Archive for July, 2012

Lies, damned lies, and the right-wing use of income statistics

from David Ruccio


The right-wing wants desperately to show—against all the evidence—that the rich are being taxed to death and that income inequality has dramatically decreased.  Read more…

Germany is scared to throw Greece out of the Euro

July 31, 2012 1 comment

from Dean Baker

It has been a bit over four months since the latest bailout of Greece was negotiated. This bailout featured a write-down of most privately held debt in exchange for further austerity measures.

It is already clear that Greece will not meet its deficit targets from this bailout, the main reason being that cuts to the budget have led to a much steeper recession than official forecasters had predicted. The Greek government now expects the economy to shrink 7.0 percent over the course of the year. That compares with the decline of 4.7 percent that the IMF projected for Greece back in April.

This was hardly the first-time that the IMF and other official forecasters had badly under-estimated the severity of Greece’s downturn. In April of 2011, the IMF had predicted that Greece’s economy would grow 1.1 percent in 2012, after shrinking just 3.0 percent in 2011. In fact, Greece’s economy shrank by almost 7.0 percent in 2011. And, in April of 2010 the IMF was projecting that Greece’s economy would be on a slow and steady growth path in 2012 after shrinking by just 1.1 percent the prior year. Read more…

Unemployment in the European Union, January 1992 – June 2012 (2 graphs)

July 31, 2012 1 comment

from Merijn Knibbe
Eurostat has published the June data on unemployment. The percentage has not changed but the number of unemployed has increased with 123.000 (Eurozone) and 4.000 (non Eurozone). The May data have been revised with +0,1% because of a sizeable upward revision of the Italian figures (the second in a relatively short time).

Differences between north and south are still increasing (graph 1), though differences between the northern countries are also starting to show (i.e: differences between Germany and the rest). Countries like Austria and the Netherlands, wich until recently did quite well, are at this moment also experiencing unemployment increases, contrary to Germany. Unemployment in Denmark, a country which before the crisis had a government surplus of 5% of GDP and is famous for it’s supposedly highly efficient ‘flexicurity’ labor market, is bound to break a new unemployment record quite soon as the economy is suffering from the combined effects of a very high exchange rate, falling house prices and of course the present economic set-back.  Read more…

Family: Family Time Index – 22th out of 27

Expiration of Bush tax cuts for the 1 percent are a step forward, but not enough

July 30, 2012 2 comments

from Mark Weisbrot

President Obama is currently confronting mostly Republican opponents over whether to extend the Bush tax cuts to the richest 1 percent of taxpayers. Between 1979 and 2007, the richest 1 percent received three-fifths of all the income gains in the country. Most of this went to the richest 10th of that 1 percent, people with an average income of $5.6 million (including capital gains).

So this is a no-brainer in terms of fairness: Allowing the Bush tax cuts to expire for the richest 1 percent of Americans would reverse some of the vast upward redistribution of income that has taken place since the late 1970s. However a couple of caveats are in order. Read more…

It’s the wages stupid

July 30, 2012 2 comments

from Peter Radford

Such is the breadth and depth of the Romneyfication of our economy that otherwise sensible people make silly faux pas or repeat false thinking without a hint of knowledge of their error.

Take Sebastian Mallaby for instance. I was pleased with his two recent articles on banking. He offered us all a strident argument for the break up of the biggest. His logic was impeccable. His conclusions irrefutable. Of course this glowing reference of mine might be due to my prior identical argument. So, he rose in my estimation. Only to trip up.

In his article in yesterday’s Financial Times he goes to great lengths to criticize the Fed’s rather anemic approach at present. Despite the manifest failure of its previous efforts to bring down unemployment, and despite the recent gathering of darker clouds portending a weakening of the economy, the Fed is stuck in a dithering pattern. This is largely because there are one or two strict advocates of depression austerity on the board who manage manfully to scupper progress most of the time. I think, also, that Ben Bernanke, being a stout Republican, is loath to do too much to help Obama.  Read more…

Family: Child Poverty Rate – 25th out of 26

Housing bubbles are not funny

July 29, 2012 12 comments

from Dean Baker

The United States has more than 20 million people unemployed, underemployed or out of the workforce altogether because of a burst housing bubble. We also have more than 10 million homeowners who are underwater in their mortgages. And, we have tens of millions of people approaching retirement who have seen most of their life’s savings disappear when plunging house prices eliminated most or all of the equity in their home.

This situation could have been prevented if the government had taken steps to stem the growth of the housing bubble before it reached such dangerous levels. It is incredible that the Bush administration’s economics team failed to see the dangers of the bubble. It is even more remarkable that Alan Greenspan, Ben Bernanke and the Fed ignored the growth of the housing bubble. But even more astounding is the fact that no one in a position of authority has learned any lessons from this disaster.

At the moment, there are housing bubbles in the United Kingdom, Canada, and Australia that are arguably larger, relative to the size of their economies, than the one that collapsed and wrecked the U.S. economy. The basis for saying that house prices in these countries are in a bubble is that there has been a sharp increase in the sale prices of homes that has not been matched by a remotely corresponding increase in rents. Read more…

United States of financial insecurity

July 29, 2012 3 comments

from David Ruccio

The United States is becoming a nation of increasing financial insecurity.

According to a new survey by the Consumer Federation of America (pdf), more Americans find themselves living paycheck to paycheck, forced to reevaluate their expectations for retirement, and falling further behind in terms of their retirement savings. Read more…

What did Mario Draghi mean?

July 27, 2012 1 comment

Update: graph replaced by new, longer term as well as more recent graph included

from Merijn Knibbe
At this moment there is a lot of ado about this speech of Mario Draghi. The crucial passage is this one:

Then there’s another dimension to this that has to do with the premia that are being charged on sovereign states borrowings. These premia have to do, as I said, with default, with liquidity, but they also have to do more and more with convertibility, with the risk of convertibility. Now to the extent that these premia do not have to do with factors inherent to my counterparty – they come into our mandate. They come within our remit. To the extent that the size of these sovereign premia hampers the functioning of the monetary policy transmission channel, they come within our mandate.

This sentences mean that, in a situation of capital flight (as is the case in ‘club Med’ and Ireland), very high interest rates of government bonds (as is the case in ‘club Med’ and Ireland) and problems with ‘rolling over’ the debt because the government bonds are rapidly loosing value as collateral (which is the case in ‘club Med’ and Ireland), problems which cause the average interest rate on government bonds in the Eurozone to escape the ‘transmission channel (see the blue line in the reposted graph from Erwin Mahe)’, the ECB will buy bonds. Read more…

On the Grass with Genevieve Tran

July 27, 2012 2 comments

from Steve Keen

As noted in an earlier blog post (A Galilean Gesture: Eating with Dr. Steve Keen), one of the attendees at the talk Jim Stanford and the Canadian Centre for Policy Alternatives organized for me in Toronto was the blogger Genevieve Tran, whose cause is improving financial literacy. She persuaded me to take one day off from the Fields Institute while to visit Toronto’s Centre Island–a combined park and nature reserve just a kilometre or so offshore. As we wandered among the ducks and geese (but completely failed to connect with the peacocks), she grilled me about strange species of which I am undeniably one–the Tyranosaurus Economist. Here’s her take on the conversation (you can read more of Genevieve’s take on money, the universe, and everything at her blog Money Big and Small).

Rock Star Economists: Read more…

Sandy Weill said what?

July 27, 2012 4 comments

from Peter Radford

I must be getting old. Too old to understand English anymore. Sandy Weill, architect of Citibank’s ill advised growth, and long time advocate of the form of universal banking that brought about the crash, has just pronounced on the state of banking.

And called for the break up of the big banks.

Pinch me please.

Or at least roll the drums.

This is an astonishing volte face for someone who championed the elimination of Glass Steagall. More than that. He engineered a merger between Citi and an investment bank that was illegal at the time, so he had to get the law changed in order to complete the deal. He was that involved in shaping the modern banking scene. He was one of the fiercest opponents of regulation. He was outspoken, hard charging, and the very essence of the kind of banker who now dominates the industry. The mega banks were, in large part, his creation.  Read more…

Where has all the surplus gone?

July 26, 2012 3 comments

from David Ruccio

Where has all the surplus gone?  Read more…

The Euro as the SDR of Europe?

July 26, 2012 13 comments

from Steve Keen

The Euro is the national currency of a country that does not exist. Though there is a continent of Europe, as there is of America, there has never been a country of the United States of Europe, and there probably never will be.

The Euro is therefore not a currency as is the American dollar, and yet it is forced to masquerade as one—badly—by the Maastricht Treaty, in which the countries of Europe abandoned the right to produce their own genuine national currencies.

With the volume of the Euro being controlled by a supra-national authority (the ECB), and member states punished for breaching rules on government spending (the 3% maximum deficit and 60% accumulated deficit rules), the Euro is closer in function not to a currency, but to Special Drawing Rights as they were conceived of by Keynes at Bretton Woods. In his plan for a post-WWII international monetary system, Keynes proposed that common supranational currency be used for international trade (the “Bancor“), while domestic currencies should used for internal trade. The exchange rates between national currencies and the Bancor were to be fixed, with persistent trade deficit countries being forced to impose austerity and devalue, while persistent surplus countries were taxed Bancors, and required to stimulate their economies to increase imports. Read more…

Take Our Money, Please!

July 26, 2012 3 comments

from Peter Radford

Amidst all the gloom and doom in Europe it may have escaped your attention that the US can now borrow money at less than zero percent. Adjusted for inflation. Yes, that’s right. People are paying the US to take their cash off their hands. This is an extraordinary moment. The US, which has an old infrastructure, rotten trains, potholed roads, dilapidated schools, overused subways, and bridges in constant danger of falling down, can now borrow as much as it likes, free of charge, to rebuild all those things. The opportunity is enormous. We have the chance to fix everything and leave future generations with the world’s best infrastructure. It will give them a leg up on the competition. It will ensure future prosperity. It will create all sorts of business opportunities. It will boost profits. It will provide a massive injection of job creation. It will, in short, be a sure thing. Read more…

Decline of the USA – OECD quality of life rankings – indicator 10 of 56 – Family: Public spending on family benefits

Raising the minimum wage is cheap and easy

July 25, 2012 3 comments

from Dean Baker

There are some policies that are pretty much no-brainers. We all agree that the Food and Drug Administration should keep dangerous drugs off the market. We all agree that the government should provide police and fire protection. And, we pretty much all agree that workers should be able to count on at least some minimal pay for a day’s work.

The minimum wage is non-controversial. The vast majority of people across the political spectrum support the minimum wage. In fact, one of the big accomplishments of the Gingrich Congress in 1996 was a 22 percent increase in the minimum wage. The only real issue is how high it should be. There are good reasons for believing that the minimum wage should be considerably higher than it is today. Read more…

Decline of the USA – OECD quality of life rankings – indicator 10 of 56 – Family: Paid maternity leave entitlement as a percentage of annual wage


July 24, 2012 8 comments

from David Ruccio

Once you’ve stated the obvious point that the financial sector “has grown to an unprecedented share of the economy,” how do you make sense of that growth?

Well, if you’re Paul Krugman, you send us to Thomas Philippon’s unpublished essay, “Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation” (pdf) [ht: br]. And that’s when the fun—or the horror—begins.  Read more…

The Crisis in 1000 words—or less

July 24, 2012 8 comments

from Steve Keen

URPE–The Union for Radical Political Economics–is holding a Summer School for the Occupy movement, and as part of that invited papers that explained the crisis in 1000 words or less (so that they can be printed on one double-sided sheet). Here’s my effort in somewhat less than 1,000 words (though with 2 figures). In the interests of URPE’s objective in this exercise, here’s the PDF of this blog post for general download.  

Both the crisis and the apparent boom before it were caused by the change in private debt. Rising aggregate private debt adds to demand, and falling debt subtracts from it. This point is vehemently denied on conventional theoretical grounds by economists like Paul Krugman, but it is obvious in the empirical data. The crisis itself began in 2008, precisely when the growth of private debt plunged from its peak of almost 30% of GDP p.a. down to its depth of minus 20% in 2010. The recovery, such as it was, began when the rate of decline of debt slowed. Across recession, boom and bust between 1990 and 2012, the correlation between the annual change in private debt and the unemployment rate was -0.92.  Read more…