Who Trump Helps Is Key
07 December 2016 | Pago Pago, American Samoa
The key is to watch what Trump does for the bulk of Americans -- those in the lower 3/4 of the middle class and the top 1/3 of the lower class -- that is where the population bulk is, contrary to what most understand. They largely elected Trump and have strong expectations, whether he realizes it or not. So do those in sympathy with them in the higher classes. All watch. Fattening the fat cats with more "trickle up" and stock market and profit booms just won't cut it. All watch.
To be sure the analogy of a rising tide lifts all boats can -- but not necessarily does -- have some application. Incomes and wealth in the top 10% have risen markedly since 1995, but the target group of the bulk of Americans I identify have lost wealth and seen very little real income growth. More of that won't do, but that is the prospect if taxes are lowered again, profits rise and the stock and bond market boom. Much more is required and I am not sure if Trump, as a member of the top 1%, really understands that. The jury is out and will be for a while.
A labor intensive, long term and large infrastructure rebuilding program could help the target group I identify very considerably, but many argue it will be distorted and warped by congress into high end pork fed to political constituents and large fat cat donors and help only those in the top 15%. That could well happen. Monied predators await Trump's every turn. Doing anything to help the target group will be hard.
Repealing Obamacare without a good replacement won't help. Neither will a wall along the Mexican border or kicking all the Muslims out or into oblivion. Neither will disassembling the safety net and feeding its pieces to the Wall Street wolves. What to do and how to help the target class is going to be very hard with so many predators in the wings working to distort programs and take advantage.
It is the case that Trump is being pitted against his own socioeconomic and wealth class, but he has always felt he was treated as an outlier, nuevo riche undesirable by that group so how that aspect is to turn out is unclear. He is now on the in, to be sure, but remembers all the snubbing quite well and has his enemies list.
Trump's task is formidable. Much is not clear about how he can and should proceed. Congress remains a big question mark, but it might, in and with a well intentioned Trump, could find a way to reform and reshape itself toward a better more inclusive institution, whether the oligarchy funding its members fully approves of that or not.
We are going to have to wait and see. He does have Bannon -- a very top and smart strategist -- to help him, although it is not clear what Bannon's own agenda, if any, is. Time will tell us much on all these questions.
So How Can We Tell What Is True?
06 December 2016 | Pago Pago, American Samoa
Stanford University professor Robert N. Proctor explains the practice of "Agnotology" (poor choice of language, I think) is the creation and promulgation of misinformation and disinformation, generated by special interest groups, to create public confusion, to undermine honest and legitimate authority and to suppress the truth on societally important issues, mostly on matters of science and economics. The question then put is how can a member of the public know what is true in this sea of conflicting information.
First, the task is ever and always an individual one. Second, several things need to be considered regarding a particular quantum of information. They are --
a) what is its source?
b) what is the reputation of that source for credibility?
c) what sources agree and disagree with that source?
d) does the source present the information neutrally or is something more requested, impliedly or otherwise, from the reader?
e) what are the positions on that information of top colleges and universities and why?
f) do the American Academy of Sciences and other specialty associations in the area agree with that information?
g) does the information stand up to analysis and is it logically compatible with other known information?
The last test g) somewhat begs the question by presuming the reader or hearer is capable of analysis and knows other information to compare it to for compatibility. That brings me to h) the individual's strong need 1) for a quality and usually higher education, and 2) to be widely and well read across a broad range of topics and issues from nominally authoritative sources.
These acquisitions are hard, time consuming and often expensive to get but they lead to the skill of critical thinking and having a knowledge base on which to apply it, when both are properly sought and developed for that end. They are the best test for veracity and where the American public increasingly misses the boat most badly, especially with declining reading skills. That is why political lying can now be so successful and is used so much more aggressively now.
Little misinformation and disinformation can slip by all of these screens, especially h). But several points remain noteworthy. First, look how much work and effort those disseminating bad information put the rest of us to. And, secondly, consider the ability of average Americans to apply these screens or tests. Pretty scant among most I am afraid which makes the practice of agnotology increasingly worthwhile. With declining IQ's, declining reading skills and falling educational standards and opportunities and with the cost of a good education rising out of reach of most, the prognosis is not good even for those who try to apply these screens, especially h).
Deceit, which was learned from the American business community, has made huge inroads into the provision of information and into the media. America is largely unable to deal with it and that is a reason we have the huge political divisions in the country that we do. They will persist, with the ill-informed believing what they want to believe, as I have explained and how elsewhere. Divided so, Americans cannot agree and act with any unity on many issues. We are permanently fractured.
The outlook is poor, especially with the border-line illiterate media personnel we have giving us much of the defective information we acquire.
The Political Use of Lies
03 December 2016 | Pago Pago, American Samoa
First, off, as conservatives well know, the truth can be made to drown or get lost in a sea of lies or drowned out in the same lie told loudly and repeatedly enough. This is particularly true where the public lacks the faculties to discern the truth and cannot judge. This approach has been used by conservatives to destroy expertise of every kind and raise tom foolery up as wisdom and make the likes of a lying Trump into a wizard of sorts.
The right's bogus think tanks have long used this approach to acquire voice and status, many funded and egged on by Koch & Friends. These lawlessly fly under the banner of 501(c)(3) and (4) corporations, as politically neutral, apolitical organizations when in truth many have political action arms. They are frauds on the hoof in business to bury the truth in an ocean of seemingly plausible lies. They have largely been successful, with one glaring exception -- trying to sell economic "trickle down" theory to the public, but that is only because the reality of "trickle up" is too obvious to all.
A second political use of the lie is to spin true ambiguity or honest contest regard the truth into a false, absolute fixity and certainty to gain political advantage. This is done in two ways. The first is to take minor and honest contest regarding the truth (e.g., do government expenditures create new bank reserves) and spin an absolutely certain lie on the subject (e.g., no, never) and proceed with that for political ends (e.g., Therefore MMT is nonsense and not to be believed). The second way is to take minor and honest contest or ambiguity regarding the truth and use it politically to discredit all expertise, so as to muddy the water and ultimately to promote the liar's lie of choice on the topic as the truth.
The third use of the lie in politics is to promise what is highly wanted but is circumstantially and realistically undeliverable to inspire public hope and expectations and show the promising politician's heart and predispositions are in the right places. Obama did this with his platform of Hope and Change and Trump has done the same on multiple fronts from "draining the swamp that is Washington, D.C.," to "building a wall to keep out illegals," and to "making American great again." All are get-elected lies and are vacuous.
Hannah Arendt, in 1967, presciently explained the basis for this type of lie when she wrote “Since the liar is free to fashion his ‘facts’ to fit the profit and pleasure, or even the mere expectations, of his audience, the chances are that he will be more persuasive than the truth teller,” explaining why any of that is not really doable and why.
The lie has become quintessentially the politician's key tool as Trump has made clear. It is why politicians have such a low reputation for honesty, ranking well below used car salesmen. It is why scientists are in an up roar over Trump. It is why many others are too. Intelligent sensibilities are badly offended.
Politicians are pushing an ignorant and undiscerning public into what is now being called the new "post truth" era, where like Nietzsche's conception that "God is Dead," this time it is the "Truth is Dead" instead. Truth becomes whatever one loudly, authoritatively and handsomely declares it to be. It works well with a public that has "collective mush for brains" but not otherwise.
Why Government Expenditures and Taxes Increase and Decrease Bank Reserves and Derivatively the Money Supply But May Be Countered By the Fed
03 December 2016 | Pago Pago, American Samoa
Title 26 § 7809 of the US Code provides that on the deposit of revenue collections " . . . the gross amount of all taxes and revenues received under the provisions of this title, and collections of whatever nature received or collected by authority of any internal revenue law, shall be paid daily into the Treasury of the United States . . . But this isn't done.
As shown on people's tax return checks, they are not endorsed by the Treasury at all, but by a district Federal Reserve Bank, all of which hold the government's revenues, not the Treasury and the external banking system as is implied. This is key. The Fed is the collection agent for the Treasury and holds the Treasury's deposits. This means government expenditures add reserves to the banking system and derivatively, increase the money supply, and government taxes and bond sales do the opposite.
The counter to this position is that the Fed creates and destroys reserves every day, generally through the Federal Funds market.
It pegs the FF rate and operates to maintain that peg by putting reserves into the banking system or taking them out of the systems by bond purchases and sales respectively. If government expenditures add too many reserves to the system, the Fed will take reserves out of the system to maintain the peg. Similarly, if taxes and new bond sales by the government pull too many reserves out of the system and cause the FF rate to rise above the peg, the Fed will sell bonds to pull reserves out of the system.
The Fed's goal is to hold the FF target rate peg. It will accomplish this by draining or creating reserves. The Fed's trading desk contacts member banks, as well as the US Treasury, every morning, to help decide if reserves need to be added or reduced for that day.
But the point is that by the Treasury holding its deposits at the Fed instead of in the conventional banking system, its expenditures and receipts add and take away reserves from the banking system. To be sure, if they are in large enough sums, the Fed may act to counter them in order to maintain its peg on the FF rate, but that does not mean government receipts and expenditures do not decrease and increase reserves, respectively.
This is a far cry from the government keeping its deposits and receipts in the external banking system outside of the Fed as most suppose and the statute arguably requires so its receipts and expenditures do not change reserves and derivatively the money supply
The Monetary Economics of a Sovereign Fiat Currency System
02 December 2016 | Pago Pago, American Samoa
The key to understanding such a system is this: it replaces the budget or income constraint that businesses and households have with a inflation constraint. That is the heart of a sovereign fiat currency monetary system with flexible exchange rates like in the US has. More are starting to understand that, in such a system, revenues are not tied to expenditures, unless, politically, such a tie is forced or superimposed. A tie of expenditures to revenues is not intrinsic to the system. It is exogenous to the system and political, not economically required.
The true economic limitation is inflation which undermines the currency and the public's faith in it as a reasonable store of value. With many trillions of dollars being hoarded in cash in the US economy by the rich, the wealthy and their corporations, obviously faith in the currency and credit of the US government is not a problem, but conservatives don't or can't understand this. The minor inflation we have of 1 or 2% a year is sought by most advanced countries to counter deflation and aid growth and it is easily adjusted to and does not materially affect exchange rates.
To extend the analysis further, monetary experts now recognize the sale of bonds by the federal government to raise additional revenue
to cover the deficit is not necessary. The government could simply write checks based on its own good credit instead to do that, again subject to the limitation of inflation. Bonds are used to hoard money as a store of value and earn some interest and they are usually purchased with hoarded cash that is not circulating against new goods and services in the economy and so are not inflationary. Using checks of the government based on its full faith and credit to "cover the deficit" could be more inflationarily problematic depending on how and on what the money is spent.
Bond sales reduce reserves and the money supply which doesn't matter much if hoarded money is used to by the bonds. But expenditure of the bond revenues will increase reserves and the money supply in like amount. Alternatively, use of the credit of the government simply increases reserves and the money supply from the outset. Inflation can be quickly suppressed, if it becomes a problem, by raising taxes and selling bonds, but sitting on the proceeds of both and not spending them. That reduces reserves and the money supply.
How government credit, or the new money it creates, is spent is the key. Inflation is less a problem when such government expenditures, (whether based on credit or bond revenues) are targeted and spent to buy the services of idle people and other resources rather than those fully employed. That is so because prices are not bid up by trying to wrestle those idle people and resources away from alternative productive uses employing them. Of course this says nothing about the investment worthiness or ROI of such expenditures when public investment is the goal of either such expenditures. That is a separate topic.
For example, it is conceded by most that investment in public infrastructure in the US is desperately needed because maintenance and new investment has been neglected. Some two and a half to three and a half trillion dollars of new investment is estimated to be needed by civil engineering societies. Also, such investment is conceded to have a high ROI, properly measured.
A labor intensive infrastructure rebuilding program, spread out over a long time, and funded by government credit and/or bonds, targeting the use of idle people and other resources could be a tremendous boon to the US economy and all involved including users of that infrastructure, and be not inflationary if managed well. The only thing blocking such a program is a failure to understand all these matters on the part of too many politically involved. The additional GDP could be very substantial at little opportunity cost.
The monetary economy operates differently than many suppose and the consequences of that ignorance are extensive. We will see how the political process handles Trump's infrastructure rebuilding goal. The likelihood of successfully is low, but we can hope.
The Monied Liberals, like the Democratic Party, Are in Trouble.
02 December 2016 | Pago Pago, American Samoa
The Democratic party, as the party of monied liberals, is being abandoned by true liberals, who care about others, the progressives who want reform and know monied liberals just want the status quo, the greens, who want a sustainable world and know monied liberals don't care, and the blacks, Hispanics, and millennials who realize that monied liberals like Hillary Clinton, are really only out to take care of themselves and their wealth and have no real concern for others.
The Democratic party has sold out. No one cares about monied liberals who are liberals in name only and actually, like Obama and Hillary, are really just republican lites. America knows the Democratic Party has sold out. Bernie proved that in spades. Now the Party is in shambles and has nowhere to turn, especially after the shellacking it took in the general election. The contest was only as close as it was because Trump is a wild, wild card. Anyone good could have created a republican landslide.
The logical course for monied liberals forming the core of the Democratic Party is for them to abandon the Party and become republicans to moderate the tea baggers, reshape the Republican Party and gain new influence and power. Then true liberals, greens, blacks, Hispanics millennials, and Bernie supporters, if not also some progressives, can return to the Democratic Party and give it the rebirth it sorely needs.
If Trump is moderately successful and can somewhat reshape the Republican Party toward progress, reform and moderation, the likelihood of gaining a moderate wing of monied liberals from the Democratic party is not insignificant.
Otherwise, too many are left without a party and anywhere to go and organize. Then it is runaway Republican crazies as far as the eye can see.
How Government Policy Ignores the True Cost of Technical Change
02 December 2016 | Pago Pago, American Samoa
Martin Farris has succinctly stated the problem. It is that federal "policy fails to link the true cost of [technical changes and other] advancements [in the economy] to them [or those who create the technical advancement or change]. Thus companies adopt them and reap the benefits, while the costs are transferred to the taxpayer. If the technology was taxed sufficiently to raise the funds to pay for the additional costs of retraining, unemployment, welfare, etc. the picture would be much different. Ditto for offshoring jobs."
People are only recognizing the accounting costs of technical change and major adjustments in the economy, but not the true economic costs which are often much greater. Externalities abound in the US economy. People operate to take advantage of them. The government is too oblivious and thinks only of accounting costs in shaping its tax policies.
Consider company A which invents a technical change which displaces six workers and permits the same amount of work to be done. Company A then licenses its device to 99 other companies. The nominal accounting costs involved are the development costs, licensing fees and the like, but the true economic costs include additionally the costs of interim support and retraining of the six hundred workers displaced. Those costs are shoved on the government and derivatively the taxpayer, but all the real gains accrue to company A and its licensees. We have the privatization of all the benefits and socialization of most of the true losses or costs.
We need tax policies which recognize and tax accordingly based on true economic cost rather than accounting costs. Indeed, we might learn that some technical changes are, under this view, not economically worthwhile and should not be pursued. We need faster and smarter government.
The Long View for America Is Not Good
02 December 2016 | Pago Pago, American Samoa
Much of the earlier debate was whether technical change aided and augmented labor, as it has mostly done historically, or whether it displaces it. Computerization, for example, augmented worker productivity, but today programmed electro-mechanical devices now largely target displacement of labor and lower management as well, to promote middle management convenience and long run cost savings and larger profits.
Capital and the rich and wealthy are cleaning up and labor's share of GDP is in marked decline. Income inequality continues to rise and its pernicious effects increase. All of this is generating considerable social instability, especially with present republican policies and aperiodic recessions hammering the middle class further and the social safety net being targeted by republicans for destruction.
The macro view is not good. Too many people are being vocationally and politically marginalized and left out and behind. Indeed, some 92 million adults are not even in the labor force and are poorer for it. Many excuses and explanations have been and can be legitimately made for it, but many are circular and confuse cause and effect. For example, are younger people going to school because they couldn't get a job or did they pursue that course independently, seeking a better job from the start. Interestingly, older men's participation in the labor force has actually increased, as they find they cannot make ends meet in retirement, without continuing to work.
A growing and vocationally idled and impoverished population does not make for good social stability or a healthy and vibrant nation, Political exclusion of that population only compounds the problem. The only hope becomes the ballot box if despondency and depression do not preclude that as well. But who is there to vote for, as our two party system offers little choice unlike the multiple parties in Europe.
The bottom two thirds of the middle class and upper one third of the lower class have seen their wealth and homeownership largely destroyed by the Great Recession and this group is well oppressed, but doesn't know much what to do about it . . . except to vote for change or anyone who promises it, ergo, we have Trump (and Bernie) but not Hillary, although both carry far too much luggage and it can be expected that republicans and some democrats will oppose any real change.
After Bernie and with Trump, the press of middle America is for economic change, but the real questions, rhetoric aside, are what kinds of change and how is it going to be accomplished. There are no good road maps out there, aside from those showing how to derig the economy to have it better serve all, but government and its laws and regulations favoring the rich, is only one part of the problem.
The direction of technical change and of the economy itself is yet another and much larger problem. We have few good thoughts there but can only wish many people were much smarter and well enough educated to fill the many high tech jobs that are available.
The Minds of Conservatives and Deniers
27 November 2016 | Pago Pago, American Samoa
There is by now evidence from a variety of laboratories around the world using a variety of methodological techniques leading to the virtually inescapable conclusion that the cognitive-motivational styles of conservatives are quite different from others. This research consistently finds that conservatism is positively associated with negativism, heightened epistemic concerns for order, structure, closure, certainty, consistency, simplicity, and familiarity, as well as existential concerns such as perceptions of danger, sensitivity to threat, and death anxiety.' This research was summarized a few years ago in Behavioral and Brain Sciences, by John Jost and fellow scholars
Jost and his team were blasted by Ann Coulter, George Will, and National Review for saying this; congressional Republicans began probing into their research grants; and they got lots of hate mail. However, the general conclusion has held up very well and been expanded further.
Much more work has been done since then. A large body of research scientists now agree that conservatives differ about politics and similar matters from other people in largest part because they are fundamentally a different kind of person at the levels of personality, biology and even physiology and genetics.
This is a major finding and conclusion. It suggests conservatives do not so much get their beliefs from family, or their childhood circles or their upbringing and that much is physiological, biological, genetic and ingrained, having a strong and negative bearing on conservatives ability to learn, reason and change their minds on many topics. It explains why discussion with conservatives is often useless on the topics of politics, economic policy and religion.
I have observed this extensively on Facebook.
The Public Debt Will Not Cause the US To Go Bankrupt if it Grows
25 November 2016 | Pago Pago, American Samoa
The contrary is the perennial lamentation and whine of deficit hawks and permabears.
It is nonsense. The US cannot go bankrupt, because it has a fiat currency based on the full faith and credit of the United States and the taxing authority of the US with a system of flexible exchange rates. Further, it has a public debt of $23 trillion or a $100 trillion, depending on how you want to count it, and the US doesn't even have periodic or any public debt crises. That should tell the hawks and bears something, but they have their ear flaps closed. Moreover, this lack of a problem has been true throughout our history, except where some stupid, ignoramus politicians like Cruz et al. threaten to force the Treasury to default on the public debt.
The interest on the public debt is not and cannot become a problem either. It can be and always has been paid by government checks based on the credit of the US government. Once deposited by their recipients in their bank accounts, those checks become money and add to the reserves in the banking system. The only limitation on proceeding this way is the possibly of inflation, if we are at full employment of our resources, both human and others.
There is no necessary connection between federal revenues from bond sales and taxes and government expenditures by checks based on credit, except the one bears and hawks wish unsuccessfully to have applied. The government, unlike businesses and households, has no budget restraint or income restraint, because it owns the currency and has credit only subject to the limitation of inflation. Then of course there is the false hue and cry of hawks and bears for decades now, that big inflation is right around the corner, but that is whole another story.
That brings me to yet a further misconception of the hawks and bears.
The federal government does not need to issue bonds to raise money. It could stop running deficits and issuing debt altogether. Instead, it could just write checks based on its own credit -- independently of its revenues which suck bank reserves and money out of the public sector (to unnecessarily avoid inflation on the false assumption the economy is always at full employment - a eureka moment?) -- in order to buy the services and other output of many of those idle people and idle resources and so add the value of that additional output to the GDP. (another eureka moment?) Those checks and that credit becomes money once in circulation and add to the reserves of the banking system. It expands the public's balance sheet and US total output.
The core issues protecting the government's good credit with its checks are the avoidance of inflation which devalues the currency at issue and that credit is aided by an increase in US output or GDP from using its credit primarily and wisely as I describe. Pieces of government paper (checks) we believe have value and we can use to pay taxes and other bills, are, in effect, being used to mobilize idle resources and people into real productive activity producing real honest to God, goods and services we presently don't have. So where is the problem aside from the fact, the US has almost 92 million adults not even in the labor force, a number far too high.
Why can't people understand this? Why should we listen to economically retarded hawks and bears who try to keep the US in a relatively unproductive rut. The truth is their efforts are actually failing, but we unnecessarily remain stuck for now on using public debt instead of just public credit, but we are getting there. Some smart people in government are figuring these things out and will get past the economic ignorance of the bears and hawks in due course.
The US is slowly learning monetary theory and how our banking system and government actually operate and add to and take away from the public's consolidated balance sheet.
The Demand for Bank Loans Determines the Amount of Bank Reserves in the System
24 November 2016 | Pago Pago, American Samoa
As I have shown, the Fed does not control the amount of bank reserves in the system, but only really controls the Federal Funds Rate (FFR). But think of the FFR as a spigot for reserves in the system. Reduce it and banks can profitably loan more and borrow federal funds to cover those loans, thus increasing reserves and the money supply. Raise it and banks won't and reserves and the money supply will fall as bank loans are repaid and banks need not hold so many reserves.
It is the demand for bank loans at prevailing interest rates and the FFR that determines the amount of bank reserves in the system, not the other way around. Loan demand, at prevailing rates, and the FFR determine the money supply and the reserves required for it. Of course, banks can borrow and lend reserves at the interbank rate, but that doe not materially alter the analysis.
As bank loans are repaid, part of the money supply is destroyed and banks can develop excess reserves, unless both are obviated by replacement new loan volume. The point is loan demand, other things equal, determines reserve levels and the money supply, just as real investment substantially determines savings (to pay off bank loans made to invest).
Most people are confused on these matters because they don't understand monetary theory or how businesses and the banking system operate.
The Fed Has No Control Over Bank Reserves or the Money Supply
23 November 2016 | Pago Pago, American Samoa
Why? Because it has decided instead to peg the only interest rate it can - the federal funds rate which is the rate at which banks can borrow from the Fed. Now the federal funds rate (FFR) is a truly big deal. Some days a big bank will borrow more from the Fed than its entire reserve requirement. Huge dollars are involved here.
The federal funds rate determines one half of the spread on which banks determine whether to borrow from the Fed and lend. A proposed loan with a rate discernibly greater than the federal funds rate will get done and the bank will pocket the difference after borrowing the loan money from the Fed. Banks have to account on meeting their reserve requirements only periodically and with a lag.
What this means is the Fed losses control over the amount of reserves and of the money supply. Consider the purchase of securities at the NY open window. Conventional wisdom is that this increases reserves in the banking system in like amount and the money supply. But that is not true. The increase in reserves depresses the FFR very fast (it is hyper-sensitive and very quick to adjust) and in order to maintain the peg on the FFR, the Fed has to sell securities in like amount quickly, in effect neutralizing the early increase in reserves and the money supply.
The rate is constantly monitored to maintain the peg. Alternatively, if the Fed sells securities to reduce reserves and the money supply, that pushes the FFR up it will have to turn around and put reserves back in the system by buying securities so banks are not caught short on their reserve requirement. Banks almost always walk the edge.
That is how tight, sensitive and fast that funds market is.
To maintain the peg, the Fed has to give up control of reserves and the money supply. The Fed's earlier effort to control reserves and derivatively the money supply, in turn meant, it had no direct control over any interest rate. That effort proved too problematic for reasons I don't discuss here.
The Fall of the New York Times
23 November 2016 | Pago Pago, American Samoa
It used to be interested in "all the news that was fit to print." Now it cherry picks the news it thinks its bi-coastal blue elite will like and peddles it in a soft, kindly and smug tone that screams of arrogance. It is really no longer an aggressive news team that pushes into the corners and gets us thinking. It is frighteningly predictable in what and how it covers the news.
TheHill,com is eating into the NYTimes.com former domain with rapidity, with concise and matter-of-fact news coverage, but so far, being based in Washington, lacks the international reach yet of the NYTimes.com. Whether that will develop remains to be seen, but theHill.com is changing and developing quickly.
The NYTimes.com has gone soft and political. Its editorials tend to be hack jobs and oh so predictable, and of course, like HuffPo and other liberal media, it is having a hissy fit over Trump. Today's headlines for the Times are --
"Trump Turns Staid Cabinet Process Into Spectacle
"Alt-Right Exults in Election With Salute of 'Heil Victory'
Indian Business Partners Hope to Exploit Trump Ties
"Many in Milwaukee Neighborhood Didn't Vote -- And Don't Regret It
"Let's Say Obamacare Is Repealed. What Then?
"Critic's Notebook: 'Hamilton' Duel: Addressing the President-Elect on His Own Blunt Terms
"How Fake News Goes Viral: A Case Study
"Reince Priebus, Normalizer in Chief: As Mr. Trump's new chief of staff, the lifelong G.O.P. loyalist will have to guide an outsider president and his band of radicals through a city they've pledged to upend."
And then these are today's New York Times editorials:
"Blow: Making America White Again
"Krugman: Build He Won't
"A Retreat From TPP Would Empower China
"On Campus: A Dreamer's Deportation Nightmare
"Op-Ed: Voting Rights in the Age of Trump"
TheHill.com has picked up and commented on the Times' anti-Trump bias which, contrary to John Oakes' thinking on separating news from editorial comment -- long a mainstay of the Times' presentational news craftmanship -- is now out the window. Oakes was the influential former editorial page editor of the Times who successfully argued news had to be separated from editorial comment for the sake of objectivity in news coverage. We can see how the Times fails now. Everything now is liberal editorial, explicitly or not.
The Times has gone soft and political, while pandering to its blue bi-coastal elites and is, I think, a shadow of its former self. It wants to be a liberal player instead of a real news organization.
Observations on Modern Monetary Theory
20 November 2016 | Pago Pago, American Samoa
A notion implicit in economics is everything is bounded or has limits. One much discussed limit is the maximum size of our country's and other countries' public debts. The issue, in each country instance, is where are those limits and why are they there. That is what MMT should address, properly conceived, I argue, regarding a fiat sovereign currency.
Until MMT was developed, the limits for public debt size for such a currency were hugely misunderstood and, worse, very much under-estimated. The error was gross and is still believed and misunderstood by almost everyone. Modern monetary theory adherents try to address that but alienate more people than they persuade, I argue. The problem is this.
Too many MMT adherents seem to suggest (but don't actually say) that the limits on the public debt are infinite and the sky is the limit and that is false and misleading. The suggestion has alienated many unnecessarily from the ideas of MMT and has undermined the cause of MMT which is really, I argue, to show what and where those true limits are and demonstrate that they are usually very much underestimated by most and by conventional orthodox economic analysis.
The limits exist, but they are country specific. They depend on many things which is why the World Bank, Peterson Institute and Rogoff & Reinhart numbers on allowable public debt/GDP ratios are so badly off and demonstrably wrong. MIT economist, Rudi Dornbusch, made a fool of himself when he insisted Italy was on the verge of default because the public debt to GDP ratio exceeded 110 and the lira interest rate was higher than the country's growth rate.
So what are those limits under MMT? First and foremost is that of inflation. The supply of credit/money can be increased by government, the banking system and the fed thereby increasing reserves so long as there are sufficient idle human and other economic resources so as not to generate significant inflation. Where inflation develops, reserves must be reduced by taxation, and by the Fed. The adjustments are difficult to fine tune, but they work.
As second limitation is really a whole set of limitations. All but one are tied to the perceived credit worthiness of the nation's currency. - investors' confidence. They include some of the things rating agencies look to in determining a nation's credit rating, but there is no hard and fast set of formulae. What people view as creditworthy in turn substantially DEPENDS on what they and their governments understand and believe about modern monetary theory. A vicious circle of sorts has developed here in many regards.
These factors used by the rating agencies are typically, the amount of the current deficit, the level of the public debt relative to GDP, the prospects for economic growth, the economic stability of the country, the political stability of the country, the manageability of the interest payments, the debt maturity profile of the country, who owns the countries debt, and, the last one -- and the credit worthiness exception not considered by the rating agencies -- is the extent to which politicians and investors reject and oppose modern monetary theory and create problems for the country by their actions in opposition.
Interestingly, in considering the current deficit and the level of public debt, the rating agencies appear to accept the general conclusions of MMT because the levels of deficits and the high public debt levels in the US, UK and Japan have not prevented them from being A rated or better by those agencies, which obviously eschew the level tests of the World Bank, the Peterson Institute and Rogoff & Reinhart for debt levels.
Similarly, the UK has borrowed over 10% of its GDP without losing its AAA rating and Spain's national debt has been quite low (around 70% of GDP, but it has a worse credit rating than Japan which has debt of 230% of GDP. The rating agencies seem to understand the outlines of modern monetary theory, but don't say so expressly and are not infallible as we know from their role in the 2008 crash on Wall Street.
Prospects for economic growth matter because growth increases GDP relative to public debt levels and, conventionally understood, that is viewed as a good development. Debt interest payments as a % of GDP can matter, too. When countries face rising debt interest payments, it can undermine investor confidence in the country regardless of whether it should.
Who holds the debt? If the debt is significantly owned by the government itself, it is not conventional debt. If the debt is owned by domestic individuals and pension funds, the debt is less subject to capital flight. Japan has been able to borrow a great deal, because there is a large domestic demand for buying Japanese government bonds. Japan is not reliant on foreign investors. The facts that much of the US's and Japan's public debt is held by the government itself also matters.
What is the public debt's maturity. The UK has quite a high debt maturity. The average debt maturity in the UK is over 17 years. This long term borrowing puts less pressure on the UK to refinance in the short term. If country finances its debt by selling short term notes and bonds, it keeps having to resell bonds. Therefore, they are more at the mercy of investors confidence, but wouldn't be under MMT.
The economic and political stability of a country strongly bears on its credit worthiness. When Ted Cruz and his gaggle of tea baggers shut down the US government briefly and threatened to default on the US public debt, one of the three rating agencies reduced its credit rating for US public debt, citing political and governance problems. These factors cut many nations out, under modern monetary theory properly conceived, such as the often cited examples of Zimbabwe and Venezuela.
The final factor, ill considered by all, is what people view as creditworthy in turn substantially DEPENDS on what they and their governments understand and believe about conventional finance and modern monetary theory. The latter theory, I argue has been oversold in a way that could not be better designed to alienate people of conventional financial views, from it. The summary argument that deficits and public debt levels don't matter does contain a kernel of truth, but it alienates the very people we need to have better understand modern monetary theory and gives it its present bad name in conventional quarters.
The goal instead should be to have people understand real monetary theory and its fundamentals first and its implications and ramifications more slowly and later. But that hasn't happened and the present result is not good -- too much rejection of the obvious into many quarters and among mainstream economists as well.
Elizabeth Warren and Her Letter to Trump Promising to Hold Him Accountable
19 November 2016 | Pago Pago, American Samoa
NOV 15, 2016
Washington, DC - United States Senator Elizabeth Warren today sent a letter to President-Elect Trump raising serious concerns about the special interest lobbyists, Wall Street bankers, and industry insiders who are staffing his transition team and who will shape the new administration.
The senator wrote, "Based on public reports, your transition team and your potential cabinet include over twenty Wall Street elites, industry insiders, and lobbyists making decisions that could have huge implications for their clients or employers. They include, among many others, a former Goldman Sachs executive who is rumored to be a Treasury Secretary pick; a paid consultant for Verizon who is making key decisions on your administration's Federal Communication Commission; a 'top lobbyist' whose firm lobbied on behalf of issues related to the Trans-Pacific Partnership who is shaping your Labor Department; and a climate-change-denying, oil industry-paid think tank fellow who is leading your environmental team's transition."
She continued, "You made numerous promises to the American people in your election campaign, none bigger than the promise to 'drain the swamp' of Washington D.C. special interests rigged against the middle class. The decisions you make with your transition team will shape the next four years of this nation. They will also reflect the strength of your character and your ability to truly lead--not just follow the marching orders of the special interests and Wall Street bankers you purportedly oppose."
Senator Warren called on President-Elect Trump to remove the lobbyists and special interest insiders from his transition team and replace them with advisors who will fight for the interests of the American people.
She stated, "Let me be clear. Should you refuse, I will oppose you, every step of the way, for the next four years. I will champion the millions of Americans you will fail to protect. I will track your every move, and I will remind Americans, every day, of the actions you take that fail them. And I will not be the only one watching. The millions of Americans who voted for you - and the millions who didn't - will all be watching you."
The senator's letter details the ties to special interests of more than 20 members of President-Elect Trump's transition team.