A link to Dr. Krugman's blog

Dr. Krugman is looking at the Minsky moment when "everyone has decided that debt is too high." Here is a link to his blog post with the links to the real analysis. http://krugman.blogs.nytimes.com/2010/11/18/debt-deleveraging-and-the-liquidity-trap/

Miscellaneous from Recent Periodicals

I blogged reports of China's Real Estate Boom and land buggle. Many Chinese State owned companies are winning auctions for land on which they are building luxury residences and retail outlets. In 2008, 59% of land auctions was won by state-owned companies -- up to 82%. 90 of 125 state-owned firms have real estate divisions. Land prices jumped 750 per cent. State owned banks made 1.4 trillion loans, double the previuos numbers. Municipalities are part of the problem. They are forbidden from buying real estate directly. But they do borrow money to build infrastructure on land they already own. They hope to sell the land at greatly increased prices. (Page A1, A5, "State-Owned Bidders Fuel China's Land Boom", David Barboza) New York Times, Monday August Second 2010 Volume CLIX NO 55,120

________________________________________________________

Paul Krugman has advocated in his blog increasing the money supply, monetary stimulus to overcome the inflatiohn. One in six Americans rates are v are unemployed or underemployed and the average length of joblessness is thirty-five weeks. Apparently, policy makers are defining our expectations downard accepting that. Foreign investors are still buying foreign bonds and federal interest. And he said that we should increase inflation to stimulate the economy. He suggests that we might allow inflation to reduce unemloyments. Dr. Krugman is concerned that in the near future, the government will declare the high unemployment structural, the long-term unemployed will lose their skills and social capital, making a self-fulfulling prophesy. An alternative is targetting spending.

Paul Krugman, "Defining Prosperity Down" Page A15 New York Times, Monday August Second 2010 Volume CLIX NO 55,120

______________________________________________________________

I reported earlier the Marmot study of WhiteHall employees, as people rose up the hierarchy, they had better health, even though all enjoyed job security and the same National Health Service. This argued against hierarchies, and possibly reporting to sortition juries rather than "a boss" is better for one's health. Wired reported that hierarchies in baboon's led to increased stress hormones and bad health. Dr. Elizabeth Gould showed that stresses reduces dramatically the birth of new neurons in the brain. Epidemiologic studies with humans, that showed that having control over one's job demands improves health, but having to follow orders is detrimental.

"Under Pressure" by Jonah Lehrer Wired, August 2010, 18.08, page 130 to 146.

_________________________________________________________________

Factoid: The Average American House is 2,438 square feet. Page 074, Wired, August 2010, 18.08

__________________________________________________________________

A Wired reader suggested that passengers in an airplane might collectively brainstorm to solve the world's problems as "they all just sitting there." They should collectively serve as the sortition jury, say on taxes that a person or business should pay or help choose a tax code. And the real source for crowdsourcing should be mass transit; mass transit takes longer than driving with starts and stops and not being able to take the most direct route. Of course, there is enough time outside travelling time and Participatory democracy can occupy the unemployed.

Wired, August 2010, 18.08 , Page 017

Financial Industry Profits

In this quarter, Bank of America made five billion dollars profit on buying and selling assets--trading currency, bonds and commodities. Dr. Paul Krugman just pointed out that the financial Industry accounts for a third of domestic profits. Not as bad as the 45% from 2001 but more than the only fifteen percent at the financial crash of 2008.

debt and the deficit, thoughtful Thursday

Robert Heilbroner and Peter Bernstein, The Debt and the Deficit 1989, WW. Norton, New York

Arguments over our debt being too big are not new! As our book pointed out, when Kennedy proposed a ten billion deficit to deal with what we would now consider a mild recession, people were aghast. In 1988, a poll of the American People said that the deficit was the number one issue (by fourty-four percent to the next closest, "protecting jobs from foreign competition.)

At the time of the book, the deficit was 2.6 trillion or ten thousand dollars for every man, women and child. Now, the United States household debt (including mortgages and credit card balances) is 13.5 trillion and the federal government debt is about seven trillion (1) or about 20 trillion. That works out to $43,874 and $30,000 per United States Resident. Or more realistically, as some people are not working, about $60,000.00 per worker for the public debt and $30,000.00 for private debt. The average student graduates with about $23,000.00 student loans outstanding.

Drs. Heilbroner and Bernstein also pointed out:

1. If we adjusted for inflation, the debt owned by the U.S. government itself, the fact that some of the debt goes into productive assets, which would be a capital budget if the government were a corporation, and that the states have a surplus, as a whole the United States governments, local and federal, have a net surplus
2. Debt as a whole is increasing. Even though mortgages are generally paid off, the total mortgage debt increases as people take out new mortgages, either to buy existing houses under mortgage or new constructed houses. Between 1970 and 1988, home mortgage debt increased seven times Corporate debt went from $363 billion to two trillion and major corporations never pay off their debt. IBM and EXXON debt went up by a factor of nine as well.
3. There is no correlation between how much a country increases its debt and its real interest rate--government borrowing does not "crowd out" private borrowing

(Dr. Krugman, and noble laureate and excellent blogger, showed a graph of borrowing for Britain and Britain twice had very high ratios of deficit spending (250% of GNP)--in 1830 and 1950.) And Mr. Souza of Brasilia, Brazil, in a comment on same, quoted extensively from Lord Macauley. David Hume declared that Britain's National Debt would be its ruin and earlier, Adam Smith made similar warnings about a bankrupt society. But Lord Macauley cited the many signs of progress in Britain at the same time as the debt was reaching unprecedented levels, at these times.

Also, they observed that perhaps the trade deficit caused the federal deficit. Note that in the late nineties when we had a balanced Federal budget, there was still a bad trade deficit. Table Eleven ranked the major economies on the basis of government debt and on their trade deficit. The United States was six out of seven on the federal deficit size and the worst on the trade deficit.

And, of course, the United States is by no means the highest on the list of countries, when ranked by public debt as a percentage of GNP. Japan is the highest at 198 per cent (excluding Zimbabwe). My University college of business and Technology ethics day had a talk on sovereign debt. They pointed out that although Japan had a very high public debt, 90% of this was held by Japanese. The United States was at 61.5 percent and is comparable to countries such as Canada, Germany, France.

Scary Numbers!

But what if we converted our debt to a share economy, dividing that figure by five per cent. And make it a share of income. Average income is $30,000.00 in the United States. Assume that this income is for the next twenty years. Or we are left with about a ten percent share. That means the United States worker would be free of all debts and worries, The median Salary in the United States for men is $45,000 and $35,000 for women. They would just pay about ten percent of their income.

Dr. Krugman looks at the federal deficit differently. Currently, the Federal Government pays 1.5 percent on ten-year debt. Even if our total debt was equal to our gross domestic product, then the cost per individual is 1.5%--probably not even noticable. Paul Krugman pointed out the danger of relying on short term debt and a commentor pointed out the folly of relying on ten year bonds--what happens in ten years? We may not be able to renew the debt. This is why the share economy calls for the end of arbitrary time restrictions on contracts. We saw what happens to reliable companies when debt becomes due at some arbitrary time that has no relation to the real world.

Whichever percentage and way one looks at, the debt holder would be in about the same position. There is no interest but assuming wages or income rises with inflation, the debt holder would not be damaged by inflation. And the debt holder also benefits from the natural growth of the economy, improvement in productivity, assuming same are reflected in the wages.

Reference

Mark Whitehouse, "Americans Pare Down Debt" Wall Street Journal March 12 2010, Page S1 , CCLV no 58. Note, the article said that reason debt fell 1.7 per cent in 2009--people cleared their debt by declaring bankruptcy, giving them a fresh start in life, but creating problems for our financial system.

Stimubucks, Share Economy, targetted spending

Germany promoted a share the work scheme where they gave subsidies to firms who did not lay off workers but rather reduced their hours. Germany had little increase in unemployment. (But he did not add that all Europe has had high unemployment in general.) He also argued in favor of a Works Progress Administration Krugman has made clear that he prefers a conventional stimulus. I have argued that a target fiscal stimulus, targeted by sortition juries, should be aimed specifically at reducing unemployment.

Wage Stickiness

I have been long aware of the problem with sticky prices and wages. That is why we have Keynesian economics, fiscal stimulus and the like. I said the solutionw as to make wages a share of revenue and I found that someone else already had this idea, L. Weitzman and his book on the Share Economy. He said wages shoudl be a percentage of gross revenues. I also read a book, Why Wages don't fall during a Recession by Truman Bewley. He interviewed employers and simply asked thim a simple question: Why don't you just cut everyone's wages during hard times rather than lay them off?

AS I heard the Savings and Loan Crisis of the 1990's I came up with the idea of the share economy, where all payemnts are simply a share of income. This is a cure for all sorts of financial crises.

Dr. Krugman cites this stickiness of prices in his proposal to rebalance the American Trade Deficit, let the dollar fall, beautiful in his citing of evidence about stickiness and relative real exchange rates. But he doesn't look at the alternatives,

1. removing the stickiness of wages
2. a consumption tax, particularly one aimed at badness

Another Krugman Article Confirming...

I argued for a consumption tax that is a function of badness, which includes most of all, environmental badness. Paul Krugman points out that this is not evil protectionism.

Media

An important issue is how are people informed. Paul Krugman writes eloquently about horse race reporting. Media spend more time reporting on which policy proposal is up and which policy proposal is down than what is in them.

I believe the problem is partially a symptom that we don't vote on the proposals; thus, we are sheep who just have to know how we are to be done to. If we were to vote, there would be more information on what it was on which we were to vote.

Richard Serling in a comment asked for a solution--what about my proposal