Category Archives: Economic fundamentals

Why Did GDP Fall So Dramatically Last Quarter?

Robert Pollin, professor of economics at the University of Massachusetts Amherst, gives a good high-level discussion of why the GDP results for last quarter were such a train wreck. Remember that analysts and economists were blindsided; no one expected to see GDP fall at that rate. As we wrote, the tendency among pundits has been to treat the results as of not much concern, since that period is past and some of plunge can be attributed to one-off factors, most importantly, abnormally cold weather. Pollin explains why this explanation is insufficient.

Why the Rich Aren’t Job Creators

This is a short talk by venture capitalist Nick Hanauer, who among other things, was the first non-family investor in Amazon. Hanauer in very simple and effective terms debunks the “rich are job creators” myth. Even though the video is going viral (now at over 1 million views on YouTube, it is important enough that I wanted to make sure NC readers saw it and circulated it.

Hanauer’s remarks illustrates the degree to which propaganda has overcome commercial common sense.

Randy Wray: Modern Monetary Theory – The Basics

How economists that are otherwise sympathetic to modern monetary theory nevertheless misconstrue some of its fundamental observations. For instance, those like Paul Krugman who are generally of the Keynesian persuasion like MMT’s “deficit owl” approach. Krugman acts as if he would really like to stop worrying about the deficit so that he could advocate an “as much as it takes” approach to government spending. The problem is that he just cannot quite get a handle on the monetary operations that are required. Won’t government run out? What, is government going to create money “out of thin air”? Where will all the money come from?

Why Banks Must Be Allowed to Create Money

Ann Pettifor has penned an effective rebuttal of the Chicago Plan, which has been taken up in the UK as “Positive Money”. Its advocates call for private banks to have their ability to create money taken from them, and put in the hands of a committee, independent of the state, that would decide on the level of money creation. Banks would be restricted to lending money that they already have on deposit.

Pettifor explains how the enthusiasm for the Chicago Plan rests on a fundamental misunderstanding of the nature of money and confusion about its relationship to credit. While readers may not like the notion that credit, and therefore money creation, is best left in the hands of banks, the problem is much like the one that Churchill articulated about democracy: it looks like the worst possible system until you consider the alternatives.

GDP Hits Air Pocket: Recession Warning or False Alarm?

In case you managed to miss it, the GDP revision yesterday morning was stunningly bad.

But after getting rattled, Mr. Market shrugged off the report. So what if we opened Schrodinger’s box and found out the cat was dead? That was first quarter’s cat. That cat might as well be dead for all we care now. Plus the weather was bad, so we’ll make all that up, and anyway, the Fed has our back, so if there really is something to worry about here, they’ll fix it, as least as far as security-owners are concerned. Right?

In addition to looking at the main elements of the GDP report, we’ve asked readers to report on what they see in their economy.

Bill Black: The EU Center-Right and Ultra-Right’s Continuing War on the People of the EU

The New York Times has provided us with an invaluable column about the interactions of the EU’s rightist and ultra-rightest parties. It is invaluable because it is (unintentionally) so revealing about the EU’s right and ultra-right parties and the NYT’s inability to understand either the EU economic or political crises. The NYT article illustrates its points by presenting a tale entitled “A German Voice, Hans-Olaf Henkel, Calls for Euro’s Abolition.” It treats Henkel, an open racist and austerian, as a reputable figure, apparently because he is wealthy.

“Risky Business” Climate Report: Paulson, Bloomberg, Rubin, Schultz Late to Combat the Denialists

Those who have been involved in trying to raise awareness of the risks of global warming might have to repress a “Beware of Greeks bearing gifts” response to a new, accessible, and well written report on the probable impact of climate change on the US. The effort, called “Risky Business” has Hank Paulson, Michael Bloomberg, and Thomas Steyer, retired chairman of Farallon Capital, as co-chairs, with its other committee members including Bob Rubin, George Schultz, Henry Cisneros, Gregory Page (the executive chairman of Cargill), Donna Shalala, and Olympia Snowe. In other words, when Hank Paulson looks like the best of a bunch, there’s reason to be cautious.

Nevertheless, the report is meant to demonstrate that the US is long past having the luxury of debating whether global warming is happening, and that a sober look at the seriousness of the outcomes says we need to do something, pronto. If nothing else, it presents some important new analysis and represents a split among the elites, always a welcome development.

More Finance, More Growth? More Finance, More Crises?

Contrary to conventional wisdom in economics, a bigger role for finance, also known as “financial deepening,” has gone well beyond the point of maximum return. It is promoting more crises rather than more growth.

Debunking the Hype about the European “Recovery”

Europe’s “recovery” looks more like a mirage than the real thing.

Anat Admati Discusses the Still-Too-Big-to-Fail Banks on Bill Moyers

Anat Admati, deemed by Time as one of the 100 most influential people in the US, debunks the idea that the too-big-to-fail problem has been fixed. And she takes some swipes at Timothy Geithner.

Wolf Richter: Fed’s Bullard Calls Out Ignoring Bubbles Developing “Under Our Noses,” So What About Now?

Yves here. It’s been astonishing to see members of the Fed in denial about their own handiwork, so when St. Louis Fed President James Bullard berates his fellow central bankers for their abject refusal to notice pre-crisis bubbles, it’s an all too rare departure from their usual insularity and willful blindness.

Larry Summers’ Contradictory and Dishonest Defense of Administration’s Bank-Focused Crisis Response

Larry Summers, like Tim Geithner, wants the public to believe that rescuing banks and leaving citizens to rot was the right crisis response. But neither experts, nor people who followed the crisis, nor voters at large are buying what Team Obama is trying to sell.

How the Troika, the WSJ and the NYT Keep the Public Befuddled About Austerity and Deflation

Deflation proves that austerity policies are failing, but the media is doing a remarkable job of keeping readers confused and ignorant.

Robert Pollin and Dean Baker Discuss the Anemic Recovery and Why Economists Don’t Recommend Real Remedies

A good discussion of why the weak economic recovery has only helped those at the very top, and why economists who know better continue to enable that.

The Federal Reserve Versus Hyman Minsky (and Deflation)

How the Fed has gotten itself caught in its own underwear by ignoring Hyman Minsky and in persisting in the clearly failed strategy of super lax monetary policy rather than calling for more government spending.