The US President isn’t trying hard enough

Answer: Probably not! Elections bring out all sorts of revelations and epiphanies. We have seen that in spades in the last few weeks as the two main parties, both rejected as viable governments by the electors have struggled to lure the all important casting vote from the independents who are not only identifiable for the first time (there are even cartoons about them now) but who have taken advantage of their day (or 3 years in the sun) to lever as much out of the parties as possible. So last night, with the government returned as a minority operation at the behest of the vote of three independents and a Green MP, we suddenly see a renewed interest in regional development, public education and parliamentary process. The US President has also found a path to Damascus or at least he is trying to convince voters that he has – even making speeches to industrial workers with his sleeves rolled up. The reality is likely to be different but at least the topic of unemployment is centre stage for a day or so. And dare I add – with some support from the IMF.

The following graph is taken from the US Bureau of Labor Statistics – Alternative measures of labor underutilization data and shows the scale of the disaster that the US is facing and why action is desperately needed to reduce the damage being incurred to the economy in general and to individuals and families in particular.

U3 is the total unemployed as a percent of the civilian labor force (official unemployment rate) and U6 is total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.

On September 3, 2010, the US President (clearly with an eye to the upcoming mid-term elections) took a stroll out into the Rose Garden at the Whitehouse and the assemblage heard some Remarks by the President on Monthly Unemployment Numbers.

It was the first of two important statements the President made about the dire situation that the US labour market is in with no end in sight to the demise.

While I get the impression Americans see Labor Day as a passage of time (the last day of summer) it has deep roots in recognising the rights of working people. For non-Americans, it emerged as a national holiday out of a major strike in the late C19th when workers were murdered by their own government (military and marshalls). So the US Government doesn’t just murder foreigners!

But it is certainly a day where politics and workers rights are often merged and so with the unemployment disaster facing the nation, the President could hardly not say something.

Obama said:

As I’ve said from the start, there’s no quick fix to the worst recession we’ve experienced since the Great Depression. The hard truth is that it took years to create our current economic problems, and it will take more time than any of us would like to repair the damage. Millions of our neighbors are living with that painfully every day.

There is an instant remedy available to the US Government. They could announce immediately that they intend to employ anyone in a public service job at minimum pay who desires to work. This is the Job Guarantee.

It could be invoked immediately and the payrolls started even if it might take some time to organise the actual work. The impact on aggregate demand would be immediate as the workers who gain jobs under the plan would be likely to spend $1 in each dollar they receive in pay. It would also be preferred that the minimum wage was raised to represent something that is capable of providing a decent minimum living standard.

The US government could approve of that plan immediately.

Yes, it took years of neo-liberal nonsense to create the policy voids and the mentality in financial markets that led to the crisis. That will take some time to solve with the introduction of proper regulative frameworks and a vastly different approach to the financial sector including banks.

But to get the unemployed into a paid job can be immediate – as soon as the legislation was approved and if the US Congress really wanted to act in the best interests of its people it would pass such legislation immediately.

Obama then indicated that the latest labour force figures that showed some jobs growth emerging and said:

But one thing we also have to do right now –- one thing we have a responsibility to do right now –- is to lift up our small businesses, which accounted for over 60 percent of job losses in the final months of last year. That’s why once again, I’m calling on Congress to make passing a small business jobs bill its first order of business when it gets back into session later this month.

So it seems all his intent is in relying on the private sector to solve the problem via “loan enhancements” (to increase the amount small business can borrow) and to waive “capital gains taxes on key investments, so small business owners can buy new equipment and expand”.

Further, the US Government plans to “accelerate $55 billion in tax cuts for businesses, large and small, that make job-creating investments in the next 14 months”.

He then tried to make out how virtuous it was that a Democrat Government would continue to subsidise the business sector rather than putting purchasing power directly into the hands of the unemployed by giving them a job. His claim to virtuosity by saying:

And keep in mind, it is paid for. It will not add one dime to our deficit. So, put simply, this piece of legislation is good for workers; it’s good for small business people; it’s good for our economy.

At present the US economy is suffering a massive aggregate spending gap. What they need is to add to the deficit. Claiming virtuosity by running a regime that is deliberately keeping the brakes on fiscal capacity and therefore holding unemployment at these disastrous levels is a sham and his latest policy plans amount to on-going vandalism.

As an outsider to the US political culture, I find it amazing that the Democrats would be so pro-business and anti-worker.

Anyway, if that wasn’t enough, Obama then rolled up his sleeves and travelled West and spoke a few days later at the Laborfest rally in Milwaukee, Wisconsin organised by the Milwaukee Area Labor Council (September 6, 2010).

The speech is available HERE.

His speech was full of left solidaristic rhetoric the type that is not mirrored in the policy settings that his Administration has introduced. Far from supporting the working class, Obama has introduced policies that have pushed real income up the income ladder to the rich.

He reminded the audience of what his grandparents had taught him:

So my grandparents taught me early on that a job is about more than just a paycheck. A paycheck is important. But a job is about waking up every day with a sense of purpose, and going to bed each night feeling you’ve handled your responsibilities. (Applause.) It’s about meeting your responsibilities to yourself and to your family and to your community. And I carried that lesson with me all those years ago when I got my start fighting for men and women on the South Side of Chicago after their local steel plant shut down. And I carried that lesson with me through my time as a state senator and a U.S. senator, and I carry that lesson with me today. (Applause.)

Someone should remind the President that a job is a job. Any government that watches over an economy with at least 16.5 per cent of its willing labour idle in some way or another and at least 10 per cent of that labour stock without any job at all is not honouring the message that his grandparents provided.

The reality is that so far the fiscal stimulus in the US has been very “job-poor” unless we are talking about the jobs of the top-end-of-town in the financial markets.

Obama then chose to repeat his message that “(w)e all knew that it would take more time than any of us want to dig ourselves out of this hole created by this economic crisis” and told the audience that:

… the question is, how do we create the same kinds of middle-class opportunities for this generation as my grandparents’ generation came home to? How do we build our economy on that same strong, stable foundation for growth?

The answer according to the President was to spend $US50 billion over six years on “long-overdue investments in upgrading our outdated, our inefficient national infrastructure … roads … bridges … dams, levees … a smart electric grid … broadband Internet … high-speed rail lines …”

With 10 per cent official unemployment much higher broad labour underutilisation $US50 billion over six years is so penurious that it will not add many jobs at all.

As the UK Guardian said (September 7, 2010) in relation to the detail that Obama provided on the kilometres of rail and roads to be attended too that:

While those numbers are impressive, the size of the US means they are only a small fraction: 150,000 miles of roads is just 5% of all US paved roads, according to the Federal Highway Administration. And 4,000 miles of railroad is less than 2% of all track according to the Association of American Railroads.

Now, any public infrastructure that reduces costs for the private economy and adds public service capacity is welcome. But the scale of the initiative does not match the rhetoric of the President’s Labor Day rally speech.

And when you compare it with the $US200 billion in tax credits to the corporate sector which he will announce today you realise that he isn’t really focused on effective solutions to unemployment.

But then you read the reaction by the chairman of the Republican Study Committee in Congress, Tom Price and you wonder what went wrong with the US education system. Price said:

This is hardly the first time Democrats have promised to create jobs with ‘shovel ready’ stimulus spending … President Obama has spent the last six hundred days trying to borrow, tax, and spend away this recession … And what do we have to show for it? More unemployment and debt. Infrastructure is important, but borrowing another $50 billion is clearly not the answer we need.

The reality is that you have more unemployment because the US government didn’t spend enough. They never borrowed or taxed too spend. As a sovereign government they do not have to do that. But the reality is that they needed to net spend much more and to focus more on “job-rich” projects – like a Job Guarantee.

While the Republicans clearly would inflict damage on the US economy if they were in control right now, you also realise that Obama’s claim to fiscal authority is also based on the same ignorance about the way the monetary system operates. He claims his new plan:

This is a plan that will be fully paid for. It will not add to the deficit over time -– we’re going to work with Congress to see to that.

So there is no planned add to aggregate demand. Total employment growth is driven by spending growth which generates real output growth. Shifting spending from one part of the budget to another may or may not have real impacts – more than likely not!

But the point is that there is an aggregate demand deficiency overall in the US and to get enough jobs to make a significant dent in the disastrously wasteful unemployment will require much more from the US government than shuffling expenditure to keep all new initiatives budget neutral.

Moreover, the fact that they are not advocating for an increased deficit tells everyone who knows that the US government doesn’t understand why the country is in the mess it is.

So it is hard to support the President’s claim that the new proposals “will not only create jobs immediately, it’s also going to make our economy hum over the long haul”.

No – the plans will not achieve that.

While I don’t often recommend anyone take heed of what the IMF says I think the US government should listen to the message of the joint discussion paper put out by the IMF and the ILO this week.

The IMF and the ILO in cooperation with the Prime Minister of Norway are holding a conference in Oslo on September 13, 2010 and I will comment on it when more papers are available. The two organisations have released a discussion paper in advance of the meeting – The Challenges of Growth, Employment and Social Cohesion – which documents their concerns about the crisis.

The discussion paper is in two parts: the first written by the IMF documenting the The Human Costs of Recessions and the second written by the ILO which seeks to outline a way of Building an Employment-oriented Framework for Strong, Sustainable and Balanced Growth.

in the Overview, the paper says:

Over 210 million people across the globe are estimated to be unemployed at the moment, an increase of more than 30 million since 2007. Three-quarters of the increase in the number of unemployed people has occurred in the “advanced” economies and the remainder among emerging market economies. Within the advanced countries, the problem is particularly severe in the United States – the epicentre of the Great Recession and the country with the highest increase in the number of unemployed: an increase of 7.5 million unemployed people since 2007 …

The scars of this distress in labour markets could last for a very long time – in the case of young workers unable to get their first job, a lifetime

In the daily grind about financial ratios and austerity you rarely read about the actual problem – the persistently high and rising unemployment problem.

The point about youth unemployment is often lost. The neo-liberals who are obsessed with fiscal cuts which they somehow think will make more real resources available for future health and aged care needs forget that the generation that will be producing the real output in the future are being left idle now as a result of their policies.

The youth who are denied the opportunity to accumulate labour force skills and experience by the faulty policies that the neo-liberals advocate are typically disadvantaged for life. The policy urgency to ensure that the youth are in formal education, trade training or another paid employment opportunity accumulating on-the-job skills and experience.

There is never a justification for forcing the 15-24 year olds into destructive idleness.

In this context, I found the section from the IMF to be a demonstration of the schizoid nature that appears to be emerging from that organisation at present. The crisis has rocked them I think because it exposed the Washington Consensus model of neo-liberalism with the IMF at the centre to be intellectually and empirically bereft.

The crisis has demonstrated that the mainstream macroeconomics paradigm is not capable of explaining the way our economies operate much less how we might get out of the disastrous crisis that their models failed to predict or understand.

So while the neo-liberal arrogance remains (read the blog – The IMF continue to demonstrate their failings) – there are also papers emerging seeking to analyse the obvious – that the recession has been destructive and markets do not self-regulate.

It is also a curious chapter written by an organisation that has imposed harsh policy regimes on poor nations which has worsened unemployment and poverty. Since when has the IMF worried about the “human costs of unemployment”. They have demonstrated that they are prepared to use unemployment to get the financial ratios they are obsessed with into some magic parity.

In general, the IMF and the ILO are still urging fiscal support for the ailing world economy. They initially reflect on why the two organisations were founded – as part of the early Post Second World War consensus that economic policy had to create conditions for full employment (with decent jobs) and poverty reduction.

In this context they say:

As the creators of the post-1945 architecture for global governance envisaged, achieving full employment and poverty-eradicating development requires policy coherence across the responsibilities of different ministries and international organizations. Yet the history of much of the period since then is one of increasing policy specialization and even contradiction. Taking off these blinkers is likely to play a big part in finding a better way to shape a fairer globalization.

The IMF and to some extent the ILO have certainly lost their way in the last 30 years. The IMF particularly has failed to provide policy frameworks and assistance which would “contribute … to the promotion and maintenance of high levels of employment and real income and
to the development of the productive resources of all members as primary objectives of economic policy” which was their initial mission statement.

The IMF chapter notes that the human costs of unemployment include:

  • Lower lifetime earnings – even 15–20 years after a job loss in a recession, the earnings loss amounts, on average, to 20 per cent. The adverse effects on lifetime earnings are most pronounced for unemployment spells experienced in youth, especially upon college graduation.
  • Cost to health … the mortality rate of laid-off workers is higher than that of comparable workers who kept their jobs.
  • Cost to children: Job loss can reduce the schooling achievement of the children of the unemployed: one study finds that parental job loss increases the probability that a child repeats a grade in school by nearly 15 per cent. In the long term … children whose fathers
    had lost their jobs were estimated to have annual earnings nearly 10 per cent lower than similar children whose fathers did not lose their jobs.

Please read my blog – The daily losses from unemployment – for more discussion on this point.

In terms of policy options the IMF says this:

A recovery in aggregate demand is the single best cure for unemployment …

So when you are talking about wage cuts, tax credits, welfare cuts, unemployment benefit cuts … repeat that statement – governments have to introduce policies that support a recovery in aggregate demand.

In this context, the IMF adds this further advice:

As a general strategy, most advanced economies should not tighten their fiscal policies before 2011, because tightening sooner could undermine recovery. The consolidation plans that these countries have for 2011 imply an average change in the structural balance of 1¼ percentage points of GDP. A more severe consolidation would stifle domestic demand that is still weak.

So a categorical rejection of austerity although the schizoid nature of the IMF comes out in this section when they claim that some nations do not have the fiscal capacity to expand.

Please read my blog – The IMF continue to demonstrate their failings – for more discussion on this point.

I also found it interesting that the IMF are finally tracing the source of the crisis to the rising inequality between wages and profits. They said:

In the wake of the current crisis there is an emerging view about the importance of growing inequality as one of the causes of global crises past and present. The rise in recent decades of inequality and its relationship to growth performance within countries has been widely remarked and studied … In some countries, and particularly in the United States, increasing inequality may have led to increased indebtedness of the household sector and thus an important factor in explaining the subprime mortgage crisis. Consumption was propped up by periodically very low interest rates, and financial products that encouraged high indebtedness.

It is clear that there has to be a rebalancing of the relationship between real wages growth and labour productivity growth if households are to maintain adequate consumption levels without resorting to increasing indebtedness. One of the major failures of the neo-libereal era has been to destabilise economies by “forcing” growth to be dependent on increasing private sector indebtedness.

However, in the current policy debate I only see initiatives that will worsen the inequality rather than achieve the necessary rebalancing. There has to be a major shift in the distribution of income back to the wage share. That will require significant pro-union and pro-worker legislation. I don’t think the governments we have in place are up to that and so the pre-conditions for the next crisis are being created as we try to recover from the present crisis.

The IMF seem to agree with this:

Declining wage shares, rising inequality and weak growth in formal employment thus contribute to national and international imbalances … It may be time to consider policies focused on labour markets and income distribution to supplement fiscal and monetary policies.

It is not a case of “may be time” – this sort of reconsideration has to happen.

Please read my blog – The origins of the economic crisis – for more discussion on this point.

I also liked the discussion on public employment creation. The IMF said:

Public employment or public works programmes targeting depressed communities and vulnerable groups can be effective and socially and economically justified. These often combine elements of basic income support with infrastructure investment and, in some countries, they have been expanded to include work in the social sector, environmental services and multisectoral, community-driven programmes. These programmes are also helping to create employment opportunities for women.

All the unemployed are vulnerable and so a broad-based Job Guarantee is the only way to ensure that there are sufficient paid work opportunities for all. Employment guarantess offer inclusive policy structures.

Please read my blogs that are found with this search string to exp[l.

The IMF also have moderated their position on unemployment benefits. They say:

There are of course also costs associated with UI benefits provision, and the one most commonly mentioned is the potential disincentive effect on the worker to search and accept a job while being eligible to receive UI benefits

This is the standard mainstream argument against the provision of income support and I have covered it in several blogs – most recently – The structural mismatch propaganda is spreading … again!.

The IMF note that the evidence supporting the mainstream contention is weak. They say that where some impacts are found that might support the mainstream view the effects are small and the impacts are not driven primarily by the provision of unemployment benefits per se.

They say that in “severe recession, any remaining negative effect of UI benefits provision on employment is likely to be small”.

The final point I will note in this blog (as I am running out of time) relates to the reasons for the increase in public debt. The IMF analysed the increase in the debt-to-GDP ratio for G-20 advanced economies from 2008 projected out to 2015.

Referring to Figure 11 in the paper (reproduced below) they say that:

… two-thirds of that increase is attributable to revenue loss and the adverse impact of the fall in GDP on the interest rate-growth differential during 2008-09. The fiscal stimulus (based on plans as of May 2010) makes a much more modest contribution to the projected increase in the debt-to-GDP ratios and is of the same order of magnitude as the support that governments provided to their financial sectors.

So the poor growth is the major factor – that is, the automatic stabilisers.

The analysis shows that discretionary government policy is responsible for only 4.5 per cent of the increase.

They also say that countries like the UK and the UK probably have the capacity to expand fiscal policy by an extra 50 per cent of current GDP. I reject the notion that a sovereign government is financially constrained but what the IMF is saying is that there is such an output gap remaining in the US that there is scope to expand net public spending.

The pie chart should also give the deficit terrorists something to think about. Growth will reduce most of what they see as the problem (which is really a non-problem) whereas advocating policies that will surely reduce growth will worsen the financial ratios.

However, I would advocate growth because it is the only way you will reduce the unemployment disaster. The quickest way to get job growth is to pursue public sector job creation.

Conclusion

So when assessing the latest foray into policy by the US Administration you should think about the facts. While infrastructure spending plans are welcome, budget neutral policy changes will not add to aggregate demand (if at all) anywhere near enough to significantly reduce their disastrous unemployment situation.

The Obama government is now fully responsible for the mess their economy is in. Saying that the solutions will take a long time to work is relinquishing responsibility.

The US government could reduce unemployment to frictional levels virtually immediately if it had the political will.

That is enough for today!

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    29 Responses to The US President isn’t trying hard enough

    1. Stephan says:

      Reading about Obama’s 50 billion infrastructure proposal I was only thinking: what is this guy smoking the whole day? The American Society of Civil Engineers calculates it will cost 2.2 trillion over 5 years only to repair and maintain the existing infrastructure.

      Obama is a complete failure. It’s one thing to hold lofty policy speeches and another to be a coward in practical policy matters. This whole bipartisan policy approach was a crap idea to begin with.

    2. pebird says:

      You know, when the government started the stimulus spending – my consulting business started selling more work within a couple of months. In the past (pre-Billy Blog), I would not have been aware of the relationship. Anecdotes are not data, but as the stimulus wears down, I can see that business has been shaky – hard to close new deals.

      In the US we have an Commander in Image Control. What an insult on Labor Day – proposing a tax holiday for business (not households), a $50 billion shift in budget (over 6 years) – probably “paid for” by reducing some direct spending benefit – ultimately a net reduction in aggregate demand. What a disaster.

      The Republicans are right when they say “… borrowing another $50 billion is clearly not the answer we need.” The answer we clearly need is to borrow another $5,000 billion and start spending it.

    3. Stephan says:

      @pebird
      My take: Obama should’ve said “We will spend 1/2 a trillion US$ each year on infrastructure for the next five years starting 2011. In the meantime we will spend some billions to have shovel ready projects in 2011. And on Dec 01st 2010 we will mail to each US family in the 2 bottom income quintiles a 750 US$ check. Courtesy of the US treasury in cooperation with Santa Claus.”

    4. Tom Hickey says:

      Stephan: Obama is a complete failure. It’s one thing to hold lofty policy speeches and another to be a coward in practical policy matters. This whole bipartisan policy approach was a crap idea to begin with.

      While I agree with this and said it from the get-go, that is not the fundamental problem. The political process in the US is thoroughly corrupt. Neither party can win a general election without the financial support of the wealthy since presidential campaigns run in the area of a billion dollars and contested congressional races can run in the tens to hundreds of millions. These contributions don’t come free. Obama and the Dems are caught between a rock and hard place, because they need the money and even wealthy Democratic donors are deserting them for supporting even the most superficial reforms.

      While I certainly blame politicians individually, it is basically a failure of the system. Economist Ravi Batra has written an interesting book called The New Golden Age on what he sees as the coming upheaval as a result of widespread corruption and its reversal consequent on a monumental breakdown.

    5. Stephan says:

      @Tom
      You’re right: the system is broken. That said it’s not written in stone, that every president must try to serve 2 terms and sacrifice any common sense on policy and economics to secure a only “probable” second term. If the eventual answer of republicans to any proposal is NO than it makes no sense to put yourself in their shoes and come up with bipartisan half-baked policies. Eventually you only will look like a greater fool.

    6. kt says:

      Yep, Obama = Epic Fail, in my opinion.

      The Republicans have a decent shot at taking the House, and the odds of taking the Senate (once thought impossible) keep getting better.

      And then, per Newt Gingrich, they will shut down the government in order to stop Obama’s “radical and out of control spending”….. I don’t know whether to laugh hysterically or cry, but I’ve got this sense of impending doom that just won’t go away..

    7. CharlesJ says:

      Stephan, Tom,
      In the UK there was much talk in the past of funding for election campaigns being funded by the state by a formula, and making it illegal to fund campaigns from private donations. This, I believe, is the way forward. If the government is not allowed to fund its own democratic processes, then democracy is obviously not seen as being very important.

      Charlie

    8. Benedict@Large says:

      Keeping with the theme, a wonderful rant from Modeled Behaviour, \”Rome Is Burning\”. I wonder if author Karl Smith has been reading billy blog lately? http://modeledbehavior.com/2010/09/07/rome-is-burning/

    9. steve B says:

      As an ‘insider’ to American culture, I could not agree with Tom and Stephan more. One thing to add is Americans have been so brainwashed by 30 years of ‘Government is not the solution, it’s the problem (thank you Reagan)’ that we will create theories and re-write history to support this bankrupt ideology. The economics profession in the US can’t even agree on what ended the Great Depression, so do you think they have anything to contribute to today’s modern day depression? If anyone over here even thought about a job guarantee program, you would be deemed a socialist and sent to Siberia. It’s utter nonsense. I’m actually embarresed by our government and how they’ll happily give repeated hand outs to corporations in exchange for donations, but you try and help poor folks with health insurance, and you are deemed the second coming of Stalin.

      Sorry for the rant. Great blog. Keep up the good work sir.

    10. kt says:

      That’s right, steve B

      If any politician came out strongly in favor of a job guarantee, Beck would be all over that. He’d have his pictures of Lenin, Stalin, and the unlucky politician up on his board, inciting the Fox Hordes into a frenzy.

    11. .... says:

      The U.S. is a joke (and, of course, their framers’ deliberately designed the U.S. government – with its complete separation of power – to ossify all progress and any attempts at ‘the levelling spirit’). I suspect this to be the end of the American Empire.

      Let’s all move to the only stable, prosperous and sane country left in the world: Switzerland.

    12. Andrew Wilkins says:

      I’m behind you on this one Bill.

      No matter how much money is made available, private banks will be reluctant to write new loans while asset values are falling.

      Government spending is the only way to get the ball rolling. It would be an effective stimulus, putting money straight into the hands of those who spend it on everyday goods and services. Putting people back to work improves the social situation and should boost confidence.

      Could a Tax credit/ cash back achieve the same objective? Granted, it does not ameliorate the social situation so quickly.

      If the stimulus creates assets useful to society (e.g. energy infrastructure) that’s a bonus for sustainability of the system.

      Unfortunately for the US, the anti big Government political dogma is a self inflicted chain. Even if he wants to, Obama can’t move because of the prevailing dogma.

    13. Andrew Wilkins says:

      Just musing. Who benefits most from the anti big Government attitude?

      At this stage in the cycle a fiscally conservative government honours it’s debt obligations and continues to pay good interest with low risk of default. Foreign and domestic holders of government debt are the big beneficiaries.

      I can’t see how Government fiscal conservatism helps the seething masses at this point in time. Foriegn debt default through currency devaluation would help them, I can see that. Honouring domestic debt redistributes wealth from taxpayers to debt holders. That helps some but doesn’t help others.

      Can anyone see where I’m trying to go with this? Punch a few holes in it to help me figure it out.

    14. Ray says:

      Andrew Wilkins says:
      Thursday, September 9, 2010 at 14:33
      Just musing. Who benefits most from the anti big Government attitude?

      At this stage in the cycle a fiscally conservative government honours it’s debt obligations and continues to pay good interest with low risk of default. Foreign and domestic holders of government debt are the big beneficiaries.

      I can’t see how Government fiscal conservatism helps the seething masses at this point in time. Foriegn debt default through currency devaluation would help them, I can see that. Honouring domestic debt redistributes wealth from taxpayers to debt holders. That helps some but doesn’t help others.

      Can anyone see where I’m trying to go with this? Punch a few holes in it to help me figure it out.
      —————————————————-

      Let me try to help out. You’d like to see a communist state become of the US, no? Huge government, wealth redistributed from the private sector back to the government (by defaulting on debt) then to the public at large (Robin Hood style).
      The US Govt is fiscally conservative? Are you serious AW? The budget deficit for 2009 was 1.4tr, up 50% on the year, 13% of GDP and the most since WW2.

      Why do you consider bondholders somehow greedy and who should be first in line to get haircut when they have in good faith transferred their hard-earned to the govt?
      I can see how some get drawn in by the ideological lure of communism. Supposedly even distribution of wealth, jobs provided by the state, better welfare, education, hospitals yada yada yada. Then look at the downside. When has a government ever been able to keep corruption out of its ranks especially when spending the amounts you propose? Is society progressed enough yet for government officials to think past their self-advancement and become responsible for the role you would have them do?

      Would the world be better off without the likes of Bill Gates? The level of sophistication we all enjoy playing on forums, phones, high-speed comms is due to people like him yet you guys knock the system that produces this sort of achievement and want to replace it with communist and ultra socialist mediocrity. Surely the migrants to Australia post-WW2 and in the US pre-WW1 have shown that the poor can still advance in society.
      The only real-world examples I can see of the sort of society many of you guys propose is the command economy Soviet and Chinese systems; everyone is equal but government officials are more equal.
      I really don’t intend to be insulting and I’m not an academic who can produce graphs and charts to refute any argument but I have travelled to many dozens of countries in the last 30 years, some during the cold war and some where Westerners have not had access and I will take neo-liberalism anytime over the alternatives that some on here seek.

    15. GLH says:

      Since I found Billy Blog about six months ago, I have read every word every day. But, today I was able to skip some spots because I no longer read or listen to anything Obama has to say. I have never been more disappointed in anyone in my life. I suggest that the president means nothing he says, but is simply playing politics before the election. I suspect that he and his economic team think that everything is really going well and all they have to do is wait until we get over this little bump in the road.

    16. Andrew Wilkins says:

      Thanks for the punches Ray. I was actually hoping you wouldn’t pipe up, because you don’t pay much attention to what is being said. You already demonstrated a lack of knowledge on sovereign bonds. I didn’t think you would be keen to throw your weight around again.

      You have helped me though. I was trying to point out the dynamics in America today. Where bondholders (who tend to be on the established wealth ownership side of society) have an incentive to demand fiscal conservatism. Which would be to their own advantage and would further disadvantage those without established wealth. I didn’t choose sides. I guess by hitting your nerve ends, I am close to the mark.

      Anyway, thanks for sharing your biases with an irrelevant, unnecessary tirade against communism. At no point did I discuss, propose or mention communistic redistribution of wealth. To link my post with a proposal for a communist command economy is laughable. It is also ignorant and rude. Kindly direct further baseless assumptions and puerile conclusions to someone else.

      BTW .. I spent some time in Berlin during the cold war, so I have some real experience with the Authoritarian left. I’ve real experience with the authoritarian right in Asia.

      FYI (if we ever cross swords again) The authoritarian extreme is as much a concern to me as extreme left or right bias.

    17. Aaron says:

      Ray,

      To an objective mind, it doesn’t appear that people here are espousing the need for an ultra-socialist command economy at all. They are knocking the perceived penetration that corporations have in the running of our societies and the outcomes they produce, especially the burdens being borne by poorer people.

      Other than a high safety net, and to paraphrase Bill, for a rich and prosperous nation, the minimum quality of life offered to a citizen says a lot about the civilisation itself. Once this is provided for, every institute is free, in a market economy to allocate capital it sees fit.

      To knock the sacred cow of ‘the corporation’ however sees many froth and bile, and retort with the default slur of ‘socialism’ as a form of character assassination, for no other reason than to quell dissent and debate.

      And as far as being a neo-liberal, free market society, that died in 2008. The USA is no longer this, it is a crony-corporatist state with the corporation suckling at the welfare teat of the taxpayer, where the priveliged few and the entities they run must be preserved at all costs.

    18. Richard says:

      Ray, Andrew Wilkins …

      I don’t think anyone wants a communist type of system, just a mixed system in which those who, for whatever reason are unable to cope or do not have sufficient resources to survive with a reasonable standard of living are helped by the state. This help could be provided through the private sector, not directly through government monolithic organisations.

      Ray also states “When has a government ever been able to keep corruption out of its ranks especially when spending the amounts you propose?” Statements like this worry me. I could equally write ‘When has industry ever been able to keep corruption out of its ranks especially when spending the amounts you propose?’ I believe it would be equally valid. It is just that large amounts of money breed corruption, wherever it is. [Just think of recent court cases in US where individuals have been prosecuted for the most blatant examples].

      We do need the likes of Bill Gates, but I wonder how many individuals of ability are lost due to poor/ non-existent early life chances? I suspect it is large. Our current systems do us all no favours in this respect. Just because some individuals can rise out of the ranks of the under-privileged doesn’t mean our current system is OK. It needs to be improved so we can have a wealthy nation.

    19. Sergei says:

      Ray, Andrew Wilkins and …

      Quote:

      The 1815-1914 century was relatively free of war. America’s Civil War was the most devastating. But instead of borrowing from bankers, the North issued its own greenback currency. This success prompted bankers throughout the world to redouble their propaganda for “hard money,” as if bank credit was inherently sounder than public money creation.

      How true….

      And the whole story is well worth reading link_http://michael-hudson.com/2010/07/from-marx-to-goldman-sachs-the-fictions-of-fictitious-capital1/

    20. Ray says:

      Aaron says:
      Thursday, September 9, 2010 at 17:58
      To knock the sacred cow of ‘the corporation’ however sees many froth and bile, and retort with the default slur of ‘socialism’ as a form of character assassination, for no other reason than to quell dissent and debate.

      Perhaps, but in roughly the same way that many of you apply the leprous ‘neo-liberal’ slur on anyone who is comfortable living in a free-market economy without a bloated government absorbing their tax dollar just to maintain its existence.
      The biggest failing of neo-liberalism has been to privatise profits and socialise losses. Personally I was all for AIG, Bear and the like being allowed to fail. The pain and suffering felt (by the wealthy) would largely have marked-to-market the global economy in a very quick time rather than have this painful death of a thousand cuts which we are all now experiencing. Yes I know this knocked onto housing and the average Joe Mortgagee was killed along the way yet he was quite happy to accept a loan he knew he couldn’t afford in the hope of turning a profit like he had done for the past 15 years. There is blame all around.

      Aaron, don’t forget the evil twins Freddie and Fannie (I won’t mention Sallie as it might upset the academics here) which were a government cockup on the biggest scale and got the biggest bailouts. At least the banks have largely paid back their TARP but these GSE never will and are indeed receiving ongoing taxpayer bailout funds. Perhaps AW might do a bit more Googling and look up the staggering amount they’ve received from the taxpayer.
      In this regard, the taxpayer has made a return of sorts from the ‘corporation’ but will be on the hook for the GSE’s till hell freezes. Don’t get me wrong, I tend to agree with some of the last couple comments concerning Obama and the crazy lobbying that occurs but if you guys think by giving that government power to spend more it will fix things then I really think you’ve got it wrong. We are talking about a state that can’t even impose gun control for its own good. I’d take a free market with some more sensible regulation anyday over an even bigger public sector.

    21. Stephan says:

      @Ray
      Please correct if I’m wrong. But I’ve the impression you haven’t read any of Bill’s blog entries or aren’t capable to understand them. The whole point of this blog is to educate people on economics and particularly on modern monetary arrangments. You say:

      … without a bloated government absorbing their tax dollar just to maintain its existence.

      My translation: “Although Bill teaches in almost each blog, that the earth is round, Ray says it is flat.” The government does not need to absorb your tax dollars. The government is the source of your tax dollars. The US$ is a creature of the US government. Without the US government issuing the US$ you would have ZERO NADA US$ in your pocket, because the US$ would simply not exist. What part of this simple causality don’t you understand?

    22. Ray says:

      @Stephan

      ‘The whole point of this blog is to educate people on economics and particularly on modern monetary arrangments.’

      I see. Who exactly is adopting these modern monetary arrangements? Which country, which governments? Does this education exist in the real world or only in a classroom between like-minded people?
      The problem I have understanding what you say is that I, like I suspect many others, attempt to overlay this into a real life situation but can’t. Then you condescendingly wave your wand and pronouce the best in the rest of the world as stupid neo-liberals.

      The real life perspective of the US$ is effectively a gold standard. US Treasuries are a proxy for security. The Chinese and Japanese can find nothing better to own (apart from Australian mines), drug cartels have long hoarded usd banknotes and the entire global commodity trade is denominated in usd and you think of the usd just as a tick on a ledger. The usd is like no other currency and that is where I have trouble relating to this education.

    23. Stephan says:

      @Ray

      The real life perspective of the US$ is effectively a gold standard.

      Hear. Hear. Unfortunately this unique insight hasn’t been communicated to the best in the rest of the world neo-liberals. These poor bastards still live with the constant fear on their mind the US$ will be junk in the near future. Now that you’ve enlightened us armchair economists you might move on and cheer up with this good news your sorrow neo-liberal fellows.

      Once everybody is familiar with your insight we might have a much more fruitful discussion. For instance whether we should produce more of this unique $ commodity and distribute it to common men to further them in their pursuit of happiness.

    24. David H says:

      They only problem I have with Billy Blog, which I love & have learned so much from, is the simple notion that neo-liberals & their ilk argue for & implement their policies in good faith, believing this is the best way to solve economic problems.

      The neo-libs know exactly how MMT works & that economic policy based on MMT principles would go a long way toward solving our problems. That’s the reason *why* they don’t implement MMT-based policies. Their own policies do not work(for the rest of us.) They know this. They aren’t stupid. They’re not interested in solving our problems. For them, profits are up, the recession is over! Timmy even said so recently in the NYT (http://www.nytimes.com/2010/08/03/opinion/03geithner.html). Why change anything?

      On the other hand, to quote Caddyshack — we’ll get nothing, & like it!

    25. Ray says:

      @Stephan
      Once everybody is familiar with your insight we might have a much more fruitful discussion. For instance whether we should produce more of this unique $ commodity and distribute it to common men to further them in their pursuit of happiness.

      So, we are making progress? lol
      Onwards and upwards. ;)

    26. Aaron says:

      Ray,

      “Perhaps, but in roughly the same way that many of you apply the leprous ‘neo-liberal’ slur on anyone who is comfortable living in a free-market economy without a bloated government absorbing their tax dollar just to maintain its existence.”

      Please don’t place me in that group Ray, I am the biggest proponent of capitalism here, however the USA is not a capitalist society anymore. I don’t post often, but I do not engage in a parable ‘neo-liberal’ slur.

      “The biggest failing of neo-liberalism has been to privatise profits and socialise losses.”

      Which is anti-capitalistic. Failure is a self-regulating feature of the market to prune it of its poor performers. in the USA, poor performers are being propped up, at the expense of real-resources that should be diverted else where in the economy.

      “Personally I was all for AIG, Bear and the like being allowed to fail. The pain and suffering felt (by the wealthy) would largely have marked-to-market the global economy in a very quick time rather than have this painful death of a thousand cuts which we are all now experiencing. Yes I know this knocked onto housing and the average Joe Mortgagee was killed along the way yet he was quite happy to accept a loan he knew he couldn’t afford in the hope of turning a profit like he had done for the past 15 years. There is blame all around.”

      This is the biggest myth being peddled around by the crony-corporatists.

      There is no blame to be assigned to borrowers. To say “They shouldn’t have borrowed what they couldn’t afford” is absurd.

      It is not the role of the borrower to assess their own credit worthiness, that is the job of a banker, their ONLY job.

      A banker is employed to do this job as an agent of the depositor and the equity holders of banks.

      Agency theory explains why they wouldn’t puruse this agency properly, game theory explains why they would continue to do it even when it was clearly starting to fall to pieces in 2005.

      “Aaron, don’t forget the evil twins Freddie and Fannie (I won’t mention Sallie as it might upset the academics here) which were a government cockup on the biggest scale and got the biggest bailouts. At least the banks have largely paid back their TARP but these GSE never will and are indeed receiving ongoing taxpayer bailout funds. Perhaps AW might do a bit more Googling and look up the staggering amount they’ve received from the taxpayer.”

      These two GSE are a result of lobbying from the banking sector.

      As explained in the previous paragraph, there is no other blame to be assigned. Banks had been conditioned for over a decade to hand out cash indiscriminantly. This lack of concern was enabled bue to artificially low contraints of fractional reserve lending, backed up by the tacit guarantee of the US government, an entity with ZERO contraints as Bill explains.

      There are no bankers left, they are salesmen pushing product. The product being loans, and they are not fulfilling their proper roles as an agent between saver and borrower.

      The two GSE’s problems occured because private indebtedness amongst credit-worthy borrowers became saturated, and banks then needed to access the non-credit worthy market, hence sub-prime.

      “In this regard, the taxpayer has made a return of sorts from the ‘corporation’”

      At a cost of record private indebtedness. There is a cost on the otherside of the ledger, and it is being disproportionately borne by the poor. There are gains being made, disproportionately advantaging those that are already rich.

      That is the point of intrigue of discussion on this board.

      “but will be on the hook for the GSE’s till hell freezes.”

      And my analyisis points to it being yet another socialisation of losses incurred by the baking sector, from activity they sought to exploit.

      “Don’t get me wrong, I tend to agree with some of the last couple comments concerning Obama and the crazy lobbying that occurs but if you guys think by giving that government power to spend more it will fix things then I really think you’ve got it wrong.”

      Bill’s theories don’t increase government power, all they do is disempower corporations. They remove corporate welfare by forcing poor performing industries to exit the economy. They diminish employer bargaining power by maintaining a employment buffer stock, instead of the hidious class warfare of NAIRU that maintains an unemployment buffer stock.

      “We are talking about a state that can’t even impose gun control for its own good. I’d take a free market with some more sensible regulation anyday over an even bigger public sector.”

      I’m all for a freer market, and i believe Bill is on the way to getting us there.

      I believe in capitalism, and its ability to be more dynamic in allocating resources. This makes the corporation a good servant for the community.

      However, it increasingly appears that the community is serving the corporation.

    27. Andrew Wilkins says:

      At least the banks have largely paid back their TARP but these GSE never will and are indeed receiving ongoing taxpayer bailout funds. Perhaps AW might do a bit more Googling and look up the staggering amount they’ve received from the taxpayer.

      Ray,

      You insist on being personal and you make another assumption about me that is simply pulled out of your ….

      I don’t need to Google what has gone into Fannie and Freddie. It is common knowledge to anyone who reads the news. Even though most banks have paid back the TARP, that was only to address short term liquidity issues. The entire US banking system had collapsed. They would have taken unrecoverable losses had the mortgages stayed on their books. The banks have shifted all the bad debt to Government. Do a bit more Googling yourself and try to understand what is really happening.

      You think Government had a cunning plan to take over a rich seam of Mortgage assets? That’s laughable really.

    28. LC says:

      Dear Ray (at 2010/09/09 at 16:41)

      The “level of sophistication we all enjoy through playing on forums, phones, high-speed comms” is due in large part to research undertaken by government employees in government funded organisations. In the case of the internet the fundamental work was done by NASA, and in the case of wireless communication Australia’s CSIRO did the hard yards. Gates has produced some of the most expensive and inelegant software in existence. And Microsoft’s anti-competitive approach, I am sure, needs no exposition on this blog. Gates is a successful businessman but it would be wrong to assume “this sort of achievement” happened without a whole lot of blue sky research funded by the so-called enemy of innovation, the government.

      LC

    29. Min says:

      What do you mean? The US President is trying.

      Very trying.

      {weak grin}

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