Author Archives: Dan Kervick

Galbraith’s Post-Mortem on the Summers Drama

By Dan Kervick

James K. Galbraith presents a summing up of the recent public debate over President Obama’s consideration of Lawrence Summers to replace Ben Bernanke as Fed Chair.  These are the key observations:

Summers drew immediate fire, mostly from liberals. Some were from Harvard, where, as president, he’d alienated many faculty with, among other things, his ill-chosen remarks about women and his handling of a U.S. government lawsuit over dealings between Harvard and Russia. Some foes focused on his time at Treasury under Bill Clinton, when the Glass-Steagall law regulating banks was repealed and the Commodity Futures Modernization Act, which outlawed regulation of derivatives, was passed. Some judged him for his income from Wall Street, including his huge speaking fees and the money he made working for a hedge fund. And his abrasive personality and bruising personal style didn’t make him many liberal friends.

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UN Conference on Trade and Development: Report 2013

By Dan Kervick

The UN Conference on Trade and Development released its 2013 report on September 12, and it is both an invigorating read and a welcome break from the stagnant and conservative thinking that dominates most US economic discussion. The full report can be downloaded from the UNCTAD website, and a much shorter overview of the report is also available.

You can also listen to this podcast of a public event at the London School of Economics marking the release of the report last Thursday. The Podcast features Richard Kozul-Wright, who heads the unit on Economic Integration and Cooperation Among Developing Countries at UNCTAD, and Robert Wade, professor of Political Economy and Development in the Department of International Development at LSE.

Here is an UNCTAD synopsis of the report’s main messages.  I have highlighted the remarks that struck me as most important:

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Paradigm Shift

By Dan Kervick

It was deeply gratifying to learn today that Lawrence Summers has withdrawn his name from consideration for Chair of the Federal Reserve Board of Governors. Summers was a key architect of the late 20th century neoliberal economic system that failed catastrophically in 2007 and 2008, and he was implicated in some of the most notorious regulatory misjudgments of that era. There is no evidence that Summers has substantially altered the economic philosophy that animated him when he was helping to design and implement that system, so if he had acceded to the job of Fed Chief he would have been well-positioned to block stronger financial regulation and extend the unreconstructed regime of too-big-to-fail banks, loose rules, hegemonic financial sector growth and systemic financial instability that he helped create.

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Appointment of Summers Would Signal a Weak and Failing US

By Dan Kervick

The Federal Reserve is the central bank of what is still the world’s most important economy, and its Board of Governors is responsible for regulating and stabilizing the financial engine of US capitalism. But to much of the world, that engine now appears to be both poorly designed and overhyped. The global economy has yet to emerge from its most devastating financial failure since the Great Depression. The hub of that radial disaster was Wall Street and the United States, where a combination of botched corporate governance, derelict regulators, open corruption, unhinged greed and sheer, manic stupidity helped run much of the developed world’s economic system into the ground.  The economic model that for a brief period during the last two decades of the 20th century struck many as a shiny modern marvel of economic engineering now exhibits the corroded aspect of a shoddy and dangerous lemon hawked by fly-by-night hustlers to a world of ingenuous chumps. Continue reading

QE’s Fanboys and Fearmongers Fan Economic Perversity

By Dan Kervick

The government released a disappointing August jobs report today. And unfortunately, the hype and misinformation surrounding the Fed’s quantitative easing program has created a perverse situation in the capital markets which may contribute to sustaining that job market stagnation for some time.

For several months now, we have seen the establishment of an entrenched pattern in which investors routinely respond to a bad jobs reports with bullish behavior and respond to a good jobs reports with bearish behavior. Bad jobs news is treated as good news for investors; good jobs news is treated as bad news for investors. Why in the world would they respond in this way? Because in a classic case of the madness of crowds driven by misinformation and disinformation, the markets have convinced themselves that the fate of the world now depends on whether or not the Fed will choose either to continue or “taper” its quantitative easing program in the near term.

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Stephanie Kelton Interviews Warren Mosler

By Dan Kervick

Stephanie Kelton has inaugurated a new series of New Economic Perspectives podcasts with a fantastic interview of Warren Mosler. The discussion covers current forecasts by Goldman Sachs and others on the state of the US economy; the Fed’s quantitative easing program and market jitters about tapering; the impact of Japan’s “Abenomics”; the political inertia behind the European community’s intractable political commitment to austerity; the investment foibles of the goldbugs; and more.

For all of those people who wonder why MMTers are so skeptical about QE, this is the podcast for them. Mosler’s explanation is as clear as a bell.

The podcast can be downloaded via iTunes by searching for “Stephanie Kelton” or “stephaniekelton’s podcast”. But is also available here via the web.  Highly recommended!

Cross-posted from Rugged Egalitarianism

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Why Oh Why Can’t We Have Better Press Corps Stooges?

By Dan Kervick

I really didn’t see the need to blog yesterday about this silly piece from Zach Goldfarb at the Washington Post’s Wonkblog. The whole bit reads like campaign boilerplate written in some White House office handling the Summers for Fed Chair 2013 campaign.

It’s a bullet list of the sort of broad-brush, something-for-everyone, content-poor “predictions” familiar from political brochures: “As President, Governor Smedley will work closely with both the business community and the representatives of American labor to fight for good jobs at good wages, while promoting competitiveness and labor flexibility.”  Goldfarb’s press release on behalf of Team Summers includes hilarious Onion-style political parody like this:

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The Case against Summers: Much More Obvious than Critics Are Making It

By Dan Kervick

Various types of backlash appear to be growing against Lawrence Summers in the political fight over who should be the next chair of the Federal Reserve Board of Governors.  Josh Barro reports on a research note from BNP Paribas saying that “if President Obama picks Larry Summers as the next Federal Reserve Chairman, he will do serious harm to the U.S. economy.” Binyamin Applebaum develops similar themes in the New York Times.  And Paul Krugman worries that a Summers appointment won’t produce enough media shock and awe to signal a “regime shift” and awaken the confidence fairies from their slumbers.

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Sumner’s Cold Potatoes

By Dan Kervick

Scott Sumner attempts to explain the so-called “hot potato effect” which has played such an important role in the theories and policy recommendations of the Market Monetarists.  But the explanation contains two weaknesses.  The first weakness is a muddle of inapt metaphors which seem to run together the concepts of diminishing marginal value and negative marginal value.  The second weakness is more serious: Sumner and company refuse to take cognizance of the important institutional differences between the banking sector – an unusual and limited sector of the economy where only money and money-denominated financial assets are traded – and all of the other sectors of the economy where money is exchanged for everything else that can be bought and sold.  As a result they seem to be incapable of distinguishing between realistic changes in the central bank’s patterns of doing business with the financial sector and imaginary changes in the central bank’s pattern of doing business with the rest of the world.  And they mistakenly conclude that central bank statements about the former should have a major impact on beliefs about the latter.

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Does The Entrepreneurial State Need a Return on Investment?

By Dan Kervick

Joshua Gans raises some doubts at Digitopogy.org about Mariana Mazzucato’s argument in Slate and New Scientist that it is time for the state to get something back for its investments. Gans’s brief argument isn’t very thorough, but he makes an interesting point. Let’s first establish the context. Mazzucato’s article recapitulates some of the central points from her book The Entrepreneurial State about the sizable role governments have played in driving innovation:

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