wonderland, absorption reduction (disposable income reduction ) can be accomplished without unemployment and the sacrficed income can be extracted by gubmint through a fair and popularly designed tax, just as absorption increase can be produced by a tax cut.

In addition, in Wonderland these policy moves can be co-ordinated on both sides to hit simultaneously. Beautiful!

Of course, here on the real side of the looking glass, we just had and are still having the real world analogy to this pure absorption policy, right? China booms while America swoons -- but not beacuse of taxes.

It could be otherwise. The asian crisis of '97 was a mirror-image drama. Asia swooned while Clintonian america boomed.

The job class might prefer a fast recovery and a huge forex adjustment; but Ronald's second paper suggests international investors are better off with as much fixity and certainty in the ongoing forex as possible.

This includes, of course, national price level movements too better the price structures retain glacial Elmer Fudd rates of metabolism. All the better for them damn corporate wabbits scurrying about plucking the low-hanging fruit slow adjustment always produces.

A comment some ways back prompted a splendid discovery: the Bichler and Nitzan oeuvre.

What a gas, to uncover just for my own personal sole self, this wondrously un-novel brightly grease-painted nicely slap-shoed buffoons' cavort. This two-reindeer flying-sled act represents the confluence of two mighty milky rivers of intellactation: one from the attic lumber room of the tundra campus of the Comedia del Nortica Titanica, and one from a sort of academic Bedouin who flits from college to college in... Israel! (That's the Canadian gent, Nitzan, above center, holding forth at his alma mater, Harvard. Bichler seems to be camera-shy.)

Is there a message gist? Why yes: Capital is... power, quantified. Let the silver bells ring out, eh?

I really should stop there, and I will, more or less; maybe Father, ever so fond of aeoli furiosi in extenso pedantico(*) will let it suffice, only attaching this blurb from their magnum -- or is it jeroboam -- opus' back cover:

"Conventional theories of capitalism are mired in a deep crisis: after centuries of debate, they are still unable to tell us what capital is. Liberals and Marxists both think of capital as an 'economic' entity that they count in universal units of ‘utils’ or 'abstract labour', respectively. But these units are totally fictitious. Nobody has ever been able to observe or measure them, and for a good reason: they don’t exist. Since liberalism and Marxism depend on these non-existing units, their theories hang in suspension. They cannot explain the process that matters most – the accumulation of capital.

This book offers a radical alternative. According to the authors, capital is not a narrow economic entity, but a symbolic quantification of power. It has little to do with utility or abstract labour, and it extends far beyond machines and production lines. Capital, the authors claim, represents the organized power of dominant capital groups to reshape – or creorder – their society.

----------------

(*) Dead languages seem to be obligatory these days for SMBIVA posts, and even comments: I'll see your Hebrew apophthegm and raise you a Hittite limerick. Can Sumerian be far behind? And what comes next? Proto-Indo-European, complete with laryngeals? (Father Smiff knows how to pronounce 'em, or so he says).

Now this is exactly what makes my turbid Yankee blood boil like Dunkin's midafternoon tarpit coffee.

It's a bit of retrospective Merlinizing by pro-union striver and former VP econ-con advisor Jared Bumstead, shown at left looking as if Herman Munster had stolen Steve McQueen's hair. Jared asks: if we had it in our power to do it over, what's our fantasy '09 stimulus package?
"

I think I would have... de-emphasized some of the tax cuts,... This isn't the FDR New Deal era any more.... But I would have tried to get closer to ideas that more directly create jobs."

• A total payroll tax holiday till further nootice
• A significant increase in SSI payments (by some casuistical justification like "you got smoked by the Clinton era index fiddle; here's a makeup")
• A pickup of some fixed dollar part of payroll-deducted employee-side health premium costs
• Oh and an emergency freeze on health premiums too.
• Of course a Fed-funded sales tax holiday, and a similar property tax arrangement -- including a passthrough to tenants, naturally.

But hey, these goo-goo go-go pwogs, even the union-funded ones, never seem to learn a damn thing. Take this fuckwit. He's still trying to create Bacon Act construction jobs and prolly save teachers' jobs too. Okay, fine. But get the system recovered first. Get the average job bums back in high gear, before you replace the post-bubble long-term construction job losses or blow away the education blight, etc. etc. Get the job class masses behind you first. Then and only then, after the electorate thinks you really are FDR returned and updated -- only then can you start to brighten up the nation's dark spots.

Lift up the job markets first, lift 'em all the way to raging payroll surges before you try to up lift the jobsters' souls, way of life, environment, chances for heaven on earth and so on.

"Stimulus is sugar."
-- T Geithner

Geithner to jobless: "No cake for you!"

In an oddly related development, our other plump friend, Braless Brad Delong, excerpts this from the ever-miasmic Mike Konczal. It's on "The Importance of Deficit Cutting to Liberal Economists":

"A lot of people seem surprised the Democrats have implicitly prioritized deficit cutting over job creation and full employment. It’s an explicit goal for Republicans, so that isn’t a surprise. But why are Democratic, liberal types not worried enough about the demand shortfall and so much more worried about deficits? It might be helpful to see what a prominent, liberal macroeconomist would say about the state of the world going into the recession...

One of the most striking facts about macropolicy is that we have progressed amazingly... In my opinion, better policy, particularly on the part of the Federal Reserve, is directly responsible for the low inflation and the virtual disappearance of the business cycle in the last 25 years... What stops this story from being a good morality play is... a remarkable lack of progress in long-run fiscal policy. In this area, the legacy of 1960s beliefs is still very much with us and may threaten the long-run stability of the American economy... The consequences of persistent deficits may only be felt over a very long horizon... Perhaps over a wide range, deficits and the cumulative public debt really do have little impact on the economy. But, at some point, the debt burden reaches a level that threatens the confidence of investors. Such a meltdown and a sudden stop of lending would unquestionably have enormous real consequences..."

"Let me note that Christina Romer has not prioritized deficit cutting over job creation and full employment. And let me note that Christina Romer is correct: in the long run, either the government raises enough revenue to keep its deficit small enough that the debt-to-GDP ratio does not explode, or the market will do something to the economy and the government -- and that something is something that we will not like at all. To pretend that bringing the long-run spending and long-run taxing plans of the government into rough balance is not an essential task of economic policy is to work to end economic prosperity, and to end social democracy as well."

But it's all nonsense. If anyone wants a full look at so-called the "peak federal debt ratio" and the sudden catastrophic loss of market confidence that Porker Delong here waves a puggy paw at, then I'll be glad to provide it. Let this stand for now:

There is no stinking "peak debt to GDP ratio", and there's no way the debt to GDP ratio can "explode"; and this threat of the market or gubmint doing something "we will not like at all" is a mere raw-head-and-bloody-bones illusory bogeyman.

Nor is fiscal balance an essential task; nor if imbalance persists, is there any necessary end to "prosperity" or -- God save us -- "social democracy".

... Being the further adventures of Jared Bumstead, unchained econ-con and friend of menial labor everywhere, now free of his solemn White House pledge. No more omertá for Jared; so he boldly asks for us the biggest question of all: "Why are we here?" His answer:

"One reason is that powerful people have decided that too many voters don’t believe that what’s needed — temporary spending to offset the persistent demand shortfall — actually works."

• fighting hard enough,
• pushing a big enough stimulus in the first place,
• overselling the package they came up with,

Fairly candid Krugmanoid critique, but here's the sun cuttin' through:

"There’s also this argument... traditional ways in which Democrats talk about Keynesian measures no longer resonate the way they used to.... I think this diagnosis is important. When I/Krugman/Romer/DeLong, etc. say 'there’s a lot more gov’t should do right now to target job creation,' too many people hear 'there’s a lot of new ways politicians can waste your hard-earned, much-needed money on their pet projects which only gets in the way of the private market’s vast job-creation potential.' "

“On the issue of jobs and unemployment... a typical...[helot's] statement would be something like the following: ‘Well, you know, I can’t see any evidence that the stimulus really worked and I don’t think just making phony leaf-raking jobs is a real solution...' "

Call it Jared-does-Kalecki. But nooooo, this isn't Kalecki, this is a a fudge-brained Beltway buzzard, so we get instead, and I'm not kidding, exactly what the fuckin' bastards pulled in Stimuless I -- pure blanket toss foolery:

"... another round of fiscal relief for states."

Oh and Jared wants more "infrastructure investments"...

Had enough? No? Then try on these stout no-pasaran stands: "protecting entitlements" and "a balance" -- yes, a balance -- "...between revenues and spending cuts in budget negotiations." Yup, not just more cuts, more taxes too!

I ain't shittin' ya... this is the jar-man comin' right back at em', pecker rock-hard, spittin' hellfire and spoilin' for a fight....

... Well, maybe not exactly, umh, a fight, but a huge blast of "common sense", fueled by a little bit of genuine anger about how screwed-up our economic policy... "debate", yes "debate", has become.

Of course in my account book the legendary Marx sublator and mechanical debt nut, Stevie Wonder of Keentown, leads all comers from the little down-under. But more conformitory post-Keynesian types -- like Johnny Q, the people's credit quigsling -- are not too far behind.

Speaking of dear Johnny, here's a recent Quigogram from the outback of the collective white male brain:

"The US needs more stimulus now!...combined with a substantial increase in tax revenue in the long term."

"Here's John Quiggin at Crooked Timber writing that the US needs "a substantial increase in tax revenue in the long term" and backing it up with the claim, "I assume [the optimal debt-GDP ratio is] finite, which would not be the case under plausible scenarios with no new revenue and maintenance of current discretionary expenditure relative to national income." ...Given the historic pattern where GDP growth is above the interest rate, this statement is simply false."

Let b be the government debt and d the primary deficit (i.e. the deficit exclusive of interest payments), both as shares of GDP. Let i be the after-tax interest rate on government borrowing and g the growth rate of GDP (both real or both nominal, it doesn't matter). Then we can rewrite the paragraph above as:

We can rearrange this to see how the debt changes from one period to the next:

Now, what happens if a given primary deficit is maintained for a long time? Does the debt-GDP ratio converge to some stable level? We can answer this question by setting the left-hand side of the above equation to zero. That gives us:

What does this mean? There are three cases to consider. If the rate of GDP growth is equal to the interest on government debt net of taxes, then the only stable primary balance is zero; any level of primary deficit leads to the debt-GDP rate rising without limit as long as its maintained. (And similarly, any level of primary surpluses leads to the government eventually paying off its debt accumulating a positive net asset position that grows without limit.) If g > i, then for any level of primary deficit, there is a corresponding stable level of debt; in this sense, there is no such thing as an "unsustainable" deficit. On the other hand, if g < i, then -- assuming debt is positive -- a constant debt requires a primary surplus."

Yup, we don't need no stinking tax rate increases or friendly loopholes closed (like the mortgage deduction or the earned income tax credit) or new tax bases found, like on existing entitlement benefits -- err, which is not to say that (f'rinstance) a lifetime income tax, "the stealth way to tax wealth away", wouldn't be a grand byway to service Uncle's debt, eh?

The graphic shown below only fools benighted helots (click to enlarge):

It purports to show the Greek debt/GDP ratio under four different sets of assumptions. The only one that shows the ratio going down rather that up to "catastrophic" levels involves doing exactly what the author says -- naturally.

It's a snapshot nightmare crafted by a useful idiot; might as well come straight from the agitprop department of the great north economy corporate conspiracy. "Scary!", as Count Floyd might say.

Take the badass projection - the one that gets national debt to plus 350% of GDP by the mid-2020's. Now here's the sober verdict of scientific macro using the prime macro control tool: this fearful iceberg can be rendered into nothing but a pile of ice cubes, meltable in five years, say 26-31; an evaporating nuisance that could be called the great shrinking value play, performed in 5 annual acts by a progressive Euro zone on one of our possible parallel future planet Earths.

Alas, this path is without signage in the collective north economy commonwealth. Instead the deficit/debt clown crap runs rampant -- lies like a nightmare on the brain of the living, you might say.

"So fucking what, assholes?" That oughta be the torchlike response to these flapdoodle projections. Five years of "price level sprinting" -- i.e. fast-rising GDP, by the lead partners in Eurotrap 2025 could render the most "tewibble tewibble" debt-berg as feeble as a pile of snowballs in Hell.

Lesson number one for north economy wagelingers: "Comrades of the PIIG, listen. There is no runaway uncontainable deficit series."

Deduction for the people of Greece: keep striking, keep mobilizing, keep rioting and burning, just fuckin' keep on keeping on, till the central bank bureaucrats and their tower troll masters... cave.

Cheer to the noise, brothers and sisters. All this grinding of the class gears is the music of Clio's lovely antispheres. It manifests in its cacophonic glory the bloody bizzaro farce at the core of Korporate Earth -- the commanding heights, the financial friggers, and their Temples of Folly.