Why the Media is Useless

Here is a post by Dean Baker in his Beat the Press blog:

The Post devoted a business section article to Newt Gingrich's supply side economics. It would have been useful to note the findings of the research on this topic, for example this Congressional Budget Office study. It found that even in a best case scenario the additional growth sparked by a tax cut could replace less than a third of the lost tax revenue. Even this effect would be temporary, with slower growth in later years implying larger deficits.

The Post should not just throw Gingrich's assertions out to readers as though they might be true. There is extensive research on this topic which the Post's business reporters should be familiar, its readers almost certainly are not.

A democracy works only if it has an informed electorate. The reason why "the press" was acknowledged and highlighted in the First Amendment to the Constitution. A free press is important. But a commercial press that prints only what corporations and the rich elite want the people to hear is not a truly "free" press. The Constitution called for "freedom of the press". Only with a free press that prints facts, truths, revelations, analysis, criticism will the electorate be empowered to vote responsibly.

Sadly, Dean Baker is pointing out that the US now fails the test of democracy. The US is rapidly becoming a banana republic.

Measuring the "Success" of American Foreign Policy

The Americans blindly go around the world making bad situations worse while slapping themselves on the back and congratulating themselves about "spreading democracy" and "American values" throughout the world. The poor American public has no idea and little interest in the failed policies of their political leaders.

Here is a bit from an excellent article in the UK's Guardian newspaper giving an example of how Iraq has been "lifted up" from the horrors of Saddam Hussein's dark torture state to the light of a... what? a new torture state...

The walls of Um Hussein's living room in Baghdad are hung with the portraits of her missing sons. There are four of them, and each picture frame is decorated with plastic roses and green ribbons as an improvised wreath for the dead.

Um Hussein had six children. Her eldest son was killed by Sunni insurgents in 2005, when they took control of the neighbourhood. Three of her remaining sons were kidnapped by a Shia militia group when they left the neighbourhood to find work. They were never seen again.

She now lives with the rest of her family – a daughter, her last son, Yassir, and half a dozen orphaned grandchildren – in a tiny two-room apartment where the stink of sewage and cooking oil seeps through a thin curtain that separates the kitchen from the living room.

Um Hussein looks to be in her 60s and has one milky white eye. She is often confused and talks ramblingly about the young men in the portraits as if they are alive, then shouts at her daughter to bring tea. She told the Guardian how she had to fight to release Yassir from jail.

Yassir was detained in 2007. For three years she heard nothing of him and assumed he was dead like his brothers. Then one day she took a phone call from an officer who said she could go to visit him if she paid a bribe. She borrowed the money from her neighbour and set off for the prison.

"We waited until they brought him," she said. "His hands and legs were tied in metal chains like a criminal. I didn't know him from the torture. He wasn't my son, he was someone else. I cried: 'Your mother dies for you, my dear son.' I picked dirt from the floor and smacked it on my head. They dragged me out and wouldn't let me see him again.

"I have lost four. I told them I wouldn't lose this one."

Afterwards, the officers called from prison demanding hefty bribes to let him go while telling the family he was being tortured. Um Hussein told the officers she would pay, but they kept asking for more. First it was 1m Iraqi dinars (£560), then 2m, then 5m.

George Bush was an idiot whose ideology blinded him and allowed him to create horrors under the flag of "nation building" and "bringing democracy to the Middle East".

Obama is a much more sophisticated thinker who actually understands foreign policy, but sadly Obama continues the blunder and outrages of American "policy". It is clear that these horrors go deeper than just an "administration". What the US is doing around the world is obviously driven by a cynical need to control the world for the benefit of the rich elites in the US. The veneer of ideology or the cynical use of worlds like "freedom" and "democracy" and "women's rights" are rolled out to plaster a veneer of respectability to what is in fact a horror story passing for "foreign policy".

Great Recession

There is no better concise picture of the Great Recession than this graph from the Calculated Risk blog:

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This clearly shows that all previous post World War II recessions which had fully recovered employment by 4 years after the start of the recession. Even the pathetic "recovery" brought about Bush's two tax cuts to "inspire" entrepreneurial spirit got employment back to pre-recession levels in four years. But the recession is different. This is a credit crunch just like the Great Depression.

Obama's "stimulus" was pathetically inadequate with one-third of the money going to "tax cuts" which clearly are very poor stimulants (see the four year delay in recovery due to Bush's tax cut strategy). The other two-thirds was money that truly stimluated but was about three to four times too small for the size of the real problem. But Obama spent all of 2009 and 2010 assuring everybody that his stimulus was a Goldilocks "just right" amount. Then in 2011 Obama compounded his mistake by focusing on "deficits" (read austerity budgets) instead of stimulation to get the economy to come back.

The US economy is in a complete mess because both major political parties are more interested in catering to corporate interest than they are in the people and the real economy. They both spin masterful stories about how their policies are "effective" when it is utterly evident that they fail. Of course the Republicans are grievously wrong-headed. The Democrats at least pretend to cater to the interests of the 99%, but in reality they are just junior partners with the Republicans in acting as the minions of Wall Street, big corporations, and the ultra-rich. Tragic.

Speaking the Truth

Here is a post by Dean Baker on his Beat The Press blog:

President Obama Wants Credit for Avoiding a Great Depression: Where Is the Ridicule?

In its top of the hour news segment NPR reported that President Obama hoped that voters would give him credit for avoiding a second Great Depression. If this is an accurate representation of what President Obama said then it should have devoted a segment to economists ridiculing the president for trying to set an unbelievably low bar for measuring the success of his economic policy.

The first Great Depression was the result of a decade of inadequate policy responses. The massive spending associated with World War II that eventually got us out of the Great Depression could have been undertaken a decade sooner, if there had been political will.

There was nothing about the financial crisis at the beginning of President Obama's term that could have condemned the country to decade of double-digit unemployment. This only could have happened if Congress failed to respond adequately to a financial collapse.

The above should be supplemented by reading Paul Krugman's comments on the fate of democracy given the current depression.

Obama's "Hopey Changey" Leadership

Obama campaigned in 2008 to change politics in America. He promised "hope" and "change you can believe in" and "transparency". Sarah Palin nailed him when she mocked him for his "hopey changey" thing.

What you are getting today under Obama is a people being beaten by police baton sticks and pepper sprayed as they attempt to give voice to their political will in a supposedly democratic 1st Amendment right. The Occupy Movement is growing and Obama is "missing in action". He fails to lead. He is a politician who loves to make promises, but he has done precious little during 3 years to help the bottom 99% in America...


The reality is that he hasn't stopped American military torture, he hasn't closed Guantanamo, he allows American citizens to be assassinated without any judicial process, he has paid hundreds of billions to his buddies on Wall Street and half a billion to his buddy in the "green" industry of now bankrupt Solyndra. He promise of "transparency" in government has instead produced the harshest anti-whistle-blower law ever on US books. He fiddles for 3 years during the greatest recession since the Great Depression then announces that he is Mr. Jobs, Jobs, Jobs and announces a program to produce 1.2 million jobs when in fact there are 25 million unemployed/underemployed people, in short, he makes a political gesture but no effective political act. He is a farce. A joke.

The US has two parties to represent the 1% and no political parties that represent the 99%. Tragic.

America's Great Recession

The failure of Bush and now Obama to seriously engage in stimulating a failing economy has created a "lost decade". From Calculated Risk, here is a graph that shows the great chasm of lost jobs compared to other post-WWII recessions:

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The inability of America's political leadership to break the bonds of servitude to Wall Street and big corporate interests means that the bottom 99% will pay and continue to pay for the sins of the political leadership and the rich elite in the US. Tragic.

Looking at Day 1 of the Fukushima Nuclear Disaster

Here is an excellent account of the Fukushima nuclear disaster. It is one article in a whole issue of IEEE's November 2011 Spectrum issue. Spectrum is the journal of electrical engineers:

24 Hours at Fukushima

A blow-by-blow account of the worst nuclear accident since Chernobyl

By Eliza Strickland / November 2011

Sometimes it takes a disaster before we humans really figure out how to design something. In fact, sometimes it takes more than one.

Millions of people had to die on highways, for example, before governments forced auto companies to get serious about safety in the 1980s. But with nuclear power, learning by disaster has never really been an option. Or so it seemed, until officials found themselves grappling with the world's third major accident at a nuclear plant. On 11 March, a tidal wave set in motion a sequence of events that led to meltdowns in three reactors at the Fukushima Dai-ichi power station, 250 kilometers northeast of Tokyo.

Unlike the Three Mile Island accident in 1979 and Chernobyl in 1986, the chain of failures that led to disaster at Fukushima was caused by an extreme event. It was precisely the kind of occurrence that nuclear-plant designers strive to anticipate in their blueprints and emergency-response officials try to envision in their plans. The struggle to control the stricken plant, with its remarkable heroism, improvisational genius, and heartbreaking failure, will keep the experts busy for years to come. And in the end the calamity will undoubtedly improve nuclear plant design.

True, the antinuclear forces will find plenty in the Fukushima saga to bolster their arguments. The interlocked and cascading chain of mishaps seems to be a textbook validation of the "normal accidents" hypothesis developed by Charles Perrow after Three Mile Island. Perrow, a Yale University sociologist, identified the nuclear power plant as the canonical tightly coupled system, in which the occasional catastrophic failure is inevitable.

On the other hand, close study of the disaster's first 24 hours, before the cascade of failures carried reactor 1 beyond any hope of salvation, reveals clear inflection points where minor differences would have prevented events from spiraling out of control. Some of these are astonishingly simple: If the emergency generators had been installed on upper floors rather than in basements, for example, the disaster would have stopped before it began. And if workers had been able to vent gases in reactor 1 sooner, the rest of the plant's destruction might well have been averted.

The world's three major nuclear accidents had very different causes, but they have one important thing in common: In each case, the company or government agency in charge withheld critical information from the public. And in the absence of information, the panicked public began to associate all nuclear power with horror and radiation nightmares.

Go read the whole article. It is well worth your time. The rest of the article goes through the 24 hour timeline detailing the complications and mis-steps that led to the disaster.

We've learned a great deal about the Fukushima accident in the past seven months. But the nuclear industry's trial-and-error learning process is a dreadful thing: The rare catastrophes advance the science of nuclear power but also destroy lives and render entire towns uninhabitable. Three Mile Island left the public terrified of nuclear power; Chernobyl scattered fallout across vast swaths of Eastern Europe and is estimated to have caused thousands of cancer deaths. So far, the cost of Fukushima is a dozen dead towns ringing the broken power station, more than 80 000 refugees, and a traumatized Japan. We will learn even more as TEPCO releases more details of what went wrong in the first days of the accident. But as we go forward, we will also live with the knowledge that some future catastrophe will have yet more lessons to teach us.

The foot-dragging and refusal to share information or access outside experts by TEPCO is criminal. Every engineer I know was always willing to share information. It is a tough career and you want to learn through others experiences. But management puts up walls to protect "intellectual property" or, in the case of TEPCO, to hide facts from the prying eyes of the wider world.

One of the hats I wore was "software safety engineer" and my experience was that it was difficult to get management to pay more than lip service to safety. Worse, the analysis to uncover failure modes was not a popular activity for engineers who got paid for producing designs. I also worked as a performance engineer and I ran into similar problems getting engineers to take the analysis for performance seriously. But I found they were more amenable to performance because it was more concrete. I built models and that was something that was tangible. Safety analysis produced paper but it didn't come across as "real". I'm not saying that engineers were hostile to the analysis. Some were interested, but most were indifferent. They just saw it as another hoop they had to jump through to get their job done. There are excellent books on safety but, just like human-centred design, these books aren't on the bookshelves of most engineers.

Krugman on "Weaponized Keynesianism"

Here is the key bit from a post by Paul Krugman on his NY Times blog:

And the evidence clearly shows that weaponized Keynesianism works – which means that Keynesianism in general works.

So why do politicians and their hired economic propagandists say differently? On reflection, I think it’s a bit more complicated than I suggested in my previous post on this topic, because there’s a strong element of cynicism as well as genuine intellectual confusion.

What kind of cynicism am I talking about? First, there’s the general fear on the part of conservatives that if you admit that the government can do anything useful other than fighting wars, you open the door to do-gooding in general; that explains why conservatives have always seen Keynesianism as a dangerous leftist doctrine even though that makes no sense in terms of the theory’s actual content. On top of that there’s the Kalecki point that admitting that the government can create jobs undermines demands that policies be framed to cater to all-important business confidence.

That said, there’s also the Keynes/coalmines point: there’s a strong tendency to take any spending that looks like a business proposition – building bridges or tunnels, supporting solar energy or mass transit – and demanding that it appear to be a sound investment in terms of its financial return. This makes most such spending look bad, since almost by definition a depressed economy is one in which businesses aren’t seeing good reasons to invest. Defense gets exempted because nobody expects bombs to be a good business proposition.

The moral here should be that spending to promote employment in a depressed economy should not be viewed as something that has to generate a good financial return; in effect, most of the resources being used are in reality free.

I wonder if we’ll ever have a political system mature enough to understand this.

The political right in the US has gone beyond simply proposing bad policies, it is actively destroying the country. That people vote for a political party whose agenda is to destroy the country seems unreal, but that's exactly what the Germans did in 1932 when they voted the Nazis into a plurality position. The average German voting for the Nazi party obviously didn't think it was a vote for six years of war and the utter destruction of his country, but in effect that was the political effect of his vote. Similarly Americans who vote for the Republican party may not think they are voting for the destruction of their country, but in effect their votes enable political radicals to take obstructionists positions that are literally destroying the US.

The current Republican party is to the right of McCarthyism and the 1960s John Birch Society. It is a party of fanatics and radicals intent on destroying America. Sadly, the electorate is unable to think through the political confetti on offer by that party and see the reality behind it. Similarly the Germans didn't see through the strong "nationalist" ranting of the Nazis to realize they were electing a government intent on absolutely destroying their country, a party capable of crimes against humanity of unspeakable dimensions and a party whose leader who would demand, as he prepared for his own suicide, that Germans "fight to the last man" and utterly, utterly destroy their country in an insane war for a political party that was corrupt and vicious and determined to go down in bloody defeat. A political party completely unwilling to compromise with political rivals and intent on policies that superficially called for "the greater good of Germany" but which, by attacking all of its neighbors, was singularly intent on committing political suicide.

But the German people voted in that party.

And the Americans have learned nothing from history.

America Looks at Itself in the Mirror

And it should not be happy with what it sees...

At least Umair Haque finds the America he lives in to be less that all it is billed to be.

Here is a bit from a post on his Harvard Business Review blog:

Consider this thought experiment. If you were really, really, really rich — say, not just part of the routinely opulent 1%, but a card-carrying member of the eye-poppingly decadent .01% — what part of your life would be American? If you had the money, I'd bet you'd drive a German car, wear British shoes and an Italian suit, keep your savings in a Swiss bank, vacation in Koh Samui with shopping expeditions to Cannes, fly Emirates, develop a palate for South African wine, hire a French-trained chef, buy a few dozen Indian and Chinese companies, and pay Dubai-style taxes.

Were to you have the untrammeled economic freedom to, I'd bet you'd run screaming from big, fat, wheezing American business as usual, and its coterie of lackluster, slightly bizarre, and occasionally grody "innovations": spray cheese, ATM fees, designer diapers, disposable lowest-common-denominator junk made by prison labor, Muzak-filled big-box stores, five thousand channels and nothing on but endless reruns of Toddlers in Tiaras — not to mention toxic mega-debt, oxymoronic "healthcare," decrepit roads, and once-proud cities now crumbling into ruins. Sure, you'd probably still choose to use Google on your iPhone to surf the web — but that's about far as it'd go.

How did we get here?

The mightiest adversary that snaps great empires like twigs isn't chimerical "globalization" — it's glittering hubris, bedecked in the finery of denial. Hence, if the whispered rumors of our imminent decline are worth leaning in and listening to, then perhaps it's worth trying to diagnose the depth of the plunge and the slope of the cliff before we scrabble for a handhold.

If, as I've argued, we've got a bad case of Reality Deficit Disorder, then it might be time for a gentle reality check. Argue with me if you like, unleash the snarling dream team of Homeland Security, cable news, and Rick Perry's Hair on me if you want, but here's my hypothesis: today, America excels at mediocrity.

After decades of erasing the last luminous wisps of a once awe-inspiring excellence, today, it's perfected the art of imagining, designing, mega-financing, and mass-producing the tedious, humdrum, banal, middle of the road, bland, trivial, forgettable, the less than exhilarating — whose side effects may include unemployment, stagnation, insecurity, distrust, meaninglessness, depression, and dumbification. And it might be that all the preceding is what lurching machine age "markets", "corporations", "finance" and "profit" optimize an economy for — and further, what they shape the minds of a people to come to expect as the limit of the possible (until, of course, a metamovement reminds them that it's not).

Let me be clear. I speak not merely of America's structural current account deficit, sagging trade balance, or dearth of exports — but the possibility that America's greatest export might be the furious pursuit of mediocrity: a set of self-destructive expectations and preferences that, having not been good enough for America — having reduced the people formerly known as the middle class to penury, having rotted Baltimore and Detroit into cities that are beginning to resemble Kabul and Peshawar — probably won't be good enough for the world. Should the world cotton onto the not-so-happy ending of the story of dumb, opulence-driven McGrowth, then that recognition might be the rocket fuel that sends an American decline into liftoff.

What I find amusing is the self denial. The US is well over the crest and is now clearly descending, but the faster it declines the more its politicians become strident about "America #1" and the people in America standing amidst their decaying cities, bankrupt, with one major political party clearly working hard to loot the store before the end comes, proclaiming their love for America "the city on the hill" and a place envied by all. That is the vision that Americans who have never traveled have of their country. But as Haque makes clear. If you have traveled and seen cleaner, better, newer, more functional places, it is depressing to come back to the rundown, dysfunctional, failing cities of America.

Amid all this decay the two political parties in the US compete in shouting declarations of loyalty, claims of "we are #1", and the certitude that America is a special place beloved by God. It is like those shiny American flag pins that are "must have" on every politician whether or not the suit is threadbare and literally falling off the politician. This is the "promise" of America that every politicians sells.

Get Ready for Another Big Bailout

Here is a bit from a post by Matt Taibbi in his Rolling Stone blog:

... when it comes to commercial banking, Bank of America is as bad as it gets.

The markets, of course, have lately come to agree, as B of A has lately been downgraded again to just above junk status. The only reason the bank is not rated even lower than that is that it is Too Big To Fail. The whole world knows that if Bank of America implodes – whether because of the vast number of fraud suits it faces for mortgage securitization practices, or because of the time bomb of toxic assets on its balance sheets – the U.S. government will probably step in to one degree or another and save it.

The government’s patronage of the bank was never clearer than in recent weeks, when B of A quietly decided to move trillions of dollars (trillions, not billions) in risky Merrill Lynch derivatives contracts off Merrill’s books and onto the books of the parent/retail arm, Bank of America.

This decision was done at the behest of counterparties to those transactions, who wanted those contracts placed under the aegis of Bank of America, whose deposits are insured by the FDIC. The move was made, according to reports, so that Bank of America could avoid posting $3.3 billion in collateral to satisfy the company’s creditors. In other words, Bank of America just got You the Taxpayer to co-sign as much as $53 trillion worth of dicey derivative contracts.

The FDIC wasn’t pleased by the move, but the Fed apparently encouraged it. Bloomberg, citing people with “direct knowledge” of the deals, reported that,

The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

So the primary regulator of the banking industry is encouraging a functionally insolvent megabank to respond to a credit downgrade by pushing its most explosively risky holdings onto the laps of the taxpayer.

...

A series of lawmakers on the Hill, including most notably Sherrod Brown, Carl Levin, and Bernie Sanders, are trying to figure out if there’s any way to stop this transaction, but of course there is not. Upstate NY congressman Maurice Hinchey put it best. "What Bank of America is doing is perfectly legal – and that's the problem,” he said.

This is exactly why the Glass-Steagall Act needs to be reinstated: without a separation of Investment Banks and Commercial Banks, what we end up getting is taxpayer-guaranteed gambling. Instead of encouraging prudence and savings by insuring deposits in commercial banks, the FDIC is now being turned into a vehicle for socializing speculative losses.

So our government is not only no longer encouraging fiscal conservatism, it is doing exactly the opposite, i.e. encouraging speculation and risk-taking. That this is happening in the fever of the OWS movement, and at a time when top politicians from Barack Obama on down are paying lip service to public complaints against Wall Street, should tell you everything you need to know about whether or not we can expect this government to voluntarily enact real changes, and stop making the taxpayer eat Wall Street’s pain.

This is criminal. The FDIC should refuse. But obviously the Obama administration is backing the Federal Reserve and allowing this abomination to go ahead. Shame on Barack Obama!

Bashing the Media

Here is a good tongue lashing in Slate for the idiotic mass media which claims it can't "understand the message" of the OWS movement:

I confess to being driven insane this past month by the spectacle of television pundits professing to be baffled by the meaning of Occupy Wall Street. Good grief. Isn’t the ability to read still a job requirement for a career in journalism? And as last week’s inane “What Do They Want?” meme morphs into this week’s craven “They Want Your Stuff” meme, I feel it’s time to explain something: Occupy Wall Street may not have laid out all of its demands in a perfectly cogent one-sentence bumper sticker for you, Mr. Pundit, but it knows precisely what it doesn’t want. It doesn’t want you.

What the movement clearly doesn’t want is to have to explain itself through corporate television. To which I answer, Hallelujah. You can’t talk down to a movement that won’t talk back to you.

I don’t purport to speak for anyone but myself here, although I spent time this weekend at Occupy Wall Street and my husband spent much of last week adding his voice to the protesters there. I saw an incredible array of people that defy any simple demographic characterization and a broad range of signs that made—imagine!—more than a single point. But if I may hazard an opinion, it would be this: One of the most fatuous themes of mainstream OWS coverage is the endless loop of media bafflement at this movement that doesn’t have a message. Here’s CNN’s Erin Burnett in a classic put-down of the OWS’ refusal to tailor its message to her. It takes a walloping amount of willful cluelessness to look at a mass of people holding up signs and claim that they have no message.

...

Think, for just a moment, about the irony. We are the most media-saturated 24-hour-cable-soaked culture in the world, and yet around the country, on Facebook and at protests, people are holding up cardboard signs, the way protesters in ancient Sumeria might have done when demonstrating against a rise in the price of figs. And why is that? Because they very wisely don’t trust television cameras and microphones to get it right anymore. Because a media constructed around the illusion of false equivalencies, screaming pundits, and manufactured crises fails to capture who we are and what we value.

For the past several years, while the mainstream media was dutifully reporting on all things Kardashian or (more recently) a wholly manufactured debt-ceiling crisis, ordinary people were losing their health care, their homes, their jobs, and their savings. Those people have taken that narrative to Facebook and Twitter—just as citizens took to those alternative forms of media throughout the Middle East as part of the Arab Spring. And just to be clear: They aren’t holding up signs that say “I want Bill O’Reilly’s stuff.” They aren’t holding up signs that say “I am animated by toxic levels of envy and entitlement.” They are holding up signs that are perfectly and intrinsically clear: They want accountability for the banks that took their money, they want to end corporate control of government. They want their jobs back. They would like to feed their children. They want—wait, no, we want—to be heard by a media that has devoted four mind-numbing years to channeling and interpreting every word uttered by a member of the Palin family while ignoring the voices of everyone else.

...

Mark your calendars: The corporate media died when it announced it was too sophisticated to understand simple declarative sentences. While the mainstream media expresses puzzlement and fear at these incomprehensible “protesters” with their oddly well-worded “signs,” the rest of us see our own concerns reflected back at us and understand perfectly. Turning off mindless programming might be the best thing that ever happens to this polity.

Go read the whole article and get the embedded links.

I'm 100% behind the above interpretation of media misleading the 99%.

Krugman Identifies the Real Radicals

From Paul Krugman's NY Times blog:

The Amnesiac Economy

Mark Thoma sends us to John Cassidy on the absence of really new ideas in this crisis — largely because we didn’t need new ideas, all we needed for the most part was to remember things that we somehow forgot.

This is a theme dear to my heart. The crisis we’re in is not something unprecedented. It’s a close cousin to the Great Depression — milder, but recognizably the same sort of thing. And we understand — or used to understand — how the Depression happened, and what to do in such a situation. Most of what’s required are fairly straightforward translations of existing concepts. For example, we have a pretty good understanding of bank runs; extending that framework to shadow banking requires little more than the understanding that repo and other kinds of short-maturity obligations are, from an economic point of view, more or less equivalent to deposits.

So how is it that policy is so confused and lost?

I’ve been arguing for a while that much of the economics profession has lost its way, recapitulating old errors because it made a point of unlearning what Keynes taught. But it’s not just economists who willfully threw away hard-won insights.

On Monday night we had a panel discussion of the euro crisis at Princeton — me, Chris Sims, Hyun Shin, Markus Brunnermeier. I was struck by some of what Sims had to say. He pointed out that central banks have always had a wider mandate than simply guaranteeing price stability; they’ve always served as lenders of last resort, including having a standby capacity to finance the government in times of need. And there are good, well-understood reasons for this wider mandate. Yet the creators of the euro essentially threw away hard-won wisdom — stuff that Bagehot knew in the 19th century! — to create a stripped-down central bank without the powers or flexibility that history has shown are necessary. What were they thinking?

The result of all this is that the supposedly sober, serious people are actually radicals insisting that we can make the economy work in ways that it has never worked in the past — hence the embrace of magical thinking on expansionary austerity and the power of structural reform. Meanwhile, the irresponsible bearded professors are actually the custodians of traditional wisdom.

And those who are determined to forget the past run a high risk of reliving it — which is why we’re in the state we’re in.

The similarity of the arrogance shown by many "economists" and the EU bank is the same kind of arrogance shown by the neo-cons and Donald Rumsfeld. It is a willful rejection of the past and a claim to "superior" knowledge that is based not on fact and theory but on a willful distortion to fit a preconceived ideology. History is replete with this kind of "radical" taking control and wrecking things while claiming "superior knowledge".

Stable societies have traditions and accreditation requirements put in place to prevent these usurpers from taking control and wrecking things. Private business faces a similar problem with psychopaths take high positions. These are individuals with no regard for others an an overweening sense of self that lets them wreck everything about them for their own gratification or sense of self importance.

Good News

From the Calculated Risk blog:

According to the Bureau of Economic Analysis (BEA), real GDP is finally just above the pre-recession peak. The estimate for real GDP in Q3 (2005 dollars) was $13,352.8 billion, 0.2% above the $13,326.0 billion in Q4 2007. Nominal GDP was reported as $15,198.6 billion in Q3 2011.

After nearly four years, the economy is finally back to where it was in late 2007. Sadly, the population is larger, the number of potential workers is larger, but the actual number of workers is smaller. While the total income of the whole population has recovered, the amount going to the bottom 99% is still less than what it was in 2007. The top 1% keep hoovering up any loose dollars and pocketing them which they, in their role of "job creators", then use increase their bank accounts and not create new jobs despite all the propaganda of the Republican ideologues.

As you can see, it is investment in equipment & software that is the engine of the recovery, not construction:

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Here is the bad news and the reason why the OWS movement is growing:

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Among his many shortcomings, the fact that Obama has failed to seriously address the housing crisis has made this Great Recession linger longer and deeper than it needed to have been. A great deal of needless suffering has been shouldered by the 99% because Obama refused to force the banks to swallow the costs of their bad decisions. Instead the bankers got to keep their big bonuses and nearly a trillion dollars of taxpayer dollars has gone to prop up the big Wall Street banks while 25 million are unemployed and 10 million have lost their homes. That is "economic justice" for the 1% but not for the 99%.

Saving Your Honour by Committing Suicide

The Europeans have painted themselves into a corner. They have created a European bank that has no tools to deal with the current mess. Worse, the elite of Europe refuse to admit the mess they are in. They refuse to think creatively about a solution. It is as if the crew over a sinking ship is fighting for control of the pilot's wheel. But steering isn't the problem. The ship has a big hole and is taking water and now quickly sinking. But the crew is too busy trying to "take charge" of the situation of "piloting" to bother with "sinking".

Here are key bits from a NY Times op-ed by Paul Krugman:

If it weren’t so tragic, the current European crisis would be funny, in a gallows-humor sort of way. For as one rescue plan after another falls flat, Europe’s Very Serious People — who are, if such a thing is possible, even more pompous and self-regarding than their American counterparts — just keep looking more and more ridiculous.

...

Think about countries like Britain, Japan and the United States, which have large debts and deficits yet remain able to borrow at low interest rates. What’s their secret? The answer, in large part, is that they retain their own currencies, and investors know that in a pinch they could finance their deficits by printing more of those currencies. If the European Central Bank were to similarly stand behind European debts, the crisis would ease dramatically.

Wouldn’t that cause inflation? Probably not: whatever the likes of Ron Paul may believe, money creation isn’t inflationary in a depressed economy. Furthermore, Europe actually needs modestly higher overall inflation: too low an overall inflation rate would condemn southern Europe to years of grinding deflation, virtually guaranteeing both continued high unemployment and a string of defaults.

But such action, we keep being told, is off the table. The statutes under which the central bank was established supposedly prohibit this kind of thing, although one suspects that clever lawyers could find a way to make it happen. The broader problem, however, is that the whole euro system was designed to fight the last economic war. It’s a Maginot Line built to prevent a replay of the 1970s, which is worse than useless when the real danger is a replay of the 1930s.

And this turn of events is, as I said, tragic.

The story of postwar Europe is deeply inspiring. Out of the ruins of war, Europeans built a system of peace and democracy, constructing along the way societies that, while imperfect — what society isn’t? — are arguably the most decent in human history.

Yet that achievement is under threat because the European elite, in its arrogance, locked the Continent into a monetary system that recreated the rigidities of the gold standard, and — like the gold standard in the 1930s — has turned into a deadly trap.

Now maybe European leaders will come up with a truly credible rescue plan. I hope so, but I don’t expect it.

The bitter truth is that it’s looking more and more as if the euro system is doomed. And the even more bitter truth is that given the way that system has been performing, Europe might be better off if it collapses sooner rather than later.

This is the kind of blindness you get from ideology. An ideologue doesn't look outside to see if it is sunny. He consults his horoscope because he "knows" that the horoscope captures everything essential about his future. You can't convince the fool that the horoscope was written days or weeks ago, that an astrologer has no knowledge of the future, and that the easiest way to check the weather is to look out the window. Europe is going down and it will take the whole world just like the US took the world down when it refused to rescue the Lehman investment house in September 2008. What an incredibly stupid world.

I foolishly thought that humanity was slowly getting "smarter" as we got wealthier and better educated. I failed to realize that if you can't fix the idiocy of ideology, then the craziness of people who "know" things because their ideology tells them it is so will destroy the world. I've always puzzled how powerful civilization in the past could commit suicide. I now realize it comes about by the elite of those societies getting deeply committed to their ideology and refuse to peek out the window to see whether the sun is shining or not. Incredible!

Sadly nobody will win this prize:

“Lord Wolfson, a prominent eurosceptic . . . is offering £250,000 to the person who comes up with the best plan for winding up the euro in an orderly way. The Wolfson Economics Prize . . . will be the second-largest cash prize for an academic economics after the Nobel Prize.” – Financial Times, October 19

Why? Because the ideologues in Europe refuse to accept that there is a problem with the euro, with deficits, and with the European bank. Sure they will admit to "problems" but not enough to actually address the oncoming catastrophe. This big prize won't be won because you can't "solve" a problem when the problem is stupid people blind to their own stupidy and refusing to even listen to the voice of reason!

Self-Inflicted Helplessness

The political and monetary authorities have behaved wonderfully since the 2008 collapse. They are shown brilliantly the technique called learned helplessness. Or so the story goes.

In truth, the leaders have simply ignored their responsibility and their capability and are abetted by their enablers, the media. Here's a bit by Dean Baker on his Beat the Press blog pointing this out:

The Post Wrongly Tells Readers That Central Banks Can't Do More to Boost Growth

In an article about the IMF reversing its pro-austerity stance, the Post told readers:

"Central banks, which have already reduced interest rates to extremely low levels, have little remaining ability to boost economic activity."

This is not true. Central banks could explicitly target higher rates of inflation. This would lower real interest rates and reduce debt burdens. This policy has been advocated by many prominent economists, including Paul Krugman, Ken Rogoff, the former chief economist of the IMF, and Ben Bernanke when he was still a professor at Princeton.

I'm reading Sylvia Nasar's Grand Pursuit and it really, really sad to realize that this same flailing about and impotence in the face of a crying need for action marked the 1930s as it does today. It simply means that tens of millions suffer because the "leaders" can't lead. Instead the leaders are fearful of "little voices" in their heads whispering about dreaded inflation or the need to appease some hidden actor requiring "confidence". Even in the 1930s there were a number of leading economists, Keynes being the preeminent example, who properly diagnosed the situation and gave political and monetary authorities the needed guidance. But then, as now, these "leaders" simply ignored the advice and played their hand as if the economy were a morality play requiring "excesses" to be punished by many, many years of suffering by the innocent, the unemployed workers with absolutely no responsibility for the crash.

A Day Late and a Dollar Short

The "poltics" in America is pathetic. Nobody is addressing the real needs. The major parties are playing a three card monte game with posturing and distractions. This day late and a dollar short politics has got to end.

Here's a bit from a relevant Robert Reich post:

Republicans are debating again tomorrow night. And once again, Americans will hear the standard regressive litany: government is bad, Medicare and Medicaid should be cut, “Obamacare” is killing the economy, undocumented immigrants are taking our jobs, the military should get more money, taxes should be lowered on corporations and the rich, and regulations should be gutted.

Four years ago the most widely-watched TV debate among Republican aspirants attracted 3.2 million viewers. This year it’s almost twice that number. And for every viewer assume a multiplier effect as he or she shares what’s heard with friends and family.

Americans are listening more intently this time around because they’re hurting and they want answers. But the answers they’re getting from Republican candidates – tripping over themselves trying to appeal to hard-core regressives – are the wrong ones.

The correct ones aren’t being aired.

That’s partly because there’s no primary contest in the Democratic party. So Republicans automatically get loads of free broadcast time to air their regressive nonsense while the Democrats get none.

But even if the President had equal time, the debate about what to do about the crisis would still be frighteningly narrow.

That’s because the President’s answers don’t nearly match up to the magnitude of the crisis.

Without bold alternatives, Americans desperate for big solutions are attracted to bold crackpot ideas like Herman Cain’s “9-9-9” proposal, which would raise taxes on the poor and cut them for the rich.

This is where the inchoate Occupy Wall Street movement could come in. What’s needed isn’t just big ideas. It’s people fulminating for them – making enough of a ruckus that the ideas can’t be ignored. They become part of the debate because the public demands it.

The biggest thing the President has proposed is a plan to create 2 million jobs. But that’s not nearly big enough. Today, 14 million Americans are out of work, and 11 million more are working part-time who’d rather be working full time.

The nation needs a real jobs plan, one of sufficient size and scope to do the job – including a WPA and a Civilian Conservation Corps, to put the millions of long-term unemployed and young unemployed to work rebuilding America.

I'm reading material from the 1930s and we've been down this path before. The politics is a distraction. We know how to fix the economy. It takes a big jolt of spending to fix the huge number of people caught in a credit squeeze. Pussyfooting around only stretches out the pain. Most politicians know this, but they aren't honest with the public. They would rather play their games and go for personal gain rather than do their duty and build a better tomorrow.

America's War of 1% Against the 99%

Here is a bit from a Bloomberg News report:

A widening gap between rich and poor is reshaping the U.S. economy, leaving it more vulnerable to recurring financial crises and less likely to generate enduring expansions.

Left unchecked, the decades-long trend toward increasing inequality may condemn Wall Street to a generation of unimpressive returns and even shake social stability, economists and financial-industry executives say.

“Income inequality in this country is just getting worse and worse and worse,” James Chanos, president and founder of New York-based Kynikos Associates Ltd., told Bloomberg Radio this week. “And that is not a recipe for stable economic growth when the rich are getting richer and everybody else is being left behind.”

Since 1980, about 5 percent of annual national income has shifted from the middle class to the nation’s richest households. That means the wealthiest 5,934 households last year enjoyed an additional $650 billion -- about $109 million apiece -- beyond what they would have had if the economic pie had been divided as it was in 1980, according to Census Bureau data.

Disputes over what constitutes economic fairness are moving to center stage amid a near-stagnant U.S. economy saddled with 9.1 percent unemployment yet boasting record corporate profits. President Barack Obama last month targeted “the wealthiest taxpayers and biggest corporations” for higher taxes, saying they should pay “their fair share.” That drew charges of “class warfare” from House Speaker John Boehner of Ohio.

The legacy or right wing politics, starting with Nixon in 1968 are obvious:

Since 1968, incomes in the U.S. have become steadily less equally distributed, according to the standard statistical measure of inequality known as the Gini coefficient. The U.S. Gini score rose from .39 in 1968 to .47 in 2010, meaning that incomes were becoming increasingly unequal.

And:

The typical American household, meanwhile, has yet to regain the ground it lost during the recession. The median income of $49,445 at the end of 2010 remained below the level reached in 1997.

And:

Raghuram Rajan, the IMF’s former chief economist, says countries with high levels of inequality tend to produce ineffective economic policies. Political systems in economically divided countries grow polarized and immobilized by the sort of zero-sum politics now gripping Washington, he said.

And:

The government’s response to the financial crisis may also have exacerbated the rich-poor gap by shifting liabilities from private banks to taxpayers. Households and businesses have trimmed their debts since the 2008 peak while government borrowing -- to recapitalize the nation’s banks and battle the recession -- has exploded.

As a result, total domestic nonfinancial sector debt topped $36.5 trillion at mid-year, compared with $32.4 trillion in mid- 2008. And that massive load leaves the economy vulnerable to future shocks.

“In the current climate, if nothing is done about income inequality there may be recurring crises,” says Kumhof, adding: “Leverage has not significantly improved. In terms of the danger of another crisis, we’re right back where we started.”

The problem is obvious and the people are in the street. Tragically the White House is occupied by an aloof, distant, non-politician more interested in "compromise" than in "solutions". It is looking like a situation where nothing will happen until enough blood runs in the streets to force the dithering politicians to "do their duty" and address the economic woes and return the American dream to people. Sad. An activist leader would be out in front of the mobs and defusing the situation. But Obama will dither until things boil over.

The Bloomberg article is excellent. Go read the whole thing.

How to Successfully Live in a Police State

Here is yet another example of the West's descent into a police state under the "War on Criminality" (or was that a "War on Terrorism"?) initiated by George Bush but vigorously prosecuted under Barack Obama. From a post by Cory Doctorow on BoingBoing:

Scottish mall-cop: it's illegal to take pictures in the mall; Scottish cop: photographers can have their devices confiscated under terrorism laws

by Cory Doctorow

A security guard in Braehead shopping centre near Glasgow questioned a man who was taking pictures of his young daughter looking cute while eating an ice-cream. The guard told him that photography in the mall was "illegal" and demanded that he delete any photos he'd taken while there. When the man told him he'd already posted the photos to Facebook, the guard summoned a policeman, who said that he could confiscate the phone under the UK's terrorism laws. The policeman took his details and "he was eventually allowed to leave."

The official statements from the mall and the police are maddeningly bureaucratic and every bit as stupid as the original incident: "a full review of the circumstances surrounding the incident and the allegations made is under way" say the police; "Our priority is always to maintain a safe and enjoyable environment for all of our shoppers and retailers," says the mall.

Just a reminder: pretty much everything that's legal on the public street is legal in a private store. A store or mall can have a policy saying "You can't wear purple here" or "You must enter the premises backwards" or "No photography allowed," but those are policies, not laws. A store's representatives can ask you to leave for violating their policies, but that's pretty much it (of course, if you refuse to leave, that's a different matter).

The "War on Terrorism" is like America's "War on Drugs". It has no end. There will always be drugs. There will always be terrorists. To start a war that has no end is very George Orwellian and reminds us that governments are not our friends. They are power mad crazies who will use any excuse to aggrandize power to themselves and ever more tightly circumscribe out lives to turn us into mindless robots "in service to the nation". Nuts!

Al Qaeda was a "police action". If Clinton had had the guts to do the right thing in the late 1990s Bin Laden would have been dead and there would have been no 9/11. If Bush had had the guts to do the right thing and put American boots on the ground in Afghanistan in 2001 they could have killed Bin Laden in the mountains of Tora Bora. One good thing I can say: Obama has the guts to use special ops to get the job done. He has taken out a fair amount of Al Qaeda leadership. Good for him. But Obama is no friend of liberty. He has clamped down on whistle-blowers. He has extended the hopeless "war" in Afghanistan. He has kept the torturers going in Guantanamo. He only meekly supported the Arab Spring.

Update... and here is more by Cory Doctorow on BoingBoing about the German government ignoring its own laws to spy on its citizens and insert malware that makes their computers vulnerable to attack by anybody.

Chaos Computer Club cracks Germany's illegal government malware, a trojan that spies on your PC and lets anyone off the street hijack it

By Cory Doctorow at 10:11 pm Monday, Oct 10

Germany's Chaos Computer Club published the sourcecode for a piece of malware used by the German government to spy on citizens. The software was discovered in the wild and reverse engineered. It can be used to spy on or control remote PCs. Because of flaws in the software, anyone who was infected with this by German police was vulnerable to spying by "anyone on the street." The German supreme court banned the use of trojans to spy on German citizens in 2008.

The analysis also revealed serious security holes that the trojan is tearing into infected systems. The screenshots and audio files it sends out are encrypted in an incompetent way, the commands from the control software to the trojan are even completely unencrypted. Neither the commands to the trojan nor its replies are authenticated or have their integrity protected. Not only can unauthorized third parties assume control of the infected system, but even attackers of mediocre skill level can connect to the authorities, claim to be a specific instance of the trojan, and upload fake data. It is even conceivable that the law enforcement agencies's IT infrastructure could be attacked through this channel. The CCC has not yet performed a penetration test on the server side of the trojan infrastructure.

"We were surprised and shocked by the lack of even elementary security in the code. Any attacker could assume control of a computer infiltrated by the German law enforcement authorities", commented a speaker of the CCC. "The security level this trojan leaves the infected systems in is comparable to it setting all passwords to '1234'".

To avoid revealing the location of the command and control server, all data is redirected through a rented dedicated server in a data center in the USA. The control of this malware is only partially within the borders of its jurisdiction. The instrument could therefore violate the fundamental principle of national sovereignty. Considering the incompetent encryption and the missing digital signatures on the command channel, this poses an unacceptable and incalculable risk. It also poses the question how a citizen is supposed to get their right of legal redress in the case the wiretapping data get lost outside Germany, or the command channel is misused.

Electronic Surveillance Scandal Hits Germany [spiegel.de]

Go read the original post to get the embedded links.

I love anything by Cory Doctorow. He is a smart dude and he is concerned about issues that are close to my heart: intellectual property rights, human rights, technology. I confess I've only read a couple of his fiction pieces. I know that's his "day job". But I love the hobbyist Doctorow more than the career Doctorow.

The 2008 Financial Crisis Keeps Rumbling Along

Here is a good video about the corrupt banking system and the huge sums involved. This looks at the Franco-Belgium bank Dexia and the surprising commitment of US Federal Reserve funds to save it and its current status as either the 2011 Bear Stearns or Lehman Brothers trigger for this next stage of the failing worldwide banking systems:

Michael Hudson on the Spreading Occupy Wall Street Movement

Here are some comments by Michael Hudson on the demonstrations:



I agree with Hudson that Obama is in the pocket of the big banks. But I don't believe that Obama has a "plan to cut wages by 30%". This is Hudson pushing his own ideological viewpoint. There is no evidence for this. If you want an honest critique of the Obama administration, read Ron Suskind's Confidence Men. One of the strengths of the Occupy Wall Street movement is that it has avoided getting co-opted by existing political groups right or left. Hudson is trying to sell you a hard left view. While much of what Hudson says is true, some of it is exaggeration. Dealing with politics is like walking in a mine field. Sadly political groups are cynical and manipulative. They will lie to sell you their viewpoint. You need to be cautious and test ideas against what you know and what your friends tell you.

For more background:

• Wikipedia has an article on Occupy Wall Street and there is the group's web site.


• When Michael Hudson gets exercised by big bank fraud, you need to read material by William K. Black, a bank regulator who has been writing extensively on this topic. Here is an excellent video interview by Bill Moyers along with the transcript of the interview.


• There is a mention of the Wisconsin protests where the Republicans have been destroying public unions and shifting the tax burden from corporations and the rich onto the bottom 90%.