Mr. Greenspan takes it all back. His Old Time Religion was right after all.

from Michael Hudson

It all seems so long ago! On October 23, 2008, Alan Greenspan choked up a mea culpa for his deregulatory policy as Federal Reserve Chairman. “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform. “The whole intellectual edifice, however, collapsed in the summer of last year.” 

Greenspan Nonsense

from Peter Radford

OK. I am going to say very little on this. His words stand for themselves. Alan Greenspan needs to pull down the shades and stop. He is officially nuts. For those who missed it: he is on record in the Financial Times, as saying we should get rid of the recently implemented financial regulation. It is, he argues, an impediment to growth. And, even worse, he glosses over the catastrophe of 2008 as if it were a minor blip. Deregulation worked wonders he says, with” notably rare exceptions such as 2008″.

Notably rare exceptions. Like 2008. Roll that around on your tongue a bit. Then try to spit it out before you choke. 

An inquiry into the nature and causes of the wages and wealth of the nation

from David Ruccio

The Economic Policy Institute has just completed two studies that assist us in understanding the nature and causes of the stagnation of wages and the increasingly unequal distribution of wealth in the United States.

In the first study, “The Sad but True Story of Wages in America,” Lawrence Mishel and Heidi Shierholz analyze the relationship between productivity and wages in the United States from 1989 to 2010. Their conclusion, as the graph below shows, is that productivity grew far more than wages: 62.5 percent versus 12 percent. 

Thought for the day: a rotten trap in Denmark

from Merijn Knibbe

The regular reader of my posts (if any) will have noticed that I see Denmark as one of the ‘GIPSD’ countries: at par with Greece, Portugal, Spain and Ireland. And indeed, the Danish economy is doing worse and worse. Contrary to all economies in the neighbourhood, the Danish economy is contracting (GDP, fourth quarter 2010) and unemployment is rising.  Why? The reason for this seems to be that the economy is in a liquidity trap while the government pursues delfationary policies to maintain the Europeg (a liquidity trap is the situation where even a roughly 0% interest rate does not kindle the ‘animal spirits’ of consumers and entrepreneurs – they still keep their money at the bank). Look at the graph from J.P. Irving: 

What Spring?

from Peter Radford

It’s a couple of years since Ben Bernanke used the springtime “green shoots” description of the economy. Since then we have had a few good quarters of warming weather, but we never arrived at a fully fledged summer. We seem, to extend the saying, stuck in perpetual springtime.

The reason, I think, is clear. Average folks are not seeing much to cheer about. And since they form the bulk of the consuming population they are not providing the power to generate that burst sufficient to allow us to break out.

A couple of recent statistics get at the heart of the problem. 

Robert Samuelson’s troubled TARP arithmetic

from Dean Baker

We know that arithmetic is not the strong suit of the Washington Post and Robert Samuelson drives this point home again today with his discussion of the TARP. Samuelson tells us that TARP is now projected to cost just $19 billion and that the final cost may actually be lower. He also tells us that the alternative to TARP, bank nationalization would have been far more costly. And, he said that without TARP the unemployment rate “would be 11 percent or 14 percent; it certainly wouldn’t be 8.9 percent.”

Okay, let’s take these in turn.

Graph: USA excess corporate savings vs. unemployment

Here is an interesting graph from Rebecca Wilder‘s post referred to in David Ruccio’s post immediately below this one.  The data refers to the U.S. economy. 

Unemployment and the corporate profit glut

from David Ruccio

Mainstream economists continue their endless debate about whether the obscene level of unemployment in the United States is structural or cyclical. It’s neither: it’s the result of the corporate profit glut. 

Thought for the day: Horatio economists

from Merijn Knibbe

There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy.
Recently, two Dutch economists, Johan de Jong and Jasper Verbruggen, published an analysis of the predictive power of economic models (http://www.tpedigitaal.nl/assets/static/1_Jong-Verbruggen-1-2011.pdf).

Their results are clear:

Economics journals—what are they good for?

from David Ruccio

What are mainstream economics journals good for? Like war, absolutely nothing.

Actually, R.A. quotes Marc Thoma to argue that journals like the American Economic Review have one purpose in the new corporate university: 

Emerging vs. developed countries’ GDP growth rates 1986 to 2015

This unusual graph is from an article by Gavyn Davies posted yesterday in the Financial Times Blog.

The end of history in economics

Right in the middle of a deep crisis of established economics the history of economic thought is threatened with extinction in Europe.

Here is an abbreviated translation of an article by Norbert Häring that is in today’s Handelsblatt, the German language equivalent of the FT and WSJ.  There then follows a letter from the secretary of the European Society for the History of Economic Thought.

McCloskey and My Capitalism Confusion

from Peter Radford

Maybe it’s just me, but I am confused over this thing called capitalism. I have read that it is the great force that, somewhere back a couple of hundred years ago, suddenly unleashed a surge of wealth creation that has, like a huge tide, carried us all to heights of luxury previously unheard of. Perhaps that’s true. I am told that scientific advance, religious and political freedom, and the diminution of the conservative institutions that characterized society before that point were insufficient to spark such growth. No it was capitalism. The swiss army knife of socio-economic advance.

I mention this because I am, in my normal ham-fisted manner, trying to grapple with the so-called “structural unemployment” issue.

Japan’s earthquake may shake world economy

from Dean Baker

The world is witnessing a horrible tragedy in northern Japan, an earthquake followed by a tsunami and now the risk of a nuclear catastrophe. Even if the nuclear threat can be contained we will still see a humanitarian disaster, with more than 10,000 deaths and many more sick and injured.

Many have asked how this tragedy will affect the world economy. There are serious grounds for concern, although not for the reasons generally given. 

Reading Adam Smith

from David Ruccio

The next time some conservative economist, politician, or pundit invokes Adam Smith in favor of a “get-government-off-our-backs” argument in favor of free markets and the invisible hand, just tell them to actually read some Smith. Suggest they read the Theory of Moral Sentiments and the Wealth of Nations and then report back to you. 

Or, if they don’t want to do the work, just have them read George Scialabba’s review of Nicholas Phillipson’s new book, Adam Smith: An Enlightened Life, which was published in the American Conservative.

More real estate problems

from Peter Radford

When you build your economy primarily on the basis of finance and real estate, as the US appears to have done during the past two decades, you are relying on economic sectors renowned for their fickle and unreliable properties. When you then combine them via unscrupulous lending and tricky derivative activity, you are definitively playing with fire. You had better have a back up plan. 

Buffett tells country, TARP gave over $1 billion to Goldman Sachs

from Dean Baker

At a time when all the tough guys in Washington are making plans to cut Social Security and Medicare benefits for high-living seniors and to cut Head Start for low-income kids, it was generous of Warren Buffett to point out that we taxpayers gave over $1 billion to Goldman Sachs through TARP. Buffett probably didn’t intend to point out this fact to the country, but it is an unavoidable implication of his $2 billion profit on his loans to Goldman. 

Unions in the Land of Equilibria

from Jim Stanford

The post-crisis assault on public services and collective bargaining rights (in America and elsewhere) has been justified with a storyline that blames unions (rather than speculators and the recession they caused) for the red ink currently dominating public finance.  This storyline assumes that everything would be fine if only public-sector unions weren’t extorting taxpayers to pay for their supposedly cushy jobs; it exploits the envy of private-sector workers who (on average) are treated even worse.  This fable is told and re-told like a fairy tale: one in which unions kill the goose that laid the golden egg, until taxpaying denizens (starting in Wisconsin) throw off the oppressive yoke imposed on them by overpaid garbage collectors and teachers.

Microfinance and other development fairytales

from David Ruccio

The Global South is littered with failed development projects. Each one of them has been designed to solve the problem of underdevelopment without criticizing or aiming to transform the basic structures that cause underdevelopment in the first place.

The latest development fairytale has been microfinance, made famous by the Grameen Bank in Bangladesh and the awarding of the Nobel Prize to its founder, Muhammed Yunus. The idea was to turn poor people, especially women, into successful informal-sector entrepreneurs by extending to them small loans. Now, however, the myths of microfinance are being effectively dispelled. 

Evidence of intelligent life at the IMF

from Dean Baker

The International Monetary Fund (IMF) held a conference last week devoted to re-examining macroeconomics in the wake of the economic crisis. This conference was evidence of a Glasnost that would have been unimaginable a decade ago.