Relentlessly Progressive Political Economy

What is up with Brad Delong?  It is like he is itching for a job in the Obama administration.  By his own admission he is no macro-economist but surely he knows the difference between effective demand at the level of the grass roots and supply push.  Then again maybe he is a macro-economists…of the fresh water variety.  Just read the following:

Even after central banks have pushed government bond prices as high as they can go, they should keep buying government bonds for cash, in the hope that people whose pockets are full of cash will spend more of it, and that this will directly pull people out of joblessness and into employment.

Here is a rather old fashioned idea: temporarily beef-up both the number of those covered by UI and the level of the replacement wage so that unemployed workers will have cash to spend on things like mortgages, rents, food and transportation.  Surely this seems better than hoping those who already have pockets full of cash will spend more of it and pull people out of employment.  And while unemployed workers are spending their UI, the Obama administration can find a little bit of breathing room to come up with a coherent plan to the financial mess instead of playing hanky panky ad hocery with the Fed, the Treasury and Wall street.

Dude trickle down is so like…the eighties.

Sweden’s Tax rates

Corporate Tax Rate: 28%

VAT: 25%, general rate; 12% for food and hotels; 6% for culture.

Personal Income tax rates: 29-35%;  above 327,600 SEK (approx 50,ooo CDN) another  20 – 25% (max 60%).

Capital Gains: 30%

Source:

http://www.isa.se/upload/english/factsheets/taxes_in_sweden.pdf

Remember back before the “there will be no recession or deficit” election when Harper mused about the excellent buying opportunities?  Well he thinks he finally found them. .. err well for Canadian banks that is.  The PM’s latest bout of market savvy was reported in the FT:

Canada’s banks should capitalise on the relative strength of their balance sheets by acquiring assets in the US and other countries, Stephen Harper, Canada’s prime minister, told the Financial Times on Monday….

Mr Harper indicated Canada’s banks could lead an eventual charge toward consolidation, and said he would support such efforts as “an opportunity for Canada to expand its role in the world financial sector”.

“I’m not going to try running banks, but I hope our banks will see this as an opportunity to build the brand – the country’s brand, their own brand – and to expand their scope and profitability over time,” Mr Harper said.

That’s the ticket!  An over bloated financial sector in Canada.  Just the kind of globally stretched, politically corrosive on the body politic, economic crap producing juggernaut that Canada needs as the cornerstone of its economy going forward.

Because it turned out to be such an impressive success for the UK and the US right?

I particularly like the line: “I am not going to try running banks.”   Buddy,  if you can not imagine running a bank why do you imagine you can run a country?

Who is this pie-eyed chruch mouse and why is he our PM?

I am not going to wade into the debate on whether the scheduled rather modest minimum wage increases in Ontario are a good thing.  I will, however, with pleasure reproduce this comment by a compassionate petty-proprietor over at the Star:

I have a business that has paid our employees $10.50 an hour to care for children with special needs. Three years ago that wage was good (until they graduated from college) but now its going to be minimum wage? What am I supposed to do, pay more to my employees so I don’t lose them or pay more and I end up making as much as my employees? People take the risk to start businesses to have a shot at the bigger things in life. I have a solid business, but the gov’t is screwing it up – spending my money to get themselves re-elected.

Classic, just a classic.

In his latest Op-ed Krugman seems to be getting closer to the nub of it.  Just a little further Paul you are almost home.

Much discussion of the toxic-asset plan has focused on the details and the arithmetic, and rightly so. Beyond that, however, what’s striking is the vision expressed both in the content of the financial plan and in statements by administration officials. In essence, the administration seems to believe that once investors calm down, securitization — and the business of finance — can resume where it left off a year or two ago.

To be fair, officials are calling for more regulation. Indeed, on Thursday Tim Geithner, the Treasury secretary, laid out plans for enhanced regulation that would have been considered radical not long ago.

But the underlying vision remains that of a financial system more or less the same as it was two years ago, albeit somewhat tamed by new rules.

As you can guess, I don’t share that vision. I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good. I don’t think the Obama administration can bring securitization back to life, and I don’t believe it should try.

Once krugman integrates some notion of stagnant wages and the privatization of debt via the massive extension of consumer credit he will arrive at an indictment of a growth model that goes well beyond a bloated financial sector.  He will, in short, end up indicting the very neoliberal growth model he once so proudly shilled for.

It would appear that Brad Delong is the only prominent independent “liberal” economist (that is not on the Obama bank role) that is willing to shill for the Geithner-Obama cash for trash program.  All the liberal Nobel (in memorial) Laureates have lined up against the plan not to mention Robert Reich and Jeff, Mea Maxima Culpa, Sachs.

Apparently the fact that Geithner has never won a multi-million dollar bonus is sufficient proof for Delong that little Timmy is no tool of Wall Street.  Well neither has Obama, but both men are surely acting as though they are the tools of Wall Street (click the Reich and Sachs links above).  Indeed, it is the overwhelming opinion that it is not just the Obama administration but that much of the senate and congress is also under regulatory capture by Wall Street:

Brad is quoted in the FT as saying:

“We have to ask ourselves: Do we want to revive our economy, or do we want to punish the bankers?” says Mr DeLong. “I don’t agree that we can do both.”

Sure you can Brad it is called nationalization.  And if you and much of the congress and senate were not so captivated by your ideology (and their self-interest) the banks would have been nationalized, the bankers and their shareholders wiped-out and thereby punished, and the tax-payers’ would eventually have some nice banks on their collective balance sheets which they could later sell back to the investment community.

When the most simple, most elegant and most effective policy is not being pursued it begs the question of why not?

And only three answers seem plausible: it is vested interests, ideology, or both.

That is the question.  If we go back to the recession of the early 80’s there was a false positive recovery.  If we go the recession of the 90’s we had one bad quarter follow the next.  This time around we seem to have the dynamics of at least a couple of recessions at play, hanky panky in financial and real-estate markets, overproduction / under-consumption all related to a huge credit overhang.

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As far as the markets are concerned there are a lot of people who got burned sitting on the sidelines waiting for a chance to be vindicated.  Yes sadly everyone over estimates their capacity to find the upside in a downside particularly losers–and man o man there are a lot of losers out there this time around.

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My pessimism says that we are going to have an extended period of bottom feeding.  One to two week rallies fuelled by hope and then dashed by reality; meanwhile labour markets and real consumption are going to continue to trend south as we have yet to hit subsistence levels.  When we get down to a general level of toilet paper and left-overs then we will have hit bottom.  From there stable profits and some population driven increases in profits will take over and pessimism will slowly change as pent up real demand starts to be supplied.

I tried, I really did.  I tried to ignore Flaherty’s bragging over the weekend and before that I tried to ignore Harpers hubris early in the last week.  But unfortunately I just can’t take it anymore because some nice fellow conjectured:

Now, with exquisite timing, the IMF has popped up with its views on the Canadian economy. And if this report (“Canada is better placed than many countries to weather the global financial turbulence and worldwide recession”) doesn’t vindicate Harper’s speech, I’ll eat it, page by crunchy page.

Yes but Harper went much further than that he said that Canada would be the first out of the recession.  When I heard that little turd on the radio I chuckled and paid no attention after two minutes: yadayadayda.  But then I had to listen to a full weekend of CBC overnight with all the public broadcasters from around the world endlessly cycling Flaherty’s flatulence:  the Canadian regulatory framework is the solution to all of mankind’s problems (boy would they have had egg on their face if they had a majority and changed that regulatory framework to how they and the banks would have wanted it).
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But let us put Harper and Flaherty on the same page.  Canada, by their logic was last into the recession because our financial system was sound and by extension that is the reason we will be first out of the recessionary gates.  Seems like good logic dont it?
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No it is bad logic and here is why.  Let us assume there is not any problem with the Canadian financial system (as in the massive liquidity operation between the banks and the state is just a technical operation: the healthy banks just need lots of liquidity right now ).  But that begs the question of why Canada fell into a recession in the first place.  If it is not related to our financial system then it must be related to Canada’s relative subordination within the hierarchy of the advanced capitalist world.  That is we entered the recession later than the others because we had to wait until the egregious problems in global markets manifest a dynamic in which even our superior banking system could not save us.
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How then does Canada recover before everyone else?  We are price takers not price makers and until prices are made we are simply a lady in waiting.  Explicitly stated: we are not in a recession because of our banking system; it therefore follows that the relative health of our banking system has nothing to do with when we exit the recession.  To reduce again: you can’t have it both ways.

Oh and Dan I will take that action

The StatsCan release is here.

All in all a fairly brutal LFS.  Ontario continues to get hammered suffering a disproportionate number of job losses and with the high wage sectors continuing to take a beating.  The only dimly bright spot in the LFS data being that outside of the number (volume) of unemployed no new records appear to have been set this month.  And while it is true that we are now at 1997 levels in terms of the absolute number of workers unemployed this obsevation ought to be tempered by the fact that there is a larger absolute labour force today than there was in 1997.

In terms of the actual unemployment rate, no new records (going back to 76) have as yet been set.  However, given the size of the LF actually increased this month the reported rate of 7.7% actually underestimates the degree of unemployment.

In the chart below I adjust for this by plotting a second measure of unemployment which simply divides the number of unemployed by the number employed (UE/E light).  The second plot (UER) is the standard rate.  What is interesting is the severity of the steepness in the angle of the increase of unemployment–it is steeper than the 90s recession and almost on par with that of the early eighties.

All that said there is a still a long way to go before we get to the unemployment rates of the ugly eighties and nasty nineties.  My gut says we are going to get at least to the record rates of the 1990s but the real fear is how long unemployment rates last rather than how high unemployment rates go.  That is, a record in the duration of above trend unemployment will be much more devastating than a record in the one month rate.

More to come

From old whiskers

The two characteristics immanent in the credit system are, on the one hand, to develop the incentive of capitalist production, enrichment through exploitation of the labour of others, to the purest and most colossal form of gambling and swindling, and to reduce more and more the number of the few who exploit the social wealth; on the other hand, to constitute the form of transition to a new mode of production. It is this ambiguous nature, which endows the principal spokesmen of credit from Law to Isaac Péreire with the pleasant character mixture of swindler and prophet.