Tag Archives: say what

Say W-h-a-a-t?

By Jon Krajack

This past week, in an ironic twist of fate, former Royal Bank of Scotland CEO Fred Goodwin was stripped of his Knighthood. Goodwin presided over RBS’s rapid growth leading up to the 2008 financial crises, but he retired suddenly, just a month before RBS reported roughly $35 billion in losses. Goodwin had been nicknamed “Fred the Shred” for his cost-cutting practices. With “Sir” being cut from Fred Goodwin’s official name, karma seems to have come full circle.


In testimony before the House Budget Committee, Chairman Bernanke warned that in order for the United States to ensure economic and financial stability, it must reduce its debt-to-GDP ratio over time.  We wish the Chairman had warned against cutting the deficit during a balance sheet recession (while households are still trying to deleverage). We wish he had explained that countries that issue a non-convertible fiat currency, like the US, can allow their budgets to remain in deficit until the private sector finishes deleveraging (even if that means the debt/GDP ratio increases).  We wish he had said that when private sector balance sheets have been repaired, the private sector will start spending again, the economy will begin to grow more rapidly, and the debt/GDP ratio will come down the RIGHT way.


Greece finds itself in a precarious situation. It has outstanding debts that it can not afford to repay. Fortunately, Germany has a “solution”! It’s simple: the Greek government should give up what little economic sovereignty they still have. More specifically, Greece should turn over it’s fiscal policy decisions to a euro zone budget commissioner that would have the power to veto budgetary proposals that are “not in line with targets set by international lenders.” If this occurs it will set a very dangerous world precedent:what’s the point of democracy and elections if public policy is in the hands ofinternational financiers?  


This piece at The Economist talks about how recovery from the financial crises is going better in the United States than in Europe. They note that recovery in the United States has occurred against a backstop of loose fiscal policy. Further, they recognize that Europe has “been forced, or chosen” much tighter fiscal policy. What’s interesting here is that The Economist has the dots, but is failing to connect them. Maybe they should consider why it is that the United States is able to have looser fiscal policy?


David Cay Johnston
is one of the few mainstream journalists that demonstrates an understanding of the difference between a currency issuer and a currency user. In this piece he explains that austerity will worsen economic recovery. 

BREAKING NEWS! In order to prevent an election year debt ceiling debate, President Obama and congressional Republicans have reached an agreement. The president will sell his Burning Man tickets and donate the proceeds to help pay off the national debt. Some may argue that his Burning Man tickets will not even make a dent in the debt. Baby steps, folks. Baby steps.

Charles Goodhart once served on the Bank of England’s Monetary Policy Committee.  In this piece, Goodhart explains why the Federal Reserve’s latest attempt to reveal its own expectations about the future path of short-term interest rates makes for fashionable theory but lousy policy.

Say W-h-a-a-a-t?

Below are some of the wildest, boldest, and most surprising stories we ran across this week. Thanks to all who shared their favorites. Keep them coming! This is a weekly series, so we’ll be back with more next Friday.

We’ve seen quite a fewvideos featuring Occupy Wall Street protestors but none this good.

The Wall Street Journal reports that the European Union (EU) finance ministers are discussing whether governments with the strongest public finances can provide some budget stimulus to help support flagging economic growth in the 27-nation bloc.

Could it signal a small reversal of a policy adopted by ministers in October 2009 that calls on all EU countries to start cutting their deficits in 2011? We sure hope so.

Watch this one if you’ve got 47 seconds and you want to spend them smiling.

Last weekend, Denmark became the first country to adopt a “fat tax” (story here). The tax hits all foods with a saturated fat content above 2.3 percent. And while there is scant evidence that a tax of this sort will lead to changed behaviors and improved health outcomes, researchers are worried that a the tax would be quite regressive, hitting lower-income families much harder than higher earners.

The New York Times reports that “Britain is beginning to taste the bitter medicine David Cameron warned was necessary to fix its wounded economy . . . Figures released last month showed growth in Britain had slowed to 0.2 percent in the second quarter, diminishing hopes that the country’s businesses can generate new jobs to replace public sector posts being lost under the austerity plan. In the last year about 250,000 public sector workers have been laid off, and the country’s jobless rate was 7.9 percent in the period between May and July. It’s left some wondering: Is the remedy worse than the symptoms?” What a shame. Britain had the good sense to stay out of the Euro, but it’s behaving like a member of the cash-strapped system. If the Brits understood their monetary system, they’d realize that their wounded economy could be fixed with a few good keystrokes.

New York City Mayor Michael Bloomberg can’t understand why protestors are so upset about the divide between the haves and the have-nots. After all, he says, Wall Street salaries are only about $40 to $50,0000 a year. Except that they’re not. Sure there are some average folks working in the back-offices, answering phones and filing paperwork, but this isn’t what’s got people napping against barricades in NYC. So what do Wall Street workers really make? (Story here) “In 2010, the average cash bonus in New York City’s securities industry was $128,530 per person, according to the state comptroller’s office. That figure doesn’t include salaries, pay tied to stock options and some kinds of deferred compensation. At the Envy of Wall Street, Goldman Sachs, the firm in the second quarter set aside $90,140 per employee for compensation and benefits.”

Mocking the Occupy Wall Street protestors, some Chicago traders hung signs in their office windows, declaring themselves the 1%.

Say W-h-a-a-a-t?

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.