Nassim Taleb has finally lost it…
“The Reappointment Of Bernanke Is Too Much To Bear”
–Nassim Taleb
Wikileaks: Releasing secret documents on interrogations
Wikileaks has just released this announcement:
Destruction of US interrogation tapes: in a few days we will release secret docs about how Congress is being subverted
Brad DeLong’s five percent solution… (2)
Since you have now exhausted your capacity to absorb any more debt in the run up to this Great Recession, Brad Delong has a solution: It is time to max out the credit limit of the United States federal government as well.
That’s it – that’s the DeLong five percent solution. The federal government must step in for the indebted consumer and borrow even more money.
DeLong’s solution would be straining at credulity if it were simply a matter of the United States having the financial strength to service the debt accumulated in the present catastrophe, as well as the trillion dollar annual deficits which are projected hit in the coming years, AND, absorb another hit like the economy just took on the financial system.
But, if Dorman is right, that is only the beginning of what DeLong’s five percent solution would have to cope with
Picture the current economic problems, PLUS a second financial crisis, the likes of which we just experienced, PLUS, the long-term problem of stagnating wages for American families, who are deep in debt, and whose wages will continue to fall, since the process Dorman describes (off-shoring industrial work) has not slowed in the least, but is accelerating under the pricing pressures produced by households paying off their debt as unemployment explodes upward.
On this score, we could point out that DeLong’s s panacea for all of this – that government can offset these depressionary forces by accumulating still more than the 12 trillion dollars of debt it already has incurred – has never been shown to work; that it did not work in any sustained way to get the country out of the Great Depression; and, that when it does not work this time, and disaster ensues, good ole’ Brad will just waddle away from it as has every economist from his own discredited idea in a profession littered with grandiose claims for one failed theory after another, while its erstwhile proponents continued to be taken seriously.
A real recipe for disaster, huh?
Oh, but we’re not finished yet – not by a long shot
Do you remember that bottomless reserve of cheap rural labor in China?
Well, they are still there. In fact they’re pouring into China’s cities by the millions looking for work. And, as with all other things Chinese, we are talking huge numbers of unemployed peasants searching desperately for work. An estimated 20 million rural migrant workers lost their jobs as exports fell last winter, forcing millions back to their rural homes for lack of work – which is precisely where there is no work.
And, the solution of the PRC leadership?
Well, like almost every other country on the planet – with some notable exceptions like Germany – China implemented a strong stimulus package to boost the economy. And, unlike the United States, they did not have to borrow the money because they actually have a trade surplus to draw down on in times of economic dislocations. (You see, Brad, it helps if you actually produce things people need in the goods times – times when the US is sailing aircraft carriers around the Persian Gulf trying to intimidate Iran, or piling up the bodies of wedding guests in Afghanistan.)
As a very poor country, with hundreds of millions still living in conditions not much different than an American sharecropper at the end of the 19th Century – absent a cell phone or two – the Chinese need everything, in huge quantities; and, to pay for everything, they have adopted the US development strategy of export-led development.
And, they are pretty damned good at it. Unfortunately, and through no fault of their own, this has led to a situation where there is a global condition of excess capacity in virtually every area of the world economy. While it is beyond the scope of this piece to go deeply into this problem, let it be sufficient to say this:
For Brad DeLong’s five percent solution to work, Washington would have to spend enough not simply to offset a too long work week here in the United States, which is the underlying cause of the financial crisis, another financial crisis, the collapse of American consumption under the weight of the debt brought on by decades of manufacturing offshoring, AND, THE ALMOST DAILY ADDITION TO THE GLOBAL PROBLEM OF A TOO LONG WORK WEEK CREATED BY CHINA’S DEVELOPMENT STRATEGY.
Every factory built, every mile of road laid, every power plant finished, every export contract entered into in China adds to the growing glut of global excess capacity. And, China is pouring most of its resources into expanding precisely this activity: most of the 8.9 percent growth of China’s GDP in the most recent quarter took this form.
You can add to this, huge populations like that of India, Brazil and a host of other countries which are also growing at an astounding rate in the middle of the worst global economic crisis since the Great Depression!
Brad DeLong’s five percent solution ultimately rests on the notion that the five percent of the human race residing in the United States can continue to absorb the surplus output of the rest of the planet, as it has under the American system – the Dollar Empire. And, when he is proven wrong – as he must be – he too will waddle away from this insanity which passes for economic policy to receive his Nobel Prize in Economics, while you starve.
Latoya Egwuekwe shows us how an economy crumbles…
Click the picture to begin.
Brad DeLong’s five percent solution…
Brad DeLong thinks there is about a five percent chance we will see a second Great Depression and there is little or nothing which can be done to avoid it:
For 2 1/4 years now I have been saying that there is no chance of a repeat of the Great Depression or anything like it–that we know what to do and how to do it and will do it if things turn south.
I don’t think I can say that anymore. In my estimation the chances of another big downward shock to the U.S. economy–a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more–are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d—– thing about it.
The problem is the political, rather than the possible: First, deficit hawks in the Party of Washington do not want to add to the outrageous pace of public debt accumulation. Second, the bailout of Goldman Sachs and the rest of Wall Street has so broken popular support for Washington’s financial manipulations, “… that there is no coalition anywhere for a repeat or anything like a repeat of propping-up the banking system …”
The center cannot hold against both the market-oriented right, and the anti-corporate left, the rough beast slouches.
Without being able to incur still more debt, to expand phony make-work employment, and to throw at the banks to cover their bad bets, DeLong believes there is no way to prevent any additional “shock” to the system which may push it into a depression.
We think there is a problem with DeLong’s reasoning here. The problem is not with his pessimism that there is a lack of support for measures to avoid a depression; it is his belief that a depression can be avoided by increasing public debt in the first place – even under the best of circumstance and with strong public backing for the measures necessary.
In DeLong’s thinking, and the thinking of most economists, an economy slips into depression as a result of being hit by some external shock which destabilizes otherwise mostly stable economic activity. This is not say economies are not subject to their own transient internal problems – like avarice, scams, bubbles and income inequality, or such political problems as the lack of effective regulatory oversight – but the kind of unnatural shock that sends an economy spinning into a depression goes beyond these flaws to persistently reduce economic activity to some level below its normal growth path – causing it to stagnate for an extended period of time.
This time the alleged trigger to that kind of event was the collapse of the housing market, which produced a run on major banks and a string of failures of investment banking giants Bear Stearns and Lehman Brothers. Alleged tightly interconnected global financial markets transmitted these failures like some nasty virus to other economies in quick succession.
Ultimately, the collapse was stemmed when the Federal Reserve and the Treasury Department stepped in to backstop the entire global economy.
That’s a great story: lots of heroism, square-chinned American heroes, lots of excitement, and a thrilling ending as the heroine is saved in the nick of time from the careening global collapse Indiana Jones-style. The world almost came to an end, but our magnificent hero, Moneyman, enters in the last scene and foils the deadly plot of Doctor Depression.
We close with the final embrace between our hero and his fair swoon as the credits roll – and, wrap!
Fortunately, it is total bullshit – a Grimms’ fairy tale with just enough danger and excitement to entertain the unsophisticated rubes in Kansas.
Peter Dorman, who writes on Econospeak blog, has suggested (pdf) that this depression has been brewing at least since 1982 when the United States and the International Monetary Fund, “established a policy regime that permitted, and to some extent required, debtor nations in the developing world to transform themselves into export platforms for acquiring hard currencies. Central to this regime was an opening of consumer markets in the wealthy countries and the deregulation of cross-border production and finance.”
Nations like Mexico were converted into huge sweatshops, while Washington pushed through NAFTA and other agreements to open the US markets to inexpensive imports. Industrial jobs went overseas, and the era of Walmart was born. Eventually, says Dorman, China adopted this export-led development strategy and American companies had an orgasm as they anticipated the profit possible from a market with a seemingly bottomless reserve of cheap rural labor.
Brought into direct competition with the abysmally low Mexican and Chinese wages – which were necessary to offset superior American labor productivity – working families here suffered decades of stagnant wages. As American real wages fell, Washington and Wall Street provided easy credit at low interest rates funded, of all things, by recycling the torrent of money leaving the United States to purchase goods made in China, Mexico and other nations.
Even as the United States was being stripped of its industrial infrastructure, the ungodly profits being generated for Wall Street by producing in low wage countries and selling in the US was being lent to the very families being impoverished by this process in order to keep them spending.
What Delong calls a shock turns out to be the deliberate policy by Washington and Wall Street to starve American families. It crashed, and had to crash, not because it was a flawed strategy, but because it worked as planned.
16 over Ten, 12 over Eleven, and 6 over Twelve…
Source: Bureau of Labor Statistics
Richard Trumka: How a tired old union hack misses the point completely
Once upon a time, the union boss was hated and feared on Wall Street, now he or she is just ridiculed or ignored – or propped up in front of the TV cameras to serve as a convenient scapegoat for why you’re paying for Wall Street failures.
Little does the Party of Wall Street suspect that, indeed, they are right – union hacks like Trumka are precisely the reason why you are footing the bill for GM mismanagement, and Goldman Sachs’ venality. The unions sold you out to cash in on the virtuous cycle of ever bigger defense budgets, rising employment fueled by wars and economic predation, and an ever growing slush fund of union dues.
Now the bills have come due, and Goldman Sachs wants to blame the UAW because Ford, GM and Chrysler can’t build a decent automobile at a competitive price – a price that requires that an American standard of living be readjusted to conform to Chinese wage levels.
Watch below as Richard Trumka whines like a bitch for a return to the good old days when American union bosses marched hand in hand with corporate predators in support of the Johnson-Nixon carpet bombing of Vietnamese villages.
Richard L. Trumka’s remarks at the Spotlight on Jobs Crisis forum.
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Well, at least he is creating jobs in Afghanistan…
If you had any illusions that the Messiah‘s jobs summit was anything more than a PR ploy, this should persuade you otherwise: 130 corporate types dressed in very expensive designer wear sitting in a room – each with their own agenda – recounting their experiences with unemployment. (Uh, none)
A one day dog and pony show for those who will be watching it from some homeless shelter in Pontiac, Michigan – even the homeless need entertainment. There will, no doubt, be an appearance by some unemployed mother of three to provide a human touch for the evening news.
MESSIAH: We need jobs! We must grow the economy!
CHORUS: JOBS JOBS JOBS! GROW GROW GROW!
Wash, rinse, repeat as needed…
Google, Disney chiefs due at Obama jobs summit
About 130 experts from unions, government, academia and other companies will seek ways to jumpstart job creation.
NEW YORK (CNNMoney.com) — Executives from Google and Walt Disney will join other company chiefs, academics, labor leaders and mayors at President Obama’s jobs summit this week, the White House said Sunday.
Google (GOOG, Fortune 500) CEO Eric Schmidt and Disney (DIS, Fortune 500) chief Bob Iger will be among about 130 people attending Thursday’s meeting, according to a partial guestlist.
Other prominent CEOs slated to attend include Randall Stephenson of AT&T (T, Fortune 500), Brian Roberts of Comcast (CMCSA, Fortune 500), James McNerney of Boeing (BA, Fortune 500) and Frederick Smith of FedEx (FDX, Fortune 500).
They’ll be joined by such experts as Paul Krugman, the Nobel Prize-winning economist and New York Times columnist, former Fed vice chairman Alan Blinder, United Steel Workers president Leo Gerard and San Antonio mayor Julian Castro.
Obama discussed the summit, aimed at helping solve an employment crisis that has cost the nation 7.3 million jobs since the start of 2008, during a cabinet meeting last week.
“We are going to be bringing together people from all across the country … to explore how we can jumpstart the hiring that typically lags behind economic growth, but we don’t want to wait,” the president said. “We want to see if we can accelerate it.”