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January 31, 2015

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Posted: 31 Jan 2015 12:06 AM PST

'Don't Trade Away Our Health'

Posted: 30 Jan 2015 09:34 AM PST

Joe Stiglitz:

Don't Trade Away Our Health: A secretive group met behind closed doors in New York this week. What they decided may lead to higher drug prices for you and hundreds of millions around the world.
Representatives from the United States and 11 other Pacific Rim countries convened to decide the future of their trade relations in the so-called Trans-Pacific Partnership (T.P.P.). Powerful companies appear to have been given influence over the proceedings, even as full access is withheld from many government officials from the partnership countries.
Among the topics negotiators have considered are some of the most contentious T.P.P. provisions — those relating to intellectual property rights. And we're not talking just about music downloads and pirated DVDs. These rules could help big pharmaceutical companies maintain or increase their monopoly profits on brand-name drugs. ...

U.S. Workers Still Waiting for Wage Growth

Posted: 30 Jan 2015 09:34 AM PST

Jeffrey Sparshott of the WSJ:

U.S. Workers Still Waiting for Wage Growth: U.S. employers aren't yet getting squeezed by workers demanding higher wages.
The employment-cost index, a broad gauge of wage and benefit expenditures, rose a seasonally adjusted 0.6% in the fourth quarter last year, the Labor Department said Friday. That's down from 0.7% in the two earlier quarters and jibes with other data showing only limited wage pressure across the U.S.
Wages and salaries, which account for about 70% of compensation costs, climbed 0.5%, a slowdown from the third quarter's 0.8% pace. Benefit costs rose 0.6%, matching the prior quarter.
The data is better than recent hourly earnings figures, which showed wages declining in December despite a postrecession low for the unemployment rate. ...

'Audit the Fed? Not So Fast'

Posted: 30 Jan 2015 09:34 AM PST

Catherine Rampell:

Audit the Fed? Not so fast: Not this again.
Calls to "Audit the Fed" are back. And just as before, they are extraordinarily dangerous to the health of the U.S. economy.
First, a little background. Conspiracy theories about the Federal Reserve's wacky technical mumbo-jumbo voodoo have a long populist history. Monetary policy is complicated and abstract; entrusting it to a secretive, propeller-headed cabal naturally arouses suspicion. No surprise, then, that libertarian hero and former Texas congressman Ron Paul for years tried to persuade his colleagues to curb the central bank's power and independence with recurrent calls to "Audit the Fed" (if not kill it entirely). He made Fed audits a centerpiece of his 2008 and 2012 presidential campaigns.
Now, with Republicans controlling both houses of Congress, he might finally get his way.
Sen. Rand Paul (R-Ky.) has picked up his father's mantle and reintroduced the proposal as the Federal Reserve Transparency Act of 2015. Sen. Ted Cruz (R-Tex.) — like Paul a likely 2016 presidential contender — has also joined the cause, along with 29 other co-sponsors. A companion bill was introduced in the House by Rep. Thomas Massie (R-Ky.). ...

'Real GDP increased at 2.6% Annualized Rate in Q4'

Posted: 30 Jan 2015 09:34 AM PST

Bill McBride at Calculated Risk:

BEA: Real GDP increased at 2.6% Annualized Rate in Q4: From the BEA: Gross Domestic Product: Fourth Quarter and Annual 2014 (Advance Estimate)

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 2.6 percent in the fourth quarter of 2014, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent.
The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the fourth quarter primarily reflected an upturn in imports, a downturn in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by an upturn in private inventory investment and an acceleration in PCE.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, decreased 0.3 percent in the fourth quarter, in contrast to an increase of 1.4 percent in the third. Excluding food and energy prices, the price index for gross domestic purchases increased 0.7 percent, compared with an increase of 1.6 percent.
The advance Q4 GDP report, with 2.6% annualized growth, was below expectations of a 3.2% increase.

Personal consumption expenditures (PCE) increased at a 4.3% annualized rate - a strong pace!

The key negatives were trade (subtracted 1.02 percentage point) and Federal government spending (subtracted 0.54 percentage points). ...

Overall this was a solid report with strong PCE and private domestic investment.

Paul Krugman: Europe’s Greek Test

Posted: 30 Jan 2015 09:22 AM PST

Will Europe pass its latest test?:

Europe's Greek Test, by Paul Krugman, Commentary, NY Times: ... Recent events in Greece pose a fundamental challenge for Europe: Can it get past the myths and the moralizing, and deal with reality in a way that respects the Continent's core values? If not, the whole European project — the attempt to build peace and democracy through shared prosperity — will suffer a terrible, perhaps mortal blow. ... oversimplify things a bit, you can think of European policy as involving a bailout, not of Greece, but of creditor-country banks, with the Greek government simply acting as the middleman — and with the Greek public, which has seen a catastrophic fall in living standards, required to make further sacrifices so that it, too, can contribute funds to that bailout.
One way to think about the demands of the newly elected Greek government is that it wants a reduction in the size of that contribution. ... But doesn't Greece have an obligation to pay ... debts? That's where the moralizing comes in.
It's true that Greece (or more precisely the center-right government that ruled the nation from 2004-9) voluntarily borrowed vast sums. It's also true, however, that banks in Germany and elsewhere voluntarily lent Greece all that money. We would ordinarily expect both sides of that misjudgment to pay a price. But the private lenders have been largely bailed out... Meanwhile, Greece is expected to keep on paying.
Now,... nobody believes that Greece can fully repay. So why not recognize that reality and reduce the payments to a level that doesn't impose endless suffering? Is the goal to make Greece an example for other borrowers? If so, how is that consistent with the values of what is supposed to be an association of sovereign, democratic nations? ...
Objectively, resolving this situation shouldn't be hard. ...Greece has actually made great progress in regaining competitiveness; wages and costs have fallen dramatically, so that, at this point, austerity is the main thing holding the economy back. So what's needed is simple: Let Greece run smaller but still positive surpluses, which would relieve Greek suffering, and let the new government claim success, defusing the anti-democratic forces waiting in the wings. Meanwhile, the cost to creditor-nation taxpayers — who were never going to get the full value of the debt — would be minimal.
Doing the right thing would, however, require that other Europeans, Germans in particular, abandon self-serving myths and stop substituting moralizing for analysis.
Can they do it? We'll soon see.

Links for 01-30-15

Posted: 30 Jan 2015 12:06 AM PST

[Had this set to autopost, but accidentally hit p.m. instead of a.m., so it's very late...]

January 30, 2015

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A Moral Case for Bank Money

Posted: 29 Jan 2015 09:04 AM PST

 [Very busy day today, so for now just three quick excerpts.]

Tim Johnson:

A moral case for bank money: Finance is a skeleton that supports the development of a healthy society, not a utility that plumbs the economy together. The justification for this observation is historical. Richard Seaford has argued that the culture that emerged in Greece some two and a half thousand years ago, creating a unique approach to science and democratic politics, was a consequence of a peculiar Greek invention; money, a token that signifies trust between citizens. The flowering of European culture, and the genesis of modern science, in thirteenth century Europe followed, and some argue was a consequence of, a period of rapid monetisation of society that initiated the end of feudalism. Similarly, western Europe's development accelerated ahead of the rest of the world in the seventeenth century powered by financial innovations in the Netherlands and Britain.
Charles Mackay in his classic comparison of England's South Sea Bubble and France's, almost simultaneous, Mississippi Bubble, emphasises the different reactions in France and Britain to the credit bubbles. In the aftermath of the crises, the French inhibited the development of private banks but maintained the autocratic political system, whereas the British reformed the political system and enabled the development of finance. The results of Britain's Financial Revolution were Agricultural and Industrial Revolutions along with the eclipse of France as a global power. For France, dependent on taxation to fund the state, there was the ultimate collapse of the political system in bloody revolution.
Getting the structure of our financial system right is not a trivial matter. ...

Greece, EMU and Democracy

Posted: 29 Jan 2015 09:04 AM PST

More on Greece from Antonio Fatas:

Greece, EMU and democracy: One more post on Greece, possibly not the last one.

Markets are more worried about what is going on and there is more and more talk about the possibility of and exit of Greece from the Euro area. As I have argued in my previous posts, exit will not be the choice of the Greek government, it will be the only solution for Greece as the ECB refuses to provide liquidity to Greek banks as depositors run to avoid capital losses on their Euro deposits in the scenario of Greece leaving the Euro.

Let me start by repeating (as I have expressed many times in this blog) that I find that the economic policies followed in Europe have been a disaster, that the suffering that countries such as Greece had to go through during the last years should not have taken place. And I am convinced that in many of these countries, austerity has produced higher debt-to-GDP ratios, as opposed to lower ones. A real disaster.

But this is not what this negotiation is going to be about. The reality is that the crisis has had an impact on the way we all see the experiment of sharing a single currency, the experiment of EMU. While in the early days we all talked about optimum currency areas, the synchronicity of business cycles, the absence of a fiscal transfer mechanism, what we now realize is that the real issue is how to handle a full-blown crisis that puts governments at the edge of default and creates bank runs among Euro countries (something that many l thought it was impossible). The role that the ECB plays in those circumstances is not the typical role a central bank plays and one cannot ignore the political aspects associated to the difficult decisions they face. ...

Inequalities, National and Global

Posted: 29 Jan 2015 09:00 AM PST

Joseph Joyce:

Inequalities, National and Global: The publication of Thomas Piketty's Capital in the Twenty-First Century brought attention to an issue that has been slowly seeping into public discourse. President Obama's State of the Union address made it clear that we will not need to wait until the 2016 Presidential campaign to hear proposals to rectify the rise in inequality. But the data and trends of global inequality reveal a more complex situation than the national states of affairs that Piketty highlights. ...

January 29, 2015

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Posted: 29 Jan 2015 12:06 AM PST

Fed Watch: FOMC Decision

Posted: 28 Jan 2015 02:12 PM PST

Tim Duy:

FOMC Decision, by Tim Duy: If you were looking for fireworks from today's FOMC statement, you were disappointed. Indeed, you need to work pretty hard to pull a story out of this statement. It provided little reason to believe that the Fed has shifted its view since December. A June rate hike remains the base case.

The Fed's assessment of the current statement is arguably the best in years:

Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow.

The Fed is simply not seeing any warning signs in recent data. Regarding inflation:

Inflation has declined further below the Committee's longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; survey-based measures of longer-term inflation expectations have remained stable.

They continue to dismiss headline inflation, and I think they will continue to do so. And if you continue to insist that the Fed is paralyzed with fear over market based measures of inflation expectations, note that they do not refer to these as "expectations" measures. It is inflation "compensation." From Fed Chair Janet Yellen's most recent press conference:

There are a number of different factors that are bearing on the path of market interest rates, I think, including global economic developments. It is often the case that when oil prices move down and the dollar appreciates, that that tends to put downward pressure on inflation compensation and on longer-term rates. We also have safe-haven flows that may be affecting longer-term Treasury yields. So I can't tell you exactly what is driving market developments. But what I can say is that we are trying to communicate our thoughts as clearly as we can.


Oh, and longer-dated expectations. Well, what I would say, we refer to this in the statement as "inflation compensation" rather than "inflation expectations." The gap between the nominal yields on 10-year Treasuries, for example, and TIPS have declined—that's inflation compensation. And five-year, five-year-forwards, as you've said, have also declined. That could reflect a change in inflation expectations, but it could also reflect changes in assessment of inflation risks. The risk premium that's necessary to compensate for inflation, that might especially have fallen if the probabilities attached to very high inflation have come down. And it can also reflect liquidity effects in markets. And, for example, it's sometimes the case that— when there is a flight to safety, that flight tends to be concentrated in nominal Treasuries and could also serve to compress that spread. So I think the jury is out about exactly how to interpret that downward move in inflation compensation. And we indicated that we are monitoring inflation developments carefully.

They are trying to tell us very clearly that TIPS are not giving a measure of pure inflation expectations. They do not want those measures by themselves to affect market expectations of the path of monetary policy.

Growth risks are balances and low inflation is transitory:

The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.

They make a small nod to international concerns when considering future policy actions:

This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

The Fed remains patient and policy is data dependent:

Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

June remains on the table. Within the context of the current forecast, I think that June will be difficult to justify in the absence of wage acceleration. A sharp decline in the forecast, or the balance of risks to the forecast, would also prompt a delay. Importantly, at this point they see the current forecast as still the most likely outcome.

Bottom Line: At this point, the Fed does not see market turbulence as an impediment to raising rates. They are willing to hike rates even if stocks are moving sideways (which they probably think is reasonable in the context of expectations for less monetary accommodation). They do not see any data that threatens their baseline forecast. Maybe market participants have written off June, but for the Fed, June remains very much on the table.

'Somebody Is Inside an Echo Chamber. But Who?'

Posted: 28 Jan 2015 10:07 AM PST

Brad DeLong:

Somebody Is Inside an Echo Chamber. But Who?: Paul Krugman fears that somebody is trapped inside an echo chamber, hearing only things that confirm what they already believe...

But how can we tell which side has lost contact with the reality out there? ...

I do not think we have to decide. I think that even if we are uncertain whether the optimistic "insiders" or the pessimistic "outsiders" are correct, elementary prudent optimal-control theory tells us that we should act as if the "outsiders" are right.

But I have gotten ahead of myself:...

So how would we tell whether, right now, it is the outsiders are overstating the dangers to premature tightening, or it is the insiders who are understating the dangers to premature tightening here in the United States?

To answer this question, I think we need to consider five points–the first about our decision procedure, the second about the level of spending consistent with full employment, the third about the degree of uncertainty and variability, the fourth about the vulnerabilities of the economy to spending deviations above and below the projected current-policy path, and the fifth about the effectiveness of our optimal-control levers in different scenarios.

The first point is that if it turns out that we cannot tell–that we have to split the difference–then the considerations that rule are the asymmetries in the situation.

The second point is that no one right now has a good and convincing read on what, exactly, the level of spending consistent with full employment at the currently-projected price level is. Uncertainty is rife: if there was ever a time for considering not just the central tendency of the forecast but the risks on either side and taking optimal control appropriately valuing these risks seriously, it is right now.

The third point is that we are not just uncertain about what the proper full-employment path for demand is, we have much more than the usual amount of uncertainty about nearly all other dimensions of the structure of the economy. To suppose that any of the emergent properties that are policy multipliers can be estimated from data collected during "normal" times is to make an enormous leap of faith.

The fourth point is that downside risks to the forecast greatly exceed upside opportunities. ...

And the fifth point is that, while the Federal Reserve has powerful levers to restrict demand if spending shoots above the desired policy path, its levers to expand demand if spending falls below have been demonstrated over the past six years to be relatively weak.

Thus, if it turns out that we cannot tell–and we cannot tell–then it is not correct that we should split the difference. The considerations that rule are then the asymmetries in the situation. It is, right now, much worse to undershoot than to overshoot full-employment demand...

These asymmetries mean that, as far as policy is concerned, the "outsiders" win any tie and win any near-tie: the "insiders" should govern what policy should be only if there is not just a preponderance of the but clear and convincing evidence on their side.

Yet the Federal Reserve appears to have decided:

  • that those who think that the economy is near full employment and is in a durable recovery have by far the better of the argument as to what the central tendency projected current-policy demand path is.
  • that it is appropriate to make policy via certainty-equivalance.

Given the inability of the Federal Reserve to attain traction at the ZLB, its current frame of mind–which appears to be doing certainty-equivalence policy–makes no sense to me. Certainty-equivalence is appropriate only with a symmetric loss function and a symmetric ability to compensate for deviations on either side of the target. We do not have either of those.

Has there been an explanation of why the Federal Reserve's policy is appropriate, given the uncertainties, given the asymmetry of the loss function, and given the asymmetry of the control levers, that I have missed? If so, where is it?

January 28, 2015

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Fed watch: While We Wait For Yet Another FOMC Statement...

Posted: 28 Jan 2015 12:15 AM PST

Tim Duy:

While We Wait For Yet Another FOMC Statement...: The FOMC will reveal the outcome of this week's meeting later today. I think Calculated Risk hits the high points - "patient" is in, "considerable time" is completely out. Beyond this, we will be looking for clues on how the Fed is interpreting the current economic environment. I suspect little change in the overall tenor of the statement as they will want to leave June open as an option. I reiterate my position: The Fed needs to see an acceleration in wage growth to be confident that inflation will return to trend if they intend to raise rates in June. 

Why is the Fed focused on normalizing policy? This is one explanation I see tossed around, from Jeffrey Gunlock via Reuters:

"The Fed seems to want to raise interest rates simply because they don't want to be at zero when the next recession occurs," he said.

A similar statement from the Economic Cycle Research Institute:

In this context, ECRI explains the reasons for the declines in both measures, but also why they may ultimately not be that important to the timing of rates hikes. Above all, the Fed wants to remain relevant in case the economy is hit by recessionary shocks that require interest rates to return to the zero-lower-bound (ZLB). By definition, once on the ZLB, they need to rise before they can fall again.

I don't think these are accurate representations of Fed thinking. The Fed recognizes that hiking rates prematurely to "give them room" in the next recession is of course self-defeating. They are not going to invite a recession simply to prove they have the tools to deal with another recession.  

The reasons the Fed wants to normalize policy are, I fear, a bit more mundane:

  1. They believe the economy is approaching a more normal environment with solid GDP growth and near-NAIRU unemployment. They do not believe such an environment is consistent with zero rates.
  2. They believe that monetary policy operates with long and variable lags. Consequently, they need to act before inflation hits 2% if they do not want to overshoot their target. And they in fact have no intention of overshooting their target.
  3. They do not believe in the secular stagnation story. They do not believe that the estimate of the neutral Fed Funds rate should be revised sharply downward. Hence 25bp, or 50bp, or even 100bp still represents loose monetary policy by their definition.

I am currently of the opinion that there is a reasonable chance the Fed is wrong on the third point, and that they have less room to maneuver than they believe. If so, they will find themselves back at the zero bound in the next recession, very quickly I might add. This is not their expectation. They expect to remain relevant in the next recession and do not believe they need to quickly raise rates to achieve relevance. Again, they know this is self-defeating.

Whether or not they can maintain their mid-year target is of course the topic du jour. But the logic of those who believe the Fed will not have what it needs in June and thus expect the first hike much later is more convincing than those who argue that they will raise rates due to some pressing need to prepare for the next recession.

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Posted: 28 Jan 2015 12:06 AM PST

Taxing the Wealthy Won't Hurt Economic Growth

Posted: 27 Jan 2015 06:12 AM PST

I have a new column:

Taxing the Wealthy Won't Hurt Economic Growth: I have no idea whether or not Mitt Romney will run for president, and if he does, if he will get the nomination. But many of the issues he ran on when he was a candidate in the last election are likely to reappear this time around no matter whom the candidates turn out to be.
One of the fiercely debated issues in the last presidential election was taxation of the wealthy, and Republican proposals similar to those Romney made when he ran against Obama –– lowering or eliminating the taxes on capital gains, interest, dividends, and inheritances –– will undoubtedly arise again. I expect Republicans will throw a few bones to the middle class in an attempt to get the support of this important constituency, but I also expect the thrust of the proposals to be the same old supply-side policies favoring the wealthy that we have seen in the past.
What I want to focus on, however, is the economic arguments that are made to support the ideological goal of low taxes. ...

January 27, 2015

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'The Mode of Production as Society's Structure'

Posted: 27 Jan 2015 12:15 AM PST

Daniel Little:

Figure: Althusser's conception of the CMP (RP Resch, Althusser and the Renewal of Marxist Social Theory)

The mode of production as society's structure: Sociologists study social structure and the effects that structures have on individual behavior and life outcomes. But what do they have in mind when they refer to "structure"?

It turns out that there are important ambiguities in the idea of social structure. The word is sometimes used to refer to functioning entities or systems within society. The state is a structure within society; likewise is the system of public education. But the term can also be used to refer to the structure of society. Here we have statements like "the age structure of Egypt is X" and "the occupational structure of Great Britain is Y". In this usage, we are being directed to a descriptive feature of society -- the way that various elements hang together. Income stratification is a structural feature; the state is a structural entity.

There is a third meaning associated with "structure" as well: the idea that society possesses a structure of interconnected parts and sub-systems, and that the parts influence each other in systematic ways. To outline the structure of society is to provide a theory of how it works (in part, anyway).

This usage is illustrated in Marx's extended concept of the capitalist mode of production, in which various large elements -- technology and production, distribution, wage labor, property ownership, political authority, culture and ideology -- hang together in functional ways. Marx describes this system as one consisting of a base (forces and relations of production) and superstructure (state, ideology, culture), with the workings of class interest serving as the engine of stability and change. So Marx looks at capitalism as a system. Consider this statement from the Preface to A Contribution to the Critique of Political Economy:

In the social production of their life, men enter into definite relations that are indispensable and independent of their will, relations of production which correspond to a definite stage of development of their material productive forces. The sum total of these relations of production constitutes the economic structure of society, the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the social, political and intellectual life process in general.

Here and elsewhere Marx picks out the forces of production and relations of production as the basic determinants of social change. The mode of production represents a complex and objective reality to which individuals must adapt in their behaviors.

Now consider how Nicos Poulantzas defines the mode of production as a structural whole in Political Power and Social Classes:
By mode of production we shall designate not what is generally marked out as the economic (i.e. relations of production in the strict sense), but a specific combination of various structures and practices which, in combination, appear as so many instances or levels, i.e. as so many regional structures of this mode. A mode of production, as Engels stated schematically, is composed of different levels or instances, the economic, political, ideological and theoretical: it is understood that this is merely a schematic picture and that a more exhaustive division can be drawn up. The type of unity which characterizes a mode of production is that of a complex whole dominated, in the last instance, by the economic. (13-14)

(Poulantzas goes on to draw a distinction between the mode of production and the social formation (15); essentially his view is that the social formation is the concrete reality of a social order at a time, while the mode of production is a theoretical representation that describes that order.)

These texts serve to illustrate a specific and comprehensive view of the sense in which society has a structure. Each substantive term warrants analysis.

Definite relations of production -- property relations, relations of power and authority, relations defining the terms of economic interaction. The terms of these relations are essentially beyond the control of the individuals who fall within them; they represent a supra-individual reality to which the individual must accommodate. The system of wage labor is a clear example in Marx's theory. In a society in which wage labor is the dominant system of labor control, individuals gain the resources needed to satisfy life needs by selling their labor time which is then directed and managed by the purchaser. This is a structural condition that the worker confronts in the social environment around him or her.
Material productive forces -- the level and implementation of productive technology, including locations of production, tools, machines, materials processing, mines, agriculture, and the forms of knowledge associated with each of these. The ensemble of these items constitutes another fixed aspect of the social environment within which human beings live and subsist.
Economic structure of society -- the system of property relations and material institutions and technology through which society produces goods and conducts the distribution of value and surplus value (income and access to goods).
Legal and political superstructure -- the institutions through which law and political power are exercised and maintained.
Forms of social consciousness -- the cognitive and epistemic frameworks through which ordinary members of society understand the forces that surround them and the roles that they play within those forces and institutions.
Levels or instances of social organization -- the clusters of institutions that make up the "economic, political, ideological, and theoretical "'levels'" of existing society. Factories, department stores, and banks fall in the economic level; the legislature, the police and military forces, and the agencies of the state fall in the political level; and the contents and institutions of transmission of beliefs about the world fall in the ideological and theoretical levels.

Marx and other scholars who work within the framework of historical materialism hold, as a large empirical hypothesis, that there are causal and systemic relations among these items, and the generic mechanism of class interest and class conflict is the transmission belt that conveys causal influence from one sector to another. They believe that the "needs" of the economic structure are secured by the political structure, through the mechanism of class interests; likewise, the ideological and theoretical structure is shaped by the interests of various classes, leading to a high degree of conformance between the content of "social consciousness" and the prerequisites of stability of the economic structure.

The template of historical materialism as a "Gray's Anatomy" for modern capitalism has often been criticized as being mechanistic, over-simplified, and even fictional. But in its heart the scheme is a perfectly intelligible hypothesis about how several aspects of contemporary society fit together. Property relations define individual interests, and the system of wage labor defines the opportunities available to working people. Legislative and governmental policies have effects on the property system, and the class that owns the bulk of this property is perfectly capable of recognizing the consequences of this policy or that. Having the means to influence government, the owning class is able to shape government policy and personnel in ways that are compatible with its interests. Likewise, owners of property are able to recognize the advantage of being in a position to influence public consciousness and the terms of public debate. So the components of the "ideological apparatus" -- think tanks, newspapers, publishing houses, television networks -- are intensely contested, and the power of the owning class to influence the content of these outlets is great. Here again we have a fairly simple empirical argument for the conformance of the organs of social consciousness to the needs of the propertied class. And if it seems far fetched to hold that the owners of wealth are very willing to exert their power in these ways, just look at the recent announcement of the 2016 election-year budget of the political network funded by the Koch brothers -- $889,000,000 (link)!

It is no longer common in sociology to find value in Marx's theory of capitalist society. But really, the structuralist view he arrived at in the 1850s and 1860s seems pretty prosaic today in the context of an economic system that systematically creates astronomical wealth for the one percent and stagnant poverty for the majority of society. Median household income in 2012 in the United States was $51,371, and almost all states showed a decline in median household income between 2000 and 2012 (link). And it is almost tautological to say that the property system explains both facts -- the explosion of the wealth and income of the one percent and the stagnant or declining incomes of the majority of the population.

Or as Marx concludes Chapter Six of Volume I of Capital

On leaving this sphere of simple circulation or of exchange of commodities, which furnishes the "Free-trader Vulgaris" with his views and ideas, and with the standard by which he judges a society based on capital and wages, we think we can perceive a change in the physiognomy of our dramatis personae. He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.

Links for 01-27-15

Posted: 27 Jan 2015 12:06 AM PST

'Does Monopoly Power Cause Inflation? (1968 and all that)'

Posted: 26 Jan 2015 03:32 PM PST

Nick Rowe:

Does monopoly power cause inflation? (1968 and all that): Here's a question for you: Suppose there is a permanent increase in monopoly power across the economy (either firms having more monopoly power in output markets, or unions having more monopoly power in labour markets). Would that permanent increase in monopoly power cause a permanent increase in the inflation rate?
Most economists today would answer "no" to that question. It might maybe cause a temporary once-and-for-all rise in the price level, but it would not cause a permanent increase in the inflation rate. The question just sounds strange to modern economists' ears. They would much prefer to discuss whether a permanent increase in monopoly power caused a permanent reduction in real output and employment. What has monopoly power got to do with inflation?
To economists 40 or 50 years ago, the question would not have sounded strange at all. Many (maybe most?) economists would have answered "yes" to that question. ...



Posted: 26 Jan 2015 11:54 AM PST

Dietz Vollrath:

Techno-neutrality: I've had a few posts in the past few months (here and here) about the consequences of mechanization for the future of work. In short, what will we do when the robots take our jobs?
I wouldn't call myself a techno-optimist. I don't think the arrival of robots necessarily makes everything better. But I do not buy the strong techno-pessimism that comes up in many places. Richard Serlin has been a frequent commenter on this blog, and he generally has a gloomy take on where we are going to end up once the robots arrive. I'm not bringing up Richard to pick on him. He writes thoughtful comments on this subject (and lots of others), and it is those comments that pushed me to try and be more clear on why I'm "techno-neutral". ...

Paul Krugman: Ending Greece’s Nightmare

Posted: 26 Jan 2015 09:06 AM PST

"The problem with Syriza's plans may be that they're not radical enough":

Ending Greece's Nightmare, by Paul Krugman, Commentary, NY Times: Alexis Tsipras, leader of the left-wing Syriza coalition, is about to become prime minister of Greece. He will be the first European leader elected on an explicit promise to challenge the austerity policies that have prevailed since 2010. And there will, of course, be many people warning him to abandon that promise, to behave "responsibly."
So how has that responsibility thing worked out so far?
To understand the political earthquake in Greece, it helps to look at Greece's May 2010 "standby arrangement" with the International Monetary Fund, under which the so-called troika — the I.M.F., the European Central Bank and the European Commission — extended loans to the country in return for a combination of austerity and reform. It's a remarkable document, in the worst way. The troika, while pretending to be hardheaded and realistic, was peddling an economic fantasy. And the Greek people have been paying the price for those elite delusions.
You see, the economic projections that accompanied the standby arrangement assumed that Greece could impose harsh austerity with little effect on growth and employment. ... What actually transpired was an economic and human nightmare. Far from ending in 2011, the Greek recession gathered momentum. ...
What went wrong? I fairly often encounter assertions to the effect that Greece didn't carry through on its promises, that it failed to deliver the promised spending cuts. Nothing could be further from the truth. In reality, Greece imposed savage cuts in public services, wages of government workers and social benefits. ...
Yet Greek debt troubles are if anything worse than before the program started. ...
So now that Mr. Tsipras has won, and won big, European officials would be well advised to skip the lectures calling on him to act responsibly...
If anything, the problem with Syriza's plans may be that they're not radical enough. Debt relief and an easing of austerity would reduce the economic pain, but it's doubtful whether they are sufficient to produce a strong recovery. On the other hand, it's not clear what more any Greek government can do unless it's prepared to abandon the euro, and the Greek public isn't ready for that.
Still, in calling for a major change, Mr. Tsipras is being far more realistic than officials who want the beatings to continue until morale improves. The rest of Europe should give him a chance to end his country's nightmare.

January 26, 2015

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Posted: 26 Jan 2015 12:06 AM PST

'Nominate A Qualified Undersecretary Of Domestic Finance Now'

Posted: 25 Jan 2015 02:08 PM PST

This is from Simon Johnson (I didn't follow the debate over the qualifications of Antonio Weiss, the administration's nominee for Undersecretary for Domestic Finance, as closely as I should have, so I don't have much to say about that part of what is said below. But I very much agree with the need to find someone who will stand up for financial reform):

Nominate A Qualified Undersecretary Of Domestic Finance Now: The Obama administration urgently needs to nominate a qualified individual as Undersecretary for Domestic Finance at the Treasury Department. ...
The ... White House pushed hard for the confirmation of a Wall Street executive, Antonio Weiss, as Undersecretary for Domestic Finance. (In mid-January, in the face of continuing legitimate questions about his qualifications, Mr. Weiss withdrew himself from consideration. ...) ...
The House Republicans show every sign of doing what they can to help Citigroup, JP Morgan Chase, and others remove all effective restrictions on megabanks' ability to take on large amounts of risk. The big banks want to return to the days of executives getting the upside when things go well and the taxpayer left holding the bag whenever disaster strikes.
The Treasury Department urgently needs to focus intellectual and administrative attention on the substance of defending Dodd-Frank, including shoring up support with Democrats, resisting the political onslaught led by House Republicans, and reaching out to senators of both parties who are willing to help. A key piece of becoming properly organized – intellectually and in terms of liaison with Congress – involves appointing a credible, qualified Undersecretary for Domestic Finance who hits the ground running and really knows what he or she is talking about. ...
Mr. Weiss's principal problem was simple: he ... did not have the relevant general domain expertise and also lacked a sufficiently convincing grasp of the economic and political details surrounding financial regulation.
The search now should be quite straightforward. Find someone with relevant experience and a good track record – including statements and actions that are on the public record and that demonstrate willingness to challenge the megabanks' worldview. ...
Nominating a credible Undersecretary for Domestic Finance quickly is an essential step towards helping the Treasury Department most effectively serve the American people – and towards preventing the collapse of financial reform.

Who are the Radicals in Europe?

Posted: 25 Jan 2015 09:55 AM PST

Gloomy European Economist, Francesco Saraceno:

Who are the Radicals in Europe?: As I write the Greek people are voting.  I was puzzled in the past weeks by the fear (more in the media than in markets, actually) of a "radical" left win. Puzzled, because the radical and ideological policy makers do not seem to live in Greece, today. On January 20 I wrote a piece for the Greek website Macropolis, where I claimed that we should not expect an Armageddon if Syriza wins, but rather some welcome fresh air.  I reproduce the piece here: ...

To give you the flavor of his remarks:

... On closer inspection, it seems far more radical the position of those who, despite having grossly underestimated the negative effects of austerity, ask for more of the same; of those who insist on advocating supply-side reforms to cope with a chronic lack of demand; and of those who boast having achieved a balanced budget one year ahead of forecasts, when Europe would benefit from a recovery of domestic demand in Germany.
What will happen then, if "radical" Syriza will win the election? Actually not much. ...

[In case you missed them, see also an interview with Jamie Galbraith, The Prospects and Consequences of a Possible Syriza Government and Let Us Hope for a Syriza Victory by Simon Wren-Lewis.]

Fiscal Cliff Forecasts

Posted: 25 Jan 2015 09:54 AM PST

Robert Waldmann:

2013 and all that II: A fairly large number of economists have argued that Keynesians predicted that the fiscal cliff January 2013 and sequestration March 2013 would cause a recession. A fairly large number of Keynesian economists have denied personally making that prediction (including the oversigned). Only following a complaint in comments will I look up all the links at which I just hinted.
I think it is fairly easy to decide if the orthodox Keynesian view was that 2013 fiscal contraction would cause a recession. The reason is that official forecasts are Keynesian. The forecasting models range from new Keynesian with added epicycles for the Bank of England to paleo Keynesian for the Fed.
So I decided to look up forecasts for 2013. The advantage is that official forecasts include a precise guess of the expected value of future variables...