There is a From Alpha 2 Omega  podcast Oh So Reserved that is worth listening to.

This weeks our guest is Dan Kervick. By day Dan works in the book publishing industry. By night, Dan is an independent scholar, specialising in the work of the British Philosopher David Hume, and a regular blogger on progressive and egalitarian economics over on:

http://neweconomicperspectives.org

We discuss the institutional working of the banking system, how reserves really work, bubble blowing and the logic of quantitative easing, military Keynesianism, and the role of capital flows in the modern economy.

I think Dan has provided a good explanation of how things actually work in the economy and banking system. There are a few places that could stand further clarification, but there is only so much you can say in 45 minutes. One of the places that could use some extended discussion is the relation between the huge excess reserves of the banks and the loans that are not being made. Maybe Dan is right about one not causing the other, but it is more that one is a symptom of the other the other. (Correlation, not causation.  Or causation in the other direction.)

New Economic Perspectives has the article Loathsome Wall Street Deficit Hysterics: ‘Blame the Old and Sick, Not Us’ – Part 1.

So-called deficit spending, a not very descriptive term which I have called the “net contribution” of government to growth, is not a “Left-Right” issue if both Left and Right are agreeing to, in their own ways, continue to endorse or support a growing capitalist economy (or a monetary economy of some other description that encourages private savings). Contrary to popular and political wisdom of the moment, balancing a national government budget or targeting budget surpluses are not “good” and deficit spending is not “bad”.  In fact, the reverse is true: for most nations under most circumstances, national government budget balancing or budget surpluses are literally toxic for the economy while deficit spending is under many circumstances “good” for the economy. The conventional wisdom that issues from various neoclassically trained pundits of the Right or much of what passes for a “Left” nowadays, has, what is supposed to be sound, fiscal advice for monetarily sovereign governments, entirely inverted.  If capitalist economies are to grow, governments are literally compelled to spend on deficit to provide enough liquidity for the economy as well as provide the public services that benefit a complex economy and civilization; political and economic predators have exploited the link to bond sales and increasing “debt” repayment obligations to muddy the political and financial waters.

The article points to an interesting graph.

The above chart is what Janet Yellen was talking about when she mentioned fiscal drag as noted in my previous post Janet Yellen On Problems of Fiscal Drag.  If you read this properly, it explains why this recovery is not as strong as previous recoveries.  Previous recoveries did not suffer fiscal drag from Government policy 2 and 3 years after the start of recovery.  This recovery is the one suffering from the drag.  All the talk in Washington from both sides of the aisle seems to be about putting a little more drag on the economy, just when the above chart shows that what they are recommending is exactly the cause of the problem.

Maybe some in Washington can do the math, but they don’t seem able to read the graph.

For those who do not have magnifying glasses, the small print under the chart translates to “In the chart, the column for average recovery from postwar recessions excludes data that may contradict this thesis.” Or at least that is the way I translate it.  Well, you can’t always believe everything, or is that can’t ever believe anything.  Maybe we can believe the other two columns to the left of this one.

I am using a cheap shot to overplay the footnote to beat others to the punch.  In fact, if you want to compare the average of other other recessions to this one, then you do need to exclude this one from the average.  That takes care of the first part of the note.  The proviso for data limitations seems to only apply to the exclusion of the 1948-49 recession.  So, out of the goodness of  our heart, we can accept the exclusion of that data.  You also don’t want to include data from before the war, because the depression of the 1930’s is where we learned how not to ever make those mistakes again.  Well, the “not ever” part apparently didn’t last to 2009.

The New York Times has the article California, Here We Come? by Paul Krugman. The excerpt below explains the topic of the piece.

It goes without saying that the rollout of Obamacare was an epic disaster. But what kind of disaster was it? Was it a failure of management, messing up the initial implementation of a fundamentally sound policy? Or was it a demonstration that the Affordable Care Act is inherently unworkable?

So how would we  find the answer to the question?

At a time like this, you really want a controlled experiment. What would happen if we unveiled a program that looked like Obamacare, in a place that looked like America, but with competent project management that produced a working website?

Well, your wish is granted. Ladies and gentlemen, I give you California.

I had vaguely heard about John Boner’s demonstration of the failure of the HealthCare.gov web site.  Paul Krugman does refer to it.

…a point inadvertently illustrated a few days ago by John Boehner, the speaker of the House. Mr. Boehner staged a publicity stunt in which he tried to sign up on the D.C. health exchange, then triumphantly posted an entry on his blog declaring that he had been unsuccessful. At the bottom of his post, however, is a postscript admitting that the health exchange had called back “a few hours later,” and that he is now enrolled.

And maybe the transaction would have proceeded faster if Mr. Boehner’s office hadn’t, according to the D.C. exchange, put its agent — who was calling to help finish the enrollment — on hold for 35 minutes, listening to “lots of patriotic hold music.”

I wonder if CBS will decide to cover any of the successes of ACA instead of concentrating on every flaw and glitch exclusively. Damn that liberally biased press. (Sarcasm in that last sentence, if you have trouble detecting it on your own.)

The Real News Network has this two part series starting with Vietnam and the Legacy of the JFK Presidency – Peter Kuznick on Reality Asserts Itself pt1.

On this episode of Reality Asserts Itself, Paul Jay and historian Peter Kuznick discuss whether or not JFK intended to withdraw from Vietnam before his assassination

The second part is Vietnam and the Legacy of the JFK Presidency – Peter Kuznick on Reality Asserts Itself pt2.

On this episode of Reality Asserts Itself, Paul Jay challenges historian Peter Kuznick on JFK’s legacy in regards to the Vietnam War

You can see that between Kennedy’s public statement from moment to moment and his private statements to different people, that it is doubtful if we will ever end the debate about what he would or would not have done, had he lived through a second term.

The debate that The Real News Network promises might be very interesting, but I would really be surprised if it actually settled anything.

I read a headline in The Boston Globe today that there is a treasure trove of still secret documents about the assassination. I have not read the story yet, but I would wonder what the secrecy is about. Do we have to wait until every Kennedy descendant is gone? That might never happen.

The Real News Network has a series in two parts.  Former IAEA Inspector: Iran’s Nuclear Program Now Consistent with Peaceful Purposes pt1 .

Robert Kelley explains how Iran’s nuclear development is now consistent with power-production

Israel Denounces Deal In Spite of Substantive Concessions by Iran pt2.

Former IAEA inspector Robert Kelley says Israel’s criticism of agreement is unwarranted as it does not observe the non-proliferation treaty itself

Don’t complain that I only get my Isareali news from The Real News Network. If you read this blog enough to make that complaint, then you knew I was going to do this. Read the introduction to this blog.

I make no pretense about balance on this blog. If you want balance, read another blog.

McClatchy DC has the article President Obama Delivers A Statement On Iran. There is good news and bad news in this article.  Let me start with what I consider the bad news in these words of President Obama.

Since I took office, I have made clear my determination to prevent Iran from obtaining a nuclear weapon. As I have said many times, my strong preference is to resolve this issue peacefully, and we have extended the hand of diplomacy. Yet for many years, Iran has been unwilling to meet its obligations to the international community. So my Administration worked with Congress, the U.N. Security Council and countries around the world to impose unprecedented sanctions on the Iranian government.

There is stuff in here that is obviously put there for domestic consumption, but is of questionable truth or  at least it is deceptive. “…we have extended the hand of diplomacy” should come with the additional information that while we extended the hand of diplomacy  we have also extended the hand of the sucker punch at the same time.

Here is another quote from the President.

We approach these negotiations with a basic understanding: Iran, like any nation, should be able to access peaceful nuclear energy. But because of its record of violating its obligations, Iran must accept strict limitations on its nuclear program that make it impossible to develop a nuclear weapon.

It is not so clear that Iran violated its obligations when in fact they may have been reacting to the sucker punch that we delivered to them while they were looking at our hand of diplomacy.

Okay, so here is some good news:

Over the last few years, Congress has been a key partner in imposing sanctions on the Iranian government, and that bipartisan effort made possible the progress that was achieved today. Going forward, we will continue to work closely with Congress. However, now is not the time to move forward on new sanctions – doing so would derail this promising first step, alienate us from our allies, and risk unraveling the coalition that enabled our sanctions to be enforced in the first place.

Perhaps the sanctions are what worked and perhaps it was the sudden United States’ decision to stop issuing the sucker punch with every diplomatic offer that created this opportunity.  President Obama is finally pleading with our own war mongers to please refrain from adding a new sucker punch to the deal before we have a chance to see if diplomacy alone can work.

As in other grass roots successes of recent days (the end of the filibuster), it is up to the grass roots to put enough pressure on Congress and the President to not try a sucker punch when it will destroy the opportunity. It would be a sad day if there were more pressure from the grass roots to promote a sucker punch than there is pressure to stick to diplomacy.

I seem to be giving a lot of advice lately, and am feeling rather ambivalent over whether I am just doing too much meddling.  I thought about the video below that I had seen a long time ago.  I figured that it would be appropriate to put it on my blog so I wouldn’t have to search for it the next time I needed to view it.

Perhaps this video will convince you that there can be results when the grass roots in politics makes a concerted effort.

Keep on signing those petitions, sending emails, making phone calls, commenting on Facebook and Google+, writing blog posts, or whatever you can think of that might give courage to politicians to do the right thing.

As the above video shows, they want and need you to do it, and it works.

Here is even a link to say Thank You, Sen. Reid, for Filibuster Reform.

New Economic Perspectives has the article Regulating Shadow Banking.  The article is mainly a showing of the video below, but I want to give the NEP website credit where credit is due.  I’ll quote their description of the video here:

The Economic Policy Institute (EPI) is holding a conference on shadow banking
You can watch the entire LIVESTREAM below.

The video is over 5 hours long, and I only have had time so far to listen to the first 25 minutes. This covers the introduction in which the parts of the shadow banking system are enumerated, if some of you don’t know what the term “Shadow Banking System” refers to, and the first speaker, Sheila Bair. Bair was the Chairperson of the U.S. Federal Deposit Insurance Corporation (FDIC) until recently.

Her talk was informative as well as the Q&A session after it. I was pleased to note that a staffer from Oregon Senator Jeff Merkley’s office was there to ask a question. That means that the information from conferences like this is reaching the ears of some people in government.

New Economic Perspectives has the article Bow down to the Bubble: Larry Summerian Endorses Bubbleonian Madness and Paul Krugman Embraces the Hansenian Stagnation Thesis by L. Randall Wray. I am beginning to develop a real appreciation for the writings of Wray.

The article is long.  The beginning of the article has references to people and theories with which you might not be familiar.  Do not let that bother you.  It is not really important to know who these people are.  After this entertaining, but perhaps disconcerting bit, Wray gets down to revelations that are easy to understand if you know any economics.  These explanations may change your thinking whether you are anti-Keynesian or you think you are pro-Keynesian.

The long excerpt below exposes you to only one of the trains of thought in the article  that is revelatory.

Indeed, if net investment is constant, and if this adds to capacity at a constant rate, it is extremely unlikely that aggregate demand will grow fast enough to keep capital fully utilized. This refutes Say’s Law, since the enhanced ability to supply output would not be met by sufficient demand. As such, “more investment” would not be a reliable solution to a situation in which demand were already insufficient to allow full utilization of existing capacity.

Vatter and Walker carried this a step further, showing that after WWII, the output-to-capital ratio was at least one-third higher than it had been before the war. Due to capital-saving technological innovations, it takes less fixed capital per unit of output so that the supply-side effects of investment will persistently outpace the demand-side multiplier effects (for example, as a constant level of net investment adds to capacity at a rising rate). The only way to use the extra capacity generated by net investment is to increase other types of demand. These would consist of household spending (on consumption goods, as well as residential “investment”), government spending (federal, state, and local levels), and foreign spending (net exports).

Vatter and Walker believed that growth of government spending would normally be required to absorb the capacity created by private investment. Indeed, they frequently insisted that government spending would have to grow at a pace that exceeds GDP growth in order to avoid stagnation.

This should not be interpreted as endorsement of Keynesian “pump-priming” to “fine-tune” the economy. Indeed, Hansen had previously demonstrated that pump-priming would fail. If government increases its spending and employment in recession, raising aggregate demand and thus, economic activity, only to withdraw the stimulus when expansion gets underway, will simply take away the jobs that had been created, restoring a situation of excess capacity. The larger the government, the harder it becomes to cut back spending because jobs, consumption, income, and even investment all depend on the government spending. According to Vatter and Walker, in a well-run fiscal system, government spending will rise rapidly when investment is rising (to absorb the created capacity), and then will still rise rapidly when investment falls (to prevent effective demand from collapsing). They call this a “ratchet”—rather than countercyclical swings of government spending, “government as a share of the economy should rise indefinitely”. Adolf Wagner had argued that economic development leads to industrialization and urbanization, which generates an absolute, as well as a relative, increase in the demand for more government services (of course, J.K. Galbraith made a similar point). Hence, for political and socioeconomic reasons, government should grow faster than the economy. If it does not, not only will this leave society with fewer publicly provided services than desired, but it will also generate stagnation through the Domar problem.

The great thing about this article comes from its explanation of the reason for events that I have observed.  In particular, I have been noticing our state of excess capacity due to increases in productivity and have been wondering what the ultimate, permanent solution might be.  I had never thought of some of the ideas that are in this article.  If I have ever had an AHA! moment, then reading this article certainly had many major such moments.

I know I keep saying this, but this article has the potential of changing my thinking more than any other article I have read recently.