Archive for July, 2011

The nonsense battle over the Debt Ceiling

July 29, 2011 5 comments

from Dean Baker

Policy debates in Washington are moving ever further from reality as a small elite is moving to strip benefits that the vast majority need and support. The battle over raising the debt ceiling is playing a central role in this effort.

The United States is currently running extraordinarily large budget deficits. The size of the annual deficit peaked at 10 percent of GDP in 2009, but it is still running at close to 9.0 percent of GDP in 2011. The reason for the large deficits is almost entirely the downturn caused by the collapse of the housing bubble. This can be easily seen by looking at the projections for these years from the beginning of 2008, before government agencies recognized the housing bubble and understood the impact that its collapse would have on the economy. Read more…

Throwing grandma under the bus

July 29, 2011 2 comments

from David Ruccio

Neoclassical economists, it seems, want to throw grandma (and grandpa) under the bus.

First, they use the elderly as pawns in their attack on Keynesian economics.

Now, they want to blame the elderly for the budget deficit.

By now, it’s obvious that we need to rewrite the social contract that, over the past half-century, has transformed the federal government’s main task into transferring income from workers to retirees. In 1960, national defense was the government’s main job; it constituted 52 percent of federal outlays. In 2011 — even with two wars — it is 20 percent and falling. Meanwhile, Social Security, Medicare, Medicaid and other retiree programs constitute roughly half of non-interest federal spending.

These transfers have become so huge that, unless checked, they will sabotage America’s future. Read more…

Speechless: Follow-Up

July 29, 2011 6 comments

from Peter Radford

I think Krugman is making an important point. So let me put my own spin on it.

Our political system has spun out of control not because of the emergence of a virulent form of right wing extremism, but because there is no counter balance. There is no penalty for being an extremist. A Tea Party activist can say extraordinary things and not have to pay the price either in terms of derision, or in terms of counter attack. The fatal flaw is within the media and the way it maintains a false balance. Read more…

Productivity in Europe: two graphs

July 28, 2011 3 comments

from Merijn Knibbe

Introduction: instead of looking at an ill defined variable like Unit Labor Cost to investigate competitiveness, it’s better to look at a still quite vague (it excludes household production and social and environmental effects) but better defined variable like ‘productivity’. The transition economies are rapidly closing the EU productivity gap EU.  So do Italy, the UK and even Germany…. Since 2006, Spain increases its relative productivity – but this is to little avail as unemployment in Spain has reached 21%.

Leaders of the EU have negotiated a Greek debt deal. I’m not impressed, yet. Mark Rutte, prime minister of the Netherlands and Jan Kees de Jager, minister of finance of the Netherlands, told the press that the deal involved a total of 109 milliard Euro – while all other heads of state seem to have the idea that the amount involved is 159 milliard Euro…. somebody is fifty milliard wrong (yes, I write milliard). Update: guess who were wrong… all of them. According to a letter Read more…

GOP bad faith on the debt ceiling

from Kevin P. Gallagher

President Obama has the economic and moral high ground on the debt ceiling debate – but won’t take it. With an eye next year’s elections, the Republicans are putting Obama on the defensive by using the debate to paint Obama as a big spending Democrat.

Let’s get the facts straight on a few things: the Republicans are largely responsible for the debt problem because they spent too much and taxed too little during the Bush years; and austerity economics doesn’t bring economic growth.

Why don’t we hear that from the White House?  Read more…

Separate and increasingly unequal

from David Ruccio

The United States has never solved the problem of racial inequality. And, in the wake of the financial crash, the problem has only gotten worse.

In fact, according to a new study by the Pew Research Center, the racial wealth gap—between white and black and Hispanic households—in 2009 was the largest since the government began publishing such data a quarter century ago and roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession. Read more…

Pain with the USA Consumer Price Index

July 27, 2011 2 comments

from Dean Baker

There is a full-fledged drive in the United States to cut Social Security benefits by lowering the annual cost-of-living adjustment for people already receiving benefits. The plan involves changing the index for calculating the cost of living. The new index, which is known as the “chained consumer price index” (CCPI) typically shows a rate of inflation 0.3 percentage points less than the CPI currently used to adjust benefits. Read more…


July 26, 2011 13 comments

from Peter Radford

It is rare for me to find words hard to come by. Now, however, I have arrived at such a point. I am speechless. Almost. The debt crisis is now moved beyond absurd. It is no longer theater to be analyzed by our seemingly never ending stream of experts – experts whose accumulated knowledge is either vacuous or worthless since they all are actors on the stage they pretend to critique. It is open civil discord. It is a revolution in our way of life being forced on us by a few zealots whom no one can resist. Read more…

Thought fot the day: craftsmen do better (even as managers)

July 25, 2011 9 comments

from Merijn Knibbe

It takes a decade to train a craftsman. Or a craftswomen. Longer, in fact. In my country, it takes about fifteen years to master the manual art of surgery – and some more years as well as rigorous specialisation to become a top surgeon. Is this investment worthwhile?

Yes, it is. And not just because top surgeons make fewer mistakes. According to Amanda Goodall, physician led hospitals score a whopping 25% better on a quality index than manager led hospitals: Read more…

New Video Deconstructs CGE Trade Models

July 24, 2011 1 comment

from Jim Stanford

Every time the globalizers come along with a new NAFTA-style free trade agreement, they invoke the findings of yet another high-falutin’ computerized general equilibrium (CGE) model of the projected (and inevitably mutually positive) impacts of the deal.

We’ve seen this time and time again: a numerical simulation model (not based on econometric analysis, but constructed purely by attaching illustrative parameters to a Walrasian general equilibrium framework of simultaneous equations describing market-clearing in all markets) is solved, before and after some sypothesized trade policy liberalization, and the change in outcome is interpreted as the “predicted” impact of freer trade.  As we know, the positive outcome depends on sustained full employment, a lack of international capital mobility (and hence no change in aggregate trade balances), the sharing of gains (or compensation) within each participating country, a lack of cumulative causation in increasing returns industries, and a whole host of other assumptions that are necessary for the model to solve — but which have nothing to do with the real-world economy in which we live. Read more…

Does size matter?

July 22, 2011 1 comment

from Ali Kadri

This rather serious paper from the Helsinki Center of Economic Research makes a real mockery out of mainstream macro econometrics.   

Male Organ and Economic Growth: Does Size Matter?

This paper explores the link between economic development and penile length between 1960 and 1985. It estimates an augmented Solow model utilizing the Mankiw-Romer-Weil 121 country dataset. The size of male organ is found to have  Read more…

Two charts

July 22, 2011 1 comment

from David Ruccio

Below are two charts about two kinds of corporate profits in the US between 1991 and 2011. Read more…

A global minimum wage system

July 21, 2011 1 comment

from Thomas Palley

The global economy is suffering from severe shortage of demand. In developed economies that shortfall is explicit in high unemployment rates and large output gaps. In emerging market economies it is implicit in their reliance on export-led growth. In part this shortfall reflects the lingering disruptive effects of the financial crisis and Great Recession, but it also reflects globalization’s undermining of the income generation process. One mechanism that can help rebuild this process is a global minimum wage system. That does not mean imposing U.S. or European minimum wages in developing countries. It does mean establishing a global set of rules for setting country minimum wages.  Read more…

Debt deal: Is it a deal?

July 21, 2011 3 comments

from Peter Radford

Not really.

The re-emergence of the Simpson-Bowles commission on fiscal reform as the rallying point for debt reduction should be no surprise. Obama said he liked it when it was first released, but politics intruded and it seemed to have faded away. Then, as the lunatics ran amok inside the Congressional asylum – that vote on the Republican proposal to cap spending and to advocate a balanced budget amendment to the constitution was both farce and cynical tragedy – sensible people began to look for ways to build a consensus that hid everything controversial and punted the big decisions into the arms of future Congresses. Read more…

‘The Economist’ is wrong about Estonia. It is not doing so well…

July 20, 2011 3 comments

from Merijn Knibbe

According to Alan Greenspan (2007), deregulated labor and capital markets enhance the ability of an economy to prevent and overcome economic crises… He was more than a little wrong on the prevention thing. But was he right about the ability of deregulated economies to cope with the consequences of a crisis? Some of the countries which, led by tinkering social engineers of neo-liberal faith, embraced the low taxes/flexible markets doctrine most fully were the ‘BELL’s’ : Bulgaria, Estonia, Lithuania and Latvia. Even their cure for the crisis was neo-liberal: austerity in stead of devaluation. According to ‘The Economist’ of june 16-22, p. 30, this paid off and especially Estonia is doing quite well, at the moment. But is it? Read more…

President Obama’s big deal: Cuts for Social Security but no taxes for Wall Street

July 19, 2011 15 comments

from Dean Baker

The ability of Washington to turn everything on its head has no limits. We are in the midst of the worst economic downturn since the Great Depression. Even though the recession officially ended two years ago, there are still more than 25 million people who are unemployed, can only find part-time work, or who have given up looking for work altogether. This is an outrage and a tragedy. These people’s lives are being ruined due to the mismanagement of the economy.  Read more…

Smaghi, member of the board of the European Central Bank, gave a bad speech….

July 18, 2011 2 comments

from Merijn Knibbe

On 11 July Lorenzo Bini Smaghi, member of the executive board of the European Central Bank, gave a speech about the present state of the economy for ‘The Ruling companies association’ (I don’t make that up, M.K.) in Milan. He’s proud of it, as he put a link on the homepage of the ECB.

Should he be proud? No. Among other things, the ‘profit margins’ metric he uses implicates that profit margins increase when oil prices go up…. Generally, the mistakes he makes have three sources:  Read more…

No, Obama, we don’t need free trade agreements with Panama, Colombia, and Korea

July 18, 2011 1 comment

from Ian Fletcher

Obama is still pushing for free trade agreements with Panama, Colombia, and Korea, albeit with the thin fig leaf of demanding they be accompanied by money for so-called Trade Adjustment Assistance, a “painkiller” program designed to blunt the harm to laid-off workers.

The Republicans don’t like TAA, which has held up passage of these agreements momentarily, but both sides are still gunning to pass these agreements some time soon.

You think America has learned its lesson from NAFTA, which the Labor Department has estimated cost us 525,000 jobs? Think again.  Read more…

Controversial Economics

July 15, 2011 22 comments

from Peter Radford

A number of us have grown tired of shouting – in my case endlessly repeating myself – about current economic policy. I am sure we have worn out our welcome. We sound shrill. We sound partisan. We risk making ourselves irrelevant because our repetition doesn’t seem to add to the debate. Indeed we appear to be destructive and not constructive critics as our elite and leadership struggle to steady the leaking boat that is our economy.

I do not apologize.

Not one bit.

I do not apologize because this is not some arcane bureaucratic squabble being played out in board rooms or the conference rooms of big businesses. Nor is it the polite, but nonetheless cutting, discourse within academia. It is the denouement of a movement. It is the end game of a clash begun in the height of the Great Depression, which like a dormant virus, has sprung back in a more virulent and potentially dangerous form.  Read more…

Neoclassical economics and its discontents

July 14, 2011 8 comments

from David Ruccio

Economic austerity in the midst of an ongoing depression makes absolutely no sense. But that hasn’t stopped neoclassical economists, central bankers, presidents and prime ministers, and legislators in the United States and across Europe from trying to impose it.

However, there are some dissenting voices, from unexpected quarters.  Read more…