Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Midnight Thought on Whether Keynes can Fix This Mess.

by BruceMcF Thu Sep 18th, 2008 at 01:59:53 AM EST

xposted from dKos, by request. "We" in the diary is us yanks ... I'm not sure on the one hand how much leeway you Yuros gots for crash programs, nor on the other hand how much of a crash program you really need ... just as the rest of the OECD got along fine as Japan struggled through its lost decade, I would not be stunned if Europe turned out to require far less of a crash program to avoid economic calamity.

The thing about the New Deal ... it provided a lot of "relief"(1) to a lot of people in desperate shape. But what cured the Great Depression was not the shock absorber of job guarantee programs like the two public works administrations and the Civilian Conservation Corps.

What cured the Great Depression was the massive Keynesian stimulus of World War II. Even before the US got into the war, armaments industries ramped up production in response to domestic re-armament and orders from overseas ... including the gimmick of Lend-Lease to make sure that the UK had the money to buy the product of US arms factories.

We can do the exact same thing with the economic disruption that is coming, and if we learn the lessons of the Great Depression, we can do it again ... with something far more useful than fighting another World War.

Front-paged by afew


(1. Note that while the term "relief" is perhaps adequate for a soup line or emergency shelter, it is completely inadequate to express the impact of the most significant employment programs of the New Deal on the individual sense of respect and self-worth of those working in the programs.)


The Cure for Unemployment is a Job

It is true that Cyclical Unemployment is a symptom of an economic downturn ... and Long Term Unemployment of a symptom of a long-term policy of keeping the economy below top gear ... but it is also an economic bad in its own right.

In a modern industrial economy where the most broadly based active participation in the economy is paid work, denial of access to a job is denial of the right to participate in the material provisioning of society.  And the least inflationary means of ensuring that access of employment to the widest number is a direct Job Guarantee at a living wage.

And we, by which I mean collective action of our government mobilizing individual action of us, can do it. There are all sorts of hypothetical alternative realities where it will not work, which many of my colleagues in economics delight in exploring, but in our world, if there are things that need doing, unemployed people, and a capacity by the country to produce the means of subsistence for those unemployed people, the idea that there is a "financial" obstacle to the government employing the unemployed is pure nonsense.

(For more on some of the aggro in the previous paragraph, see Professor Bill Mitchell of Newcastle and How Economics is Failing Us. Its from the Spring of 2000, October 4, but rest assured that Economics is still failing us in this same way.)


The Financial Collapse will Undermine National Demand for Years

When Japan had its financial meltdown after its housing bubble went south ... and on top of much less ingenuity in financial gimmicks promising easy returns if the holder would only agree to stand in the middle of a road on the promise that no traffic was going to be coming along ... it went through ten years of economic stagnation punctuated by three recessions. This was in the middle of the Boom 90's in the United States, and we didn't pay it much mind ... but that is what happens when a financial system has a massive low quality portfolio to make good.

It will be harder to finance real investment in productive capacity, and harder to keep the confidence racket of ramping up consumer borrowing to make up for stagnant consumer incomes. And those in the top 1% of the income ladder who received all the pay rises in this decade, who could borrow to spend, are going to be reacting to the conversion of all those paper profits into paper losses with a reduction in real spending.

Now, continued slack standards on financial institutions could moderate the short term bind on credit, but only at the cost of risking further rounds of financial institution meltdowns. So tight credit is the best of the bad options available.

That leaves the two remaining growth drivers as exports and government spending. And of course, if economic activity picks up worldwide, that will jack up crude oil prices again, which will rebound on our import bill.

As far as standing back and waiting for the return to "normalcy" on the back of the private sector, that could easily be a decade.


The Government Can Pick Up the Slack

We have an economy of around $14 trillion dollars. If every dollar injected into the economy leads to an additional dollar of consumer spending out of the increased income (a "multiplier" of 2), then the government can add an extra 10% to national income by spending an extra 5% of national income, which would be around $700b.

Of course, the current economic slide is being cushioned to a certain extent by the budget deficit in the range of $400b. Shifting as much of that as possible from wasteful overseas military adventurism to spending domestically would, in fact, help, since spending directly overseas fails to be a stimulus to the US economy. And that goes for both the new "hot" adventurism of Iraq, and the "habitual adventurism" of having a 700+ base network originally designed to encircle the Soviet Union under the policy of slogan of "containment, and being expected to somehow magically be of use against a stateless network of terrorist groups that cannot be geographically encircled.

However, if we are around a 3% deficit now, and expand that by 5% to an 8% deficit, that would be a genuine short term stimulus to pick up the slack while the financial institutions get their houses back in order.

Supposing that we shift $100b from overseas military adventurism to domestic spending, and add $700b on top. Is there anything we can spend $800b on?

That is enough money to retrofit our houses for energy independence, retrofit transportation in our cities and our suburbs for energy independence, electrify and massively expand the capacity of our Strategic Rail Network, provide the national HVDC trunk network to connect all of our sustainable renewable energy resources to all of our regional grids, retrofit our energy-intensive agricultural system toward a renewable energy base in the medium term and a sustainable production system in the long term, and provide an Energy Adjustment Fund to help individuals equip themselves for the New Energy Economy.

On the one side, we have more than four decades backlog of projects since National Peak Oil to convert from an oil-based economy to an economy powered by sustainable renewable energy, and on the other hand the serious prospect of a lost decade of economic growth if we do not find a way to spend a lot of money.

And, as in WWII, if we borrow enough to spend that much money, the long term economic impact depends on the long-term consequences of the spending. The US emerged from WWII with roughly half of global GDP and the most productive, best paid workforce in the world. We can emerge from the reconstruction of our economy on a sound Energy footing with a massive reduction in our energy trade deficit and a big stake in major export markets of sustainable power producing equipment and technology all around the globe.


Sometimes Opportunity Knocks Once

We are, of course, far more dependent on imports than we used to be. And any nation dependent on imports has to worry about not just unemployed resources available overseas, but also about the ability to finance the imports that are needed.

At the moment, a lot of those imports are tube socks and cheap electronic gizmos from China. And at the moment, China is riding the legacy of Mao's population-promotion policies in the form of a massive demographic wave of young adults, for which it has to keep providing jobs or, at the very least, the prospect of jobs, in order to avoid political revolution.

However, China will not be forever desperate to keep ramping up its exports at the expense of standard of living. The One Child policy means that the demographic wave will crest, and once it does, China will be in a position to be far more choosy about what it exports and the terms under which it exports. Or else, it will not successfully negotiate the balancing act, and political turmoil will physically disrupt the supply of consumer staples from the new workshop of the world.

Ramping up our public debt for a massive Energy Economy Reconstruction will, of course, push us from having an Importer's Dollar to having an Exporter's Dollar ... and that is all to the good, because it will ensure that a larger share of new productive capacity to provide the equipment to produce the renewable, sustainable power will be located right here in the US, as opposed to the more expensive European Union or Japan.


Long Term Financial Reconstruction

And of course, fixing the financial system is straightforward. It may require a lot of refinance, but the primary way to get back to the robust prudential balance sheets of the 1950's is to put the financial regulations back in place that have been ripped out over the past sixty years in pursuit of quick profits at the expense of less prudential cover.

It is, after all, that restoration of prudential regulation that will insure against any inflationary impact from the infusion of dollars newly created by the Federal Reserve.


Did I mention Opportunity Only Knocks Once?

Did I mention opportunity sometimes only knocks once? So get knocking those doors and banking those phones. If Obama is elected, then as the crisis unfolds, his administration may act in the full measure of the crisis, or it may meet the crisis with half measures, but there is no doubt that his policy is already heading in the right direction.

And if McCain/Palin is elected, we are royally screwed, and the question becomes whether we lash out too nastily against a nation too well armed in new-clear weapons on our way down.

Midnight Oil - My Country

Was it just a dream,
were you so confused
Was it just a giant leap of logic
Was it the time of year,
That makes a state of fear
Methods, were their motives for the action

...

I hear you say the truth must take a beating
The flag a camouflage for your deceiving
I know, yes I know
It's written on your soul
I know, we all make mistakes

This is not a case of blurred vision
It's a case of black holes,
pocket holes, soul holes ...

Display:
... not counting mine.


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 Wed Sep 17th, 2008 at 07:02:16 PM EST
So far the US has no demand problem. The US is running a massive CA deficit, still. From whom do you want to borrow the extra money you want to spend, without distroying private demand - probably from foreigners, but you think they will finance a ~10% CA deficit without demanding junk bond interest rates?

Apropos Obama and military - does he really want to close a lot of bases around the world? Isn't it, that Obama wants to keep the huge ambassy in Iraq, that Obama wants to escalate Afghanistan? Yes, the 100 billion you may save, but the other 700 billion, you just can't borrow so much additional from abroad.

When you really want such massive scale investment into the future, you not only have to add demand, you have to shift demand. Too little of that in your suggestion.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Wed Sep 17th, 2008 at 08:09:10 PM EST
Under a reserve banking system, the fiscal authority spends money, and so long as the purchase is priced in domestic currency, the Treasury check clears. Since the US still has a reserve banking system rather than a currency board or some other monetary system, that goes for us as well.

The quicker the US closes the energy import hole, the better our external account will be ten years down the track.

As far as the aggregate demand ... a country does not have a broad unemployment rate of 10.7% without having excess productive capacity.


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 Wed Sep 17th, 2008 at 08:20:21 PM EST
[ Parent ]
Under a reserve banking system, the fiscal authority spends money, and so long as the purchase is priced in domestic currency, the Treasury check clears.

You are right, technically. But don't you see any responsibility to keep inflation down, after you have borrowed several trillions of dollars from foreigners to purchase their goods and quite a bit of their equity as well? After in some cases you have used military power to make sure, that they really buy your assets?

The US has never pledged to keep the external value of the dollar, but to keep the domestic value of the dollar, which thereby should keep the external value in some band.
Printing new money is inflationary, unless the unemployed people you bring to work produce consumer goods/the type of goods the newly employed people demand. You want invest that money. That is inflationary.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Wed Sep 17th, 2008 at 09:25:14 PM EST
[ Parent ]
Yes, but how is there going to be a threat of inflation under these circumstances?

The long term threat of inflation ... indeed, the actual threat of hyperinflation that would totally wipe out the value of US dollar denominated debt ... is if the US economy does not kick its addiction to imported crude oil as our oil production continues to slide down and if there should be a reduced willingness to accept US dollars in exchange for oil. That is the kind of external structural imbalance ... like the melt-down of the Argentine currency board, or the Brazilian debt crisis of the 1970's and 80's, or the structural external account imbalance of Wiemar Germany, or the collapse in value of Confederate cotton bonds leading to the Confederate hyperinflation during the US Civil War ... that can lead to a hyperinflationary episode.

Absent something like that, what is the threat of rampant inflation from deficit spending picking up some share of currently idle US productive capacity? What was the threat of inflation in Japan in the Lost Decade of the 90's with heavy government deficit spending to keep the economy ticking over in the face of the financial hangover of the collapse of their real estate bubble and the transition of Japanese corporations to a substantially higher share of import value added in Japanese production?


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 Wed Sep 17th, 2008 at 09:40:17 PM EST
[ Parent ]
The Japanes people have saved money, which the gov't has borrowed. Therefore there was no thread of inflation. Japan wasn't running a stunning CA deficit before the intervention.

Of course the US has to get rid of its oil dependency. Others have to do the same. Do you think Europe has infinite oil under its feet, or Japan, or China?
When you want to invest, you should save. Saving means reducing consume for increasing investment. Why can't the US do the same? Why shall others, who run out of oil in the same time as the US, as oil is globally traded commodity (which means of course the current oil exporters will as well run out of oil in the same time scale), donate capital to the US, while you are running wars, which we don't like (Obama wants to escalate Afghanistan)?
Even in the last quarter, with the the pretty weak dollar (and high competivness) the CA deficit of the US was higher than the pure petrol deficit.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Wed Sep 17th, 2008 at 10:00:39 PM EST
[ Parent ]
This is either the loanable funds fallacy or the automatic full employment presumption. I'll assume the latter.

The traditional marginalist approach to arguing this is to build an automatic tendency to full employment into the assumptions of the model, so that the economy is always assumed to either be on its production possibility frontier, moving toward its production possibility after a shock, or held away from its production possibility frontier by government introduced inefficiency.

Because if the economy is not on and is not tending toward its production possibility frontier, as the US has not been for the entirety of the Bush "recovery", there is no need to "save more" in order to consume more when there are is an unemployed complement of resources that can be put to use to create the goods or services to be consumed.

You are using the end result of the current account deficit, the low domestic savings rate that is implies by the current account deficit, to argue that the US cannot take action to move toward a structural reduction in the current account deficit. So because the US has in the past not taken action to get our current account deficit under control ... and with our trade and energy policies of the last three decades, rather the reverse ... it is not permitted to take dramatic steps now.


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 Wed Sep 17th, 2008 at 10:21:54 PM EST
[ Parent ]
Interesting. For the edification of the masses (or just me), can you assume the former in another comment?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Thu Sep 18th, 2008 at 01:36:25 AM EST
[ Parent ]
BruceMcF:
an unemployed complement of resources that can be put to use to create the goods or services to be consumed.

This assumes that production capacity can be magicked into place where it doesn't exist with little cost (or private sector investment), and also that raw materials are local and don't need to be imported. Or if they do need to be imported, currency devaluation won't ravage the pricing.

So the true production possibility frontier isn't necessarily where the unemployment statistics suggest it might be.

The two problems here are that the current crash is a political, not an economic problem. As usual with this bunch of clowns, it's not clear if they're evil or stupid. But either way, they can be relied on to do the wrong thing as long as they're anywhere near power, even in opposition.

The other problem is that old economic models may not apply. Consumption is part of the problem, not part of the solution. In a consumption economy you run the economy as a machine with no concept of social value, except as an afterthough.

A sustainable energy economy would be better than a war economy, but an economy based on explicit notions of social value, including education and culture, is more sustainable and easier to get to from here than classical widgets-as-usual.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Sep 18th, 2008 at 03:51:37 AM EST
[ Parent ]
What, are you proposing that we actually pay artists and teachers?  What are you, mad?
by Zwackus on Thu Sep 18th, 2008 at 05:14:28 AM EST
[ Parent ]
... assumes that the external accounts are kept in shape, because in the core economies, productive capacity can be produced given material, labor, and the existing productive capacity to produce productive capacity, and for the peripheral and semi-peripheral economies, productive capacity can be purchased given the external accounts in reasonable shape.

If you go through the list of items in the programme, some items will require substantial capacity build-up, and other items have ample spare capacity right now. This kind of programme would press the items requiring capacity build up to their current capacity limits and ensure an ongoing market to encourage the capacity build up, and put the existing capacity to work.

Obviously, that assurance of demand for the capacity build-up combined with the shift of the dollar under the policy toward an Exporter's exchange rate also functions as an infant industry development policy.

The external accounts is the "Sometimes opportunity knocks once" section in the diary. The door on the US abusing the central position of the US dollar in the international economy is going to close if the US remains addicted to oil and enters a downward spiral of economic decline in a series of oil price shocks. We engineered an external accounts imbalance in excess of our average growth rate under Clinton, and then with the reckless military adventure in Iraq it has been reliably more than a percent higher than our average GDP growth rate. And that was for consumption.

The programme above is, in part, a structural readjustment of our external accounts to, on the one hand, close a major import bill with substantial risk exposure in terms of energy commodity price inflation, on the other hand, open up a new export sector, and on the gripping hand, swing to an Exporter's exchange rate, pushing for a discounted rather than overpriced dollar.


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 Thu Sep 18th, 2008 at 07:21:56 AM EST
[ Parent ]
I´d suspect that at least in the first 1-2 years, you probably couldn´t spend $800 billion per year on energy infrastructure (private and public). You´d probably face a shortage of equipment and trained workers.
So that program might start at a lower money level which might make it easier to finance in the beginning.

Do you want to give tax credits, direct subventions, guaranteed prices for wind energy (for example) to private citizens and public companies?
As in get better insulation, windows, new heater and we´ll give you x dollars in a direct subvention and/or a 0% interest loan to pay for the rest of it?
Same for wind power companies. I seem to remember that one problem of the USA is the unpredictability of the laws. Does the company get the same guaranteed price and/or tax exemption next year and so on?

Which leads to Congress. You probably need a change in attitude. Once that program starts investors and private citizens must be able to trust that program. They need to know that if it´s announced as a 5 or 10 year program, Congress won´t cut money in year 3 or 4. How do you guarantee that?
Especially given the battle cry of the Republican party? Tax cuts and disregard for renewable energy.

Money.
As I see it you have five options.
a) Raise money by selling treasuries. $700 billion per year means a doubling or tripling of treasuries sold per year to finance the federal budget deficit. It might work but I would at least expect higher interest rates. It is a large addition after all!
b) Print more money. Inflationary risks included.
c) Use the MEFO "system". Might work for a few years. Until the bills come due. Not sure if it would even work in todays global financial system.
d) Actually raise some taxes. :)
e) Combination of a), b) and d).

by Detlef (Detlef1961_at_yahoo_dot_de) on Thu Sep 18th, 2008 at 01:59:49 PM EST
[ Parent ]
An interesting move would be to work with the Chinese and try to get them on board with a similar program. Their windmills may suck, but there are likely to be possible relationships in manufacturing and finance which could benefit both sides, cut fossil fuel dependence, and create an interdependence which would make conflict less likely.

I realise the idea of nation states cooperating strategically is going to make many Republican heads explode, but at this point we really shouldn't be taking any notice of what they're likely to think or say.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Sep 18th, 2008 at 03:43:54 PM EST
[ Parent ]
I hadn't come across MEFO before. I guess Nazi Germany remains unfashionable.

My "Energy Pool" proposal will work in the real world, I think...but there's only one way of finding out....

The key to it is that instead of using debt we create a new form of  "equity" using redeemable "Units".

Firstly, an "Energy Pool" fund is created (using a UK Limited Liability Partnership as a framework) with an initial "windfall" levy on energy companies, and a continuing "Carbon levy" on non-renewable energy.

Imagine an Energy Pool fund of £100 million initially. With a 10 Kilo Watt Hour "Unit" and a market price of 50p per Unit we have a "Pool" of 200 million Units.

Secondly, we invest the fund in renewable energy projects and energy efficiency projects.

The deal is that the user of the finance gets an interest free loan in sterling terms, but has a negative balance of Redeemable "Energy Units".

ie he "sells forward" part of his production, or his savings, to the Pool.

So he will either exchange renewable energy he produces against Units, or buy back Units at the market price of energy out of the energy savings he has made.

We then distribute the 200 million redeemable "Carbon Pound" Units in the Energy Pool equitably, as determined by government/ community, both to businesses and maybe to address fuel povert as an "Energy Dividend".

The effect is - literally - to "monetise" energy into Redeemable Units, which have intrinsic value, rather than monetising CO2, or Debt, which have none.

These "Carbon Pounds", which remain constant in energy terms at 10 Kilo Watt Hours, will of course vary in sterling terms with the market price of energy expressed in sterling.

The beauty of monetising renewable energy and energy savings in this way is that you are monetising something of value that will cost nothing to produce.

And anyone could start doing this tomorrow.

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

by ChrisCook (cojockathotmaildotcom) on Thu Sep 18th, 2008 at 06:55:18 PM EST
[ Parent ]
Chris,
your comment always leave me unsure as to wheter or not I have understood you.

I recently came across O2, a swedish wind-coop. They offer a membership share for 6200 SEK (~650 euro) which entitles you to use 1000 kWh/year for the production cost of 0,13 SEK/kWh (~0,015 euro/kWh) which translates to 10% of retail price. If you use less the rest can be sold. If you leave you can sell back your share.

You cut out the middle man in the investment-chain and invest in what you are going to consume. That way you decrease uncertainty for both seller and consumer/investor.

Is this basically what you are proposing but on a national scale? (If so, I understood correctly.)

Oh, and a link to o2 Energi.

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

by A swedish kind of death on Fri Sep 19th, 2008 at 11:02:33 AM EST
[ Parent ]
Interesting.

...and pretty close to what I have in mind, the only difference being the legal framework within which it takes place...

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

by ChrisCook (cojockathotmaildotcom) on Sat Sep 20th, 2008 at 12:09:25 PM EST
[ Parent ]
That's the funny thing, the USD has lost 30-50% of its value versus its biggest trading partners (CAD and EUR) and still it has a CA deficit ex. petrol.

This is the answer to the proposition that the US can export out of this. There's three decades of fake growth in the US which need to be unwound, not just eight years.

Of course, it being America, the poor will pay the most for this, certainly not the guilty.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Sep 18th, 2008 at 05:12:58 AM EST
[ Parent ]
This programme is about what the US could do if we did not tie one hand behind our backs with ideological constraints in service to the partial interest of the wealthy few rather than the public good.

But, yes, while restoring the economic health of the US and reversing the current slide out of the ranks of the core economies of the world, it would benefit the many more than the few during the medium term, and so is highly unlikely to be adopted.


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 Thu Sep 18th, 2008 at 07:24:34 AM EST
[ Parent ]
I´d say China is certainly one of the biggest trading partners of the USA too. And here the currency peg does play a role I´d say.

Notice that when the dollar went down against the Euro the Chinese currency also went down against the Euro. Which helped Chinese exports to Europe.

by Detlef (Detlef1961_at_yahoo_dot_de) on Thu Sep 18th, 2008 at 01:09:27 PM EST
[ Parent ]
But not on the export side, the point being about whether the US can export itself out of this. The US exports most to the Euro Zone, then Canada and Mexico before China.

USD is even falling against the Mexican peso, and yet the export growth this massive devaluation should have kicked off hasn't come close to closing the gap, even if you exclude petrol from the equation.


The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Sep 18th, 2008 at 01:23:20 PM EST
[ Parent ]
Not sure.

From what I´ve read it takes time for a currency devaluation to "kick in". Always assuming of course that you do have products to export. :)

First example Canada since you´ve mentioned it.
All I´ve read in the last year mentioned that the car and auto parts factories in Canada are hurting from the near 1:1 exchange rate. So in time it might lead to a relocation.

Second example Europe. Remember Airbus?
Planning to build some factories in the US dollar zone?

Third example Germany since I live there.
German exporters started to moan about the rising Euro in 2007 in the business press. You can protect yourself against it for a while but sooner or later you have to raise your prices.

In summary I´d say it takes at least 1-2 years before you feel the effects of a devalued currency. You don´t relocate a factory after a few months of currency problems. But you start thinking about it when the problem persists for a year or two.

by Detlef (Detlef1961_at_yahoo_dot_de) on Thu Sep 18th, 2008 at 02:38:22 PM EST
[ Parent ]
It's definitely true that exchange rates for many industries take a while to filter up to prices.

But the us dollar's decline didn't just happen, it started in the early years of the Bush administration. It lost almost 20% of its value against the euro in 2002, another 15% in 2003, 10% in 2006, another 10% in 2007 and even more earlier this year. Between 2002 and 2007, the US trade deficit with the eurozone went from around 75 billion to arond 100 billion usd an over 30% increase.

Against CAD it was down 20% in 2003, another 10% over the next two years, and 15% more last year. So this isn't a new phenomenon, but look at the trade deficit with Canada - it grew, it's on pace to be at usd 90bn deficit this year versus 48 billion usd in 2002, ie almost doubling.

So if there's an export bright spot, it's had a long time to show itself and it hasn't happened, not against the major trading partners. And Mexico, against whose currency USD was only slightly down over the period, saw the deficit double as well, so you get the idea. The US current account deficit will not go away until us demand goes away, demand which was credit fueled and which now will be reduced, and I think we all know what this means for average Americans.

Canada's auto industry viz the US is a more complicated story; it's true that the loonie at par makes it harder for exports out of Canada, but the Canadian auto industry has a comparative labor price advantage over its US counterpart, expressed in terms of benefits load relative to healthcare burden. Canada has national healthcare, the US doesn't and the US automotive industry has legacy healthcare liabilities because of this that make the price of employee healthcare per car more expensive than the price of steel per car manufactured in the US. In a sense, US ideological rigidity is killing off US industry. But, it is true that overall demand for cars is declining in the US and that hits all automakers, be they producing cars in the US, Canada or elsewhere, a simple expression of the onset of a rather severe recession which is underway in the US. And Canada will not avoid the fallout of what's coming - already, the lumber and other builing trades industries, strong exporters to the US and elsewhere, are suffering from the housing downturn. Paper mills have been closing for years, demand for newsprint and other paper products dropping due to technological forces, and the raw materials bubble is now coming to an end. Like Finland in the post-implosion of the Soviet Union, Canada is going to hit some tough times; unlike the US, Canadians have a decent sense of solidarity, if coomunitarian in nature, and this should pull them through it like the Finns, and unlike the Americans.
   

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Sep 18th, 2008 at 04:15:17 PM EST
[ Parent ]
Adding that the noise about an Airbus factory in the US might have more to do with a certain defence contract in the US they hope to make than an actual delocalisation to take advantage of lower labor costs.

Pretty soon the US gov't won't be able to afford that contract anyway.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Sep 18th, 2008 at 04:36:56 PM EST
[ Parent ]
Another point on this, and we discussed this for a bit about a year ago, the renminbi did indeed decline against the eur, but not nearly as much as the dollar did.

I thought for a time that this was the formative part of China's management of pivoting their trade relationship away from the US and towards the US. Hit any clothier in Marseille and you can see it in action too...

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Sep 18th, 2008 at 04:17:57 PM EST
[ Parent ]
Printing new money is inflationary, unless the unemployed people you bring to work produce consumer goods/the type of goods the newly employed people demand. You want invest that money. That is inflationary.

He wants to invest the money on infrastructure improvements or additions which would reduce costs throughout the economy and help free up income for additional consumption. That is not inflationary.

'Investing' in the capitalisation of exisiting assets (i.e., speculating) is inflationary.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Sep 18th, 2008 at 01:29:08 AM EST
[ Parent ]
The intellectual resources of

Gang 8

includes some first class brains, including Professor Michael Hudson, often quoted here; an ex IMF economist, Gunnar Tomasson; Dr Richard Werner, an economist with particular understanding of Japan; and IMHO the guy who knows more about banking than anyone - the formidable Geoffrey Gardiner.

This exchange is salutary.


Arno: One could also ask a question regarding inflationary effects of (government) printing that much fresh money..


Geoffrey: No, this comment is silly. The credit creation (new) is to compensate for the money being destroyed by bad debts. The manoeuvre is not pro-inflationary but anti-deflationary.

My highlights, and indeed what I have been saying for some time.

...shades of Captain Mainwaring and Corporal Pike of

Dad's Army

in the exchange....

I agree with much of Gang 8's "Creditary Economics" analysis, but I question their assumption that Money actually is Credit.

In my view, while it is possible to monetise credit - and indeed the monetisation of interest bearing debt is at the heart of our problems - credit is, rather, only a necessary part of a monetary system.

In particular, Gang 8 assumes that "Equity" - in the form of shares in a Joint Stock limited Liability Corporation - may also be defined as "Credit" because in accounting terms it is on the same (Credit) side of the balance sheet.

My view of this assumption is that Equity and Debt are qualitatively different, since Equity is not time limited - ie does not incorporate an obligation to repay - and Debt/Credit is.

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

by ChrisCook (cojockathotmaildotcom) on Thu Sep 18th, 2008 at 05:03:48 AM EST
[ Parent ]
ChrisCook:
Geoffrey: No, this comment is silly. The credit creation (new) is to compensate for the money being destroyed by bad debts. The manoeuvre is not pro-inflationary but anti-deflationary.

This is based on the bizarre steam-economy view that money is a quasi-physical substance which can be created and destroyed, and that conservation laws apply.

Money is tangible (well - quasi-tangible) confidence and faith. Printing more money actually destroys confidence. So does giving credit to people who can't repay loans - by definition.

Although there's a lot of accounting to sort through, nothing much is going to improve until toxic relationships are flushed through the system and replaced with trustworthy relationships which are plausible and convincing.

A financial culture baseed on ripping off everyone in sight with no thought of future consequences is even more corrosive than inflation is.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Sep 18th, 2008 at 05:44:04 AM EST
[ Parent ]
Excellent point. The cost is not an inflationary impact of money created to make up for fictitious assets, the cost is the ongoing systemic risk of restoring rather than winding back an over-exposed position for the financial sector of the US economy.


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 Thu Sep 18th, 2008 at 07:26:31 AM EST
[ Parent ]
Investment means usually, that the gain comes later than the cost.
My super simple model:
You have ten people, two are unemployed. Now you print money to let them invest, e.g. prepare something which later will be consumed. But the two people of course use the money to get the stuff so far is made by the other 8. So you have inflation. Later the investment returns something useful you get a deflationary effect.
But if you really believe, that you will get something back later from your investment, then why aren't you borrowing the money, preventing the inflationary effect first and the deflationary effect later? And if the investment returns enough, why isn't the private sector doing the investment?

And once you have started to print money, why should anybody believe, that this is only an initial boost, and that you will accept deflationary tendencies later?

Not to speak from the raw materials TBG mentions, or that you need to retrain a number of people, which probably requires people, who currently have a job.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Thu Sep 18th, 2008 at 08:29:11 AM EST
[ Parent ]
The key aspect of this seems to be using increased deficit spending, ~$800 billion/yr on investments in productive capacity.  That could be sustainable  infrastructure for generation and transportation of energy, of affordable transportation of goods via rail, for personal mobility and terminal goods transportation via new vehicle technology and of increased sustainable domestic production of consumer goods.  It could also be investments in more efficient and effective health services, social services and, especially, of education.  

To the extent that investments result in manufacturing and services can be brought back to the USA, if they are somewhat more expensive but of higher quality, once tax subsidies are accounted for and revised to include consideration of the benefit to the society as a whole as opposed to being optimized for the benefit of a very few and the impoverishment of society, that cannot help but greatly improve the quality of our lives.

The problem remains of maintaining long term such a policy in the face of wealthy, organized sociopaths who  find any such policy anathema and will spare no effort or expense to overturn it and return national policy to one of looting the system for the benefit of the few. A means of neutering the recent sort of domestic politics that seems to begin at the border and use ginned up foreign crises to dominate domestic politics to the advantage of a rapacious elite.  A tall order.

Having a world in which grotesque foreign adventures such as we have recently witnessed in Iraq were opposed and discouraged would help.  If imperial policies are constrained in a multi-polar world and if possibilities of profits for the few through foreign adventures backed by military force are unrealistic, one would think that would tend towards a sane domestic policy as well.  Possession of a credible nuclear deterrent by Russia along with possession of a credible economic deterrent by China and other foreign holders of US Treasury Notes, etc. will help.  Still I am concerned about the problem of putting and keeping the sociopaths in straight jackets, so to speak.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 17th, 2008 at 10:50:54 PM EST
Grrr. Now I am writing sentence fragments.  The Delphic oracle can do that but....I shouldn't.

We need a means of neutering...(I should have said.)

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 17th, 2008 at 10:57:33 PM EST
[ Parent ]
You're turning into a student in a class I was TA'ing. She seemed to think that her term paper should be written in note form, minus punctuation and paragraph breaks.(Yes, reading it was as much fun as you imagine. Fortunately it was a paper not an exam, thus typed) She also came to see me to ask why that merited a sharp downgrade.
by MarekNYC on Thu Sep 18th, 2008 at 12:11:42 AM EST
[ Parent ]
I served as the Graduate Reader for many of the European History faculty at the University of Arizona in the early '60s.  I had to grade handwritten "Blue Books."  The big challenge was deciphering the handwriting.  Fortunately, these were all senior level courses, so they had learned that they must use complete sentences and paragraphs.  Most did.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Sep 18th, 2008 at 01:15:07 AM EST
[ Parent ]
... one for the regulation of the financial sector. Long term, it seems that if we nationalize that leads the aristocracy of financial wealth to devote decades to supporting whatever scalawags will promise to privatize, and if we firmly regulate, that leads the aristocracy of financial wealth to devote decades to supporting whatever scoundrels will promise to deregulate.

I just don't know the answer to that one, except that fighting to get it under control when its possible to win that fight politically is better than never having it under control. Here in the US, there is no comparison on the regulate or nationalize choice ... given the massive difference in political opposition to the two, most people who are serious will be fighting for a restoration of serious regulation, which makes the fight for restoration of serious regulation the natural component of a change coalition platform.

But for the "old" Energy versus the "new" Energy economy, there really is a permanent win if we use the current situation to make a serious Green Stimulus push, because once the "new" Energy Economy becomes a significant macroeconomic growth driver, it will not only have more clout to face down the influence of the forced of the "old" Energy Economy, but will in fact see a shift in support, from those whose only concern with "green" is with greenbacks.


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 Thu Sep 18th, 2008 at 11:38:06 PM EST
[ Parent ]
What you say about Japan is true. Let's not forget though that while Japan went through a decade-long slump (and then some) it also had the benefit of an export-driven economy and markets (first North America, later in the `90's Europe picked up and now China especially, with strong demand for Japanese capital goods) that were ready to buy Japanese-made products. This mitigated what could have been a really bad situation for workers there, exacerbated by the Japanese banks' inability, for reasons quite similar (though dwarfed by) to those we see in the US today, to clean up their balance sheets and regain a healthy footing for capital markets to thrive and support investment in productive things. In other words, their inability to face up to seriously unproductive investments hamstrung their ability to invest in productive ones, thus the economic slowdown.

In the US, there are a number of further complications. For one thing, unlike Japan, the US central bank is not flush with cash save that which it can create (but for how long without the inflationary cycle this brings with it). Japan could keep it's people working while the private sector investment cycle missed out on a whole decade by building huge public infrastructure projects. It's hard to see where the US gets the money for this, its finances are really in a parlous state, just 15 days ago it sold out its own taxpayers on behalf of foreign governments, in particular (by inference) the PBOC. Paulson admitted this in the aftermath of Sallie Mae and Freddie Mac.

For another, the magnitude of the problem in the US, which we have really yet to scope, is far larger - if Roubini is right (and he's been right so far) upwards of 20% of US annual GDP are stuck in bad real-estate, losses which will eventually be recognized. And this doesn't even account for the loans in commercial real-estate wich are going bad as we speak, or the municipal bond defaults which haven't begun yet (but will) or the consumer credit crisis which will be coming, or the private equity unwind - multiples on companies purchased by P/E firms went to astronomical heights at the acme of the credit orgy two or so years ago, and those firms are now hitting stricting debt covenants and not meeting them; the resolution to this is not pretty, and involves a lot of unemployment.

I've said all along that the US was a big Argentina, and let's remember that Argentina lost 20% of its GDP between 1999 and 2002, with per capita GDP levels in 2002 roughly equivalent to 1968 levels. Now, you may say that the US has a far more productive economy today than Argentina did ten years and therefore can withstand what is coming far better. But, even if I were to grant this (and I do not necessarily do so), I'd point out that the US' financial position relative to its size, in terms of current accounts and its debt, both public and private, is far worse than what you saw in the Argentina in the 90's. This is why serious people like Roubini or Buffett are saying this is going to be quite nasty.

And when Argentina, after having purposefully (and rightfully) thumbed their nose at credit markets and defaulted, went back to those same markets to get money to invest in growth, it had an important benefactor, Venezuela, effectively bankrolling it. Who is big enough to bankroll the US? The PRC? Perhaps. But watch out for quid pro quos...which have already begun, of course.

I also seriously doubt the American people's ability to create the conditions necessary to get out of this mess, which requires above all solidarity. That's simply not an American trait. So I certainly am not holding my breath that the solutions to this mess will be enacted, regardless of which of the two wings of the corporatist party over there happen to control the government.


The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Sep 18th, 2008 at 05:07:51 AM EST
Excellent post, redstar.

US Inc will shortly enter Chapter 9/11.

But the Chinese will certainly not wish to come to a bilateral agreement with the US, whatever the US wants.

So I think we might see a multilateral Creditors' Meeting aka Bretton Woods II as soon as next year, and maybe this time they'll all get it right.....all they have to do is adopt Keynes' proposal at the first Bretton Woods of an International Clearing Union.

It's not Rocket Science: and it's not Banking as we know it, either.

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

by ChrisCook (cojockathotmaildotcom) on Thu Sep 18th, 2008 at 05:41:39 AM EST
[ Parent ]
....and of course, the inference is that yes, Keynes can fix this mess....

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Sep 18th, 2008 at 05:43:45 AM EST
[ Parent ]
Thanks, Chris.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Thu Sep 18th, 2008 at 06:34:59 AM EST
[ Parent ]
... that it creates ... it is on the liability side for cash.


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 Thu Sep 18th, 2008 at 07:27:58 AM EST
[ Parent ]
Actually, there are limits to what it can create, and so because of all the cash the Fed has been pumping in to bail out their rich buddies on Wall Street, they have now effectively run out and needs to get more dough from Treasury, which will be holding an exceptional auction to raise that cash. End of day, while there's normally wide latitude for the fed to intervene, these are not normal times. And only 40bn this time...compare to the AIG bailout.  

Everyone is going to be waiting with bated breath to see how these bills Treasury is going to issue are going to yield. If their short duration, probably not much, but this just punts the issue down to the next President, doesn't it. If they're long though, things could get really interesting. I doubt they'll be long, though.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Sep 18th, 2008 at 07:52:14 AM EST
[ Parent ]
Especially since currently, 3 months T-Bonds have a negative yield...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Thu Sep 18th, 2008 at 10:27:08 AM EST
[ Parent ]
But perhaps less negative than the alternative?

Why else is the money flowing that way....

Which is enough to tell you something.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Sep 18th, 2008 at 11:03:05 AM EST
[ Parent ]
... is an extremely strong indication of a desire to hold T-bills. Its a "flight to quality", and shows that there is a much stronger than normal market for T-bills.

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 Thu Sep 18th, 2008 at 11:40:06 PM EST
[ Parent ]
That's partly why equity markets are getting hammered - people are stampeding into Treasury bills.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Sep 19th, 2008 at 03:21:51 AM EST
[ Parent ]
... self-fulfilling prophecy ... where the stampede in part creates the conditions that the stampede is fleeing.

That's a reason the Panics of 1890 and 1893 come to mind.

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 Fri Sep 19th, 2008 at 03:49:22 AM EST
[ Parent ]
Now we have a price bubble in treasury securities...

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Sep 19th, 2008 at 05:35:31 AM EST
[ Parent ]
I second that.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Sep 19th, 2008 at 07:54:19 AM EST
[ Parent ]
Except its not a bubble as such ... people are buying with an expectation of taking a capital loss, and looking on the expected loss as reasonable insurance for holding the larger share of the value of their assets while maintaining a secure income flow.

The negative yields, after all, are negative in "real" terms ... they are a higher nominal yield than the 0% that a pile of paper currency would provide. In a 19th Century Panic in the US, this flight into liquidity would have gone into gold, the reserve asset in the days of wildcat money.

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 Fri Sep 19th, 2008 at 12:24:50 PM EST
[ Parent ]
They need T-bills as assets corresponding to their liabilities. However, the only limits on how much cash they can create are limits the government places upon itself ... which are constraints only in the same sense as someone tying one hand behind their back.

Their real worry is upsetting the superstitions of Wall Street, since confidence in financial markets is very shaky right now.

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 Thu Sep 18th, 2008 at 08:25:14 PM EST
[ Parent ]
... Treasuries will fall too low, because the prices on the supply of Treasuries in the private sector will get pushed too high, because on the one hand, people are flying to quality, leading to a big demand for Treasuries, while the Fed is at the same time buying Treasuries in order to hold as assets to match its Reserve liabilities.

In order to allow the financial sector to have Treasury's to hold, at the same time as having enough to stand on the asset side of the Fed's balance sheets, more Treasury securities are required.


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 Thu Sep 18th, 2008 at 10:56:51 PM EST
[ Parent ]
If you are:

  1. Wondering what the world will look like 1 year from now,  and/or

  2. wondering how to fix the current "mess"

Forget it!  You have insufficient data to make ANY predictions/recommendations.  

Example:  Some suggest that we go back to the "Clinton years".  Won't work bucko.  Think of all those high paying jobs which no longer exist which could be taxed and could buy shit.

Different world.  Different circumstances. New solutions, possibly meaning the end of the US as we know it.

me.  I want to see public beheadings of wealthy Republicans.  Let's start there.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Thu Sep 18th, 2008 at 08:41:02 AM EST
... current mess that would leave the US better off in the long term rather than worse off, if we were not trapped by our own ideological myths and economic fairy stories.

Its a benchmark.


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 Thu Sep 18th, 2008 at 11:42:46 PM EST
[ Parent ]
People forget that the Great Depression was a foul-up of the financial system ONLY.  

All the same people ended up hungry.  

A mountain of credit and debt created by Ponzi schemes much like the ones we have today--including a housing bubble--came to their inevitable end, and the Crash and the Great Depression followed.  

UNLIKE today, there was plenty of food (farmers ended up throwing most of it away) plenty of resources, and plenty of fully-functional factories ready to produce things as soon as somebody might want something produced.  

Today, resources are used up--or they lie in foreign lands starting to have their own ideas about who owns them.  Our factories are mostly gone.  And our farming has industrialized to the point where it is totally dependent on cheap oil on the one hand, and on the other the knowledge base of people who actually know HOW to farm has shrunk almost to nothing.  

This time farmers will not be throwing food away.  Simply, there will be NO FOOD.  That is the first problem we have to face.  Other problems, like keeping warm next winter, will just have to wait in line.  

We know from the example of Cuba that if people are willing to take up organic gardening, much can be done.  We know from the example of North Korea what happens if you do nothing:  People will starve and die.  US government will do nothing.  US corporations will do nothing (and make a profit while doing it).  Look at Katrina, look at Ike:  The corruption is total.  Americans will either set about feeding themselves or they will starve.  

Austria after the First World War comes to mind.  

The Fates are kind.

by Gaianne on Thu Sep 18th, 2008 at 07:06:50 PM EST
[Gaianne's Crystal Ball of Doom™ Technology]
People forget that the Great Depression was a foul-up of the financial system ONLY.
Not true. According to Galbraith in The Great Crash 1929, macroeconomic indicators had started to turn sour before the summer of 1929. The stock market started showing signs of slowing down after Labour Day and the crash came around the last weekend of October. In addition, the recession was turned into a depression by government inaction. He also suggests that Hoover would have done more were not for the free market conventional wisdom, though it is true he also didn't know any better.

The fact remains, though, as Bruce points out, that it was WWII and not the New Deal that ended the Depression.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Sep 18th, 2008 at 07:14:34 PM EST
[ Parent ]
But there was a huge speculative bubble during the 20s, and 'confidence' that the gains would be permanent. And in fact Galbraith's causes are very similar to the situation we're in now - poor income distribution, extreme leveraging, and a huge import machine which relies almost exclusively on credit.

The main differences are that banks and the Fed are slightly better organised, and there's a 'We've been here before' body of knowledge. (Even if it's being ignored.)

I don't think it's unrealistic to assume that the financial system includes Wall St, the major banks, and also government policy, and on that basis 1929 was an epic fail at every level.

What's so incredibly frustrating is that crashes are politically created. There's no good economic reason why they're inevitable. But they'll continue as long as it's possible for speculators, gamblers and other troglodytes to define policy.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Sep 18th, 2008 at 07:45:03 PM EST
[ Parent ]
moved in in 1980, when the American economy lost its control of its resource base.  

There has been a lot to loot out.  

Now we are nearing the end of that.

The Fates are kind.

by Gaianne on Thu Sep 18th, 2008 at 08:19:15 PM EST
[ Parent ]
... macroeconomic investment-accelerator boom and bust in the US, with the big road-building surge of the 1920's ebbing, and that public sector fiscal stumulus turning into fiscal drag to pay off the road bonds.

That public sector spending story is often overlooked, because in the 1920's it was distributed around state and local governments with very little federal participation, so people that look at Federal spending alone miss that part of the "Roar" in the "Roaring 20's".


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 Thu Sep 18th, 2008 at 11:47:10 PM EST
[ Parent ]
Boom-bust cycles are a feature of the unregulated Market. It is not only Keynesian counter-cyclical stabilization but what Galbraith calls the planning system of the Industrial State that dampens the oscillations. For the last 30 years (in policy) and 40-50 years (in economics) there has been a concerted effort by Market Fundamentalists to roll back the Industrial State to the Gilded Age. Neither Veblen (Theory of Business Enterprise, 1904) nor Galbraith (The New Industrial State, 1967-1974) foresaw this roll-back, which also affects the cultural narratives. In fact Galbraith heaps scorn on Milton Friedman in a couple of places in his book.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Sep 19th, 2008 at 03:35:55 AM EST
[ Parent ]
... the Euthanasia of the Rentier prefigures the revolt of the aristrocracy of wealth against the Fordist system, if you take the next step to wonder whether the Rentier might object to the Euthanasia.

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 Fri Sep 19th, 2008 at 03:53:29 AM EST
[ Parent ]
Euthanasia is not necessary for the Rentier when he is on the point of being disintermediated by "Peer to Peer" Credit and Investment.

The financial markets are about to be "Napsterised" - or as the purists here have it - "Bit-Torrentised"

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

by ChrisCook (cojockathotmaildotcom) on Fri Sep 19th, 2008 at 04:47:55 AM EST
[ Parent ]
... peer to peer credit, not the creditor class.


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 Fri Sep 19th, 2008 at 12:28:13 PM EST
[ Parent ]
Does Fordism refer to the entrepreneurial or the planning industry systems, or to both?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Sep 19th, 2008 at 05:39:23 AM EST
[ Parent ]
... with the de facto post WWII labor peace bought by sharing productivity gains between profit and wage incomes.


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 Fri Sep 19th, 2008 at 12:06:34 PM EST
[ Parent ]
Migeru:
Boom-bust cycles are a feature of the unregulated Market.

Well, that's what I meant. Unregulated markets are to economics what battery acid is to gourmet cuisine.

Deregulation is a political choice with predictable consequences. Regulation is a different choice with different predictable consequences.

The problem isn't making sure regulation happens, it's making sure that deregulation becomes politically unthinkable - except for kooks and fringers.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 19th, 2008 at 07:40:08 AM EST
[ Parent ]
Um, no prestigious chef writes cookbooks calling for battery acid, do they?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Sep 19th, 2008 at 07:45:38 AM EST
[ Parent ]
Only because there's no National Battery Acid Marketing Foundation.

Stranger things have happened in the US.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 19th, 2008 at 07:52:14 AM EST
[ Parent ]
... that normally made the dish taste batter, but sometimes there was a period when dishes made with it tasted terrible compared to their normally plainer counterparts ...

... and it had been long enough since the last time that cooking with that ingredient had spoiled an entire cohort of fine cuisine ...

... we might see the emergence of chefs that used that ingredient.

And definitely, it the wealthiest gourmets were able to eat millions of times as much food as ordinary people, the possibility of that ingredient becoming the norm would be considerably amplified.

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 Fri Sep 19th, 2008 at 12:34:04 PM EST
[ Parent ]
Reading Galbraith's The new Industrial State (1967) you would think Milton Friedman was a fringe crackpot.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Sep 19th, 2008 at 07:47:00 AM EST
[ Parent ]
... ideas, he would have remained a fringe crackpot ... indeed, possibly would never have had the research assistants to blame for the cheating in his magnum opus, and certainly when hydraulic Keynesianism ran into trouble in the 1970's, Post Keynesian macro theory would have taken over.

But funding your own pet approach in economics turns out to be possible with only a small fraction of the wealth incomes at the top end of the wealth ladder. Funding means the ability to attract grad students means opportunities to win arguments with the current status quo when it stumbles.

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 Fri Sep 19th, 2008 at 12:14:41 PM EST
[ Parent ]
yup, the rules of the highway are for the proles.

we're formula one!

seriously, apart from being batshit loony for thinking that anyone will swallow the notion that their motor has no need of a governor, what are they so afraid of?

their more exotic investment toys being taken away?

under regulation, will every transaction require vetting by banks of lawyers before being executed?

is it the slowing down they fear?

or is it that they want to try every shiny new prototype investment vehicle they can, to con an ever less gullible public, without any government ethics agent looking over their shoulder, second guessing?

they always make it sound like regulation would be such a ball and chain, implying that if someone really understood the nuances of their 'jobs', then they'd be in on the game too, not trying to take the fun and pzazz out of it.

banking in the 60's was in no way glamorous, it has since gone through a period of what looks like coke-addled fashion, flyboy-style, similar to admen in the 60's, especially from the gecko thatcher 80's on. it's ironic that what could have been a good-ish system, if governed without so much living 'in the red', so proud of being 'free' and not controlled by the state, is brought to its knees by strings pulled from china, japan, the middle east, with contrastedly different ideologies about economics.

people don't seem to remember that what goes too far up, comes down hard and fast...

'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 Fri Sep 19th, 2008 at 09:40:32 AM EST
[ Parent ]
The PHYSICAL BASIS for recovery--the resources--are not there.  

It is no accident that this is happening just three years after Peak Light Sweet Crude.  

Financial collapse reflects impending physical collapse.  

Intermediate stage:  Commercial collapse.  

The Fates are kind.

by Gaianne on Thu Sep 18th, 2008 at 08:15:47 PM EST
[ Parent ]
At least in terms of availability to a New Energy Economy structural adjustment program for the US, the resources are presently available.

How long they will be there is an issue of concern ... evidently pursuing the same policy during the steepest part of the Peak Oil decline will be far more difficult than pursuing it on the downward sloping side of the Peak Oil plateau.

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 Fri Sep 19th, 2008 at 01:29:01 AM EST
[ Parent ]
the recession was turned into a depression by government inaction.  

Whereas this time the government will do WHAT exactly?  

It appears that the government will refinance high-level crooks (with non-existent money) while the foreclosed public goes homeless.  That does not sound like a recovery plan to me.  

The fact remains, though, as Bruce points out, that it was WWII and not the New Deal that ended the Depression.  

That may be, or it may not--though I would certainly argue that the New Deal at least helped, as well as doing a fair amount of good.  BUT:  The War was a huge resource sink, which is only to say our economy seems to be based--dependent upon--the massive wasting of resources.  For geological reasons, that is coming to an end, which means our economy is coming to an end.  

Kaput.  No recovery.  Game over.  What follows?  Hard to say.  But it will be resource constrained.  And it will give up the idea of growth.  

This could take a while to play out.  Five years?  Ten years?  Who knows?  Through it all, there will be people announcing the imminent return of normalcy (remember that phrase?)  It won't happen.  

The Fates are kind.

by Gaianne on Fri Sep 19th, 2008 at 04:03:12 PM EST
[ Parent ]
As the diary addresses ... in the transition from an Energy Expansion economy to a EROI economy, we need to invest in the infrastructure required to reduce our energy consumption for a given standard of living and increase our sustainable energy harvest. So the bastard Keynesianism of Samuelson and crew that takes productivity and long term productive capacity for granted just is not adequate to thinking through the challenge.

On the other hand, Peak Oil means we are presently at or about the peak of oil throughput, with far more oil available to us in 2008 than was available to us in 1938 or 1948. So any suggestion that woe is us it is too late is overwrought ... it requires buying into the traditional marginalist economics conventional wisdom on how much the government can do how fast with regards to infrastructure investment.


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 Fri Sep 19th, 2008 at 04:31:58 PM EST
[ Parent ]
A hell of a lot of people will die before Americans if industrial farming disappears. Pretty much all of the world's starch trade comes from industrial farming in a handful of countries - US, Canada, Australia, Brazil, Argentina. Furthermore, poor countries have a lot less leeway to cut down on their consumption of grains and other starches since those are already the dominant source of calories, unlike us meat eaters.  This incidentally includes Cuba, which in spite of the quite successful measures in the nineties, combined with endemic malnutrition (though no actual starvation courtesy of an efficient and equitable food distribution system), remained reliant on food imports for a significant chunk of its calories. Not to mention the environmental disasters that an end to energy sources would cause - goodbye trees.

But peak oil doesn't worry me, at least for America. There will be no sudden end, just steadily higher prices, and adjustments. Just to make car culture too expensive, you'd need prices well north of $1000 a barrel.  And that's with current technology.  Global warming on the other hand can't be confronted in real time. Either you act well before the really bad stuff happens, or it's too late.

Finally, we can't feed ourselves - where would we do it, what resources are there to move the bulk of the population out of the cities and suburbs, build housing and other infrastructure for them, teach them the skills, all in the time of crisis that you foresee.

by MarekNYC on Thu Sep 18th, 2008 at 11:22:40 PM EST
[ Parent ]
... is that it is not only more oil throughput than in following decades, but also more oil throughput than preceding decades.

But the slower, more plodding pace that would have worked if starting once it became clear that we had passed global peak oil discovery does not necessarily fit the current conditions ... the window on being able to run this kind of crash programme may be closing.

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 Fri Sep 19th, 2008 at 01:33:12 AM EST
[ Parent ]
A hell of a lot of people will die before Americans if industrial farming disappears.

Well . . . yeah.  Are you expecting something different?  

This incidentally includes Cuba,  . . , remained reliant on food imports for a significant chunk of its calories.  

Well, yes, and Cuba remains the most optimistic case to date.   Maybe they will show us how to solve the calorie problem as well.  Or maybe not.  

goodbye trees.  

Yes, like Haiti--a readily available dead-end fork.  It would be wise not to take it.  Where is wisdom, these days?  As long as we think we can keep running things as they are, there is none.  

But peak oil doesn't worry me, at least for America.  

That is a level of serenity to which I cannot even aspire.  

Global warming on the other hand can't be confronted in real time.  

Too true.  We are already beyond the window of the benign scenerios.  At this point we can only try to cope.  I can't think how.  Carrying capacity will decline--perhaps not to zero.  

Finally, we can't feed ourselves

I am not saying you are wrong.  But if we don't, we will die.  

The Fates are kind.

by Gaianne on Fri Sep 19th, 2008 at 04:20:49 PM EST
[ Parent ]
... (assuming that "our" factories means US factories in the above?) ...

A lot of consumer goods factories have closed up shop. However there remains substantial productive capacity in the machine tool sector and the building materials sector, and those are key sectors required for a multi-year program like this.

The shift from the "assuming the energy is there" economy to the EROI economy is, of course, precisely what this programme is predicated on ...one reason for kicking to the curb the gross oversimplifications of the General Theory from the effort to make it more compatible with traditional marginalist economics is that bastard Keynesianism isn't up to the task.


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 Thu Sep 18th, 2008 at 11:54:29 PM EST
[ Parent ]
Today, resources are used up--or they lie in foreign lands starting to have their own ideas about who owns them.

I was going to write a long reply to this, but I'm done with speaking out against people convinced the apocalypse comes the day after peak oil.

you are the media you consume.

by MillMan (millguy at gmail) on Fri Sep 19th, 2008 at 12:42:39 AM EST
[ Parent ]
That's a pity. Doom porn has become a kind of alternative conventional wisdom, but I'd hope we're at least open to reasoned argument otherwise.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 19th, 2008 at 07:42:41 AM EST
[ Parent ]


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