A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Thursday, November 29, 2012

Transcript: Everybody agrees we should let the economy stagnate

Watch out! EVERYBODY agrees we're in recovery, EVERYBODY agrees we need to cut government spending, EVERYBODY agrees social insurance has to be on the table, EVERYBODY agrees ... uh-oh ... that Obama will stand up for the middle class and the working class.
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At Demand Side, we find ourselves contrarians, not so much because of agoulish rebelliosness, but because we look out the window. What we see is a real economy that is disintegrating, infrastucture crumbling, education overpriced and badly designed at the upper end and decaying from cuts in spending at the critical lower end K-12. We see a health care system designed more to create corporate profits than to produce good outcomes. And we find a crisis in labor, with low incomes, poor jobs, skewed toward the least productive activities, robbing our present and seriously damaging our future. THIS is the structural problem.

Everybody AGREES we're in recovery? No. We are in stagnation, bouncing along a bottom and threatening to hit another hole. It is a virtual recovery, playing out on the video screens of numbers for the stock market and GDP, but only because those numbers are jinned up by the Fed's zero interest rates for now on four years and by huge deficits in the form of tax cuts, government essentially paying us to shop at Wal-Mart. This is no program for recovery. This is a program for drifting ever lower.

We have the industrial capacity, labor available, technology, and all the funding we need to do things that need to be done and employ our people to do them. That is the path to recovery, both short and long term. The fiscal cliff, or austerity bomb, as Paul Krugman calls it, is nonsense in a sideshow that ought to have been completely discredited by now. Instead it's barkers are in the seats of power.

Everybody AGREES we need to cut government spending. Almost everyvbody agrees we should use the Simpson-Bowles prescription. But here's Senator Bob Corker, Republican, Tennessee


And here's Chris Van Hollen, House Democrat.


Oh, and everybody agrees the fiscal cliff is a looming disaster, especially Tom Keene and John Ryding


Ah, but the worst of it.

Tim Geithner, yes, Wall Street Timothy Geithner, is now in charge of negotiations.

Obama has caved again. Well, I guess, not caved. He is back supporting the wrong side. In thrall to the Robert Rubin narrative. We are in Trouble, that rhymes with Rubble that starts with R that does not stand for Recovery.

Cutting taxes didn't work, won't work, can't work. The only thing it will do is shrink government and hollow out the middle class.

Ah, that means it will work, at least for Grover Norquist


Trouble, trouble, trouble

Today's podcast is brought to you as always by Demand Side the Book, Demandsidebooks.com, and today by anotehr contrarian, James K. Galbraith, speaking here in teh EPS symposium we've been featuring.

James K. Galbraith, one of those who was right. Too bad he can't get in the room.

Tuesday, November 27, 2012

Transcript: Two men with big deficits in credibility, and one with a surplus

The central bankers of this era are accorded reverence by the financial community and deference by others in inverse proportion to their merit. When the history of these last three decades, the 80's, 90's, 00's and into the teens, is written, these will be the clueless mandarins, practicing a monetarism that more often harmed than helped, men who because they were close to the money were assumed to know what they were talking about, but were fundamentally out of their depth.
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Alan Greenspan, a man who put the regulation of financial markets in the hands of the regulated, then said oops, I was wrong, only in words of six syllables with multiple dependent clauses, a man who insisted on historically high rates in 1999 and 2000, then historically low rates in 2002 and following, both of which caused big problems, who fomented a housing bubble and when it crashed, tried to look at the sky and say, "It wasn't me."


Forgetting that the great bulk of the current debt is a legacy of Ronald Reagan, George HW Bush, and George W Bush, and the great bulk of the current deficit grows directly out of the Bush tax cuts, the unpaid for wars in Iraq and Afghanistan, and the Great Financial Crisis.

For his part, Greenspan forgets that in 2002 he was in front of Congress arguing that the Bush tax cuts were essential, because otherwise there would be a dirth of bonds for investors to buy. That is, the threat was that the debt would go away, leaving no risk-free assets.


Better a 201(k), I guess. Not deterred by past failures, Greenspan is back predicting the future. Here he forgets that Alan Greenspan and the Greenspan commission convened under Ronald Reagan put Social Security funding on sound footing, with rate hikes and the delays in qualification that we have today. He rode the success of the Greenspan Commission into a job at the Federal Reserve.

Social Security has lasted from the 1930's to now. Arguably themost successful federal program ever. It has contributed not one nickel to the deficit or debt, and has become a problem – well, it was always a problem for the Old Guard Republicans --= but it is a fiscal issue now that the bonds have to be paid back, because the trust funds are fully invested in good U.S. Government bonds. They have big balances, all in bonds. And even now it is not really a problem.

But why is Social Security a pay-as-you-go plan? It was installed in the 1930's. What were you going to do with impoverished seniors in an impoverished Depression-era country? Tell them to invest? Where would they invest? No. You institutionalized a pension, had current taxpayers fund the current seniors (as many of the children would have had to support parents anyway) and moved ahead. Worked great. Still works great. Has nothing to do with the current deficits. Is brought up as a political ploy in a time of crisis and given credibility by the man who has the least to spare, Alan Greenspan.

Now, onto the current Fed Chairman, Ben Bernanke.

The author of QE after QE. We've put up a good recent critique from L. Randall Wray on QE, but today we want to feature Bernanke not on the trumpet, but still beating the drum for housing recovery. In the 1930's, the New Deal dealt with a very similar housing problem in a radically different way. It recognized the excess debt and brokered deals one at a time between lenders and borrowers. The Home Owners Loan Corporation. The debt was written down, secured, and housing became stable.

Bernanke has bet the house on saving the banks, dealing with the housing debt by trying to create more debt to validate the bubble prices. He and the fed are proud owners of one and a quarter trillion dollars or more of mortgage backed securities. Remember the securities markets? He is the author of zero percent interest rates. Now, most recently, he was at the Economic Club of New York whining about how credit is still not flowing, debt is still not flowing to the housing sector, at least in ways that will validate his big bets.

But here's what Ben said

Although the decline in the number of willing and qualified potential homebuyers explains some of the contraction in mortgage lending of the past few years, I believe that tight credit nevertheless remains an important factor as well. The Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices indicates that lenders began tightening mortgage credit standards in 2007 and have not significantly eased standards since. Terms and standards have tightened most for borrowers with lower credit scores and with less money available for a down payment.


When lenders were asked why they have originated fewer mortgages, they cited a variety of concerns, starting with worries about the economy, the outlook for house prices, and their existing real estate loan exposures. They also mention increases in servicing costs and the risk of being required by government-sponsored enterprises (GSEs) to repurchase delinquent loans (so-called putback risk).

blah, blah, blah, here

. Importantly, however, restrictive mortgage lending conditions do not seem to be linked to any insufficiency of bank capital or to a general unwillingness to lend.

Certainly, some tightening of credit standards was an appropriate response to the lax lending conditions that prevailed in the years leading up to the peak in house prices. Mortgage loans that were poorly underwritten or inappropriate for the borrower's circumstances ultimately had devastating consequences for many families and communities, as well as for the financial institutions themselves and the broader economy. However, it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.


Yes, house prices are going up, but affordability is not, because credit is not available, and any of you who bought MBS's, oh, that's you, Ben... oops.

And now for something less disturbing

As you may remember, we at Demand Side have been saying the economy is weak, bouncing along a bottom sloped downward, with downside risks, and a likely slump after the election. We see early data from The Dallas and Chicago Feds indicating the slump is underway.

We'll see how that plays out.

Here is Nouriel Roubini

severely edited,

under the title "The Year of Betting Conservatively"

The upswing in global equity markets that started in July is now running out of steam, which comes as no surprise: with no significant improvement in growth prospects in either the advanced or major emerging economies, the rally always seemed to lack legs. If anything, the correction might have come sooner, given disappointing macroeconomic data in recent months.

Starting with the advanced countries, the eurozone recession has spread from the periphery to the core, with France entering recession and Germany facing a double whammy of slowing growth in one major export market (China/Asia) and outright contraction in others (southern Europe). Economic growth in the United States has remained anemic, at 1.5-2% for most of the year, and Japan is lapsing into a new recession. The United Kingdom, like the eurozone, has already endured a double-dip recession, and now even strong commodity exporters – Canada, the Nordic countries, and Australia – are slowing in the face of headwinds from the US, Europe, and China.

Meanwhile, emerging-market economies – including all of the BRICs (Brazil, Russia, India, and China) and other major players like Argentina, Turkey, and South Africa – also slowed in 2012. China’s slowdown may be stabilized for a few quarters, given the government’s latest fiscal, monetary, and credit injection; but this stimulus will only perpetuate the country’s unsustainable growth model, one based on too much fixed investment and savings and too little private consumption.

In 2013, downside risks to global growth will be exacerbated by the spread of fiscal austerity to most advanced economies. Until now, the recessionary fiscal drag has been concentrated in the eurozone periphery and the UK. But now it is permeating the eurozone’s core. And in the US, even if President Barack Obama and the Republicans in Congress agree on a budget plan that avoids the looming “fiscal cliff,” spending cuts and tax increases will invariably lead to some drag on growth in 2013 – at least 1% of GDP. In Japan, the fiscal stimulus from post-earthquake reconstruction will be phased out, while a new consumption tax will be phased in by 2014.
So, what explains the recent rally in US and global asset markets?

The answer is simple: Central banks have turned on their liquidity hoses again, providing a boost to risky assets. The US Federal Reserve has embraced aggressive, open-ended quantitative easing (QE). The European Central Bank’s announcement of its “outright market transactions” program has reduced the risk of a sovereign-debt crisis in the eurozone periphery and a breakup of the monetary union. The Bank of England has moved from QE to CE (credit easing), and the Bank of Japan has repeatedly increased the size of its QE operations....

Today's podcast brought to you by the Fiscal Cliff, or at least the Fiscal Cliff panel, which we relayed from the EPS symposium, available on one of our feeds, and perhaps we'll squeeze it in on the other this weekend. Here is an excerpt. Featuring Stephanie Kelton.


Thursday, November 22, 2012

Transcript: Post Thanksgiving Day Reminder: The Power of Greed

Next week we will feature Alan Greenspan and Ben Bernanke in the Demand Side spot you all know. These are fruitcakes from the tree of Milton Friedman. Once a fringe kook, Friedman became front and center in the lurch to the right during the 1970s and 1980s. I have called him the P.T. Barnum of Economics, all show, now substance. The Godfather of Monetarism, his analysis of the Great Depression gained him fame and respect among the anti-New Deal Old Guard. What would be called to day the FoxNews crowd. Based on an elementary and long understood error – the quantity theory of money – it nonetheless became the operational paradigm for the Fed. Paul Volcker's much celebrated crashing of the economy to eliminate inflation in the late 70's and early 80's was based on the idea, not that crashing was a good thing, but that it would not happen because – as Friedman assured everybody – simply reducing the quantity of money would reduce prices painlessly. Didn't happen.
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But here is an excerpt from an interview in 1972, to display


Not surprising Friedman was considered a kook during the golden age of economics and into the 1970s. This straw dogs debating style, as exemplified in this clip, in which he for example, sets the alternative to his view as the Soviet System and then attacks his opponent for suggesting such a thing – was and is basically dishonest. But effective. Still, he had to wait until the country forgot World War II, where millions of people sacrificed for the greater good in a common effort that was successful and made the fields fertile for the greedy.

Just as, I suppose, his explanation of the Depression had to wait until those who lived in and dealt with it faded from the scene. And the rise of big government had to be ignored, a somewhat difficult thing for anybody, since it was six times its size in 1950 as in 1930, and the postwar prosperity rose hand in glove with this evolution. The level of government Friedman advocated and the anti-government right advocates today is, to put it mildly, not historically consonant with prosperity.

But there is no doubt Friedman and the primacy of self-interest have carried the day in academic economics. Even now, after efficient markets theorists have recanted and the leading lights of Rational Expectations have dimmed in their ardor, the momentum of the Friedman, market fundamentalist, every person a Gordon Gecko, theory remain strong.

You can see it in surveys, which show that economics students are inculcated with self-interest, and display markedly more selfishness two years after they begin their studies than when they entered.

A newer study displays the attitudes of the wealthy,


“The upper class has a higher propensity for unethical behavior.”

From University of California Berkeley

The upper class has a higher propensity for unethical behavior, being more likely to believe – as did Gordon Gecko in the movie “Wall Street” – that “greed is good,” according to a new study from the University of California, Berkeley.

In seven separate studies conducted on the UC Berkeley campus, in the San Francisco Bay Area and nationwide, UC Berkeley researchers consistently found that upper-class participants were more likely to lie and cheat when gambling or negotiating; cut people off when driving, and endorse unethical behavior in the workplace.

“The increased unethical tendencies of upper-class individuals are driven, in part, by their more favorable attitudes toward greed,” said Paul Piff, a doctoral student in psychology at UC Berkeley and lead author of the paper published today (Monday, Feb. 27) in the journal Proceedings of the National Academy of Sciences.

Piff’s study is the latest in a series of UC Berkeley scholarly investigations into the relationship between socio-economic class and prosocial and antisocial emotions and behaviors, revealing new information about class differences during a time of rising economic tension.

“As these issues come to the fore, our research – and that by others – helps shed light on the role of inequality in shaping patterns of ethical conduct and selfish behavior, and points to certain ways in which these patterns might also be changed,” Piff said.

Ah, but they are worth it, those driving entrepreneurs making jobs for the rest of us.


Turns out

1. Only THREE PERCENT of the very rich are entrepreneurs.

According to both Marketwatch and economist Edward Wolff, over 90 percent of the assets owned by millionaires are held in a combination of low-risk investments (bonds and cash), personal business accounts, the stock market, and real estate. Only 3.6 percent of taxpayers in the top .1% were classified as entrepreneurs based on 2004 tax returns. A 2009 Kauffman Foundation study found that the great majority of entrepreneurs come from middle-class backgrounds, with less than 1 percent of all entrepreneurs coming from very rich or very poor backgrounds.

2. Only FOUR OUT OF 150 countries have more wealth inequality than us.

In a world listing compiled by a reputable research team (which nevertheless prompted double-checking), the U.S. has greater wealth inequality than every measured country in the world except for

3. An amount equal to ONE-HALF the GDP is held untaxed overseas by rich Americans.
The Tax Justice Network estimated that between $21 and $32 trillion is hidden offshore, untaxed. With Americans making up 40% of the world's Ultra High Net Worth Individuals, that's $8 to $12 trillion in U.S. money stashed in far-off hiding places.

Based on a historical stock market return of 6%, up to $750 billion of income is lost to the U.S. every year, resulting in a tax loss of about $260 billion.

Those numbers thanks to Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

Wednesday, November 21, 2012

Transcript: Fiscal Cliff 1

Today on the podcast, what is the fiscal cliff, is it real, does it mandate rollbacks in social insurance, is it time to panic. We'll get some of that panic in our upcoming podcasts. Today we introduce the EPS Bernard Schwartz symposium and a rational look at the matter. Recorded and available on C-Span. link on the transcript.


The fiscal cliff is fascinating political theater. Bad economics. It is reminiscent of the health care compromise, in which the people who knew what they were talking about were locked out of the room, so the outcome solved very little of the essential problems. The agenda of the establishment was the only agenda on the table. Not even a public OPTION.
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Here, in the upcoming debates, the common p0erception is that everybody accepts the need for deficit reduction largely through spending cuts. It is a meme. Demand Side doesn't accept it. The economists were going to relay over the next week do not accept it. And we would submit that these comprise many of those who were right in past debates.

We'll give room today for Jamie Galbraith's opening remarks. The regular PC will reappear on Friday, and the four hours of talks will be issued as time allows. BUT. Only on one of the feeds. We would eat up bandwidth in a day if we put it out on our legacy feed, the one with the mirrored rails. It will go out only on the brown icon. If you need to switch to find it, there's a link at demandsideeconomics.net or just choose the brown icon at the iTunes store, or as we said, the link to C-Span is on the transcript.


So, today it was Jamie Galbraith's introductory remarks. Friday it is a new edition of the podcast. And following or interceding, for your iPod, the whole of this Bernard Schwartz Symposium in segments.

All brought to you By Economists for Peace and Security, website epsusa.org.

Economists for Peace and Security is a New York-based NGO which links economists interested in peace and security issues. Inspired by International Physicians for the Prevention of Nuclear War, it was founded in 1989 as Economists Against the Arms Race (ECAAR), before becoming Economists Allied for Arms Reduction (ECAAR) in 1993. It adopted its present name in 2005. Stockbroker Robert J. Schwartz led its creation.

Notable trustees of EPS include Kenneth Arrow and Lawrence Klein (founding trustees); Amartya Sen, Robert Reich and Óscar Arias. James K. Galbraith became Chair of the Board of Directors in 1996.

It is not an advocacy or lobbying group, but a place where professionals working on emergent questions, representing only themselves, can speak with clarity and conviction. Visit the website. If you share the aims and objectives of the organization, join or lend your support.

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
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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.

Tuesday, November 13, 2012

Transcript: Rail's possibilities locked up in inefficient markets

We are on the Demand Sidelines in the latest recession debate, as you know, put there by ourselves and our own obtuseness in not realizing that there was an end to the last recession. And still we peer at our screen looking for the business cycle recovery and not finding it. Sales, incomes, investment and particularly employment reacting not to any recovery in business confidence and expansion, but to massive public policy. Policy in the form of zero interest rates, now on four years. Policy in the form of federal deficits of, this year, $1.3 trillion and no end in sight. Policy in the form of big bank bailouts and absolution from criminal prosecution.
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The business cycle is broken. Corporations are hoarding cash, not investing. Their fat profits came from cutting workforces and scaling back, not from growing the top line. That has not reversed. And it is not likely to reverse in the absurdist economics practiced by the power elite. More about that next time under "Idiots of the Week."

The Demand Side Forecast continues to be bouncing along the bottom with downside risks. We did predict a post-election slump, from an already weakening trend, on account of the political business cycle, the practice of incumbent presidents arranging federal spending to target the final months of a campaign.

But although we are on the sidelines, we do like to highlight the latest debate, which focused on a new series added to FRED, the data center organized and run by the St. Louis Fed. Titled "Recession Probabilities," produced by Jeremy Piger of the University of Oregon. It aggregates Retail Sales, Incomes, Industriaal Production and Employment – good real economy metrics – and produces an index which purports to show the likelihood of recession. The index – you can see it on the transcript – has not been at the level it is currently without the economy being in or being at the onset of a recession. That said, it is based on available data, which may be revised and thus revise away the indicator's level. Thus, the likelihood percentage is listed at just below 20 percent.

Ah, the ridicule. Bill McBride at Calculated Risk relayed posts from Piger's critics, suggesting the data was shakey or manipulated badly, in language that would make even Demand Side blush. The chief critic also suggested Piger claimed a 100% conviction that the recession was at hand, when at the top of the chart it says 19.56 percent.

Others such as Laksman Achuthan at ECRI and Gary Shilling have pointed to recession, and brought on themselves similar scorn for their recession calls. It's funny scorn is not heaped on the bulls, but only the bears. Funny. The Fed, for example, has been wrong consistently and badly, but seems to get a pass, or at least until recently. Here is an exhange between Shilling and Bloomberg's Tom Keene.


So we put up Piger's FRED chart plus those of its components on the transcript. Although, as we repeat, this is not recovery or expansion we have been in, it is artificial respiration from massive policy inputs – as in zero percent interest rates, bank bailouts and legal immunity, and $1.3 trillion deficits. Absent these, there is no business cycle support, the economy continues in recession.

Another indicator of renewed weakness – Rail.

From the Association of American Railroads latest release, we see mixed results in rail car loadings, a good real economy indicator. Basically total carloadings continue to weaken, on the back of terrific slowing in coal loadings and in spite of a spike in petroleum and petroleum products. Intermodal – that is, container – traffic has been relatively stable. Hurricane Sandy had substantial, but not easily quantifiable nor probably long-lasting impact.

Rail is our seque into a cameo appearance by the Real Economy.

No, by "real" we do not mean the inflation-adjusted economy. We mean the real economy of industrial infrastructure and the services that use it to produce and deliver real stuff to real people. There is a real economy. We do not have to stare like hypnotized chickens at stocks and bonds and deriviatives and interest rate spreads.

Forty percent of US freight rides on the rail. Compare this to less than ten percent in Europe. Of course, North America is a huge land mass, and a great portion of that freight is bulk (as in coal, grain, timber) or intermodal (as in containers landing in Seattle and getting on a car for Chicago). Also, of course, the passenger rail in Europe dwarfs in scale and efficiency the passenger rail use in the US, where aside from the Northeast Corridor – Washington to Boston – Rail is a nonfactor. Within cities, Chicago, Boston, New York, maybe Portland Oregon, may have good rail for commuters, but elsewhere, not so much.

Part of the paucity of effective use of rail for commuters arose from teh Great American Streetcar Scandal, where in the 1940s GM and others bought up and dismantled trolley-based surface transit in order to leave the field clear for diesel buses and automobiles. Commuter rail – a return to the pre-1940's scheme – are on the drawing boards, actually they are in blueprints in a cabinet, shovel-ready, in a dozen or more cities, mothballed for lack of funding.

A great part of the problem of rail is the legal framework, and the absence of partnership between the public and private sector. The railroad boom of the Nineteenth Century resulted in mega-corporations with lots of political power and lots of assets, notably land beside the rail, given by the government to incentivize construdction. Control of rail by these corporations means coordination is baffled by their profit calculations, which are driven by the metric return on capital, that capital constructed and embedded many years ago.

Backing up a bit, when the railroads were built in the West, they were incentivized by land giveaways to the railroad companies. It is well known that people wereenticed to buy the land with deceptive and predatory practices. One great slogan was, "Plowing will bring the rain." Thousands of farms came into being on the premise that dry land would become fertile by simply plowing. That aside, after this sell it to the credulous phase, quite a bit after, and in spite of stipulations in law which prevented them from doing so, the rail companies assembled the land for their own account. These were stipulations as to size and use of parcels. Here in Washington State Plum Creek Timber is a massive spinoff of the railroads.

The point that is most crucial, and one that we are getting away from a bit, is that Rail is a crucial part of the Real Economy. And it is stuck. Demand Side thinks of Rail as a public good, see our book at DemandSideBooks.com for a treatment of public goods – that ought to be managed for the public benefit. It is a utility. Far from making things more efficient by having private markets dominate here, things are vastly less efficient. Rail's owners have been paid many times the original investment from the public purse.

In intercity passenger rail, aka Amtrak, for example, priority to passenger trains receives far more emphasis in theory than in practice. The use as a freight carrier is skewed dramatically to the higher margin bulk and containers, the long-haul, low labor uses.

The bottom line, Rail needs to be the first freight choice. It needs to be a far bigger player in intercity passenger. And it needs to coordinate much better with the other surface transportation modes – marine and highway. There is enormous value locked behind the current doors. And big new investment could garner high returns in opening those doors. We should do it, before we choke to death on the highway.

So that's it for today. The Demand Side Podcast, brought to you by pragmatism. If it works, do it. If it doesn't work, don't do it. Make a science of metrics that display clearly what works. Erase the politics of pragmatism, which is what is good for my donors is what works. (more on that next time, with the disgusting pivot from jobs in the campaigns to cutting spending to avert a fiscal cliff in the actual legislative action). If it doesn't work, don't double down on it. If it does work, maybe we should try more. If nothing is working and we haven't tried something, maybe we should try it. If an economist was proven right by events in his predictions, perhaps we should listen to him. If he was demonstrably wrong, perhaps we ought not. Just saying. So. Pragmatism. A little goes a long way.

Thursday, November 8, 2012

Transcript: 532 - The election is over, CEO's lose

Now the election is over, and we hear the drumbeat. Fiscal Cliff. Fiscal Cliff. Fiscal Cliff.

Before we get to today's podcast, a note. We have two iTunes feeds, one which we started with and became too expensive when we overran our bandwidth. A second which is likely slower in the download, if you notice such things, but is open-ended. Once again this month, we see the announcement, Your podcast is too popular, which is code for you exceeded your bandwidth. If you have wandered here, perhaps from the future when we are back up on that feed, you can change your feed on the iTunes store to the brown icon demandside one word or do it off the transcript page at demandsideeconomics.net. That way the episodes you hear will be more timely.
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Also note: The Demand Side Podcast is brought to you by Demand Side the book, find it at DemandSideBooks dot com.
Quiz. What is the fiscal cliff?

(a) Jargon for austerity, suitably hysterical and non-specific

(b) Statutorily mandated fiscal actions of the federal government

(c) The nightmare for the CEO

(d) All of the above
Of course, it is D – all of the above. The fiscal cliff is the expiration of W's tax cuts, the 2% payroll tax holiday of the Obama tenure, and automatic sequestrations and cuts in spending related to the failure of the bipartisan commision of last year to find a negotiated solution.

This means government austerity. Not, of course, on the level we find so appealing for Greece or Spain, but still significant.

Gary Shilling, as you heard, sugested in toto it would lop off around 4 or 4.5 percent of GDP. When we revive the Demand Side Forecast in January, we'll show you Net Real GDP, our calculation of Real GDP net of government deficits and borrowing from entitlement trust funds. The fiscal cliff is the first step toward the announced end of these deficits, with the Demand Side caveat, that deficits in fact will continue regardless, whether arising from increased spending and a more vigorous economy or from reduced revenue in the case of austerity. This caveat puts the lie to the deficit debate. We're going to have deficits, one way or the other.

The expiration of the Bush tax cuts, also known as the Bush tax cuts for the rich, was embedded in the original legislation in 2001 and 2003. The ten-year sunset was required to escape the so-called Byrd Rule, which would have allowed a single Senator to block legislation that blows up the deficit beyond the ten-year limit. So the sponsors just pretended the tax cuts would end. The deficits were well in sight, even then, and the Bush tax cut machine needed a way around.

Being generous, one might say that the presumption was that tax cuts would lead via the Laffer Curve to lower deficits and/or a more stable, vigorous economy. The Great Financial Crisis gave lie to the latter, and the former was betrayed by a federal debt 50% higher than that accumulated in the prior 200 plus years of the Republic.

Nightmare for CEO's? Why?

The fiscal cliff is composed largely of private spending by private economic actors, largely on private goods. That is, the tax cuts that will expire do not buy roads or schools or climate change mitigation. They are simply checks cut to the private citizen, which he may use to go out and buy whatever. We have argued that this makes them very inefficient for stimulus, since people will pay down debt, save, or buy from China and not generate anything in terms of a multiplier effect. But they are efficient as a source of demand for the products of corporations.

This was demonstrated by Michal Kalecki over sixty years ago. Government deficits in the absence of private investment, translate to profits by privte corporations. We have seen it over the past decade. Enormous public deficits, weak to stagnant investment, yielding enormous corporate profits. Profitability has never been better, up to now, nor balance sheets stronger. I have to listen to it every day on Bloomberg. Fine. But no rebound in the economy. Ergo profits and corporate balance sheets have little to do with strong economic growth or prosperity for the 99%. That's another line.

So, You got it right.

D – All of the Above.

Jargon masking the imposition of an austerity that is the actual long-term goal of one of the parties.

A statutorily defined event that has to be dealt with or it will happen.

A nightmare for CEOs who need profits to keep their CEO chairs.

And now on to our post-election observations.

We begin with, uh-oh, a further nightmare for CEO's.

It is our assessment that corporate business ran hard against Obama, the floodgates of corporate personhood were opened, and having lost, they now find themselves, awkwardly, arm in arm with the Tea Party marching toward the fiscal cliff. Corporate America, including Wall Street, now must quickly unlink and forget its concern with deficits, redoubling its lobbying against regulation or even simple oversight.

So CEO's lose, but likely to win in the back rooms, as usual.

However. The end of cloture. Harry Reid has promised that the arcane and bizarre practice of cloture, which allows a Senator to filibuster without filibustering, and makes the Senate a body ruled by the minority, will be the first victim in rule-making come this new Congress. If he follows through, it would be one big step to the end of gridlock.

Climate change and the election

The GOP convention was cut short because of a violent hurricane. The election itself was overshadowed by Hurricane Sandy and the damage of its aftermath. How many people remembered Katrina and Heckuva Job Brownie? How many people had a second thought about violent weather increasing? And how many just made the assessment of a competent crisis response and what we were likely to have with a return to the GOP.


Fact sheets from 2008. Quote committed to ending the tax cuts for the wealthy unquote. Barack Obama. 2008. Restructuring big banks, reductions in mortgage debt, green jobs. All 2008. All would have worked. Maybe he'll try it now.

No more Tim Geithner? Likely another Wall Street favorite, probably yet another Robert Rubin protege. Business as usual. Bring back Hank Paulson.

And finally. I will love to see who bought the elections. In my state the money flowed. Largely for attack ads. Amusing after the polls closed to see the sprint to the positive side.

Now back into the weeds in Germany, with part two of our relay of Olaf Cramme, apologies if I am not pronouncing that right.

Here, going into the second of the three obstacles or factors obstructing a useful response in Germany to the crisis. The first, you will remember, was an obtuse economic paradigm, largely the IMF line.

Speaking at an IIEA conference October 10.

Olaf Cramme

Today's podcast brought to you by Demand Side the book, Demand Side Books dot com, and by a nationwide direct current electrical transmission system, bringing renewable electricity from source to market with no line loss, making wind, solar, geothermal, and other renewables relevant competitors to coal and oil. A fraction of the cost of the interstate highway system. Will need low maintenance. Will bring us back a short ways in rationality with respect to our energy use and environmental abuse. Think about it today.

Sunday, November 4, 2012

Transcript: Krugman and Stiglitz on the intransigence of the Neoclassicals, plus

Friday was jobs day, with the BLS reporting 171,000 new jobs on employment and a static 7.9 percent on unemployment.

This was seen as an encouraging report by most. We're highlighting it here at Demand Side because we think it shows the effect of the political business cycle, the practice of jinning up the numbers not by fraud or deceit, but by simply spending aggressively out of the federal coffers. It's happened since 1972, except for Jimmy Carter in 1980.
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The employment data reflects the GDP data we highlighted last week. We should expect a post-election slump, no matter who wins, and plenty of impetus for Congress to panic and cave on the austerity measures now contemplated under the title "fiscal cliff."

Of course, there are caveats. If the economy picks up strongly after the election with a Romney victory, it is because pigs can fly and the Confidence Fairy has materialized from the imaginations of the eager plutocrats. If the economy picks up strongly after an Obama win, it will be because people have learned finally to walk on their heads and see the new normal as normal.

ECRI, the Economic Cycle Research Institute, which has a new recession forecast on the table, said this:
Recession Evidence Obscured in Real Time

In recent weeks, several key coincident indicators have surprised the consensus to the upside, bolstering the belief that the U.S. economy has dodged recession. Even though the latest releases may show increases, earlier data have almost uniformly been revised downward, a reality largely ignored by many. For example, after revisions, there is a net gain of only 55,000 jobs in today’s payroll jobs report, which is itself subject to further revisions.
Demand Side is still bouncing along the bottom with downside risks. Like a dog on a chew toy, we cling to the idea that the so-called recovery had nothing to do with the business cycle and everything to do with massive public policy, a stimulus, $1.3 trillion deficits and zero percent interest rates. To ascribe the term "recovery," you must relate it to a business cycle. All real investment has been policy driven, or nearly all, from favorable tax treatments to targeted loan guarantees.

Now to Krugman and Stiglitz (transcript lost)

Intro Olaf Cramme (transcript lost)

Brought to you by (transcript lost)

Dr Olaf Cramme
Visiting Fellow
European Institute

Olaf Cramme is the director of Policy Network, an international think-tank based in London. He is also a member of the General Assembly of the Lisbon Council for Economic Competitiveness and Social Renewal, and co-founder and vice-chairman of Das Progressive Zentrum, a Berlin-based political think-tank.