The IMF's Epic Fail on Egypt by Yves Smith

Needless to say, there has also been a great deal of consternation as to how the West’s supposedly vaunted intelligence apparatus failed to see this one coming. This lapse is as bad as the inability to foresee the collapse of the Soviet Union (it’s arguably worse: a lot of people profited from the Cold War, and they’d have every reason to fan fears and thus look for evidence that would support the idea that the USSR was a formidable threat...

(And there was the CIA's George Tenet on the "slam dunk" of finding WMD's in Iraq)

If this isn’t bad enough, other sections of the report are downright embarrassing. The IMF does acknowledge that poverty is a bit of a problem, and look at the remedies it suggests:

Reforms for Sustained Growth
9. Continuing the reform momentum and reducing fiscal vulnerabilities remain the key medium-term challenges. Rapid growth is crucial to tackling poverty and the high level of unemployment. In this context, reinvigorating the structural reform agenda should help raise productivity and reinforce Egypt’s competitiveness.

Prioritizing reforms that promote macroeconomic stability and improve the investment climate will support the resumption of foreign direct investment. As noted, the planned fiscal adjustment and tax reforms are an important element of generating confidence, improving the business environment, and ensuring space for the private sector. Resumption of privatization and development of public-private partnerships (PPPs) will help mobilize private sector financing and know-how. Contingent liabilities associated with PPPs, however, should be monitored closely.

Reinforcing financial soundness and promoting financial sector deepening will help mobilize savings needed to finance private sector-led growth. The stability of the financial sector during and since the crisis is a testament to reforms since 2004. Staff supports the continuation of reform efforts with the CBE’s Phase II agenda. Introducing Basel II standards and supporting financial sector development will help facilitate intermediation of savings and increase private sector access to credit. Staff supports plans to adopt additional prudential measures to contain vulnerabilities that will arise with greater integration with the global economy and the introduction of new asset classes. Close coordination between the new nonbank supervisory authority and CBE will be a priority, and consideration should be given to introducing forward-looking risk management and developing global standards on liquidity and leverage.

Strengthening data quality and transparency will help improve the policy debate and business environment, and enhance Fund surveillance. The need for greater transparency and higher frequency data was underscored by the global financial crisis, and enhancements would help ensure that data availability is on par with other emerging markets. In particular, there is a need for more robust CPI and GDP deflators, and for publishing higher-frequency aggregate financial soundness indicators (as planned), and encouraging banks to make available detailed performance and soundness indicators.

This is all neoclassical trickle down twattle. People are hungry and can’t find work, and what does the IMF have in its toolkit? "Public private partnerships".

However Tunisia was a relatively wealthy Arab country and the Egyptian protesters were inspired by the successful Tunisian revolt.

The Shame Factor: When will dictators learn not to treat their people like fools? by Hitchens

Report From Cairo by Nicholas Kristof

How Much Is Too Much? by Benjamin Kunkel

The real test of Harvey’s 1982 theory of crisis is how well it serves in the face of the thing itself. The Enigma of Capital can be read as an effort to meet the challenge. Naturally, its success or failure depends on whether it can offer a more comprehensive and persuasive account than rival theories. On the score of comprehensiveness there can be little doubt that Harvey’s work and that of other Marxists goes beyond the alternatives. 'The idea that the crisis had systemic origins is scarcely mooted in the mainstream media,' Harvey writes, and that might be extended to include even the trenchant work of the neo-Keynesians. The crisis, after all, is that of a capitalist system, and no account of it, however searching, can be truly systematic if it neglects to consider property relations: that is, the preponderant ownership of capital by one class, and of little or nothing but its labour power by another.

Paul Krugman, discussing Roubini’s book in the New York Review of Books, agreed with him that what Ben Bernanke called the 'global savings glut' lay at the heart of the crisis, behind the proximate follies of deregulation, mortgage-securitisation, excessive leverage and so on. Originating in the current account surpluses of net-exporting countries such as Germany, Japan and China, this great tide of money flooded markets in the US and Western Europe, and floated property and asset values unsustainably. Why was so much capital so badly misallocated? In the LRB of 22 April 2010, Joseph Stiglitz observed that the savings glut 'could equally well be described as an "investment dearth"', reflecting a scarcity of attractive investment opportunities. Stiglitz suggests that global warming mitigation or poverty reduction offers new 'opportunities for investments with high social returns'.

The neo-Keynesians’ 'savings glut' can readily be seen as a case of what a more radical tradition calls overaccumulated capital. But it is the broader and more systematic Marxist perspective that ultimately and properly contains Keynesianism within it, and a crude Marxist catechism may be in order. Where does an excess of savings come from? From unpaid labour -- for example, that of Chinese or German workers. And why would such funds inflate asset bubbles rather than create useful investment? Because capital pursues not 'high social returns', but high private returns. And why should these have proved difficult to achieve, except by financial shell-games? Keynesians complain of an insufficiency of aggregate demand, restraining investment. The Marxist will simply add that this bespeaks inadequate wages, in the index of a class struggle going the way of owners rather than workers.

In The Enigma of Capital, Harvey coincides with other Marxists in locating the origins of the present crisis in the troubles of the 1970s, when the so-called Golden Age of capitalism following the Second World War -- blessed with high rates of profitability, productivity, wage growth and expansion of output -- gave way to what Brenner named 'the long downturn' after 1973. Brenner argued in The Economics of Global Turbulence  that this long downturn, with deeper recessions and weaker expansions across every business cycle, reflects chronic overcapacity -- another variety of overaccumulation -- in international manufacturing, a condition brought about by the maturation of Japanese and German industry by the end of the 1960s, and later compounded by the industrialisation of East Asia. As competition to supply export markets increased faster than those markets expanded, the price of international tradeables naturally fell, reducing both the profits of manufacturers and the wages paid to workers. Such impaired profitability moreover discouraged further investment in production, so that finance capital turned increasingly to speculation in asset values. Yet this view, however formidably presented, doesn’t appear to have won general assent. Harvey, content to follow Brenner elsewhere, inclines towards a more conventional profit-squeeze explanation of the crisis of the early 1970s.

(via Yglesias)

Krugman: A Cross of Rubber

Can We Take Away Alan Greenspan's Pension? by Dean Baker

He discusses Joe Nocera's column on the F.C.I.C.'s report.

Commodities: This Time It's Different by Krugman

Now, what about food prices?

Not much evidence of hoarding, as far as I can tell. So this is straightforward supply and demand. Demand may be up to some extent because of that emerging-market boom. But if you look at the FAO reports it becomes clear that the key thing for cereals prices is that production is down in advanced countries, largely owing to terrible weather. And yes, it’s likely that climate change has played a role.

Oh, and what about Ben Bernanke? Well, to the extent that emerging markets are insisting on a fixed exchange rate against the dollar in the face of obvious overvaluation, that contributes to the boom and hence to demand. But I don’t think it’s reasonable to demand that the Fed stop fighting US unemployment in order to keep Chinese currency manipulation from leading to cotton hoarding by Chinese farmers.

So the story on commodity prices is somewhat different from the story during the last spike. As always, though, it’s crucial to keep your eye on the bale -- that is, whatever your logic, it must translate into actions that affect the physical supply and demand for raw materials.

As I watch the rioting in Cairo on CNN I think about the so-called "liberal left."

I've been following foreign affairs since the Cold War ended and have been disappointed with the so-called "liberal-left" on the subject. I agree on Vietnam, but most were uninspiring about Bosnia or Rwanda. They were good on South Africa but not much else. During the Naughties they mocked color revolutions. On Egypt they are silent.

David Weigel writes:

There's a lot of focus right now on what members of the administration have said publicly about the situation in Egypt; if you're a conservative, Joe Biden saying that Hosni Mubarak is no dictator, or Robert Gibbs meekly saying the country should turn the Internet back on, tell you everything you need to know about the weakness of the Obama administration.

It's rather worse than that. The Obama administration is flat-footed here, sure, but it's only acting out the role we've been playing with Egypt for decades. It continued sending $800 million in direct economic aid and $1.3 billion in military aid -- that's the military on your TV now, trying to break up riots. Mubarak has been an incredibly resilient and effective strongman who has kept us from worrying about a fundamentalist takeover of the country. It's worth reading the WikiLeaked cable our ambassador wrote in 2009:

He is a tried and true realist, innately cautious and conservative, and has little time for idealistic goals. Mubarak viewed President Bush (43) as naive, controlled by subordinates, and totally unprepared for dealing with post-Saddam Iraq, especially the rise of Iran,s regional influence. 

On several occasions Mubarak has lamented the U.S. invasion of Iraq and the downfall of Saddam. He routinely notes that Egypt did not like Saddam and does not mourn him, but at least he held the country together and countered Iran. Mubarak continues to state that in his view Iraq needs a "tough, strong military officer who is fair" as leader. This telling observation, we believe, describes Mubarak's own view of himself as someone who is tough but fair, who ensures the basic needs of his people.

The Obama administration's response to this has not been uniquely distaff. It's been traditional. It's worth reading Shadi Hamid on this.

President Obama has also weighed in, but more by what he chose not to say. On Jan. 18, he phoned his Egyptian counterpart, President Hosni Mubarak. They discussed a number of issues, including Iran and the Arab-Israeli conflict. They did not, however, discuss the need for political reform in Egypt.

The United States has backed its rhetoric, or lack of it, with action. On Jan. 12, more than three weeks into the Tunisia uprising -- and after protests had spread across the region -- the State Department granted $100 million in new funding to the Jordanian government to boost employment and strengthen the health and education sectors. Presumably, this will help the Kingdom diffuse popular anger over worsening economic conditions.

These actions have a clear intent -- to protect the stability of a state perceived as strategically vital to US interests.

Financial Crisis Inquiry Commission releases report:

Behind closed doors, Ben S. Bernanke, the Federal Reserve chairman, called it "the worst financial crisis in global history, including the Great Depression." 

He said that 12 of the country’s 13 most important financial institutions, including Goldman Sachs, had been on the verge of collapse "within a week or two." (The apparent exception: JPMorgan Chase.)

Krugman on FRED and Eurostat

Financial Crisis Inquiry Commission's report to be published Thursday

While the panel, the Financial Crisis Inquiry Commission, accuses several financial institutions of greed, ineptitude or both, some of its gravest conclusions concern government failings, with embarrassing implications for both parties. But the panel was itself divided along partisan lines, which could blunt the impact of its findings.

...

The report does knock down -- at least partly -- several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the "aggressive homeownership goals" set by the government as part of a "philosophy of opportunity" were not major culprits.

Britain's economy stalls under austerity measures

The War on Demand by Krugman

It’s kind of shocking if you think about it. Here we have a huge, hard-won intellectual achievement, one that accounts very well for the world we actually see, and yet it’s being thrown away because it doesn’t go along with ideological preconceptions. Once that sort of thing starts, where does it stop? The next thing you know, the theory of evolution will get the same treatment. Oh, wait.

Seriously, though, this is truly sad -- and dangerous. Demand-side understanding, in my view, played a big role in helping us avoid a full replay of the Great Depression; if enough people had shared that understanding, we might have avoided even the minor-league Depression we’re going through. But willful ignorance is on the march -- and the odds are that we’ll handle the next crisis very badly.

I doubt there will be bailouts next time, a scary thought. Anyway, Krugman's post reminded me of "Agora."

Global Savings Glut

Dean Baker:

In the Clinton years, Robert Rubin had a policy of pushing up the value of the dollar. He put muscle behind this effort through the U.S. control of the IMF at the time of the East Asian financial crisis. The conditions that the IMF imposed were so onerous that developing countries decided that they needed to accumulate massive amounts of reserves in order to avoid being put in a similar situation. This meant accumulating large amounts of dollars. They did this by keeping down the value of their currencies against the dollar (i.e. raising the value of the dollar).

It is very misleading to assert that the value of the dollar is outside of the government's control. President Obama, like his predecessors, has allowed the dollar to remain over-valued. An over-valued dollar effectively subsidizes imports and imposes a tariff on exports. There is nothing that President Obama's new competitiveness panel can realistically hope to do that would come close to offsetting the competitive disadvantage created by an over-valued dollar.

Global savings glut Wikipedia entry

Decent column by Robert J. Samuelson (yes him) but it fails to mention the East Asian financial crisis.

"The Global Saving Glut and the U.S. Current Account Deficit" given March 10, 2005 by Bernanke

"Revenge of the Glut" by Krugman

Frank Rich on True Grit and The Social Network.

More than the first "True Grit," the new one emphasizes Mattie’s precocious, almost obsessive preoccupation with the law. She is forever citing law-book principles, invoking lawyers and affidavits, and threatening to go to court. "You must pay for everything in this world one way or another," says Mattie. "There is nothing free except the grace of God."

That kind of legal and moral cost-accounting seems as distant as a tintype now. The new "True Grit" lands in an America that’s still not recovered from a crash where many of the reckless perpetrators of economic mayhem deflected any accountability and merely moved on to the next bubble, gamble or ethically dubious backroom deal. When Americans think of the law these days, they often think of a system that can easily be gamed by the rich and the powerful, starting with those who pillaged Lehman Brothers, A.I.G. and Citigroup and left taxpayers, shareholders and pensioners in the dust. A virtuous soul like Mattie would be crushed in a contemporary gold rush even if (or especially if) she fought back with the kind of civil action so prized by the 19th-century Mattie.

Talk about Two Americas. Look at "The Social Network" again after seeing "True Grit,"and you’ll see two different civilizations, as far removed from each other in ethos as Silicon Valley and Monument Valley. While "Social Network" fictionalizes Mark Zuckerberg, it mines the truth of an era -- from the ability of the powerful and privileged to manipulate the system to the collapse of loyalty as a prized American virtue at the top of that economic pyramid.

In contrast to Mattie’s dictum, no one has to pay for any transgression in the world it depicts. Zuckerberg’s antagonists, Harvard classmates who accuse him of intellectual theft, and his allies, exemplified by a predatory venture capitalist, sometimes seem more entitled and ruthless than he is.

China Goes to Nixon by Krugman

The Socialists are playing Reggie's Rock Club Saturday Night.

New Parenting Book Sparks Outrage

Last week, Penguin Press published Amy Chua's book Battle Hymn Of The Tiger Mother, which criticizes "Western" parenting and advocates an "Asian" approach that includes forbidding playdates and being highly critical of children in order to make them more successful. Here are some other tips from the book:

• Take your children to Chuck E. Cheese's and let them play any game they choose, then make them watch as you burn their tickets
• Ice cream is a great motivator for kids; promise them that if they do everything you ask, they can have some when they turn 18
• Inform your child that televisions receive all of their power from flawless renditions of Brahms' Violin Concerto in D
• Only let your children have a pet dog if they can tame the most rabid dog at the pound
• Should your child express interest in spending more time with his or her friends, simply pack up and move several hundred miles away
• To ensure academic excellence, inform your children that there is a mark higher than an A-plus and then shame them for failing to attain it
• Replace their frail little limbs with less fragile prosthetics
• Remember, you may have to put up with one or two suicides before you finally craft that perfect child you've always wanted

What Have We Unlearned from Our Great Recession? by DeLong

In Wreckage of Lost Jobs, Lost Power by David Leonhardt

The column of the year so far. It hits on the issue. What he doesn't mention is that Bernanke and the Federal Reserve Bank are failing miserably at their mission.  They have gone above and beyond, but it hasn't been enough.

The unemployment rate is higher in this country than in Britain or Russia and much higher than in Germany or Japan, according to a study of worldwide job markets that Gallup will release on Wednesday. The American jobless rate is also higher than China’s, Gallup found. The European countries with worse unemployment than the United States tend to be those still mired in crisis, like Greece, Ireland and Spain.

Economists are now engaged in a spirited debate, much of it conducted on popular blogs like Marginal Revolution, about the causes of the American jobs slump. Lawrence Katz, a Harvard labor economist, calls the full picture "genuinely puzzling."

Tyler Cowen at Marginal Revolution and libertarians of his type leach politics out of their discussion. What would he think of Leonhardt's pitch-perfect column?

Why? One obvious possibility is the balance of power between employers and employees.

Relative to the situation in most other countries -- or in this country for most of the last century -- American employers operate with few restraints. Unions have withered, at least in the private sector, and courts have grown friendlier to business. Many companies can now come much closer to setting the terms of their relationship with employees, letting them go when they become a drag on profits and relying on remaining workers or temporary ones when business picks up.  

Just consider the main measure of corporate health: profits. In Canada, Japan and most of Europe, corporate profits have still not recovered to precrisis levels. In the United States, profits have more than recovered, rising 12 percent since late 2007.

For corporate America, the Great Recession is over. For the American work force, it’s not.

Yglesias had a post on this subject yesterday, where he linked to Krugman's speculations on "postmodern" recessions, that is ones not caused by the Fed hiking interest rates.

Leonhardt:

Germany’s job-sharing program -- known as "Kurzarbeit," or short work -- has won praise from both conservative and liberal economists. Senator Jack Reed, Democrat of Rhode Island, has offered a bill that would encourage similar programs. So far, though, the White House has not pursued it aggressively. Perhaps Gene Sperling, the new director of the National Economic Council, can put it back on the agenda.

Restoring some balance to the relationship between employers and employees will be more difficult. One problem is that too many labor unions, like the auto industry’s, have been poorly run, hurting companies and, ultimately, workers. Of course, many other companies -- AT&T, General Electric, Southwest Airlines -- have thrived with unionized workers, and study after study has shown that unions usually do benefit workers. As one bumper sticker says, "Unions: The folks who brought you the weekend."

Today, unions are clearly playing on an uneven field. Companies pay minimal penalties for illegally trying to bar unions and have become expert at doing so, legally and otherwise. For all their shortcomings, unions remain many workers’ best hope for some bargaining power.

Dean Baker gives the column a thumbs-up.

Why Jobs Haven't Come Back

Verizon Deal May Expose iPhone Flaws by Joe Nocera

Rebekah Frumkin writes about David Foster Wallace

Amy Poehler on sad movies.

You Can Count on Me was sad. Saddest movie of all time is The Sweet Hereafter.

The Beatings Will Continue Until Morale Improves

Can Europe Be Saved? by Krugman

Send Huck Finn to College by Lorrie Moore