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Experts have long said that Tepco’s projections for containing the nuclear crisis this year were unrealistic. Now, even Tepco is admitting that things won’t be stabilized this year. As Kyodo News reports:

Stabilizing the crisis at the Fukushima No. 1 power plant by the end of the year may be impossible, senior officials at Tokyo Electric Power Co. said Sunday, throwing a monkey wrench into plans to let evacuees return to their homes near the plant.

***

On May 12, it was confirmed that a meltdown had occurred at the No. 1 reactor, forcing the utility to abandon the water entombment idea and try to install a new cooling system that decontaminates and recycles the radioactive water flooding the reactor’s turbine building instead.

Given that the contaminated water has leaked from the No. 1 reactor’s containment vessel, a Tepco official said, “We must first determine where it is leaking and seal it.”

The official added, “Unless we understand the extent of the damage, we don’t even know how long that work alone would take,” noting the need for one or two months more than previously thought to establish an entirely new cooling system.

In other words, Tepco has no idea how long it will take to contain the leaking reactors.

As has been obvious from the start, Tepco has also covered up vital information. Now, even the Japanese government is lambasting Tepco for its secrecy. As Kyodo News notes:

Tokyo Electric Power Co. did not fully disclose radiation monitoring data after its Fukushima No. 1 nuclear plant was crippled by the March 11 earthquake and tsunami, the government revealed Friday. Chief Cabinet Secretary Yukio Edano, after being informed by Goshi Hosono, a special adviser to Prime Minister Naoto Kan, told reporters that he instructed Tepco to sort out the data, make it public and make doubly sure no more information-withholding occurs.

Coming a day after he blasted Tepco’s flip-flop over the injection of seawater into the plant’s reactor 1, Edano said the government “cannot respond to this matter on the premise” that no more undisclosed information will emerge.

“There is a distinct possibility that there is still more,” he said, urging Tepco to accurately and swiftly report the truth to the government.

Hosono also noted Tepco’s delay in revealing this fact, 2? months after the nuclear crisis started.

The government will look into how this happened, the two officials said.

You’ve already heard that 3 of the Fukushima reactors melted down within hours of the earthquake.

Yomiuri Daily reports today that not only the pressure vessels (the innermost barrier) but also the containment vessels (the outer barrier) of reactors 1 and 3 were also damaged within hours of the quake:

Not only the pressure vessels, but the containment vessels of the Nos. 1 to 3 reactors at the Fukushima No. 1 nuclear power plant were probably damaged within 24 hours of the March 11 earthquake and tsunami, according to Tokyo Electric Power Co.’s analysis of the nuclear crisis.

As I previously noted, the IAEA knew within weeks that there had been meltdowns at Fukushima. The Nuclear Regulatory Commission knew as well. As Kyodo News reports (scroll down to second story):

A senior nuclear regulatory official in the United States said Thursday he believed there was a “strong likelihood” of serious core damage and core melt at the Fukushima No. 1 power plant in the days immediately after the crisis began.

“There were numerous indications of high radiation levels that can only come from damaged fuel at those kinds of levels,” said Bill Borchardt, executive director for operations at the Nuclear Regulatory Commission. “So we felt pretty confident that there was significant fuel damage at the site a few days into the event.”

The NRC also had “suspicions” about the conditions of the spent fuel pools, Borchardt said after a speech at the Japan Society in New York.

Based on that assumption, he said, the NRC recommended that U.S. residents in Japan stay 80 km away from the crippled power plant, which was far beyond the Japanese government’s recommendation for residents within a 20-km radius to evacuate.

While most of the problems have been at reactors 1, 2 and 3 (which were all operating when the earthquake hit) and reactor 4 (where spent fuel rods have been leaking), there have also been problems at reactor number 5 as well. Specifically, as NHK writes:

The operator of the damaged Fukushima Daiichi nuclear power plant says temperatures in the Number 5 reactor and its spent fuel storage pool have risen due to pump failure. The reactor has been in a state of cold shutdown.

Tokyo Electric Power Company says it found at 9 PM on Saturday that a pump bringing seawater to cooling equipment for the reactor and pool had stopped working.

TEPCO says temperatures have been rising since then.

To make matters worse, Typhoon Songda has brought heavy rains to Fukushima. As Al Jazeera notes:

The typhoon has already brought heavy rain to the Fukushima region and there is still more to come. This has prompted worries that runoff water may wash away radioactive materials from the land into the Pacific Ocean.

The plant operator, Tokyo Electric Power Company (TEPCO) has been pouring synthetic resins over the complex in an attempt to stabilise the plant. More work needs to be done, not just now but also to ensure that future typhoons would not spread radioactive materials into the environment.

As Raw Story reported:

Officials from the Tokyo Electric Power Company (TEPCO) are apologizing in advance for the fact that the stricken Fukushima nuclear plant is not ready for the high winds and heavy rain of Typhoon Songda, a massive storm that could make landfall in Japan as early as Monday.

The BBC quotes a TEPCO official as saying, “We have made utmost efforts, but we have not completed covering the damaged reactor buildings. We apologize for the lack of significant measures against wind and rain.”

Buildings housing the plant’s nuclear reactors are still standing open in the wake of crippling hydrogen explosions that followed Japan’s March 11 earthquake and tsunami. The approaching storm could scatter highly radioactive materials into the air and sea. Plant operators are currently spreading “anti-scattering agents” around the buildings housing reactors one and four.

As I’ve predicted for a long time, the Fukushima disaster could end up being much worse than Chernobyl. See this, this, this and this.

Mainichi (and Japan Times) report:

Radiation released by the crippled Fukushima Daiichi nuclear power plant has caused soil contamination matching the levels seen in the Chernobyl disaster in some areas, a researcher told the government’s nuclear policy-setting body Tuesday.

***

The size of the contaminated areas in the Fukushima crisis is one-tenth to one-fifth of those polluted in the Chernobyl disaster, Kawata said.

It’s not just the soil, it’s also the seafloor. NHK notes that radiation has been found in the entire 300 kilometer (186 mile) region of the coast tested near Fukushima.

And Harvey Wasserman notes that there may have been 10 times more radiation released into the ocean than by Chernobyl:

New readings show levels of radioisotopes found up to 30 kilometers offshore from the on-going crisis at Fukushima are ten times higher than those measured in the Baltic and Black Seas during Chernobyl.

“When it comes to the oceans, says Ken Buesseler, a chemical oceonographer at the Woods Hole Oceanographic Institution, “the impact of Fukushima exceeds Chernobyl.”

***

For all the focus on land-based contamination, the continuing flood of radioactive materials into the ocean at Fukushima could have the most problematic long-term impacts. Long-term studies of radiological impacts on the seas are few and far between. Though some heavy isotopes may drop to the sea bottom, others could travel long distances through their lengthy half-lives. Some also worry that those contaminants that do fall to the bottom could be washed back on land by future tsunamis.

***

“After Chernobyl, fallout was measured,” says Buesseler, “from as far afield as the north Pacific Ocean.”

A quarter-century later the international community is still trying to install a massive, hugely expensive containment structure to suppress further radiation releases in the wake of Chernobyl’s explosion.

Such a containment would be extremely difficult to sustain at seaside Fukushima, which is still vulnerable to earthquakes and tsunamis. To be of any real use, all six reactors and all seven spent fuel pools would have to be covered.

But avenues to the sea would also have to be contained. Fukushima is much closer to the ocean than Chernobyl, so more intense contamination might be expected. But the high radiation levels being measured indicate Fukushima’s most important impacts may be on marine life.

The US has ceased measuring contamination in Pacific seafood. But for centuries to come, at least some radioactive materials dumped into the sea at Fukushima will find their way into the creatures of the sea and the humans that depend on them.

To add insult to injury, Zero Hedge notes that oil is also spilling into the ocean near Fukushima:

Just because mega-radioactive water leakage was not enough. From Xinhua: “Operator of the troubled Fukushima No. 1 nuclear power plant found that oil has been leaking into the sea close to the facility, the Kyodo News reported Tuesday. The operator Tokyo Electric Power Co. (TEPCO) said the oil leaks were possibly from nearby oil tanks that may have been damaged in the March earthquake and tsunami, and it would set up oil fences to prevent the liquid from pouring into the Pacific Ocean.” Oh, but they only discovered this now? Odd how it took nearly 3 months for those oil tanks to rupture and start spilling into the water.

Update: While an explosion occurred near reactor 4 today, that appears to be the least of the problems at the Fukushima nuclear complex.

Is the latest consumer confidence release yet another example of elite disconnect? One of the things that has become striking is the degree to which the chattering classes in New York and Washington DC seem utterly unaware of what is happening in the rest of the country. New York City is doing reasonably well based on the heroic efforts by the officialdom to prop up the major capital markets firm; DC is recession immune and more recently awash in lobbying funds. The influences range from visual signals (I had a friend visiting from Boston remark how striking it was that there were so few shuttered storefronts here in NYC) to continued Administration cheerleading (a constant since the 2009 bank stress tests). And since major media stories about the economy are driven by sources in these two cities, it feeds into business reporting.

We’ve had seven weeks of initial jobless claims over 400,000, unemployment stable only by virtue of more exits from the workforce, high oil prices, rising food prices, and housing prices in pretty much every area of the US continuing to fall with no prospect of relief. The Bloomberg story on the latest consumer confidence figure managed to separate the degree of the miss by supposed experts. This bit comes a full sixteen paragraphs into the story:

Estimates for consumer confidence ranged from 60 to 71 in the Bloomberg survey of 68 economists. The measure averaged 98 during the expansion that ended in December 2007.

This is the start of the story:

Consumer sentiment unexpectedly decreased in May to the lowest level in six months as Americans grew concerned over the outlook for jobs and the economy, while a measure of home prices dropped to a nine-year low.

The Conference Board’s confidence index dropped to 60.8 from a revised 66 reading in April, figures from the New York- based private research group showed today. Home prices decreased 5.1 percent in the first quarter from the same time in 2010, according to data from S&P/Case-Shiller. A separate report today showed manufacturing cooled.

The release came in at the very bottom of the estimates made by a very large number of economists (a more typical Bloomberg survey is in the teens to twenties). So the gap between the forecasts and the results points to a serious miss. And note weakening home prices aren’t a surprise; these results, and the continued pushing out the time frame for “when is housing going to bottom” which was deemed to be 2011 but the seers are now moving to 2012, have been in the news for weeks. Yet we see more optimism in the story:
“

The economy has slipped into a soft patch,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “In the second half, we’ll do better than we’ve been doing. As economic activity picks up, the labor market will improve as well.”

With Federal, state, and local budget cuts in the offing, what in the private sector can compensate? A weakening dollar will help, but it will take time for manufacturing to return to the US, and in the meantime, a soft dollar (ex other factors) will make oil prices worse, putting more immediate pressure on consumer budgets and mood.

Of Codebreakers and Mechanical Giants The Epoch Times

Really Weird-Looking Bird HealthyPets (hat tip reader furzy mouse)

Food prices ‘will double by 2030′ BBC

El Salvadoran Government & Social Movements Say No to Monsanto Alternet (hat tip reader furzy mouse)

Roger Ailes’ Office Protects Him from Gay Terrorists [Paranoia] Gawker

In Japan, a Culture of Nuclear Dependency New York Times

Accusations of Treason in the Greek Parliament Covering Delta

Greek Aid Package to Be Decided by June’s End, Juncker Says Bloomberg

Amazing Satellite Images Of Spanish Ghost Towns — Abandoned Since The Housing Crash Clusterstock

Libya rebels running out of crude stocks Financial Times

A manifesto for the fund’s new supremo Jeffrey Sachs, Financial Times

Hitler and the Chinese Internet generation Asia Times (hat tip reader furzy mouse)

Welcome to Post-Legal America Tom Engelhardt

Housing Index Is Expected to Show a New Low in Prices New York Times. This statement is affirmatively not true:

“‘No one ever renovated the kitchen or redid a room for the kids in a rental,’ Mr. Yearley [CEO of Toll Brothers] said.” Sorry, there are multiple examples in my building (including yours truly). One tenant is known to have spent over $1 million on her apartment and one is in the middle of a major redo that will probably add up to that much, and I know examples in other buildings.

Antidote du jour:

By Philip Pilkington. Journalist, writer, economic anti-moralist and aficionado of political theatre

So horrible a fact can hardly pleaded for favour:
Therefore go you, Equity, examine more diligently
The manner of this outrageous robbery:
And as the same by examination shall appear,
Due justice may be done in presence here

– Liberality and Prodigality, a popular morality play from 1567

The morality play was a popular theatrical form throughout the Tudor period. In 15th and 16th century Europe people would crowd around small stages where the actors would play at being the personifications of moral attributes. So, for example, one actor would play the part of Virtue – who is speaking in the above quotation – and this actor would then embody all the characteristics we associate with such a moral position. Virtue then hunts out characters such as Prodigality, who is causing trouble in the region by robbing and murdering other ‘good’ characters – in this case, Tenacity.

The idea behind the morality play was that it would impart wisdom to those who watched it. The common people – thought somewhat stupid by the writers – could then follow the simple moral messages purported by the playwright. It was hoped, for example, that if onlookers could see Virtue winning out on the stage against Prodigality, the citizenry would then act more virtuously and be less prodigious and greedy.

Viewed in retrospect, this sort of entertainment appears rather crude. It is seriously doubtful that the moral messages taught in the plays actually changed the behaviour of the onlookers. Virtuous behaviour probably does not follow from watching a virtuous hero battling a prodigious glutton onstage. Nevertheless, morality plays were an important facet of late medieval life.

Today, the US media have invented a new type of morality play; it’s called Fox News. On Fox News we see many of the same simplistic moral messages being disseminated to the population at large. Talking heads – who, unlike normal news-broadcasters, play a definitive role in the narrative – battle it out against each other, all the while imparting their presumed wisdom to the populace.

I’ll be honest. Viewed from abroad Fox News appears primitive and strange – a product of a world I am almost wholly unfamiliar with. However, it never worried me as much as it seemed to worry others. Like the tabloid press in my own country, it appeared to me to be a silly distraction given to people to spice up their everyday live and reinforce their collective opinions. In short, Fox News appeared to me to be giving the audience what they wanted; not facts, but drama and moral reassurance.

Recently I came across a roundtable discussion with some of the US’s leading proponents of Modern Monetary Theory (MMT). In the discussion they talk about how the US economy might pull itself out of the rut it is in. Warren Mosler points out that this can be done from either a conservative ideological position – by cutting the payroll tax – or from a more liberal ideological position – by increasing government spending. Soon the discussion turned to why policymakers refuse to listen to such suggestions. And that’s where things get really interesting.

Mosler believes that most economists in key positions – such as Fed chairman Ben Bernanke – understand why unbalancing the budget is necessary and yet they continue to go in front of congressional hearings calling for deficit reduction. Mosler is quite clear that this behaviour is nothing short of deranged. He attributes it to political pressure. If Bernanke were to call for higher deficits he would by wantonly attacked by elected officials for being irresponsible. He might not even keep his job.

But this is strange, almost topsy-turvy. It is as if the politicians are telling the economists what they can and cannot think. Shouldn’t it be the other way around?

Then Mike Norman – a regular guest on various TV shows, including on Fox News – made an even more interesting comment (starting at around 20.30). He tells a story about how he once had David Walker – former Comptroller General and member of the deficit terrorist lobby over at the Peterson Foundation – on his show. While talking with him, Norman got Walker to admit that insolvency is not an issue for US government debt –Walker and his chums, of course, have been pushing the ‘bankruptcy’ argument hard so this was something of a shock to Norman. You can hear Walker quite clearly admit that there’s no solvency issue in this audio clip.

Walker, of course, continued to push the ‘insolvency’ line after his discussion with Norman.
Then Norman ran into Walker again while waiting to appear on Fox News. Walker said that he remembered the conversation and continued to think that there was no real solvency issue for the US. When they finished up their conversation Walker strolled out onto the set and started saying once more how the US was facing bankruptcy. How bizarre.

Norman quite correctly refers to this as a sort of ‘subversion’. It must be the case that, to a certain extent at least, the deficit terrorists are straight up lying. But perhaps it’s better to see them as actors in a giant morality play that the media are putting on for the general population.

Think about this for a moment. The media seek to get ratings – that’s their bottom line. Editors will always run stories that are more sensational, especially if these tap into a vein of common anxiety or passion. I know this from experience. So, the media love headlines about possible government bankruptcy and the like. This especially so during periods of economic strife, when people love to hear that they are not alone in their financial sufferings. Nothing boosts the ego quite like thinking that your own bankruptcy overlaps with the bankruptcy of the country as a whole. It absolves people’s guilt and reassures them that the suffering is collective.

Politicians and economic commentators play into this by acting out various roles. They’re not simply lying – indeed, to an extent they seem to believe in the part they play, even though they know that what they are saying is misleading. But to step outside of the play – to pull a Brechtian manoeuvre and bring the audience in on the truth – would make them appear crazy; nothing, after all, appears quite so crazy as when someone starts telling too much truth. So the commentators and politicians get caught up in a slipstream of misleading nonsense – all the while furthering their careers.

I looked around YouTube for some clips of Mike Norman appearing on various television shows, so that I could see how deeply the media themselves were involved in this strange staging. And, oh boy! are they deeply involved.

Consider this clip of Norman appearing on Fox News having a discussion with Neil Cavuto. Once again we see that topsy-turvy phenomenon whereby the presenter, who is not an economist, telling the economist what is right.

“This is strange,” I thought. “But perhaps it is unique to Fox News.” So I looked around for another clip and found a discussion with Norman on Russia Today. Once again, the same thing happens. The presenter – who comes across as irate and unpleasant – belittles Norman and essentially claims to know more about economics than him. The Fox format, it would seem, has been imported to other channels which have come to realise that they can get more ratings by appealing to the passions and morals of the viewer.

It’s the morality play format updated for the 21st century and the new language of morality is economics. Like morality everyone has their own ‘opinion’ on what is or is not the ‘right’ thing to do. You don’t just see this on American TV; you get it on the internet and in real life too. It’s as if economics is somehow subjective and everyone has their own idea about how the economy works. Not having some sort of vague idea about how the economy works essentially bars you from entering into discussion about the important issues of the day. But once you have an idea – no matter how airy and vague – not only can you discuss these issues, but you can have an ‘opinion’ on them.

In this there is no ‘correct’ or ‘incorrect’ opinion, it’s more so that what you think is either ‘right’ or ‘wrong’; in the moral sense of those terms. Politicians and commentators then take on a certain moral stance – usually one in favour of austerity and balanced budgets (‘belt tightening’ to rehash the moral term) – and hit the television circuit. The person with the most intriguing narrative then gets the most votes or viewers. Fire and brimstone narratives are particularly attractive as they’re easy to sell in hard times to a population that wants some sort of theological justification for their plight.

To ask if these commentators and politicians believe what they’re saying is to pose a tricky question. As Norman’s anecdote about Walker highlights that at least some people know that what they’re saying is not strictly true. But that doesn’t mean they don’t believe in it – that is, if we take the term ‘belief’ to mean something akin to ‘faith’. What the politician is saying may be factually inaccurate, but they may have full ‘faith’ in it. So we cannot simply chalk these people up as liars.
Media commentators are even trickier. At some level they must know that they have a very limited grasp of economics. But as we’ve argued above, economics is not to be seen as something like physics, where you either know what you’re talking about or you don’t. It’s seen in a far more subjective light – but one in which one’s opinion, even though subjective, is still ‘true’. In this economics is almost identical to moral judgement.

In Norman’s discussion on Fox News, his interlocutor Cavuto ends the conversation by spelling out his ‘beliefs’. He tells Norman that he ‘believes’ if the government stepped out of the way the private sector would flourish. This is clearly a belief in the religious or moral sense of the term. Cavuto doesn’t ‘believe’ this because he has studied it; no, he ‘believes’ it because it fits with his moral view of the world. He doesn’t ‘believe’ in these ideas in the same way he believes in gravity – that is, as an objective fact – he ‘believes’ in them in the same way he might ‘believe’ in the Holy Ghost or in the immorality of soft-drug use.

This is how the characters that act out our contemporary morality play constitute themselves. They are both the writers and the actors of this play and like their predecessors they do ‘believe’ in the morals that they are trying to convey. They think that if everyone listened to them and followed their example the world would be a better place – because it would come to closely resemble the ‘ideal’ they have in their heads.

But like the playwrights of the Tudor era, this faith is misplaced. People only queue up to see the action, to affirm their own moral conceptions of the world and to enjoy it vicariously. It’s all just entertainment after all and, even though it deals with a very serious topic, it is not to be taken wholly seriously.

Any actor that walks on stage with a story that contradicts the moral certainties of the viewer is instantly viewed as a clown. After all, he cannot be taken seriously – so offensive is what he is saying to our collective sense of what is ‘good’ and what is ‘bad’. He is like the court jester in Shakespeare or the contemporary comedian; what he is saying may be strictly and objectively true, but because it disturbs the ‘order of things’ it is to be viewed as a sort of clownish lunacy, not to be taken seriously.

But I can already hear someone piping up at the back. “Aha!” he’ll shout at me. “You’re doing the same thing as the economists. After all, you’re just spouting out more morals. Economics is no science and you, like the other economists, are claiming that it is. You sir, are just one more preacher among many.”

I sympathise. Economic is not nor ever will be a science like physics. However, what I am claiming is not simply to be the bearer of better morals – I am not trying to play the part of Virtue. The fact is that there are some things that are just simply true in economics. One of these is the necessity in a modern economy for budgets to go into deficit during periods of high-unemployment and low-growth. This is a fact. It is a fact like if I were to point out to a policymaker that, in order for him to step up police activity and arrests he will need to make more room for the arrested convicts in the prison system. The latter claim doesn’t need to be ‘science’ to be factually accurate – it just is. While morals may be relative in our post-Nietzschean world, facts are not.

My key point here is that the media and politicians – the players in our moral spectacle – ignore these facts as if they were somehow relative and open to opinion, while they are not. I think Mosler is right when he says that Benanke is aware of this and other truths but does not say so because to do so would be politically unfeasible. I also think that, after his discussion with Norman, David Walker did indeed come to understand that there was no risk of insolvency for the US. But because he was more interested in playing his role (as Prudence?) than telling the truth he acted as if it were not.

Once again to emphasise Mosler’s other point. A bigger budget deficit can be facilitated through the conservative measure of cutting taxes or the liberal measure of increasing spending, so this is not really an ideological issue (remember, Bush II increased the deficit massively to facilitate tax-cuts). The austerity line then, is not ideological nor should it be seen to be. It is, as I’ve been arguing, all an act. Like the actors in a morality play, the people taking part in it think that it is ‘moral’ to tighten our belts and so they insist upon it. They explain this ‘morality’ in pseudo-economic language, of course – they talk incoherently about ‘sustainability’ and ‘saving’ – but if you put a dog in a dress, it’s still a dog, and this is still morality no matter what garb it wears.
So what has created this vacuum into which the crazies have rushed? It seems to be due to a crisis of confidence in the economists themselves. Economists since the Reagan-era unwisely stepped into the limelight where they were treated as masters of the universe. Greenspan, of course, was the most visible manifestation of this. When the whole thing came crashing down no one really trusted them anymore. People began to realise that the economists’ theories were full of holes – so they just went out and created their own by cobbling together outlandish rubbish by integrating what they’d learnt in undergraduate class with their own moral sentiments and beliefs. Every man becomes his own economic theorist.

This is proving disastrous. Economists in the last thirty years have been turning their discipline into a pseudo-science, but even that was preferable to this anarchy. Even the crappy economists that universities have been turning out over the past thirty years had some standard of rigor – well most of them did, anyway – and they all recognise certain simple truths. When people start cobbling together their own theories – alloying morals and metaphysics, opinions and theology – the whole thing falls apart. Memes pass from one person to another and a collective hysteria takes hold, while rational voices are drowned out in a sea of shouting and perniciousness. All the world, to use the words of a great poet, becomes a stage.

This is what accounts for the curious situation we face today. The solutions are all on the table, they’ve even been tested before and yet we are impotent to step forward and pick them up. All we can do is watch this unusual spectacle play out – paralysed – and experience the very real implications that follow from it. Economics as morals – politics as theatre; apocalypse as a self-fulfilling prophecy.

Thanks to an alert NC reader, we featured in Links more than a month ago the fact that Denmark, contrary to the spirit of the Eurozone, was implementing border controls. Today, a hand-wringing comment by Peter Spiegel, the Financial Times’ bureau chief in Brussels, describes how sentiment against Eurozone integration has risen among the locals. The near-victory of the nationalist True Finns, regime change in Ireland and Portugal, and demonstrations in Spain, Greece, and Portugal suggest that the citizenry is increasingly unhappy. Spiegel describes the Netherlands as “the California of Europe” and describes in some detail how it opposed the recent €440 billion rescue fund, opposed recent efforts to ntegrate the western Balkans into the EU to i, and demanded reform of immigration policies.

Perhaps I am projecting US tendencies onto the EU, but I see the same signs of elite isolation ther as we have here (in the US, it’s a New York-Washington bubble that includes finance, government officials, and major media). Per Spiegel:

Instead, we may be witnessing a generational change in European political dynamics. Traditional left-right divisions have narrowed. No mainstream social democrat now advocates centralised economic planning, just as no conservative candidate seriously questions the underpinning of the welfare state.

In its place, we are seeing a new division, between globalisers and localisers. The urban elites on both the left (intellectuals, liberal internationalists) and the right (free traders, global business leaders) face a challenge to their postwar consensus from a new group of revanchists.

This political force also comes from both the left (trade unionists, working-class whites) and the right (rural nationalists, far-right xenophobes). More importantly, it may spell a new, unprecedented challenge to the European project.

Did you notice the divide? No right thinking, educated person is against globalization; it’s only the lower classes, people in the hinterlands, and wackos. This is simply astonishing. It somehow does not occur to Spiegel (and I assume that he is merely a reflection of the chattering classes in Brussels) that the globalization/economic integration experiment has led to increased income disparity and and erosion of democracy. Yes, the elites and the rich benefit, but there are plenty of educated and middle class people who have come out on the short end of the stick. He seems to have ignored Dani Rodrik’s trilemma, that you cannot have national sovereignity, democracy, and deep economic integration at the same time. As he noted, you can have at most two of those three:

To see why this makes sense, note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream. The malfunctioning of the global financial system is intimately linked with these specific transaction costs…..

So I maintain that any reform of the international economic system must face up to this trilemma. If we want more globalization, we must either give up some democracy or some national sovereignty. Pretending that we can have all three simultaneously leaves us in an unstable no-man’s land.

Given the spectacle of bankster bailouts followed by grinding austerity which many realize all too well is primarily a further sops to financiers, it is not too hard to see that many citizens correctly discern that the globalization/eurozone experiment isn’t delivering the economic benefits they’d been promised, and they like to have back some of what they gave up, in particular, greater local self-determination. This is completely sensible yet the Eurocrats seem to see it as voter ignorance, rather than a warning shot that the powers that be need to be a lot more concerned about the living standards of ordinary citizens than they seem to be now.

Related to the desire of the elites to depict unhappy locals as uneducated crazies, I also wonder whether the mainstream media is underreporting the scale and geographic scope of active opposition. There are many stories about protests in Madrid and Athens, but this comment from reader Doly yesterday suggests that the uprisings in Spain are more extensive and have specific obejctives:

Thought I’d report what my mother is telling me in her emails from Spain, mostly the economically relevant bits. (Note – she’s 57 and doing perfectly fine financially. If even some Baby Boomers who are doing well feel like this, imagine the rest.)

I’m delighted with the movement in La Coruña (Note – La Coruña is in the Northwest corner of Spain, on the coast. Not exactly close to Madrid). They’re doing it so well!

There is communication among the camps of all Spain. A couple of days ago two young people from Puerta del Sol in Madrid came here, I imagine to coordinate, advise and provide ideas. I suppose they have sent people to all of Spain.

There are camps in more than 150 Spanish cities, and I’m told also in foreign countries. (Note – Most definitely. I live in Brighton, UK, and there is one here.)

A Portuguese friend tells me that the movement has bloomed strongly in Lisbon, helped by the very difficult economic situation in the country. It started on 19th May, when some Spanish students of the Erasmus program made a demonstration. Now it’s the Portuguese citizens themselves protesting. It’s possible that the example extends to other European cities.

Another thing. The sparkle may also put Buenos Aires on fire. The movement is supported by the Nobel Prize Adolfo Pérez Esquivel and the Mothers of the Plaza de Mayo. Both Spanish residents and Argentinians are joining. They have been in touch with movements in Uruguay, Chile and Mexico to make a joint manifesto denouncing police aggression against the campers in Barcelona.

For the 30th May they have launched an action: everybody take out 155 euros out of their bank account. People are very upset because all the money has gone into saving the banks instead of social support. Besides, when people can’t pay their mortgage, the bank takes the house, sells it at half price, and the families that were foreclosed on, apart from being on the street, still have to pay the mortgage. We ask that if the bank takes the house, people shouldn’t continue paying for a house they don’t have any more.

Tomorrow I’ll be in Madrid (Note – for personal reasons). The train arrives early so I’ll go directly to Puerta del Sol to see that. Your father has made me promise him I won’t go, he was really tiring, because he’s afraid I’ll be mugged or the police start hitting people. But you will understand I can’t miss this, and I have some experience with this sort of thing (Note – she means in times of Franco), though now I know I can’t run as I could. I want to see how the camp is organized there. I’ll tell you all about it.

This is once she arrived in Madrid, 30th May:

The tents where the people who stay to sleep are, are using up all the space, Puerta del Sol is small for such a movement, and they are debating taking out the camp and separate it into the different local areas. Today, 29th May, there have been assemblies in more than 140 places within the Madrid autonomous community, and it’s estimated that more than 25,000 people have met today to form local groups. Many of them will meet one, two or four times a month.

The protest of the indignant have made theirs the objectives of a platform called “Real Democracy Now”. Apparently this was born on the Internet. They say that “Real Democracy Now” is a group born in the University world about a year ago, and it has some notoriety under the slogan “without a home, without work, without a pension and without fear”. Other slogans are “Politicians are guilty”, “Cuts? Theft.”, “This isn’t a crisis, this is fraud.”, “We aren’t anti-system, the system is anti-citizen.” Other platforms have joined, such as “Don’t vote them” and some others.

These are their objectives (I’ve left full details on the economic ones):

1. Removal of the privileges of the political class

2. Against unemployment:

a. Distribution of work, encouraging reduction in work hours until structural unemployment is ended (that is, until unemployment goes below 5%).
b. Retirement at 65 years of age and no going up in retirement age until youth unemployment is ended.
c. Benefits for companies with less than 10% of temporary contracts.
d. Job safety: Mass layoffs should be impossible in big companies while there are profits, taxing big companies to ensure that they aren’t covering jobs that could be permanent with temporary jobs.
e. Bring back the allowance of 426 euros for all long-term unemployed people.

3. Right to a home:

a. Homes that were built and not sold in a long period of time should be taken by the State and put on the market to be rented by Councils.
b. Economic support for young people and all people of low income to pay the rent.
c. Mortgages should be cancelled if the homeowner gives the home back to the bank.

4. Quality public services:

a. Removal of unneeded expenditure in government, and establishment of an independent control of budget and expenditure.
b. Hiring of health workers until the waiting lists are over.
c. Hiring of teachers to guarantee a good ratio of pupils per classroom, and support groups.
d. Reduction in the costs of attendance of all University education, and make the cost of graduate the same as postgraduate courses.
e. Public finance of research to guarantee its independence.
f. Cheap and sustainable quality public transport: return the trains that have been substituted by high speed trains with the original ones and the same prices, make cheaper transport passes, restrict private traffic in town centres, build bike lanes.
g. Local social resources: Effective applying of the Dependence Law, networks of local carers, local services for mediation and tutors.

5. Control of banks:

a. Ban of all sorts of bailout of banks: those banks with problems must go bankrupt or be nationalized to become a public bank under social control.
b. Rising the taxes to bank directly in proportion to the social cost caused by the crisis that was brought about by their mistakes.
c. Banks should return to the government all the public money given to them.
d. Ban Spanish banks from investing in tax havens.
e. Regulation of sanctions to speculation and bad bank practice.

6. Taxes:

a. Raise taxes to the most wealthy and to banks.
b. Real and effective control of tax fraud and money going away to tax havens.
c. Promoting internationally the adoption of the Tobin tax.
d. (Some other things specific to Spain that I’m not sure of the meaning).

7. Citizen freedoms and participative democracy

8. Reduction of military expenses

Reader Diego qualified this list a bit, saying that 15-M and Real Democracy Now followers were not necessarily in agreement on the social demands (such as action against unemployment and housing policy) they were united on:

1) real democracy (which means a more representative electoral system, some measures of direct democracy, etc.); 2) fight against corruption (e.g. indicted people being expelled from office) and politicians’ privileges; 3) punishing bankers and regulating finance.

He suggested looking at #consensodeminimos on Twitter.

While it’s hard to discern the state of play from anecdotes, the level of economic distress in Europe and more important, the fact that it is likely to get worse before it gets better, gives every reason to believe that citizens are restless. And with the summer upon us, thing could heat up mighty fast.

A well argued and documented post at VoxEU seems glaringly at odds with recent experience in the US. “How the long-gone Habsburg Empire is still visible in Eastern European bureaucracies today,” by Sascha O. Becker and Ludger Woessmann looks at the territories formerly occupied by the Habsburg Empire, which had a well run and fairly honest bureaucracy, particularly in contrast to the other major powers that were influential at various points in Eastern Europe (the Ottoman Empire and Imperial Russia). The authors identified five modern countries in which the Habsburgs had once occupied only a portion of their territory. They limited their analysis to populations living within 200 kilometers of the long-ago imperial border.

Their findings:

Our results suggest that the Habsburg Empire is indeed still visible in the cultural norms and interactions of humans with their state institutions today. Comparing individuals left and right of the long-gone Habsburg border, people living in locations that used to be territory of the Habsburg Empire have higher trust in courts and police. These trust differentials also transform into “real” differences in the extent to which bribes have to be paid for these local public services.

We complement these main findings by looking into a series of additional aspects.

First, our results are robust when restricting the comparison groups to formerly Ottoman regions (instead of any non-Habsburg Empire).
Second and interestingly, the Habsburg effect does not vary systematically with the duration of Habsburg affiliation, consistent with models that predict persistent effects of limited exposure.
Third, we analyse whether Habsburg exposure fostered trust levels in state institutions in general, i.e. also in central public institutions like the president or the parliament. We find no significant evidence of such effects, suggesting that it was the local interaction with bureaucrats that was key.
Finally, evidence from a firm dataset, the Business Environment and Enterprise Performance Survey, corroborates the general pattern of results derived from the household dataset. That is, firms on the Habsburg side of the long-gone border within the same country have higher trust in the courts.

The authors also cite other examples of long-lived impact of good governance, for instance, that differences in levels of interpersonal trust in northern versus southern Italy can be attributed to how free city-states were administered at the close of the first millennium.

This sort of durability no doubt seems inconceivable to Americans, particularly since this country not that long ago (certainly the mid 1930s through the mid 1960s) had a highly level of trust in government, and the slide into open and widespread corruption has been a comparatively recent phenomenon. But the US has also been a staging ground of an orchestrated campaign to sow distrust in government, and you can breed dysfunctional and underperforming institutions pretty quickly if you set about it.

One of the issues that seems implicit in the Becker and Woessmann post is that despite a very long span of time, communities in Europe are stable enough to retain a local cultural over very long periods of time. By contrast, with so much of America being transient, and comparatively-recently created suburbs being such an important part of housing stock, many municipalities have shallow roots. In addition, as colleague and guest poster Doug Smith has pointed out in his book On Value and Values, the old intermediate forms of social organization in the US, which not long ago were almost entirely community based, have been replaced by organizations, many of which are not local.

So does this lack of strong local anchors give America its vaunted innovativeness, but also less ability to maintain social values, in particular high levels of trust? Reader input encouraged.

Hat tip reader Bruno (click to enlarge):

Doctors and dentists tell patients, “all your review are belong to us” Ars Technica (hat tip reader Squeaky Fromm). I think I’m going to wind up walking out of quite a few doctors’ offices if this gets traction.

Bubbling sea signals coral threat BBC

Mind Reading: The Researchers Who Analyzed All the Porn on the Internet Time

Apparent torture of boy reinvigorates Syria’s protest movement Washington Post

Soft options are no longer viable options Wolfgang Munchau, Financial Times

Orderly Greek restructuring a ‘fairytale’ Financial Times

Why Christine Lagarde should never be head of the IMF Telegraph (hat tip reader dearime)

The Problem With Christine Lagarde Simon Johnson

Arizona Land Sells for 8% of Price Calpers Group Paid at Peak Bloomberg. Lordie.

Against Learned Helplessness Paul Krugman

Okay, Enough: Stop Feeling Sorry for Misha Khodorkovsky Matt Taibbi (hat tip reader Albert W)

What Manuel Zelaya’s return means for Honduras Guardian (hat tip Philip Pilkington)

The wonders worked by womanhood Lucy Kellaway, Financial Times. Hooray, Kellaway kneecaps the Lagarde genderism pitch.

The Truth About the American Economy Robert Reich

Today’s New… “But, You Didn’t Make Your Payment” Exemption to the Law Martin Andelman

Antidote du jour:

Yves here. This post is certain to annoy some readers. Note that Kelton does not address under what circumstances it is desirable to have the government run a surplus versus a deficit, merely what the implications are. Bill MItchell is rather forceful on this matter:

The US press was awash with claims over the weekend that the US was “living beyond” its “means” and that “will not be viable for a whole lot longer”. One senior US central banker claimed that the way to resolve the sluggish growth was to increase interest rates to ensure people would save. Funny, the same person also wants fiscal policy to contract. Another fiscal contraction expansion zealot. Pity it only kills growth. Another commentator – chose, lazily – to be the mouthpiece for the conservative lobby and wrote a book review that focused on the scary and exploding public debt levels. Apparently, this public debt tells us that the US is living beyond its means. Well, when I look at the data I see around 16 per cent of available labour idle in the US and capacity utilisation rates that are still very low. That tells me that there is a lot of “means” available to be called into production to generate incomes and prosperity. A national government doesn’t really have any “means”. It needs to spend to get hold off the means (production resources). Given the idle labour and low capacity utilisation rates the government in the US is clearly not spending enough. The US is currently living well below its means. But the US government can always buy any “means” that are available for sale in US dollars and if there is insufficient demand for these resources emanating from the non-government sector then the US government can bring those idle “means” into productive use any time it chooses.

Spending equals income. Someone has to spend for incomes to exist. For incomes to grow there has to be growth in spending. There are three sources of spending growth in a macroeconomy – the external sector (if net exports are positive); the private domestic sector; and the government sector (if the budget is in deficit).

That is indisputable. Economic growth is defined in terms of production and production only occurs if there are goods and services being purchased. Firms do not produce to hold inventory. Firms may invest in response to their guesses about future sales. These guesses will be heavily influenced by current consumer actions.

So when you get commentators and high-level monetary officials arguing that growth comes from not spending you have to ask why anyone would listen to their views and why they are paid to express them. I don’t mind bloggers who do it for free saying what they like but when highly-paid and highly-visible express views that are not grounded in any economic theory that is comprehensible but nonetheless seek to influence the policy debate then I get angry.

One problem in the US is that these decisions are politicized due to a lack of consensus on national priorities and an unwillingness to admit that we need a significant change in economic policy. Even though the evidence is all around us that the economic paradigm of the last 30 years, of using rising consumer debt to substitute for rising worker wage levels, is tapped out, those at the top of the economic heap still benefit from reimplementing it even if it isn’t very successful and looks likely to end in tears very soon. As we wrote in ECONNED:

The situation we are in now echoes that of the Great Depression. Although scholars still debate its causes eighty years later, a persuasive view comes from MIT economics professor Peter Temin. Temin, in his Lessons from the Great Depression, first sets forth the prevailing explanations and explains why each falls short. He argues that the culprit was the impact of World War I on the gold standard.

Recall that starting roughly in the 1870s, major European economies increasingly adopted the gold standard, and a long period of prosperity resulted. The regime was suspended in the UK and the major European powers during the war. Afterward, they moved to restore it, sometimes at considerable cost (England, for instance, suffered a nasty downturn in the early 1920s). But the aftereffects of the war meant the Edwardian period framework was unworkable. The deflationary forces they set in motion could have been countered by countercyclical measures after the Great Crash. But that was impossible with the gold standard. Indeed, as Temin notes, “Holding the industrial economies to the goldstandard last was about the worst thing that could have been done.”

Now readers may have trouble with that comparison, particularly since the conventional wisdom is that our policy responses have been so much better than those of the early 1930s. But the key point here is that the institutional framework locked the major actors into a particular set of responses. They were not able to see other paths out because they conflicted with an architecture and a set of beliefs that had comported themselves well for a very long time. It’s hard to think outside a system you grew up with. And remember, the gold standard did not break down overnight; the process took more than a decade.

By Stephanie Kelton, Associate Professor of Economics at the University of Missouri-Kansas City, Research Scholar at The Levy Economics Institute and Director of Graduate Student Research at the Center for Full Employment and Price Stability. Cross posted from New Economics Perspectives.

Imagine two people sitting on opposite ends of a 15-foot teeter-totter. The laws of physics dictate that the seesaw will balance if the product of the first mass (w1) and its distance (d1) from the fulcrum (i.e. the balancing point) is equal to the product of the other mass (w2) and its distance (d2) from the fulcrum. Thus, the physicist can show that the teeter-totter will be in balance when the fulcrum is placed 6 feet from the end holding a 150lb person and 9 feet from the end holding a 100lb person. Moreover, the laws of physics ensure that an imbalance will arise if the mass or the relative position of one of the people is changed.

The laws of accounting allow us to demonstrate that similarly powerful concepts apply to the science of economics. Beginning with the simple identity for GDP in a closed economy, we have:

[1] Y = C + I + G, where:

Y = GDP = National Income
C = Aggregate Consumption Expenditure
I = Aggregate Investment Expenditure
G = Aggregate Government Expenditure

For economists, this is as obvious as stating that a linear foot is the sum of 12 sequential inches. It simply recognizes that the total amount of money spent buying newly produced goods and services will yield an equivalent income to the sellers of these products. Thus, it demonstrates that expenditures are a source of income.

Once earned, income can be allocated in one of three ways. At the end of the day, all income (Y) will be spent (C), saved (S) or used in payment of taxes (T):

[2] Y = C + S + T

Since they are equivalent expressions for Y, we can set equation [1] equal to equation [2], giving us:

C + I + G = C + S + T

Or, after canceling (C) from both sides and moving terms around:

[3] (S – I) = (G – T)

Equation [3] shows that there is a direct relationship between what’s happening in the private sector (S – I) and what’s happening in the public sector (G – T). But it is not the one that Pete Peterson, Erskin Bowles, or President Obama would have you believe. And I want you to understand why they are wrong.

To understand the argument, imagine that you and Uncle Sam are sitting on opposite ends of a teeter-totter. You represent the private sector, and your financial status is given by (S – I). Your budget can be in balance (S = I), in deficit (S < I) or in surplus (S > I). When your financial status is positive (S > I), you are net saving. When your financial status is negative (S < I), you are net borrowing. Uncle Sam’s financial status is equal to (G – T), and, like yours, his budget may be balanced (G = T), in deficit (G > T) or in surplus (G < T). When you interact, only three outcomes are possible.

First, it is conceivable that (S = I) and (G = T) so that (S – I) = 0 and (G – T) = 0. When this condition holds, the teeter-totter will level off with each of you experiencing a balanced budget.

In the above scenario, the government is balancing its receipts (T) and expenditures (G), and you are balancing your savings and investment spending. There is no net gain/loss.

But suppose the government begins to spend more than it collects in taxes (i.e. G > T). How will Uncle Sam’s deficit affect your position on the teeter-totter? The answer is as straightforward as increasing the mass of the person on the right-hand side of the seesaw. As Uncle Sam’s financial position turns negative, your financial position turns positive.

This should make intuitive as well as mathematical sense, because when Uncle Sam runs a deficit, you receive more financial assets than you lose through taxation. Put simply, Uncle Sam’s deficit lifts you into a surplus position. Moreover, bigger deficits mean bigger surpluses for you.

Finally, let’s see what happens when Uncle Sam tightens his belt. Suppose, for example, that we were able to duplicate the much-coveted surpluses of 1999-2001. What would (and did!) happen to the private sector’s financial position?

Because the economy’s financial flows are a closed system – every payment must come from somewhere and end up somewhere – one sector’s surplus is always the other sector’s deficit. As the government “tightens” its belt, it “lightens” its load on the teeter-totter, shifting the relative burden onto you.

This is not rocket science, but it appears to befuddle scores of educated people, including President Obama, who said, “small businesses and families are tightening their belts. Their government should, too.” This kind of rhetoric may temporarily boost his approval ratings, but the policy itself will undermine the efforts of the very families and small businesses that are trying to improve their financial positions.

* I’ll be back with a second installment that shows what happens when we ‘open’ the economy to take into account the foreign sector (and the relevant financial flows). Many of us have been working with financial balance equations for years (see here for references), so the current effort is nothing new. I am merely trying to make the arguments more accessible by changing the way they are presented.

Wow, this is what debt slavery looks like on a national level.

The Financial Times reports that a new austerity package is about to be foisted on Greece. It amounts to asset stripping and a serious curtailment of national sovereignity:

European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens….pressure is building to have a deal done within three weeks because of an IMF threat to withhold its portion of June’s €12bn bail-out payment unless Athens can show it can meet all its financing requirements for the next 12 months.

Officials think Greece will be unable to return to the financial markets to raise money on its own in March – as originally planned in the current €110bn package – meaning that the IMF is now forbidden from distributing any additional cash. Without the IMF funds, eurozone governments would either be forced to fill the gap or Athens could default.

To bring the IMF back in, the new deal must be reached by a scheduled meeting of EU finance ministers on June 20.

Even if they get their way, the rescue package is certain to fail to forestall an eventual default or restructuring because none of these rescues is a rescue. When the banks got in financial trouble, they got to borrow at discount rates. If Greece were to borrow from the ECB, say at 2% over the EBC’s policy rate, instead of the punitive rates on offer, it would look a hell of a lot more viable near term. I’m not saying that this is the best or only remedy, but the ECB is also blocking a restructuring, specifically, anything that would be deemed to be a credit event. Clearly the concern is not Greek CDS; John Dizard has pointed otu that the level of Greek CDS is miniscule, less than 2% of the outstanding debt, so what happens to the CDS writers is simply noise compared to what happens to the bonds themselves. The concern seems to be setting a precedent, that the ECB seems desperate to maintain the fiction that no eurozone sovereign will default or restructure (and these are hardly the only options; a voluntary restructuring would get the job done).

Another reason this rescue is not a rescue is that one of its major elements, that of stripping Greece of assets, is unlikely to raise the €50 billion expected. The demands here are astonishing. Greek premier George Papandreou agreed to only €5 billion of asset sales a year ago; the best state owned assets are expected to fetch at best €15 billion. Trust me, if that’s all you can get from the best properties, anything else that can be cobbled together is likely to be worth at most half that in toto. So it’s not hard to foresee that the receipts from the infrastructure sales are likely to fall short by about half.

And the notion that the invading banker hoards are going to “supervise” tax collection is sure to mean that they will make certain that they are first in getting tax receipts. As various readers have pointed out, lower middle and middle class Greeks have taxes withheld from wages; it’s the rich and the participants in the black economy that escape. It is far fetched to think that foreign involvement will improve matters; indeed, I’d expect everyone who can to operate out of the black economy as an act of rebellion.

Greece looks to be on its way to be under the boot of bankers just as formerly free small Southern farmers were turned into “debtcroppers” after the US Civil War. Deflationary policies had left many with mortgage payments that were increasingly difficult to service. Many fell into “crop lien” peonage. Farmers were cash starved and pledged their crops to merchants who then acted in an abusive parental role, being given lists of goods needed to operate the farm and maintain the farmer’s family and doling out as they saw fit. The merchants not only applied interest to the loans, but further sold the goods to farmers at 30% or higher markups over cash prices. The system was operated, by design, so that the farmer’s crop would never pay him out of his debts (the merchant as the contracted buyer could pay whatever he felt like for the crop; the farmer could not market it to third parties). This debt servitude eventually led to rebellion in the form of the populist movement.

The Greeks appear to have a keen appreciation of what is in store for them. Protests have been underway in Athens, and the locals seem to think they could eventually produce bloodshed. We received an e-mail forwarded from a source claiming to be in Athens; the inclusion of Greek-language charts suggests it is genuine. Note that it says that “parts of the national capitalist class” are taking the idea of leaving the Eurozone seriously. But reading between the lines, the writer of the e-mail appears to see that as a local looting scheme, as opposed to one to benefit foreign bankers. Ugh.

Hello from Greece,

This is the fifth day and the crowd is increasing in Syntagma square in Athens. There must have been more than 30.000 people this evening and there are still there more than 10.000 at 11.30 pm (today). As a genuine gathering of the multitude there are not prevailing slogans apart from “thefts” and “take a helicopter and leave this place” (it refers to what has happened in Argentina). Flags of Argentina can be also seen among the demonstrators. In the front a banner says in Spanish “we are desperate, we woke-up. What time is it? Its time for them to leave”. People are dancing shouting or just hanging around talking to each other. A “general assembly” is held at late hours in the square, where people can take the microphone, speak and say what they think freely. It’s not stopping and it will not stop although I think that maybe there will be less people the forthcoming days.

Maybe you are not aware on the details of the Greek time lines. There are enough money for the government until the 14 July and they desperately need the next dose of the IMF and the EU to keep the country running. EU governments are blackmailing, asking for a national consensus of at least the governing socialist party and the conservative right party, but the conservatives do not accept. They are asking for a huge privatization plan which practically spans all public enterprises including water companies and land. The latter is something quite difficult to be accepted by the public opinion.

The idea that prevails is that after selling all these crucial resources nothing will really change for the people and most possibly we will be in the same position of bankruptcy after a year or maybe two having lost by this time most of public resources. Also a huge tax collection plan is under finalization which according to leakages it will cost 3.000-4000 euros annually for a family with 4 persons . This means that a lot of marginally surviving people will fell below the elementary standard of living. Another 150.000 unemployed are expected for the forthcoming year. Final decisions will be announced most probably at 6th of June – so keep this date in mind. It might be the beginning of real bloody demonstrations.

What are the political implications of this mass mobilization and which are the probable effects? Although is difficult to say I am thinking that most probably if this dynamic goes on it might be impossible for the government to vote for the new measures. At this stage political instability with these time lines means bankruptcy.

Another interesting story is that parts of the national capitalist class are seriously thinking of bankrupting the country and take over with a new drachma. This is not discussed politically openly because a return to a national currency will be extremely painful for the masses. In fact the story of Argentina is well known. My impression of the overall situation is that for several reasons Greece follows the road to an open bankruptcy with several people waiting to benefit from that and nobody taking the political risk to support it. Since European governments are deeply divided on the Greek crisis, it is difficult to believe that they will act in a coordinated, quick and generous way to avoid the storm, although this cannot be ruled out.

Now, some figures from the public opinion

Red = the IMF-EU program is not beneficiary for the country
Blue = it is beneficiary

The most important slide which shows the bankruptcy of the ruling system in Greece is the following. Please pay attention…

Red = do not trust
Blue= trust
Top bar (1st) = fellow citizens/people
2nd= social movements
3rd=banks
4th=media
5th=trade unions
6th=parliament
7th=governments
8th=political parties

Does this explain to you what happens now at Syntagma square?

Mars ‘remains in embryonic state’ BBC

Student cracks ‘missing mass’ puzzle that baffled scientists for decades… in her summer break Daily Mail. And our Crocodile Chuck knows her father. I think we need to update the six degrees of separation. I bet thanks to the Internet it’s down to five or four.

Gundersen Gives Testimony to NRC ACRS Fairewinds (hat tip reader furzy mouse)

Views of WikiLeaks controversy vary depending on age, politics of the reporting media outlet, EMU student researchers conclude Eastern Michigan University

Anonymous and the Arab uprisings Aljazeera (hat tip reader furzy mouse)

Alwaleed Says Saudi Arabia Seeks Oil Price of $70-$80 a Barrel Bloomberg

Mysterious fund allows Congress to spend freely, despite earmark ban CNN (hat tip reader furzy mouse)

BlackRock attacks banks over ‘aggressive’ IPO fees Telegraph

Will there be a US “Double Dip”? Part One Steve Keen (hat tip reader John M)

Will Labor Costs Return to Trend? Tim Duy

Antidote du jour. Since the otters yesterday were so popular, Philip Pilkington sent us another:

I’m generally a Gretchen Morgenson fan, since she’s one of the few writers with a decent bully pulpit who regularly ferrets out misconduct in the corporate and finance arenas. But when she wanders off her regular terrain, the results are mixed, and her current piece is a prime example. She also sometimes pens articles based on a single source, which creates the risk of serving as a mouthpiece for a particular point of view. And the one she chose to represent tonight is one that is in no need of amplification, that of the Peterson Foundation’s well-funded campaign to gut Social Security and Medicare.

The Peterson Institute paper she relies upon, by former Fed and Treasury economist Joe Gagnon and Peterson Institute research associate Marc Hinterschweiger, is about the government deficits and the need to take Serious Measures to get them under control, which of course means reducing entitlements, in particular Social Security and Medicare.

We’ve written before about some of the Peterson Foundation’s efforts:

For those who did not catch wind of it, the Peterson Foundation, which has long had Social Security and Medicare in its crosshairs, held a bizarre set of 19 faux town hall meetings over the previous weekend to scare participants into compliance and then collect the resulting distorted survey data, presumably to use in a wider PR campaign. It’s important to keep tabs on this propaganda effort, since its big budget (the Foundation has a billion dollars to its name), means it will keep hammering away on this topic. But it appears that they overestimated how much public opinion expensively produced and stage-managed presentations can buy.

The brazenness and ham handedness of these so-called “America Speaks” sessions, which have garnered well deserved criticism on the Internet, is probably due to at least two factors: deluded confidence that the average person will fall into line when a confident and well-credentialed presenter makes a pitch and a stunningly naive belief that aggressive efforts to manipulate opinion and mislabel it as polling would not be called out.

The paper does make this disclosure:

The Peterson Institute undertook this project at the request of the Peter G. Peterson Foundation, which is a completely separate entity.

The two organizations are broadcasting the same message, that looming deficits must be dealt with via entitlement cuts, so the lady is protesting way too much in trying to depict them as independent. And in case you doubt that the paper itself is advocating cutting entitlements, this is its recommendation on page 2:
Accordingly, we propose that budget cuts currently being planned should be implemented in 2013-2015 and that additional budget cuts should begin in 2016, although there is some scope for additional cuts in Japan starting in 2014. In addition, reaching agreement soon on long-run changes to curb retirement and medical costs even partially could send a signal to markets that advanced governments are prepared to deal with a problem that threatens to become more serious in the next two to three decades.

Let’s now turn to the Morgenson piece. It does not question the economic model used, which projects that if the economy remains at or near trend after 2015 (when growth is assumed to have normalized), that the budget deficits remain constant as a percent of GDP (sports fans, this is guaranteed to make debt levels blow out). It would have behooved her to check the Peterson numbers against the the Medicare trustees and CBO forecasts. The latter shows Federal debt to GDP stabilizing at a bit over 75% of GDP, below the 90% level that Carmen Reinhart and Kenneth Rogoff deem to constitute a drag on growth (note we don’t buy their analysis; it mixed gold standard countries with currency issuers, plus there are examples in their data set where the causality went the other way: debt levels grew because growth was lousy).

It also stunningly shows the howler of the Eurozone showing improvements in debt to GDP ratios as a result of the austerity programs being implemented. The examples of Latvia and Ireland have demonstrated that austerity measures have worsened debt to GDP ratios, dramatically in both cases, and the same deflationary dynamics look to be kicking in for Spain.

The article repeats the hoary cliche that deficit cuts must be made to “reassure the markets” as in appease the Bond Gods. Gee, how is that working out in Europe, the Peterson Institute’s obedient student? From Bloomberg on Friday:

European confidence in the economic outlook weakened for a third straight month in May as the region’s worsening debt crisis and surging commodity costs clouded growth prospects.

An index of executive and consumer sentiment in the 17- member euro region slipped to 105.5 from 106.1 in April, the European Commission in Brussels said today. Economists had forecast a drop to 105.7, the median of 27 estimates in a Bloomberg survey showed.The euro-area economy is showing signs of a slowdown as governments toughen austerity measures to lower budget gaps as investors grow increasingly concerned that Greece may default, while oil-driven inflation squeezes household incomes. European manufacturing growth slowed this month….

And another article in the New York Times tonight seems almost annoyed that investors aren’t reacting as Gagnon and Hinterschweiger insist they must, by worrying about bond risk:

In mid-April, Standard & Poor’s placed United States debt on negative watch, saying there was a one in three chance that over the next few years it would actually downgrade the Treasury’s pristine triple-A rating. The agency cited concerns about the ability of Congress and the White House to agree on a plan to reduce the budget deficit.

On May 16, the Treasury hit its statutory debt ceiling — the point at which the government cannot borrow more money without Congressional action. But Congress didn’t act….

Has this melodrama shaken the bond market? Not a bit.

Since April 18, the prices of Treasuries haven’t fallen. To the contrary. They’ve risen while yields, which move in the opposite direction, have plummeted. On Friday, the 10-year Treasury yield dipped as low as 3.05 percent, its trough for the year. Despite a mounting debt burden and a dithering government, Treasuries have rallied.

Morgenson covers the same argument, and uses the rationale that Japan and Europe look worse than the US. The facts don’t line up. If investors were reluctant purchasers of Treasuries, you’d see them sticking to the short end of the yield curve.

This suggests that investors increasingly recognize (as we have suggested) that we are in a re-run of sorts of 2008 (hopefully without the September-October fireworks), of a liquidity-induced commodities bubble leading to inflations fears when the deflationary undertow is stronger. Cash and high quality bonds are the place to be in deflation.

There are other canards in the paper that Morgenson simply parrots, for instance, that having a lot of countries in debt at the same time in unusual. Huh? Big wars produce that outcome, just look at the 1815, and the period after World War I, which culminated in the Great Depression. Oh, and the concern about “financial repression” meaning “the transfer of wealth to a debtor government”. Earth to base, private sector debt in the US is way way larger than government debt. And the transfer that led to the increase in government debt, and is also reflected in the failure to write down and restructure private sector debt, is a transfer from taxpayers and investors to banks.

Now some readers will be very unhappy by now, since taking issue with the austerian party line is treated an endorsement of no-holds-barred government spending. But this discussion ignores the fact that we have capitalist not acting like capitalists in virtually all advanced economies.

The reason most people don’t like government deficits is that they are assumed to crowd out private sector borrowing, thus discouraging business investment. But companies in the US, even in the last expansion, were net savers. That pattern has taken hold in advanced economies, even in many emerging economies ex China, since the mid 2000s, and some as early as the late 1990s. Andrew Haldane, the director of financial stability for the Bank of England, confirmed that companies and investors are taking an excessively short-term perspective, which is leading to underinvestment.

In simple terms, the household sector always wants to save. If the business sector also perversely wants to save, then government needs to take up the slack and deficit spend, otherwise wages and GDP will contract (if you run a big trade surplus, you can escape that conundrum, but that isn’t germane for the US). If GDP contracts, debt to GDP gets worse, not better. Conversely, when the economy is strong and the business sector is borrowing to expand operations is when the government sector should run a surplus.

But the idea of government spending has become anathema in the US, despite plenty of targets (start with our crumbing infrastructure). The banks got first dibs on the “fix the economy” money in the crisis, and continue to balk at measures that would shrink a bloated and highly leveraged banking sector down to a more reasonable size. Evidence already shows the size of the banking sector is constraining growth, yet a full bore campaign is on to gut social spending out of a concern that sometime down the road the size of the government sector will serve as a drag on the economy. In addition, the banksters need to preserve their ability to go back to the well the next time they crash the markets for fun and profit. So the attack on deficits is financial services industry ideology, packaged to make it look like it’s good for the little guy. We have too many people who should know better like Morgenson enabling it.

McKinsey once got a study from a major shipping company whose bottom line was suffering because the managers in its ports were keeping too many containers on hand. No one wanted to be short of containers and delay a shipment, so they all made sure to have enough and then some. Containers are a big cost item and management was keen to figure out how to get by with fewer.

Now the team could easily have had great fun building a big model of shipping flows and likely variability and done lots of analysis to figure out what the minimum needed level of containers was and how to have the right decision rules. Instead, the team changed the pay for port managers, so that on the one hand, they’d still be penalized if shipments were delayed, but they would be rewarded for minimizing the number of containers they had. Almost immediately, port managers were sending containers away and complaining if an influx of shipments left them holding a lot. The shipper was quickly able to reduce its stock of containers.

Since the crisis, there has been lots of debate on what to do about incentives in the financial services industry with little in the way of action. That’s because we maintain the fiction that major capital markets firm are private sector companies. Despite the fact that they enjoy subsidies vastly in excess of other industries, we can’t possibly treat them like the welfare queens they are and ride herd on their compensation levels.

But it’s still worth pondering the issue of what ought to be done, since pretty much every investor I know expects another big crisis in two to five years. We had better get it right next time.

The germ of a very interesting idea came in a VoxEU paper last March which I had wanted to highlight and somehow let slip. One of the problems with the big end of financial services industry is that it is highly interconnected, so if one firm gets in serious trouble, it is likely to bring the whole network down. Yet because bankers have perverse incentives (annual pay cycles and business unit level pay for most producers, both of which encourage narrow views of risks), banks routinely try to shift risk onto their counterparites, which is fine in normal times, but a destructive posture when markets become risky (the blow up of AIG and the monolines is a classic example).

Here is Hans Gersbach’s solution:
When banks failed, the government paid up. But the bankers responsible kept their bonuses from the years of excess. This column argues for “crisis contracts”….

Crisis contracts are designed specifically for members of the bank’s management. The nature of a crisis contract is as follows:

Definition of a crisis: A crisis occurs when the average equity capital in the banking system (relative to the assets) falls below a critical predefined threshold.
When a crisis occurs, the top managers of major or highly interconnected banks contribute a portion of their earnings from the previous years to a rescue fund for the recapitalisation of the banking system.

I think this idea is promising but would tweak it: a much longer lookback period (at least three years, with fund set aside rather than having to be clawed back) and including a broader base of managers (you’d want to include all profit centers running meaningful balance sheet risks).

This would also have the significant advantage of increasing incentives throughout the industry to monitor risks of counterparties, which also might even lead them to inform regulators if they thought a firm was engaging in risky practices.

Reader suggestions as to how to refine this idea very much appreciated.

Tests Reveal Mislabeling of Fish New York Times (hat tip reader John M)

Dog with Two Broken Legs Survives Tornado, Crawls Home to Find Family Time (hat tip reader John M). Note I found the video hard to watch.

Ninety gaffes in ninety years Independent (hat tip Buzz Potamkin). OMG, only a member of the Royal Family would dare to be so appalling. But I have to say 46, 53, 67 are really funny.

WikiLeaks accused Bradley Manning ‘should never have been sent to Iraq’ Guardian (hat tip Buzz Potamkin)

Nastygram of the day, NYSE edition Felix Salmon (hat tip reader John M)

Spanish protesters clash with police over clean-up Guardian (hat tip reader Philip Pilkington)

UK Uncut ‘emergency operation’ targets banks in protest at NHS changes Guardian (hat tip reader Philip Pilkington)

We should ban financial speculation on food prices Bill Mitchell (hat tip reader Thomas R)

Gold Companies May Face $100 Billion Liability for Sick Miners Bloomberg (hat tip Buzz Potmakin)

How to destroy the web of Debt Golem XIV

Budget Disinformation, Part 1 Million Paul Krugman

Antidote du jour:

This was the weirdest little booth at NASDAQ. The seat was at an off angle to the camera, and I couldn’t sit up straight without bumping my head against the glass behind me, which is curved. So I look a bit whopperjawed and uncomfortable at the top but I think it came out fine in the end.

You can view the segment here. Enjoy!