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Friday, November 16, 2012

Transcript: 534 All Star Idiots

Today on the podcast, All Star Idiots

Idiot of the Week was a feature we ran with for awhile, lampooning the economics of some of the more and some of the less notable. Today it returns with three All Stars,
• Mark Zandi of Moody's Analytics, also a Republican advisor,
• Jean-Claude Trichet, former president of the European Central Bank and now chief apologist for austerity in Europe,
• Senator Bob Corker of Tennessee, on what everybody knows, that is everybody inside the Beltway
Listen to this episode
The context is the weeks after the election, in which the guy smiling from his yacht lost to the guy smiling from the podium. Some have made a big deal about the Republican loss and what it means for that party or its media outlets or whatever. Demand Side is more focused on the policy. What it means for policy is probably not so positive as it is less negative. We are dismayed about the sudden absence of interest in jobs, infrastructure, climate change, poverty, health care and holding accountable the corporate elite.

Considering the phenomenal inability to learn, we are afraid the next crash is just around the corner.

Instead, it is the deficit, cutting the spending we need, implementing the rollback of social insurance instead of making health care delivery efficient, letting the private debt deflation roll on.

Setting it up here, we have Kathleen Hall Jamison, an Anenburg political observer, displaying the Beltway:
(courtesy Moyers and Company)


This is the sort of reasonable-sounding voice that is most dangerous. There is no deficit fix that helps jobs or economic recovery. There is no deficit fix in the cut spending mode at all. That is the realization of the fiscal cliff. Austerity. Cut spending and you cut incomes in the aggregate.

It is an epic tale of cart before the horse. Now that horse is behind the cart and threatens to trample the passengers in a fever of purported prudence.

Mark Zandi we feature in our book Demand Side Economics, find it at DemandSideBooks.com. He did some work on the Obama stimulus with Alan Blinder, former Fed vice chair, in which he empirically derived some multipliers for various policy proposals, taxes and spending. They were conservative. But we wanted conservative. Of course, when they displayed the actual dynamics of various tax reductions, they did not mesh with Fantasyland Market Fundamentalists, and he was booed off the stage by the FoxNews crowd.

But here:


At a minimum this debunks the idea that corporate financial health leads to general prosperity. They got profits. They got fat balance sheets. You look fabulous. But the economy as most Americans know it, dare I say the 99%, is not fat balance sheets and a boatload of cash. It is debt, underemployment and uncertainty. Unfortunately for Zandi and the market fundamentalists, that uncertainty and weakness is also THEIR uncertainty and weakness. Business now looks to government to see if they are going to keep the tap flowing that is supporting their cash flows. Remember, all those tax cuts and private spending is spending by private households on private goods.

John Maynard Keynes was the godfather of uncertainty. Hyman Minsky is the guru of financial market economy uncertainty. It is not uncertainty about whether the government will keep its house in order, it is uncertainty about investment and the prospect for investment's rewards.


Will they get it? Will we realize that this is kabuki theater, beating the horse with a whip for running while sitting in the saddle on its back. Keep the money flowing, but immediately solve the future.

Bob Corker, Senator of Tennessee came out the day after the election on Bloomberg to get control of the agenda:



Lurching into forward gear after two years of obstructionism is going to send a lot of Republicans to the chiropractor. But the lame duck is where they have the most bargaining power. Not mentioned elsewhere, but locked in Demand Side's memory is the end of cloture in the next Congress. And that "everybody, Who is that? It is everybody inside the prosperous Beltway. The everybody out here is – at least in polls I've seen – worried about jobs, the economy, health care.


Solvency is a non-issue if you can pay your debts. If you can pay your debts, you are solvent. We have a printing press in the basement. Even if we didn't, people show no signs of taking their money elsewhere. Where would they take it? Rolling short-term into long-term debt is imminently do-able. Social Security is not in the red, will not get to the red for twenty years. Medicare is weak because health care delivery is a corporate giveaway program. Let me see, when will the operating budget get in the red? That would be defense spending.... Wait. It happened decades ago. Where is the alarm about that?

And now on To Jean-Claude Trichet, speaking to Bloomberg from his palatial Parisian offices. A year and a month ago, he was the president of the European Central Bank. This is Mad Hatter economics, harmless if not taken seriously, but extremely dangerous with access to power and leverage.


Deliver what has been promised. Getting blood from a stone. Promised in return was a return of financial markets to the distressed sovereigns, a visit from the confidence fairy. But the ECB cannot deliver on its promises, they are made in Fantasyland.


A little bit difficult. Trichet, the fervent believer in the confidence fairy. Not so much in the reality on the ground. Hard to see the streets from the penthouse, I guess.



I'd give you more, but that's enough. We hope you see that we have not cherry picked bloopers from these people. These are their sober assessments. Just happens to be dangerously wrong.

Our worst vision is that this mix of eagerness for austerity leads to the inevitable downturn and justifies a new round of austerity. We are further from a solution today than we were at the outset of the crisis primarily because nobody tried the real solution. If we even got Paul Krugman economics, we'd be doing better. Though this is not a temporary thing and will not be solved by temporary measures.

Demand Side AND the deficit are brought to you today by the Great Financial Crisis and ITS sponsors – Bush era tax cuts, Wars in Iraq and Afghanistan, the Fed-sponsored housing bubble and bust. All them, of course, indebted to the banks, either on the front end by excess private debt, or on the back end as the Fed and Fannie Mae buy dodgy paper.

The Deficit is not the problem, it is the fruit of the problem. Solving the deficit solves nothing. Cutting spending to solve the deficit makes the real problem worse.

Also brought to you by Plan B – solve the real problems in housing, debt, demand, casino banking. The deficit will solve itself.

1 comment:

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