31 Oct 2013

Neo-Liberal Economics survives because politicians believe inthe Easter Bunny and other Fairy stories.

Why Are Neo-liberal Ideas So Resilient?

Vivien A. Schmidt
Vivien A. Schmidt
Given the abject failure of the Neo-liberal policy offer, why has it persisted as the dominant approach to European policymaking and is there any way out?
Despite the economic crisis that hit the US and Europe full force in 2008, political leaders have made little attempt to rethink the neo-liberal ideas that are in large part responsible for the boom and bust, let alone to come to terms with how immoderate the ‘Great Moderation’ really was. Much the contrary, neo-liberal ideas continue to be the only ideas available.  In the financial markets, where the crisis began, reregulation remains woefully inadequate, while the only ideas in play are neo-liberal, either for more ‘market-enhancing’ regulation or in favor of greater laissez-faire. The biggest puzzle, however, is the response to the crisis by Eurozone countries that have embraced ‘market discipline’ through austerity and, in so doing, have condemned themselves to slow or no growth.   This is in contrast to the US, which has posted better economic results, despite being torn between Republican fundamentalists advocating austerity and a more pragmatic leadership focused on growth.
Mark Thatcher
Mark Thatcher
Our question, then, is:  How do we explain the resilience of neo-liberal economic ideas?  Since the 1980s, why have such ideas not just survived but continued to be dominant? Neo-liberalism entails belief in competitive markets enhanced by global free trade and capital mobility, backed up by a pro-market, limited state that promotes labor market flexibility and seeks to reduce welfare dependence while marketizing the provision of public goods.  The watchwords for such neo-liberalism are liberalization, privatization, deregulation, and delegation to non-majoritarian institutions such as ‘independent’ regulatory agencies and central banks.  The touchstones highlight the importance of individual responsibility, the value of competition, and the centrality of market allocation.  The neo-liberal mantra presents the state as the perennial problem, the market as the solution – even today, despite the fact that the crisis was caused by the markets, not the state.
So why, in light of the crisis, has there been no major shift in ideas, either back to the neo-Keynesianism that brought the postwar ‘Golden Era’ or forward to something new? How do we explain the fact that neo-liberalism continues to permeate how people think and talk about state and market?  We propose five lines of analysis to explain such resilience:  the flexibility of neo-liberalism’s core principles; the gaps between neo-liberal rhetoric and reality; the strength of neo-liberal discourse in debates; the power of interests in the strategic use of ideas; and the force of institutions in the embedding of neo-liberal ideas.
First, the generality of neo-liberalism’s core principles, focused on competitive markets and a limited state, make it highly adaptable to changing circumstances and needs.  Thus, neo-liberalism has been able to move from ideas focused on the ‘rollback’ of the state to free up the markets in the 1980s under conservative leaders to the ‘rollout’ of the state to make markets work more freely under progressives in the 1990s.  It has also been able to absorb seemingly contradictory ideas, as in the case of the welfare state, where after an initial clash with social democratic ideas, through attempts at passive reduction of social spending and job protections, it incorporated such ideas in programs that sought to make active use of the welfare state to promote market efficiency via ‘active labor market policies.’ Finally, it has equally been able to undergo metamorphoses such that ideas discredited in previous periods recur, returning in new guises, such as the 1920s discourse of ‘sound money’ reappearing in the 1970s as monetarism and in the late 2000s as ‘sustainable debt.’
Second, neo-liberalism often works only in the rhetoric, not in the reality of implementation.  Notably, many neo-liberal policies – such as cutting public spending, reforming welfare, and reducing regulatory protection – are difficult to implement and extremely unpopular politically.  This helps explain why promises to cut back the state for the most part turned out to be hollow, in particular as state restructuring did not lead to a decrease in its size, nor did it necessarily reduce public spending.  Deregulation, rather than getting rid of the state, simply led to reregulation of a different kind.  But rather than a weakness, this can be seen as a strength, since lack of implementation can serve neo-liberal politicians also as a rallying cry, to call for more neo-liberalism.
Third, neo-liberal ideas have generally been more successful in policy debates and political discourse, winning in the ‘battle of ideas’ against weaker alternatives.  In some cases, that strength may come from the seemingly common sense nature of neo-liberal arguments.  For example, appeals to the ‘virtue’ of sound finances using the metaphor of the household economy—extrapolating from the need to balance one’s household budget to the need to do the same for the state budget—may resonate better with ordinary citizens than the Keynesian counterintuitive proposition to spend more at a time of high deficits and debts.  In other cases, neo-liberal success can be attributed to the reframing of current problems—say, as a crisis of public debt rather than of the banks; to the narratives—about public profligacy being the problem, belt-tightening the solution; and to the myths—for the Germans, that belt-tightening is the only way to avoid the risks of hyperinflation of the early 1920s, thereby ignoring the risks of deflation and unemployment of the early 1930s that led to the rise of Hitler. Equally importantly, it may be that neo-liberals are not so strong but their opponents are weak.  Where, after all, have the center-left parties been in all of this, in particular in Europe throughout the Eurozone crisis?  Notably, only very recently have European social democratic leaders called for growth, even as they continue to dole out austerity.
Fourth, powerful coalitions of interests often take up neo-liberal ideas for their own strategic purposes, whether they believe in them or not.  Economic actors may benefit materially, notably through lower taxes or the new opportunities opened up by ‘deregulation’ and privatization. Bankers have been laughing all the way to the bank.  Politicians also can benefit by using neo-liberal ideas to gain or retain political power while institutional actors—regulators, central bankers, and the like—gain autonomy and increasing power.  All of this, moreover, tends to be self-reinforcing, since the more neo-liberalism takes hold, the more it is likely to consolidate such actors’ commitment to neo-liberal ideas, as well as to create an attitude of ‘if you can’t beat them, join them,’ as in the center-left’s adoption of neo-liberal ideas beginning in the 1990s.
Fifth, the neo-liberal ideas gain force from their institutionalization in rules and regulations, as well as in the organisations, including the ‘non-majoritarian’ independent regulatory bodies such as the independent central banks, the international credit-rating agencies, and the standard-setting bodies that are out of the reach of national state control.  Moreover, in the EU, the successive pacts for stability in the Eurozone – beginning with the Stability and Growth Pact that consecrated the 1990s Maastricht criteria for monetary union and culminating with various pacts during the Eurozone crisis – ensure that neo-liberal ideas about fiscal consolidation will be difficult to reverse, regardless of their failure to solve the crisis.
These five lines of analysis leave us with one final question: given all this resilience, is there any way out of neo-liberalism? One pathway could be collapse from within, as the contradictions inherent in neo-liberalism become increasingly clear—such as between the ideal of a limited state and the practice of the state playing a strong role to enhance markets.  Another could be rejection from without, as the broken promises, indeed the failures, of neo-liberalism become ever more apparent to citizens.   Yet another is that strong ideational alternatives to neo-liberalism gain strength, say, with new approaches to economic governance that put the polity before, rather than after, the economy.  It is also possible that neo-liberalism loses the support of powerful interests, or that new coalitions emerge.  Perhaps the social democrats will begin to coalesce behind a new set of ideas.  Finally, it may very well be that the institutions of neo-liberalism break down, are replaced, or evolve as a result of new coalitions of interests with new ideas about how to solve the problems.  But for any of these eventualities, things are likely to become much worse, before we see any new light at the end of the tunnel.

Nat MPs desert the sinking ship as the feuding opens up

Despite the spin that National-ACT is grooming itself for renewal the truth is
 that the sinking ship perception is rife within the Key owned government as MPs
queue for their "redundancy" payouts with few aspiring candidates really waiting in the wings.
 Andrea Vance reports that Heatley's disappearance from Whangarei will leave the vacuum unfilled unless a carpet bagger can be dropped in.
(Perhaps it's a chance for Luigi?)
































A flood of National MPs have announced their intention to resign next year including local government minister Chris Tremain, former ministers Phil Heatley and Kate Wilkinson, list MPs Chris Auchinvole and Cam Calder, and Hunua MP Paul Hutchison.
Also tipped to go are John Hayes, Lindsay Tisch, Shane Ardern and Eric Roy.
Finance Minister Bill English said last week he would not contest Clutha-Southland, but go onto the party list.

30 Oct 2013

On Paying a Living Wage

Interesting article in The Guardian today on the question of being paid a living wage... especially those employed in the fast food industry, in this example, MacDonalds.
What makes it more relevant are the recent stories about a worker being fired for exposing taking workers break times.

29 Oct 2013

On the wisdom of selling state assets.. a right wing govt reconsiders.


Change Conservatives to National-ACT and the message is the same. Total failures as economic managers.

The Guardian reports that Hungary's right wing government is considering returning the state energy companies to public ownership to restore order and sense to the energy market. Remarkably the first step will be to forbid the presently privately owned companies to stop paying dividends to shareholders and insist on reinvestment in their core business- generating energy for the public good.

In the UK the demand to re nationalise the utility companies grows as the revelations of price gouging and continuously inflating costs and exploitation of the consumers grow.
PinoKeyo looks for a genuine Mum or Dad "investor" in his asset stripping policy


Meanwhile, in New Zealand the  financial incompetents of Key, English, Joyce & Ryall continue to follow a discredited and discreditable policy of selling the state assets for asset stripping short term profits. Their dishonesty when it comes to privatising state assets must be constantly at the forefront of the voters' minds when the referendum against asset sales comes and the  Elections in November 2014 allow us to reject those who value private greed over public good.

25 Oct 2013

Why Austerity Economics is bad economics: Social Journal Europe

The People Versus The Masters Of Austerity

Ronald Janssen
Ronald Janssen
The case in favour of tough austerity policy is, amongst others, based on the idea that fiscal consolidation removes uncertainty amongst private sector economies actors, thereby unleashing household precautionary savings and new business investment. In that way, the negative effects on aggregate demand, coming from directly cutting social benefits and public sector expenditures, would be partly offset. Some ‘austerians’ are even of the opinion that this positive confidence effect is so strong that fiscal cuts actually work to push demand and growth up, not down.
A lot of recent macroeconomic research has already directed this ‘confidence’ argument into the waste paper basket. Empirically, the fact is very well established that austerity reduces demand and economic activity. In the words of Paul Krugman, fiscal contractionary policies are, simply, contractionary.
A recent Gallop opinion poll amongst more than 6000 European citizens delivers an identical conclusion and it does so in a powerful way.
First, a majority of respondents at the European level (51%) delivers a clear ‘no’ to the question whether citizens think austerity is working. This majority is opposed by a minority (34%) saying ‘austerity will work but this takes time’. Only 5% gives an unconditional reply saying ‘yes, austerity works’.
When looking at the national outcomes behind this European average, it appears that in those countries where austerity has been pushed to an absolute limit, respondents are the most sceptical. In Greece, 80% reject the idea that austerity can work. In Spain and Portugal, 70% questions the effectiveness of austerity. It is surprising to observe that in Germany, a member state usually viewed as constituting the reference on austerity for the rest of Europe, there’s also a majority (53%) of people rejecting austerity. It’s only in a limited number of Central and Eastern European countries that public opinion is less hostile to the idea (Bulgaria, Hungary,…).
The Gallop opinion poll also raises the parallel question of whether there is a better alternative to austerity. A resounding European majority (60%), led by Greece (94%) and Spain and Portugal (80%), says ‘yes’, with only 16% of respondents across Europe think that there is no alternative to austerity.
Finally, the Gallop poll asks whether people think that the whole of Europe or only some countries are served by austerity policy. It appears people are not naive at all. Only 20% is of the opinion that austerity serves the whole of Europe. In contrast, 67% thinks only certain countries (France, UK and Germany in particular) are benefiting from these policies.
To conclude, the Gallop opinion poll is another piece of evidence that is devastating for austerians.http://www.social-europe.eu/2013/09/austerity-and-living-standards/ It shows that a majority of people do not believe austerity works and have no confidence in it. With austerity undermining not just incomes but confidence as well, it comes as no surprise that austerity policies triggered a double dip in Europe’s economy.

23 Oct 2013

Yet another demonstration of Key's incompetence and failure

Ryall, English & Key have a lot to answer for. Their incompetence and economic ignorance is unacceptable.
The monumental failure of the ideological PR spin behind Key's determination to asset strip New Zealand. And now the Treasury starts to advocate Labour Party economic policy to a cabinet of ideologically constipated and incompetent managers who cannot understand the mess they have put this country into. One must pity the agony of pin head dancing Joyce, Key and English must do every day as they try to shore up their falling credibility.
Under Key NZ has had the worst economic growth in 50 years.

21 Oct 2013

National Party Feuding Breaks Out


Negative polling around Key's credibility has added fuel to internal National-ACT party feuding.

The Palino, Slater, Lusk, Luigi, Cook scandal has reawakened the closet warring within the National-ACT Party and is, according to The Bellman, causing the ABCollins faction much angst.

The Bellman assures anyone who will listen that the ABC faction has been closely tied with the Slater-Lusk organisation in the campaign to recruit National-ACT MPs and aspiring MPs who have entered politics under their tutelege to be ready to take over the leadership of the Party from John "PinoKeyo" Key.
What the polls show... the support for Key's National-ACT party is slipping away.


For a while, the Bellman says, Camp Collins was buoyed up by the increasingly obvious voter swing towards Labour and the Greens being recorded in the different polls (in particular the highly regarded  Roy Morgan polls) and their own internal polling. The Bellman reckons that the internal polling as recorded a growing disenchantment with both the Party and the leadership of Key which has given greater credibility to their plan to catapult "Crusher" Collins into the leadership before the 2014 election.

The ABCers, concerned by the crude and increasingly sleazey attempt to unseat Len Brown from the Auckland mayoralty by the Slater, Cook, Luigi group, has been forced to do a rethink of their strategy and association with the group.

While Collins likes to be seen as being ruthless and Thatcherlike in her dealings with political opponents on both sides of the House she, according to the Bellman, has drawn the line at the underhand and distinctly distasteful tactics being advocated and practised by Slater & Cook.

Slater's declaration on The Nation that politics is a dirty game, using dirty tactics, played by dirty individuals has shaken the ABC camp's confidence as it threatens to destroy any semblance of trust between the public and the politicians and thus destroy any belief that legislation is drafted and passed from an informed and clearly articulated point of view by men and women who have not been blackmailed into a position by vindictive outside agencies such as that represented by those associated with the Slater group.

The Slater, Cook, Luigi campaign, says the Bellman, has played into the Joyce- Key camp as they attempt to shore up both internal party and cabinet forces in order to retain control over the caucus as they seek to continue the programme of selling state assets and trying to take National-ACT into a third term. However, according to Andrea Vance in the SST 27.10.13, the ABC camp is preparing to hunker down to play a long term strategy using Lusk and Slater groomed MPs to create the climate to unsettle the Key-Joyce camp and thus take over the leadership of what looks to be becoming a grossly disfunctional, faction ridden National-ACT party. (see Colin Espiner's Sin City Blues article in the SST 27.10.13 connecting the dots between the Slater described "dirty politics" brigade inside the National Party.)

Key, whose tendency to make up "facts" when put on the spot when playing at being PM at home which negatively affects his credibility rating, has increasingly spent more time out of New Zealand than inside the country as he has adopted a policy of attempting to grandstand on the international stage as he seeks that "bubble- reputation, even unto the cannon's mouth."

None-the-less, the unease within the National-ACT party has continued unabated as relentless bad polling and a distinct feeling that possible coalition partners are heading into extinction ( a point noted by Key's desperate musings that he could have a cuppa with the Craig financed Conservatives), along with a growing conviction among the membership that a Labour-Green coalition is inevitable, continues to show a defeat looming at the ballot box come 2014.

The Wholesale Sell off of State Assets has UK echoes

The economically irresponsible Key inspired sale of state assets to foreign asset strippers in the face of public resistance to the rape of the economy has echoes in the UK as Cameron & Clegg pursue a similar policy.
All one needs to do is replace the smug faces of Cameron & Osborne with those of Key and English or Joyce and the caption remains appropriate.

15 Oct 2013

Draw a line between the dots then see the conclusion

The Emmerson cartoon sums up the motivation behind the attack on Len Brown.
The motivation behind the revelations about Len Brown's affair calls into question the behaviour, beliefs and mind set of the National-ACT bloggers.

Once one starts to draw lines between the dots the dropping of the information about the affair then one can only assume that the false out rage of hypocritical morality calling for Len Brown to resign  has been a deliberate attempt by the "dark forces" that control the right wing campaigning to discredit anyone who dares to oppose and beat them in an open election campaign.

The revelation that Chaung's paramour, Luigi WeWege, was a member of the Young Nats and closely associated with the group who cluster around the Slater-Lusk National-ACT "ginger group" adds even more suspicion about the motivations behind the anti-Brown campaign.

Add to the mix the revelation that defeated Mayoral candidate, Palino, also had a clandestine meeting with the"wronged" woman in an Auckland car park the day after the election to discuss what the Herald reports as:

"Bevan Chuang claims Mr Palino's camp raised the possibility that Mr Brown could be shamed into resigning the mayoralty."

" Ms Chuang claims she and Mr Palino discussed revealing to Mr Brown information about the affair and whether he might resign, claiming poor health. (He suffered a major heart attack in May 2008.)

"This would give him an opportunity to be a hero and assured that ... he did not lose any face, and yet allow him to move on to bigger and better political agendas," she said."

 "Last night, Mr Palino's campaign manager, John Slater, confirmed a meeting had taken place, but said it was just a "general chit-chat"."

and the suspicions about motivation get even more murky.

What is pleasing to see is that Len Brown fronted on the revelation immediately and that the councillors who have worked closely with Len have  refused to indulge in the sleaze based judgement being encouraged by the right wing bloggers associated with Slater.

Brian Rudman sums the issue up succinctly and well.  It is unfortunate that the torrent of sleaze has led to a leading journalist loosing his position for writing an editorial in support of Len as mayor.

It was also disappointing to see that Attorney General, Chris Finlayson revealed a briefing paper  headed "What to say in the event of the Mayor resigning" at the same time as Slater was feeding the rumour mill that Len would resign before Friday in the face of his self admitted politically motivated campaign to ruin Len's political career and reputation.

"Of course politics was involved. Of course I want to knock Len Brown over I have tried to knock him over before with his expenses at Manukau. He weaselled his way out of that one and he is trying to weasel his way out of this too," he (Slater) said.

What is of even more concern is that Finlayson revealed the briefing paper to the TV cameras just as the Solicitor General indicated that his office was seriously considering taking over the prosecution of the ex Cabinet Minister and leader of the ACT party, John Banks, for his offences under the electoral act which, if successful, would force him out of parliament.

The joining of the dots... real or imagined ... becomes even uglier and even more unsavoury.
The philosophy that drives Slater, Lusk and company.

His latest denial of plotting to over throw Len Brown, in the face of further revelations about his involvement with Ms Chaung, ring so hollow that laughter echoes through out the blogosphere. No nmatter hard Slater tries to escape the public odium that his actions have begun to heap upon him he cannot reconcile his earler statement that he has always been attempting to knock Len Brown over with his latest TV denial to:

"Ms Chuang said in her statement that she spoke to Cameron Slater on the morning after the mayoral election, and he told her the revelations would shame Mr Brown into resigning.
When that was put to Slater by The Nation, he said: "Well it would. It would shame him into resigning, it should shame him into resigning."
But Slater denied involvement in a plan to get Mr Brown to resign.
Slater said there had been "a lot of assumptions and a lot of leaping to conclusions".
"There's a lot of talks of plots. I can tell you that there was no plot from myself and Stephen Cook [the freelance journalist who helped break the story on Whale Oil] at all.

Slater should remain under the wood pile and be treated as the sleaze monger that he is.

14 Oct 2013

Petulence and Arrogance no replacement for Responsible and Coherent Response

Simon Bridges captured on Campbell Live on Monday night.

Last night voters in New Zealand were given a demonstration of how to not respond to an interview if you want to convince the listener-viewer of the strength of your position or argument when the young and arrogant member of Parliament for Tauranga, Simon Bridges, appeared on Campbell Live (TV3).

Mr Bridges is the Minister responsible for Employment and, in this case, Energy & Resources. The latter ministry being the one that has granted permission for Anadarko (the Oil exploration company involved with the disasterous oil spill off the Mississippi coast ) to begin exploration and possible deep water drilling in the Pegasus trench off Kaikoura.

Legitimate questions have been raised by Kaikoura locals, by venvironmental groups, by Greenpeace and the opposition political parties. Campbell Live had canvassed the concerns in an earlier programme which Bridges had been unavailable for. On Monday night, after being challenged to appear by TV3 Programme Managers,  Bridges appeared, pumped and powered, to defend his decision to allow Anadarko to begin exploration in the Pegasus Trench.  The performance was a classic demonstration of "When in an indefensible position attack, play the interviewer and, when all else fails, haruange and shout loudly and faster while claiming the fall back position of bias and prejudice against you".

New Zealand learnt very little of substance from Bridges as he resorted to rhetoric reminiscient of Muldoon and the American Joe McCarthy at their most pugnacious and vindictive.  It was, however, obvious that Bridges was not aware of the risks involved with drilling at the depths of the Pegasus Trench, was ignorant of the resources needed to be available to cope with a similar  disaster to that in the Gulf of Texas and the presumed economic return  exploitation of an oil field would give to both NZ or the Kaikoura area. (the financial returns are geared to advantage the foreign corporates rather than New Zealand whose reserves would be being exploited).
Simon Bridges gave credibility to this Billboard slogan when he appeared on Campbell Live.

 Bellman Syndrome alive and well in Key Cabinet.
One was left to conclude that, like Lewis Carrol's Bellman in The Hunting of the Snark, the National-ACT government of John Key is consumed with the arrogant belief that if one shouts loudly and often enough (three times according to the Bellman) that the indefensible becomes a truth and that  he and it have the right to dictate and denigrate opposition or fair criticism of their policies and individual behaviour and to hell with democracy and to hell with the consequences.

13 Oct 2013

Some brief thoughts on Local body elections




The local body elections have been and gone in a tsunami of apathy and a followup wave of opinionista analysis.

The Opinionista analysis of the apathy tsunami usually argues that:
a) the postal voting system was to blame as people no longer believe in the traditional mail system and have no intimate relationship with post boxes except on their PCs.
b) the information presented on each candidate in thevaccompanying booklet was confusing and voters were therefore unable to select the appropriate candidate to vote for.
c) there were no issues that grabbed the voters and therefore they weren't interested in voting.
d) there were too many people trying to inject politics into local body politics or
d) there were not enough politics injected into the local body politics
e) the campaigns were boring....

The answers, such as they are opined, appear to be:
a) let's have electronic voting
b) let's return to the traditional ballot box
c)  let's have more politics in local politics
d) let's have less confusing material in the candidate booklet...

However the media opinionistas are forgetting what, to me is the most obvious, the incoherence of the local body election campaigns. The candidates do not, in most cases, run campaigns apart from erecting billboards around their area promising nothing except a smugly smiling face and a name usually endorsed with  meaningless statements like: "proudly independent" or "practical not political" or "Vision & Views". (this latter group could have the local beautifying group for all the emptiness their name implied.)

There are no meetings, no policy statements, no door knockings, no pamphlets in letterboxes and in many cases no interaction with the community the candidates profess to want to represent. Add to this mix the emptiness of the bland candidate statements in the voters booklet and you have all the elements that contribute to the apathy tsunami.

In the Auckland area were I vote the candidate profiles were so similar they may as well have been written on the same blandness template with statements like: "keeping rates down", "let's plant trees," "I love living here,"or "keep the community safe" so one could not distinguish between the possible progressive from the possible regressive.

Then, one of the candidate groups (managed by the local National MP)  flatly refused to attend any meeting that may be proposed by any community group if any candidates from any other group were to attend which, again, leaves the voter to consider a ballot paper of bland, empty, smug and policy bereft names.

No wonder apathy was the winner in the voter turn out.

If we want voters to vote then let's have organised coherent and thought out policy platforms, opportunities for fully informed communities with public meetings that are fully representative of the candidates or tickets and let's have politics injected into local body politics.

Frankly, I'm tired of the argument that local body politics should be a politics free zone to be left to the Citizens & Ratepayers (now defunct) or the Residents & Ratepayers or Progressive Independents - all the National Party in drag but, of course, politics free(!!! ) while immediately hypocritically condemning any obvious Labour or Greens ticket as injecting politics into the local body (perhaps because that would mean there would be a coherent policy platform and direction for the local body or Ward? Auckland has, until Len Brown, suffered from having a local body dominated by a drifting C&R dominated council who refused to contemplate a future further out than the next election - hence no unitary plan, a disfunctional transport system and poor planning.)



12 Oct 2013

Two more reasons not to vote National-ACT - make it three


These photographs may be from the UK but, because both Cameron and Key are Crosby-Textor clients, they're singing from the same vicious hymn book of neo-liberal austerity and asset stripping.

Here's the third- a non-listening, non-comprehending Minister of Education whose policies are inimical to a quality education system.



10 Oct 2013

A trenchant view of American politics- the real GOP agenda from Social Europe Journal

The Republicans’ Real Goal: To Make Us All So Cynical About Government, We Give Up

Robert Reich
Robert Reich
An old friend who has been active in politics for more than thirty years tells me he’s giving up. “I can’t stomach what’s going on in Washington anymore,” he says. “The hell with all of them. I have better things to do with my life.”
My friend is falling exactly into the trap that the extreme right wants all of us to fall into — such disgust and cynicism that we all give up on politics. Then they’re free to take over everything.
Republicans blame the shutdown of Washington and possible default on the nation’s debt on the President’s “unwillingness to negotiate” over the Affordable Care Act. But that law has already been negotiated. It passed both houses of Congress and was signed into law by the President. It withstood a Supreme Court challenge.
The Act is hardly perfect, but neither was Social Security or Medicare when first enacted. The Constitution allows Congress to amend or delay laws that don’t work as well as they were intended, or even to repeal them. But to do any of this requires new legislation – including a majority of both houses of Congress and a president’s signature (or else a vote to override a president’s veto).
Our system does not allow one party to delay, amend, or repeal a law of the land by shutting down the rest of the government until its demands are met. If that were the way our democracy worked, no law would ever be safe or settled. A disciplined majority in one house could always use the threat of a shutdown or default to gut any law it didn’t like.
So the President cannot re-negotiate the Affordable Care Act. And I don’t believe Tea Bag Republicans expect him to.
Their real goal is far more insidious. They want to sow even greater cynicism about the capacity of government to do much of anything. The shutdown and possible default are only the most recent and most dramatic instances of terminal gridlock, designed to get people like my friend to give up.
And on this score, they’re winning. Congress’s approval rating was already at an all-time low before the shutdown, according to a poll released just hours before Washington went dark. The CNN/ORC polshowed that only 10 percent of Americans approved the job Congress was doing, while 87 percent disapproved. It was the all-time lowest approval rating for Congress on a CNN poll.
A recent Gallup survey found that only 42 percent of Americans — also a record low  — have an even “fair” amount of confidence in the government’s capacity to deal with domestic matters.
And in a recent survey by the Pew Research Center, 26% of Americans say they’re angry at the federal government while 51% feel frustrated. Just 17% say they are basically content with the government. The share expressing anger has risen seven points since January, and now equals the record high reached in August 2011, just after the widely-criticized debt-ceiling agreement between the President and Congress.
It’s a vicious cycle. As average Americans give up on government, they pay less attention to what government does or fails to do — thereby making it easier for the moneyed interests to get whatever they want: tax cuts for themselves and their businesses; regulatory changes that help them but harm employees, consumers, and small investors; special subsidies and other forms of corporate welfare. And these skewed benefits only serve to confirm the public’s cynicism.
The same cynicism also makes it easier to convince the public that even when the government does act for the benefit of the vast majority, it’s not really doing so. So a law like the Affordable Care Act, which, for all its shortcomings, is still a step in the right direction relative to the costly mess of the nation’s healthcare system, is transformed into a nightmarish “government takeover.”
So here’s what I told my friend who said he’s giving up on politics: Don’tIf you give in to bullies, their bullying only escalates. If you give in to cynicism about our democracy, our democracy steadily erodes.
If you believe the fix is in and the game is rigged, and that a handful of billionaires and their Tea Party puppets are destroying our government, do something about it. Rather than give up, get more involved. Become more active. Make a ruckus. It’s our government, and the most important thing you can do for yourself, your family, your community, and the future, is to make it work for all of us.

7 Oct 2013

We ignore Keynesian economics at our peril- Social Europe Journal analysis

Overlooking Thirty Years Of Economic History And Downplaying Keynesian Economics

Andrew Watt
Andrew Watt
Brad Delong is an extremely smart, trenchant and witty economist. He has just published a piece comparing the Great Depression of the 1930s with the ongoing Great Recession of today and drawing lessons from the experiences of both episodes. It is typically erudite and deals with complex issues in a clear and concise way. However, being trenchant and concise has its dangers, not least of which is missing things out. This can happen, and the costs will often be small relative the benefits of maintaining focus on the key issues (and not boring readers). What is surprising and worrying in this case is that Brad Delong – a renowned economic historian and one very open to Keynesian views – has missed out the thirty important years of economic history and very much downplays Keynesian economics in that period and also since.
In a nutshell – you really should read the whole article – Delong argues the following:
  • The Great Depression happened because policy makers didn’t understand the problem and thus failed to do what was necessary (or made things worse): they lent freely to banks in bad shape, but the insisted on sound finance and balanced budgets.
  • Milton Friedmann and Anna Schwarz said in the 1960s that the problem had been that the Fed focused on the interest rate (the price of money), rather than the quantity of money. The Great Depression would have been avoided had the Fed prevented the money supply contracting.
  • Economists in general and Ben Bernanke in particular accepted this view and so the Fed kept up the money supply when the Great Recession hit.
  • This was partially successful (performance was better than the Great Depression), but not nearly enough. This reason is that pumping money into the system doesn’t help if people do not crave liquidity so much as safety (lower debt and fewer risky assets).
  • What actually got countries out of the Great Depression was some combination of devaluation (getting off the Gold Standard), creating expectations of higher inflation and deficit spending.
There is nothing actually wrong with this line of reasoning, but:
a) what about the “trentes glorieuses” from 1945-1975?
Brad Delong starts the post-war story with Friedman/Schwarz in the 1960s, whose doctrines were not accepted until the late 1970s, and then radicalised by the likes of Lucas to the extent that the problem of cyclical demand management was believed to have been solved: all you have to do is ensure steady growth of the money supply. But he overlooks the preceding period which was characterised by steady and strong growth and a lack of (financial) crises in the advanced capitalist countries. It was also characterised by strict regulation of the financial sector, an expansion of the welfare state (and thus also of automatic fiscal stabilisers) and a belief in the use of both monetary and fiscal policy for counter-cyclical purposes. Which brings me to:
b) what about Keynesian economics?
Brad only mentions Keynes in the context of the debate about the Great Depression, not subsequently. But the predominance of Keynesian theories at least coincided temporally with (and I would argue was a causal factor behind) thirty years of crisis-free growth. Post-war Keynesianism was replaced by the doctrines of, yes, Milton Friedman and Robert Lucas. While Friedman, at least, believed in the counter cyclical use of monetary policy, increasingly his followers, and notably Lucas, focused on market-promoting supply side reforms as the Holy Grail of economic policy. Three important components and consequences of this approach were: Reduction in the size of (and the increased marketisation of) welfare-spending and government “meddling” in the economy, which reduced the size of the automatic stabilisers. Financial market liberalisation: supposedly efficiency-enhancing, this made the economic system far more fragile for reasons that had been long understood – not just by Minsky and Koo, whom Brad approvingly cites – but also people like Kalecki and Keynes himself. And exchange-rate and capital account liberalisation which presaged a series of boom-bust episodes in emerging markets.

 (Inserted comment: The neo-liberal asset stripping policies being practiced in New Zealand by the National-ACT govt lead by money speculator John Key are based on the same faulty Friedmanite economic logic which has been demonstrated by BERL as damaging for the economy as a whole and grossly economocally irresponsible.)

Missing all this out, it seems to me, is taking concision and parsimony rather too far. It is certainly true that much of the economic profession bought into monetarist and market-radical ideas. But the fact is that these had driven out theories and policy convictions that continued to be held by a minority of Keynesians and that were – perhaps not in all respects, but in many – much superior. It is not that the Friedmanite counter-revolution and what followed did not contain any useful ideas (expectations; problems of using fiscal policy effectively). But much that was useful was buried.
In short, we didn’t actually need to go through the Great Recession to see that Friedman and Schwarz were wrong.

Coincidentally, today I saw a nice example of the fact that – let us be generous – scientific progress is not linear. Economists at the European Commission – a champion of pre-crisis financial liberalisation in Europe – are now experimenting with enriching their DSGE model with the path-breaking idea that investors cannot simply borrow without limit at the prevailing rate of interest but normally require collateral. The availability of credit depends on the (expected market) value of that collateral. This creates the potential for self-reinforcing booms and subsequent slumps. This path-breaking idea was set out (at the latest) by Michal Kalecki in 1937. Needless to say he is not included in the list of references.

6 Oct 2013

Teachers deserve respect- International study reports



In face of the constant criticism of the Teaching profession in New Zealand by such luminaries as the MSM, Magazine opinionistas  and politicians both failed and in power like Rodney Hide, John Banks and Hekia Parata the findings of international research on Teaching and teachers makes for informative reading. The report argues that the constant criticism of the teaching profession in New Zealand by those whose political agenda is questionable and based on ideologically unsound prejudice is unjustified.
What is of concern is the reported perception that Teachers are regarded as social workers by the New Zealand respondents rather than their abilities to teach and educate our children.
The report deserves more in depth reading by both opinionistas and those who currently are driving the education agenda and policies in New Zealand.

3 Oct 2013

AUSTERITY ECONOMICS AND BEING ECONOMICAL WITH THE TRUTH

Austerity, Growth And Being Economical With The Truth

Simon Wren-Lewis
Simon Wren-Lewis
OK, I know that those more seasoned in trying to present simple economic ideas in a politicised environment know this happens all the time. And damn it I knew it was going to happen too, as I clearly predicted in one of my early posts. But still, despite my attempts to mock, the argument that positive growth proves critics of austerity wrong continues to annoy me. So here is my attempt to say why it bothers me so much, but after this post I really will try to move on.
Just in case you have not been convinced by my earlier posts of just how ludicrous this argument is, think about this. US growth became significantly positive at the end of 2009, and has remained so in nearly every quarter since then. So if positive growth proves critics of austerity are wrong, then the austerity debate in the US would be well and truly dead by now.  Those that refused to admit this would be completely ignored. Yet the opposite is true.
So the amazing thing is how the idea that the emergence of growth after years of stagnation proves austerity was just fine could gain a moments traction. Do not get me wrong. There are some arguments in favour of austerity that should be seriously debated. But this is not one of them. Instead the argument is just silly. So how can people get away with making it?
The first point to make is that although the argument is obviously silly to anyone with a modicum of macroeconomic knowledge, to interested people without that knowledge, but who get to listen to (or even interview) people like George Osborne, it is not immediately obvious. It becomes pretty obvious once it is explained (my example of deliberately shutting down part of the economy was designed with that in mind), but you need to be exposed to someone who can explain that. So, for those just interested in scoring political points, there is a temptation to make the argument if they think they can get away with it.
However I do not think that excuses George Osborne, or European politicians who have done the same for the Eurozone. We may pretend to believe that all politicians lie through their teeth all the time, but actually we do expect people like the UK or German finance ministers to avoid talking economic nonsense. At the very least we expect their civil servants to stop them saying things that are nonsense. Well not this time.
But there are limits to what politicians can get away with.  The interesting question is what those limits are, and what governs those limits.
Sometimes politicians can get away with bad arguments because they are based on half truths. The example that comes to mind is the idea that current austerity is required because of fiscal profligacy on the part of the past Labour government. While that myth annoys me because (a) it is used to support a damaging policy, and (b) because having crunched the numbers I know it’s untrue, the existence of the myth does not surprise me in the same way. As I have said before, the half truth here is that Gordon Brown was a little imprudent by being overoptimistic about tax receipts. Furthermore, if he had known in advance that the global financial sector was going to blow up he would have been much more cautious before that happened, so any data that is by construction wise after the event will suggest he was not cautious enough. This all means that for those who want to mislead there is the seed corn with which to grow this myth.
Nothing like this is true for the ‘growth proves austerity right’ idea. Instead it is an example of completely misrepresenting the argument of your opponent. The overwhelming majority (maybe all) of the economists who criticised austerity said that fiscal contraction would reduce the level of output in the short run. They may also have been concerned that this short run deflation might have negative longer term consequences. The deception is to morph that into ‘critics of austerity said that the economy would never grow again as long as austerity lasted’. Now I’m sure you could find some person (call them X) who was foolish enough to say the economy would never grow while austerity lasted. But everyone knows that Paul Krugman, or Brad DeLong, or Jonathan Portes are not X. Yet those making the ‘growth proves austerity right’ argument deliberately talk as if all critics of austerity were like X. It is a deliberate deception. It must be particularly galling for Martin Wolf to find his own newspaper doing this to him.
Economists whose job involves communicating with others, and media organisations that purport to have some economic expertise, have I believe the equivalent of a duty of care. It is their job to make sure people are not misled by arguments that they know are obviously wrong. What makes me cross is seeing some who choose not to exercise this duty of care.
Let me use an analogy. You are a science reporter for a newspaper, or even a reporter working for a magazine like the New Scientist or Scientific American. You have to comment on a politician who claims that because it snowed a lot this winter, climate change is clearly rubbish. What you would do in those circumstances is patiently explain why the politician was talking nonsense, discussing trends and noise and the like. You would not say as a prelude that the politician ‘makes a serious case’. You would certainly not write a leader in your paper saying the politician was absolutely right!
Just imagine it. A leader in the New Scientist or Scientific American saying that politicians have won the climate change argument because of recent heavy snow. So why is that idea inconceivable, but a leader in the Financial Times saying that recent UK growth proves critics of austerity are wrong goes without comment? It has nothing to do with economists being divided about the wisdom of austerity: as I said, there are arguments on austerity that should be debated, but this is not one of them. It cannot be because austerity is so politicised, because climate change is also highly politicised. It cannot be excused by saying that leaders are just opinions: you do not expect opinions in serious newspapers to be based on deliberate misrepresentation. So what is going on here? Would anyone from the FT care to comment?
This post was first published on Mainly Macro

2 Oct 2013

What happens when private interests get in the way of efficiency?

These two pictures say it all.

1) PinoKeyo on why he favours private schools over State schools while pushing through legislation to ensure the profit taking group can get even greater leverage in the dismantling of the State system.
 2) What happened to the Government developed kitset home project in the 1920s once private interests realised that the State could do it better.
 And now, when faced with a housing crisis, the only solution the PinoKeyo govt can come up with is to sell off Housing New Zealand stock and decry the Labour Party policy of building 10,000 houses a year for the next 10 years as being impractical.