Bernanke's admission and Keen's critique

Bernanke has admitted that the "recovery" has stalled:

In sum, the pace of recovery in output and employment has slowed somewhat in recent months, in part because of slower-than-expected growth in consumer spending, as well as continued weakness in residential and nonresidential construction
- The Economic Outlook and Monetary Policy, August 27

Steve Keen's analysis (What Bernanke doesn’t understand about deflation) is that although Bernanke has read Irving Fisher (who was burned by the Great Depression but then underwent an intellectual transformation) he didn't understand him fully:

You would think Bernanke, as the alleged expert on the Great Depression—after all, that’s one of the main reasons he got the job as Chairman of the Federal Reserve—had read Fisher’s papers. And you’d be right. But the problem is that he didn’t understand them—and here we come back to the belief problem. The Great Depression forced Fisher—who was also a Neoclassical economist—to realize that the belief that the economy was always in equilibrium was false. When Bernanke read Fisher, he completely failed to grasp this point.

You can read Irving Fisher's analysis of the Great Depression here (pdf, 21pp):
The Debt Deflation Theory of Great Depressions (1933) by Irving Fisher

climate change essential reading

I asked Roger Pielke jnr which papers he would recommend to explain why he recommends a low carbon tax to fund R&D into energy alternative and not taxation from general revenue for this purpose. On the carbon tax issue he recommends:

An Analysis of a Technology-led Climate Policy as a Response to Climate Change by Isabel Galiana and Christopher Green (pdf, 68 pp)

For a general outline of the approach taken by Pielke jnr and his associates he recommends:
The Hartwell Paper, pdf 42 pp

He also has a book in the pipeline, The Climate Fix. The first 50 pages, with only a couple of pages missing, are available at the amazon look inside feature and provide a pretty clear picture of where his argument is heading.

If the policies advocated here had been taken up by Rudd or Turnbull then perhaps they would not have ended up in the political meat grinder. They also differ significantly from the current policies of The Greens (anti development), the Coalition (our current technology is sufficient to do the job) and Gillard's ridiculous citizens assembly (we lack conviction so pass the buck).

If only some of our politicians would grow a brain, the solution is there waiting to be found.

peak oil discussion

Peak Oil Discussion

I'll keep my eye on this discussion thread over the next few days. Discussions at Brave New Climate often reflect a wide range of opinions some of them well informed. The lead article is well researched. There is a cautionary editorial at the beginning from Barry Brook, the owner of BNC.

My current not very well informed opinion is that peak oil will only become a severe problem if we fail to develop nuclear power. We are failing to do this in australia since the Labour Party and The Greens especially won't go near it and public opinion is against and not being challenged much. For now in Australia the anti nuclear fear mongers have won. But other countries such as China, Russia, France etc. are going ahead and will develop nuclear further. Over time it will become cheaper than alternatives, but the time line is not possible to predict

Renewables can't supply the energy we need. In the long term our energy future is nuclear.

In the meantime the evidence for the likelihood of severe economic crisis independent of energy concerns is growing stronger so I continue to focus my study in that direction

michael perelman's analysis of the economic crisis

I watched the above video, which is part of a series he is making on the economic crisis. The video presentation is of poor quality but I quite like his calm or laconic style of delivery. Here is a summary of the main points:

The overall or inherent tendency of the economy is towards falling marginal costs and high fixed costs, in other words for the economy to enter a deflationary spiral. (aka the tendency for the rate of profit to fall, although Perelman does not use that phrase) Perelman outlines 6 reasons for this and also discusses the contradictions involved in some of the factors. Another central point he stresses is the importance of competition between companies in the trend towards lower prices. When faced with this reality companies or governments have these options:

1) Launch price wars without reinvestment, keep that going for as long as possible.

2) Global labour arbitrage, cutting wages and benefits, by off shoring

3) Compete by investing in new technology. This increases output (overproduction, although he does not use that word) and causes prices to fall. One of the problems here is that in a competitive environment business throws away technologies before they have paid for themselves, to replace them with even newer technologies.

4) Governments may intervene to blunt the effects of competition by fiscal and monetary policy. One negative of this is that when the economy is going well then companies will tend to not invest in new technology and the economy then stagnates on the supply side. Another tendency is for governments to indulge in military spending for mainly economic reasons, aka military Keynesianism

5) The strengthening of intellectual property law, creating cartels, is another response to increased competition. One effect of this is to severely limit the development of science and technology. There is a disencentive for others to follow in the footsteps of the original creators. The violation of intellectual property rights leads to high legal costs for those who try to break through this barrier and creates uncertainty.

6) Growth of the financial sector. Once again this is contradictory. It is true that many companies need credit to get off the floor. However, valuable resources are siphoned off into the financial system. For example, during the dot com era a good number of physicists and mathematicians went into the financial system, rather than doing anything directly productive. Finance itself becomes a disciplinary force on business. Business ends up following finance more than it follows markets. A business may cut back on R&D because that creates a cost with an uncertain payoff. If your profits are low then financial players may come and take over your company.

The Invisible Handcuffs is the name of Michael Perelman's forthcoming book. For his intellectual biography and descriptions of his other books see his intellectual biography page. On that page, summarising one of his books, he again stresses the problem associated with competition:

On a deeper level, this book calls the conception of competition into question. I show that intense competition is equivalent to a depression, yet most economists believe that competition is good and depressions are bad.

mick jagger elections

If you vote for Abbott there is a huge risk you'll get Gillard. If you vote for Gillard there is a huge risk that you'll get Abbott. If you vote for the Greens there is a huge risk you'll get Gillard (preference deals).

Since there wasn't much difference between Labour and the Coalition to start with and since Labour then backtracked on most of the small differences that did exist, then this election is even more strongly tweedle-dum and tweedle-dee than usual.

Democracy means something in countries where religious fundamentalism is a real issue (if the Taliban becomes government again if Afghanistan then religious fundamentalism runs that government) but has become a bore in countries where modernity is clearly established . Democracy is something people are literally dying for in undemocratic or recently democratic countries (Iran, Iraq, Saudi Arabia, Afghanistan, Burma (Myanmar), North Korea, China, Zimbabwe, South Africa) but is something people are bored to near death with, at least in Australia, since we are given no real choice on election day. Britain recently was no different and in the USA Obama has turned out to be just another Democrat politician. All the major parties are Mick Jagger parties: "I can't get no satisfaction"

Some brief thoughts on some of the "issues" of the campaign:

• The economy - both parties pretend that the crisis is over and have promised a quick return to a surplus; this won't happen
• Boat people - it's disappointing that it is an issue at all but it would not be such an issue if we felt secure economically
• Mining tax - nothing wrong with taxing the wealthy more but the fear factor exists again because of  economic insecurity
• Climate change - a realistic political solution has been worked out by Pielke jnr but hasn't filtered through yet to the mainstream parties; the reactionary Greens on the other hand want to turn the productivity clock back
• Broadband - one of the few issues where Labour's policy is superior but, on the other hand, Conroy also wants to censor the internet, so he needs to be censored himself

At some point the political boredom will turn into something else. When the economic crisis really hits then the promise of both parties to restore the surplus will look particularly hollow. Which in the end brings home that capitalist democracy is limited by the system which it serves.

money, liberty, credit, crisis

John Weeks has three great quotes on his home page which sums up the spirit of our times:

"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall…dare to assess the money-motive at its true value. The love of money as a possession…will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease ..." [J M Keynes, ‘The Future’, Essays in Persuasion 1931]

"Unhappy events…have retaught us two simple truths about the liberty of a democratic people. The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it comes stronger than their democratic state itself. That, in its essence, is fascism - ownership of government by an individual, by a group" [Franklin D Roosevelt, message to the US Congress 1938]

"In a system of production, where the entire continuity of the reproduction process rests upon credit, a crisis must obviously occur — a tremendous rush for means of payment — when credit suddenly ceases and only cash payments have validity" [Karl Marx, Capital III, p 490]

Hitchens - Charlie Rose interview

Follow the link for an excellent video (I can't embed it) interview by Charlie Rose of Christopher Hitchens:
http://www.charlierose.com/view/interview/11168

From this interview you obtain a real sense of why Hitchens is so highly regarded as a significant public intellectual - intelligent, deep knowledge of history as well as current affairs, masterly orator, sense of humour, ability to think on his feet and recall detailed argumentation, principled, sometimes contrarian, loyal to his friends and awareness of his own strengths and weaknesses.

We need more public intellectuals like Hitchens.

materialist dialectics

Alfredo Saad-Filho provides a good explanation of materialist dialectics in chapter one of his book, which is available on line The Value of Marx(pdf). I've only read chapter one of Saad-Filho so far but this might also be a good modern guide to reading Capital. Chapter one of Capital is the most difficult and for most mere mortals a guide is necessary.

I thought I had understood dialectics through reading Mao's philosophical essays many years ago but now realise that I hadn't understood the initial non obvious phase of concept formation, particularly the importance of history and abstraction in that process. eg. how in Capital Marx identifies the concept of value.

I suspect the disagreements from non marxists and misunderstandings from "marxists" that have followed are partly to do with not understanding the method used. There is a section on method in A Contribution to the Critique of Political Economy but it is not particularly thorough. Marx applied a method to analyse the internal workings of capitalism but only left hints as to what his method was, rather than a full explanation, for whatever reason. This footnote from EP Thompson towards the end of chapter one of Saad-Filho provides the explanation:

‘We have often been told that Marx had a "method" ...and that this constitutes the essence of Marxism. It is therefore strange that ...Marx never wrote this essence down. Marx left many notebooks. Marx was nothing if not a self-conscious and responsible intellectual worker. If he had found the clue to the universe,he would have set a day or two aside to put it down. We may conclude from this that it was not written because it could not be written, any more than Shakespeare or Stendhal could have reduced their art to a clue. For it was not a method but a practice, and a practice learned through practising. So that, in this sense, dialectics can never be set down, nor learned by rote.’

US economy is worse than Greece

U.S. Is Bankrupt and We Don't Even Know It: Laurence Kotlikoff

Laurence J. Kotlikoff is a professor of economics at Boston University

IMF annual review of US economic policy:

"The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates ... closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP"

To correct this fiscal gap would require doubling of US taxes, which is politically not yet possible

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills...

And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Pakistan's infrastructure

The deluge, which was many times the usual monsoon and fell farther north and west than usual, has exposed the lack of investment in water infrastructure, including big dams, much of which was built in the 1960s. The removal of forest cover may also have allowed rainwater to drain faster into the rivers.
- Swamped, Bruised and Resentful

Global warming may have contributed to the disaster in Pakistan. But then again it may not have. Spending money on essential infrastructure now is going to save more lives than pronouncing certainty about things that are not certain. For a more informed perspective than mine see Pielke snr:
Follow Up On Weather Channel Interview Of Kevin Trenberth and Roger Pielke Sr
A Way Forward In Climate Science Based On A Bottom-Up Resourse-Based Perspective
Extract:

The IPCC, unfortunately, ignored this bottom-up, resource-based focus, and instead completed an inappropriately narrow top-down CO2-centric viewpoint based on multi-decadal global climate model predictions; e.g. see the movement from WG1 to the WG2 reports, which culminated in the WG3 report

and Pielke jnr:
Catastrophe Catnip

Journalists are drawn to the notion that greenhouse gas emissions increase the human toll from extreme events like Ulysses was drawn to the sirens. The connection between the two is made despite a robust scientific consensus -- and lack of evidence to the contrary -- that no signal beyond increasing societal vulnerability has been detected in increasing disaster losses, much less attributed to the effects of accumulating greenhouse gases

creativity doesn't count

Some thoughts on reading The hot young teacher they hired instead and Tom Hoffman's response

There is a difference b/w monopoly skills (a worker being indispensable) and general adaptability skills (being flexible enough to "go with the flow" on the job). The former is allowed but never fully recognised, the latter is essential to the ongoing continuity or reproducibility of the system.

Monopoly skills, indispensability, is anathema to capitalism. Sooner or later all workers have to be replaced.

Some creative workers may develop monopoly, indispensable skills. For example, a brilliant English teacher may develop outstanding skills in developing, delivering and assessing a course in Holocaust literature (well worth reading). But when it comes to the ongoing continuity of the system this does not count. The cheaper replacement teacher does not have to have these indispensable skills. In the final analysis creativity does not count, the system does not like it.

This is implicit in teacher training courses, which have a requirement of general skill level and adaptability but not brilliance or excellence in any particular area. Exceptional creativity just does scale in a system or sausage factory of mass production. And when this transfers to on the job skills then hard work - to the point of modern day slavery, not having a real life outside the job, see Martha Infante's ridiculous comment which triggered Tom's rage - and adaptability, being able to do a wide range of different tasks to a good enough standard, are more valued than deep creative brilliance.

The ongoing historical trend of the dynamics of capitalist production is in the direction of deskilling, simplifying and where possible human labour being converted into machine labour.

David Harvey has a great section in his book Limits to Capital, Ch 4.2 The Labour Process, where he explains Marx's words about the social process that goes on behind the backs of producers which reduces skilled to simple labour.

It is true that brilliant, creative individuals such as Mark Shuttleworth, Paul Graham, Nicholas Negroponte or Brewster Kahle can make personal fortunes by creating and selling their inventions to capitalists and then using their wealth for the public good, more or less. The system cannot eliminate creativity completely. Other brilliant individuals make fortunes as entertainers in sport or music. The system also needs to keep us entertained and distracted. A deeper analysis would require a further elaboration of these categories. But I believe the general trend is clear, as illustrated by Beth Aviv's tale. These issues are also raised by Tom Friedman's book The World is Flat, where he talks about plain vanilla jobs being exported to the developing world through globalization and that to retain your job in the industrialised world you need to develop some special, indispensible skills. However, David Harvey takes this analysis further than Friedman.

hitchen's

Christopher Hitchen's is making the best of it but the prognosis is not good.



He has also written about his cancer and treatment regime: Topic of Cancer

Huh?

So Labour sacked the unpopular and unelectable Rudd and appointed the popular Gillard as Prime Minister so they could win the upcoming election. But now the "popular" Gillard has made Abbott the Coalition more popular than she is, so the "unpopular" Rudd has stepped forward to campaign more broadly in order to convert the now unelectable Labour into electable Labour.

political economy as theatre

Some writers (Roughtheory) argue that Marx's Capital is really theatre, that illustrates the absurdity of the human condition, at least in our current social and economic system. Marx does talk about the capitalist as capital personified and much more along those lines. Like everything else with Marx this idea has been both much discussed and much distorted. But to be a capitalist you do have to devote a significant portion of your life to reproducing and nourishing capital, a "mere thing". In one sense that "mere thing" takes over the life or significant parts of the life of a human.

Capital is difficult reading. I wonder if it could reach a wider audience if aspects of it were presented as a play.

Although not as conceptually ambitious this has been done to an extent by Lucy Prebble with her play about Enron:


Here is an extract from an article based on an interview with the playwright Lucy Prebble:

...the whole financial basis on which Enron rose and fell was "that most theatrical of entities, just a game, an illusion, a system of belief". ... Jeffrey Skilling, the disgraced former CEO of Enron ... begins full of the airy belief that he has reinvented the world on his own terms, and ends beset by his own demons as that world crashes around his ears ... what is extraordinary is that we had all watched this happen with Enron nearly a decade before and yet still we wanted to believe in the illusion of financial miracles

Skilling: I have to check the stock price.
Daughter: Why?
Skilling: Because that's how daddy knows how much he's worth.
Daughter: Why?
Skilling: Because the market tells me.
Daughter: Why?

It's nearly time for Australia's Great Financial Crisis

Neither Labour nor the Coalition will be announcing a policy about this in the current election campaign.

Steve Keen warns that Australia is heading for a collapse in housing prices which will devastate our economy.

The relative percentages of home loans making up the assets of banks in the UK, USA and Australia are:
UK 17%
USA 15%
Australian Commonwealth Bank 49%

See the slides 21 and 22 of the presentation linked to from this Keen article in May: Excellent presentation on Scribd on Australian housing

In a more recent article (Thanks for the Manna) Keen writes:

There is however one important way in which house prices do differ from shares: the first sign of trouble is not a sudden drop in prices, but a fall in the number of sales and an increase in the length of time it takes for properties to sell. That sign was evident in the data from the last year or so, which is why I argued that a fall in house prices was imminent in a previous article on Business Spectator. Now that the data are unequivocal, the following processes are likely.

Firstly, with an increased stock of unsold houses on the market, buyers are likely to take yet more time to make a decision—which will add further to the backlog. If prices are falling, why hurry? The urgency will leave the buy side.

Secondly, so-called investors—whom I prefer to call speculators, since 90% of them have bought existing properties rather than built new ones—will start to consider whether they should swap from the buy side to the sell side. After all, no-one in their right mind buys an investment property in Australia for the rental returns: it’s capital gains or nothing DownUnder. Do you capitalize on gains to date, or hang on hoping that the upward trend will re-assert itself once more?

Given the skewing of our market away from owner-occupiers and towards speculators in the last two decades, this second effect could cause a sudden increase in the number of properties on the market—at just the same time that buyers have become more relaxed about closing a sale. It’s this sort of process in an asset market that is why asset prices don’t “taper”—or “plateau”, to use a word from an earlier time.

I expect these two processes to lead to an accelerating rate of decline in house prices now, as they did in the USA when “Flip That House” ceased being a winning trade.

what rote and relevance both lack

Educational approaches tend to flip flop between rote learning and relevance or surface motivational learning. Although both of these have their place what they both lack is a deep understanding of the actual subject knowledge being taught. The reason little progress is made in educational reform is that it is really hard work to deepen subject knowledge. It doesn't scale. It would require us as a society to take education far more seriously.

Teaching in higher education requires that we continually develop our understanding of our subject. As a young lecturer, I remember feeling constant frustration about my inability to get my students to grasp the meaning of simple concepts such as “society” and “the social”.

I still feel a twinge of embarrassment when I recall my early futile attempts to go beyond very formal expositions about the difference between nature and nurture. It was only after a series of disappointing episodes of miscommunication that I decided to spend some time reading about this subject to see if I could teach it more effectively.

It was while reading the introduction to Karl Marx’s Grundrisse one evening that the proverbial light bulb was switched on. The passage that did it was about the socially mediated meaning of eating: “Hunger is hunger, but the hunger gratified by cooked meat eaten with a knife and fork is a different hunger from that which bolts down raw meat with the aid of hand, nail and tooth.”

A week later I tried it out in one of my seminars. “Even an apparently biological act like eating is socially mediated,” I explained, before elaborating on Marx’s example. Did it work? Almost immediately one of my Nigerian students pointed out that “you Europeans worry about overeating while we in Africa are concerned about not having enough food in our belly”.

A few minutes later another student raised the question of eating disorders. “It is unlikely that people in the Stone Age knew very much about anorexia,” she posited. By the end of the seminar, the students had begun to internalise the concept of “social” and I learnt how to teach this subject more effectively.

It was not the magic of the Grundrisse that achieved this revelation. I could have gained inspiration from numerous other texts. For me, what was significant about this episode was that I finally learnt to treat a problem of teaching as an issue that was inseparable from matters to do with my scholarship
- Feeding a fine hunger by Frank Furedi

This also helped me understand why I am taking time off work to study political economy. I simply was not satisfied with my depth of understanding of society and how it works. The way in which apparently simple concepts like "eating" change their meaning as a result of changes in the productive forces and relationships in society relates closely to how we understand concepts such as value, labour and capital as well.

update: Frank Furedi on authority in schools Radio interview, There's a crisis in adult authority in our schools (15 minutes)

Is Women's Weekly against Labour?

Chris Uhlmann:

There is something disturbing about the cover of the Women's Weekly, adorned by a beaming Prime Minister.

It's beautiful, glossy, near perfect. It's also utterly contrived.

It's disturbing because the makeover is a metaphor for the Labor campaign.
- Labor policy make-up melting in political spotlight

I agree with Chris Uhlmann's analysis of the Labour campaign. It just seems to me that Labour has been like this - phony - for a long time but now it has become more obvious.

Is even Women's Weekly now working against Labour?

the honest broker, discussion

Roger at Face Value
Pielke versus Schneider

update, 2nd August: also The Honestly Broken and And in the End ( the comments are part of the essential reading)
update, 5th August: The Honest Broker (this one is at Pielke jnrs blog, Michael Tobis joins in at comment 63 and there is some to and fro with Pielke jnr after that)

Great discussion here, in the comments, between Michael Tobis, Roger Pielke jnr and others including Richard Tol about Roger's book The Honest Broker.

What is the nature of science, the nature of politics and how do they interrelate?

Extract from an informative review of The Honest Broker:
Roger A. Pielke, Jr., The honest broker: making sense of science in policy and politics:

(Pielke) develops four idealized roles for scientists in the policy process. The pure scientist attempts to remain detached from politics and policy, focusing only on research without consideration for its use. The science arbiter answers scientific questions for decision makers but avoids considering normative questions. The issue advocate uses scientific information to advance a specific political agenda or policy alternative. Finally, the honest broker of policy alternatives expands, or at least clarifies, the scope of choice for the decision maker through the integration of knowledge and a broad consideration of possible alternatives.

and

Pielke argues that the decision contexts in which scientists operate range from “Tornado Politics” to “Abortion Politics.” By Tornado Politics, Pielke means a context characterized by limited choices, agreement about values, and high certainty about the relationship between available alternatives and valued outcomes. Thus, a group of people deciding whether to seek shelter from an approaching tornado is engaged in Tornado Politics. In contrast, by Abortion Politics, Pielke means a context characterized by a large number of possible alternatives, competing goals and values, and uncertainty about how alternatives relate to valued outcomes. Pielke (p. 43) posits that scientific information can help “assess decision alternatives” in situations involving Tornado Politics, but it can only “justify decision commitments” in situations involving Abortion Politics. This is because, Pielke argues, scientific information only compels action in instances without substantial value conflict—science cannot reconcile conflicting values.

From the discussion at Michael Tobis's blog, Pielke jnr said "If you think that you are in a debate that can be resolved in some manner through appeals to science, you are wrong."

I have just ordered my own copy of The Honest Broker

The Michael Tobis blog discussion is about whether climate change is a Tornado type discussion (mainly empirical) or an Abortion type discussion (mainly about values). Since it does fit the latter category, Roger is correct IMO. We would end up achieving more useful results (for example, more research into energy alternatives such as the Boron car, serious development of pilot nuclear programs like the Integral Fast Reactor) if believers became less zealous about the necessity of achieving CO2 reduction targets in definite timelines.

The public believes in AGW but is not prepared to alter their lifestyle to achieve reductions. The demise of Rudd and Turnbull illustrate the non productive nature of a radical "must do" stance on this issue.

Also scientists should not pretend to be certain about projecting trends 50 years ahead, the should acknowledge the uncertainty involved in such projections (and the state of the science in general) more openly. For evaluation of the science itself I recommend the Pielke snr blog.