The Fed’s Exit Problem: Symptom of Paradigm Breakdown?

Yves here. This Real News Network interview with Yilmaz Akyüz, chief economist at the South Centre and former director and chief economist at UNCTAD, focuses on the conundrum of the Fed’s need to exit from QE from an international perspective, and layers in the further complication that China is not going to keep up its investment spending at the same level. Akyüz argues that “….we have problems at the end of the crisis which are as big as the ones during the crisis, and these problems are largely due to mismanagement of the crisis, particularly in the U.S. and Europe.”

But I’m not sure it’s as simple as mismanagement. I’ve believed we are at the end of an economic paradigm, and the way out of those in the past has been breakdown. In ECONNED, I listed four theories, and I believe the last was the most problematic:

Cognitive regulatory capture, meaning the regulators have adopted the industry worldview, which makes them reluctant to act.

Extortion, meaning that the financial services industry controls infrastructure that is essential to capitalism, and cannot be displaced except at very high cost. Think of what happened to the civilization at Ur when the king shut down the overly powerful lenders.

State capture, meaning the financial services industry now has the status of oligarchs in third world countries, having used its economic clout to buy so much political influence that they largely dictate policy regarding its interests.

Paradigm breakdown, meaning key elements of the current system are no longer viable, but that is a possibility that no one is prepared to face, since the old system seemed to work well for a protracted period. Thus the authorities reflexively put duct tape on the machinery rather than hazard a teardown.

All these factors play a role in the hesitance to impose tough reforms, but the most intractable and least recognized is the last, the difficulty of seeing that the failings of the current system are deeply rooted and not amenable to simple remedies. Any resolution of the major problems facing the financial system would take a good deal of time, care, and persistent effort, and would simultaneously be highly politicized. That makes it very likely that the financial services industry will derail or blunt reform efforts. That in turn means the current paradigm will be patched up and restored to service only to fail again. This pattern will replay until the breakdown is beyond repair…

One of the troubling features of the discussion of the crisis has been the recognition of the role of so-called global imbalances as a factor in the debt binge in the U.S. and other advanced economies, and the widespread attitude of resignation towards that problem. The tacit assumption is that the United States cannot act unilaterally. The US first took a posture of benign neglect, but the administration is taking a slightly different tack. The focus of the G20 discussions has shifted from banking reform to the nebulous notion of creating a framework for addressing global imbalances. Ironically, the financial crisis has led to miraculous progress. The US trade deficit has fallen sharply because scarce credit has strangled consumption and trade financing. But exhortations to meet medium term goals, far enough away that no one will be held accountable for failing to meet them, is simply another way to kick the can down the road.

Similarly, the policy of the authorities in the United States has been explicitly to try to shore up asset values, out of the belief that we discussed earlier, that the markets are simply wrong about the need for housing prices and other financial assets to correct. Yet numerous analyses have found that residential real estate price in many markets, including the United States, the UK, Ireland, Spain, Australia, the Baltics, and much of Eastern Europe, rose to levels well out of line with historical relationships to income and rentals. There was also pervasive underpricing of credit risk, as noted in the Bank of England’s April 2007 stability report.

Yet the strategy of the powers-that-be has been to try to restore status quo ante. Albert Einstein defined insanity as “doing the same thing over and over again and expecting different results.” It is one thing to try to patch up what you have on an emergency basis due to the need to respond quickly, and quite another to regard that as a viable long-term solution.

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 (1989), first sets forth the prevailing explanations and explains why each falls short. He argues that the culprit was the impact of the World War I on the gold standard.

Recall that starting roughly in 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. Afterwards, 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 gold-standard 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.

Back to the current post. So it’s not surprising that experts like Akyüz see only grim outcomes and no ready way out. The incumbents are simply unwilling to risk, both politically and economically, the degree of intervention needed to come up with or even ease the way to a new set of institutional arrangements. Ideas like a jobs guarantee, which would be far more salutary than a lot of other alternatives, are dismissed as too far out to even get a serious hearing. The authorities have done an impressive job of keeping a badly impaired system limping along, and it might even have periods of credible-looking improvement. But as Herbert Stein said, “If something cannot go on forever, it will stop.” So the end game seems inevitable, even if the timing is unclear.

More at The Real News

Print Friendly, PDF & Email


  1. s spade

    The system works extraordinarily well for those busy milking it. They don’t care about collateral damage and talk only to one another about solving any problems which crop up, and the number one solution is more propaganda and more deceitful statistics and Potemkin recoveries. If the problem is unemployment they simply define it out of existence. They ignore underemployment since a job is a job and if people can’t find anything to do but serve coffee and toxic drek in paper hat that is their own fault and the answer is more ‘education’, which provides another opportunity to rip people off.

    For about fifty years individuals could pull themselves up in a basically crummy system with hard work, personal discipline and a little luck. It helped to refuse burdensome commitments like marriage and family, but a rather impressive number of people even managed that. I suspect without knowing that opportunity still exists for a significant percentage of those making real effort and avoiding road hazards popping up everywhere, but to expect anything resembling postwar prosperity going forward is ridiculous. The only question is how much worse things are going to become for the great mass of people groaning under the weight of propaganda and advertising and worrying endlessly about personal attractiveness and popularity and celebrity behavior and team sports.

  2. gizzard

    A comment at Prag Cap got me thinking and I think its apt to this article

    A commenter said;

    ““The reason gold buggish people tend to want sound currency is to lock in what we’ve “gained”

    I think thats a pretty insightful comment, and I agree completely. BUT I think its really quite an unreasonable “want” if you want to know the truth. Nothing you get or have gotten is forever, you CANT lock it in. And we shouldnt have a monetary system that allows you to or makes you think you can. Its sort of like the idea that you cant rest on your laurels. That past work you did doesnt matter as much now.

    I’ll even add to his comment that they want to lock in what theyve gained WITHOUT ANY ADDITIONAL WORK!. Its as if they accumulate some level of savings, by forgoing some prior consumption opportunities and then 20 years later say;
    “Hey now I want to consume that stuff I didnt 20 years ago….. and it better be the same stuff!!”

    Now, if during that time you “saved” you took that saving and invested in things that made those future desires available for you….. great, good job!! But if you just took that saving, sat on it,and just traded already produced goods trying to find a greater fool to pay more and more for it, you have no right to cry “inflation” when your savings doesnt get what you think it should.
    If you want something get it now, otherwise invest in something that will help produce something you might want in the future….. or shut up when your “savings” doesnt keep up with inflation.

    The paradigm that past work (savings) must continue to hold its value over long periods of time is simply wrong.

    Too many folks ,in my view, think that if they can lay claim to 50% of the pie today, they should be able to put that aside, and without any real investments of their own, but simply playing in bonds and secondary stock markets, be able to lay clam to 50 % of the future pie. No matter how big. And if they cant they blame it on govt give aways to malcontents and scream inflation

    Thats the flawed paradigm in a nutshell as I see it.

    1. arkansasangie

      And … you’d rather inflation toll away?

      I’m not a gold bug … but … wealth distribution to the state (banksters)is horse manure.

      MMT ignores corruption.

      1. gizzard

        hey angie

        Couple rejoinders. 1) I think one must be careful to define inflation. I dont buy the austrian notion that our dollar has lost 98% of its value since the Fed started in 1913. Mainly because the stuff we can get today is so much higher quality and is produced with so much less work, its not even close.

        2) Wealth distribution to the state? Where did I say anything about that?

        3) If you thin MMT says nothing about corruption….. you havent read much MMT literature. Google Bill Black orRandy Wray and you will find numerous essays describing corruption and how to fight it

    2. s spade

      Of course, those savings have no value in a work of infinite banker money. Those who saved for retirement are merely suckers in your view. I suppose they should have built bridges with those nest eggs or opened pizza shops?

      Dishonest money is hunky dory for those who never saved any. Of course, it turns morality on its head, but so what?

      1. Min

        Saving is considered moral, OC. Prudent. :)

        But the way we have things set up, for one person to save so much, some other person or persons (or the gov’t) must reduce their savings or increase their debt by the same amount. So if saving is moral, so is going into debt.

    3. susan the other

      I agree with you Gizzard, and just to piggy-back: If the price of oil (ergo everything else) doesn’t go up to compensate for the expense of new technology we will not have oil and the whole thing deflates like mad. We live in a capitalist world that requires profit, a spiral of sorts. So prices can’t correct to the downside because economies are already too invested.

      If 1929 was caused by the impact of WW1 (massive debt as Temin sees it) on the gold standard (makes sense) and you work the reasoning backwards, it is, in fact, capitalism that causes both war and the need to compensate for crippling debt. But Akyuz is a little too uninspired – he thinks an oversupply of dollars is a recipe for disaster when nobody willl buy any more commodities. Etc. And this does seem to be a big contradiction, unless you have an ever expanding supply of money.

      Let’s not forget the 1500s. Henry the 8th and his daughter Liz both used capitalism (privateering) to stay solvent. Sovereigns were being extorted right and left by private capital. Aka gold hoarders. Capitalism was never a way to balance the revenues and expenditures. It was just a scavenging operation. A very lucrative one. Now as a world paradigm? Probably not gonna work. But never fear, Timmy’s here. With his excellent metaphor: Foam the runway. Just foam it for MMT

    4. Tim

      “Its sort of like the idea that you cant rest on your laurels.”

      Like hell it is. That past work has resulted in a return of value, assuming honest gain, is merely a fact that can be quantified as a number, and the choice of the individual on whether to spend it all right away or live in ignorance of their mortality and save it all for later is their perrogative.

      To say it is more natural that the fruits of ones labor should be destroyed by the decisions of the village should you hold onto it for “too long” is asinine thinking.

      For all this talk, compassion and fairness are the cornerstones of a civil society. Anything that takes away from either of them is destructive to the individual and corrupts the whole.

      1. Nathanael

        “Assuming honest gain”?


        There is no large, multimillion dollar fortune in all of history which was acquired honestly and through skill. Some were acquired through a combination of honesty and dumb luck; most were acquired through fraud, theft, or other crimes.

        1. s spade

          How about those who saved out of earnings and accumulated a few hundred thousand, even a million or two? The country probably contains five or ten million of these ‘rentiers’. I suppose they should all be interviewing at Walmart?

          People work for money because the money has value. We have allowed the bankers to destroy that value but you want to punish those who managed to save anything? In a nutshell that’s the problem with the political left. They want to bring everyone down to a subsistence level and then push them around to fulfill some grand scheme of equity.

          Try Cuba if you’d like to experience this. Fidel probably has a job for you, but I’d be careful about how you do it.

      2. gizzard

        hey tim

        “To say it is more natural that the fruits of ones labor should be destroyed by the decisions of the village should you hold onto it for “too long” is asinine thinking.”

        Well, I dont know about more natural but I know its impossible for folks to maintain, in real terms, a continuosly growing share of the pie as the pie grows amd more people are eating from the pie.

        I’m not saying saving is bad, I just think when you expect that which you didnt consume today (which IS saving) must be available in ten years ….. thats unreasonable…. and unmaintainable.

        We need to expect some erosion of our purchasing power over time if we wait too long and dont continue working and actively investing.

        My main position boils down to the idea that what most people think is investing is not. Investing in the economic sense, is about building future capital for productive use, its not about buying gold and waiting for some fool to pay you double what you paid for it.

        So, if you forgo consumption today, and INVEST the rest you will likely have more to consume in the future because you are assuring that by making the investment yourself. BUT if you imply take that saving and try and buy some previously produced good hoping to sell it for more you will lose as often as you win (on the macro level)

        I want to reward true investment and discourage simple trading/gambling in asset markets.

        We do way too much of the latter, and think we are doing the former when we are doing it.

  3. Marcum

    How does the MMT pillar of a “Jobs Guarantee” NOT devolve into a system of forced servitude and misery? Granted it would be better than what we have now. What about just “Social Security For All” or Guaranteed Basic Income (GBI)

    1. financial matters

      A jobs guarantee would get real work done such as infrastructure building and useful community projects such as childcare, These are important jobs that need not compete with private sector commerce but should be paid a living wage which should probably be twice the current minimum wage.

      This puts money into the hands of people doing useful things to then spend and support private sector commerce. When this commerce then has the confidence to expand it can attract workers by paying them more than this living wage amount. CEOs shouldn’t make a thousand times more than employees so this should force some wealth re-distribution. This living wage could also be less if the government reined in the FIRE sector by taking predatory health insurance out of the equation, reverting to a more public education system and stop supporting high home prices.

      1. Marcum

        “infrastructure Spending” aka (1) digging ditches (2) picking up trash (3) cleaning vomit off the floors my my local CTA station. “Childcare”? I’m a soon to be unemployed software developer (my company is ramping up their H1B1 hires) and you want me to change diapers when I get the heave-ho? I always had a hard time reconciling the MMT concept of a “Jobs Guarantee” when all the “GOOD” jobs are gone?

        1. financial matters

          Management definitely gets away with too much. It’s hard to find a good job with benefits and companies are using the trick of firing employees and hiring them back part-time or as ‘contractors’ without benefits. Government could take these ‘benefits’ off the table by providing them themselves and taking that burden off employers. Large company management salaries also need to be brought under control which the Swiss seem to making some strides at.

        2. FlimFlamMan

          A Job Guarantee will provide a floor – ideally set at a living wage – that prevents employers getting away with providing “BAD” jobs. It is also a vital part of producing a stable and equitable economy acting at capacity, which will tend to produce more of those “GOOD” jobs you want.

          What’s wrong with digging ditches though? Ditches can be useful. As an example, perhaps for an independent Scotland (I can dream), getting power lines underground where they can’t be blown over every winter would be a major project requiring lots of people, and lots of ditches.

        3. NotTimothyGeithner

          Many people aren’t as wonderful as you, but a portion of the population would leave their current a job for a job with better hours even if it was less money for non-monetary benefits such as exercise and time with family.

          Part time jobs would open up because many part time workers would join this program for the full time position and a better chance at advancement.

          This would create labor scarcity which would necessitate higher wages across the board because everyone would have greater leverage. Small operations often pay better already and aren’t terrible jobs because the owner actually knows the employees. They would probably remain unaffected except for higher disposable income across the board which means more business and a smaller share of the local tax burden.

          Working conditions would be better because employees can’t be abused and threatened with job loss. Corruption would be rooted out as a result because whistle blowers would have less to fear.

          Of course, there will be crooks, people who think they are too smart for the system, and run-of-the mill idiots, but remember this, being a reasonably well-paid ditch digger is way better than being an unemployed software engineer in an era where many of the demands for software people are declining as software works. How many Microsoft Offices do we really need?

          1. marcum

            In my case it’ NOT software “WORKING” better it’s that my company (A NON-PROFIT actually!!) can hire cheaper more easily cowed Chinese, South-Asians, Pakistanis etc…who NEVER take a vacation. The contractor on my project team hasn’t taken a day off in 8 months! How can I compete with that!!

            1. Harold

              There’s a simple answer to your question, which I fear will never be given consideration in the Serious quarters: forbid American-based companies to hire visa workers.

              I am not a fan of the “global” (read: multinational) economy. I have always felt that businesses started in a nation should not be allowed to expand beyond that nation, for the good of that nation’s interests. Alliances can be made with businesses of other nations, absolutely – but I think it’s suicide in the long-term to allow businesses to work around a nation’s economic and private-business laws. Because any time they can, they will.

            2. NotTimothyGeithner

              If everyone had better jobs or better compensation for existing jobs, things wouldn’t be so bad, but the problem is partially your attitude. Your first point was “what about my problem and how does that help me?” Things don’t always work out, but a job guarantee program means you have money coming in.

              If you don’t like it, you should unionize and shut it down. Imagine how the MBAs will react when they can’t turn on their computers, or are you still operating under the myth you are somehow better than union workers despite your job being outsourced in a similar manner?

              1. craazyboy

                I think what he is trying to say is why is congress handing out H1B visa to import labor for skilled jobs that are already filled by US citizens (whom also invested in our wonderful education system to get some job skills), and then some people think that’s ok as long as congress creates some diaper washing jobs.

                1. JTFaraday

                  I think I finally figured it out. There is a liberal cohort that is so sickened with nostalgia for depression era pro-government economic policymaking that they actually want the labor camps to come back.

                  Then Apple can come home, we’ll drape the buildings and the dorms with physical safety nets to stop the suicides, and it will all be okay because “any job is better than no job.”

                  Also, China envy. China has MMT and therefore an “economically correct” enlightened policy elite. So, it’s all about the triumph of the Lord Keynesian strain of economic ideology.

                  The thing for the public to remember is that useful idiots come in all ideological stripes. We’re not necessarily very good at this.

      2. Banger

        It does even more than that. It gives society a sense of cohesion and that we’re all in on this project–nobody gets left out. This thing alone eliminates a lot of stress, suffering and fear that causes people to make bad decisions and work at optimum capacity. Because these critical areas are ignored by economists nobody cares about them but they have real economic effects. My guess is that productivity would go up and people would start opening up instead of hunkering down therefore opening up more creativity.

      3. washunate

        financial matters, are you familiar with the hiring process and job descriptions and compensation and project management and so forth? I know that what you’re describing sounds good at face value, but if you’re familiar with HR and OB and management, JG sounds like gobbledygook. If the government has a project worth doing, it should hire workers to do it. Otherwise, there is no point in working. Work is only as valuable as the output it produces. That’s what distinguishes paid employment from volunteerism and hobbies and leisure time and so forth.

        So let me throw out a few questions to ponder:

        1) How would a JG accomplish meaningful work? You seem to assume competent management acting in the public interest when management is precisely the problem in our present political system. The reason that our infrastructure is falling apart, for example, has nothing to do with the size of the government. It’s falling apart because our political leaders don’t care to maintain it. Things that our leaders value, like bombs and prisons and cameras and airport molesters, have plenty of employees.

        2) How would a JG provide a living wage yet not compete with the private sector? Those are mutually exclusive goals. It is nonsensical to claim both of them.

        3) What rights do the JG workers have? Can they be fired? Who sets their schedule? How are they trained? Who determines what training they receive? Are there protections for whistleblowers and harassment and so forth? Can they pick projects? How are they supervised and disciplined? Is there transportation and child care and ex-offender friendly job sites and free GED classes and free medication for people with mental illnesses and all the other barriers that unemployed people face? The details behind this question are nearly limitless.

        4) What is the end game? Assume away all political problems and imagine that the President asks for and Congress approves a JG program. Is the federal government going to permanently employ half (or more) of the workforce?

        1. financial matters

          I think the main problem is that sovereign money is being misused. What we have is welfare and bail-outs for the well off. And we need to turn around income inequality. Super rich next to super poor is never a good idea.

          And we have a growing sense of unfairness or ‘disturbance in the force’. Where the private sector needs competition is in pension plans (that get raided in takeovers), health benefits that have huge deductibles (and should probably not even be a private sector burden) and responsible corporate governance.

          It is hard to find political leaders to ably carry out this program but that should be what a true transparent democracy is about.

        2. Yves Smith Post author

          When private sector jobs in fast food are forcing over half of the employees to take welfare to survive, what “private sector” employers are we talking about???? They have Uncle Sam, which means you and me, as an idiot business partner. We foot the bill and get no upside.

          1. The private sector is not providing enough jobs anyhow because they keep screwing workers. When people are desperate, any money is better than no money.

          2. Competing with faux private sector employers (Walmart also gets all those tax breaks when it builds store) is THE POINT. The idea is to provide a wage floor. If you don’t like the Walmart job, you can look at the job board and see if there’s a government job that suits you better for the same crappy pay. You have more choice, more people work, and the Walmarts of the world have to treat workers better and stop relying on government subsidies to underpay workers.

          1. washunate

            Yves, thanks for this response. I think it highlights exactly why JG is not an optimal solution.

            There are three completely unrelated goals – 1) providing income to people regardless of employment, 2) better working conditions for workers, and 3) producing valuable outcomes, from fixing infrastructure to raising kids.

            I would argue quite strongly those goals are better served by separate approaches focusing on each area, rather than one plan that tries to serve three masters, so to speak.

          2. JTFaraday

            I don’t care. Cut the welfare checks.

            The truth is it’s already too late. We’re going to be cutting lots and lots of “welfare checks” of one sort or another starting with that part of the babyboom that got screwed out of its retirement, and probably forever after, or else live in a Third World sh*thole.

            I don’t want to live in a Third World sh*thole, so the Teahadists– who tend to hail from that cohort that did everything it could to inhibit the earning capacity of people it didn’t like and who consistently voted for this right wing economic end result– are going to have to get used to it.

      4. washunate

        You didn’t answer the question, though.

        You’re simply assuming good management like economists assume can openers. Given that management is precisely the problem in our present political system, that strikes me as a ludicrous assumption.

        Our infrastructure isn’t falling apart because the federal government doesn’t employ enough workers. Our infrastructure is falling apart because the political leadership in this country doesn’t care to maintain it.

        How does JG solve that problem?

        1. washunate

          Oops, I thought the above longer one didn’t post, so I made a shorter one instead. My bad, I’ll be quiet now :)

        2. Calgacus

          I have often answered your questions, without response. Though probably to late for you to see them. MMT thinkers and their great predecessors have amply answered all your questions. But you have to read what they have written. Some questions however are based in crazy, wild leaps of logic like the idea that a living wage JG would employ half the US work force. Not that this would be a bad thing, but it is wildly unlikely. As I have pointed out before.

          The JG doesn’t assume good management. The JG comprises, means non-psychotic management of a national economy. A monetary economy without a JG is an insane idea. That they are seen everywhere doesn’t make it less insane, less of an aberration from the norm of full employment that we see everywhere except peacetime national monetary economies.

          If the government has a project worth doing, it should hire workers to do it. Yes. That is the JG.

          Finally, I can’t resist replying to:
          but if you’re familiar with HR and OB and management, JG sounds like gobbledygook. If you’re familiar with logical thought, philosophy, science, math, and Real Economic Science like MMT – then unexplained acronyms like HR and OB and management sound – and are – gobbledygook, not to say BS.

          1. washunate

            I appreciate that you engage the discussion critiquing JG.

            But the substantive responses aren’t out there. JG is a vague concept, not a specific plan. Show me a specific plan, and I’ll hazard a more specific guess of how many people will sign up.

            JG doesn’t solve the problem that federal resources are misallocated, and it doesn’t solve the problem that working conditions are crappy. The problem is political management, not a government that is too small. We don’t need more TSA and DEA and NSA; we need fewer employees. Until someone can show why Obama would employ workers on valuable projects, this is like a plan to stop war by implementing world peace. The beauty of social insurance over JG is that the recipients of the funds determine how they’re spent, not the government.


            The reason that human resources and organizational behavior are so crazy is, mostly, because of the mess of managing large bureaucracies generally and dealing with government regulations in particular. Large organizations have some inherent ineffeciencies and we should be very hesitant about creating organizations that have ten times the employees of Walmart. Just to give one specific example, no sane person should know what I-9 forms or the E-Verity system is, but somebody has to, because it is now illegal to hire workers in this country without this process. Somehow our nation survived two centuries before that particular idiocy of authoritarianism.

            Finally, I’m not sure what you mean about no responses to your points? Lambert has been pretty specific he doesn’t want these conversations dragging out forever. We could go on for a very long time about the philosophy of the protestant work ethic vs. the value of leisure time and personal liberty, but part of the desire of comments is to keep things abbreviated, right?

            I notice the original question remains unanswered. What is the mechanism for preventing this from turning into another form of authoritarianism. The ‘how’ is what matters with JG.

          2. washunate

            P.S., if you think a term like HR needs explanation or it sounds like gobbledygook, then you might want to start with a critique of the entire federal personnel management system before advocating JG.

            OPM (another mouthful of an acronym in the world of management – that’s the Untied States Office of Personnel Management) uses both the terms HR and Human Capital (HCAAF – another acronym encapsulating “the five human capital systems and their expected results”).

            You’ll particularly love this website:


            I’m not saying critiques of the system aren’t worthy. Quite the opposite, I’m saying that a jobs guarantee doesn’t critique the system enough. JG assumes that our existing philosophy and infrastructure of managing work can simply be scaled up with the stroke of a pen.

          3. washunate

            PPS, have you checked out the OPM website? I’m curious what you think. How does a JG work within our current philosophy and infrastructure of work?

            You mock consensus concepts of management, yet then use it as the actor to solve the problem. That’s the fundamental irony I enjoy about JG – it assumes the existing system can implement JG effectively when the management of the system is precisely the problem.

            Our political leaders are looting the country. They’re not interested in solving problems of average workers, let alone the most voiceless and disadvantaged members of our society.

      5. Susan the other

        Here’s a job I’d like to guarantee for at least 2 more generations: the cleanup of the oceans. The article in Links today about our broken oceans is hard to read. I think every work is true. We can employ people for generations in the service of a healthy ecology. Forever. Use the Navy and contract out stuff to specialists, etc. What’s money for?

        1. Nathanael

          You are quite right; we can employ huge numbers of people to help clean up the ecology for a very, very, very long time — centuries at least.

    2. Malmo


      A BIG would be far preferable to the government run JG. MMT will forever lose me on that bureaucratic, workerist, wage slavish, ditch digging and refilling black hole of a program. If we must go that route then you better damn well be sure to cleanse us of the kleptocratic horde running this joint. Not holding my breath on that score.

      Oh, and with a BIG, I’d have little problem with individual wealth accumulation by those producing independent of the BIG, above and beyond others. They could accumulate, say, a million dollars of income per year (after that it will be taxed at 90% plus) so there would be an incentive to still work and be rewarded accordingly if that be one’s desire. Do I believe a BIG would make people shiftless? Do I think people enjoy doing nothing all day? Am I that cynical? No, no and no. We are a productive enough country for the basics of decent housing, health care, education, and food to be provided to all absent doing some governement mandated shit job they demand you must do to qualify for life’s basic needs.

      1. marcum

        Sorry Malmo…yes BIG is better acronym than GBI. I think alot of MMT’ers are stuck in this quaint FDR/New Deal frame where it took 1000’s of workers to do something BIG when now it takes a 100 or a coule dozen highly-skilled individuals. Productivity is a GOOD thing. My fear of a Guarenteed Work Program is that the incentive for increasing productivity would be diminished because “oh yeah…we have all these lower skilled folks we can just throw at a problem”. Sorry that scares the crap outta me. Again…just gimme the money and let me get back to my needlepoint.

        1. Malmo

          When it comes to attitudes regarding work, there’s not much difference between the political or academic left and right. They both sound the moralist trumpet of the Protestant work ethic. The bible thumpers have nothing on the former and latter’s obsession therewith.

        2. anon y'mouse

          “productivity” as defined as what?

          public goods can’t have the same measures applied as private ones, can they? cost is not the main issue. quality should be.

          ex: a productive doctor sees 4 patients an hour, yet bills them all for an hour’s worth of consultation. they probably spend another set # of minutes writing up notes on each one, but probably nowhere near an hour. the remains of that billed hour is probably eaten up by the backend that patients never usually see but that goes along with our health care system as a system of profit (billing–probably a major one, considering the complexity! plus recordkeeping, legal issues, routing requests around for tests to other doctors or departments, receiving & reviewing results etcetc).

          did this help productivity? yep. did it hurt the qualitative aspects of actually providing health care? yep.

          perhaps throwing people at this issue would not solve it, nor are the unemployed the exact people you would throw at this problem to solve it. but I think it highlights the tradeoff that we’re willing to make to get productivity at the cost of quality.

          I can’t count the number of times I’ve experienced or heard about a doctor misdiagnosing or simply shrugging their shoulders and turning away the patient with no little to no help and few clues about how to get any. probably a lot of this occurs because they have no time, multiple demands and have to maintain ‘productivity’.

    3. Min

      “How does the MMT pillar of a “Jobs Guarantee” NOT devolve into a system of forced servitude and misery?”

      Consider that that is where we are starting from. Consider WalMart, McDonald’s, Taco Bell, etc. They do not even provide their workers with what slaveowners provided their slaves. A jobs guarantee is a step up.

  4. Watt4Bob

    So if helicopter money would have done a better job of fixing what ails us than 0% interest and QE, which seems correct, is there some reason helicopter money won’t work now?

  5. Mcmike

    Not only is it hard to think outside the incumbent system, doing so usually leads to marginalization and poverty.

    Thus the emporer buys himself extra time to waltz around in his skivvies.

    1. James Levy

      When you have institutions as big and powerful and centralized as you do today, thinking outside the box is difficult unless you can demonstrate convincingly that such an action will profit that institution immediately and directly. So even creativity is directed at systems maintenance, not improvement or reform.

      This system has largely functioned as a system of rewards, carrots rather than sticks. What frightens me is that the huge investment in the NSA, cops, and Homeland Security is an indicator that deep down the Power Elite no longer has confidence that they can buy off enough of the population with carrots, and therefore are in the process of sharpening their sticks. All the high tech policing and surveillance costs signal that no redistribution, even of the Fordist variety, is in the cards, and we’re only going to see wealth distribution if we can avoid preventative detention and shoot our way through the coercive apparatus of the State.

      Perhaps I’m misreading things, but there are enough indicators to tell me that although I may be wrong, I am far from suffering paranoid delusions.

      1. s spade

        I agree. It seems to me that terrorism is just the excuse to rachet up policing in preparation for inevitable unrest caused by increasing unemployment, underemployment, immiseration of retirees, foreclosures, student bankruptcies, medical bankruptcies, etc. Nothing is in the cards to derail this. Statistical slight of hand and propaganda are the only policy options being considered. If things don’t improve they will certainly become vastly worse.

        1. posa

          S spade… I agree totally… It’s “them” or “us” and “they” know it. The post-war international financial apparatus is collapsing and those that own the carcass must resort to Final Solution economic policies that will be nasty and bloody. The oligarchs expect pushback and resistance … and have built an Orwellian police state apparatus and “legal legitmacy” (such as the Patriot Act and the NDAA) to quell mass resistance.

        2. Nathanael

          The oligarchs are sufficiently moronic, braindead jackasses that they are abusing, mistreating, and otherwise alienating the *security forces*. This means that this won’t come out the way they want it to; the security forces are part of the 99% as well, *and they increasingly realize this*.

          This isn’t the Burmese junta, who treats the military like noblemen and will therefore be able to stay in power indefinitely. Our elites are much, much more arrogant and much, much stupider. This is unsustainable and so it will stop.

          The question is, really, what comes next. I think a dictator along the lines of Porfirio Diaz would be extremely popular at this point, as would a number of other *intelligent* sorts of dictators.

      2. s spade

        Apparently I am not allowed to agree with you. Am I being censored or just suffering paranoid delusions?

        1. Banger

          You have to continually refresh your browser–or at least I do in order to view the comment you just made–I’m used to it so I just do it automatically.

          1. s spade

            No, some of mine don’t appear for eight or nine hours. Clearly, I have pissed somebody off. Not sure how.

            1. Yves Smith Post author

              Comments are moderated based on tripwires. We’ve explained this a zillion times.

              If some of your comments are appearing but not others, that means the offending comments had something in them that triggered being moderated.

              We have told readers repeatedly that dealing with the modearation queue is our lowest priority. We could elevate in our priorities if readers would fund putting someone on that. No one has paid a dime for that, which indicates they don’t mind.

              However, bitching earns you troll points, so I advise you to dial it down.

        2. Massinissa

          When I post a comment, like this one, I often cant see it for like 10+ minutes. But I check back later and it did indeed post at the time I posted it. Thats probably your problem. Your agreement comment shows up for me just fine.

      3. Mcmike

        I think the security state explosion surely indicates a sense of the elite that things may careen out of their control.

        But not that alone, I think it also merely reflects they are doing it because they can – increases in technology, decreases in public expecations, changes in the political environment due to the fascist takeover and post 911 opportunism, and success of the elite in capturing huge swaths of government, technology, and media simply made possible what they have always wanted to do, but were previously been unable to implement.

        Also, they really are paranoid. I saw a story yesterday that Dick Cheney disabled a wireless function on his pacemaker, because he was afraid a terrorist might hijack the signal and blow up his (black) heart. I mean, if you a very powerful Vice POTUS, and are walking around afraid that an enemy can hijack your heart, the sort of things you are willing to do to surpress that are nearly unlimited.

        1. Nathanael

          “I think the security state explosion surely indicates a sense of the elite that things may careen out of their control. ”

          Yeah. The thing is, it’s a dumb response.

          “The more you tighten your grip, Tarkin, the more star systems will slip through your fingers!”
          — Princess Leia, “Star Wars”

          Clever elites know how to use the carrot; heck, look at the response of the King of Morocco to the Arab Spring. (It worked.) Our US elites seem to be very poorly educated in statecraft — unlike the sons of kings in ancient times — and seem to have no clue how to use the carrot.

          1. Nathanael

            It’s worth noting that the junior Assad, who has destroyed his own credibility and most of his own country and now exists solely as a Russian puppet, *was educated in England*. Perhaps this accounts for why he learned absolutely nothing about how to deal with restless peasants.

          1. craazyboy

            That’s why the pentagon is working on those ultra-mini drones that will buzz up and stick a poison dart in a terrorist’s neck.

            Then again, the NSA may have decided everyone gets the Wi-Fi on/off pacemaker option – just like in Dune. The State Uber Alles!

      4. Banger

        Obviously you are right–you can’t interpret the data any other way. Those that say we’re ok, move along, nothing to see are always officials of one kind or another. For example, mush of the press is not what they say they are–they are political officials who advance or regress through political means. Each journo has to have patrons within at least the political structure of the media from journalism school and to become notable you must cultivate contacts from the corporate elite and government officials or you fail. The age of the independent journalist has come to an end.

        Things will fall apart–while the system is highly robust as a system it’s internal components are not so healthy. I’ve found, though I’ve been out of circulation for a couple of years, that change is often resisted because everyone wants to keep their position and situation and innovation could lead to restructuring. So this lessens bottom-up reform and aids in the top-down sort of management that used to be demonized a couple of decades ago that bosses love so much.

  6. MikeNY

    Yes, the paradigm is broken. And top among the reasons that the Fed’s QE isn’t working are i) the progressive evisceration of the middle class and concentration of wealth at the top, and ii) the high levels of consumer debt. The “asset economy” worked better when more people were solvent.

    Trickle-down is a shadow of its former self. One way or another, we have to redistribute wealth away from the top, or we shall all just have to accept the distegration and rot.

    It really is that simple.

    1. Banger

      Certainly redistribution has little political support and is highly unlikely to happen even if anti-rich sentiment grows–mainly because people are still very suspicious of gov’t. If we had an Obama style politician who really was a genuine independent and not merely an agent of the powerful then he or she would be able to sway the public to gradually move the country back to the center.

      1. MikeNY

        I agree that redistribution is unlikely at present. So we will continue with fiscal austerity and monetary super-ease, which will only make the rich richer. As witness, Mr Market’s happiness today with a mediocre jobs report. We will all witness the continuing fraying of the social fabric, and the rot of the polity — until social instability breaks out.

        Then, the plutocracy will have a choice, as they did in the 1930s: redistributition or revolution.

        I don’t know if it’s 20 years away or 30 years or more. But I do know that is where we are headed on our current track.

        1. Nathanael

          The majority of the plutocracy will choose revolution and choose to have their own heads chopped off (they won’t think they’re choosing that, of course). They’ve already made this quite clear.

          We may get lucky and get a “class traitor” like FDR who will strongarm the rest of the plutocracy into redistribution.

          Otherwise, revolution is inevitable. That’s not what worries me. What worries me is that revolutions create the opportunity for warlords to rise to the top. Warlords can be really bad, and are quite capable of remaining in power for long periods; many warlords are much cannier than our current elite. How do we push for a good post-revolutionary outcome rather than a Stalin or Napoleon?

          1. MikeNY

            I don’t know the answer to your question, and that’s why even contemplating revolution scares me silly, and why our apparent inability to recognize and address that the paradigm is failing is almost enough to make me despair.

            Almost. I still retain hope that the b@#%h-slap of social instability will force the plutocracy to do the right thing, even if simply out of base motives of self-preservation.

          2. s spade

            Roosevelt’s new deal was pretty much a failure and needed WWII to accomplish its stated objectives. Total mobilization put everyone to work; rationing and price control created forced saving and a middle class composed of war enriched businessmen and surviving soldiers. The GI bill provided education and FHA insurance provided mortgage finance. Corporate pension plans created a stock market boom. The devastation of Europe and Japan led industrial plutocrats to accept unions and pass along wage increases as higher prices.

            The reconstruction of Europe and Japan allowed the corporations to export technology overseas and create the foreign competition they used as an excuse to renege on the labor deals. The oil industry used quotas in the Fifties to drain America first, and the bankers used the Arabs in the Seventies to financialize oil and force the country off the Bretton Woods gold exchange standard.

            Everything happens for a reason and the reason is endless profits for Big Money.

  7. washunate

    “the institutional framework locked the major actors into a particular set of responses”

    Spot on. It seems pretty clear that our system is designed to promote the concentration of wealth and power. Given that limitation – inequality must be maintained – the policy responses naturally follow.

  8. Chauncey Gardiner

    So we’re supposed to be awed by the sheer magnetic brilliance of these sociopathic crooks? Over $100 billion Cash per month to pump the stock market, and 1750 on the S&P 500 stock index is all they can do?… even with the magic of their insider information, policy influence over politicians, enormous leverage of stock futures, and their banks of High Frequency Trading computers?

    … $53 billion of Orwellian SOMA into pumping up the stock market in the past week alone:

    Jumped the S&P 500 index up over 1750 this morning, just as they have many other market resistance points over the past 4-1/2 years.

    … The stock market as a proxy for the economy?… Pffft!!! “Trickle Down”… “Wealth Effect” and all their other self-created vernacular… Pffft!!!

    Their capital transmission mechanism isn’t broken. It’s working exactly as designed. And unfortunately it’s either all they know how to do or all they’re willing to do.

    Wake me up when they put $100 billion per month into our schools, energy and electrical grid, infrastructure, cities, kids, small businesses, social security programs, etc. Or a guaranteed livable income for all adults as the Swiss are considering:

  9. steve from virginia

    Yilmaz Akyüz offers conventional criticism of the central banks and the establishment as a whole, particularly their crisis management but he does not offer any insight as to what he would have done in their place.

    Presumably there would be more fiscal headway instead of monetary easing or perhaps higher interest rates-steeper yield curve. Who knows whether these things or anything else would have worked, we only had one crisis and one means at hand: the bailout. We entered the crisis, we applied bailouts, they worked for a little while, now we have reached the point of diminished returns. Now what?

    Bernanke & Co. can claim with some level of reasonable certainty that bailouts kept the country and the rest of the world out of a long-term depression. This is rather more like passengers on a sinking ship jettisoning ther baggage, the ship sank a bit but is now underwater.

    Like all the other ‘Brand X’ economists, Yilmaz Akyüz also leaves out energy as a crisis component: from $11/barrel crude oil in 1998 to $147/barrel ten years later was a bit too much of a leap for an economy built around the free-and-easy waste of the cheap stuff as the characteristic of ‘prosperity’. Nobody told Akyüz that economic output is the same for $120 crude as it is for $20 crude, the only difference is the need to borrow that added $100 X 80 million every single day.

    Since the petroleum is dumped into the atmosphere for squat the instant it’s paid for, that is $8 billion in unsecured borrowed money shoveled down the rat hole every single day. Why do we have a crisis, again? Mr. Pettis? Can you figure it out?

    Keep in mind, the average Brent spot price for the past 12 months is $109/barrel or $10 higher than in 2008 for negligible gains in output and similar small gains in petroleum output since 2005. These are the limits that cannot be negotiated with or without central banks.

    Another thing to keep in mind is jobs in the modern world = energy waste, not energy use but simply waste for pleasure. Americans have gotten so used to wasting without any concern that this has become foundational to ‘being an American’, a conditionality. When energy becomes too costly to waste — like now — we have a problem. More jobs = more unbearable costs: our workers are competing with our cars which waste far more efficienty. You have to know how that one turns out.

    What needed to be done in 2008 and previous was stringent energy conservation with the end of dropping average per capita energy consumption to the level of the average Chinese within as short a period as possible. Had the country begun this task in the 1970s there would be no ‘fatal error’ crisis in 2013. There would have been less ‘growth’ but that is another economic fraud, a measure in the increase in unsecured debt.

    As it is, the average per capita US energy consumption will drop to Chinese levels all by itself as Americans go flat broke and cannot find the funds to buy cat food; conservation by other means.

    1. James Levy

      You hit one of the nails on the head. The related nail is that the cycle of job creation staying even with technological job destruction looks like it has come to an end. Economists won’t even consider this reality. Just as they used to love to say that every supply creates its own demand, they now think that every job destroyed creates its own replacement. Well, that is, as far as I can see, not true. And the problem is exacerbated by the refusal to give people with a high marginal propensity to spend any money. As the Turkish economist points out, wages as a percentage of global GDP are falling.

      In short, the world is run by two sets of actors: men with no broader vision than grabbing anything they can today and forget about tomorrow, and men who are planning a long-range program of using force and debt to reduce much of the population to a neofeudal condition. I think those who just assume that we can tweak our way back to business as usual probably aren’t players, just mid-level political and ideological functionaries.

      If anyone sees it differently, please elaborate, because I’d rather be wrong here.

      1. Nathanael

        “In short, the world is run by two sets of actors: men with no broader vision than grabbing anything they can today and forget about tomorrow, and men who are planning a long-range program of using force and debt to reduce much of the population to a neofeudal condition. I think those who just assume that we can tweak our way back to business as usual probably aren’t players, just mid-level political and ideological functionaries. ”

        The second group of men does not exist. There are NO long-term thinkers among our current financier power elites — they’re all short-term thinkers.

        There is a group of long-term thinkers with great influence, but they’re the evangelical Christian nuts and are completely disconnected from reality. (Which makes them very dangerous, but means they can’t win — their win condition is the Second Coming, which isn’t going to happen.)

        Only after revolutionary activity starts will you start seeing the people arise who can really operate a long-term plan to restore feudalism. None of them have any power yet, because the necessary tactics which they will have to use (personal sworn loyalties from their troops) are not possible until the current regime breaks down more than it has.

    2. s spade

      Have you considered why oil went from $11 to $147? Perhaps the idea of the Bush crusade was to take Iraq out of production? It certainly worked out, didn’t it?

  10. Jackrabbit

    1. Neo-lib Cognitive capture and crony capitalism explain a lot.

    2. What, no mention of Bernanke’s claim that he could end QE at any time?
    What a shitty legacy!:
    * “Subprime is contained” happytalk
    * Dual mandate BS (QE really helps the banks and acts as political cover for tax cut deals)
    * The ‘Taper’ fiasco in which the Fed loses all credibility.

Comments are closed.