China issues first white paper on military strategy
The ECB had another lavish annual talkfest in Portugal over the weekend just gone in the guise of their – Forum on Central Banking. Like all these EU-type gatherings there was plenty of fine food and wines. They even provided footagealong those lines. The President of the ECB Mario Draghi gave the opening speech – href=”http://www.ecb.europa.eu/press/key/date/2015/html/sp150522.en.html”>Structural reforms, inflation and monetary policy – on May 22, 2015. There was also talk about how “structural and cyclical policies … are heavily interdependent” but then a denial of the same. The message from the President was like a record stuck on the turntable – “to accelerate structural reforms in Europe … even in a weak demand environment”. Well here is my message – similarly like a stuck record – structural imbalances occur because of weak demand and the best time to assess structural policy is when you have first attained full employment by appropriate setting of fiscal deficits, not before. It is madness to deliberately constrain fiscal balances to levels that ensure high and entrenched unemployment and rising underemployment and then expect citizens to support microeconomic policies that further undermine their welfare and damage what job security they have. But that is the EU way and that is why the Eurozone is a massive basket-case failure.Must-read.
Rational choice theory
Social outcomes derive from the actions of socially constituted actors in relations with each other
Explain outcomes as the aggregate result of the actions and interactions of purposive individuals
Individuals behave as economically rational agents. Explain outcomes as the aggregate result of these actions
Attention to “thick” theories of the actor
Desire-belief-opportunity framework for actors (DBO)
Narrow economic rationality: consistent preferences and maximization of utilities
Actors are formed and shaped by the social relations in which they develop
Causal models; commitment to the causal mechanisms approach
Equilibrium models; commitment to mathematical solutions for well-defined problems of choice.
Narrative accounts of the development of social outcomes give actions of the actors
Primacy of Coleman’s boat: explanation occurs from micro to macro and macro to micro
Game theory is used to represent interactions among rational agents
Agnostic about microfoundations
Commitment to requirement of microfoundations
Commitment to requirement of microfoundations
Indeed, even opportunity cost can be rarely computed without working out the full equilibrium of a path not taken. This is why, if I were to re-write Economics in One Lesson, it is Nash equilibrium that would be the lesson and not opportunity cost.John Quiggin, are you listening?
In an article published in The Wall Street Journal Thursday, the third wealthiest man in the world affirmed that the poor should stop blaming the rich for income inequality. Multimillionaire and CEO of Berkshire Hathaway Warren Buffet stated that, “The poor are most definitely not poor because the rich are rich. Nor are the rich undeserving.” In his opinion, successful businessmen like Henry Ford and Steve Jobs have improved the quality of life of the world’s population, and keep doing so.
According to Buffet, such inequalities are “an inevitable consequence of an advanced market-based economy ... because [most] jobs [in the past] could also be carried out by almost any willing worker.” Now that most of the tasks have been mechanized, only a few workers manage to take advantage of their skills and benefit from a substantial income. For this reason, improving education or raising the minimum wage cannot be a viable solution, he argued.There is no solution under capitalism according to Buffett. It's just “an inevitable consequence of an advanced market-based economy...."
During his campaign Duda – a moderate Eurosceptic - stressed that Poland shouldn't transfer so much cash to the EU. Also he promised a vote on exiting the bloc if the people want it.
"Perhaps these years have been good, but only for a narrow group," Duda told his supporters on Friday. "Yes, it's time for change, time to end this sluggish, indolent presidency."
Komorowski, the incumbent president, stands for closer ties with the EU and NATO as the only way to stand up to "the threats of the modern world.”...RT
The law that was signed by Russian President Vladimir Putin on Saturday and posted on the official web portal of legal information says that a foreign or international, but only non-governmental (NGO), organization can be recognized as undesirable if it "poses a threat to fundamentals of the constitutional system of the Russian Federation, to the country’s defence capacity and security." A decision to this effect is passed by Russia’s prosecutor general or his deputies in coordination with the Russian Foreign Ministry. The Ministry of Justice is to be in charge of making up lists of ‘undesirable organizations’ and of publishing them.
The law imposes, in particular, a ban on activities, setting up and opening of structural subdivisions of an ‘undesirable organization’ in the Russian Federation and distribution of its information materials.This is actually funny. The US criticizing Russia for outlawing NGO's that fund opposition groups in Russia aimed at regime change, when the US has made such activity illegal from the anti-Communist days and requires disclosure of foreign lobbying. There is even a push underway to get rid of Chinese-government funded Confucian Institutes at American universities that teach about Chinese culture. The level of hypocrisy is astounding.
Is the most dangerous country in the world the United States of America? According to a new poll from WIN and Gallup International, the U.S. represents the largest threat to world peace today.
In their annual End of Year  poll, researchers for WIN and Gallup International surveyed more than 66,000 people across 65 nations and found that 24 percent of all respondents answered that the United States “is the greatest threat to peace in the world today.” Pakistan and China fell significantly behind the United States on the poll, with 8 and 6 percent, respectively. Afghanistan, Iran, Israel and North Korea all tied for fourth place with 4 percent.
The policy agenda this seems to recommend would focus on improving the schools that serve low-income families, and on raising the incomes of the households concerned -- through lower taxes and higher wage subsidies. The study also backs efforts to get more women into the workforce and to enable people to move from irregular or part-time employment to proper jobs.
Well said -- but this isn't what springs most readily to mind, in the U.S. at any rate, when the discussion turns to inequality. That conversation isn't mainly about poverty and low incomes; it's preoccupied with the depredations of the 1 percent.Is Crook suggesting, with MMT, that taxes don't fund spending? I doubt it since he has never taken that position previously.
J.Hawk's Comment: This is a stunner and, frankly, a minor political earthquake for all of EU. Even in January [Bronislaw ] Komorowski seemed unbeatable. A Polish political pundit famously said that to lose the election, "Komorowski would need to run over a pregnant Catholic nun while drunk." Well, close enough! But it's not just the sanctions and apples. Komorowski can also thank his Kiev Bandera-worshipping "partners and friends" for the untimely demise of his political career. The tide of the Polish public opinion turned very sharply against Ukraine in the last few months ("you can't fool all the people all the time"), and Komorowski paid the price...
As to [Andrzej] Duda, he is as Russophobic as his predecessor, if not more so (he believes, for example, that Putin had the Polish president Kaczynski murdered by staging a plane crash in Smolensk in 2010...), but at the same time he is a Euroskeptic similar Hungary's Viktor Orban and he enjoys extensive support by Poland's Catholic Church which is, well, you can imagine. But Russophobia and Euroskepticism can't happily coexist, not in the Polish state, at any rate, so very soon Duda will have to make a choice. And ultimately Duda's politics are actually closer to Putin's (when it comes to the fundamental beliefs concerning sovereignty, national security, and basic human values) than to EU's.Fort Russ
One of the on-going themes that emerges from the neo-liberal commentariat is that fiscal deficits undermine the future of our children and their children because of the alleged higher implied tax burdens. The theme is without foundation given that each generation can choose its own tax structure, deficits are never paid back, and public spending can build essential long-lived infrastructure, which provides benefits that span many generations. The provision of a first-class public education system feeding into stable, skilled job structures is the best thing that a government can do for the future generations. Sadly, government policy is undermining the future generations but not in the way the neo-liberals would have us believe. One of my on-going themes is the the impact of entrenched youth unemployment, precarious work and degraded public infrastructure on the well-being and future prospects of society as neo-liberal austerity becomes the norm. This theme was reflected (if unintentionally) in a new report, release last week by the OECD – In It Together: Why Less Inequality Benefits All. The Report brings together a number of research findings and empirical facts that we all knew about but are stark when presented in one document.Misplaced priorities.
Stephen King from HSCB warns that the global authorities have alarmingly few tools to combat the next crunch, given that interest rates are already zero across most of the developed world, debts levels are at or near record highs, and there is little scope for fiscal stimulus.
"The world economy is sailing across the ocean without any lifeboats to use in case of emergency," he said.
In a grim report - "The World Economy's Titanic Problem" - he says the US Federal Reserve has had to cut rates by over 500 basis points to right the ship in each of the recessions since the early 1970s. "That kind of traditional stimulus is now completely ruled out. Meanwhile, budget deficits are still uncomfortably large," he said....
The US cannot easily launch a fresh New Deal. Public debt was just 38pc on GDP when Franklin Roosevelt took power in 1933, and there were few contingent liabilities hanging over future US finances.Looks like all we can afford is depression, and, of course, war.
HSBC's Mr King says the global authorities face awful choices if the world economy hits the reefs in its current condition. The last resort may have to be "helicopter money", a radically different form of QE that injects money directly into the veins of economy by funding government spending.Lots of data on the global economy in the article though.
It is a Rubicon that no central bank wishes to cross, though the Bank of Japan is already in up to the knees.
A growing number of economists are advocating granting central banks the power to make payments to households. Most recently, Mark Blyth, Simon Wren-Lewis and I argue in The Guardian that the Bank of England should be given this power – not with a view to using it now, but as a contingency. Currently, contingency planning amounts to keeping our fingers crossed and hoping there is no negative shock to demand – that is irresponsible. Further QE, negative interest rates, and attempts to raise the inflation target are all terrible policy options – probably ineffective, and potentially self-defeating. Making payments to the household sector, by contrast, is in many ways preferable to conventional monetary policy.
Encouragingly, the predominant objection to this proposal is rarely about efficacy. The main area of concern is the potential impact on the Bank of England’s balance sheet – and, by the implication, on future control of inflation. This subject can be made very complex and confused. But the crux of the matter is straightforward, and the balance sheet issues that arise are not unique to our proposal.Lonergan goes on to point out the problem is a pseudo-problem in that it arises from accounting conventions and can be addressed by the same. It is the government's bank, and the government makes the rules.
In "Protecting the Norms of Science in Economics", Paul Romer writes:
"About math: I have studied physics as an undergraduate.I’ve seen clear evidence that math can facilitate scientific progress toward the truth.
"If you think that math is worthless or dangerous, I’m sure that there are people who will be happy to discuss this with you. I’m not interested. I’m busy."
I'll see his undergraduate degree in physics, and raise him by a Ph.D. in applied mathematics (Control Systems Theory). Undergraduate physicists study highly polished and elegant models which have been chosen because they describe aspects of physical behaviour quite well. Conversely, engineers study complex systems which may or may not appear to follow those simplified laws of nature*, and are forced to make educated guesses on how to simplify the analysis of the systems. Economics is dealing with complex systems that are a lot closer to the reality of engineering than the ivory tower of undergraduate physics.
One needs to push down the expectations of what mathematics can accomplish. Mathematics consists of two things:....May should like it is going to go all wonkish, but it doesn't. Brain makes some killer points. Nice job.
It is a premise of the monetarist position, that the real economy is self-stabilizing and that a rule based monetary policy is the most effective way to ensure both low inflation and maximum sustainable employment.I think we can agree with this much, although Farmer's policy prescription is quite different from MMT. However, he has tuned into some significant points that are in agreement with MMT analysis regarding the relationship of growth, employment and price level. In addition, he agrees that accounting is important in economics. And he has an influential voice in the mainstream.
Keynes claimed, in contrast, that the real economy can get stuck in a position of high unemployment and that permanent high involuntary unemployment can persist as an equilibrium phenomenon. See my earlier post on the neo-paleo-keynesian perspective. If Keynes is correct, and I believe he is, a single instrument, monetary policy, is not enough to hit two targets. Fiscal policy in one form or another, is an important second string to the policy maker's bow.
Last week’s settlement between the Justice Department and five giant banks reveals the appalling weakness of modern antitrust.Because "free markets." How does that follow? Doesn't have to.
The banks had engaged in the biggest price-fixing conspiracy in modern history. Their self-described “cartel” used an exclusive electronic chat room and coded language to manipulate the $5.3 trillion-a-day currency exchange market. It was a “brazen display of collusion” that went on for years, said Attorney General Loretta Lynch.
But there will be no trial, no executive will go to jail, the banks can continue to gamble in the same currency markets, and the fines – although large – are a fraction of the banks’ potential gains and will be treated by the banks as costs of doing business.
America used to have antitrust laws that permanently stopped corporations from monopolizing markets, and often broke up the biggest culprits.
No longer. Now, giant corporations are taking over the economy – and they’re busily weakening antitrust enforcement....
Complicating the picture even more, when you think about it, is the potential for agita in 2016. Suppose Obama, very ironically, gets the anti-slavery provisions “fixed,” i.e. removed, and the bill passes in time. The campaign ads practically write themselves. “A vote for TPP is a vote for human trafficking.” “Why does Senator X support slavery?” Cue the ominous music. Cue pictures of skeletal women and children. Cue the die-ins on the trail. I’m sure campaign shops on both sides are practically drooling with joy, because the only way TPP will pass is with bipartisan support. Getting that amendment in there was GENIUS, and we’ll get to how that happened in a moment.Corrente
So the long-term Big Picture remains inexorable; BRICS and South American nations – which converge in the Unasur (The Union of South American Nations) – are betting on a multipolar world order, and a continental process of independence.RT
Over the page, the draft preface for my book-in-progress, Economics in Two LessonsJohn Quiggin
I got some great comments first time round, but I can see it would be easier if I presented my drafts in a more orderly fashion, though not necessarily sequential. So, I’ll begin at the beginning. Comments, both critical and favorable, much appreciated.
Syriza accuses [Governor Yiannis] Stournaras [head of the Bank of Greece] of sometimes behaving like a minister in the previous conservative government. This accusation is not plucked from thin air: For two years the Oxford-educated economist served under conservative chief Antonis Samaras as finance minister and in this function contributed significantly to the relative stabilization of the Greek economy. However, at that time he also made a lot of enemies on the left. In June 2014, he moved from the ministry to the bank. He made himself a target last December, when he publicly spoke out against early elections. Stournaras has been a "red flag" for the leftists ever since.
But economist Thanassis Mavridis, who runs the online business portal "Capital" is also unable to warm to Stournaras. "I understand the concerns about the independence of the Bank of Greece, but frankly, if we take the concept of independence literally, then Stournaras would not have been allowed to go directly from the treasury to the executive offices of the central bank," he said in an interview with DW.DW (Deutsche Welle)
A timeout of at least a few months would be appropriate in this case, he said, adding: "What would the Germans think if Wolfgang Schäuble were appointed new Bundesbank president overnight? Would that be a good sign for the independence of the central bank?"
The pseudo-debate about whether Keynesians and other fellow travellers ought to be embarrassed when governments that engage in fiscal austerity nevertheless experience positive economic growth rates has become a distraction.
For countries like the US and the UK, it is possible under current circumstances for governments to implement budget cuts and still see their economies grow. But the truth of that statement is not fatal to the Keynesian-inspired critique of austerity policies; it is not by any means the end of the story. The more meaningful question is this: What would have to happen in these economies for significant growth to occur in the midst of budget tightening?
Finding an answer to that last question is one of the strengths of the approach to thinking about the economy pioneered by Wynne Godley, and fleshed out further in the Levy Institute’s strategic analysis series. This approach also provides a clear understanding of how deeply irresponsible it is to cut government spending under present economic conditions: because the danger, given the state of the US and UK economies, is not just that budget cuts might slow down the economy, but that they might not.….Countries can grow along with reducing government contribution either by increasing exports or private debt. Not all countries can increase exports simultaneously so some countries either have to increase the government contribution or see private debt rise in order to grow. The US is unlikely to become a net exporter or even significantly reduce its CAD anytime soon, even with shale oil and fracking. So the growth option under continued austerity is increasing private debt, which is not sustainable and would lead to another crisis down the road. Since the level of private debt is already high historically, it might not be very far down the road.
To bring this back to the tired discussions surrounding austerity policies: yes, it is possible for the United States to have both tight budgets and rising GDP over the next few years. Fiscal conservatism doesn’t make economic growth impossible in the near term — it makes it impossible to grow without increasing financial fragility. In the absence of a significant increase in net exports, keeping the government budget on its current track will lead to either stagnation or an acute crisis.
Austerians in the United States and elsewhere have been allowed to portray themselves as the champions of steely-eyed realism and prudence. In reality, unless their budget proposals come attached with some workable plan to substantially reduce trade deficits, they are courting private-debt-driven financial crises. In any meaningful sense, they are the true practitioners of fiscal irresponsibility.And a strong dollar is inimical to increasing net exports. Austerity tends to strengthen a currency. not so much by making it harder to get as by increasing confidence in the discipline and responsibility of the monetary authority — the same erroneous rationale that drives austerity.
On CNBC's " Futures Now " Thursday, the former OMB Director said that excessive monetary policy has forced central banks all over the world into a corner, and as a result, "the markets are going to be in for a huge, nasty morning after as people begin to look at where we really are." Read more.