Portuguise Austerity Protested

“The austerity model has been applied rather mechanically,” he said. “This is not a country full of big companies that can adjust to a decline in their domestic market but rather small and medium-sized companies whose only option is then to close down.”says Viera Lopes quoted in NYT,

"Many stores in central Lisbon are now either closed or advertising huge discounts, as citizens struggle in a deepening recession that has pushed unemployment to a record 15 percent. A sharp rise in the sales tax has decimated the restaurant sector, including well-known venues like Bocca and Manifesto" NYT Oct. 18

This pain is not necessary. Why have austerity when the real economy could produce much more?

British Monetary Policy

"But there is also a growing sense (in Britain) that, with interest rates already at a record low (.5) and the economic effects of the central bank’s asset purchases unclear, monetary policy is becoming less effective as a means of stimulus.

Instead of central bank stimulus measures, some economists favor a slowdown in the pace of large government spending cuts intended to reduce the country’s budget deficit." NYT Oct 18 

       This economist agrees, but more is needed. When will central banks make interest-free loans to the country to create jobs in public works, etc.?  The problem is weak consumer demand.

Taxes and Jobs

Romney claims his proposed reduction in corporate taxes will create jobs.  This is bunk.

       US Corporate Cash Pile At $1.24 Trillion, Over Half Located Overseas reports Moodys.

Moody's expects overall business conditions to remain modest over the next year and expects companies to continue to use cash for shareholder dividends, share buybacks and acquisition activity.  Using profits to buy your own stock does nothing for jobs, and just enriches corporate management who own lots of their company’s stock.  Corporations have plenty of cash to increase investment in plant and equipment, but they will not do so unless consumer demand increases.

Nobel Without Emotion

 The new winners of the Nobel Prize  for economics must be living on another planet whose inhabitants have no emotions. Elegant theory it may be, but relevant to the real world is another mater.

"Mr. Shapley explained how individuals can be paired together in a stable match even when they disagree about what qualities make the right match. The paper focused on designing an ideal, perfectly stable marriage market: that is, how mates find one another in a fair way, so that no one who is already married would want (and be able) to break off and pair up with someone else who is already married.

It was an elegant and simple mathematical model that explained the optimal way to match up men and women.

Evolutionary theory is work of devil

Georgia Congressman Paul Broun says evolutionary theory is work of the devil.  And he is a member of the Science Space and Technology Committee. May heaven help us! The inmates are in charge of the asylum.

Austerity fails

Paul Krugman "concludes is that a disproportionate share of the bad news is coming from countries pursuing the kind of austerity policies Republicans want to impose on America.

O.K., it doesn’t say that in so many words. What the report actually says is: “Activity over the past few years has disappointed more in economies with more aggressive fiscal consolidation plans.” But that amounts to the same thing.

Leadership?

A survey of voters after the Presidential debate says  Romney is the best leader. But, with respect to the economy he has never said exactly what he is leading us to except that the market is magic.

Forget Bank Bailouts

Crisis is the mother of innovation in fiscal policy.  In the face of recession when consumer demand is weak, I have long advocated that central banks make loans to the treasury to employ people and put more spending power into the economy.  After saying they would never do it, the European Central Bank, is buying the debt of its member governments.  This will relieve the pressure on countries facing extremely high interest rates on their borrowing.  This enlightened policy is somewhat offset by the EU governments (led by Germany) insistence on budget cutting austerity which reduces consumer spending, in exchange for EU bailout money. Forget bailouts, they would not be needed if the central bank was doing its job.

      The Japanese central bank is the most progressive buying corporate bonds, commercial paper, exchange traded funds, and J-Reits.  The U.S. Federal Reserve is the least progressive of the three biggest central banks.  It only buys government bonds.  It says its program will lower long term interest rates.  This is a nonsensical objective since rates are already historically low.  Our problem is not high borrowing costs, but the fact that business does not want to borrow when consumer demand is low. 

      Financial columnist, John Plender, writing in the Financial Times 26 Sep 2012 worries about central bank balance sheets and the quality of collateral.  He does not understand that a central bank can’t go bankrupt.  It can just create more money via more loans and try again to get the economy moving.  A really progressive central bank would buy things owned by consumers such as home mortgages.  I do not approve of countries such as Greece with overly costly public employee pensions and early retirement that are unfair to other citizens.  But, think what their economies would look like if pensioners had no money to buy consumer goods.  The Greek government could subsidize all pensions and tell the retirees to go out and buy.  Instead, more austerity is being insisted upon for the Greek, Italian, and Spanish governments.  The world’s policy makers and general public are asking the wrong question when they see rising public debt.  The problem is not debt, but how it is financed. The problem is not the inability of European and US economies to produce more goods, witness the excess capacity in plant and equipment and unemployment.