A picture of history

from Peter Radford

There is no serious effort in Washington to deal with our so-called debt crisis. I would like to think this is because people realize we don’t have one, but a more realistic interpretation on non-events is that the Republicans are stuck in a rut of obstruction. They have no policy other than to contradict whatever Obama says. Even if this means contradicting what they themselves said in the past. At the moment this obstruction produces gridlock on any constructive efforts to get the economy moving at a more rapid pace. It also means avoiding negotiating on the budget, even though both the Senate and the House now have working budget proposals. The problem seems to be that were the Republicans to engage in negotiations they wouldn’t be able to engineer a crisis atmosphere within which they could extort excessively. They want, apparently, to wait until we nudge back up against the debt ceiling at which point they can reload their hostage taking weaponry and cause the nation greater mayhem.

Destroying the lair of the budget-balancing cretins

from Dean Baker

By now almost everyone knows of the famous Excel spreadsheet error by Harvard professors Carmen Reinhart and Ken Rogoff. It turns out that the main conclusions from their paper warning of the risks of high public sector debt were driven by miscalculations.

When the data are entered correctly, this hugely influential paper can no longer be used to argue that the United States or other wealthy countries need fear a large growth penalty by running deficits now. There is no obvious reason that governments can’t increase spending on infrastructure, research, education and other services that will both directly improve people’s lives and foster future growth.

With the advocates of austerity on the run this is a great time to pursue the attack. The public should understand that the often expressed concerns about long-term growth, the future, and the well-being of our children are simple fig-leafs for inhumane policies that deny people (a.k.a. the parents of our children) work and redistribute income upward.

15 percent of the U.S. population is receiving food-stamp benefits.

from David Ruccio

source

In 2007, at the start of the Second Great Depression, 26.3 million Americans—8.7 percent of the population—were on the Supplemental Nutrition Assistance Program (SNAP). Today, that number has risen to 47.6 million, which means that 15 percent of the U.S. population is receiving food-stamp benefits.

What’s that you say about a recovery?

Map of the European Union’s weakening economics

from David Ruccio

source

Robert Samuelson finds economics is way too complicated (2 graphs)

from Dean Baker

That is quite literally what he told us in his column. His second paragraph tells readers:

“Among economists, there is no consensus on policies. Is “austerity” (government spending cuts and tax increases) self-defeating or the unavoidable response to high budget deficits and debt? Can central banks such as the Federal Reserve or the European Central Bank engineer recovery by holding short-term interest rates near zero and by buying massive amounts of bonds (so-called “quantitative easing”)? Or will these policies foster financial speculation, instability and inflation? The public is confused, because economists are divided.”

See, we don’t know what to do, so we just can’t do anything. All those suckers who are unemployed or seeing stagnant wages, well we just don’t know. And the fact that those on the top are getting rich with 60-year high shares of national income, well what can we do about that? It’s just too confusing.

Is global finance finally shrinking?

from Jayati Ghosh

It is obvious that the recent boom in global capitalism had witnessed massive over-extension of finance. What has been described as “financialisation” reflected not only the ever-greater penetration of finance capital into more activities of the real economy and involvement in critical markets such as those for commodity futures that affect traded prices of food and fuel.

But did this actually change from 2008? Is it the case that the global financial crisis and its ramifications have actually had some effect in causing this financial froth to subside? A new report from the McKinsey Global Institute based on its database of financial assets in 183 countries across the world suggests that this might be the case. , but also huge and volatile movements of capital across national borders. By 2007, global stocks of financial assets (both equity and debt stocks) amounted to $206 trillion. This meant that financial assets were more than 4 times the maximal estimate of GDP in developed countries in that year, and nearly twice the value of GDP in developing countries. 

Reducing unemployment: Lessons from Germany

from Dean Baker

Many of the pundits are once again celebrating the pick-up of the U.S. economy. Unfortunately this upturn, like prior ones, seems to exist more in their heads than in the data. The big bright spot being highlighted is the 200,000 monthly rate of job creation since October. This only sounds like good news for those who don’t remember that we created 240,000 jobs a month in the same five months last year.

While the economy is not about to slip into recession, there is little reason to think we will see a marked upturn from last year’s 1.7 percent growth rate. In fact, with the end of the payroll tax cut pulling money out of people’s pockets and the sequester leading to layoffs and further cutbacks, we are at least as likely to see the economy slowing as picking up steam.

This is bad news for tens of millions of people who are unemployed, underemployed, or have dropped out of the workforce altogether. There is little prospect that the economy will grow enough to substantially improve their employment prospects any time soon. Nor is there much hope for any policy shift that will provide a boost to the rate of growth. This is why it is a good time to look to Germany. 

USA Inequality Update

from Peter Radford

In case you missed it: the US is a wildly unequal society, and it’s getting worse by the hour.

No surprise at all, but nonetheless some of the data can be quite eye-opening. Allow me to point you to David Cay Johnston and some of his analysis.

• Incomes have grown between 2009 and 2011. Great. But 149% of that growth has gone to the top ten percent of all income earners. Yes. More than all the increase has gone to a small minority. You knew that right?
• How? Because income for the rest actually went down.
• According to the Internal Revenue Service data you needed an income of above $110,651 to achieve top ten percent status. $366,623 gets you into the top one percent.
• And it’s worth getting into that top one percent: 81% of all the extra income earned since 2009 has gone to that lucky group.
• Even better if you can squeeze into the top of the top. The top ten percent of the top ten percent – bear with me here – managed to make off with 39% of all the income gains nationwide. That’s 15,837 households if you’re counting. Out of 158,400,000 households.

Now Johnston gets cruel: 

USA 1966 to 2011: One inch (for the bottom 90 percent) versus 4.9 miles (for the top .01 percent).

from David Ruccio

In the United States as David Cay Johnston explains,

In 2011 the average AGI [adjusted gross income] of the vast majority fell to $30,437 per taxpayer, its lowest level since 1966 when measured in 2011 dollars. The vast majority averaged a mere $59 more in 2011 than in 1966. For the top 10 percent, by the same measures, average income rose by $116,071 to $254,864, an increase of 84 percent over 1966.

Plot those numbers on a chart, with one inch for $59, and the top 10 percent’s line would extend more than 163 feet. 

Inequality and well-being

from Lars Syll

Source

Deficit realities: No cuts needed

from Peter Radford

It seems like the entire economic discussion is now about the Federal deficit and what we ought to do about it. You all know my position by now: nothing. The deficit is going to melt away, or at least back to manageable proportions. So there is no need to do anything. Really.

But, in the interests of science, and to give you some context, I ought to pass along to you some facts and figures. That way you can keep score for yourselves at home.

Since Obama arrived in the White House the accumulated deficits have been approximately $5,100 billion. That’s a lot by any standards. To put that in perspective: accumulated GDP has been $59,231 billion dollars. So the deficit has been about 9% of GDP throughout. 

Big bank immunity: When do we crack down on Wall Street?

from Dean Baker

The Wall Street gang must really be partying these days. Profits and bonuses are as high as ever as these super-rich takers were able to use trillions of dollars of below-market government loans to get themselves through the crisis they created. The rest of the country is still struggling with high unemployment, stagnant wages, underwater mortgages and hollowed out retirement accounts, but life is good again on Wall Street.

Their world must have gotten even brighter last week when Attorney General Eric Holder told the Senate Judiciary Committee that the Justice Department may have to restrain its prosecutors in dealing with the big banks because it has to consider the possibility that a prosecution could lead to financial instability. Not only can the big banks count on taxpayer bailouts when they need them; it turns out that they can share profits with drug dealers with impunity. (The case immediately at hand involved money laundered for the Mexican drug cartel.) And who says that times are bad? 

Use antitrust policy to break up mammoth banks

from Dean Baker

This week the nation’s chief law enforcement officer told a Senate committee that he was concerned that prosecutions of large banks could endanger the country’s financial system. As a result, the Justice Department may not prosecute cases against these banks that it would bring against ordinary citizens or smaller banks.

The immediate issue at hand was the decision not to prosecute the bank HSBC because of its involvement in laundering money for Mexican drug gangs. Just to be clear, these drug gangs were not just people that sold drugs to willing buyers, they also engage in kidnapping, murder, torture, and a variety of other criminal activities. Attorney General Eric Holder told the Senate Judiciary Committee that big banks may be able to share the profits with such outfits with impunity because prosecuting them could lead to financial instability. 

Inequalities in Asia – Call for papers for WEA online conference

Call for papers for the Inequalities in Asia conference

Inequalities in Asia

It is generally recognized that inequalities of various kinds have been exacerbated during the period of globalization. This is true of global/regional inequalities as well as within-country disparities, except in a few countries where very conscious policies have been taken to reverse this. Concerns with growing inequality extend well beyond issues of justice and fairness, since the degree of economic inequality also affects social cohesion and political instability, and can also have negative implications for economic growth and sustainability.

This conference will focus on various aspects of inequality in South, Southeast and East Asia from the broader perspective of examining their interlinkages with other economic, social and political processes. This region is known to have been among the most dynamic in terms of income growth as well as structural change, and the evidence of increasing inequalities is also marked in several major countries of the region.

The broad themes to be covered are noted below (I-VII). In addition, some more specific questions that could be taken up in individual papers are mentioned, but these should be seen only as indicative suggestions. Papers that consider other aspects that are not explicitly noted here are also welcome. 

The kids will be rich, unless Peter Peterson’s kids take their money

from Dean Baker

The Wall Street crew has been in high gear trying to convince the public that our children’s well-being is going to be threatened by their parents’ and grandparents’ Social Security. This story would be laughable except that it is endlessly repeated by people in positions of power and responsibility. For this reason it is worth going over the basic numbers yet again so that everyone knows that the people making these assertions are either ignorant or dishonest.

The basic point is that the economy gets more productive through time. This has been true for hundreds of years and no one has any good stories as to why it should not continue to be true long into the future.

Our measures of productivity growth are not very good for the years prior to World War II, but according to the Bureau of Labor Statistics in the 65 years since 1947 productivity growth has averaged 2.2 percent annually. There have been periods of more and less rapid growth.

David Cameron’s bad date in Delhi

from Jayati Ghosh

Suddenly India is being wooed again. In the space of a few days, both François Hollande and David Cameron have turned up on its doorstep with palms outstretched in the search for business contracts. It will have come as a soothing balm to an Indian government facing increasing disillusion at home and growing cynicism on the part of investors abroad.
In their foreign dealings, Indian policymakers must feel as if they are on a seesaw with changing partners of varying weights on the other side. There was a period, especially in the last decade, when theyIndia’s policymakers could do no wrong in the eyes of global capital and western powers. Then, the same policies that were celebrated as causes of India’s fantastic dynamism were discovered to have resulted in corruption, cronyism and growing inequalities. Popular revolts against these conditions forced even the global media to sit up and take note. And now, suddenly, India is acceptable again. Even the more unpleasant elements such as Narendra Modi – once shunned following the pogrom of Muslims in Gujarat, where he was chief minister – are brought in from the cold. 

US is suffering from government-imposed austerity before the effects of sequestration hit. (2 graphs)

from David Ruccio

source

OK, two charts. . .

But they tell us the same thing: the United States is suffering from government-imposed austerity, even before the effects of sequestration hit.

Keynes on mathematical economics

from Lars Syll

But I am unfamiliar with the methods involved and it may be that my impression that nothing emerges at the end which has not been introduced expressly or tacitly at the beginning is quite wrong … It seems to me essential in an article of this sort to put in the fullest and most explicit manner at the beginning the assumptions which are made and the methods by which the price indexes are derived; and then to state at the end what substantially novel conclusions has been arrived at … I cannot persuade myself that this sort of treatment of economic theory has anything significant to contribute. I suspect it of being nothing better than a contraption proceeding from premises which are not stated with precision to conclusions which have no clear application … [This creates] a mass of symbolism which covers up all kinds of unstated special assumptions.

Keynes to Frisch 28 November 1935

Graph of the 2nd American Revolution

from David Ruccio

US wages and productivity 1968 – 2012 (minimum, average and The 1%)

from David Ruccio