Double-Dip Recessions and the Strange Tale of Final Demand
from Dean Baker
The 2.4 percent GDP growth figure reported for the second quarter caused many economists to once again be surprised about the state of the economy. It seems that most had expected a higher number. Some had expected a much higher number. It is not clear what these economists use to form their expectations about growth, but it doesn’t seem that they have been paying much attention to the economy. For those following the economy, a weak 2nd quarter growth number was hardly a surprise. Read more…
Oil spill numbers
from David Ruccio
The numbers just keep climbing, now making the BP oil spill in the Gulf of Mexico by far the largest in U.S. history and perhaps the largest in world history.
According to the Washington Post, the blown-out Macondo well released oil and natural gas at a rate 12 times faster than the government and BP estimated in the early weeks of the crisis and has spilled a whopping 4.9 million barrels, or 205.8 million gallons, to date. Read more…
Comment of the month (July): Why wasn’t there a Great Depression before the Great Depression?
Merijn Knibbe commenting on The right prescription for an ailing economy
Economists Tell the Masses: “It Could Have Been Worse”
from Dean Baker
It is amazing that angry mobs have not risen up and chased all the economists out of the country. While the greed of the Wall Street gang provided the fuel for the bubble, the economists played an essential role as enablers. This was most directly true for economists in policymaking positions, like Alan Greenspan at the Fed.
It was Greenspan’s job to stop the housing bubble. A competent and honest Fed chair would have recognized the bubble by 2002 and taken whatever steps were necessary to rein it in. And we should be 100 percent clear, in spite of all the song and dance about how the financial reform bill will prevent another bailout, the Fed absolutely had all the tools needed to stop this disaster. They just lacked either the competence or the integrity, or both.
The high cost of high profits
from David Ruccio
The oil and gas industry knowingly endanger its own workers, the environment, wildlife, and communities in states across the United States—all in pursuit of high profits.
The National Wildlife Federation has just issued a report, “Assault on America: A Decade of Petroleum Company Disaster, Pollution, and Profit,” in which it explains that major oil spills (such as the ongoing BP spill) are really only a small part of the real story.
From 2000 to 2010, the oil and gas industry accounted for hundreds of deaths, explosions, fires, seeps, and spills as well as habitat and wildlife destruction in the United States. These disasters demonstrate a pattern of feeding the addiction to oil leaving in their wake sacrifice zones that affect communities, local economies, and our landscapes.
Here’s a map of accidents and spills in the past decade: Read more…
How to build a narrative linking the various heterodoxies: Part 2
A month ago we began Part 1 of a discussion on how to build a narrative linking the various heterodoxies so as to have an alternative paradigm with which to challenge, both in the media and the classroom, the neoclassical/neoliberal mainstream. To start Part 2, the geophysicist Geoff Davies has contributed the following short essay.
The Nature of the Beast
Geoff Davies
The need for a new conception of economics is widely acknowledged in the wake of the global financial crisis[i], at least outside of diehard neoclassical circles. However a common perception seems to be that no adequate and coherent general conception is in sight, though many loosely related or unrelated heterodoxies vie for attention, as noted by the Editor of this blog. I argue here that when the subject is approached from the point of view of dynamical systems a broad new framework becomes evident. Furthermore, once the nature of the beast is identified, some fundamental conclusions can immediately be drawn. Read more…
The Budget Deficit Chicken Hawks
from Dean Baker
Most people are familiar with the concept of “chicken hawks.” Chicken hawks are the politicians who are anxious to send other people to risk their lives in war, but somehow managed to avoid service when they had the opportunity to fight themselves. Former Vice-President Dick Cheney and former President George W. Bush are the leading members of the chicken hawk society.
It turns out that we have a similar story with budget policy, where there appears to be a large contingent of budget deficit chicken hawks. The deficit hawks have been filling the news lately. These are the folks who are yelling that something terrible will happen if we don’t reduce the deficit. Most of them seem to have missed the fact that something terrible is now happening. We have almost 15 million people unemployed and 9 million underemployed, with several million facing the loss of their home in the next few years.
People of all ages are seeing their lives wrecked by a economic disaster that was entirely preventable, if the folks running economic policy were not too incompetent to notice an $8 trillion housing bubble. In fact, one of the reasons that this bubble did not get noticed was that even before the bubble burst – creating large deficits – the deficit hawks were running around yelling about the deficits. These deficit hawks were able to get far more attention for their whining than the people who were warning about the dangers posed by the housing bubble.
In the Economist: Conventional economic models failed to foresee the financial crisis. Could agent-based modelling do better?
from Bruce Edmonds
Agents of change
Conventional economic models failed to foresee the financial crisis. Could agent-based modelling do better?
Jul 22nd 2010
http://economist.com/node/16636121
Peak oil — the writing is on the wall
From Lewis L. Smith
There is no longer any doubt that world production of crude oil [however defined] is going to peak within everybody’s planning horizons, if it hasn’t done so already. The only argument is over when.
The turning point in discussions of this subject came in 2008 when the Saudis stopped talking about producing 10 to 25 million barrels per day for the next 50 years and admitted that their production was going to peak at 12 million barrels per day within a few years and then begin to decline, until all their wells are capped.
Today the forecasts range from 2004 [Dr. Rafael Sandrea — conventional crude] to 2032 [Exxon/Mobil — all crudes] , with a preferred range of 2010 — 2015.
Needless to say, for strategic and electric-utility planners, these dates are “just around the corner”. Read more…
Exchange between Arrow and Davidson on debt
Dear Professor Davidson,
I must respectfully but strongly disagree with the implications of the statement by you, Lord Skidelsky, and my friend, Jamie Galbraith. The existence of a large public debt is a burden, especially in that it will inhibit deficit spending in future recessions. Deficits require someone to buy the newly issued securities; people already holding a large amount of government debt will demand higher and higher rates of return to hold more. There was an argument about the “burden of the debt,” in the 1960s; it was summed up in an excellent paper by Franco Modigliani, who, however, did not go into the implications for future counter-cyclical policy. Without going into details here, the point emphasized by Modigliani was the displacement of private investment. His model presupposed the absence of the Ricardo effect; if there were a Ricardo effect (prediction of future tax burdens due to debt issuance), then Keynesian policies could not possibly be effective, since people would increase saving to compensate for the deficit. Hence, the same argument that deficit financing is stimulating implies that public debt can be a burden. Read more…
Matrimony
I am getting married tomorrow. Will be back managing this blog on August 2.
Are We all Structuralists Now?
In the immediate aftermath of the global financial crisis even the deepest market fundamentalists embraced the core Keynesian insight that when in deep recession, monetary policy will be ineffective and fiscal stimulus is required. They have now abandoned that view as calls for fiscal austerity abound regardless of the increasingly fragile nature of the global recovery.
While economists and policy-makers debate the short and medium-term remedies to the crisis, there is an incredibly surprising and under-discussed consensus emerging for the longer run. From the Financial Times to the South Centre there is agreement that the United States and East Asia (notably China) have to change the ‘structures’ of their economies.
The US has to stop over-consuming on credit and actually produce things for export again. East Asian nations have to slow down their over-reliance on exports and increase domestic consumption. Another way of putting it: the key actors in the world economy need to undergo structural change.
So are we all structuralists now? Read more…
A statement from Professors Paul Davidson, James Galbraith and Lord Skidelsky
and now co-signed by many of our friends, including Joseph Stiglitz, Robert
Reich, Laura Tyson, Derek Shearer, Alan Blinder and Richard Parker. We
support the central objective of the letter — a full employment policy
now, based on sharply expanded public effort. Yet we each, separately,
declined to sign it.
necessity of a program to cut the mid-and long-term federal deficit.. “
Since we do not agree with this statement, we could not sign the letter.
effects of unemployment itself the United States does not in fact face a
serious deficit problem over the next generation, and for this reason there
is no “necessity [for] a program to cut the mid-and long-term deficit.” Read more…
Political business cycle
from David Ruccio
It’s not a liquidity trap, as the Keynesians want to see it, and it’s not a real business cycle, which is how it looks to the neoclassicals. It’s a political business cycle. And economists would know that if they ever read the work of Michael Kalecki.
But, of course, they don’t. And they don’t teach it to their students either. Essays like Kalecki’s “Political Aspects of Full Employment” [pdf] just aren’t on their reading lists.
If they did read Kalecki, they’d discover a prescient analysis of the current situation. Kalecki summarizes the debate concerning the “economic doctrine of full employment” (which seems not to have changed much in the past 60 years) and then analyzes the “political problems involved in the achievement of full employment.” Here’s Kalecki’s analysis of business opposition to measures designed to achieve full employment: Read more…
Exchange between Paul Davidson and Sir Harold Evans regarding the stimulus programs and the deficit
From: Evans, Harold Sent: Mon 7/19/2010 6:25 PM
To: Davidson, Paul
Subject: Reboot America – from Sir Harold Evans
Dear Paul,
Earlier today I was joined by Joseph Stiglitz, Alan Blinder, Robert Reich, Laura Tyson and several others in a call to action urging our leaders to get the economy back on track and the American people back to work. I am sending this to you with hope that you will join us with your support. Full recovery of the economy begins with replacing the lost purchasing power of the millions of unemployed and focusing on deficit reduction only after we create more jobs. If you would like to sign your name along with other leading economists and thought leaders to push Congress to support American families please respond to me here and pass this along to your networks as well.
With all of us together we may yet stave off a 1930’s economic collapse as long as we learn from the lessons that caused it.
Sincerely,
Sir Harold Evans
From: Davidson, Paul Read more…
US-South Korea Free Trade Agreement: Out of Control
South Korea will join the growing group of nations that have recently resorted to currency controls in the wake of the global financial crisis. As a rash of new research has shown, such controls are legitimate tools to prevent and mitigate financial crises.
Yet if the pending South Korea-US free trade agreement that the US just agreed to expedite at the G20 meetings had been ratified by now, South Korea’s actions would be deemed illegal.
As the Obama administration works to put Bush-era trade policy behind and forge a “21st century trade policy” it should fix this flaw that could be fatal to South Korea’s financial stability.
Like many other emerging markets Read more…
The Path of Unemployment in the Great Recession
from Dean Baker
It has been two-and-a-half years since the recession officially began in the United States. While the economy has been growing for more than a year, unemployment remains near the 10.1 percent peak of October 2009. Few economists predict a rapid decline from its June level of 9.5 percent and, with stimulus being phased down over the next year, it is very plausible that the rate will edge higher in coming months.
The US, unlike most western European countries, is not set up to sustain long periods of high unemployment. Its system of social welfare is very much centered on work. This is most evident with health care. The vast majority of non-elderly people get their health care through employer provided health insurance. Individual policies tend to be very expensive, especially for people with any history of medical problems. When people lose their jobs, they generally lose their health care coverage as well. While there is a public program for low-income families, it doesn’t cover most of the unemployed, and the quality is often quite poor. Read more…
‘Til death do us part. . .
from David Ruccio
Americans already work longer than in most countries. Now, it looks increasingly likely they won’t be able to retire. That means they’ll have to continue working until they die.
U.S. workers already have a higher retirement age than most of the rest of the developed world.
Comment of the week: Surely economics is, and economists are, better than this
Peter Radford commenting on The GFC, the Great Recession and three structural changes in the US economy
All these three speak to an underlying common theme: the widespread acceptance throughout the ‘elites’ within policy making, business, and academia of the meld between neoclassical orthodoxy and individualist politics to create a powerful ideology. This ideology enabled the structural changes you speak about.
It became taboo to question the kind of outcomes you mention because those outcomes were deemed beyond the remit of orthodox economics. We had to accept them as they were, as long as ‘markets’ were unencumbered by government or other institutional infringements, and as long as the public could be persuaded that government ‘was a problem’, to paraphrase Reagan. The neat fit between positive economics and anti-government politics was made complete by the Lucasian project, which seems purposely designed to me, as an outsider, to be unreconstructed laissez-faire in a mathematical disguise. Read more…
2009 was a very good year
from David Ruccio
As it turns out, 2009 was a very good year—for those at the top, although certainly not for the rest of us.
First, the bad news: according to the ILO’s Global Employment Trends [pdf], the global unemployment rate for 2009 was estimated at 6.6 percent, which meant that at least 212 million were unemployed worldwide—an increase of almost 34 million over the number of unemployed in 2007. Global youth unemployment increased by 10.2 million in 2009 compared to 2007, the largest rise since 1991. Even among those who kept a job, the numbers of both those who had vulnerable employment (defined as the sum of own-account workers and contributing family workers) and the working poor (earning $2 a day or less) increased. Read more…
Authors
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Edward Fullbrook
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pesod
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frankackerman
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paul davidson
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iettogg
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paul ormerod
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Kevin P. Gallagher
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Peter Dorman
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deanbaker1
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Mark Weisbrot
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Steve Keen
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David Ruccio
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Jim Stanford
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Peter Earl
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Peter Earl
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jamieamorgan
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Lewis L. Smith
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lost in the wilderness
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staveren
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bruceedmonds
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frankrotering
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Editor
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donaldgillies
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Deniz Kellecioglu
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