Reviewing Piketty (again)

Michael Roberts Blog

I have just submitted a 6000 word review of Thomas Piketty’s book, Capital in the 21st century, to Historical Materialism journal.  Under HM rules,I cannot publish this anywhere else (unless they reject it) and so it may not see the light of day for a while.  It may not be the most perceptive of the now hundreds of reviews that have been published, but it is certainly vying to be the longest!

Anyway, here is a flavour of what is in the review from the abstract submitted.

Thomas Piketty’s magnum opus on the accumulation and distribution of wealth over the last 200 years has been greeted by the biggest noise from the great and good inmainstream economics (and by the heterodox ) of any economics book, possibly ever. Piketty shows compellingly that inequality of wealth and income is inherent in capitalism and it is getting worse. Most important, he…

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School «reform» is about class, not classrooms

Sam Smith's Essays


Unanswered in all the noise about «education reform» is why, over the past decade, America’s establishment has become so obsessed with controlling public education, a complete reversal of two centuries of American faith in locally controlled schools.

There are answers that the op-eds will give you, such as the need to compete in the global marketplace, but this is pretty weak stuff and not the raw material for major presidential policy under two administrations.

There are answers that can be found in the general shift in government towards data as a worthy substitute, or delaying tactic, for action. As long as you’re assessing something you don’t actually have to do anything about it.

Then there’s the milking of the cash cow of testing. For example, the Washington Post now gets the bulk of its profits from the Kaplan education division, profits bolstered by the paper’s constant editorial…

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The politics of depression: Mark Fisher on mental health and class confidence


Writer and critic Mark Fisher caused a stir recently with his article Good For Nothing in Occupied Times, where he wrote searingly about the experience of depression in our neoliberal capitalist age. Anindya Bhattacharyya spoke to him about the politics of mental health, magical voluntarism and how to struggle against this.

I remember a few years ago turning on the television and watching Deal or No Deal for the first time. It took me a little while to work out what was going on – my sanity somehow putting up resistance to the grim realisation that this was a game of pure luck decked out in all manner of supernatural garbage. I was unsurprised to later hear about the Cosmic ordering wish cult that the show’s host Noel Edmonds peddles.

Deal or No Deal throws randomly selected amounts of money at randomly selected people. Yet the entire message the show insists…

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The Story of Hope and Faith the Government Doesn’t Want You to Hear

Saturday, 26 April 2014 09:19 By Rivera Sun, Truthout | Op-Ed

2014 0426sun(Photo Illustration: Jared Rodriguez / t r u t h o u t)

A sea of candles, a street of soft-lit faces, the swell of a thousand voices singing, the unstoppable surge of tears, an ache of yearning in the heart, the possibility of change, and the sense that as all falls into darkness, the people will rise.

This is the story of nonviolent struggle . . . a story that has changed the world time and again . . . the story the government doesn’t want you to hear.

The government and mass media do their best to suppress this story. The cameras swing to the angry kid dressed in black and the provocations he launches at the police. The images flash scenes of chaos during the crackdown. The news does not report the countless hours of quiet boycotts, uneventful sit-ins, or midnight sign-painting sessions in preparation for tomorrow’s picket lines. The sudden grace of students taking wing from tyranny, walking out on classes and injustice is rarely mediatized.

Few television stations air footage of tedious city council meetings, where people witness the birth of change.

The suspicion of agent provocateurs, the cynical snort that so-and-so is a paid troll, the sighs about infuriating individuals, the teeth-gritting over long-winded speakers, complaints about self-serving power grabbers, the frustration when one person’s anger holds the whole room hostage; these are also truths in the world of nonviolent struggle.

But equally true are the quiet thoughts and subtle emotions that remain locked inside the rib cage. There are the moments when Spirit steps inside the room, and the presence of every person’s faith is palpable. There are times when the lineage of nonviolent struggle comes close enough to touch: Rosa Parks, Cesar Chavez, Dr. King, Gandhi, Aung San Suu Kyi and many countless more.

There is the tired laughter of longtime activists who have run the gauntlet of these experiences. There is the organizer’s stare that pins people as they scramble for excuses to avoid a meeting. There are the head-shaking recollections of victories, losses and uncomfortable defeats. There are the silent, shadowed looks of those who raced in to save the day, but lost the battle. There is the pain that never leaves the heart when an endeavor fails, and the guilty feeling when one’s eyes sweep over a map and sees a community that lies abandoned.

There are the midnight decompression rants after hot-tempered meetings. There are those moments when the jaw drops in disbelief at court injustices, police brutality and politicians’ machinations. There is the cynical snort of the young activist who has seen it all – and the subtle disdain of the old-timer who knows the kid has not. There are the green recruits being punched in the guts for their faith in equality and justice. There are the watery old eyes of grandmothers who refuse to lie down and die.

The world of nonviolent struggle holds libraries of experience: good times, full of laughter, song, community and purpose; tough times when the thrill of rebellion gives way to the fear of repression. There are times when one narrowly avoids the pitfalls of righteousness, other times when one topples blindly in. A moment arrives when you have never felt so alive; then comes another when you wish for death. Your heart breaks. It heals. Hope rises, then falls. It feels as though nothing can stop the movement; then everything does.

Meanwhile, the neighbors are watching television.

Don’t they understand? Life and death are at stake. Extinction looms! There is no epic greater than this. Homer defers to the story of our times. The Ramayana, with its demons and demigods, the Greek epics, Shakespeare’s work – not one can compete. Soap operas have nothing on reality.

But the kids stare glassy-eyed at the screens. Teenagers eat popcorn and watch thrillers. Parents flick through the reruns. Life passes them by.

Loneliness and sadness touch the hearts of all people. Fear of the unknown mingles with the uncertainty of change. There is nothing glossy about nonviolent struggle. No movie music plays in the background. There are no commercial breaks to the intensity of reality. The fallen heroes do not stand up and take bows.

Nonviolent struggle is gritty. It’s real. It is a world the 6 o’clock news fails to adequately report. The neighbors next door frown at the screen, watching the ten-second clip of the angry protester flash again and again. Why do they do it? the wife complains to the husband. He yells at the kid on the screen to get a job.

The kid has a job, you want to tell him. He has a job, and he’s doing it. The black-clad stereotype provoking the cops is keeping his neighbors from changing the world. He’s fueling the propaganda machine. The government may even pay him to do it. He may be sincere. Regardless, he still plays his role. The people keep watching the screen.

Over and over his story repeats. His message of anger and violence drowns out the other . . . the one that entrenched power doesn’t want you to hear.

There is a sea of candles. There is a street of soft-lit faces. There are a thousand voices singing. There are tears in your eyes and a stranger’s hand in your own. The impossible looms, but you refuse to give up. This is the world of nonviolent struggle.

Copyright, Truthout. May not be reprinted without permission.


What is Capitalism? By Peter Staudenmaier


In ancient myths of paradise, people lived in boundless plenty without work or want. The fruits of the earth were freely available to all and no labor was necessary. If life under capitalism is a far cry from paradise, it is nonetheless beholden to its own myths of work, prosperity, and progress. Understanding what the world was like before the rise of capitalism, and envisioning a different world beyond the capitalist reality we live in today, calls for an examination of its myths and the structures on which those myths are built.

Capitalism usually presents itself as an economic system, a way of organizing the production and distribution of goods and services, of wealth and welfare, of material gain and loss. But capitalism is more than an economic system, it is a form of society: A form of society in which the economic has taken precedence over the social. Under capitalism, economic necessities become more important than basic social relationships – finding a job and keeping it can be more pressing than creating a fulfilling life together with friends and companions and loved ones; figuring out how to pay the rent or maintain the mortgage or make sure there’s food on the table wins out over exploring what we have in common; worrying about who’ll take care of us when we’re too old to work gets in the way of taking care of each other here and now. What is best for me individually becomes more vital than what is best for the communities I am part of, than what is best for all of us.

When we find ourselves thinking this way, it is not because we are inherently selfish beings. That notion of natural self-interest and acquisitiveness is one of the major myths of modern capitalism. Human societies have evolved myriad ways of arranging their economic interactions, many of them based squarely on communal rather than individual standards of wellbeing. They aren’t always liberatory, of course, but they do indicate that capitalism’s peculiar preoccupation with concern for oneself over others is not built in to human nature. And most people don’t get all that far under capitalism, economically speaking, no matter how much we focus on our own needs and wants. Though the free market continually holds out the promise of a better life for all, the promise generally becomes reality for only a few.

Viewed in this context, capitalism is by no means historically inevitable. It isn’t part of the fabric of the universe and it isn’t a consequence of the laws of physics. It is not an innate attribute of human existence. It is not, as it pretends to be, the natural state of economic affairs. Capitalism is a social artifact, something created and maintained by people, by our actions and inactions, whether deliberate or inadvertent, whether malevolent or well-meaning. It arose in particular places at specific times under distinctive conditions. It has a history, though admirers of capitalism sometimes like to portray it as timeless. Like everything historical, it has both beginnings and an end. If we made it, we can unmake it.

That means understanding how it functions. To do this we can draw on both theory and practice, incorporating the lessons learned from critical analyses of the basic structures of capitalism as well as the legacies of organized opposition to those structures. We can make use of the insights generated by radical social movements throughout the long history of emancipatory struggles against capitalism. Many of these struggles were led by workers in class-based movements resisting the growing power of capital. Others were made up of peasants or artisans, and some were community-based movements defending popular institutions from encroachment by an advancing capitalist system. The participants in these struggles disagreed about how to make sense of the seemingly senseless society formed by the development of capitalism, but we can distill a series of key concepts from their experiences.

From the perspective of these oppositional movements and their assessment of a world transformed according to capitalist imperatives, the core features of capitalism as an economic system and as a society can be characterized as follows:

Commodity production and exchange. Commodities are the fundamental unit of capitalist societies, as the cell is the fundamental unit of the body. Under full-fledged capitalism a commodity can be just about anything – something useful and necessary, something harmful and pointless, something rare or common, something intangible and ephemeral. What makes an item or an idea or an action a commodity is not some intrinsic quality of the thing itself, but its status as an object of exchange. In its simplest form, a commodity is a good or a service that is produced in order to be exchanged. It is valuable not primarily for what it is but for what price it can fetch when bought or sold, what can be gained by exchanging it for other commodities.

Markets. The mechanism through which commodities are exchanged is the market, a forum in which buyers and sellers compete for advantage. Historically markets were subject to social constraints: typically located in circumscribed areas, limited to certain times of the day or week or year, tempered by ethical stipulations. Many human societies assigned markets a deliberately subordinate position in communal life and delineated clear boundaries within which markets were allowed to operate. This changed with the ascendance of capitalism. In an ideal capitalist world, markets and their competitive dynamic no longer heed social limitations but are ubiquitous and unfettered; they are everywhere all the time. Though championed for their supposed efficiency, markets are frequently models of extraordinary waste and inefficiency. In their capitalist form markets have a tendency to permeate all relationships and all dimensions of social life, extending far beyond the immediate economic realm and turning neighbors into rivals, colleagues into competitors, allies into adversaries.

Property as private investment. Through the processes of commodity production and market exchange, more and more aspects of human life and the natural world are reduced to assets that can and must be owned. Wealth comes from the earth and its creatures and from the work of human hands and minds, and there are countless forms in which it can be created, discovered, and shared. Capitalism imposes one form as paramount: private ownership of resources. In contemporary industrial capitalist societies this type of private property can take the shape of entrepreneurs who own a business, shareholders or investors who own a corporation, landlords who own real estate, speculators who own stock or trade debt and credit and abstract commodities existing only in notional form. The driving force behind this kind of ownership is profit.

Wage labor. Most people in capitalist contexts don’t own assets that earn profit, and have to sell their time and effort to others in order to make a living. Selling your ability to work in exchange for a paycheck is known as wage labor, the component of capitalism with which most of us are intimately familiar. A division of labor between groups of people doing different tasks is not peculiar to capitalism, but in combination with commodity production, the predominance of the market, and private ownership of economic resources, wage labor means that the people who actually produce the goods and services that keep the system running have little say in how the things they produce are made and distributed. Those decisions are normally the prerogative of owners, executives, and managers, whose directives are supposed to be carried out by workers. When the system works the way it is designed, products end up in the hands of consumers divorced from any connection with or knowledge of the producers or their conditions of work, from mass manufacturing to the provision of services.

On the basis of these intertwined core features, capitalism has achieved remarkable levels of economic innovation and equally remarkable levels of ecological and social destructiveness. What drives both its accomplishments and its devastation is a constant requirement for accumulation, for increasing returns on investment, for profits that can be put back into circulation in order to yield even greater profit. Ever-expanding material reward is the carrot that entices capitalist ambitions, accompanied by the stick of potential economic ruin. While its operations are baroquely complex and often inscrutable, its underlying principles are starkly straightforward. This accounts for capitalism’s conspicuous flexibility, the capacity to accommodate itself to widely different social and cultural contexts. It also accounts for the profoundly alienated relationships at the heart of capitalist society.

Because capitalism is built around recurrent crises, economic and otherwise, it has always sparked dissatisfaction and resistance. From anarchists to marxists, from cooperative movements to anti-colonial struggles, diverse groups and individuals have contested the regime of capital for generations. For those of us fundamentally opposed to capitalism, it is crucial to keep in mind the political ambivalence of discontent with capitalist norms. History is littered with false alternatives to an inhumane and unsustainable system. Stalinism, to choose one all too recognizable example, is not a compelling replacement for free market nostrums. Many populists and fascists also oppose capitalism, based often enough on the alluring but deceptive paradigm of hardworking producers versus parasitic financiers. There are numerous authoritarian and right-wing versions of anti-capitalist sentiment. We need to remember this if we don’t want to end up in a future that is even worse than the capitalist present. The challenge is to come up with a comprehensive critical analysis of what is wrong with capitalism and a plausible array of alternative social institutions that could supplant it.

A helpful step toward that goal is to ask questions without easy answers. What is it about capitalism that we oppose? Its outsize impact on our lives, our character, our bodies, our planet? Its privileging of multinational corporations and millionaires? Its cosmopolitanism and its corrosive effect on traditional mores? Or is it alienation and exploitation that we reject? And what are we working toward? A more smoothly functioning liberal state that will provide for all? Local self-sufficiency and regional autarky? Planning bureaucracies and legislated equality? Environmental enterprise and reduced consumption? Neighborhood markets and family farms and mom and pop stores? Or do we want a genuinely anti-capitalist alternative, structurally antagonistic to hierarchy and domination, to profit and property, whatever their scale or scope?

Beyond decisive questions like these, there are many other problems to be thought through and worked out. Capitalism is not as all-encompassing as it appears; non-capitalist relationships exist within and alongside the dominant economy and society. And as central as production is to economic endeavors, reproduction and care are what make our lives possible, while the pleasure of personal and collective creation for its own sake, regardless of utility, can make our lives worth living. Indeed the very notion of «the economy» as a separate sphere of social life is itself a legacy of the historical emergence of capitalism. Today’s shifting affiliations linking capitalism to white supremacy, to patriarchy, to racial and gender and other hierarchies are not an implacable constant but always in flux, with oppressive as well as subversive potentials. The crushing weight of capital distorts any image of a life after capitalism, but the possibilities of transcending its bitter strictures are entirely real. They are ours to explore, ours to construct, and ours to share.


The Cost of Code Red By John Mauldin


April 26, 2014

Speculative Bubbles

(It is especially important to read the opening quotes this week. They set up the theme in the proper context.)

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

– Ludwig von Mises

“No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future.”

– Ludwig von Mises

“[Central banks are at] serious risk of exhausting the policy room for manoeuver over time.”

– Jaime Caruana, General Manager of the Bank for International Settlements

“The gap between the models in the world of monetary policymaking is now wider than at any time since the 1930s.”

– Benjamin Friedman, William Joseph Maier Professor of Political Economy, Harvard

To listen to most of the heads of the world’s central banks, things are going along swimmingly. The dogmatic majority exude a great deal of confidence in their ability to manage their economies through whatever crisis may present itself. (Raghuram Rajan, the sober-minded head of the Reserve Bank of India, is a notable exception.)

However, there is reason to believe that there have been major policy mistakes made by central banks – and will be more of them – that will lead to dislocations in the markets – all types of markets. And it’s not just the usual anti-central bank curmudgeon types (among whose number I have been counted, quite justifiably) who are worried. Sources within the central bank community are worried, too, which should give thoughtful observers of the market cause for concern.

Too often we as investors (and economists) are like the generals who are always fighting the last war. We look at bank balance sheets (except those of Europe and China), corporate balance sheets, sovereign bond spreads and yields, and say it isn’t likely that we will repeat this mistakes which led to 2008. And I smile and say, “You are absolutely right; we are not going to repeat those mistakes. We learned our lessons. Now we are going to make entirely new mistakes.” And while the root cause of the problems, then and now, may be the same – central bank policy – the outcome will be somewhat different. But a crisis by any other name will still be uncomfortable.

If you look at some of the recent statements from the Bank for International Settlements, you should come away with a view much more cautious than the optimistic one that is bandied about in the media today. In fact, to listen to the former chief economist of the BIS, we should all be quite worried.

I am of course referring to Bill White, who is one of my personal intellectual heroes. I hope to get to meet him someday. We have discussed some of his other papers, written in conjunction with the Dallas Federal Reserve, in past letters. He was clearly warning about imbalances and potential bubbles in 2007 and has generally been one of the most prescient observers of the global economy. The prestigious Swiss business newspaper Finanz und Wirtschaft did a far-reaching interview with him a few weeks ago, and I’ve taken the liberty to excerpt pieces that I think are very important. The excerpts run a few pages, but this is really essential reading. (The article is by Mehr zum Thema, and you can read the full piecehere.)

Speculative Bubbles

The headline for the interview is “I see speculative bubbles like in 2007.” As the interviewer rolls out the key questions, White warns of grave adverse effects of ultra-loose monetary policy:

William White is worried. The former chief economist of the Bank for International Settlements is highly skeptical of the ultra-loose monetary policy that most central banks are still pursuing. “It all feels like 2007, with equity markets overvalued and spreads in the bond markets extremely thin,” he warns.

Mr. White, all the major central banks have been running expansive monetary policies for more than five years now. Have you ever experienced anything like this?

The honest truth is no one has ever seen anything like this. Not even during the Great Depression in the Thirties has monetary policy been this loose. And if you look at the details of what these central banks are doing, it’s all very experimental. They are making it up as they go along. I am very worried about any kind of policies that have that nature.

But didn’t the extreme circumstances after the collapse of Lehman Brothers warrant these extreme measures?

Yes, absolutely. After Lehman, many markets just seized up. Central bankers rightly tried to maintain the basic functioning of the system. That was good crisis management. But in my career I have always distinguished between crisis prevention, crisis management, and crisis resolution. Today, the Fed still acts as if it was in crisis management. But we’re six years past that. They are essentially doing more than what they did right in the beginning. There is something fundamentally wrong with that. Plus, the Fed has moved to a completely different motivation. From the attempt to get the markets going again, they suddenly and explicitly started to inflate asset prices again. The aim is to make people feel richer, make them spend more, and have it all trickle down to get the economy going again. Frankly, I don’t think it works, and I think this is extremely dangerous.

So, the first quantitative easing in November 2008 was warranted?


But they should have stopped these kinds of policies long ago?

Yes. But here’s the problem. When you talk about crisis resolution, it’s about attacking the fundamental problems that got you into the trouble in the first place. And the fundamental problem we are still facing is excessive debt. Not excessive public debt, mind you, but excessive debt in the private and public sectors. To resolve that, you need restructurings and write-offs. That’s government policy, not central bank policy. Central banks can’t rescue insolvent institutions. All around the western world, and I include Japan, governments have resolutely failed to see that they bear the responsibility to deal with the underlying problems. With the ultraloose monetary policy, governments have no incentive to act. But if we don’t deal with this now, we will be in worse shape than before.

But wouldn’t large-scale debt write-offs hurt the banking sector again?

Absolutely. But you see, we have a lot of zombie companies and banks out there. That’s a particular worry in Europe, where the banking sector is just a continuous story of denial, denial and denial. With interest rates so low, banks just keep ever-greening everything, pretending all the money is still there. But the more you do that, the more you keep the zombies alive, they pull down the healthy parts of the economy. When you have made bad investments, and the money is gone, it’s much better to write it off and get fifty percent than to pretend it’s still there and end up getting nothing. So yes, we need more debt reduction and more recapitalization of the banking system. This is called facing up to reality.

Where do you see the most acute negative effects of this monetary policy?

The first thing I would worry about are asset prices. Every asset price you could think of is in very odd territory. Equity prices are extremely high if you at valuation measures such as Tobin’s Q or a Shiller-type normalized P/E. Risk-free bond rates are at enormously low levels, spreads are very low, you have all these funny things like covenant-lite loans again. It all looks and feels like 2007. And frankly, I think it’s worse than 2007, because then it was a problem of the developed economies. But in the past five years, all the emerging economies have imported our ultra-low policy rates and have seen their debt levels rise. The emerging economies have morphed from being a part of the solution to being a part of the problem.

Do you see outright bubbles in financial markets?

Yes, I do. Investors try to attribute the rising stock markets to good fundamentals. But I don’t buy that. People are caught up in the momentum of all the liquidity that is provided by the central banks. This is a liquidity-driven thing, not based on fundamentals.

So are we mostly seeing what the Fed has been doing since 1987 – provide liquidity and pump markets up again?

Absolutely. We just saw the last chapter of that long history. This is the last of a whole series of bubbles that have been blown. In the past, monetary policy has always succeeded in pulling up the economy. But each time, the Fed had to act more vigorously to achieve its results. So, logically, at a certain point, it won’t work anymore. Then we’ll be in big trouble. And we will have wasted many years in which we could have been following better policies that would have maintained growth in much more sustainable ways. Now, to make you feel better, I said the same in 1998, and I was way too early.

What about the moral hazard of all this?

The fact of the matter is that if you have had 25 years of central bank and government bailout whenever there was a problem, and the bankers come to appreciate that fact, then we are back in a world where the banks get all the profits, while the government socializes all the losses. Then it just gets worse and worse. So, in terms of curbing the financial system, my own sense is that all of the stuff that has been done until now, while very useful, Basel III and all that, is not going to be sufficient to deal with the moral hazard problem. I would have liked to see a return to limited banking, a return to private ownership, a return to people going to prison when they do bad things. Moral hazard is a real issue.

Do you have any indication that the Yellen Fed will be different than the Greenspan and Bernanke Fed?

Not really. The one person in the FOMC that was kicking up a real fuss about asset bubbles was Governor Jeremy Stein. Unfortunately, he has gone back to Harvard.

The markets seem to assume that the tapering will run very smoothly, though. Volatility, as measured by the Vix index, is low.

Don’t forget that the Vix was at [a] record low in 2007. All that liquidity raises the asset prices and lowers the cost of insurance. I see at least three possible scenarios how this will all work out. One is: Maybe all this monetary stuff will work perfectly. I don’t think this is likely, but I could be wrong. I have been wrong so many times before. So if it works, the long bond rates can go up slowly and smoothly, and the financial system will adapt nicely. But even against the backdrop of strengthening growth, we could still see a disorderly reaction in financial markets, which would then feed back to destroy the economic recovery.


We are such a long way away from normal long-term interest rates. Normal would be perhaps around four percent. Markets have a tendency to rush to the end point immediately. They overshoot. Keynes said in late Thirties that the long bond market could fluctuate at the wrong levels for decades. If fears of inflation suddenly re-appear, this can move interest rates quickly. Plus, there are other possible accidents. What about the fact that maybe most of the collateral you need for normal trading is all tied up now? What about the fact that the big investment dealers have got inventories that are 20 percent of what they were in 2007? When things start to move, the inventory for the market makers might not be there. That’s a particular worry in fields like corporate bonds, which can be quite illiquid to begin with. I’ve met so many people who are in the markets, thinking they are absolutely brilliantly smart, thinking they can get out in the right time. The problem is, they all think that. And when everyone races for the exit at the same time, we will have big problems. I’m not saying all of this will happen, but reasonable people should think about what could go wrong, even against a backdrop of faster growth.

And what is the third scenario?

The strengthening growth might be a mirage. And if it does not materialize, all those elevated prices will be way out of line of fundamentals.

Which of the major central banks runs the highest risk of something going seriously wrong?

At the moment what I am most worried about is Japan. I know there is an expression that the Japanese bond market is called the widowmaker. People have bet against it and lost money. The reason I worry now is that they are much further down the line even than the Americans. What is Abenomics really? As far as I see it, they print the money and tell people that there will be high inflation. But I don’t think it will work. The Japanese consumer will say prices are going up, but my wages won’t. Because they haven’t for years. So I am confronted with a real wage loss, and I have to hunker down. At the same time, financial markets might suddenly not want to hold Japanese Government Bonds anymore with a perspective of 2 percent inflation. This will end up being a double whammy, and Japan will just drop back into deflation. And now happens what Professor Peter Bernholz wrote in his latest book. Now we have a stagnating Japanese economy, tax revenues dropping like a stone, the deficit already at eight percent of GDP, debt at more than 200 percent and counting. I have no difficulty in seeing this thing tipping overnight into hyperinflation. If you go back into history, a lot of hyperinflations started with deflation.

Many people have warned of inflation in the past five years, but nothing has materialized. Isn’t the fear of inflation simply overblown?

One reason we don’t see inflation is because monetary policy is not working. The signals are not getting through. Consumers and corporates are not responding to the signals. We still have a disinflationary gap. There has been a huge increase in base money, but it has not translated into an increase in broader aggregates. And in Europe, the money supply is still shrinking. My worry is that at some point, people will look at this situation and lose confidence that stability will be maintained. If they do and they do start to fear inflation, that change in expectations can have very rapid effects.

More from the BIS

The Bank for International Settlements is known as the “central bankers’ central bank.” It hosts a meeting once a month for all the major central bankers to get together for an extravagant dinner and candid conversation. Surprisingly, there is been no tell-all book about these meetings by some retiring central banker. They take the code of “omertà” (embed) seriously.

Jaime Caruana, the General Manager of the BIS, recently stated that monetary institutions (central banks) are at “serious risk of exhausting the policy room for manoeuver over time.” He followed that statement with a very serious speech at the Harvard Kennedy School two weeks ago. Here is the abstract of the speech (emphasis mine):

This speech contrasts two explanatory views of what he characterizes as “the sluggish and uneven recovery from the global financial crisis of 2008-09.” One view points to a persistent shortfall of demand and the other to the specificities of a financial cycle-induced recession – the “shortfall of demand” vs. the “balance sheet” view. The speech summarizes each diagnosis [and]… then reviews evidence bearing on the two views and contrasts the policy prescriptions to be inferred from each view. The speech concludes that the balance sheet view provides a better overarching explanation of events. In terms of policy, the implication is that there has been too much emphasis since the crisis on stimulating demand and not enough on balance sheet repair and structural reforms to boost productivity. Looking forward, policy frameworks need to ensure that policies are more symmetrical over the financial cycle, so as to avoid the risks of entrenching instability and eventually running out of policy ammunition.

Coming from the head of the BIS, the statement I have highlighted is quite remarkable. He is basically saying (along with his predecessor, William White) that quantitative easing as it is currently practiced is highly problematical. We wasted the past five years by avoiding balance sheet repair and trying to stimulate demand. His analysis perfectly mirrors the one Jonathan Tepper and I laid out in our bookCode Red.

How Does the Economy Adjust to Asset Purchases?

In 2011 the Bank of England gave us a paper outlining what they expected to be the consequences of quantitative easing. Note that in the chart below they predict exactly what we have seen. Real (inflation-adjusted) asset prices rise in the initial phase. Nominal demand rises slowly, and there is a lagging effect on real GDP. But note what happens when a central bank begins to flatten out its asset purchases or what is called “broad money” in the graph: real asset prices begin to fall rather precipitously, and consumer price levels rise. I must confess that I look at the graph and scratch my head and go, “I can understand why you might want the first phase, but what in the name of the wide, wide world of sports are you going to do for policy adjustment in the second phase?” Clearly the central bankers thought this QE thing was a good idea, but from my seat in the back of the plane it seems like they are expecting a rather bumpy ride at some point in the future.

Let’s go to the quote in the BoE paper that explains this graph (emphasis mine):

The overall effect of asset purchases on the macroeconomy can be broken down into two stages: an initial ‘impact’ phase and an ‘adjustment’ phase, during which the stimulus from asset purchases works through the economy, as illustrated in Chart 1. As discussed above, in the impact phase, asset purchases change the composition of the portfolios held by the private sector, increasing holdings of broad money and decreasing those of medium and long-term gilts. But because gilts [gilts is the English term for bonds] and money are imperfect substitutes, this creates an initial imbalance. As asset portfolios are rebalanced, asset prices are bid up until equilibrium in money and asset markets is restored. This is reinforced by the signalling channel and the other effects of asset purchases already discussed, which may also act to raise asset prices. Through lower borrowing costs and higher wealth, asset prices then raise demand, which acts to push up the consumer price level.

[Quick note: I think Lacy Hunt thoroughly devastated the notion that there is a wealth effect and that rising asset prices affect demand in last week’s Outside the Box. Lacy gives us the results of numerous studies which show the theory to be wrong. Nevertheless, many economists and central bankers cling to the wealth effect like a shipwrecked sailor to a piece of wood on a stormy sea. Now back to the BoE.]In the adjustment phase, rising consumer and asset prices raise the demand for money balances and the supply of long-term assets. So the initial imbalance in money and asset markets shrinks, and real asset prices begin to fall back. The boost to demand therefore diminishes and the price level continues to increase but by smaller amounts. The whole process continues until the price level has risen sufficiently to restore real money balances, real asset prices and real output to their equilibrium levels. Thus, from a position of deficient demand, asset purchases should accelerate the return of the economy to equilibrium.

This is the theory under which central banks of the world are operating. Look at this rather cool chart prepared by my team (and specifically Worth Wray). The Fed (with a few notable exceptions on the FOMC) has been openly concerned about deflationary trends. They are purposely trying to induce a higher target inflation. The problem is, the inflation is only showing up in stock prices – and not just in large-cap equity markets but in all assets around the world that price off of the supposedly “risk-free” rate of return.

code red

I hope you get the main idea, because understanding this dynamic is absolutely critical for navigating what the Chairman of the South African Reserve Bank, Gill Marcus, is calling the next phase of the global financial crisis. Every asset price (yes, even and especially in emerging markets) that has been driven higher by unnaturally low interest rates, quantitative easing, and forward guidance must eventually fall back to earth as real interest rates eventually normalize.

Trickle-Down Monetary Policy

For all intents and purposes we have adopted a trickle-down monetary policy, one which manifestly does not work and has served only to enrich financial institutions and the already wealthy. Now I admit that I benefit from that, but it’s a false type of enrichment, since it has come at the expense of the general economy, which is where true wealth is created. I would rather have my business and investments based on something more stably productive, thank you very much.

Monetary policies implemented by central banks around the world are beginning to diverge in a major way. And don’t look now, but that sort of divergence almost always spells disaster for all or part of the global economy. Which is why Indian Central Bank Governor Rajan is pounding the table for more coordinated policies. He can see what is going to happen to cross-border capital flows and doesn’t appreciate being caught in the middle of the field of fire with hardly more than a small pistol to defend himself. And the central banks even smaller than his are bringing only a knife to the gunfight.

The Fed & BoE Are Heading for the Exits…

In the United States, Federal Reserve Chairwoman Janet Yellen is clearly signaling her interest – if not outright intent – to turn the Fed’s steady $10 billion “tapering” of its $55 billion/month quantitative easing program into a more formal exit strategy. The Fed is still actively expanding its balance sheet, but by a smaller amount after every FOMC meeting (so far)… and global markets are already nervously anticipating any move to sell QE-era assets or explicitly raise rates. Just like China’s slowdown (which we have written about extensively), the Fed’s eventual exit will be a global event with major implications for the rest of the world. And US rate normalization could drastically disrupt cross-border real interest rate differentials and trigger the strongest wave of emerging-market balance of payments crises since the 1930s.

In the United Kingdom, Bank of England Governor Mark Carney is carefully broadcasting his intent to hike rates before selling QE-era assets. According to his view, financial markets tend to respond rather mechanically to rate hikes, but unwinding the BoE’s bloated balance sheet could trigger a series of unintended and potentially destructive consequences. Delaying those asset sales indefinitely and leaning on rate targeting once more allows him to guide the BoE toward tightening without giving up the ability to rapidly reverse course if financial markets freeze. Then again, Carney may be making a massive, credibility-cracking mistake.

While the BoJ & ECB Are Just Getting Started

In Japan, Bank of Japan Governor Haruhiko Kuroda is resisting the equity market’s call for additional asset purchases as the Abe administration implements its national sales tax increase – precisely the same mistake that triggered Japan’s 1997 recession. As I have written repeatedly, Japan is the most leveraged government in the world, with a government debt-to-GDP ratio of more than 240%. Against the backdrop of a roughly $6 trillion economy, Japan needs to inflate away something like 150% to 200% of its current debt-to-GDP… that’s roughly $9 trillion to $12 trillion in today’s dollars.

Think about that for a moment. At some point I need to do a whole letter on this, but I seriously believe the Bank of Japan will print something on the order of $8 trillion (give or take) over the next six to ten years. In relative terms, this is the equivalent of the US Federal Reserve printing $32 trillion. To think this will have no impact on the world is simply to ignore how capital flows work. Japan is a seriously large economy with a seriously powerful central bank. This is not Greece or Argentina. This is going to do some damage.

I have no idea whether Japan’s BANG! moment is just around the corner or still several years off, but rest assured that Governor Kuroda and his colleagues at the Bank of Japan will respond to economic weakness with more… and more… and more easing over the coming years.

In the euro area, European Central Bank Chairman Mario Draghi – with unexpected support from his two voting colleagues from the German Bundesbank – is finally signaling that more quantitative easing may be on the way to lower painfully high exchange rates that constrain competitiveness and to raise worryingly low inflation rates that can precipitate a debt crisis by steepening debt-growth trajectories. This QE will be disguised under the rubric of fighting inflation, and all sorts of other euphemisms will be applied to it, but at the end of the day, Europe will have joined in an outright global currency war.

I don’t expect the Japanese and Europeans to engage in modest quantitative easing. Both central banks are getting ready to hit the panic button in response to too-low inflation, steepening debt trajectories, and inconveniently strong exchange rates.

While the Federal Reserve, European Central Bank, Swiss National Bank, Bank of England, and Bank of Japan have collectively grown their balance sheets to roughly $9 trillion today, the next wave of asset purchases could more than double that balance in relatively quick order.

This is what I mean by Code Red: frantic pounding on the central bank panic button that invites tit-for-tat retaliation around the world and especially by emerging-market central banks, leading to a DOUBLING of the assets shown in the chart below and a race to the bottom, as the “guardians” of the world’s primary currencies become their executioners.

The opportunity for a significant policy mistake from a major central bank is higher today than ever. I share Bill White’s concern about Japan. I worry about China and seriously hope they can keep their deleveraging and rebalancing under control, although I doubt that many parts of the world are ready for a China that only grows at 3 to 4% for the next five years. That will cause a serious adjustment in many business and government models.

It is time to hit the send button, but let me close with the point that was made graphically in the Bank of England’s chart back in the middle of the letter. Once central bank asset purchases cease, the BoE expects real asset prices to fall… a lot. You will notice that there is no scale on the vertical axis and no timeline along the bottom of the chart. No one really knows the timing. My friend Doug Kass has aninterview (subscribers only) in Barron’s this week, talking about how to handle what he sees as a bubble.

“Sell in May and go away” might be a very good adage to remember.

Amsterdam, Brussels, Geneva, San Diego, Rome, and Tuscany

I leave Tuesday night for Amsterdam to speak on Thursday afternoon for VBA Beleggingsprofessionals. There will be a debate-style format around the theme of “Are there any safe havens left in this volatile world?” I plan to write my letter from Amsterdam on Friday and then play tourist on Saturday in that delightful city full of wonderful museums. Then, if all goes well, I will rent a car and take a leisurely drive to Brussels through the countryside, something I have always wanted to do. I may try to get lost, at least for a few hours. Who knows what you might stumble on?

I will be speaking Monday night in Brussels for my good friend Geert Wellens of Econopolis Wealth Management before we fly to Geneva for another speech with his firm, and of course there will be the usual meetings with clients and friends. I find Geneva the most irrationally expensive city I travel to, and the current exchange rates don’t suggest I will find anything different this time.

I come back for a few days before heading to San Diego and my Strategic Investment Conference, cosponsored with Altegris. I have spent time with each of the speakers over the last few weeks, going over their topics, and I have to tell you, I am like a kid in a candy store, about as excited as I can get. This is going to be one incredible conference. You really want to make an effort to get there, but if you can’t, be sure to listen to the audio CDs.  You can get a discounted rate by purchasing prior to the conference.

The Dallas weather may be an analogy for the current economic environment. To look out my window is to see nothing but blue sky with puffy little clouds, and the temperature is perfect. My good friend and business partner Darrell Cain will be arriving in a little bit for a late lunch. We’ll go somewhere and sit outside and then move on to an early Dallas Mavericks game against the San Antonio Spurs. Contrary to expectations, the Mavs actually trounced the Spurs down in San Antonio last week. Of course the local fans would like to see that trend continue, but I would not encourage my readers to place any bets on the Mavericks’ winning the current playoff series.

I live only a few blocks from American Airlines Center, and so normally on such a beautiful day we would leisurely walk to the game. But the local weather aficionados are warning us that while we are at the game tornadoes and hail may appear, along with the attendant severe thunderstorms. That kind of thing can happen in Texas. Then again, it could all blow south of here. That sort of thing also happens.

So when I warn people of an impending potential central bank policy mistake, which would be the economic equivalent of tornadoes and hail storms, I also have to acknowledge that the whole thing could blow away and miss us entirely. I think someone once said that the role of economists is to make weathermen look good. Recently, 67 out of 67 economists said they expect interest rates to rise this year. We’ll review that prediction at the end of the year.

I’ve been interrupted while trying to finish this letter by daughter Tiffani, who is frantically trying to figure out how to buy tickets to get us to Italy (Tuscany) for the first part of June for a little vacation (along with a few friends who will be visiting). I am going to take advantage of being in Rome at the end of that trip, in order to spend a few days with my friend Christian Menegatti, the managing director of research for Roubini Global Economics. We will spend June 16-17  visiting with local businessmen, economists, central bankers, and politicians. Or that’s the plan. If you’d like to be part of that visit, drop me a note.

Finally I should note that my Canadian partners, Nicola Wealth Management, are opening a new office in Toronto. They will be having a special event there on May 8. If you’re in the area, you may want to check it out.

Have a great week, and make sure you take a little time to enjoy life. Avoid tornadoes.

Your hoping for a major upset analyst,

John Mauldin


Dardot-Laval, Για το νεοφιλελεύθερο υποκείμενο (συνέντευξη+κείμενο)

 Η κατασκευή ενός νεοφιλελεύθερου ατόμου 

sυνέντευξη του Πιερ Νταρντό και του Κριστιάν Λαβάλ

μετάφραση: Νικόλας Σεβαστάκης

Φράνσις Μπέικον, «Δεύτερη εκδοχή του ‘Πίνακα 1946′», 1971

Ισχυρίζεστε ότι ο νεοφιλελευθερισμός «πριν να είναι μια ιδεολογία ή μια οικονομική πολιτική είναι κυρίως και θεμελιωδώς μια ορθολογικότητα». Τι αποκαλείτε «ορθολογικότητα»;
Πιερ Νταρντό: Ο Φουκώ ορίζει την ορθολογικότητα της διακυβέρνησης ως μια κανονιστική λογική η οποία πρυτανεύει στη δραστηριότητα του κυβερνάν, με την έννοια της άμεσης αλλά επίσης της έμμεσης κυβέρνησης των ανθρώπων: της καθοδήγησής τους ώστε να φέρονται με ένα συγκεκριμένο τρόπο. Η ορθολογικότητα δεν είναι η άσκηση ενός εξαναγκασμού, μιας καταπίεσης. Από αυτή την άποψη, ο νεοφιλελευθερισμός δεν θα έπρεπε να ανάγεται μόνο στον τομέα της οικονομικής πολιτικής (οι ιδιωτικοποιήσεις, η απορρύθμιση), ούτε σε ένα καθορισμένο δόγμα (Φρήντμαν, Χάγιεκ) ούτε βεβαίως στους ηγέτες οι οποίοι προσηλυτίστηκαν στο δόγμα προς τα τέλη της δεκαετίας του ’70 (Ρήγκαν, Θάτσερ). Η νεοφιλελεύθερη ορθολογικότητα την οποία μελετούμε έχει μια πολύ ευρύτερη εμβέλεια και μπόρεσε να τεθεί σε εφαρμογή από κυβερνήσεις που ισχυρίζονται ότι είναι αριστερές. Συνέχεια

Five Ways American Policies Make Us Lonely, Anxious, and Antisocial

Saturday, 26 April 2014 12:08 By Lynn Parramore, Campaign For America’s Future | Op-Ed

2014 0426parramore(Photo: marsmett tallahassee / Flickr)

You would think that by the 21st century, we would know something about what it takes for humans to live fulfilling lives. After all, we’ve witnessed enormous advances in science, psychology, sociology, and related fields over the past couple of centuries.

The great mystery is that we seem to be doing worse, not better.

Clearly, a lack of information isn’t the problem. Between the academic conferences, whole sections of bookstores and armies of pundits like Harvard psychologist (and Prudential spokesman) Daniel Gilbert, author of Stumbling Upon Happiness, we are given the secrets of well-being and offered reams of data, advice and lessons on what to seek and what to avoid.

With mountains of knowledge, why aren’t we better at setting up our society in a way that helps us to prosper? Isn’t that the point of having a society in the first place? Unfortunately, ours is increasingly designed by politicians indebted to the 1 percent for the express purpose of enhancing and maintaining the power of the very top rung. The rest of us are left to cope with a rocky, competitive life path that leaves us isolated and exhausted. Inequality is stunting our growth as human beings.

We are doing an especially poor job at setting the conditions for our development as social beings. Recent research in Scientific American shows that today’s college students are less empathetic than generations past. We are less involved in our communities and less fulfilled in our jobs, our families, and our relationships. As the great psychologists have taught us, it is accomplishment in these areas that give us the feeling of significance as human beings. Yet at each stage of life development, we have adopted policies, practices, and habits of mind that thwart us and cultivate anxiety, loneliness and antisocial behavior.

Let’s imagine, for a moment, an American child called Jamie (or James, if you prefer) and follow her though the key stages of life.

1. The Child

From the very beginning, the American child faces grave challenges. There is a one in three chance that Jamie will be poor. Compared to other advanced countries, it will be harder for her to leave this condition. According to recent research, if the birth lottery sets Jamie down in certain parts of the country, like the Southeast or the Industrial Midwest, her chances of leaving poverty are lower still, and compounded if she doesn’t have access to good primary schools or has low family stability.

If Jamie is to grow up with a sense of ease and engagement with her peers and community, she needs to have a sense of trust in her caregivers. If Jamie is poor, this will be especially difficult to do. In most U.S. families, all of the adults work, and because America’s labor practices are outdated and incompatible with family life, even if Jamie is not poor, her caregivers are likely to have a difficult time balancing work and parental responsibilities. America’s lack of paid family and medical leave, workplace flexibility, and childcare will make things stressful for the family, and Jamie will absorb this stress.

To add to the strain, Jamie’s parents will probably experience job insecurity, so even if they are not out of work, they will constantly fear what will happen if the pink slip arrives. Planning happy things for the future, like vacations or summer camp, is always difficult when insecurity hangs in the air. Jamie’s circumstances will fluctuate with the level of unemployment, and since the social safety net is not robust in America, there’s little to shield her if something goes wrong.

As she gets older, Jamie should be developing a positive sense of herself and her abilities. Yet she will be tested relentlessly in school and likely find herself in a competitive environment where achievement is measured in numerical scores and where her normal creative and inquisitive instincts are often hindered. She will sit most of the day, and her food will likely be highly processed and often unhealthy. Her favorite vegetable just might become ketchup. Jamie has a one in three chance of being overweight or obese, which will hamper both the development of her physical skills and her self-esteem.

When Jamie reaches her teenage years, she will want to become more autonomous and form stronger relationships with her peers. Unfortunately, there are likely to be few places for her to gather with friends outside of scheduled sporting events and practices, which are the focus of extracurricular activity in the American child’s world. Jamie may have a hard time just taking a walk: her neighborhood might not even have sidewalks, and most places require a drive in a car. A shopping mall may be the only public space where Jamie can meet friends outside the home, so she absorbs a link between being socializing and consumption.

Jamie’s natural desire for stimulation outside the boring routine of her life will urge her to experiment with harmful substances and behaviors. Even if Jamie is from a family in comfortable economic circumstances, she may be smothered by helicopter parenting, which hinders her autonomy. A constant focus on achievement may leave her feeling constantly inadequate. There is a 30 percent chance that Jamie will be involved in bullying, either as a victim or perpetrator. She has more than a one in 10 chance of having a depressive disorder by age 18. Her chances will increase as she ages.

2. The Young Adult

Young Americans today face staggering obstacles as they try to branch out on their own. If America is still having a youth unemployment crisis when Jamie hits the job market, she will have difficulty landing a job if she has a high school diploma, or even a college degree. If she does find a job, there’s a good chance it will be part-time and/or poorly compensated. And to get it, she may well have to serve as an unpaid intern for many months.

The late start and lack of good jobs early in her career will probably haunt Jamie all her life — her future wages will suffer and her challenges will be greater. Because she can’t qualify for unemployment insurance if she’s looking for her first job, even America’s meager social safety net won’t be much use to her. The dumb luck of having a family with resources will often make the difference between survival and failure.

If Jamie goes to college, she is likely to have to take on crushing debt, and it will inform her choices as she thinks about what kind of work will pay it back. The debt will impact her in ways she did not expect: Jamie will have to pay a higher interest for a mortgage, and this may delay setting up a household of her own. She might well end up being a «Boomerang Baby» and move back in with her parents (currently, 36 percent of young adults ages 18 to 31 are living with Mom and Dad).

Like most young adults, Jamie will probably long to establish intimate, loving relationships with other people. But if she is not able to establish herself in the realm of work or live independently, she may feel like a failure and withdraw into anxiety and isolation.

3. The Adult

By the time Jamie is a full-fledged adult, she has likely already gone through economic shocks that have depleted her savings, if she had any, and impacted her personal relationships. Unless Jamie’s family has enough money to cushion these blows, economic and job insecurity either for herself or her partner will take their toll. The moment Jamie starts getting comfortable in a relationship — planning for a future life as a couple and talking about having kids — the prospect of economic setbacks interferes.

Those constantly tossed around by their jobs and unable to find firm economic footing will have challenges getting to the commitment stage. Jamie may decide that given the insecurity of economic conditions, committing to a partner or a family is just too risky. When the future is unforeseeable, and you can’t really know what you’re signing up for, why sign up at all? Another possibility is Jamie may decide that economic calculations are more important than romantic attraction or compatibility in her choice of mate.

When and if Jamie establishes a household and a family of her own, she will find that between the demands of work and childcare, she is constantly exhausted. She may become increasingly aware that no matter how hard she works and how hard she tries, there is no way to make the anxiety go away. Even if she is a decently paid professional, her job is still likely insecure, and she may begin to experience some of the symptoms researchers have begun to identify with job insecurity, such as low morale and a bleak view of the future.

Her sex life will probably suffer. A recent Swiss study discovered that men and women facing job insecurity are 53 and 47 percent more likely, respectively, to experience low sexual desire than men and women who have secure jobs.

Jamie may begin to slip into a fantasy world to try to counterbalance the reality of the restrictions she senses. As her expectations become downsized, she watches movies and TV programs where fancy homes, luxurious clothes and exotic vacations offer escape to a better world over the rainbow. Her relationships and her community ties become strained.

4. The Middle-Aged American

In middle age, Jamie will want to feel a sense of usefulness and pride in her accomplishments. But American society is structured to make these things elusive.

Americans can no longer count on a stable career, and unfortunately, we have not set up reasonable policies, like basic incomes, to compensate for this situation. Between deliberate wage suppression, deregulation, unfair tax polices, and austerity measures, Jamie, like so many Americans, may find herself at the mercy of ruthless corporate practices. For Jamie, this means that her strong psychological need for security and stability may keep her from achieving social cohesion and stable family life. With little free time and precious few vacations, Jamie has not had enough time to establish hobbies, connect with nature, or engage in civic activities. She may find herself with little deep involvement in the world.

As a woman, things are especially precarious for Jamie. Recent research by Betsey Stevenson and Justin Wolfers suggests that the subjective well-being of American women has dropped both in absolute terms and in relation to men. Jamie may well be experiencing economic burdens from both sides as her children enter college and as her aging parents begin to require assistance. She may feel increasingly lost to her job and her family responsibilities, and find little energy left over for self-fulfillment. If Jamie is a woman of color or in the low-income group, she is more likely to have been divorced and to have borne the responsibilities of out-of-wedlock children. If Jamie loses her job in middle age, she will have a harder time finding a new one, and may have to take a job well below her skill level at inadequate pay. According to Stevenson and Wolfer’s research, financial worries are a major factor in Jamie’s potential unhappiness.

Jamie has health worries, too. In the U.S., obesity peaks in middle age: If Jamie is African American, she has a 40 percent chance of being obese. Since chronic conditions associated with a lack of physical activity are on the rise in America, Jamie may well have cardiovascular, endocrine and musculoskeletal problems.

By the time she reaches middle age, long-term job insecurity may have caught up with Jamie’s body in various ways: she may suffer depression, increased blood pressure, and a lack of libido that won’t go away. Unfortunately for Jamie, women between the ages of 35 and 60 in America are increasingly afflicted by mental health and addiction problems. They are experiencing record-breaking rates of eating disorders.

The suicide rate for middle-aged Americans has taken a leap over the past decade, as years of economic stress and abundant prescription painkillers lead frustrated people to self-harm. Jamie is more likely to die from suicide than a car accident.

5. The Senior

As an older adult, Jamie will want to look back on life and feel a sense of fulfillment. If she can do this, she will have a sense of well-being, but if she can’t, she may fall into bitterness and despair. For an American who has reached her senior years, the chances of security, dignity and a fulfilling retirement are falling.

Jamie will likely be living on a severely limited budget: The median income of older persons in 2012 was $27,612 for males and $16,040 for females. Most of her income will probably come from Social Security, and if the foolish plans of Republicans and many Democrats are put into place, this income will become more meager, and she will have to wait longer to get it.

With the shift from traditional defined-benefit pension plans to investment retirement accounts such as 401(k)s, Jamie is more likely to run out of money in her golden years — currently her chances would be 43 percent, and this number will rise unless Social Security is expanded or some other adjustment is made for American retirements. Much of her money will likely go to healthcare: In a key report, «Older Americans 2012: Key Indicators of Well-Being,» researchers found that older Americans are spending more on healthcare than ever before. Some researchers predict that in two decades, healthcare costs could be more than seniors receive in Social Security.

Jamie may feel increasingly isolated as she gets older. Almost half of American women over 75 live alone. Divorce rates among middle-aged and senior Americans have been increasing — doubling between 1990 and 2009 for those over 50, which can have economic ramifications, especially if Jamie is poor.

Jamie will have a one in 10 chance of suffering from dementia, which will make her vulnerable to financial predators and the lures of casinos, which increasingly cater toward the elderly. Her life expectancy is lower than that of other industrialized nations, and if she is at the bottom of the distribution level, her life expectancy will be decreasing.

Recent polls suggest that Jamie will have a one-in-five chance of having a serious illness, no sex life, or feelings of sadness or depression.

Does it Really Have to Be This Way?

There are many less depressing possibilities for Jamie’s tale. So many of the burdens of Jamie’s life are not inevitable, at any stage. Policies and practices that enhance our human ability to thrive during each chapter have been enacted in other countries today, and even in our own history.

Relatively small changes, like increasing the minimum wage or paid family leave, can ease some of the burdens. Bigger changes, like expanding Social Security, or establishing a basic income, or adjusting the tax code to confront gross economic inequality, will take more political muscle. But various egalitarian movements in our history have shown that Americans are capable of standing up to a system that strips them of the possibility for a good education, a decent career and even a normal family life. A system of ruthless oppression that takes away so much from us as human beings is not our inevitable fate.

Normal human life and the contemporary reality of America are increasingly at odds. There have been giant social movements before, and there can be again. It may take a catastrophe, such as another devastating economic crisis, to fully galvanize us, but history has shown that we don’t have to accept systems that stunt our human potential and become the enemies of life itself.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.


Strip private banks of their power to create money Martin Wolf

The giant hole at the heart of our market economies needs to be plugged

Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.

I explained how this works two weeks ago. Banks create deposits as a byproduct of their lending. In the UK, such deposits make up about 97 per cent of the money supply. Some people object that deposits are not money but only transferable private debts. Yet the public views the banks’ imitation money as electronic cash: a safe source of purchasing power.

Banking is therefore not a normal market activity, because it provides two linked public goods: money and the payments network. On one side of banks’ balance sheets lie risky assets; on the other lie liabilities the public thinks safe. This is why central banks act as lenders of last resort and governments provide deposit insurance and equity injections. It is also why banking is heavily regulated. Yet credit cycles are still hugely destabilising.

What is to be done? A minimum response would leave this industry largely as it is but both tighten regulation and insist that a bigger proportion of the balance sheet be financed with equity or credibly loss-absorbing debt. I discussed this approach last week. Higher capital is the recommendation made by Anat Admati of Stanford and Martin Hellwig of the Max Planck Institute in The Bankers’ New Clothes .

A maximum response would be to give the state a monopoly on money creation. One of the most important such proposals was in the Chicago Plan, advanced in the 1930s by, among others, a great economist, Irving Fisher. Its core was the requirement for 100 per cent reserves against deposits. Fisher argued that this would greatly reduce business cycles, end bank runs and drastically reduce public debt. A 2012 study by International Monetary Fund staff suggests this plan could work well.

Similar ideas have come from Laurence Kotlikoff of Boston University in Jimmy Stewart is Dead, and Andrew Jackson and Ben Dyson in Modernising Money . Here is the outline of the latter system.

First, the state, not banks, would create all transactions money, just as it creates cash today. Customers would own the money in transaction accounts, and would pay the banks a fee for managing them.

Second, banks could offer investment accounts, which would provide loans. But they could only loan money actually invested by customers. They would be stopped from creating such accounts out of thin air and so would become the intermediaries that many wrongly believe they now are. Holdings in such accounts could not be reassigned as a means of payment. Holders of investment accounts would be vulnerable to losses. Regulators might impose equity requirements and other prudential rules against such accounts.

Third, the central bank would create new money as needed to promote non-inflationary growth. Decisions on money creation would, as now, be taken by a committee independent of government.

Finally, the new money would be injected into the economy in four possible ways: to finance government spending, in place of taxes or borrowing; to make direct payments to citizens; to redeem outstanding debts, public or private; or to make new loans through banks or other intermediaries. All such mechanisms could (and should) be made as transparent as one might wish.

The transition to a system in which money creation is separated from financial intermediation would be feasible, albeit complex. But it would bring huge advantages. It would be possible to increase the money supply without encouraging people to borrow to the hilt. It would end “too big to fail” in banking. It would also transfer seignorage – the benefits from creating money – to the public. In 2013, for example, sterling M1 (transactions money) was 80 per cent of gross domestic product. If the central bank decided this could grow at 5 per cent a year, the government could run a fiscal deficit of 4 per cent of GDP without borrowing or taxing. The right might decide to cut taxes, the left to raise spending. The choice would be political, as it should be.

Opponents will argue that the economy would die for lack of credit. I was once sympathetic to that argument. But only about 10 per of UK bank lending has financed business investment in sectors other than commercial property. We could find other ways of funding this.

Our financial system is so unstable because the state first allowed it to create almost all the money in the economy and was then forced to insure it when performing that function. This is a giant hole at the heart of our market economies. It could be closed by separating the provision of money, rightly a function of the state, from the provision of finance, a function of the private sector.

This will not happen now. But remember the possibility. When the next crisis comes – and it surely will – we need to be ready. FT

Act Now to Keep Students Safe

Saturday, 26 April 2014 10:03 By Bill Lichtenstein, Truthout | Op-Ed


This story wasn’t funded by corporate advertising, but by readers like you. Can you help sustain our work with a tax-deductible donation?

A critical window of time is closing to protect America’s kids against restraint and seclusion in schools. According to data just released from the US Department of Education Office of Civil Rights, 107,000 kids were subjected to physical restraint or were confined to seclusion rooms in schools during the years 2011 and 2012.

To protect kids nationally, Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-California, have introduced the federal Keeping All Students Safe Act (Senate Bill 2036; House Resolution 1893), which would ban the use of restraints and seclusion in schools except in cases of a bona fide emergency. However, with Harkin and Miller, both passionate champions of this issue and legislation, set to retire from Congress at the end of this year, the fate of this bill protecting students against restraint and seclusion in school is uncertain if the bill is not passed during this session.

As a journalist who has covered child welfare issues over four decades, the story of the use of physical restraint and seclusion rooms in schools remains a deeply personal one for me. In 2006, I learned that my daughter Rose, who was 6 at the time, had been locked inside a broom closet in the basement stairwell of her school in Lexington, Massachusetts, over a three-month period, sometimes for up to several times in a day. She was found naked, standing in her own pee, after she removed her clothes so as not to soil herself. I would later write about her horrific treatment and expose the widespread use of restraints and seclusion rooms in schools across the country, setting off a firestorm in communities nationwide over these shocking practices.

Parents, journalists and lawmakers mobilized throughout the country and visited their local schools to find out if restraint and seclusion were being used with their kids. In many cases, they were shocked to find out that they were. Over the past 18 months, state and local legislation and rules limiting or banning the use of restraints and seclusion in schools were passed.

In Reno, Nevada, for example, 12 seclusion rooms that were found to have been in use had their doors removed, were repainted, and other uses were found for the spaces, with Frank Selvaggio, the student service director, saying, «The vast majority of our educators would never even think of trying to do something inappropriate like forcing a child to go into a room.»

In Oregon, Gov. John Kitzhaber signed a 2013 law that prohibits use of restraints in schools.

And the issue cuts across the legislative aisle: In Arizona, conservative Republican Gov. Jan Brewer signed legislation into law in April 2013 that limits the use of seclusion rooms in schools.

However, currently only 19 states have laws on the books restricting the use of physical restraints and seclusion rooms with students in schools. In Idaho, Mississippi, North Dakota, New Jersey and South Dakota there have been no laws limiting the use of restraints and seclusion in schools, not even ones mandating that parents be notified when their children are subjected to these practices. The wide range of rules nationwide has led Miller to compare the situation to «the Wild West.»

Meanwhile, the toll on kids is high. Of the 70,000 students who were subjected to physical restraint and 37,000 who were confined to seclusion rooms during 2011 and 2012, according to the Department of Education Office of Civil Rights data, students with special needs or disabilities were disproportionately affected. While students with special needs represent only 12 percent of the national student population, they represent 58 percent of those who were placed in seclusion or involuntary confinement and 75 percent of those who were physically restrained at school. Students of color with disabilities represent 36 percent of those who were physically restrained at school, despite accounting for only 19 percent of all students nationally.

And the outcome for kids can be fatal. Sixteen year-old Corey Foster died while being restrained on a school basketball court in Yonkers, NY, and 13-year-old Jonathan King hanged himself in a Georgia school after being left alone in a seclusion room, leading to a statewide ban on the use of isolation rooms.

Don King discusses the death of his son, 13 year-old Jonathan, who hung himself after being left in a Georgia school seclusion room.

At the February 12 introduction of the Senate Keeping All Students Safe Act, Harkin compared the seclusion rooms he had seen in schools with cells for terrorists at the military prison that he visited in Guantanamo, Cuba, and Robert Ernst, a former student from Lexington, Massachusetts, described being dragged into and then locked in a seclusion room at his school.

«Hearing the stories of these students and parents – and the legal challenges they faced when seeking change – it became clear that strong action was necessary to help them and thousands of families like them. I introduced the Keeping All Students Safe Act to ensure that we put an end to these practices, which have no place in the classroom,» Harkin said in a statement to the Huffington Post.

Both sponsors of the bill, Harkin and Miller, are retiring from Congress in 2014. In their absence, advocates are concerned that it will likely be difficult to get this legislation introduced and passed in future sessions.

«In order for the Keeping All Students Safe Act to become law this Congress, it needs to start moving through committee . . . in the spring or early summer in order to see it pass the full Congress this fall,» Julia Krahe, the spokeswoman for Miller’s Committee on Education and the Workforce, told the Huffington Post.

Staff members of both the Senate and House committees agree that it’s critical that concerned parents, advocates, educators and the public call Washington and let their federal senators and representative know how they feel about the use of restraints and seclusion in schools and the importance of the Keeping All Students Safe Act. Without that groundswell of support, they say, the bill may well die.

May 8 is Children’s Mental Health Day, and it has been targeted as a National Day of Calling to Keep Students Safe. It’s critical that you and others you know pick up the phone and call your senators and representative to let them know how you feel about physical restraints and seclusion rooms in school and about the Keeping All Students Safe Act.


Video: Bill Gates «Explains» Common Core


In the following six-minute video at the American Enterprise Institute (AEI) in March 2014, Bill Gates demonstrates his privileged view of the Common Core State Standards (CCSS).

Gates has contributed over $4.3 million to AEI, with over $1 million in 2012 for «exploring the challenges of Common Core,» among other issues, so it is only fitting that AEI should promulgate Gates’ CCSS opinions.

Allow me to counter Gates’ billionaire view with my hundredaire reality.

Gates opens with CCSS as «not a curriculum» and that CCSS does not «tell teachers how to teach.» Nevertheless, according to his 2009 speech to legislators, Gates anticipates that CCSS will lead to curriculum and assessments that set teachers at the mercy of «market forces»:

When the tests are aligned to the common standards, the curriculum will line up as well—and that will unleash powerful market forces in the service of better teaching. For the first…

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The Weekly Update: No money for Common Core in Seattle, Broad left Seattle in the cover of darkness and has reappeared in Oregon, ACT for Kindergartners, Creationism in schools and the US as an Oligarchy. How much more fun can one have?

Seattle Education

trickle down (2)

Much is going on in the wide world of education. Every time I’m ready to wrap up this post, something new comes across the wires.

First up:

Thanks to our state legislators who understand the negative ramifications of tying test scores to teacher evaluations, the bill that would have brought new meaning to the term «high stakes testing» was shot down even after Arne Duncan had a special meeting with our Governor explaining to him the importance of the Federal government determining local education policy.

It will behoove all of us to remember the members of our state Congress who voted this bill down. They will need our support in upcoming elections. Big money was behind this bill and they are not likely to go away after this defeat.

From Diane Ravitch:

BREAKING NEWS: Duncan Withdraws NCLB Waiver from Washington State

The Education Department is pulling Washington state’s No Child…

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Billionaires influence judges to approve wage theft from teachers

Reclaim Reform

Judges are being openly influenced by major corporations and their billionaire owners to decide against constitutional protections. Openly influencing. Not secret plots and conspiracies. These are in-your-face influence events.

Public pension fund theft from both active and retired teachers is in the courts and in the news. Other public employees are suffering identical abuse.

Koch Brothers and judges

These judges will decide the financial fates of hundreds of thousands of people; these decisions involve billions of dollars. Present mandated pension «contributions» by active teachers and past earned wages, deferred compensation, by retired teachers are being attacked by attempting to influence the judiciary.

«As state courts across the nation prepare to referee numerous public pension reform disputes, a gaggle of interested parties — from major corporations to the Koch brothers — will next week sponsor an expenses-paid conference on public pension reform for judges who may decide the cases’ fates.» Yes, all expenses paid luxury…

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Why 21st century capitalism can’t last

Fred Dufour/AFP/Getty Images

Thomas Piketty’s explanation is a welcome sign of progress

April 26, 2014 3:00AM ET

The response to French economist Thomas Piketty’s “Capital in the Twenty-First Century” has been surprising, to say the least. Though the Amazon best-seller is well written and artfully translated from French by Arthur Goldhammer, the 696-page text is filled with enough charts and footnotes to occupy experts for months. Indeed, the work was based on decades of research conducted by an entire team of specialists tracking centuries of income and wealth patterns.

The book presents a simple thesis: Unchecked, capitalism’s natural dynamics lead to an unequal concentration of wealth. This trend is increasing at a rapid rate; absent a wealth-destroying catastrophe such as war or depression or powerful new egalitarian political movements, we can expect that to continue.

Piketty elegantly explains that when the rate of return on existing capital (r) exceeds the economic growth rate (g) ­— as has been the case through most of capitalism’s history — the wealthy will grow wealthier than society as a whole, with disastrous consequences for future social and economic development. In more technical terms: r > g = 😦

In America, as in Europe, the past century’s dynamic can be visualized by a U-shaped curve. Before the Second World War, the top 10 percent captured almost half the national income, before seeing their share dramatically eroded in the booming postwar years. Since the era of Reagan, however, we’ve stumbled into another Gilded Age.

Which leads to the obvious question: What can be done?

Money and power

Piketty, who’s active in the center-left French Socialist Party but resists being characterized as a Marxist, offers some solutions of his own. The assessment of a global wealth tax is his most notable. Not just stocks and bonds, but land, homes, natural resources, patents and more would be subject to this tax — making it more far-reaching than any progressive levy on income. The policy would have to be coordinated across the developed world to avoid the problem of capital fleeing across borders to escape it, a difficult proposition but not a technically impossible one.

Yet the implications of his analysis go deeper. It isn’t that the rich are getting richer; it’s that they’re also getting more powerful. Across the world, inroads against economic democracy — collective bargaining rights and robust social welfare programs — since the 1970s have undermined political democracy, and that’s going to make mere policy shifts even more difficult to achieve. Workers aren’t pushing for wealth redistribution anymore; in fact, they’re actually losing battles to preserve gains won in past generations. No longer threatened at the grassroots, the ability of the world’s wealthiest citizens to shape politics is nearly absolute.

The actual implementation of democratic reforms happened in spite of, not because of, capitalists.

Developments in the United States, such as the Citizens United and McCutcheon rulings eliminating limits on campaign fundraising restrictions, have made the connection between financial wealth and political influence even more apparent. But despite public outrage — almost 90 percent of Americans think there’s too much money in politics ­— reform appears to be a faint hope.

In fact, there’s plenty of evidence to suggest that the U-shaped curve of the past century will start to look like a fishhook, with two major “leveling” forces of the postwar years — namely, high rates of unionization and the growth of mass parties representing the interests of workers ­— in indefinite decline.

Productive power

Most people have come to associate capitalism with the advent of modern political democracy, on the theory that the growth of the market freed feudal minds and bodies. But while it’s true that capitalism’s productive power — new wealth from trade and investment, urbanization, advances in communications — made this democracy possible, the actual implementation of democratic reforms happened in spite of, not because of, capitalists themselves. As many modern scholars have argued, the roots of democratization were in the organized working class. Though workers needed the assistance of a host of allies from throughout society to triumph, these popular coalitions fought against yesterday’s oligarchs to secure suffrage and push for the social protections we take for granted today. Democratic reforms were foisted on resistant elites, from the English and French revolutions of the 17th and 18th centuries on to the struggles of the last. The results were by no means absolute ­— formal equality in the form of “one person, one vote” has never resembled anything close to actual equality — but these were major victories for ordinary people. Elites are just as keen today as they were then to exclude others from the political process. The billionaire Koch brothers, who have funded many conservative and libertarian political causes, are little more than more banally dressed mirror images of the great estate holders and factory owners of the Industrial Revolution. They have the same compulsion to accumulate profits at the expense of their employees, and they’d like to do so with as few regulations in their way as possible.

Lucky for them, with the near disappearance of the international socialist movement and the organized working class in the past decades, the path has been opened for an anti-democratic counterrevolution of sorts.

Redistributionist conclusions

But perhaps there’s hope. That so many people are trying to tackle “Capital in the Twenty-First Century” is at least a testament to a growing public interest in capitalism — the force that shapes their lives. And even if they’re not reading all 700 pages, many are more than comfortable with endorsing its redistributionist conclusions. It’s possible that in the long term more of them will see that resisting capitalism is the only path out of a world where some can live on rents and interest, while many spend their whole lives working themselves to death.

And yet, as Piketty’s book alludes to, the more time passes, the more entrenched and powerful the scions of capital will become. We’ll need to muster the forces capable of challenging them sooner rather than later. And though “Capital in the Twenty-First Century” is more than welcome, it’ll take more than a best-selling tome to do so.

Bhaskar Sunkara is the founding editor of Jacobin and a senior editor at In These Times.