I often like working with a hangover because my mind is crackling with energy and I can think very clearly
October 28, 2013 § Leave a comment
September 3, 2013 § Leave a comment
When I was living on £10 a week for food, because of mistakes with housing benefit payments, I didn’t need a hug. I needed a fiver, just to have a little bit more to eat. I didn’t need to be teleported to Sicily to see how the street cleaners ate, I needed someone to point out that the 21p can of kidney beans could be the staple ingredient in a nutritious meal. I needed practical advice about what to do with the tins of food given to me by the food bank.
As I said in an earlier blog post: “Try it. For a month, or two, or five. Unscrew your lightbulbs, turn off your fridge, sell anything you can see lying around that you might get more than £2 for. Missing days of meals, with the heating off all winter, selling your son’s shoes and drinking his formula milk that the food bank gave you. Stop going out. Walk everywhere, even in the pouring rain, in your only pair of shoes, with a wet and sobbing three-year-old…
“Drag that three-year-old into every pub and shop in unreasonable walking distance and ask if they have any job vacancies. Get home, soaking, still unemployed, to dry out in a freezing cold flat. Then drag yourself to the cooker to pour some pasta into a pan, pour some chopped tomatoes on top, and try not to hurl it across the room when your son tells you that he doesn’t like it… You’re full of rain and heartache and anger and despair and it’s starting to seep through the cracks…”
This person does not pop down to a local market and smile sweetly at the stallholder for a handful of gourmet vegetables. This person throws whatever is in the cupboard into a saucepan and prays that her child will eat it. read more
ART: Henri Rousseau
I see he’s just typed out, ‘The cat’s in the bag, and the bag’s in the river.’ It took my breath away, right from his brain to my brain
May 22, 2013 § Leave a comment
To insist that the Spanish crisis is the consequence of venality, stupidity, greed, moral obtuseness and/or political short-sightedness, which has become the preferred explanation of moralizers across Europe begs the question as to why these unflattering qualities only manifested themselves after Spain joined the euro. Were the Spanish people notably more virtuous in the 20th century than in the 21st? It also begs the question as to why vice suddenly trumped virtue in every one of the countries that entered the euro with a history of relatively higher inflation, while those eastern European countries with a history of relatively higher inflation that did not join the euro managed to remain virtuous.
The European crisis, in other words, had almost nothing to do with thrifty Germans and spendthrift Spaniards. It had to do with policies aimed at boosting German employment, the secondary impact of which was to force up German national savings rates excessively. These excess savings had to be absorbed within Europe, and the subsequent imbalances were so large (because German’s savings imbalance was so large) that they led almost inevitably to the circumstances in which we are today.
For this reason the European crisis cannot be resolved except by forcing down the German savings rate. And not only must German savings rates drop, they must drop substantially, enough to give Germany a large current account deficit. This is the only way the rest of Europe can unwind the imbalances forced upon the region in a way that is least damaging to Europe as a whole. Only in this way can countries like Spain stay within the euro while bringing down unemployment.
But lower German savings don’t mean that German families should become less thrifty, only that the average German household should be allowed to retain a much larger share of what Germany produces. If Berlin were to cut consumption taxes, or cut income taxes for the lower and middle classes, or force up wages, total German consumption would rise relative to GDP and so national savings would fall – without requiring any change in the prudent behavior of German households.
To ask Spanish households to be more “German” by saving more is not only impractical in an economy with 25 percent unemployment (it is hard for unemployed workers to increase their savings), it is counterproductive. Lower Spanish consumption can only cause even higher Spanish unemployment, until eventually Spain will be forced to abandon the euro and so regain control of its ability to absorb or reject German imbalances. This abandonment of the euro will be driven by the political process, as those in the leadership (of both main parties) who refuse to countenance talk of leaving the euro lose voters to more radical parties until they, too, come around. read more
FILM: Tedd Tramaloni
April 10, 2013 § Leave a comment
So back to the 70′s, and continuous oil price hikes by a foreign monopolist. All nations experienced pretty much the same inflation. And it all ended at about the same time as well when the price of crude fell. The ‘heroes’ were coincidental. In fact, my take is they actually made it worse than it needed to be, but it did ‘get better’ and they of course were in the right place at the right time to get credit for that.
With the price of oil being hiked by a foreign monopolist, I see two choices. The first is to try to let there be a relative value shift (as the Fed tries to do today) and not let those price hikes spill into the rest of the price level, which means wages, for the most part. This is another name for a decline in real terms of trade. It would have meant the Saudis would get more real goods and services for the oil. The other choice is to let all other price adjust upward to keep relative value the same, and try to keep real terms of trade from deteriorating. Interestingly, I never heard this argument then and I still don’t hear it now. But that’s how it is none the less. And, ultimately, the answer fell somewhere in between. Some price adjustment and some real terms of trade deterioration. But it all got very ugly along the way.
It was decided the inflation was caused by unions trying to keep up or stay ahead of things for their members, for example. It was forgotten that the power of unions was a derivative of price power of their companies, and as companies lost pricing power to foreign competition, unions lost bargaining power just as fast. And somehow a recession and high unemployment/lost output was the medicine needed for a foreign monopolist to stop hiking prices??? And there was Ford’s ‘whip inflation now’ buttons for his inflation fighting proposal, and Carter with his hostage thing adding to the feeling of vulnerability. And the nat gas dereg of 1978, the thing that actually did break the inflation two years later, hardly got a notice, before or after, and to this day.
As today, the problem back then was no one of political consequence understood the monetary system, including the mainstream Keynesians who had been the intellectual leadership for a long time. The monetarists came into vogue for real only after the failure of the Keynesians, who never did recover, and to this day I’ve heard those still alive push for price and wage controls, fixed exchange rates, etc. etc. in the name of price stability.
So in this context the rise of Thatcher types, including Reagan, makes perfect sense. And even today, those critical of Thatcher type policies have yet to propose any kind of comprehensive proposals that make any sense to me. They now all agree we have a long term deficit problem, and so put forth proposals accordingly, etc. as they are all destroying our civilization with their abject ignorance of the monetary system. Or, for some unknown reason, they are just plain subversive.
Thatcher? It was the blind leading the blind then and it’s the same now. read more
Now hold on. I can hear you counting. One two three four. I know you’re coming around me. What I propose is that we move out together. Count it out together. That was always the plan
February 20, 2013 § Leave a comment
So what would happen if a sovereign, currency-issuing government (with a flexible exchange rate) ran a budget deficit without issuing debt?
Like all government spending, the Treasury would credit the reserve accounts held by the commercial bank at the central bank. The commercial bank in question would be where the target of the spending had an account. So the commercial bank’s assets rise and its liabilities also increase because a deposit would be made.
The transactions are clear: The commercial bank’s assets rise and its liabilities also increase because a new deposit has been made. Further, the target of the fiscal initiative enjoys increased assets (bank deposit) and net worth (a liability/equity entry on their balance sheet).
Taxation does the opposite and so a deficit (spending greater than taxation) means that reserves increase and private net worth increases.
This means that there are likely to be excess reserves in the “cash system” which then raises issues for the central bank about its liquidity management. The aim of the central bank is to “hit” a target interest rate and so it has to ensure that competitive forces in the interbank market do not compromise that target.
When there are excess reserves there is downward pressure on the overnight interest rate (as banks scurry to seek interest-earning opportunities), the central bank then has to sell government bonds to the banks to soak the excess up and maintain liquidity at a level consistent with the target. Some central banks offer a return on overnight reserves which reduces the need to sell debt as a liquidity management operation.
There is no sense that these debt sales have anything to do with “financing” government net spending. The sales are a monetary operation aimed at interest-rate maintenance. So M1 (deposits in the non-government sector) rise as a result of the deficit without a corresponding increase in liabilities. It is this result that leads to the conclusion that that deficits increase net financial assets in the non-government sector.
What happens when there are bond sales? All that happens is that the bank reserves are reduced by the bond sales but this does not reduce the deposits created by the net spending. So net worth is not altered. What is changed is the composition of the asset portfolio held in the non-government sector.
The only difference between the Treasury “borrowing from the central bank” and issuing debt to the private sector is that the central bank has to use different operations to pursue its policy interest rate target. If it debt is not issued to match the deficit then it has to either pay interest on excess reserves (which most central banks are doing now anyway) or let the target rate fall to zero (the Japan solution).
There is no difference to the impact of the deficits on net worth in the non-government sector.
Mainstream economists would say that by draining the reserves, the central bank has reduced the ability of banks to lend which then, via the money multiplier, expands the money supply.
However, the reality is that:
• Building bank reserves does not increase the ability of the banks to lend.
• The money multiplier process so loved by the mainstream does not describe the way in which banks make loans.
• Inflation is caused by aggregate demand growing faster than real output capacity. The reserve position of the banks is not functionally related with that process.
So the banks are able to create as much credit as they can find credit-worthy customers to hold irrespective of the operations that accompany government net spending.
This doesn’t lead to the conclusion that deficits do not carry an inflation risk. All components of aggregate demand carry an inflation risk if they become excessive, which can only be defined in terms of the relation between spending and productive capacity.
But it is totally fallacious to think that private placement of debt reduces the inflation risk. It does not. read more
I really do think that the crowning glory of the Sex Pistols is that we’ve always managed to disappoint on big occasions. When the chips were down we never came through
October 17, 2012 § 1 Comment
Our instictive aversion to freeloaders was an evolutionary response to pre-industrial times. But it is a maladaption in our present environment, an atavistic anachronism. There is now – and there is likely to remain – a shortage of jobs. In this world, the fact that some (few?) people don’t want to work should be welcomed, as it increases the chances of getting work for those who want it. This is a good thing because involuntary unemployment is a big source of unhappiness.
What’s more, many of the few low-wage jobs that are available are of private benefit but little or even negative social value. Incentivizing people to work in call centres cold-calling people to sell them PPI compensation is not an obviously Pareto-efficient policy.
In this context, we can think of the tax and benefit system as being like an auction in which people bid for the scarce right to work; taxes are the price we pay to buy that right. read more
PHOTOGRAPH: Larry Sultan