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Feb 28 2012
Our regular featured content-
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This is an Open Thread
Feb 28 2012
Sunday the Washington Post put up a piece by Dylan Matthews that gives relatively serious treatment to Modern Monetary Theory.
You know the deficit hawks. Now meet the deficit owls.
Posted by Dylan Matthews, Washington Post
10:10 AM ET, 02/19/2012
In contrast to “deficit hawks” who want spending cuts and revenue increases now in order to temper the deficit, and “deficit doves” who want to hold off on austerity measures until the economy has recovered, Galbraith is a deficit owl. Owls certainly don’t think we need to balance the budget soon. Indeed, they don’t concede we need to balance it at all. Owls see government spending that leads to deficits as integral to economic growth, even in good times.
The term isn’t Galbraith’s. It was coined by Stephanie Kelton, a professor at the University of Missouri at Kansas City, who with Galbraith is part of a small group of economists who have concluded that everyone – members of Congress, think tank denizens, the entire mainstream of the economics profession – has misunderstood how the government interacts with the economy. If their theory – dubbed “Modern Monetary Theory” or MMT – is right, then everything we thought we knew about the budget, taxes and the Federal Reserve is wrong.
‘Relatively’ is the key word and there are some serious flaws in Matthew’s piece that letsgetitdone discusses in a 6 part, 4 part series over at Corrente.
WaPo Covers MMT, But Does Its Usual Bad Job: Part One, Some Basics and Solvency
Tue, 02/21/2012 – 5:48pm
Deficit owls, believe that there is no structural deficit, and that most of the present US deficit will go away when full employment is reached, but probably not all of it, unless the private savings levels in the economy are balanced by an equal or greater foreign sector deficit (trade surplus). They also believe that in times of unused productive capacity like these, Government deficits are caused by the state of the economic system, and that explicitly managing them by taxing more or spending less will not improve its condition, but only result in a downward economic spiral making conditions still worse.
On the other hand, if real economic problems like unemployment, alternative energy capacity and production, infrastructure renewal, education, and industrial innovations are addressed through Government deficit spending, then aggregate demand spurring private sector business activity and ending U6 unemployment will result. In addition, deficit owls believe that in a fiat money system, where there is no debt in foreign currencies, and no “peg” to such currencies, solvency is never a problem for the Government, and that while inflation partly caused by Government deficit spending can become a problem in such a system, this can only happen when full employment is achieved.
(N)ecessary for currency sovereignty is to have a non-convertible currency, a floating exchange rate, and no debt in a currency not your own. These qualifications are very important because examples (e.g. Weimar, Zimbabwe) that are often given contradicting the claim that there’s no solvency problem for Governments like the US don’t fulfill these conditions.
WaPo Covers MMT, But Does Its Usual Bad Job: Part Two, Inflation/Hyperinflation
Wed, 02/22/2012 – 1:00am
(I)t’s easy to wave off MMT by saying there is a risk of inflation in using deficit spending to create full employment, but it is entirely another matter to say what the level of risk is, and to provide compelling arguments about why that risk is appreciable, and more costly than the effects of chronic unemployment in a stagnating economy. This Mankiw doesn’t begin to do. I think Dylan should have pointed this out, rather than just mentioning Mankiw’s opinion. Who cares about his opinion? It’s his arguments, his theories, for expecting inflation that we care about. So, why doesn’t Dylan outline what these are and critically evaluate them?
When Mankiw tells us that default might be a better option than risking inflation by printing money, he is going way beyond his claimed area of expertise in economics. The 14th Amendment to the US constitution prohibits even questioning Government debt, much less defaulting on it. Mankiw in his capacity as an economist is unqualified to say whether a violation of the US constitution is a better option than taking the risk of triggering hyperinflation by “printing money.”
What MMT replies is that bond issuance isn’t an inevitability, but a result of choices made by the US Congress and the Executive Branch of Government. The Congress could place the Fed under the authority of the Treasury Secretary in the Executive Branch, and then no debt would have to be issued to deficit spend, since the Fed could just mark up the Treasury General Account (TGA) under orders from the Secretary.
MMT also points out that the Fed controls the Federal Funds Rate which, in turn, heavily influences all bond rates. If the Fed targets a near zero FFR, and the Treasury issues no bonds longer than say, three months in duration, then bond interest rates can be kept near zero no matter how much debt is issued. Japan has proved this is the case since its debt-to-GDP ratio is now in excess of 200% while its interest rates are very near zero on short-term debt instruments.
If the Fed buys bonds with money it prints, this will increase reserves in the private sector, but it won’t increase Net Financial Assets (NFA), because buying the bonds is just an asset swap. So with no new NFA being added to the private sector by the Government, this sort of Fed operation won’t be inflationary, as its massive QE programs have just demonstrated empirically. In fact, by removing the payment of interest on bonds from the private sector, and given that most of the Fed profits are returned to the Treasury, some MMT economists say that the end result of such operations may well be deflationary.
WaPo Covers MMT, But Does Its Usual Bad Job: Part Three, Banking, and Default vs. "Hyperinflation"
Wed, 02/22/2012 – 4:00pm
(I)ncreasing the amount of reserves does not lead to increased borrowing, because banks don’t need more reserves to make loans. All they need are credit worthy borrowers and access to the Fed discount window to make whatever quantity of loans they want to. This is one of the main points about the banking system MMT makes. Put simply: lending is not reserve constrained! It’s constrained by bank willingness to lend to credit worthy borrowers.
MMT’s Sectoral Financial Balances (SFB) model is exactly right in its explanations, since they are able to run surpluses without disaster, only because, unlike the United States, the foreign sectors of their economies run deficits (that is Canada and Australia run trade surpluses) large enough to accommodate the private sector savings desires of Australians and also the Government’s desire to run a budget surplus. The US however, currently has a need to run Government deficits of 10% to support both our private sector savings desires of 6% of GDP, and our foreign sector’s desires to export 4% of US GDP to US consumers so they can accumulate US dollars in the form of electronic credits.
Governments can voluntarily default if they choose to. MMT economists have always said this and still say it. So why is political stupidity or perfidy counted against the truth of the MMT proposition that Governments sovereign in their currency have no fiscal solvency problems, only voluntary constraints and political problems?
On the contrary, I think the Russian case is one of the primary illustrations of a point that deficit owls have been trying to spread far and wide. Namely, that sometimes default is due to stupidity and perfidy and not to economic forces and that citizens in a democracy need to be aware of that, and of the full capabilities of currency sovereign Governments to always pay debts incurred in their fiat currency and to spend whatever is necessary to enable full employment in their nations. They are never, never, out of money except by choice. So, the real questions are:
- why are they choosing to default?
- Who will benefit from this political choice?
- And who will be asked to pay the price?
And how does the Russian case “prove” that: “Default, while technically always avoidable, is sometimes the best available option”? Is Dylan, through this quote from Gregory Mankiw suggesting that “public purpose” in Russia was better served by its voluntary default than it would have been if the Russians repaid their ruble debts in the rubles they might have created had they wished to? I’m afraid that both Dylan and Mankiw will have to prove that statement to me, since Russian citizens seem to have suffered quite a lot by taking the default choice and accepting austerity when they didn’t have to do so.
WaPo Covers MMT, But Does Its Usual Bad Job: Part Four, The Victory
Thu, 02/23/2012 – 1:00am
For many years now, MMT economists and others who write in support of them have been trying to make a very important point to the mainstream. And that is that the claim:
is a myth, a fairy tale, or a deadly innocent fraud.
Dylan doesn’t say that in so many words. But he and the economists he cites, even Greg Mankiw grant this very important MMT/deficit owl point in passing.
If this post is any indication, mainstream economics, and certainly deficit doves, and hawks like Mankiw, now acknowledge that a nation like the US which is sovereign in its own fiat currency can never run out of money, or be prevented by the pure fiscal aspects of any situation from paying its debts or buying whatever goods and/or services it needs that are available for sale in its own sovereign currency.
So, that part of the great debate is now over. It will be very hard from here on, for the deficit hawks to maintain their deficit/insolvency terrorism in the face of the general recognition in economics that the Federal Government is not like a household, because it can never run out of the currency that it has the sole legitimate power to issue.
If they try, they will now be the ones facing ridicule and marginalization. And, increasingly, those politicians who try to claim we are running out of money, will also face ridicule and be viewed as ignoramuses by others.
Every critic of MMT cited in the post raises the objection either implicitly or explicitly that MMT policy proposals will lead to worrisome inflation, or hyperinflation. Now, that’s progress, because unlike the level of one’s national debt, or the size of one’s deficit in the abstract, or the nonsense debt-to-GDP ratio, which means nothing in itself, inflation is a real issue, not an artifact of some economist’s fevered theories.
In other words, let’s get real. Let’s talk about real problems of real people that can be alleviated through fiscal policy and Government programs. Let’s stop taking about fairy tales, myths, and bogeymen. And let’s get on with the job of rebuilding the United States for our children and grandchildren and using every tool we have, including our fiat currency system, to realize the blessings of liberty and equality of opportunity for everyone.
The WaPo MMT Post Explosion: Dean Baker Weighs In on MMT
Fri, 02/24/2012 – 12:58am
(Th)ere are some differences that are very significant for policy activism between a Keynesian deficit dove approach employed by people like Paul Krugman, Brad DeLong, Robert Reich, and Dean Baker (op.cite, link added), and a Modern Monetary Theory (MMT) approach employed by people like Warren Mosler, L. Randall Wray, Bill Mitchell, Jamie Galbraith, Stephanie Kelton, Marshall Auerback, Scott Fullwiler, and Pavlina Tcherneva. So, here are some contrasts between the two approaches on seven important issues.
The WaPo MMT Post Explosion: Jared Bernstein’s Cool Up To a Point
Thu, 02/23/2012 – 12:19pm
- Tax Cuts Hard to Unwind? Not If You Legislate Properly!
- Default vs. Hyperinflation? A False Choice for the US?
- Debt Should Grow More Slowly Than GDP? Why?
- Deficits Must Respond Dynamically To Growth? They Will If They’re the Right Deficits
- MMT Not Effective in Deficit Reduction Mode; or Congress Ineffective In Its Legislation?
- Fiscal Sustainability and the Health Care Issue or Mis-allocation of Net Financial Assets to the Health Care Industry at the Cost of Weakening Our Democracy?
- Does Jared Bernstein Really Understand MMT, Yet?
Finally, I also think that Jared doesn’t fully understand that MMT is not just an approach to economic policy and analysis, but primarily embodies certain Macroeconomic propositions and propositions about how modern money works, and what policies could be followed to achieve public purpose. If he did, then why would he keep making objections to MMT policy proposals based on his ideas about how Congress will act in reply to them?
In the end, it’s not MMT’s responsibility to propose policies that Congress will legislate. It is, instead, up to MMT to propose policies that will achieve full employment with price stability and other favorable social, cultural and political impacts for our democracy.
From that point on, it is up to political advocates to make these policies popular enough to get Congress and the President to pass them. And any failings in passing these policies are not failings of MMT economics, but failngs of the oligarchy which will not pass the policies it recommends.
Feb 28 2012
Remind me again why Republicans are worse. Court appointments?
Federal judge weighs whether to let regulators rein in oil speculators
By Kevin G. Hall, McClatchy Newspapers
Monday, February 27, 2012
WASHINGTON – A federal judge on Monday refused to halt efforts by a key regulator to limit excessive speculation in the trading of oil contracts – which is driving up oil and gasoline prices – but hinted that he might soon rule in favor of Wall Street and let speculation go unchecked.
Judge Wilkins expressed concern that Congress would direct the agency to impose market-wide limits without detailed study beforehand. President Barack Obama nominated Wilkins to the bench and the Senate confirmed him in 2010.
“That seems to me an astonishing position to take,” the judge told CFTC deputy general counsel Jonathan Marcus, who had said that Congress ordered the agency to first impose limits on oil trading, then other commodities.
As a sign of how high the stakes are, the trade groups hired Eugene Scalia to make their case. He’s the son of outspoken conservative Supreme Court Justice Antonin Scalia, and last year he won a key challenge to a Dodd-Frank rulemaking being carried out by the Securities and Exchange Commission. In that case, the courts struck down provisions that would have made it easier for shareholders to run candidates for corporate boards.
Congress ordered the CFTC to impose position limits, concerned that financial speculators now far outnumber producers, merchants and end users of oil and other commodities in the trading of contracts for future delivery of product known as futures contracts. Reporting by McClatchy has shown that these speculators now outnumber by more than 2-to-1 the traders who actually produce or consume oil.
Oh, after 3 and a half years it’s too soon to tell.
Feb 28 2012
Not qualified to judge the veracity of this, simply drawing it to your attention.
Colonialism in Africa helped launch the HIV epidemic a century ago
By Craig Timberg and Daniel Halperin, Washington Post
Published: February 27
Scientists had long known that a blood sample, preserved from 1959, showed that HIV had been circulating in Kinshasa, the capital of Congo, for several decades before the virus first drew international attention in the 1980s. In 2008, evolutionary biologist Michael Worobey sharpened that picture when he reported in the journal Nature the discovery of a second sample of the virus, trapped in a wax-encased lymph node biopsy from 1960.
By comparing these two historic pieces of virus and mapping out the differences in their genetic structures in his lab at the University of Arizona, Worobey determined that HIV-1 group M was much older than anyone had thought. Both samples of the virus appeared to have descended from a single ancestor at some time between 1884 and 1924. The most likely date was 1908.
Taken together, these two discoveries offered the clearest clues to the birth and early life of the epidemic.
Feb 28 2012
The Syrian uprising has been going on for a year, centered around the city of Homs, which has been brutally shelled by the Syrian army for weeks. The city has been isolated with nothing and no one allowed in or out. A brief cease fire Friday was arranged by the International Committee of the Red Cross and the Syrian Arab Red Crescent allowed for the evacuation of only 27 of the hundreds of wounded in Homs, and did not include the two injured journalists. Negotiations are continuing to get humanitarian aid into Homs and other cities that have some under attack by the army. There was also a failed effort to remove the bodies of Marie Colvin, 56, a U.S. citizen who wrote for the Times of London, and Remi Ochlik, 28, a French photographer, who were killed in the shelling last week.
Amidst the fighting, the Syrian government held a referendum to approve a new constitution which had been offered up as a solution for reform. According to the Syrian press it was approved by nearly 90% of those who voted. The new charter was dismissed by Western diplomats as “too little, too late” as demands continued for the resignation of Syrian President Bashar al-Assad.
“The referendum vote has fooled nobody,” British Foreign Secretary William Hague said in Brussels on Monday as European foreign ministers tightened economic sanctions, including limits on transactions by Syria’s central bank, a ban on Syrian cargo flights into Europe and travel restrictions on several senior officials.
“To open polling stations but continue to open fire on the civilians of the country has no credibility in the eyes of the world,” he said.
The crisis in Syria and the Middle East was discussed by a panel of experts moderated by MSNBC’s Chris Hayes on his show Up with Chris. The discussion was held by guests Puffin Writing Fellow at The Nation Institute Jeremy Scahill; founder of Women for Women International Zainab Salbi; former speechwriter for Secretary of State Condoleezza Rice Elise Jordan; and former director of policy planning for the U.S. Department of State Ann-Marie Slaughter. Mr. Scahill and Ms. Slaughter got into an intense debate over whether the United States should intervene militarily and the US relationship with Yemen’s brutal government.
Former White House Director of Policy Planning Anne-Marie Slaughter wrote an op-ed last week for the NY Times which called for the “humanitarian” need to protect Syrians from slaughter by creating “no-kill” zones and arming members of the resistance [..]
But Jeremy Scahill, who has written some of the best and conventional wisdom-challenging journalism about the Middle East, thinks this is just more of the same short term thinking that gets the US in trouble again and again. And there’s good arguments for both (though I fall short of Slaughter’s op-ed. There’s no evidence that Syria poses a threat to the US at all and the vague allusions to Al Qaeda is eerily reminiscent of Bush administration-era scare-mongering) and certainly, the desire to intervene against such horrifying examples of brutality is understandable. [..]
Bottom line: while there is nothing more horrifying than the violence we hear happening under Assad and I think Scahill is probably closer to the truth than Slaughter in terms of there being manifestly a civil war under way. But it cannot be the US interfering to decide the outcome for the Syrians. We cannot afford another open-ended, nebulous deployment that only causes resentment among the citizenry.
Feb 28 2012
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.
February 28 is the 59th day of the year in the Gregorian calendar. There are 306 days remaining until the end of the year (307 in leap years)
On this day in 1953, Cambridge University scientists James D. Watson and Frances H.C. Crick announce that they have determined the double-helix structure of DNA, the molecule containing human genes.
DNA was first isolated by the Swiss physician Friedrich Miescher who, in 1869, discovered a microscopic substance in the pus of discarded surgical bandages. As it resided in the nuclei of cells, he called it “nuclein”. In 1919, Phoebus Levene identified the base, sugar and phosphate nucleotide unit. Levene suggested that DNA consisted of a string of nucleotide units linked together through the phosphate groups. However, Levene thought the chain was short and the bases repeated in a fixed order. In 1937 William Astbury produced the first X-ray diffraction patterns that showed that DNA had a regular structure.
In 1928, Frederick Griffith discovered that traits of the “smooth” form of the Pneumococcus could be transferred to the “rough” form of the same bacteria by mixing killed “smooth” bacteria with the live “rough” form. This system provided the first clear suggestion that DNA carries genetic information, the Avery-MacLeod-McCarty experiment, when Oswald Avery, along with coworkers Colin MacLeod and Maclyn McCarty, identified DNA as the transforming principle in 1943. DNA’s role in heredity was confirmed in 1952, when Alfred Hershey and Martha Chase in the Hershey-Chase experiment showed that DNA is the genetic material of the T2 phage.
In 1953, James D. Watson and Francis Crick suggested what is now accepted as the first correct double-helix model of DNA structure in the journal Nature. Their double-helix, molecular model of DNA was then based on a single X-ray diffraction image (labeled as “Photo 51”) taken by Rosalind Franklin and Raymond Gosling in May 1952, as well as the information that the DNA bases are paired – also obtained through private communications from Erwin Chargaff in the previous years. Chargaff’s rules played a very important role in establishing double-helix configurations for B-DNA as well as A-DNA.
Experimental evidence supporting the Watson and Crick model were published in a series of five articles in the same issue of Nature. Of these, Franklin and Gosling’s paper was the first publication of their own X-ray diffraction data and original analysis method that partially supported the Watson and Crick model; this issue also contained an article on DNA structure by Maurice Wilkins and two of his colleagues, whose analysis and in vivo B-DNA X-ray patterns also supported the presence in vivo of the double-helical DNA configurations as proposed by Crick and Watson for their double-helix molecular model of DNA in the previous two pages of Nature. In 1962, after Franklin’s death, Watson, Crick, and Wilkins jointly received the Nobel Prize in Physiology or Medicine. However, Nobel rules of the time allowed only living recipients, but a vigorous debate continues on who should receive credit for the discovery.
Feb 28 2012
“If George Valentin could speak, he’d say, “Formidable! Merci beaucoup,” ~ Jean Dujardin, Best Actor, “The Artist“
That was Frenchman Dujardin’ reaction to winning the Oscar over favorite American George Clooney. There were the expected winners, “The Artist” taking the top three awards for Best Picture, Best Director and Dujardin’s Best Actor, putting the movies total statue count at six. It was followed closely by “Hugo” with five. The win for Best Actress by Meryl Streep for her portrayal of British Prime Minister Margaret Thatcher in “The Iron Lady” was an upset for favored nominee, Viola Davis for her role in “The Help“. I’m sure Melissa Harris Perry is pleased, she hated “The Help.” You can find all the winners marked with an asterisk in last night’s Live Blog diary.
It was an interesting night that was both old and new. Old in the age of many of the winners, Christopher Plummer, Best Supporting Actor, at 82 is the Academy’s oldest recipient.”You’re only two years older than me, darling!” Plummer said to the Oscar he was clutching. “Where have you been all my life?” In the ninth stint as host, a much older, comedian Billy Crystal along with a receding hairline was a lot of funnier than last year’s co-hosts James Franco and Anne Hathaway. The new was that the Oscar for Best Supporting Actress wasn’t the first award given. As with last year all the life time and humanitarian awards are given the night before at a special ceremony, much like all the technical awards, with the winners announced and introduced en masse. It does shorten the show and the tedium.
There were some politics, inevitable in an election year. On of the proudest moments was when “A Separation“, became the first Iranian movie to win the Best foreign Language Film. In his acceptance speech, director Asghar Farhadi read a statement graciously thanking the Academy:
“At this time, many Iranians all over the world are watching us and I imagine them to be very happy,” director Farhadi said while accepting the Oscar.
“At a time of talk of war, intimidation and aggression is exchanged between politicians, the name of their county, Iran, is spoken here through her glorious culture, a rich and ancient culture that has been hidden under the heavy dust of politics.”
“I proudly offer this award to the people of my country, the people who respect all cultures and civilizations and despise hostility and resentment.”
During last night’s broadcast, Center for Consumer Freedom, a corporate front group run by right-wing PR flack Rick Berman that is closely tied to the food industry purchased air time to run an attack ad on the Humane Society of the United States claiming that only a small percentage of their donations went to shelters. Of course they forgot to include the work the Humane Society does fighting animal cruelty in the courts and in legislatures. Sheesh
One of the most obvious politic quotes came from Tom Hanks, introducing Christian Bale, slyly quipped, “A dark knight, an American psycho, a charismatic crack addict — you’ll get to choose one on Super Tuesday!” That’s about right.
Then there were the fashions with the usual hits and misses. Most of the men looked dashing in their tuxedos wit a few minor faux pas, like George Clooney’s Armani pants pooling around the top of his shoes and a number of more well endowed ladies in ill fitting stapless gowns. But the talk of the night were the ladies in red, or shades of red.
Ladies in Red left to right: Livia Firth in Valentino for the Green Carpet Challenge; Natalie Portman in vintage Christian Dior; Jane Seymour.
I guess it’s a matter of taste.
Feb 28 2012
I will merely note in passing that Ian Welsh has updated his pessimism. I find this significant, because Ian has always seemed one of the most level-headed of econ bloggers, astute, plain-spoken, and common-sensical. I hold him at the positive (optimistic) pole of my economic confidence interval, whereas Stoneleigh (Nicole Foss) and Ilargi delimit the negative pole. That confidence interval has shrunken considerably, in the direction of negativity. It’s become more Dmitry Orlov-ish and less Krugman-esque. There is less room to maneuver. Time is running out. Two-minute warning, no time-outs.