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Archive for January, 2011

So, I haven’t been posting for a day or two as I’m kind of busy at the moment – not to mention that today the dentist gave me some funny tablets before he started fiddling with my chompers (I can see why people get so hooked on Valium…). To be honest I’d much prefer to be writing something on here, as I have some very interesting stuff on the Argentinian debt crisis in the pipeline – and why it should serve as a model for those periphery EU countries that currently find themselves in crisis.

So, for the moment I’ll provide links to an excellent series of videos where economics professors L. Randall Wray (who recently helped me out a bit with the Argentina stuff – having served as an adviser to the Argentinian government during the crisis)  and Bill Mitchell (who runs the economics blog Billy Blog) give a very in depth tutorial about modern monetary theory; listen up and swell your brains!

Part I Part II Part III Part IV Part V Part VI Part VII (No part VII – dunno why) Part VIII Part IX

I’d also suggest that anyone interested in modern monetary theory – from a broadly post-Keynesian (read: sane) perspective – check out Professor Wray’s book on the matter ‘Understanding Modern Money‘.

Professor Mitchell is also a guitarist in what seem to be a fine Australian based blues band called The Blues Box. Below is one of their songs (written by Mitchell), which is, well, top notch blues music. A man of many talents, indeed (except for maybe the fact that he plays a Strat – which is a crime against originality)!

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The First Dail: Rolling in their Graves - All of Them!

Disaster! We’re in for a disaster! The other day I overheard a guy in the pub, who looked like he’d been in there for most of the day, say that Ireland is completely fucked – he was right.

The other day Fine Gael announced that they are “seriously considering” taking an extremely dodgy EU measure called a ‘debt brake’. This would involve writing a clause into our constitution that would bar budget deficits beyond a certain level and place serious pressure on governments to cut spending… sorry, did you miss that? Yes, that’s right: writing a clause into our constitution! A clause that essentially gives up our fiscal sovereignty!

I don’t even know where to start on this… It’s absolute and total madness! First of all, the constitution is NOT in place to be used to implement European governed fiscal austerity – its in place to protect the citizens of this country from government abuse and the like. Writing a clause into the constitution in order to appease of European masters is not only a disgusting impingement of sovereignty – its also extremely dangerous.

Why? Okay, here’s my take on it. Governments across the world are currently obsessed with austerity. They seem to think that by slashing spending some mythical entrepreneur will step in and magically create jobs. This is nonsense of the highest order. Indeed, it can be seen to be a massive failure, for example, in Britain – which now faces stagflation due, in large part, to the Tory cuts.

At some point governments are going to realise this and the discourse on austerity is going to change – well, that or the streets will burn; that’s up to the politicians, I guess.

Anyway, something even worse is in store for Ireland if she continues down the austerity path. As spending cuts eat into employment and incomes, this will reverberate through the private sector – eventually leading to lower government tax revenues and lower GDP. Our debt to the EU/IMF will, on the other hand, remain the same. Thus, the debt to GDP ratio will yawn open – and at the same time payments will become harder and harder as the tax base shrinks. This is something very similar to what the economist Irving Fisher called a ‘debt deflation’ crisis.

Eventually, the Irish people will realise that something is up – and I’m hoping this will coincide with the discourse on austerity changing. Then we might be able to talk about real solutions – solutions like pulling out of the euro, defaulting on the debt and engaging in fierce deficit spending (what is colloquially known as ‘pulling an Argentina‘).

Now consider that the EU will have its slimy tentacles in our constitution. How much of a ‘brake’ do you think this will put on reform? Think about it. This country is downright servile when it comes to legality. The mere mention that something might be in conflict with the current legal code or is unconstitutional is enough to have most politicians down on one knee. The constitution is a temple unto itself – the pride of anyone who even vaguely refers to themselves as a nationalist… but now it’s being cynically manipulated to shave a few percentage points off our interest payments.

This is disgusting – comparable to selling your ass to pay off your credit card bills. But beyond that, it’s downright dangerous. So much for the Free State! What can I say? Fuck you, Europe – seriously, F-u-c-k you!

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Yesterday I came across something in the paper that, while it didn’t shock me, sort of irked me. It was a piece arguing that Gerry Adams is economically illiterate. Now, I don’t know if Gerry Adams is economically illiterate or not – or, should I say, I don’t know if Gerry Adams is any more economically illiterate than the rest of our political leaders (didn’t Sinn Fein vote for NAMA?); but the argument put forward in this article was a little more nuanced than that – not much, but a little.

It basically said that Adams doesn’t understand economics and wants us to go down the path that Argentina did in 2002 – that is, default on our debt, revert to the Punt and undertake fiscal stimulus.

Look, if you have problems with this argument, that’s fine – I have problems with that argument. But its something that many international economists see as a very real option for Ireland.

The argument goes something like this: spending cuts are going to further savage employment and incomes; the debts will then become an ever increasing burden relative to GDP; with GDP falling and relative debts rising, diminishing tax revenues will prove increasingly insufficient to finance the debt – there’s even a chance that the debt burden to GDP ratio will become so great that Ireland becomes completely unable to meet repayments… making us debt-slaves of the EU/IMF.

It follows from this that we should copy Argentina and default on our debt as soon as possible – hell, it might even be an inevitability anyway.

Supporters of this argument point out that Argentina was, in fact, a massive success story. Have a look at the chart below and you’ll see the real growth rate of Argentine GDP. Note the massive drop up coming up to and during the default (which took place in 2002) – but almost straight away GDP growth bounced back (I’ll go into why this happened in a later article).

Argentina - GDP - real growth rate (%)

The unemployment rate tells a similar story. They had a huge peak around the time of the default and then a sharp decline.

Or we could look at the poverty – once again, same deal.

I dunno about you, but I’m having a hard time finding the failure in this model… Apart from making themselves rather unpopular with the international financial institutions for a number of years, the Argentine default seems to be a wholesale success story. Indeed, the charts above don’t even show how, after years of corrupt dictatorial rule following the IMF line, Argentina had been going through crisis after crisis until the Kirchner presidency, when the economy finally stabalised.

So, I emailed the writer of the article in question and pointed out that many international economists and financiers – some of whom I’ve discussed this with in depth – consider Argentina to be a success story. I also pointed out that many of these economists see the Argentine strategy – or some variant thereof – as a real possibility for Ireland. He didn’t respond (although if he does, I’ll update this post accordingly – I don’t want to name who the writer is until I’ve given him a chance to respond… ain’t I such a nice and civil guy?; the journalist in question certainly didn’t give Gerry Adams the same courtesy, after all! For now, I’ll just say that the writer in question is a very respected Irish journalist).

I also took the liberty of emailing some of the economists and financiers that I was talking about – one of whom was involved in advising the Argentine government on elements of its fiscal stimulus, namely their highly succesful ‘Jefes’ job program, during the crisis years. I’ve got plenty of material on this and, if I weren’t so busy today I’d be on here banging out comparative articles on Ireland’s and Argentina’s crisis situations. Coming soon, I promise. And in the meantime beware of journalists playing economics experts – but then, you knew that already, didn’t you?

UPDATE: Since the journalist in question didn’t seem to think that my criticisms merited a response – or, I suspect, could not come up with a response due to his own ‘economic illiteracy’ – I will now reveal that the person in question is Sam Smyth; whose trashy piece on Gerry Adams can be found here.

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And it is all one to me

Where I am to begin;

for I shall return there again.

 

In the fifth century, in the Greek city of Elea, there lived a philosopher named Parmenides. He believed that there was no such thing as change or motion. The world, for him, was eternally ever the same. This might seem like an absurd proposition, but it actually constitutes a key theme even in contemporary philosophy. Is language, for example, constructed on a never changing grammar – as Chomsky would have it – or is it simply a bricolage of heterogenous elements that are constantly replacing and eliminating one another? Doesn’t look so dumb now – eh?

Personally, I’m reluctant to agree with old Parmenides – but today I got that distinct impression that he might have a point. I surveyed today’s economic news stories and thought to myself: “My God! What if change is, in fact, an illusion – what if humanity is indeed caught in an ever-recurring cycle?”

First off was Obama’s State of the Union address. Many publications are lauding this as a new moment for America and her economy. And at first, I’ll admit, I was taken in – wishful thinking, I guess. Obama stated that it was time to invest in America – to make her more competitive vis-a-vis her contemporaries; like China and India. As regular readers know, I believe that these global imbalances are at the very heart of our current economic woes – so, when I heard this I was more than a little enthusiastic.

As the Yanks say, it would seem that I “drank the Kool Aid” – but I was not alone; a poll taken after the speech showed that some two-thirds of Americans were similarly impressed. Seems like this sort of thing instinctively hits a nerve with the voter – hmmm…

Anyway, then I actually watched the speech. Oh dear! Here we go again – balanced budgets; deficit reduction… the whole nine yards. Obama wants a major investment program without running a budget deficit. We all dream the impossible, I guess – I, for example, want a new laptop, but I don’t want to spend any money. I suppose I could steal one – I’m not sure if that option is open to Obamster.

In future I think that I’ll heed Yves Smith’s advice, who stated on her blog today:

[Now] you can see why I avoid paying much attention to what Obama says. I’d never get anything done if I did.

It’s true – that sort of double-talk could distract you to no end. I suppose that’s Obama’s general political strategy: distract the shit out of people so that they don’t have any time to think about anything else. All change is illusory, indeed!

Next up, are the charlatans economic commentators at the Davos Forum, which kicked off yesterday. I had some rather unkind things to say about their annual report a few days ago. I can now confirm that what’s coming out of the conference itself is even worse.

Whereas the annual report was cautious – albeit for all the wrong reasons – the conference is a nonsense-fest of crass cheerleading.

“CEOs have emerged from the bunker mentality of surviving the recession” said Dennis Nally, chairman of PwC International. “They now see renewed opportunity for growth, even in the near term, and are determined to take advantage of better global economic conditions and increased customer demands.”

Sorry, Dennis – did you say ‘increased consumer demand’? No, of course you didn’t – because that would be patent BS. Instead you used the vague term ‘increased customer demands’. That phrase means nothing – literally. It is a meaningless counter thrown into the audience to increase ‘confidence’ (in what? – as far as I can see most of this ‘confidence’, backed by easy Fed money, is flowing into a stock-market bubble – but then, who am I to question the ‘animal spirits’?).

This is the tone of the Davos conference – vague, feelgood and, above all, completely lacking in economic analysis.

The same day as the conference it was announced that the UK was facing another possible bout of stagflation – an economic disaster unseen since the 1970s. It took this – and someone who is often considered a crank – to remind the childish audience of the dangers inherent in the current global economic model.

Britain and the weaker nations of the eurozone remain vulnerable to the risk of a double dip recession, even though the rest of the world economy is recovering from the global economic crisis, leading US economist Nouriel Roubini warned today.

Oh yeah! The major European debt crisis that is currently unfolding. Must have forgotten about that one, eh guys? Derp!

Meanwhile the Davosistas have their PR companies poll the public and wonder why these people lost faith in economic and political institutions. It must be wonderful living inside the heads of these people – to be rich, insulated AND so blissfully ignorant; a greater blessing could not be asked for.

Yes, these days Parmenides is looking pretty vindicated. Sometimes the world appears so static, so resistant to anything remotely new that you could be forgiven for thinking that change is impossible and everything is eternally the same…

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The UK economy has seen better days...

GDP figures are in for the UK in the final quarter of last year – and they’re bad… very bad. GDP shrank by 0.5%.

While the actual contraction seems to have been caused by the terrible weather, there is a general consensus that even if weather conditions had been normal, the economy probably wouldn’t have shown any growth.

So far, so bad – but now consider the fact that inflation has continued to climb; with the CPI (Consumer Price Index) moving up from 3.3% in November to 3.7% in December. That’s a pretty significant increase – especially for an economy showing negative GDP growth.

After the release of this data, many commentators are voicing their concerns that the UK might once again be facing ‘stagflation’.

Britain first fell into stagflation in the 1970s. That era was characterised by low-rates of economic growth and high-rates of unemployment, coupled with persistent inflation.

Some say that this circumstance cannot be accounted for in economic theory – this is nonsense; there are plenty of reasons why this might happen. In the 1970s the predominant causes were wage-gains by workers and the oil shocks – most notably the shock that occurred in 1973 when the US moved to supply the Israelis in the Yom-Kippur War. In response many Arab states waged economic war against Whitey, by raising the prices of oil dramatically.

The latter – the oils shocks – are generally referred to by economists as ‘exogenous’ or ‘external’ shocks – as in, much like the weather affecting the UK’s current economic growth, they come from ‘outside’ the economy at large. The former – the wage-gains by workers – however, were ‘endogenous’ or ‘internal’ to the economy at large.

Thus, the oil shocks passed – and high wages were tackled by the Thatcher government using the money supply to create large-scale unemployment; ending the inflationary crisis, while simultaneously destroying British industry. Tough medicine – to say the least.

Today, however, we’re in an altogether different situation. Rising prices simply shouldn’t be happening. Why? Well, we’re not seeing high-wages as a root cause. Add to this the fact that, with unemployment rising, spending by households has been taking persistent knocks.

So, what the hell is causing the inflation? Well, I’ve said it before: its a combination of bad weather adding to the cost of food and energy – coupled with that ever important factor of speculators making bets on these increases and thus pushing prices ever higher.

But the British government continue to look to the old solution of ‘slash and burn’ – indeed, the government expects that inflation will come down when they make their vicious cuts to public spending over the next two years.

Will this work? I’d guess not. We’ll probably see inflation come down a little as the weather eases up. But the speculators – flush with cash from the US government’s QE2 project – will continue to bet on the essentials of life, pushing up their prices and causing inflation.

All the Cameron governments’ cuts will achieve is more misery. As unemployment persists in the UK, the cuts will drag down incomes – but with Wall Street and The City continuing to push up prices, people will find it more and more difficult to afford the costs of living.

Dark days are on the horizon.

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Interesting piece on conflict of interest within the discipline:

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When the world falls apart some things stay in place
Levi Stubbs’ tears run down his face

It would seem that – predictably enough – the US unemployment rate is eating into the level of union membership.

The Bureau of Labor Statistics reported that the unionized share of the U.S. workforce dropped to 11.9 percent last year from 12.3 percent in 2009. The private sector unionization rate fell to 6.9 percent in 2010, from 7.2 percent in 2009.

The future for the US unions looks equally bleak:

After a few years of small gains, union membership tumbled in 2010. Over 2009 and 2010, the Great Recession helped to reduce union rolls by more than 1.3 million members. In the absence of federal support for state and local governments, public sector cutbacks will continue to depress the overall union membership rate. Absent changes to labor law, offsetting increases in the private sector are unlikely.

This is deeply problematic. As I argued here, unions are one of the key institutions – together with progressive economists/policy-makers and businesses with an interest in decreasing the unemployment rate – that allowed the New Deal to take place, paving the way from global recovery from the Great Depression.

What we seem to have in the US at present is a downward spiral in the labour markets, which pulls union membership down into the abyss with it. This may seem like terrible news – more circumstances making it more likely that the US will not implement the economic reform that their populace cries for – but perhaps this is not the case.

During the Great Depression too, union membership – which was on a high after the early years of the 20th century – fell drastically.

Although AFL membership fell to fewer than 3 million amidst large-scale unemployment, widespread economic hardship created sympathy for working people.

And yet, after the New Dealers came to power, union membership – for the most part, backed by the state – soared in the coming years, completely changing the US economic and political landscape.

When Roosevelt took office, he sought a number of important laws that advanced labor’s cause… With such support, trade union membership jumped to almost 9 million by 1940.

The reason? Partly – as stated above – because progressives had risen to positions of power in Washington; but also partly because public opinion shifted: people began to sympathise with workers and the unemployment.

This is not to say that union building was something that occurred over night – much sweat and blood was poured into the effort. But there were more people willing to join up and become union leaders. Union leaders – today seen as crooks – were seen as friends of the community; a necessary counterbalance to the vested interests that had, until then, controlled government.

So, perhaps all is not quite lost. Maybe what we’re seeing develop is a fertile breeding ground for union activism – and not just in the US…

 

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Here’s an interesting primer of Keynesian economics that was brought to my attention by the good folks at CreditWritedowns:

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Here’s an excellent interview with Marshall Auerback in which he discusses the Irish problem in depth and then takes a broader look at the European crisis (guess who his Irish sources are? hehehe…).

Listen Here

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Last night I watched a film called ‘Max’. ‘Max’ charts Hitler’s life just after he returned from the front – and his evolution from a failed artist to a political agitator.

First of all, let’s get one thing straight: ‘Max’ is, by most criteria, a bad film. The acting is weak – and even when it’s not, as in the case of John Cusack in the leading role, there is a notable absence of proper direction which leaves Cusack to flounder around, playing the part of an art dealer in 1918 with the mannerisms of a contemporary Hollywood film star. The script is contrived and clumsy – with a barrage of cultural references that is hard for anyone not steeped in the intricacies of early European modernism to follow. And the cinematography is, well, ugly.

So, why am I writing about this film? Because the concept is fascinating. The film portrays Hitler as a struggling artist who, being unable and unwilling to tap into his creative side due to his being a pent up neurotic, veers into the world of extremist politics, where he is exploited by cynical militarists. Basically, Hitler is portrayed throughout as a figure of fun – a desperate loser, whose self-destructive behavior leads from one failure to another.

Now, that’s very far from the image we usually get – namely, that of Hitler as an evil genius – but it is far closer to the truth.

This aspect of the film is absolutely mesmerising. The films main character, Max – played by Cusack – is a savvy, elitist Jewish art curator who, taking pity on Hitler, takes him under his wing – despite his being possibly the most unpleasant and asocial character you’re likely to come across. Max is a fictional character – but he is supposed to be an amalgamation of the various Jewish figures Hitler actually encountered in the art world after he returned from the Great War.

Far from being comforting, this perspective on Hitler’s character is extremely disturbing. Here he is – this loser, this incompetent, this easily exploitable joke, gradually rising to one of the most powerful positions in history; his madness becoming the madness of a heavily armed state.

One scene that is particularly disturbing is toward the end of the film, when Hitler – having given up on his art – makes a speech to a hall of fellow losers (dejected citizens, homeless young veterans – in short, unemployed people with nothing to do). As Hitler screams histrionically, the camera cuts to a group of ex-navymen in the crowd. There they sit, sharing a bottle of gin and laughing at Hitler’s ridiculous contortions. But then, as the crowd begins to stir into a frenzy, the navymen stop drinking, drop their irony and mockery and start chanting and shouting.

The great German philosopher and sociologist Theodor W. Adorno, who had fled Hitler’s regime in the 1930s, wrote somewhere that a great deal of Hitler’s appeal was that he was seen by many of his supporters as a degenerate and a clown – but that it was precisely this aspect of his personality – which should be firmly contrasted with the respectability of a Mussolini – that gave him the ability to whip a crowd into mass-psychosis. I never quite understood what Adorno meant – until I watched this film.

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