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- Randy Wray on Krugman and the Frustration of the Heterodox April 28, 2014
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Daily Archives: September 30, 2011
Matthew Boesler interviews L. Randall Wray regarding his views of the present commodities bubble:
We’ve discussed this topic before on Benzinga Radio, with respected market analysts like Dan Dicker (again) and Fadel Gheit–financialization of commodities markets. At issue: massive institutional inflows into paper commodities, which end up factoring into prices much more than, say, real supply and demand for the physical assets. The result? A bubble.
That term–bubble–gets thrown around pretty loosely these days, and it’s often a contentious issue, especially in the commodities context. We’ve spoken to several others on Benzinga Radio, including successful investors like Jim Rogers and Marc Faber, who are outspoken advocates of the long commodities trade in the coming years. The question now, with evidence of a coming global slowdown increasingly in focus, is whether commodities will continue to outperform. The last few trading sessions, going back a week or so, certainly seem to have raised concerns.
Dr. Randy Wray, a respected economist at the University of Missouri, Kansas City, was commissioned by congressional offices in 2008 to look into the commodities markets as prices marched to record highs during early summer before crashing in July. He spoke with us on Benzinga Radio, raising several interesting points about the evolving dynamics of the commodities markets and the statistical significance of the change in prices we’ve seen over the last several years.
Michael Hudson on Bonnie Faulkner’s Guns & Butter.
“Without consumption, markets are going to shrink. Companies won’t invest, stores will close, “for rent” signs will spread on the main streets and local tax revenues will fall. Companies will lay off their employees and the economy will shrink more. Why aren’t economists talking about these effects of debt deflation, which are becoming the distinguishing phenomenon of our time? They advocate giving more money to the banks, hoping that somehow everything will be okay, as if the banks would lend out the money to fund new production and employment. Mainstream economics and political leaders in both parties are failing to ask why the banks are using these giveaways to speculate abroad, pay their managers bonuses and high salaries or to pay dividends rather than to lend to small businesses or do other things to actually get the economy moving again. This phenomenon cannot be explained without seeing that debt service is siphoning off revenue into the financial sector, which is not recycling it back into the production-and-consumption economy.”
Below are some of the wildest,boldest, and most surprising stories we ran across this week. Thanks toall who shared their favorites. Keep them coming! This is a weeklyseries, so we’ll be back with more next Friday.
This piecefrom Forbes Magazine argues against Keynesian demand management and in favor of deflation as a cure for our ailing economy. The rationale? Straight from the 19th century — Say’s Law of Markets. The author argues: “Right now there’slots of demand for Apple iPads and Amazon Kindles and Google Android phones, say, or for Katy Perry and Bruno Mars downloads. Lady Gaga’s “fame-monster” microeconomy thrives, needing no artificial boost. Even Britney Spears is back, with Ke$ha and Nicki Minaj. Buton the other hand, there seem to be too many houses, Chevy Volts, BlackBerrys and Rihanna tour dates. Still, there is no general glut; everything has some market-clearing price. Instead there is relative overproduction in particular sectors to which pricesmust adjust.For housing and labor, say, to recover, some prices and wages must fall. But policymakers face political difficulties by permitting prices to fall to the market-clearing levels that enable recovery. Nearly all policytries instead to hold prices at unsustainable levels and create still more “demand” in defiance of Say.”
I hope his readers will remember that falling wages and asset prices didn’t help markets reach “equilibrium” during the Great Depression. Indeed,it made made conditions much worse.
Robert Reich, former secretary of labor under President Clinton, continues to make a strong case for infrastructure investment (the wise Homer in him), pointing out that, “unemployment in America remains sky-high” and “the nation’s infrastructure is crumbling.” But then, things go wrong. He says, “now connect the dots. Anyone with half a brain will see this is the ideal time to borrow money from the rest of the world to put Americans to work rebuilding the nation’s infrastructure.” As any MMTer knows, the US doesn’t need to “borrow money from the rest of the world to put Americans to work.” The government is the source of our money. It spends by crediting bank accounts. It is not revenue constrained.
US Congressman Dennis Kucinich (D-Ohio) has introduced legislationmodelled on a the kind of Job Guarantee (JG) or Employer of Last Resort (ELR) proposal that MMTers have been advocating for more than a decade. Unfortunately, the bill also advances the American Monetary Institute’s wrong-headed plan to fundamentally change the nature of our monetary system. The problem with the Kucinich legislation is that it views the JG as an employment creation scheme rather than a mechanism to promote macroeconomic stability (I.e. Full employmentand price stability). As MMTers have explained, the JG buffer provides the nominal (price) anchor, and it is perfectly compatible with the monetary system we have in place right now.
In a recent post, Paul Krugman lashed out at Larry Kotlikoff for “dismissing Keynesian economics based on what they think they heard somebody say” instead of taking “even a minute to see what those people have actuallybeen saying.” What’s Krugman’s beef? Well, Kotlikoff misrepresented Jamie Galbraith and Paul Krugman, saying that, as Keynesians, they believe that unemployment exists because wages are too high, and thata decline in wages would increase employment. Krugman points out that Jamie has “never claimed that a fall in wages would create jobs — nor can I see how anyone familiar with his work could imagine that this was his position.” It reminded us of some of Krguman’scritiques of MMT, especially the one in which he wrongly accused Jamie Galbraith (whom he considers a leading proponent of MMT) of taking the position that “deficits are never a problem.” We hope that Professor Krugman remains interested in MMT and that he takes his own adviceand responds to what we’ve “actually been saying” and not some caricature of what others have said about us.
For the handful of readers who haven’t already seen this, here’s a BBC interview with market trader Alessio Rastani. We found it shocking, not because of its content but because of its candor.
Some shocking statsabout America’s food stamp recipients. Whites make up the largest share of food stamp households, 70% have no earned income, 94% are US born citizens, etc.
What’s it like to work in one of Amazon’s warehouses in the USA? Story here.