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Piketty & the recent US Supreme Court decision April 3, 2014

Posted by larry (Hobbes) in economics, Justice, Philosophy.
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Uh oh!
It is looking worse for the 99% every week in the US, and eo ipso potentially in the UK. The piece linked to is by a law prof at University of Colorado at Boulder. Piketty’s Capital in the 21st Century gets a mention in this context, and it is relevant. I will quote from Campos: Piketty argues that

“…[I]n the long run, the return on capital tends to be greater than the growth rate of the economies in which that capital is located.

What this means [concludes Campos] is that in a modern market economy the increasing concentration of wealth in the hands of the already-rich is as natural as water flowing downhill, and can only be ameliorated by powerful political intervention, in the form of wealth redistribution via taxes, and to a lesser extent laws that systematically protect labor from capital. (Piketty argues that, because of historical circumstances that are unlikely to be repeated, this sort of intervention happened in the Western world in general, and in America in particular, between the First World War and the early 1970s.)”

This is as pessimistic as it gets. What is not mentioned in most discussions of this outcome is the view put forward a few years ago by Republicans that corporations are individuals, that is, people. This is a logical howler of immense proportions, but in this context, such fine distinctions seem to be irrelevant. It is this view that partially underpins the Supreme Court decision that,  just like people, corporations have free speech rights that need protection. This apparently includes the way that their CEOs and board members spend the corporation’s money.

Piketty’s data is extensive and runs for hundreds of years. It is a door-stopper of a book, around 600 pages of text and 100 pages of notes, not including the material Piketty has placed online. One could be forgiven for concluding that the greater the economic inequality, the greater the chance of political plutocracy and that this is the inevitable consequence of the political implementation of neoclassical economic principles. This relationship seems to me to inevitably entail that politics can not be divorced from economics, which is a central tenet of the neoclassical paradigm. It seems to follow, therefore, as the night the day, that since politics can never be value-free, the idea that economics can be, as claimed by the neoclassical econs, is a non-starter.

I would like to think that this constitutes another nail in the coffin of the neoclassical paradigm, but it doesn’t look like it. Despite the mounting evidence against it, the dominant economic paradigm rumbles on with hardly a hesitation along the way.

Also have a look at this and the links therein: http://www.slate.com/blogs/moneybox/2014/04/02/wealth_inequality_is_it_worse_than_we_thought.html. It is about new research by Saez and Zucman on US wealth disparity. As has been pointed out previously by researchers, it isn’t the 1% who are the biggest gainers from this financial crisis, it is the 0.1%, the 1/10th of 1%.

What do the elites think they are doing? Or are they thinking at all? February 13, 2014

Posted by larry (Hobbes) in Abuse of power, economics, Justice, social justice.
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If aggression and nastiness have been the drivers of natural selection that put humans at the top of the food chain, then maybe it is time we became extinct. Keanu Reeves made a great mistake in the film The Day the Earth Stood Still. He probably should have allowed the machine to do what it was brought here to do, exterminate the earth’s primary predator in order to save the planet itself.

When people look around and think about what is happening, some of them no doubt wonder what is wrong with the picture they see. There is something deeply awry. But only a perfect cataclysm will alter how the system currently works. That it used to work a little better was probably just an accident. The past thirty years was spent, more or less, working up to now, only of course it wasn’t supposed to go to shit. Which just shows you how stupid many members of  the élite (I’m lumping them all together.) actually are. And the funny thing is, if there is anything funny in this madness,  is that small government means that there won’t be the resources to bail out some of the asses the next time. And by next time, I don’t mean the housing bubble that will burst one of these days. I mean that they’ll do something so monumentally stupid that this past crash will look like a bit of a blip.

So far, the assholes are winning. And those who see that the economic system is in bad shape, fails to reflect actual economic reality, and needs to be reformed hardly get any air time on the mainstream media. Last week’s Question Time had George Galloway, MP for Bradford, a notoriously poor city, on the program. Galloway is a “deserter” from the Labour Party, which for the past 20 years hasn’t done much for its constituency, the average person including the working person. Galloway is someone the main parties love to hate. But last week, he uttered something quite profound and I doubt most people realized how profound it was. In response to some Tory on the panel saying that there weren’t funds for something involving poor people, Galloway pointed out that the government has found money for Trident, high-speed rail, the banks, and their friends in general. In other words, it is complete bullshit that the government is spending constrained.

In the US, it is almost the same. The governments of the US and the UK, which are quite large, can fund whatever they need to fund in their own currency. A related issue was being discussed on the program when Galloway’s comment was made. Neither of these governments can go broke. Of course, if they are much smaller than they are now, they won’t be able to go broke either, but they won’t have the internal resources, which the UK government is slowly dismantling, to be able to do much for anyone, even the rich. The ONS now admits that there are statistical data that it no longer has the resources to collect and analyze. And this is only one example. So, the élite is now cutting off its nose to spite its face, as it were. Except for the .1% and a few others who think they don’t need government anyway. They think they can buy whatever they need. And under the present regime, they can. But are they going to fund the education system or the various research systems that allow them to be able to do this when government becomes too small to support these activities? No matter how rich they are, they won’t have the resources to do it. They are marching spiritedly, and ignorantly, into the past.

The current elites are parasites destroying their own host.

Austerity, economic inequality, & social unrest dance together in an intertwined destiny August 15, 2011

Posted by larry (Hobbes) in economics, interpretation, Justice, social policy.
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There have been a number of discussions on the possible relations there might be among economic inequality, social unrest, and the economic austerity programs that are so popular with Western governments. Let me begin by listing articles that take slightly different interpretations to this complex issue so that there is a shared information base on the relationship between austerity and social unrest.

Hutton & Porter: On the UK riots in Sunday’s Observer;

Washington’s blog: Austerity and runaway inequality lead to violence;

Polly Toynbee: Moral outrage at rioters fixes nothing;

Larry Elliott: We”ve been warned: the system is ready to blow.

All of the above provide an explanatory context for the riots that are not embedded in an explicit political-economic context. Elliott, as economics editor of the Guardian, states explicitly that

“Lesson number one is that the financial and social causes are linked. Lesson number two is that what links the City banker and the looter is the lack of restraint, the absence of boundaries to bad behaviour. Lesson number three is that we ignore this at our peril.”

Bill Mitchell (a proponent of Modern Macroeconomic Theory (MMT), which is a descendant of Keynes-Kalecki, Lerner, Kaldor, and Minsky, with a little Marx thrown in) provides the basic outlines of an explanatory context for the discussions of Elliott and the others by means of a question he asks and the answer he provides in a recent Saturday quiz.  I wish to explore the context of Mitchell’s question and answer in some detail in respect of the relationship between the economy and social unrest.

Mitchell asks whether the claim that in the UK, unemployed youthful rioters on income benefit are living off the hard work of taxpayers is a valid one, and answers in the affirmative.

Importantly, Mitchell refers to Abba Lerner’s The Economics of Employment (1951) where Lerner employs the metaphor of the economic steering wheel as part of his argument against laissez-faire conceptions of the economic system. Lerner’s economic steering wheel refers metaphorically to an automobile going down the road where, in a laissez-faire attitude to driving, the driver takes his hands off the wheel, whereas where more control is needed, such as in a contemporary complex economy, the driver needs to keep his hands on the wheel.

In his preface, Lerner emphasizes that – contrary to expectations of his friends and colleagues – his book does not focus on unemployment or on full employment per se. As he explains,

“I was expected to write a book devoted to attacking the evil of unemployment or to write a book indicating how one could achieve the desirable state of full employment. I think I have done both of these things, but neither can be done properly if primary attention is directed at what we want to avoid or at what we want to achieve. Primary attention must be directed at understanding and explaining the way things work [my emphasis]. Understanding comes first. Only when we understand the nature of the machinery that determines any level of employment can we hope to be able to avoid what we do not like and achieve what we do like.” (1951: vii)

This is precisely Mitchell’s epistemic position; it is also mine. And it is explanatorily the most effective for understanding what has been happening the past few years. I am emphasizing Mitchell’s contention in some detail, both because Mitchell’s argument poses such a good counterpoint to the other articles I have listed and it presupposes a certain view of economic processes that may not be widely understood.

The most important point that Mitchell makes here is that non-workers on benefit obtain command over real goods and services and that because these are finite at any given time, this leaves fewer resources left for those working to have command over themselves.  The arguments against providing such benefits to the poor rely on confusions between the nominal resources implemented by the government accounting system and real goods and services.  This is related to another essential point: where the funding for those on benefit comes from.  The answer is: nowhere.  In other words, workers do not lose out as a consequence of non-workers receiving this kind of funding.

How does this work? The funding is created ab initio by the Treasury and placed in the accounts of those receiving such benefits.  This enables them to have access to real goods and services, notably food, clothes, and housing.  It does not mean that they can thereby afford luxuries such as yachts.  Since this funding is created ab initio by the Treasury, it does not come out of worker taxes.  So, in a real sense, workers are not paying for the benefits provided to non-workers. The conservative position can be summed up in this way: what the lazy get the industrious must forego, or put another way, what the industrious create the less privileged can access to the advantage of all. As Lerner and Mitchell would be keen to point out, this is not how the system actually works:

Except in the case of full employment, government funding for non-workers has no economic effect on workers, however psychologically affected workers might be by what appears to be a disproportionate disparity between the two groups, which is a consequence of the group members accepting some type of neoclassical orthodoxy.  To contend that such funding of non-workers does have an economically deleterious effect on workers and their working environment is to implicitly assume that this activity is in effect a zero-sum game, which is to implicitly imply that what one group gets the other gives up.

Were a societal system able to provide work for everyone who wants to work but is under a serious resource constraint, such as limitations of a finite resource, the provision of benefits to certain groups of non-workers might cause social problems.  But we are not living in such a generally resource constrained system. So this putative causal link has no general application.  In general, any resource constraints that exist are politically created, and thus not a consequence of economic principles.

Another important issue here is the function of taxes. Taxes are not used by governments to fund programs.  They are used to constrain spending.  So, a large tax on the rich will mean that fewer hundred million dollar yachts will be purchased and a lesser degree of malicious speculation might take place as well.  This can only be a good thing.  Since taxes are not used to fund spending, they are not used to finance benefit payments. Hence, the workers are not paying for the benefits accorded to non-workers through their taxes.  It would be equally correct to say that they are not paying for them at all.  All that the system is doing is decreasing the economic inequality between the rich and the poor.  Only in a societal system with seriously constrained resources would benefitting the poor effectively disadvantage the better off.

A question arises.  If the rich are not effectively disenfranchised by helping the poor, why are they so opposed to it taking place?  This requires a deeper response than I can provide here. But let me say this. The issues Mitchell raises provide an economic context for assessing the social and psychological impacts of inequality and austerity. They allow a differentiation between what is and is not relevant in the assessment of putative social policies designed to deal with economic crises.  One conclusion that could be drawn is that the gross inequities enjoyed by the rich are so socio-culturally divisive that a more equitable redistribution of economic resources would be best for society as a whole, and that would include the rich.

Does this invalidate the positions of the other authors I have listed above?  Not at all.  It complements them via a deeper interpretive and explanatory political-economic framework.  In the case of the social unrest with which we began, the perspective set out by MMT enriches the explanatory scenarios developed by the other authors.  In particular, MMT principles imply that greater equity in a less divisive socio-cultural context should lead to a decrease in the probability of social unrest of the sort we have recently witnessed.  After all, the distinction between haves and have nots becomes more a question of having a little less vs. having a little more, where the socio-economic distance between the various groups can be significantly diminished.  History shows that nicely equable distributions such as these are highly unlikely to take place or, if they do take place are inherently unstable, unless the government puts its hands on the economic steering wheel and exerts some degree of control over the dynamic system that is the political economy.

A new twist in the Assange case February 10, 2011

Posted by larry (Hobbes) in Abuse of power, Justice.
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It now appears that rumors that had been circulating about the two women in the Assange rape case, to the effect that they had conspired to accuse Assange of rape for purposes of revenge and financial remuneration.  The Swedish authorities led by a right-wing prosecutor have recent “located” email between the two women that substantiate the rumors.  However, the same Swedish authorities have yet to allow a British court to see this evidence and still insist that the UK extradite him to Sweden, from where he may be extradited to the US where he will probably be tried for espionage, although they have allowed Assange’s lawyer to see the material while refusing to allow him to copy it.

Now allowing the material out of Sweden means that the information can not be presented to a British court.  It seems more than reasonable that if Sweden wish the British court system to extradite Assange to Sweden, it would behoove them to follow British law.  That they are quite clearly not doing this and, moreover, are refusing to have anyone show up in the UK to testify on their behalf suggests a hidden agenda on their part, whatever it might be.

Here is Assange speaking after his court appearance yesterday.


He is in court again tomorrow, Friday, 11 February.

After some remarks by Assange, his lawyer challenged Marianne Ny, the Swedish prosecutor, to come and be cross-examined by Geoffrey Robertson QC.  For those unfamiliar with the British legal system, legal representation is comprised of two parts, solicitors and barristers.  The latter argue the case in the Crown court while solicitors carry out other legal representation of their clients.  Robertson is well-known for his stand on human rights.  I doubt that Ny or her case would look very substantial once Robertson got his hooks into her on the stand. Perhaps she and her colleagues think this as well.

Here is a brief comment on the “new evidence” from the Independent.


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