January 2012 archive

The Economist has recently published an article describing 3 schools of Economic thought that have gained prominence recently because of their advocacy on blogs.  Indeed, being a political blog reader you may not be aware that there are more Economic blogs and they are more active and have better traffic than political ones like this.

Two of my favorites are Naked Capitalism (Yves Smith) and EconoMonitor (Nouriel Roubini) but I also frequent Krugman and Felix Salmon as well as a few others.

To summarize briefly before I excerpt some of The Economist’s descriptions of each school, the 3 Schools are Modern Monetary Theory (neo-Chartalism), Austrian (Austerian), and Market Monetarism.  I would say the article is more sympathetic to the 3rd school than the others though you may disagree.

Also I’m not quite sure what they consider “mainstream”, but in fact the Friedmanite Freshwater School has been thoroughly discredited by the abject failure of their models to predict events.  It is not science of any sort, but the faith based mystical mutterings of rattle shaking Shamen.

Heterodox economics, Marginal revolutionaries

The crisis and the blogosphere have opened mainstream economics up to new attack

The Economist

Dec 31st 2011

This invisible college of bloggers focuses first on the level of spending on American products: America’s domestic output, valued at the prices people pay for it. This is what economists call “nominal” GDP (NGDP), as opposed to “real” GDP, which strips out the effects of inflation. They think the central bank should promise to keep NGDP on a steady upward path, rising at, say, 5% a year. Such growth might come about because more stuff is bought (“real” growth) or because prices are higher (inflation). Mr Sumner’s disinhibition is to encourage the Fed not to care which of the two is doing more of the work.

Central banks set targets to make their currencies credible and their policies predictable. The target for many is to keep consumer prices growing at 2% a year or thereabouts. For the past few decades that has largely succeeded in stabilising inflation; but in the current crisis it has singularly failed to stabilise the economy. In America NGDP plunged over 11% below its pre-crisis path and remains there; what people buy at the prices they pay for it is much less than most would want.

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(P)ut into the context of a pathetic response to the current crisis, the ideas offered by these very different schools all take on a similar form: that policymakers are overly worried about something that should concern them less. The Austrians see the bogeyman as deflation, the fear of which inflates bubbles. The market monetarists, diametrically opposed, see exaggerated fear of inflation. And the economy is getting too little help from fiscal stimulus, according to neo-chartalists, because of the government’s superstitious fear of insolvency.

Modern Monetary Theory

The neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all.

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The policy conclusions neo-chartalism draws from this owe a lot to Abba Lerner, John Maynard Keynes’s “militant prophet”. Lerner believed governments should judge their fiscal policy by its economic results-its impact on jobs and inflation-and ignore any red ink it might spill. Governments should seek high employment and stable prices, much as the Fed does today. But instead of relying on monetary policy to meet these objectives, they should use fiscal policy instead. If private spending is too strong, pushing up prices and threatening inflation, the government should raise taxes or cut its own spending. If, on the other hand, private spending is too weak, jeopardising jobs, the government should cut taxes or increase its own spending.

So far, so Keynesian. But most Keynesians, anxious to appear fiscally responsible, say that budget deficits in bad times should be offset by surpluses in good times, keeping the level of debt seemly. Lerner admitted this might not be possible. Private spending might be chronically weak. If so, the government should run chronic deficits, adding continuously to the national debt. Lerner did not see that as much of a problem, though he recognised that many others were “easily frightened by fairy tales of terrible consequences”.

Austrian Economics

The “Austrian” school of economics, which traces its roots to 19th-century Vienna, is more sternly pre-Freudian: more inhibition, not less, is its prescription. Its adherents believe that part of the economy’s suffering is necessary, an inevitable consequence of past excesses. They do not think the Federal Reserve can rescue the economy. They seek instead to rescue the economy from the Fed.

(A)dvocate(s) of Austrian economics-a resurgent school of thought that, unlike market monetarism, has not been doing much to change the minds of most mainstream economists but, unlike neo-chartalism, has built up a broad constituency on and through the web… agree that interest rates should reflect the fundamental forces of thrift rather than the whims of central bankers.

The Austrian school’s thinking centres on the way “malinvestment” orchestrated by central banks distorts the business cycle. By keeping interest rates artificially low, central banks trick entrepreneurs into believing that society is more abstemious than it really is. The entrepreneurs then embark on ambitious, long-gestation investment projects, only to discover that the men and materials they require are otherwise engaged in the production of more immediate gratifications. Once this realisation dawns, the entrepreneurs abandon their follies, firing their workers. If wages are flexible and workers mobile, this bust need not be too bad. But misguided attempts by the government or the Fed to prevent unemployment will delay the necessary reshuffling of labour from industries too tied up in the future to those catering to the needs of the present.

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Most economists do not share their admiration for the gold standard, which did not prevent severe booms and busts even in its heyday. And their theory of the business cycle has won few mainstream converts. … While it provides insights into booms and their ending, it fails to explain why things must end quite so badly, or how to escape when they do. Low interest rates no doubt helped to inflate America’s housing bubble. But this malinvestment cannot explain why 21.8m Americans remain unemployed or underemployed five years after the housing boom peaked.

Market Monetarism

The market monetarists point out that their 5% (NGDP) target is consistent with inflation of about 2%, provided the economy grows at about 3% a year, its rough average for the pre-crisis years. If growth slowed to 1%, inflation would have to be permanently higher, ie 4%. If output suffered a one-time drop, inflation might have to surge temporarily above 5%. But as growth returned to normal, inflation would recede.

In pursuing this target, the central bank would use many of the same tools as today: tweaking the short-term interest rate and, when that reaches zero, increasing NGDP by printing new money to buy more assets (ie, quantitative easing). And the very creation of the NGDP target would make such intervention more effective, Mr Sumner says. If people expect the central bank to return spending to a 5% growth path, their beliefs will help get it there. Firms will hire, confident that their revenues will expand; people will open their wallets, confident of keeping their jobs. Those hoarding cash will spend it or invest it, because they know that either output or prices will be higher in the future.

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The market monetarists argue that fiscal stimulus should be redundant, because a central bank can always revive spending-if it sets its mind to it. If the Fed’s efforts have disappointed, it is not because market monetarism is wrong, but because the Fed is not sufficiently committed to the cause.

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The market monetarists do not fret about the side effects of the activism they seek, which can misdirect capital, inflate bubbles and seduce people into over-borrowing.

So, if I may be permitted to summarize, Austrians believe that over-supply of money is what causes busts and depressions, Market Monetarists think that vigorous application of monetary stimulus can solve them, and Modern Monetary Theorists think that the amount of money available to the economy is mostly irrelevant and that aggregate demand should be managed to provide predictable levels of employment and growth.

As always the specters of Weimar and Zimbabwe are raised, but those are special cases where money was manufactured for the sole purpose of speculating in external currencies, NOT the internal economy.  In Germany’s case it was the necessity of purchasing gold (external currency) to fulfill their Versailles reparations obligations.  In Zimbabwe it was so the corrupt political elite could ex-patriate their stolen wealth.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

January 2 is the second day of the year in the Gregorian calendar. There are 363 days remaining until the end of the year (364 in leap years).

On this day in 1962, the folk group The Weavers are banned by NBC after refusing to sign a loyalty oath.

The Weavers, one of the most significant popular-music groups of the postwar era, saw their career nearly destroyed during the Red Scare of the early 1950s. Even with anti-communist fervor in decline by the early 1960s, the Weavers’ leftist politics were used against them as late as January 2, 1962, when the group’s appearance on The Jack Paar Show was cancelled over their refusal to sign an oath of political loyalty.

The importance of the Weavers to the folk revival of the late 1950s cannot be overstated. Without the group that Pete Seeger founded with Lee Hays in Greenwich Village in 1948, there would likely be no Bob Dylan, not to mention no Kingston Trio or Peter, Paul and Mary. The Weavers helped spark a tremendous resurgence in interest in American folk traditions and folk songs when they burst onto the popular scene with “Goodnight Irene,” a #1 record for 13 weeks in the summer and fall of 1950. The Weavers sold millions of copies of innocent, beautiful and utterly apolitical records like “Midnight Special” and “On Top of Old Smoky” that year.

Customarily I’d be live blogging commentary for you, but this year I happen to be visiting with a friend who doesn’t have TV.

Still there are features of interest you might wish to remark on.

This year’s Rose Parade is on the 2nd instead of New Year’s Day because the NFL is such an 800 pound gorilla that nothing interferes with pre-playoff Sunday in which I have but a passing interest (heh).  I find that remarkable and as I have no idea who won or lost yesterday you may choose to surprise me with the results.

The parade itself is not without features of interest-

122nd Rose Parade to kick off with pomp, pageantry and political protest by Occupiers

By Associated Press, The Washington Post

Monday, January 2, 4:02 AM

Police, parade and city officials have held numerous meetings with the organizers of Occupy the Rose Parade to ensure that protesters keep to the end of the two-hour long procession, where spectators and other groups who want to make political statements regularly tag along.

Several hundred activists are expected to turn out to carry a 70-foot wide octopus puppet that symbolizes the far-reaching influence of corporations, a giant U.S. Constitution, a “Goldie Sachs” wheel of fortune, as well as banners, placards and drums.

It is expected to get at least moderate media coverage on a market closed Monday.  I doubt very much they will qualify for any of the trophies unless they have an equestrian unit or cover their floats with flowers.

The regular hoopla starts at 11 am (ET) on NBC and ABC.  KTLA is supposed to have a live feed here.  This year they will have 16 Marching Bands and 22 Equestrian Units in addition to 44 flower covered Floats.

Hope you had a safe and happy celebration.  This is an Open Thread (but aren’t they all?).

Update:

• Occupy’s Rose Parade Octopus Floats Down the Street Tomorrow!
  
  Lisa Derrick, Firedog Lake
  
  Sunday January 1, 2012 10:57 am

• Occupy the Rose Parade: Working Through the Next Stage of the Occupy Movement
  
  By: David Dayen, Firedog Lake
  
  Monday January 2, 2012 6:30 am

Aluminum (or aluminium to our UK friends) is one of the most useful metals that are commonly available.  Unlike other metals such as iron, copper, and the like, aluminum has been used in large quantities only fairly recently.  Actually, alumimium is the better name, because it is in keeping with the naming of most metallic elements with the “ium” ending.  However, we shall use the US term.  Interestingly, the brilliant British chemist Sir Humphrey Davy called it aluminum, but he never produced the actual metal.  In addition, his first name for it was alumium, and folks from My Little Town who were older used that name!  That really should be the systematic name for it.

Aluminum compounds have been known for centuries, but the free metal only since around 1825 and even then in an impure form.  It was not until very late in the 19th century that aluminum was produced on a large scale, using a process that is essentially identical with the process being used even now.

entelechy

en-TEL-uh-kee\ , noun;

    1. A realization or actuality as opposed to a potentiality.

    2. In vitalist philosophy, a vital agent or force directing growth and life.

My husband pecks my cheek and heads off through the cacophony of clanging metal, buzzers, and  ringing bells that is his playground. We are on the road, and have forgotten to get cash for lunch. It would be an easy crisis to remedy, but it gives him an opportunity to show off his talent. I stand at the edge of the action, unable to banish my ill ease at seeing the money in our pockets put at risk so he can exercises his inexplicable power.

He cruises up and down the rows of noisy machines, looking from side to side. Other patrons sit with their backs to him, focused on their own trials with fate. A Native American woman offers him a drink, but he declines. Instead, he tilts his head, like a spaniel listening to a whistle pitched too high for the human ear. He turns away from her, and takes a seat in front of a one armed bandit. In five pulls, the machine gives up its bounty with the loud clang of coins dropping into the metal tray below the spinning symbols of fruit. He scoops up the riches and stalks another machine. Eight pulls later he has enough for both our meals at the best restaurant in the casino.

The first time he did this, the logical one in the family informed him that he was playing into the casino’s evil plan by deluding himself that he had some sort of gift. The house plays the odds, which clearly can not be altered. He might win here and there, but, over time, they have the better odds, and will always get more money than they give. Now, I have seen him do it so many times, I no longer try to make my case.

As it turned out, science weighed in on the talents of gamblers and handed the logical one her ass in the process. Not only is my husband right to believe that he can sense a gambling machine about to pay out, but part of his talent is probably altering the odds that it will pay with nothing more than the power of his resolve.

So shove that testy white rabbit out of the way, and follow the girl with the apron down the hole. On this day of resolutions, I am taking you on a walk through the Wonderland of science. Today, we peer into the power of intent.

The Emperor has no clothes and must be exposed.

The New York City Occupiers took back Zucchotti Park a couple of hours before midnight on New Year’s Eve despite the presence of NYPD and private security:

About 100 people arrived at the park at about 7 p.m., according to witnesses, and someone put up what was described as a small multicolored tent, about two feet tall, made for a child. Two young girls, who were at the park with their mother, began playing inside.

Though the New York City Police Department had officers fanned out throughout the city for the holiday, there were police officers lined up across the street from Zuccotti Park, at the ready alongside private security guards. They stepped in.

Police officers and security guards, who stood at the ready across the street, told protesters to remove the tent, saying it violated rules issued by the park’s owner, Brookfield Properties. Meanwhile, an officer and a guard blocked other protesters, and at least one reporter, from entering the park. Some people disregarded their instructions and squeezed through the spaces between metal barricades along other parts of the perimeter.

That number swelled to over 500 by 10:30 as text messages and signal went out across the city. They draped the piled barricades with Christmas lights and the lighted Christmas tree was wrapped with the Occupy Wall Street banner as the OWS “bat signal” was projected on the side of a building. As the protesters were chased from the park, they took to the nearby streets, drumming and chanting as they marched. Most of the arrests were of demonstrators who were obeying police directions or walking peacefully on the side walk. Many of the protesters and others not involved in the demonstration were “kettled” into groups then arrested for obstructing pedestrian traffic or for moving as directed by the officers. Even legal observers and the press were again arrested and threatened by the NYPD. The observer from the National Lawyers Guild was later released.

Welcome to the United Police State of America where you can be “legally” detained indefinitely on the president’s word.

The Party’s Over

By Taylor Marsh

01 January 2012

As a recovering partisan these days and after watching Pres. Obama’s compromising conservatism, I no longer feel the urgency to support a political party who has threatened dire consequences if I don’t vote for them. Beyond foreign policy, economic, and civil rights issues mentioned above, Pres. Obama has also chosen to short-change women again and again on our freedoms, starting in the health care bill, then by executive order that empowered conservatives of both parties, and finally by making the decision on Plan B that would have come from Mitt Romney, too.

Pres. Obama has helped Democrats deliver a climate that this party has threatened since the ’70s would happen if I didn’t vote for them.

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For over 30 years, modern feminists like myself have been hearing that we must support Democrats, because if we don’t our freedoms will be on the line yet again. After supporting Democrats since my one vote for Ronald Reagan in 1980, what has finally happened through Pres. Obama is exactly what I was told this political party would guard against. So now, as the 2012 elections approach, Barack Obama and the Democratic Party are once again relying on the theory that because Republicans are worse women like me can be suckered into falling in line one more time.

The latest political move against women of all ages came recently when Pres. Obama decided to put politics over science on Plan B, even though it was conclusively proven safe for women, regardless of age. He said he was squeamish about it as a father. What made it worse is that he hid behind Kathleen Sebelius’s skirt, also saying he had nothing to do with the decision.

This kind of cowardice in a grown man is unattractive; in a president it is unacceptable.

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It’s now even considered an extreme position to think women’s individual freedoms are important. On Obama’s conservative Plan B decision, you get replies like “it’s smart politically” or his fans argue from the right using parental rights over individual female freedoms.

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Is it enough that the 111th Congress passed the Lily Ledbetter Fair Pay Act, which Pres. Obama signed? Women of all political persuasions need to expect all 21st century politicians to support economic equality. We should also demand that when it’s found out we aren’t being treated equally we have recourse, which is what Ledbetter is all about. Would any other Democratic president not have signed the Ledbetter Act? To laud something so simple as financial equality for the same job done reveals women are expecting way too little from politicians that depend on our support to politically survive.

Obama’s constant chant on reforming entitlements, including changing COLA on Social Security, would hit women the hardest, because in older age we are more likely to depend on it, a subject I’ve written on before (here, here).

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On “reforming” entitlements, Pres. Obama comes down the same place as Republicans, though he’s the moderate conservative, so we can expect entitlement “reform” to happen regardless of who is in the White House. In his last political term, why wouldn’t Mr. Obama join with Republicans? If the Senate goes GOP, he’ll even have an excuse. Meanwhile, there’s no one suggesting that the limit on income taxed for Social Security be raised for the wealthy, with Democrats caving again and again on a millionaire surtax, so the progressive argument is not only weakly offered, but also never fought strategically.

Pres. Obama proved his economic timidity in the 2010 midterms, when you didn’t hear anything close to the speech he gave in Kansas, which didn’t come until he began campaigning for his own reelection. At least he always has his own back. Back in 2010, he and his pal at the DNC, Tim Kaine, now running for senator in Virginia, refused to make any Democratic case at all on economics. Obama then followed that up by caving and extending the Bush tax cuts. Obama and the Democratic midterm shellacking is what delivered state houses in record numbers to the right, which led to an assault on unions, the middle class, as well as women’s individual freedoms. At a time when we all needed an economic champion what we got was a total Democratic collapse.

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Pres. Obama not being able to find a reelection slogan boils down to the fact that “hope and change” has been reduced to Republicans are worse.

For 30 years I’ve unflinchingly supported and voted Democratic. Over the last thirty years I’ve held my nose to vote for some pretty uninspiring Democratic candidates. Many of my colleagues, friends, readers and people I hear from via email, now put Pres. Obama in the “hold your nose” category, too. He’s earned the spot, so, boy, do I understand how they feel. Cenk Uygur wrote recently that he’s "uncommitted."

As a feminist having listened to the Democratic Party’s warnings on what could happen if we let the right take charge, I’m no longer buying their propaganda or that the Democratic Party is worthy of support. On individual freedoms the entire Democratic structure has caved, including the first female Speaker of the House in U.S. history, Nancy Pelosi, all the way down to the so-called “Progressive Caucus.” This includes on economics, where Democrats, with Pres. Obama leading, never made the progressive Democratic economic case, whether it’s for tax increases on Social Security taxed income, higher taxes on multi-millionaires, all of which would have required a barnstorming campaign to pigeon hole recalcitrant Republicans, then shame them into submission.

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The two political parties have been under siege for some time, because Americans just don’t trust Republicans or Democrats anymore. Barack Obama was the last chance for political parties, specifically the Democratic brand, with George W. Bush having already given rise to rebellion inside the GOP, which is seen best through Ron Paul and the Tea Party. Meanwhile, Congress long ago ceded their importance as an equal branch of government, preferring loyalty oaths to their political party, as well as the boss in the Executive branch, which has become a marketing tool for itself, an American kingship of sorts, with no difference between Republican or Democratic presidents. Once in the White House, the presidents club rules.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

January 1 is the first day of the year in the Gregorian calendar. There are 364 days remaining until the end of the year (365 in leap years).

During the Middle Ages under the influence of the Christian Church, many countries moved the start of the year to one of several important Christian festivals – December 25 (the Nativity of Jesus), March 1, March 25 (the Annunciation), or even Easter. Eastern European countries (most of them with populations showing allegiance to the Orthodox Church) began their numbered year on September 1 from about 988.

In England, January 1 was celebrated as the New Year festival, but from the 12th century to 1752 the year in England began on March 25 (Lady Day). So, for example, the Parliamentary record records the execution of Charles I occurring in 1648 (as the year did not end until March 24), although modern histories adjust the start of the year to January 1 and record the execution as occurring in 1649.

Most western European countries changed the start of the year to January 1 before they adopted the Gregorian calendar. For example, Scotland changed the start of the Scottish New Year to January 1 in 1600. England, Ireland and the British colonies changed the start of the year to January 1 in 1752. Later that year in September, the Gregorian calendar was introduced throughout Britain and the British colonies. These two reforms were implemented by the Calendar (New Style) Act 1750.

New Year’s Day

Probably observed on March 1 in the old Roman Calendar, The World Book Encyclopedia of 1984, volume 14, page 237 states: “The Roman ruler Julius Caesar established January 1 as New Year’s Day in 46 BC. The Romans dedicated this day to Janus, the god of gates, doors, and beginnings. The month of January was named after Janus, who had two faces – one looking forward and the other looking backward.” This suggests that New Year’s celebrations are founded on pagan traditions. Some have suggested this occurred in 153 BC, when it was stipulated that the two annual consuls (after whose names the years were identified) entered into office on that day, though no consensus exists on the matter. Dates in March, coinciding with the spring equinox, or commemorating the Annunciation of Jesus, along with a variety of Christian feast dates were used throughout the Middle Ages, though calendars often continued to display the months in columns running from January to December.

Among the 7th century pagans of Flanders and the Netherlands, it was the custom to exchange gifts at the New Year. This was a pagan custom deplored by Saint Eligius (died 659 or 660), who warned the Flemings and Dutchmen, “(Do not) make vetulas, [little figures of the Old Woman], little deer or iotticos or set tables [for the house-elf, compare Puck] at night or exchange New Year gifts or supply superfluous drinks [another Yule custom].” The quote is from the vita of Eligius written by his companion, Ouen.

Most countries in Western Europe officially adopted January 1 as New Year’s Day somewhat before they adopted the Gregorian calendar. In England, the Feast of the Annunciation on March 25, was the first day of the new year until the adoption of the Gregorian Calendar in 1752. The March 25 date was known as Annunciation Style; the January 1 date was known as Circumcision Style, because this was the date of the Feast of the Circumcision, being the eighth day counting from December 25 when Christ was believed to be born. This day was christened as the beginning of the New Year by Pope Gregory as he designed the Liturgical Calender.

As you can see there were a lot of events that happened on this day over the centuries. Some of them significant, even momentous, some not so much but interesting as a kind of trivia. I am not even going to attempt to edit that list today.

Thank you all so much for your work and contributions to this site. We at The Stars Hollow Gazette and Docudharma wish you and yours a Happy, Healthy and Prosperous New Year.