Tuesday 25 December 2012

The Whole Enchilada...

h/t Matías Vernengo (Naked Keynesianism).

Matt Taibbi (Taibblog) provides an example illustrating why there is no reform that can fix capitalism. It complements my previous post magnificently.

It shows that it's not a matter of creating better models, explaining and convincing some misguided academics and technocrats. Patching up a few things here and there will not do either.


I suppose people could say many things about Glenn Hubbard. His Wikipedia profile, for instance, says he is the dean of the Columbia University Graduate School of Business, and Russell L. Carson Professor of Finance and Economics. So, the man has more than enough academic credentials and I am sure he has an intellect to match.

Until a few months ago, Taibbi adds, he "was a leading economic advisor to Mitt Romney and a rumored (perhaps even consensus) candidate for the Treasury Secretary job". Therefore, he is also successful in policy and political circles.

From reading the fragments of Hubbard's deposition in the lawsuit against Bank of America and Countrywide Financial (currently, Bank of America Home Loans), fragments which Taibbi presents, one can confirm that Hubbard is highly intelligent, plus being good with the words, and able to keep his cool under pressure.

Furthermore, one can see that Hubbard is a man who is paid handsomely for his services (but no more than high-end escorts, who charge for their services around the same):
"He took $1200 an hour specifically to not learn how subprime loans were created. Moreover, he did this non-learning for Countrywide years after the financial collapse, long after the truth about that company had already become common knowledge pretty much everywhere in the world outside Hubbard's office (...)"


Smarter people than me can theorize and create new models; they can teach and preach until they are blue in the face, but they will not convince Hubbard and others like him. Neither will they convince think-tankers, shock-jocks or politicians (of both "liberal" and "conservative" persuasions) of their mistake, because it is not a matter of lack of brains, as Hubbard's example demonstrates. "It is difficult to get a man to understand something, when his salary depends upon his not understanding it", as Upton Sinclair once said.

It is not a matter of patching up the financial services alone, either. For one, Taibbi mentioned the connection between the financial services, universities and parties. Reform the financial services, without severing its links to universities and parties, and you'll have gained little, if anything.

But Taibbi didn't mention the notorious bureaucracy-private enterprise revolving door. He wasn't, either, speaking of climate change, or taxation and public services, industrial relations or a range of things where the same things happen.

Paraphrasing Cathy O'Neil, no "financial services reform" band aid will fix this boo-boo.

So, dear smart people, by all means, theorize, create new models, teach and preach. Technocrats, propose better regulations. But don't fool yourselves, with luck, if you are persistent, right, and communicate your ideas really well, you may convince people like me.

Don't get me wrong, this may help, but it is not enough.

Moreover, forget about convincing people like Hubbard, let alone those paying his fees. Upton Sinclair learned this without spending years studying; you should be able to do the same.

And whatever you achieve will last exactly until these people tolerate it.


Perhaps it's time to think about a more enduring solution.

Friday 21 December 2012

It's the Whole Enchilada, Sister.

Since he correctly predicted the re-election of Barack Obama, American meta-pollster Nate Silver has become a bit of a cult-hero for the ill-defined left in the US and even abroad.

In part, that's understandable, considering the bullying Silver endured from the Republican commentariat.

That's why also American lefty Cathy O'Neil's smackdown on Silver catches my attention powerfully.

I haven't read Silver's book on modelling (the object of O'Neil's fury). But O'Neil makes a quite negative review of it, not on the technical aspects (which she evaluates positively, in essence), but on the general political and philosophical orientation of Silver's work.

I can't say how fair are O'Neil's criticisms of Silver's politics (or his alleged "technocrato-philia"), but I sympathize with her when she says things like these:
"We didn't have a financial crisis because of a bad model or a few bad models. We had bad models because of a corrupt and criminally fraudulent financial system.
"That's an important distinction, because we could fix a few bad models with a few good mathematicians, but we can't fix the entire system so easily. There's no math band-aid that will cure these boo-boos."
I won't pretend that I know much about the mathematical details. But what O'Neil says is evident to anyone following the news. I don't know about you, but I still remember Goldman Sachs' Fabrice Tourre's emails to his then girlfriend, made public in 2010:
"Darling you should take a look at this article... Very thoughtful... More and more leverage in the system, l'edifice entier risque de s'effondrer a tout moment... Seul survivant potentiel ['the whole building risks collapsing at any moment, the only potential survivor', my translation], the fabulous Fab (as Mitch would kindly call me, even though there is nothing fabulous abt me, just kindness, altruism and deep love for some gorgeous and super-smart French girl in London), standing in the middle of all these complex, highly levered, exotic trades he created without necessarily understanding all the implications of those monstruosities [sic]!!! Anyway, not feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job ;) amazing how good I am in convincing myself !!!"


Unfortunately, O'Neil's criticism itself falls short of the mark. It's not just the financial system that stinks: it's the whole capitalist enchilada that is rotten to the core.

Let's put this "monstruosity" out of its misery, before it drags us all even deeper into shit.

Tuesday 11 December 2012

Krugman, Robots and Exchange Value.

Again I will break a promise. Instead of finishing my 2-part comment on Berlin's 775th anniversary, I will write about something that caught my attention and that of my friend Ramanan.

Paul Krugman recently posted a couple of pieces on technology and inequality. Those two pieces are valuable in themselves and I recommend them to my readers. (See here and here)

Unbeknown to me, both pieces were part of a larger debate, of which I became aware thanks to Ramanan. At one hand, Izabella Kaminska (FTAlphaville) and a group support a "technological unemployment" thesis, with clear Marxian overtones (apparently, perceived by Krugman). At the other hand, Tim Worstall (Forbes) and others oppose this. Kaminska herself offers a brief background here.

Frankly, I haven't got a clear picture on the whole debate. Therefore, I will abstain from general comments. I will, however, comment specifically on today's Worstall post, "That Robot Economy and the Rentier Class". (See here)

Worstall summarizes Kaminska's party's view thus:
"The argument is that as robots become capable of doing everything then there will be two very stark classes. The ones who own all the robots and thus get all the money and then the rest of us who live on whatever scraps anyone bothers to tax out of the robot owners".
I am in no position to comment on the fairness of Worstall's summary; so, I'll take his word for it.

After that summary, Worstall goes on to argue that machine-produced goods would become cheaper faster than workers would lose income. So, for instance, if cars are entirely made by machines, their prices would fall faster than car-buyers' income. In other words, real wages, measured in cars, rise.

The first point to make is that that is an assumption which Worstall did not argue. Here, I'll make mine his words: "I'm afraid I just don't see it".

The second point is that Worstall inadvertently stumbled upon a proof, by reductio ad absurdum, of the proposition "labour is the source of all value" (proof sketched by Ernest Mandel in 1967 in his "An Introduction to Marxist Economic Theory").

Let's assume the negation of the proposition (i.e. "is not the case that labour is the source of all value"). Knowing of this, capitalists everywhere invest in machines and sack all their staff.

Now, machines make everything: cars, washing machines, iPods, clothes, medicines, sausages; they write news stories (see here) and even books, diagnose and treat diseases, work the land; run movie-theatres, shoot the movies, compose their sound track, write their script and act; they make and pilot commercial planes; run radio and TV stations; cook, clean and look after babies at home, and have sex for money, in the streets; teach at schools and universities, keep law and order and break them, as required; sweep the streets and help in shops, and design other machines.

In a society where no one works, because machines do all the work (as said literally by Worstall himself in his summary), no one earns wages. Leaving aside "whatever scraps anyone bothers to tax out of the robot owners", if such scraps were forthcoming, no one has incomes.

Now, if no one has incomes, then no one can spend, no matter how cheap the cars, the washing machines, iPods, clothes, medicines, sausages, movie tickets, doctors' fees.

If these things cannot be purchased in the market, because would-be buyers have no income, they have no market price. Their market price is not defined.

Is not that those things are not useful. There is no a priori reason to doubt machines can make quality, useful stuff: stuff with "value in use" (as Adam Smith used to say); or with "use value", as Marxists say.

Is not that those things lack "utility", as I suppose Worstall would say.

Is that would-be purchasers lack the wherewithal to pay for them. Their market price is undefined, and so is their "value in exchange" or their "exchange value". Whatever utility they might have, it's irrelevant, without the income to pay for the goodies.

So, we find a paradox here: in their effort to reduce costs, capitalists (intent on profiting from their "entrepreneurship") end up unable to sell their much cheaper and more abundant produce, let alone to make a profit or even recoup their investment.

We must conclude that the proposition "is not the case that labour is the source of all value" is false. That is, whether readers like it or not, the proposition "labour is the source of all value" must be true.

To put things differently, it is the labour exerted to produce things, for which workers are paid, that allows workers to earn an income, income they use to buy those things they produced. This is what confers "value in exchange"/"exchange value" to the commodities.

And although Worstall stumbles quite badly with other things (among them, his highly idiosincratic definition of communism), I'll let them pass. With this is enough:
"For here’s a little known point that I like to make. We don’t actually care about jobs: don’t care if no one at all has one. We also don’t care about incomes: it’s not a problem if everyone has very low incomes. What we actually care about is that everyone has the opportunity to consume".

Sunday 2 December 2012

Berlin's Stories.

Der Spiegel Online is offering a series of articles on Berlin, to commemorate the city's 775th anniversary. For me, two of them are extremely telling, for different reasons. Here I will comment on one, leaving the other for the next post.

Reading Eva-Maria Schnurr's piece (22/11/2012), where she describes the evolution of Berlin from "little more than a swampy backwater", prior to 1870, "to one of Europe's most modern metropolises by 1914", I can't help but feeling awe before the power of capitalism. I can't, either, help feeling that was Schnurr's purpose.

Schnurr provides a vivid account of the transformation of what some call the "built environment", the material structures forming the city: buildings, streets, utilities, transport and communications. Perhaps that's understandable: those are concrete things, mentioned in documents and shown in pictures, even if historical documents and images tend to show only the choicest examples.

The Brandenburg Gate decorated after the
victory in the Franco-Prussian War (1871). [A]

These changes, Schnurr correctly takes as consequence of economic and political processes: the railroad-facilitated manufacturing and trade ("transforming Berlin in the 1840s into one of central Europe's most important rail hubs"), the change in Berlin's status, from capital of the Kingdom of Prussia, to capital of the German Empire ("the economic boom after 1871, sparked by the receipt of five billion francs in reparations from wartime enemy France"), the growth of the public bureaucracy.

Berlin Potsdamer Station, by
Friedrich Albert Schwartz (1876). [B]

The piece also succeeds in depicting the demographic transformation brought about by the change in the city's economic base: "By 1864, over half the city's inhabitants were not native Berliners". "Berlin's population in 1849 was only around 412,000, but by 1880 it had passed the 1 million mark. By 1914, 1.84 million people lived in the city, which had become Europe's most densely populated."

Another of Schnurr's achievements is to depict the emergence of a rather sheltered middle-class and the loss of political power by the landed aristocracy.


The things Schnurr focuses on allow one to tell a story about capitalist development. In the surface, is a story of unmitigated progress. It's not a false story, but it's not the whole story and it's not history.

And Schnurr's story makes it difficult to understand the next article in the Der Spiegel series (which I'll comment in the next post).

However, not even Schnurr's narrative can completely hide the other side of the coin. Referring to the "downsides of progress", Schnurr says: "In 1905, while middle-class Tiergarten had an infant mortality rate of 5.2 percent, 42 percent of newborns died in proletarian Wedding".

While the middle-class figure sounds dubious (Tiergarten is traditionally an upmarket area), she does mention the price paid by some sections of the working class for all that development.


The story Schnurr sets out to tell can be illustrated with pictures. If you search the net, you'll find plenty of positive images depicting this period, like those two opening this post.

It takes much more effort to find the other side of the coin:

The Freistadt Barackia slum, Tempelhofer Vorstadt, cleared
by the police in September 1872. Drawing by L. Loeffler. [C]

It's as if societies (and individuals, like Schnurr) consciously or not attempted to re-write their own past and re-create it on a sanitized, selective base, leaving aside those less-than flattering bits.

Image Credits:
[A] The Brandenburger Tor with decorations and downcasting Prussian troups after the Franco-Prussian War 1871. Wikipedia.
[B] Berlin Potsdamer Bahnhof, rear view (1876), by Friedrich Albert Schwartz. Wikipedia.
[C] Drawing by L. Loeffler: The slum called «Freistadt Barackia» (i.e. about: Shack-Land Free Town) on Planufer in the Tempelhofer Vorstadt, cleared by the royal police in September 1872. Wikipedia.

Monday 26 November 2012

The Catalonian Elections.

or Más o Menos

Against expectations (see here), the Catalonian regional elections did not go well to Artur Mas and CiU.

Pro-business, conservative and nationalist, CiU was estimated to win between 62 and 66 seats in the 135 seats Parliament, after hurriedly mounting on Catalonian nationalism bandwagon. According to the latest information, CiU managed to get 50. (See here, in Spanish)

These are the final results:

Party      |  Seats
    CiU    |    50   
    ERC    |    21   
    PSC    |    20   
    |    19   
    ICV    |    13   
    C's    | 
    CUP    |  

CiU's poor results are attributed to several factors. The left press mentions a smear campaign, allegedly directed from the also pro-business and conservative (but anti Catalonian nationalism) PP (see here, in Spanish), linking Artur Mas to alleged corruption and tax evasion.

In a development that parallels the Greek case (see here), Spain has its own list of suspects in tax evasion. As in Greece, although the existence of the list is widely known, the media has not been released an official copy of it.

Regular readers may also remember that the Rajoy government decreed a fiscal fraud amnesty last June (see here). According to the Finance minister Cristóbal Montoro (PP), author of the fiscal fraud amnesty decree, it should have collected up to EUR 2.5 billion in regularization fees. In reality, only 50 million were collected (See here, in Spanish)

However, Mas, as the incumbent Premier (President de la Generalitat de Calunya, in Catalonian), has enacted his own and extremely grievous austerity measures, suppressing popular protests with the notoriously brutal Mossos d'Esquadra.

In any case, it appears the Catalonian people did not swallow Mas' demagoguery.


This faux step does not mean the Catalonian independentist movement is over. The second parliamentary party, Esquerra Republicana de Catalunya, while left-wing, is fiercely pro-independence and has increased its parliamentarian representation.

Additionally, the process required to secede is devilishly complicated, making future developments difficult to guess. It would require a previous constitutional reform; referenda, in Spain, are not necessarily binding and require the King's approval; an independent Catalonia would start its life outside the EU and would have to apply. (See here, in Spanish)

On top, the relations between CiU/Mas and PP/Rajoy appear to be tense, to say the least. Catalonians, feeling themselves captive to a union they rightly or wrongly consider against their interests, could push a weakened Mas to take measures he doesn't really want.

One thing seems certain, though: the ride is not over for Rajoy.

Sunday 25 November 2012

The Big Challenge!

Some weeks ago Prof. Nick Rowe issued a challenge: those (like yours truly) criticising neo classical economics on an intuitive basis should read cover-to-cover at least an intro textbook on micro and macro. (See here)

Rowe was kind enough to offer a series of links to several of them, freely available online (graciously abstaining from recommending any title in particular: "They are all fairly similar in coverage and treatment. And they are almost all good, in my opinion".), to which his regulars spontaneously added their own suggestions.

A suggestion I found particularly interesting was to contrast older and more recent books on the same subject (say older macro books vs. newer ones) to see how the material has changed over time.

That is a fair challenge, if there ever was one, and one I am willing to accept. As I see things, personal perceptions on neo classical economics and economists (and their policies), no matter how well-founded on experience one might think they are, could be unfairly mistaken.

Mind you, it's not an easy challenge for your humble scribbler (a middle-aged bloke, away from a classroom for decades, employed, if part-time, and on low incomes).

For one, the challenge involves reading the books cover-to-cover: so to speak, my mantra is "the whole enchilada and then some" (as suggested by the reading).

Additionally, my maths are not up to scratch (therefore, I need to look after this before going further into the more technically demanding literature). Judging by the contents of several popular "maths for economists" (the newest being Carl P. Simon and Lawrence Blume's "Mathematics for Economists", 1994, W.W. Norton), there are two subjects I need to cover to achieve a basic first year in economics proficiency: calculus (including lineal and non-lineal programming) and lineal algebra.

To cover micro and macro, the main economic areas, I more or less arbitrarily[*] chose four books: the more basic Jeffrey M. Perloff's "Microeconomics" (3rd edition, 2004, Pearson/Addison Wesley) and the more advanced Hal Varian's "Microeconomic Analysis" (3rd edition, 1992, international students, W.W. Norton); and Olivier Blanchard and Jeffrey Sheen's "Macroeconomics" (Australasian edition, 2004, Pearson/Prentice Hall) and Rudiger Dornbusch and Stanley Fischer's "Macroeconomics" (6th edition, 1994, McGraw-Hill).[#]

As the challenge involves reviewing fairly one side in a debate (the neo classical side), fairness involves reviewing thoroughly the other side as well (the critics of neo classical economics), and how the debate has evolved over time.

In other words, this means I should also read in more detail neo classicism's contemporary critics (like Steve Keen or John Quiggin, for instance): not just an isolated lecture or paper, but cover-to-cover. Curiously, I haven't had much luck getting their books in the second-hand market.

But there are older traditions of criticism to neo classicism that should not be left out of the contest of economic ideas: therefore, I am also reading on a cover-to-cover basis Frank Stilwell's "Political Economy" (2002, Oxford University Press) and Ernest Mandel's 1967 "An Introduction to Marxist Economic Theory".

On history of economic thought, I have almost finished William J. Barber's "A History of Economic Thought" (Pelican Books, 1967, reprinted in 1979).

There are other books I will endeavour to read (Sraffa, Kliman and Sweezy and Baran are there), but they will have to wait.

And that's precisely what I am up to.

[*] To be precise, I first compiled a list of popular/highly recommended books. Next I checked the authors' academic reputation in mainstream economics. Then, when and if second-hand, cheap in good condition printed copies became locally available, bingo.
[#] Incidentally, I also own a copy of Ben S. Bernanke, Nilss Olekalns and Robert H. Frank's "Principles of Macroeconomics" (2005, McGraw-Hill) and an assortment of antediluvian books whose sole mention here would make me blush (and give the readers a good laugh).

Monday 19 November 2012

Not Keen on Harsanyi.

Prof. Steve Keen and economics in general are having problems at the University of Western Sydney.

It's interesting how things never change...


Commemorative plaque to Mr. John Harsanyi (1920–2000) [A]
It is not very well-known that John (Janos, in Hungarian) Harsanyi, one of the 1994 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (together with John F. Nash, of "A Beautiful Mind" fame, and Reinhard Selten), lived, studied and worked in Australia.

Having arrived in Sydney in 1950, Harsanyi studies in his native Hungary were not fully recognized. Newly married, Harsanyi had to work in a factory during the day, and study towards a MA at night, at the University of Sydney.

He received a MA degree from Sydney in 1953 and in 1954 managed to get a teaching position at the University of Queensland.

In 1956, Harsanyi, who was already a published author, was awarded a Rockefeller scholarship. With that support, Harsanyi spent two years in the U.S. at Stanford University, where he wrote a dissertation on game theory, under the supervision of Kenneth Arrow (1972 Sveriges Riksbank Prize in Economic Sciences), which earned him a second PhD in Economics.

Returning to Australia, Harsanyi worked for the Australian National University, at Canberra.

However, frustrated with the lack of interest for game theory in Australia, Harsanyi moved to the U.S., where, with the support of Arrow he eventually found a permanent position at the University of California, Berkeley, until his retirement in 1990.


They were not too keen on Harsanyi, and that's how the Australian universities shot themselves in the foot once. Now, the University of Western Sydney could be making the same mistake with Steve Keen and economics.

Image Credits:
[A] Commemorative plaque to Mr. John Harsany (1920–2000). Wikipedia.

Thursday 15 November 2012

14N: Los Empecinados.

After the first ever European general strike, this is how the global share markets reacted:

London      FTSE 100   -1.11%
Amsterdam   AEX        -1.01%
Frankfurt   Dax        -0.94%
Paris       Cac 40     -0.89%
Brussels    Bel 20     -0.86%
Zurich      SMI        -0.68%
New York    Dow Jones  -1.45%
Sao Paulo   Bovespa    -2.10%

This "blood bath" (pun intended) did not surprise those following the stock markets.

What's more, the European protests, together with the usual bad economic news coming from Europe and the US politically induced fiscal cliff tragic comedy made sure the rich would be further hit today in the only thing sacred for them: their pockets.

So, this morning, this is how Macrobusiness put the day's perspectives: "As I write it is not looking good (...) but it's the close that matters today".

And the Hallowed Markets did not disappoint:

Sydney      All Ords   -0.91%
Hong Kong   Hang Seng  -1.55%
Of the big world markets, only Tokyo (Nikkei 225) ended up in black: +1.90%.

Macrobusiness is right: it is the close that matters.


The collaborationist Rajoy government and PP are suffering in the polls, as well. According to Electometro:
"According to the CIS's October barometer, the PP has lost 8.7 percentage points in vote intention in comparison to the general elections a year ago, while the PSOE's remains stagnant". (See here, my translation from Spanish)
From a less than overwhelming final result last year of 44.6% of the valid votes, PP would receive 35.9% if the elections had been held October. PSOE achieves a meager and falling 28.6%, while smaller parties have either increased or retained their votes. And that, before 14N.


If you ask me, the 1% have reasons to worry and to try to play down the whole thing. They are losing the money they stole from you. Their figureheads will keep falling.

The Portuguese and the Italians are waking up; and even the so far not so badly affected (relatively speaking) French, Germans, Belgians and other Europeans are seeing the tide rising. They know they are waiting in line for the same treatment you are currently receiving.

The opposing view was expressed today by the jewel in the crown of the House of Murdoch: the Wall Street Journal.

In today's online edition, this is what those stalwarts of "objective" journalism had to say:
"Protest fatigue, declining levels of unionization and factionalism within the labor movement have combined to take much of the bite out of strikes as tools for changing government policy, analysts said."
Well, I won't dispute what those unnamed analysts said, neither will I contrast it what other media had to say (here, here, here, here, here, here, here), but the unnamed analysts I consulted said: "The mercenary hacks paid by Big Bucks will lie and try to put a brave face, while they are shitting themselves in their pants".


Spaniards (since Juan Martín Díez, El Empecinado, hero of the war against Napoleon) have a reputation for stubbornness. I think this is a good opportunity to demonstrate it: get organized, brace yourselves for a long fight. Know that you will be the subject of slander, mockery and fake disdain by "moderate" and "realist" charlatans pundits.

The swindlers and their toadies want to deny you a future, but you have little to lose: they've already stolen all they could. It's them who have a lot to lose, not you. Make them pay.

It's not going to be easy, as the brutal beating of a 13yo boy (the one lying on the floor) and a teenage girl by the Catalonian cheap and cowardly criminals Mossos d'Esquadra shows:

Think of this pintada (graffiti, for English speakers):
"Tomorrow, perhaps I'll have to sit before my children and tell them we were defeated.
"But I could not look into their eyes and tell them they live the way they do, because I did not dare to fight back."

Tuesday 13 November 2012

14N on Video.

And a Map!

Two video calls for the international European strike.

For English speakers:

With printed material in a variety of languages:

Screen capture of Google Map at European Trade Union Confederation:

Click for a larger image.

The map shows actions in support, not necessarily strikes.

Updated to display the map, and the link to the ETCU.

14N: General Strike.

In a few hours, the workers of Spain, Italy, Cyprus and Portugal will start a peaceful and coordinated general strike. Their brothers and sisters from Greece went on one the past 6 and 7.

At least in Spain, trade unions of all ideological tendencies, from social democrats to communists and anarchists, are uniting against the austerity imposed by the Troika and brutally enforced by the Troika occupation Rajoy government. It's time to stop the swindlers from looting what is left of Spain:
"The spending cut policies are responsible for about six million unemployed workers in Spain. One in each four persons willing and able to work cannot do it, because of policies and governments that believe that money is for the banks alone and the adjustments are for the workers." (See here, PDF leaflet, in Spanish; my translation)

As Sahra Wagenknecht said:
"Events in Southern Europe show the political strike to be an indispensable tool for self-defense.  What the EU and the International Monetary Fund are demanding of states such as Greece and Portugal has nothing to do with neutral crisis management, but is rather brutal class struggle executed from above."
In Britain, Germany and Belgium trade unions, too, have called for manifestations in support of their Southern counterparts.

From Australia, I send them all my solidarity.


A Facebook page (several European languages, including English): link

Image Credit:
Cartel Web. PCE.

Monday 12 November 2012

Is Paul Krugman Going MMT?

Paul Krugman at a press conference
(Swedish Academy of Science). [A]
Paul Krugman's NYTimes blog links to a little paper ("The Simple Analytics of Invisible Bond Vigilantes", PDF) explaining, with mainstream economic tools, why a country like Greece is indeed vulnerable to the "bond vigilantes", while countries like the US are not:
  1. The US (and the UK and Australia), unlike Greece (and Italy, Portugal, Spain, Ireland), has its own national currency, issued by the American government.
  2. Unlike the EUR, the USD exchange rate fluctuates freely.
  3. The US interest rate is determined, as matter of policy, by the US Fed; the EUR interest rate is determined by the European Central Bank.
  4. The US has virtually no foreign debt denominated in foreign currency. Greece's debt is pretty much entirely denominated in EUR.
If you have mainstream economics training, you should have no difficulty following Krugman's paper: it's brief, to the point and well explained.

At the other hand, if you know something about MMT, you'll find that the 4 points above are all made by MMT.

Pretty please, Australian journalists refer to my friend Heteconomist (here) for a fuller and better discussion than anything I could offer here.

Congratulations, Prof. Krugman.

Image Credits:
[A] Paul Krugman, Laureate of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008 at a press conference at the Swedish Academy of Science in Stockholm. Wikipedia.

Friday 9 November 2012

The Balkanization of Europe.

About a month ago, I and others (see here) commented in another blog against the Catalonian move to secede from Spain. The readers might be aware the regional Catalonian elections are due to take place next November, 25.

The Catalonian parliament has 135 seats. According to a recent poll (La Vanguardia, October 28), Artur Mas' nationalist/centre right CiU could win between 65 and 66 seats; the PSC (local PSOE branch) and PP are disputing the second place (18 and 17 seats, respectively). The left wing Esquerra could become the fourth parliamentarian party, with 16 seats. (See here, Spanish)

Out of the 4 main parliamentarian parties, only PP has spoken openly against the independence.

Mas has promised a referendum over the issue of secession, even though such a move is unconstitutional and members of the armed forces have threatened with violence.

In the recent Basque regional elections, the nationalist parties from all over the political spectrum, won by a landslide. (See here)


But Spain is not the only European country affected by this outbreak of regional nationalism and separatism. (See here)

In my comment, I mentioned the German-speaking South Tyrol province, which could try to break away from Italy and perhaps join Austria. Others mentioned Padania (northern Italy, more generally) with the nationalist Lega Nord.

Recently, the extreme right Bart de Wever, of the New Flemish Alliance, popular among segments of ethnic Dutch Belgians, won the local elections for Antwerp on an anti-Wallonian platform.


What could be the consequences of this?

If you believe The Financial Times' Tony Barber (see here), there is little to fear in this process. For Barber, only a South Tyrolese independence and union to Austria could have serious consequences.

I fear Barber's view is almost panglossian, because it assumes the only consequence to fear is open military conflict. In my opinion, he also underestimates the likelihood of such an outcome.

Furthermore, he ignores the possibility that garden-variety nationalism could morph into outright racism and xenophobia. And experience shows that is far from a remote possibility.

For good or ill, we could be witnessing the beginning of the end for European nation-states. So far, the examples of Yugoslavia and the Caucasus seem far from auspicious.

Wednesday 7 November 2012

The Lagarde List Affair.

After Greek journalist Kostas Vaxevanis published (October 28) a list containing the names of 2,059 alleged high-profile tax evaders, the Troika occupation Greek government ordered his arrest and trial. The BBC covered the whole affair, day by day. Here is a timeline of the affair, in headlines:

Sunday, October 28 (last updated at 16:28 GMT)
Greece arrests journalist over 'Lagarde List' banks leak
Monday, October 29 (last updated at 23:23 GMT)
Greece bank leak reporter Costas Vaxevanis sent to trial
"The prosecutor issued a warrant for Vaxevanis's arrest because he published a list of names without special permission and violated the law on personal data".
Thursday, November 1 (last updated at 16:39 GMT)
Greek journalist Costas Vaxevanis on trial over bank list
"French authorities gave the names to their Greek counterparts two years ago, but documents were never investigated".
Thursday, November 1 (last updated at 20:15 GMT)
Greek bank list editor Costas Vaxevanis acquitted
"Lawyers for Mr Vaxevanis, 46, (...) said no-one on the list had actually complained of a breach of privacy.
"After a one-day trial, a court in Athens found Mr Vaxevanis innocent.
"The BBC's Mark Lowen in Athens says the swift ruling will be an embarrassment to the Greek government".
If you ask me, to call this an embarrassment is an understatement.


Consider prominent PASOK politician George Papaconstantinou:
"Then Greek Finance minister, George Papaconstantinou, said precisely last Wednesday in the Greek Parliament that he did not know what happened to the [then French Finance minister Christine] Lagarde list's original version". (See here, in Spanish, my translation)
Aussie readers might remember Papaconstantinou's words when he spoke last May 12, in SBS TV Insight show:
"So nobody is outside this, nobody is innocent to the crime. Of course politicians bear the biggest burden, and of course they will be punished for this, as they are being punished (...)."
For a man so ready to re-distribute responsibilities for the Greek fiasco, Papaconstantinou seems strangely uninterested on determining who should "bear the biggest burden".

Just like the current Greek government, that appears more interested in harassing (very clumsily and ineffectively, at that) the whistle-blower than in punishing those who should "bear the biggest burden":

That's a bit more than an "embarrassment".

Sunday 4 November 2012

Toxic Rembrandt.

Rembrandt as Zeuxis,
c. 1662. [A]
Over a year ago a number of Australian city councils initiated a class action against RBS (ABN AMRO before 2010), S&P and Local Government Financial Services for losses suffered with the Rembrandt CPDO. (See here)

Today Michael West (Fairfax Media) informs us that "The Federal Court's Justice Jayne Jagot has accepted the evidence from 12 NSW councils - who claimed they had been duped into buying a toxic financial product - that the ratings agency Standard & Poor's was little more than a lap dog for slick merchant bankers".

Rembrandt CPDO had been rated AAA by S&P, in spite of being a highly leveraged and risky financial product, which lost 90% of its value a few months after the councils purchased it.

The court ordered the 3 financial agencies to pay AUD30 million, plus interests, to the plaintiffs; S&P claims it intends to appeal.

This decision, together with rulings against Lehman Brothers a few weeks ago, could have international implications:
"It remains to be seen whether the Court's finding that S&P engaged in misleading and deceptive conduct in assigning its coveted-AAA rating to the CPDO will open the flood gates for actions against credit rating agencies in relation to other structured products such as CDOs. Logically, CDOs are also in the gun. Most enjoyed the top rating, most blew up."

Image Credits:
[A] Self Portrait as Zeuxis, c. 1662. Wikipedia.

The Ironies of Monopoly.

An extraordinary article by Christopher Ketcham, from Harper's Magazine, on the history of the popular board game Monopoly (h/t Occasional Links & Commentary), which I highly recommend.

Henry George (1839-1897) at 26,
American political economist. [A]
It turns out that the game was invented in 1903 by a largely forgotten Maryland actress, by the name of Lizzie Magie, as a device to teach the thought of Henry George, the once popular American reformist socialist who intended to bring about his own brand of socialism by taxing landowners, while abolishing all other taxes.

Although Magie conceived the basic idea, by the time her version of the game (called the Landlord's Game) began to be commercialized, gamers had spread and further developed the game, until its putative inventor, Charles Darrow, finally learned of it and marketed his own homemade sets, sought and received patent and sold the rights to game publisher Parker Brothers:
"Sometime in 1932, Darrow copied the layout of the board, the rules of play, the property names, the deed values, and the Chance cards, and made his own version of the game. His only innovation seems to have been to claim the mantle of sole inventor. He would soon be assumed into the pantheon of American heroes of commerce."
Apart from the irony in this ending, the narrative is enriched by a wealth of fascinating details: some magnificent quotations (Andrew Carnegie: "The greatest astonishment of my life was the discovery that the man who does the work is not the man who gets rich"), anecdotes and descriptions from a Monopoly tournament, a fascinating footnote on the work of Michael Hudson. There are also passing references to Mark Twain, Leo Tolstoy and Marx.


There were Marxists among George's followers. Some of them wrote enthusiastically to Marx, praising George and his writings.

Marx was not impressed, however:
"All these 'socialists' (...) have this much in common that they leave wage labour and therefore capitalist production in existence and try to bamboozle themselves or the world into believing that if ground rent were transformed into a state tax all the evils of capitalist production would disappear of themselves".
Considering how the article describes the end of the movement, he might have had a point:
"By the time of his death in 1897, when 100,000 New Yorkers lined up to view his body in state, George's 'great idea' was already, as Tolstoy would lament in 1908, on the long road to being forgotten".
But Marx considered that not all the effort was wasted:
"On the other hand George's book, like the sensation it has made with you, is significant because it is a first, if unsuccessful, attempt at emancipation from the orthodox political economy".
I'd add that George's followers, while misguided, meant well. Their efforts and creativity, if ultimately fruitless, deserved better and are to be commended.

Image Credits:
[A] Henry George (1839-1897) at 26, American political economist. Wikipedia.

Wednesday 31 October 2012

Oz: the Anorexic Country.

Last year, shortly after winning the state elections, Barry O'Farrell, NSW Premier, announced a AUD4.5bn "black hole".

Although O'Farrell (Liberal Party) had promised not to touch the state public service, public finances were in such a catastrophic state that radical austerity was desperately needed. In conservative-speak: there was much fat to trim.

O'Farrell wasn't alone. According to a Crikey analysis (July), "38,000 public service job cuts have been announced at the federal and state levels over the past few years. A further 24,000 positions are on the line (the federal Coalition says it will cull 12,000 positions, while the Queensland government has hinted at a possible further 12,000-20,000 job losses)".

For NSW, the "2012-13 budget set a 1.2% per annum reduction in labour costs across the public service, which unions say equates to 10,000 jobs", 5,000 of which are "voluntary" redundancies. And that without counting cuts in health (AUD3 bn over four years), plus education cuts. Thank goodness the Liberal Party guys are such brilliant economic managers, always ready to take "courageous" decisions (ask shadow federal treasurer Joe Hockey).


Do you believe in miracles? Well, they do happen. And the one delivering the miracle was no one other than the NSW Auditor-General, Peter Achterstraat:
"An expected deficit of $337 million [announced by state treasurer Mike Baird] in the middle of June became a surplus of $680 million by the end of June."
And how did this miracle happen?
"There were 37 errors of over $20 million each in accounts the Auditor-General's office identified and corrected.
" 'I would say that a $1 million error is unfortunate, a $10 million error is undesirable but a $100 million error is totally unacceptable,' he said.
"This is not acceptable for an entity the size of NSW that manages billions of dollars of assets and public funds.
"There is a lack of effective financial management capability in this state and it must improve."

In the meantime, in what conservative think-tankers and spin-masters will argue is an entirely unrelated development, this is how unemployment (trend, seasonally adjusted, according to the ABS's latest release 6202.0 - Labour Force, Australia, Sep 2012):

Thanks for nothing, Barry, Mike, Tony, Joe, Julia, and Wayne. Keep trimming the fat.

Sunday 28 October 2012

Greece and Spain: Crime and Punishment?

We all know the conservative narrative: the honest, long-suffering and wealthy taxpayer was being ruthlessly extorted huge amounts, which were immediately grabbed by the selfish and lazy moochers, via "entitlements" (enter the old-timers in age pension, the "welfare queens", the lazy voluntarily unemployed, the crippled; you know, "those people"); the cunning American borrowers lied to the naïve banks in their mortgage applications.

Bottom line: "those people" were living beyond their means. Now, the morality play concludes, they must pay. It's time to unshackle the job-creators, give them a break.


In 2004, when the Duke and Duchess of Parma wanted to buy a home, they, like everybody else, applied for a mortgage loan (See here, in Spanish). They asked La Caixa for a EUR 5mn loan, in order to pay for an apartment valued 5.8mn, at the time. Over a 30 year period, the monthly payment (variable interest) was over EUR 17,000.

At the time, according to the information provided, the couple's net worth was EUR 3.6mn (1.3mn in check and savings accounts), and His Excellency, Iñaki Urdangarín, was already guarantor to 3 other mortgages.

Among the paperwork, His Excellency - His Majesty don Juan Carlos I of Spain's son-in-law - included his tax declaration (See here, PDF, in Spanish). That year, His Excellency declared a before-tax yearly income of EUR 36,000, or 3,000 a month.


And, you know what? In October 2004, La Caixa approved the loan to the couple.

According to Reuters (October 18):
"Loans that fell into arrears in August increased by 5.3 billion euros ($7 billion) from July, reaching 178 billion euros, Bank of Spain data showed on Thursday.
"Non-performing loans on the books of the country's crippled banks have risen steadily since a decade-long property boom ended four years ago.
"Spain's lenders are preparing to receive the first funds from a 100-billion-euro ($131.21 billion) credit line agreed with the European Union in June which is seen paving the way to a full sovereign bailout." (See here)
And as experience shows and unlike PM Mariano Rajoy once tried to convince the Spanish people, those funds do come with strings attached.


And speaking of unshackling the Atlases. Last week Rajoy's government ordered the release from jail of 4 of his PP colleagues who had been sentenced in 2009 to prison terms ranging from 3 to 10 years, for the commission of 31 instances of corruption. (See here, in Spanish).

Asked in Parliament to justify the measure, the Rajoy Government gave no reason. The sentence was not questioned.


In Greece, the journalist Kostas Vaxevanis was arrested today after publishing a list with the names of 2,059 tax evaders, allegedly including the president of the Greek Parliament, several high officers of the Finance Ministry and a number of high executives and business people. (See here, in Spanish; here, in English)

The list, sent to the Greek government in 2010, was compiled by Christine Lagarde, then French Finance minister, currently head of the IMF. According to George Papaconstantinou (PASOK), Greek Finance minister in 2010, the list was lost.


This is what underlies the conservative/semi-fascist bullshit.

Saturday 27 October 2012

Precious Bodily Fluids and Free Markets.

"Mandrake, do you recall what Clemenceau once said about war?
"No. I don't think I do, sir. No.
"He said war was too important to be left to the generals. When he said that, 50 years ago, he might have been right. But today, war is too important to be left to politicians. They have neither the time, the training, nor the inclination for strategic thought."  (General Jack D. Ripper)

The quote above is from Stanley Kubrick's 1964 film "Dr. Strangelove" and Ripper is a fictional character.

Soviet military sites in Cuba, 1962. [A]
If you haven't seen it yet, this is a good film to watch this month, as the world commemorates the 50th anniversary of the very real Cuban missile crisis, and we approach the 49th anniversary of John F. Kennedy's death.

Kubrick's black comedy (starring Peter Sellers and George C. Scott) takes a shot at the anti-Communist hysteria then prevalent in the US: for instance, it mentions a "Bland Corporation" (a reference to the real RAND Corporation). To be fair, probably a good case could be made about similar attitudes in the USSR.

John von Neumann. [B]
It has been said that one of Sellers' characters (Dr. Strangelove) is a composite of several real-life scientists, many of Eastern/Central European origin. Fairly or not, one name suggested as possible inspiration is John von Neumann. Other possibilities are Wernher von Braun and Edward Teller.

Neumann, by all accounts, was one of the most gifted minds of the 20th century, having made important contributions to many fields, including economics.

Neumann was born to a Jewish banking family from Budapest, then in the Austro-Hungarian Empire. For reasons I won't mention (as I won't spoil the movie for those who never saw it) but that will be obvious to those who have watched the movie, this is relevant against the charges that Neumann has anything to do with Strangelove.

At the other hand, Neumann, like Strangelove and many among those European émigrés (Oskar Morgenstern and Ludwig von Mises come to mind), was furiously anti-Communist:
"If you say why not bomb [the Soviets] tomorrow, I say, why not today. If you say today at five o'clock, I say why not one o'clock?" (Neumann, supposedly in 1950. See here)
It makes me wonder how Neumann and Albert Einstein (who was sympathetic to socialism) would have gotten along at the Institute for Advanced Study, in Princeton University, where they were neighbours.


Neumann's theoretical contributions to economics, Jack D. Ripper's quote above, and what we are seeing in Europe, make me think that perhaps the economy, like war, is too important to be left to its practitioners, its theoreticians or even to politicians.

Of course, I don't expect businesspeople, economics professors or politicians to agree with me.


Let me close this post with the rest of Ripper's quote, where he explains why he overstepped his authority and ordered a nuclear strike against the USSR:
"I can no longer sit back and allow Communist infiltration, Communist indoctrination, Communist subversion and the international Communist conspiracy to sap and impurify all of our precious bodily fluids."
The BADGER explosion on April 18, 1953, Nevada. [C]

Image Credits:
[A] Soviet Military Build up in Cuba, late October 1962. Author: US Department of Defense. Wikipedia.
[B] John von Neumann at Los Alamos. Author: US Department of Energy. Wikipedia.
[C] The BADGER explosion on April 18, 1953, Nevada. Author: Federal Government of the United States. Wikipedia.

Thursday 25 October 2012

Greece: a Coming Civil War?

Or, Who's Worse?

These two reports from Greece, by the BBC's Paul Mason, speak by themselves. It is all about ignorance, misery and unapologetic beastliness. And it is about what the European political, financial and bureaucratic elites have unleashed upon their countries and humanity, more generally:

I imagine, or at least I hope, most of my readers, regardless of ideology, class, race, religion, age, gender, income, wealth and nationality, would be genuinely appalled by that video.

However, I'll submit that seemingly ordinary, respectable people, people we may know personally, or with whom we regularly interact over the net, are capable of behaviour worse, in a sense, because of their deep dishonesty.

Probably these people, for some reason, have never themselves done the things we saw in the video. Whatever has stopped them, so far, probably lies on a continuous scale ranging from the simple lack of opportunity, to the fear of losing their peers' respect.

In any case, you won't see them slapping old women's faces in front of TV cameras, harassing foreigners in the street or calling openly for an ethnically motivated civil war. Imagine! They are above that.

Unlike those unapologetically thuggish characters in the video, these people, our "friends", try hard to appear reasonable: their middle-class peers value moderation, reasonableness. And because they are "moderates", "centrists", "realists", they are quick to condemn extremes (including their shamelessly animalistic brethren).

But you can guess their true feelings by their eagerness to defend the obviously indefensible, or to at least find attenuating circumstances for it.

Take, for instance, these two comments, copied verbatim from a somewhat left-leaning site, on a The Guardian story (which I strongly urge you to read before the comments):
First Poster said...
"Re Nazis, that Guardian article said that 'if they come they will be met by leftists who have said they will beat them up with clubs'. Since Hitler used street violence, is it the political left or the political right who are Nazis?
"The same thing has happened in Britain: we've had members of left wing groups arrested for street violence.
"Hitler used to kill the authors and film producers he didn't like. Muslims do likewise, so Muslims are Nazis?
"The Nazi jibe is a strong indicator that the person using the jibe has run out of arguments". (September 29, 2012 8:22 PM)
I hope to be making a storm in a cup of tea, so I won't name either poster or facilitate their identification. If they read this, they know who they are. The other readers, I am afraid, will have to take my word for it: those are real comments.

The comment above, for instance, comes from a "progressive" blogger and commentator fairly well-known and popular in the lefty blogs I visit daily.

The other one, which if anything is worse, is from a self-described economics student, who once was critical of mainstream economics, but who saw the light in the road to Damascus and now frequently criticizes radical and heterodox economists (and anything left, really):
Second Poster said...
"What 'First Poster' has noticed is an odd asymmetry in the way that left and right wing extremists are treated.
"Right wing extremists provoke much wailing and gnashing of teeth over the coming Nazi-pocolypse. They must be always and everywhere defeated and crushed under foot.
"Left wing extremists are completely normal. They should be placated with concessions and other shiny things to mitigate their wholly legitimate grievances". (September 30, 2012 1:39 AM)
I won't pretend that I am reasonable, impartial, or moderate: I wouldn't fool anyone if I tried. Neither am I middle-class or respectable: I am working-class, poor and no one gives a shit about me.

I won't go into a discussion over the First Poster's childish attempt (Godwin Law) to spin what are neo-Nazis into something less poisonous: if it looks like a duck, swims like a duck, and quacks like a duck, then, it probably is a duck.

Neither will I accept the Second Poster's "denunciations" of double standards: it's not that left wing "extremists" wrongly perceive the situation in an asymmetric manner, the situation is asymmetric. His side (that in his view should not be crushed under foot) is actually using violence against the defenceless; the left wing "extremists" are threatening to use violence in defence of the defenceless and are paying a price for that, at the hands of the Greek police.

More briefly and to the point: you both can take your "arguments" and shove them up your reasonable, moderate, centrist, realist, impartial asses.

And, just so you both know, the contempt is mutual.


I'd advice a good dose of skepticism, when dealing with "reasonable", "moderate", "centrist" people: extremists speak their mind more clearly. It's easier to judge what they say.

In this, these "moderates" are worse than the Golden Dawn.

20-10-2012. Mason has another post on the similarity between Greece and the Weimar Republic. He traces the history of the last 3 Weimar federal elections and the post is interesting, even if Mason is confused in some points.

It's not accurate to say, like Mason does, that "right wing general Kurt Von Schleicher was appointed chancellor, and tried to form a government with everybody from the left wing of the Nazis to the socialist trade unions".

For starters, he did not try to form a government with the Communists, as they were totally unacceptable to him and the German plutocrats he represented (neither, I believe, would the Communists have accepted).

Second, for Schleicher (plus Hindenburg and their gang) the Nazis were an slightly less bad an alternative than the Communists, because they thought they could outmaneuver them. After all, they were the aristocracy and elite of Germany, by definition the smartest, most capable, people in Germany, in their own appreciation.

Schleicher's goal was to become a military dictator himself, very much like Engelbert Dollfuss, in Austria. As it happens, Schleicher badly miscalculated and paid the ultimate price for that, just like Dollfuss did. And I, for one, find little reason to lament their personal fates.

Sunday 21 October 2012

Spanish Regional Elections.

Yesterday saw the regional elections in Galicia and the Basque Country. Both good and potentially really bad news...

Galicia (red) [A]
In Galicia, the local centre-right "People's" Party maintained government (gaining 3 additional seats in the local parliament), while the PSdeG, the local PSOE franchise, suffered a huge loss (less 7 seats). These results should please Spanish PM Mariano Rajoy, himself a galego (i.e. Galician). (See here, here and here, in Spanish; here, in English)

While not surprised, I am puzzled. At one hand, the results were expected, according to the pre-elections polls giving the victory to PP. And, as expected, the galegos would understandably further punish PSdeG. But, why on earth would anyone vote for PP, in the first place?

The AGE (local left wing) gained 9 seats and parliamentary representation, which seems more understandable; the local nationalist party (BNG) lost 5 seats.

I guess Rajoy won't have much to complain here; for his PSOE counterpart, Alfredo Pérez Rubalcaba, however, this should be ominous news.

Euzkadi (green) [B]
Here both mainstream parties (PP and PS-EE/PSOE) suffered big losses in the local parliament: -3 and -9 seats, respectively.

And those were not the worst results: the non-nationalist left Ezker Anitza-IU vanished, with no seats in parliament.

Curiously, I think any Schadenfreude from right-wing readers would by premature: Mariano Rajoy and his clique may have very little to celebrate here.

The centre-right/nationalist PNV gained the largest parliamentarian representation, while losing 3 seats; EH-Bildu (Basque nationalist/left wing) however, gained 16 seats, to become the second largest parliamentarian party.

Unlike Galicia, for Euzkadi independence is an important issue and one that may yet prove thorny for the likely next Basque premier, Iñigo Urkullu (PNV) and for Mariano Rajoy.

Urkullu, who didn't achieve the numbers to govern without alliances (27 seats of 75), will need parliamentarian support. That's the source of his problems.

He could attempt a deal with EH-Bildu (21 seats) and get the numbers that way, but this could add momentum to the popular demands for independence, which are not welcome in Madrid. Alternatively, and more naturally from an ideological perspective, he could try to court both PSE-EE (16 seats) and PP (10); however, would his constituents like such a move?

Catalonia (red) [C]

While Urkullu's first words could be interpreted as an attempt to differentiate his stance from that of Catalonian Artur Mas, the nationalist victory in Euzkadi could help CiU in the upcoming Catalonian regional elections (November, 15). And Mas has promised a referendum on the issue of independence.

If I were Rajoy, I'd worry.

Image Credits:
[A] Map of Spain with Galicia highlighted (July 6, 2009). Author: Mutxamel. Wikipedia.
[B] Autonomous Community of Euzkadi (October 4, 2006). Wikipedia.
[C] Map of Spain with Catalonia highlighted (July 9, 2009). Author: Mutxamel. Wikipedia.