About two months ago economists Paul Krugman and Steve Keen got in a very public, somewhat unpleasant, and very unusual, online spat.

  It is worth noting that not only did Krugman not win the debate, he was pretty convincingly defeated. Businessinsider, which didn’t have a dog in this race, explained it as thus:

 Ultimately, Krugman does not come off as persuasive in this fight, writing that continuing to respond is “wasting [his] time,”

  The points of dispute probably went over the heads of most people, and thus the debate was probably ignored by most people, but the fact the debate happened at all is very significant. Why? Because this wasn’t a left-right debate that we see in Washington. This was a debate that displays just how extreme the discussion of economics has drifted in today’s world.

 So who is Steve Keen? He’s an Austrialian economist, author and a disciple of John Keynes and Hyman Minsky.

 Nouriel Roubini appears to be the most commonly recognized by (virtually all) the main sources I’ve seen. Yet, economists chose Australian Professor Steve Keen over Roubini for the Revere Award (outvoted by more than a 2 to 1 margin – details below) for publicly warning of the Global Financial Crisis.

 If you listen to mainstream media, you will hear that there are two alternative economic theories in the world today: 1) right-wing, Chicago School, “austerians”, who believe that to get back to “growth” and get more “competitive” we need to lower our standard of living and balance our budgets (except when it comes to military spending, of course), and 2) neo-Keynsian liberals like Paul Krugman who think we need massive amounts of deficit spending in order to get the economy going (including more military spending).

  On one side you have faith in markets, in the other you have government-managed economy.

  Allow me to repeat this headline: 236,000 Americans will lose unemployment benefits this week.  Nearly half of them will be Californians.

 According to CBS, the benefits will be cut due to terms of a benefit extension agreement in Congress. It stated benefits would be cut off if unemployment rates fell below certain thresholds.

  According to CNN Money, starting later this year the maximum number of weeks the jobless can collect unemployment benefits will be reduced to as little as 40 weeks in states with jobless rates below 6 percent and to as many as 73 weeks where unemployment tops 9 percent.

 You’ve all seen the headlines: Gas prices are headed for record highs and inflation is tame.

How do you reconcile the two?

 Most people fall back to blaming “speculators”. But if that sounds like an over-simplified cop-out, its because it is.

 To blame rising prices on speculators is like blaming getting hurt on crashing your car.  While its true you got hurt in a car crash, you don’t respond by outlawing car crashes, or in this case, speculators. It would be useless to do either.

 Instead, you outlaw the reason why the car crashed. For instance, outlaw poorly-made brakes.

  When it comes to rising energy prices, you look at why there are so many darn speculators.

  There appears to be a lot of confusion and debate concerning the shrinking labor force participation numbers. People seem to have very strong opinions on both sides.

 On one side you have the people who believe that the government is messaging the data to hide the unemployment rate by simply not counting unemployed people.

 To these people I say: if it is a conspiracy it is a poorly concealed one, since the topic is debated even in the news media.

 On the other side you have two groups: a) those who believe that people are simply retiring early, or b) that this is nothing more than a continuation of a long-term trend.

 It is this latter group’s beliefs that I would like to address directly

  Everyone that isn’t a partisan Republican is celebrating the recent string of good economic news regarding the GDP, unemployment rate, and manufacturing numbers. And for good reason. After three years of stagnant economic conditions, and all sorts of global financial problems, the working class of America is finally getting some belated relief.

 However, let’s not kid ourselves. There are economic indicators that are not only not recovering – they are getting worse.

  Instead of getting caught up with this brief respite of good economic news, with the implication that we can relax now, we should instead be viewing this interlude as a last opportunity to avoid another economic crisis. We should be pushing harder for reform, not relaxing.

 That’s why I want to bring your attention to these issues.

  When Mohamed Bouazizi set himself on fire in Tunisia he set in motion a series of events that would topple governments across the Arab world. Because of the worlds-shaping events that followed, it is almost forgotten that the reason Bouazizi comitted suicide was simply his frustration and anguish over not having a job and a future.

 Across the world today, Bouazizi’s pain is being felt by a global generation. It isn’t limited to any one country, region, or continent. Almost the entire world has turned its back on the youth of the world in one way or another.

  It’s not a situation that the global economy or political system is capable of dealing with, and the consequences will continue to echo long after most of us reading this have passed on.

  The credit agency S&P cutting the ratings of nine European countries on Friday is normally nothing more than financial news, and it got reported accordingly. But buried deep in its report was an interesting sentence.

 Governments are also aiming to put greater focus on growth-enhancing structural measures. While these may contribute positively to a lasting solution of the current crisis, we believe they could also run counter to powerful national interest groups, whose resistance could potentially jeopardize the reform momentum and impede the recovery of market confidence.

 S&P doesn’t elaborate on who these “powerful national interest groups” are, or why they would oppose governments trying to grow their economy, but it’s pretty easy to guess. It’s also easy to see the likely consequences of this conflict of interests.

  For four years, since the start of the financial crisis, people have been asking the question, “Why is the economy so sluggish?”

 There are all sorts of reasons, all sorts of reforms that could be implemented, but weren’t. However, one of the most important reasons seems to have been forgotten by almost everyone.

   The experts keep telling us not to worry because “America has the most dynamic economy in the world.” Roughly translated, that means “Companies can lay off people at will.”

  Those experts have forgotten that there are two factors in a “dynamic economy” and only one of them is labor. The forgotten factor is – competition – and the primary enemy of competition is monopolies, not labor.

   The IMF said last week that Greece is behind schedule with its economic reforms. The threat behind the statement was not very subtle.

 Greece has reached its limit in raising taxes and needs to refocus its austerity program on long-term spending cuts, the International Monetary Fund has said.

  However, the threats have become almost meaningless at this point.

What the global financial leaders are demanding is that Greece double-down its draconian spending cuts even while its economy is collapsing.

 Its GDP has been in contraction for 12 quarters running, most recently at an annualized rate of 5.5%. The rate of unemployment oscillates around the 18% mark – official unemployment, that is. Consumer confidence has collapsed, industrial production has been in decline at double digit rates since early 2008. The stock market is down by 90% from its 2007 highs and the government’s one year note yields an absurd 330%. The banking system is de facto bankrupt and subject to an accelerating flight of deposits.

   You get the picture – these are the kind of economic data that normally indicate that the society concerned is only a small step away from major social upheaval and a descent into conditions of chaos.

“the marriage between capitalism and democracy is over.”

–  Slavoj Zizek

  Politics is never in a static state. It is always in transition.

Thousands of years ago Aristotle wrote how monarchies become aristocracies, become tyrannies, become democracies, become monarchies, and so forth.

 The United States, being both a young country AND one of the oldest continuous democracies, doesn’t have the cultural maturity to see the change when it approaches.

  For instance, Americans are still in denial how the country went from being a democracy to an Empire in 1945.

 We are also in denial about the changes the political economy has underwent since the early 1990’s.

I use the term “political economy” because that was what the study of economics was called until about a century ago. It’s what Adam Smith and David Ricardo studied.

  The fact that the study of economics fails to take politics into account today is probably its biggest reason why it has become a total failure.

  I was reading about the latest, major scandal in the global financial world, when it suddenly occured to me that I’m a muggle.

 Who are the wizards? Why the major banks, of course.

Allow me to explain below.

  Slowly, painfully, the world is coming to grips with the realization that the Euro, as we know it, is entering its last days, and what consequences we are likely to see.

 As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.

  A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.

  Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest.

  Many people, especially those that trade stocks, have been having trouble believing that the Euro will die. After all, just a few years ago the Euro was considered the alternative reserve currency of the world. So much work and money has been spent on this unproven endeavor, not to mention the complete lack of a “Plan B”, that few could picture its demise.

  Yet, just like the inability of so many to foresee the end of the housing bubble, reality is intruding again. The farther we get down the road of failure, the more clear the picture becomes.