Monthly Archives: January 2014

More Tropes of the New Populism

By Joe Firestone

The New Populism, if it exists, and isn’t just a creation of Washington villagers wanting to give an attractive name to the new feint of the Administration toward the progressive base of the Democratic Party, can be a turning point for America’s domestic economy, but only if it can avoid certain tropes, shibboleths, and myths that people associated with it, such as Bernie Sanders, and various other supposedly “left” members of the Democratic Party in Congress seem to delight in reinforcing. Again, Robert Borosage’s little piece on “The New Populism” provides more examples of such tropes:

Much of this debate has been framed around the faltering recovery, as the Congress perversely punted on the opportunity to rebuild America when we could borrow money for virtually nothing, with construction workers idle and eager to work. But in the end, this is a question of making the public investments we need, and paying for it by ending the tax dodges and tax breaks that enable the rich and the multinationals to avoid paying their fair share of taxes. The Congressional Progressive Caucus budget shows what is possible, while still bringing our long-term debt under control.

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The New Populism Needs to Get This Straight

By Joe Firestone

Let’s look again at the new populism through the lens provided by Robert Borosage in his recent attempt to tell us what it is about. He says:

The apostles of the new inequality have unrelenting sought to starve the public sector. President Reagan opened the offensive against domestic investments. Perhaps the hinge moment was in the final years of the Clinton administration when the budget went into surplus, and Clinton, the finest public educator of his time, pushed for paying down the national debt rather than making the case for public investment. He left the field open for George W. Bush to give the projected surpluses away in tax cuts skewed to the top end.

The hinge moment wasn’t then. It was when he decided, either early in his first term, or even before he took office, to rely on deficit reduction coupled with low interest rates from Alan Greenspan, on the advice of Robert Rubin and Larry Summers, rather than on deficit spending on human capital investments as advocated by Robert Eisner and Robert Reich. Rubin’s victory in the internal debates within the Administration was well-known at the time (1993), and set the deficit reduction course that played along with the Fed’s bubbles to create the private sector debt-fueled “goldilocks” prosperity, and surpluses of his second term. By the time Clinton faced the choice Borosage refers to, the die had already been cast. It was very unlikely that Clinton would turn away from further Government austerity policy, and turn instead toward investments in infrastructure, public facilities and “human capital.”

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Spain Rains on Rehn’s Austerity Victory Parade: Unemployment Rises to 26%

By William K. Black

Two articles that should be read by anyone interested in the global financial crisis have just been published.  They address Spain.  Spain tends to get far less coverage in the U.S. than Ireland and Greece, but it is a far larger country and economy.  Its real estate bubble, relative to GDP, was the second worst among economically developed nations.  Spain is so large and its unemployment is so severe that “Almost a quarter of all the unemployed in the 28-country European Union live in Spain….”  Spain’s housing bubble was funded by an out of control banking sector and the bad loans are causing increasing damage to the banks.  “[B]anks’ assets continue to deteriorate with an increase in the number of loans not being paid back.”

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Who Needs a Balanced Trade Policy?

By Joe Firestone

It’s easy to recognize that after many years of trade deficits accompanying implementation of trade agreements beginning with NAFTA the US needs to change what it’s doing. Many, including Robert Borosage of the Campaign for the American Future (CAF), advocate for balanced trade and they contrast that with the so-called “free trade” policies we have now. The case for balance trade policy is summarized by Borosage this way during his discussion of the policies favored by the New Populism:

Our global trade policies have been defined by and for multinational banks and companies. They have shipped good jobs abroad and driven wages down at home, while racking up unprecedented and unsustainable trade deficits. Those imbalances, as the International Monetary Fund and former Federal Reserve Chair Ben Bernanke have noted, contributed directly to blowing up the global economy.

The new populists demand balanced trade policies. . . .

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Dimon Does Davos

By William K. Black

If, as an effort at satire, I had written the story that the New York Times’ “Deal Book” has just written about what JPMorgan’s board of directors has just actually done, people would have dismissed my piece as absurdly over the top.  The board has decided to increase Jamie Dimon’s compensation substantially.  The reason the board gives (in leaks to Deal Book) must have resonated with Deal Book because it is the theme song that Deal Book has been singing for months, another “‘somebody done Dimon wrong’ song.”

Recall that the title of Andrew Ross Sorkin’s country-western lament was that Dimon was the victim of “bloodlust” because Dennis Kelleher, the head of the NGO “Better Markets,” believed that Dimon should be fired for poor performance.

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An AWESOME MMT Video

A big MMT thanks to Donna D’Souza aka Trixie aka @HaikuCharlatan. She has done an awesome job of animating J.D. Alt’s wonderful new ebook Diagrams & Dollars: Modern Money Illustrated. For your viewing enjoyment, Donna’s video is below.

Professor Krugman’s Nervous Tic?

By Joe Firestone

Paul Krugman’s recent post makes some good points about the myth of the undeserving poor. But does he have a nervous tic? When criticizing conservative economic views, doesn’t he always seem to genuflect slightly to conservative opinion in order to appear “reasonable”? In this post he says:

“I’ve noted before that conservatives seem fixated on the notion that poverty is basically the result of character problems among the poor. This may once have had a grain of truth to it, but for the past three decades and more the main obstacle facing the poor has been the lack of jobs paying decent wages. But the myth of the undeserving poor persists, and so does a counterpart myth, that of the deserving rich.”

What “grain of truth” ever existed in this story? Where is the empirical evidence that the poor were ever more “lazy” than the rich or had other “character defects” (Not K’s words) that the rich don’t have in abundance, as well? I don’t think there is any. What the conservatives believe is pure BS. Some people are certainly “lazier” than others. But there’s no evidence that this aspect of character is class-based. It’s just prejudice, myth, and conservative fairy tales, which they embrace in place of authentic religion, run rampant.

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Bank Lending and Bank Reserves

By Dan Kervick

Frances Coppola has a very nice piece in Forbes that takes on some of the continuing confusion over commercial bank reserves, central bank payments of interest on reserves and the relationship of both to commercial bank lending. She concludes with a ringing rejection of the frequently voiced claims that the Fed’s policy of paying interest on reserves inhibits bank lending, and that high excess reserve levels are an indicator of sluggish bank lending or bank hoarding:

The volume of excess reserves in the system is what it is, and banks cannot reduce it by lending. They could reduce excess reserves by converting them to physical cash, but that would simply exchange one safe asset (reserves) for another (cash). It would make no difference whatsoever to their ability to lend. Only the Fed can reduce the amount of base money (cash + reserves) in circulation. While it continues to buy assets from private sector investors, excess reserves will continue to increase and the gap between loans and deposits will continue to widen.

Banks cannot and do not “lend out” reserves – or deposits, for that matter. And excess reserves cannot and do not “crowd out” lending. We are not “paying banks not to lend”. Positive interest on excess reserves exists because the banking system is forced to hold those reserves and pay the insurance fee for the associated deposits. It seems only reasonable that it should be paid to do so.

I wholeheartedly agree with the bottom line moral Coppola draws from the operational mechanics of bank lending, but I do think some additional clarity can be had on the question of whether or not commercial banks lend their reserves. And I also have some reservations about the justification Coppola cites for the policy of paying interest on reserves in the first place.

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Guaranteed Income? How About Guaranteed Job?

NEP’s Pavlina Tcherneva appeared on David Packman’s show yesterday (1/21/2014) discussing job guarantee programs. You can view the video below.

Let’s End Politico and Deal Book’s “Competition in Sycophancy”

By William K. Black

Politico has joined Deal Book in a “competition in sycophancy.”  The contestants are competing to see which can author the most extreme version of a fantasy meme in which heroic Wall Street “banks” are oppressed by “Washington.”  I had not believed that any “serious” journalist could compete with Andrew Ross Sorkin’s Deal Book in pounding this meme.  Ben White, Politico’s economics reporter, has become my dark horse favorite in the race to the bottom of the “serious” business press with his whitewash entitled “How Washington beat Wall Street.”

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