If there's one thing you can say about Coffs, it's that it's never afraid to build on its weaknesses. Our local university campus dropped it's Bachelor of Arts course three years ago to make room for an expanded range of business studies courses (on this at least I'm not kidding). We're celebrated as the region with the highest per capita concentration of Elvis impersonators, and the home of "Ain'tmusic: the Original Australian Adam and the Ants (and Tears for Fears) Tribute Show". And the local thigh slappers and scenery chewers collective is currently rehearsing "Rocky Horror Get Your Gun!" The combination of suburban sprawl and inadequate public transport means that for most of the population an evening out involves sitting on an upturned milk crate in the garage listening to Cold Chisel records, gulping rum and coke from a can, and wondering where it all started going so wrong.
I can save us some consultancy money and and deliver a report on the viability of a new performing arts centre right now: There is none. Anybody in Coffs interested in seriously pursuing the arts has already left. A performing arts centre will, in approximately three years, be hollowed out and refitted as the new expanded headquarters for one of our flourishing Job Services providers. We might as well consider the viability of establishing a space exploration program.
This week, I have been mostly reading:
- So Sue Them: What We’ve Learned About the Debt Collection Lawsuit Machine — Paul Kiel, ProPublica:
In 1996, there were around 500 court judgments in New Jersey from suits filed by debt buyers. By 2008, that number had reached 140,000. […] For the most part, debt buyers purchase defaulted credit card accounts, typically for a few pennies on the dollar. Starting in the late 90’s, the industry began a period of rapid growth and then exploded in the middle of the last decade. That led to a sharp spike in suits, many of them by smaller debt buying companies that have since gone out of business. The industry is now dominated by several large companies.
- Hey Joe, banks can’t lend out reserves — Steve Keen:
For me, watching academic economists and Central Bankers (the vast majority of whom trained as economists) tell the banks to “lend your excess reserves to the public, dammit!”, is akin to watching some delusional person in a playground watching two kids playing on a see-saw, and criticising them because they weren’t both up in the air at the same time.
- The Barbarism of Donald Trump — Ian Welsh:
I don’t know if Clinton will torture. I know Bernie Sanders won’t. I know there are options available in the American election that don’t sell the tattered remains of America’s soul.
- Corbyn's Progress — Tariq Ali:
Blair, angered by this outburst of democracy in a party that he had moulded in his own image, declared that the Labour Party would be unelectable unless Corbyn was removed. Brown kept relatively quiet, perhaps because he was busy negotiating his very own private finance initiative with the investment firm Pimco (Ben Bernanke and the former ECB president Jean-Claude Trichet are also joining its ‘global advisory board’). Simultaneously, his ennobled former chancellor, Lord Darling, was on his way to work for Morgan Stanley in Wall Street. Blair, an adviser to J.P. Morgan since 2008, must have chuckled. At last, a New Labour reunion in the land of the free. All that ‘light-touch’ regulation was bearing rich fruit. Virtually every senior member of the Blair and Brown cabinets went to work for a corporation that had benefited from their policies.
- Folks Worried About Robots Taking Our Jobs Need to Learn Arithmetic — Dean Baker:
It is important to recognize that “owning robots” is a political issue, not an economic one. Specifically, people own robots because we give them patent monopolies. In most cases robots would be very cheap to produce if the government didn’t threaten to arrest people for not respecting patents. […] So we end up with money going from the rest of us to people who own robots because the government has given these people a monopoly over the use of the technology. Suppose the government didn’t give a monopoly over the use of the technology. Suppose that we funded the research through a different mechanism or at least made the monopolies shorter and weaker. Then the folks who developed the robots would not have so much money, the robots would be cheaper, and the rest of us would be richer.
- MMT, trade balance and balance of payments — Mike Norman:
A net importer is gaining "stuff" in an exchange with a net exporter, and the net exporter is accumulating the currency of the net importer. Thus the net importer is benefiting in real terms while the next exporter is benefiting in financial terms. The net exporter is diminishing domestic product (real) for domestic use, and the net importer is increasing indebtedness (financial) to the net exporter. On the other hand, net imports are beneficial to the economy and nation at full employment. The nation has more stuff than it would otherwise have at the current level of productivity. Because foreign workers are contributing to domestic productivity. And the country is not exporting jobs.
- Saturday Morning Breakfast Cereal:
- Listening to past Treasurers is a dangerous past-time — Bill Mitchell:
On January 23, 2016, a former Australian Treasurer Peter Costello (1996-2007) gave a speech to the Young Liberals (the youth movement of the conservative party in Australia) – Balanced Budgets as a Youth Policy – which was sad in the sense that some people never get over being dumped as out of touch and unpopular and was ridiculous in the sense that it is a denial of reality and macroeconomic understanding. He mounted the same old arguments that have been used to justify the pursuit of fiscal surpluses (grandchildren etc) but failed to recognise that his period as Treasurer was abnormal in terms of our history and left the nation exposed to the GFC as a result of the massive buildup in private sector debt over his period of tenure. The only reason he achieved the surpluses was because growth was driven by the household credit binge which ultimately proved to be unsustainable. Fiscal deficits are historically normal and should not be resisted. They are the mirror image in a national accounting sense of non-government surpluses, which historically, have proven to be the best basis for sustained growth and low unemployment.
- Tilting at windmills: The Faustian folly of quantitative easing — Steve Keen, Real World Economics Review Blog:
QE gets into the money supply—not via lending, which is impossible, but via asset purchases, which far and away benefit rich households more than poor ones. Rich households also benefit from the income the share transactions generate. And finally, some of that money gets to poor households when the rich ones—made richer still by QE—buy some services off them. The real economy has thus received some impetus from QE, but only a relatively trivial amount of the money created has got into circulation in Main Street. As Michael Hudson puts it, Bernanke’s helicopter dumped money on Wall Street, not Main Street. The bubble before the financial crisis had already exaggerated income inequality past what is sustainable in a capitalist society. Central Bank meddling via QE has made this problem worse, and without the illusion of a boom (like the Internet and Subprime Bubbles) to make it seem somehow palatable.And Neil Wilson adds some more context, though I must admit that I couldn't follow his logic for one crucial step.
- Bernie Sanders proved politicians can make it this far without selling their souls — Robert Reich in the Guardian:
Sanders’ courage in taking on the political establishment has emboldened millions to stand up and demand our voices be heard. Regardless of what Sanders decides to do now, he has ignited a movement that will fight onward. We will fight to put more progressives into the House and Senate. We will fight at the state level. We will organize for the 2020 presidential election. We will not succumb to cynicism. We are in it for the long haul. We will never give up.
- We are being led by imbeciles — Bill Mitchell:
I was reading John Maynard Keynes recently – circa 1928 – that is, 8 years before the publication of the General Theory with his Treatise on Money intervening. He was railing against the principles and practice of ‘sound finance’, which he noted had deliberately caused billions of pounds in lost income for the British economy. He urged the Treasury and the Bank of England to abandon their conservative (austerity) approach to the economy and, instead, embark on wide-scale fiscal stimulus to create jobs and prosperity. He concluded that with thousands of workers idling away in mass unemployment that it was “utterly imbecile to say that we cannot afford” to stimulate employment via large-scale public works – building infrastructure etc. He considered the policy makers who opposed such options were caught up in “the delirium of mental confusion”. The stark reality is that 88 years later, he could have written exactly the same article and would have been ‘right on the money’.
- Why I don't use heroin — Chris Arnade, The Guardian:
Addiction is a symptom of something very wrong with our society. That in any city or town, across all of America, people live on the streets, shooting up, selling themselves for another bag, should make us all stop and ask ourselves “why does our society create and allow such pain?”.
Are you mad? Is there any statement that could possibly do more to persuade the country's idiots that they must flock to the beach in order to demonstrate that they have absolutely NO doubt about their ability to handle ANY conditions.
"I know you weren't intending to go to the beach, and it is winter, so there's no reason for anybody to think any less of you, or call you a wuss, if you opt not to take on these challenging conditions. Not everybody is made for challenging conditions. Don't shoot the messenger; I'm just alerting you to the fact that the challenging conditions are there, and you're not. I'm not insinuating anything. In fact I stood up for you when the other guys were having a go at you. I said you were more sensitive, and that we should respect and cherish that. So, please, you do what makes you special tomorrow, while we're out there, in challenging conditions."
This week, I have been mostly reading:
- Wall Street’s Message to Young Adults: “You are Clueless” — Bill Black at NEP elicits a LOL:
Wall Street CEOs are very upset with young adults. They believe you are “clueless” and “voting against [your] own interests” when you support Bernie Sanders. A Wall Street CEO took to the pages of the Wall Street Journal to decry the fact that “Millennials are flocking to Sanders.” It would be cruel to note that one has to be clueless to believe that writing an op ed in the WSJ was a good way to reach millennials supporting Bernie.
- Dear Paul — Gerald Friedman (Context here):
While you don’t know me, you seem to feel free to speculate about my values and interests. You assume that an outsider economist like myself must be considered not particularly “insightful or even technically competent.” And, elaborating this theory, you conclude that envy would lead me to jump on an opportunity for self-advancement by shilling for an outsider politician. Now this theory might be tested empirically. You could easily have tested your theory by investigating my motives empirically. You could have called me and asked. Or you could have read any of the news stories where I explained how I stumbled on this research project, and where I explained my (lack of) connection to the Sanders campaign.Krugman's continuing public self-immolation is baffling.
- Saturday Morning Breakfast Cereal:
- Who are the capitalists? — David F. Ruccio:
It’s one of the questions I ask my students. And they always get the answer wrong. So, in my experience, do most other people. But it’s a key issue. If we’re going to figure out how capitalism works—and, perhaps even more important, how to change it—we need to know who the capitalists are.
- Surprised by the rise of Bernie Sanders and Jeremy Corbyn? Then you need to get out more — Simon Wren-Lewis:
Political commentators talk to politicians who talk to political commentators. It tells us how embedded the influence of the City and Wall Street is. The media relies on economists from the financial sector, and so tends to see the economy from their perspective. The blind spot is mostly to the left, because we have the Daily Mail and Fox News. As a result, it came as a complete surprise that a crisis caused by the financial sector that left that sector unscathed but instead led to a diminished role for the state, might make many people rather angry.
- Robert Samuelson Is Unhappy that We Have Evidence Based Economics — Dean Baker at CEPR:
There are still millions of unemployed or underemployed workers who would like full-time jobs. This means that the concern about balanced budgets is needlessly keeping these people unemployed. And the weakness of the labor market is keeping tens of millions of workers from having the bargaining power necessary to get their share of the benefits from economic growth in higher wages. Perhaps even worse, the obsession with deficits prevents us from doing things we really need to do. The neglected items form a long list, from early childhood education and affordable college to keeping the kids in Flint from being poisoned.
- Australia’s Housing Bubble: In the Grip of Insanity — Pater Tenebrarum, who appears to be some kind of gold bug, but as the link comes via Naked Capitalism, and I agree with the conclusion, I'm prepared to overlook the tinfoil hat:
In this particular case, the boom has already progressed to a rare extreme: with home prices at 10 to 12 times disposable income (far higher than the peaks attained in the housing bubbles in the US, Ireland and Spain), the end is clearly getting close. Australian home-owners, property investors and banks will be in for quite a rude awakening.
- How to Explain the Sanders Campaign to an Idiot, Paul Krugman or a Clintonite in 8 Sentences — Seth Abramson in the Huffington Post:
Bernie Sanders […] is staying in the race because all the extant hard data suggests he is a stronger general election candidate than Mrs. Clinton, because he passionately believes the Democrats must defeat Donald Trump in the fall, and because Mrs. Clinton’s stunning failure to secure 59 percent of pledged delegates didn’t merely invite but indeed encouraged him to take his case to superdelegates in July […] The Democratic Party has never, in modern history, run a candidate with an unfavorable rating as high as Mrs. Clinton’s […] Sanders plans to continue his campaign in the hope of saving Democratic elders from their slavish devotion to a political dynasty that’s turned the Party from its New Deal roots toward a neoliberal corporatism now destroying the middle class.
- Waist deep in the Big Muddy — John Quiggin:
The sudden collapse of four for-profit vocational education enterprises including Aspire college is the latest in a string of scandals, failures and license revocations in the sector. […] The provision of public funds to for-profit operators has been a predictable, and predicted disaster. Of all the disasters perpetrated under the banner of microeconomic reform, education reform has probably been the worst.
- Morrison's tax swap would have taken from the poor and given to the rich — Peter Martin:
The most shocking thing in the Treasury analysis delivered to Scott Morrison on January 25 isn't the finding that a cut in income tax funded by a lift in the goods and services tax wouldn't boost the economy at all. It's what Morrison asked the Treasury to model. He asked it to model a lift in GST from 10 to 15 per cent and then the handing back of every possible cent in income tax cuts. Because boosting the GST automatically results in extra spending on benefits such as Newstart, family allowances and pensions as prices climb it isn't possible to give all of it back. But it is possible to hand back $30 billion of the $35 billion as tax cuts, and that's what Morrison asked the Treasury to model in the first instance, not legislated increases in benefits of the kind delivered by his predecessor Peter Costello when introducing the GST. The impact is horrific.
- To Fix Inequality and Steady the Economy, Think Radically — Lynn Parramore at INET interviews Adair Turner:
[…] for the decade leading up to 2007, a whole lot of people who weren’t getting raises felt that they were doing ok because they managed to buy a house that was going up in price. But it all came to and end, a catastrophic end. Rising inequality can create a more highly leveraged economy, and it can then make the economy vulnerable to a crash like 2008. And in that crash, the really malign thing is that the crash itself tends to further increase inequality because it tends to be the people at the lower end of the wealth distribution who were highly leveraged and had to borrow lots of money to buy their house. In the downswing, they lose all the wealth they’ve got.
This week, I have been mostly reading:
- Thomas Piketty on the rise of Bernie Sanders: the US enters a new political era — Thomas Piketty in Le Monde via the Guardian:
In many respects, we are witnessing the end of the politico-ideological cycle opened by the victory of Ronald Reagan at the 1980 elections.
- Lobbyist Superdelegates Tip Nomination Toward Hillary Clinton — Lee Fang, The Intercept:
There are 712 superdelegates in all, which is about 15 percent of the total delegates available and 30 percent of the total needed to win the nomination. If the nomination process is close, superdelegates may effectively pick the party’s presidential nominee, potentially overriding the will of voters.[This is why "Jeb!" couldn't make it in the big league. His vote-rigging skills are inadequate. Bernie has already won 2016 by a far wider margin than Gore won 2000, but Debbie Wasserman Shultz can halt a landslide with a single Medusa glare.]
- Sydney Uni’s sweeping restructure: cutback and fightback ahead — Dylan Griffiths at Solidarity Online:
On the last day of work for 2015, the University of Sydney’s Chancellor, Belinda Hutchinson, announced a drastic restructure of the University. The decisions were made in a secret Senate meeting days earlier. They include amalgamating ten faculties and six schools into six faculties and three schools and cutting down 122 degrees to 20 degrees.
- The free market is an impossible utopia — Henry Farrell chats with Fred Block and Margaret Somers about Karl Polanyi, Washington Post:
In the first instance the market is simply one of many different social institutions; the second represents the effort to subject not just real commodities (computers and widgets) to market principles but virtually all of what makes social life possible, including clean air and water, education, health care, personal, legal, and social security, and the right to earn a livelihood. When these public goods and social necessities (what Polanyi calls “fictitious commodities”) are treated as if they are commodities produced for sale on the market, rather than protected rights, our social world is endangered and major crises will ensue.
- If you thought one Bernie Sanders was good, how about 100 of him? — Anoa Changa in the Guardian:
I am a part of an initiative called Brand New Congress. Many of us are former Sanders campaign staffers, who are hoping to help elect Bernie Sanders-like candidates in at least 100 different districts in the next two years. […] The aim is to run one campaign for hundreds of candidates. Instead of running the races separately, we will be centralizing fundraising, awareness raising and organizing for campaigns across the country. Our unified process will level the playing field, and thus permit new leaders to rise up from the ranks of our working and middle class.
- ‘You want a description of hell?’ OxyContin’s 12-hour problem — Harriet Ryan, Lisa Girion and Scott Glover, LA Times:
Reps were ordered to visit doctors and “refocus the clinician back to q12h.” Doctors needed to be reminded “on every call,” they were told. “There is no Q8 dosing with OxyContin,” one sales manager told her reps, according to a memo cited in an FDA filing. She added that 8-hour dosing “needs to be nipped in the bud. NOW!!” If a doctor complained that OxyContin didn’t last, Purdue reps were to recommend increasing the strength of the dose rather than the frequency. There is no ceiling on the amount of OxyContin a patient can be prescribed, sales reps were to remind doctors, according to the presentation and other training materials. […] An analysis of the medical records of more than 32,000 patients on OxyContin and other painkillers in Ontario, Canada, found that one in 32 patients on high doses fatally overdosed. […] OxyContin “does a great job of keeping me out of a wheelchair and moving...for 8 hours. Then I start going into withdrawal,” one patient wrote on an online message board in 2004.
- Reclaiming Innovation — Jim Groom and Brian Lamb in Educause Review Online:
The myriad costs associated with supporting LMSs crowd out budget and staff time that might be directed toward homegrown, open-source, and user-driven innovation. Indeed, institutional leaders may refuse to support alternative systems, such as blogs and wikis, lest they draw attention and users away from the "serious" enterprise learning tool, diverting resources and endangering investments. If a technology is sufficiently large and complex, it can dictate policy, resource allocation, and organizational behavior far beyond its immediate application.
- The Faulty Foundation of Higher Education —
Todd Rose, Ed.D., and Ogi Ogas, Ph.D., who have qualifications, in Psychology Today:
Within our Taylorized system of college education, a Bachelor of Arts in Civil Engineering is designed to be equivalent to a Bachelor of Arts in English Literature, each diploma held to represent an equal unit of learning independent of who a graduate is or which college she graduated from. This uniformity was intended to ensure that the brain of every student who earned a diploma attained the same level of “critical thinking,” “civic awareness,” “cultural literacy,” or some other normative set of skills or knowledge.
- Why Britain’s Housing Crisis Heralds the Next Financial Crash — Steve Rushton at Occupy.com:
Housing prices in London have risen by 50% in the last five years. If the U.K. property bubble goes boom, it will be proportionally biggerthan the U.S. housing bust at the onset of the financial crisis in 2007. How did we get here? For starters, U.K. banks in 2015 lent over £1 trillion ($1.4 trillion) for housing, accounting for 70% of newly made loans. The result is that when this bubble pops, it could catalyze another global financial meltdown. While there are many other possible triggers, the next financial crash is more likely than not.
- Guest Post: POSITIVE MONEY IN ACTION — Geoffrey Gardiner's Modest Proposal at New Economic Perspectives:
The system of transaction accounts at the central bank will be used to keep track of the population. Every person will be allocated an account at birth and vital details will be recorded and updated. The records will include a record of the person’s genome. The bank will issue identity documents. The transaction account number will be the person’s identity and passport number, and also the number of his or her tax account. Transaction account statements will be sent automatically to the tax office, which will have the duty to debit it with all assessed taxes. Every immigrant or visitor to the country will get an account and give similar identity details.
Another story in the local rag about education, another rant from me. You know the drill:
Sounds like you've been reading the promotional material.
In reality, the "virtual" student experience at SCU is limited to a third-party product called Blackboard. It's basically a 1980s-style bulletin board system. Google "Blackboard sucks" for first-hand testimony.
It has an add-on component that does indeed allow you to participate in online "lectures". In these the low-paid tenuously-employed lecturer, usually in the discomfort of their own home, shouts into the void, sounding at the receiving end as though connected via two tin cans joined with string. They can also run a slide show. No two participants can have their microphone active simultaneously, as the software seizes up at this unreasonable level of demand, so staff and students eventually settle on some convention equivalent to saying "over" at the end of each contribution to the awkward exchange, as if it were CB radio.
The other mode of instruction at SCU is called "converged delivery". SCU has three main campuses, but they don't need more than one lecturer per subject because they broadcast the lecture to the other two campuses where, for the first couple of weeks at least, a few students watch them on-screen. The lecturer must control the entire production themselves. There is a stationary camera mounted to a wall or ceiling, so they stand rooted to the spot at a control panel barking into a microphone as though they're working the drive-thru window at McDonalds. Plus there's the slide show.
This last few weeks, I have been mostly going insane with stress (or the "Coffs Harbour lifestyle", as it's known), and only reading:
- “Where to Invade Next” Is the Most Subversive Movie Michael Moore Has Ever Made — Jon Schwarz, The Intercept:
By the end of Where to Invade Next […] you may realize that the entire movie is about how other countries have dismantled the prisons in which Americans live: prison-like schools and workplaces, debtor’s prisons in order to pay for college, prisons of social roles for women, and the mental prison of refusing to face our own history. You’ll also perceive clearly why we’ve built these prisons. It’s because the core ideology of the United States isn’t capitalism, or American exceptionalism, but something even deeper: People are bad.
- Iceland's Pirate Party secures more election funding than all its rivals as it continues to top polls — Matt Broomfield at the Independent:
The anti-establishment party, which calls for a 35-hour working week, direct democracy and total drug decriminalisation, has the lead in eight out of the last ten polls. They look set to form a crucial part of a coalition government in this autumn's general election.
- Disappointing: Elsevier Buys Open Access Academic Pre-Publisher SSRN — Mike Masnick at Techdirt:
Everyone involved, of course, insists that "nothing will change" and that Elsevier will leave SSRN working as before, but perhaps with some more resources behind it (and, sure, SSRN could use some updates and upgrades). But Elsevier has such a long history of incredibly bad behavior that it's right to be concerned.
- EFF Asks Court to Reverse Chelsea Manning’s Conviction for Violating Federal Anti-Hacking Law — Electronic Frontier Foundation:
"Congress intended to criminalize the act of accessing a computer that you aren’t authorized to access, such as breaking into a corporate computer to steal user data or trade secrets or to spread viruses. The law should not be used to turn a violation of an employer’s computer use restrictions into a federal crime. That’s what happened here," said EFF Legal Fellow Jamie Williams.
If there's one thing I've learned in the last year that I think is so important it's worth shouting from the rooftops, it's that simultaneously studying economics and the psychology of stress while also being personally stressed about money is a very, very bad idea.
If there are two important things I've learned in the last year, I'd say that the more generally applicable one to the citizen in the street is that a government which issues it's own money can never run out of it.
Such a government can of course pretend, or at least behave like, it can run out of money. In fact, many have done so for the last thirty years or so, and the results have been disastrous. You don't have to take my word for it. Here are some graphs, mostly from the RBA Chart Pack, except where otherwise indicated. Here's the Australian government fiscal balance, misleadingly labelled "budget balance" as per the conventional misunderstanding of reality.
Things took a dip from 2007/8, but deficits are improving, and we were in surplus for most of the preceeding decade. And that's good, isn't it? Surpluses mean we have more money, don't they?
Generally, yes. A "budget surplus" for a business or household means more money at hand to spend later. However, for an economy with a sovereign-currency-issuing government, public fiscal surpluses mean we have less money.
How is this possible? To understand this, you have to understand that accountancy—specifically double-entry bookkeeping and balance sheets—is the foundation of economics; at least economics of a realistic kind. All money is credit money. You make money—literally—by being in debt to somebody, and by denominating this debt in the country's transferrable unit of account. Spending is the simultaneous creation of a debt on the buyer's side of the ledger, and a corresponding credit on the seller's side. However, if you happen to hold enough credits that have already been generated as the flipside of a debt in your favour, you can use these credits to immediately cancel the debt of the current transaction. One way most of us do this on a daily basis is by using cash. Cash is a transferrable token of public sector debt and private sector credit.
Three percent of the immediately-spendable money in the private sector is in the form of cash. The other 97% is just numbers stored on computers in the commercial banking sector. Most of this is money that originated as commercial bank loans, and will disappear from the bank's balance sheets as those loans are repaid (though of course in the meantime more loans will have been made). However, a significant amount of money originates as loans the government makes to itself (technically the central bank lends to the treasury), eventually ending up in the private sector as cash, or (through a mindbending process I will mercifully omit from this account) as commercial bank deposits. A currency-issuing government can always lend more money to itself in order to spend, and never has to pay it back. It follows that such a government does not need to tax in order to spend, and only ever taxes for other reasons. Economics textbooks, and economic commentators, routinely get this utterly and comprehensively wrong. Consider this textbook description of economic "automatic stabilisers":
"During recessions, tax revenues fall and welfare payments increase thereby creating a budget deficit. In times of economic boom, tax revenues rise and welfare payments fall creating a budget surplus."
Budget deficits are not an eventual consequence of government spending; the spending and the creation of a debt are the same operation. Tax revenues merely redeem a part of the already-accrued debt; the money issued by public spending is a public IOU that effectively disappears when private parties use it settle their tax debt owed to the public. Tax revenues therefore cannot be used to fund public spending; in order to spend, new public debt must be issued. The automatic stabilisers are real (assuming a somewhat sensible tax system), but the important part of their function is on the private side: injecting new money to stimulate demand when needed, or putting the brakes on dangerous speculative activity in a boom. The government's fiscal position from one year to the next is an inconsequential side-effect.
Taxation is the elimination of money, and hence of the demand for goods, services, and assets that drives the private sector economy. Don't believe me? Lets take a wider focus on the fiscal balance numbers above:
Generally, and especially prior to the neoliberal period, public fiscal surpluses are the exception, not the rule. And for a good reason; it's generally not a good idea to drain demand out of the economy. So what happens when you toss good sense aside, and insist on surpluses for their own sake? Here's what happened to public sector debt:
I'm presuming (the ABS Chart Pack doesn't specify) that this is debt owed to private sector banks in the form of loans and government securities. I should stress that, as with taxation, these operations are not required to finance spending, and are only ever done for other reasons (such as hitting interest rate targets). Also, because they don't issue currency themselves (though this is possible, and has worked elsewhere), lower levels of government do have to rely in part on revenue-raising to fund spending, though grants from the federal government also play a big part in determining their fiscal position.
Still—phew!—we got that scary public sector debt under control until the GFC, and we can do it again! But hang on, if that's taking money out of the private sector, where does the private sector get the money to sustain demand? Here's the private sector debt over the same period:
Note that this is one and a half times GDP, compared to the one third of GDP outstanding to the public sector, at the height of its alleged fiscal irresponsibility. When government self-imposes limits on its ability to spend, private sector credit creation takes up the slack. Who do you want controlling how much money is created, who gets it, and what it gets spent on? A mix of the commercial finance sector and a (somewhat) democratically-accountable government? Or just the bankers?
Most of private-sector money creation is commercial bank loans, and as economist Michael Hudson notes, in the US, UK, and Australia, 70 percent of bank loans are mortgages. That's a hell of a lot of money (what's 70 percent of one and a half times GDP?) dependant for its existence on the soundness of pricing for a single class of asset. If real estate prices suddenly crash, and mortgagees start to default on their loans, poof! The corresponding credits on the other side of the ledger are gone too, and the real estate sector takes the whole economy down with it. You can't argue with balance sheets.
Still, I expect we'll be fine as long as we stay the fiscal responsibility course, and don't let the government "spend more than it earns". Real estate prices only ever go up, don't they? And it's not like bankers would ever be led by their own short-term interests to make a huge amount of risky loans and inflate an enormous real estate price bubble…
This week, I have been mostly reading:
- The Zombie Doctrine — George Monbiot:
The freedom neoliberalism offers, which sounds so beguiling when expressed in general terms, turns out to mean freedom for the pike, not for the minnows. Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.
- The full employment productivity multiplier — Jared Bernstein in the Washington Post:
What if stronger demand led to full employment? And what if that gave their workers enough bargaining power to push up labor costs? Then, to maintain their profit margins, [otherwise low-wage, high inefficiency businesses] would have to find efficiency gains to offset their higher wage costs. Less turnover, for example. Less reason to hang onto extra workers who weren’t always needed but were cheap to have around. And this is a description of stronger demand leading to higher productivity.
- NHS: New report reveals marketisation is failing — Richard Murphy:
I do know something about markets, quasi-markets and organisation structures and what I can say, beyond a shadow of a doubt, is that if there are buying and other management inefficiencies in the NHS then they can be blamed fairly and squarely at successive governments who have thought that introducing market practices would help its efficiency. They were wrong. Markets do not drive everyone to efficiency, especially when NHS organisations cannot, ultimately, fail. All they can do is create division.
- Wondermark #1196; The Currency of Cute — David Malki:
- Problems with Economics: The Cult of Utility — Ian Welsh:
Basically, utility says, “Whatever action people choose to take is the one from which they derive the most usefulness.” This is known as revealed preference. This is a circular definition; metaphysical in the worst sense. Any action we take is utility maximization. A person can never fail to maximize utility (within their budget), because their actions are what defines the actions’ utility.
- Australia guts government climate research — Scott K. Johnson, Ars Technica:
Staff at Australia’s Commonwealth Scientific and Industrial Research Organisation (CSIRO) received an unpleasant e-mail when they came to work Thursday morning, one that outlined some specifics of long-awaited restructuring plans. The gist of the message? You've done such a good job, we have to let you go.
- “Negative” Interest Rates and the War on Cash — Richard Werner, who speculates persuasively about the war on cash being also a war on not-for-profit banking, but I can't quite follow him all the way to tinfoil hat territory where all commercial banking is eliminated and all citizens of credit-worthy standing are microchipped by the central bank:
The main reason advanced by the Bank of England for wanting to abolish cash is that it wishes to stimulate the UK economy, and to do so it wants to use interest rates. Since rates are already zero, it is now only reasonable to lower them into negative territory. However, to make such a policy effective, the possibility to move from electronic money into cash needs to be taken away. If cash is abolished, we can then enjoy the benefits of negative interest rates – or so the official narrative goes. This story is so full of holes that it is hard to know where to start.
- Must-read: Our dysfunctional monetary system — Steve Keen, Real-World Economics Review Blog:
The fetish for small government and budget surpluses means that the government has […] effectively abrogated money creation to the private banking sector. This strategy had no obvious negative consequences while the private banks were on a credit-money-creation binge—as they were effectively from the end of WWII till 2008. But once private debt began to dwarf GDP and the growth of credit slowed to a trickle, the inherent stupidity of this policy became apparent. In their attempt to promote the private sector, conservative proponents of small government are actually strangling it. […] Rather than understanding the real cause of the crisis, we’ve seen the symptom—rising public debt—paraded as its cause.
- A Scheme to Encrypt the Entire Web Is Actually Working — Andy Greenberg at Wired:
It’s available to websites anywhere in the world—even far-flung countries like Cuba and Iran that sometimes aren’t served by other major certificate authorities. And it’s automatically configured with a piece of code that runs on any server that wants to switch on HTTPS. “This is the silver bullet that…lowers the barrier to encrypted web communications,” says Ross Schulman, the co-director of the cybersecurity initiative at the New America Foundation. “It brings the cost of executing a secure website down to zero.”
This week, I have been mostly writing, but in the last couple of days, I've been reading:
- Why Are Universities Fighting Open Education? — Elliot Harmon, Common Dreams:
Why were some universities opposing a rule that would directly benefit their students and faculty? When you dig a bit deeper, it looks like universities’ opposition to open licensing has nothing to do with students’ access to educational resources. What’s really playing out is a longstanding fight over how universities use patents—more specifically, software patents. Open education just happens to be caught in the crossfire.
- Paul Krugman, Bernie Sanders, and the Experts — Dean Baker at CEPR:
The experts insisted that we would have a Second Great Depression if we didn’t bail out the Wall Street banks. Really? Was there some magical curse that would overcome the country if Goldman Sachs and Citigroup went out of business? Would Keynesian stimulus no longer work? We got out of the first Great Depression in 1941 by spending a ton of money fighting World War II. It is hard to see any reason why we couldn’t have ended the depression a decade sooner by spending a ton of money in 1931 on infrastructure, health care, and education. The same story would have applied in 2009.
- Q: When is a dollar pegged to gold not on a gold standard? A: From 1934-1971 — Eric Rauchway at Crooked Timber:
[…]as the economist Edward Bernstein (who was in the Roosevelt Treasury, at Bretton Woods, and later served in the IMF) succinctly explained, years later. 'In spite of the Gold Reserve Act, the United States was not really on a gold standard after 1933. The essence of the gold standard is that the money supply must be limited by the gold reserve. The last time that the Federal Reserve tightened its policy because the gold reserve ratio had fallen close to the legal minimum was on March 3, 1933, when the Federal Reserve Bank of New York raised the discount rate to 3-1/2 per cent. Thereafter, whenever the gold reserve neared the legal minimum, the required reserve ratio was reduced and finally eliminated. A country that loses more than half of its gold reserve, as the United States did in 1958-71, without reducing its money supply is not on the gold standard.'
- Economists Prove That Capitalism is Unnecessary: The nonsensical logic of mainstream economics — Steve Keen, paywalled in Forbes, published in Evonomics:
It’s an assumption that individuals in a market economy are so all-knowing that, in effect, they don’t need markets at all: they can just work it all out in their heads. Yet if anything defines a capitalist economy, it’s the dominance of markets. So effectively the mainstream reaction to anything which disturbs their preferred way of modeling a market economy is to make assumptions that, if they were true, would make a market economy itself unnecessary in the first place.
- The West Is Traveling The Road To Economic Ruin — Paul Craig Roberts (warning: a bit of a fruitcake at times) reviews the career of "best economist in the world" Michael Hudson:
Hudson learned that monetary theory concerns itself only with wages and consumer prices, not with the inflation of asset prices such as real estate and stocks. He saw that economic theory serves as a cover for the polarization of the world economy between rich and poor. The promises of globalism are a myth. Even left-wing and Marxist economists think of exploitation in terms of wages and are unaware that the main instrument of exploitation is the financial system’s extraction of value into interest payments. Economic theory’s neglect of debt as an instrument of exploitation caused Hudson to look into the history of how earlier civilizations handled the build up of debt.
- How Boots went rogue — Aditya Chakrabortty, The Guardian, in what they call "The Long Read", presumably because "You're Not Going to Enjoy This, But it's Good For You" didn't test so well with key demographics:
This is the tale of how one of Britain’s oldest and biggest businesses went rogue – to the point where its own pharmacists claim their working conditions threaten the safety of patients, and experts warn that the management’s pursuit of demanding financial targets poses a risk to public health. (Boots denies this, saying that “offering care for our colleagues, customers and the communities which we serve…is an integral part of our strategy.”) At the heart of this story is one of the most urgent debates in post-crash Britain: what large companies owe the rest of us – in taxes, in wages, and in standards of behaviour.
- Explaining Why Federal Deficits Are Needed — Thornton (Tip) Parker at New Economic Perspectives [I'm definitely using this one]:
The economy is like a car. Government spending is the accelerator. Taxes are the brakes. To keep going or speed up, press the accelerator. To slow down, ease off the accelerator or press the brakes. Driving too fast could lead to hyper-inflation, but that never happened here because the country always slowed down in time.