Three Things: Pouring Cement Down the Wells

[NB: Check the byline, thanks! /~Rayne]

The last 24 hours made me think of this quote:

Supply chains cannot tolerate even 24 hours of disruption. So if you lose your place in the supply chain because of wild behavior you could lose a lot. It would be like pouring cement down one of your oil wells. — Tom Friedman

I don’t care much for Friedman; he’s a shallow pond. But it’s worth pondering his perspective that supply chains shouldn’t be disrupted.

Tell COVID that, son. Tell Nature’s response to our society’s refusal to stop the supply chain over the last four decades. This mostly-closed system we call Earth has a way of telling us not too subtly when our hubris has gotten out of hand.

Though COVID has been and remains a scourge of human life, it may have been one of the best opportunities to stop the supply chain and literally pour cement down oil wells which in their own way have become a scourge.

Disruption to food and health care supplies has been problematic, but most of that could have been addressed on a proactive basis by government which was both competent and benign. But the bigger problems our society faces, the overarching global climate emergency in particular, may best have been served with pandemic sand in the gears of normalcy.

Finally — there’s no going back to the toxic avoidance of disruption. Change has come whether we like it or not.

~ 3 ~

“Hostile” stakeholders rattled the 12th largest corporation by revenue and the 6th largest oil and gas business this week.

ExxonMobil’s (XOM) board of directors now has at least two new directors promoted by an activist fund, Energy No. 1. The fund, launched by tech industry investor Chris James, had the support of BlackRock, California Public Employees’ Retirement System, California State Teachers’ Retirement System and New York State Common Retirement Fund in its demand to replace at least four of the board with candidates of their choosing. Apart from BlackRock, the three retirement funds are the largest in the U.S. and represent $850 billion in assets; XOM’s valued at $252 billion.

Since late last year, Energy No. 1 has accumulated a $50 million stake in XOM. The fund wants

Engine No. 1 wants ExxonMobil to pledge to reduce its emissions to net zero by 2050, warning that this was “not just a climate issue but a fundamental investor issue — no different than capital allocation or management compensation — given the immense risk to ExxonMobil’s current business model in a rapidly changing world.”

XOM hasn’t performed well over the last 15 years; its last stock price high was in mid-2014 ahead of Iran’s oil re-entering the global market.

XOM has accumulated far too much debt, servicing shareholder dividends, offering weak sauce like investment in carbon capture announced on Earth Day this year, yet still expecting to be part of the White House’s green energy policy.

The corporation doesn’t appear to be making adequate progress toward a low-to-no-oil future, one in which privately-owned vehicles are electric rather than combustion engine. With countries beginning to ban the sale of combustion engine vehicles as soon as 2027 and some cities banning their use as far back as 2013 (ex. Utrecht banned older diesel engines that year), XOM hasn’t made enough effort to move to a different mix of products to maintain or build revenue over the long run.

Nor has the oil and gas corporation responded to climate change as competitors BP and Royal Dutch Shell have by establishing a goal of zero emissions by 2050.

The final tally of shareholder votes and the subsequent board composition may not be known for several weeks. No matter the board’s final members, change isn’t over for XOM, especially when the family which created its progenitor is moving to encourage change. The Rockefellers, heirs to the Standard Oil fortune, provided considerable funds to the #ExxonKnew movement in order to force XOM to deal with its toxic business model.

Don’t be surprised if Rockefellers buy up stock in cement manufacturers.

~ 2 ~

A court told Royal Dutch Shell it must reduce emissions. The 6th largest corporation in the world based on revenue, Shell had been sued by the Dutch branch of the Friends of the Earth for violating human rights with its extractive business, undermining the Paris Agreement.

The suit followed a 2015 precedent in which an environmental activist organization Urgenda had successfully sued the Dutch government for failing to meet its own benchmarks on emissions reduction.

The court ordered Shell to cut the corporation’s net emissions by 45 percent compared to 2019 levels by a 2030 deadline. The emissions to be cut are those generated by Shell’s business processes and not by the use of the fossil fuel products it sells.

A personal experience shapes my opinion about Shell as well as my opinion of the entire fossil fuel industry. In the late 1980s I had been working for a Fortune 100 company which relied on fossil fuels (as many businesses still do today); the corporation had a curriculum of sorts to ensure its workforce was global caliber. The curriculum included a session with a consultancy which guided large corporations in future planning. This consultancy used Royal Dutch Shell’s scenario planning as tool, pointing to Shell’s scenarios which saw peak oil and an end to oil. Shell at that time had already begun future-proofing itself by investing in wind energy development and other alternative energy sources.

But inside a handful of years it was evident the fossil fuel industry didn’t see the same scenarios, and Shell’s management no longer looked presciently oracular. Instead the country watched Enron’s corruption around energy blowing apart any idea the fossil fuel industry was looking deep into the future instead of the next quarter’s profits.

That it takes a court order to force Shell back toward its 1990 direction says something about the fossil fuel industry as well as corporate governance over the the last three decades.

~ 1 ~

The Daily Beast’s headline: Biden Administration Backs Trump’s Massive Alaska Oil Drilling Project

The New York Times’ headline: Biden Administration Defends Huge Alaska Oil Drilling Project

What’s disturbing in these and other outlets’ coverage of ConocoPhillips’ Alaska project is the reference solely to Biden when Interior Secretary Deb Haaland and Energy Secretary Jennifer Granholm are surely key to the government’s support for drilling in Alaska. What could these two cabinet-level officials have in common? An inconvenient distaff angle to the prevailing media narrative?

NYT buries at the end of its piece the biggest single reason why the current administration may not yet yank the gangplank out from under ConocoPhillips’ Alaska project:

Other Alaska Native groups, however, said they welcomed the jobs as well as the state and local revenue expected to be generated by the project. In an April letter to Interior Secretary Deb Haaland, George Edwardson, president of the Inupiat Community of the Arctic Slope, called oil drilling “critical to the economic survival of the eight Inupiat villages that call this region home” and said the Willow project had the group’s “strong support.”

“Alaska’s oil and gas industry provides much-needed jobs for our people, tax revenue to support our schools and health clinics, and support for basic public services,” he wrote.

If the rest of their livelihood is collapsing under climate change, it’s understandable the local population will grab what jobs they can.

But there’s more to this than jobs for locals as the administration appears to reverse course on fossil fuel development. It’s not jobs but cash injections into local businesses which have suffered under the pandemic; it’s roads and other infrastructure paid for in large part by a corporation and not by local/state/federal tax dollars.

Meanwhile, Joe Biden has been plugging electric vehicles like Ford’s new electric F-150.

Is there a disconnect? Not in my opinion. Instead we are looking at asymmetric warfare, which may also explain why Biden appears to take a less aggressive stance on the Russian NordStream 2 pipeline running beneath the Baltic Sea.

In the case of ConocoPhillips, it’s blowing huge amounts of money to develop a field while vehicle manufacturers are racing toward an all-electric product lineup which may cause the price of oil to drop below cost of production. Unlike its competitors XOM and Shell, ConocoPhillips hasn’t yet had a reckoning with shareholders about its business model though overproduction of oil across the industry has already been a problem during the Trump administration.

Biden pointed out NordStream 2 is already mostly built and paid for — but some of the pipeline’s investors/co-developers are among those pressed by shareholders and environmental activists to reduce their carbon emissions. They’re out the sunk cost into the pipeline if the price of oil drops in response to falling demand.

Ditto for Russia’s oil businesses invested in NordStream 2.

These extractive companies — and petrostates — aren’t going to be able to recoup their investments anywhere near as fast as they’d initially projected. If electric vehicles arrive and are adopted by the public rapidly, they may lose much of their investment.

So go ahead, pump some cash into the economy. Build some roads and maybe some pipeline.

The locals will enjoy them for years to come after the oil business has collapsed and gone.

~ 0 ~

By the way, somebody remind the White House the Trump administration killed participation in tracking products of extractive industries. We still need to keep an eye on them. Specifically, in 2017 the U.S. withdrew from the EITI — Extractive Industries Transparency Initiative, the extractive industries anti-corruption effort — and now Congress needs to revisit the Securities and Exchange Commission’s Rule 13q-1, which implemented Section 1504 of the Dodd-Frank Wall Street Reform related to tracking large payments made by extractive industries.

Hold this last thought about the U.S. needing to track money related to oil and gas. I promise it’s going to come up in a future post.

Soft-Handed Academic Dudes and Minimum Wage Fast Food: What Could Go Wrong?

I see tweets like this one in my timeline and I brace myself for the inevitable dogpile bashing workers:

Unemployed minimum wage workers have collected too much from state unemployment and federal aid, the old white dudes opine from their cushy home offices somewhere in McMansionburbia, nudge-nudge-winking about prescient forecasts of inflationary pressures.

Sod off, you slack-bottomed, soft-handed gits.

Unemployed minimum wage workers were most likely to be laid off early in the pandemic, and may already have been laid off not once but twice or perhaps even more, depending on location and on whether they were or are juggling one or more minimum wage jobs to make ends meet.

These are the same workers whose jobs OSHA has categorized as High Exposure Risk:

Those who have frequent indoor or poorly ventilated contact with the general public, including workers in retail stores, grocery stores or supermarkets, pharmacies, transit and transportation operations, law enforcement and emergency response operations, restaurants, and bars.

They’re in the same risk class as mortuary workers who prep the bodies of those who died of COVID.

This group of workers are among the risk class most likely to experience an outbreak of COVID; just look at the workplaces where Michigan had outbreaks as of April 9:

Not as bad as schools but how many of the K-12 and university students overlap in some way with fast food workers — either as consumers or employees?

Recall my chicken scratching from my last post about the unaffordability of the American Dream in which I calculate annual earnings for a full-time minimum wage worker:

Do the math:

Minimum federal wage $7.25  x  40 hour week  x  52 weeks  =  $15,080 a year.

That’s nowhere near enough to make a payment on the median home priced at $301,000. It’s not enough for a tiny dump of a house at one-third of median price.

The equation above already contains numerous generous assumptions: the employee makes 1) minimum federal wage, 2) at a full-time job, 3) for the entire year. For most minimum wage workers, at least one of these three points doesn’t apply. Most employers who hire minimum wage workers avoid paying unemployment taxes by employing workers less than full time, which means a minimum wage worker must work two jobs (or more) to make $15,080.

The average one-bedroom or studio apartment costs roughly $1000 a month right now. What’s left over for food, health care, transportation? Even if a worker can manage a roommate or two, what’s left over for basic needs?

Gods help them if they need childcare or eldercare on top of shelter, food, health care, and transportation.

And with most employers refusing to hire minimum wage workers for more than 27-32 hours a week in order to avoid paying either unemployment insurance tax or contribute to health care, these workers are likely not to have any benefits like sick or paid time off, or any savings to offset time needed for illness.

Why would any food service or retail employer think for a moment that minimum wage workers should be beating down the doors to come back to more of the same if their health and their lives had been and could be again at risk, for an absurdly low wage? Why can’t the usual pudgy white neoliberal male academic types grasp this?

The snotty, dismissive attitude by business toward minimum wage workers reflected in the tweet above — though labor appears to be an essential component to the business — also reveals both carelessness and cluelessness of these businesses. If a piece of equipment needed repair for the business to remain open, they’d fix it. But apparently remedying the problems their workers face is a step too far or opaque to the business operator.

Minimum wage workers also need the right to organize. Amazon may pay more than the federal minimum wage, but there are businesses across the U.S. which also operate like Amazon but without the notoriety forcing Amazon to pay better wages. Those businesses must be forced to rejigger their business models. Amazon is no model employer, either; overall conditions are bad when Amazon looks good by comparison.

But demanding businesses rework their operations to protect workers’ right to organize is too much to ask, one might say. Is it?

When businesses shut down sites to avoid unionization, they are rejiggering their business model, and they are doing it at a cost to the community as well as the workers. They are eating the cost of the closures to make an ugly point.

Kroger’s Seattle locations aren’t the only two sites the grocer is closing for this reason. At least three more closed in California to avoid paying higher wages to their workers who are disproportionately at risk of COVID — wages mandated by local government to ameliorate the risks these workers take.

Workers need Congress to pass the Protecting the Right to Organize Act of 2019 (PRO Act) for this reason, as do their communities. Many older and disabled Americans rely on their local grocers; losing one is incredibly disruptive and expensive, especially when it creates a food desert. No business is obligated to do business in any location, but a business willing to pull up and leave a neighborhood and damage customer relations solely because it can’t (read: won’t) figure out how to pay a living wage needs to do its own reorganization internally, restructuring its business model to operate ethically. A workforce which has the right to unionize may be the only way to force business to reset its thinking and operations.

In other words, if a business’s profits rely on paying wages which can’t support a worker, the business model isn’t legitimate. Unions may be the only means to make this clear to businesses.

Something needs to give soon, because this kind of scenario will continue — a clueless business thinking it must hire anybody at less than living wages, to work in conditions which may not be safe for either employees or customers.

The Youngsville mother of two was taken aback at the offer since she was only trying to go inside to get the food that was left out of her order after going through the drive-thru a first time. The lobby was closed, so she went back to the drive-thru window to get the order straightened out.

Then she learned why the lobby was closed.

“The manager told me, ‘I’m sorry. I can’t open the lobby because no one wants to work,’” Picou said. “And then she asked if I wanted a job. She said they’d hire anyone at this point.”

Imagine thinking a fully-staffed indoor fast food lobby is necessary in the middle of a pandemic, instead of creating a safer alternative.

Waiting for those slack-bottomed academic types to nod their heads vigorously in affirmation as they wipe the fast food mung off their faces.

You’ll notice that young mother in that article didn’t jump at the offer.

Goodbye, American Dream: The Unaffordability of American Life

My oldest sent me a text this past weekend:

Also houses down here are going for 1.5x value. [Friend] put an offer in at 200k for house selling for 160k and it ended up selling for 240k. There’s no way it’ll appraise that high but EVERY house is selling like that.

Folks in big coastal metro areas will laugh at these prices, but until recently $160,000 bought a 900-1200 square foot home, three bedrooms and two bathrooms, a basement and a two-car garage in a suburban setting here in Michigan. At this price one wouldn’t find a brand new home but one between 10 to 50 years old, with a medium sized suburban lot. If one was really lucky, the house would be move-in ready, the yard would be fenced, and there might be a shed in the backyard for the lawn mower.

A young professional earning $80 to $100,000 a year could afford this and a family and still have a tiny bit left over to put in retirement savings.

But it’s a stretch at $200,000, and absolutely out of their range at $240,000. They may not even have the 20-25% down payment for this larger price, and the housing market has tightened so quickly they certainly haven’t been able to come up with an additional $20 to $40,000 to put down.

Wall Street Journal reported last week that as much as a third of single-family residential housing is now being snapped up by investors.

Big foreign investment firms that buy office buildings, hotels and shopping centers around the world have a new favorite real-estate play: single-family homes in American suburbs.

These institutions are partnering with U.S. housing companies to buy or build rental homes by the thousands. In suburban neighborhoods near cities such as Atlanta, Las Vegas and Phoenix, blocks of families are sending monthly rent checks to ventures backed by Canadian pension funds, European insurers, and Asian or Middle Eastern government-run funds.

The overseas investors are following in the footsteps of many big U.S. investment firms and pension funds, which started buying single-family homes on a large scale in the aftermath of the financial crisis.

This may well explain the huge jump in prices over the last 12-18 months.

The situation is so bad it’s become a joke on TikTok and Twitter:

Speculation is doing to residential property what it did to oil prices before June 2008 when Congress passed legislation requiring an increase from 10% to 30% margin on options. Oil prices then dropped greatly, but not enough fast enough to prevent economic Jenga – many mortgages failed because homeowners had to choose between a tank of gas to get to work or making their house payment.

~ ~ ~

Now imagine the frustration of a prospective house buyer like [Friend] above. They’re a two-career household with a small family, which means they have car payments, childcare expenses which likely exceed car payments, and student loans they’ll be paying down for at least another decade if they are trying to juggle all these expenses.

They’ve scrimped and saved, kept their lifestyle minimal – not hard to do if you’ve had to weigh going to the movies on a date night against the cost of a babysitter and movie tickets – and they’ve amassed enough cash to put down 20% on a house and been pre-approved for a mortgage between $120,000 and $160,000. The higher end would be a push for them but sometimes the right house is a little pricier.

And then the dream for which they’ve scrimped and saved is gone in a heartbeat. As soon as they see the house on market they bid but they couldn’t counteroffer enough money fast enough and it’s gone.

Even in a pandemic with so many people out of work, the right house is gone.

It’s probably been sold to a speculator who will put it up for rent at a price which is the same as [Friend]’s mortgage payment would have been, but at that price there’s no room to save any extra money.

And that’s what it’s like in the Midwest. What’s it like in more densely-populated coastal states?

How do young people who are competing for jobs on a national basis, earning pay which doesn’t adjust all that much for location, buy a home and attain the American Dream?

They’re giving up children to do this, we can see that by the flat to falling birth rates.

A major one. The National Bureau of Economic Research says that the largest component of child-rearing costs is housing. And the cost of housing in America has skyrocketed. The median U.S. home in 1953 cost $18,080, or about $177,000 in today’s inflation-adjusted dollars. Today, the median home price is $301,000. Young people who cannot afford homes or even a two-bedroom apartment are less inclined to marry and to have children. One 2014 study published in the Journal of Public Economics explicitly linked housing costs to fertility, suggesting that for every $10,000 jump in housing values, fertility among nonowners fell 2.4 percent. Economists also point to the fact that the fertility rate has fallen every year since 2007, and suggest that the Great Recession compelled many Millennials to put off child-rearing for years. “What we learned from the Great Recession is that every 1 percentage point increase in the unemployment rate reduces births by 1 percent,” said Wellesley College economics professor Phil Levine.

And in places like the greater San Francisco area they go homeless, living in their vehicles because they can’t afford rent *if* there’s rental housing available.

~ ~ ~

One solution to this mess is reducing student loan burdens. Getting tens of millions of young people out from underneath $50,000 and a decade or more of payments would free them to have children and/or buy a home.

I hesitate to say they may also save for retirement but it’s possible they’re not able to until they are out from under their student loans.

This problem may explain why so many young people have jumped at online trading apps like Robinhood, causing increased volatility in the stock market. They can get in with very little money, get out quickly, and do it all over again rapidly. It offers them a chance to increase their asset value though it does nothing for the overall stock market while compromising their personal data privacy.

But putting some portion of their meager savings in the stock market isn’t a solution — it’s far too risky, too easily gamed (hah, GameStop, get it?). It’s not a prudent approach to funding necessities.

Getting out from under student loan debt, though, would be a doable help with very little downside.

~ ~ ~

Removing at least part of student loan debt from younger consumers’ shoulders will act as an economic stimulus, too. Those who are able to end their loan payments will be able to spend more of their income on expenses they’ve deferred in addition to housing.

Employment should rise as demand increases, and a tighter employment market will help boost some if not all wages.

Which brings us to the section of the market which may not benefit directly from canceling student debt. Workers who make minimum wage or are employed in tipped hourly jobs can’t afford to buy the average home in the U.S.; they are struggling to pay rent let alone save a down payment. Many of them are students.

Do the math:

Minimum federal wage $7.25  x  40 hour week  x  52 weeks  =  $15,080 a year.

That’s nowhere near enough to make a payment on the median home priced at $301,000. It’s not enough for a tiny dump of a house at one-third of median price.

The equation above already contains numerous generous assumptions: the employee makes 1) minimum federal wage, 2) at a full-time job, 3) for the entire year. For most minimum wage workers, at least one of these three points doesn’t apply. Most employers who hire minimum wage workers avoid paying unemployment taxes by employing workers less than full time, which means a minimum wage worker must work two jobs (or more) to make $15,080.

Forget about it if the worker holds down a tipped hourly job; while in some cases tips can be quite good, the base wage in at least 16 states is $2.13 an hour. On a bad day it may cost a worker more to show up than they make if they pay for any form of transportation besides shoe leather or a bicycle.

The minimum wage must be raised if roughly 1.8 million Americans have any chance at saving a down payment on a house, let alone buying one. And if businesses aren’t already increasing wages now during pandemic market conditions, they’re not likely to do so unless they’re forced to by law.

~ ~ ~

Canceling a big chunk of student loan debt and raising the minimum wage will still not be enough to help tens of millions of Americans afford to buy their own home.

Once these folks have more disposable income and increase demand on the housing market, speculators will swamp the market even more so than they are right now.

(Domestic policy aside, it’s a marvelous way to ratchet up class conflict by locking out a couple generations of potential homebuyers if a hostile country’s sovereign fund was looking to both invest and destabilize the U.S. at the same time.)

Canada’s domestic housing policy encourages home owner occupancy of single family homes; speculative investment is far less than it is in the U.S. It hasn’t solved their housing market problems — Toronto housing is incredibly expensive — but it does reduce competition for homes.

There must be some form of legislation which reduces market demand by speculators so that the only participants in the single-family home market are single families.

There should be some limitation on speculation for multi-family housing so that rental properties remain affordable. Eliminating overseas buyers or funds is one possibility.

~ ~ ~

We’ll hear all kinds of caterwauling about how unfair it is that some students will have all their debt paid for them by canceling $50,000  while they had to pay for all their student’s education.

Bah. They can suck it up.

This month I finished shelling out a total of $200,000 for two kids to go to college. This doesn’t include what I’ve paid for their cell phone, health care insurance, and for the vehicles and auto insurance they’ve needed.

$200K covered tuition, books, fees and some of the housing and food for one kid on a half ride to a private school, and a kid at a Big 10 public university. Both kids worked throughout their four-year programs and paid for their own gasoline and rent off campus, along with some sundries.

Because of this investment in them I’ve got to come up with income for another seven-plus years to pay for my health care, but at least my kids have a fighting chance right now that most of their cohort don’t have. They don’t need to live at home with me to scrimp and save. They can move out out state and chase a better job.

But even with this investment in both of my kids it will take years for them to save enough to make a down payment on a home and have a 6-month cushion in the bank.

I don’t resent the fact they don’t have school loans which might be canceled. What I resent is that they don’t have the kind of world I had as a young adult, where if one worked hard they could make enough money to get ahead and expect a better life. (I do resent having to pay through the nose, five to ten times over what I paid for college, but that’s another matter.)

If housing prices jump 20-60% almost overnight, my kids don’t have that chance. They can’t expect their friends to uniformly have that chance, either, as [Friend]’s situation demonstrates.

If their entire cohort is stifled by student loan debt, wages stagnant for decades, and competition for housing from speculation, even steep parental investment isn’t enough to help them tread water.

And if all of their cohort of 20-somethings are stuck in the same boat, the entire economy is deeply skewed and screwed. Whatever assessment analysts are making of the stock market and the economy is manipulated by this iceberg of frozen, frustrated demand which cannot remain in stasis forever.

Something has to give.

We can start with canceling $50,000 student debt, increasing the minimum wage to $15 an hour, and eliminating overseas speculation from the housing market while limiting single-family homes to sales between occupants and their heirs.

MMT and Mainstream Economics

Posts in this series. This post begins with links to all posts in this series.

In The Deficit Myth Stephanie Kelton explains in lay terms the fundamental ideas of Modern Monetary Theory and shows that they can be used to organize a economy that works for everyone. Throughout this series I have occasionally pointed to ways that MMT differs from mainstream economics. In this post I will try to get those ideas organized.

1. Elements of Mainstream Economics.

Let’s start with this quote from the J.W. Mason review of the book:

But in my view it’s better—both more accurate and more productive—to see [MMT] as a body of arguments within an older Keynesian tradition of economics. Contrary to the sense you might get from both supporters and detractors, it’s not a crystalline logical structure where, if you remove one piece, the whole thing collapses. Rather, like most emerging bodies of thought, it’s a ramshackle assemblage of parts built at different times for different purposes, tied together with loose solder of association and inference rather than tight bonds of deduction.

The boldfaced part of this sounds to me like a fair description of mainstream economics. We can see some of the assumptions and axioms of mainstream economics in this list by Harvard economist and textbook author N. Gregory Mankiw of ten things economists agree about. The link is a good refresher course in introductory economics.

One crucial assumption is that rational people think at the margin. By “rational” Mankiw means “systematically and purposefully doing the best you can to achieve your objectives.” [1] This is a reference to marginal utility theory, invented by the mathematician William Stanley Jevons around 1870. Jevons’ book is premised on the utilitarianism of Jeremy Bentham. [2] Marginal thinking pervades mainstream economics. [3]

As an example, consider the notion of Pareto Optimality, invented by Vilfred Pareto, another early economist with a STEM background. The idea is that we add up all the individual utilities of all the members of a society at a point in time and get a total. If we change some policy, it will affect the individual utilities. If the new policy makes some people better off and doesn’t make anyone worse off, we approve the policy.

So, for example, suppose a corporation has excess cash. It could distribute the money to shareholders or it could give raises to all the workers who created the excess. Either way is fine under Pareto Optimality. In the real world, the money goes to the shareholders, and the workers are rightly hostile about their stagnant wages. If you don’t like this as a normative principle, you’ll really despise Kaldor-Hicks Optimality.

Other things that went into the early stages of economic theory are based on conditions at the time. That’s why we see the word “markets’ taking a central place. No one thinks that markets of today bear any resemblance to the markets known to Jevons or Adam Smith. It’s also why commodity money, like gold, has a central place, even though the US has only offered fiat money for decades. And it’s one reason we have this mystic reverence for capital and capital accumulation, which we have been taught was the engine of our current prosperity. This reading of history obscures the roles of slavery, government give-aways of land and mineral rights to the wealthy, and the misery of the recessions that unbridled capitalism created.

We have completely forgotten why we have these ideas. We don’t realize that we are centering the ideas of Jeremy Bentham. We never ask why we should prioritize maximizing utility for each individual, or ask ourselves what the balance is between the utility of the day, the decade, or the nation or our children might be. We forget the role of enslavement in the accumulation of capital, and deny the role of government. We ignore the damage capitalism has done to hundreds of millions of us over our history. We don’t question the need for more and more capital accumulation to push the economy where we want it to go. We don’t even ask what ends we want the economy to fulfill. We think and act like we are still on the gold standard.

I realize that many mainstream economists are more or less conscious of all this. But this is the thinking that dominates in our political discourse about the economy. All our politicians, most reporters and pundits (and all right-wing reporters and pundits), and most of us, think and act as if in essentials the “economy” is the same today as it was 150 years ago.

There is a strong tendency in mainstream economics to treat the status quo as if it were the result of the operations of natural laws. This tendency is illustrated in first part of this post.

2. MMT as an alternative.

MMT proceeds from a completely different place. It has no roots in philosophy. It seems to me that MMT is in the tradition of Pragmatism, the American philosophy of Charles Peirce, William James and John Dewey. [4] MMT starts with questions: what is money, and how does it work in our economy? There is no normative principle at work. MMT theorists proceed empirically, studying the way we use money throughout our economy. Money is a thing, and we need to understand its nature and its use. A big part of The Deficit Myth is devoted to examining these questions.

Separate and apart from this inquiry, we need to ask ourselves what we think makes for a good society. This inquiry isn’t about money or the economy, but about our goals. [5] In the US we make these decisions democratically. [6] We elect leaders by majority rule, and we lean on them to legislate and enforce our preferred policies. MMT shows that we can have legislative policies that support our overall desires. That claim, that we can have the things we want, is the real lesson of The Deficit Myth.

Of course, MMT doesn’t attempt to overthrow the entire edifice constructed by mainstream economics. Pragmatic theory says that we only change what we have to as our understanding improves. This means, for example, that ideas formed from an examination of data about other parts of the economy are not necessarily overturned by MMT. But even so, the ideas of MMT are a tool for examining the entire structure.

Conclusion.

Both political parties agree that our society can’t have what we want an need because there is no money, so we must suffer the status quo. Speaker Pelosi tells us she will impose PAY-GO. Joe Biden’s adviser Ted Kaufman says that we can’t do anything because “When we get in, the pantry is going to be bare.” In practice, this means we can only have whatever the richest people think is best for us. It’s not true. Speaking personally, it makes me angry when I see it in practice, long lines at food banks, people forced to risk their health to earn enough to eat, lead-ridden water systems in Flint and elsewhere, to name a few.

We need politicians who can read Kelton’s book. Those politicians need advisers who have studied the expanding literature of MMT. Mainstream economics is a dead end for our nation, and it will take the rich down with the rest of us as the planet catches fire and we suffer one horrible disaster after another.

Note: this is the last post in this series. Please feel free to use the comments to ask any questions or comment on any aspects of MMT.
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[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] I don’t qualify as rational under this definition. My objectives are rarely systematic, and often I’m not conscious of them. They change from time to time based on my understanding of possibilities and probabilities, as well as contacts with my fellow humans directly and through books. The closer people are to me, the more they have the ability to influence my objectives. Many of the systematic efforts I’ve made failed and others have to be realigned with new and different objectives. And it’s absurd to think that most of my everyday purchases are made with some objective in mind beyond passing fancies. I’m too lazy to change things unless I have to, so often I stay with one system when another would be cheaper and better. And so on.

[2] Jevons’ book, Principles of Economics (1871), is available to read online. It’s an effort to put Bentham’s theories of utilitarianism into the form of a calculus of pleasure and pain. This is from the Preface to the Second Edition:

As to Bentham’s ideas, they are adopted as the starting-point of the theory given in this work, and are quoted at the beginning of chapter ii.

[3] I look at these ideas in several posts, here among others.

[4] I give a short primer on Pragmatism in three posts, here, here, and here.

[5] This question is beyond this series, but I can offer something on the edge of philosophical as a starting place: The Needs Of The Soul, a short essay by Simone Weil. Or listen to a podcast by Partially Examined Life, episode 250.

[6] This is not the place to discuss the problems with our democracy, which I acknowledge are great.

Reviews of The Deficit Myth

Posts in this series
The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation
Reflections On The Deficit Myth
The National Debt Is Soooooo Big
The Wonkish Myth Of Crowding Out
MMT On International Trade
Social Security And Other Entitlements

The last two chapters of Stephanie Kelton’s The Deficit Myth are focused on the real problems facing our economy and steps we can take to deal with them. These chapters show that thinking along the lines of Modern Monetary Theory is consistent with the goals of progressives, and that MMT can be applied to support working people and our society.

In this post, I look at some of the reviews of the book. I’ll start with this one from the Wall Street Journal by John H. Cochrane. [1] Cochrane begins with a complaint: what is MMT, it’s so confusing. Then he claims he wanted to learn logic and evidence supporting MMT. Maybe a professional economist shouldn’t look for technical descriptions in a book written for the general public. He then spins out a collection of weird stuff (she praises Kennedy for helping unions!) and misreadings (she doesn’t cite peer-reviewed papers, ignoring the footnotes).

He admits that the government can print money to meet its needs. He understands Kelton’s insistence that the real constraint is inflation. But how will we know if there is slack in the economy or if we’ll get terrible inflation, he asks? He likes the concept of the Non-Accelerating Inflationary Rate of Unemployment. Kelton rejects NAIRU on the grounds that there is no such thing. Ignoring her reasoning, he sneers at her conclusion that NAIRU is a “… doctrine that relies on human suffering to fight inflation.” Here’s a chart showing the top-line unemployment rate from FRED:.

The gray bars represent recessions, most of which were caused by the Fed to fight inflation. The result is increased unemployment, which is solid evidence that Kelton is right.

He tries to make actual arguments:

“Taxes are there to create a demand for government currency.” This is a deep truth, which goes back to Adam Smith. Soaking up extra money with fiscal surpluses is, in fact, the ultimate control over inflation. But then arithmetic fails her. To avoid inflation, all the new money must eventually be soaked up in taxes. The new spending, then, is ultimately paid for with those taxes.

Well, not really. That’s why we have a national debt: it’s accounts for the actual wealth created by the government. We can raise or lower it as needed using taxes, all for the rational purpose of managing inflation. [2] There’s much more in the same vein, but that’s the flavor.

Here’s a generally laudatory review from Hans Desplain, a professor of political economy at Nichols College, in the London School of Economics blog. Despain recognizes that this is a book for lay people, and isn’t concerned about Kelton’s failure to address the ontology of money. [3]

Here’s one from the Mises Institute. The writer, Robert P. Murphy, is a senior fellow at the Mises Institute, a group focused on Austrian economics and libertarian political economy. He agrees with much of what Kelton says. His primary objection is this:

… [R]egardless of what happens to the “price level,” monetary inflation transfers real resources away from the private sector and into the hands of political officials.

“Monetary inflation” in this sentence means spending money without regard to tax revenues. Murphy’s concern is the violation of the principle that the private sector should allocate all resources, and any effort by the government to decide what society needs or wants is just bad. Another way to read this is that MMT is agnostic about government action. Kelton advocates forcefully for government action to amke people’s lives better. Murphy is on principle opposed to government spending. This is one of Kelton’s central points. We need to debate the allocation of resources as a society, and we do that through our democratically elected officials.

One final artical, this one by J. W. Mason in The American Prospect. Mason is an Assistant Professor of Economics at the John Jay College at CUNY. Based on his affiliations, he seems to be a progressive.

He points out that MMT is new, and therefore isn’t a polished structure of thought. It’s a “… ramshackle assemblage of parts built at different times for different purposes, tied together with loose solder of association and inference rather than tight bonds of deduction.” He accurately summarizes Kelton’s thesis and her solutions.

Mason disagrees with Kelton’s contention that all money comes from the government. He points out correctly that banks create money, and that Kelton does not address this point. I discussed a paper Kelton wrote on the nature of money here. She argues that money is a debt relationship, a matter of balance sheet entries, and discusses the superiority of this view to other theories. As Kelton says, quoting Randy Wray, “[m]oney is privately created when one party is willing to go into debt and another is willing to hold that debt….” [4]

In footnote 1 here, I briefly discussed the issue of bank-created money in MMT, based on this article by MMT economist Bill Mitchell. Mitchell says that banks do create money, but at the same time they create a liability, so the balance sheets of the bank and the borrower don’t change from the creation of money. When a government creates money it creates a liability on its books, and the consumer gets an asset. As I see it, the difference is that the government can decide to hold the liability forever while banks expect to be repaid promptly, which destroys the money created by the loan. Banks do lose money on loans, leaving the money in circulation, but that’s not supposed to happen. That’s one difference.

The second difference is the the government controls bank lending. It can limit or prevent banks from creating money through regulation of required reserves. Third, obviously the government has to consider bank-created money when addressing inflation. Finally, bank lending does not help in troubled times, when people don’t want to borrow. Right now, for example, personal savings are at a 60-year high, as people who still have jobe pay down debt and put off large purchases.

The ontology of money is way beyond the scope of Kelton’s book, but I do agree that at least bank-created money must be incorporated into the MMT framework more thoroughly. Edited to add this: Scott Fullwiller, an MMT economist at UKMC, commented below saying that MMT already incorporates bank-created money thoroughly. Fullwiller refers us to this post by Brian Romanchuk replying to Mason’s review.

Mason points out that this and other issues he raises don’t detract from the central insights of The Deficit Myth, saying that Kelton’s insights can stand alone and serve as a guide for action. This is a very useful review.

This is just a small sample, but it reveals one crucial thing: some serious people have begun to grapple with the actual arguments made by MMT theorists, and others will ignore the challenge MMT poses to conventional thinking, and defend their prejudices to the bitter ugly end.

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[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] Here’s the link; it’s behind a paywall, but I got it from my library.

[2] Cochrane’s Wikipedia page has a section titled Main Contributions. It states his research interests, and then offers this assessment, loosely translated as “snicker”:

That is a standard general equilibrium logic, but many financial economists do not view it as a priority and prefer to explain prices without an ultimate reference to choices of households and firms. Similarly, many macroeconomists choose not to worry about asset prices.

In this vein, Cochrane’s work has been to document some empirical patterns and offer some potential explanation….

[3] The ontology of money is a real thing. You could look it up.

[4] Fun question: is bitcoin money? Who is on the opposite side of the balance sheet?

Hurricane COVID-19: GOP’s Fiscal Restraint Pisses into the Winds

[NB: Check the byline, thanks. /~Rayne]

Before going further, let’s take a look at the weather by the numbers.

COVID-19 confirmed cases: 5,064,072 — new cases confirmed at a rate of 55,000/day

COVID-19 deaths: 162,623 — new deaths at a rate of 1,000/day

Unemployed: 31.3 million people were receiving some form of unemployment compensation as of Friday.

Evictions: 23 million people nationwide are at risk of being evicted or are now at some state of eviction.

This is Hurricane COVID-19, continuing to wreak havoc not on any one or two coastal states but the entire nation.

Imagine an enormous hurricane wiping out the lives of more than 162,000 Americans spread across every state.

Imagine a storm so big it destroys housing for AT LEAST 23 million Americans — at least, because this number may not include the affected family members.

Imagine a hurricane wiping out food for millions of children, many of whom rely on getting at least one meal a day from school.

This is not a single three-day blow with a limited range and a one-time demand for economic resources.

This ongoing hurricane will require everything we can throw at it for the next 12 to 18 months — until a vaccine and/or drug therapy can be developed, tested, approved, and distributed.

Concerns about fiscal restraint have NO place in the face of this rolling disaster. This is not a situation where reflexive conservative retrenchment to anti-tax small government will work.

Reflexive conservative decision-making has already failed this nation.

This includes stupidity like Sen. Ted Cruz’s nasty sarcasm on Twitter demeaning the most vulnerable in our society, the working poor and the dwindling middle class, tweeting, “Why be so cheap? Give everyone $1 million a day, every day, forever. And three soy lattes a day. And a foot massage.

Say that to the faces of families who’ve lost love ones, families wondering how they’ll keep a roof over their heads, or parents who wonder how they’ll feed their kids today and tomorrow — honest, hard-working Americans who’ve lost their jobs only because Trump and his political party have failed to take action necessary to stem COVID-19.

~ ~ ~

We’ve had more than a day to digest the White House’s feeble attempt to change the subject and redirect attention away from the GOP-led Senate’s refusal to meet to hammer out a rational economic aid package.

The Democratic Party-led House made a good faith effort to project what Americans would need based on conditions they saw and passed the HEROES Act in mid-May.

It has been sitting, waiting for the GOP-led Senate to catch up; it took TEN WEEKS to come up with a counter in the form of the HEALS Act, offering only a third of the aid HEROES Act offered while stuffed with gifts to donors and spending pork.

Democrats have been able to see this pandemic for what it is, with clear eyes. If they’ve failed it’s for lack of imagination when it comes to the obstinacy of the opposition party when it comes to facing reality.

If Democrats have failed it’s for assuming Republicans would hit bottom and eventually do the right thing.

But they haven’t. The Republicans have ensured that aid to date has been corrupted with lack of oversight and accountability, doled out to political supporters.

~ ~ ~

The White House knows things are going to get worse. They are not only unwilling to deal with the challenges accumulating over the last two months under Hurricane COVID-19, they are unwilling to plan ahead for a worsening crisis they have fomented.

Instead, inadequately qualified chief of staff Mark Meadows thinks more PR will fix the COVID crisis.

The administration has refused to work toward an effective national strategy though one is possible as other countries have proven. Their refusal is deepening the emergency.

Instead of working in good faith, they let their Bronx Colors boss spew more lies — Trump told reporters last evening that the Democrats had called, “…They’d like to get together” — when the truth is neither Nancy Pelosi or Chuck Schumer called.

Today Mnuchin indicated he wants a deal:

… Treasury Secretary Steven Mnuchin, on a conference call with governors on Monday, said action by Congress remains the administration’s “first choice.”

Mnuchin and Vice President Mike Pence urged the governors to reach out to congressional leaders and push for legislation, according to audio of the call obtained by AP. …

Mnuchin needs to get on the phone and call his GOP peeps in the Senate, not state governors. The governors are over a barrel and need the money the House Democrats have already allocated $915 billion in direct federal aid to state and local government in the HEROES Act they passed more than two months ago.

It’s NOT the Democrats who are the problem and the states know it.

Jesus Christ, what a bunch of hacks working for this administration. They just don’t get it; they are unable to lead in the face of this massive ongoing catastrophe.

~ ~ ~

This is the threshold of an economic depression the likes of which this country has never seen. We don’t have anywhere near as much agriculture as we had in the 1930s during the Great Depression; many families simply eked by if they could keep their farms (though they did have different forms of federal assistance from a more competent government).

We are a service economy now and people can’t afford services which aren’t absolutely essential. They can’t afford the risk of services which put them in contact with other people too closely. Re-opening businesses like gyms and hair salons and restaurants doesn’t make the risks go away, nor does it change the fact most of us have had to reduce our spending because we may or have already lost our jobs.

Invest in the care of the Americans who need it. They will plow that money back into the economy. It keeps the rest of the economy moving until a vaccine or a drug therapy is available.

Failing to do this simple thing — take care of the American people by ensuring domestic Tranquility, providing for the common defense of their homes, promoting the general Welfare until we can beat back the disease — is like failing to heed the forecast of this massive Hurricane COVID-19 once again.

Parody of NOAA Hurricane Dorian map marked in Sharpie by Trump. Used here under Fair Use.

This is an open thread.

Social Security And Other Entitlements

Posts in this series
The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation
Reflections On The Deficit Myth
The National Debt Is Soooooo Big
The Wonkish Myth Of Crowding Out
MMT On International Trade

Chapter 6 of Stephanie Kelton’s The Deficit Myth discusses the perennial conservative effort to cut entitlements. [1] Kelton defines entitlements as statutory determinations that people who meet certain criteria are entitled to certain defined payments. She discusses several of the most widely used entitlements, Social Security, Social Security Disability, Medicare, Medicaid, SNAP and welfare.

Kelton describes the history of these programs, beginning with Franklin Delano Roosevelt. FDR saw Social Security as the first step towards a comprehensive array of programs that would insure that the citizens would be truly free. He specifically chose to fund Social Security with a tax, so that people would feel ownership, making it harder for politicians to vote to take away those benefits. it worked. People are firmly attached to the program. The money is put into a “trust fund”, which holds it in the form of special non-negotiable US Treasury notes.

Politicians, goaded by their rich donors, try to weasel around this powerful attachment. They start with basic debt hysteria: the Trust Funds are Going Bust! [2] They base this on the reports of the Trustees of the trust funds, who are directed to estimate the date on which the Social Security Trust Fund will run out of money. If that happens. under current law, Social Security payments will be cut. They then claim that all they want to do is put Social Security on a firm financial footing. But they have to act now. Now! And somehow the only possible actions are benefit cuts and tax hikes for working people.

This worked the last time the deficit hawks of both parties tried it. Under Ronald Reagan both parties agreed to cut benefits, raise the retirement age, and increase FICA taxes. This increase in tax revenues was then used as cover for tax cuts for the filthy rich. The effort was led by Alan Greenspan, an Ayn Rand devotee, and no friend of working people.

Medicare is also funded with specific taxes which are put into a special Treasury account, and has a board of trustees. But there’s a big difference. Under Medicare statutes, the Treasury is directed to make all payments, regardless of the state of the trusts. So, every report of the Trustees says that Medicare is just fine. We could do the same for Social Security, and all other entitlements. That simple change would solve the problem. That’s what Kelton recommends, and it makes perfect sense under Modern Monetary Theory.

Liberals offer other solutions. We could raise the cap on the wages subject to FICA taxes. We could have a millionaires tax that would fund Social Security and other entitlements. We could impose a tiny tax on securities transactions and direct the funds to the various trust funds. I don’t think Kelton is opposed to funding social programs with dedicated taxes, and I don’t think she would object to any of these ideas or to the idea that paying dedicated taxes adds to a sense of ownership. The issue is that people think it must be this way. It doesn’t. MMT teaches us that we have the money to do what we want to do.

Taking the pressure off of funding sources does two things. It relieves the anxiety of the older people, the group Enzi is trying to frighten. But it also frees us to focus on the actual needs of the future and to plan for them. As people get older, their needs change. They need more medical care, more help at home, more and different kinds of medicine, different furniture, different living arrangements, and so on. Their desires change, too. They want to do more travel, to spend more time with their spread-out families, and to enjoy more varied kinds of entertainment, restaurants, and other kinds of get-togethers.

Kelton, writing before the pandemic hit, calls for the expansion of Social Security. She points out that it was originally intended as one leg of a “three-legged stool” of retirement planning. The other two were personal savings and pensions from employment. The latter two are disappearing.

Before the pandemic, 40% of us didn’t have savings of $400 for emergencies. Once upon a time, employers provided defined-benefit plans, which promised to pay retirees a specific amount based on pay and length of service. [3] Most of those plans are gone. Kelton cites a particularly ugly case where McDonnell-Douglas closed a plant in Tulsa and terminated a defined-benefit plan in part because so many workers were approaching retirement age when they could collect a full pension with terrible results for older workers. [4] Congress established the Pension Benefit Guarantee Corporation to cover a portion of the lost benefits when companies terminate plans. The benefits guaranteed are absurdly low.

Employers now establish defined-contribution plans like 401(k)s. The track record of these plans shows that they are an inadequate substitute for most people. They are expensive, as members pay administration costs as well as management fees to Wall Street. The national average all-in fee is 2.2%. The Center for American Progress estimates that “… the typical American worker who earns a median salary starting at age 25 will pay about $138,336 in 401(k) fees over their lifetime.” Median account sizes vary substantially by age. For those over 50, the median is around $66K. The average is much higher, around 200K, showing that these plans primarily benefit the wealthy.

Taken together, these facts show a critical need for a stronger Social Security system, not the cuts sought by conservatives.

Other entitlement programs are under attack from the deficit hawks. There are constant efforts to make it more difficult to enroll in Medicaid, like work requirements or co-pays. Fifteen states haven’t implemented Medicaid expansion as permitted by Obamacare; Missouri just added a constitutional amendment requiring implementation. SNAP benefits are under constant assault by Republicans in the name of frugality, as if these $68 billion in a 4$ trillion budget was meaningful compared to the needs of the population served.

Kelton’s point is that we have the money. We need the will to establish priorities that match our moral values, and a Congress that will legislate those priorities.

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[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] It’s one of the more bizarre conservative demands. Social Security is a crucial element of the financial lives of a very large number of older Americans; approximately 40% of retirees would have incomes near or below the poverty line without it. That’s about 21 million voters who are more likely to vote for conservatives. To protect themselves from voter anger, conservatives explicitly call for the “I’ve got mine, screw you Jack” approach: their proposals always exempt today’s older crowd, as if the younger citizens won’t notice that their parents are safe but they aren’t and neither will their parents.

[2] We are currently getting a heavy dose of this from Republicans as they try to avoid passing a pandemic rescue bill that will primarily benefit ordinary Americans. Here’s Senator Mike Enzi, from the metropolis of Wyoming, where he ran a shoe store, insisting that Social Security is the problem. Kelton has a story about Enzi. P. 41 et seq.

[3] The strange locution “defined benefit plan” comes from the Employee Retirement Income Security Act of 1974. Its counterpart is defined contribution plans, which don’t promise any specific payment on retirement. It just requires the employer to pay a specific amount into some kind of plan with whatever vesting rights and investment possibilities the employer chooses.

[4] McDonnell-Douglas eventually merged with Boeing. Here’s a story connecting its executives to the 737 Max disaster.

GOP Senate Walked Out of DC for a Reason: Voter Foreclosure, 2020 Edition [UPDATE-1]

[NB: Check the byline, thanks!  Updates at bottom of post. /~Rayne]

Come on, media. You’re still screwing up coverage of BOTH the pandemic economy and the general election.

The bothsides-ism the media clings to so desperately as a norm does not work when one party consistently makes bad choices, or no choices with the same effect as bad choices. There is no bothsides when one side acts in bad faith.

Think about it: making no choice is a choice. Taking no action is a choice. The outcome from no-choice/no-action can be very bad; making no decision to rescue a drowning person yields the victim’s death.

In the case of the stimulus and aid bill, it’s NOT the Democrats in Congress who are the impediment. Stop portraying that way.

Start digging into the why behind the White House and the GOP senators resistance to the economic aid in the bill — money which would be plowed back into the economy and ultimately into their donors’ pockets as profits.

Sen. Elizabeth Warren has a bead on one reason: a portion of the investor class wants real estate values to crash so they can sweep in and buy distressed properties.

… The Wall Street Journal recently reported that investors are “preparing for what they believe could be a once-in-a generation opportunity to buy distressed real-estate assets at bargain prices.” This profiteering is far from “once-in-a-generation” though: It’s straight out of private equity’s playbook during the 2008 financial crisis. We all know what happened then: Homeowners targeted by predatory mortgages lost their homes to foreclosure, and private equity swept in to buy those homes at depressed prices. Communities of color were hit fastest and hardest. Just a handful of years after Black homeownership hit its highest point, the devastating waves of foreclosures wiped out nearly all of the growth in Black homeownership since the Fair Housing Act repealed Jim Crow redlining in 1968. …

“Once-in-a generation opportunity”? Meaning an even more dramatic plummet of property values compared to the 2008 crash a dozen years ago?

We can see the crash coming with an impending 30-40 million Americans on the verge of eviction but neither the White House nor the GOP senate feel a sense of urgency. This is NOT bothsides but one, and one which is and has been comfortable with vulture capitalism.

One side led by a man who claimed to be a billionaire based in no small part on his real estate development business.

This no-choice/no-action is intended to both evict roughly 12% of Americans from their homes, forcing their relocation or homelessness, while a small segment of the investor class reaps benefits.

The rest of the investor class which relies on stability in order for consumption to remain constant or increase won’t benefit. Their values will drop off as they did in 2008 during the crash.

Why are the White House and the GOP senate proceeding as if it doesn’t matter if they come to an agreement on the aid and economic stimulus package?

We’ve seen this before, though; the difference was that the crash hadn’t yet been fully set in motion as it is this time with the pandemic.

~ ~ ~

In 2008 with an evenly split Senate, the 110th Congress faffed around from June to early September, happy with irrationally high oil price which were hurting consumers badly while paying inadequate attention to investment banking and credit markets. Congress threw crappy legislation at the problem of subprime mortgages while the financial sector floundered.

When consumers had to choose between paying for gasoline to get to work or paying their crappy adjustable rate mortgage, they paid for the former rather than the latter hoping to catch up on the latter at a later date. But for many consumers there wasn’t a later date — they were foreclosed upon and evicted.

The Housing and Economic Recovery Act of 2008 passed in late July 2008 did far too little, far too late, and for the wrong end of the economic food chain.

Congress should have learned from this experience. Some of the GOP senators were in office when the 2008 crash happened. They know better.

In September 2008 as the crash loomed days away, a GOP county party chairman in Michigan admitted to a reporter that the GOP was going to use a list of foreclosed homes and addresses to “make sure people aren’t voting from those addresses.

The Obama campaign and the Democratic National Committee sued the GOP; the Republican National Committee, Michigan Republican Party, and Macomb County Republican Party settled, acknowledging the existence of an illegal scheme by the Republicans to use mortgage foreclosure lists to deny foreclosure victims their right to vote.

At the time the Department of Justice’s Civil Rights Division told Congress it would monitor for the use of foreclosure records to contest voters’ ballots though it wouldn’t dispatch DOJ personnel to the polls.

But everything is different under the Trump administration. The GOP may try to use foreclosure records this election because they may be able to get away with it after setting a foreclosure crisis in motion.

The DOJ’s Civil Rights Division is helmed by a Trump appointee; can we be certain they will see the use of foreclosure records the way the Civil Rights Division did in 2008?

A Trump appointee may be the U.S. attorney for each state most at risk — they may be more loyal to Trump and the GOP than to the law.

A Trump appointee may be the judge overseeing any case brought to them about voter foreclosure.

And the GOP is desperate, more so than it was in 2008 because both the White House and the Senate are now at risk if a blue wave sweeps them as a rejection of Trump and his policies.

They’re planning ahead for something, because the GOP has amassed a $20 million legal fund for the election. For what do they need such a big legal fee kitty?

It’s right there in their selection of no-choice/no-action toward economic aid and stimulus.

The entire GOP, from Trump on through the GOP congressional caucus, want to foreclose on Americans’ homes and then their votes.

~ ~ ~

If the media was to stop bothsides-ing their reporting, was to stop treating the GOP’s bad faith as if it were legitimate, the GOP might reverse its position.

Might — don’t hold your breath, though.

For some Americans it’s already too late. They are already behind on rent or mortgage payments, and/or their household isn’t getting enough to eat. Innocent children are suffering for this. Their parents feel compelled to send them to schools which can’t handle COVID-19 conditions because it may mean a meal for their kids they might not get at home.

But the GOP continues to walk away from doing what it takes to ensure American families get the care they need, let alone that the public is able to safely ride out the time between now and an effective vaccine while socially distanced and masked.

The GOP senate caucus has chosen since May to load up their bill with funding for military equipment the public can’t eat or use to pay their mortgage, and let protections against evictions expire without replacement.

The reason is evident in the results, and the media needs to do a better job of holding the one party accountable for them.

Why isn’t there protection against evictions?

Because the GOP — from White House to the Senate — wants evictions and foreclosures.

Why isn’t there financial aid for Americans who have lost their jobs, are behind on their rent, need food?

Because the GOP wants these particular Americans to suffer enough that they are disenfranchised.

Why doesn’t the GOP save the person from drowning?

In the absence of acting to reach for their hand and pull them from the water, we can only assume it’s because the GOP wants the flailing victim dead.

The media needs to stop bothsides journalism and get the GOP on the record. Ask them why they are clinging to funding military spending instead of financial and food aid, why the GOP isn’t preventing evictions and foreclosures with a moratorium.

Ask the GOP whether they are going to attempt to foreclose on voters to save Trump’s ass this November.

.

UPDATE-1 — 08-AUG-2020 12:25 P.M. EDT —

Three lies in three minutes. The lie about COVID-19 was bad enough on a day when over 1200 Americans died of the disease. The other two lies though…the GOP senate hadn’t budged yesterday. These two issues, both unemployment benefits and an eviction moratorium, can’t be resolved with an executive order which he doesn’t even claim he’ll try to use.

 

Call it what it is: gaslighting the American public.

I don’t know why his Bedminster course members are willing to pay hundreds of thousands for memberships so they can be gaslighted in person, but rich people do all kinds of stupid shit.

.

This is an open thread.

Three Things: Look Over There, Not at Trump’s Failures [UPDATE-1]

[NB: Updates will appear at the bottom of this post. /~Rayne]

Trump’s Thursday morning tweet stirred up people more than his average tweets do — which is saying a lot since his average tweets are pretty annoying.

But this one crossed a line by suggesting a potential violation of the Constitution.

This tweet could be taken in isolation, but it really shouldn’t be. There were other things which Trump wanted us to ignore so he lobbed a massive turd in the punch bowl.

From what was he trying to redirect our attention?

~ 3 ~

You probably already know these two facts about COVID-19:

— The U.S. passed the 150,000 benchmark this week; Americans are 23% of the total COVID-19 deaths globally;

— Herman Cain, business man, Tea Party activist, and 2016 GOP presidential candidate died of COVID-19 today after more than a month in ICU. Cain had attended Trump’s Tulsa rally and did not wear a mask.

All these deaths including Herman Cain’s are due to Donald Trump’s gross negligence and malfeasance.

A Vanity Fair article published today also suggests that Trump did nothing about COVID-19 because it initially impacted blue states most heavily.

In other words, Trump committed and continues to commit political genocide.

Herman Cain was collateral damage.

Is it possible that Trump had been informed of Cain’s death before the public was notified, and wanted to get out in front before the public focused heavily on Cain’s death by COVID-19?

~ 2 ~

Economic data released Thursday showed a dramatic -10% drop in quarterly GDP, equivalent to -32.9% annualized rate. It’s the worst drop ever recorded in U.S. GDP.

The unemployment rate tracks with this plummet, with 47.2% Americans unemployed as of the end of June.

None of this had to happen. It was entirely preventable had Trump dealt effectively with COVID-19 beginning in Jan-Feb but killing off blue state voters and blaming their governors was more important to him for his re-election prospects than protecting the country’s economic well being.

~ 1 ~

After multiple repeated attempts to delay or obstruct their release, the Ghislaine Maxwell papers were released as ordered by Judge Loretta Preska on Thursday evening.

Papers can be found via this link to Courtlistener.

Courthouse News’ Adam Klasfeld made a first pass through the documents and filed a report.

In two separate tweets, Klasfeld noted the documents are not entirely new material.

… Multiple documents in the #MaxwellFiles data dump tonight are either old documents or previously released, making the rounds as though new. …

… Some old documents have nuggets of newly unsealed information contained within them, but the files themselves are being rediscovered as though new. …

Also noted: Maxwell lied to the court.

There will be more analysis and more bullshit thrown in the air by the White House and proxies to obscure details in the papers apart from content further compromising former president Bill Clinton and other Democrats like former governor Bill Richardson. You can bet those points will be boosted to fuzz the links between Trump, Mar-a-Lago, Trump’s lawyer Alan Dershowitz, Jeffrey Epstein, and Ghislaine Maxwell.

Some of the obscuring may already have begun with Trump’s fascistic tweet.

~ 0 ~

Trump doesn’t have the power to delay elections. We went all through this back in April when it came up. What should happen now — and we should look for it and insist on it — is that journalists should get every Republican on record about Trump’s election delay tweet.

We as citizens should be asking them as our congressional representatives where they stand on the election delay suggested by Trump, since Congress and not the Executive Branch has the power to delay the election.

We should also check with our state election officials since they can mess with the conduct of the elections. Recall after delaying their primary because of COVID-19, Kentucky shut down all but one voting place for its primary in the most populated portion of Louisville, attributing the change to pandemic safety.

States could do this for the general election which will already have been affected by the U.S. Postal Service’s Trump-crony slow down of first class mail.

Work on this now before the tangerine hellbeast in the White House tweets out something outrageous to throw us off our mission to ensure a safe, secure, and timely general election.

This is an open thread.

UPDATE — 10:00 A.M. ET —

Hearing now underway this morning:

NIAID Director Dr. Fauci along with CDC Director Dr. Redfield & HHS ADM Giroir will appear before Select Committee on COVID Oversight beginning at 9:00am ET to discuss the urgent need for a National Strategy to contain COVID-19.

Live stream at https://youtu.be/YkP1t_2u5B0

Joe Biden must be watching the hearing:

Republicans are doing their best to whitewash Trump’s failures — nauseating, I must say. I do feel for Rep. Walorski (Republican, IN-02) who is trying to discourage anti-vax propaganda with her line of questioning, might be the only GOP questioning of late which hasn’t been intended to prop up Trump.

MMT on International Trade

Posts in this series
The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation
Reflections On The Deficit Myth
The National Debt Is Soooooo Big
The Wonkish Myth Of Crowding Out

Chapter 5 of Stephanie Kelton’s The Deficit Myth takes up international trade. Trump thinks the US is losing at trade simply because we import a lot more than we export. He promised to bring manufacturing jobs back to the US. This won him votes in many states where corporations closed US operations and moved production offshore. But it’s a lot more complicated than just the dollars. I’m only going to address a few of the points Kelton raises.

1. Trade has good and bad results

It’s true that for a number of years the US has run a trade deficit with the rest of the world. We import more than we export. This means we send other people dollars and they send us stuff we want, like oil, computers, cars and cars with computers in them that run on oil. That seems like a good trade.

Many poorer countries do not produce enough food, drugs and advanced equipment to meet their needs. [1] Their currencies are weak, so they need dollars to pay for those shortfalls. Giving them dollars for their goods is a partial fix. Also, it means their workers have jobs and can hope for better lives.

It’s a fact that we have lost a lot of good jobs, those with benefits and middle-class pay, and replaced them with poor jobs. Supposedly we get lower prices as a result, though people buying iPhones might wonder. However, most of the benefits from trade go to the richest among us, corporations and their top executives and the lawyers, accountants, and consultants hired to minimize their costs, taxes, personnel, and unions. [2]

Maybe someday foreign holders of US dollars will want stuff themselves, instead of dollars. They might buy stuff from us. If that means increasing our exports of goods and services, then it seems good. If they buy up our land, buildings and equipment, that might not be so good. If they buy our oil and export it to their countries, we might not like that. Its complicated.

2. What about the money?

This seems to bother Trump a lot. He seems to think sending dollars abroad is bad, even if we get useful stuff in exchange, which sounds stupid when you write it down. One real problem is that money spent abroad doesn’t circulate in the US. Your spending is someone else’s income. If American Airlines buys jets from AirBus, that’s money not spent in the US, and less money for Boeing employees to spend here. The result is lowered economic activity here. Kelton has an answer for this.

Let’s start with the two-bucket accounting system from the previous post. Deficit spending by the Federal Government creates a surplus in the hands of Everybody Else. So, if the FG spends $100 and taxes back $90, then FG has a negative balance of $10. EE has a surplus of $10, which is available to increase demand for goods and services.

Let’s now split the EE bucket into two pieces: US and Other Countries. Now suppose people in the US spend $5 on goat cheese from France, part of OC, and French people spend $3 on US movies. The US surplus drops by $5, and increases by $3, for a loss of $2, leaving $8. Those 2 dollars won’t be available to buy stuff in the US, reducing economic activity.

Trump’s solution to this problem is tariffs on imports from OC. Tariffs are taxes. They put money in the FG bucket, and remove it from the funds available to support domestic demand. Suppose the FG imposes $1 in tariffs on imports. The US bucket drops by $1, to $7. If the problem was reduction of demand, that’s perverse.

The real solution is more deficit spending by the FG on US goods. If the FG spends another $2 buying US goods, those two dollars add to the US surplus, returning it to $10. Problem solved, especially for people who like Crottin de Chavignol. [3]

3. It’s the jobs, not the dollars.

The real problem is not the dollars, but the good jobs that disappeared. Kelton doesn’t say so, but in fact sending jobs overseas is the result of corporate decisions, made solely in search of profits. The federal government does not explicitly support this corporate decision, but its policies do not discourage shipping jobs overseas, and in many ways support offshoring of jobs. For example, modern trade treaties contain provisions designed to protect US businesses in foreign countries, and the government is often willing to use force to protect US assets abroad which can cost the lives of our military people to protect the interests of the rich.

Mainstream economists have always praised trade deals as benefiting Americans, despite the fact that the benefits of trade for the most part flow to the rich while the burdens fall mostly on the poor and the middle class. The middle class is shrinking. Part of that is due to the loss of well-paying jobs. The response of Congress has been worthlesss, mostly job retraining and minimal recompense. [2]

Kelton once again offers the job guarantee as a solution. The proposals for legislation contemplate that all jobs will pay at least $15 per hour with benefits, which will keep people reasonably safe. But these are not an adequate replacement for good middle-class jobs. We need more effort put into solving that problem.

I’ll offer one idea. The pharmaceutical business model is to raise the price of their drugs at least annually, so as to increase profits, and thus the price of the stock. As part of the jobs guarantee, the federal government could build plants to manufacture drugs and compete directly. There would be no problem doing this with generic drugs, but the government could also do it with other drugs bearing extortionate prices, like insulin and coronavirus treatments like Remdesivir. Also see this.

The expertise is out there, and the government can buy it. People can be trained to operate these plants, and make an enormous contribution to their fellow citizens. I see this an an illustration of one of Kelton’s normative policy assumptions: the point of the economy is to make our lives better. This is a political choice. It’s not a choice we should abandon to the rich and powerful.

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[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1]Kelton knows this is a problem. In short, it’s the result of a number of factors, including weak or corrupt governance. The Washington Consensus perpetuates this problem. With better governance and careful attention to some of the ideas in this book, that problem might be slowly corrected. See p.141 et seq.

[2] This entire problem was the result of a consensus among economists on the benefits of trade, a consensus that supported the desires of capitalists and giant corporations. Both liberal and conservative economists and politicians joined the chorus of assent. I discuss the impact of this disaster in four posts you can find here, beginning with The Problem Of The Liberal Elites. TL;dr: liberal elites squandered their influence pushing a bad economic theory. We have no reason to trust their judgment after the damage their advice created.

[3] Alternatively we could try to reduce the trade deficit. Kelton discusses this, but it raises several complicated issues, and I’ll just refer interested readers to pp. 135-6.

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