NYT Blames Petty Theft and Old Workers for Prolonging the Recession

Yes, they really believe that the answer to the recession is, at least in Italy, liberalization of the labor market. In an article previously titled "Italian Business Potential Thwarted as Crisis Persists," Liz Alderman describes a microcosm to justify new labor laws that make firing employees easier in Italy:

"In Ms. Pallini’s own factory, an employee suspected of stealing had to be watched for two years before being caught in the act. Videotape that had captured his thefts was not admissible in court, so her father and two employees had to spend countless hours gathering watertight evidence to ensure that judges would not eventually reinstate the man. By contrast, a private sector employer in the United States could have terminated the worker as soon as a theft was detected, unless a union contract was involved or antidiscrimination laws were violated." Source

Dean at the Center for Economic and Policy Research missed the point by focusing on a polemic about how accurate it was to say that US businesses can fire workers after theft is "detected":

"Actually, a private sector employer can terminate a worker who it thinks is stealing, even if they never caught the worker. In fact, they can fire the worker just because they think they are the type of person who might steal or just because they don't like him or her. Workers who are not protected by union contracts or civil service guidelines can be fired any time for any reason that does not violate anti-discrimination laws." Source

Of course, he is right about that point, but its a rather narrow argument to make and it doesn't even start to address the real problems that created and are perpetuating the crisis.

The Job Creator's Tragedy

It's tough being a job creator these days. High taxes make it virtually impossible to hire more workers and an atmosphere of uncertainty is discouraging more investment in capital. Nobody would propose raising taxes on job creators under these conditions, right?

George Washington oversees the "car in the ditch" economy on Wall St / September 16th, 1920

That's the setting for the latest tragedy, that is. The job creator, ever heroic and noble, is accosted at all sides in his attempt to get the economy back on track. He confronts the Hydra of government and the armies of ignorance in his uncompromising quest to get the economy back on track. And this truly is a tragedy - our hero could perhaps be known as Supervacuo, and his tragic weakness - the fact that the job creator has absolutely no interest in creating jobs.

Nothing is as Sure as U.S. Debt Payments

For all the hype about fiscal deficits, the numbers don't add up to any significant threat to the U.S. economy: The U.S. is highly unlikely to default on its debts, and debts are mostly held by private and public U.S. firms and individuals.

As Ludwig von Mises famously argued, if you print money (or create loans) you'll get inflation, and whoever gets the money first benefits from it most. But whom does inflation hurt? In a global economy, it is the relative debt/capital holdings that matter. These are called "net account balance" and "capital account balance." The U.S. far supersedes other nations in terms of net debt and net capital. What will expanded government purchases do to this dynamic? It depends on where those purchases go. If we look at the current data from the U.S. Treasury, we see that U.S. debt goes primarily to U.S. interests: 70.7 percent of U.S. debt is owed to U.S. firms or individuals.

If we decide to take Rep. Paul Ryan's advice, we will be reducing government purchases that expand net capital in the U.S. and net debt to entities in the U.S. If we follow these plans, the U.S.'s place in the global economy will contract: Capital will leave the nation.

In a nation with fiat currency, the government can simply create money. The trend in government borrowing is a testament to this fact; as Binyamin Appelbaum noted on "NewsHour": "Nothing is as sure in financial markets than that the United States government will repay its debts. And so the government gets the cheapest rates available."

(Originally at Richmond Times Dispatch: Letters to the Editor: Dean Sayers: Nothing is as Sure as U.S. Dept Payments)

May Day 2011: If They Tell You You Can't, Then You Can

Today, I got a chance to momentarily leave my armchair and rise up with my fellow discontents. May Day 2011 saw a motley crew of 300-500 core Richmond leftists hit the streets. There was much ado about the police this time around: namely, the police claimed that protection had to be purchased, and the organizers had to foot the bill. The ACLU even got involved, ineffectively. By the time the rally came about, it seemed like we were already fighting for a lost cause, despite how little the permit meant.

 "I couldn't help but wonder: would we have gotten better turnout if we had been campaigning for fly-fishing somehow?"

It was the same message, the same tactics, the same speakers. A few things were new, but they were scant in today's message. The open-source speaking program policy looks good on paper (and is probably the best way to keep from pissing people off when their pet group doesn't get 5 minutes). But just about everybody seemed ready to skip most of the speakers and hit the streets.

Glass-Steagall: Dead for 2 Decades and Counting

Where the Wealthy Meet to Engineer Crises

Clinton's 1999 repeal of Glass-Steagall was hardly a repeal at all. In fact, it was just the dying breath of legislation that had been steadily eroded for decades. Following Alan Greenspan's pivotal moves for deregulation, the Gramm-Leach-Bliley Act merely confirmed in official canon what had been increasingly evident for the past 2 decades.

In 1996, Greenspan gave the Federal Reserve Board the green light to change the practices governing commercial bank holding companies. Under Glass-Steagall, they could only invest up to 5% in investment banks (due to the added risk). Greenspan quickly doubled this limit twice: first to 10%, and then to 25%. 8 months later, another decision opened the doors to insurance underwriting, allowing Traver's (under the management of Sandy Weill, who had already unsuccessfully tried to acquire JP Morgan) to acquire Solomon Brothers. Less than a year later, Traveler's merged with Citicorp.¹


Enter the beast: a bank which merged securities underwriting, insurance underwriting and commercial banking - precisely the amalgamation which ushered in the banking instability of the early 1900s - only this time, the publicians had a new motto: too big to fail. Perhaps more ominous is the name itself though: Citicorp, now Citigroup Inc., was once known as National City Bank, variously administered by James Stillman (who managed the bank in his retirement via discrete courier), Charles E Mitchell (touted in 1933: "Mitchell more than any 50 men is responsible for this stock crash" -Carter Glass).² Mitchell was also on the board of directors for American IG Farben³ (a pharmaceuticals combine which produced Zyclon B for the Nazis), which cartelized with Standard Oil New Jersey with the help of a 30 Million bond from National City Bank.^2,4

Expansion of Financial Credit Eventually Leads to Negative Growth

VoxEU: Too Much Finance?

"Our results show that the marginal effect of financial development on output growth becomes negative when credit to the private sector surpasses 110% of GDP. This result is surprisingly consistent across different types of estimators (simple regressions and semi-parametric estimations) and data (country-level and industry-level). The threshold at which we find that financial development starts having a negative effect on growth is similar to the threshold at which Easterly et al. 2000 find that financial development starts increasing volatility. This finding is consistent with the literature on the relationship between volatility and growth (Ramey and Ramey 1995) and that on the persistence of negative output shocks (Cerra and Saxena 2008)."

Krugman on the Failure of Austerity

Krugman points out that austerity measures have reduced employment(HT:Brad Delong):

"Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.

"What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong."

Libyan Oil and Consumer Demand

Auerback makes a few critical points in his recent article,The Economic Policy Behind Intervention in Libya Chases Its Own Tail (HT: Naked Capitalism). Forgive the banal usage of "we" to associate oneself with the ruling clique, and we have a viable polemic against US fiscal and foreign policy:

"We seem to have developed a very basic rule of thumb when it comes to these wars of choice: if an insurgency threatens oil supplies directly or indirectly, we move. If it doesn’t, we don’t. Hence Syria can kill thousands of insurgents (as they did in the early 1980s) and we do nothing. Yemen doesn’t have oil facilities; so we do nothing. In Bahrain we have a huge base and unrest has repercussions for the Shiite part of Saudi Arabia where the oil is. We move via the Saudis. In Libya there is oil. Again, we moved.

The Credit Crisis as a Valorization Problem

Naked Capitalism has a great guest post today which exposes the incentivization process at work in the credit system:

"One source of credit market friction arises from coordination failures among lenders (see for example Gorton and He 2008). In these models, banks are heterogeneous and their behaviour strategic. The individually rational actions of heterogeneous lenders can generate collectively sub-optimal credit provision in both the upswing (a credit boom) and the downswing (a credit crunch). This is a collective action, or co-ordination, problem among banks.

...

"In the face of stiffening competition, banks were increasingly required to keep pace with the returns on equity offered by their rivals – a case not so much of “keeping up with the Joneses” as “keeping up with the Goldmans”."

So we see that the underlying cause of the expansion of credit is the valorization of capital. Not only the simple valorization, but the competition for capital (which I hope to cover soon on its own right) serves as an important ossifying process for companies which cannot necessarily sustain this model:

Demand 101

Perhaps the right way to start off a new blog is to discuss one of the more obvious points that have been ignored in recent economic austerity measures. Namely, the issue of aggregate demand has been roundly ignored by the "clear cutter" majority who view any and all cuts to public service as the starting point for fiscal reform. Not only this, but the narrow focus on government regulation and spending has crippled the narrative of economic reporting in all major media outlets. In fact, any accumulation of wealth constitutes a game-changer in economic structure: not only the distribution, but the direction and velocity of exchange are all tied to this issue.

Aggregate demand in particular is critical to the structure of production and distribution, and then the disbursement of wages which provide a basis for - demand. As Nick Rowe points out, demand is the measure of growth (or lack thereof) in an economy:

"Quantity sold is whichever is less: quantity demanded; or quantity supplied. If there is excess supply of goods in aggregate, then realised sales of goods, and income from those realised sales, is demand-determined. And if people are unable to realise their plans to sell as many goods as they wish (if they face Clowerian quantity constraints) then their demand for goods will depend on their realised sales, which is demand-determined." - Rowe