Monthly Archives: April 2012

The Astonishing Case of the Impenetrable Zero Bound

By Dan Kervick

In a small, peaceful town there once lived three people: Abbie, Baker and Carlie.

Abbie was a very wealthy aristocrat, and also a philanthropist.  Her fortune and position in the town were the fruit of the hard work of her ancestors, but her life was dedicated now only to managing that fortune.  She lived to make the common people of the town happy, especially Carlie, who was her personal favorite.

Baker was much more selfish, and looked out for his own interests.  He wasn’t terrible and mean, just obstinately self-interested.  It seems he was born that way; it was in his DNA.

Abbie frequently lent money to Baker, and Baker frequently lent money to Carlie.  But in accordance with the ancient and venerable laws of the town, enacted to maintain a decorous distance between the aristocrats and common people, Abbie was forbidden from loaning money directly to Carlie.  Nevertheless, Abbie was usually able to help out Carlie indirectly when necessary.  She found that when she lent money to Baker, Baker was sometimes more willing than before to lend money to Carlie.  And if Abbie loaned the money to Baker at lower rates of interest than previously, Baker would usually reduce the rate of interest he charged Carlie in turn.

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May Day: The Real Meaning

By John F. Henry

In the United States, the real meaning of May Day has been largely forgotten. To be sure, there is a “Labor Day,” a time for picnics and various festivities, but May 1 has been converted—not without reason and not without malice—into “Law Day.” In 1921, following the Bolshevik Revolution of 1917, May Day was renamed “Americanization Day.” In 1958, May Day became “Loyalty Day,” and later that year, President Eisenhower proclaimed May 1 “Law Day.”

What a travesty, and what a repudiation of the original May Day, a day that should be remembered and celebrated by all those who labor for a wage or salary.

May Day celebrates the struggle—long and often bloody—for the 8-hour day. While this now seems remote and rather archaic, in the 19th century, the 8-hour day was a rallying point for the vast majority of workers who put in 10, 12, or more hours per day, six days a week.

On May 1, 1886, more than 300,000 workers across the United States shut down the machines and walked off their jobs in the first May Day celebration in history. In Chicago, 40,000 went on strike with socialists and anarchists in the leadership. More workers continued to strike until the numbers grew to nearly 100,000. Two days later, violence broke out at the McCormick Reaper Works, an aggression precipitated by Chicago police, acting in the interests of McCormick, a notable capitalist of the day.

For months, police and Pinkerton agents beat and attempted to intimidate picketing workers. A rally was called in Haymarket Square. Someone, we still don’t know who (possibilities include a disgruntled worker or police agent), threw a bomb and all hell broke loose. In the aftermath of the ensuing melee, anarchist leaders were arrested and charged with the crime—though most were not even present when the bomb was thrown. Albert Parsons, August Spies, Samuel Fielden, Oscar Neebe, Michael Schwab, George Engel, Adolph Fischer and Louis Lingg were arrested and convicted of murder. On November 11, 1887, Parsons, Spies, Engel and Fisher were hanged. Louis Lingg ostensibly committed suicide.

In 1890, the Second International declared May Day as an international celebration to commemorate the “Haymarket Martyrs” and to continue the fight for the 8-hour day. There was a time when tens of millions of workers walked off the job in international solidarity. Indeed, in the 1930’s “a million” walked Fifth Avenue to demonstrate their opposition to the prevailing economic system.

It is time, indeed, past time, to reclaim May 1 as International Workers Day. Workers in the US, whether miners, factory operative, clerks, teachers, civil servants, need to join others throughout the world to help galvanize a renewed movement to assert their rights, to demand their economic well-being, to claim simple justice. It is time to say, “Enough!” The monied “1 percent” has been in the uncontested driver’s seat long enough. Let us return to the days of labor militancy, of labor democracy. Let’s restore May 1 as the real May Day. As Mother Jones would have it: “Pray for the dead; fight like hell for the living.”

For further reading, see the short but insightful Philip Foner, May Day. (New York: International Publishers, 1986)

Geithner channels Greenspan and Airbrushes Fraud out of our Crises

By William K. Black

On April 25, 2012, Treasury Secretary Geithner made remarkable statements about the role of elite financial fraud and greed in producing our recurrent, intensifying financial crises.  In this first installment I focus on the first of five problems with Geithner’s claims: (1) he does not understand the causes of prior crises, (2) he does not understand the causes of the ongoing crisis, (3) he does not understand that if he were correct about the first two points our nation would be in even greater peril and the urgency of Geithner leading a radical transformation of finance and regulation would be greater still, (4) he is not correct that we are prosecuting the elite criminals who drove the ongoing crisis, and (5) the media continues its nine-year pattern of failing to challenge Geithner’s fictions and his failures to lead the radical transformation that he should be desperately seeking given his stated beliefs about the causes of financial crises.

Here are the specifics of what Geithner said about financial crises, fraud, and greed.

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The Dutch Left’s Embrace of the Austerity Suicide Pact: It’s Necessary for the Children!

By William K. Black

A remarkable, and terrible, thing has just taken place in the Netherlands of which few Americans are aware.  The ruling Dutch political coalition collapsed when the ultra-right wing party (the Freedom Party, led by Geert Wilders) refused to support its coalition partners’ austerity package (calling for tax increases and reduced government expenditures).  Wilders is best known for his opposition to Islamic immigrants but is developing a new following based on his Euro skepticism. The core parties of the governing coalition were Mark Rutte’s VVD party and the Christian Democrats (CDA).

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By L. Randall Wray

Over the past 11 months, or so, we have examined Modern Money Theory. This is the proper paradigm for analyzing all modern countries that use their own currency.

Some have wondered whether we can separate MMT from the Job Guarantee (JG): can one accept MMT while rejecting the JG?

To be honest, I find this to be a rather strange question. We have a modern theory of Bubonic Plague. Until medical science developed a theory of disease that can be caused by microbes too small to be seen with the naked eye, all sorts of explanations of the cause of the Plague were offered. The most popular was “bad air”. The preventative measures offered (quarantine of affected individuals, evacuation of cities, burning of the property of the deceased), and improvement of public sanitation actually were quite effective—indeed, in the richer countries the plague was almost banished even before the “germ” theory of disease was ever developed. (To be sure, there were false starts—such as killing cats, that had helped keep rats in check!)

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Spain is the New Greece

By Marshall Auerback

Nearly one Spaniard in four is unemployed, according to data released on Friday, as the country’s economic and financial predicament prompted a government minister to talk of a “crisis of enormous proportions”.The data from the National Statistics Institute showed 367,000 people lost their jobs in the first three months of the year. At this pace, Spanish job losses are equivalent to 1 million per month in the United States. That means more than 5.6m Spaniards or 24.4 per cent of the workforce are unemployed, close to a record high set in 1994.

Spain has become the new Greece. Actually, in many respects Spain is now worse than Greece. The Spanish unemployment rate is already so high and unlike Athens, Madrid has made no headway in reducing its public debt levels (whereas the Greeks are close to running a primary fiscal surplus at which point they could leave and turn the problem back on to Brussels). Moreover, Spain has a huge private debt burden that is twice that of Greece.

Although I have warned on these pages before that Spain’s austerity program was leading the country to disaster, my reaction to this economic catastrophe has been one of amazement. Just take a look at this employment data

Spain First Quarter Unemployment: Summary (Table)
2012-04-27 07:00:00.13 GMT

1Q Quarterly Yearly
2012 Net Change QoQ % Net Change YoY%
Both Sexes
Over 16s 38,493.70 -14.5 -0.04% -18.4 -0.05%
Active Workforce 23,072.80 -8.4 -0.04% 10.9 0.05%
Employed 17,433.20 -374.3 -2.10% -718.5 -3.96%
Unemployed 5,639.50 365.9 6.94% 729.4 14.85%
Inactive 15,420.90 -6.1 -0.04% -29.3 -0.19%
Activity Rate 59.94% 0.00% n/a 0.06% n/a
Unemployment Rate 24.44% 1.59% n/a 3.15% n/a
16 to 64 30,606.00 -52.5 -0.17% -171.4 -0.56%
Activity Rate 74.87% 0.13% n/a 0.44% n/a
Unemployment Rate 24.59% 1.59% n/a 3.17% n/a
Employment Rate 56.47% -1.09% n/a -2.03% n/a

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Why Does Uncle Sam Borrow?

By Dan Kervick

The Unites States government operates a fiat currency system.  The government is therefore the monopoly supplier of the final means of payment in our dollar-based economy, and is ultimately responsible, in one way or another, for any net increase in dollar-denominated financial assets in the private sector.

And yet, we continue to hear bipartisan expressions of fear and angst about the budget deficit and the national debt.  Both major parties seemingly agree that we are “out of money”.   They wrangle over various competing approaches to shrinking the gap between tax revenues and government spending.  They appoint commissions to study the government budget and recommend some combination of slashed spending and higher taxes in order to close that budgetary gap.   They warn us that we will transform ourselves into banana republic status if we do not urgently address our public debt problems.

This situation should be perplexing.  Why does a government that is the issuer of the national currency have to borrow that currency back from the public to which the currency is issued?   And how could such a government ever experience the kinds of budgetary squeezes and debt burdens that can pose severe problems for households and businesses?

I wish to make a radical suggestion:  Public borrowing is an outdated practice, and we could dispense with it entirely.   Borrowing by the public treasury and the accumulation of government debt obligations are legacies of the era that preceded the development of modern fiat currency, an era when governments were primarily users of traditional means of payment that lay outside their control, and not the producers and issuers of the primary means of payment.   That pre-fiat era is now dead in the US, and the chief remaining role of government borrowing in our time is to bamboozle the public, and to obscure the true nature and effects of government fiscal and monetary operations under a bewildering maze of bookkeeping ink and financial legerdemain.  Eliminating public borrowing, and replacing it with operations that are simpler, more direct and more transparent, would advance the cause of informed democratic debate over public spending and taxation.  Above all, the change would eliminate needless obscurity and confusion and help us all understand exactly whose bread is being buttered by the budgetary decisions made by politicians.

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Responses to MMP Blog #47: The JG / ELR and Real World Experience

By L. Randall Wray

Before we get underway, I have two appeals.

Appeal #1: About twenty years ago Don Roper and Ric Holt created the PKT (Post Keynesian Theory) internet discussion group. It was the first such group I’d ever come across. All the “top” heterodox economists participated. The discussions were interesting and important. You might still be able to access some of them.

However, the list was destroyed by frackers.

I won’t go into all the details but here is the basic problem. Every couple of weeks some pseudo Austrian would come along with the free market /anti government ideology posts. That was not really the problem—which was two-fold. First these people had no understanding of heterodox economics—they never read previous posts and were congenitally lazy (and, it appears, dense).

Further, they had no interest in learning anything. They were selling, not buying. They were self-appointed evangelists for the Austrian cause. Now, in truth they had no understanding of Austrian economics, either—which is why they were pseudo. I gather they spent most of their time in their mothers’ basements alternating between (how shall we put this?—as delicately as possible!) fracking themselves and fracking progressive discussion groups.

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No, Mr. Krugman, Bernanke’s Conundrum is Completely Different

By Pavlina R. Tcherneva

Our mainstream colleagues keep banging their heads against the wall. “Why, oh why wouldn’t Chairman Bernanke do more to rescue the economy?” Today Paul Krugman took on this question again, arguing that Chairman Bernanke should listen to Professor Bernanke who had far more sensible ideas about rescuing an economy from a deflationary environment, as seen in his research on Japan during the 90s.

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Productivity, The Miracle of Compound Interest, and Poverty

By Michael Hudson
This is a re-working of my second talk at the Rimini MMT conference, as heard on Guns and Butter.

Suppose you were alive back in 1945 and were told about all the new technology that would be invented between then and now: the computers and internet, mobile phones and other consumer electronics, faster and cheaper air travel, super trains and even outer space exploration, higher gas mileage on the ground, plastics, medical breakthroughs and science in general. You would have imagined what nearly all futurists expected: that we would be living in a life of leisure society by this time. Rising productivity would raise wages and living standards, enabling people to work shorter hours under more relaxed and less pressured workplace conditions.

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