Where the Economy Stands and Where It’s Going

BUT…BUT…comparative advantages!

Karl Denniger has a good post related to this today.

Insanity: Doing The Same Thing (Obama)

Good list, Ian. I would only reiterate that nothing is material going to get done without comprehensive campaign finance reform, that is, public financing alone, together with closing the revolving door and ending the double standard of privilege vs. the rest of us. That’s the top priority and sine qua non for reform. As a matter of fact, we don’t even need a lot of new laws and regulations. Those already on the books aren’t being enforced against the influential, who are instead writing their own checks on the Treasury and thumbing their noses at the country.

I am still harping on Modern Monetary Theory (MMT) aka Neo-Chartalism, which is based on national accounting principles and stock-flow consistent macro models. With this approach, the memes of “sound money” and “fiscal responsibility” would essentially be banished from public debate, along with the fear-mongering about the growing deficit, national debt, and unfunded future obligations.

Why is this important? Because reform is not possible without provisioning for it, and as long as conservatives dominate the universe of discourse with their mistaken ideas of how the government operates, it will be impossible to fund a progressive agenda without increasing the deficit and raising taxes substantially, both of which are politically impossible under the current misunderstanding of how the economy actually works.

This is needless. There is no problem with a sovereign government as monopoly provider of its nonconvertible flexible-rate currency of issue funding education, universal healthcare, basic research, infrastructure including energy, and also providing a job guarantee as employer of last resort. There is no reason from the financial standpoint that a full-blown progressive agenda cannot be funded under present circumstances simply by recognizing how a contemporary monetary system actually works and taking advantage of it.

This has no relation to domestic debt, however. The government as currency issuer is different from currency users. Currency users are revenue-constrained, and private debt that cannot be sustained by income cannot ultimately be serviced without liquidating assets. The financialization of the economy has resulted in rent-seeking replacing production to too great a degree. In addition to hollowing out the real economy, the result has also been that private debt has become unsustainable and needs to be resolved before the recovery process can go forward. Instead, the government is siding with influence to impose draconian bankruptcy on debtors, and prevent cram downs. The government is protecting creditors by attempting to reflate asset prices, but the likelihood of this working in the long run is low, so stand by for another round of crisis before long. Can Obama push this out past 2012? Maybe, but I wouldn’t give odds on it.

Timothy Treadwell (really Timothy Dexter) of Long Island, New York spent thirteen years living with Grizzly Bears in Alaska. He loved Grizzly Bears and he truly tried to understand and study them. He named them, lived among them.

He treated Grizzlies in an idealistic manner: he did not understand or adhere to the rules of safe behavior for observers of Grizzlies that had been explained by others who had studied the Grizzly long before. He did not store his food properly, did not carry pepper spray, did not give the bears a wide berth, did not use any electric fence around his camp because for thirteen years he thought he was the Grizzly whisperer. He thought the Grizzly was his friend because all the scientific data about Grizzly behavior had not proven true for him. For him, there was no science in zoology; it was to be understood simply by observations from his own point of view. He thought if you treated them with respect and kindness and with a new policy they would behave in a very predictable manner, and for thirteen years it seemed to work. Timothy thought the bear had been transformed and all the others who had studied bear behavior before him were wrong. Timothy thought that the objective nature of this bear formed by years of evolution–its true predatory nature–could be changed, because he had not yet been attacked by the bears.

Timothy had a stake in these unscientific views; he was gaining recognition from his videos.

On October 5, 2003, Timothy and his girlfriend were killed and eaten by Grizzly bears. Very sad.

He had repeatedly been told that he could not subjectively change the true nature of the Grizzly: it is a predator and it would kill him.

Ian, when are you going to write about the health care ‘compromise’ in the senate?

The list as a party platform would be enough to actually make me donate, advertise, knock on doors etc. (That’s saying a lot.)

Unfortunately, i think that trying to enact even just one of the items in the 21st Century U.S. would be enough to make Sisyphus give up. But i’m a pessimist and a cynic who figures that the end is now unstoppable: only the timing and details of the collapse remain to be determined.

So an alternate list might include some acreage with a good, south slope; a few greenhouses; a flock of chickens and sundry other livestock; diesel powered vehicles (because you can make diesel); a steam generator; a few windmills; and a small armory. If a miracle occurs and things get better, you’re still free of trips to the grocery store, the gas station and utility bills.

Yes, i know that my list doesn’t work for urban people…but i’m 6 hours drive from the nearest urban center. I also realize that it sounds like a right-wing militia fantasy (but only to city dwellers). Around these parts such a life is non-partisan.

It’s been discussed elsewhere (and IIRC, Ian and i are in rough agreement on it), but i foresee a situation similar to the Soviet collapse. The difference being that various factors of Soviet life — specifically the local and individual adaptations necessary to get on with life in the USSR — inadvertently prepared Russians for the collapse.

That’s not true of the US, and that’s what scares me: Americans are not at all prepared to deal with serious difficulty. I would argue that the very negative, and frightening, possibilities did not arise in Russia because Russians were (inadvertently) prepared; on the other hand, those same possibilities look very realistic in the case of the US.

Good overview and some great remedial fantasies, but that is all they will remain until you realize the catch 22 of your key fantasy, # 16, “Campaign finance reform”.

The system has been hijacked because it is flawed. It is the electoral process itself that must be reformed. We need a constitutional jubilee (along with an equitable debt jubilee that will reward the prudent as well as the imprudent) and a rewrite of the constitution to open up the electoral process to all and to create a more responsive to the will of the people form of government.

The current scamerican government has been captured by the wealthy global ruling elite. They will never provide you with campaign finance reform.

Deception is the strongest political force on the planet.

” Japanification is when a society’s banks are unable to lend adequately because they have huge numbers of bad loans on the books which have not been recognized, and which they have to pay down over many years.”

That’s not happening in the US. Here, the banks now have huge amounts of Fed cash on hand in exchange for their toxic waste, and they do not lend because they can use the cash to generate fees and bonuses by buying up competitors that are not too big to fail, or failed too fast, or were not part of the favored Goldman network. This, in turn, increases the likelihood and the eventual damage from the next – Fed bubble – burst. The doom loop has positive feedback. Japan took the slow route to preserve the oligarchs, only in the US would the parasite see this as another opportunity to “raise the stakes”.

Interesting post. Ian and Lex: Perhaps you will find this helpful:

http://www.urbanharvest.org/

djmm

@Ian, apologies, I should have been more clear in my request: do you have any thoughts on the most recent health care ‘compromise’ or are your thoughts still largely the same? I’ll take it by your previous comment that your thoughts are still pretty much the same.

@Marku: I know a little bit about Russia and agree “ the Russians had was a high reliance on kitchen gardens, mass transit, and state owned housing.” I would also add the communal nature of Russian society–a very largely family oriented society, and large family and friend networks played a very large part in Russians being able to endure the collapse. And that is something that the ‘societal nature’ of American society does not have. We are, in the end, a nation of individuals. Even now, when young people are staying at home for longer periods there is a serious stigma to it. And when our economy takes a header, it will be even worse. Guilt and shame of not being able to ‘support yourself’ will take their toll. I’m with Lex: Americans will just get fucking violent and project perceived personal failures onto others.

I haven’t read Orlov’s book, but i have read his essays.

Ian, you might be the first person i’ve ever heard suggest moving to Detroit. And i have a question about #4: is that putting an end to mercantilism and import substitution as an economic development system or simply ending the current relationship between (esp.) the U.S. and Asia that exists as it does today?

Sean Paul, i agree and that’s one of the reasons i’ve chosen to live where i do (that and plenty of water). It conforms more to what BDBlue says than the fear that you and i share.

Jim,

I don’t disagree. The difference i see is that in natural disasters the need to band together is temporary and provoked by some sudden, cataclysmic event. The American example of the depression mostly fits your statement, so it’s certainly possible that the “no end in sight” hardship of severe economic calamity could provoke a similar response in modern America. On the other hand, American society is far less prepared to deal with the details of such a situation than it was then.

Unloading trucks of food to distribute is a far cry from producing food and sharing it so that no one goes too hungry. I’d have more optimism if i saw mechanisms that could be quickly implemented to deal with the myriad challenges that we’re likely to face.

Lex #4: currencies have to be based on actual TRADE flows (not finance flows, but trade flows. Money should not fly back and forth at hundreds of times multiple of actual trade.). That alone would have a huge effect on modern mercantalism. Unfortunately, that implies the Yuan rising a lot, the dollar dropping a lot, and a decline in current standard of living in exchange for better future standards of living. Said drop would mean more expensive oil (yes, it isn’t prices in Yuan, but if that happened it would be) and a shift of oil to the Chinese. It cannot be done without making significant moves, first to reduce dependence on oil.

Detroit: well, that’s because my income is not dependent on where I live. For other people for whom that’s the case, the very very low costs are attractive. Of course, there are other reasons not to want to go, but it’s financially attractive.

Ian, thanks for the explanation. I probably misled myself by thinking of mercantilism less in terms of finance than in terms of making and trading actual things. In that respect i think mercantilism has some positives as a development tool…or at least more positives than thinking that neo-liberal trade regimes will lead to economic development. Or, at least it worked for Japan and Korea. But my rough understanding leads me to think that it needs to be opened up at some point too.

Understood on the City of Boom, and don’t get me wrong, i love the place…though reports suggest that it’s returning to the levels of violence i remember from the early 90’s.

Thanks, Ian.

If i understand the history correctly, great economic powers have generally gotten to greatness by practicing mercantilism and only become proponents of “free trade” late in their development. And even the promotion of free trade practiced later comes with significant caveats, like the US continuing to subsidize agriculture.

The barriers of mercantilism are what make small loom makers like the Toyoda Corporation, or produce companies like Samsung, able to become industrial powerhouses. And, theoretically, those barriers should fall when the protected companies are able to compete. They clearly don’t. IIRC, the tax on a foreign automobile in Korea is something like 100%.

I understand the currency manipulation angle: how it works and why countries use it to get around WTO rules. But does the manipulation benefit only, say, the Chinese? When a US company sets up shop in China (or contracts production to a Chinese firm), does it benefit from the currency manipulation too?

I ask because if US corporations do benefit, then i see a situation that is unlikely to change so long as the people hurt most by the situation are the voiceless little people of the world.

Part of me has a difficult time rousing anger against the East Asians and their practice of mercantilism. The developing nations that have signed on to the “Washington Consensus” of development through free trade all seem to lose ground rather than gain it.

Thanks for engaging me on this subject, Ian. One of the thin books i’ve read is Bad Samaritans by Chang Ha-Joon, and his Korean take on Mercantilism has probably affected my view of it.

I wonder if we all practiced mild Mercantilism, could we reach an equilibrium where trade was free and mostly fair? Yesterday i was reading about Chile — the end of the Pinochet regime and the economic successes that came in administrations after Pinochet. One of the quoted economists likened economic policy to driving a car: somebody needs to steer or the car will end up in a ditch or wrapped around a tree.

I guess that i have a philosophical problem with rational-utilitarianism that requires an irrational belief in the “invisible hand” to make things work. Or, more pointedly, i get the feeling that the invisible hand is overly apt to apply a choke hold.