Bloomberg has the article Citigroup’s Corbat Says Spending Needed for Full Recovery.

This article is interesting for both what it says and what it does not say.

Michael Corbat, hunting for revenue seven months into his tenure as chief executive officer of Citigroup Inc. (C), said the improving U.S. housing market and declining unemployment won’t ignite the nation’s economy unless companies start spending.

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“Until we really see the other side — that corporate side — step in, I don’t think we can look and say that we’ve really got a full U.S. recovery.”
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Corbat and his fellow CEOs at other U.S. banks need stronger economic growth to fuel revenue that’s being undermined by a slump in trading and regulators’ efforts to rein in risks in the wake of 2008’s credit-market turmoil. While the nation’s six biggest lenders increased total first-quarter profit by 45 percent, their combined revenue fell, leaving most of them to rely on a mix of tax benefits, staff reductions and cost cuts to increase earnings.

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Corbat, who previously led a unit that disposed of Citigroup’s unwanted assets, replaced Vikram Pandit, 56, as CEO in October after Pandit navigated the bank through a near collapse and repaid a $45 billion U.S. bailout. Since taking the helm, Corbat has announced plans to cut 11,000 workers and pull back from markets such as Turkey, Pakistan and Uruguay.

The banks are making money by cutting their size in assets and employees.  This is good, as the banking sector had grown to be  far too large a fraction of the economy for the health of the economy.   So, although business in general is hiring, some of that is being offset by layoffs in Citigroup itself (and I presume others in the financial sector).

So Corbat sees a variety of economic sectors shrinking and enlarging, wants the business sector to grow even more, but what he fails to realize is that temporarily, the only way for the employment to rise and unemployment to fall is for the federal government to stimulate the economy.  This stimulus is the fastest way to get business to grow at the rate for which Corbat wishes. Moreover, this stimulus in terms of building and improving infrastructure is something that the economy needs anyway.  Meaning this is what we need to do, and now is the time we need to do it.

I have been reading the book Who Owns The Future? by Jaron Lanier.  Lanier was the subject of my previous post, How Silicon Valley is Hollowing Out the Economy (And Stealing From You To Boot). He explains why technology and its ability to displace workers is causing a shrinking of the middle class.  He shows that what we are trending to in the “free market”, “capitalist” economy is neither free markets not capitalism.  The ability of a few companies to dominate their markets is based on knowledge that they acquire through massive computer technology that is not shared with the other parties with which they deal in the economy.  In previous eras up to the current one, insider trading in stock markets has been outlawed, but the definition of what is insider trading has not kept up with changes in technology.

If you want to understand the huge changes that are going on in the world’s economy and in society, you really need to read this book.

The import of the book is though economic stimulus is needed, far more than that will need to be changed in order for the future health of society to get better.

A recent email is the perfect counter to the recently approved lifting of the incinerator moratorium by the Massachusetts DEP. Here is the email sent to me by reader MaryA.

Greetings supporters of a Zero Waste
Future,

Eco-Cycle has sponsored and co-authored a
new study which we think you will find interesting and useful in
your work. We titled it:“What
is the best disposal option for the “Leftovers” on the way to
Zero Waste?

Waste incineration companies are
increasingly promoting the belief that after maximizing recycling,
composting, and reuse the best thing a community can do with any
leftover waste that may still remain is to create energy with it.
But a new lifecycle analysis report, which compares the
environmental impacts of the three most common waste disposal
methods used globally, finds that the best approach to protecting
the public health and the environment isn’t mass burn
waste-to-energy, and it isn’t landfill gas-to-energy. The report
found that, after aggressive community-wide recycling, reuse and
composting, the most environmentally-sound disposal option for the
remaining materials was a third option: Materials Recovery,
Biological Treatment (MRBT). MRBT is a variation of theMBT systems used across Europe, but we’ve put a new
twist on it to recover even more resources and realize more
environmental benefits. (see media alert below for more detail)

According to Joan Marc Simon, Founder of
Zero Waste Europe,“This
report is exactly what we need at the right time to help guide the
debate on what to do with residuals once we reach high separate
collection rates. Europe has over-invested in waste incineration
and needs solutions that deliver environmental safety while still
focusing on increasing recycling and reducing material
consumption.”

Pleasesign up for a webinar(spots are limited)with the report authors Dr. Jeffrey Morris, Dr. Enzo
Favoino, Kate Bailey and myself, on either May 23^rdor May 30^th at www.ecocycle.org/specialreports/leftovers to learn more about the benefits of MRBT and what this
means for communities trying to reach Zero Waste. Find the full
report and more information at www.ecocycle.org/specialreports/leftovers.

We look forward to furthering this
discussion with you,

Eric Lombardi

Executive DirectorEco-Cycle, Inc.
| Boulder, CO USA 303.444.6634

PRESS RELEASE

New Study Finds
Waste Incineration is NOT the Best Disposal Option

for the
“Leftovers” That May Remain After Aggressive Source-Separated
Recycling and Composting

Boulder, CO (May 2) Waste incineration companies are
increasingly promoting the belief that after maximizing recycling,
reuse and composting, the best thing a community can do with
leftover waste is to create energy with it. But a new lifecycle
analysis report, which compares the environmental impacts of the
three most common disposal methods used globally, finds thatthe best approach to
protecting the public health and the environment isn’t mass burn
waste-to-energy, and it isn’t landfill gas-to-energy. The report
found that, after aggressive community-wide recycling, reuse and
composting, the most environmentally-sound disposal option for
any waste that may still remain is a third option: Materials
Recovery, Biological Treatment (MRBT).The full report,
“What is the best disposal option for the ‘Leftovers’ on the way
to Zero Waste?” is available at http://www.ecocycle.org/specialreports/leftovers.

Material Recovery, Biological Treatment is a process
to “pre-treat” mixed waste before landfilling in order to recover
even more dry materials for recycling and minimize greenhouse gas
and other emissions caused by landfilling by stabilizing the
organic fraction with a composting-like process. Very similar to
the MBT systems used widely in Europe, thegoal of MRBT is to
capture any remaining recyclables and then create inert residuals
that will produce little to no landfill gas when buried. The
system can alsoclassify non-recyclable
dry items for the purpose of identifying industrial design change
opportunities, which helps to drive further waste reduction.

This reportemphasizesthat source separation for
recycling and composting is still the best environmental option
for managing all discards and should be the focus of community
efforts. However, “on the way to Zero Waste” there is still the
need to reduce the negative impacts of disposal and minimize the
need to invest in new disposal facilities. Communities should look
beyond the two traditional options—burying and burning—toward
building MRBT systems that have the lowest overall environmental
impact of the technologies commercially available today.

Using a tool developed by economist Dr. Jeffrey
Morris called MEBCalc^TM, or Measuring Environmental
Benefits Calculator, the study compared the three disposal
strategies—MRBT, mass burn waste-to-energy and landfill
gas-to-energy—across seven environmental categories, including
climate change, water pollution, air pollution and human health
impacts. The MRBT system was shown to be the best choice for a
community to dispose of its leftovers because it recovers the
greatest amount of additional recyclables, stabilizes the organic
fraction of the residuals, reduces the amount of material to be
disposed of in a landfill, and minimizes the negative
environmental and public health impacts of landfilling leftovers
compared to the other disposal alternatives, landfill
gas-to-energy or mass-burn waste-to-energy.“MRBT is not a
replacement or substitution for source separation, but it is a
tool for helping communities reduce the environmental impacts of
managing their leftovers as they progress on their way to Zero
Waste,”says Eric
Lombardi, the Executive Director of Eco-Cycle and sponsor of the
study.

When utilized in a community with successful
recycling and composting programs, MRBT has further benefits
beyond its lower environmental impacts. Because the pre-treatment
process includes additional sorting and recovery of recyclable dry
materials, MRBT can help support very high levels of landfill
diversion. The study modeled an 87% diversion rate for the city of
Seattle, Washington based on 71% diversion from current
source-separated recycling efforts and an additional 16% from the
MRBT process, including increased recovery of recyclables and the
weight reduction of the organic materials from moisture
evaporation and biogenic carbon conversion to carbon dioxide.

MRBT infrastructure is also flexible and
dual-purposed, able to handle both mixed waste and
source-separated recyclables and organics. This means a community
is not tied to feeding the facility a continuous flow of mixed
waste over the next several decades and is not investing in a
future of ever-more waste. Rather, as a community’s Zero Waste
efforts improve, the MRBT model can adjust to a declining volume
of leftover waste and support the growth of source separated
collection systems. In addition, MRBT infrastructure can be built
and operational on a shorter time scale than landfills and
incinerators, and can be modular in size to help communities
manage their leftover waste more locally.

According to Joan Marc Simon, Founder of Zero Waste
Europe,“This report
is exactly what we need at the right time to help guide the
debate on what to do with residuals once we reach high separate
collection rates. Europe has over-invested in waste incineration
and needs solutions that deliver environmental safety while
still focusing on increasing recycling and reducing material
consumption.”

The full report, “What is the best disposal option
for the ‘Leftovers’ on the way to Zero Waste?” is available at www.ecocycle.org/specialreports/leftovers.
The authors will hold two webinars to explain the results and
methodology of the study on Thursday May 23^rdand Thursday May 30^th.
Sign up at www.ecocycle.org/specialreports/leftovers.

The report was an international effort authored by
Dr. Jeffrey Morris,an economist and
life-cycle assessment expert with Sound Resource Management Group
based in Olympia, Washington; Dr. Enzo Favoino, Senior Researcher
at Scuola Agraria del Parco di Monza in Milan, Italy; Eric
Lombardi, Executive Director of Eco-Cycle, a Zero Waste social
enterprise based in Boulder, Colorado; and Kate Bailey, Senior
Analyst for Eco-Cycle.

The Boston Globe has the article Activists slam plan for waste in Mass.

Here is the letter to the editor that I wrote in response.

The article “Activists slam plan for waste in Mass.” quotes officials as saying the new technology is “unlike traditional incineration, which emits a heavy amount of pollution into the air.”

There is one simple test for this claim that no “official” has ever done, or asked for it to be done, or even realizes that it ought to be done.  Commissioner Kimmell was surprised to hear about it when I recommended it to him.

You weigh the waste coming in, then you weigh whatever you take out of the incinerator when it is done.  The difference in weight is what goes up into the air.  If you don’t do this simple test, how do you know that the new technology isn’t putting just as much pollution into the air?

The new technology might make the pollution particles so small that you can’t see them, but that is not the same as there not being any pollution.  In fact, the smaller particles may be even more hazardous – by now people must have heard of nano-particles.  We do not know the biological consequences of unconstrained nano-particles entering the body.

The Boston Globe has already published a recent letter of mine, so they may not publish this one.

I just received the Solid Waste Master Plan Announcement from a couple of sources. Here is the excerpt that caught my eye.

While the Solid Waste Master Plan (SWMP) promotes a number of important efforts to increase recycling and reduce waste generation, it also recognizes that by 2020, Massachusetts will have a shortfall of capacity to dispose of waste that cannot be recycled or re-used. The SWMP modifies the current incinerator moratorium to encourage the development of innovative and alternative technologies for converting municipal solid waste to energy or fuel on a limited basis.

This is certainly not the outcome we had hoped for as shown in my previous post, Video of Presentation of the Petition to Keep the Moratorium on Municipal Incinerators.

As Commissioner Kimmell so proudly pointed out to us in a private meeting we had with him, if Massachusetts builds new incinerators it will attract more waste to us from other states.  The U.S.  Constitution’s interstate commerce clause does not allow the state to prohibit importing waste from other states. This is not exactly how I imagine a solution to our waste disposal capacity problems.  The faster we build capacity to dispose of solid waste, the more solid waste will come to us from other states.  Am I crazy, or am I the only one that sees something wrong with this picture.

According to Commissioner Kimmel, we need to stop exporting waste to other states because the extra pollution from the transportation is not good for the environment.  Magically, the transportation of the waste in the opposite direction is not a problem.

Only in America.

This article and video from Time, How Silicon Valley is Hollowing Out the Economy (And Stealing From You To Boot), is more important than the silly headline might indicate.  You get a small sense of the import from the video below.

You get a little different perspective from the written article. Here is a key snippet.

But Lanier is asking us to stop and examine the economy we’re allowing to be created around us. If automation will subsume most of what we consider to be work, how will we spend our days, and how will we divy the resources created by the machines? [emphasis added] It’s likely too early to come up with the solutions to such problems yet, but it will almost certainly involve the government. Government is the tool through which we set the rules and boundaries of markets. In a world where the most valuable assets are virtual, politics will play an increasingly important role.

Ultimately, Lanier envisages a future where we would retain ownership of our virtual selves, the content we produce online, and the incremental improvements we make — passively or actively — to the products created by powerful companies. Some sort of universal micropayment infrastructure would be necessary to allow capital to flow to and from each player in the economy. Setting up this infrastructure will be a monumental undertaking for sure, but as Lanier points out, no more monumental than the infrastructures that have already been created.

I never imagined how the concept I proposed in my previous post, Monetizing Internet Content could be extended to cover this grander societal issue. Of course, there is much more than just micropayments that has to be invented to turn this problem into a grand opportunity.

RichardH sent me the link to The New York Times column The Chutzpah Caucus by Paul Krugman.

At this point the economic case for austerity — for slashing government spending even in the face of a weak economy — has collapsed. Claims that spending cuts would actually boost employment by promoting confidence have fallen apart. Claims that there is some kind of red line of debt that countries dare not cross have turned out to rest on fuzzy and to some extent just plain erroneous math. Predictions of fiscal crisis keep not coming true; predictions of disaster from harsh austerity policies have proved all too accurate.

If the level of debt compared to GDP is the real issue for Republicans like Gabriel Gomez and for Harvard Professors Carmen Reinhart and Kenneth Rogoff, then why is the following revelation by Paul Krugman true?

The key measure you want to look at is the ratio of debt to G.D.P., which measures the government’s fiscal position better than a simple dollar number. And if you look at United States history since World War II, you find that of the 10 presidents who preceded Barack Obama, seven left office with a debt ratio lower than when they came in. Who were the three exceptions? Ronald Reagan and the two George Bushes. So debt increases that didn’t arise either from war or from extraordinary financial crisis are entirely associated with hard-line conservative governments.

OK, let me be fairer to Reinhart and Rogoff than they were to academic rigor.  They claim that despite their erroneous and fudged calculations,  neither their paper nor their book ever advocated austerity during an economic recovery.  So I guess, Gabriel Gomez and his fellow Republicans are really on their own on this one.

CNBC has an interview with Gabriel Gomez on his supposed plan for growth.

The last thing we need is a another vulture capitalist who thinks that running a business is the same thing as running a national economy. These guys are so sure that they know how to do it, mainly because they know nothing of macro-economics. They are probably not even aware of this field of economics.

We all want economic growth, but there is a difference between someone who actually knows something about a national economy and a quack practitioner who gives you assurance, but does not have the required qualifications.

Could the people of Massachusetts actually elect another disastrous Senator like they did with Scott Brown? Why should the ordinary citizen understand economics any better than the fool economics professors at Harvard? Maybe there is something to the claims of elitism in Harvard. If only the average voter could understand what the economists at UMass Amherst know (and MIT, Princeton, UCal Berkeley, UTexas Austin, and some at Harvard – the people who don’t fudge the data to prove their point).

Keynesian economic theory has two things going for it. The explanation of why it works is very logical. The history shows unequivocally that it works.

On the other side is national Austerity which is totally illogical in why it ought to work. And history has proven time and time again that it makes things worse rather than better. It even makes the debt go up while it strangles the economy.

New England drivers ought to know from experience that if your car is skidding on ice, you do not stop faster by slamming on the brakes. Slamming on the breaks makes your car lose traction even faster than doing nothing. This is quite similar to how austerity makes the debt grow because the national income drops faster than the cuts in spending.

I have been in the very driving situation described above. My foot just wanted to press harder on the brakes, but my head kept telling me to take my foot off the breaks. It is very hard to give control to your brains instead of your gut when you are in a panic. I failed to let my head take control, the car spun around,  and had to be winched out of a snow bank at the bottom of a hill.  Luckily I survived to talk about it.

If this country fails, it will not be because its citizens kept their cool in a difficult situation. It will be because we panicked.

Reader RichardH sent me a link to The New York Times article Boom, Bust or What? Larry Summers and Glenn Hubbard Square Off on Our Economic Future.  It is a great exploration of the opposing economic views of Larry Summers and Glenn Hubbard, and the reporters futile  attempt to get them to reconcile their differences.

As I responded to RichardH, at first it seems like the point is that there is no way to separate fact from fiction.

Then I realized that this is the wrong way to look at these opposing points of view.  We the consumers of these ideas and as voters and policy makers need to find a way to turn this away from a religious argument about two sets of beliefs and into an engineering discussion of how to get the economy and society to work best.  Engineering is my bias, because that is my training and natural bent.

As an engineering problem we need to realize that this is a discussion about choosing the right policies in the face of huge uncertainties.  There are things we just don’t know about the future.  There are human, social, and technological changes that will occur that we can’t predict.  There are some changes that we cannot even imagine. This is the type of situation that engineers face every day, yet they are called on to make decisions anyway.

So any policy proposal ought to be accompanied by an analysis of the uncertainties that could upset the wisdom of the policy in major and minor ways.  In other words, what is the proposal assuming for the future and  what is the sensitivity of the proposal to changes in these assumptions.  The proposer should tell us what we ought to measure about the progress of the proposal after it is implemented and how are we realistically to measure it.  What remedial steps are available when the path deviates from expectations after the proposal is implemented?

What other steps can you engineers out there recommend to turn this into a discussion that comes out with a resolution instead of an argument that never moves from the spot we are currently in?  What do people who have been trained or are experienced in other disciplines do to find a path forward?  What have people learned from their mistakes along the way?

What really makes me nervous is anybody who is so sure that a recommendation is so bullet proof that nothing could possibly go wrong.  Hearing that kind of argument, tells me that I am hearing ideas that may turn out to be useful, but that need a lot of further analysis before trying.

The role of some people is to come up with as many wild ideas as possible.  Others must take on the role of weeding out the good ideas from the bad ones. Some of the people who come up with the ideas will participate in weeding out the good from the bad.  Other idea people will choose not to participate. This will always be an ongoing exercise in a very dynamic world.

and The Boston Globe, for that matter.  The Boston Globe has an editorial today in which they praise Harvard Economists Carmen Reinhart and Kenneth Rogoff for owning up to a mistake in their influential research paper and book.

Errors happen in statistical research

is how the editorial phrased it. When they had provided their data to a graduate student at the University of Massachusetts at Amherst,

…he found a Microsoft Excel error that distorted their results.  Corrected computations showed by some accounts, that carrying very high debts – of over 90 percent of gross domestic product – wasn’t quite as ruinous as the two Harvard economists had computed.

Look at the video in my previous post, Study Debunking Austerity Research Sparks Wide Reaction, to see how gross an understatement “wasn’t quite as ruinous” is.

Now we turn to the Brainiac column at the front of the very same editorial section of the newspaper.

But when Thomas Herndon, a UMass economics student, endeavored to replicate Reinhart and Rogoff’s results for a class assignment, he quickly found that he couldn’t. When he dug a little deeper he realized why: The paper had significant errors, including data omissions, questionable decisions about how to weight data, and a coding typo in the Excel spreadsheet they used to calculate the results.

This seems a little more serious than the previously quoted editorial statement  “Errors happen in statistical research.”

Then of course there is the Brainiac comment

The whole dust-up has also highlighted a basic issue present all along in Reinhart and Rogoff’s paper: It doesn’t address causality. That is, it doesn’t show whether high debt slows economic growth, or whether slow economic growth leads to high debt.

Lest you think that the Brainiac column is taking a purely factual stance they include the comment,

In the 1970s, he explained [Dylan Matthews], it [the UMass economics department], remade around a coterie of Marxist radicals and post-Keynesians.”

One of the knocks against the UMass researchers is that  they concentrate , among other things, on

using empirical analysis to question tenets of economic thinking…

To think that anyone would look at how things work in reality instead of basing their thinking on their personal gut reactions must be beyond the pale of anything that could be considered by the Globe editors or the Harvard professors.

In the Metro section of this same newspaper, there is an article, “Professor apologizes for remarks on economist.”  The start of the article explains,

Niall Ferguson, Harvard professor, sought to defuse a controversy Saturday when he apologized for telling an investors’ conference that the policies of influential economist John Maynard Keynes were short-sighted because Keynes was gay and had no children.

The article goes on to explain that Ferguson

was an adviser for US Senator John McCain’s 2008 presidential bid and has been highly critical of President Obama…

This article quotes a conference attendee:

Jeffrey Gundlach, founder of the investment firm Doubleline Capital, said he heard the exchange and “wasn’t offended by it in any way.”  It made him think back to how his views changed when his first child was born.

“I thought it was informative and sort of insightful”, he said.

It is one thing to get an idea about something from your personal experience.  It is quite another to assume it is a universal truth before making a reality check.

And then of course there is the gross injustice of implying that John Maynard Keynes ever espoused deficit spending under all circumstances.  His theory distinctly points out when you should do it and when you should not.  It was the irresponsible Republicans and their academic toadies that said deficits don’t matter during the phase of the economic cycle in which Keynes said the government should be running surpluses, but the Republicans ran up huge deficits.

McClatchy News has the article Fed’s language shift signals Washington, sequester harming growth.

“Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth,” the Federal Open Market Committee’s statement said.

That was almost identical to the March wording, except that back then the Fed said that “fiscal policy has become somewhat more constrictive.”

It means that by the Fed’s read of the latest economic indicators, actions taken by Congress and White House – or not taken in the case of failing to reach a budget compromise and allowing automatic cuts to begin on March 1 – are harming the economy and the Fed’s efforts to jumpstart it.
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“Like a patient who has been administered too many antibiotics, the economy is less and less responsive to the Fed’s continued monetary stimulus,” Rep. Jeb Hensarling, R-Texas, head of the House Financial Services Committee, said in a statement. “America is nearly five years into the Fed’s historically unprecedented interventionist policies and there is very little gain to show for it.” He added: “12 million Americans remain unemployed – a number roughly equal to the entire population of Ohio.”

Here is another great example of how a Republican tries to shift the blame from deliberate Republican policies to an agency that is doing its best to repair the damage the Republicans are doing.

As I have posted extensively on this blog, trying to resolve a recession bordering on depression with only the monetary policy tools at the disposal of the Fed is like trying to push on a string.  Pulling on a string is much more effective, and that would be robust, stimulative fiscal policy.

The Republicans put every roadblock possible in the path of stimulative fiscal policy, leaving the Fed to come to the rescue with the only tools that it has.  These tools are not nearly as effective as the tools at the disposal of Congress, but if Congress will only behave in a negative way, what is the Fed supposed to do?

If the Fed did not try to counteract what Congress is doing, then this economy would be in much deeper trouble than it is now.  For political purposes, the Republicans are harping on the “problem” of an increasing deficit, when in fact, an increasing deficit is the most effective tool to counter a recession, short of  correcting the mal-distribution of income and wealth in this country.  The Republicans are even firmer in not allowing a fix to the mal-distribution problem.