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A Funny Thing Happened At The G20

by Montereyan Sun Jun 6th, 2010 at 06:02:19 AM EST

afew mentioned this story in the Salon but I felt it deserved much richer discussion, including conversations I've been having with various US bloggers on Saturday. The subject is the G20 statement that fiscal stimulus is out, and austerity is in. As reported by the FT:

Finance ministers from the world's leading economies ripped up their support for fiscal stimulus on Saturday, recognising that financial market concerns over sovereign debt had forced a much greater focus on deficit reduction.

In itself this is a rather important, if totally unsurprising, shift. Hooverism has gone global, and if our experience with it here in California these last three years is any indication, it's going to mean prolonged recession for everyone.

Of course, we all knew that from the first time Hooverism was tried, so the question of the hour is, why is it being embraced globally?

promoted by afew


Before we get to that all-important question, there's more to the G20 meeting - namely, the rather interesting tale of the one nation that apparently resisted the turn to Hooverism:

But there were concerns around the G20 that the rush to reduce budget deficits, necessary though officials now thought it was, would undermine the recovery in the near term.

In a letter to the rest of the G20, Tim Geithner, US Treasury secretary, argued: "Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery".

Ministers from many countries stressed the need for structural reforms to boost the potential for private sector growth

In private, G20 officials said that the US had been the country most concerned about the new austerity drive and feared for the momentum for global growth. In the meetings it had been frank in the meeting in calling for China to revalue the renminbi and for Germany to boost domestic demand, officials said.

Mr Geithner, himself, was open about his fears in his letter to the G20. "Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery," he wrote, adding that fiscal tightening won't "succeed unless we are able to strengthen confidence in the global recovery."

To an American reader familiar with Geithner and the White House's approach to the deficit, this may sound like something of a surprise. Geithner refused to backstop California debt in 2009, and the White House has embraced its own Hooverism with the federal budget and the "Cat food" commission, named for its desire to slash Social Security and Medicare benefits and thereby reduce the retired to eating cat food.

Further, the White House didn't put up a fight when Austerity Democrats gutted stimulative funding in the jobs bill last week, despite efforts by Prosperity Democrats to push through health care subsidies and funding to save teacher jobs.

So to read that Geithner was arguing for stimulus and against austerity in the name of worrying about deficits was unexpected. What gives? Is he trying to have Germany and China stimulate growth in order to alleviate the deflationary and depressionary impact of austerity here in the US? Or do we who oppose austerity have an unexpected ally in our global fight against Hooverism?

One of the first people to take up my questions was Digby, the pseudonymous blogger at Hullabaloo. She's been focusing on these issues lately, including a damning recent post about stigmatizing the unemployed. I'm the unnamed correspondent in this fine post about "Global Neo-Hooverism":

My correspondent wondered why there was an international move to neo-Hooverism considering the differences in cultures between the various European countries and the US. I replied with a somewhat glib and facile response about disaster capitalism and Pete Peterson, and he pressed for a reason why the rest of the world is on the same bandwagon, especially considering their more generous history with the welfare state. (He also mentioned that Tim Geithner was surprisingly Keynesian at the G20.)

Digby's take on Geithner is this:

As for Geithner at the G20, I'm guessing that at a minimum, they may see the efficacy of maintaining some flexibility. Their magical thinking hasn't gotten them to where they hoped it would ---the market hasn't "fixed itself" at least on terms that are politically sustainable --- and so perhaps they are seeing this as a long term challenge instead of a short term cyclical crisis. I don't know. But aside from the inadequate stimulus, everything they have said up to now is in service of the hoary old Hooverite ideas about belt tightening and sacrifice even down to giddily announcing they are going to reform social security the "right way." The re-institution of Paygo, the deficit commission, the constant lip service to austerity has led to a validation of the erroneous idea that deficits are causing our economic problems and that government needs to hold back spending to fix them --- when the opposite is true.

Again, this sounds right to me, although Geithner's statements at the G20 were apparently rather strong about the risks of austerity and the need for stimulus and growth. I'm still inclined to believe that Geithner and the White House would like other countries to do the stimulus so they can score political points with the Village by slashing the US deficit. And let's not forget that the Obama Administration has a nasty habit of saying some good, progressive-ish things and then doing something deeply neoliberal.

But that doesn't address the deeper question: why are we seeing this mass global outbreak of Hooverism? What explains its newfound popularity as a policy tool?

Digby again:

After thinking about it for a bit, I'm not sure the same phenomenon we see here isn't happening internationally. It's an article of faith among financial elites across the planet that the welfare state is an abomination and this is a global opportunity to end it. Each culture will deal with it slightly differently --- riots in Greece, marches in France, blog posts in America. But in the end, the result, short of revolution, will be similar everywhere --- the post-war welfare state will be weakened or destroyed. The left is barely relevant anywhere anymore and they simply do not fear any kind of serious populist uprising. I'm not suggesting conspiracy. I think it's more of a natural result of ideological capture.

Digby's argument, which I think is sound, is that we're essentially seeing the product of 20+ years of an effort to weave together an elite global economic philosophy that is inherently neoliberal in character that has, in her phrase, "ideologically captured" both governments and media discourse. The welfare state is seen as a drag on economic productivity, financial markets and creditors are seen as the most important economic actors in an economy, combining to convince many elites that deficits to fund a safety net are bad and should be eliminated. The Washington Consensus on steroids.

Having lurked and occasionally commented here at the European Tribune for many years, this not only sounds right, but it's neither new nor surprising. Yet the thoroughness with which Hooverism has become the dominant policy choice among the G20 - now to the exclusion of stimulus - has me wondering if there's more to the story than the admittedly important, if not central, role of elites.

Digby gets at it:

I think it's easy to over think this. The world economy is unstable for myriad reasons. But the reasons for insisting on austerity are fairly obvious. The question is whether or not people will see through this or not. Disaster capitalism depends upon the people being confused and stressed for its success. (In that sense, rioting in the streets may actually help them.) And all over the world right now, with the rapid change from globalization and resistance to modernity in general, there is a tremendous amount of social stress and cultural upheaval on top of this economic downturn. It's the perfect time to strike.

It's that "social stress and cultural upheaval," the "resistance to modernity in general," that I'm most interested in. I don't believe that the political/media elite would be able to get away with this Hooverism were there not some amount of buy-in from the public.

That buy-in should not be overstated. Digby is right to talk about the defeat and disempowerment of the political left, one of the necessary conditions of neoliberal success over these last 30 years (and always one of their most overriding concerns). Here in California, polls show most voters do not want austerity, at least when it comes to core public services.

Yet there is some level of buy-in for budget cuts, austerity, and worrying about deficits. The logic of "belt tightening" is common. Even many Democratic voters I talk to, some of whom consider themselves progressive, believe there's just not enough money to go around, that we have to cut back, that's just what you do in a serious recession.

The shift to a "cuts are good" mentality in a recession is, as we know, extremely damaging and reckless policy. But it appears to flow not from a flawed economic assessment, but from a very different place entirely - the "social stress and cultural upheaval" Digby mentioned. Without it, austerity would not be possible.

The globe is entering a period of fundamental change. Here in the US, the assumptions, values, and lifestyles of the last 60 years are no longer viable and are on their way out. Virtually everyone seems to know it in their bones. Some of us embrace the opportunity to construct something better.

Others resist, and cling ever more tightly to their older values. In the US much of this is driven by a growing generational gap that is rooted in race. California's white population is "in decline", and states like California, Arizona, and Texas have a stark divide between a diverse youth and a white aged population.

We see this in other areas as well; Northern California appears to be abandoning mass transit as older homeowners fight vociferously against new transit systems, be it bus rapid transit in Berkeley, light rail here in Monterey, or high speed rail in the Palo Alto area. Current services are withering due to a lack of funds, and yet nobody seems moved to try and rescue them.

What I see happening here in the US is that austerity is being mobilized to protect existing privilege. Whites with some assets, property, and political/cultural dominance see in stimulus for everything from mass transit to schools and health care a threat to their privilege through government aid to those who are the agents of the massive change they feel is coming upon them, change they do not want.

Here in California, unemployment hits unevenly. Latinos, African Americans and young people are facing the highest unemployment rates. Those are among the same people who are at the core of the new California, the new America, a place that in 10 or 20 years will look different than the 1950s or 1980s version of America that the defenders of the status quo remember and cling to.

Austerity helps rip out the legs from underneath those people and gives those who feel threatened by a diverse, different future a sense that their privileges are secure. As we know, this is a totally false hope - not only will the passage of time ensure their America vanishes, but their embrace of austerity is going to rebound on them, especially when their Social Security and Medicare benefits are cut, their pensions slashed, and their home values collapse when nobody is able to sustain the current, overinflated prices (at least here in California).

That's how I see it working in the US, the embrace of austerity fueled by a desire to maintain white privilege and the trappings of a 20th century lifestyle that is no longer tenable. But what of Europe and the rest of the G20?

Others here can tell me if the argument is strained when applied to Europe, but the same basic elements appear to be operative there as well. Germans resent the notion of bailing out supposedly profligate Greece and Iberia. It may not be fear of a different future, but there seems to be a sense of privilege at work. Perhaps it's nationalistic, perhaps it's just plain greed. Austerity also enables its promoters to frame themselves as frugal and others who oppose austerity as profligate, which can be framed in any number of "us versus them" ways.

So how do we get out of this? It's unfortunately not enough to make the economic argument against austerity. If it were, Hooverism would remain in its tomb.

Instead it seems we need to do two related things: rally those who lack or are being denied privilege in support of a stimulus that is connected to a clear, coherent vision of future prosperity, a vision that can be sold to enough people in the privileged class that we can cleave them apart.

Disaster capitalism thrives on the belief that there is no alternative. Austerity works because people believe we cannot afford to build the future. So we have to provide an alternative so that people feel willing to build the future, and cast aside the belief that we can only afford to prolong the failed status quo.

It may be the case that we construct such an alternative in fits and starts over the next decade or two, as austerity produces a global "lost decade" - that seems to be Richard Florida's argument in The Great Reset. I'd like to think there's a way to construct it sooner and shortcut that painful process.

In either case, the key to blocking austerity is to understand how it is rooted in privilege, and to articulate a future vision that can animate a movement to destroy privilege, resist the elite, and defeat disaster capitalism.

Here in the US, that won't happen under Barack Obama, who is fundamentally rooted in those 20th century values that are no longer viable. He too is drawn to the protection of privilege, perhaps because he feels a precarious connection to it himself, perhaps because he is as ideologically neoliberal as they come.

But it will happen eventually, whether in reaction to Obama's austerity or in support of his pursuit of stimulus and growth.

Display:
The subject is the G20 statement that fiscal stimulus is out, and austerity is in. As reported by the FT:
Finance ministers from the world's leading economies ripped up their support for fiscal stimulus on Saturday, recognising that financial market concerns over sovereign debt had forced a much greater focus on deficit reduction.
In itself this is a rather important, if totally unsurprising, shift.
So, the whole point of the G20 these past 18 months has been to shore up the financial sector by transferring the insolvency problem from the private to the public accounts and now that will be used to destroy whatever social safety net there is.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 05:29:46 AM EST
eggsactomondo!

European Tribune - A Funny Thing Happened At The G20

What I see happening here in the US is that austerity is being mobilized to protect existing privilege.

austerity for the proles...good times in the compound.

famine in the fields, let the peasants starve, deliveries of foie gras to the castle will proceed as per.

austerity is their last resort, accept the screw, and relative freedom will be yours.

history indicates they will go too far and the compound become a bunker, history also indicates that the same forces buffering them from public rage now, will betray them eventually, for fear of that rage for them and their families, who will not all fit in to the bunker.

simple math!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Jun 6th, 2010 at 07:52:42 AM EST
[ Parent ]
history indicates they will go too far and the compound become a bunker, history also indicates that the same forces buffering them from public rage now, will betray them eventually, for fear of that rage for them and their families, who will not all fit in to the bunker.

History also indicates a thousand-year-long dark age is possible.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 10:22:18 AM EST
[ Parent ]
One thousand years of rule for the ECB?

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Jun 6th, 2010 at 11:00:21 AM EST
[ Parent ]
How is that optimistic?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 11:09:51 AM EST
[ Parent ]
Indeed. Perhaps we should get started on that encyclopedia?

The democratization of knowledge does give me hope that we have the ability to build the coherent alternative vision that is necessary to beat back these elite-friendly economic policies.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 11:01:01 AM EST
[ Parent ]
See my diary
But suppose it got bad. Suppose it got one notch worse than you can contemplate.

I can actually live with the prospect of a massive die-off, even a massive die-off with ecological collapse. The world didn't end with the European black death of the 14th Century.

What I think I have a serious problem with is a collapse of civilisation to the point where knowledge is lost. Even worse, where science and technology themselves are blamed for the disaster.



By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 11:10:33 AM EST
[ Parent ]
I remember that diary, it smoked me out of my lurking. My response comment suggested that sites like this are, in part, an effort to preserve certain kinds of knowledge, in this case the intellectual building blocks and analytical tools of social democracy, from such a collapse.

Maybe what this diary of mine is getting at is that the ET Think Tank idea is still a very good one.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 11:28:11 AM EST
[ Parent ]
Actually, we probably have the basis for a pretty credible critique of the origin, failures and consequences of the present system and of why it remains the dominant view of the economy in diaries and comment threads on ET. Perhaps we should start a link library organized by topics:

  1. How we got where we are.

  2. Why what we are trying to do cannot work.

  3. Why we keep trying doomed policies.

  4. What would work.

  5. Why we won't do what would work.

  6. What you can do to help.

If I had such a list available, other than my own meager efforts, I would be happy to start writing summaries that I could post and we could take apart. We have finite available energy, so a full-on encyclopedia must be a future goal. What we need is a compelling critique of the existing situation and a clear alternative that, at a minimum, most college educated adults could understand, were they to accept that they have been systematically mis-educated and/or misinformed about the nature of the economy and the relation between the economy and our political systems.

The time is now.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 6th, 2010 at 02:02:58 PM EST
[ Parent ]
Diary.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 02:45:31 PM EST
[ Parent ]
Hope to have it up late tonight, just in time for your breakfast reading.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 6th, 2010 at 05:20:45 PM EST
[ Parent ]
It's 4:20 PM, I have shade and it is time to get back to the doomstead's garden.  :-0

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 6th, 2010 at 05:23:03 PM EST
[ Parent ]
yup, and it may soon be over :)

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Sun Jun 6th, 2010 at 11:11:39 AM EST
[ Parent ]
I think it was possible... and it could certainly be possible now... but not with a high technology-high service economy.

So, I can see a change in the economic structure, or more probable, the reality will strike the predatory group and force the masters of the universe to face other masters of the universe.

I also think that the real problem is not taking rights from workers, but keeping financial and asset power in front of wages. they would not mind if everybody grows and wages also grow.

if they go after future income, privatization of pension plans , etc.. the system becomes easy to break.

The problem here is that all the masters of the universe want the same thing now, keep a small growth defleted economy, but if reality hits again (Keynesian reality) they may realize that not all of them want the same thing.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sun Jun 6th, 2010 at 12:36:26 PM EST
[ Parent ]
I think it was possible... and it could certainly be possible now... but not with a high technology-high service economy.

Right now I think I need to be convinced that they cannot create a high-tech feudal system. Why is a cyberpunk dystopia impossible?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 12:45:06 PM EST
[ Parent ]
Straight from Jane Jacobs:

Cities have resource areas from which they draw the raw goods and foodstuffs required for urban living.  Destruction or interdiction of those supplies must adversely affect the ability of the urban area to survive.  Some resources are more vital than others.  For California water is one.  Cut the water and SoCal can't exist for more than a week.  

If the people whose land the California Aqueduct passes have to chose between watering their crops and themselves or letting the water flow on to LA I suspect enough will decide to grab what they can and let LA go hang.  

Even cyberpunks have to drink and, occasionally, take a shower.  ;-)

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Jun 6th, 2010 at 12:54:51 PM EST
[ Parent ]
Or, they do what is being proposed in the $11 billion water bond on the November ballot, and take water from those with senior rights (farmers in the Sacramento Valley and the east side of the San Joaquin Valley) and give to those with junior rights (farmers in the barren west side of the San Joaquin Valley, and SoCal developers).

The same thing can easily happen within the metropolis. Provide stable deliveries to certain segments of the population - Beverly Hills, Malibu, the Westside, Rancho Santa Margarita - and leave the other, poorer, less white places with less reliable deliveries.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 01:57:01 PM EST
[ Parent ]
The Upper Crust may think they can sequester themselves in their little hide-aways but they really can't.  They aren't dealing with the current reality but Rodeo Drive Reality; a fantasy where bank accounts, business deals, and consumer consumption is some sort of a validating affirmation of their Importance.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Jun 6th, 2010 at 03:26:39 PM EST
[ Parent ]
I agree they won't be able to effectively sequester themselves forever. But I certainly expect them to try.

And the world will live as one
by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 05:28:21 PM EST
[ Parent ]
So where does the water come from to keep the numerous Pebble Beach, Pasatiempo, and surrounding areas' golf courses green and gorgeous? Not that golf courses aren't lovely and all that, but I bet they use plenty of water.
by sgr2 on Mon Jun 7th, 2010 at 09:09:21 AM EST
[ Parent ]
California will eventually have to on a war of conquest of the entire Colorado River basin.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:26:59 AM EST
[ Parent ]
They have the entire western watershed of the Sierra Nevadas and could make much better use of existing water. Solar powered desalinization is also an increasingly feasible option. Were they to return to Georgist economics many things would become possible.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 7th, 2010 at 10:22:04 PM EST
[ Parent ]
They got the whole Pacific Ocean at their feet.  They have photovoltaic and wind power potential.  

What they lack is imagination and a willingness to stop digging themselves ever deeper into a mess.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Jun 7th, 2010 at 10:26:59 PM EST
[ Parent ]
For desalinization photovoltaic appears a poor way in comparison to just using the thermal energy from the sun.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Jun 8th, 2010 at 05:42:08 AM EST
[ Parent ]
A solar-thermal or combined solar electirc and solar thermal process might be most efficient. Some interesting work is being done on this on the Arabian Peninsula.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 8th, 2010 at 01:11:07 PM EST
[ Parent ]
They use the same water system as the rest of the LA basin.  Golf courses may look 'purty' but then use a ton chemicals: herbicides, pesticides, & etc. as well as a many acre feet of water per acre to maintain that look.

"Ton" is not a metaphor nor an exaggeration.

US Golf courses are water wasting toxic stews built and maintained for the oblivious.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Jun 7th, 2010 at 12:09:10 PM EST
[ Parent ]
Agreed.
by sgr2 on Mon Jun 7th, 2010 at 03:31:11 PM EST
[ Parent ]
Pebble Beach: overpumping the Carmel River and Seaside aquifer. The entire Monterey Peninsula has been under Stage 1 water rationing since 1999, which so far basically means new development permits are almost impossible to get. The State Water Control Board has ordered reductions in that overpumping by 2014, and so locals are scrambling to build a desalination plant in either Marina or Moss Landing.

Pasatiempo/Santa Cruz: Same thing, overpumping the local watershed and aquifers. They too have probably overshot their carrying capacity and will need to turn to desal.

Just wait until global warming hits with full force and reduces the size of the Sierra snowpack. CA will get more rainfall, but can't store it all. The snowpack is the most important reservoir in the state and the rest of CA is soon going to lose it.

And the world will live as one

by Montereyan (robert at calitics dot com) on Tue Jun 8th, 2010 at 12:59:03 AM EST
[ Parent ]
All you really need is a population that needs access to certain infrastructure - cell phone networks, broadband services, etc - but that cannot pay for these things with their own income, so they have to take on debt. The debt can be rolled over, but never completely purged. As long as you can service the debt, you can get the access to infrastructure you need, but you'll always be in a subservient position.

AT&T's new data pricing scheme strikes me as a form of this - or at least a 21st century version of sharecropping.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 02:00:27 PM EST
[ Parent ]
Exactly.

Punishment, rewards, and expropriation

Masters also rewarded slaves who performed will with patches of land ranging up to a few acres for each afamily. Slaves grew marketable crops on these lands, the proceeds of which accrued to them. On the Texas plantation of Julian S. Devereux, slaves operating such land produced as much as two bales of cotton per patch Devereux marketed their crop along with his own. In a good year some of the slaves earned in excess of $100 per annum for their families. Devereux set up accounts to which he credited the proceeds of the sales. Slaves drew on these accounts when they wanted cash or when they wanted Devereux to purchase closthing, pots, pans, tobacco, or similar goods for them.

Occasionally planters even devised elaborate schemes for profit sharing with their slaves. William Jemison, an Alabama planter, entered into the following agreement with his bondsmen.

"[Y]ou shall have two thirds of the corn and cotton made on the plantation and as much of the wheat as will reward you for the sowing it. I also furnish you with provisions for this year. When your crop is gathered, on third is to be set aside for me. You are then to pay your overseer his part and pay me what I furnish, clothe yourselves, pay your own taxes and doctor's fee with all expenses of the farm. You are to be no expense to me, but render to me one third of the produce and what I have loaned you. You have the use of the stock and plantation tools. You are to return them as good as they are and the plantation to be kept in good repair, and what clear money you make shall be divided equally amongst you in a fair proportion agreeable to the services rendered by each hand. There will be an account of all lost time kept, and those that earn most shall have most."

[Engerman and Fogel, Time on the Cross, p 148 - 153]

And you will learn to like it, this master plan of modern monetary policy, or you will discover an alternative means to make your livelihood and master it.

Diversity is the key to economic and political evolution.

by Cat on Sun Jun 6th, 2010 at 03:29:01 PM EST
[ Parent ]
"Masters also rewarded slaves who performed well with free development tools. Developers produced marketable apps with their tools, some of the proceeds of which accrued to them.

On the Apple plantation of Steve Jobs, developers operating such land produced as many as three or four apps per year, and Jobs marketed their products along with his own. In a good year some of the slaves earned in excess of $1000 per annum for their families. Jobs set up accounts to which he credited the proceeds of the sales. Developers drew on these accounts when they wanted cash or when they wanted to purchase clothing, pots, pans, tobacco, or new hardware.

Occasionally masters even devised elaborate schemes for profit sharing with their slaves. Steve Jobs entered into the following agreement with his bondsmen:

"[Y]ou shall have 70% of the App Store revenue and 60% of iAd sales. I also furnish you with software updates and beta versions for this year. [...] Those that earn most shall have most."

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Jun 6th, 2010 at 03:46:56 PM EST
[ Parent ]
lol. FOCs!!!!

Diversity is the key to economic and political evolution.
by Cat on Sun Jun 6th, 2010 at 03:57:46 PM EST
[ Parent ]
See Brad DeLong quoting John Holbo on why libertarianism is the road to slavery.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 04:16:47 PM EST
[ Parent ]
I particularly appreciate the fact that the libertarian notion of property seems to be based on the idprinciple of living in a forest and collecting pointy sticks.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jun 7th, 2010 at 07:29:54 AM EST
[ Parent ]
Brad's post is a mess.

He invokes LOCKE but doesn't relate archetypal property legitimized by GOD, ROME, or RES PUBLICA to any argument either to refute Holbo's disquisition of a paper written by Samuel Freeman, "Illiberal Libertarians: Why Libertarianism is not a Liberal View", Philosophy and Public Affairs, 30, 2 (Spring 2002), 105-151. (Holbo's citation.) or Bryan Caplan's thesis of "libertarian nostalgia" in "How Free Were American Women in the Gilded Age?"; whence arises Holbo's attempt to distinguish thresholds of tolerance for liberty among authors of libertarian political philosophy for whom the expression of property rights represents a fundamental, ontological conflict between individual and group --corporate or industrial-- enterprise. (Let us note momentarily how the political issue of property from sex that inspired this cross-talk sure as hell didn't survive the voyage to ET and move on.)

Then, Brad dismembers Holbo's article to disguise the coherence of Holbo's thesis ( what are thick and thin libertarian ideologies?) so that Freeman's statements are indistiguishable from Holbo's in the pull-quotes he's provided.

But wait: There is more of the sophic humor one might expect from a professor of macroeconomic revelation who's also, apparently, averse to Oliver Williams and Veblen. Brad whets his accusation of Holbo's disingenous thesis by alluding to his own citation to LOCKE and hagiography of (paranthetically, theocratic) ROMAN antiquity: "That's how serfdom got started. The Roman Empire collapses...."  

The jiggin' must stop, people.

Today, right now, the state's interest in you is a claim of ownership of your person. So.

How would you differentiate authoritarianism and socialism?

How would you differentiate so-called liberals' exhortations for "adult" government from so-called authoritarians' deprecations of "nanny state"?

Diversity is the key to economic and political evolution.

by Cat on Mon Jun 7th, 2010 at 11:02:17 AM EST
[ Parent ]
The economic significance of the property rights in man

In recent years economists have extended the use of the concept of capital beyond its usual application to machines, building, and othe inanimate objects. They have applied the concept of capital to the wealth in herent in the capacity of human beings to perform labor, calling such wealth "human captial." This extension of the concept seemed odd at first because it was applied not to explain behavior in nineteenth-century slave societies but in twentieth-century free societies. Nobody doubts that human beings were a form of capital in slave society. Slaves who wer traded commanded prices as specific and well-defined as thos on land, buildings, or machines. Since prices of slaves varied by age, health, skill level, and geographic location, it is clear that the vocational training of slaves or their relocation from on region to another were just as much forms of investment as the erection of a building or extension of a fence.

What made the application of the concept of human capital to free societies seem odd is that free people are not traded in well-defined markets and hence do not command market prices. However, the absence of explicit market prices on human being usually prevenets their capital values from being mad explicit. Legal reconition of the fact that free people continue to have capital values takes place whenever courts grant cash awards to the widows of men killed in industrial accidents. The amount of such an award usually turns on a debate regarding the capital value of the deceased at the time of his death.

Viewed in this light, the crucial difference between slave and free society rests no on the existence of pproperty rights in man, in human capital, but on who may hold title to such property rights. Under freedom, each person holds title, more or less, to his own human capital. He is prevented by law from selling the title to this capital except for quite limited periods of time and then only under a very restricted set of conditions. Moreover, one generally cannot sell the title to the human capital of others, or if such sales are permitted (as in the cases of the contracts of movie and athletic stars, or as in the case of the parents or guardians of minors), the title is transferred only for relatively short intervals of time and under strictly defined limitations. In slave societies, however, a large number of individuals were permanently deprived of the title to their own human capital. Those who held the titles ( the maters) were virtuall unrestricted by law in the abilitity to sell them. And ownership of a female slave brought with it title, in perpetuity, to all her descendants.

How did the special way in which the antebellum South treated the matter of property rights in man affect the economic behavior of that society? What special economic advantage, if any, did the system of property rights which prevailed under slaver give the slaveowners? How did this system of property rights affect the real income of the masters, of slaves of free Southerners, and of free Northerners? While these are not new questions, certain of the findings of the cliometricians suggest new answers.

  1. Economies of scale in sourthern agriculture were achieved exlusively with slave labor.
  2. While the urban demand for slave labor was quite elastic, the agricultural demand was very inelastic. ...

[Engerman and Fogel, p232 -238]


Diversity is the key to economic and political evolution.
by Cat on Mon Jun 7th, 2010 at 11:07:11 AM EST
[ Parent ]
The economics of sharecropping are one step above those of slave holding; neither are advantageous.  Which is why both were phased-out.

Them Who Hath figured-out there was more profit in lending money to ag producers than having anything "real" to do with crop production.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Jun 6th, 2010 at 03:48:04 PM EST
[ Parent ]
Phased out? No.

Diversity is the key to economic and political evolution.
by Cat on Sun Jun 6th, 2010 at 03:58:25 PM EST
[ Parent ]
Sharecropping only came to an end in the middle of the 20th century. From about 1915 onward African Americans in the South were able to find work in the industrial North that paid better and provided more freedoms than in the South. That began to produce a labor shortage in the South, which along with innovations and federal agricultural policy in the 1930s, fueled mechanization that made the remaining sharecroppers redundant.

The key was the availability of industrial work at decent wages. If we lose what's left of that, any newer feudalistic system could be difficult to escape.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 05:41:15 PM EST
[ Parent ]
In light of the diminution of manufacturing and promotion of proprietary, automated industrial technologies, for example, Monsanto's business model, which the corporation executes worldwide,  is it accurate to state that sharecropping came to an end in the middle of the 20th century?

Diversity is the key to economic and political evolution.
by Cat on Mon Jun 7th, 2010 at 11:12:27 AM EST
[ Parent ]
To be an Old Fashioned Old New Leftie ...

The answer is intentional or co-operative communities.  I don't know about pricing in SoCal anymore.  In NM's Big City - Albuquerque - four and eight-plexus can be had for around $50,000/apartment at, about, 1,000 sq. ft. per versus $175 sq ft cost for new construction or $175,000 for a comparable single detached dwelling.

Combining basic utility services would save - NM pricing - $50 per unit or $150 to $300 month for water, sewage, and garbage collection and about the same for electric: total (rough) $300 to $600 month.  

"Savings," meaning money not duplicatedly disbursed, for the community would range from $2,000 to $10,000 a month and could easily go much higher.

The main problem is financing: banks hate co-operatives and come up with all sorts of bullshit reasons not to lend.  Credit Unions used to be more amenable, tho' that may have changed.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Jun 6th, 2010 at 03:44:59 PM EST
[ Parent ]
According to DeLong you need teh invention infraestructure.. and you can not have afull invention infraestructure in a high-technology system.

teh problem with cyber-punk sci-fi is the rpoblem of who sustains the whole research-apply-mantainence system. You need a good chunk of the population ofr that. That's makes feudalism impossible.

Antoher proof is that the second industrial revolution destroyed the feudalism structure.. and I think the reason is exactly the same. The invention of invention destroys feudalism. DeLong has a full course in his webpage. I think he has there all teh links regarding the transition and how it would have been with a new research structure.

This is not to confuse with high unequality..which you can have (what percentage of the population you ned to sustain th system.. Brazil an ohter countries give a hint..a round 50%..you can certainly have the rest living on begging) but I would say that then the system is highly unstable.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sun Jun 6th, 2010 at 03:13:30 PM EST
[ Parent ]
We're in uncharted waters.

The last time the industrial world went belly flopping it was pulled out by a combination of the destruction of plant by bombing and other destruction during WW 2 and an immediate rise in non-working population, the Baby Boom.  

Now we've got excess industrial capacity out of our ears and a workforce slowly losing, or having in the first place, any ability to purchase the goods produced.  

And we can't continue to endlessly throw cheap energy at the problem.

I can see the potential for industrial feudalism to arise.  I don't see it persisting as there's too many contradictions between the non-innovative mind set one has to inculcate in any highly stratified society and the "inventing invention" nature of a technological industrial economy.

 

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Jun 6th, 2010 at 04:00:22 PM EST
[ Parent ]
You and I live in a country whose national motto is let others do the inventing... I am not very hopeful.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 04:18:33 PM EST
[ Parent ]
My cynical opinion is that is a continuing result from the internal war Spain had in the 1930s.  Fascism is ultimately the ideology of the status quo and the mind set it engenders is actively hostile to innovation.

Couple with the cultural and intellectual deficiencies of Roman Catholicism and one has the recipe for stagnation.
 

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Jun 7th, 2010 at 12:21:13 PM EST
[ Parent ]
It appears to be an anti-European quip by Unamuno in a debate with Ortega y Gasset in 1906 (Spanish wikipedia).

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 12:25:59 PM EST
[ Parent ]
If we accept that I only see it as ruling out a high-tech feudal society with a high rate of innovation. A pretty much static society with current high-tech reserved for the new nobility and their direct servants would still appear possible. All you need is a small technical caste to serve the machines.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Mon Jun 7th, 2010 at 07:02:47 AM EST
[ Parent ]
That wouldn't be stable if the technical caste found itself some politcal ambition.

I have a doomery view, and assume we'll see another major war, which will be a game changer for people's attitudes. I'm not even sure the neo-aristos are the problem - it's more about how they have mindshare than the fact that they exist.

And in Toobz world, mindshare is going to be an increasingly fragile thing.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jun 7th, 2010 at 07:35:02 AM EST
[ Parent ]
That wouldn't be stable if the technical caste found itself some political ambition.

The modern corporate structure and the narrow specialisation of technical specialists has been quite successful in suppressing political ambition (and not teaching the relevant political skills to those who may have any such ambition).

Yes, the technicians can make the system stop working. But why should they? Their feudal overlords provide them with a steady income, access to their favourite toys and enough excuses to ignore the huddled masses.

The crucial point would be to isolate the technical specialists from direct exposure to poverty - as long as they, their families and their immediate surroundings are kept pretty, it is a simple matter to instill the kind of smug superiority and/or convenient excuses for inaction that permit people to ignore widespread human misery.

Oh, it would not work perfectly - there would be dissenters. But the genius of modern managed democracy, from the perspective of the feudal elite, is that dissenters are alright, because the oppression is not sufficiently self-evident that individual dissent can cause a cascading reaction.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 7th, 2010 at 09:06:33 AM EST
[ Parent ]
Debt slavery is also a powerful force. Once your tehnicians have mortgages they have to pay for the next 25 years they will be very reluctant to put their stable salary in jeopardy.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:28:08 AM EST
[ Parent ]
They've been very successful at suppressing politcal instincts.

But it's a feature of feudal systems that repression spreads, and status differentials continue to increase.

It goes against every leadership caste instinct to give mere technical underlings a decent slice of the pie, for the same reason that it goes against their instincts to pay workers a decent wage so that can continue to participate in the economic game.

MBA culture is inherently authoritarian. It buries the motivation under economic rather than racist or political rhetoric. But whatever the language, a key motivation is that it hurts to share.

So I wouldn't expect leaderships caste members to be capable of the self control or strategic thinking required to keep a technician caste fat and happy - not for long, anyway.

This is already happening in the US, where science, engineering and IT jobs have virtually no security.

Now - imagine the possibility of adventurous technical types building trap doors or dead man switches into critical systems.

The means to do a lot of damage are already there. So far, it's only the false rhetoric of inclusion that's preventing actual rebellion. And in the US at least, that rhetoric is unlikely to still be convincing by the end of the decade.

 

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jun 7th, 2010 at 09:29:46 AM EST
[ Parent ]
It's an interesting idea. But looking at the amount of pressure that has historically been required to induce spontaneous (let alone organised) acts of sabotage, I'd say that we're quite a way from that yet.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 7th, 2010 at 09:38:41 AM EST
[ Parent ]
Rather than acts of sabotage I was pinning my hopes on the ability to build some sort of "free" shadow network piggybacking on the official infrastructure and bypassing the "closed" "official" network almost entirely.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 10:37:01 AM EST
[ Parent ]
Interesting idea. Any more.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jun 7th, 2010 at 11:54:35 AM EST
[ Parent ]
I think it's implicit in cyberpunk lore...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 05:28:55 PM EST
[ Parent ]
Something like Freenet?
Freenet is a decentralized, censorship-resistant distributed data store originally designed by Ian Clarke.[4] According to Clarke, Freenet aims to provide freedom of speech through a peer-to-peer network with strong protection of anonymity; as part of supporting its users' freedom, Freenet is free and open source software.[5] Freenet works by pooling the contributed bandwidth and storage space of member computers to allow users to anonymously publish or retrieve various kinds of information. Freenet has been under continuous development since 2000.


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Mon Jun 7th, 2010 at 03:37:28 PM EST
[ Parent ]
I completely agree here.

And again, there is a big difference between large inequalities and a feudal system.

In a feudal system you can not have 20 % with very good resources and 30% more with proper working conditions. In a feudal system, the cast is 5% of the population and all the services and goods are performed by the masses.

So afeudal system is jsut not possible.

The reason why I think the inequality system is unstable is precisely because the cast is not smart enough to keep the unequal system under control and because aggregate demand fluctuates strongly leading to large changes in the power structure of the elite. I only ahve to look at the inequalities in the US at the beginning of the century or Brazil in the 80-90... they al finished.

On the other hand , the semi-feudal system in an economy based on agriculutre is going smoothly in Central America.. an the rich there atre just not that rich.. and they always emigrate. So tehya re not really the global elite... imagine a feudal lord in El Salvador without a place like Houston or europe to go for the medical treatment, the computer updates...

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Jun 7th, 2010 at 06:32:57 PM EST
[ Parent ]
ThatBritGuy:
we'll see another major war,

the one on gaia isn't enough?

where do you think, TBG, and is it a WW? obviously our little skirmishes in afpak and iraq don't count...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Jun 7th, 2010 at 03:07:22 PM EST
[ Parent ]
Why is a cyberpunk dystopia impossible?

why do you think there's all the paranoia about chipping?

the tech is there, all they need is enough shock, for the new doctrine.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Jun 7th, 2010 at 03:09:34 PM EST
[ Parent ]
Because they're bible-thumpers who believe in the mark of the beast, etc.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 05:31:44 PM EST
[ Parent ]
Why is a cyberpunk dystopia impossible?

why do you think there's all the paranoia about chipping?

the tech is there, all they need is enough shock, for the new doctrine.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Jun 7th, 2010 at 07:13:04 PM EST
[ Parent ]
Paranoia, you said it yourself.

Mostly by bible-thumping end-timers or survivalist militia types.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 07:15:46 PM EST
[ Parent ]
It certainly appears that way. "Stimulus" was only valuable as long as it was needed to help shore up the financial sector. With that apparently accomplished (or so they think) it's now time to use the crisis as they'd originally intended, to smash the remnants of the safety net in order to extract new rents and payments from the rest of us on services that used to be provided through tax dollars.

And the world will live as one
by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 10:57:17 AM EST
[ Parent ]
So, when we have a double-dip recession and another market crash and more companies (including financials) start failing, what are they going to do?

Oh, and, by the way, companies (in particular, financials) never stopped failing...

US banks have been failing at an exponential rate
So, operation "back to business as usual" was a success, yes?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 11:08:29 AM EST
[ Parent ]
Oh I agree there is likely to be another crash/downturn/double dip. Nothing was resolved, except the bailouts provided a semblance of stability to the TBTF banks.

When the next downturn occurs, they'll have to find some other way to socialize the losses and privatize the profits. Not sure what that will be, but it could present an Argentina-style moment that creates the opportunity to articulate a left vision of the future to the greater public.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 11:32:51 AM EST
[ Parent ]
The left vision needs to be articulated and in the back of people's minds before the crisis. The problem with the crisis of the last 3 years is that there was no alternative narrative to take the place of market fundamentalism when the latter showed itself to be untenable. WHen that happens, the cognitive dissonance cannot be resolved by adopting an alternative worldview so the inconvenient reality gets shoehorned into the old narrative.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 11:42:43 AM EST
[ Parent ]
the way to socialize the losses is to raid pension funds or gut social programmes.

After capturing the wages, they are now also trying to capture the deferred wages and/or the non-monetary income of people.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 6th, 2010 at 12:27:25 PM EST
[ Parent ]
That is a point that even a Tea Bagger could understand. The financial elite want our retirement money to pay off their gambling debts. Were the average Texas libertarian to grasp that they would likely respond with something like:

"Impale the bastards on sharpened poles around the White House! And put their banks out of business. We are better off without them."

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 6th, 2010 at 01:21:33 PM EST
[ Parent ]
The intellectual and political architecture of this kind of attack has already been laid, and is well advanced, here in California. Hardly a day goes by without a newspaper article, op-ed, or letter to the editor in a local paper complaining about "unfair" public pensions that bleed everyone else dry.

And of course, the federal "cat food commission" that is determined to destroy Social Security and Medicare is due to deliver its recommendations in December.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 02:02:43 PM EST
[ Parent ]
Blueprint for America's Working Women and Families

Diversity is the key to economic and political evolution.
by Cat on Sun Jun 6th, 2010 at 03:34:57 PM EST
[ Parent ]
... destruction of the value of assets held by the individually wealthy, since when you are aiming at power rather than aiming at wealth, that is more of a zero sum game.

Which suggests why Geithner might be less keen on Europe adopting full bore, Depression creating neo-Hooverism. He may be more representing the interests of Wall Street as such than the interests of all the corporations trading on Wall Street.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Jun 6th, 2010 at 01:27:33 PM EST
[ Parent ]
Great Diary, montereyan.

Firstly, I think that the reason Geithner/US is the odd one out is simply that the US is both the beneficiary and victim of the dollar being the global reserve currency. Instead of accepting Keynes' International Clearing Union/Bancor proposal at Bretton Woods the US could not resist the seductive benefits of being able to write cheques they would never have to redeem.

Now Geithner is finally stuck in the horns of the Triffin Dilemma with the US having become unsustainably indebted to the world. The point is that he knows that any austerity on the part of his creditors will reduce their capacity to fund US debt.

Secondly, the more disciplined the society the less they need austerity, and vice versa.  Since austerity must be enforced, those most in need of it (according to the dogma) are those least likely to achieve it.

In my view the system is terminally fucked by the wealth inequality that is structurally built in. But I optimistically believe that the spread of new technologies and protocols will enable networked complementary systems to arise from the bottom up. The more I see of what is going on the more convinced I am that I am observing a 'Great Awakening'.

Here the Third World (entirely absent from the G20) and the domestic third worlds (eg California's unemployed youth and immigrants) have an advantage because they have nothing to lose and everything to gain by community-based organising. The key to this IMHO will be mobile payments and micro credit on the one hand (and I do NOT mean micro loans) and micro investment on the other.

Peer to Peer Finance in other words.

Thirdly, it's been interesting to read in the MSM about the current Bilderberg meeting in Spain. The very fact that we are even reading about it is indicative.

Daniel Estulin - who has written a book on Bilderberg -  may have put his finger on what is going on (my bold).

'These people want empire'

"It is a self-perpetuating system, a virtual spider web of interlocked financial, political, economic and industry interests," he said.

Actually, it's not much of a secret any longer and not much conspiracy, said Estulin.

"It's a meeting of people who represent a certain ideology," he said. "The ideology is of a one world company limited.

"Bilderberg is a medium of bringing together financial institutions which are the world's most powerful and most predatory financial interests. And at this time, it is that combination which is the worst enemy of humanity," he said.

He said the citizens of the world have forced the higher level of awareness about the plots and plans "by becoming very aware that presidents and prime ministers and your little shrinking queens and kings are puppets of powerful forces working from behind the scenes."

He said that's where the door to success may open.

"Something has happened to us, the people in the midst of this general economic collapse. People at large are gripped by something they don't always understand. But, it compels them to act in a certain way, in their own interest. That's what they are doing in Greece. That's what they are doing in Spain, in the United States. It's called the anthropic principle. It's like a tidal movement came upon us and washed our fears away. As people realise that their existence is threatened, they have lost their fear, and Bilderberg and others sense it," he said.

"Perhaps that's why at a recent Council on Foreign Relations speech in Montreal, Zbigniew Brzezinski ... warned that a 'global political awakening,' in combination with infighting amongst the elite, was threatening to derail the move towards a one world government," he said.

It is the direct instantaneous connections of the Internet that are enabling and driving this process of political awakening and a new consensual political economy which is reality-based and action-based. In my opinion the global financial architecture will look very different within five years at most: but it will take generations for cultural changes to follow.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 06:07:51 AM EST
Catalan cops defend Bilderberg reluctantly

"A time is coming when you may be asked to use violence against us. A time is coming when you will have to choose sides. You will have to decide." And Rafa says he saw tears in the eyes of the comisario.


It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Sun Jun 6th, 2010 at 07:01:16 AM EST
[ Parent ]
The Catalan police, he says, "have a different sensibility" from what you may expect. "They are Catalan. Their minds are independent."


Diversity is the key to economic and political evolution.
by Cat on Sun Jun 6th, 2010 at 08:56:32 AM EST
[ Parent ]
Hive got a mind to shed a few tears too....

You can't be me, I'm taken
by Sven Triloqvist on Sun Jun 6th, 2010 at 10:55:37 AM EST
[ Parent ]
The global political awakening will be one in which our privilege will also be questioned ;-)

You can't be me, I'm taken
by Sven Triloqvist on Sun Jun 6th, 2010 at 08:04:50 AM EST
[ Parent ]
What Brzezinski is talking about is something like what I had in mind - the articulation of a clear vision for the future that can start leveraging and widening the existing fault lines within the elite. That vision, which needs to be fairly well thought out, with a specific agenda to achieve specific goals, can help fuel and direct the global political awakening that I agree is under way, if haltingly.

Democratizing the financial system - peer to peer in your words (which maybe is different from "democratizing", actually) - would indeed seem to be a key piece of that plan, given the need to wrest political and economic control away from the financial sector. The public will need to own their banking industry, and while outright nationalization provides one possible solution, what you propose would seem to fit with a popular reaction against state capture.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 11:10:15 AM EST
[ Parent ]
The US, of course, does not need to have its government debt funded in particular. However, we cannot have the rate of GDP growth required to help investment banks gin up the next bubble economy unless we get capital inflows to allow us to have otherwise unsustainable current account deficits.

Providing official debt as an instrument for neo-mercantalists to use when discounting their exchange rates against the US$ is one (among many) elements in encouraging those capital inflows.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Jun 6th, 2010 at 01:35:49 PM EST
[ Parent ]
Here in California, unemployment hits unevenly. Latinos, African Americans and young people are facing the highest unemployment rates.

Do you have any DIRECT connection inside the Jerry Brown campaign ... someone you know personally who I can talk to, either on the phone or in an email exchange?  Jerry Brown's website won't cut it.  Thank you.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sun Jun 6th, 2010 at 06:36:30 AM EST
Actually, I do. Send me an email and I'll put you in touch.

And the world will live as one
by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 10:54:23 AM EST
[ Parent ]
Fantastic!  Will do.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Jun 7th, 2010 at 05:30:20 AM EST
[ Parent ]
the key to blocking austerity is to understand how it is rooted in privilege, and to articulate a future vision that can animate a movement to destroy privilege, resist the elite, and defeat disaster capitalism.

I like this. It's important to frame the debate in terms of revenues of capital vs. salary. The years of great economic growth, say 1950-1980, were characterised by a very different distribution of incomes, and the past thirty years have seen the capture of the economic system by capital, grabbing an ever increasing proportion of ever decreasing economic growth.

So that's one way of looking at the current crisis, an important one : capital is determined to maintain its share of income and wealth by putting the squeeze on the rest of us. Our great leaders toe the line because they don't question the curious doctrine that what is good for capital is good for everyone.

But the missing element in your analysis, Montereyan, is the limits to growth argument, the good old Malthusian, Club of Rome, ecologist explanation that we're going to run into a wall, or off a cliff.

Well, guess what, we have. We are now pedaling thin air like the coyote in the cartoon.

This does not invalidate your arguments -- it's not an "either/or" proposition. But it perhaps explains the sudden change of tune of the wise heads who govern us.

They have been accustomed to flattening out speed bumps in the growth curve, by deficit financing, and encouraged by low interest rates to believe that there is no need to pay back the deficits. This is perhaps the implicit contract between governments and capital : we keep inflation low, you lend us money cheaply.

The breakdown of this system comes when it becomes credible to question the sustainability of the model. It's convenient to blame speculators, but that's like blaming the flies who are attracted to a dung heap. The problem is that there is a genuine problem with the sustainability of borrowing to maintain government spending...

... because there is no convincing evidence that there will be sustained economic growth subsequently, to narrow the gap between revenue and spending.

And why is this?

Because we ran out of cheap energy. That was the principal driver of economic growth, and we are in an economic system that cannot be stable without growth. We are in overshoot, and we need to adjust to a lower level of energy inputs, which means less prosperity.

The question is, how we get there from here.

Austerity, as currently being implemented, will surely be harmful to the interests of capital, because severe recession is the result. It is surely in the best interests of owners of capital to share the effort now in order to limit the depth of the depression. The problem is, capital does not have a mind of its own. The market doesn't think. International regulation of capital will be too little, too late. National regulation will lead to protectionism which will probably make most things worse...

American exceptionalism : Apparently, the US can run deficits that are forbidden to other nations, who, as we see daily, are severely punished by the market. Geithner knows he has to continue to defend deficit spending. Does he know where that takes the US?

Just rambling. Carry on.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Sun Jun 6th, 2010 at 06:51:29 AM EST
eurogreen:
Does he know where that takes the US?

where his chinese overlords want? off a cliff?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Jun 6th, 2010 at 07:54:22 AM EST
[ Parent ]


"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Sun Jun 6th, 2010 at 10:16:42 AM EST
[ Parent ]
Can you make this a diary?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 10:28:36 AM EST
[ Parent ]
There are two kinds of austerity: money austerity and resource austerity.

Resource austerity would mean to take into account the limits to growth arguments and pay the true cost of resource luxuries. Resource austerity also means more more room for jobs. It also means money inflation.

Money austerity comes from believing money is a real thing that is neither created nor destroyed, only conserved, instead of a consensual token. It is ridiculous that there are both human and physical resources (I'm referring to plant, not raw materials) going idle because of lack of fiat tokens. But that is the situation, and attemting to economize on tokens is only going to result in greater capacity underutilisation. The hoarders of tokens will keep their hoard and may even succeed in safeguarding the exchange value of their hoard, but not only will resource overuse not be checked, but there will be an economic slump. But at least there won't be inflation.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 10:39:56 AM EST
[ Parent ]
Migeru:
There are two kinds of austerity: money austerity and resource austerity.

Correct.

There may well be shortages - and hence a need for austerity - of 'money's worth'.

For instance land/location - which is the basis of more than two thirds of money in existence - is limited, and so are non-renewable resources of all kinds. In most countries land distribution is pretty 'austere' already, since a tiny proportion of the population owns most of it.

But in fact there can no more be a shortage of money than there can be a shortage of kilogrammes or metres.

It is only because we choose to use bank IOUs/credit objects/fiat tokens as 'money' - I prefer to call these monetary objects 'currency' - which means that there is a shortage of 'money'.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 11:03:44 AM EST
[ Parent ]
But in fact there can no more be a shortage of money than there can be a shortage of kilogrammes or metres.

But the insidious reality is that such a shortage of money can lead to people not being able to work exclusively on the basis of lack of money. It's as if you couldn't buy groceries at the market because the merchant has run out of kilogrammes.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 11:17:17 AM EST
[ Parent ]
Exactly.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 11:31:45 AM EST
[ Parent ]
From the little I've read, they are concerned with inflation - having to lug wheelbarrows of money to the grocer - not deflation - having no money.

How they expect to receive their stream of compounded interest payments from the unemployed is beyond me, but that seems to be their concern.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Jun 6th, 2010 at 12:13:34 PM EST
[ Parent ]
When they can't get the interest payments they'll set up debtors' prisons. Since they can create money by extending loans to each other, they can monetize the future hard labour at these debtors' prisons in order to pay themselves the interest they're due.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 12:19:54 PM EST
[ Parent ]
You make a very good point here. Implicit behind much of my writing since 2007 is the understanding of peak oil and what it means for the current economic and political models.

As I argued here, austerity finds some public support due to its ability to preserve privilege. In California, that plays out as white suburbanites who cannot imagine a lifestyle without dependence on the automobile and who see mass transit as being for the poor, people of color, and the young are fighting to block mass transit projects because it presents such a threat to their perceived worldviews and privileges. It's an absurd situation, but it's very real.

What we may well be seeing is the belief that the elite do not have to suffer any energy austerity, so that can be forced onto everyone else, and segments of the American white middle class are convinced they can cleave off from the rest of us and enjoy the benefits the elite are enjoying. They're convinced that's what happened in the early 1980s, so why not try it again?

Again, I am curious how this plays out in Europe, and what drives the public reaction to/acceptance of austerity, and whether it has any relation to the forces here in the US.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 11:21:32 AM EST
[ Parent ]
... in excess of taxation is based on the false model that the government is spending an externally produced commodity that has emerged as the numeraire. In the real world, sovereign governments do not face any finance constraint. The constraints faced by government policy are real resource constraints - natural resources, skilled labor, and productive equipment.

If there are the resources to make what is being bought with the currency, a sovereign government can simply issue the currency to buy it.

When the Eurozone countries surrendered their sovereignty to a common central bank built on neo-Hooverian lines, they set themselves up for this, which sooner or later has to be solved by reconstituting the ECB as a functional central bank. But neither the US, Japan, nor any of the other nations that have retained their sovereignty are under the same constraint.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Jun 6th, 2010 at 01:42:37 PM EST
[ Parent ]
When the Eurozone countries surrendered their sovereignty to a common central bank built on neo-Hooverian lines, they set themselves up for this, which sooner or later has to be solved by reconstituting the ECB as a functional central bank.

Over Germany's dead body.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 02:34:25 PM EST
[ Parent ]
As long as the member states retain the ability to regulate their own financial corporations, nothing prevents them from setting up a de facto central bank and using it to fund their own debt issues.

Sure, it's blatantly against the treaties, but the thing about fines is that if you have a dependent central bank, you can print money to pay them with.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 6th, 2010 at 05:29:05 PM EST
[ Parent ]
Central Banks are soooo Last Century, Jake.

A transitional alternative is for national Treasuries to create x billion euro's worth of tax anticipation credits, and to issue them directly to public or private entities wishing to create productive assets.

Service-providers-formerly-known-as-banks manage the process and an accountable monetary authority oversees it.

A service charge covers service/platform costs, and there is a guarantee charge paid into a default pool for the use of a Treasury guarantee, from which the service provider gets a performance-based share.

No ECB Euro's are created: the Euro is used as an abstract unit of measure or value standard.

The only question then is what should be the basis of the tax being anticipated. I favour a levy on land rental values, and another on carbon use.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 05:58:59 PM EST
[ Parent ]
A transitional alternative is for national Treasuries to create x billion euro's worth of tax anticipation credits, and to issue them directly to public or private entities wishing to create productive assets.

...

The only question then is what should be the basis of the tax being anticipated. I favour a levy on land rental values, and another on carbon use.

And the politicians with the insight and political capital to carry this out exist in which fictional universe?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 06:11:22 PM EST
[ Parent ]
Migeru:
And the politicians with the insight and political capital to carry this out exist in which fictional universe?

:-)

A parallel one to the surreal one in which we live.....

There's no way it would happen, of course, because turkeys don't vote for Christmas.

But when people say there is no alternative it's always fun to point out that there are several......


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 07:29:20 PM EST
[ Parent ]
We live in a real universe, by definition.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 04:27:34 AM EST
[ Parent ]
How does this financing model differ from issuing a collateralised debt obligation?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 6th, 2010 at 06:12:33 PM EST
[ Parent ]
It's backed by the full faith and credit of the government?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 06:13:57 PM EST
[ Parent ]
It's redeemable/retirable at the option of the issuer - which makes it a credit instrument analogous to a redeemable share.

So it's not a debt instrument, and it's not collateralised either.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 07:33:12 PM EST
[ Parent ]
Central Banks are soooo Last Century, Jake.

Central banks in what capacity?

As lenders of last resort? That is still needed, in fact this should be now subsumed into a market-maker of last resort function.

As credit regulator/supervisor authorities?

As central clearinghouses for payment and settlement?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 06:19:15 PM EST
[ Parent ]
All capacities.

Migeru:

As lenders of last resort? That is still needed,

In Hong Kong it is not the Central Bank which fulfils that function because there isn't one.

Migeru:

As credit regulator/supervisor authorities?

A Monetary Authority - as in HK - would set the parameters/standards for credit creation.

Migeru:

As central clearinghouses for payment and settlement?

There is no need for a central counterparty aka single point of failure.

A mutual guarantee with a default pool managed by a service provider would do fine. eg P & I clubs in the insurance industry.

Settlements/netting of open bilateral credits requires only suitable software and algorithms. brent forward contracts settle this way on expiry by generating 'chains' and book-outs.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 07:23:39 PM EST
[ Parent ]
Hong Kong is a city-state. City-state economies can often get away with things that full-sized economies can't, because they can outsource the infrastructure to nearby full-sized economies.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 6th, 2010 at 07:50:07 PM EST
[ Parent ]
I don't think Hong Kong were doing that with the Chinese.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 07:52:37 PM EST
[ Parent ]
the US dollar. HK has a full currency board, ie their currency is effectively the US Dollar. And they used the UK legal system. Pure piggybacking & Deus ex machina. So this is not a relevant exemple.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 7th, 2010 at 01:06:43 AM EST
[ Parent ]
My point is that Central Banks are unnecessary and HK demonstrates that point empirically.

How does the fact that HK chooses to peg to the dollar or use the UK legal system change that?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jun 7th, 2010 at 03:21:20 AM EST
[ Parent ]
Have there been any banking crises in Hong Kong, and how were they resolved?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 04:23:48 AM EST
[ Parent ]
There were no HK bank failures between 1935 and 1964 and in 1965 they used a government-backed takeover, which has been SOP for the Bank of England for a long time.

Hong Kong Calms Depositors After Bank East Asia Run (Update2) - Bloomberg.com

Hong Kong hasn't had a bank failure since the Hong Kong Monetary Authority was founded in 1993, though it has a long history of financial crises associated with its lenders. There was a brief run on Standard Chartered Plc and Citigroup Inc.'s local unit after the failure of BCCI Group in 1991, while the failure of a small Hong Kong bank in the 1980s triggered runs on rivals and led to efforts to strengthen regulation.

A banking crisis in 1965 prompted a government-backed takeover of Hang Seng Bank Ltd. by the Hongkong and Shanghai Banking Corp. for HK$51 million ($6.6 million). HSBC Holdings Plc now owns 62 percent of Hang Seng, which has a market value of $36.5 billion.



"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Mon Jun 7th, 2010 at 04:45:47 AM EST
[ Parent ]
HK has the Fed as its central bank, it demonstrates nothing of the sort.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 7th, 2010 at 07:39:56 AM EST
[ Parent ]
The US Fed doesn't act as lender of last resort (and this includes setting tha base interest rates) nor does it provide deposit insurance or carry out bank supervision or regulation, nor sets reserve requirements. So, how is the US Fed HK's central bank in any meaningful way?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 08:11:33 AM EST
[ Parent ]
HK banks (the big 4) can only emit currency if backed one-for-one by the same amount of dollars.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 7th, 2010 at 09:04:16 AM EST
[ Parent ]
http://www.info.gov.hk/hkma/eng/currency/link_ex/index.htm


The Linked Exchange Rate System was established in 1983. It is in essence a Currency Board system, which requires both the stock and the flow of the Monetary Base to be fully backed by foreign reserves. Any change in the size of the Monetary Base has to be fully matched by a corresponding change in the foreign reserves. In Hong Kong, the Monetary Base comprises the following components:

Certificates of Indebtedness (as backing for banknotes) and government-issued notes and coins;

the sum of balances of banks' clearing accounts (Aggregate Balance) maintained with the HKMA for the purpose of clearing and settling transactions between the banks themselves, and also between the banks and the HKMA; and

the outstanding amount of Exchange Fund Bills and Notes.



Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Jun 7th, 2010 at 09:06:09 AM EST
[ Parent ]
This sounds like what I once proposed Hungary's central bank should have been doing to prevent the possibility of a currency crisis, namely, accumulating foreign reserves in an amount matching the country's aggregate foreign-currency liabilities. This would act as an automatic negative feedback mechanism in case a carry trade got started.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:20:40 AM EST
[ Parent ]
So the Hong-Kong currency board functions as a potential lender of last resort and a deposit insurer since it must hold enough foreign reserves to cover in full the aggregate liabilities of the private banks.

It also functions as a clearinghouse for interbank payment and settlement.

The role of the Fed is totally incidental here. They might as well have mandated that the HKMA must have enough gold reserves (or barrels of oil) to back all the banks' liabilities.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:24:25 AM EST
[ Parent ]
The role of the Fed is also not unique since the mandate is on "foreign reserves" not "dollar reserves". This means potentially the mandate could be fulfilled by matching KH's monetary mass not only in quantity but in kind - Euro liabilities matched by Euro reserves, dollar by dollar, etc. What makes the USD special is that the internal HK liabilities are matched by USD reserves, but this need not be so.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:36:01 AM EST
[ Parent ]
So how does the fact that HK choose to operate a currency board mean that they have a Central Bank?

They don't have a Central Bank and never have had.

My point, as you well know, is that neither Central Banks nor private banks are necessary intermediaries. Conventional, yes: necessary or even desirable, demonstrably not.

Banking as service provision is a different question.

The financial system cannot be fixed without systemic fiscal reform of a kind which is politically impossible.

Introduction of a complementary financial system is the only solution, and IMHO this will be in place within two to five years.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jun 7th, 2010 at 09:25:49 AM EST
[ Parent ]
Jerome a Paris:
banks' clearing accounts (Aggregate Balance) maintained with the HKMA for the purpose of clearing and settling transactions between the banks themselves, and also between the banks and the HKMA
plus the fact that the HKMA maintains foreign reserves in an amount sufficient to back all the monetary mass of Hong Kong means that it fulfills all the functions of a central bank even if it isn't called a central bank.

Can we please step away from the nominalist debate for a bit and just look at the functions of the institutions?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 09:31:44 AM EST
[ Parent ]
HKMA Infrastructure


Central Moneymarkets Unit

The Hong Kong Monetary Authority (HKMA) established the Central Moneymarkets Unit (CMU) in 1990 to provide computerised clearing and settlement facilities for Exchange Fund Bills and Notes. In December 1993, the HKMA extended the service to other Hong Kong dollar debt securities. It offers an efficient, safe and convenient clearing and custodian system for Hong Kong dollar debt instruments. Since December 1994, the CMU has been linked with other regional and international systems.  This helps to promote Hong Kong dollar debt securities to overseas investors who can make use of these links to participate in the Hong Kong dollar debt market.

The CMU service was further extended to non-Hong Kong dollar debt securities in January 1996.  In December 1996, a seamless interface between the CMU and the Hong Kong dollar Real Time Gross Settlement (RTGS) interbank payment system was established. This enables the CMU system to provide real-time and end-of-day Delivery versus Payment (DvP) services to its members.  

The CMU was further linked to the US dollar, euro and Renminbi RTGS systems in December 2000, April 2003 and March 2006 respectively to provide real time DvP capability for debt securities denominated in those currencies and also intraday and overnight repo facilities for the US dollar and euro payment systems in Hong Kong.

The key point is that according to the definitive Hong Kong Payment Systems document there is no central counterparty whether named a Central Bank or not.

The Central Moneymarkets Unit (CMU) is a membership entity; acts as a custodian; provides no guarantee; and takes no credit risk. (see pages 122 onwards).

As you know, a custodian is a key element of the P2P finance architecture I advocate.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jun 7th, 2010 at 01:07:11 PM EST
[ Parent ]
To understand why this is not a central bank, could you give a definition of central bank structure (with picture if possible) so that the difference becomes clear?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Jun 8th, 2010 at 05:49:59 AM EST
[ Parent ]
ChrisCook:

The only question then is what should be the basis of the tax being anticipated. I favour a levy on land rental values, and another on carbon use.

Why does there have to be a certain tax? Can you not just issue notes saying "this can be used instead of paying x euro in tax to country y"?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Jun 8th, 2010 at 02:48:09 PM EST
[ Parent ]
Chris is mising in his preferred fiscal realignment - moving the tax way away from income and profit, and into rent.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed Jun 9th, 2010 at 08:10:00 AM EST
[ Parent ]
Hey, aren't you the one who keeps saying that economics is mostly a collection of just-so stories to justify the preferred policies of economists? ;-P

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 9th, 2010 at 01:43:57 PM EST
[ Parent ]
Chris is misingmixing in

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed Jun 9th, 2010 at 02:36:38 PM EST
[ Parent ]
That is the problem ... the risk that the EU may have to see the temporary death of Germany's European Export based economy in order to save it.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Jun 6th, 2010 at 09:06:37 PM EST
[ Parent ]
Not before the bond markets attack France. How long until that happens?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 04:27:03 AM EST
[ Parent ]
From the quoted article:
It did not help that the Irish Minister of Finance announced Ireland has 74.2bn euros of guaranteed bank loans, bonds, and systemic support falling due between now and Oct 1.  This is around 55% of GNP.  It sounds like everyone backed by the Irish government had the "clever" idea to roll over their debts to just before the guarantees expire.

WHO COULD HAVE FORESEEN?

This is financial tragi-comedy at its finest! A government dedicated to insuring that its feckless financial elites do not suffer for their folly, and who is praised by the WSJ for so doing, is brought low by the markets. A classic "What have you done for me lately!"

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 7th, 2010 at 11:08:36 PM EST
[ Parent ]
How long before the bond markets are attacking a qualified majority of EU nations? And will a qualified majority of EU nations exercise their existing power to attack back?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Jun 8th, 2010 at 02:44:44 PM EST
[ Parent ]
What I mean is that things will come to a head when the bond markets attack France and Germany does nothing.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed Jun 9th, 2010 at 08:10:43 AM EST
[ Parent ]
But the other question is also relevant: What happens if and when the bond markets attack enough EU members to make up, say, an enhanced cooperation group? Can you make an enhanced cooperation group with the explicit purpose of enhancing the ability of the members to cooperate cutting the balls off some banksters?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 9th, 2010 at 01:42:30 PM EST
[ Parent ]
Of course you can. But you don't need an enhanced cooperation group to have state-level fiscal and regulatory cooperation. However, an enhanced cooperation group certainly has more ramifications...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Wed Jun 9th, 2010 at 02:30:11 PM EST
[ Parent ]
In a letter to the rest of the G20, Tim Geithner, US Treasury secretary, argued: "Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery".
Geithner is contradicting himself. Europe's "policy adjustments" cannot be "needed" if they have predictable negative consequences.

But monetarism rules, so we will stifle any budding recovery in a self-defeating attempt to contain debt by containing spending. We all know the projections for Greece's austerity olicies are of a substantial increase in debt-to-gdp ratio with no compensating posivite outcomes except for the creditors who should have gone bust in the last two years had they not been bailed out repeatedly.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 10:08:13 AM EST
It's my understanding, "needed policy adjustments" refers not only to rationalizing customary government transfers but also increasing amounts of funds to service treasury transactions and equities' re-insurance ("growth").

Such an adjustment surely produces "negative consequences" among dependents of government transfers. Conversely, this adjustment surely produces "positive outcomes" for capital market participants, "the creditors," such as financial services brokerages, debt and equity owners, securities underwriters and traders that have avoided losses during the preceding 24 months of market failures.

Geithner is soliciting assurances from his G20 and Group 30 colleagues that they will continue to discriminate beneficiaries of "growth" according to  a fiscal agenda, they have agreed to implement.

Diversity is the key to economic and political evolution.

by Cat on Sun Jun 6th, 2010 at 10:55:44 AM EST
[ Parent ]
the US wants more demand from others so that it can reduce its own spending.

That this is inconsistent with calls for "discipline" is irrelevant to the US politician he is.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 6th, 2010 at 10:59:13 AM EST
[ Parent ]
as if bond investors have not been proved over and over to be witless, panic ridden piggies with no ability to think in terms longer than a day.
by rootless2 on Sun Jun 6th, 2010 at 10:23:07 AM EST
No, no, you don't understand.

Bond investors have the ability to validate a country's solvency by accepting to buy its bonds. This is why the European Central Bank is barred by treaty from lending directly to European government entities, but it is allowed to buy European government debt securities from private bond investors.

Note how market discipline also ensures that corporate bonds don't need such independent validation, as the European Central Bank is not barred by treaty from buying corporate bonds at issue.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 10:27:37 AM EST
[ Parent ]
that's really beautiful.

The NYT had a very nice series on the defunct US mattress manufacturing company Simmons which finally collapsed after a private capital concern purchased the firm, using the firms own debt, and then paid itself a huge fee with more debt, and then declared bankruptcy. The bond market, with its usual good sense, ate those bond issues up, as if they were delicious.

by rootless2 on Sun Jun 6th, 2010 at 02:15:26 PM EST
[ Parent ]
That process has been going on for at least 30 years.  The next step was to issue an IPO so the looters could walk away and let the stockholders take the inevitable hit.  

The 'Greater Fool' Theory in action.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Jun 7th, 2010 at 12:26:55 PM EST
[ Parent ]
the US needs a postal savings bank but it also needs a federal pension fund so that at least money sunk into these destructive enterprises is not risking retirees savings.
by rootless2 on Mon Jun 7th, 2010 at 04:11:55 PM EST
[ Parent ]
I don't see how a federal federal pension fund is superior to current income financing. After all it's not like a society as a whole can save.
by generic on Mon Jun 7th, 2010 at 04:39:26 PM EST
[ Parent ]
Currently, there are billions and billions of pensions from unions, public sector workers, and even a few others, that are funneled into worthless junk by financial advisors.

For example, the California public workers pension fund just threw away $500M by participating in an insanely leveraged scheme to empty one of Manhattan's last middle class housing complexes and turn it into luxury housing.

by rootless2 on Mon Jun 7th, 2010 at 08:27:00 PM EST
[ Parent ]
Lost Decade, Here We Come - Paul Krugman Blog - NYTimes.com
It's basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.

But don't we need to worry about government debt? Yes -- but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts. A rough estimate right now is that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent compared with what it would otherwise be, yet reduces future debt by less than 0.5 percent of GDP.
...
Yet the conventional wisdom now is that these countries must nonetheless cut -- not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn't) sometime in the future.

Utter folly posing as wisdom. Incredible.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Sun Jun 6th, 2010 at 11:27:53 AM EST
It would be incredible if we hadn't seen it before, circa 1930.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 11:35:24 AM EST
[ Parent ]
This is what we've been dealing with since 2007 in California. The entire political establishment, backed by the media, has argued that budget cuts are simply necessary. Nobody in the state capitol or the mainstream media has asked what the impact of those cuts on the unemployment problem is, and so every year since 2007 we've seen one Hooverite budget after another.

Only lately have Democratic leaders started to argue that budget cuts worsen unemployment. But we've seen them pledge to resist cuts in the past and get wedged into supporting them when Arnold Schwarzenegger and the media argued that not making cuts risked California's credit rating or cash flow.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 11:43:15 AM EST
[ Parent ]
California is ridiculous. I was there when Gray Davis was recalled and I remember Schwarzenegger campaigning on the issue of Gray Davis' budget troubles and specifically Davis' intention to reintroduce vehicle registration fees. One of Schwarzenegger's first acts in office was to call a state budget emergency, and seven years ago here we are...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 11:49:31 AM EST
[ Parent ]
I mean seven years later, not ago...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 12:21:48 PM EST
[ Parent ]
With Jerry Brown on his way to be Governor, that's an understandable mistake....
by gk (gk (gk quattro due due sette @gmail.com)) on Sun Jun 6th, 2010 at 12:29:07 PM EST
[ Parent ]
Moonbeam won't be able to do much until the Super Majority Rule for raising taxes is revoked.

Despite some factors being out of the state government's control, ultimately California is badly managed.  The combination of interests vested in the Post World War II status quo frustrates and defeats those interests who wish to adequately respond to the situation.

That can be changed but it will require political will, requiring the supine electorate, those who want change, to get off their lazy asses and vote.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Jun 6th, 2010 at 12:47:04 PM EST
[ Parent ]
Indeed. I wrote about that recently at Calitics - California's institutional sclerosis. The lack of majority rule was implemented in 1978 due to a desire to maintain the mid-20th century status quo. It remains in place because it helps maintain the late 20th century status quo. As you rightly say, those vested interests succeed in blocking any changes.

It's proved rather difficult to rally the public to fight against this - and I've been trying to do it for 2 years. That experience has led me to conclude we need an animating vision to pull such a movement together.

Of course, we also need money. Lots of it. And it's just not there, at least not right now. Perhaps a clear agenda and vision can produce that too.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 02:26:39 PM EST
[ Parent ]
Two years?  I tried for fifteen.  

And got nowhere.

A combination of the agricultural, banking, real estate, and automotive industries have been in control of California since ... well ... forever.  Allied with the GOP they have stymied taxation of the income producers: agriculture, banking, real estate, & etc. by foisting the ever increasing tax burden on individuals.  They then 'flipped' the debate by forbidding any increase in taxation on anybody which starved necessary infrastructure and other Public Works.  

Almost simultaneously the damn fools passed Term Limits which shifted political power from elected officials to political insiders, of various sorts, which has resulted in political power being concentrated in people that do not, are not, and cannot be held publicly accountable.

Thus real political power in California is essential private.  Thus elections are essentially meaningless.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Jun 7th, 2010 at 12:42:48 PM EST
[ Parent ]
I salute your perseverance. I often tell people that working in CA politics is like standing right outside the control chamber at Chernobyl, pounding on the glass screaming "you fools, you're doing it all wrong, you're going to kill us all" and realizing they can't or won't hear you.

Your assessment of the political landscape in CA is quite accurate. And as you note, they've rigged the system so that it is virtually impossible to change it. They've effectively destroyed democracy in California.

And the world will live as one

by Montereyan (robert at calitics dot com) on Tue Jun 8th, 2010 at 01:09:13 AM EST
[ Parent ]
I may be stupid.  But I'm stubborn.  :-)

California politics makes me think of 10,000,000 people standing around throwing hammers in air and then observing, "Gosh.  It's raining hammers."

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Jun 8th, 2010 at 09:12:04 PM EST
[ Parent ]
And I salute your perseverance!
by sgr2 on Wed Jun 9th, 2010 at 05:45:35 AM EST
[ Parent ]
Ironically enough, Arnold relented in 2009 and agreed to increase the VLF. It was barely noticed by the public.

This state's politics are ridiculous, primarily because of a belief that we can have low taxes and high quality services. Prop 13's passage in 1978 was an attempt to protect the privilege of white suburbanites by imposing austerity on everyone else. It was intended to break liberal government.

What we're witnessing now is the delayed outcome of that vote. In the meantime, successive asset bubbles were used to provide the illusion of balanced budgets and prosperity, with the collusion of Democratic legislators and Republican governors. That policy is no longer tenable, but until now, the desire to have a political coalition of the Democratic legislature and the Republican executive has remained, usually meaning Democrats have acquiesced to austerity.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 02:23:26 PM EST
[ Parent ]
I was told that in 2008 the CA League of Women Voters sponsored an initiative to completely change the apportionment process. The idea being to make it less partisan and reduce the number of safe seats. The commission responsible for it is in the process of forming now, and the new districts are supposed to be in effect 2012. Shouldn't this be very positive development?
by sgr2 on Mon Jun 7th, 2010 at 04:40:54 PM EST
[ Parent ]
I opposed Prop 11 - it's rearranging deck chairs at best, at worst an attempt to push the Democratic Party to the right and reduce the number of Democrats CA sends to the House of Representatives.

Partisanship is not CA's problem. A lack of democracy is.

And the world will live as one

by Montereyan (robert at calitics dot com) on Tue Jun 8th, 2010 at 01:07:05 AM EST
[ Parent ]
Thanks for elaborating, Montereyan.  Just took it at face value because the person who mentioned it to me (political activist/long-time Dem in the Oakland area), seemed to think it was a good idea. Can't see why he'd be in favor of things moving to the right and less Dems in the House, though. I'll definitely have to inquire further on this.
by sgr2 on Tue Jun 8th, 2010 at 03:34:28 PM EST
[ Parent ]
The essence of the Republican program:
massive government benefits with no taxes, but not to people of the wrong color.
by rootless2 on Mon Jun 7th, 2010 at 08:43:19 PM EST
[ Parent ]
Melanchthon:
fiscal contraction now reduces tax receipts

Principally because the tax base is earned income, rather than the unearned rental income from privilege.


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 11:46:42 AM EST
[ Parent ]
a little tidbit to remember is that Japan's 'lost decade' was lost to the financial markets and not so much to the Japanese population (even if inequality and poverty did go up).

So maybe the "lost decade" of Japan is something we should look forward to rather than fear. But I'm pretty sure that's not what they have in mind.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 6th, 2010 at 12:25:49 PM EST
[ Parent ]
Krugman:
But don't we need to worry about government debt?

That question shouldn't be dismissed offhandedly.
In a monetary system with a central bank that acts as a lender of last resort bank lending is not limited by government created base money. So does issuing bonds to fund a government deficit lead to a change in effective demand relative to running unfunded deficits? I don't see how. So what is the point of selling bonds? And if there is none, why should past deficits play a role in determining the size of current deficits?

by generic on Sun Jun 6th, 2010 at 12:29:18 PM EST
[ Parent ]
Printing bonds has the advantage over printing Greenbacks that bonds have lower liquidity, which means that they take part in fewer transactions and therefore cause less inflation than fully liquid forms of money.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 6th, 2010 at 12:33:19 PM EST
[ Parent ]
But you don't have to sell the bond. It is entirely sufficient if you visit your friendly bank and use it as security for a loan.
by generic on Sun Jun 6th, 2010 at 12:49:35 PM EST
[ Parent ]
Which is why when the stock market crashes what is lost is not wealth but loan collateral.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 02:20:03 PM EST
[ Parent ]
You could, but how does that differ in practise from selling the bond in the first place? Apart from increasing the gearing of your financial system, that is.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 6th, 2010 at 04:52:41 PM EST
[ Parent ]
If the only option were to sell the bond for existing money instead of monetizing it the overall amount of money in the system would stay unchanged. That would supposedly limit inflation.
by generic on Sun Jun 6th, 2010 at 06:19:32 PM EST
[ Parent ]
Liquidity is essentially the capability to transact, and it is true that a single class of one undated credit instrument will be more liquid than a myriad fragmented classes of dated debt instruments with different dates and rates.

But liquidity is not per se a reason to transact.

The reason why people may get shot of Greenbacks in favour of bonds or other asset classes - or just 'stuff', thereby causing inflation - is that Greenbacks carry:

(a) no right to income; and

(b) no right to anything with a use value.

What has happened at the moment is essentially that T-Bills at the Zero Bound are functionally equivalent to greenbacks.

So the huge amounts of QE dollars (Fed greenback clones) are going to investors who are using them to purchase of any financial asset other than T-Bills and thereby create parallel bubbles all over the place (eg WTI and S&P correlation).

Where they are not going is to people who will use them to buy stuff - investors have all the stuff they need, thank you.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 01:10:34 PM EST
[ Parent ]
But the Fed pays interest on excessive bank reserves. So even QE dollars may carry a right to income.
by generic on Sun Jun 6th, 2010 at 01:16:49 PM EST
[ Parent ]
I think it's fair to say that the dollars don't, but the clearing banks' relationships with the Fed do - at least for the time being.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 01:23:14 PM EST
[ Parent ]
How does a government run an unfunded deficit when government creation of base money is actually done by the independent central bank?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 12:34:54 PM EST
[ Parent ]
Revoke the bank's independence?
by generic on Sun Jun 6th, 2010 at 12:55:23 PM EST
[ Parent ]
Willem Buiter had some very interesting things to say about central bank independence before he went to work for Citi as chief economist...

What's left of central bank independence? (May 5, 2009)

The modern independent central bank was born in New Zealand in 1989. It had a short life.  The onset of the financial crisis of the north Atlantic region in August 2007 signalled the beginning of the end.  Today, only the ECB still has a significant degree of operational independence left, and it will have to give that up if it is to be effective in the current phase of the crisis. In other words, the ECB is the last central bank to understand that, if it is to play a significant financial stability role, it cannot retain the degree of operational independence it was granted in the Treaty over monetary policy in the pursuit of price stability.

Inflation targeting was invented around the same time and central bank independence, and also in New Zealand, with the Reserve Bank of New Zealand Act of March 1989 and the first Policy Targets Agreement (PTA) in March 1990.  The Reserve Bank of New Zealand Act 1989 specifies that the primary function of the Reserve Bank shall be to deliver "stability in the general level of prices."

...

A case can be made for the Deutsche Bundesbank, established in 1957 as the sole successor to the two-tier central bank system which comprised the Bank deutscher Länder and the Land Central Banks of the Federal Republic of Germany, as the first modern independent central bank, but the de-facto independence of the Bundesbank was a product of Germany's unique historical circumstances - notably the hyperinflation of the Weimar Republic's hyperinflation during 1923 and the limited legitimacy of the other state institutions following the Nazi era and World War II.  I therefore consider the Bundesbank to have been a pre-modern independent central bank.

...

Unconventional monetary policies require close central bank - Treasury cooperation

Every time a central bank makes a loan at the discount window or engages in a reverse repo secured against private collateral, it takes credit risk (default risk).  In the Euro Area, the ECB even takes credit risk when in accepts the Treasury debt of some of the Euro Area member states as collateral in its lending operations.  There is no guarantee that cross-border fiscal solidarity in the Euro Area will ensure that sovereign debt issued by fiscally incontinent member states will be made good by Germany and other member states with deep pockets.

...

Inevitably, when the central bank takes on significant credit risk in its monetary policy management, liquidity management and credit enhancement policies, close cooperation between the central bank and the fiscal authorities is essential.  Cooperation and coordination do not necessarily mean loss of independence. The ECB, unfortunately, often talks as if cooperation and coordination, including binding agreements, between the ECB and the fiscal authorities of the Euro Area would in and of itself constitute an infringement on its independence.  So all it is up for is regular cheap talk with the Ecofin or with the Eurogroup finance ministers.

As the crisis lengthens and deepens, the absence of close cooperation between the fiscal authorities in the Euro Area and the ECB will make both the ECB and the fiscal authorities progressively less effective.  This is in addition to the problems the ECB encounters as a result of the absence of even a minimal `fiscal Europe', in the design and implementation of unconventional monetary policy involving outright purchases of private securities or unsecured lending to banks or other private counterparties.

...

This threatening irrelevance of the ECB is caused by two factors, largely beyond its control.  The first is the absence of a `fiscal Europe'.  This means that the ECB is more restricted in the amount of private credit risk it can take onto its balance sheet than central banks that are clearly backed by a fiscal authority (national central banks outside the Euro Area, backed by their national treasuries).  Credit easing policies therefore pose greater risks to the ECB price stability mandate than similar policies do in the UK and the US.

The second cause of the increasing irrelevance and ineffectiveness of the ECB in these later stages of the financial crisis is the excessive independence granted the ECB in the Treaty.  Governments will be extremely reluctant to transfer supervisory or regulatory powers to a central bank that is under no constraint to pay any attention whatsoever to the elected and accountable politicians, both in the executive and legislative branches of government.

So I conjecture that central banks are facing a choice: remain relevant to crisis prevention and resolution, but lose much of your independence, or remain independent and become irrelevant.

Also Central banking as partisan politics (June 27, 2009)
As long as the financial stability role of central banks remained in the background, the notion of central bank independence appeared to have something to recommend it.

Setting the official policy rate is, by the standards of other political interventions in the economy, a relatively `technocratic', non-political or at any rate non-partisan and non-party political act.  Like any interest rate change, it hurts those who are long the official policy rate (or other rates linked tightly to it) and it helps those short the official policy rate.  But as the official policy rate is an overnight rate in most countries, the distributional effect of this change in the inter-temporal relative price of money is likely to be minor.

...

Once central banks get involved in lender-of-last resort operations, recapitalisor-of-last-resort operations and other rescue operations of banks and other financial institutions deemed to big, too complex, to international, too interconnected or too politically well-connected to fail, centrals banks and central bankers become normal political actors, indeed partisan political actors.  They should not be surprised to be treated as such.



By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 02:57:32 PM EST
[ Parent ]
pretty prescient stuff...

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Jun 6th, 2010 at 04:28:14 PM EST
[ Parent ]
I nominate Buiter to succeed Trichet as ECB chief.

I think he understands banking and central banking better than most economists, bankers or central bankers.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 04:29:28 PM EST
[ Parent ]
Austerity is like a staring contest. Whoever has the deeper pockets wins, therefore in the political tug-of-war to decide who tightens their belt, it's the mass of people with no wealth that lose out. The wealthy can outlast the poor by eating the seed corn.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 12:30:45 PM EST


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Jun 6th, 2010 at 12:56:52 PM EST
[ Parent ]
I think this cartoon is also the answer to my question to kcurie to substantiate the claim that you cannot have feudalism and advanced technology.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 02:19:06 PM EST
[ Parent ]
Here is the toy model to proof it.

http://issuu.com/delong/docs/20090826_lecture_4

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sun Jun 6th, 2010 at 03:20:40 PM EST
[ Parent ]
No, the model is not there...

But the argument is there.

Let's see if I find the model...

geee

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sun Jun 6th, 2010 at 03:23:29 PM EST
[ Parent ]
The Keynes era was a blip, brought on by the necessity of competing with the threat of communism. The wealthy elite are hard-wired to believe in belt-tightening during hard times, and pay-as-you-go at all times except for essential stuff like military imperialism.

The problem for the left is why the victims support Hooverism. That has to do in the U.S. with the decline of the left into a multifaceted identities lobby, which your post unfortunately reflects. And, of course, the right's faux populist exploitation of discontent with the right-wing economics of the Democrats.

There is no need for a new alternative political construct or what the fuck. We know what we need and it's the domestic economic politics of the West of the 1940s to early 1970s (might be nice to end imperialism, too). Worked well, people even in our right-wing-soaked propagandized and anti-intellectual media world know it worked well (so no need for ground-breaking but very likely almost completely disappeared-in-the-media consciousness raising for the new alternative construct), let's do it again.

fairleft

by fairleft (fairleftatyahoodotcom) on Sun Jun 6th, 2010 at 01:35:48 PM EST
before neofeudalism brings back neocommunism?

Does it require large scale impoverishment?

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 6th, 2010 at 02:25:28 PM EST
[ Parent ]
revival of Keynesianism and borders = neofeudalism?

fairleft
by fairleft (fairleftatyahoodotcom) on Mon Jun 7th, 2010 at 06:34:22 AM EST
[ Parent ]
No, neofeudalism = neoliberalism run amok and revival or Hooverism

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Mon Jun 7th, 2010 at 07:04:19 AM EST
[ Parent ]
We know what we need and it's the domestic economic politics of the West of the 1940s to early 1970s (might be nice to end imperialism, too).

Minsky's 1986 Stabilizing an unstable economy contains an economic history of the US 1945-1985. His analysis is that what made 1945-65 special and stable was that the private sector was stuffed with US treasury securities as a result of the enforced savings and investment of the war economy, and it took 20 years to unwind those government bond holdings. Then after roughly 1965 financial innovation started out of necessity since banks couldn't do their business just shuffling US treasuries. And then financial crises hit every 5 years or so, until now.

So it may not just be the political economy - maybe you couldn't pull it off with today's balance sheets.

Incidentally, Minsky dates the start of stagflation well before peak oil in the lower 50 US states (he doesn't mention peak oil), which means that maybe stagflation wasn't only or even primarily about resource constraints, as many of us here appear to believe.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 02:43:09 PM EST
[ Parent ]
Another factor was that from the end of the war until perhaps the middle '60s, American manufacturers had a ready made market for practically anything they could produce while Europe and Japan rebuilt their war-ravaged economies.  And I think it is no accident that, from about the mid '60s on, European and Japanese companies began to out innovate and out compete the Americans with newer, more modern facilities and newer, more modern management structures.  Deming tried to sell Total Quality Management to Detroit first and got no traction whatsoever.  They were entirely too fat, dumb, and happy with the status quo.  The Japanese, on the other hand, bought into TQM wholesale.  The rest, as they say, is history.

We all bleed the same color.
by budr on Sun Jun 6th, 2010 at 03:34:50 PM EST
[ Parent ]
Business leaders are as a rule pretty short-sighted, and don't do a good job of long-term business mgmt. The Japanese learned this in the run-up to WWII, and their excellent economic growth is a result of govt planners forcing long-term and 'quality' thinking onto their industrialists. So, the Japan story isn't about 'Japanese manufacturers' discovering Deming and saying, "Hey, this guy's got it going on, let's all do what he says." The guiding hand of the Japanese state was critical to forcing Deming's ways onto the Japanese.

I think the story in very general is quite similar in the post-war Western Europe economic success story.

fairleft

by fairleft (fairleftatyahoodotcom) on Mon Jun 7th, 2010 at 06:51:13 AM EST
[ Parent ]
I don't know this as well as I'd like - I put my academic career as a historian focused on the US in the 1960s on hold just as I was starting to investigate the economics of the era - but what I do know is that spending on the Vietnam War helped produce significant inflation across the US by 1967-68.

Lyndon Johnson refused to seek a tax increase to pay for the war, hoping to keep the war's impact from being felt by most Americans, and this apparently led to the inflation as well as screwing with the balance of payments system set up with Europe at the end of the war.

There's likely more to the story, but that's a piece. While we have a good understanding of economic policy history from 1980 to the present, it seems that the era from 1960 to 1980 is less well understood.

And the world will live as one

by Montereyan (robert at calitics dot com) on Sun Jun 6th, 2010 at 05:51:46 PM EST
[ Parent ]
of the West

I think the economic policies of the industrialized Western European economies (except Britain) after WWII are a much better model for how the the West should revive their economies. Deficit spend till full employment, for example. Have an incomes policy and understand that strong and nearly universal unions are an element of that. Lead, protect and encourage industry into high-employment and international quality production. There is no re-invention involved.

An important understanding is that whatever is done you will not get the growth rates of Europe recovering from WWII or the U.S. without much competition in the 40s and 50s, or of China over the last decade. Mature economies don't grow very fast, they're not where 'the market' wants to invest. So governments of mature economies have to force that investment.

fairleft

by fairleft (fairleftatyahoodotcom) on Mon Jun 7th, 2010 at 06:44:28 AM EST
[ Parent ]
Unions only really work in industrialised and centralised economies, where the same people work together, talk to each other, sometimes live near each other, and deal personally with the same management.

We need something like unions for the mobile, telecommuting, 'freelance', contractor temp economy that most workers live in now - including many who are supposedly middle class.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jun 7th, 2010 at 07:19:50 AM EST
[ Parent ]
The "'freelance', contractor temp" 'economy' is actually a product in part of anti-union thinking. I don't think it's an attractive way of organizing the workforce, from either a productivity or 'worker welfare' perspective.

Union membership should be automatic, in the same way citizenship is.

fairleft

by fairleft (fairleftatyahoodotcom) on Mon Jun 7th, 2010 at 10:45:46 AM EST
[ Parent ]
I agree and disagree with different parts of this.  The ideological capture is mostly right, I think, but I doubt Geithner and Obama's stimulus push has much to do with a desire to piggyback on demand elsewhere.  Obama pushed his stimulus, which worked as expected and -- also as expected -- wasn't nearly large enough, and now there's no political will for more stimulus in the US.

As for piggybacking, I remind you that Merkel and Sarko were the ones who wanted to piggyback on the US stimulus back in early 2009, and threw a hissy fit at requirements in the bill that US companies and workers produce the goods and services -- the logic of the mandate, of course, being that it was our stimulus money and should go to our people and firms.

Europe threatened to take the US to the WTO over it, if I remember correctly, and I think Ben Nelson stripped the provision.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Jun 6th, 2010 at 04:11:02 PM EST


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