Monday, October 16, 2017

Wiping Out Puerto Rico’s Debt Without Hurting Bondholders


Even before Hurricane Maria leveled the island of Puerto Rico, their economy was already in a world of hurt. They were attempting to refinance $74 billion in debt when Maria inflicted another $55 billion in property damage and caused $40 billion in lost economic output.

But hey, Puerto Rico is part of USA and we just spent the last nine years wiping out the massive banking losses incurred when the financial system crashed in the 2007-8 recession. The method used was a little gimmick called "quantitative easing." If we can bail out a bunch of crooked banksters, we should surly be able to rebuild an island responsible for a significant fraction of global Viagra production.

Below Ellen Brown explains just how this could be done. Of course, this does not mean it will be done. It's one thing to bail out crooked banksters—it's quite another to help poor people struggling to survive.

How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders

ELLEN BROWN, OCTOBER 13, 2017

During his visit to hurricane-stricken Puerto Rico, President Donald Trump shocked the bond market when he told Geraldo Rivera of Fox News that he was going to wipe out the island’s bond debt. He said on October 3rd:
You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.
How did the president plan to pull this off? Pam Martens and Russ Martens, writing in Wall Street on Parade, note that the U.S. municipal bond market holds $3.8 trillion in debt, and it is not just owned by Wall Street banks. Mom and pop retail investors are exposed to billions of dollars of potential losses through their holdings of Puerto Rican municipal bonds, either directly or in mutual funds. Wiping out Puerto Rico’s debt, they warned, could undermine confidence in the municipal bond market, causing bond interest rates to rise, imposing an additional burden on already-struggling states and municipalities across the country.

True, but the president was just pointing out the obvious. As economist Michael Hudson says, “Debts that can’t be paid won’t be paid.” Puerto Rico is bankrupt, its economy destroyed. In fact it is currently in bankruptcy proceedings with its creditors. Which suggests its time for some more out-of-the-box thinking . . . .

Turning Disaster into a Win-Win

In July 2016, a solution to this conundrum was suggested by the notorious Goldman Sachs itself, when mom and pop investors holding the bonds of bankrupt Italian banks were in jeopardy. Imposing losses on retail bondholders had proven to be politically toxic, after one man committed suicide. Some other solution had to be found.

Italy’s non-performing loans (NPLs) then stood at €210bn, at a time when the ECB was buying €120bn per year of outstanding Italian government bonds as part of its QE program. The July 2016 Financial Times quoted Goldman’s Francesco Garzarelli, who said, “by the time QE is over – not sooner than end 2017, on our baseline scenario – around a fifth of Italy’s public debt will be sitting on the Bank of Italy’s balance sheet.”

His solution: rather than buying Italian government bonds in its quantitative easing program, the European Central Bank could simply buy the insolvent banks’ NPLs. Bringing the entire net stock of bad loans onto the government’s balance sheet, he said, would be equivalent to just nine months’ worth of Italian government bond purchases by the ECB.

Puerto Rico’s debt is only $73 billion, one third the Italian debt. The Fed has stopped its quantitative easing program, but in its last round (called “QE3”), it was buying $85 billion per month in securities. At that rate, it would have to fire up the digital printing presses for only one additional month to rescue the suffering Puerto Ricans without hurting bondholders at all. It could then just leave the bonds on its books, declaring a moratorium at least until Puerto Rico got back on its feet, and better yet, indefinitely.

According to the Bureau of Labor Statistics jobs data, 33,000 US jobs were lost in September, the first time the country has had a negative figure since 2010. It could be time for a bit more economic stimulus from the Fed.

Successful Precedent

Shifting the debt burden of bankrupt institutions onto the books of the central bank is not a new or radical idea. UK Prof. Richard Werner, who invented the term “quantitative easing” when he was advising the Japanese in the 1990s, says there is ample precedent for it. In 2012, he proposed a similar solution to the European banking crisis, citing three successful historical examples.

One was in Britain in 1914, when the British banking sector collapsed after the government declared war on Germany. This was not a good time for a banking crisis, so the Bank of England simply bought the banks’ NPLs. “There was no credit crunch,” wrote Werner, “and no recession. The problem was solved at zero cost to the tax payer.”

For a second example, he cited the Japanese banking crisis of 1945. The banks had totally collapsed, with NPLs that amounted to virtually 100 percent of their assets:
But in 1945 the Bank of Japan had no interest in creating a banking crisis and a credit crunch recession. Instead it wanted to ensure that bank credit would flow again, delivering economic growth. So the Bank of Japan bought the non-performing assets from the banks – not at market value (close to zero), but significantly above market value.
Werner’s third example was the US Federal Reserve’s quantitative easing program, in which it bought $1.7 trillion in mortgage-backed securities from the banks. These securities were widely understood to be “toxic” – Wall Street’s own burden of NPLs. Again the move worked: the banks did not collapse, the economy got back on its feet, and the much-feared inflation did not result.

In each of these cases, he wrote:
The operations were a complete success. No inflation resulted. The currency did not weaken. Despite massive non-performing assets wiping out the solvency and equity of the banking sector, the banks’ health was quickly restored. In the UK and Japanese case, bank credit started to recover quickly, so that there was virtually no recession at all as a result.
The Moral Hazard Question

One objection to this approach is the risk of “moral hazard”: lenders who know they will be rescued from their bad loans will recklessly make even more. That is the argument, but an analysis of data in China, where NPLs are now a significant problem, has relieved those concerns. China’s NPLs are largely being left on the banks’ books without writing them down. The concern is that shrinking the banks’ balance sheets in an economy that is already slowing will reduce their ability to create credit, further slowing growth and triggering a downward economic spiral. As for the moral hazard problem, when researchers analyzed the data, they found that the level of Chinese NPLs did not affect loan creation, in small or large banks.

But if Puerto Rico got relief from the Fed, wouldn’t cities and states struggling with their own debt burdens want it too? Perhaps, but that bar could be set in bankruptcy court. Few cities or states can match the devastation of Puerto Rico, which was already in bankruptcy court when struck by hurricanes that left virtually no tree unscathed and literally flattened the territory.

Arguably, the Fed should be making nearly-interest-free loans to cities and states, allowing them to rebuild their crumbling infrastructure at reasonable cost. That argument was made in an October 2012 editorial in The New York Times titled “Getting More Bang for the Fed’s Buck”. It was also suggested by Martin Hutchinson in Reuters in October 2010:
An alternative mechanism could be an extension of the Fed’s [QE] asset purchases to include state and municipal bonds. Currently the central bank does not have the power to do this for maturities of more than six months. But an approving Congress could remove that hurdle at a stroke . . . .
The Fed lent $29 trillion to Wall Street banks virtually interest-free. It could do the same for local governments.

Where There’s a Will

When central banks want to save bankrupt institutions without cost to the government or the people, they obviously know how to do it. It is a matter of boldness and political will, something that may be lacking in our central bankers but has been amply demonstrated in our president.

If the Fed resists the QE alternative, here is another possibility: Congress can audit the Department of Housing and Urban Development and the Department of Defense, and retrieve some of the $21 trillion gone missing from their accountings. This massive black money hole, tracked by Dr. Mark Skidmore and Catherine Austin Fitts, former assistant secretary of HUD, is buried on the agencies’ books as “undocumented adjustments” – entries inserted without receipts or other documentary support just to balance the books. It represents money that rightfully belongs to the American people.

If our legislators and central bankers can find trillions of dollars to bail out Wall Street banks, while overlooking trillions more lost to the DoD and HUD in “undocumented adjustments,” they can find the money to help an American territory suffering the worst humanitarian crisis in its history. more

Thursday, October 12, 2017

The Saker nails it


The Saker has spent a great deal of time in the last decade writing about what it is like to be on the receiving end of USA / Western economic "wisdom"—the various elements of the wholesale destruction of people's lives. I am especially grateful for his insights because I am personally a victim of the neoliberal madness. I lost a business that I had invested every cent I could lay my hands on plus a seeming infinity of hard work to the depression of 1981-82—one deliberately caused by Paul Volcker and his idea that 21% prime interest rates couldn't possibly do structural damage to the real economy. He probably knew this move would hurt real people—he just didn't give a shit. After all, what is a "great" man except someone perfectly willing to sacrifice real people because someone they respect intellectually will assure him that destroying the lives of the peons is understandable and reasonable collateral damage.

Compared to the Russians and what the Harvard gang did to their economy, I got off pretty easy. The disastrous economics were largely the same but the difference was that USA was a lot richer to start with compared to USSR which was still recovering from the monumental damage inflicted by the invading Germans during WW II.

I knew it was especially bad for the Russians. Even so, Saker's description below puts the carnage is especially human terms. And he explains why the Russians are so grateful that Putin put some serious brakes on the neoliberal destruction of his country. Which also explains why the elites in USA are so furious with him. Suddenly, the baseless and mindless Russia-bashing seems to sound almost rational coming from the country's Predator classes. Putin is hated because he partially foiled one of the greatest thefts in history.

Of course, that is also why V. Putin is so beloved. Those constituting the collateral damage classes tend to admire anyone who makes their lives possible again.

Monday, October 9, 2017

America's Russia-gate Obsession - Sign of a Failing Nation


Can the people pushing Russia-gate possibly believe their own BS?? Was anyone so asleep during junior high math that they could believe that a $200,000 Facebook ad buy could swing an election where billions were spent on political persuasion? But the even bigger question is, How much damage can be done by the exposure of such massive stupidity on the international stage? While USA is clearly still the biggest bully in the neighborhood as measured by its willingness to spend so much money on weapons systems and soldiers in uniform, there are a LOT of ways to exercise power. Unfortunately for USA, these alternate methods rely heavily on the ability to convince the rest of the world that competent people are in charge. Between Donald Trump's inability to organize an effective government and the Democrats willingness to push the absurd storylines of Russia-gate, the illusion that USA is run by wise and virtuous people is taking massive hits below the waterline.

The imperial apparatus looks like it is in the process of collapse. The examples of this collapse are numerous but for me, the biggest sign of the loss of imperial power is the overdue attack on the petro-dollar.  So long as petroleum is traded in dollars, the USA can print as many dollars as it wants without fear of inflation because the world is effectively on an "oil standard." With the petro-dollar, multi-billion monthly merchandise trade deficits are essentially harmless. The petro-dollar advantage is so great that oil countries that attempted to opt out of the system—like Libya and Iraq—soon found themselves being destroyed by USA military aggression.

So now the Chinese and Russia have banded together to make war on the petro-dollar. Russia has a massive resource base while China has become an industrial superpower. Both have nukes and neither likes being pushed around. But probably the deciding factor in their decision to move against the petro-dollar now are the obvious demonstrations that USA is being run by badly-educated, misinformed, wildly-incompetent, fools. Ken Galbraith used to say that successful revolutions are usually a matter of someone kicking in a rotten door. Hard to imagine a door more rotten than one composed of Trump and those buffoons who are pushing the hoax that is Russia-Gate.

Tuesday, October 3, 2017

China and India get serious about sustainable development


My interest in developmental economics was first triggered by my Kansas grandfather. He was one of those farmers who thought science was the path to an easier life and greater prosperity. He was big into water management and had contoured his slightly hilly land already in the 1930s and put in two holding ponds (that grew some VERY large turtles). His father was the immigrant from Sweden (1873) who showed up with two years of university-level horticulture instruction (Lund). So my grandfather was very close to ground zero of the project to transform SE Kansas into productive farms. The successful introduction of agriculture into some quite hostile environments is easily the most poorly-told tale in USA history. This is unfortunate because it is probably the most perfect case study in development economics.

One night in the early 1970s, I sat in on a fascinating conversation held by student Indians and Bangladeshis who were my neighbors in that ratty apartment building. What was so interesting is that all the members of this little group were sons of privileged men wealthy enough to send their offspring to foreign universities and quite naturally assumed that they would have a hand in shaping the future of their nations. So mostly they wanted to discuss the best strategies for eliminating the very real pain of underdevelopment even though most of them were computer science majors. I was there because I had shown interest in their pet subject and they hoped I had some expertise on what Minnesota had done right to achieve its level of prosperity. At the time, I really didn't know much, but I have been fascinated by what works ever since so I would gladly revisit some of those bull sessions.

At one point, the most intense of the Indians exclaimed, "Our problem is that we basically have only two sources of energy—nuclear and dung!" Of course, he never even thought of solar because in those days, PV cells were so rare and expensive, only NASA could afford them. Well now they are cheap and India is extremely rich in solar power. And as the video clip below shows, India is becoming very hip to their new reality. My old neighbor is likely overjoyed.

And it looks like China is set to lead the world in fossil-fuel-free transportation. Electric cars seem like a natural fit for them and goodness knows their current automotive fleet is choking her cities so the need is quite obvious. And for my younger readers in USA, you would hardly suspect it by looking around but this country used to routinely create transformative projects like those illustrated below.

Monday, October 2, 2017

A “Meathead” foreign policy?


When the Berlin Wall came down in 1989, I actually celebrated with champagne. I almost never drink anything alcoholic so this was WAY out of character for me. But I wanted to celebrate in a socially conventional fashion because I really thought the Cold War was over and we could FINALLY have "normal" relations with Russia. By that time, I had already begun to understand that USSR was absolutely critical to the history of the 20th century because it was the Red Army that defeated the Germans in WW II—almost single-handedly. Besides, they are, like me, a people of the North and it is quite easy to feel a kinship with such people when it is -20° F—like it gets several times a winter in Minnesota.

So it is with horror that I look on at this latest wave of Russia-bashing. It makes no sense to me at all. This is especially true because Russia is mostly innocent of all the charges leveled at them. In over a year of relentless lying, the backers of the warmongering have offered zero evidence to back their claims. This insanity reached a new low last week when a video, starring Morgan Freeman (the Driving Miss Daisy chauffeur) and produced by Rob Reiner (the guy who starred as the Meathead in All in the Family) appeared on YouTube. In it, Freeman assured us that we are at war with Russia.

Warfare, for the Russians, is a calamity that killed 27 million people and reduced large sections of their country to rubble. Relationships between USA and Russia are strained these days but they are a LONG way from that. The Reiner-Freeman production is so preposterous, that I, like many, considered it a spoof. But since it has become quite obvious that Reiner-Freeman are indeed serious, I probably should start taking these madmen more seriously.

Below are two essays on this current gruesomely evil outburst of Russia-bashing. Both were written by Americans—one from the left and the other the right. I am far from sure either are completely accurate but goodness knows, I am trying to understand this utterly irrational phenomenon. Mostly, I just hope it goes away with the perpetrators feeling shame. That is probably a bit much to hope for because fools who would do this sort of thing define shameless.

Monday, September 25, 2017

Do the Leisure Class pundits know how anything works?


It's a damn chore to keep track of the Predator Class economic arguments. Which is why I am so grateful that Bill Black takes the time and effort to do those ugly chores. That the banksters are a gang of thieves is no surprise. After all, Veblen's core definition of the Leisure Class is that of the people who fasten themselves on the backs of the productive segments of society through force and fraud in the often successful attempt to get something for nothing. These people contribute nothing to society yet fancy themselves extra-smart because by their definition, cunning is the nearest synonym to human genius they have.

The great scene in Wall Street where Gekko gives his "Greed is Good" speech was hardly original. After all, the whole point of Leisure Class intellectualism is to come up with justifications for plunder. But what made that movie moment interesting is the number of movie-goers who actually thought that speech was wise, bordering on profound.

There are many who believe that such as Gekko should be accorded positions of leadership in democratic societies. Wrong! When the casinos are run by greedy crooks, the rest of us don't much care. It we don't want to do business with such people, we simply don't enter their establishments. But when those same greedheads start messing with the affairs of state, then what they do becomes everyone's business. And if these people decide that some easy money can be made by deindustrialization, the whole economy staggers. And if these people decide to rip off the system by deferring maintenance, sooner or later bridges start to fall down.

And if there is a crying need for massive infrastructure upgrades to avoid the calamities of climate change and the greedheads decide this is something we cannot afford, why then the necessary investments will not be made and the planet heats up to the point where human life becomes essentially impossible. Dangerous racket you got there, greedheads.

Saturday, September 23, 2017

Exxon-funded climate science


While most environmentalists tremble in rage over the fact that Exxon knew a very great deal about climate change already in the 1970s yet has funded a serious climate change denial effort since then, I happen to think that this is really a nearly perfect example of what Institutional Analysis can teach us.

IA would postulate that since climate change theory is based on sound science, and since Exxon can afford to hire and pay for the finest scientists on the planet, we should not be at all surprised that their scientists would probably know more about climate change than almost anyone else—including most emphatically the academics. The following is an essay written by one of those super-bright people who had her climate science project funded by Exxon.

Ms. Hayhoe also writes about why Exxon decided to become a climate change bad boy although she spends most of her time grappling with the ethical dilemmas of accepting funding from such a source. This is an interesting question, of course, but I don't believe it is nearly as interesting as the question of why Exxon would publicly deny a science that they deemed so important, it became part of their internal planning.

I have already written on this subject and will probably make several more runs at it. But mostly I believe that Exxon changed their minds when they became aware of how mind-boggling difficult it would be to actually rebuild the world so that finding and burning fossil fuels would become unnecessary (not to mention bad for their core businesses.)

Monday, September 18, 2017

The German auto giants face an existential challenge


A few weeks back, a friend of mine bought himself a used Nissan Leaf. Even though it is fully electric, this car is a long way from being a Tesla—its range is less the 100 miles and quite honestly, it is kind of ugly. Even so, I am pretty sure that no purchase in his life has made him happier. It actually makes him giggle.

Based on this small sample size, I am quite willing to announce the day of the electric vehicle (EV) has arrived. Yes they are still quite expensive although his used 2015 with less than 20k miles on the odometer cost about $11,000. Yes their low range and high recharging times make them still something of a hardship to own. But the upside is a luxuriously quiet ride combined with hiccup-quick acceleration and premium handling due to a very low center of gravity. This is in addition to a seriously reduced need for routine maintenance, lower costs for fuel, and the satisfaction of knowing your vehicle is arguably the cleanest set of wheels around. But just to make sure my friend has plenty to giggle about, Nissan has built in an incredible electronic feature set. His favorite seems to be the announcement of available chargers whenever his range drops below 20% complete with directions for finding them.

But even if EVs are the future, the current reality is that they still constitute less than 1% of cars on the road. And nobody is making money selling them. This leaves the auto giants with a monumental problem. If they spend the big money developing EVs, they will be manufacturing a money-loser that will take sales away from the highly profitable vehicles they already sell—a least for the foreseeable future. And so the temptation to not change anything is very high. This problem is especially acute in Germany where the automakers sincerely believe that they already make the best cars on the road.

Friday, September 15, 2017

Big dirty ships make "free" trade economically possible


Ever since the steam guys figured out that it was possible turn heat into motion, folks have been figuring out the thousands of applications for this possibility. Powering ships was one of the first uses of fire-driven power and it remains an important though small niche market (certainly in comparison to land-based transportation and electrical generation) for fuels. The niche has gotten considerably larger in recent years as traditional manufacturing nations off-shore their industrial base to places like China. All of this has been made possible by building very large ships burning the cheapest petroleum available. And they are astonishingly efficient—1/10 of a horsepower can move a ton of shipping through the water at commercially viable speeds.

Until now, no one has seemed to much care that these mega-ships are filthy when it comes to exhaust because for most of their water-borne lives they are out of sight of land. Unfortunately, it doesn't matter where air pollution originates, it is all being dumped into the same atmosphere. When it comes to building a fire-free world, big shipping will be one of the more difficult problems. Giving up mega-ships burning bunker oil will be extremely hard to do. And one of the problems is that impediments to trade like changing the economics of shipping will be viewed with horror by the serious acolytes of "free" trade.

Monday, September 11, 2017

Who murdered the peace movement?


In the essay below, Paul Craig Roberts asks a damn good question, "Who murdered the peace movement?" when discussing the current runaway warmongering in official Washington. As someone who spent a significant fraction of my life before 30 involved in various forms of the peace movement, I'd like to take a crack at that one.
  • Peace movements are automatically the weaker party. It is a thousand times easier to gin up the warlike animus than to teach folks (especially young men) that no one wins wars and that everything from sex to the economy is much better under conditions of peace. Peace movements are only successful when there are highly intelligent and charismatic leaders (like Bertrand Russel) who can make the peace arguments. It also helps to have religious movements (Quakers, Mennonites) that can do the heavy lifting of training successive generations of young men why the peace arguments are superior.
  • The antiwar activities associated with the Vietnam War were notoriously empty intellectually and ideologically. In my experience, a minimum of 95% of the young men who participated in the antiwar movement were merely trying to keep their own asses safe. The day after the first draft lottery I had occasion to visit the Quaker-run Twin Cities Draft Information Center. The place was empty except for the lone woman who had shown up to unlock the doors. 2/3 of their "clients" had gotten their good news and didn't need the help of the dreary folks who liked to stress the moral illiteracy of the warmongers.
  • After Vietnam, the military types learned their lessons on how to avoid the influence, such as it was, of the peaceniks. With their all-volunteer forces and a well-thought-out strategy of spending their money in every congressional district, they would never again lose a political battle over any war they wanted to start. After the last great unsuccessful peace marches opposing the invasion of Iraq in 2003, the peace types realized their situation was utterly hopeless and pretty much gave up.
That's what murdered the peace movement. Which is sort of ironic when one considers that the peaceniks have ALL the good rational arguments. But in the face of the unrelenting propaganda that the warmongers have at their disposal, even people who know and fervently agree with the outcome-based facts of a peace philosophy find it just a whole lot easier to shut up and fume at the unrelenting stupidity of those who still believe that warfare solves anything.

Monday, September 4, 2017

Stone on USA "intelligence"


As hurricane Harvey dumped up to 52" on parts of Texas, our elected officials ponder the grave and soul-searching question "Is my hatred for Russia pure enough." The latest sanctions bill against Russia passed the Senate 98-2. That folks is the Gulf of Tonkin vote. 2% is also about the percentage of folks with a minimal clue compared to the 98% sheep who will believe almost anything and must follow their emotions because their intellects were never properly developed. I mean, seriously, are their any sentient Americans who want to risk nuclear war over Crimea, or Syria, or Iran. And yet the vote was 98-2.

And of course, while we fight over Confederate-era statues and other forms of utter irrelevance, the big problems like climate change go unaddressed. This is absolutely insane. And Oliver Stone and Paul Craig Roberts cannot figure out why there is so much insanity. Of course, they are part of the awareness 2% so they cannot intrinsically understand.

Monday, August 28, 2017

McCoy on the CIA


McCoy is a Yalie who not especially surprisingly got involved with the intelligence services. Skull and Bones is at Yale and the bright and well connected often join forces to become what has lately come to be called "the deep state." McCoy is not well-connected but as can be seen from his beautiful writing, he is obviously very bright. This combination has often led to some scathing outsider critiques and McCoy's here is a doozy.

I have two comments on his expose:
  • McCoy is appropriately outraged that during the Vietnam War, the CIA moved so much heroin into South Vietnam that an estimated 34% of USA forces became regular users. Well yes, wartime profiteering in hard drugs probably doesn't have a lot of support. But I had a neighbor in St. Paul who was one of those users. He was a poor farm kid from northwest Minnesota who had managed to get a degree in French from a St. Paul college. The army turned him into a translator who was assigned to get information from captured Viet Cong. The guys doing the actual interrogation were South Vietnamese army but he was in the room when the torture took place. He never really recovered from that experience and halfway through his tour, the army realized their mistake and reassigned him to Saigon where he spent the rest of his time making sure the hookers with USA clients got their regular shots. This wasn't much of an improvement as he became witness to another wartime-related form of human degradation. Soon he was consuming the readily available heroin. His favorite method involved a regular cigarette that had been soaked in a heroin bath and dried. He reported that the advantage was that he could consume his drugs in the presence of his commanding officers and no one seemed to notice because they looked and smelled like normal cigarettes. In his opinion, heroin was the only reason he survived Vietnam without going insane and committing suicide. So strange as it may sound, getting smack to USA troops may have been one of the more virtuous acts in CIA history.
  • McCoy has done us all a serious service by telling us what some of our taxpayer money has been spent on. On the other hand, one can only wonder at what might have become of such a talented person if he hadn't wasted his life chasing the bad guys. It is MUCH better than being one of the bad guys, of course, but in the end it is still just mostly Leisure Class silliness.

Tuesday, August 22, 2017

The total triumph of the idiot classes


The absolute WORST feature of Identity Politics is that it trivializes everything. There are BIG problems like climate change, the fact that folks with schoolyard bully mentalities have access to doomsday weapons, the general collapse of the biosphere, and the reality that the global economy is being run by sociopathic lunatics. Yet there are those who believe that I should be most concerned about the sort of statuary found in obscure parks in mainly the Old South. Now I understand that this sort of symbolic posturing is about all most people can muster as a public gesture. And I know it is WAY beyond the abilities of your typical mainstream journalist to write about anything more complex or important than transgender bathrooms. But sooner or later, we must address the big problems or humanity will cease to exist on the third rock from the sun.

Perhaps the best example of a culture run by excessively trivial dimwits is the current outbreak of Russia-bashing. To listen to these cretins, we are supposed to hate the Russians because they annexed Crimea after the anti-Russian coup in the Ukraine. The Crimeans, who have considered themselves part of Russia since Catherine the Great, wanted to rejoin Russia so badly that their vote to become part of the Russian Federation was well over 90%. Crimea was also Russian by virtue of a LOT of spilled blood. Between the Nazi invasion, the siege of Sevastopol, its surrender and the pitched battles to recapture it, the Red Army and civilians, mostly Russian, lost over 500,000 in the battles for Crimea during the Great Patriotic War. That's more than the totals for all of WW II for the French, British, and USA combined. The idea that Russia was going to give up Crimea over a chickenshit coup in Kiev is beyond preposterous. Yet Crimea is reason #1 given for the current round of Russia-bashing.

Monday, August 21, 2017

Neoliberalism—the catastrophic idea that won the day despite being wrong about everything


1973 turned out to be the major economic watershed year for most people alive today. Because that was the year that the pro-growth assumptions of the Keynesians were run out of town.  I was in college when it happened. It was a college known for its Keynesian perspective. The head of the economics department, one Walter Heller, had been JFK's top economic advisor and liked to brag that he taught the principles of Keynes to the President of the USA. In fact, almost anyone who ever had Heller for a class, or had even just met him professionally, had heard this boast. I actually enjoyed his JFK stories because he told them to illustrate the point that even "mere" politicians could understand a set of ideas that had a well-deserved reputation for being difficult.

The University of Minnesota had been "Keynesian" since Alvin Hansen became a full professor in 1923. Actually, calling Hansen a Keynesian is more than a little bit misleading. The USA midwest had only recently been settled so there was a constant stream of political agitation for an economics that represented the world views of people who were attempting to claw a civilization out of some very empty places. Hansen grew up in Viborg South Dakota among people who were attempting to grow row crops and other agricultural pursuits on grassland that had never been plowed. For such people, economic plans that emphasized development were the only ones that would possibly interest them. He studied these ideas under Richard Ely and John Commons at the University of Wisconsin—another new and developing state. So Hansen already was a believer in pro-growth economics long before Keynes ever published his General Theory in 1936.

That Hansen was obviously a "Keynesian" before he ever heard of the man was not unique to him. Marriner Eccles, hands down the best central banker the USA has ever had, was "accused" of being a Keynesian because of his guidance of the Fed during the Roosevelt years. No less a figure than Ken Galbraith called Eccles the most important Keynesian in the land. And yet Eccles claimed to his dying day that he had never read Keynes. For men like Hansen and the Mormon from Utah Eccles, calling them Keynesians was merely a label used by lazy academics and journalists who weren't about to go to the trouble of understanding why folks from frontier settlements might have independently developed pro-growth economic ideas.

Below is a Guardian article that explains how the feudal / imperialist economics came roaring back when the Keynesians faltered in 1973. Their story is about the battle of ideas between Keynes and Friedrich Hayek. My story is that the Keynesians lost because by 1973 their profession had far too many Leisure Class hacks (like Paul Samuelson) and far too few giants like Hansen and Eccles who understood the importance of the Producer Classes and their interests (no matter how they were labeled).

I have written about Hansen and the USA "Keynesians" before:

Wednesday, June 3, 2015
Frances Perkins and the fight for decent working conditions


Sunday, November 6, 2011
Waking up to the relentless idiocy of neoliberalism

Neoliberalism: the idea that swallowed the world

The word has become a rhetorical weapon, but it properly names the reigning ideology of our era – one that venerates the logic of the market and strips away the things that make us human.

Stephen Metcalf, 18 August 2017

Last summer, researchers at the International Monetary Fund settled a long and bitter debate over “neoliberalism”: they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism. In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a “neoliberal agenda” for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics. In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left’s traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality.

Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it’s a meaningless insult: they’re the ones most meaningfully insulted by it.) But “neoliberalism” is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses.

Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But “neoliberalism” indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

Friday, August 18, 2017

A German (DW) update on climate change


Climate change is a BIG issue around here—not that you would know it from the paucity of reporting on the subject. My excuse is that there is more than enough evidence of climate change—and far too little on the subjects of how we got to this place where almost everything everyone does only adds to the problem. Turns out that the technological problems caused by the total domination of fire-based economies is almost trivial compared to the cultural expressions that support them. So much so that any suggestion that the world must move to fire-free societies is greeted as the most radical form of madness imaginable—even though such an assertion is utterly true.

But since not a lot is getting accomplished towards this necessary goal, we still need reminders of how serious the problems caused by a warming planet really are, and that ignoring these problems will not make them go away. This little reminder from DW must do for today. After all, we simply must get back to the "serious" problem of where we site monuments to Confederate War "heroes." (NOT)

Monday, August 14, 2017

Donald Trump confronts the War Party


David Stockman is the sort that can easily inspire conflicting emotions. He is obviously very bright—he was the boy wonder head of Reagan's Office of Management and Budget who soon got into trouble by pointing out that Reagan's budget numbers were, at best, a hoax. Worse he explained it all to William Greider who wrote up the story in the Atlantic. As history so often reminds us, telling the truth is a hazardous occupation and Stockman's venture into honesty quickly transformed him from Rising Republican Star into a political pariah overnight.

While brazen honesty is an admirable and often amusing trait, it does not transform Stockman into a political genius. While his analysis is often excellent, it is usually colored by the same neoliberal assumptions that have led both major political parties (and most of the world) dangerously astray. So when he gets things wrong, he does so in boringly predictable ways.

But being a neoliberal on economics does not necessarily make someone a warmongering neoconservative—it certainly does not in the case of one David Stockman. In the following he writes about what he believes motivates the attempted establishment coup against the constitutionally elected government currently under way in Washington.

Impeaching Trump is going to be a lot harder than impeaching Bill Clinton for a sex scandal—mostly because both houses of congress are controlled by the Republicans. While not all Republicans are Trump supporters, all can remember how easily he dispatched the field in his run to the White House. Voting to impeach Trump would anger a wide slice of their political base and since elections are often won with slim margins, few wish to find out just how angry their base would get.

And yet the war on the Trump administration continues in spite of its seeming futility. Many, myself included, wonder why anyone would bother trying to remove this man from office. So the following explanation offered by David Stockman—that Trump's real "crime" is that he has threatened the War Party (a powerful group that has mostly gotten its way along with the lion's share of the state's wealth since at least 1916) actually makes a lot of sense.

Wednesday, August 9, 2017

China and rare earths


Perhaps THE most annoying thing about the economics profession is that they are extremely bright people with extraordinary math skills who unfortunately know absolutely nothing about the real economy. That they could makes excuses for selling off the crown jewels of USA industrialization for pennies meant beyond any doubt that they had absolutely NO way to accurately value those crown jewels. The biggest single reason is that economists, as a group, are techno-cretins. Any tool more complex than a fork is borderline magical and having to assemble something from IKEA is an "ordeal" (yes I have actually heard one of these geniuses use the word ordeal).

So today's lesson is about how USA economic leadership never figured out how to value rare earths and what a serious problem that will be if we ever get serious about building the post-petroleum society. I think the time has come to make such abject stupidity a capital crime.

Monday, August 7, 2017

Sanctions—economics at its most destructive


Using economics to destroy is perhaps the sickest manifestation of the dismal "science." This is mostly because sanctions only really work when the target is weak. As the world is fast finding out, the Russians may no longer be a superpower but they still have the tools to counter a few sanctions. In fact, the economic adjustments forced on the Russian Federation with the latest round of sanctions may have done their economy a world of good. They have discovered that lots of folks want what they can make, grow, and sell.

The Russians have also discovered that their own economic weapons are quite effective. European agriculture is still staggering from the loss of their Russian markets while Russian agriculture is arguably doing better than at any time in the past century. And as Tom Luongo points out below, their presence in the market for the fuels that run the world's nuclear power plants is quite significant.

But lost in all the discussions of who can do what to whom is the fact that all these sanctions and counter-sanctions diminish everyone's economic possibilities. Building the sustainable civilization will be an act of cooperation—NOT confrontation. And the biggest loser of all is very likely the USA—the biggest sanctions bully on the block.

Sunday, August 6, 2017

Elon Musk on education


Producer Class superstars are sort of a freak of nature. The overwhelming majority of folks who become rich and famous are resolutely Leisure Class. There are a multitude of reasons for why this is so but mainly it's because the Leisure Classes hold all the cultural levers.

Ask yourself, When was the last time you saw a movie or TV series starring an engineer or someone who builds skyscrapers (as compared to lawyers or cops or soldiers)? When was the last time you saw a competition between student architects or solar designers (as compared to football players or musicians)? Who controls the real levers of economic power—scientists or financial players?

Our schools reflect this reality. Math and science whizzes tend to be social outcasts while the captain of the football team dates the captain of the cheerleading squad. Of course, that sort of thing is forgivable and understandable. What is not so forgivable is that the academic curriculum is designed and administered by folks who absolutely cheer for all things Leisure Class.  So even if they don't know why, budding Producer superstars are going to hate such an environment. In the clip below, Elon Musk admits that he HATED school—which is odd when you consider how much he obviously loves learning.

The general public quite likes their Producer Class heroes so we shouldn't waste much time feeling sorry for the man. But even so, he has a problem—he has five sons he would like to see educated to higher levels with less pain than his own experience. People who love to learn shouldn't hate school. So he decides to create his own school. He hires a certified teacher who agrees with his goals and methods to run it. And then he invites a few other children to join in the fun.

There are some recognizable features of his school. For example, he has eliminated grade levels thereby recreating the best feature of the one-room school. Some of his innovations aren't really that odd when you think about them. For example, Musk believes that when kids understand why they should learn something, all the other problems of motivation disappear. Well, duh! But ask yourselves, when did any teacher ever give you a believable reason for learning something (beyond, you need this to get into a good college, that is)?

Musk's most prominent Producer Class feature is a nice little habit of saying, "I just want to be useful" whenever confronted with the inevitable "What motivates you?" sort of question. Hard to top that response as a refutation of the ultimate goal of total uselessness that seems to rule the Leisure Class. Apparently he wants to assign usefulness as the goal of his school. To me it sounds like a heaven for those who enjoy learning.

The clip below is from Chinese television. It covers more than his school but the school conversation is in the first three minutes.

Wednesday, August 2, 2017

The Circular Economy—still one of the great ideas


One of the lightening bolts of insight that staggered me as a man in his 30s was the idea that because there is no "away" the throwaway society is ultimately doomed by simple physical reality. It is quite impossible to dig up raw materials to be sent on a journey to the landfills forever. Either you run out of resources or you run out of places to store the waste, or both. The only way out of this dilemma is to make products so they can be reprocessed into new things when the time comes for the original product to be replaced.

Yeah.

This is one of those ideas that would require about a million times more effort, cost, and inventiveness to do than to dream up. After all, not only are most things designed and built without the slightest consideration for disposal, large numbers of products are designed to be disposed of after only one use. Designer junk, if you please. I once gave a talk at 3M, a company that has made their primary mission the production of designer junk. I chose to talk about design for disassembly, and other proposed schemes to create a less wasteful world. The assembled 3M folks were not amused. Needless to say, I wasn't asked back.

The idea of the circular industrial society is still one of the better notions to have crossed my mind so I included it in Elegant Technology. It can be found in Chapter Ten: Do Producers Have a Plan? Of course, no one ever reads a book to Chapter Ten so I might as well have never written it at all. But when I saw someone discussing this idea the other day under the title The Circular Economy That Could Save Countries Thousands, Reduce Waste (reprinted below) it made my heart glad. But first, I have decided to reproduce the section from my Chapter Ten called Closing the Loop. I hope that you readers will understand why this was the idea that made me believe a sustainable world was possible. I also hope no one minds that this was first written in 1985.

Monday, July 31, 2017

Globalisation: the rise and fall of a truly terrible idea


There is a certain beauty and nobility about the idea that we are the world and wonderful things happen when we think of the rest of humanity as our brothers and sisters. Unfortunately, some very cynical people can take this beautiful idea and turn it into empire building. The sun never sets on the greatest civilization, you know.

Of course, the Roman or British Empires were harmless play-actors compared to the ruthless plunder available to those who can control the hydraulics of electronic money. And to keep the looting of the electronic money boys on track, the world needed some philosopher-pundits to convince the suckers that usury was harmless and the "structural adjustments" that threw whole classes of people into abject poverty were necessary for growth and prosperity. And to give the practitioners of empire building with electronic money a patina of beauty and respectability, they named their wickedness "Globalization" and "Free Trade" and "Reform."

In spite of the fact that none of these schemes benefitted very many people, the Globalists kept at it because the very few it did benefit became rich beyond the dreams of avarice. But pretty predictions advanced by the expensive think tanks couldn't cover the fact that these global schemes never work.
  • Big mass markets simply cannot work without a giant middle class with money to spend. Unfortunately, the primary goal of the money plunderers is to reduce the size and income of the middle classes.
  • The money boys tend to lack all respect for manufacturing and other forms of useful work. Ship those factories to China or Bangladesh where desperate brown folks will work for $10 a day. The de-industrialization of the formerly industrial countries has triggered some of the greatest calamities in human history. These moves were deliberately undertaken by hopelessly thoughtless people.
  • While we may all be brothers and sisters sharing a big blue marble in space, the realities of life are dramatically different from one region to another. One of the things builders quickly realize is that construction practices often don't travel very far. A house built for the blazing heat of the USA Southwest will be damn near worthless during a North Dakota blizzard. In macroeconomics, the same economic scheme that works well in Sweden may not work nearly as well in India or Egypt. Yet the money boys used their institutions to enforce economic orthodoxy from Ecuador to Korea and dozens of stops in between.
So now we are seeing some of the philosopher-pundits of Globalization coming ever so slowly to the realization that they have been selling some aromatic bullshit. Not all of them, mind you. The economics profession is mostly made up of very conventional people so they have no tendency to abandon their conventional wisdom. But some, apparently with the capacity to feel shame, have recognized that the vast majority of Globalization's major theses are just plain wrong and have formulated critiques. What follows is a damn fine article written by someone who has at least seen a brief flash of light.