Wednesday, April 23, 2014

Atif Mian And Amir Sufi — Inequality in Well-Being

As we mentioned in our post yesterday, economists care much more about inequality in well-being rather than inequality in income or wealth. Data on well-being are more difficult to gather, but we discussed some evidence that inequality in consumption also increased from 1980 to 2010. Consumption directly affects the utility of an individual in most economic models. Income does not.... 
There has been a lot of attention on income and wealth inequality, and for good reason. But inequality in outcomes such as consumption and health are far more important. We’ve gathered some evidence here, but more is needed. The evidence so far suggests that inequality in well-being has tracked inequality in wealth and income closely.
House of Debt
Inequality in Well-Being
Atif Mian And Amir Sufi
(h/t Mark Thoma at Economist's View)

Yuriy Gorodnichenko — Ukraine’s path to oligarchy: Lessons for the U.S.?

The New York Times just posted a debate on whether there is oligarchy in the U.S. Because countries’ political systems tend to develop only gradually, it can be difficult to draw a hard line that identifies country X as a particular regime. There have, however, been some instances in which countries have turned into oligarchies quickly and these unusually rapid evolutions can teach us about the workings of the process as well as symptoms. Ukraine, my home country, is a showcase in this respect.
The Berkeley Blog
Ukraine’s path to oligarchy: Lessons for the U.S.?
Yuriy Gorodnichenko | Associate Professor of Economics
(h/t Mark Thoma at Economist's View)

Peter Radford — Moving On

We now live, whether we have grasped that fact or not, in a post-Piketty era....
Something has changed....
Post-Piketty we can now contemplate upheaval on the basis of fact rather than pure emotion or observation of the obvious.
When I helped Edward, Norbert, and Grazia form the World Economic Association it was because I imagined a moment like this would arise. There is now more momentum behind change, and we have the vehicle – one of many to be sure – to help facilitate that change. We have journals that could be dedicated to such things. We have conferences that could feature such things. And we have access to thousands of people who can advocate such things. We can, therefore, help establish an economic democracy.
First we need to communicate with our neighbors.
This starts at the bottom, because, as Gilens and Page point out, the top isn’t listening.
 The Radford Free Press
Moving On
Peter Radford

Peter Radford refers to Irving Fisher's address on inequality.

Mark Buchanan — Economic orthodoxy is going down … even if most economists don’t yet know it

DSGE on the way out. ABM the wave of the future.

Physics of Finance
Economic orthodoxy is going down … even if most economists don’t yet know it
Mark Buchanan

Thomas Palley — The accidental controversialist: deeper reflections on Thomas Piketty’s “Capital”

Tom Palley names it. This is nothing new based on what heterodox economists have been saying for some time. What is new is that a neoclassical economist is saying it in neoclassical terms — which is a strength in getting heard but a weakeness in terms of solutions, since solutions need to include institutional changes that neoclassical economists ignore.
... it is interesting to ask why Piketty has broken through where others have failed. In my view, one reason is political. Mishel, Galbraith, and Wolff are progressive left economists. Though their books are not theoretical or comprehensive policy treatments of the problem, their implicit theoretical logic emphasizes economic and political power....
The important point is mainstream economics has difficulty acknowledging work from such sources because to acknowledge is to legitimize. That creates the strange situation in economics whereby something is not thought or known until the right person says it. This pattern applies to income inequality, the macroeconomics of debt deflation, the economics of international capital controls, and Phillips curve inflation theory, to name a few instances.
These observations lead to a second concern which is, after the initial fuss dies down, Piketty’s book may end up being gattopardo economics that offers change without change. The public discourse on income and wealth inequality has been increasingly owned by progressive economists, both because of their early identification of the issue and the logical coherence and empirical consistency of their explanation. That has placed mainstream economics on the political defensive. Piketty provides a mainstream neoclassical explanation of worsening inequality in the first section of his book. That creates a gattopardo opportunity whereby inequality is folded back into mainstream economic theory which remains unchanged....
Thomas Palley
The accidental controversialist: deeper reflections on Thomas Piketty’s “Capital”

Liberty Street Economics — Introduction to the Floating-Rate Note Treasury Security

The U.S. Department of the Treasury (Treasury) auctioned its first floating-rate note (FRN) on January 29, 2014. With this auction, Treasury introduced the first new marketable debt instrument since Treasury inflation-protected securities (TIPS) in 1997. The new two-year FRN is a fixed-principal security with quarterly interest payments and interest rates indexed to the thirteen-week Treasury bill. In this post, we will discuss Treasury’s reasons for adopting an FRN as well as the existing FRN markets, expected FRN market participants, and results of the first FRN Treasury security auction.
Liberty Street Economics
Introduction to the Floating-Rate Note Treasury Security
Ezechiel Copic, Luis Gonzalez, Caitlin Gorback, Blake Gwinn, and Ernst Schaumburg, all of the Federal Reserve Bank of New York

Deborah Boucoyannis — Adam Smith is not the antidote to Thomas Piketty

 Where Smith emerges as more “radical,” ironically, is in his insistence that if we see high profits (a high r) it is sophistry, deception, and power that are to blame, not technology and trade increasing demand for capital. He may have said, faced with Piketty’s turn to taxation to fight inequality, that this treats the symptom, not the disease; that we should not be just treating inequality as pathological and inefficient, but high profits, too. As I argued also here, unless we start seeing high profits as a symptom of something wrong, any effort to limit them, either before or after taxes, will founder faced with the “insolent outrage of furious and disappointed monopolists.” And that is Smith talking, not Marx.

Lots of other good stuff on Adam Smith. He was as much concerned about rents, power and privilege with with market liberalization, since these are forces that tilt the playing field, reducing market efficiency, distorting capital formation and allocation, and introducing privilege that implies asymmetrical political power and market power.

The Washington Post
Adam Smith is not the antidote to Thomas Piketty
Deborah Boucoyannis | Assistant Professor of Politics, University of Virginia
(h/t Mark Thoma at Economist's View)

Marshall Auerback — The Financial Crisis Of 2008 Can Be Laid At The Door Of The Clinton Administration

The usual hagiography, particularly amongst Democrats, is that the US got seriously off track during the Bush (II) presidency after the golden years of prosperity under the Presidency of Bill Clinton. That myth has afflicted much policy making amongst the party today, notably within the Obama Administration, which hired a lot of the ex-Rubinites responsible for creating the mess.
And there’s a lot more evidence that has come out to support the view that Clinton’s crew truly was “the wrecking crew” when it came to dismantling many of the protections that had afforded much financial stability to the US for much of the post World War II era....
Macrobits by Marshall Auerback
The Financial Crisis Of 2008 Can Be Laid At The Door Of The Clinton Administration
Marshall Auerback

Randy Wray — MMT Does Do Policy

I’ve seen some pretty bizzarre claims about MMTers. They are “tea partiers”, “barely left of center”, who “are not interested in policy”, who “ignore inequality”, who “are only interested in reducing taxes”. “MMTers ignore the fraud of the banksters.” They are at best “one issue” advocates for a particular view on money, taxes, and employment. I have no idea where critics get this stuff. I’m convinced they make it up. Ignorance or dishonesty; probably both.
For anyone who wants to disabuse herself of such nonsense, please go to, click on scholars, click on my name, and find right in front of your face a few hundred pieces on policy that I wrote. Yes, inequality. Yes, the explosion of incarceration. Yes, the War on Poverty’s failure. And so on. Stephanie Kelton just reminded me of an interview I gave in December to Travis Strawn–who happens to be a former student. He was writing for the Seven Pillars Institute (full disclosure: I’m not sure what it is): The Failure of Orthodox Economics: An Interview with L. Randall Wray.
Judge for yourself if this is garden-variety “liberal”, let alone “tea party”.
Economonitor — Great Leap Forward
MMT Does Do Policy
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City

Randy Wray — Yes, Virginia, Taxes Do Drive Money: Confirmation from a Money Manager

I wonder why this is relatively easy for those who work in financial markets, but almost impossible for economists of any stripe to “get it”? Some might say that financial markets people are just smarter—but I doubt that explains it. A lot of economists are fairly bright. But they are not used to thinking about “money” as anything but what Friedman’s helicopters drop into an otherwise well-functioning economy, screwing things up and causing inflation. In any case, read this excerpt and judge for yourself. I think Jon Shayne has provided a pretty good summary of the “TDM” (taxes drive money) view. Note he cites Jamie Galbraith (no surprise) but also one of my favorite economists, Zvi Bodie who knows of our work but is outside the loop.
Economonitor — Great Leap Forward
Yes, Virginia, Taxes Do Drive Money: Confirmation from a Money Manager
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City

Currency = How Dynamic Nations Denominate All The Credit That Citizens Of Growing Populations & Economies Continuously Extend To One Another.

   (Commentary posted by Roger Erickson)

For decades & centuries, people have been repeatedly asking: "Is there any limit to how much currency a nation can create?"

The answer seems intuitively obvious. Why doesn't everyone know it? Maybe some don't WANT this answer to be widely accepted? Or are entire populations really this timid and lazy about considering such a simple yet fundamental topic?

Whatever teamwork can produce, then the cooperative credits which team members extend to one another already exist. 

The only question is how accurately to denominate and track those distributed credits, so that all team members can use their credits, when and as needed - to rapidly explore even more team options.

The goal is to expand future team options, NOT to hoard current fiat (aka, the distributed inter-citizen credits that drive & sum to aggregate growth).

Amazingly, those bastions of the modern G7, the policy bureaucracies of the USA, Canada, Europe & Australia, all seem to be ignoring that self-evident answer. Hence, they have to be constantly reminded - even today - by people like Bill Mitchell, Warren Mosler & Randy Wray.

'You will note that:  
[Nations] do not spend by “printing money”. They spend by creating deposits in the private banking system. Clearly, some currency is in circulation which is ‘printed’ but that is a separate process from the daily spending and taxing flows; 
There has been no mention of where the government gets the ‘credits’ and ‘debits’ from! Central banks create bank reserves (money) out of thin air; and 
Any coincident issuing of government debt (bonds) has nothing to do with ‘financing’ the government spending – a point that is explained further on in this chapter.'

Tuesday, April 22, 2014

The Whole World Runs A Capitalism & Macro-Economic "Barro" Experiment, And The Results Come Out Opposite To Theory

(Commentary posted by Roger Erickson)

This is just astounding. Was there ever another peep from Barro?
Bill Mitchell Unearths Yet More Options [not taken] for Europe
If this occurred in the field of physics - or any other science/engineering field - they'd IMMEDIATELY change the theory ... to fit experimental facts.

But not us!!! We just pretend it never happened, and try twice as hard to make the failed experiment-on-ourselves work "right" - right?

There are a number of astounding findings Bill Mitchell is dredging up about the Monetarist backlash against reality. I'll only mention one, for the sheer lack of imagination it shows.
“[Imaginary] multipliers and marginal propensities to consume ordinary goods and services would be relatively larger under [imaginary settings] than under quantitative easing/new bond financing of budget deficits.”
Wow! We’re trying to let ad hoc accounting rules dictate to unpredictable reality? What would Maxwell, Boltzmann, Einstein & Planck say? Or Alfred Nobel? Is there an Ignoble Prize in Economics?

What to do about the "banking reserves" which our fiat currency accounting methods throws off as a nominal side effect of any economic growth? How about some imagination? If we can run Carbon Credit Markets which trade Carbon Credits for reducing greenhouse gases, why not a Public Purpose Market that trades PublicPurpose Credits for draining nominal banking “reserves” as well?

If you listen carefully, you can actually hear the sound of reality re-entering the faint minds of double-entry accounting gnomes. Despite all odds, they haven't made an entry for net national growth on their ledgers, opposite the entry for net banking reserves.

Stay tuned for the next episode of the hit tragecomedy:
or One Class Flown Upside Down Over The Cuckoo's Fully Amortized Nest
Starring: Du Bell 'entry, as Big Purse

The moral? When capitalists come to a fork in the road .... they stick it to themselves? (With apologies to Robert Frost.)

Perhaps we need to consider some paths less taken?

Bloomberg: Wall Street Bond Dealers Whipsawed on Bearish Treasuries Bet

Via Bloomberg: 

"The surprising resilience of Treasuries has investors re-calibrating forecasts for higher borrowing costs as lackluster job growth and emerging-market turmoil push yields toward 2014 lows. That’s also made the business of trading bonds, once more predictable for dealers when the Fed was buying trillions of dollars of debt to spur the economy, less profitable as new rules limit the risks they can take with their own money."
Shouldn't be "surprising" unless you don't understand the operations. Didn't anyone learn from Japan?

"While they’ve ratcheted down their forecasts this year, they predict 10-year yields will increase to 3.36 percent by the end of December. That’s more than 0.6 percentage point higher than where yields are today."“My forecast is 4 percent,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank AG, a primary dealer. “It may seem like it’s really aggressive but it’s really not.” 
4%? Uh, ok good luck with that one. 

Seems like Matt Franko's prior analysis, that bond dealers hate the low rates and want to push for higher ones, is correct.  

"The biggest dealers are seeing their earnings suffer. In the first quarter, five of the six biggest Wall Street firms reported declines in fixed-income trading revenue.New York-based JPMorgan, the biggest U.S. bond underwriter, had a 21 percent decrease from its fixed-income trading business, more than estimates from Moshe Orenbuch, an analyst at Credit Suisse, and Matt Burnell of Wells Fargo & Co. Citigroup, whose bond-trading results marred the New York-based bank’s two prior quarterly earnings, reported a 18 percent decrease in revenue from that business. Credit Suisse, the second-largest Swiss bank, had a 25 percent drop as income from rates and emerging-markets businesses fell. "
Sadly the article makes no distinction between the nature of US government paper and corporate paper. Any further thoughts?

Why Isn't Aggregate Policy A Science?

   (Commentary posted by Roger Erickson)

A very useful review article has been posted at NEP, by Randy Wray, about JF Foster
The Reality of the Present and the Challenge of the Future: Fagg Foster for the 21st Century

Reading the Foster quotes drives home that enough Americans understood aggregate economics ... but never managed to convey their insights to enough Americans to consistently leverage those insights.

One in particular stands, out, a conclusion that is stated differently in system science. Namely, that most people get no practice discerning the difference between current fiat and future options. Foster clearly did, 50 years ago, rather like Beardsly Ruml, Michael Kalecki, Abba Lerner, Marriner Eccles, and a few others, on to the present flowering of the miniature MMT community.

So how many people must understand MMT, before it matters? How many Americans must know what some Americans know - to reinstitute operations allowing political economy?  

If we're lucky, even 50 Key People in Key Positions in Key Institutions can make a dramatic difference, as FDR's Brain Trust did. 

However they obviously couldn't ensure that our electorate could MAINTAIN that level of success. To RETAIN aggregate success, many have estimated that 10% of the electorate must grasp the emerging operations that made success possible.  Today that would mean at least 16 million citizens!

It's ironic that the legions of Keynes' followers & opponents alike largely misunderstood the messages of Lerner, Kalecki, Ruml & Keynes.

Worse, it's doubly ironic that the legions of Americans, in both policy positions, universities & electorate, didn't understand the operational functions that Marriner Eccles & the rest of FDR's Brain Trust introduced ... who themselves DID NOT READ Lerner, Kalecki, Ruml or Keynes, or acted largely before most of their summary articles were published.

Finally, it's triply ironic that pundits throughout the ages were right. Humans - and human aggregates too - often stumble over new truths, then pick themselves up and go on in their old ways - for astoundingly long periods of stagnation - as though nothing new had happened.

Yet does that seem to happen MORE often in disciplines not yet favored with the audacity and openness of a science? Other professions glom onto every new advance like a dog on a bone, using the basic, questioning methods of the "scientific method" - aka, to question EVERYTHING, and answer every operational RESULT relentlessly, with yet more questions.

This sums to a simple but profound question. Why isn't aggregate policy dealt with as a science? 

It's not that difficult for aggregates to determine the best course of aggregate action. We mobilize to do it well, in times of crisis or war, but during peacetime we go right back to purposely maintaining a significant, completely unnecessary Output Gap

Is it only the frictions of politics that makes us treat the operations of functional democracy (always changing, uniquely scale-dependent) as a fearful taboo? Is that what FDR meant when he said that the only thing we have to fear is fear itself? We're afraid to play as an aggregate team? We're terrified of the return-on-coordination? 

Maybe we should let sports coaches, choreographers and band-leaders run the country? They'd remind us that there's no "I" in team, and also nothing taboo about teamwork.

Monday, April 21, 2014

Sunday, April 20, 2014

Clive Crook — The Most Important Book Ever Is All Wrong

A rebuttal of Piketty from the right. First, there's a "measurement problem," and secondly, the empirical data doesn't support the normative conclusion, which is too narrow anyway.
Piketty's terror at rising inequality is an important data point for the reader. It has perhaps influenced his judgment and his tendentious reading of his own evidence. It could also explain why the book has been greeted with such erotic intensity: It meets the need for a work of deep research and scholarly respectability which affirms that inequality, as Cassidy remarked, is "a defining issue of our era."
Maybe. But nobody should think it's the only issue. For Piketty, it is.
Aside from its other flaws, "Capital in the 21st Century" invites readers to believe not just that inequality is important but that nothing else matters.
Then he concludes with an argument out of Mises:

Over the course of history, capital accumulation has yielded growth in living standards that people in earlier centuries could not have imagined, let alone predicted -- and it wasn't just the owners of capital who benefited. Future capital accumulation may or may not increase the capital share of output; it may or may not widen inequality. If it does, that's a bad thing, and governments should act. But even if it does, it won't matter as much as whether and how quickly wages and living standards rise.

That is, or ought to be, the defining issue of our era, and it's one on which "Capital in the 21st Century" has almost nothing to say.

The Most Important Book Ever Is All Wrong
Clive Crook

Peter Dorman — Piketty’s Unlikely Path

Here’s a guy who was a natural for cranking out theoretical models in economics. His career was jet-propelled, and at an age when most econ grad students are sweating out their prelims he was already on the tenure track at MIT. He could spend the rest of his life among the elite of the elite, playing cleverly with algebraic puzzles for a living. Instead, he quit, returned to France, and spent the next decade digging through archives, laboriously piecing together datasets on income and wealth distribution.
Piketty with everything to look forward to, essentially dropped out and pursued what he thought was actually important with no assurance of success. As Barkley Rosser points out in a comment, so did Karl Marx. Surely the influence of Marx exceeded his wildest dreams, even though he did not live to see it. Well, have to wait to find out what Piketty's influence on economics, politics and society will be.


David Graeber on a Basic Income Guarantee

David Graeber in favor of a basic income guarantee (BIG).

PBS Newshour
Why America’s favorite anarchist thinks most American workers are slaves
David Graeber

George Soros and Gregor Peter Schmitz — The Future of Europe: An Interview with George Soros

George Soros: If you mean that the euro is here to stay, you are right. That was confirmed by the German elections, where the subject was hardly discussed, and by the coalition negotiations, where it was relegated to Subcommittee 2A. Chancellor Angela Merkel is satisfied with the way she handled the crisis and so is the German public. They reelected her with an increased majority. She has always done the absolute minimum necessary to preserve the euro. This has earned her the allegiance of both the pro- Europeans and those who count on her to protect German national interests. That is no mean feat.
So the euro is here to stay, and the arrangements that evolved in response to the crisis have become established as the new order governing the eurozone. This confirms my worst fears. It’s the nightmare I’ve been talking about. I’m hopeful that the Russian invasion of Crimea may serve as a wake-up call. Germany is the only country in a position to change the prevailing order. No debtor country can challenge it; any that might try would be immediately punished by the financial markets and the European authorities.The 
New York Review of Books
The Future of Europe: An Interview with George Soros
George Soros and Gregor Peter Schmitz

RSA Animate - Drive: The surprising truth about what motivates us

RSA Animate - Drive: The surprising truth about what motivates us
(h/t Marc Chandler)

Barkley Rosser — More On Owning Unowned Land

Economics, law, and the origin of property rights.
Merrill cites John Locke on this who wrote, amazingly enough, that we should think of the world as originally "being America," that is a giant commons. For Locke it was mixing one's labor with the land that established ownership, a labor theory of ownership as it were. The matter of "accession" is posed as an alternative, but this simply involves a modification of this labor mixing principle, altering it to the first owner is the one who establishes effective control over the land. Once that is recognized, then a chain is established that simply continues, which is why we have this matter of the code holding when land first becomes clearly owned being the relevant one for later property transfers, particularly real estate ones.
Now in fact this does not really answer our question, although it does highlight important details to some extent, particularly when we consider Locke's view of "America." Why is it that the Indians did not "own" the land, or were not considered to be the owners by the British (and Spanish and French)? Needless to say, certain areas were used regularly by certain tribes, arguably enough that Locke should have granted them property rights, unless he wanted to argue that they could not due to being subhuman or something like that (am not aware of Locke ever making such arguments).
No, obviously what is involved is recognizing that behind property rights, certainly in land, there is assumed to be some sort of government or state with an organized legal code and system of courts to enforce it, even if it is one that has evolved "spontaneously" a la the common law of Britain, in contrast to the continental codes derived from Roman law, although the argument of Shleifer and his allies about the differences between these has been way overblown and often full of errors, the famous "Legal Origins" QJE paper by Glaeser and him being notorious for its myriad mistakes, even as it is one of the most heavily cited economics papers of all time.
So, private property comes into play when a government with a legal system recognizes that somebody has "mixed their labor" or otherwise assumed some recognized degree of control over some land with, very importantly, that person recognized as someone with legal rights to do so within the law code of the state involved, with that state itself ultimately having some degree of control or claim to control the land in question.
More On Owning Unowned Land
J. Barkley Rosser | Professor of Economics at James Madison University in Harrisonburg, Virginia

Suresh Naidu — Notes from Capital in the 21st Century Panel

While I have a long piece on Piketty's book coming out in Jacobin, I was lucky enough to be a discussant on a panel with Thomas last Thursday, where I got a chance to lay out some second-order reactions to the book as well as talk with him a bit. Here are my notes from that, tidied up a bit and including some things I didn’t get to say.
Perhaps a useful analogy is that this is the "Free to Choose" or “Capitalism and Freedom” for our time, from the left. I can’t think of a book that emerged from economics for a mass audience with as much reception since then. And what good news this is for economics! For 50 years Milton Friedman was the public face of partisan economics, and stamped it with a conservative public face that persisted. Maybe now Piketty’s book will give my discipline another public face.

But let me push back against the book a bit. I think there is a "domesticated" version of the argument that economists and people that love economists will take away. Then there is a less domesticated one, one that is more challenging to economics as it is currently done. I'm curious which one Thomas believes more. I worry that the impact of the book will be blunted because it becomes a “Bastard Piketty-ism” and allows macroeconomics to continue in its modelling conventions, which are particularly ill-suited to questions of inequality.
The domesticated version is a story about technology and the world market making capital and labor more and more substitutable over time, and this is why r does not fall very much as wealth accumulates. It is fundamentally a story about market forces, technology and trade making the demand for capital extremely elastic. We continue to understand r as the marginal contribution of capital to the production of the economy. I think this is story that is told to academic economists, and it is plausible, at least on the surface.

There is another story about this, one that goes back to Keynes. And the idea here is that the rate of return on capital is set much more by institutions, norms and expectations than by supply and demand of the capital market. Keynes writes that "But the most stable, and the least easily shifted, element in our contemporary economy has been hitherto, and may prove to be in future, the minimum rate of interest acceptable to the generality of wealth-owners." Keynes footnotes it with the 19th century saying that “John Bull can stand many things, but he cannot stand 2 percent.”

The book doesn't quite take a stand on whether it is brute market forces and a production function with a high elasticity of substitution or instead relatively rigid organization of firms and financial institutions that lies behind the stability of r.
I think the production approach is less plausible, partly because housing plays such a large role in the data, partly because average wages would have increased along with K/Y, partly because the required elasticity of substitution is too big for net quantities, and partly because of the differences between book and market capital. The (really great) sections from the book on corporate governance actually suggest something quite different, that there is a gap between cash-flow rights and control rights, and this is why Germany has lower market relative to book values. This political dimension of capital, the difference between the valuation written down in the balance sheet and the real power to dispose of the asset, is something that the institutional view of capital can capture better than the marginal product view. This is, I think, also a fruitful interpretation of what was at stake behind the old capital controversies....
Suresh puts his finger on the nub of it.
We live in a world where much more of everyday life occurs on markets, large swaths of extended family and government services have disintegrated, and we are procuring much more of everything on markets. And this is particularly bad in the US. From health care to schooling to philanthropy to politicians, we have put up everything for sale. Inequality in this world is potentially much more menacing than inequality in a less commodified world, simply because money buys so much more. This nasty complementarity of market society and income inequality maybe means that the social power of rich people is higher today than in the 1920s, and one response to increasing inequality of market income is to take more things off the market and allocate them by other means.
Along with this is the condition in which privatization, commodification, and capitalization of all resources threatens the very subsistence of marginal populations in developed regions in addition to emerging and still undeveloped, resulting in mass immiseration and social dysfunction characteristic of failed states.

The Slack Wire
Notes from Capital in the 21st Century Panel
Suresh Naidu

Chris Dillow — 12 alternative principles

An old speech by Tom Sargent has had some praise andsome criticism. But what would a more heterodox list of 12 economic principles look like? Here's my effort, observing Sargent's constraints of concision and relevance for young people starting out in life:
Stumbling and Mumbling
12 alternative principlesChris Dillow | Investors Chronicle

See also Lars Syll, Self-righteous Chicago drivel — far from everything you need to know about economics, for more on Sargent's speech.

Jeffrey Madrick — An Indictment of the Invisible Hand (via Moyers & Company)

An Indictment of the Invisible Hand (via Moyers & Company)
Thomas Piketty’s 700-page book, Capital in the Twenty-First Century, has stunned both the economic profession and most political observers. But the economic mainstream is not truly dealing with its most serious implications even as they widely praise…

Seems We Can't Blindly Trust Either Political Party - Bill Clinton Was As Bought As They Come (Bush & Obama ... & us too?)

   (Commentary posted by Roger Erickson)

Maybe even more bought than Dubya? And what does that portend about who
REALLY owns Obama?

What'd Mark Twain supposedly say? "It is easier to fool people than to convince them that they have been fooled."

Picking up an theme once discussed in comments at Warren Mosler's blog, do we have a simple class war between two industry segments?
DNP - bought by the banking (& entire F.I.R.E.) industry? 
GOP - bought by the oil & F500 & MICC & general mfg industry?
While the MiddleClass is kept divided & conquered, bickering over which serf-master to capitulate to? Worse, are these two lobbies now colluding, to permanently own the US Middle Class?

Can we at least get a 3rd party (software industry? Labor/MiddleClass?) or no parties at all? Instead, just distributed democracy, like during George Washington's 2 original terms?

Seems we can't blindly trust either political party, and need to set our sights on trusting our distributed electorate ... and what's left of our democracy.

If this concept resonates with you, then read on. The following is posted, with permission from Chuck Spinney. It may appear later on his personal blog.


---------- Forwarded message ----------
From: Chuck Spinney

Attached herewith is an important report in the Guardian. It places the deregulation of Wall Street during the Clinton Administration into a particularly smarmy perspective by examining documents just released by the Clinton library. Note the connections to players now in the Obama Administration.

This report paints a revealing albeit depressingly familiar portrait of how the iron triangle of individuals and money moving between government executive positions, and private sector, together with friendly legislators in Congress encourages corruption that leads ultimately to taxpayer bailouts. Consider please the following:
1. Note how the memos make it look like President Clinton was being rushed, implying a certain degree of passivity and manipulation by advisors. But before taking this at face value, bear in mind, Clinton was never a passive actor; quite the opposite, he was a highly energetic president. He set the tone, and he picked these advisors; he stayed with them; and he passed many of them on to President Obama.

2. Note that the repeal of Glass Steagall -- Clinton’s signature deregulation of the financial markets and perhaps the major contributor to the rise of speculation that culminated in 2008 crash -- was not a last minute affair. In fact, the memos show effort to repeal reaches bat to at least in February 1995 and May 1997 and the reference to eating the paper after you read it suggests a degree of malevolent cynicism.

3. Note the tight connection between the repeal Glass-Steagall and the pending Citigroup merger with Travelers Group, and particularly, the central the role played by Secretary of the Treasury Robert Rubin in the promotion of the of that repeal. Rubin was Secretary of the Treasury from 11 January 1995 to 2 July 1999 -- the period covered by the memos contained in the Guardian report.

4. Finally, the reader should note that four months after leaving the Treasury Department, in Oct 1999, Rubin joined Citigroup. Here is a contemporary portrait painted by a 27 October 1999 report in the New York Times,

“Mr. Rubin, 61, a former top official of Goldman, Sachs & Company, said yesterday that he had joined Sanford I. Weill and John S. Reed, the chairmen and chief executives Citigroup, in what Mr. Reed described as a ''three-person office of the chairman'' that will oversee what has become the first true American financial conglomerate since the Depression.
The appointment came less than a week after the Clinton Administration and Congress agreed on a compromise bill that would overhaul the laws that regulate the financial industry, a measure that removes many of the restrictions preventing banks, securities firms and insurance companies from buying one another or engaging in one another's businesses. Both Mr. Rubin and Citigroup strongly supported the bill, which would greatly benefit the company. Mr. Rubin said he played a role in arranging the final compromise that will probably lead to the repeal of the so-called Glass-Steagall legislation. But he said that had nothing to do with his decision to join the company.”

By 2007 Rubin was Chairman of Citigroup. And in 2008, nine years after the repeal of Glass Steagall, the worst financial crisis since the Great Depression hit Wall Street to trigger the worst and longest recession since the Great Depression. That crisis, among other things, collapsed the stock markets, destroyed retirement nest eggs, wrecked the housing markets, and put millions of people out of work — and our nation has still not recovered. Then the “best government money can buy” added insult to injury by bailing out of the banks that created the mess, while ducking the issue of re-regulating their behaviour with anything close to proven power of defunct Glass-Steagall Act. Some observers are now warning the government’s failure to reign in speculative behaviour is setting the stage for yet another crash (e.g., here and here)

And what about Rubin’s role? According to information in Wikipedia, on 3 December 2008, shortly after the financial collapse, the Wall Street Journal characterized Rubin’s mix of oversight and management responsibilities at Citigroup "murky." In an interview with the Journal, Rubin defended himself, saying: "I think I've been a very constructive part of the Citigroup environment." But, the Journal reported that Citigroup shareholders suffered losses of more than 70 percent since Rubin joined the firm and that he encouraged changes that led the firm to the brink of collapse.[23] Investors filed a lawsuit in December contending that Citigroup executives, including Rubin, sold shares at inflated prices while concealing the firm’s risks. A Citigroup spokesman said the lawsuit was without merit.[24].

But what happened to Rubin personally? According to a 20 September 2012 report in Bloomberg, Rubin received a total compensation of $126,000,000 from Citigroup between 1999 and 2009. Among other things, the former eagle scout is now co-chairman of the prestigious Council on Foreign Relations.

Chuck Sp
inney   The Blaster


Previously restricted papers reveal attempts to rush president to support act, later blamed for deepening banking crisis

Saturday, April 19, 2014

Emily Eakin — Capital Man

The Economist declared that Piketty’s book may "revolutionize the way people think about the economic history of the past two centuries" and started an online reading group to discuss it chapter by chapter. The British magazine Prospect added Piketty to its annual list of the most influential world thinkers, and his book was said to be making the rounds in the office of Ed Milliband, the British Labour Party leader. Documentary filmmakers were vying for the chance to turn the book into a movie; a composer was seeking Piketty’s blessing to make it an opera.
Now the 42-year-old Frenchman had come, like a wonkish heir to de Tocqueville, to tell Americans how to salvage what he called their "egalitarian pioneer ideal" from a potentially devastating "drift toward oligarchy." His anointment was all the more remarkable in that he intended his book not just as a novel argument about inequality but as a pointed rebuke to his field—in particular its American wing.
On Monday, Piketty’s stops included the White House Council of Economic Advisers, the Government Accountability Office, and the office of the Treasury secretary, Jacob Lew, who summoned him for a private sit-down to discuss his proposal for a progressive tax on wealth. On Tuesday, he appeared in the company of Nobelists: George Akerlof, who, introducing Piketty to a group at the International Monetary Fund, declared that he had "entered rock stardom—economist-style"; and Robert Solow, who, at the Economic Policy Institute, where a crowd of several hundred had braved a freezing downpour to hear Piketty talk, praised the originality of his argument and the "sheer collection, presentation, and analysis" of his data, predicting that "we’re going to be digesting that for a long time."
The Chronicle of Higher Education
Capital Man
Emily Eakin
(h/t Brad DeLong)

Tim Fernholz — Ten questions for Thomas Piketty, the economist who exposed capitalism’s fatal flaw

Tim Fernholz interviews Thomas Piketty.

Ten questions for Thomas Piketty, the economist who exposed capitalism’s fatal flaw
Tim Fernholz

Scott Kaufman — Oklahoma students know less about evolution after Biology I than they did before taking it (via Raw Story )

Oklahoma students know less about evolution after Biology I than they did before taking it (via Raw Story )
A study published in the latest edition of Evolution: Education and Outreach demonstrated “the average student…completed the Biology I course with increased confidence in their biological evolution knowledge yet with a greater number of biological…

Dan McMillan — Charles Darwin’s tragic error: Hitler, evolution, racism and the Holocaust

Darwin gets the rap for a specious theory similar to his propounded by Herbert Spencer, who has been largely forgotten today but in his time his writings were as famous as Darwin and Spencer made his living from book sales. "Social Darwinism" is actually Herbert Spencer's creation, through the influence of Malthus, Galton, and Lamarck as much as Darwin, although the term was not applied to Spencer until much later. Spencer published his evolutionary theory three years prior to the publication of Darwin's The Origin of the Species.
... propagandists who are opposed to evolution often try to blame Darwin for the policies later known as social Darwinism. However, these views were primarily associated with the English sociologist Herbert Spencer. In his 1851 bestseller Social Statics, Spencer developed most of the ideas attributed to social Darwinism when he argued that the poor should not be helped through government programs, but should be allowed to die for the betterment of society: — Deconstructing Social Darwinism (for an alternative view see Damon Root, The Unfortunate Case of Herbert Spencer: How a libertarian individualist was recast as a social Darwinist)
It was Spencer for example that connected evolution with social progress, not Darwin, and his notion is different from Darwin's natural selection. Moreover, the idea that evolution toward progress is driven by "survival of the fittest" is Spencer's, and Spencer coined that phrase, not Darwin. Spencer's use of the notion is a misstatement of Darwin's theory of natural selection. Darwin did use "survival of the fittest" in the fifth edition of On the Origin of Species after it had become well-known after Spencer, but he gives a different meaning there from Spencer's usage with respect to social progress. 

Darwin did not connect his theory of natural selection with social progress. That idea was Herbert Spencer's.

But the claim that Spencer's notion of evolution and social progress bastardized Darwin's theory of natural selection and that Spencer was the progenitor of "social Darwinism" does't fully capture the story either, since there is much more to the history. See Deconstructing Social Darwinism, parts 1-4.

It's important to understand this since what developed into "social Darwinism" from the POV of the left lies at the foundation of much social, political and economic thinking on the right, as well as underlying neoliberalism as a social and political ideology. Moreover, Libertarians claim Spencer as a forerunner and early Libertarian:  "Murray Rothbard, on the other hand, praised Social Statics as 'the greatest single work of libertarian political philosophy ever written'.” — Matt Zwolinski, A Bleeding Heart History of Libertarian Thought – Herbert Spencer.

Lionized on the right, and demonized on the left. Given the shift of the universe of discourse to inequality, we are probably going to be hearing a lot about this, at least implicit in the discussion if not explicitly.

Jared Bernstein — Dude, Where’s Your Piketty Review??!!

I’m way late in weighing in on Thomas Piketty’s great book “Capital in the 21st Century,” (note the lack of subtitle–I like that–gives the title that much more weight!). That’s because I’m reading it really slowly but I’m almost done.
Why so slow? In part, because I’m savoring it–it’s a wonderful read, with trenchant insights every few pages, and there are lots of pages. Also, the damn thing is dense, and often after reading a few pages I realize I haven’t absorbed the last few paragraphs, so I need to take a break. Probably my own absorptive capacity ain’t what it used to be.
And, of course, there’s been no shortage of insightful economists weighing in. Anyway, a very few insights off of top of head, with the caveat that I’m still processing all of this:... 
Jared Bernstein | On the Economy
Dude, Where’s Your Piketty Review??!!
Jared Bernstein

The book out how long? And people are already feeling they have to apologize for being late to review it. Wow. This is one hot item for a dense tome on economics and economic history.

Best line: "As [Piketty] says in the NYT today: “…capitalism and markets should be the slave of democracy and not the opposite.”

Noteworthy: "This cosmology observation is far from a critique–it’s what Krugman means when he says the book will change the way we think about the economy. I certainly hope Paul’s right about that. It’s been interesting to see the lack of response from the right, though I’m sure it’s coming."

This could actually be the Copernican Revolution in economics rather than the Newtonian as Bernstein suggests. Previously, economic both Keyensian and Neoclassical have focused on the business cycle. Piketty shifts that focus to the centrality of systems comprised of people and institutional arrangements that generate social and political results as well as economic ones.

The issue is not so much inequality, which is a symptom. The issue is the asymmetrical power that great wealth bestows and how that power adds to great wealth unless it is distributed politically through functioning democracy.

Of course, this is not unique to capitalism but rather it is the history of surplus societies where deciding who gets what share of the surplus is the overriding concern socially, politically and economically. This has almost invariably resulted in highly asymmetrical social status, political power, and economic wealth in terms of class structure and institutional arrangements.

Why do I think this is likely to be a Copernican Revolution in economics?
Just a note re his fame (see NYT link above re that). So I get a typical call from a reporter the other day, asking me what I thought about some developments around poverty policy. He then asks, “And how do you think Thomas Piketty would answer these questions?” And, having intellectually “lived with” TP for a few weeks now, I actually think I gave a pretty good answer!
Not Keynes, not Hayek, not Friedman, not ..., but Piketty. The universe of discourse is changing not only in econ but also in the media.

On the other hand...
It’s been interesting to see the lack of response from the right, though I’m sure it’s coming.
I expect that a withering attack is in preparation and they are now putting together the talking points, probably in consultation with Frank Luntz.