Varoufakis on Piketty

Varoufakis on Piketty

In summary, Varoufakis (2011, 2nd edition 2013) hypothesises that, having already run the war economy successfully, the New Dealers feared, with excellent cause, a post-war recession. In charge of the only major surplus economy left after the war had demolished most of Europe, they understood that the sole alternative to a global recession, which might have threatened an already weakened western capitalism, would be to strengthen aggregate demand within the United States by (a) boosting real wages and (b) recycling America’s aggregate surpluses to Europe and to Japan so as to create the demand that would keep American factories going. If anything, Bretton Woods was the global framework within which this project was embedded. Its fixed exchange rates, capital controls and an underlying international consensus on labour market policies that would keep the wage share above a certain level, were all aspects of the same struggle to prevent the post-war world from slipping back into depression.

Naturally, the resulting wealth and income dynamics reduced inequality, increased the availability of decent jobs, and produced capitalism’s golden age. Was this an aberration? Of course it was not! The Marshall Plan, the Bretton Woods institutions, the strict regulation of banks etc. would not have been politically feasible had capitalism not threatened to commit suicide in the late 1940s, as it does once in a while (the last episode having occurred in 2008). Were these policies and new institutions inevitable? Of course they were not! While the political interventions that had the by-product of reducing income inequality were fully endogenous to the period’s capitalist dynamics, the latter are always indeterminate both in terms of the politics that they engender as well as of their economic outcomes.

Alas, Bretton Woods and the institutions the New Dealers had established in the 1940s could not survive the end of the 1960s. Why? Because they were predicated upon the recycling of American surpluses to Europe and to Asia (see above). Once the United States slipped into a deficit position, some time in 1968, this was no longer possible. America would have either to abandon its hegemonic position, together with the dollar’s ‘exorbitant privilege’, or it would have to find another way of remaining at the centre of global surplus recycling. Or, to quote a phrase coined by Paul Volcker, “if we cannot recycle our surpluses, we might as well recycle other people’s surpluses”.

This is, according to my book’s narrative, why the early 1970s, and the end of Bretton Woods, proved so pivotal: The United States, through its twin deficits, began to absorb from the rest of the world both net exports and surplus capital, therefore ‘closing’ the recycling loop. It provided net exporters (e.g. Germany, Japan and later China) with the aggregate demand they so desperately needed in return for a tsunami of foreign capital (generated in the surplus economies by their net exports to America, and to other economies energised by the United States’ trade deficit).

However, for this tsunami to materialise capital controls had to go, wage inflation in the United States had to drop below that of its competitors, incomes policies had to be jettisoned, and financialisation had to be afforded its foothold. From this perspective, inequality’s resurgence in the 1970s, the never-ending rise of finance at the expense of industry, and the diminution of collective agency around the world, were all symptoms of the reversal in the direction and nature of global surplus recycling. The manner in which by-product ‘inequality’ and by-product ‘financialisation’ coalesced to destabilise capitalism, until it hit the wall in 2008, is a process that several studies have thrown light on in recent times (e.g. see Galbraith, 2012). Professor Piketty’s single-minded effort to construct, at any cost, a simple deterministic argument is, unfortunately, not one of them.

Big Trouble remake

Dwayne Johnson wants John Carpenter for his Big Trouble In Little China remake

Brüning and Weimar

Weimar Republic

Brüning expected that the policy of deflation would temporarily worsen the economic situation before it began to improve, quickly increasing the German economy's competitiveness and then restoring its creditworthiness. His long-term view was that deflation would, in any case, be the best way to help the economy. His primary goal was to remove Germany's reparation payments by convincing the Allies that they could no longer be paid.[44] Anton Erkelenz, chairman of the German Democratic Party and a contemporary critic of Brüning, famously said that the policy of deflation is a:

rightful attempt to release Germany from the grip of reparation payments, but in reality it meant nothing else than committing suicide because of fearing death. The deflation policy causes much more damage than the reparation payments of 20 years ... Fighting against Hitler is fighting against deflation, the enormous destruction of production factors.[45] 

In 1933, the American economist Irving Fisher developed the theory of debt deflation. He explained that a deflation causes a decline of profits, asset prices and a still greater decline in the net worth of businesses. Even healthy companies, therefore, may appear over-indebted and facing bankruptcy.[43] The consensus today is that Brüning's policies exacerbated the German economic crisis and the population's growing frustration with democracy, contributing enormously to the increase in support for Hitler's NSDAP.[1]

monetary policy

Bernanke on monetary policy and inequality by Steve Randy Waldman

James Bullard came out for NGDP path level targeting.

Clive Crook came out for helicopter drops.

Game of Thrones

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Game Of Thrones (newbies): “Hardhome”

Karsi the wildling mother was on Borgen!

Game of Thrones

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"Welcome to the lefthand path."

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Podemos

Spain’s Local Election Results Reshape Political Landscape

MADRID — Ada Colau, 41, was not even born when Manuela Carmena, 71, joined Spain’s underground Communist party and started her legal career by attacking labor restrictions imposed by Francisco Franco, the Spanish dictator. 

But even if separated by a generation, Ms. Colau and Ms. Carmena both found themselves claiming similar left-wing victories by upstart candidates over Spain’s political establishment, after Sunday’s regional and municipal elections.

Mathiness

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Protecting the Norms of Science in Economics by Paul Romer

Tony Yates's thoughts

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Beating dead horses by Ryan Decker

inequality

Krugman and Bob Solow discuss Tony Atkinson and his new book on inequality.

Game of Thrones

Finn Jones who plays Loras Tyrell tweets with fans:

"nothing would give Loras or the tyrells more pleasure - to eradicate the snide Lannisters from the power..

..they are the "1percenters" of Westeros - they must be abolished."

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Ryan Gosling might star in the Blade Runner sequel

AV Club reviews Game of Thrones

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AV Club reviews Game Of Thrones (newbies): “Unbowed, Unbent, Unbroken”

Mad Max: Fury Road

Also, his guitar is a flamethrower.

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Ken MacLeod seminar at Crooked Timber

Ken MacLeod responds

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Helical Construction in the Work of Ken MacLeod by Joe Walton

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And This, Too, Is a Romance by Farah Mendlesohn

Ken MacLeod Seminar

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Via DeLong

Weimar, Nazis, Social Democrats and Communists

The National Socialists as Conservative Revolutionaries by John Holbo

So you get in a position where there is a kind of two-dimensional struggle: left-right/inside-outside. The Social Democrats were now ‘inside’, the new core of the so-called Weimar coalition that held power through the 20’s. The traditional, Wilhelmine conservative forces were still insiders, by any reasonable calculation. They had tremendous social and institutional leverage everywhere – not to mention most of the money – but they couldn’t compete electorally for a time. Some really strange stuff happened. Some of the most vicious in-fighting was on the left, especially between the social democrats and the communists, starting right in 1918.

From the balcony of the Reichstag building, the SPD leader Philipp Scheidemann proclaimed a German Republic. A couple of hundred meters away, from the balcony of the royal palace, the famed radical socialist and antiwar activist Karl Liebknecht proclaimed a socialist republic. Ebert [a social democrat who didn’t like the suddenness of it all] was furious. He discounted Liebknecht, recently released from the kaiser’s jails, as a wild radical who might just as well have languished longer in prison. But Scheidemann was his close colleague, and no recognized body, no government, not even a political party, had authorized the proclamation of a republic. There had not even been a discussion. (Eric D. Weitz, Weimar Germany: Promise and Tragedy, p. 19)

The Social Democrats where forever fighting with the communists, after that. So, on the one hand, the SD’s were solidifying a grand coalition with more centrist parties, proclaiming women’s rights, a free press, freedom of religion, an expanded welfare state; on the other hand, they were forced to use the proto-Nazi Freikorps to put down the Spartacist League, leading to the murders of Leibknecht and Rosa Luxemburg. Forced because they literally had no police/military alternative. Right-wing paramilitaries were the only available muscle. The SD’s had to work with the powers-that-still-were. Obviously the correct conclusion to draw is not that the SD’s were really right-wingers themselves – or that the Freikorps had left-wing sympathies. Each group tried to use the other. The SD’s wanted to save the Weimar Republic, by any means necessary. The Freikorps wanted to murder communists and gain the sort of legitimacy that might allow them, eventually, to overthrow the Republic – to whose existence they were not reconciled.

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Sort of like Cersei arming the Sparrows and bringing back the Faith Militant who turn on her.

Baker reviews Bernstein

The Reconnection Agenda: The Fun and Easy Route to Broadly Shared Prosperity by Dan Baker

Fed Fail

Yet by the standard of the pre-2007 period we have a depressed level and anemic growth, combined with acceptance of these as the new normal. Thus the North Atlantic is on track to have thrown away 10% of their potential wealth. And there have been insufficient changes in financial-sector regulation or in automatic stabilizers or in other institutions to keep the North Atlantic from once again developing the vulnerabilities it turned out to have in 2007.

DeLong Speech