Monthly Archives: June 2012

Yes, I Hear You

I think I may have finally realized why I am not making any progress in explaining how I think the  economic mess needs to be corrected.

Here is my letter addressed to a middle-class proponent of austerity.

It is my fault for failing to acknowledge the point you are making.

You are right in blaming some of the problems of the faltering economy on the excessive borrowing of the middle-class.

It is a mistake for me to argue my side, without first agreeing to the part the middle-class played.

When I do that, I lose the audience for hearing that the ultra-wealthy played an equal or even larger part in the debacle.  My real point is that I do not want the discussion to focus on the price the middle-class has to pay for past excesses without having a discussion of the part that the other party to the excesses has to pay.

My problem with Germany is that they played a large part in encouraging the excesses of the other countries to borrow money to buy goods and make profits for Germany.

Now Germany wants to keep everything they gained by their taking advantage of the naivete of the other countries, and they want the other countries to pay for it with resources they just do not have.  This formula cannot work, and nobody is going to come out a winner if this is the way that the solution is sought.

Both sides have to come together and admit they both played a part in the mess.  It will take both sides to give up some of the gains they made during the bubble, to create a non-bubble, stable economy.  So far, only the middle-class is weak enough to be forced to give up their gains.  But economic reality will force the lower rungs of the ultra-wealthy to give up their gains, too.

Only when society wakes up to the fact that there is no solution until we get together to solve the problem will this nightmare end.

In trying to make a strong case for Keynesian solutions, I have failed to emphasize that I do understand that both sides of the economic struggle for gain have made huge mistakes.  This leads me to make strong arguments only against the one side that refuses to take responsibility for their mistakes.  I assume that it is a foregone conclusion that the side that is taking all the hits right now does deserve some of it.  I see that I have to pay more attention to making clear the part that I am assuming.


Higher Taxes Are Already Here: Rick Newman

In the article Higher Taxes Are Already Here: Rick Newman, Adam Task interviews Rick Newman.

In many interviews, Adam Task seems to have a clear view of the big picture. Occasionally he does interviews where he plays along with the interviewee, and does not challenge their point of view. This seems to be one of these occasions.

I cannot fault the analysis of what the average voter may be thinking and why they react the way they do. I actually think the interview does show great insight there.

The problem comes in part from the analysis of how we got to this situation. More importantly, the analysis falls down in trying to describe how the problem must be solved. I agree on their analysis that the attempted path to the solution will most likely take the form they describe. Where they fall down is in describing what the true solution ought to be.

It is the game plan of Karl Rove and his wealthy sponsors to starve the government of revenues so that the size of the government will have to be cut. This in turn will force such moves as cutting government employees pension, thus breaking the promise made to them when they were hired and dangled in front of them during their whole working careers. Cutting government employee pensions will remove the last vestiges of what a well society looks like, so that it will be easier to sell the idea that the current race to the bottom in the private sector is just the way things ought to be.

The current fiscal problems of the states are due to the faltering economy and the the blockage by the Republicans in the U.S. Congress of any attempts by President Obama to tide the states over by giving the states any more stimulus money.

The trillions of dollars in tax giveaways to the wealthy at the federal level makes it look like their are not enough resources to go around to support the necessary functions of government. This and the fact that the top 1% have garnered over 90% of the economic growth that occurred before the bubble burst is the proximate cause of our current problems.

The attempt by the top 1% to keep the gains they made during the bubble and make everyone else pay for it seems to be working. They have convinced the middle-class tax payers to take it out on the middle-class government employees rather than ask the wealthy to contribute to the rescue of the country.

In the end, nobody is going to walk away from this unscathed. The sad part of this is that it is all so unnecessary.

In recent posts about Krugman and Stiglitz, there is a description of what the true solution will eventually be. The middle-class has been convinced by Karl Rove and his minions, that we must suffer for the excesses of the ultra-wealthy. Apparently we believe that our suffering is payback for our own excesses. This may be true to some degree, but we fail to notice that the ultra-wealthy don’t feel that they have any duty to pay for their own excesses.

Welcome to the 1930s or The Dying Patient Needs More Bleeding

As if on cue, Paul Krugman has seemingly responded to one of my readers who is convinced that the average Greek citizen deserves whatever travails that austerity brings.

The Krugman article is Welcome to the 1930s.  He starts with the following paragraphs:

Martin Wolf is shrill (and rightly so). “Before now, I had never really understood how the 1930s could happen,” the Financial Times columnist wrote in an op-ed published on June 5.

“Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events.”

Krugman ends with the following paragraphs:

Second — and this goes deeper — I suspect that we’re seeing the old Joseph Schumpeter “work of depressions” mentality: the notion that all the suffering going on somehow serves a necessary purpose and that it would be wrong to mitigate that suffering even slightly.

This doctrine has an undeniable emotional appeal for people who are themselves comfortable.

It’s also completely crazy given everything we’ve learned about economics these past 80 years.

But these are times of madness, dressed in good suits.

In a completely unscientific poll, I ask my readers if they believe that “all the suffering going on somehow serves a necessary purpose and that it would be wrong to mitigate that suffering even slightly?”

Joseph E. Stiglitz | The Price of Inequality

At Truth Out, there is an item Joseph E. Stiglitz | The Price of Inequality . The following is a quote from the article:

It would be one thing if the high incomes of those at the top were the result of greater contributions to society, but the Great Recession showed otherwise: even bankers who had led the global economy, as well as their own firms, to the brink of ruin, received outsize bonuses.

A closer look at those at the top reveals a disproportionate role for rent-seeking: some have obtained their wealth by exercising monopoly power; others are CEOs who have taken advantage of deficiencies in corporate governance to extract for themselves an excessive share of corporate earnings; and still others have used political connections to benefit from government munificence – either excessively high prices for what the government buys (drugs), or excessively low prices for what the government sells (mineral rights).

Likewise, part of the wealth of those in finance comes from exploiting the poor, through predatory lending and abusive credit-card practices. Those at the top, in such cases, are enriched at the direct expense of those at the bottom.

The usual cry from politicians like Mitt Romney and Scott Brown is that the rich deserve their income and low taxes.  No doubt some of them do.  However, it is about time we stop falling for such stereotypes as a generalization for the vast majority of the very rich.

Of course, there are even readers of this blog who might say, “Who is this guy Stiglitz, and what does he know?”  I’d prefer to understand his arguments and judge them on their merits than resort to a war of credentials.  There are a number of highly credentialed people whose judgment isn’t worth a bucket of spit. However, some of my readers do seem to be impressed by credentials so here it is from the article itself.

Nobel Prize-winning economist

I generally downplay the Nobel Prize in Economics by reminding myself that Milton Friedman also won a Nobel Prize.  So the prize in and of itself doesn’t prove much.

Here is the beginning of what WikiPedia has to say:

Joseph Eugene Stiglitz, ForMemRS, FBA (born February 9, 1943) is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is also the former Senior Vice President and Chief Economist of the World Bank. He is known for his critical view of the management of globalization, free-market economists (whom he calls “free market fundamentalists“) and some international institutions like the International Monetary Fund and the World Bank.

In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. Since 2001, he has been a member of the Columbia faculty, and has been a University Professor since 2003. He also chairs the University of Manchester‘s Brooks World Poverty Institute and is a member of the Pontifical Academy of Social Sciences. Stiglitz is an honorary doctor of Durham Business School,[1] an honorary doctor at the Charles University, an honorary professor at Tsinghua University School of Public Policy and Management and a member of the Executive and Supervisory Committee (ESC)[2] of CERGE-EI in Prague. Stiglitz is one of the most frequently cited economists in the world.[3]

Are you suitably impressed yet?

At G-20’s closing, Obama prods Europe to boost growth

From a McClatchy news story, At G-20’s closing, Obama prods Europe to boost growth, I have taken the following quotes:

Treasury Under Secretary Lael Brainard told reporters Monday that the administration expected to see “a high degree of resolve to work together to address financial market tensions and more clarity about the need to strengthen demand.”
Treasury Secretary Timothy Geithner said the Europeans were designing the “financial architecture” to secure their financial system, including seeing that especially hard-hit countries like Spain and Italy that are making long-term reforms can borrow at existing low interest rates.

“Those two things are very important,” he said. “Not just the long-term reforms to build a stronger Europe, but the immediate steps to make sure that they’re stabilizing their financial systems and making sure these reforms can really work.”

And he said the Europeans have agreed to a focus on economic growth, “because of course, for these reforms to work in Europe over time, Europe needs to grow faster.”

Brainard said there had been a “noticeable shift in the European discussion recognizing the critical importance of supporting demand and job growth,” and she said the Europeans were looking at supporting project bonds and strengthening the European investment bank. Asked whether the shift included the German contingent, Brainard said it did.

“I think you’ll see it both in the documents and in their discussions,” she said.

In my recent conversations, I have spoken to two people who I thought were diehard Obama supporters in the current Presidential contest, and yet they don’t seem to understand the wisdom of what Obama is trying to do about the European situation.  Even the Treasury Secretary, Tim Geithner, seemed to be slow to catch on, but he has come around to the accepted macro-economic view of what is ailing the world economy.

I know how hard it is to understand how macro-economics differs from micro-economics in a few key aspects.  As hard as I try to explain it, people who have a strong moral view about about actions taken in the micro-economics realm cannot seem to let some of these ideas go when thinking about macro-economics.

As an engineer and as a sailor, I know that sometimes what applies in the small absolutely must not be tried in the large.  What I did sailing my 11 foot  Sunfish sailboard did not always apply to my 26 foot sailboat. (By volume and weight, the 26 foot boat is 13 times bigger than the 11 foot boat.)  I also know that no small boat sailor would have been aware of the problem that occurred when the QE2 sailed near Martha’s Vineyard at a speed that increased its draft beyond the depth of the water it was in. (The QE2 is on the order of 57,000 times the weight and volume of my 26 foot boat.)

People who run really big things have to be aware of all sorts of effects that people who run small things never have to worry about.  It is impossible for people who run small things to even imagine the issues confronting people who run big things.  People who only run small things need to read about the problems that occur with big things with an open mind.  If they cannot fathom (pun intended) the concept that there are differences between the large and the small, they simply dismiss what the read about the problems of the large.  I am hoping that the boating analogy used above can be mind and eye opening to the possibilities.

Economist Paul Krugman on Germany’s ‘Whips and Scourges’

Economist Paul Krugman on Germany’s ‘Whips and Scourges’ has an excellent interview of Paul Krugman on PBS explaining some important issues about the current financial crisis in Europe. There is no date given for the interview. However Krugman is obviously speaking at a time when Nicolas Sarkozy was still President of France. That ended on May 15. This would put the interview at least a month old.

At the end of the article is “a rebuttal of sorts from Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.” I guess this is just proof that you can find whatever view you want whenever you look at the same set of facts. I don’t think the Peterson Institute is quite as bad as The American Enterprise Institute, but they do seem to have a decided institutional point of view as reflected by Jacob Kirkegaard.

The pointer to this interview and article was sent to me by someone who thought it contradicted Paul Krugman as quoted in my previous post We Don’t Need No Education. Try as I might, I cannot see where there is a contradiction.

High court rejects a challenge to DNA evidence

A local newspaper ran the Associated Press story with the headline High court rejects a challenge to DNA evidence. The article explained the case as follows:

The case grew out of a DNA expert’s testimony that helped convict Williams of rape. The expert testified that Williams’s DNA matched a sample taken from the victim, but the expert played no role in the tests that extracted genetic evidence from the victim’s sample.

No one from the company that performed the analysis showed up at the trial to defend it.

The court has previously ruled that defendants have the right to cross-examine the forensic analysts who prepare laboratory reports used at trial.

In this case, the state of Illinois said that the DNA expert who matched the two samples played the critical role – even though she did not actually extract the DNA samples and conduct the tests – and that she testified and was subjected to a thorough cross-examination.

Judge Clarence Thomas broke the tie vote with his separate opinion.  According to the article,

In the middle was Thomas, writing only for himself, but controlling the outcome of the case. Thomas said the lab report used in this case could not be considered testimonial and so does not fall under the Constitution’s cross-examination requirement.

The report “lacks the solemnity of an affidavit or deposition, for it is neither a sworn nor a certified declaration of fact,’’ Thomas said. It may be used at trial, but the judge who presided at Williams’ bench trial in the absence of a jury did not have to lend it much credence.

In her opinion, Kagan said the court muddied the issue in this case.

It appears that Judge Clarence Thomas tries to play word games and uses faulty logic to come to an absurd conclusion.  With the slightest knowledge of recent famous court cases, he could have come to the right conclusion and not embarrassed himself with his own writings.

The expert witness may have provided completely accurate testimony based on the evidence that the expert witness saw.  However, if the person who extracted the DNA samples had been present to testify, the defense council would have been able to ask the technician questions about how the samples were extracted.  In particular, the council would have asked what measures were taken to isolate the sample taken from the defendant from the sample taken from  the victim.  The O. J. Simpson acquittal rested in large part from the possibility that one sample had been contaminated by the second sample.  If such contamination had occurred, then finding the defendant’s DNA in the victim’s DNA sample would be quite possible without proving that the defendant had anything to do with the victim.

Of course, I am only basing my judgment on the newspaper article.  There are several possibilities that I can think of as a result.

  1. The Associated Press or the newspaper editors are incompetent at reporting and/or editing the article, and they left out the most important parts.
  2. The defense council arguing before the Supreme Court was incompetent, and failed to present the main reason for wanting the technician who took the samples to have testified.
  3. Five of the Supreme Court Justices are incompetent as lawyers, and were incapable of figuring out for themselves why a defense council would have a need to cross-examine the technician, among others.

Given this Supreme Court ruling, defense council will now have to remember to ask such expert witnesses how they can be sure that the samples were properly taken and were not contaminated. If the expert witness can not make such assurances, then the testimony is of no value. Maybe that is where the incompetence of the defense is only compounded by the incompetence of the Supreme Court.

I could be mistaken in all this if it turns out that The Associated Press completely missed the point of the Supreme Court proceedings. It wouldn’t be the first time.

Obama camp says Romney crossed the line with Europe policy critique

McClatchy has the story Ahead of G20 summit, Obama camp says Romney crossed the line with Europe policy critique.  The story quotes a Romney adviser.

The Romney piece by senior economic adviser Glenn Hubbard, ran in Handelsblatt, a German business newspaper. It took the administration to task for what Hubbard called an “unwise” strategy that showed “ignorance of the causes of the crisis and of a growth trend in the future.”

Talk about “ignorance of the causes of the crisis and of a growth trend in the future” Glennn Hubbard is the one displaying ignorance.  As Dean of the Columbia University Graduate School of Business, perhaps you don’t need to know anything about macro-economics.  If micro-economics is all you know, can you be forgiven for thinking that your knowledge applies to national and international economics?  No, I do not think you can be forgiven.  I learned more about macro-economics in my first economics course than Glenn Hubbard seems to be displaying here.

Of course Hubbard is playing “expert” witness to the Romney campaign.  In that role, he says whatever the paymaster asks him to say.

In my previous post, We Don’t Need No Education, I quoted Paul Krugman as saying:

In fact, almost everyone following the situation now realizes that Germany’s austerity obsession has brought Europe to the edge of catastrophe — almost everyone, that is, except the Germans themselves and, it turns out, the Romney economic team.

You can’t just pick which expert you want to believe.  You have to hear the explanation that backs up what they say.  In this case the economic theory behind Paul Krugman’s remarks makes much more sense than the explanation behind what Hubbard has to say.


We Don’t Need No Education

The New York Times has Paul Krugman’s column, We Don’t Need No Education.

Conservatives would have you believe that our disappointing economic performance has somehow been caused by excessive government spending, which crowds out private job creation. But the reality is that private-sector job growth has more or less matched the recoveries from the last two recessions; the big difference this time is an unprecedented fall in public employment, which is now about 1.4 million jobs less than it would be if it had grown as fast as it did under President George W. Bush.

And, if we had those extra jobs, the unemployment rate would be much lower than it is — something like 7.3 percent instead of 8.2 percent. It sure looks as if cutting government when the economy is deeply depressed hurts rather than helps the American people.

And here is a paragraph singled out by me and dedicated to two cousins I was speaking to this weekend.

In fact, almost everyone following the situation now realizes that Germany’s austerity obsession has brought Europe to the edge of catastrophe — almost everyone, that is, except the Germans themselves and, it turns out, the Romney economic team.

My cousins still believe that the European problem lies with Spain.  When I told them that the actual problem is caused by Germany, not Spain, I have no doubt they dismissed that idea as coming from someone who had too much to drink at the wedding.

Elizabeth Warren’s Keynote Speech at Netroots Nation

Truth Out has the video and a transcript of Elizabeth Warren’s Keynote Speech at Netroots Nation.

I have heard suggestions that Elizabeth Warren should talk more about exactly what is wrong with her opponent’s voting record. How about the following example from this speech:

When some of us were working to rein in Wall Street, the Republicans were fighting regulation tooth and nail. Scott Brown personally held the reforms hostage as he negotiated to weaken the rules and to give the big banks a $19 billion break. Scott Brown and his Republican buddies voted against funding for summer jobs, and voted twice to let the interest rate on student loans double. Just this week, Scott Brown and his Republican buddies voted for the second time against equal pay for equal work. And just a couple of months ago, he sponsored a law to let employers block access to birth control and routine cancer screenings from health insurance.