Krugman supports his case for a big increase in spending chiefly by looking at wartime spending. He also cites an estimate, based on comparing military spending across states, that “a dollar of spending actually raises output via around $1.50.”

In short, Krugman makes what he calls the “textbook” Keynesian case for big government spending, no matter on what, financed by borrowing and easy money.

As a liberal economist myself, I favor increased public spending—but only on the right things, and especially not on the military. We should increase spending for public services like health, education, pensions, local infrastructure like water and sewer systems. And we should pay for these programs by high progressive income taxes, loophole-free corporate taxes, and property taxes at the local and state levels. (Property taxes are truly the best tax we have on personal and corporate wealth—see “Restore the Original Wealth Tax.”)

So how does the Krugman/textbook-Keynesian argument go wrong? It goes wrong because it ignores both the distributional and the marginal incentive impacts of public policy.

Start with military spending. Military spending is notoriously intensive in natural resources and capital, which means per dollar spent it creates very little employment—while diverting funds from more productive possibilities. In the May 28 Nation Robert Pollin and Heidi Garrett-Peltier of The Political Economy Research Institute of U Mass Amherst show “How Cutting the Pentagon’s Budget Could Boost the Economy”. Mason Gaffney has been making the same argument for many years.

Krugman rests much of his case for military stimulus on the dramatic recovery before and during World War II. But so much else was going on at the same time: the economy was surely recovering anyway from the Great Depression; there was a tremendous public investment in health, education, and training of millions of young men, and simple patriotism brought out volunteers in droves.

Military spending is just an extreme example of the kind of resource and capital- intensive spending that damages the economy. Other examples include bridges and highways to nowhere, high-speed rail in low-density regions, or the notorious Keystone oil pipeline from Canada’s tar sands to the US Gulf.

Now look at taxes. Something else happened during World War II: a huge increase in progressive income taxes. In the New York Review article, Krugman notes but dismisses as secondary a connection between high taxes and high employment rates. Not so fast! High progressive taxes on personal incomes or corporate profits create what’s called an income effect. By putting the squeeze on those who have previously enjoyed if not a life of ease at least a life of luxury—taxes on high incomes and high profits encourage people and corporations to find more productive uses for their assets. Krugman also calls the current payroll tax credit “not an ideal stimulus”. In my view, the payroll tax is a major discouragement to hiring, especially the hiring of low-wage workers by small business, because it has a powerful marginal effect. That makes the payroll tax credit an excellent stimulus—one which should be increased further.

So how do we pay for the right kind of public spending? Krugman rejects tax increases as part of a solution. Rather, he would rely on borrowing and expansionary monetary policy. What’s the problem? Here, the conservatives are correct, though often for the wrong reasons.

What’s wrong with borrowing? Well, it does raise the annual deficit and national debt. It does “crowd out” private lending, especially to small business. Meanwhile lenders—whether wealthy individuals, corporations or foreign governments like China—get to enjoy nice low-return but super-safe investments that do nothing for the US economy. It is the opposite of the income effect of progressive taxes!

What’s wrong with expansionary monetary policy, as in quantitative easing? Conservatives claim it will cause inflation. I don’t think there’s much inflation risk, so long as the big banks’ vaults remain stuffed with garbage. But precisely for that reason, the big banks won’t lend the money to risky but productive, employment-generating small business. They’ll lend it back to the US government, or worse—like JP Morgan of late—gamble with it in the international financial markets.

No, recovery will not be “ridiculously easy”. Not until Americans rise up to challenge Grover Norquist and his tax cut henchmen. That’s a long, tough, political battle with no easy textbook answers.

Get Shafted and Carry On

(1) May/June Issue: I finally sent our May/June issue to the printers on Friday.  It will take a while for print subscribers to get it, but e-subscribers got their full-color pdfs on Friday. (Not an e-subscriber? sign up here.) And I posted John Miller’s column, Taxing the Rich, from Right to Left, comparing Romney, Obama, Sarkozy, and Hollande (from right to left) on taxes. Find the new issue’s table of contents here. I will post our cover story on interest rate swaps soon, but don’t let that keep you from subscribing!

(2) David Graeber on Sexual Assault as a Police Tactic: David Graeber had a disturbing post last week on Naked Capitalism, New Police Strategy in New York: Sexual Assault Against Peaceful Protesters. It is well worth reading, alongside The NYPD May Day Seige, by Natasha Lennard at Salon, and Police Adapt Tactics, Use ‘Snatch and Grab’ Arrests During May Day, by Rebecca Burns at an In These Times blog. All three document and analyze apparent changes in police tactics toward Occupy protests. Graeber reports on sexual assault on women at recent Occupy protests–cops grabbing women’s breasts, perhaps to induce male protesters to get violent in defending the womenfolk? or humiliate the women? or drive women away from protests so that they can bash heads more freely? or all of the above. Lots of comments in the comment section corroborate Graeber’s anecdotes.

Here’s another story to add:  some members of Occupy Boston recently passed around a link to a pdf to the January/February 2012 issue of Pax Centurion, the newsletter of the Boston Police Patrolmen’s Association (BPPA), in which the managing editor, a Jim Carnell, has a “humorous” opinion piece that is a screed against Occupy.  A sample:

Since the occupiers were told to un-occupy a few months ago, the real professional bums have been suffering. They have been unable to steal wallets, computers and cellphones from naïve idiots who invited them into their tents. Their sex lives have also been greatly diminished, what with the lack of guilt-ridden, stupid college girls who offered themselves willingly to the poor and downtrodden victims of oppression. And the drugs…Oh, the drugs! When was the last time one of our Pine St. or St. Francis House leeches enjoyed some good ‘shrooms or top-shelf dope like the rich kids from Harvard and MIT brought with them during ‘Occupy’s’ glory days.

I sent this email to the officers of the BPPA (the president, vice president, secretary, and treasurer, as listed on the contact page of the BPPA website):

To the officers of the BPPA:

I just found out about the editorial that Jim Carnell wrote for the January/February issue of The Pax Centurion, in which he repeatedly calls participants of Occupy Boston “morons,” calls homeless people “bums,” and makes sexist comments about college women, among other derogatory and inflammatory remarks and unsubstantiated and slanderous allegations. (See excerpt pasted below.)

I’m wondering whether you, the officers of the BPPA, have any comments about this editorial. When the editor of your union’s newspaper slanders, belittles, and demeans members of the public who are exercising their rights to free speech and assembly as part of a national (indeed global) movement one of whose central aims is to defend the rights of union members and public workers, I’m wondering whether you, the officers of the BPPA, will renounce this as the repulsive and offensive hate speech that it is?

Sincerely,

Chris Sturr
Co-editor, Dollars & Sense magazine

No response yet.

I was looking through the more recent issue of the Pax Centurion, and I noticed that lots of the paid ads (expressing proud support of the BPPA and/or of its scholarship program) are from banks, including some local credit union-type institutions but also some big investment companies like State Street.  But there is also an ad for Simmons College:

I wonder what people at Simmons, which is a women’s college, think about the BPPA’s managing editor’s characterization of young women Occupiers as “guilt-ridden, stupid college girls who offered themselves willingly to the poor and downtrodden victims of oppression.”  I know of at least a couple of Simmons students who were involved in Occupy, and I have heard of some Simmons faculty who are Occupy supporters.  We hope they will put pressure on the BPPA leadership to renounce hatred in their newsletter.

This post’s “possibly irrelevant image” is of off-duty London police officers joining with anti-austerity marchers on May 5th in London (see this Reuters article for more info). Now wouldn’t it be nice of the Boston cops to be more like that?  (Ok, I know that that’s historically unusual, as Kristian Williams documented in his piece Cops for Labor? in our Sept/Oct issue. But it would be nice, is all I’m saying.)

(3) Krugman in Campaign Mode: I’ve noticed Krugman moving back into campaign mode.  For example, a couple of weeks ago he had a column called Plutocracy, Paralysis, Perplexity, in which he says that inequality “probably contributed to the Great Recession, but goes on to say that the Republicans (but implicitly not the Democrats) have been taken over by the .01%. Really?  More egregiously, his recent column about JPMorgan’s loss of $2B, Why We Regulate, he says that “Current right-wing mythology has it that bad banking is always the result of government intervention, whether from the Federal Reserve or meddling liberals in Congress.” And he talks about the Volcker Rule. But he fails to point out that the deregulation that the Volcker Rule is supposed to make up for, the repeal of Glass-Steagall, happened under a Democrat, Bill Clinton, in 1999.  And there’s a nice critique of Krugman in campaign mode in today’s Naked Capitalism.

(4) Speaking of Regulation: I have been meaning for a couple of weeks to direct readers to a great new piece up at Independent Science News:  Designed to Fail: Why Regulatory Agencies Don’t Work.  It’s by William Sanjour, a retired EPA regulator who understands regulatory capture from the inside.

(5) Uncovering the Other ALECS: Hat-tip to Phil G.: a piece at Truthout, Uncovering the Other ALECS, is the first in a series of articles about organizations which, like the recently exposed American Legislative Exchange Council, help corporations get lawmakers to do their bidding.  This first installment looks at something called the Council of State Governments.

That’s it for now–I will try to post more frequently (and shorter posts!) now that the May/June issue is finally out.

–Chris Sturr

Hail to the god Morpheus, who gave poppies to our ancestors! Used with respect, opiates still provide the cheapest, safest, and most effective relief for serious pain. The only side-effects are constipation (guaranteed!), and for some, a warm, floaty feeling, drowsiness, slight nausea, and in a small minority, addiction. But compare that with those expensive, non-addictive wonder drugs, Celebrex and Vioxx, that turned out to cause heart-attacks and strokes! Or even compare that with Tylenol, often combined with oxycodone to make Percoset. Tylenol causes liver damage and doses not much higher than recommended for pain. (That’s why I requested oxycodone straight.)

Why do we Americans have such a thing about addiction to pain-killers? Nicotine is much more addictive. Alcohol can be addictive. Also sex—see DSK. Also caffeine, Spider, and Nutella. It’s true our poorer addicts (unlike Rush) lead a nasty life, constantly worried about where the next fix is coming from, whether it will be adulterated, whether they will be arrested… But the Swiss, Portuguese, British, Australians, and others have long since shown that given access to cheap, clean drugs through special programs, opiate addicts can lead normal lives, and even kick the addiction. Moreover, such programs help keep drugs out of the black market and away from children.

I feel a chill reading the latest alarmist accounts of opiate abuse, with calls for crackdowns on doctors who overprescribe. Will I be cut off? A recent story in the New York Times describes the dilemma of emergency room docs faced with patients demanding opiates. How utterly degrading for all three parties: the patients with physical pain trying to persuade the docs the pain is real, the addicts trying to persuade the docs the pain is physical, and the docs who can’t easily tell the difference. It’s like the cops in Arizona, trying to decide if a brown-skinned individual might or might not be an undocumented immigrant. US opiate policy traces back a hundred years to a campaign against Chinese immigrants. Today, hundreds of thousands of Americans suffer inadequate treatment for pain, hundreds of thousands of low-income addicts live as pariahs, and many a dedicated pain-specialist doc faces prosecution, loss of license, and even prison.

I’m lucky. After three months, the pain is starting to recede. I feel awkward asking Dr. Martin, our family physician, for yet another prescription. As I hand the pharmacist $5 for a month’s supply, I worry that Dr. Martin will suspect I’m becoming addicted.

For more thoughts on illegal drugs, see “Economics of Illegal Drug Markets: What Happens if We Downsize the Drug War?” (2005), and “What Drives the War on Drugs?” (2011).

2001 Monolith

(1) Misreporting Social Security: You may have noticed dire headlines about a recent report from the Obama administration about the (ill) financial health of Social Security and Medicare, e.g. the New York Times‘s Social Security’s Financial Health Worsens. There’s a great piece at the Campaign for America’s Future by RJ Eskow about how the media routinely misreport Social Security and Medicare’s financial situation, the causes, and the potential remedies:

Here are some headlines you won’t see after the government releases new figures on Social Security and Medicare later today:

“Social Security Trust Fund Even Larger Than It Was Last Year”
“Growing Wealth Inequity Will Lead to Social Security Imbalance Later This Century”
“For-Profit Healthcare Poses Threat to Medicare, Federal Deficit, and Overall Economy in Coming Decades”
“Public Consensus Grows For Taxing Wealthy to Restore Long-Term Entitlement Imbalance”

Instead here’s what we’ve already seen:

“Aging workforce strains Social Security, Medicare”

That headline’s completely wrong, and yet it’s been repeated in dozens of different news outlets (sometimes with minor variations) as they run an improved, but still misleading, news story on Social Security and Medicare from Stephen Ohlemacher at the Associated Press.

Read the full blog post here.  Eskow mentions a piece in the Columbia Journalism Review by D&S pal Trudy Goldberg on the same topic of media distortion.

Jared Bernstein has a piece in Rolling Stone about Security (Straight Talk on Social Security). It’s a pretty good piece, responding to some of the myths about the Social Security trust fund.  But when he comes to talking about alternative ways of funding Social Security over the next 75 years, he mentions lifting the cap on income subject to payroll taxes (which makes sense), but also changing the price index used to calculate benefits, and making employer-funded health benefits subject to payroll taxes. Why would he mention lowering benefits as an option, and if he’s going to mention employer-funded health benefits, I wish he’d take the opportunity to mention that we should have single-payer. And then he mentions raising the retirement age and reducing the benefits of the wealthy as other funding options.  Yikes!  Bernstein says he’s not in favor of raising the retirement age, because “increased longevity is a function of income” (I would say of class), but I wish he’d made a more forceful argument against raising the retirement age;  then he says nothing about why reducing the benefits of the wealthy is a rotten idea:  it turns Social Security into a means-tested program rather than a universal program, paving the way for it to be eliminated as people regard it as more like welfare.

(2) Philly Schools Dissolving: This is a shocking story–we’ll be covering the background on school “reform” (corporatization and privatization) in our July/August issue.  Meanwhile, here are some links:

• A news story about the proposed five-year plan, from Philly’s City Paper;
• Commentary by a parent, from the Philly education site The Notebook;
• A joint statement, from the Philadelphia Student Union and Students United for Change.
• A great post by Bruce Dixon at Black Agenda Report on why the closing of schools in Philly isn’t causing a national outcry among the black political class.

(3) Tuna Fish Economics: Hat-tip to Neal M.:  a great piece in the Harvard Crimson taking down the despicable Andrei Schleifer after he said some ridiculous things as a guest lecturer at “Ec 10″ (the intro economics course at Harvard). 

(4) Piling on Mankiw: Speaking of Ec 10, it’s always nice to see people criticize Greg Mankiw, the main lecturer for the course.  Josh Bivens, at EPI’s blog Working Economics, asks: Did Greg Mankiw really just brandish his $170 textbook as evidence of the benefits of unfettered competition?  And Bill Black writes on Mankiw’s Ode to the Governmental Competition that Made Romney Wealthy at UMKC’s New Economics Perspectives blog.  And it looks like Bill has started a contest to find the worst parts of Mankiw’s texbook; the contest is called Mankiw Mendacity and Morality; the prize is a t-shirt.

(5) Mary Mellor on “Handbag Economics”: Our new pal Mary Mellor sent the link to a Youtube video of a talk she gave at the recent Just Banking conference in Edinburgh. (I see that Steve Keen also spoke there–I haven’t viewed the video of his talk yet.)  She uses this great metaphor of the banks, or the financial sector as an abusive husband, where the public is his wife. He puts her on a stingy allowance, but of course makes her borrow lots of money, on his behalf, when he gets into trouble (gambling? drinking?), but then he punishes her and starves the children. She explains it better than I could:

Yves Smith reposted something by Morgan Sandquist of the OWS Alternative Banking group that uses a similar analogy–the banks are “addicted,” and in “denial,” and require an “intervention.” Here’s the link to the Naked Capitalism post.

(6) No Word for Welcome: Last but not least, D&S author Wendy Call is receiving Grub Street’s National Book Prize for her book No Word for Welcome: The Mexican Village Faces the Global Economy, which started as a D&S article! There will be a ceremony on May 5th at Grub Street in Boston; details here.

—Chris Sturr

Debunking Economics

Quite the online kerfuffle happened last week between New York Times columnist and economics Nobel laureate Paul Krugman and Australian left economist Steve Keen, author of Debunking Economics (see over above), of the blog Steve Keen’s Debt Watch, and of one of the articles in our book The Economic Crisis Reader, “The ‘Credit Tsunami’” (the title comes from Alan Greenspan’s famous October 2008 Congressional testimony in which he expressed his “shocked disbelief” about the financial meltdown).

It seems to have started with a post by Keen at Economonitor entitled A Primer on Minsky, about a paper he wrote about Hyman Minsky in which he criticizes Krugman’s grasp of Minsky.  Krugman initially seemed to be engaging with Keen, to the delight of heterodox economists, in two posts (here and here) on his New York Times blog.  Then Keen responded on his blog. Then things got a bit ugly with Krugman’s next and final post on the matter (here).  If you read the comment section, it becomes pretty clear that Krugman misquoted Keen (as commenter after commenter–including some dismayed loyal Krugman fans–point out).  But not only does Krugman not admit that he misquoted Keen and apologize for it, he declares the debate over and not worth his time.  Scott Fullwiler’s post at Naked Capitalism summarizes the whole thing and takes Krugman to task.

I skimmed most of this, and what I gather is that the proponents of “modern monetary theory” (MMT), including Keen [update: Steve Keen reminded me via email that it's not quite accurate to call him an MMT proponent; in my original draft of the post I called him a Post Keynesian] are claiming that Krugman doesn’t understand some basics of monetary theory, in particular the role of banks in creating money (“the concept of endogenous money”).  The whole debate can seem esoteric to the uninitiated, but reading through it gave me the sense that a paradigm change could finally be happening (or at any rate, it should be).

At this year’s Left Forum, I met Mary Mellor, a monetary theorist from Newcastle, UK.  I asked her if she could write something up for the D&S blog about the whole Keen/Krugman exchange.  Here’s what she sent me:

Some recent comments by Paul Krugman on a paper by Steve Keen have raised some interesting questions about modern monetary theory (MMT). While Krugman raises some pertinent questions about the velocity of money in the creation of demand, the more interesting issue is his attitude to the role of banks and his categorisation of MMT as mysticism.  Krugman asks why including the banking sector is so crucial to ‘a story about debt and leverage’. Presumably Krugman sees banks as passive conduits within the wider economy, but following the banking/financial crisis this seems an extremely perverse notion.  He certainly sees banks as a system of transfer between savers and borrowers and talks of taking his money to the bank which then lends it out thereby creating no additional money supply. MMT would argue that while bank balance sheets have to make a link between deposits, loans and the capital ratio, there is no tangible link between money deposited and money lent. In fact, there can be no tangible link unless each deposit is tied to a particular loan and is only made available when the loan cycle is completed. Even conventional theories of banking accept that banking is based on the unsustainable business principle of borrowing short to lend long.

Krugman takes particular exception to the MMT assertion that banks can create money out of nothing. Presumably he has no problem with some money being created out of nothing because even the conventional multiplier/fractional reserve analyses accept that some kind of ‘credit money’ is being created.  However, MMT does go further and says that (almost?) all new money is created endogenously through bank lending. It does not see a role for exogenous forms of money (such as precious metals) or exogenous determining relationships between bank issued money and other forms of (state) money as in the multiplier theory. Steve Keen has long argued, and shown empirically, that bank money as debt is created first and state/central bank money is created later to meet any increased demand for cash or to balance reserves.  Certainly in the financial crisis there seemed to be no practical distinction between different kinds of money and different kind of banks when the failure of the investment bank Lehman nearly brought down the whole monetary and financial system.

Let us turn the mysticism question back to Krugman. If the idea that all money comes from bank-issued debt is mystical, where did Krugman’s money come from that he is depositing? MMT would say that it came from money that has been previously borrowed and therefore will at some point have to be returned with interest.   However Krugman’s implication is that his money is somehow ‘real’ money that can be transferred.  What is the source of that real money?

Conventional economics has an origin myth all of its own. It claims that money appears spontaneously in barter society when some bright spark, sick of trading cabbages for carrots, proffers another commodity to be the medium of exchange. Somehow this morphs into coin and bingo – money is born. We then have the long haul through hard money reserves, paper representation, bank credit etc which underpins conventional money theory. Like MMT there is an emergent quality in the conventional theory of money. Both approaches seem to see modern capitalist markets as the basis of both exogenous (precious commodity money) and endogenous (bank credit) monetary theories. This, despite the fact that market exchange was long preceded by various monetary forms and different means of issue and circulation. These market-oriented theories leave out two concrete agents. One is a monetary authority (from ancient palace or temple to modern state/ central bank) and the other is the people themselves who accept (or have imposed upon them) the legitimacy of the money form. I assume Krugman does not have a commodity notion of money, so the only other source of money outside of bank lending is the monetary authority, some form of public issue of money. However, Krugman could not have got his money from there because, given the massive shift to electronic money circulation and the neoliberal marginalisation of, or direct legislation against, states ‘printing money’, there is no way for non bank money to enter the economy other than by the banking system.

MMT is therefore making a factual statement about how money is issued and circulated in contemporary economies.  There is nothing mystical about this, but it does become reified if it is seen as the only possible way money could emerge.  I am defining money here as a mechanism to establish relative values in society and a non-commodity means of transferring that value whether as tithes, taxes, injury payments, dowries, authority expenditure, personal allocations (benefits, citizen income), or trade.  The form of the money is not relevant. The power to issue money is. Banking systems have taken this power for themselves with drastic consequences.

If money is to be issued by fiat (which the banking system does) it should not be issued as debt with all the pressure and growth dynamic that entails. Instead money should be issued debt free by the public in the name of the public and not by private individuals and businesses. This publicly issued debt-free money could then be available to do what Krugman wants, be deposited in a bank and lent out as a transfer of funds.  ‘What about inflation?’ is the immediate response based on neoliberal logic (all wealth is private, there can be no public wealth i.e. investment for the provision of goods and services). The first response is that bank issued debt-based money has triggered massive inflation in terms of unsustainable booms. The second is that the role of taxation is reversed. It would no longer used to raise money from the ill-named ‘wealth creating sector’ for public expenditure but to retrieve money that has been circulated through infrastructure developments and non-contributory services. Taxation becomes a monetary, not a fiscal, instrument.

I have set out my view of money as a public resource in the following books, papers and lecture:

Mary Mellor (2010) The Future of Money, Pluto Press

http://www.youtube.com/watch?v=9F-DuD6T_i0

Mary Mellor, ”Could the money system be the basis of a sufficiency economy?”, real-world economics review, issue no. 54, 27 September 2010, pp. 79-88, http://www.paecon.net/PAEReview/issue54/Mellor54.pdf

Mary Mellor

Newcastle UK

My thanks to Mary for sending this in.

One thing I love about one of Keen’s later posts, and about Mellor’s account of it all, is that they both mention, in response to Krugman’s claim that MMT involves “mysticism,” neoclassical economists’ founding myth of barter, a staple of intro econ textbooks–that there was a time before there was money that people had to resort to barter, and that money was invented to deal with the inconveniences of barter (what a drag: if you have carrots and you want potatoes, you have to find someone who needs carrots and has potatoes!).  David Graeber, in his book Debt: The  First 5,000 Years, which I’m in the middle of reading, and which we’ll be reviewing in our May/June issue, savages this myth of barter early on in his book. I was pleased to see that Keen mentioned Graeber in the post where he mentioned the myth of barter (and I thought economists, even left economists, might be ignoring Graeber–I’m relieved that at least some aren’t).

–Chris Sturr

The recent killing of unarmed African-American 17-year-old Trayvon Martin in Florida by a leader of a Community Watch program is sparking an overdue discussion about race, crime and Florida’s “stand your ground” law that makes it easier to shoot someone and claim self-defense.

The vigilante ethos behind “Stand Your Ground” has very little to do with legitimate fears of crime.

Check out this graph, which shows that African-Americans are almost twice as likely as Whites to be victimized by burglary, yet African-Americans support making it harder to access guns. African-Americans aren’t the advocates of laws that make it easier to use a weapon.

So which politically powerful group has the lowest incidence of burglary? Those with the most money:

There is no question that having your home burglarized is traumatic and harmful. But we need responses to societal problems that make us safer. Neither vigilantism nor mass incarceration fit the bill. And in a truly just system, the communities that pay the highest price for crime would play the largest role in determining how we should address crime.

As the tragedy of Trayvon Martin shows, letting fear drive social policy makes us all less safe.

Dying for Growth

(1) Panel discussion with Mark Weisbrot, Jeffrey Frankel, and Richard Parker: I went to the panel discussion that D&S co-sponsored at the Kennedy School of Government at Harvard (I had lobbied for it to be held somewhere more welcoming to non-academics) on Greece and the eurozone crisis.  The discussion was interesting, but I found it a bit too limited by a “cost-benefit” approach, which (as I pointed out in the question period) tends to obscure how class interests might be involved.  If you’re talking about the costs and benefits of various policy responses to the debt crisis in the eurozone, you may not notice (or ask about) how costs to one group (e.g. workers) might benefit another group (bankers or wealthy elites).  Anyhow, I asked some follow-up questions to the panelists via email.  I ended up having a nice exchange with Frankel, who stuck to his guns about the advantages of having technocrats in charge. Weisbrot responded to a question that I’d asked about whether Iceland would be a better model for a possible default by Greece, rather than Argentina (as he’d proposed in the panel discussion).  Here’s what he said:

Yes I agree there were some very good policies that Iceland adopted, including letting the banks absorb most of their losses rather than socializing them, the devaluation, the increased social safety net and equalizing income re-distribution ( see http://www.imf.org/external/np/seminars/eng/2011/isl/pdf/so.pdf , and counter-cyclical fiscal policy.  But of course Greece would have to not only default but leave the euro in order to have a program like this. And I don’t know if they would get IMF support like Iceland did .. . remember the it’s the EC and ECB that are telling the IMF what to do.

I don’t see what good a default would do if they didn’t exit; they would almost certainly have a serious financial crisis with the default, and without exiting the euro they would still have the same harmful macro policies, including the exchange rate.

Of course I hesitate to say that Greece should default and exit the euro, because the success of this strategy would depend a lot on what kind of leadership carried it out, and some other factors that I can’t know about without having more knowledge of the entire situation there. I can only say that it is clearly and option that should be seriously considered, given their projected future under the current program.  The Argentines did great, but they had strong leadership that was willing to do whatever was necessary to promote a fast and robust recovery, regardless of what any powerful interests wanted.

Here are some related links:

• The article on Greece and the eurozone crisis in our Jan/Feb issue (find it online here);  you’ll see a sidebar that discusses the balance-of-trade and wage-repression issues (and cites this talk by Heiner Flassbeck; here’s an article by Flassbeck that makes some of the same points).
• An interview with Gerald Epstein of UMass-Amherst about technocrats, bankers, and the threat to democracy: Banking “Technocrats” Undermine Democracy.
• A piece from today’s Financial Times on Iceland’s remarkable recovery; plus Paul Krugman’s blog post on the FT piece (hat-tip Bryan Snyder).

(2) Jim Yong Kim and Dying for Growth: An interesting flap over Obama’s nominee for head of the World Bank, Jim Yong Kim, who is president of Dartmouth and a public health expert and associate of Paul Farmer’s:  turns out he co-edited a book called Dying for Growth: Global Inequality and the Health of the Poor, which has gotten him some flack, according to this piece in the Financial Times, mentioned at Naked Capitalism.  Our pal Mark Engler has a great commentary on the nominee and the flap (including an interview with…Mark Weisbrot) over at his blog at Dissent.  Here’s a quotable quote from the introduction to Dying for Growth:

At the heart of current conventional wisdom in economics, we find the concept of growth and a number assumptions about the relationship between economic growth and quality of life. Economic growth usually refers to real (inflation-adjusted) annual percentage change in a country’s gross domestic product (GDP). Strong GDP growth is commonly taken as the primary vital sign of a healthy economy and the best proof that a society is “developing.” Worldwide, economic and political policy over the last several decades has been driven by the perceived imperative to achieve and sustain growth. The conviction that enhanced economic growth automatically brings with it increased prosperity and a better life for all–not only the already affluent but, in the long run, the disadvantaged members of society as well–is widespread, and until recently, virtually unquestionable.

The idea that robust economic growth will automatically lead to a better life for everybody is comforting. Unfortunately, it is also wrong. The concrete effects of decades of political and economic policies designed to promote and sustain growth contradict the hypothesis that corporate-led economic growth is the only path to reducing poverty and improving the quality of life for all people. The studies in this book present evidence that the quest for growth in GDP and corporate profits has in fact worsened the lives of millions of women and men. Our authors show, through a series of detailed case studies, how specific growth-oriented policies have not only failed to improve living standards and health outcomes among the poor, but also have inflicted additional suffering on disenfranchised and vulnerable populations.

What I found interesting about the flap around Kim was that his critics didn’t challenge the empirical studies in the book, but simply the fact that he would question the orthodoxy about growth.  And his defenders seemed mostly to claim that it wasn’t growth per se that he had criticized in the book (at a time when lots of people were criticizing the World Bank, which has changed its tune itself, they hasten to add), but certain kinds of growth-inducing policies.

But when you read the introduction to the book (I haven’t read the whole book), it sounds like a full-throated critique of what Jonathan Rowe called “the growth consensus.”  Since we’ve been pulling together the 29th edition of our textbook Real World Macro, I happened to be looking at the article that Rowe, who died last year, wrote for D&S, The Growth Consensus Unravels. Regular readers of this blog will know that it’s one of my favorites.  I was poking around Rowe’s still-active website and I stumbled on two very interesting pieces:  oone he co-authored in the Atlantic, If the GDP Is Up, Why Is America Down?, and Down Among the Economists (in which he talks about an AEA panel with Louis Uchitelle of the New York Times, Paul Krugman, and Larry Summers in which Krugman and Summers criticize the Atlantic piece.  Both well worth checking out.  Great (and surprising) that Obama’s nominee for World Bank president is someone of whom Jonathan Rowe would approve.

(3) Supreme Court on Obamacare mandate: Why is no one talking about the fact that the mandate (in Massachusetts and, once it goes into effect, the whole country) will mostly coerce low-income people–people who are not poor enough to qualify for Medicaid, but who neither get employer-based insurance nor can easily afford to buy private insurance on their own? People have tended to focus on healthy risk-takers, but no one would do that if they didn’t have to.  Even the Supreme Court arguments in favor of the mandate have tended to depict such people as free riders, rather than as sick (or potentially sick) people who simply can’t afford insurance.  And the mandate forces them to buy it, and to buy really crappy plans.

And why are so few people pointing out that a single-payer system is a viable alternative to the mandate?  Well Health Care Now! is talking about it, and you can too, if you heed their call for people to write letters to the editor encouraging coverage of single-payer.  And we’re talking about it–I just posted our “Economy in Numbers” piece by Gerald Friedman about how a single-payer system could be funded (Funding a National Single-Payer System).  Jerry shows that if it is funded the right way, the outcome would be redistributive, vs. the Obamacare/Romneycare mandate, which is redistributive in the wrong direction (as is the current way we finance health care, since health care costs are a bigger part of poor people’s household budgets than they are for the well off).  Please print up and distribute.

(4) Trayvon Martin and George Zimmerman: I will have a great guest post on this soon, but for now, check out this interesting piece from a blog at  Psychology Today.  Who cares if Zimmerman is racist?  What’s important is that the underlying social arrangements are racist, including the legal system.

(5) Occupy the MBTA: Readers in the Boston area should–absolutely must–come to the rally at the Statehouse on Wednesday April 4th to protest proposed fare hikes and service cuts to Boston’s public transportation system, the “T.”  Info about the latest ridiculous plan here.  Info on the protest here and here.  And while I’m at it:  here’s an interesting piece from the Gothamist about a collaboration between the transit workers’ union in NYC and Occupy down there; and a great piece from Dissent from a few years ago about the radical history of the “M.T.A.” song (aka “Charlie and the M.T.A.”), which the MBTA co-opted for its mascot and plastic farecard system.

Look for two related articles in our May/June issue: a cover story on credit rate swaps (which have increased the debt of the MBTA, and of lots of transit systems and municipalities);  and a piece about Occupy the MBTA, by yours truly.

(6) Jonathan Latham on the radio: The author of our current cover story, Way Beyond Greenwashing, was on Pacifica’s Uprising Radio.

That’s it for now.

–Chris Sturr

Zuccotti Park, 8:52am, March 17, 2012

Zuccotti Park, 7:23pm, March 17, 2012

Zuccotti Park, 8:57am, March 18, 2012

(1) Left Forum: Left Forum 2012 was a big success and a lot of fun.  Most of my time was spent at the D&Stable at the book exhibit, which involved, as usual, lots of great conversations with forum attendees (and we recruited lots of new subscribers).  But I also spoke on a panel organized by Dick Ohmann on the topic of “Occupy and Political Education.”  The discussion was great, with comments from activists from Occupy Wall Street, Occupy Pittsburgh, and even Occupy Binghamton.

I went to an interesting panel on “Freedom and the Economy,” featuring Alex Gourevitch, Corey Robin, and Doug Henwood.  Gourevich and Robin called for leftists to reclaim the concept of freedom, and in particular to talk about coercion/”unfreedom” that most workers face in the workplace. (Henwood mostly shrugged, doubting whether the left could reclaim the concept/term without a lot of work. But massive social change is going to take a lot of work anyway, right?) The discussion reminded me of this interesting blog post by Corey Robin, about the irony of the Cato Institute’s Julian Sanchez announcing that he will resign from Cato if the Koch brothers are successful in taking full control of it.  The argument is subtle, but it hinges on Robin pointing out that Sanchez and other libertarians downplay the kinds of unfreedom that people experience in the workplace, but Sanchez seems to be acknowledging it in is “presignation letter.”

On Saturday night there was a march from Left Forum to join OWS activists to assemble at Zuccotti Park. I am not sure whether the aim was to retake the park. What was clear, from early on in the march, was that the police were not going to treat protesters gently.  We were marching in the streets for part of the time, and the police were very aggressive in “encouraging” people to move to the sidewalk.  If the point was to keep traffic flowing, the police might well have just let us march–there was little traffic to block, and there were only a couple of hundred marchers, and Pace University, where the forum was held, is only about a five-minute walk from Zuccotti Park (most of it along Broadway).  It seemed pretty clear to me that the police had orders to be rough with us, and that the point was to intimidate people (as was reported even in the mainstream media; e.g. the New York Metro (NYC’s subway newspaper) had the headline: “OWS raises fist… NYPD puts it down.”  On the march to Zuccotti, we witnessed lots of shoving, hair-pulling, and yelling by cops, plus two arrests.  Here’s a photo of one of them:

As we were approaching Zuccotti Park, in the block of Broadway just before it suddenly there was a phalanx of cops, not quite shoulder to shoulder.  Larry Peterson of the D&S collective and I had no intention of getting arrested, so I went up to one of the cops to ask whether the line of cops meant that by going any further we were risking arrest.  He didn’t even respond, nor did any of the cops nearby (they were clearly under orders not to talk to protesters).  So, with the vague thought that I would complain to higher ups in the NYPD about this behavior, I read his nametag aloud (“Officer Morse”) and took his picture:

Officer Morse

We proceeded to Zuccotti Park, where there were around 500 people gathered.  We left shortly afterwards, but apparently more protesters massed there and stayed late.  Sometime around 1am, a lieutenant or captain started yelling in a bullhorn for people to disperse, that the park was closed (though it’s supposed to be open 24 hours).  Many refused to comply with what they regarded as an illegal order;  around 7o people were arrested, some brutally.  Someone named Cecily McMillan suffered from cracked ribs and was having some sort of convulsions as people urged the police to let her get medical attention.  I also heard reports that some guy got his head pushed against a plate glass window that cracked.

As I say, it all appeared to be a deliberate strategy to intimidate protesters via brutal crackdown.  The pictures at the top of this post tell the story:  around 9am on Saturday, the park was empty, but there were barriers stacked up ready to cordon off the park.  At around 7:20pm, the park was full of peaceful protesters assembling and exercising their free speech rights.  The following day at around 9am, you see the park cordoned off as (evidently) planned, and it was being hosed down (as if the protesters had created more filth in a hours than your average St. Patrick’s Day revelers).

This may become the pattern of the spring, as the Boston police, who were relatively gentle in the fall, at least compared with the NYPD and Oakland cops, were apparently rough on participants in a march in solidarity with the victims of police brutality at this weekend’s OWS actions; see pictures and a short piece about the march at the Boston Occupier online.  And the NYPD have been rough with protesters in Union Square (according to the OWS website).  Stay tuned–it could be an interesting spring…

(2) Mark Weisbrot in Boston on Monday: D&S is co-sponsoring a panel discussion on Monday the 26th featuring Mark Weisbrot of the Center for Economic and Policy Research.  Here are the details:

Wrong Turn?  Are the European Authorities Pushing Europe in the Wrong Direction? Would Greece Be Better Off if it Defaulted and Left the Euro?

A panel discussion with Mark Weisbrot, Richard Parker, and Jeffrey Frankel

Monday, March 26.  4:30-6:00pm.  Littauer-140, Kennedy School of Government, Harvard University.

The eurozone is in recession, and many economists believe that current budget tightening will impede recovery or perhaps deepen the recession. Greece in particular is in its 5^th year of recession and has record unemployment.  Are the European authorities implementing the wrong policies? Is the eurozone facing a debt crisis or a policy crisis? Would Greece be better off if it defaulted on its debt and exited from the Euro?

Parker and Frankel are KSG professors; Frankel is a former member of Bill Clinton’s Council of Economic Advisers, so it is likely to be a lively debate.

(3) David Graeber in Boston: David Graeber, whose book Debt: The First 5,000 Years I am still enjoying, will be in Boston, er, Cambridge, at a conference at Harvard, tomorrow.  Find info here.  The conference’s web page looks like a parody of obfuscatory academic discourse, but I’m guessing it will be a good event, so I am definitely going.

(4) Links: Here are some items that I’ve been meaning to post for a while; sorry for the link-dump (TM), but there’s some interesting stuff here.

(a) Rich People Complaining: Apparently not having read Cracked magazine’s list of six things rich people need to stop saying, Wall Street guy Andrew Schiff complained to a Bloomberg reporter about how hard it would be for him and his family to live on $350,000 in Brooklyn without a bonus this year. Yves Smith’s post on this at Naked Capitalism, and the comments, are great, though Smith appeared to claim that “no one” but the super-rich raised children in Manhattan back in the 80s (several people took her to task for this in the comment section, and I thought she reacted a bit too defensively).  And Chicago billionaire Ken Griffin told the Tribune that the ultra-rich don’t have enough influence:

“I think (the ultra-wealthy) actually have an insufficient influence,” Griffin said in an interview at Citadel’s downtown office. “Those who have enjoyed the benefits of our system more than ever now owe a duty to protect the system that has created the greatest nation on this planet.”

I guess from a billionaire’s point of view, the system is working just fine.  We thank him for his candor.

(b) Roubini on Greece’s Private Creditors: He says they got off easy, contrary to what the press has claimed. I may ask Weisbrot whether he agrees on Monday.

(c) Occupy the MBTA; Interest Rate Swaps: Occupy Boston’s work to resist proposed fare increases and service cuts proceeds apace; there’s a big rally at the statehouse planned for April 4th.  Meanwhile, the MBTA backed down from its initial two draconian scenarios, and we are taking credit. But we’re going to keep the pressure, especially on the legislature.  Here’s a video of Occupy folks “mic checking” MBTA board members. Look for an article by me in our May/June issue of D&S and the next issue of Progressive Planning magazine about Occupy the MBTA;  our May/June cover story will be about interest rate swaps, which have played a role in the MBTA’s debt.  The author of that piece, Darwin GrahamBond, is mentioned in this recent piece by Ellen Brown about interest rate swaps.  The Amalgamated Transit Union has endorsed the National Day of Action (which I believe Occupy Boston initiated) on April 4th;  this appears to be part of the ATU’s larger strategy of trying to rally public transit riders to support public transit.

(d) Matt Taibbi on Another Hidden Bailout: here;   I like his “reload” metaphor.

(e) Support Jesse Freeston’s “Resistencia”: Four days left to chip in via Indiegogo on a worthy film project on the military takeover in Honduras and the resistance movement.

(f) More from Remapping Debate on the Econ Profession: here;  hat-tip to Fred Lee.

(g) Massive Left Protests in Paris at Place de la Bastille: this past weekend; report from L’Humanité (the translation is kind of hilarious; the protests sound awesome).   More evidence that it could be an interesting spring…

That’s it for now.

–Chris Sturr

John McHale, Machine-Made America II, collage, 1956

(1) Goldman Sachs and Greece: A piece in Bloomberg about how Goldman made a “secret loan” to Greece in 2001 involving currency swaps and interest-rate swaps.  This ended up costing Greece billions of euros.  Interest-rate swaps have caused trouble for lots of municipalities (as the SEIU report I linked to the other day documents).  We’ll be running a piece on interest-rate swaps in our May/June issue.

(2) Why the Environmental Movement Is Not Winning: This is an interesting article on Truthout about a new report that argues that environmental foundations have erred in funding big nonprofits instead of small grassroots organizations, and that this explains why the movement hasn’t won any  “significant policy changes at the federal level in the United States since the 1980s.”  “Environmental funders mainly support large, professionalized environmental organizations instead of the scrappy community-based groups that are most heavily impacted by environmental harms.”  This fits with the claims of our current cover story, Way Beyond Greenwashing: Have Corporations Captured “Big Conservation”?, which has also been featured on Truthout recently.

(3) BP Settlement: More on the environment–our pal former D&S collective member Phineas Baxandall of MassPIRG has a great blog post at Huffington Post about how BP may end up getting their spill-related penalties subsidized by the taxpayers if it comes in the form of a settlement rather than a fee.  (This makes me wonder whether the same thing will happen with the banks’ sweet foreclosure settlement.)

(4) Nice Analysis of Rush vs. Fluke: A great post at ZunguZungu about Rush Limbaugh’s rantings about Sandra Fluke.  The post starts out with a quote from David Graeber (the anarchist anthropologist and Occupier whose book Debt: The First 5,000 Years we’ll be reviewing soon):

A popular exercise among High School creative writing teachers in America is to ask students to imagine they have been transformed, for a day, into someone of the opposite sex, and describe what that day might be like. The results, apparently, are uncannily uniform. The girls all write long and detailed essays that clearly show they have spent a great deal of time thinking about the subject. Half of the boys usually refuse to write the essay entirely. Those who do make it clear they have not the slightest conception what being a teenage girl might be like, and deeply resent having to think about it.

The blogger, Aaron Bady, makes the nice point that we can make some sense of Rush’s tirade by seeing that he has never thought about what it’s like to be a woman facing reproductive/sexual health issues, and is galled at the notion that he should have to think about it. This is the starting observation–the rest of the post is great too.  (More about Graeber later in this post.)

(5) The Bully Economy: A propos of the shootings at that high school in Chardon, Ohio last week, there is a nice interview at Salon with Jessie Klein, who has a book about bullying (the kid who went on the shooting rampage was apparently bullied). She relates bullying to the economy; here are the two questions and answers:

What’s most fascinating to me about your book is what you describe as the “bully economy” — the idea that economic conservatism is fostering this epidemic of bullying.

George Ritzer wrote a fascinating article about how the economy affects our social relationships. Now, when you go into a store there’s a scripted relationship. Somebody is going to say, “Is there anything that you want?” And you say, “No thank you.” “Do you have everything you need?” “Yes I do.” And that kind of conversation is organized so you won’t have a long personal conversation that will prevent you from buying things. Telemarketing is the same way. So that even when people come together and could have a human experience, they’re prevented from having that experience by these kinds of scripted conversations. Sales people actually get docked in pay or punished if they deviate from these scripts. And I think those kinds of new dynamics have had an effect on our social relationships. And what’s fascinating is that social isolation has increased. It’s tripled since the ’80s, and depression and anxiety statistics are extremely high. These are, I think, indicators of what’s going on in our society more generally.

In the book, you argue that much of this can be traced back to Reagan and the Reagan era. Why?

He came to power talking about deregulating capitalism. There are many people who do believe that the more you help people, the less they will work, the more lazy they will become. There became an entire culture against people on welfare. Even Clinton after Reagan developed this program called Welfare to Work, where even if you were disabled or had six children you were forced to find some way to work 20 hours per week. And I think since then society has gotten more and more harsh in that way and I think people feel strongly in our country that that’s the way to get ahead. We’re the only country in the industrial world that doesn’t have a paid leave for women who have children, whereas other countries in Europe go out of their way to make sure there’s a long paternity leave. There are countries that help families to stay home for 3 years and they’ll pay 80 percent of the salary. For the most part, people here believe that if you make money you’ll get support but if you don’t make money, you’re pretty much on your own. And I think that’s what kids in schools feel. A lot of the school shooters said, “The principal wasn’t doing anything, the guidance counselors weren’t doing anything, so I had to take things into my own hands.” And that’s pretty much the message that people get, whether you’re an adult or a kid.

Read the full interview.

Ok, I will leave it at that, since this post is a bit long.  I am reading Graeber’s book on debt, and I want to do some “live blogging” of sorts while I read it (but my pace is so slow, and the book is so long, that it could stretch over many posts and weeks).  It is GREAT so far, and I’m eager to share some choice bits.  But later.

–Chris Sturr