Mark Blyth: A Brief History of How We Got Here and Why (includes the upside of Climate Catastrophe)

My notes:


Brexit makes no sense, pounds are a hedge between the dollar and euro, had the best deal ever.

David Cameron lost the referendum trying to improve on the best deal ever.

Greens are now the biggest party in Germany (left populist)

Computer Analogy:

Capitalist economic systems are like computers - same components arranged slightly differently.

50% of German companies don't list on their capital markets (retained earnings)

Americans have a huge, flexible labor market

Economic systems are like the operating systems of computers. You can't transpose American libertarian systems onto the Swedes, for example.

Three systems:

1870 - WWI The Gold standard:

Problem solved: Capital mobility without inflation. Argentina used the new steamship mobility to market their Pampas beef.

Potential problem of inflation solved. Open capital current accounts. Adjustments make wages (and prices) inflate and deflate.

Government is a minimalist night watchment to minimalize violence.

Heterogenous National Economies - globalization 1.0 - a profit-led growth model.

What crashed it? Answer: deflation, endemic to gold standard economies. This squeezes wage earners, prices, companies do less investment.

Wages are the main channel of adjustment (squeezing labor).

Gold hoarding shrinks global money supply (e.g. France), increasing the problem.

War incompatible with 'sound financie' and openness

Postwar hyperinflation...decimates

Did inflation bring Hitler to power? Not true. It's off by about 12 years.

II - Bretton Woods 1945-1980 

Policy target: full employment

Problems solved: employment (lesson of the great depression)

Restoring the world economy with U.S. dollars.

Open current accounts (for trade), but closed capital accounts. No currency trade, no big capital markets (perceived as a problem since the Great Depression).

Government is a quasi-cooperative welfare state. Incentives for (re-)investment in domestic enterprise, productivity. This only works in a closed economy.

Homogenous economies - everyone made cars, etc. Restricted finance to move manufacturing overseas.

COLA contracts, corporatism, wage-led growth.

High taxes & transfers
Construction of local economy cartels.

No one knows who runs the central bank (McChesney Martin)

What crashed II? Answer: Inflation.

When productivity can't keep pace with wage demands, this leads to negative returns on investment. So if inflation is persistent, it destroys the real return on capital. Capital hoards its cash...unemployment rises (= stagflation)

1945-80 was great for labor, a disaster for capital. Strikes are effective. Workers got "too empowered"

Capital revolted....privatize, integrate, dismantling labor, resetting the economy. Capital is free for the first time in 60 years. Wall street became very profitable, and (the flipside) everyone can get credit.

Bank's "assets" are really others' liabilities. The incentive for finance is to run down capital reserves, increasing leverage and returns, making fragility endemic.

Debts on top of debts (all "assets") leads to Ponzi finance. Houses became financial assets rather than dwellings. So Iceland had 10 x GDP in bank "assets"... Ditto for Germans, where one bank had 60 times GDP.

The fix?...No reset...a bailout. Public finance covers up the problem.

Lack of wage growth, private sector debt, means underlying issues lead to continuation of high debt.

Something is deeply wrong (bitcoin, immigration protests are symptoms).

Volatility constraint (the bailout) leads to an angry politics. Inflation hasn't significantly increased (~2%) but the stuff that people have to buy is much more expensive (40%). The technocrats can't understand why the population isn't happy.

Hourly compensation stagnates while productivity increases. Labor's share of the economy peaks in 1973, declining fairly steadily since.

95% of Americans works for wages, but the vast majority of the productivity improvement real income went to the top 1%. The bottom quintile has actually lost wages since... Benefits have been massively asymmetric, going mostly to the top, finance...(remember...their "assets" are the rest of the population's debt).

$17 trillion in Central Bank interventions save the Global Financial System...with no inflation as traditionally measured...even though healthcare, education, etc. is increasingly expensive.

Once labor loses all leverage, wages decline, private debt increases, and the government bails out finance.

...Old rules don't apply

Labor can't push up wages, even at full employment

Jobs can be moved abroad or automated

Unions are absent or powerless to command greater share of output

Immigrant labor gets politicized.

For Capital: Profit margins are super thin in most sectors (except digital monopolists) so employers hate to pay more.

Ruthless deflation in both labor and product markets leads employers to embrace volume!

The incentive is to do anything but push up prices

Product markets have seen ruthless deflation for 25 years.

Shareholder Value ideology also lowers investment (and boosts short-termism!).

Neoliberalism kills wage growth (ending labor cartels)

...It also kills product profitability, producing price deflation and monopoly profits (ending production cartels)

In the political "market," political cartels are guarding a 30-year-old system, without addressing underlying problems.

Politics is not just in trouble, it's inevitably totally revised...In europe and the U.S.


III - Neoliberalism Globalization 1980 - 2008

Policy target: price stability (controlling inflation and restoring the value of Capital).

Solution embraced: Global integration, open financial markets

Governance: globalist (e.g. WTO, EU), welfare state residualist. Elected governments struggle to remain relevant

Globalization of heterogenous economies
Open Financial Markets
Flexible labor markets
Low taxes and lower transfers
Profit-led growth models
End of local economy protections and cartels.
Privatization
Everyone knows who runs the central bank (Greenspan)

....
What happens next?

Growth becomes critically dependent on returns to finance.

Finance is constrained by structurally low rates

Debt reduction is constrained by low inflation, but debts can be rolled over

Sustained wage growth fails to materialize

Ever higher levels of inequality, and sharper urban / rural divides appear.

Take home: The "bailed" regime becomes politically unsustainable - Center parties fail - Neo-Nationalism becomes structural.

Populism is a feature, not a bug.

Debts are too high, wages too low to pay off debt, inflation is too low to eat debt.

Left response: blame capital / globalization.

Right response: blame immigrants / globalization.

***How did we get here & why?***

Growth models specialize: Germans: export, French: stimulate consumption, etc.

Each has a problem to solve but doing so creates weaknesses that are exposed in moments of crisis (WWI, 1970s inflation, 2000s financial crisis)

We move from regimes with deflationary biases (benefit capital and creditors) to inflationary regimes (benefit workers and debtors) and back again...

We are currently in an interregnum between the two types. (i.e. current deflation, favoring creditors is due to become inflation, favoring debtors)

The Game Changer: ***Climate change*** 

Is going back to national inflationary policy bad for climate adaptation?

Can Green New Deal projects happen fast enough to defuse popular protest? Probably not.

Nevertheless, the political right project must fail. The alternative is death. (A little Marxist in this "historical inevitability" pronouncement...but then he also confesses George Soros is paying him to opine about this...)

Hopeful signs: In 2016, China installed more solar in one year than the U.S. has...ever.

So China continues
The U.S. flips to the left
Europe has already headed left (the Greens are growing!)

...together, that's 80% of consumption.

This bypasses Global governance, which encourages free rides.

He admires Chinese policy making (but not everything). For example: China decentralizes its decisions...command-and-control dictating local governments follow the successes produced after an initial period of experimentation.

About Climate adaptation - markets can't internalize their externalities (sorry, CCL, this means you. In effect, he pooh-pooh's carbon taxes here.)

Markets will be much more national, much more government-led.

***********

Questions:

We're just becoming aware of what 8.3 billion pounds of plastic look like.

BRICS was based on a commodity export fantasy... Bad to be a commodity producer, unless you make a commodity called "U.S. dollars" (a fact that allows the U.S. to behave badly).

Party systems have collapsed, but we don't have to imitate China...

More about the splits in UK parties (Boris is UK Trump). French party failures are anticipated. China opened their capital markets and $1 trillion left the country, saying their economic elite would rather live in Vancouver than anywhere in China. Political economy is incredibly fragile.

More volatile politics will reflect the circumstances.

As for the wealthy, money is not an exit strategy. He doesn't really believe hard core denial is more than 15% of the population. A critical event--e.g.  Miami loses drinking water--and perhaps oil companies coming out in a multi-billion-dollar settlement for climate change, which will happen, just like big tobacco--we'll get action.

Even if you don't believe it, all the incentives point all one way.

There's no inflation constraint on the global hegemon creating enough currency to address the problems.

MMT (Modern Money Theory) has a problem with imports. The inflation constraint prevents it, in the UK. The U.S. has no such constraint.

The political right has more capability to run an MMT-type intervention. The left talks about it, but the right just does it.

China does MMT behind capital controls, and the U.S. does too, but could do a lot more.

U.S. universities will fire people for saying controversial things.

The U.S. is not a democracy, it's a plutocracy. But even the plutocrats can't even afford to tell themselves too many lies because they'll lose money. That's why Wall St. Journal is notoriously accurate.

China has no rule of law, courts, etc. It takes centuries to create that (in China, in Eastern Europe). Latvia has enterprises that are just giant tax dodges for the Swedes to launder money. Capitalist can trust they'll get their money, redeeming investments, when courts are at least marginally honest. That limits their ability to destroy government.

Climate change is the "deus ex machina"...the exogenous force that will make the change necessary.

Zero carbon by 2050 is impossible. ... but technological progress and the trends in politics are hopeful. It's far less ideological than it seems.

The EU calls the Green New Deal what we already have on the books. The "left" isn't that radical.

Chinese exports have peaked in 2008, as a percentage of GDP...it can't help but import dollars. It's using those dollars to build belt-and-road so they're not at the mercy of Trump (because their accumulated wealth is in dollars).

India may use their carbon dependence to extort concessions from the rest of the world.

Global solutions may not exist...e.g. the refugee crisis in Europe. Local solutions applied there.

Economics, News Media, and Propaganda

by mikethemadbiologist

While many high-end journalists and editors will deny it, there is definitely an ideology present at newspapers like the NY Times and the Washington Post. Economist Dean Baker has the details (boldface mine):

I got a taste of this propaganda effort first hand earlier this year when I was asked by an editor at the Washington Post to write a piece on Modern Monetary Theory (MMT). While I’m largely sympathetic to MMT (it’s essentially Keynesianism – that’s not an insult, the name is taken from a phrase in the Treatise on Money), I have some differences. In particular, I am not willing to give up having the Fed as a check on inflation.

I also think the proposal for a job guarantee is a very big lift. It is a good idea in principle, but one that must be moved towards gradually with smaller programs like this one recently proposed by Senator Chris Van Hollen. Jumping to a program that could add 20 to 30 million people to the government payroll strikes me as a recipe for disaster.

There are also Twitter MMTers who view it as meaning the government can spend whatever it wants on things like Green New Deal or Medicare for All. This is not a view that the leading promulgaters of MMT hold, but for some this is what the theory means.

Anyhow, I was happy to make these points in a column in the Post, as I have done elsewhere. I went through a couple of rounds of edits, with the editor both times making the piece more critical. I decided to throw in the towel after round two. The editor wanted me to include a needlessly snide remark from a MMT critic and had me referring to the theory as “dangerous.”

That comment left little doubt that they wanted a different column than the one I had written. MMT is dangerous?

How much output has the austerity pushed by the Post’s regular contingent of commentators and reporters cost the country? More importantly how many lives have been ruined by needless unemployment and the resulting loss of income and poverty?

Seeing the needless hardship the country has endured because of austerity since the Great Recession, it really takes some nerve to refer to MMT as “dangerous.” Anyhow, I suspect the Post’s editors are immune to criticism. Just like the millions who mindlessly pledge allegiance to Donald Trump, they will push the austerity line they have always pushed regardless of the evidence.

Faced with the existential crisis of the Trump presidency, there is the temptation, along a need, to view the Washington Post which, despite a handful of columnists, is clearly in the anti-Trump camp, as an ally. If they are an ally, they are allies of convenience. If Democrats regain power in 2021, have no doubt that their sweeping incrementalism will come to the fore again. Removing Trump is the first step. The work of preventing a smarter, more diligent and ruthless Trump will be much harder.

George Monbiot tells a new story

What about that national 'debt'?

The question comes up often. Here's my answer:

The key to understanding national 'debt' is that it is nothing like household debt. It's like bank debt. If you have a bank account, that's your asset, but to the bank, it's a liability, a debt. It's the money they owe you.

When you write a check, operationally, you're assigning a portion of the bank's debt to the payee. Currency amounts to checks drawn on our central bank (the Fed) made out to "cash" in fixed amounts. The Fed carries not just bonds, but currency issued on its books as a liability, too. Currency is analogous to a checking account's asset/liability, and Treasury bonds & bills are analogous to savings accounts (they pay interest). Just as checks are IOUs, dollars are IOUs. What are we owed for a dollar? Answer: relief from an inevitable liability--taxes.

Now imagine a group of depositors marching down to their bank (with torches and pitchforks) to demand...demand, I tell you!...that the bank diminish its debt. (In other words, reduce the size of their accounts)... Not very sensible, is it? Yet that is exactly the spectacle American media would like to create. (Check out the Time magazine cover here.)

Shouldn't we raise taxes though? Remember: The monopoly creator of dollars cannot be provisioned by tax revenues because people need the dollars first, before they can pay the taxes. Dollars don't grow on billionaires.

So it's not "tax and spend," it's "spend first, then ask for some back in taxes." What do we call the dollar financial assets left out in the economy, not retrieved by taxes? Answer #1: the savings of the citizens. Answer #2: national 'debt'... Both answers refer to exactly the same thing. Taxes make the money valuable; they do not (and cannot) provision federal programs. Ask yourself: Where would people get the dollars to pay taxes unless the government spent them out into the economy first?

Is national 'debt' a problem to a sovereign, fiat currency issuer (with a floating exchange rate, and most debt owed in that currency)? Never! Such a currency creator can never run out of money, and can never be involuntarily insolvent. We can no more run out of dollars than the Bureau of Weights and Measures can run out of inches.

This means making national 'debt' into a bad thing is just an excuse for austerity (cf Nancy Pelosi's "PayGo"...something I've read was also a key policy in Edmund Muskie's presidential campaign against Nixon)....They'll say: "Oh, it would be nice to do [some socially beneficial thing], but we simply don't have the financial resources" ... That is the cry of the "Fiscally Responsible[tm]" ... It's bullshit, but very convincing bullshit.

Please also note: Greece is no longer a monetary sovereign, and because it uses euros, and cannot issue drachmas, it's at the mercy of the EU and ECB. This is a very clever way the financial sector is sabotaging the European welfare state, too. We can't have the example of happy populations to contrast with the debt peonage we currently enjoy!

So why is the economy doing well (in some areas) under Trump? Answer: Because the national 'debt' is getting bigger, so the population has more dollar financial assets. <sarcasm>Of course this goes mostly to the rich, but really, they're so much more deserving! </sarcasm>.

And, conversely, why did we have the Great Recession? Not that it's easy to assign causality in a complex / chaotic system like an economy... But it sure looks like it was because Clinton had to be "Fiscally Responsible[tm]" and run a surplus (i.e. diminish the savings in the hands of the population). You can read more about this from MMT's Randall Wray here.

So the Democrats have not been our friends. (See Thomas Frank's Listen Liberal: Whatever happened to the party of the people)

The genocidal Andrew Jackson paid off national 'debt' entirely in 1835. He also closed the central bank, and for his trouble, he got the Panic of 1837.

I told that interpretation of history to a history maven acquaintance, and he replied that attributing the panic to Jackson's debt payoff wasn't accurate. What really happened is Jackson cleared the Indians out of the Southeastern U.S., releasing thousands of acres for cotton plantations. The plantations borrowed heavily to buy the slaves to farm that land, and the resulting surplus in the cotton crop crashed the price, even with 60% of the crop warehoused. The lenders demanded payment that the cotton sales could not support, and a wave of asset forfeitures and foreclosures ensued. That, claimed my history maven, was what caused the Panic.

But take a look at what happened with that 'debt' payoff: the dollar financial assets of the population were withdrawn by Jackson's action. National currency ceased to exist, and gold and bank notes took its place. Without savings, planters were at the mercy of the cotton markets. When the markets failed to deliver the expected income from the sale of their cotton crop, the planters had no backup savings, no reserves with which to pay their loans. So paying off the national 'debt' injects fragility into an economy.

This applies even when currency is (incorrectly) not counted as debt. Lincoln fought the Civil War with greenbacks, but didn't bother to call them debt. When the war was over, the federal government withdrew the greenbacks, and a deflationary spiral set in. Lawrence Goodwyn (The Populist Moment: A Short History of the Agrarian Revolt in America) says there was more currency in Connecticut than in the entire Confederate South.

What did Southerners do? They bought goods on credit from the "Furnishing Man" (later shortened to just "The Man")...at interest rates that would make a payday lender blush. It's not for nothing Southerners hate Northern banks. A life of debt peonage can do that to a person.

OK...that's my summation of the Modern Money Theory (MMT) understanding of national 'debt.' You can read more at the link above, or on my blog (here, here, and here--that last one has an answer to the inevitable "What about inflation?" question--for example), check out videos (here). I'm certainly not the author of all those links, but I get my licks in where I can...;-)

PAYGO strikes again!

Remember when Dems put PAYGO in the rules package and people like me (who raised hell) were told not to worry because it would be waived off as necessary to pass important legislation? https://t.co/Pd97gv8sqq

— Stephanie Kelton (@StephanieKelton) July 18, 2019

Wolves transform geography

Dissent

Lately, dissent itself has come under attack. I'm not just referring to the occupant (of the Oval Office) telling his critics to "love it or leave it" (see Watch Ilhan Omar, Alexandria Ocasio-Cortez, Ayanna Pressley and Rashida Tlaib Answer Donald Trump’s Racist Lies), I'm talking about the so-called "opposition party" (the Democrats) and their response to internal dissent. I've lost count of the number of "good" Democrats I've heard tell others how we need to unite, and avoid the "circular firing squad." Remember, the congress members Trump criticizes have also come under attack from Nancy Pelosi.

But wasn't small "d" democracy designed to include dissent? Isn't that the point? Without dissent, we have a plutocracy, or an oligarchy, not a democracy. Actually, we pretty much have an oligarchy now, says one Princeton study.

In any case, it would be terrible advice to suggest someone bargaining at a bazaar give up his/her right to walk away from a transaction. Telling them to do so preemptively would be even worse. That gives all the power in the transaction to the merchant (or to the employer, in a labor negotiation).

Nevertheless, the "Democrats" seem to unite around the anti-democratic principle of avoiding dissent, just as much as the love-it-or-leave-it crowd.

Built on sand...

[from Naked Capitalism]


“Sand Mafia” (a continuing series) [National Geographic]. “Our modern civilization is built on sand: concrete, paved roads, ceramics, metallurgy, petroleum fracking—even the glass on smart phones—all require the humble substance. River sand is best: grains of desert sand are often too rounded to serve as industrial binding agents, and marine sand is corrosive. A United Nations study calculates, however, that humankind’s total consumption of sand—more than 40 billion tons a year—is now double the amount of sediments being replenished naturally on the Earth by the sum of the world’s rivers. Today, sand has become so valuable that it is shipped enormous distances: Australia sends boatloads of sand to Arabia for land reclamation projects. China, the world’s builder, is also the planet’s sand glutton. Between 2011 and 2014 alone, the Chinese poured more concrete—made up largely of sand—than the United States used during the whole of the 20th century. With its exploding megacities, India ranks second in the world’s sand consumption.” • “Our modern civilization is built on sand.” No kidding!

Zoning: Planning, Suggestion, or Baloney?

(c) by Mark Dempsey

California's recent housing affordability crisis leads to some conversations about zoning and NIMBYism (see the Davis Vanguard's The Expansion of NYMBYISM into Zoning). But looking for the causes of real estate dysfunction or the traces of racism in zoning alone is far too modest. The American attack on the lesser races and religions has been multi-generational, and multi-dimensional. Yes, zoning is often racist baloney, but it's just the appetizer.

Setting aside the disproportionate victimization of communities of color in crooked (subprime) mortgage and foreclosures, for an example of how deeply racist the U.S. has been, consider how Harry Truman proposed single-payer healthcare for the U.S, but was denied congressional approval because the Dixiecrats were concerned they would have to integrate their public hospitals, perhaps even their blood banks. For party purists concerned that Bernie Sanders isn't a "real Democrat," take note that the Dixiecrats were indeed real Democrats (until Richard Nixon persuaded them to become Republicans), and were essential to FDR's New Deal--an otherwise noble scheme that included "Redlining"--restricting government-backed mortgage financing to the lesser races and their neighborhoods 

Redlining and its sister strategy, deed restrictions that prevent selling property even to Jews, much less people of color, have long been declared illegal in our modern age, but the effects linger far past their inception. One UC Davis professor (Jesus Hernandez) has maps demonstrating even more recent public expenditure has avoided the poor side of town, showering public benefit, transit innovation, parks, recreation, etc. on the wealthy while pinching pennies for the poor.

Zoning itself is a scam, and as practiced in local governments it could not possibly be implemented, except in service to plausible deniability. In Life and Death of the Great American City  Jane Jacobs says "Modern planning is positively neurotic in its willingness to embrace what does not work and ignore what does...It's a form of advanced superstition like [19th century] medicine that believed bleeding patients would cure them."

What our region's "planning" departments practice is zoning based on uses. Zoning typically originates with a group of citizens sitting around a map of their neighborhood. One will point to some undeveloped land, saying "This should be residences." Another may disagree: "It should be a shopping center." ... and the debate continues until the citizens and their planning staffer agree on a zoning designation. Such zoning decisions often precede actual development by a decade or more. When it's built, will the market want apartments, shopping or something else? Builders agonize about what the market wants six months in advance of committing to build something. Accuracy a decade in the future is not something we can expect.

Yet the zoning scam continues. One parcel near my house had four such plans: Regional Blueprint, County General Plan, Community Plan and a "Special Planning Agreement." Which one was actually built? Answer: None. Such "plans" barely rise to the level of suggestions.

The consequence of specious "planning" is the churn of rezones--requests to change existing zoning. A local architect tells me that in 2006, the Sacramento region's governments saw developers of  35,000 acres propose rezone.

We could have zoning that actually planned something if it were "form-based"--proposing big buildings here, medium-sized ones there, and little ones yonder. Then the market would decide what uses builders built, and we could plan and size infrastructure decades in advance to match the intensity of development.

Unfortunately, many traditional affordable housing solutions have been squashed by the collusion of finance and "planning."  Where are the boarding houses, for one example? And what about residences above retail in all those shopping centers? These are classic patterns that serve their residents, but are scarce except in old neighborhoods--the ones you can't afford to live in now because they are so treasured.

Unfortunately, we build our cities now for investors, not for their inhabitants.

--

Mark Dempsey is a former Realtor and former vice-chair of a Sacramento County Planning Advisory Council.