Economics

Capitalist Agriculture: Putting Soil on a Diet of Snake Oil and Doughnuts

Published by Anonymous (not verified) on Fri, 18/01/2019 - 12:00am in

Colin Todhunter In their rush to readily promote neoliberal dogma and corporate-inspired PR, many government officials, scientists and journalists take as given that profit-driven transnational corporations have a legitimate claim to be custodians of natural assets. The premise is that under capitalism water, food, soil and agriculture should be handed over to powerful and wholly corrupt transnational corporations to milk for profit, under the pretence these entities are somehow serving the needs of humanity. These natural assets (‘the commons’) belong to everyone and any stewardship should be carried out in the common interest by local people assisted by public institutions and governments acting on their behalf, not by private transnational corporations driven by self-interest and the maximization of profit by any means possible. Concerns about what is in the public interest or what is best for the environment lies beyond the scope of hard-headed commercial interests and should ideally be the remit of elected governments and civil organisations. However, the best-case scenario for private corporations is to have supine, co-opted agencies or governments. And if …

FT Alphaville on modern monetary theory – just ‘a different way of looking at fiscal policy’

Published by Anonymous (not verified) on Thu, 17/01/2019 - 8:26pm in

The FT's Alphaville (which is free to access) featured a discussion on modern monetary theory yesterday. The key part was this (and I make no apology for quoting at length: this is in the public interest):

Allow us to grossly simplify. Advocates for modern monetary theory argue that, for a sovereign country with its own currency, there is no inherently unacceptable level of government debt — that country does not automatically begin to collapse when debt reaches 90 per cent of GDP, or even 200 per cent of GDP. The country appropriates what it believes is necessary for domestic programs, regardless of revenue.

A traditionalist would see this as a prescription for inflation: increase the supply of money and, as with any commodity, you reduce its value. Modern monetary theorists argue that inflation happens only when the real economy — plants, machines, workers — can't absorb what the government is spending. So: disconnect spending from taxation. Spend until the economy is at capacity, using all of its resources perfectly. Raise taxes only to cool down inflation, when the real economy exceeds that capacity.

Alphaville does not propose here to mount an extensive defense of modern monetary theory. There is not the space. (Will there ever be?) We are confident, however, that Howard Dean is correct. It is neither Marxist, nor is it bullshit.

Modern monetary theory is simply a different way of looking at fiscal policy, a way of describing what the real-world constraints on spending look like. It is in fact very close to how people in Washington, D.C. already approach spending. Again, we're not talking about what they say. Rather, we're talking about what they do.

This is the key point about MMT, about which I will have more to say soon. There are far too many in the MMT community who say it requires job guarantees, or that we leave the EU and that it leads to lands of bliss and honey. It might, but MMT does not say those things. They are people's interpretations of it. WHat MMT actually says is simply, as the FT notes:

a different way of looking at fiscal policy, a way of describing what the real-world constraints on spending look like.

Much of the rest can be taken or left, at will. Because it is not MMT. As I have said before.

There is a solution to the EU mess. The price is two party leaders and at least one of their parties

Published by Anonymous (not verified) on Thu, 17/01/2019 - 7:37pm in

As I have already pointed out this morning, when we voted to leave the EU that is what we did. No conditions or red lines were attached to the voting paper. There were no footnotes. There was just a ‘do we want to leave?’, to which the answer was an unfortunate ‘yes’, only matched in its incomprehensibility as to meaning by our inability to answer that question.

The time has come when an answer is needed. Three things are certain.

The first is that May’s red lines have to go. That is why the Commons need to take control of this process.

The second is that Labour will not be convinced by Remain.

The third is that a second referendum will fail to catch the nuances, again. It could only ask for a selection between No Deal, which seems unlikely to secure parliamentary support to get in the ballot, or a deal of some sort, and Remain.

That still leaves the question of a deal of what sort? One has to be considered.

The fact is that we now know that leaving the EU could create substantial economic disruption. The only businesses that disagree do not import or export. Quite astonishingly, the Conservative Party is betraying its entire business base by pursuing the policy that it is undertaking.

And the government also thinks there will be mayhem. That is why it is planning for it.

Trade unions happen to agree.

And we now know that leaving the EU could breach all our obligations in Ireland. I find it almost unfathomable that some actually think this acceptable.

And on the ground what we know is that this will massively hurt the well being of the people of this country.

So we still need a compromise.

Labour says that compromise is staying in a Customs Union. But that does not really work unless it is for all practical purposes the EU Customs Union.

It is true that staying in will prevent some new trade deals. But those deals are, anyway, just fictions of fevered imaginations and there is no serious study that says they could ever remotely replicate the benefit of being in the Customs Union.

The disruption will, however, persist even if we are in a Customs Union. And Northern Ireland ios not solved. Border checks also cover single market rules and so the disruption to trade would continue. Unless we stay in the single market for goods.

Goods are only 20% of our international trade. We would have services freedom.

And there is a precedent that says we would pay much less than we do now if we were in both the single market for goods and the customs union (Switzerland). And there is also  a precdent that movement can be restricted. This is the so-called Jersey model that I have mentioned on this blog before. The best summary I can find this morning comes from the Centre for European Reform. As they put it:

The agreement would need to include the following features: 

  • Services access for UK firms would need to be roughly the same as that of any other third country. The UK, theoretically, could take to the world and try to sign services-only trade deals.
  • The UK would need to agree to follow all of the rules of the customs union, single market rules for goods and the EU’s VAT regime. All industrial goods and agriculture would have to be covered. Anything less would create a situation where checks on origin and standards, among other things, would still be required at the border.
  • The UK would have to agree to rules on state aid, industrial emissions and social and employment laws, to avoid the charge of environmental and social ‘dumping’. 
  • The agreement would need a surveillance mechanism, to check that the UK is complying with EU rules, and a court to settle disputes between the EU and the UK. Any new court would have to take account of the case law of the European Court of Justice. 
  • The EU would insist upon a financial contribution to the economic development of Central and Eastern Europe, among other things. The Swiss, for example, contribute around half the UK’s current payments per head. They have a similar level of access to the single market as the proposal outlined here.
  • The biggest question is whether the EU would insist upon free movement of EU workers as it stands, or whether it might be possible for the UK to negotiate controls on free movement, in exchange for the obvious damage that this agreement would do to the City of London.

This means free-flowing trade at ports. Our well-being is secured.

It means we have left the EU.

We take control of migration.

We save money.

We solve the Irish border issue.

The referendum is honoured.

No tariffs would be payable.

So what are the downsides? There are three.

First, the Tories would self destruct.

Second, Corbyn can't bring himself to say this.

Third, there is then no obvious route to an agreement.

And then May has the nerve to say politics will be discredited if she does not get her way.

Politics could find a way through this.

At the price of two party leaders, and maybe their parties.

That is a price I would willingly pay.

Paul Krugman — a methodological critique

Published by Anonymous (not verified) on Thu, 17/01/2019 - 2:03am in

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Economics

Alex Rosenberg — chair of the philosophy department at Duke University and renowned economic methodologist — has an interesting article on What’s Wrong with Paul Krugman’s Philosophy of Economics in 3:AM Magazine. Writes Rosenberg: Krugman writes: “So how do you do useful economics? In general, what we really do is combine maximization-and-equilibrium as a first […]

One of the Fundamental Differences Between Modern Monetary Theory and New Keynesian Economics

Published by Anonymous (not verified) on Wed, 16/01/2019 - 10:17am in

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Economics

With Modern Monetary Theory (MMT) making inroads in the public policy debate, some New Keynesians have transitioned from ignoring or dismissing the approach to engaging with it. This is healthy for both sides. There has been a tendency, though, to make “we’ve known it all along” type statements. A comprehensive response to the “nothing new” claims is provided by Bill Mitchell in a recent three-part series of posts (part 1, part 2 and part 3). My focus here is narrower and concerns a view (for example, expressed in a considered response here) along the lines that MMT has nothing new to say when the economy is at full employment.

Leaving aside that MMT and New Keynesian Economics (NKE) define full employment differently, this claim obscures a fundamental difference between the two theories. In NKE, as with neoclassical approaches more generally, there would be an automatic tendency to full employment in the long run if there were no imperfections or rigidities to impede the supposed adjustment process (including, in the case of NKE, no impediment to appropriate interest-setting monetary policy). For example, the favored justification for a fiscal response to unemployment in the wake of the global financial crisis was that the economy was in a liquidity trap, taken to mean that the real rate of interest was stuck above its so-called ‘natural’ rate due to monetary authorities confronting the zero lower bound. Absent this rigidity and any other rigidity (sticky wages, sluggish revision of expectations, etc), NKE implies that there will be full employment in the long run.

MMT is not neoclassical. It comes out of a different, broad theoretical tradition (which includes Post Keynesian economics and related Kalecki and Keynes influenced approaches) in which there is no general tendency for the economy to tend toward full employment even in the absence of imperfections and rigidities. In these theories, complete wage, price and interest-rate flexibility would not imply spontaneous adjustment to full employment over any time frame. Nor could policy administered interest-rate adjustments be relied upon to generate full employment, even when the economy was not at the zero lower bound, in contrast to the conclusion of NKE. The notion of a natural rate actually makes no sense in MMT or in the theoretical tradition from which it emerged.

The rejection of natural rate reasoning, and by extension appeals to a liquidity trap in the sense this term has been used since the global financial crisis, is theoretically informed by the capital debates (Matias Vernengo provides an informative introduction) and various arguments of Keynes (Bill Mitchell has a long series of posts entitled ‘Keynes and the classics’ beginning here). It is also consistent with the paucity of empirical support for a significant inverse relationship between the rate of interest and private investment upon which neoclassical spontaneous adjustment to full employment depends (see, for example, papers by Robert Chirinko, Jamus Lim and Steve Sharp and Gustavo Suarez).

Why is this relevant to the present comparisons between MMT and NKE?

It is relevant because it means the policy implications of MMT are in fact different to NKE over any time frame. In MMT there is no presumption that the economy will be at full employment in the long run. (This is so unless a job guarantee is in place, in which case there will be what MMTers refer to as ‘loose full employment’ at all times. This will be full employment in the sense that anyone who is willing and able to take a job at the job-guarantee wage will be employed.) In the absence of a job guarantee, there is no presumption in MMT that the economy tends toward full employment. An implication is that larger government deficits now do not necessarily imply smaller deficits or higher taxes in the future. It may be that full employment requires deficits in the future just as it does now. True, if it turns out in the future that full employment can be achieved with a smaller deficit, MMT will call for a smaller deficit. But it could go the other way.

If, as MMT prescribes, a job guarantee is put in place, full employment will not even be the relevant benchmark. With a job guarantee implemented, loose full employment will be achieved at all times irrespective of the overall level of demand. The relevant benchmark will then be the “non-acceleraiting buffer employment ratio” (NAIBER), meaning the smallest fraction of total employment that can be located in the job guarantee sector while still maintaining low, stable inflation. On the basis of MMT, there would be no spontaneous tendency for the economy to move toward the NAIBER, just as there is no tendency in the absence of a job guarantee for the economy to move toward full employment.

The premises and logic of MMT lead to the job guarantee as the means of simultaneously achieving and maintaining both full employment and price stability. Unless this is also the conclusion of NKE, based on its premises and logic, it can hardly be said that MMT “has nothing new to say at full employment”. Clearly it is not the obvious conclusion of NKE. If it were, New Keynesians would have drawn the conclusion long ago. Within the framework of NKE there need to be rigidities (e.g. a liquidity trap) to justify fiscal demand management. Even under conditions of unemployment, there is no place for fiscal demand management in NKE unless a rigidity can be identified.

It is perhaps also worth noting that a related claim – that MMT can be reduced to NKE with the policy tools switched (with fiscal rather than monetary policy assigned to demand management and monetary rather than fiscal policy geared toward controlling the level of interest on public debt) – is similarly unfounded. The observation so far as it distinguishes MMT’s preferred assignment of policy tools from NKE’s preferred assignment is a good one in my view (discussed previously here). However, the notion that MMT can be characterized simply by assuming within the New Keynesian framework that the interest rate can be geared solely toward keeping interest rates on public debt low relies on monetary authorities being able to choose the interest rate without regard to the so-called natural rate of interest and to do so indefinitely. This notion is unproblematic in MMT since within this framework there is no valid reason for supposing the existence of a natural rate of interest. The interest rate, in the MMT framework, is a policy variable, including in the long run. But in NKE, the existence of a natural rate follows from its neoclassical premises (including its marginalist microfoundations). So to impose, within the New Keynesian framework, the arbitrary restriction that the interest rate must be set according to public debt considerations is not only ad hoc but violates the constraint on policymakers that is implied by the existence of a natural rate, an existence that follows from the premises of the theory.

In short, MMT is not merely a policy position on government deficits that can be faithfully and fully represented by placing arbitrary restrictions on New Keynesian models. It is a theory built upon non-neoclassical foundations in which even under complete wage, price and interest-rate flexibility there would be no tendency for output to move to any particular level independently of fiscal policy, over any time frame. One implication of this – but only one implication – is that there is no reason to suppose that the fiscal stance called for today is in any particular relationship to the fiscal stance called for in the future. Fiscal surpluses today will not necessarily call for tax cuts in the future and fiscal deficits today will not necessarily call for higher tax rates in the future.

The foregoing argument is not intended to deny that there has been considerable common ground between MMT and NKE when it comes to the appropriateness of fiscal deficits in the aftermath of the global financial crisis. Economists of both persuasions have quite rightly been supportive of expansionary fiscal policy. The argument concerns the theoretical justification for this policy stance in the short term and the implications of this policy stance in the long term.

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Productivity Commission super report: apply the Medicare approach to super

Published by Anonymous (not verified) on Wed, 16/01/2019 - 9:07am in

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Economics

Where governments are invested in providing services exclusively to some special group, anyone should have (unsubsidised) access to them.

From here …..

Published by Anonymous (not verified) on Wed, 16/01/2019 - 7:41am in

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Economics

A majority of 230 says it all.

Three thoughts. First, if anyone harms democracy it is Tory MPs who voted against their party and leader tonight and will say they have confidence in May tomorrow.

Second, once a no confidence motion is over and done with the next job of Parliament is to pass legislation to prevent a no deal departure from the EU on 29 March. The EU Withdrawal Act has to be amended to ensure that parliament does get its wish on this.

Third, next parliament has to postpone Article 50 notice on the grounds that we need time to hold an election or a referendum, which not being known as yet.

Those are the only real courses of action that can be taken immediately. Then there is time for a little more consideration. That is essential. And that has to happen without the clock ticking too loudly.

The 2018 Retail Apocalypse, In 6 Charts And A Map

Published by Anonymous (not verified) on Tue, 15/01/2019 - 5:00am in

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Economics

One of the big trends of 2017 was the ongoing “retail apocalypse,” the apparent disaster of declining sales and store closures facing brick-and-mortar retailers. Well, 2018 was more of the same. One year after rounds of store closures by J.C. Penney and Macy’s, 2018 brought shutdowns by Sears and Toys “R” Us—not to mention Mattress Firm, Bon-Ton, Abercrombie & Fitch and more. But just how apocalyptic is this retail apocalypse? CityLab took a closer look at the data and found a much more ambiguous picture than the headlines might suggest.

Inside Life at a Self-Organized Homeless Community

Published by Anonymous (not verified) on Mon, 14/01/2019 - 11:36pm in


Portland’s Right 2 Dream Too has provided shelter—and friendship—for hundreds of people who have nowhere else to go.

If the Green New Deal is to happen advertising has to be constrained

Published by Anonymous (not verified) on Mon, 14/01/2019 - 8:05pm in

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Economics

I have long been intrigued by the power of advertising, which I see as almost universally harmful. I wrote this on the subject in my book, The Courageous State (page 172):

The nature of advertising has to be understood. Advertising is not the neutral act of informing market participants of the qualities of the products that might be available to them, as economists would like to think it is. Instead advertising and its related activities of marketing and market research create the opportunity to sell those things for which need (let alone desire) does not exist. As such advertising is not a response to the market; advertising is instead the force that creates markets.

In this case advertising provides biased information that is in very many cases targeted very specifically at audiences whose vulnerability has been profoundly understood by the advertiser. The whole purpose of advertising (small ads and maybe job recruitment apart) is not to inform, but is to spread dissatisfaction. Its intention is to make the person who is the target of the advertising campaign feel that their current consumption is inadequate and that they must have the item being promoted to achieve a proper sense of well-being. Advertising, therefore, is not an action designed to promote the benefits of ownership of the product it refers to; instead advertising is deliberately designed to make a person feel their current position is inadequate but that this current state would be remedied if only they consumed more of a particular item.

Nothing has made me change my mind. So what to do about advertising in the light of the need for a Green New Deal and a cut in consumption of useless items that we could all do without? This also comes from The Courageous State. It addresses the issue of tax and advertising. I see tax as the main corrective mechanism here, except for advertising aimed at children. That I would like to ban.

Advertising is, as has been noted, designed to deliberately create feelings of dissatisfaction. Adverts are intended to undermine the prospect of a person achieving their purpose by encouraging a sense of inadequacy among their target audience because they do not have the promoted products or services, whether or not they have a real need for them. This is immensely harmful to society, not least by denying hope to those who have no prospect of acquiring the products advertised, and by breeding discontent even among those who can afford them, because so soon after they acquire such products they are informed that they must now acquire another in a continual process of artificially manufactured dissatisfaction fuelled by advertising.

Advertising is pervasive in the modern economy, but pernicious. A Courageous State will have to tackle this issue and there is no doubt that one way to do this would be through the tax system. There is, of course, advertising that is of benefit, including small advertisements in local media, job advertisements and such other announcements. Most of these could be exempted from any tax penalty on advertising simply by setting a monetary limit per advertisement below which such penalty would not apply. Above that limit, where the advertising in question would be designed to fuel demand for products and services whether or not they were a benefit to the consumer in society, there must be a radical overhaul of our tax system as it relates to advertising.

First, no tax relief on such advertising should be available within the tax system, so that the cost of advertising cannot be offset against the profits generated from trade to reduce a taxpayer’s profit on which they owe tax.

Second, any value-added tax charged on the supply of advertising services to a business should be disallowed as an input in the VAT reclaims it makes from H M Revenue & Customs. In other words, that VAT then becomes a business cost of advertising.

The impact of these two moves is obvious: it is to increase the cost of advertising, and that would be deliberate. Tax has to be used to counter the harmful externalities created by the market, and the feelings of inadequacy, indifference, and alienation promoted by advertising in very many sections of society are almost universally harmful.

There would, however, be a cost to such arrangements: the media would of course suffer from a loss of income. The media has, however, itself been under scrutiny of late, and has not always emerged with its reputation intact. While media independence is vital, so is its objectivity and in that case there appears to be strong merit in using some, or all, of the additional tax revenue raised by government as a result of these proposed taxation changes on advertising to fund the media, both nationally and as important locally, but only if it agrees to act with political impartiality in the way that the BBC is obliged to do. If it did that then I think funding to compensate the media for some of the loss of revenue it will suffer as a result the loss of advertising revenue would be appropriate.

But also note that what is being suggested here is hardly without precedent: when it became obvious that business entertaining was giving rise to abuse, tax and VAT relief on it was stopped in much the same way as I now suggest for advertising. Many said that the restaurant and other trades would collapse as a result. They did not, of course, do so. Nor will other businesses now, but they will have to adapt. That is the goal.

I am aware that some will take issue, not least on BBC impartiality. I think debate is, however, worthwhile.

And a key issue to address as we changed attitudes in the way that has to happen if our future is to be secure.

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