Archive for April, 2011

Deficit Fever: Loon Tune Time Among the Elite

April 28, 2011 4 comments

from Dean Baker

We already knew that the folks involved in debating and designing economic policy in the USA  had a weak understanding of economics, that is why they couldn’t see the $8 trillion housing bubble that wrecked the economy, but now it seems that they are breaking their ties to reality altogether. The country is still smoldering in the wreckage of the collapsed housing bubble, but the victims have left the policy debate altogether. Read more…

Where are we?

April 27, 2011 10 comments

from Peter Radford

It’s tough to tell exactly how the recovery in the United States is going. Since this is a busy week for data reports it behooves us to step back and set the stage.

If you recall, at the end of last year the economy was growing at around 3.0% to 3.5% at annual rates. That was a marked improvement, but not earth shattering in the context of post-war recoveries. The general opinion was that we would pick up speed into the first quarter before settling down into a post-recovery ‘normal’ period of steady growth.  Read more…

IMF’s Welcome Rethink on Capital Controls

from Kevin P. Gallagher

In contrast to most western governments, over the past two years, the International Monetary Fund (IMF) has boldly conducted one of the most honest self-assessments of its actions leading up to the financial crisis, has become somewhat critical of inflation-targeting and has endorsed the use of capital controls. In March of this year, the IMF held a full conference on rethinking macroeconomics where its organisers concluded that the crisis has shattered the economic orthodoxy behind the fund’s previous policies. Read more…

Meanwhile, in Europe (12). Deconstructing Trichet

April 25, 2011 2 comments

from Merijn Knibbe

Introduction. Recently, mr. Trichet, head of the European Central Bank (ECB), raised the Euro-interest rate to an historical still low 1,25%. But considering the state of the economy, this 1,25% rate might still be quite high:

  • Looking at it from the Keynesian point of view there still is quite an output gap. Unemployment (U-3) is 9,9%, construction is at 75% of pre-crisis levels and still declining and industrial production is still not back at 2007 levels. Also, restrictions on intra-EU labor mobility are rapidly waning (no, Keynesian thinking is not anathema to supply side thinking, increased labor mobility in fact increases the output gap).
  • Looking at it from the monetarist point of view Read more…

Only in America: Former U.S. official sued Haiti contractors for kickbacks

from Mark Weisbrot

Corruption takes many forms, and if the United States seems like it has less of it than many developing countries, this is partly because we have legalized so much of it. Election campaign contributions are only the most costly and debilitating form, a legalized bribery that, for example, gives the pharmaceutical and insurance companies a veto over health care policy and generally hollows out our limited form of democracy.

This legalization of corruption reached a new milestone last December when Read more…

Rising inequality

April 24, 2011 3 comments

from David Ruccio

Income inequality is increasing between counties across America. Income gains in richer counties are outpacing gains in poorer places. Meanwhile, there is growing evidence that inequality has a number of ill effects on all of society.

Those are the conclusions of a recent study [ht: db] by Roberto Gallardo and Bo Beaulieu of the Southern Rural Development Center at Mississippi State University. Read more…

Budget deficits, accounting identities, and China bashing

April 23, 2011 3 comments

from Dean Baker

In the movie “Philadelphia,” the lawyer played by Denzel Washington is shown repeatedly telling his clients to explain their case to him like he was a 9-year-old. This is a good rule to follow in explaining issues to economists and policy analysts, since they seem to get confused easily in discussing economics.

One of the lines frequently repeated by the deficit hysterics is that if we don’t get the deficit under control then there could be a run from the dollar. This is a great line for getting little boys and girls and reporters at elite news outlets very scared. After all, the prospect of the dollar becoming worthless is pretty scary.  Read more…

Wobbly numbers. wobbly US economy?

April 22, 2011 9 comments

from Peter Radford

Just as we in the States enter the big debate over cutting the deficit we are getting a string of mixed signals about the US economy. It isn’t as robust as it should be, especially in view of the inevitable negative impact resulting from austerity measures. We don’t have a great deal of room to maneuver, which makes the task of cutting sensitive. Unfortunately sensitivity is in short supply. So I am concerned we may be about to shoot ourselves in the foot.  Read more…

Upward redistribution continues in the USA

April 21, 2011 Leave a comment

from Dean Baker

For years Americans have accused the Republican party of being the servants of the rich and powerful at the expense of the broader public. In the past, they would deny that this charge and claim that they just had a different view of how the economy works.

Republican House Budget Committee Chairman Paul Ryan sought to eliminate any confusion on this point. He proposed, and last week the Republican House approved, a budget bill that will transfer tens of trillions (yes, that is “trillions” with a “T”) of dollars from ordinary working people to the insurance industry, the pharmaceutical industry and generic rich people from any industry. Read more…

Where has all the surplus gone?

April 21, 2011 9 comments

from David Ruccio

Where has all the surplus gone?* Well, a good chunk of it in 2010 has gone to pay Chief Executive Officers of major companies.

According to the AFL-CIO’s Executive Paywatch,

U.S. corporations held a record $1.93 trillion in cash on their balance sheets in 2010. But they are not investing to expand their companies, grow the real economy or create good middle-class jobs. Corporate CEOs are literally hoarding their company’s cash—except when it comes to their own paychecks.  Read more…

Tyranny of the Central Bankers

April 20, 2011 10 comments

from Dean Baker

The European Central Bank (ECB) announced earlier this month that it was raising its overnight lending rate by a quarter of a percentage point to 1.25 percent. This is very bad news for people across the eurozone countries and possibly the rest of the world as well.

This action shows two things. Read more…

Globalization of jobs

April 20, 2011 3 comments

from David Ruccio

Once upon a time, the cheerleaders of globalization, like Matt Slaughter, could claim that “for every one job that U.S. multinationals created abroad. . .they created nearly two U.S. jobs in their [U.S.-based] parents.” As the following graph shows, that’s no longer the case.  Read more…

IMF’s rhetoric still far from its policies

April 19, 2011 3 comments

from Mark Weisbrot

As the International Monetary Fund (IMF) and World Bank gathered in Washington for their annual Spring Meetings, there was more talk about how much the IMF has changed. IMF Managing Director Dominique Strauss-Kahn quoted John Maynard Keynes in his speech on Wednesday at the Brookings Institution:

“The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.” Read more…

Bank reform fades away … with a thud

April 18, 2011 2 comments

from Peter Radford

There it is. Sitting on my computer desktop, pristine and unopened. The vast 650 odd page Levin report on Wall Street and The Financial Crisis. OK I had to open it to see how many pages it was, but that’s it. At this point we can all throw our hands up in despair and move on with our lives. The big banks, notwithstanding their protestations to the contrary, soundly defeated any chance of thorough reform. They are bigger than ever. They are meaner than ever. And they are just as incompetent as ever. I add this last comment because thus far there has been no evidence that all those rotten risk managers who brought us to our knees have been fired. The same is true for the traders who gorged themselves on toxic paper. The same is true for the executives who paid themselves handsome bonuses whilst overseeing the disaster. Unfortunately the same is true of the economists who dreamt up the horrible fiction that undergirds the structure of modern day finance. Read more…

Thought for the day: redefining flexibility

April 15, 2011 1 comment

from Merijn Knibbe

Unemployment in Norway is 3%. Unemployment in Spain is 20%. This difference is remarkable, even exotic. Why did the Norwegian labor market do so much better than the Spanish one? Did the Great Financial Crisis pass the vikings by? To the contrary. The Norwegian economy – or at least the Norwegian labor market – was hit even harder than the Spanish one. The total number of hours worked declined even more than in Spain which, as Spain was one of the countries which was hit hardest, is astonishing. Read more…

What is hard to understand about firing economists?

April 15, 2011 1 comment

fr0m Dean Baker

Last month, the International Monetary Fund’s Independent Evaluation Office issued a remarkable report. The report quite clearly blamed the IMF for failing to recognize the factors leading up to the worst economic crisis since the Great Depression and to provide warning to its members so that preventive actions could be taken.

The report noted that several prominent economists had clearly warned of the dangers facing the world economy prior to the collapse that began in 2007. One of these economists was Raghuram Rajan, who was actually the chief economist at the IMF when he gave a clear warning of growing financial fragility back in 2005. Yet these warnings were for all practical purposes ignored when it came to the IMF’s official reports and recommendations to member countries.  Read more…

Round Two

April 14, 2011 13 comments

from Peter Radford

The problem with caving in to a blackmailer is that they are inevitably emboldened to try again. Usually the second extortion effort raises the stakes for both sides. This is where we are with the budget. Obama caved in last week in order to keep the government functioning. In the process he acquiesced to a long litany of right wing demands. The cuts agreed to include all sorts of completely irrelevant attacks on various aspects of long standing social programs. The Republicans littered the proposal with cuts that are minor in dollar terms, but hugely significant to their culturally extreme voter base. So the lunatics won round one. They are now back for more.  Read more…

“Of the 1%, by the 1%, for the 1%”, Joseph E. Stiglitz

April 13, 2011 14 comments

from Edward Fullbrook

The meaning behind the title, “Of the 1%, by the 1%, for the 1%”, of Joseph Stiglitz’s article in the May issue of Vanity Fair may be lost on non-Americans. It is a play on Abraham Lincoln’s “government of the people, by the people, for the people” which, along with Patrick Henry’s “Give me Liberty, or give me Death”, was once upon a time the most revered set of words in American culture.

Stiglitz begins by noting that 25 years ago the richest 1% of Americans had 33% of the nation’s wealth and took 12% of its yearly income, whereas the corresponding figures today are 40% and almost 25%.  He then offers reasons to believe that not only will the results of this program of massive upwards redistribution of income and wealth be retained but will also be augmented.  Read more…

US tax rates for the rich then and now

April 12, 2011 5 comments

from John Schmitt

The fictional television series “Mad Men” does a great job dramatizing the astonishing cultural, social, and political transformation of the United States since the early 1960s. A new report (pdf) from the Institute for Policy Studies now adds some insight into one of the key economic differences between then and now.

This graph from the report compares the actual income taxes paid by the rich in 1961 and 2011. As it happens, 1961 falls right between the time covered by seasons one (March to November, 1960) and two (February to October 1962) of “Mad Men.” Read more…

Honest economic thinking is more important than “New” Economic Thinking

April 11, 2011 7 comments

from Dean Baker

Robert Kuttner reports about the dismal prospects for fundamental economic reform from the Institute for New Economic Thinking’s conference at Bretton Woods. His note suggests that the situation may be even worse than he realizes.

Toward the end of the piece he reports a discussion of the need by countries with trade surpluses to share in the adjustment process with countries with trade deficits. He then comments that:  Read more…