July 23, 2016

Ministry of Plenty

Live Long and Prosper

Heinrich Heine (1797 – 1856):
Money is the God of our time.
And Rothschild is his prophet.
(March 1841)

Gary Becker (1930 – 2014):
All human behavior can be viewed as involving participants who:

  1. maximize their utility,
  2. form a stable set of preferences, and
  3. accumulate an optimal amount of information and other inputs in a variety of markets.

(Economic Approaches to Human Behavior, University of Chicago Press, 1976, p 14)

Alexander Hamilton (1756 – 1804):
Why has government been instituted at all?
Because the passions of men will not conform to the dictates of reason and justice without constraint.
(Federalist No 15 Papers, 17 September 1787)

Chuang Tzu:
What would become of business without a market of fools?
(4th century BCE)

P W Singer (1974):
For all the claims that “big government” can never match the private sector, [the Defence Advanced Research Projects Agency] is the ultimate rebuttal.
The Internet … e-mail, cell phones, computer graphics, weather satellites, fuel cells, lasers, night vision, and the Saturn V rockets [that first took man to the moon] all originated at DARPA. …
DARPA works by investing money in research ideas years before any other agency, university, or venture capitalists on Wall Street think they are fruitful enough to fund.
DARPA doesn’t focus on running its own secret labs, but instead spends 90% of its (official) budget of $3.1 billion on university and industry researchers …
(Wired for War, Penguin, 2009, p 140)

Niall Ferguson (1964):
The first era of financial globalization took at least a generation to achieve.
But it was blown apart in a matter of days.
And it would take more than two generations to repair the damage done by the guns of August 1914.
(The Ascent of Money, Penguin, 2008, p 304)

Andrew Carnegie (1835 – 1919):
  • Individualism,
  • Private Property,
  • the Law of Accumulation of Wealth, and
  • the Law of Competition
[are] the highest results of human experience [—] the best and most valuable of all that humanity has yet accomplished.

Peter Singer:
L Ron Hubbard [(1911 – 1986),] the founder of the Church of Scientology, once wrote that the quickest way to make a million in America is to start a new religion.
(How Are We to Live?, 1993, p 94)

Simone Campbell [Catholic Nun]:
[We were] doing business roundtables [with] some entrepreneur, CEO types. …
A report had just come out that that the average CEO … got $10 million in salary a year, and [that] they were going for $11 million.
I got to ask them:
Is it that you're not getting by on $10 million that you need $11 million?
I don't get it.
And this one guy said: …
Oh, no Sister Simone. …
It's not about the money. …
It's that we want to win.
And money just happens to be the current measure of winning.
(Krista Tippett, Becoming Wise, Corsair, 2016, p 129)

PBS Frontline:
There was a phrase — "ripping someone's face off" — that was used on the trading floor to describe when you sold something to a client who didn't understand it and you were able to extract a massive fee because they didn't understand it.
[This was seen as] a good thing because [you were] making more money for the bank.
[That] sort of spirit, of [acting against the best interests of] your client … took on significant life on Wall Street.
(Money, Power and Wall Street, 2012)

Kid Power Conference, Disney World:
Kids love advertising: it's a gift — it's something they want.
There's something to said … about getting there first, and about branding children and owning them in that way. …
In boy's advertising, it is an aggressive pattern [—] antisocial behavior in pursuit of a product is a good thing.

Alexis de Tocqueville (1805–1859):
The people may always be mentally divided into three distinct classes.
  • The first of these classes consists of the wealthy;
  • the second, of those who are in easy circumstances; and
  • the third is composed of those who have little or no property, and who subsist more especially by the work which they perform for the two superior orders.
(Democracy in America, 1835, Bantam, 2011, p 246)


Equality = Fairness = Justice


I know it makes you sick to think of that word ‘fairness.’
[But the American public believe that] it’s right to help the vulnerable.


Arthur Brooks (1964) [President, American Enterprise Institute],
Annual Conservative Political Action Conference, 16 March 2013.





(Alex Gibney, Park Avenue: Money, Power and the American Dream, Steps International, 2012)


Breakdown of the Top 1% by Income in the United States (2012)

Percentile# per 100,000 Taxpayers% of Total Income% of Total Income Tax
P99-1001,00021.938.1
  P99.999-10012.43.3
  P99.99-99.99993.18.3
  P99.9-99.99905.510.3
  P99-99.990010.919.5
P50-9949,00067.059.1
P0-5050,00011.12.8


Adrian Dungan


For 2012, the [US Adjusted Gross Income (AGI)] threshold for:
  • [The] top 0.001% of tax returns [was] $62,068,187 or more [≈ $170,000 per day or 1,700 times the median income.]
    These taxpayers accounted for 2.4% of total AGI, and paid 3.3% of total income tax.
  • The top 0.01% of tax returns [was] $12,104,014 or more [≈ $33,000 per day or 330 times the median income.]
    These taxpayers accounted for 5.5% of total AGI, and paid 8.3% of total income tax.
  • [The top 0.1% of tax returns [was] $2,161,175 or more [≈ $6,000 per day or 60 times the median income.]
    These taxpayers accounted for 11% of total AGI, and paid 18.6% of total income tax.]
  • The top 1% of tax returns [was] $434,682 or more [≈ $1,200 per day or 12 times the median income.]
    These taxpayers accounted for 21.9% of total AGI and paid 38.1% of total income tax.
  • [The] top 50% of all tax returns was $36,055 for the year [≈ $100 per day = median income.]
    These taxpayers accounted for 88.9% of total AGI and paid 97.2% of total income tax.

(Individual Income Tax Shares, 2012, IRS Statistics of Income Bulletin, Spring 2015)


peaceandlonglife

  • This is equivalent to the richest individual in a group of 100 being paid twice as much as the poorest 50 combined.
  • The richest 1/100,000 part of the population captured a 1/40 share of aggregate income.
  • Each of the richest 1 in 100,000 accrues the lifetime median income (~50 years) every 11 days.
  • Conversely, a person (and their descendants) on the median income would need to work for 17 centuries, ie 34 working lifetimes, to earn as much as the richest 1 in 100,000 get in a single year.
  • In 2005, 40% the global population (2.6 billion people) were living on less than $2 per day.


John Quiggin (1956)


Professor of Economics, Queensland University

Ron Haskins and Isabel Sawhill of the Brookings Institution looked at social mobility by looking at the economic life chances of men whose fathers were in the bottom fifth of the income distribution.
In a world of equal opportunity, we might expect that one fifth, or 20%, of those men, would end up in the same group as their fathers. …


Denmark25%
Sweden26%
Finland & Norway28%
United Kingdom30%
United States42%


Even in the Scandinavian countries, starting out poor is a disadvantage.
But in the United States, starting out poor doubles the risk of ending up poor.

(Zombie Economics, Princeton University Press, 2012, p 163)


Ha Joon Chang (1963)


Reader in Political Economy and Development, Cambridge University

[Nineteenth century 'classical' liberals rejected] the conservative view that tradition and social hierarchy should have priority over individual rights.
[On the other hand, they] believed that not everyone was worthy of such rights.
They thought women lacked full mental faculties and thus did not deserve the right to vote.
They also insisted that poor people should not be given the right to vote, since they [feared that] the poor would vote in politicians who would [redistribute wealth. …]

[Twentieth century neo-liberals, by contrast,] do not oppose democracy [in principle.]
[In practice, however, many would be prepared where necessary to] sacrifice democracy [in the defense of] private property and the free market.

(Economics: The User's Guide: A Pelican Introduction, 2014, emphasis added)


July 13, 2016

Tom Switzer

Blue Army: Persons of Interest


Dwight Eisenhower (1890 – 1969) [6 October 1952]:
Neither a wise man or a brave man lies down on the tracks of history to wait for the train of the future to run over him.
(Adriana Bosch, Eisenhower, PBS American Experience, WGBH, 1993)

Friedrich von Schiller (1759 – 1805):
Against stupidity
The Gods themselves
Contend in vain

Tom Switzer (1971):
[Malcolm Turnbull] needs a new model of governance that sidesteps an obstructionist and riff-raff Senate.
The side that picks the issues dominates the political debate, and the advantage lies with the Bully Pulpit if the Prime Minister will use it.
Why not call on the states to ditch the politically correct Safe Schools [anti-bullying] program?
Or encourage Muslim leaders to assimilate to Western cultural norms?
The culture-war list is endless, and it would resonate with what [John Howard] once called:
The decent conservative mainstream of Australia.
(PM must play the Right card, The Age, 11 July 2016, p 16)

The Wrong Side History


Tom Switzer:
I'm joined by [Nigel Lawson] the chairman of The Global Warming Policy Foundation
[Nigel, do] you think there will come a time when historians will look back at the past decade or so and say that this climate hysteria reached its peak and rational debate was at its most restricted and politicians at their most gullible?

Nigel Lawson:
Yes, I think that this will be seen … as one of these outbreaks of collective madness which happen from time to time …
(New climate deal faces hurdles, Between The Lines, ABC Radio National, 21 May 2015)

Tom Switzer:
[Patricia Adams is the author of a recent report from] The Global Warming Policy Foundation in London. …
[Patricia, there are those that] insist that climate change represents such a grave threat to humanity … that the world has no choice but to … end fossil fuels entirely.
Is history on their side?

Patricia Adams:
No, it's not on their side.
Countries that have developed in the last 200 to 300 years have done so because of the use of fossil fuels.
Fossil fuels have empowered our economies:
  • to raise standards of living, [and]
  • to provide jobs for people.
The key … is to use fossil fuels cleanly. …
And when I say cleanly, I mean to get rid of the emissions that come out of them that kill people …
CO2 is not a killer. …
I don't think CO2 is as dangerous as some of the other forms of energy.
It may be a problem, we have to keep a watch on it, but I don't think that it solves any problem by saying we've got to eliminate fossil fuels:
  • [firstly, it's not] going to happen … certainly not in [the] foreseeable future [and]
  • [secondly,] what about the alternatives that are being proposed?
    They also cause environmental problems …
[The Paris climate change agreement is just] a cash-grab … by the developing countries. …
(Is China really showing 'leadership' on tackling climate change?, Counterpoint, 31 October 2016)

Freeman Dyson [Academic Advisor, Global Warming Policy Foundation]:
[The problems caused by global warming] are being grossly exaggerated.
They take away money and attention from other problems that are much more urgent and important.
Poverty, infectious diseases, public education and public health.
Not to mention the preservation of living creatures on land and in the oceans.
(Commencement Address, University of Michigan, Winter 2005)

[The] environmental movement [has been] hijacked by a bunch of climate fanatics, who have captured the attention of the public with scare stories. …
China and India have a simple choice to make.
Either they get rich [by burning prodigious quantities of coal and causing] a major increase of atmospheric carbon dioxide, or they stay poor.
I hope they choose to get rich. …
The good news is that the main effect of carbon dioxide … on the planet is to make [it] greener, [by] feeding the growth of green plants of all kinds [and] increasing the fertility of farms and fields and forests.
(Misunderstandings, questionable beliefs mar Paris climate talks, Boston Globe, 3 December 2015)

Miranda Devine:
Environmentalism is the powerful new secular religion and politically correct scientists are its high priests …
It used to be men in purple robes who controlled us; soon it will be men in white lab coats.
The geeks shall inherit the earth.
(John Quiggan, Innovation: the test is yet to come, Inside Story, 10 December 2015)

Peter Van Onselen [Associate Professor in Politics and Government, Edith Cowan University; Contributing Editor, The Australian]:
[According to Miranda Devine, the Delcons (Delusional Conservatives) believe] the Liberals should lose the election.
[That] it's better for the Liberals to lose to Labor.
And there is a candle being held to the possibility of a Tony Abbott comeback. …
Andrew Bolt decided he was one …
Nick Cater from the Menzies Research Centre …
[Tom Switzer's] definitely a Delcon.
(Gambling on Turnbull, Late Night Live, ABC Radio National, 7 September 2016)


Against Public Broadcasting


David Marr (1947):
Over the last twenty years, the impact on public debate of cuts and the fear of further cuts at the ABC is incalculable.
  • The politicians mask their revenge behind a barrage of abuse about bias;
  • the Howard government stacks the board with angry ideologues; and
  • [its] commercial news rivals print near-lunatic attacks.
(His Master's Voice, Quarterly Essay, Issue 26, 2007, p 52)


Tom Switzer (1971)


[Privatisation] would say to the ABC management:
You can put on as much Left wing ideological, tainted, journalism as you like — be frank about it — but just not at tax-payers expense. …
[And,] you'd be saving taxpayers up to more than million dollars every year …
Some programs, clearly, would not sell.
And others would continue to aggravate people like me.
But the point is, at least taxpayers would not be forced to pay for it. …

[Then] of course you've got this digital evolution … that's costing jobs … it's threatening the very viability of newspapers …
And let's be frank, when Rupert Murdoch goes, its highly unlikely that good quality flagship papers like the Australian will prevail.
In that environment, why should a tax-payer funded, free-to-the-consumer competitor, be allowed to expand on their turf?
There's something fundamentally unfair about that. …

My point is, that with the bias there and the changing media landscape, I don't think the ABC can be a public service broadcaster …

All things considered, the ABC News is more professional and it covers the big issues of the day in more detail than the commercial networks.
But my point is: [there's] a plethora of [digital] news and media [out there …]
[These] days, people … can read the New York Times or the Guardian newspaper online — we're well informed.
Do we need a publicly funded broadcaster to fill us in on those issues? …

[If, as the polls indicate, public broadcasting has 89% support in the community, why] would the marketplace let [such a] valuable franchise die?
If it were a commercially viable entity … how would privatising lead to diminishing the quality of it's product?

(Should the ABC be privatised?, Counterpoint, ABC Radio National, 10 June 2013)


Contents


Climate Hysteria

Against Public Broadcasting

Bring on the Culture Wars

In Trump We Trust

July 4, 2016

Mark Blyth

Green Army: Persons of Interest




(Terry Hillman, The Complete Idiot's Guide to Economics, Penguin, 2014, p 254)

George Megalogenis (1964):
[During the 1980's blue] collar workers had delivered their end of the bargain under the wages accord.
Yet their restraint in the boom, could not protect their jobs in the bust.

Ken Henry (1957) [Australian Treasury Secretary, 2001-2011]:
[More than half of the] people aged over 45 who lost their jobs in the early 1990's recession [— when unemployment peaked at 11.1% —] never worked a day again in their lives …
(Making Australia Great — Inside Our Longest Boom, Episode 2: Growing Pains, ABC Television, March 2015)

Tim Jackson (1957):
… Trumpf, a machine-tool maker in the south German city of Ditzingen, … managed to get through the [global] financial crisis without laying off any of its 4,000 German workers, while in the US, the same company laid off almost 15% of its workforce.
The difference was that, in Germany, Trumpf took advantage of government incentives to reduce working hours rather than firing people.
(Prosperity Without Growth, 2nd Edition, 2017, p 146)

John Galbraith (1908 – 2006):
The market will not go on [another] speculative rampage without some rationalization.
[And, needless to say,] during the next boom some newly rediscovered virtuosity of the free enterprise system will be cited. …
Among the first to accept these rationalizations will be some of those responsible for invoking the controls. …
They will say firmly that controls are not needed.
The newspapers, some of them, will agree and speak harshly of those who think action might be in order.
(p 206-7)

The Wall Street Journal [11 September 1929]:
[The] main body of stocks [continues] to display the characteristics of a major advance temporarily halted for technical readjustment.
(p 110)

Irving Fisher (1867 – 1947) [15 October 1929]:
Stock prices have reach what looks like a permanently high plateau. …
I expect to see the stock market a good deal higher than it is today within a few months.
[Irving lost between $8 and $10 million in net worth in the crash.]
(p 95)

Harvard Economic Society [10 November 1929]:
[A] severe depression … is outside the range of probability.
We are not facing protracted liquidation.
(The Great Crash 1929, Penguin, 1975, p 163)

John Galbraith (1908 – 2006):
Until well into the depression years the United States had no useful figures on the level or distribution of unemployment.
There was a certain classical logic in this; one did not spend money collecting information on what, in [theory,] could not exist.
(A History of Economics, Penguin, 1987, p 245)

Joseph Schumpeter (1883 – 1950)
[Recurrent] 'recessions' that are due to the disequilibrating impact of new products or methods. …
Economic progress, in capitalist society, means turmoil. …
[Capitalism's performance can, therefore, only be judged] over time, as it unfolds through decades and even centuries.
(Capitalism, Socialism and Democracy, 2nd Ed, 1942)

Robert Lucas (1937):
[The] central problem of depression-prevention has … for all practical purposes … been solved for many decades.
(Presidential Address, American Economic Association, 2003)

Gregory Clark (1957) [Professor of Economics, University of California, Davis]:
The debate about the bank bailout, and the stimulus package, has … been conducted in terms that would be quite familiar to economists in the 1920s and 1930s.
There has essentially been no advance in our knowledge in 80 years.
(Dismal scientists: how the crash is reshaping economics, The Atlantic, 16 February 2009)

Joseph Stiglitz (1943):
In order to bail out the German banks [the Greeks have] had to accept [economic depression:
  • 25% unemployment (including 50% youth unemployment) and
  • a 25% decline in GDP. …]
(Stiglitz on Greece and climate change, RN Drive, 10 July 2015)

Niall Ferguson (1964):
[Subprime mortgage refinancing deals] allowed borrowers to treat their [over-priced] homes as cash machines, converting their existing equity into cash. …
Between 1997 and 2006, US consumers withdrew an estimated $9 trillion in cash from the equity in their homes.
(p 265)

The final cost of the Savings and Loans crisis between 1986 and 1995 was $153 billion (around 3% of GDP), of which taxpayers had to pay $124 billion, making it the most expensive financial crisis since the Depression.
(The Ascent of Money, 2008, Penguin, p 259)

William Crawford [Commissioner, California Department of Savings and Loans]:
The best way to rob a bank is to own one.
(Henry Pontell and Kitty Calavita, 'White-Collar Crime in the Savings and Loan Scandal', Annals of the American Academy of Political and Social Science, 525, January 1993, p 37)

Mark Blyth:
[The 2007 global financial crisis has cost,] once lost output is included, as much as $13 trillion and, on average, a 40-50% increase in the debt of states hit by the crisis. …
(p 45)

Lost output from 2008 through 2011 alone [averaged] nearly 8% of GDP across the major economies.
(p 46)

Since the 2008 crisis, [US banks] have awarded themselves $2.2 trillion in compensation.
(p 50, emphasis added)

[When] those at the bottom are expected to pay disproportionately for a problem created by those at the top, and when those at the top actively eschew any responsibility or that problem by blaming the state for their mistakes, not only will squeezing the bottom not produce enough revenue to fix things, it will produce an even more polarized … society in which the conditions for sustainable politics of dealing with more debt and less growth are undermined. …
In such an unequal and austere world, those who start at the bottom of the income distribution will stay at the bottom, and without [hope of advancement,] the only possible movement is a violent one.
(p 15)

[The] true price of saving the banks [may not] just the end of the euro, but the end of the European political project itself, which would be perhaps the ultimate tragedy for Europe.
(Austerity, p 92)

Freeman Dyson (1923):
The gap between technology and needs is wide and growing wider.
If technology continues along its present course, ignoring the [basic] needs of the poor and showering benefits upon the rich, the poor will sooner or later rebel against the tyranny of technology and turn to irrational and violent remedies.
(Imagined Worlds, Harvard University Press, 1998, p 201)

Alexis de Tocqueville (1805 – 1859):
Almost all the revolutions which have changed the aspect of nations have been made to consolidate, or to destroy, social inequality. …
Either the poor have attempted to plunder the rich, or the rich to enslave the poor.
(Democracy in America, 1835, Bantam, 2011, p 789)

Frederick Douglass (1818 – 1895):
  • Where justice is denied,
  • where poverty is enforced,
  • where ignorance prevails and
  • where any one class is made to feel that society is in an organized conspiracy to oppress, rob and degrade them:
neither persons nor property will be safe.
(1886)

Mark Blyth (1967)

  • Democracy is Asset Insurance for the Rich
  • Redistribution and Debt is Reinsurance for Democracy
  • Austerity is Anorexia for the Economy


(Charles Ferguson, Inside Job, 2010)


The Liberal Antistatist Neuralgia


Can't live without the state


The problem is, when you allow markets do what markets do, they create incredible inequality. …
[So] you have to have a state that can police [those inequalities;] otherwise, the people who are on the bad end [of the income distribution are going to come] and burn your house down.


Can't live with it


So you have a problem right away, which is: the liberal distrust of the state.
[Since] any state powerful enough to defend your property rights might [itself] come after you — hence the second amendment


Don't want to pay for it


[Finally, any state strong enough to] defend your property rights, is going to be expensive …
Adam Smith [initially] comes out in [favor] of proportional taxation [but then] backs away from it because, of course, rich people would [end up paying] most of the taxes, and he's one of the rich people …
[So he] goes for a very modern solution, [one] which modern day Republicans are fond of: a consumption tax …

(Austerity: The history of a dangerous idea, Big Ideas, ABC Radio National, 14 May 2013)


[Democracy,] and the redistributions it makes possible, is a form of asset insurance for the rich, and yet, through austerity, we find that those with the most assets are skipping on the insurance payments.
(p 14)

[In Europe and in the United States} top marginal incomes are estimated to be no less than 20%age points below those that would maximize tax revenue to the government.

Peter Diamond of the Massachusetts Institute of Technology and Emanuel Saez of the University of California, Berkeley, [argue] that taxing the top 1% at [a marginal rate of] over 80% would raise, not lower, revenue. …
According to their calculations, raising the average income tax for the top income%ile to 43.5% from 22.4%, the level of 2007, would raise revenue by 3% of GDP. which is enough to close the US structural deficit while still leaving very high earners with more after-tax income than they would have had under Nixon.
(p 243)

[The] Tax Justice Network estimates that there is as much as 32 trillion dollars, which is over twice the entire US national debt, hidden away offshore not paying taxes …
(p 244)


A Fallacy of Composition

Adam Smith (1723 – 1790):
What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.
(The Wealth of Nations, Book 4, Chapter 2, 1776)
[What] is true of the parts … is not true of the [whole:] we cannot all be austere at once.
All that does is shrink the economy for everyone. …
[If everyone is saving (ie paying back debt) at the same time, then no one is spending; hence, no consumption to stimulate investment.
Likewise, every country cannot pursue export-led growth at the same time because there is no import demand to drive it.]
We cannot all cut our way to growth, just as we cannot all export without any concern for who is importing.
This fallacy of composition problem rather completely undermines the idea of austerity as growth enhancing. …

Austerity is a zombie economic idea because it has been disproven time and again, but it just keeps coming. …
[It] a dangerous idea for three reasons:
  • it doesn't work in practice,
  • it relies on the poor paying for the mistakes of the rich, and
  • it rests upon the absence of a rather large fallacy of composition that is all too present in the modern world.
(p 10)


No Bailouts


[We] may have impoverished a few million people to save an industry of dubious social utility that is now on its last legs. …

[Between] 1994 and 2007 Irish GDP grew much more rapidly than in the 1980s and 1990s.
During this boom period, when cheap money was abundant in global markets, Ireland's banking sector also grew rapidly, and on the back of the credit bubble grew a housing bubble.
When the bubble popped in 2008, the Irish government issued a blanket guarantee to its banks and soon after gave five and a half billion euros to three banks:
  • Anglo Irish bank,
  • Allied Irish Bank, and
  • Bank of Ireland.
Unfortunately, since the assets of these banks were little more than dead real-estate loans, this was just throwing good money after bad.
It kept the banks going [until January 2009] when Anglo-Irish was nationalized — at the same time that 2 billion euros in savings were chopped off the public budget.
[Eventually,] to stop the complete collapse of the economy, the government set up a bad bank, the National Asset Management Agency (NAMA), to take the toxic assets off the banks' books. …

Since then, over 70 billion euros have been injected into [the Irish] banking system [or almost €1,500 for every man, woman and child.]
Some 47 billion euros disappeared into Anglo-Irish alone, never to be seen again.
The cost of bailing out the banks amounts to 45% of GDP, and that figure does not include the cost of the NAMA program, which is over 70 billion euros.
(pp 234-5)

Irish debt to GDP was 32% in 2007.
Today it stands at 108.2% after three years of austerity. …
The Irish government, which has implemented 24 billion euros in cuts since 2008, plans another 8.3 billion in taxes and another 3.5 billion in cuts for 2013. …

[By contrast,] Iceland
  • let its banks go bankrupt,
  • devalued its currency,
  • put up capital controls, and
  • bolstered welfare measures. …
(p 237)

The [Icelandic] banks were to be allowed to go bankrupt and be taken into receivership.
Their debts were not socialized; instead bondholders and foreign creditors bore the brunt of adjustment.
(p 238)

Everyone tightened their belts as the cuts were accompanied by a shift to a more progressive tax code that included
  • substantial tax hikes for top earners and
  • measures to help low- and middle-income families. …

[In] 2011 growth returned at 3% [— compared to 0.71% in Ireland; and, by 2012 Iceland was] near the top of OECD growth performance.
With higher marginal rates of taxation, returning growth, capital control, and equal fiscal tightening, Iceland is on target to eliminate its budget deficit in 2014 and have a budget surplus of 5% in 2016.
[And, unlike in Ireland,] employment growth in Iceland has been strong.
Even at its height [9% in 2009,] unemployment in Iceland was lower than the European average …
Unemployment stands at just under 6% in October 2012 [— compared to 14.8% in Ireland.]
(p 239)

[Real] wages have been rising at a brisk pace.
This has helped reverse the trend of growing inequality witnessed between 1995 and 2007 … mostly because of the high incomes of top earners — a phenomenon seen in all highly financialized societies. …
Iceland not only survived letting its banks go bust, it became a healthier and more equal society in doing so.
(p 240)


Thank You For Your Sacrifice


To: The [Citizens of Portugal, Italy, Ireland, Greece and Spain]

From: [The Political Classes of Europe]

We have been telling you for the past four years that the reason you are out of work and that the next decade will be miserable is that states have spent too much.
So now we all need to be austere and return to something called "sustainable public finances."
It is, however, time to tell the truth.
The explosion of sovereign debt is a symptom, not a cause, of the crisis we find ourselves in today.

What actually happened was that the biggest banks in the core countries of Europe bought lots of sovereign debt from their periphery neighbors, the PIIGS.
This flooded the PIIGS with cheap money to buy core country products, hence the current account imbalances in the Eurozone that we hear so much about and the consequent loss of competitiveness in these periphery economies.
After all, why make a car to compete with BMW if the French will lend you the money to buy one?
This was all going well until the markets panicked over Greece and figured out via our "kick the can down the road" responses that the institutions we designed to run the EU couldn't deal with any of this.
The money greasing the wheels suddenly stopped, and our bond payments went through the roof.

The problem was that we had given up our money presses and independent exchange rates — our economic shock absorbers — to adopt the euro.
Meanwhile, the European Central Bank, the institution that was supposed to stabilize the system, turned out to be a bit of fake central bank.
It exercises no real lender-of-last-resort function.
It exists to fight an inflation that died in 1923, regardless of actual economic conditions.
Whereas the Fed and the Bank of England can accept whatever assets they want in exchange for however much cash they want to give out, the ECB is both constitutionally and intellectually limited in what it can accept.
  • It cannot monetize or mutualize debt,
  • it cannot bail out countries,
  • it cannot lend directly to banks in sufficient quantity.
It's really good at fighting inflation, but when there is a banking crisis, it's kind of useless.
It's been developing new powers bit-by-bit throughout the crisis to help us survive, but its capacities are still quite limited.
(p 88)

Now, add to this the fact that the European banking system as a whole is three times the size and nearly twice as levered up as the US banking system; accept that it is filled with crappy assets the ECB can't take off its books, and you can see we have a problem.
We have had over twenty summits and countless more meetings, promised each other fiscal treaties and bailout mechanisms, and even replaced a democratically elected government or two to solve this crisis, and yet have not managed to do so.
It's time to come clean about why we have not succeeded.
The short answer is, we can't fix it.
All we can do is kick the can down the road, which takes the form of you suffering a lost decade of growth and employment.

You see, the banks we bailed in 2008 caused us to take on a whole load of new sovereign debt to pay for their losses and ensure their solvency.
But the banks never really recovered, and in 2010 and 2011 they began to run out of money.
So the ECB had to act against its instincts and flood the banks with a billion euros of very cheap money, the [Long Term Refinancing Operations,] when European banks were no longer able to borrow money in the United States.
The money that the ECB gave the banks was used to buy some short-term government debt (to get our bond yields down a little), but most of it stayed at the ECB as catastrophe insurance rather than circulate into the real economy and help you get back to work.
After all, we are in the middle of a recession that is being turbocharged by austerity policies.
Who would borrow and invest in the midst of that mess?
The entire economy is in recession, people are paying back debts, and no one is borrowing.
This causes prices to fall, thus making the banks ever more impaired and the economy ever more sclerotic.
There is literally nothing we can do about this.
We need to keep the banks solvent or they collapse, and they are so big and interconnected that even one of them going down could blow up the whole system.
As awful as austerity is, it's nothing compared to a general collapse of the financial system, really.

So
  • we can't inflate and pass the cost on to savers,
  • we can't devalue and pass the cost on to foreigners, and
  • we can't default without killing ourselves …
[All we can do is] deflate, for as long as it takes to get the balance sheets of these banks into some kind of sustainable shape.
(p 89, emphasis added)

This is why we can't let anyone out of the euro.
If the Greeks, for example, left the euro we might be able to weather it, since most banks have managed to sell on their Greek assets.
But you can't sell on Italy.
There's too much of it.
The contagion risk would destroy everyone's banks.
So the only policy tool we have to stabilize the system is for everyone to deflate against Germany, which is a really hard thing to do even in the best of times.
It's horrible, but there it is.
Your unemployment will save the banks, and in the process save the sovereigns who cannot save the banks themselves, and thus save the euro.
We, the political classes of Europe, would like to thank you for your sacrifice.
(p 89)


Austerity and the Fall of France


Although [the Bank of France] was the fiscal agent for the French Treasury, it was also a private institution with 40,000 shareholders whose 200 largest shareholders, often called "the 200 families," determined both personnel and policy.
They paid the governor's (large) salary in return for the usual diet of gold, cuts, and budget balance, all of which benefited the rentier class at the expense of everyone else.
(p 201)

[During the interwar years] the Bank of France continually vetoed budget increases that would have allowed the French military to modernize, and even mobilize, to meet the German threat.
As a result, French defense spending between 1934 and 1938 was one-tenth that of Germany.
(p 203)

[The] French financial elites were so afraid of inflation, and were so determined to maintain the value of the franc, that they paralyzed the French military's ability to mobilize against Hitler.
(p 204)

(Austerity, 2013)